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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2003

OR

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

For the transition period from _____ to _____

Commission File Number 000-32403

NCO PORTFOLIO MANAGEMENT, INC.
(Exact name of Registrant as Specified in its charter)

Delaware 23-3005839
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)


1804 Washington Blvd., Dept. 200, Baltimore, Maryland 21230
(Address of principal executive offices) (Zip code)

Registrant's telephone number, including area code: (443) 263-3020

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(D) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days Yes [X] No [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X]

The number of shares outstanding of the registrant's common stock as of August
14, 2003 was 13,576,519.




NCO PORTFOLIO MANAGEMENT, INC.

FORM 10-Q

INDEX

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements (Unaudited)


Page


Consolidated Balance Sheets
As of December 31, 2002 and June 30, 2003.................................................. 3

Consolidated Statements of Income
For the Three and Six Months Ended June 30, 2002 and 2003.................................. 4

Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2002 and 2003............................................ 5

Notes to Consolidated Financial Statements................................................. 6

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................................... 15

Item 3. Quantitative and Qualitative Disclosures about Market Risk.................................. 21

Item 4. Controls and Procedures..................................................................... 22

PART II. OTHER INFORMATION

Item 1. Legal Proceedings........................................................................... 23

Item 2. Changes in Securities and Use of Proceeds................................................... 23

Item 3. Defaults Upon Senior Securities............................................................. 23

Item 4. Submission of Matters to a Vote of Shareholders............................................. 23

Item 5. Other Information........................................................................... 23

Item 6. Exhibits and Reports on Form 8-K............................................................ 23

SIGNATURES.......................................................................................... 24






Part 1 - Financial Information
Item 1 - Financial Statements

NCO PORTFOLIO MANAGEMENT, INC.
Consolidated Balance Sheets
(Amounts in thousands, except par values)


(Unaudited)
December 31, June 30,
ASSETS 2002 2003
----------- -----------

Cash and cash equivalents $ 6,388 $ 7,676
Restricted cash 900 900
Purchased accounts receivable 148,968 142,981
Investment in securitization 7,474 7,474
Deferred costs 547 357
Investment in joint venture 3,362 4,242
Other assets 158 734
--------- ---------
Total assets $ 167,797 $ 164,364
========= =========


LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
Accounts payable $ 89 $ 85
Accrued expenses 3,936 8,003
Accrued compensation and related expenses 155 365
Notes payable 55,264 54,270
Note payable - affiliate 36,880 26,250
Deferred income taxes 4,276 5,779


Minority interest 560 463

Stockholders' equity:
Preferred stock, $.01 par value, 5,000 shares authorized,
no shares issued and outstanding - -
Common stock, $.01 par value, 35,000 shares authorized,
13,576 shares issued and outstanding 136 136
Additional paid-in capital 40,826 40,826
Accumulated other comprehensive income (loss) (7) 22
Retained earnings
25,682 28,165
--------- ---------
Total stockholders' equity 66,637 69,149
--------- ---------
Total liabilities and stockholders' equity $ 167,797 $ 164,364
========= =========


See accompanying notes.


3



NCO PORTFOLIO MANAGEMENT, INC.
Consolidated Statements of Income
(Unaudited)
(Amounts in thousands, except per share data)




For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------------- ------------------------------
2002 2003 2002 2003
----------- ------------ ---------- ------------



Revenue $ 14,108 $ 18,086 $ 30,378 $ 36,318

Operating costs and expenses:
Payroll and related expenses 549 563 1,103 1,043
Servicing fee expense 8,064 12,012 16,364 23,885
Selling, general, and administrative expenses 806 758 1,372 1,696
Amortization expense 75 105 150 213
Impairment of purchased accounts receivable 401 612 1,198 922
----------- ------------ ---------- ------------
Total operating costs and expenses 9,895 14,050 20,187 27,759
----------- ------------ ---------- ------------

Income from operations 4,213 4,036 10,191 8,559


Other income (expense):
Interest and other income 303 496 434 990
Interest expense (1,752) (2,788) (3,619) 5,441)
----------- ------------ ---------- ------------
Total other income (expense) (1,449) (2,292) (3,185) (4,451)
----------- ------------ ---------- ------------
Income before income tax expense 2,764 1,744 7,006 4,108


Income tax expense 1,037 629 2,628 1,489
----------- ------------ ---------- ------------
Income from operations before minority interest 1,727 1,115 4,378 2,619


Minority interest - (66) - (136)
----------- ------------ ---------- ------------
Net income $ 1,727 $ 1,049 $ 4,378 $ 2,483
=========== ============ ========== ============

Net income per share applicable to common stockholders:
Basic $ 0.13 $ 0.08 $ 0.32 $ 0.18
=========== ============ ========== ============
Diluted $ 0.13 $ 0.08 $ 0.32 $ 0.18
=========== ============ ========== ============

Weighted average shares outstanding:
Basic 13,576 13,576 13,576 13,576
Diluted 13,579 13,576 13,578 13,576



See accompanying notes.

4





NCO PORTFOLIO MANAGEMENT, INC.
Consolidated Statements of Cash Flows
(Unaudited)
(Amounts in thousands)



For the Six Months
Ended June 30,
-------------------------------
2002 2003
-------- --------



Cash flows from operating activities:
Net income $ 4,378 $ 2,483
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of deferred costs 150 213
Impairment of purchased accounts receivable 1,198 922
Income from investment in securitization (75) -
Equity income from investment in joint venture (303) (952)
Minority interest - 136
Changes in operating assets and liabilities:
Restricted cash 225 -
Deferred income taxes 2,628 1,489
Other assets (38) (576)
Accounts payable and accrued expenses (816) 4,503
-------- --------
Net cash provided by operating activities 7,347 8,218
-------- --------

Cash flows from investing activities:
Purchases of accounts receivable (16,026) (28,756)
Collections applied to principal of purchased accounts receivable 23,275 36,267
Investment in joint venture, net of distributions (542) 72
Distributions of minority interest - (233)
-------- --------
Net cash provided by investing activities 6,707 7,350
-------- --------

Cash flows from financing activities:
Borrowings under note payable - affiliate 370 1,000
Repayments of note payable - affiliate (5,250) (11,630)
Borrowings under notes payable - 9,890
Repayments of notes payable (7,357) (13,517)
Payment of fees to acquire new debt - (23)
-------- --------
Net cash used in financing activities (12,237) (14,280)
-------- --------

Net increase in cash and cash equivalents 1,817 1,288

Cash and cash equivalents at beginning of period 6,509 6,388
-------- --------
Cash and cash equivalents at end of period $ 8,326 $ 7,676
======== ========


See accompanying notes.

5


NCO PORTFOLIO MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note A - Organization and Business

NCO Portfolio Management, Inc. ("NCO Portfolio" or the "Company") was
incorporated in Delaware on January 22, 1999, (date of inception) under the name
of NCO Portfolio Funding, Inc. The Company changed its name from NCO Portfolio
Funding, Inc. to NCO Portfolio Management, Inc. in February 2001. NCO Portfolio
purchases and manages past due consumer accounts receivable from consumer
creditors such as banks, finance companies, retail merchants, hospitals,
utilities, and other consumer-oriented companies. NCO Portfolio's purchased
accounts receivable originate from consumers located throughout the United
States, Canada, and the United Kingdom. NCO Portfolio has funded its purchased
accounts receivable through internal cash flows, financing from NCO Group, Inc.
("NCO Group" or the "Parent"), and other financing facilities. NCO Portfolio was
a wholly owned subsidiary of NCO Group, Inc. until NCO Portfolio's merger with
Creditrust Corporation ("Creditrust") on February 20, 2001 (the "Merger"). In
connection with the Merger, NCO Portfolio became a publicly traded company
(NASDAQ: NCPM).

As part of the acquisition, NCO Portfolio entered into a ten year service
agreement that appointed a wholly owned subsidiary of NCO Group, NCO Financial
Systems, Inc. ("NCOF") as the provider of collection services to NCO Portfolio.
NCO Group has agreed to offer all of its future U.S. accounts receivable
purchase opportunities to NCO Portfolio.

Note B - Summary of Significant Accounting Policies

Basis of Accounting

The financial statements and disclosures included herein for the three and six
months ended June 30, 2002 and 2003, are unaudited. These financial statements
and disclosures have been prepared by the Company in accordance with generally
accepted accounting principles for interim financial information. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of adjustments of a normal and
recurring nature) considered necessary for a fair presentation have been
included. Operating results for the three and six months ended June 30, 2003,
are not necessarily indicative of the results that may be expected for the year
ended December 31, 2003. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K filed with the Securities and Exchange Commission on March
13, 2003.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and
all affiliated subsidiaries and entities controlled by the Company (see Note G -
Related Party transactions). All significant intercompany accounts and
transactions have been eliminated. Two affiliates that the Company does not
control are InoVision-MEDCLR-NCOP Ventures, LLC and Creditrust SPV98-2, LLC
("SPV 98-2") and are not included in the consolidated financial statements. See
Note D - Investments in Unconsolidated Subsidiaries.

