AMERICAN BUSINESS FINANCIAL SERVICES INC /DE/, 424B3, 1998-02-13

AMERICAN BUSINESS FINANCIAL SERVICES INC /DE/
424B3, 1998-02-13
MORTGAGE BANKERS & LOAN CORRESPONDENTS

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<PAGE>
Filed Pursuant to 424(b)(3)
File No. 333-24115

[GRAPHIC OMITTED]

$125,000,000 Principal Amount
Adjustable Rate Subordinated Money Market Notes;
Three, Six, Eighteen and Thirty Month Subordinated Investment Notes;
One, Two, Three, Four, Five, Seven and Ten Year Subordinated Investment Notes

This Prospectus relates to the offer and sale of up to $125,000,000 in
principal amount (the "Offering") of unsecured, subordinated investment notes
(the "Investment Notes") and unsecured, adjustable rate, subordinated money
market notes (the "Money Market Notes" and when referred to, together with the
Investment Notes, the "Notes") of American Business Financial Services, Inc., a
Delaware corporation ("ABFS" or the "Company"). The Notes will be offered on an
ongoing and continuous "best-efforts" basis by ABFS. The Notes will be
subordinated to all "Senior Debt" (as hereinafter defined) of the Company
(including its subsidiaries). See "Prospectus Summary -- Securities Offered." As
of January 30, 1998, there was $70.1 million of Senior Debt outstanding. There
is no limitation on the amount of Senior Debt the Company may incur. Any
indebtedness of the subsidiaries of ABFS, other than the Senior Debt, will have
rights upon liquidation or dissolution of the particular subsidiary, prior to
payment being made to holders of the Notes. Any indebtedness of ABFS, other than
the Senior Debt, will have rights upon liquidation or dissolution of ABFS which
ranks pari passu (i.e. equally) in right of payment to the Notes offered hereby.
As of January 30, 1998, ABFS had an aggregate of approximately $95.3 million in
principal amount of indebtedness, which ranks pari passu in right of payment
with the Notes (including $45.5 million of Notes sold pursuant to this
Offering). The Notes have no sinking fund. See "Description of the Notes and the
Indenture -- Provisions Related to All Notes." (continued on next page)

ABFS is not subject to state or federal statutes or regulations applicable
to banks and/or savings and loan associations with regard to insurance, the
maintenance of reserves, the quality or condition of its assets or other
matters. THE NOTES OFFERED HEREUNDER ARE NOT CERTIFICATES OF DEPOSIT ("CDs").
THE PAYMENT OF PRINCIPAL AND INTEREST ON THE NOTES IS NOT GUARANTEED BY ANY
GOVERNMENTAL OR PRIVATE INSURANCE FUND OR ANY OTHER ENTITY. THE COMPANY'S
REVENUES FROM OPERATIONS, INCLUDING THE SECURITIZATION OR SALE OF LOANS FROM ITS
PORTFOLIO, THE COMPANY'S WORKING CAPITAL, AND CASH GENERATED FROM ADDITIONAL
DEBT FINANCING REPRESENT THE COMPANY'S SOURCES OF FUNDS FOR THE REPAYMENT OF
PRINCIPAL AT MATURITY AND THE ONGOING PAYMENT OF INTEREST ON THE NOTES.

THE NOTES ARE SPECULATIVE SECURITIES AND AN INVESTMENT HEREUNDER SHOULD BE
UNDERTAKEN ONLY AFTER CAREFUL EVALUATION OF THE RISK FACTORS AND THE OTHER
INFORMATION SET FORTH IN THE PROSPECTUS. SEE "RISK FACTORS" ON PAGE 17 FOR
INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE NOTES.
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 Commissions and Proceeds to
Public(1) Discounts(2) the Company(2)(3)
- -------------------------------------------------------------------------------
Per Note ......... 100% -0- 100%
- -------------------------------------------------------------------------------
Total ............ $125,000,000 -0- $125,000,000
===============================================================================
(1) The Notes will be issued at their face principal value, without discount.
(2) ABFS does not currently have any agreements concerning the use of the
services of any National Association of Securities Dealers, Inc. ("NASD")
member broker-dealer as an agent to assist in the sales of the Notes and,
accordingly, is not presently obligated to pay any commissions in connection
with the sale of the Notes. If an agreement concerning the use of any
broker-dealer is reached, ABFS may pay NASD member broker-dealers, as
agents, an estimated commission ranging from .5% to 10% of the sale price of
any Note sold through any such agent, depending on numerous factors. ABFS
may agree to indemnify such broker-dealers against certain liabilities,
including liabilities under the Securities Act of 1933, as amended. ABFS may
also agree to reimburse such broker-dealers for costs and expenses, up to a
maximum percentage to be determined, based upon a percentage of Notes sold.
See "Plan of Distribution."
(3) Before deducting other expenses incurred in connection with the Offering
payable by ABFS estimated at approximately $3.1 million.
-------------------
The date of this Prospectus is February 10, 1998
<PAGE>
The Investment Notes will be issued in minimum denominations of $1,000 and
in fully registered form. Purchasers of the Investment Notes will elect a
maturity when they subscribe for the Investment Notes. The Investment Notes may
be extended by the Company, at its option, for an identical term unless the
holder thereof requests payment within seven days after the original maturity.
Interest rates paid will depend on the term of the Investment Note.

The Money Market Notes will be issued in minimum denominations of $1,000.
The Money Market Notes have no stated maturity and are redeemable in minimum
amounts of $500 (or in lesser amounts to close an account) at the option of the
holder upon written notice to the Company. The payment due upon redemption shall
be made within 10 business days of the Company's receipt of such notice from the
holder. The Money Market Notes may also be redeemed by the Company upon 30 days
written notice to the holder. The interest rate paid on the Money Market Notes
will be adjusted by the Company from time to time in its sole discretion,
provided that such rate shall not be less than 4.0% per year.

The Company will provide written notice to all holders of the Money Market
Notes at least 14 days prior to any decrease in the interest rate to be paid
thereon, which notice shall set forth the new interest rate to be paid and the
effective date of such change. The Company reserves the right to increase the
interest rate paid on the Money Market Notes at any time without prior notice to
the holders of the Money Market Notes. Accrued interest will be paid monthly in
the form of additional Money Market Notes. No interest will be paid on the Money
Market Notes for any day during which the principal balance of any account is
less than $1,000. The Money Market Notes are non-negotiable and will be issued
in book entry form. As a result, book-entry owners of the Money Market Notes
will not be entitled to physical delivery of the Money Market Notes purchased in
certificated form equal in amount to their respective book-entry accounts
maintained by the Company except in the limited circumstances described herein.
See "Prospectus Summary -- Securities Offered."

The Company reserves the right to reject any subscription hereunder, in
whole or in part, for any reason. Subscriptions will be irrevocable upon receipt
by ABFS. In the event a subscription is not accepted by the Company, the
proceeds of such subscription will be promptly refunded to the subscriber
without deduction of any costs and without interest. The Company expects that
such subscriptions will be refunded within 48 hours after the Company has
received the subscription. No minimum amount of Notes must be sold in the
Offering. ABFS reserves the right to withdraw or cancel the Offering at any
time. In the event of such withdrawal or cancellation, the Notes previously sold
will remain outstanding until maturity and pending subscriptions will be
irrevocable. See "Plan of Distribution."

It is presently anticipated that there will be no trading market for the
Notes. The Notes will not be transferable without the prior written consent of
the Company. Such consent will be withheld in such circumstances as determined
by the Company in its reasonable discretion, including but not limited to the
Company's determination that such transfer might result in a violation of any
state or federal securities or other applicable law. The Notes will be issued
pursuant to an Indenture of Trust between the Company and First Trust, N.A., as
trustee. For a full description of the terms and provisions of the Notes offered
hereby, see "Description of the Notes and the Indenture."

No ABFS employee, broker-dealer, salesman or other person has been
authorized to give any oral information or to make any oral representation other
than those contained in this Prospectus and, if given or made, such information
or representation must not be relied upon as having been authorized by ABFS.
This Prospectus does not constitute an offer of any securities other than those
to which it relates nor to any person in any jurisdiction where such offer would
be unlawful. The delivery of this Prospectus at any time does not imply that the
information contained herein is correct as of any time subsequent to its date.

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 Securities and Exchange
Commission (the "Commission"). 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 debtholders 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.

THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF THE NOTES OFFERED
HEREBY UNLESS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT SETTING FORTH THE INTEREST
RATES THEN BEING OFFERED ON THE NOTES.

2
<PAGE>

AVAILABLE INFORMATION

The Company has filed with 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 Notes 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 Notes 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 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, Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at its regional offices located
as follows: Chicago Regional Office, Citicorp Center, 500 W. Madison Street,
Suite 1400, Chicago, IL 60661-2511; and New York Regional Office, 7 World Trade
Center, Suite 1300, 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.

The Company's common stock, par value $0.001 per share (the "Common
Stock"), is traded on the NASDAQ National Market System under the symbol "ABFI."
Reports, proxy statements and other information concerning the Company are
available for inspection at the offices of the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington, DC 20006.

3
<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 Notes offered hereby should carefully
consider the factors set forth under "Risk Factors."

General

ABFS is a financial services company operating primarily in the eastern
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"),
non-conforming mortgage loans typically to credit-impaired borrowers, secured by
first and second mortgages on single-family residences ("Home Equity Loans") and
conforming and jumbo loans secured by first mortgages on one- to four-unit
residential properties ("First Mortgage Loans"). The Company also originates
small ticket leases (generally $5,000 to $250,000) and, to a lesser extent,
middle market leases (generally $250,001 to $1.0 million) 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. The
Company also markets First Mortgage Loans to borrowers with favorable credit
histories.

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, Connecticut, North Carolina and Ohio. 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.

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<PAGE>

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 solely upon the real estate collateral securing the loans) of 60.0% at
the time of securitization.

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 $10.4 million and $38.7 million of Business Purpose Loans for the
three months ended September 30, 1997 and the year ended June 30, 1997,
respectively. See "Business -- Lending and Leasing Activities -- Business
Purpose Lending."

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 in
Pennsylvania, New Jersey, New York, Delaware, Maryland, Virginia, Georgia, North
Carolina, South Carolina, Florida, Connecticut, Illinois, Ohio, Indiana and
Tennessee. The Company originated $43.8 million and $91.8 million of Home Equity
Loans for the three months ended September 30, 1997 and the year ended June 30,
1997, respectively. The weighted average interest rate on Home Equity Loans
originated by the Company was 12.12% and 11.69% for the three months ended
September 30, 1997 and the year ended June 30, 1997, 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 eight 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 1,000 branches located in
Pennsylvania, Delaware, New Jersey and Maryland. The Company is also negotiating
with other financial institutions regarding their participation in the program.
The Company intends to expand its Bank Alliance Program with financial
institutions across the United States. See "Business -- Lending and Leasing
Activities -- Home Equity Lending."

First Mortgage Lending

ABFS began offering First Mortgage Loans in October 1997 in connection with
its acquisition of New Jersey Mortgage and Investment Corp. The Company
originates First Mortgage Loans for sale in the secondary market with servicing
released. The Company's first mortgage lending market area includes 15 states.
See "Business -- Lending and Leasing Activities -- First Mortgage Lending."

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 Company originated $4.5 million and $8.0 million of
Equipment Leases, respectively, during the three months ended September 30, 1997
and the year ended June 30, 1997. The weighted average interest rate received on
the Equipment Leases originated by the Company was 13.47% and 15.48% for the
three months ended September 30, 1997 and the year ended June 30, 1997,

5
<PAGE>

respectively. The Company currently holds all Equipment Leases originated in
its lease portfolio to generate interest income. The Company intends to attempt
to securitize its Equipment Lease portfolio in the future subject to market and
economic conditions. See "Business -- Lending and Leasing Activities -- Leasing
Activities."

Securitization of Loans and the Subordinated Debenture Program

The ongoing securitization of loans is a central part of the Company's
current business strategy. Through September 30, 1997, the Company had
securitized an aggregate of $87.4 million of Business Purpose Loans and $133.5
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 debt 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 September 30, 1997, the Company had $70.1
million in subordinated debt outstanding with a weighted average coupon of 9.23%
and a weighted average maturity of 24.2 months. Of this amount, $17.3 million
represents Notes sold pursuant to this Offering. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."

The Company intends to continue to utilize funds generated from the
securitization of loans and the sale of subordinated debt to increase its loan
and lease originations and to expand into new geographic markets, with an
initial focus on the continued expansion in the southeastern region of the
United States and initial entry into the midwestern region of the United States.

Asset Quality

From the inception of the Company's business in 1988 through September 30,
1997, the Company has experienced total net loan and lease losses of
approximately $450,000. The Company's losses on its total loan and lease
portfolio serviced totaled $100,000, $98,000 and $129,000, respectively, for the
three months ended September 30, 1997 and the years ended June 30, 1997 and
1996. The Company's loans and leases delinquent over 30 days (excluding real
estate owned) represented 2.86% and 2.15% of the loan and lease portfolio
serviced at September 30, 1997 and June 30, 1997, respectively. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Asset Quality."

Acquisition of New Jersey Mortgage and Investment Corp. and Subsidiaries

Effective October 1, 1997, the Company acquired all of the outstanding
stock of New Jersey Mortgage and Investment Corp. ("NJMIC"), a mortgage and
leasing company based in Roseland, New Jersey, and its subsidiaries for a
combination of cash and common stock. NJMIC is a full-service diversified
residential lender, which directly and through its subsidiaries offers a broad
range of loan and lease products, including Home Equity Loans, First Mortgage
Loans, and Equipment Leases. Historically, NJMIC originated loans for sale to
third parties with servicing released. The Company intends that NJMIC will
continue to originate First Mortgage Loans for sale in the secondary market and
the Home Equity Loans originated by NJMIC will be securitized and sold pursuant
to the Company's current securitization program. Loans originated by NJMIC are
secured by properties located in 15 states. Such loans are originated through
its network of six branch sales offices and three satellite offices located in
eight states. NJMIC's Home Equity Loan customers primarily include
credit-impaired borrowers while borrowers on its First Mortgage Loans are
generally borrowers with favorable credit histories.

Through its subsidiary, NJMIC originates Equipment Leases throughout the
United States. Such leases are generally sold through securitizations with
servicing retained. ABFS intends to attempt to continue to securitize these
leases in the future subject to economic and market conditions.

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<PAGE>

The Company's acquisition of NJMIC and its subsidiaries expands the
geographic scope of the Company's loan origination activities to include states
in the midwestern part of the United States and leasing activities to include
the entire United States. The Company believes that certain cross marketing
opportunities exist between the two companies with respect to the products and
services offered. See "Business -- Subsidiaries."

On October 1, 1997, NJMIC had total assets of $18.5 million, total
liabilities of $18.7 million, including subordinated debt of $6.9 million, and
stockholders' deficit of $200,000. See "Business."

7
<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>
Three Months Ended
September 30,
------------------------
1997 1996
----------- -----------
<S> <C> <C>
Statement of Income Data:
Revenues:
Gain on sale of loans .......................... $ 8,521 $ 4,073
Interest and fees .............................. 2,304 1,135
Other .......................................... 381 77
Total revenues .................................. 11,206 5,284
Total expenses .................................. 6,431 3,506
Operating income before income taxes and
cumulative effect of accounting change ......... 4,775 1,778
Income before cumulative effect of
accounting change .............................. 3,152 1,156
Cumulative effect of accounting change on prior
years .......................................... -- --
Net income ...................................... 3,152 1,156
Per Common Share Data(1):
Income before cumulative effect of
accounting change ............................. $ .87 $ .47
Net income ..................................... .87 .47
Cash dividends declared ........................ .015 .015

<CAPTION>
Year Ended June 30,
-------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ----------- ----------- --------- ----------
(Dollars in Thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Revenues:
Gain on sale of loans .......................... $ 20,043 $ 8,721 $ 1,350 $ 110 $ 119
Interest and fees .............................. 5,896 3,351 4,058 2,367 1,619
Other .......................................... 544 23 143 156 306
Total revenues .................................. 26,482 12,094 5,551 2,633 2,044
Total expenses .................................. 17,480 8,974 4,657 2,299 1,977
Operating income before income taxes and
cumulative effect of accounting change ......... 9,002 3,121 894 334 67
Income before cumulative effect of
accounting change .............................. 5,940 2,319 581 137 41
Cumulative effect of accounting change on prior
years .......................................... -- -- -- (52) --
Net income ...................................... 5,940 2,319 581 85 41
Per Common Share Data(1):
Income before cumulative effect of
accounting change ............................. $ 2.05 $ 1.01 $ .27 $ .04 $ .02
Net income ..................................... 2.05 1.01 .27 .04 .02
Cash dividends declared ........................ .06 0.03 -- -- --
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
September 30, June 30,
---------------------- ---------------------------------------------------------
1997 1996 1997 1996 1995 1994 1993
---------- --------- ---------- --------- --------- --------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents ......... $ 3,932 $ 8,813 $ 5,014 $ 5,345 $ 4,734 $ 83 $ 151
Loan and lease receivables, net
available for sale ............... 25,370 10,894 35,712 18,003 8,669 3,181 2,170
Other ............................ 1,218 579 1,144 534 328 5,538 2,963
Total assets ...................... 124,344 51,975 103,989 46,894 22,175 12,284 7,270
Subordinated debt ................. 70,125 37,876 56,486 33,620 17,800 7,171 1,327
Total liabilities ................. 90,333 46,463 73,077 42,503 20,031 10,721 5,801
Stockholders' equity .............. 34,011 5,512 30,912 4,392 2,143 1,562 1,469
</TABLE>
- -------------
(1) Per share information for fiscal years 1994 and 1993 has been restated to
reflect the 3 for 2 stock split effected on November 1, 1995.

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<TABLE>
<CAPTION>
Three Months Ended
September 30,
---------------------------
1997 1996
------------- ------------
(Dollars in Thousands)
<S> <C> <C>
Other Data:
Originations:
Business Purpose Loans .................... $ 10,667 $ 7,421
Home Equity Loans ......................... 43,771 12,663
Equipment Leases .......................... 4,512 1,970
Loans sold:
Securitizations ........................... 59,722 26,845
Other ..................................... 6,509 935
Total loan and lease portfolio serviced..... 214,458 79,080
Average loan/lease size:
Business Purpose Loans .................... 81 76
Home Equity Loans ......................... 49 43
Equipment Leases .......................... 10 10
Weighted average interest rate on loans and
leases originated:
Business Purpose Loans .................... 15.97% 15.96%
Home Equity Loans ......................... 12.12 11.50
Equipment Leases .......................... 13.47 15.53

Year Ended June 30,
------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- ------------
Other Data:
Originations:
Business Purpose Loans .................... $ 38,721 $ 28,872 $ 18,170 $ 11,793 $ 9,769
Home Equity Loans ......................... 91,819 36,479 16,963 22,231 22,017
Equipment Leases .......................... 8,004 5,967 2,220 -- --
Loans sold:
Securitizations ........................... 115,000 36,506 9,777 -- --
Other ..................................... 3,876 19,438 31,948 30,562 29,036
Total loan and lease portfolio serviced..... 176,651 59,891 17,774 8,407 5,134
Average loan/lease size:
Business Purpose Loans .................... 78 78 71 57 63
Home Equity Loans ......................... 51 47 46 51 45
Equipment Leases .......................... 11 11 12 -- --
Weighted average interest rate on loans and
leases originated:
Business Purpose Loans .................... 15.91% 15.83% 16.05% 16.03% 16.24%
Home Equity Loans ......................... 11.69 9.94 12.68 8.65 9.60
Equipment Leases .......................... 15.48 17.22 15.85 -- --
</TABLE>
<TABLE>
<CAPTION>
At or For The
Three Months Ended
September 30, At or For the Year Ended June 30,
----------------------- ----------------------------------------------------------
1997 1996 1997 1996 1995 1994 1993
----------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Financial Ratios:
Return on average assets (1) .............. 11.04% 9.35% 7.87% 6.71% 3.37% 0.87% 0.65%
Return on average equity (1) .............. 38.83 93.35 33.65 70.96 31.36 5.58 3.29
Total delinquencies as a percentage of
total portfolio serviced, at end of
period (2) ............................... 2.86 2.30 2.15 2.30 3.84 6.85 5.97
Allowance for credit losses to total
portfolio serviced, at end of period ..... 1.04 1.00 1.00 1.18 .87 .93 .80
Real estate owned as a percentage of
total portfolio serviced, at end of
period ................................... .51 .61 .34 1.01 4.29 2.63 1.44
Loan and lease losses as a percentage of
the average total portfolio serviced
during the period ........................ .05 .07 .08 .33 .66 .15 .47
Pre-tax income as a percentage of
total revenues ........................... 42.61 33.65 33.99 25.21 15.84 12.69 3.26
</TABLE>
- -------------
(1) Annualized.

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

9
<PAGE>

Securities Offered

General. The Offering relates to $125,000,000 in principal amount of
Investment Notes and Money Market Notes issued by ABFS pursuant to an Indenture
of Trust between the Company and First Trust National Association, a national
banking association as trustee (the "Indenture"). The Notes are subordinated to
the Senior Debt (as defined herein) of the Company and are not insured,
guaranteed or secured by any lien on any assets of ABFS. There are no provisions
for a sinking fund.

The Investment Notes and the Money Market Notes will be subordinated to all
Senior Debt of the Company. As of January 30, 1998, there was $70.1 million of
Senior Debt outstanding. There is no limitation on the amount of Senior Debt the
Company may incur. Senior Debt is defined for this purpose to include any
indebtedness (whether outstanding on the date hereof or hereafter created)
incurred in connection with borrowings by the Company (including its
subsidiaries) from a bank, trust company, insurance company, other institutional
lender or other entity which lends funds in connection with its primary business
activities, whether such indebtedness is or is not specifically designated by
the Company as being "Senior Debt" in its defining instruments. In addition, any
indebtedness of the subsidiaries of ABFS, other than the Senior Debt, will have
rights upon liquidation or dissolution of the particular subsidiary prior to
payment being made to the holders of the Notes. Such debt totaled $10.2 million
as of January 30, 1998. Any indebtedness of ABFS, other than the Senior Debt,
will have rights upon liquidation or dissolution of ABFS which ranks pari passu
(i.e. equally) in right of payment to the Notes offered hereby. As of January
30, 1998, the Company had $95.3 million of indebtedness which ranks pari passu
in right of payment with the Notes, including $45.5 million of Notes sold
pursuant to this Offering. See "Description of the Notes and the Indenture --
Provisions Related to All Notes."

Investment Notes. The Investment Notes are offered with fixed maturities
ranging from three months to ten years. Individual Investment Notes will be
issued as subscriptions are accepted. The Investment Notes are offered in
minimum denominations of $1,000. Purchasers thereof may choose any of the
following maturities: three months, six months, one year, eighteen months, two
years, thirty months, three years, four years, five years, seven years or ten
years.

The Investment Notes are non-negotiable instruments and will be issued in
fully registered form. Transfers of record ownership of the Investment Notes may
be made only with the prior written consent of ABFS. Such consent will be
withheld in such circumstances as determined by the Company in its reasonable
discretion, including but not limited to the Company's determination that such
transfer might result in a violation of any state or federal securities or other
applicable law. The Company may also require a signature guarantee in connection
with such transfer.

The term of the Investment Notes may, with the consent of the Company, be
extended in accordance with the procedure set forth below. The Company provides
notice to the holder of a Note regarding the upcoming maturity date. The holder
may request repayment for a period of up to seven days after the maturity date
of the Investment Note. As a courtesy, the Company provides a request for
repayment form with such notice. (Use of such form by a holder is not a
condition of repayment.) Requests for repayment may also be made to the Company
by letter. If the holder does not request repayment and the Company does not
notify the holder of its intention to repay the Investment Note, such Note will
be extended for an identical term. If the Company intends to repay the
Investment Note and to not permit the holder to extend the term it will notify
the holder of its intention at least seven days prior to the expiration of the
applicable term. Any Investment Notes which are so extended will be extended at
the interest rate then being offered by the Company for newly issued Investment
Notes of like term and denomination. See "Highlights of Terms of the Notes
Offered" on page 12 hereof.

Money Market Notes. The Money Market Notes are offered in minimum
denominations of $1,000 and any amount in excess thereof. The Money Market Notes
have no stated maturity and are redeemable in minimum amounts of $500 (or in
lesser amounts to close an account) at the option of the holder upon written
notice to the Company. The payment due upon redemption shall be made within 10
business days of the Company's receipt of such notice from the holder. The Money
Market Notes may also be redeemed by the Company at any time upon thirty days
written notice to the holder.

10
<PAGE>

The Money Market Notes are non-negotiable instruments and will be issued
only in book-entry form with the Company maintaining a record of each holder's
interest in the Money Market Notes through the establishment and maintenance of
an account for each purchaser of a Money Market Note. Except in certain limited
circumstances described herein, the Money Market Notes will not be issuable in
definitive certificated form to any holder. Upon subscription, a transaction
statement reflecting ownership will be issued to each purchaser upon the
Company's acceptance of the purchaser's subscription. Such statement is not a
negotiable instrument, and no rights of ownership in a Money Market Note may be
transferred by the endorsement and delivery of such statement to a purchaser.
Transfers of record ownership of the Money Market Notes may be made only with
the prior written consent of ABFS. Such consent will be withheld in such
circumstances as determined by the Company in its reasonable discretion,
including but not limited to the Company's determination that such transfer
might result in a violation of any state or federal securities or other
applicable law. The Company may require a signature guarantee in connection with
such transfer. Upon transfer of a Money Market Note, the Company will provide
the transferee of the Money Market Note with a transaction statement which will
evidence the transfer of the ownership of the account on the Company's records.
The Company shall provide the Trustee with information regarding the
establishment of new accounts and transfers of existing accounts on a bi-weekly
basis.

