ARBOR NATIONAL HOLDINGS INC, S-1, 1998-06-15

ARBOR NATIONAL HOLDINGS INC
S-1, 1998-06-15
MORTGAGE BANKERS & LOAN CORRESPONDENTS

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<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 15, 1998

REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

ARBOR NATIONAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
NEW YORK (6282) ( )
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code) Identification No.)
</TABLE>

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

333 EARLE OVINGTON BOULEVARD
UNIONDALE, NY 11553
(516) 832-8002
(Address, including zip code and telephone number, including area code
of registrant's principal executive offices)
------------------------------

IVAN KAUFMAN
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
333 EARLE OVINGTON BOULEVARD
UNIONDALE, NY 11553
(516) 832-8002
(Name, address, including zip code and
telephone number, including area code of agent for service)
------------------------------

COPIES TO:

<TABLE>
<S> <C> <C>
JONATHAN A. BERNSTEIN, ESQ. RICHARD A. LIPPE, ESQ. FRED B. WHITE III, ESQ.
PRYOR CASHMAN SHERMAN & MELTZER, LIPPE,GOLDSTEIN, WOLF SKADDEN, ARPS, SLATE,MEAGHER
FLYNN LLP & SCHLISSEL, P.C. & FLOM LLP
410 PARK AVENUE THE CHANCERY 919 THIRD AVENUE
NEW YORK, NY 10022-4441 190 WILLIS AVENUE NEW YORK, NY 10022
MINEOLA, NY 11501
</TABLE>

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective. If any of the
securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, other
than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box: / /
------------------------------

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF SECURITIES TO BE OFFERING AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED(1) PRICE PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share..... shares $ $57,500,000 $16,926.50
</TABLE>

(1) Includes shares of Common Stock issuable upon exercise of an
over-allotment option granted to the Underwriters.

(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) of the Securities Act of 1933, as amended.
------------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A)
MAY DETERMINE.

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- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 15, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SHARES

[LOGO]

COMMON STOCK

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

All of the shares of common stock, par value $.01 per share (the
"Common Stock"), offered hereby (the "Offering") are being sold by Arbor
National Holdings, Inc., a New York corporation (the "Company" or "ANHI").

Prior to this Offering, there has been no public market for the Common Stock
of the Company. It is currently anticipated that the initial public offering
price will be $ per share. See "Underwriting" for information relating
to factors considered in determining the initial offering price. The Company has
applied to have the Common Stock approved for quotation on the NASDAQ National
Market under the symbol "ARBH."

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 10.
---------------------
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.

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

<TABLE>
<CAPTION>
Underwriting
Discounts and Proceeds to
Price to Public(1) Commissions(1) Company(2)
<S> <C> <C> <C>
Per Share..........................................
Total..............................................
</TABLE>

(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."

(2) Before deducting expenses of the Offering payable by the Company estimated
at $813,000.

(3) The Underwriters have been granted an option, exercisable within 30 days of
the date hereof, to purchase up to additional shares of Common Stock
on the same terms and conditions as set forth above. If the Underwriters
exercise such option in full, the total price to public, underwriting
discount and proceeds to Company will be $ , $ , and $ ,
respectively. See "Underwriting."

The Common Stock is offered by the Underwriters when, as and if delivered to
and accepted by them, subject to their right to withdraw, cancel or reject
orders in whole or in part and subject to certain other conditions. It is
expected that delivery of the shares to the Underwriters will be made through
the facilities of The Depository Trust Company, New York, New York on or about
.

LEHMAN BROTHERS FRIEDMAN, BILLINGS, RAMSEY & CO., INC.

The date of this Prospectus is , 1998.
<PAGE>
CERTAIN INFORMATION CONTAINED IN THIS PROSPECTUS CONSTITUTES
"FORWARD-LOOKING STATEMENTS" WHICH CAN BE IDENTIFIED BY THE USE OF FORWARD-
LOOKING TERMINOLOGY SUCH AS "MAY," "WILL," "EXPECT," "ANTICIPATE," "BELIEVE,"
"ESTIMATE" OR "CONTINUE" OR THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR
COMPARABLE TERMINOLOGY. THE STATEMENTS IN "RISK FACTORS" CONSTITUTE CAUTIONARY
STATEMENTS IDENTIFYING IMPORTANT FACTORS, INCLUDING CERTAIN RISKS AND
UNCERTAINTIES, WITH RESPECT TO SUCH FORWARD-LOOKING STATEMENTS THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE REFLECTED IN SUCH FORWARD-LOOKING
STATEMENTS.

CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE, PURCHASES
OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK
MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 103 OF REGULATION M UNDER THE SECURITIES EXCHANGE ACT OF
1934. SEE "UNDERWRITING."

AVAILABLE INFORMATION

The Company has filed with the Commission in Washington, D.C. a Registration
Statement on Form S-1 (as amended, the "Registration Statement") of which this
Prospectus is a part under the Securities Act with respect to the Common Stock
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement and the exhibits and schedules thereto, to which
reference is hereby made. Statements made in this Prospectus as to the contents
of any contract, agreement or other document are summaries of the material terms
of such contract, agreement or other document. With respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved. The Registration Statement (including the exhibits thereto)
filed by the Company with the Commission may be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and will also be available
for inspection and copying at the regional offices of the Commission located at
Seven World Trade Center, 13th Floor, New York, New York 10048 and at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such material may also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Commission also maintains a website that contains reports, proxy and
information statements and other information. The website address is http://
www.sec.gov.

The Company has applied to have the Common Stock approved for quotation on
the NASDAQ National Market, and the Registration Statement and such reports,
proxy and information statements and other information concerning the Company
may also be inspected at the offices of the NASDAQ National Market located at
1735 K Street, N.W., Washington, D.C. 20006.

Upon the effectiveness of the Registration Statement, the Company will be
subject to the informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act") and, in accordance therewith, will file
reports, proxy and information statements and other information with the
Commission. Such reports, proxy and information statements and other information
can be inspected and copied at the addresses set forth above. The Company
reports its financial statements on a year ended December 31. The Company
intends to furnish its shareholders with annual reports containing consolidated
financial statements audited by its independent certified public accountants and
with quarterly reports containing unaudited condensed consolidated financial
statements for each of the first three quarters of each fiscal year.

Arbor National Holdings, Inc. is a New York corporation formed in June 1998.
The Company's principal executive offices are located at 333 Earle Ovington
Blvd., Uniondale, New York 11553 and its telephone number is (516) 832-8002.

2
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION, INCLUDING THE COMBINED FINANCIAL STATEMENTS AND THE NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS. THIS PROSPECTUS CONTAINS FORWARD-LOOKING
STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THE RESULTS ANTICIPATED IN THESE FORWARD-LOOKING
STATEMENTS AS A RESULT OF THE FACTORS SET FORTH UNDER "RISK FACTORS" AND
ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED (I) THE INFORMATION IN
THIS PROSPECTUS ASSUMES THAT THE TRANSACTIONS DESCRIBED BELOW UNDER "RECENT
DEVELOPMENTS" AND "REORGANIZATION TRANSACTIONS" HAVE BEEN COMPLETED AND THAT THE
OVER-ALLOTMENT OPTION DESCRIBED IN "UNDERWRITING" IS NOT EXERCISED; AND (II)
REFERENCES TO THE "COMPANY" MEAN, AS APPROPRIATE, PRIOR TO THE EXCHANGE
TRANSACTION (AS DEFINED BELOW), ARBOR NATIONAL COMMERCIAL MORTGAGE, LLC ("ANCM")
AND ARBOR SECURED FUNDING, INC. ("ASF"), AND AFTER THE EXCHANGE TRANSACTION,
ARBOR NATIONAL HOLDINGS, INC. ("ANHI") AND ITS SUBSIDIARIES.

THE COMPANY

Arbor National Holdings, Inc. is a fully integrated real estate financial
services company. The Company funds, on a negotiated basis, high-yielding
lending and investment opportunities in commercial real estate through mezzanine
loans, bridge loans, note acquisitions and other customized financing structures
("Customized Financing"). It also derives substantial revenue from the
origination for sale and servicing of government-sponsored and conduit mortgage
loans ("Permanent Loans") for multifamily and other types of commercial
properties.

In recent years the Company has experienced significant growth. Total
revenues increased from $16.7 million to $24.3 million for the years ended
December 31, 1996 and 1997, respectively, and from $4.3 million to $8.0 million
for the quarters ended March 31, 1997 and 1998, respectively. Pro forma net
income increased from $2.5 million to $5.2 million for the years ended December
31, 1996 and 1997, respectively, and from $0.7 million to $2.0 million for the
quarters ended March 31, 1997 and 1998, respectively. At March 31, 1998, the
Company's commercial servicing portfolio consisted of 136 loans aggregating
approximately $536 million and its portfolio of loans held for investment
consisted of 38 loans aggregating approximately $56 million.

The Company targets the market for transactions under $20 million,
particularly in the $1 million to $5 million range, where management believes it
has competitive advantages, particularly its lower cost structure and its
in-house capabilities. The Company generates a continuing pipeline of real
estate finance and investment opportunities through its six full-service offices
in Atlanta, Boston, Chicago, Dallas, San Francisco and Uniondale, New York, its
three satellite offices in Miami, Los Angeles and Florence, Kentucky (greater
Cincinnati, Ohio) and its extensive network of strategic relationships with
investment banking firms, brokers, developers, real estate owners and operators,
and other financial institutions.

The Company's Customized Financing activities highlight its unique
strengths. First, the Company's strong presence and established relationships in
the marketplace facilitate its ability to source and identify many
non-traditional lending opportunities. Second, the specialized lending expertise
and entrepreneurial abilities of its staff enable the Company to provide
creative, flexible financing structures, thus enhancing value for the Company
and its borrowers. Third, the Company, as a provider of both transitional
financing under its Customized Financing activities and permanent mortgage
financing under its Permanent Loan activities, is uniquely positioned in its
targeted market as a single source of financing solutions.

The Company's Permanent Loan activities consist of originating commercial
mortgage loans pursuant to government-sponsored and conduit loan programs, and
selling those loans, typically on a whole loan basis, to government-sponsored
entities or other secondary market investors, while retaining the servicing of
those loans for a fee. As compared to Customized Financing activities, the
Company's Permanent Loan activities generate a more stable and predictable flow
of revenue through servicing and other fee income. In addition, the Permanent
Loan activities keep the Company closely apprised of trends in the commercial
real estate market and provide an additional source for Customized Financing
opportunities. The

3
<PAGE>
Company primarily originates permanent loans pursuant to the FNMA DUS Program
(as defined below), under which it is one of 28 approved lenders. To date, the
Company has had no credit losses on its commercial servicing portfolio.

The Chief Executive Officer and founding stockholder of the Company is Ivan
Kaufman, who was the co-founder, chairman and controlling stockholder of Arbor
National Holdings, Inc. ("Old Arbor"), a publicly held, NASDAQ traded company
that went public on August 7, 1992 and was subsequently sold in January 1995 to
BankAmerica Corporation. From 1983 through 1994, under Mr. Kaufman's management,
Old Arbor's residential mortgage lending activities grew to 25 branches in
eleven states, with approximately 1,000 employees, originating more than $4
billion of loans annually and servicing nearly $5.5 billion. In connection with
the sale of Old Arbor to BankAmerica Corporation, the commercial mortgage
lending operations were acquired by Mr. Kaufman. Since this acquisition, the
Company has evolved to become a full service provider of real estate financial
services to owners and developers of commercial and multifamily real estate
properties. In anticipation of the Offering, ANHI was formed in 1998 as a
holding company for ANCM and ASF, which were reorganized into a single entity
and then acquired by ANHI through an exchange of equity. See "Recent
Developments" and "Reorganization Transactions."

COMPETITIVE ADVANTAGES

- BREADTH OF PRODUCT OFFERINGS--Since the Company offers both short-term and
long-term funding capabilities, as well as the skills and expertise to
develop creative, flexible financing structures, the Company can present
itself as a single-source financing alternative, attracting individual
clients with diverse and complex needs.

- FOCUS ON UNDERSERVED MARKET--The Company specializes in Customized
Financing transactions under $20 million, particulary the $1 million to $5
million range, which larger financial institutions will not consider, or,
because of organizational constraints, cannot offer on terms comparable to
those provided by the Company.

- ORIGINATION SYNERGIES--The Company's participation in Permanent Loan
programs provides significant synergies with the Customized Financing
business. The Permanent Loan programs create a stream of opportunities
that require transitional financing to position the underlying property
for a Permanent Loan while also providing an effective exit strategy for
Customized Financing transactions generated from other sources.

- RAPID EXECUTION CAPABILITY--The Company's in-house expertise enables it to
act on proposals quickly and decisively and analyze opportunities, provide
commitments and close transactions within a few weeks and sometimes days,
if required. The Company believes its reputation for rapid execution
attracts, from both borrowers and other lenders, opportunties that would
not otherwise be available.

- CONTINUITY AND EXPERIENCE OF MANAGEMENT--The four senior executive
officers of the Company (including Mr. Kaufman) have an average of more
than twelve years of experience in real estate finance and investing,
while the 21 vice presidents and regional directors average almost sixteen
years of relevant industry experience. Eleven members of the Company's
management team worked with Mr. Kaufman at Old Arbor. The remainder have
been recruited because of their particular product specialization and
expertise in analyzing and structuring complex financial transactions in
commercial real estate.

- COMMITMENT OF SENIOR MANAGEMENT AND KEY EMPLOYEES--In addition to the
substantial ownership of the Company by Mr. Kaufman, all senior executives
and eighteen key employees have made significant equity investments in the
Company which align their interests with those of the Company's other
stockholders.

4
<PAGE>
- NETWORK OF RELATIONSHIPS--In addition to the market presence represented
by its full-service and satellite offices, the Company generates
significant opportunities through referrals from an extensive network of
strategic relationships with investment banking firms, brokers,
developers, real estate owners and operators and other financial
institutions.

BUSINESS STRATEGIES

- INCREASE CUSTOMIZED FINANCING OPPORTUNITIES by using the additional
capital from this Offering to offer an expanded range of maturities and
other terms suitable for various borrowers and projects.

- GROW THE COMPANY'S STREAM OF INTEREST INCOME by using the additional
capital from this Offering to permit longer retention of bridge and
mezzanine loans on the Company's balance sheet.

- DIVERSIFY THE COMPANY'S ORIGINATIONS AND INVESTMENTS beyond loans on
multifamily properties to include financings of assisted-living
facilities, hotels and other types of commercial property developments.

- CONTINUE THE COMPANY'S GEOGRAPHIC EXPANSION into selected major real
estate markets throughout the United States to expand its originations
capabilities by increasing local awareness of the Company's capabilities
and improving the Company's ability to monitor local activity for suitable
opportunities.

- INCREASE THE AVERAGE OUTSTANDING LOAN BALANCE of Customized Financing
activities through the utilization of the additional capital from this
Offering to fund larger transactions in the under $20 million market.

- LEVERAGE THE COMPANY'S CORE COMPETENCIES TO EXPAND ITS SERVICES and
develop related products, such as the FHA-insured multifamily and
healthcare financing program, as well as acquiring or developing in-house
property management capabilities.

RECENT DEVELOPMENTS

ANCM, which will become a wholly-owned subsidiary of ANHI on the closing of
this Offering (see "Reorganization Transactions"), acquired 100% of the
outstanding stock of ASF as of April 1, 1998 through the following series of
transactions, all of which occurred on that date (referred to herein as the "ASF
Transactions").

Prior to its acquisition by ANCM, ASF distributed a dividend of certain
assets that were not consistent with the intended business of the Company to
Ivan Kaufman, its sole stockholder, at their net book value of $1.5 million,
leaving ASF with assets consisting primarily of 19 loans in the aggregate amount
of $9.2 million. Immediately thereafter, Mr. Kaufman sold the outstanding common
stock of ASF for its remaining net book value of approximately $3.7 million to
the Ivan and Lisa Kaufman Family Trust, a trust for the benefit of Mr. Kaufman's
family members (hereinafter known as the "Trust"). Immediately thereafter, and
simultaneously with the purchase of Class B membership interests by certain
officers and employees of ANCM, the Trust, which was already a Class A member of
ANCM, purchased an additional Class A membership interest in ANCM by
transferring the ASF shares to ANCM. As a result of this transfer, the S
corporation status of ASF terminated. In connection with such transfer, Mr.
Kaufman agreed to indemnify the Company for any and all losses which may be
incurred by the Company or ANCM relating to any assets formerly owned by ASF and
any financing commitments previously made by ASF and subsequently transferred to
ANCM.

REORGANIZATION TRANSACTIONS

On June , 1998, all of the members of ANCM entered into an agreement (the
"Exchange Agreement") pursuant to which they agreed to exchange their membership
interests in ANCM for an

5
<PAGE>
aggregate of 7,500,000 shares of Common Stock (the "Exchange Shares"). Pursuant
to the Exchange Agreement, the exchange is to be effected without further action
by the members immediately prior to the closing of the Offering, at which time
each holder of membership interests shall receive a pro rata allocation of the
Exchange Shares based on such member's capital account in ANCM relative to the
aggregate capital accounts of all members.

As a result of this Reorganization, the Company will record a deferred tax
liability of $2.2 million and make a [$6.0 million] distribution to members of
previously undistributed earnings. See "Selected Financial Data."

Prior to this Offering, the Company received certain financial management,
marketing and human resources services, as well as office space, from Arbor
Management LLC ("Arbor Management"), a company owned by Mr. Kaufman, for which
the Company paid a management fee. See "Certain Relationships and Related
Transactions." In addition to the transactions which will occur pursuant to the
Exchange Agreement (the "Exchange Transaction"), the Company will also make the
following administrative changes no later than the closing of the Offering: (1)
the sub-lease for the Company's Uniondale, New York office will be transferred
to the Company; (2) all employees, including senior management, will be employed
and paid by the Company; and (3) all employee benefit programs will be provided
and administered by the Company.

6
<PAGE>
THE OFFERING

<TABLE>
<S> <C>
Common Stock Offered hereby....... shares(1)

Shares to be Outstanding After the shares(2)
Offering........................

NASDAQ National Market Symbol..... ARBH

Use of Proceeds................... The net proceeds from the Offering will be used
initially to repay outstanding indebtedness of the
Company and as working capital for general corporate
purposes relating to the growth of the Company.
</TABLE>

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

(1) Assumes that the Underwriters' over-allotment option is not exercised. If
such over-allotment option is exercised in full, up to an additional
shares of Common Stock will be issued and sold by the Company. See
"Underwriting."

(2) Based on the number of shares of Common Stock outstanding on June ,
1998. Does not include shares of Common Stock reserved for issuance
under the Company's 1998 Stock Plan (as defined herein) including
shares issuable under options which will be granted at the closing of
this Offering. See "Management--Employee Benefit Plans.

7
<PAGE>
SUMMARY SELECTED FINANCIAL DATA

The following table presents summary historical combined financial
information for the Company at the dates and for the periods indicated. The
historical operations data for the years ended December 31, 1997, 1996 and 1995
and balance sheet data as of December 31, 1997 and 1996 have been derived from
the audited combined financial statements of the Company included elsewhere in
this Prospectus. The historical balance sheet data as of December 31, 1995 has
been derived from the Company's unaudited combined financial statements. The
historical operations data presented for the three month periods ended March 31,
1998 and 1997 and balance sheet data presented as of March 31, 1998 have been
derived from unaudited interim combined financial statements and include all
adjustments, consisting only of normal recurring accruals, which the Company
considers necessary for a fair presentation of the Company's results of
operations for these periods. Operating results for the three month period ended
March 31, 1998 are not necessarily indicative of the results that may be
expected for any other interim period or the entire year ending December 31,
1998. The summary historical combined financial information should be read in
conjunction with, and is qualified in its entirety by reference to, the Combined
Financial Statements and related notes as set forth elsewhere herein as well as
"Recent Developments."

OPERATIONS DATA:

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
YEARS ENDED DECEMBER 31,
---------------------------- -------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1997 1996 1995
------------- ------------- ------------- ------------- -------------
Interest earned...................... $ 2,529,979 $ 1,672,747 $ 9,641,121 $ 6,783,312 $ 3,725,904
Fee-based services, including gain on
sale of loans and real estate...... 4,373,022 2,340,814 12,686,908 8,794,147 2,627,716
Servicing revenue, net............... 539,241 305,253 1,957,983 1,082,699 394,461
Income from investment in real estate
held for sale, net of operating
expenses........................... 540,334 -- -- -- --
Total revenues....................... 7,982,576 4,318,814 24,286,012 16,660,158 6,748,081
Net income........................... 3,432,110 1,175,870 8,632,262 4,302,596 714,807
Provision for pro forma income
taxes(1)........................... 1,383,244 479,548 3,468,648 1,753,788 299,523
Pro forma net income................. 2,048,866 696,322 5,163,614 2,548,808 415,284
</TABLE>

BALANCE SHEET DATA:

<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
---------------------------- --------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1998
PRO FORMA(3) ACTUAL 1997 1996 1995
------------- ------------- -------------- ------------- -------------
Loans held for sale, net............ $ 11,826,971 $ 11,826,971 $ 46,482,348 $ 45,729,204 $ 35,349,890
Loans held for investment, net...... 54,821,182 56,273,289 68,609,906 38,685,564 36,030,439
Total assets........................ 93,491,402 94,308,355 140,181,758 94,761,612 79,926,724
Notes payable....................... 58,565,230 58,565,230 110,227,947 75,909,788 68,394,767
Total liabilities................... 75,988,049 67,853,049 117,148,176 81,298,478 72,243,186
Total equity........................ 17,503,353 26,455,306 23,033,582 13,463,134 7,683,538
</TABLE>

8
<PAGE>
OTHER DATA:

<TABLE>
<CAPTION>
AT OR FOR THE AT OR FOR THE
THREE MONTHS ENDED MARCH 31, YEARS ENDED DECEMBER 31,
------------------------------ ----------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1997 1996 1995
-------------- -------------- -------------- -------------- --------------
Return on average equity (2) 33.1% 20.9% 28.3% 24.1% 5.7%
Return on average assets (2) 7.0% 3.2% 4.4% 2.9% 0.9%
Debt to equity ratio............. 2.2x 4.6x 4.8x 5.6x 8.9x
Total originations:
Permanent Loans................ $ 23,779,000 $ 34,013,000 $ 215,545,000 $ 244,287,000 $ 104,374,000
Customized Financing........... $ 11,649,000 $ 18,080,000 $ 174,377,000 $ 74,103,000 $ 81,729,000
Commercial servicing portfolio
(4)............................ $ 535,765,000 $ 418,541,000 $ 529,956,000 $ 385,518,000 $ 211,633,000
Number of loans in commercial
servicing portfolio............ 136 117 133 110 111
Selling and administrative
expenses as a percentage of
total revenue.................. 14.3% 19.2% 14.4% 21.0% 23.1%
</TABLE>

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

(1) The pro forma provision for income taxes represents the difference between
historical income taxes and the income taxes that would have been reported
had the Company filed income tax returns as a taxable C corporation for each
of the periods presented using a pro forma income tax rate of 40%.

(2) Return on average equity and assets are based on pro forma net income and
historical average equity and assets, respectively. Return on average equity
and assets for the three months ended March 31, 1998 and 1997 are
annualized.

(3) The pro forma balance sheet gives effect to (i) the distribution by ASF of
$1,462,000 of ASF assets to Ivan Kaufman, its sole stockholder, on April 1,
1998, (ii) the contribution of capital by members on April 1, 1998 of
$717,062, net of a distribution of capital to a former employee, and (iii) a
distribution of previously undistributed earnings of [$6,000,000]. See
"Recent Developments" and "Reorganization Transactions."

(4) The Company's commercial servicing portfolio represents commercial loans
serviced for third parties for a fee and does not include loans held for
investment.

9
<PAGE>
RISK FACTORS

INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS IN CONNECTION WITH
AN INVESTMENT IN THE COMMON STOCK IN ADDITION TO THE OTHER INFORMATION CONTAINED
OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS.

DEPENDENCE ON KEY PERSONNEL. The Company believes that its success depends
to a significant extent upon the experience of Ivan Kaufman and other senior
management executives of the Company. The Company believes that Mr. Kaufman in
particular has an established reputation in the real estate investment industry
which is expected to aid the Company in obtaining investment opportunities.
Prior to the effective date of the Registration Statement of which this
Prospectus forms a part, the Company will acquire a key man life insurance
policy with respect to Mr. Kaufman in the amount of $5 million.

While the Company believes that it could replace these key executives, the
loss of their services could have a material adverse effect on the operations of
the Company through a diminished capacity to obtain investment opportunities and
to structure and execute potential investments. The Company may not successfully
recruit additional personnel and any additional personnel that are recruited may
not have the requisite skills, knowledge or experience necessary or desirable to
enhance the incumbent management. While directing the growth of the Company's
business, Mr. Kaufman and several of these executives have simultaneously
engaged, on a part-time basis, in other business activities of Mr. Kaufman which
are not competitive with the business of the Company. Their active involvement
in these other activities is not expected to continue beyond December 31, 1998.
The employment agreements of these key executives require them to devote
substantially all of their business time to rendering services for the Company
subsequent to December 31, 1998. See "Management--Employment Agreements." From
the closing of this Offering through December 31, 1998, Mr. Kaufman will
reimburse the Company for the services of these executives in his other business
ventures at a rate of $25,000 per month, an amount which is equal to the
estimated maximum portion of their time spent on such ventures, multiplied by
their per annum salary for 1998.

BROAD DISCRETION ON INVESTMENTS. The Company's business plan is general in
nature and subject to change based upon changing conditions and opportunities.
The Company invests in real estate-related assets, which may be subject to
varying degrees of risk generally incident to the ownership of real property.
Management has broad discretion and authority to invest in whatever loans or
other real estate-related assets the Company deems appropriate. The Company has
entered into, and may continue to enter into, joint venture arrangements with
third parties. The Company in certain instances will not have control over the
day-to-day operations of businesses and assets in which it invests in the form
of a joint venture, and will therefore be dependent on third-party partners for
the success of any such joint venture. Further, the Company may engage in
construction financing for development stage projects which is inherently
riskier than the Company's Permanent Loan and other Customized Financing
activities. Also, there are no limits as to the size of a particular transaction
which can result in significant concentration of capital in a single investment.
No assurance can be given that management's decisions on funding any particular
investment or any type of investment structure in this regard will result in a
profit for the Company.

CREDIT CONCENTRATION OF LOANS HELD FOR INVESTMENT. As of March 31, 1998,
46.9% of the Company's portfolio of loans held for investment consisted of three
loans of $11.1 million, $5.5 million and $10.4 million. These loans were held by
two unrelated borrowers and secured by individual properties or interests in
investment partnerships. A default by either borrower on any of these loans
would significantly reduce the value of such portfolio. In such event, the
business, prospects, financial condition and results of operations of the
Company could be materially adversely affected.

POSSIBLE VOLATILITY IN QUARTERLY RESULTS. Primarily due to the nature of
Customized Financing transactions, trends in origination volume, revenues and
earnings may fluctuate, causing the Company's quarterly results from these
activities to fluctuate and limiting the value of comparing operating results
from quarter to quarter. These limitations may result in uncertainty in the
market for the Common Stock and may

10
<PAGE>
therefore affect the stock price. Historically, the Company has experienced
increased transactions and higher revenues and earnings in the fourth quarter
primarily due to borrowers' desire to consummate transactions by year end.

VALUE OF COMPANY ASSETS DEPENDENT ON CONDITIONS BEYOND COMPANY'S
CONTROL. Customized Financing transactions are relatively illiquid. The ability
of the Company to change the mix of its investments in response to changes in
economic and other conditions will be limited. No assurances can be given that
the fair market value of any assets acquired by the Company will not decrease in
the future. The underlying value of the assets is dependent upon a number of
factors which are beyond the control of the Company. Among these factors may be
the ability of the Company's borrowers to operate their properties in a manner
that generates revenue sufficient to cover debt service due to the Company;
changes in interest rates and in the availability, cost and terms of financing;
adverse changes in national or local economic conditions; competition from other
properties offering the same or similar services and adverse changes in
governmental rules and fiscal policies.

ACCESS TO FUNDING SOURCES. The Company requires access to short-term
warehouse credit facilities in order to fund loan originations and purchases
pending the sale of such loans. The Company currently has a $90 million
warehouse line of credit funded by four financial institutions, a repurchase
agreement with Fannie Mae and a $10 million repurchase agreement with an
institutional investor. The Company has also borrowed funds from Mr. Kaufman.
Although the Company expects to be able to maintain and expand its existing
warehouse credit facilities and to obtain replacement or additional financing as
the current arrangements expire or become fully utilized, there can be no
assurance that such financing will be available on reasonable terms. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Certain Relationships and
Related Transactions."

RISK OF LOSS ON LOANS SOLD UNDER THE FNMA DUS PROGRAM. The Company is
approved by the Federal National Mortgage Association ("Fannie Mae" or "FNMA")
to participate in its Delegated Underwriting and Servicing Program ("FNMA DUS
Program"). Under this program, the Company originates, sells and services
multifamily loans for Fannie Mae without having to obtain Fannie Mae's prior
approval for each loan. This program requires the Company to share the risk of
loss by paying a portion of the losses on mortgages it originates under the
program, up to 20 percent of the original principal balance of the loan. See
"Business--Permanent Loans--FNMA DUS." Additionally, changes in the Company's
estimates of defaults under the FNMA DUS Program could materially impact the
value of rights to service. The Company is required to maintain a letter of
credit or restricted cash balances based on the size of its servicing portfolio
of FNMA DUS loans which totaled $2.4 million at March 31, 1998. As of March 31,
1998, the unpaid principal balance of loans placed in the FNMA DUS Program by
the Company totaled $327 million (out of a total of $536 million principal
balance of Permanent Loans serviced by the Company). As of March 31, 1998, the
Company had a reserve of $1.7 million to provide for future loan losses under
the FNMA DUS Program. While the Company believes that this reserve is
sufficient, actual loan losses under the FNMA DUS Program could exceed this
reserve and could have a materially adverse effect on the Company's performance,
which in turn may adversely affect the price of the Common Stock.

RETAINED RISKS OF LOANS SOLD. In connection with the Company's origination
and sale of certain loans, the Company must make certain representations and
warranties concerning loans originated by the Company and sold to investors.
These representations and warranties cover such matters as title to mortgaged
property, lien priority, environmental reviews and certain other matters. The
Company's representations and warranties rely in part on similar representations
and warranties made by the borrower or others. The Company would have a claim
against the borrower or another party in the event of a breach of any
representations or warranties that are made by the borrower or others; however,
the Company's ability to recover on any such claim would be dependent upon the
financial condition of the party against which such claim is asserted. In
addition, the Company makes certain representations and

11
<PAGE>
warranties even though it does not receive similar representations and
warranties from borrowers or others, and the Company is not entitled to
indemnity with respect to violations of such representations and warranties.
There can be no assurance that the Company will not experience a material loss
as a result of representations and warranties it makes, which loss may in turn
adversely affect the Company's operations.

RISK OF LOSS FROM CHANGES IN GENERAL ECONOMIC CONDITIONS. Periods of
economic slowdown or recession, rising interest rates or declining demand for
real estate could adversely affect the Company's business. In addition, periods
of economic slowdown or recession, whether general, regional or industry-
related, may increase the risk of default on multifamily and commercial loans,
which may also have an adverse effect on the Company's business, financial
condition and results of operations. The Company may experience losses as a
result of reduced servicing fees from loans that are foreclosed and may
experience losses from mortgages in the FNMA DUS Program if the value of the
underlying asset declines. Such periods also may be accompanied by decreased
demand for multifamily or commercial properties, resulting in declining values
of properties securing outstanding loans, thereby weakening collateral coverage
and increasing the possibility of losses in the event of default. Significant
increases in the number of properties available for sale during recessionary
economic periods may depress the prices at which foreclosed properties may be
sold or delay the timing of such sales. There can be no assurance that the
multifamily or commercial markets will be adequate for the sale of foreclosed
properties and any material deterioration of such markets could reduce
recoveries from the sale of repossession inventory.

FAILURE TO SUCCESSFULLY MANAGE INTEREST RATE VOLATILITY MAY ADVERSELY AFFECT
RESULTS OF OPERATIONS. In general, when the Company establishes an interest
rate on a loan held for sale, it attempts to contemporaneously lock in an
interest yield to the institutional investor purchasing that loan. By selling
these loans shortly following origination, the Company limits its exposure to
interest rate fluctuations. However, the Company will accumulate some loans for
bulk sale and in these circumstances the Company hedges its interest rate risk
with forward commitments and put options. The Company does not hedge its loans
held for investment because these loans are generally variable rate loans that
are based on short term LIBOR. However, the operations and profitability of the
Company are likely to be adversely affected during any period of unexpected or
rapid changes in interest rates. For example, a substantial or sustained
increase in interest rates could adversely affect the ability of the Company to
originate loans. In such event, the business, prospects, financial condition and
results of operations of the Company could be materially adversely affected.

POSSIBLE CHANGES IN THE MARKET FOR WHOLE LOAN SALES. The Company sells all
of its loan originations to a limited number of institutional purchasers. There
can be no assurance that such purchasers will continue to purchase the Company's
loans and to the extent that the Company could not successfully replace such
loan purchasers, the Company's cash flow, results of operations, financial
condition and business prospects could be materially adversely affected. Also,
the inability of the Company to sell its loan originations limits revenue
generated from servicing such originations and may slow growth in its Customized
Financing activities. Further, adverse conditions in the commercial
mortgage-backed securitization market could negatively impact the ability of the
Company to complete whole loan sales, as many of the Company's whole loan
purchasers securitize the loans they purchase from the Company.

