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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------

                                    FORM 10-K

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
                            ------------------------
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

                           COMMISSION FILE NO. 1-12109
                            ------------------------
                           DELTA FINANCIAL CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

              DELAWARE                               11-3336165
  (STATE OR OTHER JURISDICTION OF                 (I.R.S. EMPLOYER
   INCORPORATION OR ORGANIZATION)                IDENTIFICATION NO.)

   1000 WOODBURY ROAD, SUITE 200,
         WOODBURY, NEW YORK                             11797
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)             (ZIP CODE)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:(516) 364-8500
                            ------------------------
           SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

         COMMON STOCK, PAR VALUE $.01 PER SHARE NEW YORK STOCK EXCHANGE
        (TITLE OF EACH CLASS) (NAME OF EACH EXCHANGE ON WHICH REGISTERED)

        SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE

   Indicate  by check mark  whether  the  registrant  (1) has filed all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]

   Indicate by check mark if disclosure of  delinquent  filers  pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]

   As of March 15, 2000, the aggregate  market value of the voting stock held by
non-affiliates  of the  Registrant,  based on the  closing  price of $2.75,  was
approximately $13,362,628.

   As of March 30, 2000, the  Registrant  had 15,883,749  shares of Common Stock
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

   Part III,  Items 10, 11, 12 and 13 are  incorporated  by reference from Delta
Financial Corporation's definitive proxy statement to stockholders which will be
filed with the Securities  and Exchange  Commission no later than 120 days after
December 31, 1999.
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<PAGE>


PART I
ITEM 1.  BUSINESS

BUSINESS OVERVIEW

   Delta Financial Corporation (together with its subsidiaries, the "Company" or
"Delta") is a Delaware corporation that was organized in August 1996. On October
31, 1996, in connection with its initial public  offering,  the Company acquired
all of the  outstanding  common  stock  of  Delta  Funding  Corporation  ("Delta
Funding"),  a New York corporation that had been organized on January 8, 1982 to
originate,  sell,  service and invest in residential first and second mortgages.
On  November  1, 1996,  the  Company  completed  an initial  public  offering of
4,600,000 shares of common stock, par value $.01 per share.

   Delta, through its subsidiaries, is a specialty consumer finance company that
has engaged in originating, acquiring, selling and servicing non-conforming home
equity loans since 1982. Throughout its operating history,  Delta has focused on
lending to  individuals  who  generally  do not qualify for  conforming  credit.
Management  believes that these  borrowers have largely been  unsatisfied by the
more  traditional  sources  of  mortgage  credit,   which  underwrite  loans  to
conventional   guidelines   established   by  the  Federal   National   Mortgage
Associations ("FNMA") and the Federal Home Loan Mortgage Corporation  ("FHLMC").
The  Company  makes  loans  to  these   borrowers  for  such  purposes  as  debt
consolidation,  home improvement,  refinancing or education, and these loans are
primarily  secured  by  first  mortgages  on  one-  to  four-family  residential
properties.

   Through its wholly-owned  subsidiary,  Delta Funding,  the Company originates
home equity loans indirectly  through  licensed  mortgage brokers and other real
estate  professionals  who  submit  loan  applications  on behalf  of  borrowers
("Brokered  Loans") and also purchases  loans from mortgage  bankers and smaller
financial   institutions   that   satisfy   Delta's   underwriting    guidelines
("Correspondent  Loans").  Delta Funding  Corporation  currently  originates and
purchases  the  majority  of its loans in 24  states,  through  its  network  of
approximately 1,600 brokers and correspondents.

   Through  its  wholly-owned  subsidiary,  Fidelity  Mortgage  Inc.  ("Fidelity
Mortgage")  - which  the  Company  acquired  in  February  1997 to  broaden  its
origination sources and to expand its geographic presence - the Company develops
retail loan leads primarily through its telemarketing  system and its network of
14 retail offices located in Florida (3),  Illinois,  Indiana,  Missouri,  North
Carolina,  Ohio (4), Pennsylvania (2) and Tennessee.  In March 2000, the Company
decided to close a branch located in Georgia.

    For the year ended December 31, 1999,  the Company  originated  or purchased
approximately  $1.47 billion of loans, of which  approximately $891 million were
originated through its network of brokers,  $319 million were originated through
its Fidelity  Mortgage  retail  network and $261 million were purchased from its
network of correspondents.

   Substantially  all of the loans  originated and purchased by the Company were
sold in  securitizations  in which the loans were transferred to a trust,  which
had  raised  the  cash  payment  to  purchase  the  loans  through  the  sale of
asset-backed  pass-through  securities of the trust. For the year ended December
31, 1999, Delta sold a total of $1.46 billion of loans through three real estate
mortgage  investment  conduit  ("REMIC")  securitizations.  Each of these  three
securitizations was  credit-enhanced,  by an insurance policy provided through a
monoline insurance company and/or a  senior-subordinated  structure,  to receive
ratings of Aaa from Moody's  Investors  Service,  Inc.  ("Moody's"),  Fitch IBCA
("Fitch") and Duff & Phelps Credit Rating Company ("Duff & Phelps") and AAA from
Standard & Poor's Ratings Group, a division of The McGraw-Hill  Companies,  Inc.
("S&P").  The  Company  sells  loans  through  securitizations  to  improve  its
operating leverage and liquidity,  to minimize financing costs and to reduce its
exposure to fluctuations in interest rates.

   The majority of  the  Company's revenues  and  cash flows  result  from   its
securitizations  and servicing of  home-equity  loans that it has  originated or
purchased. In a securitization, the  Company sells  the loans to  a  trust for a
cash

                                       1

payment while  retaining  (1)  the  right to service  the  loans, and  receive a
contractual servicing fee and (2) interest-only and residual certificates in the
trust.  The  interest-only  and  residual  certificates  entitle  the Company to
receive any "Excess  Servicing"  income,  consisting of any remaining cash flows
collected by the trust from  principal and interest  payments on its loans after
the trust has first paid (a) all  principal  and interest  required to be passed
through to holders of the  trust's  securities,  (b) all  contractual  servicing
fees, and (c) other recurring fees and costs of  administering  the trust.  Upon
securitizing  a pool of loans,  the Company  recognizes  a gain on sale of loans
("net gain on sale of mortgage  loans")  equal to the  difference  between  cash
received from the trust when it sells asset-backed pass-through certificates and
the  investment  in the  loans  remaining  after  allocating  portions  of  that
investment  to record  the  value of  servicing  rights  and  interest-only  and
residual certificates  received by Delta in the securitization.  The majority of
the net  gain on the sale of  mortgage  loans  results  from,  and is  initially
realized in the form of, the  retention  of the  mortgage  servicing  rights and
interest-only and residual certificates.  The servicing rights and interest-only
and  residual  certificates  are  each  recorded  based on  their  fair  values,
estimated based on a discount rate which management  believes  reflects the rate
market  participants  would utilize in purchasing  similar  servicing rights and
interest-only and residual certificates, and the stated terms of the transferred
loans adjusted for estimates of future prepayment rates and defaults among those
loans. If actual prepayments and/or defaults exceed the Company's estimates, the
future  cash flows from the  servicing  rights and  interest-only  and  residual
certificates  would  be  negatively  affected.   (See  "Item  7  -  Management's
Discussion  and  Analysis of  Financial  Condition  and Results of  Operations -
Certain Accounting Considerations.")

   Although the Company  recognizes  income from  the securitization of loans at
the  time of the  securitization,  the  Company  receives  cash  flows  from the
securitization,  in particular the retained  servicing rights and  interest-only
and residual  certificates,  over the life of the transferred loans. The Company
begins to receive  cash flows from  monthly  contractual  servicing  fees in the
month following a securitization.  The Company's servicing fees range from 0.50%
to 0.65% per annum of the outstanding balance of the loans being serviced.

   The Company typically begins to receive cash flows from the interest-only and
residual   certificates  retained   upon  securitization  approximately  12  to
20   months  after  a  securitization,  with  the  specific timing  depending on
the structure and performance of the securitization.  Initially,  securitization
trusts utilize the Excess  Servicing cash flows to make  additional  payments of
principal  on the  pass-through  certificates  in  order to  establish  a spread
between the principal amount of the trust's  outstanding loans and the amount of
outstanding pass-through certificates. Once a spread of between 2% and 3% of the
initial  securitization   principal  (the   "overcollateralization   limit")  is
established,  the Excess  Servicing  cash flows are  distributed to Delta as the
holder of the interest-only and residual certificates.  The Company utilizes the
more  conservative  "cash-out" method of valuing future cash flows from residual
certificates  (See "Item 7  Management's  Discussion  and  Analysis of Financial
Condition and Results of Operations - Certain Accounting Considerations.").

   The Company  services  substantially  all of the loans it has  originated  or
purchased,  including  all of the  loans  sold  through  securitizations.  As of
December 31, 1999, the Company had a loan servicing portfolio of $3.64 billion.

   In  addition  to  the  income  and  cash  flows  earned  from  the  Company's
securitizations,  the Company  also earns income and  generates  cash flows from
whole loan sales,  the net interest  spread  earned on loans while they are held
for sale, and from loan origination fees on Brokered Loans and retail loans.

   The  Company's  business  strategy is to increase  the size of its  servicing
portfolio  and  focus on its more  profitable  broker  and  retail  channels  of
originations  (instead of correspondent  purchases) by (1) continuing to provide
top  quality  service  to its  network  of  brokers,  correspondents  and retail
clients, (2) maintaining its underwriting standards, (3) further penetrating its
established  and  recently-entered  markets and  expanding  into new  geographic
markets, (4) expanding its retail origination  capabilities,  (5) leveraging and
continuing its investment in information  and processing  technologies,  and (6)
strengthening its loan production capabilities through acquisitions.

                                       2


HOME EQUITY LENDING OPERATIONS

OVERVIEW

   Delta's  consumer  finance  activities  consist  of  originating,  acquiring,
selling and servicing  non-conforming  mortgage loans. These loans are primarily
secured  by  first  mortgages  on  one- to  four-family  residences.  Once  loan
applications  have been received,  the  underwriting  process  completed and the
loans funded or purchased, Delta typically packages the loans in a portfolio and
sells the loan portfolio through a securitization.  Generally, Delta retains the
right to service the loans that it securitizes.

   The Company provides its customers with an array of loan products designed to
meet their  needs.  The  Company  uses a  risk-based  pricing  strategy  and has
developed  products  for  various  risk  categories.  Historically,  the Company
offered  fixed-rate  loan products  and, to date,  the majority of the Company's
loan production is fixed-rate.  As the Company has expanded  geographically,  it
has expanded  its product  offerings to include  adjustable-rate  mortgages  and
fixed/adjustable-rate  mortgages. However, since the fourth quarter of 1998, the
Company has virtually  eliminated  originations  of its six-month  LIBOR (London
Inter Bank Offered Rate)  adjustable rate  mortgages,  which are less profitable
and more prepayment sensitive.

   Historically,  Delta Funding  conducted  substantially  all of its broker and
correspondent lending operations out of its Woodbury, New York headquarters.  In
recent  years,  Delta  Funding has opened  regional  branch  offices - which are
typically  staffed with a combination of experienced  Delta  personnel and local
employees  - to  supplement  its  in  some  of  its  newer  geographic  regions.
Currently,  Delta Funding  maintains  regional  branch offices in the Southeast,
Midwest and West. Final underwriting approval is required from the Woodbury, New
York  headquarters or Southeast  branch office for all mortgage loans.  Fidelity
Mortgage retail loans are underwritten by two operational  offices  (Cincinnati,
Ohio and West Palm Beach, Florida), which have full underwriting authority.

   The Company adheres to a Best Practice Lending Program to help better protect
consumers,  which include (a) fair lending  initiatives  to ensure all borrowers
are treated fairly and similarly  regardless of race,  color,  creed,  religion,
national origin, sex, sexual orientation,  marital status, age, disability,  and
the applicant's  exercise, in good faith, of any right under the Consumer Credit
Protection Act; (b) increased  oversight of mortgage brokers and closing agents;
(c)  enhanced  fraud  detection  and  protection;  (d)  enhanced  plain  English
disclosures; and (e) other originations,  underwriting and servicing initiatives
which Delta's management believes help protect consumers.


LOAN ORIGINATION AND PURCHASES

   The  Company's  loan  originations  and  purchases  decreased by 15% to $1.47
billion in 1999 from $1.73 billion in 1998. Loan  originations  and purchases in
1998 had increased 38% over 1997 production of $1.25 billion.

                                       3

   The following table shows the channels of the Company's loan originations and
purchases for the years shown:

                                                     YEAR ENDED DECEMBER 31,
                                                   1997        1998       1999
                                                   ----        ----       ----

                                            (DOLLARS IN THOUSANDS)
Broker:
    Principal balance......................  $  481,586 $   841,079 $   890,822
    Average principal balance per loan.....  $       87 $        92 $        85
    Combined weighted average initial loan-
      to-value ratio(1)....................       69.9%       72.8%       72.8%
    Weighted average interest rate.........       10.8%       10.0%       10.4%
Correspondent:
    Principal balance......................  $  632,639 $   652,503 $   261,289
    Average principal balance per loan.....  $       77 $        82 $        77
    Combined weighted average initial loan-
      to-value ratio(1)....................       72.8%       73.9%       72.0%
    Weighted average interest rate.........       11.3%       10.8%       11.0%
Retail:
    Principal balance......................  $  140,386 $   234,011 $   319,227
    Average principal balance per loan.....  $       69 $        75 $        68
    Combined weighted average initial loan-
      to-value ratio(1)....................       80.1%       79.9%       77.6%
    Weighted average interest rate.........       10.1%        9.4%        9.8%
Total loan purchases and originations:
    Principal balance......................  $1,254,611 $ 1,727,593 $ 1,471,338
    Average principal balance per loan.....  $       80 $        85 $        79
    Combined weighted average initial loan-
      to-value ratio(1)....................       72.5%       74.2%       73.7%
    Weighted average interest rate.........       11.0%       10.2%       10.4%
Percentage of loans secured by:
    First mortgage.........................       94.0%       95.5%       94.6%
---------------
 (1) The weighted  average  initial  loan-to-value  ratio of a loan secured by a
   first mortgage is determined by dividing the amount of the loan by the lesser
   of the purchase  price or the  appraised  value of the  mortgage  property at
   origination.  The  weighted  average  initial  loan-to-value  ratio of a loan
   secured  by a second  mortgage  is  determined  by taking the sum of the loan
   secured by the first and second  mortgages  and dividing by the lesser of the
   purchase  price  or  the  appraised   value  of  the  mortgage   property  at
   origination.

                                       4

<PAGE>

   The following table shows the channels of loan  originations and purchases on
a quarterly basis for 1999:

<TABLE>
<CAPTION>
                                                                        THREE MONTHS ENDED
                                                     --------------------------------------------------
                                                     MARCH 31,     JUNE 30,   SEPTEMBER 30, DECEMBER 31,
                                                        1999         1999         1999          1999
                                                     --------------------------------------------------
<S>                                                  <C>          <C>          <C>           <C>

                                                                      (DOLLARS IN THOUSANDS)
Broker:
    Number of Brokered Loans......................       2,590        2,881        2,731         2,339
    Principal balance.............................   $ 235,435    $ 257,011    $ 222,249     $ 176,128
    Average principal balance per loan............   $      91    $      89    $      81     $      75
    Combined weighted average initial loan-
      to-value ratio(1)...........................       73.4%        72.7%        72.8%         72.0%
    Weighted average interest rate................       10.1%        10.0%        10.7%         11.1%

Correspondent:
    Number of Correspondent Loans.................       1,188          833          765           611
    Principal balance.............................   $  91,243    $  65,535    $  59,367     $  45,144
    Average principal balance per loan............   $      77    $      79    $      78     $      74
    Combined weighted average initial loan-
      to-value ratio(1)...........................       73.2%        71.9%        70.5%         71.6%
    Weighted average interest rate................       10.9%        10.9%        11.1%         11.4%

Retail:
    Number of retail loans........................       1,067        1,341        1,186         1,070
    Principal balance.............................   $  77,430    $  91,945    $  79,400     $  70,452
    Average principal balance per loan............   $      73    $      69    $      67     $      66
    Combined weighted average initial loan-
      to-value ratio(1)...........................       78.7%        77.5%        76.3%         78.1%
    Weighted average interest rate................        9.6%         9.5%        10.0%         10.1%

Total loan purchases and originations:
    Total number of loans.........................       4,845        5,055        4,682         4,020
    Principal balance.............................   $ 404,108    $ 414,491    $ 361,016     $ 291,723
    Average principal balance per loan............   $      83    $      82    $      77     $      73
    Combined weighted average initial loan-
      to-value ratio(1)...........................       74.4%        73.6%        73.2%         73.4%
    Weighted average interest rate................       10.2%        10.0%        10.6%         10.9%
---------------
<FN>
(1)  The weighted  average  initial  loan-to-value  ratio of a loan secured by a
     first  mortgage is  determined  by  dividing  the amount of the loan by the
     lesser  of the  purchase  price  or the  appraised  value  of the  mortgage
     property at origination.  The weighted average initial  loan-to-value ratio
     of a loan secured by a second  mortgage is  determined by taking the sum of
     the loan  secured by the first and second  mortgages  and  dividing  by the
     lesser  of the  purchase  price  or the  appraised  value  of the  mortgage
     property at origination.
</FN>
</TABLE>

                                       5

<PAGE>

   The following table shows lien position,  weighted average interest rates and
loan-to-value ratios for the years shown:

                                                         YEAR ENDED DECEMBER 31,
                                                         -----------------------
                                                         1997      1998     1999
                                                         ----      ----     ----
First mortgage:
    Percentage of total purchases and originations...    94.0%     95.5%   94.6%
    Weighted average interest rate...................    11.0%     10.2%   10.3%
    Weighted average initial loan-to-value ratio(1)..    72.6%     74.3%   74.1%

Second mortgage:
    Percentage of total purchases and originations...     6.0%      4.5%    5.4%
    Weighted average interest rate...................    11.3%     10.5%   10.8%
    Weighted average initial loan-to-value ratio(1)..    71.1%     70.6%   66.6%
---------------
(1)The  weighted  average  initial  loan-to-value  ratio of a loan  secured by a
   first mortgage is determined by dividing the amount of the loan by the lesser
   of the purchase  price or the  appraised  value of the  mortgage  property at
   origination.  The  weighted  average  initial  loan-to-value  ratio of a loan
   secured  by a second  mortgage  is  determined  by taking the sum of the loan
   secured by the first and second  mortgages  and dividing by the lesser of the
   purchase  price  or  the  appraised   value  of  the  mortgage   property  at
   origination.

   The following  table shows the geographic  distribution of loan purchases and
originations for the periods indicated:
<TABLE>
<CAPTION>

                                                        YEAR ENDED DECEMBER 31,

--------------------------------------------------------------------------------------------------------

                                      1997                     1998                       1999
                             ------------------------  -----------------------  ------------------------

REGION                       PERCENTAGE  DOLLAR VALUE  PERCENTAGE DOLLAR VALUE  PERCENTAGE DOLLAR VALUE
------                       ----------  ------------  ---------- ------------  ---------- ------------
<S>                          <C>         <C>           <C>        <C>           <C>        <C>
                                                       (DOLLARS IN MILLIONS)

NY, NJ and PA.............       52.9%     $ 664.3        55.0%     $ 949.3        50.8%     $ 747.9
Midwest...................       21.6        270.9        19.7        340.3        24.5        361.1
Southeast.................        9.7        121.4         9.3        161.0         8.4        123.5
New England...............        7.1         89.3         7.3        125.8         5.8         85.1
Mid-Atlantic*.............        6.5         81.3         6.9        119.1         8.6        126.7
West......................        2.2         27.3         1.5         26.6         1.9         27.1
Canada....................        n/a          n/a         0.3          5.5         n/a          n/a

------------
*    Excluding New York (NY), New Jersey (NJ) and Pennsylvania (PA).
</TABLE>

   BROKER AND  CORRESPONDENT  MARKETING.  Throughout  its history Delta has been
successful  in  establishing  and  maintaining  relationships  with  brokers and
correspondents  offering  non-conforming  mortgage  products to their clientele.
Management  believes that this success is attributable  primarily to the quality
of service the Company provides to its network of brokers and correspondents.

   Delta  typically  initiates  contact with a broker or  correspondent  through
Delta's Business Development Department,  comprised of approximately 40 business
development representatives,  supervised by a senior officer with over ten years
of sales and marketing  experience in the  industry.  The Company  usually hires
business  development   representatives  who  have  contacts  with  brokers  and
correspondents  that  originate   nonconforming   mortgage  loans  within  their
geographic territory.  The business development  representatives are responsible
for developing and maintaining the Company's broker and  correspondent  networks
within  their  geographic   territory  by  frequently  visiting  the  broker  or
correspondent,    communicating   the   Company's    underwriting    guidelines,
disseminating new product information and pricing changes,  and by demonstrating
a continuing commitment to understanding the needs of the customer. The business
development  representatives  attend industry trade shows and inform Delta about
the products and pricing being offered by competitors  and new market  entrants.
This information assists Delta in refining its programs and product offerings in
order  to  remain   competitive.   Business   development   representatives  are
compensated  with a base  salary  and  commissions  based on the volume of loans
originated or purchased as a result of their efforts.

                                       6


   APPROVAL  PROCESS.  Before a broker or correspondent  becomes part of Delta's
network,  it must go through an approval  process.  Once  approved,  brokers and
correspondents may begin submitting applications and/or loans to Delta.

   To be approved,  a broker must demonstrate  that it is properly  licensed and
registered  in the  state in which it seeks to  transact  business,  submit to a
credit  check and sign a standard  broker  agreement  with  Delta that  requires
brokers to  requires  brokers  to,  among other  things,  abide by Delta's  fair
lending  policy,  follow the  National  Association  of  Mortgage  Brokers  Best
Practices Policies, comply with all state and federal laws, and submit only true
and accurate documents and disclosures.  Delta also performs searches on all new
brokers  using a  third  party  database  that  contains  public  and  nonpublic
information on individuals  and companies that have incidents of potential fraud
and misrepresentation.  A correspondent is eligible to submit loans to Delta for
purchase   only   after   an   extensive   investigation   of  the   prospective
correspondent's  lending operations  including an on-site visit, a review of the
correspondent's financial statements for the prior two years, a credit report on
the correspondent, a review of sample loan documentation and business references
provided  by  the  correspondent.   Once  approved,  Delta  requires  that  each
correspondent  sign an Agreement of Purchase and Sale in which the correspondent
makes  representations  and  warranties  governing  both the  mechanics of doing
business with Delta and the quality of the loan  submissions  themselves.  Delta
also performs an annual review of each approved correspondent in order to ensure
continued  compliance with legal  requirements  and that lending  operations and
financial  information  continue to meet Delta's standards.  In addition,  Delta
regularly  reviews the performance of loans originated or purchased  through its
brokers or correspondents.

