UNITED STATES
                    SECURITIES AND EXCHANGE COMMISSION
                          Washington, D.C. 20549

                                 FORM 10-K
           (Mark One)
           [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
           OF THE SECURITIES EXCHANGE ACT OF 1934
           For the fiscal year ended March 31, 1997
                          OR
           [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                OF THE SECURITIES EXCHANGE ACT OF 1934
           For the transition period from             to
                         

                                     1-14074
                                     -------
                            (Commission File Number)

                           ContiFinancial Corporation
                           --------------------------
             (Exact name of registrant as specified in its charter)

   Delaware                                            13-3852588 
   --------                                            ---------- 
(State of other jurisdiction               (I.R.S. Employer Identification No.)
of incorporation or organization)
          

277 Park Avenue
New York, New York                                        10172         
------------------                                        -----        
(Address of principal executive offices)               (Zip Code)
                       
Registrant's telephone number, including area code:          (212) 207-2800  
                                                             --------------   

Securities registered pursuant to Section 12(b) of the Act:
      Common Stock                             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 
                             (Title of Class) 
                                                                            
      Indicate by check mark whether  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 June 9, 1997 the  aggregate  market value of the voting stock held by
non-affiliates of the registrant was $356,431,735.
                                     -------------

The  Company  had  47,623,984  shares of common  stock  outstanding  as of 
June 9, 1997.      -----------

Document incorporated by reference:
The information required by Part III, Items 10,11,12 and 13, is
incorporated by reference to ContiFinancial Corporation's proxy statement
which will be filed with the Securities and Exchange Commission not more
than 120 days after March 31, 1997.

<PAGE>
Page 2

                        ContiFinancial Corporation

                                Table of Contents


                                     PART I.
                                                                        Page
Item 1.   Business ..................................................... 3

Item 2.   Properties ................................................... 22

Item 3.   Legal Proceedings ............................................ 22

Item 4.   Submission of Matters to a Vote of Security Holders .......... 22


                                    PART II.

Item 5.   Market for Registrant's Common Equity and Related              
          Stockholder Matters .......................................... 23

Item 6.   Selected Financial Data ...................................... 24

Item 7.   Management's Discussion and Analysis of Financial Condition    
          and Results of Operations .................................... 26

Item 8.   Financial Statements and Supplementary Data .................. 40

Item 9.   Changes in and Disagreements with Accountants on Accounting
          and Financial Disclosure ..................................... 67

                                   PART III.

Item 10.  Directors and Executive Officers of the Registrant ........... 68

Item 11.  Executive Compensation ....................................... 68

Item 12.  Security  Ownership of  Certain Beneficial Owners and ........ 68
          Management

Item 13.  Certain Relationships and Related Transactions ............... 68


                                    PART IV.

Item 14.   Exhibits, Financial Statement Schedules and Reports on Form   
           8-K ......................................................... 68

           Signatures .................................................. 70




<PAGE>
Page 3

Item I.  Business.

General
 
ContiFinancial  Corporation together with its subsidiaries,  (collectively,  the
"Company" or  "ContiFinancial"),  engages in the consumer and commercial finance
business by originating and servicing  primarily home equity loans and providing
financing  and  asset  securitization  structuring  and  placement  services  to
originators  of a broad range of loans,  leases,  receivables  and other assets.
Securitization  provides  significant  benefits,   including  greater  operating
leverage  and  reduced  costs of funds,  in the  financing  of  assets,  such as
non-conforming  home equity loans,  equipment  leases,  home improvement  loans,
franchisee loans,  commercial/multi-family  loans,  non-prime and sub-prime auto
loans and leases,  and timeshare  loans.  For the years ended March 31, 1997 and
1996,  the Company  originated  or  purchased  $3.9  billion  and $2.3  billion,
respectively,  of  home  equity  loans  through  its  subsidiary,  ContiMortgage
Corporation   ("ContiMortgage")   of  which  $3.6  billion  and  $2.0   billion,
respectively, of these loans were securitized or sold. For the same periods, the
Company  securitized  or sold $0.7 billion and $0.2 billion of  commercial  real
estate loans, respectively,  and $0.6 billion and $1.8 billion, respectively, of
loans and other assets for its clients. In addition, during the year ended March
31,  1997,  the  Company  securitized  and  sold  $43.5  million  of auto  loans
originated by its subsidiary Triad Financial Corporation ("Triad").

Through  ContiMortgage,  acquired in 1990, the Company is a leading  originator,
purchaser,  seller and  servicer of home equity  loans made to  borrowers  whose
borrowing  needs may not be met by  traditional  financial  institutions  due to
credit  exceptions or other factors.  Loans are made to borrowers  primarily for
debt  consolidation,  home  improvements,   education  or  refinancing  and  are
primarily  secured  by  first  mortgages  on  one-  to  four-family  residential
properties.  ContiMortgage has devoted substantial  resources and capital to (i)
increasing its market penetration  across the United States,  (ii) expanding its
broker loan network to complement  its existing  wholesale  loan network,  (iii)
adding  new loan  products,  and (iv)  investing  in  information  services  and
collection technologies.

There are two distinct  factors that drive the expansion of the  Company's  home
equity  loan  business  -- growth in volume of loans and  access to the  capital
markets  to  facilitate   the  most   efficient  sale  of  these  loans  through
securitization.  The Company believes it has a competitive advantage because the
management of ContiMortgage is able to focus exclusively on expanding the volume
of loans originated or purchased,  enhancing loan underwriting  efficiencies and
building its servicing  portfolio,  while relying upon the professional staff of
ContiTrade   Services  L.L.C.   ("ContiTrade")   and   ContiFinancial   Services
Corporation  ("ContiFinancial  Services")  to  focus  exclusively  on  providing
warehouse  financing,  hedging  and  securitization  structuring  and  placement
services.  This specific industry  expertise enables the Company to minimize its
financing costs and interest rate exposure and maximize the proceeds and profits
from its  securitizations and its growing servicing  portfolio.  From March 1991
through March 31, 1997, ContiMortgage has completed 27 AAA/Aaa-rated Real Estate
Mortgage Investment Conduit ("REMIC")  securitizations totaling $7.6 billion. As
of March 31, 1997, ContiMortgage had a servicing portfolio of $6.4 billion.

During 1997,  the Company  moved towards  achieving its strategic  objectives of
expanding and diversifying  its loan origination  methodology and product mix by
acquiring  three  retail home equity loan  originators.  In November  1996,  the
Company  purchased 100% of the  outstanding  stock of California  Lending Group,
Inc. d/b/a United Lending Group,  Inc.  ("ULG"),  a west coast-based home equity
lender specializing in retail originations through direct mail and telemarketing
throughout the United States,  and Royal Mortgage  Partners,  L.P.,  d/b/a Royal
MortgageBanc  ("Royal"),  a California-based  wholesale and retail originator of
home equity loans. In December 1996, the Company purchased Resource One Consumer
Discount Company, Inc. ("Resource One"), a Pennsylvania-based home equity lender
specializing   in  retail   origination   through   direct   mail,   television,
telemarketing,  referrals and other  sources to generate loan inquires  directly
from borrowers  throughout  the eastern and  mid-western  states.  Collectively,
ContiMortgage,  ContiWest  (defined  below),  ULG,  Royal and  Resource  One are
referred to as the "Home Equity Companies".  In each case the companies acquired
were former  Strategic  Alliances (as  discussed  below) or  ContiMortgage  loan
origination sources.

                                       3
<PAGE>


During  the  year  ended  March  31,  1997,  the  Company  organized   ContiWest
Corporation  ("ContiWest"),  a Nevada  corporation,  to  better  administer  and
underwrite the Company's origination portfolio.

As part of the Company's  strategic growth plan, the Company determined that the
acquisition of originators  and servicers of  under-served  securitizable  asset
classes  other than home equity loans would  provide  diversity.  The  Company's
growth  strategy  dictated  that such  acquisitions  would only be made in asset
classes in which the Company had significant  securitization  experience and the
acquisition candidate had strong and experienced  management.  Consequently,  in
November  1996,  the Company  purchased  53.5% of the common  stock of Triad,  a
corporation  which the  Company had  previously  had a  Strategic  Alliance  (as
discussed  below)  relationship.  The Company  purchased an  additional  2.5% in
January 1997 and has the right and  obligation to purchase the  remaining  44.0%
over the next  4.5  years.  Triad is a  California-based  auto  finance  company
specializing in the origination of non-prime auto finance  contracts for new and
used  vehicles.  Non-prime auto loans and leases are originated to primarily "B"
and "C" credit  grade  borrowers  as opposed to  sub-prime  auto loans which are
usually issued on a discount basis to "C-" and "D" credit grade borrowers.

The Company,  through its subsidiary  ContiTrade,  provides  financing and asset
securitization  structuring expertise and through its subsidiary  ContiFinancial
Services, provides placement services. In this area, ContiTrade's management and
execution of ContiMortgage's  financing,  hedging and  securitization  needs has
served as a model for the Company's  strategic  alliances with  originators of a
broad  range of  consumer  and  commercial  loans and other  assets  ("Strategic
Alliances").   The   Company's   strategy  is  to  replicate  its  success  with
ContiMortgage by (i) targeting classes of consumer and commercial loans, leases,
receivables  and other  assets,  which have the  potential  to be financed  more
efficiently through securitization,  (ii) identifying and establishing Strategic
Alliances  with  originators  of these assets that have  experienced  management
teams,   sophisticated  systems  and  a  proven  track  record  of  originating,
underwriting,  servicing and collecting  consumer and commercial loans,  leases,
receivables  and other  assets,  and (iii)  securing  from these  originators  a
consistent flow of securitizable  assets.  The Company offers Strategic Alliance
clients  complete  balance  sheet  liability  management,   including  warehouse
financing,  interest rate hedging  services and the structuring and placement of
asset  portfolios  in the  form of  asset-backed  securities.  This  allows  the
management of its Strategic Alliance clients to focus on expanding and improving
asset origination and servicing.

The  Company  earns fees for the  financing  and asset  securitization  services
provided to its Strategic Alliance clients. In addition, in order to support its
Strategic  Alliance clients and to further enhance its returns,  the Company may
take what it believes are manageable  risk positions in its Strategic  Alliances
by  purchasing  whole  loans  (and  issuing  asset-backed  securities  and  thus
recognizing gain on sale) and providing financing of the subordinated classes of
securitizations owned by its clients. In certain of its Strategic Alliances, the
Company may receive warrants or warrant-like equity  participations in Strategic
Alliance  clients  or may  otherwise  seek to  make  equity  investments  in its
Strategic   Alliance   clients   (collectively,   "Strategic   Alliance   Equity
Interests").  The Company believes that its Strategic  Alliance strategy results
in the Company  being less  transaction  oriented and more focused on increasing
the long-term value of its Strategic Alliance clients.

The Company's  successful  execution of its Strategic  Alliance strategy to date
has  resulted  in  the  addition  of  the  following  new  business   lines  and
securitization  volume from 1991  through  March 31,  1997:  28 home equity loan
securitizations    representing   $2.3   billion   (for   clients   other   than
ContiMortgage),  19  equipment  lease  securitizations  for $1.5  billion,  five
adjustable rate mortgage  securitizations  for $642 million,  seven Title I home
improvement  loan   securitizations  for  $245  million,   six  franchisee  loan
securitizations  for $312  million,  seven  commercial/multi-family  whole  loan
portfolio   sales  for  $1.0  billion,   five   non-prime  and  sub-prime   auto
securitizations  for $292 million and one small business loan securitization for
$20 million.

                                       4
<PAGE>

The Company currently has nine active Strategic  Alliances,  three specialize in
commercial  loans and leases,  two specialize in home equity loans, two focus on
auto loans and the remainder focus on other asset classes.
 
Home Equity Loan Origination and Servicing

Through ContiMortgage,  the Company is a leading originator,  purchaser,  seller
and servicer of non-conventional home equity loans.  ContiMortgage's home equity
loan  production  has increased from $161.5 million for the year ended March 31,
1992 (its first full year of  operations  under the Company) to $3.9 billion for
the year ended March 31, 1997, representing a 90% annual compound growth rate.

In September  1996,  the Company  organized  ContiWest to better  administer and
underwrite the Company's origination portfolio.

The  Company's  home equity  strategy is to continue its strong  growth  through
geographic expansion,  diversification of origination sources and investments in
origination,  servicing  and  collection  information  technology.  One means of
implementing  this  strategy  was through  the  acquisitions  of ULG,  Royal and
Resource One, as well as the  organization of ContiWest.  Royal and Resource One
provide a retail  branch  network  throughout  the west,  the  mid-west  and the
northeast  United  States  which  complements  ContiMortgage's  and  ContiWest's
wholesale and small broker origination sources. ULG originates home equity loans
and home improvement loans nationally through direct mail and telemarketing.

The source and  geographic  expansion  that ULG,  Royal and Resource One provide
allows the Company to channel its home  equity  loan  products to  ContiMortgage
which has been  designated as the servicing and sales  platform for the Company.
The full  implementation  of this  home  equity  growth  strategy,  through  the
completion of additional  Strategic Alliances and strategic  acquisitions,  will
allow the  Company  to build  its  market  share by  building  a broad  national
penetration of all origination  channels of the home equity market in the United
States.

Loan Production

Origination.  ContiMortgage's  and  ContiWest's  principal  loan  product  is  a
non-conforming  home  equity  loan  with a fixed  principal  amount  and term to
maturity  which is  typically  secured  by a first  mortgage  on the  borrower's
residence.  Currently,  over 90% of  originations  are  secured  by a first lien
mortgage.  Non-conforming  home  equity  loans  are home  equity  loans  made to
borrowers  whose  borrowing  needs  may  not  be met  by  traditional  financial
institutions  due to  credit  exceptions  or other  factors  and that  cannot be
marketed to  agencies,  such as Ginnie  Mae,  Fannie Mae and  Freddie  Mac.  The
Company  originates or purchases loans through  ContiMortgage's  headquarters in
Horsham,  Pennsylvania,  ContiWest's  headquarters in Las Vegas, Nevada and five
regional offices nationwide. ContiMortgage obtains its loans through two primary
sources in 48 states: wholesale,  which represents loans purchased from mortgage
bankers and commercial  banks;  and broker,  which  represents loans referred by
brokers.

For fiscal year 1997,  wholesale  purchases  accounted for  approximately 78% of
ContiMortgage's  and  ContiWest's  loan  production.  The Company  believes that
wholesale  loan  sourcing  provides  a  cost  effective  means  of  growing  and
sustaining  origination  volumes.  Because wholesale sources underwrite loans to
ContiMortgage's  underwriting guidelines and fund those loans in their own name,
wholesale  sources  deliver  pre-approved  loan  packages to  ContiMortgage  and
ContiWest  typically in excess of $1.0 million in size. As a result, the general
and  administrative  expenses  of the Company  associated  with  wholesale  loan
purchases are significantly  less than when loans are purchased or originated on
a loan-by-loan  basis. For fiscal 1997,  ContiMortgage  and ContiWest  purchased
loans from approximately 160 wholesale sources with no one source accounting for
more than 10% and the top five  wholesale  sources  accounting  for 19% of total
wholesale loan production.

