<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 SEPTEMBER 30, 1998

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

Commission File Number:  000-22474
                         ---------

                   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
  incorporation or organization)               Identification No.)

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 registrant (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
report(s), and (2) has been subject to such filing requirements for the past 90
days.
Yes  X  No
   ----   ----
     
As of November 2, 1998, there were 3,523,406 shares of the registrant's Common
Stock issued and outstanding.


<PAGE>



           AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES

                                      INDEX


                                                                        Page No.
                                                                        --------
PART I     FINANCIAL INFORMATION

Item 1.    FINANCIAL INFORMATION

           Consolidated Balance Sheets as of September 30, 1998
               and June 30, 1998...........................................2
           Consolidated Statements of Income for the three months
               ended September 30, 1998 and 1997...........................3
           Consolidated Statements of Stockholders' Equity for the 
               three months ended September 30, 1998 and 1997..............4
           Consolidated Statements of Cash Flows for the three 
               months ended September 30, 1998 and 1997....................5
           Notes to Consolidated Financial Statements......................7

Item 2.    Management's Discussion And Analysis Of Financial Condition
               And Results Of Operations .................................12

Item 3.    Quantitative and Qualitative Disclosures about Market
               Risks .....................................................24

PART II    OTHER INFORMATION..............................................25

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






                                       1



<PAGE>
PART I - FINANCIAL INFORMATION

Item 1. - FINANCIAL INFORMATION

           AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                     ASSETS

                                                                                September 30,              June 30,
                                                                                    1998                    1998
                                                                                -------------            ------------
                                                                                 (Unaudited)                (Note)
<S>                                                                             <C>                     <C>    
Cash and cash equivalents                                                         $ 4,028,261             $ 4,485,759
Loan and lease receivables, net
         Available for sale                                                        83,149,986              62,381,973
         Other                                                                      4,941,573               4,096,554
Interest only strips and other receivables                                        132,332,383             100,736,564
Prepaid expenses                                                                    3,152,531               2,572,182
Property and equipment net of accumulated
         depreciation and amortization                                              8,846,519               7,784,663
Other assets                                                                       46,771,798              44,493,365
                                                                                 ------------            ------------

                  Total assets                                                   $283,223,051            $226,551,060
                                                                                 ============            ============

                  LIABILITIES AND STOCKHOLDERS' EQUITY' EQUITY

LIABILITIES
   Subordinated debt and notes payable                                           $184,423,952            $144,584,819
   Accounts payable and accrued expenses                                           16,325,404              15,563,254
   Deferred income taxes                                                           10,870,434              10,863,538
   Other liabilities                                                               25,493,707              12,797,283
                                                                                 ------------            ------------

                    Total liabilities                                             237,113,497             183,808,894
                                                                                 ------------            ------------

STOCKHOLDERS' EQUITY
    Preferred stock,  par value $.001                                         
         Authorized 1,000,000 shares                                                 -                         -
         Issued and outstanding - none 

    Common stock,  par value $.001
         Authorized 9,000,000 shares
         Issued and outstanding 3,523,406 shares                                        3,523                   3,523
    Additional paid-in capital                                                     23,255,957              23,255,957
    Retained earnings                                                              23,450,106              20,082,718
                                                                                 ------------            ------------
                                                                                   46,709,586              43,342,198
    Less:  note receivable                                                           (600,032)               (600,032)
                                                                                 ------------            ------------


    Total stockholders' equity                                                     46,109,554              42,742,166
                                                                                 ------------            ------------

    Total liabilities and stockholders' equity                                   $283,223,051            $226,551,060
                                                                                 ============            ============

</TABLE>
Note: The balance sheet at June 30, 1998 has been derived from the audited
financial statements at that date.

See accompanying notes to consolidated financial statements.

                                       2
<PAGE>


           AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)

                                                      Three Months Ended
                                                         September 30,
                                               ------------------------------
                                                   1998              1997
                                               ------------       -----------

REVENUES
Gain on sale of loans and leases              $  13,781,165       $  8,521,389
Interest and fees                                 4,539,171          2,304,367
Servicing income                                  1,274,116            380,313
Other income                                         14,188                205
                                              -------------       ------------
                                                 19,608,640         11,206,274
                                              -------------       ------------
EXPENSES
Interest                                          4,802,908          1,859,801
Provision for credit losses                         125,816             30,887
Employee related costs                            1,213,060            850,699
Sales and marketing                               5,358,058          2,324,503
General and administrative                        2,926,617          1,365,331
                                              -------------       ------------
                                                 14,426,459          6,431,221
                                              -------------       ------------
INCOME BEFORE PROVISION
FOR INCOME TAXES                                  5,182,181          4,775,053

PROVISION FOR INCOME TAXES                        1,761,942          1,623,518
                                              -------------       ------------

NET INCOME                                    $   3,420,239       $  3,151,535 
                                              =============       ============

NET INCOME PER SHARE
    Basic                                     $         .97       $        .90
                                              =============       ============
    Diluted                                   $         .94       $        .87
                                              =============       ============


Average Common Shares
   Basic                                          3,523,406          3,503,166
   Diluted                                        3,642,018          3,642,972


See accompanying notes to consolidated financial statements.

                                       3
<PAGE>


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

<TABLE>
<CAPTION>
Three months ended September 30, 1998


                                                               
                                   Common Stock                Additional                                             Total    
                              -----------------------           Paid-In          Retained           Note          Stockholders'
                              Shares           Amount           Capital          Earnings         Receivable         Equity
                              ------           ------          ----------        --------         ----------       ------------ 
<S>                         <C>              <C>             <C>              <C>                <C>              <C>
Balance at                                                                                                       
    July 1, 1998             3,523,406       $  3,523        $ 23,255,957     $  20,082,718      $ (600,032)       $ 42,742,166
                                                                        

Cash dividends                                                                
    ($0.015 per share)                                                              (52,851)                            (52,851)

Net income                                                                        3,420,239                           3,420,239
                             ---------       --------        ------------     -------------      ----------        ------------

Balance at                                                                                      
    September 30, 1998       3,523,406       $  3,523        $ 23,255,957     $  23,450,106      $ (600,032)       $ 46,109,554
                             =========       ========        ============     =============      ==========        ============ 
                                                                      


Three months ended September 30, 1997

                                   Common Stock                Additional                                             Total    
                              -----------------------           Paid-In          Retained           Note          Stockholders'
                              Shares           Amount           Capital          Earnings         Receivable         Equity
                              ------           ------          ----------        --------         ----------       ------------ 
<S>                         <C>              <C>             <C>              <C>                <C>              <C>
Balance at                                                                                                       
    July 1, 1997             3,503,166       $  3,503        $ 22,669,477       $ 8,839,080      $ (600,032)      $  30,912,028

Cash dividends                                                                
    ($0.015 per share)                                                              (52,547)                            (52,547)

Net income                                                                        3,151,535                           3,151,535
                             ---------       --------        ------------     -------------      ----------        ------------

Balance at                                                                                                                    
    September 30, 1997       3,503,166       $  3,503        $ 22,669,477       $11,938,068      $ (600,032)        $34,011,016
                             =========       ========        ============     =============      ==========        ============ 

</TABLE>


See accompanying notes to consolidated financial statements.

