<PAGE>

                    U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington D.C. 20549
                                   FORM 10-Q



(Mark One)

 [X]     QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND
         EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002

 [ ]     TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
         ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____

                        Commission File Number: 0-22474


                   AMERICAN BUSINESS FINANCIAL SERVICES, INC.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)


            Delaware                                    87-0418807
-------------------------------             ------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)


               111 Presidential Boulevard, Bala Cynwyd, PA 19004
              ---------------------------------------------------
              (Address of principal executive offices) (Zip Code)


                                 (610) 668-2440
                                 --------------
              (Registrant's telephone number including area code)


Indicate by check mark whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act 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.

                            Yes [X]  No [ ]

As of May 10, 2002, there were 2,584,881 shares of the registrant's Common
Stock issued and outstanding.




<PAGE>
          American Business Financial Services, Inc. and Subsidiaries

                                     INDEX
<TABLE>
<CAPTION>
                                                                                                               Page
                                                                                                               ----
<S>                                                                                                            <C>
PART I    FINANCIAL INFORMATION

Item 1.   Financial Information

   Consolidated Balance Sheets as of March 31, 2002 and June 30, 2001.............................................1
   Consolidated Statements of Income for the three and nine months ended March 31, 2002 and 2001..................2
   Consolidated Statement of Stockholders' Equity for the nine months ended March 31, 2002 .......................3
   Consolidated Statements of Cash Flow for the nine months ended March 31, 2002 and 2001.........................4
   Notes to Consolidated Financial Statements.....................................................................6

Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations..................17

Item 3.   Quantitative and Qualitative Disclosure about Market Risk..............................................55


PART II  OTHER INFORMATION

Item 1.   Legal Proceedings......................................................................................56
Item 2.   Changes in Securities..................................................................................56
Item 3.   Defaults Upon Senior Securities........................................................................56
Item 4.   Submission of Matters to a Vote of Security Holders....................................................56
Item 5.   Other Information......................................................................................56
Item 6.   Exhibits and Reports on Form 8-K.......................................................................56
</TABLE>

<PAGE>
PART I  FINANCIAL INFORMATION
Item 1. Financial Information

          American Business Financial Services, Inc. and Subsidiaries
                          Consolidated Balance Sheets
                             (dollars in thousands)
<TABLE>
<CAPTION>
                                                                               March 31,                  June 30,
                                                                                 2002                       2001
                                                                              -----------                ------------
                                                                              (Unaudited)                    (Note)
<S>                                                                          <C>                        <C>
Assets
Cash and cash equivalents                                                     $   131,560                $     91,092
Loan and lease receivables, net
   Available for sale                                                              67,547                      83,241
   Interest, fees and other                                                        13,333                      16,549
Interest-only strips (includes the fair value of over-
    collateralization related cash flows of $223,054
    at March 31, 2002 and $183,087 at June 30, 2001)                              490,147                     398,519
Servicing rights                                                                  118,194                     102,437
Receivable for sold loans                                                           8,216                      14,157
Prepaid expenses                                                                    3,407                       3,457
Property and equipment, net                                                        18,757                      20,750
Other assets                                                                       34,185                      36,285
                                                                              -----------                ------------
Total assets                                                                  $   885,346                $    766,487
                                                                              ===========                ============
Liabilities and Stockholders' Equity
Liabilities
Subordinated debt                                                             $   640,736                $    537,950
Warehouse lines and other notes payable                                            41,123                      51,064
Accrued interest payable                                                           44,419                      32,699
Accounts payable and accrued expenses                                              10,447                       8,324
Deferred income taxes                                                              33,929                      30,954
Other liabilities                                                                  47,520                      38,634
                                                                              -----------                ------------
Total liabilities                                                                 818,174                     699,625
                                                                              -----------                ------------

Stockholders' Equity
Preferred stock, par value $.001, authorized, 1,000,000
   shares; issued and outstanding, none                                                --                          --
Common stock, par value $.001, authorized, 9,000,000 shares
   issued:  3,645,192 shares at March 31, 2002 and
   3,645,092 shares at June 30, 2001 (including treasury shares
   of 1,060,311 at March 31, 2002 and 676,507 at
   June 30, 2001)                                                                       4                           4
Additional paid-in capital                                                         23,985                      23,984
Accumulated other comprehensive income                                             11,353                      10,337
Retained earnings                                                                  45,888                      43,922
Treasury stock, at cost                                                           (13,458)                    (10,785)
                                                                              -----------                ------------
                                                                                   67,772                      67,462
Note receivable                                                                      (600)                       (600)
                                                                              -----------                ------------
Total stockholders' equity                                                         67,172                      66,862
                                                                              -----------                ------------
Total liabilities and stockholders' equity                                    $   885,346                $    766,487
                                                                              ===========                ============
</TABLE>
Note:    The balance sheet at June 30, 2001 has been derived from the audited
financial statements at that date.
See accompanying notes to consolidated financial statements.

                                       1
<PAGE>
          American Business Financial Services, Inc. and Subsidiaries
                       Consolidated Statements of Income
                 (amounts in thousands, except per share data)
                                  (unaudited)
<TABLE>
<CAPTION>
                                                      Three Months Ended      Nine Months Ended
                                                            March 31,              March 31,
                                                     --------------------   ----------------------
                                                        2002       2001       2002          2001
                                                     ---------  ---------   ---------    ---------
<S>                                                 <C>        <C>         <C>          <C>
Revenues
Gain on sale of loans                                $  49,220  $  34,430   $ 129,139    $  91,529
Interest and fees                                        5,292      5,300      16,759       16,555
Interest accretion on interest-only strips               9,538      6,438      25,920       17,857
Servicing income                                         1,282      1,117       4,216        4,278
Other income                                               103          2         107            6
                                                     ---------  ---------   ---------    ---------

Total revenues                                          65,435     47,287     176,141      130,225
                                                     ---------  ---------   ---------    ---------

Expenses
Interest                                                17,191     14,156      51,467       41,020
Provision for credit losses                              1,728      1,217       4,434        2,625
Employee related costs                                   9,467      7,214      25,953       21,277
Sales and marketing                                      6,498      6,178      18,937       17,930
General and administrative                              18,824     13,722      52,589       36,314
Interest-only strips valuation adjustment                8,691         --      13,153           --
                                                     ---------  ---------   ---------    ---------

Total expenses                                          62,399     42,487     166,533      119,166
                                                     ---------  ---------   ---------    ---------

Income before provision for income taxes                 3,036      4,800       9,608       11,059

Provision for income taxes                               1,275      1,920       4,035        4,424
                                                     ---------  ---------   ---------    ---------

Net Income                                           $   1,761  $   2,880   $   5,573    $   6,635
                                                     =========  =========   =========    =========

Earnings per common share:
   Basic                                             $    0.64  $    0.83   $    2.07    $    1.86
                                                     =========  =========   =========    =========
   Diluted                                           $    0.60  $    0.82   $    1.91    $    1.83
                                                     =========  =========   =========    =========

Average common shares:
   Basic                                                 2,585      3,397       2,694        3,565
                                                     =========  =========   =========    =========
   Diluted                                               2,758      3,472       2,911        3,628
                                                     =========  =========   =========    =========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       2
<PAGE>
          American Business Financial Services, Inc. and Subsidiaries
                 Consolidated Statement of Stockholders' Equity
                    For the nine months ended March 31, 2002
                 (amounts in thousands, except per share data)
                                  (unaudited)
<TABLE>
<CAPTION>
                                      Common Stock
                                 ---------------------
                                                                     Accumulated
                                  Number of              Additional    Other                                              Total
                                    Shares                Paid-In   Comprehensive   Retained   Treasury     Note      Stockholders'
                                 Outstanding    Amount    Capital      Income       Earnings     Stock    Receivable     Equity
                                 -----------    ------   ---------- -------------   --------   --------   ----------  -------------
<S>                              <C>           <C>       <C>        <C>            <C>        <C>         <C>          <C>
Balance June 30, 2001              2,969        $    4   $   23,984  $    10,337    $ 43,922  $ (10,785)   $   (600)   $  66,862

Comprehensive income:
  Net income                          --            --           --           --       5,573         --          --        5,573
  Net unrealized gain on
    interest-only strips              --            --           --        1,016          --         --          --        1,016
                                   -----        ------   ----------  -----------    --------  ---------    --------    ---------

Total comprehensive income            --            --           --        1,016       5,573         --          --        6,589

Issuance of new shares                --            --            1           --          --         --          --            1
Stock dividend (10% of
  outstanding shares)                 --            --           --           --      (2,979)     2,979          --           --
Repurchase of treasury shares       (384)           --           --           --          --     (5,652)         --       (5,652)
Cash dividends ($0.23
  per share)                          --            --           --           --        (628)        --          --         (628)
                                   -----        ------   ----------  -----------    --------  ---------    --------    ---------
Balance March 31, 2002             2,585        $    4   $   23,985  $    11,353    $ 45,888  $ (13,458)   $   (600)   $  67,172
                                   =====        ======   ==========  ===========    ========  =========    ========    =========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       3
<PAGE>
          American Business Financial Services, Inc. and Subsidiaries
                      Consolidated Statements of Cash Flow
                             (dollars in thousands)
                                  (unaudited)
<TABLE>
<CAPTION>
                                                                                           Nine Months Ended
                                                                                              March 31,
                                                                                  ---------------------------------
                                                                                      2002                  2001
                                                                                  ------------           ----------
<S>                                                                               <C>                   <C>
Cash Flow from Operating Activities:
Net income                                                                        $      5,573           $    6,635
Adjustments to reconcile net income to net cash
   used in operating activities:
         Gain on sale of loans                                                        (129,139)             (91,529)
         Depreciation and amortization                                                  29,806               20,913
         Interest accretion on interest-only strips                                    (25,920)             (17,857)
         Interest-only strips fair value adjustment                                     13,153                   --
         Provision for credit losses                                                     4,434                2,625
         Accounts written off, net                                                      (3,618)              (2,141)
Loans originated for sale                                                           (1,048,706)            (902,808)
Proceeds from sale of loans                                                          1,049,999              886,153
Principal payments on loans and leases                                                   8,098                5,109
Decrease (increase) in accrued interest and fees on loan and
   lease receivables                                                                     3,216               (3,627)
Purchase of initial overcollateralization on securitized
   loans                                                                                    --                 (341)
Required purchase of additional overcollateralization on
   securitized loans                                                                   (35,468)             (31,726)
Cash flow from interest-only strips                                                     70,729               57,039
Decrease (increase) in prepaid expenses                                                     50               (1,033)
Increase in accounts payable and accrued expenses                                       13,843                2,224
Accrued interest payable reinvested in subordinated debt                                20,545               13,049
Increase in deferred income taxes                                                        2,738                4,896
Increase (decrease) in loans in process                                                    762               (3,508)
Other, net                                                                              (1,079)              (4,251)
                                                                                  ------------           ----------
Net cash used in operating activities                                                  (20,984)             (60,178)
                                                                                  ------------           ----------

Cash Flows from Investing Activities:
   Purchase of property and equipment, net                                              (3,090)              (7,248)
   Principal receipts and maturities of investments                                         19                  740
                                                                                  ------------           ----------

Net cash used in investing activities                                             $     (3,071)          $   (6,508)
                                                                                  ------------           ----------
</TABLE>

                                       4



<PAGE>
          American Business Financial Services, Inc. and Subsidiaries
                Consolidated Statements of Cash Flow (Continued)
                             (dollars in thousands)
                                  (unaudited)
<TABLE>
<CAPTION>
                                                                                          Nine Months Ended
                                                                                              March 31,
                                                                                  ---------------------------------
                                                                                      2002                  2001
                                                                                  ------------           ----------
<S>                                                                              <C>                    <C>
Cash Flow from Financing Activities:
   Proceeds from issuance of subordinated debt                                    $    177,820           $  143,680
   Redemptions of subordinated debt                                                    (95,579)             (65,142)
   Net repayments of revolving lines of credit                                          (7,311)              (4,954)
   Principal payments on lease financing facility                                       (2,474)              (2,963)
   Repayments of repurchase agreement                                                       --               (3,606)
   Repayments of other notes payable                                                      (156)                (333)
   Financing costs incurred                                                             (1,497)              (2,516)
   Cash dividends paid                                                                    (628)                (775)
   Repurchase of treasury stock                                                         (5,652)              (3,835)
                                                                                  ------------           ----------
Net cash provided by financing activities                                               64,523               59,556
                                                                                  ------------           ----------
   Net increase (decrease) in cash and cash equivalents                                 40,468               (7,130)
   Cash and cash equivalents, beginning of period                                       91,092               69,751
                                                                                  ------------           ----------
   Cash and cash equivalents, end of period                                       $    131,560           $   62,621
                                                                                  ============           ==========

Supplemental disclosure of cash flow information
   Cash paid during the period for:
      Interest                                                                    $     19,324           $   17,162
                                                                                  ============           ==========
      Income taxes                                                                $      1,086           $      572
                                                                                  ============           ==========
</TABLE>
See accompanying notes to consolidated financial statements.

                                       5
<PAGE>
          American Business Financial Services, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                                 March 31, 2002

1.       Basis of Financial Statement Presentation

         American Business Financial Services, Inc., together with its
         subsidiaries (the "Company"), is a diversified financial services
         organization operating throughout the United States. The Company
         originates loans through a combination of channels including a
         national processing center located in the Company's centralized
         operating office in Bala Cynwyd, Pennsylvania, and a retail branch
         network of offices. The Company, through its principal direct and
         indirect subsidiaries, originates, sells and services loans to
         businesses secured by real estate and other business assets and home
         equity loans, typically to credit impaired borrowers secured by first
         and second mortgages. In addition, the Company offers subordinated
         debt securities to the public, the proceeds of which are used to repay
         existing debt, to fund loan originations and the Company's operations
         and for general corporate purposes including, but not limited to,
         repurchases of our outstanding common stock.

         Prior to January 1, 2001, the Company originated conventional first
         mortgage loans, which were sold in the secondary mortgage market.
         Effective January 1, 2001 we de-emphasized this business, however, we
         may, from time to time, consider originating conventional first
         mortgage loans on a limited basis in the future.

         The accompanying unaudited consolidated financial statements have been
         prepared in accordance with accounting principles generally accepted in
         the United States for interim financial information and pursuant to the
         rules and regulations of the Securities and Exchange Commission.
         Accordingly, they do not include all the information and footnotes
         required by accounting principles generally accepted in the United
         States for complete financial statements. In the opinion of management,
         all adjustments (consisting of normal recurring accruals and the
         elimination of intercompany balances) considered necessary for a fair
         presentation have been included. Operating results for the nine-month
         period ended March 31, 2002 are not necessarily indicative of financial
         results that may be expected for the full year ended June 30, 2002.
         These unaudited consolidated financial statements should be read in
         conjunction with the audited consolidated financial statements and
         notes thereto included in the Company's Annual Report on Form 10-K for
         the fiscal year ended June 30, 2001.

         On October 1, 2001, the Company's Board of Directors declared a 10%
         stock dividend which was paid on November 5, 2001 to shareholders of
         record on October 22, 2001. In conjunction with the Board's
         resolution, all outstanding stock options and the related exercise
         prices were adjusted. Accordingly, all outstanding shares, earnings
         per common share, dividends per share, average common share and stock
         option amounts for all periods presented have been retroactively
         adjusted to reflect the effect of the stock dividend.

         Certain prior period financial statement balances have been
         reclassified to conform to current period presentation.

                                       6
<PAGE>

          American Business Financial Services, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (Continued)
                                 March 31, 2002

1.       Basis of Financial Statement Presentation (Continued)

         Recent Accounting Pronouncements

         In July 2000, the Emerging Issues Task Force ("EITF"), a
         standard-setting group under the Financial Accounting Standards Board
         (the "FASB"), reached a consensus in EITF 99-20, "Recognition of
         Interest Income and Impairment of Purchased and Retained Beneficial
         Interests in Securitized Financial Assets." EITF 99-20 provides
         guidance on the recognition of interest income and the measurement of
         impairment of beneficial interests retained in securitization
         transactions. If upon evaluation, the retained interest holder
         determines there is a change in the estimated cash flows from the
         retained interests, the amount of accretable yield should be
         recalculated and in certain circumstances, if that change in estimated
         cash flows is an adverse change, an other than temporary impairment
         should be considered to have occurred. This accounting guidance was
         effective for fiscal quarters beginning after March 15, 2001. The new
         standard did not and is not expected to have a material effect on the
         Company's financial condition or results of operations.

         During the first nine months of fiscal 2002, due to increases in
         prepayment experience, a write down of $13.2 million was recorded on
         the Company's interest-only strips. This adjustment reflects the impact
         of higher prepayment experience on home equity loans than anticipated
         during the nine-month period. The impact of increased prepayments were
         considered to be other than temporary and were therefore recorded as an
         adjustment to earnings in the current period in accordance with
         Statement of Financial Accounting Standards ("SFAS") No. 115
         "Accounting for Certain Investments in Debt and Equity Securities" and
         EITF 99-20. See "Management's Discussion and Analysis of Financial
         Condition and Results of Operations - Securitizations" for further
         detail of this write down.

         In September 2000, the FASB issued SFAS No. 140 "Accounting for
         Transfers and Servicing of Financial Assets and Extinguishments of
         Liabilities." SFAS No. 140 replaces SFAS No. 125, also titled
         "Accounting for Transfers and Servicing of Financial Assets and
         Extinguishments of Liabilities." SFAS No. 140 revises the standards for
         accounting for securitizations and other transfers of financial assets
         and collateral and requires certain disclosures, but it carries over
         most of SFAS No. 125's provisions without reconsideration.

         SFAS No. 140's standards are based on consistent application of a
         financial-components approach that focuses on control. Under that
         approach, after a transfer of financial assets, an entity recognizes
         the financial and servicing assets it controls and the liabilities it
         has incurred, derecognizes financial assets when control has been
         surrendered, and derecognizes liabilities when extinguished. This
         statement provides consistent standards for distinguishing transfers
         of financial assets that are sales from transfers that are secured
         borrowings.

         SFAS No. 140 was effective on a prospective basis for transfers and
         servicing of financial assets and extinguishments of liabilities
         occurring after March 31, 2001. This statement was effective for
         recognition and reclassification of collateral and for disclosures
         relating to securitization transactions and collateral for fiscal
         years ending after December 15, 2000. The adoption of this standard in
         the fourth quarter of the fiscal year ended June 30, 2001 did not have
         a material effect on the Company's financial condition or results of
         operations and is not expected to have a material

                                       7
<PAGE>

           American Business Financial Services, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (Continued)
                                 March 31, 2002

1.       Basis of Financial Statement Presentation (Continued)

         effect on the Company's financial condition or results of operations
         in future periods. However, the new standard requires that the Company
         record the obligation to repurchase loans from securitization trusts
         at the time the Company has the contractual right to repurchase loans
         whether or not the Company actually repurchases the loans.

         In July 2001, the FASB issued SFAS No. 141 "Business Combinations,"
         which requires the use of the purchase method of accounting for all
         business combinations initiated after June 30, 2001. SFAS No. 141
         provides specific guidance on how to identify the accounting acquirer
         in a business combination, provides specific criteria for recognizing
         intangible assets apart from goodwill and requires additional
         financial statement disclosure regarding business combinations.
         Although SFAS No. 141 may impact the accounting for business
         combinations we may enter into in the future, the adoption of the
         statement did not have an impact on our present financial condition or
         results of operations.

         In July 2001, the FASB issued SFAS No. 142 "Goodwill and Other
         Intangible Assets." SFAS No. 142 establishes standards for how
         intangible assets that are acquired individually or with a group of
         other assets should be accounted for in financial statements upon
         their acquisition, and how goodwill and other intangible assets should
         be accounted for after they have been initially recognized in the
         financial statements. In addition, SFAS No. 142 requires additional
         financial statement disclosure for goodwill and other intangibles.
         Under the new standard, amortization of goodwill and intangible assets
         with an indefinite useful life will be discontinued. After a
         transitional impairment test, goodwill and intangible assets will be
         tested at least annually for impairment by comparing the fair value of
         the recorded assets to their carrying amount. If the carrying amount
         of the intangible asset exceeds its fair value, an impairment loss is
         recognized. The provisions of SFAS No. 142 were required to be applied
         starting with fiscal years beginning after December 15, 2001. Early
         application was permitted for entities with fiscal years beginning
         after March 15, 2001. The Company adopted the new standard on July 1,
         2001.

         Because the Company's goodwill is no longer being amortized, the
         reported amounts of goodwill will not decrease at the same time and in
         the same manner as under previous standards. There may be more
         volatility in reported income than under previous standards because
         impairment losses, if any, are likely to occur irregularly and in
         varying amounts. As of July 1, 2001, the Company performed a
         transitional impairment test, which did not indicate impairment of
         goodwill under the provisions of the new standard.

         For the nine months ended March 31, 2001, the Company recorded
         amortization of goodwill in the amount of $1.0 million. Adjusted to
         exclude amortization of goodwill, net income and diluted net income
         per share for the nine months ended March 31, 2001 were $7.2 million
         and $2.00, respectively.

         In June 2001, the FASB issued SFAS No. 143 "Accounting for Asset
         Retirement Obligations." SFAS No. 143 requires entities to record the
         fair value of a liability for an asset retirement obligation in the
         period in which it is incurred. The statement is effective for fiscal
         years beginning after June 15, 2002. The adoption of the statement is
         not expected to have an impact on the Company's present financial
         condition or results of operations.