The interest rate paid on the Money Market Notes will be adjusted by the
Company from time to time in its sole discretion provided that such rate shall
not be less than 4.0% per year. The Company will provide written notice to all
holders of the Money Market Notes at least 14 days prior to any decrease in the
interest rate to be paid thereon, which notice shall set forth the new interest
rate to be paid and the effective date of such change. The Company reserves the
right to increase the interest rate paid on the Money Market Notes at any time
without the prior notice to the holders of the Money Market Notes. Interest on
the Money Market Notes will be compounded daily and credited monthly on the last
day of each calendar month. In lieu of paying interest by check, accrued
interest will be paid in the form of additional Money Market Notes. No interest
will be paid on the Money Market Notes for any day during which the principal
balance of an account is less than $1,000.

The Company is required to provide the Trustee with quarterly reports which
shall include such information as the Trustee shall reasonably request,
including the outstanding balance, interest credited, withdrawals made and
interest rate paid on the Money Market Note accounts during the preceding
quarterly period. The Company will provide holders of the Money Market Notes
with a monthly statement which will indicate, among other things, such holder's
current balance (including interest credited and withdrawals made) and interest
rate paid on the Money Market Notes during the preceding calendar month. Such
statements will be mailed to such holders no later than the tenth business day
following each month end. See "Highlights of Terms of the Notes Offered" on page
12 hereof.

Use of Proceeds

The net proceeds resulting from the sale of the Notes will be utilized by
the Company for its general corporate purposes, including financing the future
growth of the Company's loan and lease portfolios, the repayment of the
Company's outstanding debt and the possible unspecified acquisitions of related
businesses or assets (although none are currently contemplated). No specific
allocation of such proceeds has been determined as of the date of this
Prospectus. See "Use of Proceeds."

11
<PAGE>

HIGHLIGHTS OF TERMS OF THE NOTES OFFERED

<TABLE>
<CAPTION>
Investment Notes
<S> <C>
Types of Security Offered ......... Unsecured, subordinated, fixed term notes
Denomination of Initial
Purchase and
Additional Purchases .............. Minimum purchase: $1,000 per note or any
amount in excess thereof.
Annual Interest Rate .............. Fixed upon issuance. Purchasers will elect
a term length and the interest rate
applicable to such note will be based upon
the term length chosen.
Payment of Interest ............... Interest on notes with maturities of less
than one year will be compounded daily
and paid at maturity. Interest on Notes with
maturities of one year or greater will be
compounded daily and, at the election of
the holder, paid at maturity, monthly,
quarterly, semi-annually or annually.
Redemption by Holder .............. Notes with maturities of less than one year
are not redeemable by the holder prior to
maturity. Notes with maturities of one year
or greater may be redeemed by the holder
following his/her Total Permanent
Disability, or by his/her estate after death,
at the principal amount plus accrued
interest. Otherwise, the holder will have no
right to cause redemption prior to maturity.
(For joint holders, see "Description of
the Notes and the Indenture -- Provisions
Related to Investment Notes.")
Redemption by Company ............. Not redeemable until maturity.
Form .............................. In fully registered form and non-
negotiable. Not transferable without the
Company's prior written consent.
Maturity .......................... Investment Notes are offered with terms to
maturity of three, six, eighteen and thirty
months and one, two, three, four, five,
seven and ten years.
Automatic Extension ............... If the Company does not notify the holder
of its intention to repay the Note at least
seven days prior to maturity or if not
redeemed by holder within seven days after
its maturity date, the Note will be extended
automatically for a period equal to the
original term. Notes to be extended will be
extended at a fixed rate equal to the rate
then being offered on newly issued Notes
of like tenor, term and denomination at
their respective maturity dates.
Periodic Statements ............... Quarterly statements detailing the current
balance and interest rate paid on each Note
will be mailed to each holder no later than
the tenth business day following the end of
each calendar quarter.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Money Market Notes
<S> <C>
Types of Security Offered ......... Unsecured, adjustable rate, subordinated
notes
Denomination of Initial
Purchase and
Additional Purchases .............. Minimum purchase: $1,000 per note or any
amount in excess thereof.
Annual Interest Rate .............. The interest rate paid will be adjusted by
the Company from time to time in its sole
discretion provided that such rate shall not
be less than 4.0% per year. Holders will be
notified in writing at least 14 days prior to
any decrease in the interest rate to be paid.
No interest will be paid for any day on
which the principal balance in an account
is below $1,000.
Payment of Interest ............... Interest will be compounded daily and
credited monthly at the end of each month.
No checks will be issued in payment of
interest. Accrued interest will be added to
principal in each account in the form of
additional notes.
Redemption by Holder .............. May be redeemed by the holder upon
written notice to the Company with
payment to be made within 10 business
days of the Company's receipt of such
notice from the holder. Redemptions must
be at least $500, except for redemptions to
close an account.
Redemption by Company ............. Redeemable upon 30 days written notice to
the holder.
Form .............................. In book-entry form and non-negotiable.
(A monthly statement will be issued, not an
individual promissory note.) Not
transferable without the Company's prior
written consent.
Maturity .......................... No fixed maturity.
Automatic Extension ............... Not applicable.
Periodic Statements ............... Monthly statements detailing the current
balance and interest rate paid on each
account will be mailed to each holder no
later than the tenth business day following
each month end.
</TABLE>

THE NOTES OFFERED HEREBY ARE UNSECURED OBLIGATIONS SUBORDINATED TO THE
SENIOR DEBT OF THE COMPANY. THE COMPANY IS NOT SUBJECT TO STATE OR FEDERAL
STATUTES OR REGULATIONS APPLICABLE TO COMMERCIAL BANKS AND/OR SAVINGS AND LOAN
ASSOCIATIONS WITH REGARD TO INSURANCE, THE MAINTENANCE OF RESERVES, THE QUALITY
OR CONDITION OF ITS ASSETS OR OTHER MATTERS. THE NOTES OFFERED HEREUNDER ARE NOT
CERTIFICATES OF DEPOSIT. PAYMENT OF PRINCIPAL AND INTEREST ON THE NOTES IS NOT
GUARANTEED BY ANY GOVERNMENTAL OR PRIVATE INSURANCE FUND OR OTHER ENTITY. THE
COMPANY'S REVENUES FROM OPERATIONS, INCLUDING THE SECURITIZATION OR SALE OF
LOANS FROM ITS PORTFOLIO, THE COMPANY'S WORKING CAPITAL AND CASH GENERATED FROM
ADDITIONAL DEBT FINANCING REPRESENT THE COMPANY'S SOURCES OF FUNDS FOR THE
REPAYMENT OF PRINCIPAL, AT MATURITY, AND THE ONGOING PAYMENT OF INTEREST ON THE
NOTES.

12
<PAGE>

RECENT DEVELOPMENTS

The selected financial data of the Company set forth below at December 31,
1997 and for the three and six months ended December 31, 1997 and 1996 were
derived from the Company's unaudited consolidated financial statements. In the
opinion of management, all adjustments (consisting of normal recurring accruals)
necessary for a fair presentation of the financial condition and results of
operations for the unaudited periods presented have been included. The results
of operations presented for the three and six months ended December 31, 1997 are
not necessarily indicative of the results of operations which may be expected
for the fiscal year ended June 30, 1998. The information presented below is
qualified in its entirety by the detailed information and audited consolidated
financial statements included elsewhere in this prospectus and should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Business" and the Consolidated Financial Statements
and Notes thereto included elsewhere in this Prospectus.

At At
December 31, June 30,
1997 1997
-------------- ----------
(In Thousands)
Balance Sheet Data:
Cash and cash equivalents ......... $ 4,333 $ 5,014
Loan and lease receivables, net
Available for sale ............... 85,592 35,712
Other ............................ 3,704 1,144
Total assets ...................... 197,020 103,989
Subordinated debt ................. 142,470 56,486
Total liabilities ................. 160,921 73,077
Stockholders' equity .............. 36,099 30,912
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
----------------------- ------------------------
1997 1996 1997 1996
---------- ---------- ----------- ----------
(In Thousands)
<S> <C> <C> <C> <C>
Statement of Income Data:
Revenues:
Gain on sale of loans ............. $ 6,584 $ 3,775 $ 15,106 $ 7,855
Interest and fees ................. 5,075 1,228 7,379 2,363
Servicing Income .................. 454 221 835 296
Other ............................. 118 13 118 14
------- ------- -------- -------
Total revenues ..................... 12,231 5,237 23,438 10,528
Total expenses ..................... 9,876 3,475 16,308 6,989
------- ------- -------- -------
Income before income taxes ......... 2,355 1,762 7,130 3,539
Provision for income taxes ......... 801 617 2,424 1,239
------- ------- -------- -------
Net income ........................ $ 1,554 $ 1,145 $ 4,706 $ 2,300
======= ======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
At or For the
Six Months Ended
December 31,
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
Selected Financial Ratios and Other Data:
Return on average asset(1) .......................................................... 6.25% 8.05%
Return on average equity(1) ......................................................... 28.09 83.55
Total delinquencies as a percentage of total portfolio serviced, at end of period(2) 3.30 1.64
Allowance for credit losses to total portfolio serviced, at end of period ........... 1.00 1.01
Real estate owned as a percentage of total portfolio serviced, at end of period ..... 0.35 0.66
Loan and lease losses as a percentage of total portfolio serviced during the period . 0.06 0.07
Pre-tax income as a percentage of total revenues .................................... 30.42 32.45
</TABLE>
- ------------
(1) Annualized.

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

13
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF RECENT RESULTS

Balance Sheet Information

Total assets increased $93.0 million, or 89.4%, to $197.0 million at
December 31, 1997 from $104.0 million at June 30, 1997 due primarily to
increases in loans and leases available for sale, other receivables and other
assets. Loans and leases available for sale increased $49.9 million, or 139.8%,
from $35.7 million at June 30, 1997 to $85.6 million at December 31, 1997
representing $167.8 million of loan and lease originations, of which $50.1
million was originated by NJMIC, partially offset by sales and securitizations
of loans and leases.

Total liabilities increased $87.8 million, or 120.1%, to $160.9 million at
December 31, 1997 from $73.1 million at June 30, 1997 due primarily to an
increase in outstanding debt and to a lesser extent, increases in accounts
payable and accrued expenses and deferred income taxes, offset by a reduction in
other liabilites. The increase in debt of $86.0 million was due to net sales of
subordinated debt, utilization of the Company's warehouse lines and other debt
incurred in connection with the acquisition of NJMIC. At December 31, 1997, the
Company had $89.6 million of subordinated debt outstanding, including $9.6
million assumed in connection with the acquisition of NJMIC. The Company
maintains two warehouse facilities for a total of $150 million, of which $49.1
million was drawn upon at December 31, 1997. The Company's ratio of total debt
to equity at December 31, 1997 was 3.9:1 compared to 1.8:1 at June 30, 1997. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

Stockholders' equity increased $5.2 million to $36.1 million at December
31, 1997 from $30.9 million at June 30, 1997, due to net income for the six
months ended December 31, 1997 of $4.7 million and the issuance of $500,000 of
ABFS common stock in connection with the purchase of NJMIC, partially offset by
dividends paid.

Results of Operations

Total Revenues. Total revenues increased $12.9 million, or 122.9%, to $23.4
million for the six months ended December 31, 1997 from $10.5 million for the
six months ended December 31, 1996. Total revenues increased $7.0 million, or
134.6%, to $12.2 million for the three months ended December 31, 1997 from $5.2
million for the three months ended December 31, 1996. The increases in total
revenues were the result of gains on sale of loans through securitization as
well as an increase in interest and fees earned due to growing levels of loan
and lease production.

Gain on Sale of Loans. Gain on sale of loans increased $7.3 million, or
93.6%, to $15.1 million for the six months ended December 31, 1997 from $7.8
million for the six months ended December 31, 1996. Gain on sale of loans
increased $2.9 million, or 78.4%, to $6.6 million for the three months ended
December 31, 1997 from $3.7 million for the three months ended December 31,
1996. The increases were the result of sales of $23.1 million of Business
Purpose Loans and $76.9 million of Home Equity Loans through a securitization in
September 1997, including a pre-funded portion of $40.0 million which was
completed in December 1997, as compared to the sale of $16.1 million of Business
Purpose Loans and $23.9 million of Home Equity Loans through a securitization in
September 1996. During the six months ended December 31, 1997, the Company
recognized a gain of $14.7 million (representing the fair value of the interest
only and residual strips of $17.6 million less $2.9 million of costs associated
with the transaction) on the Company's funding of the $100.0 million of loans
sold pursuant to the securitization described above.

Interest and Fees. Interest and fee income increased $5.0 million, or
208.3%, to $7.4 million for the six months ended December 31, 1997 from $2.4
million for the six months ended December 31, 1996. Interest and fee income
increased $3.8 million, or 292.3%, to $5.1 million for the three months ended
December 31, 1997 from $1.3 million for the three months ended December 31,
1996. The increases in interest and fee income were the result of an increase in
the amount of loans and leases originated and retained in the Company's
portfolio prior to securitization.

14
<PAGE>

Interest income consists primarily of interest income the Company earns on
loans and leases held in its portfolio. Interest income increased $2.5 million,
or 131.6%, to $4.4 million for the six months ended December 31, 1997 from $1.9
million for the six months ended December 31, 1996. Interest income increased
$1.7 million, or 170.0%, to $2.7 million for the three months ended December 31,
1997 from $1.0 million for the three months ended December 31, 1996. The
increases were attributable to increased originations of Business Purpose Loans,
Home Equity Loans and Equipment Leases. Of the increases noted, $1.0 million was
attributable to loans and leases originated by NJMIC. During the six months
ended December 31, 1997, the Company originated approximately $23.2 million of
Business Purpose Loans, $121.8 million of Home Equity Loans, and $22.8 million
of Equipment Leases.

Fee income, includes primarily premium and points earned when loans are
closed, funded and immediately sold to unrelated third party purchasers, and
ancillary fees collected on loan originations. Fee income increased $1.9
million, or 271.4%, to $2.6 million for the six months ended December 31, 1997
from $700,000 for the six months ended December 31, 1996. Fee income increased
$1.6 million, or 400.0%, to $2.0 million for the three months ended December 31,
1997 from $400,000 for the three months ended December 31, 1996. The increases
in fee income, of which $1.3 million is attributable to NJMIC, were due to an
increase in ancillary fees collected in connection with increased loan
originations.

Servicing Income. Servicing income increased $539,000, or 182.1%, to
$835,000 for the six months ended December 31, 1997 from $296,000 for the six
months ended December 31, 1996. Servicing income increased $234,000, or 105.9%,
to $455,000 for the three months ended December 31, 1997 from $221,000 for the
three months ended December 31, 1996. The increases were the result of the
increase in the Company's loan and lease portfolio serviced from $103.9 million
at December 31, 1996 to $344.9 million at December 31, 1997.

Total Expenses. Total expenses increased $9.3 million, or 132.9%, to $16.3
million for the six months ended December 31, 1997 from $7.0 million for the six
months ended December 31, 1996. Total expenses increased $6.4 million, or
182.9%, to $9.9 million for the three months ended December 31, 1997 from $3.5
million for the three months ended December 31, 1996. As described in more
detail below, these increases were a result of increased interest attributable
to the Company's continued sale of subordinated debt and increases in payroll,
sales and marketing, and general and administrative expenses related to
increased loan and lease originations. Of the increases noted, $1.3 million was
attributable to expenses of NJMIC.

Interest Expense. Interest expense increased $2.7 million, or 122.7%, to
$4.9 million for the six months ended December 31, 1997 from $2.2 million for
the six months ended December 31, 1996. Interest expense increased $1.8 million,
or 150.0%, to $3.0 million for the three months ended December 31, 1997 from
$1.2 million for the three months ended December 31, 1996. The increases were
primarily attributable to an increase in the amount of the Company's
subordinated debt outstanding during the periods, the proceeds of which were
used to fund the Company's increased loan and lease originations and the
purchase of NJMIC, and increased utilization of warehouse facilities. Average
subordinated debt outstanding was $75.1 million during the six months ended
December 31, 1997 compared to $38.8 million during the six months ended December
31, 1996. Average interest rates paid on the subordinated debt increased to
9.30% from 8.89% for the comparable six-month periods as a result of the higher
rates offered during the first two quarters of fiscal 1998 in order to attract
additional funds. Interest expense on lines of credit utilized by the Company
for the six months ended December 31, 1997 was $1.0 million, compared to $24,000
for the six months ended December 31, 1996. The increase was due to the higher
utilization of warehouse lines of credit to fund loan and lease originations.

Provision for Credit Losses. The provision for credit losses was $1.0
million (includes a $200,000 provision related to the Company loan and lease
portfolio and a $800,000 provision related to the Company's securitizations) for
the six months ended December 31, 1997 as compared to $400,000 (includes a
$23,000 provision related to the Company's loan and lease portfolio and a
$377,000 provision related to the Company's securitizations) for the six months
ended December 31, 1996. Total delinquencies were $11.4 million at December 31,
1997 as compared to $3.8 million at June 30, 1997. The Company's loans and
leases delinquent more than 30 days as a percentage of the total portfolio
serviced (the "delinquency rate") was

15
<PAGE>

3.30% at December 31, 1997 as compared to 2.15% at June 30, 1997. The increase
in the delinquency rate was attributable to the maturation of the Company's
total managed portfolio which was $344.9 million at December 31, 1997 and $176.7
million at June 30, 1997.

Payroll and Related Costs. Payroll and related costs increased $1.4
million, or 264.7%, to $1.9 million for the six months ended December 31, 1997
from $521,000 for the six months ended December 31, 1996. Payroll and related
costs increased $695,000, or 241.6%, to $1.1 million for the three months ended
December 31, 1997 from $322,000 for the three months ended December 31, 1996.
The increases were due to an increase in the number of administrative employees
as a result of the Company's growth in loan and lease originations, as well as
an increase in loans and leases serviced. Management anticipates that these
expenses will continue to increase in the future as the Company's geographic
expansion continues.

Sales and Marketing Expenses. Sales and marketing expenses increased $2.6
million, or 92.9%, to $5.4 million for the six months ended December 31, 1997
from $2.8 million for the six months ended December 31, 1996. Sales and
marketing expenses increased $1.7 million, or 121.4%, to $3.1 million for the
three months ended December 31, 1997 from $1.4 million for the three months
ended December 31, 1996. The increases were attributable to greater usage of
newspaper, direct mail and television advertising related to the Company's
originations of loans and leases. Subject to market conditions, the Company
plans to continue to expand its service area throughout the United States. As a
result, it is anticipated that sales and marketing expenses will continue to
increase in the future.

General and Administrative Expenses. General and administrative expenses
increased $2.5 million, or 166.7%, to $4.0 million for the six months ended
December 31, 1997 from $1.5 million for the six months ended December 31, 1996.
General and administrative expenses increased $2.0 million, or 371.9%, to $2.6
million for the three months ended December 31, 1997 from $551,000 for the three
months ended December 31, 1996. The increases were 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 fiscal 1998.

Income Taxes. Income taxes increased $1.2 million, or 100.0%, to $2.4
million for the six months ended December 31, 1997 from $1.2 million for the six
months ended December 31, 1996. Income taxes increased $184,000, or 29.8%, to
$801,000 for the three months ended December 31, 1997 from $617,000 for the
three months ended December 31, 1996. The increases were due to increases in
income before taxes.

Net Income. Net income increased $2.4 million or 104.3%, to $4.7 million
for the six months ended December 31, 1997 from $2.3 million for the six months
ended December 31, 1996. Basic earnings per common share increased to $1.34 on
weighted average common shares outstanding of 3,510,426 for the six months ended
December 31, 1997 compared to $.98 per share on weighted average common shares
outstanding of 2,353,166 for the six months ended December 31, 1996. Fully
diluted earnings per common share increased to $1.28 on weighted average common
shares outstanding of 3,663,584 for the six months ended December 31, 1997
compared to $.94 per share on weighted average common shares outstanding of
2,438,279 for the six months ended December 31, 1996.

Net income increased $400,000 or 36.4%, to $1.5 million for the three
months ended December 31, 1997 from $1.1 million for the three months ended
December 31, 1996. Basic earnings per common share decreased to $.44 on weighted
average common shares outstanding of 3,517,686 for the three months ended
December 31, 1997 compared to $.49 per share on weighted average common shares
outstanding of 2,353,166 for the three months ended December 31, 1996. Fully
diluted earnings per common share decreased to $.42 on weighted average common
shares outstanding of 3,683,167 for the three months ended December 31, 1997
compared to $.47 per share on weighted average common shares outstanding of
2,461,619 for the three months ended December 31, 1996. The decreases in
earnings per common share was attributed to a 50% increase in the weighted
average shares outstanding resulting from an underwritten public offering of
1,150,000 shares of the Company's common stock during the third quarter of
fiscal year 1997.

16
<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 Notes.

Absence of Insurance and Regulation

The Notes are not insured by any governmental or private agency and they
are not guaranteed by any public or private entity. Likewise, the Company is not
regulated or subject to examination in the same manner as commercial banks and
thrift institutions. The Company is not a commercial bank or savings/thrift
institution. The Company is dependent upon proceeds from the continuing sale of
Notes and its institutional lines of credit to conduct its ongoing operations.
The Company's revenues from operations, including the sale or securitization of
loans from its portfolio, the Company's working capital and cash generated from
additional debt financing represent the sources of funds for repayment of
principal at maturity and the ongoing payment of interest on the Notes. See
"Business" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

Subordination of Debt Represented by the Notes

The Notes will be subordinate in claim and right to all Senior Debt of the
Company. As of January 30, 1998, there was $70.1 million of Senior Debt
outstanding. There is no limitation on the amount of Senior Debt the Company can
incur. Senior Debt is defined for this purpose to include any indebtedness
(whether outstanding on the date hereof or thereafter created) incurred in
connection with borrowings by the Company (including its subsidiaries) from a
bank, trust company, insurance company, or from any other institutional lender,
whether such indebtedness is or is not specifically designated by the Company as
being "Senior Debt" in its defining instruments. If the Company were to become
insolvent, such Senior Debt of the Company would have a priority of right to
payment in connection with the liquidation of the Company and its assets. In
addition, any indebtedness of the subsidiaries of ABFS, other than the Senior
Debt, will have rights upon liquidation or dissolution of the particular
subsidiary prior to payment being made to the holders of the Notes. As of
January 30, 1998, such debt totaled $10.2 million. There can be no assurance
that any holder of the Company's Notes would be repaid upon a liquidation of the
Company. See "Description of the Notes and the Indenture -- Provisions Related
to All Notes."

Absence of Sinking Fund

The Notes are unsecured obligations of the Company and no sinking fund
(i.e., funds contributed on a regular basis to a separate account to repay the
Notes) exists for the benefit of the holders of the Notes. See "Description of
the Notes and the Indenture -- General."

Limited Liquidity -- Lack of Trading Market

The Notes offered hereby are non-negotiable and are therefore not
transferable without the prior written consent of the Company. Due to the
non-negotiable nature of the Notes and the lack of a market for the sale of the
Notes, even if the Company permitted a transfer, investors may be unable to
liquidate their investment even if circumstances would otherwise warrant such a
sale. See "Description of the Notes and the Indenture."

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."

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<PAGE>

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 September 30, 1997 and June 30, 1997,
total delinquent loans as a percentage of the Company's total portfolio serviced
were 2.86% and 2.15%, 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 76.0% and 75.7% for the three months ended
September 30, 1997 and the year ended June 30, 1997, 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 material
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.

The Company has made estimates of the interest only and residual strips 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 the decreased
value of interest only and residual strips which would adversely affect the
Company's income in the period of adjustment. 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 the three months ended September 30, 1997 and fiscal 1997 and 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 $5.9 million and net income increased $2.0 million for the
three months ended September 30, 1997 as compared to the three months ended
September 30, 1996. Total revenues increased approximately $14.4 million, or
119.0%, between fiscal 1996 and 1997 while net income increased approximately
$3.6 million, or 156.5%. Total revenues increased approximately $6.8 million, or

18
<PAGE>

121.4%, between fiscal 1995 and 1996 while net income increased approximately
$1.7 million, or 292.6%. The Company's ability to sustain the level of growth in
total revenues and net income experienced during the three months ended
September 30, 1997 and fiscal 1996 and 1997 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 the three months ended September 30, 1997 and
fiscal 1997 and 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 may attract 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."

Dependence Upon Debt Financing

For its ongoing operations, the Company is dependent upon borrowings such
as that represented by the Company's unsecured subordinated debt and the
Company's warehouse credit facilities and lines of credit as well as funds
received from the securitization of loans. The Company had $70.1 million of
subordinated debt outstanding at September 30, 1997 and had lines of credit and
credit facilities of $150.0 million, none of which was being utilized on such
date. At September 30, 1997, subordinated debt scheduled to mature during the
twelve months ended September 30, 1998 totaled $39.2 million. 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."

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<PAGE>

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 debt with scheduled
maturities of one to ten years. At September 30, 1997, the Company had $30.9
million of subordinated debt 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 eastern 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."

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

20
<PAGE>

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."

Risks Associated with Leasing Activities

The Company began offering Equipment Leases in December 1994. There are
risks inherent in the Company's leasing activities 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 Fair 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
and First Mortgage Loans. These rules and regulations, among other things,
impose licensing obligations on the Company, prohibit discrimination, regulate
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, among
other remedies, termination or suspension of licenses, certain rights of
rescission for mortgage loans, class action lawsuits and administrative
enforcement actions.

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

21
<PAGE>

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."

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.

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."

Management Discretion Over Substantial Amount of the Proceeds of the Offering
and Possible Use for Future Unspecified Acquisitions

The net proceeds from the sale of the Notes will be utilized for general
corporate purposes, including financing the future growth of the Company's loan
and lease portfolios, the repayment of the Company's outstanding debt and the
possible unspecified acquisitions of related businesses or assets (although none
are currently contemplated). No specific allocation of such proceeds has been
determined as of the date of this Prospectus. Management will have broad
discretion in allocating the proceeds of the Offering. See "Use of Proceeds."

