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 September 30, 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 September 30, 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 September 30, 1997 and 
December 31, 1996.......................................................... 1

Consolidated Statements of Income for the three months and nine months
ended September 30, 1997 and September 30, 1996............................ 2

Consolidated Statements of Cash Flows for the nine months ended
September 30, 1997 and September 30, 1996.................................. 3

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

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

Certain Accounting Considerations..........................................16

PART II - OTHER INFORMATION

Other Information..........................................................22

Signatures.................................................................23

<PAGE> 
  
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
                 DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)
                                                      SEPTEMBER 30, DECEMBER 31,
                                                           1997         1996     
                                                      ------------  ------------          
<S>                                                    <C>          <C>
       Assets                                               
                                                     
Cash and interest bearing deposits .................  $ 21,578,518  $ 18,741,182
Accounts receivable ................................    12,324,990     8,654,885
Loans held for sale ................................    85,763,109    83,677,017
Accrued interest and late charges receivable .......    30,126,717    20,158,812
Capitalized mortgage servicing rights ..............    19,385,550    11,411,634
Equipment, net .....................................     7,389,524     2,836,360
Cash held for advance payments .....................     5,950,211     2,488,218
Real estate owned ..................................          --         134,750
Interest-only and residual certificates ............   144,049,760    83,072,777
Prepaid and other assets ...........................     6,252,301     1,560,578
Goodwill ...........................................     6,131,246          --   
                                                      ------------  ------------ 
                                                      $338,951,926  $232,736,213
                                                      ============  ============ 
                                                     
                                                     
       Liabilities and Stockholders' Equity                 
                                                     
Bank payable .......................................     1,297,729     2,294,742
Warehouse financing and other borrowings ...........    15,292,851    95,481,627
Senior Notes Due 2004 ..............................   149,287,996          --   
Accounts payable and accrued expenses ..............    10,009,761     7,201,674
Investor payable ...................................    32,307,128    22,568,730
Advance payment by borrowers for taxes and insurance     5,404,180     2,255,045
Income taxes payable ...............................     7,219,321     9,416,784
                                                      ------------  ------------ 
                                                       220,818,966   139,218,602
                                                      ============  ============ 
Stockholders' equity                                 
                                                     
Common stock, $.01 par value. Authorized             
49,000,000 shares; 15,372,288 issued and             
outstanding at September 30, 1997  and               
15,253,000 at December 31, 1996 ....................       153,723       152,530
Additional paid-in capital .........................    93,468,544    90,952,737
Retained earnings ..................................    24,510,693     2,412,344
                                                      ------------  ------------ 
Total stockholders' equity .........................   118,132,960    93,517,611
                                                      ------------  ------------ 
                                                      $338,951,926  $232,736,213
                                                      ============  ============ 
                                                     
          See accompanying notes to consolidated financial statements.
                                                     
                                        1            
</TABLE>                                            
<PAGE>
<TABLE>
<CAPTION>
                  DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)
                                                                         THREE MONTHS ENDED                  NINE MONTHS ENDED
                                                                           SEPTEMBER 30,                       SEPTEMBER 30,
                                                                      1997              1996              1997              1996
                                                                   -----------       -----------       -----------       -----------
<S>                                                                <C>               <C>               <C>               <C>
Revenues:
Net gain on sale of
  mortgage loans ...........................................       $24,733,186       $13,701,876       $60,501,700       $31,502,314
Interest ...................................................         5,246,327         4,093,545        17,143,845        11,954,856
Servicing fees .............................................         1,957,857         1,445,988         5,248,906         3,770,672
Other ......................................................         5,476,902         1,475,377        12,291,195         3,820,131
                                                                   -----------       -----------       -----------       -----------
                                                                    37,414,272        20,716,786        95,185,646        51,047,973
                                                                   -----------       -----------       -----------       -----------
Expenses:
Payroll and related costs ..................................        10,971,802         4,603,828        27,054,308        11,288,988
Interest expense ...........................................         5,670,520         2,606,701        12,761,027         8,528,853
General and administrative .................................         7,091,919         3,577,418        16,831,802         8,889,557
                                                                   -----------       -----------       -----------       -----------
                                                                    23,734,241        10,787,947        56,647,137        28,707,398
                                                                   -----------       -----------       -----------       -----------
Income before provision for income
    taxes and extraordinary item ...........................        13,680,031         9,928,839        38,538,509        22,340,575
Provision for income taxes .................................         5,795,977          (103,000)       16,440,160           216,049
                                                                   -----------       -----------       -----------       -----------
Income before extraordinary item ...........................         7,884,054        10,031,839        22,098,349        22,124,526
Extraordinary item:
    Gain on extinguishment of debt .........................              --                --                --           3,167,828
                                                                   -----------       -----------       -----------       -----------
       Net income ..........................................       $ 7,884,054       $10,031,839       $22,098,349       $25,292,354
                                                                   ===========       ===========       ===========       ===========

