AMERICAN BUSINESS FINANCIAL SERVICES INC /DE/, 424B1, 1997-02-18

AMERICAN BUSINESS FINANCIAL SERVICES INC /DE/
424B1, 1997-02-18
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<PAGE>

File No. 333-18919
Filed Pursuant to Rule 424(b)(1)

PROSPECTUS

[LOGO] AMERICAN BUSINESS FINANCIAL SERVICES, INC.

1,000,000 Shares of Common Stock

All of the shares of the Common Stock, $.001 par value per share (the
"Common Stock"), offered hereby (the "Public Offering") are being sold by
American Business Financial Services, Inc. (together with its subsidiaries,
"ABFS" or the "Company").

The Common Stock has been traded on the Philadelphia Stock Exchange
("PHLX") under the symbol "AFX." On February 13, 1997, the last reported
sales price of the Common Stock was $22.75 per share. See "Market for Common
Stock and Related Stockholder Matters." The Common Stock has been approved
for quotation on the Nasdaq National Market System under the symbol "ABFI"
upon commencement of the Public Offering.

ABFS is not subject to state or federal statutes or regulations applicable
to banks and/or savings and loan associations with regard to deposit
insurance, the maintenance of reserves, the quality or condition of its
assets or other matters. The shares offered hereby are not savings or deposit
accounts and are not guaranteed by any governmental or private insurance fund
or any other entity.

See "Risk Factors" on page 8 for information that should be considered by
prospective purchasers of the Common Stock.
------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

===============================================================================
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
- -------------------------------------------------------------------------------
Per Share ..................... $20.00 $1.40 $18.60
- -------------------------------------------------------------------------------
Total(3) .................... $20,000,000 $1,400,000 $18,600,000
===============================================================================

(1) See "Underwriting" for information relating to the indemnification of the
Underwriters.

(2) Before deducting expenses payable by the Company, estimated to be
$445,000.

(3) The Company has granted the Underwriters an option, exercisable within 30
days of the date hereof, to purchase from the Company up to 150,000
additional shares of Common Stock solely to cover over-allotments, if
any. To the extent that the option is exercised, the Underwriters will
offer the additional shares at the Price to Public shown above. If the
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $23,000,000,
$1,610,000 and $21,390,000, respectively. See "Underwriting."

The shares of Common Stock are offered by the Underwriters, subject to
prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or part. It is
expected that delivery of the shares of Common Stock will be made against
payment therefor at the offices of Friedman, Billings, Ramsey & Co., Inc., as
representative of the several Underwriters (the "Representative"), Arlington,
Virginia, or in book entry form through the book entry facilities of the
Depository Trust Company on or about February 20, 1997.
------

FRIEDMAN, BILLINGS, RAMSEY & CO., INC.

The date of this Prospectus is February 14, 1997.

<PAGE>

AVAILABLE INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 (together with all
exhibits and schedules thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to
the registration of the Common Stock offered by this Prospectus. This
Prospectus does not contain all of the information set forth in such
Registration Statement and the exhibits thereto, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information pertaining to the Company, the Common Stock offered by
this Prospectus and related matters, reference is made to such Registration
Statement, including the exhibits filed as a part thereof. Each statement in
this Prospectus referring to a document filed as an exhibit to such
Registration Statement is qualified by reference to the exhibit for a
complete statement of its terms and conditions.

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Commission. Following
the Public Offering, the Company will continue to be subject to the reporting
requirements of the Exchange Act. So long as the Company is subject to the
reporting requirements of the Exchange Act, it will continue to furnish the
reports and other information required thereby to the Commission. The Company
will furnish to its stockholders annual reports containing audited financial
statements and an opinion thereon expressed by the Company's independent
auditors and will make available copies of quarterly reports for the first
three quarters of each fiscal year containing unaudited financial
information.

The Registration Statement and any reports and other information filed by
the Company can be inspected and copied at the public reference facilities
maintained by the Commission at its Public Reference Section, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at its regional offices located as
follows: Chicago Regional Office, Northwestern Atrium Center, 500 W. Madison
Street, Suite 1400, Chicago, IL 60661-2511; and New York Regional Office, 7
World Trade Center, New York, NY 10048. Copies of such material can also be
obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains a web site that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission. The address of such Web Site is http://www.sec.gov. In addition,
such reports, proxy statements and other information concerning the Company
will also be available for inspection at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, DC
20006.

The Company's Common Stock has been traded on the PHLX under the symbol
"AFX." Reports, proxy statements and other information concerning the Company
can be inspected at the offices of the Philadelphia Stock Exchange located at
1900 Market Street, Philadelphia, Pennsylvania 19103.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN
THE OVER THE COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF COMMENCED,
MAY BE DISCONTINUED AT ANY TIME.

2
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the consolidated
financial statements, including the notes thereto appearing elsewhere in this
Prospectus. Prospective investors of the shares of Common Stock offered
hereby should carefully consider the factors set forth under "Risk Factors."
Except as otherwise specified, all information in this Prospectus assumes no
exercise of the Underwriters' over-allotment option. See "Underwriting."

GENERAL

ABFS is a financial services company operating primarily in the
mid-atlantic region of the United States. The Company, through its principal
direct and indirect subsidiaries, originates, sells and services loans to
businesses secured by real estate and other business assets ("Business
Purpose Loans") and non-conforming mortgage loans, typically to credit
impaired borrowers, secured by mortgages on single-family residences ("Home
Equity Loans"). The Company also originates small ticket leases (generally
$10,000 to $150,000) for the acquisition of business equipment ("Equipment
Leases"). In addition, the Company has recently entered into exclusive
business arrangements with several financial institutions pursuant to which
the Company will purchase Home Equity Loans that do not meet the underwriting
guidelines of the selling institution but meet the Company's underwriting
criteria (the "Bank Alliance Program").

The Company's customers currently consist primarily of two groups. The
first category of customers includes credit impaired borrowers who are
generally unable to obtain financing from banks, savings and loan
associations or other finance companies that have historically provided loans
only to individuals with favorable credit characteristics. These borrowers
generally have impaired or unsubstantiated credit characteristics and/or
unverifiable income and respond favorably to the Company's marketing efforts.
The second category of customers includes borrowers who would qualify for
loans from traditional lending sources but elect to utilize the Company's
products and services. The Company's experience has indicated that these
borrowers are attracted to the Company's loan products as a result of its
marketing efforts, the personalized service provided by the Company's staff
of highly trained lending officers and the timely response to loan requests.
Historically, both categories of customers have been willing to pay the
Company's origination fees and interest rates which are generally higher than
those charged by traditional lending sources.

BUSINESS PURPOSE LOANS

The Company began operations in 1988 and initially offered Business
Purpose Loans. The Company currently originates Business Purpose Loans
through a retail network of salespeople in Pennsylvania, Delaware, New
Jersey, New York, Virginia, Maryland and Connecticut. The Company has taken
the initial steps to expand its business purpose lending program into the
southeastern region of the United States. The Company focuses its marketing
efforts on small businesses who do not meet all of the credit criteria of
commercial banks and small businesses that the Company's research indicates
are predisposed to using the Company's products and services.

The Business Purpose Loans originated by the Company are secured by real
estate. In substantially all cases, the Company receives additional
collateral in the form of, among other things, pledges of securities,
assignments of contract rights, life insurance and lease payments and liens
on business equipment and other business assets, as available. The Company's
Business Purpose Loans are generally originated with fixed rates and
typically have origination fees of 5.0% to 6.0%. The weighted average
interest rate received on the Business Purpose Loans originated by the
Company was 15.91% and 15.83% for the six months ended December 31, 1996 and
the year ended June 30, 1996, respectively. Business Purpose Loans typically
have significant prepayment penalties which the Company believes tend to
extend the average life of such loans and make these loans more attractive
products to securitize. The Business Purpose Loans securitized in the
Company's last two securitizations had a weighted average loan-to-value ratio
(based upon the real estate collateral securing the loans) of 59.8% at the
time of securitization.

3
<PAGE>

The Company's strategy for expanding its business purpose lending program
focuses on motivating borrowers through the investment in retail marketing
and sales efforts rather than on emphasizing discounted pricing or a
reduction in underwriting standards. The Company utilizes a proprietary
training program involving extensive and on-going training of its loan
officers. The Company originated $17.8 million and $28.9 million of Business
Purpose Loans for the six months ended December 31, 1996 and the year ended
June 30, 1996, respectively.

HOME EQUITY LOANS

ABFS entered the Home Equity Loan market in 1991. The Company originates
Home Equity Loans primarily to credit impaired borrowers through retail
marketing which includes telemarketing operations, direct mail, radio and
television advertisements. The Company currently originates Home Equity Loans
primarily in Pennsylvania, New Jersey, Delaware, Maryland and Virginia. The
Company was recently granted licenses and expects to begin originating Home
Equity Loans on a limited basis in Georgia, North Carolina, South Carolina,
Connecticut and Florida during calendar 1997. The Company originated $30.2
million and $36.5 million of Home Equity Loans for the six months ended
December 31, 1996 and the year ended June 30, 1996, respectively. The
weighted average interest rate on Home Equity Loans originated by the Company
was 11.67% and 9.94% for the six months ended December 31, 1996 and the year
ended June 30, 1996, respectively.

The Company initiated the Bank Alliance Program in fiscal 1996. The
Company believes that the Bank Alliance Program is a unique method of
increasing the Company's production of Home Equity Loans to credit impaired
borrowers. Currently, the Company has entered into agreements with six
financial institutions which provide the Company with the opportunity to
underwrite, process and purchase Home Equity Loans generated by the branch
networks of such institutions which consist of approximately 800 branches
located in Pennsylvania, Delaware, New Jersey and Maryland. The Company is
also negotiating with other financial institutions regarding their
participation in the program.

EQUIPMENT LEASES

ABFS began offering Equipment Leases in December 1994 to complement its
business purpose lending program. The Company originates leases on a
nationwide basis with a particular emphasis on the eastern portion of the
United States. The Company believes that cross-selling opportunities exist
for offering lease products to Business Purpose Loan customers and offering
Business Purpose Loans to lease customers. The weighted average interest rate
received on the Equipment Leases originated by the Company was 16.10% and
17.22% for the six months ended December 31, 1996 and the year ended June 30,
1996, respectively. The Company currently holds all Equipment Leases
originated in its lease portfolio to generate interest income. The Company
recently hired a leasing officer with over 25 years of experience in small
ticket leasing to expand this area of the Company's business. See "Business
- -- Lending and Leasing Activities."

The Company intends to continue to utilize funds generated from the
securitization of loans and the sale of subordinated debentures to increase
its loan and lease originations and to expand into new geographic markets,
with an initial focus on expansion in the southeastern region of the United
States. The Company also intends to expand its Bank Alliance Program with
financial institutions across the United States.

From the inception of the Company's business in 1988 through December 31,
1996, the Company has experienced total net loan and lease losses of
approximately $311,000. The Company's losses on its total loan and lease
portfolio serviced totaled $58,000, $129,000, $88,000 and $10,000,
respectively, for the six months ended December 31, 1996 and the years ended
June 30, 1996, 1995 and 1994. The Company's loans and leases delinquent over
30 days (excluding real estate owned) represented 1.64% and 2.30% of the
total loan and lease portfolio at December 31, 1996 and June 30, 1996,
respectively. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Asset Quality."

4
<PAGE>

The ongoing securitization of loans is a central part of the Company's
current business strategy. The Company's ability to fund and subsequently
securitize Business Purpose Loans and Home Equity Loans has significantly
improved its financial performance and enabled it to both expand its
marketing efforts and increase the geographic scope of its products. Through
December 31, 1996, the Company had securitized an aggregate of $53.3 million
of Business Purpose Loans and $32.9 million of Home Equity Loans. The Company
retains the servicing rights on its securitized loans. See "Business --
Securitizations."

In addition to securitizations, the Company funds its operations with
subordinated debentures that the Company markets directly to individuals from
the Company's principal operating office located in Pennsylvania and branch
offices located in Florida and Arizona. At December 31, 1996, the Company had
$45.2 million in subordinated debentures outstanding with a weighted average
coupon of 8.99% and a weighted average maturity of 26.5 months. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

THE PUBLIC OFFERING

Common Stock offered by the
Company...................... 1,000,000 shares

Common Stock to be Outstanding
after the Public Offering.... 3,353,166 shares(1)(2)

Use of Proceeds................ The net proceeds resulting from the sale of
the Common Stock will be utilized by the
Company for its general corporate purposes.
See "Use of Proceeds."

Nasdaq National Market Symbol
for the Common Stock......... "ABFI"

Risk Factors................... See "Risk Factors" for a discussion of
certain material factors that should be
considered in connection with an investment
in the Common Stock offered hereby.

- ------
(1) Assumes no exercise of the over-allotment option.

(2) Excludes 181,000 shares of Common Stock reserved for issuance upon the
exercise of options granted under the Company's stock option plans,
150,500 shares of Common Stock issuable upon the exercise of options
intended to be granted to the Company's officers in connection with the
Public Offering as well as 38,488 shares of Common Stock reserved for
issuance upon the exercise of options available for grant under the
Company's stock option plans. See "Management--Executive Compensation"
and "Description of Capital Stock."

5
<PAGE>

SUMMARY CONSOLIDATED FINANCIAL DATA

The consolidated financial information set forth below for ABFS should be
read in conjunction with the more detailed consolidated financial statements,
including the notes thereto, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere herein.

<TABLE>
<CAPTION>
Six Months Ended
December 31, Year Ended June 30,
--------------------- -----------------------------------------------------
1996 1995 1996 1995 1994 1993 1992
--------- -------- -------- -------- -------- ------- ---------
(Dollars in Thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Income Data:
Revenues:
Gain on sale of loans ..................... $8,233 $ 3,919 $ 9,005 $ 1,443 $ 110 $ 119 $ 83
Interest and fees ......................... 2,481 1,527 3,351 4,058 2,367 1,619 1,534
Other ..................................... 192 56 23 143 156 306 103
Total revenues .............................. 10,906 5,502 12,379 5,644 2,633 2,044 1,720
Total expenses .............................. 7,366 3,497 9,258 4,750 2,299 1,977 1,928
Operating income (loss) before income taxes
(recoverable), extraordinary item and
cumulative effect of accounting change .... 3,540 2,005 3,121 894 334 67 (208)
Income (loss) before extraordinary item and
cumulative effect of accounting change .... 2,300 1,303 2,319 581 137 41 (125)
Extraordinary item (net of income taxes of $101) -- -- -- -- -- -- 157
Cumulative effect of accounting change on prior
years ..................................... -- -- -- -- (52) -- --
Net income .................................. 2,300 1,303 2,319 581 85 41 32
Per Common Share Data(1):
Income (loss) before extraordinary item and
cumulative effect of accounting change . $ .93 $ .58 $ 1.01 $ .27 $ .04 $ .02 $ (.08)
Extraordinary item ........................ -- -- -- -- -- -- .10
Net income ................................ .93 .58 1.01 .27 .04 .02 .02
Cash dividends declared ................... .03 -- 0.03 -- -- -- --

December 31, June 30,
--------------------- -----------------------------------------------------
1996 1995 1996 1995 1994 1993 1992
--------- -------- -------- -------- -------- ------- ---------
(In Thousands)
Balance Sheet Data:
Cash and cash equivalents ................... $3,035 $ 2,477 $ 5,345 $ 4,734 $ 83 $ 151 $ 270
Loan and lease receivables, net available for
sale ....................................... 26,447 11,312 17,625 8,669 3,181 2,170 2,088
Other ....................................... 883 399 534 328 5,538 2,963 1,491
Total assets ................................ 67,463 34,479 46,894 22,175 12,284 7,270 5,368
Subordinated debentures ..................... 45,245 24,746 33,620 17,800 7,171 1,327 665
Total liabilities ........................... 60,842 31,033 42,503 20,031 10,721 5,801 4,322
Stockholders' equity ........................ 6,621 3,446 4,392 2,143 1,562 1,469 1,045
</TABLE>

- ------
(1) Per share information for fiscal years 1994, 1993 and 1992 has been
restated to reflect the 3 for 2 stock split effected on November 1, 1995.

6
<PAGE>

At or For The
Six Months Ended
December 31, At or For the Year Ended June 30,
---------------------- -----------------------------------------------
1996 1995 1996 1995 1994 1993 1992
----- ---- ----- ------ ----- ------ ----
Financial Ratios:
Return on average assets (1) ................ 8.05% 9.20% 6.71% 3.37% 0.87% 0.65% 0.56%
Return on average equity (1) ................ 83.55 93.24 70.96 31.36 5.58 3.29 (3.27)
Total delinquencies as a percentage of total
portfolio serviced, at end of period (2) .. 1.64 3.67 2.30 3.84 6.85 5.97 5.39
Allowance for credit losses to total
portfolio serviced, at end of period ...... 1.01 1.20 1.18 .87 .93 .80 1.14
Real estate owned as a percentage of total
portfolio serviced, at end of period ....... .66 1.95 1.01 4.29 2.63 1.44 --
Loan and lease losses as a percentage of
the average total portfolio serviced
during the period ......................... .07 .18 .33 .66 .15 .47 .13
Pre-tax income (loss) as a percentage of total
revenues .................................. 32.45 36.44 25.21 15.84 12.69 3.26 (12.10)
</TABLE>

- ------
(1) Annualized.

(2) Total delinquencies includes loans and leases delinquent over 30 days,
exclusive of real estate owned.

7
<PAGE>

RISK FACTORS

In addition to the financial and other information contained in this
Prospectus, prospective investors should consider, among other things, the
following factors in connection with the purchase of the Common Stock.

DECLINE IN COLLATERAL VALUE MAY ADVERSELY AFFECT LOAN-TO-VALUE RATIOS

The Company's business may be adversely affected by declining real estate
values. Any material decline in real estate values reduces the ability of
borrowers to use home equity to support borrowings and increases the
loan-to-value ratios of loans previously made by the Company, thereby
weakening collateral coverage and increasing the possibility of a loss in the
event of a borrower default. Further, delinquencies, foreclosures and losses
generally increase during economic slowdowns or recessions. As a result,
there can be no assurance that the market value of the real estate underlying
such loans will at any time be equal to or in excess of the outstanding
principal amount of such loans. See "Business" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."

CREDIT IMPAIRED BORROWERS MAY RESULT IN INCREASED DELINQUENCY RATES

The Company markets loans, in part, to borrowers who, for one reason or
another, are not able, or do not wish, to obtain financing from traditional
sources such as commercial banks. Loans made to such borrowers may entail a
higher risk of delinquency and loss than loans made to borrowers who utilize
traditional financing sources. As a result, the Company may experience higher
delinquency rates and losses in the event of adverse economic conditions than
those experienced by other lenders. At December 31, 1996 and June 30, 1996,
total delinquent loans as a percentage of the Company's total portfolio
serviced were 1.64% and 2.3%, respectively. While the Company utilizes
underwriting standards and collection procedures designed to mitigate the
higher credit risk associated with lending to such borrowers, no assurance
can be given that such standards or procedures will offer adequate protection
against this risk. In the event loans sold and serviced by the Company
experience higher delinquencies, foreclosures or losses than anticipated, the
Company's results of operations or financial condition could be adversely
affected. See "Business."

DEPENDENCE UPON SECURITIZATIONS AND FLUCTUATIONS IN OPERATING RESULTS

In recent periods, gain on sale of loans generated by the Company's
securitizations has represented a substantial majority of the Company's
revenues and net income. Gain on sale of loans resulting from securitizations
as a percentage of total revenues was 75.5% and 72.7% for the six months
ended December 31, 1996 and the year ended June 30, 1996, respectively. In
addition, the Company relies primarily on securitizations to generate cash
proceeds for repayment of its warehouse credit facilities and other
borrowings and to enable the Company to originate additional loans. Several
factors affect the Company's ability to complete securitizations, including
conditions in the securities markets generally, conditions in the
asset-backed securities markets specifically and the credit quality of the
portfolio of loans serviced by the Company. Any substantial reduction in the
size or availability of the securitization market for the Company's loans
could have a material adverse effect on the Company's results of operations
and financial condition.

The Company's revenues and net income have fluctuated in the past and are
likely to fluctuate in the future principally as a result of the timing and
size of its securitizations. The strategy of selling loans through
securitizations requires the Company to build an inventory of loans over
time, during which time the Company incurs costs and expenses. Since the
Company does not recognize gains on the sale of such loans until it
consummates a securitization thereof, which may not occur until a subsequent
fiscal period, the Company's operating results for a given period can
fluctuate significantly as a result of the timing and level of
securitizations. If securitizations do not close when expected, the Company
could experience a loss for the period which could have a materially adverse
effect on the Company's results of operations. In addition, due to the timing
difference between the period when costs are incurred in connection with the
origination of loans and their subsequent sale through the securitization
process, the Company may operate on a negative cash flow basis, which could
adversely impact the Company's results of operations and financial condition.

8
<PAGE>

The Company has made estimates of the excess spread receivable to be
received in connection with its securitizations based upon certain prepayment
and default assumptions; however, its actual prepayment and default
experience may vary materially from such estimates. As a result, the gain
recognized by the Company upon the sale of loans may be overstated to the
extent that actual prepayments or losses are greater than estimated. Higher
levels of future prepayments, delinquencies and/or liquidations could result
in decreased excess spreads and the write down of the receivable, which would
adversely affect the Company's income in the period of adjustment.
Conversely, if the estimated average lives of the loans assumed for this
purpose are shorter than the actual life, the amount of cash actually
received over the lives of the loans would reduce the gain previously
recognized at the time the loans were sold and the Company would record a
charge against earnings. See "Business" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

ABILITY OF THE COMPANY TO SUSTAIN RECENT LEVELS OF GROWTH AND OPERATING
RESULTS

During fiscal 1996 and the six months ended December 31, 1996, the Company
experienced record levels of total revenues and net income as a result of
increases in loan originations and the securitization of loans. Total
revenues increased approximately $6.8 million, or 121.4%, between fiscal 1995
and 1996 while net income increased approximately $1.7 million, or 292.6%.
Total revenues and net income were $10.9 million and $2.3 million
respectively, for the six months ended December 31, 1996 as compared to $5.5
million and $1.3 million for the six months ended December 31, 1995. The
Company's ability to sustain the level of growth in total revenues and net
income experienced during fiscal 1996 and the six months ended December 31,
1996 is dependent upon a variety of factors outside the control of the
Company, including interest rates, conditions in the asset-backed securities
markets, economic conditions in the Company's primary market area,
competition and regulatory restrictions. As a result, the rate of growth
experienced in fiscal 1996 and the six months ended December 31, 1996 may not
be sustained in the future. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

ABILITY OF THE COMPANY TO IMPLEMENT ITS GROWTH STRATEGY

The Company's growth strategy is dependent upon its ability to increase
its loan volume through geographic expansion while maintaining its customary
origination fees, interest rate spreads and underwriting criteria with
respect to such increased loan volume. Implementation of this strategy will
depend in large part on the Company's ability to: (i) expand its offices in
markets with a sufficient concentration of borrowers meeting the Company's
underwriting criteria; (ii) obtain adequate financing on favorable terms to
fund its growth strategy; (iii) profitably securitize its loans in the
secondary market on a regular basis; (iv) hire, train and retain skilled
employees; (v) successfully implement its marketing campaigns; and (vi)
continue to expand in the face of increasing competition from other lenders.
The Company's failure with respect to any or all of these factors could
impair its ability to successfully implement its growth strategy which could
have a material adverse effect on the Company's results of operations and
financial condition. See "Business."

INCREASED COMPETITION COULD ADVERSELY AFFECT RESULTS OF OPERATIONS

The various segments of the Company's lending businesses are highly
competitive. Certain lenders against which the Company competes have
substantially greater resources, greater experience and lower cost of funds,
as well as a more established market presence than the Company. To the extent
the Company's competitors increase their marketing efforts to include the
Company's market niche of borrowers, the Company may be forced to reduce the
rates and fees it currently charges for such loans in order to maintain and
expand its market share. Any reduction in such rates or fees could have an
adverse impact on the Company's results of operations. In addition, even
after the Company has made a loan to a borrower, the borrower may refinance
the loan with another lender at more favorable rates and terms. Furthermore,
the profitability of the Company and other similar lenders is attracting
additional competitors into this market, with the possible effect of reducing
the Company's ability to charge its customary origination fees and interest
rates. In addition, as the Company expands into new geographic markets, it
will face competition from lenders with established positions in these areas.
There can be no assurance that the Company will be able to continue to
compete successfully in the markets it serves or expand into new geographic
markets. Such an event could have a material adverse effect on the Company's
results of operations and financial condition. See "Business -- Competition."

9
<PAGE>

DEPENDENCE UPON DEBT FINANCING

For its ongoing operations, the Company is dependent upon borrowings such
as that represented by the Company's unsecured subordinated debentures and
the Company's warehouse credit facilities and lines of credit as well as
funds received from the securitization of loans. The Company had $45.2
million of subordinated debentures outstanding at December 31, 1996 and had
lines of credit and credit facilities of $47.5 million, of which $6.3 million
was being utilized on such date. At December 31, 1996, subordinated
debentures scheduled to mature during the twelve months ended December 31,
1997 totaled $24.7 million. In addition, in fiscal 1997, the Company intends
to register up to $125.0 million of debt securities for sale to the public
over approximately 20 months. Any failure to renew or obtain adequate funding
under a warehouse credit facility, or other borrowings, or any substantial
reduction in the size of or pricing in the markets for the Company's loans,
could have a material adverse effect on the Company's results of operations
and financial condition. To the extent that the Company is not successful in
maintaining or replacing existing financing, it would have to curtail its
loan production activities or sell loans rather than securitizing them,
thereby having a material adverse effect on the Company's results of
operations and financial condition. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources."

CHANGES IN INTEREST RATES MAY ADVERSELY AFFECT PROFITABILITY

The profitability of the Company is likely to be adversely affected during
any period of rapid changes in interest rates. Any future rise in interest
rates may adversely affect demand for the Company's products. In addition,
such increase in rates may increase the Company's cost of funds and could
adversely affect the spread between the rate of interest received on loans
and rates payable under the Company's outstanding credit facilities or the
pass-through rate for interests issued in connection with loans securitized.
In addition, any future decrease in interest rates will reduce the amounts
which the Company may earn on its newly originated loans and leases. A
significant decline in interest rates could also decrease the size of the
loan portfolio serviced by the Company by increasing the level of loan
prepayments.

In an attempt to mitigate the effect of changes in interest rates on its
fixed-rate mortgage loan portfolio prior to securitization, the Company
implemented a hedging strategy in August 1995. An effective hedging strategy
is complex and no hedging strategy can completely insulate the Company from
interest rate risks. The nature and timing of hedging transactions may impact
the effectiveness of hedging strategies. Poorly designed strategies or
improperly executed transactions may increase rather than mitigate risk. In
addition, hedging involves transaction and other costs, and such costs could
increase as the period covered by the hedging protection increases or in
periods of rising and fluctuating interest rates. As a result, the Company
may be prevented from effectively hedging its interest rate risks without
reducing income in current periods.

The Company also experiences interest rate risk to the extent that a
portion of its liabilities are comprised of subordinated debentures with
scheduled maturities of one to ten years. At December 31, 1996, the Company
had $20.5 million of subordinated debentures with scheduled maturities
greater than one year. To the extent that interest rates decrease in the
future, the rates paid on such liabilities could exceed the rates received on
the Company's newly originated loans resulting in a decrease in the Company's
spread. Consequently, fluctuations in interest rates may adversely affect the
Company's results of operations and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Interest Rate Risk Management."

GEOGRAPHIC CONCENTRATION OF LOANS

The Company currently originates loans in a circumscribed geographic area
which primarily includes the states located in the mid-atlantic region of the
United States. This practice may subject the Company to the risk that a
downturn in the economy in such region of the country would more greatly
affect the Company than if its lending business were more geographically
diversified. See "Business" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

10
<PAGE>

CONTINGENT RISKS

Although the Company sells substantially all loans which it originates on
a nonrecourse basis through securitizations, the Company retains risk on
substantially all loans sold. During the period of time that loans are held
pending sale, the Company is subject to the various business risks associated
with the lending business including the risk of borrower default, the risk of
foreclosure and the risk that a rapid increase in interest rates would result
in a decline in the value of loans to potential purchasers.

In addition, documents governing the Company's securitizations require the
Company to commit to repurchase or replace loans which do not conform to the
representations and warranties made by the Company at the time of sale. When
borrowers are delinquent in making monthly payments on loans included in a
securitization trust, the Company is required to advance interest payments
with respect to such delinquent loans to the extent that the Company deems
such advances will be ultimately recoverable. These advances require funding
from the Company's capital resources but have priority of repayment from the
succeeding month's collections.

In the ordinary course of its business, the Company is subject to claims
made against it by borrowers and private investors arising from, among other
things, losses that are claimed to have been incurred as a result of alleged
breaches of fiduciary obligations, misrepresentations, errors and omissions
by employees, officers and agents of the Company (including its appraisers),
incomplete documentation and failures by the Company to comply with various
laws and regulations applicable to its business. Although there are no
currently asserted material claims or legal actions asserted against the
Company, any claims asserted in the future may result in legal expenses or
liabilities which could have a material adverse effect on the Company's
results of operations and financial condition. See "Business -- Legal
Proceedings."