                                       4
<PAGE>

           AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                                 Three Months Ended
                                                                                                    September 30,
                                                                                        -------------------------------------------

                                                                                             1998                        1997
                                                                                        --------------               --------------
<S>                                                                                    <C>                          <C>    
Cash Flows From Operating Activities:
   Net income                                                                             $  3,420,239                 $ 3,151,535
   Adjustments to reconcile net income to net
      cash provided by operating activities
   Gain on sales of loans/leases                                                           (13,781,165)                (10,909,361)
   Amortization of origination fees and costs                                                   31,214                     168,446
   Amortization of deferred servicing rights                                                   784,312                     211,487
   Provision for credit losses                                                               1,470,207                     567,532
   Accounts written off                                                                       (153,059)                   (100,217)
                                                                                              
   Depreciation and amortization of property
      and equipment                                                                            562,490                     208,530
   Amortization of financing and organization costs                                            348,479                     150,312
   Amortization of goodwill                                                                    339,559                      -
   Loans and leases originated                                                            (204,356,000)                (50,411,255)
   Proceeds from sale of loans and leases                                                  169,627,139                  59,721,676
   Increase (decrease) in loans in process                                                  12,696,424                    (226,027)
   Increase in accrued interest and fees on
      loan and lease receivables                                                              (845,019)                   (376,206)
   Decrease (Increase) in other receivables                                                 (5,692,191)                 (1,809,685)
   Increase in prepaid expenses                                                               (580,349)                 (1,061,731)
   Increase in accounts payable and accrued expenses                                           762,150                   1,742,483
   Increase in deferred income taxes                                                             6,896                   1,623,594
   Other, net                                                                               (1,316,663)                    286,180
                                                                                         -------------               -------------
      Net cash (used in) provided by operating activities                                  (25,290,955)                  2,937,293
                                                                                         -------------               -------------

Cash Flows From Investing Activities:
   Leases originated for portfolio                                                              -                       (4,634,257)
   Loan and lease payments received                                                          2,296,856                   1,796,920
   Purchase of property and equipment                                                       (1,624,346)                   (935,691)
   Decrease in securitization gain receivable                                                   -                          368,314
   Principal receipts on investments                                                           238,690                     120,962
   Initial overcollateralization of loans                                                   (2,000,000)                 (2,000,000)
   Purchase of investments                                                                    (645,636)                (17,000,000)
   Sale of investments                                                                          -                        5,000,000
                                                                                         -------------               -------------
      Net cash provided by (used in) investing activities                                   (1,734,436)                (17,283,752)
                                                                                         -------------               -------------

</TABLE>

(continued on following page)

                                       5
<PAGE>

           AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                                 Three Months Ended
                                                                                                    September 30,
                                                                                   ------------------------------------------------

                                                                                              1998                    1997
                                                                                   ----------------------      --------------------
<S>                                                                                <C>                         <C>    
Cash Flows From Financing Activities:
   Financing costs incurred                                                                 (1,834,007)                 (321,849)
   Net borrowings on revolving lines of credit                                              24,211,816                     -
   Dividends paid                                                                              (52,851)                  (52,547)
   Principal payments on note payable, other                                                  (563,164)                    -
   Proceeds from issuance of subordinated debentures                                        25,842,605                16,669,927
   Principal payments on subordinated debentures                                            (9,652,124)               (3,030,976)
                                                                                   ----------------------      --------------------
      Net cash provided by financing activities                                             37,952,275                13,264,555
                                                                                   ----------------------      --------------------

      Net decrease in cash and cash equivalents                                               (457,498)               (1,081,904)
      Cash and cash equivalents, beginning of period                                         4,485,759                 5,013,936
                                                                                   ----------------------      --------------------

      Cash and cash equivalents, end of period                                              $4,028,261               $ 3,932,032
                                                                                   ======================      ====================

Supplemental disclosures of cash flow information Cash paid during the period
         for:
              Interest                                                                     $ 4,483,765               $ 1,449,428
                                                                                   ======================      ====================
              Income taxes                                                                 $ 2,262,065                     -
                                                                                   ======================      ====================
</TABLE>



See accompanying notes to consolidated financial statements.

                                       6
<PAGE>


           AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1998

1.       Basis Of Financial Statement Presentation

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

         Effective October 1, 1997, the Company acquired all of the issued and
         outstanding stock of New Jersey Mortgage and Investment Corp.
         ("NJMIC"), a mortgage and leasing company based in Roseland, New
         Jersey. The transaction was accounted for under the purchase method of
         accounting. Accordingly, the results of operations of NJMIC have been
         included with the Company since the date of acquisition.

         The accompanying unaudited consolidated financial statements have been
         prepared in accordance with generally accepted accounting principles
         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
         generally accepted accounting principles for complete financial
         statements. In the opinion of management, all adjustments (consisting
         of normal recurring accruals) considered necessary for a fair
         presentation have been included. Operating results for the three month
         period ended September 30, 1998 are not necessarily indicative of
         financial results that may be expected for the full year ended June 30,
         1999. 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-KSB
         for the fiscal year ended June 30, 1998.

         The Statement of Financial Accounting Standard No. 130 "Reporting
         Comprehensive Income" requires that all items that are required to be
         recognized under accounting standards as comprehensive income be
         reported in a financial statement that is displayed with the same
         prominence as other financial statements. The Company had no material
         items which would be required to be reported in accordance with SFAS
         No. 130 for the three month periods ended September 30, 1998 or 1997.

                                       7
<PAGE>



         AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
                               SEPTEMBER 30, 1998

1.       Basis Of Financial Statement Presentation - continued

         Recent Accounting Pronouncements

         In June 1997 the Financial Accounting Standards Board ("FASB"), issued
         Statement of Financial Accounting Standard ("SFAS") No. 131
         "Disclosures about Segments of an Enterprise and Related Information"
         which is effective for financial statements issued for years beginning
         after December 15, 1997. The pronouncement is not required to be
         applied to interim periods in the initial year of its application. This
         Statement established standards for the method that public entities
         report information about operating segments in annual financial
         statements and requires that those enterprises report selected
         information about operating results in interim financial reports issued
         to shareholders. It also establishes standards for related disclosures
         about products and services, geographical areas and major customers.
         The adoption of this standard is not expected to have a material effect
         on the Company's financial reporting.