                                       5
<PAGE>

Towards  achieving its strategic  objective of expanding  and  diversifying  its
sources of home equity loan production, the Company recently acquired three home
equity lenders involved in retail home equity loan production. In November 1996,
the Company purchased ULG, a west coast-based home equity lender specializing in
retail origination via direct mail and telemarketing throughout the United Sates
and Royal,  a  California-based  wholesale and retail  originator of home equity
loans.   In   December   1996,   the   Company   purchased   Resource   One,   a
Pennsylvania-based  home equity lender  specializing  in retail  origination via
direct mail, television,  telemarketing,  referrals and other sources throughout
the eastern and mid-western states. The Company will securitize most of the home
equity loans originated by these new  subsidiaries  through  ContiMortgage.  The
Company believes these operations will contribute significantly to the Company's
home equity loan production growth in the future.

Underwriting.  All home equity loans are underwritten to the Company's  mortgage
underwriting guidelines. The underwriting process is intended to assess both the
prospective  borrower's  ability to repay the loan and the  adequacy of the real
property  security as collateral for the loan. In the  underwriting  process,  a
credit  package is submitted to the Company which  includes a current  appraisal
from an  independent  appraiser,  a property  inspection,  a credit report and a
verification of employment.  On a case-by-case  basis, after review and approval
by the Company's underwriters, home equity loans may be made which vary from the
underwriting  guidelines.  However,  any  variations  from  guidelines  must  be
approved by a senior  underwriter or by an executive officer of ContiMortgage or
ContiWest.

The Company generally  purchases or originates loans which either fully amortize
over a period  not to exceed  360  months or  provide  for  amortization  over a
360-month schedule with a "balloon" payment required at the maturity date, which
will not be less than five years after  origination.  The loan amounts generally
range from a minimum of $10,000 to a maximum of $350,000, unless a higher amount
is  specifically  approved.  Management  estimates that the current average home
equity loan purchased or originated by ContiMortgage  is approximately  $64,000.
ContiMortgage and ContiWest  primarily purchase or originate  non-purchase money
first or  second  mortgage  loans  although  ContiMortgage  and  ContiWest  have
programs for origination of certain purchase money first mortgages.

The homes  used for  collateral  to secure  the loans may be either  residential
(mostly   primary   residences,   but  also  second  and   vacation   homes)  or
investor-owned   one-  to  four-  family  homes,   condominiums  or  townhouses.
Generally,  each home must have a minimum  appraised  value of  $35,000.  Mobile
housing or  agricultural  land are not  accepted  as  collateral.  In  addition,
mixed-use  loans  secured  by  owner-occupied  properties,   including  one-  to
four-family and small multifamily residences, are made where the proceeds may be
used for business purposes.

Each  property  proposed as security for a loan must be appraised  not more than
six months  prior to the date of such loan.  The  combined  loan-to-value  ratio
("CLTV") of the first and second  mortgages  generally  may not exceed 85%. If a
prior mortgage exists, the Company first reviews the first mortgage history.  If
it contains open end, advance or negative amortization  provisions,  the maximum
potential  first mortgage  balance is used in  calculating  the CLTV ratio which
determines  the maximum loan amount.  The Company does not purchase or originate
loans where the first mortgage contains a shared appreciation clause.

The Company also requires a credit  report by an  independent  credit  reporting
agency which describes the applicant's credit history.  The credit report should
reflect  all  delinquencies  of  30  days  or  more,  repossessions,  judgments,
foreclosures,  garnishments,  bankruptcies,  divorce actions and similar adverse
credit  events that can be  discovered  by a search of public  records.  Written
verification is obtained on any first mortgage  balance,  its status and whether
local taxes, interest, insurance and assessments are included in the applicant's
monthly payment on the first mortgage. All taxes and assessments not included in
the monthly payment must be verified as current.

                                       6
<PAGE>

Each loan  applicant  is  required  to secure  property  insurance  in an amount
sufficient  to  cover  the new loan and any  prior  mortgage.  If the sum of the
outstanding first mortgage, if any, and the home equity loan exceeds replacement
value, insurance at least equal to replacement value may be accepted.

Quality Control. The purpose of the Company's quality control program is: (i) to
monitor  and  improve  the  overall  quality  of loan  production  generated  by
ContiMortgage's  regional offices,  ContiWest and wholesale sources; and (ii) to
identify and communicate to management,  existing and/or potential  underwriting
and loan file packaging problems or areas of concern.  Each month, the following
sample of funded  loans are  examined:  (i) a 10%  random  sample of all  funded
loans, (ii) a 1-3% random sample of loans  underwritten at the maximum LTV ratio
for such  risk  class of  loans,  (iii) a 1-3%  random  sample  of loans  with a
debt-to-income  ratio  greater than 50%,  (iv) a minimum of the first five loans
from any new origination  source, and (v) loans selected in accordance with such
other  criteria as may be determined  by  management.  The quality  control file
review examines  compliance with  underwriting  guidelines and federal and state
regulations.  This is accomplished through a focus on (i) accuracy of all credit
and legal  information,  (ii) collateral  analysis  including  re-appraisals  of
property (field or desk) and review of original appraisal,  (iii) employment and
income   verification  and  (iv)  legal  document  review  to  ensure  that  the
appropriate documents are in place.

Loan Securitization

General.  The primary  funding  strategy of the Company is to  securitize  loans
purchased or  originated.  The  Company's  origination  sources:  ContiMortgage,
ContiWest,  ULG,  Royal  and  Resource  One  (collectively,   the  "Home  Equity
Companies") benefit from the reduced cost of funds and greater leverage provided
through securitization.  Through March 31, 1997,  ContiMortgage has completed 27
AAA/Aaa-rated  REMIC  securitizations  totaling  $7.6  billion.  Management  has
structured  the   operations   and  processes  of  the  Home  Equity   Companies
specifically  for the  purpose of  efficiently  originating,  underwriting,  and
servicing  (ContiMortgage  only) loans for  securitization  in order to meet the
requirements  of rating  agencies,  credit  enhancers  and  AAA/Aaa-rated  REMIC
pass-through  investors.  The Company  generally  seeks to enter the public home
equity securitization market on a quarterly basis.

In a  securitization,  the  Company  sells the loans that it has  originated  or
purchased to a REMIC,  owner trust or grantor  trust,  for a cash purchase price
and an interest  in the loans or other  assets  securitized  (in the form of the
excess  spread).  The cash  purchase  price is raised  through  an  offering  of
pass-through  certificates  by the  trust.  Following  the  securitization,  the
purchasers of the pass-through  certificates  receive the principal collected or
allocated  and  the  investor  pass-through  interest  rate  on the  certificate
balance,  while the  Company  receives  the Excess  Spread.  The  Excess  Spread
represents,  over the  life of the  loans or other  assets,  the  excess  of the
weighted  average coupon on each pool of loans or other assets sold over the sum
of the pass-through interest rate plus a normal servicing fee, a trustee fee, an
insurance  fee and an estimate of annual  future  credit  losses  related to the
loans or other assets  securitized  (the "Excess  Spread").  The majority of the
Company's  gross income is  recognized as gain on sale of loans or other assets,
which  represents the present value of the Excess Spread,  less  origination and
underwriting  costs. The present value of the Excess Spread is the Excess Spread
receivable  (the "Excess Spread  Receivable").  The Excess Spread  Receivable is
either a contractual right or a certificated  security  generally in the form of
an interest-only or residual  certificate.  The majority of the Company's Excess
Spread  Receivable  at March  31,  1997 and 1996 is  interest-only  or  residual
certificates.  Consequently, the Company's Consolidated Balance Sheets designate
Excess Spread Receivable as "interest-only and residual certificates."

The  purchasers  of the  pass-through  certificates  receive  a  credit-enhanced
security.   Credit   enhancement   is  generally   achevied  by  the   Company's
subordination  of their Excess  Spread in the form of  overcollateralization  or
spread account structured in two forms: (i) subordination of subsidiary class of
bonds to senior classes; or (ii) an insurance policy by an AA/Aaa-rated monoline
insurance company.  As a result,  each offering of the senior REMIC pass-through
certificates  has received  ratings of AAA from Standard & Poor's  Ratings Group
and Fitch Investor Services, L.P. and Aaa from Moody's Investors Service.

                                       7
<PAGE>

The pooling and servicing  agreements that govern the distribution of cash flows
from  the  loans  included  in  the  REMIC  trusts  require   either:   (i)  the
establishment  of a  reserve  account  that may be funded by cash or a letter of
credit deposited by the Company, or (ii) the over collateralization of the REMIC
trust,  which is  intended to result in receipts  and  collections  on the loans
exceeding the amounts  required to be  distributed  to the holders of the senior
REMIC  pass-through  certificates.  If payment defaults exceed the amount in the
reserve  account or the amount of over  collateralization,  as  applicable,  the
monoline  insurance  company policy will pay any further  losses  experienced by
holders of the senior  interests  in the related  REMIC  trust or a  subordinate
class  will bear the loss.  To date,  there  have been no calls on any  monoline
insurance company policy obtained in any of the Company's securitizations.

Hedging.  A fixed rate loan  inventory  held for sale will have a smaller Excess
Spread if  interest  rates rise before the loans are sold.  Conversely,  falling
rates expand the Excess Spread.  As such, the Company  actively  hedges interest
rate exposure  through the use of United States Treasury  securities and futures
contracts.

Whole Loan Sales. From time to time, the Company will sell loans on a whole loan
or loan participation  basis when and where pricing is more attractive than that
available   through   securitization.   For  the  year  ended  March  31,  1997,
ContiMortgage  and ContiWest  sold $452.6  million of home equity loans in whole
loan sales or loan  participations.  Because cash is received when the loans are
sold, the full gain on sale is recorded at the time of sale.

Loan Servicing

Overview.  The  Company  generally  retains the right to service the home equity
loans it originates or purchases.  Servicing includes  collecting  payments from
borrowers,  remitting  payments  to  investors  who have  purchased  the  loans,
investor reporting, accounting for principal and interest, contacting delinquent
borrowers,  conducting  foreclosure  proceedings  and  disposing  of  foreclosed
properties.  As of March 31, 1997,  ContiMortgage  serviced  104,568 loans in 48
states with an outstanding balance of $6.4 billion, up 66% from March 31, 1996.

ContiMortgage has developed a sophisticated  computer-based  mortgage  servicing
operation  that it  believes  enables  it to  provide  effective  and  efficient
processing of home equity loans. The key elements of any servicing operation are
the quality and  experience of the staff and the  effectiveness  of the computer
software.

The   servicing   system  is  an  on-line   real  time   system.   It   provides
payment-processing  and  cashiering  functions,   automated  payoff  statements,
on-line  collections,  hazard  insurance and tax  monitoring and a full range of
investor-reporting requirements. The monthly investor-reporting package includes
a trial balance,  accrued interest report,  remittance  report,  and delinquency
reports.

ContiMortgage is a Fannie Mae and Freddie Mac approved seller/servicer. As such,
ContiMortgage   is  subject  to  a  thorough  due  diligence  of  its  policies,
procedures, and business, and is qualified to underwrite, sell and service loans
on behalf of both Fannie Mae and Freddie Mac.  This  designation  is typically a
prerequisite for loan securitization.

As of March 31, 1997,  ContiMortgage's  $6.4  billion  servicing  portfolio  was
earning a servicing fee of approximately 50 basis points per annum.

The pooling and servicing agreements which govern the distribution of cash flows
within the REMIC  trusts  generally  require  that  ContiMortgage,  as servicer,
advance  interest (but not principal) on any delinquent  loans to the holders of
the senior interests in the related REMIC trust until  satisfaction of the note,
liquidation  of the  mortgaged  property or charge-off of the loan to the extent
ContiMortgage deems such advances of interest to be ultimately  recoverable.  To
the extent there are any realized  losses on loans,  such losses are paid out of
the related reserve


                                       8
<PAGE>

account,  out of principal and interest payments on over collateralized  amounts
or, if necessary, from the related monoline insurance company policy.

Collections.  The  ContiMortgage  collection  department is organized into three
divisions (two  collection  divisions and one default  division),  each led by a
collection  supervisor.  The  collection  divisions  are comprised of six teams,
consisting of one team leader and seven loan counselors  whose  responsibilities
include  contacting  first payment  defaults that are one to ten days delinquent
and post 30-day delinquent accounts with balances over $100,000.  In March 1996,
each  collection  division  was  restructured  to include an  auto-dial  team of
collectors to handle pre 30-day  delinquent  accounts.  In addition,  there is a
loss mitigation team which generally contacts  mortgagors who are three payments
in arrears to  determine if a special  forbearance  repayment  agreement  can be
arranged or if  foreclosure  action  needs to be  initiated.  In certain  cases,
delinquent  loans are  forwarded  to the default  division for legal action by a
foreclosure or bankruptcy team. If a property is acquired  through  foreclosure,
the Company will market the property for liquidation of the asset and recovery.

Generally,  collection  activity  will  commence  once a loan has not been  paid
within  five  days of the due date.  Once a loan  becomes  30 days  past due,  a
collection   supervisor   generally   analyzes  the  account  to  determine  the
appropriate  course of  action.  On or about the 45th day of  delinquency,  each
property is typically  inspected.  The  inspection  indicates if the property is
occupied or vacant, the general condition of the property, whether the condition
is  deteriorating,  and a  recommendation  for securing,  repair or maintenance.
Borrowers usually will be contacted by telephone at least five times and also by
written  correspondence  before the loan becomes  more than 60 days  delinquent.
Collection  activity on accounts 60 days or more delinquent  typically emphasize
curing the delinquency,  including the use of formal forbearance,  refinance and
voluntary  liquidation  and  other  means  directed  at  completely  curing  the
delinquency.  In most cases,  accounts that cannot be cured by reasonable  means
will be moved to foreclosure as soon as all legal documentation permits.

Depending upon the circumstances surrounding the delinquent account, a temporary
suspension  of  payments  or a  repayment  plan  to  return  the  account  to an
up-to-date status may be authorized by the collection supervisor.  In any event,
it is the Company's  policy to work with the delinquent  customer to resolve the
past due balance before legal action is initiated.

Mortgaged  properties  securing  loans  that are more  than 60 days  delinquent,
including loans in foreclosure,  are typically  inspected on a monthly basis. In
most cases, the cost of these  inspections will be advanced by ContiMortgage and
charged to the individual escrow accounts of the borrowers.  The Company expects
that the cost of inspections generally will be recovered through  reinstatement,
liquidation  or  payoff.  The  collection   supervisor  generally  reviews  each
inspection report and takes whatever corrective action is necessary. The cost to
secure, winterize or maintain a property are typically charged to the borrower's
escrow  account.  If  and  when  a  property  moves  to  foreclosure  status,  a
foreclosure  coordinator will review all previous inspection  reports,  evaluate
the lien and equity position and obtain any additional information as necessary.
The ultimate decision to foreclose, after all necessary information is obtained,
is made by an officer of ContiMortgage.

Foreclosure  regulations  and  practices  and the rights of the owner in default
vary from state to state, but generally  procedures may be initiated if: (i) the
loan is 90 days or more delinquent; (ii) a notice of default on a senior lien is
received; or (iii) ContiMortgage  discovers  circumstances  indicating potential
loss exposure.





                                       9
<PAGE>

Credit Quality of Home Equity Loan Servicing Portfolio.