DIVERSIFICATION OF THE COMPANY'S BUSINESS

The Company's involvement in equipment leasing is relatively new.
Therefore, the Company is not able to predict with any certainty whether it
will be able to engage in this area of its business profitability either in
the short or long term. There are also risks inherent in this type of
activity which differ in certain respects from those which exist in the
Company's lending activities. While the Equipment Leases made by the Company
are secured by a lien on the equipment leased, such equipment is subject to
the risk of damage, destruction or technological obsolescence prior to the
termination of the lease. In the case of the Company's fair market value
leases, lessees may choose not to exercise their option to purchase the
equipment for its fair market value at the termination of the lease, with the
result that the Company may be required to sell such equipment to third party
buyers at a discount or otherwise dispose of such equipment. See "Business --
Lending and Leasing Activities."

REGULATORY RESTRICTIONS AND LICENSING REQUIREMENTS

The Company's home equity lending business is subject to extensive
regulation, supervision and licensing by federal, state and local
governmental authorities and is subject to various laws and judicial and
administrative decisions imposing requirements and restrictions on all or
part of its home equity lending activities. The Company's home equity lending
activities are subject to the Federal Truth-in-Lending Act and Regulation Z
(including the Home Ownership and Equity Protection Act of 1994), the Federal
Equal Credit Opportunity Act and Regulation B, as amended, the Federal Real
Estate Settlement Procedures Act and Regulation X, the Home Mortgage
Disclosure Act and the Federal Debt Collection Practices Act, as well as
other federal and state statutes and regulations affecting the Company's
activities. The Company is also subject to examinations by state regulatory
authorities with respect to originating, processing, underwriting, selling
and servicing Home Equity Loans. These rules and regulations, among other
things, impose licensing obligations on the Company, prohibit discrimination,
regulate assessment, collection, foreclosure and claims handling, payment
features, mandate certain disclosures and notices to borrowers and, in some
cases, fix maximum interest rates, and fees. Failure to comply with these
requirements can lead to termination or suspension of licenses, certain
rights of rescission for mortgage loans, class action lawsuits and
administrative enforcement actions.

11
<PAGE>

The previously described laws and regulations are subject to legislative,
administrative and judicial interpretation, and certain of these laws and
regulations have been infrequently interpreted or only recently enacted.
Infrequent interpretations of these laws and regulations or an insignificant
number of interpretations of recently enacted regulations can result in
ambiguity with respect to permitted conduct under these laws and regulations.
Any ambiguity under the regulations to which the Company is subject may lead
to regulatory investigations or enforcement actions and private causes of
action, such as class action lawsuits, with respect to the Company's
compliance with the applicable laws and regulations.

Although the Company believes that it has implemented systems and
procedures to facilitate compliance with the foregoing requirements and
believes that it is in compliance in all material respects with applicable
local, state and federal laws, rules and regulations, there can be no
assurance that more restrictive laws, rules and regulations will not be
adopted in the future that could make compliance more difficult or expensive.
See "Business -- Regulation."

DEPENDENCE ON KEY PERSONNEL

The success of the Company's operations depend, to a large extent, upon
the management, lending, credit analysis and business skills of the senior
level management of the Company. If members of senior level management were
for some reason unable to perform their duties or were, for any reason, to
leave the Company, there can be no assurance that the Company would be able
to find capable replacements. The Company has entered into employment
agreements with its Chairman, President and Chief Executive Officer, Anthony
J. Santilli, Jr., its Executive Vice President, Beverly Santilli, and its
Senior Vice President and General Counsel, Jeffrey M. Ruben. The Company also
holds "key-man" insurance for Anthony J. Santilli, Jr. and Beverly Santilli.
See "Management."

VOTING CONTROL OF THE BOARD OF DIRECTORS OF THE COMPANY

The Board of Directors of the Company are the beneficial owners of
1,365,281 shares (excluding options) of the outstanding Common Stock. As a
result, upon completion of the Public Offering (assuming the Underwriters'
over-allotment option is not exercised), the Board of Directors of the
Company will hold approximately 40.7% of the Common Stock, which may allow it
to control actions to be taken by the stockholders, including the election of
directors to the Board of Directors. This voting control may have the effect
of discouraging hostile offers to acquire the Company because the
consummation of any such acquisition would require the consent of the current
members of the Board of Directors of the Company. In addition, the Board of
Directors is authorized to issue additional shares of Common Stock or shares
of preferred stock from time to time with such rights and preferences as the
Board may determine. Such preferred stock could be issued in the future with
terms and conditions that could further discourage hostile offers to acquire
the Company. See "Principal Stockholders" and "Description of Capital Stock."

ENVIRONMENTAL CONCERNS

In the course of its business, the Company has acquired, and may acquire
in the future, properties securing loans which are in default. Under various
federal, state and local environmental laws, ordinances and regulations, a
current or previous owner or operator of real estate may be required to
investigate and clean up hazardous or toxic substances or chemical releases
at such property, and may be held liable to a governmental entity or to third
parties for property damage, personal injury and investigation and cleanup
costs incurred by such parties in connection with the contamination. The
liability under such laws has been interpreted to be joint and several unless
the harm is divisible and there is a reasonable basis for allocation of
responsibility. The costs of investigation, remediation or removal of such
substances may be substantial, and the presence of such substances, or the
failure to properly remediate such property, may adversely affect the owner's
ability to sell or rent such property or to borrow using such property as
collateral. Persons who arrange for the disposal or treatment of hazardous or
toxic substances also may be liable for the costs of removal or remediation
of such substances at the disposal or treatment facility, whether or not the
facility is owned or operated by such person. In addition, the owner or
former owners of a contaminated site may be subject to common law claims by
third parties based on damages and costs resulting from environmental
contamination emanating from such property.

12
<PAGE>

The ability of the Company to foreclose on the real estate collateralizing
its loans, if at any time such a foreclosure would be otherwise appropriate,
may be limited by the above-referenced environmental laws. While the Company
would not make a loan collateralized by real property as to which it had
knowledge of an environmental risk or problem, it is possible that such a
risk or problem could become known after the subject loan has been made. See
"Business -- Loan and Lease Servicing."

LIMITED PUBLIC MARKET FOR THE COMMON STOCK; POSSIBLE VOLATILITY OF STOCK
PRICE

The Common Stock has been traded on the PHLX. Since the Common Stock began
trading on the PHLX in May 1996, such stock has experienced a relatively low
trading volume. Upon commencement of the Public Offering, the Company's
Common Stock will be traded solely on the Nasdaq National Market System.
There can be no assurance that an active trading market will develop or that
the purchasers of the Common Stock will be able to resell their Common Stock
at prices equal to or greater than the Public Offering price. The Public
Offering price of the Common Stock was determined through negotiations
between the Company and the Underwriters and may not reflect the market price
of the Common Stock after the Public Offering. See "Underwriting," for a
discussion of factors considered in determining the Public Offering price.
The trading price of the Common Stock could be subject to wide fluctuations
in response to quarterly variations in changes in financial estimates by
securities analysts and other events or facts. These broad market
fluctuations may adversely affect the market price of the Common Stock. See
"Market for Common Stock" and "Market for Common Stock and Related
Stockholder Matters."

EFFECT ON STOCK PRICE OF SHARES AVAILABLE FOR FUTURE SALE

The Board of Directors of the Company is the record and beneficial holder
of 1,365,281 shares of the outstanding shares of Common Stock and currently
holds options to purchase an additional 137,500 shares. In addition,
executive officers who are not also directors have been granted options to
purchase 7,500 shares and it is intended that such officers will be awarded
options to purchase 37,500 shares of Common Stock in connection with the
Public Offering. Such shares of Common Stock may be sold in the public market
or otherwise disposed of, subject to compliance with applicable securities
laws. The Company's Amended and Restated Certificate of Incorporation
authorizes the issuance of 9,000,000 shares of Common Stock. Upon completion
of the Public Offering, there will be 3,353,166 shares of Common Stock issued
and outstanding (assuming no exercise of the Underwriters' over-allotment
option). Sales of a substantial number of shares of Common Stock, or the
perception that such sales could occur, could adversely affect prevailing
market prices for the Common Stock. See "Shares Eligible for Future Sale."

DIVIDEND POLICY

During fiscal 1996, the Company began paying dividends on its Common
Stock. Such dividends totaled approximately $71,000 in the aggregate. The
Company also paid dividends of approximately $71,000 in the aggregate for the
six months ended December 31, 1996. The Company's continuing payment of
dividends in the future is in the sole discretion of the Board of Directors
and will depend, among other things, upon the Company's earnings, its capital
requirements and financial condition as well as other factors. As a result,
no prediction can be made as to whether the Company will continue to pay
dividends in the future or continue to pay dividends at the level it has in
the past. See "Dividend Policy" and "Description of Capital Stock."

ANTI-TAKEOVER EFFECT OF DELAWARE LAW

The Company is a Delaware corporation and is subject to the anti-takeover
provisions of Section 203 of the Delaware General Corporation Law. In
general, Section 203 prevents an "interested stockholder" (defined generally
as a person owning 15% or more of the Company's outstanding voting stock)
from engaging in a "business combination" with the Company for three years
following the date that person became an interested stockholder unless the
business combination is approved in a prescribed manner. This statute could
make it more difficult for a third party to acquire control of the Company
without the support of management. See "Description of Capital Stock--Certain
Provisions of Delaware Law."

13
<PAGE>

FORWARD LOOKING STATEMENTS

When used in this prospectus, the words or phrases "will likely result",
"are expected to", "will continue", "is anticipated", "estimate",
"projected", "intends to" or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are subject to certain risks
and uncertainties, including but not limited to changes in interest rates,
credit risk related to ABFS's borrowers, market conditions and real estate
values in ABFS's primary lending area, lack of a pubic market for the Common
Stock, competition, factors affecting the Company's ability to implement its
growth strategy, ABFS's dependence on debt financing and securitizations to
fund its operations, fluctuations in quarterly operating results, unseasoned
nature of ABFS's Equipment Lease portfolio, state and federal regulation and
licensing requirements applicable to ABFS's lending activities and
environmental concerns that could cause the Company's actual results to
differ materially from historical earnings and those presently anticipated or
projected. Such factors, which are discussed in "Risk Factors," "Business"
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the notes to consolidated financial statements, could
affect ABFS's financial performance and could cause ABFS's actual results for
future periods to differ materially from any opinions or statements expressed
with respect to future periods in this prospectus. As a result, potential
investors are cautioned not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. See
"Business" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

14
<PAGE>

THE COMPANY

The Company is a financial services company operating primarily throughout
the mid-atlantic region of the United States. ABFS, through its principal
direct and indirect subsidiaries, American Business Credit, Inc. ("ABC"),
HomeAmerican Credit, Inc. (d/b/a Upland Mortgage and referred to herein as
"HAC" or "Upland") and American Business Leasing, Inc. ("ABL"), originates,
services and sells Business Purpose Loans, Home Equity Loans and Equipment
Leases. The Company also underwrites, processes and purchases Home Equity
Loans through the Bank Alliance Program and originates a limited number of
secured and unsecured consumer loans. See "Business."

ABFS was incorporated in Delaware in 1985 and began operations as a
finance company in 1988, initially offering Business Purpose Loans to
customers whose borrowing needs the Company believed were not being
adequately serviced by commercial banks. Since its inception, ABFS has
significantly expanded its product line and geographic scope and currently
offers its loan and lease products in more than ten states.

The Company's principal executive office is located at 103 Springer
Building, 3411 Silverside Road, Wilmington, Delaware 19810. The telephone
number at such address is (302) 478-6160. The Company's principal operating
office and the executive offices of its subsidiaries are located at
Balapointe Office Centre, 111 Presidential Boulevard, Suite 215, Bala Cynwyd,
PA 19004. The telephone number at such address is (610) 668-2440. See
"Business."

USE OF PROCEEDS

The net proceeds resulting from the sale of the one million shares of Common
Stock offered hereby at a Public Offering price of $20.00 per share, after
deducting underwriting discounts and other estimated offering expenses, are
estimated to be approximately $18,155,000. The net proceeds will be utilized by
the Company for its general corporate purposes. General corporate purposes may
include: (i) financing the future growth of the Company's Business Purpose Loan,
Home Equity Loan or Equipment Lease portfolios; (ii) the repayment of warehouse
credit facilities, lines of credit and the Company's maturing subordinated
debentures; and (iii) possible future acquisitions of related businesses or
assets. The precise amounts and timing of the application of such proceeds
depends upon many factors, including, but not limited to, the amount of any such
proceeds, actual funding requirements and the availability of other sources of
funding. Until such time as the proceeds are utilized, they will be invested in
short and long-term investments, including U.S. Treasury Bills, commercial
paper, certificates of deposit, securities issued by U.S. government agencies,
money market funds and repurchase agreements, depending on the Company's cash
flow requirements. The Company's investment policies permit significant
flexibility as to the types of such investments that may be made by the Company.
The Company may also maintain daily unsettled balances with certain
broker-dealers. While the Company may from time to time consider potential
acquisitions, the Company as of the date of this Prospectus had no commitments
or agreements with respect to any material acquisitions.

DIVIDEND POLICY

During fiscal 1996, the Company began paying dividends on its Common
Stock. Such dividends totaled approximately $71,000, or $0.03 per share. For
the six months ended December 31, 1996, the Company paid dividends totaling
approximately $71,000, or $0.03 per share. The continuing payment of
dividends by the Company in the future is in the sole discretion of its Board
of Directors and will depend, among other things, upon the Company's
earnings, capital requirements and financial condition as well as other
factors. As a result, no assurance can be given that the Company will
continue to pay dividends in the future or continue to pay dividends at the
same level as it has in the past following the completion of the Public
Offering. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."

As a Delaware corporation, the Company may not declare and pay dividends
on its capital stock if the amount paid exceeds an amount equal to the excess
of the Company's net assets over paid-in-capital or, if there is no excess,
its net profits for the current and/or immediately preceding fiscal year.

15
<PAGE>

MARKET FOR COMMON STOCK

The Common Stock has been traded on the PHLX. Since the Common Stock began
trading on the PHLX in May 1996, the Common Stock has experienced a
relatively low trading volume. The Common Stock has been approved for trading
on the Nasdaq National Market System upon commencement of the Public Offering
under the symbol "ABFI". Upon commencement of the Public Offering, the
Company will cease trading its Common Stock on the PHLX. In order to be
traded on the Nasdaq National Market System there must be at least two market
makers for the Common Stock. The Representative has indicated its intention
to make a market in the Company's Common Stock following completion of the
Public Offering. The Representative is not obligated, however, to make a
market in the Common Stock and any market making thereby may be discontinued
at any time. However, a public trading market having the desirable
characteristics of depth, liquidity and orderliness depends upon the presence
in the marketplace of both willing buyers and sellers of the Common Stock at
any given time, which is not within the control of the Company or any market
maker. Accordingly, there can be no assurance that an active and liquid
market for the Common Stock will develop or be maintained, or that resales of
the Common Stock can be made at or above the Public Offering price after the
completion of the Public Offering. In addition, the trading price of the
Common Stock could be subject to wide fluctuations in response to quarterly
variations in changes in financial estimates by securities analysts and other
events or facts. These broad market fluctuations may adversely affect the
market price of the Common Stock. See "Risk Factors--Limited Public Market
for the Common Stock; Possible Volatility of Stock Price" and "Market for
Common Stock and Related Stockholder Matters."

16
<PAGE>

CAPITALIZATION

The following table sets forth the consolidated capitalization of ABFS as
of December 31, 1996 and on an as adjusted basis giving effect to the sale of
1,000,000 shares of Common Stock by the Company in the Public Offering
(assuming no exercise of the Underwriters' over-allotment option) at a Public
Offering price of $20.00 per share of Common Stock after deducting
underwriting discounts and commissions and estimated expenses of the Public
Offering and the application of the estimated net proceeds therefrom. See
"Use of Proceeds." This information below should be read in conjunction with
the Company's audited consolidated financial statements and the notes thereto
which are included elsewhere herein. See also "Selected Consolidated
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Description of Capital Stock."
<TABLE>
<CAPTION>
At December 31, 1996
-----------------------
As
Actual Adjusted
--------- ----------
(In Thousands)
<S> <C> <C>
Warehouse credit facilities ................................ $ 6,310 $ 6,310
Long-term debt:
Subordinated debentures .................................. 20,486 20,486
--------- ----------
Total ................................................. 26,796 26,796
--------- ----------
Stockholders' equity:
Preferred Stock, $.001 par value per share; 1,000,000
shares authorized; no shares outstanding .............. -- --
Common Stock, $.001 par value per share; 9,000,000 shares
authorized; 2,353,166 shares issued and outstanding
(actual); 3,353,166 shares issued and outstanding (as
adjusted) (1) ......................................... 2 3
Additional paid in capital ............................... 1,932 20,086
Retained earnings ........................................ 5,287 5,287
Less note receivable .................................. 600 600
--------- ----------
Total stockholders' equity ............................ 6,621 24,776
--------- ----------
Total capitalization .................................. $27,107 $45,262
========= ==========

</TABLE>

- ------
(1) Excludes 181,000 shares of Common Stock reserved for issuance upon the
exercise of options granted under the Company's stock option plans,
150,500 shares of Common Stock issuable upon the exercise of options
intended to be granted to the Company's officers in connection with the
Public Offering as well as 38,488 shares of Common Stock reserved for
issuance upon the exercise of options available for grant under the
Company's stock option plans. See "Management--Executive Compensation"
and "Description of Capital Stock."

17
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
Six Months Ended
December 31, Year Ended June 30,
--------------------- -----------------------------------------------------
1996 1995 1996 1995 1994 1993 1992
--------- -------- -------- -------- -------- ------- ---------
(Dollars in Thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Income Data:
Revenues:
Gain on sale of loans ..................... $8,233 $ 3,919 $ 9,005 $ 1,443 $ 110 $ 119 $ 83
Interest and fees ......................... 2,481 1,527 3,351 4,058 2,367 1,619 1,534
Other ..................................... 192 56 23 143 156 306 103
Total revenues .............................. 10,906 5,502 12,379 5,644 2,633 2,044 1,720
Total expenses .............................. 7,366 3,497 9,258 4,750 2,299 1,977 1,928
Operating income (loss) before income taxes
(recoverable), extraordinary item and
cumulative effect of accounting change .... 3,540 2,005 3,121 894 334 67 (208)
Income (loss) before extraordinary item and
cumulative effect of accounting change .... 2,300 1,303 2,319 581 137 41 (125)
Extraordinary item (net of income taxes of $101) -- -- -- -- -- -- 157
Cumulative effect of accounting change on prior
years ..................................... -- -- -- -- (52) -- --
Net income .................................. 2,300 1,303 2,319 581 85 41 32
Per Common Share Data:(1)
Income (loss) before extraordinary item and
cumulative effect of accounting change . $ .93 $ .58 $ 1.01 $ .27 $ .04 $ .02 $ (.08)
Extraordinary item ........................ -- -- -- -- -- -- .10
Net income ................................ .93 .58 1.01 .27 .04 .02 .02
Cash dividends declared ................... .03 -- 0.03 -- -- -- --

- ------
(1) Per share information for fiscal years 1994, 1993 and 1992 has been
restated to reflect the 3 for 2 stock split effected on November 1, 1995.

<PAGE>

At or For The
Six Months Ended
December 31, At or For the Year Ended June 30,
----------------- -------------------------------------------------
1996 1995 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
Financial Ratios:
Return on average assets (1) ................ 8.05% 9.20% 6.71% 3.37% 0.87% 0.65% 0.56%
Return on average equity (1) ................ 83.55 93.24 70.96 31.36 5.58 3.29 (3.27)
Total delinquencies as a percentage of total
portfolio serviced, at end of period (2) .. 1.64 3.67 2.30 3.84 6.85 5.97 5.39
Allowance for credit losses to total
portfolio serviced, at end of period ...... 1.01 1.20 1.18 .87 .93 .80 1.14
Real estate owned as a percentage of total
portfolio serviced, at end of period ...... .66 1.95 1.01 4.29 2.63 1.44 --
Loan and lease losses as a percentage of the
average total portfolio serviced
during the period ......................... .07 .18 .33 .66 .15 .47 .13
Pre-tax income (loss) as a percentage of total
revenues .................................. 32.45 36.44 25.21 15.84 12.69 3.26 (12.10)
</TABLE>

- ------
(1) Annualized.

(2) Total delinquencies includes loans and leases delinquent over 30 days,
exclusive of real estate owned.

19
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following financial review and analysis is intended to assist
prospective investors in understanding and evaluating the financial condition
and results of operations of the Company, for the years ended June 30, 1996,
1995 and 1994 and the six months ended December 31, 1996 and 1995. This
information should be read in conjunction with the Company's Consolidated
Financial Statements and the accompanying notes thereto, "Selected
Consolidated Financial Data" and other detailed information regarding the
Company appearing elsewhere in this Prospectus. All operations of the Company
are conducted through ABC and its subsidiaries.

OVERVIEW

The Company is a financial services company operating primarily in the
mid-atlantic region of the United States. ABFS, through its direct and
indirect subsidiaries, originates, sells and services Business Purpose Loans,
Home Equity Loans and Equipment Leases. The Company also underwrites,
processes and purchases Home Equity Loans through the Bank Alliance Program
and originates a limited number of secured and unsecured consumer loans. The
Company's customers include credit impaired borrowers and other borrowers who
would qualify for loans from traditional sources but who the Company believes
are attracted to the Company's loan and lease products due to the Company's
personalized service and timely response to loan applications. Since its
inception, the Company has significantly expanded its product line and
geographic scope and currently offers its loan and lease products in more
than ten states. See "Business."

The ongoing securitization of loans is a central part of the Company's
current business strategy. Prior to 1995, the Company sold substantially all
of the loans it originated in the secondary market with servicing released.
Since such time, the Company has sold loans through securitizations in order
to fund growing loan and lease originations. The Company has completed four
securitizations aggregating $53.3 million in Business Purposes Loans and
$32.9 million in Home Equity Loans. Such securitizations generated gain on
the sale of loans of $7.0 million, $8.9 million and $1.4 million,
respectively, for the six months ended December 31, 1996 and for fiscal years
ended June 30, 1996 and 1995. See "--Results of Operations."

The Company also relies upon funds generated by the sale of subordinated
debentures and other borrowings to fund its operations. At December 31, 1996,
the Company had $45.2 million of subordinated debt outstanding and credit
facilities and lines of credit totaling $47.5 million, of which $6.3 million
was drawn upon on such date. The Company expects to continue to rely on such
borrowings to fund loans prior to securitization. See "-- Liquidity and
Capital Resources."

ACCOUNTING CONSIDERATIONS RELATED TO THE SECURITIZATIONS

As a fundamental part of its current business strategy, the Company sells
substantially all of the loans it originates in securitizations to trusts in
exchange for certificates representing the senior interest in the securitized
loans held by the trust and the excess spread and, if applicable, a
subordinated interest in the securitized loans held by the trust. The senior
certificates are subsequently sold to investors for cash.

As a result of securitizations, the Company's net income is increasingly
dependent upon realizing gains on the sale of loans due to the excess spread
associated with such loans at the time of sale. The excess spread is
calculated as the difference between (a) principal and interest paid by
borrowers and (b) the sum of (i) pass-through interest and principal to be
paid to the holders of the senior certificates and (ii) servicing, trustee
and insurance fees and other costs. The Company's right to receive this
excess spread begins after a pre-determined over-collateralization amount or
reserve is established. Such over-collateralization amount is specific to
each securitization and is used as a means of credit enhancement.

When loans are sold in securitizations, the Company recognizes both
revenue and an associated receivable equal to the present value of the excess
spread expected to be realized over the anticipated average life of the loans
sold less future estimated credit losses relating to the loans sold, net of
origination costs and

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hedging results. These excess spreads and the associated receivable are
computed using prepayment, loss and discount rate assumptions that the
Company believes are reasonable. The Company periodically reviews these
assumptions in relation to actual experience and, if necessary, adjusts the
receivable.

The Company carries the excess spread on the pool of securitized loans at
fair value. As such, the carrying value of the excess spread is impacted by
changes in prepayment and loss experience of the underlying loans. The
Company determines the fair value of the excess spread utilizing prepayment
and credit loss assumptions appropriate for each particular securitization.
The range of values attributable to the factors used in determining fair
value is broad. Accordingly, the Company's estimate of fair value is
subjective. The prepayment assumptions used by the Company with respect to
its Business Purpose Loans are based upon the Company's historical experience
due to the lack of any industry wide historical prepayment rates for such
loans. The prepayment assumptions with respect to the Company's Home Equity
Loans are based on historical experience in the industry.

Although the Company believes it has made reasonable estimates of
prepayment rates and default assumptions, the actual prepayment and default
experience may materially vary from its estimates. The gain recognized by the
Company upon the sale of loans will have been overstated if prepayments or
losses are greater than estimated. To the extent that prepayments,
delinquencies and/or liquidations differ from the Company's estimates,
adjustments of the Company's gain on sale of loans during the period of
adjustment may be required.

When loans are sold through a securitization, the Company retains the
servicing on the loans sold which is recognized as a separate asset for
accounting purposes. To determine the fair value of the mortgage servicing
rights, the Company projects net cash flows expected to be received from
servicing related income over the life of the loans. Such projections assume
certain servicing costs, prepayment rates and credit losses. These
assumptions are similar to those used by the Company to value the excess
spread.

There can be no assurance that the Company's estimates and assumptions
used to determine the fair value of mortgage servicing rights will remain
appropriate for the life of each securitization. To the extent that
prepayments, delinquencies and/or liquidations differ from the Company's
estimates, adjustments of the Company's mortgage servicing rights during the
period of adjustment may be required. Mortgage servicing rights will be
accounted for in accordance with Statement of Financial Accounting Standards
("SFAS") No. 125. See "-- Recent Accounting Pronouncements", "Risk Factors --
Dependence Upon Securitizations and Fluctuations in Operating Results" and
"Business -- Securitizations."

BALANCE SHEET INFORMATION

December 31, 1996 compared to June 30, 1996. Total assets increased $20.6
million, or 43.9%, to $67.5 million at December 31, 1996 from $46.9 million
at June 30, 1996 due primarily to increases in loan and lease receivables,
other receivables and other assets. Loan and lease receivables available for
sale increased $8.8 million as a result of increased originations primarily
due to increased originations of Home Equity Loans. Other receivables,
consisting primarily of the excess spread related to the Company's
securitizations, increased $9.0 million, or 63.8%, to $23.1 million at
December 31, 1996, from $14.1 million at June 30, 1996 due to the Company's
retention of the excess spread in connection with its loan securitization.
Other assets increased $3.4 million, or 52.3%, to $9.9 million at December
31, 1996 from $6.5 million at June 30, 1996 due primarily to an increase in
mortgage servicing rights obtained in connection with the Company's loan
securitizations. See "--Results of Operations--Six Months Ended December 31,
1996 Compared with the Six Months Ended December 31, 1995.

Total liabilities increased $18.3 million, or 43.1%, to $60.8 million at
December 31, 1996 from $42.5 million at June 30, 1996 primarily due to an
increase in debt. The increase in debt was due to net sales of subordinated
debentures of $11.6 million during the six months ended December 31, 1996 and
a net increase in institutional debt of $6.3 million as the Company utilized
its lines of credit to fund loan demand. At December 31, 1996, the Company
had $45.2 million of subordinated debentures outstanding. The Company's ratio
of total debt to equity at December 31, 1996 was 7.8:1 as compared to 8.2:1
at June 30, 1996.

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<PAGE>

June 30, 1996 compared to June 30, 1995. Total assets increased $24.7
million, or 111.3%, to $46.9 million at June 30, 1996 from $22.2 million at
June 30, 1995. The primary reasons for the increase were increases in loan
and lease receivables, other receivables and other assets. Loan and lease
receivables available for sale increased $8.9 million, or 102.3%, to $17.6
million at June 30, 1996 from $8.7 million at June 30, 1995 as a result of
the Company's strategy of holding loans in its portfolio pending
securitization. Other receivables increased $9.9 million, or 235.7%, to $14.1
million at June 30, 1996 from $4.2 million at June 30, 1995 due to the
Company's retention of the excess spread in connection with its two loan
securitizations. Other assets, consisting primarily of subordinated interests
resulting from the securitizations, increased $3.6 million, or 124.1%, to
$6.5 million at June 30, 1996 from $2.9 million at June 30, 1995 due
primarily to an increase in subordinated interests obtained as a result of
the Company's securitizations.

Total liabilities increased $22.5 million, or 112.5%, to $42.5 million at
June 30, 1996 from $20.0 million at June 30, 1995 primarily due to an
increase in debt. The increase in debt was due to sales of subordinated
debentures of $19.7 million during the year ended June 30, 1996 combined with
a net increase in bank debt of $2.3 million. At June 30, 1996, the Company
had approximately $33.6 million of subordinated debentures outstanding. The
Company's ratio of total debt (subordinated debentures plus credit
facilities) to equity at June 30, 1996 was 8.2:1.

June 30, 1995 compared to June 30, 1994. Total assets increased $9.9
million, or 80.5%, to $22.2 million at June 30, 1995 from $12.3 million at
June 30, 1994. The primary reasons for the increase were an increase in cash
and cash equivalents, other receivables and other assets. Cash and cash
equivalents increased $4.6 million to $4.7 million at June 30, 1995 from
$83,000 at June 30, 1994 as a result of increased sales of the Company's
subordinated debentures. Other receivables increased $3.3 million, or 351.4%,
to $4.2 million at June 30, 1995 from $939,000 at June 30, 1994 due to the
Company's retention of the excess spread in connection with a securitization
of $9.7 million of Business Purpose Loans. Other assets increased $1.6
million, or 123.1%, to $2.9 million at June 30, 1995 from $1.3 million, at
June 30, 1994, due primarily to the addition of a subordinated certificate
obtained as a result of a securitization and an increase in foreclosed real
estate held for sale.