                                       8
<PAGE>

           American Business Financial Services, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (Continued)
                                 March 31, 2002

1.       Basis of Financial Statement Presentation (Continued)

         In August 2001, the FASB issued SFAS No. 144 "Accounting for the
         Impairment or Disposal of Long-lived Assets." SFAS No. 144 provides
         guidance on the accounting and reporting for the impairment and
         disposal of long-lived assets and supersedes SFAS No. 121, "Accounting
         for the Impairment of Long-lived Assets and for Long-lived Assets to
         be Disposed of," and certain provisions of the Accounting Principles
         Board Opinion No. 30, "Reporting the Effects of Disposal of a Segment
         of a Business, and Extraordinary, Unusual or Infrequently Occurring
         Events or Transactions." The adoption of the statement is not expected
         to have an impact on the Company's present financial condition or
         results of operations.

2.       Loan and Lease Receivables - Available for Sale

         Loan and lease receivables available for sale which are held by the
         Company were as follows (in thousands):

                                                       March 31,        June 30,
                                                         2002             2001
                                                      ---------        ---------
Real estate secured loans............................ $  54,757        $  68,838
Leases, net of unearned income of $787 and $1,324....     9,560           14,455
                                                      ---------        ---------
                                                         64,317           83,293
Less: Allowance for credit losses on loans and
   leases available for sale.........................     3,297            2,480
                                                      ---------        ---------
                                                         61,020           80,813
Receivable for securitized loans.....................     6,527            2,428
                                                      ---------        ---------
                                                      $  67,547        $  83,241
                                                      =========        =========

         In accordance with our securitization trust servicing agreements, the
         Company has the right, but not the obligation, to repurchase a limited
         amount of delinquent loans from securitization trusts. In accordance
         with the provisions of SFAS No. 140, the Company has recorded a
         liability for the repurchase of loans subject to these removal of
         accounts provisions, whether or not the Company plans to repurchase
         the loans. A corresponding asset for the loans, at the lower of their
         cost basis or fair value, has also been recorded.

         At March 31, 2002 and June 30, 2001, the accrual of interest was
         suspended on real estate secured loans of $8.8 million and $4.5
         million, respectively.

                                       9
<PAGE>
           American Business Financial Services, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (Continued)
                                 March 31, 2002

3.       Interest-Only Strips

         Activity for interest-only strips for the nine-month periods ended
         March 31, 2002 and 2001 were as follows (in thousands):
<TABLE>
<CAPTION>
                                                                     March 31,
                                                             -----------------------
                                                                2002         2001
                                                             ---------    ----------
<S>                                                          <C>          <C>
 Balance at beginning of period...........................   $ 398,519    $  277,872
 Initial recognition of interest-only strips, including
    initial overcollateralization of  $0 and $341.........     112,869        95,875
 Interest accretion.......................................      25,920        17,857
 Required purchases of additional overcollateralization...      35,468        31,726
 Cash flow from interest-only strips......................     (70,729)      (57,039)
 Net adjustments to fair value............................       1,253        10,899
 Other than temporary fair value adjustment...............     (13,153)           --
                                                             ---------    ----------
 Balance at end of period.................................   $ 490,147    $  377,190
                                                             =========    ==========
</TABLE>
         Interest-only strips include overcollateralization balances that
         represent undivided interests in securitization trusts maintained to
         provide credit enhancement to investors in securitization trusts. In
         order to meet the required overcollateralization levels, the trust
         initially retains cash flows until overcollateralization requirements,
         which are specific to each securitization, are met. At March 31, 2002,
         the fair value of overcollateralization related cash flows were $223.1
         million.

4.       Servicing Rights

         Activity for servicing rights for the nine-month periods ended March
         31, 2002 and 2001 were as follows (in thousands):
<TABLE>
<CAPTION>
                                                                     March 31,
                                                             -----------------------
                                                                2002         2001
                                                             ---------    ----------
<S>                                                          <C>          <C>
Balance at beginning of period............................   $ 102,437    $   74,919
Initial recognition of servicing rights...................      37,371        35,128
Amortization..............................................     (21,614)      (13,406)
                                                             ---------    ----------
Balance at end of period..................................   $ 118,194    $   96,641
                                                             =========    ==========
</TABLE>
         Servicing rights are periodically valued by the Company based on the
         current estimated fair value of the mortgage servicing asset. A review
         for impairment is performed by stratifying the serviced loans based on
         loan type, which is considered to be the predominant risk
         characteristic due to their different prepayment characteristics and
         fee structures. Key assumptions used in the periodic valuation of the
         servicing rights are described in "Management's Discussion and
         Analysis of Financial Condition and Results of Operations -
         Securitizations." Impairments, if they occur, would be recognized in a
         valuation allowance for each impaired stratum in the period of
         adjustment. As of March 31, 2002, no valuation allowance for
         impairment was required.

                                       10
<PAGE>
           American Business Financial Services, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (Continued)
                                 March 31, 2002

5.       Other Assets and Other Liabilities

         Other assets were comprised of the following (in thousands):
<TABLE>
<CAPTION>
                                                                   March 31,          June 30,
                                                                     2002               2001
                                                                   ---------         ----------
<S>                                                                <C>               <C>
Goodwill..................................................         $  15,121         $   15,121
Financing costs, debt offering ...........................             6,401              7,707
Real estate owned.........................................             4,289              2,322
Due from securitization trusts for servicing related
    activities............................................             1,841              5,430
Investments held to maturity..............................               926                945
Trading assets, at fair value ............................               529                 --
Other ....................................................             5,078              4,760
                                                                   ---------         ----------
                                                                   $  34,185         $   36,285
                                                                   =========         ==========
</TABLE>
         Other liabilities were comprised of the following (in thousands):

<TABLE>
<CAPTION>
                                                                   March 31,          June 30,
                                                                     2002               2001
                                                                   ---------         ----------
<S>                                                                <C>               <C>
Commitments to fund closed loans..........................         $  29,892         $   29,130
Escrow deposits held......................................             8,608              6,425
Obligation for repurchase of securitized loans............             7,679              2,478
Other.....................................................             1,341                601
                                                                   ---------         ----------
                                                                   $  47,520         $   38,634
                                                                   =========         ==========
</TABLE>
         See Note 2 for an explanation of the obligation for securitized loans
         subject to removal of accounts provisions.

6.       Subordinated Debt, Warehouse Lines and Other Notes Payable

         Subordinated debt was comprised of the following (in thousands):
<TABLE>
<CAPTION>
                                                                   March 31,          June 30,
                                                                     2002               2001
                                                                   ---------         ----------
<S>                                                                <C>               <C>
Subordinated debt (a).....................................         $ 624,677         $  524,003
Subordinated debt - money market notes (b)................            16,059             13,947
                                                                   ---------         ----------
Total subordinated debt...................................         $ 640,736         $  537,950
                                                                   =========         ==========
</TABLE>
         Warehouse lines and other notes payable were comprised of the
following (in thousands):
<TABLE>
<CAPTION>
                                                                   March 31,          June 30,
                                                                     2002               2001
                                                                   ---------         ----------
<S>                                                                <C>               <C>
Warehouse and operating revolving line of credit (c) .....         $  34,612         $   34,199
Warehouse revolving line of credit (d)....................             2,439             11,235
Lease funding facility (e)................................             2,999              5,474
Operating line of credit (f)..............................             1,073                 --
Other debt................................................                --                156
                                                                   ---------         ----------
Total warehouse lines and other notes payable.............         $  41,123         $   51,064
                                                                   =========         ==========
</TABLE>


                                       11
<PAGE>

           American Business Financial Services, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (Continued)
                                 March 31, 2002

6.       Subordinated Debt, Warehouse Lines and Other Notes Payable (Continued)

         (a)  Subordinated debt due April 2002 through March 2012, interest
              rates ranging from 5.25% to 13.5%; subordinated to all of the
              Company's senior indebtedness.
         (b)  Subordinated debt-money market notes due upon demand, interest
              rate at 4.88%; subordinated to all of the Company's senior
              indebtedness.
         (c)  $50 million warehouse and operating revolving line of credit
              expiring December 2002, collateralized by certain loan
              receivables, advances to securitization trusts, real estate owned
              and certain interest-only strips.
         (d)  $25 million warehouse revolving line of credit expiring May 2002,
              collateralized by certain loan receivables. The Company is
              currently renegotiating this credit facility. No assurances can be
              given that this credit facility will be extended, or if extended,
              will be on the same terms as described above.
         (e)  Lease funding facility matures through December 2004,
              collateralized by certain lease receivables.
         (f)  $1.2 million operating line of credit expiring January 2003,
              collateralized by our investment in the 99-A lease securitization
              trust.

        Warehouse lines and other notes payable were collateralized by $28.4
        million of loan and lease receivables, $5.0 million of receivables from
        securitization trusts, $3.0 million of real estate owned and $28.8
        million of interest-only strips at March 31, 2002.

        In addition to the above, the Company had available to it the following
        credit facilities:

         o    $100 million revolving line of credit expiring March 2003,
              fundings to be collateralized by certain loan receivables. This
              line was unused at March 31, 2002.
         o    $200 million revolving line of credit expiring November 2002,
              collateralized by certain loan receivables. This line was unused
              at March 31, 2002.
         o    $300 million facility, expiring July 2002, which provides for the
              sale of mortgage loans into an off-balance sheet facility. See
              "Management's Discussion and Analysis of Financial Condition and
              Results of Operations -- Critical Accounting Policies-Special
              Purpose Entities and Off-Balance Sheet Facilities" for further
              discussion of the off-balance sheet features of this facility.

        Interest rates on our revolving credit facilities range from London
        Inter-Bank Offered Rate ("LIBOR") plus 1.25% to LIBOR plus 2.5%. The
        weighted average interest rate paid on our revolving credit facilities
        was 3.46% and 3.69% for the three and nine-month periods ended March 31,
        2002.

        Under a registration statement declared effective by the Securities and
        Exchange Commission on October 16, 2001, we registered $325.0 million
        of subordinated debt. As of March 31, 2002, $174.4 million of this debt
        was available for future issuance. The Company's subordinated debt
        securities are subordinated in right of payment to, or subordinate to,
        the prior payment in full of all senior debt as defined in the
        indentures related to such debt, whether outstanding on the date of the
        applicable indenture or incurred following the date of the indenture.
        Under the terms of the subordinated debt agreements there are no limits
        on the amount of senior debt the Company may incur. The Company's
        assets, including the stock it holds in its subsidiaries, are available
        to repay the subordinated debt in the event of default following
        payment to holders of the senior debt. In the event of the Company's
        default and liquidation of its subsidiaries to repay the debt

                                       12
<PAGE>

           American Business Financial Services, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (Continued)
                                 March 31, 2002

6.       Subordinated Debt, Warehouse Lines and Other Notes Payable (Continued)

         holders, creditors of the subsidiaries must be paid or provision made
         for their payment from the assets of the subsidiaries before the
         remaining assets of the subsidiaries can be used to repay the holders
         of the subordinated debt securities.

7.       Contingencies

         There has been an increased focus by state and federal banking
         regulatory agencies, state attorneys general offices, the Federal Trade
         Commission, the U.S. Department of Justice, the U.S. Department of
         Housing and Urban Development and state and local governmental
         authorities on certain lending practices by some companies in the
         subprime industry, sometimes referred to as "predatory lending"
         practices. Sanctions have been imposed by state, local and federal
         governmental agencies for practices including, but not limited to,
         charging borrowers excessive fees, imposing higher interest rates than
         the borrower's credit risk warrants and failing to adequately disclose
         the material terms of loans to the borrowers. As a result of these
         initiatives, the Company is unable to predict whether state, local or
         federal authorities will require changes in the Company's lending
         practices in the future, including the reimbursement of borrowers as a
         result of fees charged or the imposition of fines, or the impact of
         those changes on our profitability. The Pennsylvania Attorney General
         reviewed certain fees charged to Pennsylvania customers by our
         subsidiary, HomeAmerican Credit, Inc., which does business as Upland
         Mortgage. Although the Company believes that these fees were fair and
         in compliance with applicable federal and state laws, the Company
         agreed to reimburse borrowers approximately $221,000 with respect to a
         particular fee and to reimburse the Commonwealth of Pennsylvania
         $50,000 for their costs of investigation and for future public
         protection purposes. The reserve which the Company previously
         established was adequate to cover the resolution of this matter.

8.       Legal Proceedings

         On February 26, 2002, a purported class action titled Calvin Hale v.
         HomeAmerican Credit, Inc., No. 02 C 1606, United States District Court
         for the Northern District of Illinois, was filed in the Circuit Court
         of Cook County, Illinois (subsequently removed by Upland Mortgage to
         the captioned federal court) against the Company's subsidiary,
         HomeAmerican Credit, Inc., which does business as Upland Mortgage, on
         behalf of borrowers in Illinois, Indiana, Michigan and Wisconsin who
         paid a document preparation fee on loans originated since February 4,
         1997. The plaintiff alleges that the charging of, and the failure to
         properly disclose the nature of, a document preparation fee were
         improper under applicable state law. The plaintiff seeks restitution,
         compensatory and punitive damages and attorney's fees and costs, in
         unspecified amounts. The Company believes that its imposition of this
         fee is permissible under applicable law and intends to vigorously
         defend the case.

         The Company's lending subsidiaries, including HomeAmerican Credit, Inc.
         which does business as Upland Mortgage, are involved, from time to
         time, in class action lawsuits, other litigation, claims,
         investigations by governmental authorities, and legal proceedings
         arising out of their lending activities from time to time, including
         the purported class action entitled, Calvin Hale v. HomeAmerican
         Credit, Inc., d/b/a Upland Mortgage, described above. Due to the
         Company's current expectation regarding the ultimate resolution of
         these actions, management believes that the liabilities resulting from
         these actions will not have a material adverse effect on the Company's


                                       13
<PAGE>

           American Business Financial Services, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (Continued)
                                 March 31, 2002

8.       Legal Proceedings (Continued)

         consolidated financial position or results of operations. However, due
         to the inherent uncertainty in litigation and since the ultimate
         resolutions of these proceedings are influenced by factors outside of
         the Company's control, it is possible that the Company's estimated
         liability under these proceedings may change or that actual results
         will differ from its estimates.

9.       Derivative Financial Instruments

         A primary market risk exposure that the Company faces is interest rate
         risk. Interest rate risk occurs due to potential changes in interest
         rates between the date fixed rate loans are originated and the date of
         securitization. The Company may, from time to time, utilize hedging
         strategies to mitigate the effect of changes in interest between the
         date loans are originated and the date the fixed rate pass-through
         certificates to be issued by a securitization trust are priced, a
         period typically less than 90 days.

         The Company recorded cash losses on the fair value of derivative
         financial instruments of $4.9 million during the nine months ended
         March 31, 2002, and $4.3 million during the nine months ended March
         31, 2001, which were offset by securitization gains during the
         periods. There were no open derivative contracts designated as hedges
         or unrealized gains or losses from derivative contracts designated as
         hedges at March 31, 2002.

         An additional interest rate risk exposure is changes in the fair value
         of certain interest-only strips due to changes in LIBOR rates. The
         structure of certain securitization trusts include a floating rate
         certificate tranche where trust certificates pay interest based on
         LIBOR plus an interest rate spread. Floating rate tranches in a
         securitization expose us to gains or losses due to changes in the fair
         value of the interest-only strip from changes in the floating interest
         rate paid to the certificateholders. In order to manage this exposure,
         we have entered into an interest rate swap agreement to lock in a fixed
         rate on our third quarter fiscal 2002 securitization's fixed rate
         tranche. This derivative financial instrument is not designated as a
         hedge, and therefore, all gains or losses on this contract have been
         recorded through current income. For the three months ended March 31,
         2002, the Company recognized a gain of $0.5 million in the fair value
         of this interest rate swap. The fair value is recorded on the balance
         sheet in trading assets, which are reported in other assets. See
         "Management's Discussion and Analysis of Financial Condition and
         Results of Operations -- Interest Rate Risk Management" for further
         discussion of the Company's strategy for use of derivative financial
         instruments.



                                       14
<PAGE>
           American Business Financial Services, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (Continued)
                                 March 31, 2002

10.      Earnings Per Share

         Following is a reconciliation of the Company's basic and diluted
         earnings per share calculations (in thousands, except per share data):
<TABLE>
<CAPTION>
                                                              Three Months Ended               Nine Months Ended
                                                                   March 31,                       March 31,
                                                          ---------------------------     ---------------------------
                                                              2002            2001            2002            2001
                                                          ------------    -----------     -----------      ----------
<S>                                                      <C>             <C>             <C>              <C>
         Earnings
         (a)   Net Income                                 $      1,761    $     2,880     $     5,573      $    6,635
                                                          ============    ===========     ===========      ==========
         Average Common Shares
         (b)   Average common shares outstanding                 2,585          3,397           2,694           3,565
               Average potentially dilutive shares                 173             75             217              63
                                                          ------------    -----------     -----------      ----------
         (c)   Average common and potentially
                 dilutive shares                                 2,758          3,472           2,911           3,628
                                                          ============    ===========     ===========      ==========
         Earnings Per Common Share
         Basic (a/b)                                      $       0.64    $      0.83     $      2.07      $     1.86
         Diluted (a/c)                                    $       0.60    $      0.82     $      1.91      $     1.83
</TABLE>
11.      Segment Information

         The Company has three operating segments: Loan Origination, Treasury
         and Funding, and Servicing.

         The Loan Origination segment originates business purpose loans secured
         by real estate and other business assets and home equity loans
         including loans to credit impaired borrowers.

         The Treasury and Funding segment administers the issuance of the
         Company's subordinated debt securities and its related interest
         payments and obtains other sources of funding for the Company's
         general operating and lending activities.

         The Servicing segment services the loans the Company originates both
         while held by the Company and subsequent to securitization. Servicing
         activities include billing and collecting payments from borrowers,
         transmitting payments to investors, accounting for principal and
         interest, collections and foreclosure activities and disposing of real
         estate owned.

         The All Other segment mainly represents activities that do not meet
         the thresholds for determining reportable segments as defined by SFAS
         No. 131 "Disclosures about Segments of an Enterprise and Related
         Information." This segment includes financial assets not related to
         operating segments, unallocated overhead and other expenses of the
         Company unrelated to the reportable segments identified. Transactions
         between reportable segments are reported at cost. The accounting
         policies of the reportable segments are the same as those described in
         the summary of significant accounting policies. Reconciling items
         represent elimination of inter-segment income and expense items.


                                       15
<PAGE>

           American Business Financial Services, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (Continued)
                                 March 31, 2002

11.      Segment Information (Continued)
<TABLE>
<CAPTION>
                                                   Treasury
Nine months ended March 31, 2002        Loan         and                              Reconciling
(in thousands):                     Origination    Funding    Servicing   All Other     Items        Consolidated
                                    -----------    --------   ---------   ---------   -----------    ------------
<S>                                <C>           <C>         <C>         <C>          <C>            <C>
External revenues:
   Gain on sale of loans...........  $ 129,139    $      --   $      --   $      --    $      --      $   129,139
   Interest income.................      5,705          738       1,041      25,920           --           33,404
   Non-interest income.............      9,222            1      25,762         102      (21,489)          13,598
Inter-segment revenues.............         --       56,028          --      53,754     (109,782)              --
Operating expenses:
   Interest expense................     14,485       50,417          99      42,494      (56,028)          51,467
   Non-interest expense............     30,005        8,297      22,883      35,537           --           96,722
   Depreciation and amortization...      2,518          105         823       1,745           --            5,191
   Interest-only strips valuation
     adjustment....................         --           --          --      13,153           --           13,153
   Inter-segment expense...........     75,243           --          --          --      (75,243)              --
Income tax expense.................      9,162         (862)      1,259      (5,524)          --            4,035
                                     ---------    ---------   ---------   ---------    ---------      -----------
Net income (loss)..................  $  12,653    $  (1,190)  $   1,739   $  (7,629)   $      --      $     5,573
                                     =========    =========   =========   =========    =========      ===========
Segment assets.....................  $  87,211    $ 204,993   $ 119,069   $ 474,073    $      --      $   885,346
                                     =========    =========   =========   =========    =========      ===========

                                                   Treasury
Nine months ended March 31, 2001        Loan         and                              Reconciling
(in thousands):                     Origination    Funding    Servicing   All Other     Items        Consolidated
                                    -----------    --------   ---------   ---------   -----------    ------------

External revenues:
   Gain on sale of loans...........  $  91,529    $      --   $      --   $      --    $      --      $    91,529
   Interest income.................      5,641          828       1,345      17,857           --           25,671
   Non-interest income.............      8,639           --      17,571          --      (13,185)          13,025
Inter-segment revenues.............         --       47,032          --      40,354      (87,386)              --
Operating expenses:
   Interest expense................     16,894       36,807         380      33,971      (47,032)          41,020
   Non-interest expense............     26,062        9,171      15,143      22,082           --           72,458
   Depreciation and amortization...      2,801           96         633       2,158           --            5,688
   Inter-segment expense...........     53,539           --          --          --      (53,539)              --
Income tax expense.................      2,606          714       1,104          --           --            4,424
                                     ---------    ---------   ---------   ---------    ---------      -----------
Net income ........................  $   3,907    $   1,072   $   1,656   $      --    $      --      $     6,635
                                     =========    =========   =========   =========    =========      ===========
Segment assets.....................  $  92,425    $ 121,917   $ 100,104   $ 378,748    $      --      $   693,194
                                     =========    =========   =========   =========    =========      ===========
</TABLE>

                                       16
<PAGE>
           American Business Financial Services, Inc. and Subsidiaries

PART I  FINANCIAL INFORMATION (Continued)

Item 2. Management's Discussion and Analysis of Financial Condition and Results
        of Operations

         Our consolidated financial information set forth below should be read
in conjunction with the consolidated financial statements and the accompanying
notes to consolidated financial statements included in Item 1 of this Quarterly
Report on Form 10-Q, and the consolidated financial statements, notes to
consolidated financial statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations and the risk factors contained in
our Annual Report on Form 10-K for the year ended June 30, 2001.

