<PAGE>
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 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 march 31, 1997

                                       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: 1-12109

                           DELTA FINANCIAL CORPORATION
             (Exact name of registrant as specified in its charter)


                 DELAWARE                                   11-3336165
      (State or other jurisdiction of                      (I.R.S. Employer
       incorporation or organization)                      Identification No.)



                         1000 WOODBURY ROAD, SUITE 200,
                            WOODBURY, NEW YORK 11797
    (Address of registrant's principal executive offices including ZIP Code)

                                (516) 364 - 8500
              (Registrant's telephone number, including area code)

                                    NO CHANGE
         (Former name, former address and former fiscal year, if changed
                               since last report)

                                
      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  and Exchange Act
of 1934  during the  preceding  12 months (or for such  shorter  period that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days

                                Yes [ x ] No [ ]

      As of March 31, 1997,  15,372,288 shares of the Registrant's common stock,
par value $.01 per share, were outstanding.
<PAGE>


                               INDEX TO FORM 10-Q

                                                                        Page No.

PART I - FINANCIAL INFORMATION

Consolidated Balance Sheets as of March 31, 1997 and December 31, 1996 ........1

Consolidated Statements of Income for the three months ended
March 31, 1997 and March 31, 1996 .............................................2

Consolidated Statements of Cash Flows for the three months ended
March 31, 1997 and March 31, 1996 .............................................3

Notes to Consolidated Financial Statements ....................................4

Management's Discussion and Analysis of Financial Condition and
Results of Operations .........................................................6

Certain Accounting Considerations ............................................13

PART II - OTHER INFORMATION

Other Information ............................................................17

Signatures ...................................................................18

<PAGE>
                                    
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
                  DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                      

                                                       MARCH 31,    DECEMBER 31,
                                                         1997           1996
                                                     ------------   ------------
<S>                                                  <C>            <C>
  Assets

Cash and interest bearing deposits ................. $ 19,111,677   $ 18,741,182
Accounts receivable ................................    9,362,420      8,654,885
Loans held for sale ................................   77,768,963     83,677,017
Accrued interest and late charges receivable .......   21,999,632     20,158,812
Capitalized mortgage servicing rights ..............   13,447,924     11,411,634
Equipment, net .....................................    3,400,910      2,836,360
Cash held for advance payments .....................    2,585,208      2,488,218
Real estate owned ..................................      134,750        134,750
Interest-only and residual certificates ............  101,858,297     83,072,777
Prepaid and other assets ...........................    1,576,970      1,560,578
Goodwill ...........................................    6,109,446           --
                                                     ------------   ------------
                                                     $257,356,197   $232,736,213
                                                     ============   ============


  Liabilities and Stockholders' Equity

Bank payable .......................................    1,695,533      2,294,742
Warehouse financing and other borrowings ...........  112,507,300     95,481,627
Accounts payable and accrued expenses ..............    6,849,065      7,201,674
Investor payable ...................................   20,769,591     22,568,730
Advance payment by borrowers for taxes and insurance    2,351,000      2,255,045
Income taxes payable ...............................   10,159,467      9,416,784
                                                     ------------   ------------
                                                      154,331,956    139,218,602
                                                     ------------   ------------

Stockholders' equity:
  Common stock,  $.01 par value.  Authorized
    49,000,000 shares; 15,372,288 shares issued and
    outstanding at March 31, 1997 and 15,253,000
    shares at December 31, 1996 ...................       153,723        152,530
  Additional paid-in capital ......................    93,468,544     90,952,737
  Retained earnings ...............................     9,401,974      2,412,344
                                                     ------------   ------------
           Total stockholders' equity .............   103,024,241     93,517,611
                                                     ------------   ------------

                                                     $257,356,197   $232,736,213
                                                     ============   ============


                                       1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                  DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
              

                                                        THREE MONTHS ENDED
                                                             MARCH 31,                                                              
                                                      1997              1996
                                                   -----------       -----------
<S>                                                <C>               <C>

Revenues:
  Net gain on sale of mortgage loans ............  $17,313,852       $  103,391
  Interest ......................................    5,558,889        3,966,572
  Servicing fees ................................    1,391,633        1,015,295
  Other .........................................    3,040,487          219,090
                                                   -----------       -----------
                                                    27,304,861        5,304,348
                                                   -----------       -----------

Expenses:
  Payroll and related costs .....................    7,495,992        1,373,085
  Interest expense ..............................    3,170,226        2,400,922
  General and administrative ....................    4,398,410        1,841,865
                                                   -----------       -----------
                                                    15,064,628        5,615,872
                                                   -----------       -----------

Income (loss) before income taxes ...............   12,240,233         (311,524)

Provision for income taxes ......................    5,250,603           44,332
                                                   -----------       -----------

Net income (loss)................................  $ 6,989,630       $ (355,856)
                                                   ===========       ===========



Pro forma information:
  Pro forma income (loss) before taxes .........           n/a         (311,524)
  Provision for pro forma income tax benefit....           n/a         (133,955)
                                                                       --------- 
  Pro forma net income (loss)...................           n/a         (177,569)
                                                                       ========= 
Per share data:
  Earnings (loss) per share ....................         $0.45           $(0.01)
                                                         =====           ======= 
  Weighted average number of
   shares outstanding ..........................    15,420,883       12,629,182
                                                    ==========       ===========