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 absence of insurance of the Notes, subordination of
debt represented by the Notes, absence of a sinking fund for the repayment of
the Notes, credit risk related to ABFS's borrowers, market conditions and real
estate values in ABFS's primary lending area, lack of a public market for the
Notes, competition, factors affecting the Company's ability to implement its
growth strategy, ABFS's dependence on debt financing to fund its operations,
dependence on securitizations and fluctuations in operating results, the
Company's ability to sustain levels of growth, geographic concentration of the
Company's loans, risks associated with leasing activities, contingent risks,
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"

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<PAGE>

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."

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<PAGE>

THE COMPANY

The Company is a financial services company operating primarily throughout
the eastern 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"), American Business Leasing, Inc. ("ABL"), New Jersey Mortgage and
Investment Corp. ("NJMIC") and Federal Leasing Corp. ("Federal"), originates,
services and sells Business Purpose Loans, Home Equity Loans, First Mortgage
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 products in
fifteen states and its lease products throughout the United 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, other than NJMIC and Federal, 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 Notes (estimated to be
approximately $121.9 million net of estimated offering expenses if all of the
Notes offered hereby are sold) 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 loan and lease portfolios; (ii) the repayment of
warehouse credit facilities, lines of credit and the Company's maturing debt;
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, but not limited to, 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.

DESCRIPTION OF THE NOTES AND THE INDENTURE

General

The Notes will be issued pursuant to the Indenture between the Company and
First Trust National Association, a national banking association, as trustee
(the "Trustee"). The terms of the Notes include those stated in the Indenture
and those made part of the Indenture by reference to the Trust Indenture Act of
1939 (the "Trust Indenture Act"), in effect on the date the Indenture is
qualified thereunder. The Notes are subject to all such terms, and holders of
the Notes are referred to the Indenture and the Trust Indenture Act for a
statement thereof. The following includes a summary of certain provisions of the
Indenture, a copy of which is available from the Company. This summary does not
purport to be complete and is qualified in its entirety by reference to the
Indenture, including the definitions therein of certain terms used below.

24
<PAGE>

The Notes will be subordinated in right of payment to the prior payment in
full of all Senior Debt (as herein defined) of the Company, whether outstanding
on the date of the Indenture or thereafter incurred. There is no limit on the
amount of Senior Debt the Company may incur. See "-- Provisions Related to All
Notes."

The Notes are not secured by any collateral or lien. There are no
provisions for a sinking fund applicable to such debt. See "Risk Factors --
Absence of Sinking Fund."

The Investment Notes are offered by the Company at maturities ranging from
three months to ten years. The term of each Investment Note will be chosen by
the purchaser of such note upon subscription.

The Money Market Notes have no stated maturity and are redeemable at any
time in minimum amounts of $500 (except to close an account) at the option of
the holder upon not less than ten business days written notice to the Company.

Provisions Relating to Investment Notes

Form and Denominations. The Investment Notes will be issued in fully
registered form. The Investment Notes are not negotiable instruments, and no
rights of record ownership therein can be transferred without the prior written
consent of the Company. Ownership of an Investment Note may be transferred on
the Company register only by written notice to the Company signed by the
owner(s) or such owner's duly authorized representative on a form to be supplied
by the Company and with the prior written consent of the Company (which consent
shall not be unreasonably withheld). The Company may also, in its discretion,
require an opinion from such noteholder's counsel that the proposed transfer
will not violate any applicable securities laws and/or a signature guarantee in
connection with such transfer. See "Prospectus Summary -- Securities Offered."
An Investment Note may be purchased in the minimum amount of $1,000 or any
amount in excess thereof. Separate purchases may not be accumulated to satisfy
the minimum denomination requirement. See "Prospectus Summary -- Securities
Offered."

Interest. The interest rates payable on the Investment Notes offered hereby
will be established by the Company from time to time based on market conditions
and the Company's financial requirements. The Company constantly re-evaluates
its interest rates based upon such analysis. Once determined, the rate of
interest payable on an Investment Note will remain fixed for the original term
of the Investment Note. The interest rate payable on an Investment Note will be
determined based upon the maturity date and term established for such Investment
Note upon subscription.

Interest on Investment Notes will be computed on the basis of an actual
calendar year and will compound daily. Interest on Investment Notes with terms
of less than twelve months will be paid at maturity. Purchasers of Investment
Notes with terms of one year or greater may elect to have interest paid monthly,
quarterly, semiannually, annually or at maturity. This election may be changed
one time by the holder during the term of these longer term notes. Requests to
change such election are required to be made to the Company in writing. No
specific form of change of election is required to be submitted to the Company.
Any interest not otherwise paid on an interest payment date will be paid at
maturity.

The Company reserves the right to vary from time to time, in its
discretion, the interest rates it offers on the Investment Notes based on
numerous factors other than length of term to maturity. Such factors may
include, but are not limited to: the desire to attract new investors; Investment
Notes in excess of certain principal amounts; Investment Notes purchased for IRA
and/or Keogh accounts; rollover investments; and Investment Notes beneficially
owned by persons residing in particular geographic localities. As of the date of
this Prospectus, the Company is not offering varying interest rates to investors
on the Investment Notes of identical maturity. However, the Company may make a
decision to vary interest rates in the future based on its fund raising
objectives including, but not limited to, the attraction of new investors in
particular regions, the encouragement of the rollover of Investment Notes by
current holders, circumstances in the financial markets and the economy,
additional costs which may be incurred by the Company in selling Investment
Notes in a particular jurisdiction which may at the time be relevant to the
Company's operations and other factors.

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<PAGE>

Interest Accrual Date. Interest on the Investment Notes will accrue from
the date of purchase, which is deemed to be, for accepted subscriptions, the
date the Company receives funds, if received prior to 3:00 p.m. on a business
day, or the next business day if the Company receives such funds on a
non-business day or after 3:00 p.m. on a business day. For this purpose, the
Company's business days will be deemed to be Monday through Friday, except for
Delaware legal holidays.

Interest Withholding. With respect to those investors who do not provide
the Company with a fully executed Form W-8 or Form W-9, the Company will
withhold 31% of any interest paid. Otherwise, no interest will be withheld,
except on the Investment Notes held by foreign business entities. It is the
Company's policy that no sale will be made to anyone refusing to provide a fully
executed Form W-8 or Form W-9.

Automatic Extension. At least seven days prior to an Investment Note's
stated maturity date, the Company will notify the registered holder in writing
of such maturity date and of its intention to repay, or if the Company does not
intend to repay, reminding the holder of the automatic extension. If at such
time, the Company does not notify the holder of its intention to repay, subject
to the holder's demand for repayment, the term of such Note will be
automatically extended. If, within seven days after an Investment Note's
maturity date, the holder thereof has not demanded repayment of such Note, and
the Company has not notified the holder of its intention to repay such Note,
such Note shall be extended for a term identical to the term of the original
Investment Note. The Investment Notes will continue to renew as described herein
absent some action permitted under the Indenture and the Investment Notes by
either the holder or the Company. Interest shall continue to accrue from the
first day of such renewed term. Such Note, as renewed, will continue in all its
provisions, including provisions relating to payment, except that the interest
rate payable during any renewed term shall be the interest rate which is then
being offered by the Company on similar Investment Notes being offered as of the
renewal date. If similar Investment Notes are not then being offered, the
interest rate upon renewal will be the rate specified by the Company on or
before the maturity date, or the Note's current rate if no such rate is
specified. If the Company gives notice to a noteholder of the Company's
intention to repay an Investment Note at maturity, no interest will accrue after
the date of maturity. Otherwise, if a Noteholder requests repayment within seven
days after its maturity date, the Company will pay interest during the period
after its maturity date and prior to repayment at the lower of (i) the lowest
interest rate then being paid on debt securities being offered by the Company to
the general public or (ii) the rate being paid on such note immediately prior to
its maturity. As a courtesy, the Company provides a request for repayment form
with such notice. Use of such form by a holder is not a condition of repayment.
Requests for repayment may also be made to the Company by letter.

Place and Method of Payment. Principal and interest on the Investment Notes
will be payable at the principal executive office of the Company, as it may be
established from time to time, or at such other place as the Company may
designate for that purpose; provided, however, that payments may be made at the
option of the Company by check or draft mailed to the person entitled thereto at
his/her address appearing in the register which the Company maintains for that
purpose.

Redemption by the Company. The Company will have no right to prepay an
Investment Note. The holder has no right to require the Company to prepay any
such Note prior to its maturity date as originally stated or as it may be
extended, except as indicated below.

Redemption by the Holder upon Death or Total Permanent Disability. Except
for Investment Notes with maturities of less than 12 months, an Investment Note
may be redeemed at the election of the holder following his/her Total Permanent
Disability, as established to the satisfaction of the Company, or by his/her
estate following his/her death. The redemption price, in the event of such a
death or disability, will be the principal amount of the Investment Note, plus
interest accrued and not previously paid, to the date of redemption. If spouses
are joint record owners of an Investment Note, the election to redeem will apply
when either record owner dies or becomes subject to a Total Permanent
Disability. In other cases of Investment Notes jointly held, the election will
not apply.

The Company may modify the foregoing policy on redemption after death or
disability. However, no such modification will affect the right of redemption
applicable to any then outstanding Investment Note.

26
<PAGE>

Should the Company modify such policy at a future date, written notice of such
modification will be sent to all owners of those outstanding Investment Notes
which were purchased while the policy was in effect (but such notice will not
affect the right to redeem such outstanding Investment Notes after the owner's
death or disability.)

For the purpose of determining the right of a holder to demand early
repayment of an Investment Note, Total Permanent Disability shall mean a
determination by a physician chosen by the Company that the holder, who was
gainfully employed on a full time basis at the time of purchase, is unable to
work on a full time basis, defined as working at least forty hours per week,
during the succeeding twenty-four months.

Provisions Relating to Money Market Notes

Form and Denominations. The Money Market Notes are not negotiable
instruments and will be issued only in book-entry form. See "--Book Entry
System." Upon subscription, a transaction statement reflecting the ownership of
a Money Market Note will be issued to each purchaser upon the Company's
acceptance of the subscription. Such statement is not a negotiable instrument,
and no rights of record ownership therein can be transferred without the prior
written consent of the Company. Each holder of a Money Market Note will receive
a monthly statement indicating any transactions in the holder's account, as well
as interest credited. Ownership of a Money Market Note may be transferred on the
Company's register only by written notice to the Company signed by the owner(s)
or such owner's duly authorized representative on a form to be supplied by the
Company and with the prior written consent by the Company (which consent shall
not be unreasonably withheld). The Company may also, in its discretion, require
an opinion from such noteholder's counsel that the proposed transfer will not
violate any applicable securities laws and/or a signature guarantee in
connection with such transfer. Upon transfer of a Money Market Note, the Company
will provide the new owner of the Money Market Note with a transaction statement
which will evidence the transfer of the account on the Company's records.

Money Market Notes have no stated maturity and may be purchased in the
minimum amount of $1,000 or any amount in excess thereof. Separate purchases may
not be accumulated to satisfy the minimum denomination requirement.

Book-Entry System. Upon acceptance of a purchaser's order, the Company will
credit its book-entry registration and transfer system to the account of the
purchaser of the Money Market Note, the principal amount of such Money Market
Note owned of record by such purchaser. The laws of some jurisdictions require
that certain purchasers of securities take physical delivery of such securities
in definitive form. Such legal requirements may impair the ability to transfer
the record ownership of the Money Market Notes.

The record owners of the Money Market Notes issued in a book-entry interest
form will not receive or be entitled to receive physical delivery of the Money
Market Notes owned. The registered owners of the accounts established by the
Company in connection with the purchase or transfer of Money Market Notes shall
be deemed to be the owners of the Money Market Notes under the Indenture. Such
person holding a book-entry interest in the Money Market Notes must rely upon
the procedures established by the Trustee to exercise any rights of a holder of
the Money Market Notes under the Indenture. The Company shall provide the
Trustee with information regarding the establishment of new accounts and the
transfer of existing accounts on a bi-weekly basis.

The information regarding the total amount of any principal and/or interest
(which shall be paid in the form of additional Money Market Notes) due to
book-entry owners with regard to the Money Market Notes on any interest payment
date or upon redemption will be made available by the Company to the Trustee
upon the Trustee's request. On each interest payment date, the Company will
credit each account on the applicable interest payment date based upon the
applicable interest rate due on such note and the amount of Money Market Notes
held of record in the account. The Company shall have the responsibility for
determining the interest payments to be made to the book-entry accounts and for
maintaining, supervising and reviewing any records relating to book-entry
beneficial interests in the Money Market Notes.

Book-entry interests in the accounts evidencing ownership of the Money
Market Notes are exchangeable for Money Market Notes in denominations of $1,000
and any amount in excess thereof and fully registered in

27
<PAGE>

such names as the Company directs if: (i) the Company at its option advises the
Trustee in writing of its election to terminate the book-entry system, or (ii)
after the occurrence of an Event of Default, holders of the Money Market Notes
aggregating more than 50% of the aggregate outstanding amount of the Money
Market Notes advise the Trustee in writing that the continuation of a book-entry
system is no longer in the best interests of the holders of Money Market Notes
and the Trustee notifies all holders of the Money Market Notes, of the
occurrence of any such event and the availability of definitive notes to holders
of the Money Market Notes requesting such Notes. Subject to the foregoing, the
book-entry interests in the Money Market Notes shall not otherwise be
exchangeable for fully registered Money Market Notes.

Reports to Trustee. The Company shall provide the Trustee with quarterly
reports which shall contain such information as the Trustee shall reasonably
request including information regarding the outstanding balance, interest
credited, withdrawals made and interest rate paid on each Money Market Note
account maintained by the Company during the preceding quarterly period.

Monthly Statements. The Company shall provide holders of the Money Market
Notes with monthly statements which will indicate, among other things, the
current account balance (including interest credited and withdrawals made, if
any) and the interest rate paid on the Money Market Notes as of the month end
preceding the issuance of the statement. Such statements will be mailed not
later than the tenth business day following each month end. The Company shall
provide additional statements as the holders of the Money Market Notes may
reasonably request from time to time. Holders requesting such additional
statements may be required to pay all charges incurred by the Company in
providing such additional statements.

Interest. The interest rates payable on the Money Market Notes offered
hereby will be adjusted by the Company from time to time in its sole discretion
provided that such rate shall not be less than 4.0% per year. The Company will
provide written notice to all holders of the Money Market Notes at least 14 days
prior to any decrease in the interest rate to be paid thereon, which notice
shall set forth the new interest rate to be paid and the effective date of such
change. The Company reserves the right to increase the interest rate paid on the
Money Market Notes at any time without prior notice to the holders of the Money
Market Notes. Investors may inquire about the interest rate then being paid on
the outstanding Money Market Notes by calling the Company at (610) 668-2440.

Interest on each account with a balance of at least $1,000 accrues daily
and is credited monthly on the last day of each calendar month. Interest accrued
during each monthly period will not be paid by check but will be added to the
noteholder's principal balance of the account in the form of additional Money
Market Notes. Interest will continue to accrue on the principal balance of each
Money Market Note through the date of redemption. If a holder redeems the Money
Market Note in full, the principal balance of the account (including accrued
interest) will be paid by check as soon as practicable. No interest shall be
paid for any day the principal amount in any account is less than $1,000.

Subject to the limitations set forth herein, the Company may vary, in its
discretion, the interest rates it offers on the Money Market Notes based on
numerous factors. Such factors may include, but are not limited to: the desire
to attract new investors; Money Market Notes in excess of certain principal
amounts; Money Market Notes purchased for IRA and/or Keogh accounts; rollover
investments; and Money Market Notes beneficially owned by persons residing in
particular geographic localities. As of the date hereof, the Company is not
offering Money Market Notes at varying rates to different investors. However,
the Company may make a decision to vary interest rates in the future based on
its fund raising objectives including, but not limited to, the attraction of new
investors in particular regions, circumstances in the financial markets and the
economy, any additional costs which may be incurred by the Company in selling
Money Market Notes in a particular jurisdiction which may at the time be
relevant to the Company's operations and other factors.

Interest Accrual Date. Interest on the Money Market Notes will accrue from
the date of purchase, which is deemed to be, for accepted subscriptions, the
date the Company receives funds, if received prior to 3:00 p.m. on a business
day, or the next business day if the Company receives such funds on a
non-business day or after 3:00 p.m. on a business day. For this purpose, the
Company's business days will be deemed to be Monday through Friday, except for
Delaware legal holidays.

28
<PAGE>

Interest Withholding. With respect to those investors who do not provide
the Company with a fully executed Form W-8 or Form W-9, the Company will
withhold 31% of any interest paid. Otherwise, no interest will be withheld,
except on Money Market Notes held by foreign business entities. It is the
Company's policy that no sale will be made to anyone refusing to provide a fully
executed Form W-8 or Form W-9.

Redemption by the Holder of Money Market Note. The holder of each Money
Market Note may redeem the Money Market Note at any time in minimum amounts of
$500 (or any amount to close an account) upon not less than 10 business days
written notice to the Company.

To the extent a holder of the Money Market Notes redeems the Money Market
Notes and purchases new ones, the redemptions are treated as being made on a
first-in, first-out basis.

Redemption by the Company. The Company will have the right to redeem a
Money Market Note at any time upon thirty days written notice to the holder
thereof.

Place and Method of Payment upon Redemption. Payments upon the redemption
of the Money Market Notes will be payable at the principal executive office of
the Company, as it may be established from time to time, or at such other place
as the Company may designate for that purpose; provided however, that payments
may be made at the option of the Company by check or draft mailed to the person
entitled thereto at his/her address appearing in the register which the Company
maintains for that purpose.

Provisions Related to All Notes

Subordination. The indebtedness evidenced by the Notes, and any interest
thereon, are subordinated to all Senior Debt of the Company. The term Senior
Debt is defined for this purpose to include any indebtedness (whether
outstanding on the date hereof or thereafter created) incurred by the Company in
connection with borrowings by the Company (including its subsidiaries) from a
bank, trust company, insurance company, or from any other institutional lender,
whether such indebtedness is or is not specifically designated by the Company as
being "Senior Debt" in its defining instruments. As of January 30, 1998, there
was $70.1 million of Senior Debt outstanding. There is no limitation under the
Indenture on the amount of Senior Debt the Company can incur. The Notes are not
guaranteed by any subsidiaries of ABFS. Accordingly, in the event of a
liquidation or dissolution of a subsidiary of ABFS, the law requires that
creditors of that subsidiary be paid, or provision for such payment be made,
from the assets of that subsidiary prior to distributing any remaining assets to
ABFS as a shareholder of that subsidiary. Therefore, in the event of liquidation
or dissolution of a subsidiary, creditors of such subsidiary will receive
payment of their claims prior to any payment to the holders of the Notes. As of
January 30, 1998, there was $10.2 million of such debt outstanding. Any
indebtedness of ABFS, other than that described as Senior Debt and the debt of
the subsidiaries, will have rights upon liquidation or dissolution of ABFS which
ranks pari passu (i.e. equally) in right of payment to the Notes offered hereby.
As of January 30, 1998, the Company had $95.3 million of debt outstanding which
ranks pari passu in right of payment to the Notes offered, including $45.5
million of Notes sold pursuant to this Offering.

For a discussion of the Company's status as a holding company and the lack
of insurance or guarantees in support of the Notes, see "Risk Factors -- Absence
of Insurance and Regulation."

In the event of any liquidation, dissolution or any other winding up of the
Company, or of any receivership, insolvency, bankruptcy, readjustment,
reorganization or similar proceeding under the Federal Bankruptcy Code or any
other applicable federal or state law relating to bankruptcy or insolvency, or
during the continuation of any Event of Default (as described below), no payment
may be made on the Notes until all Senior Debt has been paid. In any such event,
holders of Senior Debt may also submit claims on behalf of holders of the Notes
and retain the proceeds for their own benefit until they have been fully paid,
and any excess will be turned over to the holders of the Notes. If any
distribution is nonetheless made to holders of the Notes, the money or property
distributed to them must be paid over to the holders of the Senior Debt to the
extent necessary to pay Senior Debt in full. See "Risk Factors -- Subordination
of Debt Represented by the Notes."

Events of Default. The Indenture provides that each of the following
constitutes an Event of Default: (i) default for 30 days in the payment of
interest when due on the Notes (whether or not prohibited by the

29
<PAGE>

subordination provisions of the Indenture); (ii) default in payment of principal
when due on the Notes (whether or not prohibited by the subordination provisions
of the Indenture) and continuation thereof for 30 days; (iii) failure by the
Company to observe or perform any covenant, condition or agreement with respect
to the liquidation, consolidation or merger or other disposition of
substantially all of the assets of the Company (after notice and provided such
default is not cured within 60 days after receipt of notice); (iv) failure by
the Company for 60 days after notice to comply with certain other agreements in
the Indenture or the Notes; and (v) certain events of bankruptcy or insolvency
with respect to the Company.

If any Event of Default occurs and is continuing, the Trustee or the
holders of at least a majority in principal amount of the then outstanding Notes
may declare the unpaid principal of and any accrued interest on the Notes to be
due and payable immediately; provided, however, that so long as any Senior Debt
is outstanding, such declaration shall not become effective until the earlier of
(x) the day which is five Business Days after the receipt by representatives of
Senior Debt of such written notice of acceleration or (y) the date of
acceleration of any Senior Debt. In the case of an Event of Default arising from
certain events of bankruptcy or insolvency, with respect to the Company, all
outstanding Notes will become due and payable without further action or notice.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. Subject to certain limitations, holders of a majority
in principal amount of the then outstanding Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from holders of the
Notes notice of any continuing Default or Event of Default (except a Default or
Event of Default relating to the payment of principal or interest) if it
determines that withholding notice is in their interest.

The holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture, except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes.

The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.

Amendment, Supplement and Waiver. Except as provided herein, the Indenture
or the Notes may be amended or supplemented with the consent of the holders of
at least a majority in principal amount of the Notes then outstanding, and any
existing Default or compliance with any provision of the Indenture or the Notes
may be waived with the consent of the holders of a majority in principal amount
of the then outstanding Notes.

Without the consent of each holder of the Investment Notes affected, an
amendment or waiver may not (with respect to any Investment Notes held by a
nonconsenting holder of Investment Notes): (i) reduce the principal amount of
the Investment Note whose holder must consent to an amendment, supplement or
waiver; (ii) reduce the principal of or change the fixed maturity of any note or
alter the redemption provisions thereof or the price at which the Company shall
offer to repurchase the Investment Note; (iii) reduce the rate of or change the
time for payment of interest, including default interest, on any Investment
Note; (iv) waive a Default or Event of Default in the payment of principal or
premium, if any, or interest on or redemption payment with respect to the
Investment Notes (except a rescission of acceleration of the Investment Notes by
the holders of at least a majority in aggregate principal amount of the
Investment Notes and a waiver of the payment default that resulted from such
acceleration); (v) make any Investment Note payable in money other than that
stated in the Investment Notes; (vi) make any change in the provisions of the
Indenture relating to waivers of past Defaults or the rights of holders of
Investment Notes to receive payments of principal of or interest on the
Investment Notes; (vii) make any change to the subordination provisions of the
Indenture that adversely affects holders of Investment Notes; (viii) modify or
eliminate holders' redemption rights (provided that no modification or
elimination is permitted as to any securities issued with such right); or (ix)
make any change in the foregoing amendment and waiver provisions.

Without the consent of each holder of the Money Market Notes affected, an
amendment or waiver may not (with respect to any Money Market Notes held by a
nonconsenting holder of Money Market Notes): (i)

30
<PAGE>

reduce the principal amount of Money Market Notes whose holders must consent to
an amendment, supplement or waiver (other than as a result of withdrawals made
by the holder thereof); (ii) reduce the principal of any Money Market Note
(other than as a result of withdrawals made by the holder thereof) or alter the
redemption provisions thereof or the price at which the Company shall offer to
repurchase the Money Market Note; (iii) reduce the rate of interest on the Money
Market Notes, other than the rate adjustments provided for pursuant to the terms
of the Money Market Notes or change the time for payment of interest, including
default interest, on any Money Market Note; (iv) waive a Default or Event of
Default in the payment of principal or premium, if any, or interest on or
redemption payment with respect to the Money Market Notes (except a rescission
of acceleration of the Money Market Notes by the holders of at least a majority
in aggregate principal amount of the Money Market Notes and a waiver of the
payment default that resulted from such acceleration); (v) make any Money Market
Note payable in money other than that stated in the Money Market Notes; (vi)
make any change in the provisions of the Indenture relating to waivers of past
Defaults or the rights of holders of Money Market Notes to receive payments of
principal of or interest on the Money Market Notes; (vii) make any change to the
subordination provisions of the Indenture that adversely affects holders of
Money Market Notes; (viii) modify or eliminate redemption right of holders of
the Money Market Notes; or (ix) make any change in the foregoing amendment and
waiver provisions.

Notwithstanding the foregoing, without the consent of any holder of the
Notes, the Company and/or the Trustee may amend or supplement the Indenture or
the Notes to cure any ambiguity, defect or inconsistency; to provide for
assumption of the Company's obligations to holders of the Notes in the case of a
merger or consolidation; to provide for additional certificates or certificated
securities; to make any change that would provide any additional rights or
benefits to the holders of the Notes or that does not adversely affect the legal
rights under the Indenture of any such holder, including an increase in the
aggregate dollar amount of Notes which may be outstanding under the Indenture;
to modify the Company's policy to permit redemptions of the Investment Notes
upon the death or Total Permanent Disability of any holder of the Investment
Notes (but such modification shall not adversely affect any then outstanding
security); or to comply with requirements of the Commission in order to effect
or maintain the qualification of the Indenture under the Trust Indenture Act.

Periodic Statements. The Company intends to provide the holders of the
Notes with periodic statements which will detail the current balance and
interest rate paid on the Notes. Such statements will be mailed to the holders
of the Money Market Notes on a monthly basis no later than the tenth business
day following each month end and to the holders of the Investment Notes on a
quarterly basis no later than the tenth business day following the end of each
calendar quarter.

The Trustee. The Indenture contains certain limitations on the rights of
the Trustee, should it become a creditor of the Company, to obtain payment of
claims in certain cases, or to realize on certain property received in respect
of any such claim as security or otherwise. The Trustee will be permitted to
engage in other transactions with the Company.

The holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any holder of Notes, unless such holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.

No Personal Liability of Directors, Officers, Employees and Stockholders.
No director, officer, employee, incorporator or stockholder of the Company, as
such, shall have any liability for any obligations of the Company under the
Notes, the Indenture or for any claim based on, in respect to, or by reason of,
such obligations or their creation. Each holder of the Notes by accepting a Note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.

31
<PAGE>

Service Charges. The Company reserves the right to assess service charges
for replacing any lost or stolen Investment Note (for which an affidavit from
the holder will be required), changing the registration of any Note when such
change is occasioned by a change in name of the holder, or a transfer (whether
by operation of law or otherwise) of any Note by the holder to another person.

Additional Securities. The Company may offer from time to time additional
classes of securities with terms and conditions different from the Notes offered
hereby. The Company will amend this Prospectus if and when it decides to offer
to the public any additional class of security hereunder.

Variations by State. The Company reserves the right to offer different
securities and to vary the terms and conditions of the offer (including, but not
limited to, additional interest payments and service charges for all Notes)
depending upon the state where the purchaser resides.

32
<PAGE>

SELECTED 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>
Three Months Ended
September 30,
------------------------
1997 1996
----------- -----------
<S> <C> <C>
Statement of Income Data:
Revenues:
Gain on sale of loans ........................... $ 8,521 $ 4,073
Interest and fees ............................... 2,304 1,135
Other ........................................... 381 77
Total revenues ................................... 11,206 5,284
Total expenses ................................... 6,431 3,506
Operating income (loss) before income taxes and
cumulative effect of accounting change .......... 4,775 1,778
Income (loss) before cumulative effect of account-
ing change ...................................... 3,152 1,156
Cumulative effect of accounting change on prior
years ........................................... -- --
Net income ....................................... 3,152 1,156
Per Common Share Data(1):
Income (loss) before cumulative effect of
accounting change .............................. $ .87 $ .47
Net income ...................................... .87 .47
Cash dividends declared ......................... .015 .015

Year Ended June 30,
-------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ----------- ----------- --------- ----------
(Dollars in Thousands, except per share data)
Statement of Income Data:
Revenues:
Gain on sale of loans ........................... $ 20,043 $ 8,721 $ 1,350 $ 110 $ 119
Interest and fees ............................... 5,896 3,351 4,058 2,367 1,619
Other ........................................... 544 23 143 156 306
Total revenues ................................... 26,482 12,094 5,551 2,633 2,044
Total expenses ................................... 17,480 8,974 4,657 2,299 1,977
Operating income (loss) before income taxes and
cumulative effect of accounting change .......... 9,002 3,121 894 334 67
Income (loss) before cumulative effect of account-
ing change ...................................... 5,940 2,319 581 137 41
Cumulative effect of accounting change on prior
years ........................................... -- -- -- (52) --
Net income ....................................... 5,940 2,319 581 85 41
Per Common Share Data(1):
Income (loss) before cumulative effect of
accounting change .............................. $ 2.05 $ 1.01 $ .27 $ .04 $ .02
Net income ...................................... 2.05 1.01 .27 .04 .02
Cash dividends declared ......................... .06 0.03 -- -- --
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
September 30, June 30,
---------------------- ---------------------------------------------------------
1997 1996 1997 1996 1995 1994 1993
---------- --------- ---------- --------- --------- --------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents ......... $ 3,932 $ 8,813 $ 5,014 $ 5,345 $ 4,734 $ 83 $ 151
Loan and lease receivables, net
available for sale ............... 25,370 10,894 35,712 18,003 8,669 3,181 2,170
Other ............................ 1,218 579 1,144 534 328 5,538 2,963
Total assets ...................... 124,344 51,975 103,989 46,894 22,175 12,284 7,270
Subordinated debt ................. 70,125 37,876 56,486 33,620 17,800 7,171 1,327
Total liabilities ................. 90,333 46,463 73,077 42,503 20,031 10,721 5,801
Stockholders' equity .............. 34,011 5,512 30,912 4,392 2,143 1,562 1,469
</TABLE>
- ------------
(1) Per share information for fiscal years 1994 and 1993 has been restated to
reflect the 3 for 2 stock split effected on November 1, 1995.

33
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
September 30,
---------------------------
1997 1996
------------- ------------
(Dollars in Thousands)
<S> <C> <C>
Other Data:
Originations: ............................
Business Purpose Loans .................. $ 10,667 $ 7,421
Home Equity Loans ....................... 43,771 12,663
Equipment Leases ........................ 4,512 1,970
Loans sold:
Securitizations ......................... 59,722 26,845
Other ................................... 6,509 935
Total loan and lease portfolio serviced... 214,458 79,080
Average loan/lease size:
Business Purpose Loans .................. 81 76
Home Equity Loans ....................... 49 43
Equipment Leases ........................ 10 10
Weighted average interest rate on loans
and leases originated:
Business Purpose Loans .................. 15.97% 15.96%
Home Equity Loans ....................... 12.12 11.50
Equipment Leases ........................ 13.47 15.53

Year Ended June 30,
------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- ------------
Other Data:
Originations: ............................
Business Purpose Loans .................. $ 38,721 $ 28,872 $ 18,170 $ 11,793 $ 9,769
Home Equity Loans ....................... 91,819 36,479 16,963 22,231 22,017
Equipment Leases ........................ 8,004 5,967 2,220 -- --
Loans sold:
Securitizations ......................... 115,000 36,506 9,777 -- --
Other ................................... 3,876 19,438 31,948 30,562 29,036
Total loan and lease portfolio serviced... 176,651 59,891 17,774 8,407 5,134
Average loan/lease size:
Business Purpose Loans .................. 78 78 71 57 63
Home Equity Loans ....................... 51 47 46 51 45
Equipment Leases ........................ 11 11 12 -- --
Weighted average interest rate on loans
and leases originated:
Business Purpose Loans .................. 15.91% 15.83% 16.05% 16.03% 16.24%
Home Equity Loans ....................... 11.69 9.94 12.68 8.65 9.60
Equipment Leases ........................ 15.48 17.22 15.85 -- --
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
At or For The
Three Months Ended
September 30,
-----------------------
1997 1996
----------- ----------
<S> <C> <C>
Financial Ratios:
Return on average assets (1) ............... 11.04% 9.35%
Return on average equity (1) ............... 38.83 93.35
Total delinquencies as a percentage of
total portfolio serviced, at end of
period (2) ................................ 2.86 2.30
Allowance for credit losses to total port-
folio serviced, at end of period .......... 1.04 1.00
Real estate owned as a percentage of
total portfolio serviced, at end of
period .................................... .51 .61
Loan and lease losses as a percentage of
the average total portfolio serviced
during the period ......................... .05 .07
Pre-tax income as a percentage of total
revenues .................................. 42.61 33.65

<CAPTION>
At or For the Year Ended June 30,
----------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Financial Ratios:
Return on average assets (1) ............... 7.87% 6.71% 3.37% 0.87% 0.65%
Return on average equity (1) ............... 33.65 70.96 31.36 5.58 3.29
Total delinquencies as a percentage of
total portfolio serviced, at end of
period (2) ................................ 2.15 2.30 3.84 6.85 5.97
Allowance for credit losses to total port-
folio serviced, at end of period .......... 1.00 1.18 .87 .93 .80
Real estate owned as a percentage of
total portfolio serviced, at end of
period .................................... .34 1.01 4.29 2.63 1.44
Loan and lease losses as a percentage of
the average total portfolio serviced
during the period ......................... .08 .33 .66 .15 .47
Pre-tax income as a percentage of total
revenues .................................. 33.99 25.21 15.84 12.69 3.26
</TABLE>
- ------------
(1) Annualized.
(2) Total delinquencies includes loans and leases delinquent over 30 days,
exclusive of real estate owned.

34
<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, 1997 and
1996 and the three months ended September 30, 1997 and September 30, 1996. 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
eastern region of the United States. ABFS, through its direct and indirect
subsidiaries, originates, sells and services Business Purpose Loans, Home Equity
Loans, First Mortgage 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 products in fifteen states and
its lease products throughout the United States. See "Business".

Effective October 1, 1997, the Company acquired all of the outstanding
stock of NJMIC, a mortgage and leasing company located in Roseland, New Jersey,
for a combination of cash and ABFS Common Stock. The operations of NJMIC and its
subsidiaries will be incorporated with those of ABFS and its subsidiaries for
periods commencing subsequent to September 30, 1997. See "-- Liquidity and
Capital Resources."

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 six
securitizations aggregating $87.4 million in Business Purposes Loans and $133.5
million in Home Equity Loans. Such securitizations generated gain on the sale of
loans of $8.5 million, $20.0 million, $8.7 million and $1.3 million,
respectively, for the three months ended September 30, 1997 and for fiscal years
ended June 30, 1997, 1996 and 1995. See "Risk Factors -- Dependence Upon
Securitizations and Fluctuations in Operating Results" and "-- Results of
Operations."

The Company also relies upon funds generated by the sale of subordinated
debt and other borrowings to fund its operations. At September 30, 1997, the
Company had $70.1 million of subordinated debt outstanding and credit facilities
and lines of credit totaling $150.0 million, none of which was drawn upon on
such date. The Company expects to continue to rely on such borrowings to fund
loans prior to securitization. See "Risk Factors -- Dependence Upon Debt
Financing" and "-- 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 interest only and
residual strip associated with such loans at the time of sale. The interest only
and residual strip 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

35
<PAGE>

certificates and (ii) servicing, trustee and insurance fees and other costs. The
Company's right to receive this interest only and residual strip 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 interest only and
residual strip 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 hedging results. These interest only and residual
strips 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 interest only and residual strips on the pool of
securitized loans at fair value. As such, the carrying value of the interest
only and residual strips is impacted by changes in prepayment and loss
experience of the underlying loans. The Company determines the fair value of the
interest only and residual strips 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.
Higher levels of future prepayments, delinquencies and/or liquidations could
result in decreased interest only and residual strips which would adversely
affect the Company's income in the period of adjustment.

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 interest only and residual
strips.

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 are accounted for in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 125.
See Note 1 of the Notes to Consolidated Financial Statements, "Risk Factors --
Dependence Upon Securitizations and Fluctuations in Operating Results" and
"Business -- Securitizations."

Balance Sheet Information

September 30, 1997 compared to June 30, 1997. Total assets increased $20.4
million, or 19.5%, to $124.3 million at September 30, 1997 from $104.0 million
at June 30, 1997 due primarily to increases in other receivables and other
assets partially offset by a decrease in loans and leases available for sale.
Other receivables, consisting primarily of interest only and residual strips
created in connection with the Company's securitizations, increased $14.2
million, or 37.9%, to $51.7 million at September 30, 1997 from $37.5 million at
June 30, 1997 as the Company funded $60.0 million of loans as part of a $100.0
million securitization during the period ended September 30, 1997. Other assets
increased $14.3 million, or 77.7%, to $32.7 million at September 30, 1997 from
$18.4 million at June 30, 1997 due primarily to a $12.0 million increase in
investments held for sale and a $2.1 million increase in mortgage servicing
rights obtained in connection with

36
<PAGE>

the Company's loan securitization. Loans and leases available for sale decreased
$10.3 million, or 28.9%, from $35.7 million at June 30, 1997 to $25.4 million at
September 30, 1997 due to a decrease in loans available for sale used to fund
$60.0 million of a $100.0 million securitization. The Company anticipates
funding the remaining $40.0 million of loans during the second quarter of fiscal
1998.

Total liabilities increased $17.2 million, or 23.5%, to $90.3 million at
September 30, 1997 from $73.1 million at June 30, 1997 due primarily to an
increase in outstanding debt and to a lesser extent, increases in accounts
payable and accrued expenses and deferred income taxes. The increase in debt of
$13.6 million was due to net sales of subordinated debt. At September 30, 1997,
the Company had $70.1 million of subordinated debt outstanding. The Company's
ratio of total debt to equity at September 30, 1997 was 2.1:1 compared to 1.8:1
at June 30, 1997. Accounts payable and accrued expenses increased $1.7 million,
or 27.9%, to $7.8 million at September 30, 1997 from $6.1 million at June 30,
1997 due to growth in the Company's lending and leasing activities resulting in
longer accruals for interest expense and other operating expenses. Deferred
income taxes increased $1.7 million, or 37.0%, to $6.3 million at September 30,
1997 from $4.6 million at June 30, 1997 due to tax accruals on the Company's
income for the three months ended September 30, 1997.

Stockholders' equity increased $3.1 million to $34.0 million at September
30, 1997 from $30.9 million at June 30, 1997 due to net income for the three
months ended September 30, 1997 of $3.2 million partially offset by dividends
paid.

June 30, 1997 compared to June 30, 1996. Total assets increased $57.1
million, or 121.7%, to $104.0 million at June 30, 1997 from $46.9 million at
June 30, 1996 due primarily to increases in loan and lease receivables available
for sale, other receivables and other assets. The increase in loan and lease
receivables available for sale of $17.7 million, or 98.3%, to $35.7 million at
June 30, 1997 from $18.0 million at June 30, 1996 was due to the Company's
strategy of building an inventory of loans for ultimate sale in securitizations.
Other receivables consist primarily of the interest only and residual strips
created in connection with the Company's securitizations. The interest only and
residual strips increased $25.5 million, or 190.3%, to $38.9 million at June 30,
1997, from $13.4 million at June 30, 1996. Other assets increased $11.9 million,
or 183.1%, to $18.4 million at June 30, 1997 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.

Total liabilities increased $30.6 million, or 72.0%, to $73.1 million at
June 30, 1997 from $42.5 million at June 30, 1996 due primarily to a net
increase in outstanding debt and to a lesser extent, increases in other
liabilities. The net increase in debt of $20.5 million was due to net sales of
subordinated debt of $22.8 million during the year ended June 30, 1997 and a
decrease in institutional debt of $2.3 million as the Company repaid its
institutional debt with proceeds from its securitizations. At June 30, 1997, the
Company had $56.5 million of subordinated debt outstanding. The Company's ratio
of total debt to equity at June 30, 1997 was 1.8:1 compared to 8.2:1 at June 30,
1996. This decrease was due to additional equity raised during a public offering
in February 1997. Accounts payable and accrued expenses increased $3.0 million,
or 96.8%, to $6.1 million at June 30, 1997 from $3.1 million at June 30, 1996
due to growth in the Company's lending and leasing activities resulting in
larger accruals for interest expense and other operating expenses. Deferred
income taxes increased $3.1 million, or 206.7%, to $4.6 million at June 30, 1997
from $1.5 million at June 30, 1996 due to tax accruals on the Company's income
for the year ended June 30, 1997.

Stockholders' equity increased $26.5 million to $30.9 million at June 30,
1997 from $4.4 million at June 30, 1996 due to a public offering of the
Company's Common Stock and an increase in net income which was slightly offset
by dividends paid. On February 14, 1997 the Company raised, net of expenses,
$20.7 million of equity through the sale of 1,150,000 shares of its Common Stock
in an underwritten public offering. Net income increased by $3.6 million, or
156.5%, to $5.9 million for the year ended June 30, 1997 from $2.3 million for
the year ended June 30, 1996.

Results of Operations

During the three months ended September 30, 1997 and fiscal 1997 and 1996,
the Company experienced record levels of total revenues and net income as a
result of increases in originations and securitizations. Total revenues
increased $5.9 million, and net income increased $2.0 million for the three
months ended September

37
<PAGE>

30, 1997 as compared to the three months ended September 30, 1996. Total
revenues increased $14.4 million, or 119.0%, between fiscal 1997 and 1996 while
net income increased $3.6 million, or 156.5%, during the same fiscal period.
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. The Company's ability to sustain the level of growth in total revenues
and net income experienced during these periods 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 during the three months ended September 30, 1997 and
fiscal 1997 and 1996 may not be sustained in the future. See "Risk Factors --
Ability of the Company to Sustain Recent Levels of Growth and Operating
Results."

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."

Three Months Ended September 30, 1997 Compared with the Three Months Ended
September 30, 1996

Total Revenues. Total revenues increased $5.9 million, or 111.3%, to $11.2
million for the three months ended September 30, 1997 from $5.3 million for the
three months ended September 30, 1996. The increase in total revenue was
primarily the result of gains on sale of loans through securitization.

Gain on Sale of Loans. Gain on sale of loans increased $4.4 million, or
107.3%, to $8.5 million for the three months ended September 30, 1997 from $4.1
million for the three months ended September 30, 1996. The increase was the
result of sales of $12.0 million of loans secured by real estate and other
business assets ("Business Purpose Loans") and $48.0 million of loans secured by
real estate on single family residences ("Home Equity Loans") through a
securitization in September 1997, as compared to the sale of $9.9 million of
Business Purpose Loans and $17.0 million of Home Equity Loans through a
securitization in September 1996. During the three months ended September 30,
1997, the Company recognized a gain of $8.5 million (representing the fair value
of the interest only and residual strips of $11.1 million less $2.6 million of
costs associated with the transaction) on the Company's initial funding of $60.0
million of loans sold pursuant to a $100.0 million securitization. The remaining
$40.0 million of loans was in the form of a pre-funded account which the Company
anticipates funding in the second quarter of fiscal 1998.

Interest and Fee Income. Interest and fee income consists of interest
income, fee income and amortization of origination costs. Interest and fee
income increased $1.2 million, or 109.1%, to $2.3 million for the three months
ended September 30, 1997 from $1.1 million for the three months ended September
30, 1996. The increase in interest and fee income was the result of an increase
in the amount of loans and leases originated and retained in the Company's
portfolio prior to securitization.

Interest income consists primarily of interest income the Company earns on
loans and leases held in its portfolio. Interest income increased $800,000, or
88.9%, to $1.7 million for the months ended September 30, 1997 from $900,000 for
the three months ended September 30, 1996. The increases were attributable to
increased originations of Business Purpose Loans, Home Equity Loans and small
ticket leases for the acquisition of business equipment ("Equipment Leases").

During the three months ended September 30, 1997, the Company originated
approximately $43.8 million of Home Equity Loans, $10.4 million of Business
Purpose Loans and $4.5 million of Equipment Leases. During the three months
ended September 30, 1996, the Company originated $12.7 million of Home Equity
Loans, $7.4 million of Business Purpose Loans and $1.9 million of Equipment
Leases.

Fee income, includes primarily premium and points earned when loans are
closed, funded and immediately sold to unrelated third party purchasers and
ancillary fees collected on loan originations. Fee income increased $307,000 to
$587,000 for the three months ended September 30, 1997 from $280,000 for the
three months ended September 30, 1996. The increase in fee income was due to an
increase in ancillary fees collected in connection with increased originations
partially offset by a reduction in fees earned on the sale of loans to third
parties.

38
<PAGE>

The third component of interest and fee income is amortization of
origination costs. During the three months ended September 30, 1997,
amortization of origination costs increased to $168,000 compared to $86,000
recognized during the comparable period of fiscal 1997. The increase was
attributable to an increase in the amortization of lease origination costs
resulting from an increase in the Company's Equipment Lease portfolio.

Total Expenses. Total expenses increased $2.9 million, or 82.9%, to $6.4
million for the three months ended September 30, 1997 from $3.5 million for the
three months ended September 30, 1996. As described in more detail below, this
increase was a result of increased interest attributable to the Company's
continued sale of subordinated debt and increases in payroll, sales and
marketing and general and administrative expenses related to increase loan and
lease originations.

Interest Expense. Interest expense increased $818,000, or 81.8%, to $1.9
million for the three months ended September 30, 1997 from $1.0 million for the
three months ended September 30, 1996. The increase was primarily attributable
to an increase in the amount of the Company's subordinated debt outstanding
during that period, the proceeds of which were used to fund the Company's loan
and lease growth. Average subordinated debt outstanding was $62.7 million during
the three months ended September 30, 1997 compared to $35.8 million during the
three months ended September 30, 1996. Average interest rates paid on the
subordinated debt increased to 9.29% from 8.99% as a result of the higher rates
offered during the first quarter of fiscal 1998 in order to attract additional
funds. Interest expense on lines of credit utilized by the Company for the three
months ended September 30, 1997 was $393,000, compared to $139,000 for the three
months ended September 30, 1996. The increase was due to the higher utilization
of warehouse lines of credit to fund Home Equity Loans and Business Purpose
Loans.

Provision 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 managed 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 Company had an allowance for credit losses of $2.2
million at September 30, 1997 as compared to $1.8 million at June 30, 1997. The
provision for credit losses was $31,000 for the three months ended September 30,
1997 as compared to no provision for the three months ended September 30, 1996.
The ratio of the allowance for credit losses to net loan and lease receivables
serviced was 1.03% at September 30, 1997 and 1.00% at June 30, 1997. Total
delinquencies were $6.1 million at September 30, 1997 as compared to $3.8
million at June 30, 1997. The Company's delinquency rate as a percentage of the
total portfolio serviced was 2.86% at September 30, 1997 as compared to 2.15% at
June 30, 1997.

Payroll and Related Costs. Payroll and related costs increased $652,000, or
327.6%, to $851,000 for the three months ended September 30, 1997 from $199,000
for the three months ended September 30, 1996. The increase was due to an
increase in the number of administrative employees as a result of the Company's
growth in loan and lease originations as well as an increase in loans and leases
serviced. Management anticipates that these expenses will continue to increase
in the future as the Company's geographic expansion continues.

Sales and Marketing Expenses. Sales and marketing expenses increased
$900,000, or 64.3%, to $2.3 million for the three months ended September 30,
1997 from $1.4 million for the three months ended September 30, 1996. The
increases were 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 debt and loan products. Subject to market conditions, the
Company plans to continue to expand its service area throughout the eastern
United States. As a result, it is anticipated that sales and marketing expenses
will continue to increase in the future.

General and Administrative Expenses. General and administrative expenses
increased $503,000, or 56.1%, to $1.4 million for the three months ended
September 30, 1997 from $897,000 for the three months

39
<PAGE>

ended September 30, 1996. This 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 three months ended
September 30, 1997.

Income Taxes. Income taxes increased $1.0 million to $1.6 million for the
three months ended September 30, 1997 from $622,000 for the three months ended
September 30, 1996. The increases were due to increases in income before taxes.

Net Income. Net income increased $2.0 million to $3.2 million for the three
months ended September 30, 1997 from $1.2 million for the three months ended
September 30, 1996. Earnings per share increased to $0.87 on weighted average
common shares outstanding of 3,642,972 for the three months ended September 30,
1997 compared to $.47 per share on weighted average common shares outstanding of
2,448,031 for the three months ended September 30, 1996.

Year Ended June 30, 1997 Compared to Year Ended June 30, 1996

Total Revenues. Total revenues increased $14.4 million, or 119.0%, to $26.5
million for the year ended June 30, 1997 from $12.1 million for the year ended
June 30, 1996. The increase in total revenues was primarily the result of gains
on sales of loans through securitizations.

Gain on Sale of Loans. Gain on sale of loans increased $11.3 million, or
129.9%, to $20.0 million for the year ended June 30, 1997 from $8.7 million for
the year ended June 30, 1996. The increase was primarily the result of sales of
$38.1 million of Business Purpose Loans and $76.9 million of Home Equity Loans
through securitizations in September 1996 and March 1997 compared to the sale of
$27.5 million of Business Purpose Loans and $9.0 million of Home Equity Loan
through securitizations in October 1995 and May 1996. The Company recognized net
gains of $20.0 million (representing the fair value of the interest only and
residual strips of $21.5 million less $2.7 million of costs associated with
these transactions) on the Company's participation in the $115.0 million of
loans sold through securitizations during the year ended June 30, 1997. The
Company recognized $1.2 million of gain on sale of loans through mortgage
servicing rights received in connection with prior securitizations. Given the
unseasoned nature of the loans securitized, the Company lacked sufficient
experience to estimate and record the value of late and other ancillary fees.

Interest and Fee Income. Interest and fee income consists of interest
income, fee income and amortization of origination costs. Interest and fee
income increased $2.5 million, or 73.5%, to $5.9 million for the year ended June
30, 1997 from $3.4 million for the year ended June 30, 1996 due to an increase
in interest income as a result of an increased amount of loans retained in
portfolio prior to securitization.

Interest income consists primarily of interest income the Company earns on
the loans and leases held in its portfolio. Interest income increased $2.5
million, or 113.6%, to $4.7 million for the year ended June 30, 1997 as compared
to $2.2 million for the year ended June 30, 1996. The increase was attributable
to increased originations of Business Purpose Loans, Home Equity Loans and
Equipment Leases described below, as well as management's decision to retain
such loans and leases in portfolio in contemplation of future securitizations.

During the year ended June 30, 1997, the Company originated approximately
$91.8 million of Home Equity Loans, $38.7 million of Business Purpose Loans and
$8.0 million of Equipment Leases. During the year ended June 30, 1996, the
Company originated $36.5 million of Home Equity Loans, $28.9 million of Business
Purpose Loans and $6.0 million of Equipment Leases. Approximately $15.3 million
of Home Equity Loans originated during fiscal 1996 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 ultimate sale 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 premium and points earned when loans are closed or
funded and immediately sold to unrelated third party purchasers as well as other
ancillary fees collected in connection with loan and lease

40
<PAGE>

originations. Fee income increased $100,000, or 6.7%, from $1.5 million for the
year ended June 30, 1996 to $1.6 million for the year ended June 30, 1997. The
increase in fee income was due to an increase in ancillary fees collected in
connection with increased originations partially offset by a reduction in fees
earned upon the sale of loans to third parties.

The third component of interest and fee income is amortization of
origination costs. During the year ended June 30, 1997, amortization of
origination costs was $418,000 compared to $305,000 recognized during the year
ended June 30, 1996. The increase was attributable to an increase in the
amortization of lease origination costs resulting from an increase in the
Equipment Lease portfolio.

