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

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

Consolidated Statements of Cash Flows for the six months ended
June 30, 1997 and June 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..........................................15

PART II - OTHER INFORMATION

Other Information..........................................................21

Signatures.................................................................22

<PAGE>

PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
                  DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)
                                                         JUNE 30,   DECEMBER 31,
                                                           1997         1996
                                                      ------------  ------------
<S>                                                   <C>           <C>
  Assets

Cash and interest bearing deposits .................  $ 21,872,678  $ 18,741,182
Accounts receivable ................................    10,795,947     8,654,885
Loans held for sale ................................    83,492,121    83,677,017
Accrued interest and late charges receivable .......    25,513,436    20,158,812
Capitalized mortgage servicing rights ..............    16,027,032    11,411,634
Equipment, net .....................................     5,329,018     2,836,360
Cash held for advance payments .....................     2,527,388     2,488,218
Real estate owned ..................................       134,750       134,750
Interest-only and residual certificates ............   121,615,964    83,072,777
Prepaid and other assets ...........................     1,562,249     1,560,578
Goodwill ...........................................     5,885,931          --
                                                      ------------  ------------
                                                      $294,756,514  $232,736,213
                                                      ============  ============

  Liabilities and Stockholders' Equity

Bank payable .......................................     7,713,250     2,294,742
Warehouse financing and other borrowings ...........   133,770,591    95,481,627
Accounts payable and accrued expenses ..............     7,515,647     7,201,674
Investor payable ...................................    26,155,493    22,568,730
Advance payment by borrowers for taxes and insurance     2,294,318     2,255,045
Income taxes payable ...............................     7,058,309     9,416,784
                                                      ------------  ------------
                                                       184,507,608   139,218,602
                                                      ============  ============

  Stockholders' equity

Common stock, $.01 par value. Authorized
  49,000,000 shares; 15,372,288 issued and
  outstanding at June 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 ..................................    16,626,639     2,412,344
                                                      ------------  ------------
         Total stockholders' equity ................   110,248,906    93,517,611
                                                      ------------  ------------

                                                      $294,756,514  $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                  SIX MONTHS ENDED
                                                                              JUNE 30,                            JUNE 30,
                                                                       1997             1996                1997           1996
                                                                   -----------       -----------       -----------       -----------
<S>                                                                <C>               <C>               <C>               <C>
Revenues:
Net gain on sale of
  mortgage loans ...........................................       $18,454,662       $17,697,047       $35,768,514       $17,800,438
Interest ...................................................         6,338,629         3,894,739        11,897,518         7,861,311
Servicing fees .............................................         1,899,416         1,309,389         3,291,049         2,324,684
Other.......................................................         3,773,807         2,125,664         6,814,293         2,344,754
                                                                   -----------       -----------       -----------       -----------
                                                                    30,466,514        25,026,839        57,771,374        30,331,187
                                                                   -----------       -----------       -----------       -----------
Expenses:
Payroll and related costs ..................................         8,586,515         5,312,075        16,082,506         6,685,160
Interest expense ...........................................         3,920,281         3,521,230         7,090,506         5,922,152
General and administrative .................................         5,341,473         3,470,274         9,739,883         5,312,139
                                                                   -----------       -----------       -----------       -----------
                                                                    17,848,269        12,303,579        32,912,895        17,919,451
                                                                   -----------       -----------       -----------       -----------
Income before provision for income
    taxes and extraordinary item ...........................        12,618,245        12,723,260        24,858,479        12,411,736
Provision for income taxes .................................         5,393,581           274,717        10,644,184           319,049
                                                                   -----------       -----------       -----------       -----------
Income before extraordinary item ...........................         7,224,664        12,448,543        14,214,295        12,092,687
Extraordinary item:
    Gain on extinguishment of debt .........................              --           3,167,828              --           3,167,828
                                                                   -----------       -----------       -----------       -----------
       Net income ..........................................       $ 7,224,664       $15,616,371       $14,214,295       $15,260,515
                                                                   ===========       ===========       ===========       ===========

Pro forma information:
 Provision for pro forma income taxes
     before extraordinary item .............................           n/a             5,471,002           n/a             5,337,046
                                                                                     ===========                         ===========
 Pro forma income before
     extraordinary item ....................................           n/a             7,252,258           n/a             7,074,690
                                                                                     ===========                         ===========
 Pro forma income per share of
     common stock ..........................................           n/a           $      0.57           n/a           $      0.56
                                                                                     ===========                         ===========
 Pro forma weighted average no.
     of shares outstanding .................................           n/a            12,629,182           n/a            12,629,182
                                                                                     ===========                         ===========