         In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
         Instruments and Hedging Activities." This Statement establishes
         accounting and reporting standards for derivative instruments,
         including certain derivative instruments embedded in other contracts
         (collectively referred to as derivatives), and for hedging activities.
         It requires that an entity recognize all derivatives as either assets
         or liabilities in the statement of financial position and measure those
         instruments at fair value. If certain conditions are met, a derivative
         may be specifically designated as (a) a hedge of the exposure to
         changes in the fair value of a recognized asset or liability or an
         unrecognized firm commitment (fair value hedge),(b) a hedge of the
         exposure to variable cash flows of a forecasted transaction (cash flow
         hedge),or (c) a hedge of the foreign currency exposure of a net
         investment in a foreign operation, an unrecognized firm commitment, an
         available-for-sale security, or a foreign-currency-denominated
         forecasted transaction. SFAS No. 133 is effective on a prospective
         basis for all fiscal quarters of fiscal years beginning after June 15,
         1999. The adoption of this standard is not expected to have a material
         effect on the Company's financial condition or results of operations.

         In October 1998, the FASB issued SFAS No. 134 "Accounting for
         Mortgage-Backed Securities Retained after the Securitization of
         Mortgage Loans Held for Sale by a Mortgage Banking Enterprise". The
         Statement requires that after the securitization of a mortgage loan
         held for sale, an entity classify the resulting mortgage-backed
         security or other retained interest based on its ability and intent to
         hold or sell those investments. The standard becomes effective for
         fiscal quarters beginning after December 15, 1998. The adoption of this
         standard is not expected to have a material effect on the Company's
         financial condition or results of operations.

                                       8
<PAGE>


           AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
                               SEPTEMBER 30, 1998

2.       Loan and Lease Receivables - Available for Sale

         Loan and lease receivables available for sale which are held in the 
         Company's portfolio were as follows:

                                                  September 30,       June 30,
                                                      1998             1998     
                                                 --------------    -------------

         Real estate secured loans               $ 52,470,930      $ 47,971,399
         Leases net of unearned income of
             $4,331,668 and $2,670,954             21,704,797        11,401,104
         Unamortized origination                                              
             costs and fees                        10,076,317         4,087,636
                                                 ------------      ------------
                                                   84,252,044        63,460,139
         Less: allowance for credit losses on
             loans and leases not sold              1,102,058         1,078,166
                                                 ------------      ------------

                                                 $ 83,149,986      $ 62,381,973
                                                 ============      ============

3.       Interest Only Strips and Other Receivables

         The interest only strips and other receivables balance at September 30,
         1998 and June 30, 1998 was comprised of the following:

                                                  September 30,       June 30,
                                                     1998                1998   
                                                --------------      ------------

          Interest only and residual strips      $115,918,561      $ 95,912,756
          Receivables for sold loans               10,860,368         2,376,542
          Advances to securitization trusts         3,876,198           738,407
          Other receivables                         1,677,256         1,708,859
                                                -------------      ------------
                                                $ 132,332,383      $100,736,564
                                                =============      ============


                                       9
<PAGE>


           AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
                               SEPTEMBER 30, 1998

4.       Subordinated Debt and Notes Payable

         Subordinated debt and notes payable at September 30, 1998 and June 30,
1998 are summarized as follows:
<TABLE>
<CAPTION>
                                                                 September 30,         June 30,
                                                                     1998                1998      
                                                                 --------------       ------------
<S>                                                             <C>                 <C>    
         Subordinated debt, due October 1998 through
         September 2008, interest at rates ranging from 
         6.15% to 10.9%; subordinated to all of the
         Company's senior indebtedness.                            $121,978,173       $105,651,694
        
         Note payable, $150,000,000 revolving
         line of credit expiring September 2000; interest
         at rates ranging from LIBOR plus 1.375%
         to LIBOR plus 2%; collateralized by
         loan receivables.                                           34,458,521         25,720,478

         Note payable, $20,000,000 revolving line of 
         credit expiring September 2000; interest at
         prime less 1% or LIBOR plus 1.875% at the
         Company's option; collateralized by
         lease receivables.                                          12,514,983            -

         Subordinated debt, due October 1998 through 
         May 2003; interest rates ranging from 
         9% to 11.26%; subordinated to all of the
         Company's senior indebtedness.                               6,643,856          6,529,854

         Note payable, $100,000,000 revolving 
         line of credit expiring August 1999; 
         interest at LIBOR plus 1.25%, payable 
         monthly; collateralized by loan and
         lease receivables.                                           3,489,525            530,735

         Senior subordinated debt due 
         December 1998 through July 2002; interest
         at 12% payable monthly; subordinated
         to subsidiary's senior debt.                                 2,750,000          3,000,000
</TABLE>

                                       10


<PAGE>


           AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
                               SEPTEMBER 30, 1998

4.       Subordinated Debt and Notes Payable - continued
<TABLE>
<CAPTION>

                                                                          September 30,         June 30,
                                                                              1998                1998      
                                                                        ---------------      ---------------
<S>                                                                    <C>                  <C>    
         Note payable, due October 1998
         through October 2000; interest at 8%,
         payable monthly.                                                     2,367,252         2,914,920

         Other notes payable                                                    221,642           237,138
                                                                           ------------      ------------
                                                                           $184,423,952      $144,584,819
                                                                           ============      ============
</TABLE>
5.       Reconciliation of Basic and Diluted Earnings Per Share
<TABLE>
<CAPTION>
         Three months ended September 30, 1998

                                                                           Average
                                                        Net                Common               Per-share
                                                      Income               Shares                Amount
                                                      ------               -------              --------- 
<S>                                                 <C>                   <C>                      <C>  
         Basic earnings per share                   $3,420,239            3,523,406               $0.97
                                                                                                  =====
         Effect of diluted  securities -
             stock options                               -                  118,612
                                                    ----------            ---------               -----    
         Diluted earnings per share                 $3,420,239            3,642,018               $0.94
                                                    ==========            =========               =====



         Three months ended September 30, 1997
                                                                           Average
                                                        Net                Common               Per-share
                                                      Income               Shares                Amount
                                                      ------               -------              ---------
         Basic earnings per share                   $3,151,535            3,503,166               $0.90
                                                                                                  =====
         Effect of diluted  securities -
             stock options                                                  139,806
                                                    ----------            ---------               -----    
         Diluted earnings per share                 $3,151,535            3,642,972               $0.87
                                                    ==========            =========               =====
</TABLE>

                                       11


<PAGE>


PART 1. FINANCIAL INFORMATION - continued
AMERICAN BUSINESS  FINANCIAL SERVICES, INC. AND SUBSIDIARIES

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS 
        OF OPERATIONS

         The following information should be read in conjunction with the
Company's Consolidated Financial Statements and the accompanying notes thereto
included in Item 1. of this Quarterly Report, and the financial statements and
notes thereto and Management's Discussion and Analysis of Financial Condition
and Results of Operations contained in the Company's Annual Report on Form
10-KSB for the year ended June 30, 1998.

