SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

      [X]   QUARTERLY  REPORT  PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
            EXCHANGE ACT OF 1934
            For the  quarterly  period ended  September 30, 2003

                                       OR

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

                         Commission File Number: 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  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 [ ]

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

      As of September 30, 2003,  16,386,861  shares of the  Registrant's  common
stock, par value $0.01 per share, were outstanding.

<PAGE>


                               INDEX TO FORM 10-Q

                                                                        Page No.

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements (unaudited)

         Consolidated  Balance  Sheets  as of  September  30,  2003  and
         December 31, 2002 .................................................. 1

         Consolidated Statements of  Income for the Three and Nine Months
         Ended September 30, 2003 and September 30, 2002 .................... 2

         Consolidated  Statements of Changes in Stockholders' Equity for the
         Nine Months Ended September 30, 2003 ............................... 3

         Consolidated Statements of Cash Flows for the Nine Months Ended
         September 30, 2003 and September 30, 2002 ....... .................. 4

         Notes to Consolidated Financial Statements.......................... 5

Item 2.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations ............................................. 10

Item 3.  Quantitative and Qualitative Disclosures about Market Risk......... 38

Item 4.  Controls and Procedures ........................................... 39

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings ..................................................40

Item 2.  Changes in Securities and Use of Proceeds ..........................42

Item 3.  Defaults upon Senior Securities ....................................42

Item 4.  Submission of Matters to a Vote of Security Holders ................42

Item 5.  Other Information ..................................................42

Item 6.  Exhibits and Current Reports on Form 8-K .......................... 43

Signatures ................................................................. 44


<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED)

                  DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<S>                                               <C>              <C>

                                                   SEPTEMBER 30,    DECEMBER 31,
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)          2003            2002
                                                   ------------     ------------
ASSETS                                             (UNAUDITED)        (AUDITED)
Cash and interest-bearing deposits                 $   3,893            3,405
Accounts receivable                                    2,049            1,700
Loans held for sale, net                             135,630           33,984
Excess cash flow certificates, net                    19,566           24,565
Equipment, net                                         2,779            2,553
Prepaid and other assets                               2,805            1,737
Deferred tax asset                                    35,743            5,600
                                                   ---------         --------
   Total assets                                    $ 202,465           73,544
                                                   =========         ========

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Bank payable                                       $   1,292            1,369
Warehouse financing and other borrowings              84,372           16,352
Senior notes                                          10,757           10,844
Accounts payable and accrued expenses                 14,898           12,327
Income taxes payable                                   2,074            3,155
                                                    --------         --------
   Total liabilities                                 113,393           44,047
                                                    --------         --------

STOCKHOLDERS' EQUITY:
Preferred stock, Series A, $.01 par value.
  Authorized 150,000 shares, 139,156 shares
  outstanding at September 30, 2003 and
  December 31, 2002                                   13,916           13,916
Common stock, $.01 par value. Authorized
  49,000,000 shares; 16,503,661 and 16,022,349
  shares issued and 16,386,861 and 15,905,549
  shares  outstanding at September 30, 2003
  and December 31, 2002, respectively                    165              160
Additional paid-in capital                            99,755           99,482
Accumulated deficit                                  (23,446)         (82,743)
Treasury stock, at cost (116,800 shares)              (1,318)          (1,318)
                                                    ---------        ---------
   Total stockholders' equity                         89,072           29,497
                                                    ---------        ---------
     Total liabilities and stockholders' equity    $ 202,465           73,544
                                                    =========        =========
</TABLE>


         See accompanying notes to consolidated financial statements.

                                       1

<PAGE>


                  DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)

<TABLE>
<S>                                                 <C>             <C>                <C>               <C>

                                                       THREE MONTHS ENDED                   NINE MONTHS ENDED
                                                           SEPTEMBER 30,                      SEPTEMBER 30,
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)           2003           2002                2003           2002
                                                       -------        -------             -------        -------
REVENUES
   Net gain on sale of mortgage loans                $  24,006         15,716              66,522           42,779
   Interest                                              3,516          2,267               9,735            9,394
   Net origination fees and other income                 8,368          3,840              20,264           10,871
                                                     ---------       --------           ---------        ---------
       Total revenues                                   35,890         21,823              96,521           63,044
                                                     ---------       --------           ---------        ---------
EXPENSES
   Payroll and related costs                            16,780         10,211              43,469           29,987
   Interest expense                                      1,373          1,223               3,848            4,239
   General and administrative                            6,597          5,827              19,363           17,787
                                                     ---------       --------           ---------        ---------
       Total expenses                                   24,750         17,261              66,680           52,013
                                                     ----------      --------           ---------        ---------

Income before income
    tax benefit                                         11,140          4,562              29,841           11,031
Income tax benefit                                     (30,455)        (2,136)            (30,152)          (1,884)
                                                     ----------     ----------          ----------       ----------
       Net income                                    $  41,595          6,698              59,993           12,915
                                                     ==========     ==========          ==========       ==========

PER SHARE DATA:
Basic -weighted average number of
  shares outstanding                                  16,283,420    15,904,049           16,132,909      15,892,012
                                                     ===========    ==========          ===========      ==========
Diluted -weighted average number of
  shares outstanding                                  18,543,094    17,112,868           18,453,931      16,966,217
                                                     ===========    ==========          ===========      ==========

Net income applicable to common shares               $    41,595         6,698               59,297          12,915
                                                     ===========    ==========          ===========      ==========

Basic earnings per share - net income                $      2.55          0.42                 3.68            0.81
                                                     ===========    ==========          ===========      ==========
Diluted earnings per share - net income              $      2.24          0.39                 3.21            0.76
                                                     ===========    ==========          ===========      ==========
</TABLE>

         See accompanying notes to consolidated financial statements.

                                       2
<PAGE>


                  DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                      NINE MONTHS ENDED SEPTEMBER 30, 2003
                                   (UNAUDITED)


<TABLE>
<S>                                           <C>           <C>      <C>         <C>          <C>        <C>

                                                                     ADDITIONAL
                                             PREFERRED    CAPITAL     PAID-IN     ACCUMULATED  TREASURY
(DOLLARS IN THOUSANDS)                         STOCK       STOCK      CAPITAL       DEFICIT      STOCK     TOTAL
-----------------------------------------------------------------------------------------------------------------
Balance at December 31, 2002...............    $13,916       160      99,482      (82,743)     (1,318)    29,497
Stock options exercised....................          --        1         273           --          --        274
Warrants exercised.........................          --        4          --           --          --          4
Preferred stock dividends..................          --       --          --         (696)         --       (696)
Net income.................................          --       --          --       59,993          --     59,993
-----------------------------------------------------------------------------------------------------------------
Balance at September 30, 2003..............    $13,916       165      99,755      (23,446)     (1,318)    89,072
-----------------------------------------------------------------------------------------------------------------
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       3
<PAGE>


                  DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)


<TABLE>
<S>                                                                <C>                  <C>
                                                                             NINE MONTHS ENDED
                                                                               SEPTEMBER 30,
(DOLLARS IN THOUSANDS)                                                     2003                2002
                                                                         ------                ----

Cash flows from operating activities:
    Net income                                                      $     59,993         $   12,915
    Adjustments to reconcile net income to net cash provided by
    (used in) operating activities:
       Provision for loan and recourse losses                                 88                453
       Depreciation and amortization                                       1,245              2,585
       Deferred tax benefit                                              (30,143)                --
       Deferred origination costs                                           (534)               571
       Gain on sale of excess cashflow certificates                         (220)                --
       Excess cashflow certificates received in
          securitization transactions, net                                (5,001)            (6,470)
    Changes in operating assets and liabilities:
       Increase in accounts receivable                                      (349)              (232)
       (Increase) decrease in loans held for sale, net                  (101,112)            62,263
       Increase in prepaid and other assets                               (1,068)            (1,103)
       Increase (decrease) in warehouse lines of credit                   68,657            (66,360)
       Increase (decrease) in accounts payable and accrued expenses        2,483             (1,016)
       Decrease in income taxes payable                                   (1,081)            (2,092)
                                                                        ---------          ---------
Net cash (used in) provided by operating activities                       (7,042)             1,514
                                                                        ---------          ---------

Cash flows from investing activities:
       Proceeds on sale of excess cashflow certificates                   10,220                 --
       Purchase of equipment                                              (1,471)              (471)
                                                                        ---------          ---------
Net cash provided by (used in) investing activities                        8,749               (471)
                                                                        ---------          ---------


Cash flows from financing activities:
       Decrease in bank payable                                              (77)               (657)
       Repayments of other borrowings                                       (637)             (2,909)
       Redemption of Senior Notes                                            (87)                 --
       Cash dividends paid on preferred stock                               (696)                 --
       Proceeds from exercise of warrants                                      4                  --
       Proceeds from exercise of stock options                               274                   9
                                                                        ---------          ----------
Net cash used in financing activities                                     (1,219)             (3,557)
                                                                        ---------          ----------

Net increase (decrease) in cash and interest-bearing deposits                488              (2,514)
Cash and interest-bearing deposits at beginning of period                  3,405               6,410
                                                                        ---------          ----------
Cash and interest-bearing deposits at end of period                     $  3,893               3,896
                                                                        =========          ==========

Supplemental Information:
Cash paid during the period for:
    Interest                                                            $  4,094               2,916
                                                                        =========          ==========
    Income taxes                                                        $    853                 121
                                                                        =========          ==========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       4
<PAGE>

                  DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1) BASIS OF PRESENTATION

   Delta Financial Corporation (together with its subsidiaries, "Delta," "we" or
the "Company") is a Delaware corporation, which was organized in August 1996.

   The accompanying  unaudited  consolidated  financial  statements  include the
accounts of Delta and its wholly owned subsidiaries.  In consolidation,  we have
eliminated all significant inter-company accounts and transactions.

   We have prepared the accompanying unaudited consolidated financial statements
in accordance with accounting principles generally accepted in the United States
of America (GAAP) 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 GAAP have been  condensed or
omitted  pursuant to the rules and  regulations  of the  Securities and Exchange
Commission.  You should read 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"  in
conjunction with our audited consolidated financial statements and related notes
for the year ended  December 31, 2002,  which were filed with the Securities and
Exchange Commission with our most recent annual report on Form 10-K. The results
of operations for the  three-month  and nine-month  periods ended  September 30,
2003 are not necessarily indicative of the results for the entire year.

   We have  made  all  adjustments  that  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.  We have  reclassified
certain  prior  period  amounts in the  financial  statements  to conform to the
current year presentation.

(2) STOCK OPTION PLANS

   We  apply  the  intrinsic-value-based  method  of  accounting  prescribed  by
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations,  to account for our fixed-plan stock
options.  Under this  method,  compensation  expense is  recorded on the date of
grant only if the  current  market  price of the  underlying  stock  exceeds the
exercise price.  Statement of Financial  Accounting  Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," established accounting and disclosure
requirements  using a fair  value-based  method of  accounting  for  stock-based
employee  compensation  plans.  As allowed by SFAS No. 123,  we have  elected to
continue  to apply  the  intrinsic-value-based  method of  accounting  described
above,  and have adopted only the  disclosure  requirements  of SFAS No. 123. In
April 2003, the Financial Accounting Standards Board ("FASB") announced it will,
in the future,  require  all  companies  to expense the value of employee  stock
options but has not decided how to measure the fair value of the  options.  As a
result, the financial statement impact of stock option expensing is not known at
this  time.  The  following  table  illustrates  the effect on net income if the
fair-value-based method had been applied:

                                       5

<TABLE>
<S>                                          <C>          <C>          <C>        <C>
                                              THREE MONTHS ENDED        NINE MONTHS ENDED
                                                 SEPTEMBER 30,            SEPTEMBER 30,
                                              -------------------       -----------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)      2003         2002         2003        2002
-----------------------------------------------------------------------------------------
Net income, as reported                       $41,595      6,698        59,993     12,915
=========================================================================================
Deduct total stock-based employee
   compensation expense determined
   under fair-value-based method for
   all awards, net of tax                         125        117          360        352
-----------------------------------------------------------------------------------------
Pro forma net income                          $41,470      6,581        59,633     12,563
=========================================================================================

Earnings per share:
Basic - as reported                             $2.55       0.42         3.68       0.81
Basic - pro forma                               $2.55       0.41         3.65       0.79
Diluted - as reported                           $2.24       0.39         3.21       0.76
Diluted - pro forma                             $2.24       0.38         3.19       0.74
</TABLE>

(3)   LOANS HELD FOR SALE, NET

   Our  inventory   consists  of  first  and  second  mortgages,   which  had  a
weighted-average  interest  rate of 7.55% per annum at  September  30,  2003 and
8.45% per annum at December 31, 2002.  These  mortgages  are being held,  at the
lower of their cost or their estimated fair value,  for future sale.  Certain of
these  mortgages  are  pledged  as  collateral  for a portion  of our  warehouse
financing and other borrowings. Mortgages are payable in monthly installments of
principal and interest and have maturities varying from five to thirty years.

    Loans held for sale, net, are summarized as follows:
<TABLE>
<S>                               <C>                        <C>

(DOLLARS IN THOUSANDS)            September 30, 2003       December 31, 2002
------------------------------------------------------------------------------
Loans held for sale                $   135,281                $  34,170
Net deferred origination cost              784                      249
Valuation allowance                       (435)                    (435)
------------------------------------------------------------------------------
Loans held for sale, net           $   135,630                $  33,984
------------------------------------------------------------------------------
</TABLE>

(4)   EXCESS CASHFLOW CERTIFICATES, NET

   The activity related to our excess cashflow certificates, net is as follows:
<TABLE>
<S>                                               <C>                          <C>

(DOLLARS IN THOUSANDS)                            September 30, 2003        December 31, 2002
---------------------------------------------------------------------------------------------
Balance, beginning of year                         $   24,565                   16,765
New excess cashflow certificates                        6,941                   10,499
Cash received from excess cashflow certificates        (3,705)                  (2,588)
Excess cashflow certificates sold                     (10,000)                    --
Net accretion of excess cashflow certificates           1,765                    1,974
Fair value adjustments                                   --                     (2,085)
---------------------------------------------------------------------------------------------
Balance, end of period                             $   19,566                   24,565
---------------------------------------------------------------------------------------------
</TABLE>

                                       6

(5) DEFERRED TAX ASSET

   As of  September  30,  2003,  we  carried a net  deferred  tax asset of $35.7
million  (assuming  a 39%  effective  tax  rate) on our  consolidated  financial
statements.  Our deferred tax asset is comprised  primarily of Federal and State
net operating losses, or "NOLs," net of the tax impact.

   At  September  30,  2003,  we  reversed  a  valuation  allowance  that we had
established in 2000 against our deferred tax asset.  As of December 31, 2002, we
had a gross deferred tax asset of $48.0 million,  a gross deferred tax liability
of $0.1 million and a valuation  allowance of $42.3 million.  Management and the
Audit  Committee  of the  Board of  Directors  believed  that the  reversal  was
appropriate at this time principally  because of our eight consecutive  quarters
of profitability and positive cash flow, together with the planned retirement of
all our long-term  unsecured debt. We have recorded minimal taxes in our results
of operations  over the prior seven  quarters - from the fourth  quarter of 2001
through  the  second  quarter of 2003 - as a result of the  valuation  allowance
against our deferred tax asset,  which was primarily  generated by net operating
losses in 2000 and 2001.