Forward-Looking Statements

         Some information in this Quarterly Report on Form 10-Q may contain
forward-looking statements. You can identify these statements by words or
phrases such as "will likely result," "may," "are expected to," "will continue
to," "is anticipated," "believes," "estimate," "projected," "intends to" or
other similar words. These forward-looking statements regarding our business
and prospects are based upon numerous assumptions about future conditions,
which may ultimately prove to be inaccurate. Actual events and results may
materially differ from anticipated results described in those statements.
Forward-looking statements involve risks and uncertainties which could cause
our actual results to differ materially from historical earnings and those
presently anticipated. When considering forward-looking statements, you should
keep these risk factors in mind as well as the other cautionary statements in
this document. You should not place undue reliance on any forward-looking
statement.

General

         We are a diversified financial services organization operating
throughout the United States. We originate, sell and service loans to
businesses secured by real estate and other business assets and home equity
loans, typically to credit impaired borrowers, secured by first and second
mortgages, through our principal direct and indirect subsidiaries. We also
underwrite, process and purchase home equity loans through the Bank Alliance
Program. Through this program we purchase home equity loans from other
financial institutions which may have more stringent underwriting guidelines
than ours. Following our purchase of the loans through this program, we hold
these loans as available for sale until they are sold in connection with a
future securitization.

         Our loans primarily consist of fixed rate loans secured by first or
second mortgages on single family residences. Our customers include credit
impaired borrowers and other borrowers who would qualify for loans from
traditional sources but who are attracted to our loan products due to our
personalized service and timely response to loan applications. We originate
loans through a combination of channels including a centralized processing
center located in Bala Cynwyd, Pennsylvania and a retail branch network of
offices. In addition, we offer subordinated debt securities to the public, the
proceeds of which are used to repay existing debt, to fund loan originations
and our operations and for general corporate purposes including, but not
limited to, repurchases of our outstanding common stock.

         Initially, we finance our loans under one of several different secured
and committed credit facilities. These credit facilities are generally
revolving lines of credit, which we have with several financial institutions
that enable us to borrow on a short-term basis against our loans. We then
securitize our loans or sell our loans to unrelated third parties on a whole
loan basis to generate the cash to pay off these credit facilities. We also
have a committed mortgage conduit facility with a financial institution, which
enables us to sell our loans into an off-balance sheet facility. Additionally,
we rely upon funds generated by the sale of subordinated debt and other
borrowings to fund our operations and to repay maturing subordinated debt. At
March 31, 2002, $640.7 million of subordinated debt was outstanding and
warehouse and other revolving credit facilities totaling $676.2 million were
available, of which $96.7 million was drawn upon on that date. We expect to
continue to rely on the borrowings to fund our operations and to repay maturing
subordinated debt. For a description of our credit facilities, subordinated
debt and off-balance sheet facilities, see "--Liquidity and Capital Resources."

                                       17
<PAGE>

         In our mortgage loan securitizations, pools of mortgage loans are sold
to a trust. The trust then issues to third-party investors, certificates
representing the right to receive a pass-through interest rate and principal
collected on the mortgage loans each month. The difference between the average
coupon rate charged to borrowers on the fixed rate pools of mortgage loans and
the weighted average pass-through interest rate paid to investors is referred to
as the interest rate spread.

         Our business strategy is dependent on our ability to emphasize lending
related activities that provide us with the most economic value. The
implementation of this strategy will depend in large part on a variety of
factors outside of our control, including, but not limited to, our ability to
obtain adequate financing on favorable terms and to profitably securitize our
loans on a regular basis. Our failure with respect to any of these factors
could impair our ability to successfully implement our strategy, which could
adversely affect our results of operations and financial condition.

         During fiscal 2001 and the first nine months of fiscal 2002, declines
in market interest rates resulted in average interest rate spreads related to
our loans securitized during this period improving approximately 173 basis
points at March 31, 2002 compared to the fourth quarter of fiscal 2000.
Increased interest rate spreads result in increases in the residual cash flow we
will receive on securitized loans and corresponding increases in the gains we
recognized on the sale of loans in a securitization. See "-- Securitizations"
for further details. There can be no assurances that interest rates will
continue to decline or remain at current levels. However, in a rising interest
rate environment we would expect our ability to originate loans at interest
rates that will maintain our current level of profitability to become more
difficult than during a stable or falling interest rate environment. This
situation occurred from our September 1998 mortgage loan securitization through
the June 2000 mortgage loan securitization when the pass-through interest rates
on the asset-backed securities issued in our securitizations had increased by
approximately 155 basis points. During the same period, the average coupon on
our loans securitized increased only 71 basis points. We would address the
challenge presented by a rising rate environment by carefully monitoring our
product pricing, the actions of our competition, market trends and the use of
hedging strategies in order to continue to originate loans in as profitable a
manner as possible. See "--Interest Rate Risk Management--Strategies for use of
Derivative Financial Instruments" for a discussion of our hedging strategies.

         A rising rate environment could unfavorably impact our liquidity and
capital resources. Rising interest rates could impact our short-term liquidity
by widening investor interest rate spread requirements in pricing future
securitizations as described above, increasing the levels of
overcollateralization required in future securitizations, limiting our access to
borrowings in the capital markets and limiting our ability to sell our
subordinated debt securities at favorable interest rates. See "--Liquidity and
Capital Resources" for a discussion of both long and short-term liquidity.

         There has been an increased focus by state and federal banking
regulatory agencies, state attorneys general offices, the Federal Trade
Commission, the U.S. Department of Justice, the U.S. Department of Housing and
Urban Development and state and local governmental authorities on certain
lending practices by some companies in the subprime industry, sometimes referred
to as "predatory lending" practices. Sanctions have been imposed by state, local
and federal governmental agencies for practices including, but not limited to,
charging borrowers excessive fees, imposing higher interest rates than the
borrower's credit risk warrants and failing to adequately disclose the material
terms of loans to the borrowers. As a result of these initiatives, we are unable
to predict whether state, local or federal authorities will require changes in
our lending practices in the future, including the reimbursement of borrowers as
a result of fees charged or the imposition of fines, or the impact of those
changes on our profitability. The Pennsylvania Attorney General reviewed certain
fees charged to Pennsylvania customers by our subsidiary, HomeAmerican Credit,
Inc., which does business as Upland Mortgage. Although we believe that these
fees were fair and in compliance with applicable federal and state laws, we
agreed to reimburse borrowers approximately $221,000 with respect to a
particular fee and to reimburse the Commonwealth of Pennsylvania $50,000 for
their costs of investigation and for future public protection purposes. The
reserve which we previously established was adequate to cover the resolution of
this matter.

                                       18
<PAGE>

         In addition to the regulatory initiatives with respect to so-called
"predatory lending" practices, we are also subject, from time to time, to
private litigation, including actual and purported class action suits,
resulting from alleged "predatory lending" practices. See "Legal Proceedings"
for one purported class suit currently pending. We expect, that as a result of
the publicity surrounding predatory lending practices, we may be subject to
other class action suits in the future.

         Although we are licensed to originate loans throughout the United
States, we currently originate loans predominately in the eastern half of the
United States. The concentration of loans in a specific geographic region
subjects us to the risk that a downturn in the economy in the eastern half of
the country would more greatly affect us than if our lending business were more
geographically diversified. As a result, an economic downturn in this region
could result in reduced profitability.

         Prior to January 1, 2001, the Company originated conventional first
mortgage loans, which were sold in the secondary mortgage market. Effective
January 1, 2001 we de-emphasized this business as a result of our strategy of
focusing on our most profitable lines of business. We may, from time to time,
consider originating conventional first mortgage loans on a limited basis in
the future.

         In January 2001, our subsidiary formerly named New Jersey Mortgage and
Investment Corporation, was renamed American Business Mortgage Services, Inc.
to better reflect its national presence.

Critical Accounting Policies

         Our consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States. The accounting
policies discussed below are considered by management to be critical to
understanding our financial condition and results of operations. The application
of these accounting policies requires significant judgement and assumptions by
management, which are based upon historical experience and future expectations.
The nature of our business and our accounting methods make our financial
condition, changes in financial condition and results of operations highly
dependent on management's estimates. Some of the line items on our income
statement and balance sheet impacted by management's estimates are described
below.

         Revenue recognition is highly dependent on the application of Statement
of Financial Accounting Standards ("SFAS") No. 140 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" and
"gain-on-sale" accounting to our quarterly loan securitizations. Gains on sales
of loans through securitizations for the nine-month period ended March 31, 2002
were 73.3% of total revenues. Securitization gains represent the difference
between the net proceeds to the Company, including retained interests in the
securitization, and the allocated cost of loans securitized. The allocated cost
of loans securitized is determined by allocating their net carrying value
between the loans, the interest-only strips and the servicing rights we retain
based upon their relative fair values. Estimates of the fair values of the
interest-only strips and the servicing rights we retain are discussed below.
Since only a small portion of the securitization gains are cash items, the
amount recognized as gain on sale for the retained interests we receive as
proceeds in a securitization, in accordance with accounting principles generally
accepted in the United States, is highly dependent on management's estimates.



                                       19
<PAGE>

         Interest-only strips, which represent the right to receive future cash
flows from securitized loans represent 55.4% of our total assets at March 31,
2002 and are carried at their fair values. Fair value is based on a discounted
cash flow analysis which estimates the present value of the future expected
residual cash flows and overcollateralization cash flows utilizing assumptions
made by management at the time the loans are sold. These assumptions include the
rates used to calculate the present value of expected future residual cash flows
and overcollateralization cash flows, referred to as the discount rates, and
expected prepayment and credit loss rates on the pools of loans sold through
securitizations. Estimates of prepayment and credit loss rates are made based on
management's expectation of future experience, which is based in part, on
historical experience, current and expected economic conditions and in the case
of prepayment rate assumptions, consideration of the impact of changes in market
interest rates. The actual loan prepayment rate may be affected by a variety of
economic and other factors, including prevailing interest rates, the
availability of alternative financing to borrowers and the type of loan. Our
expected future cash flows from our interest-only strips are periodically
re-evaluated. The current assumptions for prepayment and credit loss rates are
monitored against actual experience and other economic and market conditions and
are changed if necessary. Even a small unfavorable change in our assumptions
made as a result of unfavorable actual experience or other considerations could
have a significant adverse impact on our estimate of residual cash flows and on
the value of these assets. In the event of an unfavorable change in these
assumptions, the fair value of these assets would be overstated, requiring an
adjustment, which would adversely affect our income in the period of adjustment.
See "--Securitizations" for more detail on the estimation and changes made to
the assumptions used in the estimation of the fair value of interest-only strips
and the sensitivities of these balances to changes in assumptions.

         Interest accretion income represents the yield component of cash flows
received on interest-only strips. We use a prospective approach to estimate
interest accretion. As previously discussed, we periodically update estimates of
residual cash flow from our securitizations. Under the prospective approach,
when it is probable that there is a favorable or unfavorable change in estimated
residual cash flow from the cash flow previously projected, we recognize a
larger or smaller percentage of the cash flow as interest accretion. Any change
in value of the underlying interest-only strip could impact our current estimate
of residual cash flow earned from the securitizations. For example, a
significant change in market interest rates could increase or decrease the level
of prepayments, thereby changing the size of the total managed loan portfolio
and related projected cash flows.

         Servicing rights, which represent the rights to receive contractual
servicing fees from securitization trusts and ancillary fees from borrowers net
of estimated compensation that would be required by a substitute servicer
represented 13.4% of our total assets at March 31, 2002. Servicing rights are
carried at the lower of cost or fair value. The fair value of servicing rights
is determined by computing the benefits of servicing in excess of adequate
compensation, which would be required by a substitute servicer. The benefits of
servicing are the present value of projected net cash flows from contractual
servicing fees and ancillary servicing fees. These projections incorporate
assumptions made by management, including prepayment rates, credit loss rates
and discount rates. These assumptions are similar to those used to value the
interest-only strips retained in a securitization. The current assumptions for
prepayment and credit loss rates are monitored against actual experience and
other economic and market conditions and are changed if necessary. Even a small
unfavorable change in our assumptions, made as a result of unfavorable actual
experience or other considerations could have a significant adverse impact on
the value of these assets. In the event of an unfavorable change in these
assumptions, the fair value of these assets would be overstated, requiring an
adjustment, which would adversely affect our income in the period of adjustment.
See "--Securitizations" for more detail on the estimation and changes made to
the assumptions used in the estimation of the fair value of servicing rights and
the sensitivities of these balances to changes in assumptions.

         Amortization of the servicing rights asset for securitized loans is
calculated individually for each securitized loan pool and is recognized in
proportion to, and over the period of estimated future servicing income on that
particular pool of loans. If our analysis indicates the carrying value of
servicing rights are not recoverable through future cash flows from contractual
servicing and other ancillary fees, a valuation allowance would be required. As
of March 31, 2002, our valuation analysis has not indicated any impairment.
Impairment is measured as the excess of carrying value over fair value.

                                       20
<PAGE>

         Special purpose entities and off-balance sheet facilities are used in
our mortgage loan securitizations. Asset securitizations are one of the most
common off-balance sheet arrangements in which a company transfers assets off
its balance sheet by selling them to a special purpose entity. The special
purpose entities described below meet our objectives for mortgage loan
securitization structures and comply with accounting principles generally
accepted in the United States. Accounting for special purpose entities is under
review by the FASB. In the event that accounting rules are changed in the
future, our use of special purpose entities and our off-balance sheet accounting
treatment could be materially impacted.

         Our securitizations involve a two-step transfer that qualifies for sale
accounting under SFAS No. 140. First, we sell the loans to a special purpose
entity, which has been established for the limited purpose of buying and
reselling the loans and establishing a true sale under legal standards. Next,
the special purpose entity sells the loans to a qualified special purpose entity
(the "Trust"), transferring title of the loans and isolating those assets from
our Company's assets. Finally, the Trust issues certificates to investors to
raise the cash purchase price, collects proceeds on behalf of the
certificateholders, distributes proceeds and has a distinct legal standing,
independent from the Company. Under current accounting rules, the Trusts do not
qualify for consolidation in our financial statements and carry the loan
collateral as assets and the certificates issued to investors as liabilities. At
March 31, 2002, the mortgage securitization trusts held $2.8 billion of loan
collateral as assets and owed $2.6 billion of investor certificates to third
parties.

         We also use special purpose entities in our sales of loans to a $300
million off-balance sheet mortgage conduit facility sponsored by UBS Warburg.
Sales into the off-balance sheet facility involve a two-step transfer that
qualifies for sale accounting under SFAS No. 140, similar to the process
described above. This facility has a revolving feature and can be directed by
the sponsor to dispose of the loans, typically this has been accomplished by
re-securitizing them in a term securitization. The third party note purchaser
also has the right to sell the loans. Under this arrangement, the loans have
been isolated from us and our subsidiaries and as a result, transfers to the
facility are treated as sales for financial reporting purposes. At March 31,
2002, the off-balance sheet mortgage conduit facility held $59.9 million of loan
collateral as assets and owed $58.1 million to third parties.

         The allowance for loan and lease losses is maintained primarily to
account for loans and leases that are delinquent and are expected to be
ineligible for sale into a future securitization and for delinquent loans that
have been repurchased from securitization trusts. It is calculated based upon
management's estimate of the expected collectibility of loans and leases
outstanding based upon a variety of factors, including, periodic analysis of
the available for sale loans and leases, economic conditions and trends,
historical credit loss experience, borrowers' ability to repay, and collateral
considerations. Additions to the allowance arise from the provision for credit
losses charged to operations or from the recovery of amounts previously
charged-off. Loan and lease charge-offs reduce the allowance.

         Development of Critical Accounting Estimates. On a periodic basis,
senior management reviews the estimates used in our critical accounting
policies. As a group, senior management discusses the development and selection
of the assumptions used to perform our estimates described above.

         Adoption of New Accounting Policies. In July 2001, the Financial
Accounting Standards Board issued SFAS No. 142 "Goodwill and Other Intangible
Assets." SFAS No. 142 establishes standards for how intangible assets that are
acquired individually or with a group of other assets should be accounted for in
financial statements upon their acquisition, and how goodwill and other
intangible assets should be accounted for after they have been initially
recognized in the financial statements. In addition, SFAS No. 142 requires
additional financial statement disclosure for goodwill and other intangibles.
Under the new standard, amortization of goodwill and intangible assets with an
indefinite useful life was discontinued. After a transitional impairment test,
goodwill and intangible assets will be tested at least annually for impairment
by comparing the fair value of the recorded assets to their carrying amount. If
the carrying amount of the intangible asset exceeds its fair value, an
impairment loss is recognized. The provisions of SFAS No. 142 were required to
be applied starting with fiscal years beginning after December 15, 2001. Early
application was permitted for entities with fiscal years beginning after March
15, 2001. The Company adopted the new standard on July 1, 2001.

                                       21
<PAGE>

         At March 31, 2002, our goodwill balance was $15.1 million. Because our
goodwill is no longer being amortized, the reported amounts of goodwill will
not decrease at the same time and in the same manner as under previous
standards. There may be more volatility in reported income than under previous
standards because impairment losses, if any, are likely to occur irregularly
and in varying amounts. As of July 1, 2001, we performed a transitional
impairment test, which did not indicate impairment of goodwill under the
provisions of the new standard.

         For the nine months ended March 31, 2001, we recorded amortization of
goodwill in the amount of $1.0 million. Adjusted to exclude amortization of
goodwill, net income and diluted net income per share for the nine months ended
March 31, 2001 were $7.2 million and $2.00, respectively.

Securitizations

         During the first nine months of fiscal 2002, due to increases in
prepayment experience, a write down of $13.2 million was recorded on our
interest-only strips. In fiscal 2002, we recorded $8.7 million of the write down
in the third quarter and $4.5 million in the second quarter. These adjustments
reflect the impact of higher prepayment experience on home equity loans than
previously anticipated during the periods. The impact of increased prepayments
were considered to be other than temporary and were therefore recorded as an
adjustment to earnings in the periods in accordance with SFAS No. 115
"Accounting for Certain Investments in Debt and Equity Securities" and Emerging
Issues Task Force Statement ("EITF") 99-20. Based on current economic
conditions, including the stabilization of mortgage interest rates, published
mortgage industry surveys and our own decrease in payoff requests and
refinancing inquiries by our borrowers, we currently believe prepayments will
return to our historical levels in the future. However, we cannot predict with
certainty what our prepayment experience will be in the future and any
unfavorable difference between our assumptions used to value our interest-only
strips and our actual experience may have a significant adverse impact on the
value of these assets.

         The following table summarizes the volume of loan securitizations and
whole loan sales for the three and nine-month periods ended March 31, 2002 and
2001 (in millions):
<TABLE>
<CAPTION>
                                                            Three Months Ended          Nine Months Ended
                                                                March 31,                    March 31,
                                                           -------------------        --------------------
Securitizations:                                            2002         2001          2002          2001
                                                           ------       ------        ------        ------
<S>                                                        <C>          <C>           <C>           <C>
Business loans..........................................   $ 34.4       $ 27.9        $  93.7       $  78.6
Home equity loans.......................................    306.4        235.7          879.4         725.8
                                                           ------       ------        -------       -------
   Total................................................   $340.8       $263.6        $ 973.1       $ 804.4
                                                           ======       ======        =======       =======
Gain on sale of  loans through securitization...........   $ 49.2       $ 34.4        $ 129.1       $  91.5
Securitization gains as a percentage of total revenue...     75.2%        72.8%          73.3%         70.3%
Whole loan sales........................................   $ 12.2       $ 10.8        $  55.9       $  50.0
Premiums on whole loan sales............................   $  0.5       $  0.5        $   2.4       $   1.5
</TABLE>
         Our quarterly revenues and net income may fluctuate in the future
principally as a result of the timing, size and profitability of our
securitizations. The strategy of selling loans through securitizations requires
building an inventory of loans over time, during which time we incur costs and
expenses. Since a gain on sale is not recognized until a securitization is
closed, which may not occur until a subsequent quarter, operating results for a
given quarter can fluctuate significantly. If securitizations do not close when
expected, we could experience a materially adverse effect on our results of
operations for a quarter. See "--Liquidity and Capital Resources" for a
discussion of the impact of securitizations on our cash flows.

                                       22
<PAGE>

         Several factors affect our ability to complete securitizations on a
profitable basis. These include conditions in the securities markets generally,
such as fluctuations in interest rates described below, conditions in the
asset-backed securities markets relating to the mortgage loans we originate and
credit quality of the managed portfolio of loans, which includes loans on our
balance sheet and securitized loans we service for others. Any substantial
reduction in the size or availability of the securitization market for loans
could have a material adverse effect on our results of operations and financial
condition.

         When we securitize our loans by selling them to trusts we receive cash
and an interest-only strip, which represent our retained interest in
securitized loans. The trust issues multi-class securities, which derive their
cash flows from the pool of securitized loans. These securities, which are
senior in right to our interest-only strips in the trusts, are sold to public
investors. In addition, when we securitize our loans we retain the right, for a
fee, to service the loans, which creates an asset that we refer to as our
servicing rights. Servicing includes billing and collecting payments from
borrowers, transmitting payments to investors, accounting for principal and
interest, collections and foreclosure activities and disposing of real estate
owned ("REO").

         Interest-Only Strips. As the holder of the interest-only strips
received in a securitization, we are entitled to receive excess (or residual)
cash flows and cash flows from overcollateralization. These cash flows are the
difference between the payments made by the borrowers on securitized loans and
the sum of the scheduled and prepaid principal and pass-through interest paid
to the investors in the trust, servicing fees, trustee fees and, if applicable,
surety fees. Surety fees are paid to an unrelated insurance entity to provide
protection for the trust investors.