Total Expenses. Total expenses increased $8.5 million, or 94.4%, to $17.5
million for the year ended June 30, 1997 from $9.0 million for the year ended
June 30, 1996. This increase was related to the increase in loan and lease
originations for the year ended June 30, 1997 as well as the costs associated
with a larger portfolio of loans and leases serviced and the opening of several
new office locations.

Interest Expense. Interest expense increased $2.5 million, or 92.6%, to
$5.2 million for the year ended June 30, 1997 from $2.7 million for the year
ended June 30, 1996. The increase was primarily attributable to an increase in
the amount of the Company's subordinated debt outstanding. Average subordinated
debt outstanding was $44.4 million during the year ended June 30, 1997 compared
to $25.0 million during the year ended June 30, 1996. Average interest rates
paid on the subordinated debt increased to 9.29% for the year ended June 30,
1997 from 9.02% for the year ended June 30, 1996 due to an increase in the
volume of debt with maturities of greater than one year which bear higher
interest rates than shorter term debt. Interest expense on lines of credit
utilized by the Company for the year ended June 30, 1997 was $461,000 compared
to $120,000 for the year ended June 30, 1996. The increase was due to the
Company's utilization of its warehouse lines of credit to fund Home Equity Loans
and Business Purpose Loans.

Provision for Credit Losses. The provision for credit losses increased by
$473,000, or 71.4%, to $1.2 million (includes a $100,000 provision related to
the Company's loan and lease portfolio and a $1.1 million provision related to
the Company's securitizations) for the year ended June 30, 1997 from $681,000
(includes a $397,000 provision related to the Company's loan and lease portfolio
and a $284,000 provision related to the Company's securitizations) for the year
ended June 30, 1996. See Note 3 of the Notes to Consolidated Financial
Statements. The ratio of the allowance for credit losses to total net loan and
lease receivables serviced was 1.00% at June 30, 1997 and 1.18% at June 30,
1996. From the inception of the Company's business in 1988 through June 30,
1997, the Company has experienced a total of approximately $351,000 in net loan
and lease losses. The Company's delinquency rate as a percentage of the total
portfolio serviced was 2.15% at June 30, 1997 and 2.30% at June 30, 1996.

Payroll and Related Costs. Payroll and related costs increased $400,000, or
33.3%, to $1.6 million for the year ended June 30, 1997 from $1.2 million for
the year ended June 30, 1996. The increase was due to an increase in the number
of employees as a result of the Company's growth in loan and lease originations
and an increase in loans and leases serviced. Management anticipates that these
expenses 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 $4.3
million, or 159.3%, to $7.0 million for the year ended June 30, 1997 from $2.7
million for the year ended June 30, 1996. The Company increased its advertising
costs for newspaper, direct mail and radio campaigns related to its business
purpose and home equity loan products. In addition, the Company initiated a
television advertising program for the sale of its home loan equity products.
Subject to market conditions, the Company plans to continue to expand its
service area throughout the eastern United States. As a result, it is
anticipated that sales and marketing expenses will continue to increase in the
future.

General and Administrative Expenses. General and administrative expenses
increased $1.6 million, or 80.0%, to $3.6 million for the year ended June 30,
1997 from $2.0 million for the year ended June 30, 1996. This 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 servicing experienced
during the year ended June 30, 1997.

41
<PAGE>

Income Taxes. Income taxes increased $2.3 million, or 287.5%, to $3.1
million for the year ended June 30, 1997 from $802,000 for the year ended June
30, 1996 due to an increase in income before taxes and an increase in the
effective tax rate from 25.7% for the year ended June 30, 1996 to 34.0% for the
year ended June 30, 1997.

Net Income. Net income increased $3.6 million, or 156.5%, to $5.9 million
for the year ended June 30, 1997 as compared to $2.3 million for the year ended
June 30, 1996. Earnings per share increased to $2.05 on weighted average common
shares outstanding of 2,903,754 million for the year ending June 30, 1997
compared to $1.01 on weighted average common shares outstanding of 2,296,913 for
the year ended June 30, 1996. The increase in weighted average common shares
outstanding resulted primarily from the public offering of 1,150,000 shares of
the Company's Common Stock.

42
<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>
September 30, June 30,
---------------------- ----------------------
1997 1997
---------------------- ----------------------
Delinquency by Type Amount % Amount %
- ------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Business Purpose Loans
Total portfolio serviced ............ $ 76,387 $ 68,979
======== ========
Period of delinquency
31-60 days ......................... $ 1,292 1.69% $ 1,879 2.72%
61-90 days ......................... 450 .59 462 .67
Over 90 days ....................... 1,920 2.51 718 1.04
-------- ------ -------- ------
Total delinquencies ................ $ 3,662 4.79% $ 3,059 4.43%
======== ====== ======== ======
REO ................................. $ 954 $ 605
======== ========
Home Equity Loans
Total portfolio serviced ............ $125,603 $ 98,179
======== ========
Period of delinquency
31-60 days ......................... $ 1,206 .96% $ 262 .27%
61-90 days ......................... 435 .35 341 .35
Over 90 days ....................... 603 .48 83 .08
-------- ------ -------- ------
Total delinquencies ................ $ 2,244 1.79% $ 686 .70%
======== ====== ======== ======
REO ................................. $ 144
========
Equipment Leases
Total portfolio serviced ............ $ 12,436 $ 9,461
======== ========
Period of delinquency
31-60 days ......................... $ 172 1.38% $ 29 .31%
61-90 days ......................... 4 .03 -- --
Over 90 days ....................... 22 .18 4 .04
-------- ------ -------- ------
Total delinquencies ................ $ 198 1.59% $ 33 .35%
======== ====== ======== ======
Other Loans(1)
Total portfolio serviced ............ $ 32 $ 32
======== ========
Period of delinquency
31-60 days ......................... $ -- -- $ -- --
61-90 days ......................... -- -- -- --
Over 90 days ....................... 32 100.00% 32 100.00%
-------- ------ -------- ------
Total delinquencies ................. $ 32 100.00% $ 32 100.00%
======== ====== ======== ======
Company Combined
- --------------------------------------
Total portfolio serviced ............ $214,458 $176,651
======== ========
Period of delinquency
31-60 days ......................... $ 2,670 1.24% $ 2,170 1.23%
61-90 days ......................... 889 .42 803 .45
Over 90 days ....................... 2,577 1.20 837 .47
-------- ------ -------- ------
Total delinquencies ................ $ 6,136 2.86% $ 3,810 2.15%
======== ====== ======== ======
REO ................................. $ 1,098 $ 605
======== ========
Losses experienced during the period $ 100 .05% $ 98 .06%
======== ====== ======== ======
Allowance for credit losses at end of
period ............................. $ 2,232 1.04% $ 1,764 1.00%
======== ====== ======== ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1996 1995
---------------------- ----------------------
Delinquency by Type Amount % Amount %
- ------------------------------------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Business Purpose Loans
Total portfolio serviced ............ $ 37,950 $ 14,678
======== ========
Period of delinquency
31-60 days ......................... $ 86 .23% $ 141 .96%
61-90 days ......................... 118 .31 75 .51
Over 90 days ....................... 1,033 2.72 310 2.11
-------- ----- -------- ----
Total delinquencies ................ $ 1,237 3.26% $ 526 3.59%
======== ===== ======== ====
REO ................................. $ 608 $ 762
======== ========
Home Equity Loans
Total portfolio serviced ............ $ 17,224 $ --
======== ========
Period of delinquency
31-60 days ......................... -- -- -- --
61-90 days ......................... -- -- -- --
Over 90 days ....................... -- -- -- --
-------- ----- -------- ----
Total delinquencies ................ -- -- -- --
======== ===== ======== ====
REO .................................
Equipment Leases
Total portfolio serviced ............ $ 4,607 $ 2,031
======== ========
Period of delinquency
31-60 days ......................... $ 23 .50% $ 49 2.40%
61-90 days ......................... 14 .30 40 1.97
Over 90 days ....................... 41 .89 -- --
-------- ----- -------- ----
Total delinquencies ................ $ 78 1.69% $ 89 4.37%
======== ===== ======== ====
Other Loans(1)
Total portfolio serviced ............ $ 110 $ 1,065
======== ========
Period of delinquency
31-60 days ......................... $ -- -- $ 16 1.51%
61-90 days ......................... 18 16.36% 30 2.82
Over 90 days ....................... 50 45.45 21 1.97
-------- ----- -------- ----
Total delinquencies ................. $ 68 61.81% $ 67 6.30%
======== ===== ======== ====
Company Combined
- --------------------------------------
Total portfolio serviced ............ $ 59,891 $ 17,774
======== ========
Period of delinquency
31-60 days ......................... $ 109 .18% $ 206 1.16%
61-90 days ......................... 150 .25 145 .82
Over 90 days ....................... 1,124 1.87 331 1.86
-------- ----- -------- ----
Total delinquencies ................ $ 1,383 2.30% $ 682 3.84%
======== ===== ======== ====
REO ................................. $ 608 $ 762
======== ========
Losses experienced during the period $ 129 .22% $ 88 .49%
======== ===== ======== ====
Allowance for credit losses at end of
period ............................. $ 707 1.18% $ 155 .87%
======== ===== ======== ====
</TABLE>
- ------------
(1) Includes secured and unsecured consumer loans originated by HCDC.

43
<PAGE>

The following table sets forth the Company's loss experience for the
periods indicated.
<TABLE>
<CAPTION>
Three Months
Ended
September 30, Year Ended June 30,
--------------- ---------------------------
1997 1997 1996 1995
--------------- ------ -------- -------
(In Thousands)
<S> <C> <C> <C> <C>
Business Purpose Loans ......... $ 49 $34 $ 92 $ 86
Home Equity Loans .............. -- -- -- --
Other Loans .................... -- -- 37 2
Leases ......................... 51 64 -- --
----- --- ----- ----
Total losses ................ $ 100 $98 $ 129 $ 88
===== === ===== ====
</TABLE>
The Company's total delinquencies as a percentage of the total loan and
lease portfolio serviced decreased from June 30, 1995 to June 30, 1996 while the
dollar amount of loans and leases delinquent increased, which increase is
reflective of the increase in the Company's total loan and lease portfolio
serviced. Similarly, the increase in the dollar amount of the Company's loans
and leases delinquent at June 30, 1997 as compared to June 30, 1996 reflects the
continued growth of the Company's managed loan and lease portfolio. Total
delinquencies, as a percentage of the total loan and lease portfolio serviced
were 2.15% at June 30, 1997 as compared to 2.30% at June 30, 1996. Total
delinquencies increased from $3.8 million at June 30, 1997 to $6.1 million at
September 30, 1997 due to the continued seasoning of the Company's Home Equity
Loan portfolio. The Company's delinquency rate as a percentage of the total loan
and lease portfolio serviced was 2.86% at September 30, 1997 as compared to
2.15% at June 30, 1997.

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 on 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, 1997, the Company had sold short $20.0
million of U.S. Treasury securities. The deferred loss related to these
activities was approximately $200,000 at June 30, 1997. During the year ended
June 30, 1997, the Company incurred a loss of approximately $31,000 on short
sales of securities. During the three months ended September 30, 1997, the
Company incurred a loss of approximately $1.3 million 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.

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. 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

44
<PAGE>

mitigate risk. 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 due to the costs associated with the
Company's hedging activities.

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
September 30, 1997 approximately $30.9 million of its liabilities were comprised
of subordinated debt 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.

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 debt, (iii) institutional debt financing, and
(iv) retained earnings. In addition, during the year ended June 30, 1997, the
Company utilized the capital market to sell additional shares of its Common
Stock. 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 1996, the Company completed two loan
securitizations involving $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 fiscal June 30, 1997, the Company completed
two securitizations involving $115.0 million of Business Purpose Loans and Home
Equity Loans. These securitizations resulted in net proceeds of approximately
$111.6 million. During the three months ended September 30, 1997, the Company
securitized $12.1 million of Business Purpose Loans and $47.6 million of Home
Equity Loans. This securitization resulted in net proceeds of approximately
$58.5 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 three months ended September
30, 1997 and the fiscal years 1997 and 1996, the Company had net gain on sale of
loans through securitizations of $8.5 million, $20.0 million and $8.6 million,
respectively. The Company uses a portion of the proceeds of a securitization,
net of fees and costs of the securitization, are used to repay its 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 interest only and residual strips 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."

45
<PAGE>

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.

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 Equipment 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 -- Dependence Upon
Securitizations and Fluctuations in Operating Results."

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 debt and warehouse credit facilities or lines of credit to fund its
operations. At September 30, 1997, the Company had a total of $70.1 million of
subordinated debt outstanding, including $17.3 million of Notes sold pursuant to
this Offering. The Company also had available credit facilities and lines of
credit totaling $150.0 million, none of which was drawn upon on such date.

In February 1997, the Company completed an underwritten public offering of
1,150,000 shares of its Common Stock. The stock was sold at a price of $20.00
per share. The offering of the Common Stock resulted in net proceeds of
approximately $20.7 million.

Between 1990 and 1993, American Business Finance Corporation ("ABFC"), an
indirect subsidiary of ABFS, sold approximately $1.7 million in principal amount
of subordinated debt at rates ranging from 8.0% to 14.0%. In December 1993, the
Company ceased selling subordinated debt through ABFC. As of September 30, 1997,
ABFC had approximately $908,000 of the subordinated debt outstanding. This debt
is currently maturing and will be fully extinguished by October 1998.

In addition, between July 1, 1997 and September 30, 1997, ABFS sold $16.7
million in principal amount of subordinated debt (including redemptions and
repurchases by investors), pursuant to registered public offerings with
maturities ranging between one day and ten years. As of September 30, 1997, ABFS
had approximately $69.2 million of subordinated debt outstanding (excluding the
debt of ABFC). The proceeds of such sales of debt have been used to fund general
operating and lending activities. The Company intends to meet its obligations to
repay such debt as it matures with income generated through its lending
activities and funds generated from repayment of outstanding loans. The
repayment of such obligations should not adversely affect the Company's
operations.

The Company's subsidiaries have an aggregate $50.0 million Interim
Warehouse and Security Agreement with Prudential Securities Realty Funding
Corporation. In July 1997, the Company and certain of its subsidiaries obtained
a $100.0 million warehouse credit facility from a syndicate of banks led by
Chase Manhattan Bank/Chase Bank of Texas, NA ("CBT"). Under this warehouse
facility, the Company may obtain advances, subject to certain conditions,
including sublimits, based upon the type of collateral securing the advance. The
Company's obligations under the CBT warehouse facility are collateralized by
certain pledged loans and leases and other collateral related thereto. The CBT
warehouse facility also requires the Company to meet certain financial ratios
and contains restrictive covenants, including covenants limiting loans to and
transactions with affiliates, the incurrence of additional debt, and the types
of investments that can be made by the Company and its subsidiaries. The CBT
warehouse facility has a term of two years. At September 30, 1997, neither of
these credit facilities was being utilized.

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

As of September 30, 1997, the Company had $39.2 million of debt scheduled
to mature during the twelve months ending September 30, 1998 which was
comprised of maturing subordinated debt. The

46
<PAGE>

Company currently expects to refinance the maturing debt through extensions of
maturing debt or new debt financing and, if necessary, may retire the debt
through cash flow from operations and loan sales or securitizations. Despite the
Company's current use of securitizations to fund loan growth, the Company is
also dependent upon other 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. Effective October 1, 1997, the
Company acquired NJMIC, a Roseland, New Jersey based mortgage and leasing
company. The purchase price for the NJMIC stock consisted of an initial payment
of $11.0 million in cash and 20,240 shares of the Company's Common Stock and
included a contingent payment of up to an additional $9.0 million to be paid in
the future if NJMIC achieves certain performance targets. The acquisition of
NJMIC was accounted for using the purchase method of accounting and accordingly,
the purchase price was allocated to assets acquired and liabilities assumed
based on the fair values at the date of acquisition. Since the fair value of
NJMIC's assets approximated the liabilities assumed, the majority of the
purchase price was recorded as goodwill. On October 1, 1997, NJMIC had a $3.0
million note outstanding issued to N.M. Rothschild & Sons. This note matures on
July 1, 2002. See "Business." See Note 15 of the Notes to Consolidated Financial
Statements for additional information regarding the Company's acquisition of
NJMIC.

The Company leases certain of its facilities under a five-year operating
lease expiring in January 2003 at a minimum annual rental of approximately
$700,000. The lease contains a renewal option for an additional period at
increased annual rental. See "Business -- Properties."

Many existing computer programs, including those utilized by the Company,
use only two digits to identify a year in the date field. These programs were
designed and developed without considering the impact of the upcoming change in
the century. If not corrected, many computer applications could fail or create
erroneous results by or at the Year 2000 (the "Year 2000 Issue"). The Company
has evaluated the costs associated with addressing the Year 2000 Issue and has
determined that such cost is not reasonably likely to affect the Company's
future financial results, nor is it likely to cause the Company's reported
financial information not to be necessarily indicative of future operating
results or future financial condition.

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 February 1997, the FASB issued SFAS No. 128, "Earnings per Share" ("SFAS
No. 128"). SFAS No. 128 establishes standards for computing and presenting
earnings per share ("EPS") and applies to entities with publicly held common
stock or potential common stock. SFAS No. 128 simplifies the standards for
computing earnings per share previously found in APB Opinion No. 15, Earnings
per Share, and makes them comparable to international EPS standards. SFAS No.
128 replaces the presentation of primary EPS with a presentation of basic EPS
and requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation. SFAS No. 128 will
be effective for financial statements for both interim and annual periods ending
after December 15, 1997. Based upon the Company's analysis of SFAS No. 128, the
Company does not believe that the implementation of SFAS No. 128 will have a
material effect on the computation of its earnings per share. See Note 14 of the
Notes to Consolidated Financial Statements.

In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure" ("SFAS No. 129"). SFAS No. 129 establishes standards
for disclosing information about an entity's capital structure. SFAS No. 129
will be effective for financial statements for periods ending after December
15, 1997. Based upon the Company's current capital structure, the Company does
not believe that the implementation of SFAS No. 129 will have a material effect
on the Company's disclosure of information regarding its capital structure.

47
<PAGE>

In June 1997, FASB issued SFAS No. 130 "Reporting Comprehensive Income".
("SFAS No. 130") establishes standards for the reporting and display of
comprehensive income in a full set of general purpose financial statements. The
provisions of SFAS No. 130 are effective for fiscal years beginning after
December 15, 1997.

In June 1997, FASB issued SFAS No. 131 "Disclosure about Segments of an
Enterprise and Related Information" ("SFAS No. 131") requires that public
business enterprises report certain information about operating segments in
complete sets of financial statements of the enterprise and in condensed
financial statements of interim periods issued to stockholders. SFAS No. 131
also requires that public business enterprises report certain information about
their products and services, the geographical areas in which they operate and
their major customers. The provisions of SFAS No. 131 are effective for fiscal
years beginning after December 15, 1997.

Due to the recent issuance of these pronouncements, the Company has not
completed its analysis of the impact of SFAS No. 130 and SFAS No. 131.

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.

48
<PAGE>

BUSINESS

General

ABFS is a financial services company operating primarily in the eastern
region of the United States. The Company, through its principal direct and
indirect subsidiaries, originates, sells and services Business Purpose Loans,
Home Equity Loans and First Mortgage 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 was incorporated in Delaware in 1985 and 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, Connecticut,
North Carolina and Ohio. 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, 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. 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 15.97% and
15.91% for the three months ended September 30, 1997 and the year ended June 30,
1997, respectively. Business Purpose Loans typically have significant prepayment
fees 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 solely upon the real estate
collateral securing the loans) of 60.0% at the time of securitization.

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 $10.4 million and $38.7 million of Business Purpose Loans for the
three months ended September 30, 1997 and the year ended June 30, 1997,
respectively. See "--Lending and Leasing Activities -- Business Purpose
Lending."

49
<PAGE>

million of Home Equity Loans for the three months ended September 30, 1997 and
the year ended June 30, 1997, respectively. The weighted average interest rate
on Home Equity Loans originated by the Company was 12.12% and 11.69% for the
three months ended September 30, 1997 and the year ended June 30, 1997,
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 eight 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 1,000 branches located in
Pennsylvania, Delaware, New Jersey and Maryland. The Company is also negotiating
with other financial institutions regarding their participation in the program.
The Company intends to expand its Bank Alliance Program with financial
institutions across the United States. See "--Lending and Leasing Activities --
Home Equity Lending."

ABFS began offering First Mortgage Loans in October 1997 in connection with
its acquisition of NJMIC. The Company originates First Mortgage Loans for sale
in the secondary market with servicing released. The Company's first mortgage
lending market area includes 15 states. See "-- Lending and Leasing Activities
- -- First Mortgage Lending."

From the inception of the Company's business in 1988 through September 30,
1997, the Company has experienced total net loan and lease losses of
approximately $450,000. The Company's losses on its total loan and lease
portfolio serviced totaled $100,000, $98,000 and $129,000, respectively, for the
three months ended September 30, 1997 and the years ended June 30, 1997 and
1996. The Company's loans and leases delinquent over 30 days (excluding real
estate owned) represented 2.86% and 2.15%of the total loan and lease portfolio
serviced at September 30, 1997 and June 30, 1997, respectively. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Asset Quality."

50
<PAGE>

Subsidiaries

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 American Business Credit, Inc.
("ABC") and its primary subsidiaries, American Business Finance Corporation
("ABFC"), HomeAmerican Credit, Inc. (d/b/a Upland Mortgage and referred to
herein as "HAC" or "Upland"), Processing Service Center, Inc. ("PSC"),
HomeAmerican Consumer Discount Company ("HCDC"), American Business Leasing
("ABL"), ABC Holdings Corporation ("Holdings"); and NJMIC and its subsidiary,
Federal Leasing Corp. (The Company and its direct and indirect subsidiaries are
collectively referred to herein as the "Company").

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 Mortgage Corp. 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 June 30,
1997, HCDC maintained a portfolio of consumer loans of approximately $32,000.
The Company does not intend to emphasize this area of its business in the
future.

NJMIC, a New Jersey corporation organized in 1938 and acquired by the
Company in October 1997, is currently engaged in the origination and sale of
Home Equity Loans, as well as First Mortgage Loans. Historically, NJMIC sold
loans it originated in the secondary market with servicing released. The Company
intends to continue to sell First Mortgage Loans originated by NJMIC in the
secondary market with servicing released. The Company intends to securitize Home
Equity Loans originated by NJMIC pursuant to the Company's current
securitization program.

NJMIC's wholly-owned subsidiary, Federal Leasing Corp. ("Federal"), is a
Delaware corporation which was organized in 1974. ABFS intends to continue to
securitize leases originated by Federal in the future subject to economic and
market conditions. Federal generally sells such leases through securitizations
and maintains the servicing on such leases.

The Company's indirect subsidiaries, ABFS 1995-1, Inc., ABFS 1995-2, Inc.,
ABFS 1996-1, Inc., ABFS 1996-2, Inc., ABFS 1997-1, Inc. and ABFS 1997-2, Inc.
are Delaware investment holding companies. Such companies were incorporated to
facilitate the Company's securitizations. The stock of such subsidiaries is held
by ABC and Upland Mortgage. In connection with the acquisition of NJMIC and
Federal, the Company acquired FLC Financial Corp. and FLC II Financial Corp.,
the Delaware investment holding companies incorporated to facilitate the
securitization of Federal's leases. The stock of such companies is held by
Federal. None of these corporations engage in any business activity other than
holding the subordinated certificate, if any, and the interest only and residual
strips created in connection with the Company's securitizations. See
"--Securitizations." ABFC was incorporated in 1990 in order to issue
subordinated debt in 1990 through 1993. Since December 1993, ABFC has been
inactive. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."

51
<PAGE>

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

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

ABFS

(Holding Company)
(Issues subordinated debt)

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

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

AMERICAN BUSINESS
CREDIT, INC.

(Originates and services Business
Purpose Loans)

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

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

<S> <C> <C> <C> <C> <C> <C>
NEW JERSEY HOME PROCESSING AMERICAN HOME ABC AMERICAN
MORTGAGE AMERICAN SERVICE BUSINESS AMERICAN HOLDINGS BUSINESS
AND CREDIT, INC. CENTER, LEASING, CONSUMER CORP. FINANCE
INVESTMENT d/b/a INC. INC. DISCOUNT CORP.
CORP. UPLAND (Processes (Originates COMPANY
MORTGAGE(2) Bank Alliance and services (Originates (Holds (Issued
(Originates, (Originates, Program Equipment and sells foreclosed subordinated
and services purchases Home Equity Leases) small consumer real debt
First Mortgage and services Loans) installment estate) from 1990
and Home Equity loans) to 1993)
Home Equity Loans)
Loans)
|
|
|
|
FEDERAL
LEASING
CORP.

(Originates
Equipment
Leases)

</TABLE>

(1) In addition to the corporations pictured above, the Company and its
subsidiaries have organized 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 the Bank
Alliance Program.