   Our deferred tax asset of $35.7 million  consists  primarily of (1) NOLs, net
of tax,  totaling $27.0  million,  which can be used to offset the tax liability
generated from  approximately  $69.2 million of pre-tax income (the NOLs will be
expiring  in 2021),  and (2) the  excess of the tax basis over book basis on our
excess cashflow certificates, net of tax, of $6.9 million.

(6)   WAREHOUSE FINANCING AND OTHER BORROWINGS

   At September  30, 2003 and December 31,  2002,  we had two  warehouse  credit
facilities providing for aggregate borrowings of $400.0 million. In May 2003, we
extended one of our warehouse  lines of credit and allowed the second  warehouse
line of credit to expire, replacing it with a new $200 million warehouse line of
credit from a new creditor.  Both warehouse lines of credit are due to expire in
May 2004, have floating  interest rates based on the one-month London Inter-Bank
Offered Rate ("LIBOR") + 1.125%,  and are  collateralized  by specific  mortgage
loans,  the  balances  of which are  equal to or  greater  than the  outstanding
balances under the line at any point in time.  Available  borrowings under these
lines are based on the amount of the collateral pledged.

   The  following  table  summarizes  certain  information  regarding  warehouse
financing and other borrowings at the respective dates:

(DOLLARS IN MILLIONS)
<TABLE>
<S>                          <C>           <C>                 <C>         <C>   <C>          <C>
                                                                      BALANCE
                             Facility                                 -------               Expiration
Facility Description          Amount             Rate           9/30/03   12/31/02             Date
-------------------------------------------------------------------------------------------------------
Warehouse line of credit      $200.0       LIBOR + 1.125%       $ 76.8      --                 May 2004
Warehouse line of credit      $200.0       LIBOR + 1.125%          5.6      n/a                May 2004
Warehouse line of credit        n/a        LIBOR + 1.125%          n/a     13.8                May 2003
Capital leases                  n/a        3.76% - 12.50%          2.0      2.6   Oct. 2003 - July 2006
-------------------------------------------------------------------------------------------------------
Total                                                           $ 84.4    16.4
-------------------------------------------------------------------------------------------------------
</TABLE>

   Our  warehouse  agreements  require us to comply with various  operating  and
financial covenants.  The continued availability of funds under these agreements
is subject to,  among other

                                       7

conditions,  our continued  compliance with these covenants.  We believe that we
are in compliance with these covenants as of September 30, 2003.

   In October 2003, our warehouse financing providers increased their commitment
amounts,  and lowered the financing rates, and one provider  extended a maturity
date, as shown below:
<TABLE>
<S>                              <C>           <C>              <C>
                             Updated Facility     Updated         Expiration
Facility Description              Amount           Rate              Date
------------------------------------------------------------------------------
Warehouse line of credit          $250.0        LIBOR + 1.00%      May 2004
Warehouse line of credit          $250.0        LIBOR + 1.00%    October 2004
</TABLE>

(7)  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  available  to common
shareholders.

<TABLE>
<S>                                             <C>           <C>              <C>            <C>
                                                       THREE MONTHS ENDED             NINE MONTHS ENDED
                                                          SEPTEMBER 30,                 SEPTEMBER 30,
                                                      -------------------            -------------------
 (DOLLARS IN THOUSANDS, EXCEPT EPS DATA)               2003          2002             2003          2002
-----------------------------------------------------------------------------------------------------------
Net income                                         $ 41,595         6,698           59,993        12,915
Less preferred stock dividends                           --            --              696            --
-----------------------------------------------------------------------------------------------------------
Net income available to common shareholders          41,595         6,698           59,297        12,915

Basic - weighted-average shares                  16,283,420    15,904,049       16,132,909    15,892,012
Basic EPS                                             $2.55          0.42             3.68          0.81

Basic - weighted-average shares                  16,283,420    15,904,049       16,132,909    15,892,012
Incremental shares-options                        2,259,674     1,208,819        2,321,022     1,074,205
-----------------------------------------------------------------------------------------------------------
Diluted - weighted-average shares                18,543,094    17,112,868       18,453,931    16,966,217
Diluted EPS                                           $2.24          0.39             3.21          0.76
-----------------------------------------------------------------------------------------------------------
</TABLE>

(8) WARRANTS

   In December 2000, as part of our first exchange  offer, we issued warrants to
purchase  1,569,193  shares of our common stock, at an initial exercise price of
$9.10 per share, subject to adjustment. In December 2002, the exercise price for
the warrants was adjusted to $0.01 per share in accordance with the terms of the
warrant agreement  pursuant to which the warrants were granted.  During the nine
months ended September 30, 2003,  378,612 warrants were exercised.  At September
2003, warrants to purchase 1,190,581 shares of common stock were outstanding.

   In October  2003,  483,791  warrants  were  exercised  and  706,790  warrants
remained  unexercised.  Following  our  redemption,  on October 30, 2003, of the
Senior  Notes  issued on December 21, 2000,  all  unexercised  warrants  expired
pursuant to their terms.

(9) REDEMPTION OF 9.5% SENIOR NOTES DUE AUGUST 2004

   On October 30, 2003, we redeemed,  at par, all of our outstanding 9.5% Senior
Notes due August 2004. The aggregate  redemption price,  including principal and
accrued interest,  was approximately $11.0 million. We used our existing cash to
fund the redemption.
                                       8

   Unexercised  warrants issued in connection with Delta's 9.5% Senior Notes due
2004 under the  Indenture  Agreement of December  21, 2002  expired  pursuant to
their terms (See Note No. 8 "Warrants").

(10) PREFERRED STOCK - SERIES A

   In  August  2001,  as part of our  second  exchange  offer,  the  holders  of
approximately $139.2 million (of the initial $150.0 million) principal amount of
our 9.5% Senior Notes due 2004 exchanged their notes for, among other interests,
139,156 shares of our newly issued Series A preferred stock, having an aggregate
preference amount of $13.9 million.

   Holders of the Series A preferred  stock are  entitled to receive  cumulative
preferential  dividends at the rate of 10% per annum of the  preference  amount,
payable in cash semi-annually on the first business date of January and July. On
June 30, 2003, we paid $695,780 for the first  dividend  payment to the Series A
holders due on July 1, 2003.

(11) IMPACT OF NEW ACCOUNTING STANDARDS

    In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with  Characteristics  of both Liabilities and Equity." SFAS No. 150
addresses the accounting for certain financial  instruments that, under previous
guidance, issuers could account for as equity. The statement requires that those
instruments be classified as  liabilities  in statements of financial  position.
SFAS No. 150 is effective for all financial instruments entered into or modified
after May 31, 2003.  However,  the effective date of the statement's  provisions
related to the  classification  and measurement of certain mandatory  redeemable
non-controlling  interests has been deferred  indefinitely by the FASB,  pending
further Board action. Management does not expect that the provisions of SFAS No.
150 will impact our results of operations or financial condition.

    In April 2003, the FASB issued SFAS No. 149,  "Amendment of Statement 133 on
Derivative  Instruments  and Hedging  Activities."  SFAS No. 149 amends SFAS No.
133,  "Accounting  for  Derivatives  Instruments  and Hedging  Activities,"  for
certain  decisions made by the Board as part of the  Derivatives  Implementation
Group  process.  This  statement  is  effective  for  contracts  entered into or
modified after June 30, 2003 and hedging  relationships  entered into after June
30, 2003.  Management  does not expect that the  provisions of SFAS No. 149 will
impact our results of operations or financial condition.

    In January  2003,  the FASB  issued  Interpretation  No. 46 ("FIN No.  46"),
"Consolidation of Variable Interest Entities," which is an interpretation of ARB
No. 51. This Interpretation  addresses  consolidation by business enterprises of
variable interest entities.  The Interpretation  applies immediately to variable
interest  entities  created  after  January 31, 2003,  and to variable  interest
entities in which an enterprise  obtains an interest after that date. It applies
in the first fiscal year or interim  period  ending after  December 15, 2003, to
various interest  entities in which an enterprise holds a variable interest that
it  acquired  before  February  1, 2003.  Management  does not  expect  that the
provisions  of FIN No. 46 will impact our  results of  operations  or  financial
condition.

                                       9
<PAGE>

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

THE FOLLOWING  DISCUSSION  SHOULD BE READ IN CONJUNCTION  WITH OUR  CONSOLIDATED
FINANCIAL STATEMENTS AND NOTES TO CONSOLIDATED  FINANCIAL STATEMENTS INCLUDED IN
THIS  REPORT  AND IN OUR FORM 10-K FOR THE YEAR ENDED  DECEMBER  31,  2002.  SEE
"-FORWARD LOOKING STATEMENTS AND RISK FACTORS" BELOW.

SUMMARY OF CRITICAL ACCOUNTING POLICIES

   EXCESS  CASHFLOW  CERTIFICATES.  Our excess cashflow  certificates  primarily
consist  of the right to  receive  the  future  excess  cash flows from pools of
securitized mortgage loans. These future excess cash flows generally consist of:

   o  The  positive  difference  between  the  interest  paid on the  underlying
      mortgage loans and the interest paid on the pass-through certificates sold
      to investors in the securitization which, when we sell net interest margin
      ("NIM")  notes  -  in  a   simultaneous   transaction  to  the  underlying
      securitization - is only received after the NIM notes are paid in full;

   o  In  most  of  our  securitizations,  prepayment  penalties  received  from
      borrowers who pay off their loans generally  within the first few years of
      their lives (which, when we sell NIM notes, is only received after the NIM
      notes are paid in full); and

   o  Additional mortgage loans pledged as collateral in excess of the principal
      amount of bonds issued and  outstanding;  the  "overcollateralization"  or
      "O/C" is designed to provide additional assurance that the securities sold
      in the securitization  will be paid according to their terms (and which we
      describe in greater detail under "-Securitizations").

   The excess cash flows we receive are highly  dependent upon the interest rate
environment,  because  "basis risk" exists  between the  securitization  trust's
assets and  liabilities.  For example,  in each of the  securitizations  that we
issued since 2002, the interest cost of the  pass-through  certificates  sold to
investors is indexed against one-month LIBOR - as such, each month, the interest
rate received by the pass-through  certificate holders,  from the securitization
trust may adjust upwards or downwards as one-month  LIBOR changes  (liability) -
while the majority of the underlying mortgage loans in the securitization  trust
have a fixed note rate for at least two to three years (asset).  As a result, as
rates rise and fall,  the  amount of our  excess  cash flows will fall and rise,
respectively,  which in turn will  increase or decrease  the value of our excess
cashflow certificates.

   In each of our securitizations in which we sold NIM note(s), we purchased, on
behalf of the NIM  owner  trust at our  expense,  an  interest  rate cap for the
benefit of the NIM  noteholder(s),  which helps  mitigate the basis risk for the
approximate time that the NIM notes are anticipated to be outstanding.

   The accounting  estimates we use to value excess cashflow  certificates are a
"critical  accounting  estimate"  because  they can  materially  affect  our net
income.  The  valuation  of our  excess  cashflow  certificates  requires  us to
forecast interest rates, mortgage principal payments,  prepayments and loan loss
assumptions,  each of which is highly  uncertain  and requires a large degree of
judgment. The rate used to discount the projected cash flows is also critical in
the valuation of our excess  cashflow  certificates.  Management  uses internal,
historical  mortgage loan performance data and published forward LIBOR curves to
value future expected excess cash

                                       10


flows.  We believe that the value of our excess  cashflow  certificates is fair,
but can provide no assurance that future prepayment and loss experience, changes
in LIBOR or changes in their  required  market  discount  rate will not  require
write-downs of our excess cashflow  certificate  asset. We have written down the
value of our excess cashflow certificates in the past.  Write-downs would reduce
our income in future periods.

GENERAL

   Delta Financial Corporation (together with its subsidiaries, "Delta," "we" or
the  "Company")  is  a  specialty  consumer  finance  company  that  originates,
securitizes and sells non-conforming mortgage loans, which are primarily secured
by first mortgages on one- to four-family residential properties. Throughout our
21-year  operating  history,  we have  focused  on lending  to  individuals  who
generally  do not  satisfy  the  credit,  documentation  or  other  underwriting
standards set by more traditional  sources of mortgage  credit,  including those
entities  that make  loans in  compliance  with  conventional  mortgage  lending
guidelines  established  by Fannie Mae and  Freddie  Mac. We make loans to these
borrowers for such purposes as debt  consolidation,  refinancing,  education and
home improvements.

   Our mortgage business has two principal  components.  First, we make mortgage
loans  to  individual  borrowers,  which is a cash and  expense  outlay  for us,
because our cost to  originate a loan exceeds the fees we collect at the time we
originate  the loan.  At the time we originate a loan,  and prior to the time we
sell the loan, we either finance the loan by borrowing under a warehouse line of
credit or self-fund it. Second, we sell loans, either through  securitization or
on a whole loan basis,  to generate  cash and non-cash  revenues,  recording the
premiums received as revenues. We use the proceeds from these sales to repay our
warehouse lines of credit and for working capital.

   ORIGINATION   OF  MORTGAGE   LOANS.   We  make  mortgage  loans  through  two
distribution  channels -  wholesale  (or broker)  and  retail.  We receive  loan
applications  both directly  from  borrowers  and from  independent  third-party
mortgage brokers who submit  applications on a borrower's behalf. We process and
underwrite  the  submission  and,  if the loan  complies  with our  underwriting
criteria,  approve  the  loan  and lend  the  money  to the  borrower.  While we
generally collect points and fees from the borrower when a loan closes, our cost
to originate a loan typically exceeds any fees we may collect from the borrower.

    INDEPENDENT  MORTGAGE  BROKER  (WHOLESALE)  CHANNEL.  Through our  wholesale
distribution channel, we originate mortgage loans indirectly through independent
mortgage   brokers  and  other  real  estate   professionals   who  submit  loan
applications on behalf of borrowers.  We currently originate the majority of our
wholesale loans in 26 states,  through a network of approximately 1,500 brokers.
The broker's role is to source the business,  identify the applicant,  assist in
completing the loan  application,  and to process the loans,  which includes the
gathering  necessary  information  and  documents,  and  serving as the  liaison
between us and the borrower through the entire origination  process.  We review,
process and underwrite the applications submitted by the broker, approve or deny
the  application,  set the interest  rate and other terms of the loan and,  upon
acceptance by the borrower and  satisfaction of all conditions that we impose as
the lender,  lend the money to the borrower.  Because  brokers conduct their own
marketing  and employ their own  personnel  to complete  loan  applications  and
maintain  contact  with  borrowers  - for which they charge a broker fee that is
commensurate  with their services - originating loans through our

                                       11

broker  network is  designed to allow us to  increase  our loan  volume  without
incurring the higher  marketing and employee  costs  associated  with  increased
retail originations.

   RETAIL LOAN  CHANNEL.  Through our retail  distribution  channel,  we develop
retail loan leads ("retail loans") primarily  through our  telemarketing  system
and our network of eight retail offices and four origination  centers located in
nine states.  Our origination  centers are typically  staffed with  considerably
more loan  officers  and  cover a  broader  area  than our  retail  offices.  We
continually  monitor  the  performance  of our retail  operations  and  evaluate
current  and  potential  retail  office  locations  on  the  basis  of  selected
demographic  statistics,  marketing analyses and other criteria developed by us.
In July 2003, we opened our eighth retail office in Kansas City, Kansas.

