<PAGE>   1
===============================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-Q

(Mark One)

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
     EXCHANGE ACT OF 1934

For Quarterly Period ended September 30, 1998

                                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
     EXCHANGE ACT OF 1934

For the transition period from ____________________ to _______________________

Commission file no.  0-20863


                         CAPITAL FACTORS HOLDING , INC.
             ------------------------------------------------------
             (Exact name of Registrant as Specified in its Charter)

          FLORIDA                                          65-0500757
-------------------------------                     ----------------------
(State or other Jurisdiction of                        (I.R.S. Employer
Incorporation or Organization)                      Identification Number)

        120 EAST PALMETTO PARK ROAD, SUITE 500, BOCA RATON, FLORIDA   33432
        ---------------------------------------------------------------------
               (Address of Principal Executive Offices)             (Zip Code)


                                 (561) 368-5011
              ----------------------------------------------------
              (Registrant's Telephone Number, Including Area Code)




Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports). and (2) has been subject to such filing
requirements for the past 90 days.

                              [X]  Yes    [ ]  No

         As of November 5, 1998 there were 12,309,012 shares of the registrant's
Common Stock outstanding.

================================================================================







<PAGE>   2


ITEM 1.
                                     PART I
                              FINANCIAL INFORMATION
                 CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
                                                                             September 30,              December 31,
                                                                                 1998                      1997
                                                                        ------------------------     --------------------
                                                                                (Unaudited)
<S>                                                                              <C>                       <C>         
ASSETS                                                                                           
  Cash                                                                           $ 28,907,414              $ 41,253,904
  Restricted cash                                                                  10,134,375                10,134,375
  Receivables                                                                     840,042,918               700,786,603
    Unearned discounts                                                             (4,086,528)               (2,926,865)
    Allowance for credit losses                                                    (6,697,440)               (6,125,359)
                                                                      ------------------------   -----------------------
  Receivables, net                                                                829,258,950               691,734,379
  Property and equipment, net                                                       4,274,144                 4,471,397
  Other assets                                                                      9,781,805                 8,983,100
                                                                      ========================   =======================
TOTAL                                                                            $882,356,688              $756,577,155
                                                                      ========================   =======================

LIABILITIES AND STOCKHOLDERS' EQUITY                                                              

LIABILITIES                                                                                       
  Due to affiliates                                                              $  1,286,356         $         145,570
  Capital Factors variable rate asset-backed certificates                         275,000,000               275,000,000
  Notes payable to affiliates                                                     187,809,000               111,754,000
  Other borrowings                                                                 85,000,000                53,600,000
  Due to factoring clients                                                        238,221,113               234,745,074
  Other liabilities                                                                 9,895,792                 7,150,825
                                                                      ------------------------   -----------------------
    Total liabilities                                                             797,212,261               682,395,469
                                                                      ------------------------   -----------------------

COMMITMENTS AND CONTINGENCIES                                                                     


STOCKHOLDERS' EQUITY                                                                              
  Common stock, $0.01 par value, 25,000,000                                                       
   shares authorized; 12,309,012 issued and                                                       
   outstanding at 9/30/98 and 12,303,950
   issued and outstanding at 12/31/97                                                 123,090                   123,040
  Additional paid-in capital                                                       27,625,817                27,582,840
  Retained earnings                                                                57,395,520                46,475,806
                                                                      ------------------------   -----------------------
    Total stockholders' equity                                                     85,144,427                74,181,686
                                                                      ========================   =======================
TOTAL                                                                            $882,356,688             $ 756,577,155
                                                                      ========================   =======================

</TABLE>




See accompanying notes to consolidated financial statements.




                                       2
<PAGE>   3

                 CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                           Three Months Ended                         Nine Months Ended
                                                              September 30,                             September 30,
                                                  -------------------------------------     ------------------------------------
                                                        1998                1997                 1998                 1997
                                                  -----------------    ----------------     ----------------    ----------------
<S>                                                     <C>                <C>                 <C>                   <C>         
REVENUES
Factoring fees                                         $ 8,108,396         $ 8,115,212         $ 22,849,382          $ 21,992,616
Interest income                                         16,791,963          12,860,812           46,274,153            33,091,669
Letter of credit and other fees                          1,463,435           1,174,737            3,793,006             3,246,126
Other                                                      760,003             578,916            1,691,435             1,606,879
                                                  -----------------    ----------------     ----------------    ------------------
Total revenues                                          27,123,797          22,729,677           74,607,976            59,937,290

EXPENSES
Interest expense                                         6,480,155           5,269,495           18,615,875            13,822,754
Interest expense to affiliates                           3,261,493           2,183,375            8,424,829             4,986,895
Salaries and benefits                                    4,979,562           4,691,363           15,698,803            13,863,607
Provision for credit losses                              1,950,000           1,600,000            4,800,000             3,800,000
Occupancy and other office expenses                      1,276,716           1,255,654            3,726,605             3,364,416
Depreciation                                               288,326             249,456              840,692               640,813
Professional fees                                          461,803             333,690            1,214,466             1,013,944
Other                                                    1,261,555           1,026,032            3,584,538             3,137,031
                                                  -----------------    ----------------     ----------------    ------------------
Total expenses                                          19,959,610          16,609,065           56,905,808            44,629,460
                                                  -----------------    ----------------     ----------------    ------------------

INCOME BEFORE INCOME TAXES                               7,164,187           6,120,612           17,702,168            15,307,830

PROVISION FOR INCOME TAXES                               2,685,741           2,472,073            6,782,454             6,199,741
                                                  -----------------    ----------------     ----------------    ------------------

NET INCOME                                             $ 4,478,446         $ 3,648,539         $ 10,919,714          $  9,108,089
                                                  =================    ================     ================    ==================

BASIC EARNINGS PER SHARE                               $      0.36         $      0.30         $       0.89          $       0.74
                                                  =================    ================     ================    ==================

DILUTED EARNINGS PER SHARE                             $      0.36         $      0.30         $       0.88          $       0.74
                                                  =================    ================     ================    ==================


</TABLE>




See accompanying notes to consolidated financial statements.