   BROKERED  LOANS.  For the year ended December 31, 1999, the Company's  broker
network  accounted  for $890.8  million,  or 60%, of Delta's loan  purchases and
originations  compared to $841.1 million,  or 49%, of Delta's loan purchases and
originations for the year ended December 31, 1998 and $481.6 million, or 38%, of
Delta's loan purchases and originations for the year ended December 31, 1997. No
single  broker  contributed  more than 3.1%,  5.2% or 5.8% of Delta's total loan
production in the years ended December 31, 1999, 1998 and 1997, respectively.

   Once  approved,  a  broker  may  submit  loan  applications  for  prospective
borrowers to Delta. To process broker  submissions,  Delta's broker originations
area is organized by geographic  regions and into teams, each consisting of loan
officers  and  processors,  which are  generally  assigned to specific  brokers.
Because Delta  operates in a highly  competitive  environment  where brokers may
submit the same loan application to several prospective lenders  simultaneously,
Delta  strives to  provide  brokers  with a rapid and  informed  response.  Loan
officers  analyze the  application  and  provide  the broker with a  preliminary
approval,  subject to final underwriting approval, or a denial, typically within
one business day. If the application is approved by the Company's  underwriters,
a  "conditional  approval"  will be issued to the broker with a list of specific
conditions to be met and  additional  documents to be supplied  prior to funding
the loan.  The loan officer and processor  team will then work directly with the
submitting broker to collect the requested information and meet all underwriting
conditions.  In most cases,  the Company  funds loans within 14 to 21 days after
preliminary  approval of the loan  application.  In the case of a denial,  Delta
will make all reasonable attempts to ensure that there is no missing information
concerning the borrower or the application that might change the decision on the
loan.

   The Company  compensates its loan officers,  who on a loan-by-loan  basis are
the  primary  relationship  contacts  with  the  brokers,   predominantly  on  a
commission  basis. All of the Company's loan officers must complete an extensive
9- to 12-month  training program to attain the level of knowledge and experience
integral to the Company's  commitment to providing the highest  quality  service
for brokers.  Management believes that by maintaining an efficient,  trained and
experienced  staff, it has addressed three central factors which determine where
a broker sends its  business:  (i) the speed with which a lender  closes  loans,
(ii) the lender's knowledge concerning the broker and his business and (iii) the
support a lender  provides.  Included in this support,  the Company  offers fair
lending training to all brokers with whom it does business.

   CORRESPONDENT   LOANS.  For  the  year  ended  December  31,  1999,   Delta's
correspondent  network  accounted for $261.3  million,  or 18%, of Delta's loans
purchases and originations  compared to $652.5 million,  or 38%, of Delta's loan
purchases  and  originations  for the year ended  December  31,  1998 and $632.6
million,  or 51%, of Delta's loan purchases and  originations for the year ended
December 31, 1997. No single  correspondent  contributed more than 1.9%, 3.8% or
6.5% of Delta's total loan production in 1999, 1998 or 1997, respectively.

     An approved correspondent is a licensed mortgage banker or savings and loan
who sells loans to Delta that conform with Delta's underwriting standards, which
the correspondent has originated, processed, close and funded

                                       7

in its own name. The loans are sold to Delta either on an individual  flow basis
or in block sales. When selling on a flow basis, a correspondent  typically will
seek a pre-approval from Delta prior to closing the loan, and Delta will approve
the loan based on a partial or full credit package, stipulating any items needed
to complete the package in adherence to Delta's  underwriting  guidelines.  On a
block sale, a  correspondent  will offer a group of loans,  generally loans that
have not been  pre-approved,  to Delta for sale,  and Delta will purchase  those
loans in the block that meet Delta's underwriting criteria.

   RETAIL LOANS. The Company acquired its Fidelity  Mortgage retail  origination
network in 1997.  For the year ended December 31, 1999,  this channel  accounted
for $319.3 million, or 22%, of Delta's loans purchases and originations compared
to $234.0 million,  or 13%, of Delta's loan purchases and  originations  for the
year  ended  December  31,  1998 and $140.4  million,  or 11%,  of Delta's  loan
purchases and  originations  for the year ended  December 31, 1997.  Through its
marketing  efforts,  Fidelity Mortgage is able to identify,  locate and focus on
individuals who, based on historic customer  profiles,  are likely customers for
the  Company's  products.  Fidelity  Mortgage's  telemarketing   representatives
identify interested  customers and refer these customers to loan officers at the
retail   branch   offices  who  then  proceed  to  determine   the   applicant's
qualifications  for the Company's loan  products,  negotiate loan terms with the
borrower and process the loan through completion.


LOAN UNDERWRITING

   All of the brokers  and  correspondents  who submit  loans to the Company are
provided with the Company's underwriting guidelines.  Loan applications received
from brokers,  correspondents  and retail customers are classified  according to
particular characteristics, including but not limited to: ability to pay, credit
history of the  applicant,  loan-to-value  ratio and  general  stability  of the
applicant in terms of employment history and time in residence and condition and
location of the  collateral.  The Company has established  classifications  with
respect to the credit profile of the applicant, and each loan is placed into one
of four letter ratings "A" through "D", with subratings within those categories.
Terms of loans made by the Company, as well as maximum  loan-to-value ratios and
debt-to-income  ratios,  vary depending on the  classification of the applicant.
Loan applicants with less favorable  credit ratings are generally  offered loans
with higher interest rates and lower  loan-to-value  ratios than applicants with
more  favorable  credit  ratings.  The general  criteria  used by the  Company's
underwriting staff in classifying loan applicants are set forth below.

                                       8


<PAGE>
<TABLE>
<CAPTION>




                                 DELTA'S UNDERWRITING CRITERIA

                                "A" RISK                "B" RISK                 "C" RISK                "D" RISK

                            ----------------       -------------------      -------------------      -------------------
<S>                         <C>                    <C>                      <C>                      <C>
 Credit Profile..........   Excellent credit       Good overall credit      Good to fair credit      Fair to poor credit
                            history

 Existing mortgage
   history...............   Current at             Current at               Up to 30 days            90 days delinquent
                            application time       application time         delinquent at            or more
                            and a maximum of       and a maximum of         application time
                            two 30-day late        four 30-day late         and a maximum of
                            payments in the        payments in the          four 30-day late
                            last 12 months         last 12 months           payments and
                                                                            one 90-day late
                                                                            payment in the
                                                                            last 12 months

 Other credit............   Minor 30 day           Some slow pays           Slow pays, some          Not a factor.
                            late items allowed     allowed but              open delinquencies       Derogatory
                            with a letter of       majority of credit       allowed.  Isolated       credit must
                            explanation; no        and installment          charge-offs, collec-     be paid with
                            open collection        debt paid as agreed.     tion accounts or         proceeds.  Must
                            accounts, charge-      Small isolated           judgments case-          demonstrate
                            offs, judgments        charge-offs, collec-     by-case                  ability to pay
                                                   tion accounts or
                                                   judgments case-
                                                   by-case

 Bankruptcy filings......   Discharged more        Discharged more          Discharged more          May be open at
                            than three years       than two years           than one year            closing, but must
                            prior to closing       prior to closing         prior to closing         be paid off with
                            and excellent          and excellent            and good                 proceeds
                            reestablished          reestablished            reestablished
                            credit                 credit                   credit

 Debt service to
   Income ratio..........   55% or less            55% or less              55% or less              55% or less

 Maximum loan-to-value
   ratio:
   Owner-occupied........   Generally 80%          Generally 80%            Generally 75%            Generally 65%
                            (up to 90%*) for       (up to 85%*) for         (up to 80%*) for         (up to 70%*) for
                            a one- to four-        a one- to four-          a one- to four-          a one- to four-
                            family residence       family residence         family residence         family residence

   Non-owner occupied....   Generally 75%          Generally 70%            Generally 65%            Generally 55%
                            (up to 80%*) for       (up to 80%*) for         (up to 75%*) for         (up to 60%*) for
                            a one- to four-        a one- to four           a one- to four-          a one- to four-
                            family residence       family residence         family residence         family residence

   Employment............   Minimum 2 years        Minimum 2 years          No minimum               No minimum
                            employment in the      employment in the        required                 required
                            same field             same field
 ------------
 * On an exception basis
</TABLE>

   The Company uses the foregoing  categories and  characteristics as guidelines
only. On a case-by-case  basis,  the Company may determine that the  prospective
borrower  warrants an  exception,  if  sufficient  compensating  factors  exist.
Examples of compensating factors are:

o      low loan-to-value ratio,
o      low debt ratio,
o      long-term stability of employment and/or residence,

                                       9


o      excellent payment history on past mortgages, or
o      a significant reduction in monthly expenses.

   The following  table sets forth certain  information  with respect to Delta's
originations  and  purchases  of first and  second  mortgage  loans by  borrower
classification,  along with weighted average coupons,  for the periods shown and
highlights  the  improved  credit  quality  of the  Company's  originations  and
purchases.






(DOLLARS IN THOUSANDS)

                                    PERCENT
YEAR    CREDIT           TOTAL      OF TOTAL     WAC(1)      WLTV(2)
----    ------           -----      --------     ------      -------

1999       A        $  859,935        58.4%        9.8%       76.4%
           B           298,253        20.3        10.7        72.9
           C           245,862        16.7        11.3        69.5
           D            67,288         4.6        13.0        57.3
                     ---------        ----        ----        ----
      Totals        $1,471,338       100.0%       10.4%       73.7%
                     =========       =====        ====        ====

1998       A       $   990,988        57.3%        9.7%       77.0%
           B           425,056        24.6        10.4        73.2
           C           248,488        14.4        11.3        69.0
           D            63,061         3.7        12.7        57.2
                     ---------        ----        ----        ----
      Totals        $1,727,593       100.0%       10.2%       74.2%
                     =========       =====        ====        ====

1997       A       $   617,724        49.2%       10.4%       76.2%
           B           349,166        27.8        11.0        72.0
           C           222,854        17.8        11.8        67.7
           D            64,867         5.2        13.2        56.7
                     ---------        ----        ----        ----
      Totals        $1,254,611       100.0%       11.0%       72.5%
                    ==========       =====        ====        ====
------------------
(1)   Weighted Average Coupon ("WAC").
(2)   Weighted Average Initial Loan-to-Value Ratio ("WLTV").


   The mortgage  loans  originated  by the Company have  amortization  schedules
ranging  from 5 years to 30 years,  generally  bear  interest at fixed rates and
require equal monthly payments which are due as of a scheduled day of each month
which is fixed at the time of  origination.  Substantially  all of the Company's
mortgage loans are fully amortizing loans. The Company primarily purchases fixed
rate loans which  amortize over a period not to exceed 30 years.  Loans that are
not fully amortizing generally provide for scheduled amortization over 30 years,
with a due date and a balloon  payment  at the end of the  fifteenth  year.  The
principal  amounts of the loans purchased or originated by the Company generally
range from a minimum of $10,000 to a maximum of $350,000.  The Company generally
does  not  acquire  or  originate   any   mortgage   loans  where  the  combined
loan-to-value  ratio  exceeds 90%. The  collateral  securing  loans  acquired or
originated  by  the  Company  are  generally  one-  to  four-family  residences,
including  condominiums  and townhouses,  and these properties may or may not be
occupied  by the owner.  It is the  Company's  policy  not to accept  commercial
properties or unimproved  land as collateral.  However,  the Company will accept
mixed-use  properties  of 1-4 units where a portion of the  property is used for
residential purposes and the balance is used for commercial  purposes,  and will
accept small residential  multifamily properties (5 to 8 units), both at reduced
loan-to-value  ratios.  The  Company  does not  purchase  loans where any senior
mortgage contains open-end advance, negative amortization or shared appreciation
provisions.

                                       10


   The Company's mortgage loan program includes:

o      a full documentation program for salaried borrowers;
o      a limited documentation program;
o      a no-income verification program for self-employed borrowers; and
o      a "stated" income program.

   The total monthly debt  obligations,  which include principal and interest on
the new loan and all other  mortgages,  loans,  charge  accounts  and  scheduled
indebtedness,  generally is 50% or less of the borrower's  monthly gross income.
Loans to  borrowers  who are  salaried  employees  must be  supported by current
employment  information in addition to employment history.  This information for
salaried borrowers is verified based on written confirmation from employers, one
or more  pay-stubs,  recent W-2 tax  forms,  recent  tax  returns  or  telephone
confirmation from the employer. For the Company's limited documentation program,
the  Company  requires  a job letter to be  submitted  which  contains  the same
information one would find on a standard verification of employment form:

o      job position;
o      length of time on job;
o      current salary; and
o      the job letter should appear on the employer's letterhead.

   For the Company's no-income verification program, proof of self-employment in
the same business plus proof of current  self-employed  status is required.  The
Company's stated income program, which represents a very small percentage of the
Company's  loans,  is only offered for better credit quality  borrowers  where a
telephone  verification is done by an underwriter to verify that the borrower is
employed.  The Company usually requires lower combined loan-to-value ratios with
respect to loans made under programs other than the full documentation program.

   The  Company  employs   experienced   non-conforming   mortgage  loan  credit
underwriters  to  scrutinize  the  applicant's  credit  profile  and to evaluate
whether an impaired  credit  history is a result of adverse  circumstances  or a
continuing  inability or  unwillingness  to meet credit  obligations in a timely
manner.  Personal circumstances  including divorce,  family illnesses or deaths,
and temporary job loss due to layoffs and corporate downsizing will often impair
an  applicant's  credit  record.   Assessment  of  an  applicant's  ability  and
willingness  to  pay is one of the  principal  elements  in  distinguishing  the
Company's lending specialty from methods employed by traditional  lenders,  such
as savings and loans and commercial  banks.  All lenders utilize debt ratios and
loan-to-value  ratios in the approval process.  Many lenders simply use software
packages  to  score  an  applicant  for loan  approval  and fund the loan  after
auditing the data provided by the borrower.  All loans  underwritten  by Delta's
underwriters are underwritten  with regard for the borrower's  ability to repay,
and are not underwritten  solely on the value of the collateral  property or the
amount of equity therein. All loans are underwritten to ensure that the loan has
a solid purpose and provides tangible benefits to the borrower.

   The Company has a staff of approximately  80 underwriters  with an average of
five years of  non-conforming  lending  experience.  With the  exception  of the
Company's  Atlanta,  Georgia office,  all underwriting  functions for broker and
correspondent  organizations  are centralized in its Woodbury,  New York office.
All  underwriting  functions for retail  organizations  are  centralized  in the
Company's two retail  underwriting  "hubs" located in Cincinnati,  Ohio and West
Palm Beach, Florida. The Company does not delegate underwriting authority to any
broker  or  correspondent.   The  Company's  underwriting  department  functions
independently of its business development and mortgage  origination  departments
and does not  report to any  individual  directly  involved  in the  origination
process.  No  underwriter  at the  Company is  compensated  on an  incentive  or
commission basis.

   The Company has instituted underwriting checks and balances that are designed
to  ensure  that  every  loan is  reviewed  and  approved  by a  minimum  of two
underwriters,  with some higher loan  amounts  requiring a third

                                       11

approval.  The Company believes that by requiring each file be seen by a minimum
of two  underwriters,  a high degree of accuracy and quality  control is ensured
throughout the underwriting process and before funding.

   The Company's  underwriting  of every loan  submitted  consists not only of a
thorough credit review, but also the following:

o       a separate appraisal review conducted by the Company's  appraisal review
        department and/or underwriter; and
o       a full  compliance  review,  to  ensure  that all  documents  have been
        properly  prepared,  all  applicable  disclosures  given  in  a  timely
        fashion, and proper compliance with all federal and state regulations.

   Appraisals  are  performed by third  party,  fee-based  appraisers  or by the
Company's  approved  appraisers and generally  conform to current Fannie Mae and
Freddie Mac secondary market requirements for residential  property  appraisals.
Each appraisal includes,  among other things, an inspection of both the exterior
and interior of the subject property and data from sales within the preceding 12
months of similar  properties  within the same  general  location as the subject
property.

   The  Company  performs an  appraisal  review on each loan prior to closing or
prior to  purchasing.  While the Company  recognizes  that the  general  quality
control  practices of conventional  mortgage lenders is to perform only drive-by
appraisals  after closings,  the Company believes this practice does not provide
sufficient protection. In addition to reviewing each appraisal for accuracy, the
Company  accesses  other  sources to  validate  sales used in the  appraisal  to
determine market value. These sources include:

o      Multiple Listing Services in nine states;
o      assessment and sales services,  such as Comps,  Inc., Pace, 1st American
       and Transamerica;
o      internet services such as Realtor.com; and
o      other sources for  verification,  including  broker price  opinions and
       market analyses by local real estate agents.

   Post closing,  in addition to its normal due diligence,  the Company randomly
selects one out of every ten appraisals, and performs a drive-by appraisal. This
additional  step gives the Company an added  degree of comfort  with  respect to
appraisers  with which the  Company  has had  limited  experience.  The  Company
actively  tracks and grades,  on criteria that it has developed  over time,  all
appraisers  from which it accepts  appraisals for quality  control  purposes and
does not  accept  work from  appraisers  who have not  conformed  to its  review
standards.

   Upon completion of a broker loan's  underwriting and processing,  the closing
of the loan is  scheduled  with a  closing  attorney  or agent  approved  by the
Company.  The closing  attorney or agent is responsible  for completing the loan
closing  transaction  in  accordance  with  applicable  law  and  the  Company's
operating  procedures.  Title  insurance that insures the Company's  interest as
mortgagee and evidence of adequate  homeowner's  insurance naming the Company as
an additional insured party are required on all loans.

   The Company  performs a  post-funding  quality  control review to monitor and
evaluate the Company's loan  origination  policies and  procedures.  The quality
control  department is separate from the  underwriting  department,  and reports
directly to a member of senior management.

   At least 10% of all loan  originations  and purchases are subjected to a full
quality control re-underwriting and review, the results of which are reported to
senior  management  on a  monthly  basis.  Discrepancies  noted by the audit are
analyzed and corrective actions are instituted. A typical quality control review
currently includes:

o      obtaining a new drive-by appraisal for each property;
o      running a new credit report from a different credit report agency;
o      reviewing  loan  applications  for  completeness,  signatures,  and  for
       consistency with other processing documents;

                                       12

o      obtaining new written verification of income and employment;
o      obtaining  new  written   verification  of  mortgage  to  re-verify  any
       outstanding mortgages; and
o      analyzing the underwriting and program selection decisions.


   The quality  control  process is updated  from time to time as the  Company's
policies and procedures change.


LOAN SALES

   Delta sells  substantially  all the loans it originates or purchases  through
one of two methods: (i) securitizations,  which involve the private placement or
public  offering  by  a  securitization   trust  of  asset-backed   pass-through
securities;  and (ii)  whole loan  sales,  which  include  the sale of blocks of
individual  loans to  institutional  or individual  investors.  Since 1991,  the
Company  has sold  approximately  $5.7  billion  of the loans it  originated  or
purchased through securitization and $63 million through whole loan sales.

   SECURITIZATIONS.  During 1999, Delta completed three securitizations totaling
$1.50 billion.  The following table sets forth certain  information with respect
to Delta's  securitizations  (all of which  have been  rated  AAA/Aaa by S&P and
Moody's,  respectively)  by offering  size,  which includes  prefunded  amounts,
duration weighted average pass-through rate and type of credit enhancement.


<TABLE>
<CAPTION>

                                                      DURATION
                                  OFFERING SIZE   WEIGHTED AVERAGE      CREDIT
SECURITIZATION         COMPLETED    (MILLIONS)   PASS-THROUGH RATE   ENHANCEMENT
--------------         ---------  -------------  -----------------   -----------
<S>                    <C>        <C>            <C>                 <C>
1999-1..............    03/30/99     $375.0           6.20%          Hybrid *
1999-2..............    06/17/99     $420.0           6.72%          Senior/Sub
                                                                      Structure
1999-3..............    11/30/99     $700.0           7.09%          Hybrid *

------------------
* Senior/Sub Structure with Bond Insured AAA Tranche
</TABLE>

   When Delta  securitizes  loans,  it sells a portfolio  of loans to a trust (a
"Home  Equity  Loan  Trust")  for a cash  payment and the Home Equity Loan Trust
sells  various  classes  of  pass-through  certificates  representing  undivided
ownership  interests  in such Home  Equity  Loan  Trust.  As  servicer  for each
securitization,  the Company collects and remits principal and interest payments
to the appropriate  Home Equity Loan Trust which,  in turn,  passes through such
payments  to  certificateholders.  For each of the 1999  securitizations,  Delta
retained  100% of the interests in the residual  certificates  while selling the
interest-only  certificates  for cash.  Management  contemplates  continuing  to
retain residual  certificates in the future as long as, in management's opinion,
this practice maximizes earnings while remaining within the Company's  liquidity
requirements.

   Each Home Equity  Loan Trust has the  benefit of either a financial  guaranty
insurance  policy  from a monoline  insurance  company or a  senior-subordinated
securitization  structure,  which insures the timely payment of interest and the
ultimate payment of principal of the credit-enhanced  investor  certificate,  or
both (known as a  "hybrid").  In  "senior-subordinated"  structures,  the senior
certificate  holders are  protected  from losses by  subordinated  certificates,
which absorb any such losses first. In addition to such credit enhancement,  the
Excess  Servicing  amounts  are  initially  applied as  additional  payments  of
principal for the investor  certificates,  thereby accelerating  amortization of
the investor certificates relative to the amortization of the loans and creating
overcollateralization.  Once the overcollateralization limit is reached, the use
of Excess Servicing to create overcollateralization stops unless it subsequently
becomes necessary to obtain or maintain required  overcollateralization  limits.
Overcollateralization  is  intended  to  create a source  of cash  (the  "extra"
payments on the loans) to absorb losses prior to making a claim on the financial
guaranty insurance policy or the subordinated certificates.