   Typically,  contact  with the  customer  is  initially  handled  through  our
telemarketing center. On the basis of an initial screening conducted at the time
of the call, our telemarketer  makes a preliminary  determination of whether the
customer and the property meet our lending  criteria.  If the customer does meet
our  criteria,  the  telemarketer  will forward the customer to one of our local
branches or  origination  centers.  The mortgage  analyst at the local branch or
origination center may complete the application over the telephone,  or schedule
an  appointment  in the retail  loan  office  most  conveniently  located to the
customer or in the  customer's  home,  depending on the  customer's  needs.  The
mortgage  analyst  assists the  applicant in  completing  the loan  application,
ensures that an  appraisal  has been  ordered  from an  independent  third party
appraisal  company,  orders  a credit  report  from an  independent,  nationally
recognized   credit  reporting  agency  and  performs  various  other  tasks  in
connection  with the completion of the loan package.  Our mortgage  analysts are
trained to structure loans that meet the applicant's  needs while satisfying our
lending  guidelines.  The loan package is  underwritten  for loan  approval on a
centralized basis. If the loan package is approved, we will fund the loan.

   For the three months ended  September 30, 2003, we originated  $524.8 million
of loans, an increase of 145% over the $214.4 million of loans originated in the
comparable period in 2002. Of these amounts,  approximately  $314.8 million were
wholesale loans and $210.0 million were retail loans, compared to $126.7 million
and $87.7  million,  respectively,  during the three months ended  September 30,
2002.  Loan  production in the third  quarter of 2003  increased 51% from $348.2
million of mortgage loan  originations in the second quarter of 2003. Our second
quarter 2003 loan production  consisted of $194.7 million of wholesale loans and
$153.5 million of retail loans.

   POOLING OF LOANS PRIOR TO SALE.  After we close or fund a loan,  we typically
pledge  the loan as  collateral  under a  warehouse  line of  credit  to  obtain
financing  against that loan.  By doing so, we  replenish  our capital so we can
make new loans. Typically,  loans are financed though a warehouse line of credit
for only a limited time - generally, not more than three months - long enough so
we can pool enough  loans to sell them  either  through a  securitization  or as
whole-loans.  During this time, we earn interest paid by the borrower as income,
but this  income  is  offset  in part by the  interest  we pay to the  warehouse
creditor for providing us with financing.

   SALE OF LOANS.  We derive the  substantial  majority of our revenues and cash
flows  from  selling   mortgage   loans   through  one  of  two   outlets:   (i)
securitization,  which involves the public offering by a securitization trust of
asset-backed   pass-through   securities   (and  related   interests   including
securitization  servicing rights on  newly-originated  pools of mortgage loans);
and (ii) whole loan sales,  which includes the sale of pools of individual loans
to institutional investors,

                                       12

banks and consumer  finance-related  companies on a servicing released basis. We
select the outlet depending on market  conditions,  relative  profitability  and
cash flows.  We generally  realize higher gain on sale when we securitize  loans
than we do when we sell whole loans. We apply the proceeds from  securitizations
and whole  loan  sales to pay down our  warehouse  lines of credit - in order to
make available  capacity  under these  facilities for future funding of mortgage
loans - and utilize any additional funds for working capital.

   We expect to continue to use a combination of securitizations  and whole loan
sales, with the amounts of each dependent upon conditions in the marketplace and
our goal of maximizing earnings and liquidity.

   The  following  table sets forth  certain  information  regarding  loans sold
through our  securitizations  and on a whole loan basis during the quarter ended
September 30, 2003 (dollars in thousands):
<TABLE>
<S>                                             <C>              <C>
                                                   AMOUNT      PERCENTAGE
                                               -----------------------------
       Loan securitizations                      $ 448,246         97%
       Whole loan sales                             12,242          3%
                                               -----------------------------
       Total securitizations and loans sold      $ 460,488        100%
                                               =============================
</TABLE>

   SECURITIZATION.  When we securitize loans, we create securitization trusts in
the form of off-balance  sheet  qualified  special purpose  entities,  or QSPEs.
These  trusts are  established  for the limited  purpose of buying our  mortgage
loans. Typically once each quarter, we pool together loans, and sell these loans
to a newly  formed  securitization  trust.  We carry no  contractual  obligation
related to these trusts or the loans sold to them,  nor do we have any direct or
contingent   liability   related  to  the  trusts,   except  for  the   standard
representations  and  warranties  typically made as part of a sale of loans on a
non-recourse  basis.  Furthermore,  we provide no guarantees  to investors  with
respect to cash flow or performance for these trusts.  These entities  represent
qualified  special  purpose  entities and are  therefore  not  consolidated  for
financial  reporting  purposes in accordance  with SFAS No. 140  "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities."

   The securitization  trust raises money to purchase the mortgage loans from us
by selling  securities to the public.  These securities,  known as "asset-backed
pass-through  securities," are secured, or backed, by the pool of mortgage loans
purchased by the securitization trust from us. These asset-backed securities, or
senior  certificates,   which  are  usually  purchased  for  cash  by  insurance
companies,  mutual funds and/or other institutional investors,  represent senior
interests in the cash flows from the mortgage loans in the trust.

   The  securitization  trust  issues  senior  certificates,  which  entitle the
holders  of these  senior  certificates  to  receive  the  principal  collected,
including  prepayments  of  principal,  on the mortgage  loans in the trust.  In
addition,  holders  receive a portion of the  interest  paid on the loans in the
trust equal to the pass-through interest rate on the remaining principal balance
of  the   pass-through   certificates.   Depending  upon  the   structure,   the
securitization  trust may also issue interest-only  certificates,  which entitle
the holders to receive  payments of  interest  at a  pre-determined  rate over a
fixed  period  of time.  The  securitization  trust  also  issues a  subordinate
certificate or BIO certificate (referred to as an excess cashflow  certificate),
and a P certificate. Each month, the P certificate holder is entitled to receive
prepayment  penalties  received  from  borrowers who payoff their loans early in
their life.

                                       13

   For any monthly  distribution,  the holder of an excess cashflow  certificate
receives  payments  only after all required  payments  have been made on all the
other securities  issued by the  securitization  trust. In addition,  before the
holder of the excess cash flow certificate  receives  payments,  cash flows from
such  excess  cashflow  certificates  are  applied  in a  "waterfall"  manner as
follows:

    o  first, to cover any losses on the mortgage loans in the related  mortgage
       loan pool,  because the excess cashflow  certificates  are subordinate in
       right of payment  to all other  securities  issued by the  securitization
       trust;

    o  second,  to reimburse the bond insurer,  if any, of the related series of
       pass-through  certificates for amounts paid by or otherwise owing to that
       insurer;

    o  third, to build or maintain the overcollateralization provision described
       below  for  that  securitization  trust  at the  required  level by being
       applied as an  accelerated  payment of  principal  to the  holders of the
       pass-through certificates of the related series;

    o  fourth,  to reimburse  holders of the  subordinated  certificates  of the
       related series of pass-through  certificates  for unpaid interest and for
       any losses previously allocated to those certificates; and

    o  fifth, to pay interest on the related pass-through  certificates that was
       not paid because of the imposition of a cap on their pass-through rates -
       these payments being called basis risk shortfall amounts.

   The overcollateralization  provision is a credit enhancement that is designed
to protect the securities sold to the securitization pass-through investors from
credit losses,  which arise principally from defaults on the underlying mortgage
loans. In short,  overcollateralization  is when the amount of collateral (I.E.,
mortgage loans) owned by a securitization  trust exceeds the aggregate amount of
senior pass-through  certificates.  The O/C is created to absorb losses that the
securitization   trust  may  suffer,   as  loans  are   liquidated  at  a  loss.
Historically,  we built up the O/C typically over the first 18 to 24 months of a
securitization (with the specific timing depending upon the structure, amount of
excess spread,  and  performance of the  securitization),  by utilizing the cash
flows from the excess  cashflow  certificates  to make  additional  payments  of
principal to the holders of the pass-through certificates until the required O/C
level was reached. Beginning in our 2002 securitizations,  we created the O/C by
initially selling  pass-through  securities totaling  approximately 98.5% of the
total  amount of  mortgage  loans sold to the trust.  In doing so, we create the
full  amount  of the O/C  required  by the  trust  at the time we  complete  the
securitization,  instead of over time. For example,  if a  securitization  trust
contains  collateral of $100 million principal amount of mortgage loans, we sell
approximately  $98.5 million in senior pass-through  certificates.  Prior to our
2002 securitization transactions,  we typically issued pass-through certificates
for a par purchase price,  or a slight  discount to par - with par  representing
the aggregate  principal  balance of the mortgage loans backing the asset-backed
securities.  For example, if a securitization  trust contains collateral of $100
million of  mortgage  loans,  we  typically  received  close to $100  million in
proceeds from the sales of these  certificates,  depending upon the structure we
use for the securitization.

   The O/C is generally  expressed as a percentage of the initial  mortgage loan
or collateral  principal balance sold to the securitization  trust. The required
O/C is  initially  determined  by either  the  rating  agencies  and/or the bond
insurer,  if any, using various  factors  including (1)  characteristics  of the
mortgage  loans  sold to the  trust,  such as credit  scores  and  loan-to-value

                                       14

ratios; (2) the amount of excess spread between the interest rate on the pool of
mortgage  loans sold to the  securitization  trust and the interest  paid to the
pass-through  certificate  holders,  less the  servicing  fee, and other related
expenses  such as  trustee  fees  and  bond  insurer  fee,  if any;  and (3) the
structure of the  underlying  securitization  (E.G.,  issuing BBB-  certificates
creates  greater credit  enhancement in the  securitization  transaction,  which
generally results in a lower O/C).

   Our securitizations  have typically required an O/C of between 1.20% and 3.0%
of the initial mortgage loans sold to the securitization trust. The required O/C
can increase or decrease  throughout the life of the transaction  depending upon
subordination  levels,  delinquency and/or loss tests and is subject to minimums
and maximums, as defined by the rating agencies and/or the bond insurer insuring
the  securitization.  In our  securitizations  prior  to  2002,  after  the  O/C
requirement is reached, the cash flows from the excess cashflow certificates are
then  distributed to us as the holder of the excess  cashflow  certificates,  in
accordance  with  the  "waterfall"  described  above.  Over  time,  if the  cash
collected  during the periods  exceeds  the amount  necessary  to  maintain  the
required O/C and all other required  distributions  have been made, and there is
no shortfall in the related  required O/C, the excess is paid to us as holder of
the excess cashflow certificate.

   We began utilizing a new securitization structure in 2002, in which we sold a
net interest  margin  certificate,  or NIM, in lieu of selling an  interest-only
certificate  in  each  of  our  2002  securitizations.   In  each  of  our  2003
securitizations, we continued utilizing the NIM structure in addition to selling
an interest-only certificate.  The NIM is generally structured where we sell the
excess  cashflow  certificate  and P certificate to a QSPE or owner trust.  This
owner trust is  referred  to as a "NIM  trust." The NIM trust in turn issues (1)
interest-bearing  NIM note(s) (backed by the excess  cashflow  certificate and P
certificate),  and (2) a NIM owner trust certificate evidencing ownership in the
NIM trust.  We sell the excess cashflow  certificate  and P certificate  without
recourse,  except that we provide normal  representations  and warranties to the
NIM trust. One or more investors  purchase the NIM note(s) and the proceeds from
the sale of the  note(s),  together  with an  owner  trust  certificate  that is
subordinate to the note(s),  represent the  consideration  to us for the sale of
the excess cashflow certificate.

   The NIM note(s) entitles the holder to be paid a specified interest rate, and
further provides for all cash flows generated by the excess cashflow certificate
and P  certificate  to be used  to pay all  principal  and  interest  on the NIM
note(s) until paid in full.  This typically  occurs  approximately  22-25 months
from the date the NIM  note(s)  were  issued.  The NIM owner  trust  certificate
entitles us to all cash flows generated by the excess cashflow certificate and P
certificate  after the holder of the NIM note(s) has been paid in full. As such,
we classify the NIM owner trust  certificate  on our balance  sheet as an excess
cashflow  certificate and value the NIM owner trust  certificate  using the same
assumptions that we utilize in valuing excess cashflow certificates.

   As part of a NIM  transaction,  we were  required to "fully  fund" the O/C at
closing  - as  opposed  to  having  it  build  up  over  time  as we had in past
securitizations - which is why we sold senior pass-through certificates totaling
approximately 1.5% less than the collateral in the securitization  trust. We use
a portion of the proceeds we receive from selling NIM note(s) to make up for the
difference  between (1) the principal  amount of the mortgage loans sold and (2)
the proceeds from selling the senior pass-through certificates.

   In our third quarter 2003  securitization,  we derived the following economic
interests:

                                       15

    o  we received a cash purchase price from the sale of the NIM note(s) issued
       by a NIM trust, to which we sold the excess cashflow certificates;

    o  we  received a cash  purchase  price  from the sale of two  interest-only
       certificates,  which entitle the holders to receive  payments of interest
       at a  pre-determined  rate and  over a fixed  period  of time - I.E.,  11
       months and 27 months in this case;

    o  we received a cash  premium  from  selling the right to service the loans
       that we  securitized.  This right  entitles the  contractual  servicer to
       service  the  loans on  behalf of the  securitization  trust,  and earn a
       contractual  servicing  fee,  and  ancillary  servicing  fees,  including
       prepayment  penalties  for  certain  securitization  servicing  rights we
       previously sold, in such capacity;

    o  we retained a NIM owner trust  certificate,  which entitles us to receive
       cash  flows  generated  by the  excess  cashflow  certificates  and the P
       certificate issued in connection with the securitization after the holder
       of the NIM  note(s)  has been  paid in  full.  Although  the  cash  flows
       generated by excess cashflow  certificates  are received over time, under
       GAAP,  we must  report as income  at the time of the  securitization  the
       present  value of all  projected  cash  flows we expect to receive in the
       future  from these  excess  cashflow  certificates  based upon an assumed
       discount rate.  Our valuation of these excess  cashflow  certificates  is
       primarily based on:

       (1) our estimate of the amount of expected  losses or defaults  that will
           take  place on the  underlying  mortgage  loans  over the life of the
           mortgage loans,

       (2) the expected  amount of  prepayments on the mortgage loans due to the
           underlying  borrowers of the mortgage loans paying off their mortgage
           loan prior to the loan's stated maturity,

       (3) the LIBOR forward curve (using current LIBOR as the floor rate), and

       (4) a discount rate;

      While we  retained  an excess  cashflow  certificate  on our $435  million
      securitization  completed in the quarter ended  September 30, 2003, we did
      not  record  it as an  asset  and  corresponding  revenue  item due to the
      securitization structure we used to maximize cash revenues.  Historically,
      in our securitizations, we have sold pass-through certificates with credit
      ratings  from the rating  agencies  that were  rating  the  securitization
      transactions  ranging from AAA to BBB. In our securitization  completed in
      the third quarter,  we issued a limited  principal  amount of certificates
      rated BBB-.  This  structure  reduced the amount of  overcollateralization
      required, compared to a structure without a BBB- certificate,  because the
      BBB-  certificate  replaces credit  enhancement  that would have otherwise
      been achieved solely through  overcollateralization  and the corresponding
      excess cashflow certificate.  Had we not sold a BBB- certificate, the same
      credit   enhancement   would   have   been   produced   through  a  higher
      overcollateralization,  which would have  correspondingly  led to a higher
      valued excess cashflow  certificate.  The BBB- certificate made possible a
      lower  upfront  overcollateralization  than  if we  did  not  sell  a BBB-
      certificate,  which,  in  turn,  resulted  in our  receiving  higher  cash
      proceeds from the securitization,  as the senior certificates  represent a
      larger  percentage  of the  aggregate  value of the mortgage  loans sold -
      E.G.,  a 1.2% O/C  results  in $98.8  million of  certificates  being sold
      against   every  $100   million  of  mortgage   loans   purchased  by  the
      securitization  trust,  whereas a 2.2% O/C  results  in $97.8  million  of
      certificates  being sold

                                       16

      against   every  $100   million  of  mortgage   loans   purchased  by  the
      securitization trust. Hence, the lower the upfront  overcollateralization,
      the greater the upfront cash  proceeds  received.  As a result of the cash
      flow  needed to pay the  interest  on and  principal  amount of BBB- rated
      certificates,  coupled with less  overcollateralization and based upon our
      gain on sale  assumptions,  we  ascribed  no value to the excess  cashflow
      certificate that we retained in this quarter's securitization. However, if
      the loans underlying this  securitization  transaction perform better than
      our  expectations,  we will  recognize  excess  cash flows from the excess
      cashflow  certificate and record the cash and interest income as received.
      As with  all of our most  recent  securitization  structures,  we will not
      receive excess cash flows,  if any, from the excess  cashflow  certificate
      until the NIM note is paid off in full.