UNCERTAINTIES RESULTING FROM GOVERNMENT REGULATION AND CHANGES IN
GOVERNMENTAL PROGRAMS. The operations of the Company are subject to regulation
by federal, state and local government authorities (such as the Federal Housing
Administration, a division of the United States Department of Housing and Urban
Development ("FHA/HUD")), various laws and judicial and administrative
decisions, and regulations of government sponsored entities (such as Fannie Mae)
that purchase mortgages originated and serviced by the Company. These laws,
regulations and decisions require the Company, among other things, to maintain a
minimum net worth and minimum lines of credit, to submit financial reports, and
to maintain a quality control plan for the underwriting, origination and
servicing of loans. These laws and regulations also impose requirements and
restrictions affecting, among other things, the Company's loan originations,

12
<PAGE>
credit activities, maximum interest rates, finance and other charges,
disclosures to customers, the terms of secured transactions, collection,
repossession and claims handling procedures, personnel qualifications, and other
trade practices. Although the Company believes that it is in compliance in all
material respects with applicable local, state and federal laws, rules and
regulations and with the requirements of entities purchasing mortgages, there
can be no assurance that more restrictive laws, rules, regulations or
requirements will not be adopted in the future that could make compliance more
difficult or expensive, restrict the Company's ability to originate, purchase,
sell or service loans or further limit or restrict the amount of interest and
other charges earned on loans.

LIMITATION ON LIABILITY OF OFFICERS AND DIRECTORS OF THE COMPANY. The
Company's Certificate of Incorporation (the "Certificate of Incorporation")
contains a provision which limits the liability of a director or officer to the
Company and its shareholders for money damages except for liability resulting
from (a) actual receipt of an improper benefit or profit in money, property or
services or (b) deliberate dishonesty established by a final judgment as being
material to the cause of action. The Company will indemnify its officers and
directors from any action or claim brought or asserted by any party by reason of
any allegation that such persons are otherwise accountable or liable for the
debts or obligations of the Company or its affiliates.

ANTI-TAKEOVER PROVISIONS. The Certificate of Incorporation and the
Company's Bylaws (the "Bylaws") include provisions that could delay, defer or
prevent a takeover attempt that may be in the best interest of shareholders.
These provisions include the ability of the Board of Directors to issue up to
10,000,000 shares of preferred stock (the "Preferred Stock") without any further
shareholder approval, and requirements that shareholders give advance notice
with respect to certain proposals (including nomination of directors) that they
may wish to present for a shareholder vote. Issuance of Preferred Stock could
also discourage bids for Common Stock at a premium as well as create a
depressive effect on the market price of the Common Stock. In addition, under
certain conditions, Section 912 of the New York Business Corporation Law (the
"NYBCL") would prohibit the Company from engaging in a "business combination"
with an "interested shareholder" (in general, a shareholder owning directly or
indirectly 20% or more of the Company's outstanding voting stock) for a period
of five years unless the business combination is approved in a prescribed manner
or meets prescribed conditions.

CONTROL OF FOUNDING STOCKHOLDER. After giving effect to the Offering, Mr.
Kaufman, the Trust, and the Ivan Kaufman Grantor Retained Annuity Trust (the
"Kaufman Grantor Trust"), two trusts for the benefit of his family, will, in the
aggregate, directly or indirectly, beneficially own or control % of the
outstanding Common Stock. As a result, these stockholders, acting togther, are
able to effectively control virtually all matters requiring approval by the
stockholders of the Company, including amendment of the Certificate of
Incorporation, the approval of mergers or similar transactions and the election
of all directors. Mr. Kaufman and Mr. Lippe are the co-trustees of the Kaufman
Grantor Trust and Mr. Lippe is the sole trustee of the Trust. In addition, Mr.
Kaufman and Richard A. Lippe, are two of the five current directors of the
Company. See "Management" and "Security Ownership of Certain Beneficial Owners
and Management."

POSSIBLE VOLATILITY OF STOCK PRICE; EFFECT ON FUTURE OFFERINGS ON MARKET
PRICE OF COMMON STOCK. The market price of the Common Stock may experience
fluctuations that are unrelated to the operating performance of the Company. In
particular, the price of the Common Stock may be affected by general market
price movements as well as developments specifically related to the real estate
finance industry and the financial services sector such as, among other things,
interest rate movements, quarterly variations or changes in financial estimates
by securities analysts and a significant reduction in the price of the stock of
another participant in the real estate finance industry.

The Company may increase its capital by making additional private or public
offerings of its Common Stock, securities convertible into its Common Stock,
Preferred Stock or debt securities. There can be no assurance that the Company
will be successful in raising sufficient additional equity or debt capital on

13
<PAGE>
acceptable terms. In addition, the actual or perceived effect of such offerings
may be the dilution of the book value or earnings per share of the Common Stock
outstanding, which may result in the reduction of the market price of the Common
Stock.

NO ANTICIPATED DIVIDENDS. The Company does not anticipate paying cash
dividends on the Common Stock in the foreseeable future. The decision whether to
apply legally available funds to the payment of dividends on the Common Stock
will be made by the Board of Directors of the Company from time to time in the
exercise of its business judgment, taking into account, among other things, the
Company's results of operations and financial condition, any then existing or
proposed commitments by the Company for the use of available funds and the
Company's obligations with respect to the holders of any then outstanding
indebtedness or Preferred Stock. The Company's ability to pay dividends may be
restricted from time to time by financial covenants in its credit agreements or
in arrangements with or regulations of government sponsored entities pertaining
to minimum cash reserve requirements.

POSSIBLE NEGATIVE EFFECT ON STOCK PRICE FROM ABSENCE OF PRIOR MARKET FOR
COMMON STOCK. There has been no public market for the Common Stock prior to the
Offering and there can be no assurance that a public market will develop or, if
it develops, that it will be sustained following the Offering. Certain factors,
such as changes in market conditions generally, could cause the market price of
the Common Stock to vary substantially. See "Shares Eligible for Future Sale"
and "Underwriting."

IMMEDIATE AND SUBSTANTIAL DILUTION. The initial public offering price per
share of Common Stock is substantially higher than the net tangible book value
per share of the Common Stock. Purchasers of shares of Common Stock in this
Offering will experience immediate and substantial dilution of $ in the
pro forma net tangible book value per share of Common Stock. See "Dilution."

SHARES AVAILABLE FOR FUTURE SALE. Upon completion of this Offering, the
Company will have shares of Common Stock outstanding ( shares if the
Underwriters' over-allotment option is exercised in full). The shares
offered hereby ( shares if the Underwriters' over-allotment option is
exercised in full) will be freely tradeable without restrictions or further
registration under the Securities Act, except for any shares purchased by
"affiliates" of the Company, as such term is defined in Rule 144 promulgated
under the Securities Act. The remaining shares of Common Stock are "restricted
securities" within the meaning of Rule 144. Restricted securities may only be
sold in private transactions or pursuant to Rule 144. The Company has agreed to
register for resale twelve months after the closing of the Offering the shares
owned by certain stockholders of the Company prior to the Offering
(approximately 1,125,000 shares). Until that time, all shares owned by
stockholders of the Company prior to the Offering may not be sold in the public
market due to the restrictions of Rule 144. See "Shares Eligible for Future
Sale." In addition, an aggregate of shares are issuable upon the exercise
of outstanding stock options and shares of Common Stock are reserved for
issuance under the 1998 Stock Plan (as defined below). The Company and each of
the stockholders of the Company have agreed that they will not, without the
prior written consent of Lehman Brothers on behalf of the Underwriters, directly
or indirectly, offer, sell, offer to sell, contract to sell, pledge, grant any
option to purchase, or otherwise sell or dispose of (or announce any offer,
sale, contract of sale, pledge, grant or any option to purchase or other sale or
disposition of) any shares of Common Stock or any other securities convertible
into, or exercisable for shares of Common Stock or other similar securities of
the Company, currently beneficially owned, for a period of 180 days after the
date of this Prospectus. Lehman Brothers may, in its sole discretion, at any
time and without prior notice, release all or any portion of the shares of
Common Stock subject to such agreements. In any event, the shares owned by the
stockholders of the Company prior to the Offering may not be sold for twelve
months from the date of the Offering due to the restrictions of Rule 144. Sales
of substantial amounts of Common Stock (including shares issued upon the
exercise of outstanding options) in the public market after this Offering or the
prospect of such sales could adversely affect the market price of the Common
Stock and may have a material adverse effect on the Company's ability to raise
any necessary capital to fund its future operations. See "Shares Eligible for
Future Sale," "Management's

14
<PAGE>
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Underwriting."

USE OF PROCEEDS

The net proceeds to the Company from this Offering (after deducting
underwriting discounts and commissions and estimated expenses of the Offering)
are estimated to be approximately $ million (approximately $
million if the Underwriters' over-allotment option is exercised in full). The
Company intends to use the net proceeds it receives from the Offering (i) to pay
down its outstanding borrowings from Mr. Kaufman; (ii) to reduce the current
outstanding balance on its warehouse line; and (iii) as working capital for
general corporate purposes related to the funding of its anticipated future
growth.

15
<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of the Company (i) at
March 31, 1998, (ii) at March 31, 1998, as adjusted to give effect to the ASF
Transactions and the Exchange Transaction, and (iii) at March 31, 1998, as
adjusted to give effect to the application of the estimated net proceeds of this
Offering after underwriting discounts and commissions. See "Use of Proceeds."
The data set forth below should be read in conjunction with the other financial
information appearing elsewhere in this Prospectus, including the Combined
Financial Statements and the related notes thereto.

<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------------------------------
<S> <C> <C> <C>
PRO FORMA
ACTUAL PRO FORMA(2) AS ADJUSTED(3)
------------- ------------- -----------------
Notes payable and repurchase agreements............................ $ 44,879,927 $ 44,879,927 $
Note payable--Ivan Kaufman......................................... 13,685,303 13,685,303
------------- ------------- ---
Total notes payable and repurchase agreements...................... 58,565,230 58,565,230
------------- ------------- ---
Stockholders' Equity
Equity(1)........................................................ 26,455,306
Preferred Stock, $.01 par value; 10,000,000 shares authorized; no
shares issued and outstanding..................................
Common Stock $.01 par value; 30,000,000 shares authorized; no
shares issued and outstanding, actual; 7,500,000 pro forma, as
adjusted to give effect to the Reorganization Transactions;
shares issued and outstanding, as adjusted following the
Offering....................................................... -- 75,000
Additional paid-in capital....................................... -- 17,428,353
------------- ------------- ---
Total stockholders' equity......................................... 26,455,306 17,503,353
------------- ------------- ---
Total capitalization............................................... $ 85,020,536 $ 76,068,583 $
------------- ------------- ---
------------- ------------- ---
</TABLE>

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

(1) Equity consists of (a) 100 shares of no par value common stock with a value
of $1,000 and retained earnings of $5,141,820 of ASF; and (b) members'
capital of $21,312,486 of ANCM.

(2) As adjusted to give effect to the following:

(a) the distribution by ASF of $1,462,000 of ASF assets to Ivan Kaufman, its
sole stockholder, on April 1, 1998;

(b) an additional $717,062 comprised of contributions of capital by members
on April 1, 1998, net of a distribution of capital to a former employee;

(i) the deferred tax liability of $2,207,000 as a result of the
Company's election to terminate its LLC and S corporation
status;

(ii) the payment of [$6,000,000] of previously undistributed
earnings; and

(iii) the exchange of members' interests for shares of Common Stock.

(3) As adjusted to reflect the receipt of the net proceeds of this Offering
(after deducting underwriting discounts and estimated Offering expenses).

16
<PAGE>
DIVIDEND POLICY

The Company does not anticipate paying cash dividends on the Common Stock in
the foreseeable future. The decision whether to apply legally available funds to
the payment of dividends on the Common Stock will be made by the Board of
Directors of the Company from time to time in the exercise of its business
judgment, taking into account, among other things, the Company's results of
operations and financial condition, any then existing or proposed commitments by
the Company for the use of available funds, and the Company's obligations with
respect to the holders of any then outstanding indebtedness or Preferred Stock.
The Company's ability to pay dividends may be restricted from time to time by
financial covenants in its credit agreements or in arrangements with or
regulations of government sponsored entities pertaining to minimum cash reserve
requirements.

DILUTION

Purchasers of the Common Stock offered hereby will experience an immediate
and substantial dilution in the net tangible book value of their Common Stock
from the public offering price. The pro forma net tangible book value of the
Company as of March 31, 1998 was $17,503,353, or $2.33 per share of Common
Stock. Net tangible book value represents the amount of the Company's tangible
net worth divided by the pro forma total number of shares of Common Stock
outstanding as of March 31, 1998 pro forma to give effect to the ASF
Transactions and the transactions described in "Prospectus Summary--
Reorganization Transactions." After adjusting for, and giving effect to, the
sale of shares of Common Stock by the Company in the Offering and the
application of the estimated net proceeds therefrom at an assumed public
offering price of $ per share (the midpoint of the filing range set
forth on the cover of this Prospectus), and after the deduction of underwriting
discounts and commissions and estimated Offering expenses payable by the
Company, the adjusted pro forma net tangible book value of the Company as of
March 31, 1998 would have been $ million or $ per share of
Common Stock. This represents an immediate increase in net tangible book value
of $ per share to existing shareholders and an immediate dilution of
$ per share to purchasers of shares in the Offering. The following table
illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Public offering price per share of Common Stock offered hereby.......... [ ]
Pro forma net tangible book value per share before offering............. [ ]
Increase per share attributable to new investors........................ [ ]
Adjusted pro forma net tangible book value per share after offering..... [ ]
Dilution per share to new investors..................................... [ ]
--- ---
--- ---
</TABLE>

The following table summarizes on a pro forma basis the relative investments
of investors pursuant to this Offering and the current stockholders of the
Company:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders...................... 7,500,000 [ ]% $ 17,503,353 [ ]% $ 2.33
New investors..............................
Total(1)...................................
</TABLE>

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

(1) Assumes no exercise of the Underwriters' over-allotment option to purchase
up to shares of Common Stock. See "Underwriting."

If the over-allotment option is exercised in full, the new investors will
have paid [$ ] and will hold shares of Common Stock, representing
[ %] of the total consideration and [ %] of the total number of
outstanding shares of Common Stock. See "Description of Securities" and
"Underwriting."

17
<PAGE>
SELECTED FINANCIAL DATA

The following tables present historical combined financial information for
the Company at the dates and for the periods indicated. The historical
operations data for the years ended December 31, 1997, 1996 and 1995 and balance
sheet data as of December 31, 1997 and 1996 have been derived from the audited
combined financial statements of the Company included elsewhere in this
Prospectus. The historical operations data for the years ended February 28, 1995
and 1994 and balance sheet data as of December 31, 1995, February 28, 1995 and
1994 have been derived from unaudited combined financial statements. The
historical operations data presented for the three month periods ended March 31,
1998 and 1997 and balance sheet data presented as of March 31, 1998 have been
derived from unaudited interim combined financial statements and include all
adjustments, consisting only of normal recurring accruals, which the Company
considers necessary for a fair presentation of the Company's results of
operations for these periods. Operating results for the three month period ended
March 31, 1998 are not necessarily indicative of the results that may be
expected for any other interim period or the entire year ending December 31,
1998. The historical combined financial information should be read in
conjunction with, and is qualified in its entirety by reference to, the Combined
Financial Statements and related notes as set forth elsewhere herein.

OPERATIONS DATA:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH YEARS ENDED FEBRUARY
31, YEARS ENDED DECEMBER 31, 28,
------------------------- ----------------------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998 1997 1997 1996 1995 1995 1994
------------- ---------- ----------- ---------- ---------- ---------- ----------
Interest earned......... $ 2,529,979 $1,672,747 $ 9,641,121 $6,783,312 $3,725,904 $2,470,793 $1,556,136
Fee-based services,
including gain on sale
of loans and real
estate................ 4,373,022 2,340,814 12,686,908 8,794,147 2,627,716 891,520 680,845
Servicing revenue,
net................... 539,241 305,253 1,957,983 1,082,699 394,461 397,029 188,919
Income from investment
in real estate held
for sale, net of
operating expenses.... 540,334 -- -- -- -- -- --
Total revenues.......... 7,982,576 4,318,814 24,286,012 16,660,158 6,748,081 3,759,342 2,425,900
Net income(loss)........ 3,432,110 1,175,870 8,632,262 4,302,596 714,807 (899,891) 264,141
Provision(benefit) for
pro forma income
taxes(1).............. 1,383,244 479,548 3,468,648 1,753,788 299,523 (350,430) 107,558
Pro forma net income.... 2,048,866 696,322 5,163,614 2,548,808 415,284 (539,461) 156,583

BALANCE SHEET DATA:

AT MARCH 31, AT DECEMBER 31, AT FEBRUARY 28,
------------------------- ----------------------------------- ----------------------
1998 1998
PRO FORMA(3) ACTUAL 1997 1996 1995 1995 1994
------------- ---------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Loans held for sale,
net................... $11,826,971 $11,826,971 $46,482,348 $45,729,204 $35,349,890 $6,671,548 $46,899,797
Loans held for
investment, net....... 54,821,182 56,273,289 68,609,906 38,685,564 36,030,439 4,806,727 4,199,140
Total assets............ 93,491,402 94,308,355 140,181,758 94,761,612 79,926,724 15,094,285 54,044,192
Notes payable........... 58,565,230 58,565,230 110,227,947 75,909,788 68,394,767 7,375,168 52,303,481
Total liabilities....... 75,988,049 67,853,049 117,148,176 81,298,478 72,243,186 8,126,554 52,832,040
Total equity............ 17,503,353 26,455,306 23,033,582 13,463,134 7,683,538 6,967,731 1,212,152
</TABLE>

18
<PAGE>
OTHER DATA:
<TABLE>
<CAPTION>
AT OR FOR
AT OR FOR THE THE
THREE MONTHS ENDED AT OR FOR THE YEARS ENDED
MARCH 31, YEARS ENDED DECEMBER 31, FEBRUARY 28,
--------------------------- ---------------------------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
1998 1997 1997 1996 1995 1995
------------- ------------ ------------ ------------ ------------ ------------
Return on average equity (2)............... 33.1% 20.9% 28.3% 24.1% 5.7% (13.2%)
Return on average assets (2)............... 7.0% 3.2% 4.4% 2.9% 0.9% (1.6%)
Debt to equity ratio....................... 2.2x 4.6x 4.8x 5.6x 8.9x 1.1x
Total originations:
Permanent Loans.......................... $23,779,000 $ 34,013,000 $215,545,000 $244,287,000 $104,374,000 $141,319,000
Customized Financing..................... $11,649,000 $ 18,080,000 $174,377,000 $ 74,103,000 $ 81,729,000 $ 9,162,000
Commercial servicing portfolio (4)......... $535,765,000 $418,541,000 $529,956,000 $385,518,000 $211,633,000 $222,000,000
Number of loans in commercial servicing
portfolio................................ 136 117 133 110 111 94
Selling and administrative expenses as a
percentage of total revenue.............. 14.3% 19.2% 14.4% 21.0% 23.1% 30.9%

<S> <C>
1994
------------
Return on average equity (2)............... 20.7(5)
Return on average assets (2)............... 0.6(5)
Debt to equity ratio....................... 43.2x
Total originations:
Permanent Loans.......................... $174,997,000
Customized Financing..................... $ 0
Commercial servicing portfolio (4)......... $166,000,000
Number of loans in commercial servicing
portfolio................................ 67
Selling and administrative expenses as a
percentage of total revenue.............. 23.4%
</TABLE>

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

(1) The pro forma provision (benefit) for income taxes represents the difference
between historical income taxes and the income taxes that would have been
reported had the Company filed income tax returns as a taxable C corporation
for each of the periods presented using a pro forma income tax rate of 40%.

(3) The pro forma balance sheet gives effect to (i) the distribution by ASF of
$1,462,000 of ASF assets to Ivan Kaufman, its sole stockholder, on April 1,
1998, (ii) the contribution of capital by members on April 1, 1998 of
$717,062, net of a distribution of capital to a former employee, and (iii) a
distribution of previously undistributed earnings of [$6,000,000]. See
"Prospectus Summary--Recent Developments" and "Prospectus
Summary--Reorganization Transactions."

(4) The Company's commercial servicing portfolio represents commercial loans
serviced for third parties for a fee and does not include loans held for
investment.

(5) Return on average equity and assets are based on the ending balances at
February 28, 1994 and the Company's initial capitalization in 1993.

19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS AND OTHER PORTIONS OF THIS PROSPECTUS CONTAIN FORWARD-LOOKING
INFORMATION THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED BY SUCH FORWARD LOOKING
STATEMENTS. FACTORS THAT MAY CAUSE SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED
TO, THOSE DISCUSSED UNDER THE HEADING "RISK FACTORS" AND ELSEWHERE IN THIS
PROSPECTUS. THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S COMBINED
FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS.

THE COMPANY

Arbor National Holdings, Inc. is a fully integrated real estate financial
services company. The Company funds, on a negotiated basis, high-yielding
lending and investment opportunities in commercial real estate through
Customized Financing structures. It also derives substantial revenue from the
origination for sale and servicing of Permanent Loans for multifamily and other
types of commercial properties.

RECENT DEVELOPMENTS

ANCM, which became a wholly-owned subsidiary of ANHI on the date of this
Prospectus (see "Prospectus Summary--Reorganization Transactions"), acquired
100% of the outstanding stock of ASF as of April 1, 1998 through the ASF
Transactions.

Prior to its acquisition by ANCM, ASF distributed a dividend of certain
assets which were not consistent with the intended business of the Company to
Ivan Kaufman, its sole stockholder. Immediately thereafter, Mr. Kaufman sold the
outstanding common stock of ASF to the Trust. Immediately thereafter,
simultaneously with the purchase of Class B membership interests by certain
officers and employees of ANCM, the Trust, which was already a Class A member of
ANCM, purchased an additional Class A membership interest in ANCM by
transferring the ASF shares to ANCM.

ORIGINATION VOLUME

(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEARS ENDED DECEMBER 31, % CHANGE
-------------------- ---------------------------------- --------------------------------
1998 1997 1997 1996 1995 Q1 1997-1998 1996-1997
--------- --------- ---------- ---------- ---------- ----------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Permanent Loans.............. $ 23,779 $ 34,013 $ 215,545 $ 244,287 $ 104,374 (30)% (12 )%
Customized Financing......... 11,649 18,080 174,377 74,103 81,729 (36 ) 135
--
--------- --------- ---------- ---------- ---------- ---
Total.................... $ 35,428 $ 52,093 $ 389,922 $ 318,390 $ 186,103 (32 )% 22%
--
--
--------- --------- ---------- ---------- ---------- ---
--------- --------- ---------- ---------- ---------- ---

1995-1996
-------------
<S> <C>
Permanent Loans.............. 134%
Customized Financing......... (9 )

---
Total.................... 71%

---
---
</TABLE>

The increase in the Company's Permanent Loan origination volume from 1995 to
1996 was primarily attributable to increased originations from the Company's
FNMA DUS product line, which commenced in December 1995. The decrease in the
Company's Permanent Loan origination volume from 1996 to 1997 and for the first
quarter ended March 31, 1997 as compared to the first quarter ended March 31,
1998 was primarily attributable to increased competition in the permanent
lending market and management's decision not to compete solely on price. In
1996, the Company decided to concentrate its efforts on high yielding lending
and investment opportunities in commercial real estate through Customized
Financing activities, a market that management believes to be underserved,
especially on transactions under $20 million. This strategic decision had a
significant impact on the Company's revenues as discussed below. The Company
also believes that there is significant growth opportunity in the Customized
Financing

20
<PAGE>
market especially in bridge and mezzanine loans. Due to the nature of these
activities, origination volume and the timing of recognizing the related revenue
will fluctuate. See "Risk Factors--Possible Volatility in Quarterly Results."

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 1998 AND 1997

REVENUES. The following table sets forth the components of the Company's
revenues:

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31,
-------------------------- %
1998 1997 CHANGE
------------ ------------ -----------
<S> <C> <C> <C>
Interest earned.......................................................... $ 2,529,979 $ 1,672,747 51%

Gain on sale of loans and real estate.................................... 2,193,245 615,833 256
Originated mortgage servicing rights..................................... 588,225 1,056,170 (44)
Fee income............................................................... 1,591,552 668,811 138
------------ ------------ ---
Fee-based services, including gain on sale of loans and real estate...... 4,373,022 2,340,814 87
------------ ------------ ---
Servicing revenue, net................................................... 539,241 305,253 77
Income from investment in real estate held for sale, net of operating
expenses............................................................... 540,334 -- --
------------ ------------ ---
Total revenues........................................................... $ 7,982,576 $ 4,318,814 85%
------------ ------------ ---
------------ ------------ ---
</TABLE>

Interest earned increased $857,000 or 51% to $2.5 million for the three
months ended March 31, 1998 from $1.7 million for the three months ended March
31, 1997. This increase was primarily due to a 61% increase in the weighted
average balance of loans held for investment (primarily bridge and mezzanine
loans) which, due to their customized characteristics and risk profiles, yield
higher interest rates and are held for substantially longer periods of time as
compared to loans held for sale. The weighted average loan balance of loans held
for sale decreased 21%.

Gain on sale of loans and real estate, which primarily represented all cash
gains, increased $1.6 million or 256% to $2.2 million for the three months ended
March 31, 1998 from $616,000 for the three months ended March 31, 1997. This
increase was primarily attributable to increased revenues from Customized
Financing activities. Past experience has shown that the nature of these
Customized Financing activities vary greatly and are highly negotiated, and as a
result the amount and timing of revenue recognition will fluctuate. The Company
expects this trend to continue in the future.

Originated mortgage servicing rights, which are the allocated cost of the
unsold portion of the loans and are recognized when loans are sold, decreased
$468,000 or 44% to $588,000 for the three months ended March 31, 1998 from $1.1
million for the three months ended March 31, 1997. This decrease was primarily
attributable to a 37% decrease in the volume of FNMA DUS loans sold for the
quarter ended March 31, 1998 compared to the quarter ended March 31, 1997 which
was a direct result of a decrease in the average loan size of originations from
the fourth quarter of 1996 to the fourth quarter of 1997.

Fee income comprised of origination, exit and commitment fees increased
$923,000 or 138% to $1.6 million for the three months ended March 31, 1998 from
$669,000 for the three months ended March 31, 1997. This increase was primarily
attributable to (a) fees earned on backup commitments to lend and purchase real
estate and (b) the increase in the Company's Customized Financing activities.

Servicing revenue, net increased $234,000 or 77% to $539,000 for the three
months ended March 31, 1998 from $305,000 for the three months ended March 31,
1997. This increase was primarily attributable to a 28% increase in the
Company's commercial servicing portfolio combined with an overall increase in
the

21
<PAGE>
weighted average servicing fee from March 31, 1997 to March 31, 1998 due to the
increase in the FNMA DUS portfolio, which yield higher weighted average
servicing fees than other loans serviced.

Income from investment in real estate held for sale consisted of rental
income earned, less operating expenses incurred during the three months ended
March 31, 1998. The asset generating this rental income, net was acquired in
September 1997.

EXPENSES. The following table sets forth the components of the Company's
expenses:

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31,
-------------------------- %
1998 1997 CHANGE
------------ ------------ -----------
<S> <C> <C> <C>
Interest expense......................................................... $ 1,944,208 $ 925,038 110%
Employee compensation and benefits....................................... 1,231,366 1,053,338 17
Selling and administrative............................................... 1,137,522 827,068 38
Provision for loan losses................................................ 237,370 337,500 (30)
------------ ------------ ---
Total expenses........................................................... $ 4,550,466 $ 3,142,944 45%
------------ ------------ ---
------------ ------------ ---
</TABLE>

Interest expense increased $1.0 million or 110% to $1.9 million for the
three months ended March 31, 1998 from $925,000 for the three months ended March
31, 1997. This increase was primarily attributable to (a) increased borrowings
to finance loans held for investment, which due to their customized
characteristics and risk profiles carry a higher borrowing rate than loans held
for sale; and (b) the interest cost associated with the increase in debt to
finance growth in investments in real estate held for sale, other real estate
joint ventures and other investments.

Employee compensation and benefits increased $178,000 or 17% to $1.2 million
for the three months ended March 31, 1998 from $1.1 million for the three months
ended March 31, 1997. This increase reflected increased staffing levels
associated with Customized Financing activities and the geographic and product
expansion of the Company's lending activities.

Selling and administrative expenses increased $310,000 or 38% to $1.1
million for the three months ended March 31, 1998 from $827,000 for the three
months ended March 31, 1997. This increase was primarily attributable to the
geographic and product expansion of the lending activities and a one time
increase in depreciation expense of $104,000 related to a change in the
estimated useful life of certain capitalized equipment.

Provision for loan losses decreased $100,000 or 30% to $237,000 for the
three months ended March 31, 1998 from $338,000 for the three months ended March
31, 1997. This decrease was directly attributable to a 37% decrease in the
volume of FNMA DUS loans sold for the quarter ended March 31, 1998 compared to
the quarter ended March 31, 1997. Under the FNMA DUS Program, the Company
assumes responsibility for a portion of any loss that may result from borrower
defaults based on FNMA loss sharing formulas. The Company's portion of the loss
sharing is limited to a maximum of 20% of the original principal balance.

22
<PAGE>
YEARS ENDED DECEMBER 31, 1997 AND 1996

REVENUES. The following table sets forth the components of the Company's
revenues:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
<S> <C> <C> <C>
1997 1996 % CHANGE
------------- ------------- ---------------
Interest earned......................................................... $ 9,641,121 $ 6,783,312 42%

Gain on sale of loans and real estate................................... 6,195,440 3,220,366 92
Originated mortgage servicing rights.................................... 3,148,981 2,958,029 6
Fee income.............................................................. 3,342,487 2,615,752 28
--
------------- -------------
Fee-based services, including gain on sale of loans and real estate..... 12,686,908 8,794,147 44
--
------------- -------------
Servicing revenue, net.................................................. 1,957,983 1,082,699 81
--
------------- -------------
Total revenues.......................................................... $ 24,286,012 $ 16,660,158 46%
--
--
------------- -------------
------------- -------------
</TABLE>

Interest earned increased $2.9 million or 42% to $9.6 million for 1997 from
$6.8 million for 1996. This increase was primarily due to a 38% increase in the
weighted average outstanding balance of loans held for investment (primarily
bridge and mezzanine loans) which, due to their customized characteristics and
risk profiles, yield higher interest rates and are held for substantially longer
periods of time as compared to loans held for sale. The weighted average loan
balance of loans held for sale increased 53% from 1996 to 1997.

Gain on sale of loans and real estate, which primarily represented all cash
gains, increased $3.0 million or 92% to $6.2 million for 1997 from $3.2 million
for 1996. This increase was primarily attributable to (a) increased revenues
from Customized Financing activities and (b) increased margins from Permanent
Loans originated for sale offset by a 17% decrease in volume of Permanent Loans
sold.

Originated mortgage servicing rights, which are the allocated cost of the
unsold portion of the loans and are recognized when loans are sold, increased
$191,000 or 6% to $3.1 million for 1997 from $3.0 million for 1996. This
increase was primarily attributable to the increase in the volume of FNMA DUS
loans sold, as a percentage of total sold loan volume, from 1997 to 1996. The
FNMA DUS loans yield higher servicing fees than other loans serviced and
therefore generate greater servicing values.

Fee income increased $727,000 or 28% to $3.3 million for 1997 from $2.6
million for 1996. This increase was primarily attributable to the increase in
the Company's Customized Financing activities.

Servicing revenue, net increased $875,000 or 81% to $2.0 million for 1997
from $1.1 million for 1996. This increase was directly attributable to a 37%
increase in the Company's commercial servicing portfolio combined with an
overall increase in the weighted average servicing fee from 1997 to 1996 due to
the increase in the FNMA DUS portfolio, which yield higher weighted average
servicing fees than other loans serviced.

EXPENSES. The following table sets forth the components of the Company's
expenses:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
<S> <C> <C> <C>
1997 1996 % CHANGE
------------- ------------- -------------
Interest expense........................................................ $ 6,242,616 $ 4,048,947 54%
Employee compensation and benefits...................................... 4,920,495 3,893,873 26
Selling and administrative.............................................. 3,493,022 3,499,691 --
Provision for loan losses............................................... 997,617 915,051 9
------------- ------------- ---
Total expenses.......................................................... $ 15,653,750 $ 12,357,562 27%
------------- ------------- ---
------------- ------------- ---
</TABLE>

23
<PAGE>
Interest expense increased $2.2 million or 54% to $6.2 million for 1997 from
$4.0 million for 1996. This increase was primarily attributable to (a) increased
borrowings to finance loans held for investment (primarily bridge and mezzanine
loans), which due to their customized characteristics and risk profiles, carry a
higher borrowing rate than loans held for sale; and (b) the interest costs
associated with the increase in debt to finance growth in investments in real
estate held for sale and other real estate joint ventures, the bulk of which
occurred in the fourth quarter of 1997.

Employee compensation and benefits increased $1.0 million or 26% to $4.9
million for 1997 from $3.9 million for 1996. This increase reflected increased
commissions and incentives associated with the Customized Financing activities,
and the geographic and product expansion of the Company's lending activities.

Selling and administrative expenses remained stable from 1996 to 1997, yet
as a percentage of revenue, the selling and administrative expenses decreased to
14% in 1997 from 21% in 1996, which was primarily attributable to the Company's
decision to build the appropriate infrastructure in 1996 to expand the Company's
Customized Financing activities, and the geographic and product expansion of the
Company's lending activities.

YEARS ENDED DECEMBER 31, 1996 AND 1995

REVENUES. The following table sets forth the components of the Company's
revenues:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
<S> <C> <C> <C>
1996 1995 % CHANGE
------------- ------------ -------------
Interest earned.......................................................... $ 6,783,312 $ 3,725,904 82%

Gain on sale of loans and real estate.................................... 3,220,366 1,806,063 78
Originated mortgage servicing rights..................................... 2,958,029 -- --
Fee income............................................................... 2,615,752 821,653 218
------------- ------------ ---
Fee-based services, including gain on sale of loans and real estate...... 8,794,147 2,627,716 235
------------- ------------ ---
Servicing revenue, net................................................... 1,082,699 394,461 174
------------- ------------ ---
Total revenues........................................................... $ 16,660,158 $ 6,748,081 147%
------------- ------------ ---
------------- ------------ ---
</TABLE>

Interest earned increased $3.1 million or 82% to $6.8 million for 1996 from
$3.7 million for 1995. This increase was primarily due to an increase in the
average balance of loans outstanding resulting from increased FNMA DUS
originations in 1996. The Company's FNMA DUS loan origination business commenced
in December of 1995.