FORWARD LOOKING STATEMENTS

         When used in this Quarterly Report on Form 10-Q, the words or phrases
"will likely result," "are expected to," "will continue," "is anticipated,"
"estimate," "projected," or similar expressions are intended to identify
"forward looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are subject to certain risks and
uncertainties, including but not limited to changes in interest rates, the
Company's dependence on debt financing and securitizations to fund operations,
and fluctuations in operating results. Such factors, which are discussed in
Management's Discussions and Analysis of Financial Condition and Results of
Operations, could affect the Company's financial performance and could cause the
Company's actual results for future periods to differ materially from any
opinion or statements expressed herein with respect to future periods. As a
result, the Company wishes to caution readers not to place undue reliance on any
such forward looking statements, which speak only as of the date made.


BALANCE SHEET INFORMATION
(in thousands, except per share)


Balance Sheet Data:
                                     September 30, 1998         June 30, 1998
                                     ------------------         -------------
Cash and cash equivalents.........        $ 4,028                  $ 4,486
Loan and lease receivables, net
      Available for sale..........         83,150                   62,382
      Other.......................          4,941                    4,097
Other receivables.................        132,332                  100,737
Total assets......................        283,223                  226,551
Debt..............................        184,424                  144,585
Total liabilities.................        237,113                  183,809
Total stockholders' equity........         46,110                   42,742
Book value per common share.......          13.09                    12.13


                                       12


<PAGE>


           AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
          OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued


         Total assets increased $56.6 million, or 25.0%, to $283.2 million at
September 30, 1998 from $226.6 million at June 30, 1998 due primarily to
increases in interest only strips and other receivables and loans and leases
available for sale. Interest only strips and other receivables, consisting
primarily of interest only and residual strips created in connection with the
Company's securitizations, increased $31.6 million, or 31.4%, to $132.3 million
at September 30, 1998 from $100.7 million at June 30, 1998 as the Company funded
$139.9 million of loans as part of a $200.0 million securitization during the
period ended September 30, 1998. The Company funded the remaining $60.1 million
of loans for the $200.0 million securitization in November 1998. Loans and
leases available for sale increased $20.7 million, or 33.2%, from $62.4 million
at June 30, 1998 to $83.1 million at September 30, 1998 due to increases in
loans originated during the period and the timing of the loan securitizations.
Loan and lease originations were $204.4 million for the three months ended
September 30, 1998.

         Total liabilities increased $53.3 million, or 29.0%, to $237.1 million
at September 30, 1998 from $183.8 million at June 30, 1998, due primarily to
increases in subordinated debt and notes payable and other liabilities. The
$39.8 million increase in subordinated debt and notes payable at September 30,
1998 was primarily attributable to $16.3 million in net sales of the Company's
subordinated notes under the Investment Note Program during the first quarter of
fiscal 1999 and $24.2 million in additional borrowings under warehouse lines of
credit used to fund lending and leasing activities (see "LIQUIDITY AND CAPITAL
RESOURCES" beginning on page 21 for further detail). At September 30, 1998, the
Company had $136.6 million of subordinated debt outstanding.

         The Company borrowed an additional $24.2 million under available
warehouse lines of credit, net of repayments, during the three month period. The
Company had $50.5 million outstanding on warehouse lines of credit at September
30, 1998. Other liabilities increased $12.7 million, or 99.2%, to $25.5 million
at September 30, 1998 from $12.8 million at June 30, 1998 due primarily to
growth in the Company's lending and leasing activities which resulted in
increases in liabilities for loans in process at September 30, 1998.


                                       13

<PAGE>


           AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
          OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

RESULTS OF OPERATIONS

Summary Financial Results
(in thousands, except per share data)

                               Three Months Ended
                                  September 30,
                              ---------------------
                                                            Percentage
                              1998             1997         Increase
                              ----             ----         ----------
Total revenues............   $19,609         $11,206          75.0%
Total expenses............   $14,426          $6,431         124.3%
Net income................    $3,420          $3,152           8.5%
Return on average equity..    30.21%          38.11%
Return on average assets..     5.27%          10.84%
Net income per share
    Basic.................   $   .97         $   .90           7.8%
    Diluted...............   $   .94         $   .87           8.0%

         During the three months ended September 30, 1998 (or "the first quarter
of fiscal 1999"), total revenues increased $8.4 million, or 75%, to $19.6
million and net income increased $0.3 million, or 8.5%, to $3.4 million as a
result of increases in loan and lease origination volume and the size of
securitzation transactions. Basic earnings per common share increased to $0.97
per share on weighted average common shares outstanding of 3,523,406 for the
three months ended September 30, 1998, compared to $0.90 per share on weighted
average common shares outstanding of 3,503,166 for the three months ended
September 30, 1997. Diluted earnings per common share increased to $0.94 per
share on weighted average common shares outstanding of 3,642,018, compared to
$0.87 per share on weighted average common shares outstanding of 3,642,972.

         Since the Company's securitization strategy requires the Company to
build an inventory of loans over time, the Company may experience fluctuations
in operating results as a consequence of incurring costs and expenses in a
fiscal period prior to the fiscal period in which the securitization is
consummated. As such, the results of operations for a given period may not be
indicative of results for subsequent comparable periods. In addition, as a
result of the Company's securitization strategy, the Company may operate on a
negative operating cash flow basis which could negatively impact the Company's
results of operations during such periods.

         The Company's growth strategy is dependent upon its ability to increase
its loan volume through both geographic expansion and growth in current markets.
The implementation of this strategy will depend in large part on a variety of
factors outside the control of the Company, including, but not limited to, the
Company's ability to obtain adequate financing on favorable terms and profitably
securitize its loans on a regular basis and continue to expand in the face of
increasing competition. The Company's failure with respect to any of these
factors could impair its ability to successfully implement its growth strategy,
which could adversely affect the Company's results of operations and financial
condition.


                                       14
<PAGE>


           AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
          OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

         Total Revenues. Total revenues increased $8.4 million, or 75.0%, to
$19.6 million for the first quarter of fiscal 1999 from $11.2 million for the
first quarter of fiscal 1998. The growth in total revenue was primarily the
result of increased gains on sales of loans and leases through securitizations
and higher interest income, fee income and servicing income.

         Gain on Sale of Loans. Gain on sale of loans increased $5.3 million, or
62.4%, to $13.8 million for the first quarter of fiscal 1999 from $8.5 million
for the first quarter of fiscal 1998. The increase was the result of sales of
$13.6 million principal amount of loans secured by real estate and other
business assets ("Business Purpose Loans") and $126.3 million principal amount
of loans secured by real estate on single family residences ("Home Equity
Loans") and $13.5 million of small ticket and middle market leases ("Equipment
Leases") through securitizations in the first quarter of fiscal 1999. The
securitization in the first quarter of fiscal 1998 included $12.0 million of
Business Purpose Loans and $48.8 million of Home Equity Loans. The Company did
not participate in a securitization of Equipment Leases in the first quarter of
fiscal 1998. During the first quarter of fiscal 1999, the Company recognized a
gain of $13.7 million (representing the fair value of the interest only and
residual strips of $17.8 million less $4.1 million of costs associated with the
transaction) on the Company's initial funding of $139.9 million of loans sold
pursuant to a $200.0 million securitization. The remaining $60.1 million of
loans was in the form of a pre-funded account which the Company funded in the
second quarter of fiscal 1999.