   At the time we completed the  securitization in the third quarter of 2003, we
recognized as revenue each of the economic interests described above, which were
recorded as net gain on sale of mortgage loans in our consolidated  statement of
income.

   The gain on sale we recorded and cash we received from our securitizations in
the third  quarter of 2003 and 2002 is  summarized  below.  "Loans  Sold" is the
principal  amount of loans  actually  transferred to the  securitization  trusts
during the period.
<TABLE>
<S>                                                                  <C>         <C>
                                                                         THIRD QUARTER
   GAIN ON SALE                                                         2003        2002
   ------------                                                         ----        ----

   Loans Sold (in thousands)                                          $448,246    $200,000

   NIM Proceeds, Net of Up Front Overcollateralization                  3.76 %      6.19 %
      Interest-Only Certificate Proceeds                                1.08 %        -
      Excess Cashflow Certificate (owner trust certificate)(1)          0.22 %      1.00 %
      Mortgage Servicing Rights                                         0.60 %      0.85 %
      Less:  Transaction Costs                                         (0.46)%     (0.63)%
                                                                       ------      -------
           Net Gain on Sale Recorded                                    5.20 %      7.41 %
                                                                       ======      =======

   CASH RECEIVED
      NIM Proceeds, Net of Up Front Overcollateralization               3.76 %      6.19 %
      Interest-Only Certificate Proceeds                                1.08 %        -
      Mortgage Servicing Rights                                         0.60 %      0.85 %
      Less: Transaction Costs                                          (0.46)%     (0.63)%
                                                                       ------      -------
      Cash at Closing                                                   4.98 %      6.41 %
                                                                       ======      =======
</TABLE>

  (1) We did not  record  an excess  cashflow  certificate  on our $435  million
      securitization  in the  third  quarter  of 2003 due to the  securitization
      structure we used (see "-Excess Cashflow  Certificates").  The 0.2% excess
      cashflow  certificate  above  represents the excess  cashflow  certificate
      recorded on the loans delivered to the  securitization  trust in July 2003
      relating to our securitization in the second quarter of 2003.

                                       17

   Our  net   investment  in  the  pool  of  loans  sold  at  the  date  of  the
securitization  represents  the amount  originally  paid to originate the loans,
adjusted for the following:

    o  any  direct  loan   origination   costs  incurred  (an  increase  in  the
       investment)  and  loan  origination  fees  received  (a  decrease  in the
       investment)  in  connection  with  the  loans,  which  are  treated  as a
       component of the initial investment in loans;

    o  the principal  payments  received,  and the  amortization of the net loan
       fees or  costs,  during  the  period  we held  the  loans  prior to their
       securitization; and

    o  any gains (a decrease in the  investment)  or losses (an  increase in the
       investment) we incur on any hedging instruments that we may have utilized
       to hedge  against  the effects of changes in  interest  rates  during the
       period we hold the loans prior to their securitization (See "-Hedging").

   We allocate our basis in the mortgage loans and excess cashflow  certificates
between the portion of the mortgage loans and excess cashflow  certificates sold
through securitization and the portion retained (the NIM owner trust certificate
since 2002) based on the relative  fair values of those  portions on the date of
sale. We may recognize gains or losses attributable to the changes in fair value
of the excess cashflow certificates,  which are recorded at estimated fair value
and accounted for as "trading"  securities.  Since there is no active market for
such excess cashflow certificates,  we determine the estimated fair value of the
excess cashflow certificates by discounting the future expected cash flows.

   Each  securitization  trust has the  benefit of either a  financial  guaranty
insurance  policy  from a monoline  insurance  company or a  senior-subordinated
securitization structure,  which helps ensure the timely payment of interest and
the ultimate payment of principal of the credit-enhanced  investor  certificate,
or both (known as a "hybrid"). In "senior-subordinated"  structures,  the senior
certificate  holders are  protected  from losses by  subordinated  certificates,
which absorb any such losses first. In addition to such credit enhancement,  the
excess  cash  flows  that  would  otherwise  be paid to the holder of the excess
cashflow  certificate is used when and if it subsequently  becomes  necessary to
obtain or maintain required overcollateralization limits.  Overcollateralization
is used to  absorb  losses  prior to  making a claim on the  financial  guaranty
insurance policy or the subordinated certificates.

   WHOLE LOAN SALES. We also sell loans,  without retaining the right to service
the loans, in exchange for a cash premium. The premiums we receive from the loan
sales are  recorded  as  revenue  at the time of sale  under net gain on sale of
mortgage  loans.  The cash  premiums  ranged  between  4.1% and 5.5%  (prior  to
reserve) of the principal  amount of mortgage loans sold in the third quarter of
2003.

   OTHER. In addition to the income and cash flows we earn from  securitizations
and whole loan sales, we also earn income and generate cash flows from:

    o  the net  interest  spread  earned  on  mortgage  loans  while we hold the
       mortgage loans for sale (the difference  between the interest rate on the
       mortgage loan paid by the borrower less the financing costs we pay to our
       warehouse lender to fund our loans);

    o  net loan origination fees on wholesale loans and retail loans;

    o  retained excess cashflow certificates;

                                       18

    o  distributions  from Delta  Funding  Residual  Exchange  Company  LLC (the
       "LLC"),  a limited  liability  company  (unaffiliated  to us).  We have a
       non-voting  membership  interest in the LLC, which entitles us to receive
       15% of the net cash flows from the LLC through June 2004 and, thereafter,
       10% of the net  cash  flows  from  the  LLC.  We have  not  received  our
       distributions  since the second quarter due to a dispute with the LLC and
       the  President  of the LLC,  which has led us to  commence  a lawsuit  to
       recover all of the amounts due to us. (See "Part II, Item 1-Litigation");
       and

    o  miscellaneous interest income, including prepayment penalties received on
       certain of the loans we sold in securitizations prior to 2002.

EXCESS CASHFLOW CERTIFICATES, NET

   We  classify   excess  cashflow   certificates   that  we  receive  upon  the
securitization of a pool of loans as "trading  securities." The amount initially
allocated to the excess cashflow  certificates  at the date of a  securitization
reflects  their  fair  value.  The  amount  recorded  for  the  excess  cashflow
certificates  is  reduced  for  distributions  which we receive as the holder of
these excess cashflow  certificates,  and is adjusted for subsequent  changes in
the fair value of the excess cashflow certificates we hold.

   At the time each securitization  transaction closes, we determine the present
value of the related excess cashflow certificates (which, in the securitizations
we have  issued  since 2002,  includes  NIM owner  trust  certificates,  and the
underlying BIO certificates and P  certificates),  using certain  assumptions we
make regarding the underlying mortgage loans. The excess cashflow certificate is
then recorded on our  consolidated  financial  statements  at an estimated  fair
value. Our estimates primarily include the following:

     o  future rate of prepayment of the mortgage loans - the expected amount of
        prepayments on the mortgage loans due to the underlying borrowers paying
        off their mortgage loan prior to the loan's expected maturity;

     o  credit  losses on the  mortgage  loans - our  estimate  of the amount of
        expected  losses or  defaults  that will  take  place on the  underlying
        mortgage  loans over the life of the mortgage  loans  because the excess
        cashflow certificates are subordinated to all other securities issued by
        the securitization trust. Consequently, any losses sustained on mortgage
        loans comprising a particular securitization trust are first absorbed by
        the excess cashflow certificates;

     o  the LIBOR  forward  curve (using  current LIBOR as the floor rate) - our
        estimate of future interest  rates,  which affects both the rate paid to
        the  floating  rate  pass-through   security  investors  (primarily  the
        one-month  LIBOR index) and the  adjustable  rate mortgage loans sold to
        the securitization trust (which provide for a fixed rate of interest for
        the first 24 or 36 months  and a  six-month  variable  rate of  interest
        thereafter using the six-month LIBOR index); and

     o  a discount rate used to calculate present value.

   The value of each excess  cashflow  certificate  represents  the cash flow we
expect to  receive  in the  future  from such  certificate  based  upon our best
estimate.  We  monitor  the  performance  of the loans  underlying  each  excess
cashflow  certificate,  and any changes in our estimates (and

                                       19

consequent  changes in value of the excess cashflow  certificates) are reflected
in the line item  called  "interest  income" in the quarter in which we make any
such change in our estimate. Although we believe that the assumptions we use are
reasonable,  there can be no assurance as to the accuracy of the  assumptions or
estimates.

   In determining the fair value of each of the excess cashflow certificates, we
make the following underlying  assumptions  regarding mortgage loan prepayments,
mortgage loan default rates, the LIBOR forward curve and discount rates:

  (A) PREPAYMENTS.  We base our  prepayment  rate  assumptions  upon our ongoing
      analysis  of  the   performance   of  the  mortgage  pools  we  previously
      securitized,  and the  performance  of  similar  pools of  mortgage  loans
      securitized by others in the industry. We apply different prepayment speed
      assumptions  to  different  loan  product  types  because  it has been our
      experience that different loan product types exhibit different  prepayment
      patterns.  Generally,  our loans can be grouped  into two loan  products -
      fixed-rate  loans and  adjustable-rate  loans.  With fixed-rate  loans, an
      underlying  borrower's  interest rate remains fixed throughout the life of
      the loan.  Our  adjustable-rate  loans are a "hybrid"  between  fixed- and
      adjustable-rate  loans, in that the interest rate generally remains fixed,
      typically for the first two or three years of the loan,  and then adjusts,
      typically every six months  thereafter.  Within each product type, factors
      other than interest rate can affect our prepayment rate assumptions. These
      factors include:

      o  whether or not a loan contains a prepayment  penalty - an amount that a
         borrower must pay to a lender if the borrower prepays the loan within a
         certain  time  after  the  loan  was  originated.  Loans  containing  a
         prepayment penalty typically are not repaid as quickly as those without
         a penalty;

      o  as is customary in our industry with  adjustable-rate  mortgage  loans,
         the   introductory   interest   rate  we  charge  to  the  borrower  is
         artificially  lower,  between one and two full percentage points,  than
         the rate  for  which  the  borrower  would  have  otherwise  qualified.
         Generally,  once the interest rate begins to adjust,  the interest rate
         payable on that loan  increases,  at times fairly  substantially.  This
         interest  rate  increase  can be  exacerbated  if there is an  absolute
         increase  in interest  rates.  As a result of these  increases  and the
         potential  for  future   increases,   adjustable  rate  mortgage  loans
         typically are more susceptible to early prepayments.

      There are  several  reasons why a loan may prepay  prior to its  maturity,
      including but not limited to:

      o  a decrease in interest rates;

      o  improvement  in the  borrower's  credit  profile,  which  may allow the
         borrower to qualify for a lower interest rate loan;

      o  competition in the mortgage market,  which may result in lower interest
         rates being offered to the borrower;

      o  the borrower's sale of his or her home;

      o  the borrower's need for additional funds; and

      o  a default by the borrower, resulting in foreclosure by the lender.

                                       20

      It is unusual  for a borrower  to prepay a mortgage  loan during the first
      few months because:

      o  it typically takes at least several months after the mortgage loans are
         originated for any of the above events to occur;

      o  there are costs involved with refinancing a loan; and

      o  the borrower does not want to incur prepayment penalties.

      The following table shows our current prepayment assumptions for the month
      one and peak speed. The assumptions have not changed since September 2001.

      LOAN TYPE         MONTH ONE         PEAK SPEED
      ---------         ---------         ----------
      Fixed Rate          4.00%              30.00%
      Adjustable Rate     4.00%              75.00%

      If mortgage loans prepay faster than anticipated, we will earn less income
      in connection with the mortgage loans and receive less excess cash flow in
      the  future  because  the  mortgage  loans have paid off.  Conversely,  if
      mortgage  loans  prepay at a slower  rate than  anticipated,  we earn more
      income  and more  excess  cash flow in the  future,  subject  to the other
      factors  that can affect the cash flows from,  and our  valuation  of, the
      excess cashflow certificates.

  (b) DEFAULT  RATE. At  September  30,  2003  and 2002,  on each  newly  issued
      securitization,   we  apply  a  default   reserve   for  both  fixed-  and
      adjustable-rate  loans sold to the securitization trusts totaling 5.00% of
      the amount initially  securitized.  We apply a default or loss rate to the
      excess cashflow  certificate  because it is the "first-loss"  piece and is
      subordinated  in right of  payment to all other  securities  issued by the
      securitization  trust. If defaults are higher than we anticipate,  we will
      receive less income and less excess cash flow than expected in the future.
      Conversely,  if defaults are lower than we expected,  we will receive more
      income and more excess cash flow than  expected in the future,  subject to
      the other  factors that can affect the cash flows from,  and our valuation
      of, the excess cashflow certificates.

  (c) LIBOR FORWARD  CURVE.  The LIBOR  forward curve is used to project  future
      interest  rates,  which  affects both the rate paid to the  floating  rate
      pass-through  security investors (primarily the one-month LIBOR index) and
      the  adjustable  rate mortgage loans sold to the  securitization  trust (a
      fixed  rate of  interest  for  either  the  first 24 or 36  months  then a
      nine-month  variable rate of interest thereafter using the six-month LIBOR
      index). A significant portion of our loans are fixed-rate mortgages, and a
      significant amount of the securities sold by the securitization  trust are
      floating-rate  securities  (the interest rate adjusts based upon an index,
      such as one-month  LIBOR).  As such, our excess cashflow  certificates are
      subject to significant  basis risk and a change in LIBOR will,  impact our
      excess spread.  If LIBOR is lower than  anticipated,  we will receive more
      income and more excess cash flows than expected in the future,  subject to
      the other  factors that can affect the cash flows from,  and our valuation
      of, the excess cashflow certificates.  Conversely, if LIBOR is higher than
      expected,  we will  receive  less  income and less  excess cash flows than
      expected in the future.  In each of our  securitizations  in which we sold
      NIM note(s),  we purchased,  on behalf of the NIM owner trust, an interest
      rate cap for

                                       21

      the benefit of the NIM noteholder(s),  which helps mitigate the basis risk
      for the approximate time that the NIM notes are outstanding.