Pro forma information:
 Provision for pro forma income taxes
     before extraordinary item .............................           n/a             4,269,401           n/a             9,606,447
                                                                                     ===========                         ===========
 Pro forma income before
     extraordinary item ....................................           n/a             5,659,438           n/a            12,734,128
                                                                                     ===========                         ===========
 Pro forma income per share of
    common stock ...........................................           n/a           $      0.45           n/a           $      1.01
                                                                                     ===========                         ===========
 Pro forma weighted average number
    of shares outstanding ..................................           n/a            12,629,182           n/a            12,629,182
                                                                                     ===========                         ===========
Per share data:
 Earnings per share ........................................       $      0.51           n/a          $      1.44            n/a
                                                                   ===========                        ===========       
 Weighted average number
    of shares outstanding ..................................        15,424,464           n/a           15,390,669            n/a
                                                                   ===========                        ===========       

          See accompanying notes to consolidated financial statements.

                                       2

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                  DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                                                                                                         NINE MONTHS ENDED
                                                                                                           SEPTEMBER 30,
                                                                                                    1997                    1996
                                                                                               -------------           -------------
<S>                                                                                            <C>                     <C> 
Cash flows from operating activities:
 Net income .........................................................................          $ 22,098,349            $ 25,292,353
 Adjustments to reconcile net income to net cash used in
    operating activities:
    Provision for loan losses .......................................................                74,997                  74,820
    Depreciation and amortization ...................................................             1,777,436                 589,765
    Capitalized mortgage servicing rights,
       net of amortization ..........................................................            (7,973,916)             (4,986,851)
    Deferred origination fees .......................................................              (405,922)               (722,357)
    Interest-only and residual certificates received in
       securitization transactions, net .............................................           (60,976,983)            (35,195,393)
 Changes in operating assets and liabilities:
    Increase in accounts receivable, net ............................................            (3,639,311)               (906,858)
    (Increase) decrease in loans held for sale, net .................................            (1,755,167)             17,123,438
    Increase in accrued interest and
       late charges receivable ......................................................            (9,967,905)             (1,209,438)
    (Increase) decrease in cash held for advance payments ...........................            (3,461,993)                763,537
    Decrease in real estate owned ...................................................               134,750                 115,000
    Increase in prepaid and other assets ............................................            (4,657,884)               (942,229)
    Decrease in due from stockholders ...............................................                  --                   990,000
    Increase in accounts payable and  accrued expenses ..............................             2,729,757               2,914,052
    Increase in investor payable ....................................................             9,738,398               4,398,706
    Increase (decrease) in advance payments by
       borrowers for taxes and insurance ............................................             3,136,475                (661,405)
    Decrease in income taxes payable ................................................            (2,153,386)                   --   
                                                                                               -------------           -------------
Net cash used in operating activities ...............................................           (55,302,305)              7,637,140
                                                                                               -------------           -------------
Cash flows from investing activities:
    Acquisition of Fidelity Mortgage ................................................            (4,149,845)                   --
    Purchase of equipment ...........................................................            (5,529,151)             (1,745,095)
                                                                                               -------------           -------------
Net cash used in investing activities ...............................................            (9,678,996)             (1,745,095)
                                                                                               -------------           -------------
Cash flows from financing activities:
   Payments of warehouse financing and
      other borrowings, net..........................................................           (80,420,664)             (8,925,247)
   Proceeds from issuance of Senior Notes ...........................................           149,287,996                    --
   Decrease in bank payable, net ....................................................            (1,048,695)               (297,642)
   Distributions ....................................................................                  --                  (540,000)
                                                                                               -------------           -------------
Net cash provided by financing activities ...........................................            67,818,637              (9,762,889)
                                                                                               -------------           -------------
Net increase (decrease) in cash .....................................................             2,837,336              (3,870,844)

Cash at beginning of period .........................................................            18,741,182              16,635,135
                                                                                               -------------           -------------
Cash at end of period ...............................................................          $ 21,578,518            $ 12,764,291
                                                                                               =============           =============
          See accompanying notes to consolidated financial statements.
                                        3
</TABLE>
<PAGE>

                 DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1) ORGANIZATION

      Delta Financial Corporation (together  with its subsidiaries, collectively
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 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.

      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. Certain information and
footnote  disclosures  normally  included in  financial  statements  prepared in
accordance with generally accepted accounting  principles have been condensed or
omitted  pursuant to the rules and  regulations  of the  Securities and Exchange
Commission.   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.

      All adjustments (consisting of normal  recurring accruals) which  are,  in
the opinion of management, considered  necessary for a fair presentation  of the
financial  position and results of operations for the interim periods  presented
have been made.

(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 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

                                       4


amortized on a  straight-line  basis over seven  years. On October 1, 1997,  the
acquired  operations  were merged  and  will continue  to  operate  as  Fidelity
Mortgage Inc. going forward.
<PAGE>
(4) PRO FORMA INFORMATION

      Prior to  October 31, 1996,  Delta  Funding  Corporation  (a  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 and
nine months  ending  September 30, 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 nine months ended September  30, 1997  and  September 30, 1996,
the Company paid $10.8 million and $8.7 million, respectively, for interest, and
$18.6 million and $0.05 million, 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.