The   following   table   illustrates   ContiMortgage's   delinquency   and
charge-off experience with respect to its home equity loan portfolio:
               
                   Delinquency and Default Experience of
                    ContiMortgage's Servicing Portfolio
                           of Home Equity Loans

                                   --
<TABLE>
<CAPTION>
                                                                         
                                                                 At March 31                          
                                1997              1996            1995             1994           1993           
                              Principal        Principal        Principal        Principal      Principal
                              Balance           Balance          Balance          Balance        Balance
                                                           (dollars in thousands)
<S>                       <C>              <C>              <C>              <C>              <C>        
Portfolio .........       $   6,423,376    $   3,863,575    $   2,192,190    $   1,105,393    $   484,857
Delinquency
   percentage (1)
  30-59 days ......               2.18%            1.81%            0.83%            0.51%          0.49%
  60-89 days ......               0.68%            0.47%            0.36%            0.19%          0.27%
  90 days and over                0.38%            0.23%            0.45%            0.27%          0.44%
  Total delinquency               3.24%            2.51%            1.64%            0.97%          1.20%
  Total delinquency
      amount ......      $     208,084     $      97,082     $      35,980    $     10,036    $     5,794

Default percentage
                                                                                                   (2)
  Foreclosure .....               2.90%            2.42%            0.46%            0.53%          0.83%
  Bankruptcy ......               1.15%            0.74%            0.41%            0.23%          0.69%
  Real estate owned               0.52%            0.13%            0.09%            0.05%          0.18%
  Forbearance .....               0.13%            0.25%            0.20%            N/A              N/A
  Total default ...               4.70%            3.54%            1.16%            0.81%          1.70%
  Total default
      amount ......       $     302,164    $     136,796        $ 25,486          $ 9,615     $     8,263
 ---------------
(1) The  delinquency  percentages  represent  the percent of the  portfolio
   balance of home equity loans for which payments are  contractually  past
   due,  exclusive of home equity loans in  foreclosure,  bankruptcy,  real
   estate owned or forbearance.

(2)  The  default  percentages  represent  the  percent  of  the  portfolio
   balance of home equity  loans in  foreclosure,  bankruptcy,  real estate
   owned or forbearance.
</TABLE>



                                       10
<PAGE>




The following table illustrates  ContiMortgage's  loan loss experience with
respect to its home equity loan portfolio:
                          
                            Loan Loss Experience on
                       ContiMortgage's Servicing Portfolio
                              of Home Equity Loans
<TABLE>
<CAPTION>
                                                           
                                                                   Years Ended March 31, 
                                                                  (dollars in thousands)                   
                                           1997         1996          1995            1994          1993           
                                    
<S>                                   <C>           <C>            <C>           <C>           <C>       
Average Amount Outstanding (1) .....   $ 4,845,30    $ 2,858,790    $1,663,865    $  745,351    $  396,910
  Net losses (2) ...................   $   12,767    $     3,781    $    1,313    $    1,108    $    1,076
  Net Losses after Recoveries (3) ..   $   12,719    $     3,686    $    1,308    $    1,108    $    1,036
  Net Losses as a percentage
   of average amount outstanding ...        0.26%         0.13%         0.08%         0.15%         0.26%
 ----------
(1) The  average of the  aggregate  principal  balances  of the home equity
    loans  outstanding  on the last  business  day of each month  during the
    year.

(2) Actual losses  incurred on liquidated  properties  for each  respective
    period.  Losses  include  all  principal,   foreclosure  costs  and  all
    accrued interest.

(3)  Net  losses  after  recoveries  from  deficiency judgments (net  of
     expenses).
</TABLE>

In fiscal  1994,  the Company  made a strategic  decision to increase its mix of
higher  yielding,  lower  loan-to-value B, C, and D grade loans. The ratings are
those employed by the Company in its grading system,  which the Company believes
is  similar to grading  systems  used in the  non-conforming  home  equity  loan
industry.  As a result  of this  strategic  decision,  delinquency  levels  have
increased  as  anticipated  and are expected to continue to increase as the loan
mix shifts toward more B, C and D loans and such types of loans in the portfolio
become more  seasoned.  The Company  believes that this increase in  delinquency
levels is more than offset by the higher yields associated with B, C and D loans
and the lower loan-to-value ratios which provide a larger equity cushion against
loss in the event of foreclosure.




                                       11
<PAGE>




The following chart generally  outlines certain  parameters of the credit grades
of ContiMortgage's and ContiWest's current underwriting guidelines:
                    
                        Description of Credit Grades


                "A" CREDIT    "B" CREDIT    "C" CREDIT    "D" CREDIT
                GRADE         GRADE         GRADE         GRADE


General         Has good      Pays the      Marginal      Designed to
Repayment       credit but    majority of   credit        provide a
                might have    accounts on   history       borrower
                some minor    time but has  which is      with poor
                delinquency.  some 30-      offset by     credit
                              and/or        other         history an
                              60-day        positive      opportunity
                              delinquency.  attributes.   to correct
                                                          past credit
                                                          problems
                                                          through
                                                          lower
                                                          monthly
                                                          payments.


Existing         Current at    Current at    Cannot        Must be paid
Mortgage Loans  application   application   exceed four   in full from
                time and a    time and a    30-day        loan
                maximum of    maximum of    delinquencies proceeds and
                two 30-day    three 30-day  or one        no more than
                delinquencies delinquencies 60-day        119 days'
                in the past   in the past   delinquency   delinquency.
                12 months.    12 months.    in the past
                                            12 months.


Non-Mortgage    Major credit  Major credit  Major credit  Major and
Credit          and           and           and           minor credit
                installment   installment   installment   delinquency
                debt should   debt can      debt can      is
                be current    exhibit some  exhibit some  acceptable,
                but may       minor         minor         but must
                exhibit some  30-and/or     30-and/or     demonstrate
                minor 30-day  60-day        90-day        some payment
                delinquency.  delinquency.  delinquency.  regularity.
                Minor credit  Minor credit  Minor credit
                may exhibit   may exhibit   may exhibit
                some minor    up to 90-day  more serious
                delinquency.  delinquency.  delinquency.


Bankruptcy      Charge-offs,  Discharged    Discharged    Discharged
Filings         judgments,    more than     more than     prior to
                liens, and    two years     two years     closing.
                former        with          with
                bankruptcies  reestablished reestablished
                are           credit.       credit.
                unacceptable.


Debt            Generally     Generally     Generally     Generally
Service-to-     not to        not to        not to        not to
Income Ratio    exceed 45%.   exceed 45%.   exceed 45%.   exceed 50%.


Maximum
Loan-to-Value
Ratio:

Owner Occupied  Generally     Generally     Generally     Generally
                80% (or 90%)  80% (or 85%)  75% (or 85%)  65% (or 70%)
                for a 1 to 4  for a 1 to 4  for a 1 to 4  for a 1 to 4
                family        family        family        family
                dwelling      dwelling      dwelling      dwelling
                residence;    residence;    residence;    residence.
                70% for a     65% for a     65% for a
                condominium.  condominium.  condominium.

Non-Owner       Generally     Generally     Generally     N/A
Occupied        70%  for a 1  65%  for a 1  65%  for a 1
                to 2 family   to 2 family   to 2 family
                dwelling,     dwelling,     dwelling,
                65% for a 3   60% for a 3   65% for a 3
                to 4 family.  to 4 family.  to 4 family.


Financing and Asset Securitization Services

General

The Company provides financing and asset securitization  execution and expertise
to  originators  of a broad  range of consumer  and  commercial  loans,  leases,
receivables and other assets.  Through the activities of its other two principal
operating  entities -  ContiTrade  and  ContiFinancial  Services  - the  Company
focuses  on  providing  financing  and  asset  securitization  services  to  its
subsidiaries and Strategic Alliance clients.  ContiTrade  provides financing and
structuring of asset-backed securities. ContiFinancial Services, a National


                                       12
<PAGE>



Association  of Securities  Dealers,  Inc.  ("NASD")  member and  broker/dealer,
privately places or underwrites  offerings of asset-backed  securities on behalf
of the Company and its finance company clients.

Strategy

Understanding the cash flow and credit  characteristics  associated with each of
the asset  classes  with  which it works,  ensuring  that each pool of assets is
securitizable  prior to funding and controlling its own warehouse  take-out risk
through its  placement  capabilities,  allows the  Company to assume  controlled
risks,  support new business,  and introduce  more  securitizable  assets to the
institutional  marketplace.  The Company's  strategy is to replicate its success
with  ContiMortgage by (i) targeting  classes of consumer and commercial  loans,
leases,  receivables  or other  assets,  which have the potential to be financed
more  efficiently  through  securitization,  (ii)  identifying and  establishing
Strategic  Alliances  with  originators  of these  assets that have  experienced
management   teams,   sophisticated   systems  and  a  proven  track  record  of
originating,  underwriting,  servicing and  collecting  consumer and  commercial
loans,  leases,  receivables  and other  assets  and (iii)  securing  from these
originators  a  consistent  flow of  securitizable  assets.  The Company  offers
Strategic   Alliance  clients  complete  balance  sheet  liability   management,
including   warehouse   financing,   interest  rate  hedging  services  and  the
structuring  and  placement  of asset  portfolios  in the  form of  asset-backed
securities.  This allows the  management  of its Strategic  Alliance  clients to
focus on expanding and improving asset origination and servicing.

The  Company  earns fees for the  financing  and asset  securitization  services
provided to its Strategic Alliance clients. In addition, in order to support its
Strategic  Alliance clients and to further enhance its returns,  the Company may
take what it believes are manageable  risk positions in its Strategic  Alliances
by  purchasing  whole  loans  (and  issuing  asset-backed  securities  and  thus
recognizing  gain  on  sale)  and  providing  financing  of  the  Excess  Spread
Receivables  owned by its clients.  In certain of its Strategic  Alliances,  the
Company may receive Strategic  Alliance Equity  Interests.  The Company believes
that  its  Strategic  Alliance  strategy  results  in  the  Company  being  less
transaction  oriented and more focused on increasing the long-term  value of its
Strategic Alliance clients. Because of the extensive time and resources that the
Company commits to a Strategic  Alliance,  the Company only seeks to develop and
maintain a limited number of Strategic  Alliance clients in each of its business
lines.

Targeting Opportunities

As described above, the Company seeks to identify consumer and commercial loans,
leases,  receivables  or  other  assets  which  have  the  potential  to be more
efficiently financed through securitization and to form Strategic Alliances with
the  originators  of such assets.  Identifying  such assets  involves a thorough
analysis and due diligence of: (i) the asset (loan, lease, or receivable),  (ii)
the management team of the potential  Strategic  Alliance client,  and (iii) the
servicing systems of the potential  Strategic Alliance client. The credit review
process  of the  Company  seeks  to  determine  whether  or not a new  asset  is
securitizable  to  investment  grade  and  whether  there  exists  a  ready  and
interested investor base for the new product.

The due  diligence  process  and the  results  thereof  are  outlined  in a risk
memorandum.  The  preparation  of the risk  memorandum is an intensive  process,
managed by the Company's  Chief Credit Officer,  and focuses on four areas:  (i)
background on company, management, asset and industry, (ii) risks and mitigating
factors, (iii) projected profitability,  and (iv) balance sheet and cash impact.
Once the risk memorandum is completed, the decision to securitize a new class of
assets with a new client is subject to approval by a credit committee made up of
senior executive officers of the Company.  After the credit process is completed
for a new client, each subsequent securitization transaction by that client will
be subject to an abridged credit review process.


                                       13
<PAGE>




Client Services

The Company provides warehouse financing, whole loan purchasing, hedging, credit
enhancement and Excess Spread  Receivables  financing  services to the Company's
subsidiaries and the Company's Strategic Alliance clients.

Warehouse Financing. The Company makes financing available to its securitization
clients  through  secured  loans  or  purchase  commitments  to  facilitate  the
accumulation  of  securitizable  assets  prior  to  securitization   ("warehouse
financing"). As of March 31, 1997, through ContiTrade, the Company had committed
$1.6 billion of financing to its third party clients,  of which $566 million was
drawn down. Warehouse financing commitments are typically for a term of one year
or less and are generally  designed to fund only  securitizable  assets.  Assets
from a particular client typically remain in the warehouse for a period of 30 to
120  days at  which  point  they  are  securitized  and  sold  to  institutional
investors,  in most cases, through  ContiFinancial  Services, the Company's NASD
registered  broker/dealer.  The Company  utilizes  its asset  purchase  and sale
facilities with certain financial institutions  ("Purchase and Sale Facilities")
and  a  funding   agreement  under  an  agreement  to  repurchase   ("Repurchase
Agreement") to finance this warehouse financing.

Whole Loan  Purchasing.  The Company seeks  opportunities to purchase assets for
sale into  securitized  trusts  and to  recognize  gain on sale.  The  Company's
Strategic  Alliance  clients  often seek to raise  additional  cash to cover the
expenses and the negative cash flow associated with  securitization.  Therefore,
whole loan pools of assets may be  purchased  by the  Company  from a  Strategic
Alliance client and then securitized under the Company's name or the name of its
Strategic  Alliance client. The Company will typically invest its capital in the
transaction  through the  purchase of loans at a premium and the  assumption  of
certain costs of securitization.

Conduits.  The Company also  executes its loan  purchase  strategy  through loan
conduits.   Conduits  are   stand-alone   securitization   vehicles   where  the
originator(s),  underwriter(s),  servicer(s), and seller(s) may all be different
parties  coming  together to  generate  loans to be  serviced  and  securitized.
Conduits  allow  smaller  originators  to  sell  their  product  into  a  single
securitizable  pool, thus benefiting from the economies of scale and the ability
to share the fixed transaction costs associated with securitization. The Company
has established a conduit for  commercial/multi-family  mortgages ("ContiMAP").
The Company's role is to provide capital through warehouse  financing and/or the
purchase of loans at a premium and to ensure that the loans are  underwritten to
the conduit's underwriting  guidelines and are thus securitizable.  In addition,
the  Company  also  manages the  ultimate  sale or  securitization  of the loans
originated  through  ContiMAP.  The Company  had  previously  also  operated an
adjustable  rate  mortgage  conduit  which was closed in fiscal  1997 due to the
strategic acquisition of Royal, previously the major participant of the conduit.

Hedging. As certain assets are accumulated for securitization,  they are exposed
to fluctuations in interest rates.  This is because the  securitization  of each
asset  class is priced to the  investor  utilizing  the United  States  Treasury
security  with a maturity  most  closely  matching  the assets'  average  lives.
Therefore,  at the  client's  discretion,  the Company  will hedge the  specific
United States Treasury security in the cash market.

Credit Enhancement.  To the extent that the securitization of a particular asset
class requires credit  enhancement in addition to the Excess Spread, the Company
will consider  providing that  additional  support in the form of (i) an initial
deposit to be reimbursed  from the cash flow of the assets  securitized  or (ii)
the purchase of a mezzanine security.

Excess Spread  Receivables  Financing.  In certain cases, the Company finances a
client's  Excess Spread  Receivables in order to provide the client with cash to
cover the expenses and negative cash flow  associated with  securitization.  The
financing  is typically in the form of a secured  loan.  The Company  commits to

                                       14
<PAGE>

  

provide such financing only to itsStrategic  Alliance clients.  In each case, in
return for the  financing,  the Company  will receive  ownership  participations
either  in  the  Strategic  Alliance  clients  or  in  the  portfolio  of  loans
securitized.  As of March 31, 1997, the total committed amount of such financing
was  $64.1  million  and the  amount  outstanding  of such  financing  was $35.6
million.