  (d) DISCOUNT  RATE. We use a discount rate that we believe  reflects the risks
      associated  with our excess cashflow  certificates.  Because quoted market
      prices on comparable  excess cashflow  certificates are not available,  we
      compare  our  valuation  assumptions  and  performance  experience  to our
      competitors in the  non-conforming  mortgage  industry.  Our discount rate
      takes  into  account  the  asset  quality  and  the   performance  of  our
      securitized  mortgage  loans  compared to that of the  industry  and other
      characteristics of our securitized loans. We quantify the risks associated
      with our excess  cashflow  certificates by comparing the asset quality and
      payment and loss  performance  experience  of the  underlying  securitized
      mortgage pools to comparable  industry  performance.  The discount rate we
      use to  determine  the present  value of cash flows from  excess  cashflow
      certificates reflects increased uncertainty surrounding current and future
      market conditions,  including without limitation,  uncertainty  concerning
      inflation,  recession,  home prices,  interest rates and conditions in the
      equity markets.

      We utilized a discount  rate of 15% at September  30, 2003 and 2002 on all
      excess cashflow certificates.

   During the nine months  ended  September  30,  2002,  we recorded a charge to
interest  income to  reflect a fair  value  adjustment  to our  excess  cashflow
certificates, totaling $2.1 million, relating to the timing of excess cash flows
that are to be received by our excess cashflow certificates after the release or
"stepdown" of the overcollateralization account.

   Our valuation of retained  excess cashflow  certificates is highly  dependent
upon  the  reasonableness  of our  assumptions  and  the  predictiveness  of the
relationships  that drive the results of our valuation model. The assumptions we
utilize,  described above, are complex, as we must make judgment calls about the
effect of matters that are inherently uncertain.  As the number of variables and
assumptions  affecting  the  possible  future  resolution  of the  uncertainties
increase, those judgments become even more complex.

   In volatile  markets,  like those we have  experienced  over the past several
quarters, there is increased risk that our actual results may vary significantly
from our assumed results.  The longer the time period over which the uncertainty
will exist, the greater the potential  volatility for our valuation  assumptions
and the fair value of our excess cashflow certificates.

   For example,  assumptions  regarding  prepayment  speeds,  defaults and LIBOR
rates are used in estimating fair values of our excess cashflow certificates. If
loans  prepay  faster  than  estimated,  or loan loss  levels  are  higher  than
anticipated,  or LIBOR is higher than  anticipated,  we may be required to write
down the value of such  certificates.  While we believe that our assumptions are
reasonable  estimates using our historical loan  performance and the performance
of similar  mortgage  pools from other lenders - in addition to accessing  other
public  information  about  market  factors such as interest  rates,  inflation,
recession,  unemployment  and real estate  market  values,  among other things -
these are just  estimates  and it is virtually  impossible to predict the actual
level of prepayments and losses, which are also driven by consumer behavior.

   In August 2003, we sold three of our excess cashflow certificates,  which had
a $10.0 million  carrying  (book) value in the  aggregate,  for $10.2 million in
cash.  We recorded  the premium  earned  from the sale in interest  income,  and
reduced  the value of our excess  cashflow  certificates

                                       22

on our  balance  sheet  accordingly.  The net impact was an increase to interest
income of $0.2 million in the quarter ended September 30, 2003.

DEFERRED TAX ASSET

   As of  September  30,  2003,  we  carried a net  deferred  tax asset of $35.7
million  (assuming  a 39%  effective  tax  rate) on our  consolidated  financial
statements.  Our deferred tax asset is comprised  primarily of Federal and State
net operating losses, or "NOLs," net of the tax impact.

   At  September  30,  2003,  we  reversed  a  valuation  allowance  that we had
established in 2000 against our deferred tax asset.  As of December 31, 2002, we
had a gross deferred tax asset of $48.0 million,  a gross deferred tax liability
of $0.1 million and a valuation  allowance of $42.3 million.  Management and the
Audit  Committee  of the  Board of  Directors  believed  that the  reversal  was
appropriate at this time principally  because of our eight consecutive  quarters
of profitability and positive cash flow, together with the planned retirement of
all our long-term  unsecured debt. We have recorded minimal taxes in our results
of operations  over the prior seven  quarters - from the fourth  quarter of 2001
through  the  second  quarter of 2003 - as a result of the  valuation  allowance
against our deferred tax asset,  which was primarily  generated by net operating
losses ("NOLs") in 2000 and 2001.

   The reversal of the valuation allowance has two significant effects:

       o  First, we have recorded  additional  income equal to the amount of the
          valuation allowance reversal in the third quarter (which was partially
          offset  by a  change  in our  effective  tax  rate)  reflected  in our
          statement of income in the line item income tax benefit.

       o  Second,  going  forward,  our  financial  statements  will  reflect an
          effective income tax rate of 39%, even though we expect to continue to
          pay only minimal cash taxes (either alternative minimum tax ("AMT") or
          excess inclusion income tax, as well as minimal state taxes) until our
          net operating losses are fully utilized.

   Our deferred tax asset of $35.7 million  consists  primarily of (1) NOLs, net
of tax,  totaling $27.0  million,  which can be used to offset the tax liability
generated from  approximately  $69.2 million of pre-tax income (the NOLs will be
expiring  in 2021),  and (2) the  excess of the tax basis over book basis on our
excess cashflow certificates, net of tax, of $6.9 million.

NON-GAAP PRESENTATION

   At September 30, 2003, we reversed a deferred tax asset valuation  allowance,
which we established in 2000. Management and the Audit Committee of the Board of
Directors believed that the reversal was appropriate at this time principally in
light of our eight consecutive quarters of profitability and positive cash flow,
together  with our plan to redeem all of our long-term  unsecured  debt. We have
recorded  minimal  taxes in our  results  of  operations  over the  prior  seven
quarters - from the fourth  quarter of 2001 through the second quarter of 2003 -
as a result of the valuation allowance against our deferred tax asset, which was
primarily  generated by net operating  losses in 2000 and 2001.  The reversal of
the valuation allowance has two significant effects:

                                       23

   o  First,  we have  recorded  additional  income  equal to the  amount of the
      valuation  allowance  reversal in the third  quarter  (which was partially
      offset by a change in our  effective  tax rate)  reflected  in our  income
      statement in the line-item income tax benefit;

   o  Second, in the future, our financial  statements will reflect an effective
      income  tax rate of 39%,  even  though we expect to  continue  to pay only
      minimal  cash taxes  (either  alternative  minimum  tax  ("AMT") or excess
      inclusion  income  tax,  as well as  minimal  state  taxes)  until our net
      operating losses are fully utilized.

   Because  the  foregoing  effects of the  reversal of the  deferred  tax asset
valuation  allowance  may make it difficult  for  investors to make a meaningful
period-over-period  comparison,  we have  provided  a Non-GAAP  presentation  in
addition  to  our  actual  results  to  assist  our   investors.   The  Non-GAAP
presentation excludes income produced by the reversal of the valuation allowance
in the third  quarter of 2003 and an income tax benefit in the third  quarter of
2002, as well as expense  related to a change in our effective tax rate recorded
in the third quarter of 2003.
<TABLE>
<S>                                         <C>         <C>         <C>      <C>

                   NON-GAAP EARNINGS RECONCILIATION TABLE
-------------------------------------------------------------------------------------
               (DOLLARS IN THOUSANDS, EXCEPT PER DILUTED EPS)
-------------------------------------------------------------------------------------
                                              Three Months Ended    Nine Months Ended
                                                 September 30,        September 30,
                                                2003      2002        2003     2002
                                             ----------------------------------------
Net income, as reported                      $ 41,595    6,698       59,993   12,915
Less: income tax benefit                      (30,455)  (2,136)     (30,152)  (1,884)
Less:  AMT/Excess Inclusion Income Tax           (268)     (64)        (571)    (316)
Non-GAAP net income                          $ 10,872    4,498       29,270   10,715

DILUTED EPS:
------------
Net income per diluted share, as reported    $   2.24     0.39         3.21     0.76
Non-GAAP EPS                                     0.59     0.26         1.55     0.63
-------------------------------------------------------------------------------------
</TABLE>

RESULTS OF OPERATIONS

THREE  MONTHS  ENDED  SEPTEMBER  30, 2003  COMPARED TO THE THREE  MONTHS ENDED
SEPTEMBER 30, 2002

GENERAL

   Our net  income  for the three  months  ended  September  30,  2003 was $41.6
million, or $2.55 per share basic and $2.24 per share diluted,  compared to $6.7
million,  or $0.42 per share  basic and $0.39 per share  diluted,  for the three
months ended September 30, 2002. The increase in net income was primarily due to
an income tax benefit of $30.5 million,  or $1.64 per diluted share, in addition
to overall higher revenues resulting from significantly  higher loan production.
The income tax benefit was the result of the reversal of the valuation allowance
as well as expense related to a change in our effective tax rate recorded in the
third quarter of 2003.  Net income for 2002 was also  increased due to an income
tax benefit of $2.2 million, or $0.13 per diluted share.

                                       24

REVENUES

   Total  revenues  increased  $14.1  million,  or 65%, to $35.9 million for the
three months ended  September 30, 2003,  from $21.8  million for the  comparable
period in 2002.  The  increase  in revenue  was  primarily  attributable  to our
originating  and  selling a larger  number of mortgage  loans  during the period
ended September 30, 2003 compared to the same period in 2002, and the consequent
increase  in net gain on sale of  mortgage  loans and net  origination  fees and
other income.  This  increase was partially  offset by a decrease to our gain on
sale  margin of  approximately  2% for the quarter  ended  September  30,  2003,
primarily due to  compression  of our net interest  margin  resulting from lower
interest  rates  on our  mortgage  loans  and an  increase  in the  costs of the
interest rate caps purchased for the benefit of the securitization trusts due to
an increase in the forward (projected) 1 month LIBOR curve, compared to the same
period in 2002.

   We  originated  $524.8  million of mortgage  loans for the three months ended
September 30, 2003, representing a 145% increase from $214.4 million of mortgage
loans  originated  for the same period in 2002.  During the three  months  ended
September 30, 2003, we  securitized  $448.2  million of mortgage  loans and sold
$12.2 million of mortgage loans as whole loans compared to  securitizing  $200.0
million of mortgage  loans and selling $18.5 million of mortgage  loans as whole
loans during the same period in 2002.

   NET  GAIN ON SALE OF  MORTGAGE  LOANS.  Net  gain on sale of  mortgage  loans
equals:

    (1)  the sum of:

         (a) the cash  purchase  price we receive in connection  with selling in
             connection with our securitization(s) in a particular period: (i) a
             NIM note, net of the overcollateralization amount and interest rate
             cap cost and/or (ii) an interest-only certificates;

         (b) the fair value of the excess  cashflow  certificates we retain in a
             securitization for each period;

         (c) the cash premium received from selling mortgage servicing rights in
             connection with each securitization; and

         (d) the  cash   premium   earned   from   selling   whole  loans  on  a
             servicing-released basis,

    (2)  less the (i) costs associated with securitizations, (ii) any hedge loss
         (gain) associated with a particular  securitization  and (iii) any loss
         associated with whole loans sold at a discount.

   Net gain on sale of mortgage loans  increased $8.3 million,  or 53%, to $24.0
million for the three months ended  September  30, 2003,  from $15.7 million for
the comparable period in 2002. This increase was primarily due to an increase in
loans securitized and sold to $460.4 million,  compared to $218.5 million in the
third quarter of 2002.  This increase was partially  offset by a decrease to our
gain on sale margin of  approximately  2% for the quarter  ended  September  30,
2003,  primarily due to  compression of our net interest  margin  resulting from
lower  interest  rates on our mortgage loans and an increase in the costs of the
interest rate caps purchased for the benefit of the securitization trusts due to
an increase in the forward  (projected)  one-month LIBOR curve,  compared to the
same period in 2002.  Our weighted  average net gain on sale margin was 5.2% for
the three months ended  September 30, 2003  compared to 7.2% for the

                                       25

comparable  period  in 2002.  The  weighted-average  net gain on sale  margin is
calculated  by  dividing  the net  gain on sale by the  total  amount  of  loans
securitized and sold.

   INTEREST. Interest income primarily represents the sum of:

     (1) the gross interest we earn on loans held for sale;

     (2) the cash we receive from our excess cashflow certificates;

     (3) the non-cash  mark-to-market or non-cash  valuation  adjustments (up or
         down) to our excess  cashflow  certificates  to reflect changes in fair
         value  (including  sales of our excess cashflow  certificates for other
         than their carrying value);

     (4) cash interest earned on bank accounts; and

     (5) miscellaneous interest income,  including prepayment penalties received
         on certain of our securitizations prior to 2002.

   Interest income increased $1.2 million, or 52%, to $3.5 million for the three
months ended September 30, 2003, from $2.3 million for the comparable  period in
2002. The increase in interest  income is due to the higher average loan balance
on the loans we  originated  and held for sale and due to the  $220,000  gain we
received on the sale of our three excess cashflow certificates, partially offset
by the lower  weighted-average  interest  rate on loans  held for sale and lower
prepayment penalties received in the third quarter of 2003, compared to the same
period in 2002.

   NET ORIGINATION FEES AND OTHER INCOME. Origination fees represent the sum of:

     (1) fees earned on broker and retail originated loans,

     (2) distributions from the LLC, and

     (3) other miscellaneous income, if any,

     less premiums paid to originate mortgage loans.

   Net  origination  fees and other income  increased $4.6 million,  or 121%, to
$8.4 million for the three months ended  September  30, 2003,  from $3.8 million
for the same  period  in 2002.  The  increase  resulted  primarily  from  higher
mortgage loan production,  and consequently higher fees during the third quarter
of 2003, compared to the same period in 2002.

EXPENSES

   Total  expenses  increased by $7.5 million,  or 43%, to $24.8 million for the
three months ended  September 30, 2003,  from $17.3  million for the  comparable
period in 2002. The increase was primarily related to higher payroll,  including
commissions  and related costs required to support the  significant  increase in
our mortgage loan production.

   PAYROLL  AND RELATED  COSTS.  Payroll and  related  costs  include  salaries,
benefits and payroll taxes for all employees.

   Payroll and related costs increased by $6.6 million, or 65%, to $16.8 million
for the three months ended  September 30, 2003,  from $10.2 million for the same
period in 2002.  The increase was primarily the result of (1) an increase in the
commissions  and related  expenses paid (I.E.,  payroll taxes and  employer-paid
401(k) plan matching  contributions)  in the quarter ended

                                       26

September 30, 2003 of approximately  $7.0 million,  compared to $3.0 million for
the same period in 2002,  due to the  significant  increase in loan  origination
volume,  and (2) a higher  number of employees  needed to handle the increase in
our loan  production.  As of  September  30,  2003,  we  employed  881 full- and
part-time  employees,  compared  to 661  full-  and  part-time  employees  as of
September 30, 2002.

   INTEREST  EXPENSE.  Interest  expense  includes the borrowing costs under our
warehouse credit facility to finance loan originations,  equipment financing and
the Senior Notes.

   Interest expense  increased by $0.2 million,  or 17%, to $1.4 million for the
three  months  ended  September  30, 2003 from $1.2  million for the  comparable
period  in  2002.  The  increase  was  primarily  due to an  increase  in  loans
originated  and  financed  during  the  quarter  on  our  warehouse  facilities,
partially  offset by the lower borrowing  costs under our warehouse  facilities.
The average one-month LIBOR rate, which is the benchmark index used to determine
the funding cost for our borrowings,  decreased on average to 1.1% for the third
quarter of 2003, compared to an average of 1.8% for the third quarter of 2002.

