SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

      [x]   QUARTERLY  REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
            EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999

                                       or

      [     ]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13  OR  15(d)  OF  THE
            SECURITIES  EXCHANGE  ACT OF 1934  For the  transition  period  from
            _____________ to _____________

                         Commission File Number: 1-12109

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

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

           1000 Woodbury Road, Suite 200,  Woodbury,  New York 11797
    (Address of registrant's principal executive offices including ZIP Code)

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

                                    No Change
   (Former name, former address and former fiscal year, if changed since last
                                     report)


      Indicate by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  and Exchange Act
of 1934  during the  preceding  12 months (or for such  shorter  period that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days

                                Yes [ x ] No [ ]

      As of March 31, 1999,  15,358,749 shares of the Registrant's common stock,
par value $.01 per share, were outstanding.


<PAGE>


                               INDEX TO FORM 10-Q

                                                                        Page No.

PART I - FINANCIAL INFORMATION

Consolidated Balance Sheets as of March 31, 1999 and December 31, 1998..... 1

Consolidated Statements of Income for the three months
ended March 31, 1999 and March 31, 1998.................................... 2

Consolidated Statements of Cash Flows for the three months ended
March 31, 1999 and March 31, 1998.......................................... 3

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

Management's Discussion and Analysis of Financial Condition and
Results of Operations...................................................... 8

New Accounting Pronouncements..............................................24

PART II - OTHER INFORMATION

Other Information..........................................................25

Signatures.................................................................28

<PAGE>

Part I - Financial Information
<TABLE>
<CAPTION>

                 DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)

                                                        March 31,   December 31,
(Dollars in thousands, except for share data)             1999          1998
                                                       ----------   -----------
<S>                                                    <C>           <C>
Assets                                               
Cash and interest-bearing deposits                     $   56,674       49,152
Accounts receivable                                        25,857       22,549
Loans held for sale, net                                   88,290       87,170
Accrued interest and late charges receivable               49,279       46,897
Capitalized mortgage servicing rights                      36,011       33,490
Interest-only and residual certificates                   208,641      203,803
Equipment, net                                             18,662       16,962
Cash held for advance payments                             10,755       10,031
Prepaid and other assets                                    5,540        5,839
Goodwill                                                    5,718        6,014
                                                       ----------   ----------
   Total assets                                        $  505,427      481,907
                                                       ==========   ==========
                                                     
Liabilities and Stockholders' Equity                 
Liabilities:                                         
Bank payable                                           $      814        1,396
Warehouse financing and other borrowings                   90,472       80,273
Senior Notes                                              149,408      149,387
Accounts payable and accrued expenses                      19,391       20,966
Investor payable                                           72,396       63,790
Advance payment by borrowers for taxes and insurance       10,819        9,559
Deferred tax liability                                     18,695       18,848
                                                       ----------   ----------
   Total liabilities                                   $  361,995      344,219
                                                       ----------   ----------
                                                     
Stockholders' Equity:                                
Common stock, $.01 par value. Authorized             
 49,000,000 shares; 15,475,549 shares issued         
 and 15,358,749 shares outstanding at                
 March 31, 1999 and December 31, 1998                         155          155
Additional paid-in capital                                 94,700       94,700
Retained earnings                                          49,895       44,151
Treasury stock, at cost (116,800 shares              
 at March 31, 1999 and December 31, 1998,            
 respectively)                                             (1,318)      (1,318)
                                                        ----------   ----------
   Total stockholders' equity                             143,432      137,688
                                                        ----------   ----------
     Total liabilities and stockholders' equity         $ 505,427      481,907
                                                        ==========   ==========
                                                     
                                                     
          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
                                                                March 31,
(Dollars in thousands, except per share data)             1999             1998
                                                       --------         --------
<S>                                                    <C>              <C>
Revenues:
  Net gain on sale of mortgage loans                   $ 25,103           26,580
  Interest                                                6,433            6,665
  Servicing fees                                          3,613            2,160
  Origination fees                                        7,364            5,749
                                                       --------         --------
      Total revenues                                     42,513           41,154
                                                       --------         --------
Expenses:
  Payroll and related costs                              15,842           13,354
  Interest expense                                        6,172            7,066
   General and administrative                            11,057            7,633
                                                       --------         --------
      Total expenses                                     33,071           28,053
                                                       --------         --------

Income before income taxes                                9,442           13,101
Provision for income taxes                                3,698            4,850
                                                       --------         --------
Net income                                             $  5,744            8,251
                                                       ========         ========

Per share data:
    Net income per common
      share - basic and diluted                        $   0.37             0.54
                                                       ========         ========
    Weighted-average number
      of shares outstanding                          15,358,749       15,372,688
                                                     ==========       ==========


          See accompanying notes to consolidated financial statements.


                                       2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                  DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                                                                                  Three Months Ended
                                                                                       March 31,
(Dollars in thousands)                                                            1999          1998
                                                                               ---------      ---------
<S>                                                                           <C>             <C> 
Cash flows from operating activities:
    Net income                                                                $    5,744         8,251
    Adjustments to reconcile net income to net cash used in
      operating activities:
       Provision for loan and recourse losses                                         25            25
       Depreciation and amortization                                               1,289           928
       Deferred tax (benefit) expense                                               (153)        4,803
       Capitalized mortgage servicing rights, net of amortization                 (2,521)       (3,054)
       Deferred origination costs                                                    170           850
       Interest-only and residual certificates received in
          Securitization transactions, net                                        (4,838)      (18,273)
       Changes in operating assets and liabilities:
          (Increase) decrease in accounts receivable                              (3,308)        6,520
          (Increase) decrease in loans held for sale, net                         (1,298)        7,008
          Increase in accrued interest and late charges receivable                (2,382)       (3,411)
          Increase in cash held for advance payments                                (724)       (1,010)
          Decrease in prepaid and other assets                                       299           377
          Decrease in accounts payable and accrued expenses                       (1,592)       (4,670)
          Increase in investor payable                                             8,606        11,703
          Increase in advance payments by borrowers for taxes and insurance        1,260         1,203
                                                                               ----------    ----------
              Net cash provided by operating activities                              577        11,250
                                                                               ----------    ----------
Cash flows from investing activities:
    Purchase of equipment                                                         (2,672)       (3,155)
                                                                               ----------    ----------
              Net cash used in investing activities                               (2,672)       (3,155)
                                                                               ----------    ----------
Cash flows from financing activities:
    Proceeds from (repayments of) warehouse financing and other
       borrowings, net                                                            10,199          (640)
    Decrease in bank payable, net                                                   (582)         (705)
                                                                               ----------    ----------
              Net cash provided by (used in) financing activities                  9,617        (1,345)
                                                                               ----------    ----------
              Net increase in cash and interest-bearing deposits                   7,522         6,750

Cash and interest-bearing deposits at beginning of period                         49,152        32,858
                                                                               ----------    ----------
Cash and interest-bearing deposits at end of period                             $ 56,674        39,608
                                                                               ==========    ==========
                                                                                

Supplemental Information:
Cash paid during the period for:
   Interest                                                                     $  9,518        10,626
                                                                               ==========    ==========
   Income taxes                                                                 $  3,850           118
                                                                               ==========    ==========

          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  (the  "Company"  or  "Delta")  is  a  Delaware
corporation which was organized in August 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  mortgages.  On  November  1, 1996,  the  Company
completed an initial public  offering of 4,600,000  shares of common stock,  par
value $.01 per share.

   On February  11,  1997,  the Company  acquired  Fidelity  Mortgage  Inc.  and
Fidelity  Mortgage  (Florida),  Inc.  (together  referred to herein as "Fidelity
Mortgage"), retail residential mortgage origination companies, for a combination
of  cash  and  stock  with a value  of $6.3  million.  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  amortized on a  straight-line  basis over seven  years.  On October 1,
1997,  the  acquired  operations  were merged and have  continued  to operate as
Fidelity  Mortgage.  As a result of meeting certain  production  targets for the
twelve month period  ended June 30,  1998,  the sellers were paid an  additional
$1.2 million of purchase price in the form of, and at a fair value equivalent to
101,361   shares  of  the  Company's   stock  in  August  1998.  The  additional
consideration  has been  recorded as  additional  goodwill and will be amortized
over the remaining life of the goodwill.