         Generally, all residual cash flows are initially retained by the trust
to establish overcollateralization levels in the trust. Overcollateralization
is the excess of the aggregate principal balances of loans in a securitized
pool over investor interests. Overcollateralization requirements are
established to provide credit enhancement for the trust investors.

         The overcollateralization requirements for a mortgage loan
securitization, which are different for each securitization, include:

         (1)  The initial requirement, if any, is a percentage of the original
              balance of loans securitized and is paid in cash at the time of
              sale;
         (2)  The final target is a percentage of the original balance of loans
              securitized and is funded from the monthly excess cash flow; and
         (3)  The stepdown overcollateralization requirement is a percentage of
              the remaining balance of loans securitized. During the stepdown
              period, the overcollateralization amount is gradually reduced
              through cash payments to us until the overcollateralization
              balance declines to a specific floor. The stepdown period
              generally begins at the later of 30 months or when the remaining
              balance of loans securitized is less than 50% of the original
              balance of securitized loans.

                                       23
<PAGE>

         The fair value of our interest-only strips is a combination of the
fair values of our residual cash flows and our overcollateralization cash
flows. At March 31, 2002, investments in interest-only strips totaled $490.1
million, including the fair value of overcollateralization related cash flows
of $223.1 million.

         The following tables provide information regarding the nature and
principal balances of mortgage loans securitized in each trust, the securities
issued by each trust, and the overcollateralization requirements of each trust.

       Summary of Selected Mortgage Loan Securitization Trust Information
                      Current Balances as of March 31, 2002
                              (dollars in millions)
<TABLE>
<CAPTION>
                                       2002-1   2001-4    2001-3   2001-2    2001-1    2000-4   2000-3    2000-2    2000-1   1999-4
                                       ------   ------    ------   ------    ------    ------   ------    ------    ------   ------
<S>                                  <C>      <C>       <C>      <C>       <C>       <C>       <C>       <C>       <C>     <C>
Original balance of loans
securitized:
   Business loans.....................$    32  $    29   $    31  $    35   $    29   $    27  $    16   $    28   $    25  $    25
   Home equity loans..................    288      287       269      320       246       248      134       275       212      197
                                      -------  -------   -------  -------   -------   -------  -------   -------   -------  -------
   Total..............................$   320  $   316   $   300  $   355   $   275   $   275  $   150   $   303   $   237  $   222
                                      =======  =======   =======  =======   =======   =======  =======   =======   =======  =======
Current balance of loans
securitized:
   Business loans.....................$    31  $    29   $    29  $    32   $    26   $    22  $    11   $    22   $    19  $    19
   Home equity loans..................    288      277       248      272       182       164       84       170       124      115
                                      -------  -------   -------  -------   -------   -------  -------   -------   -------  -------
   Total..............................$   319  $   306   $   277  $   304   $   208   $   186  $    95   $   192   $   143  $   134
                                      =======  =======   =======  =======   =======   =======  =======   =======   =======  =======
Weighted average coupon on loans
securitized:
   Business loans.....................  15.82%   15.77%    15.94%   15.97%    16.04%    16.05%   16.10%    16.02%    16.07%   16.10%
   Home equity loans..................  10.89%   10.75%    11.13%   11.20%    11.46%    11.58%   11.48%    11.44%    11.34%   11.08%
   Total..............................  11.37%   11.22%    11.64%   11.71%    12.03%    12.12%   12.04%    11.96%    11.97%   11.80%

Percentage of first mortgage loans....     89%      88%       87%      88%       87%       85%      85%       79%       79%      81%
Weighted average loan-to-value........     76%      77%       76%      77%       76%       77%      77%       77%       77%      76%
Weighted average remaining term
    (months) on loans securitized.....    254      253       245      244       237       228      224       233       223      216


Original balance of Trust
    Certificates......................$   320  $   322   $   306  $   355   $   275   $   275  $   150   $   300   $   235  $   220
Current balance of Trust Certificates.$   319  $   309   $   276  $   294   $   198   $   174  $    88   $   174   $   129  $   122
Weighted average pass-through
    interest rate to Trust
    Certificateholders................   5.66%    5.35%     5.72%    6.87%     7.04%     7.05%    7.61%     7.16%     7.12%    6.82%
Highest Trust Certificate
    pass-through interest rate........   6.51%    5.35%     6.14%    6.99%     6.28%     7.05%    7.61%     8.04%     7.93%    7.68%

Overcollateralization requirements:
Required percentages:
   Initial............................     --       --        --       --        --        --       --      0.90%     0.75%    1.00%
   Final target.......................   4.50%    4.25%     4.00%    4.40%     4.10%     4.50%    4.75%     5.95%     5.95%    5.50%
   Stepdown overcollateralization.....   9.00%    8.50%     8.00%    8.80%     8.20%     9.00%    9.50%    11.90%    11.90%   11.00%
Required dollar amounts:
   Initial............................     --       --        --       --        --        --       --   $     3   $     2  $     2
   Final target.......................$    14  $    13   $    12  $    16   $    11   $    12  $     7   $    18   $    14  $    12
Current status:
   Overcollateralization amount.......$    --  $    --   $     1  $    10   $    10   $    12  $     7   $    18   $    14  $    12
   Final target reached or
     anticipated date to reach........ 4/2003   7/2003    3/2003  11/2002    4/2002       Yes   4/2002       Yes       Yes      Yes
   Stepdown reached or anticipated
     date to reach....................10/2005   6/2005    2/2005   8/2004    3/2004    9/2003   5/2003    4/2003    2/2003   1/2003

Annual surety wrap fee................   0.21%    0.20%     0.20%    0.20%     0.20%     0.21%    0.21%     0.21%     0.19%    0.21%

Servicing rights:
   Original balance...................$    13  $    13   $    12  $    15   $    11   $    14  $     7   $    14   $    10  $    10
   Current balance....................$    13  $    12   $    11  $    12   $     9   $    10  $     5   $     9   $     6  $     6
</TABLE>

                                       24
<PAGE>

 Summary of Selected Mortgage Loan Securitization Trust Information (Continued)
                      Current Balances as of March 31, 2002
                              (dollars in millions)
<TABLE>
<CAPTION>
                                                  1999-3   1999-2   1999-1   1998-4   1998-3   1998-2    1998-1   1997(a)   1996(a)
                                                  ------   ------   ------   ------   ------   ------    ------   -------   -------
<S>                                             <C>      <C>      <C>      <C>      <C>      <C>       <C>      <C>       <C>
Original balance of loans securitized:
   Business loans................................$    28  $    30  $    16  $     9  $    17  $    15   $    16  $     45  $    29
   Home equity loans.............................    194      190      169       71      183      105        89       130       33
                                                 -------  -------  -------  -------  -------  -------   -------  --------  -------
   Total.........................................$   222  $   220  $   185  $    80  $   200  $   120   $   105  $    175  $    62
                                                 =======  =======  =======  =======  =======  =======   =======  ========  =======
Current balance of loans securitized:
   Business loans................................$    17  $    18  $     9  $     4  $     8  $     5   $     5  $     14  $     7
   Home equity loans.............................    108      111       87       30       83       39        29        32        6
                                                 -------  -------  -------  -------  -------  -------   -------  --------  -------
   Total.........................................$   125  $   129  $    96  $    34  $    91  $    44   $    34  $     46  $    13
                                                 =======  =======  =======  =======  =======  =======   =======  ========  =======

Weighted average coupon on loans securitized:
   Business loans................................  15.89%   15.74%   15.96%   16.06%   15.94%   15.82%    16.02%    15.89%   15.92%
   Home equity loans.............................  10.89%   10.44%   10.67%   10.86%   10.66%   10.72%    11.03%    11.49%   10.94%
   Total.........................................  11.57%   11.19%   11.14%   11.44%   11.14%   11.29%    11.82%    12.87%   13.56%

Percentage of first mortgage loans...............     83%      88%      91%      89%      91%      89%       81%       75%      74%
Weighted average loan-to-value...................     77%      76%      77%      76%      78%      77%       74%       74%      66%
Weighted average remaining term (months) on
   loans securitized.............................    220      226      223      215      217      193       183       163      123


Original balance of Trust Certificates...........$   219  $   219  $   184  $    79  $   198  $   118   $   103  $    171  $    61
Current balance of Trust Certificates............$   114  $   118  $    87  $    30  $    81  $    39   $    30  $     38  $     9
Weighted average pass-through interest rate to
   Trust Certificateholders......................   6.78%    6.64%    6.56%    5.85%    5.90%    6.60%     6.82%     7.13%    7.67%
Highest Trust Certificate pass-through
   interest rate.................................   7.49%    7.13%    6.58%    6.51%    6.30%    6.85%     7.15%     7.29%    7.67%


Overcollateralization requirements:
Required percentages:
   Initial.......................................   1.00%    0.50%    0.50%    1.00%    1.00%    1.50%     1.50%     2.43%    1.94%
   Final target..................................   5.00%    5.00%    5.00%    5.00%    5.00%    5.00%     5.50%     7.43%    8.94%
   Stepdown overcollateralization................  10.00%   10.00%   10.00%   10.00%   10.00%   10.00%    11.00%    14.86%   12.90%
Required dollar amounts:
   Initial.......................................$     2  $     1  $     1  $     1  $     2  $     2   $     2  $      4  $     1
   Final target..................................$    11  $    11  $     9  $     4  $    10  $     6   $     6  $     13  $     6
Current status:
   Overcollateralization amount..................$    11  $    11  $     9  $     4  $    10  $     5   $     4  $      8  $     4
   Final target reached or anticipated date to
     reach.......................................     Yes      Yes      Yes      Yes      Yes      Yes       Yes       Yes      Yes
   Stepdown reached or anticipated date to
     reach....................................... 10/2002  12/2002   7/2002      Yes   5/2002      Yes       Yes       Yes      Yes

Annual surety wrap fee...........................   0.21%    0.19%    0.19%    0.20%    0.20%    0.22%     0.23%     0.26%    0.18%

Servicing rights:
   Original balance..............................$    10  $    10  $     8  $     3  $     7  $     4   $     4  $      7  $     4
   Current balance...............................$     5  $     5  $     4  $     1  $     3  $     2   $     2  $      3  $     1

</TABLE>
(a) Amounts represent combined balances and weighted average percentages for
    two 1997 securitization pools and two 1996 securitization pools.

                                       25
<PAGE>

         The estimation of the fair value of interest-only strips is based upon
a discounted cash flow analysis which estimates the present value of the future
expected residual cash flows and overcollateralization cash flows utilizing
assumptions made by management at the time loans are sold. These assumptions
include the rates used to calculate the present value of expected future
residual cash flows and overcollateralization cash flows, referred to as the
discount rates, prepayment rates and credit loss rates on the pool of loans.
Our methodology for determining the discount rates, prepayment rates and credit
loss rates used to calculate the fair value of our interest-only strips is
described below.

         Discount rates. We use discount rates, which we believe are
commensurate with the risks involved in our securitization assets. While quoted
market prices on comparable interest-only strips are not available, we have
performed comparisons of our valuation assumptions and performance experience
to others in the non-conventional mortgage industry. We quantify the risks in
our securitization assets by comparing the asset quality and performance
experience of the underlying securitized mortgage pools to comparable industry
performance.

         In determining the discount rate applied to residual cash flows, we
believe that the practice of many companies in the non-conventional mortgage
industry has been to add an interest rate spread for risk to the all-in cost of
securitizations to determine their discount rates. The all-in cost of the
trusts' investor certificates includes the highest trust certificate
pass-through interest rate in each mortgage securitization, trustee fees, and
surety fees, which generally range from 19 to 22 basis points combined. From
industry experience comparisons, we have determined an interest rate spread,
which is added to the all-in cost of our mortgage loan securitization trusts'
investor certificates. The 13% discount rate that we apply to our residual cash
flow portion of our interest-only strips compared to rates used by others in the
industry reflects our higher asset quality and performance of our securitized
assets compared to industry asset quality and performance and the other
characteristics of our securitized loans described below:

         o    Underlying loan collateral with fixed yields, which are higher
              than others in the non-conventional mortgage industry. Average
              coupons of securitized loans exceed the industry average by 100
              basis points or more. All of our securitized loans have fixed
              interest rates, which are more predictable than adjustable rate
              loans.

         o    Approximately 90% to 95% of our business purpose loans have
              prepayment fees. Approximately 85% to 90% of our home equity loans
              have prepayment fees. Our historical experience indicates that
              prepayment fees lengthen the prepayment ramp periods and slow
              annual prepayment speeds, which have the effect of increasing the
              life of the loans securitized.

         o    A portfolio mix of first and second mortgage loans of 80-85% and
              15-20%, respectively. Historically, the high proportion of first
              mortgages has resulted in lower delinquencies and losses.

         o    A portfolio credit grade mix comprised of 62% A credits, 23% B
              credits, 13% C credits, and 2% D credits. In addition, our
              historical loss experience is below what is experienced by others
              in the non-conventional mortgage industry.

         Although market rates have declined in fiscal 2001 and 2002, no
reduction to the discount rate used to value the residual portion of our
interest-only strips has been made. We do not believe a decrease in the
discount rate is warranted as the current market interest rate decline was
mainly due to actions taken by the Federal Reserve Board in an attempt to
prevent the potential adverse effect of uncertain economic conditions and to
stimulate economic growth. Additionally, the mortgage lending industry
generally has taken no actions to reduce discount rates.

                                       26
<PAGE>

         We apply a second discount rate to projected cash flows from the
overcollateralization portion of our interest-only strips. The discount rate
applied to projected overcollateralization cash flows in each mortgage
securitization is based on the highest trust certificate pass-through interest
rate in the mortgage securitization. At March 31, 2002, the average discount
rate applied to projected overcollateralization cash flows was 7%. The risk
characteristics of the projected overcollateralization cash flows do not
include prepayment risk and have minimal credit risk. For example, if the
entire collateral balance in a securitized pool of loans would prepay, we would
fully recover our investment in overcollateralization. In addition,
historically, these overcollateralization balances have not been impacted by
credit losses as the residual cash flow portion of our interest-only strips has
always been sufficient to absorb credit losses. Stepdowns of
overcollateralization have generally occurred as scheduled.
Overcollateralization represents our investment in the excess collateral in a
securitized pool of mortgage loans. Overcollateralization serves as a form of
credit enhancement for trust investors.

         The blended discount rate used to value the interest-only strips,
including the overcollateralization cash flows, at March 31, 2002 was 10%.

         Prepayment rates. The assumptions we use to estimate future prepayment
rates are periodically compared to actual prepayment experience of the
individual securitization pool of mortgage loans and an average of the actual
experience of other similar pools of mortgage loans at the same number of months
after their inception. It is our practice to use an average historical
prepayment rate of similar pools for the expected constant prepayment rate
assumption while a pool of mortgage loans is less than a year old even though
actual experience may be different. During this ramp period, before a pool of
mortgage loans reaches its expected constant prepayment rate, actual experience
both quantitatively and qualitatively is generally not sufficient to conclude
that final actual experience for an individual pool of mortgage loans would be
materially different than the average. For pools of mortgage loans greater than
one year old, prepayment experience trends for the individual pool is considered
to be more significant and adjustments to prepayment assumptions may be made to
more closely conform the assumptions to actual experience if the variance from
average experience is significant and is expected to continue. Current economic
conditions, current interest rates and other factors are also considered in our
analysis.

         As was previously discussed, during the nine months ended March 31,
2002 our actual prepayment experience was generally higher, most significantly
on home equity loans, than our historical averages for prepayments, an
experience noted throughout the mortgage industry. Our recent increase in
prepayment experience has been mainly due to loan refinancings. We do not
believe that the current growth in the rate of refinancings is indicative of a
long-term trend in the non-conforming mortgage market. We believe this recent
activity was due to significant decreases in market interest rates which have
occurred over a short period of time which have generated a larger than normal
volume of refinancing activity during this period. Based on current economic
conditions including the stabilization of mortgage interest rates, published
mortgage industry surveys and our own decrease in payoff requests and
refinancing inquiries by our borrowers, we believe prepayments will return to
our historically normal levels in the future. We cannot predict with certainty
what our prepayment experience will be in the future and any unfavorable
difference between our assumptions used to value our interest-only strips and
our actual experience may have a significant adverse impact on the value of
these assets.

         Credit loss rates. Credit loss rates are analyzed in a similar manner
to prepayments. Credit loss assumptions are compared to actual loss experience
averages for similar loan pools and for individual loan pools. Delinquency
trends and economic conditions are also considered. If our periodic analysis
indicates that loss experience may be different than our assumptions, an
adjustment to our assumptions may be made to more closely conform the
assumptions to actual experience.

         Some of our securitization trusts have issued floating rate
certificates supported by fixed rate mortgages. The fair value of the excess
cash flow we will receive may be affected by any changes in the rates paid on
the floating rate certificates.


                                       27
<PAGE>

         The table below outlines the sensitivity of the current fair value of
our interest-only strips and servicing rights to 10% and 20% adverse changes in
the key assumptions used in determining the fair value of those assets. Our
base prepayment, loss and discount rates are described in the table "Summary of
Material Mortgage Loan Securitization Valuation Assumptions and Actual
Experience." (dollars in millions):

Securitized collateral balance                                   $2,864.6
Balance sheet carrying value of retained interests                 $608.3
Weighted-average collateral life (in years)                           4.1

Sensitivity of assumptions used to value retained interests:

Prepayment speed:
Impact on fair value for 10% adverse change.                        $23.6
Impact on fair value for 20% adverse change.                        $43.8

Credit Loss rate:
Impact on fair value for 10% adverse change.                        $ 3.7
Impact on fair value for 20% adverse change.                        $ 7.5

Floating Rate Debt (a):
Impact on fair value for 10% adverse change.                        $ 1.2
Impact on fair value for 20% adverse change.                        $ 2.5

Discount Rate:
Impact on fair value for 10% adverse change.                        $20.1
Impact on fair value for 20% adverse change.                        $39.0

(a)  The floating rate bonds are indexed to one-month London Inter-Bank Offered
     Rate ("LIBOR") plus a trust specific interest rate spread. The base
     one-month LIBOR rate assumption used in this sensitivity analysis was
     derived from a forward yield curve.

         The sensitivity analysis in the table above is hypothetical and should
be used with caution. As the figures indicate, changes in fair value based on a
10% or 20% variation in management's assumptions generally cannot easily be
extrapolated because the relationship of the change in the assumptions to the
change in fair value may not be linear. Also, in this table, the effect that a
change in a particular assumption may have on the fair value is calculated
without changing any other assumption. Changes in one assumption may result in
changes in other assumptions, which might magnify or counteract the impact of
the intended change.

         These sensitivities reflect the approximate amount of the fair value
that our interest-only strips and servicing rights would be reduced for the
indicated adverse changes. These reductions would result in a charge to expense
in the income statement in the period incurred and a resulting reduction of
stockholders' equity, net of income taxes.

         The residual assets of lease securitizations represent an immaterial
portion of the total residual assets and are therefore aggregated with mortgage
loans in the above sensitivity analysis.

                                       28
<PAGE>

         The following tables provide information regarding the initial and
current assumptions applied in determining the fair values of mortgage loan
related interest-only strips and servicing rights for each securitization
trust.

                Summary of Material Mortgage Loan Securitization
          Valuation Assumptions and Actual Experience at March 31, 2002
<TABLE>
<CAPTION>
                                             2002-1   2001-4   2001-3   2001-2  2001-1   2000-4   2000-3   2000-2  2000-1   1999-4
                                             ------   ------   ------   ------  ------   ------   ------   ------  ------   ------
<S>                                         <C>      <C>      <C>      <C>     <C>      <C>       <C>      <C>     <C>      <C>
Interest-only strip residual discount
   rate (a):
   Initial valuation.........................  13%      13%      13%      13%     13%      13%      13%      13%     11%      11%
   Current valuation.........................  13%      13%      13%      13%     13%      13%      13%      13%     13%      13%
Servicing rights discount rate:
   Initial valuation.........................  11%      11%      11%      11%     11%      11%      11%      11%     11%      11%
   Current valuation.........................  11%      11%      11%      11%     11%      11%      11%      11%     11%      11%

Prepayment rates:
   Initial assumption:
   Expected Constant Prepayment Rate (CPR):
     Business loans (c)......................  11%      11%      11%      11%     11%      10%      10%      10%     10%      10%
     Home equity loans.......................  22%      22%      22%      22%     22%      24%      24%      24%     24%      24%
   Ramp period (months) (b):
     Business loans..........................  27       27       24       24      24       24       24       24      24       24
     Home equity loans.......................  30       30       30       30      30       24       24       24      18       18
   Current assumptions:
   Expected Constant Prepayment Rate (CPR):
     Business loans (c) .....................  11%      11%      11%      11%     11%      11%      11%      12%     12%      11%
     Home equity loans ......................  22%      22%      22%      22%     22%      22%      22%      22%     22%      22%
   Ramp period (months) (b):
     Business loans..........................  27       27       27       27      27       27       27       27      27       27
     Home equity loans.......................  30       30       30       30      30       30       30       30      30       30
   CPR adjusted to reflect ramp:
     Business loans..........................   3%       5%       8%      10%     12%      15%      17%      20%     22%      22%
     Home equity loans.......................   2%      10%      14%      15%     17%      17%      17%      17%     18%      20%
   Current prepayment experience (d):
     Business loans..........................  --       --        2%       7%      6%      19%      29%      11%     15%      15%
     Home equity loans.......................  --       --       11%      20%     27%      38%      37%      34%     30%      30%

Annual credit loss rates:
   Initial assumption........................0.40%    0.40%    0.40%    0.40%   0.40%    0.40%    0.40%    0.40%   0.40%    0.30%
   Current assumption........................0.40%    0.40%    0.40%    0.40%   0.40%    0.40%    0.40%    0.40%   0.40%    0.30%
   Actual experience.........................  --       --       --       --    0.01%    0.01%    0.17%    0.11%   0.30%    0.25%

Servicing fees:
   Contractual fees..........................0.50%    0.50%    0.50%    0.50%   0.50%    0.70%    0.50%    0.50%   0.50%    0.50%
   Ancillary fees............................1.25%    1.25%    1.25%    1.25%   1.25%    1.25%    1.25%    1.25%   1.25%    1.25%
</TABLE>
(a) Projected cash flows from overcollateralization are discounted at the
    highest trust certificate pass-through interest rate for each securitization
    averaging 7% at March 31, 2002. See Summary of Selected Mortgage Loan
    Securitization Trust Information table for rates specific to each
    securitization.
(b) The prepayment ramp is the length of time before a pool of mortgage loans
    reaches its expected Constant Prepayment Rate. The business loan prepayment
    ramp begins at 3% in month one. The home equity loan prepayment ramp begins
    at 2% in month one.
(c) Rate is the estimated expected weighted average prepayment rate over the
    securitization's estimated remaining life. Business CPR ramps to an expected
    peak rate over 27 months then declines to the final expected CPR by month
    40.
(d) Rate is a six-month historical average.