   GENERAL AND  ADMINISTRATIVE  EXPENSES.  General and  administrative  expenses
consist  primarily of office rent,  insurance,  telephone,  depreciation,  legal
reserves and fees,  license  fees,  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  increased by $0.8 million,  or 14%, to
$6.6 million for the three months ended September 30, 2003 from $5.8 million for
the same  period in 2002.  The  increase  was  primarily  due to an  increase in
expenses  associated  with higher loan  production and ongoing  expansion of our
wholesale and retail divisions,  partially offset by lower depreciation expenses
resulting from fully depreciated assets.

   INCOME TAXES.  Deferred tax assets and liabilities are recognized  based upon
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.

   We recorded an income tax benefit of $30.5 million  primarily  related to our
reversing a deferred tax asset valuation  allowance and expenses for a change in
our  effective  tax rate.  For the period  ended  September  30,  2002,  we also
recorded a tax provision of $0.3 million  primarily  related to excess inclusion
income  generated  by our excess  cashflow  certificates  for the  period  ended
September 30, 2003.

   For the same  period in 2002,  we  recorded  an income  tax  benefit  of $2.2
million related to our obtaining a favorable  resolution to tax issues for which
we had previously  reserved and do not expect to recur. This was offset by a tax
provision of $0.1 million primarily related to excess inclusion income generated
by our excess cashflow certificates.

   Excess  inclusion  income  cannot be offset by our NOL's  under the REMIC tax
laws. It is primarily caused by the REMIC  securitization  trust utilizing cash,
that  otherwise  would  have been paid to us as  holder of the  excess  cashflow
certificate,  to make  payments  to other  security  holders,  to create  and/or
maintain overcollateralization by artificially paying down the principal balance
of the asset-backed securities.  In the future, we expect to continue to incur a
modest amount of excess inclusion income, which we will be unable to offset with
our NOL's.

                                       27

NINE  MONTHS  ENDED  SEPTEMBER  30, 2003  COMPARED  TO THE NINE  MONTHS  ENDED
SEPTEMBER 30, 2002

GENERAL

   Our net  income  for the nine  months  ended  September  30,  2003 was  $60.0
million, or $3.68 per share basic and $3.21 per share diluted, compared to $12.9
million,  or $0.81 per share  basic  and  $0.76 per share  diluted  for the nine
months ended September 30, 2002. Net income was favorably  impacted by an income
tax benefit of $30.2 million,  or $1.63 per diluted  share.  Net income for 2002
was also favorably  impacted by an income tax benefit of $2.2 million,  or $0.13
per diluted shares.

REVENUES

   Total revenues increased $33.5 million, or 53%, to $96.5 million for the nine
months ended September 30, 2003, from $63.0 million for the comparable period in
2002. The increase in revenue was primarily  attributable to our originating and
selling a larger number of mortgage loans during the nine months ended September
30, 2003,  compared to the same period in 2002, and the  consequent  increase in
net gain on sale of mortgage loans and net origination fees and other income.

   We  originated  $1.2  billion of  mortgage  loans for the nine  months  ended
September 30, 2003,  representing a 95% increase from $614.5 million of mortgage
loans originated for the comparable  period in 2002. We securitized $1.0 billion
of mortgage loans and sold $33.6 million of mortgage loans as whole loans during
the nine months  ended  September  30,  2003,  compared to  securitizing  $575.0
million of mortgage  loans and selling $92.5 million of mortgage  loans as whole
loans during the same period in 2002.

   NET GAIN ON SALE OF MORTGAGE LOANS increased $23.7 million,  or 55%, to $66.5
million for the nine months ended September 30, 2003, from $42.8 million for the
comparable period in 2002. This increase was primarily due to an increase in the
amount of loans securitized and sold compared to the nine months ended September
30, 2002,  partially  offset by a decrease in our  weighted-average  net gain on
sale margin for the nine months ended  September  30, 2003 to 6.1% from 6.4% for
the comparable period in 2002.

   INTEREST INCOME  increased $0.3 million,  or 3%, to $9.7 million for the nine
months ended September 30, 2003, from $9.4 million for the comparable  period in
2002.  The increase in interest  income was primarily due to a $2.1 million fair
value  adjustment  to our excess  cashflow  certificates  during the nine months
ended September 30, 2002, partially offset by a lower weighted-average  interest
rate (8.07%) for our loans held for sale during the nine months ended  September
30, 2003 and, consequently, less interest earned on these loans, compared to the
same period in 2002 (9.58%). In addition,  we received less prepayment penalties
in the nine months ended September 30, 2003 compared to the same period in 2002.

   NET  ORIGINATION  FEES AND OTHER INCOME  increased  $9.4 million,  or 86%, to
$20.3 million for the nine months ended  September 30, 2003,  from $10.9 million
for the  comparable  period in 2002.  The increase was  primarily  the result of
higher mortgage loan production,  and consequently higher fees earned during the
nine months ended September 30, 2003, compared to the same period in 2002.

                                       28
EXPENSES

   Total expenses  increased by $14.7 million,  or 28%, to $66.7 million for the
nine months ended  September  30, 2003,  from $52.0  million for the  comparable
period in 2002. The increase was primarily related to higher payroll,  including
commissions,  and related costs required to support the significant  increase in
our mortgage loan production.

   PAYROLL  AND  RELATED  COSTS  increased  by $13.5  million,  or 45%, to $43.5
million for the nine months ended September 30, 2003, from $30.0 million for the
comparable  period in 2002.  The  increase  was  primarily  the result of (1) an
increase in the commissions  and related  expense paid (I.E.,  payroll taxes and
employer-paid  401(k) plan  matching  contributions)  for the nine months  ended
September 30, 2003 of approximately $16.8 million, compared to $11.4 million for
the prior period due to the significant increase in loan origination volume, and
(2) a higher  number of  employees  needed to handle  the  increase  in our loan
production.

   INTEREST EXPENSE  decreased by $0.4 million,  or 10%, to $3.8 million for the
nine months ended September 30, 2003 from $4.2 million for the comparable period
in 2002.  The  decrease  was due to lower  borrowing  costs under our  warehouse
facilities.  The average one-month LIBOR rate, which is the benchmark index used
to determine the funding cost for our  borrowings,  decreased on average to 1.2%
for the nine months ended September 30, 2003, compared to an average of 1.8% for
the same period in 2002.

   GENERAL AND  ADMINISTRATIVE  EXPENSES  increased by $1.6  million,  or 9%, to
$19.4  million for the nine months ended  September  30, 2003 from $17.8 million
for the comparable period in 2002. The increase was primarily due to an increase
in expenses  associated with higher loan production and ongoing expansion of our
wholesale and retail divisions.  This was partially offset by lower depreciation
expenses resulting from fully depreciated assets.

   INCOME TAXES.  We recorded an income tax benefit of $30.2 million,  which was
primarily related to our reversing a deferred tax asset valuation  allowance and
expenses  for the  change  in our  effective  tax  rate.  For the  period  ended
September 30, 2003,  we also  recorded a tax  provision of $0.5  million,  which
primarily  related to excess  inclusion  income generated by our excess cashflow
certificates.

    For the same  period in 2002,  we  recorded  an income  tax  benefit of $2.2
million related to our obtaining a favorable  resolution to tax issues for which
we had previously  reserved and do not expect to recur. This was offset by a tax
provision of $0.3 million,  which primarily  related to excess  inclusion income
generated by our excess cashflow certificates.

   Excess  inclusion  income  cannot be offset by our NOL's  under the REMIC tax
laws. It is primarily caused by the REMIC  securitization  trust utilizing cash,
that  otherwise  would  have been paid to us as  holder of the  excess  cashflow
certificate,  to make  payments  to other  security  holders,  to create  and/or
maintain overcollateralization by artificially paying down the principal balance
of the asset-backed securities.  In the future, we expect to continue to incur a
modest amount of excess inclusion income, which we will be unable to offset with
our NOL's.

                                       29

FINANCIAL CONDITION

SEPTEMBER 30, 2003 COMPARED TO DECEMBER 31, 2002

   LOANS HELD FOR SALE, NET increased $101.6 million, or 299%, to $135.6 million
at September  30,  2003,  from $34.0  million at December  31, 2002.  This asset
represents  mortgage  loans  held  in  inventory  that  we  expect  to sell in a
securitization  or as whole loans.  This  increase was  primarily due to the net
difference  between loan  originations and loans  securitized or sold during the
nine months ended September 30, 2003.

   EXCESS CASHFLOW  CERTIFICATES,  NET decreased $5.0 million,  or 20%, to $19.6
million at September  30, 2003,  from $24.6  million at December 31, 2002.  This
decrease was  primarily  due to our sale of three excess  cashflow  certificates
with an aggregate carrying (book) value of $10.0 million, and to a lesser extent
the  change  in  fair  value  of our  remaining  excess  cashflow  certificates,
partially offset by our recording two new excess cashflow certificates, totaling
$6.9 million from loans securitized  during 2003. In the quarter ended September
30, 2003, we did not record an excess  cashflow  certificate on our $435 million
third  quarter  2003  securitization  due to  the  securitization  structure  we
utilized.  Changes in fair value  incorporate any change in value  (accretion or
reduction) in the carrying  value of the excess  cashflow  certificates  and the
cash  distributions  we received from such excess  cashflow  certificates.  (See
"-Footnote 4 to the Notes to Consolidated Financial Statements - Excess Cashflow
Certificates, net").

   PREPAID AND OTHER ASSETS  increased $1.1 million,  or 65%, to $2.8 million at
September  30, 2003,  from $1.7 million at December 31, 2002.  This increase was
primarily due to prepaid expenses associated with the pre-funding feature in our
securitization transaction in the third quarter of 2003.

   DEFERRED TAX ASSET  increased  $30.1  million,  or 538%,  to $35.7 million at
September  30, 2003,  from $5.6 million at December 31, 2002.  This increase was
primarily due to our reversal of the valuation  allowance we maintained  against
our deferred tax asset,  which was  established in 2000,  partially  offset by a
change  to our  effective  tax rate in the  third  quarter  of 2003.  Management
believed that the reversal was  appropriate at this time  principally due to our
eight  consecutive  quarters of  profitability  and positive cash flow,  and the
planned redemption of our remaining 9.5% Senior Notes due 2004.

   WAREHOUSE FINANCING AND OTHER BORROWINGS increased $68.0 million, or 415%, to
$84.4  million at September  30, 2003,  from $16.4 million at December 31, 2002.
This increase was primarily  attributable  to a higher amount of mortgage  loans
held for sale (mortgage  loans held in inventory that we plan to sell in a whole
loan sale or securitization) financed under our warehouse credit facilities.

   ACCOUNTS PAYABLE AND ACCRUED EXPENSE increased $2.6 million, or 21%, to $14.9
million at September  30, 2003 from $12.3  million at December  31,  2002.  This
increase was  primarily the result of the timing of various  operating  accruals
and payables.

   STOCKHOLDERS'  EQUITY  increased $59.6 million,  or 202%, to $89.1 million at
September  30, 2003 from $29.5  million at December 31, 2002.  This  increase is
primarily due to the reversal of our deferred tax asset valuation  allowance and
our positive earnings for the nine-month period.

                                       30

LIQUIDITY AND CAPITAL RESOURCES

   We  require  substantial  amounts  of  cash to fund  our  loan  originations,
securitization  activities and  operations.  We have  organically  increased our
working capital over the last eight quarters.  In the past, however, we operated
generally on a negative cash flow basis.  Embedded in our current cost structure
are many fixed  costs,  which are not likely to be  significantly  affected by a
relatively  substantial  increase in loan  originations.  If we can  continue to
originate a sufficient  amount of mortgage  loans and generate  sufficient  cash
revenues from our securitizations and sales of whole loans to offset our current
cost  structure and cash uses,  we believe we can continue to generate  positive
cash  flow  in the  next  several  fiscal  quarters.  However,  there  can be no
assurance that we will be successful in this regard.  To do so, we must generate
sufficient cash from:

    o the premiums we receive from selling NIM and/or interest-only certificates
      in connection with our securitizations;

    o the  premiums we receive from  selling our  mortgage  servicing  rights in
      connection with our securitizations;

    o the premiums we receive from selling whole loans, servicing released;

    o origination fees on newly closed loans;

    o excess   cashflow   certificates   we  retain  in   connection   with  our
      securitizations; and

    o interest   income  we  receive  on  our  loans  held  for  sale  prior  to
      securitization and/or whole loans sales.

There can be no assurance,  however,  that we will continue  generating positive
cash flow in 2003 or at all.

   Currently,  our primary uses of cash requirements include the funding of:

    o interest expense on warehouse lines of credit and other financing;

    o scheduled principal paydowns on other financing;

    o expenses incurred in connection with our securitization program;

    o general ongoing administrative and operating expenses,  including the cost
      to originate loans;

    o tax payments on excess inclusion income generated from our excess cashflow
      certificates; and

    o preferred stock dividends.

   Historically,  we have  financed our  operations  utilizing  various  secured
credit financing  facilities,  issuance of corporate debt (i.e.,  Senior Notes),
issuances of equity, and the sale of interest-only certificates and/or NIM notes
and  mortgage   servicing   rights  sold  in   conjunction   with  each  of  our
securitizations  to offset our  negative  operating  cash flow and  support  our
originations, securitizations, and general operating expenses.

                                       31

   Currently,  our primary sources of liquidity,  subject to market  conditions,
continue to be:

    o on-balance   sheet  warehouse   financing  and  other  secured   financing
      facilities, such as capital leasing;

    o securitizations  of  mortgage  loans  and  our  corresponding  sale of NIM
      certificates  and/or  interest-only   certificates,   depending  upon  the
      securitization structure, and mortgage servicing rights;

    o sales of whole loans;

    o cash flows from retained excess cashflow certificates;

    o origination fees, interest income and other cash revenues; and

    o utilizing  NIM  securitizations  and/or  selling or financing our retained
      excess cashflow certificates.

   To  accumulate  loans  for  securitization  or  sale,  we  borrow  money on a
short-term  basis through  warehouse lines of credit.  We have relied upon a few
lenders to provide the primary credit  facilities for our loan  originations and
at September 30, 2003, we had two warehouse  facilities  for this purpose.  Both
credit  facilities  have a variable  rate of interest  and, as of September  30,
2003,  were due to expire in May 2004. In October 2003, our warehouse  financing
providers each increased their commitment amounts to $250.0 million, from $200.0
million and lowered the financing  rate.  In addition,  we extended the maturity
date for one of the facilities to October 2004.

   There can be no  assurance  that we will be able to either  renew or  replace
these warehouse facilities at their maturities at terms satisfactory to us or at
all. If we are not able to obtain  financing,  we will not be able to  originate
new loans and our  business and results of  operations  will be  materially  and
adversely affected.

   In addition to our common stock,  as of September 30, 2003, we currently have
outstanding  Series A preferred  stock having an aggregate  preference  of $13.9
million,  for  which  we are  required  to pay a 10%  annual  dividend,  payable
semi-annually,  commencing in July 2003. Our warehouse  agreements require us to
comply  with  various   operating   and  financial   covenants.   The  continued
availability of funds provided to us under these agreements is subject to, among
other conditions,  our continued compliance with these covenants.  Additionally,
we are  required to comply with  restrictive  covenants in  connection  with our
Series A preferred  stock.  We believe we are in compliance with these covenants
as of September 30, 2003.