Total liabilities increased $9.3 million, or 86.9%, to $20.0 million at
June 30, 1995, from $10.7 million at June 30, 1994 primarily due to an
increase in debt outstanding. The increase in debt was due to net sales of
subordinated debentures of $10.6 million during the year ended June 30, 1995
which more than offset the net decrease in institutional debt of $2.2
million. At June 30, 1995, the Company had approximately $17.8 million of
subordinated debentures outstanding. The Company's ratio of total debt to
equity at June 30, 1995 was 8.3:1.

RESULTS OF OPERATIONS

During fiscal 1996 and the six months ended December 31, 1996, the Company
experienced record levels of total revenues and net income as a result of
increases in originations and securitizations. The Company's total revenues
increased $6.8 million, or 121.4%, between fiscal 1995 and 1996 while net
income increased $1.7 million, or 292.6%, during the same fiscal period.
Total revenues increased $5.4 million and net income increased $1.0 million
for the six months ended December 31, 1996 as compared to the six months
ended December 31, 1995.

Since the Company's securitization strategy requires the Company to build
an inventory of loans over time, the Company may experience fluctuations in
operating results as a consequence of incurring costs and expenses in a
fiscal period prior to the fiscal period in which the securitization is
consummated. As such, the results of operations for a given period may not be
indicative of results for subsequent comparable periods. See "Risk Factors
- --Dependence Upon Securitizations and Fluctuations in Operating Results" and
"--Ability of the Company to Sustain Recent Levels of Growth and Operating
Results."

SIX MONTHS ENDED DECEMBER 31, 1996 COMPARED WITH THE SIX MONTHS ENDED
DECEMBER 31, 1995

Total Revenues. Total revenues increased $5.4 million, or 98.2%, to $10.9
million in the six months ended December 31, 1996 from $5.5 million for the
six months ended December 31, 1995. The increase in total revenues was
primarily the result of gains on sales of loans through securitizations.

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<PAGE>

Gain on Sale of Loans. Gain on sale of loans increased $4.3 million to
$8.2 million for the six months ended December 31, 1996 from $3.9 million for
the six months ended December 31, 1995. The increase was the result of a sale
of $16.1 million of Business Purpose Loans and $23.9 million of Home Equity
Loans through a securitization in September of 1996. The Company recognized a
gain of $7.0 million (representing the fair value of the excess spread of
$7.9 million less $900,000 of costs associated with the transaction) on the
Company's participation in the $40.0 million of loans sold through this
securitization. The Company recognized $1.2 million of gain on sale of loans
through excess mortgage servicing rights received in connection with prior
securitizations. Given the unseasoned nature of the loans securitized and the
lack of supporting financial information thereon, the Company was previously
unable to reasonably estimate the value of such excess mortgage servicing
rights. The recognition of excess mortgage servicing rights will be included
in the gain on sale of loans sold through securitizations occurring in future
periods in accordance with SFAS No. 125. See "-- Recent Accounting
Pronouncements" and Note 1 of the Notes to Consolidated Financial Statements.

Interest and Fee Income. Interest and fee income consists of interest
income, fee income and amortization of origination costs. Interest and fee
income increased $1.0 million, or 66.7%, to $2.5 million in the six months
ended December 31, 1996 from $1.5 million in the six months ended December
31, 1995 due to an increase in interest income as a result of a larger amount
of loans retained in portfolio prior to the securitization.

Interest income consists of interest income the Company earns on the loans
and leases it holds in its portfolio. Interest income from loans and leases
held in portfolio increased $921,000 to $1.9 million for the six months ended
December 31, 1996 or a 94.2% increase over the $978,000 reported for the six
months ended December 31, 1995. The increase was attributable to increased
originations of Business Purpose Loans, Home Equity Loans and Equipment
Leases, as well as management's decision to retain Home Equity Loans in
portfolio in contemplation of future securitizations.

During the six months ended December 31, 1996, the Company originated
approximately $30.2 million of Home Equity Loans, $17.8 million of Business
Purpose Loans and $3.8 million of Equipment Leases. During the six months
ended December 31, 1995, the Company originated $11.4 million of Home Equity
Loans, $12.4 million of Business Purpose Loans and $2.5 million of Equipment
Leases. The majority of the Home Equity Loans originated during the six
months ended December 31, 1995 were sold to third parties (with servicing
released). Beginning in October 1995, as part of the Company's securitization
strategy, the Company placed Home Equity Loans into its held for sale
portfolio until sold as part of a securitization. Prior to the implementation
of the securitization strategy, the Company originated and immediately sold
such loans. As a result of the Company's securitization strategy, the Company
holds a greater amount of Home Equity Loans in its portfolio thereby
generating an increase in interest income and a decrease in fee income, as
described below.

Fee income includes primarily premium and points earned when loans are
closed, funded and immediately sold to unrelated third party purchasers. Fee
income decreased $6,000 from $753,000 for the six months ended December 31,
1995 to $747,000 for the six months ended December 31, 1996. The reduction in
fee income was due to the Company's current strategy of building a portfolio
of loans and securitizing them. As a result of this strategy, the Company is
generally not selling loans upon origination, thereby reducing fee income.

The third component of interest and fee income is amortization of
origination costs. During the six months ended December 31, 1996,
amortization of origination costs was $166,000 compared to $149,000
recognized during the six months ended December 31, 1995. The increase was
attributable to an increase in the amortization of lease origination costs of
$55,000 resulting from an increase in the lease portfolio. This increase was
partially offset by the amortization of loan origination costs which
decreased by $38,000. The decrease in amortization of loan origination costs
resulted from the Company's change in its amortization policy, effective
October 1, 1996, to exclude loans originated or purchased which were
designated to be sold within the following twelve months.

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<PAGE>

Total Expenses. Total expenses increased $3.9 million, or 111.4%, to $7.4
million for the six months ended December 31, 1996 from $3.5 million for the
six months ended December 31, 1995. As described in more detail below, this
increase was primarily a result of increased interest and sales expense
attributable to the Company's continued sale of subordinated debentures. Also
contributing to the increase in total expenses was increases in provision for
credit losses, payroll, sales and marketing and general and administrative
expenses related to increased loan and lease originations.

Interest Expense. Interest expense increased $1.1 million, or 100.0%, to
$2.2 million for the six months ended December 31, 1996 from $1.1 million for
the six months ended December 31, 1995. The increase was primarily
attributable to an increase in the amount of the Company's subordinated
debentures outstanding, the proceeds of which were utilized to fund the
Company's loan growth. Average subordinated debentures outstanding were $38.8
million during the six months ended December 31, 1996 as compared to $21.2
million during the six months ended December 31, 1995. Average interest rates
paid on the subordinated debentures increased to 9.03% for the six months
ended December 31, 1996 from 8.89% for the six months ended December 31, 1995
due to an increase in the volume of debentures with maturities of greater
than one year which bear higher interest rates than shorter term debentures.
Interest expense on lines of credit utilized by the Company during the six
months ended December 31, 1996 was $401,000, as compared to $173,000 during
the six months ended December 31, 1995. The increase was due to the Company's
partial utilization of its $25.0 million warehouse line of credit to fund
Home Equity Loans.

Allowance for Credit Losses. The Company maintains an allowance for credit
losses based upon management's estimate of the expected collectibility of
loans and leases outstanding. The allowance is determined based upon
management's estimate of potential losses in the portfolio in light of
economic conditions, the credit history of the borrowers, and the nature and
characteristics of the underlying collateral as well as the Company's
historical loss experience. Although the Company's historical loss experience
has been minimal, the increase in the allowance reflects the increase in
originations. Although the Company maintains its allowance for credit losses
at the level it considers adequate to provide for potential losses, there can
be no assurances that actual losses will not exceed the estimated amounts or
that additional provisions will not be required. The allowance is increased
through a provision for credit losses. The provision for credit losses
increased by $108,000 to $400,000 for the six months ended December 31, 1996
from $292,000 for the six months ended December 31, 1995. The Company had an
allowance for credit losses of $1.0 million at December 31, 1996. The ratio
of the allowance for credit losses to total net loan and lease receivables
serviced was 1.0% at December 31, 1996 as compared to 1.2% at December 31,
1995. From the inception of the Company's business in 1988 through December
31, 1996, the Company has experienced a total of approximately $311,000 in
net loan and lease losses.

Payroll and Related Costs. Payroll and related costs increased $210,000,
or 67.5%, to $521,000 for the six months ended December 31, 1996 from
$311,000 for the six months ended December 31, 1995. The increase was due to
both an increase in the number of administrative employees as a result of the
Company's growth in loan and lease originations and an increase in loans
serviced for others. Management anticipates that such expense will continue
to increase in the future as the Company's expansion and increasing
originations continue.

Sales and Marketing Expenses. Sales and marketing expenses increased $1.7
million, or 154.5%, to $2.8 million for the six months ended December 31,
1996 from $1.1 million in the six months ended December 31, 1995. The
increase was attributable to increases in advertising costs as a result of
increased newspaper, direct mail and radio advertising related to the
Company's sales of subordinated debentures and loan products. In addition,
the Company initiated a television advertising program for the sale of its
home equity product. Subject to market conditions, the Company plans to
expand its service area throughout the eastern United States. As a result, it
is therefore anticipated that sales and marketing expenses will continue to
increase in the future.

General and Administrative Expenses. General and administrative expenses
increased $681,000, or 94.7%, to $1.4 million for the six months ended
December 31, 1996 from $719,000 for the six months ended December 31, 1995.
The increase was primarily attributable to increases in rent, telephone,
office expense, professional fees and other expenses incurred as a result of
previously discussed increases in loan and lease originations and loan
servicing experienced during the six months ended December 31, 1996.

24
<PAGE>

Income Taxes. Income taxes increased $498,000 to $1.2 million for the six
months ended December 31, 1996 from $702,000 for the six months ended
December 31, 1995 due to an increase in income before taxes.

Net Income. Net income increased $1.0 million to $2.3 million for the six
months ended December 31, 1996 as compared to $1.3 million for the six months
ended December 31, 1995. As a result of the increase, earnings per share
increased to $.93 on weighted average common shares outstanding of 2,468,045
compared to $0.58 on weighted average common shares outstanding of 2,240,660.

YEAR ENDED JUNE 30, 1996 COMPARED WITH THE YEAR ENDED JUNE 30, 1995

Total Revenues. Total revenues increased $6.8 million, or 121.4%, to $12.4
million in the year ended June 30, 1996 from $5.6 million in the year ended
June 30, 1995. The increase in total revenues was primarily the result of
increased gains on sales of loans through securitizations.

Gain on Sale of Loans. Gain on sale of loans increased $7.6 million, or
542.9%, to $9.0 million for the year ended June 30, 1996 from $1.4 million
for the year ended June 30, 1995. This increase was the result of increased
loan sales through securitizations in the year ended June 30, 1996. The
Company consummated loan securitizations in October 1995 and May 1996
generating gain in the aggregate on securitizations of $8.9 million
(representing the fair value of the excess spread of $10.4 million less $1.5
million of costs associated with the transactions) on the Company's
participation in $36.5 million of loans sold through securitizations. Of the
loans sold through securitizations during the year ended June 30, 1996, $27.5
million were Business Purpose Loans and $9.0 million were Home Equity Loans.

Interest and Fee Income. Interest and fee income decreased $707,000, or
17.2%, to $3.4 million in the year ended June 30, 1996 from $4.1 million in
the year ended June 30, 1995 due to a decline in fee income as a result of
the implementation of the Company's securitization program discussed below.

Interest income from loans and leases held in portfolio increased $777,000
to $2.2 million in the year ended June 30, 1996 or a 55.5% increase over the
$1.4 million reported for the year ended June 30, 1995. ABL, the Company's
leasing subsidiary, contributed $593,000 of the increase. The remaining
increase was attributable to increased originations of Business Purpose Loans
and Home Equity Loans as well as management's decision to retain Home Equity
Loans in portfolio in contemplation of the securitization thereof in the
future. During the year ended June 30, 1996, the Company originated
approximately $37.0 million of Home Equity Loans and $29.0 million of
Business Purpose Loans. During the year ended June 30, 1995, the Company
originated approximately $18.0 million of Home Equity Loans, the majority of
which were sold to third parties (with servicing released) and $18.2 million
of Business Purpose Loans. Beginning in October 1995, as part of the
Company's securitization strategy, the Company placed loans into its held for
sale portfolio until sold as part of a securitization. As a result of this
strategy, the Company holds a greater amount of Home Equity Loans in its
portfolio thereby generating an increase in interest income and a decrease in
fee income.

Fee income decreased $1.7 million to $1.5 million for the year ended June
30, 1996 from $3.2 million for the year ended June 30, 1995. The reduction in
fee income was due to the Company's current strategy of building a portfolio
of loans and securitizing them. As a result of this strategy, the Company is
not selling as many loans upon origination thereby reducing fee income in the
form of premiums received on the sale of loans.

Amortization of origination costs, the third component of interest and fee
income, decreased $223,000 to $305,000 for the year ended June 30, 1996 from
$528,000 for the year ended June 30, 1995. Amortization of origination costs
attributable to leasing activities increased $166,000 as ABL was only in
operation for approximately six months of the year ended June 30, 1995.
However, amortization of origination costs attributable to mortgage loans
decreased $374,000 in the year ended June 30, 1996. The amount of origination
cost recognized is in part determined by the length of time a loan is held in
portfolio. In the year ended June 30, 1995, the Company securitized its loan
portfolio in March 1995 resulting in the average loan being held in portfolio
for approximately 5.5 months. In the year ended June 30, 1996, loans were
securitized in October 1995 and May 1996, reducing the average holding period
to approximately three months.

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<PAGE>

Total Expenses. Total expenses increased $4.5 million, or 93.8%, to $9.3
million in the year ended June 30, 1996 from $4.8 million in the year ended
June 30, 1995. As described in more detail below, this increase was primarily
a result of increases in interest and sales expenses attributable to the
Company's continued sale of subordinated debentures, and increased payroll,
sales and marketing and general and administrative expenses related to
increased loan originations during the year ended June 30, 1996.

Interest Expense. Interest expense increased $1.5 million, or 125.0%, to
$2.7 million in the year ended June 30, 1996 from $1.2 million in the year
ended June 30, 1995. The increase was primarily attributable to an increase
in the amount of the Company's subordinated debentures outstanding.
Management utilized the proceeds from the sale of such subordinated
debentures to fund the increase in loan originations experienced during the
year ended June 30, 1996. Outstanding subordinated debentures which were
issued for terms ranging from three months to ten years and with rates
ranging from 7% to 10.5%, increased to an average of $25.0 million during the
year ended June 30, 1996 from an average of $12.0 million during the year
ended June 30, 1995. The average interest rate paid on the subordinated
debentures increased to 9.02% for fiscal 1996 from 8.75% for fiscal 1995 due
to an increase in market rates of interest.

Provision for Credit Losses. The provision for credit losses increased to
$681,000 in fiscal 1996 from $165,000 in fiscal 1995. The provision for
credit losses was increased due to the increase in the Company's loan and
lease portfolio. The Company's allowance for credit losses totaled $707,000
at June 30, 1996. The ratio of the allowance for credit losses to total net
loan and lease receivables serviced was 1.18% at June 30, 1996 as compared to
0.87% at June 30, 1995.

Payroll and Related Costs. Payroll and related costs increased $208,000,
or 20.8%, to $1.2 million in the year ended June 30, 1996 from $1.0 million
in the year ended June 30, 1995. This increase was primarily due to an
increase in the number of administrative employees as a result of the
Company's growth in loan originations, geographic expansion and increase in
loans serviced for others.

Sales and Marketing Expenses. Sales and marketing expenses increased $1.2
million, or 80.0%, to $2.7 million in the year ended June 30, 1996 from $1.5
million in the year ended June 30, 1995. The increase was attributable to an
increase in advertising costs as a result of increased newspaper and direct
mail advertising related to the Company's sale of debentures and loan
products and the initiation of a radio advertising program for the home
equity loan product. The increase in sales and marketing expenses was also
due to the expansion of the Company's service area during fiscal 1996 into
Maryland, New York City and Florida. During such period, the Company began
offering its subordinated debentures in Florida and Business Purpose Loans in
Maryland and New York City.

General and Administrative Expenses. General and administrative expenses
increased $1.1 million, or 127.0%, to $2.0 million in the year ended June 30,
1996 from $866,000 in the year ended June 30, 1995. The increase was
primarily attributable to increases in rent, telephone, office expense,
professional fees and other expenses incurred as a result of the previously
discussed increase in loan originations and loan servicing experienced during
fiscal 1996.

Income Taxes. Income taxes increased from $313,000 for the year ended June
30, 1995 to $802,000 for the year ended June 30, 1996 as a result of
increased earnings. At June 30, 1996, the Company had approximately $900,000
of net operating loss carryforwards ("NOLs") available for federal income tax
purposes (which the Company intends to utilize) and $1.6 million of NOLs
available for state income tax purposes. If not utilized, substantially all
of the state NOLs will expire at various dates between June 30, 1997 and June
30, 1999. Based upon the relatively short carryforward periods allowed by the
states in which the Company operates and the Company's current strategy of
utilizing securitizations to manage portfolio size, it is not likely that the
Company will utilize all of the NOLs for state tax purposes. As a result, the
Company established a valuation reserve equal to 100% of the value of this
asset.

Net Income. Net income increased $1.7 million, or 292.6%, to $2.3 million
for the year ended June 30, 1996 from $581,000 for the year ended June 30,
1995. As a result of the increase in income, earnings per share increased to
$1.01 on weighted average common shares outstanding of 2,296,913 in the year
ended June 30, 1996 compared to $0.27 on weighted average common shares
outstanding of 2,128,154 for the year ended June 30, 1995 representing a
274.1% increase for the year ended June 30, 1996 from the year ended June 30,
1995.

26
<PAGE>

YEAR ENDED JUNE 30, 1995 COMPARED WITH THE YEAR ENDED JUNE 30, 1994

Total Revenues. Total revenues increased $3.0 million, or 115.4%, to $5.6
million in the year ended June 30, 1995 from $2.6 million in the year ended
June 30, 1994. The increase in total revenues was the result of increased
interest and fee income combined with the recognition of gain on sale of
loans through a securitization.

Gain on Sale of Loans. Gain on sale of loans increased $1.3 million, or
1181.8%, to $1.4 million for the year ended June 30, 1995 from $110,000 for
the year ended June 30, 1994 as a result of increased loan sales through a
securitization in the year ended June 30, 1995. The Company consummated its
first securitization of $9.7 million in Business Purpose Loans in March 1995
generating gain on sale of loans of $1.4 million (representing the fair value
of the excess spread of $3.1 million less $1.7 million of costs associated
with the transaction).

Interest and Fee Income. Interest and fee income increased $1.7 million,
or 70.8%, to $4.1 million in the year ended June 30, 1995 from $2.4 million
in the year ended June 30, 1994 due primarily to an increase in fee income
earned in connection with the origination of Business Purpose Loans for sale
to unaffiliated lenders.

Interest income from loans and leases increased $390,000 to $1.4 million
in the year ended June 30, 1995, or 39.0%, from $1.0 million for the year
ended June 30, 1994. ABL, the Company's leasing subsidiary which commenced
operations in December 1994, contributed $99,000 of the increase. The
remaining increase was attributable to higher average outstanding loan and
lease receivables caused by increased originations during fiscal 1995. During
the year ended June 30, 1995, the Company originated $18.2 million of
Business Purpose Loans and $17.0 million of Home Equity Loans. During the
same period, $2.2 million of leases were originated. Average outstanding loan
and lease receivables increased to $9.9 million during the year ended June
30, 1995 to $6.6 million during the year ended June 30, 1994.

Fee income increased $1.3 million, or 68.4%, to $3.2 million for the year
ended June 30, 1995 from $1.9 million for the year ended June 30, 1994. The
increase in fee income was due to higher originations of Business Purpose
Loans on which the Company received higher fees than those received on Home
Equity Loans. Business Purpose Loans originated on behalf of unaffiliated
lenders increased to $15.0 million during the year ended June 30, 1995 from
$8.3 million for the year ended June 30, 1994.

Amortization of origination costs remained fairly constant during the
years ended June 30, 1995 and 1994 at approximately $500,000.

Total Expenses. Total expenses increased $2.5 million, or 108.7%, to $4.8
million in the year ended June 30, 1995 from $2.3 million in the year ended
June 30, 1994. This increase was primarily the result of increased interest
and sales expenses attributable to the Company's sale of subordinated
debentures, and increased payroll, sales and marketing and general
administrative expenses related to increased loan originations during the
year ended June 30, 1995.

Interest Expense. Interest expense increased $585,000, or 93.2%, to $1.2
million in the year ended June 30, 1995 from $628,000 in the year ended June
30, 1994 primarily due to an increase in the amount of the Company's
subordinated debentures outstanding as management utilized the proceeds from
the sale of such subordinated debentures to fund the increase in loan
originations during the year ended June 30, 1995. Outstanding subordinated
debentures which were issued for terms ranging from three months to ten years
and with rates ranging from 7.0% to 10.25% increased to an average of $12.0
million during the year ended June 30, 1995 from an average $3.8 million
during the year ended June 30, 1994. The average interest rate paid on the
subordinated debentures remained fairly constant during the two years at
approximately 8.75%.

Provision for Credit Losses. The provision for credit losses increased
$117,000 to $165,000 for the year ended June 30, 1995 from $48,000 for the
year ended June 30, 1994. The provision for credit losses was increased due
to the increase in the Company's loan and lease portfolio. The allowance for
credit losses was $155,000 at June 30, 1995. The ratio of the allowance for
credit losses to total net loan and lease receivables serviced was 0.87% at
June 30, 1995 as compared to 0.93% at June 30, 1994.

27
<PAGE>

Payroll and Related Costs. Payroll and related costs increased $584,000,
or 142.1%, to $995,000 in the year ended June 30, 1995 from $411,000 in the
year ended June 30, 1994. The increase was due to the hiring of additional
personnel in connection with the commencement of operations of ABL and an
increase in the number of administrative employees resulting from the
Company's growth in loan originations.

Sales and Marketing Expenses. Sales and marketing expenses increased
$849,000, or 128.4%, to $1.5 million in the year ended June 30, 1995 from
$661,000 in the year ended June 30, 1994. The increase was attributable to an
increase in advertising costs as a result of increased newspaper and direct
mail advertising related to the Company's sale of subordinated debentures and
loan products.

General and Administrative Expenses. General and administrative expenses
increased $315,000, or 57.2%, to $866,000 in the year ended June 30, 1995
from $551,000 in the year ended June 30, 1994. The increase was primarily
attributable to increases in rent, telephone, office expense, professional
fees and other expenses incurred as a result of the commencement of
operations of ABL and the previously discussed increase in loan originations.

Income Taxes and Change in Accounting for Income Taxes. Income taxes
increased $115,000, or 58.1%, to $313,000 for the year ended June 30, 1995
from $198,000 for the year ended June 30, 1994 due to increased income before
taxes.

The Company adopted SFAS No. 109 in the fourth quarter of fiscal 1994
retroactive to July 1, 1993. The provisions of SFAS No. 109 require the
liability method of accounting for income taxes and among other things,
recognition of future tax benefits, measured by enacted tax rates,
attributable to deductible temporary differences between financial statement
and income tax bases of assets and liabilities and to NOLs, to the extent
that realization of such benefits is more likely than not. The adoption of
SFAS No. 109 resulted in a $52,000 reduction in net income for the year ended
June 30, 1994.

At June 30, 1995, the Company had NOLs for state tax purposes of
approximately $1.4 million. Based upon the relatively short carryforward
periods allowed by the states in which the Company operates and the Company's
current strategy of utilizing securitizations to manage portfolio size, it is
not likely that the Company will utilize all of the NOLs for state tax
purposes. As a result, the Company established a valuation reserve equal to
100% of the value of this asset.

Net Income. Net income increased $496,000, or 583.5% to $581,000 for the
year ended June 30, 1995 from $85,000 for year ended June 30, 1994 primarily
due to the increase in the gain on sale of loans due to the Company's
securitizations. As a result of the increase, earnings per share increased to
$.27 on weighted average common shares outstanding of 2,128,154 for the year
ended June 30, 1995 compared to $0.04 on weighted average common shares
outstanding of 2,127,263 for the year ended June 30, 1994 representing a
575.0% increase in earnings per share for the year ended June 30, 1995 from
the year ended June 30, 1994.

28
<PAGE>
ASSET QUALITY

The following table provides data concerning delinquency experience, real
estate owned ("REO") and loss experience for the Company's loan and lease
portfolio serviced. There were no home equity or other loans included in REO
during the periods presented.

<TABLE>
<CAPTION>
December 31, 1996 June 30, 1996 June 30, 1995 June 30, 1994
------------------------ --------------------------------------------------------------------
Delinquency by Type Amount % Amount % Amount % Amount %
---------------------------- ------------ ---------- ----------- ---------- ------------ --------- ----------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Business Purpose Loans
Total portfolio serviced ... $52,483 $37,950 $14,678 $8,170
========= ======= ======== =======
Period of delinquency
31-60 days ............ $ 788 1.50% $ 86 .23% 141 .96% 71 .87%
61-90 days ............ 338 .64 118 .31 75 .51 -- --
Over 90 days .......... 404 .77 1,033 2.72 310 2.11 504 6.17
--------- -------- --------- -------- ------- ------ -------- -------
Total delinquencies ... $ 1,530 2.91% $ 1,237 3.26% $ 526 3.59% $ 575 7.04%
========= ======== =========== ========== ============ ========= =========== =========
REO ........................ $ 690 $ 608 $ 762 $ 220
========= =========== ========== =========
Home Equity Loans
Total portfolio serviced ... $44,243 $17,224 -- --
========= ======= ======== =======
Period of delinquency
31-60 days ............ -- -- -- -- -- -- -- --
61-90 days ............ -- -- -- -- -- -- -- --
Over 90 days .......... -- -- -- -- -- -- -- --
--------- -------- --------- -------- ------- ------ -------- -------
Total delinquencies ... -- -- -- -- -- -- -- --
========= ======== =========== ========== ============ ========= =========== =========
Equipment Leases
Total portfolio serviced ... $ 7,128 $ 4,607 $ 2,031 --
========= ======= ======== =======
Period of delinquency
31-60 days ............ $ 50 .70% $ 23 .50% $ 49 2.40% -- --
61-90 days ............ 17 .24 14 .30 40 1.97 -- --
Over 90 days .......... 94 1.32 41 .89 -- -- -- --
--------- -------- --------- -------- ------- ------ -------- -------
Total delinquencies ... $ 161 2.26% $ 78 1.69% $ 89 4.37% -- --
========= ======== =========== ========== ============ ========= =========== =========
Other Loans (1)
Total portfolio serviced ... $ 80 $ 110 $ 1,065 $ 237
============ =========== ============ ===========
Period of delinquency
31-60 days ............ $ -- --% $ -- --% $ 16 1.51% -- --
61-90 days ............ -- -- 18 16.36 30 2.82 -- --
Over 90 days .......... 18 22.50 50 45.45 21 1.97 -- --
------------ ---------- ----------- ---------- ------------ --------- ----------- ---------
Total delinquencies ... $ 18 22.50% $ 68 61.81% $ 67 6.30% -- --
============ ========== =========== ========== ============ ========= =========== =========
</TABLE>
<TABLE>
<CAPTION>
Company Combined
----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total portfolio serviced ......... $103,934 $59,891 $17,774 $8,407
========== ========= ========== =========
Period of delinquency
31-60 days .................. $ 838 .80% $ 109 .18% $ 206 1.16% $ 72 .85%
61-90 days .................. 355 .34 150 .25 145 .82 -- --
Over 90 days ................ 516 .50 1,124 1.87 331 1.86 504 6.00
---------- ------- --------- ------- ---------- ------- --------- -------
Total delinquencies ......... $ 1,709 1.64% $ 1,383 2.30% 682 3.84% 576 6.85%
========== ======= ========= ======= ========== ======= ========= =======
REO .............................. $ 690 $ 608 $ 762 $ 220
========== ======= ========= ======= ========== ======= =========
Losses experienced
during the period .............. $ 58 .06% $ 129 .22% $ 88 .49% $ 10 .12%
========== ======= ========= ======= ========== ======= ========= =======
Allowance for credit losses at end of
period ......................... $ 1,049 1.01% $ 707 1.18% $ 155 .87% $ 78 .93%
========== ======= ========= ======= ========== ======= ========= =======
</TABLE>
- ------

(1) Includes secured and unsecured consumer loans originated by HCDC.

29
<PAGE>

The following table sets forth the Company's loss experience for the
periods indicated.

<TABLE>
<CAPTION>
For the Six
Months Ended
December 31, For the Year Ended June 30,
---------------- --------------------------------
1996 1996 1995 1994
---------------- --------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C>
Business Purpose Loans ... $58 $ 92 $86 $10
Home Equity Loans ........ -- -- -- --
Other Loans .............. -- 37 2 --
Leases ................... -- -- -- --
---------------- --------- -------- --------
Total losses ........ $58 $129 $88 $10
================ ========= ======== ========

</TABLE>

Although the Company's total delinquencies as a percentage of the total
loan and lease portfolio serviced did not increase during the years ended
June 30, 1996 and 1995 and the six months ended December 31, 1996, the dollar
amount of the total loan delinquencies increased during such periods which is
reflective of the increase in the Company's total loan and lease portfolio
serviced.