Per share data:
 Earnings per share ........................................       $      0.47           n/a           $      0.92           n/a
                                                                   ===========                         ===========
Weighted average number
 of shares outstanding .....................................        15,373,067           n/a            15,395,037           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)
                                                                                                          SIX MONTHS ENDED
                                                                                                               JUNE 30,
                                                                                                    1997                    1996
                                                                                               -------------           -------------
<S>                                                                                            <C>                     <C>
Cash flows from operating activities:
 Net income ........................................................................           $ 14,214,295            $ 15,260,515
 Adjustments to reconcile net income to net cash used in
    operating activities:
    Provision for loan losses ......................................................                 49,998                  49,882
    Depreciation and amortization ..................................................              1,047,035                 327,263
    Capitalized mortgage servicing rights,
       net of amortization .........................................................             (4,615,398)             (2,842,929)
    Deferred origination fees ......................................................                113,768              (1,515,865)
    Interest-only and residual certificates received in
       securitization transactions, net ............................................            (38,543,187)            (17,923,881)
 Changes in operating assets and liabilities:
    Increase in accounts receivable, net ...........................................             (2,110,268)               (661,554)
    (Increase) decrease in loans held for sale, net ................................                 21,130              (1,584,529)
    Decrease (increase) in accrued interest and
       late charges receivable .....................................................             (5,354,624)                208,299
    (Increase) decrease in cash held for advance payments...........................                (39,170)                413,768
    Decrease in real estate owned ..................................................                   --                    35,000
    (Increase) decrease in prepaid and other assets.................................                 32,168                (311,703)
    Decrease in due from stockholders ..............................................                   --                   990,000
    Increase in accounts payable and accrued expenses...............................                235,643                 404,813
    Increase (decrease) in investor payable ........................................              3,586,763                (673,347)
    Increase (decrease) in advance payments by
       borrowers for taxes and insurance ...........................................                 26,613                (351,044)
    Decrease in income taxes payable ...............................................             (2,314,398)                   --
                                                                                               -------------           -------------
Net cash used in operating activities ..............................................            (33,649,632)             (8,175,312)
                                                                                               -------------           -------------
Cash flows from investing activities:
    Acquisition of Fidelity Mortgage ...............................................             (3,674,845)                   --
    Purchase of equipment ..........................................................             (2,967,929)               (841,565)
Net cash used in investing activities                                                          -------------           -------------
                                                                                                 (6,642,774)               (841,565)
                                                                                               -------------           -------------
Cash flows from financing activities:
    Proceeds from warehouse financing and
       other borrowings, net .......................................................             38,057,076                 495,200
    Increase in bank payable, net ..................................................              5,366,826               1,423,472
    Distributions ..................................................................                   --                  (360,000)
                                                                                               -------------           -------------
Net cash provided by financing activities                                                        43,423,902               1,558,672
                                                                                               -------------           -------------

Net increase (decrease) in cash ....................................................              3,131,496              (7,458,205)

Cash at beginning of period ........................................................             18,741,182              16,635,135
Cash at end of period ..............................................................           -------------           -------------
                                                                                               $ 21,872,678            $  9,176,930
                                                                                               =============           =============
         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 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  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.

    In the opinion of management, all adjustments consisting of normal recurring
accruals considered  necessary for a fair presentation of the financial position
and results of operations for the interim periods 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  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


                                       4


operate as  separate legal entities  under  the names Fidelity Mortgage Inc. and
Fidelity Mortgage (Florida), Inc.
<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
six months  ending June 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 six months ended June 30, 1997 and June 30,  1996,  the Company
paid $7.7  million  and $5.9  million,  respectively,  for  interest,  and $13.0
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

      On July 23, 1997, the Company  completed a $150 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 option of the
Company, in whole or in part, at the redemption price set forth in the Indenture
dated July 23, 1997 plus accrued and unpaid  interest to the date of redemption.
Proceeds  from the  debt  offering  were  used  first  to pay down  shorter-term
financing and the remaining  proceeds will be used to fund  originations  growth
and securitization activities.

                                       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 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
<PAGE>
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.