                                       3
<PAGE>   4

                 CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOW
                                  (Unaudited)

<TABLE>
<CAPTION>

                                                                                           Nine Months Ended September 30,
                                                                                       ----------------------------------------
                                                                                             1998                  1997
                                                                                       -----------------    -------------------
<S>                                                                                        <C>                     <C>        
OPERATING ACTIVITIES:
Net income                                                                                 $ 10,919,714            $ 9,108,089
Adjustments to reconcile net income to net
  cash provided by operating activities:
Depreciation                                                                                    840,692                640,813
Amortization of deferred costs                                                                  867,780                732,765
Deferred income taxes (benefit)                                                                (603,948)            (1,007,084)
Provision for credit losses                                                                   4,800,000              3,800,000
Increase in restricted cash                                                                           0             (3,571,875)
Increase in due to affiliates                                                                 1,140,785              5,816,831
Increase in other assets                                                                     (1,182,562)              (429,230)
Increase in other liabilities                                                                 2,744,968              2,765,928
                                                                                     -------------------    -------------------
Net cash provided by operating activities                                                    19,527,429             17,856,237
                                                                                     -------------------    -------------------

INVESTING ACTIVITIES:
Increase in loans to clients, net                                                           (16,989,715)           (26,283,717)
Increase in asset-based loans                                                               (73,470,179)           (43,069,829)
Net increase in factoring accounts
  receivable, net of due to factoring clients                                               (56,373,543)          (101,697,677)
Sales of participations                                                                      31,033,479             22,353,358
Payments on participations                                                                  (23,048,574)            (4,420,261)
Purchases of property and equipment                                                            (523,414)            (1,886,550)
Disposal of property and equipment                                                                    0                 26,322
                                                                                     -------------------    -------------------
Net cash used in investing activities                                                      (139,371,946)          (154,978,354)
                                                                                     -------------------    -------------------

FINANCING ACTIVITIES:
Issuance of Senior Certificates                                                                       0            100,000,000
Proceeds from exercise of stock options                                                          43,027                 28,900
Proceeds from borrowing                                                                     211,725,000            129,235,095
Payments on borrowing                                                                      (104,270,000)           (85,734,000)
Payments of deferred financing costs                                                                  0               (972,230)
                                                                                     -------------------    -------------------
Net cash provided by financing activities                                                   107,498,027            142,557,765
                                                                                     -------------------    -------------------

NET (DECREASE) INCREASE IN CASH                                                             (12,346,490)             5,435,648
CASH, BEGINNING OF PERIOD                                                                    41,253,904             28,101,237
                                                                                     -------------------    -------------------

CASH, END OF PERIOD                                                                         $28,907,414           $ 33,536,885
                                                                                     ===================    ===================

SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for interest                                                                  $25,162,039           $ 17,584,735
                                                                                     ===================    ===================
Cash payments for income taxes                                                              $ 5,850,162              $  61,103
                                                                                     ===================    ===================

</TABLE>


See accompanying notes to consolidated financial statements.





                                       4
<PAGE>   5

                 CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 1998

NOTE 1:  GENERAL

The accompanying unaudited consolidated financial statements of Capital Factors
Holding, Inc. and Subsidiaries (the "Company") have been prepared on a
consistent basis in conformity with the instructions to Form 10-Q and Article 10
of Regulation S-X and therefore do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the financial statements
reflect all adjustments (principally consisting of normal, recurring accruals)
necessary to present fairly the financial condition of the Company as of
September 30, 1998 and December 31, 1997, the results of its operations for the
three and nine month periods ended September 30, 1998 and 1997 and its cash
flows for the nine months ended September 30, 1998 and 1997. All significant
inter-company transactions and balances have been eliminated. The statements are
unaudited except for the Consolidated Balance Sheet as of December 31, 1997.

The accounting policies followed for interim financial reporting are consistent
with the accounting policies set forth in Note 2 to the Consolidated Financial
Statements appearing in the Company's Form 10-K for the year ended December 31,
1997 as filed with the Securities and Exchange Commission.

Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about
Segments of an Enterprise and Related Information," is effective for financial
statements for periods beginning after December 15, 1997. This statement
establishes standards for the way that public companies report selected
information about operating segments. Adoption of this statement is not expected
to have a material impact on the Company's consolidated financial position or
results of operations but may have an effect on disclosure of such.

NOTE 2: RECEIVABLES

Receivables consist of the following:

<TABLE>
<CAPTION>

                                                        September 30,         December 31,
                                                            1998                  1997
                                                            ----                  ----
<S>                                                     <C>               <C>          
Nonrecourse                                             $ 450,067,682        $ 373,100,405
Recourse                                                  128,511,315          154,863,870
                                                    ------------------    -----------------
Factored accounts receivables                             578,578,997          527,964,275
Loans to factoring clients                                 69,200,532           54,029,119
Asset-based loans                                         192,263,389          118,793,209
                                                    ------------------    -----------------

Total Receivables                                       $ 840,042,918        $ 700,786,603
                                                    ==================    =================
</TABLE>


The Company also makes advances to factoring clients. Such advance payments,
which are interest earning, are recorded as reductions to the amounts due to the
factoring clients for the purchase of receivables. Average funds employed
(receivables less amounts due to factoring clients) were $512.5 million and
$391.0 million for the nine months ended September 30, 1998 and the year ended
December 31, 1997, respectively.





                                       5


<PAGE>   6

Changes in the Company's allowance for credit losses were as follows:

<TABLE>
<CAPTION>

                                                             Nine Months Ended                                Year Ended
                                        ---------------------------------------------------------     -------------------------
                                                             % of                          % of                          % of
                                        September 30,      Factored    September 30,     Factored     December 31,     Factored
                                            1998            Sales           1997           Sales          1997           Sales
                                        -------------      --------    -------------      -------     ------------     --------
<S>                                      <C>                 <C>        <C>                <C>         <C>                <C>
Beginning balance                        $ 6,125,359                    $ 2,993,534                    $  2,993,534


Provision for credit losses                4,800,000         .19          3,800,000        .16            7,250,000      .22

Charge-offs                               (4,805,146)        .19         (3,040,780)       .13           (4,597,179)      .14
Recoveries                                   577,227         .02            375,650        .02              479,004       .01
                                   -----------------         ---    ---------------        ---     -----------------      ---
Net charge-offs                           (4,227,919)        .16         (2,665,130)       .11           (4,118,175)      .13
                                   -----------------         ---    ---------------        ---     -----------------      ---

Ending balance                           $ 6,697,440                    $ 4,128,404                    $  6,125,359
                                   =================                ===============                =================
</TABLE>

The Company specifically considered approximately $2,259,000 and $430,000 of its
client advances impaired at September 30, 1998 and December 31, 1997,
respectively, and has discontinued the accrual of interest income. The allowance
for credit losses related to these impaired loans for the same periods were
approximately $177,000 and $309,000, respectively.