   We have repurchase  agreements with certain  institutions that have purchased
mortgage  loans  from us.  Currently,  some of the  agreements  provide  for the
repurchase by us of any of the mortgage  loans that go to  foreclosure  sale. At
the foreclosure  sale, we will repurchase the mortgage,  if necessary,  and make
the institution  whole.  The dollar amount of loans that were sold with recourse
and are still  outstanding  totaled $2.1 million at September  30, 2003 and $2.6
million at December 31, 2002.  Included in accounts  payable is an allowance for
losses on loans sold with  recourse of $1.1  million at  September  30, 2003 and
$1.2 million at December 31, 2002, respectively.

                                       32

   In August 2003, we sold three of our excess cashflow  certificates to a third
party  purchaser for $10.2 million,  a slight premium to our book value of $10.0
million. The proceeds of this sale will be used for working capital.

   We  may,  from  time  to  time,  if  opportunities  arise  that we deem to be
appropriate, repurchase in the open market some of our outstanding capital stock
and/or sell some or all of our remaining excess cashflow certificates.

   On October 30, 2003, we redeemed,  at par all of our outstanding  9.5% Senior
Notes due August 2004. The aggregate  redemption price,  including principal and
accrued interest was approximately  $11.0 million.  We used our existing cash to
fund the redemption transaction.  Any unexercised warrants, which were issued in
connection  with the issuance of our Senior  Notes on December  21,  2002,  have
expired  pursuant  to their  terms  (See Note No. 8  "Warrants"  to Notes to the
Consolidated Financial Statements.

   Subject to our  ability to execute  our  business  strategy  and the  various
uncertainties described above (and described in more detail in "-Forward Looking
Statements and Risk Factors" below),  we anticipate that we will have sufficient
cash  flows,  short-term  funding and capital  resources  to meet our  liquidity
obligations for at least the next 12 months.

INTEREST RATE RISK

   Our primary  market  risk  exposure  is  interest  rate risk.  Our results of
operations  may be  significantly  affected by the level of and  fluctuation  in
interest  rates,  which  affect our  ability to earn a spread  between  interest
received  on our loans and the costs of our  borrowings,  including  the cost of
interest  rate  caps,  if any,  that  are tied to  various  interest  rate  swap
maturities,  LIBOR, and other interest rate spread  products,  such as mortgage,
auto and credit card backed receivable certificates. Our profitability 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 our  ability to  originate  loans.  A  significant  decline in
interest rates could increase the level of loan prepayments  thereby  decreasing
the size of the loan servicing portfolio underlying our securitizations.  To the
extent  excess  cashflow  certificates  have been  capitalized  on our financial
statements,  higher than  anticipated  rates of loan prepayments or losses could
require  us to  write  down  the  value of such  excess  cashflow  certificates,
adversely  impacting  our  earnings.  In an effort  to  mitigate  the  effect of
interest rate risk, we  periodically  review our various  mortgage  products and
identify  and modify those that have proven  historically  more  susceptible  to
prepayments.  However, there can be no assurance that these modifications to our
product line will mitigate effectively interest rate risk in the future.

   Periods of  unexpected  or rapid  changes in  interest  rates,  and/or  other
volatility or uncertainty regarding interest rates, also can adversely affect us
by increasing  the  likelihood  that  asset-backed  investors will demand higher
spreads than normal to offset the volatility and/or uncertainty, which decreases
the value of the excess  cashflow  certificates  we receive in connection with a
securitization.

   Fluctuating  interest rates also may affect the net interest  income we earn,
resulting from the difference between the yield we receive on loans held pending
sale  and the  interest  paid  by us for  funds  borrowed  under  our  warehouse
facility. We may, however, undertake to hedge our exposure to this risk by using
various hedging strategies,  including Fannie Mae mortgage

                                       33

securities,  treasury  rate lock  contracts  and/or  interest  rate swaps.  (See
"--Hedging").  Fluctuating  interest  rates  also may  significantly  affect the
excess cash flows from our excess cashflow certificates, as the interest rate on
certain of our asset-backed  securities change monthly based on one-month LIBOR,
but the  collateral  that backs such  securities are comprised of mortgage loans
with either  fixed  interest  rates or "hybrid"  interest  rates - fixed for the
initial two or three years of the mortgage loan, and adjusting  thereafter every
six months - which  creates  basis risk.  (See "- Excess  Cashflow  Certificate,
Net").

HEDGING

   We adopted SFAS No. 133,  "Accounting for Derivative  Instruments and Hedging
Activities,"  as of January 1, 2001.  SFAS No. 133 requires that all  derivative
instruments be recorded in the balance sheet at their fair value.  However,  the
accounting  for changes in fair value of the  derivative  instrument  depends on
whether  the  derivative  instrument  qualifies  as a hedge.  If the  derivative
instrument  does not qualify as a hedge,  changes in fair value are  reported in
earnings when they occur. If the derivative instrument qualifies as a hedge, the
accounting treatment varies based on the type of risk being hedged. There was no
impact on our financial  condition or results of operations upon the adoption of
SFAS No. 133.

   We originate  mortgage  loans and then sell them through whole loan sales and
securitizations.  Between the time we originate the mortgage loans and sell them
in the  secondary  market,  we may hedge the risk of  fluctuations  in  interest
rates.  Our risk begins  subsequent to  originating  mortgage loans and prior to
selling or securitizing such mortgage loans. Since we have a closed (and funded)
mortgage  loan at a specified  interest  rate with an  expected  gain at time of
sale,  our  exposure  is to a higher  interest  rate  environment  due to market
conditions.  A higher  interest  rate market  implies that we will have a higher
cost of funds, which decreases the net spread we would earn between the mortgage
interest rate on each mortgage loan less the cost of funds. As a result,  we may
experience a lower gain on sale.

   The cost of funds is generally  composed of two  components  - the  benchmark
interest rate,  such as the LIBOR one-month index or the interest rate swap with
a similar duration and average life, and the spread or profit margin required by
the  investors.  In the past,  we had used a  "Treasury  Rate Lock" and  15-year
Fannie Mae mortgage  securities  ("FNMA  Securities") to hedge our cost of funds
exposure. However recently, the securitizations are priced to the investor using
the interest rate swaps curve.  As such,  our cost of funds is more closely tied
to Eurodollar  interest rate swaps or Eurodollar  interest rate caps and, to the
extent we hedge, we will likely use interest rate swaps or interest rate caps to
hedge our mortgage loans in inventory pending securitization pricing. While none
of the above are perfect  hedges,  we believe  these  hedging  instruments  will
demonstrate a high correlation to our cost of funds in the future.

   We make  decisions  concerning the nature of our hedging  transactions  based
upon various factors including,  without  limitation,  market conditions and the
expected  volume of  mortgage  originations.  We may enter  into  these  hedging
strategies  through one of our warehouse  lenders and/or an investment bank that
underwrites our  securitizations.  These  strategies are designated as hedges on
our financial  statements and are closed out when we sell the associated  loans.
We will  review  continually  the  frequency  and  effectiveness  of our hedging
strategy to mitigate risk pending a securitization or loan sale.

                                       34

   If the value of the hedges decreases,  offsetting an increase in the value of
the loans,  upon settlement with our hedge  counterparty,  we will pay the hedge
loss in cash and then  realize  the  corresponding  increase in the value of the
loans as part of our net  gain on sale of  mortgage  loans  through  either  the
excess cashflow  certificates we retain from  securitization  or from whole loan
premiums. Conversely, if the value of the hedges increase, offsetting a decrease
in the value of the loans, upon settlement with our hedge counterparty,  we will
receive  the hedge gain in cash and realize  the  corresponding  decrease in the
value of the loans through a reduction in either the value of the  corresponding
excess cashflow certificates or whole loan premiums.

   We believe our hedging  strategy has  historically  largely been an effective
tool to manage  our  interest  rate risk on loans  prior to  securitization,  by
providing  us  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.

   If a hedging  transaction  is deemed to be  appropriate,  and can be properly
documented  and  mathematically  shown  to meet  the  appropriate  effectiveness
criteria,  we will account for these  hedges as fair value hedges in  accordance
with SFAS No. 133.

   We did not hedge during the nine month period ended  September  30, 2003,  or
during the year ended  December  31,  2002,  primarily  due to the  considerable
uncertainty  in the United States  economy  resulting  from an overall  weakened
economy and  uncertainties  in the Middle East,  among other  things,  that have
caused U.S. interest rates to remain at or near 40 year historical lows.

   By not hedging, we are more susceptible to interest rate fluctuations between
the time we originate mortgage loans and the time we sell such loans:

    o  If interest  rates  decrease  between the time we originate  our mortgage
       loans and the time we sell them,  our earnings  and cash  proceeds may be
       higher at the time of sale;

    o  Alternatively,  if interest rates increase  between the time we originate
       our  mortgage  loans and the time we sell  them,  our  earnings  and cash
       proceeds may be lower at the time of sale;

    o  If interest  rates are unchanged,  our earnings may not be  significantly
       affected.

   We will  continue  to review  our  hedging  strategy  in order to  attempt to
mitigate risk pending  securitization or loan sales. In October 2003, we entered
into interest rate swap agreements for the purpose of hedging our mortgage loans
in inventory.


INFLATION

   Inflation most significantly  affects our loan originations and values of our
excess cashflow  certificates,  because of the substantial  effect inflation can
have on interest rates.  Interest rates normally increase during periods of high
inflation and decrease during periods of low inflation.  (See  "--Interest  Rate
Risk").

                                       35

IMPACT OF NEW ACCOUNTING STANDARDS

   For  discussion  regarding the impact of new accounting  standards,  refer to
Note 11 of the Notes to the Consolidated Financial Statements.

FORWARD-LOOKING STATEMENTS AND 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 (the "PSLRA") of 1995, which involve risk and
uncertainties  that exist in our  operations and business  environment,  and are
subject to change on a variety of important factors. A forward-looking statement
may  contain  words  such  as  "anticipate  that,"  "believes,"  "continue  to,"
"estimates,"  "expects  to,"  "hopes,"  "intends,"  "plans," "to be," "will be,"
"will  continue to be," or similar  words.  Such  statements  are subject to the
"safe  harbor"  provisions  of the  PSLRA.  We  caution  readers  that  numerous
important factors discussed below,  among others, in some cases have caused, and
in the future  could cause our actual  results to differ  materially  from those
expressed in any  forward-looking  statements made herein. The following include
some, but not all, of the factors or  uncertainties  that could cause our actual
results to differ from our projections:

   o  Our ability or inability to earn a sufficient  spread  between our cost of
      funds and our average mortgage rates to generate  sufficient  revenues and
      cash flows to offset our current cost structure and cash uses;

   o  The effects of interest rate  fluctuations and our 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;

   o  Our ability or  inability  to  originate a  sufficient  amount of mortgage
      loans, and subsequent sale or  securitization of such loans, to offset our
      current cost structure and cash uses;

   o  Our ability or inability to continue our practice of securitizing mortgage
      loans  held  for  sale,  as  well  as  our  ability  to  utilize   optimal
      securitization  structures (including the sale of NIM and/or interest-only
      certificates,   and  the  sale  of  servicing   rights,  at  the  time  of
      securitization)  at terms  favorable  to us to  generate  sufficient  cash
      proceeds to offset our current cost structure;

   o  Our  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 and our  ability or inability to comply with covenants
      contained in such lines of credit;

   o  The potential effect that possible conflicts with other sovereign nations,
      including the conflict in Iraq, or terrorist acts and/or threats, may have
      on the capital markets, and in particular the asset-backed market;

   o  The effect that the adoption of new, or amendments in,  federal,  state or
      local lending laws and  regulations  and the  application of such laws and
      regulations may have on our ability to originate loans within a particular
      area, or to ultimately  sell those loans  through  securitization  or on a
      whole-loan basis. Many states and local municipalities have

                                       36

      adopted and/or are considering  adopting laws that are intended to further
      regulate our industry.  Many of these laws and regulations  seek to impose
      broad   restrictions  on  certain  commonly  accepted  lending  practices,
      including some of our practices.  In some cases, the  restrictions  and/or
      costs  and  risks  associated  with  complying  with the laws have been so
      onerous that we have decided to not lend in a state (I.E., Georgia, before
      it was amended) or municipality (I.E.,  Oakland).  In those cases where we
      continue to make mortgage loans,  our costs of complying with a variety of
      potentially  inconsistent federal,  state and local laws has increased our
      compliance  costs,  as well as the risk of  litigation  or  administrative
      action  associated with complying with these proposed and enacted federal,
      state and local laws,  particularly  those  aspects of such  proposed  and
      enacted  laws  that   contain   subjective   (as  opposed  to   objective)
      requirements,  among other things. In addition, enacted federal, state and
      local  laws could  impact  overcollateralization  requirements  set by the
      ratings  agencies,  which could  decrease the cash proceeds we may receive
      from our securitizations.  Moreover,  regulations adopted by the Office of
      Thrift  Supervision  recently became effective that eliminated the ability
      of state-chartered financial institutions and bankers to charge prepayment
      penalties on alternative  mortgages under the Federal Alternative Mortgage
      Transactions  Parity Act, while  federally-regulated  entities still enjoy
      that  right,  providing a  competitive  disadvantage  for  state-chartered
      entities,  such as Delta,  in certain  states with respect to  alternative
      mortgages;

   o  The effect that the FTC's Do Not Call Registry, and similar registries now
      or in the  future  administered  by  state  authorities,  may  have on our
      ability to utilize  telemarketing  to generate  retail leads and originate
      retail loans, and our ability or inability to find alternative  methods of
      generating retail leads and originating retail loans;

   o  Costs associated with litigation and rapid or unforeseen escalation of the
      cost of regulatory compliance, generally including but not limited to, the
      adoption of new, or changes in,  federal,  state or local lending laws and
      regulations  and the application of such laws and  regulations,  licenses,
      environmental  compliance,  the adoption of new, or changes in  accounting
      policies and practices and the  application of such polices and practices.
      Failure  to comply  with  various  federal,  state and local  regulations,
      accounting policies and/or  environmental  compliance can lead to the loss
      of approved status, certain rights of rescission for mortgage loans, class
      action  lawsuits,  demands  for  indemnification  or loan  repurchases  by
      purchasers of our loans and administrative enforcement action against us;

   o  Our  ability  or  inability  to  detect   misrepresentations,   fraudulent
      information  or negligent  acts on the part of loan  applicants,  mortgage
      brokers,  other vendors or our employees in our loan originations prior to
      funding and the effect it may have on our business,  including potentially
      harming  our  reputation,  resulting  in  poorer  performing  loans and/or
      demands for  indemnification  or loan  repurchases  by  purchasers  of our
      loans, among other things;

   o  Our  ability or  inability  to continue  monetizing  our  existing  excess
      cashflow certificates, including without limitation, selling, financing or
      securitizing (through NIM transactions) such assets;

   o  Our ability or  inability to access the equity and debt markets upon terms
      favorable  to us, or at all, if necessary  to raise additional  capital to
      fund our business;

                                       37

   o  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 our 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 our ability to securitize
      or sell loans in the secondary market;

   o  Increased  competition within our 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. We are
      currently  competing with large finance companies and conforming  mortgage
      originators,  many of  whom  have  greater  financial,  technological  and
      marketing resources;

   o  The effect that poor servicing or collections by third-party servicers who
      service the loans we originate, and/or regulatory actions and class action
      lawsuits  against  such  servicers,  could have on the value of our excess
      cashflow  certificates  and/or our ability to sell or securitize  loans in
      the future;

   o  The effect that an interruption in, or breach of, our  information systems
      could have on our business;

   o  Our ability or inability to adapt to and implement  technological  changes
      to become and/or remain competitive and/or efficient;

   o  Unpredictable  delays or  difficulties  in the  development of new product
      programs;

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

   o  Regulatory actions, which may have an adverse impact on our lending.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

   We originate  mortgage  loans and then sell the mortgage  loans through whole
loan sales and securitizations. As a result, our primary market risk is interest
rate  risk.  In turn,  interest  rates are  highly  sensitive  to many  factors,
including:

   o  governmental monetary and tax policies;

   o  domestic and international economic and political considerations; and

   o  other factors beyond our control.