RESULTS OF OPERATIONS

SIX  MONTHS ENDED JUNE 30, 1997 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1996

  REVENUES

      Total revenues  increased  $27.5 million,  or 91%, to $57.8 million in the
six months ended June 30, 1997, from $30.3 million in the  corresponding  period
of the prior year.  The increase in

                                       6


revenues  was  primarily  attributable  to  the increase  in  loan  originations
and  purchases and  corresponding  increases in the amount of loans sold through
securitizations and the size of 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  $258.1  million,  or 106% to $502.2 million during the six
months ended June 30, 1997 from $244.1  million during the six months ended June
30, 1996. The Company completed two  securitizations  totaling $495.0 million in
the six months ended June 30, 1997 compared to one securitization and loan sales
totaling  $236.2 million in the  corresponding  period one year ago. Total loans
serviced  increased  $682.0 million,  or 109% to $1,306.1 million as of June 30,
1997 as compared to $624.1 million as of June 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
<PAGE>
loans, (b) cost associated with  securitizations  and (c) any hedge loss (gain).
Net gain on sale of mortgage loans  increased  $18.0 million,  or 101%, to $35.8
million  in the six  months  ended  June 30,  1997,  from  $17.8  million in the
corresponding  period of the prior year.  The  increase was  attributable  to an
increase  in the amount of loans  securitized  in the six months  ended June 30,
1997 as compared to the amount of loans securitized or sold in the corresponding
period one year ago.  During the six months  ended June 30,  1997,  the  Company
completed two  securitizations  totaling  $495.0 million  versus  completing one
securitization  and loan sales of $236.2  million for the six months  ended June
30, 1996.  The  weighted  average gain on sale for the six months ended June 30,
1997  and  for the six  months  ended  June  30,  1996  were  7.22%  and  7.54%,
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  $4.0  million,  or 51%, to $11.9 million in the six months ended June
30, 1997, from $7.9 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 six months ended June 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-only and residual
certificates during the six months ended June 30, 1997. As of June 30, 1997, the
Company's  retained  interest-only  and  residual  certificates  totaled  $121.6
million as compared to $43.2 million for the comparable period one year ago. The
increase  in  interest  income  was  partially  offset  by  a  higher  aggregate
amortization of the retained  interest-only and residual  certificate  assets in
accordance  with SFAS No. 115 in the six months  ended June 30, 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  $1.0  million,  or 43%, to $3.3 million in the six
months ended June 30, 1997, from $2.3 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 six months ended June 30, 1997, the average
balance of mortgage  loans  serviced by the Company  increased  107% to $1,147.1
million from $555.3 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,  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 $4.5 million,  or 196%, to $6.8 million in the six months
ended June 30, 1997 from $2.3 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 June 30, 1997 and,
to a lesser extent,  to an increase of $73.6  million,  or 54%, in brokered loan
originations  to $209.2  million in the six months  ended  June 30,  1997,  from
<PAGE>
$135.6  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

      Total expenses  increased $15.0 million,  or 84%, to $32.9 million for the
six months ended June 30, 1997, from $17.9 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, and (c) higher
interest  expenses  associated  with  increased  borrowings  under the Company's
warehouse and interest-only and residual financing credit facilities.

      PAYROLL EXPENSE. Payroll expense increased $9.4 million, or 140%, to $16.1
million  for the six  months  ended June 30,  1997,  from $6.7  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 June 30, 1997, the
Company  employed 722 full- and  part-time  persons,  including 449 employees of
Delta Funding  Corporation and 273 employees of Fidelity  Mortgage,  compared to
294 full- and part-time persons as of June 30, 1996.

      INTEREST EXPENSE. Interest expense increased $1.2 million, or 20%, to $7.1
million  in the six  months  ended  June 30,  1997,  from  $5.9  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
the six months  ended June 30,  1997 versus 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 six  months  ended  June 30,  1997,
resulting from increases in loan  originations  and purchases during the period,
and (ii) an increase in borrowings under the

                                       8


Company's interest-only  and  residual  financing  credit facilities  secured by
its residual and interest-only certificates during the six months ended June 30,
1997. The Company had residual and interest-only  financings of $66.4 million as
of June 30, 1997 compared to $26.0 million as of June 30, 1996.