                                       29
<PAGE>

                Summary of Material Mortgage Loan Securitization
   Valuation Assumptions and Actual Experience at March 31, 2002 (Continued)
<TABLE>
<CAPTION>
                                             1999-3   1999-2    1999-1   1998-4    1998-3   1998-2   1998-1   1997(f)  1996(f)
                                             ------   ------    ------   ------    ------   ------   ------   -------  -------
<S>                                         <C>      <C>       <C>       <C>       <C>      <C>      <C>      <C>      <C>
Interest-only strip residual discount
   rate (a):
   Initial valuation........................   11%       11%      11%      11%       11%      11%      11%      11%       11%
   Current valuation........................   13%       13%      13%      13%       13%      13%      13%      13%       13%
Servicing rights discount rate:
   Initial valuation........................   11%       11%      11%      11%       11%      11%      11%      11%       11%
   Current valuation........................   11%       11%      11%      11%       11%      11%      11%      11%       11%

Prepayment rates:
   Initial assumption:
   Expected Constant Prepayment Rate (CPR):
     Business loans (c).....................   10%       10%      10%      13%       13%      13%      13%      13%       13%
     Home equity loans......................   24%       24%      24%      24%       24%      24%      24%      24%       24%
   Ramp period (months) (b):
     Business loans.........................   24        24       24       24        24       24       24       24        24
     Home equity loans......................   18        18       18       12        12       12       12       12        12
   Current assumptions:
   Expected Constant Prepayment Rate (CPR):
     Business loans (c).....................   11%       11%      10%      10%       10%      15%      15%      10%       10%
     Home equity loans......................   22%       22%      22%      22%       22%      22%      22%      27%       20%
   Ramp period (months) (b):
     Business loans.........................   Na        Na       Na       Na        Na       Na       Na       Na        Na
     Home equity loans......................   30        30       30       Na        Na       Na       Na       Na        Na
   CPR adjusted to reflect ramp:
     Business loans(e)......................   19%       16%      13%      10%       14%      23%      19%      13%       10%
     Home equity loans(e)...................   22%       22%      22%      33%       27%      29%      25%      27%       20%
   Current prepayment experience (d):
     Business loans.........................   15%       26%      19%      20%       17%      36%      27%      15%        2%
     Home equity loans......................   29%       23%      26%      43%       31%      29%      25%      26%       18%

Annual credit loss rates:
   Initial assumption....................... 0.25%     0.25%    0.25%    0.25%     0.25%    0.25%    0.25%    0.25%     0.25%
   Current assumption....................... 0.30%     0.25%    0.35%    0.50%     0.45%    0.55%    0.45%    0.33%     0.35%
   Actual experience........................ 0.28%     0.24%    0.36%    0.48%     0.45%    0.51%    0.45%    0.32%     0.36%

Servicing fees:
   Contractual fees......................... 0.50%     0.50%    0.50%    0.50%     0.50%    0.50%    0.50%    0.50%     0.50%
   Ancillary fees........................... 1.25%     1.25%    1.25%    1.25%     1.25%    0.75%    0.75%    0.75%     0.75%
</TABLE>
(a)  Projected cash flows from overcollateralization are discounted at the
     highest trust certificate pass-through interest rate for each
     securitization averaging 7% at March 31, 2002. See Summary of Selected
     Mortgage Loan Securitization Trust Information table for rates specific to
     each securitization.
(b)  The prepayment ramp is the length of time before a pool of mortgage loans
     reaches its expected Constant Prepayment Rate. The business loan prepayment
     ramp begins at 3% in month one. The home equity loan prepayment ramp begins
     at 2% in month one.
(c)  Rate is the estimated expected weighted average prepayment rate over the
     securitization's estimated remaining life. Business CPR ramps to an
     expected peak rate over 27 months then declines to the final expected CPR
     by month 40.
(d)  Rate is a six-month historical average.
(e)  Business loan assumption ramps down from current rate to 10% remaining
     constant at 10% for Trusts 1997-2 through 1999-2. Home equity loan
     assumption ramps down from current rate to 22% remaining constant at 22%
     for Trusts 1998-3 and 1998-4.
(f)  Amounts represent weighted average percentages for two 1997 securitization
     pools and two 1996 securitization pools.
Na = not applicable

         Lease Securitizations. We have in the past securitized two pools of
leases. As of December 31, 1999, we de-emphasized the lease origination
business but continue to service the remaining leases in our managed portfolio.
The interest-only strips and servicing rights we retain on these securitized
pools represent less than 1% of our securitization residual assets at March 31,
2002.


                                       30
<PAGE>

         Servicing Rights. As the holder of servicing rights on securitized
loans, we are entitled to receive annual contractual servicing fees of 50 to 70
basis points which are paid out of accumulated mortgage loan payments before
payments of principal and interest are made to trust certificateholders. In
addition, ancillary fees such as prepayment fees, late charges, nonsufficient
fund fees and other fees are retained directly by us, as servicer, as payments
are collected from the borrowers. We also retain the interest paid on funds
held in trust collection accounts until these funds are distributed to trust
investors.

         The fair value of servicing rights is determined by computing the
benefits of servicing in excess of adequate compensation, which would be
required by a substitute servicer. The benefits of servicing are the present
value of projected net cash flows from contractual servicing fees and ancillary
servicing fees. These projections incorporate assumptions, including prepayment
rates, credit loss rates and discount rates. These assumptions are similar to
those used to value the interest-only strips retained in a securitization.
Periodically, capitalized servicing rights are evaluated for impairment, which
is measured as the excess of unamortized cost over fair value.

         The origination of a high percentage of loans with prepayment fees
impacts our servicing rights and income in two ways. Prepayment fees reduce the
likelihood of a borrower prepaying their loan. This results in prolonging the
length of time a loan is outstanding which increases the contractual servicing
fees to be collected over the life of the loan. Additionally, the terms of our
servicing agreements with the securitization trusts allow us to retain
prepayment fees collected from borrowers as part of our compensation for
servicing loans.

         In addition, although prepayments increased during the nine months
ended March 31, 2002 compared to our historical averages, we have generally
found that the non-conforming mortgage market is less sensitive to prepayments
due to changes in interest rates than the conventional mortgage market where
borrowers have more favorable credit history for the following reasons. First,
there are relatively few lenders willing to supply credit to non-conforming
borrowers which limits those borrowers' opportunities to refinance. Second,
interest rates available to non-conforming borrowers tend to adjust much slower
than conventional mortgage rates which reduces the non-conforming borrowers'
opportunity to capture economic value from refinancing.

         As a result of the use of prepayment fees and the reduced sensitivity
to interest rate changes in the non-conforming mortgage market, the prepayment
experience on our managed portfolio is more stable than the mortgage market in
general. This stability favorably impacts our ability to value the future cash
flows from our servicing rights and interest-only strips because it increases
the predictability of future cash flows. At March 31, 2002, servicing rights
totaled $118.2 million, compared to $102.4 million at June 30, 2001.

Whole Loan Sales

         We also sell loans with servicing released referred to as whole loan
sales. Gains on whole loan sales equal the difference between the net proceeds
from such sales and the loans' net carrying value. The net carrying value of
loans is equal to their principal balance plus unamortized origination costs
and fees. Gains from these sales are recorded as fee income. See
"--Securitizations" for information on the volume of whole loan sales and
premiums recorded for the three and nine-month periods ended March 31, 2002 and
2001.

                                       31
<PAGE>

RESULTS OF OPERATIONS

Overview

         For the third quarter of fiscal 2002, net income decreased $1.1
million, or 38.9%, to $1.8 million compared to $2.9 million in the third
quarter of fiscal 2001. Diluted earnings per common share decreased to $0.60 on
average common shares of 2,758,000 compared to $0.82 per share on average
common shares of 3,472,000 for the third quarter of fiscal 2001. Dividends of
$0.08 and $0.07 per share were paid for the quarters ended March 31, 2002 and
2001, respectively. The common dividend payout ratio based on diluted earnings
per share was 13.3% for the third quarter of fiscal 2002 compared to 8.5% for
the third quarter of fiscal 2001.

         For the nine months ended March 31, 2002, net income decreased $1.0
million, or 16.0%, to $5.6 million compared to $6.6 million for the same period
in fiscal 2001. Diluted earnings per share increased to $1.91 for the nine
months ended March 31, 2002, on average common shares of 2,911,000 compared to
$1.83 on average common shares of 3,628,000 for the same period in fiscal 2001.
The increase in earnings per share for the nine-month period was due to the
lower number of shares outstanding due to our repurchases of our common stock.

         Increases in the gain on sale recorded during the three and nine-month
periods were offset by increases in general and administrative expenses and
other expenses and an $8.7 million and $13.2 million valuation adjustment
recorded on interest-only strips during the three and nine-month periods ended
March 31, 2002, respectively. See below for further discussion of gain on sale,
general and administrative expenses, other expenses and the interest-only strips
valuation adjustments recorded during the periods.

         In fiscal 1999, the Board of Directors initiated a stock repurchase
program in view of the market price level of our common stock, which was at the
time and has continued to, trade at below book value. In addition, our earnings
growth over the past several years did not result in a corresponding increase in
the market value of our common stock. The repurchase program was extended in
fiscal 2002 to authorize the purchase of up to 10% of the then outstanding
shares which totaled approximately 2,661,000 shares at that date. The repurchase
program was completed in November 2001 and the Board of Directors authorized the
additional repurchase of up to 10% of the then outstanding shares. To date, we
have repurchased 43,000 shares under the current repurchase program.

         On October 1, 2001, the Company's Board of Directors declared a 10%
stock dividend paid on November 5, 2001 to shareholders of record on October
22, 2001. In conjunction with the Board's resolution, all outstanding stock
options and the related exercise prices were adjusted. Accordingly, all
outstanding shares, earnings per common share, dividend per share, average
common share and stock option amounts have been retroactively adjusted to
reflect the effect of the stock dividend.


                                       32
<PAGE>

Loan Originations

         The following schedule details our loan originations (in thousands):
<TABLE>
<CAPTION>
                                           Three Months Ended                     Nine Months Ended
                                                March 31,                             March 31,
                                       --------------------------          -----------------------------
                                          2002             2001                2002              2001
                                         ------           ------              ------            ------
<S>                                   <C>              <C>                 <C>                <C>
Business purpose loans.......         $   37,143       $   30,650          $    99,035        $   87,320
Home equity loans............            291,631          242,811              907,594           786,497
                                      ----------       ----------          -----------        ----------
                                      $  328,774       $  273,461          $ 1,006,629        $  873,817
                                      ==========       ==========          ===========        ==========
</TABLE>
         Loan originations for our subsidiary, American Business Credit, Inc.,
which offers business purpose loans secured by real estate, increased $11.7
million, or 13.4%, for the nine months ended March 31, 2002, to $99.0 million
from $87.3 million for the nine months ended March 31, 2001.

         Home equity loans originated by our subsidiaries, Upland Mortgage and
American Business Mortgage Services, and through the Bank Alliance Program,
increased $121.1 million, or 15.4%, for the nine months ended March 31, 2002,
to $907.6 million from $786.5 million for the nine months ended March 31, 2001.
The consumer mortgage group continues to focus on increasing efficiencies and
productivity gains made in fiscal 2001 by refining marketing techniques and
integrating technological improvements into the loan origination process.

                           Summary Financial Results
                  (dollars in thousands, except per share data)
<TABLE>
<CAPTION>
                                  Three Months Ended                           Nine Months Ended
                                      March 31,                                   March 31,
                                 -------------------        Percentage        --------------------       Percentage
                                                             Increase/                                    Increase/
                                 2002           2001        (Decrease)        2002            2001       (Decrease)
                                 ----           ----        ----------        ----            ----       ----------
<S>                            <C>           <C>           <C>             <C>             <C>           <C>
Total revenues..............   $65,435        $47,287         38.4%         $176,141        $130,225        35.3%
Total expenses..............    62,399         42,487         46.9%          166,533         119,166        39.7%
Net income..................     1,761          2,880        (38.9%)           5,573           6,635       (16.0%)

Return on average equity....     10.75%         16.83%                         11.20%          13.39%
Return on average assets....      0.82%          1.75%                          0.90%           1.38%

Earnings per share:
  Basic.....................     $0.64          $0.83        (22.9%)           $2.07           $1.86        11.3%
  Diluted...................     $0.60          $0.82        (26.8%)           $1.91           $1.83         4.4%
Dividends declared per
  share.....................     $0.08          $0.07         14.3%            $0.23           $0.21         9.5%
</TABLE>
         Total Revenues. For the third quarter of fiscal 2002, total revenues
increased $18.1 million, or 38.4%, to $65.4 million from $47.3 million for the
third quarter of fiscal 2001. For the first nine months of fiscal 2002, total
revenues increased $45.9 million, or 35.3%, to $176.1 million from $130.2
million for the first nine months of fiscal 2001. Growth in total revenues for
both periods was mainly the result of increases in gains on the securitization
of mortgage loans and increases in interest accretion earned on our
interest-only strips.

                                       33
<PAGE>

         Gain on Sale of Loans. Gain on sale of loans increased $14.8 million,
or 43.0%, to $49.2 million on the securitization of $340.8 million of loans for
the third quarter of fiscal 2002 from $34.4 million on the securitization of
$263.6 million of loans in the third quarter of fiscal 2001. For the nine months
ended March 31, 2002, gains of $129.1 million were recorded on the
securitization of $1.0 billion of loans. This represents an increase of $37.6
million, or 41.1% over gains of $91.5 million recorded on securitizations of
$804.4 million of loans for the nine months ended March 31, 2001.

         The increase in securitization gains for the three and nine months
ended March 31, 2002 was due to both an increase in interest rate spreads and
an increase in the volume of loans securitized. The securitization gain as a
percentage of loans securitized increased to 13.3% for the nine months ended
March 31, 2002 from 11.4% on loans securitized for the nine months ended March
31, 2001. Increases in interest rate spreads increase expected residual cash
flows to us and result in increases in the gains we recognize on the sale of
loans into Securitizations. See "-- Securitizations" for further detail of how
securitization gains are calculated.

         The increase in interest rate spread for the nine months ended March
31, 2002 compared to the nine months ended March 31, 2001 resulted from
decreases in pass-through interest rates on investor certificates issued by
securitization trusts. For loans securitized during the nine months ended March
31, 2002, the average loan coupon was 11.38%, a 0.63% decrease from 12.01% on
loans securitized during the nine months ended March 31, 2001. However, the
average interest rate on trust certificates issued in mortgage loan
securitizations during the nine months ended March 31, 2002 was 5.57%, a 1.10%
decrease from 6.67% during the nine months ended March 31, 2001. The resulting
net improvement in interest rate spread was approximately 47 basis points.

         Also contributing to the increase in the securitization gain
percentages for the three and nine-month periods ended March 31, 2002, was the
increase in the amount of cash received at the closing of our securitizations.
The improvement in the interest rate spread this fiscal year enabled us to
enter into securitization transactions structured to provide additional cash at
the closing of the securitization through the sale of trust certificates to
investors at a premium, or through the sale of notional bonds. During the nine
months ended March 31, 2002 we received additional cash at the closing of our
securitizations, due to these modified structures, of $19.4 million.

         Interest and Fees. Interest and fee income for the third quarter of
fiscal 2002 remained level at $5.3 million compared to the third quarter of
fiscal 2001. For the nine months ended March 31, 2002, interest and fee income
increased $0.2 million, or 1.2%, to $16.8 million compared to $16.6 million for
the nine months ended March 31, 2001. Interest and fee income consists
primarily of interest income earned on available for sale loans, premiums
earned on whole loan sales and other ancillary fees collected in connection
with loans and leases.

         Interest income for the third quarter of fiscal 2002 decreased $0.3
million, or 11.1%, to $2.4 million from $2.7 million for the third quarter of
fiscal 2001. During the nine months ended March 31, 2002, interest income
decreased $0.3 million, or 4.2%, to $7.5 million from $7.8 million for the nine
months ended March 31, 2001. The decrease in the third quarter was due to a
lower weighted average coupon on loans available for sale from the prior fiscal
year and lower rates earned on invested cash balances due to general decreases
in market interest rates. This decrease was partially offset by the effect of a
modification of the terms of our securitization beginning in the second quarter
of fiscal 2001, which allowed us to retain interest income we had accrued up
until the point of the sale. Prior to the second quarter of fiscal 2001, all
accrued interest income was retained by the securitization trust when
collected.

         For the third quarter of fiscal 2002, premiums on whole loan sales
remained level with the third quarter of fiscal 2001 at $0.5 million. Premiums
on whole loan sales increased $0.9 million, to $2.4 million for the nine months
ended March 31, 2002 from $1.5 million for the nine months ended March 31,
2001. The volume of whole loan sales increased 11.8%, to $55.9 million for the
nine months ended March 31, 2002 from $50.0 million for the nine months ended
March 31, 2001. In addition to increases in the volume of whole loan sales, the
average premium earned on whole loan sales increased during the nine-month
period due to the general reduction in market interest rates.

                                       34
<PAGE>

         Other fees increased $0.2 million for the quarter ended March 31, 2002
compared to the prior year. Other fees decreased $0.4 million for the nine
months ended March 31, 2002 from the prior year mainly due to the decrease in
fees collected in connection with our leasing portfolio. Our leasing portfolio
has decreased due to our decision in fiscal 1999 to discontinue the origination
of new leases.

         Interest Accretion on Interest-Only Strips. Interest accretion of $9.5
million and $25.9 million was earned in the three and nine-month periods ended
March 31, 2002, respectively, compared to $6.4 million and $17.9 million in the
three and nine-month periods ended March 31, 2001, respectively. The increase
reflects the growth in the balance of our interest-only strips of $112.9
million, or 29.9%, to $490.1 million at March 31, 2002 from $377.2 million at
March 31, 2001. In addition, cash flows from interest-only strips for the nine
months ended March 31, 2002 increased $13.7 million, or 24.0%, from the same
period of fiscal 2001 due to the larger size of our more recent securitizations
and additional securitizations reaching final target overcollateralization
levels.

         Servicing Income. Servicing income is comprised of contractual and
ancillary fees collected on securitized loans less amortization of the
servicing rights assets that are recorded at the time loans are securitized.
Ancillary fees include prepayment fees, late fees and other servicing fee
compensation. For the three months ended March 31, 2002, servicing income
increased $0.2 million, or 14.8%, to $1.3 million from $1.1 million for the
three months ended March 31, 2001. For the nine months ended March 31, 2002,
servicing income decreased $0.1 million, or 1.4%, to $4.2 million from $4.3
million for the nine months ended March 31, 2001.

         The following table summarizes the components of servicing income for
the three and nine-month periods ended March 31, 2002 and 2001 (in thousands):
<TABLE>
<CAPTION>
                                                  Three Months Ended           Nine Months Ended
                                                      March  31,                  March 31,
                                             ----------------------------  --------------------------
                                                2002           2001           2002          2001
                                             ------------ ---------------  ------------ -------------
<S>                                          <C>          <C>              <C>          <C>
Contractual and ancillary fees...............$    9,150   $       6,356    $     25,830 $     17,684
Amortization of servicing rights.............    (7,868)         (5,239)        (21,614)     (13,406)
                                             ----------   -------------    ------------ ------------
                                             $    1,282   $       1,117    $      4,216 $      4,278
                                             ==========   =============    ============ ============
</TABLE>
         Total Expenses. Total expenses increased $19.9 million, or 46.9%, to
$62.4 million for the three months ended March 31, 2002 compared to $42.5
million for the three months ended March 31, 2001. Total expenses increased
$47.4 million, or 39.7%, to $166.5 million for the nine months ended March 31,
2002 compared to $119.2 million for the nine months ended March 31, 2001. As
described in more detail below, these increases were mainly a result of
increased interest expense attributable to the issuance of additional
subordinated debt, increases in employee related costs, increases in general
and administrative expenses, and $13.2 million interest-only strips valuation
adjustments recorded during the nine-month period ended March 31, 2002.

         Interest Expense. For the third quarter of fiscal 2002, interest
expense increased $3.0 million, or 21.4%, to $17.2 million from $14.2 million
for the third quarter of fiscal 2001. The increase was attributable to an
increase in the amount of subordinated debt outstanding which was partially
offset by a reduction in the average interest rate paid on both subordinated
debt and warehouse lines of credit during the third quarter of fiscal 2002. The
proceeds from the subordinated debt were used to repay existing debt, to fund
loan originations and our operations, and for general corporate purposes,
including repurchases of our common stock. Average subordinated debt
outstanding during the three months March 31, 2002 was $628.9 million compared
to $454.9 million during the three months ended March 31, 2001. Average
interest rates paid on subordinated debt outstanding were 10.5% during the
three months ended March 31, 2002 compared to 11.0% during the three months
ended March 31, 2001.

