FINANCIAL
             FEDERAL
           CORPORATION

         [embossed logo]



                                                     19
                                                 ANNUAL REPORT
                                                       97

                                [front cover]

<PAGE>
CORPORATE PROFILE
-----------------

Financial Federal Corporation is an independent financial services company 
specializing in financing mid and large ticket industrial, commercial and 
professional equipment through installment sales and leasing programs for 
manufacturers, dealers and users of such equipment nationwide.  The Company 
has an executive office located in New York, NY, five full-service offices 
located in Houston, TX; Westmont, IL; Teaneck, NJ; Charlotte, NC; and Mesa, AZ 
and 18 marketing locations throughout the country.

                               [inside front cover]                        
<PAGE>

                             FISCAL YEAR IN REVIEW
                             ---------------------

JULY 1997          THE COMPANY SPLIT ITS COMMON STOCK THROUGH A THREE-FOR-TWO 
                   STOCK DIVIDEND FOR THE SECOND TIME IN EIGHTEEN MONTHS.

                   A $50 MILLION PRIVATE PLACEMENT RAISED TOTAL INSTITUTIONAL 
                   TERM DEBT OUTSTANDING TO OVER $100 MILLION, REPRESENTING 
                   24% OF TOTAL DEBT OUTSTANDING AT YEAR END.

                   ANNUAL REVENUES EXCEEDED $50 MILLION AND QUARTERLY  
                   REVENUES EXCEEDED $15 MILLION.

MAY 1997           NET EARNINGS SURPASSED $10 MILLION, SUBSEQUENTLY 
                   INCREASING TO $12.9 MILLION FOR THE YEAR, A 34% INCREASE 
                   OVER LAST YEAR.  

MARCH 1997         STOCKHOLDERS' EQUITY REACHED $100 MILLION, ENDING THE YEAR 
                   AT $105.6 MILLION.  YEAR END LEVERAGE WAS 4 TO 1, A LOW 
                   LEVEL FOR A FINANCE COMPANY.

DECEMBER 1996      FINANCE RECEIVABLES OUTSTANDING SURPASSED $500 MILLION 
                   APPROXIMATELY ONE MONTH PRIOR TO THE COMPANY'S EIGHTH 
                   ANNIVERSARY.  GROWTH IN FINANCE RECEIVABLES WAS GENERATED 
                   INTERNALLY. 

NOVEMBER 1996      THE COMPANY OPENED A NEW FULL SERVICE OFFICE IN ARIZONA TO 
                   SERVICE THE WESTERN UNITED STATES.  AT YEAR END, FINANCE 
                   RECEIVABLES IN THIS REGION INCREASED APPROXIMATELY 40% FROM 
                   THE TIME THE OFFICE WAS OPENED.

SEPTEMBER 1996     THE COMPANY'S INVESTMENT GRADE DEALER COMMERCIAL PAPER 
                   PROGRAM WAS INCREASED AGAIN TO $250 MILLION FROM $200 
                   MILLION.  THE PROGRAM BEGAN IN MAY 1996 WITH AN INITIAL 
                   SIZE OF $100 MILLION. 
<PAGE>
[logo]
<PAGE>
<TABLE>
                                FINANCIAL HIGHLIGHTS
                        -------------------------------------
                        (in thousands, except per share data)
<CAPTION>
For Years Ended July 31,         1997       1996       1995       1994       1993
--------------------------     --------   --------   --------   --------   --------  
<S>                            <C>        <C>        <C>        <C>        <C> 
Finance Receivables, net       $571,060   $429,698   $339,299   $268,642   $206,145

Total Assets                    574,764    433,087    342,936    271,987    209,609

Total Senior Debt               439,361    310,830    249,270    184,848    134,628

Stockholders' Equity            105,604     94,191     58,075     50,523     41,727

Revenues                         55,305     43,523     34,951     25,866     22,911

Net Earnings                     12,909      9,610      7,209      5,944      4,968

Earnings Per Common Share,
  Primary                          0.80       0.68       0.54       0.46       0.39

Earnings Per Common Share,
  Fully Diluted                    0.79       0.67       0.54       0.46       0.38

</TABLE>
[the following three bar graphs were represented to the right of the above 
 table]

NET EARNINGS
-------------
(IN MILLIONS)

   FINANCE
 RECEIVABLES
-------------
(IN MILLIONS)

  REVENUES
-------------
(IN MILLIONS)

                                       1   
<PAGE>

                               DEAR SHAREHOLDER:
                               -----------------

Fiscal 1997 was the Company's best year ever and represented its 8th 
consecutive year of record earnings since the Company started business in 1989 
with $12 million of equity.  Net earnings for this year were $12.9 million.  
Over the last five years, net earnings have grown at a compound annual rate of 
27%.  One of management's objectives over the next several years is, at a 
minimum, to achieve, on average, a compound annual earnings growth rate in the 
20% per annum range.


FISCAL 1997 ACCOMPLISHMENTS/EVENTS:

*  Net earnings of $12.9 million.
*  Earnings per share of $.80 - fully diluted $.79.
*  Tangible net worth in excess of $105 million.
*  Finance receivables in excess of $580 million.
*  Continued geographic expansion with the opening of our 5th full service 
   office in Mesa, Arizona.
*  Continued decrease in funding costs expressed as a premium over LIBOR and 
   US Treasuries.
*  A 3 for 2 stock dividend, which was paid in July 1997, increased 
   outstanding shares to over 14.7 million. 
*  Institutional term debt increased to $105 million.
*  The Dealer Commercial Paper program increased to $250 million.
*  Minimal net credit losses.  Loss reserve now in excess of $10.3 million.
*  Per share price of the Company's common stock reached an all-time high.
*  A stock repurchase program was commenced and 186,450 shares were bought 
   back at an average cost of $8.74 per share (as adjusted to reflect the
   3 for 2 stock dividend paid in July 1997). 

     Financial Federal's outstanding financial and operating results were 
achieved despite competitive pressures which have intensified in our primary 
markets.  Notwithstanding such pressures, the Company's interest spread, 
which is the difference between the net receivable portfolio yield and the
Company's total direct cost for borrowings, was a strong 4.7%.

     With a strong and healthy national economic climate, we believe that 
fiscal 1998 could be another record year which should provide the platform for 
the Company to grow its net receivables to over $1 billion over the next 
several years.  Our five full-service offices in Houston, TX; Westmont, IL; 
Teaneck, NJ; Charlotte, NC; and Mesa, AZ provide a broad geographic base for 
future growth, and we have the management and infrastructure in place to 
support such growth.  The Company has sufficient financial capacity to 
increase its portfolio of loans, financings and leases, as well as to purchase 
portfolios of receivables when such opportunities arise, without having to 
acquire additional equity.

     We are very proud of the quality and consistency of Financial Federal's 
earnings.  Unlike many other financial service and leasing companies, we have 
not to date engaged in securitizing or selling any of our receivables; our 
earnings were generated entirely from our owned portfolio and have not been 
enhanced by gain-on-sale accounting.  If we were to securitize or sell a

                                       2
<PAGE>
 
portion of our receivables portfolio, we could, under present accounting 
rules, elect to immediately recognize a substantial portion of the net book 
gain derived from such sales into net profit.  The basic difference between 
accruing revenue over the full term of a receivable, as we do today, or 
recognizing an instant gain upon the sale of such receivable, is primarily one

    --------------------------------------------------------------------
            Our customers are the cornerstone and fiber of the
            country's domestic economy...All of us at Financial
           Federal are proud to be part of the "American dream".
    --------------------------------------------------------------------

of profit timing.  Over the contractual life of a receivable under either 
method, providing the Company's funding costs are identical, the Company 
generally earns the equivalent amount of income.  Currently, the projected all-
in cost of securitizing a portion of the Company's finance receivables appears 
to be slightly higher than the cost of internally funding such receivables.  
Management believes that the potential quantifiable risk of loss, whether its 
receivables are securitized or held in portfolio to maturity, is basically the 
same.  However, we do regularly reevaluate such costs, risks and other 
important considerations relating to securitization and we may in the future 
determine that it is in the best interest of the Company and its shareholders 
to take advantage of a securitization conduit or without recourse 
sale/participation of receivables.

     Administrative and operating expenses were contained during the past 
fiscal year, and we believe our operating expense ratio of 1.6% is one of the 
best in our industry.  The Company's Hilton Head, South Carolina office was 
consolidated with the Company's regional office in Charlotte, North Carolina.  
This consolidation created efficiencies and cost savings.  Almost 
concurrently, we opened a new full service office in Mesa, AZ, near Phoenix, 
to expand our service in the Southwest region.

     Financial Federal plays an important and consistent role in providing the 
financial building blocks necessary for its middle-market customers to create 
and maintain viable, profitable and expanding businesses.  Our customers are 
the cornerstone and fiber of the country's domestic economy.  They create and 
maintain our country's infrastructure, transport our goods and products, 
preserve our environment and manufacture our tools of production.  They employ 
hundreds of thousands of workers, providing the economy with the necessary 
ingredients to continue its present healthy growth and to keep the United 
States a world economic leader.  All of us at Financial Federal are proud to 
be part of the "American dream". 