      GENERAL AND ADMINISTRATIVE EXPENSES.  General and administrative expenses,
which consist primarily of office and administrative,  rent, and health care and
insurance  expenses,  increased $4.4 million, or 83%, to $9.7 million in the six
months ended June 30, 1997 from $5.3 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 four 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 the 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
<PAGE>
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 the  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  income tax on its taxable  income.  For the six
months  ended June 30,  1997,  the  Company  recorded a tax  provision  of $10.6
million compared to $0.3 million in the corresponding period of the prior year.

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

  REVENUES

      Total revenues  increased  $5.5  million,  or 22%, to $30.5 million in the
three months ended June 30, 1997, from $25.0 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 June 30, 1997 versus
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 on loans held for sale. The
increase was partially offset by the Company  securitizing (x) only three months
of loan  production  during the three months ended June 30, 1997, in contrast to
the comparable  period one year ago when the Company  securitized  six months of
loan production, and (y) seasoned mortgage loans associated

                                       9


with the  extinguishment  of a long term credit facility during the three months
ended June 30, 1996.

      NET GAIN ON SALE OF MORTGAGE  LOANS.  Net gain on sale of  mortgage  loans
increased  $0.8 million,  or 5%, to $18.5 million in the three months ended June
30, 1997, from $17.7 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  securitizing  (i) three
months of loan  production  during  the three  months  ended June 30,  1997,  as
compared to the comparable period one year ago where the Company securitized six
months worth of loan  production  (and effected loan sales from its three months
of loan  production),  and (ii)  seasoned  mortgage  loans  associated  with the
extinguishment  of a long term credit  facility which carried a higher  weighted
average  coupon as compared to loans  originated  during the three  months ended
June 30, 1996 because they were  originated  during a period when interest rates
were generally higher. The Company  securitized $260.0 million,  with a net gain
on sale of 7.1% during the three months  ended June 30,  1997,  compared to loan
sales and  securitization  of $229.3  million,  with a net gain on sale of 7.7%,
during the three months ended June 30, 1996.

      INTEREST INCOME.  Interest income increased $2.4 million,  or 62%, to $6.3
million  in the three  months  ended  June 30,  1997,  from $3.9  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 June 30, 1997.  As of June
30, 1997, the Company's retained interest-only and residual certificates totaled
<PAGE>
$121.6 million as compared to $43.2 million for the  comparable  period one year
ago. The increase in interest income was partially  offset by a higher aggregate
amortization of the retained  interest-only and residual  certificate  assets in
accordance with SFAS No. 115 in the three months ended June 30, 1997 as compared
to the corresponding period in the prior year.

      SERVICING INCOME. Servicing income increased $0.6 million, or 46%, to $1.9
million  in the three  months  ended  June 30,  1997,  from $1.3  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 June 30, 1997,  the
average  balance of mortgage  loans  serviced by the Company  increased  110% to
$1,245.5  million from $593.5  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,  and  due to  amortization  of the  capitalized  servicing  asset  in
accordance with SFAS No. 125.

      OTHER INCOME. Other income increased $1.7 million, or 81%, to $3.8 million
in the three months  ended June 30, 1997 from $2.1 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 April 1, 1997 through June
30, 1997 and, to a lesser extent,  to an increase of $34.1  million,  or 49%, in
brokered loan  originations to $103.3 million in the three months ended June 30,
1997,

                                       10


from $69.2  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  $5.5 million,  or 45%, to $17.8 million for the
three months ended June 30, 1997, from $12.3 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, and (c) higher
interest  expenses  associated  with  increased  borrowings  under the Company's
warehouse and interest-only and residual financing credit facilities.

      PAYROLL EXPENSE.  Payroll expense increased $3.3 million,  or 62%, to $8.6
million for the three  months  ended June 30,  1997,  from $5.3  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 June 30, 1997, the
Company  employed 722 full- and  part-time  persons,  including 449 employees of
Delta Funding  Corporation and 273 employees of Fidelity  Mortgage,  compared to
294 full- and part-time persons as of June 30, 1996.

      INTEREST EXPENSE. Interest expense increased $0.4 million, or 11%, to $3.9
million  in the three  months  ended  June 30,  1997,  from $3.5  million in the
corresponding  period of the prior year.  The  increase in interest  expense was
primarily due to an increase in residual and interest-only financings during the
three  months ended June 30,  1997.  The Company had residual and  interest-only
<PAGE>
financings  of $66.4 million as of June 30, 1997 compared to $26.0 million as of
June 30, 1996.  This increase was partially  offset by (i) lower  interest costs
associated  with a lower average balance of loans held for sale during the three
months ended June 30, 1997, as compared to the corresponding period in the prior
year,  resulting from the Company's not completing a  securitization  during the
first  quarter of 1996 and (ii) a lower  average  cost of funds during the three
months ended June 30, 1997 as compared to the corresponding  period in the prior
year.