NOTE 3: BORROWINGS

Borrowings are summarized as follows:

<TABLE>
<CAPTION>
                                                                                    September 30,           December 31,
                                                                                        1998                    1997
                                                                                  ------------------    ---------------------
<S>                                                                                    <C>                 <C>         
Variable rate asset-backed certificates due 1999 through 2001                          $275,000,000         $275,000,000
Variable rate revolving credit line due on demand                                       187,809,000          111,754,000
Variable rate revolver loan due 1999                                                     75,000,000           43,600,000
7.95% subordinated notes due 2001                                                        10,000,000           10,000,000
                                                                                  ------------------    ---------------------

Total borrowings                                                                       $547,809,000        $440,354,000
                                                                                  ==================    =====================
</TABLE>


NOTE 4: EARNINGS PER SHARE

In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
EARNINGS PER SHARE, which became effective for reporting periods ending after
December 15, 1997. Under the provisions of SFAS No. 128, primary and fully
diluted earnings per share were replaced with basic and diluted earnings per
share in an effort to simplify the computation of these measures and align them
more closely with the methodology used internationally. Basic earnings per share
is arrived at by dividing net earnings available to common shareholders by the
weighted-average number of common shares outstanding and does not include the
impact of any potentially dilutive common stock equivalents. The diluted
earnings per share calculation method is slightly different from the previously
required fully diluted earnings per share method and is arrived at by dividing
net earnings available to common shareholders by the weighted-average number of
shares outstanding, adjusted for the dilutive effect of outstanding stock
options and the conversion impact of convertible equity securities. The diluted
earnings per share calculation for 1998 equates to what would have been reported
in the fully diluted earnings per share calculation under the previous method.
For purposes of comparability, all prior-period earnings per share data have
been restated.




                                       6

<PAGE>   7

The calculation of net earnings per share follows:

<TABLE>
<CAPTION>

                                                                 Three  Months  Ended  September 30,
                                                               ---------------------------------------
                                                                     1998                 1997
                                                               -----------------    ------------------
                                                            (Dollars in thousands, except per share data)
<S>                                                                 <C>                    <C>       
Basic:
Net income applicable to common shares                              $ 4,478,446            $3,648,539
Average common shares outstanding                                    12,304,531            12,301,430
                                                               =================    ==================
Net income per common share -- basic                                  $    0.36             $    0.30
                                                               =================    ==================

Diluted:
Net income applicable to common shares                              $ 4,478,446           $ 3,648,539
                                                               -----------------    ------------------
Average common shares outstanding                                    12,304,531            12,301,430
Stock option adjustment                                                 140,164                64,820
                                                               -----------------    ------------------
Average common shares outstanding -- diluted                         12,368,110            12,366,250
                                                               =================    ==================
Net income per common share -- diluted                                $    0.36             $    0.30
                                                               =================    ==================
</TABLE>

<TABLE>
<CAPTION>



                                                                   Nine Months Ended September 30,
                                                               ---------------------------------------
                                                                     1998                 1997
                                                               -----------------    ------------------
                                                            (Dollars in thousands, except per share data)
<S>                                                                <C>                    <C>        
Basic:
Net income applicable to common shares                             $ 10,919,714           $ 9,108,089
Average common shares outstanding                                    12,304,273            12,300,482
                                                               =================    ==================
Net income per common share -- basic                                  $    0.89             $    0.74
                                                               =================    ==================

Diluted:
Net income applicable to common shares                             $ 10,919,714           $ 9,108,089
                                                               -----------------    ------------------
Average common shares outstanding                                    12,304,273            12,300,482
Stock option adjustment                                                 134,078                57,291
                                                               -----------------    ------------------
Average common shares outstanding -- diluted                         12,402,746            12,357,773
                                                               =================    ==================
Net income per common share -- diluted                                $    0.88             $    0.74
                                                               =================    ==================

</TABLE>










                                       7
<PAGE>   8
ITEM 2

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                 CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES



INTRODUCTION

Capital Factors Holding, Inc. ("Holding") is a majority owned subsidiary of
Union Planters Bank, National Association ("UPBNA", the "Bank"), a wholly owned
subsidiary of Union Planters Corporation ("UPC"). See Item 5 for a discussion of
increases in the Bank's ownership of the Company. Holding has three wholly owned
subsidiaries, Capital Factors, Inc. ("Factors"), CF One, Inc. and CF Investor
Corp. Factors has two wholly owned subsidiaries, CF Funding Corp. and Capital
TempFunds, Inc. Throughout this discussion, Holding, Factors, and their
subsidiaries are collectively referred to as the "Company".

The following discussion and analysis presents the significant changes in the
financial condition and results of operations for the periods indicated. In
addition, this Form 10-Q may contain certain "forward-looking statements" which
represent the Company's expectations or beliefs, including, but not limited to,
statements concerning the Company's operations, performance, financial condition
and growth. For this purpose, any statements contained in the Form 10-Q that are
not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the generality of the foregoing, words such as
"may," "will," "expect," "believe," "anticipate," "intend," "could," "estimate,"
or "continue," or the negative or other variation thereof or comparable
terminology are intended to identify forward-looking statements. These
statements by their nature involve substantial risks and uncertainties, such as
credit losses, dependence on availability of funding sources, dilution of
receivables, concentration of client base and client customer base, dependence
on management and key personnel, seasonality and variability of quarterly
results, ability of the Company to continue its growth strategy, competition,
inability to directly collect healthcare receivables from Medicare and Medicaid,
dilution of healthcare receivables, control by majority shareholder, and
regulatory restrictions relating to potential new activities, certain of which
are beyond the Company's control, and actual results may differ materially
depending on a variety of important factors which are noted herein. The
discussion should be read in conjunction with the consolidated financial
statements and notes included in this report.

The Company provides fee-based services to its clients, including credit
protection, collection and management information services, and also makes
advances to many of its clients. Clients are generally manufacturers of goods or
providers of services in various industries. At the time the Company purchases
the factored receivables, the Company records a receivable and an offsetting
liability "due to factoring client." Advances, which are interest earning and
secured by the client's factored receivables, are recorded by the Company as
reductions to the amounts "due to the factoring client" for factored
receivables. Cash collections from the client's customers are used to repay the
client's loans. If, as a result of financial inability to pay, a client's
customer fails to pay a receivable that was credit-approved by the Company, the
Company will ultimately bear any loss with respect to such receivable. In the
event of dilution in excess of the unfinanced portion of receivables, where
factored receivables are not fully collected for a reason other than the
customer's financial inability to pay, such as breach of warranty, the Company
will in practice typically need to look to newer receivables of the client for
the collection of the outstanding obligation to the Company and may not be
repaid.