     On behalf of the Company's Board of Directors, I want to thank all of our 
major constituencies for their support since our inception in 1989: our 
customers, shareholders, creditors and, last but most importantly, our loyal 
employees, who serve to make Financial Federal the best in its field.


/s/ Clarence Y. Palitz, Jr.
Clarence Y. Palitz, Jr. 
President and Chief Executive Officer
October 1, 1997

                                        3
<PAGE>
                                 OUR BUSINESS
                                 ------------


FINANCIAL FEDERAL CORPORATION is one of the larger independent finance and 
leasing companies in the United States.  Since its founding in 1989, the 
Company has recorded consecutive quarterly increases in profitability and 
finance receivables outstanding.  The price per share of Financial Federal's 
common stock today is more than four times that of its initial public offering 
price in May 1992 and, today, our market capitalization is well over one 
quarter billion dollars.

    --------------------------------------------------------------------
         Providing superior customer service is what has permitted
           us to compete and grow in a very competitive industry.
    --------------------------------------------------------------------

     The Company concentrates its operations on the financing and leasing of 
revenue-producing equipment nationwide.  Such equipment represents important 
"tools of production" to our middle market customers.  By focusing on "hard 
collateral" equipment --which can be described generally as long-lasting, 
readily moveable and not subject to rapid technological obsolescence, such as 
construction equipment and cranes, over-the-road transportation equipment such 
as trucks, trailers and buses, machine tools, waste services equipment and 
others -- we have been able to enjoy minimal net credit losses since the 
inception of the Company.

     Throughout the United States, Financial Federal employs 130 people full-
time and has five full-service operation centers in Houston, TX; Westmont, IL; 
Teaneck, NJ; Charlotte, NC; and Mesa, AZ, and 18 marketing locations.  New 
business is developed by our dedicated marketing and management team on a 
nationwide basis through the direct solicitation of equipment manufacturers, 
dealers and end-users. 

     Today we have over 6,000 active accounts which represent almost 3,000 
customers.  Our customers are generally smaller to mid-sized businesses with 
fewer than 500 employees.  Such customers and prospects are the productive 
core of the American economy and, according to government statistics, generate 
roughly 40% of our gross domestic product; since 1990, these businesses have 
created almost eight million new jobs.  

     Providing superior customer service is what has permitted us to compete 
and grow in a very competitive industry.  Controlling expenses is a difficult 
task for any service-oriented business to achieve.  The Company consistently 
strives to appropriately manage all of its operating and administrative costs, 
while maintaining our commitment to customer service.  We believe our expense 
ratios are among the best in the industry.   

                                       4
<PAGE>

     The Company is also focused on managing its funding costs.  Any small 
improvement can have a visible impact on earnings.  Our $250 million 
investment grade commercial paper program has been very well received in the 
market and, through that program, we have been able to lower our overall 
short-term borrowing costs.  We believe Financial Federal is the smallest 
independent financial services company to actively market its investment grade 
commercial paper.  Three dealers currently place the Company's commercial 
paper: BankAmerica Robertson Stephens, ABN AMRO Chicago Corporation and Chase 
Securities Inc.  In addition, we have successfully placed new issues of senior 
term debt with a highly regarded group of institutional lenders at a cost of 
 .75% over comparable term Treasuries.  The Company enjoys strong support from 
its bank lenders.  Today, we have over $400 million of committed, unsecured 
senior credit facilities from 19 major domestic and foreign banks.  

    --------------------------------------------------------------------
           We believe we afford our customers a higher level of 
             service and responsiveness than our competitors.
    --------------------------------------------------------------------

                                       5
<PAGE>

     What makes Financial Federal unique is the breadth, talent, experience 
and dedication of our management and marketing group.  All of our senior 
managers and most senior marketing representatives have 15 or more years of 
proven success in our business, and particularly in the specific markets we 
serve.  Most middle market customers and equipment vendors consider direct 
access to very experienced and knowledgeable senior managers an important 
factor when selecting a funding source.  We consider the high level of senior 
management involvement one of the important elements that has permitted 
Financial Federal to maintain stable profit margins and increased 
profitability.   

    --------------------------------------------------------------------
               What makes Financial Federal unique is the
               breadth, talent, experience and dedication
                 of our management and marketing group.
    --------------------------------------------------------------------

     Our loyal customers are a very important asset.  In today's competitive 
environment, they generally have numerous sources of financing available.  
When they choose Financial Federal, we believe they do so because we afford
them a higher level of service and responsiveness than our competitors.


    MARKET CAPITALIZATION
    ---------------------
        (in millions)

           July 31,
------------------------------
  1995       1996       1997
--------   --------   --------
  $97.3     $129.5     $223.3	

[represented as a bar graph]


                              LOAN LOSS RATIOS
                  ------------------------------------------

                                               July 31,
                         ----------------------------------------------------
                           1993       1994       1995       1996       1997
                         --------   --------   --------   --------   --------
Net Credit Losses          0.31%      0.13%      0.08%      0.03%      0.05%

Allowance for Losses       1.91%      1.90%      1.85%      1.83%      1.77%

[represented as a dual bar graph]


               EXPENSES AS A PERCENTAGE
                OF AVERAGE RECEIVABLES
               ------------------------

              For Years Ended July 31,
----------------------------------------------------
  1993       1994       1995       1996       1997
--------   --------   --------   --------   --------
  2.75%      2.11%      1.86%      1.83%      1.60%

[represented as a line graph]


        DEBT 1997
---------------------------
Commercial paper      55%
Senior term notes     24%
Bank borrowings       18%
Other                  3% 

[represented as a pie chart]

                                        6
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION


RESULTS OF OPERATIONS

General -- The Company derives profits to the extent that income earned on its 
finance receivables exceeds its cost of borrowed funds, operating and 
administrative expenses, and provision for possible losses.  The Company 
borrows funds in the wholesale markets to lend primarily to middle market 
businesses throughout the United States.  The Company's business activities 
can be regulated by state usury, lending and lien perfection rules and laws.  
Certain states also require the Company to obtain licenses in order to engage 
in certain types of business activities.

      The Company's leasing activities are substantially identical in business 
terms to its lending and financing activities, differing only in legal and tax 
treatment.  A transaction is characterized and documented as a lease based on 
management's evaluations of the customer's credit and the equipment 
collateral, the customer's preference and other factors.  The types of 
equipment that the Company lends against, finances and leases, and the ongoing 
operational treatment of a transaction, are generally the same, regardless of 
the documentation used.  The Company accounts for all transactions as 
financing arrangements.

Comparison of Fiscal 1997 to Fiscal 1996 -- Finance income increased 27% to 
$55.3 million in fiscal 1997 from $43.5 million in fiscal 1996.  The increase 
was primarily the result of the $119 million, or 31%, increase in the amount 
of average finance receivables outstanding from $388 million in 1996 to $507 
million in 1997, partially offset by reduced weighted average finance rates 
charged by the Company on new finance receivables and the year to year decline 
in average market interest rates.  Finance receivables booked in 1997 
increased 30% to $459 million from $354 million in 1996 primarily as a result 
of the expansion of the Company's marketing efforts into new geographic areas 
and further penetration in its existing areas.  In November 1996, the Company 
opened a new full service office in Mesa, Arizona.

      Interest expense, incurred on borrowings used to fund finance 
receivables, increased 22% to $23.4 million in 1997 from $19.3 million in 
1996.  The overall increase was mainly due to the 29% increase in average 
borrowings during 1997 from 1996, partially offset by decreases in costs of 
funds and average market interest rates.

      Finance income before provision for possible losses on finance 
receivables increased by 31% to $31.9 million in 1997 from $24.3 million in 
1996.  Finance income before provision for possible losses, expressed as a 
percentage of average finance receivables outstanding, was 6.3% in 1997 and in 
1996. 

      The provision for possible losses on finance receivables increased by 
48% to $2.5 million in 1997 from $1.7 million in 1996.  The increase was 
primarily due to the increase in finance receivables.  See Note B(4) of Notes 
to Consolidated Financial Statements for the summary of activity in the 
allowance for possible losses.

      Salaries and other expenses increased 17% to $8.4 million in 1997 from 
$7.1 million in 1996.  The increase was primarily due to increased marketing 
costs and other costs associated with the growth in finance receivables and 
salary increases, partially offset by the reduction in overhead costs that 
resulted from the merging of the Company's Hilton Head, SC office into the 
Company's Charlotte, NC office in November 1996.

      The provision for income taxes increased to $8.1 million in 1997 from 
$5.8 million in 1996 primarily due to the increase in earnings before income 
taxes.

                                       7
<PAGE>

      Net earnings increased by 34% to $12.9 million in 1997 from $9.6 million 
in 1996.  Primary earnings per share increased by 18% to $0.80 per share in 
1997 from $0.68 per share in 1996 and fully diluted earnings per share 
increased by 18% to $0.79 per share in 1997 from $0.67 per share in 1996.  The 
increases in earnings per share were lower than the increase in net earnings 
primarily due to the sale of 1.7 million shares of the Company's common stock 
in a public offering in May 1996.