The following schedule details loan originations during the three months ended
September 30, 1998 and 1997 (in thousands):


                                                   1998             1997     
                                                 --------         -------- 
Business Purpose Loans                           $ 12,688         $  10,415
Home Equity Loans, including  first mortgages     167,012 (a)        84,678
Equipment Leases                                   24,656            14,943
                                                 --------         ---------

Total loans and leases originated                $204,356         $ 110,036
                                                 ========         =========

      (a) Loan originations for the three months ended September 30, 1998
          included $63 million for NJMIC, which was acquired on October 1, 1997.

         Interest and Fee Income. For the first quarter of fiscal 1999, Interest
and fee income increased $2.2 million, or 95.7%, to $4.5 million from $2.3
million for the for the first quarter of fiscal 1998. Interest and fee income
consists of interest income earned on loans and leases while held in the
Company's portfolio, premiums earned on whole loans sold with servicing
released, and other ancillary fees earned in connection with loan and lease
originations while held in portfolio. The growth in interest and fee income for
the first quarter of fiscal 1999 resulted primarily from an increase in the
amount of loans and leases originated and retained in the Company's portfolio
prior to securitization.

                                       15

<PAGE>


           AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
          OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

         Interest income increased $0.6 million, or 35.3%, to $2.3 million for
the first quarter of fiscal 1999. Loans and leases in the portfolio averaged
$107.0 million for the first quarter of fiscal 1999, compared to $46.0 million
for the first quarter of fiscal 1998.

         Fee income increased $1.6 million, or 267%, to $2.2 million for the
first quarter of fiscal 1999 from $0.6 million for the first quarter of fiscal
1998. The increase in fee income was due to increases in ancillary fees
collected in connection with increased originations and fees earned on the sale
of loans to third parties.

         Servicing Income. Servicing income was $1.3 million for the first
quarter of fiscal 1999, an increase of $894 thousand, or 235%, from the first
quarter of fiscal 1998. This growth resulted from a $437 million increase in the
average total managed portfolio, (includes loans and leases available for sale
and loans and leases serviced) from an average of $196 million in the first
quarter of fiscal 1998, to an average of $633 million in the first quarter of
fiscal 1999.

         Total Expenses. Total expenses increased $8.0 million, or 125.0%, to
$14.4 million for the first quarter of fiscal 1999, from $6.4 million for the
comparable quarter of the prior fiscal year. As described in more detail below,
this increase was a result of increased interest expense attributable to the
Company's issuance of subordinated debt and increases in the Company's
outstandings under credit lines to fund the growth in loan and lease
originations. Increases in other major expense categories resulted from the
Company's investment in personnel, systems and marketing programs to support the
Company's continuing growth and the acquisition of NJMIC.

         Interest Expense. Interest expense increased $2.9 million, or 152.6%,
to $4.8 million for the three months ended September 30, 1998 from $1.9 million
for the three months ended September 30, 1997. The increase was primarily
attributable to increases in the amount of the Company's subordinated debt
outstanding, greater utilization of warehouse lines of credit to fund loan and
lease originations, and debt assumed in connection with the acquisition of
NJMIC. Average subordinated debt outstanding was $117.7 million during the three
months ended September 30, 1998 compared to $62.7 million during the three
months ended September 30, 1997. Average interest rates paid on the subordinated
debt increased to 9.34% from 9.29%. Average outstandings under warehouse lines
of credit were $94.3 million during the three months ended September 30, 1998,
compared to $14.2 million during the three months ended September 30, 1997.
Interest expense on the warehouse lines of credit for the three months ended
September 30, 1998 was $1.8 million, compared to $393 thousand for the three
months ended September 30, 1997.


                                       16

<PAGE>


           AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
          OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

         Provision for Credit Losses. The Company maintains an allowance for
credit losses based upon management's estimate of the expected collectibility of
loans and leases outstanding considering factors, including, but not limited to,
economic conditions and credit and collateral considerations. The allowance is
increased through the provision for credit losses. Although the Company
maintains its allowance for credit losses at the level it considers adequate to
provide for potential losses, there can be no assurances that actual losses will
not exceed the estimated amounts or that additional provisions will not be
required. The Company had an allowance for credit losses of $6.9 million at
September 30, 1998 as compared to $5.6 million at June 30, 1998 and $2.8 million
at September 30, 1997. The provision for credit losses on the total managed
portfolio for the first quarter of fiscal 1999 increased by $902 thousand, or
150.3% to $1.5 million (includes a $126 thousand provision related to the
Company's loans and leases for sale available and a $1.3 million provision
related to the Company's securitizations), from $568 thousand (includes a $31
thousand provision related to the Company's loans and leases for sale available
and a $537 thousand provision related to the Company's securitizations) for the
first quarter of fiscal 1998. The ratio of the allowance for credit losses to
total net loan and lease receivables serviced was 1.0% at September 30, 1998,
1.0% at June 30, 1998 and 1.0% at September 30, 1997.

         The following table summarizes changes in the allowance for credit
losses for the three months ended September 30, 1998 (in thousands):

                                    Portfolio      Securitizations    Total
                                    ---------      ---------------    -----
Balance at June 30,1998...........   $1,078            $4,516        $5,594
Provision for credit losses.......      126             1,344         1,470
Charge offs, net of recoveries....     (102)              (51)         (153)
                                     ------            ------        ------   

Balance at September 30, 1998.....   $1,102            $5,809        $6,911
                                     ======            ======        ======

         Employee Related Costs. Employee related costs increased $362 thousand
or 42.7%, to $1.2 million for the first quarter of fiscal 1999 from $851
thousand for the first quarter of fiscal 1998. The increase was due to an
increase in the number of sales and support employees as a result of the
Company's growth in loan and lease originations and the increase in loans and
leases serviced. Management anticipates that these expenses will continue to
increase in the future as the Company's geographic expansion continues.

         Sales and Marketing Expenses. Sales and marketing expenses increased
$3.1 million, or 134.8%, to $5.4 million for the first quarter of fiscal 1999
from $2.3 million for the first quarter of fiscal 1998. The increase was
primarily attributable to targeted television advertising related to Home Equity
Loans and advertising costs resulting from increased newspaper, direct mail and
radio advertising related to the Company's sales of subordinated debt and loan
products. Subject to market conditions, the Company plans to continue to expand
its service area throughout the United States. As a result, it is anticipated
that sales and marketing expenses will continue to increase in the future.