Cash and Cash Equivalents and Restricted Cash

NCO Portfolio considers all highly liquid securities purchased with an initial
maturity of three months or less to be cash equivalents. One securitization that
is accounted for as secured borrowing has provisions that restrict NCO
Portfolio's use of cash. Restricted cash as of December 31, 2002 and June 30,
2003, was $900,000.





6





NCO PORTFOLIO MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)

Note B - Summary of Significant Accounting Policies (Continued)

Purchased Accounts Receivable

NCO Portfolio accounts for its investment in purchased accounts receivable on an
accrual basis under the guidance of the American Institute of Certified Public
Accountants' Practice Bulletin No. 6, "Amortization of Discounts on Certain
Acquired Loans," using unique and exclusive portfolios. Portfolios are
established with accounts having similar attributes. Typically, each portfolio
consists of an individual acquisition of accounts that are initially recorded at
cost, which includes external costs of acquiring portfolios. Once a portfolio is
acquired, the accounts in the portfolio are not changed. Proceeds from the sale
of accounts and return of accounts within a portfolio are accounted for as
collections in that portfolio. The discount between the cost of each portfolio
and the face value of the portfolio is not recorded since NCO Portfolio expects
to collect a relatively small percentage of each portfolio's face value.

Collections on the portfolios are allocated to revenue and principal reduction
based on the estimated internal rate of return ("IRR") for each portfolio. The
IRR for each portfolio is derived based on the expected monthly collections over
the estimated economic life of each portfolio (generally five years, based on
NCO Portfolio's collection experience), compared to the original purchase price.
Revenue on purchased accounts receivable is recorded monthly based on each
portfolio's effective IRR for the quarter applied to each portfolio's monthly
opening carrying value. To the extent collections exceed the revenue, the
carrying value is reduced and the reduction is recorded as collections applied
to principal. Because the IRR reflects collections for the entire economic life
of the portfolio, and those collections are not constant, lower collection
rates, typically in the early months of ownership, can result in a situation
where the actual collections are less than the revenue accrual. In this
situation, the carrying value of the portfolio may be increased for the
difference between the revenue accrual and collections.

To the extent actual collections differ from estimated projections, NCO
Portfolio prospectively adjusts the IRR. If the carrying value of a particular
portfolio exceeds its expected future collections, a charge to income would be
recognized in the amount of such impairment. Additional impairments on each
quarter's previously impaired portfolios may occur if the current estimated
future collections projection, after being adjusted prospectively for actual
collection results, is less than the carrying value recorded. After the
impairment of a portfolio, all collections are recorded as a return of capital
and no income is recorded on that portfolio until the full carrying value of the
portfolio has been recovered. The estimated IRR for each portfolio is based on
estimates of future collections, and actual collections will vary from current
estimates. The difference could be material.

Third party legal and professional fees incurred with respect to the acquisition
of purchase accounts receivable are capitalized as part of the cost of the
portfolio, and amortized over the life of the portfolio. For the three and six
months ended June 30, 2002 and 2003, no legal and professional fees were
capitalized.

Use of Estimates

The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes.

In the ordinary course of accounting for purchased accounts receivable,
estimates have been made by management as to the amount and timing of future
collections expected from each portfolio. The estimated future collections of
each portfolio are used to compute the IRR for the portfolio. The IRR is used to
allocate collections between revenue and principal reduction of the carrying
values of the purchased accounts receivable.

On an ongoing basis, the Company compares the historical trends of each
portfolio to projected collections. The future projections are then increased,
within preset limits, or decreased based on the actual cumulative performance of
each portfolio. The Company reviews each portfolio's adjusted projected
collections to determine if further upward or downward adjustment is warranted.
Management regularly reviews the trends in collection patterns and uses its best
efforts to improve collections of under-performing portfolios. On newly acquired
portfolios, additional reviews are made to determine if the estimated
collections at the time of purchase require upward or downward adjustment due to
unusual collection patterns in the early months of ownership. However, actual
results will differ from these estimates and a material change in these
estimates could occur within one year. See Note C - Purchased Accounts
Receivable.

7






NCO PORTFOLIO MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)

Note B - Summary of Significant Accounting Policies (Continued)

Use of Estimates (Continued)

During the three months ended June 30, 2003, the Company adjusted one of the
calculations used to determine the historical trends, that in part, computes
future collections. This adjustment increased the estimated remaining
collections on several portfolios that increased revenue for the three months
ended June 30, 2003. This change was made because there are other procedures in
place that make this aspect of the calculation unnecessary. The effect of this
change was to increase net income for the three and six months ended June 30,
2003, by $178,000, and diluted earnings per share by $0.01, respectively.

Investments in Debt and Equity Securities

NCO Portfolio accounts for investments, such as the investment in
securitization, SPV 98-2, in accordance with Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." As such, investments are recorded as either trading, available for
sale, or held to maturity based on management's intent relative to those
securities. NCO Portfolio records its investment in securitization as an
available for sale debt security. Such security is recorded at fair value, and
unrealized gains and losses, net of taxes, are not reflected in income but are
recorded as other comprehensive income in stockholders' equity until realized. A
decline in the value of an available for sale security below cost that is deemed
other than temporary is charged to earnings as an impairment and results in the
establishment of a new cost basis for the security.

The investment in securitization represents the residual interest in a
securitized portfolio of purchased accounts receivable acquired in the Merger.
The investment in securitization accrues interest at an IRR that is estimated
based on the expected monthly collections over the estimated economic life of
the investment (approximately five years). The cost of this investment
approximates fair value at June 30, 2003. See Note D - Investments in
Unconsolidated Subsidiaries.

Foreign Currency Translation

NCO Portfolio consolidates an entity whose functional currency is the British
Pound. For this entity, the assets and liabilities have been translated using
the current exchange rates, and the income and expenses have been translated
using historical exchange rates. The adjustments resulting from translation have
been recorded separately in stockholders' equity as accumulated other
comprehensive income (loss) and are not included in determining net income.

Income Taxes

NCO Portfolio files its own income tax returns. The Company accounts for income
taxes using an asset and liability approach. The asset and liability approach
requires the recognition of deferred tax assets and liabilities for expected
future tax consequences of temporary differences between the financial reporting
and tax basis of assets and liabilities.

The portfolios of purchased accounts receivable are composed of distressed debt.
Collection results are not guaranteed until received; accordingly, for tax
purposes, any gain on a particular portfolio is deferred until the full cost of
its acquisition is recovered. Revenue for financial reporting purposes is
recognized over the life of the portfolio. Deferred tax liabilities arise from
deferrals created during the early stages of the portfolio. These deferrals
reverse after the cost basis of the portfolio is recovered. The creation of new
tax deferrals from future purchases of portfolios are expected to offset a
significant portion of the reversal of the deferrals from portfolios where the
collections have become fully taxable.

Earnings Per Share

Basic earning per share ("EPS") was computed by dividing net income applicable
to common stockholders for the three and six months ended June 30, 2002 and
2003, by the weighted average number of common shares outstanding. Diluted EPS
was computed by dividing net income applicable to common stockholders for the
three and six months ended June 30, 2002 and 2003, by the weighted average
number of common shares outstanding plus all common equivalent shares.
Outstanding options have been utilized in calculating diluted net income per
share only when their effect would be dilutive. As of June 30, 2002 and 2003,
there were 593,000 and 715,500 options outstanding to purchase shares of common
stock, respectively. For the three and six months ended June 30, 2002 and 2003,
none of the outstanding options were dilutive.

8




NCO PORTFOLIO MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)

Note B - Summary of Significant Accounting Policies (Continued)

Deferred Costs

NCO Portfolio capitalizes legal and professional fees incurred in connection
with new debt facilities. The costs are being amortized over the terms of the
facilities, which range from twenty-four to thirty-six months.

Stock Option Plan

The Company accounts for stock option grants in accordance with APB Opinion 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations. Under APB 25, because the exercise price of the stock options
equaled the fair value of the underlying common stock on the date of grant, no
compensation cost was recognized. In accordance with SFAS 123, "Accounting for
Stock-Based Compensation", the Company does not recognize compensation cost
based on the fair value of the options granted at grant date. If the Company had
elected to recognize compensation cost based on the fair value of the options
granted at grant date, net income and net income per share would have been
reduced to the pro forma amounts indicated in the following table for the six
months ended June 30, (amounts in thousands, except per share amounts):
2002 2003
------- -------
Net income - as reported.......................... $ 4,378 $ 2,483
Proforma compensation cost, net of taxes...... (363) (386)
------- -------
Net income -- pro forma........................... $ 4,015 $ 2,097
======= =======

Net income per share - as reported:
Basic and diluted............................ $ 0.32 $ 0.18
======= =======
Net income per share -- pro forma:
Basic and diluted............................ $ 0.30 $ 0.15
======= =======

Court Cost Reimbursements

NCO Portfolio incurs court costs and related filing fees on certain accounts
that have been placed in the NCO Attorney Network. NCO Portfolio is reimbursed
for these expenses when the debtor makes payments on their account. The
reimbursement of these costs is recorded as revenue in the accompanying
Statements of Income in accordance with EITF 01-14, "Income Statement
Characterization of Reimbursements Received for `Out-of-Pocket' Expenses
Incurred", and amounted to $34,000 and $232,000 for the three and six months
ended June 30, 2003.