Comparison of Fiscal 1996 to Fiscal 1995 -- Finance income increased 25% to 
$43.5 million in fiscal 1996 from $35.0 million in fiscal 1995.  The increase 
was primarily attributable to the 24% increase in average finance receivables 
outstanding to $388.0 million in 1996 from $312.3 million in 1995.  The growth 
in finance receivables was due to new financings which totaled $354.2 million 
in 1996, an increase of 38% over 1995.  New financings increased as a result 
of the hiring of additional marketing personnel in 1996 and favorable economic 
conditions.

      Interest expense, which is incurred on borrowings used primarily to fund 
finance receivables, increased 19% to $19.3 million in 1996 from $16.3 million 
in 1995.  The overall increase was mainly due to the 27% increase in average 
borrowings during 1996 from 1995, offset by decreases in costs of funds and, 
to a lesser extent, average market interest rates.   

      Finance income before provision for possible losses on finance 
receivables increased by 30% to $24.3 million in 1996 from $18.7 million in 
1995.  As a percentage of average finance receivables outstanding, finance 
income before provision for possible losses increased to 6.3% in 1996 from 
6.0% in 1995.  The increase was primarily due to the interest savings of 
approximately $750,000 from the replacement of the $15.0 million senior 
subordinated note, bearing a 12.27% interest rate, on September 1, 1995 with 
borrowings bearing lower interest rates and the interest savings of 
approximately $350,000 on the debt repaid from the net proceeds of the 
Company's 1.7 million share public offering of its common stock in May 1996.

      The provision for possible losses on finance receivables, which 
increases the allowance, increased 18% to $1.7 million in 1996 from $1.5 
million in 1995.  The increase was primarily due to the increase in finance 
receivables.  See Note B(4) of Notes to Consolidated Financial Statements for 
the summary of activity in the allowance for possible losses.

      Salaries and other expenses increased 23% to $7.1 million in 1996 from 
$5.8 million in 1995.  The increase was primarily due to the hiring of 
additional marketing and other personnel and salary increases.  

      The provision for income taxes increased to $5.8 million in 1996 from 
$4.4 million in 1995 due to the increase in earnings before income taxes.  

      Net earnings increased by 33% to $9.6 million in 1996 from $7.2 million 
in 1995.  Primary earnings per share increased by 26% to $0.68 per share in 
1996 from $0.54 per share in 1995 and fully diluted earnings per share 
increased by 24% to $0.67 per share in 1996 from $0.54 per share in 1995.  The 
increase in earnings per share was lower than the increase in net earnings 
primarily due to the effect of the sale of 1.7 million shares of the Company's 
common stock in a public offering in May 1996.


RECEIVABLE PORTFOLIO AND ASSET QUALITY

Finance receivables outstanding increased by $143.7 million, or 33%, to $581.4 
million at July 31, 1997 from $437.7 at July 31, 1996.  The increase was 
primarily due to the amount of finance receivables originated exceeding

                                       8
<PAGE>
 
amounts collected.  At July 31, 1997, Financial Federal Credit Inc. ("Credit", 
a wholly-owned subsidiary) had $579.9 million, or 99.7%, of total finance 
receivables and First Federal Commercial Inc. ("Commercial," a wholly-owned 
subsidiary) had the balance of finance receivables.

       The allowance for possible losses, which increased to $10.3 million at 
July 31, 1997 from $8.0 million at July 31, 1996, was 1.77% of finance 
receivables at July 31, 1997 as compared to 1.83% at July 31, 1996.  The 
allowance is periodically reviewed by the Company's management and is based on 
management's current assessment of the risks inherent in the Company's finance 
receivables from national and regional economic conditions, industry 
conditions, concentrations, the financial condition of counterparties and 
other factors.  Future additions to the allowance may be necessary based on 
changes in these factors. 

      The equipment collateral securing the Company's finance receivables 
generally possess certain characteristics that serve to mitigate potential 
credit losses.  Such characteristics include an economic life exceeding the 
term of the receivable, low rates of technological obsolescence, applications 
in various industries, easy accessibility and transporting and a broad resale 
market.  These characteristics, combined with management's experience and 
expertise with the equipment collateral, have minimized the Company's net 
credit losses.

      Net credit losses incurred on the Company's finance receivables, defined 
as write-downs of receivables less subsequent recoveries, increased to 
$230,000 in 1997 from $97,000 in 1996.  Management believes that the Company's 
net credit losses have been historically low primarily due to favorable 
economic and industry conditions.  Net credit losses expressed as a percentage 
of average finance receivables outstanding was 0.05% in 1997, 0.03% in 1996, 
0.08% in 1995, 0.13% in 1994 and 0.31% in 1993.  Management does not currently 
expect this trend to continue.  Future increases in the Company's net credit 
losses could have a negative impact on the Company's earnings through 
additional increases in the provision for possible losses.

      Finance receivables that the Company has suspended income recognition on 
decreased to $5.6 million, or 1.0% of total finance receivables, at July 31, 
1997, from $5.9 million, or 1.3% of total finance receivables, at July 31, 
1996.

      The Company's finance receivables reflect certain industry and 
geographic concentrations of credit risk.  These concentrations arise from 
counterparties having similar economic characteristics that would cause their 
ability to meet their contractual obligations to the Company to be similarly 
affected by changes in economic or other conditions.  The major industry 
concentrations are: trucking-19%, construction-15%, waste disposal-14% and 
cranes-12%.  The major geographic concentrations are: southwest-25%, 
northeast-25% and southeast-24%.


LIQUIDITY AND CAPITAL RESOURCES

The Company is dependent upon the continued availability of funds primarily to 
originate or acquire finance receivables and to purchase portfolios of finance 
receivables.  The Company may obtain required funds from a variety of sources, 
including internal generation, direct issuance of and dealer placed commercial 
paper, borrowings under revolving credit facilities, sales of common and 
preferred equity and placements of term debt.  Management believes that the 
Company has available sufficient liquidity to support its operations.

      The Company has obtained the majority of its borrowings through Credit, 
98.4% at July 31, 1997, and has obtained the balance of its borrowings through 
Financial Federal Corporation ("Financial", the parent company), 1.6% at July 
31, 1997. 

                                       9
<PAGE>

      The Company has received investment grade credit ratings on its 
commercial paper and senior debt.  Credit's commercial paper is rated "F-2" by 
Fitch Investors Services Inc. and Financial's and Credit's commercial paper is 
rated "D-2" by Duff & Phelps Credit Rating Co.  Credit's ability to meet 
senior obligations is rated BBB by Fitch Investors Services Inc.  These credit 
ratings provide the Company with greater access to capital markets.  

      The Company's total debt outstanding increased $123.9 million to $441.7 
million at July 31, 1997 from $317.8 million at July 31, 1996.  The Company 
also increased its stockholders' equity by $11.4 million to $105.6 million at 
July 31, 1997 from $94.2 million at July 31, 1996 and its net deferred income 
tax liability by $2.3 million to $11.3 million at July 31, 1997 from $8.9 
million at July 31, 1996.  These increases, together with increases in the 
Company's accrued expenses and other liabilities, were used primarily to fund 
the increase in finance receivables.

      During fiscal 1997, the Company improved its liquidity as follows:

      * In September 1996, Credit increased the size of its dealer commercial 
        paper program from $200.0 million to $250.0 million.  At July 31,     
        1997, $244.6 million of commercial paper was outstanding.
     
      * In July 1997, Credit issued $50.0 million of fixed rate senior term   
        notes with maturities of three years and three and one half years.

      * During the year, the Company increased its total committed unsecured  
        revolving credit facilities by $17.5 million to $395.0 million at July 
        31, 1997 and increased the amount of such facilities with original    
        terms of two or more years by $55.0 million to $320.0 million at July 
        31, 1997. 

      In July 1997, the Company declared and paid a three-for-two stock split 
effected in the form of a stock dividend.

      In August 1996, the Company announced a $2.5 million common stock 
repurchase program which was increased to $4.1 million in May 1997.  During 
fiscal 1997 (prior to the three-for-two stock split), the Company repurchased 
124,300 shares of its common stock for $1,630,000.  Shares repurchased are 
retired.  This program has not and is not expected to impact significantly the 
Company's earnings per share.

      The sources of the Company's borrowings are described below:

      Financial and Credit are each direct issuers of investment grade 
commercial paper.  Credit also issues investment grade commercial paper 
through a $250.0 million program with recognized dealers.  The Company's 
commercial paper is unsecured and matures within 270 days.  Interest rates on 
commercial paper outstanding at July 31, 1997 generally ranged from 5.7% to 
6.1%.  The Company has not obtained commitments from any purchaser of its 
commercial paper for additional or future purchases.  The Company's policy is 
to maintain unused committed revolving credit facilities from banks in an 
amount greater than commercial paper outstanding. 

      At July 31, 1997, Credit had $75.0 million of committed unsecured 
revolving credit facilities with an original term of one year or less with 
eight banks under which $30.0 million of aggregate borrowings were 
outstanding.  At July 31, 1997, Credit also had $310.0 million of committed 
unsecured revolving credit facilities with original terms ranging from two to 
five years with seventeen banks under which $50.1 million of aggregate 
borrowings were outstanding, and Financial had a $10.0 million committed

                                       10
<PAGE>
   
unsecured revolving credit facility with an original term of five years with a 
bank under which no borrowings were outstanding.  At July 31, 1997, all of the 
long-term revolving credit facilities expire after one year.  Interest rates 
on borrowings under these facilities are based on either domestic money 
market rates or LIBOR.  The Company incurs a fee on the unused portion of 
these facilities.  The banks are not contractually obligated to renew these 
facilities.  