ContiFinancial Services

Placement of Asset-Backed  Securities.  Securitization,  or structured  finance,
expertise  is the  foundation  upon which the Company has built its business and
executes  its  strategy.  Since 1991  through  March 31,  1997,  the Company has
structured or placed over $13.9 billion of securitized assets  representing over
105 transactions both for ContiMortgage and other clients.

ContiFinancial  Services' placement capabilities accomplish two objectives:  (i)
generating fee income,  and (ii) providing a controlled exit strategy for assets
financed by allowing the Company and its  Strategic  Alliance  clients to manage
more  effectively  when  and how  transactions  are  brought  to  market.  While
ContiFinancial  Services' placement  capabilities have been primarily focused on
private  placements,  to the extent  opportunities  exist in the public  market,
ContiFinancial  Services will bid out the public underwriting  business to other
investment banks and manage the process on behalf of itself and its clients. The
Company  has  filed a shelf  registration  statement  with  the  Securities  and
Exchange  Commission  (the  "Commission")  for up to  $5.0  billion  in  certain
asset-backed securities.

If  the  Company  is  successful  in a  Strategic  Alliance  (earning  fees  for
warehousing,  gain on sale for whole loan purchases and sales,  and fees for the
placement of asset-backed  securities) while its client experiences  significant
growth and profitability, the Strategic Alliance client will ultimately need the
services of a larger full  service  investment  bank.  The  Company's  strategy,
however,  contemplates this evolution through:  (i) continuing to purchase whole
loans from the Strategic Alliance client, (ii) creating new loan conduits, (iii)
recognizing  the value of any Strategic  Alliance  Equity  Interests,  and, most
importantly,  (iv) continuing to develop new securitizable  assets and Strategic
Alliances.

Purchase and Sale Facilities and Repurchase Agreement

As of  March  31,  1997,  the  Company  had $2.3  billion  of  committed  and an
additional $1.1 billion of uncommitted sale capacity under its Purchase and Sale
Facilities.  The Purchase and Sale  Facilities  allow the Company to sell,  with
limited  recourse,  interest in designated pools of loans and other assets.  The
Company  utilized the  facilities to sell assets  totaling  $7.4  billion,  $5.7
billion and $2.5 billion, in the fiscal years 1997, 1996 and 1995, respectively.
As of March  31,  1997 the  Company  had  utilized  $842.5  million  of the sale
capacity under the Purchase and Sale Facilities.
 
Due  to  the  implementation  of  the  Financial  Accounting  Standards  Board's
Statement of Financial  Accounting  Standards No. 125, "Accounting for Transfers
and Servicing of Financial Assets and  Extinguishment of Liabilities" on January
1, 1997 (see  Management  Discussion  and Analysis of Financial  Conditions  and
Results  of  Operations  - Certain  Accounting  Considerations),  certain of the
assets  that the  Company  has  sold  under  the  Purchase  and Sale  Facilities
subsequent to January 1, 1997 did not qualify for sale  treatment  under the new
accounting  principles  and as a  result  $251.5  million  of such  assets  were
included as Trade  Receivables  sold under  agreements to repurchase  (under the
Repurchase  Agreement) on the Company's  consolidated  balance  sheets.  The new
accounting  principle  does not in any way effect the  ability of the Company to
finance  these  assets.  The Company  expects to replace the  Purchase  and Sale
Facilities with Repurchase Agreements for those asset types which do not qualify
for sale treatment.

                                       15
<PAGE>


Asset Classes

Since  1991,  the  Company  has  expanded  the scope of its  products to include
equipment leases, franchisee loans, commercial/multi-family loans, non-prime and
sub-prime auto loans and leases, and timeshare loans.

The following table illustrates the Company's  securitization  volume (excluding
ContiMortgage whole loan sales) and the addition of its new asset classes:

                    The Company's Securitization Volume
                             by Asset Classes
<TABLE>
<CAPTION>
                                                                              
                                                                              Total
                                       Years Ended March 31,                   By
                                       ---------------------                  Asset
                            1997    1996        1995      1994       1993     Class 
                            ----    ----        ----      ----       ----     ----- 
<S>                       <C>       <C>      <C>       <C>       <C>       <C>
  Home equity loans
  ContiMortgage .......   $ 3,454   $ 2,030   $ 1,293   $   772   $   273   $ 7,822
  Other ...............       250       755       340        60       148     1,553
                              ---       ---       ---        --       ---     -----
    Total .............   $ 3,704   $ 2,785   $ 1,633   $   832   $   421   $ 9,375
ARMs ..................      --         505       101        36      --         642
Equipment leasing .....       250       190       179       178       278     1,075
Title I home ..........      --        --         149        96      --         245
improvement loans
Franchisee loans ......        21       145        98        48      --         312
Commercial/multi-family
loans (1) .............       742       186        89      --        --       1,017
Non-prime and sub-prime
 auto loans and leases .       91       162        39      --        --         292
Small  Business Loans        --          20      --        --        --          20
                          ------     ------   ------   ------     ------    ------- 
Total securitization 
volume..                  $ 4,808   $ 3,993   $ 2,288   $ 1,190   $   699   $12,978
                          =======   =======   =======   =======   =======   =======
---------------
(1) Includes two whole-loan sales.
</TABLE>

Home Equity Loans. The home equity loan product is the flagship business for the
Company.  Having set the standard for the securitization of home equity loans at
the  inception  of the  market in 1988,  the  Company  leveraged  its  financing
capabilities and structured finance expertise by acquiring ContiMortgage in 1990
and establishing  Strategic Alliances with other clients in the home equity loan
industry.  In addition to providing its  financing,  hedging and  securitization
services to ContiMortgage, resulting in 27 securitizations for $7.6 billion from
March 1991  through  March 31, 1997,  the Company also  provided its services to
other  clients,  resulting  in 28  securitizations  for $2.3  billion  from 1991
through March 31, 1997.

In the home equity loan market, the Company's  Strategic Alliance  relationships
vary in terms of  products  and  services  offered.  Certain of these  Strategic
Alliances include the provision of warehouse financing and hedging in return for
a committed flow of securitizable  product for which it earns placement fees and
gains on sale.  Other  Strategic  Alliances  include the  provision of warehouse
financing and hedging in return for a guaranteed flow of  securitizable  product
as  well  as  minority  ownership  in the  form  of  Strategic  Alliance  Equity
Interests.

As part of its strategy of working  closely  with its  Strategic  Alliances  and
utilizing  that  relationship  as  a  basis  for  monitoring  growth  and  asset
performance, the Company acquired ULG , a former Strategic Alliance.

Commercial/Multi-Family  Loans.  In 1993,  the Company  established a commercial
real estate  conduit,  ContiMAP,  to satisfy a need in the  marketplace for the
financing of $0.5 to $25 million loans secured by commercial properties, such as

                                       16
<PAGE>

multi-family  dwellings,  self  storage  facilities,  assisted  living and other
health related facilities, retail and industrial buildings.

ContiMAP purchases commercial real estate loans suitable for securitization and
sale  into  the  capital  markets.  The  Company  manages  the  aggregation  and
underwriting of the loans through  correspondent  relationships with established
lending companies.  The Company's strategy is to grow ContiMAP by continuing to
add  additional  qualified  commercial  lenders and by continuing to enhance its
product offerings.

Title I Conventional  Home Improvement  Loans.  Home improvement loans represent
loans to homeowners, a portion of which may be guaranteed by the U.S. Government
in the  case of  Title I home  improvement  loans  for the  purpose  of  certain
pre-qualified  home  improvements.  The Company  decided to pursue this business
line, which was a natural extension of its home equity loan business, because of
its highly fragmented nature and higher cost of funds through which these assets
are typically being financed.

The Company executed securitizations,  in the form of conduits where it financed
and placed Title I and conventional  home improvement loans on behalf of conduit
participants  and  through  a  Strategic   Alliance  with  one  of  the  conduit
participants.  The  Company's  strategy  is to  facilitate  the  growth  of  its
Strategic  Alliance  client  through  securitizations,  expanding  its  presence
nationwide,  building  economies of scale and helping to create a low cost, high
volume producer in an otherwise fragmented industry.

The Company, through its newly acquired subsidiary, ULG, also originates Title I
and conventional home improvement loans through retail origination channels. ULG
currently  obtains home  improvement  loan  inquiries  through a direct mail and
telemarketing  approach,  reaching  borrowers  not  contacted  by the  Company's
Strategic Alliance clients.

Adjustable Rate Mortgages.  The Company established its Adjustable Rate Mortgage
Conduit  ("ARM  Conduit") in 1994 in order to: (i) leverage its expertise in the
closely  related  fixed-rate  home equity loan market and the  relationships  it
developed in building that business;  (ii) establish a more significant presence
in the western  United States which is primarily an ARM market;  and (iii) offer
its  Strategic  Alliance  clients  an outlet for a new  product  to offer  their
borrowers.  The Company's ARM Conduit allowed smaller originators to sell their
loan product into a single  securitizable pool and to benefit from the economies
of scale not otherwise available to them on a stand-alone basis. In fiscal 1997,
the  Company  acquired  Royal,  the largest  contributor  to the ARM conduit and
discontinued the conduit.

Equipment  Leasing.  The  equipment  leasing  industry  is a  highly  fragmented
industry  which  leases a wide array of equipment  to  predominately  commercial
users.  The  typical  leasing  company  provides  a  specialized  service  to  a
relatively  specific asset class (e.g.  office equipment or medical  equipment).
The Company has financed  various  assets for several  equipment  lease  company
clients  ranging from $300 fax machines to $3 million MRI machines.  While these
relationships  historically  have been  transaction  oriented,  the  Company  is
actively pursuing Strategic Alliance opportunities to leverage its capabilities,
product and market knowledge and establish a long-term, equity participation.

Franchisee  Loans.  Franchisee  loans represent loans to franchisees of top tier
national  restaurant  chains  and  other  franchise  chains.  In  the  Company's
securitization  of franchisee  loans,  the  underwriting  process focuses on the
franchisee  borrower's  ability  to  generate  cash  flow  from  the  particular
restaurant as opposed to more  traditional  financing,  which is based upon hard
collateral values or the credit rating of the franchisor.

In 1993,  the Company  identified  this niche  opportunity  and  developed  this
business  line in  conjunction  with a Strategic  Alliance  client.  The Company
believes that its warehouse financing, hedging, structured finance and placement

                                       17
<PAGE>

capabilities  combined  with its  unique  approach  to  underwriting  and credit
analysis, will provide it with a competitive advantage.

Non-Prime  and  Sub-Prime  Auto  Loans  and  Leases.   Non-prime  and  sub-prime
automobile lending represents loans to credit-impaired  borrowers. Like the home
equity loan market,  the Company  believes  that prudent loan  underwriting  and
pricing,  coupled with strong servicing and  collections,  mitigates the risk of
the non-prime and sub-prime credit borrower. Non-prime auto loans and leases are
originated  to  primarily  "B" and "C"  credit  grade  borrowers  as  opposed to
sub-prime  auto loans which are usually  issued on a discount  basis to "C-" and
"D" credit grade borrowers.

Since  fiscal  1995,  the  Company  has formed  five  Strategic  Alliances  with
originators of non-prime and sub-prime auto loans. Management believes that this
market benefits significantly from securitization through reduced cost of funds,
and the  discipline  which  the  regular  securitization  process  brings to the
origination, underwriting, servicing, collection and monitoring of non-prime and
sub-prime  auto loans.  Consequently,  given the  Company's  experience  in this
industry,  and  having  closely  monitored  the  development  of  its  Strategic
Alliances,  in November 1996, the Company purchased 53.5% of the common stock of
Triad, a  California-based  auto finance company  specializing in origination of
non-prime  auto finance  contracts  for used and new  vehicles.  As of March 31,
1997, Triad has relationships with approximately 1,600 dealerships in 15 states,
with California  representing  approximately 50% of loan  originations.  As with
ContiMortgage,   Triad  utilizes  centralized   origination,   underwriting  and
servicing techniques.  In January 1997, the Company purchased an additional 2.5%
of the  common  stock of Triad.  ContiFinancial  has a right and  obligation  to
purchase the remaining 44% of the common stock of Triad over the next 4.5 years.

The Company believes that significant opportunities still exist in the non-prime
and  sub-prime  auto loan and lease  market due to: (i) the higher cost of funds
through which these assets are typically  being  financed;  (ii) the  discipline
which  the   regular   securitization   process   brings  to  the   origination,
underwriting,  servicing,  collection  and  monitoring of auto loans and leases;
(iii) consolidation in the industry;  and (iv) the Company's ability to identify
strong management teams and provide its unique mix of products and services.

Timeshare  Loans.  Timeshare  loans are made to borrowers  for the purchase of a
real property interest in specific units at vacation resort properties. A number
of major  corporations have become involved in the industry in recent years, and
through their  advertising  and marketing  efforts,  are increasing the public's
awareness of the benefits of timesharing. Because timeshare financing is still a
relatively new and fragmented  industry,  the Company  believes that it provides
significant  growth  potential to the extent that:  (i) the credit  analysis and
cash flow characteristics are similar to traditional home equity loans; and that
(ii) the lower cost of funds and greater operating leverage from  securitization
can be applied successfully.

Warrants and Stock Ownership

In certain  of its  Strategic  Alliances,  the  Company  may  receive  Strategic
Alliance Equity  Interests.  All Strategic  Alliance Equity  Interests  existing
prior to the consummation of the Company's initial public offering,  (the "IPO")
were  retained  by the  Company's  parent  company,  Continental  Grain  Company
("Continental  Grain"),  and  therefore,  these assets are not  reflected in the
Company's   Consolidated  Financial  Statements  included  herein.  The  Company
currently holds  Strategic  Alliance  Equity  Interests  acquired after the IPO.
Based  on its  prior  experience,  the  Company  does  not  anticipate  that any
Strategic  Alliance  Equity  Interest that it holds or may acquire in the future
will  have  any  effect  on the  Company's  financial  position  or  results  of
operations  until the business of the Strategic  Alliance client matures,  which
typically  takes several years.  However,  in fiscal 1997, the Company  received
$2.7  million of warrant  income from the sale of stock  warrants in a Strategic
Alliance company. In addition, the Company may, from time to time, make a direct
cash equity or subordinated debt investment in a Strategic Alliance client.

                                       18
<PAGE>

Regulation

General.  The Company's  businesses  are subject to extensive  regulation in the
United States at both the Federal and state level.  In the Company's home equity
loan and  financing  businesses,  regulated  matters  include loan  origination,
credit  activities,  maximum  interest  rates and  finance  and  other  charges,
disclosure  to customers,  the terms of secured  transactions,  the  collection,
repossession and claims-handling  procedures  utilized by the Company,  multiple
qualification   and  licensing   requirements  for  doing  business  in  various
jurisdictions and other trade practices.  As part of the Company's financing and
asset securitization  business,  ContiFinancial Services is required to register
as a broker/dealer with certain Federal and state securities regulatory agencies
and is a member of the NASD.