(2)    Basis of Presentation

   The accompanying  unaudited  consolidated  financial  statements  include the
accounts of the  Company  and its  wholly-owned  subsidiaries.  All  significant
inter-company accounts and transactions have been eliminated in consolidation.

   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 unaudited 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, 1998. The results of operations for the three months
ended March 31, 1999 are not necessarily  indicative of the results that will be
expected for the entire year.

   All adjustments 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

                                       4

have  been  made.  Certain prior period amounts in the financial statements have
been reclassified to conform with the current year presentation.

(3)    Fair Value Adjustments

   As required  by SFAS No.  134,  "Accounting  for  Mortgage-Backed  Securities
Retained after the  Securitization of Mortgage Loans Held for Sale by a Mortgage
Banking  Enterprise,"  at each reporting  period the Company  estimates the fair
value  of its  interest-only  and  residual  certificates  and  its  capitalized
mortgage servicing rights. The carrying amount of the interest-only and residual
certificates is adjusted to their current fair value.  For capitalized  mortgage
servicing  rights,  a valuation  allowance is recorded if the fair value of such
rights is less than the carrying amount.

   The  fair  values  of  both  interest-only  and  residual   certificates  and
capitalized mortgage servicing rights are significantly affected by, among other
factors,  prepayments  of loans and estimates of future  prepayment  rates.  The
Company continually  reviews its prepayment  assumptions in light of company and
industry  experience  and  makes  adjustments  to those  assumptions  when  such
experience indicates.

   The Company's review of its prepayment experience and assumptions at June 30,
1998  indicated  that  the  prepayment  rates  during  1998,   particularly  for
adjustable-rate  mortgages ("ARMs"), and in particular during the second quarter
of  1998,  were  higher  than  those  historically  experienced,  or  previously
projected,  by the  Company.  The  Company  believes  that  these  increases  in
prepayment rates were attributable to the continuation, for a longer period than
historically  experienced,  of low interest rates,  together with changes,  to a
flatter or inverted curve, of the relationship  between long-term and short-term
interest rates (the "yield curve").

   As  a  result,  at  June  30,  1998,  the  Company  adjusted  its  prepayment
assumptions, increasing the maximum prepayment rates for all loans, and changing
the rate at which  prepayments  are assumed to increase from the initial rate to
the  maximum  rate from a  straight-line  build-up  to a "vector"  curve.  These
revised  prepayment  assumptions  were used to  estimate  the fair  value of the
interest-only  and residual  certificates  and  capitalized  mortgage  servicing
rights retained by the Company in securitizations  completed prior to the second
quarter  of  1998.  These  revised  prepayment  assumptions  were  also  used in
initially valuing and recording the interest-only and residual  certificates and
capitalized   mortgage   servicing   rights  retained  by  the  Company  in  its
securitizations completed subsequent to the first quarter of 1998.

   During  the second  quarter of 1998,  the  Company  recorded a $15.5  million
reduction in the carrying amount of its interest-only and residual certificates,
and also  recorded  a $1.9  million  reduction  in the  carrying  amount  of its
capitalized mortgage servicing rights to reflect a provision for impairment (the
"fair value adjustments").  Both impairment  provisions resulted from reductions
in the Company's  estimates of the fair value of those assets. The reductions in
the  estimated  fair  value  resulted  from  the  aforementioned  change  in the
prepayment  assumptions used by the Company to estimate the future cash flows to
be derived from the  interest-only  and residual  certificates  and the mortgage
servicing rights.

                                       5

   The Company assumes prepayment rates and defaults based upon the seasoning of
its existing  securitization  loan  portfolio.  The following table compares the
prepayment  assumptions  used subsequent to the first quarter of 1998 (the "new"
assumptions)  with those used at December 31, 1997 and through the first quarter
of 1998 ( the "old" assumptions):
                                       
--------------------------------------------------------------------------------
Loan Type              Curve Description      Month 1 Speed         Peak Speed
--------------------------------------------------------------------------------
                          New      Old         New     Old          New   Old   
--------------------------------------------------------------------------------
Fixed Rate Loans         Vector    Ramp        4.8%   4.8%          31%   24%   
Six-Month LIBOR ARMs     Vector    Ramp       10.0%   5.6%          50%   28%   
Hybrid ARMs              Vector    Ramp        6.0%   5.6%          50%   28%   
--------------------------------------------------------------------------------
                                            
   In addition,  in the first  quarter of 1999,  the Company  increased its loss
reserve initially  established for both fixed- and adjustable-rate loans sold to
the  securitizations  trusts from 2.00% to  approximately  2.20% of the issuance
amount  securitized.  The  Company  made  this  change to  better  reflect  what
management  believes  its loss  experience  will be, as the Company  experienced
significantly  slower  prepayment  rates in the  first  quarter  of 1999  which,
coupled with an  anticipated  flat to slightly  moderate  rise in home values as
compared  to the past few  years,  may have an adverse  effect on the  Company's
non-performing  loans.  This change  resulted in  approximately  a $3.8  million
reduction in the Company's value of the residual and interest-only certificates.
An annual  discount rate of 12.0% was utilized in determining  the present value
of cash flows from residual certificates, using the "cash-out" method, which are
the predominant  form of retained  interests at both March 31, 1999 and December
31, 1998.

   The Company uses the same prepayment assumptions in estimating the fair value
of its mortgage servicing rights.

   To date, aggregate actual cash flows from the Company's securitization trusts
have either met or exceeded management's expectations.



(4) Earnings Per Share

   The  following  is  a  reconciliation   of  the  denominators   used  in  the
computations  of basic and diluted  earnings per share (EPS).  The numerator for
calculating both basic and diluted EPS is net income.

                                       6

<PAGE>
For the three months ended March 31:


(Dollars in thousands, except EPS data)           1999                 1998
--------------------------------------------------------------------------------
Net income                                $      5,744       $        8,251
Weighted-average shares - basic             15,358,749           15,372,688
Basic EPS                                 $       0.37       $         0.54

Weighted-average shares - basic             15,358,749           15,372,688
Incremental shares-options                      10,973                1,081
--------------------------------------------------------------------------------
Weighted-average shares - diluted           15,369,722           15,373,769
Diluted EPS                               $       0.37       $         0.54


(5) Stock Repurchase Plan

   On May 7, 1998,  the  Company's  Board of  Directors  authorized a program to
repurchase  up to two  hundred  thousand  (200,000)  shares  of its  issued  and
outstanding  common stock.  No time limit has been placed on the duration of the
stock repurchase program.  Subject to applicable securities laws, such purchases
will be made at times and in amounts as the Company deems appropriate and may be
discontinued  at any time. The  repurchases may be effected from time to time in
accordance with applicable  securities  laws,  through  solicited or unsolicited
transactions in the open market,  on the New York Stock Exchange or in privately
negotiated  transactions,  subject to  availability  of shares at prices  deemed
appropriate by the Company.  Repurchased  shares will be held as treasury shares
available  for  general  corporate  purposes,  including,  but not  limited  to,
satisfying the Company's contingent share obligations to the former shareholders
of Fidelity  Mortgage,  and in connection with Delta Financial's  employee stock
plans.

   During the quarter ended March 31, 1999,  the Company did not  repurchase any
shares of its common stock under its stock  repurchase  plan. At March 31, 1999,
the total number of treasury shares held by the Company equaled  116,800.  Given
the  sector-wide  focus  on  liquidity  and  conserving  capital,  the  Board of
Directors  decided in November 1998 to suspend the share repurchase  program and
no subsequent decision has been made to recommence repurchases.

                                       7

<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.

General

   Delta  Financial  Corporation  (the  "Company"  or  "Delta")  engages in the
consumer  finance  business by  originating,  acquiring,  selling and  servicing
non-conforming home equity loans.  Throughout its 17 years of operating history,
the Company has focused on lending to individuals who generally have impaired or
limited  credit  profiles or higher  debt-to-income  ratios and  typically  have
substantial equity in their homes.