                                       17

<PAGE>


          AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
          OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

         General and Administrative Expenses. General and administrative
expenses increased $1.5 million, or 107.1%, to $2.9 million for the first
quarter of fiscal 1999 from $1.4 million for the first quarter of fiscal 1998.
This increase was primarily attributable to increases in rent, telephone, office
expense, professional fees, goodwill amortization related to the NJMIC
acquisition and other expenses incurred as a result of previously discussed
increases in loan and lease originations and loans and leases serviced during
the three months ended September 30, 1998.

LOAN AND LEASE QUALITY

         Total delinquencies (loans and leases with payments past due greater
than 30 days) were $21.1 million at September 30, 1998 as compared to $16.8
million at June 30, 1998 and $6.1 million at September 30, 1997. The Company's
loans and leases delinquent more than 30 days as a percentage of the total
managed portfolio (the "delinquency rate") was 2.97% at September 30, 1998 as
compared to 3.01% at June 30, 1998 and 2.86% at September 30, 1997. The increase
in the delinquency rate from September 30, 1997 was attributable to the
maturation of the Company's total managed portfolio, which was $709.7 million at
September 30, 1998, $559.4 million at June 30, 1998 and $214.4 million at
September 30, 1997.

                                       18
<PAGE>


           AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
          OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

         The following table provides data concerning delinquency experience,
real estate owned ("REO") and loss experience for the Company's total managed
loan and lease portfolio (dollars in thousands):
<TABLE>
<CAPTION>
                                               September 30, 1998                    June 30, 1998         
                                           --------------------------           -----------------------
Delinquency by Type                        Amount                 %             Amount               %
-------------------                        ------                ---            ------              ---   
<S>                                       <C>                 <C>              <C>               <C>    
Business Purpose Loans
Total portfolio serviced                  $111,877                              $101,250
                                          ========                              ========
Period of delinquency:
         31-60 days                       $  1,388              1.24            $  1,236           1.22
         61-90 days                          1,181              1.06                 928            .92
         Over 90 days                        4,457              3.98               3,562           3.52
                                          --------              ----            --------           ----
Total Delinquencies                       $  7,026              6.28            $  5,726           5.66
                                          ========              ====            ========           ====
REO                                       $  1,187                              $    611
                                          ========                              ========

Home Equity Loans
Total portfolio serviced                  $467,647                              $349,685
                                          ========                              ========
Period of delinquency:
         31-60 Days                       $  4,918              1.05            $  3,726           1.08
         61-90 Days                          1,658              0.35               1,022            .29
         Over 90 Days                        4,883              1.04               3,541           1.02
                                          --------              ----            --------           ----
Total Delinquencies                       $ 11,459              2.44            $  8,289           2.39
                                          ========              ====            ========           ====
REO                                       $    853                              $    311
                                          ========                              ========

Equipment Leases
Total portfolio serviced                  $130,141                              $108,463
                                          ========                              ========
Period of delinquency:
         31-60 days                       $    659              0.50            $  1,000            .92
         61-90 days                            685              0.53                 320            .30
         Over 90 days                        1,269              0.98               1,478           1.36
                                          --------              ----            --------           ----
Total Delinquencies                       $  2,613              2.01            $  2,798           2.58
                                          ========              ====            ========           ====

Company Combined
Total Portfolios Serviced                 $709,665                              $559,398
                                          ========                              ========
Period of delinquency:
         31-60 days                       $  6,965              0.98            $  5,962           1.07
         61-90 days                          3,525              0.50               2,270            .41
         Over 90 days                       10,608              1.49               8,581           1.53
                                          --------              ----            --------           ----
Total Delinquencies                       $ 21,098              2.97            $ 16,813           3.01
                                          ========              ====            ========           ====
Total REO                                 $  2,040                              $    922   
                                          ========                              ========
Losses, net of recoveries,
    experienced during the period         $    153               .09(a)         $    667            .12(a)
                                          ========               ===            ========            ===
Allowance for credit losses at end
    of period                             $  6,911               1.0            $  5,594            1.0
                                          ========               ===            ========            ===


------------------------------------------------------------------------------------------------------------
</TABLE>
(a)      Annualized.

                                       19

<PAGE>


           AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
          OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

INTEREST RATE RISK MANAGEMENT

         The Company's primary market risk exposure is interest rate risk.
Profitability is sensitive to the spread between the effective rate of interest
received on loans and leases available for sale or securitized and the interest
rates paid pursuant to the Company's credit facilities or the pass-through rate
for interests issued in connection with securitizations. Also, a substantial and
sustained increase in market interest rates could adversely affect the Company's
ability to originate and purchase loans.

         Loans and Leases Available for Sale - The Company's gain on sale of
loans and leases may be negatively impacted to the extent it holds fixed-rate
mortgage loans or leases in its available for sale portfolio prior to
securitization. The adverse effect on the Company's gain may be the result of
increases in interest rates during the period the loans are held prior to
securitization or as a result of an increase in the rate required to be paid to
investors in connection with the securitization.

         The Company implemented a hedging strategy in an attempt to mitigate
the effect of changes in interest rates on its fixed-rate mortgage loan and
lease portfolios between the date of origination and securitization. The nature
and quality of hedging transactions are determined by the Company's management
based on various factors, including market conditions and the expected volume of
mortgage loan and lease originations and purchases. The strategy used in the
first quarter of fiscal 1999 involved short sales of a combination of U.S.
Treasury securities with an average life, which closely matches the expected
average life of the loans to be securitized. The settlement date of the short
sale, as well as the buy back of the Treasury securities coincided with the
anticipated settlement date of the underlying securitization. At September 30,
1998, the Company had no outstanding short sales. During the three months ended
September 30, 1998, the Company incurred a loss of approximately $2.1 million on
short sales of securities which was recognized as an offset to the gain on sale
recorded on the sale of $139.9 million of loans pursuant to a $200.0 million
securitization during the period. The Company also prefunded loan originations
in connection with the $200.0 million securitization, which enabled the Company
to determine in the current period the rate to be received by the investors when
the $60.1 million of loans used to satisfy the prefund balance of the $200.0
million securitization was satisfied in November 1998.

         In the future the Company intends to expand the types of financial
instruments it uses to hedge interest rate risk. Such instruments could include
interest rate swaps, financial futures and interest rate options.

         The Company believes that it has implemented a cost-effective hedging
program to provide a level of protection against changes in market value of its
fixed-rate mortgage loans held for sale. However, an effective interest rate
risk management strategy is complex and no such strategy can completely insulate
the Company from interest rate changes. The nature and timing of hedging
transactions may impact the effectiveness of hedging strategies. Poorly designed
strategies or improperly executed transactions may increase rather than mitigate
risk. In addition, hedging involves transaction and other costs. Such costs
could increase as the period covered by the hedging protection increases. It is
expected that such loss would be offset by income realized from the
securitizations in that period or in future periods. As a result, the Company
may be prevented from effectively hedging its fixed-rate loans held for sale,
without reducing the Company's income in current periods due to the costs
associated with the Company's hedging activities.