In contrast to the Company's purchase of factored receivables, when the Company
makes an asset-based loan, a client assigns its collateral (usually account
receivable and inventory) to the Company. Upon request of the client, the
Company may advance funds to the client as a loan in an amount based upon the
eligible collateral. When funds are advanced to the client, a loan receivable
balance is created, and cash is disbursed. Although the Company loans funds to
the client based on eligible collateral, the Company provides no credit
protection and, accordingly, does not assume the risk of loss from a client's
customers' inability to pay, although the Company may actually suffer a loss if
all sources of repayment fail, including other collateral and guarantees, if
any. In connection with asset-based loans, instead of a factoring fee, the
Company earns a facility fee. Both factored advances and asset-based loans bear
interest at a rate tied to the prime rate.





                                       8
<PAGE>   9

The Company operates through four regional offices (including the Florida
office) and an office in Atlanta which specializes in asset-based loans. The
Company currently has over 400 clients which generate annual sales from $500,000
to over $100 million, and services over 100,000 customers of those clients. The
majority of the Company's customers are large national or regional department
store chains or specialty retailers. At September 30, 1998, the largest amount
due from any one customer, a national department store chain, was approximately
$41.4 million.

The Company's factored sales volume can be affected in several ways, including
new clients, client retention or losses, inflation and other economic
conditions. Additionally, fluctuations in the sales dollar volume of the
Company's clients, both positive and negative, have a direct impact on the
Company's factored sales volume and factoring fees. In this regard, the Company
has historically experienced seasonal fluctuations in its factored sales volume
and factoring fees as a result of the seasonality of the sales of certain of the
Company's clients, especially those in the apparel industry, who typically ship
more goods during the four-month period of August through November in order to
fill increased customer orders in anticipation of "back to school" and the
ensuing holiday season. The Company realized approximately 40% of its annual
factored sales volume during this 4-month period in 1997 and 1996.

Management believes that one of the essential tools in maintaining and managing
growth of the Company is the monitoring of certain key financial ratios. The
Company monitors the key components of its income statement data, such as
factoring fees, net interest income, other income, provision for credit losses
and operating expenses, as a percentage of its factored sales volume. These key
ratios allow the Company to monitor its performance in achieving its goals of
(i) obtaining higher gross margins on factoring fee income, (ii) increasing fee
income as a percentage of cash employed, (iii) reducing credit losses, (iv)
controlling costs and (v) maximizing return to its investors. Management also
monitors both accounts receivable turnover and the aging of customers' accounts
receivable, with particular emphasis on amounts greater than 60 days past due.

MONITORING ASSET QUALITY AND CREDIT LOSSES

The monitoring of asset quality is a routine function performed by management to
control credit losses. Monitoring asset quality involves the periodic review,
sometimes daily, of such pertinent financial statistics as the aging of the
accounts receivable portfolio, accounts receivable turnover, dilution and
charge-offs. The Company's allowance for credit losses is determined after
evaluating the receivables portfolio, current market conditions, changes in the
nature and volume of the portfolio, past loss experience and other pertinent
factors.





                                       9
<PAGE>   10

Set forth below are those ratios and statistics utilized by management in
monitoring asset quality for the nine months ended September 30, 1998 and
September 30, 1997:

<TABLE>
<CAPTION>
                                                                          For the Nine Months Ended
                                                                         --------------------------
                                                                          1998                 1997
                                                                         ------               ------
                                                                      (Unaudited, Dollars in Thousands)
<S>                                                                       <C>                  <C>  
Provision for credit losses                                              $4,800               $3,800
Charge-offs net of recoveries                                             4,228                2,665

Allowance for credit losses-specific                                      1,457                  626
Allowance for credit losses-general                                       5,240                3,502
                                                               -----------------    -----------------

Total allowance for credit losses                                        $6,697               $4,128
Accounts receivable turnover in days                                         54                   54
Accounts receivable past due more than 60 days as a
  percentage of factored receivables                                       7.38%                8.88%
Accounts receivable past due more than 90 days as a
  percentage of factored receivables                                       4.81%                5.63%
Credit-approved accounts receivable past due more
  than 60 days as a percentage of credit-approved
  receivables (1)                                                          3.76%                3.83%
Credit-approved accounts receivable past due more
  than 90 days as a percentage of credit-approved
  receivables (1)                                                          2.00%                1.69%
Net charge-offs to factored sales                                          0.16%                0.11%
Average receivables                                                    $724,392             $549,365
Provision for credit losses as a percentage of
  factored sales                                                           0.19%                0.16%
Provision for credit losses as a percentage of
  average receivables (6)                                                  0.88%                0.92%
Net charge-offs as a percentage of
  average receivables (6)                                                  0.78%                0.65%
Non-accruing advances                                                    $2,259                 $320
Non-accruing advances as a percentage
 of receivables                                                            0.27%                0.05%
Average funds employed (2)                                             $512,500             $362,900
Provision for credit losses as a percentage of average funds
 employed (2) (3) (6)                                                      1.25%                1.40%
Net charge-offs as a percentage of average
  funds employed (2) (4) (6)                                               1.10%                0.98%
Non-accruing advances as a percentage
  of funds employed (2) (5)                                                0.38%                0.07%

</TABLE>

(1) Management considers the aging of credit-approved receivables a more
    meaningful measure of exposure to credit risk than the aging of total
    receivables. The Company guarantees payment of receivables which it credit
    approves if the receivable was not paid based solely on the customers'
    financial inability to pay.
(2) Funds employed are receivables less amounts due to factoring clients.
(3) Computed by dividing provision for credit losses by average funds employed
    for each period presented. The provision for credit losses as a percentage
    of average funds advanced for each of the periods presented was lower than
    the provision for credit losses as a percentage of average funds employed.
(4) Computed by dividing net charge-offs by average funds employed for each
    period presented. Net charge-offs as a percentage of average advances for
    each of the periods presented was lower than net charge-offs as a percentage
    of average funds employed.




                                       10
<PAGE>   11

(5) Computed by dividing non-accruing advances by funds employed at the end of
    each respective period indicated. Non-accruing advances as a percentage of
    advances during each period presented was lower than non-accruing advances
    as a percentage of funds employed.
(6) Computed on an annualized basis.

The Company regularly reviews its outstanding accounts receivable and other
extensions of credit, such as advances to clients, to determine the adequacy of
its allowance for credit losses. Factors such as the level of related credit
balances of clients and the impact of economic conditions on the
creditworthiness of the Company's clients and the client's customers are given
significant consideration in determining the adequacy of the Company's allowance
for credit losses. The Company's allowance for credit losses includes a specific
and general component. Specific reserves are established for receivables and
client advances which the Company's management deems to be wholly or partially
uncollectable. The general reserve represents 0.75% of factored receivables that
are not specifically reserved for but for which the Company has provided credit
guarantees and a reserve for loans originated by the asset-based lending and
healthcare divisions. Since December 31, 1997, the Company's general reserve on
loans originated by the asset-based lending and healthcare divisions has been 1%
of loans.