   Through its  wholly-owned  subsidiary,  Delta  Funding  Corporation   ("Delta
Funding"),  the Company originates home equity loans indirectly through licensed
mortgage   brokers  and  other  real  estate   professionals   who  submit  loan
applications  on behalf of the borrower  ("Brokered  Loans") and also  purchases
loans from  mortgage  bankers and smaller  financial  institutions  that satisfy
Delta's underwriting guidelines ("Correspondent Loans"). Delta Funding currently
originates  and  purchases  the majority of its loans in 24 states,  through its
network of approximately 1,400 brokers and correspondents.

    Through its  wholly-owned  subsidiary,  Fidelity  Mortgage Inc., the Company
develops retail loan leads ("Retail Loans")  primarily through its telemarketing
system and its network of 15 retail  offices  located in nine states.  Through a
strategic  alliance  between  DFC  Funding  of Canada  Limited,  a  wholly-owned
subsidiary of Delta Funding, and MCAP Mortgage Corporation,  a Canadian mortgage
loan originator,  the Company  originated loans in Canada.  In February 1999 the
Company decided to close its Canadian  business to focus exclusively on its U.S.
based business.

    For the  three  months  ended  March 31,  1999 the  Company  originated  and
purchased  $404  million of loans,  an increase  of 4% over the $387  million of
loans  originated  and  purchased  in the  comparable  period in 1998.  Of these
amounts,  approximately  $236  million  were  originated  through its network of
brokers,  $91 million were purchased from its network of correspondents  and $77
million were originated through its retail network during the three months ended
March  31,  1999  compared  to $168  million,  $167  million  and  $52  million,
respectively,  for the same  period  in 1998.  These  originations  reflect  the
Company's  strategy  to focus on  broker  and  retail  channels,  which are more
profitable and less cash intensive than correspondent loan purchases.

    The following table sets forth  information  relating to the delinquency and
loss experience of the mortgage loans serviced by the Company (primarily for the
securitization  trusts,  as  described  below) for the  periods  indicated.  The
Company is not the holder of the  securitization  loans,  but generally  retains
interest-only or residual  certificates issued by the securitization  trusts, as
well as the  servicing  rights,  the  value  of each of which  may be  adversely
affected by defaults.


                                       8



                                                        Three Months Ended
                                                  ------------------------------
(Dollars in thousands)                               March 31,      December 31,
                                                       1999            1998
                                                  ---------------  -------------
Total Outstanding Principal Balance
  (at period end)..............................  $  3,156,232      $ 2,950,435
Average Outstanding(1).........................     3,085,118        2,864,224
DELINQUENCY (at period end) 30-59 Days:
  Principal Balance............................  $    136,549      $   153,726
  Percent of Delinquency(2)....................         4.33%            5.21%
60-89 Days:
  Principal Balance............................  $     54,511      $    50,034
  Percent of Delinquency(2)....................         1.73%            1.70%
90 Days or More:
  Principal Balance............................  $     52,757      $    47,887
  Percent of Delinquency(2)....................         1.67%            1.62%
Total Delinquencies:
  Principal Balance............................  $    243,817      $   251,647
  Percent of Delinquency(2)....................         7.72%            8.53%
FORECLOSURES
  Principal Balance............................  $    154,629      $   145,679
  Percent of Foreclosures by Dollar(2).........         4.90%            4.94%
REO (at period end)............................  $     21,868      $    18,811
   Percent of REO..............................         0.69%            0.64%
Net Losses on Liquidated Loans.................  $     (3,038)     $    (2,645)
Percentage of Net Losses on Liquidated Loans
  (based on Average Outstanding Balance)(3)....        (0.39%)          (0.37%)
---------------
(1) Calculated by summing the actual  outstanding  principal balances at the end
    of each  month and  dividing  the total  principal  balance by the number of
    months in the applicable period.
(2) Percentages are expressed based upon the total outstanding principal balance
    at the end of the indicated period.
(3) Annualized.

Securitizations

    As a fundamental  part of its business and financing  strategy,  the Company
sells the majority of its loans through securitization and derives a substantial
portion of its income therefrom.  In a securitization,  the Company sells a pool
of loans it has  originated  or  purchased  to a  special  purpose  real  estate
mortgage  investment  conduit  ("REMIC")  trust for a cash price.  The trust, in
turn,  finances  the pool of  loans it has  acquired  by  issuing  "pass-through
certificates,"  which represent  undivided ownership interests in the trust. The
holders  of the  pass-through  certificates  are  entitled  to  receive  monthly
distributions of all principal  received on the underlying  mortgage loans and a
specified  amount of  interest,  determined  at the time of the  offering of the
certificates.

    When the  Company  sells a pool of loans to the  securitization  trust,  the
Company  receives  the  following  economic  interests  in the  trust:  (a)  the
difference  between the interest payments due on the loans sold to the trust and
the interest  rate paid to the holders of  pass-through  certificates,  less the
Company's   contractual   servicing   fee  and  other  costs  and   expenses  of
administering  the 

                                       9


trust, the economic value of which is represented by interest-only  and residual
certificates,  and (b) the right to service the loans on behalf of the trust and
earn a contractual  servicing fee, as well as other ancillary  servicing related
fees paid by the borrowers on the underlying loans.

    Upon the  securitization  of a pool of loans,  the Company (i) recognizes in
income,  as origination  fees, the unamortized  origination fees included in the
investment in the loans sold, and (ii)  recognizes a gain on sale of loans equal
to the  difference  between the amount of cash  received by the Company from the
trust for the pool of loans and the investment in the loans  remaining after the
allocation of portions of that  investment to record the value of  interest-only
and residual  certificates and capitalized mortgage servicing rights received by
the  Company  in the  securitization.  The  majority  of the net gain on sale of
mortgage  loans  results  from,  and is  initially  realized in the form of, the
retention of interest-only and residual certificates.

    In recording and accounting for interest-only and residual  certificates and
capitalized  mortgage  servicing rights, the Company makes estimates of rates of
prepayments and defaults on the underlying pool of loans sold to the trust,  and
the value of the collateral,  which it believes  reasonably reflect economic and
other  conditions then in effect.  The actual rate of prepayments,  defaults and
the value of collateral  will generally  differ from the estimates  used, due to
subsequent changes in economic and other conditions and the implicit imprecision
of estimates, and such differences often may be material. Prepayment and default
rates higher than those estimated  would adversely  affect the value of both the
capitalized  mortgage servicing rights (actual mortgage servicing income will be
less,  and  significant  changes could require an impairment of the  capitalized
mortgage servicing rights) and the interest-only and residual certificates,  for
which changes in fair value are  recorded.  Conversely,  prepayment  and default
rates lower than those estimated would increase the servicing income earned over
the life of the loans and positively  impact the value of the  interest-only and
residual certificates.

    The Company has sold interest-only  certificates  created in securitizations
for cash  proceeds  in each of its eight most  recent  quarterly  securitization
transactions  and intends to continue to sell the  interest-only  certificate as
long as the sale effectively maximizes cash flow and profitability.

Fair Value Adjustments

    As required by SFAS No. 134, at each reporting period the Company  estimates
the  fair  value  of  its  interest-only  and  residual   certificates  and  its
capitalized  mortgage servicing rights. The carrying amount of the interest-only
and  residual  certificates  is  adjusted  to  their  current  fair  value.  For
capitalized  mortgage servicing rights, a valuation allowance is recorded if the
fair value of such rights is less than the carrying amount.

    The  fair  values  of  both  interest-only  and  residual  certificates  and
capitalized mortgage servicing rights are significantly affected by, among other
factors,  prepayments  of loans and estimates of future  prepayment  rates.  The
Company continually  reviews its prepayment  assumptions in light of company and
industry  experience  and  makes  adjustments  to those  assumptions  when  such
experience indicates.