      Information about the combined amounts and interest rates of the 
Company's commercial paper and bank borrowings is as follows:

(dollars in millions)                    1997      1996      1995
-------------------------------------------------------------------
 Maximum amount outstanding
   during the year                      $374.7    $270.2    $169.3 
 Average amount outstanding
   during the year                       316.6     216.2     113.2
 Weighted average interest rate:
   During the year                         5.9%      6.2%      6.4% 
   End of the year                         6.0%      5.9%      6.6%

      At July 31, 1997, the Company reported $320.0 million of commercial 
paper and bank borrowings as long-term senior debt in the consolidated 
financial statements based on the amount of long-term revolving credit 
facilities expiring after one year.

      In July 1997, Credit issued $50.0 million of senior term notes to 
institutional investors.  These notes are due as follows: $25.0 million on 
July 14, 2000 and $25.0 million on December 14, 2000.  Interest is payable 
semi-annually at fixed annual rates of 7.40% and 7.45%, respectively.  
Prepayments of the notes are subject to a premium based on a yield maintenance 
formula.

      At July 31, 1997, the Company also had $55.0 million of senior term 
notes due on September 1, 2001.

      In July 1997, the Company issued $9.7 million of variable rate senior 
term notes to certain executive officers and their affiliates.  These notes 
mature in September 1998 subject to extension.

      In July 1996, Financial called the $7.0 million of variable rate 
subordinated debentures at face value offering holders the option to receive 
amended debentures.  As a result, $4.7 million of these debentures were repaid 
and $2.3 million of amended debentures were issued on September 1, 1996.  The 
amended debentures are due on March 1, 2003, bear interest, payable semi-
annually, at an annual rate of 8.0%, and contain a penalty for prepayments 
made prior to September 1, 1999. 

      The senior term notes and the revolving credit facilities contain 
certain restrictive covenants including limitations on: indebtedness, 
encumbrances, investments, dividends and other distributions from Credit to 
Financial, sales of assets, mergers and other business combinations, capital 
expenditures and the minimum adjusted net worth of Credit.  Under the most 
restrictive of the above dividend payment covenants, $34.8 million of the 
Company's equity was free from dividend restrictions at July 31, 1997.


INTEREST RATES AND SENSITIVITY 	

The net yield of the Company's finance receivables, the cost of the Company's 
borrowed funds and the resulting net interest spread were as follows:

                               1997     1996     1995
------------------------------------------------------
Average yield of finance 
   receivables                 10.9%    11.2%    11.2%
Weighted average cost
   of borrowed funds            6.2%     6.6%     6.9%
                               ---------------------- 
Net interest spread             4.7%     4.6%     4.3%
                               ======================

                                       11
<PAGE>

      The Company's finance receivables comprise fixed rate and variable rate 
transactions.  At July 31, 1997, $465.3 million, or 80%, of finance 
receivables provide for interest at fixed rates and $116.0 million, or 20%, of 
finance receivables provide for interest at variable rates indexed to the 
prime rate, as defined.  The percentage of finance receivables that provide 
for fixed interest rates has increased from 66% at July 31, 1995 primarily due 
to continued low market interest rates.  

       Finance receivables generally have original maturities ranging from two 
to five years and provide for monthly installments.  The Company experiences 
some prepayments of its finance receivables which shorten the scheduled 
maturities.  At July 31, 1997, $157.2 million of fixed rate finance 
receivables are scheduled to mature within one year.

      The total of fixed rate term debt of $107.3 million, stockholders'
equity of $105.6 million and net deferred income tax liability of $11.3 
million was $224.2 million at July 31, 1997.  The Company's other debt at July 
31, 1997, primarily commercial paper and bank borrowings, reprices frequently. 
At July 31, 1997, total commercial paper and bank borrowings outstanding of 
$324.7 million mature or reprice as follows: $262.0 million, or 81%, within 
one month, $38.2 million, or 12%, within the following two months and the 
remainder, $24.5 million, or 7%, within the following six months.

      Due to the excess of the Company's fixed rate finance receivables over 
the total of its fixed rate term debt, stockholders' equity and net deferred 
income tax liability, the Company's net interest spread could be affected by 
fluctuations in market interest rates. 

      The Company does not seek to match the maturities of its debt to its 
finance receivables.


NEW ACCOUNTING STANDARDS

In February 1997, the Financial Accounting Standards Board issued Statement of 
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share."  This 
standard replaces the current presentation of primary and fully diluted 
earnings per share with basic and diluted earnings per share effective in the 
Company's fiscal quarter ending January 31, 1998.  Under SFAS 128, the 
Company's basic earnings per share is calculated by dividing net income by the 
weighted average number of common shares outstanding during the period (common 
stock equivalents are excluded) and the Company's diluted earnings per share 
is calculated similar to primary earnings per share.  See Note A(6) of Notes 
to Consolidated Financial Statements.


FORWARD-LOOKING STATEMENTS

The above discussions contain forward-looking statements that involve certain 
risks and uncertainties.  The Company's actual results could differ materially 
from those anticipated by such forward-looking statements due to the impact of 
many factors outside the Company's control including economic, geographic and 
industry conditions, fluctuations in market interest rates, prepayments, 
competitive conditions and changes in existing laws or regulations.

                                       12
<PAGE>
<TABLE>
                               FINANCIAL FEDERAL CORPORATION AND SUBSIDIARIES         
                                         CONSOLIDATED BALANCE SHEET     
<CAPTION>
                                                                                       July 31,
                                                                            ----------------------------- 
                                                                                1997             1996
                                                                            ------------     ------------
<S>                                                                         <C>              <C>
ASSETS

Cash                                                                        $  2,532,000     $  2,426,000
                                                                            ------------     ------------
Finance receivables                                                          581,363,000      437,706,000
   Less allowance for possible losses                                        (10,303,000)      (8,008,000)
                                                                            ------------     ------------
Finance receivables - net                                                    571,060,000      429,698,000
                                                                            ------------     ------------
Other assets                                                                   1,172,000          963,000
                                                                            ------------     ------------
TOTAL ASSETS                                                                $574,764,000     $433,087,000
                                                                            ============     ============

LIABILITIES

Senior debt:
   Short-term                                                               $  4,681,000     $    830,000
   Long-term ($16,986,000 in 1997 and $9,376,000 in 1996
      due to related parties)                                                434,680,000      310,000,000
Accrued interest, taxes and other liabilities                                 16,224,000       12,160,000
Subordinated debentures ($2,181,000 in 1997 and $3,178,000
   in 1996 due to related parties)                                             2,290,000        6,957,000
Deferred income taxes                                                         11,285,000        8,949,000
                                                                            ------------     ------------
Total liabilities                                                            469,160,000      338,896,000
                                                                            ------------     ------------
STOCKHOLDERS' EQUITY

Preferred stock - $1 par value, authorized 500,000 shares, none issued
Common stock - $.50 par value, authorized shares: 25,000,000,
   issued shares: 14,764,000 in 1997 and 9,960,000 in 1996                     7,382,000        4,980,000
Additional paid-in capital                                                    57,315,000       58,289,000
Warrants - issued and outstanding 1,607,000 in 1997 and 1996                      29,000           29,000
Retained earnings                                                             40,878,000       30,893,000
                                                                            ------------     ------------
Total stockholders' equity                                                   105,604,000       94,191,000
                                                                            ------------     ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                  $574,764,000     $433,087,000
                                                                            ============     ============

<FN>
The notes to consolidated financial statements are made a part hereof.
</FN>
</TABLE>
                                        13
<PAGE>
<TABLE>
                                     FINANCIAL FEDERAL CORPORATION AND SUBSIDIARIES
                                     CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY                 
<CAPTION>

                                         Common Stock - $.50 Par Value
                                   -----------------------------------------  
                                                                 Additional
                                    Number of                     Paid-in                      Retained       Treasury
                                     Shares        Par Value      Capital        Warrants      Earnings        Stock
                                   -----------    -----------   ------------    ----------   ------------   ------------
<S>                                <C>            <C>           <C>             <C>          <C>            <C>   
Balance at August 1, 1994            5,532,000     $2,766,000    $32,882,000       $29,000    $16,286,000    $(1,440,000)

Exercise of stock options               48,000         24,000        282,000
Tax benefit relating to stock
   options                                                            37,000
Net earnings                                                                                    7,209,000
                                   -----------    -----------   ------------    ----------   ------------   ------------
Balance at July 31, 1995             5,580,000      2,790,000     33,201,000        29,000     23,495,000     (1,440,000)

Retirement of treasury stock           (96,000)       (48,000)      (552,000)                    (840,000)     1,440,000
Exercise of stock options               31,000         16,000        150,000
Three-for-two stock split            2,745,000      1,372,000                                  (1,372,000)
Sale of common stock                 1,700,000        850,000     25,490,000
Net earnings                                                                                    9,610,000
                                   -----------    -----------   ------------    ----------   ------------   ------------
Balance at July 31, 1996             9,960,000      4,980,000     58,289,000        29,000     30,893,000         --