Gain on sale of loans and real estate, which primarily represented all cash
gains, increased $1.4 million or 78% to $3.2 million for 1996 from $1.8 million
for 1995. This increase was primarily attributable to increased revenues from
Customized Financing activities.

The increase in originated mortgage servicing rights, which are the
allocated cost of the unsold portion of the loans and are recognized when loans
are sold, was a direct result of the adoption on January 1, 1996 of SFAS # 122
(Accounting for Mortgage Servicing Rights, superseded by SFAS # 125). The
Company did not capitalize originated mortgage servicing rights in 1995.

24
<PAGE>
Fee income increased $1.8 million or 218% to $2.6 million for 1996 from
$822,000 for 1995. This increase was primarily attributable to (a) increased
volume of loans sold from the Company's FNMA DUS product line, which commenced
in December 1995 and (b) the increase in the Company's Customized Financing
activities.

Servicing revenue, net increased $688,000 or 174% to $1.1 million for 1996
from $394,000 for 1995. This increase is directly attributable to a 82% increase
in the Company's commercial servicing portfolio combined with an overall
increase in the weighted average servicing fee from 1996 to 1995 due to the
increase in the FNMA DUS portfolio, which yield higher weighted average
servicing fees than other loans serviced.

EXPENSES. The following table sets forth the components of the Company's
expenses:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
<S> <C> <C> <C>
1996 1995 % CHANGE
------------- ------------ -------------
Interest expense......................................................... $ 4,048,947 $ 2,188,687 85%
Employee compensation and benefits....................................... 3,893,873 1,876,897 107
Selling and administrative............................................... 3,499,691 1,560,834 124
Provision for loan losses................................................ 915,051 406,856 125
------------- ------------ ---
Total expenses........................................................... $ 12,357,562 $ 6,033,274 105%
------------- ------------ ---
------------- ------------ ---
</TABLE>

Interest expense increased $1.9 million or 85% to $4.1 million for 1996 from
$2.2 million for 1995. This increase was primarily due to an increase in the
average balance of loans outstanding resulting from increased FNMA DUS
originations in 1996. The Company's FNMA DUS loan origination business commenced
in December of 1995.

Employee compensation and benefits increased $2.0 million or 107% to $3.9
million for 1996 from $1.9 million for 1995. This increase was primarily
attributable to increased sales' salaries and commissions, which are based
substantially on loan production, the geographic and product expansion of the
Company's lending activities and the increase in the servicing portfolio.

Selling and administrative expenses increased $1.9 million or 124% to $3.5
million for 1996 from $1.6 million for 1995. This increase was primarily
attributable to the Company's decision to build the appropriate infrastructure
in 1996 to support the Customized Financing activities, and the geographic and
product expansion of the Company's lending activities.

Provision for loan losses increased $508,000 or 125% to $915,000 for 1996
from $407,000 for 1995. This increase was primarily attributable to increased
loan origination volume from the Company's FNMA DUS product line, which
commenced in December of 1995.

LIQUIDITY AND CAPITAL RESOURCES

The Company's principal financing needs consist of funding its Customized
Financing activities, and its Permanent Loan activities. To meet these needs,
the Company currently relies on borrowings under its warehouse facility,
repurchase agreements, borrowings from Ivan Kaufman and cash flow from
operations. The maximum permitted borrowings under the warehouse facility were
$90 million at March 31, 1998 and December 31, 1997 and $70 million at December
31, 1996. At March 31, 1998, December 31, 1997 and December 31, 1996,
outstanding borrowings under the warehouse facility were $26.9 million, $36.3
million and $26.8 million, respectively, leaving available funds of $63.1
million, $53.7 million and $43.2 million, respectively. Borrowings under the
warehouse facility are secured by a pledge of the loans funded.

Under the warehouse facility, the interest rate charged for borrowings is
based on the Company's option to use either Federal Funds or LIBOR plus 1% to
1.5% for Permanent Loans and 2.25% to 3% for specified Customized Financing
activities. The warehouse facility expires on November 26, 1998 and is

25
<PAGE>
funded by four financial institutions. The Company expects to be able to renew
or replace the warehouse facility when its current term expires.

The Company also funds loan originations through repurchase agreements with
FNMA and a Wall Street firm which, for financial reporting purposes, are
characterized by the Company as borrowing transactions. Both of these repurchase
agreements are uncommitted and therefore have no stated expiration date. The
FNMA repurchase agreement allows the Company to fund FNMA DUS loan originations,
that the Company has committed to sell to institutional investors, at an
interest rate of LIBOR plus 0.4% to 0.55%. Under this agreement, the Company is
required to arrange for institutional investors to take delivery of the loans
within 60 days of the date of such borrowings; otherwise the Company is required
to repurchase the loans. As of March 31, 1998, December 31, 1997 and December
31, 1996, total outstanding borrowings under this agreement were $7.5 million,
$27.4 million and $6.0 million, respectively.

The repurchase agreement with the Wall Street firm provides the Company with
up to $10 million (with temporary increases above the $10 million allowed at the
Wall Street firm's discretion) of additional funds for loan originations at an
interest rate of LIBOR plus 1.75%. As of March 31, 1998, December 31, 1997 and
December 31, 1996, total outstanding borrowings under this agreement were $8.9
million, $16.7 million and $5.0 million, respectively.

In the event these agreements were to be terminated, the Company believes
that other financial institutions would provide it with similar repurchase
agreements, but no assurances can be made that the Company will obtain such
financing on reasonable terms or at all.

The borrowing agreements contain certain covenants, including, among others,
limitations on indebtedness, liens, mergers, changes in control and sales of
assets, and requirements for the Company to maintain a minimum servicing
portfolio, minimum net worth and other financial ratios. The Company was in
compliance with these covenants as of March 31, 1998.

Historically, the Company has borrowed funds from Ivan Kaufman. Borrowings
outstanding from Mr. Kaufman (and/or the Trust and the Ivan Kaufman Grantor
Retained Annuity Trust effective March 31, 1998 (the "Kaufman Grantor Trust"))
totaled $13.7 million at March 31, 1998, $28.8 million at December 31, 1997 and
$25.4 million at December 31, 1996. Interest on virtually all of the Company's
borrowings from Mr. Kaufman is at the prime interest rate plus 1%, or 9.5% at
March 31, 1998. The borrowings from Mr. Kaufman are subordinate to the warehouse
facility. The Company plans to repay the total balance of outstanding borrowings
from Mr. Kaufman with the proceeds from this Offering. See "Use of Proceeds."

In June 1998, the Company entered into a 50/50 joint venture with a Wall
Street investment banking firm pursuant to which each of the joint venture
partners agreed to contribute up to $25 million in equity to the joint venture.
In addition, the Wall Street firm agreed to provide $200 million of financing to
fund Customized Financing activities, including $75 million for mezzanine loans
to the joint venture in the form of a repurchase agreement. The interest rate
charge for the financing is LIBOR plus 2%. The repurchase agreement expires in
June 2000. The Company believes that this joint venture will greatly enhance the
Company's ability to increase its Customized Financing activities in the future.

The Company sells its loans to various institutional investors. The terms of
these purchase arrangements vary according to each investors purchase
requirements; however, the Company believes that the loss of any one or group of
such investors would not have a material adverse effect on the Company.

As of a result of the Offering, the Company believes that the increase in
equity will allow the Company to reduce its borrowing rate on its Customized
Financing and Permanent Loan activities.

The anticipated increase in business is expected to be funded by additional
borrowings under the warehouse facility, repurchase agreements, increased
capital resulting from this Offering and funds

26
<PAGE>
provided from operations, all of which are expected to enable the Company to
fund its operations for a minimum of twelve months following completion of this
Offering.

INFLATION AND SEASONALITY

In general, when the Company establishes an interest rate on a loan held for
sale, it attempts to concurrently lock in an interest yield to the institutional
investor purchasing that loan. By selling these loans shortly following
origination the Company limits its exposure to interest rate fluctuations.
However, the Company will accumulate some loans for bulk sale and in these
circumstances the Company hedges its interest rate risk with forward commitments
and put options. The Company does not hedge its loans held for investment
because these loans are generally variable rate loans based on short term LIBOR.
However, the operations and profitability of the Company are likely to be
adversely affected during any period of unexpected or rapid changes in interest
rates. For example, a substantial or sustained increase in interest rates could
adversely affect the ability of the Company to originate loans. In such event,
the financial condition and results of operations of the Company could be
materially adversely affected.

The Company is generally not subject to seasonal trends. However,
historically the Company has experienced increased transactions and higher
revenues and earnings in the fourth quarter primarily due to borrowers' desire
to consummate transactions by year end.

YEAR 2000 RISK

The Company has implemented a Year 2000 program to ensure that the Company's
computer systems and applications will function properly beyond 1999. The
Company believes that is has allocated adequate resources for this purpose and
expects its systems to be compliant by January 1, 1999. Although the Company
expects all of its systems to be Year 2000 compliant by January 1, 1999, there
can be no assurances that all of the Company's and vendor and business partner
systems will be Year 2000 compliant. The Company's cost to comply with the Year
2000 initiative is not expected to be material.

INCOME TAXES

Effective April 1, 1998, ASF distributed a dividend of certain assets which
were not consistent with the intended business of the Company to Ivan Kaufman,
its sole stockholder, and immediately thereafter the outstanding common stock of
ASF was sold to the Trust. Immediately thereafter, the Trust contributed the
common stock of ASF with a book value of $3.7 million, which approximated fair
value, to ANCM in exchange for ownership interests in ANCM. Simultaneous with
the contribution, ASF ceased to be treated as an S corporation. Upon the
effective date of the Offering, all members of ANCM, pursuant to the terms of
the Exchange Agreement, will contribute their ownership interest in ANCM to the
Company in exchange for 7,500,000 shares of Common Stock (the "Exchange"), which
will constitute all of the shares of Common Stock outstanding prior to the
Offering. Simultaneous with the Exchange, ANCM will no longer be recognized as a
limited liability company for tax purposes.

As a limited liability company and S corporation, the Company's income,
whether or not distributed, was taxed at the member or shareholder level for
federal and most state tax purposes. As a result of the Exchange, the Company
and ANCM, which will become a wholly-owned subsidiary of the Company, will be
fully subject to federal and state income taxes at the corporate level, and will
result in the Company recording a deferred tax liability on its balance sheet.
The amount of deferred tax liability to be recorded as of the date of the
Exchange will depend upon timing differences between financial reporting and tax
reporting. The pro forma provision for income taxes in the accompanying
statements of operations shows results as if the Company had always been fully
subject to federal and state taxes at an assumed combined rate of 40%.

27
<PAGE>
BUSINESS

THE COMPANY

Arbor National Holdings, Inc. is a fully integrated real estate financial
services company. The Company funds, on a negotiated basis, high-yielding
lending and investment opportunities in commercial real estate through
Customized Financing structures. It also derives substantial revenue from the
origination for sale and servicing of Permanent Loans for multifamily and other
types of commercial properties.

The Chief Executive Officer and founding stockholder of the Company is Ivan
Kaufman, who was the co-founder, chairman and controlling stockholder of Old
Arbor, a publicly held, NASDAQ traded company that went public on August 7, 1992
and was subsequently sold in January 1995 to BankAmerica Corporation. From 1983
through 1994, under Mr. Kaufman's management, Old Arbor's residential mortgage
lending activities grew to 25 branches in eleven states, with approximately
1,000 employees, originating more than $4 billion of loans annually and
servicing nearly $5.5 billion. In connection with the sale of Old Arbor to
BankAmerica Corporation, the commercial mortgage lending operations were
acquired by Mr. Kaufman. Since this acquisition, the Company has evolved to
become a full service

28
<PAGE>
provider of real estate financial services to owners and developers of
commercial and multifamily real estate properties. In anticipation of the
Offering, ANHI was formed in 1998 as a holding company for ANCM and ASF which
were reorganized into a single entity and then acquired by ANHI through an
exchange of equity. See "Prospectus Summary--Recent Developments" and
"Prospectus Summary-- Reorganization Transactions."

INDUSTRY OVERVIEW

The Company believes that the financing of commercial and multifamily real
estate offers significant growth opportunities. Commercial and multifamily real
estate encompass a wide spectrum of assets including multifamily, office,
industrial, retail and hospitality. These assets are financed by an estimated
$1.0 trillion of outstanding commercial real estate debt, and the Company
estimates that $125 billion to $150 billion in commercial real estate mortgages
are refinanced each year in addition to the mortgage financing of new
construction.

Commercial mortgage banks have arranged a significant portion of the debt
financing for commercial real estate. However, since the early 1990s, the
commercial mortgage banking industry has experienced significant change, in part
due to expensive technological demands, increasingly standardized underwriting
requirements, more demanding borrowers and lenders and the growth of a market
for securitized commercial real estate mortgage pools. Many of the existing
firms lack the capital and financial sophistication to compete effectively in
today's rapidly changing market, and as a result the commercial mortgage banking
industry is moving toward greater consolidation. Moreover, lenders such as banks
and life insurance companies which have traditionally been the primary source
for commercial real estate financing, are increasingly constraining borrowers
due to their relatively inflexible underwriting standards, including lower
loan-to-value ratios, thereby creating significant demand for mezzanine and
other forms of gap financing. Accordingly, the Company believes that the
emerging market leaders in the real estate finance sector will be fully
integrated finance companies capable of originating, underwriting, structuring,
managing and retaining real estate risk.

COMPETITIVE ADVANTAGES

- FOCUS ON UNDERSERVED MARKET--The Company specializes in Customized
Financing transactions under $20 million, particularly the $1 million to
$5 million range, which larger financial institutions will not consider,
or, because of organizational constraints, cannot offer on terms
comparable to those provided by the Company.

- ORIGINATION SYNERGIES--The Company's participation in Permanent Loan
programs provides significant synergies with the Customized Financing
business. The Permanent Loan programs create a stream of opportunities
that require transitional financing to position the underlying property
for a Permanent Loan while providing an effective exit strategy for
Customized Financing transactions generated from other sources.

29
<PAGE>
- CONTINUITY AND EXPERIENCE OF MANAGEMENT--The four senior executive
officers of the Company (including Mr. Kaufman) have an average of more
than twelve years of experience in real estate finance and investing,
while the 21 vice presidents and regional directors average almost sixteen
years of relevant industry experience. Eleven members of the Company's
management team worked with Mr. Kaufman at Old Arbor. The remainder have
been recruited because of their particular product specialization and
expertise in analyzing and structuring complex financial transactions in
commercial real estate.

- NETWORK OF RELATIONSHIPS--In addition to the market presence represented
by its full-service and satellite offices, the Company generates
significant opportunities through referrals from an extensive network of
strategic relationships with investment banking firms, brokers,
developers, real estate owners and operators and other financial
institutions.

BUSINESS STRATEGIES

- INCREASE CUSTOMIZED FINANCING OPPORTUNITIES by using the additional
capital from this Offering to offer an expanded range of maturities and
other terms suitable for various borrowers and projects.

- GROW THE COMPANY'S STREAM OF INTEREST INCOME by using the additional
capital from this Offering to permit longer retention of bridge and
mezzanine loans on the Company's balance sheet.

CUSTOMIZED FINANCING ACTIVITIES

Through its Customized Financing activities, the Company actively pursues
lending and investment opportunities with real estate owners and property
developers who need interim financing until permanent financing can be obtained.
The Company targets transactions under $20 million, particularly in the $1
million to $5 million range, where the Company believes it has competitive
advantages, particularly its lower cost structure and its in-house capabilities.
These loans generally are not intended to be "permanent" in nature, but rather
are intended to be of a relatively short-term duration, with extension options
as deemed appropriate, and generally require a balloon payment of principal and
interest at maturity. The Company's customized loans generally yield higher
interest rates and fee income than Permanent Loans. Borrowers in the market for
these types of loans include, but are not limited to, owners or developers

30
<PAGE>
seeking either to acquire or refurbish real estate or to pay down debt and
reposition a property for permanent financing.

The Company targets borrowers with reputations for enhancing value, but who
may lack the financial capacity to qualify for bank financing beyond a certain
level. Loan structures vary as they are customized to fit the characteristics
and purpose of the financing. The bridge and mezzanine loans are underwritten in
accordance with guidelines designed to evaluate the borrowers' ability to
satisfy the repayment conditions of the loan. See "Underwriting." The Company
evaluates the various exit strategies for converting the short term financing
into a Permanent Loan, thereby increasing the volume of loans generated for the
Company's Permanent Loan program. As part of the determination to proceed with
the short term financing, the Company will include terms such as exit and other
fees that give the borrower strong incentives to obtain permanent financing
through the Company.

For the years ended December 31, 1997, and 1996, the Company originated $174
million and $74 million of Customized Financing transactions, respectively. In
addition to the interest and fee income earned on these originations, additional
Customized Financing transactions have provided the Company with the opportunity
to earn significant fee income without having to close on such transactions.
Some of these situations have involved providing, for a fee, commitments or
back-up commitments to borrowers, often with a strong likelihood that such
commitments would not be utilized, to enable such borrowers to consummate
commercial real estate transactions. Other situations have involved acquiring,
and selling at a profit prior to closing, contracts to purchase loans and
commercial properties. The Company expects that it will continue to generate
significant revenue from activities that do not involve the actual funding of a
loan (and a corresponding increase in origination volume), although no assurance
can be given that any such activities will occur. During 1997, the Company
earned $418,500 in fee income without closing any loans held as a result of such
transactions.

The Customized Financing team is comprised of ten employees with an average
of fifteen years of experience in structuring these types of transactions. This
group reports directly to Mr. Kaufman, who is actively involved in many of these
transactions.

MEZZANINE LOANS. The Company believes that there is a growing need for
mezzanine capital (i.e. capital representing the level between 65% and 90% of
property value) as a result of current commercial mortgage lending practices
setting loan-to-value targets as low as 65%. The Company's mezzanine financing
may take the form of subordinated loans, commonly known as second mortgages, or,
in the case of loans originated for securitization, partnership loans (also
known as pledge loans) or preferred equity investments with terms up to 60
months. For example, on a commercial property subject to a first lien mortgage
loan with a principal balance equal to 70% of the value of the property, the
Company could lend the borrower (typically a partnership) an additional 15% to
20% of the value of the property. In some instances, the Company may provide
mezzanine financing for construction projects where a third party lender has
provided only 85% to 90% of the total project costs. The Company believes that
as a result of (i) the significant changes in the lending practices of
traditional commercial real estate lenders, primarily relating to more
conservative loan-to-value ratios, and (ii) the significant increase in
securitized lending with strict loan-to-value ratios imposed by the rating
agencies, there will be an increasing demand for mezzanine capital by borrowers.

Typically, the borrower will pledge to the Company either the property
subject to the first lien (giving the Company a second lien position typically
subject to an inter-creditor agreement) or an equity interest in the borrower.
If the borrower's equity interest is pledged, then the Company would be in a
position to take over the operation of the property in the event of a default by
the borrower. The Company may also require additional collateral such as
personal guarantees, letters of credit or other collateral unrelated to the
subject property. By borrowing against the additional value in their properties,
borrowers obtain an additional level of liquidity to apply to property
improvements or alternative uses.

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<PAGE>
Mezzanine loans generally provide the Company with the right to receive a
stated interest rate on the loan balance plus various commitment and exit fees.
In certain instances, the Company will negotiate to receive a percentage of net
operating income or gross revenues from the property, payable to the Company on
an ongoing basis, and a percentage of any increase in value of the property,
payable upon maturity or refinancing of the loan, or the Company will otherwise
seek terms to allow the Company to charge an interest rate that would provide an
attractive risk-adjusted return. Alternatively, mezzanine loans can take the
form of a non-voting preferred equity investment in a single purpose entity
borrower with substantially similar terms.

BRIDGE LOANS. The Company provides short-term financing to fund
opportunistic property acquisitions by a borrower or to fund the rehabilitation
of an owned property to enable the borrower to perform upgrades and other
property management enhancements, thereby increasing the property's value prior
to qualifying for a Permanent Loan. The Company is typically approached by a
borrower who has identified an undervalued property (i.e. an under-managed
property or a property located in a recovering market) and who is in need of
immediate financing to capitalize on the opportunity. The bridge facility allows
the borrower to focus on the purchase of the property without the concern of
negotiating long-term financing at the same time. Moreover, traditional lenders
will often constrain the amounts available for long-term financing to the
"as-is" value of the property, while the Company, through the bridge loan, is
able to give consideration to the potential stabilized value of the asset.

The Company's bridge loans are secured by first lien mortgages on the
property with terms generally up to 36 months and are subject to its customary
underwriting analysis. See "--Underwriting." As with mezzanine loans, bridge
loans generally provide the Company with commitment, exit and other fees and
interest at a rate that would provide an attractive risk-adjusted return.

NOTE ACQUISITIONS. The Company acquires real estate notes from borrowers
interested in restructuring and repositioning their short term debt and from
traditional lenders, who for a variety of reasons, (such as risk mitigation or
other strategic reasons) wish to divest certain assets from their portfolio. In
most circumstances the Company is able to acquire these notes at a discount. In
certain instances, the Company may seek joint venture partners with larger
balance sheet capability to purchase such notes. The Company's strategy upon
acquisition of notes from either a borrower or a traditional lender is to use
its management resources to resolve any dispute concerning the note or the
property securing it, and to identify and resolve any existing operational or
any other problems at the property. The Company will then either restructure the
debt obligation for immediate resale or sale at a later date or reposition it
for permanent financing. In some instances, the Company may take fee title to
the property underlying the real estate note. See "--Investment in Real Estate
and Other Investments."

LOANS HELD FOR INVESTMENT. At March 31, 1998, the Company's portfolio of
loans held for investment amounted to $56 million, or 60% of the Company's total
assets. Loans held for investment, net, principally bridge, mezzanine and note
acquisitions, are carried at amortized cost less unearned income and allowance
for loan losses. The net book value of loans held for investments, net,
represents fair value at each date.

As of March 31, 1998, 46.9% of the Company's portfolio loans held for
investment consisted of three loans of $11.1 million, $5.5 million and $10.4
million. These loans were held by two unrelated borrowers and secured by
individual properties or interests in investment partnerships. To date, the
Company has not experienced any losses on its portfolio of loans held for
investment. As of March 31, 1998 there was one delinquent loan in this portfolio
with an outstanding principal balance of approximately $300,000. The Company
anticipates repayment of this loan in full. See "Risk Factors--Credit
Concentration of Loans Held for Investment."

32
<PAGE>
LOANS HELD FOR INVESTMENT, NET
BY TYPE OF LOAN
<TABLE>
<CAPTION>
AS OF AS OF
MARCH 31, 1998 DECEMBER 31, 1997
------------------------------------------ -------------------------
WEIGHTED
WEIGHTED AVERAGE WEIGHTED
AVERAGE REMAINING AVERAGE
STATED TERM TO STATED
# INTEREST MATURITY # INTEREST
-- AMOUNT RATE(1)(2) IN MONTHS -- AMOUNT RATE(1)(2)
---------- ------------- --------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Bridge Loans....................... 10 $37,167,868 11.2% 9 10 $32,049,330 10.7%
Mezzanine.......................... 4 6,275,416 11.6 16 3 6,177,891 11.7
Note Acquisitions & Mortgages...... 22 12,773,453 9.7 30 26 32,031,121 9.8
Other.............................. 2 1,300,000 15.0 13 2 1,300,000 15.0
-- -- --
---------- --- ---------- ---
Total............................ 38 57,516,737 11.0% 14 41 71,558,342 10.4%
-- -- --
-- -- --
--- ---
--- ---
Less: Unearned Income.............. (505,416) (2,270,403)
Allowance for loan losses.......... (738,032) (678,033)
---------- ----------
LOANS HELD FOR INVESTMENT, NET..... $56,273,289 $68,609,906
---------- ----------
---------- ----------

<CAPTION>
AS OF
DECEMBER 31, 1996
------------------------------------------
WEIGHTED WEIGHTED
AVERAGE WEIGHTED AVERAGE
REMAINING AVERAGE REMAINING
TERM TO STATED TERM TO
MATURITY # INTEREST MATURITY
IN MONTHS -- AMOUNT RATE(1)(2) IN MONTHS
--------------- ---------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Bridge Loans....................... 9 4 $1,015,947 10.8% 11
Mezzanine.......................... 18 4 3,410,000 11.1 24
Note Acquisitions & Mortgages...... 15 24 35,801,781 10.0 24
Other.............................. 16 2 728,137 15.0 28
-- -- --
---------- ---
Total............................ 13 34 40,955,865 10.2% 24
-- -- --
-- -- --
---
---
Less: Unearned Income.............. (1,801,750)
Allowance for loan losses.......... (468,551)
----------
LOANS HELD FOR INVESTMENT, NET..... $38,685,564
----------
----------
</TABLE>

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

(1) The weighted average stated interest rate does not include commitment, exit
and other fees.

(2) The weighted average stated interest rates are primarily six-month LIBOR
based.

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<PAGE>
PERMANENT LOANS

Through its Permanent Loan activities, the Company originates, underwrites,
warehouses and sells into the secondary markets commercial real estate loans,
principally multifamily loans. The Company generally sells its mortgage loans on
a servicing retained basis, which generates a stable and predictable source of
fee revenue, and on a non-recourse basis, except for standard FNMA DUS
requirements described below. The average size of these loans is $4.5 million.
The Company funds these loans using its warehouse lines of credit and repurchase
agreements. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."

For the years ended December 31, 1997 and 1996, the Company originated $216
million and $244 million of Permanent Loans, respectively. The Permanent Loan
team is comprised of seven loan originators and twenty underwriters having an
average of eleven and six years of experience, respectively, in FNMA DUS and
conduit loan programs. Underwriting standards are established by the Company's
Chief Underwriter, who has over seventeen years of underwriting, sales and
product experience. Additionally, in the last two years the Company has expanded
its FHA/HUD lending activities by adding a dedicated team of four loan
originators and two underwriters with between six and twenty years of
experience. The FHA group is led by a former Vice President and Manager of
Insured Loans for GMAC Commercial Mortgage Corp.

Below is a description of the types of Permanent Loan programs in which the
Company participates:

FNMA DUS. In October, 1995, the Company became an approved FNMA DUS
originator. An approved FNMA DUS lender is delegated the authority to approve,
commit and close loans for multifamily mortgages on a national basis with a
standby commitment from Fannie Mae that it will purchase the loans. In contrast
to a "prior approval" lender, FNMA DUS lenders do not need to obtain the
approval of Fannie Mae prior to making the loan. In return for the delegated
authority to make loans and the commitment to purchase such loans by Fannie Mae,
FNMA DUS lenders must maintain a minimum capital base and retain a certain level
of credit risk on the loans they make. The FNMA DUS lender takes first loss risk
up to 5% of the loan amount, and above 5%, Fannie Mae and the FNMA DUS lender
share the loss, with the FNMA DUS lender's maximum loss capped at 20% of the
original loan amount. In return for sharing the risk of loss, the participants
receive a servicing fee that is significantly higher than what is typically
found in the industry. See "--Servicing."

The Company is one of only 28 currently approved FNMA DUS lenders. The
Company believes that as one of these few FNMA DUS lenders, it has certain
competitive advantages in the multifamily mortgage origination business. These
advantages include the competitive-tiered pricing afforded by Fannie Mae's
position as the largest purchaser of housing related mortgages in the nation,
the ability to commit and close mortgages without the delay and the accompanying
market risks of such delay for an approval process by the mortgage purchaser.
The Company expects Fannie Mae loan originations will continue to be a
significant part of its commercial mortgage banking activities. The Company
originated $149 million and $168 million of FNMA DUS mortgages for the years
ended December 31, 1997 and 1996, respectively. The Company, as a FNMA DUS
lender, has experienced no losses or delinquencies on its portfolio of FNMA DUS
loans as of March 31, 1998.

CONDUIT. The Company's conduit program involves the origination for sale
(on a non-recourse basis) and servicing of commercial mortgage loans typically
for B-C quality commercial credits, primarily multifamily properties, but also
for office buildings, retail centers, hotels, warehouses and assisted living
facilities. Mortgage loans are sold to institutional investors, including Fannie
Mae. Since the Company maintains a number of Wall Street relationships,
borrowers are assured of competitive rates. Mortgages originated under this
program are underwritten in accordance with investor guidelines designed to
evaluate the borrower's ability to satisfy the repayment conditions of the loan.
See "--Underwriting." The Company originated $40 million and $67 million of
conduit mortgages for the years ended December 31, 1997 and 1996, respectively.

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<PAGE>
FHA MULTIFAMILY AND HEALTHCARE. The Company is an approved lender in the
FHA/HUD mortgage insurance program. The FHA group of professionals implement the
origination, underwriting and processing of FHA/HUD insured financing
nationwide. The uses for financing provided through the FHA/HUD mortgage
insurance programs consist of the acquisition, refinancing, new construction and
substantial rehabilitation of multifamily housing, assisted living and nursing
home facilities nationwide. Upon receiving HUD's firm commitment to insure the
mortgage, the Company issues Government National Mortgage Association backed
securities that are sold primarily to investment banking institutions and
pension funds. The Company will usually retain the right to service the loans on
behalf of the purchasers for a continuing servicing fee. See "--Servicing." The
Company has recently begun actively seeking transactions under the FHA/HUD
mortgage insurance program. The Company currently has a pipeline of
approximately $100 million of FHA/HUD products at various stages of processing.

SALE PROCEDURES. Permanent Loans are often committed to be sold prior to
the time the loan is funded. The Company typically completes the sale of a
Permanent Loan to an investor within ten to 60 days following the closing of a
loan. The actual length of time a loan is held prior to sale into the secondary
market is determined by the Company's capital markets group. The objective of
the capital markets group is to maximize the Company's gain on sale of the loan
while also earning a favorable yield during the holding period.

In connection with such sales, the Company makes certain representations and
warranties to investors covering matters such as title to mortgaged property,
lien priority, environmental reviews and certain other matters. See "Risk
Factors -- Retained Risks of Loans Sold." The Company bases these
representations and warranties on representations and warranties from borrowers
and its own due diligence. The Company may also retain certain other liabilities
with respect to loans it sells to investors, as it does under the FNMA DUS
Program as described above. See also "Risk Factors -- Risk of Loss on Mortgage
Loans Sold Under the FNMA DUS Program." After selling a mortgage loan, the
Company typically retains the right to service the loan. See "--Servicing."

INVESTMENT IN REAL ESTATE AND OTHER INVESTMENTS

From time to time the Company is presented with or otherwise identifies real
estate investment opportunities. In these situations, the Company may act solely
on its own behalf, through a wholly owned subsidiary or in partnership with
other investors. Typically these transactions are analyzed with the expectation
that the Company will have the ability to sell the property within a six to
twenty-four month time horizon, with a significant return on invested capital.
The Company currently retains the services of third-party management companies,
but may in the future decide to manage such real property interests itself.

The Company may also pursue investments in, among other assets, construction
loans, distressed loans, property development and finance-related assets,
operating companies in real estate-related busi-
nesses (such as loan origination, loan servicing and property management
companies) and fee interests in real property.

MARKETING AND SOURCING

The Company serves its markets directly through its network of six full
services offices located in Atlanta, Boston, Chicago, Dallas, San Francisco and
Uniondale, New York, as well as through three satellite offices located in
Miami, Los Angeles and Florence, Kentucky (greater Cincinnati, Ohio). These
offices are staffed by approximately fifteen loan originators who solicit
property owners, developers and mortgage loan brokers. In some instances, the
originators will accept loan applications meeting the Company's underwriting
criteria from a select group of mortgage loan brokers. Mortgage loan brokers act
as intermediaries between property owners and the Company in arranging real
estate loans and earn a fee, generally paid by the borrower, based upon the
principal amount of each loan funded. Since a large

35
<PAGE>
portion of the Company's marketing effort in its branches is through the
development of relationships with borrowers and brokers, the Company does not
incur significant expenses in the form of advertising its lending services to
the general public.

Once potential borrowers have been identified, the Company determines which
of its financing products best meets the borrowers needs. Loan originators in
every branch office have access to and are able to offer borrowers the full
array of both Customized Financing and Permanent Loan products. After
identifying a suitable product, the Company works with the borrower to prepare a
loan application. Upon completion by the borrower, the application is forwarded
to the Company's underwriters for due diligence or, in the case of FHA insured
loans, to the FHA, which conducts the due diligence and makes decisions on
commitments. See "--Underwriting."

UNDERWRITING

The Company's loan originators work in conjunction with underwriters whose
responsibility is to perform due diligence on all Customized Financing and
Permanent Loans prior to approval and commitment. The Company's underwriters
complete a comprehensive assessment of the proposed loan including a review of
(1) borrower financial position and credit history, (2) past operating
performance of the underlying collateral, (3) potential changes in project
economics and (4) third party appraisal, environmental, and engineering studies.
Additionally, underwriters complete an independent market assessment which
includes a property inspection, review of tenant and lease files, survey of
market comparables and an analysis of area economic and demographic trends.

Key factors considered in credit decisions include, but are not limited to,
debt service coverage, loan-to-value ratios, property financial and operating
performance, quality of property management, borrower credit history and tenant
profile. With respect to Permanent Loans, specific underwriting guidelines are
set by Fannie Mae and other investors. These standards vary from investor to
investor and may include a subjective element based on the totality of
circumstances relating to the credit risk and generally do not involve
mechanical application of a set formula. With respect to Customized Financing,
additional consideration is given to other factors, such as alternative forms of
collateral and identifying a potential exit strategy. The Company refines its
underwriting criteria based on actual loan portfolio experience and as market
conditions and investor requirements evolve.

The Company utilizes the underwriting criteria established by the FHA to
recommend loans for FHA insurance. The Company provides the FHA with the
requisite information necessary for its credit review. These loans are then
examined by the FHA, which makes the decision as to whether to approve the loan.