Reclassifications

Certain amounts for the three and six months ended June 30, 2002, have been
reclassified to conform with the 2003 presentation for comparative purposes.

Note C - Purchased Accounts Receivable

NCO Portfolio purchases defaulted consumer accounts receivable at a discount
from the actual principal balance. The following summarizes the change in
purchased accounts receivable for the year ended December 31, 2002, and for the
six months ended June 30, 2003 (amounts in thousands):



2002 2003
---- ----


Balance, at beginning of period.............................................. $ 136,339 $ 148,968
Purchases of accounts receivable.............................. 71,579 31,138
Collections on purchased accounts receivable.................. (116,394) (72,352)
Purchase price adjustment..................................... (4,000) --
Revenue recognized on purchased accounts receivable........... 63,379 36,086
Foreign currency translation.................................. -- 63
Impairment of purchased accounts receivable................... (1,935) (922)
--------- ----------
Balance, at end of period.................................................... $ 148,968 $ 142,981
========= ==========

9


NCO PORTFOLIO MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)

Note C - Purchased Accounts Receivable (Continued)

During the three months ended June 30, 2002 and 2003, an impairment charge of
$401,000 and $612,000, respectively, was recorded as a charge to income on
portfolios where the carrying values exceeded the expected future collections.
During the six months ended June 30, 2002 and 2003, an impairment charge of $1.2
million and $922,000, respectively was recorded as a charge to income. No
revenue will be recorded on these portfolios until their carrying values have
been fully recovered. As of December 31, 2002 and June 30, 2003, the combined
carrying values on all impaired portfolios aggregated $5.8 million and $9.7
million, respectively, or 3.9 percent and 6.8 percent of total purchased
accounts receivable, respectively, representing their net realizable value.
Revenue from fully cost recovered portfolios was $147,000 and $300,000 for the
three and six months ended June 30, 2003, respectively. Included in collections
for the six months ended June 30, 2003, was $1.5 million in proceeds from the
sale of accounts. For the six months ended June 30, 2003, a foreign currency
translation gain of $63,000 was recorded on accounts receivable whose functional
currency is the British Pound.

Note D - Investments in Unconsolidated Subsidiaries

NCO Portfolio owns a 100 percent retained residual interest in an investment in
securitization, SPV 98-2, which was acquired in the Merger. This transaction
qualified for gain on sale accounting when the purchased accounts receivable
were originally securitized by Creditrust. This securitization issued a
nonrecourse note that is due the earlier of January 2004 or satisfaction of the
note from collections, carries an interest rate of 8.61 percent, and had a
balance of $2.4 million and $1.1 million as of December 31, 2002 and June 30,
2003, respectively. The retained interest represents the present value of the
residual interest in SPV 98-2 using discounted future collections after the
securitization note is fully repaid, plus a cash reserve. As of June 30, 2003,
the investment in SPV 98-2 was $7.5 million, composed of $4.2 million in present
value of discounted residual cash flows plus $3.25 million in cash reserves. The
investment accrues noncash income at a rate of 8 percent per annum on the
residual cash flow component only. The income earned increases the investment
balance until the securitization note has been repaid, after which, collections
are split between income and amortization of the investment in SPV 98-2 based on
the discounted cash flows. No income was recorded for the three and six months
ended June 30, 2003, as the income was offset by a temporary decline in market
value. NCO Portfolio recorded $47,000 and $75,000 in income on this investment
for the three and six months ended June 30, 2002, respectively. The off balance
sheet cash reserves of $3.25 million plus the first $1.3 million in residual
cash collections received, after the securitization note has been repaid, have
been pledged as collateral against the Warehouse Facility. See Note E - Notes
Payable.

NCO Portfolio has a 50 percent ownership interest in a joint venture,
InoVision-MEDCLR-NCOP Ventures, LLC ("Joint Venture") with IMNV Holdings, LLC
("IMNV"). This Joint Venture was established in 2001 to purchase utility,
medical and various other small balance accounts receivable and is accounted for
using the equity method of accounting. Gains and losses are shared equally
between NCO Portfolio and IMNV. NCO Portfolio had an investment in the Joint
Venture of $3.4 million and $4.2 million as of December 31, 2002 and June 30,
2003, respectively. Included in the Statements of Income, in "other income," for
the three months ended June 30, 2002 and 2003, was $220,000 and $479,000,
respectively, representing the Company's 50 percent share of operating income
from this unconsolidated subsidiary. For the six months ended June 30, 2002 and
2003, NCO Portfolio recorded $303,000 and $952,000 in income from this
unconsolidated subsidiary.

The Joint Venture has access to capital through CFSC Capital Corp. XXXIV
("Cargill Financial") who, at its option, lends 90 percent of the cost of the
purchased accounts receivable to the Joint Venture. Borrowings carry interest at
the prime rate plus 4.25 percent (prime rate was 4.00 percent as of June 30,
2003). Debt service payments equal total collections less servicing fees and
expenses until each individual borrowing is fully repaid and the Joint Venture's
investment is returned, including interest. Thereafter, Cargill Financial is
paid a residual of 50 percent of collections less servicing costs. Individual
loans are required to be repaid based on collections, but not more than two
years from the date of borrowing. The debt is cross-collateralized by all
portfolios in which the lender participates, and is nonrecourse to NCO
Portfolio. The following table summarizes the financial information of the Joint
Venture as of December 31, 2002 and June 30, 2003, and for the six months ended
June 30, 2002 and 2003 (amounts in thousands):

2002 2003
---- ----
Total assets........................... $ 11,638 $ 11,437
Total liabilities...................... $ 4,944 $ 2,941
Revenue................................ $ 4,192 $ 6,440
Net income............................. $ 606 $ 1,903

10




NCO PORTFOLIO MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)

Note E - Notes Payable

NCO Portfolio assumed four securitized notes payable in connection with the
Merger, one of which is included in an unconsolidated subsidiary, SPV 98-2 (see
Note E - Investments in Unconsolidated Subsidiaries). The remaining three notes
are reflected in notes payable. These notes payable were originally established
to fund the purchase of accounts receivable. Each of the notes payable is
nonrecourse to the Company and NCO Group, is secured by a portfolio of purchased
accounts receivable, and is bound by an indenture and servicing agreement.
Pursuant to the Merger, the trustee appointed NCOF as the successor servicer for
each portfolio of purchased accounts receivable within these securitized notes.
When the notes payable were established, a separate nonrecourse special purpose
finance subsidiary was created to hold the assets and issue the debt. These are
term notes without the ability to reborrow. Monthly principal payments on the
notes equal all collections after servicing fees, collection costs, interest
expense, and administrative fees.

The first securitized note ("Warehouse Facility") was established in September
1998 through Creditrust Funding I LLC, a special purpose finance subsidiary. The
Warehouse Facility carries a floating interest rate of London InterBank Offered
Rate ("LIBOR") plus .65 percent per annum, and the final due date of all
payments under the facility is the earlier of March 2005, or satisfaction of the
note from collections. A $900,000 liquidity reserve is included in restricted
cash as of December 31, 2002 and June 30, 2003, and is restricted as to use
until the facility is retired. Interest expense, trustee fees and guarantee fees
aggregated $160,000 and $121,000 for the three months ended June 30, 2002 and
2003, respectively. Interest expense, trustee fees and guarantee fees aggregated
$328,000 and $245,000 for the six months ended June 30, 2002 and 2003,
respectively. As of December 31, 2002 and June 30, 2003, the amount outstanding
on this facility was $15.4 million and $14.6 million, respectively. Pursuant to
the Merger, the note insurer, Radian Group, Inc., has been guaranteed against
loss by the Company for up to $4.5 million, which will be reduced if and when
cash reserves and residual collections from another securitization, SPV 98-2,
are posted as additional collateral for this facility.

The second securitized note ("SPV99-1 Financing") was established in August 1999
through Creditrust SPV99-1, LLC, a special purpose finance subsidiary. SPV99-1
Financing carried interest at 9.43 percent per annum. This facility was repaid
and retired in May 2002. Interest expense and trustee fees aggregated $56,000
for the six months ended June 30, 2002.