                                       35
<PAGE>

         During the first nine months of fiscal 2002 interest expense increased
$10.4 million, or 25.5%, to $51.5 million from $41.0 million for the nine
months ended March 31, 2001. Average subordinated debt outstanding during the
nine months ended March 31, 2002 was $603.2 million compared to $427.8 during
the nine months ended March 31, 2001. Average interest rates paid on
subordinated debt outstanding decreased to 10.8% during the nine months ended
March 31, 2002 from 10.9% during the nine months ended March 31, 2001.

         Rates offered on subordinated debt were reduced beginning in the
fourth quarter of fiscal 2001 and have continued downward in fiscal 2002 in
response to decreases in market interest rates as well as our lower cash needs.
The average rate of subordinated debt at its peak which was February 2001 was
11.85% compared to the average rate of subordinated debt offered in March 2002
of 7.76%. As the higher rate notes mature, we expect the average rate paid on
subordinated debt to decline provided that market rates do not significantly
increase.

         The increase in interest expense for the three and nine-month periods
ended March 31, 2002 related to subordinated debt was partially offset by the
impact of a decrease in the average outstanding balances under warehouse lines
of credit and decreased interest rates paid on warehouse lines. The average
outstanding balances under warehouse lines of credit were $22.3 million during
the three months ended March 31, 2002, compared to $49.1 million during the
three months ended March 31, 2001. The average outstanding balances under
warehouse lines of credit were $26.7 million during the nine months ended March
31, 2002, compared to $54.2 million during the nine months ended March 31, 2001.
This decrease was due to the increased utilization of our available cash
balances and proceeds from the sale of subordinated debt to fund loan
originations and greater utilization of an off-balance sheet mortgage conduit
facility for the sale of loans. Interest rates paid on warehouse lines are
generally based on LIBOR plus an interest rate spread. LIBOR has decreased from
approximately 5.1% at March 31, 2001 to 1.9% at March 31, 2002.

         Provision for Credit Losses. The provision for credit losses for the
quarter ended March 31, 2002 increased to $1.7 million as compared to $1.2
million for the quarter ended March 31, 2001. The provision for credit losses
on available for sale loans and leases for the nine months ended March 31, 2002
increased $1.8 million, or 68.9%, to $4.4 million, compared to $2.6 million for
the nine months ended March 31, 2001. The increase in the provision for credit
losses was primarily due to increases in loans in non-accrual status, which
were generally repurchased from securitization trusts, and increases in
delinquent loans and leases held as available for sale. Non-accrual loans were
$8.8 million and $4.1 million at March 31, 2002 and 2001, respectively.
Delinquent loans and leases held as available for sale were $7.9 million, $3.4
million and $2.1 million at March 31, 2002, June 30, 2001 and March 31, 2001,
respectively. See "--Managed Portfolio Quality" for further detail.

         While we are under no obligation to do so, at times we elect to
repurchase delinquent loans from the securitization trusts, some of which may
be in foreclosure. We elect to repurchase loans in situations requiring more
flexibility for the administration and collection of these loans in order to
maximize their economic recovery and to avoid temporary discontinuations of
residual or stepdown overcollateralization cash flow from securitization
trusts. Under the terms of the securitization agreements, repurchases are
permitted only for delinquent loans and the purchase prices are at the loans'
outstanding contractual balance. A foreclosed loan is one where we, as
servicer, have initiated formal foreclosure proceedings against the borrower
and a delinquent loan is one that is 30 days or more past due. The foreclosed
and delinquent loans we typically elect to repurchase are usually 90 days or
more delinquent and the subject of completed foreclosure proceedings, or where
a completed foreclosure is imminent. The related allowance for loan losses on
these repurchased loans are included in our provision for credit losses in the
period of repurchase. Our ability to repurchase these loans does not disqualify
us for sale accounting under SFAS No. 125 or SFAS No. 140, which was adopted on
a prospective basis in the fourth quarter of fiscal 2001, or other relevant
accounting literature because we are not required to repurchase any loan and
our ability to repurchase a loan is limited.

                                       36
<PAGE>

         SFAS No. 140 was effective on a prospective basis for transfers and
servicing of financial assets and extinguishments of liabilities occurring
after March 31, 2001. The new standard requires that we record an obligation to
repurchase loans from securitization trusts at the time we have the contractual
right to repurchase the loans, whether or not we actually repurchase them. For
securitization trusts 2001-2 and forward, to which this rule applies, we have
the contractual right to repurchase a limited amount of loans greater than 180
days past due.

         The following table summarizes the principal balances of loans we have
repurchased from the mortgage loan securitization trusts for the nine months
ended March 31, 2002 and the years ended June 30, 2001 and 2000. All loans were
repurchased at the contractual outstanding balances at the time of repurchase.
Mortgage loan securitization trusts are listed only if loan repurchases have
occurred.



                                       37
<PAGE>

      Summary of Loans Repurchased from Mortgage Loan Securitization Trusts
                             (dollars in thousands)
<TABLE>
<CAPTION>
                                        2000-3    2000-2   2000-1    1999-3   1999-2   1999-1    1998-4   1998-3
                                        ------    ------   ------    ------   ------   ------    ------   ------
<S>                                     <C>       <C>      <C>       <C>      <C>      <C>       <C>      <C>
Nine months ended March 31, 2002:
   Business loans...................... $   --    $   --   $   --    $  271   $  341   $  259    $  632   $  260
   Home equity loans...................                        60     1,805    1,600    1,429     4,649    3,920
                                        ------    ------   ------    ------   ------   ------    ------   ------
     Total............................. $   --    $   --   $   60    $2,076   $1,941   $1,688    $5,281   $4,180
                                        ======    ======   ======    ======   ======   ======    ======   ======
   Number of loans repurchased.........     --        --        1        24       18       20        58       42

Year ended June 30, 2001:
   Business loans...................... $   --    $   --   $   --    $   --   $   --   $   --    $  173   $  803
   Home equity loans...................     88       330       --        --       --       --     1,310    3,886
                                        ------    ------   ------    ------   ------   ------    ------   ------
      Total............................ $   88    $  330   $   --    $   --   $   --   $   --    $1,483   $4,689
                                        ======    ======   ======    ======   ======   ======    ======   ======
   Number of loans repurchased.........      1         2       --        --       --       --        10       48

Year ended June 30, 2000:
   Business loans...................... $   --    $   --   $   --    $  101   $   --   $   --    $   --   $   --
   Home equity loans...................     --        --      167        --       --       --       363      106
                                        ------    ------   ------    ------   ------   ------    ------   ------
     Total............................. $   --    $   --   $  167    $  101   $   --   $   --    $  363   $  106
                                        ======    ======   ======    ======   ======   ======    ======   ======
   Number of loans repurchased.........     --        --        3         1       --       --         3        1


(Continued)                             1998-2    1998-1   1997-2    1997-1   1996-2   1996-1     Total
                                        ------    ------   ------    ------   ------   ------     -----
Nine months ended March 31, 2002:
   Business loans...................... $  516    $1,266   $1,355    $   --   $   --   $  104    $ 5,004
   Home equity loans...................  1,444     1,690      154       239       60       66     17,116
                                        ------    ------   ------    ------   ------   ------    -------
     Total............................. $1,960    $2,956   $1,509    $  239   $   60   $  170    $22,120
                                        ======    ======   ======    ======   ======   ======    =======
   Number of loans repurchased.........     22        36       14         6        1        2        244


Year ended June 30, 2001:
   Business loans...................... $  215    $  428   $2,252    $   --   $  380   $  250    $ 4,501
   Home equity loans...................  1,284     1,686    1,764        --       92      109     10,549
                                        ------    ------   ------    ------   ------   ------    -------
      Total............................ $1,499    $2,114   $4,016    $   --   $  472   $  359    $15,050
                                        ======    ======   ======    ======   ======   ======    =======
   Number of loans repurchased.........     13        31       37        --        8        4        154

Year ended June 30, 2000:
   Business loans...................... $  827    $   --   $  153    $2,441   $  337   $  259    $ 4,118
   Home equity loans...................  2,588       165       84     1,123      114       --      4,710
                                        ------    ------   ------    ------   ------   ------    -------
     Total............................. $3,415    $  165   $  237    $3,564   $  451   $  259    $ 8,828
                                        ======    ======   ======    ======   ======   ======    =======
   Number of loans repurchased.........     24         1        6        35        6        1         81
</TABLE>
         The allowance for credit losses was $3.3 million, or 5.1% of gross
receivables, at March 31, 2002 compared to $2.5 million, or 2.9% of gross
receivables, at June 30, 2001. This increase was due to an additional provision
for delinquent and non-accrual loans. Although we maintain an allowance for
credit losses at the level we consider adequate to provide for potential losses,
there can be no assurances that actual losses will not exceed the estimated
amounts or that an additional provision will not be required.

                                       38
<PAGE>

         The following tables summarize the changes in the allowance for credit
losses by loan and lease type for the three and nine-month periods ended March
31, 2002 and 2001 (in thousands):
<TABLE>
<CAPTION>
                                                  Business
                                                  Purpose         Home Equity       Equipment
Three Months Ended March 31, 2002:                 Loans             Loans            Leases         Total
-----------------------------------------        ---------       -------------      ----------      -------
<S>                                              <C>                <C>              <C>           <C>
Balance at beginning of period...........        $    801           $  1,739         $   338       $   2,878
Provision for credit losses..............             242                823             663           1,728
(Charge-offs) recoveries, net............            (140)              (493)           (676)         (1,309)
                                                 --------           --------         -------       ---------
Balance at end of period.................        $    903           $  2,069         $   325       $   3,297
                                                 ========           ========         =======       =========

                                                  Business
                                                  Purpose         Home Equity       Equipment
Nine Months Ended March 31, 2002:                  Loans             Loans            Leases         Total
-----------------------------------------        ---------       -------------      ----------      -------
Balance at beginning of period...........        $    591           $  1,473         $   416       $   2,480
Provision for credit losses..............           1,134              2,368             932           4,434
(Charge-offs) recoveries, net............            (822)            (1,772)         (1,023)         (3,617)
                                                 --------           --------         -------       ---------
Balance at end of period.................        $    903           $  2,069         $   325       $   3,297
                                                 ========           ========         =======       =========

                                                  Business
                                                  Purpose         Home Equity       Equipment
Three Months Ended March 31, 2001:                 Loans             Loans            Leases         Total
-----------------------------------------        ---------       -------------      ----------      -------
Balance at beginning of period...........        $    520           $    952         $   467       $   1,939
Provision for credit losses..............             626                204             387           1,217
(Charge-offs) recoveries, net............            (685)              (253)           (445)         (1,383)
                                                 --------           --------         -------       ---------
Balance at end of period.................        $    461           $    903         $   409       $   1,773
                                                 ========           ========         =======       =========

                                                  Business
                                                  Purpose         Home Equity       Equipment
Nine Months Ended March 31, 2001:                  Loans             Loans            Leases         Total
-----------------------------------------        ---------       -------------      ----------      -------
Balance at beginning of period...........        $    462           $    507         $   320       $   1,289
Provision for credit losses..............             748                883             994           2,625
(Charge-offs) recoveries, net............            (749)              (487)           (905)         (2,141)
                                                 --------           --------         -------       ---------
Balance at end of period.................        $    461           $    903         $   409       $   1,773
                                                 ========           ========         =======       =========
</TABLE>
         Employee Related Costs. For the third quarter of fiscal 2002, employee
related costs increased $2.3 million, or 31.2%, to $9.5 million, from $7.2
million in the third quarter of fiscal 2001. For the nine months ended March
31, 2002, employee related costs increased $4.7 million, or 22.0%, to $26.0
million from $21.3 million in the prior year. The increase in both periods was
primarily attributable to additions of personnel primarily in the loan
servicing and collections areas to service the larger managed portfolio. Total
employees at March 31, 2002 were 968 compared to 864 at March 31, 2001. The
remaining increase was attributable to annual salary increases as well as
increases in the costs of providing insurance benefits to employees.

         Sales and Marketing Expenses. For the third quarter of fiscal 2002,
sales and marketing expenses increased $0.3 million, or 5.2%, to $6.5 million
from $6.2 million for the third quarter of fiscal 2001. Expenses for direct
mail advertising related to loan originations increased $0.9 million for the
third quarter of fiscal 2002, compared to the prior year third quarter. This
increase was partially offset by a decrease of $0.6 million in advertising
costs.

                                       39
<PAGE>

         For the nine months ended March 31, 2002, sales and marketing expenses
increased $1.0 million, or 5.6%, to $18.9 million from $17.9 million for the
nine months ended March 31, 2001. Expenses for direct mail advertising for loan
originations increased $3.2 million for the nine months ended March 31, 2002,
compared to the prior year nine-month period. This increase was partially
offset by a decrease of $2.2 million in newspaper advertising.

         General and Administrative Expenses. For the third quarter of fiscal
2002, general and administrative expenses increased $5.1 million, or 37.2%, to
$18.8 million from $13.7 million for the third quarter of fiscal 2001. The
increase for the third quarter was primarily attributable to increases of
approximately $3.9 million in costs associated with servicing and collection of
our larger total managed portfolio including expenses associated with REO and
delinquent loans. We expect the cost associated with servicing and collecting
our managed portfolio will increase as the size of the managed portfolio
increases. In addition, we incurred increases of $0.3 million in costs related
to the issuance of our subordinated debt and $0.2 million in costs for business
insurance.

         For the nine months ended March 31, 2002, general and administrative
expenses increased $16.3 million, or 44.8%, to $52.6 million from $36.3 million
for the nine months ended March 31, 2001. The increase for nine months was
primarily attributable to increases of approximately $13.1 million in costs
associated with servicing and collection of our larger total managed portfolio
including expenses associated with REO and delinquent loans, in addition to
increases of $1.2 million in costs related to the issuance of our subordinated
debt, $0.5 million in depreciation expense and $0.4 million in business
insurance expense.

         Interest-Only Strips Valuation Adjustment. During the third quarter of
fiscal 2002, a write down of $8.7 million was recorded on our interest-only
strips. During the first nine months of fiscal 2002, a write down of $13.2
million was recorded on our interest-only strips. This adjustment reflects the
impact of higher prepayment experience on home equity loans than anticipated
during the periods. The impact of increased prepayments were considered to be
other than temporary and were therefore recorded as an adjustment to earnings
in the current period in accordance with SFAS No. 115 and EITF 99-20.
See"--Securitizations" for further detail of this adjustment.

         Provision for income taxes. In fiscal 2002, our effective tax rate
increased to 42% from 40% in fiscal 2001 due to increased state tax
liabilities. As a result of our geographic expansion, we have increased the
number of states we were doing significant business in and have increased our
tax provision for tax liabilities in certain states.


                                       40
<PAGE>

BALANCE SHEET INFORMATION

Balance Sheet Data:
(in thousands, except per share data)
<TABLE>
<CAPTION>
                                                                                   March 31,       June 30,
                                                                                     2002           2001
                                                                                 ----------       ---------
<S>                                                                              <C>              <C>
Cash and cash equivalents....................................................    $  131,560       $  91,092
Loan and lease receivables, net:
   Available for sale........................................................        67,547          83,241
   Interest, fees and other..................................................        13,333          16,549
Interest-only strips.........................................................       490,147         398,519
Servicing rights.............................................................       118,194         102,437
Receivables for sold loans ..................................................         8,216          14,157
Total assets.................................................................       885,346         766,487

Subordinated debt............................................................       640,736         537,950
Warehouse lines and other notes payable......................................        41,123          51,064
Total liabilities............................................................       818,174         699,625
Total stockholders' equity...................................................        67,172          66,862

Book value per common share..................................................    $    25.99       $   22.52
Total liabilities to tangible equity (c).....................................         15.7x           13.5x
Adjusted debt to tangible equity (a)(c)......................................         11.8x           10.2x
Subordinated debt to tangible equity (c).....................................         12.3x           10.4x
Interest-only strips to adjusted  tangible equity (b)(c).....................          4.2x            3.5x
</TABLE>
(a)  Total liabilities less cash and secured borrowings to tangible equity.
(b)  Interest-only strips less overcollateralization to tangible equity plus
     subordinated debt with a remaining maturity greater than 5 years.
(c)  Tangible equity is calculated as total stockholders' equity less goodwill.

         Total assets increased $118.9 million, or 15.5%, to $885.3 million at
March 31, 2002 from $766.5 million at June 30, 2001 primarily due to increases
in cash and cash equivalents, interest-only strips and servicing rights which
were offset by decrease in loan and lease receivables available for sale and
receivables for sold loans.

         Cash and cash equivalents increased $40.5 million, or 44.4%, due to
receipts from sales of subordinated debt and cash receipts from our
interest-only strips.

                                       41
<PAGE>
         Activity of our interest-only strips for the nine months ended March
31, 2002 and 2001 was as follows (in thousands):
<TABLE>
<CAPTION>
                                                                                March 31,
                                                                         -----------------------
                                                                          2002             2001
                                                                         ------           ------
<S>                                                                    <C>             <C>
 Balance at beginning of period...................................     $ 398,519       $ 277,872
 Initial recognition of interest-only strips, including initial
   overcollateralization of $0 and $341...........................       112,869          95,875
 Interest accretion...............................................        25,920          17,857
 Required purchases of additional overcollateralization...........        35,468          31,726
 Cash flow from interest-only strips..............................       (70,729)        (57,039)
 Net adjustments to fair value....................................         1,253          10,899
 Other than temporary fair value adjustment.......................       (13,153)             --
                                                                       ---------       ---------
 Balance at end of period.........................................     $ 490,147       $ 377,190
                                                                       =========       =========
</TABLE>
         The following table summarizes the purchases of overcollateralization
by trust for the nine months ended March 31, 2002 and the years ended June 30,
2001 and 2000. See "-- Securitizations" for a discussion of
overcollateralization requirements.


     Summary of Mortgage Loan Securitization Overcollateralization Purchases
                             (dollars in thousands)
<TABLE>
<CAPTION>
                                    2001-4   2001-3  2001-2   2001-1   2000-4   2000-3   2000-2  2000-1   Other     Total
                                    ------   ------  ------   ------   ------   ------   ------  ------   -----     -----
<S>                                <C>       <C>      <C>      <C>      <C>      <C>      <C>      <C>     <C>       <C>
Nine Months Ended March 31, 2002:
Required purchases of additional
   overcollateralization...........$    --   $1,065  $8,994   $8,258   $6,326   $2,865   $4,643  $2,490   $  827   $35,468



                                    2001-2   2001-1  2000-4   2000-3   2000-2   2000-1   1999-4  1999-3   1999-2    Other   Total
                                    ------   ------  ------   ------   ------   ------   ------  ------   ------    -----   -----
Year Ended June 30, 2001:
Initial overcollateralization......$    --   $   --  $   --   $   --  $   611   $   --   $   --  $   --   $   --    $  --  $   611
Required purchases of additional
   overcollateralization...........    959    2,574   6,049    4,051   10,160    7,519    5,960   3,719    2,316      638   43,945
                                   -------   ------  ------   ------  -------   ------   ------  ------   ------    -----  -------
   Total...........................$   959   $2,574  $6,049   $4,051  $10,771   $7,519   $5,960  $3,719   $2,316    $ 638  $44,556
                                   =======   ======  ======   ======  =======   ======   ======  ======   ======    =====  =======

                                    Off-
                                   Balance
                                   Sheet
                                 Facilities  2000-2  2000-1   1999-4   1999-3   1999-2   1999-1  1998-4   1998-3    Total
                                 ----------  ------  ------   ------   ------   ------   ------  ------   ------    -----
Year Ended June 30, 2000:
Initial overcollateralization......$2,909    $2,114  $1,776   $2,222   $2,211   $   --   $  --   $   --   $   --   $11,232
Required purchases of
additional overcollateralization...    --        --   2,303    4,040    5,125    7,585    6,601   1,348    2,923    29,925
                                   ------    ------  ------   ------   ------   ------   ------  ------   ------   -------
   Total...........................$2,909    $2,114  $4,079   $6,262   $7,336   $7,585   $6,601  $1,348   $2,923   $41,157
                                   ======    ======  ======   ======   ======   ======   ======  ======   ======   =======
</TABLE>
         Servicing rights increased $15.8 million, or 15.4%, to $118.2 million
at March 31, 2002 from $102.4 at June 30, 2001 due to the securitization of
$1.0 billion of loans during the period offset by amortization of the servicing
asset for fees collected during the period.

         Loans and lease receivables decreased $15.7 million or 18.9% due to
the securitization of more loans than were originated during the period.
Receivables for sold loans decreased $5.9 million, or 42.0%, due to a greater
emphasis placed on securitizing loans rather than selling loans on a whole loan
basis during the quarter.

                                       42
<PAGE>

         Total liabilities increased $118.5 million, or 16.9%, to $818.2 million
from $699.6 million at June 30, 2001 primarily due to increases in subordinated
debt outstanding, accrued interest payable and other liabilities offset by a
decrease in warehouse lines and other notes payable.

         For the first nine months of fiscal 2002 subordinated debt increased
$102.8 million, or 19.1%, to $640.7 million due to sales of subordinated debt
used to repay existing debt, to fund loan originations and our operations and
for general corporate purposes including, but not limited to, repurchases of our
outstanding common stock. Subordinated debt was 12.3 times tangible equity at
March 31, 2002, compared to 10.4 times as of June 30, 2001. See "-- Liquidity
and Capital Resources" for further information regarding outstanding debt.
Accrued interest payable increased $11.7 million, or 35.8%, to $44.4 million
from $32.7 million at June 30, 2001 primarily due to an increase in the level
of subordinated debt.