   WHOLE LOAN SALES WITHOUT  RECOURSE.  From time to time, the Company has found
that it can receive  better  execution by selling  certain  mortgage  loans on a
whole loan, non-recourse basis, without retaining servicing rights, generally in
private  transactions  to  institutional  or individual  investors.  The Company
recognizes a gain or loss

                                       13


when it sells  loans on a whole loan basis equal to the  difference  between the
cash proceeds received for the loans and the Company's  investment in the loans,
including any unamortized loan origination fees and costs.

   In 1998, the Company sold $8.7 million of loans on a whole loan, non-recourse
basis,  which  represented 0.5% of its  originations and purchases.  In 1999 and
1997, the Company did not have any whole loan sales.


LOAN SERVICING AND COLLECTIONS

   The Company has been  servicing  loans since its  inception in 1982,  and has
serviced or is servicing  substantially  all of the loans that it has originated
or purchased.  Servicing involves, among other things,  collecting payments when
due,  remitting payments of principal and interest and furnishing reports to the
current  owners of the loans and  enforcing  the  current  owners'  rights  with
respect to the loans,  including,  recovering  delinquent payments,  instituting
foreclosure and liquidating the underlying collateral.  As of December 31, 1999,
the Company had a servicing portfolio of $3.6 billion.

   The Company services all loans out of its headquarters in Woodbury, New York,
utilizing  a leading  in-house  loan  servicing  system  called  LSAMS  which it
purchased  in 1995.  LSAMS has  provided  the  Company  with  considerably  more
flexibility  to  adapt  the  system  to  the  Company's   specific  needs  as  a
nonconforming home equity lender. As such, the Company has achieved  significant
cost  efficiencies  by  automating a  substantial  number of  previously  manual
servicing procedures and functions since its conversion to LSAMS.

   In December  1999,  Delta  purchased a new default  management  sub-servicing
system, FORTRACS, with separate "modules" for foreclosure,  bankruptcy,  and REO
to provide it with the ability to more efficiently  monitor and service loans in
default. These sub-servicing modules provide detailed tracking of all key events
in foreclosure and bankruptcy on a loan-by-loan  and  portfolio-wide  basis; the
ability to track and account for all pre- and post-petition payments received in
bankruptcy from the borrower and/or trustee; and the ability to monitor,  market
and  account  for all aspects  necessary  to  liquidate  an REO  property  after
foreclosure.  Information entered on FORTRACS is automatically uploaded to LSAMS
on a daily basis. Further, information entered on LSAMS is automatically entered
on FORTRACS. Additionally, Delta's Management Information Systems Department has
created a market value analysis program to run with LSAMS,  which provides Delta
with the  ability  to monitor  its  equity  position  on a  loan-by-loan  and/or
portfolio-wide  basis.  These features have led to cost savings  through greater
automation  and system  upgrades  and have  helped  mitigate  loan losses as the
Servicing  Department  has been able to identify  problem  loans  earlier,  thus
allowing for earlier corrective action.

   Centralized  controls and standards have been  established by the Company for
the servicing and  collection of mortgage  loans in its  portfolio.  The Company
revises  such  policies  and  procedures  from time to time in  connection  with
changing  economic  and market  conditions  and  changing  legal and  regulatory
requirements.

   The Company's  collections  policy is designed to identify  payment  problems
sufficiently early to permit the Company to quickly address delinquency problems
and, when necessary, to act to preserve equity in a preforeclosure property. The
Company  believes that these  policies,  combined with the  experience  level of
independent  appraisers engaged by the Company,  help to reduce the incidence of
charge-offs of a first or second mortgage loan.

   Borrowers  are  billed  on a  monthly  basis  in  advance  of the  due  date.
Collection  procedures commence upon identification of a past due account by the
Company's  automated  servicing system using the Company's  proprietary  payment
profiling  software.  If timely  payment is not  received,  LSAMS  automatically
places the loan in the assigned collector's auto queue and collection procedures
are generally initiated on the day determined by the proprietary  software to be
after the borrower's  typical  payment date. This payment  profiling  allows the
Company to focus its  collections  efforts on those borrowers who are delinquent
and outside  their  typical  payment date as opposed to those  borrowers who are
delinquent but typically pay on or about a specific date each month. These loans
are  automatically  queued  into LSAMS auto queue as well as a Davox  predictive
dialer.  The predictive  dialer  initiates the telephone calls and transfers the
calls to a  collector  when a borrower  is  reached.  If the  predictive  dialer
determines a line is busy or receives a no answer, it automatically cycles those
calls through the same day at pre-

                                       14

determined intervals. If the predictive dialer contacts an answering machine, an
automated  message is left.  The account  remains in the queue  unless and until
payment is received,  at which point LSAMS  automatically  removes the loan from
the collector's auto queue until the next payment profile pattern is broken.  In
the case of seriously delinquent accounts, collection calls can begin as soon as
two days after the payment due date.

   When a loan appears in a collector's  auto queue,  a collector will telephone
to remind the borrower that a payment is due.  Follow-up  telephone contacts are
attempted until the account is current or other payment  arrangements  have been
made.  Standard form letters are utilized when attempts to reach the borrower by
telephone fail and/or, in some circumstances,  to supplement the phone contacts.
During the  delinquency  period,  the  collector  will  continue  to contact the
borrower  and  property  inspections  are  performed on or about the 45th day of
delinquency. The Company's collectors have computer access to telephone numbers,
payment  histories,   loan  information  and  all  past  collection  notes.  All
collection  activity,  including  the  date  collection  letters  were  sent and
detailed notes on the substance of each  collection  telephone  call, is entered
into a  permanent  collection  history  for each  account  on LSAMS.  Additional
guidance with the collection  process is derived through frequent  communication
with the Company's senior management.

   On or about the ninety-first day of delinquency,  the loan is referred to the
loss mitigation department.  This department is comprised of the collectors with
the ability to negotiate  payment  plans,  deeds in lieu,  short sales and other
cures.  If their  efforts have also been  exhausted  without  success,  the loss
mitigation  representative  responsible  for the account  recommends the loan be
sent to foreclosure at one of several  foreclosure  committee meetings held each
month.   The   foreclosure   committee  is  comprised  of  the  loss  mitigation
representative,  the  foreclosure  department  manager  and two  members  of the
executive  department.  This  meeting is held to determine  whether  foreclosure
proceedings are  appropriate,  based upon the analysis of all relevant  factors,
including  a market  value  analysis,  reason  for  default  and  efforts by the
borrower to cure the default.

   Regulations  and practices  regarding the  liquidation  of properties and the
rights of a borrower in default vary  greatly from state to state.  As a result,
all foreclosures  are assigned to outside counsel,  located in the same state as
the secured property.  Bankruptcies filed by borrowers are similarly assigned to
appropriate  local counsel.  All aspects of foreclosures  and  bankruptcies  are
closely monitored by the Company through its sub-servicing loan system described
above and through monthly status reports from attorneys.

   Prior to  foreclosure  sale,  the Company  performs an in-depth  market value
analysis on all defaulted loans. This analysis includes:

o     a current valuation of the property obtained through a drive-by  appraisal
      or broker's  price  opinion  conducted  by an  independent  appraiser or a
      broker from the Company's network of real estate brokers,  complete with a
      description  of the  condition  of the  property,  recent  price  lists of
      comparable properties, recent closed comparables, estimated marketing time
      and required or suggested repairs, and an estimate of the sales price;
o     an  evaluation  of the  amount  owed,  if any,  for real  estate  taxes;
o     an evaluation  of the amount owed, if any, to a senior  mortgagee;  and
o     estimated carrying costs, brokers' fee, repair costs and other related
      costs associated with real estate owned properties. Delta bases the amount
      it will bid at foreclosure sales on this analysis.

   If Delta acquires title to a property at a foreclosure sale or otherwise, the
REO department  immediately  begins working the file by obtaining an estimate of
the sale price of the property by sending at least two local real estate brokers
to inspect the premises, and then hiring one to begin marketing the property. If
the property is not vacant when acquired,  local eviction attorneys are hired to
commence  eviction  proceedings  or  negotiations  are held with occupants in an
attempt to get them to vacate without  incurring the additional time and cost of
eviction.  Repairs are performed if it is determined that they will increase the
net liquidation  proceeds,  taking into  consideration the cost of repairs,  the
carrying  costs during the repair period and the  marketability  of the property
both before and after the repairs.

   The Company's loan servicing  software also tracks and maintains  homeowners'
insurance  information  and tax and  insurance  escrow  information.  Expiration
reports are generated  bi-weekly listing all policies scheduled to expire within
the next 15 days.  When policies lapse, a letter is issued advising the borrower
of  that  lapse  and

                                       15

notifying  the borrower that the Company will obtain  force-placed  insurance at
the borrower's  expense.  The Company also has an insurance policy in place that
provides  coverage  automatically  for the Company in the event that the Company
fails to obtain force-placed insurance.

DELINQUENCY AND LOSS EXPERIENCE

   The following  table sets forth  information  relating to the delinquency and
loss  experience  of the mortgage  loans  serviced by Delta  (primarily  for the
securitization trusts) for the periods indicated. Delta is not the holder of the
securitization loans, but generally holds residual or interest-only certificates
of the trusts, as well as the servicing  rights,  each of which may be adversely
affected by defaults.  (See "Item 7 -  Management's  Discussion  and Analysis of
Financial    Condition   and   Results   of   Operations    Certain   Accounting
Considerations"):

<TABLE>
<CAPTION>

                                                                     YEAR ENDED DECEMBER 31,
                                                              ------------------------------------
                                                              1999            1998            1997
                           `                                  ----            ----            ----
                                                                      (DOLLARS IN THOUSANDS)
<S>                                                           <C>         <C>              <C>

Total Outstanding Principal Balance
    (at period end)...................................    $ 3,631,830      $ 2,950,435     $ 1,840,150
Average Outstanding(1)................................    $ 3,362,377      $ 2,436,343     $ 1,376,109
DELINQUENCY (at period end) 30-59 Days:
    Principal Balance.................................      $ 208,302        $ 153,726       $  90,053
    Percent of Delinquency(2).........................          5.73%            5.21%           4.89%
60-89 Days:
    Principal Balance.................................      $  83,000        $  50,034       $  28,864
    Percent of Delinquency(2).........................          2.28%            1.70%           1.57%
90 Days or More:
    Principal Balance.................................      $  56,435        $  47,887       $  17,695
    Percent of Delinquency(2).........................          1.55%            1.62%           0.96%
Total Delinquencies:
    Principal Balance.................................      $ 347,737        $ 251,647       $ 136,612
    Percent of Delinquency(2).........................          9.56%            8.53%           7.42%
FORECLOSURES
    Principal Balance.................................      $ 185,843        $ 145,679       $  85,500
    Percent of Foreclosures by Dollar(2)..............          5.11%            4.94%           4.65%
REO
     Principal Balance................................         36,663        $  18,811       $  10,292
     Percent of  REO..................................          1.01%            0.64%           0.56%
Net Gains/(Losses) on liquidated loans................      $ (14,722)       $  (8,704)      $  (4,986)
Percentage of Net Gains/(Losses) on liquidated
    loans (based on Average Outstanding Balance)......         (0.44%)          (0.36%)         (0.36%)
---------------
<FN>
(1)  Calculated by summing the actual outstanding  principal balances at the end
     of each  month  and  dividing  the  total by the  number  of  months in the
     applicable period.
(2)  Percentages are expressed based upon the total outstanding principal balance
     at the end of the indicated period.
</FN>
</TABLE>

COMPETITION

   As an originator and purchaser of mortgage  loans,  the Company faces intense
competition, primarily from mortgage banking companies, commercial banks, credit
unions,  savings and loans,  credit card issuers and finance companies.  Many of
these competitors in the financial  services  business are substantially  larger
and have more capital and other resources than the Company. Competition can take
many  forms,  including  interest  rates and costs of the loan,  convenience  in
obtaining a loan, service, marketing and distribution channels. Furthermore, the
level of gains  realized by the Company and its  competitors  on the sale of the
type of loans originated and purchased has

                                       16


attracted  additional  competitors  into this market with the effect of lowering
the gains that may be realized by the Company on future loan sales. In addition,
efficiencies in the asset-backed market have generally created a desire for even
larger  transactions  giving  companies with greater  volumes of  originations a
competitive advantage.

   Competition  may be affected by  fluctuations  in interest  rates and general
economic  conditions.  During  periods of rising rates,  competitors  which have
"locked in" low borrowing costs may have a competitive advantage. During periods
of declining rates, competitors may solicit the Company's borrowers to refinance
their loans.  During economic slowdowns or recessions,  the Company's  borrowers
may have new  financial  difficulties  and may be  receptive  to  offers  by the
Company's competitors. Furthermore, certain large national finance companies and
conforming  mortgage  originators  have  adapted  their  conforming  origination
programs and allocated  resources to the  origination  of  non-conforming  loans
and/or have otherwise  begun to offer  products  similar to those offered by the
Company,  targeting  customers  similar to those of the Company.  Fannie Mae and
Freddie Mac have also  expressed  interest in adapting their programs to include
products  similar to those offered by the Company.  The entrance of these larger
and better capitalized competitors into the Company's market may have a material
adverse effect on the Company's results of operations and financial condition.


REGULATION

   Delta's  business  is  subject  to  extensive  regulation,   supervision  and
licensing by federal, state and local governmental authorities and is subject to
various laws and judicial and administrative decisions imposing requirements and
restrictions  on  part  or all  of  its  operations.  Delta's  consumer  lending
activities  are subject to the Federal  Truth-in-Lending  Act and  Regulation  Z
(including  the Home  Ownership and Equity  Protection  Act of 1994),  the Equal
Credit Opportunity Act of 1974, as amended (ECOA), the Fair Credit Reporting Act
of 1970, as amended,  the Real Estate  Settlement  Procedures  Act (RESPA),  and
Regulation X, the Home Mortgage  Disclosure Act and the Federal Debt  Collection
Practices  Act, as well as other  federal  and state  statutes  and  regulations
affecting Delta's activities. Delta is also subject to the rules and regulations
of, and  examinations by HUD and state  regulatory  authorities  with respect to
originating,  processing,  underwriting  and  servicing  loans.  These rules and
regulations,   among  other  things,  impose  licensing  obligations  on  Delta,
establish  eligibility  criteria for mortgage  loans,  prohibit  discrimination,
provide for inspections and appraisals of properties,  require credit reports on
loan  applicants,  regulate  assessment,   collection,  foreclosure  and  claims
handling,  investment  and  interest  payments  on escrow  balances  and payment
features,  mandate  certain  disclosures  and notices to borrowers  and, in some
cases,  fix maximum interest rates,  fees and mortgage loan amounts.  Failure to
comply with these requirements can lead to loss of approved status,  termination
or  suspension  of servicing  contracts  without  compensation  to the servicer,
demands for  indemnifications  or mortgage loans repurchases,  certain rights of
rescission  for  mortgage  loans,   class  action  lawsuits  and  administrative
enforcement actions.

   In September  1999,  the Company  settled  allegations  by the New York State
Banking  Department  and a lawsuit by the New York State  Office of the Attorney
General alleging that Delta had violated various state and federal lending laws.
The global settlement was evidenced by that certain (a) Remediation Agreement by
and between Delta Funding and the NYSBD,  dated as of September 17, 1999 and (b)
Stipulated Order on Consent by and among Delta Funding,  Delta Financial and the
NYOAG,  dated as of September 17, 1999. As part of the  Settlement,  Delta will,
among other  things,  implement  agreed upon  changes to its lending  practices;
provide  reduced loan payments  aggregating  $7.25 million to certain  borrowers
identified by the NYSBD; and create a fund of approximately  $4.75 million to be
financed by the grant of 525,000 shares of Delta Financial's common stock valued
at a constant assumed priced of $9.10 per share,  which approximates book value.
The  proceeds  of the fund will be used,  for among other  things,  to pay for a
variety of consumer educational and counseling programs.

   In March 2000, the Company finalized an agreement with the U.S. Department of
Justice,  the Federal Trade  Commission  and the Department of Housing and Urban
Development, to complete the global settlement it had reached with the NYSBD and
NYOAG. The Federal  agreement  mandates some additional  compliance  efforts for
Delta, but it does not require any additional financial commitment.

   Delta believes it is in compliance in all material  respects with  applicable
federal and state laws and regulations.

                                       17


ENVIRONMENTAL MATTERS

   To date, Delta has not been required to perform any investigation or clean up
activities, nor has it been subject to any environmental claims. There can be no
assurance,  however,  that  this  will  remain  the case in the  future.  In the
ordinary  course  of its  business,  Delta  from  time  to  time  forecloses  on
properties  securing  loans.   Although  Delta  primarily  lends  to  owners  of
residential  properties,  there  is a risk  that  Delta  could  be  required  to
investigate and clean-up  hazardous or toxic substances or chemical  releases at
such  properties  after  acquisition  by  Delta,  and  may be held  liable  to a
governmental entity or to third parties for property damage, personal injury and
investigation  and cleanup costs incurred by such parties in connection with the
contamination.  In addition,  the owner or former owners of a contaminated  site
may be subject to common law claims by third  parties based on damages and costs
resulting from environmental contamination emanating from such property.

EMPLOYEES

   As of December 31, 1999, Delta had a total of 1,134 employees  (full-time and
part-time).  None of Delta's  employees  are covered by a collective  bargaining
agreement. Delta considers its relations with its employees to be good.

ITEM 2.  PROPERTIES

   Delta's  executive  and  administrative  offices are located at 1000 Woodbury
Road, Woodbury,  New York 11797, where Delta leases approximately 120,000 square
feet of office space at an aggregate annual rent of approximately  $2.4 million.
The lease provides for certain scheduled rent increases and expires in 2008.

   Delta's servicing operations are located at 99 Sunnyside Boulevard, Woodbury,
New York 11797,  where Delta leases  approximately  40,000 square feet of office
space at an  aggregate  annual rent of  approximately  $0.9  million.  The lease
provides for certain scheduled rent increases and expires in 2009.

   Delta also maintains a full service  office in Atlanta,  Georgia and business
development offices in California,  Delaware,  Illinois, Michigan, Missouri, New
Jersey,  Ohio,  Pennsylvania,  Rhode  Island,  and Virginia.  Fidelity  Mortgage
currently maintains fourteen retail mortgage origination offices in Florida (3),
Illinois,  Indiana,  Missouri,  North Carolina,  Ohio (4),  Pennsylvania (2) and
Tennessee;  one telemarketing hub in Ohio; and one corporate office in Ohio. The
terms of the leases  vary as to duration  and  escalation  provisions,  with the
latest expiring in 2004.

ITEM 3.  LEGAL PROCEEDINGS

   Because the nature of the  Company's  business  involves  the  collection  of
numerous  accounts,  the validity of liens and compliance with various state and
federal lending laws, the Company is subject,  in the normal course of business,
to numerous claims and legal  proceedings.  The Company's lending practices have
been  the  subject  of  several   lawsuits   styled  as  class  actions  and  of
investigations  by  various  regulatory  agencies  including  the New York State
Banking  Department  (the  "NYSBD"),  the Office of the Attorney  General of the
State of New York (the "NYOAG") and the United States Department of Justice (the
"DOJ"). The current status of these actions are summarized below.

o     In or about November 1998, the Company  received notice that it had been
      named in a lawsuit  filed in the United  States  District  Court for the
      Eastern  District of New York.  In December  1998,  plaintiffs  filed an
      amended  complaint  alleging  that the  Company  had  violated  the Home
      Equity and Ownership Protection Act ("HOEPA"),  the Truth in Lending Act
      ("TILA") and New York State  General  Business Lawss.349. The  complaint
      seeks  (a)  certification  of a class  of  plaintiffs,  (b)  declaratory
      judgment  permitting  rescission,  (c)  unspecified  actual,  statutory,
      treble and punitive  damages  (including  attorneys'  fees), (d) certain
      injunctive  relief,  and (e)  declaratory  judgment  declaring  the loan
      transactions   as  void  and   unconscionable.   On  December  7,  1998,
      plaintiff  filed a motion  seeking  a  temporary  restraining  order and
      preliminary  injunction,  enjoining  Delta from  conducting  foreclosure
      sales on 11  properties.  The  District  Court Judge ruled that in order
      to consider  such a motion,  plaintiff  must move to intervene on behalf
      of these 11  borrowers.  Thereafter,  plaintiff  moved to  intervene  on
      behalf of 3 of these 11 borrowers  and sought the

                                       18

      injunctive  relief on their  behalf.  The Company  opposed  the motions.
      On December 14, 1998, the  District  Court  Judge  granted  the   motion
      to  intervene  and  on December  23,  1998,   the  District  Cour  Judge
      issued a  preliminary injunction enjoining the  Company from  proceeding
      with the foreclosure sales of the  three  intervenors'  properties.  The
      Company  has filed a motion for  reconsiderationof the December 23, 1998
      order.  In January 1999,  the  Company  filed  an answer  to plaintiffs'
      first amended complaint. In July 1999, plaintiffs were granted leave, on
       consent, to file a second amended complaint  In August 1999, plaintiffs
      filed  a  second  amended  complaint  that,  among  other  things, added
      additional parties but  contained  the  same  causes of  action  alleged
      in the first amended  complaint.  In September  1999,  the Company filed
      a motion to dismiss the complaint. Also in  September  1999,  plaintiffs
      filed a  motion  for  class   certification.  In  February  2000,  Delta
      submitted  opposition  to Plaintiffs'  motion. In or about October 1999,
      plaintiffs filed a motion seeking an order  preventing  the Company, its
      attorneys and/or the New York State Banking Department(the "NYSBD") from
      issuing  notices  to  certain  of  Delta's   borrowers,   in  accordance
      with  a  settlement agreement  entered  into by and  between the Company
      and the NYSBD. In or about October 1999 and November 1999, respectively,
      Delta and the NYSBD  submitted  opposition  to  plaintiffs'  motion.  In
      March 2000,  the  Court issued  an order  that permits Delta to issue an
      approved   form  of  the   notice.  The  Company  believes  that  it has
      meritorious  defenses  and  intends to  defend  this  suit,  but  cannot
      estimate with any certainty its ultimate  legal or  financial liability,
      if any, with respect to the alleged claims.