(6) RECENT DEVELOPMENTS - SENIOR NOTES DUE 2004

      On July 23,  1997, the Company  completed  a $150.0  million  offering  of
Senior Notes due August 1, 2004.  The Notes bear  interest at a rate of 9.5% per
annum, payable  semi-annually on February 1 and August 1, commencing on February
1, 1998. On or after August 1, 2001,  the Notes are  redeemable at the Company's
option,  in whole or in part, at the redemption price set forth in the Indenture
dated July 23,  1997,  plus  accrued  and unpaid  interest  through  the date of
redemption.  The  Indenture  governing  the terms of the Senior  Notes  contains
certain   financial  ratios  and  other  restrictive   covenants,   including  a
restriction on asset sales, incurrence of additional indebtedness and incurrence
of additional  liens. The proceeds from the debt offering were used first to pay
off  shorter-term  financing  and the  remaining  proceeds  will be used to fund
originations growth and securitization activities.

                                       5
<PAGE>

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 capital and additional  funding
sources  through  (a) the  capital  markets  and (b)  larger  warehouse  finance
agreements  which have 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
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

NINE  MONTHS  ENDED  SEPTEMBER  30, 1997  COMPARED  TO THE NINE  MONTHS  ENDED
SEPTEMBER 30, 1996

  REVENUES

      Total revenues increased  $44.2  million, or 87%, to $95.2 million  in the
nine months ended  September 30, 1997,  from $51.0 million in the  corresponding
period of the prior  year.  The  increase in revenues  was  attributable  to the
<PAGE>
increase in loan originations and purchases and the  corresponding  increases in
the  amount of loans  sold  through  securitizations  and size of the  Company's
servicing portfolio, and the resultant increases in net gain on sale of mortgage
loans,  origination fees,  servicing fees, and interest income on loans held for
sale. Total loan originations and purchases  increased $443.1 million,  or 107%,
to $858.2  million  during the nine months ended  September 30, 1997 from $415.1
million during the nine months ended  September 30, 1996. The Company  completed
three securitizations totaling $835.0 million in the nine months ended September
30, 1997 compared to two  securitizations  and whole loan sales totaling  $420.3
million in the corresponding period one year ago. Total loans serviced increased
$826.0 million,  or 112%, to $1.565 billion as of September 30, 1997 compared to
$739.0 million at September 30, 1996.

      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  $29.0  million,  or 92%, to $60.5
million in the nine months ended  September 30, 1997,  from $31.5 million in the
corresponding  period of the prior year.  The  increase was  attributable  to an
increase in the amount of loans  securitized in the nine months ended  September
30,  1997  compared  to  the  amount  of  loans   securitized  or  sold  in  the
corresponding  period one year ago, but was  partially  offset by the  Company's
change in prepayment  assumptions on adjustable rate mortgages.  During the nine
months ended  September 30, 1997, the Company  completed  three  securitizations
totaling  $835.0 million  compared to two  securitizations  and whole loan sales
totaling  $420.3  million for the nine months  ended  September  30,  1996.  The
weighted  average gain on sale for the nine months ended  September 30, 1997 and
for the nine months ended September 30, 1996 were 7.25% and 7.49%, respectively.

      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  $5.2  million,  or 44%,  to $17.1  million in the nine  months  ended
September 30, 1997, from $11.9 million in the corresponding  period of the prior
year. The increase in interest  income was primarily due to (a) a higher average
balance of mortgage  loans held for sale during the nine months ended  September
30, 1997 resulting from the increase in loan  originations and purchases and (b)
an  increase  in  excess   servicing   received  from  the  Company's   retained
interest-

                                       7


only  and residual  certificates  during  the  nine  months ended  September 30,
1997.  As of September  30,  1997,  the  Company's  retained  interest-only  and
residual  certificates  totaled $144.0 million compared to $60.5 million for the
comparable  period one year ago. The increase in interest  income was  partially
offset  by higher  aggregate  amortization  of the  retained  interest-only  and
residual  certificate  assets in accordance with SFAS No. 115 in the nine months
ended September 30, 1997 compared to the corresponding period in the prior year.
The higher aggregate  amortization was due in part to the Company's  decision to
accelerate  amortization of the retained  interest-only and residual certificate
assets by changing the  prepayment  assumptions  the Company uses to value these
certificates.