The third securitized note ("SPV99-2 Financing") was established in August 1999
through Creditrust SPV99-2, LLC, a special purpose finance subsidiary. SPV99-2
Financing carries interest at 15 percent per annum, with a final payment date of
the earlier of December 2004, or satisfaction of the note from collections.
Interest expense and trustee fees aggregated $832,000 and $748,000 for the three
months ended June 30, 2002 and 2003, respectively. Interest expense and trustee
fees aggregated $1.7 million and $1.5 million for the six months ended June 30,
2002 and 2003, respectively. As of December 31, 2002 and June 30, 2003, the
amount outstanding on this facility was $20.1 million and $19.7 million,
respectively.

In August 2002, the Company entered into a four year exclusivity agreement with
Cargill Financial. The agreement stipulates that all purchases of accounts
receivable with a purchase price in excess of $4 million shall be first offered
to Cargill Financial for financing at its discretion. The agreement has no
minimum or maximum credit authorization. The Company may terminate the agreement
at any time after two years for a cost of $125,000 per month for each month of
the remaining two years, payable monthly. If Cargill Financial chooses to
participate in the financing of a portfolio of accounts receivable, the
financing will be at 90 percent of the purchase price, unless otherwise
negotiated, with floating interest at the prime rate plus 3.25 percent (prime
rate was 4.00 percent as of June 30, 2003). Each borrowing is due twenty-four
months after the loan is made. Debt service payments equal collections less
servicing fees and interest expense. As additional interest, Cargill Financial
will receive 40 percent of the residual collections, unless otherwise
negotiated, which is defined as all cash collections after servicing fees,
floating rate interest, repayment of the note and the initial investment by the
Company, including imputed interest. Borrowings under this financing agreement
are nonrecourse to the Company and NCO Group, except for the assets within the
special purpose entities established in connection with the financing agreement.
This loan agreement contains a collections performance requirement, among other
covenants, that, if not met, provides for cross-collateralization with any other
Cargill Financial financed portfolios, in addition to other remedies. As of June
30, 2003, NCO Portfolio was in compliance with all required covenants.


11




NCO PORTFOLIO MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)

Note E - Notes Payable (Continued)

During the three months ended June 30, 2003, the Company purchased accounts
receivable from a major credit card institution that was financed through
Cargill Financial under the exclusivity agreement. The total amount of new
borrowings for the three months ended June 30, 2003, under the exclusivity
agreement amounted to $3.8 million. The total amount outstanding for all
portfolios under the exclusivity agreement as of December 31, 2002 and June 30,
2003, was $17.6 million and $15.6 million, respectively. The final payment date
on the outstanding notes range from August 2004 to June 2005, or satisfaction of
the notes from collections. Interest expense on all notes totaled $1.3 million
and $2.4 million for the three and six months ended June 30, 2003, respectively,
which includes $1.0 million and $1.8 million, respectively, of accrued interest
representing Cargill Financial's residual interest earned. Total accrued
interest expense attributable to the residual liability was $831,000 and $2.6
million as of December 31, 2002, and June 30, 2003, respectively. The effective
interest rate on all notes, including the residual interest component was
approximately 29.1 percent and 26.9 percent for the three and six months ended
June 30, 2003, respectively.

Note F - Commitments and Contingencies

Forward-Flow Agreement

In May 2003, NCO Portfolio renewed the fixed price agreement ("forward-flow")
with a major financial institution that obligates NCO Portfolio to purchase, on
a monthly basis, portfolios of charged off accounts receivable meeting certain
criteria. As of June 30, 2003, NCO Portfolio was obligated to purchase accounts
receivable at a maximum of $2.5 million per month through May 2004. A portion of
the purchase price is deferred for 24 months, including a nominal rate of
interest. Deferred purchase price payable, included in notes payable, as of
December 31, 2002 and June 30, 2003, was $2.1 million and $4.3 million,
respectively, with payments commencing June 2003 on the deferred portions
incurred during the twelve months under the previous agreement.

Litigation

NCO Portfolio is party, from time to time, to various legal proceedings
incidental to its business. In the opinion of management, none of these items
individually or in the aggregate will have a significant effect on the financial
position, results of operations, cash flows, or liquidity of NCO Portfolio.

Note G - Related Party Transactions

Servicing Fees

As part of the Merger, NCO Portfolio entered into a ten year service agreement
that appointed NCOF as the provider of collection services to NCO Portfolio. NCO
Group has agreed to offer all of its future U.S. accounts receivable purchase
opportunities to NCO Portfolio. NCO Portfolio pays NCOF to perform collection
services for its purchased accounts receivable. Generally, NCOF is paid a
commission ranging from 20 percent to 40 percent depending on the nature of the
accounts. NCOF may out source collections activities. As customary in the
market, the cost of outsourcing is generally higher as accounts age and are
passed to another placement level. Management believes that the commission rates
paid are reasonable and are consistent with rates charged by other collection
agencies for the same type of services. Servicing fees paid to NCOF amounted to
$8.1 million and $12.0 million for the three months ended June 30, 2002 and
2003, respectively, and $16.4 million and $23.9 million for the six months ended
June 30, 2002 and 2003, respectively.

Shared Services

NCO Group paid certain costs on behalf of NCO Portfolio during the quarters
ended June 30, 2002 and 2003. NCO Portfolio reimbursed NCO Group in full for
these costs. These costs related to certain shared services, including office
space, human resources, insurance, legal, payroll processing, external
reporting, management information systems and certain other administrative
expenses. Shared services amounted to $45,000 and $90,000 for the three and six
months ended June 30, 2002 and 2003, respectively.


12



NCO PORTFOLIO MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)

Note G - Related Party Transactions (Continued)

NCO Group Credit Facility

Effective August 13, 2003, NCO Portfolio amended its credit agreement with NCO
Group. The term of the credit agreement was extended until March 15, 2006
("Maturity Date"). Additionally, the structure of the credit agreement was
changed to an open line of credit with NCO Group, and is no longer a subfacility
under NCO Group's credit facility with Citizens Bank of Pennsylvania ("Citizens
Bank"). NCO Group may extend credit to NCO Portfolio up to the maximum borrowing
capacity without restriction, initially $32.5 million. The borrowing capacity of
the credit agreement is subject to mandatory quarterly reductions of $3.75
million per quarter for the quarters ending September 30 and December 31, 2003,
at which time the facility will remain at $25.0 million until the Maturity Date.
Certain of NCO Portfolio's assets have been pledged to NCO Group to secure its
borrowings under the credit agreement. The NCO Portfolio credit agreement
contains certain financial covenants such as maintaining net worth and funded
debt to earnings before interest, taxes, depreciation, and amortization
("EBITDA") requirements, and include restrictions on, among other things,
acquisitions and distributions to shareholders. A default by NCO Group on its
credit facility would cross default NCO Portfolio's credit agreement. As of June
30, 2003, NCO Portfolio was in compliance with all of the financial covenants.

The NCO Portfolio credit agreement carries interest at one percent over NCO
Group's underlying rate from Citizens Bank and other participating lenders,
which is paid to NCO Group. At the option of NCO Group, NCO Group's borrowings
bear interest at a rate equal to either Citizens Bank's prime rate plus a margin
ranging from 0.75 percent to 1.25 percent that is determined quarterly based
upon NCO Group's consolidated funded debt to EBITDA ratio (Citizens Bank's prime
rate was 4.00 percent at June 30, 2003), or LIBOR plus a margin ranging from
2.25 percent to 3.00 percent depending on NCO Group's consolidated funded debt
to EBITDA ratio (LIBOR was 1.12 percent at June 30, 2003). The NCO Portfolio
credit agreement contains a provision which provides NCO Group with an
additional commitment fee of 0.25 percent per quarter on the full commitment
from August 20, 2001 to December 31, 2003, which is included as part of interest
expense. NCO Portfolio is charged a fee of 0.38 percent on the unused portion of
the credit agreement. As of December 31, 2002 and June 30, 2003, the outstanding
balance under the credit agreement was $36.9 million and $26.25 million,
respectively. Interest expense for the three months ended June 30, 2002 and
2003, amounted to $807,000 and $561,000, respectively. Interest expense for the
six months ended June 30, 2002 and 2003, amounted to $1.6 million and $1.2
million, respectively.

Limited Partnership

In December 2002, NCO Portfolio invested $2.4 million for an 80 percent limited
partnership interest in a portfolio acquired from a major financial institution
in the United Kingdom. The portfolio is composed of charged off consumer loans
to residents of the United Kingdom. NCO Portfolio's 20 percent general partner
in the partnership is NCO Financial Services (UK) Ltd. ("NCO (UK)"), a wholly
owned subsidiary of NCO Group. NCO (UK) is in the business of contingency fee
based collections in the United Kingdom, and also purchases accounts receivable
in the United Kingdom. NCO (UK) has been servicing the portfolio since
originally outsourced by the seller and will continue to do so under the
partnership agreement between the two companies. Under the partnership
agreement, NCO (UK) will receive a 15 percent preferred distribution for its
services to the partnership, including the ongoing servicing of the portfolio.
Thereafter, collections are split 80 percent to NCO Portfolio and 20 percent to
NCO (UK). The operating results of the partnership have been included in NCO
Portfolio's consolidated results. NCO (UK)'s 20 percent interest is deducted
from earnings as a minority interest in consolidated earnings. Minority interest
for the three and six months ended June 30, 2003, was $66,000 and $136,000,
respectively.