52
<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
three months ended September 30, 1997 and the years ending June 30, 1997, 1996
and 1995. The Company did not originate First Mortgage Loans prior to October
1997.
<TABLE>
<CAPTION>
Three Months
Ended
September 30, Year Ended June 30,
--------------- ---------------------------------------------
1997 1997 1996 1995
--------------- ------------- ------------- -------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Loans/Leases Originated/Purchased
(Net of Refinances)
Business Purpose Loans ............................. $ 10,667 $ 38,721 $ 28,872 $ 18,170
Home Equity Loans .................................. $ 43,771 $ 91,819 $ 36,479 $ 16,963
Equipment Leases ................................... $ 4,512 $ 8,004 $ 5,967 $ 2,220
Other Loans ........................................ $ -- $ 39 $ 240 $ 1,108
Number of Loans/Leases Originated/Purchased .........
Business Purpose Loans ............................. 131 498 371 257
Home Equity Loans .................................. 892 1,791 772 365
Equipment Leases ................................... 467 743 530 193
Other Loans ........................................ -- 8 52 237
Average Loan/Lease Size .............................
Business Purpose Loans ............................. $ 81 $ 78 $ 78 $ 71
Home Equity Loans .................................. $ 49 $ 51 $ 47 $ 46
Equipment Leases ................................... $ 10 $ 11 $ 11 $ 12
Other Loans ........................................ $ -- $ 5 $ 5 $ 5
Weighted Average Interest Rate on Loans/Leases
Originated
Business Purpose Loans ............................. 15.97% 15.91% 15.83% 16.05%
Home Equity Loans .................................. 12.12% 11.69% 9.94% 12.68%
Equipment Leases ................................... 13.47% 15.48% 17.22% 15.85%
Other Loans ........................................ --% 20.83% 24.50% 24.51%
Weighted Average Term (in months)
Business Purpose Loans ............................. 173 184 169 173
Home Equity Loans .................................. 252 218 194 212
Equipment Leases ................................... 43 40 42 40
Other Loans ........................................ -- 59 50 53
Loans/Leases Sold
Business Purpose Loans ............................. $ 12,087 $ 38,083 $ 28,252 $ 24,762
Home Equity Loans .................................. $ 54,144 $ 80,734 $ 24,325 $ 16,963
Equipment Leases ................................... $ -- $ -- $ 2,259 $ --
Other Loans ........................................ $ -- $ 58 $ 1,108 $ --
Number of Loans/Leases Sold
Business Purpose Loans ............................. 123 497 378 384
Home Equity Loans .................................. 1,030 1,631 512 365
Equipment Leases ................................... -- -- 193 --
Other Loans ........................................ -- 8 252 --
Weighted Average Rate on Loans/Leases Originated.. 12.92% 13.09% 12.97% 14.85%
</TABLE>

53
<PAGE>

The following table sets forth information regarding the average
loan-to-value ratios for loans originated by the Company during the periods
indicated. The Company did not originate any First Mortgage Loans during the
periods indicated.

Three Months
Ended
September 30, Year Ended June 30,
--------------- ----------------------
Loan Type 1997 1997 1996
- --------- --------------- ---------- ----------
Business Purpose Loans ......... 60.0% 60.0% 58.9%
Home Equity Loans .............. 71.8 72.0 68.8

The following table shows the geographic distribution of the Company's loan
and lease originations and purchases during the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended
September 30, Year Ended June 30,
----------------------- ---------------------------------------------------------------------------
1997 % 1997 % 1996 % 1995 %
---------- ----------- ----------- ----------- ---------- ----------- ----------- -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pennsylvania ........... $18,439 31.28% $ 53,834 38.85% $33,324 46.57% $ 17,913 46.57%
New Jersey ............. 15,539 26.35 40,725 29.39 20,986 29.33 16,300 42.38
New York ............... 2,617 4.44 8,343 6.02 7,417 10.36 1,534 3.99
Virginia ............... 2,688 4.56 5,469 3.95 104 0.15 111 0.29
Maryland ............... 2,127 3.61 5,010 3.61 4,408 6.16 1,191 3.10
North Carolina ......... 1,871 3.17 4,245 3.06 78 0.11 6 0.02
Delaware ............... 1,615 2.74 3,117 2.25 2,724 3.81 481 1.25
Florida ................ 2,392 4.06 3,670 2.65 674 0.94 149 0.39
Georgia ................ 9,805 16.63 10,092 7.28 181 0.25 98 0.25
Connecticut ............ 200 .34 2,005 1.45 87 0.12 5 0.01
Other .................. 1,662 2.82 2,073 1.49 1,575 2.20 673 1.75
------- ------ -------- ------ ------- ------ -------- ------
Total ................ $58,950 100.00% $138,583 100.00% $71,558 100.00% $ 38,461 100.00%
======= ====== ======== ====== ======= ====== ======== ======

</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 loan size of approximately $81,000 for the loans originated during the
three months ended September 30, 1997. 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 three months ended September 30, 1997, the weighted average interest
rate received on such loans was 15.97% and the average loan-to-value ratio was
60.0% for the loans originated by the Company during such period. During the
three months ended September 30, 1997 and the year ended June 30, 1997, the
Company originated $10.4 million and $38.7 million of Business Purpose Loans,
respectively.

Generally, the Company computes interest due on its outstanding loans using
the simple interest method. Where permitted by applicable law, a prepayment fee
is imposed. Although prepayment fees imposed vary based upon applicable state
law, the prepayment fees provided for in the Company's Business Purpose Loan
documents generally amount to a significant portion of the outstanding loan
balance. The Company believes

54
<PAGE>

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 and NJMIC. 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.

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 to ten days of obtaining a loan approval.

Home Equity Loans generally range from $15,000 to $250,000 and had an
average loan size of approximately $49,000 for the loans originated during the
three months ended September 30, 1997. 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 approximately 2.0% of the aggregate loan
amount. For the three months ended September 30, 1997, the weighted average
interest rate received on such loans was 12.12% and the average loan-to-value
ratio was 71.8% for the loans originated by the Company during such period.
During the three months ended September 30, 1997 and the year ended June 30,
1997, the Company originated $43.8 million and $91.8 million of Home Equity
Loans, respectively. 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 fee may be
imposed and is 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 PSC, 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 PSC 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 eight 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 1,000 branches located in
Pennsylvania, Delaware, New Jersey and Maryland. During the three months ended
September 30, 1997 and the year ended June 30, 1997, the Company purchased $1.4
million and $7.6 million of loans, respectively, 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.

First Mortgage Loans. In October 1997 in connection with its acquisition of
NJMIC, the Company commenced originating First Mortgage Loans secured by one-to
four-unit residential properties located primarily in the eastern region of the
United States. Such properties are generally owner-occupied single family
residences but may also include second homes and investment properties. Such
loans are generally made to borrowers with favorable credit histories and are
underwritten pursuant to Federal Home Loan Mortgage Corporation ("FHLMC") or
Federal National Mortgage Association ("FNMA") standards to permit their sale in
the secondary market. NJMIC typically sells such loans to third parties with
servicing released. NJMIC also originates Federal Housing Authority ("FHA") and
Veterans Administration ("VA") loans which are subsequently sold to third
parties with servicing released. The Company intends that NJMIC will continue to
originate such loans for sale in the secondary market.

55
<PAGE>

Leasing Activities. The Company through its indirect subsidiaries, ABL and
Federal, originates Equipment Leases to corporations, partnerships, other
entities and sole proprietors on various types of business equipment including,
but not limited to, computer equipment, automated equipment, construction
equipment, commercial equipment, medical equipment and industrial 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.

Generally, the Company's Equipment Leases are of two types: (i) finance
leases which have a term of 12 to 60 months and provide a purchase option
exercisable by the lessee at $1.00 or 10% of the original equipment cost 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 $5,000 to $250,000, with an
average lease size of approximately $10,000 for the leases originated during the
three months ended September 30, 1997. Leases in excess of $250,000 are
generally sold on a non-recourse basis to third parties. The Company's leases
generally have maximum terms of five years. The weighted average interest rates
received on such leases for the three months ended September 30, 1997 was
13.47%. During the three months ended September 30, 1997 and the year ended June
30, 1997, the Company originated $4.5 million and $8.0 million of Equipment
Leases, respectively. 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.

Currently, all leases originated by ABL and Federal are generally held in
the Company's lease portfolio. At September 30, 1997, principal value of the
Company's lease portfolio totaled $12.2 million. In addition, the Company
acquired $4.8 million of leases in connection with the acquisition of Federal in
October 1997. Such leases are serviced by ABL or Federal. Historically, Federal
sold all leases originated by it through securitizations with servicing
retained. The Company intends to attempt to securitize leases originated by ABL
or Federal in the future provided market and economic conditions warrant such
activity. ABL has developed relationships with third party purchasers of leases
and from time to time 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. See "Risk Factors --
Risks Associated with Leasing Activities."

Marketing Strategy

The Company concentrates its marketing efforts primarily 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 also markets First Mortgage Loans to
borrowers with favorable credit histories.

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 eastern 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

56
<PAGE>

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 also intends to utilize NJMIC's network of loan brokers.

The Company's marketing efforts for Home Equity Loans are concentrated on
the east coast of the United States. In connection with the acquisition of
NJMIC, the Company expanded its branch office network to include the states of
Illinois, Ohio and Delaware. The Company may open additional sales offices in
other states in the future. Loan processing, underwriting, servicing and
collection procedures are performed at the Company's main office. The Company
also utilizes the Bank Alliance Program as an additional source of loans. See
"--Lending and Leasing Activities -- Home Equity Lending."

The Company markets First Mortgage Loans through its network of loan
brokers. The Company's marketing efforts for First Mortgage Loans are
concentrated in the mid-atlantic region of the United States.

The Company, through ABL and Federal, 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 and Federal primarily obtain their
equipment leasing customers through equipment manufacturers, brokers and vendors
with whom they have a relationship and through a direct sales force. 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, and disposing of real estate owned. At September 30,
1997, the Company's total servicing portfolio included 4,893 loans and leases
with an aggregate outstanding balance of $214.4 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. Notwithstanding the acquisition of
NJMIC and Federal, the Company's servicing and collections activities will
continue to be centralized at the Company's principal operating office located
in Bala Cynwyd, Pennsylvania.

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 immediately 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. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Asset Quality."

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

57
<PAGE>

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. See
"--Securitizations."

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, Home
Equity Loans and First Mortgage Loans and the origination of Equipment Leases.
The Company does not anticipate any changes in its underwriting procedures and
practices in light of the acquisition of NJMIC and Federal. 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.

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% percent. In addition, in substantially all instances, the Company also
receives additional collateral in the form of, among other things, 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. The Business Purpose Loans originated by the Company had
an average loan-to-value ratio of 60% and 60% for the three months ended
September 30, 1997 and the year ended June 30, 1997, respectively.

The maximum acceptable loan-to-value ratio for Home Equity Loans held in
portfolio or securitized is generally 90%. The Home Equity Loans originated by
the Company had an average loan-to-value ratio of 71.8% and 72% for the three
months ended September 30, 1997 and the year ended June 30, 1997, 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.

The Company generally does not lend more than 95% of the appraised value in
the case of First Mortgage Loans, other than FHA and VA Loans. The Company
generally requires private mortgage insurance on all such First Mortgage Loans
with loan-to-value ratios in excess of 80% at the time of origination in order
to reduce its exposure. The Company obtains mortgage insurance certificates from
the FHA on all FHA loans and loan guaranty certificates from the VA on all VA
loans regardless of the loan-to-value ratio on the underlying loan amount.

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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, Home Equity Loans and First Mortgage Loans, the
appraisal is completed by a qualified appraiser on a FNMA form. See "Risk
Factors -- Decline in Collateral Value May Adversely Affect Loan-to-Value
Ratios."

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 six pools of loans it securitized. The six pools of loans
securitized were comprised of $87.4 million of Business Purpose Loans and $133.5
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 interest only and
residual strips 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 interest only and residual
strips 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 interest only and residual strips) is subordinate to the
senior certificate, the Company retains a significant 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 interest only and residual strips will be entitled
to receive all of the remaining interest in the loans at the time of the
termination of the trust. See "Risk Factors -- Dependence Upon Securitizations
and Fluctuations in Operating Results."

The pooling and servicing agreements that govern the distribution of cash
flows from the loans included in the securitization trusts require the
over-collateralization 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 over-collateralization percentage may
be reduced over time according to the delinquency and loss experience of the
loans. The Company's interest in each over-collateralized amount is reflected in
the Company's financial statements as a portion of the interest only and
residual strips. To the extent that a loss is realized on the loans, losses will
be paid first out of the interest only and residual strips received and
ultimately out of the over-collateralization amount available to the interest
only and residual strips, 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 interest only and residual strips held by the
Company. See "Risk Factors -- Dependence Upon Securitizations and Fluctuations
in Operating Results."

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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 September 30, 1997, the Company had not been
required to repurchase or replace any such loans. 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 collection.

The Company generally retains the servicing rights with respect to all
loans securitized. 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 three months ended September 30,
1997 and the years ended June 30, 1997, 1996 and 1995 generated gain on sale of
loans of $8.5 million, $20.0 million, $8.7 million and $1.3 million,
respectively. Such gains contributed to 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" and "Risk Factors -- Dependence
upon Securitizations and Fluctuations in Operating Results."

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 intends to consider the
securitization of Equipment Leases in the future subject to economic and market
conditions. 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 and NJMIC, the Company competes with banks, thrift institutions, mortgage
bankers 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
and Federal, 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."

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Regulation

General. The home equity and first mortgage lending business is highly
regulated by both federal and state laws. All Home Equity and First Mortgage
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 certain of the loans
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, certain 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 fines and penalties can also be
imposed under TILA and Regulation Z.

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 reporting
agency, another statute, the Fair Credit Reporting Act of 1970, as amended,
requires lenders to supply the applicant with the name and address of any credit
reporting agency whose credit report was used in determining to reject a loan
application, and certain additional information and disclosures. In addition,
Upland and NJMIC are 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 and NJMIC are 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 and NJMIC are licensed and regulated by the departments of banking
or similar entities in the various states in which it is licensed. These rules
and regulations, among other things, 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. See "Risk Factors--Regulatory Restrictions and
Licensing Requirements."

Employees

At September 30, 1997, the Company employed 281 people on a full-time basis
and 12 people on a part-time basis. The Company added 161 additional full-time
employees in connection with its acquisition of NJMIC. None of the Company's
employees are covered by a collective bargaining agreement. The Company
considers its employee relations to be good.

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.

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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 cost of approximately $700,000. Such lease contains a
five-year renewal option at an increased annual rental amount. The Company also
leases the Roseland, New Jersey office which functions as the headquarters for
NJMIC and its subsidiaries. The current lease term expires on July 31, 1998.
Such lease contains two renewal options for additional terms of five years. This
15,304 square foot office facility has a current annual rental cost of
approximately $248,690. In addition, the Company leases branch offices on a
short term basis in various cities throughout the United States. Management does
not believe that the leases for the branch offices are material to the Company's
operations.

Legal Proceedings

On October 23, 1997, a class action suit was filed in the Superior Court
of New Jersey at Docket No. L-12066-97 against NJMIC by Alfred G. Roscoe on
behalf of himself and others similarly situated. Mr. Roscoe is seeking
certification that the action may be maintained as a class action as well as
unspecified compensatory damages and injunctive relief. In his complaint, Mr.
Roscoe alleges that NJMIC violated New Jersey's Mortgage Financing on Real
Estate Law, N.J.S.A. 46:10A-1 et seq. by requiring him and other borrowers to
pay or reimburse NJMIC for attorneys' fees and costs in connection with loans
made to them by NJMIC. Mr. Roscoe further asserts that NJMIC's alleged actions
violated New Jersey's Consumer Fraud Act, N.J.S.A. 56:8-1, et seq. and
constitute common law fraud and deceit. NJMIC intends to vigorously defend this
suit.

Pursuant to the terms of the Agreement for Purchase and Sale of Stock of
NJMIC between the Company and the former shareholders of NJMIC, such former
shareholders are required to indemnify the Company up to $16.0 million in
connection with any losses related to, caused by or arising from NJMIC's failure
to comply with applicable law to the extent such losses exceed $100,000. Such
former shareholders have agreed to defend the Company in this suit.

Additionally, from time to time, the Company is involved as plaintiff or
defendant in various other 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.

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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 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 and Director
Leonard Becker 74 Director
Michael DeLuca 66 Director
Richard Kaufman 55 Director
Harold E. Sussman 72 Director
Beverly Santilli 38 Executive Vice President and Secretary of ABFS
and President of ABC
Jeffrey M. Ruben 34 Senior Vice President and General Counsel of
ABFS
David M. Levin 53 Senior Vice President - Finance and Chief
Financial Officer
</TABLE>
- ------------
(1) As of September 30, 1997.

Directors

The Company's Amended and Restated Certificate of Incorporation currently
provides that the Board shall consist of not less than one nor more than fifteen
directors and that within these limits the number of directors shall be as
established by the Board. The Board has set the number of directors at five. The
Company's Amended and Restated Certificate of Incorporation provides that the
Board shall be divided into three classes following the closing of a public
offering. In February 1997, the Company completed an underwritten public
offering of 1,150,000 shares (including 150,000 shares sold pursuant to the
underwriters' overallotment option) of its Common Stock (the "Public Offering").
Following the completion of the Public Offering, the Company's Board of
Directors was divided into three classes as required by the Amended and Restated
Certificate of Incorporation. At the Annual Meeting of Stockholders held on
December 16, 1997, directors were elected to serve for terms of one, two or
three years depending upon the class in which each director serves.

The initial directors of Class I, Michael DeLuca and Harold E. Sussman,
were elected to serve for terms of three years or until the fourth annual
meeting of stockholders following the Public Offering (i.e., the 2000 Annual
Meeting of Stockholders). At the fourth annual meeting of stockholders following
the Public Offering, the directors of Class I shall be elected for terms of
three years, and after expiration of such terms, shall thereafter be elected
every three years for three year terms. The initial directors of Class II,
Anthony J. Santilli, Jr. and Richard Kaufman, were elected to serve for terms of
one year or until the second annual meeting of stockholders following the Public
Offering (i.e., the 1998 Annual Meeting of Stockholders). At the second annual
meeting of stockholders following the Public Offering, the directors of Class II
shall be elected for terms of three years and, after the expiration of such
terms, shall thereafter be elected every three years for

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three year terms. The initial director of Class III, Leonard Becker, was elected
to serve for a term of two years or until the third annual meeting of
stockholders after the Public Offering (i.e., the 1999 Annual Meeting of
Stockholders). At the third annual meeting of stockholders following the Public
Offering, the director of Class III shall be elected for a term of three years
and after the expiration of such term, shall thereafter be elected every three
years for a three year term.

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 and Chief Operating Officer 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 American Business Credit, Inc.
("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 following is a description of the committees of the Company's Board of
Directors.

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 once during the year ended June 30, 1997.

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 twice during the year ended June 30, 1997.

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

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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, 1997.

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
once during the year ended June 30, 1997.

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

General. 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.

1995 Non-Employee Director Plan. The Company adopted the 1995 Stock Option
Plan for 1995 Non-Employee Directors (the "1995 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 1995
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. As of June 30, 1997, 25,000 shares
remain available for future issuances under this plan.

The 1995 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 1995 Non-Employee Director Plan are not incentive
stock options ("Incentive Stock Options") as defined in Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). Such options are
referred to as "Non-Qualified Stock Options." The exercise price of the stock
options granted under the 1995 Non-Employee Director Plan shall be equal to the
fair market value of the Company's

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<PAGE>

Common Stock on the date of grant. Payment of the exercise price for options
granted under the 1995 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 1995
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 1995 Non-Employee
Director Plan, all 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
1995 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 1995 Non-Employee Director Plan would
also receive an option to purchase 22,500 shares of Common Stock, subject to
availability, at the market 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 an
exercise price of $17.75 per share.

1997 Non-Employee Director Plan. In October 1997 the Board of Directors of
ABFS adopted the 1997 Non-Employee Director Plan, (the "Non-Employee Director
Plan"). Pursuant to the terms of such plan, 120,000 shares of the Company's
Common Stock are reserved for issuance thereunder. Only directors of the Company
who are not full-time employees of the Company or its subsidiaries may receive
awards under the Non-Employee Stock Option Plan.

Any option awarded pursuant to the Non-Employee Director Plan shall be a
Non-Qualified Stock Option. Pursuant to the terms of such plan, each
non-employee director of the Company shall be automatically granted an option to
purchase 5,000 shares of the Company's Common Stock on October 1st of each year
commencing in fiscal 1998 for a period of three years. Notwithstanding the
foregoing, no award of options may be made pursuant to the non-employee director
plan unless such award is approved by the Board of Directors prior to October 1
of each year.

The Non-Employee Director Plan is administered by the Board of Directors of
the Company, which shall adopt such rules for the conduct of its business and
the administration of the Non-Employee Director Plan as it considers desirable.

Options granted pursuant to the Non-Employee Director Plan shall be
immediately exercisable following their grant. Unless terminated earlier by the
option's terms, options granted under the Non-Employee Director Plan will expire
three years after the date they are granted. All unexercised options terminate
three months after the optionee ceases to be a director of the Company (whether
by death, disability, resignation, removal, failure to be reelected or
otherwise, and regardless of whether the failure to continue as a director was
for cause or otherwise), but not later than three years after the date of option
grant. No option granted under the Non-Employee Director Plan is assignable or
transferable, otherwise than by will or by the laws of descent and distribution.
Except in the event of death or disability, all options granted under the
Non-Employee Director Plan are exercisable only by such optionee.

Unless terminated earlier by the Company's Board of Directors, the
Non-Employee Director Plan will remain in effect until all awards granted
pursuant to such plan have been satisfied by the issuance of shares, provided
that no new awards shall be granted under the Non-Employee Director Plan more
than three years from the date of adoption of such plan by the Board of
Directors. The Non-Employee Director Plan provides for adjustments to the number
of shares subject to outstanding options and to the exercise price of such
outstanding options in the discretion of the Board of Directors in event of a
declaration of stock dividend, stock split, merger, consolidation, split up,
combination, recapitalization, conversion or similar circumstances.

66
<PAGE>

The Board of Directors may amend or supplement the Non-Employee Director
Plan in any way, or suspend or terminate such plan at any time, as determined by
the Board of Directors; provided, however, that such action shall not affect
options granted under the Non-Employee Director Plan prior to the actual date on
which such action occurred.

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 also Bylaws 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 recission, 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.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions or otherwise, 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.

Executive Compensation

The Company has no direct salaried employees. Each of the executive
officers of the Company 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
the Company and its subsidiaries to the Chief Executive Officer and each other
executive officer who made in excess of $100,000 during fiscal 1997 (the "Named
Officers").

67
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
---------------------------------------------------------------
Name and Fiscal Other Annual
Principal Position Year Salary Bonus Compensation(1)
- ------------------------------------- ------------- ----------- ---------------- -----------------
<S> <C> <C> <C> <C>
Anthony J. Santilli, Jr. 1997 $287,600 $ 484,200 --
Chairman, President, Chief 1996 237,500 300,000(3) --
Executive Officer, Chief Operating 1995 191,667 -- --
Officer and Director of ABFS
Beverly Santilli 1997 $182,750 $ 322,800 --
President, ABC and Executive 1996 120,000 65,000 --
Vice President and Secretary of 1995 86,892 -- --
ABFS
Jeffrey M. Ruben 1997 $118,750 $ 62,500 --
Senior Vice President and 1996 96,125 50,000 --
General Counsel of ABFS 1995 80,353 -- --
David M. Levin 1997 $ 92,750 $ 47,500 --
Senior Vice President - Finance and 1996 85,000 20,000 --
Chief Financial Officer of ABFS 1995(9) -- -- --

Long Term
Compensation Awards
-------------------------------------------
Securities
Restricted Underlying
Name and Stock Options/ All Other
Principal Position Award(s) SARS (#) Compensation
- ------------------------------------- ------------ -------------- -------------
Anthony J. Santilli, Jr. -- 5,000(2) $ --
Chairman, President, Chief -- 22,500(4) --
Executive Officer, Chief Operating -- -- --
Officer and Director of ABFS
Beverly Santilli -- 12,500(5) $ --
President, ABC and Executive -- -- --
Vice President and Secretary of -- -- --
ABFS
Jeffrey M. Ruben -- 12,500(6) $ --
Senior Vice President and -- -- --
General Counsel of ABFS -- 7,500(7) --
David M. Levin -- 12,500(8) $ --
Senior Vice President - Finance and -- -- --
Chief Financial Officer of ABFS -- -- --
</TABLE>
- ------------
(1) Excludes perquisites and other personal benefits that do not exceed $50,000
or 10% of each officer's total salary and bonus.

(2) Represents an option to purchase 5,000 shares of Common Stock granted to Mr.
Santilli at an exercise price of $17.75 per share.

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

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

(5) Represents an option to purchase 12,500 shares of Common Stock granted to
Mrs. Santilli at an exercise price of $20.00 per share. Such option will
vest at a rate of 20% per year over a five year period with the first
portion vesting on February 13, 1998, the first anniversary of the date of
grant.

(6) Represents an option to purchase 12,500 shares of Common Stock granted to
Mr. Ruben at an exercise price of $20.00 per share. Such option will vest at
a rate of 20% per year over a five year period with the first portion
vesting on February 13, 1998, the first anniversary of the date of grant.

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

(8) Represents an option to purchase 12,500 shares of Common Stock granted to
Mr. Levin at an exercise price of $20.00 per share. Such option will vest at
a rate of 20% per year over a five year period with the first portion
vesting on February 13, 1998, the first anniversary of the date of grant.

(9) No disclosure of salary information is included for Mr. Levin for fiscal
1995 as he was not an executive officer at such time.
<PAGE>

Management Incentive Plan. During 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
contribution to the overall performance of the Company or a subsidiary thereof.
The maximum annual bonus awarded can range from 15% to 50% of an individual's
annual salary for all officers of the Company, other than the President and
Executive Vice President. The annual bonus payable to each of the President and
the Executive Vice President under such plan is equal to 2.5% of such
individual's base salary for each 1.0% the Company exceeds the Board established
net income target. 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

68
<PAGE>

100% of the individual's goals are 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.

Stock Option Plan. 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, no options may be awarded to non-employee directors. Pursuant to
the terms of the Plan, 560,000 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. Options to purchase 82,988 shares of the Company's
Common Stock remained available for grant as of September 30, 1997.

The Plan is administered by the compensation committee (the "Compensation
Committee") which is comprised of three or more members of the Board of
Directors of the Company, each of whom must meet the definition of a
"non-employee" director within the meaning of Rule 16b-3 of the Exchange Act and
an "outside director" as defined under Section 162(m) of the Code. The
Compensation Committee has the discretion to interpret the provisions of the
Plan; to determine the persons 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 options granted pursuant to the Plan are exercisable in accordance with
a vesting schedule (if any) which is set by the Compensation Committee at the
time of grant. The Compensation Committee may in its sole discretion, provide in
an option agreement the circumstances under which the option shall become
immediately exercisable and may accelerate the date on which all or any portion
of an option may be exercised. 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). No option granted under the Plan is
assignable or transferable, otherwise than by will or by the laws of descent and
distribution. Except in the event of death or disability, all options granted
under the Plan are exercisable during the lifetime of an optionee, and are
exercisable only by such optionee.