INTEREST RATE RISK MANAGEMENT

The Company's profitability is largely dependent upon the spread between
the effective rate of interest received on the loans originated or purchased
by the Company and interest rates payable pursuant to the Company's credit
facilities or the pass-through rate for interests issued in connection with
the securitization of loans. The Company's spread may be negatively impacted
to the extent it holds fixed-rate mortgage loans in its held for sale
portfolio prior to securitization. The adverse effect in the Company's spread
may be the result of increases in interest rates during the period the loans
are held prior to securitization or as a result of an increase in the rate
required to be paid to investors in connection with the securitization.

In August 1995, the Company implemented a hedging strategy in an attempt
to mitigate the effect of changes in interest rates on its fixed-rate
mortgage loan portfolio between the date of origination and securitization.
This strategy involves short sales of a combination of U.S. Treasury
securities with an average life which closely match the average life of the
loans to be securitized. The settlement date of the short sale, as well as
the buy back of the Treasury securities coincides with the anticipated
settlement date of the underlying securitization. At June 30, 1996, the
Company had sold short $15.0 million of U.S. Treasury securities. The
deferred loss related to these activities was approximately $27,000 at June
30, 1996. At December 31, 1996, the Company had sold short $30.0 million of
U.S. Treasury securities. The deferred loss related to these activities was
approximately $221,000 at December 31, 1996. During the six months ended
December 31, 1996, the Company incurred a loss of approximately $34,000 on
short sales of securities. The Company also prefunds loan originations in
connection with its loan securitizations which enables the Company to
determine in the current period the rate to be received by the investors on
loans to be originated and securitized in a future period. See "Business --
Securitizations."

The nature and quantity of hedging transactions are determined by the
Company's management based on various factors, including market conditions
and the expected volume of mortgage loan originations and purchases.

The Company believes that it has implemented a cost-effective hedging
program to provide a level of protection against changes in market value of
its fixed-rate mortgage loans held for sale. However, an effective interest
rate risk management strategy is complex and no such strategy can completely
insulate the Company from interest rate changes. In addition, hedging
involves transaction and other costs, and such costs could increase as the
period covered by the hedging protection increases. In the event of a
decrease in market interest rates, the Company would experience a loss on the
purchase of Treasury securities involved in the interest rate lock
transaction which would be reflected on the Company's financial statements
during the period in which the buy back of the Treasury securities occurred.
Such loss would be offset by the income realized from the securitization in
future periods. As a result, the Company may be prevented from effectively
hedging its fixed-rate loans held for sale, without reducing the Company's
income in current periods.

30
<PAGE>

In the future, the Company intends to continue to engage in short sales of
Treasury securities as part of its interest rate risk management strategy.

The Company also experiences interest rate risk to the extent that as of
December 31, 1996 approximately $20.5 million of its liabilities are
comprised of subordinated debentures with scheduled maturities of greater
than one year. To the extent that interest rates decrease in the future, the
rates paid on such liabilities could exceed the rates received on new loan
originations resulting in a decrease in the Company's spread. See "Risk
Factors--Changes in Interest Rates May Adversely Affect Profitability."

LIQUIDITY AND CAPITAL RESOURCES

The Company continues to fund its loans principally through (i) the
securitization and sales of loans which it originates, (ii) the sale of the
Company's registered subordinated debentures, (iii) institutional debt
financing, and (iv) retained earnings. The Company's cash requirements
include the funding of loan originations, payment of interest expense,
funding over-collateralization requirements, operating expenses and capital
expenditures.

To a limited extent, the Company presently intends to continue to augment
the interest and fee income it earns on its loan and lease portfolio, from
time to time, by selling loans either at the time of origination or from its
portfolio to unrelated third parties. These transactions also create
additional liquid funds available for lending activities.

In recent periods, the Company has significantly increased its reliance on
securitizations to generate cash proceeds for the repayment of debt and to
fund its ongoing operations. During fiscal 1995, the Company completed a
securitization of $9.7 million of Business Purpose Loans resulting in
proceeds of approximately $9.0 million. During fiscal 1996, the Company
completed two loan securitizations. These securitizations, which were
consummated in October 1995 and May 1996, involved $14.5 million of Business
Purpose Loans and $22.0 million of Business Purpose and Home Equity Loans,
respectively. The securitizations occurring during fiscal 1996 resulted in
proceeds of approximately $34.3 million. During the six months ended December
31, 1996, the Company completed a securitization involving $40.0 million of
Business Purpose Loans and Home Equity Loans. The securitization resulted in
net proceeds of approximately $38.8 million. The Company has utilized the
proceeds of the securitizations to fund the origination of new loans and
leases and to repay funds borrowed pursuant to the Company's warehouse
financing facilities. As a result of the terms of the securitizations, the
Company will receive less cash flow from the portfolios of loans securitized
than it would otherwise receive absent securitizations.

The Company's sale of loans through securitizations has resulted in gains
on sale of loans recognized by the Company. For the fiscal years 1996 and
1995 and the six months ended December 31, 1996, the Company had gain on sale
of loans through securitizations of $8.9 million, $1.4 million and $7.0
million, respectively. The Company uses a portion of the proceeds of a
securitization, net of fees and costs of the securitization, to repay the
warehouse credit facilities. Additionally, in a securitization, the Company
obtains the right to receive excess cash flows generated by the securitized
loans held in the trust referred to herein as the excess spread and
capitalizes mortgage servicing rights, each of which creates non-cash taxable
income. Consequently, the income tax payable and the expenses related to the
securitizations negatively impact the Company's cash flow. As a result, the
Company may operate on a negative operating cash flow basis which could
negatively impact the Company's results of operations during such periods.
See "Risk Factors -- Dependence Upon Securitizations and Fluctuations in
Operating Results."

Additionally, pursuant to the terms of the securitizations, the Company
will act as the servicer of the loans and in that capacity will be obligated
to advance funds in certain circumstances in respect of each monthly loan
interest payment that accrued during the collection period for the loans but
was not received, unless the Company determines that such advances will not
be recoverable from subsequent collections in respect of the related loan.
The Company's obligation to advance funds in its capacity as servicer of the
loans may create greater demands on the Company's cash flow than either
selling loans or maintaining a portfolio of loans.

31
<PAGE>

Subject to economic, market and interest rate conditions, the Company
intends to continue to implement additional securitizations of its loan
portfolios and may in the future securitize its lease portfolio. Adverse
conditions in the securitization market could impair the Company's ability to
sell loans through securitizations on a favorable or timely basis. Since the
sale of loans through securitizations is an important source of revenues, any
such delay or impairment could have a material adverse impact on the
Company's results of operations. See "Risk Factors -- Changes in Interest
Rates May Adversely Affect Profitability."

Despite its use of a portion of the proceeds of the securitizations to
fund loan originations, the Company continues to rely on borrowings such as
its subordinated debentures and warehouse credit facilities or lines of
credit to fund its operations. At December 31, 1996, the Company had a total
of $45.2 million of subordinated debentures outstanding and available credit
facilities and lines of credit totaling $47.5 million, of which $6.3 million
was drawn upon on such date.

Between 1990 and 1993, American Business Finance Corporation ("ABFC"), an
indirect subsidiary of ABFS, sold approximately $1.7 million in principal
amount of subordinated debentures which mature at varying times between
September 1996 and June 1998. In December 1993, the Company ceased selling
subordinated debentures through ABFC. As of December 31, 1996, ABFC had
approximately $1.3 million of subordinated debentures outstanding.

In addition, between July 1, 1993 and December 31, 1996, ABFS sold $67.7
million in principal amount of subordinated debentures (including redemptions
and repurchases by investors), pursuant to registered offerings with
maturities ranging between three months and ten years. As of December 31,
1996, ABFS had approximately $43.9 million of subordinated debentures
outstanding (excluding the debt of ABFC). The proceeds of such sales of
debentures have been used to fund general operating and lending activities.
The Company intends to meet its obligations to repay such debentures as they
mature with income generated through its lending activities and funds
generated through repayment of its outstanding loans. The repayment of such
obligations should not effect the Company's operations.

During fiscal 1997, the Company intends to file a registration statement
with the Commission which would register up to $125.0 million of subordinated
debt securities for sale in a public offering. The Company anticipates
offering such securities to the public on a continuous basis over a 20 month
period.

In April 1996, Upland entered into an Interim Warehouse and Security
Agreement with Prudential Securities Realty Funding Corporation. The credit
facility is for $25.0 million, bears interest at the 30 day London Inter-Bank
Offered Rate ("LIBOR") plus 1.25% and expires March 1997. Additionally, in
May 1996, Upland entered into a $7.5 million Revolving Loan and Security
Agreement with BankAmerica Business Credit, Inc. The credit facility bears
interest at the bank's prime rate plus 1.25% and expires in May 1998. In
addition, in December 1996, ABC entered into a Loan and Security Agreement
with Finova Capital Corporation. This line of credit is in the amount of
$15.0 million and expires in December 1999. This line of credit bears
interest at the Prime Rate plus 1.0% and is guaranteed by the Company. At
December 31, 1996, $6.3 million of these credit facilities were being
utilized.

The Company is currently discussing the possibility of obtaining
additional lines of credit with other lenders and providers of credit.

As of December 31, 1996, the Company had $31.0 million of debt scheduled
to mature during the twelve months ending December 31, 1997 which was
comprised of $24.7 million of maturing subordinated debentures and credit
facilities totaling $6.3 million. The Company currently expects to refinance
the $24.7 million of maturing debt through extensions of maturing debentures
or new debt financing and, if necessary, may retire the debt through cash
flow from operations and loan sales or securitizations. The credit facility
is expected to be repaid from funds obtained through the Company's next loan
securitization. Despite the Company's current use of securitizations to fund
loan growth, the Company is also dependent upon borrowings to fund a portion
of its operations. As a result, the Company intends to continue to utilize
debt financing to fund its operations in the future. See "Risk Factors --
Dependence Upon Debt Financing."

From time to time, the Company considers potential acquisitions of related
businesses or assets which could have a material impact upon the Company's
results of operations and liquidity position.

32
<PAGE>

The Company leases certain of its facilities under a five-year operating
lease expiring in November 2000 at a minimum annual rental of $430,637. The
lease contains a renewal option for an additional period at increased annual
rental. See "Business -- Property."

RECENT ACCOUNTING PRONOUNCEMENTS

Set forth below are recent accounting pronouncements which may have a
future effect on the Company's operations. These pronouncements should be
read in conjunction with the significant accounting policies which the
Company has adopted that are set forth in the Company's notes to consolidated
financial statements.

In October 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123, "Accounting for Stock-Based Compensation," ("SFAS No. 123")
establishing financial accounting and reporting standards for stock-based
employee compensation plans. SFAS No. 123 encourages all entities to adopt a
new method of accounting to measure compensation cost of all employee stock
compensation plans based on the estimated fair value of the award at the date
it is granted. Companies are, however, allowed to continue to measure
compensation cost for those plans using the intrinsic value based method of
accounting, which generally does not result in compensation expense
recognition for most plans. Companies that elect to remain with the existing
accounting are required to disclose in a footnote to the financial statements
pro forma net income, and if presented, earnings per share, as if SFAS No.
123 had been adopted. The accounting requirements of this Statement are
effective for transactions entered into during fiscal years that begin after
December 15, 1995; however, companies are required to disclose information
for awards granted in their first fiscal year beginning after December 15,
1994. The Company intends to continue to utilize the intrinsic value method
of accounting for stock based compensation as permitted by SFAS No. 123.
Subject to the approval of stockholders, the Company amended its existing
option plan to increase the number of options available for issuance
thereunder from 78,988 to 163,988 shares, of which the Company intends to
make awards of options to purchase 150,500 shares of Common Stock in
conjunction with the Public Offering to various officers of the Company. See
"Management" and Note 9 of the Notes to Consolidated Financial Statements.

In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS No.
125"). Pursuant to SFAS No. 125, after a transfer of financial assets, an
entity would be required to recognize all financial assets and servicing it
controls and liabilities it has incurred and, conversely, would not be
required to recognize financial assets when control has been surrendered and
liabilities when extinguished. SFAS No. 125 provides standards for
distinguishing transfers of financial assets that are sales from transfers
that are secured borrowings. SFAS No. 125 will be effective with respect to
the transfer and servicing of financial assets and the extinguishment of
liabilities occurring after December 31, 1996, with earlier application
prohibited. The Company has not completed an analysis of the potential
effects of SFAS No. 125 on the Company's financial condition or results of
operations. See Note 1 of the Notes to Consolidated Financial Statements.

IMPACT OF INFLATION AND CHANGING PRICES

The Consolidated Financial Statements and related data presented herein
have been prepared in accordance with generally accepted accounting
principles, which require the measurement of financial position and operating
results in terms of historical dollars (except with respect to securities
which are carried at market value), without considering changes in the
relative purchasing power of money over time due to inflation. Unlike most
industrial companies, substantially all of the assets and liabilities of the
Company are monetary in nature. As a result, interest rates have a more
significant impact on the Company's performance than the effects of general
levels of inflation. Interest rates do not necessarily move in the same
direction or in the same magnitude as the prices of goods and services.

33
<PAGE>

BUSINESS

GENERAL

ABFS is a financial services company operating primarily in the
mid-atlantic region of the United States. The Company, through its principal
direct and indirect subsidiaries, originates, sells and services Business
Purpose Loans and Home Equity Loans. The Company also originates Equipment
Leases. In addition, the Company recently commenced implementation of the
Bank Alliance Program pursuant to which it has entered into exclusive
business arrangements with several financial institutions pursuant to which
the Company will purchase Home Equity Loans that do not meet the underwriting
guidelines of the selling institution but that do meet the Company's
underwriting criteria.

The Company began operations in 1988 and initially offered Business
Purpose Loans. The Company currently originates Business Purpose Loans
through a retail network of salespeople in Pennsylvania, Delaware, New
Jersey, New York, Virginia, Maryland and Connecticut. The Company has taken
the initial steps to expand its business purpose lending program into the
southeastern region of the United States. The Company focuses its marketing
efforts on small businesses which generally do not meet all of the credit
criteria of commercial banks and small businesses that the Company's research
indicates are predisposed to using the Company's products and services.

The Business Purpose Loans originated by the Company are secured by real
estate. In substantially all cases, the Company receives additional
collateral in the form of, among other things, pledges of securities,
assignments of contract rights, life insurance and lease payments and liens
on business equipment and other business assets, as available. The Company's
Business Purpose Loans are typically originated with fixed rates and
typically have origination fees of 5.0% to 6.0%. The weighted average
interest rate on the Business Purpose Loans originated by the Company were
15.91% and 15.83% for the six months ended December 31, 1996 and the year
ended June 30, 1996, respectively. The Business Purpose Loans typically have
significant prepayment penalties which the Company believes tend to extend
the average life of such loans and make these loans more attractive products
to securitize. The Business Purpose Loans securitized in the last two
securitizations had a weighted average loan-to-value ratio (based solely upon
the real estate collateral securing the loans) of 59.8% at the time of
securitization.

34
<PAGE>

Carolina, Connecticut and Florida during calendar 1997. The Company
originated $30.2 million and $36.5 million of Home Equity Loans for the six
months ended December 31, 1996 and the year ended June 30, 1996,
respectively. The weighted average interest rate on Home Equity Loans
originated by the Company was 11.67% and 9.94% for the six months ended on
December 31, 1996 and the year ended June 30, 1996, respectively.

The Company initiated its Bank Alliance Program in fiscal 1996. The
Company believes that the Bank Alliance Program is a unique method of
increasing the Company's production of Home Equity Loans to credit impaired
borrowers. Currently, the Company has entered into agreements with six
financial institutions which provide the Company with the opportunity to
underwrite, process and purchase Home Equity Loans generated by the branch
networks of such institutions which consist of approximately 800 branches
located in Pennsylvania, Delaware, New Jersey and Maryland. The Company is
also negotiating with other financial institutions regarding their
participation in the program.

ABFS began offering Equipment Leases in December 1994 to complement its
business purpose lending program. The Company originates leases on a
nationwide basis with a particular emphasis on the eastern portion of the
United States. The Company believes that cross-selling opportunities may
exist for offering lease products to Business Purpose Loan customers and
offering Business Purpose Loans to lease customers. The weighted average
interest rate received on the Equipment Leases originated by the Company was
16.10% and 17.22% for the six months ended December 31, 1996 and the year
ended June 30, 1996, respectively. The Company currently holds all Equipment
Leases originated in its lease portfolio to generate interest income. The
Company recently hired a leasing officer with over 25 years of experience in
small ticket leasing to expand this area of the Company's business.

The Company intends to continue to utilize funds generated from the
securitization of loans and the sale of subordinated debentures to increase
its loan and lease originations and to expand into new geographic markets
with an initial focus on expansion in the southeastern region of the United
States. The Company also intends to expand its Bank Alliance Program with
financial institutions across the United States.

From the inception of the Company's business in 1988 through December 31,
1996, the Company has experienced total net loan and lease losses of
approximately $311,000. The Company's losses on its loan and lease portfolio
serviced totaled $58,000, $129,000, $88,000 and $10,000, respectively, for
the six months ended December 31, 1996 and the years ended June 30, 1996,
1995 and 1994. The Company's loans and leases delinquent over 30 days
represented 1.64% and 2.30% of the total loan and lease portfolio (excluding
real estate owned) serviced at December 31, 1996 and June 30, 1996,
respectively. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Asset Quality."

The Company's ability to fund and subsequently securitize Business Purpose
Loans and Home Equity Loans has significantly improved its financial
performance and enabled it to both expand its marketing efforts and increase
the geographic scope of its products. Through December 31, 1996, the Company
had securitized an aggregate of $53.3 million of Business Purpose Loans and
$32.9 million of Home Equity Loans. The Company retains the servicing rights
on its securitized loans.

In addition to securitizations, the Company funds its operations with
subordinated debentures that the Company markets directly to individuals from
the Company's operating office located in Pennsylvania and branch offices
located in Florida and Arizona. At December 31, 1996, the Company had $45.2
million in subordinated debentures outstanding with a weighted average coupon
of 8.99% and a weighted average maturity of 26.5 months.

American Business Financial Services Inc.'s only activity as of the date
hereof has been: (i) acting as the holding company for its operating
subsidiaries and (ii) raising capital for use in the Company's lending
operations. ABFS is the parent holding company of ABC and its primary
subsidiaries, American Business Finance Corporation, Upland, Processing
Service Center, Inc., HomeAmerican Consumer Discount Company ("HCDC"), ABL
and ABC Holdings Corporation (collectively, the "Company").

35
<PAGE>

ABC, a Pennsylvania corporation incorporated in 1988 and acquired by the
Company in 1993, originates, services and sells Business Purpose Loans. HAC,
a Pennsylvania corporation incorporated in 1991, originates and sells Home
Equity Loans. HAC acquired Upland in 1996 and since such time has conducted
business as "Upland Mortgage." Upland also purchases Home Equity Loans
through the Bank Alliance Program. Processing Service Center, Inc. processes
Home Equity Loan applications for financial institutions as part of the Bank
Alliance Program. Incorporated in 1994, ABL commenced operations in 1995 and
originates and services Equipment Leases.

ABC Holdings Corporation was incorporated to hold properties acquired
through foreclosure. HCDC was incorporated in 1993 for the purpose of
offering secured and unsecured small consumer loans (i.e., loans up to
$15,000) for sale to third party investors. Collateral securing such loans
includes residential real estate, automobiles, boats and other personal
property. As of December 31, 1996, HCDC maintained a portfolio of consumer
loans of approximately $80,000. The Company does not intend to emphasize this
area of its business in the future.

The Company's indirect subsidiaries, ABFS 1995-1, Inc., ABFS 1995-2, Inc.,
ABFS 1996-1, Inc. and ABFS 1996-2, Inc. are Delaware investment holding
companies. Such companies were incorporated to facilitate the Company's
securitizations. The stock of such subsidiaries is owned by ABC and Upland
Mortgage. Such corporations do not engage in any business activity other than
holding the subordinated certificate, if any, and the excess spread. See
"--Securitizations." American Business Finance Corporation was incorporated in
1990 in order to issue subordinated debentures in 1990 through 1993. Since
December 1993, American Business Finance Corporation has been inactive. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

36
<PAGE>

The following chart sets forth organizational structure of ABFS.(1)

-----------------------

ABFS

(Holding Company)

-----------------------

----------------------------------

American Business
Credit, Inc.

(Originates and services Business
Purpose Loans)

----------------------------------

- --------------------------------------------------------------------------------

HOME PROCESSING AMERICAN HOME ABC AMERICAN
AMERICAN SERVICE BUSINESS AMERICAN HOLDINGS BUSINESS
CREDIT, INC. CENTER, LEASING, CONSUMER CORP. FINANCE
d/b/a INC. INC. DISCOUNT, CORP.
UPLAND (Processes (Originates INC.
MORTGAGE(2) Bank Alliance and services (Originates (Holds (Issued
(Originates, Program Equipment small foreclosed subordinated
purchases Home Equity Leases) consumer real debentures
and services Loans) installment estate) from 1990
Home Equity loans) to 1993)
Loans)

(1) In addition to the corporations pictured above, the Company organizes a
special purpose corporation for each of its securitizations. Such
corporations are indirect subsidiaries of ABFS.

(2) Loans purchased by Upland represent loans acquired through Bank
Alliance Program.

37
<PAGE>

LENDING AND LEASING ACTIVITIES

General. The following table sets forth certain information concerning the
loan and lease origination, purchase and sale activities of the Company for
the six months ended December 31, 1996 and the years ending June 30, 1996,
1995 and 1994.

<TABLE>
<CAPTION>
Six Months
Ended
December 31, Year Ended June 30,
-------------- -------------------------------------
1996 1996 1995 1994
-------------- ---------- ---------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Loans/Leases Originated/Purchased
(Net of Refinances)
Business Purpose Loans .................... $17,772 $28,872 $18,170 $11,793
Home Equity Loans ......................... $30,181 $36,479 $16,963 $22,231
Equipment Leases .......................... $ 3,806 $ 5,967 $ 2,220 $ --
Other Loans ............................... $ 27 $ 240 $ 1,108 $ 242
Number of Loans/Leases Originated/Purchased ....
Business Purpose Loans .................... 231 371 257 206
Home Equity Loans ......................... 686 772 365 438
Equipment Leases .......................... 398 530 193 --
Other Loans ............................... 8 52 237 51
Average Loan/Lease Size
Business Purpose Loans .................... $ 77 $ 78 $ 71 $ 57
Home Equity Loans ......................... $ 44 $ 47 $ 46 $ 55
Equipment Leases .......................... $ 10 $ 11 $ 12 $ --
Other Loans ............................... $ 3 $ 5 $ 5 $ 4
Weighted Average Iterest Rate on
Loans/Leases Originated
Business Purpose Loans .................... 15.91% 15.83% 16.05% 16.03%
Home Equity Loans ......................... 11.67% 9.94% 12.68% 8.65%
Equipment Leases .......................... 16.10% 17.22% 15.85% --%
Other Loans ............................... 21.36% 24.50% 24.51% 24.92%
Weighted Average Term (in months)
Business Purpose Loans .................... 188 169 173 168
Home Equity Loans ......................... 193 194 212 171
Equipment Leases .......................... 38 42 40 --
Other Loans ............................... 40 50 53 25
Loans/Leases Sold
Business Purpose Loans .................... $16,809 $28,252 $24,762 $ 8,331
Home Equity Loans ......................... $25,230 $24,325 $16,963 $22,231
Equipment Leases .......................... $ -- $ 2,259 $ -- $ --
Other Loans ............................... $ -- $ 1,108 $ -- $ --
Number of Loans/Leases Sold
Business Purpose Loans. ................... 208 378 384 98
Home Equity Loans ......................... 577 512 365 438
Equipment Leases .......................... -- 193 -- --
Other Loans ............................... -- 252 -- --
Weighted Average Rate on Loans/Leases Originated 13.46% 12.97% 14.85% 11.30%

</TABLE>

38
<PAGE>

The following table sets forth information regarding the average
loan-to-value ratios for loans originated by the Company during the periods
indicated.

<TABLE>
<CAPTION>
Six Months Ended
December 31, Year Ended June 30,
---------------- -------------------
Loan Type 1996 1996
----------------------- ---------------- -------------------
<S> <C> <C>
Business Purpose Loans 59.3% 58.9%
Home Equity Loans ..... 69.0 68.8

</TABLE>

The following table shows the geographic distribution of the Company's
loan and lease originations and purchases during the periods indicated.

<TABLE>
<CAPTION>
Six Months Ended December 31, Year Ended June 30,
---------------------------------------- -------------------------------------------------------------
State 1996 % 1995 % 1996 % 1995 % 1994 %
--------------- --------- --------- --------- --------- ---------- --------- --------- --------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Pennsylvania .. $22,685 43.81% $12,978 49.06% $33,324 46.57% $17,913 46.57% $18,246 53.25%
New Jersey .... 15,495 29.92 7,640 28.88 20,986 29.33 16,300 42.38 15,540 45.35
New York ...... 4,357 8.41 2,742 10.37 7,417 10.36 1,534 3.99 -- --
Virginia ...... 2,667 5.15 4 .02 104 0.15 111 0.29 -- --
Maryland ...... 1,878 3.63 1,413 5.34 4,408 6.16 1,191 3.10 -- --
North Carolina . 1,848 3.57 50 0.19 78 0.11 6 0.02 -- --
Delaware ...... 1,046 2.02 634 2.40 2,724 3.81 481 1.25 480 1.40
Florida. ...... 649 1.25 223 0.84 674 0.94 149 0.39 -- --
Georgia ....... 140 0.27 114 0.43 181 0.25 98 0.25 -- --
Connecticut ... 73 0.14 49 0.19 87 0.12 5 0.01 -- --
Other ......... 948 1.83 604 2.28 1,575 2.20 673 1.75 -- --
--------- --------- --------- --------- ---------- --------- --------- --------- --------- ---------
Total .... $51,786 100.00% $26,451 100.00% $71,558 100.00% $38,461 100.00% $34,266 100.00%
========= ========= ========= ========= ========== ========= ========= ========= ========= =========

</TABLE>

Business Purpose Lending. Through its subsidiary, ABC, the Company
originates Business Purpose Loans to corporations, partnerships, sole
proprietors and other business entities for various business purposes
including, but not limited to, working capital, business expansion, equipment
acquisition and debt-consolidation. The Company does not target any
particular industries or trade groups and, in fact, takes precautions against
concentrations of loans in any one industry group. All Business Purpose Loans
are collateralized by a first or second mortgage lien on a principal
residence or some other parcel of real property, such as office and apartment
buildings and mixed use buildings, owned by the borrower, a principal of the
borrower, or a guarantor of the borrower. In addition, such loans are
generally further collateralized by personal guarantees, pledges of
securities, assignments of contract rights, life insurance and lease payments
and liens on business equipment and other business assets, as available.

Business Purpose Loans generally range from $15,000 to $350,000 and had an
average balance of approximately $77,000 for the loans originated during the
six months ended at December 31, 1996. Generally, Business Purpose Loans are
made at fixed rates and for terms ranging from five to 15 years. Such loans
generally have origination fees of 5.0% to 6.0% of the aggregate loan amount.
For the six months ended December 31, 1996, the weighted average interest
rate received on such loans was 15.91% and the average loan-to-value ratio
was 59.3% for the loans originated by the Company during such period. From
July 1, 1993 through December 31, 1996, the Company originated $76.6 million
of Business Purpose Loans.

Generally, the Company computes interest due on its outstanding loans
using the simple interest method. Where permitted by applicable law, a
prepayment penalty is imposed. Although prepayment penalties imposed vary
based upon applicable state law, the prepayment penalties provided for in the
Company's Business Purpose Loan documents generally amount to a significant
portion of the outstanding loan balance. The Company believes that such
prepayment terms tend to extend the average life of such loans and make such
loans more attractive products to securitize. Whether a prepayment fee is
imposed and the amount of such fee, if any, is negotiated between the Company
and the individual borrower prior to consummation of the loan. See "--
Securitizations."

Home Equity Lending. The Company originates Home Equity Loans primarily to
credit impaired borrowers through Upland. Historically, Home Equity Loans
originated and funded by the Company were sold to one of several third party
lenders, at a premium and with servicing released. Currently, the Company
builds portfolios of Home Equity Loans for the purpose of securitizing such
loans.

39
<PAGE>

Home Equity Loan applications are obtained from potential borrowers over
the phone and in person. The loan request is then processed and closed. The
loan processing staff generally provides its home equity borrowers with a
loan approval within 24 hours and closes its Home Equity Loans within
approximately seven days of obtaining a loan approval.

Home Equity Loans generally range from $15,000 to $250,000 and had an
average balance of approximately $44,000 for the loans originated during the
six months ended December 31, 1996. Generally, Home Equity Loans are made at
fixed rates of interest and for terms ranging from 15 to 30 years. Such loans
generally have origination fees of 2.0% of the aggregate loan amount. For the
six months ended December 31, 1996, the weighted average interest rate
received on such loans was 11.67% and the average loan-to-value ratio was
69.0% for the loans originated by the Company during such period. The Company
attempts to maintain its interest and other charges on Home Equity Loans
competitive with the lending rates of other finance companies and banks.
Where permitted by applicable law, a prepayment penalty may be imposed and
are generally charged to the borrower on the prepayment of a Home Equity Loan
except in the event the borrower refinances a Home Equity Loan with the
Company.