o     In or about March 1999,  the  Company  received  notice that it had been
      named in a lawsuit  filed in the Supreme Court of the State of New York,
      New York County,  alleging  that Delta had  improperly  charged  certain
      borrowers  processing  fees. The complaint seeks (a)  certification of a
      class  of   plaintiffs,   (b)  an   accounting,   and  (c)   unspecified
      compensatory and punitive damages  (including  attorneys'  fees),  based
      upon  alleged (i) unjust  enrichment,  (ii) fraud,  and (iii)  deceptive
      trade  practices.  In April  1999,  the  Company  filed an answer to the
      complaint.   In  August  1999,  plaintiffs  filed  a  motion  for  class
      certification.   The   Company's   response  to  the  motion  for  class
      certification  is not due until after class  discovery is completed.  In
      September  1999,  the Company  filed a motion to dismiss the  complaint,
      which was opposed by plaintiffs,  and in February 2000, the Court denied
      the motion to  dismiss.  In April 1999,  the  Company  filed a motion to
      change  venue and  Plaintiff's  opposed  the motion.  In July 1999,  the
      Court  denied the motion to change  venue.  The Company  appealed and in
      March 2000, the Appellate  Court granted  Delta's appeal to change venue
      from New York County to Nassau County.  The Company believes that it has
      meritorious  defenses  and  intends  to defend  this  suit,  but  cannot
      estimate with any certainty its ultimate  legal or financial  liability,
      if any, with respect to the alleged claims.

o     In or about July 1999,  the  Company  received  notice  that it had been
      named in a lawsuit  filed in the United  States  District  Court for the
      Western  District  of New York,  alleging  that  amounts  collected  and
      maintained  by  it  in  certain  borrowers'  tax  and  insurance  escrow
      accounts  exceeded  certain  statutory  (RESPA) and/or  contractual (the
      respective  borrowers'  mortgage  agreements)  ceilings.  The  complaint
      seeks  (a)  certification  of a class  of  plaintiffs,  (b)  declaratory
      relief finding that the Company's  practices violate applicable statutes
      and/or  the  mortgage   agreements,   (c)  injunctive  relief,  and  (d)
      unspecified  compensatory  and punitive  damages  (including  attorneys'
      fees).  In October  1999,  the  Company  filed a motion to  dismiss  the
      complaint.  In or about November  1999, the case was  transferred to the
      United States District Court for the Northern  District of Illinois.  In
      February  2000, the plaintiff  opposed the Company's  motion to dismiss.
      In March  2000,  the Court  granted the  Company's  motion to dismiss in
      part,  and  denied  it  in  part.  The  Company  believes  that  it  has
      meritorious  defenses  and  intends  to defend  this  suit,  but  cannot
      estimate with any certainty its ultimate  legal or financial  liability,
      if any, with respect to the alleged claims.

o     In or about  August  1999,  the Office of the  Attorney  General for the
      State of New York (the  "NYOAG")  filed a lawsuit  against  the  Company
      alleging violations of (a) RESPA (by paying yield spread premiums),  (b)
      HOEPA and TILA, (c) ECOA,  (d) New York  Executive Lawss.296-a,  and (e)
      New York  Executive  Lawss. 63(12).  In  September  1999,  Delta and the
      NYOAG settled the lawsuit,  as part of a global  settlement by and among
      Delta,  the  NYOAG  and  the  NYSBD,   evidenced  by  that  certain  (a)
      Remediation  Agreement by and between  Delta and the NYSBD,  dated as of
      September  17,  1999 and (b)  Stipulated  Order on  Consent by and among
      Delta,  Delta  Financial and the NYOAG,  dated as of September 17, 1999.
      As part

                                       19

      of  the   Settlement,  Delta  will,  among   other  things,    implement
      agreed  upon  changes to its lending  practices;  provide  reduced  loan
      payments  aggregating $7.25 million to certain  borrowers  identified by
      the  NYSBD;  and  create a fund of  approximately  $4.75  million  to be
      financed  by the grant of  525,000  shares of Delta  Financial's  common
      stock  valued at a constant  assumed  priced of $9.10 per  share,  which
      approximates  book value.  The  proceeds  of the fund will be used,  for
      among other  things,  to pay for a variety of consumer  educational  and
      counseling  programs.  As a result, the NYOAG lawsuit has been dismissed
      as against the Company.

      The Remediation  Agreement and Stipulated Order on Consent supersede the
      Company's  previously  announced  settlements with the NYOAG  and the NY
      Banking Dept. In March 2000, the Company finalizeda settlemen  agreement
      with  the  United  States   Department  of Justice,  the  Federal  Trade
      Commission and the  Department of Housing and Urban Renewal, to complete
      the  global settlement  it had  reached with  the  NYSBD  and NYOAG. The
      Federal agreement mandates some additional compliance efforts for Delta,
      but it does not require any additional financial commitment.

o     In November 1999, the Company  received notice that it had been named in
      a lawsuit filed in  the United  States  District  Court for the  Eastern
      District  of  New York  seeking  certification  as  a class  action  and
      alleging violations  of the federal securities  laws in  connection with
      the   Company's  initial   public  offering  in  1996  and  its  reports
      subsequently filed  with  the  Securities and  Exchange Commission.  The
      complaint alleges that the scope of  the violations  alleged recently in
      the consumer  lawsuits  and  regulatory  actions  indicate  a  pervasive
      pattern  of  action  and risk  that  should  have  been  more thoroughly
      disclosed to investors in  the Company's  common stock.  The Company has
      learned of several other lawsuits  that  purportedly contain the same or
      simila   allegations  agains  the Company.  The Company believes that it
      has meritoriou   defenses and intends to defend these suits, but has not
      answered yet and cannot  estimate  with any certainty its ultimate legal
      or financial liability, if any, with respect to the alleged claims.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

   The  annual  meeting  of  stockholders  was  held  on  May 12,  1999.  At the
meeting,  Hugh Miller was elected as  a  Class III  Director for a term of three
years.   Sidney  A.  Miller,  Martin D.  Payson,  Richard  Blass  and  Arnold B.
Pollard continue to serve as members of the Board of Directors.

            Votes  cast in favor of Mr.  Miller's  election  totaled  14,125,210
            while 26,985 votes were withheld.

   The  stockholders  also  voted to ratify the  appointment  of KPMG LLP as the
Company's independent public accountants for the fiscal year ending December 31,
1999. Votes cast in favor of this ratification were 14,140,984, while votes cast
against were 9,861 and abstentions totaled 1,350.

                                       20



                                   PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

PRICE RANGE OF COMMON STOCK

   The  Company's  Common Stock was listed on the New York Stock  Exchange  (the
"NYSE")  under the symbol "DFC" on November 1, 1996.  The  following  table sets
forth for the  periods  indicated  the range of the high and low  closing  sales
prices for the Company's Common Stock on the NYSE.

1999                                                  HIGH          LOW
----                                                  ----         ----
First Quarter ............................       $    8.25     $   4.75
Second Quarter ...........................            8.13         4.88
Third Quarter.............................            7.81         5.00
Fourth Quarter ...........................            5.06         3.63

1998                                                  HIGH          LOW
----                                                  ----         ----
First Quarter ............................        $  18.56      $  9.56
Second Quarter ...........................           20.25        17.06
Third Quarter.............................           18.00         4.50
Fourth Quarter ...........................            7.75         3.13

   On March 27, 2000, the Company had approximately 86 stockholders of record.
This number does not include beneficial owners holding shares through nominee or
"street" names.  The Company  believes the number of beneficial  stockholders is
approximately 1,250.


DIVIDEND POLICY

   The Company did not pay any  dividends  in 1999 and, in  accordance  with its
present general policy, has no present intention to pay cash dividends.

                                       21


<PAGE>
<TABLE>
<CAPTION>

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA
                                                                            YEAR ENDED DECEMBER 31,
                                                           -----------------------------------------------------------
                                                           1999          1998          1997         1996          1995
                                                           ----          ----          ----         ----          ----
<S>                                                   <C>             <C>           <C>           <C>           <C>
Income Statement Data:                                            (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)
  Revenues:
      Net gain on sale of mortgage loans.............  $    78,663    $   91,380    $   85,890    $  46,525     $  15,383
      Interest.......................................       31,041        12,458        22,341       16,372        13,588
      Servicing fees.................................       16,341        10,464         7,511        5,368         2,855
      Origination fees (1) ..........................       28,774        25,273        18,108        5,266         4,309
                                                       -----------    ----------    ----------    ---------     ---------
           Total revenues............................      154,819       139,575       133,850       73,531        36,135
                                                       -----------    ----------    ----------    ---------     ---------

 Expenses:
      Payroll and related costs (1)..................       65,116        56,709        41,214       17,633        13,753
      Interest.......................................       26,656        30,019        19,964       11,298         7,964
      General & administrative (1)...................       55,318        34,351        21,522       11,112         9,832
                                                       -----------    ----------    ----------    ---------     ---------
            Total expenses...........................      147,090       121,079        82,700       40,043        31,549
                                                       -----------    ----------    ----------    ---------     ---------

 Income before income taxes and
      extraordinary item.............................        7,729        18,496        51,150       33,488         4,586
  Provision for income taxes(1)......................        3,053         7,168        20,739        9,466            --
                                                       -----------    ----------    ----------    ---------     ---------

  Income before extraordinary item...................        4,676        11,328        30,411       24,022         4,586
  Extraordinary item:................................
      Gain on extinguishment of debt.................           --            --            --        3,168            --
                                                       -----------    ----------    ----------    ---------     ---------
  Net income.........................................  $     4,676        11,328        30,411       27,190         4,586
                                                       -----------    ----------    ----------    ---------     ---------

Pro forma information (2)(3):
  Provision for pro forma income taxes
      before extraordinary item......................           --            --            --       14,400         1,972
                                                       -----------    ----------    ----------    ---------     ---------
  Pro forma income before  extraordinary item........ $      4,676        11,328        30,411       19,088         2,614
                                                       -----------    ----------    ----------    ---------     ---------
  Per share data(2)(4):
      Earnings per common share -
            basic and diluted........................ $       0.30          0.74          1.98         1.46          0.21

      Weighted average number of
            shares outstanding.......................   15,511,214    15,382,161    15,359,280   13,066,485    12,629,182


Selected Balance Sheet Data:
  Loans held for sale, net........................... $     89,036        87,170        79,247       82,411        63,324
  Capitalized mortgage servicing rights..............       45,927        33,490        22,862       11,412         3,831
  Interest-only and residual certificates............      224,659       203,803       167,809       83,073        25,310
  Total assets.......................................      556,835       481,907       393,232      231,616       139,293
   Senior notes, warehouse financing and
      other borrowings...............................      258,493       229,660       177,540       95,482        82,756
  Investor payable...................................       82,204        63,790        40,852       20,869        13,444
  Total liabilities..................................      409,694       344,219       266,779      138,098       109,460
  Stockholders' equity...............................      147,141       137,688       126,453       93,518        29,833

---------------
<FN>
(1)   In connection with the February 1997 acquisition of Fidelity Mortgage, the
      Company incurred  additional  expenses  normally  associated with a retail
      operation. Fidelity Mortgage's loan origination points when recognized are
      reported as origination fee income.
(2)   Figures for December 31, 1999, 1998 and 1997 are actual; pro forma
      presentation for the years 1996 and 1995.
(3)   Prior to October 31, 1996,  Delta Funding (a wholly-owned  subsidiary) was
      treated as an S corporation for Federal and state income tax purposes. The
      pro forma  presentation  reflects a provision  for income  taxes as if the
      Company had always been a C corporation at an assumed tax rate of 43%.
(4)   Pro forma  earnings  per common  share has been  computed by dividing  pro
      forma net  income  by the sum of (a)  10,653,000  shares of the  Company's
      common  stock  received by the former  shareholders  in exchange for their
      shares of Delta  Funding,  and (b) the effect of the issuance of 1,976,182
      shares of the  Company's  common  stock  issued in the  Company's  initial
      public  offering to  generate  sufficient  cash for certain S  corporation
      distributions paid to the former shareholders, which shares are treated as
      if they had always been outstanding.
</FN>
</TABLE>


                                       22


ITEM 7.  MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND
RESULTS OF OPERATIONS

THE FOLLOWING  DISCUSSION  SHOULD BE READ IN CONJUNCTION  WITH THE  CONSOLIDATED
FINANCIAL  STATEMENTS  OF THE COMPANY  AND  ACCOMPANYING  NOTES TO  CONSOLIDATED
FINANCIAL STATEMENTS SET FORTH THEREIN.

GENERAL

   Delta  Financial   Corporation  (the  "Company"  or  "Delta"),   through  its
wholly-owned   subsidiaries,   engages  in  the  consumer  finance  business  by
originating,  acquiring, selling and servicing non-conforming home equity loans.
Throughout its 18 years of operating history, the Company has focused on lending
to individuals  who generally have impaired or limited credit profiles or higher
debt-to-income ratios for such purposes as debt consolidation, home improvement,
mortgage refinancing or education.

   Through  its  wholly-owned  subsidiary,  Delta  Funding  Corporation  ("Delta
Funding"),  the Company originates home equity loans indirectly through licensed
mortgage   brokers  and  other  real  estate   professionals   who  submit  loan
applications  on behalf of the borrower  ("Brokered  Loans") and also  purchases
loans from  mortgage  bankers and smaller  financial  institutions  that satisfy
Delta's underwriting guidelines ("Correspondent Loans"). Delta Funding currently
originates  and  purchases  the majority of its loans in 24 states,  through its
network of approximately 1,600 brokers and correspondents.

   Through its  wholly-owned  subsidiary,  Fidelity  Mortgage  Inc., the Company
develops retail loan leads ("Retail Loans")  primarily through its telemarketing
system and its network of 14 retail  offices  located in eight states.  In March
2000,  the  Company  decided to close a branch in Georgia.  In March  2000,  the
Company decided to close a branch in Georgia.

   In June 1999, the Company announced a settlement in principle with the Office
of the  Attorney  General  for the  State of New York  ("NYOAG"),  which  was to
provide for  retrospective  relief to certain  borrowers  in the form of reduced
monthly  obligations  aggregating $6 million and prospective  changes to some of
the  Company's  lending  practices.  The NYOAG took issue with  Delta's  lending
practices,  specifically which loans should and should not be made by Delta. The
settlement in principle was later expanded to include the New York State Banking
Department  ("NYSBD")  and the U.S.  Department  of Justice  ("DOJ"),  which had
raised similar  concerns  relating to Delta's  lending  practices.  In September
1999, the Company  finalized its settlements  with the NYSBD and the NYOAG,  but
only after the NYOAG filed suit against the Company in August 1999, as evidenced
by (1) a Remediation Agreement by and between the Company and the NYSBD, and (2)
a Stipulated Order on Consent by and among the Company and the NYOAG.

   As part of the final global  settlement (in lieu of the previously  announced
$6 million  settlement  with the  NYOAG),  the  Company  agreed to,  among other
things, implement agreed upon changes to its lending practices;  provide reduced
loan payments  aggregating $7.25 million to certain borrowers  identified by the
NYSBD;  and create a reversionary  fund (the "fund"),  administered by a trustee
named by the NYSBD,  financed by the grant by Delta of 525,000 shares of Delta's
common  stock,  valued at an assumed  constant  price of $9.10 per share,  which
approximates the book value of the shares.  All proceeds raised through the fund
shall be used for  restitution  and/or to pay for a variety of  educational  and
counseling programs at the discretion of the NYSBD.

   The  twelve-month  period ended  December 31, 1999  includes a $12.0  million
pre-tax  charge for the  global  settlement  with the NYSBD and the  NYOAG.  The
Company  recorded a $6.0 million  pre-tax  charge in the second  quarter of 1999
when it reached a  settlement  in  principle  with the NYOAG.  Subsequently,  an
additional $6.0 million pre-tax charge was recorded in the third quarter of 1999
when the Company reached a global  settlement with the NYSBD and the NYOAG.  The
Company  finalized its agreement  with the DOJ  subsequent to December 31, 1999.
The DOJ settlement,  which parallels the NYSBD and NYOAG settlement  agreements,
was also signed by the  Federal  Trade  Commission  and the U.S.  Department  of
Housing  and Urban  Development.  See "Legal  Proceedings"  for a more  detailed
discussion of the settlement.

                                       23


CERTAIN ACCOUNTING CONSIDERATIONS

   As a fundamental part of its business and financing strategy, Delta sells the
majority  of its loans  through  securitization  to a  securitization  trust and
derives  a   substantial   portion  of  its  income  from  these  sales.   In  a
securitization, the Company sells a pool of loans it has originated or purchased
to a REMIC trust for a cash purchase  price.  The trust,  in turn,  finances the
purchase  of  the  pool  of  loans  it has  acquired  by  selling  "pass-through
certificates," or bonds, which represent  undivided  ownership  interests in the
trust. Holders of the pass-through  certificates are entitled to receive monthly
distributions  of all  principal  received  on the  underlying  mortgages  and a
specified amount of interest, determined at the time of the offering.

   When the Company sells a pool of loans to a securitization trust, it receives
the following  economic  interests in the trust: (a) the difference  between the
interest  payments due on the loans sold to the trust and the interest rate paid
to the pass-through certificateholders, less the Company's contractual servicing
fee and other costs and  expenses of  administering  the trust,  represented  by
interest-only and residual certificates,  and (b) the right to service the loans
on  behalf of the trust and earn a  servicing  fee,  as well as other  ancillary
servicing related fees directly from the borrowers on the underlying loans.

   The  Company's  net  investment  in the pool of loans sold at the date of the
securitization represents the amount originally paid to originate or acquire the
loan adjusted for (i) any direct loan  origination  costs incurred (an increase)
and loan  origination  fees received (a decrease) in connection  with the loans,
which are  treated as a  component  of the  initial  investment  in a loan under
Statement of Financial  Accounting  Standards  ("SFAS") No. 91,  "Accounting for
Non-Refundable Fees and Costs Associated with Originating or Acquiring Loans and
Initial Direct Costs of Leases," and (ii) the principal payments  received,  and
the  amortization  of the net loan fees or costs,  during the period the Company
held the loans prior to their  securitization.  The Company's  investment in the
loans also reflects  adjustments for any gains (a decrease in the investment) or
losses (an increase in the investment) the Company has incurred on treasury rate
lock contracts which the Company has typically used to hedge against the effects
of changes in interest rates during the period it holds the loans prior to their
securitization. (See "Hedging.")

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

   The Company sold the interest-only  certificates  created in each of the 1999
securitizations   for  cash  proceeds  and  intends  to  continue  to  sell  the
interest-only  certificate as long as the sale  effectively  maximizes cash flow
and profitability.

   The interest-only and residual  certificates received by the Company upon the
securitization of a pool of loans are accounted for as trading  securities under
SFAS  No.  115,   "Accounting  for  Certain   Investments  in  Debt  and  Equity
Securities." In accordance with SFAS No. 115, the amount initially  allocated to
the  interest-only  and residual  certificates  at the date of a  securitization
reflects  the  fair  value of  those  interests.  The  amount  recorded  for the
certificates  is reduced for  distributions  thereon which the Company  receives
from the trust,  and is  adjusted  for  subsequent  changes in the fair value of
interest-only and residual certificates, which are reflected in the statement of
operations.  The Company assesses the fair value of  interest-only  and residual
certificates  based upon  updated  estimates  of  prepayment  and default  rates
relating to loan  groups  comprised  of loans of similar  types,  terms,  credit
quality, interest rates, geographic location and value of loan collateral, which
represent the predominant risk characteristics that would affect prepayments and
default rates.

   The  Company   values  the  mortgage   servicing   rights  it  retains  in  a
securitization  under the provisions of SFAS No. 125,  "Accounting for Transfers
and  Servicing  of  Financial  Assets and  Extinguishment  of  Liabilities."  In
accordance  with  SFAS No.  125,  the  amount  of the  investment  in the  loans
allocated to the retained servicing rights is measured at the allocated carrying
amount  of such  servicing  rights,  based  on the fair  value of the  servicing
rights. The fair value of the servicing rights is determined by discounting to a
present  value (using a discount  rate which

                                       24


management believes reflects the discount rate market participants would utilize
in purchasing  similar loan servicing  rights) the estimated future  contractual
and ancillary servicing fees the Company will receive and the estimated costs of
servicing  the  loans.  Those  estimates  are based on the  stated  terms of the
transferred  loans adjusted for estimates of future prepayment rates made on the
basis of interest rate conditions and the availability of alternative financing,
and  estimates  of  future  defaults  among  those  loans,  each of which  would
terminate the servicing of the loan and thus negatively affect servicing income.
The carry value of the  servicing  rights,  which is  classified  on the balance
sheet as  "Capitalized  mortgage  servicing  rights," is then amortized over the
period of the estimated net future cash flows from the  servicing  income.  SFAS
No. 125 also requires that the capitalized mortgage servicing rights be assessed
periodically  to determine if there has been any  impairment of the value of the
asset, based on the date of the assessment. The Company performs this assessment
based on the same prepayment and default  estimates used to value  interest-only
and residual certificates. A valuation allowance is provided for the capitalized
servicing rights relating to any pool of loans for which the recorded investment
exceeds the fair value of the servicing rights.

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

   There are  currently  two methods used to calculate  the present value of the
residual interests,  the "cash-in" and "cash-out" methods.  The "cash-in" method
assumes value as the residual cash flow is received by the securitization  trust
even if it is used to create an  overcollateralization  provision.  In contrast,
the  "cash-out"  method  assumes  value at the time the  residual  cash  flow is
actually  received  by  the  residual   certificate   holder  (Delta)  from  the
securitization  trust,  which is only after the  required  overcollateralization
provision  has been met. As the Company  receives  residual  cash flows from the
securitization  trust, generally 12 to 20 months following the primary issuance,
these two methods will create  dramatically  different values.  The Company uses
the more conservative  "cash-out" method, which calculates value at the time the
residual cash flow is actually received by Delta.

   The Financial  Accounting  Standards  Board  ("FASB") and the  Securities and
Exchange  Commission have issued  proposals  relating to SFAS No. 125 that would
require companies to use the "cash-out" (more  conservative),  not the "cash-in"
(more  aggressive),  method in accounting for the value of the retained interest
(residual)  in  securitizations  and  overcollateralization  assets.  This would
result in one-time  residual asset  write-downs for companies that currently use
the  "cash-in"  method.  The  Company  always  has used  the  more  conservative
"cash-out"  method for accounting and will not be susceptible to a write-down as
a result of this proposed accounting change.