Truth in Lending. The Truth in Lending Act ("TILA") and Regulation Z promulgated
thereunder  contain disclosure  requirements  designed to provide consumers with
uniform,  understandable information with respect to the terms and conditions of
loans and  credit  transactions  in order to give them the  ability  to  compare
credit terms. TILA also guarantees consumers a three day right to cancel certain
credit  transactions  including  loans of the type  originated  by the  Company.
Management of the Company  believes  that it is in  compliance  with TILA in all
material respects.  If the Company were found not to be in compliance with TILA,
aggrieved  borrowers  could  have  the  right to  rescind  their  mortgage  loan
transactions and to demand the return of finance charges paid to the Company.

In September 1994, the Riegle Community  Development and Regulatory  Improvement
Act of 1994 (the "Riegle Act") was enacted.  Among other things,  the Riegle Act
makes certain  amendments to TILA. The Riegle Act generally  applies to mortgage
loans  (other  than  mortgage  loans  to  finance  the  acquisition  or  initial
construction  of a  dwelling)  with (i) total  points and fees upon  origination
exceeding  eight  percent of the loan  amount (as  adjusted  for  changes in the
Consumer  Price  Index)  or (ii) an  annual  percentage  rate of more  than  ten
percentage  points  higher  than  comparably  maturing  United  States  Treasury
securities  ("Covered  Loans").  The Company estimates that approximately 10% of
the loans originated or purchased by the Company are Covered Loans.

The Riegle Act imposes additional disclosure requirements on lenders originating
Covered  Loans and  prohibits  lenders from  originating  Covered Loans that are
underwritten solely on the basis of the borrower's home equity without regard to
the  borrower's  ability to repay the loan.  The Company is  currently  applying
underwriting  criteria to all  Covered  Loans that take into  consideration  the
borrower's ability to repay.

The Riegle Act also prohibits  lenders from including  prepayment fee clauses in
Covered  Loans to  borrowers  with a  debt-to-income  ratio in  excess of 50% or
Covered Loans used to refinance  existing  loans  originated by the same lender.
The Company will continue to collect  prepayment fees on loans  originated prior
to the October 1995  effectiveness of the Riegle Act and on non-Covered Loans as
well as on Covered  Loans in  permitted  circumstances.  The Riegle Act  imposes
other restrictions on Covered Loans,  including restrictions on balloon payments
and negative amortization features, which the Company does not believe will have
a material impact on its operations.

Other Lending Laws. The Company is also required to comply with the Equal Credit
Opportunity Act of 1974, as amended  ("ECOA"),  which  prohibits  creditors from
discriminating  against  applicants  on the basis of race,  color,  sex,  age or
marital  status.  Regulation B promulgated  under ECOA restricts  creditors from
obtaining  certain types of information from loan  applicants.  It also requires
certain disclosures by the lender regarding consumer rights and requires lenders
to advise  applicants of the reasons for any credit denial.  In instances  where
the  applicant is denied  credit or the rate or charge for loans  increases as a
result of information  obtained from a consumer credit agency,  another statute,
the Fair Credit  Reporting Act of 1970, as amended,  requires  lenders to supply

                                       19
<PAGE>

the applicant with the name and address of the reporting agency.  The Company is
also subject to the Real Estate  Settlement  Procedures Act of 1974, as amended,
and is required  to file an annual  report  with the  Department  of Housing and
Urban Development pursuant to the Home Mortgage Disclosure Act.

In  addition,  the Company is subject to various  other  federal and state laws,
rules and  regulations  governing,  among other  things,  the  licensing of, and
procedures  which must be  followed  by,  mortgage  lenders and  servicers,  and
disclosures  which must be made to  consumer  borrowers.  Failure to comply with
such laws may result in civil and  criminal  liability  and may,  in some cases,
give consumer  borrowers the right to rescind their  mortgage loan  transactions
and to demand the return of finance charges paid to the Company.

In addition, certain of the loans purchased by the Company, such as Title I home
improvement  loans,  are  insured by an agency of the federal  government.  Such
loans are subject to extensive government regulation.

Environmental  Liability. In the course of its business, the Company may acquire
properties securing loans that are in default. There is a risk that hazardous or
toxic waste could be found on such properties.  In such event, the Company could
be held responsible for the cost of cleaning up or removing such waste, and such
cost could exceed the value of the underlying properties.

Broker/Dealer.   In  the  Company's  capital   management   services   business,
ContiFinancial Services acts as a placement agent and underwriter for public and
private  offerings  of  asset-backed  securities.  As a  result,  ContiFinancial
Services is  registered  as a  broker/dealer  with the  Securities  and Exchange
Commission, the State of California and the State of New York and is a member of
the NASD.  ContiFinancial  Services is subject to regulation by the  Commission,
the NASD and state securities  administrators in matters relating to the conduct
of its securities business, including record keeping and reporting requirements,
supervision and licensing of employees and obligations to customers.  Additional
legislation  and  regulations,  including  those  relating to the  activities of
affiliates of broker/dealers,  changes in rules promulgated by the Commission or
other regulatory  authorities,  and the NASD,  changes in the  interpretation or
enforcement  of existing laws and rules and changes in the special  exemption of
ContiFinancial  Services  may  adversely  affect  the  manner of  operation  and
profitability of the Company.

As a  registered  broker/dealer,  ContiFinancial  Services  is  subject  to  the
Commission's net capital rules.  These rules,  which specify minimum net capital
requirements  for  registered  broker/dealers,   are  designed  to  assure  that
broker/dealers  maintain  adequate  regulatory  capital  in  relation  to  their
liabilities  and the size of their  customer  business  and have the  effect  of
requiring that at least a substantial portion of their assets be kept in cash or
highly  liquid  investments.  Because it acts  primarily as a private  placement
agent in asset-backed  securities  offerings,  ContiFinancial  Services operates
under a less  restrictive net capital  standard.  To the extent that the Company
elects to expand its  public  underwriting  capacity,  it would be  required  to
substantially  increase the net capital of ContiFinancial  Services.  Under such
circumstances,  there can be no assurance that the Company will have the capital
necessary to increase such net capital.

Future Laws. Because each of the Company's  businesses is highly regulated,  the
laws,  rules and  regulations  applicable  to the Company are subject to regular
modification  and change.  There are currently  proposed various laws, rules and
regulations  which,  if  adopted,  could  impact  the  Company.  There can be no
assurance that these proposed laws, rules and  regulations,  or other such laws,
rules  or  regulations  will not be  adopted  in the  future  which  could  make
compliance much more difficult or expensive,  restrict the Company's  ability to
originate,  broker, purchase or sell loans, further limit or restrict the amount
of commissions, interest and other charges earned on loans originated, brokered,
purchased or sold by the Company,  or otherwise adversely affect the business or
prospects of the Company.

                                       20
<PAGE>

Competition

The home equity loan market is highly competitive. The Company faces competition
from  other  consumer  finance  lenders,  mortgage  lenders,  mortgage  brokers,
commercial  banks,  mortgage banks,  large  securities  firms,  smaller boutique
securities firms, credit unions,  thrift  institutions,  credit card issuers and
finance companies.  Many of these competitors are substantially  larger and have
more capital and other  resources  than the Company.  Competition  can take many
forms,  including  convenience in obtaining a loan, customer service,  marketing
and  distribution  channels,  terms  provided  and  interest  rates  charged  to
borrowers.  Heightened  competition could contribute to higher  prepayments.  In
addition, the current level of gains realized by the Company and its competitors
on the sale of their home equity loans could attract additional competitors into
this market with the possible  effect of lowering  gains that may be realized on
the Company's future loan sales. The principal  competitive  factors influencing
the  Company's  business  are its  professional  staff,  its  reputation  in the
marketplace, its existing client relationships, the ability to commit capital to
client transactions and its mix of market capabilities.

Currently,  some traditional financial  institutions are aggressively  promoting
and pricing home equity loans.  The Company does not believe that this trend has
had a material impact on its competitive  position because the Company's success
is tied to its emphasis on timely  customer  service,  on  attracting  borrowers
whose needs are not met by traditional financial  institutions and on the equity
value of the property securing various types of loans.  Nevertheless,  there can
be no  assurance  that the  Company  will not face  increased  competition  from
traditional  financial  institutions  attempting  to enter  into  the  Company's
market.

In fiscal 1997,  78% of the total home equity loans  purchased and originated by
ContiMortgage  and ContiWest were wholesale loans.  Wholesale loans are expected
to remain a  significant  part of the  Company's  home  equity  loan  production
program.  As  a  purchaser  of  wholesale  loans,  the  Company  is  exposed  to
fluctuations   in  the  volume  and  cost  of  wholesale  loans  resulting  from
competition  from other  purchasers of such loans,  market  conditions and other
factors.

In  its  financing  and  asset  securitization   business,   the  Company  faces
significant competition from large securities firms, smaller boutique securities
firms,  commercial banks,  mortgage banks, credit unions,  thrift  institutions,
credit card issuers and finance companies. Many of the Company's competitors are
substantially larger and have more capital and other resources than the Company.

Employees  

At March 31,  1997,  the  Company  had 1,562  employees.  None of the  Company's
employees  are  represented  by a labor  union.  The Company  believes  that its
relations with its employees are good.




                                       21
<PAGE>




Item 2. Properties.

The Company's  principal  executive offices are located at 277 Park Avenue,  New
York, New York, 10172 and are occupied under a sublease with Continental  Grain.
The lease on this premises extends through February 28, 2000.

ContiMortgage's  current  headquarters  in Horsham,  Pennsylvania,  and regional
offices located in Phoenix, Arizona; Orange and Pleasanton, California; Atlanta,
Georgia; Oak Brook, Illinois and Horsham, Pennsylvania are operated under leases
with third parties that expire through April 2001.

ContiMortgage  is currently  redeveloping a  manufacturing  facility in Hatboro,
Pennsylvania  as its new  headquarters.  The facility will operate under a lease
with a third party that  extends  twelve years from the  facility's  anticipated
completion at the end of calendar 1997.

ContiFinancial  Services and  ContiTrade  occupy  office space in Santa  Monica,
California  under a lease with a third  party that  expires in  September  1999.
ContiWest occupies office space in Las Vegas,  Nevada under a lease with a third
party that expires in January  2000.  ULG,  Resource  One,  Royal and Triad have
various  offices  throughout  the United States and operate under various leases
with third parties that expire through July 2003.

The Company  believes that its present  facilities  are adequate for its current
needs.

Item 3. Legal Proceedings.
 
In May 1997,  a class  action suit was filed in the Court of Common Pleas of the
State of South Carolina naming  ContiMortgage  as a defendant.  On June 6, 1997,
the case was  removed to the United  States  District  Court in the  District of
South Carolina Florence  Division.  The complaint alleges  violations of a state
notification  law by the  originator  of certain home equity loans  purchased by
ContiMortgage.  Such law requires the originator to notify, ascertain and comply
with the preferences of borrowers as to the legal counsel  employed to represent
such borrowers and as to the insurance  agent to furnish the required  insurance
in connection  with the  mortgage.  The Company is currently  investigating  the
allegations.  The suit has not yet been certified as a class action. The Company
does not  believe  the  lawsuit  will  have a  material  adverse  effect  on the
consolidated financial position or results of operations of the Company.

In addition,  the Company has been named as a defendant in various legal actions
arising from the conduct of its normal business activities.  Although the amount
of any  liability  that could  arise with  respect  to these  actions  cannot be
accurately predicted, in the opinion of the Company, any such liability will not
have a material adverse effect on the consolidated financial position or results
of operations of the Company.

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

None.
 

                                       22
<PAGE>







                                 Part II.

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
 
On February 9, 1996,  the Company's  common stock began trading under the symbol
"CFN" on the New York Stock Exchange.  The following  table sets forth,  for the
period indicated, the high and low closing sale price per share of the Company's
common stock:


                                 Sales Price
                                 -----------
                                     High            Low  
                                     ----            ---  
Fiscal Year Ended March 31, 1996:
           Fourth Quarter           $31.25          $25.50

Fiscal Year Ended March 31, 1997:
      
               First Quarter       $33.00          $28.50
               Second Quarter      $30.25          $23.25
               Third Quarter       $39.25          $28.875
               Fourth Quarter      $39.375         $31.00

As of June 9, 1997, the Company had 83 stockholders of record, and approximately
4,550 beneficial owners of its common stock.

During  fiscal  1995 and during  fiscal  1996,  prior to the close of its IPO on
February 14, 1996, the Company paid cash  dividends to Continental  Grain of $30
million and $0.3 million,  respectively. The Company has no current intention to
pay cash dividends on its Common Stock. As a holding company, the ability of the
Company to pay  dividends  is  dependent  upon the receipt of dividends or other
payments from its  subsidiaries.  Any future  determination as to the payment of
dividends will be at the discretion of the Company's Board of Directors and will
depend upon the Company's  operating  results,  financial  condition and capital
requirements,  contractual  restrictions,  general business  conditions and such
other factors as the Company's Board of Directors  deems relevant.  Furthermore,
covenants in the Company's  and  Continental  Grain  Company's  loan  agreements
restrict the payment of dividends by the Company. There can be no assurance that
the Company will have earnings  sufficient to pay a dividend on its Common Stock
or that,  even if there are  sufficient  earnings,  dividends  will be permitted
under applicable law.



                                       23
<PAGE>



Item 6.     Selected Financial Data.

SELECTED FINANCIAL DATA
(dollars in thousands, except share data)
<TABLE>
<CAPTION>

                                                                        Years Ended March 31,
                                                                        ---------------------
                                                                          
                                               1997            1996            1995           1994          1993
                                               ----            ----            ----           ----          ----

<S>                                     <C>             <C>              <C>            <C>            <C>    
Income Statement Data:
----------------------
  Gain on sale of receivables ........   $    210,861    $    146,529   $     67,512   $     49,671   $     18,587
  Interest ...........................        161,402          91,737         42,929         20,707         11,385
  Net servicing income ...............         46,340          29,298          9,304          3,989          1,842

  Other income .......................          9,227           4,252          2,252            162           (147)
                                                -----           -----          -----            ---           ---- 
      Total gross income .............        427,830         271,816        121,997         74,529         31,667
                                              -------         -------        -------         ------         ------
Expenses
  Compensation and benefits ..........         82,170          52,203         23,812         14,674          6,870

  Interest ...........................        120,636          74,770         29,635         12,124          6,529

  Provision for loan losses ..........          3,043             285          1,935          4,499          2,018

  General and administrative .........         44,940          18,022          9,627          7,946          4,101
                                               ------          ------          -----          -----          -----
      Total expenses .................        250,789         145,280         65,009         39,243         19,518
                                              -------         -------         ------         ------         ------
Income  before income taxes  and
minority interest ....................        177,041         126,536         56,988         35,286         12,149


Income taxes .........................         71,341          49,096         22,168         13,726          4,640

Minority interest of subsidiary ......           (304)          3,310          8,728          5,076          1,600
                                                 ----           -----          -----          -----          -----
Net income ...........................   $    106,004    $     74,130   $     26,092   $     16,484   $      5,909
                                         ============    ============   ============   ============   ============
Primary and fully diluted earnings per
common share (pro forma at
March 31, 1996)(1) ...................   $       2.40    $       2.00
                                         ============    ============

Fully diluted weighted average number
  of shares outstanding (pro forma at      
  March 31, 1996) (1) ................     44,152,343      37,050,165
                                           ==========      ==========
Primary weighted average number of
shares outstanding (pro forma at
March 31, 1996) (1) ..................     44,090,095      36,995,631
                                           ==========      ==========


During fiscal 1995 and 1996, the Company paid cash
dividends to Continental Grain of $30,000 and $305,
respectively.
</TABLE>
<TABLE>
<CAPTION>

                                                                    As of March 31,
<S>                                          <C>           <C>          <C>           <C>         <C>  
                                             1997          1996         1995          1994        1993 
Balance Sheet Data:
-------------------
Interest-only and residual certificates   $  445,005   $  293,218   $  143,031   $   94,491   $   51,270
Total assets ..........................    1,545,798      892,540      327,742      217,856       76,526
Payables to affiliates ................       36,367      337,734      114,907       49,846       12,463
Long term debt ........................      498,817         --           --           --           --
Total liabilities .....................    1,136,726      597,721      243,579      138,513       18,743
Minority interest of subsidiary .......        1,288         --         16,248        7,520        2,444
Stockholders' equity ..................      407,784      294,819       67,915       71,823       55,339
----------
(1)  Because of the Company's reorganization that occurred in December
1995 and changes in capital structure, per share data for the years
ended March 31, 1995, 1994 and 1993 are not meaningful.