LOAN APPROVAL PROCESS

PERMANENT LOANS. A comprehensive written report is prepared on every loan
application submitted to the Company's Permanent Loan committee for approval.
The four members of the committee have an average of over seventeen years of
industry experience. All loans require approval by a majority of the committee.
This presentation includes a description of the prospective borrower and any
guarantors, the collateral, and the proposed use of loan proceeds, as well as
borrower and property financial statements and analysis. Each application is
evaluated from a number of underwriting perspectives. Since Permanent Loans are
limited or non-recourse to the borrower, primary emphasis is placed on the
property's economic performance, physical condition and local housing market,
along with prudent application of debt service coverage and loan-to-value
ratios. Even so, the Company also examines, when circumstances warrant, borrower
liquidity, net worth, cash investment, income, credit history and operating
experience.

The Company's loan originators, in conjunction with regional office
underwriters, the Company's Chief Underwriter and its Vice President-Capital
Markets, are primarily responsible for initial reviews of borrowers, properties
and loan terms. Upon the borrower's execution of the loan application, the

36
<PAGE>
Company's underwriting group conducts due diligence under the direct supervision
of the Chief Underwriter. The underwriter assigned to the case presents the
transaction to the Permanent Loan committee with the advice, consent and support
of the Chief Underwriter. Following loan approval and prior to funding, the
Company's underwriting and servicing departments assure that all loan approval
terms have been satisfied, that they conform with lending policies (including
authorized exceptions) and that all required documentation is present and in
proper form.

CUSTOMIZED FINANCING. As with Permanent Loans, a written report is
generated for every customized loan transaction the Company is considering
financing. The guidelines utilized to prepare these reports do not depart
substantially from those used for Permanent Loans. Each loan is reviewed and
approved by executives in the Customized Financing group and, if approved,
presented for final approval by Mr. Kaufman. Following the approval of any such
loan, the Company's underwriting and servicing departments assure that all loan
approval terms have been satisfied and that they conform with lending
requirements established for that particular transaction.

SERVICING

The Company services an expanding loan portfolio which contributes a
relatively predictable and stable source of cash flow. The Company's loan
servicing operations are designed to provide prompt customer service and
accurate and timely information for account follow-up, financial reporting and
management review. The Company's loans are serviced through the loan
administration department located in the Company's Boston office. Following the
funding of an approved loan, all pertinent loan data is entered into the
Company's data processing system, which provides monthly billing statements,
tracks payment performance and processes contractual interest rate adjustments
on variable rate loans. Regular loan service efforts include payment processing
and collection follow-up, as well as tracking the performance of additional
borrower obligations with respect to the maintenance of casualty insurance
coverage, payment of property taxes and senior liens, if applicable. On a
quarterly basis, the Company obtains and analyzes operating statements and
detailed rent rolls on the properties securitizing the commercial loans
serviced. In addition, inspections of the property are performed annually or
more frequently if necessary, e.g. properties undergoing major improvements. The
Company has in-house asset management expertise to assist in the inspection
process. With these procedures already in place, if loans become delinquent or
non-performing the Company has current information about the underlying
collateral and can react quickly by changing management companies, commencing
foreclosure proceedings and negotiating workouts with the borrowers on behalf of
the investors.

COMMERCIAL SERVICING PORTFOLIO. The Company's commercial servicing
portfolio represents commercial loans serviced for third parties for a fee and
does not include loans held for investment. Yield maintenance and lockout
provisions tend to discourage and, in the case of a lockout provision, prevent
early loan payoffs by the borrower. These provisions enable the Company to
better determine future cash flow from its existing portfolio and to calculate
the potential to refinance maturing loans. In addition, the Company receives its
pro rata share of the servicing fee (calculated on a present value basis) for
loans that are prepaid under the FNMA DUS Program. To date, the Company's
commercial servicing portfolio has not experienced any losses. As of March 31,
1998, there was one delinquent loan with an outstanding principal balance of
less than $100,000.

37
<PAGE>
COMMERCIAL SERVICING PORTFOLIO
(DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>
FNMA WAREHOUSE
DECEMBER 31, 1997 DUS CONDUIT & OTHER TOTAL
--------- ----------- ----------- ---------
<S> <C> <C> <C> <C>

Unpaid principal balance.................................. $ 291.9 $ 180.4 $ 57.7 $ 530.0

Weighted average interest rate............................ 8.07% 9.12% 7.81% 8.40%
Weighted average servicing fee............................ 0.45% 0.27% 0.42% 0.38%
Remaining months to maturity.............................. 129 74 140 111
Number of loans serviced.................................. 51 66 16 133

DECEMBER 31, 1996

Unpaid principal balance.................................. $ 136.3 $ 193.6 $ 55.6 $ 385.5

Weighted average interest rate............................ 8.12% 9.28% 9.71% 8.93%
Weighted average servicing fee............................ 0.45% 0.21% 0.45% 0.33%
Remaining months to maturity.............................. 126 83 143 107
Number of loans serviced.................................. 26 72 12 110
</TABLE>

On March 31, 1998, the Company had a portfolio of $536 million of commercial
loans serviced for a fee. The characteristics of the portfolio on that date were
substantially similar to those of the December 31, 1997 portfolio.

INTEREST RATE MANAGEMENT TECHNIQUES

In general, when the Company establishes an interest rate on a loan held for
sale, it attempts to contemporaneously lock in an interest yield to the
institutional investor purchasing that loan. By selling these loans shortly
following origination the Company limits its exposure to interest rate
fluctuations. However, the Company will accumulate some loans for bulk sale and
in these circumstances the Company hedges its interest rate risk with forward
commitments and put options. The Company does not hedge its loans held for
investment because these loans are generally variable rate loans which are based
on short term LIBOR. However, the operations and profitability of the Company
are likely to be adversely affected during any period of unexpected or rapid
changes in interest rates. For example, a substantial or sustained increase in
interest rates could adversely affect the ability of the Company to originate
loans.

38
<PAGE>
COMPETITORS

The Permanent Loan and Customized Financing industries are highly
competitive and the Company competes with companies which may have greater
financial resources and lower costs of capital available to them. Although
management believes that the Company is well positioned to continue to compete
effectively in each facet of its business, there can be no assurance that it
will do so or that the Company will not encounter further increased competition
in the future which could limit its ability to compete in its Permanent Loan and
Customized Financing activities.

EMPLOYEES

As of May 31, 1998, the Company had 83 employees, including four senior
executives, 46 employees directly involved in the production of loan
transactions and 33 administrative, servicing and corporate personnel. None of
the employees are represented by collective bargaining agreements, and
management believes that it has good relations with its employees.

PROPERTIES

The Company believes that its current facilities are adequate for its
present needs and that it would not have any difficulty in obtaining additional
or alternate space at prevailing rates if necessary. The Company's current
facilities are as follows:

<TABLE>
<CAPTION>
SQUARE LEASE
LOCATION FEET EXPIRATION CHARACTER OF USE
- -------------------------------------------- --------- ------------------ --------------------------------------
<S> <C> <C> <C>
Uniondale, NY............................... 18,200 May, 2004 Executive, production and
administrative offices
Boston, MA.................................. 6,800 June, 2003 Production, servicing and
administrative offices
San Francisco, CA........................... 2,500 January, 2001 Production office
Los Angeles, CA............................. 300 November, 1998 Production office
Miami Beach, FL............................. 1,200 May, 2001 Production office
Atlanta, GA................................. 2,600 March, 2001 Production office
Burr Ridge (Chicago), IL.................... 1,800 March, 1999 Production office
Florence, KY (greater Cincinnati, Ohio)..... 1,200 December, 1999 Production office
Dallas, TX.................................. 3,500 November, 2001 Production office
</TABLE>

LEGAL PROCEEDINGS

In the ordinary course of its business, the Company is from time to time
subject to litigation. The Company does not believe that any litigation to which
the Company is currently subject is likely, individually or in the aggregate, to
have a material adverse effect on the financial condition of the Company.

39
<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS, DIRECTORS AND DIRECTOR NOMINEES

The following table sets forth certain information with respect to the
director, director nominees and executive officers of the Company. It is
anticipated that all such persons will continue to serve in such capacities
following the completion of this Offering.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Ivan Kaufman......................................... 37 Chairman of the Board, President, Chief Executive
Officer and Director
Joseph Martello...................................... 42 Senior Vice President, Chief Financial Officer and
Director Nominee
Walter K. Horn....................................... 55 Senior Vice President, General Counsel and Secretary
Elliot Silverman..................................... 47 Senior Vice President--Human Resources and
Organization Development
Richard A. Lippe, Esq................................ 59 Director Nominee
Larry Swedroe........................................ 46 Director Nominee
Scott Rudolph........................................ 40 Director Nominee
</TABLE>

IVAN KAUFMAN is the founding stockholder, Chairman of the Board, President,
Chief Executive Officer and Director of the Company. From 1983 until its sale in
1995, Mr. Kaufman was the co-founder, President and Chief Executive Officer of
Old Arbor. Mr. Kaufman served on the National Advisory Board of Fannie Mae in
1994. He has also served on Fannie Mae's regional advisory and technology
boards, as well as the Board of Directors of the Empire State Mortgage Bankers
Association. Mr. Kaufman is a director of Star Multicare Services, Inc., a
publicly traded placement service for registered and licensed nurses and home
health care aides. From 1990 to 1995, Mr. Kaufman was the Tri-State regional
spokesperson for Global Relief, a nationwide environmental effort spearheaded by
the American Forestry Association. Mr. Kaufman currently serves on the Executive
Board of the North Shore Hebrew Academy and is a Board Trustee of the Great Neck
Synagogue. He also serves as Treasurer of the Israeli Tribute Committee and is a
Trustee of Dowling College and the Walt Frasier Foundation. Mr. Kaufman earned a
Juris Doctor degree from Hofstra University School of Law and a Bachelor of Arts
in Business Administration from Boston University.

JOSEPH MARTELLO has been Senior Vice President and Chief Financial Officer
of the Company since 1995 and is a director nominee for the Company. From 1990
until its sale in 1995, Mr. Martello was Vice President and Chief Financial
Officer of Old Arbor. Mr. Martello is a cum laude graduate from Hofstra
University and became a certified public accountant in New York in 1980.

WALTER K. HORN, Esq. has been Senior Vice President, Secretary and General
Counsel of the Company since 1995. Previously, Mr. Horn was General Counsel and
Secretary of Old Arbor from 1991 until its sale in 1995, and was Vice President
of Old Arbor from 1992 until its sale in 1995. Mr. Horn has a Juris Doctor
degree from St. John's University School of Law and was admitted to the New York
State Bar in 1968.

ELLIOT SILVERMAN has been Senior Vice President--Human Resources and
Organization Development of the Company since February 1998. Prior to joining
the Company, Mr. Silverman was Vice President of Human Resources of Barnes
Jewish Hospital from 1996-1998; and the Executive Vice President, Human
Resources and Communications for Prudential Home Mortgage from 1993 to 1996; and
the Vice President--Human Resources for Bankers Trust Company from 1981 to 1992.
Mr. Silverman received a Master degree in Education from Columbia University and
a Bachelor of Arts degree in Psychology from Queens College.

40
<PAGE>
NON-EMPLOYEE DIRECTOR NOMINEES

LARRY SWEDROE is a director nominee of the Company. Since 1996, Mr. Swedroe
has been a principal of Buckingham Asset Management, a privately held financial
advisory firm. From 1986 to 1996, Mr. Swedroe was Vice Chairman of Prudential
Home Mortgage and prior to that he was a Senior Vice President of Citicorp
Homeowners, Inc. Mr. Swedroe is a director of Amerin Corp., a mortgage insurance
company, and a director of Mobile Application Servers, a software company. Mr.
Swedroe received a Masters of Business Administration in Finance from New York
University and a Bachelor of Arts degree in Finance from Bernard Baruch College.

RICHARD A. LIPPE, Esq. is a director nominee of the Company. For more than
the past five years, Mr. Lippe has been a practicing attorney in the State of
New York and is a stockholder and officer of Meltzer, Lippe, Goldstein, Wolf and
Schlissel, P.C., a law firm. Mr. Lippe is Chairman of the Board of Silicon
Island Equities, LLC, a privately held investment banking firm, and is a
director of OmniCorder Technologies, Inc., a privately held company which
develops breast cancer detection equipment and Collaborative Laboratories, Inc.,
a privately held contract research and manufacturing biotechnology company. Mr.
Lippe was a director of Old Arbor from 1993 until its sale in 1995. Mr. Lippe is
the Managing Trustee of the Keene Asbestos Liquidating Trust. Mr. Lippe has a
Juris Doctor degree from the University of Pennsylvania Law School and was
admitted to the New York State Bar in 1964.

SCOTT RUDOLPH is a director nominee of the Company. Mr. Rudolph has been the
Chairman of the Board and Chief Executive Officer since 1993 and President since
1986 of NBTY, Inc., a publicly traded vitamin, mineral and food supplement mail
order business. Mr. Rudolph is the Chairman of the Dowling College Board of
Trustees. He received a Bachelor of Arts degree in Marketing from Dowling
College.

COMPENSATION OF DIRECTORS

Each of the non-employee director nominees will receive a retainer for 1998
of 1,000 shares of Common Stock for their services. In addition, non-employee
directors receive a fee of $750 for each committee meeting attended in person,
unless the committee meeting is held on the same day as the meeting of the Board
of Directors, and a fee of $250 for each telephonic meeting attended.
Non-employee directors are also reimbursed for reasonable expenses incurred to
attend meetings. The non-employee director nominees will receive, upon initial
election to the Board of Directors, an option to purchase 3,000 shares of Common
Stock, and thereafter will receive annually an option to purchase 1,500 shares
of Common Stock. All such options are priced at 100% of the market price at
grant and become exercisable over the two year period following the date of
grant expiring ten years from the date of grant.

The Board of Directors intends to have both a standing Audit Committee and a
standing Compensation Committee. The Audit Committee, which is anticipated to be
comprised of Messrs. Lippe (Chair), Swedroe and Rudolph, assists the Board of
Directors in exercising its fiduciary responsibilities for oversight of audit
and related matters, including corporate accounting, reporting and control
practices. It is responsible for recommending to the Board of Directors the
independent auditors for the following year. The Audit Committee intends to meet
periodically with management, financial personnel and the independent auditors
to review internal accounting controls and auditing and financial reporting
matters.

The Compensation Committee, which is anticipated to be comprised of Larry
Swedroe (Chair) and Richard Lippe, is responsible for overseeing the Company's
executive compensation programs. It shall administer certain compensation and
benefit plans and approves annual compensation and recommends to the Board of
Directors long-term incentive compensation to be granted pursuant to the
Company's 1998 Stock Plan for executive officers, directors, employees and
consultants of the Company.

41
<PAGE>
REMUNERATION OF EXECUTIVE OFFICERS--SUMMARY COMPENSATION TABLE

The following table discloses compensation paid by the Company for the
services of the chief executive officer and the four other most highly paid
executive officers of the Company for the years ended December 31, 1997, 1996
and 1995.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION(1)
--------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AWARDS
ANNUAL COMPENSATION --------------------------------------
---------------------------------------------------- SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL RESTRICTED STOCK UNDERLYING
POSITION YEAR SALARY BONUS COMPENSATION AWARD(S) OPTIONS
- ------------------------- --------- --------- --------- ------------------- --------------------- ---------------
Ivan Kaufman (2)......... 1997 $ 120,000 -- -- -- --
Chairman of the 1996 120,000 -- -- -- --
Board, President and 1995 -- $ 140,000 -- -- --
Chief Executive Officer

Joseph Martello (2)(3)... 1997 $ 50,000 -- -- -- --
Senior Vice President and 1996 31,250 -- -- -- --
Chief Financial 1995 -- -- -- -- --
Officer

Walter K. Horn (2)(3).... 1997 $ 50,000 -- -- -- --
Senior Vice President, 1996 31,250 -- -- -- --
General 1995 -- -- -- -- --
Counsel and Secretary

Dana Eng................. 1997 $ 110,000(4) -- -- -- --
Former Senior Vice 1996 54,000 -- -- -- --
President, Marketing 1995 -- -- -- -- --

Scott Brown.............. 1997 $ 63,301(5) -- -- -- --
Former Senior Vice 1996 125,000 -- -- -- --
President, Capital 1995 20,832 $ 120,833 -- -- --
Markets

<CAPTION>
<S> <C> <C>
PAYOUTS
-------------
NAME AND PRINCIPAL LTIP ALL OTHER
POSITION PAYOUTS COMPENSATION
- ------------------------- ------------- -------------
Ivan Kaufman (2)......... -- --
Chairman of the -- --
Board, President and -- --
Chief Executive Officer
Joseph Martello (2)(3)... -- --
Senior Vice President and -- --
Chief Financial --
Officer
Walter K. Horn (2)(3).... -- --
Senior Vice President, -- --
General -- --
Counsel and Secretary
Dana Eng................. -- --
Former Senior Vice -- --
President, Marketing -- --
Scott Brown.............. -- $ 100,000(6)
Former Senior Vice -- --
President, Capital -- --
Markets
</TABLE>

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

(1) During the fiscal years ended December 31, 1997, 1996 and 1995, the Company
paid no long-term compensation to any of the named executive officers.
However, in June 1998, the Company's Board of Directors adopted the 1998
Stock Plan, an omnibus long-term incentive plan under which the Compensation
Committee of the Board of Directors recommends for approval by the Board of
Directors, grants of stock options, restricted stock or stock appreciation
rights for officers, directors, employees or consultants of the Company. The
Company anticipates that long-term compensation may be issued to certain
officers, directors, employees and consultants of the Company in the future
as and when approved by the Board of Directors. See "--Compensation of
Directors" and "--Employee Benefit Plans."

(2) Beginning January 1, 1999, the employment agreements of Messrs. Kaufman,
Martello and Horn will require them to devote substantially all of their
business time to rendering services to the Company. Accordingly, pursuant to
such employment agreements, the salaries expensed to the Company of Messrs.
Kaufman, Martello and Horn will increase in the future as a result of them
devoting more time to the Company. See "--Employment Agreements."

(3) Compensation reported for Messrs. Martello and Horn represents compensation
paid to them for services rendered to or for the Company during the periods
indicated. During 1996 and 1997, Messrs. Martello and Horn (and during 1996,
Ms. Eng) also devoted a substantial portion of their business time to
rendering services for an affiliate of the Company, for which time they
received additional compensation from the affiliate consisting of a salary,
bonus and certain perquisites, including 401(k) contributions.

(4) Ms. Eng resigned in March 1998.

(5) Represents compensation paid to Mr. Brown until his resignation in June
1997.

(6) Represents severance payment to Mr. Brown.

EMPLOYMENT AGREEMENTS

IVAN KAUFMAN. Mr. Kaufman entered into an employment agreement with the
Company, dated June , 1998. The term of employment is through December 31,
2003. The salary for 1998 is $175,000 per

42
<PAGE>
annum and increases to $250,000 per annum beginning January 1, 1999, with a 10%
yearly increase thereafter. Commencing January 1, 1999, Mr. Kaufman is required
to devote substantially all his full business time and attention to the affairs
of the Company. Prior thereto he is required to devote no less than 75% of his
business time and attention to the affairs of the Company. Mr. Kaufman will
receive an initial grant of stock options at an exercise price equal to
the proposed Offering price of the Company's Common Stock. These options shall
be non-qualified options and shall remain exercisable for ten years from the
date of grant. Such options will become fully vested seven years from the date
of grant, subject to acceleration if within three years of the date of grant,
the Company's Common Stock sustains a target price which is two times the
Offering price for a period of twenty consecutive trading days or in the event
of a change in control of the Company or the death or disability of Mr. Kaufman.
Mr. Kaufman's employment under the agreement may be terminated by the Company at
any time for cause or upon Mr. Kaufman's death or disability. Mr. Kaufman is
restricted from competing with the Company for three years after the termination
of his employment in the event that he resigns or is terminated for cause.
Should Mr. Kaufman's employment be wrongfully terminated, he is entitled to
receive severance equal to three times his base salary plus three times the
highest annual bonus paid to him, if any. The Agreement also provides for
disability and insurance benefits.

JOSEPH MARTELLO. Mr. Martello entered into an employment agreement with the
Company, dated June , 1998. The term of employment is through December 31,
2001. Commencing January 1, 1999, Mr. Martello is required to devote
substantially all of his full business time and attention to the affairs of the
Company. Prior thereto, he may engage in activities not related to the Company,
provided that these activities do not interfere with his responsibilities to the
Company as determined by the Chief Executive Officer. The per annum salary is
$175,000 for the term of the contract. Mr. Martello will receive an initial
grant of stock options at an exercise price equal to the proposed Offering
price of the Company's Common Stock. These options shall be incentive stock
options, shall remain exercisable for ten years from the date of grant and will
become fully vested [ ] years from the date of grant. Mr. Martello's employment
under the agreement may be terminated by the Company at any time for cause or
upon Mr. Martello's death or disability. Mr. Martello is restricted from
competing with the Company for one year after the termination of his employment
in the event that he resigns or is terminated for cause provided that the
Company pays Mr. Martello a sum equal to his per annum base salary during the
non-competition period.

WALTER K. HORN, ESQ. Mr. Horn entered into an employment agreement with the
Company, dated June , 1998. The term of employment is through December 31,
2001. Commencing January 1, 1999, Mr. Horn is required to devote substantially
all of his full business time and attention to the affairs of the Company. Prior
thereto, he may engage in activities not related to the Company, provided that
these activities do not interfere with his responsibilities to the Company as
determined by the Chief Executive Officer. The per annum salary is $175,000 for
the term of the contract. Mr. Horn will receive an initial grant of stock
options at an exercise price equal to the proposed Offering price of the
Company's Common Stock. These options shall be incentive stock options, shall
remain exercisable for ten years from the date of grant and will become fully
vested [ ] years from the date of grant. Mr. Horn's employment under the
agreement may be terminated by the Company at any time for cause or upon Mr.
Horn's death or disability. Mr. Horn is restricted from competing with the
Company for one year after the termination of his employment in the event that
he resigns or is terminated for cause, provided that the Company pays Mr. Horn a
sum equal to his per annum base salary during the non-competition period.

ELLIOT SILVERMAN. Mr. Silverman entered into an employment agreement with
the Company, dated June , 1998. The term of employment is through December
31, 2001. Commencing January 1, 1999, Mr. Silverman is required to devote
substantially all of his full business time and attention to the affairs of the
Company. Prior thereto, he may engage in activities not related to the Company,
provided that these activities do not interfere with his responsibilities to the
Company as determined by the Chief Executive Officer. The per annum salary is
$175,000 for the term of the contract. Mr. Silverman will receive an initial
grant of stock options at an exercise price equal to the proposed Offering
price of the Company's

43
<PAGE>
Common Stock. These options shall be incentive stock options, shall remain
exercisable for ten years from the date of grant and will become fully vested
[ ] years from the date of grant. Mr. Silverman's employment under the
agreement may be terminated by the Company at any time for cause or upon Mr.
Silverman's death or disability. Mr. Silverman is restricted from competing with
the Company for one year after the termination of his employment in the event
that he resigns or is terminated for cause provided that the Company pays Mr.
Silverman a sum equal to his per annum base salary during the non-competition
period.

EMPLOYEE BENEFIT PLANS

1998 STOCK PLAN. In June 1998, the Company adopted the 1998 Stock Plan which
will be presented for stockholder approval at the Company's annual meeting of
stockholders to be held on or about May 1999. The purpose of the 1998 Stock Plan
is to enable the Company to attract, retain and motivate key employees,
directors, and, on occasion, consultants, by providing them with stock options,
restricted or deferred stock and/or certain other equity based incentives.
Options granted under the 1998 Stock Plan may be either incentive stock options,
as defined in Section 422A of the Internal Revenue Code of 1986, as amended, or
non-qualified stock options. The Company has reserved shares of Common
Stock for issuance under the 1998 Stock Plan. It is intended that, as of the
effective date, options to purchase an aggregate of shares will be granted
to Mr. Kaufman and an aggregate of shares will be granted to other
employees at an exercise price equal to the Offering Price.

The 1998 Stock Plan will be administered by the Board of Directors based
upon recommendations from the Compensation Committee of the Board. The entity
administering the 1998 Stock Plan has the power to determine the terms of any
options granted thereunder, including the exercise price, the number of shares
subject to the option, and the exercisability thereof. Options granted under the
1998 Stock Plan are generally not transferable, and each option is generally
exercisable during the lifetime of the optionee only by such optionee. The
exercise price of all stock options granted under the 1998 Stock Plan must be at
least equal to the fair market value of the shares of Common Stock on the date
of grant. With respect to any participant who owns stock possessing more than
10% of the voting power of all classes of stock of the Company, the exercise
price of any incentive stock option granted must be equal at least 110% of the
fair market value on the grant date. The term of all options under the 1998
Stock Plan may not exceed ten years. The specific terms of each option grant are
approved by the Board of Directors and are reflected in a written stock option
agreement.

44
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth the beneficial ownership of the Company's
Common Stock, as of the date of this Prospectus, after giving effect to the
Exchange Transaction, of (i) each person known by the Company to beneficially
own 5% or more of the shares of outstanding Common Stock, (ii) each of the
Company's executive officers, directors and director nominees, and (iii) all of
the Company's executive officers, directors and director nominees as a group.
Except as otherwise indicated, all shares are beneficially owned, and sole
investment and sole voting power is held by the persons named as owners.

<TABLE>
<CAPTION>
AMOUNT AND PERCENTAGE OWNERSHIP
NATURE OF SHARES ------------------------
NAME AND ADDRESS OF BENEFICIALLY BEFORE AFTER
BENEFICIAL OWNER OWNED OFFERING OFFERING(1)
- ------------------------------------------------------------------------ ----------------- ----------- -----------
<S> <C> <C> <C>
The Ivan and Lisa Kaufman Family Trust(2)(3)............................ 4,163,049 55.51% %
Ivan Kaufman(3)(4)...................................................... 1,910,662 25.48
The Ivan Kaufman Grantor Retained Annuity Trust(3)(5)................... 276,810 3.69
Richard A. Lippe, Esq.(6)(9)(10)........................................ 176,306 2.35
Walter K. Horn, Esq.(3)................................................. 131,236 1.75
Elliot Silverman(3)..................................................... 102,099 1.36
Joseph Martello(3)(9)................................................... 96,380 1.29
Larry Swedroe(7)(9)(11)................................................. 14,586 0.19
Scott Rudolph(8)(9)..................................................... -- --
All officers and directors as a group (7 persons)(12)................... 6,871,128 91.62% %
</TABLE>

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

(1) Assumes no exercise of the Underwriter's over-allotment option. See
"Underwriting."

(2) This is a trust created by Mr. Kaufman for the benefit of his family.
Richard A. Lippe is the sole trustee of this trust.

(3) The address for each of these persons is 333 Earle Ovington Boulevard,
Uniondale, New York 11553.

(4) Does not include 276,810 shares held by the Ivan Kaufman Grantor Retained
Annuity Trust and 4,163,049 held by the Ivan and Lisa Kaufman Family Trust.
Includes 43,609 shares held by Arbor Management, which is wholly-owned by
Ivan Kaufman and his spouse.

(5) This is a trust created by Mr. Kaufman for the benefit of his family. Ivan
Kaufman and Richard A. Lippe are co-trustees of this trust.

(6) The address for this person is 190 Willis Avenue, Mineola, New York 11501.

(7) The address for this person is 403 Conway Village Drive, St. Louis, Missouri
63141.

(8) The address for this person is 90 Orville Drive, Bohemia, New York 11716.

(9) Director nominee.

(10) Does not include 4,163,049 shares held by the Ivan and Lisa Kaufman Family
Trust and 276,810 shares held by the Ivan Kaufman Grantor Retained Annuity
Trust. Includes 176,306 shares held by Camila Bellick, the spouse of Richard
A. Lippe, for which shares Mr. Lippe has disclaimed beneficial ownership.

(11) Represents 14,586 shares held by Mona Swedroe, the spouse of Larry Swedroe.

(12) Prior to its acquisition by ANCM (See "Prospectus Summary--Recent
Developments"), ASF, an indirect wholly owned subsidiary of ANCM, provided
certain members of ANCM financing to acquire their membership interests. As
a result of the ASF Transactions and the Exchange Transaction, ASF, as
pledgee, shares beneficial ownership of a total of 892,251 shares (or
11.9%). The total listed for all officers and directors as a group includes
374,785 shares owned by certain officers listed above and does not include
517,466 shares owned by other employees of the Company.

45
<PAGE>
DESCRIPTION OF SECURITIES

CAPITAL STOCK

The authorized capital stock of the Company consists of 30,000,000 shares of
Common Stock, $.01 par value per share, and 10,000,000 shares of Preferred
Stock, $.01 par value per share. The following summary description relating to
the capital stock does not purport to be complete. Reference is made to the
Certificate of Incorporation and the By-laws of the Company, which are filed as
exhibits to the Registration Statement of which this Prospectus forms a part,
for a detailed description of the provisions thereof summarized below.

COMMON STOCK

GENERAL. The Company has 30,000,000 authorized shares of Common Stock,
7,500,000 of which were issued and outstanding prior to the Offering. All shares
of Common Stock currently outstanding are validly issued, fully paid and
non-assessable, and all shares which are the subject of this Prospectus, when
issued and paid for pursuant to this offering, will be validly issued, fully
paid and non-assessable.

VOTING RIGHTS. Each share of Common Stock entitles the holder thereof to
one vote, either in person or by proxy, at meetings of shareholders. The holders
are not permitted to vote their shares cumulatively. Accordingly, the holders of
more than fifty percent (50%) of the issued and outstanding shares of Common
Stock can elect all of the Directors of the Company. See "Security Ownership of
Certain Beneficial Owners and Management."

DIVIDEND POLICY. All shares of Common Stock are entitled to participate
ratably in dividends when and as declared by the Company's Board of Directors
out of the funds legally available therefor. Any such dividends may be paid in
cash, property or additional shares of Common Stock. The Company has not paid
any dividends since its inception and presently anticipates that all earnings,
if any, will be retained for development of the Company's business and that no
dividends on the shares of Common Stock will be declared in the foreseeable
future. Any future dividends will be subject to the discretion of the Company's
Board of Directors and will depend upon, among other things, future earnings,
the operating and financial condition of the Company, its capital requirements,
general business conditions and other pertinent facts. Therefore there can be no
assurance that any dividends on the Common Stock will be paid in the future. See
"Dividend Policy."

MISCELLANEOUS RIGHTS AND PROVISIONS. Holders of Common Stock have no
preemptive or other subscription right, conversion rights, redemption or sinking
fund provisions. In the event of the liquidation or dissolution, whether
voluntary or involuntary, of the Company, each share of Common Stock is entitled
to share ratably in any assets available for distribution to holders of the
equity of the Company after satisfaction of all liabilities, subject to the
rights of holders of Preferred Stock.

PREFERRED STOCK

The Board of Directors is authorized by the Company's Certificate of
Incorporation to authorize and issue up to 10,000,000 shares of Preferred Stock,
$.01 par value, in one or more series. No shares of Preferred Stock have been
authorized for issuance by the Board of Directors and the Company has no present
plans to issue any such shares. In the event that the Board of Directors does
issue Preferred Stock, it may exercise its discretion in establishing the terms
of the Preferred Stock. In the exercise of such discretion, the Board of
Directors may determine the voting rights, if any, of the series of Preferred
Stock being issued, which could include the right to vote separately or as a
single class with the Common Stock and/or other series of Preferred Stock; to
have more or less voting power per share than that possessed by the Common Stock
or other series of Preferred Stock; and to vote on certain specified matters
presented to the shareholders or on all of such matters or upon the occurrence
of any specified event or condition.

46
<PAGE>
Upon liquidation, dissolution or winding up of the Company, the holders of
Preferred Stock may be entitled to receive preferential cash distributions fixed
by the Board of Directors when creating the particular series thereof before the
holders of the Common Stock are entitled to receive anything. Preferred Stock
authorized by the Board of Directors could be redeemable or convertible into
shares of any other class or series of stock of the Company.

The issuance of Preferred Stock by the Board of Directors could adversely
affect the rights of holders of shares of Common Stock by, among other things,
establishing preferential dividends, liquidation rights or voting power. The
issuance of Preferred Stock could be used to discourage or prevent efforts to
acquire control of the Company through the acquisition of shares of Common
Stock.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Company's Common Stock is American
Stock Transfer and Trust Company 6201 15th Avenue, Brooklyn, New York 11219.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Elliot Silverman, Senior Vice President-Human Resources and Organization
Development of the Company, is indebted to the Company in an amount equal to
$200,000. This indebtedness arose on April 1, 1998 in connection with Mr.
Silverman's purchase of a membership interest in ANCM and is evidenced by a
seven year promissory note payable to the Company, which bears interest at prime
and will be secured by the shares of Common Stock issued to Mr. Silverman
pursuant to the Exchange Agreement. See "Prospectus Summary--Reorganization
Transactions."

Joseph Martello, the Company's Senior Vice President, Chief Financial
Officer and a director nominee, is indebted to the Company in an amount equal to
$100,000. This indebtedness arose on April 1, 1998, in connection with Mr.
Martello's purchase of a membership interest in ANCM and is evidenced by a seven
year promissory note payable to the Company, which bears interest at prime and
will be secured by the shares of Common Stock issued to Mr. Martello pursuant to
the Exchange Agreement. See "Prospectus Summary--Reorganization Transactions."

Camila Bellick, the wife of Richard A. Lippe, Esq., a director nominee of
the Company, is indebted to the Company in an amount equal to $75,000. This
indebtedness arose on April 1, 1998, in connection with Ms. Bellick's purchase
of a membership interest in ANCM and is evidenced by a seven year promissory
note payable to the Company, which bears interest at prime and will be secured
by the shares of Common Stock issued to Ms. Bellick pursuant to the Exchange
Agreement. See "Prospectus Summary--Reorganization Transactions."

Arbor Management, which is entirely owned by Ivan Kaufman and his wife,
provides office space and various services to the Company, including management
services, bookkeeping, human resources and information system support. In 1997,
the Company paid Arbor Management an aggregate of $504,000 for these services, a
rate which the Company believes is at or below market.