                                       2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                  DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              
                                                                                      THREE MONTHS ENDED
                                                                                           MARCH 31,                                
                                                                                    1997              1996
                                                                               -------------     -------------
<S>                                                                            <C>               <C>
Cash flows from operating activities:
  Net income (loss)..........................................................  $  6,989,630      $   (355,856)
  Adjustments to reconcile net income to net cash used in
      operating activities:
      Provision for loan losses .............................................        24,999            24,940
      Depreciation and amortization .........................................       444,068           148,097
      Capitalized mortgage servicing rights, net of amortization ............    (2,036,290)          296,927
      Deferred origination fees .............................................        24,814        (4,421,195)
      Interest only and residual certificates received in
        securitization transactions, net ....................................   (18,785,520)           (7,458)

   Changes in operating assets and liabilities:
      Increase in accounts receivable, net ..................................      (676,741)         (358,458)
      Decrease (increase) in loans held for sale, net .......................     5,858,241      (103,786,484)
      Increase  in accrued  interest  and late  charges  receivable .........    (1,840,820)         (155,685)
      (Increase) decrease in cash held for advance  payments ................       (96,990)          234,058
      Increase in real estate owned .........................................           --            (42,759)
      Decrease (increase) in prepaid and other assets .......................        17,447           (56,147)
      (Decrease) increase in accounts payable and accrued expenses ..........      (430,939)          418,137
      Decrease in investor payable ..........................................    (1,799,139)         (633,936)
      Increase (decrease) in advance payments for taxes and insurance .......        83,295          (184,037)
      Increase in income taxes payable ......................................       786,760               --
                                                                               -------------     -------------
            Net cash used in operating activities ...........................   (11,437,185)     (108,879,856)
                                                                               -------------     -------------

Cash flows from investing activities:
  Acquisition of Fidelity Mortgage...........................................    (3,674,845)              --
  Purchase of equipment .....................................................      (660,369)         (227,829)
                                                                               -------------     -------------
Net Cash flows used in investing activites ..................................    (4,335,214)         (227,829)
                                                                               -------------     -------------

Cash flows from financing activities:
  Proceeds from warehouse financing and other borrowings, net ...............    16,793,785       102,208,160
  Decrease  in bank payable, net ............................................      (650,891)         (165,266)
  Distributions .............................................................           --           (180,000)
                                                                               -------------     -------------
Net cash provided by financing activities ...................................    16,142,894       101,862,894
                                                                               -------------     -------------

Net increase (decrease) in cash..............................................       370,495        (7,244,791)

Cash at beginning of period .................................................    18,741,182        16,635,135
                                                                               -------------     -------------

Cash at end of period........................................................  $ 19,111,677      $  9,390,344
                                                                               =============     =============


                                       3
</TABLE>
<PAGE>


                 DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 


(1) ORGANIZATION

      Delta Financial Corporation and subsidiaries (the "Company") is a Delaware
corporation  which was  organized on August 26, 1996.  On October 31, 1996,  the
Company  acquired  all  of  the  outstanding   common  stock  of  Delta  Funding
Corporation ("Delta Funding"), a New York corporation,  which had been organized
on  January 8, 1982 for the  purpose  of  originating,  selling,  servicing  and
investing in residential  first and second  mortgage loans. On November 1, 1996,
the Company  completed an initial public offering of 4,600,000  shares of common
stock, $.01 par value.

(2) BASIS OF PRESENTATION

      The accompanying  unaudited  consolidated  financial  statements have been
prepared in accordance with generally accepted accounting principles for interim
financial  information and the  instructions to Form 10-Q and 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 of the results for the interim period have been included.  The
accompanying  consolidated  financial  statements and the  information  included
under the heading  "Management's  Discussion and Analysis of Financial Condition
and Results of Operations"  should be read in conjunction  with the consolidated
financial  statements  and  related  notes of the  Company  for the  year  ended
December 31, 1996.

      The consolidated  financial statements include the accounts of the Company
and its wholly-owned subsidiaries: Delta Funding Corporation, Fidelity Mortgage,
Inc. and Fidelity  Mortgage  (Florida),  Inc. These  statements also include the
accounts of DF Special  Holdings  Corp.,  which is a wholly-owned  subsidiary of
Delta  Funding   Corporation.   All   significant   intercompany   accounts  and
transactions have been eliminated.

(3) ACQUISITIONS

      On February 11, 1997, the Company  acquired  Fidelity  Mortgage,  Inc. and
Fidelity  Mortgage (Florida),  Inc. (together referred  to herein  as  "Fidelity
Mortgage")for a combination of cash and stock. These transactions were accounted
for under the  purchase  method  of  accounting.  Accordingly,  the  results  of
operations of Fidelity  Mortgage,  Inc. and Fidelity  Mortgage  (Florida),  Inc.
starting from February 11, 1997 have been included in the Company's consolidated
financial statements. In connection with these acquisitions the Company recorded
goodwill  of  approximately  $6.3  million,   which  is  being  amortized  on  a
straight-line  basis over seven years. The acquired  operations will continue to
operate as separate legal entities under the names Fidelity  Mortgage,  Inc. and
Fidelity Mortgage (Florida), Inc.

                                       4


(4) PRO FORMA INFORMATION

<PAGE>
      Prior to October  31,  1996,  Delta  Funding  Corporation  (the  Company's
wholly-owned  subsidiary)  was treated as a Subchapter S corporation for federal
and state income tax purposes.  The pro forma financial  information,  including
per share data,  included in the accompanying  statement of income for the three
months  ending  March 31, 1996  reflects a provision  for income taxes as if the
Company had always been a C corporation at an assumed tax rate of 43%.

      Pro forma net income per share has been computed by dividing pro forma net
income by the  10,653,000  shares of Delta  Financial  Corporation  common stock
received by the former  shareholders of Delta Funding  Corporation  (the "Former
Shareholders")  in  exchange  for their  shares of Delta  Funding  Corporation's
common  stock (the  "Exchange"),  and the effect of the  issuance  of  1,976,182
shares of common stock of Delta  Financial  Corporation  to generate  sufficient
cash to pay certain S corporation  distribution  notes and additional  dividends
paid to the Former  Shareholders in connection with the Company's initial public
offering.