         Other liabilities increased $8.9 million, or 23.0%, due to increases in
obligations for securitized loans subject to removal of accounts provisions.
Warehouse lines and other notes payable decreased $9.9 million due to the lower
balance of loan receivables held at March 31, 2002.


                                       43
<PAGE>

Managed Portfolio Quality

     The following table provides data concerning delinquency experience, REO
and loss experience for the managed loan and lease portfolio (dollars in
thousands):
<TABLE>
<CAPTION>
                                         March 31, 2002            December 31, 2001        September 30, 2001
                                    -----------------------     --------------------      ---------------------
Delinquency by Type                     Amount        %            Amount       %            Amount       %
                                    -------------- --------     ------------- ------      ------------- -------
<S>                                 <C>            <C>           <C>           <C>        <C>           <C>
Business Purpose Loans
Total managed portfolio............. $    347,879                $   329,594               $   314,076
                                     ============                ===========               ===========
Period of delinquency:
    31-60 days...................... $      2,932     0.84%      $     3,693   1.12%       $     2,626    0.84%
    61-90 days......................        2,577     0.74             3,031   0.92              3,100    0.99
    Over 90 days....................       31,371     9.02            27,605   8.38             26,958    8.58
                                     ------------    -----       -----------  -----        -----------   -----
    Total delinquencies............. $     36,880    10.60%      $    34,329  10.42%       $    32,684   10.41%
                                     ============   ======       =========== ======        ===========  ======
REO................................. $      8,227                $     7,207               $     5,408
                                     ============                ===========               ===========
Home Equity Loans
Total managed portfolio............. $  2,551,902                $ 2,472,365               $ 2,336,007
                                     ============                ===========               ===========
Period of delinquency:
    31-60 days...................... $     37,700     1.48%      $    38,538   1.56%       $    29,477    1.26%
    61-90 days......................       18,385     0.72            24,054   0.97             23,519    1.01
    Over 90 days....................       79,138     3.10            73,725   2.98             58,681    2.51
                                     ------------    -----       -----------  -----        -----------   -----
    Total delinquencies............. $    135,223     5.30%      $   136,317   5.51%       $   111,677    4.78%
                                     ============   ======       =========== ======        ===========  ======
REO................................. $     29,212                $    28,596               $    24,662
                                     ============                ===========               ===========
Equipment Leases
Total managed portfolio............. $     36,381                $    45,619               $    55,299
                                     ============                ===========               ===========
Period of delinquency:
     31-60 days......................$        506     1.38%      $     1,383   3.03%       $     1,179    2.13%
     61-90 days......................         173     0.48               524   1.15                530    0.96
     Over 90 days....................         632     1.74               602   1.32                700    1.27
                                     ------------    -----       -----------  -----        -----------   -----
     Total delinquencies.............$      1,311     3.60%      $     2,509   5.50%       $     2,409    4.36%
                                     ============   ======       =========== ======        ===========  ======
Combined
Total managed portfolio............. $  2,936,162                $ 2,847,578               $ 2,705,382
                                     ============                ===========               ===========

Period of delinquency:
    31-60 days...................... $     41,138     1.40%      $    43,614   1.53%       $    33,282    1.23%
    61-90 days......................       21,135     0.72            27,609   0.97             27,149    1.00
    Over 90 days....................      111,141     3.79           101,932   3.58             86,339    3.19
                                     ------------    -----       -----------  -----        -----------   -----
    Total delinquencies............. $    173,414     5.91%      $   173,155   6.08%       $   146,770    5.42%
                                     ============   ======       =========== ======        ===========  ======
REO................................. $     37,439     1.28%      $    35,803   1.26%       $    30,070    1.11%
                                     ============   ======       =========== ======        ===========  ======

Losses experienced during the
    three month period(a)(b) :
    Loans........................... $      3,747     0.53%      $     3,772   0.56%       $     2,644    0.41%
                                                    ======                    =====                     ======
    Leases..........................          678     6.90%              229   1.91%               118    0.83%
                                     ------------   ======       -----------  =====        -----------  ======
    Total managed portfolio......... $      4,425     0.62%      $     4,001   0.58%       $     2,762    0.42%
                                     ============   ======       =========== ======        ===========  ======
</TABLE>
(a) Percentage based on annualized losses and average managed portfolio.
(b) Losses recorded on our books were $2.4 million ($1.3 million from
charge-offs through the provision for loan losses and $1.1 million for write
downs of REO) and losses absorbed by loan securitization trusts were $2.0
million for the three months ended March 31, 2002. Losses recorded on our books
were $2.2 million ($1.0 million from charge-offs through the provision for loan
losses and $1.2 million for write downs of REO) and losses absorbed by loan
securitization trusts were $1.8 million for the three months ended December 31,
2001. Losses recorded on our books were $0.9 million ($0.6 million from
charge-offs through the provision for loan losses and $0.3 million for write
downs of REO) and losses absorbed by loan securitization trusts were $1.9
million for the three months ended September 30, 2001. Losses recorded on our
books include losses for loans we hold as available for sale or REO and loans
repurchased from securitization trusts.


                                       44
<PAGE>

         The following table summarizes key delinquency statistics related to
loans, leases and REO recorded on our balance sheet and their related percentage
of our available for sale portfolio (dollars in millions):
<TABLE>
<CAPTION>
                                                                  March 31,     December 31,    September 30,
                                                                    2002            2001           2001
                                                                  ---------     ------------    ------------
<S>                                                                <C>            <C>             <C>
Delinquencies held as available for sale (a)................       $  7.9         $  4.0          $  4.7
                                                                     12.2%           5.0%            6.2%

Available for sale loans and leases in non-accrual status (b)      $  8.8         $  5.1          $  6.7
                                                                     13.5%           7.6%            8.8%

Allowance for losses on available for sale loans and leases        $  3.3         $  2.9          $  3.4
                                                                      5.1%           3.6%            4.2%

Real estate owned on balance sheet..........................       $  4.3         $  2.6          $  3.2
</TABLE>
(a)    Delinquent loans and leases held as available for sale are included in
       total delinquencies in the previously presented "Managed Portfolio
       Quality" table.
(b)    It is our policy to suspend the accrual of interest income when a loan
       is contractually delinquent for 90 days or more. Non-accrual loans and
       leases are included in total delinquencies in the previously presented
       "Managed Portfolio Quality" table.

         Delinquent loans and leases. Total delinquencies (loans and leases with
payments past due greater than 30 days, excluding REO) in the total managed
portfolio were $173.4 million at March 31, 2002 compared to $173.2 million at
December 31, 2001 and $146.8 million at September 30, 2001. Total delinquencies
as a percentage of the total managed portfolio were 5.91% at March 31, 2002
compared to 6.08% at December 31, 2001 and 5.42% at September 30, 2001 on a
total managed portfolio of $2.9 billion at March 31, 2002, $2.8 billion at
December 31, 2001 and $2.7 billion at September 30, 2001. The increase in
delinquencies and delinquency percentages was mainly due to the impact on our
borrowers of continued uncertain economic conditions and the seasoning of the
managed portfolio. As the managed portfolio continues to season we expect the
delinquency rate to continue to increase. Delinquent loans and leases held as
available for sale on our balance sheet increased primarily due to repurchases
of loans from our mortgage securitization trusts.

         Real estate owned. Total REO, comprising foreclosed properties and
deeds acquired in lieu of foreclosure, increased to $37.4 million, or 1.28% of
the total managed portfolio at March 31, 2002 compared to $35.8 million, or
1.26%, and $30.1 million, or 1.11%, respectively, at December 31, 2001 and
September 30, 2001. The $1.6 million increase in the volume of REO from the
prior quarter was mainly due to the seasoning of the managed portfolio together
with a concerted effort by management to reduce the time a loan remains in
seriously delinquent status until the sale of an REO property. We continue to
add additional personnel to this process. The acceleration of the foreclosure
process has caused a substantial increase in the balance of properties
classified as REO. We are now implementing processes to decrease the cycle time
in the disposition of REO properties. These actions have resulted in the
leveling of the growth of the REO balance as a percentage of the managed
portfolio. However, as our portfolio seasons we expect the REO balance to
continue to increase. REO held by us on our balance sheet increased primarily
due to repurchases of foreclosed loans from our mortgage securitization trusts.

         Loss experience. During the third quarter of fiscal 2002, we
experienced net loan and lease charge-offs in our total managed portfolio of
$4.4 million. On an annualized basis, net loan and lease charge-offs for the
third quarter of fiscal 2002 represent 0.62% of the total managed portfolio, an
increase from 0.58% for the quarter ended December 31, 2001 and 0.42% for the
quarter ended September 30, 2001. On an annualized basis, during the first nine
months of fiscal 2002, net loan and lease charge-offs were 0.54% of the total
managed portfolio compared to 0.47% in the first nine months of fiscal 2001.
Loss severity experienced on delinquent loans generally has ranged from 10% to
15% of principal and loss severity experience on REO generally has ranged from
25% to 35% of principal. The credit loss assumptions in our mortgage loan
securitizations are monitored against actual loss experience and adjusted for
future loss expectations if warranted. See "-- Securitizations" for more detail
on credit loss assumptions compared to actual loss experience.

                                       45
<PAGE>

INTEREST RATE RISK MANAGEMENT

     A primary market risk exposure that we face is interest rate risk.
Profitability and financial performance is sensitive to changes in interest
rate swap yields, U.S. Treasury yields, LIBOR yields and the interest rate
spread between the effective rate of interest received on loans available for
sale or securitized (all fixed interest rates) and the interest rates paid
pursuant to credit facilities or the pass-through interest rate to investors for
interests issued in connection with securitizations. A substantial and sustained
increase in market interest rates could adversely affect our ability to
originate and purchase loans and maintain our profitability. The overall
objective of our interest rate risk management strategy is to mitigate the
effects of changing interest rates on profitability and the fair value of
interest rate sensitive balances (primarily loans available for sale,
interest-only strips, servicing rights and subordinated debt). We would address
this challenge by carefully monitoring our product pricing, the actions of our
competition and market trends and the use of hedging strategies in order to
continue to originate loans in as profitable a manner as possible.

     A component of our interest rate risk exposure relates to changes in the
fair value of certain interest-only strips due to changes in LIBOR rates. The
structure of certain securitization trusts include a floating rate certificate
tranche, which pay interest based on LIBOR plus an interest rate spread.
Floating rate tranches in a securitization expose us to gains or losses due to
changes in the fair value of the interest-only strip from changes in the
floating interest rate paid to the certificateholders.

     A rising rate environment could unfavorably impact our liquidity and
capital resources. Rising interest rates could impact our short-term liquidity
by widening investor interest rate spread requirements in pricing future
securitizations, increasing the levels of overcollateralization in future
securitizations, limiting our access to borrowings in the capital markets and
limiting our ability to sell our subordinated debt securities at favorable
interest rates. In a rising interest rate environment, short-term and long-term
liquidity could also be impacted by increased interest costs on all sources of
borrowed funds, including the subordinated debt, and by reducing interest rate
spreads on our securitized loans, which would reduce our cash flows. See
"--Liquidity and Capital Resources" for a discussion of both long and short-term
liquidity.



                                       46
<PAGE>


         Interest Rate Sensitivity. The following table provides information
about financial instruments that are sensitive to changes in interest rates.
For interest-only strips and servicing rights, the table presents projected
principal cash flows utilizing assumptions including prepayment and credit loss
rates. See "-- Securitizations" for more information on these assumptions. For
debt obligations, the table presents principal cash flows and related average
interest rates by expected maturity dates (dollars in thousands):
<TABLE>
<CAPTION>
                                                                    Amount Maturing After March 31, 2002
                                             -----------------------------------------------------------------------------------
                                              Months     Months     Months      Months     Months      There-             Fair
                                             1 to 12    13 to 24   25 to 36    37 to 48   49 to 60     after     Total    Value
                                             -------    --------   --------    --------   --------    --------  -------  -------
<S>                                         <C>        <C>        <C>         <C>        <C>         <C>        <C>      <C>
Rate Sensitive Assets:
Loans and leases available for sale (a).... $  59,780  $     88   $    100     $    113   $    128    $  7,337  $ 67,547 $ 67,992
Interest-only strips.......................    82,212   112,093    101,977       89,369     73,100     258,132   716,883  490,147
Servicing rights...........................    39,378    31,775     24,989       19,549     15,314      49,763   180,768  118,194
Investments held to maturity...............        83        91        105          131        173         343       926      964

Rate Sensitive Liabilities:
Fixed interest rate borrowings............. $ 364,122  $161,051   $ 58,506      $19,200   $  9,888    $ 27,969  $640,736 $639,634
Average interest rate......................    10.82%    11.01%     11.52%       11.69%     12.91%      11.35%    11.04%
Variable interest rate borrowings.......... $  38,123  $    333   $    328      $ 1,986   $     35    $    318  $ 41,123 $ 41,123
Average interest rate......................     3.96%     3.76%      3.76%        3.76%      3.76%       3.76%     3.95%
</TABLE>
(a)  For purposes of this table, all loans and leases which qualify for
     securitization are reflected as maturing within twelve months, since loans
     and leases available for sale are generally held for less than three months
     prior to securitization.

     Loans Available for Sale. Gain on sale of loans may be unfavorably impacted
to the extent fixed rate available for sale mortgage loans are held prior to
securitization. A significant variable affecting the gain on sale of loans in a
securitization is the interest rate spread between the average coupon interest
rate on fixed rate loans, and the weighted average pass-through interest rate to
investors for interests issued in connection with the securitization. Although
the average loan coupon interest rate is fixed at the time the loan is
originated, the pass-through interest rate to investors is not fixed until the
pricing of the securitization which occurs just prior to the sale of the loans.
If market interest rates required by investors increase prior to securitization
of the loans, the interest rate spread between the average coupon interest rate
on the loans and the pass-through interest rate to investors may be reduced or
eliminated, which could have a material adverse effect on our results of
operations and financial condition. We estimate that each 0.1% reduction in the
interest rate spread reduces the gain on sale of loans as a percentage of loans
securitized by approximately 0.25%. See "--Strategies for use of Derivative
Financial Instruments" for further detail of our interest rate risk management
for available for sale loans.

     Interest-Only Strips and Servicing Rights. A portion of the certificates
issued to investors by certain securitization trusts are floating interest rate
certificates based on one-month LIBOR plus an interest rate spread. The fair
value of the excess cash flow we will receive from these trusts would be
affected by any changes in rates paid on the floating rate certificates. At
March 31, 2002, $220.6 million of debt issued by loan securitization trusts was
floating rate debt based on LIBOR, representing 7.4% of total debt issued by
mortgage loan securitization trusts. In accordance with accounting principles
generally accepted in the United States, the changes in fair value are
recognized as part of net adjustments to other comprehensive income, which is a
component of retained earnings. As of March 31, 2002, the interest rate
sensitivity for $107.2 million of floating rate debt issued by securitization
trusts is managed with an interest rate swap contract effectively fixing our
cost for this debt. See "--Strategies for use of Derivative Financial
Instruments" for further detail.

     A significant change in market interest rates could increase or decrease
the level of loan prepayments, thereby changing the size of the total managed
loan portfolio and the related projected cash flows. We attempt to minimize
prepayment risk on interest-only strips and servicing rights by requiring
prepayment fees on business loans and home equity loans, where permitted by law.
Currently, approximately 90-95% of business loans and 85-90% of home equity
loans in the total managed portfolio are subject to prepayment fees. However,
higher than anticipated rates of loan prepayments could result in a write down
of the fair value of related interest-only strips and servicing rights,
adversely impacting earnings during the period of adjustment. Revaluation of our
interest-only strips and servicing rights is periodically performed. As part of
the revaluation process, assumptions used for prepayment rates are monitored
against actual experience and adjusted if warranted. See "--Securitizations" for
further information regarding these assumptions and the impact of prepayments
during this period.

                                       47
<PAGE>

         Subordinated Debt. We also experience interest rate risk to the extent
that as of March 31, 2002 approximately $276.6 million of our liabilities were
comprised of fixed rate subordinated debt with scheduled maturities of greater
than one year. To the extent that market interest rates demanded for
subordinated debt increase in the future, the rates paid on replacement debt
could exceed rates currently paid thereby increasing interest expense and
reducing net income.

Strategies for use of Derivative Financial Instruments

         From time to time derivative financial instruments are utilized in an
attempt to mitigate the effect of changes in interest rates between the date
loans are originated and the date the fixed interest rate pass-through
certificates to be issued by a securitization trust are priced, a period
typically less than 90 days. Derivative financial instruments we use for hedging
changes in fair value due to interest rate changes may include interest rate
swaps, futures and forward contracts. The nature and quality of hedging
transactions are determined based on various factors, including market
conditions and the expected volume of mortgage loan originations and purchases.
At the time the contract is executed, derivative contracts are specifically
designated as hedges of mortgage loans or our residual interests in mortgage
loans in our mortgage conduit facility, which we would expect to be included in
a permanent securitization at a future date. The mortgage loans and mortgage
loans underlying residual interests in mortgage pools consist of essentially
similar pools of fixed rate loans, collateralized by real estate (primarily
residential real estate) with similar maturities and similar credit
characteristics. Fixed interest rate pass-through certificates issued by
securitization trusts are generally priced to yield an interest rate spread
above Eurodollars or interest rate swap yield curves with a three-year maturity.
We may hedge potential rate changes in Eurodollars and interest rate swap yield
curves with derivative contracts of similar underlying securities. This practice
has provided strong correlation between our hedge contracts and the ultimate
pricing we will receive on the subsequent securitization. The unrealized gain or
loss derived from these derivative financial instruments, which are designated
as fair value hedges, is reported in earnings as it occurs with an offsetting
adjustment to the fair value of the item hedged. The fair value of derivative
financial instruments are based on quoted market prices. The fair value of the
items hedged are based on current pricing of these assets in a securitization.
Cash flow related to hedging activities is reported as it occurs. The
effectiveness of our hedges are continuously monitored. If correlation did not
exist, the related gain or loss on the hedged item no longer would be recognized
as an adjustment to income.

         We recorded cash losses on the fair value of derivative financial
instruments of $4.9 million during the nine months ended March 31, 2002, and
$4.3 million during the nine months March 31, 2001 which were offset by
securitization gains during the periods. Any ineffectiveness related to hedging
transactions during the periods was immaterial. There were no open derivative
contracts accounted for as hedges or unrealized gains or losses from derivative
contracts accounted for as hedges at March 31, 2002.

                                       48
<PAGE>

         We do not enter into derivative financial instrument contracts for
trading purposes. However, we have entered into a derivative financial
instrument contract which we have not designated as an accounting hedge. This
contract was designed to reduce our exposure to changes in the fair value of
certain interest-only strips due to changes in LIBOR rates. The structure of
certain securitization trusts include a floating rate tranche based on LIBOR
plus an interest rate spread. Floating rate tranches in a securitization expose
us to gains or losses due to changes in the fair value of the interest-only
strip from changes in the floating interest rate paid to the certificateholders.
In order to manage this exposure we have entered into an interest rate swap
agreement to lock in a fixed rate on our third quarter fiscal 2002
securitization's variable rate tranche. The swap agreement requires a net cash
settlement on a monthly basis of the difference between the fixed rate on the
swap and the floating rate paid on the bonds. The fair value of this swap
agreement is based on estimated market values for the sale of the contract
provided by a third party. As of March 31, 2002 the change in the fair value of
this derivative financial instrument was $0.5 million and was recognized as
income during the quarter. The net unrealized gain of $0.5 million is included
in trading assets, which are reported in other assets. Our interest-only strips
are held as available for sale securities and therefore changes in the fair
value of the interest-only strip is recorded as a component of equity unless the
fair value of the interest-only strip falls below its cost basis, which would
require a write-down through current period income.

Terms of the interest rate swap agreement at March 31, 2002 were as follows
(dollars in thousands):

                      Notional amount ................... $ 107,200
                      Rate received - Floating (a) ......      2.09%
                      Rate paid - Fixed .................      2.89%
                      Maturity in years .................       2.0
                      Unrealized gain ................... $     529
                      Sensitivity to 0.1% change in
                       interest rates ................... $     106

(a) Rate represents the spot rate paid on the securitized floating rate tranche
    at the end of the period.

         Derivative transactions are measured in terms of a notional amount, but
this notional amount is not carried on the balance sheet. The notional amount is
not exchanged between counterparties to the derivative financial instrument,
but, is only used as a basis to determine fair value, which is recorded on the
balance sheet, and to determine interest and other payments between the
counterparties. Our exposure to credit risk in a derivative transaction is
represented by the fair value of those derivative financial instruments in a
gain position. We attempt to manage this exposure by limiting our derivative
financial instruments to those traded on major exchanges and our counterparties
are major financial institutions.

         In the future, we may expand the types of derivative financial
instruments we use to hedge interest rate risk to include other types of
derivative contracts. However, an effective interest rate risk management
strategy is complex and no such strategy can completely insulate us from
interest rate changes. Poorly designed strategies or improperly executed
transactions may increase rather than mitigate risk. Hedging involves
transaction and other costs, which could increase as the period covered by the
hedging protection increases. Although it is expected that such costs would be
offset by income realized from securitizations in that period or in future
periods, we may be prevented from effectively hedging fixed rate loans held for
sale without reducing income in current or future periods. In addition, while
Eurodollar rates, interest rate swap yield curves and the pass-through interest
rate of securitizations are generally strongly correlated, this correlation has
not held in periods of financial market disruptions (e.g. the so-called Russian
Crisis in the later part of 1998).