                                       10


The Company's  review of its prepayment  experience and  assumptions at June 30,
1998  indicated  that  the  prepayment  rates  during  1998,   particularly  for
adjustable-rate  mortgages ("ARMs"), and in particular during the second quarter
of  1998,  were  higher  than  those  historically  experienced,  or  previously
projected,  by the  Company.  The  Company  believes  that  these  increases  in
prepayment rates were attributable to the continuation, for a longer period than
historically  experienced,  of low interest rates,  together with changes,  to a
flatter or inverted curve, of the relationship  between long-term and short-term
interest rates (the "yield curve").

    As a  result,  at  June  30,  1998,  the  Company  adjusted  its  prepayment
assumptions, increasing the maximum prepayment rates for all loans, and changing
the rate at which  prepayments  are assumed to increase from the initial rate to
the  maximum  rate from a  straight-line  build-up  to a "vector"  curve.  These
revised  prepayment  assumptions  were used to  estimate  the fair  value of the
interest-only  and residual  certificates  and  capitalized  mortgage  servicing
rights retained by the Company in securitizations  completed prior to the second
quarter  of  1998.  These  revised  prepayment  assumptions  were  also  used in
initially valuing and recording the interest-only and residual  certificates and
capitalized   mortgage   servicing   rights  retained  by  the  Company  in  its
securitizations completed subsequent to the first quarter of 1998.

    During the second  quarter of 1998,  the  Company  recorded a $15.5  million
reduction in the carrying amount of its interest-only and residual certificates,
and also  recorded  a $1.9  million  reduction  in the  carrying  amount  of its
capitalized mortgage servicing rights to reflect a provision for impairment (the
"fair value adjustments").  Both impairment  provisions resulted from reductions
in the Company's  estimates of the fair value of those assets. The reductions in
the  estimated  fair  value  resulted  from  the  aforementioned  change  in the
prepayment  assumptions used by the Company to estimate the future cash flows to
be derived from the  interest-only  and residual  certificates  and the mortgage
servicing rights.

    The Company assumes  prepayment  rates and defaults based upon the seasoning
of its existing securitization loan portfolio.  The following table compares the
prepayment  assumptions  used subsequent to the first quarter of 1998 (the "new"
assumptions)  with those used at December 31, 1997 and through the first quarter
of 1998 ( the "old" assumptions):

--------------------------------------------------------------------------------
Loan Type               Curve Description     Month 1 Speed       Peak Speed
--------------------------------------------------------------------------------
                          New      Old         New     Old         New   Old    
--------------------------------------------------------------------------------
Fixed Rate Loans         Vector    Ramp        4.8%   4.8%         31%   24%    
Six-Month LIBOR ARMs     Vector    Ramp       10.0%   5.6%         50%   28%    
Hybrid ARMs              Vector    Ramp        6.0%   5.6%         50%   28%    
--------------------------------------------------------------------------------

In addition,  in the first quarter of 1999,  the Company  increased its loss
reserve initially  established for both fixed- and adjustable-rate loans sold to
the  securitizations  trusts from 2.00% to  approximately  2.20% of the issuance
amount  securitized.  The  Company  made  this  change to

                                       11


better  reflect  what  management believes  its loss  experience will be, as the
Company experienced  significantly  slower prepayment rates in the first quarter
of 1999 which,  coupled with an  anticipated  flat to slightly  moderate rise in
home values as compared to the past few years, may have an adverse effect on the
Company's non- performing  loans.  This change resulted in  approximately a $3.8
million  reduction in the  Company's  value of the  residual  and  interest-only
certificates.  An annual  discount rate of 12.0% was utilized in determining the
present value of cash flows from  residual  certificates,  using the  "cash-out"
method,  which are the predominant form of retained  interests at both March 31,
1999 and December 31, 1998.

    The Company uses the same  prepayment  assumptions  in  estimating  the fair
value of its mortgage servicing rights.

    To date,  aggregate  actual  cash  flows from the  Company's  securitization
trusts have either met or exceeded management's expectations.


Results of Operations
Three Months Ended March 31, 1999 Compared to the Three Months Ended March 31,
1998

General

    The  Company's net income for the three months ended March 31, 1999 was $5.7
million,  or $0.37 per share,  compared to $8.3 million, or $0.54 per share, for
the three months ended March 31, 1998.  Comments regarding the components of net
income are detailed in the following paragraphs.

Revenues

   Total  revenues for the three  months ended March 31, 1999  increased by $1.3
million, or 3%, to $42.5 million from $41.2 million for the comparable period in
1998.  The  increase in revenue  was  primarily  attributable  to an increase in
origination  fees and servicing fees,  partially offset by a decrease in the net
gain recognized on the sale of mortgage loans.

   The Company  originated  and purchased $404 million of mortgage loans for the
three months ended March 31, 1999,  representing a 4% increase from $387 million
of mortgage loans  originated and purchased for the three months ended March 31,
1998.  The Company  completed  a $375  million  securitization  during the three
months  ended March 31, 1999  compared to a $400 million  securitization  in the
corresponding period in 1998,  representing a 6% decrease.  Total loans serviced
at March 31, 1999 increased 50% to $3.16 billion from $2.10 billion at March 31,
1998.

   Net  Gain on Sale of  Mortgage  Loans.  Net  gain on sale of  mortgage  loans
represents  (1) the sum of (a)  the  fair  value  of the  residual  certificates
retained by the Company in a securitization for each period and the market value
of the interest-only  certificates sold in connection with each  securitization,
(b) the fair value of capitalized  mortgage  servicing  rights  associated  with
loans  securitized in each period,  and (c) premiums earned on the sale of whole
loans on a servicing-released basis, (2) less the (x) premiums paid to originate
or acquire mortgage loans, (y) costs associated with securitizations and (z) any
hedge loss (gain) associated with a particular securitization.

                                       12


    Net  gain on sale of  mortgage  loans for the three  months  ended March 31,
1999  decreased by $1.5 million,  or 6%, to $25.1 million from $26.6 million for
the comparable  period in 1998. This decrease was primarily due to a 6% decrease
in the amount of loans  securitized in the first quarter of 1999 compared to the
same period in 1998,  coupled with the Company's  change to a more  conservative
prepayment  assumption used in initially  valuing the residual  certificates and
capitalized  mortgage servicing rights acquired  subsequent to the first quarter
of 1998  (see  "-Fair  Value  Adjustments").  This was  partially  offset by the
Company's  de-emphasis of the  correspondent  loan production  channel,  thereby
decreasing the amount of premiums paid to  correspondents.  The weighted average
net gain on sale  ratio  was 6.7% for the three  months  ended  March  31,  1999
compared to 6.6% for the comparable period in 1998.

   Interest  Income.  Interest  income  primarily  represents the sum of (1) the
difference  between the  distributions the Company receives on its interest-only
and residual certificates and the adjustments recorded to reflect changes in the
fair value of the interest-only and residual  certificates,  (2) interest earned
on loans held for sale, and (3) interest earned on cash collection balances.

   Interest  income for the three months ended March 31, 1999  decreased by $0.3
million,  or 4%, to $6.4 million from $6.7 million in the  comparable  period in
1998. The decrease in interest income was primarily due to (1) the accounting of
loans sold through a commercial paper conduit prior to securitization,  in which
the Company earns and records the net interest  margin between the interest rate
earned on the pool of mortgage  loans sold to the  commercial  paper conduit and
the commercial paper financing rate, plus  administrative  expenses,  during the
three months ended March 31, 1999, (2) a higher fair value adjustment, including
a $3.8 million  reduction in the Company's  value of residual and  interest-only
certificates,related to an increase in its loan reserve and (3) a lower mortgage
coupon  rate of 10.2%  from 10.4%  reflecting  the  Company's  shift to a higher
credit quality borrower and a lower economic interest rate environment. This was
partially  offset by a $1.0 million increase in accrued bond interest during the
first quarter of 1999 as compared to the first quarter of 1998, which represents
the interest  payments received by the Company from a pool of loans it sold into
a securitization, upon the closing of a securitization.