(5) SUPPLEMENTAL CASH FLOW INFORMATION

      During  the three  months  ended  March 31,  1997 and March 31,  1996, the
Company paid $3.9 and $1.9 million,  respectively for interest, and $4.5 million
and $0, respectively  for taxes. In connection  with the acquisition of Fidelity
Mortgage,  the Company  issued  119,288  shares of common stock,  valued at $2.5
million, to the former owners.

                                       5


MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS

      THE  FOLLOWING   DISCUSSION   SHOULD  BE  READ  IN  CONJUNCTION  WITH  THE
CONSOLIDATED  FINANCIAL  STATEMENTS  OF THE  COMPANY AND  ACCOMPANYING  NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS SET FORTH THEREIN.


RECENT GROWTH

      The Company has  experienced  significant  loan  origination  and purchase
growth in the last few years,  particularly  since  January 1, 1995.  Management
believes  that this  growth  is  primarily  attributable  to the  Company's  (i)
geographic  expansion  of its  operations,  (ii)  further  penetration  into its
established  markets,  (iii)  increased  access to  additional  funding  sources
through  larger  warehouse  finance  agreements  which  enabled  the  Company to
accumulate  larger  pools of loans for sales  through  securitizations  and (iv)
recent  expansion of its  production  channels  through the  acquisition  of the
Fidelity Mortgage operations.

      In connection with its geographic expansion,  the Company has continued to
focus on developing loan production from brokers and correspondents. The Company
has followed a two-pronged  approach to increase the volume of loan originations
from these sources. The Company employs business development  representatives to
initiate and expand relationships with brokers and correspondents.  In addition,
the Company uses its loan officers and  correspondent  underwriters  to maintain
and  strengthen  existing  relationships.  The  Company  is  also  committed  to
developing and growing  the Fidelity Mortgage retail origination network.  There
can be no assurance that the Company will continue to grow  significantly in the
future.  Any future growth will be limited by, among other things, the Company's
need for continued  funding sources,  access to capital markets,  sensitivity to
<PAGE>
economic  slowdowns,   ability  to  attract  and  retain  qualified   personnel,
fluctuations  in interest  rates and  competition  from other  consumer  finance
companies and from new market entrants. To date, the Company has not experienced
any significant seasonal variations in loan originations and purchases.

      The  Company's  recent and rapid  growth  may have a  somewhat  distortive
impact on certain of the Company's ratios and financial  statistics and may make
period-to-period  comparisons  difficult.  In  light  of the  Company's  growth,
historical  performance of the Company's earnings may be of limited relevance in
predicting future performance.  Furthermore,  the Company's financial statistics
may not be indicative of the Company's results in future periods.  Any credit or
other  problems  associated  with  the  large  number  of loans  originated  and
purchased  in the recent  past may not become  apparent  until  sometime  in the
future.
 
                                       6


RESULTS OF OPERATIONS

THREE  MONTHS  ENDED  MARCH 31, 1997  COMPARED  TO THE THREE  MONTHS ENDED MARCH
31, 1996

  REVENUES

      Total revenues  increased $22.0 million,  or 415%, to $27.3 million in the
three months ended March 31, 1997, from $5.3 million in the corresponding period
of the prior year.  The increase in revenues was  primarily due to the fact that
the Company  completed a securitization in the three months ended March 31, 1997
but did not complete a securitization in the corresponding  period one year ago.
To a  lesser  extent,  the  increase  was  due to the  increase  in  total  loan
originations and purchases and an increase in the Company's servicing portfolio.
As a result,  the Company  generated an increased  amount of  origination  fees,
servicing fees, and interest income on loans held for sale.

      NET GAIN ON SALE OF  MORTGAGE  LOANS. Net gain on sale of  mortgage  loans
represents  the sum of (i) the  present  value  of  excess  servicing  of  loans
securitized in each period,  (ii) the present value of mortgage servicing rights
associated  with loans  securitized in each period and (iii) premiums  earned on
whole loan sales less the (a)  premiums  paid to originate  or acquire  mortgage
loans, (b) cost associated with  securitizations  and (c) any hedge loss (gain).
Net gain on sale of mortgage loans  increased  $17.2 million to $17.3 million in
the three months ended March 31,  1997,  from $0.1 million in the  corresponding
period of the prior year. The Company  completed a $235 million  securitization,
with a weighted average net gain on sale of 7.4%,  during the three months ended
March 31, 1997 but did not complete a  securitization  during the  corresponding
period of the prior year.

      INTEREST  INCOME.  Interest  income  primarily represents  the  sum of (i)
interest  earned on loans held for sale, (ii) interest earned on cash collection
balances  and  (iii)  excess   servicing   received  in  each  period  less  the
amortization  of  residual  and  interest-only  certificates.   Interest  income
increased $1.6 million,  or 40%, to $5.6 million in the three months ended March
31, 1997, from $4.0 million in the  corresponding  period of the prior year. The
increase in interest  income was due to higher  interest rates on mortgage loans
and to a higher average balance of mortgage loans held for sale during the three
months ended March 31, 1997 resulting from the increase in loan originations and
purchases.  The weighted  average interest rate on loans held for sale was 11.3%
and 11.0% for the  quarters  ended March 31, 1997 and 1996,  respectively.  This
<PAGE>
increase  was  partially  offset  by a  higher  aggregate  amortization  of  the
interest-only and residual certificate assets in accordance with SFAS No. 115 in
the three months ended March 31, 1997 as compared to the corresponding period in
the prior year.