</TABLE>



                                       24
<PAGE>





                  SELECTED FINANCIAL DATA--(continued)
                  (dollars in thousands, except share data)

                                                                        
                                                                            
<TABLE>
<CAPTION>                                                             
<S>                                                <C>         <C>            <C>          <C>          <C> 
                                                                      Years Ended March 31,
                                                                      ---------------------
                                                   1997        1996           1995         1994         1993
                                                   ----        ----           ----         ----         ----
Other Data:
-----------
   ContiMortgage loan originations ..........   $3,906,798   $2,311,471   $1,328,158   $  786,754   $  282,072
   Number of loans serviced (at year end) ...      104,568       65,121       38,740       20,146       11,093
   Face value of loans serviced (at year end)   $6,423,376   $3,863,575   $2,192,190   $1,105,393   $  484,857
   Securitization and sales volume:
      ContiMortgage - Securitization ........   $3,454,259   $2,030,000   $1,258,919   $  733,182     $194,668
                    - Whole loan ............      188,295          270       33,772       39,142       77,876
      Commercial real estate
                    - Securitization               742,529      149,980         --           --         --
                    - Whole loan                      --         36,000       89,000         --         --
      Triad .................................       43,530         --           --           --         --
      Strategic alliances ...................      568,401    1,776,700      906,000      418,000      426,000
                                                   -------    ---------      -------      -------      -------
 Total securitization and sales volume ......   $4,996,744   $3,992,950   $2,287,691   $1,190,324   $  698,544
                                                ==========   ==========   ==========   ==========   ==========

</TABLE>

 
<TABLE>
<CAPTION>
 
                                                     Years End March 31,
                                                     -------------------
<S>                                        <C>    <C>     <C>     <C>     <C> 
  ContiMortgage                            1997   1996    1995    1994    1993
                                           ----   ----    ----    ----    ----
Delinquency and Loan Loss Data (1): 
----------------------------------- 
   Delinquency rate (at end of year)      3.24%   2.51%   1.64%   0.97%   1.20%
   Default rate (at end of year) ...      4.70%   3.54%   1.16%   0.81%   1.70%
   Net losses as a percentage of
     average amount outstanding ....      0.26%   0.13%   0.08%   0.15%   0.26%

</TABLE>


  Triad
  Delinquency and Loan Loss Data  :                           Year Ended
  ------------------------------  -                           ----------
                                                            March 31, 1997
                                                            --------------

Portfolio ...........................                       $   71,648
Delinquency rate (at end of year) ...                            1.17%
Net losses as a percentage of average
 amount outstanding (November 1, 1996
 through March 31, 1997) ............                            0.60%
         

(1)  Includes  home  equity  loans  originated  by Royal  MortgageBanc,
     Resource   One  and  United   Lending   Group,   and   serviced   by
     ContiMortgage.


                                       25
<PAGE>



Item 7. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations.

This discussion should be read in conjunction with "Selected Financial Data" and
the Company's Consolidated  Financial Statements and the Notes thereto.  Certain
statements  under this caption  constitute  "forward-looking  statements"  under
federal securities laws. See "Forward-looking Statements."

General

The  Company is engaged in the  consumer  and  commercial  finance  business  by
originating  and servicing  home equity loans and providing  financing and asset
securitization  expertise to originators  of a broad range of loans,  leases and
receivables. Through ContiMortgage Corporation ("ContiMortgage"), the Company is
a leading originator,  purchaser,  seller and servicer of home equity loans made
to  borrowers  whose  borrowing  needs may not be met by  traditional  financial
institutions  due to  credit  exceptions  or  other  factors.  The  Company  has
strategic  alliances  with various  originators of a broad range of consumer and
commercial loans and other assets  ("Strategic  Alliances").  Through ContiTrade
Services  L.L.C.   ("ContiTrade")  the  Company  provides  financing  and  asset
securitization   structuring  expertise,  and  through  ContiFinancial  Services
Corporation ("ContiFinancial  Services"), an NASD registered broker/dealer,  the
Company provides placement services.  In September 1996, the Company established
ContiWest  Corporation,  a Nevada  corporation,  to administer  and underwrite a
portion of the Company's origination portfolio.

The  Company's  Strategic  Alliance  clients are  originators  of  consumer  and
commercial  loans,  leases and receivables.  The Company provides  financing and
asset  securitization  execution and expertise to the Strategic  Alliance client
while the  client  provides a  consistent  flow of  securitizable  assets to the
Company.  In  certain  Strategic  Alliances,   the  Company  receives  interests
("Strategic  Alliance Equity  Interests") in the Strategic  Alliance client. The
realization of value on such Strategic  Alliance Equity  Interests is subject to
many factors,  including the future  growth and  profitability  of the Strategic
Alliance  clients and the completion of initial public offerings or sale of such
Strategic Alliance clients.

In the third  quarter of fiscal  1997,  the Company  acquired  three home equity
companies  and one auto  finance  company  to  implement  growth  strategies  of
expanding into the western United States,  diversifying into retail  origination
and  owning  other  asset  origination  platforms  with  which the  Company  has
significant   securitization   experience.   The  four   new  loan   origination
subsidiaries,  California  Lending Group,  Inc. d/b/a United Lending Group, Inc.
("ULG"),  Royal Mortgage  Partners,  L.P., d/b/a Royal  MortgageBanc  ("Royal"),
Triad  Financial  Corporation  ("Triad"),  and Resource  One  Consumer  Discount
Company,  Inc. ("Resource One"),  collectively  called the  "Acquisitions",  are
discussed below:

     On November 8, 1996, the Company purchased 100% of the outstanding stock of
     ULG,  a  west  coast-based  home  equity  lender   specializing  in  retail
     originations  via  direct  mail and  telemarketing  throughout  the  United
     States.
      
     On November 15, 1996, the Company,  through its  subsidiary  ContiMortgage,
     purchased 100% of Royal. Royal is a California-headquartered  wholesale and
     retail originator of fixed and adjustable rate home equity loans.

     On November 21, 1996, the Company acquired a 53.5% equity interest in Triad
     and an additional 2.5% in January 1997, a  California-based  non-prime auto
     finance  company.  The Company has the right and  obligation to acquire the
     remaining common stock of Triad from existing shareholders.
      
     On December 16, 1996, the Company,  through its  subsidiary  ContiMortgage,
     purchased  100% of the  outstanding  stock of Resource  One.  Resource One,
     headquartered in Langhorne, Pennsylvania, is a retail branch home equity

                                       26
<PAGE>

     loan  originator  that  utilizes  direct mail,  television,  telemarketing,
     referrals  and other  sources to  generate  loan  inquiries  directly  from
     borrowers.

In each  case,  the  companies  acquired  were  former  Strategic  Alliances  or
ContiMortgate loan origination sources. 

The  Acquisitions  have been  accounted  for as  purchases,  and the  results of
operations have been included with the Company's results of operations since the
effective  acquisition  dates. The cumulative  purchase price was  approximately
$38.0 million,  which includes deferred payments of approximately  $5.0 million,
resulting in approximately  $35.0 million of cost in excess of equity which will
be  amortized  on a  straight-line  basis over a 25 year  useful  life.  Certain
acquisition's  terms contain  payments which are contingent upon future earnings
or employment of key management.  Such  contingent  payments will be recorded as
purchase price or compensation as is appropriate for the nature of the payments.
The Company has a right and  obligation  to purchase  the  remaining  44% of the
common stock of Triad over the next 4.5 years.  The purchase price will be based
upon the future  earnings of Triad and will be recorded when  determinable.  The
excess of the purchase price over the fair value of the net assets acquired will
be recorded as an increase in cost in excess of equity. The Acquisitions are not
material to the financial position or results of operations of the Company.

Certain Accounting Considerations

As a fundamental part of its business and financing strategy,  the Company sells
substantially  all of its loans or other assets  through  securitization  in the
form of REMICs, owner trusts or grantor trusts. In a securitization, the Company
sells loans or other assets that it has originated or purchased to a trust for a
cash purchase price and an interest in the loans or other assets securitized (in
the form of the "excess  spread").  The cash purchase price is raised through an
offering   of   pass-through   certificates   by  the   trust.   Following   the
securitization,  the  purchasers of the  pass-through  certificates  receive the
principal  collected  and  the  investor   pass-through  interest  rate  on  the
certificate  balance,  while the Company receives the excess spread . The excess
spread represents, over the life of the loans or other assets, the excess of the
weighted  average coupon on each pool of loans or other assets sold over the sum
of the pass-through interest rate plus a normal servicing fee, a trustee fee, an
insurance  fee and an estimate of annual  future  credit  losses  related to the
loans or other assets  securitized (the "Excess  Spread").  These cash flows are
projected over the life of the loans or other assets using prepayment,  default,
and interest rate  assumptions  that market  participants  would use for similar
financial  instruments subject to prepayment,  credit and interest rate risk and
are discounted  using an interest rate that a purchaser  unrelated to the seller
of such a financial instrument would demand. The majority of the Company's gross
income is recognized as gain on sale of loans or other assets,  which represents
the value of the Excess Spread less  origination  and  underwriting  costs.  The
present value of the Excess Spread is the Excess Spread  receivable (the "Excess
Spread Receivable").  The Excess Spread Receivable is either a contractual right
or a certificated security generally in the form of an interest-only or residual
certificate. The majority of the Company's Excess Spread Receivable at March 31,
1997 and 1996 is  interest-only  and residual  certificates.  Consequently,  the
Company's  consolidated  balance sheets  designate  Excess Spread  Receivable as
"interest-only and residual certificates."

The Company  recognizes  the gain on sale of loans or other assets in the fiscal
year in which such loans or other assets are sold,  although cash  (representing
the Excess Spread and  servicing  fees) is received by the Company over the life
of the loans or other assets. Concurrent with recognizing such gain on sale, the
Company  records the Excess Spread  Receivable  as an asset on its  consolidated
balance sheets.  The Excess Spread  Receivable is reduced as cash  distributions
are received from the securitization.

                                       27
<PAGE>

Due to the fact  that the  gain  recognized  in the year of sale is equal to the
present value of the  estimated  future cash flows from the Excess  Spread,  the
amount of cash  actually  received  over the lives of the loans or other  assets
normally  exceeds the gain previously  recognized at the time the loans or other
assets were sold and therefore  interest  income is recognized  over the life of
the loans or other assets  securitized.  In periods  subsequent to the sale, the
Company may recognize an increase in fair value of Excess  Spread  Receivable as
gain on sale of  receivables  to the extent  that  estimates  of the loan pools'
future  remaining  lives exceed those  originally  projected.  This  estimate of
extended  life  is  performed  by  reviewing  past  prepayment   experience  and
estimating  future prepayment  experience by considering  numerous factors which
include current market  assumptions,  the interest rate environment and economic
factors. If actual prepayments with respect to sold loans occur faster or credit
experience  is worse  than  projected  at the time such  loans  were  sold,  the
carrying  value of the Excess  Spread  Receivable  may have to be  written  down
through a charge to earnings in the period of adjustment.

Additionally,  upon sale or securitization of servicing retained mortgages,  the
Company capitalizes the cost associated with the right to service mortgage loans
based on its relative fair value. The Company determines fair value based on the
present value of estimated  net future cash flows  related to servicing  income.
The cost  allocated to the  servicing  rights is amortized in  proportion to and
over the period of  estimated  net future  servicing  fee  income.  The  Company
periodically  reviews  capitalized   servicing  fees  receivable  for  valuation
impairment.   This  review  is  performed  on  a  disaggregated  basis  for  the
predominant  risk  characteristics  of the underlying loans which are loan type,
loan-to-value  ratio and credit  quality.  The Company  generally makes loans to
credit  impaired  borrowers  whose borrowing needs may not be met by traditional
financial  institutions  due to credit  exceptions.  The  Company has found that
credit  impaired  borrowers  are payment  sensitive  rather than  interest  rate
sensitive.  As such the Company does not consider  interest  rates a predominant
risk  characteristic  for  purposes  of  valuation  impairment.   Impairment  is
recognized in a valuation allowance for each disaggregated stratum in the period
of impairment.

On January 1, 1997,  the Company  adopted  the  Financial  Accounting  Standards
Board's ("FASB") Statement of Financial  Accounting  Standards ("SFAS") No. 125,
"Accounting for Transfers and Servicing of Financial  Assets and  Extinguishment
of  Liabilities"  ("SFAS 125") which  addresses the  accounting for transfers of
financial assets in which the transferor has some continuing  involvement either
with the assets  transferred  or with the  transferee.  A transfer of  financial
assets in which the transferor surrenders control over those assets is accounted
for as a sale to the extent that consideration other than beneficial interest in
the  transferred  assets  is  received  in  exchange.  SFAS  125  requires  that
liabilities  and  derivatives  incurred or obtained by  transferors as part of a
transfer  of  financial   assets  be  initially   measured  at  fair  value,  if
practicable.   In  addition,   SFAS  125  requires  that  servicing  assets  and
liabilities be subsequently  measured by the  amortization  over their estimated
life and  assessment  of asset  impairment  be based on such assets' fair value.
SFAS 125 is effective  for  transfers  and  servicing  of  financial  assets and
extinguishments  of liabilities  occurring after December 31, 1996, and is to be
applied  prospectively.  The  adoption of this  standard did not have a material
impact on the Company's  results of operations.  However,  certain of the assets
that the Company had sold under the Purchase and Sale  Facilities  subsequent to
January  1, 1997 did not  qualify  for sale  treatment  under  SFAS 125 and as a
result  $251.5  million of such assets were included as trade  receivables  sold
under  agreements to repurchase on the Company's  consolidated  balance  sheets.
SFAS 125 does not in any way effect the ability of the Company to finance  these
assets.  The Company  expects to replace the Purchase and Sale  Facilities  with
repurchase  agreements  for those  asset  types  which do not  qualify  for sale
treatment.
 