Anivan, Inc. ("Anivan"), which is owned by a relative of Mr. Kaufman,
identifies loan portfolios owned by third parties for possible acquisition by
the Company. Anivan pays its own expenses and assumes all risks in connection
with identification, preliminary review and the underwriting of these loan
portfolios. The gains and losses generated from the subsequent sales of the
loans and servicing income are shared by the Company with Anivan on an
approximately equal basis. In connection with the purchase of a $26 million loan
portfolio in 1997, the Company paid Anivan fees and compensation of
approximately $200,000.

Historically, the Company has borrowed funds from Mr. Kaufman. Borrowings
outstanding from Mr. Kaufman (and/or the Trust and the Kaufman Grantor Trust
effective March 31, 1998) totaled $13.7 million at March 31, 1998, $28.8 million
at December 31, 1997 and $25.4 million at December 31, 1996.

47
<PAGE>
Interest on virtually all of the Company's borrowings from Mr. Kaufman is at the
prime interest rate plus 1%, or 9.5% at March 31, 1998. The borrowings from Mr.
Kaufman are subordinate to the warehouse facility. The Company plans to repay
the total balance of outstanding borrowings from Mr. Kaufman with the proceeds
from this Offering. See "Use of Proceeds."

ASF has entered into a loan agreement dated January 5, 1998 with President
R.C.--St. Regis Management Company ("Regis") (the "Loan Agreement") pursuant to
which the Company agreed to provide a line of credit in the amount of
$14,800,000 to Regis. The general partner of Regis is Massena Management, LLC,
of which Mr. Kaufman is President and sole member. Borrowings under the line of
credit bear interest at 13.5% per annum, are secured by the accounts, equipment,
inventory and intangibles of Regis, and are repayable on the earlier of (i) 60
months following the Opening Date of the Project (each is defined in the
"Management Agreement," as defined in the Loan Agreement or (ii) upon an Event
of Default (as defined in the Loan Agreement). As of May 31, 1998, no amount was
outstanding under the Loan Agreement. This commitment is covered by Mr.
Kaufman's indemnification. See "Prospectus Summary--Recent Developments."

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this Offering, the Company will have shares of
Common Stock outstanding ( shares if the Underwriters' over-allotment
option is exercised in full). The shares offered hereby ( shares if
the Underwriter's over-allotment option is exercised in full) will be freely
tradeable without restrictions or further registration under the Securities Act.
An aggregate of 7,500,000 are held by "affiliates" of the Company within the
meaning of the Securities Act and other former members of ANCM and are not
covered by an effective registration statement, which shares will be subject to
the resale limitations of Rule 144.

In general, under Rule 144, a person who has beneficially owned shares for
at least one year, including an "affiliate," as that term is defined in the
Securities Act, is entitled to sell within any three-month period a number of
shares that does not exceed the greater of one percent of the then-outstanding
shares of Common Stock (approximately shares after the completion of the
Offering), or the average weekly trading volume during the four calendar weeks
preceding filing of notice of such sale, subject to certain requirements
concerning availability of public information, manner of notice of sale.

In addition, affiliates must comply with the restrictions and requirements
of Rule 144, other than the one-year holding period requirement, in order to
sell shares of Common Stock which are not restricted securities. Under Rule
144(k), a person who is not an affiliate and has not been an affiliate for at
least three months prior to the sale and who has beneficially owned restricted
shares for at least a two-year holding period may resell such shares without
compliance with the foregoing requirements.

The Company, its executive officers and directors have agreed that they will
not, directly or indirectly, offer, sell, offer to sell, contract to sell,
pledge, grant any option to purchase or otherwise sell or dispose of (or
announce any offer, sale, offer of sale, pledge, grant of any option to purchase
or other sale or disposition of) any shares of Common Stock or other capital
stock of the company or any other securities convertible into, or exercisable or
exchangeable for, any shares of Common Stock, or other capital stock of the
Company, for a period of 180 days from the date of this Prospectus, without the
prior written consent of Lehman Brothers, on behalf of the Underwriters. Lehman
Brothers may, in its sole discretion, at any time and without notice, release
all or any portion of the securities subject to such lock-up agreements. See
"Underwriting."

Under Rule 144, the stockholders of the Company prior to the Offering will
not be able to sell any of their shares in the public market until one year
after the closing of the Offering. The Company has agreed to register shares
held by certain stockholders of the Company (approximately 1,125,000 shares) for
resale twelve months after the Offering.

48
<PAGE>
No prediction can be made as to the effect, if any, that future sales of
shares of Common Stock or the availability of such shares for future sale will
have on the market price of the Common Stock prevailing from time to time. Sale
of substantial amounts of Common Stock (including shares issued upon the
exercise of outstanding options), or the perception that such sales could occur,
could adversely affect prevailing market prices for the Common Stock.

UNDERWRITING

Under the terms of, and subject to the conditions contained in, the
underwriting agreement relating to the offering of shares of Common Stock in the
United States and Canada (the "Underwriting Agreement"), the form of which is
filed as an exhibit to the Registration Statement of which this Prospectus forms
a part, between the Company and each of the underwriters named below (the
"Underwriters"), for whom Lehman Brothers Inc. and Friedman, Billings, Ramsey &
Co., Inc. are acting as representatives (the "Representatives"), the
Underwriters have severally agreed to purchase from the Company, and the Company
has agreed to sell to each Underwriter, the aggregate number of shares of Common
Stock set forth opposite the name of each such Underwriter below:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ------------------------------------------------------------------------------------------------------ -----------------
<S> <C>
Lehman Brothers Inc...................................................................................
Friedman, Billings, Ramsey & Co., Inc.................................................................
</TABLE>

The Company has been advised by the Representatives that the Underwriters
propose to offer the shares to the public at the initial public offering price
on the cover page of this Prospectus, and to certain dealers at such price less
a selling concession not in excess of $. per share to certain other
Underwriters or to certain other brokers or dealers. After the initial offering
to the public, the offering price and other selling terms may be changed by the
Representatives.

The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to certain conditions and that if any of the above
shares of Common Stock are purchased by the Underwriters pursuant to the
Underwriting Agreement all the shares of Common Stock agreed to be purchased by
either the Underwriters as the case may be, pursuant to the Underwriting
Agreement must be so purchased.

The Company has agreed in the Underwriting Agreement to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute to payment that the Underwriters may be
required to make in respect thereof.

The Company has granted to the Underwriters a 30-day option to purchase up
to an additional shares of Common Stock on the same terms and conditions
as set forth above to cover over allotments, if any. To the extent that such
option is exercised, each Underwriter will be committed, subject to certain
conditions, to purchase a number of the additional shares of Common Stock
proportionate to such Underwriter's initial commitment as indicated in the
preceding tables.

Pursuant to the terms of lock-up agreements, the holders of [ ] shares of
the Company's Common Stock have agreed, for a period of up to 180 days after the
date of this Prospectus, that, subject to certain exceptions, they will not
contract to sell or otherwise dispose of any shares of Common Stock, any options
or warrants to purchase shares of Common Stock or any securities convertible
into, or exchangeable for, shares of Common Stock, owned directly by such
holders or with respect to which they have the power of disposition, without the
prior written consent of Lehman Brothers Inc., on behalf of the Representatives.
Lehman Brothers Inc. may, in its sole discretion, and at any time without
notice, release all or any portion of the securities subject to lock-up
agreements. Under Rule 144, the shares of Common Stock subject to lock-up
agreements will not, in any event, be eligible for sale in the public market,
until twelve months after the Offering.

49
<PAGE>
In addition, the Company and the directors and executive officers of the
Company have agreed that until 180 days after the date of this Prospectus
subject to certain exceptions, the Company will not, without prior written
consent of Lehman Brothers Inc., on behalf of the Representatives, offer, sell
contract to sell or otherwise dispose of any shares of Common Stock, any options
or warrants to purchase any shares of Common Stock or any securities convertible
into, exercisable for or exchangeable for shares of Common Stock other than the
Company's sale of shares in this Offering, the issuance of shares of Common
Stock upon the exercise of outstanding options and warrants and the grant of
options to purchase shares of Common Stock under existing employee stock option
or stock purchase plans. Furthermore, the Company has agreed not to file any
registration statements on Form S-8 to register the [ ] shares of Common
Stock reserved for issuance pursuant to its Stock Option Plans until at least 90
days after the date of this Prospectus. See "Management--Stock Options Plans"
and "Shares Eligible for Future Sale."

Prior to this Offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock offered hereby will be determined through negotiations between the Company
and the Representatives. Among the factors to be considered in such negotiations
are prevailing market conditions, certain financial information of the Company,
market valuations of other companies that the Company and the Representatives
believe to be comparable to the Company, estimates of the business potential of
the Company, the present state of the Company's development and other factors
deemed relevant.

Until the distribution of the Common Stock is completed, rules of the
Commission may limit the ability of the Underwriters and certain selling group
members to bid for and purchase shares of Common Stock. As an exception to these
rules, the Representatives are permitted to engage in certain transactions that
stabilize the price of the Common Stock. Such transactions may consist of bids
or purchases for the purpose of pegging, fixing or maintaining the price of the
Common Stock.

If the Underwriters create a short position in the Common Stock in
connection with the Offering (i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus), the Representatives
may reduce that short position by purchasing Common Stock in the open market.
The Representatives also may elect to reduce any short position by exercising
all or part of the over-allotment options described herein.

In general, purchase of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
this Offering.

Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor any of the Underwriters makes any representation that the
Representatives will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.

LEGAL MATTERS

The validity of the Common Stock offered hereby and certain other matters
will be passed on for the Company by Pryor Cashman Sherman & Flynn LLP, New
York, New York as special counsel to the Company. Certain legal matters will
also be passed on for the Company by Meltzer, Lippe, Goldstein, Wolf &
Schlissel, P.C., Mineola, New York. Richard A. Lippe, a member of such firm, is
a director nominee of the Company and may be deemed to beneficially own certain
shares of Common Stock. See "Security Ownership of Certain Beneficial Owners and
Management." Certain legal matters will be passed on for the Underwriters by
Skadden, Arps, Slate, Meagher & Flom LLP.

50
<PAGE>
EXPERTS

The financial statements of the Company as of December 31, 1997 and 1996 and
for each of the years in the three-year period ended December 31, 1997, except
Arbor National Commercial Mortgage, LLC and subsidiary as of December 31, 1996
and for the year ended December 31, 1996 and ten months ended December 31, 1995,
appearing in this Prospectus and Registration Statement, have been audited by
Grant Thornton LLP, independent certified public accountants, whose report which
expresses reliance upon the work of another auditor appears elsewhere herein.
The financial statements of Arbor National Commercial Mortgage, LLC and
subsidiary (combined with those of the Company and not presented separately
herein) as of December 31, 1996 and for the year ended December 31, 1996 and ten
months ended December 31, 1995, have been audited by Ernst & Young LLP,
independent auditors, as stated in their report as appears elsewhere herein.
Such financial statements of the Company are included herein in reliance upon
the respective reports of such firms given upon the authority as such experts in
accounting and auditing.

51
<PAGE>
ARBOR NATIONAL COMMERCIAL MORTGAGE, LLC
AND SUBSIDIARIES AND AFFILIATE

INDEX TO FINANCIAL STATEMENTS

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

Report of Independent Auditors...................................................................... F-3

Financial Statements:

Combined Balance Sheets at December 31, 1997 and 1996, and at
March 31, 1998 (Unaudited)...................................................................... F-4

Combined Statements of Operations for the Years Ended December 31, 1997, 1996 and 1995 and for the
Three Months Ended (Unaudited)
March 31, 1998 and 1997......................................................................... F-5

Combined Statements of Equity for the Years Ended December 31, 1997, 1996 and 1995 and for the
Three Months Ended March 31, 1998 (Unaudited)................................................... F-6

Combined Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995 and for the
Three Months Ended (Unaudited)
March 31, 1998 and March 31, 1997............................................................... F-7

Notes to Combined Financial Statements.............................................................. F-8
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS

To the Members of
ARBOR NATIONAL COMMERCIAL MORTGAGE, LLC AND SUBSIDIARIES AND AFFILIATE

We have audited the accompanying combined balance sheet of Arbor National
Commercial Mortgage, LLC and Subsidiaries and Affiliate as of December 31, 1997,
and the related combined statements of operations, equity, and cash flows for
the year then ended. These combined financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these combined financial statements based on our audit.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Arbor National
Commercial Mortgage, LLC and Subsidiaries and Affiliate as of December 31, 1997,
the combined results of their operations and their combined cash flows for the
year ended December 31, 1997, in conformity with generally accepted accounting
principles.

We have audited the balance sheet of Arbor Secured Funding, Inc., a member of
the combined group, as of December 31, 1996, and the related statements of
operations, equity, and cash flows for the years ended December 31, 1996 and
1995. The contribution of Arbor Secured Funding, Inc. to combined total assets
and net income represented 34 percent of combined total assets at December 31,
1996, and 35 percent and 44 percent of combined net income for the years ended
December 31, 1996 and 1995, respectively. We have also audited the statements of
operations, equity, and cash flows of Arbor National Commercial Mortgage
Corporation, the other member of the combined group, for the two months ended
February 28, 1995. The contribution of Arbor National Commercial Mortgage
Corporation to net income represented 0 percent of combined net income for the
year ended December 31, 1995. Separate financial statements of Arbor National
Commercial Mortgage, LLC and Subsidiary, the other member of the combined group,
as of December 31, 1996 and for the year ended December 31, 1996 and the ten
months ended December 31, 1995, included in the December 31, 1996 combined
balance sheet and combined statements of operations, equity, and cash flows for
the years ended December 31, 1996 and 1995, were audited and reported on
separately by other auditors.

We also have audited the combination of the accompanying combined balance sheet
as of December 31, 1996 and the related combined statements of operations,
equity, and cash flows for the years ended December 31, 1996 and 1995. In our
opinion, such combined statements have been properly combined on the basis
described in Note 1 of the notes to the combined financial statements.

/s/ Grant Thornton LLP
Grant Thornton LLP

New York, New York
May 28, 1998

F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS

To the Members
Arbor National Commercial Mortgage, LLC

We have audited the consolidated balance sheets of Arbor National Commercial
Mortgage, LLC and subsidiary (the "Company") as of December 31, 1996 and the
related consolidated statements of income, equity and cash flows for the year
ended December 31, 1996 and the ten months ended December 31, 1995 (not
presented separately herein). These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Arbor National
Commercial Mortgage, LLC at December 31, 1996 and the consolidated results of
their operations and their cash flows for the year ended December 31, 1996 and
the ten months ended December 31, 1995 in conformity with generally accepted
accounting principles.

As discussed in Notes 1 and 3 to the consolidated financial statements, in 1996
the Company changed its method of accounting for mortgage servicing rights.

Ernst & Young LLP

New York, New York
January 17, 1997

F-3
<PAGE>
ARBOR NATIONAL COMMERCIAL MORTGAGE, LLC
AND SUBSIDIARIES AND AFFILIATE

COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, December 31,
---------------------------- -----------------------------
<S> <C> <C> <C> <C>
PRO FORMA
1998 1998 1997 1996
------------- ------------- -------------- -------------

<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents.......................... $ 2,380,899 $ 2,261,337 $ 1,903,405 $ 782,252
Restricted cash.................................... 2,417,863 2,417,863 2,362,822 1,639,930
Loans held for sale, net........................... 11,826,971 11,826,971 46,482,348 45,729,204
Loans held for investment, net..................... 54,821,182 56,273,289 68,609,906 38,685,564
Other investments.................................. 1,250,000 1,250,000 500,000 3,032,046
Investment in real estate held for sale............ 11,248,703 11,248,703 10,790,930 --
Investment in real estate joint ventures........... 1,375,305 1,375,305 1,307,652 --
Capitalized mortgage servicing rights, net......... 5,457,721 5,457,721 5,031,854 2,534,529
Other receivables and deferred costs............... 2,228,789 1,713,197 2,675,081 1,989,803
Property and equipment, net........................ 483,969 483,969 517,760 368,284
------------- ------------- -------------- -------------
Total assets....................................... $ 93,491,402 $ 94,308,355 $ 140,181,758 $ 94,761,612
------------- ------------- -------------- -------------
------------- ------------- -------------- -------------
LIABILITIES AND EQUITY
Notes payable and repurchase agreements............ $ 44,879,927 $ 44,879,927 $ 81,392,653 $ 50,484,303
Note payable--Class A member....................... 13,685,303 13,685,303 28,835,294 25,425,485
Accounts payable and accrued expenses.............. 5,731,526 5,803,526 5,293,116 3,957,180
Allowance for possible losses under the DUS product
line............................................. 1,652,005 1,652,005 1,474,635 686,500
Unearned revenue................................... 1,832,288 1,832,288 152,478 745,010
Distribution payable............................... 6,000,000 -- -- --
Deferred tax liability, net........................ 2,207,000 -- -- --
------------- ------------- -------------- -------------
Total liabilities.................................. 75,988,049 67,853,049 117,148,176 81,298,478
------------- ------------- -------------- -------------
Commitments and contingencies
Equity............................................. 17,503,353 26,455,306 23,033,582 13,463,134
------------- ------------- -------------- -------------
Total liabilities and equity....................... $ 93,491,402 $ 94,308,355 $ 140,181,758 $ 94,761,612
------------- ------------- -------------- -------------
------------- ------------- -------------- -------------
</TABLE>

See accompanying notes to combined financial statements.

F-4
<PAGE>
ARBOR NATIONAL COMMERCIAL MORTGAGE, LLC
AND SUBSIDIARIES AND AFFILIATE

COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED MARCH 31, For the years ended December 31,
-------------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1997 1996 1995
------------ ------------ ------------- ------------- ------------

<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Interest earned.................................... $ 2,529,979 $ 1,672,747 $ 9,641,121 $ 6,783,312 $ 3,725,904
Fee-based services, including gain on sale of loans
and real estate.................................. 4,373,022 2,340,814 12,686,908 8,794,147 2,627,716
Servicing revenue, net............................. 539,241 305,253 1,957,983 1,082,699 394,461
Income from investment in real estate held for
sale, net of operating expenses.................. 540,334 -- -- -- --
------------ ------------ ------------- ------------- ------------
Total revenues....................................... 7,982,576 4,318,814 24,286,012 16,660,158 6,748,081
------------ ------------ ------------- ------------- ------------
Expenses:
Interest expense................................... 1,944,208 925,038 6,242,616 4,048,947 2,188,687
Employee compensation and benefits................. 1,231,366 1,053,338 4,920,495 3,893,873 1,876,897
Selling and administrative......................... 1,137,522 827,068 3,493,022 3,499,691 1,560,834
Provision for loan losses.......................... 237,370 337,500 997,617 915,051 406,856
------------ ------------ ------------- ------------- ------------
Total expenses....................................... 4,550,466 3,142,944 15,653,750 12,357,562 6,033,274
------------ ------------ ------------- ------------- ------------
Net income..................................... $ 3,432,110 $ 1,175,870 $ 8,632,262 $ 4,302,596 $ 714,807
------------ ------------ ------------- ------------- ------------
------------ ------------ ------------- ------------- ------------
Unaudited pro forma information:
Pro forma income before income taxes............... $ 3,432,110 $ 1,175,870 $ 8,632,262 $ 4,302,596 $ 714,807
Pro forma provision for income taxes............... 1,383,244 479,548 3,468,648 1,753,788 299,523
------------ ------------ ------------- ------------- ------------
Pro forma net income............................... $ 2,048,866 $ 696,322 $ 5,163,614 $ 2,548,808 $ 415,284
------------ ------------ ------------- ------------- ------------
------------ ------------ ------------- ------------- ------------
</TABLE>

See accompanying notes to combined financial statements.

F-5
<PAGE>
ARBOR NATIONAL COMMERCIAL MORTGAGE, LLC
AND SUBSIDIARIES AND AFFILIATE
COMBINED STATEMENTS OF EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
---------------------- PAID-IN EARNINGS
SHARES PAR VALUE CAPITAL (DEFICIT)
--------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Balance--December 31, 1994........................................... 92,500 $ 925 $ 7,606,418 $ (639,612)
Net income........................................................... 714,807
Issuance of common stock............................................. 100 1,000
--------- ----------- ------------ ------------
Balance--December 31, 1995........................................... 92,600 1,925 7,606,418 75,195
Change in legal structure............................................ (92,500) (925) (7,606,418) 192,085
--------- ----------- ------------ ------------
Balance--January 1, 1996............................................. 100 1,000 -- 267,280
Capital contributions................................................
Net income........................................................... 1,499,502
--------- ----------- ------------ ------------
Balance--December 31, 1996........................................... 100 1,000 -- 1,766,782
Capital contributions................................................
Withdrawals and distributions........................................
Net income........................................................... 1,510,454
--------- ----------- ------------ ------------
Balance--December 31, 1997........................................... 100 1,000 -- 3,277,236
CAPITAL CONTRIBUTIONS................................................
WITHDRAWALS AND DISTRIBUTIONS........................................
NET INCOME........................................................... 1,864,584
--------- ----------- ------------ ------------
BALANCE--MARCH 31, 1998.............................................. 100 $ 1,000 $ -- $ 5,141,820
--------- ----------- ------------ ------------
--------- ----------- ------------ ------------

<CAPTION>
MEMBERS' CAPITAL
---------------------------
CLASS A CLASS B TOTAL
------------- ------------ -------------
<S> <C> <C> <C>
Balance--December 31, 1994........................................... $ 6,967,731
Net income........................................................... 714,807
Issuance of common stock............................................. 1,000
------------- ------------ -------------
Balance--December 31, 1995........................................... -- -- 7,683,538
Change in legal structure............................................ $ 7,415,258 --
------------- ------------ -------------
Balance--January 1, 1996............................................. 7,415,258 7,683,538
Capital contributions................................................ $ 1,477,000 1,477,000
Net income........................................................... 2,332,029 471,065 4,302,596
------------- ------------ -------------
Balance--December 31, 1996........................................... 9,747,287 1,948,065 13,463,134
Capital contributions................................................ 2,000,000 636,000 2,636,000
Withdrawals and distributions........................................ (963,499) (734,315) (1,697,814)
Net income........................................................... 5,974,848 1,146,960 8,632,262
------------- ------------ -------------
Balance--December 31, 1997........................................... 16,758,636 2,996,710 23,033,582
CAPITAL CONTRIBUTIONS................................................ -- --
WITHDRAWALS AND DISTRIBUTIONS........................................ (10,386) (10,386)
NET INCOME........................................................... 1,567,526 3,432,110
------------- ------------ -------------
BALANCE--MARCH 31, 1998.............................................. $ 16,758,636 $ 4,553,850 $ 26,455,306
------------- ------------ -------------
------------- ------------ -------------
</TABLE>

See accompanying notes to combined financial statements.

F-6
<PAGE>
ARBOR NATIONAL COMMERCIAL MORTGAGE, LLC
AND SUBSIDIARIES AND AFFILIATE

COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED MARCH 31, For the years ended December 31,
------------------------ -------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1997 1996 1995
----------- ----------- ----------- ----------- -----------

<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income.............................................. $ 3,432,110 $ 1,175,870 $ 8,632,262 $ 4,302,596 $ 714,807
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization......................... 156,809 19,500 93,230 63,256 41,550
Amortization of capitalized mortgage servicing
rights.............................................. 162,358 95,741 584,420 237,273 43,893
Capitalization of mortgage servicing rights........... (588,225) (1,056,170) (3,148,981) (2,958,029) --
Write-off of capitalized mortgage servicing rights
from servicing sales................................ -- -- 67,236 312,454 --
Provision for loan losses............................. 237,370 337,500 997,617 915,051 406,856
Deferred income taxes................................. -- -- -- -- (24,000)
Changes in operating assets and liabilities:
Loans held for sale, net............................ 34,655,377 17,294,239 (753,144) (10,379,314) (28,678,342)
Loans held for investment, net...................... 12,276,617 (447,008) (30,133,824) (2,883,676) (31,630,568)
Other receivables and deferred costs................ 961,884 (86,754) (685,278) 411,908 126,105
Accounts payable and accrued expenses............... 510,410 (257,323) 1,335,936 629,581 2,600,213
Unearned revenue.................................... 1,679,810 78,150 (592,532) 224,190 520,820
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) operating activities..... 53,484,520 17,153,745 (23,603,058) (9,124,710) (55,878,666)
----------- ----------- ----------- ----------- -----------
INVESTING ACTIVITIES:
Other investments....................................... (750,000) (181,954) 2,532,046 (911,458) (2,120,588)
Investment in real estate held for sale, net............ (457,773) -- (10,790,930) -- --
Investment in real estate joint ventures, net........... (67,653) -- (1,307,652) -- --
Additions to property and equipment..................... (123,018) (35,134) (242,706) (158,618) (69,362)
Increase in restricted cash............................. (55,041) (313,941) (722,892) (1,639,930) --
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities............... (1,453,485) (531,029) (10,532,134) (2,710,006) (2,189,950)
----------- ----------- ----------- ----------- -----------
FINANCING ACTIVITIES:
Increase (decrease) in notes payable and repurchase
agreements, net....................................... (36,512,726) (18,600,457) 30,908,350 15,064,634 28,848,570
Increase (decrease) in note payable --Class A member.... (15,149,991) 2,800,584 3,409,809 (7,549,613) 32,171,029
Capital contributions by members........................ -- 240,000 2,636,000 1,477,000 --
Withdrawals and distributions of members' capital....... (10,386) (1,697,814) (1,697,814) -- --
Issuance of common stock................................ -- -- -- -- 1,000
----------- ----------- ----------- ----------- -----------
Net cash (used in) provided by financing activities... (51,673,103) (17,257,687) 35,256,345 8,992,021 61,020,599
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash........................... 357,932 (634,971) 1,121,153 (2,842,695) 2,951,983
Cash at beginning of period............................... 1,903,405 782,252 782,252 3,624,947 672,964
----------- ----------- ----------- ----------- -----------
Cash at end of period..................................... $ 2,261,337 $ 147,281 $ 1,903,405 $ 782,252 $ 3,624,947
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest............................................ $ 1,450,623 $ 545,411 $ 4,323,327 $ 2,333,418 $ 1,263,465
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Income taxes........................................ $ 57,666 $ 56,794 $ 72,415 $ 69,834 $ 3,854
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>

See accompanying notes to combined financial statements.

F-7
<PAGE>
ARBOR NATIONAL COMMERCIAL MORTGAGE, LLC
AND SUBSIDIARIES AND AFFILIATE

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 1997, 1996 AND 1995
AND FOR THE THREE MONTHS ENDED (UNAUDITED)
MARCH 31, 1998 AND 1997

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

REORGANIZATION

Arbor National Holdings, Inc. ("ANHI"), a New York corporation, was organized in
June 1998 to own 100% of Arbor National Commercial Mortgage, LLC ("Arbor").
Arbor is a fully integrated real estate financial services company which funds,
on a negotiated basis, high-yielding lending and investment opportunities in
commercial real estate through mezzanine loans, bridge loans, note acquisitions
and other customized financing structures. It also derives substantial revenue
from the origination for sale and servicing of government-sponsored and conduit
mortgage loans for multifamily and other types of commercial properties.

Upon the effective date of the offering, all members of Arbor, pursuant to the
terms of the Exchange Agreement, will contribute their ownership interest in the
Company to ANHI in exchange for 7,500,000 shares of Common Stock (the
"Exchange") of ANHI, which will constitute all of the shares of Common Stock
outstanding prior to this Offering.

ORGANIZATION

Effective April 1, 1998, Arbor Secured Funding Inc. ("ASF") distributed a
dividend of certain assets which were not consistent with the intended business
of the Company to Ivan Kaufman, its sole stockholder, and immediately
thereafter, the outstanding common stock of ASF was sold to the Ivan and Lisa
Kaufman Family Trust. Immediately thereafter, the Ivan and Lisa Kaufman Family
Trust contributed the stock of ASF, with a book value of approximately $3.7
million, which approximates fair value, to Arbor in exchange for ownership
interest in Arbor. Arbor and ASF are collectively referred to as the "Company"
or "Companies" prior to the reorganization.

Arbor, a New York limited liability company, is the successor to Arbor National
Commercial Mortgage Corporation (the "Corporation"). Effective January 1, 1996,
the Corporation liquidated and distributed its assets to its stockholder.
Immediately thereafter, the stockholder contributed these assets and liabilities
to Arbor. This change in legal structure resulted in no change to the carrying
value of assets and liabilities.

In October 1995, the Company was approved by the Federal National Mortgage
Association ("FNMA") as a Delegated Underwriting and Servicing ("DUS") lender.
Under the FNMA DUS program, the Company originates, underwrites, sells and
services mortgage loans on multifamily properties. The Company assumes
responsibility for a portion of any loss that may result from borrower defaults,
based on FNMA loss sharing formulas. Generally, the Company is responsible for
the first 5% of the unpaid principal balance and a portion of any additional
losses to an overall maximum of 20% of the original principal balance. FNMA
bears any remaining loss.

Under the terms of the Master Loss Sharing Agreement between FNMA and the
Company, the Company is responsible for funding 100% of mortgagor delinquency
(principal and interest) and servicing advances (taxes, insurance and
foreclosure costs) until the amounts advanced exceed 5% of the unpaid principal
balance at the date of default. Thereafter, the Company may request interim loss
sharing adjustments which allow the Company to fund 25% of such advances until
final settlement under the Master Loss Sharing Agreement.

F-8
<PAGE>
ARBOR NATIONAL COMMERCIAL MORTGAGE, LLC
AND SUBSIDIARIES AND AFFILIATE

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995
AND FOR THE THREE MONTHS ENDED (UNAUDITED)
MARCH 31, 1998 AND 1997

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company's loan origination business also includes originating mortgages for
sale into conduit programs and originating mezzanine, bridge loans, and note
acquisitions for its own investment. Mortgages originated under conduit programs
are sold to nationally recognized broker/dealers and are subsequently
securitized. The Company usually retains the right to service these mortgages
for a fee.

The Company also buys or enters into joint ventures to buy real estate
properties which it holds for sale or for its own investment.

PRINCIPLES OF COMBINATION

Voting control of Arbor and ASF is vested principally in the same shareholder
and the Companies are under common management. Because of these relationships,
the financial statements of the Companies have been prepared as if they were a
single entity. Arbor includes certain subsidiaries. All significant transactions
either between Arbor, its subsidiaries or the combined Companies have been
eliminated in combination.

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 amounts reported in the financial statements and accompanying notes.
Actual results could differ from these estimates.

RECLASSIFICATION

Certain reclassifications have been made to prior period amounts to conform to
the current period presentation.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash on hand and in banks and short-term
investments with maturities of three months or less at purchase.

RESTRICTED CASH

Restricted cash is composed of cash and cash equivalents which are being
maintained as collateral for possible losses resulting from loans originated
under the FNMA DUS program in accordance with the terms of the Master Loss
Sharing Agreement between FNMA and the Company. For cash flow purposes,
restricted cash is not considered a cash equivalent.

LOANS HELD FOR SALE

Loans held for sale are collateralized multifamily real estate loans and are
reported at the lower of cost or market, on an aggregate basis.

F-9
<PAGE>
ARBOR NATIONAL COMMERCIAL MORTGAGE, LLC
AND SUBSIDIARIES AND AFFILIATE

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995
AND FOR THE THREE MONTHS ENDED (UNAUDITED)
MARCH 31, 1998 AND 1997

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOANS HELD FOR INVESTMENT

Loans held for investment are typically collateralized by multifamily and
residential real estate which the Company intends to hold to maturity. These
loans are carried at cost.

INVESTMENT IN REAL ESTATE HELD FOR SALE

Investment in real estate held for sale represents multifamily real estate
properties which the Company intends to sell.

PROPERTY AND EQUIPMENT

Property and equipment are carried at cost less accumulated depreciation and
amortization. Depreciation is provided using the straight-line method over the
estimated useful lives of the assets ranging from three to seven years.
Leasehold improvements are amortized over the lesser of the useful life of the
asset or the remaining lease period.

REVENUE RECOGNITION

Fee-based services include commitment fees, broker fees, loan origination fees
and gain on sale of loans and real estate. Revenue recognition occurs when the
related services are performed, unless significant contingencies exist, and for
the sale of loans, when all the incidence of ownership passes to the buyer.

The Company also buys and sells notes and real estate properties. Revenue
recognition from the sale, which is included in fee-based services, occurs when
all the incidence of ownership passes to the buyer. In some circumstances, the
Company elects to retain an interest in the property. When this occurs, the
investment in real estate is recorded at the Company's original cost and revenue
is recognized on the percentage of the property sold.

INTEREST EARNED

Included in interest earned is income generated from an investment in a limited
partnership. The underlying assets invested in this limited partnership were
mortgage derivatives and principally generate interest income. For the years
ended December 31, 1997, 1996 and 1995, income earned from the investment in
this limited partnership was approximately $700,000, $900,000 and $120,000,
respectively. Income from this limited partnership for the three months ended
March 31, 1998 and March 31, 1997, was $0 and $182,000, respectively. The
Company sold its limited partnership interest in December 1997.

CAPITALIZED MORTGAGE SERVICING RIGHTS

On January 1, 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 125, ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL
ASSETS AND EXTINGUISHMENTS OF LIABILITIES. SFAS No. 125 supersedes but generally
retains the requirements of SFAS No. 122, ACCOUNTING FOR MORTGAGE SERVICING
RIGHTS, which the Company adopted on January 1, 1996. Both statements require
that an entity recognize, as separate assets, rights to service mortgage loans
for others irrespective of how those servicing rights are

F-10
<PAGE>
ARBOR NATIONAL COMMERCIAL MORTGAGE, LLC
AND SUBSIDIARIES AND AFFILIATE

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995
AND FOR THE THREE MONTHS ENDED (UNAUDITED)
MARCH 31, 1998 AND 1997

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
acquired, whether purchased or originated, by allocating the total cost of the
loans between the loans and the servicing rights thereto based on their relative
fair values. In addition, SFAS No. 125 eliminates the distinction between normal
and excess servicing to the extent the servicing fee does not exceed that
specified in the contract. The adoption of SFAS No. 125 did not have a material
impact on the Company's financial position or results of operations for the
three months ended March 31, 1998 and for the year ended December 31, 1997.