<PAGE>
      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  $1.5 million,  or 41%, to $5.2 million in the nine
months ended September 30, 1997, from $3.7 million in the  corresponding  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 nine months ended  September  30,  1997,  the average
balance of  mortgage  loans  serviced  by the  Company  increased 108% to $1.253
billion from $603.3 million during the  corresponding  period of the prior year.
Servicing fees  increased at a slower rate than the average  balance of mortgage
loans serviced  primarily because the Company reduced its contractual  servicing
fee rate from  0.65% to 0.50%  per  annum to  conform  with  industry  standards
(commencing  with its 1996-2  securitization),  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  $8.5  million,  or 224%,  to $12.3  million in the nine
months ended September 30, 1997 from $3.8 million in the corresponding period of
the prior year.  This  increase  was  primarily  due to the addition of Fidelity
Mortgage's retail loan origination fees from February 11, 1997 through September
30, 1997 and, to a lesser extent,  to an increase of $120.0 million,  or 54%, in
brokered loan  originations to $343.2 million in the nine months ended September
30, 1997,  from $223.2 million in the same period of the prior year. The Company
did not originate any retail loans during the corresponding  period in the prior
year.

  EXPENSES

      Total expenses  increased $27.9 million,  or 97%, to $56.6 million for the
nine months ended  September 30, 1997,  from $28.7 million in the  corresponding
period of the prior year.  The increase in expenses was  primarily the result of
(a) higher operating  expenses  associated with the growth in loan  originations
and  purchases,  (b)  additional  operating  expenses  associated  with Fidelity
Mortgage's  retail  operation,  which the Company acquired in February 1997, (c)
higher  interest  expenses  associated  with  increased   borrowings  under  the
Company's  warehouse and interest-only and residual financing credit facilities,
and (d) accrued interest expense related to the $150 million aggregate principal
amount of 9.5% Senior Notes due 2004.

                                       8


      PAYROLL  EXPENSE.  Payroll expense  increased  $15.8 million,  or 140%, to
$27.1 million for the nine months ended  September 30, 1997,  from $11.3 million
for the  corresponding  period of the prior year. The increase was primarily due
to  increased  staffing  in the  Company's  originations  area  associated  with
increases  in loan  originations  and  purchases,  and  commissions  paid to the
Company's  retail personnel on loans originated  through Fidelity  Mortgage.  At
September  30,  1997,  the Company  employed  850 full- and  part-time  persons,
including  489  employees  of Delta  Funding  Corporation  and 361  employees of
Fidelity  Mortgage,  compared to 309 full- and part-time persons as of September
30, 1996.

      INTEREST  EXPENSE.  Interest  expense  increased $4.3 million,  or 51%, to
$12.8 million in the nine months ended  September 30, 1997, from $8.5 million in
the corresponding period of the prior year. The increase in interest expense was
attributable to the interest costs associated with increased  borrowings  during
<PAGE>
the nine months ended  September 30, 1997 compared to the comparable  period one
year ago under the Company's (i) short-term warehouse credit facilities due to a
higher balance of loans held for sale during the nine months ended September 30,
1997,  resulting from increases in loan  originations  and purchases  during the
period,  (ii)  interest-only and residual financing credit facilities secured by
its  residual  and  interest-only  certificates  during  the nine  months  ended
September 30, 1997, and (iii) $150 million  aggregate  principal  amount of 9.5%
Senior Notes due 2004.  The Company used the net proceeds  from the Senior Notes
offering to paydown amounts  outstanding  under warehouse and  interest-only and
residual  financing  facilities.  The increase was  partially  offset by a lower
average cost of funds on the Company's  warehouse credit  facilities  during the
nine months ended September 30, 1997 compared to the corresponding period in the
prior year.

      GENERAL AND ADMINISTRATIVE EXPENSES.  General and administrative expenses,
which consist primarily of office and administrative,  rent, and health care and
insurance expenses, increased $7.9 million, or 89%, to $16.8 million in the nine
months ended September 30, 1997 from $8.9 million in the corresponding period of
the prior  year.  The  increase  in  general  and  administrative  expenses  was
primarily  due to  expenses  incurred  in  connection  with the  growth  of loan
originations and purchases, increased employee benefit expenses, the addition of
Fidelity Mortgage, and the opening of six Fidelity Mortgage branch offices.

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 Delta Funding Corporation's 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  and  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
exchange for 10,653,000 shares,  representing all of the then-outstanding common
stock of the Company.

      On or about 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

                                       9


income  tax  on its income. For the  nine months ended  September 30,  1997, the
Company  recorded a tax provision of $16.4  million  compared to $0.2 million in
the corresponding period of the prior year.

THREE  MONTHS  ENDED  SEPTEMBER  30, 1997  COMPARED  TO THE  THREE  MONTHS ENDED
SEPTEMBER 30, 1996

  REVENUES

      Total revenues  increased  $16.7 million,  or 81%, to $37.4 million in the
three months ended September 30, 1997,  from $20.7 million in the  corresponding
period of the prior  year.  The  increase in revenues  was  primarily  due to an
increase in (a) loans sold and  securitized for the three months ended September
30,  1997  compared to the  comparable  period one year ago,  (b) the  Company's
servicing  portfolio and  corresponding  servicing  fees, (c)  origination  fees
primarily due to Fidelity  Mortgage's retail operation,  and (d) interest income
<PAGE>
on loans held for sale.