The provision for credit losses as a percentage of factored sales increased to
0.19% for the nine months ended September 30, 1998 from 0.16% for the nine
months ended September 30, 1997. The provision for credit losses as a percentage
of average receivables and the provision for credit losses as a percentage of
average funds employed decreased from 0.92% and 1.40%, respectively, for the
nine months ended September 30, 1997, to 0.88% and 1.25%, respectively, for the
nine months ended September 30, 1998.

Net charge-offs as a percentage of factored sales increased to 0.16% for the
nine month period ended September 30, 1998 from 0.11% for the period ended
September 30, 1997. In the period ended September 30, 1998, the Company
charged-off $2.8 million net in customer bad debts, including approximately
$599,000 related to the bankruptcies of two large retail chains. Customer
charge-offs for the period ended September 30, 1997 equaled $1.5 million and
contained no single material customer. Client charge-offs for the periods ended
September 30, 1998 and 1997 equaled approximately $2 million and $1.5 million,
respectively. There were eight separate client charge-offs in the nine months
ended September 30, 1998, the largest of which was $425,000, and in the same
period of 1997, the Company charged off $1.4 million due to a single client
bankruptcy filing. Net charge-offs as a percentage of average receivables and
net charge-offs as a percentage of average funds employed were 0.78% and 1.10%,
respectively, for the nine months ended September 30, 1998 as compared to 0.65%
and 0.98% for the same period in 1997.

Non-accruing advances as a percentage of funds employed have historically
remained below 1.00% and as of September 30, 1998 and September 30, 1997, were
0.38% and 0.07%, respectively. Non-accruing advances as a percentage of
receivables was 0.27% at September 30, 1998 and 0.05% at September 30, 1997.
Management believes that non-accruing advance fluctuations below 1.0% are a
normal part of the Company's ongoing business and are not significant.

Credit-approved accounts receivable past due more than 60 days as a percentage
of credit-approved factored receivables and credit-approved accounts receivable
past due more than 90 days as a percentage of credit-approved factored
receivables equaled 3.76% and 2.0%, respectively, at September 30, 1998 as
compared to 3.83% and 1.69%, respectively, at September 30, 1997. Accounts
receivable past due more than 60 days as a percentage of total factored
receivables and accounts receivable past due more than 90 days as a percentage
of total factored receivables equaled 7.38% and 4.81%, respectively, for the
nine-month period ended September 30, 1998 as compared to 8.88% and 5.63%,
respectively, for the nine-month period ended September 30, 1997.





                                       11

<PAGE>   12

FINANCIAL CONDITION - SEPTEMBER 30, 1998 AS COMPARED TO DECEMBER 31, 1997.

Total assets increased to $882.4 million at September 30, 1998 from $756.6
million at December 31, 1997. The $125.8 million increase was due primarily to a
$137.5 million dollar increase in net receivables offset by a decrease in cash.
Total liabilities increased $114.8 million to $797.2 million from $682.4 million
due primarily to a $3.5 million increase in due to factoring clients and by a
$107.5 million increase in debt.

Asset-based loans, which represent loans provided to clients principally
collateralized by accounts receivable increased by $73.5 million, primarily
through the generation of new business. Asset-based loans totaled $118.8 million
at December 31, 1997 and $192.3 million at September 30, 1998. Factored accounts
receivable increased by $50.6 million or 9.6%.

The Company increased its debt outstanding under its $75.0 million revolving
credit facility with an unaffiliated bank by $31.4 million and borrowed $80.0
million under its $150.0 million unsecured revolving line of credit with UPC,
offset by a $3.9 decrease in its $150.0 million line with the Bank. At September
30, 1998 and December 31, 1997, the Company had $75.0 million and $43.6 million,
respectively, outstanding under its $75.0 million facility, which bears interest
at LIBOR plus 1.25%. This increase in debt was collateralized by increased
asset-based loans. On January 2, 1998, the Company entered into a $150.0 million
unsecured line of credit with UPC, which bears interest at 0.75% below Wall
Street Journal ("WSJ") prime, 7.75% at September 30, 1998. The Company's debt
outstanding under its $150.0 million unsecured revolving line of credit with the
Bank equaled $107.8 million at September 30, 1998 and $111.8 million at December
31, 1997, respectively, a decrease of $3.9 million. This line was amended on
January 15, 1998 to also bear interest at 0.75% below WSJ prime or 7.75% at
September 30, 1998 from WSJ prime or 8.5% at September 30, 1997. Debt under the
Company's fourth series of variable rate asset-backed certificates equaled
$100.0 million at September 30, 1998 and December 31, 1997. Under this series,
the senior Variable Funding Certificates bear interest at LIBOR plus 0.75% and
the senior subordinated Variable Funding Certificates bear interest at LIBOR
plus 1.50% . (See "Liquidity and Capital Resources").

Stockholders' equity increased approximately $11.0 million during the first nine
months of 1998 as a result of net income earned by the Company and the exercise
of 5,062 employee stock options.

RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE
MONTHS ENDED SEPTEMBER 30, 1997.

Net income increased 22.7% to approximately $4.5 million for the three month
period ended September 30, 1998 from approximately $3.6 million for the
comparable period in 1997, due to an increase in operating revenues which was
partially offset by a $350,000 increase in the quarterly provision for credit
losses, and increases in operating expenses. Operating revenues (total revenues
less interest expense) increased from approximately $15.3 million for the three
month period ended September 30, 1997 to approximately $17.4 million for the
comparable period in 1998, a 13.8% increase. This increase was the result of a
8.4% increase in the Company's factored sales volume from $873.4 million to
$946.4 million for the three month periods ended September 30, 1997 and
September 30, 1998, respectively, and a $113.2 million increase in asset-based
loans. Both increases resulted in an increase in interest and fee income. The
factored sales volume increase was attributable to continued growth of the
Company's regional factoring offices. Additionally, the effective interest rate
on debt decreased as a result of the issuance of a fourth series of variable
rate asset-backed certificates in April 1997.

Factoring fee income was approximately $8.1 million respectively, for the three
month period ended September 30, 1998 and September 30, 1997. Factoring fee
income as a percentage of factored sales for the three-month periods decreased
from .93% in 1997 to .86% in 1998. This decrease was due to overall lower rate
structures resulting from competitive market pressures.