                                       28
<PAGE>



Financial Condition

March 31, 1997

Securities  purchased  under  agreements to resell  increased $44.1 million from
$179.9  million  at March 31,  1996 to $224.0  million  at March 31,  1997.  The
Company hedges,  in part, its interest rate exposure on its receivables held for
sale and loans and other assets sold, with recourse, under its Purchase and Sale
Facilities,  through the use of United States  Treasury  securities  and futures
contracts.  Securities  purchased  under  agreements  to resell are part of this
hedging  strategy.  This  increase  was due  primarily  to the  increase  in the
Company's securitization volume in fiscal 1997 as compared to fiscal 1996.

Interest-only  and residual  certificates  increased  $151.8 million from $293.2
million at March 31, 1996 to $445.0 million at March 31, 1997.  Excluding  $15.2
million of interest-only and residual certificates relating to the Acquisitions,
the March 31, 1997 balance increased by $136.6 million from March 31, 1996. This
increase  represents  $251.1 million recorded during fiscal 1997 relating to new
securitizations  and recorded  interest income of $33.7 million partially offset
by $96.5 million of sales and $51.7 million of collections.

Capitalized servicing fees receivable increased $17.7 million from $11.7 million
at March 31, 1996 to $29.4 million at March 31, 1997. This balance  reflects the
capitalization  of  $24.0  million  of  servicing  rights  and $1.4  million  of
prepayment premiums paid partially offset by amortization of $7.7 million.

Trade receivables, net increased $356.9 million from $352.3 million at March 31,
1996 to $709.2  million  at March 31,  1997.  Excluding  $51.3  million of trade
receivables,  net  relating  to the  Acquisitions,  the March 31,  1997  balance
increased by $305.6 million from March 31, 1996. This increase was primarily due
to an increase in receivables  held for sale from $303.7 million as of March 31,
1996 to $574.3  million at March 31, 1997,  and partially due to the increase in
other  receivables from $50.5 million at March 31,1996 to $85.7 million at March
31, 1997.  The increase in  receivables  held for sale was  primarily due to the
adoption of SFAS 125 on January 1, 1997. As of March 31, 1997, $251.5 million of
receivables   held  for  sale  under  the  Purchase  and  Sale  Facilities  were
categorized  as financing  under SFAS 125 and  classified as "Trade  receivables
sold  under   agreements   to   repurchase".   In   addition  to  the  SFAS  125
classification, there was an additional increase of $19.1 million of receivables
held for sale due to an overall  increase in  securitization  volume from fiscal
1996 to fiscal 1997.

The increase in other  receivables  of $35.2  million from fiscal 1996 to fiscal
1997 was primarily due to an increase in servicing advances of $16.8 million and
an  increase  in  short-term  receivables  of $17.2  million.  The  increase  in
servicing  advances was due to advances  made by  ContiMortgage  on loans in the
servicing system. ContiMortgage, as servicer, is contractually liable to pay the
REMIC for certain  delinquencies and then collects the past due amounts from the
borrower.   This  increase  is  because  of  an  overall   dollar   increase  in
delinquencies  from  fiscal 1996 to fiscal  1997.  The  increase  in  short-term
receivables  is due to timing  differences in receiving loan payments from third
party intermediaries.

Premises and  equipment,  net increased  $3.8 million from $3.9 million at March
31, 1996 to $7.7 million at March 31, 1997.  Excluding  $3.4 million of premises
and equipment relating to the Acquisitions, the March 31, 1997 balance decreased
by $0.4 million from March 31, 1996.  This decrease was primarily as a result of
office equipment acquisitions which were more than offset by the normal periodic
depreciation of owned equipment.

Cost in excess of equity increased $33.6 million from $14.6 million at March 31,
1996 to $48.2  million at March 31, 1997.  The increase was primarily due to the
costs in excess of equity recorded upon the purchase of the Acquisitions made by
the Company during the third quarter of fiscal 1997.

                                       29
<PAGE>

Other  assets  increased  $26.8  million  from $3.9 million at March 31, 1996 to
$30.7  million at March 31,  1997.  Excluding  the effects of the  Acquisitions,
March 31, 1997 other  assets  increased  by $24.4  million  from March 31, 1996.
Other assets represents  prepaid expenses,  margin and other deposits,  deferred
bond issuance costs and other investments.  This increase is primarily due to an
increase of  approximately  $12.0 million of deferred  issuance  costs on the 8
3/8% and 7 1/2% Senior Notes  (defined  below),  $3.7  million of prepaid  shelf
registration  and  servicing  fees and an  increase  of $4.3  million  in escrow
deposits.

Accounts payable and accrued expenses increased $14.3 million from $73.5 million
at March 31, 1996 to $87.8 million at March 31, 1997.  Excluding $6.6 million of
accounts payable and accrued expenses  relating to the  Acquisitions,  the March
31, 1997 balance  increased  by $7.7  million  from March 31, 1996.  The balance
increased  primarily  due to an  increase  in  accrued  taxes  payable  of $14.6
million,   incentive  accruals  of  approximately  $5.5  million,  accruals  for
securitization  obligations of $4.1 million,  accrued  interest  payable of $3.1
million,  accrued  pension and health care costs of  approximately  $1.5 million
offset by a decrease in accrued amounts payable under the Company's Purchase and
Sale Facilities of approximately  $20.8 million.  The increases in accrued taxes
payable,  and  accruals  for  securitization  obligations  were due to increased
securitization volume,  producing higher net income in fiscal 1997. The increase
in  incentive  accruals in fiscal 1997 as compared to fiscal 1996 was due to the
deferral of payments.  The increase in accrued pension and healthcare  costs was
due to an increase in the number of employees  (excluding the  Acquisitions)  to
703 in fiscal 1997 as compared to 455 employees in fiscal 1996.  The decrease in
accrued amounts payable under the Company's Purchase and Sale Facilities was due
to a timing difference in the amounts payable under these obligations.

Securities  sold but not yet  purchased  increased  $44.4  million  from  $180.7
million at March 31,  1996 to $225.1  million  at March 31,  1997.  The  Company
hedges, in part, its interest rate exposure on its receivables held for sale and
loans and other assets sold with recourse under its Purchase and Sale Facilities
through the use of United  States  Treasury  securities  and futures  contracts.
Securities  sold but not yet purchased are part of this hedging  strategy.  This
increase  was due  primarily  to the  increase in the  Company's  securitization
volume in fiscal 1997 from fiscal 1996.

Payables to affiliates decreased $301.3 million from $337.7 million at March 31,
1996 to $36.4 million at March 31, 1997. In connection with the Company's IPO on
February 14, 1996,  Continental  Grain Company  ("Continental  Grain")  provided
financing with three notes totaling $324.0 million.  These notes were refinanced
principally  with the net proceeds of the Senior Notes,  as defined  below.  The
remaining balance of Payables to affiliates at March 31, 1997 represents amounts
due under a services  agreement  and a tax sharing  agreement  with  Continental
Grain.

Short-term borrowed funds represents  borrowings from a $200.0 million unsecured
revolving  credit facility the Company entered into on January 8, 1997. At March
31, 1997, $25.0 million of drawings under this line were outstanding.

On August 14,  1996,  the  Company  issued the $300.0  million 8 3/8%  unsecured
senior  notes due 2003 (the "8 3/8% Senior  Notes") and on March 12,  1997,  the
Company issued the $200.0 million unsecured 7 1/2% senior notes due 2002 (the "7
1/2% Senior  Notes")  (collectively  the "Senior  Notes"),  resulting  in $498.5
million of the balance sheet increase in Long-term debt from March 31, 1996. The
Senior Notes were issued at a discount which is being amortized over the life of
the Senior  Notes.  The  remaining  $0.3  million of long-term  debt  represents
amounts payable under a long term capitalized lease.

Other liabilities  increased $6.3 million from $5.8 million at March 31, 1996 to
$12.1  million at March 31,  1997.  Excluding  the effects of the  Acquisitions,
March 31, 1997 other liabilities  increased by $5.9 million from March 31, 1996.
The increase is primarily due to the accrual of contingent  payments relating to
the Acquisitions.

                                       30
<PAGE>

Stockholders'  equity  increased $113.0 million from $294.8 million at March 31,
1996 to $407.8  million at March 31,  1997 due to net income of $106.0  million,
the  amortization  of deferred  compensation of $6.7 million and the exercise of
stock options of $0.3 million.  Excluding the effect of the Acquisitions,  March
31, 1997, stockholders' equity increased by $109.4 million from March 31, 1996.

Results of Operations

Year Ended March 31,  1997  Compared to Year Ended March 31, 1996 and Year Ended
March 31, 1995

The  Company's  total gross  income  increased  $156.0  million or 57% to $427.8
million in fiscal 1997 as compared  to $271.8  million of total gross  income in
fiscal  1996 which in turn  increased  $149.8  million or 123% from total  gross
income  of  $122.0  million  for  fiscal  1995.  Excluding  the  effects  of the
Acquisitions,  fiscal 1997 gross income  increased by $123.9 million from fiscal
1996.  The  Company's  total  expenses as a  percentage  of total  gross  income
increased  to 59% in fiscal 1997 from 53% in fiscal 1996 and fiscal  1995.  As a
result,  net income for fiscal 1997  increased  $79.9  million or 306% to $106.0
million  compared to net income of $26.1  million in fiscal 1995.  Excluding the
Acquisitions  during the third quarter of fiscal 1997,  net income  increased by
$76.3 million from fiscal 1995.

On a percentage  basis,  the following  table sets forth the  composition of the
Company's  results  as a  percentage  of  total  gross  income  for the  periods
indicated:
<TABLE>
<CAPTION>

                                                          Years Ended March 31,           
                                                          ---------------------           
<S>                                                    <C>      <C>         <C>   
Gross income                                           1997     1996        1995  
                                                       ----     ----        ----  
                                                                                        
   Gain on sale of receivables .................       49.28%    53.91%    55.34%
   Interest ....................................       37.73%    33.75%    35.19%
   Net servicing income ........................       10.83%    10.78%     7.63%
   Other income ................................        2.16%     1.56%     1.84%
                                                        ----      ----      ---- 
      Total gross income .......................      100.00%   100.00%   100.00%
                                                      ------    ------    ------ 

Expenses
   Compensation and benefits ...................       19.21%    19.21%    19.52%
   Interest ....................................       28.20%    27.51%    24.29%
   Provision for loan losses ...................        0.71%     0.10%     1.59%
   General and administrative ..................       10.50%     6.63%     7.89%
                                                       -----      ----      ---- 
     Total expenses ............................       58.62%    53.45%    53.29%
                                                       -----     -----     ----- 

Income before income taxes and minority interest       41.38%    46.55%    46.71%
Income taxes ...................................       16.67%    18.06%    18.17%
Minority interest ..............................       -0.07%     1.22%     7.15%
                                                        ----      ----      ---- 
      Net income ...............................       24.78%    27.27%    21.39%
                                                       =====     =====     ===== 

</TABLE>



                                       31
<PAGE>




Income.  The increase in total gross income was due to a greater volume of loans
originated as a result of the  expansion of the  Company's  wholesale and broker
origination  sources.  The following table sets forth information  regarding the
components of the Company's  total gross income in each of the last three fiscal
years ending on March 31:
<TABLE>
<CAPTION>
 
                                  Years Ended March 31,                 
                                  ---------------------                                              
                               1997        1996       1995  
                               ----        ----       ----   
                                      (in thousands)
<S>                           <C>        <C>        <C>     
Gain on sale of receivables   $210,861   $146,529   $ 67,512
Interest ..................    161,402     91,737     42,929
Net servicing income ......     46,340     29,298      9,304
Other income ..............      9,227      4,252      2,252
                                 -----      -----      -----
Total gross income ........   $427,830   $271,816   $121,997
                              ========   ========   ========
</TABLE>

 
 
Gain on sale of  receivables  was the primary  component of total gross  income,
comprising 49%, 54% and 55% of total gross income in fiscal 1997, 1996 and 1995,
respectively.  Gain on sale of  receivables  increased  $64.3  million or 44% in
fiscal 1997 as compared to fiscal 1996 which in turn  increased by $79.0 million
or 117% from fiscal 1995. Excluding $26.5 million of gain on sale of receivables
relating to the Acquisitions, the fiscal 1997 balance increased by $37.8 million
or 26% from fiscal 1996.  Gain on sale of  receivables  as a percentage of total
gross income was lower in fiscal 1997 due to an increased outstanding balance of
interest earning assets resulting in increased interest income.

Gain on sale of receivables represents income primarily from the structuring and
sale of pools of home equity loans  originated  by  ContiMortgage  and Strategic
Alliance clients of the Company in REMICs,  OWNER TRUSTS AND GRANTOR TRUSTS.  In
addition, gains on sale of receivables are earned upon whole loan sales and upon
securitization of commercial and multi-family  loans,  self-storage  facilities,
Title I home  improvement  loans,  franchisee  loans,  auto loans and  equipment
leases which are sold into REMICs and whole loan and other trust structures.

The  increase in income  earned from gain on sale of  receivables  was due to an
increased volume of loans,  leases and other assets  structured and an increased
gain on sale percentage.  Excluding  contributions  from the  Acquisitions,  the
Company  structured  and sold $4.9  billion  of  mortgages,  loans and leases in
fiscal 1997,  an increase of $0.9 billion  from fiscal 1996,  which  contributed
$32.7 million of the increase in gain on sale of receivables, and structured and
sold $4.0 billion of mortgages,  loans and leases in fiscal 1996, an increase of
$1.7 million from fiscal 1995, which  contributed  $62.6 million of the increase
in gain on sale of receivables.

The gain on sale  percentage  represents the  differential  between the interest
rate earned on  underlying  securitized  loans,  leases or other  assets and the
pass-through rate paid to the securitization investors during the estimated life
of the  loans,  leases  or  other  assets.  The  increase  in the  gain  on sale
percentage  was primarily due to the type of assets  securitized  and changes in
the yield curve.  The larger gain on sale  percentage in fiscal 1997 as compared
to fiscal 1996 was  partially due to an increased  proportion  of  ContiMortgage
securitizations which yield higher gain on sale percentages than securitizations
and placements for Strategic  Alliance  clients.  In fiscal 1997,  ContiMortgage
securitizations  represented  75% of total  volume as compared to 51% for fiscal
1996 and 57% for fiscal 1995.  This  contributed to a gain of 13 basis points in
Excess  Spread or a $5.1  million  increase  in gain on sale of  receivables  in
fiscal 1997 as compared to fiscal 1996.  The  combination  of the $32.7  million
increase  due to  increased  volume  and the  $5.1  million  increase  due to an
increase in the percentage of  ContiMortgage  assets  securitized  resulted in a
total increase in gain on sale of receivables from fiscal 1996 to fiscal 1997 of
$37.8 million.

                                       32
<PAGE>

In fiscal 1996 as compared to fiscal 1995,  the  relationship  between  interest
rates and  maturity  caused an increase in the gain on sale  percentage.  As the
Company  originates and sells loans and leases based on the interpolated  United
States Treasury interest rate plus a negotiated  additional interest spread, the
gain on sale of receivables  is affected by unequal  movements in interest rates
at various maturities.  The interpolated  Treasury interest rate is based on the
Company's estimate of the average life of the pool of loans or leases. In fiscal
1996 as compared to fiscal 1995, the yield curve steepened which  contributed an
additional  72 basis points to Excess Spread or $16.4 million of the increase in
gain on sale of receivables.  The combination of the $16.4 million  increase due
to the yield  curve and the  $62.6  million  increase  due to  increased  volume
resulted in a total increase in gain on sale of receivables  from fiscal 1995 to
fiscal  1996 of  $79.0  million.  The  gain on sale  as a  percentage  of  loans
securitized  and sold for fiscal  1997,  1996 and 1995 was 4.2%,  3.7% and 3.0%,
respectively.