      NET GAIN ON SALE OF MORTGAGE  LOANS.  Net gain on sale of  mortgage  loans
increased  $11.0  million,  or 80%, to $24.7  million in the three  months ended
September 30, 1997, from $13.7 million in the corresponding  period of the prior
year.  The  increase  was  primarily  attributable  to an increase in loans sold
through securitization resulting from an increase in total loan originations and
purchases,  but was  partially  offset by the  Company's  change  in  prepayment
assumptions on adjustable rate mortgages. The Company completed a $340.0 million
securitization,  with a net gain on sale of 7.26%  during the three months ended
September 30, 1997,  compared to a securitization and loan sales totaling $184.0
million,  with a net  gain on sale of  7.45%,  during  the  three  months  ended
September 30, 1996.

      INTEREST INCOME.  Interest income increased $1.1 million,  or 27%, to $5.2
million in the three months ended  September 30, 1997,  from $4.1 million in the
corresponding  period of the prior year.  The  increase  in interest  income was
primarily due to an increase in excess servicing received from interest-only and
residual  certificates  during the three months ended  September 30, 1997. As of
September  30,  1997,  the  Company's   retained   interest-only   and  residual
certificates totaled $144.0 million compared to $60.5 million for the comparable
period one year ago. The  increase in interest  income was  partially  offset by
higher  aggregate  amortization  of  the  retained  interest-only  and  residual
certificate  assets in  accordance  with SFAS No. 115 in the three  months ended
September 30, 1997 compared to the  corresponding  period in the prior year. The
higher  aggregate  amortization  was due in part to the  Company's  decision  to
accelerate  amortization of the retained  interest-only and residual certificate
assets by changing the  prepayment  assumptions  the Company uses to value these
certificates.

      SERVICING INCOME. Servicing income increased $0.5 million, or 36%, to $1.9
million in the three months ended  September 30, 1997,  from $1.4 million in the
corresponding  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  September 30, 1997,
the average balance of mortgage loans serviced by the Company  increased 110% to
$1.465 billion from $699.2 million during the corresponding  period of the prior
year.

                                       10


Servicing  fees  increased  at  a  slower  rate  than  the  average  balance  of
mortgage loans serviced  primarily  because the Company  reduced its contractual
servicing  fee rate  from  0.65% to 0.50%  per annum to  conform  with  industry
standards (commencing with its 1996-2  securitization),  and due to amortization
of the capitalized servicing asset in accordance with SFAS No. 125.

      OTHER  INCOME.  Other income  increased  $4.0  million,  or 267%,  to $5.5
million in the three  months ended  September  30, 1997 from $1.5 million in the
corresponding  period of the prior year.  This increase was primarily due to the
addition of Fidelity  Mortgage's  retail loan origination fees from July 1, 1997
through  September  30,  1997 and, to a lesser  extent,  to an increase of $46.4
million,  or 53%, in brokered loan  originations  to $134.0 million in the three
months ended  September  30, 1997,  from $87.6 million in the same period of the
prior  year.  The  Company  did  not  originate  any  retail  loans  during  the
corresponding period in the prior year.

  EXPENSES
<PAGE>

      Total expenses increased $12.9 million,  or 119%, to $23.7 million for the
three months ended September 30, 1997,  from $10.8 million in the  corresponding
period of the prior year.  The increase in expenses was  primarily the result of
(a) higher operating  expenses  associated with the growth in loan  originations
and  purchases,  (b)  additional  operating  expenses  associated  with Fidelity
Mortgage's  retail  operation,  which the Company acquired in February 1997, (c)
higher  interest  expenses  associated  with  increased   borrowings  under  the
Company's warehouse credit facilities,  and (d) accrued interest expense related
to the $150 million aggregate principal amount of 9.5% Senior Notes due 2004.

      PAYROLL EXPENSE. Payroll expense increased $6.4 million, or 139%, to $11.0
million for the three months ended September 30, 1997, from $4.6 million for the
corresponding  period of the prior  year.  The  increase  was  primarily  due to
increased staffing in the Company's  originations area associated with increases
in loan originations and purchases, and commissions paid to the Company's retail
personnel on loans originated through Fidelity Mortgage.  At September 30, 1997,
the Company employed 850 full- and part-time persons, including 489 employees of
Delta Funding  Corporation and 361 employees of Fidelity  Mortgage,  compared to
309 full- and part-time persons as of September 30, 1996.

      INTEREST  EXPENSE.  Interest expense  increased $3.1 million,  or 119%, to
$5.7 million in the three months ended  September 30, 1997, from $2.6 million in
the corresponding period of the prior year. The increase in interest expense was
primarily due to accrued interest expense related to the $150 million  aggregate
principal  amount of 9.5% Senior  Notes due 2004,  the net proceeds of which the
Company used to paydown amounts  outstanding  under a warehouse  credit facility
and interest-only and residual financing facilities. This increase was partially
offset  by a lower  average  cost of funds  on the  Company's  warehouse  credit
facilities  during the three months  ended  September  30, 1997  compared to the
corresponding period in the prior year.