In fiscal 1996, Upland, in conjunction with the Processing Center, Inc.,
implemented the Bank Alliance Program which is designed to provide an
additional source of Home Equity Loans. The Bank Alliance Program targets
traditional financial institutions, such as banks, which because of their
strict underwriting and credit guidelines have generally provided mortgage
financing only to the most credit-worthy borrowers. The program enables such
financial institutions to originate loans to credit impaired borrowers in
order to achieve certain community reinvestment objectives and subsequently
sell such loans to Upland.

Under the program, a borrower who fails to meet a financial institution's
underwriting guidelines will be referred to the Processing Service Center,
Inc. which will process the loan application and underwrite the loan pursuant
to Upland's underwriting guidelines. If the borrower qualifies under Upland's
underwriting standards, the loan will be originated by the financial
institution and subsequently sold to Upland.

Since the introduction of this program, agreements have been entered into
with six financial institutions which provide the Company with the
opportunity to underwrite, process and purchase loans generated by the branch
networks of such institutions which consist of approximately 800 branches
located in Pennsylvania, Delaware, New Jersey and Maryland. During fiscal
1996 and the six months ended December 31, 1996, $6.2 million and $3.0
million, respectively, of loans were purchased pursuant to this program. The
Company continues to market this program to other regional and national
banking institutions. The Company is also negotiating with other financial
institutions regarding their participation in the program.

Leasing Activities. The Company through its subsidiary, ABL, originates
Equipment Leases to corporations, partnerships, other entities and sole
proprietors on various types of business equipment including, but not limited
to, computer equipment, phone systems, copiers, construction equipment and
medical equipment. The Company generally does not target credit impaired
borrowers. All such lessees must meet certain specified financial and credit
criteria. The Company originates leases throughout the United States with
primary emphasis on the eastern portion of the United States. In addition,
the Company recently hired a leasing officer with over 25 years of experience
in small ticket leasing to expand this area of the Company's leasing
business.

Generally, the Company's Equipment Leases are of two types: (i) finance
leases which have a term of twelve to sixty months and provide a purchase
option exercisable by the lessee at $1.00 at the termination of the lease and
(ii) fair market value or true leases which have a similar term but provide a
purchase option exercisable by the lessee at the fair market value of the
equipment at the termination of the lease. The Company's Equipment Leases
generally range in size from $3,000 to $100,000, with an average lease size
of approximately $10,000 for the leases originated during the six months
ended December 31, 1996. The Company's leases generally have maximum terms of
five years. The weighted average interest rate received on such leases for
the six months ended December 31, 1996 was 16.10%. Generally, the interest
rates and other terms and conditions of the Company's Equipment Leases are
competitive with the leasing terms of other leasing companies in its market
area.

40
<PAGE>

Currently, all leases originated are generally held in the Company's lease
portfolio. At December 31, 1996, principal value of the Company's lease
portfolio totaled $6.7 million. All leases are serviced by ABL. It is
anticipated that in the future, ABL may develop relationships with third
party purchasers of leases and will sell a portion of the leases it
originates to such third parties. The sale of leases to third party
purchasers may or may not require ABL to retain the servicing rights to such
leases. The Company may, in the future, attempt to securitize its lease
portfolio provided financial and economic conditions warrant such activity.

MARKETING STRATEGY

The Company concentrates its marketing efforts on two potential customer
groups, one of which, based on historical profiles, displays a
pre-disposition for being customers of the Company's loan and lease products
and the other being credit impaired borrowers that satisfy the Company's
underwriting guidelines.

The Company's marketing efforts for Business Purpose Loans focus on the
Company's niche market of selected small businesses located in the Company's
market area which generally includes the mid-atlantic region of the United
States. The Company targets businesses which it believes would qualify for
loans from traditional lending sources but would elect to utilize the
Company's products and services. The Company's experience has indicated that
these borrowers are attracted to the Company as a result of its marketing
efforts, the personalized service provided by the Company's staff of highly
trained lending officers and the timely response to loan applications.
Historically, such customers have been willing to pay the Company's
origination fees and interest rates which are generally higher than those
charged by traditional lending sources.

The Company markets Business Purpose Loans through various forms of
advertising, and a direct sales force. Advertising media utilized includes
large direct mail campaigns and newspaper and radio advertising. The
Company's commissioned sales staff, which consists of full-time highly
trained sales persons, are responsible for converting advertising leads into
loan applications. The Company utilizes a proprietary training program
involving extensive and on-going training of its lending officers. The
Company's sales staff utilizes significant person-to-person contact to
convert direct mail advertising into loan applications and maintains contact
with the borrower throughout the application process.

The Company markets Home Equity Loans through telemarketing, direct mail
campaigns as well as television, radio and newspaper advertisements. The
Company's television advertising campaign initiated in September 1996 was
designed to complement the other forms of advertising utilized by the
Company. The Company's integrated approach to media advertising is intended
to maximize the effect of the Company's advertising campaigns.

The Company's marketing efforts for Home Equity Loans are currently
concentrated in the mid-atlantic region of the United States; however, the
Company has recently began originating loans in Georgia, North Carolina,
Florida and Connecticut and may open sales offices in such states in the
future with loan processing and collection procedures performed at the
Company's main office. The Company also utilizes the Bank Alliance Program as
an additional source of loans. See "-- Loan and Leasing Activities -- Home
Equity Lending."

The Company, through ABL, markets its Equipment Leases throughout the
United States with particular emphasis on the eastern portion of the United
States. The Company's marketing efforts in the leasing area are focused on
the Company's niche market of distributors of small to medium-sized office,
industrial and medical equipment. ABL primarily obtains its equipment leasing
customers through equipment manufacturers, brokers and vendors with whom it
has a relationship and through a direct sales force. The Company does not
target any particular industry or trade group and avoids the concentration of
leases in one particular industry group. The Company believes that its
leasing activities will enhance its cross-selling opportunities with its
existing Business Purpose Loan customers.

LOAN AND LEASE SERVICING

Generally, the Company services the loans and leases it maintains in its
portfolio or which are securitized by the Company in accordance with its
established servicing procedures. Servicing includes collecting and
transmitting payments to investors, accounting for principal and interest,
collections and foreclosure activities,

41
<PAGE>

and disposing of real estate owned. At December 31, 1996, the Company's total
servicing portfolio included 2,497 loans and leases with an aggregate
outstanding balance of $103.9 million. The Company generally receives
servicing fees of 0.50% to 0.75% per annum based upon the outstanding balance
of securitized loans serviced and the Company's responsibilities related to
collections and accounting for such loans.

In servicing its loans and leases, the Company typically sends an invoice
to borrowers on a monthly basis advising them of the required payment and its
due date. The Company initiates the collection process one day after a
borrower fails to make a monthly payment. When a loan or lease becomes 45 to
60 days delinquent, it is transferred to the Company's work-out department.
The work-out department attempts to reinstate a delinquent loan or lease,
seek a payoff, or occasionally enter into a modification agreement with the
borrower to avoid foreclosure. All proposed work-out arrangements are
evaluated on a case-by-case basis, based upon the borrower's past credit
history, current financial status, cooperativeness, future prospects and the
reasons for the delinquency. If the loan or lease becomes delinquent 61 days
or more and a satisfactory work-out arrangement with the borrower is not
achieved or the borrower declares bankruptcy, the matter is immediately
referred to counsel for collection. Legal action may be initiated prior to a
loan or lease becoming delinquent over 60 days if management determines that
the circumstances warrant such action.

The Company believes that the low level of delinquencies experienced by
the Company during prior periods is due, in large part, to the Company's
maintenance of a high level of borrower contact and a servicing relationship
appropriate to the Company's borrowing base.

Real estate acquired as a result of foreclosure or by deed in lieu of
foreclosure is classified as real estate owned until it is sold. When
property is acquired or expected to be acquired by foreclosure or deed in
lieu of foreclosure, it is recorded at the lower of cost or estimated fair
value, less estimated cost of disposition. After acquisition, all costs
incurred in maintaining the property are expensed.

The Company's ability to foreclose on certain properties may be affected
by state and federal environmental laws which impose liability on the
property owner for the costs related to the investigation and clean up of
hazardous or toxic substances or chemicals released on the property. Although
the Company's loans are primarily secured by residential real estate, there
is a risk that the Company could be required to investigate or clean up an
environmentally damaged property which is discovered after acquisition by the
Company. To date, the Company has not been required to perform any
investigation or clean up activities nor has it been subject to any
environmental claims. See "Risk Factors -- Environmental Concerns."

The Company in its capacity as the servicer of securitized loans is
obligated to advance funds (an "Advance") in respect of each monthly loan
interest payment that accrued during the collection period for the loans but
was not received, unless the Company determines that such Advances will not
be recoverable from subsequent collections in respect to the related loans.

UNDERWRITING PROCEDURES AND PRACTICES

Summarized below are certain of the policies and practices which are
followed in connection with the origination of Business Purpose Loans and
Home Equity Loans and the origination of Equipment Leases. It should be noted
that such policies and practices will be altered, amended and supplemented as
conditions warrant. The Company reserves the right to make changes in its
day-to-day practices and policies in its sole discretion.

The Company's loan underwriting standards are applied to evaluate
prospective borrowers' credit standing and repayment ability and the value
and adequacy of the mortgaged property as collateral. Initially, the borrower
is required to fill out a detailed application providing pertinent credit
information. As part of the description of the borrower's financial
condition, the borrower is required to provide information concerning assets,
liabilities, income, credit, employment history and other demographic and
personal information. If the application demonstrates the borrower's ability
to repay the debt as well as sufficient income and equity, loan processing
personnel obtain and review an independent credit bureau report on the credit
history of the borrower and verification of the borrower's income by
obtaining and reviewing one or more of the borrower's pay stubs, income tax
returns, checking account statements, W-2 tax forms or verification of
business or employment forms. Once all applicable employment, credit and
property information is obtained, a determination is made as to whether
sufficient unencumbered equity in the property exists and whether the
prospective borrower has sufficient monthly income available to meet the
borrower's monthly obligations.

42
<PAGE>

Generally, Business Purpose Loans collateralized by residential real
estate must have an overall loan-to-value ratio (based solely on the
independent appraised fair market value of the real estate collateral
securing the loan) on the properties collateralizing the loans of no greater
than 75%. Business Purpose Loans collateralized by commercial real estate
must generally have an overall loan-to-value ratio (based solely on the
independent appraised fair market value of the real estate collateral
securing the loan) of no greater than 60%. In addition, in substantially all
instances, the Company also receives additional collateral in the form of,
among other things, pledges of securities, assignments of contract rights,
life insurance and lease payments and liens on business equipment and other
business assets, as available. The Business Purpose Loans originated by the
Company had an average loan-to-value ratio of 59.3% and 58.9% for the six
months ended December 31, 1996 and the year ended June 30, 1996,
respectively.

The maximum required loan-to-value ratio for Home Equity Loans is 90%. The
Home Equity Loans originated by the Company had an average loan-to-value
ratio of 69.0% and 68.8% for the six months ended December 31, 1996 and the
year ended June 30, 1996, respectively. Occasionally, exceptions to these
maximum loan-to-value ratios are made if other collateral is available or if
there are other compensating factors. Title insurance is generally obtained
in connection with all real estate secured loans.

In determining the adequacy of the mortgaged property as collateral, an
appraisal is made of each property considered for financing. The appraisal is
completed by an independent qualified appraiser and generally includes
pictures of comparable properties and pictures of the subject property's
interior. With respect to Business Purpose and Home Equity Loans, the
appraisal is completed by a qualified appraiser on a Federal National
Mortgage Association ("FNMA") form.

In the leasing area, while a security interest in the equipment is
retained in connection with the origination of the lease, the lease is not
dependent on the value of the equipment as the principal means of securing
the lease. The underwriting standards applicable to leases place primary
emphasis on the borrower's financial strength and its credit history. The
Company's lease underwriting criteria includes a review of the subject
company's credit reports, financial statements, bank references and trade
references, as well as the credit history and financial statements of the
principals of the borrower. The Company typically obtains personal guarantees
on its Equipment Leases.

SECURITIZATIONS

The sale of the Company's Business Purpose Loans and Home Equity Loans
through securitizations is an important objective of the Company. In
furtherance of this objective, since 1995 the Company has sold in the
secondary market senior interests in four pools of loans it securitized. The
four pools of loans securitized were comprised of $53.3 million of Business
Purpose Loans and $32.9 million of Home Equity Loans.

Generally, a securitization involves the transfer by the Company of
receivables representing a series of loans to a single purpose trust in
exchange for certificates or securities issued by the trust. The certificates
represent an undivided ownership interest in the loans transferred to the
trust. The certificates consist of a class of senior certificates and the
excess spread and may also include a class of subordinated certificates. In
connection with securitizations, the senior certificates are sold to
investors and the subordinate certificates, if any, and the excess spread are
typically retained by the Company. As a result of the sale of the senior
certificates, the Company receives a cash payment representing a substantial
portion of the principal balance of the loans held by the trust. The senior
certificates entitle the holder to be repaid the principal of its purchase
price and the certificates bear interest at a stated rate of interest. The
stated rate of interest is typically substantially less than the interest
rate required to be paid by the borrowers with respect to the underlying
loans. As a consequence, the Company is able to receive cash for a portion of
its portfolio and to pay the principal and interest required by the senior
certificates with the cash flows from the underlying loans owned by the
trust. However, since the interest in the loans held by the Company (the
subordinate certificate and the excess spread) is subordinate to the senior
certificate, the Company retains a portion of the risk that the full value of
the underlying loans will not be realized. Additionally, the holder of the
senior certificates will receive certain additional payments on account of
principal in order to reduce the balance of the senior certificates in
proportion to the subordinated amount held by the Company. The additional
payments of principal are designed to increase the senior certificate
holder's protection against loan losses. In the typical subordination
structure, the Company, as the holder of the excess spread will be entitled
to receive all of the remaining interest in the loans at the time of the
termination of the trust.

43
<PAGE>

The pooling and servicing agreements that govern the distribution of cash
flows from the loans included in the securitization trusts require the
overcollateralization of the senior certificates by using interest receipts
on the loans to reduce the outstanding principal balance of the senior
certificates to a pre-set percentage of the loans. The overcollateralization
percentage may be reduced over time according to the delinquency and loss
experience of the loans. The Company's interest in each overcollateralized
amount is reflected in the Company's financial statements as a portion of the
excess spread. To the extent that a loss is realized on the loans, losses
will be paid first out of the excess spread received and ultimately out of
the overcollateralization amount available to the excess spread, and the
subordinated certificates, if available. If losses exceed the Company's
projected amount, the excess losses will result in a reduction in the value
of the excess spread held by the Company. See "Risk Factors -- Dependence
upon Securitizations and Fluctuations in Operating Results."

The Company may be required either to repurchase or to replace loans which
do not conform to the representations and warranties made by the Company in
the pooling and servicing agreements entered into when the loans are pooled
and sold through securitizations. As of December 31, 1996, the Company had
not been required to repurchase or replace any such loans.

The Company generally retains the servicing rights with respect to all
loans securitized. Such loans are serviced by ABC, a subsidiary of the
Company. See "-- Loan and Lease Servicing."

The Company's securitizations are often structured to provide for a
portion of the loans included in the trust to be funded with loans originated
by the Company during a period subsequent to the securitization. The amount
of the aggregate trust value to be funded in the future is referred to as the
"prefunded account." The loans to be included in such account must be
substantially similar in terms of collateral, size, term, interest rate,
geographic distribution and loan-to-value ratio as the loans initially
transferred to the trust. To the extent the Company fails to originate a
sufficient number of qualifying loans for the prefunded account within the
specified time period, the Company's earnings during the quarter in which the
funding was to occur would be reduced.

The securitization of loans during the six months ended December 31, 1996
and the years ended June 30, 1996 and 1995 generated gain on sale of loans of
$7.0 million, $8.9 million and $1.4 million, respectively. Such gains
resulted in the Company's record levels of revenue and net income during such
periods. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

Subject to market conditions, the Company anticipates that it will
continue to build portfolios of Business Purpose Loans and Home Equity Loans
and enter into securitizations of these portfolios. The Company may also
consider the securitization of Equipment Leases in the future. The Company
believes that a securitization program provides a number of benefits by
allowing the Company to diversify its funding base, provide liquidity and
lower its cost of funds.

COMPETITION

The Company competes for Business Purpose Loans against many other finance
companies and financial institutions. Although many other entities originate
Business Purpose Loans, the Company has focused its lending efforts on its
niche market of businesses which may qualify for loans from traditional
lending sources but who the Company believes are attracted to the Company's
products as a result of the Company's marketing efforts and responsive
customer service and rapid processing and closing periods.

The Company has significant competition for Home Equity Loans. Through
Upland, the Company competes with banks, thrift institutions and other
financial companies, which may have greater resources and name recognition.
The Company attempts to mitigate these factors through a highly trained staff
of professionals, rapid response to prospective borrowers' requests and
maintaining a short average loan processing time. In addition, the Company
recently implemented the Bank Alliance Program in order to generate
additional loan volume. See "-- Lending and Leasing Activities -- Home Equity
Lending."

The Company has significant competition for Equipment Leases. Through ABL,
the Company competes with banks, leasing and finance companies with greater
resources, capitalization and name recognition throughout its market area. It
is the intention of the Company to capitalize on its vendor relationships,
cross-selling opportunities, and the efforts of its direct sales force to
combat these competitive factors. See "Risk Factors -- Increased Competition
Could Adversely Affect Results of Operations."

44
<PAGE>

REGULATION

General. The home equity lending business is highly regulated by both
federal and state laws. All Home Equity Loans must meet the requirements of,
among other statutes, the Federal Truth in Lending Act ("TILA"), the Federal
Real Estate Settlement Procedures Act ("RESPA"), the Equal Credit Opportunity
Act of 1974, as amended ("ECOA") and their accompanying Regulations Z, X and
B, respectively.

Truth in Lending. The TILA and Regulation Z promulgated thereunder contain
certain disclosure requirements designed to provide consumers with uniform,
understandable information with respect to the terms and conditions of loans
and credit transactions in order to give them the ability to compare credit
terms. TILA also guarantees consumers a three day right to cancel certain
transactions and imposes specific loan feature restrictions on loans of the
type originated by Upland. Management of the Company believes that it is in
compliance with TILA in all material respects. If the Company were found not
to be in compliance with TILA, aggrieved borrowers could have the right to
rescind their loans and to demand, among other things, the return of finance
charges and fees paid to the Company.

Other Lending Laws. The Company is also required to comply with the ECOA,
which prohibits creditors from discriminating against applicants on certain
prohibited bases, including race, color, religion, national origin, sex, age
or marital status. Regulation B promulgated under ECOA restricts creditors
from obtaining certain types of information from loan applicants. Among other
things, it also requires certain disclosures by the lender regarding consumer
rights and requires lenders to advise applicants of the reasons for any
credit denial. In instances where the applicant is denied credit or the rate
or charge for loans increases as a result of information obtained from a
consumer credit agency, another statute, the Fair Credit Reporting Act of
1970, as amended, requires lenders to supply the applicant with the name and
address of the reporting agency. In addition, Upland is subject to the Fair
Housing Act and regulations thereunder, which broadly prohibit certain
discriminatory practices in connection with the Company's home equity lending
business. Upland is also subject to RESPA.

RESPA imposes, among other things, limits on the amount of funds a
borrower can be required to deposit with the Company in any escrow account
for the payment of taxes, insurance premiums or other charges.

In addition, the Company is subject to various other federal and state
laws, rules and regulations governing, among other things, the licensing of,
and procedures that must be followed by, mortgage lenders and servicers, and
disclosures that must be made to consumer borrowers. Failure to comply with
such laws, as well as with the laws described above, may result in civil and
criminal liability.

Upland is licensed and regulated by the departments of banking or similar
entities in the various states in which it is licensed. Upland maintains
compliance with the various federal and state laws through its in-house and
outside counsel which continually review Upland's documentation and
procedures and monitor and apprise Upland on various changes in the laws. See
"Risk Factors -- Regulatory Restrictions and Licensing Requirements."

EMPLOYEES

At December 31, 1996, the Company employed 159 people on a full-time basis
and 11 people on a part-time basis. None of the Company's employees are
covered by a collective bargaining agreement. The Company considers its
employee relations to be good.

45
<PAGE>

PROPERTY

Except for real estate acquired in foreclosure as part of the Company's
normal course of business, neither ABFS nor its subsidiaries presently hold
title to any real estate for operating purposes. The interests which the
Company presently holds in real estate are in the form of mortgages against
parcels of real estate owned by Upland's or ABC's borrowers or affiliates of
Upland's or ABC's borrowers and real estate acquired through foreclosure.

The Company presently leases office space at 111 Presidential Boulevard,
Bala Cynwyd, Pennsylvania, just outside the city limits of Philadelphia. The
Company is currently leasing its office space under a five year lease with a
current year annual rental of approximately $431,000. Such lease contains a
five-year renewal option at an increased annual rental amount. The Company is
currently negotiating with its landlord to lease additional office space in
the building where its executive offices are located. In addition, the
Company leases an executive suite in Boca Raton, Florida, expiring in
February 1997, and Phoenix, Arizona, expiring in April 1997.

The Company leases its New Jersey office located in Cherry Hill, New
Jersey.

LEGAL PROCEEDINGS

The Company is involved as plaintiff or defendant in various legal
proceedings arising in the normal course of its business. While the ultimate
outcome of these various legal proceedings cannot be predicted with
certainty, it is the opinion of management that the resolution of these legal
actions should not have a material effect on the Company's financial
position, results of operations or liquidity.

46
<PAGE>

MANAGEMENT

GENERAL

The present management structure of the Company is as follows: Anthony J.
Santilli, Jr. is Chairman, President, Chief Executive Officer, Chief
Operating Officer, Treasurer and a Director of the Company. Beverly Santilli
is President of ABC and an Executive Vice President and Secretary of ABFS.
Jeffrey M. Ruben is Senior Vice President and General Counsel of the Company.
David M. Levin, CPA is the Senior Vice President - Finance and Chief
Financial Officer. Harold Sussman, Michael DeLuca, Richard Kaufman and
Leonard Becker are non-employee directors of the Company and take no part in
the day-to-day operating activities of the Company. All directors and
executive officers of the Company hold office during the term for which they
are elected and until their successors are elected and qualified.

The following table sets forth information regarding the Company's Board
of Directors and executive officers:

<TABLE>
<CAPTION>
Name Age(1) Position
---- ------ --------
<S> <C> <C>
Anthony J. Santilli, Jr. 54 Chairman, President, Chief Executive Officer, Chief Operating Officer,
Treasurer and Director
Leonard Becker 73 Director
Michael DeLuca 65 Director
Richard Kaufman 54 Director
Harold E. Sussman 71 Director
Beverly Santilli 37 Executive Vice President and Secretary of ABFS and President of ABC
Jeffrey M. Ruben 33 Senior Vice President and General Counsel of ABFS
David M. Levin 52 Senior Vice President - Finance and Chief Financial Officer
</TABLE>

- ------
(1) As of December 31, 1996.

DIRECTORS

The Company's Amended and Restated Certificate of Incorporation fixes the
number of Directors to between one and fifteen as determined by resolution of
the Board of Directors. The Board of Directors of the Company is currently
comprised of five persons. Prior to the closing of the Public Offering, all
directors were elected each year for a one-year term and until their
successors were elected and qualified.

The Company's Amended and Restated Certificate of Incorporation provides
that the Board of Directors shall be divided into three classes following the
closing of the Public Offering of the Company's Common Stock. Accordingly,
following the close of the Public Offering, the initial directors of Class
One will serve until the first annual meeting of stockholders following the
Public Offering; at such first annual meeting of stockholders, the directors
of Class One shall be elected for a term of three years, and after expiration
of such term, shall thereafter be elected every three years for three-year
terms. The initial directors of Class Two shall serve until the second annual
meeting of stockholders following the Public Offering. At the second annual
meeting of stockholders following the Public Offering, the directors of Class
Two shall be elected for a term of three years and, after the expiration of
such term, shall thereafter be elected every three years for three-year
terms. The initial directors of Class Three shall serve until the third
annual meeting of stockholders after the Public Offering. At the third annual
meeting of stockholders following the Public Offering, the directors of Class
Three shall be elected for a term of three years and after the expiration of
such term, shall thereafter be elected every three years for three-year
terms. Upon the consummation of the Public Offering the Board shall determine
the composition of each class.

47
<PAGE>

The following is a description of the business experience of the Company's
Board of Directors.

Anthony J. Santilli, Jr. is the Chairman, President, Chief Executive
Officer, Chief Operating Officer and Treasurer of the Company and is an
executive officer of its subsidiaries. He has held the positions with the
Company since early 1993 when the Company became the parent company of ABC
and the positions with the subsidiaries since the formation of ABC in June
1988.

Prior to the founding of ABC in 1988, Mr. Santilli was Vice President and
Department Head of the Philadelphia Savings Fund Society ("PSFS"). As such,
Mr. Santilli was responsible for PSFS' commercial relationships with small
and middle market business customers. Mr. Santilli also served as the
secretary of PSFS' Asset/Liability Committee and Policy Committee from May
1983 to June 1985 and June 1986 to June 1987, respectively.

Leonard Becker is a former 50% owner and officer of the SBIC of the
Eastern States, Inc., a federally licensed small business corporation which
made medium term loans to small business concerns. For the last 30 years, Mr.
Becker has been heavily involved in the investment in and management of real
estate; and has been involved in the ownership of numerous shopping centers,
office buildings and apartments. Mr. Becker formerly served as a director of
Eagle National Bank and Cabot Medical Corp.

Michael DeLuca was President, Chairman of the Board, Chief Executive
Officer and a former owner of Bradford-White Corporation, a manufacturer of
plumbing products, for a period of approximately thirty years. Presently, Mr.
DeLuca serves as a Director of BWC-West, Inc., Bradford-White International
and is Chief Executive Officer and a director of Lux Products Corporation.

Richard Kaufman is Chairman and Chief Executive Officer of Academy
Industries, Inc., a paper converting company, a position he has held since
December 1996. From 1982 to 1996, he was self employed and involved in making
and managing investments for his own benefit. From 1976 to 1982, Mr. Kaufman
was President and Chief Operating Officer of Morlan International, Inc., a
cemetery and financial services conglomerate. From 1970 to 1976, Mr. Kaufman
served as a Director and Vice President-Real Estate and Human Services
Division of Texas International, Inc., an oil and gas conglomerate.

Harold E. Sussman is currently a principal in and Chairman of the Board of
the real estate firm of Colliers, Lanard & Axilbund, a major commercial and
industrial real estate brokerage and management firm in the Philadelphia
area, with which he has been associated since 1972.

COMMITTEES OF THE BOARD OF DIRECTORS

The Board of Directors of the Company held four meetings during the year
ended June 30, 1996. During fiscal 1996, no director attended fewer than 75%
of the aggregate of the total number of Board meetings and the total number
of meetings held by committees of the Board of Directors on which he served.
The following is a description of each of the committees of the Board of
Directors of the Company.

Audit Committee. The members of the Audit Committee are Messrs. DeLuca,
Sussman and Becker. The Audit Committee reviews the Company's audited
financial statements and makes recommendations to the Board concerning the
Company's accounting practices and policies and the selection of independent
accountants. The Audit Committee met twice during the year ended June 30,
1996.

Compensation Committee. The members of the Compensation Committee are
Messrs. DeLuca, Sussman and Kaufman. The Compensation Committee is
responsible for establishing salaries, bonuses and other compensation for the
executive officers and administers the Company's stock option plans. The
Compensation Committee met once during the year ended June 30, 1996.

Finance Committee. The members of the Finance Committee are Messrs.
Santilli, Becker, Kaufman and DeLuca. The Finance Committee monitors and
makes suggestions as to the interest rates paid by the Company on its debt
instruments, develops guidelines and sets policy relating to the amount and
maturities of investments to be accepted by the Company and performs cash
management functions. The Finance Committee met four times during the year
ended June 30, 1996.

48
<PAGE>

Executive Committee. The members of the Executive Committee are Messrs.
Santilli, Kaufman and Becker. The Executive Committee is empowered by the
Board to act in its stead between meetings of the Board. The Executive
Committee met four times during the year ended June 30, 1996.

EXECUTIVE OFFICERS WHO ARE NOT ALSO DIRECTORS

The following is a description of the business experience of each
executive officer who is not also a director.

Beverly Santilli is Executive Vice President and Secretary of ABFS and
President of ABC. Mrs. Santilli is responsible for all sales, marketing and
human resources for ABC and for the day-to-day operation of ABC. Prior to
joining ABC and from September 1984 to November 1987, Mrs. Santilli was
affiliated with PSFS initially as an Account Executive and later as a
Commercial Lending Officer with such institution's Private Banking Group.
Mrs. Santilli is the wife of Anthony J. Santilli, Jr.

Jeffrey M. Ruben is Senior Vice President and General Counsel of ABFS and
its subsidiaries. Mr. Ruben is responsible for the Company's legal and
regulatory compliance matters. From June 1990 until he joined the Company in
April 1992, Mr. Ruben was an attorney with the law firm of Klehr, Harrison,
Harvey, Branzburg & Ellers in Philadelphia, Pennsylvania. From December 1987
until June 1990, Mr. Ruben was employed as a credit analyst with the CIT
Group Equipment Financing, Inc. From July 1985 until December 1987, Mr. Ruben
was a Portfolio Administrator with LFC Financial Corp. in Radnor,
Pennsylvania. Mr. Ruben is a member of the Pennsylvania and New Jersey Bar
Associations. Mr. Ruben holds both a New Jersey Mortgage Banker License and a
New Jersey Secondary Mortgage Banker License.