      SERVICING   INCOME.   Servicing  income  represents  all  contractual  and
ancillary servicing revenue received by the Company less (a) the amortization of
capitalized  mortgage  servicing  rights and (b)  prepaid  interest  shortfalls.
Servicing  income  increased $0.4 million,  or 40%, to $1.4 million in the three
months ended March 31, 1997,  from $1.0 million in the  corresponding  

                                       7


period of  the  prior  year.  This  increase   was  primarily  due  to  a higher
average loan servicing  portfolio,  which resulted in increased  contractual and
ancillary  service  fees.  During the three  months  ended March 31,  1997,  the
average  balance of mortgage  loans  serviced by the Company  increased  103% to
$1,048.6  million from $517.2  million  during the  corresponding  period of the
prior year.  Servicing  fees  increased at a slower rate than  average  mortgage
loans serviced  primarily because the Company lowered its contractual  servicing
fee rate to conform with  industry  standards,  and due to  amortization  of the
capitalized servicing asset in accordance with SFAS No. 125.

      OTHER INCOME. Other income primarily represents origination fees earned on
brokered and retail loans and ancillary revenue associated with loan production.
Other  income  increased  $2.8 million to $3.0 million in the three months ended
March 31, 1997 from $0.2 million in the corresponding  period of the prior year.
This increase was primarily due to (i) an increase of $39.6 million,  or 60%, in
brokered loan originations to $106.0 million in the three months ended March 31,
1997,  from  $66.4  million  in the same  period of the prior  year and (ii) the
addition of Fidelity  Mortgage's  retail loan origination fees from February 11,
1997 through  March 31,  1997.  The Company did not  originate  any retail loans
during the corresponding period in the prior year.

  EXPENSES

      Total expenses increased  $9.5 million,  or 170%, to $15.1 million for the
three months ended March 31, 1997, from $5.6 million in the corresponding period
of the prior year.  The increase in expenses was  primarily the result of higher
operating expenses associated with the additional  personnel required to process
a greater number of loan originations and purchases, the acquisition of Fidelity
Mortgage  and  increased interest expense on loans held for sale, as well as the
deferral of direct  origination  costs  in the three months ended March 31, 1996
in accordance with SFAS No. 91.

      PAYROLL EXPENSE.Payroll expense increased $6.1 million to $7.5 million for
the three months ended March 31, 1997,  from $1.4 million for the  corresponding
period of the prior  year.  The  increase  was  primarily  due to (a)  increased
staffing in the Company's  originations  area  associated with increases in loan
originations and purchases and the acquisition of Fidelity Mortgage, and (b) the
deferral of payroll related direct  origination  costs in the three months ended
March 31,  1996 in  accordance  with SFAS No. 91.  At March 31, 1997 the Company
employed  530 full- and  part-time  persons,  including  383  employees of Delta
Funding  Corporation  and 147  employees of Fidelity  Mortgage,  compared to 268
full- and part-time persons as of March 31, 1996.

      INTEREST EXPENSE. Interest expense increased $0.8 million, or 33%, to $3.2
million in the three  months  ended  March 31,  1997,  from $2.4  million in the
<PAGE>
corresponding  period of the prior year.  The  increase in interest  expense was
attributable  to the interest  costs  associated  with both a higher  balance of
loans pending sale during the three months ended March 31, 1997,  resulting from
increases in loan originations and purchases during the period,  and an increase
in residual and interest-only financings during the three months ended March 31,
1997. The Company had

                                       8


residual  and  interest-only  financings  of $57.5  million as of March 31, 1997
compared to $15.7 million as of March 31, 1996.

                                      
      GENERAL AND ADMINISTRATIVE EXPENSES.  General and administrative expenses,
which consist primarily of office and administrative,  rent, and health care and
insurance  expenses,  increased  $2.6  million,  or 144%, to $4.4 million in the
three months ended March 31, 1997 from $1.8 million in the corresponding  period
of the prior  year.  The  increase in general and  administrative  expenses  was
primarily  due to (a) expenses incurred in connection  with  increases  in  loan
originations  and  purchases,  increased  employee  benefit  expenses  and  the
Company's acquisition of Fidelity Mortgage, and (b) the deferral of general and 
administrative related direct originations costs in the three months ended March
31, 1996 in accordance with SFAS No. 91.
 

INCOME TAXES

      Prior to  October  31,  1996, Delta  Funding  Corporation  (the  Company's
wholly-owned  subsidiary)  was treated as an S corporation for federal and state
income tax purposes.  As a result,  the Company's  historical  earnings prior to
such date had been taxed directly to Former Shareholders and not to the Company.
On October 31, 1996, in contemplation of the Company's  initial public offering,
Delta Funding Corporation terminated its status as an S corporation.  The Former
Shareholders  of  Delta  Funding  Corporation,   pursuant  to  the  terms  of  a
contribution  agreement,  contributed  their  shares  of  common  stock in Delta
Funding  Corporation  to the  Company in the  Exchange  for  10,653,000  shares,
representing all of the then-outstanding Common Stock of the Company.

      On October 31, 1996,  in  conjunction  with the  Exchange,  Delta  Funding
Corporation's status as an S corporation was terminated and the Company became a
C corporation for federal and state income tax purposes and, as such, is subject
to federal and state  income tax on its  taxable  income.  For the three  months
ended March 31,  1997,  the Company  recorded a tax  provision  of $5.3  million
compared to $0.04 million in the corresponding period of the prior year.