The Plan provides for adjustments to the number of shares subject to
outstanding options and to the exercise price of such outstanding options in the
discretion of the Compensation Committee in the event of a declaration of a
stock dividend, distribution or other offering of shares, merger, consolidation,
split up, combination, exchange, or recapitalization.

The Compensation Committee may amend or terminate the Plan at any time
except that the Compensation Committee may not amend the Plan without
stockholder approval to (i) increase the number of shares which may be issued
under the Plan (other than pursuant to Section 14 of the Plan); (ii) change the
minimum option price (other than pursuant to Section 14 of the Plan); (iii)
extend the term of the Plan, or (iv) extend the period during which an option
may be exercised or changed. In addition, no amendment or modification to the
Plan shall impair the rights of any optionee under any previously granted award
without the consent of such optionee.

69
<PAGE>

The following table sets forth information regarding options exercised
during fiscal 1997 and the value of options granted to the Named Officers 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 Securities In-the-Money
Underlying Unexercised Options/SARs at
Options/ SARs at Fiscal Year End
Shares Acquired Value Fiscal Year End Exercisable/
Name on Exercise(#) Realized($) Exercisable/ Unexercisable Unexercisable (1)
- ------------------------------- ----------------- ------------- ---------------------------- ---------------------
<S> <C> <C> <C> <C>
Anthony J. Santilli, Jr. 0 0 27,500/0 $ 348,750/0(2)
Chairman, President, Chief
Executive Officer, Chief
Operating Officer and
Director of ABFS
Beverly Santilli 0 0 0/12,500 0/0(3)
President of ABC and Executive
Vice President and
Secretary of ABFS
Jeffrey M. Ruben 0 0 7,500/12,500 $ 129,975/0(4)
Senior Vice President and
General Counsel of ABFS
David M. Levin 0 0 0/12,500 0/0(5)
Senior Vice President --
Finance and Chief Financial
Officer of ABFS
</TABLE>
- ------------
(1) 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 $20.00 on June 30, 1997.

(2) The exercise price of 22,500 of the options held by Mr. Santilli is $5.00
per share and the exercise price of 5,000 of the options held by Mr.
Santilli is $17.75 per share.

(3) The exercise price of the options held by Mrs. Santilli is $20.00 per share.
Such shares subject to such option vest at a rate of 20% of the initial
award per year over a five year period commencing on February 13, 1998.

(4) The exercise price of 7,500 of the options held by Mr. Ruben is $2.67 per
share and the exercise price of 12,500 of the options held by Mr. Ruben is
$20.00 per share. Such shares subject to such option vest at a rate of 20%
of the initial award per year over a five year period commencing on February
13, 1998.

(5) The exercise price of the options held by Mr. Levin is $20.00 per share.
Such shares subject to such option vest at a rate of 20% of the initial
award per year over a five year period commencing on February 13, 1998.

The following table sets forth information regarding options to purchase
shares of Common Stock granted to the Named Officers during fiscal 1997. The
Stock Option Plan does not provide for the grant of stock appreciation rights
("SARs").

70
<PAGE>

OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise or Base
Name Granted (#) Fiscal Year Price ($/sh) Expiration Date
- ------------------------------------- -------------- -------------- ----------------- ---------------------
<S> <C> <C> <C> <C>
Anthony J. Santilli, Jr. 5,000 3.1% $ 17.75 October 22, 2006
Chairman, President, Chief Executive
Officer, Chief Operating Officer and
Director of ABFS
Beverly Santilli 12,500 7.7 20.00 February 13, 2008(1)
President of ABC and Executive Vice
President and Secretary of ABFS
Jeffrey M. Ruben 12,500 7.7 20.00 February 13, 2008(1)
Senior Vice President and General
Counsel of ABFS
David M. Levin 12,500 7.7 20.00 February 13, 2008(1)
Senior Vice President -- Finance and
Chief Financial Officer of ABFS
</TABLE>
- ------------
(1) Option vests at a rate of 20% of the initial award per year and each vested
portion of such option remains exercisable for a period of five years from
the date it becomes exercisable.

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 employment
agreements with Mr. and Mrs. Santilli were subsequently amended in October 1997.
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. Certain of the terms of such
agreements, including the amendments thereto, 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 February 20, 1997, the closing date of the public offering of the
Company's Common Stock 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 Internal Revenue Code of 1986, as amended (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

71
<PAGE>

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 June 30, 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 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 $1.1
million, $562,000 and $327,000, respectively. In addition, Mr. 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 equal to 2.5% of each individual's base salary
for each 1.0% the Company exceeds the Board established net income target. 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.

72
<PAGE>

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 options to purchase 225,012 shares of
Common Stock 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 the Company's Common
Stock owned by Mr. Santilli such that the value of the collateral is equal to
twice the outstanding loan amount.

73
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of January 30, 1998 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.
<TABLE>
<CAPTION>
Name, Position and Address Number of Shares Percentage
of Beneficial Owner Beneficially Owned(1) of Class
- --------------------------------------------------- ----------------------- -----------
<S> <C> <C>
Anthony J. Santilli, Jr. 927,044(2)(3) 25.9%
Chairman, President,
Chief Executive Officer, Chief Operating
Officer 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 116,230(4) 3.3 %
Becker Associates
111 Presidential Blvd., Suite 140
Bala Cynwyd, PA 19004

Michael DeLuca, Director of ABFS 199,735(4) 5.6 %
Lux Products
6001 Commerce Park
Mt. Laurel, NJ 08054

Richard Kaufman, Director of ABFS 175,561(4) 4.9 %
1126 Bryn Tyddyn Drive
Gladwyne, PA 19035

Harold E. Sussman, Director of ABFS 106,711(4) 3.0 %
Colliers, Lanard & Axilbund
399 Market Street, 3rd Floor
Philadelphia, PA 19106

Jeffrey M. Ruben 25,500(5) (6)
Senior Vice President and General
Counsel of ABFS
111 Presidential Blvd., Suite 215
Bala Cynwyd, PA 19004

David M. Levin 17,500(7) (6)
Senior Vice President - Finance and Chief
Financial Officer of ABFS
111 Presidential Blvd., Suite 215
Bala Cynwyd, PA 19004

Wellington Management Company, LLP 469,400(8) 13.3%
75 State Street
Boston, MA 02109

Orin S. Kramer, Jay Spellman and 251,900(9) 7.1 %
Kramer Spellman, L.P.
2050 Center Avenue
Suite 300
Fort Lee, New Jersey 07024

All executive officers and directors as a group 1,568,281(10) 41.9%
(eight persons)
</TABLE>
74
<PAGE>

- ------------
(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 wife 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 and 5,000 shares of Common Stock
awarded to Mr. Santilli pursuant to the Company's Stock Option Plan, all of
which are currently exercisable. Also includes options to purchase 12,500
and 5,000 shares of the Company's Common Stock awarded to Mrs. Santilli
pursuant to the Company's Stock Option Plan which options are not currently
exercisable. Such options vest at a rate of 20% per year commencing on
February 13, 1998 and September 30, 1998, respectively.

(4) Includes options to purchase 27,500 shares and 5,000 shares of Common Stock
awarded to each non-employee director of the Company pursuant to the
Company's 1995 Stock Option Plan for Non-Employee Directors and the 1997
Non-Employee Director Stock Option Plan, respectively, all of which are
currently exercisable.

(5) Includes 500 shares held directly and an option to purchase 7,500 shares of
the Company's Common Stock awarded to Mr. Ruben pursuant to the Company's
Stock Option Plan which option is currently exercisable. Also includes
options to purchase 12,500 and 5,000 shares of the Company's Common Stock
awarded to Mr. Ruben pursuant to the Company's Stock Option Plan which
options are not currently exercisable. Such options vest at a rate of 20%
per year commencing on February 13, 1998 and September 30, 1998,
respectively.

(6) Less than one percent.

(7) Includes options to purchase 12,500 and 5,000 shares of the Company's Common
Stock awarded to Mr. Levin pursuant to the Company's Stock Option Plan which
options are not currently exercisable. Such options vest at a rate of 20%
per year commencing on February 13, 1998 and September 30, 1998,
respectively.

(8) As reported in a Schedule 13G dated April 7, 1997 filed by Wellington
Management Company, LLP ("WMC"). Of the 469,400 shares reported as
beneficially owned by WMC, shared voting was reported with respect to
441,000 shares and shared dispositive power was reported with respect to
469,400 shares. All of the shares beneficially owned by WMC are owned of
record by clients of WMC, none of which hold more than 5.0% of such shares
except for Bay Pond Partners, L.P.

(9) As reported in a Schedule 13D dated November 7, 1997 filed by Kramer
Spellman, L.P. ("KS"), a limited partnership, and its general partners, Orin
S. Kramer and Jay Spellman. KS and Messrs. Kramer and Spellman reported
shared voting and dispositive power with respect to the shares owned by
them. All of the shares reported as beneficially owned in the Schedule 13D
are owned by investment partnerships with respect to which KS acts as a
general partner and managed accounts for which KS acts as a discretionary
investment manager. Messrs. Kramer and Spellman reported beneficial
ownership as a result of their position as general partners of KS.

(10) Includes options to purchase 222,500 shares of the Company's Common Stock
awarded to directors and officers of the Company pursuant to the Company's
stock option plans of which options to purchase 52,500 shares of the
Company's Common Stock are not currently exercisable.

75
<PAGE>

MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock is currently traded on the NASDAQ National
Market System under the symbol "ABFI." The Common Stock began trading on the
NASDAQ National Market System on February 14, 1997. Prior to February 14, 1997,
the Common Stock had been traded on the PHLX under the symbol "AFX" since 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 January 30, 1998. On February 10, 1998, the closing price of the Common
Stock on the NASDAQ National Market System was $22.6875.

Quarter Ended High Low
----------------------------- -------- --------
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 .............. 24.50 19.00
June 30, 1997 ............... 22.50 18.50
September 30, 1997 .......... 24.00 19.50
December 31, 1997 ........... 28.00 20.625
March 31, 1998(2) ........... 24.00 20.50

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

(2) Represents the period January 1, 1998 through February 10, 1998.

As of January 30, 1998, there were 104 record holders and approximately
1,100 beneficial holders of the Common Stock.

During fiscal 1997, the Company paid dividends on its Common Stock then
outstanding of $.06 per share, for an aggregate dividend payment of $158,248.
Subsequent to fiscal year end, the Company paid dividends of $.015 per share
during the three months ended September 30, 1997. 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.

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.

As of January 30, 1997, there were 407,000 shares of Common Stock subject
to options. In addition, there were an additional 182,988 shares reserved for
issuance under the Company's option plans. See "Management."

PLAN OF DISTRIBUTION

Presently ABFS does not employ the services of a broker-dealer or dealers
as an agent to assist in the sales of the Notes offered hereby. ABFS may in the
future employ the services of an NASD member broker-dealer for purposes of
offering the Notes on a "best-efforts" or agency basis. If an agreement
concerning the use of the services of any broker-dealer is reached, ABFS may pay
any such broker-dealers an estimated commission ranging from .5% to 10% of the
sale price of any Notes sold through any such agent, depending on numerous
factors. ABFS may also agree to indemnify such broker-dealer against certain
liabilities, including liabilities under the Securities Act and to reimburse
such broker-dealer for its costs and expenses, up to a maximum to be determined,
based upon the total dollar value of the Notes sold. ABFS will otherwise offer
the Notes through its employees in accordance with Rule 3a4-1 under the Exchange
Act.

76
<PAGE>

The Company reserves the right to reject any subscription hereunder, in
whole or in part, for any reason. Subscriptions will be irrevocable upon receipt
by ABFS. In the event a subscription is not accepted by ABFS, the proceeds of
such subscription will be promptly refunded to the subscriber, without deduction
of any costs and without interest. ABFS expects that such subscriptions will be
refunded within 48 hours after ABFS has received the subscription. Once a
subscriber's subscription has been accepted by ABFS, the applicable subscription
funds will be promptly deposited for benefit of the Company. A receipt will be
sent to the subscriber as soon as practicable thereafter. No minimum number of
Notes must be sold in the Offering. A subscriber will not know at the time of
subscription whether ABFS will be successful in completing the sale of any or
all of the Notes offered hereby. ABFS reserves the right to withdraw or cancel
the Offering at anytime. In the event of such withdrawal or cancellation,
subscriptions previously received will be irrevocable and no subscription funds
will be refunded.

LEGAL MATTERS

An opinion has been delivered by Blank Rome Comisky & McCauley LLP,
Philadelphia, Pennsylvania to the effect that the Notes when issued as
contemplated by this Prospectus, will be binding obligations of the Company.

EXPERTS

The Consolidated Financial Statements of ABFS and subsidiaries as of June
30, 1997 and 1996 and for the years ending June 30, 1997 and 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.

INFORMATION REGARDING FORMER ACCOUNTANTS

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. Fishbein and Company, P.C. had served as the Company's independent
accountants and audited the Company's financial statements for the year ended
June 30, 1995.

Fishbein and Company, P.C.'s report on the financial statements for the
year ended June 30, 1995 contained no adverse opinion or disclaimers of opinion
and was not qualified or modified as to uncertainty, audit scope or accounting
principals.

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 year 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 year ended June 30, 1995. Such report 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 has not
been any "reportable events" as defined by Item 304(a)(1)(iv)(B) of Regulation
S-B during the periods referred to above.

77
<PAGE>

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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

Consolidated Balance Sheets ................................. F-3

Consolidated Statements of Income ........................... F-4

Consolidated Statements of Stockholders' Equity ............. F-5

Consolidated Statements of Cash Flows ....................... F-6

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

F-1

<PAGE>

[GRAPHIC OMITTED]

Report of Independent Certified Public Accountants

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

We have audited the accompanying consolidated balance sheets of American
Business Financial Services, Inc. and subsidiaries as of June 30, 1997 and 1996,
and the related consolidated statements of income, stockholders' equity and cash
flows for the years 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 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 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 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 financial position of American Business
Financial Services, Inc. and subsidiaries as of June 30, 1997 and 1996, and the
consolidated results of their operations and cash flows for the years then ended
in conformity with generally accepted accounting principles.

BDO Seidman, LLP

Philadelphia, Pennsylvania
August 29, 1997

F-2
<PAGE>

AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997 1996
--------------- ---------------- --------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents .............................. $ 3,932,032 $ 5,013,936 $ 5,345,269
Loan and lease receivables, net
Available for sale .................................... 25,369,744 35,711,821 18,002,595
Other ................................................. 1,217,840 1,143,566 534,325
Other receivables ...................................... 55,268,374 39,644,161 13,713,125
Prepaid expenses ....................................... 2,243,385 1,181,654 1,341,160
Property and equipment, net of accumulated depreciation
and amortization ...................................... 3,577,436 2,863,345 1,452,895
Other assets ........................................... 32,734,969 18,430,049 6,504,794
------------- ------------- ------------
Total assets ....................................... $ 124,343,747 $ 103,988,532 $ 46,894,163
============= ============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Debt .................................................. $ 70,125,180 $ 56,486,229 $ 35,987,401
Accounts payable and accrued expenses ................. 7,824,113 6,081,630 3,132,170
Deferred income taxes ................................. 6,254,575 4,630,981 1,506,271
Other liabilities ..................................... 6,128,863 5,877,664 1,876,806
------------- ------------- ------------
Total liabilities .................................. 90,332,731 73,076,504 42,502,648
------------- ------------- ------------
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 3,503,166 shares in 1997 and
2,353,166 shares in 1996 ............................ 3,503 3,503 2,353
Additional paid-in capital ............................ 22,669,477 22,669,477 1,931,699
Retained earnings ..................................... 11,938,068 8,839,080 3,057,495
------------- ------------- ------------
34,611,048 31,512,060 4,991,547
Less note receivable .................................. 600,032 600,032 600,032
------------- ------------- ------------
Total stockholders' equity ......................... 34,011,016 30,912,028 4,391,515
------------- ------------- ------------
Total liabilities and stockholders' equity ......... $ 124,343,747 $ 103,988,532 $ 46,894,163
============= ============= ============

</TABLE>
See accompanying notes to consolidated financial statements.

F-3
<PAGE>

AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three months ended Year ended
September 30, June 30,
---------------------------------- -----------------------------------
1997 1996 1997 1996
---------------- ---------------- ----------------- ----------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues
Gain on sales of loans ........................... $ 8,521,389 $ 4,073,235 $ 20,042,579 $ 8,720,776
Interest and fees ................................ 2,304,367 1,135,228 5,895,606 3,350,716
Servicing income ................................. 380,313 74,669 490,669 --
Other income ..................................... 205 978 52,899 22,824
------------ ------------ ------------- ------------
Total revenues .................................... 11,206,274 5,284,110 26,481,753 12,094,316
------------ ------------ ------------- ------------
Expenses
Interest ......................................... 1,859,801 1,041,659 5,174,925 2,667,858
Provision for credit losses ...................... 30,888 -- 105,941 396,811
Payroll and related costs ........................ 850,698 198,611 1,618,479 1,203,260
Sales and marketing .............................. 2,324,503 1,369,253 6,964,074 2,685,173
General and administrative ....................... 1,365,331 896,678 3,616,647 2,020,551
------------ ------------ ------------- ------------
Total expenses .................................... 6,431,221 3,506,201 17,480,066 8,973,653
------------ ------------ ------------- ------------
Income before income taxes ........................ 4,775,053 1,777,909 9,001,687 3,120,663
Income taxes ...................................... 1,623,518 622,268 3,061,854 801,967
------------ ------------ ------------- ------------
Net income ........................................ $ 3,151,535 $ 1,155,641 $ 5,939,833 $ 2,318,696
============ ============ ============= ============
Earnings per share ................................ $ .87 $ .47 $ 2.05 $ 1.01
============ ============ ============= ============
Weighted average number of shares outstanding ..... 3,642,972 2,448,031 2,903,754 2,296,913
============ ============ ============= ============
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE>

AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
Common Stock
----------------------- Additional
Number of Paid-In
Shares Amount Capital
----------- ---------- --------------
<S> <C> <C> <C>
BALANCE, July 1, 1995 ................. 2,128,154 $ 2,128 $ 1,331,892
Options exercised ..................... 225,012 225 599,807
Cash dividends ($.03 per share) ....... -- -- --
Net income ............................ -- -- --
--------- ------- ------------
BALANCE, June 30, 1996 ................ 2,353,166 2,353 1,931,699
Sale of common stock, net of offer-
ing expenses of $2,261,072 ........... 1,150,000 1,150 20,737,778
Cash dividends ($.06 per share) ....... -- -- --
Net income ............................ -- -- --
--------- ------- ------------
BALANCE, June 30, 1997 ................ 3,503,166 3,503 22,669,477
Cash dividends ($.015 per share -
unaudited) ........................... -- -- --
Net income (unaudited) ................ -- -- --
--------- ------- ------------
BALANCE, September 30, 1997
(unaudited) .......................... 3,503,166 $ 3,503 $ 22,669,477
========= ======= ============

Total
Retained Note Stockholders'
Earnings Receivable Equity
---------------- --------------- ----------------
BALANCE, July 1, 1995 ................. $ 809,394 $ -- $ 2,143,414
Options exercised ..................... -- (600,032) --
Cash dividends ($.03 per share) ....... (70,595) -- (70,595)
Net income ............................ 2,318,696 -- 2,318,696
------------ ----------- ------------
BALANCE, June 30, 1996 ................ 3,057,495 (600,032) 4,391,515
Sale of common stock, net of offer-
ing expenses of $2,261,072 ........... -- -- 20,738,928
Cash dividends ($.06 per share) ....... (158,248) -- (158,248)
Net income ............................ 5,939,833 -- 5,939,833
------------ ----------- ------------
BALANCE, June 30, 1997 ................ 8,839,080 (600,032) 30,912,028
Cash dividends ($.015 per share -
unaudited) ........................... (52,547) -- (52,547)
Net income (unaudited) ................ 3,151,535 -- 3,151,535
------------ ----------- ------------
BALANCE, September 30, 1997
(unaudited) .......................... $ 11,938,068 $ (600,032) $ 34,011,016
============ =========== ============
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE>

AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) In Cash
<TABLE>
<CAPTION>
Three months ended Year ended
September 30, June 30,
----------------------------------- -----------------------------------
1997 1996 1997 1996
---------------- ---------------- ---------------- ----------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net income ................................ $ 3,151,535 $ 1,155,641 $ 5,939,833 $ 2,318,696
Adjustments to reconcile net income to
net cash (used in) provided by oper-
ating activities
Gain on sales of loans/leases ........... (10,909,361) (4,373,235) (20,051,241) (8,685,463)
Amortization of origination fees and
costs .................................. 168,446 86,321 419,620 305,136
Amortization of servicing rights ........ 211,487 51,643 520,670 69,489
Provision for credit losses ............. 567,532 300,000 105,941 396,811
Accounts written off .................... (100,217) (50,443) (96,639) (129,063)
Depreciation and amortization of
property and equipment ................. 208,530 106,980 513,323 318,493
Amortization of financing and
organization costs ..................... 150,312 127,933 537,653 505,012
Loans originated for sale ............... (50,411,255) (20,880,727) (136,357,451) (54,505,000)
Sale of loans originated for sale ....... 59,721,676 26,676,311 115,000,000 40,627,246
Decrease (increase) in accrued
interest and fees on loan and lease
receivables ............................ (376,206) (44,809) (1,288,364) (268,010)
Decrease (increase) in other
receivables ............................ (1,809,685) (1,083,286) (1,232,443) 683,797
(Increase) in prepaid expenses .......... (1,061,731) (1,134,877) (1,266,059) (747,114)
Decrease (increase) in other assets ..... (191,046) 299,466 270,541 332,009
Increase in accounts payable and
accrued expenses ....................... 1,742,483 1,154,427 2,949,460 2,014,240
Increase in deferred income taxes ....... 1,623,594 622,268 3,124,710 801,967
Increase in other liabilities ........... 251,199 295,107 4,000,858 1,491,565
------------- ------------- -------------- -------------
Net cash provided by (used in) operating
activities ................................ 2,937,293 3,308,720 (26,909,587) (14,470,189)
============= ============= ============== =============
</TABLE>

F-6
<PAGE>

AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) In Cash
<TABLE>
<CAPTION>
Three months ended Year ended
September 30, June 30,
----------------------------------- -----------------------------------
1997 1996 1997 1996
---------------- ---------------- ---------------- ----------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash flows from investing activities
Leases originated for portfolio .................. $ (4,634,257) $ (2,091,191) $ (8,003,561) $ (5,967,812)
Loan and lease payments received ................. 1,796,920 856,130 4,554,535 4,549,979
Purchase of property and equipment ............... (935,691) (231,783) (1,737,695) (1,022,926)
Decrease in securitization gain
receivable ..................................... 368,314 -- 106,752 58,693
Principal receipts on investments ................ 120,962 16,245 81,383 33,307
Initial overcollateralization of loans ........... (2,000,000) -- (3,450,000) --
Purchase of investments .......................... (17,000,000) -- (5,000,000) --
Sale of investments .............................. 5,000,000 -- -- --
------------- ------------ ------------- ------------
Net cash (used in) investing activities ........... (17,283,752) (1,450,599) (13,448,586) (2,348,759)
------------- ------------ ------------- ------------
Cash flows from financing activities
Financing costs incurred ......................... (321,849) (244,368) (1,052,667) (662,950)
Net proceeds of (principal payments on)
revolving line of credit ....................... -- (2,348,465) (2,348,465) 2,348,465
Dividends paid ................................... (52,547) (35,297) (158,248) (70,595)
Principal payments on note payable, other -- (104) (18,457) (5,605)
Proceeds from issuance of subordinated
debentures ..................................... 16,669,927 5,945,884 33,991,099 19,687,962
Principal payments on subordinated
debentures ..................................... (3,030,976) (1,708,450) (11,125,350) (3,867,447)
Proceeds from public offering net of
related costs .................................. -- -- 20,738,928 --
------------- ------------ ------------- ------------
Net cash provided by financing activities ......... 13,264,555 1,609,200 40,026,840 17,429,830
------------- ------------ ------------- ------------
Net (decrease) increase in cash and cash
equivalents ...................................... (1,081,904) 3,467,321 (331,333) 610,901
Cash and cash equivalents, beginning of
period ........................................... 5,013,936 5,345,269 5,345,269 4,734,368
------------- ------------ ------------- ------------
Cash and cash equivalents, end of period .......... $ 3,932,032 $ 8,812,590 $ 5,013,936 $ 5,345,269
============= ============ ============= ============
</TABLE>

F-7
<PAGE>

AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES

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

During the fiscal 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 September 30, 1997 and for the Three Months
Ended September 30, 1997 and 1996 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 originates secured loans primarily in the Mid-Atlantic Region
and is subject to the risks of the real estate market in that area. The Company
also originates business equipment leases. 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 quality of credit risk, types of loans
originated, current interest rates and economic conditions among other things.

Allowance for Credit Losses

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

Interest Only and Residual Certificates

The Company securitizes its loan receivables primarily into the form of a
REMIC. A REMIC is a multi-class security structure with certain tax advantages
which derives its monthly principal paydowns from a pool of underlying
mortgages. The senior classes of the REMIC's are sold, with the subordinated
classes retained by the Company. The subordinated classes are in the form of
interest only and residual certificates. These subordinated classes of REMIC's
represent an interest in the REMIC as compared to the right to receive funds
under the form of retained or capitalized excess servicing assets.