Net interest income (interest income less interest expense) increased to
approximately $7.1 million for the three months ended September 30, 1998 from
approximately $5.4 million for the comparable period in 1997, a 30.4% increase,
principally as a result of an increase of $147.8 million in average outstanding
funds employed for the three months ended September 30, 1998 as compared to the
same period in the prior year. Net interest income was also favorably impacted
by continued interest expense reductions achieved through the use of financing
programs with lower interest rates. On April 




                                       12
<PAGE>   13

30, 1997, the Company issued the Variable Funding Certificates which provide for
a monthly settlement of principal, which may increase or decrease the
outstanding amount. This fourth series of variable rate asset-backed
certificates includes the issuance of $95.25 million of senior Variable Funding
Certificates and $4.75 million of senior subordinated Variable Funding
Certificates. The Variable Funding Certificates were fully funded at $95.25
million and $4.75 million, respectively, at September 30, 1998 and September 30,
1997. The senior and senior subordinated Variable Funding Certificates bear
interest at LIBOR plus 0.75% and 1.50%, respectively, (6.34% and 7.09%,
respectively, at September 30, 1998). In February 1998, the Company's $40.0
million revolving loan agreement with an unaffiliated bank, bearing interest at
LIBOR plus 2.15 was amended to increase the line to $75.0 million and the
interest rate was reduced to LIBOR plus 1.25%, a decrease of 0.90%. Average
borrowings from the revolving loan during the three-month period ended September
30, 1998, equaled approximately $74.8 million and had an effective interest rate
of 7.04% for the three-month period.

Letter of credit and other fee income increased to approximately $1.5 million
for the three months ended September 30, 1998 from $1.2 million for the three
months ended September 30, 1997, a 24.6% increase. Overadvance fees increased
approximately 11.4% or $30,000 during the three month period while other fee
income increased by approximately $259,000 due to the increased factoring volume
and growth in the Company's asset-based lending activities.

The provision for credit losses increased to $1,950,000 for the three months
ended September 30, 1998 from $1,600,000 for the three months ended September
30, 1997. The provision for credit losses as a percentage of factored sales
increased to 0.21% for the three months ended September 30, 1998 as compared to
0.18% for the comparable period in 1997, reflecting a higher net customer
charge-off rate.

Operating expenses, excluding the provision for credit losses, increased from
$7.6 million to $8.3 million for the three-month period ended September 30, 1998
as compared to the three months ended September 30, 1997. This $712,000 or 9.4%
increase is primarily the result of expansion of personnel.

RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE
MONTHS ENDED SEPTEMBER 30, 1997.

Net income increased 19.9% to approximately $10.9 million for the nine months
ended September 30, 1998 from approximately $9.1 million for the comparable
period in 1997 due to an increase in operating revenues which was partially
offset by a $1.0 million increase in the provision for credit losses and
increases in operating expenses. Operating revenues increased from approximately
$41.1 million for the nine months ended September 30, 1997 to approximately
$47.6 million for the comparable period in 1998, a 15.7% increase. This increase
was primarily a result of a 10.2% increase in the Company's factored sales
volume from $2,349.8 million to $2,590.5 million for the nine months ended
September 30, 1997 and September 30, 1998, respectively, and a $113.2 million
increase in asset-based loans. Both increases resulted in an increase in
interest and fee income. The factored sales volume increase and asset-based loan
increases were attributable to growth of the Company's regional factoring
offices and asset-based lending divisions. Additionally, the effective interest
rate on debt decreased as a result of the issuance of a fourth series of
variable rate asset-backed certificates and additional usage of the Company's
$75.0 million loan agreement with an unaffiliated bank.

Factoring fee income increased to approximately $22.8 million for the nine-month
period ended September 30, 1998 as compared to approximately $22.0 million for
the nine-month period ended September 30, 1997 as a result of a 10.2% increase
in factored sales. Factoring fee income as a percentage of factored sales for
the nine-month periods decreased from 0.94% in 1997 to 0.88% in 1998. This
decrease was due to overall lower rate structures resulting from competitive
market pressures.

Net interest income (interest income less interest expense) increased to
approximately $19.2 million for the nine months ended September 30, 1998 from
approximately $14.3 million for the comparable period in 1997, a 34.7% increase,
principally as a result of an increase of $150.6 million in average outstanding
funds employed for the nine months ended September 30, 1998 as compared to the
same period in the prior year. Funds raised through the Company's utilization of
certain lower interest financing programs were used to reduce its debt under the
Bank line of credit, which bears interest at prime less 0.75% or presently
7.75%. On April 30, 1997, the Company issued the Variable Funding Certificates
which provide for a monthly settlement of principal, which may increase or
decrease the outstanding amount. This fourth series 




                                       13
<PAGE>   14

of variable rate asset backed certificates includes the issuance of $95.25
million of senior Variable Funding Certificates and $4.75 million of senior
subordinated Variable Funding Certificates. The Variable Funding Certificates
were fully funded at $95.25 million and $4.75 million, respectively, at
September 30, 1998, bearing interest at LIBOR plus 0.75% and 1.50%, respectively
(6.34% and 7.09%, respectively, at September 30, 1998). In February 1998, the
Company's $40.0 million revolving loan agreement with an unaffiliated bank,
bearing interest at LIBOR plus 2.1% was amended to increase the line to $75.0
million and the interest rate was reduced to LIBOR plus 1.25%, a decrease of
0.90%. Average borrowings from the revolving loan during the nine months ended
September 30, 1998 equaled approximately $63.2 million and had an effective
interest rate of 7.15% for the nine-month period.

Letter of credit and other fee income increased to approximately $3.8 million
for the nine months ended September 30, 1998 from $3.2 million for the nine
months ended September 30, 1997, a 16.8% increase. Overadvance fees increased
approximately 24.2% or $162,000 during the nine month period while other fee
income increased by approximately $385,000 due to the increased factoring volume
and growth in the Company's asset-based lending activities.

The provision for credit losses equaled $4.8 million for the nine-month period
ended September 30, 1998 and $3.8 million for the nine-month period ended
September 30, 1997. Provisions for credit losses as a percentage of factored
sales increased to 0.19% for the nine months ended September 30, 1998 as
compared to 0.16% for the comparable period in 1997, reflecting a higher net
charge-off rate. (See "Monitoring Asset Quality and Credit Losses").

Operating expenses increased from $22.0 million to $25.1 million for the
nine-month period ended September 30, 1998 as compared to the nine-month period
ended September 30, 1997. This $3.1 million or 13.8% increase is primarily the
result of the move of the Company's corporate headquarters to Boca Raton in May
1997 and expansion of personnel in the asset-based lending and regional offices.

LIQUIDITY AND CAPITAL RESOURCES

The Company's principal source of funding is its asset securitization program,
the Securitized Financings. This funding is supplemented by the Company's lines
of credit with the Bank, UPC and a revolving credit facility with an
unaffiliated bank.