FINANCIAL CONDITION

MARCH 31, 1997 COMPARED TO DECEMBER 31, 1996

      Cash and interest-bearing deposits increased $0.4 million, or 2%, to $19.1
million at March 31, 1997 from $18.7 million at December 31, 1996.  The increase
was primarily due to additional  moneys held in  securitization  trust  accounts
related  to the  Company's  ongoing  securitization  program  as a result  of an
increased balance of loans in securitization.

      Accounts  receivable  increased  $0.7  million,  or 8%, to $9.4 million at
March 31,  1997 from $8.7  million at  December  31,  1996.  This  increase  was
primarily due to a higher average loan servicing  portfolio,  which  resulted in
<PAGE>
increased  reimbursable  servicing  advances  made  by the  Company,  acting  as
servicer on its securitizations.

                                       9


      Loans held for sale  decreased  $5.9  million, or 7%, to $77.8  million at
March 31, 1997 from $83.7  million at  December  31,  1996.  This  decrease  was
primarily  the result of the Company  securitizing  a larger  percentage  of the
loans it originated  and purchased  during the three months ended March 31, 1997
as compared to the three months ended December 31, 1996.

      Accrued interest and late charges  receivable  increased $1.8 million,  or
9%, to $22 million at March 31, 1997 from $20.2  million at December  31,  1996.
This increase was primarily  due to a higher  average loan  servicing  portfolio
during the first quarter of 1997.  The  Company's  average  servicing  portfolio
increased 22% to $1,048.6  million  during the first quarter of 1997 from $859.6
million during the fourth quarter of 1996.

      Capitalized  mortgage servicing rights increased $2.0 million,  or 18%, to
$13.4  million at March 31, 1997 from $11.4  million at December 31, 1996.  This
increase was primarily attributable to the Company's 1997-1 securitization.

      Interest-only and residual  certificates  increased $18.8 million, or 23%,
to $101.9  million at March 31, 1997 from $83.1  million at December  31,  1996,
primarily due to interest-only and residual  certificates acquired in connection
with  the Company's  1997-1  $235 million  securitization  and recorded  at fair
value in accordance with SFAS No. 125.

      Warehouse financing and other borrowings  increased $17.0 million, or 18%,
to $112.5  million at March 31, 1997 from $95.5  million at December  31,  1996,
primarily  due to  additional  borrowings  to  finance  loans  held for sale and
additional financing secured by interest-only and residual certificates.  During
the fourth  quarter of 1996, the Company  used $38.0 million of the net proceeds
from its initial  public offering to pay down amounts outstanding on a warehouse
facility.

      Investor payable decreased $1.8 million,  or 8%, to $20.8 million at March
31, 1997 from $22.6 million at December 31, 1996. The decrease was primarily due
to a decline in the  amount of  principal  collected  by the  Company  acting as
servicer,  which  must  be  remitted  to the  various  trusts  in the  following
distribution  periods. Investor payable is comprised of all principal  collected
on mortgage loans, either due to principal  amortization or principal repayment,
and accrued certificate  interest.  Variability in this account is primarily due
to the principal prepayments collected within a given collection period.

      Stockholders'  equity increased $9.5 million, or 10%, to $103.0 million at
March 31,  1997 from $93.5  million at  December  31,  1996.  This  increase  is
primarily  due to net income for the  quarter  of $7.0  million,  as well as the
issuance of 119,288  additional shares of common stock valued at $2.5 million in
connection with the Company's acquisition of Fidelity Mortgage.

                                       10


LIQUIDITY AND CAPITAL RESOURCES

      The Company  has  operated,  and  expects to  continue  to  operate,  on a
negative  cash flow basis due to increases in the volume of loan  purchases  and
<PAGE>
originations and to the growth of its  securitization  program.  Currently,  the
Company's  primary  operating  cash  requirements  include  the  funding  of (i)
mortgage  originations  and purchases  pending their pooling and sale,  (ii) the
points and expenses paid in connection  with the  acquisition  of  correspondent
loans, (iii) interest expenses on warehouse,  residual and other financing, (iv)
fees,  expenses and tax payments incurred in connection with its  securitization
program, and (v) ongoing administrative and other operating expenses.

      The  Company  must be  able  to sell  loans  and  obtain  adequate  credit
facilities  and other  sources of funding in order to continue to originate  and
purchase loans. As a result of increased loan originations and purchases and the
increase in its securitization  program, the Company,  during the quarters ended
March 31, 1996 and March 31, 1997, used cash of approximately $108.9 million and
$11.4 million, respectively.

      Historically, the Company has utilized various financing facilities and an
equity  financing  to offset  negative  operating  cash  flows and  support  the
continued  growth  in  loan  volumes,   securitizations  and  general  operating
expenses. The Company's primary sources of liquidity are its warehouse and other
financing  facilities,  securitizations  and whole loan  sales  and,  subject to
market conditions, sales of additional debt and equity securities.

      To accumulate  loans for  securitization,  the Company  borrows money on a
short-term  basis  through  warehouse  lines  of  credit.  The  Company  has two
warehouse credit facilities for this purpose.  One warehouse  facility is a $250
million committed revolving line with a variable rate of interest and a maturity
date of February  1998.  This facility was converted  from an  uncommitted  to a
committed  line during the three  months  ended March 31,  1997.  The  Company's
second  warehouse  facility is a $200 million  committed  revolving  line with a
variable  rate of  interest  and a maturity  date of  February  1998,  which was
obtained  during  the three  months  ended  March 31,  1997 and  replaced a $100
million  uncommitted credit facility  previously  maintained by the Company with
the warehouse lender.  The outstanding  balance on the $250 million facility and
$200  million  facility  as  of  March  31,  1997  was  $51.8  million  and  $0,
respectively.