                                       20
<PAGE>

           AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
          OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued


Interest Only Strips and Servicing Assets - A significant decline in market
interest rates could increase the level of loan prepayments, thereby decreasing
the size of the Company's loan servicing portfolio. To the extent that interest
only strips and servicing assets have been capitalized on the books of the
Company, higher than anticipated rates of loan prepayments could require the
Company to write down the value of such servicing rights and interest only
strips, adversely impacting earnings during the period of adjustment.
Anticipated prepayment rates used to value interest only strips and servicing
assets were as follows:

         Business Purpose Loans.......................3% to 13%
         Home Equity Loans............................2% to 24%

Subordinated Debt - The Company also experiences interest rate risk to the
extent that as of September 30, 1998 approximately $52 million of its
liabilities were comprised of subordinated debt with scheduled maturities of
greater than one year. To the extent that interest rates decrease in the future,
the rates paid on such liabilities could exceed the rates received on new loan
originations resulting in a decrease in the Company's spread.

LIQUIDITY AND CAPITAL RESOURCES

         The Company's business requires continual access to short and long-term
sources of debt financing. The Company's cash requirements include the funding
of loan originations, payment of interest expense, funding of
over-collaterization requirements in connection with its securitizations,
operating expenses and capital expenditures.

         The Company continues to significantly rely on securitizations to
generate cash proceeds for the repayment of debt and to fund its ongoing
operations. As a result of the terms of the securitizations, the Company will
receive less cash flow from the portfolios of loans securitized than it would
otherwise receive absent securitizations. Additionally, pursuant to the terms of
the securitizations, the Company will act as the servicer of the loans and in
that capacity will be obligated to advance funds in certain circumstances which
may create greater demands on the Company's cash flow than either selling loans
or maintaining a portfolio of loans.

         Subject to economic, market and interest rate conditions, the Company
intends to continue to implement additional securitizations of its loan and
lease portfolios. Any delay or impairment in the Company's ability to securitize
its loans, as a result of market conditions or otherwise, could adversely affect
the Company's results of operations.

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

         The Company also relies on borrowings such as its subordinated debt and
warehouse credit facilities to fund its operations. At September 30, 1998, the
Company had a total of $131.4 million of subordinated debt outstanding,
including $9.4 million issued by NJMIC and available credit facilities totaling
$370 million, of which $50.5 million was drawn upon at such date.

         Effective October 1, 1997, ABFS assumed $9.9 million of subordinated
debt previously issued by NJMIC. Of this amount, $9.4 million was outstanding at
September 30, 1998 and included maturity dates ranging from October 1998 to May
2003. In addition, during the three months ended September 30, 1998, ABFS sold
$16.3 million in principal amount of subordinated debt (including redemptions
and repurchases by investors) pursuant to a registered public offering with
maturities ranging between one day and ten years (the "Investment Note
Program"). As of September 30, 1998, the Company has approximately $122.0
million of subordinated outstanding under the Investment Note Program. Under a
shelf registration statement declared effective by the Securities and Exchange
Commission on October 20, 1998, the Company registered an additional $250.0
million of subordinated debt to be offered pursuant to the Investment Note
Program. The proceeds of such sales of subordinated debt will be used to fund
general operating and lending activities. The Company intends to meets its
obligation to repay such debt as it matures with income generated through its
lending activities. The utilization of funds for the repayment of such
obligations should not adversely affect the Company's operations.

         The following is a description of the Company's warehouse and lines of
credit facilities which are utilized to fund the Company's origination of loans
and leases prior to securitization. All of these facilities are senior in right
of payment to the Company's subordinated debt.

                                       21
<PAGE>


           AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
          OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

         The Company's subsidiaries have an aggregate $100.0 million Interim
Warehouse and Security Agreements with Prudential Securities Credit Corporation
to fund loan and lease originations. In May 1998, the aggregate amount that
could be advanced under these agreements was extended from $50.0 million to
$100.0 million. These agreements were also amended in August 1998 to extend the
term to August 31, 1999 with respect to advances for the funding of loan
originations and to March 31, 1999 with respect to lease originations. The
obligations under these agreements are guaranteed by the Company. Under these
agreements, the subsidiaries may obtain advances subject to certain conditions,
which extensions of credit bear interest at a specific margin over the LIBOR
rate. The obligations under these agreements are collateralized by pledged loans
and leases. At September 30, 1998, $3.5 million of these facilities were being
utilized.

         In July 1997, the Company and certain of its subsidiaries obtained a
$110.0 million warehouse credit facility from a syndicate of banks led by Chase
Bank of Texas N.A. Under this warehouse facility, the Company may obtain
advances, subject to certain conditions, including sublimits based upon the type
of collateral securing the advance. Interest rates on the advances are based
upon 30-day LIBOR plus a margin. The Company's obligations under the facility
are collateralized by certain pledged loans and leases and other collateral
related there to. The facility also requires the Company to meet certain
financial ratios and contains restrictive covenants, including covenants
limiting loans to and transactions with affiliates, the issuance of additional
debt, and the types of investments that can be made by the Company and its
subsidiaries. In October 1998, the aggregate amount that could be advanced under
this credit facility was increased from $110.0 million to $150.0 million and the
term was extended two years so that such facility now expires on October 1,
2000. At September 30, 1998, $34.5 million of this facility was being utilized.

         In September 1998 the Company's subsidiaries, American Business
Leasing, Inc. ("ABL") and Federal Leasing Corp., ("FLC") entered into a credit
agreement with First Union National Bank ("FUNB") pursuant to which FUNB
committed to extend $20.0 million of credit in the form of a warehouse line of
credit to such entities to enable them to fund eligible lease receivables. Under
the FUNB line of credit, ABL and FLC may obtain advances in increments of
$500,000 or greater, subject to certain conditions, which extensions of credit
shall bear interest at either the LIBOR rate plus 187.5 basis points or the
prime rate set by FUNB less 100 basis points at the borrower's option. Such
agreement has a term of two years unless accelerated upon an event of default as
described in such agreement. The obligation under the FUNB line of credit is
collateralized by pledged leases and other collateral related thereto. Such
obligation is also guaranteed by the Company and certain of its subsidiaries.
The FUNB line of credit requires ABL and FLC to meet certain financial and
delinquency ratios and contains restrictive covenants included but not limited
to the incurrence of additional debt, the retention of certain members of senior
management and Year 2000 compliance. At September 30, 1998, $12.5 million of
this line of credit was being utilized.

         In October 1998, ABL and American Business Lease Funding Corporation
("ABLFC"), a wholly-owned subsidiary of ABL, entered into a $100.0 million
commercial paper conduit to finance equipment lease production underwritten by
First Union Capital Markets. The agreement allows for up to two sales of
equipment leases per month into the conduit. The agreement terminates on October
14, 1999 unless terminated earlier in the event of certain event of default
described therein. The cost of financing is the average interest rate on
commercial paper plus 65 basis points.