The trust created in connection with the Securitized Financings (the "Trust")
had issued three series of asset-backed certificates (each, a "Certificate")
aggregating $175 million, including $100 million in June 1994, $25 million in
December 1994 and $50 million in July 1995. All of the Certificates were issued
to life insurance companies. Initially, the Certificates were rated "AA" by Duff
& Phelps Credit Rating Company and "A" by Fitch Investors Services, Inc.
Approximately one year after its initial rating, Fitch Investor Services, Inc.
upgraded its rating of the Certificates to "AA". The scheduled maturity date of
the Certificates corresponding to each series is December 1999 ($100 million),
June 2000 ($25 million), and January 2001 ($50 million), respectively. The
Certificates issued under each series bear interest at LIBOR plus 1.25% (6.84%
at September 30, 1998, excluding annualized transaction costs of 0.41%).
Interest is payable monthly. However, an early amortization event will occur if
the Company fails to satisfy certain financial covenants. The principal
financial covenants contained in the Securitized Financing agreements that the
Company must satisfy include (i) consolidated net worth in excess of $18.5
million, (ii) tangible equity ratio of at least 6%, (iii) accounts receivable
non-payment percentage of no more than 18%, (iv) 60-day accounts receivable
percentage of no more than 10% of total accounts receivable, (v) 90-day accounts
receivable percentage of no more than 4.5% of total accounts receivable, (vi)
weighted average factoring fee of at least 0.75%, (vii) weighted average
accounts receivable turnover of less than 70 days, (viii) accounts receivable
dilution of no more than 11%, (ix) accounts receivable payment ratio for three
consecutive periods of more than 40%, (x) aggregate amount of subordinated
certificates of no more than 25% of senior certificates, (xi) subordinated
certificates equal to or greater than 7% of total certificates, and (xii) value
of accounts receivable transferred to the Trust, of no less than 135% of
aggregate certificates. In addition, there are other covenants relating to the
collateral, including required capital levels, maximum dilution and delinquency
ratios and minimum subordination levels. The Company is in compliance with these
and all other covenants contained in the Securitized Financing agreements. The
Company may continue to use the Securitized Financings for funding, provided
eligible advances are available for transfer to the Trust.





                                       14
<PAGE>   15

On April 30, 1997 the Trust issued a fourth series of variable rate asset-backed
certificates in connection with the Securitized Financings. Unlike the
previously issued Certificates which were fixed as to principal amount, the
Variable Funding Certificates provide for a monthly settlement of principal,
which may increase or decrease the outstanding amount. The fourth series
includes the issuance of $95.25 million of senior Variable Funding Certificates
and $4.75 million of senior subordinated Variable Funding Certificates. The
Certificates were rated "AAA" and "A", respectively by Duff & Phelps Credit
Rating Company and "AA" and "BBB", respectively by Fitch Investors Services Inc.
At September 30, 1998, and September 30, 1997, the Variable Funding Certificates
were fully funded at $95.25 million and $4.75 million, respectively. Management
believes that this type of Certificate will provide a more efficient means of
funding the seasonal fluctuations in the Company's overall funding requirements.
Under this series, the senior Variable Funding Certificates bear interest at
LIBOR plus 0.75% and the senior subordinated Variable Funding Certificates bear
interest at LIBOR plus 1.50% (6.34% and 7.09%, respectively, at September 30,
1998, and 6.41% and 7.16%, respectively, at September 30, 1997, excluding
annualized transaction costs of 0.22%). In connection with the fourth series,
the Company formed a new wholly owned subsidiary, CF Investor Corp. CF Investor
Corp., through a limited liability corporation, CF Two, LLC., acquired the
junior subordinated certificate issued by the Trust. In connection with any
additional secured indebtedness to be incurred by the Company, the Securitized
Financings require that all additional secured lenders enter into an
intercreditor agreement with the holders of the Certificates and the trustee of
the Trust.

The Securitized Financings, for all four series, permit future purchases to the
extent that the Company generates eligible advances. Generally, all of the
client advances made by the Company, with the exception of those made by its
healthcare division and asset-based loan divisions are eligible for transfer to
the Trust. As of September 30, 1998, the Company had transferred to the Trust
client advances aggregating nearly $336.7 million.

The Company utilizes a $75.0 million revolving credit facility with an
unaffiliated bank which closed in April 1996 for $40.0 million and subsequently
increased to $75.0 million in February 1998. The indebtedness under this
facility is secured by advances not transferred to the Trust or eligible for
transfer to the Trust, most of which were made by the Company's healthcare
division or asset-based loan divisions, as well as all of the equipment used by
the Company in its operations. In order for this facility to be fully funded,
the Company would have to pledge an amount in excess of $83.3 million in
eligible advances. The indebtedness under this facility may not exceed 90% of
the value of the advances pledged by the Company as collateral for such
indebtedness. At September 30, 1998 and 1997, the Company had outstanding
borrowings of $75.0 million and $43.6 million, respectively. In February 1998,
the interest rate on this revolving credit facility was amended to LIBOR plus
1.25%, a decrease of 0.90%. At September 30, 1998 and 1997, the interest rates
were 6.63% and 7.81%, respectively, reflecting a decrease due to the amended
rate offset by an increase of 0.25% in LIBOR. The indebtedness under this
facility matures upon termination in March 1999, although it will be
automatically renewed for additional one-year periods unless the Company or the
lender terminates it. This facility contains certain financial covenants and
ratios, including those relating to the Company's debt to net worth (no less
than 1 to 1), profitability ($5.2 million of annual consolidated net income) and
positive net cash flows (more than $1 per quarter). Funds borrowed under this
facility were used by the Company to pay down indebtedness under the Company's
line of credit with the Bank, and to fund certain of the Company's healthcare
financing activities and asset-based lending activities.

The Company has a $150.0 million unsecured revolving line of credit with the
Bank, pursuant to which the Company had outstanding borrowings of approximately
$107.8 million at September 30, 1998. Amounts borrowed under this facility are
subject to the Bank's overall statutory limitation on investments in and
advances to subsidiaries of 10% of assets. Effective January 15, 1998, the Bank
decreased the interest rate on the line of credit from prime to 0.75% below
prime, or 7.75% at September 30, 1998. This line is subject to annual review by
the Bank each June and is due on demand. This facility has been in place since
1985 and historically has been renewed for one-year periods in June of each
year. Interest is payable monthly.

In January 1998, the Company entered into a $150.0 million unsecured revolving
line of credit with UPC. Indebtedness under this facility bears interest at
0.75% below the WSJ prime rate (7.75% at September 30, 1998). The Company had
outstanding borrowings of $80 million at September 30, 1998. This facility
requires that the total debt cannot exceed 95% of the Company's receivables, and
the borrowings and payments must be made in increments of $10.0 million. The
indebtedness under this facility matures on demand, or if no demand on April 1,
1999.