13


NCO PORTFOLIO MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)

Note G - Related Party Transactions (Continued)

Court Costs

Effective April 1, 2003, NCO Portfolio amended its servicing agreement with
NCOF. Since NCOF is responsible for the operational decisions on referrals to
collection attorneys through the NCO Attorney Network, it was agreed that NCOF
will pay for most court costs and filings fees, and will be reimbursed for those
costs from most debtor payments once all principal and interest are paid by the
debtor.

Note H - Supplemental Cash Flow Information

The following are supplemental disclosures of cash flow information for the six
months ended June 30, 2002 and 2003 (amounts in thousands):
2002 2003
---- ----
Cash paid for interest...................................... $ 3,649 $ 3,634
Noncash investing and financing activities:
Deferred portion of purchased accounts receivable.... $ 349 $ 2,383

Note I - Comprehensive Income

Comprehensive income consists of net income from operations, plus certain
changes in assets and liabilities that are not included in net income but are
reported as a separate component of shareholders' equity. The Company's
comprehensive income was as follows for the six months ended June 30, (amounts
in thousands):

2002 2003
---- ----
Net income........................................... $ 4,378 $ 2,483
Other comprehensive income:
Foreign currency translation adjustment........... -- 29
------- -------
Comprehensive income................................. $ 4,378 $ 2,512
======= =======



14





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

Certain statements in this report on Form 10-Q, including, without limitation,
statements as to the Company's or management's outlook as to financial results
in 2003 and beyond; statements as to the effects of the economy on the Company's
business; statements as to the Company's or management's beliefs, expectations
or opinions, and all other statements in this report on Form 10-Q, other than
historical facts, are forward-looking statements, as such term is defined in the
Private Securities Litigation Reform Act of 1995, which are intended to be
covered by the safe harbors created thereby. Forward-looking statements are
subject to risks and uncertainties, are subject to change at any time, and may
be affected by various factors that may cause actual results to differ
materially from the expected or planned results. The Company disclaims any
intent or obligation to update forward-looking statements contained in this Form
10-Q. Certain risk factors, including without limitation, risks related to the
current economic condition in the United States, threats of war or future
terrorist attacks, risks relating to growth and future accounts receivable
purchases, risks related to the Company's debt, risks related to the
recoverability of the purchased accounts receivable, risks related to the use of
estimates, risks related to the ability to purchase accounts receivable at
favorable prices in the open market, risks related to competition, risks related
to regulatory oversight, risks related to the retention of the senior management
team, risks related to securitization transactions, risks related to the
fluctuation in quarterly results, risks related to NCO Group's ownership control
of the Company by NCO Group, risks related to the dependency on NCO Group's
subsidiary for collections, risks related to the dependency on NCO Group's
telecommunications and computer systems, and other risks detailed from time to
time in the Company's filings with the Securities and Exchange Commission,
including the Annual Report on Form 10-K, filed on March 13, 2003, can cause
actual results and developments to be materially different from those expressed
or implied by such forward-looking statements.

A copy of the Annual Report on Form 10-K can be obtained electronically by
visiting our web site www.ncogroup.com, or, without charge except for exhibits,
by written request to Richard J. Palmer, Senior Vice President, Finance/CFO, NCO
Portfolio Management, Inc., 1804 Washington Blvd., Department 200, Baltimore,
Maryland 21230.

Three Months Ended June 30, 2003, Compared to the Three Months Ended June 30,
2002

Revenue. Total revenue increased $4.0 million, or 28.4 percent, from $14.1
million for the three months ended June 30, 2002, to $18.1 million for the three
months ended June 30, 2003. Revenue from purchased accounts receivable totaled
$14.1 million and $18.1 million for the three months ended June 30, 2002 and
2003, respectively, which includes revenue from fully cost recovered portfolios
of $147,000 for the three months ended June 30, 2003. Included in revenue for
the three months ended June 30, 2003, was $34,000 of revenue from the
reimbursement of court cost expenditures. Collections on purchased accounts
receivable increased $9.3 million, or 35.4 percent, from $26.3 million for the
three months ended June 30, 2002, to $35.6 million for the three months ended
June 30, 2003. The increase in collections was due the increase in accounts
receivable under management during 2003 versus 2002.

Revenue on purchased accounts receivable as a percentage of collections was 54
percent and 51 percent for the three months ended June 30, 2002 and 2003,
respectively. Revenue on purchased accounts receivable as a percentage of
collections can fluctuate period over period due to a number of factors
including:

(i) the relative under or over-achievement of actual collections versus
the established estimates. Actual collections exceeding estimates will tend to
lower the percentage because revenue on purchased accounts receivable is not
impacted at the same rate as the change in collections due to the effective
interest method of computing revenue, and conversely, not meeting collection
estimates will tend to increase the percentage;
(ii) the differences in the composition of portfolios at a point in
time in their life cycle. Over the life cycle of a portfolio, the percentage
will fluctuate due to the variable collection stream. However, in the aggregate,
the percentage of collections recognized as revenue should approximate the
lifetime profit recognized, before servicing costs, and the remainder is
amortized as a return of capital;
(iii) the composition of the targeted IRRs present in all of the
portfolios combined. Fresher purchased accounts receivable (portfolios with few
or no placements to collection agencies prior to purchase) generally have lower
IRRs than purchased accounts receivable that have been placed with multiple
collection agencies prior to purchase. Fresher accounts receivable typically
cost more. However, net of servicing fees, lower IRRs are offset by lower costs
to collect, resulting in similar targeted net returns;
(iv) collection trends will increase or decrease our expected IRR.
Increases or decreases in collections have the effect of raising (within
specified parameters) or lowering the future collection projections on all
portfolios, which translates into higher or lower IRRs, and in turn, affects the
percentage of collections recognized as revenue on purchased accounts
receivable;
(v) portfolios that become impaired are placed on cost recovery, and no
revenue on purchased accounts receivable will be recognized until their carrying
value has been fully recovered. After the carrying value has been fully
recovered, all collections are recorded as revenue on purchased accounts
receivable, and finally;

15



(vi) the occurrence of account sales in a quarter tend to reduce the
percentage of revenue recognized as account sale proceeds only marginally
increase the IRRs of the portfolios involved. The majority of the account sale
proceeds are allocated to principal amortization.

Revenue on purchased accounts receivable as a percentage of collections for the
three months ended June 30, 2003, declined compared to the same quarter last
year due to a number of these factors. First, purchases of accounts receivable
made in 2002 through June 30, 2003, have returns that were targeted lower, but
within our acceptable range of IRR's, at the time of acquisition due to reduced
collection estimates caused by the tougher economic climate. Additionally,
larger purchases with components of reperforming accounts (past due accounts
that are now performing) sometimes have lower targeted IRRs set at the time of
purchase. Second, the overall percentage was lowered due to a slow down in
collections on existing portfolios as a result of the continued weak economy.
Current period collection shortfalls on most older portfolios had the effect of
lowering the future collection projections, which translated to lower IRRs and
revenue on purchased accounts receivable. Lastly, portfolios with $9.7 million
in carrying value, or 6.8 percent of total purchased accounts receivable as of
June 30, 2003, have been impaired and placed on cost recovery status.
Accordingly, no revenue from purchased accounts receivable is recorded on these
portfolios after their impairment until they are fully cost recovered. Revenue
from fully cost recovered portfolios totaled $147,000 for the quarter. All of
these factors contributed to a lower ratio of revenue from purchased accounts
receivable to collections.

During the three months ended June 30, 2003, the Company adjusted one of the
calculations used to determine the historical trends, that in part, computes
future collections. This adjustment increased the estimated remaining
collections on several portfolios that increased revenue for the three months
ended June 30, 2003. This change was made because there are other procedures in
place that make this aspect of the calculation unnecessary. The effect of this
change was to increase net income for the three months ended June 30, 2003, by
$178,000, and diluted earnings per share by $0.01.

Payroll and related expenses. Payroll and related expenses decreased $14,000, or
2.6 percent, from $549,000 for the three months ended June 30, 2002, to $563,000
for the three months ended June 30, 2003. Payroll and related expenses remain a
small part of the business model as a percentage of revenue because our
collection activities and many administrative functions are outsourced to NCOF.