FAIR VALUE ADJUSTMENTS

   In accordance with SFAS No. 125, upon the sale or securitization of a loan, a
gain on sale and a corresponding  asset is recognized for any  interest-only and
residual  certificates and capitalized  mortgage  servicing rights. The carrying
amount of the interest-only and residual certificates is classified as a trading
security  and,  as such,  they are  recorded  at their fair  value.  The Company
implemented SFAS No. 134,  "Accounting for Mortgage-Backed  Securities after the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise"
in the first  quarter  of 1999.  The  implementation  of SFAS 134 did not have a
material impact on the Company's  financial  condition or results of operations.
For capitalized  mortgage servicing rights, a valuation allowance is recorded if
the fair value of such rights is less than the carrying amount.


                                       25


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

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

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

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

   The Company makes assumptions  concerning prepayment rates and defaults based
upon the seasoning of its existing securitization loan portfolio.  The following
table compares the prepayment  assumptions  used subsequent to the third quarter
of 1999 (the  "new"  assumptions"),  with  those  used  subsequent  to the first
quarter of 1998 (the "2Q98" assumptions) and those used at December 31, 1997 and
through the first quarter of 1998 (the "old" assumptions):

LOAN TYPE                    MONTH 1 SPEED                PEAK SPEED *
---------              -------------------------     ---------------------
                       NEW      2Q98     OLD          NEW     2Q98      OLD
                       ---      ----     ---          ---     ----      ---
Fixed Rate Loans       4.0%     4.8%     4.8%         31%      31%      24%
Six-Mo. LIBOR ARMs    10.0%    10.0%     5.6%         50%      50%      28%
Hybrid ARMs            4.0%     6.0%     5.6%         50%      50%      28%

* Since the second quarter of 1998,  the Company has utilized a "vector"  curve,
  instead  of  a  "ramp"  curve,   which  the  Company  believes  will  be  more
  representative of future loan prepayment experience.


    In 1999, the Company continued,  as part of its ongoing practice,  to review
and assess its prepayment rate and loan loss reserve assumptions using a variety
of factors. Such factors included a review of its own loan portfolio performance
data, as well as management's current views on both the economic and competitive
environments.  Based upon this review,  the Company  revised both its prepayment
rate and loan loss reserve assumptions in 1999 to better reflect its anticipated
future loan performance.

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

   In the fourth  quarter of 1999,  the  Company  lowered its  prepayment  speed
assumption  along parts of the  prepayment  rate vector curve while  leaving the
peak  speeds  intact.  In  addition,  the  Company  increased  its loss

                                       26


reserve initially  established for both fixed- and adjustable-rate loans sold to
the  securitizations  trusts from 2.20% to  approximately  3.10% of the issuance
amount securitized.

   The prepayment rate assumption was revised primarily to reflect the Company's
actual loan performance  experience over the past several  quarters.  Management
believes that industry  consolidation and a higher interest rate environment has
and will continue to deter borrowers from refinancing  their mortgage loans. The
loan loss reserve  assumption  was revised to reflect  management's  belief that
slower prepayment speeds,  coupled with an anticipated flat to slightly moderate
rise in home  values as  compared  to the past few years and  borrowers  who had
avoided  default  through  refinancing may be readily unable to do so because of
industry  consolidation  and a higher  interest  rate  environment,  may have an
adverse effect on the Company's non-performing loans.

   These  changes  resulted in  approximately  a $6.3  million  reduction in the
Company's  value of the residual  and  interest-only  certificates  for the year
1999.

   An annual  discount  rate of 12.0% was  utilized in  determining  the present
value of cash flows from residual  certificates,  using the  "cash-out"  method,
which are the predominant  form of retained  interests at both December 31, 1999
and December 31, 1998.

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





RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998


GENERAL

   The  Company's  net  income  for the year ended  December  31,  1999 was $4.7
million, or $0.30 per share,  compared to $11.3 million, or $0.74 per share, for
the year ended December 31, 1998.  Excluding a one-time  charge  relating to the
Company's  settlement with the NYSBD and the NYOAG, the Company's net income for
the year ended December  31,1999,  would have been $12.0  million,  or $0.77 per
share.  Comments  regarding  the  components  of net income are  detailed in the
following paragraphs.


REVENUES

   Total revenues  increased  $15.2  million,  or 11%, to $154.8 million for the
twelve months ended  December 31, 1999,  from $139.6  million for the comparable
period in 1998. The increase in revenue was primarily attributable to fair value
adjustments the Company made to its interest-only and residual  certificates and
capitalized  mortgage servicing rights in the second quarter of 1998 (See "-Fair
Value Adjustments"), an increase in servicing fees and origination fees, and was
partially  offset  by a  decrease  in the net  gain  recognized  on the  sale of
mortgage loans.

   The Company  originated and purchased $1.47 billion of mortgage loans for the
twelve months ended  December 31, 1999,  representing  a 15% decrease from $1.73
billion of mortgage loans originated and purchased for the comparable  period in
1998.  The Company  completed  three  securitizations  and a loan sale through a
conduit   facility   in  1999   totaling   $1.46   billion,   compared  to  four
securitizations  and loan sales  totaling  $1.73  billion in 1998.  Total  loans
serviced  increased 23% to $3.63 billion at December 31, 1999 from $2.95 billion
at December 31, 1998.

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

                                       27


   Net gain on sale of mortgage loans decreased $12.7 million,  or 14%, to $78.7
million for the twelve  months ended  December 31, 1999,  from $91.4 million for
the comparable period in 1998. This decrease was primarily due to a 16% decrease
in the amount of loans  securitized or sold through a conduit  facility to $1.46
billion in 1999, compared to $1.73 billion of loans securitized or sold in 1998;
a revision to the  Company's  loan loss reserve  assumption  in 1999 (See "-Fair
Value  Adjustments");  coupled  with  wider  spreads  demanded  by  asset-backed
investors who purchase the pass-through  certificates  issued by  securitization
trusts during 1999 compared to 1998. The decrease was partially  offset by lower
aggregate  premiums  paid to acquire  loans,  resulting  from both a decrease in
amount of loans purchased  through the  correspondent  channel and lower average
premiums paid to correspondents. The weighted average net gain on sale ratio was
5.4% in 1999 compared to 5.3% in 1998.

   INTEREST  INCOME.  Interest  income  primarily  represents the sum of (1) the
difference  between the  distributions the Company receives on its interest-only
and residual certificates and the adjustments recorded to reflect changes in the
fair  value  of the  interest-only  and  residual  certificates,  (2) the  gross
interest  earned on loans  held for sale  (other  than for  loans  sold into the
conduit in which case, it is the net interest spread), (3) with respect to loans
sold into the conduit, the net interest margin earned (excess servicing) between
the  weighted  average rate on the mortgage  loans less the  conduit's  variable
funding  rate  plus  administrative  fees,  and  (4)  interest  earned  on  cash
collection balances.

    Interest income  increased $18.5 million,  or 148%, to $31.0 million for the
twelve months ended  December 31, 1999,  from $12.5  million for the  comparable
period in 1998. The increase in interest  income was primarily due to fair value
adjustments   made  in  1998  to  the  Company's   interest-only   and  residual
certificates,  including a $15.5 million reduction in the second quarter of 1998
related to the change in prepayment assumptions (see "-Fair Value Adjustments").
The increase was also  attributable to an increase in income recognized from the
Company's   interest-only   and   residual   certificates   primarily   due   to
slower-than-anticipated    actual    prepayment   rates.   (see   "-Fair   Value
Adjustments"). This was offset partially by the accounting for loans sold by the
Company to a mortgage  loan  conduit  prior to  securitization  in the third and
fourth  quarters of 1999.  For  conduit-related  sales,  the  Company  earns and
records the net interest  margin between the interest rate earned on the pool of
mortgage loans sold to the mortgage loan conduit and the conduit financing rate,
less  administrative  expenses.  Typically,  interest  expense  related  to  the
Company's  other  warehouse  financing and borrowings  are recorded  directly to
interest expense.

   SERVICING  FEES.  Servicing  fees  represent  all  contractual  and ancillary
servicing  revenue received by the Company less (1) the offsetting  amortization
of the capitalized  mortgage servicing rights,  and any adjustments  recorded to
reflect  valuation  allowances for the impairment in mortgage  servicing  rights
(see  "--Certain   Accounting   Considerations"),   and  (2)  prepaid   interest
shortfalls.

   Servicing  fees  increased  $5.8  million,  or 55%, to $16.3  million for the
twelve months ended  December 31, 1999,  from $10.5  million for the  comparable
period in 1998.  This increase was primarily due to an increase in the aggregate
size of the  Company's  servicing  portfolio and the recording of a $1.9 million
impairment  provision for the  Company's  mortgage  servicing  rights during the
second quarter of 1998 (See "-Fair Value  Adjustments").  The average balance of
the mortgage  loans  serviced by the Company  increased 38% to $3.36 billion for
the  twelve  months  ended  December  31,  1999 from  $2.44  billion  during the
comparable period in 1998.

   ORIGINATION  FEES.  Origination  fees  represent  fees earned on brokered and
retail  originated  loans.  Origination fees increased $3.5 million,  or 14%, to
$28.8 million for the twelve months ended December 31, 1999,  from $25.3 million
for the comparable  period in 1998. The increase was primarily the result of (a)
a 36%  increase  in  retail  originated  loans and (b) a 6%  increase  in broker
originated loans.



EXPENSES

   Total expenses increased by $26.0 million,  or 21%, to $147.1 million for the
twelve months ended  December 31, 1999,  from $121.1  million for the comparable
period in 1998.  The increase was primarily the result of an increase in general
and administrative  expenses primarily related to the Company's  settlement with
the NYSBD and the NYOAG, and legal fees associated with the settlement,  as well
as personnel costs  associated with the Company's  expanded  retail,  broker and
servicing divisions, partially offset by a decrease in interest expense.

   PAYROLL  AND RELATED  COSTS.  Payroll and  related  costs  include  salaries,
benefits  and  payroll  taxes  for all  employees.  Payroll  and  related  costs
increased by $8.4 million,  or 15%, to $65.1 million for the twelve months

                                       28


ended December  31,1999,  from $56.7 million for the comparable  period in 1998.
The  increase  was  primarily  due to staff  increases  related to growth in the
Company's  servicing  portfolio and commissions paid to employees  related to an
increase in loans originated  through the Company's broker and retail divisions.
As of  December  31,  1999,  the  Company  employed  1,134  full- and  part-time
employees,  compared to 1,104 full- and  part-time  employees as of December 31,
1998.

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

   Interest expense decreased by $3.4 million,  or 11%, to $26.6 million for the
twelve  months  ended  December 31, 1999 from $30.0  million for the  comparable
period in 1998.  The decrease was primarily  attributable  to the accounting for
loans sold through a mortgage loan conduit prior to their  securitization in the
third and fourth  quarters of 1999,  in which the Company  earns and records the
net interest  margin  between the  interest  rate earned on the pool of mortgage
loans sold to the mortgage  loan conduit and the conduit  financing  rate,  less
administrative  expenses.  Typically,  interest expense related to the Company's
other  warehouse  financing  and  borrowings  are recorded  directly to interest
expense. In addition, there was a decrease in the cost of funds on the Company's
credit facilities, which were tied to one-month LIBOR. The one-month LIBOR index
decreased  to an  average  interest  rate  of 5.2% in the  twelve  months  ended
December  31,  1999,  compared  to an  average  interest  rate of  5.6%  for the
comparable period in 1998.

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

   General and administrative expenses increased $20.9 million, or 61%, to $55.3
million for the twelve months ended December 31, 1999 from $34.4 million for the
comparable  period in 1998. This increase was primarily  attributable to (1) the
Company's  settlement  with the NYSBD and the NYOAG,  and the  associated  legal
costs, and (2) an increase in depreciation expense and management and consulting
fees, reflecting the Company's ongoing investment in technology.

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

   The Company  recorded tax provisions of $3.1 million and $7.2 million for the
periods ended December 31, 1999 and 1998, respectively.  Income taxes provided a
39.5%  effective  tax rate for the year ended  December 31, 1999,  compared to a
38.8% effective tax rate for the year ended December 31, 1998.



YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997

GENERAL

   The  Company's  net  income for the year ended  December  31,  1998 was $11.3
million, or $0.74 per share,  compared to $30.4 million, or $1.98 per share, for
the year ended  December 31, 1997.  Comments  regarding  the  components  of net
income are detailed in the following paragraphs.

REVENUES

   Total  revenues  increased  $5.7  million,  or 4%, to $139.6  million for the
twelve months ended  December 31, 1998,  from $133.9  million for the comparable
period in 1997. The increase in revenue was primarily  attributable to increases
in origination  fees and the net gains recognized on the sale of mortgage loans,
reflecting the growth in the Company's level of loan  originations and purchases
and securitizations. In addition, servicing fees increased due to an increase in
the aggregate size of the Company's loan servicing  portfolio.  These  increases
were  significantly  offset by a decline in interest income primarily due to the
fair  value  adjustments  made  to  the  Company's  interest-only  and  residual
certificates and capitalized  mortgage servicing rights in the second and fourth
quarters of 1998 (see "--Fair Value Adjustments") and a larger than normal hedge
loss  which  was not  offset  by a  higher  gain on  sale

                                       29


because   asset-backed   investors  who  typically   purchase  the  pass-through
certificates  issued by  securitization  trusts demanded wider spreads (see "Net
gain on sale of mortgage loans").

   The Company  originated and purchased $1.73 billion of mortgage loans for the
twelve months ended  December 31, 1998,  representing  a 38% increase from $1.25
billion of mortgage loans originated and purchased for the comparable  period in
1997. The Company completed four securitizations and loan sales in 1998 totaling
$1.73 billion,  compared to four securitizations totaling $1.24 billion in 1997.
Total loans  serviced  increased  60% to $2.95 billion at December 31, 1998 from
$1.84 billion at December 31, 1997.

   NET  GAIN ON SALE OF  MORTGAGE  LOANS.  Net  gain on sale of  mortgage  loans
increased  $5.5  million,  or 6%, to $91.4  million for the twelve  months ended
December 31, 1998,  from $85.9 million for the  comparable  period in 1997.  The
increase was primarily due to a 40% increase in the amount of loans  securitized
or sold on a whole  loan  basis to $1.73  billion  in  1998,  compared  to $1.24
billion  of loans  securitized  in 1997,  but was  partially  offset  by a lower
weighted  average net gain on sale ratio.  The weighted average net gain on sale
ratio was 5.3% in 1998 compared to 7.0% in 1997.

   Net gain on the sale of loans  increased  less than the  overall  increase in
loan  securitizations  primarily  due  to  (a)  the  Company's  change  to  more
conservative  prepayment  assumptions  used in  initially  valuing the  residual
certificates and capitalized  mortgage  servicing rights acquired  subsequent to
the first quarter of 1998 (see "--Fair Value  Adjustments"),  and (b) the impact
of a hedging loss during the third quarter of 1998 resulting from lower interest
rates that was not offset by a higher  gain on sale due to  substantially  wider
spreads  demanded  by  asset-backed  investors  who  purchase  the  pass-through
certificates issued by securitization trusts.

   INTEREST  INCOME.  Interest income  decreased $9.8 million,  or 44%, to $12.5
million for the twelve  months ended  December 31, 1998,  from $22.3 million for
the comparable period in 1997. The decrease in interest income was primarily due
to the $15.5  million and $2.8  million fair value  adjustments  made during the
second  and  fourth  quarters  of  1998  to  the   interest-only   and  residual
certificates  previously discussed (see "--Fair Value Adjustments").  The effect
of that adjustment was partially  offset by increases in (a)  interest-only  and
residual  certificates income, (b) interest on loans held for sale due to higher
average  balances,  partially  offset by a decline,  from 11.0% to 10.2%, in the
weighted  average  coupon rate on the mortgage  loans,  reflecting  both a lower
interest rate environment and the Company's shift to higher credit quality loans
and (c) interest on bank deposits  resulting from a higher average  balance held
in securitization trust accounts by the Company.

   SERVICING  FEES.  Servicing  fees  increased  $3.0 million,  or 40%, to $10.5
million for the twelve months ended December 31, 1998, from $7.5 million for the
comparable  period in 1997. The increase was primarily due to an increase in the
aggregate size of the Company's  servicing  portfolio,  partially  offset by the
recording of the $1.9 million provision for the Company's  capitalized  mortgage
servicing  rights.  (See "--Fair  Value  Adjustments").  The average  balance of
mortgage  loans  serviced by the Company  increased 77% to $2.44 billion for the
twelve months ended  December 31, 1998,  from $1.38  billion for the  comparable
period in 1997.

   ORIGINATION FEES.  Origination fees increased $7.2 million,  or 40%, to $25.3
million for the twelve  months ended  December 31, 1998,  from $18.1 million for
the  comparable  period in 1997.  The increase was primarily the result of (a) a
75%  increase  in  broker  originated  loans  and (b) a 67%  increase  in retail
originated loans.



EXPENSES

   Total expenses  increased  $38.4  million,  or 46%, to $121.1 million for the
twelve months ended  December 31, 1998,  from $82.7  million for the  comparable
period in 1997.  The increase was primarily the result of (1) an increase in the
Company's  personnel  to support its higher level of loan  originations,  (2) an
increase in general  and  administrative  costs  associated  with the  Company's
expanded  retail,  broker and  correspondent  divisions  and (3) an  increase in
interest  expense   associated  with  (a)  the  growth  in  the  Company's  loan
originations and (b) the $150 million aggregate  principal amount of 9.5% Senior
Notes due 2004 issued in July 1997 (the "Senior Notes").

   PAYROLL AND RELATED COSTS.  Payroll and related costs expense increased $15.5
million, or 38%, to $56.7 million for the twelve months ended December 31, 1998,
from $41.2 million for the comparable period in 1997. The increase was primarily
due to staff increases  related to growth in the Company's loan originations and
the costs  associated  with the Company's  broker and Fidelity  Mortgage  retail
division,  which only  reflects  expenses  from

                                       30


February 11, 1997. The Company  employed 1,104 full- and part-time  employees as
of December  31,  1998,  compared  to 987 full- and  part-time  employees  as of
December 31, 1997.

   INTEREST EXPENSE.  Interest expense increased $10.0 million, or 50%, to $30.0
million for the twelve  months ended  December 31, 1998,  from $20.0 million for
the comparable  period in 1997. The increase was primarily  attributable  to (1)
the  Company's  issuance  of Senior  Notes in July  1997 and (2)  growth in loan
production,  which increased the level of debt needed throughout 1998 to finance
the inventory of loans held for sale prior to their securitization.

   GENERAL AND  ADMINISTRATIVE  EXPENSES.  General and  administrative  expenses
increased  $12.9  million,  or 60%, to $34.4 million for the twelve months ended
December 31, 1998,  from $21.5 million for the  comparable  period in 1997.  The
increase was primarily  attributable  to (1) an increase in expenses  associated
with the Company's  increase in loan originations and purchases in 1998, (2) the
expansion  costs  associated with the Company's  adding two additional  Fidelity
Mortgage  retail branch offices,  and (3)  depreciation  expense  reflecting the
Company's ongoing investment in technology.

   INCOME TAXES.  The Company  recorded tax provisions of $7.2 million and $20.7
million for the years ended  December  31, 1998 and 1997,  respectively.  Income
taxes provided a 38.8%  effective tax rate for the year ended December 31, 1998,
compared to a 40.5% effective tax rate for the year ended December 31, 1997. The
reduction in the effective tax rate is primarily  attributable  to the Company's
expansion into lower tax rate states and local jurisdictions and to the benefits
due to permanent book/tax differences.



FINANCIAL CONDITION

DECEMBER 31, 1999 COMPARED TO DECEMBER 31, 1998

   Cash and  interest-bearing  deposits increased $6.8 million, or 14%, to $56.0
million at December  31,  1999 from $49.2  million at December  31,  1998.  This
increase  was  primarily  due  to a  higher  average  loan  servicing  portfolio
resulting in  additional  monies held in  securitization  trust  accounts by the
Company, acting as servicer for its ongoing securitization program.

   Accounts  receivable  increased  $9.8  million,  or 44%, to $32.3  million at
December  31, 1999 from $22.5  million at December  31,  1998.  The increase was
primarily attributable to an increase in reimbursable servicing advances made by
the Company,  acting as servicer for its  securitization  program,  related to a
higher average servicing  portfolio.  The Company's average servicing  portfolio
increased  38% to $3.36 billion as of December 31, 1999 from $2.44 billion as of
December 31, 1998.

   Loans  held for sale  increased  $1.8  million,  or 2%, to $89.0  million  at
December 31, 1999 from $87.2  million at December 31,  1998.  This  increase was
primarily  due to  the  net  difference  between  loan  originations  and  loans
securitized or sold during 1999.

   Accrued interest receivable increased $16.4 million, or 35%, to $63.3 million
at December 31, 1999 from $46.9 million at December 31, 1998.  This increase was
primarily due to a larger  average loan servicing  portfolio,  which resulted in
increased reimbursable interest advances made by the Company, acting as servicer
for its securitization program.

   Capitalized  mortgage  servicing rights  increased $12.4 million,  or 37%, to
$45.9 million at December 31, 1999 from $33.5 million at December 31, 1998. This
increase was directly  attributable to the Company's  capitalizing the allocated
carrying value amount of the servicing assets, totaling $20.5 million, resulting
from the Company's  completion of three  securitizations  during 1999, partially
offset by the amortization of capitalized mortgage servicing rights.

   Interest-only and residual  certificates  increased $20.9 million, or 10%, to
$224.7  million at December  31, 1999 from $203.8  million at December 31, 1998.
This increase is primarily  attributable  to the  Company's  receipt of residual
certificates  valued and  recorded  at $48.4  million  from its  securitizations
during the year ended December 31, 1999, partially offset by normal amortization
due to cash distributions and fair value adjustments.


                                       31


   Equipment,  net, increased $4.7 million, or 28%, to $21.7 million at December
31, 1999 from $17.0 million at December 31, 1998. The increase was primarily due
to capital expenditures related to new technology and expansion.