Acquisitions of teasury stock                                                                                 (1,630,000)
Retirement of treasury stock          (124,000)       (62,000)    (1,105,000)                    (463,000)     1,630,000
Exercise of stock options                7,000          3,000         58,000
Three-for-two stock split            4,921,000      2,461,000                                  (2,461,000)
Tax benefit relating to stock
   options                                                            73,000
Net earnings                                                                                   12,909,000
                                   -----------    -----------   ------------    ----------   ------------   ------------
BALANCE AT JULY 31, 1997            14,764,000     $7,382,000    $57,315,000       $29,000    $40,878,000    $    --
                                   ===========    ===========   ============    ==========   ============   ============

<FN>
The notes to consolidated financial statements are made a part hereof.
</FN>
</TABLE>
                                       14
<PAGE>
<TABLE>
                              FINANCIAL FEDERAL CORPORATION AND SUBSIDIARIES
                                   CONSOLIDATED STATEMENT OF OPERATIONS
<CAPTION>

                                                                        Year Ended July 31,      
                                                              ---------------------------------------
                                                                 1997          1996          1995     
                                                              -----------   -----------   -----------
<S>                                                           <C>           <C>           <C> 
Finance income:                                                                          
   Loan obligations                                           $38,374,000   $29,533,000   $24,654,000 
   Lease obligations                                           16,931,000    13,990,000    10,297,000 
                                                              -----------   -----------   -----------
      Total finance income                                     55,305,000    43,523,000    34,951,000 
                                                                                         
   Interest expense                                            23,437,000    19,271,000    16,253,000 
                                                              -----------   -----------   -----------
Finance income before provision for possible losses
   on finance receivables                                      31,868,000    24,252,000    18,698,000 
                                                                                         
Provision for possible losses on finance receivables            2,525,000     1,710,000     1,450,000 
                                                              -----------   -----------   -----------
      Net finance income                                       29,343,000    22,542,000    17,248,000 
                                                                                         
Miscellaneous income                                                                          130,000 
Salaries and other expenses                                    (8,356,000)   (7,113,000)   (5,806,000)
                                                              -----------   -----------   -----------
Earnings before income taxes                                   20,987,000    15,429,000    11,572,000 
                                                                                          
Provision for income taxes                                      8,078,000     5,819,000     4,363,000 
                                                              -----------   -----------   -----------
NET EARNINGS                                                  $12,909,000   $ 9,610,000   $ 7,209,000 
                                                              ===========   ===========   ===========
Earnings per common share:                                                               
   Primary                                                          $0.80         $0.68         $0.54 
                                                              ===========   ===========   ===========
   Fully diluted                                                    $0.79         $0.67         $0.54 
                                                              ===========   ===========   ===========
Average number of shares used:                                                            
   Primary                                                     16,153,752    14,224,992    13,434,183 
                                                              ===========   ===========   ===========
   Fully diluted                                               16,357,347    14,262,807    13,455,086 
                                                              ===========   ===========   ===========
                                                                                         
<FN>                                                                                         
The notes to consolidated financial statements are made a part hereof.         
</FN>
</TABLE>
                                       15
<PAGE>
<TABLE>
                                FINANCIAL FEDERAL CORPORATION AND SUBSIDIARIES                   
                                     CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>

                                                                             Year Ended July 31,                                   
                                                                 ------------------------------------------
                                                                     1997           1996           1995     
                                                                 ------------   ------------   ------------
<S>                                                              <C>            <C>            <C> 
Cash flows from operating activities:                                                                   
   Net earnings                                                  $ 12,909,000   $  9,610,000   $  7,209,000 
   Adjustments to reconcile net earnings to net cash                                                  
     provided by operating activities:                                                                
      Depreciation                                                    232,000        206,000        156,000 
      Provision for possible losses on finance receivables          2,525,000      1,710,000      1,450,000 
      Amortization of deferred origination costs                    4,232,000      3,443,000      2,896,000 
      Deferred income taxes                                         2,336,000      2,662,000      1,238,000 
      Gain on repurchase of subordinated debentures                                                (130,000)
      Decrease (increase) in other assets                            (253,000)      (368,000)        79,000 
      Increase (decrease) in accrued interest, taxes and
        other liabilities                                           4,064,000      4,813,000     (1,538,000)
                                                                 ------------   ------------   ------------
          Net cash provided by operating activities                26,045,000     22,076,000     11,360,000 
                                                                 ------------   ------------   ------------
Cash flows from investing activities:                                                                   
   Finance receivables:                                                                               
      Originated                                                 (464,283,000)  (358,512,000)  (261,135,000)
      Collected                                                   316,164,000    262,960,000    186,132,000 
   Other                                                             (188,000)      (254,000)      (242,000)
                                                                 ------------   ------------   ------------
          Net cash (used in) investing activities                (148,307,000)   (95,806,000)   (75,245,000)
                                                                 ------------   ------------   ------------
Cash flows from financing activities:                                                                   
   Commercial paper:                                                                                  
      Maturities 90 days or less (net)                             32,908,000    167,750,000    (10,591,000)
      Maturities greater than 90 days:                                                              
         Proceeds                                                 149,470,000     24,866,000     21,565,000 
         Repayments                                              (127,747,000)   (14,341,000)   (20,997,000)
   Bank borrowings:                                                                                   
      Maturities 90 days or less (net)                              9,220,000    (91,715,000)    74,445,000 
      Maturities greater than 90 days:                                                              
         Proceeds                                                   5,000,000                    35,000,000 
         Repayments                                                              (80,000,000)   (35,000,000)
   Proceeds from senior term notes                                 50,000,000     55,000,000              
   Proceeds from variable rate senior term notes                    9,680,000                           
   Repayment of senior subordinated note                                         (15,000,000)             
   Repayments of subordinated debentures                           (4,667,000)                     (595,000)
   Proceeds from sale of common stock                                             26,340,000              
   Acquisitions of treasury stock                                  (1,630,000)                          
   Proceeds from exercise of stock options                             61,000        166,000        306,000 
   Tax benefit relating to stock options                               73,000                        37,000 
                                                                 ------------   ------------   ------------
          Net cash provided by financing activities               122,368,000     73,066,000     64,170,000 
                                                                 ------------   ------------   ------------
NET INCREASE (DECREASE) IN CASH                                       106,000       (664,000)       285,000 
                                                                                                        
Cash - beginning of period                                          2,426,000      3,090,000      2,805,000 
                                                                 ------------   ------------   ------------
CASH - END OF PERIOD                                             $  2,532,000   $  2,426,000   $  3,090,000 
                                                                 ============   ============   ============
Supplemental disclosures of cash flow information:                                                      
                                                                                                        
   Interest paid                                                 $ 22,464,000   $ 18,163,000   $ 16,037,000 
                                                                 ============   ============   ============
   Income taxes paid                                             $  5,710,000   $  3,003,000   $  3,807,000 
                                                                 ============   ============   ============

<FN>                                                                                                        
The notes to consolidated financial statements are made a part hereof.
</FN>
</TABLE>
                                       16
<PAGE>

                FINANCIAL FEDERAL CORPORATION AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE A: SUMMARY OF SIGNIFICANT
        ACCOUNTING POLICIES

(1)  Principles of Consolidation - The consolidated financial statements 
include the accounts of Financial Federal Corporation ("Financial") and its 
subsidiaries, Financial Federal Credit Inc. ("Credit"), First Federal 
Commercial Inc. and Financial Federal Commercial Inc. (collectively the 
"Company"). Intercompany accounts and transactions have been eliminated. 

(2)  Business - The Company provides collateralized lending, financing and 
leasing services throughout the United States primarily to middle-market 
commercial enterprises in diverse industries such as general construction, 
road and infrastructure construction and repair, manufacturing, trucking and 
waste disposal.  The Company lends against, finances and leases a wide range 
of revenue-producing equipment such as cranes, earth movers, machine tools, 
personnel lifts, trailers and trucks.

(3)  Income Recognition - Finance receivables comprise loans and other 
financings and noncancelable leases.  All leases are accounted for as direct 
financing leases, where total lease payments, plus residual values, less the 
cost of the leased equipment is recorded as unearned finance income.  Residual 
values are recorded at the lowest of (i) any stated purchase option, (ii) the 
present value at the end of the initial lease term of rentals due under any 
renewal options or (iii) the estimated fair value of the equipment at the end 
of the lease.

     Finance income is recognized over the term of receivables using the 
interest method.  Costs incurred to originate or acquire finance receivables 
are deferred and amortized over the term of receivables using the interest 
method.
       
     Income recognition is suspended on finance receivables that are 
considered impaired (full collection of principal and interest being doubtful) 
by management.  This typically occurs when (i) a contractual payment is more 
than 120 days past due, (ii) the counterparty becomes the subject of a bank-
ruptcy proceeding or (iii) the underlying collateral is being liquidated.  
Impaired receivables are written down to the underlying collateral's currently 
estimated net liquidation value (if less than the recorded amount).  Income 
recognition may be resumed when management believes full collection is 
probable.  Any cash collected on impaired receivables is applied to the 
recorded investment.