      GENERAL AND ADMINISTRATIVE  EXPENSES.  General and administrative expenses
increased  $3.5  million,  or 97%,  to $7.1  million in the three  months  ended
September  30, 1997 from $3.6 million in the  corresponding  period of the prior
year. The increase in general and  administrative 

                                       11


expenses was  primarily  due to expenses  incurred in connection  with growth of
loan  originations and  purchases,  increased  employee  benefit  expenses,  the
addition of Fidelity  Mortgage and the opening of two Fidelity  Mortgage  branch
offices.

INCOME  TAXES.  For the three months  ended  September  30,  1997,  the  Company
recorded a tax  provision of $5.8 million  compared to a $0.1 million tax credit
in the corresponding period of the prior year.

FINANCIAL CONDITION

SEPTEMBER 30, 1997 COMPARED TO DECEMBER 31, 1996

      Cash and  interest-bearing  deposits  increased  $2.9 million,  or 16%, to
$21.6 million at September 30, 1997 from $18.7 million at December 31, 1996. The
increase was  primarily due to additional  monies held in  securitization  trust
accounts related to the Company's ongoing  securitization program as a result of
an increased balance of loans in securitization.

<PAGE>

      Accounts  receivable  increased $3.7 million,  or 43%, to $12.3 million at
September  30, 1997 from $8.6 million at December 31,  1996.  This  increase was
primarily due to a higher  average loan servicing  portfolio,  which resulted in
increased  reimbursable  servicing  advances  made  by the  Company,  acting  as
servicer on its securitizations.

      Loans held for sale  increased  $2.1  million,  or 3%, to $85.8 million at
September 30, 1997 from $83.7 million at December 31, 1996.  This increase was a
result of increases in loan  originations  and purchases in the third quarter of
1997 compared to the fourth quarter of 1996, and a corresponding increase in the
amount of loans remaining in inventory subsequent to the Company's third quarter
1997 securitization.

      Accrued interest and late charges receivable  increased $10.0 million,  or
50%, to $30.1  million at September  30, 1997 from $20.1 million at December 31,
1996.  This  increase  was  primarily  due to a higher  average  loan  servicing
portfolio which resulted in increased reimbursable interest advances made by the
Company,  acting as  servicer  on its  securitizations.  The  Company's  average
servicing  portfolio increased 70% to $1.465 billion during the third quarter of
1997 from $860 million during the fourth quarter of 1996.

      Capitalized  mortgage servicing rights increased $8.0 million,  or 70%, to
$19.4  million at  September  30, 1997 from $11.4  million at December 31, 1996.
This  increase  was  primarily   attributable  to  the  Company,   as  servicer,
capitalizing  the  mortgage  servicing  rights on its three new  securitizations
during  the nine  months ended  September 30,  1997, in accordance with SFAS No.
125.

      Interest-only and residual  certificates  increased $60.9 million, or 73%,
to $144.0 million at September 30, 1997 from $83.1 million at December 31, 1996.
This  increase was  primarily  due to  interest-only  and residual  certificates
acquired in connection  with the Company's  1997-1 $235 million  securitization,
1997-2  $260  million  securitization  and 1997-3 $340  million

                                       12


securitization,  completed  during  the  first,  second  and  third  quarters of
1997, respectively. Interest-only and residual certificates are recorded at fair
value in accordance with SFAS No. 125. The increase was partially  offset by the
Company's decision to accelerate  amortization of the retained interest-only and
residual  certificate assets by changing the prepayment  assumptions the Company
uses to value these certificates.

      Prepaid and other assets increased $4.7 million,  or 294%, to $6.3 million
at September  30, 1997 from $1.6 million at December 31, 1996.  The increase was
primarily due to costs related to the Company's $150 million aggregate principal
amount  9.5% Senior  Note  offering in the third  quarter of 1997 which is being
amortized over the seven year life of the Senior Notes.

      Warehouse financing and other borrowings  decreased $80.2 million, or 84%,
to $15.3  million at September 30, 1997 from $95.5 million at December 31, 1996.
During the third  quarter of 1997,  the Company used the net  proceeds  from its
$150  million  aggregate  principal  amount  Senior  Notes  Offering  to paydown
approximately  $78.2  million of  borrowings  on a warehouse  facility and $66.4
million of residual and interest-only financings.

      Senior Notes due 2004 totaled $149.3 million at September 30, 1997, net of
<PAGE>
unamortized bond discount.  The Notes bear interest at a rate of 9.5% per annum,
payable  semi-annually  on  February 1 and August 1,  commencing  on February 1,
1998.  The Company did not have any Senior Notes due 2004  outstanding  prior to
July 23, 1997.

      Investor  payable  increased  $9.7  million,  or 43%, to $32.3  million at
September  30, 1997 from $22.6  million at December 31,  1996.  The increase was
primarily due to an increase 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 $24.6 million, or 26%, to $118.1 million at
September 30, 1997 from $93.5 million at December 31, 1996. This increase is due
to net  income  for the  nine  month  period  of $22.1  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.