David M. Levin is Senior Vice President - Finance and Chief Financial
Officer of the Company. He has held these positions since May 1995 and
October 1995, respectively. Prior to joining the Company, Mr. Levin was
associated with Fishbein & Company, P.C., Certified Public Accountants
(previous auditors for the Company), as a staff member from 1983 to 1988 and
as a shareholder from 1989 to 1995. Mr. Levin is a Certified Public
Accountant.

COMPENSATION OF DIRECTORS

Non-employee directors of the Company receive an annual stipend of $5,000
and a monthly stipend of $1,000. No director may receive more than $17,000
per year. Mr. Santilli, the only director who is also an officer of the
Company, does not receive any separate fee for acting in his capacity as a
director.

The Company adopted a Non-Employee Director Stock Option Plan (the
"Non-Employee Director Plan") in order to attract, retain and motivate
non-employee directors and to encourage such individuals to increase their
ownership interest in the Company. The Non-Employee Director Plan was adopted
by the Board of Directors on September 12, 1995 and became effective upon its
ratification by the stockholders at the Annual Meeting held on May 31, 1996.
Such plan provides for the award of options to purchase up to 135,000 shares
of the Company's Common Stock from the Company's authorized but unissued
shares.

The Non-Employee Director Plan is administered by the Board of Directors
of the Company who shall have the exclusive right to determine the amount and
conditions applicable to the options issued pursuant to such plan. Any
non-employee director of the Company or its subsidiaries is eligible to
participate in such plan.

Options granted under the Non-Employee Director Plan are not incentive
stock options as defined in Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"). The exercise price of the stock options granted
under the Non-Employee Director Plan shall be equal to the fair market value
of the Company's Common Stock on the date of grant. Payment of the exercise
price for options granted under the Non-Employee Director Plan may be made
(i) in cash, or (ii) unless prohibited by the Board of Directors, in shares
of Common Stock, or a combination of cash and shares. Except in the event of
death or disability of the director as described below, all options granted
pursuant to the Non-Employee Director Plan are exercisable during the
lifetime of the director only by the director and may not be exercised more
than ten years from the date of the grant. Unless terminated earlier as
provided in the Non-Employer Director Plan, all

49
<PAGE>

unexercised options terminate three months following the date on which an
optionee ceases to be a director of the Company but in no event shall an
option be exercisable after ten years from the date of grant thereof. In the
event that a non-employee director dies or becomes disabled during the option
term, the director's executor or legal guardian, as applicable, may exercise
such option during the three month period following such event to the same
extent that the director was entitled to exercise such option prior to his
death or disability but in no event later than ten years from the date of
grant.

In connection with the adoption of such plan, each non-employee director
of the Company received an option to purchase 22,500 shares of Common Stock
at an exercise price of $5.00 per share (the "Formula Award"). Pursuant to
the terms of such Formula Awards, if a non-employee director ceases to be a
director of the Company within three years of the option grant, the Company
has the right to repurchase shares received pursuant to the exercise of
options granted under the Non-Employee Director Plan for a period of six
months from the date the optionee ceases to be a director of the Company.
Each new outside director elected subsequent to the adoption of the
Non-Employee Director Plan would also receive an option to purchase 22,500
shares of Common Stock, subject to availability, at the exercise price on the
date of grant. In addition, on October 22, 1996, the Board of Directors
awarded each non-employee director an option to purchase 5,000 shares of the
Company's Common Stock. Such options had a weighted average exercise price of
$7.32 per share. As of December 31, 1996, 25,000 shares remain available for
future issuances under this plan.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Company's Amended and Restated Certificate of Incorporation and Bylaws
provide that to the fullest extent permitted by Delaware law, directors of
the Company shall not be personally liable to the Company or stockholders of
the Company for monetary damages for breach of fiduciary duty as a director.
ABFS's Amended and Restated Certificate of Incorporation and ByLaws also
provide that, if Delaware law is hereafter amended to authorize the further
elimination or limitation of the liability of the directors of ABFS, then the
liability of such directors shall be eliminated or limited to the fullest
extent permitted by applicable law. The effect of these provisions of the
Company's Amended and Restated Certificate of Incorporation and Bylaws is to
eliminate the rights of the Company and its stockholders (through
stockholders' derivative suits on behalf of the Company) to recover monetary
damages against a director for breach of the fiduciary duty of care as a
director (including breaches resulting from negligent or grossly negligent
behavior), except in certain situations described in Delaware General
Corporation Law. This provision does not limit or eliminate the rights of the
Company or any stockholder to seek nonmonetary relief, such as an injunction
or recision, in the event of a breach of a director's duty of care.

The Amended and Restated Certificate of Incorporation and the Bylaws of
ABFS provide that the Company shall, to the full extent permitted by the laws
of the State of Delaware, as amended from time to time, indemnify all persons
whom they may indemnify pursuant thereto, including advancement of expenses.
The Bylaws of ABFS also provide that the Company may obtain insurance on
behalf of such persons, which the Company currently maintains.

50
<PAGE>

EXECUTIVE COMPENSATION

ABFS has no direct salaried employees. Each of the executive officers of
ABFS is an executive officer of the Company's principal operating subsidiary,
ABC, and is a salaried employee of such entity.

The following table sets forth information regarding compensation paid by
ABFS and its subsidiaries to the Chief Executive Officer and each other
executive officer who made in excess of $100,000 during fiscal 1996 (the
"Named Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation Awards
------------------------------------------------- ----------------------------------------
Restricted Underlying
Name and Fiscal Other Annual Stock Options/ All Other
Principal Position Year Salary Bonus Compensation(2) Award(s) SARS (#) Compensation
----------------------------------- --------- ---------- ------------- -------------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Anthony J. Santilli, Jr. 1996 $237,500 $ 300,000(1) -- -- 22,500(3) --
Chairman, President, Chief 1995 191,667 -- -- -- -- --
Executive Officer, Chief 1994 175,000 -- -- -- -- --
Operating Officer, Treasurer and
Director of ABFS
Beverly Santilli 1996 $120,000 $ 65,000 -- -- -- --
President of ABC and Executive Vice 1995 86,892 -- -- -- -- --
President and Secretary 1994 80,163 -- -- -- -- --
of ABFS
Jeffrey M. Ruben 1996 $ 96,125 $ 50,000 -- -- -- --
Senior Vice President and 1995 80,353 -- -- -- 7,500(4) --
General Counsel of ABFS 1994 75,228 -- -- -- -- --
David M. Levin 1996 $ 85,000 $ 20,000 -- -- -- --
Senior Vice President - Finance and 1995(5) -- -- -- -- -- --
Chief Financial Officer of ABFS 1994(5) -- -- -- -- -- --

</TABLE>

- ------
(1) This represents Mr. Santilli's yearly bonus of $250,000 plus a one-time
bonus of $50,000 paid in October 1995.

(2) Excludes perquisites and other personal benefits that do not exceed
$50,000 or 10% of each officer's total salary and bonus.

(3) Represents an option to purchase 22,500 shares of Common Stock granted to
Mr. Santilli at an exercise price of $5.00 per share.

(4) Represents an option to purchase 7,500 shares of Common Stock granted to
Mr. Ruben at an exercise price of $2.67 per share.

(5) No disclosure of salary information is included for Mr. Levin for fiscal
1995 and 1994 as he was not an executive officer at such time.

During fiscal 1996, the Company paid cash bonuses to certain officers and
employees based upon the Company's achievement of certain established
performance targets. Bonuses paid for fiscal 1996 to the Named Officers are
included in the Summary Compensation Table above.

During the first quarter of fiscal 1997, the Board of Directors adopted a
Management Incentive Plan for the benefit of certain officers of the Company
and its subsidiaries, including certain of the Company's executive officers.
The plan is intended to motivate management toward the achievement of the
Company's business goals and objectives by rewarding management in the form
of an annual cash bonus if certain established Company and individual goals
are attained. Officers eligible to participate in the plan include selected
officers at the level of Vice President and above. Bonuses are determined
based upon the achievement of qualitative and quantitative individual,
departmental and Company goals pursuant to an established formula under which
the various factors are weighted based upon each individual's position, years
of service and

51
<PAGE>

contribution to the overall performance of the Company or a subsidiary
thereof. Based upon these criteria, a maximum potential bonus is established
for each individual eligible to participate in such plan. The maximum annual
bonus awarded can range from 15% to 225% of an individual's annual salary.
For example, if 80% of an individual's goals are met, a bonus of 50% of the
individual's potential bonus is payable under the plan. If 100% of the
individual's goal is reached, a bonus equal to 100% of the individual's
potential bonus is payable under the plan. No bonuses will be paid in any
year where the Company fails to meet at least 80% of its performance goals.
Bonuses may be prorated to the extent an eligible participant has not been
employed by the Company for a full 12-month period.

In 1993, the Company adopted, and the stockholders approved, the Company's
Stock Option Plan (the "Plan"). The purpose of the Plan is to attract and
retain qualified management officials. Pursuant to the terms of the Plan,
375,000 shares (as adjusted for the Company's stock split) of Common Stock
were reserved for issuance upon the exercise of options granted under the
Plan. Subject to the approval of the Company's stockholders, during fiscal
1997 the Company amended its Plan to increase the amount of authorized but
unissued shares of Common Stock available for issuance thereunder by 85,000
shares. In connection with the Public Offering, the Company intends to grant
incentive stock options to purchase approximately 150,500 shares of Common
Stock to certain of its officers. Of this amount, options to purchase 12,500
shares of Common Stock are intended to be awarded to each of Messrs. Ruben
and Levin and Mrs. Santilli. Such options will vest at a rate of 20% per year
over a five-year period with the first portion vesting on the first
anniversary of the date of grant and the exercise price per share will be the
Public Offering price. Options to purchase 13,488 shares of the Company's
Common Stock remained available for grant as of December 31, 1996.

The Plan is administered by the Compensation Committee of the Board of
Directors. The Compensation Committee has the discretion to interpret the
provisions of the Plan; to determine the officers to receive options under
the Plan; to determine the type of awards to be made and the amount, size and
terms of each such award; to determine the time when awards shall be granted;
and to make all other determinations necessary or advisable for the
administration of the Plan.

Options granted under the Plan may be incentive stock options intended to
qualify under Section 422 of the Code, or options not intended to so qualify.
The Plan requires the exercise price of all stock options to be at least
equal to the fair market value of the Common Stock on the date of the grant.
Except as set forth below, all options granted pursuant to the Plan are
exercisable in accordance with a vesting schedule which is established at the
time of grant and may not be exercised more than ten years from the date of
the grant. No individual may receive more than 75% of the shares reserved for
issuance under the Plan. In the case of incentive stock options granted to a
stockholder owning, directly or indirectly, in excess of 10% of the Common
Stock, the option exercise price must be at least equal to 110% of the fair
market value of the Common Stock on the date of grant and such options may
not be exercised more than five years from the date of grant. Payment of the
exercise price for options granted under the Plan may be made in cash, shares
of Common Stock, or a combination of both as determined by the Compensation
Committee.

All unexercised incentive stock options terminate three months following
the date on which an optionee's employment by the Company terminates, other
than by reason of disability or death. An exercisable option held by an
optionee who dies or who ceases to be employed by the Company because of
disability may be exercised by the employee or his representative within one
year after the employee dies or becomes disabled (but not later than the
scheduled option termination date). Options granted pursuant to the Plan are
not transferable except to the decedent's estate in the event of death of the
optionee.

52
<PAGE>

The following table sets forth information regarding options exercised by
the Named Officers during fiscal 1996 and option values of options held by
such individuals at fiscal year end.

AGGREGATED OPTIONS/SAR EXERCISED IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES

<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money
Options/ SARs at Options/SARs at
Fiscal Year End Fiscal Year End
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise(#) Realized($) Unexercisable (#) Unexercisable ($)
-------------------------------- --------------- ----------- --------------------- --------------------
<S> <C> <C> <C> <C>
Anthony J. Santilli, Jr. 225,012 0 22,500/0 $143,438/0(1)
Chairman, President, Chief
Executive Officer, Chief
Operating Officer, Treasurer and
Director of ABFS
Beverly Santilli 0 0 N/A N/A
President of ABC and Executive
Vice President Secretary of ABFS
Jeffrey M. Ruben 0 0 7,500/0 $ 65,288/0(2)
Senior Vice President and
General Counsel of ABFS
David M. Levin 0 0 N/A N/A
Senior Vice President - Finance
and Chief Financial Officer of
ABFS
</TABLE>

- ------
(1) This represents the aggregate market value (market price of the Common
Stock less the exercise price) of the options granted based upon the
closing sales price per share of $11.375 on June 30, 1996. The exercise
price of the options held by Mr. Santilli is $5.00 per share.

(2) This represents the aggregate market value (market price of the Common
Stock less the exercise price) of the options granted based upon the
closing sales price per share of $11.375 on June 30, 1996. The exercise
price of the options held by Mr. Ruben is $2.67 per share.

The following table sets forth information regarding options to purchase
shares of Common Stock granted to the Named Officers during fiscal 1996. No
stock appreciation rights ("SARs") were granted in fiscal 1996.

OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS

<TABLE>
<CAPTION>
Number of % of Total Potential Realized Value at
Securities Options/SARs Assumed Annual Rates of
Underlying granted to Stock Price Appreciation
Options/SARs Employees in Exercise or Base for Option Term
Name granted (#) Fiscal Year Price ($/sh) Expiration Date 5% ($) 10% ($)
- ---------------------- ---------------- ---------------- -------------------- ------------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Anthony J. Santilli,
Jr. 22,500(1) 100% $ 5.00 October 1, 2005 $70,751 $179,296
Chairman, President,
Chief Executive
Officer, Chief
Operating Officer,
Treasurer and Director
of ABFS
Beverly Santilli -- -- -- -- -- --
President of ABC and
Executive Vice
President and
Secretary of ABFS
Jeffrey M. Ruben -- -- -- -- -- --
Senior Vice President
and
General Counsel of
ABFS
David M. Levin -- -- -- -- -- --
Senior Vice President
- Finance and
Chief Financial
Officer of ABFS
</TABLE>

- ------
(1) Represents an option to purchase 22,500 shares of Common Stock.
Subsequent to the end of fiscal 1996, Mr. Santilli received an option to
purchase 5,000 shares of Common Stock.

53
<PAGE>

EMPLOYMENT AGREEMENTS

On January 29, 1997, the Company entered into employment agreements with
each of Anthony J. Santilli, Jr., Beverly Santilli and Jeffrey M. Ruben
pursuant to which they are entitled to receive annual salaries of $300,000,
$200,000 and $125,000, respectively, during the term of the agreements. The
salaries of Mr. and Mrs. Santilli are subject to increase but not decrease,
on an annual basis based upon the Consumer Price Index. Mr. Ruben's salary is
subject to increase on an annual basis based upon the Consumer Price Index
and may also be increased from time to time by Mr. Santilli. Once increased,
Mr. Ruben's salary may not be decreased following a "change in control" of
the Company. The employment agreements are designed to assist the Company in
maintaining a stable and competent management team following completion of
the Public Offering. Certain of the terms of such agreements are described
below.

The term of each agreement terminates upon the earlier of: (a) the
employee's death, permanent disability, termination of employment for cause,
voluntary resignation (provided that no voluntary resignation may occur
within three years of the closing date of the Public Offering absent a change
in control) or seventieth birthday or (b) the later of: (i) the fifth year
anniversary of the execution of the agreement (or three years in the case of
Mr. Ruben); or (ii) five years (or three years in the case of Mr. Ruben) from
the date of notice to the employee of the Company's intention to terminate
the agreement. To the extent the Company gives Mr. or Mrs. Santilli notice of
its intent to terminate their agreements, other than for cause, such
individuals would be entitled to receive their salaries and certain benefits
for five years. To the extent Mr. Ruben is terminated without cause during
the term of his agreement, he would be entitled to receive his salary for
three years except that if such termination occurs while Mr. Santilli is
Chief Executive Officer of the Company, he shall receive a termination
payment equal to the current year's base salary.

The employment agreements with each of Mr. and Mrs. Santilli also provide
for a cash payment to each employee equal to 299% of the last five years'
average annual compensation as calculated in accordance with Section 280G of
the Code (in addition to any other payments and benefits due under the
agreements) in the event of a "change in control" (as defined in such
agreements) of the Company during the term of the agreements to which such
employee does not consent in such individual's capacity as a director or
stockholder of the Company. Mr. Ruben's agreement provides for a similar cash
payment only if his employment is terminated in the event of a "change in
control" which payment shall be in lieu of any additional payment which may
be due pursuant to the terms of his agreement. The agreements with Mr. Ruben
and Mrs. Santilli also provide that in the event of a "change in control" of
the Company each employee's stock options shall vest in full (provided that
in the case of Mrs. Santilli, she does not consent to such "change in
control"). The vesting of options and the receipt of other payments and
benefits provided for under the agreements upon a "change in control" of the
Company may subject an employee to the payment of an excise tax equal to 20%
of all payments contingent upon a "change in control" made in excess of the
employee's base compensation. Under the terms of the agreements, in such
event the Company will pay the employees an additional amount such that the
net amount of payments retained by the employees after the payment of any
excise tax and any federal, state and local income and employment taxes and
the excise tax on the additional amount paid by the Company shall be equal to
the total payments or benefits to be received by the employees under their
respective agreements. The Company is not entitled to a deduction for any
payments subject to the excise tax made to employees pursuant to the terms of
the agreements. For purposes of all of the employment agreements, a "change
in control" of the Company shall include: (a) a change in the majority of the
members of the Board of Directors within a two-year period, excluding a
change due to the voluntary retirement or death of any board member (with
respect to Mr. Ruben's agreement, no "change in control" as a result of a
change in the majority of the directors will be deemed to occur under the
terms of his agreement if Mr. Santilli remains Chairman of the Board), or (b)
a person or group of persons acting in concert (as defined in Section 13(a)
of the Exchange Act) acquires beneficial ownership, within the meaning of
Rule 13(d)(3) of the Rules and Regulations of the Commission promulgated
pursuant to the Exchange Act, of a number of voting shares of the Company
which constitutes (i) 50% or more of the Company's shares voted in the
election of directors, or (ii) more than 25% of the Company's outstanding
voting shares. Based upon their current salaries, if Mr. and Mrs. Santilli
and Mr. Ruben had been terminated as of January 1, 1997 under circumstances
entitling them to "change in control" payments (excluding the value realized
upon the exercise of options or any excise tax and other payments described
above which amounts may vary based upon a

54
<PAGE>

variety of factors, including but not limited to, the acquisition price and
the timing of the "change in control"), Mr. Santilli, Mrs. Santilli and Mr.
Ruben would have been entitled to receive a lump sum payment of $780,000,
$319,000 and $279,000, respectively. In addition, Mr. Santilli's and Mrs.
Santilli's agreements would continue to be in force for the remainder of
their term as described above.

Each employment agreement also prohibits the employee from divulging
confidential information regarding the Company's business to any other party
and prohibits the employee, during the term of the agreement, from engaging
in a business or being employed by a competitor of the Company without the
prior written consent of the Company. The Company may extend the non-compete
provisions of any of the agreements at its option (or in the case of Mr.
Ruben, with his consent) for up to one year following the termination of such
agreement upon payment to the employee of an amount equal to the highest
annual salary and bonus received by the employee during the term of the
agreement; provided however, that the non-compete provisions of Mr. Ruben's
contract shall be automatically extended for one year in the event he is
terminated without cause and receives a severance payment pursuant to the
terms of his agreement unless he returns a pro rata portion of the severance
payment received from the Company.

The employment agreements with Mr. and Mrs. Santilli also provide for the
payment of an annual cash bonus of up to 225% of the employee's base salary
to the extent certain Board established targets are met. Mr. Ruben's
agreement provides for his participation in the Company's bonus plan
established by the Board of Directors. Each employment agreement also
provides the employees with certain other benefits including a company car
for each of Mr. and Mrs. Santilli, payment of certain life, health (including
the payment of health insurance benefits for the family of Mr. and Mrs.
Santilli) and disability insurance payments and reimbursement for all
reasonable expenses incurred by the employee in the performance of his or her
duties. In the event Mr. Santilli becomes disabled (as defined in the
agreement) during the term of his agreement, such employment agreement also
provides for the payment of monthly disability payments to him in an amount
equal to his monthly salary prior to the disability less any disability
benefits received by Mr. Santilli pursuant to any disability insurance paid
for, in whole or in part, by the Company for the period of his disability,
but in no event beyond the date Mr. Santilli reaches 65 years of age.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company does not have any formal policy concerning the direct or
indirect pecuniary interest of any of its officers, directors, security
holders or affiliates in any investment to be acquired or disposed of by the
Company or in any transaction to which the Company is a party or has an
interest. The Company will not enter into any such transactions unless
approved by a majority of the entire Board of Directors, not including any
interested director.

On September 29, 1995, the Company made a loan in the amount of $600,032
to Anthony J. Santilli, Jr., its President and Chief Executive Officer. The
proceeds of the loan were used to exercise 225,012 stock options of the
Company at a price of $2.67 per share. The loan bears interest at the rate of
6.46% with interest due annually or at maturity and the principal due
September 2005. The loan is secured by the stock purchased with the proceeds
of the loan as well as additional shares of Common Stock owned by Mr.
Santilli such that the value of the collateral is equal to twice the
outstanding loan amount.

55
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of December 31, 1996 by
(i) the directors of the Company, (ii) the Named Officers, (iii) each person
known by the Company to be the beneficial owners of five percent or more of
the Common Stock of the Company, and all directors and executive officers of
the Company as a group. The table also sets forth the number and percentage
of the outstanding shares projected to be beneficially owned by each
individual after the Public Offering, assuming the sale of 1,000,000 shares
of Common Stock by the Company (assuming no exercise of the over-allotment
option) and gives no effect to any shares which may be purchased in the
Public Offering.

<TABLE>
<CAPTION>
Shares Beneficially Owned(1) Shares Beneficially Owned(1)
Name and Position Prior to Public Offering After Public Offering
----------------------------------------------------- ---------------------------- ----------------------------
Number Percent Number Percent
--------------- --------- --------------- ---------
<S> <C> <C> <C> <C>
Anthony J. Santilli, Jr. 904,544(2)(3) 38.0% 917,044(8) 27.3%
Chairman, President,
Chief Executive Officer, Chief Operating
Officer, Treasurer and Director of ABFS
and Beverly Santilli, President of ABC
and Executive Vice President and
Secretary of ABFS
111 Presidential Blvd., Suite 215
Bala Cynwyd, PA 19004
Leonard Becker, Director of ABFS 131,230(4) 5.5 131,230 3.9
Becker Associates
111 Presidential Blvd., Suite 140
Bala Cynwyd, PA 19004
Michael DeLuca, Director of ABFS 194,735(4) 8.2 194,735 5.8
Lux Products
6001 Commerce Park
Mt. Laurel, NJ 08054
Richard Kaufman, Director of ABFS 170,561(4) 7.2 170,561 5.1
1126 Bryn Tyddyn Drive
Gladwyne, PA 19035
Harold Sussman, Director of ABFS 101,711(4) 4.3 101,711 3.0
Colliers, Lanard & Axilbund
399 Market Street, 3rd Floor
Philadelphia, PA 19106
Jeffrey M. Ruben 7,500(5) (6) 20,000(9) (6)
Senior Vice President and General
Counsel of ABFS
111 Presidential Blvd., Suite 215
Bala Cynwyd, PA 19004
David M. Levin -- -- 12,500(10) (6)
Senior Vice President - Finance and Chief
Financial Officer of ABFS
111 Presidential Blvd., Suite 215
Bala Cynwyd, PA 19004
All executive officers and directors as a group
(eight persons) 1,510,281(7) 60.5% 1,547,781(11) 43.8

</TABLE>

- ------
(1) The securities "beneficially owned" by an individual are determined in
accordance with the definition of "beneficial ownership" set forth in
the regulations of the Commission. Accordingly they may include
securities owned by or for, among others, the spouse and/or minor
children or the individual and any other relative who has the same home
as such individual, as well as other securities as to which the
individual has or shares voting or investment power or has the right to
acquire under outstanding stock options within 60 days after the date of
this table. Beneficial ownership may be disclaimed as to certain of the
securities.

(2) Shares listed are held in joint tenancy by Mr. and Mrs. Santilli.

(3) Includes options to purchase 27,500 shares of the Company's Common Stock
awarded to Mr. Santilli pursuant to the Company's Plan.

56
<PAGE>

(4) Includes options to purchase 27,500 shares of the Company's Common Stock
awarded to each non-employee director of the Company pursuant to the
Company's Non-Employee Director Stock Option Plan.

(5) Represents an option to purchase 7,500 shares of the Company's Common
Stock granted pursuant to the Company's Plan.

(6) Less than one percent.

(7) Includes options to purchase 145,000 shares of the Company's Common
Stock.

(8) Includes an option to purchase 12,500 shares of the Company's Common
Stock intended to be awarded to Mrs. Santilli in connection with the
Public Offering as well as the shares and options previously granted to
Mr. and Mrs. Santilli.

(9) Includes an option to purchase 12,500 shares of the Company's Common
Stock intended to be awarded to Mr. Ruben in connection with the Public
Offering as well as options previously granted to Mr. Ruben.

(10) Includes an option to purchase 12,500 shares of the Company's Common
Stock intended to be awarded to Mr. Levin in connection with the Public
Offering.

(11) Includes options to purchase 182,500 shares of the Company's Common
Stock.

57
<PAGE>

DESCRIPTION OF CAPITAL STOCK

GENERAL

The authorized capital stock of the Company consists of (i) 1,000,000
shares of preferred stock, $0.001 par value ("Preferred Stock") and (ii)
9,000,000 shares of Common Stock.

COMMON STOCK

As of the date hereof, there are 2,353,166 shares of Common Stock issued
and outstanding. Of such 2,353,166 shares, 1,365,281 shares are beneficially
owned by the Board of Directors of the Company. Upon completion of the Public
Offering, there will be 3,353,166 shares of Common Stock issued and
outstanding (assuming no exercise of the Underwriters' over-allotment
option). The issued and outstanding shares of Common Stock have been, and the
shares of Common Stock offered hereby will be, duly authorized, validly
issued, fully paid and non-assessable.

Holders of Common Stock are entitled to one vote for each share held of
record on all matters on which stockholders are entitled to vote. Holders of
Common Stock do not have cumulative voting rights, and therefore holders of a
majority of the shares voting for the election of directors can elect all of
the directors. In such event, the holders of the remaining shares will not be
able to elect any directors.

Holders of Common Stock are entitled to receive such dividends as may be
declared from time to time by the Board of Directors out of funds legally
available therefor. In the event of liquidation, dissolution, or winding up
of the Company, the holders of Common Stock are entitled to share ratably in
any corporate assets remaining after payment of all debts, subject to any
preferential rights of any outstanding Preferred Stock. See "Dividend
Policy."

Holders of Common Stock have no preemptive, conversion, or redemption
rights and are not subject to further calls or assessments by the Company.

Immediately after the Public Offering, the Board of Directors of the
Company will hold shares of Common Stock constituting approximately 40.7% of
the voting power of the outstanding Common Stock, which may allow them to
control actions to be taken by the stockholders, including the election of
the directors to the Board of Directors. See "Principal Stockholders" and
"Risk Factors--Voting Control of the Board of Directors of the Company."

The Common Stock has been approved for inclusion on the Nasdaq National
Market under the symbol "ABFI." See "Market for Common Stock."

PREFERRED STOCK

Pursuant to the Company's Certificate of Incorporation, the Board of
Directors has the authority to issue up to 1,000,000 shares of Preferred
Stock in one or more series with such designations, rights, preferences and
voting rights as may be determined from time to time by the Board of
Directors. Accordingly, the Board of Directors is empowered, without
stockholder approval, to issue Preferred Stock with dividend, liquidation,
conversion, voting or other rights that adversely affect the voting power or
other rights of the holders of the Company's Common Stock. In the event of
issuance, the Preferred Stock could be utilized, under certain circumstances,
as a way of discouraging, delaying or preventing an acquisition or change in
control of the Company. The Company does not currently intend to issue any
shares of its Preferred Stock.

CERTAIN PROVISIONS OF DELAWARE LAW

The Company is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Law ("Section 203"). In general, Section 203
prevents an "interested stockholder" (defined generally as a person owning
15% or more of the Company's outstanding voting stock) from engaging in a
"business combination" (as defined in Section 203) with the Company for three
years following the date that person became an interested stockholder unless:
(i) before that person became an interested stockholder, the Board approved
the transaction in which the interested stockholder became an interested
stockholder or

58
<PAGE>

approved the business combination; (ii) upon completion of the transaction
that resulted in the interested stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting
stock of the Company outstanding at the time the transaction commenced
(excluding stock held by directors who are also officers of the Company and
by employee stock plans that do not provide employees with the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer); or (iii) on or following the date on
which that person became an interested stockholder, the business combination
is approved by the Company's Board and authorized at a meeting of
stockholders by the affirmative vote of the holders of at least 66 2/3% of
the outstanding voting stock of the Company not owned by the interested
stockholder.

Under Section 203, these restrictions also do not apply to certain
business combinations proposed by an interested stockholder following the
announcement or notification of one of certain extraordinary transactions
involving the Company and a person who was not an interested stockholder
during the previous three years or who became an interested stockholder with
the approval of a majority of the Company's directors, if that extraordinary
transaction is approved or not opposed by a majority of the directors (but
not less than one) who were directors before any person became an interested
stockholder in the previous three years or who were recommended for election
or elected to succeed such directors by a majority of such directors then in
office.