   Changes in the general  interest  rate levels  between the time we  originate
mortgage  loans and the time when we sell the mortgage  loans in  securitization
transactions or whole loan sales can affect their value and,  consequently,  our
net gain on sale revenue by affecting the "excess  spread"  between the interest
rate on the  mortgage  loans  and the  interest  rate  paid on the  pass-through
certificates issued by the securitization trusts. If interest rates rise between
the  time  we  originate  the  loans  and  the  time  we  sell  the  loans  in a
securitization transaction,  the excess spread generally narrows, resulting in a
loss in value of the loans  and a lower net gain on sale for us.  Since we close
and fund  mortgage  loans at a specified  interest rate with an expected gain on
sale to be booked at the time of their sale,  our  exposure to  decreases in the
fair value of the  mortgage

                                       38

loans arises when moving from a lower to a higher interest rate  environment.  A
higher  interest  rate  environment  results in our having higher cost of funds.
This decreases both the fair value of the mortgage loans,  and the net spread we
earn between the mortgage  interest  rate on each  mortgage loan and our cost of
funds under available  warehouse lines of credit used to finance the loans prior
to their sale in a securitization  transaction. As a result, we may experience a
lower gain on sale.

   The following table  illustrates the impact on our earnings  resulting from a
hypothetical 10 basis point change in interest rates. Historically, such a basis
point  increase  has resulted in an  approximately  10 basis point change in the
excess  spread or "yield." The product of 10 basis  points in yield  (0.10%) and
the  duration of 2.5 years  equals a 25.0 basis point or 0.25% change in the net
gain on sale as shown below.
<TABLE>
<S>                       <C>                  <C>                 <C>
                       10 BASIS POINT DECREASE IN              10 BASIS POINT INCREASE IN
DESCRIPTION                 INTEREST RATES           BASE            INTEREST RATES
-----------------------------------------------------------------------------------------

Securitization amount      $100,000,000         $100,000,000        $100,000,000
Net gain on sale %         5.25%                5.00%               4.75%
Net gain                   $5,250,000           $5,000,000          $4,750,000
</TABLE>

   The table below  demonstrates the sensitivity,  at September 30, 2003, of the
estimated fair value of our excess cashflow  certificates caused by an immediate
10% and 20%,  respectively,  adverse  change  in the key  assumptions  we use to
estimate fair value:
<TABLE>
<S>                                        <C>                   <C>
                                       FAIR VALUE OF EXCESS       IMPACT TO
(Dollars in thousands)                 CASHFLOW CERTIFICATES      EARNINGS
                                        --------------------       -------

Fair value as of 09/30/03:                  $ 19,566

10% increase in prepayment speed              16,314              $(3,252)
20% increase in prepayment speed              14,775               (4,791)

10% increase in credit losses                 15,432               (4,134)
20% increase in credit losses                 11,487               (8,079)

10% increase in discount rates                18,690                 (876)
20% increase in discount rates                17,904               (1,662)

10% increase in one- & six-month LIBOR        16,770               (2,796)
20% increase in one- & six-month LIBOR        14,480               (5,086)
</TABLE>

   These  sensitivities  are  hypothetical  and are presented  for  illustrative
purposes only.  Changes in the fair value resulting from a change in assumptions
generally  cannot be  extrapolated  because  the  relationship  of the change in
assumption to the resulting change in fair value may not be linear.  Each change
in assumptions presented above was calculated independently without changing any
other assumption.  However, in reality,  changes in one assumption may result in
changes  in  another   assumption,   which  may   magnify  or   counteract   the
sensitivities. For example,

                                       39

a change in market interest rates may  simultaneously  impact prepayment speeds,
credit losses and the discount  rate. It is impossible to predict how one change
in a particular assumption may impact other assumptions.

   To reduce our financial  exposure to changes in interest  rates, we may hedge
our mortgage loans held for sale through hedging products that are correlated to
the pass-though certificates issued in connection with the securitization of our
mortgage loans (E.G., interest rate swaps) (See "-Hedging"). Changes in interest
rates also could  adversely  affect our ability to originate  loans and/or could
affect  the level of loan  prepayments  thereby  impacting  the size of the loan
portfolio  underlying our excess cashflow  certificates and,  consequently,  the
value of our  excess  cashflow  certificates.  (See  "-Interest  Rate  Risk" and
"-Forward -Looking Statements and Risk Factors").

ITEM 4.  CONTROLS AND PROCEDURES

   At September 30, 2003 management,  including the Chief Executive  Officer and
Chief  Financial  Officer,  evaluated  the  effectiveness  and  operation of our
disclosure  controls  and  procedures.  Our Chief  Executive  Officer  and Chief
Financial  Officer  concluded that, as of September 30, 2003,  these  disclosure
controls and procedures were effective, in all material respects, to ensure that
information required to be disclosed in the reports we file and submit under the
Securities and Exchange Act is recorded,  processed,  summarized and reported as
and when  required.  There  have been no  significant  changes  in our  internal
controls or in other  factors that could  significantly  affect  these  internal
controls  following  the date that we performed  our  evaluation.  There were no
significant  deficiencies or material weaknesses identified during the course of
this evaluation and therefore, no corrective actions were taken.

PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

   Because  the nature of our  business  involves  the  collection  of  numerous
accounts,  the validity of liens and  compliance  with various state and federal
lending  laws,  we are subject,  in the normal  course of business,  to numerous
claims and legal  proceedings,  including  class actions.  The current status of
these class actions and other litigation is summarized below.

o  In or about  November  1998,  we received  notice that we 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 we had violated the Home Ownership and Equity  Protection Act ("HOEPA"),
   the Truth in Lending Act ("TILA") and New York State 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 us 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 three of these 11  borrowers  and  sought
   injunctive  relief on their behalf.  We opposed the motions.  On December 14,
   1998,  the  District  Court  Judge  granted  the motion to  intervene  and on

                                       40

   December 23, 1998, the District  Court Judge issued a preliminary  injunction
   that  enjoined us from  proceeding  with the  foreclosure  sales of the three
   intervenors'  properties.  We  filed  a  motion  for  reconsideration  of the
   December 23, 1998 order.  In January 1999, we filed an answer to  plaintiffs'
   first amended  complaint.  In July 1999,  plaintiffs  were granted leave,  on
   consent, to file a second amended complaint. In August 1999, plaintiffs filed
   a second amended complaint that, among other things, added additional parties
   but  contained  the same  causes  of  action  alleged  in the  first  amended
   complaint.  In September  1999,  we filed a motion to dismiss the  complaint,
   which was opposed by  plaintiffs  and,  in June 2000,  was denied in part and
   granted in part by the Court.  In or about October 1999,  plaintiffs  filed a
   motion seeking an order  preventing  us, our attorneys  and/or the NYSBD from
   issuing notices to certain of our borrowers,  in accordance with a settlement
   agreement  entered  into by and  between  Delta  and the  NYSBD.  In or about
   October  1999 and  November  1999,  respectively,  the NYSBD and we submitted
   opposition to  plaintiffs'  motion.  In March 2000, the Court issued an order
   that permitted us to issue an approved form of the notice. In September 1999,
   plaintiffs  filed a motion  for  class  certification,  which we  opposed  in
   February 2000, and was ultimately  withdrawn  without prejudice by plaintiffs
   in January 2001. In February  2002, we executed a settlement  agreement  with
   plaintiffs, pursuant to which we denied all wrongdoing, but agreed to resolve
   the litigation on a class-wide  basis. The Court  preliminarily  approved the
   settlement  and a fairness  hearing was held in May 2002.  We are  awaiting a
   decision  from the Court on the fairness  hearing.  We believe that the Court
   will  approve the  settlement,  but if it does not,  we believe  that we have
   meritorious defenses and intend to defend this suit, but cannot estimate with
   any certainty our ultimate legal or financial liability, if any, with respect
   to the alleged claims.

o  In or about  March  1999,  we  received  notice  that we had been  named in a
   lawsuit filed in the Supreme Court of the State of New York, New York County,
   alleging that we had improperly  charged certain  borrowers  processing fees.
   The  complaint  seeks  (a)  certification  of a class of  plaintiffs,  (b) an
   accounting and (c) unspecified  compensatory and punitive damages  (including
   attorneys' fees),  based upon alleged (i) unjust  enrichment,  (ii) fraud and
   (iii)  deceptive  trade  practices.  In April 1999, we filed an answer to the
   complaint.  In September  1999,  we filed a motion to dismiss the  complaint,
   which was opposed by  plaintiffs,  and in February 2000, the Court denied the
   motion to  dismiss.  In April  1999,  we filed a motion  to change  venue and
   plaintiffs  opposed the motion.  In July 1999, the Court denied the motion to
   change venue.  We appealed and in March 2000, the Appellate Court granted our
   appeal to change venue from New York County to Nassau County. In August 1999,
   plaintiffs filed a motion for class  certification,  which we opposed in July
   2000. In or about  September 2000, the Court granted  plaintiffs'  motion for
   class certification,  from which we appealed.  The Appellate Court denied our
   appeal in December 2001. In or about June 2001, we filed a motion for summary
   judgment to dismiss the  complaint,  which was denied by the Court in October
   2001. We appealed that decision, but the appellate court denied our appeal in
   November  2002.  We filed a motion to reargue  in  December  2002,  which was
   denied by the Court in January 2003. Discovery will now continue in the lower
   court. We believe that we have meritorious defenses and intend to defend this
   suit, but cannot  estimate with any certainty our ultimate legal or financial
   liability, if any, with respect to the alleged claims.

                                       41

o  In  November  1999,  we  received  notice that we had been named in a lawsuit
   filed in the United  States  District  Court for the Eastern  District of New
   York, seeking  certification as a class action and alleging violations of the
   federal  securities  laws in connection  with our initial public  offering in
   1996 and our reports  subsequently  filed with the  Securities  and  Exchange
   Commission. The complaint alleges that the scope of the violations alleged in
   the  consumer  lawsuits  and  regulatory  actions  brought in or around  1999
   indicate a  pervasive  pattern of action and risk that  should have been more
   thoroughly disclosed to investors in our common stock. In May 2000, the Court
   consolidated  this case and several other lawsuits that  purportedly  contain
   the same or  similar  allegations  against us and in August  2000  plaintiffs
   filed their  Consolidated  Amended  Complaint.  In October  2000,  we filed a
   motion to  dismiss  the  complaint  in its  entirety,  which was  opposed  by
   plaintiffs in November  2000,  and denied by the Court in September  2001. We
   reached an agreement in principle with plaintiffs' counsel and our insurer to
   settle the action on a class-wide  basis in or about August 2002 and executed
   a  settlement  agreement  in January  2003  (pursuant  to which we denied all
   wrongdoing). The Court approved the settlement at a fairness hearing in April
   2003, and the settlement will be administered in the coming months.

o  In or about  April  2000,  we  received  notice  that we had been  named in a
   lawsuit filed in the Supreme Court of the State of New York,  Nassau  County,
   alleging that we had improperly  charged and collected from borrowers certain
   fees when they paid off their mortgage loans with us. The complaint seeks (a)
   certification of a class of plaintiffs,  (b) declaratory  relief finding that
   the payoff statements used include unauthorized charges and are deceptive and
   unfair, (c) injunctive relief and (d) unspecified compensatory, statutory and
   punitive  damages  (including legal fees),  based upon alleged  violations of
   Real  Property  Law 274-a,  unfair  and  deceptive  practices,  money had and
   received and unjust enrichment,  and conversion. We answered the complaint in
   June 2000. In March 2001, we filed a motion for summary  judgment,  which was
   opposed by plaintiffs  in March 2001,  and granted by the Court in June 2001.
   In August 2001,  plaintiffs  appealed the  decision.  In September  2002,  we
   executed  a  settlement  agreement  with  plaintiffs  in which we denied  all
   wrongdoing,  but agreed to resolve the litigation on a class-wide  basis. The
   Court  approved the  settlement at a fairness  hearing in July 2003,  and the
   settlement has been fully administered.

o  In July 2003,  we  commenced a lawsuit in the  Supreme  Court of the State of
   New York, Nassau County,  against the LLC, Delta Funding Residual Management,
   Inc.  ("DFRM"),  and  James  E.  Morrison  (President  of the LLC and  DFRM),
   alleging that (1) the LLC breached its  contractual  duties by failing to pay
   approximately  $142,000 due to us in June 2003, and (2) that Mr. Morrison and
   DFRM knowingly and intentionally caused the default,  thereby breaching their
   respective  fiduciary  duties to the LLC. The complaint  seeks (a) payment of
   amounts  past due  under  our  agreement  with the LLC,  plus  interest;  (b)
   specific  performance of the LLC's  obligations to us in the future;  and (c)
   monetary  damages for breach of fiduciary duty, in an amount to be determined
   by the Court. In September 2003, Morrison, the LLC and DFRM filed a motion to
   dismiss  our  complaint  and the LLC and  DFRM  filed a  countersuit  against
   several of our  directors  and officers and us seeking,  among other  things,
   damages   of  not  less  than  $110   million.   The   counterclaim   alleges
   misrepresentation,  negligence  and/or fraud by  defendants  in that case. We
   have  filed our  opposition  to the  motion to  dismiss  and  cross-moved  to
   consolidate  the two actions in Nassau  County.  We have not yet responded to
   the  countersuit  (other  than  moving to  consolidate),  but believe we

                                       42
   have  meritorious  claims in our  lawsuit  and  meritorious  defenses  in the
   countersuit.  We intend to  vigorously  prosecute  our claims and  vigorously
   defend  ourselves  against  the  countersuit.  We  cannot  estimate  with any
   certainty our ultimate legal or financial recovery and/or liability,  if any,
   with respect to the alleged claims in the countersuit.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS.   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.

(a) Exhibits:

EXH.
  NO.         DESCRIPTION
 ---          -----------
31.1   --  Certification  pursuant to Section 302 of the Sarbanes-Oxley Act 2002
31.2   --  Certification  pursuant to Section 302 of the Sarbanes-Oxley Act 2002
32.1   --  Certification  pursuant to Section 906 of the Sarbanes-Oxley Act 2002
32.2   --  Certification  pursuant to Section 906 of the Sarbanes-Oxley Act 2002

(b) Reports on Form 8-K:

   On July 31,  2003,  we  furnished  a Form 8-K  containing  our July 31,  2003
earnings press release.

   On September  16, 2003,  we furnished a Form 8-K  containing a press  release
announcing  that we had been served with a countersuit  in  connection  with the
action described in Part II, Item 1 above.

   On  September  29,  we  furnished  a Form  8-K  containing  a  press  release
announcing that on October 30, 2003, we planned to redeem all of our outstanding
9.5% Senior Notes due 2004.



                                       43
<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)

Dated: November 13, 2003
                                       By: /S/ HUGH MILLER
                                           ---------------------------------
                                           Hugh Miller
                                           PRESIDENT AND CHIEF EXECUTIVE OFFICER


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




                                       44