                  As of September 30, 1998, the Company had $125.5 million of
debt scheduled to mature during the twelve months ending September 30, 1999
which was comprised of maturing subordinated debt, warehouse lines of credit and
other debt incurred in connection with the acquisition of NJMIC. The Company
currently expects to refinance the maturing debt through extensions of maturing
debt or new debt financing and, if necessary, may retire the debt through cash
flow from operations and loan sales or securitizations. Despite the Company's
current use of securitizations to fund loan growth, the Company is also
dependent upon other borrowings to fund a portion of its operations. As a
result, the Company intends to continue to utilize debt financing to fund its
operations in the future.

         Any failure to renew or obtain adequate finding under a warehouse
credit facility, or other borrowings, or any substantial reduction in the size
of or pricing in the markets for the Company's loans and leases, could have a
material adverse effect on the Company's results of operations and financial
condition. To the extent the Company is not successful in maintaining or
replacing existing financing, it would have to curtail its loan and lease
production activities or sell loan and lease production activities or sell loans
and leases rather than securitize them, thereby having a material adverse effect
on the Company's results of operations and financial condition.

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

                                       22
<PAGE>


           AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
          OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

Year 2000 Update

         As discussed in Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in the Company's Annual Report on
Form 10-KSB for the year ended June 30, 1998, the Company established its Year
2000 Task Force to assess the Company's Year 2000 issues and to implement the
Company's Year 2000 compliance program. Such task force includes members of the
Company's Information Technology Department, Finance Department and certain
officers of the Company's operating subsidiaries. The Company has completed an
initial assessment of its core information technology systems and is continuing
the process of evaluating the remainder of its information technology systems as
well as non-information technology systems, which include the Company's
telecommunication systems, business machines and building and premises systems.
As part of the initial assessment the Company has established criteria for
prioritizing hardware replacement and systems testing.

         The Company's core application systems are currently client/server
based and hosted by Intel servers and a Unisys mainframe. The Company is
currently in the process of replacing all core systems for business
functionality and growth reasons which are unrelated to the Year 2000 issue. The
Company commenced this replacement process in 1996 and currently anticipates
that it will be completed by the end of 1999. It is the Company's intention to
have all systems that will be developed or acquired as part of this replacement
process to be Year 2000 compliant.

         Based upon the current status of the its Year 2000 compliance program,
the Company has targeted the end of 1999 for completion of the Year 2000
compliance program. However, no assurance can be given that the Company will
meet this time frame. As part of its Year 2000 compliance program, the Company
has hired a consultant to validate the Company's assessment of its Year 2000
issue and to assist the Company's internal Information Technology Department in
managing the Year 2000 compliance program. The Company currently estimates that
the costs directly associated with its Year 2000 compliance program will be
approximately $300,000. The funds necessary to complete the Year 2000 compliance
program will come from the Company's Information Technology operating budget.
Amounts expended for the Company's Year 2000 complaince program have not been
material as of September 30, 1998.

         As part of its Year 2000 compliance program, the Company is continuing
to contact and survey vendors with whom the Company does a material amount of
business to determine whether these parties' systems (to the extent they relate
to the Company's business) are subject to Year 2000 issues. The failure of the
Company's vendors to convert their systems on a timely basis may have a material
adverse effect on the Company's operations.

         The Company is in the process of developing a contingency plan that
will be used in the event that any of its hardware, software or other computer
systems, or those of its vendors are not Year 2000 compliant based on risks
identified as a result of the Company's assessment and testing.

                                       23
<PAGE>


PART I FINANCIAL INFORMATION -- continued
AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUSIDIARIES

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" on page 20. Additional quantitative and
                  qualitative disclosures regarding market risk are contained in
                  the Company's Form 10-KSB for the fiscal year ended June 30,
                  1998.


                                       24

<PAGE>
PART II. OTHER INFORMATION
AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Item 1.           Legal Proceedings

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

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

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

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

                                       25

<PAGE>


AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Item 6.           Exhibits and Reports on Form 8-K :

(a)      Exibits:
<TABLE>
<CAPTION>
    Exhibit
     Number                                                       Description
-----------------          -------------------------------------------------------------------------------------------
<S>                       <C>                                                                            
      10.1                 $100.0 Million Receivables Purchase Agreement, dated September 30, 1998, among American
                           Business Lease Funding Corporation, American Business Leasing, Inc. and a syndicate of
                           financial institutions lead by First Union Capital Markets and First Union National Bank,
                           as liquidity agent.

      10.2                 $20.0 Million Credit Agreement, dated September 28, 1998, between American Business
                           Leasing, Inc., Federal Leasing Corp. and First Union National Bank.

      10.3                 Interim Warehouse and Security Agreement, dated August 3, 1998, among Prudential
                           Securities Credit Corporation, as lender, and Federal Leasing, Inc. and American Business
                           Leasing, Inc., as borrowers, and Amendments One and Two thereto.

      10.4                 Amended and Restated Credit Agreement, dated October 1, 1998, between American Business 
                           Credit, Inc., HomeAmerican Credit, Inc., American Business Leasing, Inc., New Jersey Mortgage 
                           and Investment Corp., as co-borrowers, American Business Financial Services, Inc., as parent
                           and Chase Bank of Texas.

       27                  Financial Data Schedule
</TABLE>

(b)     Reports on form 8-K:
        No reports on Form 8-K were filed during the quarter ended September
        30, 1998.

                                       26
<PAGE>


           AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES


                                    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: November 13, 1998            BY:   /S/ Albert W. Mandia                  
     -------------------              -----------------------------------------
                                   Albert W. Mandia
                                   Chief Financial Officer and Executive Vice
                                   President



                                       27
<PAGE>


           AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES

                                  EXHIBIT INDEX
<TABLE>
<CAPTION>
    Exhibit
     Number                                                       Description
-----------------          -------------------------------------------------------------------------------------------
<S>                        <C>                                                                           
      10.1                 $100.0 Million Receivables Purchase Agreement, dated September 30, 1998, among American
                           Business Lease Funding Corporation, American Business Leasing, Inc. and a syndicate of
                           financial institutions lead by First Union Capital Markets and First Union National Bank,
                           as liquidity agent.

      10.2                 $20.0 Million Credit Agreement, dated September 28, 1998, between American Business
                           Leasing, Inc., Federal Leasing Corp. and First Union National Bank.

      10.3                 Interim Warehouse and Security Agreement, dated August 3, 1998, among Prudential
                           Securities Credit Corporation, as lender, and Federal Leasing, Inc. and American Business
                           Leasing, Inc., as borrowers, and Amendments One and Two thereto.

      10.4                 Amended and Restated Credit Agreement, dated October 1, 1998, between American Business 
                           Credit, Inc., HomeAmerican Credit, Inc., American Business Leasing, Inc., New Jersey Mortgage 
                           and Investment Corp., as co-borrowers, American Business Financial Services, Inc., as parent
                           and Chase Bank of Texas.

       27                  Financial Data Schedule

</TABLE>

                                       28