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
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  expense on its Senior Notes due 2004 and  warehouse and
other  financings,  (iv) fees,  expenses and tax payments incurred in connection
with its  securitization  program,  and (v)  ongoing  administrative  and  other
operating expenses.

                                       13



      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 nine months
ended September 30, 1997, used cash of  approximately  $55.3 million compared to
the nine months ended September 30, 1996, in which the Company generated cash of
$7.6 million.

      Historically, the Company has utilized various financing facilities and an
equity  financing  to offset  negative  operating  cash  flows and  support  its
continued growth in loan originations and purchases, securitizations and general
operating  expenses.  On July 23,  1997,  the Company  completed a $150  million
aggregate principal amount 9.5% Senior Note offering, the proceeds of which will
be used to fund  growth  in loan  originations  and  purchases  and its  ongoing
securitization  program.  The Company's primary sources of liquidity continue to
be 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 three
<PAGE>
warehouse credit facilities for this purpose.  One warehouse  facility is a $325
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 Company's third  warehouse  facility is a syndicated
$100 million  committed  revolving  line with a variable  rate of interest and a
maturity  date of  June  1998.  The  outstanding  balance  on the  $325  million
facility,  $200 million  facility and $100 million  facility as of September 30,
1997 was $13.1 million, $0 and $0, respectively.

      The Company has in the past obtained financing facilities for residual and
interest-only  certificates  acquired  as  part  of its  securitizations.  As of
September  30,  1997,  the  Company  did not have any  indebtedness  secured  by
residual and interest-only certificates.  In addition, the Company is limited by
the terms of the Senior Notes Indenture as to the amount of future  indebtedness
secured by residual and interest-only certificates.

      In  addition,  the  Company  had a $1.0  million  line  of  credit  with a
financial institution to support its daily operating  requirements.  The Company
elected to let this facility expire in September 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

                                       14


subject 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.

<PAGE>
      If the value of the hedges  decrease,  offsetting an increase in the value
of the loans, the Company,  upon settlement with its counterparty,  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 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

                                       15


relative to first mortgage  production during  periods  of  high interest rates.
A  significant  decline  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 and  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

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.

      Following  the   securitizations,   the  purchasers  of  the  pass-through
<PAGE>
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 (with respect to
the  interest-only and residual  certificates),  as well as the Company's normal
servicing  fee,  less other  recurring  fees.  The  interest-only  and  residual
certificates  are capitalized on the Company's  balance sheet and are reduced as
cash distributions are received. The interest-only and residual certificates are
accounted for as trading  securities in accordance  with  Statement of Financial
Accounting  Standards ("SFAS") No. 115,  "Accounting for Certain  Investments in
Debt and Equity Investments," and as such they are recorded at their fair value.

      Changes in fair value of the interest-only  and residual  certificates are
reflected in the statement of operations.  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 would require the Company to write down the fair value of
the  interest-only  and residual  certificates,  adversely  impacting  earnings.
Similarly,  if  delinquencies,  liquidations or interest rates were greater than
initially  assumed  by the  Company,  the fair  value of the  interest-only  and
residual  certificates  would be  negatively  impacted  resulting  in an adverse
effect on interest income for the periods during which such events occurred. The
residual  certificates  held by the Company are subject to losses on  liquidated
loans which flow through each  securitization  trust.  Since the  calculation of
fair value of these certificates at the 

                                       16


time  of  securitization  included  certain  assumptions  concerning losses, any
losses in excess of such  assumptions  will have an adverse  effect on  interest
income.

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, is to be applied prospectively
and supersedes  SFAS No. 122,  "Accounting for Mortgage  Servicing  Rights." 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
<PAGE>
loans held for sale,  whether they are subordinate  classes or  interest-only or
residual certificates) shall be classified as a trading security and reported at
fair value under SFAS No. 115.

      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).

      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 (i) the  mortgage
servicing  rights and (ii) 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 

                                       17


as part of gain on  sale, of $4.2  million and  $10.2 million in  the three  and
nine months ended September 30, 1997, respectively.

      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.

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.

<PAGE>
      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.

SFAS NO. 123

      In October 1995,  FASB issued SFAS No. 123,  "Accounting  for  Stock-Based
Compensation."  SFAS No. 123  establishes  financial  accounting  and  reporting
standards for stock-based  employee  compensation plans. Those plans include all
arrangements  by which  employees  receive  shares  of  stock  or  other  equity
instruments of the employer or the employer  incurs  liabilities to employees in
amounts based on the price of the employer's stock.  Examples are stock purchase
plans, stock options,  restricted stock awards,  and stock appreciation  rights.
This statement also applies to transactions in which an entity issues its equity
instruments to acquire goods or services from non-employees.  Those transactions
must be accounted for, or at least disclosed in the case of stock options, based
on the fair

                                       18


value of the consideration received or the fair value of the  equity instruments
issued, whichever is  more  reliably  measurable.  The  accounting  requirements
of SFAS  No.  123 are  effective  for  financial  statements  for  fiscal  years
beginning  after December 15, 1995, or for an earlier fiscal year for which SFAS
No. 123 is initially  adopted for recognizing  compensation  cost. The statement
permits a company to choose either a new fair value-based  method or the current
APB Opinion 25 intrinsic  value-based  method of accounting for its  stock-based
compensation arrangements.  The Company applies APB Opinion No. 25 in accounting
for its stock option plan.  Further,  the Company  provides in a footnote to its
financial  statements  pro forma  disclosures  of net  earnings and earnings per
share computed as if the fair value-based  method had been applied in accordance
with SFAS No. 123.