   Cash held for  advance  payments  increased  $3.6  million,  or 36%, to $13.6
million at December  31,  1999 from $10.0  million at December  31,  1998.  This
increase  was  primarily  due  to a  higher  average  loan  servicing  portfolio
resulting in additional monies held in  securitization  escrow trust accounts by
the Company, acting as servicer.

   Warehouse financing and other borrowings  increased $28.7 million, or 36%, to
$109.0  million at December  31, 1999 from $80.3  million at December  31, 1998.
This  increase  was  primarily  related to  operating  cash used to fund capital
expenditures  (primarily  investment in technology),  legal fees associated with
the  NYSBD  and NYOAG  settlement,  and  interest  (delinquency)  and  servicing
advances made by the Company, acting as servicer for its securitization program.

   The aggregate  principal balance of the Senior Notes, net of unamortized bond
discount, totaled $149.5 million at December 31, 1999 compared to $149.4 million
at December  31, 1998.  The Senior  Notes accrue  interest at a rate of 9.5% per
annum, payable semi-annually each February 1 and August 1.

   Accounts  payable and accrued expenses  increased $22.6 million,  or 108%, to
$43.6 million at December 31, 1999 from $21.0 million at December 31, 1998. This
increase was primarily  attributable to the accrual of the Company's  settlement
with the NYSBD and the  NYOAG,  in  addition  to the  timing  of  various  other
operating accruals and payables.

   Investor  payable  increased  $18.4  million,  or 29%,  to $82.2  million  at
December 31, 1999 from $63.8  million at December 31,  1998.  This  increase was
primarily due to the 23% increase in the Company's  portfolio of serviced  loans
to $3.64  billion at December 31, 1999 from $2.95  billion at December 31, 1998.
Investor  payable is comprised of all principal  collected on mortgage loans and
accrued interest.  Variability in this account is primarily due to the principal
payments collected within a given collection period.

   Advance payments by borrowers for taxes and insurance increased $4.2 million,
or 44%, to $13.8  million at December 31, 1999 from $9.6 million at December 31,
1998.  This  increase  is  primarily  due to a  higher  average  loan  servicing
portfolio  and the timing of  payments  collected  and  disbursed  resulting  in
additional  monies held in escrow  trust  accounts  by the  Company  acting as a
servicer.

   Deferred tax liability  decreased  $8.4 million,  or 45%, to $10.4 million at
December 31, 1999 from $18.8  million at December 31,  1998.  This  decrease was
primarily due to income tax payments of $11.5 million.

   Stockholders'  equity  increased  $9.4 million,  or 7%, to $147.1  million at
December 31, 1999 from $137.7  million at December 31,  1998.  This  increase is
primarily due to net income for 1999 of $4.7 million and the issuance of 525,000
shares of the  Company's  common  stock at $9.10 per share  related to Company's
settlement with the NYSBD and NYOAG.



LIQUIDITY AND CAPITAL RESOURCES

   Following  three  successive  quarters of generating  positive cash flow from
operations,  the Company had an  operating  cash deficit in the third and fourth
quarters of 1999. The Company  anticipates it will continue to have an operating
cash  deficit  for at least  the  next  two  quarters,  due  primarily  to lower
projected  aggregate cash inflows from the Company's retained  interest-only and
residual  certificates.  The lower projected  inflows are due to expected timing
differences  between  older  deals cash  flowing  less per month per deal as the
mortgage  pool pays down and newer  deals  not yet cash  flowing  until  initial
reserve  requirements  are satisfied.  As initial  reserve  requirements on some
newer deals are reached,  the Company expects to receive greater  aggregate cash
inflows from its retained interest-only and residual certificates which, coupled
with (a) the Company's continued concentration on its less cash-intensive broker
and retail  originations  and (b) its  recent  history  of  utilizing  favorable
securitization   structures  that  have  allowed  the  Company  to  sell  senior
interest-only  certificates  for an up front cash purchase price, may offset the
operating  cash  deficit in future  quarters.  However,  market  conditions  and
various other  possibilities  identified below under "Risk Factors" could impact
the Company's cash flows  potentially  resulting in a more significant  negative
cash flow.

                                       32


   For the years ended  December  31, 1999 and 1998,  the Company had  operating
cash deficits of $12.4 million and $24.6 million, respectively. The reduction in
negative  operating cash flow was primarily due to the Company's  de-emphasis of
the  correspondent  loan production  channel,  thereby  decreasing the amount of
premiums  paid to  correspondents  and an  increase  in the cash  flows from the
Company's retained interest-only and residual certificates. However, the Company
continues to use its operating cash to fund interest (delinquency) and servicing
advance obligations required as servicer for its securitization  program.  These
interest and servicing advances are reimbursable to the Company as the borrowers
repay  their  obligations  over  time.  As  such,  the  exact  timing  of  these
reimbursements cannot be predicted with certainty.

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

   The Company must be able to sell loans and obtain adequate credit  facilities
and other  sources of funding in order to continue  to  originate  and  purchase
loans.  Historically,  the Company has utilized various financing facilities and
an equity  financing  to offset  negative  operating  cash flows and support the
continued  growth of its loan  originations and purchases,  securitizations  and
general operating expenses.  On July 23, 1997, the Company completed an offering
of the Senior  Notes.  A portion of the Senior Notes  proceeds  were used to pay
down various financing  facilities with the remainder used to fund the Company's
growth  in  loan  originations  and  purchases  and its  ongoing  securitization
program. The Company's primary sources of liquidity continue to be warehouse and
other financing  facilities,  securitizations and, subject to market conditions,
sales of whole loans and debt and equity securities.

   To  accumulate  loans for  securitization,  the  Company  borrows  money on a
short-term basis through warehouse lines of credit.  The Company has relied upon
a few lenders to provide the primary credit facilities for its loan originations
and purchases.  The Company had six warehouse facilities as of December 31, 1999
for this purpose. One warehouse facility is a $200 million committed credit line
with a  variable  rate of  interest  and a  maturity  date of March  2000.  This
facility's  maturity  date was extended  from February 1999 to March 2000 during
the three months ended March 31, 1999. The Company's second warehouse  facility,
a  syndicated  $100 million  committed  revolving  line with a variable  rate of
interest,  was  renewed in June 1999 and  extended  to mature in June 2000.  The
Company's  third  warehouse  facility is a renewal of a committed  $200  million
mortgage  loan conduit with a variable  rate of interest and a maturity  date of
September  2000.  The  Company's  fourth  warehouse  facility is a $200  million
committed  credit  facility  that has a variable rate of interest and a maturity
date of April 2000.  The Company's  fifth  warehouse  facility is a $250 million
committed  credit  facility  that has a variable rate of interest and a maturity
date of April 2000.  During the third quarter of 1999,  the Company  obtained an
additional warehouse facility with a $200 million committed credit line that has
a  variable  rate of  interest  and a maturity  date of  September  2000.  As of
December 31, 1999, the first  warehouse  facility had an outstanding  balance of
$42.9 million and the second  warehouse  facility had an outstanding  balance of
$51.8 million.

   The  Company is  required  to comply with  various  operating  and  financial
covenants as provided in the agreements  described above which are customary for
agreements of their type.  The continued  availability  of funds provided to the
Company  under these  agreements  is subject to,  among  other  conditions,  the
Company's  continued  compliance with these covenants.  Management believes that
the Company is in compliance with all such covenants  under these  agreements as
of December 31, 1999.

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

                                       33


INTEREST RATE RISK

    The  Company's   primary   market  risk  exposure  is  interest  rate  risk.
Profitability  may be  directly  affected by the level of, and  fluctuation  in,
interest  rates,  which affect the  Company's  ability to earn a spread  between
interest  received on its loans and the costs of its borrowings,  which are tied
to various United States  Treasury  maturities,  commercial  paper rates and the
London  Inter-Bank  Offered Rate ("LIBOR").  The profitability of the Company is
likely to be adversely affected during any period of unexpected or rapid changes
in interest rates. A substantial and sustained  increase in interest rates could
adversely  affect the  Company's  ability to purchase  and  originate  loans.  A
significant  decline  in  interest  rates  could  increase  the  level  of  loan
prepayments  thereby  decreasing  the  size  of  the  Company's  loan  servicing
portfolio. To the extent servicing rights and interest-only and residual classes
of certificates  have been capitalized on the books of the Company,  higher than
anticipated  rates of loan  prepayments  or losses could  require the Company to
write down the value of such  servicing  rights and  interest-only  and residual
certificates,  adversely impacting earnings. As previously  discussed,  the fair
value  adjustments  that the Company recorded in the second quarter of 1998 were
primarily  attributable  to the Company's  change in prepayment  assumptions  to
reflect higher than  originally  anticipated  rates of prepayments  (see "--Fair
Value Adjustments").  In an effort to mitigate the effect of interest rate risk,
the Company has reviewed its various  mortgage  products and has  identified and
modified those that have proven  historically  more  susceptible to prepayments.
However,  there can be no assurance that such  modifications to its product line
will effectively mitigate interest rate risk in the future.

   Fluctuating  interest rates also may affect the net interest income earned by
the Company  resulting from the  difference  between the yield to the Company on
loans held pending sales and the interest paid by the Company for funds borrowed
under the Company's  warehouse  facilities,  although the Company  undertakes to
hedge its  exposure to this risk by using  treasury  rate lock  contracts.  (See
"--Hedging").


HEDGING

   The  Company  originates  and  purchases  mortgage  loans and then sells them
primarily through securitizations. At the time of securitization and delivery of
the  loans,  the  Company  recognizes  gain on sale based on a number of factors
including the  difference,  or "spread,"  between the interest rate on the loans
and the interest rate paid to asset-backed  investors who purchase  pass-through
certificates issued by securitization trusts. Historically, the rate paid on the
pass-through certificates was generally related to the interest rate on treasury
securities with maturities  corresponding  to the anticipated life of the loans.
If interest rates rise between the time the Company  originates or purchases the
loans and the time the  loans  are sold at  securitization,  the  excess  spread
narrows,  resulting in a loss in value of the loans. The Company has implemented
a strategy to protect  against such losses and to reduce  interest  rate risk on
loans  originated and purchased that have not yet been  securitized  through the
use of treasury rate lock contracts with various durations (which are similar to
selling a combination of United States Treasury  securities),  which equate to a
duration  similar  to the  duration  of the  underlying  loans.  The  nature and
quantity  of hedging  transactions  are  determined  by the  Company  based upon
various  factors  including,  without  limitation,  market  conditions  and  the
expected volume of mortgage  originations and purchases.  The Company will enter
into treasury rate lock  contracts  through one of its warehouse  lenders and/or
one of the investment bankers,  which underwrite the Company's  securitizations.
These contracts are designated as hedges in the Company's records and are closed
out when the associated loans are sold through securitization.

   If the value of the hedges  decrease,  offsetting an increase in the value of
the loans, the Company,  upon settlement with its hedge  counterparty,  will pay
the hedge loss in cash and then realize the corresponding  increase in the value
of the  loans  as part  of its net  gain  on  sale  of  mortgage  loans  and its
corresponding interest-only and residual certificates.  Conversely, if the value
of the hedges  increase,  offsetting  a decrease in the value of the loans,  the
Company,  upon  settlement with its hedge  counterparty,  will receive the hedge
gain in cash and  realize the  corresponding  decrease in the value of the loans
through a reduction in the value of the corresponding interest-only and residual
certificates.

   Up to and including the second quarter of 1998, the Company believed that its
hedging  strategy of using  treasury rate lock  contracts was the most effective
way to manage its  interest  rate risk on loans  held  prior to  securitization.
However,  in the third quarter of 1998,  asset-backed  investors,  responding to
lower  treasury  yields  and  global  financial  market   volatility,   demanded
substantially  wider spreads over treasuries than  historically

                                       34


experienced for newly issued asset-backed securities.  As a result, Delta's $8.8
million  hedge  loss  resulting  from lower  interest  rates was not offset by a
higher gain on sale as the Company had historically seen.

   Given the Company's belief that the volatile market  experienced in the third
quarter of 1998 would  likely  continue  well into the fourth  quarter and, as a
result, that the spreads demanded by asset-backed securitization investors would
be difficult to predict,  as  asset-backed  securitization  investors  were more
interested in absolute yields,  instead of spreads over treasuries - the Company
did not hedge any of its warehoused loans pending  securitization  in the fourth
quarter of 1998.

   The Company  has  continued  to review its hedging  strategy in order to best
mitigate risk pending securitization.  As the asset-backed securitization market
improved  in the first  quarter of 1999,  and  spreads  over  treasuries  became
largely more  predictable,  the Company resumed its hedging  strategy of selling
treasury  rate-lock  contracts  to  mitigate  its  interest  rate  risk  pending
securitization.  In 1999,  the  Company  recorded a hedge gain of $3.3  million,
which largely offsets a decrease in the value of mortgage loans being hedged, as
part of its gain on sale of loans.

INFLATION

   Inflation  affects  the  Company  most  significantly  in the  area  of  loan
originations and can have a substantial effect on interest rates. Interest rates
normally  increase  during periods of high inflation and decrease during periods
of low inflation. (See "--Interest Rate Risk.")



IMPACT OF NEW ACCOUNTING STANDARDS

   For  discussion  regarding the impact of new accounting  standards,  refer to
Note 1 of Notes to the Consolidated Financial Statements.


RISK FACTORS

   Except for historical information contained herein, certain matters discussed
in this Form 10-K are  "forward-looking  statements"  as defined in the  Private
Securities  Litigation  Reform Act  ("PSLRA")  of 1995,  which  involve risk and
uncertainties that exist in the Company's  operations and business  environment,
and are subject to change on various  important  factors.  The Company wishes to
take  advantage  of the "safe  harbor"  provisions  of the  PSLRA by  cautioning
readers that numerous  important factors discussed below,  among others, in some
cases have caused, and in the future could cause the Company's actual results to
differ  materially from those expressed in any  forward-looking  statements made
by, or on behalf of, the Company.  The following  include some,  but not all, of
the  factors or  uncertainties  that could cause  actual  results to differ from
projections:


o  Costs  associated  with  litigation,  compliance  with the  NYSBD Remediation
   Agreement and  NYOAG  Stipulated  Order on Consent,  and rapid or  unforeseen
   escalation of  the cost of regulatory  compliance,  generally  including  but
   not  limited  to,  adoption  of new, or changes  in state or federal  lending
   laws  and  regulations  and the  application  of such  laws and  regulations,
   licenses,   environmental  compliance,  adoption   of  new,  or   changes  in
   accounting  policies and  practices and the  application of such polices  and
   practices.  Failure  to   comply  with  various  federal,  state   and  local
   regulations,  accounting  policies, environmental compliance, and  compliance
   with the  Remediation  Agreement and Stipulated Order on Consent  can lead to
   loss  of approved  status,  certain  rights of rescission for mortgage loans,
   class  action  lawsuits and  administrative  enforcement  action  against the
   Company.


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

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

                                       35


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

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

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

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

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

                                       36



ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.


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

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

   To reduce its financial  exposure to changes in interest  rates,  the Company
generally hedges its mortgage loans held for sale by entering into treasury rate
lock contracts (see "Item 7 - Management's  Discussion and Analysis of Financial
Condition and Results of Operations - Hedging").  The Company's hedging strategy
has largely been an effective tool to manage the Company's interest rate risk on
loans prior to  securitization,  by  providing  the Company with a cash gain (or
loss) to largely  offset the reduced  (increase)  excess  spread (and  resultant
lower (or  higher)  net gain on sale) from an  increase  (decrease)  in interest
rates.  A hedge may not,  however,  perform its intended  purpose of  offsetting
changes  in net gain on sale.  This was the case in the third  quarter  of 1998,
when  asset-backed  investors,  responding to lower  treasury  yields and global
financial  market  volatility,   demanded   substantially   wider  spreads  over
treasuries  than   historically   experienced  for  newly  issued   asset-backed
securities.  As a result,  Delta's $8.8 million hedge loss  resulting from lower
interest  rates  was not  offset  by a higher  gain on sale as the  Company  has
historically seen.

   Changes in interest rates could also adversely  affect the Company's  ability
to  purchase  and  originate  loans  and/or  could  affect  the  level  of  loan
prepayments thereby impacting the size of the Company's loan servicing portfolio
and the value of the  Company's  interest  only and  residual  certificates  and
capitalized mortgage servicing rights. (See "Item 7 Management's  Discussion and
Analysis of  Financial  Condition  and  Results of  Operations  - Interest  Rate
Risk").

                                       37
<PAGE>


   ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.


                         INDEPENDENT AUDITORS' REPORT

To The Board of Directors and Stockholders of
Delta Financial Corporation:

We have audited the accompanying  consolidated balance sheets of Delta Financial
Corporation  and  subsidiaries as of December 31, 1999 and 1998, and the related
consolidated  statements of income,  changes in stockholders'  equity,  and cash
flows for each of the years in the  three-year  period ended  December 31, 1999.
These consolidated  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  consolidated  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 financial  position of Delta  Financial
Corporation  and  subsidiaries as of December 31, 1999 and 1998, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999 in conformity with generally accepted  accounting
principles.


/s/  KPMG LLP


Melville, New York
March 14, 2000

                                       38

<PAGE>
<TABLE>
<CAPTION>
DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
------------------------------------------------------------------------------

CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998


(DOLLARS IN THOUSANDS)                                      1999       1998

------------------------------------------------------------------------------
<S>                                                    <C>          <C>

ASSETS
Cash and interest-bearing deposits.................... $    55,989  $  49,152
Accounts receivable...................................      32,367     22,549
Loans held for sale, net..............................      89,036     87,170
Accrued interest receivable...........................      63,309     46,897
Capitalized mortgage servicing rights.................      45,927     33,490
Interest-only and residual certificates...............     224,659    203,803
Equipment, net........................................      21,721     16,962
Cash held for advance payments........................      13,568     10,031
Prepaid and other assets..............................       5,428      5,839
Goodwill .............................................       4,831      6,014

------------------------------------------------------------------------------
     Total assets..................................... $   556,835    481,907
==============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Bank payable.......................................... $     1,195      1,396
Warehouse financing and other borrowings..............     109,019     80,273
Senior Notes..........................................     149,474    149,387
Accounts payable and accrued expenses.................      43,607     20,966
Investor payable......................................      82,204     63,790
Advance payment by borrowers for taxes and insurance..      13,784      9,559
Deferred tax liability................................      10,411     18,848

------------------------------------------------------------------------------
     Total liabilities................................     409,694    344,219
==============================================================================
STOCKHOLDERS' EQUITY:
Capital stock, $.01 par value.  Authorized
  49,000,000 shares;  16,000,549 shares
  issued and 15,883,749 shares outstanding
  at December 31, 1999, and 15,475,549
  shares issued and 15,358,749 shares
  outstanding at December 31, 1998....................         160        155
Additional paid-in capital............................      99,472     94,700
Retained earnings.....................................      48,827     44,151
Treasury stock, at cost (116,800 shares)..............      (1,318)    (1,318)
------------------------------------------------------------------------------
     Total stockholders' equity.......................     147,141    137,688
------------------------------------------------------------------------------
     Total liabilities and stockholders' equity....... $   556,835    481,907
==============================================================================

          See accompanying notes to consolidated financial statements.
</TABLE>
                                       39

<PAGE>
<TABLE>
<CAPTION>

DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
------------------------------------------------------------------------------------------------

CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1999, 1998 and 1997


(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)                1999          1998         1997
-----------------------------------------------------------------------------------------------
<S>                                                      <C>            <C>         <C>

REVENUES:
    Net gain on sale of mortgage loans.......            $   78,663        91,380       85,890
    Interest.................................                31,041        12,458       22,341
    Servicing fees...........................                16,341        10,464        7,511
    Origination fees.........................                28,774        25,273       18,108

-----------------------------------------------------------------------------------------------
      Total revenues.........................               154,819       139,575      133,850
-----------------------------------------------------------------------------------------------
EXPENSES:
    Payroll and related costs................                65,116        56,709       41,214
    Interest expense.........................                26,656        30,019       19,964
    General and administrative...............                55,318        34,351       21,522

-----------------------------------------------------------------------------------------------
      Total expenses.........................               147,090       121,079       82,700
-----------------------------------------------------------------------------------------------

Income before income taxes...................                 7,729        18,496       51,150
Provision for income taxes...................                 3,053         7,168       20,739

-----------------------------------------------------------------------------------------------
      Net income.............................             $   4,676        11,328       30,411
===============================================================================================


PER SHARE DATA:
    Earnings per common share - basic and diluted        $     0.30          0.74         1.98

    Weighted average number of shares outstanding        15,511,214    15,382,161   15,359,280
===============================================================================================


          See accompanying notes to consolidated financial statements.
</TABLE>

                                       40

<PAGE>
<TABLE>
<CAPTION>


DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
--------------------------------------------------------------------------------------------------------------------

CONSOLIDATED  STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended December 31, 1999, 1998 and 1997

                                                              ADDITIONAL
                                                               PAID-IN         RETAINED        TREASURY
(DOLLARS IN THOUSANDS)                        CAPITAL STOCK    CAPITAL         EARNINGS         STOCK        TOTAL
--------------------------------------------------------------------------------------------------------------------
<S>                                           <C>            <C>             <C>              <C>           <C>

Balance at December 31, 1996................. $    153          90,953            2,412           --          93,518
Issuance of common stock to acquire
     Fidelity Mortgage.......................        1           2,516               --           --           2,517
Proceeds from exercise of stock options......       --               7               --           --               7
Net income...................................       --              --           30,411           --          30,411
--------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997.................      154          93,476           32,823           --         126,453
Issuance of common stock related to
         Fidelity Mortgage...................        1           1,199               --           --           1,200
Purchase of Treasury Stock (116,800 shares)..       --              --               --       (1,318)         (1,318)
Proceeds from exercise of stock options......       --              25               --           --             25
Net income...................................       --              --           11,328           --          11,328
--------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998.................      155          94,700           44,151       (1,318)        137,688
Issuance of common stock related to
         Legal Settlement....................        5           4,772               --           --           4,777
Net income...................................       --              --            4,676           --           4,676
--------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999................. $    160          99,472           48,827       (1,318)        147,141
====================================================================================================================


          See accompanying notes to consolidated financial statements.
</TABLE>

                                       41

<PAGE>
<TABLE>
<CAPTION>

DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
--------------------------------------------------------------------------------------------------------

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1999, 1998 and 1997


(Dollars in thousands)                                              1999           1998           1997
--------------------------------------------------------------------------------------------------------
<S>                                                              <C>            <C>            <C>

Cash flows from operating activities:
   Net income.............................................       $  4,676         11,328         30,411
   Adjustments to reconcile net income to net cash used in
      Operating activities:
      Provision for loan and recourse losses...............           100            750            100
      Depreciation and amortization........................         5,841          4,386          2,603
      Issuance of common stock related to legal settlement.         4,777             --             --
      Deferred tax (benefit) expense.......................        (8,437)        (6,064)        19,901
      Capitalized mortgage servicing rights, net
        of amortization....................................       (12,437)       (10,628)       (11,451)
      Deferred origination costs (fees)....................           114          1,840            (88)
      Interest-only and residual certificates received in
        securitization transactions, net...................       (20,856)       (35,994)       (84,736)
   Changes in operating assets and liabilities:
      (Increase) decrease in accounts receivable, net......        (9,818)         5,755        (20,677)
      (Increase) decrease in loans held for sale, net......        (2,010)        (9,793)         3,222
      Increase in accrued interest receivable..............       (16,412)       (17,299)       (11,139)
      Increase in cash held for advance payments ..........        (3,537)        (3,706)        (3,836)
      Decrease in real estate owned........................            --             --            135
      Decrease (increase) in prepaid and other assets......           411            385         (4,630)
      Increase in accounts payable and accrued expenses....        22,571          7,648          3,211
      Increase in investor payable.........................        18,414         22,938         19,984
      Increase in advance payment by borrowers
       for taxes and insurance.............................         4,225          3,809          3,482
--------------------------------------------------------------------------------------------------------
   Net cash used in operating activities...................       (12,378)       (24,645)       (53,508)
--------------------------------------------------------------------------------------------------------
   Cash flows from investing activities:
      Acquisition of Fidelity Mortgage.....................            --              --        (4,150)
      Purchase of equipment................................        (9,330)        (8,982)        (9,933)
--------------------------------------------------------------------------------------------------------
   Net cash used in investing activities:..................        (9,330)        (8,982)       (14,083)
--------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
   Proceeds from (repayments of) warehouse
      financing and other borrowings, net..................        28,746         52,040        (67,481)
   Proceeds from Senior Notes..............................            --             --        149,307
   Decrease in bank payable, net...........................          (201)          (826)          (125)
   Proceeds from exercise of stock options.................            --             25              7
   Purchase of treasury stock..............................            --         (1,318)            --
--------------------------------------------------------------------------------------------------------
   Net cash provided by financing activities...............        28,545         49,921         81,708
--------------------------------------------------------------------------------------------------------
   Net increase in cash and interest-bearing deposits......         6,837         16,294         14,117
Cash and interest-bearing deposits at beginning of year....        49,152         32,858         18,741
--------------------------------------------------------------------------------------------------------
Cash and interest-bearing deposits at end of year.........    $    55,989         49,152         32,858
========================================================================================================


Supplemental Information:
Cash paid during the year for:
   Interest ...............................................   $    24,085         29,576         14,314
   Income taxes ...........................................        11,489          7,241         19,972
 ========================================================================================================

          See accompanying notes to consolidated financial statements.