LIQUIDITY AND CAPITAL RESOURCES

         Liquidity and capital resource management is a process focused on
providing the funding to meet our short and long-term cash needs. We have used a
substantial portion of our funding sources to build our managed portfolio and
investments in securitization residual assets with the expectation that they
will generate sufficient cash flows in the future to cover our operating
requirements, including repayment of maturing subordinated debt. Our cash needs
change as the managed portfolio grows, as our interest-only strips grow and
release more cash, as subordinated debt matures, as operating expenses change
and revenues increase. Because we have historically experienced negative cash
flows from operations, our business requires continual access to short and
long-term sources of debt to generate the cash required to fund our operations.
Our cash requirements include funding loan originations and capital
expenditures, repaying existing subordinated debt, paying interest expense and
operating expenses, and in connection with our securitizations, funding
overcollateralization requirements and servicer obligations. At times, we have
used cash to repurchase our common stock and could in the future use cash for
unspecified acquisitions of related businesses or assets (although no
acquisitions are currently contemplated.)

                                       49
<PAGE>


         The following discussion of liquidity and capital resources should be
read in conjunction with the discussion of our Critical Accounting Policies.

         When loans are sold through a securitization, we retain the rights to
service the loans. As the servicer of securitized loans we are obligated to
advance interest payments for delinquent loans if we deem that the advances
will ultimately be recoverable. These advances can first be made out of funds
available in the trusts' collection accounts, then from our operating cash if
there are insufficient funds in the trusts' accounts. These advances, including
those made from the trusts' collection accounts, which require reimbursement
from us, require funding from our capital resources and may create greater
demands on our cash flow than either selling loans with servicing released or
maintaining a portfolio of loans on balance sheet. However, these advances have
priority of repayment from the succeeding month's mortgage loan payments.

         While we are under no obligation to do so, at times we elect to
repurchase delinquent loans from the securitization trusts, some of which may be
in foreclosure. We elect to repurchase loans in situations requiring more
flexibility for the administration and collection of these loans in order to
maximize their economic recovery and to avoid temporary discontinuations of
residual or stepdown overcollateralization cash flow from securitization trusts.
Under the terms of the securitization agreements, repurchases are permitted only
for delinquent loans and the purchase prices are at the loan's outstanding
contractual balance. A foreclosed loan is one where we, as servicer, have
initiated formal foreclosure proceedings against the borrower and a delinquent
loan is one that is 30 days or more past due. The foreclosed and delinquent
loans we typically elect to repurchase are usually 90 days or more delinquent
and the subject of completed foreclosure proceedings, or where a completed
foreclosure is imminent. Allowance for loan losses for these repurchased loans
are included in our provision for credit losses in the period of repurchase. Our
ability to repurchase these loans does not disqualify us for sale accounting
under SFAS No. 125 or SFAS No. 140 or other relevant accounting literature
because we are not required to repurchase any loan and our ability to repurchase
a loan is limited. See "-- Results of Operations -- Summary of Loan Repurchases
from Mortgage Securitization Trusts" for further detail of our repurchase
activity.

         Cash flow from operations, the issuance of subordinated debt, and
lines of credit fund our operating cash needs. Loan originations are funded
through borrowings against warehouse credit facilities and sales into an
off-balance sheet facility. Each funding source is described in more detail
below.

         Cash Flow From Operations. One of our corporate goals is to achieve
positive cash flow from operations. To achieve this goal we expect to:

         o    Continue to grow a portfolio of mortgage loans which will generate
              income and cash flows through our servicing activities and the
              residual interests we hold in the securitized loans;
         o    Build on our disciplined approaches to underwriting loans,
              servicing and collecting loans and managing credit risks;
         o    Continue to develop cost efficiencies in our loan origination and
              loan servicing processes;
         o    Continue to invest in technology to support our loan production
              channels and our servicing practices; and,
         o    Focus on overall expense management.

                                       50
<PAGE>

         Although we expect negative cash flow from operations to continue in
the foreseeable future, we expect that our historical levels of negative cash
flow from operations will decline and then become positive. Even though our
operations have expanded during fiscal 2002, negative cash flow from operations
decreased $39.2 million, or 65.1%, for the nine months ended March 31, 2002
from the prior year period. Cash flow from operations for the three months
ended March 31, 2002 was positive $15.1 million. This positive cash flow from
operations occurred mainly because we securitized more loans than we originated
during the quarter and is not expected to continue in the near term as a trend.
We do however, expect our negative cash flow to continue to decline.

         Our decline in negative cash flow from operations over the nine months
ended March 31, 2002 compared to the nine months ended March 31, 2001, has been
achieved through a combination of efforts. Our focus has included controlling
expenses and realizing efficiencies from our investments in systems and
technology (most significantly in our loan origination areas), increasing cash
flows from our interest-only strips and servicing rights and the negotiation of
more favorable execution for our securitizations allowing us to maximize the
amount of cash we receive at the closing of our securitizations. If these trends
continue as we expect, our current level of negative cash flows will continue to
decline and then become positive. There can be no assurances that our
projections regarding declining negative cash flow or positive cash flow from
operations will ultimately be achieved.

         As was previously discussed, during the nine months ended March 31,
2002, our actual prepayment experience on our managed portfolio was generally
higher than our average historical levels for prepayments. Prepayments result
in decreases in the size of our managed portfolio and decreases in the expected
future cash flows to us from our interest-only strips and servicing rights.
However, due to the favorable interest rate spreads and favorable
overcollateralization requirements received on our more recent securitizations,
resulting in an increase in projected cash flows from interest-only strips and
servicing rights, we do not believe our recent increase in prepayment
experience will have a significant impact on our expected cash flows from
retained interests in securitizations.

         Credit Facilities. Borrowings against warehouse credit facilities
represent cash advanced to us for a limited duration, generally no more than
270 days, and are secured by the loans. These credit facilities provide the
primary funding source for loan originations. The ultimate sale of the loans
through securitization or whole loan sale generates the cash proceeds necessary
to repay the borrowings under the warehouse facilities. We also have a
committed mortgage conduit facility, which enables us to sell our loans into an
off-balance sheet facility. In addition, we have the availability of revolving
credit facilities, which may be used to fund our operations. These credit
facilities are generally extended for a one-year term before the renewal of the
facility must be re-approved by the lender. We periodically review our expected
future credit needs and negotiate credit commitments for those needs as well as
excess capacity in order to allow us flexibility in the timing of the
securitization of our loans.



                                       51
<PAGE>

         The following is a description of the warehouse and operating line of
credit and mortgage conduit facilities which are available to us.
<TABLE>
<CAPTION>
                                                                                                             Amount
                                                                                             Amount       Utilized Off-
                                                                               Amount     Utilized On-       Balance
                                                                             Committed    Balance Sheet       Sheet
                                                                             ---------    -------------   -------------
                                                                                          (in thousands)
<S>                                                                          <C>          <C>             <C>
Revolving credit facilities:
   Mortgage conduit facility, expiring July 2002 (a)...................       $ 300,000       $     Na       $ 58,531
   Warehouse revolving line of credit, expiring November 2002 (b)......         200,000             --             Na
   Warehouse revolving line of credit, expiring March 2003 (c) ........         100,000             --             Na
   Warehouse and operating revolving line of credit, expiring
     December 2002 (d).................................................          50,000         34,612             Na
   Warehouse revolving line of credit, expiring May 2002 (e)...........          25,000          2,439             Na
   Operating revolving line of credit, expiring January 2003 (f).......           1,200          1,073             Na
                                                                              ---------       --------       --------
Total revolving credit facilities......................................         676,200         38,124         58,531
Other facilities:
   Commercial paper conduit for lease production, maturity
     matches underlying leases (g).....................................           3,308          2,999            309
                                                                              ---------       --------       --------
Total credit facilities................................................       $ 679,508       $ 41,123       $ 58,840
                                                                              =========       ========       ========
</TABLE>
Na - not applicable for facility

(a)  $300.0 million mortgage conduit facility. The facility provides for the
     sale of loans into an off-balance sheet facility with UBS Principal
     Finance, LLC, an affiliate of UBS Warburg. See "--Critical Accounting
     Policies" for further discussion of the off-balance sheet features of this
     facility.

(b)  $200.0 million warehouse line of credit with Credit Suisse First Boston
     Mortgage Capital, LLC. The interest rate on the facility is based on LIBOR
     plus a margin. Advances under this facility are collateralized by pledged
     loans.

(c)  $100.0 million warehouse line of credit with Triple-A One Funding Corp.,
     an affiliate of MBIA Insurance Corporation. This facility was renewed in
     March 2002 and, based upon our review of our credit needs, the credit
     limit was reduced from $200.0 million. Interest rates on this facility are
     based on commercial paper rates plus a margin. Advances under this
     facility are collateralized by pledged loans.

(d)  $50.0 million warehouse and operating credit facility with Chase Manhattan
     Bank. Interest rates on the advances under this facility are based upon
     LIBOR plus a margin. Obligations under the facility are collateralized by
     pledged loans, REO, and advances to securitization trusts. Advances on this
     line for general operating purposes are limited to $5.0 million and are
     collateralized by our Class R Certificate of the ABFS Mortgage Loan Trusts
     1997-2 and 1998-3.

(e)  $25.0 million warehouse line of credit facility from Residential Funding
     Corporation. Under this warehouse facility, advances may be obtained,
     subject to specific conditions described in the agreements. Interest rates
     on the advances are based on LIBOR plus a margin. The obligations under
     this agreement are collateralized by pledged loans. We are currently
     negotiating a new credit facility with Residential Funding Corporation. No
     assurances can be given that this new credit facility will be extended, or
     if extended, will be on the same terms as described above.

                                       52
<PAGE>

(f)  We established a $1.2 million revolving line of credit facility from
     Firstrust Savings Bank. The obligations under this facility are
     collateralized by the cash flows from our investment in the ABFS 99-A
     lease securitization trust. The interest rate on the advances from this
     facility is LIBOR plus a margin.

(g)  The commercial paper conduit for lease production provided for sale of
     equipment leases using a pooled securitization. After January 2000, the
     facility was no longer available for sales of equipment leases.

     The warehouse credit agreements require that we maintain specific financial
covenants regarding net worth, leverage, net income, liquidity, total debt and
other standards. Each agreement has multiple individualized financial covenant
thresholds and ratio limits, which we must meet to enable us to continue to draw
on that particular line of credit. At March 31, 2002, we were in compliance with
the terms of all financial covenants. Some of our financial covenants have
minimal flexibility and we cannot say with certainty that we will continue to
comply with the terms of all debt covenants. If we did not comply with the debt
covenants in one of our credit facilities, we can utilize excess capacity in our
other credit facilities for loan funding, request a waiver from our lender or
request a renegotiation of the terms of the agreement in order to allow us to
continue to draw down on the facility. While there can be no assurance that a
waiver or modification of terms would be granted us should one be requested, we
did ask for and obtained a modification of certain financial covenants under our
revolving credit facility with Residential Funding Corporation.

         Subordinated Debt Securities. The issuance of subordinated debt funds
the majority of our remaining operating cash requirements. We rely
significantly on our ability to issue subordinated debt since our cash flow
from operations is not sufficient to meet these requirements. In order to expand
our businesses we have issued subordinated debt to partially fund the growth
and to partially fund maturities of subordinated debt. In addition, at times we
may elect to utilize proceeds from the issuance of subordinated debt to fund
loans instead of using our warehouse credit facilities, depending on our
determination of liquidity needs. During fiscal 2002, we sold $102.8 million in
principal amount of subordinated debt securities, net of redemptions, with
maturities of up to ten years with an average maturity of 21 months.

         We registered $325.0 million of subordinated debt under a registration
statement, which was declared effective by the Securities and Exchange
Commission on October 16, 2001. As of March 31, 2002, $174.4 million of this
debt was available for future issuance.

         Maturities of our subordinated debt and related accrued interest
payable on subordinated debt as of March 31, 2002 are as follows (in
thousands):

                                                                     Accrued
                                                     Debt            Interest
                                                  ----------        ---------

Maturities in 1 year ...........................  $  364,122        $  26,306
Maturities in over 1 year to 5 years ...........     248,645           15,171
Maturities in over 5 years to 10 years .........      27,969            2,870
                                                  ----------        ---------
Total subordinated debt ........................  $  640,736        $  44,347
                                                  ==========        =========

         We intend to meet our obligation to repay such debt and interest as it
matures with cash flow from operations, cash flows from interest-only strips
and cash generated from additional debt financing. The utilization of funds for
the repayment of such obligations should not adversely affect operations. Our
cash balances are sufficient to cover approximately 36.1% of the $364.1 million
of subordinated debt maturities due within one year. Cash balances were $131.6
million at March 31, 2002, up from $91.1 million at June 30, 2001.

                                       53
<PAGE>
         The current low interest rate environment has provided an opportunity
to reduce the interest rates and extend the maturities offered on our
subordinated debt. The weighted average rate of our subordinated debt issued in
the month of March 2002 was 7.76% and 45.5% of that debt was for terms of 18
months or longer, compared to debt issued in June 2001 which had a weighted
average rate of 9.52% and 49.6% with terms of 18 months or longer and debt
issued in March 2001, which had a weighted average rate of 11.24% and only
40.0% was for terms of 18 months or longer.

         Sales into Special Purpose Entities and Off-Balance Sheet Facilities.
We continue to significantly rely on access to the asset-backed securities
market through securitizations to provide permanent funding of our loan
production. Asset securitizations are one of the most common off-balance sheet
arrangements to apply special purpose entities, such as securitization trusts,
in their structures. The securitization trusts sell certificates to third party
investors which generate cash proceeds for the repayment of borrowings under
warehouse and credit facilities. The off-balance sheet trusts' activities are
restricted to holding title to the loan collateral, issuing certificates to
investors and acting as a passthrough for the distribution of the loan payments
to the investors and us in accordance with the trust agreement. We also retain
the right to service the loans. Residual cash from the loans after required
principal and interest payments are made to the investors provide us with cash
flows from our interest-only strips. It is our expectation that future cash
flows from our interest-only strips and servicing rights will generate more of
the cash flows required to meet maturities of our subordinated debt and our
operating cash needs.

         There are currently $2.8 billion of loans held as collateral in 21
separate off-balance sheet facilities which have $2.6 billion in investor
certificates outstanding. We have no additional obligations to the off-balance
sheet facilities other than those required as servicer of the loans and are not
required to make any additional investments in the trusts. See
"-Securitizations- Summary of Selected Mortgage Loan Securitization Trust
Information" for detail of the composition of each securitization trust.

Other Liquidity Considerations

         A failure to renew or obtain adequate funding under a warehouse credit
facility, offerings of subordinated debt, or any substantial reduction in the
size or pricing in the markets for loans, could have a material adverse effect
on our results of operations and financial condition. To the extent we are not
successful in maintaining or replacing existing financing, we may have to
curtail loan production activities or sell loans rather than securitize them,
thereby having a material adverse effect on our results of operations and
financial condition.

         A significant portion of our loan originations are non-conforming
mortgages to subprime borrowers. Some participants in the non-conforming
mortgage industry have experienced greater than anticipated losses on their
securitization interest-only strips and servicing rights due to the effects of
increased delinquencies, increased credit losses and increased prepayment
rates. As a result, some competitors have exited the business or have recorded
valuation allowances or write-downs for these conditions. Due to these
circumstances, some participants experienced restricted access to capital
required to fund loan originations and have been precluded from participation
in the asset-backed securitization market. However, we have maintained our
ability to obtain funding and to securitize loans. Factors that have minimized
the effect of adverse market conditions on our business include our ability to
originate loans through established retail channels, focus on credit
underwriting, assessment of prepayment fees on loans, diversification of
lending in the home equity and business loan markets and the ability to raise
capital through sales of subordinated debt securities pursuant to a registered
public offering. Subject to economic, market and interest rate conditions, we
intend to continue to transact additional securitizations for future loan
originations. Any delay or impairment in our ability to securitize loans, as a
result of market conditions or otherwise, could adversely affect our liquidity
and results of operations.

                                       54
<PAGE>

A further decline in economic conditions, continued instability in financial
markets or further acts of terrorism in the United States may cause disruption
in our business and operations including reductions in demand for our loan
products and our subordinated debt securities, increases in delinquencies and
credit losses in our managed loan portfolio, changes in historical prepayment
patterns and declines in real estate collateral values. To the extent the
United States experiences an economic downturn, unusual economic patterns and
unprecedented behaviors in financial markets, these developments may affect our
ability to originate loans at profitable interest rates, to price future loan
securitizations profitably and to effectively hedge our loan portfolio against
market interest rate changes which could cause our stock price to decline.
Should these disruptions and unusual activities occur, our profitability and
cash flow could be reduced and our ability to make principal and interest
payments on our subordinated debt could be impaired.

Related Party Transactions

         We have a loan receivable from one of our officers, Anthony J.
Santilli, for $0.6 million, which was an advance for the exercise of stock
options to purchase 225,012 shares of the our common stock. The loan is due in
September 2005 (earlier if the stock is disposed of). Interest at 6.46% is
payable annually. The loan is secured by 225,012 shares of our common stock, and
is shown as a reduction of stockholders' equity in our financial statements.

         On April 2, 2001, we awarded 2,500 shares of our common stock to
Richard Kaufman, a director of the Company, as a result of services rendered in
connection with our stock repurchases.

         Additionally, we have business relationships with other related parties
through which we have purchased appraisal services and real estate advisory
services. None of our related party transactions, individually or collectively,
are material to our results of operations.

Property

         We lease our corporate headquarters facilities in Bala Cynwyd,
Pennsylvania under a five-year operating lease expiring in July 2003 at a
minimum annual rental of approximately $2.6 million. We lease additional space
in Bala Cynwyd under a five-year lease expiring November 2004 at an annual
rental of approximately $0.6 million. We also lease a facility in Roseland, New
Jersey under an operating lease expiring July 2003 at an annual rental of $0.8
million. The corporate headquarters and Roseland leases have a renewal
provision at an increased annual rental. In addition, branch offices are leased
on a short-term basis in various cities throughout the United States. The
leases for the branch offices are not material to operations.

Item 3.  Quantitative and Qualitative Disclosure about Market Risk

         See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Interest Rate Risk Management."

                                       55
<PAGE>

PART II  OTHER INFORMATION

Item 1. Legal Proceedings

On February 26, 2002, a purported class action titled Calvin Hale v.
HomeAmerican Credit, Inc., No. 02 C 1606, United States District Court for the
Northern District of Illinois, was filed in the Circuit Court of Cook County,
Illinois (subsequently removed by Upland Mortgage to the captioned federal
court) against the Company's subsidiary, HomeAmerican Credit, Inc., which does
business as Upland Mortgage, on behalf of borrowers in Illinois, Indiana,
Michigan and Wisconsin who paid a document preparation fee on loans originated
since February 4, 1997. The plaintiff alleges that the charging of, and the
failure to properly disclose the nature of, a document preparation fee were
improper under applicable state law. The plaintiff seeks restitution,
compensatory and punitive damages and attorney's fees and costs, in unspecified
amounts. The Company believes that its imposition of this fee is permissible
under applicable law and intends to vigorously defend the case.

The Company's lending subsidiaries, including Home American Credit, Inc. which
does business as Upland Mortgage, are involved, from time to time, in class
action lawsuits, other litigation, claims, investigations by governmental
authorities, and legal proceedings arising out of their lending activities from
time to time, including the purported class action entitled, Calvin Hale v. Home
American Credit, Inc., d/b/a Upland Mortgage, described above. Due to the
Company's current expectation regarding the ultimate resolution of these
actions, management believes that the liabilities resulting from these actions
will not have a material adverse effect on the Company's consolidated financial
position or results of operations. However, due to the inherent uncertainty in
litigation and since the ultimate resolutions of these proceedings are
influenced by factors outside of the Company's control, it is possible that the
Company's estimated liability under these proceedings may change or that actual
results will differ from its estimates.

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 - None

Item 6. Exhibits and Reports on Form 8-K



                                       56
<PAGE>

Exhibit

Number   Description of Agreement
------   ------------------------

10.1     Amendment No. 1 to the Indenture dated March 1, 2001 among Triple-A One
         Funding Corporation, ABFS Mortgage Loan Warehouse Trust 2001-1 and
         JPMorgan Chase Bank.

10.2     Amendment No. 2 to the Sale and Servicing Agreement dated as of March
         1, 2001 by and among ABFS OSO Inc., a Delaware corporation, as
         Depositor, ABFS Mortgage Loan Warehouse Trust 2001-1, a Delaware
         business trust, as the Trust, American Business Financial Services,
         Inc., a Delaware corporation, as Guarantor, American Business Credit,
         Inc., a Pennsylvania corporation, as Servicer, JPMorgan Chase Bank
         f/k/a The Chase Manhattan Bank, a New York banking corporation, as
         Indenture Trustee and as Collateral Agent and MBIA Insurance
         Corporation, a New York stock insurance company, as Note Insurer.

10.3     3/02 Amended and Restated Senior Secured Credit Agreement dated as of
         March 15, 2002 among: American Business Credit, Inc. and certain
         affiliates and JPMorgan Chase Bank, as Agent and as a Lender.

10.4     $1.2 million Committed Line of Credit Note between American Business
         Financial Services, Inc. and Firstrust Savings Bank dated January 18,
         2002.

Reports on form 8-K-None


                                       57
<PAGE>



                                   SIGNATURE

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

                           AMERICAN BUSINESS FINANCIAL SERVICES, INC.




DATE:    May 15, 2002      BY:  Albert W. Mandia
         ------------          --------------------------
                               Albert W. Mandia
                               Executive Vice President and Chief Financial
                               Officer






                                       58