EARNINGS PER SHARE

      SFAS  No.  128,   "Earnings  per  Share",   specifies   the   computation,
presentation and disclosure requirements for earnings per share. SFAS No. 128 is
effective for financial  statements issued for periods ending after December 15,
1997 and the pronouncement  supersedes APB Opinion No. 15, "Earnings per Share".
The  objectives of SFAS No. 128 are to simplify the  computation of earnings per
share and make financial  statements  more useful for investors and creditors by
increasing the international  comparability of accounting  standards  concurrent
with  improving  the  quality  of  accounting  standards.  The  Company  has not
completed its analysis of SFAS No. 128.

DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE

      SFAS No. 129,  "Disclosure of Information  about Capital  Structure",  was
issued in February 1997 and is effective for  financial  statements  for periods
ending after  December 15, 1997.  SFAS No. 129 requires  disclosure of pertinent
rights and privileges of the various securities outstanding.  The statement also
<PAGE>
requires disclosure of the number of shares issued upon conversion, exercise, or
satisfaction  of  required  conditions  during at least the most  recent  annual
fiscal period and any subsequent  interim period presented.  The Company has not
completed its analysis of SFAS No. 129.

SFAS 130

      SFAS No. 130, "Reporting on Comprehensive  Income" was issued in June 1997
and is effective for financial  statements  issued for periods  beginning  after
December 15, 1997. SFAS No. 130 establishes  standards for reporting and display
of  comprehensive  income  and its  components  (revenues,  expenses,  gains and
losses) in a full set of  general-purpose  financial  statements.  The statement
requires all items that are required to be recognized under accounting standards
as components of  comprehensive  income to be reported in a financial  statement
that is displayed with the same  prominence as other financial  statements.  The
Company has not completed its analysis of this statement.

                                       19


 SFAS 131

      SFAS No. 131  "Disclosures  about  Segments of an  Enterprise  and Related
Information"  was issued in June 1997 and is effective for financial  statements
issued for periods  beginning  after December 15, 1997. SFAS No. 131 establishes
standards for the way that public business  enterprises report information about
operating  segments  in annual  financial  statements  and  requires  that those
enterprises  report selected  information  about  operating  segments in interim
financial  reports  issued to  shareholders.  The  statement  requires  a public
business  enterprise  to report a measure  of  segment  profit or loss,  certain
specific  revenue and  expense  items and  segment  assets.  The Company has not
completed its analysis of this statement.

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  effects  of  interest  rate  fluctuations  and the  ability  or
            inability  of the  Company to hedge  against  such  fluctuations  in
            interest  rates;  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.

      o     The unanticipated expenses of assimilating  newly-acquired  business
<PAGE>
            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
            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.

                                       20


      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.




                                       21


<PAGE>


      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 various 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.

ITEM 2.  CHANGES IN SECURITIES.

      The Indenture,  dated July 23, 1997,  governing the terms of the Company's
$150 million aggregate principal amount of 9.5% Senior Notes due 2004 contains a
restrictive  covenant  which  precludes the Company from declaring or paying any
dividend  or  otherwise  making any  payment or  distribution  on account of the
Company's  stockholders (other than dividends or distributions payable in Equity
Interests, as defined in the Indenture).

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.  None

ITEM 4.  SUBMISSION TO A VOTE OF SECURITY HOLDERS.  None

ITEM 5.  OTHER INFORMATION.  None

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

(a) Exhibits:             11.1  Statement re: Computation of Per Share Earnings.

                          27    Financial Data Schedule.

(b) Reports on Form 8-K:  On July 28,  1997,  the Company filed a Current Report
                          on  Form  8-K  in  which it reported the completion of
                          the  public  issuance  and  offering  of  $150,000,000
                          aggregate  principal  amount of  its 9.5% Senior Notes
                          due 2004,  and filed  as exhibits  various  documents,
                          including  the Underwriting  Agreement, dated July 18,
                          1997  among  the Company  and the various underwriters
                          named  therein and  the Indenture dated as of July 23,
                          1997, among the Company, the Subsidiary Guarantors and
                          the  Trustee  relating  to the  Senior  Note offering.




                                       22
                       

<PAGE>


                                  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:  November 14, 1997

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



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


                                       23
<PAGE>


                                  EXHIBIT INDEX


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

11.1        Statement re: Computation of  Per Share Earnings.

27          Financial Data Schedule.