SFAS No. 125 requires that Capitalized Mortgage Servicing Rights ("MSRs") be
assessed for impairment based on the fair value of those rights. Fair values are
estimated considering market prices for similar MSRs, when available, and by the
estimated discounted future net cash flows of the capitalized MSRs. For purposes
of impairment evaluation and measurement, the MSRs are stratified based on
predominant risk characteristics of the underlying loans, which the Company has
identified as loan type, geographic location and note rate. To the extent that
the carrying value of the MSRs exceeds fair value by individual stratum, a
valuation allowance is established. The allowance may be adjusted in the future
as the values of MSRs increase or decrease. The cost of MSRs is amortized over
the period of estimated net servicing income.

FINANCIAL INSTRUMENTS

The Company uses financial instruments having off-balance sheet risk in the
normal course of business in order to reduce the Company's exposure to
fluctuations in interest rates and market prices. Included in Note 9 are
disclosures relating to financial instruments having off-balance sheet risk.
These disclosures indicate the magnitude of the Company's involvement in such
activities and reflect the instruments at their face, contract or notional
amounts which do not necessarily represent the credit risk of such instruments.
In connection with the Company's hedging and loan sale programs, the Company has
credit risk exposure to the extent purchasers are unable to meet the terms of
their forward purchase contracts. None of the forward payment obligations of any
of the Company's counterparties is secured or subject to margin requirements.

The Company enters into options on forward delivery contracts and
mortgage-backed securities (collectively referred to as hedging contracts) for
the purpose of minimizing its exposure to movements of interest rates on
rate-locked loan commitments and loans held for sale. Option premiums are
deferred when paid and recognized as an adjustment to gains or losses on sales
of loans over the lives of the options on a straight-line basis.

INCOME TAXES

Arbor is a limited liability company ("LLC") as of January 1, 1996 (which is
taxed as a partnership), and accordingly, the taxable income or loss of Arbor is
includable in the Federal and state income tax returns of Arbor's individual
members. Arbor will incur state income taxes in those states where it is not
recognized as an LLC. Prior to becoming an LLC, Arbor was an S corporation from
March 1, 1995 to December 31, 1995. Prior to March 1, 1995, Arbor was a C
corporation.

ASF was an S corporation as of October 1, 1995. As a result, ASF income is taxed
directly to its shareholder. Prior to October 1, 1995, ASF was a C corporation.

F-11
<PAGE>
ARBOR NATIONAL COMMERCIAL MORTGAGE, LLC
AND SUBSIDIARIES AND AFFILIATE

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995
AND FOR THE THREE MONTHS ENDED (UNAUDITED)
MARCH 31, 1998 AND 1997

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Simultaneous with the Exchange, Arbor will no longer be recognized as an LLC for
tax purposes and simultaneous with the ASF contribution, ASF will cease to be
treated as an S corporation.

INTERIM PERIOD INFORMATION

The unaudited combined financial statements as of March 31, 1998 and for the
three-month periods ended March 31, 1998 and 1997 have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the instruction to Form 10-Q and do not include all of the
information and notes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
consisting of normal recurring accruals considered necessary for a fair
presentation of the results for the interim period have been included.

2. LOANS HELD FOR SALE

Loans held for sale consist of:

<TABLE>
<CAPTION>
December 31,
MARCH 31, ----------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Principal....................................... $ 12,004,566 $ 46,834,819 $ 46,171,004
Unearned discount, net.......................... (177,595) (352,471) (441,800)
------------- ------------- -------------
Loans held for sale, net........................ $ 11,826,971 $ 46,482,348 $ 45,729,204
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

3. CAPITALIZED MORTGAGE SERVICING RIGHTS

SFAS No. 125 requires that Capitalized MSRs be assessed for impairment based on
the fair value of those rights. Fair values are estimated considering market
prices for similar MSRs, when available, and by estimating the discounted future
net cash flows of the capitalized MSRs.

The estimated fair value of the Capitalized MSRs as of March 31, 1998, December
31, 1997 and December 31, 1996 was approximately $6.2 million, $5.8 million and
$3.0 million, respectively, which was in excess of book value and did not
require a valuation allowance to be established.

F-12
<PAGE>
ARBOR NATIONAL COMMERCIAL MORTGAGE, LLC
AND SUBSIDIARIES AND AFFILIATE

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995
AND FOR THE THREE MONTHS ENDED (UNAUDITED)
MARCH 31, 1998 AND 1997

3. CAPITALIZED MORTGAGE SERVICING RIGHTS (CONTINUED)
Capitalized MSRs and the related valuation allowance activity as of March 31,
1998 and December 31, 1997 and 1996 were as follows:

<TABLE>
<CAPTION>
December 31,
MARCH 31, --------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Balance at beginning of period.......................................... $ 5,031,854 $ 2,534,529 $ 126,227
Additions............................................................... 588,225 3,148,981 2,958,029
Amortization............................................................ (162,358) (584,420) (237,273)
Servicing sale.......................................................... -- (67,236) (312,454)
------------ ------------ ------------
Balance at end of period................................................ 5,457,721 5,031,854 2,534,529

Valuation allowance

Balance at beginning of period.......................................... -- -- --
Additions............................................................... -- -- --
Reductions.............................................................. -- -- --
------------ ------------ ------------
Balance at end of period................................................ -- -- --
------------ ------------ ------------
Capitalized mortgage servicing rights, net.............................. $ 5,457,721 $ 5,031,854 $ 2,534,529
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

4. PROPERTY AND EQUIPMENT

Property and equipment consist of :

<TABLE>
<CAPTION>
December 31,
MARCH 31, --------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Furniture and equipment................................................. $ 885,961 $ 762,943 $ 520,598
Leasehold improvements.................................................. 13,280 13,280 13,280
------------ ------------ ------------
899,241 776,223 533,878
Accumulated depreciation and amortization............................... (415,272) (258,463) (165,594)
------------ ------------ ------------
Property and equipment, net............................................. $ 483,969 $ 517,760 $ 368,284
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

5. MORTGAGE SERVICING

At March 31, 1998, December 31, 1997 and 1996, the Company was servicing, for a
fee, commercial loans of approximately $536 million, $530 million and $386
million, respectively. Cash held in escrow by the Company for certain of these
loans at March 31, 1998, December 31, 1997 and 1996, was approximately $14.9
million, $15.3 million and $11.7 million, respectively. These cash balances and
related escrow liabilities are not reflected in the accompanying balance sheets.
These escrows are maintained in separate accounts at two federally insured
depository institutions. At March 31, 1998, December 31, 1997 and 1996, the
Company's servicing portfolio included FNMA DUS loans of approximately $327
million, $292 million and $136 million, respectively. Properties securing the
loans in the Company's servicing portfolio at

F-13
<PAGE>
ARBOR NATIONAL COMMERCIAL MORTGAGE, LLC
AND SUBSIDIARIES AND AFFILIATE

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995
AND FOR THE THREE MONTHS ENDED (UNAUDITED)
MARCH 31, 1998 AND 1997

5. MORTGAGE SERVICING (CONTINUED)
March 31, 1998 are located throughout the United States with approximately 22%
in Texas and 18% in Colorado.

6. NOTES PAYABLE AND REPURCHASE AGREEMENTS

The Company utilizes a warehouse line of credit and repurchase agreements in
conjunction with the origination and sale of loans. Borrowings underlying these
arrangements are secured by the Company's loans held for sale and held for
investment.

<TABLE>
<CAPTION>
December 31,
MARCH 31, ----------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Warehouse line of credit, commercial banks, $90 million committed
line, expiration November 1998, interest is variable based on
the Federal funds rate, the weighted average note rate was
7.18%, 7.51% and 7.33%, respectively. $ 26,926,482 $ 36,306,212 $ 26,760,000
Repurchase agreement, financial institution, $40 million
committed line, expiration March 1997, interest is variable
based on LIBOR, the weighted average note rate was 6.31%. 12,600,000
Repurchase agreement, financial institution, uncommitted line,
interest is variable based on LIBOR, the weighted average note
rate was 6.13%, 5.56% and 5.42%, respectively. 7,500,544 27,375,420 6,042,733
Repurchase agreement, financial institution, uncommitted line,
interest is variable based on the Federal funds rate, the
weighted average note rate was 7.43%, 7.63% and 7.40%,
respectively. 8,900,000 16,650,000 5,000,000
Other borrowings, interest is variable based on LIBOR, the
weighted average note rate was 5.59%, 5.18% and 5.95%,
respectively. 1,552,901 1,061,021 81,570
------------- ------------- -------------
Notes payable and repurchase agreements $ 44,879,927 $ 81,392,653 $ 50,484,303
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

The warehouse facility contains various financial covenants and restrictions,
including minimum net worth, debt-to-equity ratio and a minimum servicing
portfolio.

7. NOTE PAYABLE--CLASS A MEMBER

Note payable--Class A member is an unsecured demand note with interest
predominantly at 9.5% and is subordinated to the warehouse facility. The Company
periodically borrows from the Class A member for working capital and investment
purposes. Total interest expense incurred by the Company and paid to the Class A
member was approximately $531,000 and $423,000 for the three months ended March
31, 1998 and 1997, respectively, and $2,379,000, $334,000 and $994,000,
respectively, for the years ended December 31, 1997, 1996 and 1995.

F-14
<PAGE>
ARBOR NATIONAL COMMERCIAL MORTGAGE, LLC
AND SUBSIDIARIES AND AFFILIATE

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995
AND FOR THE THREE MONTHS ENDED (UNAUDITED)
MARCH 31, 1998 AND 1997

8. MEMBERS' CAPITAL

The Class A member has full voting rights and effective control of the Company
and has the power to direct the Company's management and policies. The Class B
members consist primarily of employees of the Company who do not have voting
rights except in certain limited instances.

9. COMMITMENTS AND CONTINGENCIES

Minimum annual operating lease payments under leases with a term in excess of
one year in effect as of December 31, 1997 are as follows:

Total rent expense for the three months ended March 31, 1998 and 1997 was
$75,000 and $51,000, respectively, and for the years ended December 31, 1997,
1996 and 1995 was $243,000, $224,000 and $103,000, respectively.

FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

The Company enters into financial instruments with off-balance sheet risk in the
normal course of business through the origination and sale of mortgage loans and
the management of potential loss exposure caused by fluctuations of interest
rates. Financial instruments with off-balance sheet risk include commitments to
extend credit, forward commitments, firm takeouts, and put options. These
instruments involve, to varying degrees, elements of credit and interest rate
risk. Credit risk is managed by the Company by entering into agreements only
with Wall Street investment bankers having primary dealer status and with
permanent investors meeting the standards of the Company. At any time, the risk
to the Company, in the event of default by the purchaser, is the difference
between the contract price and current market prices.

At March 31, 1998, December 31, 1997 and 1996, the Company had $19.3 million,
$38.9 million and $42.9 million, respectively, in notional amounts of mandatory
forward commitments, and firm takeouts outstanding. Unrealized gains and losses
on these instruments are included in the lower of cost or market valuation of
loans held for sale.

Until a locked interest rate commitment is extended by the Company to a
borrower, there is no market risk to the Company. Total commitments outstanding
to borrowers totaled approximately $98.5 million as of March 31, 1998, $5.4
million of which had locked interest rates. As of March 31, 1998, the Company
also had outstanding a backup commitment to purchase real estate of $87.5
million and a commitment to lend up to $14.8 million to an entity owned by the
Class A member.

LITIGATION

In the normal course of business, the Company is subject to various legal
proceedings and claims, the resolution of which, in management's opinion, will
not have a material adverse effect on the financial position or the results of
operations of the Company.

F-15
<PAGE>
ARBOR NATIONAL COMMERCIAL MORTGAGE, LLC
AND SUBSIDIARIES AND AFFILIATE

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995
AND FOR THE THREE MONTHS ENDED (UNAUDITED)
MARCH 31, 1998 AND 1997

9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
CONCENTRATION OF BORROWER RISK

The Company is subject to concentration risk in that, as of March 31, 1998,
December 31, 1997 and 1996, the unpaid principal balance relating to 3, 8, and
10 loans represented approximately 46.9%, 41.9%, and 63.1% of total loans held
for investment, respectively. As of March 31, 1998, December 31, 1997 and 1996
the above amounts are with two unrelated borrowers. The total number of loans
held for investment by the Company were 38, 41, and 34 as of March 31, 1998,
December 31, 1997 and 1996, respectively.

10. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table summarizes the carrying values and the estimated fair values
of financial instruments, as of March 31, 1998, December 31, 1997 and 1996, in
accordance with the requirements of SFAS No. 107, Disclosures About Fair Value
of Financial Instruments. Fair value estimates are dependent upon subjective
assumptions and involve significant uncertainties resulting in variability in
estimates with changes in assumptions.

<TABLE>
<CAPTION>
MARCH 31, 1998 December 31, 1997 December 31, 1996
---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
CARRYING ESTIMATED Carrying Estimated Carrying Estimated
VALUE FAIR VALUE value fair value value fair value
---------- ---------- ---------- ---------- ---------- ----------
Financial assets:
Cash and cash equivalents............ $2,261,337 $2,261,337 $1,903,405 $1,903,405 $ 782,252 $ 782,252
Restricted cash...................... 2,417,863 2,417,863 2,362,822 2,362,822 1,639,930 1,639,930
Loans held for sale, net............. 11,826,971 12,118,514 46,482,348 47,356,788 45,729,204 46,426,406
Loans held for investment, net....... 56,273,289 56,273,289 68,609,906 68,609,906 38,685,564 38,685,564
Other investments.................... 1,250,000 1,250,000 500,000 500,000 3,032,046 3,032,046
Capitalized mortgage servicing
rights, net........................ 5,457,721 6,176,160 5,031,854 5,769,562 2,534,529 2,971,986
Off-balance sheet instruments used
for hedging purposes............... (91,726) (74,364) -- (120,000) -- (10,163)
Financial liabilities:
Notes payable and repurchase
agreements......................... 44,879,927 44,879,927 81,392,653 81,392,653 50,484,303 50,484,303
Note payable -- Class A member....... 13,685,303 13,685,303 28,835,294 28,835,294 25,425,485 25,425,485
</TABLE>

The following methods and assumptions were used by the Company in estimating the
fair value of each class of financial instruments:

CASH AND CASH EQUIVALENTS: Fair value approximates the carrying value
reported in the balance sheets.

RESTRICTED CASH: Fair value approximates the carrying value reported in
the balance sheets.

LOANS HELD FOR SALE, NET: Fair values of loans held for sale are based on
a pricing model using current market assumptions.

LOANS HELD FOR INVESTMENT, NET: Fair values of variable-rate loans with
no significant change in credit risk are based on carrying values. Fair
values of other loans are estimated using discounted cash flow
methodology, using discount rates, which, in the opinion of management,
best reflect current market interest rates that would be offered for
loans with similar characteristics and credit quality.

F-16
<PAGE>
ARBOR NATIONAL COMMERCIAL MORTGAGE, LLC
AND SUBSIDIARIES AND AFFILIATE

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995
AND FOR THE THREE MONTHS ENDED (UNAUDITED)
MARCH 31, 1998 AND 1997

10. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
OTHER INVESTMENTS: Fair value approximates the carrying value reported in
the balance sheets.

CAPITALIZED MORTGAGE SERVICING RIGHTS, NET: Fair values of capitalized
mortgage servicing rights are estimated using a discounted future net
cash flow methodology.

OFF-BALANCE SHEET INSTRUMENTS USED FOR HEDGING PURPOSES: Fair values of
the off-balance sheet instruments (put options, and forward commitments)
are based on pricing models using current market assumptions.

NOTES PAYABLE AND REPURCHASE AGREEMENTS: Fair value of variable-rate
notes payable and repurchase agreements approximates the carrying values
reported in the balance sheets.

NOTE PAYABLE--CLASS A MEMBER: Fair value approximates the carrying value
reported in the balance sheets.

11. RELATED-PARTY TRANSACTIONS

At March 31, 1998, December 31, 1997 and 1996, the Company serviced loans owned
by the Class A member and certain family members totaling approximately $1.4
million, $1.4 million and $1.6 million, respectively.

For the three months ended March 31, 1998 and the years ended December 31, 1997,
1996 and 1995, the Company participated in several shared functions, including
office space, financial management, marketing, information systems and human
resources with other companies owned by the Class A member. The Company paid
management fees of $255,000 and $126,000 for the three months ended March 31,
1998 and 1997, respectively, and $504,000, $300,000, and $0, respectively, for
the years ended December 31, 1997, 1996 and 1995.

Anivan, Inc. ("Anivan"), which is owned by a party related to the Class A
member, identifies loan portfolios owned by third parties for possible
acquisition by the Company. Anivan pays its own expenses and assumes all risks
in connection with identification, preliminary review and the underwriting of
these loan portfolios. The gains and losses generated from the subsequent sales
of these loans and servicing income are shared with Anivan on an approximately
equal basis. During the three months ended March 31, 1998 and 1997, the Company
purchased loan portfolios of $0 and $22,680, respectively, and for the years
ended December 31, 1997, 1996 and 1995, loan portfolios of $26 million, $10
million and $17 million, respectively. The Company paid Anivan fees and
compensation of $14,000 and $17,000 for the three months ended March 31, 1998
and 1997, and $200,000, $220,000 and $240,000, respectively, for the years ended
December 31, 1997, 1996 and 1995.

12. EMPLOYEE BENEFITS

The Company maintains a 401(k) profit sharing plan (the "401(k) Plan") which was
created effective January 1, 1995 for all employees who have completed six
months of continuous service. The Company matches 25% of the first 6% of each
employee's contribution. The Company has the option to increase the employer
match based on Company operating results. The Company's 401(k) Plan expense was

F-17
<PAGE>
ARBOR NATIONAL COMMERCIAL MORTGAGE, LLC
AND SUBSIDIARIES AND AFFILIATE

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995
AND FOR THE THREE MONTHS ENDED (UNAUDITED)
MARCH 31, 1998 AND 1997

12. EMPLOYEE BENEFITS (CONTINUED)
approximately $9,000 and $9,000, respectively, for the three months ended March
31, 1998 and 1997, and $59,000, $45,000 and $12,000, respectively, for the years
ended December 31, 1997, 1996 and 1995.

13. NET WORTH

Due to the nature of the Company's mortgage banking activities, the Company is
subject to supervision by certain regulatory agencies. Among other things, these
agencies require the Company to meet certain minimum net worth requirements as
defined. The Company's adjusted net worth at March 31, 1998, December 31, 1997
and 1996 exceeded these requirements.

14. SUBSEQUENT EVENTS

In June 1998, the Company entered into a 50/50 joint venture with a Wall Street
investment banking firm pursuant to which each of the joint venture partners
agreed to contribute up to $25 million in equity to the joint venture. In
addition, the Wall Street firm agreed to provide $200 million of financing to
fund customized financing activities, including $75 million for mezzanine loans
to the joint venture in the form of a repurchase agreement. The interest rate
charge for the financing is LIBOR plus 2%. The repurchase agreement expires in
June 2000. The Company believes that this joint venture will greatly enhance the
Company's ability to increase its customized financing activities in the future.

15. UNAUDITED PRO FORMA INFORMATION

INCOME TAXES

Pro forma adjustments for income taxes represent the difference between
historical income taxes and the income taxes that would have been reported had
the Company filed income tax returns as a taxable C corporation for each of the
periods presented using a pro forma income tax rate of 40%. As a result of the
Company's election to terminate its LLC and S corporation status, the Company is
required to record a deferred tax liability for the tax effect of temporary
differences between financial reporting and tax reporting. The net deferred tax
liability recorded at March 31, 1998 was $2,207,000. The principal components of
the Company's net deferred tax liability consists of capitalized mortgage
servicing rights, deferred gain on sale of an investment and the allowance for
loan losses.

PRO FORMA COMBINED BALANCE SHEET

The accompanying unaudited pro forma combined balance sheet at March 31, 1998
gives effect to (i) the distribution of $1,462,000 of ASF assets to Ivan
Kaufman, the sole stockholder on April 1, 1998, (ii) the net contribution of
$717,062 in capital by members on April 1, 1998, which includes a distribution
of capital to a former employee of $152,938, and (iii) the establishment of a
$6,000,000 distribution payable for previously undistributed earnings which is
intended to be distributed. The pro forma balance sheet at March 31, 1998 does
not reflect the sale of shares in the initial public offering.

F-18
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, ANY SECURITY TO ANY PERSON IN ANY JURISDICTION WHERE AN OFFER
OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 2
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 10
Use of Proceeds........................................................... 15
Capitalization............................................................ 16
Dividend Policy........................................................... 17
Dilution.................................................................. 17
Selected Financial Data................................................... 18
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 20
Business.................................................................. 28
Management................................................................ 40
Security Ownership of Certain Beneficial/ Owners and Management........... 44
Description of Securities................................................. 46
Certain Relationships and Related Transactions............................ 47
Shares Eligible for Future Sale........................................... 48
Underwriting.............................................................. 49
Legal Matters............................................................. 50
Experts................................................................... 51
Index to Financial Statements............................................. F-1

</TABLE>

[LOGO]

NATIONAL HOLDINGS, INC.

COMMON STOCK

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

PROSPECTUS

JUNE , 1998
----------------------

LEHMAN BROTHERS

FRIEDMAN, BILLINGS,
RAMSEY & CO., INC.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II

INFORMATION NOT REQUIRED IN THE PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the estimated amount of various expenses in
connection with the issuance and distribution of the securities being
registered, other than underwriting commissions and discounts:

<TABLE>
<S> <C>
SEC registration fee.............................................................. $ 16,927
NASD filing fee................................................................... 5,750
Nasdaq Listing Application Fee.................................................... 52,500
Transfer agent's fee and expenses *............................................... 15,000
Accounting/Tax fees and expenses *................................................ 125,000
Legal fees and expenses *......................................................... 350,000
"Blue Sky" fees and expenses (including legal fees) *............................. 75,000
Costs of printing and engraving *................................................. 75,000
Miscellaneous *................................................................... 97,823
---------
Total *....................................................................... $ 813,000
---------
---------
</TABLE>

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

* Estimated

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Under provisions of the Certificate of Incorporation and the By-Laws of the
Company, each person who is or was a director or officer of the Company may be
indemnified by the Company to the full extent permitted or authorized by the
Business Corporation Law of New York.

Under such law, to the extent that such person is successful on the merits
of defense of a suit or proceeding brought against him by reason of the fact
that he is a director or officer of the Company, he shall be indemnified against
expenses (including attorneys' fees) reasonably incurred in connection with such
action.

If unsuccessful in defense of a third-party civil suit or if a criminal suit
is settled, such a person may be indemnified under such law against both (1)
expenses (including attorneys' fees) and (2) judgments, fines and amounts paid
in settlement if he acted in good faith and in a manner he reasonably believed
to be in, or not opposed to, the best interests of the Company, and with respect
to any criminal action, had no reasonable cause to believe his conduct was
unlawful.

If unsuccessful in defense of a suit brought by or in the right of the
Company, or if such suit is settled, such a person may be indemnified under such
law against costs of settlement and expenses (including attorneys' fees)
incurred in the defense or settlement of such suit if he acted in good faith and
in a manner he reasonably believed to be in, or not opposed to, the best
interests of the Company except that if such a person is adjudged to be liable
in such suit for negligence or misconduct in the performance of his duty to the
Company, he cannot be made whole even for expenses unless the court determines
that he is fairly and reasonably entitled to indemnity for such costs of
settlement and expenses.

[Upon the effectiveness of this Registration Statement] The Company and its
officers and directors will be covered by officers' and directors' liability
insurance. The policy coverage is $[ ], which includes reimbursement for
costs and fees. There is a maximum deductible under the policy of $[ ] for
each claim.

II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

In January 1996, April 1997 and April 1998, ANCM issued membership interests
to 13, 10 and 14 purchasers thereof, respectively. The aggregate consideration
received in each transaction was $8,500,000, $2,500,000 and $4,600,000 ,
respectively. These securities were issued in reliance on Section 4(2) of the
Securities Act.

As of June , 1998, all of the members of ANCM have entered into the
Exchange Agreement, pursuant to which, effective on the closing of the Offering,
all of the previously outstanding membership interests in ANCM will be exchanged
for 7,500,000 shares of Common Stock. The Common Stock will be issued in
reliance upon the exemption from the registration requirements of the Securities
Act provided by Section 4(2).

ANCM may have failed to comply with certain requirements of Section 4(2) of
the Securities Act in connection with its sales of membership interests. In
connection with the execution of the Exchange Agreement, each member of ANCM was
given the opportunity to rescind the purchase of such member's membership
interest and have such member's capital contribution returned.

II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>

1.1 Form of Underwriting Agreement.*

3.1 Certificate of Incorporation of the Company.

3.2 By-laws of the Company.

4.1 Specimen Common Stock Certificate.*

5.1 Opinion of Pryor Cashman Sherman & Flynn LLP*

10.1 1998 Stock Incentive Plan*

10.2 Form of Exchange Agreement.

10.3 Employment Agreement between the Company and Ivan Kaufman, dated as of , 1998.*

10.4 Employment Agreement between the Company and Joseph Martello, dated as of , 1998.*

10.5 Employment Agreement between the Company and Walter K. Horn, dated as of , 1998.*

10.6 Employment Agreement between the Company and Elliot Silverman, dated as of , 1998.*

10.7 Office Lease Agreement dated August 31, 1993 between Arbor National Mortgage, Inc. and HMCC Associates.*

10.8 Sublease Agreement dated August 1, 1995 between Bank of America Mortgage and Arbor National Commercial
Mortgage, LLC.*

10.9 Ivan Kaufman Indemnification*

11 Computation of Earnings per share and Fully Diluted Earnings per Common Share.*

21 Subsidiaries of the Company.*

23.1 Consent of Grant Thornton LLP.

23.2 Consent of Ernst & Young LLP.

23.3 Consent of Pryor Cashman Sherman & Flynn LLP (included in Exhibit 5.1).*

27.1 Financial Data Schedule.
</TABLE>

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

* To be filed by amendment.

ITEM 17. UNDERTAKINGS

Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended ("Securities Act") may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise described under Item 14 above or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the

II-3
<PAGE>
ITEM 17. UNDERTAKINGS (CONTINUED)
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.

The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

II-4
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-1 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the city of
Uniondale, state of New York on June 15, 1998.

<TABLE>
<S> <C> <C>
ARBOR NATIONAL HOLDINGS, INC.

By: /s/ IVAN KAUFMAN
-----------------------------------------
Ivan Kaufman
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE
OFFICER (PRINCIPAL EXECUTIVE OFFICER)
</TABLE>

Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement on Form S-1 to be signed by the following persons in the
capacities and on the dates indicated.

SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------

Chairman, President, Chief
/s/ IVAN KAUFMAN Executive Officer and
- ------------------------------ Director (Principal June 15, 1998
Ivan Kaufman Executive Officer)

Senior Vice President and
Chief Financial Officer
/s/ JOSEPH MARTELLO and Director Nominee
- ------------------------------ (Principal Financial and June 15, 1998
Joseph Martello Principal Accounting
Officer)

II-5
<PAGE>
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS

To the Members of
ARBOR NATIONAL COMMERCIAL MORTGAGE, LLC AND SUBSIDIARIES AND AFFILIATE

In connection with our audit of the combined financial statements of Arbor
National Commercial Mortgage, LLC and Subsidiaries and Affiliate referred to in
our report dated May 28, 1998, which is included in the Prospectus constituting
Part I of this Registration Statement, we have also audited Schedule II for each
of the three years in the period ended December 31, 1997. In our opinion, this
schedule presents fairly, in all material respects, the information required to
be set forth therein.

Grant Thornton LLP

New York, New York
May 28, 1998

S-1
<PAGE>
ARBOR NATIONAL COMMERCIAL MORTGAGE, LLC
AND SUBSIDIARIES AND AFFILIATE

SCHEDULE II--VALUATION ALLOWANCE ACCOUNTS

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
COLUMN B COLUMN C COLUMN E
------------ ----------- COLUMN D ------------
COLUMN A BALANCE AT CHARGED TO ------------ BALANCE AT
- ----------------------------------------------------------- BEGINNING COSTS AND DEDUCTIONS-- END OF
DESCRIPTION OF YEAR EXPENSES WRITE-OFFS YEAR
- ----------------------------------------------------------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
1997
Loans held for investment................................ $ 468,551 $ 209,482 $ -- $ 678,033
Allowance for possible losses under the DUS product
line................................................... 686,500 788,135 -- 1,474,635
------------ ----------- ------------ ------------
$ 1,155,051 $ 997,617 $ -- $ 2,152,668
------------ ----------- ------------ ------------
------------ ----------- ------------ ------------
1996
Loans held for investment................................ $ 240,000 $ 228,551 $ -- $ 468,551
Allowance for possible losses under the DUS product
line................................................... -- 686,500 -- 686,500
------------ ----------- ------------ ------------
$ 240,000 $ 915,051 $ -- $ 1,155,051
------------ ----------- ------------ ------------
------------ ----------- ------------ ------------
1995
Loans held for investment................................ $ 50,000 $ 406,856 $ (216,856) $ 240,000
------------ ----------- ------------ ------------
------------ ----------- ------------ ------------
</TABLE>

S-2

<PAGE>

Exhibit 3.1

CERTIFICATE OF INCORPORATION

ARBOR NATIONAL HOLDINGS, INC.

Under Section 402 of the New York Business Corporation Law

THE UNDERSIGNED, being a natural person of the age of 18 years or over,
for the purposes of forming a corporation under Section 402 of the Business
Corporation Law of the State of New York, does hereby certify as follows:

FIRST: The name of this Corporation is ARBOR NATIONAL HOLDINGS, INC.
(hereinafter referred to as the "Corporation").

SECOND: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized pursuant to the Business
Corporation Law of the State of New York, and that the Corporation is not
formed and shall not have the power to engage in any act or activity
requiring the consent or approval of any state official, department, board,
agency or other body without the consent or approval first being obtained.
For the accomplishment of the aforesaid purpose, and in furtherance thereof,
the Corporation shall have, and may exercise, all the powers conferred by the
Business Corporation Law upon corporations formed thereunder, subject to any
limitations contained in Article 2 of said law or in accordance with the
provisions of any other statute of the State of New York.

<PAGE>

THIRD: The office of the Corporation shall be in the County of Nassau in
the State of New York.

FOURTH: The aggregate number of shares of stock which the Corporation
shall have authority to issue and the designations, powers, preferences and
rights, and the qualifications, limitations or restrictions upon, each class
or series of stock shall be as follows:

Section 1. Authorized shares of stock. The total number of shares of
stock which the Corporation shall have authority to issue is Forty Million
(40,000,000) shares, $.01 par value per share.

Section 2. Designation of Classes. The authorized shares of the
Corporation shall be divided into the following classes:

(a) Common Stock, consisting of Thirty Million (30,000,000) shares, $.01
par value (the "Common Stock"); and

(b) Preferred Stock, consisting of Ten Million (10,000,000) shares, $.01
par value (the "Preferred Stock"), issuable by the Board of Directors, from
time to time, in one or more series, without any further approval from the
shareholders of the Corporation.

Before issuance of such Preferred Stock, the Board of Directors is
authorized to fix the voting powers, if any, the designations, relative
rights, preferences and limitations applicable to each series, including but
not limited to dividend rates, conditions and time of accrual and payment,
dividend

<PAGE>

preferences, if any, whether dividends shall be cumulative, conversion and
redemption rights, sinking fund provisions and liquidation preferences. With
respect to dividends, redemption and liquidation, any particular series of
Preferred Stock may rank junior to, on a parity with or senior to any other
series of Preferred Stock. The Board of Directors is authorized to issue the
Preferred Stock at such time or times, to such persons, and for such
consideration as it may deem desirable, without further action by
shareholders, unless otherwise required by law.

FIFTH: The Secretary of State of the State of New York is designated as
the agent of the Corporation upon whom process against it may be served. The
post office address to which the Secretary of State shall mail a copy of any
such process served upon him is c/o the Corporation, 333 Earle Ovington
Blvd., Uniondale, N.Y., 11553 (Attn: Walter Horn, Esq.).

SIXTH: A director of the Corporation shall not be liable to the
Corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director, except for liability if a judgment or other final
adjudication adverse to the director establishes that (i) his acts or
omissions were in bad faith or involved intentional misconduct or a knowing
violation of the law, (ii) that he personally gained in fact a financial
profit or other advantage to which he was not legally entitled, or (iii) that
his acts violated Section 719 of the Business Corporation Law of the State of
New York.

<PAGE>

SEVENTH: The Corporation shall, to the fullest extent permitted by
Sections 722-725 of the Business Corporation Law of the State of New York, as
the same may be amended or supplemented, indemnify any and all persons whom
it shall have power to indemnify under said sections from and against any and
all of the expenses, liabilities or other matters referred to in or covered
by said section, and the indemnification provided for herein shall not be
deemed exclusive of any other rights to which those indemnified may be
entitled under any By-law, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as
to a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of the heirs, executors and administrators of such
a person.

EIGHTH: Proposed shareholder nominations for the election of directors
and for such other business to be conducted at an annual meeting of
shareholders shall be brought before the annual meeting (a) by, or at the
direction of, a majority of the directors, or (b) by any shareholder of the
Corporation permitted by law and the By-laws to do so. Any proposal brought
by a shareholder must be given not less than 120 calendar days in advance of
the date of the proxy statement released to shareholders in connection with
the previous year=s annual meeting of shareholders. Notwithstanding anything
to the contrary contained in this Certificate of Incorporation or the Bylaws
of the Corporation, no amendment, repeal, or provisions inconsistent with the
provisions of this article EIGHTH or related provision in the Bylaws of the
Corporation shall be adopted unless it is approved by the vote of holders of
not less than seventy-five

<PAGE>

percent of all outstanding shares entitled to vote in an election of
directors.