                                       15
<PAGE>   16

CF One, Inc. holds $10.0 million of subordinated notes (the "CF One Notes"),
which are collateralized by subordinated certificates that were issued in
connection with the Company's Securitized Financings in May 1996. The CF One
Notes, which are due and payable in July 2001, bear interest at an annual fixed
rate of 7.95% and are rated "BBB" by both Duff & Phelps Credit Rating Company
and Fitch Investors Services, Inc. The principal purpose for the issuance of the
CF One Notes was to allow CF One, Inc. to obtain additional financing by taking
advantage of the favorable financing terms resulting from an increase in the
value of the subordinated certificates held by CF One, Inc. which are
collateralized by assets held by the Trust. The increase in the value of the
subordinated certificates held by CF One, Inc. was the result of the favorable
performance of the receivables and other assets held in the Trust's portfolio.

In addition to the continued availability of the above financing, the Company's
future liquidity will continue to be dependent upon its ability to collect the
accounts receivable purchased from its clients. Of the Company's approximately
$840 million of customer accounts receivable outstanding at September 30, 1998,
approximately $325.3 million of customer receivables balances exceeded $1
million. These customers are primarily large national or regional department
store chains or specialty retailers. At September 30, 1998, the largest amount
due from any one customer, a national chain store, was approximately $41.4
million. In addition, the Company's accounts receivable turned over in an
average of 54 days and 54 days during the nine months ended September 30, 1998
and 1997, respectively.

The Company had no material commitments for capital expenditures as of September
30, 1998. Management believes that it has the corporate infrastructure in place
to support its earnings growth for the foreseeable future. Management also
believes that funds available under the Company's current credit facilities
(assuming such facilities are renewed or replaced with similar facilities) and
cash flow from operations will be sufficient to satisfy the Company's working
capital requirements for the next 12 months.

NEW ACCOUNTING PRONOUNCEMENTS

SFAS No. 130, "Reporting Comprehensive Income," is effective for fiscal years
beginning after December 15, 1997. This statement establishes standards for
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. This statement did not have a material
impact on the Company's consolidated financial position or results of
operations.

SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," is effective for financial statements for periods beginning after
December 15, 1997. This statement establishes standards for the way that public
companies report selected information about operating segments. Adoption of this
statement is not expected to have a material impact on the Company's
consolidated financial position or results of operations.


EFFECTS OF INFLATION

The Company believes that inflation has not had a material impact on its results
of operations.




                                       16


<PAGE>   17

IMPACT OF YEAR 2000

The Company relies heavily on computer technologies to operate its business.
During 1997, the Company implemented its "Year 2000 Project" to address a
potential problem with which substantially all users of automated data
processing and information systems are faced. This problem arises from the use
by older systems of only two digits to represent the year applicable to a
transaction, e.g., "97" to represent "1997" rather than the full four digits.
Computer systems so programmed may not operate properly when the last two digits
of the year become "00" as will occur on January 1, 2000. In some cases
inputting a date later than December 31, 1999, would cause a computer to stop
operating while in other cases incorrect output may result. This potential
problem could affect a wide variety of automated systems such as mainframe
applications, personal computers, communications systems, and other information
systems routinely used in all industries. The Company has conducted an
assessment of its computer systems and has begun to make the programming changes
necessary to make its computer systems Year 2000 compliant. The Company believes
that with these modifications to its existing computer-based systems, it will be
Year 2000 compliant by December 31, 1998 although the Company cannot provide any
assurance in this regard. The Company's systems rely in part on the
computer-based systems of other companies. As part of the Company's assessment,
an overview of certain other companies' Year 2000 compliance strategies is being
performed. Nevertheless, if any such company failed to become Year 2000
compliant, the Company could be adversely affected. Although the amount expensed
by the Company for its Year 2000 project has not been significant, nor does the
Company anticipate that such cost will be significant to its results of
operations in any year, these costs are difficult to estimate accurately and the
projected cost could change due to unanticipated technological difficulties.

In summary, the Company's Year 2000 Project goal and management's expectation is
to have all software reviewed and modified or replaced as necessary to achieve
Year 2000 compliance and to be fully tested with satisfactory results prior to
year-end 1998. Based upon currently available information, management has no
reason to believe that its goal and expectation will not be met and does not
anticipate that the cost of identifying problems and effecting Year 2000
compliance will have a material impact on the Company's financial condition,
results of operations, or liquidity.

Notwithstanding the foregoing, the Company continues to bear some risk arising
from the advent of the Year 2000 and could be adversely affected should
significant clients or customers of the Company fail to address the issues
appropriately. Presently management has no reason to believe that any clients
with which it has significant relationships are failing to take appropriate
action to effect Year 2000 compliance. There can be no assurance until 2000,
however, that all of the Company's systems, and the systems of its clients,
customers, vendors, and other external business partners will function
adequately. If these systems are not Year 2000 compliant, it could have a
material adverse effect on the Company.




                                       17
<PAGE>   18


                           PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company

From time to time, the Company has been a party to lawsuits and claims,
including lender liability claims, which management considers incidental to
normal operations. The Company believes that these matters will not materially
affect its financial position or results of its operations.


Item 2. Changes in Securities

None.


Item 3. Defaults Upon Senior Securities

None.


Item 4. Submission of Matters to a Vote of Security Holders.

None.


Item 5. Other Information.

Between August 10, 1998 and September 16, 1998, UPBNA made certain unsolicited
purchases of the Company's common stock. UPBNA ceased these purchases after
September 16, 1998, as UPC and UPBNA began to consider certain strategic
alternatives regarding the Company. Ultimately, the Management of UPC and UPBNA
determined that it was in the best interests of both the Minority Holders and
the shareholders of UPC, for UPC to acquire a 100% interest in the Company. UPC
and UPBNA subsequently proposed the terms of the Merger to the Company's
directors, who approved the merger at a meeting duly called and convened on
October 16, 1998. At the meeting, the Board approved a merger agreement and a
cash payment amount of $17.50 per share. On October 26, 1998 UPBNA filed a
Schedule 13E-3, including the Information Statement which was mailed to the
Company's shareholders.


Item 6. Exhibits and Reports on Form 8-K

(a)      Exhibit 11.1 - Computation of Earnings Per Share incorporated by
         reference to Note 4 to the Company's unaudited financial statements
         included herein.

         Exhibit 27.1 - Financial Data Schedule





                                       18

<PAGE>   19
                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



Date:  November 13, 1998                         By: /s/ Dennis A. McDermott
                                                     ------------------------
                                                 DENNIS A. McDERMOTT
                                                 Executive Vice President and
                                                 Chief Financial Officer
                                                 (Principal Financial and
                                                 Accounting Officer)







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