Servicing fee expenses. Servicing fee expenses increased $3.9 million, or 48.1
percent, from $8.1 million for the three months ended June 30, 2002, to $12.0
million for the three months ended June 30, 2003. Servicing fees are paid as a
commission on collections, and include contingency legal fees and agency
outsourcing fees. Servicing fees are impacted by the volume of collections on
purchased accounts receivable and the type of accounts receivable acquired,
which affects the servicing fee rates charged by NCOF. Servicing fees paid as a
percentage of collections were 30.6 percent and 33.7 percent for the three
months ended June 30, 2002 and 2003, respectively. All of the servicing fees
were paid to NCOF during the three months ended June 30, 2002 and 2003.
Servicing fees as a percentage of collections increased from 2002 to 2003 as the
composition of accounts receivable has changed and aged over the previous twelve
months. In general, the accounts receivable acquired in the Merger have lower
servicing fees as compared to other accounts receivable purchased since the
Merger because collections were more predictable as a result of Creditrust's
experience with these portfolios, which also had a component of reperforming
accounts. We expect that servicing fees as a percentage of collections will
increase marginally in the future as collections from accounts receivable
acquired in the Merger decline in proportion to total collections, and as the
other portfolios age in general. Further, NCOF has and may continue to out
source collections in an attempt to offset negative economic trends, to test
itself, and generally to augment resources. The cost to us resulting from
outsourcing is generally higher on such accounts since they are relatively more
difficult to resolve.

Selling, general and administrative expenses. Selling, general and
administrative expenses decreased $48,000, or 6.0 percent, from $806,000 for the
three months ended June 30, 2002, to $758,000 for the three months ended June
30, 2003. Selling, general and administrative expenses consist primarily of
professional fees, insurance, court costs associated with legal collections,
trustee and guarantee fees, shared services, and office expenses. Effective
April 1, 2003, we renegotiated how court costs and related filing fees for
referrals to collection attorneys are billed to us by NCOF. Since NCOF is
responsible for the operational decisions on referrals, the companies have
agreed that NCOF will pay most court costs and filing fees, and will be
reimbursed from most debtor payments once all principal and interest are paid by
the debtor. Court costs and filing fees were $333,000 and $140,000 for the three
months ended June 30, 2002 and 2003, respectively. Due to this change, we expect
that court costs and filing fees will continue at second quarter levels in
future quarters.


16



Impairment of purchased accounts receivable. Impairment charges of $401,000 and
$612,000 for the three months ended June 30, 2002 and 2003, respectively, were
recorded. The combined remaining carrying value on impaired portfolios as of
June 30, 2002 and 2003, aggregated $8.3 million and $9.7 million, respectively,
or 6.5 percent and 6.8 percent, respectively, of purchased accounts receivable.
Impairments have occurred on older portfolios acquired over two years ago at
higher prices and with original collection projections estimated higher based on
historical experience compared to more recently purchased portfolios. Impairment
charges are composed of newly impaired portfolios and additional impairments on
previously impaired portfolios. The increase in impairment charges occurred as
most of the older portfolios have under-performed versus historical trends,
which translates to lower estimates of remaining collections, and, in turn,
greater impairments.

Other income (expense). Other income (expense) is primarily composed of interest
expense and increased $900,000, or 64.3 percent, from $1.4 million for the three
months ended June 30, 2002, to $2.3 million for the three months ended June 30,
2003. Interest expense increased from $1.8 million for the three months ended
June 30, 2002, to $2.8 million for the three months ended June 30, 2003. This
increase is due to increased borrowings from Cargill Financial. Offsetting
interest expense is interest income and income from unconsolidated subsidiaries,
which totaled $303,000 and $496,000 for the three months ended June 30, 2002 and
2003, respectively. The increase was due to growth in net earnings due to
additional purchased portfolios in our investment in the Joint Venture.

Income tax expense. Income tax expense was recorded at 37.5 percent of pre-tax
income before minority interest for the three months ended June 30, 2002 and
2003. Our effective tax rate may fluctuate as a result of changes in pre-tax
income and nondeductible expenses. Tax payments for the three months ended June
30, 2002 and 2003, were deferred principally due to the book tax difference of
accounting for purchased accounts receivable on the accrual basis for Generally
Accepted Accounting Principles and the cost recovery basis for tax reporting.

Six Months Ended June 30, 2003, Compared to the Six Months Ended June 30, 2002

Revenue. Total revenue increased $5.9 million, or 19.4%, from $30.4 million for
the six months ended June 30, 2002, to $36.3 million for the six months ended
June 30, 2003. Revenue from purchased accounts receivable totaled $30.4 million
and $36.1 million for the six months ended June 30, 2002 and 2003, respectively,
which includes revenue from fully cost recovered portfolios of $300,000 for the
six months ended June 30, 2003. Included in revenue for the six months ended
June 30, 2003 was $232,000 of revenue from the reimbursement of court cost
expenditures. Collections on purchased accounts receivable increased $18.7
million, or 34.8%, from $53.7 million for the six months ended June 30, 2002, to
$72.4 million for the six months ended June 30, 2003. The increase in
collections was due to the increase in accounts receivable under management
during 2003 versus 2002. Included in collections for the six months ended June
30, 2003, was $1.5 million in proceeds from the sale of accounts. Revenue as a
percentage of collections was 57% and 50% for the six months ended June 30, 2002
and 2003, respectively.

Revenue on purchased accounts receivable as a percentage of collections for the
six months ended June 30, 2003, declined compared to the same quarter last year
due to a number of these factors. First, purchases of accounts receivable made
in 2002 through June 30, 2003, have returns that were targeted lower, but
within our acceptable range of IRR's, at the time of acquisition due to reduced
collection estimates caused by the tougher economic climate. Additionally,
larger purchases with components of reperforming accounts (past due accounts
that are now performing) sometimes have lower targeted IRRs set at the time of
purchase. Second, the overall percentage was lowered due to a slow down in
collections on existing portfolios as a result of the continued weak economy.
Current period collection shortfalls on most older portfolios had the effect of
lowering the future collection projections, which translated to lower IRRs and
revenue on purchased accounts receivable. Lastly, portfolios with $9.7 million
in carrying value, or 6.8 percent of total purchased accounts receivable as of
June 30, 2003, have been impaired and placed on cost recovery status.
Accordingly, no revenue from purchased accounts receivable is recorded on these
portfolios after their impairment until they are fully cost recovered. Revenue
from fully cost recovered portfolios totaled $300,000 for the six months ended
June 30, 2003. All of these factors contributed to a lower ratio of revenue from
purchased accounts receivable to collections.

Payroll and related expenses. Payroll and related expenses decreased from $1.1
million for the six months ended June 30, 2002, to $1.0 million for the six
months ended June 30, 2003. Payroll and related expenses were generally flat
year over year and remain a small part of the business model as a percentage of
revenue because our collection activities and many administrative functions are
outsourced to NCOF.

17



Servicing fee expenses. Servicing fee expenses increased $7.5 million, or 45.7%,
from $16.4 million for the six months ended June 30, 2002, to $23.9 million for
the six months ended June 30, 2003. Servicing fees are paid as a commission on
collections, and include contingency legal fees and agency outsourcing fees.
Servicing fees paid as a percentage of collections was 30.5% and 33.0% for the
six months ended June 30, 2002 and 2003, respectively. All of the servicing fees
were paid to NCOF during the six months ended June 30, 2002 and 2003. Servicing
fees as a percentage of collections increased from 2002 to 2003 as the
composition of accounts receivable has changed and aged over the previous twelve
months. In general, the accounts receivable acquired in the Merger have lower
servicing fees as compared to other accounts receivable purchased since the
Merger because collections were more predictable as a result of Creditrust's
experience with these portfolios, which also had a component of reperforming
accounts. We expect that servicing fees as a percentage of collections will
increase marginally in the future as collections from accounts receivable
acquired in the Merger decline in proportion to total collections, and as the
other portfolios age in general. Further, NCOF has and may continue to out
source collections in an attempt to offset negative economic trends, to test
itself, and generally to augment resources. The cost to us resulting from
outsourcing is generally higher on such accounts since they are relatively more
difficult to resolve.

Selling, general and administrative expenses. Selling, general and
administrative expenses increased $300,000, or 21.4%, from $1.4 million for the
six months ended June 30, 2002, to $1.7 million for the six months ended June
30, 2003. Selling, general and administrative expenses consist primarily of
professional fees, insurance, court costs associated with legal collections,
trustee and guarantee fees, shared services, and office expenses. The increase
is principally due to increases in insurance costs, court costs and related
expenses for referrals to collection attorneys, and professional fees.

Impairment of purchased accounts receivable. Impairment charges of $1.2 million
and $900,000 for the six months ended June 30, 2002 and 2003, respectively, were
recorded. The combined remaining carrying value on impaired portfolios as of
June 30, 2002 and 2003, aggregated $8.3 million and $9.7 million, respectively,
or 6.5 percent and 6.8 percent, respectively, of purchased accounts receivable.
Impairments have occurred on older portfolios acquired over two years ago at
higher prices and with original collection projections estimated higher based on
historical experience compared to more recently purchased portfolios. Impairment
charges are composed of newly impaired portfolios and additional impairments on
previously impaired portfolios.