(4)  Allowance for Possible Losses - A general provision for possible losses 
on finance receivables is charged against income in an amount to increase the 
allowance for possible losses to a level that management considers 
appropriate.  Write-downs of impaired receivables are charged to the allowance 
for possible losses and subsequent recoveries of amounts written down are 
credited to the allowance.  Management periodically reviews the allowance 
giving consideration to present and anticipated national and regional economic 
conditions, industry conditions, the status of the finance receivables, and 
other factors. 

(5)  Income Taxes - Deferred tax assets and liabilities are recognized for the 
estimated future tax effects of temporary differences between the financial 
statement and tax return bases of assets and liabilities using enacted tax 
rates.  Deferred tax expense represents the net change in deferred tax assets 
and liabilities during the year.    

(6)  Earnings Per Share - Earnings per common share is calculated by dividing 
net earnings by the weighted average number of shares of common stock and 
common stock equivalents outstanding during the period.  Common stock 
equivalents comprise dilutive stock options and warrants that are assumed to 
be exercised for the calculation.    

                                       17
<PAGE>

     In February 1997, the Financial Accounting Standards Board issued 
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per 
Share." This standard replaces the current presentation of primary and fully 
diluted earnings per share, which both include the effects of common stock 
equivalents, with basic and diluted earnings per share effective in the 
Company's fiscal quarter ending January 31, 1998.  Under SFAS 128, basic 
earnings per share, calculated by dividing net income by the weighted average 
number of common shares outstanding during the period, would be $0.87, $0.74 
and $0.59 per share in 1997, 1996 and 1995, respectively.  Diluted earnings 
per share would be the same as primary earnings per share for each of the 
three years. 

(7)  Use of Estimates - The consolidated financial statements and the notes 
thereto were prepared in accordance with generally accepted accounting 
principles which requires estimates and assumptions to be made by management 
that affect the amounts reported therein.  Actual results could differ from 
those estimates.


NOTE B: FINANCE RECEIVABLES

(1)  Finance receivables comprise installment sales and secured loans 
(including line of credit arrangements), collectively referred to as loans, 
which provide for interest at fixed rates or variable rates generally indexed 
to the prime rate (as defined) and investments in direct financing leases, as 
follows:
                                               July 31,          
                                     ---------------------------
                                         1997           1996     
Loans:                               ------------   ------------
   Fixed rate                        $291,221,000   $190,851,000
   Variable rate                      103,590,000    100,053,000
                                     ------------   ------------
        Total                         394,811,000    290,904,000
Direct financing leases               186,552,000    146,802,000
                                     ------------   ------------
        Finance receivables          $581,363,000   $437,706,000
                                     ============   ============

     The approximate weighted average interest rates were 10.7% and 11.1% on 
fixed rate loans at July 31, 1997 and 1996, respectively, and 2.6% and 2.8% 
over the prime rate on variable rate loans at July 31, 1997 and 1996, 
respectively.

(2)  The investment in direct financing leases comprises the following:

                                               July 31,          
                                     ---------------------------
                                         1997           1996     
                                     ------------   ------------
Minimum lease payments receivable    $193,201,000   $154,003,000
Residual values                        30,047,000     22,526,000
Unearned finance income               (36,696,000)   (29,727,000)
                                     ------------   ------------
     Investment in direct
       financing leases              $186,552,000   $146,802,000
                                     ============   ============

(3)  Finance receivables generally provide for monthly installments of equal 
or varying amounts over periods ranging from two to five years.  Annual 
contractual maturities of finance receivables at July 31, 1997 are as follows:

                                                       Direct
                         Fixed         Variable      Financing
                       Rate Loans     Rate Loans       Leases    
                      ------------   ------------   ------------
1998                  $105,719,000   $ 46,898,000   $ 66,815,000
1999                    85,801,000     26,454,000     56,405,000
2000                    59,758,000     18,109,000     40,470,000
2001                    29,149,000      7,413,000     21,788,000
2002                     8,118,000      3,097,000      7,023,000
Thereafter               2,676,000      1,619,000        700,000
                      ------------   ------------   ------------
     Total            $291,221,000   $103,590,000   $193,201,000
                      ============   ============   ============

(4)  The activity of the allowance for possible losses is summarized as 
follows: 
                                     Year Ended July 31,         
                           -------------------------------------
                               1997         1996         1995    
                           -----------   ----------   ----------
Balance - August 1          $8,008,000   $6,395,000   $5,191,000
Provision                    2,525,000    1,710,000    1,450,000
Write-downs                 (1,168,000)  (1,004,000)    (914,000)
Recoveries                     938,000      907,000      668,000
                           -----------   ----------   ----------
Balance - July 31          $10,303,000   $8,008,000   $6,395,000
                           ===========   ==========   ==========

                                       18
<PAGE>

(5)  Income recognition has been suspended on finance receivables with a 
recorded investment of $5,626,000 (includes $3,979,000 of impaired loans) at 
July 31, 1997 and $5,894,000 (includes $4,489,000 of impaired loans) at July 
31, 1996.  The average recorded investment in impaired loans was $3,915,000 in 
1997 and $3,185,000 in 1996.  Impaired loans exclude direct financing leases.

(6)  The Company is a party to financial instruments with off-balance sheet 
risk in the normal course of business.  These financial instruments are 
commitments to extend credit to customers.  The Company uses the same credit 
policies and procedures in making these commitments as it does for finance 
receivables as the credit risks are substantially the same.  At July 31, 1997 
and 1996, the unused portion of these commitments was $5,805,000 and 
$7,075,000, respectively.


NOTE C: DEBT

Debt is summarized as follows: 
                                               July 31,          
                                     ---------------------------
                                         1997           1996     
                                     ------------   ------------
Senior debt:
   Commercial paper                  $244,591,000   $189,960,000
   Bank borrowings                     80,090,000     65,870,000
   Term notes: 
      7.40% due 2000                   25,000,000
      7.45% due 2001                   25,000,000
      6.76% due 2002                   55,000,000     55,000,000
   Variable rate term notes             9,680,000             
                                     ------------   ------------
        Total senior debt             439,361,000    310,830,000
Subordinated debentures                 2,290,000      6,957,000
                                     ------------   ------------
        Total debt                   $441,651,000   $317,787,000
                                     ============   ============

(1)  The Company issues commercial paper with a maximum term of 270 days.  The 
weighted average interest rates on commercial paper outstanding at July 31, 
1997 and 1996 were 5.8% and 5.7%, respectively.

     Commercial paper transactions with officers and other related parties are 
summarized as follows:

                            1997          1996          1995    
                         -----------   -----------   -----------
Year ended July 31: 
   Issued                $31,409,000   $34,778,000   $55,270,000
   Matured                33,479,000    32,218,000    65,596,000
   Interest expense          721,000       497,000       730,000
At July 31:
   Outstanding             7,306,000     9,376,000
   Accrued interest           91,000        99,000

(2)  At July 31, 1997, the Company had $395,000,000 of committed unsecured 
revolving credit facilities with various banks expiring as follows: 
$75,000,000 within one year and $320,000,000 on various dates from December 
1998 through November 2001.  These facilities contain certain restrictive 
covenants including limitations on indebtedness, encumbrances, dividends to 
Financial from Credit, capital expenditures and minimum net worth.  The 
Company generally incurs a fee on the unused portion of these facilities.

     Outstanding borrowings of $80,090,000 at July 31, 1997 generally mature 
between 1 and 90 days and bear interest based on domestic money market rates 
or LIBOR, at the Company's option.  The weighted average interest rates on 
bank borrowings were 6.3% and 6.1% at July 31, 1997 and 1996, respectively.

(3)  The senior term notes are Credit's obligations.  Interest is payable 
semi-annually.  Prepayments of the notes are subject to a premium based on 
yield maintenance formulas.  The notes contain certain restrictive covenants 
including limitations on indebtedness, encumbrances, dividends to Financial 
and minimum net worth.

(4)  The variable rate senior term notes are payable to certain executive 
officers and their affiliates.  The notes bear interest at variable rates 

                                       19
<PAGE>

indexed to LIBOR or domestic money market rates and mature in September 1998 
subject to extension.

(5)  In July 1996, Financial called its variable rate subordinated debentures 
at face value offering holders the option to receive amended debentures.  As a 
result, $4,667,000 of these debentures were repaid ($997,000 to related 
parties) and $2,290,000 of amended debentures were issued ($2,181,000 to 
related parties) on September 1, 1996.  The amended debentures mature March 1, 
2003, bear interest, payable semi-annually, at the fixed annual rate of 8.0%, 
contain a penalty for prepayments made prior to September 1, 1999 and are 
subordinated to senior debt and other debt designated by the Board of 
Directors and to certain other liabilities as provided for in the debentures.

      In 1995, Financial repurchased a debenture with a face amount of 
$725,000 from a non-related party for $595,000.

(6)  Under the most restrictive of the above dividend payment covenants, 
$34,826,000 of the Company's equity was free from dividend restrictions at 
July 31, 1997.