   Servicing  Fees.  Servicing  fees  represent  all  contractual  and ancillary
servicing  revenue received by the Company less (1) the offsetting  amortization
of the capitalized  mortgage servicing rights,  and any adjustments  recorded to
provide valuation allowances for the impairment in mortgage servicing rights and
(2) prepaid interest shortfalls.

   Servicing  fees for the three months  ended March 31, 1999  increased by $1.4
million,  or 64%, to $3.6 million from $2.2 million in the comparable  period in
1998.  This increase was  primarily due to an increase in the aggregate  size of
the Company's  servicing  portfolio.  The average  balance of the mortgage loans
serviced  increased  54% to $3.09  billion for the three  months ended March 31,
1999 from $2.01 billion during the comparable period in 1998.

   Origination  Fees.  Origination  fees  represent  fees earned on brokered and
retail originated  loans.  Origination fees for the three months ended March 31,
1999 increased by $1.7 million, or 30%, to $7.4 million from $5.7 million in the
comparable  period in 1998.  The increase is 

                                       13

primarily  the result of (1) a 40% increase in broker originated loans and (2) a
48% increase in retail originated loans.
                                      
Expenses

   Total  expenses  for three  months  ended  March 31, 1999  increased  by $5.0
million,  or 18%, to $33.1 million from $28.1 million for the comparable  period
in 1998.  The  increase in expenses was  primarily  the result of an increase in
general and administrative,  and personnel,  costs associated with the Company's
expanded retail and broker divisions, partially offset by a decrease in interest
expense.

   Payroll  and Related  Costs.  Payroll and  related  costs  include  salaries,
benefits and payroll taxes for all employees.  Payroll and related costs for the
three months ended March 31, 1999  increased by $2.4  million,  or 18%, to $15.8
million from $13.4 million for the comparable  period in 1998.  This increase is
primarily  due to staff  increases  related  to  growth  in the  Company's  loan
originations  and the costs  associated  with the Company's  broker and Fidelity
Mortgage retail division. As of March 31, 1999, the Company employed 1,237 full-
and  part-time  employees,  427 of which are  employees  of  Fidelity  Mortgage,
compared to 941 full- and part-time employees as of March 31, 1998.

   Interest  Expense.  Interest  expense includes the borrowing costs to finance
loan  originations  and  purchases  under the $150 million  aggregate  principal
amount of 9.5% Senior  Notes due 2004 issued in July 1997 (the  "Senior  Notes")
and the Company's credit facilities.

   Interest  expense for the three months ended March 31, 1999 decreased by $0.9
million,  or 13%, to $6.2 million from $7.1 million for the comparable period in
1998.  The decrease in interest  expense was primarily due to (1) the accounting
of loans sold through a commercial  paper  conduit prior to  securitization,  in
which the Company earns and records the net interest margin between the interest
rate earned on the pool of mortgage loans sold to the  commercial  paper conduit
and the commercial paper financing rate, plus  administrative  expenses,  during
the  three  months  ended  March 31,  1999 and (2) a lower  cost of funds on the
Company's  credit  facilities  which were tied to  one-month  London  Inter-Bank
Offering  Rate  ("LIBOR").  The  one-month  LIBOR index  decreased to an average
interest  rate of 5.0% in the three months ended March 31, 1999,  compared to an
average interest rate of 5.6% for the comparable period in 1998.

   General and  Administrative  Expenses.  General and  administrative  expenses
consist primarily of office rent, insurance, telephone,  depreciation,  goodwill
amortization,  license fees, legal and accounting fees, travel and entertainment
expenses, advertising and promotional expenses and the provision for loan losses
on the inventory of loans held for sale and recourse loans.

   General and administrative expenses for the three months ended March 31, 1999
increased  $3.5  million,  or 46%, to $11.1  million  from $7.6  million for the
comparable  period in 1998.  This increase was primarily  attributable to (1) an
increase in expenses associated with the Company's increase in retail and broker
loan  originations,  (2) an increase in depreciation  expense and management and
consulting fees,  reflecting the Company's ongoing  investment in technology and
(3) an increase in legal-related costs and reserves. This increase was offset by

                                       14


the de-emphasis of correspondent purchases, resulting in a reduction in premiums
paid, reflected in the gain on sale of mortgage loans.

   Income Taxes. Income taxes are accounted for under SFAS No. 109,  "Accounting
for Income  Taxes."  Deferred tax assets and  liabilities  are recognized on the
income  reported in the financial  statements  regardless of when such taxes are
paid. These deferred taxes are measured by applying current enacted tax rates.

   The Company recorded a tax provision of $3.7 million and $4.9 million for the
periods ended March 31, 1999 and 1998, respectively.


Financial Condition

March 31, 1999 compared to December 31, 1998

   Cash and  interest-bearing  deposits increased $7.5 million, or 15%, to $56.7
million at March 31, 1999, from $49.2 million at December 31, 1998. The increase
was  primarily  the result of  additional  monies held in  securitization  trust
accounts  by the  Company,  acting as servicer  for its  ongoing  securitization
program.

   Accounts receivable increased $3.3 million, or 15%, to $25.9 million at March
31, 1999, from $22.6 million at December 31, 1998. The increase was attributable
to an increase in reimbursable servicing advances made by the Company, acting as
servicer  on  its  securitizations,   related  to  a  higher  average  servicing
portfolio. The Company's servicing portfolio increased 7% to $3.16 billion as of
March 31, 1999 from $2.95 billion as of December 31, 1998.

   Loans held for sale, net increased  $1.1 million,  or 1%, to $88.3 million at
March 31,  1999,  from $87.2  million at December 31,  1998.  This  increase was
primarily  due to  the  net  difference  between  loan  originations  and  loans
securitized during the three months ended March 31, 1999.

   Accrued interest and late charges receivable  increased $2.4 million,  or 5%,
to $49.3  million at March 31,  1999,  from $46.9  million at December 31, 1998.
This  increase was  primarily  due to a larger loan  servicing  portfolio  which
resulted in increased reimbursable interest advances made by the Company, acting
as servicer on its securitizations.

   Capitalized mortgage servicing rights increased $2.5 million, or 7%, to $36.0
million  at March 31,  1999,  from $33.5  million at  December  31,  1998.  This
increase was directly attributable to the Company's capitalizing the fair market
value  of the  servicing  assets,  totaling  $4.4  million,  resulting  from the
Company's  completion  of a  securitization  during  the first  quarter of 1999,
partially offset by the amortization of capitalized mortgage servicing rights.

   Interest-only  and residual  certificates  increased $4.8 million,  or 2%, to
$208.6 million at March 31, 1999, from $203.8 million at December 31, 1998. This
increase  is  primarily  attributable  to  the  Company's  receipt  of  residual
certificates valued and recorded at $15.1 million from the securitization in the
first  quarter  of 1999,  partially  offset by normal  amortization  due to cash
distributions and the fair value adjustment.

   Equipment, net, increased $1.7 million, or 10%, to $18.7 million at March 31,
1999, from $17.0 million at December 31, 1998. The increase was primarily due to
capital expenditures related to new technology and expansion.


                                       15


   Cash held  for advance  payments  increased  $0.8  million,   or 8%, to $10.8
million at March 31, 1999, from $10.0 million at December 31, 1998. The increase
was  primarily due to a higher  average loan  servicing  portfolio  resulting in
additional  monies held in escrow  trust  accounts by the  Company,  acting as a
servicer.

   Warehouse financing and other borrowings  increased $10.2 million, or 13%, to
$90.5 million at March 31, 1999,  from $80.3 at December 31, 1998. This increase
was primarily attributable to the operating cash deficit and to a lesser extent,
the funding of the Company's investment in technology.

   The aggregate principal balance of the Senior Notes totaled $149.4 million at
March 31, 1999 and December 31, 1998,  net of  unamortized  bond  discount.  The
Senior Notes accrue interest at a rate of 9.5% per annum, payable  semi-annually
on February 1 and August 1.

   Accounts payable and accrued expenses decreased $1.6 million, or 8%, to $19.4
million  at March 31,  1999,  from $21.0  million at  December  31,  1998.  This
decrease was primarily  attributable to the payment of interest on Senior Notes,
partially offset by the timing of various operating accruals.