      The  Company has  obtained  financing  facilities  for  interest-only  and
residual certificates acquired as part of its securitizations.  These facilities
have variable  interest rates and mature between October 1997 and March 2000. As
of March 31, 1997,  the aggregate  outstanding  balance on these  facilities was
$57.5 million.

      In  addition,   the  Company  has  lines  of  credit  with  two  financial
institutions  to support  its daily  operating  requirements.  One is a one-year
renewable  credit line in the amount of $1.0  million  with a variable  interest
rate, renewable in September 1997. The Company's second line of credit is in the
amount of $7.5  million  with a  variable  interest  rate,  which  was  obtained

                                       11


subsequent to March 31, 1997. The outstanding balance on the credit lines was $0
as of March 31, 1997.

      The Company is required to comply with  various  operating  and  financial
covenants as provided in the agreements  described above which are customary for
agreements  of their  type.  The  Company  does not  believe  that its  existing
financial  covenants  will  restrict its  operations  or growth.  The  continued
availability of funds provided to the Company under these  agreements is subject
<PAGE>
to the  Company's  compliance  with these  covenants.  Management  believes  the
Company is in compliance with all such covenants under these agreements.

HEDGING

      The Company  originates  and purchases  mortgage loans and then sells them
primarily through securitizations. At the time of securitization and delivery of
the  loans,  the  Company  recognizes  gain on sale based on a number of factors
including the difference, or "spread" between the interest rate on the loans and
the interest rate on treasury  securities with maturities  corresponding  to the
anticipated  life of the loans.  If  interest  rates rise  between  the time the
Company  originates  or purchases the loans and the time the loans are priced at
securitization,  the excess spread narrows,  resulting in a loss in value of the
loans. To protect against such losses, the Company currently hedges the value of
the loans through the use of treasury rate lock contracts which function similar
to the short sale of treasury securities. Prior to hedging, the Company performs
an analysis of its loans taking into  account  such  factors as interest  rates,
maturities, durations, inventory of loans and amount of loans in the pipeline to
determine  the  proportion of contracts to sell so that the risk to the value of
the loans is most effectively  hedged. The Company will enter into treasury rate
lock contracts through one of its warehouse lenders and/or one of the investment
bankers which  underwrite  the Company's  securitizations.  These  contracts are
designated  as hedges  in the  Company's  records  and are  closed  out when the
associated loans are sold through securitization.

      If the value of the hedges  decrease,  offsetting an increase in the value
of the loans, the Company, upon settlement with its counter-party,  will pay the
hedge loss in cash and  realize the  corresponding  increase in the value of the
loans as part of its interest-only and residual certificates. Conversely, if the
value of the hedges  increase,  offsetting a decrease in the value of the loans,
the Company, upon settlement with its counterparty,  will receive the hedge gain
in cash and realize the corresponding decrease in the value of the loans through
a  reduction  in the  value  of the  corresponding  interest-only  and  residual
certificates.

      The Company  believes that its current hedging  strategy of using treasury
rate lock  contracts is the most  effective way to manage its interest rate risk
on loans prior to securitization.

INFLATION AND INTEREST RATES

      Inflation affects  the  Company  most  significantly  in the  area of loan
originations and can have a substantial effect on interest rates. Interest rates
normally increase during periods of high

                                       12


inflation  and  decrease  during  periods  of low inflation.  Profitability  may
be directly affected by the level and fluctuation in interest rates which affect
the Company's  ability to earn a spread between  interest  received on its loans
and the costs of its borrowings.  The  profitability of the Company is likely to
be  adversely  affected  during any  period of  unexpected  or rapid  changes in
interest  rates.  A substantial  and sustained  increase in interest rates could
adversely  affect the ability of the Company to purchase and originate loans and
affect the mix of first and second  mortgage  loan  products.  Generally,  first
mortgage production increases relative to second mortgage production in response
to low interest rates and second mortgage production increases relative to first
mortgage production during periods of high interest rates. A significant decline
<PAGE>
in interest  rates  could  decrease  the size of the  Company's  loan  servicing
portfolio by  increasing  the level of loan  prepayments.  Additionally,  to the
extent servicing rights, interest-only and residual classes of certificates have
been capitalized on the books of the Company,  higher than anticipated  rates of
loan  prepayments or losses could require the Company to write down the value of
such servicing rights and  interest-only  and residual  certificates,  adversely
impacting earnings.  Fluctuating interest rates also may affect the net interest
income earned by the Company resulting from the difference  between the yield to
the Company on loans held pending sales and the interest paid by the Company for
funds borrowed under the Company's warehouse facilities.
 

CERTAIN ACCOUNTING CONSIDERATIONS

STATEMENT OF FINANCIAL ACCOUNTING STANDARDS ("SFAS") NO. 125

      In June 1996, the Financial  Accounting  Standards  Board ("FASB")  issued
SFAS No. 125,  "Accounting  for Transfers and Servicing of Financial  Assets and
Extinguishments  of  Liabilities",   which  provides  accounting  and  reporting
standards for transfers and servicing of financial assets and extinguishments of
liabilities based on consistent application of a  financial-components  approach
that  focuses on control.  SFAS No. 125  distinguishes  transfers  of  financial
assets that are sales from transfers that are secured  borrowings.  SFAS No. 125
is effective for transfers and servicing of financial assets and extinguishments
of  liabilities  occurring  after  December  31,  1996,  and  is to  be  applied
prospectively. The Company  adopted  SFAS No. 125 on January 1, 1997.