(7)  At July 31, 1997, long-term senior debt (includes commercial paper and 
bank borrowings supported by credit facilities expiring after one year) and 
subordinated debt are due as follows: $154,680,000 in 1999, $130,000,000 in 
2000, $45,000,000 in 2001, $105,000,000 in 2002 and $2,290,000 in 2003.


NOTE D: STOCKHOLDERS' EQUITY

(1)  In July 1997, the Board of Directors authorized a three-for-two stock 
split effected in the form of a stock dividend, payable on July 30, 1997.  

      In December 1995, the Board of Directors authorized a three-for-two 
stock split effected in the form of a stock dividend, payable in January 1996. 

      Prior period average shares outstanding, share equivalents and per share 
amounts have been restated to reflect the stock splits.  Shares sold or 
acquired prior to the stock splits have not been restated.

(2)  In August 1996, the Company established a program to repurchase its 
common stock.  Total repurchases are limited to $4,130,000 under the program 
as increased in May 1997.  In 1997 (prior to the three-for-two stock split), 
124,300 shares were repurchased for $1,630,000.  Shares repurchased are 
retired.

(3)  In December 1995, the Company's stockholders approved (i) an increase in 
the number of authorized shares of common stock from 10,000,000 to 25,000,000 
and (ii) an amendment to the Company's stock option plan to increase the 
number of shares of common stock available in the plan from 1,125,000 to 
2,250,000.

(4)  In May 1996, the Company sold 1,700,000 shares of its common stock in a 
public offering.  Net proceeds of $26,340,000 were used to repay bank 
borrowings.

(5)  Warrants:

In 1989, the Company issued warrants to purchase 1,125,000 shares of common 
stock at $2.83 per share to its original stockholders.  The warrants were 
purchased for $.0022 each and expire February 1, 2001.

     In 1991, the Company issued warrants to purchase 481,500 shares of common 
stock at $2.72 per share to certain officers.  The warrants were purchased for 
$.0555 each and expire August 31, 2001.


NOTE E: STOCK OPTIONS:

The Company's stock option plan was adopted in September 1989 (as amended) and 
expires in September 1999 subject to earlier termination by the Board of

                                       20
<PAGE>

Directors.  Under the plan, the Company may grant non-qualified and incentive 
stock options to officers, directors and employees for the purchase of 
2,250,000 shares of common stock.  The exercise price of each option granted 
may not be less than the fair market value of the common stock on the grant 
date and the maximum term of an option is ten years.

      Options outstanding at July 31, 1997 were granted with a six year term 
and vest (become exercisable) in four equal cumulative annual installments 
commencing with the second anniversary of the grant date, except for 112,500 
options that were granted to certain executive officers in 1996 with an eight 
year term and vest in eight varying annual cumulative installments.  At July 
31, 1997, 1,170,754 shares of common stock were available for future grants of 
options.

      Stock option activity and related information is summarized as follows:

                                    Number of   Weighted Average
                                     Options     Exercise Price  
                                    ---------   ----------------
Outstanding at August 1, 1994        473,512         $ 5.23
   Granted                             2,700           6.78
   Exercised                        (108,450)          2.85
   Canceled                          (13,275)          6.69
                                     -------
Outstanding at July 31, 1995         354,487           5.92
   Granted                           258,225           9.05
   Exercised                         (50,513)          3.35
   Canceled                          (47,588)          6.64
                                     -------
Outstanding at July 31, 1996         514,611           7.68
   Granted                           131,925          11.17
   Exercised                          (9,537)          6.39
   Canceled                          (45,302)          8.10
                                     -------
Outstanding at July 31, 1997         591,697           8.45
                                     =======
Exercisable at July 31:
   1995                               66,937          $4.33 
   1996                               97,480           6.78 
   1997                              149,534           6.68

     The Company has adopted the disclosure-only provisions of SFAS 123, 
"Accounting for Stock-Based Compensation," and therefore continues to apply 
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock 
Issued to Employees," and related Interpretations in accounting for its stock 
options.  Under APB 25, no compensation expense is recognized when the 
exercise price of stock options is at least equal to the market price of the 
stock on the grant date.

     The exercise prices of options outstanding at July 31, 1997 ranged from 
$6.22 to $11.17.  Additional information of these options, by price range, is 
summarized as follows:
                                                 Price Range       
                                             ------------------- 
                                             Under $8    Over $8  
                                             --------    -------
Outstanding:
   Number                                     336,397    255,300
   Weighted average exercise price              $6.83     $10.58
   Weighted average remaining       
     contractual life (in years)                  3.8        5.1
Exercisable:
   Number                                     149,534         --
   Weighted average exercise price              $6.68

     Pro forma amounts of net earnings and earnings per share, determined as 
if compensation expense attributable to stock options had been recognized 
under SFAS 123 using the fair value method, are as follows:

                                           Year Ended July 31,   
                                        ------------------------ 
                                            1997         1996   
                                        -----------   ----------
Net earnings                            $12,720,000   $9,473,000
Earnings per share:
   Primary                                    $0.79        $0.67 
   Fully diluted                              $0.78        $0.67 

     The pro forma effect on net earnings in 1997 and 1996 may not be 
representative of the effect in future years since compensation expense 
attributable to stock options under SFAS 123 is measured over an option's 
vesting period and only applies to options granted by the Company after  
August 1, 1995.

                                       21
<PAGE>

     The Company estimated the weighted average grant date fair values at 
$3.78 and $3.55 for stock options granted in 1997 and 1996, respectively, 
using the Black-Scholes option-pricing model based on the following 
assumptions: weighted average risk-free interest rates of 6.7% in 1997 and 
6.0% in 1996; expected volatility rates of the price of the Company's common 
stock of 27%; and weighted average expected life of options granted of 4.3 
years in 1997 and 6.2 years in 1996.


NOTE F: INCOME TAXES

(1)  The provision for income taxes comprises the following:

                                     Year Ended July 31,         
                            ------------------------------------
                               1997         1996         1995    
                            ----------   ----------   ----------
Currently payable:
   Federal                  $4,887,000   $2,773,000   $2,742,000
   State and local             782,000      384,000      346,000
                            ----------   ----------   ----------
        Total                5,669,000    3,157,000    3,088,000
Deferred                     2,336,000    2,662,000    1,238,000
Tax benefit relating
  to stock options              73,000                    37,000
                            ----------   ----------   ----------
        Provision for
          income taxes      $8,078,000   $5,819,000   $4,363,000
                            ==========   ==========   ==========

(2)  Income taxes computed at the statutory federal income tax rates are 
reconciled to the provision for income taxes as follows:

                                     Year Ended July 31,         
                            ------------------------------------
                               1997         1996         1995    
                            ----------   ----------   ----------
Federal income tax at
  statutory rates           $7,345,000   $5,313,000   $3,934,000
State and local taxes                                     
  (net of federal 
  income tax benefit)          733,000      506,000      429,000
                            ----------   ----------   ----------
       Provision for
         income taxes       $8,078,000   $5,819,000   $4,363,000
                            ==========   ==========   ==========

(3)  Deferred income taxes comprises the tax effect of the following temporary 
differences:
                                                July 31,          
                                       -------------------------
                                          1997          1996     
                                       -----------   -----------
Deferred tax liabilities:
   Leasing transactions                $14,193,000   $11,069,000
   Deferred origination costs            2,218,000     1,902,000
                                       -----------   -----------
        Total                           16,411,000    12,971,000
                                       -----------   -----------
Deferred tax assets:
   Allowance for possible losses        (3,993,000)   (3,070,000)
   Other liabilities                    (1,133,000)     (952,000)
                                       -----------   -----------
        Total                           (5,126,000)   (4,022,000)
                                       -----------   -----------
        Deferred income taxes          $11,285,000   $ 8,949,000
                                       ===========   ===========


NOTE G: LEASE COMMITMENTS

     The Company occupies office space under leases expiring through 2004.  
At July 31, 1997, minimum future annual rentals due under these leases are 
$627,000 in 1998, $496,000 in 1999, $439,000 in 2000, $308,000 in 2001, 
$322,000 in 2002 and $242,000 thereafter.

     Office rent expense was $677,000 in 1997, $550,000 in 1996 and $473,000 
in 1995. 


NOTE H: CONCENTRATION OF CREDIT RISK

     The Company manages its exposure to the credit risk associated with its 
finance receivables through established credit policies and procedures which 
include requiring a first lien on equipment collateral on all transactions.  
The Company evaluates the equipment collateral on an ongoing basis and focuses 
on lending against, financing and leasing equipment collateral that has an 
economic life exceeding the term of the receivable, is not subject to rapid 
technological obsolescence, has applications in various industries, is easily

                                       22
<PAGE>
    
accessible and movable and has a broad resale market.  The Company may also 
obtain third party guarantees and/or hold back a portion of the amount 
financed.