   Investor  payable  increased $8.6 million,  or 13%, to $72.4 million at March
31, 1999,  from $63.8 million at December 31, 1998.  This increase was primarily
due to the 7% increase in the  Company's  portfolio  of serviced  loans to $3.16
billion at March 31, 1999 from $2.95  billion at  December  31,  1998.  Investor
payable is comprised of all  principal  collected on mortgage  loans and accrued
interest. Variability in this account is primarily due to the principal payments
collected within a given collection period.

   Advance payments by borrowers for taxes and insurance increased $1.2 million,
or 13%, to $10.8  million at March 31,  1999,  from $9.6 million at December 31,
1998.  This  increase  is  primarily  due to a  higher  average  loan  servicing
portfolio  and the timing of  payments  collected  and  disbursed  resulting  in
additional  monies held in escrow  trust  accounts  by the  Company  acting as a
servicer.

   Stockholders'  equity  increased  $5.7 million,  or 4%, to $143.4  million at
March 31, 1999,  from $137.7 million at December 31, 1998.  This increase is due
to net income for the three month period ending March 31, 1999.

Liquidity and Capital Resources

   The  Company  has  historically  operated  on a negative  cash flow basis due
primarily to increases in the volume of loan purchases and  originations and the
growth of its securitization  program. In recent quarters,  however, the Company
has  reduced  its  negative  cash flow and  achieved a  positive  cash flow from
operations during the last two consecutive  quarters.  The Company's focus is to
maintain a neutral cash flow position for the foreseeable future, as a result of
aggregate  annual cash inflows from the  Company's  retained  interest-only  and
residual certificates, advantageous changes in the securitization structures the
Company has used and a greater  concentration on less cash-intensive  broker and
retail originations.  Since the second quarter of 1997, the Company has sold the
senior  interest-only  certificates in each of its  securitizations  and, in the
Company's five most recent  securitizations,  it has successfully

                                       16

increased  the amount of senior interest-only certificates offered to investors,
compared to prior securitizations, which has also enhanced cash flow.
           
   For the three months ended March 31, 1999 and 1998,  the Company had positive
operating  cash  flows of $0.6  million  and $11.3  million,  respectively.  The
decline in positive  cash flow was primarily due to a one-time tax refund during
the first quarter of 1998,  coupled with a tax payment  during the first quarter
of 1999.

   Currently, the Company's primary cash requirements include the funding of (1)
mortgage  originations  and purchases  pending  their pooling and sale,  (2) the
points and expenses paid in connection  with the  acquisition  of  correspondent
loans,  (3)  interest  expense  on its  Senior  Notes  and  warehouse  and other
financings, (4) fees, expenses, delinquency advances, servicing-related advances
and tax payments incurred in connection with its securitization program, and (5)
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.

   Historically,  the Company has utilized various  financing  facilities and an
equity  financing  to offset  negative  operating  cash  flows and  support  the
continued  growth of its loan  originations and purchases,  securitizations  and
general operating expenses.  On July 23, 1997, the Company completed an offering
of the Senior  Notes.  A portion of the Senior Notes  proceeds  were used to pay
down various financing  facilities with the remainder used to fund the Company's
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, subject to market conditions,
sales of whole loans and 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 relied upon
a few lenders to provide the primary credit facilities for its loan originations
and purchases.  The Company had three warehouse  facilities as of March 31, 1999
for this purpose. One warehouse facility is a $200 million committed credit line
with a  variable  rate of  interest  and a  maturity  date of March  2000.  This
facility's  maturity  date was extended  from February 1999 to March 2000 during
the three months ended March 31, 1999. The Company's second  warehouse  facility
is a syndicated  $150 million  committed  revolving line with a variable rate of
interest  and a  maturity  date of June  1999.  The  Company's  third  warehouse
facility is a $200 million  committed  commercial  paper conduit with a variable
rate of interest and a maturity date of September 1999.  Subsequent to March 31,
1999, the Company obtained two additional warehouse  facilities,  which include,
(1) a warehouse  facility with a $200 million committed credit facility that has
a  variable  rate of  interest  and a  maturity  date of April  2000,  and (2) a
warehouse  facility  with a $250 million  committed  credit  facility that has a
variable  rate of interest and a maturity  date of April 2000.  The  outstanding
balances on the $200 million,  $150 million,  and $200 million  facilities as of
March 31, 1999 were $78.9 million, $0 million, and $0 million, respectively.

   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

                                       17


subject   to  the  Company's   continued   compliance  with  these  covenants.
Management  believes that the Company is in compliance  with all such  covenants
under these agreements as of March 31, 1999.

   The Company  purchased a total of 116,800  shares of its common  stock during
the year ended December 31, 1998, under the Company's stock repurchase  program,
at a total cost of $1.3 million. All of the repurchased shares were purchased in
open market  transactions  at then  prevailing  market prices.  During the first
quarter of 1999, no additional shares were repurchased.

Interest Rate Risk

    Among the  Company's  primary  market risk  exposure is interest  rate risk.
Profitability  may be  directly  affected by the level of, 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,  which are tied
to various United States Treasury maturities,  commercial paper rates and LIBOR.
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  Company's
ability to purchase and originate loans. A significant decline in interest rates
could increase the level of loan prepayments  thereby decreasing the size of the
Company's  loan  servicing  portfolio.   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. As previously  discussed,  the fair value adjustments that the Company
recorded  in the  second  quarter  of 1998 were  primarily  attributable  to the
Company's  change in prepayment  assumptions to reflect  higher than  originally
anticipated rates of prepayments (see "--Fair Value Adjustments").  In an effort
to mitigate  the effect of interest  rate risk,  the  Company has  reviewed  its
various mortgage products and has identified and modified those that have proven
historically more susceptible to prepayments. However, there can be no assurance
that such  modifications to its product line will effectively  mitigate interest
rate risk in the future.

   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,  although the Company  undertakes to
hedge its  exposure to this risk by using  treasury  rate lock  contracts.  (See
"--Hedging").


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 paid to asset-backed  investors who purchase  pass-through
certificates issued by securitization  trusts,  which historically was generally
related  to  the  interest   rate  on  treasury   securities   with   maturities
corresponding  to the

                                       18


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 sold at
securitization,  the excess spread narrows,  resulting in a loss in value of the
loans. The Company has implemented a strategy to protect against such losses and
to reduce interest rate risk on loans originated and purchased that have not yet
been  securitized  through the use of treasury rate lock  contracts with various
durations  (which are similar to selling a combination of United States Treasury
securities),  which equate to a similar  duration of the underlying  loans.  The
nature and quantity of hedging  transactions are determined by the Company based
upon various factors including,  without  limitation,  market conditions and the
expected volume of mortgage  originations and purchases.  The Company will enter
into treasury rate lock  contracts  through one of its warehouse  lenders and/or
one of the investment bankers,  which underwrite the Company's  securitizations.
These contracts are designated as hedges in the Company's records and are closed
out when the associated loans are sold through securitization.

   If the value of the hedges  decrease,  offsetting an increase in the value of
the loans,  the Company,  upon  settlement with its  counterparty,  will pay the
hedge loss in cash and  realize the  corresponding  increase in the value of the
loans as part of its net gain on sale of  mortgage  loans and its  corresponding
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.

   Up to and including the second quarter of 1998, the Company believed that its
hedging  strategy of using  treasury rate lock  contracts was the most effective
way to manage its interest rate risk on loans prior to securitization.  However,
in the  third  quarter  of 1998,  asset-backed  investors,  responding  to lower
treasury yields and global financial market volatility,  demanded  substantially
wider spreads over  treasuries  than  historically  experienced for newly issued
asset-backed  securities.  As a result,  Delta's $8.8 million hedge loss in that
quarter, resulting from lower interest rates, was not offset by a higher gain on
sale as the Company has historically seen.