      Securitization  of a financial asset, a portion of a financial asset, or a
pool of financial  assets in which the  transferor  surrenders  control over the
assets transferred, is accounted for as a sale. If the transfer does not qualify
as a sale,  the  transferred  assets will  remain on the  balance  sheet and the
proceeds  raised will be accounted  for as a secured  borrowing  with no gain or
loss recognition. Because Delta's transfers of loans made in connection with its
securitizations  qualify  as  sales  under  this  pronouncement,   the  required
accounting is an allocation of basis approach.

      After  the  securitization   of   mortgage   loans  held  for  sale,   the
mortgage-backed  security (or any retained interests in REMIC securitizations of
loans held for sale,  whether they are subordinate  classes or  interest-only or
residual certificates) shall be classified as a trading

                                       13


security  and  reported  at  fair  value  under  SFAS No. 115,  "Accounting  for
Certain Investments in Debt and Equity Securities".

      Servicing assets  created  in a  securitization  (contractually  specified
servicing fees due to the servicer in exchange for servicing those assets) shall
initially  be  measured  at their  allocated  carrying  amount,  based  upon the
relative fair value at the date of  securitization.  Servicing  assets are to be
amortized in  proportion  to, and over the period of,  estimated  net  servicing
income (the excess of servicing revenues over servicing costs).

      The Company has  completed  its analysis of SFAS No. 125 and has concluded
that it should not have any material effect on revenues or earnings.

MORTGAGE SERVICING RIGHTS

<PAGE>
      SFAS No. 125 requires  mortgage banking entities that acquire or originate
loans and  subsequently  sell or securitize  those loans and retain the mortgage
servicing  rights  to  allocate  the  total  cost of the  loans to the  mortgage
servicing rights and the mortgage loans without the mortgage  servicing  rights.
The Company  determines fair value based upon the present value of estimated net
future servicing revenues less the estimated cost that would fairly compensate a
substitute  servicer to service the loans.  The servicing asset is then recorded
on the balance sheet and  accounted for under SFAS No. 125 using the  allocation
of cost relative to fair value approach.  The assumptions used to calculate fair
value  are the  same  assumptions  used  to  determine  the  fair  value  of the
interest-only  certificates.  The cost  allocated  to the  servicing  rights  is
amortized  in  proportion  to and over the period of  estimated  net future cash
flows related to servicing  income. In connection with SFAS No. 125, the Company
recognized  income,  recorded  as part of gain on sale,  of $2.8  million in the
quarter ended March 31, 1997.

      SFAS  No.  125  also  requires  impairment   evaluations  of  all  amounts
capitalized as servicing  rights,  including those purchased before the adoption
of SFAS No. 125, based upon the fair value of the underlying  servicing  rights.
The Company periodically performs these evaluations on a disaggregated basis for
the  predominant  risk  characteristics  of the underlying  loans which are loan
type, term, credit quality and interest rate. The continuing effects of SFAS No.
125 on the Company's financial position and results of operations will depend on
several  factors,  including,  among  other  things,  the amount of  acquired or
originated loans sold or securitized, the type, term and credit quality of loans
and estimates of future prepayment rates.

INTEREST-ONLY AND RESIDUAL CERTIFICATES

      The Company  derives a  substantial  portion of its income by  recognizing
gain  on  sale  of  loans  sold  through  securitizations,  represented  by  the
interest-only   and  residual   certificates   that  the  Company  retains.   In
securitizations,  the Company sells loans that it has originated or purchased to
a trust  for a cash  purchase  price and  receives  interest-only  and  residual
certificates. The cash purchase price is raised through an offering by the trust
of pass-through  certificates  representing regular interests in the REMIC trust
(special purpose entity).

                                       14


      Following  a  securitization  ,  the  purchasers  of  the  pass -  through
certificates  receive the  principal  collected  and the  investor  pass-through
interest rate on the principal balance, while the Company receives the excess of
the interest  rate payable by an obligor on a loan over the interest rate passed
through  to  the  purchasers  of the  regular-interest  certificates,  less  the
Company's  normal  servicing fee and other  recurring fees. The present value of
the excess is initially  recorded at fair value in accordance  with SFAS No. 125
and  classified on the Company's  balance  sheet as  interest-only  and residual
certificates.  These certificates are subsequently reduced as cash distributions
are received.  The interest-only and residual  certificates are accounted for as
trading securities in accordance with SFAS No. 115 and as such they are recorded
at their fair value.

      Changes in fair value of the interest-only  and residual  certificates are
reflected in earnings. Fair value of the interest-only and residual certificates
is determined based on various economic  factors,  including  considerations  of
loan type, size, date of origination,  interest rate, term, collateral value and
geographic location. Higher than anticipated rates of loan prepayments or losses
<PAGE>
would require the Company to write down the fair value of the  interest-only and
residual  certificates,  adversely impacting earnings.  To date, the Company has
not been  required  to write  down the value of any  interest-only  or  residual
certificate it holds.

SFAS NO. 91

      In  December  1986,  the  FASB  issued  SFAS  No.  91,   "Accounting   for
Non-Refundable Fees and Costs Associated with Originating or Acquiring Loans and
Initial  Direct Costs of Leases." SFAS No. 91  establishes  the  accounting  for
non-refundable  fees and costs  associated with lending,  committing to lend, or
purchasing a loan or a group of loans.

      Under SFAS No. 91, loan origination fees and direct loan origination costs
are recognized as an adjustment of the loan's yield over the earlier of the life
of the  related  loan or the sale of the loan.  In effect,  SFAS No. 91 requires
that  origination fees be offset by their related direct loan costs and that net
deferred fees be recognized over the earlier of the life of the loan or the sale
of the loan, whether the loan is sold through  securitization or on a whole loan
basis.