Pursuant to Section 161 of the Delaware General Corporation Law, the Board
of Directors of the Company can, without stockholder approval, issue shares
of capital stock, which may have the effect of delaying, deferring or
preventing a change of control of the Company. Other than pursuant to the
Public Offering, the Company has no plan or arrangement for the issuance of
any shares of capital stock other than in the ordinary course or pursuant to
the Company's stock-based plans.

CERTAIN CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS

Certain provisions of the Company's Amended and Restated Certificate of
Incorporation and Bylaws may be deemed to have an anti-takeover effect and
may delay, deter or prevent a merger, tender offer, proxy contest or other
takeover attempt. The following discussion is a general summary of certain of
these provisions which might be determined to have a potential
"anti-takeover" effect. Reference should be made in each case to such
Certificate and Bylaws. See "Additional Information" for information
regarding how to obtain a copy of these documents.

The Company's Amended and Restated Certificate of Incorporation provides
that the stockholders may act only in a meeting that has been duly called and
noticed, except that stockholders may approve by written consent any proposal
that has already been approved by the Board of Directors.

The Company's Amended and Restated Certificate of Incorporation fixes the
number of Directors between one and fifteen as determined by resolution of
the Board of Directors. The Board of Directors of the Company is currently
comprised of five members. Prior to the closing of the Public Offering, all
directors were elected each year for a one-year term and until their
successors were elected and qualified.

The Company's Amended and Restated Certificate of Incorporation provides
that the Board shall be divided into three classes following the closing of
the Public Offering of the Company's Common Stock. Accordingly, following the
close of the Public Offering, the initial directors of Class One will serve
until the first annual meeting of stockholders following the Public Offering;
at such first annual meeting of stockholders, the directors of Class One
shall be elected for a term of three years, and after expiration of such
term, shall thereafter be elected every three years for three-year terms. The
initial directors of Class Two shall serve until the second annual meeting of
stockholders following the Public Offering. At the second annual meeting of
stockholders following the Public Offering, the directors of Class Two shall
be elected for a term of three years and, after the expiration of such term,
shall thereafter be elected every three years for three-year terms. The
initial directors of Class Three shall serve until the third annual meeting
of stockholders after the Public Offering. At the third annual meeting of
stockholders following the Public Offering, the directors of Class Three
shall be elected for a term of three years and after the expiration of such
term, shall thereafter be elected every three years for three-year terms.
Upon the consummation of the Public Offering the Board shall determine the
composition of each class.

59
<PAGE>

Stockholders are not entitled to cumulate their votes in connection with
the election of directors. As a result, a person or a group controlling the
majority of shares of Common Stock can elect all of the directors. Following
the Public Offering, the Board of Directors of the Company will own 1,365,281
shares of Common Stock constituting 40.7% of the issued and outstanding
Common Stock which may allow it to control actions taken by stockholders,
including the election of directors. See "Principal Stockholders" and "Risk
Factors -- Voting Control of the Board of Directors of the Company."

The Company's Bylaws provide that special meetings of stockholders may
only be called by the Board of Directors, the Chairman or by stockholders
entitled to cast at least 50% of the votes entitled to be cast at a
particular meeting.

The Amended and Restated Certificate of Incorporation and Bylaws of the
Company contain certain provisions permitted under the Delaware General
Corporation Law relating to the liability of directors. These provisions
eliminate the directors' liability for monetary damages for a breach of
fiduciary duty, except in certain circumstances involving wrongful acts,
including the breach of a director's duty of loyalty or acts or omissions
which involve intentional misconduct or a knowing violation of a law. The
Company's Amended and Restated Certificate of Incorporation and Bylaws also
contain provisions which provide for the indemnification of its directors and
officers to the fullest extent permitted by the Delaware General Corporation
Law.

SHARES ELIGIBLE FOR FUTURE SALE

The Company's Certificate of Incorporation authorizes the issuance of
9,000,000 shares of Common Stock. Upon completion of the Public Offering,
there will be outstanding 3,353,166 shares of Common Stock (assuming no
exercise of the Underwriters' over-allotment option).

The 1,000,000 shares of Common Stock to be sold in the Public Offering
(1,150,000 shares if the Underwriters' over-allotment option is exercised in
full), will be available for resale in the public market without restriction
or further registration under the Securities Act, except for shares purchased
by affiliates of the Company (in general, any person who has a control
relationship with the Company), which shares will be subject to the resale
limitations of Rule 144 promulgated under the Securities Act ("Rule 144"). In
addition, approximately 225,012 shares of the Common Stock are deemed to be
"restricted securities" as the term is defined in Rule 144 and are eligible
for resale to the public in compliance with Rule 144.

In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated) who has beneficially owned shares for at least
two years is entitled to sell, within any three month period, a number of
shares which does not exceed the greater of 1% of the then-outstanding shares
of the Company's Common Stock (33,532 shares immediately after the Public
Offering assuming no exercise of the Underwriters' over-allotment option) or
the average weekly trading volume of the Company's Common Stock during the
four calendar weeks preceding the date on which notice of the sale is filed
with the Commission. Sales under Rule 144 may also be subject to certain
manner of sale provisions, notice requirements and the availability of
current public information about the Company. Any person (or persons whose
shares are aggregated) who is not deemed to have been an affiliate of the
Company at any time during the three months preceding a sale, and who has
beneficially owned shares within the definition of "restricted securities"
under Rule 144 for at least three years, is entitled to sell such shares
under Rule 144(k) without regard to the volume limitation, manner of sale
provisions, public information requirements or notice requirements.

The Commission has published a notice of proposed rule-making that, if
adopted as proposed, would shorten the two-year holding under Rule 144 to one
year and would shorten the three-year holding period under Rule 144 to two
years. The Company cannot predict whether or in what form such amendment will
be adopted.

The Company and its directors and executive officers who are stockholders
have agreed, subject to certain limited exceptions, not to offer, sell or
otherwise dispose of any shares of Common Stock for a period of 180 days
after the date of this Prospectus without the prior written consent of the
Underwriter. Following

60
<PAGE>

the expiration of such 180-day period, directors and executive officers of
the Company will hold an aggregate of 1,365,281 shares (excluding options) of
Common Stock. The Company's directors and executive officers also hold
options to purchase an aggregate of 145,000 shares of Common Stock.

Prior to this Public Offering, there has been a limited public market for
the Common Stock. Sales of substantial amounts of Common Stock in the public
market could adversely affect market prices for the Common Stock and make it
more difficult for the Company to sell equity securities in the future at a
time and price which it deems appropriate. See "Market for Common Stock."

MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock has been approved for listing on the NASDAQ
National Market System upon commencement of the Public Offering under the
symbol "ABFI." Upon commencement of the Public Offering, the Company will
cease trading its Common Stock on the PHLX. See "Market for Common Stock."

The Company's Common Stock has been traded on the PHLX under the symbol
"AFX". Such Common Stock began trading on the PHLX on May 13, 1996. Prior to
the commencement of trading on the PHLX, there was no active trading market
for the Common Stock. As a result, stock price information for the Common
Stock is not available for any period prior to May 13, 1996. The following
table sets forth the high and low sales prices of the Common Stock from the
date on which the Common Stock commenced trading on the PHLX through December
31, 1996. On February 13, 1997 the closing price of the Common Stock on the
PHLX was $22.75.

<TABLE>
<CAPTION>
Quarter Ended High Low
---------------------------------------- -------- --------
<S> <C> <C>
June 30, 1996(1) ....................... $17.00 $11.38
September 30, 1996 ..................... 19.50 11.13
December 31, 1996 ...................... 20.00 17.25
March 31, 1997 (through February 13,
1997) ................................. 22.75 18.75
</TABLE>

- ------
(1) Represents the period May 13, 1996 through June 30, 1996.

As of December 31, 1996, there were 103 record holders and approximately
600 beneficial holders of the Common Stock.

During fiscal 1996, the Company paid dividends on its Common Stock then
outstanding of $0.03 per share, for an aggregate dividend payment of $71,000.
Subsequent to fiscal year end, the Company declared and paid dividends of
$0.03 per share for the six months ended December 31, of fiscal 1996. The
continuing payment by the Company of dividends in the future is in the sole
discretion of its Board of Directors and will depend, among other things,
upon the Company's earnings, its capital requirements and financial
condition, as well as other relevant factors. See "Dividend Policy."

As of the date hereof, there were 181,000 shares of Common Stock subject
to options. In addition, options covering 150,500 shares of Common Stock
subject to options are intended to be granted in connection with the Public
Offering. In addition, there were an additional 38,488 shares reserved for
issuance under the Company's option plans. See "Management."

61
<PAGE>

UNDERWRITING

Subject to the terms and conditions of the underwriting agreement, the
Underwriters named below (the "Underwriters"), through their Representative,
have severally agreed to purchase from the Company the following respective
number of shares of Common Stock at the Public Offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus:

<TABLE>
<CAPTION>
Underwriters Number of Shares
------------------------------------- ----------------
<S> <C>
Friedman, Billings, Ramsey & Co., Inc. 790,000
ABN Amro Chicago Corporation ........ 35,000
Advest, Inc. ........................ 35,000
Janney Montgomery Scott Inc. ........ 35,000
Legg Mason Wood Walker, Incorporated . 35,000
McDonald & Company Securities, Inc. . 35,000
Wheat, First Securities, Inc. ........ 35,000
----------------
Total .......................... 1,000,000
================
</TABLE>

The underwriting agreement provides that obligations of the several
Underwriters thereunder are subject to certain conditions precedent and that
the Underwriters will purchase all of the shares of the Common Stock offered
hereby if any of such shares are purchased.

The Company has been advised by the Underwriters that the Underwriters
propose initially to offer the shares of Common Stock to the public at the
Public Offering price set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession not in excess of $.84 per share.
The Underwriters may allow, and such dealers may reallow, a concession not in
excess of $.10 per share to certain other dealers. After the Common Stock has
been released for sale to the public, the offering price and other selling terms
may be changed by the Representative.

The Company has granted to the Underwriters an option, exercisable not
later than 30 days after the date of this Prospectus, to purchase up to
150,000 additional shares of Common Stock at the Public Offering price less
the underwriting discounts and commissions set forth on the cover page of
this Prospectus. The Underwriters may exercise such option only to cover
over-allotments made in connection with the sale of Common Stock offered
hereby. To the extent that the Underwriters exercise this option, each of the
Underwriters will have a firm commitment, subject to certain conditions, to
purchase approximately the same percentage thereof that the number of shares
of Common Stock to be purchased by it shown in the table above bears to
1,000,000 and the Company will be obligated, pursuant to the option, to sell
such shares to the Underwriters as set forth in the above table. If
purchased, the Underwriters will offer such additional shares on the same
terms as those on which the 1,000,000 shares are being offered.

The Company has agreed to indemnify the Underwriters against certain
liabilities including liabilities under the Securities Act. The Company has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities is asserted by the Underwriters in connection with the shares of
Common Stock offered hereby, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of competent jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.

The Company and the Company's directors and executive officers who are
stockholders of the Company and who, immediately following the Public
Offering (assuming no exercise of the Underwriters' over-allotment option)
collectively will beneficially own an aggregate of 1,365,281 shares
(excluding options) of Common Stock have agreed that for a period of 180 days
after the effective date of the Public Offering they will not, without the
prior written consent of the Underwriters, directly or indirectly offer,
offer for sale, sell, contract to sell, pledge, grant an option to purchase
or otherwise sell or dispose of any shares of Common stock or any securities
convertible into, or exchangeable or exercisable for shares of Common Stock
except for the grant of options to purchase shares of Common Stock pursuant
to the Company's option plans described herein or the exercise of options
(but not the sale of the shares received upon the exercise thereof) granted
pursuant to such plans.

62
<PAGE>

The Underwriters have advised the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.

Prior to the Public Offering, there has been a limited public trading
market for the Common Stock. Consequently, the initial Public Offering price
of the Common Stock has been determined by negotiations between the Company
and the Underwriters. Among the factors to be considered in such negotiations
were the historical trading price of the Common Stock, the history of, and
the prospects for, the Company and the industry in which the Company
competes, an assessment of the Company's management, its financial condition,
its past and present earnings and the trend of such earnings, the prospects
for future earnings of the Company, the present state of the Company's
development, the general condition of the economy and the securities markets
at the time of the Public Offering and the market prices of and demand for
publicly traded common stock of comparable companies in recent periods.

The Representative intends to make a market in the Common Stock upon
completion of the Public Offering, subject to compliance with applicable laws
and regulations. The Representative may, however, discontinue its market
making activities at any time. See "Market for Common Stock."

LEGAL MATTERS

The validity of the Common Stock being offered hereby has been passed upon
for the Company by Blank Rome Comisky & McCauley, Four Penn Center Plaza,
Philadelphia, Pennsylvania. Certain legal matters will be passed upon for the
Underwriters by Elias, Matz, Tiernan & Herrick L.L.P., Washington, D.C.

EXPERTS

The Consolidated Financial Statements of ABFS and subsidiaries as of June
30, 1996 and for the year ending June 30, 1996 included in this Prospectus,
have been audited by BDO Seidman, LLP, independent certified public
accountants, as set forth in their report appearing herein and have been
included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.

The Consolidated Financial Statements of ABFS and subsidiaries as of June
30, 1995 and for the years ended June 30, 1995 and 1994 included in this
Prospectus, have been audited by Fishbein & Company, P.C., independent
certified public accountants, as set forth in their report appearing herein
and have been included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.

On March 11, 1996, the Company engaged the firm of BDO Seidman, LLP as
independent certified public accountants replacing the firm of Fishbein &
Company, P.C. This change in independent certified public accountants was
recommended by the Audit Committee and subsequently approved by the Board of
Directors.

There were no disagreements between the Company or its subsidiaries and
Fishbein & Company, P.C. on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure in connection
with the audit of the consolidated financial statements for the two years
ended June 30, 1995 and subsequent period through March 11, 1996 which, if
not resolved to the satisfaction of Fishbein & Company, P.C., would have
caused them to make reference to the subject matter of the disagreement(s) in
connection with the reports of Fishbein & Company, P.C. on the consolidated
financial statements of the Company for the two years ended June 30, 1995.
Such reports did not contain an adverse opinion or disclaimer of opinion and
were not qualified or modified as to uncertainty, audit scope or accounting
principles. In addition, there have not been any "reportable events" as
defined by Item 304(a)(1)(iv)(B) of Regulation S-B during the periods
referred to above.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Company's Common Stock is
American Stock Transfer & Trust Company, Brooklyn, New York.

63
<PAGE>

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Report of Independent Certified Public Accountants ... F-2

Independent Auditor's Report ......................... F-3

Consolidated Balance Sheets .......................... F-4

Consolidated Statements of Operations ................ F-5

Consolidated Statements of Stockholders' Equity ...... F-6

Consolidated Statements of Cash Flows ................ F-7

Notes to Consolidated Financial Statements ........... F-9

F-1
<PAGE>

LOGO

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

American Business Financial Services, Inc.
and Subsidiaries
Bala Cynwyd, Pennsylvania

We have audited the accompanying consolidated balance sheet of American
Business Financial Services, Inc. and subsidiaries as of June 30, 1996, and
the related consolidated statements of operations and stockholders' equity,
and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of American
Business Financial Services, Inc. and subsidiaries as of June 30, 1996, and
the consolidated results of their operations, stockholders' equity and their
cash flows for the year then ended in conformity with generally accepted
accounting principles.

BDO Seidman, LLP

Philadelphia, Pennsylvania
August 23, 1996

F-2
<PAGE>

LOGO

Stockholders and Directors
American Business Financial Services, Inc.
Bala Cynwyd, Pennsylvania

INDEPENDENT AUDITOR'S REPORT

We have audited the accompanying consolidated balance sheet of AMERICAN
BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES as of June 30, 1995, and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the two years in the period ended June 30, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of American Business Financial Services, Inc. and Subsidiaries as of June 30,
1995, and the consolidated results of their operations and their consolidated
cash flows for each of the two years in the period ended June 30, 1995, in
conformity with generally accepted accounting principles.

The Company changed its method of accounting for income taxes as of July
1, 1993.

FISHBEIN & COMPANY, P.C.
Elkins Park, Pennsylvania
September 20, 1995

F-3
<PAGE>

AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
December 31, June 30, June 30,
1996 1996 1995
-------------- -------------- --------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents ............................ $ 3,034,952 $ 5,345,269 $ 4,734,368
Loan and lease receivables, net
Available for sale ................................. 26,396,556 17,625,178 8,668,956
Other .............................................. 882,632 534,325 328,401
Other receivables .................................... 23,078,793 14,090,542 4,237,072
Prepaid expenses ..................................... 2,437,487 1,341,160 594,046
Property and equipment, net of accumulated
depreciation and amortization ...................... 1,759,430 1,452,895 687,678
Other assets ......................................... 9,873,618 6,504,794 2,924,375
-------------- -------------- --------------
Total assets .................................. $67,463,468 $46,894,163 $22,174,896
============== ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Debt ............................................... $51,554,991 $35,987,401 $17,824,007
Accounts payable and accrued expenses .............. 3,924,998 3,132,170 1,117,930
Deferred income taxes .............................. 2,744,909 1,506,271 704,304
Other liabilities .................................. 2,617,322 1,876,806 385,241
-------------- -------------- --------------
Total liabilities ............................. 60,842,220 42,502,648 20,031,482
-------------- -------------- --------------
Commitment and contingencies
Stockholders' equity
Preferred stock, par value $.001
Authorized 1,000,000 shares
Issued and outstanding none ..................... -- -- --
Common stock, par value $.001
Authorized 9,000,000 shares
Issued and outstanding 2,353,166 shares in 1996
and 2,128,154 shares in 1995 .................. 2,353 2,353 2,128
Additional paid-in capital ......................... 1,931,699 1,931,699 1,331,892
Retained earnings .................................. 5,287,228 3,057,495 809,394
-------------- -------------- --------------
7,221,280 4,991,547 2,143,414
Less note receivable ............................... 600,032 600,032 --
-------------- -------------- --------------
Total stockholders' equity .................... 6,621,248 4,391,515 2,143,414
-------------- -------------- --------------
Total liabilities and stockholders' equity .... $67,463,468 $46,894,163 $22,174,896
============== ============== ==============
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE>

AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Six Months Ended
December 31, Year Ended June 30,
------------------------------ --------------------------------------------
1996 1995 1996 1995 1994
------------- ------------- ------------- ------------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenues
Gain on sales of loans and leases ...... $ 8,232,594 $3,918,843 $ 9,005,193 $1,442,961 $ 110,378
Interest and fees ...................... 2,480,910 1,527,115 3,350,716 4,057,643 2,366,366
Other income ........................... 192,287 55,785 22,824 143,473 155,923
------------- ------------- ------------- ------------- -----------
Total revenues .................... 10,905,791 5,501,743 12,378,733 5,644,077 2,632,667
------------- ------------- ------------- ------------- -----------
Expenses
Interest ............................... 2,150,843 1,115,692 2,667,858 1,213,111 628,240
Provision for credit losses ............ 400,000 291,751 681,228 165,143 47,692
Payroll and related costs .............. 521,049 310,524 1,203,260 995,215 411,048
Sales and marketing .................... 2,846,537 1,060,468 2,685,173 1,510,227 660,755
General and administrative ............. 1,447,952 718,683 2,020,551 866,478 550,792
------------- ------------- ------------- ------------- -----------
Total expenses .................... 7,366,381 3,497,118 9,258,070 4,750,174 2,298,527
------------- ------------- ------------- ------------- -----------
Income before income taxes and cumulative
effect of accounting changes .............. 3,539,410 2,004,625 3,120,663 893,903 334,140
Income taxes ................................ 1,239,082 701,619 801,967 312,866 197,563
------------- ------------- ------------- ------------- -----------
Income before cumulative effect of accounting
change .................................... 2,300,328 1,303,006 2,318,696 581,037 136,577
Cumulative effect of accounting change on
prior years ............................... -- -- -- -- (51,933)
------------- ------------- ------------- ------------- -----------
Net income .................................. $ 2,300,328 $1,303,006 $ 2,318,696 $ 581,037 $ 84,644
============= ============= ============= ============= ===========
Earnings per share
Income before cumulative
effect of accounting change ............... $ .93 $ .58 $ 1.01 $ .27 $ .06
Cumulative effect of accounting change on
prior years ............................... -- -- -- -- (.02)
------------- ------------- ------------- ------------- -----------
Net income per share ........................ $ .93 $ .58 $ 1.01 $ .27 $ .04
============= ============= ============= ============= ===========
Weighted average number of shares
outstanding ............................... 2,468,045 2,240,660 2,296,913 2,128,154 2,127,263
============= ============= ============= ============= ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE>

AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
Common Stock
------------------------ Additional Total
Number of Paid-In Retained Note Stockholders'
Shares Amount Capital Earnings Receivable Equity
----------- --------- ------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, July 1, 1993 .......... 2,115,018 $2,115 $1,323,350 $ 143,713 $ -- $1,469,178
Public offering ................ 12,525 12 7,241 -- -- 7,253
Conversion of subordinated
debentures .................... 611 1 1,301 -- -- 1,302
Net income ..................... -- -- -- 84,644 -- 84,644
----------- --------- ------------- ------------- ------------ ---------------
BALANCE, June 30, 1994 ......... 2,128,154 2,128 1,331,892 228,357 -- 1,562,377
Net income ..................... -- -- -- 581,037 -- 581,037
----------- --------- ------------- ------------- ------------ ---------------
BALANCE, June 30, 1995 ......... 2,128,154 2,128 1,331,892 809,394 -- 2,143,414
Options exercised .............. 225,012 225 599,807 -- -- 600,032
Note receivable on options
exercised ..................... (600,032) (600,032)
Cash dividends ($.03 per share) -- -- -- (70,595) -- (70,595)
Net income ..................... -- -- -- 2,318,696 -- 2,318,696
----------- --------- ------------- ------------- ------------ ---------------
BALANCE, June 30, 1996 ......... 2,353,166 2,353 1,931,699 3,057,495 (600,032) 4,391,515
Cash dividend ($.03 per share)
(unaudited) ................... -- -- -- (70,595) -- (70,595)
Net income (unaudited) ......... -- -- -- 2,300,328 -- 2,300,328
----------- --------- ------------- ------------- ------------ ---------------
BALANCE, December 31, 1996
(unaudited) ................... 2,353,166 $2,353 $1,931,699 $5,287,228 $(600,032) $6,621,248
=========== ========= ============= ============= ============ ===============

</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE>

AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Six Months Ended
December 31, Year Ended June 30,
------------------------------ --------------------------------------------
1996 1995 1996 1995 1994
------------- ------------- ------------- ------------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income ............................. $ 2,300,328 $ 1,303,006 $ 2,318,696 $ 581,037 $ 84,644
Adjustments to reconcile net income to
net cash (used in) provided by
operating activities
Gain on sales of loans/leases ....... (8,198,414) (3,918,843) (8,969,880) (1,442,961) (110,378)
Amortization of origination fees and
costs ............................. 165,773 149,357 305,136 528,554 529,573
Amortization of deferred servicing
rights ............................ 151,031 5,389 69,489 -- --
Provision for credit losses ......... 400,000 291,751 681,228 165,143 47,692
Accounts written off ................ (58,335) (46,492) (129,063) (87,885) (10,838)
Depreciation and amortization of
property and equipment ............ 223,821 135,111 318,493 177,632 116,007
Amortization of financing and
organization costs ................ 285,441 233,262 505,012 436,260 190,012
(Increase) decrease in accrued
interest and fees on loan and lease
receivables ....................... (684,226) (70,529) (268,010) 119,407 (129,751)
Decrease (increase) in other
receivables ....................... (9,634) 626,134 683,797 (328,081) (444,321)
(Increase) in prepaid expenses ...... (921,892) (372,481) (747,114) (241,164) (133,721)
Decrease (increase) in other assets . 129,177 109 332,009 (117,992) (253,668)
Increase in accounts payable and
accrued expenses .................. 792,828 1,178,228 2,014,240 328,022 488,350
Increase (decrease) in deferred
income taxes ...................... 1,238,638 (128,435) 801,967 285,791 247,636
Increase in other liabilities ....... 740,516 507,759 1,491,565 316,868 39,262
------------- ------------- ------------- ------------- -----------
Net cash (used in) provided by operating
activities ............................. (3,444,978) (106,674) (592,435) 720,631 660,499
============= ============= ============= ============= ===========

</TABLE>

F-7
<PAGE>

AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Six Months Ended
December 31, Year Ended June 30,
------------------------------ -----------------------------------------
1996 1995 1996 1995 1994
-------------- -------------- --------------- -------------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from investing activities
Loans and leases originated ...................... $(53,750,073) $(20,967,495 $(60,472,812) $(15,408,775) $ (6,674,527)
Loans repurchased ................................ -- -- -- -- (21,393)
Loan and lease payments received ................. 1,594,235 758,136 4,549,979 3,065,676 1,084,159
Proceeds of loans and leases sold ................ 40,000,000 9,068,162 40,627,246 8,747,265 1,607,233
Purchase of property and equipment ............... (530,356) (196,188) (1,022,926) (382,154) (274,837)
Decrease in securitization gain receivable ....... -- 29,564 58,693 9,958 --
Principal receipts on investments ................ 36,287 11,784 33,307 3,567 --
Initial overcollateralization of loans ........... (1,200,000) -- -- -- --
-------------- -------------- --------------- -------------- --------------
Net cash (used) in investing activities ..... (13,849,907) (11,296,037) (16,226,513) (3,964,463) (4,279,365)
-------------- -------------- --------------- -------------- --------------
Cash flows from financing activities
Financing costs incurred ......................... (512,457) (297,831) (662,950) (483,732) (597,167)
Net proceeds of (principal payments on) revolving
lines of credit ................................ 3,961,041 2,500,000 2,348,465 (1,999,431) (965,103)
Proceeds of term note payable, bank .............. -- -- -- -- 64,000
Principal payments on term notes payable, bank ... -- -- -- (245,555) (21,183)
Dividends paid ................................... (70,595) -- (70,595) -- --
Principal payments on note payable, other ........ (18,457) (2,912) (5,606) (4,814) (1,652)
Proceeds of notes payable, related parties ....... -- -- -- -- 807,444
Principal payments on notes payable, related
parties ........................................ -- -- -- -- (1,589,011)
Proceeds from public offering, net of related costs
of $26,147 ..................................... -- -- -- -- 7,253
Proceeds from issuance of subordinated debentures 14,609,499 8,186,981 19,687,982 12,049,581 6,107,478
Principal payments on subordinated debentures .... (2,984,493) (1,240,800) (3,867,447) (1,420,432) (262,102)
-------------- -------------- --------------- -------------- --------------
Net cash provided by financing activities ... 14,984,538 9,145,438 17,429,849 7,895,617 3,549,957
-------------- -------------- --------------- -------------- --------------
Net increase (decrease) in cash and cash
equivalents ............................... $ (2,310,317) $ (2,257,273) $ 610,901 $ 4,651,785 $ (68,909)
Cash and cash equivalents, beginning of period 5,345,269 4,734,368 4,734,368 82,583 151,492
-------------- -------------- --------------- -------------- --------------
Cash and cash equivalents, end of period .... $ 3,034,952 $ 2,477,095 $ 5,345,269 $ 4,734,368 $ 82,583
-------------- -------------- --------------- -------------- -------------
Supplemental disclosures of cash flow
information Cash paid during the year for:
Interest ............................... $ 1,156,639 $ 474,607 $ 1,183,745 $ 706,506 $ 510,916
------------- -------------- --------------- -------------- --------------
Income taxes ........................... $ -- $ 78,475 $ 78,475 $ 8,250 $ 12,364
------------- -------------- --------------- -------------- --------------
Noncash transactions recorded in connection with the
sale of and foreclosure on loans receivable
Increase in other receivables, securitization gains $ 8,793,425 $ 10,662,924 $ 10,595,960 $ 3,271,770 $ --
Increase in other assets
Investment, held to maturity ................ -- 1,261,285 2,332,247 684,380 --
Foreclosed real estate held for sale ........ 134,280 -- 111,890 448,801 --
Other holdings held for sale ................ 73,442 -- 308,933 -- --
Transfer from loans and leases, other ....... 250,380 -- (62,085) -- --
Mortgage servicing rights ................... 3,000,201 -- 1,165,000 -- --
Increase in fixed assets .................... -- 51,425 -- -- --
-------------- -------------- --------------- -------------- --------------
$ 12,251,728 $ 11,975,634 $ 14,451,945 $ 4,404,951 $ --
============== ============== =============== ============== =============

</TABLE>

- ------
Supplemental schedule of noncash investing and financing activities

During the year ended June 30, 1994, subordinated debentures of $1,302 were
converted to 611 shares of common stock.

During the year ended June 30, 1994, a note payable of $30,529 was incurred
for the acquisition of property and equipment.

During the year ended June 30, 1996, stock options for 225,012 shares of
common stock were exercised. Shares with a total price of $600,032 were
issued in exchange for a note receivable of the same amount.

See accompanying notes to consolidated financial statements.

F-8
<PAGE>

AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(INFORMATION AS OF DECEMBER 31, 1996 AND FOR THE
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995 IS UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION AND NATURE OF BUSINESS

The accompanying consolidated financial statements include the accounts of
American Business Financial Services, Inc. ("ABFS") and its wholly-owned
subsidiaries (the "Company"). All significant intercompany transactions and
balances have been eliminated.

The Company makes secured loans in the Mid-Atlantic Region and is subject
to the risks of the real estate market in that area. The Company also makes
business equipment leases and unsecured consumer loans. The Company
securitizes its secured loans.