NINTH: Proposals to be presented at any meeting of shareholders other
than an annual meeting, shall be brought before the meeting (a) by, or at the
direction of, a majority of the directors, or (b) by any shareholder of the
Corporation permitted by law and the By-laws to do so. Any proposal brought
by a shareholder must be received by the Corporation within 120 days before a
proxy solicitation is made with respect to such proposal. Notwithstanding
anything to the contrary contained in this Certificate of Incorporation or
the Bylaws of the Corporation, no amendment, repeal, or provisions
inconsistent with the provisions of this article NINTH or related provision
in the Bylaws of the Corporation shall be adopted unless it is approved by
the vote of holders of not less than seventy-five percent of all outstanding
shares entitled to vote in an election of directors.

IN WITNESS WHEREOF, I have executed this Certificate of Incorporation
and affirm that the statements made herein are true under the penalties of
perjury this 12th day of June, 1998.

/s/ Lauren Kruczko
------------------
Lauren Kruczko
Sole Incorporator

<PAGE>

Exhibit 3.2

BYLAWS

ARBOR NATIONAL HOLDINGS, INC.

a New York corporation (the "Corporation")

ARTICLE I - OFFICES

Section 1.1. Location. The address of the principal office of the
Corporation shall be in the city, incorporated village or town and the county
within the State of New York shall be as specified in the Certificate of
Incorporation or, if subsequently changed, as specified in the most recent
certificate of change filed pursuant to law. The Corporation may also have
other offices at such places within or without the State of New York as the
Board of Directors may from time to time designate or the business of the
Corporation may require.

Section 1.2. Additional Offices. The Corporation may also have offices
at such places within or without the State of New York, as the Board of
Directors may from time to time determine or the business of the Corporation
may require.

ARTICLE II - MEETINGS OF SHAREHOLDERS

Section 2.1. Annual Meeting. The annual meeting of the shareholders of
the Corporation for the election of directors and for the transaction of such
other business as may properly come before the meeting shall be held at the
principal office of the Corporation in New York State, or at such other place
within or without the State of New York as the Board of Directors may fix, at
10 o'clock A.M. on the 3rd Wednesday in April of each year commencing with
the year 1999, but if such a date is a legal holiday, then on the next
succeeding business day, or may be held by telephone conference or other
similar means, or by written consent. At an annual meeting of shareholders,
only such business shall be conducted, and only such proposals shall be acted
upon, as shall have been brought before the annual meeting (a) by, or at the
direction of, a majority of the directors, or (b) by any shareholder of the
Corporation, permitted by law to bring such proposal, and who complies with
the notice procedures set forth in Section 2.8 of the Bylaws of the
Corporation. Notwithstanding anything to the contrary contained in this
Section 2.1, no amendment, repeal, or provisions inconsistent with the
provisions of this Section 2.1 or related provision in the Certificate of
Incorporation of the Corporation shall be adopted unless it is approved by
the vote of not less than seventy-five percent of the votes entitled to be
cast in an election of directors.

Section 2.2. Special Meetings. Special meetings of shareholders, unless
otherwise prescribed by law, may be called at any time by the President or at
the request of any three directors. Special meetings of shareholders shall be
held at such place within or without the State

<PAGE>

of New York as shall be designated in the notice of meeting, or may be held
by telephone conference or other similar means, or by written consent. At any
special meeting, only such business may be transacted which is related to the
purpose or purposes set forth in the notice requirements provided for in
Sections 2.3 and 2.8 of these Bylaws of the Corporation, and is proposed in
accordance with such provisions.

Section 2.3 Notice of Meetings. Written notice of each annual and
special meeting of shareholders, other than any meeting the giving of notice
of which is otherwise prescribed by law, stating the place, date and hour of
the meeting, and, in the case of a special meeting, indicating that it is
being issued by or at the direction of the person or persons calling the
meeting and stating the purpose or purposes for which the meeting is called,
shall be given personally or by first class mail to each shareholder entitled
to vote thereat, not less than ten (10) nor more than sixty (60) days prior
to the meeting. If mailed, such notice shall be deemed given when deposited
in the United States mail, postage prepaid, directed to such shareholders at
his address as it appears on the record of shareholders of the Corporation
or, if he shall have filed with the Secretary of the Corporation a written
request that notices to him be mailed to some other address, then directed to
him at such other address. An affidavit of the Secretary or other person
giving the notice or the transfer agent of the Corporation that notice has
been given shall be evidence of the facts stated therein.

Notice of any meeting need not be given to any shareholder who submits a
signed waiver of notice, whether before or after the meeting. The attendance
of any shareholder at a meeting, in person or by proxy, without protesting
prior to the conclusion of the meeting the lack of notice of such meeting,
shall constitute a waiver of notice by him.

When a meeting is adjourned to another time or place, it shall not be
necessary, unless the Bylaws require otherwise, to give any notice of the
adjourned meeting if the time and place to which the meeting is adjourned are
announced at the meeting at which the adjournment is taken, and at the
adjourned meeting any business may be transacted that might have been
transacted on the original date of the meeting. However, if after the
adjournment the Board fixes a new record date for the adjourned meeting, a
notice of the adjourned meeting shall be given to each shareholder of record
on the new record date entitled to notice as provided for in this Section 2.3
of these Bylaws.

Section 2.4. Quorum. Unless otherwise prescribed by law or by the
Certificate of Incorporation or these Bylaws, the holders of record of at
least a majority of the votes of shares of capital stock entitled to vote or
act at such meeting shall be necessary to and shall constitute a quorum for
the transaction of any business at all meetings of the shareholders;
provided, however, that when a specified item of business is required to be
voted on by a class or series, voting as a class, the holders of a majority
of the votes of shares of such class or series issued and outstanding and
entitled to vote thereat shall constitute a quorum for other transaction of
such specified item of business. If a quorum shall not be present at any
meeting of the shareholders, the shareholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the

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meeting from time to time, until a quorum shall be present. At any such
adjourned meeting at which a quorum may be present any business may be
transacted which might have been transacted at the meeting as originally
notified.

Section 2.5. Voting. (a) At any meeting of the shareholders every
shareholder having the right to vote shall be entitled to vote in person or
by proxy. Each shareholder shall have one (1) vote for each share of stock
having voting power which is registered in his name on the books of the
Corporation, unless otherwise provided in the Certificate of Incorporation or
any Certificate of Amendment filed by the Board pursuant to Section 805 of
the New York Business Corporation Law ("NYBCL"). Except where another date
shall have been fixed as a record date for the determination of its
shareholders entitled to vote, no share of stock shall be voted at any
election of directors which shall have been transferred on the books of the
Corporation within twenty (20) days next preceding such election of directors.

(b) Unless otherwise provided by law or by the Certificate of
Incorporation or these Bylaws, all elections of directors shall be decided by
a plurality of the votes cast, and all other matters shall be decided by a
majority of the votes cast.

Section 2.6. Proxies. A proxy may be executed in the manner provided in
Section 609 of the NYBCL. No proxy shall be valid after the expiration of
eleven (11) months from the date thereof, unless otherwise provided in the
proxy. Every proxy shall be revocable at the pleasure of the shareholder
executing it, except in those cases where an irrevocable proxy is permitted
by law.

Section 2.7. Action by Consent of Shareholders. Unless otherwise
provided by law or by the Certificate of Incorporation or these Bylaws,
whenever shareholders are required or permitted to take any action by vote,
such action may be taken without a meeting on written consent, setting forth
the action so taken, signed by the holders of all outstanding shares entitled
to vote thereon. Notwithstanding anything to the contrary contained in this
Section 2.7, no amendment, repeal, or provisions inconsistent with the
provisions of this Section 2.7 or related provision in the Certificate of
Incorporation of the Corporation shall be adopted unless it is approved by
the vote of the holders of not less than seventy-five percent of all
outstanding shares entitled to vote in an election of directors.

Section 2.8. Advance Notice of Proposed Shareholder Nominations. Advance
notice of proposed shareholder nominations for the election of directors
(other than by the Board of Directors) and any proposals to be brought at a
meeting of shareholders (other than by the Board of Directors) must be given
to the Company not less than 120 days before the date of the proxy statement
released to shareholders in connection with the previous year's annual
meeting of shareholders, in the case of an annual meeting to elect directors
or, in the case of other proposals, not less than 120 days before a proxy
solicitation is made with respect to such proposal. Notwithstanding anything
to the contrary contained in this Section 2.8, no amendment, repeal, or

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provisions inconsistent with the provisions of this Section 2.8 or related
provision in the Certificate of Incorporation of the Corporation shall be
adopted unless it is approved by the vote of the holders not less than
seventy-five percent of all outstanding shares entitled to vote in an
election of directors.

ARTICLE III - BOARD OF DIRECTORS

Section 3.1. General Powers. The property, business and affairs of the
Corporation shall be managed by the Board of Directors. The Board of
Directors may exercise all such powers of the Corporation and have such
authority and do all such lawful acts and things as are permitted by law, the
Certificate of Incorporation or these Bylaws.

Section 3.2. Number of Directors. The Board of Directors of the
Corporation shall consist of initially five members; the exact number of
directors which shall constitute the whole Board of Directors ("Whole Board")
shall be fixed, increased or decreased from time to time by resolution
adopted by two-thirds of the number of directors then in office (any
vacancies shall not be counted for this purpose).

Section 3.3. Qualification. Directors need not be shareholders of the
Corporation.

Section 3.4. Election. Unless otherwise provided by law or the
Certificate of Incorporation or these Bylaws, after the first meeting of the
Corporation at which directors are elected, directors of the Corporation
(except directors appointed to fill vacancies) shall be elected in each year
at the annual meeting of shareholders. The voting on directors at any such
meeting need not be by written ballot unless otherwise so requested by any
shareholder.

Section 3.5. Term. Each director shall hold office until his successor
is duly elected and qualified, except in the event of the earlier termination
of his term of office by reason of death, resignation, removal or other
reason.

Section 3.6. Resignation and Removal. Any director may resign at any
time upon written notice to the Board of Directors, the President or the
Secretary. The shareholders may remove from office any director with or
without cause.

Section 3.7. Vacancies. Unless otherwise provided by law or by the
Certificate of Incorporation or these Bylaws, if any vacancies occur in the
Board of Directors by reason of the death, resignation, retirement,
disqualification or removal from office of any Director with or without
cause, or if any new directorships are created, all of the directors then in
office, although less than a quorum, may, by majority vote, choose a
successor or successors, or fill the newly created directorships, and the
directors so chosen shall hold office until the next annual meeting of the
shareholders and until their successors shall be duly elected and qualified,
unless sooner displaced; provided, however, that if in the event of any such
vacancy, the directors remaining in

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<PAGE>

office shall be unable, by majority vote, to fill such vacancy within thirty
(30) days of the occurrence thereof, the President or the Secretary may call
a special meeting of the shareholders at which such vacancy shall be filled.
In the event of any vacancy created by removal from office of any Director
without cause, such special meeting of the shareholders shall be so called
within thirty (30) days of the occurrence thereof, at which meeting such
vacancy may be filled.

Section 3.8. Quorum and Voting. Unless the Certificate of Incorporation
or these By laws provides otherwise, at all meetings of the Board of
Directors a majority of the Whole Board shall constitute a quorum for the
transaction of business. A director interested in a contract or transaction
may be counted in determining the presence of a quorum at a meeting of the
Board of Directors which authorizes the contract or transaction.

If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time until a quorum shall be present. Notice of any such adjournment shall be
given to any directors who were not present and, unless announced at the
meeting, to the other directors.

Unless otherwise provided in these Bylaws, the Certificate of
Incorporation or an agreement or resolution signed or adopted by the
shareholders, the vote of a majority of the directors present at a meeting at
which a quorum is present shall be the act of the Board of Directors.

Section 3.9. Regulations. The Board of Directors may hold its meetings
and cause the books and records of the Corporation to be kept at such place
or places within or without the State of New York as the Board of Directors
may from time to time determine. A member of the Board of Directors shall, in
the performance of his duties, be fully protected in relying in good faith
upon the books of account or reports made to the Corporation by any of its
officers, by an independent Certified Public Accountant or by an appraiser
selected with reasonable care by the Board of Directors or any committee of
the Board of Directors or in relying in good faith upon other records of the
Corporation.

Section 3.10. Annual Meeting of Board of Directors. An annual meeting of
the Board of Directors shall be called and held for the purpose of
organization, election of officers and transaction of any other business. If
such meeting is held promptly after and at the place specified for the annual
meeting of shareholders, no notice of the annual meeting of the Board of
Directors need be given. Otherwise such annual meeting shall be held at such
time (not more than thirty days after the annual meeting of shareholders) and
place as may be specified in a notice of the meeting.

Section 3.11. Regular Meetings. Regular meetings of the Board of
Directors shall be held at the time and place, within or without the State of
New York, as shall from time to time be determined by the Board of Directors.
After there has been such determination and notice thereof has been given to
each member of the Board of Directors, no further notice shall be required

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<PAGE>

for any such regular meeting. Except as otherwise provided by law, any
business may be transacted at any regular meeting.

Section 3.12 Special Meetings. Special meetings of the Board of
Directors may, unless otherwise prescribed by law, be called from time to
time by the President, and shall be called by the President or the Secretary
upon the written request of the Chairman or any two directors. Except as
provided below, notice of any special meeting of the Board of Directors,
stating the time, place and purpose of such special meeting, shall be given
to each director.

Section 3.13. Notice of Meetings. Notice of any meeting of the Board of
Directors shall be deemed to be duly given to a director (i) if mailed to
such director, addressed to him at his address as it appears upon the books
of the Corporation or at the address last made known in writing to the
Corporation by such director as the address to which such notices are to be
sent, at least five days before the day on which such meeting is to be held,
(ii) if sent to him at such address by telecopier, telex or telegraph, not
later than the day before the day on which such meeting is to be held or
(iii) if delivered to him personally or orally, by telephone or otherwise,
not later than the day before the day on which such meeting is to be held.
Each such notice shall state the time and place of the meeting and the
purposes thereof.

Notice of any meeting of the Board of Directors need not be given to any
director if waived by him in writing (or by telecopier, telex or telegram and
confirmed in writing) whether before or after the holding of such meeting or
if such director is present at such meeting. Any meeting of the Board of
Directors shall be a duly constituted meeting without any notice thereof
having been given if all directors then in office shall be present thereat.

Section 3.14. Committees of Directors. The Board of Directors may, by
resolution or resolutions passed by a majority of the Whole Board, designate
one or more committees, each committee to consist of one or more of the
directors of the Corporation.

Except as herein provided, vacancies in membership of any committee
shall be filled by the vote of the majority of remaining directors, even if
less than a quorum. The Board of Directors may designate one or more
directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of any member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board
of Directors to act at the meeting in the place of any such absent or
disqualified member. Members of a committee shall hold office for such period
as may be fixed by a resolution adopted by a majority of the Board of
Directors then in office (not counting vacancies), subject, however, to the
removal from office with or without cause by the shareholders of the
Corporation or by the act of the Board.

Section 3.15. Powers and Duties of Committees. Any committee, to the
extent

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<PAGE>

provided in the resolution or resolutions creating such committee, shall have
and may exercise the powers of the Board of Directors in the management of
the business and affairs of the Corporation and may authorize the seal of the
Corporation to be affixed to all papers which may require it. No such
committee shall have the power or authority with regard to amending the
Certificate of Incorporation, adopting an agreement of merger or
consolidation, recommending to the shareholders the sale, lease or exchange
of all or substantially all of the Corporation's property and assets,
recommending to the shareholders a dissolution of the Corporation or a
revocation of a dissolution, amending or repealing of the Bylaws, or the
adoption of new Bylaws, filling of vacancies in the Board of Directors or any
committee, submission to shareholders of any action that requires
shareholders' approval under the NYBCL, the Certificate of Incorporation or
these Bylaws, the fixing of compensation of the directors for serving on the
board of directors or any committee thereof, or any other action prohibited
by ss.712 of the NYBCL, as same may be amended.

Section 3.16. Compensation of Directors. The Board of Directors may from
time to time, in its discretion, fix the amounts which shall be payable to
directors and to members of any committee of the Board of Directors for
attendance at the meetings of the Board of Directors or of such committee and
for services rendered to the Corporation.

Section 3.17. Action Without Meeting. Unless otherwise provided in the
Certificate of Incorporation, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be
taken without a meeting if a written consent thereto is signed by all members
of the Board of Directors or of such committee, as the case may be, and such
written consent is filed with the minutes of proceedings of the Board of
Directors or such committee.

Section 3.18. Action by Conference Telephone. Any one or more members of
the Board of Directors or any committee thereof may participate in a meeting
of the Board of Directors or such committee by means of a conference
telephone or similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time.
Participation by such means shall constitute presence in person at a meeting.

Section 3.19. Contracts. No contract or other transaction between this
Corporation and any other Corporation shall be impaired, affected or
invalidated nor shall any director be liable in any way by reason of the fact
that any one or more of the directors of this Corporation is or are
interested in, or is a director or officer, or are directors or officers of
such other corporation, provided that such contract is approved in the manner
provided in the NYBCL, as amended, including, if applicable, Sections 505,
713 or 714 thereof. This Section shall not be construed to impair or
invalidate or in any way affect any contract or other transaction which would
otherwise be valid under the law (common, statutory or otherwise) applicable
thereto.

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ARTICLE IV - OFFICERS

Section 4.1. Principal Officers. The principal officers of the
Corporation shall be elected by the Board of Directors and shall include a
Chief Executive Officer, and a Secretary and may, at the discretion of the
Board of Directors, also include a President, one or more Vice Presidents, a
Treasurer and a Controller. Except as otherwise provided in the Certificate
of Incorporation or these Bylaws, one person may hold the offices and perform
the duties of any two or more of said principal offices. The Chief Executive
Officer shall also be the Chairman of the Board of Directors.

Section 4.2. Election of Principal Officers; Term of Office. The
principal officers of the Corporation shall be elected annually by the Board
of Directors at each annual meeting of the Board of Directors. Failure to
elect annually any principal officer shall not dissolve the Corporation. If
the Board of Directors shall fail to fill any principal office at an annual
meeting, if any vacancy in any principal office shall occur or if any
principal office shall be newly created, such principal office may be filled
at any regular or special meeting of the Board of Directors. Each principal
officer shall hold office until his successor is duly elected and qualified,
or until his earlier death, resignation or removal.

Section 4.3. Subordinate Officers, Agents and Employees. In addition to
the principal officers, the Corporation may have one or more Assistant
Treasurers, Assistant Secretaries, Assistant Controllers and such other
subordinate officers, agents and employees as the Board of Directors may deem
advisable, each of whom shall hold office for such period and have such
authority and perform such duties as the Board of Directors, the Chief
Executive Officer or any officer designated by the Board of Directors may
from time to time determine. The Board of Directors at any time may appoint
and remove, or may delegate to any principal officer the power to appoint and
to remove, any subordinate officer, agent or employee of the Corporation.

Section 4.4. Delegation of Duties of Officers. The Board of Directors
may delegate the duties and powers of any officer of the Corporation to any
other officer or to any director for a specified period of time for any
reason that the Board of Directors may deem sufficient.

Section 4.5. Removal of Officers. Any officer of the Corporation may be
removed with or without cause by the Chief Executive Officer or by resolution
adopted by the directors.

Section 4.6. Compensation. The compensation of all officers of the
Corporation shall be fixed by the Board of Directors, and the compensation of
agents shall either be so fixed or shall be fixed by officers thereunto duly
authorized.

Section 4.7. Resignations. Any officer may resign at any time by giving
written notice of resignation to the Board of Directors or to the Chief
Executive Officer. Any such resignation shall take effect upon receipt of
such notice or at any later time specified therein, subject to the terms of
any employment agreement with such officer. Unless otherwise specified in the
notice, the acceptance of a resignation shall not be necessary to make the
resignation effective.

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Section 4.8. Chairman of the Board. The Chairman of the Board shall
preside at all meetings of shareholders and of the Board of Directors at
which he is present. The Chairman of the Board shall have such other powers
and perform such other duties as may be assigned to him from time to time by
the Board of Directors.

Section 4.9. Chief Executive Officer. The Chief Executive Officer (if a
different person than the Chairman of the Board) shall, in the absence of the
Chairman of the Board, preside at all meetings of the shareholders and of the
Board of Directors. The Chief Executive Officer of the Corporation shall have
general supervision over the business of the Corporation. The Chief Executive
Officer shall have all powers and duties usually incident to the office of
the Chief Executive Officer except as specifically limited by a resolution of
the Board of Directors. The President shall report to the Chief Executive
Officer.

Section 4.9A The President. The President shall have such other powers
and perform such other duties as may be assigned to him from time to time by
the Board of Directors or the Chief Executive Officer.

Section 4.10. Vice President. In the absence or disability of the Chief
Executive Officer or if the office of Chief Executive Officer be vacant, then
in the absence or disability of the President, or if the office of the
President be vacant, the Vice Presidents, in the order determined by the
Board of Directors, or if no such determination has been made, in the order
of their seniority, shall perform the duties and exercise the powers of the
Chief Executive Officer, subject to the right of the Board of Directors at
any time to extend or confine such powers and duties or to assign them to
others. Any Vice President may have such additional designation in his title
as the Board of Directors may determine. The Vice Presidents shall generally
assist the Chief Executive Officer in such manner as the Chief Executive
Officer shall direct. Each Vice President shall have such other powers and
perform such other duties as may be assigned to him from time to time by the
Board of Directors or the Chief Executive Officer.

Section 4.11. Secretary. The Secretary shall act as Secretary of all
meetings of shareholders and of the Board of Directors at which he is
present, shall record all the proceedings of all such meetings in a book to
be kept for that purpose, shall have supervision over the giving and service
of notices of the Corporation and shall have supervision over the care and
custody of the records and seal of the Corporation. The Secretary shall be
empowered to affix the corporate seal to documents, the execution of which on
behalf of the Corporation under its seal is duly authorized, and when so
affixed may attest the same. The Secretary shall have all powers and duties
usually incident to the office of Secretary except as specifically limited by
a resolution of the Board of Directors. The Secretary shall have such other
powers and perform such other duties as may be assigned to him from time to
time by the Board of Directors or the President.

Section 4.12. The Assistant Secretary. During the absence or disability
of

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the Secretary, any Assistant Secretary, or if there be more than one, the one
so designated by the Secretary or by the Board of Directors, shall have all
the powers and functions of the Secretary.

Section 4.13. Treasurer. The Treasurer shall have general supervision
over the care and custody of the funds and other valuable effects, including
securities, and shall keep full and accurate accounts of receipts and
disbursements of the Corporation and shall cause the funds and other valuable
effects, and shall keep full and accurate accounts of the Corporation to be
deposited in the name of the Corporation in such banks or other depositaries
as the Board of Directors may designate. The Treasurer shall have supervision
over the care and safekeeping of the securities of the Corporation. The
Treasurer shall have all powers and duties usually incident to the office of
Treasurer except as specifically limited by a resolution of the Board of
Directors. The Treasurer shall have such other powers and perform such other
duties as may be assigned to him from time to time by the Board of Directors
or the Chief Executive Officer.

Section 4.14. The Assistant Treasurer. During the absence or disability
of the Treasurer, any Assistant Treasurer, or if there be more than one, the
one so designated by the Treasurer or by the Board of Directors, shall have
all the powers and functions of the Treasurer.

Section 4.15. Controller. The Controller shall be the chief accounting
officer of the Corporation and shall have supervision over the maintenance
and custody of the accounting operations of the Corporation, including the
keeping of accurate accounts of all receipts and disbursements and all other
financial transactions. The Controller shall have all powers and duties
usually incident to the office of Controller except as specifically limited
by a resolution of the Board of Directors. The Controller shall have such
other powers and perform such other duties as may be assigned to him from
time to time by the Board of Directors or the President.

Section 4.16. Bond. In case the Board of Directors shall so require, any
officer or agent of the Corporation shall give the Corporation a bond for
such term, in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of
his death, resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in his possession
or under his control belonging to the Corporation.

ARTICLE V - CAPITAL STOCK

Section 5.1. Issuance of Certificates for Stock. Each shareholder of the
Corporation shall be entitled to a certificate or certificates in such form
as shall be approved by the Board of Directors certifying the number of
shares of capital stock of the Corporation owned by such shareholder.

Section 5.2. Signatures on Stock Certificates. Certificates for shares
of capital stock of the Corporation shall be signed by, or in the name of the
Corporation by, the Chairman of the

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<PAGE>

Board, the President or a Vice President and by the Secretary, the Treasurer,
an Assistant Secretary or an Assistant Treasurer. Any of or all the
signatures on the certificate may be a facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent or registrar before such certificate is issued, such certificate may be
issued by the Corporation with the same effect as if such signer were such
officer, transfer agent or registrar at the date of issue.

Section 5.3. Stock Ledger. A record of all certificates for capital
stock issued by the Corporation shall be kept by the Secretary or any other
officer or employee of the Corporation designated by the Secretary or by any
transfer clerk or transfer agent appointed pursuant to Section 5.4 of these
Bylaws. Such record shall show the name and address of the person, firm or
corporation in which certificates for capital stock are registered, the
number of shares represented by each such certificate, the date of each such
certificate and in case of certificates which have been canceled the dates of
cancellation thereof.

The Corporation shall be entitled to treat the holder of record of
shares of capital stock as shown on the stock ledger as the owner thereof and
as the person entitled to receive dividends thereon, to vote such shares and
to receive notice of meetings and for all other purposes. The Corporation
shall not be bound to recognize any equitable or other claim to or interest
in any share of capital stock on the part of any other person whether or not
the Corporation shall have express or other notice thereof.

Section 5.4. Regulations Relating to Transfer. The Board of Directors
may make such rules and regulations as it may deem expedient, not
inconsistent with law, the Certificate of Incorporation or these Bylaws,
concerning issuance, transfer and registration of certificates for shares of
capital stock of the Corporation. The Board of Directors may appoint, or
authorize any principal officer to appoint, one or more transfer clerks or
one or more transfer agents and one or more registrars and may require all
certificates for capital stock to bear the signature or signatures of any of
them.

Section 5.5. Transfers. Transfers of capital stock shall be made on the
books of the Corporation only upon delivery to the Corporation or its
transfer agent of (i) a written direction of the registered holder named in
the certificate or such holder's attorney lawfully constituted in writing,
(ii) the certificate for the shares of capital stock being transferred
(except as provided in Section 5.7 of these Bylaws) and (iii) a written
assignment of the shares of capital stock evidenced thereby.

Section 5.6. Cancellation. Each certificate for capital stock
surrendered to the Corporation for exchange or transfer shall be cancelled
and no new certificate or certificates shall be issued in exchange for any
existing certificate (other than pursuant to Section 5.7 of these Bylaws)
until such existing certificate shall have been cancelled.

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Section 5.7. Lost, Destroyed, Stolen and Mutilated Certificates. In the
event that any certificate for shares of capital stock of the Corporation
shall be mutilated the Corporation shall issue a new certificate in place of
such mutilated certificate. In case any such certificate shall be lost,
stolen or destroyed the Corporation may, in the discretion of the Board of
Directors or a committee designated thereby with power so to act, issue a new
certificate for capital stock in the place of any such lost, stolen or
destroyed certificate. The applicant for any substituted certificate or
certificates shall surrender any mutilated certificate or, in the case of any
lost, stolen or destroyed certificate, furnish satisfactory proof of such
loss, theft or destruction of such certificate and of the ownership thereof.
The Board of Directors or such committee may, in its discretion, require the
owner of a lost or destroyed certificate or his representatives to furnish to
the Corporation a bond with an acceptable surety or sureties and in such sum
as will be sufficient to indemnify the Corporation against any claim that may
be made against it on account of the lost, stolen or destroyed certificate or
the issuance of such new certificate. A new certificate may be issued without
requiring a bond when, in the judgment of the Board of Directors, it is
proper to do so.

Section 5.8. Fixing of Record Dates. (a) The Board of Directors may fix,
in advance, a record date, which shall not be more than sixty nor less than
ten days before the date of any meeting of shareholders nor more than sixty
days prior to any other action, for the purpose of determining shareholders
entitled to notice of or to vote at such meeting of shareholders or any
adjournment thereof, to express consent or dissent to corporate action in
writing without a meeting or to receive payment of any dividend or other
distribution or allotment of any rights, or to exercise any rights in respect
of any change, conversion or exchange of stock or for the purpose of any
other lawful action.

(b) If no record date is fixed by the Board of Directors:

(i) The record date for determining shareholders entitled to notice of
or to vote at a meeting of shareholders shall be at the close of business
on the day next preceding the day on which notice is given, or if notice is
waived at the close of business on the day next preceding the day on which
the meeting is held;

(ii) The record date for determining shareholders entitled to
express consent to corporate action in writing without a meeting when no
prior action by the Board of Directors is necessary shall be the day on
which the first consent is expressed; and

(iii) The record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the Board
of Directors adopts the resolution relating thereto.

(c) A determination of shareholders of record entitled to notice of
or to vote at a meeting of shareholders shall apply to any adjournment of the
meeting; provided that the Board of

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<PAGE>

Directors may fix a new record date for the adjourned meeting.

ARTICLE VI - INDEMNIFICATION

Section 6.1. Indemnification of Directors and Officers. Any person made
or threatened to be made, a party to an action or proceeding (other than one
by or in the right of the Corporation to procure a judgment in its favor),
whether civil or criminal, including an action by or in the right of any
other corporation of any type or kind, domestic or foreign, or any
partnership, joint venture, trust, employee benefit plan or other enterprise,
which any person served in any capacity at the request of the Corporation, by
reason of the fact that he, his testator or intestate is or was a Director or
Officer of the Corporation, or served such other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, in any
capacity, shall be indemnified by the Corporation against the judgment,
fines, amounts paid in settlement and reasonable expenses (including
attorney's fees) actually and necessarily incurred by him as a result of such
action or proceeding, or any appeal therein, to the full extent permissible
under Sections 722-725 of the NYBCL. Insurance may be purchased by the
Corporation to satisfy its indemnification obligations, to the extent
provided in Section 726 of the NYBCL, as the same may be amended.

Section 6.2. Contract of Indemnification. The provisions of Section 1 of
this Article VI of the Bylaws shall be deemed a contract between the
Corporation and each Director and officer who serves in such capacity at any
time while Section 1 hereof and the relevant provisions of the NYBCL and
other applicable law, if any, are in effect, and any repeal or modification
thereof shall not affect any rights or obligations then existing with respect
to any state of facts then or theretofore existing or any action or
proceeding theretofore or thereafter brought or threatened based in whole or
in part upon any such state of facts.

Section 6.3. Nonexclusivity of Statutory Provisions for Indemnification
of Directors and Officers. The indemnification and advancement of expenses
granted pursuant to, or provided by, this Article VI and the relevant
provisions of the NYBCL and other applicable law, if any, shall not be deemed
exclusive of any other rights to which a Director or Officer seeking
indemnification or advancement of expenses may be entitled by a resolution of
shareholders, a resolution of directors, or an agreement providing for such
indemnification, provided that no indemnification may be made to or on behalf
of any Director or Officer if a judgment or other final adjudication adverse
to the Director or Officer establishes that his acts were committed in bad
faith or were the result of active and deliberate dishonesty and were
material to the cause of action so adjudicated, or that he personally gained
in fact a financial profit or other advantage to which he was not legally
entitled.

Section 6.4. Advancement of Expenses. All expenses incurred in defending
a civil or criminal action or proceeding may be paid in advance by the
Corporation of the final disposition of such action or proceeding upon
receipt of an undertaking to repay such amount as, and to the extent,
required by Section 725(a) of the NYBCL.

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<PAGE>

Section 6.5. Indemnification of other Persons. The Board, in its
discretion, shall have power on behalf of the Corporation to indemnify any
person, other than a Director or officer, made a party to any action or
proceeding by reason of the fact that he, his testator or intestate, is or
was an employee of the Corporation.

ARTICLE VII - MISCELLANEOUS PROVISIONS

Section 7.1. Corporate Seal. The seal of the Corporation shall be
circular in form with the name of the Corporation in the circumference and
the words and figures "Corporate Seal - 1998 New York" in the center. The
seal may be used by causing it to be affixed or impressed, or a facsimile
thereof may be reproduced or otherwise used in such manner as the Board of
Directors may determine.

Section 7.2. Fiscal Year. The fiscal year of the Corporation shall be
from the 1st day of January to the 31st day of December, inclusive, in each
year, or such other twelve consecutive months as the Board of Directors may
designate.

Section 7.3. Waiver of Notice. Whenever any notice is required to be
given under any provision of law, the Certificate of Incorporation or these
Bylaws, a written waiver thereof, signed by the person or persons entitled to
such notice, whether before or after the time stated therein, shall be deemed
equivalent to notice.

Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting at the beginning of the meeting to the transaction of
any business because the meeting is not lawfully called or convened.

Section 7.4. Execution of Instruments, Contracts, etc. (a) All checks,
drafts, bills of exchange, notes or other obligations or orders for the
payment of money shall be signed in the name of the Corporation by such
officer or officers or person or persons as the Board of Directors may from
time to time designate.

(b) Except as otherwise provided by law or these Bylaws, the Board
of Directors, any committee given specific authority in the premises by the
Board of Directors or any committee given authority to exercise generally the
powers of the Board of Directors during the intervals between meetings of the
Board of Directors may authorize any officer, employee or agent, in the name
of and on behalf of the Corporation, to enter into or execute and deliver
deeds, bonds, mortgages, contracts and other obligations or instruments, and
such authority may be general or confined to specific instances.

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<PAGE>

department of the United States Government or any state, county, municipal or
other governmental official or authority may if permitted by applicable law
be executed in the name of the Corporation by any principal officer or
subordinate officer of the Corporation or, to the extent designated for such
purpose from time to time by the Board of Directors, by an employee or agent
of the Corporation. Such designation may contain the power to substitute, in
the discretion of the person named, one or more other persons.

ARTICLE VIII - AMENDMENTS

Section 8.1. Adoption; Amendment; Repeal. These Bylaws may be adopted,
amended or repealed by vote of the holders of the shares at the time entitled
to vote in the election of any directors, or by action of a majority of the
Board of Directors present at a meeting at which a quorum is present or by
unanimous written consent of the Directors. Any Bylaws adopted, amended or
repealed by the Board of Directors may be amended or repealed by the
shareholders entitled to vote thereon as herein provided.