Other income (expense). Other income (expense) consisted principally of interest
expense and increased $1.3 million, or 40.6%, from $3.2 million for the six
months ended June 30, 2002, to $4.5 million for the six months ended June 30,
2003. Interest expense increased from $3.6 million for the six months ended June
30, 2002, to $5.4 million for the six months ended June 30, 2003. This increase
is due to increased borrowings from Cargill Financial. Offsetting interest
expense is interest income and income from unconsolidated subsidiaries, which
totaled $434,000 and $990,000 for the six months ended June 30, 2002 and 2003,
respectively. The increase was due to growth in net earnings due to additional
purchased portfolios in our investment in the Joint Venture.

Income tax expense. Income tax expense was recorded at 37.5 percent of pre-tax
income before minority interest for the six months ended June 30, 2002 and 2003.
Our effective tax rate may fluctuate as a result of changes in pre-tax income
and nondeductible expenses. Tax payments for the six months ended June 30, 2002
and 2003, were deferred principally due to the book tax difference of accounting
for purchased accounts receivable on the accrual basis for Generally Accepted
Accounting Principles and the cost recovery basis for tax reporting.

Liquidity and Capital Resources

NCO Portfolio derives all of its cash for working capital and purchases of
accounts receivable from operating cash flow, a credit agreement with NCO Group,
and borrowings under an exclusivity agreement with Cargill Financial.

Effective August 13, 2003, NCO Portfolio amended its credit agreement with NCO
Group. The term of the credit agreement was extended until March 15, 2006
("Maturity Date"). Additionally, the structure of the credit agreement was
changed to an open line of credit with NCO Group, and is no longer a subfacility
under NCO Group's credit facility with Citizens Bank of Pennsylvania ("Citizens
Bank"). NCO Group may extend credit to NCO Portfolio up to the maximum borrowing
capacity without restriction, initially $32.5 million. The borrowing capacity of
the credit agreement is subject to mandatory quarterly reductions of $3.75
million per quarter for the quarters ending September 30 and December 31, 2003,
at which time the facility will remain at $25.0 million until the Maturity Date.
Certain of NCO Portfolio's assets have been pledged to NCO Group to secure its
borrowings under the credit agreement. The NCO Portfolio credit agreement
contains certain financial covenants such as maintaining net worth and funded
debt to earnings before interest, taxes, depreciation, and amortization
("EBITDA") requirements, and include restrictions on, among other things,
acquisitions and distributions to shareholders. A default by NCO Group on its
credit facility would cross default NCO Portfolio's credit agreement. As of June
30, 2003, NCO Portfolio was in compliance with all of the financial covenants.

18


The NCO Portfolio credit agreement carries interest at one percent over NCO
Group's underlying rate from Citizens Bank and other participating lenders,
which is paid to NCO Group. At the option of NCO Group, NCO Group's borrowings
bear interest at a rate equal to either Citizens Bank's prime rate plus a margin
ranging from 0.75 percent to 1.25 percent that is determined quarterly based
upon NCO Group's consolidated funded debt to EBITDA ratio (Citizens Bank's prime
rate was 4.00 percent at June 30, 2003), or LIBOR plus a margin ranging from
2.25 percent to 3.00 percent depending on NCO Group's consolidated funded debt
to EBITDA ratio (LIBOR was 1.12 percent at June 30, 2003). As of December 31,
2002 and June 30, 2003, the outstanding balance under the credit agreement was
$36.9 million and $26.25 million, respectively. There was $6.25 million
available under the credit agreement as of June 30, 2003.

In August 2002, we entered into a four-year financing exclusivity agreement with
Cargill Financial to provide financing for larger purchases of accounts
receivable at 90 percent of the purchase price, unless otherwise negotiated.
Cargill Financial, at their sole discretion, has the right to finance any
purchase of $4 million or more. This agreement gives us the financing to
purchase larger portfolios that we may not otherwise be able to purchase, and
has no minimum or maximum credit authorization. Borrowings carry interest at the
prime rate plus 3.25 percent (prime rate was 4.00 percent as of June 30, 2003),
and are nonrecourse to us and NCO Group, except for the assets within the
special purpose entities established in connection with this financing
agreement. Debt service payments equal total collections less servicing fees and
expenses until each individual borrowing is fully repaid, and our original
investment is returned, including interest. Thereafter, Cargill Financial is
paid a residual of 40 percent of collections less servicing costs, unless
otherwise negotiated. Individual loans are required to be repaid based on
collections, but not more than two years from the date of borrowing. Total debt
outstanding under this facility as of December 31, 2002 and June 30, 2003, was
$17.6 million and $15.6 million. As of June 30, 2003, we were in compliance with
all of the financial covenants.

We have two secured notes payable that were assumed in the Merger that have debt
service payments equal to total collections less servicing fees and expenses. No
additional borrowings are available on these notes. The combined balances of
these two secured notes payable amounted to $35.5 million and $34.3 million as
of December 31, 2002 and June 30, 2003, respectively. These borrowings carry
interest at LIBOR plus 0.65 percent and 15 percent, respectively, and mature in
March 2005 and December 2004, respectively. One of these secured notes has a
$900,000 liquidity reserve that restricts our use of cash, which will increase
as additional reserves are added upon the full satisfaction of a note from our
unconsolidated subsidiary assumed in the Merger. As of June 30, 2003, we were in
compliance with all of the financial covenants under the notes.

We also have a note payable related to our unconsolidated subsidiary that we
assumed in connection with the Merger. This note payable matures on January
2004, carries an interest rate of 8.61 percent, and had a balance of $2.4
million and $1.1 million as of December 31, 2002 and June 30, 2003,
respectively. In May 2002, the final secured note assumed in the Merger was paid
off. All collections from this note are now remitted directly to us, and are
used to purchase new accounts receivable and fund operations.

In May 2003, we renewed our fixed price agreement ("forward-flow") with a major
financial institution that obligates NCO Portfolio to purchase, on a monthly
basis, portfolios of charged off accounts receivable meeting certain criteria.
As of June 30, 2003, we were obligated to purchase accounts receivable at a
maximum of $2.5 million per month through May 2004. A portion of the purchase
price is deferred for twenty-four months, including a nominal rate of interest.
Deferred purchase price payable, included in notes payable, as of December 31,
2002 and June 30, 2003, was $2.1 million and $4.3 million, respectively, with
payments commencing June 2003 on the deferred portions incurred during the
twelve months under the previous agreement.

The debt service requirements associated with borrowings under our secured
credit facilities, including the borrowings under the Cargill Financial
agreement, the forward-flow agreement, and the mandatory reductions on our NCO
Group credit agreement have increased liquidity requirements. The availability
under the credit agreement was $32.5 as of June 30, 2003, and provides for two
additional mandatory reductions of $3.75 million per quarter until the credit
agreement is reduced to $25 million as of December 31, 2003. All of our secured
debt requires amortization of principal based on total collections, net of
servicing fees and expenses, on the secured portfolios. We anticipate that cash
flows from operations will be sufficient to fund all payments due through June
30, 2004 on the credit agreement, debt service payments on secured debt through
June 30, 2004, operating expenses, interest expense and mandatory purchases of
accounts receivable under our existing forward-flow agreement. Cash flows from
operations are directly related to the amount of collections actually received.
Estimates are used to forecast collections and revenue. A decrease in cash flows
from operations due to a decrease in collections from changes in the economy or
the performance of NCOF as service provider, may require us to reduce the amount
of accounts receivable purchased. The effect of reduced accounts receivable
purchases would be a reduction in planned collections and revenue in the periods
affected.


19



Cash Flows from Operating Activities. Net cash provided by operating activities
was $2.4 million for the three months ended June 30, 2002, compared to $4.0
million for the three months ended June 30, 2003. The increase in cash and cash
equivalents provided by operations was principally attributable to an increase
in accounts payable and accrued expenses offset by a decrease in net income,
deferred tax expense, and equity income from our investment in the Joint Venture
for the three months ended June 30, 2003 over 2002.

Net cash provided by operating activities was $7.3 million for the six months
ended June 30, 2002, compared to $8.2 million for the six months ended June 30,
2003. The increase in cash and cash equivalents provided by operations was
principally attributable to an increase in accounts payable and accrued expenses
offset by a decrease in net income, deferred tax expense, and equity income from
our investment in the Joint Venture for the six months ended June 30, 2003 over
2002.

Cash Flows from Investing Activities. Net cash provided by investing activities
was $4.9 million for the three months ended June 30, 2002, compared to $5.7
million for the three months ended June 30, 2003. Cash used in or provided by
investing activities is principally a function of the amount of accounts
receivable purchased, offset by collections applied to principal on purchased
accounts receivable. Collections applied to principal on purchased accounts
receivable is the difference between collections and revenue. Cash purchases of
accounts receivable were $7.0 million and $11.9 million in the three months
ended June 30, 2002 and 2003, respectively, while the amount of collections
applied to principal on purchased accounts receivable was $12.2 million and
$17.6 million for the three months ended June 30, 2002 and 2003, respectively.