   Given the Company's belief that the volatile market  experienced in the third
quarter would likely  continue well into the fourth  quarter - and, as a result,
that the amount of the spreads demanded by asset-backed securitization investors
would be difficult to predict,  as  asset-backed  securitization  investors were
more  interested in absolute  yields,  instead of spreads over  treasuries - the
Company did not hedge any of its warehoused loans pending  securitization in the
fourth quarter; believing that its historical hedging strategy would continue to
be largely ineffective in such an environment.

   As the asset-backed  securitization  market  improved in the first quarter of
1999, and spreads over treasuries became largely more  predictable,  the Company
resumed its hedging strategy of selling treasury rate-lock contracts to mitigate
its interest rate risk pending securitization.

   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,  however,  it will continue to review its hedging
strategy  on  an  ongoing   basis  in  order  to  best   mitigate  risk  pending
securitization. The Company had no hedge outstanding as of March 31,

                                       19


1999, since the Company's securitization closed on March 30, 1999.

Inflation

   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. (See "--Interest Rate Risk.")

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 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:

   *  The Company's  ability  or inability to continue to access lines of credit
      at favorable terms and conditions, including without limitation, warehouse
      and other credit  facilities  used to finance  newly  originated  mortgage
      loans held for sale.

   *  The   Company's   ability   or  inability  to  continue  its  practice  of
      securitization  of mortgage loans held for sale, as well as its ability to
      utilize  optimal  securitization  structures  at  favorable  terms  to the
      Company.

   *  A  general economic  slowdown.  Periods of economic  slowdown or recession
      may be accompanied by decreased  demand for consumer  credit and declining
      real estate  values.  Because of the  Company's  focus on  credit-impaired
      borrowers,  the actual rate of  delinquencies,  foreclosures and losses on
      loans  affected  by the  borrowers  reduced  ability to use home equity to
      support borrowings could be higher than those generally experienced in the
      mortgage   lending   industry.   Any   sustained   period   of   increased
      delinquencies,  foreclosure,  losses or  increased  costs could  adversely
      affect the Company's  ability to securitize or sell loans in the secondary
      market.

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

   *  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

                                       20

      changes in accounting polices and practices and the application of such 
      polices and practices.  Failure to comply with various federal,  state and
      local regulations,  accounting policies,  and environmental compliance can
      lead to loss of approved status, certain rights of rescission for mortgage
      loans, class action lawsuits and administrative enforcement action.

   *  Increased  competition  within  the  Company's  markets  has taken on many
      forms,  such  as  convenience  in  obtaining  a  loan,  customer  service,
      marketing and  distribution  channels,  loan origination fees and interest
      rates. The Company is currently competing with large finance companies and
      conforming  mortgage  originators  many of whom  have  greater  financial,
      technological and marketing resources.

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

   *  Unpredictable  delays   or  difficulties  in  development  of new  product
      programs.

   *  Year  2000  Compliance   and  Technology  Enhancements.   The  Company  is
      utilizing  both  internal  and external  resources  to identify,  correct,
      reprogram  or  replace,  and test its  systems  for year 2000  compliance.
      Although to date, the Company has been completing its Year 2000 compliance
      efforts  on time,  there can be no  assurance  that the  Company  will not
      experience  unexpected  delay.  There  can also be no  assurance  that the
      systems of other  companies  on which the  Company's  systems rely will be
      timely reprogrammed for year 2000 compliance.


Information Services Year 2000 Project

   The Year 2000 issue centers on the inability of certain computer hardware and
software systems and associated  applications to correctly recognize and process
dates beyond December 31, 1999. Many computer programs used by the Company,  its
suppliers and outside service  providers were developed using only six digits to
define  the date  field (two  fields  each for the month,  day and year) and may
recognize "00" as the year 1900, rather than the year 2000. Due to the nature of
financial information, if corrective action is not taken, calculations that rely
on the integrity of the date field for the  processing of  information  could be
significantly misstated.

State of Readiness

   The  Company  has  implemented  a  detailed  Year 2000 Plan (the  "Plan")  to
evaluate  the Year 2000  readiness  of the  computer  systems  that  support the
operation  of the  Company  including  vendor  computer  systems.  This  Plan is
expected to conclude in June 1999 with all systems year 2000 compliant.

                                       21

   The Plan includes  upgrading the origination  system software,  upgrading the
loan servicing software, upgrading the accounting system software, upgrading the
wide area network software,  assessing the proper integration of all systems and
communicating with vendors and liquidity  providers to ascertain their Year 2000
compliance.

   To date,  the Company  believes  its internal  control  systems are Year 2000
compliant  and vendors and liquidity  providers  have been  contacted  regarding
their  readiness.  Results of system  tests  conducted  by the Company and other
service  providers  will  continue to be carefully  monitored to ensure that all
issues have been identified and addressed.

   The Company  believes it has developed an effective  Plan to address the Year
2000 issue and that based on the  available  information,  the  execution of the
Plan will not have any significant or material  impact to the Company's  ability
to  operate  before,  during  or after  the  transition  to the new  millennium.
However,  the  Company  has no  control  over the  process  of third  parties in
addressing  their own Year 2000  issues and,  if the  necessary  changes are not
effected or are not completed in a timely manner,  or if unanticipated  problems
arise, there may be a material impact on the Company's  financial  condition and
result of operations.

Cost to Address the Company's Year 2000 Issues

   The Company's costs to resolve the Year 2000 issue are not expected to have a
material  financial  impact on the Company and are expected to be less than $1.0
million, which the Company intends to fund from its current operations. To date,
the Company has paid and expensed $0.6 million.  However, as stated above, there
can be no assurance that all such costs have been identified,  or that there may
not be some  unforeseen  cost  which may have a material  adverse  effect on the
Company's financial condition and results of operations.

Risk of Year 2000 Issues

   To date,  the Company has not identified any system which presents a material
risk of failing to be Year 2000  complaint  in a timely  manner,  or for which a
suitable  alternative cannot be implemented.  However, as the Company progresses
with its Plan,  systems or equipment may be identified  which present a material
risk of business  interruption.  Such  disruption  may include the  inability to
process  customer  accounting  transactions;   the  inability  to  process  loan
applications;  the  inability  to  reconcile  and  record  daily  activity;  the
inability to track  delinquencies;  or the  inability  to generate  checks or to
clear funds. In addition,  if any of the Company's  liquidity  providers  should
fail to achieve the Year 2000  compliance  and they  experience a disruption  of
their own businesses which prevents them from fulfilling their obligations,  the
Company may be materially impacted.

   To the extent that the risks  posed by the Year 2000 issue,  which are beyond
the  Company's   control,   are  pervasive  in  data  processing,   utility  and
telecommunication  services worldwide, the Company cannot predict with certainty
that it will remain  materially  unaffected  by issues  related to the Year 2000
problem.

Contingency Plans

   As part of the Plan implemented by the Company, periodic assessments are made
to

                                       22

determine  that  all Year  2000  issues   will be   addressed   prior to the new
millennium.  If this  assessment  determines  that any systems are not Year 2000
compliant,  and will not become Year 2000 compliant in a timely  manner,  then a
contingency  plan to implement a suitable  alternative  will be put in place. At
this time all systems are expected to be compliant and no contingency plan is in
place.

Quantitative and Qualitative Disclosures About Market Risk

   The primary  market  risk to which the  Company is exposed is  interest  rate
risk, which is highly sensitive to many factors, including governmental monetary
and  tax   policies,   domestic  and   international   economic  and   political
considerations  and other factors beyond the control of the Company.  Changes in
the general level of interest  rates between the time the Company  originates or
purchases  mortgage  loans and the time the Company sells such mortgage loans at
securitization  can affect the value of the  Company's  mortgage  loans held for
sale and, consequently,  the Company's net gain on sale revenue by affecting the
"excess spread" between the interest rate on the mortgage loans and the interest
rate paid to  asset-backed  investors  who  purchase  pass-through  certificates
issued by the securitization trusts. If interest rates rise between the time the
Company  originates  or  purchases  the loans and the time the loans are sold at
securitization,  the excess  spread  generally  narrows,  resulting in a loss in
value of the loans and a lower net gain on sale.