CASH EQUIVALENTS

Cash equivalents consist of short-term investments purchased with an
initial maturity of three months or less.

LOAN AND LEASE RECEIVABLES AVAILABLE FOR SALE

Loan and lease receivables available for sale represent receivables that
the Company generally intends to sell or securitize within the next twelve
months. These assets are stated at the lower of cost (principal balance
including unamortized origination costs/fees) or estimated market value in
the aggregate. Market value is determined by most recent sale or
securitization transactions.

The Company sells loans through securitizations and is subject to certain
limited recourse provisions. Income is recorded at the time of sale
approximately equal to the present value of the anticipated future cash flows
("residuals"), offset by unamortized loan origination costs/fees, related
transaction expenses and estimated credit losses ("excess spread
receivables"). Subsequent to the initial sale, securitization income is
recorded in proportion to the actual cash flow received. To the extent that
the anticipated cash flows differ from actual cash flows, adjustments are
recognized through the use of an allowance account, as needed.

ALLOWANCE FOR CREDIT LOSSES

The allowance for credit losses is based upon the Company's estimate of
expected collectibility of loans and leases outstanding. The allowance is
increased by periodic charges to operations as necessary.

MORTGAGE SERVICING RIGHTS

Effective July 1, 1995, the Company adopted Financial Accounting Standards
Board Statement No. 122, "Accounting for Mortgage Servicing Rights". The
Statement amends Statement No. 65 to require recognition as a separate asset
the rights to service mortgage loans for others, however those servicing
rights are acquired. The Statement requires the assessment of capitalized
mortgage servicing rights for impairment to be based on the current fair
value of those rights. Mortgage servicing rights are amortized in proportion
to and over the period of the estimated net servicing income.

At December 31, 1996, servicing rights include $1,287,434 on prior
securitizations. These additional servicing rights were recognized as the
securitizations seasoned and the supporting information was available to
estimate such servicing rights.

F-9
<PAGE>

AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Information as of December 31, 1996 and for the
Six Months Ended December 31, 1996 and 1995 is unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)

ORIGINATION COSTS AND FEES AND AMORTIZATION

Direct origination costs, net of origination fees, are deferred and
amortized over the contractual life of the receivable using the interest
method. Unamortized amounts are recognized as (expense) income when the
receivable is sold or paid in full.

PROPERTY AND EQUIPMENT AND DEPRECIATION AND AMORTIZATION

Property and equipment are stated at cost. Depreciation and amortization
are provided using the straight-line and declining balance methods over the
estimated useful lives of the assets (ranging from 5 to 10 years).
Expenditures for additions, renewals and betterments are capitalized;
expenditures for maintenance and repairs are charged to expense as incurred.

FINANCING COSTS AND AMORTIZATION

Costs incurred in obtaining revolving lines of credit are amortized using
the straight-line method over the terms of the agreements.

Financing costs incurred in connection with public offerings of debentures
are amortized using the interest method over the term of the related
debentures.

INVESTMENTS, HELD TO MATURITY

The investments classified as held to maturity consist of mortgage-backed
securities that the Company has the positive intent and ability to hold to
maturity. These investments are stated at amortized cost, which approximates
market.

Foreclosed property held for sale is stated at the lower of cost or fair
market value.

INTEREST INCOME

Interest income from loan and lease receivables is recognized using the
interest method. Accrual of interest income is suspended when the receivable
is contractually delinquent for ninety days or more. The accrual is resumed
when the receivable becomes contractually current, and past due interest
income is recognized at that time. In addition, a detailed review of
receivables will cause earlier suspension if collection is doubtful.

INCOME TAXES

The Company files a consolidated federal income tax return.

The Company uses the liability method in accounting for income taxes.

Principal differences between the Company's financial and income tax
reporting include amortization of loan and lease origination costs/fees, the
allowance for credit losses, depreciation and amortization of property and
equipment, securitization gains, servicing rights and net operating losses.

EARNINGS PER SHARE

Earnings per share are based on the weighted average number of shares
outstanding. Earnings per share amounts for the six months ending December
31, 1996 assume the exercise of all stock options having an exercise price
less than the average market price of the common stock using the treasury
method. The effect of outstanding stock options is not dilutive for years
ended June 30, 1996, 1995 and 1994 and for the six months ended December 31,
1995.

F-10
<PAGE>

AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Information as of December 31, 1996 and for the
Six Months Ended December 31, 1996 and 1995 is unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)

RECLASSIFICATIONS

Certain amounts in the 1995 and 1994 financial statements have been
reclassified to conform to the 1996 presentation.

UNAUDITED INTERIM FINANCIAL INFORMATION

The unaudited interim consolidated financial statements as of December 31,
1996 and for the six month periods ended December 31, 1996 and 1995 reflect,
in the opinion of management, all adjustments (which include cash flows as of
and for the periods presented). The results for the interim periods presented
are not necessarily indicative of results to be expected for the full year.

2. LOAN AND LEASE RECEIVABLES

<TABLE>
<CAPTION>
December 31, June 30, June 30,
1996 1996 1995
-------------- -------------- -------------
<S> <C> <C> <C>
Real estate secured loans ............................. $19,075,604 $12,960,229 $4,761,778
Leases (net of unearned income of $1,626,368,
$1,136,621 and $557,880) ............................. 6,740,299 4,393,713 2,034,981
Other loans ........................................... 79,903 109,726 1,134,742
Unamortized origination costs/fees .................... 1,549,839 868,934 892,713
-------------- -------------- -------------
27,445,645 18,332,602 8,824,214
Less allowance for credit losses ...................... 1,049,089 707,424 155,258
-------------- -------------- -------------
Loan and lease receivables, net ....................... $26,396,556 $17,625,178 $8,668,956
============== ============== =============

</TABLE>

Substantially, all of the leases are sales-type leases whereby the lessee
has the right to purchase the leased equipment at the lease expiration for a
nominal amount.

The Company sells real estate secured loans through securitizations and
retains collection and administrative responsibilities as servicer for the
trusts holding the loans. Under terms of the sales, the purchasers have
limited recourse ($2,798,496 at December 31, 1996 and $2,834,783 at June 30,
1996) should certain amounts of the loans prove to be uncollectible. However,
the Company believes that allowances established for these off-balance sheet
instruments are adequate to provide for any amounts found to be
uncollectible. At December 31, 1996, the uncollected balance of receivables
securitized was approximately $77,600,000. At June 30, 1996, the uncollected
balance of receivables securitized was approximately $42,100,000.

At December 31, 1996, the accrual of interest income was suspended on real
estate secured loans of $329,904. At June 30, 1996, the accrual of interest
income was suspended on real estate secured loans of $599,564. Based on its
evaluation of the collateral related to these loans, the Company expects to
collect all contractual interest and principal.

F-11
<PAGE>

AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Information as of December 31, 1996 and for the
Six Months Ended December 31, 1996 and 1995 is unaudited)

2. LOAN AND LEASE RECEIVABLES - (Continued)

At June 30, 1996, the contractual maturities of loan and lease receivables
are as follows:

<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 Thereafter Total
------------- ------------- ------------- ----------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Real estate secured loans $1,175,085 $ 369,635 $ 422,257 $422,529 $477,495 $10,093,228 $12,960,229
Leases ................... 1,785,696 1,280,863 767,481 415,126 144,547 -- 4,393,713
Other loans .............. 23,921 28,184 32,847 19,660 5,114 -- 109,726
Unamortized organization
costs/fees .............. 614,865 132,547 70,126 34,644 13,712 3,040 868,934
------------- ------------- ------------- ----------- ---------- ------------- --------------
Total loans receivable ... $3,599,567 $1,811,229 $1,292,711 $891,959 $640,868 $10,096,268 $18,332,602
============= ============= ============= =========== ========== ============= ==============

</TABLE>

3. ALLOWANCE FOR CREDIT LOSSES

<S> <C>
Balance, July 1, 1993. ....................................... $41,146
Provision for credit losses .................................. 47,692
Accounts written off ....... ................................ (10,838)
------------
Balance June 30, 1994 ...... ................................ 78,000
Provision for credit losses .................................. 165,143
Accounts written off ....... ................................ (87,885)
------------
Balance, June 30, 1995 ..... ................................ 155,258
Provision for credit losses .................................. 681,228
Accounts written off ....... ................................ (129,062)
------------
Balance, June 30, 1996 ..... ................................ 707,424
Provision for credit losses .................................. 400,000
Accounts written off ....... ................................ (58,335)
------------
Balance, December 31, 1996 . ................................ $1,049,089
============

</TABLE>

4. OTHER RECEIVABLES

<TABLE>
<CAPTION>
December 31, June 30, June 30,
1996 1996 1995
-------------- ------------- ------------
<S> <C> <C> <C>
Sales of loans ....... $ 230,781 $ 86,090 $ 415,521
Home equity loan fees 38,813 121,874 506,236
Excess spread ........ 22,241,099 13,447,674 2,969,812
Other ................ 568,100 434,904 345,503
-------------- ------------- ------------
$23,078,793 $14,090,542 $4,237,072
============== ============= ============

</TABLE>

F-12
<PAGE>

AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Information as of December 31, 1996 and for the
Six Months Ended December 31, 1996 and 1995 is unaudited)

5. PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
December 31, June 30, June 30,
1996 1996 1995
-------------- ------------ -----------
<S> <C> <C> <C>
Computer equipment and software ............... $1,684,165 $1,296,769 $ 754,732
Office furniture and equipment ................ 938,110 803,445 393,423
Leasehold improvements ........................ 179,835 171,542 49,999
-------------- ------------ -----------
2,802,110 2,271,756 1,198,154
-------------- ------------ -----------
Less accumulated depreciation and amortization 1,042,680 818,861 510,476
-------------- ------------ -----------
$1,759,430 $1,452,895 $ 687,678
============== ============ ===========

</TABLE>

6. OTHER ASSETS

<TABLE>
<CAPTION>
December 31, June 30, June 30,
1996 1996 1995
-------------- ------------ ------------
<S> <C> <C> <C>
Deposits ............................................. $ 266,582 $ 296,582 $ 113,483
Financing costs, debt offerings, net of accumulated
amortization of $1,356,548, $1,074,212 and $581,324 . 1,368,576 1,138,455 968,393
Investments, held to maturity (mature in September
2004 through April 2011) ............................ 2,798,496 2,834,783 680,813
Foreclosed property held for sale .................... 689,780 607,905 761,523
Servicing rights ..................................... 4,236,681 1,387,511 --
Other ................................................ 513,503 239,558 400,163
-------------- ------------ ------------
$9,873,618 $6,504,794 $2,924,375
============== ============ ============

</TABLE>

7. DEBT

<TABLE>
<CAPTION>
December 31, June 30, June 30,
1996 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Subordinated debentures, due September 1996 through June
1998; interest at rates ranging from 8% to 12% payable
quarterly; subordinated to all of the Company's senior
indebtedness. ........................................... $ 1,269,721 $ 1,345,421 $ 1,422,421
Subordinated debentures, due July 1996 through September
2006; interest at rates ranging from 7% to 10.50%;
subordinated to all of the Company's senior indebtedness. 43,975,764 32,275,058 16,377,523
Note payable, $25,000,000 revolving line of credit
expiring September 1996; interest at LIBOR plus 1 1/4%
(an effective rate of 6 3/4% at June 30, 1996) payable
monthly; collateralized by loans receivable. ............ 6,309,506 2,348,465 --
Note payable in monthly installments of $655 including
interest at 11.8%; final payment due in March 1999;
collateralized by related equipment. .................... -- 18,457 24,063
-------------- -------------- --------------
$51,554,991 $35,987,401 $17,824,007
============== ============== ==============

</TABLE>

Principal payments on debt for the next five years are due as follows:
year ending June 30, 1997 -- $21,206,784; 1998 -- $4,329,462; 1999 --
$2,884,971; 2000 -- $1,995,153 and 2001 -- $2,557,366.

F-13
<PAGE>

AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Information as of December 31, 1996 and for the
Six Months Ended December 31, 1996 and 1995 is unaudited)

7. DEBT - (Continued)

Effective December 18, 1995, the Company authorized the issuance through a
public offering of up to $50,000,000 of unsecured, subordinated debentures to
be offered on an ongoing and continuous basis. During the year ended June 30,
1996, subordinated debentures of $16,810,707 were issued through this
offering.

At June 30, 1996, the Company has available unused revolving lines of
credit of $7,500,000 and $3,500,000, respectively. The lines expire in
December 1996 and May 1998, respectively. At December 31, 1996, the Company
has available unused revolving lines of credit of $25,000,000, $7,500,000 and
$15,000,000. The lines expire in March 1997, May, 1998 and December, 1999,
respectively. Advances under the lines, if any, are collateralized by certain
loans receivable. One of the loan agreements contains various restrictive
covenants, including the following: the Company must maintain (on a
consolidated basis) a ratio of subordinated debt to bank debt (as defined) of
not less than 1.50:1, a ratio of senior indebtedness to capital funds (as
defined) of not more than .95:1, minimum capital funds (as defined) of
$23,200,000, and minimum pre-tax income of $3,000,000, and may not pay any
dividends in excess of the lesser of 33% of current year net income or
$250,000.

8. COMMON AND PREFERRED STOCK

On May 31, 1996, the stockholders approved an amended and restated
Certificate of Incorporation which increased the authorized common shares
from five million shares to nine million shares and established a class of
preferred shares with one million shares authorized.

On September 12, 1995, the Board of Directors declared a 3 for 2 stock
split of common stock to stockholders of record on October 1, 1995. The stock
split has been reflected in the accompanying consolidated financial
statements.

9. STOCK OPTIONS

On May 31, 1996, the stockholders approved a non-employee director stock
option plan which authorizes the grant to non-employee directors of options
to purchase 135,000 shares of common stock at a price equal to the market
price of the stock at the date of grant. Options are fully vested when
granted and expire ten years after grant. At December 31, 1996, 25,000 shares
were available for future grants under this plan. Transactions under this
plan were as follows:

<TABLE>
<CAPTION>
Number of Price Per
Shares Share
----------- --------------
<S> <C> <C>
Options granted and outstanding, June 30, 1996 90,000 $5.00
----------- --------------
Options granted ............................... 20,000 17.75
Options exercised ............................. -- --
----------- --------------
Options outstanding, December 31, 1996 ........ 110,000 $5.00-$17.75
=========== ==============

</TABLE>

F-14
<PAGE>

AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Information as of December 31, 1996 and for the
Six Months Ended December 31, 1996 and 1995 is unaudited)

9. STOCK OPTIONS - (Continued)

The Company has an employee stock option plan which authorizes the grant
to employees of options to purchase 375,000 shares of common stock at a price
equal to the market price of the stock at the date of grant. Options are
fully vested when granted and expire five to ten years after grant. At
December 31, 1996, 78,988 shares were available for future grants under this
plan. Transactions under the plan were as follows:

<TABLE>
<CAPTION>
Number of Price Per
Shares Share
----------- --------------
<S> <C> <C>
Options outstanding, July 1, 1994 .... 225,012 $2.67
Options granted ...................... 43,500 2.67
----------- --------------
Options outstanding, June 30, 1995 ... 268,512 2.67
----------- --------------
Options granted ...................... 22,500 $5.00
Options exercised .................... (225,012) 2.67
----------- --------------
Options outstanding, June 30, 1996 ... 66,000 2.67-5.00
----------- --------------
Options granted ...................... 5,000 17.75
Options exercised .................... -- --
----------- --------------
Options outstanding, December 31, 1996 71,000 $2.67-$17.75
=========== ==============

</TABLE>

On September 29, 1995, options for 225,012 shares were exercised at $2.67
per share by an officer of the Company. The purchase price of $600,032 was
advanced to the officer, by the Company, on a ten year loan with interest at
6.46%, payable annually. The loan is secured by 450,000 shares of the
Company's stock (at the date of exercise, market value of collateral was
approximately $1,200,000) and is shown as a reduction of stockholders' equity
on the accompanying balance sheet.

The Company applies APB Opinion 25 and related Interpretations in
accounting for its employee stock option plan. Accordingly, no compensation
cost has been recognized. Had compensation cost for the Company's employee
stock option plan been determined based on the fair value at the grant date
for awards under the plan consistent with the method of FASB Statement 123,
the Company's net income and earnings per share would have been reduced to
the pro forma amounts indicated below:

<TABLE>
<CAPTION>
Six months Six months Year
ended ended ended
December 31, December 31, June 30,
1996 1995 1996
-------------- -------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Net income
As reported ..... $2,300,328 $1,303,006 $2,318,696
Pro forma ....... 2,250,078 1,239,218 2,254,908
Earnings per shares
As reported ..... .93 .58 1.01
Pro forma ....... .91 .55 .98

</TABLE>

The Company intends to amend its employee stock option plan to allow for
the granting of 150,500 options to certain officers and employees upon the
successful completion of a public offering.

F-15
<PAGE>

AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Information as of December 31, 1996 and for the
Six Months Ended December 31, 1996 and 1995 is unaudited)

10. INCOME TAXES

The provision for income taxes consists of the following:

<TABLE>
<CAPTION>
Year Ended June 30, 1996 1995
------------------- ----------- -----------
<S> <C> <C>
Current
Federal ......... $ -- $ 27,075
State ........... -- --
----------- -----------
-- 27,075
----------- -----------
Deferred
Federal ......... $858,617 $ 457,439
State ........... (56,650) (171,648)
----------- -----------
801,967 285,791
----------- -----------
$801,967 $ 312,866
=========== ===========

</TABLE>

The current provision for federal income taxes for the year ended June 30,
1995 is net of the tax benefit of approximately $249,000 from the utilization
of net operating loss carryforwards.

The cumulative temporary differences resulted in net deferred income tax
assets or liabilities consisting primarily of:

<TABLE>
<CAPTION>
Six Months
Ended
December 31, Year Ended June 30,
1996 1996 1995
-------------- ------------- -----------
<S> <C> <C> <C>
Deferred income tax assets
Allowance for credit losses ............... $ 425,930 $ 287,214 $ 62,568
Net operating loss carryforwards .......... 780,821 461,954 126,435
Loan and lease receivable ................. 68,058 68,058 --
Accrued expenses .......................... -- 246,500 --
-------------- ------------- -----------
1,274,809 1,063,726 189,003
Less valuation allowance .................. 148,500 148,500 126,435
-------------- ------------- -----------
1,126,309 915,226 62,568
-------------- ------------- -----------
Deferred income tax liabilities
Loan and lease origination costs/fees, net $ 526,946 $ 368,849 $365,679
Book over tax basis of property and
equipment .............................. 131,751 131,751 54,965
Other receivables ......................... 1,866,010 1,548,423 346,228
Servicing rights .......................... 1,346,511 372,474 --
-------------- ------------- -----------
3,871,218 2,421,497 766,872
-------------- ------------- -----------
Net deferred income tax liabilities ......... $2,744,909 $1,506,271 $704,304
============== ============= ===========

</TABLE>

The valuation allowance represents the income tax effect of State net
operating loss carryforwards of the Company which are not presently expected
to be utilized.

F-16
<PAGE>

AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Information as of December 31, 1996 and for the
Six Months Ended December 31, 1996 and 1995 is unaudited)

10. INCOME TAXES - (Continued)

A reconciliation of income taxes at federal statutory rates to the
Company's tax provision is as follows:

<TABLE>
<CAPTION>
Year Ended June 30, 1996 1995
-------------------------------------------- ------------- -----------
<S> <C> <C>
Federal income tax at statutory rates ...... $1,061,005 $303,927
State income tax, net of federal tax benefit -- (48,614)
Nondeductible expenses ..................... 13,545 11,080
Increase in state tax valuation allowance .. -- 46,453
Other, net ................................. (272,583) 20
------------- -----------
$ 801,967 $312,866
============= ===========

</TABLE>

For income tax reporting, the Company has net operating loss carryforwards
aggregating approximately $1,650,000 available to reduce future state income
taxes for various states as of June 30, 1996. If not used, substantially all
of the carryforwards will expire at various dates from June 30, 1997 to June
30, 1999.

11. COMMITMENT AND CONTINGENCIES

COMMITMENT

The Company leases certain of its facilities under a five-year operating
lease expiring in November 2000, at a minimum annual rental of $430,637. The
lease contains a renewal option for an additional five year period at an
increased annual rental. Rent expense under all operating leases for such
facilities was $373,694 and $199,368 for the years ended June 30, 1996 and
1995, respectively. Rent expense under all operating leases for such
facilities was $279,988 and $140,347 for the six months ended December 31,
1996 and 1995, respectively.

CONTINGENCIES

A subsidiary of the Company makes home equity loans on behalf of
unaffiliated lenders for a fee equal to a percentage of the loan amount.
Certain agreements require that all or a portion of the fee be refunded if
the loan is paid off during the first six to twelve months after origination.

At December 31, 1996 approximately $65,000 of income is subject to this
provision. The actual amount of the fee refunded during the six months ended
December 31, 1996 which was recorded as income prior to July 1, 1996 was
$17,195. At June 30, 1996 and 1995, approximately $292,000 and $394,000,
respectively, of fee income is subject to this provision. The actual amount
of the fee refunded during the years ended June 30, 1996 and 1995, which was
recorded as income prior to July 1, 1995 and 1994, was $138,187 and $14,267,
respectively.

The Company is a defendant in a lawsuit filed by one of its competitors
for alleged interference with existing contractual relations between the
competitor and its customers and vendors. Currently, the Company is
negotiating a settlement which is expected to be immaterial to the Company's
operations.

As of December 31, 1996, the lawsuit was settled for an immaterial amount.

F-17
<PAGE>

AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Information as of December 31, 1996 and for the
Six Months Ended December 31, 1996 and 1995 is unaudited)

12. FAIR VALUE OF FINANCIAL INSTRUMENTS

No market exists for certain of the Company's assets and liabilities,
therefore, fair value estimates are based on judgments regarding credit risk,
investor expectation of future economic conditions, normal cost of
administration and other risk characteristics, including interest rates and
prepayment risk. These estimates are subjective in nature and involve
uncertainties and matters of judgment and, therefore, cannot be determined
with precision. Changes in assumptions could significantly affect the
estimates.

In addition, the fair value estimates presented do not include the value
of assets and liabilities that are not considered financial instruments.

The table below summarizes the information about the fair value of the
financial instruments recorded on the Company's financial statements at June
30, 1996.

<TABLE>
<CAPTION>
June 30, 1996
-------------------------------
Carrying Fair
Value Value
------------- -------------
<S> <C> <C>
Assets
Cash and cash equivalents .............. $ 5,345,269 $ 5,345,269
Loans and leases available for sale .... 18,332,602 20,800,000
Excess spread .......................... 13,447,674 13,447,674
Servicing rights ....................... 1,387,511 1,387,511
Liabilities
Borrowings under revolving lines of
credit .............................. $ 2,348,465 $ 2,348,465
Subordinated debentures ................ 33,620,479 33,620,479

</TABLE>

The methodology and assumptions utilized to estimate the fair value of the
Company's financial instruments are as follows:

Cash and Cash Equivalents -- For these short-term instruments the carrying
amount approximates fair value.

Loans and Leases Available for Sale -- The Company has estimated the fair
values reported based upon recent sales and securitizations.

Excess Spread -- Fair value is determined using estimated discounted
future cash flows taking into consideration anticipated prepayment rates.

Servicing Rights -- Fair value is determined using estimated discounted
future cash flows taking into consideration anticipated prepayment rates.

Borrowings Under Revolving Lines of Credit -- The carrying value reported
approximates the fair value due to the short-term nature of the borrowings,
and the variable rate of interest charged on the borrowings.

Subordinated Debt --- The fair value of fixed maturity subordinated
debentures is estimated using the rates currently offered for debentures of
similar maturities.

F-18
<PAGE>

AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Information as of December 31, 1996 and for the
Six Months Ended December 31, 1996 and 1995 is unaudited)

13. HEDGING TRANSACTIONS

The Company regularly securitizes and sells fixed rate mortgage loans. To
offset the effects of interest rate fluctuations on the value of its fixed
rate loans held for sale, the Company in certain cases will hedge its
interest rate risk related to the loans held for sale by selling U.S.
Treasury securities short. The Company classifies these sales as hedges of
specific loans held for sale and does not record the derivative securities on
its financial statements. The gain or loss derived from these sales is
deferred and recognized as an adjustment to gain on sale of loans when the
loans are securitized.

At June 30, 1996, the Company sold short $15,000,000 of U.S. Treasury
securities due June 30, 1998 to settle on September 30, 1996. The deferred
loss at June 30, 1996 was approximately $27,000.

At December 31, 1996, the Company sold short $30,000,000 of U.S. Treasury
securities due June 30, 2000 to settle on March 31, 1997. The deferred loss
at December 31, 1996 was approximately $221,000.

During the year ended June 30, 1996, the Company included a gain of
$35,312 on short sales of U.S. Treasury securities as part of gains on sales
of loans.

During the six months ended December 31, 1996, the Company included a loss
of $34,180 on short sales of U. S. Treasury securities as part of gains on
sales of loan.

14. USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Although the Company believes that it has made reasonable estimates of the
excess spread receivables likely to be realized, the rate of prepayment and
the amount of defaults realized by the Company are estimates and actual
experience may vary from its estimates. Higher levels of future prepayments,
delinquencies and/or liquidations could result in decreased excess spreads
and the write down of the receivable, which would adversely affect the
Company's income in the period of adjustment.

The Company's revenues and net income have fluctuated in the past and may
fluctuate in the future principally as a result of the timing and size of its
securitizations. Since the Company does not recognize gains on the sale of
such loans until it consummates a securitization thereof, the Company's
operating results for a given period can fluctuate significantly as a result
of the timing and level of securitizations.

F-19
<PAGE>

AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Information as of December 31, 1996 and for the
Six Months Ended December 31, 1996 and 1995 is unaudited)

15. RECENT ACCOUNTING PRONOUNCEMENTS

In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123"), establishing financial accounting
and reporting standards for stock-based employee compensation plans. SFAS No.
123 encourages all entities to adopt a new method of accounting to measure
compensation cost of all employee stock compensation plans based on the
estimated fair value of the award at the date it is granted. Companies are,
however, allowed to continue to measure compensation cost for those plans
using the intrinsic value based method of accounting, which generally does
not result in compensation expense recognition for most plans. The Company
expects to remain with the existing accounting and will disclose in a
footnote to the financial statements pro forma net income and, earnings per
share, as if SFAS No. 123 had been adopted. The accounting require ments of
this Statement are effective for transactions entered into during fiscal
years that begin after December 15, 1995; however, companies are required to
disclose information for awards granted in their first fiscal year beginning
after December 15, 1994. The Company intends to utilize the intrinsic value
method of accounting.

In June 1996, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards (SFAS) No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities" ("SFAS No. 125"). Pursuant to SFAS No. 125, after a transfer of
financial assets, an entity would be required to recognize all financial
assets and servicing it controls and liabilities it has incurred and,
conversely, would not be required to recognize financial assets when control
has been surrendered and liabilities when extinguished. SFAS No. 125 provides
standards for distinguishing transfers of financial assets that are sales
from transfers that are secured borrowings. SFAS No. 125 will be effective
with respect to the transfer and servicing of financial assets and the
extinguishment of liabilities occurring after December 31, 1996, with earlier
application prohibited. The Company has not completed its analysis of the
impact SFAS No. 125 may have on the financial condition and results of
operations of the Company.

F-20
<PAGE>

==============================================================================
No person is authorized to give any information or to make any
representation not contained or incorporated by reference in this Prospectus,
and if given or made, such information or representation must not be relied
upon as having been authorized by the Company. Neither the delivery of this
Prospectus nor any sale made in connection herewith shall, under any
circumstances, create any implication that there has been no change in the
facts set forth in this Prospectus or in the affairs of the Company since the
date hereof. This Prospectus does not constitute an offer to sell or
solicitation of any offer to buy the Common Stock by anyone in any
jurisdictions in which such offer or solicitation is not authorized, or in
which the person making such offer or solicitation of any offer to buy the
Common Stock is not qualified to do so, or to any person to whom it is
unlawful to make such an offer or solicitation.

------
TABLE OF CONTENTS
------

<TABLE>
<CAPTION>
Page
<S> <C>
Available Information ............................ 2
Prospectus Summary ............................... 3
Risk Factors ..................................... 8
The Company ...................................... 15
Use of Proceeds .................................. 15
Dividend Policy .................................. 15
Market for Common Stock .......................... 16
Capitalization ................................... 17
Selected Consolidated Financial Data ............. 18
Management's Discussion and Analysis of Financial
Condition and Results of
Operations ...................................... 20
Business ......................................... 34
Management ....................................... 47
Certain Relationships and Related Transactions ... 55
Principal Stockholders ........................... 56
Description of Capital Stock ..................... 58
Shares Eligible for Future Sale .................. 60
Market for Common Stock and Related
Stockholder Matters ............................. 61
Underwriting ..................................... 62
Legal Matters .................................... 63
Experts .......................................... 63
Transfer Agent and Registrar ..................... 63
Index to Consolidated Financial Statements ....... F-1
Consolidated Financial Statements ................ F-4
</TABLE>

Until March 11, 1997, all dealers effecting transactions in the Common
Stock, whether or not participating in this distribution, may be required to
deliver a prospectus. This is in addition to the obligation of dealers to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.

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<PAGE>
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1,000,000 SHARES

AMERICAN BUSINESS FINANCIAL SERVICES, INC.
[LOGO]

COMMON STOCK

------
PROSPECTUS
------

FRIEDMAN, BILLINGS
RAMSEY & CO., INC.

February 14, 1997