</TABLE>
                                       42

<PAGE>


                 DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      DECEMBER 31, 1999, 1998, AND 1997

 (1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(A) ORGANIZATION
   Delta  Financial  Corporation  (the  "Company"  or  "Delta")  is  a  Delaware
corporation,  which was  organized  in August  1996.  On October 31,  1996,  the
Company  acquired  all  of  the  outstanding   common  stock  of  Delta  Funding
Corporation  ("Delta Funding"),  a New York corporation which had been organized
on  January 8, 1982 for the  purpose  of  originating,  selling,  servicing  and
investing in residential  first and second  mortgages.  On November 1, 1996, the
Company  completed  an initial  public  offering of  4,600,000  shares of common
stock, $.01 par value.

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

(B) PRINCIPLES OF CONSOLIDATION
   The  accompanying  consolidated  financial  statements  are  prepared  on the
accrual  basis of  accounting  and include  the  accounts of the Company and its
wholly-owned   subsidiaries.   All   significant   intercompany   accounts   and
transactions have been eliminated.

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

(C) USE OF ESTIMATES
   The preparation of financial statements in conformity with generally accepted
accounting  principles  requires management of the Company to make estimates and
assumptions  that affect the reported  amounts of assets and liabilities and the
disclosure of contingent liabilities at the date of the financial statements and
the  reported  amounts of revenues and expenses  during the  reporting  periods.
Actual results could differ from those estimates.

(D) LOAN ORIGINATION FEES AND COSTS
   In accordance with Statement of Financial  Accounting  Standards ("SFAS") No.
91,  "Accounting for Nonrefundable Fees and Costs Associated with Originating or
Acquiring Loans and Initial Direct Costs of Leases,"  origination  fees received
net of direct costs of originating or acquiring  mortgage loans, are recorded as
adjustments to the initial  investment in the loan. Such fees are deferred until
the loans are securitized or sold.

(E) LOANS HELD FOR SALE, NET
   Loans  held for  sale are  accounted  for at the  lower of cost or  estimated
market value,  determined on a net aggregate  basis.  Cost includes  unamortized
loan  origination  fees and costs.  Net unrealized  losses are provided for in a
valuation  allowance  created  through  a  charge  to  operations.   Losses  are
recognized when the market value is less than cost.

(F) SECURITIZATION AND SALE OF MORTGAGE LOANS
   In  accordance  with  SFAS  No.  125,  the  Company  sells  loans  to a  loan
securitization  trust and  receives  the  excess  value of the  loans'  economic
interests for (i) the difference  between the interest payments due on the loans
sold to the trust and the interest  payments due, at the pass-through  rates, to
the holders of the  pass-through  certificates,  less the Company's  contractual
servicing  fee  and  other  costs  and  expenses  of  administering  the  trust,
represented by

                                       43


interest-only and residual certificates, and (ii) the right to service the loans
on behalf of the trust and earn a  contractual  servicing  fee, as well as other
ancillary  servicing  related fees directly from the borrowers on the underlying
loans.

   Upon  the  securitization  of a pool of  loans,  the  Company  recognizes  as
origination fees any then unamortized  origination fees which had initially been
recorded  as  adjustments  to the  investment  in the  loans,  and  additionally
allocates portions of the remaining  investment in the loans sold to each of (i)
the  servicing  rights  retained by the Company and (ii) the  interest-only  and
residual certificates received from the trust. The retained servicing rights and
interest-only and residual  certificates are initially recorded based upon their
fair value,  which is  estimated  based on the stated  terms of the  transferred
loans  adjusted for  estimates  of future  prepayments  or defaults  among those
loans. The Company  recognizes a gain for the difference  between the investment
in the loans remaining after this allocation and the cash payment  received from
the trust (see notes 5 and 6).

(G) CAPITALIZED MORTGAGE SERVICING RIGHTS
   Effective January 1, 1997, the Company adopted SFAS No. 125, which supersedes
SFAS No. 122 and SFAS No.  65,"Accounting  for Certain  Banking  Activities," to
require that a mortgage  banking  enterprise  recognize  as separate  assets the
rights to service mortgage loans for others,  however those servicing rights are
acquired.   The  Statement  requires  the  assessment  of  capitalized  mortgage
servicing  rights for  impairment.  Mortgage  servicing  rights are amortized in
proportion to and over the period of the  estimated  net  servicing  income (see
note 5).

(H) INTEREST-ONLY AND RESIDUAL CERTIFICATES
   The interest-only and residual certificates, received by the Company upon the
securitization of a pool of loans to the securitization trust, are accounted for
as trading securities under SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." The amount initially allocated to the interest-only
and  residual  certificates  at the date of a  securitization  reflects the fair
value of those  interests.  The amount recorded for the  certificates is reduced
for distributions thereon which the Company receives from the related trust, and
is adjusted for the subsequent  changes in the fair value of these  certificates
which are reflected in the statement of income.  The fair value of interest-only
and residual  certificates  is determined  using the same prepayment and default
estimates utilized in valuing servicing rights,  together with the consideration
of the  geographic  location  and value of loan  collateral,  the value of which
would  affect the credit  loss  sustained  by a trust upon the default of a loan
(see  note 6).  The  Company  has  consistently  applied  the more  conservative
cash-out method in valuing the future cash flows of residual certificates.

 (I) FAIR VALUE OF FINANCIAL INSTRUMENTS
   SFAS  No.  107,  "Disclosure  About  Fair  Value of  Financial  Instruments,"
requires  the Company to disclose the fair value of  financial  instruments  for
which it is  practicable  to estimate  fair value.  Fair value is defined as the
amount  at  which  a  financial  instrument  could  be  exchanged  in a  current
transaction between willing parties, other than in a forced sale or liquidation,
and is best  evidenced by a quoted market price.  Other than  interest-only  and
residual certificates which are reported at fair value, and capitalized mortgage
servicing rights,  substantially all the Company's assets and liabilities deemed
to be financial  instruments are carried at cost, which  approximates their fair
value. The fair value of capitalized  mortgage  servicing rights  represents the
Company's  estimate of the expected future net servicing revenue based on common
industry assumptions, as well as on the Company's historical experience.

(J) GOODWILL
   Goodwill,  which  represents  the excess of the purchase  price over the fair
value of the net assets acquired from Fidelity Mortgage, is being amortized on a
straight-line basis over seven years.

(K) REAL ESTATE OWNED
   Properties  acquired through foreclosure or a deed in lieu of foreclosure are
recorded at the lower of the unpaid loan balance,  or fair value, at the date of
acquisition.  The carrying  value of the individual  properties is  subsequently
adjusted to the extent it exceeds  estimated  fair value less costs to sell,  at
which time a provision for losses on such real estate is charged to operations.

(L) EQUIPMENT, NET
   Equipment,   including  leasehold  improvements,  is  stated  at  cost,  less
accumulated depreciation and amortization. Depreciation of equipment is computed
using the straight-line or accelerated method over the

                                       44

estimated  useful  lives of three to seven  years.  Leasehold  improvements  are
amortized  over the  lesser of the terms of the  lease or the  estimated  useful
lives of the  improvements.  Expenditures for betterments and major renewals are
capitalized  and ordinary  maintenance  and repairs are charged to operations as
incurred.

(M) SERVICING FEES
   Servicing  fees  includes  servicing  income  and  prepayment  penalties  for
servicing mortgage loans owned by investors. All fees and charges are recognized
into income when earned.

(N) INCOME TAXES
   The  Company  accounts  for income  taxes in  conformity  with SFAS No.  109,
"Accounting  for Income Taxes," under which deferred tax assets and  liabilities
are recognized  for the future tax effects of differences  between the financial
reporting  and tax bases of assets and  liabilities.  These  deferred  taxes are
measured by applying current enacted tax rates.

(O) EARNINGS PER SHARE
   Basic EPS excludes  dilution and is computed by dividing income  available to
common stockholders by the weighted-average  number of common shares outstanding
for the period.  Diluted EPS reflects the potential dilution that could occur if
securities or other  contracts to issue common stock were exercised or converted
into common  stock or resulted in the  issuance of common stock that then shared
in the earnings of the entity.

 (P) STOCK OPTION PLAN
   In accordance with SFAS No. 123,  "Accounting for Stock-Based  Compensation,"
the company continues to apply the provisions of the Accounting Principles Board
("APB") Opinion No. 25,  "Accounting for Stock Issued to Employees," and provide
pro forma net income and pro forma earnings per share  disclosures  for employee
stock option grants as if the fair-value
based method defined in SFAS No. 123 had been applied.

(Q) SEGMENT REPORTING
   The  Company  operates  as  one  reporting  segment,  as  such,  the  segment
disclosure  requirements  under SFAS No. 131,  "Disclosures about Segments of an
Enterprise and Related Information", are not applicable to the Company.

(R) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

SFAS NO. 133

   In June 1998, the Financial  Accounting  Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative  Instruments and Hedging  Activities".  SFAS
No.  133   establishes   accounting  and  reporting   standards  for  derivative
instruments and for hedging  activities.  It requires that any entity  recognize
all  derivatives  as either assets or  liabilities in the statement of financial
condition  and measure  those  instruments  at fair value.  The  accounting  for
changes in the fair value of a derivative (that is, gains and losses) depends on
the intended use of the derivative and the resulting designation.  In July 1999,
the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133." SFAS No.
137 delays  the  effective  date of SFAS No.  133,  for one year,  to all fiscal
quarters of all fiscal years beginning after June 15, 2000. The delay applies to
quarterly  and  annual  financial  statements.  SFAS No. 137 is  effective  upon
issuance and does not require  restatement of prior  periods.  Management of the
Company  currently  believes the  implementation of SFAS No. 133 will not have a
material impact on the Company's financial condition or results of operations.



(2) SUMMARY OF REGULATORY SETTLEMENTS

   In September  1999,  the Company  settled  allegations  by the New York State
Banking  Department  and a lawsuit by the New York State  Office of the Attorney
General alleging that Delta had violated various state and federal lending laws.
The global settlement was evidenced by that certain (a) Remediation Agreement by
and between Delta Funding and the NYSBD,  dated as of September 17, 1999 and (b)
Stipulated Order on Consent by and among Delta Funding,  Delta Financial and the
NYOAG,  dated as of September 17, 1999. As part of the  Settlement,  Delta will,
among other  things,  implement  agreed upon  changes to its lending  practices;
provide  reduced loan payments  aggregating  $7.25 million to certain  borrowers
identified by the NYSBD; and create a fund of approximately  $4.75 million to be
financed by the grant of 525,000 shares of Delta Financial's common stock valued
at a constant

                                       45

assumed priced of $9.10 per share,  which approximates book value. The  proceeds
of the fund  will  be used,  for  among other  things,  to pay  for a variety of
consumer educational and counseling programs.

   In March 2000, the Company finalized an agreement with the U.S. Department of
Justice,  the Federal Trade  Commission  and the Department of Housing and Urban
Development, to complete the global settlement it had reached with the NYSBD and
NYOAG. The Federal  agreement  mandates some additional  compliance  efforts for
Delta, but it does not require any additional financial commitment by Delta.


(3) LOANS HELD FOR SALE, NET

   The Company's  inventory  consists of first and second  mortgages which had a
weighted  average  interest rate of 10.9% at December 31, 1999.  These mortgages
are being held, at the lower of cost or estimated market value, for future sale.
Certain  of these  mortgages  are  pledged  as  collateral  for a portion of the
warehouse financing and other borrowings.

   Included in loans held for sale are  deferred  origination  fees and purchase
premiums in the amount of $1.5 million and $1.7 million at December 31, 1999 and
1998,  respectively  and a market  valuation  allowance of $0.6 million and $0.3
million at December 31, 1999 and 1998,  respectively.  Mortgages  are payable in
monthly  installments of principal and interest and have terms varying from five
to thirty years.




(4) ACCOUNTS RECEIVABLE

   Accounts receivable as of December 31, consist of the following:

(DOLLARS IN THOUSANDS)                 1999               1998

------------------------------------------------------------------------------
Securitization servicing advances  $ 25,994              17,058
Prepaid insurance premiums            1,868               1,691
Current tax assets                      846                 904
Other                                 3,659               2,896
------------------------------------------------------------------------------
Total accounts receivable          $ 32,367              22,549
==============================================================================


(5) CAPITALIZED MORTGAGE SERVICING RIGHTS

   The Company  sells  mortgage  loans and retains the  servicing  rights  which
generate  servicing  income and  provide  funds for  additional  investment  and
lending  activities.  SFAS No. 125  prospectively  changed the  methodology  for
capitalized  mortgage  servicing  rights  and the  methodology  used to  measure
impairment of its capitalized  mortgage servicing rights asset. These Statements
require that upon the sale or  securitization  of a loan, an asset be recognized
for any  retained  servicing  rights  based on the  present  value of the future
servicing cash flows. The cash flow has been computed over the average estimated
life of the  mortgages,  adjusted for  prepayments  and recorded as  capitalized
mortgage servicing rights.

   Capitalized mortgage servicing rights are assessed  periodically to determine
if there has been any  impairment  of the asset,  based on the fair value of the
rights at the date of the  assessment.  The Company  performs this assessment on
the basis of the  Company's  historical  experience,  and updated  estimates  of
prepayment  and  default  rates for  servicing  rights  relating  to loan groups
comprised of loans of similar types,  terms,  credit quality and interest rates,
which represent the predominant risk  characteristics  affecting  prepayment and
default rates. A valuation  allowance is provided for the capitalized  servicing
rights relating to any loan group for which the recorded  investment exceeds the
fair value.  At December  31, 1999 and 1998,  the fair value of the  capitalized
mortgage servicing rights either exceeded or approximated their recorded amounts
and, accordingly, no valuation allowance was recorded. During the second quarter
of 1998, the Company recorded a $1.9 million reduction in the carrying amount of
its capitalized mortgage servicing rights to reflect a provision for impairment.

   The activity related to the Company's  capitalized  mortgage servicing rights
for the years ended December 31, is as follows:


                                       46


(DOLLARS IN THOUSANDS)             1999            1998           1997
-------------------------------------------------------------------------------
Balance, beginning of year       $33,490          22,862         11,412
Additions                         20,542          19,833         15,118
Amortization and FV adjustments   (8,105)         (9,205)        (3,668)
-------------------------------------------------------------------------------
Balance, end of year             $45,927          33,490         22,862
-------------------------------------------------------------------------------


(6) INTEREST-ONLY AND RESIDUAL CERTIFICATES

   The interest that the Company receives upon sales through  securitizations is
in the  form  of  interest-only  and  residual  mortgage  securities  which  are
classified as interest-only and residual certificates.

   In accordance with SFAS No. 125, upon the sale or securitization of a loan, a
gain on sale and a corresponding  asset is recognized for any  interest-only and
residual certificates.  These assets are classified as "trading securities" and,
as such, they are recorded at their fair value. Fair value of these certificates
has been determined by the Company based on various economic factors,  including
loan type,  sizes,  interest rates,  dates of origination,  terms and geographic
locations,  using the more conservative  cash-out method.  The Company also uses
other available information such as reports on prepayment rates, interest rates,
collateral value, economic forecasts and historical default and prepayment rates
of the portfolio under review.  Any fair value  adjustment of the  interest-only
and  residual  certificates  is  recognized  in the  statement  of income and is
reflected as a component of interest income.

   Although the Company  believes it has made  reasonable  estimates of the fair
value of the interest-only and residual certificates likely to be realized,  the
rate of  prepayments  and the amount of  defaults  utilized  by the  Company are
estimates and actual experience may vary. The gain on securitization  recognized
by the Company upon the sale of loans through securitizations will be overstated
if prepayments or losses are greater than  anticipated.  Higher than anticipated
rates of loan  prepayments or losses would require the Company to write down the
fair value of the interest-only and residual  certificates,  adversely impacting
earnings. Similarly, if delinquencies, liquidations or interest rates were to be
greater than was  initially  assumed,  the fair value of the  interest-only  and
residual certificates would be negatively impacted,  which would have an adverse
effect on income  for the  period in which  such  events  occurred.  Should  the
estimated  loan life  assumed for this  purpose be shorter than the actual life,
the amount of cash  actually  received  over the lives of the loans would exceed
the  gain  previously  recognized  at the  time  the  loans  were  sold  through
securitizations  and would  result in  additional  income.  The Company  assumes
prepayment  rates  and  defaults  based  upon  the  seasoning  of  its  existing
securitization loan portfolio.

   The Company's  underlying  assumptions  used in determining the fair value of
its interest-only and residual certificates are as follows:

   (a)Prepayment  rate  assumptions  are  based  upon the  Company's  on-going
      analysis of industry and Company pool trends,  the Company  modified its
      prepayment  rate  assumptions  at June 30, 1998 and  December  31, 1999.
      The following table compares the prepayment  assumptions used subsequent
      to the third quarter of 1999 (the "new"  assumptions"),  with those used
      subsequent  to the first  quarter of 1998 (the "2Q98"  assumptions)  and
      those used at December  31,  1997 and through the first  quarter of 1998
      (the "old" assumptions):

LOAN TYPE                   MONTH 1 SPEED                 PEAK SPEED *
---------              -------------------------     ---------------------
                       NEW     2Q98      OLD         NEW     2Q98      OLD
Fixed Rate Loans       4.0%     4.8%    4.8%         31%      31%      24%
Six-Mo. LIBOR ARMs    10.0%    10.0%    5.6%         50%      50%      28%
Hybrid ARMs            4.0%     6.0%    5.6%         50%      50%      28%

* Since the second quarter of 1998,  the Company has utilized a "vector"  curve,
  instead  of  a  "ramp"  curve,   which  the  Company  believes  will  be  more
  representative of future loan prepayment experience.

                                       47


   (b)A default  reserve for both fixed- and  adjustable-rate  loans sold to the
      securitization  trusts of 3.10% of the  amount  initially  securitized  at
      December  31, 1999  compared  to 2.00% at  December  31, 1998 and 1.90% at
      December 31, 1997; and

   (c)Under the "cash-out"  method, an annual discount rate of 12.0% was used in
      determining  the present value of cash flows from  residual  certificates,
      which represent the predominant form of retained interest.

   The June 30, 1998 changes in prepayment  assumptions were made based upon the
Company's analysis of the then existent Company and industry  prepayment trends,
which were higher than those historically experienced or previously projected by
the Company,  and resulted in a $15.5 million fair value  adjustment  charged to
income  during the second  quarter of 1998. A further fair value  adjustment  of
$2.8 million was charged to income during the fourth  quarter of 1998 related to
a change in default assumptions.

   In the fourth  quarter of 1999, the Company  decreased its  prepayment  speed
assumption  along parts of its vector  curve,  while  leaving the peak speeds in
tact,  to more  precisely  reflect  the  Company's  (and  industry)  actual loan
performance,  which slowed  considerably  since 1998.  In addition,  the Company
increased  its  loss  reserve   initially   established   for  both  fixed-  and
adjustable-rate   loans  sold  to  the  securitization   trusts  from  2.20%  to
approximately  3.10%  of the  issuance  amount  securitized.  (The  Company  had
previously increased its loan losses from 2.00% to 2.20% in the first quarter of
1999.) The loan loss assumption was revised to reflect the Company's belief that
the  combination of slower  prepayment  rates,  higher  interest  rates,  and an
anticipated  flat to  slightly  moderate  rise in home values as compared to the
past few years, among other things, may result in higher losses on the Company's
securitized  portfolio.  These changes  resulted in approximately a $6.3 million
reduction in the Company's value of residual and interest-only  certificates for
the year 1999.