      GENERAL AND ADMINISTRATIVE  EXPENSES.  General and administrative expenses
increased  $1.8 million,  or 51%, to $5.3 million in the three months ended June
30, 1997 from $3.5 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 growth of loan originations and purchases, increased
employee benefit expenses,  the addition of Fidelity Mortgage and the opening of
4 Fidelity Mortgage branch offices.

INCOME TAXES

      For the  three  months ended June 30,  1997,  the  Company  recorded a tax
provision  of  $5.4  million  compared  to  $0.3  million  in the  corresponding
period of the prior year.

                                       11


FINANCIAL CONDITION

JUNE 30, 1997 COMPARED TO DECEMBER 31, 1996

      Cash and  interest-bearing  deposits  increased  $3.1 million,  or 17%, to
$21.8  million at June 30, 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 $2.1 million,  or 24%, to $10.8 million at
June 30,  1997 from $8.7  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 decreased  $0.2 million,  or 0.2%, to $83.5 million at
June 30,  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 June 30, 1997 as
compared to the three months ended December 31, 1996.

      Accrued interest and late charges  receivable  increased $5.3 million,  or
26%, to $25.5  million at June 30, 1997 from $20.2 million at December 31, 1996.
This  increase was primarily due to a higher  average loan  servicing  portfolio
during the three months ended June 30, 1997.  The  Company's  average  servicing
portfolio  increased 45% to $1,245.5  million  during the second quarter of 1997
from $859.6 million during the fourth quarter of 1996.

      Capitalized  mortgage servicing rights increased $4.6 million,  or 40%, to
$16.0  million at June 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 two new  securitizations  during the six
<PAGE>
months ended June 30, 1997, in accordance with SFAS No. 125.

      Interest-only and residual  certificates  increased $38.5 million, or 46%,
to $121.6 million at June 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  and 1997-2
$260 million securitization  completed in the first and second quarters of 1997,
respectively. Interest-only and residual certificates are recorded at fair value
in accordance with SFAS No. 125.

      Warehouse financing and other borrowings  increased $38.3 million, or 40%,
to $133.8  million at June 30,  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.

                                       12


      Investor payable increased $3.6 million,  or 16%, to $26.2 million at June
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 $16.7 million, or 18%, to $110.2 million at
June 30,  1997 from  $93.5  million at  December  31,  1996.  This  increase  is
primarily due to net income for the six month period of $14.2  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 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 six months ended
June 30, 1997 and June 30, 1996,  used cash of  approximately  $33.6 million and
$8.2 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 originations and purchases, securitizations and general
operating  expenses.  Subsequent to June 30, 1997, the Company  completed a $150
<PAGE>
million 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
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

                                       13


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 $250 million facility,  $200
million  facility  and  $100  million  facility  as of June 30,  1997 was  $64.3
million, $0 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 June 2000. As
of June 30, 1997,  the aggregate  outstanding  balance on these  facilities  was
$66.4 million.

      In addition, the Company has a line of credit with a financial institution
to  support  its  daily  operating  requirements.  The  facility  is a  one-year
renewable  credit line in the amount of $1.0  million  with a variable  interest
rate,  renewable in September 1997. The  outstanding  balance on the credit line
was $0 as of June 30, 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
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
<PAGE>
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.

                                       14


      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  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
<PAGE>
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.

                                       15


      Following  the   securitizations,   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 (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 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
<PAGE>
securitizations  qualify  as  sales  under  this  pronouncement,   the  required
accounting is an allocation of basis approach.

                                       16


      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 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 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 $3.2  million in the
three months ended June 30, 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.

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
<PAGE>
of the loan, whether the loan is sold through  securitization or on a whole loan
basis.

                                       17


      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 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.

                                       18


DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE

<PAGE>
      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
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.

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
            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.

                                       19


      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
<PAGE>
by a number of factors, as discussed above.

                                       20



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.

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:  None.

                                       21
<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:  August 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


                                       22
<PAGE>


                                  EXHIBIT INDEX


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

11.1        Statement re: Computation of  Per Share Earnings.

27          Financial Data Schedule.