     Concentrations of credit risk arise when counterparties have similar 
economic characteristics that would cause their ability to meet contractual 
obligations to be similarly affected by changes in economic or other 
conditions.  The Company does not have a significant concentration of credit 
risk with any one counterparty.  The major concentrations of credit risk 
grouped by the industries and geographic regions of counterparties, expressed 
as a percentage of finance receivables, were as follows:

                             July 31,          
                         ---------------
                          1997     1996     
                         ------   ------
Industry:
   Trucking                19%      20%
   Construction            15       17
   Waste disposal          14       13
   Cranes                  12       11

Geographic region:
   Southwest               25%      27%
   Northeast               25       21
   Southeast               24       25


NOTE I: FAIR VALUES OF FINANCIAL INSTRUMENTS

     The Company's financial instruments comprise cash, finance receivables 
(excluding leases), commitments to extend credit and debt.  The following 
summarizes the methods used to estimate the fair value of these financial 
instruments.

     The carrying values of cash, commercial paper and bank borrowings 
approximate their fair values based on their short-term maturities.

      The carrying values of the senior term notes, the variable rate senior 
term notes and the subordinated debentures are estimated to approximate their 
fair values at July 31, 1997 and 1996 based on their future cash flows 
discounted at current rates for debt with similar terms and maturities.

      It is not practicable for the Company to estimate the fair value of its 
finance receivables and commitments to extend credit.  These financial 
instruments comprise a substantial number of transactions with commercial 
obligors in numerous industries, are secured by liens on various types of 
equipment and may be guaranteed by third parties.  Each transaction would be 
valued by a potential buyer based on its credit quality, collateral value, 
third party guarantee(s), payment history, interest rate, maturity, 
documentation and other legal matters, and many other considerations which 
would involve the buyer's subjective judgment.  The value received in a fair 
market sale of each of these transactions would be based on the nature of the 
sale, the documentation governing such sale, the Company's and the buyer's 
views of general economic conditions, industry dynamics, the Company's and  
the buyer's tax considerations, and numerous other factors.   

                                        23
<PAGE>

                          INDEPENDENT AUDITORS' REPORT
                          ----------------------------

To the Board of Directors and Shareholders
Financial Federal Corporation


We have audited the accompanying consolidated balance sheets of Financial 
Federal Corporation and Subsidiaries as at July 31, 1997 and 1996, and the 
related consolidated statements of stockholders' equity, operations and 
cash flows for each of the three years in the period ended July 31, 1997.  
These financial statements are the responsibility of the Company's 
management.  Our responsibility is to express an opinion on these 
consolidated financial statements based on our audits.

     We conducted our audits in accordance with generally accepted auditing 
standards.  Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free of 
material misstatement.  An audit includes examining, on a test basis, evidence 
supporting the amounts and disclosures in the financial statements.  An audit 
also includes assessing the accounting principles used and significant 
estimates made by management, as well as evaluating the overall financial 
statement presentation.  We believe that our audits provide a reasonable basis 
for our opinion. 

     In our opinion, the consolidated financial statements referred to above 
present fairly, in all material respects, the consolidated financial position 
of Financial Federal Corporation and Subsidiaries at July 31, 1997 and 1996, 
and their consolidated operating results and their cash flows for each of the 
three years in the period ended July 31, 1997, in conformity with generally 
accepted accounting principles. 


                                              /s/ Eisner & Lubin LLP  
                                              ----------------------------
                                              CERTIFIED PUBLIC ACCOUNTANTS


New York, New York
September 4, 1997

                                       24
<PAGE>

                              SELECTED QUARTERLY DATA
                              -----------------------

The following table sets forth quarterly financial data for the years ended 
July 31, 1997 and 1996 adjusted for the July 1997 and January 1996 
three-for-two stock splits.
<TABLE>
<CAPTION>
                                                                   Earnings per Share
                                                                   ------------------   
                                                                               Fully
                                       Revenues     Net Earnings   Primary    Diluted
                                      -----------   ------------   -------    -------
<S>                                   <C>           <C>            <C>        <C>  
Fiscal 1997, three months ended:
   October 31, 1996                   $12,530,000     $2,972,000     $0.18      $0.18
   January 31, 1997                    13,356,000      3,134,000      0.19       0.19
   April 30, 1997                      13,999,000      3,287,000      0.20       0.20
   July 31, 1997                       15,420,000      3,516,000      0.22       0.22

Fiscal 1996, three months ended:
   October 31, 1995                   $10,175,000     $2,124,000     $0.16      $0.16
   January 31, 1996                    10,741,000      2,317,000      0.17       0.17
   April 30, 1996                      10,905,000      2,439,000      0.18       0.18
   July 31, 1996                       11,702,000      2,730,000      0.17       0.17
</TABLE>


                     STOCK PRICE HISTORY AND DIVIDEND POLICY
                     --------------------------------------- 

The Company's common stock is traded on the American Stock Exchange under the 
symbol "FIF".  The following table sets forth the quarterly high and low 
closing sales prices per share of the common stock as reported by the American 
Stock Exchange adjusted for the July 1997 and January 1996 three-for-two stock 
splits.
<TABLE>
<CAPTION>
                                           FISCAL 1997         FISCAL 1996 
                                         ---------------     --------------- 
                                          High     Low       High     Low
                                         ------   ------     ------   ------
<S>                                      <C>      <C>        <C>      <C> 
First Quarter ended October 31           $10.58   $ 8.50     $ 9.73   $ 7.83
Second Quarter ended January 31          $11.83   $ 9.25     $11.00   $ 9.28
Third Quarter ended April 30             $13.00   $10.42     $11.25   $10.09
Fourth Quarter ended July 31             $15.58   $11.42     $11.42   $ 8.42

</TABLE>
The Company presently has no intention of paying cash dividends in the 
foreseeable future.

                                       25
<PAGE>

                              CORPORATE DIRECTORY
                              ------------------- 

OFFICERS

Chairman of the Board and President
Clarence Y. Palitz, Jr.

Executive Vice President and Treasurer
Michael C. Palitz

Executive Vice President
Paul Sinsheimer

Senior Vice President
William M. Gallagher

Senior Vice President & Secretary
Troy H. Geisser

Senior Vice President
Richard W. Radom

Vice President
Julian C. Green, Jr.

Vice President
Jeanne McDonald

Vice President
Fred J. Palumbo

Administrative Vice President
Ted Wooldridge

Controller and Assistant Treasurer
David H. Hamm


OFFICERS OF SUBSIDIARIES ONLY

Senior Vice Presidents:
John V. Golio
Daniel J. McDonough

Vice Presidents:
Donald G. Pokorny
Luther C. Whitlock

Divisional Vice President:
William J. Flaherty

Regional Vice Presidents:
Gary Barnes
Johnie E. Christ
Thomas Fahl
James M. Keesee
W. J. Mattocks
Michael A. Nelson
James R. Scappi
Rodney Sepulvado
Thomas L. Tornee

Assistant Vice Presidents:
Donald Hamann
Gregory Lile
James H. Mayes, Jr.
Kevin McGinn
Gary L. Pace
Kimberly P. Walter
Gerry H. Wilson

Assistant Secretaries:
Joan E. Bischer
Donna L. Frate
Robert Grawl, Jr.
Chris Jones
Thomas G. Kassakatis
Gregory Treichler

Assistant Controllers:
Barbara Constantino
E. Scott Megason

                                       26
<PAGE>

DIRECTORS

Lawrence B. Fisher
Partner
Orrick, Herrington & Sutcliffe LLP
Attorneys

William C. MacMillen, Jr.
President
William C. MacMillen & Co., Inc.
Investment Bankers

Bernard G. Palitz
President
Gregory Capital Corporation
Investments

Clarence Y. Palitz, Jr.
Chairman of the Board and President
Financial Federal Corporation

Michael C. Palitz
Executive Vice President and Treasurer
Financial Federal Corporation

Paul Sinsheimer
Executive Vice President
Financial Federal Corporation


AUDITORS
Eisner & Lubin LLP
Certified Public Accountants
250 Park Avenue, New York, NY 10177

GENERAL COUNSEL
Orrick, Herrington & Sutcliffe LLP
666 Fifth Avenue, New York, NY 10103

TRANSFER AGENT AND REGISTRAR
The Bank of New York
New York, NY 


LOCATIONS

Headquarters:
400 Park Avenue, 8th Floor
New York, NY 10022
(212) 888-3344

Full Service Offices:
1300 Post Oak Boulevard, Suite 1300
Houston, TX 77056
(713) 439-1177

601 Oakmont Lane, Suite 270
Westmont, IL 60559
(630) 986-3900

300 Frank W. Burr Boulevard
Teaneck, NJ 07666
(201) 801-0300

201 McCullough Drive, Suite 320
Charlotte, NC 28262
(704) 549-1009

1855 W. Baseline Road, Suites 145 and 155
Mesa, AZ 85202
(602) 491-1300


CORPORATE INFORMATION

The annual meeting of shareholders will be held at 270 Park Avenue, New York, 
NY on December 9, 1997 at 10 a.m. Eastern Time.

For a copy of Form 10-K or other information about the Corporation contact:

Investor Relations
Financial Federal Corporation
400 Park Avenue, 8th Floor
New York, NY 10022
(212) 888-3344

                               [INSIDE BACK COVER]
<PAGE>

[logo]

    FINANCIAL
     FEDERAL
   CORPORATION

 400 PARK AVENUE
NEW YORK, NY 10022

[BACK COVER]
<PAGE>