Net cash provided by investing activities was $6.7 million for the six months
ended June 30, 2002, compared to $7.3 million for the six months ended June 30,
2003. Cash purchases of accounts receivable were $16.0 million and $28.8 million
in the six months ended June 30, 2002 and 2003, respectively, while the amount
of collections applied to principal on purchased accounts receivable was $23.3
million and $36.3 million for the six months ended June 30, 2002 and 2003,
respectively.

Cash Flows from Financing Activities. Net cash used in financing activities was
$8.4 million for the three months ended June 30, 2002, compared to $13.3 million
for the three months ended June 30, 2003. Total repayments on the NCO Group
credit agreement and the notes payable totaled $8.4 million for the three months
ended June 30, 2002, compared to $3.8 million of borrowings under the Cargill
Financial agreement offset by repayments on the NCO Group credit agreement and
notes payable totaling $17.1 million for the three months ended June 30, 2003.

Net cash used in financing activities was $12.2 million for the six months ended
June 30, 2002, compared to $14.3 million for the six months ended June 30, 2003.
Total borrowings on the NCO Group credit agreement for the six months ended June
30, 2002, were $370,000, offset by repayments on the NCO Group credit agreement
and notes payable totaling $12.6 million for the six months ended June 30, 2002.
Total borrowings under the NCO Group credit agreement and the Cargill Financial
agreement were $10.9 million for the six months ended June 30, 2003, offset by
repayments on the NCO Group credit agreement and notes payable totaling $25.2
million for the six months ended June 30, 2003.

Critical Accounting Policies

The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and the accompanying notes. Actual results will differ
from those estimates. We believe that the following accounting policies include
the estimates that are the most critical and could have the most potential
impact on our results of operations: revenue recognition for purchased accounts
receivable, and deferred taxes. These and other critical accounting policies are
described in Note B to these financial statements, and in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Note B to our 2002 financial statements contained in our Annual Report on Form
10-K for the year ended December 31, 2002.

20


Impact of Recently Issued and Proposed Accounting Pronouncements

FASB Interpretation No. 46, "Consolidation of Variable Interest Entities"

In January 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities".
The objective of FIN 46 is to improve financial reporting by companies involved
with variable interest entities. FIN 46 defines variable interest entities and
requires that variable interest entities be consolidated by a company if that
company is subject to a majority of the risk of loss from the variable interest
entity's activities or is entitled to receive a majority of the entity's
residual returns or both. The disclosure requirements are effective for periods
ending after December 15, 2002. The consolidation requirements apply immediately
to variable interest entities created after January 31, 2003, and apply to
existing variable interest entities in the first fiscal year or interim period
beginning after June 15, 2003. We adopted the disclosure requirements of FIN 46,
and do not believe the adoption of FIN 46 will have a material impact on our
financial position and results of operations.

Accounting for Certain Purchased Loans or Debt Securities

During 2001, the Accounting Staff Executive Committee approved an exposure draft
on Accounting for Certain Purchased Loans or Debt Securities (formerly known as
Discounts Related to Credit Quality) (Exposure Draft-December 1998). The
proposal would apply to all companies that acquire loans for which it is
probable at the acquisition date that all contractual amounts due under the
acquired loans will not be collected. The proposal addresses accounting for
differences between contractual and expected future cash flows from an
investor's initial investment in certain loans when such differences are
attributable, in part, to credit quality. The scope also includes such loans
acquired in purchased business combinations. If adopted, the proposed Statement
of Position, referred to as SOP, would supersede Practice Bulletin 6,
Amortization of Discounts on Certain Acquired Loans. In June 2001, the Financial
Accounting Standards Board, referred to as FASB, cleared the SOP for issuance
subject to minor editorial changes and planed to issue a final SOP in early
2002. The SOP has not yet been issued. The proposed SOP would limit the revenue
that may be accrued to the excess of the estimate of expected future cash flows
over a portfolio's initial cost of accounts receivable acquired. The proposed
SOP would require that the excess of the contractual cash flows over expected
future cash flows not be recognized as an adjustment of revenue, expense or on
the balance sheet. The proposed SOP would freeze the internal rate of return,
referred to as IRR, originally estimated when the accounts receivable are
purchased for subsequent impairment testing. Rather than lower the estimated IRR
if the original collection estimates are not received, the carrying value of a
portfolio would be written down to maintain the original IRR. Increases in
expected future cash flows would be recognized prospectively through adjustment
of the IRR over a portfolio's remaining life. The exposure draft provides that
previously issued annual financial statements would not need to be restated.
Until final issuance of this SOP, we cannot ascertain its effect on our
reporting.

FASB Statement 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure"

In April 2003, the FASB indicated that it plans to have a new rule in place by
the end of 2004 which will require that stock based compensation should be
recorded as a cost that is recognized in the financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to various types of market risk in the normal course of business,
including the impact of interest rate changes and changes in corporate tax
rates. A material change in these rates could adversely affect our operating
results and cash flows. A 25 basis point increase in interest rates could
increase our annual interest expense by $25,000 for each $10 million of variable
debt outstanding for the entire year. We retain an investment in securitization
with respect to its securitized accounts receivable which is a market risk
sensitive financial instrument held for purposes other than trading. This
investment exposes us to market risk, which may arise from changes in interest
and discount rates applicable to this investment. The impact of a one percent
increase in the discount rate used by us in the fair value calculations would
not have a material impact on our balance sheet as of June 30, 2003. There would
be no impact on our future cash flows. We own an 80 percent interest in a
limited partnership that invests in accounts receivable in the United Kingdom.
This investment exposes us to risk due to fluctuations in foreign currency
exchange rates. As of June 30, 2003, exchange rate fluctuations did not have a
material impact on our balance sheet. We do not invest in derivative financial
or commodity instruments.

Inflation

We believe that inflation has not had a material impact on our results of
operations for the three months ended June 30, 2002 and 2003.

21



Item 4. Controls and Procedures

The Company, under the supervision and with the participation of its management,
including its principal executive officer and principal financial officer,
evaluated the effectiveness of the design and operation of its disclosure
controls and procedures as of the end of the period covered by this report.
Based on this evaluation, the principal executive officer and principal
financial officer concluded that the Company's disclosure controls and
procedures are effective in reaching a reasonable level of assurance that
information required to be disclosed by the Company in the reports that it files
or submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time period specified in the Securities and
Exchange Commission's rules and forms.

The principal executive officer and principal financial officer also conducted
an evaluation of internal control over financial reporting ("Internal Control")
to determine whether any changes in Internal Controls occurred during the
quarter that have materially affected or which are reasonably likely to
materially affect Internal Controls. Based on that evaluation, there has been no
such change during the quarter covered by this report.

A control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Further, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitation in all control
systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within the Company have been
detected. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be detected.



22




PART II

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company is involved in legal proceedings from time to time in the ordinary
course of its business. Management believes that none of these legal proceedings
will have a materially adverse effect on the financial condition or results of
operations of the Company.

Item 2. Changes in Securities and Use of Proceeds.

None - not applicable

Item 3. Defaults Upon Senior Securities

None - not applicable

Item 4. Submission of Matters to a Vote of Shareholders

The Company held its Annual Meeting of Stockholders on May 19, 2003. At the
meeting, the following persons were elected as directors of the Company to serve
for a term of three years and until each of their respective successors is duly
elected and qualified.

Number of Votes
---------------
Name For Withhold Authority
---- --- ------------------
Michael J. Barrist 8,600,317 0
Alan D. Scheinkman 8,600,317 0

The term of office for each of the following directors continued after the
meeting: James T. Hunter, James D. Rosener, and Jeffrey A. Schraeder.

Item 5. Other Information

None - not applicable

Item 6. Exhibits and Reports on Form 8-K

(A) Exhibits

31.1 Certifications of Chief Executive Officer and Chief Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 Certifications of Chief Executive Officer and Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(B) Reports on Form 8-K

NCO Portfolio filed an 8-K on May 7, 2003, Item 9 "Regulation FD Disclosures"
and Item 12 "Results of Operations and Financial Condition".

NCO Portfolio filed an 8-K on May 13, 2003, Item 9 "Regulation FD Disclosures"
and Item 12 "Results of Operations and Financial Condition".

23



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Baltimore,
State of Maryland, on August 14, 2003.

NCO PORTFOLIO MANAGEMENT, INC.

MICHAEL J. BARRIST
------------------
Michael J. Barrist
Chairman, Chief Executive Officer, and President


RICHARD J. PALMER
------------------
Richard J. Palmer
Senior Vice President, Finance and Treasurer







24