      Prior to the second  quarter of 1996,  the  Company  generally  sold loans
through  securitization  on a  semiannual  basis and, as such,  carried a larger
inventory  of loans on its books from  quarter to quarter and from year to year,
which resulted in more  significant  SFAS No. 91  adjustments  being made during
those  periods.  Since the second  quarter of 1996,  the Company  has sold,  and
contemplates  that it will  continue  to  sell,  substantially  all of its  loan
originations   and   purchases   on  a   quarterly   basis   primarily   through
securitizations  and, to a lesser extent,  on a whole loan basis.  This practice
has  minimized  the amount of loans  being  held in  inventory  and,  therefore,
minimized the effects of SFAS No. 91 on the Company's financial statements.

                                       15


RISK FACTORS
     
      Except for  historical   information  contained  herein,  certain  matters
discussed in this Form 10-Q are  "forward-looking  statements" as defined in the
Private Securities Litigation Reform Act (PSLRA) of 1995, which involve risk and
uncertainties that exist in the Company's  operations and business  environment,
and are subject to change based on various important factors. The Company wishes
to take  advantage of the "safe  harbor"  provisions  of the PSLRA by cautioning
readers that numerous  important factors discussed below,  among others, in some
cases have caused, and in the future could cause the Company's actual results to
differ  materially from those expressed in any  forward-looking  statements made
by, or on behalf of, the Company.  The following  include some,  but not all, of
the  factors or  uncertainties  that could cause  actual  results to differ from
projections:

      o     A general economic slowdown.

      o     The unanticipated expenses of assimilating  newly-acquired  business
            into the  Company's  business  structure;  as well as, the impact of
            unusual  expenses from ongoing  evaluations of business  strategies,
            asset  valuations,  acquisitions,  divestitures  and  organizational
            structures.

      o     Unpredictable  delays  or  difficulties  in the  development of  new
<PAGE>      
            product programs.

      o     Rapid or unforeseen  escalation of the cost of regulatory compliance
            and/or  litigation,  including  but not  limited  to,  environmental
            compliance,  licenses,  adoption  of new,  or changes in  accounting
            policies and  practices  and the  application  of such  policies and
            practices.

      o     The effects of changes in  monetary  and fiscal  policies,  laws and
            regulations,  other activities of governments,  agencies and similar
            organizations,  and  social  and  economic  conditions,   unforeseen
            inflationary  pressures  and  monetary  fluctuation;  the ability or
            inability of the Company to hedge against  fluctuations  in interest
            rates.

      o     The ability or  inability  of  the  Company to continue its practice
            of securitization of mortgage loans held for sale.

      o     Increased competition within the Company's markets.

      The  Company  believes  that it has  the  product  offerings,  facilities,
personnel  and  competitive  and  financial  resources  for  continued  business
success. However, future revenues, costs, margins and profits are all influenced
by a number of factors, as discussed above.

                                       16

 
PART II- OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

      Because the nature of the Company's  business  involves the  collection of
numerous  accounts,  the validity of liens and compliance with state and federal
lending laws, the Company is subject to numerous claims and legal actions in the
ordinary  course  of its  business.  While it is  impossible  to  estimate  with
certainty the ultimate legal and financial liability with respect to such claims
and actions,  the Company believes that the aggregate amount of such liabilities
will not result in monetary damages which in the aggregate would have a material
adverse effect on the financial condition or results of the Company.

      Several class-action lawsuits have been filed recently against a number of
consumer  finance  companies  alleging that the compensation of mortgage brokers
through the payment of yield spread premiums  violates various federal and state
consumer protection laws. On March 18, 1997, the Company received notice that it
had been named in a lawsuit filed in Federal District Court, E.D.N.Y.,  alleging
that the  Company's  compensation  of mortgage  brokers by means of yield spread
premiums  violates,  among  other  things,  the Federal  Real Estate  Settlement
Procedures Act. The complaint seeks (i)  certification of a class of plaintiffs,
(ii) an injunction  against  payment of yield spread premiums by the Company and
(iii) unspecified compensatory and punitive damages (including attorney's fees).
Management  believes the Company has meritorious  defenses and intends to defend
this  suit,  but the  Company  has not yet  answered  the  complaint  and cannot
estimate with any certainty its ultimate legal or financial  liability,  if any,
with  respect to the alleged claims. On May 2, 1997, the Company  filed a motion
to dismiss for failure to join a necessary party.

ITEM 6.  EXHIBITS AND CURRENT REPORTS ON FORM 8-K:

<PAGE>
      (a)  Exhibits: 10.1   Employment Agreement dated March 4, 1997 between the
                            Company and Richard Blass.

                     11.1   Statement re: Computation of Per Share Earnings.

                     27     Financial Data Schedule.                  


      (b)  Reports on Form 8-K:     None.

                                       17


                                   SIGNATURES

     Pursuant to the requirements of the Securities and Exchange Act of 1934, as
amended, the registrant has duly caused this report on form 10-Q to be signed on
its behalf by the undersigned, thereunto duly authorized.


                                          DELTA FINANCIAL CORPORATION
                                                 (Registrant)

Date:  May 15, 1997

                                          By:/S/ HUGH MILLER
                                             -----------------------------------
                                             Hugh Miller
                                             PRESIDENT & CHIEF EXECUTIVE OFFICER



                                          By:/S/ RICHARD BLASS
                                             -----------------------------------
                                             Richard Blass
                                             SENIOR VICE PRESIDENT AND
                                             CHIEF FINANCIAL OFFICER


                                       18



                                  EXHIBIT INDEX


EXHIBIT
NUMBER      DESCRIPTION
-------     -----------

10.1        Employment  Agreement  dated  March 4, 1997  between the Company and
            Richard Blass.

11.1        Statement re: Computation of  Per Share Earnings.

27          Financial Data Schedule.