In accordance with SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," the Company classifies interest-only and residual
certificates as "trading securities" and, as such they are recorded at fair
value with resultant unrealized gain or loss recorded in the results of
operations in the period of the change in fair value. The Company determines
fair value based on a discounted cash flow analysis. The cash flows are
estimated as the excess of the weighted average coupon on each pool of
receivables sold over the sum of the pass-through interest rate plus a normal
servicing fee, a trustee fee and an insurance fee, over the life of the
receivables using prepayment, default and interest rate assumptions that market
participants would use for similar financial instruments subject to prepayment,
credit and interest rate risk and are discounted using an interest rate that a
purchaser unrelated to the seller of such a financial instrument would demand.
The fair valuation includes consideration of the following characteristics: loan
type, size, interest rate, date of origination, term and geographic location.
The Company also uses other available information such as externally prepared
reports on prepayment rates, interest rates, collateral value, economic
forecasts and historical default and prepayment rates of the portfolio under
review.

F-9
<PAGE>

AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Information as of September 30, 1997 and for the Three Months
Ended September 30, 1997 and 1996 is unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)

On January 1, 1997, the Company adopted SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities"
(SFAS 125), which addresses the accounting for transfers of financial assets in
which the transferor has some continuing involvement either with the assets
transferred or with the transferee. A transfer of financial assets in which the
transferor surrenders control over those assets is accounted for as a sale to
the extent that consideration other than beneficial interests in the transferred
assets is received in exchange. SFAS 125 requires that liabilities or
derivatives incurred or obtained by transferors as part of a transfer of
financial assets be initially measured at fair value, if practicable. In
addition, SFAS 125 requires that servicing assets and liabilities be
subsequently measured by the amortization over their estimated life and
assessment of asset impairment be based on such assets' fair value. SFAS 125 is
effective for transfers and servicing of financial assets and extinguishment of
liabilities occurring after December 31, 1996 and is to be applied
prospectively.

Mortgage Servicing Rights

Effective July 1, 1995, the Company adopted SFAS No. 122, "Accounting for
Mortgage Servicing Rights" (SFAS 122), which requires that upon sale or
securitization of servicing retained mortgages, companies capitalize the cost
associated with the right to service mortgage loans based upon their relative
fair values. Effective January 1, 1997, SFAS 122 was amended by SFAS 125, as
discussed above. The Company determines fair value based on the present value of
estimated net future cash flows relating to servicing income. The cost allocated
to the servicing rights is amortized in proportion to and over the period of
estimated net future servicing fee income.

Prior to the adoption of SFAS 122, income related to servicing rights
acquired through loan origination activities was recorded in the period the
loans were serviced. Under SFAS 122 and SFAS 125, the Company capitalized at
fair value $7,216,167, $1,457,000, $2,297,135 and $545,000 of such costs during
the years ended June 30, 1997 and 1996 and the three months ended September 30,
1997 and 1996, respectively. During the same periods, amortization of
capitalized servicing rights were $520,670, $69,489, $211,487 and $51,643,
respectively. At June 30, 1997 and 1996, the capitalized servicing rights
approximated fair value. The Company periodically reviews capitalized servicing
rights for valuation impairment.

This review is performed on a disaggregated basis for the predominant risk
characteristics of the underlying loans which are loan type, loan-to-value ratio
and credit quality. The Company generally makes loans to credit impaired
borrowers whose borrowing needs may not be met by traditional financial
institutions due to credit exceptions. The Company has found that credit
impaired borrowers are payment sensitive rather than interest rate sensitive. As
such, the Company does not consider interest rates a predominant risk
characteristic for purposes of valuation impairment. Impairment is recognized in
a valuation allowance for each disaggregated stratum in the period of
impairment.

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.

F-10
<PAGE>

AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Information as of September 30, 1997 and for the Three Months
Ended September 30, 1997 and 1996 is unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)

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 debt are
amortized using the interest method over the term of the related debt.

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.

Income Recognition

Gain on sale of loans and leases receivables is recognized upon the
securitization of the receivables in the form of REMIC's. Gain on sales of
receivables from securitizations represents the present value of the
differential between the interest rate earned on the receivables sold and the
pass-through rate paid to the securitization investors after considering the
effects of estimated prepayments, bad debts and other costs, including normal
servicing fees, less the costs of originating such receivables, and the gain or
loss on certain transactions structured as an economic hedge that are designed
to minimize the risk of interest rate fluctuations.

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.

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.

F-11
<PAGE>

AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Information as of September 30, 1997 and for the Three Months
Ended September 30, 1997 and 1996 is unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)

Although the Company believes that it has made reasonable estimates of the
interest only and residual strip 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
interest only and residual strips and the write down of the receivables, 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.

Earnings Per Share

Earnings per share are based on the weighted average number of shares
outstanding. Earnings per share amounts for the year ended June 30, 1997 and the
three months ended September 30, 1997 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 and the three months ended September 30,
1996.

Reclassifications

Certain amounts in the 1996 financial statements have been reclassified to
conform to the 1997 presentation.

Unaudited Interim Financial Information

The unaudited interim consolidated financial statements as of September 30,
1997 and for the three month periods ended September 30, 1997 and 1996 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>
September 30, June 30, June 30,
1997 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Real estate secured loans .............................. $ 11,737,861 $ 24,581,475 $ 12,960,229
Leases (net of unearned income of $2,670,954, $1,986,487
and $1,136,621) ....................................... 12,155,621 8,970,238 4,393,713
Other loans ............................................ 32,075 32,075 109,726
Unamortized origination costs/fees ..................... 1,713,167 2,466,342 868,934
------------ ------------ ------------
25,638,724 36,050,130 18,332,602
Less allowance for credit losses ....................... 268,980 338,309 330,007
------------ ------------ ------------
Loan and lease receivables, net ........................ $ 25,369,744 $ 35,711,821 $ 18,002,595
============ ============ ============
</TABLE>
Substantially, all of the leases are direct finance type leases whereby the
lessee has the right to purchase the leased equipment at the lease expiration
for a nominal amount.

F-12
<PAGE>

AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Information as of September 30, 1997 and for the Three Months
Ended September 30, 1997 and 1996 is unaudited)

2. LOAN AND LEASE RECEIVABLES -- (Continued)

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 ($2,730,207 at September 30, 1997 and $2,753,400 at June 30, 1997)
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 September 30, 1997, the uncollected balance of receivables securitized was
approximately $188,800,000. At June 30, 1997, the uncollected balance of
receivables securitized was approximately $142,600,000.

At September 30, 1997, the accrual of interest income was suspended on real
estate secured loans of $456,045. At June 30, 1997, the accrual of interest
income was suspended on real estate secured loans of $187,760. Based on its
evaluation of the collateral related to these loans, the Company expects to
collect all contractual interest and principal.

3. ALLOWANCE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
Portfolio Securitizations Total
------------- ----------------- ---------------
<S> <C> <C> <C>
Balance, July 1, 1995 ................ $ 62,258 $ 93,000 $ 155,258
Provision for credit losses .......... 396,811 284,417 681,228
Accounts written off ................. (129,062) -- (129,062)
---------- ----------- -----------
Balance, June 30, 1996 ............... 330,007 377,417 707,424
Provision for credit losses .......... 105,941 1,048,725 1,154,666
Accounts written off ................. (97,639) -- (97,639)
---------- ----------- -----------
Balance, June 30, 1997 ............... 338,309 1,426,142 1,764,451
Provision for credit losses .......... 30,888 536,644 567,532
Accounts written off ................. (100,217) -- (100,217)
---------- ----------- -----------
Balance, September 30, 1997 .......... $ 268,980 $ 1,962,786 $ 2,231,766
========== =========== ===========
</TABLE>
4. OTHER RECEIVABLES
<TABLE>
<CAPTION>
September 30, June 30, June 30,
1997 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Sales of loans ............................................... $ 2,675,730 $ 960,136 $ 86,090
Loan fees .................................................... 172,059 246,294 121,874
Interest only and residual strips (net of allowance for credit
losses of $1,962,786, $1,426,142 and $377,417) .............. 51,712,386 37,507,191 13,070,257
Other ........................................................ 708,199 930,540 434,904
------------ ------------ ------------
$ 55,268,374 $ 39,644,161 $ 13,713,125
============ ============ ============
</TABLE>

F-13
<PAGE>
AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Information as of September 30, 1997 and for the Three Months
Ended September 30, 1997 and 1996 is unaudited)

5. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
September 30, June 30, June 30,
1997 1997 1996
--------------- -------------- --------------
<S> <C> <C> <C>
Warehouse premises ..................................... $ 146,205 $ -- $ --
Computer equipment and software ........................ 2,733,265 2,247,786 1,296,769
Office furniture and equipment ......................... 1,797,522 1,641,572 803,445
Leasehold improvements ................................. 385,156 293,098 171,542
Transportation equipment ............................... 47,601 32,745 --
----------- ----------- -----------
5,109,749 4,215,201 2,271,756
Less accumulated depreciation and amortization ......... 1,532,313 1,351,856 818,861
----------- ----------- -----------
$ 3,577,436 $ 2,863,345 $ 1,452,895
=========== =========== ===========
</TABLE>
6. OTHER ASSETS
<TABLE>
<CAPTION>
September 30, June 30, June 30,
1997 1997 1996
--------------- --------------- --------------
<S> <C> <C> <C>
Deposits .................................................. $ 169,740 $ 263,165 $ 296,582
Financing costs, debt offerings, net of accumulated amorti-
zation of $1,871,446, $1,721,764 and $1,074,212 .......... 1,826,346 1,653,471 1,138,455
Investments, at cost, which approximates fair market value.
(mature in June 2002 through April 2011) ................. 2,730,206 2,753,400 2,834,783
Investment, held for sale, at cost which approximates fair
market value. (U.S. Treasury notes due September 30,
1999 and June 30, 1999) .................................. 17,000,000 5,000,000 --
Foreclosed property held for sale ......................... 780,372 605,177 607,905
Servicing rights .......................................... 10,168,656 8,083,008 1,387,511
Other ..................................................... 59,649 71,828 239,558
------------ ------------ -----------
$ 32,734,969 $ 18,430,049 $ 6,504,794
============ ============ ===========
</TABLE>
7. DEBT
<TABLE>
<CAPTION>
September 30, June 30, June 30,
1997 1997 1996
--------------- -------------- --------------
<S> <C> <C> <C>
Subordinated debt, due October 1997 through October 1998; interest at rates
ranging from 8% to 12% payable quarterly; subordinated to all of the Company's
senior
indebtedness. .............................................. $ 915,721 $ 1,077,721 $ 1,345,421
Subordinated debt, due October 1997 through September
2007; interest at rates ranging from 7% to 10.50%; sub-
ordinated to all of the Company's senior indebtedness. ..... 69,209,459 55,408,508 32,275,058
Note payable, $50,000,000 revolving line of credit expiring
September 1997; interest at LIBOR plus 1 1/4% payable
monthly; collateralized by loans receivable. ............... -- -- 2,348,465
Note payable in monthly installments of $655 including
interest at 11.8%; final payment due in March 1999; col-
lateralized by related equipment. .......................... -- -- 18,457
------------ ------------ ------------
$ 70,125,180 $ 56,486,229 $ 35,987,401
============ ============ ============
</TABLE>
F-14
<PAGE>

AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Information as of September 30, 1997 and for the Three Months
Ended September 30, 1997 and 1996 is unaudited)

7. DEBT -- (Continued)

Principal payments on debt for the next five years are due as follows:
year ending June 30, 1998 -- $29,581,709; 1999 -- $7,762,807; 2000 --
$5,351,198; 2001 -- $2,959,431 and 2002 -- $5,542,984.

At June 30, 1997, the Company has available unused revolving lines of
credit of $50,000,000, $7,500,000 and $15,000,000. The lines expire in September
1997, May 1998 and December 1999, respectively. At September 30, 1997, the
Company has available unused revolving lines of credit of $50,000,000 and
$100,000,000. The lines expire in December 1997 and July 1999. Advances under
the lines, if any, are collateralized by certain loans receivable.

Subsequent to June 30, 1997, the Company obtained a $100 million line of
credit from a syndicate of banks. Under this warehouse facility, the Company may
take advances, subject to certain conditions including sublimits to warehouse
loans and leases.

8. COMMON AND PREFERRED STOCK

In May, 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.

In September, 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.

In February, 1997, the Company sold 1,150,000 shares of common stock
through a public offering resulting in net proceeds of $20,738,928.

9. STOCK OPTIONS

In May, 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 June 30, 1997, 25,000 shares were available for future
grants under this plan. Transactions under this plan were as follows:
<TABLE>
<CAPTION>
Number of Weighted-Average
Shares Exercise Price
----------- -----------------
<S> <C> <C>
Options granted and outstanding, June 30, 1996 ......... 90,000 $ 5.00
------- ------
Options granted ........................................ 20,000 17.75
Options exercised ...................................... -- --
------- ------
Options outstanding, June 30, 1997 ..................... 110,000 $ 7.32
======= ======
</TABLE>

F-15
<PAGE>

AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Information as of September 30, 1997 and for the Three Months
Ended September 30, 1997 and 1996 is unaudited)

9. STOCK OPTIONS -- (Continued)

The Company has an employee stock option plan which authorizes the grant to
employees of options to purchase 460,000 shares of common stock (subsequently
increased to 560,000 shares) at a price equal to the market price of the stock
at the date of grant. Options are either fully vested when granted or vest over
a five-year period and expire five to ten years after grant. At June 30, 1997,
7,488 shares were available for future grants under this plan.
Transactions under the plan were as follows:
<TABLE>
<CAPTION>
Number of Weighted-Average
Shares Exercise Price
----------- -----------------
<S> <C> <C>
Options outstanding, June 30, 1996 ....................................... 66,000 $ 3.46
------ -------
Options granted, (weighted average fair value of $11.51 per share) ....... 161,500 19.93
Options exercised ........................................................ -- --
------- -------
Options outstanding, June 30, 1997 ....................................... 227,500 $ 15.15
======= =======
</TABLE>
The following tables summarize information about stock options outstanding
at June 30, 1997:
<TABLE>
<CAPTION>
Options Outstanding
-----------------------------------------------------
Weighted
Remaining
Range of Number Contractual Life Weighted-average
Exercise Prices of Options in Years Exercise Price
- ------------------------- ------------ ------------------ -----------------
<S> <C> <C> <C>
$2.67 - $5.00 ........... 66,000 3.0 $ 3.46
$17.75 - $20.00 ......... 161,500 9.1 19.93
------- --- --------
Total ................... 227,500 7.4 $ 15.15
======= === ========
</TABLE>
<TABLE>
<CAPTION>
Options Exercisable
-----------------------------------------------------
Weighted
Remaining
Range of Number Contractual Life Weighted-average
Exercise Prices of Options in Years Exercise Price
- ----------------------- ------------ ------------------ -----------------
<S> <C> <C> <C>
$2.67 - $5.00 ......... 66,000 3.0 3.46
$17.75 ................ 5,000 4.1 17.75
------ --- -------
Total ................. 71,000 3.1 $ 4.47
====== === =======
</TABLE>
In September, 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. The loan is due in September, 2005 (earlier if
the stock is disposed) with interest only at 6.46%, payable annually. The loan
was secured by 450,012 shares of the Company's stock (at the date of exercise,
market value of collateral was approximately $1,200,000), subsequently reduced
to 225,012 shares and is shown as a reduction of stockholders' equity on the
accompanying balance sheet.

On July 1, 1996, the Company adopted Financial Accounting Standards Board
Statement No. 123, "Accounting for Stock-Based Compensation," which requires
either the fair value of employee stock-based compensation plans be recorded as
a component of compensation expense in the statement of income as of the date
of grant of awards related to such plans, or the impact of such fair value on
net income and earnings per share be disclosed on a pro forma basis in a
footnote to financial statements for awards granted after December 15, 1994, if
the accounting for such awards continues to be in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
("APB 25"). The Company

F-16
<PAGE>

AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Information as of September 30, 1997 and for the Three Months
Ended September 30, 1997 and 1996 is unaudited)

9. STOCK OPTIONS -- (Continued)

will continue such accounting under the provisions of APB 25. Had compensation
cost for the plan been determined based on fair value at the grant dates for
awards under the plan consistent with the method prescribed by SFAS 123, the
Company's net income and earnings per share would have been reduced to the pro
forma amounts indicated as follows:

June 30, June 30,
1997 1996
---------------- ----------------
Net income
As reported ......... $ 5,939,833 $ 2,318,686
Pro forma ........... 5,722,702 2,239,793
Earnings per share
As reported ......... $ 2.05 $ 1.01
Pro forma ........... 1.97 0.98

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model using the following assumptions:

June 30, June 30,
1997 1996
--------------- ---------------
Expected volatility ............. 30.0% 25.0%
Expected life ................... 5-10 yrs. 5 yrs.
Risk free interest rate ......... 6.31%-6.90% 5.77%-6.01%
=========== ===========

10. INCOME TAXES

The provision for income taxes consists of the following:

Year Ended Year Ended
June 30, June 30,
1997 1996
-------------- -------------
Current
Federal ......... $ -- $ --
State ........... -- --
----------- ---------
-- --
Deferred
Federal ......... 3,061,854 858,617
State ........... -- (56,650)
----------- ---------
3,061,854 801,967
----------- ---------
$ 3,061,854 $ 801,967
=========== =========

The current provision for federal income taxes for the years ended June 30,
1997 is net of the tax benefit of approximately $533,000 from the utilization of
net operating loss carryforwards.

F-17
<PAGE>

AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Information as of September 30, 1997 and for the Three Months
Ended September 30, 1997 and 1996 is unaudited)

10. INCOME -- (Continued)

The cumulative temporary differences resulted in net deferred income tax
assets or liabilities consisting primarily of:
<TABLE>
<CAPTION>
Three months ended Year ended Year ended
September 30, June 30, June 30,
1997 1997 1996
-------------------- -------------- --------------
<S> <C> <C> <C>
Deferred income tax assets
Allowance for credit losses ........................... $ 758,801 $ 599,914 $ 287,214
Net operating loss carryforwards ...................... 1,888,688 1,888,688 461,954
Loan and lease receivable ............................. 347,209 291,379 68,058
Accrued expenses ...................................... -- -- 246,500
----------- ----------- -----------
2,994,698 2,779,981 1,063,726
Less valuation allowance ............................... 1,888,688 1,888,688 148,500
----------- ----------- -----------
1,106,010 891,293 915,226
----------- ----------- -----------
Deferred income tax liabilities
Loan and lease origination costs/fees, net ............ 124,840 784,156 368,849
Book over tax basis of property and equipment ......... 432,922 372,688 131,751
Other receivables ..................................... 1,922,140 1,706,642 1,548,423
Servicing rights ...................................... 4,880,683 2,658,788 372,474
----------- ----------- -----------
7,360,585 5,522,274 2,421,497
----------- ----------- -----------
Net deferred income tax liabilities ................... $ 6,254,575 $ 4,630,981 $ 1,506,271
=========== =========== ===========
</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.

A reconciliation of income taxes at federal statutory rates to the
Company's tax provision is as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, June 30,
1997 1996
-------------- --------------
<S> <C> <C>
Federal income tax at statutory rates ................ $ 3,061,854 $ 1,061,005
State income tax, net of federal tax benefit .........
Nondeductible expenses ............................... -- 13,545
Increase in state tax valuation allowance ............ -- --
Other, net ........................................... -- (272,583)
----------- -----------
$ 3,061,854 $ 801,967
=========== ===========
</TABLE>
For income tax reporting, the Company has net operating loss carryforwards
aggregating approximately $18,400,000 available to reduce future state income
taxes for various states as of June 30, 1997. If not used, substantially all of
the carryforwards will expire at various dates from June 30, 1998 to June 30,
2000.

11. COMMITMENT AND CONTINGENCIES

Commitment

The Company leases certain of its facilities under a five-year operating
lease expiring in January 2003, at a minimum annual rental of $699,216. The
lease contains a renewal option for an additional five year period

F-18
<PAGE>

AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Information as of September 30, 1997 and for the Three Months
Ended September 30, 1997 and 1996 is unaudited)

11. COMMITMENT AND CONTINGENCIES -- (Continued)

at an increased annual rental. Rent expense under all operating leases for such
facilities was $668,364 and $373,694 for the years ended June 30, 1997 and 1996.
Rent expense under all operating leases for such facilities was $243,165 and
$1,132,619 for the three months ended September 30, 1997 and 1996, 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 September 30, 1997, approximately $20,000 of income is subject to this
provision. The actual amount of the fee refunded during the three months ended
September 30, 1997 which was recorded as income prior to July 1, 1997 was not
material.

At June 30, 1997 and 1996, approximately $79,000 and $292,000,
respectively, of income is subject to this provision. The actual amount of the
fee refunded during the years ended June 30, 1997 and 1996, which was recorded
as income prior to July 1, 1996 and 1995 was $25,637 and $138,187, respectively.

Employment Agreements

The Company entered into employment agreements with three executives under
which they are entitled to annual base compensation of $625,000, collectively,
adjusted for increases in the Consumer Price Index and for one executive, merit
increases. The agreements terminate upon (a) the earlier of the executive's
death, permanent disability, termination of employment for cause, voluntary
resignation (except that no voluntary resignation may occur prior to February
2000) or seventieth birthday, or (b) the later of the fifth anniversary of the
agreement or from three to five years from the date of notice to the executive
of the Company's intention to terminate the agreement.

In addition, the executives are entitled to a cash payment equal to 299% of
the last five years average annual compensation in the event of a "change in
control", as defined in the agreement and two of the executives are entitled to
all of the compensation discussed above.

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.

F-19
<PAGE>

AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Information as of September 30, 1997 and for the Three Months
Ended September 30, 1997 and 1996 is unaudited)

12. FAIR VALUE OF FINANCIAL INSTRUMENTS -- (Continued)

The table below summarizes the information about the fair value of the
financial instruments recorded on the Company's financial statements at June 30,
1997:
<TABLE>
<CAPTION>
June 30, 1997
-------------------------------
Carrying Fair
Value Value
-------------- --------------
<S> <C> <C>
Assets
Cash and cash equivalents ................... $ 5,013,936 $ 5,013,936
Loans and leases available for sale ......... 36,050,130 37,543,286
Interest only and residual strips ........... 38,933,333 38,933,333
Servicing rights ............................ 8,083,008 8,083,008
Liabilities
Subordinated debt ........................... $ 56,486,229 $ 56,486,229
</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.

Interest Only and Residual Strips -- 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.

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

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 may hedge its interest rate risk related to the
loans held for sale by selling forward contracts for U.S. Treasury securities.
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, 1997, there were no hedging transactions outstanding.

14. RECENT ACCOUNTING PRONOUNCEMENTS

In February, 1997, the FASB issued SFAS 128, "Earnings Per Share" (EPS)
(SFAS 128), which is effective in fiscal 1998, earlier application is not
permitted. SFAS 128 simplifies the standards for computing earnings per share.
It replaces the presentation of primary EPS with a presentation of basic EPS.
Basic EPS excludes dilution and is computed by dividing income available to
common shareholders by the weighted average number of common shares outstanding
for the period. If SFAS 128 had been applied to fiscal 1997

F-20
<PAGE>

AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

(Information as of September 30, 1997 and for the Three Months
Ended September 30, 1997 and 1996 is unaudited)

14. RECENT ACCOUNTING PRONOUNCEMENTS -- (Continued)

results of operations, the Company's basic EPS would have been $2.13 (pro forma)
of earnings per common share based on net income of $5,939,833 and weighted
average number of common shares of 2,784,416 (pro forma). Fully diluted EPS
remains the same under SFAS 128, but will be referred to as diluted EPS.

In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income." This statement establishes standards for the reporting
and display of comprehensive income in a full set of general purpose financial
statements. The provisions of the statement are effective for fiscal years
beginning after December 15, 1997.

In June 1997, FASB issued SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information." This statements requires that public
business enterprises report certain information about operating segments in
complete sets of financial statements of the enterprise and in condensed
financial statements of interim periods issued to stockholders. This statement
also requires that public business enterprises report certain information about
their products and services, the geographical areas in which they operate and
their major customers. The provisions of the statement are effective for fiscal
years beginning after December 15, 1997.

Due to the recent issuance of these pronouncements, the Company has not
completed its analysis of the impact of SFAS No. 130 and SFAS 131.

15. SUBSEQUENT EVENT

Effective October 1, 1997, the Company acquired all of the outstanding
stock of New Jersey Mortgage and Investment Corp. (NJMIC), a mortgage and
leasing company based in Roseland, New Jersey. The purchase price for the stock
consists of an initial payment of cash and shares of common stock of the Company
and a note payable to the owners of NJMIC and includes a contingent payment in
the future if NJMIC achieves certain performance targets. The acquisition of
NJMIC will be accounted for using the purchase method of accounting and
accordingly, the purchase price will be allocated to assets acquired and
liabilities assumed based on the fair values at the date of acquisition. The
fair value of NJMIC's assets approximated the liabilities assumed and
accordingly, the majority of the purchase price is anticipated to be recorded as
goodwill. Any contingent payments will result in an increase in the amount of
recorded goodwill.

F-21
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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, even when accompanied by an appropriate Prospectus
Supplement, does not constitute an offer to sell or solicitation of any offer to
buy the Notes 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 Notes is not qualified to do so, or to any person to whom
it is unlawful to make such an offer or solicitation.

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TABLE OF CONTENTS

Page
---------
Available Information ............................... 3
Prospectus Summary .................................. 4
Highlights of Terms of the Notes Offered ............ 12
Recent Developments ................................. 13
Management's Discussion and Analysis of
Recent Results ................................... 14
Risk Factors ........................................ 17
The Company ......................................... 24
Use of Proceeds ..................................... 24
Description of the Notes and the Indenture .......... 24
Selected Consolidated Financial Data ................ 33
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ....................................... 35
Business ............................................ 49
Management .......................................... 63
Certain Relationships and Related Transactions 73
Principal Stockholders .............................. 74
Market for Common Stock and Related
Stockholder Matters .............................. 76
Plan of Distribution ................................ 76
Legal Matters ....................................... 77
Experts ............................................. 77
Information Regarding Former Accountants ............ 77
Index to Consolidated Financial Statements .......... F-1
Consolidated Financial Statements ................... F-3

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<PAGE>

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$125,000,000

[GRAPHIC OMITTED]

Subordinated Investment Notes
and Adjustable Rate Subordinated
Money Market Notes

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PROSPECTUS
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February 10, 1998

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