   A hypothetical 10 basis point increase in interest rates,  which historically
has resulted in  approximately  a 10 basis point  decrease in the excess spread,
would be expected to reduce the Company's net gain on sale by  approximately  25
basis  points.  Many  factors,  however,  can  affect the  sensitivity  analysis
described  above  including,   without  limitation,  the  structure  and  credit
enhancement used in a particular securitization,  the Company's prepayment, loss
and  discount  rate  assumptions,  and the spread  over  treasuries  demanded by
asset-backed investors who purchase the Companies asset-backed securities.

   To reduce its financial  exposure to changes in interest  rates,  the Company
generally hedges its mortgage loans held for sale by entering into treasury rate
lock contracts (see "-Hedging"). The Company's hedging strategy has largely been
an effective  tool to manage the Company's  interest rate risk on loans prior to
securitization,  by providing  the Company with a cash gain (or loss) to largely
offset the reduced  (increased)  excess spread (and resultant  lower (or higher)
net gain on sale) from an increase  (decrease)  in interest  rates.  A hedge may
not, however,  perform its intended purpose of offsetting changes in net gain on
sale.  This  was the  case in the  third  quarter  of  1998,  when  asset-backed
investors,  responding  to lower  treasury  yields and global  financial  market
volatility,   demanded   substantially   wider  spreads  over   treasuries  than
historically experienced for newly issued asset-backed securities.  As a result,
Delta's $8.8 million hedge loss in that quarter,  resulting  from lower interest
rates,  was not offset by a higher gain on sale as the Company has  historically
seen.

   Changes in interest rates could also adversely  affect the Company's  ability
to  purchase  and  originate  loans  and/or  could  affect  the  level  of  loan
prepayments thereby impacting the size of the Company's loan servicing portfolio
and the value of the  Company's  interest  only and  residual  certificates  and
capitalized mortgage servicing rights. (See "-Interest Rate Risk").

                                       23


Recently Issued Accounting Pronouncements

SFAS No. 133

   In June 1998, SFAS No. 133 was issued, "Accounting for Derivative Instruments
and Hedging  Activities."  SFAS No. 133 is effective for fiscal years that begin
after June 15,  1999,  and in  general  requires  that  entities  recognize  all
derivative  financial  instruments  as assets or  liabilities,  measured at fair
value,  and include in earnings the changes in the fair value of such assets and
liabilities. SFAS No. 133 also provides that changes in the fair value of assets
or liabilities being hedged with recognized derivative instruments be recognized
and included in earnings.  Management of the Company believes the implementation
of SFAS No.  133 will not have a  material  impact  on the  Company's  financial
condition or results of operations.


                                       24


<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 various state and
federal lending laws, the Company is subject,  in the normal course of business,
to  numerous  claims  and legal  proceedings,  including  several  class  action
lawsuits set forth below.  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 operations of the Company.

   1. Several class-action lawsuits have been filed against a number of consumer
finance companies alleging that the compensation of mortgage brokers through the
payment of yield spread  premiums  violates  various  federal and state consumer
protection laws. The Company has been named in two such lawsuits:

      a. In or about February 1998, the Company received notice that it had been
         named in a lawsuit  filed in the United States  District  Court for the
         Northern District of Mississippi - Greenville  Division,  alleging that
         the Company's compensation or mortgage brokers by means of yield spread
         premiums violates the Real Estate Settlement  Procedures Act ("RESPA").
         The complaint  seeks (i)  certification  of a class of plaintiffs,  and
         (ii) unspecified  compensatory damages (including  attorney's fees). On
         March 31,  1998,  the  Company  filed an answer  to the  complaint.  On
         December 1, 1998,  the District Court judge denied  plaintiff's  motion
         for class  certification.  Plaintiff  petitioned  the Fifth  Circuit to
         accept  its  interlocutory  appeal  and,  after the  Company  submitted
         opposition papers,  Plaintiff withdrew such petition.  In May 1999, the
         Company  agreed to an individual  settlement  with  plaintiff,  and the
         lawsuit has been dismissed with prejudice.

      b. In or about October  1998,  the Company was served with a lawsuit filed
         in the  United  States  District  Court for the  Northern  District  of
         Georgia, Atlanta Division,  alleging that the Company's compensation of
         mortgage brokers by means of yield spread premiums  violates RESPA. The
         complaint seeks (i)  certification  of a class of plaintiffs,  and (ii)
         unspecified  compensatory  and  treble  damages  (including  attorney's
         fees).  In November  1998, the Company filed an answer to the complaint
         and  Plaintiff  filed a motion  seeking class  certification.  In March
         1999,  the Company  submitted  its  opposition  to the motion for class
         certification. The District Court has not yet decided the action.


   2. In or about November 1998,  the Company  received  notice that it had been
named in a lawsuit  filed in the United  States  District  Court for the Eastern
District of New York. In December 1998,  plaintiffs  filed an amended  complaint
alleging that the Company had violated the Home Equity and Ownership  Protection
Act, the Truth in Lending Act and New York State

                                       25


General  Business Law ss. 349. The complaint seeks (a)  certification of a class
of plaintiffs,  (b)declaratory  judgment permitting rescission,  (c) unspecified
actual, statutory,  treble and punitive damages (including attorneys' fees), (d)
certain  injunctive  relief,  and (e)  declaratory  judgment  declaring the loan
transactions as void and unconscionable.  On December 7, 1998, Plaintiff filed a
motion  seeking  a  temporary  restraining  order  and  preliminary  injunction,
enjoining Delta from conducting foreclosure sales on 11 properties. The District
Court Judge ruled that in order to consider such a motion,  Plaintiff  must move
to intervene on behalf of these 11  borrowers.  Thereafter,  Plaintiff  moved to
intervene on behalf of 3 of the 11 borrowers and sought the injunctive relief on
their  behalf.  The Company  opposed the  motions.  On December  14,  1998,  the
District  Court Judge  granted the motion to intervene and on December 23, 1998,
the District Court Judge issued a preliminary  injunction  enjoining the Company
from proceeding with the foreclosure sales of the three intervenors' properties.
The  Company has filed a motion for  reconsideration  of the  December  23, 1998
order. In January 1999, the Company filed an answer to the amended complaint.

   3. In or about January  1999,  the Company  received  notice that it had been
named in a lawsuit filed in the Court of Common Pleas in Cuyahoga County,  Ohio,
alleging  that Delta had violated  Ohio state law and breached its contract with
Plaintiff by assessing a prepayment penalty and certain other miscellaneous fees
when  Plaintiff  paid off his loan.  The complaint  seeks  certification  of two
classes  of  plaintiffs.  In March  1999,  the  Company  filed an  answer to the
complaint.

   4. In or about March 1999, the Company received notice that it had been named
in a lawsuit  filed in the  Supreme  Court of the  State of New  York,  New York
County,  alleging that Delta had improperly charged certain borrowers processing
fees. The complaint seeks (i)  certification  of a class of plaintiffs,  (ii) an
accounting,  and (iii) unspecified  compensatory and punitive damages (including
attorneys' fees), based upon alleged (a) unjust  enrichment,  (b) fraud, and (c)
deceptive  trade  practices.  In April 1999,  the Company filed an answer to the
complaint.

   The Company  believes that it has meritorious  defenses and intends to defend
each of these  lawsuits,  but cannot  estimate  with any  certainty its ultimate
legal or financial liability, if any, with respect to the alleged claims.


Item 2.  Changes in Securities.  None

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.


                                       26


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

                           27.1  Financial  Data Schedule - Three Months Ended
                                 March 31, 1999


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


                                       27


<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:  May 14, 1999                       By:/s/ HUGH MILLER
                                             -----------------------------------
                                             Hugh Miller
                                             President & Chief Executive Officer


                                          By:/s/ RICHARD BLASS
                                             -----------------------------------
                                             Richard Blass
                                             Senior Vice President and
                                             Chief Financial Officer



                                       28
<PAGE>

                                  EXHIBIT INDEX

Exhibit
Number      Description

11.1        Statement re: Computation of  Per Share Earnings.

27.1        Financial Data Schedule - Three Months Ended March 31, 1999