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

   The activity related to the Company's interest-only and residual certificates
for the years ended December 31, is as follows:

(DOLLARS IN THOUSANDS)             1999           1998         1997
------------------------------------------------------------------------------
Balance, beginning of year     $ 203,803        167,809       83,073
Additions                         48,356         85,092      102,072
Cash remittances, accretion
    of discount and FV
    adjustments, net             (27,500)       (49,098)     (17,336)
------------------------------------------------------------------------------
Balance, end of year           $ 224,659        203,803      167,809
------------------------------------------------------------------------------


(7) HEDGING TRANSACTIONS

   The Company  regularly  securitizes and sells  fixed-rate  mortgage loans. To
offset the effects of interest rate  fluctuations on the value of its fixed-rate
loans held for sale,  the Company in certain  cases will hedge its interest rate
risk related to loans held for sale through the use of treasury  lock  contracts
which function  similar to a short-sale of US Treasury  securities.  The Company
accounts for these contracts as hedges of specific loans held for sale. The gain
or loss derived from these contracts is deferred and recognized as an adjustment
to the carrying  amounts of the loans for which the contracts were interest rate
hedges.

   As of  December  31,  1999 and 1998,  the  Company  did not have  open  hedge
positions.  As of December 31, 1997, the Company had an open hedge loss position
of $0.5 million. The Company included a gain of $3.3 million and losses of $10.2
million and $2.0 million on the treasury lock contracts as part of gains on sale
of loans in 1999, 1998 and 1997, respectively.


(8) WAREHOUSE FINANCING AND OTHER BORROWINGS


                                       48


   The Company has six  warehouse  credit  facilities  for a combined  amount of
$1.15  billion as of  December  31,  1999.  These  lines are  collateralized  by
specific mortgage  receivables,  and interest and servicing advance receivables,
which are equal to or greater than the  outstanding  balances  under the line at
any point in time.

   The  following  table  summarizes  certain  information  regarding  warehouse
financing and other borrowings at December 31:

(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>

(Dollars in millions)
                             Facility                                 Balance               Expiration
Facility Description          Amount            Rate              1999       1998              Date
-----------------------------------------------------------------------------------------------------------
<S>                         <C>           <C>                    <C>         <C>       <C>
Warehouse line of credit      $200.0         Libor + 1.00%        $42.9      $58.7              April 2000
Warehouse line of credit       100.0      Fed Funds + 1.075%       51.8       10.7               June 2000
Warehouse line of credit       200.0         Libor + 0.625%          --         --               Sept 2000
Warehouse line of credit       200.0         Libor + 0.60%           --         --              April 2000
Warehouse line of credit       250.0         Libor + 0.675%          --         --              April 2000
Warehouse line of credit       200.0         Libor + 0.625%          --         --               Sept 2000
Term loan                        n/a             6.48%              0.2        0.2               June 2000
Capital leases                   n/a         6.63% - 10.24%        14.1       10.7     Oct 2000 - Nov 2004
-----------------------------------------------------------------------------------------------------------
Balance at December 31,     $1,150.0                             $109.0      $80.3
-----------------------------------------------------------------------------------------------------------
</TABLE>


(9) SENIOR NOTES

   9.5% Senior Notes due 2004 (the "notes")  totaled  $149.5 million at December
31,  1999,  and $149.4  million at December 31, 1998,  net of  unamortized  bond
discount.  The  notes  bear  interest  at a rate  of  9.5%  per  annum,  payable
semi-annually  commencing on February 1, 1998. The notes were issued on July 23,
1997, and mature on August 1, 2004 when all outstanding  principal is due. On or
after August 1, 2001, the notes are redeemable at the option of the Company,  in
whole or in part, at the redemption price set forth in the Indenture, dated July
23, 1997,  governing the issuance of the notes (the  "Indenture"),  plus accrued
and unpaid interest through the date of redemption.

   The  Company is  required  to comply with  various  operating  and  financial
covenants in the  Indenture.  These  covenants  limit or  restrict,  among other
things,  the ability of the Company to consummate  asset sales,  pay  dividends,
incur additional  indebtedness and incur additional  liens.  Costs incurred with
the issuance of the notes, in the amount of $4.8 million, have been deferred and
are being  amortized  over the seven year term using a method that  approximates
level-yield. The unamortized debt issuance cost was $3.5 million at December 31,
1999 and $4.1 million at December 31, 1998.


(10) BANK PAYABLE
   In  order  to  maximize  its  cash  management  practices,  the  Company  has
instituted a procedure  whereby checks written against its operating account are
covered as they are  presented to the bank for  payment,  either by drawing down
its lines of credit or from subsequent  deposits of operating cash. Bank payable
represents  the checks  outstanding at December 31, 1999 and 1998, to be paid in
this manner.


(11) INVESTOR PAYABLE

   Investor  payable  represents  the  collection  of  mortgage  payments by the
Company  as  servicer,  from  mortgagors,   which  are  due  to  the  investors,
representing primarily  securitization trusts. These funds, when collected,  are
placed  in  segregated  bank  accounts  as  provided  by the  related  servicing
agreements  and are reflected on the  Company's  balance sheet as a component of
cash and interest-bearing deposits.


                                       49


(12) EMPLOYEE BENEFIT PLANS

   The  Company  had an employee  profit  sharing  plan  covering  all  eligible
employees, as defined, with at least 30 months of service.  Effective January 1,
1997,  the employee  profit  sharing plan was merged with the  Company's  401(k)
Retirement Savings Plan.

   The Company  sponsors a 401(k)  Retirement  Savings Plan.  Substantially  all
employees  of the  Company  who  are at  least  21  years  old are  eligible  to
participate in the plan after completing one year of service.  Contributions are
made from  employees'  elected  salary  deferrals.  The Company  elected to make
discretionary  contributions to the Plan of $0.8 million,  $0.5 million and $0.3
million for 1999, 1998 and 1997, respectively.


(13) COMMITMENTS AND CONTINGENCIES

   The Company has repurchase  agreements with certain of the institutions  that
have purchased  mortgages.  Currently,  some of the  agreements  provide for the
repurchase  by the Company of any of the mortgage  loans that go to  foreclosure
sale. At the  foreclosure  sale, the Company will  repurchase  the mortgage,  if
necessary, and make the institution whole. The dollar amount of loans which were
sold with  recourse is $8.1  million at December  31, 1999 and $10.1  million at
December 31, 1998.

   Included  in  accounts  payable and  accrued  expenses  is an  allowance  for
recourse  losses of $1.4 million,  $1.4 million and $0.7 million at December 31,
1999,  1998 and  1997,  respectively.  The  Company  recognized,  as a charge to
operations, a provision for recourse losses of $70,000, $720,000 and $70,000 for
the years 1999, 1998 and 1997, respectively. Additions to the allowance for loan
losses are provided by charges to income based upon various  factors,  which, in
management's  judgment,  deserve  current  recognition  in  estimating  probable
losses.  The loss factors are determined by management  based upon an evaluation
of historical loss experience, delinquency trends, loan volume and the impact of
economic conditions in our market area.

   The Company's  rental expense,  net of sublease  income,  for the years ended
December 31, 1999, 1998 and 1997 amounted to $6.4 million, $5.4 million and $2.6
million, respectively.

   Minimum future rentals under  non-cancelable  operating leases as of December
31, 1999 are as follows:

(DOLLARS IN THOUSANDS)
------------------------------------------------------------------------------
              Year                               Amount
------------------------------------------------------------------------------
              2000                            $   6,068
              2001                                5,978
              2002                                5,195
              2003                                4,464
              2004                                4,282
           Thereafter                             7,135
------------------------------------------------------------------------------
             Total                            $  33,122
------------------------------------------------------------------------------

   Because the nature of the  Company's  business  involves  the  collection  of
numerous  accounts,  the validity of liens and compliance with various state and
federal lending laws, the Company is subject,  in the normal course of business,
to  numerous  legal  proceedings  and claims,  including  several  class  action
lawsuits.  The resolution of these lawsuits,  in management's  opinion, will not
have a  material  adverse  effect  on  the  financial  position  or  results  of
operations of the Company.



(14) STOCK OPTION PLAN

   In October 4, 1996,  the Board of  Directors  ratified  the 1996 Stock Option
Plan (the "Plan") and authorized  the reserve of 2,200,000  shares of authorized
but unissued common stock for issuance  pursuant to the Plan.  Substantially all
of the options  issued  vest over a five-year  period at 20% per year and expire
seven years from the grant date.


                                       50


   The following  table  summarizes  certain  information  regarding the Plan at
December 31:
<TABLE>
<CAPTION>

                                  1999                     1998                     1997
--------------------------------------------------------------------------------------------------
                                      Weighted                 Weighted                   Weighted
                             Number   Average       Number     Average       Number       Average
                             of       Exercise      of         Exercise      of           Exercise
                             Shares   Price         Shares     Price         Shares       Price
--------------------------------------------------------------------------------------------------
<S>                        <C>        <C>            <C>       <C>             <C>       <C>
Balance, beginning of year   795,060     $16.96      848,760      $17.01       464,850     $16.50
Options granted              495,350       5.84       77,000       17.35       426,610      17.67
Options exercised                 -           -        1,500       16.50           400      16.50
Options canceled             128,060      15.27      129,200       17.54        42,300      18.06
--------------------------------------------------------------------------------------------------
Balance at end of year     1,162,350     $12.41      795,060      $16.96       848,760     $17.01
--------------------------------------------------------------------------------------------------
Options exercisable          335,400     $16.76      242,862      $16.77        96,510     $16.50
--------------------------------------------------------------------------------------------------
</TABLE>

   The  Company  applies APB  Opinion  No. 25, and  related  Interpretations  in
accounting for the Plan. There was no intrinsic value of the options granted, as
the  exercise  price was equal to the  quoted  market  price at the grant  date.
Accordingly,  no  compensation  cost has been  recognized  for the  years  ended
December 31, 1999, 1998 and 1997.

   Had compensation cost for the Plan been determined based on the fair value at
the grant dates for awards under the Plan consistent with the method of SFAS No.
123, the  Company's  net income would have been $4.5  million,$10.8  million and
$30.1 for 1999, 1998 and 1997,  respectively.  Earnings per share for 1999, 1998
and 1997 would have been $0.29,$0.71 and $1.96, respectively.

   The weighted-average fair value of options granted during 1999, 1998 and 1997
was  $3.86,  $9.14  and  $3.54,  respectively.  For  purposes  of the pro  forma
calculation  under  SFAS No.  123,  the fair  value of the  options  granted  is
estimated  using  the  Black-Scholes  option-pricing  model  with the  following
weighted-average assumptions used for the 1999, 1998 and 1997 grants:


------------------------------------------------------------------------------
                                        1999         1998           1997
------------------------------------------------------------------------------
Dividend yield                             0%          0%             0%
Expected volatility                       78%         55%            45%
Risk-free interest rate                 4.54%       4.54%          5.71%
Expected life                         5 years     5 years        5 years

 (15) INCOME TAXES

   The  provision for income taxes for the years ended  December 31, 1999,  1998
and 1997 is as follows:

(DOLLARS IN THOUSANDS)                   1999        1998        1997
------------------------------------------------------------------------------
Current: Federal                  $     9,777       11,291          75
         State                          1,713        1,941         763
------------------------------------------------------------------------------
Total current income taxes        $    11,490       13,232         838
------------------------------------------------------------------------------

Deferred: Federal                 $    (7,172)      (4,586)     16,982
          State                        (1,265)      (1,478)      2,919
------------------------------------------------------------------------------
Total deferred income taxes       $    (8,437)      (6,064)     19,901
------------------------------------------------------------------------------
Total tax provision               $     3,053        7,168      20,739
==============================================================================


   Significant  components  (temporary  differences and carryforwards) that give
rise to the  Company's  net deferred  tax  liability as of December 31, 1999 and
1998 were as follows:

                                       51


<TABLE>
<CAPTION>
(Dollars in thousands)
                                                                          1999             1998
                                                                          ----             ----
Deferred tax liabilities:
<S>                                                                <C>                  <C>
Capitalized cost of future servicing income                        $    17,911           14,149
Book/tax difference in interest-only and residual certificate
     carrying amount                                                    17,275           17,359
Tax over book depreciation                                               1,612              791
Capitalized origination fees and related cost                              603              702
-----------------------------------------------------------------------------------------------
Total deferred tax liabilities                                     $    37,401           33,001
-----------------------------------------------------------------------------------------------


Deferred tax assets:
Book over tax basis in mortgage servicing asset                    $       125              158
Loss reserves                                                            4,992            1,918
U.S. net operating loss carryforwards                                   21,873           12,077
-----------------------------------------------------------------------------------------------
Total deferred tax assets                                          $    26,990           14,153
-----------------------------------------------------------------------------------------------
Net deferred tax liabilities                                       $    10,411           18,848
===============================================================================================
</TABLE>

   Under SFAS No. 109, "Accounting for Income Taxes," the Company is required to
recognize all or a portion of its net deferred tax assets if it believed that it
was more likely than not, given the weight of all available  evidence,  that all
or a portion of the benefits of the  carryforward  losses and other deferred tax
assets would be  realized.  Management  believes  that,  based on the  available
evidence,  it is more likely than not that the Company  will realize the benefit
from its net deferred tax assets.

   A  reconciliation  of the  statutory  income tax  provision to the  effective
income tax  provision,  as applied to income for the years  ended  December  31,
1999, 1998 and 1997 is as follows:

                                              1999        1998        1997
------------------------------------------------------------------------------
Tax at statutory rate                         35.0%       35.0%       35.0%
State & local taxes, net of Federal benefit    1.1         1.7         4.7
Non-deductible expenses and other              3.4         2.1         0.8
------------------------------------------------------------------------------
Total provision                               39.5%       38.8%       40.5%
------------------------------------------------------------------------------


(16) EARNINGS PER SHARE

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

For the years ended December 31:

(DOLLARS IN THOUSANDS, EXCEPT EPS DATA)       1999        1998        1997
------------------------------------------------------------------------------
Net income                                $  4,676      11,328      30,411
Weighted-average shares                     15,511      15,382      15,359
Basic EPS                                 $   0.30        0.74        1.98
Weighted-average shares                     15,511      15,382      15,359
Incremental shares-options                       1          23          32
------------------------------------------------------------------------------
                                            15,512      15,405      15,391
Diluted EPS                               $   0.30        0.74        1.98
------------------------------------------------------------------------------

                                       52


(17) QUARTERLY FINANCIAL DATA (UNAUDITED)

   The following  table is a summary of financial  data by quarter for the years
ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>

For the quarters ended

(Dollars in thousands, except per share data)              March 31,    June 30,    Sept. 30,    Dec. 31,
---------------------------------------------------------------------------------------------------------
<S>                                                        <C>          <C>         <C>          <C>

1999
  Revenues                                                   $42,513      44,449       29,686      38,171
  Expenses (1)(2)                                             33,071      40,758       39,844      33,417
  Net income (loss) (1)(2)                                     5,744       2,215       (6,095)      2,812
  Earnings (loss) per common share-basic and diluted (1)(2)     0.37        0.14        (0.39)       0.18

1998
  Revenues (3)                                               $41,154      20,682       38,086      39,653
  Expenses                                                    28,053      28,718       32,993      31,315
  Net income (loss) (3)                                        8,251      (4,902)       3,106       4,873
  Earnings (loss) per common share-basic and diluted (3)        0.54       (0.32)        0.20        0.32
<FN>

(1)  The quarter ended June 30, 1999 includes $6.0 million pre-tax charge, in
     connection with its original agreement in principle with the NYOAG.
(2)  The quarter ended September 30, 1999 includes remaining $6.0 million of the
     $12.0 million pre-tax charge for the global settlement with NYSBD and the
     NYOAG.
(3)  The quarter ended June 30, 1998 includes:(a) a $15.5 million  pre-tax
     charge, related to a fair value  adjustment to interest-only  and residual
     certificates and (b) a $1.9 million  pre-tax  charge,  related to a fair
     value adjustment to capital mortgage servicing rights.
</FN>
</TABLE>


                                       53


<PAGE>


ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

      None.


                                   PART III

ITEMS 10-13

   Registrant   incorporates  by  reference  herein  information  in  its  proxy
statement which complies with the information  called for by Items 10-13 of Form
10-K. The proxy will be filed at a later date with the Commission.


                                   PART IV

ITEM 14.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

  (A)(1) FINANCIAL STATEMENTS
                                                                         PAGE(S)
                                                                         -------
      The following Consolidated Financial Statements of Delta
      Financial Corporation and Subsidiaries are included in
      Part II, Item 8 of this report
      Independent Auditors' Report........................................... 38
      Consolidated Balance Sheets--December 31, 1999 and 1998................ 39
      Consolidated Statements of Income--Years ended December 31,
      1999, 1998 and 1997.................................................... 40
      Consolidated Statement of Changes in Stockholders' Equity--
      Years ended December 31, 1999, 1998 and 1997........................... 41
      Consolidated Statements of Cash Flows--Years ended December 31,
      1999, 1998 and 1997.................................................... 42
      Notes to Consolidated Financial Statements............................. 43

  (A)(2) FINANCIAL STATEMENT SCHEDULES
      Exhibits 11.1 and 27.1  (See - Exhibit List)

  (A)(3) EXHIBITS:

 EXH.
  NO. FILED   DESCRIPTION
 ---  ----    -----------
 3.1  (a) --  Certificate of Incorporation of Delta Financial Corporation
 3.2  (f) --  Second Amended Bylaws of Delta Financial Corporation
 4.1  (b) --  Indenture dated July 23, 1997, between Delta Financial
                Corporation, its subsidiary guarantors and The Bank of New
                York, as Trustee
10.1   (a)--  Employment Agreement dated October 1, 1996 between the
                Registrant and Sidney A. Miller
10.2   (a)--  Employment Agreement dated October 1, 1996 between the
                Registrant and Hugh Miller
10.3   (g)--  Employment Agreement dated July 9, 1999 between the
                Registrant and Christopher Donnelly
10.4   (g)--  Employment Agreement dated July 15, 1999 between the
                Registrant and Randall F. Michaels
10.5   (g)--  Employment Agreement dated July 1, 1999 between the Registrant
                and Richard Blass
10.6   (g)--  Employment Agreement dated July 23, 1999 between the Registrant
                and Franklin E. Pellegin, Jr.
10.7   (a)--  Lease Agreement between Delta Funding Corporation and the
                Tilles Investment Company
10.8   (d)--  Fifth, Sixth and Seventh Amendments to Lease Agreement between
                Delta Funding Corporation and the Tilles Investment Company
10.9   (e)--  Eighth Amendment to Lease Agreement between Delta Funding
                Corporation and the Tilles Investment Company
10.10  (a)--  1996 Stock Option Plan of Delta Financial Corporation
11.1   (g)--  Statement re: Computation of Per Share Earnings
21.1   (g)--  Subsidiaries of Registrant
27.1   (g)--  Financial Data Schedule
---------------
(a)Incorporated by reference from the Company's  Registration  Statement on Form
   S-1 (No. 333-11289) filed with the Commission on October 9, 1996.


                                       54


(b)Incorporated by reference from the Company's  Current Report on Form 8-K (No.
   001-12109) filed with the Commission on July 30, 1997.
(c)Incorporated  by reference from the Company's  Quarterly  Report on Form 10-Q
   for the  quarter  ended  March 31,  1997  (File No.  1-12109)  filed with the
   Commission on May 15, 1997.
(d)Incorporated  by reference from the Company's  Annual Report on Form 10-K for
   the year ended December 31, 1997 (File No. 1-12109) filed with the Commission
   on March 31, 1998.
(e)Incorporated  by reference from the Company's  Quarterly  Report on Form 10-Q
   for the  quarter  ended  March 31,  1998  (File No.  1-12109)  filed with the
   Commission on May 12, 1998.
(f)Incorporated  by reference from the Company's  Annual Report on Form 10-K for
   the year ended December 31, 1998 (File No. 1-12109) filed with the Commission
   on March 31, 1999.
(g)   Filed herewith


  (B) REPORTS ON FORM 8-K.

      On September 23, 1999,  the Company filed a Current Report on Form 8-K, in
which it reported that it had  finalized the terms of a settlement  with the New
York State  Banking  Department  and the Office of the  Attorney  General of the
State of New York  concerning  some of Delta's  lending  practices  and filed as
exhibits the (a) Remediation Agreement by and between Delta and the NYSBD, dated
as of September 17, 1999 and (b) Stipulated Order on Consent by and among Delta,
the Company and the NYOAG,  dated as of September  17, 1999,  memorializing  the
settlements.


                                       55
<PAGE>


                                  SIGNATURES

   Pursuant  to the  requirements  of  Section  13 or  15(d)  of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized.

                         DELTA FINANCIAL CORPORATION

                         (Registrant)

Dated: March 30, 2000 By: /S/ HUGH MILLER
                         --------------------------------------------
                         Hugh Miller
                         President and Chief Executive Officer

   Pursuant to the  requirements  of the Securities  Exchange Act of 1934,  this
Report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant and in the capacities and on the dates indicated.

     SIGNATURE              CAPACITY IN WHICH SIGNED                  DATE
--------------------   ---------------------------------------  ----------------



/S/ SIDNEY A. MILLER   Chairman of the Board of Directors       March 30, 2000
--------------------
Sidney A. Miller


/S/ HUGH MILLER        Chief Executive Officer,President        March 30, 2000
--------------------   and Director
Hugh Miller            (Principal Executive Officer)


/S/ RICHARD BLASS      Executive Vice President,                March 30, 2000
--------------------   Chief Financial Officer and
Richard Blass          Director (Principal Financial Officer)


/S/ MARTIN D. PAYSON   Director                                 March 30, 2000
--------------------
Martin D. Payson


/S/ ARNOLD B. POLLARD  Director                                 March 30, 2000
---------------------
Arnold B. Pollard

                                       56