<PAGE>

Exhibit 10.2

DRAFT 6/12/98

SALE AND EXCHANGE AGREEMENT

SALE AND EXCHANGE AGREEMENT, dated as of the 4th day of June, 1998, by and
among ARBOR NATIONAL COMMERCIAL MORTGAGE, LLC ("ANCM"), a New York limited
liability company organized on _______, 199__ and operating under a Restated and
Amended Operating Agreement (the "Operating Agreement") dated as of January 1,
1996; the individuals and entities as set forth in Appendix A attached hereto
(the "Members"), who hold membership interests in ANCM; ARBOR MANAGEMENT LLC, a
_________ limited liability company and the Manager of ANCM ("Management");
ARBOR SECURED FUNDING, INC., a New York corporation which is a subsidiary of
ANCM ("ASF"); and ARBOR NATIONAL HOLDINGS, INC., a New York Corporation, formed
on June ____, 1998 ("ANHI").

W I T N E S S E T H:

WHEREAS, the undersigned Members, who constitute all of the Members of ANCM,
desire to irrevocably sell, transfer, assign and convey to ANHI all of the
membership interests of ANCM (each, a "Membership Interest" and, collectively,
the "Membership Interests") in exchange for shares (the "Exchange Shares") of
common stock of ANHI (the "Common Stock"), upon the terms and conditions further
described hereinbelow;

WHEREAS, ANHI desires to acquire the Membership Interests in exchange for
the Exchange Shares, as hereinafter provided;

WHEREAS, the parties intend that, after completion of the transactions
described herein, ANHI will own all of the Membership Interests of ANCM, free
and clear of all Liens (as defined in Section 3(a) hereof); and ANCM will become
a single-member limited liability company and a wholly-owned subsidiary of ANHI;

<PAGE>

WHEREAS, certain Members identified on Appendix A (the "Financed Members")
have pledged their Membership Interests (the "Pledged Interests") as collateral
for loans obtained from ASF (the "ASF Loans");

WHEREAS, ASF is prepared to release its security interest in the Pledged
Interests, upon receipt by it of certificates representing the Exchange Shares
issuable to the Financed Members, to be held by ASF as substitute collateral for
the ASF Loans;

WHEREAS, Management and each Member, by execution of this Agreement, are
prepared to consent to the sale, assignment and transfer to ANHI of the
Membership Interests pursuant to the terms and conditions of this Agreement and
the substitution of ANHI as a Substituted Member in satisfaction of the
requirements of the Operating Agreement; and

WHEREAS, the closing of the sale and exchange described in this Agreement is
expressly conditioned upon the closing (the "IPO Closing") of an initial public
offering (the "Initial Public Offering") of Common Stock registered pursuant to
a registration statement (the "IPO Registration Statement") which is expected to
be filed on or about June 15, 1998;

NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:

1. Sale and Exchange. Subject to the terms and conditions set forth herein,
each Member hereby irrevocably and unconditionally agrees to sell, transfer,
assign, convey and set over to ANHI, and ANHI hereby irrevocably and
unconditionally agrees to purchase, all of such Members' right, title and
interest in such Member's Membership Interest; provided, however, that the
closing (the "Exchange Closing") of the transfer of such Member's Membership
Interest and

2
<PAGE>

the issuance and delivery of the proper number of Shares in exchange therefor
(together, the "Exchange Transaction") shall only take place simultaneously with
the IPO Closing. If the IPO Closing does not occur on or prior to May 31, 1999,
this Agreement shall terminate without further liability or obligation of any
party hereto.

2. Consideration. As consideration for the sale by all Members of 100% of
the Membership Interests, ANHI shall issue to the Members an aggregate of 7.5
million Shares (the "Total Consideration"). ANCM and all Members agree that the
Total Consideration shall be allocated among the Members in the same proportion
which such Member's capital account in ANCM bears to the aggregate capital
accounts of all Members. By execution hereof, each Member acknowledges receipt
from ANCM of the information necessary to calculate such proportion and the
number of Exchange Shares issuable with respect to such Member's Membership
Interest at the Exchange Closing (the "Proration Calculation"). ANCM shall
provide each Member promptly (but in any event prior to the Exchange Closing)
with any information which would result in a modification of the Proration
Calculation.

3. Representations of Members. Each Member hereby represents and warrants to
ANHI for such Member (and not for any other Member) as follows:

(a) Title to Interest. Such Member owns such Member's Membership
Interest free and clear of all liens, claims, options, charges, pledges and
encumbrances ("Liens"), except (as to each Financed Member) for the pledge of
such Financed Member's Membership Interest as collateral for such Member's ASF
Loan (the "ASF Lien").

3
<PAGE>

(b) Organization and Standing. If an entity, such Member is duly
organized and validly existing under the laws of its state of organization, is
in good standing under such laws and has all requisite power and authority to
execute, deliver and perform its obligations under the terms of this Agreement.

(c) Authorization. (i) If an entity, all action on the part of such
Member, its directors, managers or trustees and its equity owners has been taken
which is necessary for the authorization, execution, delivery, performance by
such Member of this Agreement and the consummation of the transactions
contemplated herein.

(ii) This Agreement is a legal, valid and binding obligation of
such Member, enforceable in accordance with its terms, subject to (i) applicable
bankruptcy, insolvency, reorganization and moratorium laws and other laws of
general application affecting enforcement of creditors' rights generally and
(ii) the availability of equitable remedies as such remedies may be limited by
equitable principles of general applicability (regardless of whether enforcement
is sought in a proceeding in equity or at law).

(d) No Conflict. The execution, delivery and performance by such Member
of this Agreement and such Member's compliance therewith does not and will not
result in any violation of and will not conflict with, or result in a breach of,
any of the terms of, or constitute a default under, any provision of state or
federal or other law to which such Member is subject, such Member's
organizational documents (if an entity), or any mortgage, indenture, agreement,
instrument, judgment, decree, order, rule or regulation or other restriction to
which such Member is a party or by which such Member is bound or to which such
Member's properties are subject.

4
<PAGE>

(e) Receipt of All Information Requested. In connection with the
issuance of such Member's pro rata share of the Total Consideration, such Member
hereby acknowledges that such Member and such Member's attorney, accountant,
purchaser representative or tax advisor, if any, has received and reviewed a
draft preliminary prospectus represented to be in the form included in the IPO
Registration Statement (the "Draft Preliminary Prospectus"), a copy of which is
attached as Appendix B, and each of them has been afforded the opportunity to
ask questions of and receive answers from duly authorized officers or other
representatives of ANHI concerning the terms and conditions of the Exchange
Transaction and the Public Offering. Such Member understands that, as of the
date hereof, neither the Securities and Exchange Commission ("SEC") nor any
securities commission or regulatory authority of any state of the United States
has approved the issuance of the Exchange Shares or the Public Offering nor has
any of them passed upon or endorsed the merits of the Exchange Transaction or
the Public Offering or confirmed or determined the accuracy or adequacy of this
Agreement or of any information contained in the Draft Preliminary Prospectus.
Such Member further understands that, as of the date hereof, the information
provided to such Member has not been reviewed by any federal, state, foreign or
other regulatory authority. Such Member (together with such Member's advisors,
if any) has such knowledge and experience in financial and business matters that
such Member is capable of evaluating the merits and risks of the Exchange
Transaction.

(f) Restricted Securities. Such Member understands that the Exchange
Shares such Member will be receiving are restricted securities under the
Securities Act of 1933, as amended (the "Securities Act"), and that restricted
securities may not be resold in the absence of registration or an exemption
therefrom. Such Member understands and acknowledges that, as of the date hereof,
the Exchange Shares have not been registered under the Act and there is

5
<PAGE>

currently no public market for the Exchange Shares in the United States. Such
Member further understands and acknowledges that even if the IPO Registration
Statement is filed with the SEC, there can be no assurance that the IPO
Registration Statement will be declared effective or, if it is declared
effective, that a public market will develop. Even if the IPO Registration
Statement becomes effective and a public market develops, such Member will have
to wait at least one year before selling such Member's Exchange Shares into the
public market, unless ANHI files a separate registration statement covering such
Member's Exchange Shares (as provided in Section 7(b) hereof) or an exemption
from registration is available under the Securities Act. Each Financed Member
acknowledges that such Financed Member will be able to resell such Financed
Member's Exchange Shares to the public only if the Exchange Shares are
registered pursuant to a registration statement or if the sale is one year after
the earlier of (A) the date such Financed Member's ASF Loan is repaid or (B) the
date collateral other than such Financed Member's Exchange Shares is pledged to
secure such Financed Member's ASF Loan. Resales of Exchange Shares by each
Member who is an "affiliate" (as defined under the Securities Act) of ANHI
(generally, directors, officers and holders of over 10% of the outstanding
Common Stock) will be subject indefinitely by the volume limitations of Rule 144
promulgated under the Securities Act so long as such Member remains an
affiliate.

Each Member also understands that the certificates representing
Exchange Shares will be legended to reflect the above restrictions.

(g) No Distribution. Such Member is acquiring the Common Stock to be
issued and sold hereunder for such Member's own account for investment and
(except as contemplated by Section 7(b) hereof) not with a view to distribution
thereof. Any sale, transfer or other disposition of Shares by such Member shall
be made in conformity with this Agreement and all

6
<PAGE>

applicable requirements of the Securities Act, the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the rules and regulations of the SEC
promulgated thereunder.

(h) No Reliance on Tax Advice. Such Member has been given the
opportunity to review with such member's own tax advisors the federal, state and
local tax consequences of the transactions contemplated by this Agreement.
Except for matters addressed in the tax opinion to be provided to such Member
pursuant to Section 7(d) hereof, such Member is relying solely on such advisors,
if any, and not on any statements or representations of ANHI or any of its
agents. Such Member understands that such Member (and not ANHI) shall be
responsible for such Member's own tax liability that may arise as a result of
the transactions contemplated by this Agreement. In particular, such Member, by
execution of this Agreement, agrees and acknowledges that such Member has been
given the opportunity to discuss with such Member's tax advisors, and
understands, the following:

ANCM is treated as a partnership for federal and most state income tax
purposes. ANHI is a corporation for federal and state income tax purposes.
Consequently, the Members will be exchanging what are in effect partnership
interests for shares of a corporation, and will be taxed differently on the
shares received from that of the interests given up in the exchange.

Partnerships are pass-through entities for tax purposes. Therefore,
partnerships are not subject to tax at the entity level. Rather, all tax
items, including items of income, gain, loss, deduction and credit, pass
through to the individual partners (or members, in the case of a limited
liability company). Members must report such items on their individual
income tax returns, and are taxed annually on their distributive share of
income from the partnership, regardless of whether such income is actually
distributed to the Members.

Under the Internal Revenue Code of 1986, as amended, corporations and
their shareholders are subject to two levels of tax. The corporation itself
pays an annual corporate level tax on its income. If the corporation chooses
to distribute earnings and profits to its shareholders in the form of
dividends, the shareholders who receive such dividends (whether in cash or
property) must include the value of the dividend in their gross income, and
are therefore subject to tax at their individual rates on the value of the

7
<PAGE>

dividend. If the corporation does not choose to distribute earnings or
profits to its shareholders, no tax would be paid by the shareholders on
such earnings or profits.

(i) Independent Legal Advice. Such Member acknowledges that such Member
has had the opportunity to review this Agreement and the transactions
contemplated by this Agreement with its own legal counsel. Such Member is
relying solely on such counsel for legal advice with respect to this investment
and the transactions contemplated by this Agreement.

(j) Reliance on Representations. This Agreement is made by ANHI with
such Member in reliance upon such Member's representations and covenants made in
this Section 3, which by its execution of this Agreement such Member hereby
confirms.

4. Representations of ANHI. ANHI hereby represents, warrants and covenants
to each Member, on the date hereof, as follows:

(a) Organization and Standing. ANHI is a corporation duly incorporated
and validly existing under the laws of the State of New York and is in good
standing under such laws. ANHI has furnished such Member and its counsel with
true, correct and complete copies of its Certificate of Incorporation, By-Laws
and all amendments thereto to the date hereof.

(b) Corporate Power. ANHI has all requisite corporate power and
authority to execute, deliver and perform its obligations under the terms of
this Agreement and to issue the Exchange Shares.

(c) Authorization. No shares of ANHI have been, or will be, issued
prior to the Exchange Transaction. All corporate action on the part of ANHI and
its directors necessary for the authorization, execution, delivery and
performance by ANHI of this

8
<PAGE>

Agreement and the consummation of the transactions contemplated herein, and for
the authorization, issuance and delivery of the Exchange Shares, has been taken.
The Agreement is a legal, valid and binding obligation of ANHI, enforceable in
accordance with its terms, subject to (i) applicable bankruptcy, insolvency,
reorganization and moratorium laws and other laws of general application
affecting enforcement of creditors' rights generally and (ii) the availability
of equitable remedies as such remedies may be limited by equitable principles of
general applicability (regardless of whether enforcement is sought in a
proceeding in equity or at law).

(d) Validity of Exchange Shares. The Exchange Shares have been duly
authorized for issuance and, when issued to such Member for the consideration
set forth herein, will be duly and validly issued, fully paid, non-assessable
and free of preemptive rights, with no personal liability attaching to the
ownership thereof. At the Closing, such Member will acquire good and valid title
to the number of Exchange Shares determined by the Proration Calculation, in
each case free and clear of any and all liens, claims, charges and encumbrances,
restrictions on voting or alienation or otherwise, or adverse interests.

(e) No Conflict. The execution, delivery and performance by ANHI of
this Agreement and ANHI's compliance therewith and the issuance and sale of the
Exchange Shares in accordance with the terms of this Agreement does not and will
not result in any violation of and will not conflict with, or result in a breach
of, any of the terms of, or constitute a default under, any provision of state
or federal or other law to which ANHI is subject, ANHI's Certificate of
Incorporation or By-laws, or any mortgage, indenture, agreement, instrument,
judgment, decree, order, rule or regulation or other restriction to which ANHI
is a party or by which it is bound or to which its properties are subject.

9
<PAGE>

(f) Governmental Approvals. Except for any of the following required by
applicable federal and State securities laws, all of which have been or will be
obtained or made in a timely manner, no authorization, consent, approval,
license, exemption of or filing or registration with any court or governmental
department, commission, board, bureau, agency or instrumentality is or will be
necessary for (i) the execution and delivery by ANHI of this Agreement, (ii) the
offer, issue, sale and delivery of the Exchange Shares, or (iii) the performance
by ANHI of its obligations under this Agreement or with respect to the Exchange
Shares.

(g) No Business Conducted. Except for preparation and filing of the IPO
Registration Statement and the authorization, execution and performance of this
Agreement, ANHI has conducted no business, owns no assets and has incurred no
liabilities.

(h) Reliance on Representations. This Agreement is made by such Member
with ANHI in reliance upon ANHI's representations and covenants made in this
Section 4, which by execution of this Agreement ANHI hereby confirms.

5. Members' Conditions of Closing. The transfer of a Member's Membership
Interest to ANHI is subject to the completion of the IPO Closing and to the
delivery to such Member (or, as to the Financed Members, to ASF pursuant to
Section 7(g) hereof) of stock certificates representing the Exchange Shares
issuable to such Member under this Agreement.

6. ANHI's Conditions of Closing. The issuance by ANHI of Exchange Shares to
a Member is subject to the completion of the IPO Closing.

10
<PAGE>

7. Certain Covenants of the Parties. (a) No Violation of Representations.
Neither ANHI nor any Member shall hereafter take any action which would cause
any representation or warranty of such party made herein to be untrue on or as
of the Effective Date.

(b) Registration of Exchange Shares. (i) As soon as practicable after
ANHI satisfies the requirements to register Common Stock on Form S-3 promulgated
under the Securities Act (expected to be 12 months after the IPO Closing), ANHI
shall file a registration statement on Form S-3 (the "Resale Registration
Statement") covering any and all Exchange Shares owned by all Class B Members
for which ANHI receives Registration Requests (as defined below). ANHI shall, at
least thirty (30) days prior to such filing, notify each Member in writing of
its intention so to do at such Member's address as it appears in the stock
records of ANHI (the "Filing Notice"). If a Member desires to include any or all
of such Member's Exchange Shares in the Resale Registration Statement, it shall
(within ten (10) days after delivery of the Filing Notice) provide ANHI with a
notice specifying the number of Exchange Shares, if any, it wishes to include in
such registration statement ("Registration Request"). Upon receipt of a
Registration Request, ANHI shall include such Exchange Shares among the
securities covered by the Resale Registration Statement. To the extent permitted
by law, ANHI agrees to pay all costs and expenses in connection with the
preparation and filing of the Resale Registration Statement, except underwriting
discounts and commissions attributable to the Exchange Shares registered by such
Member.

(ii) When ANHI files the Resale Registration Statement, the Resale
Registration Statement shall comply with the Securities Act and the rules and
regulations thereunder, and ANHI shall: (A) use its best efforts to cause the
Resale Registration Statement

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<PAGE>

to become effective and remain effective for the period required to permit the
public offering and sale of the Exchange Shares covered by the Resale
Registration Statement (but not for more than 180 days following the effective
date of the Resale Registration Statement), and, for such period of time, and as
permitted by applicable rules and regulations, file amendments or supplements to
the Resale Registration Statement or related prospectus covering the Exchange
Shares as shall be necessary so that neither the Resale Registration Statement,
nor any related prospectus, nor any amendment or supplement to either thereof,
shall contain any material misstatement or omission and so that the Resale
Registration Statement, prospectus, amendment and supplement will otherwise
comply with all applicable legal requirements, (B) furnish to each Member such
reasonable number of copies of the Resale Registration Statement and any related
preliminary and final prospectuses, and any such amendments or supplements, as
each Member may request, (C) use its best efforts to register or qualify the
Exchange Shares of each Member included in the Resale Registration Statement
under the securities or "blue sky" laws of such states as each Member may
reasonably designate, to the extent that such registration or qualification
shall be required; provided, however, that ANHI shall not be required to
undertake such registration or qualification in any jurisdiction where it shall
be necessary for ANHI to execute a general consent to service or to qualify to
do business or otherwise subject itself to taxation by virtue of such
registration or qualification, and (D) indemnify and hold harmless each Member
and each underwriter (within the meaning of the Securities Act) acting in
connection with the offering or sale of securities by each Member, and each
person, if any, who controls (within the meaning of the Securities Act) each
Member or such underwriter, against any and all losses, claims, damages,
expenses or liabilities, joint or several, to which each Member, such
underwriter or controlling person may become subject under the Securities Act or
under any federal or state

12
<PAGE>

securities law, or at common law, or otherwise, insofar as such losses, claims,
damages, expenses or liabilities arise out of or based upon an untrue statement
or an alleged untrue statement of a material fact contained in the Resale
Registration Statement, in any related prospectus or in any amendment, or
supplement to, either thereof, or arise out of or are based upon an omission or
an alleged omission to state in any thereof a material fact required to be
stated therein or necessary in order to make the statements therein not
misleading, provided, however, that the indemnity contained in this clause (D)
shall not apply to any such loss, claim, damage, expense or liability arising
out of or based upon any such untrue statement or omission made in reliance upon
and in conformity with written information furnished to ANHI by each Member or
by such underwriter or controlling person expressly for use in the preparation
of such registration statement, related prospectus, amendment or supplement.

(iii) Each Member whose Exchange Shares are included in the Resale
Registration Statement will indemnify ANHI, each of its directors, each of its
officers who has signed the Resale Registration Statement and each person, if
any, who controls (within the meaning of the Securities Act) ANHI against any
and all losses, claims, damages, expenses or liabilities to which ANHI, such
director, officer or controlling person may become subject under the Securities
Act or under any federal or state securities law, or at common law, or
otherwise, insofar as such losses, claims, damages, expenses or liabilities
arise out of or are based upon an untrue statement or an alleged untrue
statement of a material fact contained in the Resale Registration Statement, in
any related prospectus or in any amendment of, or supplement to, either thereof,
or arise out of or are based upon an omission or an alleged omission to state in
any thereof a material fact required to be stated therein or necessary in order
to make the statements therein not misleading, in each case to the extent, but
only to the extent, that such untrue

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<PAGE>

statement or alleged untrue statement or omission or alleged omission was so
made in reliance upon and in conformity with written information furnished to
ANHI by such Member expressly for use in the preparation of the Resale
Registration Statement, or any related prospectus, amendment or supplement.

(iv) Each Member whose Exchange Shares are included in the Resale
Registration Statement hereby agrees to cooperate to any reasonable extent with
ANHI in the preparation of the Resale Registration Statement, any related
prospectus, or any amendment or supplement to either thereof, referred to in
this Section 7(b), and to the extent such Member's Shares are to be included in
the Resale Registration Statement, to supply ANHI with such information relating
to such Member and to the proposed terms of the public offering concerning such
Member's Shares as is customarily required of a selling shareholder in a
registration statement such as the Resale Registration Statement.

(i) ANHI shall become the sole Member of ANCM;

(ii) All Schedules in the Operating Agreement referring to Members
shall be deemed amended to reflect the substitution of ANHI as the sole Class A
Member and the sole Class B Member of ANCM;

(iii) Management shall withdraw as Manager of ANCM;

(iv) ANHI, as holder of all of the Membership Interests in ANCM, will
vote to continue the business of the ANCM pursuant to the terms and conditions
of the Operating Agreement; and

(v) ANHI will be substituted as the new Manager of ANCM.

14
<PAGE>

(d) Tax Opinion. On or before June 30, 1998, ANHI shall furnish to each
Member an opinion of Meltzer, Lippe, Goldstein, Wolf & Schlissel, P.C., counsel
to ANHI, that the Exchange Transaction contemplated hereby will not be a taxable
event to such Member.

(e) Further Assurances. (i) The Members agree that they will at their
own expense do, execute and deliver, or will cause to be done, executed and
delivered, all such further acts, documents or instruments which shall be
necessary and appropriate to vest in or confirm as belonging to ANHI, its
successors and assigns, the Membership Interests assigned hereunder or which
ANHI may reasonably request from time to time to carry our the purposes and
intent of this Agreement.

(ii) ANHI agrees that it will at its expense do, execute and deliver,
or will cause to be done, executed and delivered, all such further acts,
documents or instruments which shall be necessary and appropriate to vest in or
confirm as belonging to each Member, such Member successors and assigns, the
Exchange Shares issuable to such Member hereunder or which such Member may
reasonably request from time to time to carry out the purposes and intent of
this Agreement.

(f) Determination of Value of Total Consideration. Each Member
acknowledges that the number of shares of Common Stock to be issued in the
Public Offering (the "Public Shares") and the price per share of the Public
Shares have not yet been determined and that the determination of such number
and price will affect the aggregate percentage of ANHI owned by all Members and
the market value of the Total Consideration but should not affect the amount of
the Total Consideration which such Member receives relative to the amounts
received by the other Members. Each Member further acknowledges and agrees that
the

15
<PAGE>

Class A Members will make the final determinations of such number and price,
that such determinations will be final and binding on all Members and that such
determinations shall not modify, limit or otherwise affect the obligations of
any Member under this Agreement, provided, that such determinations shall not
change the number (or the basis for calculating the number) of Shares issuable
to such Member pursuant to the Proration Calculation.

(g) Covenants Regarding Pledged Interests. Each Financed Member hereby
authorizes and directs ANCM to deliver to ASF copies of all information
pertaining to such Member's Proration Calculation and authorizes and directs
ANHI, upon issuance of such Financed Member's Exchange Shares, to deliver the
certificates representing such Exchange Shares to ASF. ASF agrees to accept and
hold such Exchange Shares as collateral to secure repayment of such Financed
Member's ASF Loan in substitution for such Financed Member's Pledged Interests.
Upon delivery to ASF of the certificates representing such Exchange Shares, the
ASF Lien on such Financed Member's Pledged Interest shall be deemed released,
terminated and of no further force and effect. Each Financed Member, ANHI and
ASF shall at its own expense do, execute and deliver, or will cause to be done,
executed or delivered, all such further acts, documents or instruments as shall
be necessary and appropriate, or which may reasonably be requested, to carry out
the purposes and intent of this paragraph (g).

(h) Lock-up Agreement. Each Member agrees to execute, upon request by
ANH, a lock-up agreement restricting sale of such Member's Exchange Sales for a
period of six months after the IPO Closing, substantially in the form annexed
hereto as Appendix C.

16
<PAGE>

8. Miscellaneous

(a) No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any person other than the parties and their respective
successors and permitted assigns.

(b) Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement among the parties and supersedes any
prior understandings, agreements, or representations by or among the parties,
written or oral, with respect to the subject matter hereof.

(c) Succession, Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties named herein and their respective successors
and permitted assigns. No party may assign either this Agreement or any of such
party's rights, interests, or obligations hereunder without the prior written
approval of the other parties.

(d) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.

(e) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.

(f) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then five
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient at the
addresses set forth on Appendix A hereto. Any party may send any

17
<PAGE>

notice, request, demand, claim, or other communication hereunder to the intended
recipient at the address set forth on Appendix A hereto using any other means
(including personal delivery, expedited courier messenger service, telecopier,
telex, ordinary mail or electronic mail), but no such notice, request, demand,
claim, or other communication shall be deemed to have been duly given unless and
until it actually is received by the intended recipient or actual delivery is
refused by the addressee upon presentation. Any party may change the address to
which notices, requests, demands, claims, and other communications hereunder are
to be delivered by giving the other parties notice in the manner herein set
forth.

(g) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of New York without giving effect
to any choice or conflict of law provision or rule (whether of the State of New
York or any other jurisdiction) that would cause the application of the laws of
any jurisdiction other than the State of New York.

(h) Amendments And Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
party alleged to be bound thereby. No waiver by any party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.

(i) Severability. If in any jurisdiction, any provision of this
Agreement or its application to any party or circumstance is restricted,
prohibited or unenforceable, such provision shall, as to such jurisdiction, be
ineffective only to the extent of such restriction, prohibition or
unenforceability without invalidating the remaining provisions hereof and
without affecting the

18
<PAGE>

validity or enforceability of such provision in any other jurisdiction or its
application to other parties or circumstances.

(j) Construction. Any reference to any federal, state or local statute
or law shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise. The word "including" shall
mean including without limitation. The parties intend that each representation,
warranty, and covenant contained herein shall have independent significance. If
any party has breached any representation, warranty, or covenant contained
herein in any respect, the fact that there exists another representation,
warranty, or covenant relating to the same subject matter (regardless of the
relative levels of specificity) which the party has not breached shall not
detract from or mitigate the fact that the party is in breach of the first
representation, warranty, or covenant.

(k) Incorporation of Appendices. The Appendices identified in this
Agreement are incorporated herein by reference and made a part hereof.

(l) Specific Performance. Each of the Parties acknowledges and agrees
that the other party would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
sections or otherwise are breached. Accordingly, each of the parties agrees that
the other party shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
parties and the matter (subject to the provisions set forth in paragraph (m) of
this Section 8), in addition to any other remedy to which they may be entitled
at law or in equity.

19
<PAGE>

(m) Submission to Jurisdiction. Each of the parties submits to the
jurisdiction of any state or federal court sitting in Nassau County, New York,
in any action or proceeding arising out of or relating to this Agreement and
agrees that all claims in respect of the action or proceeding may be heard and
determined in any such court. Subject to paragraph (l) of this Section 8, each
party also agrees not to bring any action or proceeding arising out of or
relating to this Agreement in any other court. Each of the parties waives any
defense of inconvenient forum to the maintenance of any action or proceeding so
brought and waives any bond, surety, or other security that might be required of
any other party with respect thereto. Parties expressly and irrevocably agree
(i) that they each waive any objection to venue in the Federal or state courts
located in the State of New York so that any action in law or equity in respect
of this Agreement and the transactions contemplated hereby may be brought and
maintained in any such court; and (ii) that service of process in any such
action may be effected against either party by certified or registered mail or
as may otherwise be permitted by applicable federal Rules of Civil Procedure or
rules of the Courts of the State of New York. In addition, each of the parties
hereto hereby expressly and irrevocably (x) waives in respect of any action in
any federal or State court located in the State of New York or any resulting
judgment any objection to the jurisdiction of any such court and (y) agrees not
to attempt to change the situs of such action on the ground that any other court
in any other jurisdiction is more suitable forum for the hearing and
adjudication of any claim or dispute raised in such action.

9. Revision Rights. Each Member acknowledges that ANCM has offered to such
Member the opportunity to rescind such Members' purchase of such Member's
Membership Interest and to recover the consideration paid or contributed by such
Member for such

20
<PAGE>

Membership Interest with interest thereon, less the amount of any income
received thereon. By EXECUTION OF THIS AGREEMENT, SUCH MEMBER ELECTS NOT TO
RESCIND AND TO CONFIRM SUCH MEMBER'S PURCHASE OF SUCH MEMBERSHIP INTEREST.

[Remainder of this page intentionally left blank.]

21
<PAGE>

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.

ARBOR NATIONAL HOLDINGS, INC. ARBOR NATIONAL COMMERCIAL
MORTGAGE, LLC

By: Arbor Management, LLC

By:
----------------------------
Ivan Kaufman, President

By:
------------------------------
Ivan Kaufman, President

ARBOR SECURED FUNDING, INC.

By:
----------------------------
Ivan Kaufman, President

CLASS A MEMBERS:

- ------------------------------- [IVAN KAUFMAN GRANTOR LIKE TRUST]
Ivan Kaufman

Trust pursuant to the TRUST By:
AGREEMENT dated as of the 22nd day of -------------------------------
MARCH, 1994, made by IVAN Name:
KAUFMAN and LISA KAUFMAN, as Title:
Grantors and RICHARD A. LIPPE as
Trustee. ARBOR MANAGEMENT, LLC

By: By:
---------------------------- -------------------------------
Richard A. Lippe, Trustee Ivan Kaufman, President

22
<PAGE>

CLASS B MEMBERS:

- ------------------------------- -------------------------------
Walter K. Horn Camila Bellick

- ------------------------------- -------------------------------
Joseph Martello Robert Schooley

- ------------------------------- -------------------------------
Dennis Cullen Paul E
-------------

- ------------------------------- -------------------------------
Douglas M. Kramer Dana Eng

- ------------------------------- -------------------------------
John Caulfield Larry Swedroe

- ------------------------------- -------------------------------
John Natalone Elliot Silverman

- ------------------------------- -------------------------------
Ellen Segal James Boris

- ------------------------------- -------------------------------
Thomas Gurney Daniel Palmer

- ------------------------------- -------------------------------
Paul Morehouse, Jr. Terence Baydala

- -------------------------------
Staci Mankoff

- -------------------------------
Ralph Daruns

23
<PAGE>

- ------------------------------- -------------------------------
Angela David Queen

- ------------------------------- -------------------------------
Victor Bove Van Provosty

24
<PAGE>

APPENDIX A
----------

Names and Addresses of Members

Name Address/Telephone/Telecopier Financed (Y/N)
- ---- ---------------------------- --------------
<S> <C> <C>

</TABLE>

<PAGE>
EXHIBIT 23.1

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We have issued our reports dated May 28, 1998, accompanying the combined
financial statements and schedule of Arbor National Commercial Mortgage, LLC and
Subsidiaries and Affiliate contained in the Registration Statement and
Prospectus. We consent to the use of the aforementioned reports in the
Registration Statement and Prospectus, and to the use of our name as it appears
under the caption "Experts."

/s/ Grant Thornton LLP

Grant Thornton LLP

New York, New York
June 15, 1998

<PAGE>
EXHIBIT 23.2

CONSENT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated January 17, 1997, with respect to the financial
statements of Arbor National Commercial Mortgage LLC and subsidiary, in the
Registration Statement (Form S-1 No. 33-00000) and related Prospectus of Arbor
National Holdings, Inc. for the registration of 000,000 shares of its common
stock.

/s/ Ernst & Young LLP
Ernst & Young LLP

New York, New York
June 12, 1998

<PAGE>
<ARTICLE> 5

<S> <C> <C> <C> <C>
<C>
<PERIOD-TYPE> 3-MOS 3-MOS YEAR YEAR
YEAR
<FISCAL-YEAR-END> MAR-31-1998 MAR-31-1997 DEC-31-1997 DEC-31-1996
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<PERIOD-START> JAN-01-1998 JAN-01-1997 JAN-01-1997 JAN-01-1996
JAN-01-1995
<PERIOD-END> MAR-31-1998 MAR-31-1997 DEC-31-1997 DEC-31-1996
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<CASH> 2,261,337 0 1,903,405 782,252
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<SECURITIES> 2,417,863 0 2,362,822 1,639,930
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<BONDS> 94,308,355 0 140,181,758 94,761,612
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44,879,927 0 81,392,653 50,484,303
0
13,685,303 0 28,835,294 25,425,485
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<COMMON> 5,803,526 0 5,293,116 3,957,180
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<TOTAL-LIABILITY-AND-EQUITY> 1,832,288 0 152,478 745,010
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<SALES> 67,853,049 0 117,148,176 81,298,478
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<TOTAL-REVENUES> 26,455,306 0 23,033,582 13,463,134
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<CGS> 94,308,355 0 140,181,758 94,761,612
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<TOTAL-COSTS> 2,529,979 1,672,747 9,641,121 6,783,312
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<OTHER-EXPENSES> 4,373,022 2,340,814 12,686,908 8,794,147
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<LOSS-PROVISION> 539,241 305,253 1,957,983 1,082,699
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<INTEREST-EXPENSE> 540,334 0 0 0
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<INCOME-PRETAX> 7,982,576 4,318,814 24,286,012 16,660,158
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<INCOME-TAX> 1,944,208 925,038 6,242,616 4,048,947
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<INCOME-CONTINUING> 1,231,366 1,053,338 4,920,495 3,893,873
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<DISCONTINUED> 1,137,522 827,068 3,493,022 3,499,691
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<EXTRAORDINARY> 237,370 337,500 997,617 915,051
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<CHANGES> 4,550,466 3,142,944 15,653,750 12,357,562
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<NET-INCOME> 3,432,110 1,175,870 8,632,262 4,302,596
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</TABLE>