Interest  income  increased $69.7 million or 76% in fiscal 1997 from fiscal 1996
and $48.8 million or 114% in fiscal 1996 from fiscal 1995. Excluding the effects
of the Acquisitions,  fiscal 1997 interest income increased by $65.9 million, or
72% from  fiscal  1996.  Interest  income  represents  interest  earned on loans
originated  or purchased by the Company  during the period from  origination  or
purchase until the actual sale of the loans,  as well as the  recognition of the
increased  value of the  discounted  Excess Spread  Receivables  over time.  The
interest earned on loans originated and purchased  contributed  $50.1 million to
the  increase  between  fiscal  1996 and  fiscal  1997 and $35.5  million to the
increase between fiscal 1995 and fiscal 1996. The increase in interest earned on
loans  originated and purchased was due primarily to the increase in the average
balance of loans  originated  and purchased but not yet  securitized  during the
periods, an increase of $715.6 million in fiscal 1997 as compared to fiscal 1996
and an increase of $591.5 million in fiscal 1996 as compared to fiscal 1995. The
recognition of the increased value of the discounted  Excess Spread  Receivables
over time, due to an increase in  interest-only  and residual  certificates,  as
previously  discussed,  accounted  for $12.8 million of the increase in interest
income  between  fiscal 1996 and fiscal 1997 and $13.3  million of the  increase
between fiscal 1995 and fiscal 1996.

Net servicing  income  increased $17.0 million or 58% in fiscal 1997 compared to
fiscal 1996 and $20.0 million or 215% in fiscal 1996 compared to fiscal 1995 due
to the increase in the size of the servicing portfolio, the volume of loan sales
and  securitizations  and, in fiscal  1996, a change in  accounting  principles.
Excluding  the effects of the  Acquisitions,  fiscal 1997 net  servicing  income
increased by $16.5  million,  or 56% from fiscal 1996. The Company's home equity
loan servicing  portfolio increased $2.5 billion or 66% to $6.4 billion at March
31,  1997 from March 31, 1996 and $1.7  billion or 76% to $3.9  billion at March
31, 1996 from March 31, 1995 . The growth of the servicing portfolio contributed
$11.9  million of the increase  between  fiscal 1996 and fiscal  1997,  and $8.3
million of the increase between fiscal 1995 and fiscal 1996.  Additionally,  net
servicing  income increased by $4.6 million in fiscal 1997 as compared to fiscal
1996 due to capitalized servicing income associated with the 79% increase in the
ContiMortgage home equity loan sales and securitizations during the same period.
In fiscal 1996 as compared to fiscal 1995 the  capitalization  of servicing fees
increased  servicing  income  by  $11.7  million  as  servicing  fees  were  not
capitalized in fiscal 1995.

Other  income  increased  $4.9 million or 114% to $9.2 million in fiscal 1997 as
compared to fiscal 1996 and  increased  $2.0  million or 87% to $4.3  million in
fiscal  1996  as  compared  to  fiscal  1995.   Excluding  the  effects  of  the
Acquisitions,  fiscal 1997 other  income  increased  by $3.7 million or 86% from
fiscal 1996. Other income consists  primarily of "purchase  premium refunds" and
for fiscal 1997,  warrant income.  "Purchase  premium refunds" are received from
certain  origination sources related to loans that prepay within a contractually
set time period.  Upon  origination  of a loan, the Company will pay a wholesale
originator  a  purchase  premium  for the loan or pools of  loans.  The  Company
negotiates  agreements with wholesale originators that provide that a portion of
such  purchase  premium will be repaid if  individual  loans are repaid within a
contractually  set time  period.  The income  from  "purchase  premium  refunds"

                                       33
<PAGE>

increased due to the increase in ContiMortgage  origination  volume.  The fiscal
1997 warrant income received consists of $2.7 million of income from the sale of
stock warrants in a Strategic Alliance company.

Expenses.  Total expenses for fiscal 1997  increased  $105.5 million or 73% from
fiscal 1996 which in turn  increased  $80.3  million or 123% from  fiscal  1995.
Excluding the effects of the Acquisitions,  fiscal 1997 total expenses increased
by $77.0 million or 53% from fiscal 1996. These increases in total expenses were
due to the increase in number of employees and costs  associated  with increased
mortgage volume and increased  interest costs from financing  larger balances of
securitizable loans.

The following table sets forth the components of the Company's expenses for each
of the last three fiscal years.
<TABLE>
<CAPTION>

                                        Years Ended March 31,                            
                                        ---------------------            
                                     1997      1996        1995
                                     ----      ----        ----
                                          (in thousands)
<S>                                <C>       <C>        <C>      
Compensation and benefits          $ 82,170  $  52,203  $  23,812
Interest                            120,636     74,770     29,635
Provision for loan losses             3,043        285      1,935
General and administrative           44,940     18,022      9,627
                                     ------     ------      -----
Total expenses                     $250,789   $145,280  $  65,009
                                   ========   ========  =========
</TABLE>

Compensation and benefits increased $30.0 million or 57% in fiscal 1997 compared
to fiscal 1996 and increased $28.4 million or 119% in fiscal 1996 as compared to
fiscal 1995.  Excluding $16.1 million of compensation  and benefits  relating to
the  Acquisitions,  fiscal 1997  compensation and benefits expense  increased by
$13.9  million or 27% from fiscal 1996.  The increase was  primarily  due to the
addition of new personnel,  changes in and accruals under incentive compensation
plans,  vesting  of  restricted  common  stock and  commissions  paid to certain
employees based upon volume of loan originations. On March 31, 1997, the Company
had 1,562 employees, 859 from the Acquisitions,  as compared to 455 employees on
March 31, 1996 and 234  employees on March 31,  1995.  This  increase  primarily
contributed  to a $14.0 million  increase in  compensation  costs in fiscal 1997
compared to fiscal 1996, excluding the Acquisitions, and a $6.4 million increase
in compensation costs in fiscal 1996 as compared to fiscal 1995. The fiscal 1997
accrual  for  incentive  compensation  was $23.2  million as  compared  to $28.0
million in fiscal 1996 and $12.4 million in fiscal 1995, which  contributed to a
$4.8 million  decrease in  compensation  costs in fiscal 1997 compared to fiscal
1996 and a $15.6  million  increase in fiscal 1996  compared to fiscal 1995.  In
connection  with the IPO,  shares of  "restricted"  common stock were granted to
certain key employees.  The  "restricted"  common stock granted,  subject to the
employee's  continued  employment  with the  Company,  generally  vests  between
February  14, 1996 and March 31,  2000.  The  expense  related to the vesting of
"restricted"  common stock  increased  by $1.7  million to $6.7  million  during
fiscal 1997 from fiscal  1996  restricted  stock  expense of $5.0  million.  The
commissions paid to certain  ContiMortgage  employees increased $3.0 million and
$1.4  million  from fiscal  1996 to fiscal 1997 and fiscal 1995 to fiscal  1996,
respectively,   associated  with  increased  ContiMortgage  origination  volume.
Compensation  and related  expenses  represents  19% of total  gross  income for
fiscal 1997 and 1996 and 20% of total gross income for fiscal 1995.

Interest  expense  increased  $45.9 million or 61% in fiscal 1997 as compared to
fiscal 1996 and  increased  $45.1  million or 152% in fiscal 1996 as compared to
fiscal 1995.  Excluding  the effects of the  Acquisitions,  fiscal 1997 interest
expense  increased by $45.3  million or 61% from fiscal 1996.  This increase was
primarily  a result of  interest  expense  associated  with the  issuance of the
Senior Notes,  the costs of the sale, with limited  recourse,  of certain Excess
Spread Receivables, increased expenses from the Purchase and Sale Facilities and
an overall increase in the cost of borrowing offset by decreased  borrowing from
Continental Grain. The average  borrowings from Continental Grain,  Purchase and
Sale  Facilities,  the Senior  Notes and  Excess  Spread  Receivables  sold with
limited  recourse,  increased  by $621.3  million in fiscal  1997 as compared to

                                       34
<PAGE>

fiscal 1996,  resulting in a $43.5 million increase in interest  expense,  while
such average increased $627.4 million in fiscal 1996, as compared to fiscal 1995
resulting  in a $43.0  million  increase in interest  expense.  The  increase in
interest  rates  contributed  $1.8 million to the  increase in interest  expense
between  fiscal 1997 as  compared  to fiscal  1996 and the  increase in interest
rates contributed $2.1 million in fiscal 1996 as compared to fiscal 1995.

Provision  for loan losses  increased to $3.0 million in fiscal 1997 as compared
to $0.3 million in fiscal 1996 and $1.9 million in fiscal 1995.  Excluding  $2.4
million of provision for loan losses  relating to the  Acquisitions,  the fiscal
1997 balance  increased by $0.3  million  from fiscal 1996.  Provision  for loan
losses is recorded in  sufficient  amounts to maintain an  allowance  at a level
considered  adequate to cover  anticipated  losses resulting from liquidation of
receivables  held for sale and  receivables  sold with  limited  recourse  under
Purchase and Sale Facilities,  prior to sale or securitization.  The increase in
fiscal  1997 as  compared  to fiscal  1996 and the  decrease  in fiscal  1996 as
compared to fiscal 1995 resulted from a  determination  of adequate  reserves in
light of actual loss experience during the period.

General and  administrative  expenses  increased $26.9 million or 149% in fiscal
1997  compared to fiscal 1996 and $8.4 million or 87% in fiscal 1996 compared to
fiscal  1995.  Excluding  $9.4  million of general and  administrative  expenses
relating  to the  Acquisitions,  the  fiscal  1997  balance  increased  by $17.5
million,  or 97% from fiscal 1996.  The increases  were  partially a result of a
$7.1 million and a $3.7 million increase in costs associated with  underwriting,
originating  and  servicing  higher  loan  volumes in fiscal 1997 as compared to
fiscal 1996 and fiscal 1996 as compared to fiscal 1995, respectively.  In fiscal
1997, the origination volume increased 69% as compared to fiscal 1996 and 74% in
fiscal 1996 as compared to fiscal 1995.  Expenses related to the  implementation
of  collection  technology  accounted  for  approximately  $1.3  million  of the
increase in fiscal 1997 as compared to fiscal 1996. The remaining increases were
primarily due to an increase in general and  administrative  expenses related to
the  increase in the number of  employees  by 248,  excluding  employees  of the
Acquisitions,  from fiscal 1996 to fiscal 1997 and the increase of 221 employees
from fiscal 1995 to fiscal 1996.

Income Taxes. The Company's provision for income taxes was $71.3 million,  $49.1
million  and $22.2  million  for  fiscal  1997,  fiscal  1996 and  fiscal  1995,
respectively.  The Company is included in the  consolidated  Federal  income tax
return of Continental  Grain.  The increase in taxes over the three fiscal years
is directly related to the increase in income before taxes and minority interest
over the same period.  The effective tax rate for each year remained  relatively
consistent  at 39% to 40%.  Increases  in the  effective  tax  rate  were due to
changes in the provision for state income taxes.

Minority Interest.  In fiscal 1996 and fiscal 1995, minority interest represents
the portion of income before taxes and minority interest due to the 20% minority
shareholders of ContiMortgage.  Minority interest  decreased $5.4 million or 62%
in fiscal 1996 compared to fiscal 1995.  This decrease in minority  interest was
directly  related  to  the  change  in the  Company's  ownership  percentage  of
ContiMortgage.  On June 19, 1995,  ContiTrade Services Corporation  ("ContiTrade
Services")  effectively  acquired control of the remaining 20% minority interest
in  ContiMortgage,  which became a  wholly-owned  subsidiary  of  ContiFinancial
Corporation.   Accordingly,  the  fiscal  1996  results  of  operations  include
approximately  three  months of  minority  interest of $3.3  million,  while the
comparable  period of fiscal 1995  reflected  12 months of minority  interest of
$8.7 million.

In fiscal 1997,  minority  interest  represents the portion of loss before taxes
and  minority  interest due to the 44% minority  shareholders  of Triad.  In the
third and fourth quarters of fiscal 1997, the Company acquired 56% of the common
stock of Triad.  Minority interest was ($0.3) million for the period ended March
31, 1997.




                                       35
<PAGE>

Liquidity and Capital Resources

In a  securitization,  the  Company  recognizes  a gain on the  sale of loans or
assets securitized upon the closing of the securitization,  but does not receive
the cash  representing  such gain until it receives the Excess Spread,  which is
payable  over  the  actual  life of the loan or other  assets  securitized.  The
Company incurs  significant  expenses in connection  with a  securitization  and
incurs both  current and  deferred  tax  liabilities  as a result of the gain on
sale.  Therefore,  the Company requires  continued access to short and long term
external  sources of cash to fund its  operations.  The  Company's  primary cash
requirements  are  expected to include the  funding of: (i)  mortgage,  loan and
lease originations and purchases pending their pooling and sale; (ii) the points
and expenses paid in connection with the acquisition of wholesale  loans;  (iii)
fees and expenses incurred in connection with its securitization  program;  (iv)
over  collateralization or reserve account requirements in connection with loans
and leases  pooled and sold;  (v)  ongoing  administrative  and other  operating
expenses;  (vi)  payments  related to its tax  obligations  under a Tax  Sharing
Agreement  with  Continental  Grain or to tax  authorities;  (vii)  interest and
principal payments under the Senior Notes;  (viii) the costs of the Purchase and
Sale  Facilities;  (ix) interest  payments under the unsecured  revolving credit
facility; and (x) the cost of any new acquisitions that the Company may pursue.

As a result of its growing securitization program, the Company has operated, and
expects to continue to operate, on a negative cash flow basis, which is expected
to  increase  as the  volume of its loan and asset  purchases  and  originations
increases and its  securitization  program grows.  During fiscal 1995,  1996 and
1997,  the Company  securitized  and sold in the secondary  market $2.3 billion,
$4.0  billion and $5.0 billion of loans,  respectively.  The Company used $153.2
million,  $300.5  million and $35.3 million of cash in operations  during fiscal
1997, 1996 and 1995, respectively.

During the life of the  REMICs,  owner  trusts or grantor  trusts,  the  Company
subordinates  to the  rights of  holders  of senior  interests  a portion of the
Excess Spread  otherwise due to the Company as a credit  enhancement  to support
the sale of senior interests.  The terms of the REMICs, owner trusts and grantor
trusts generally require that the Excess Spread otherwise payable to the Company
during  the early  months of the  trusts be used to  increase  the cash  reserve
account,   or  to  repay  the  senior   interests  in  order  to  increase  over
collateralization to specified maximums. The value of such "deposit" accounts is
included in the value of Excess Spread  Receivables and the related gain on sale
of receivables, net of necessary reserves for credit losses, if applicable.

In addition, increased use of securitization transactions as a funding source by
the Company has resulted in a significant increase in the amount of gain on sale
of receivables recognized by the Company. During fiscal 1995, 1996 and 1997, the
Company  recognized gain on sale of receivables in the amounts of $67.5 million,
$146.5  million,  and $210.9 million,  respectively.  The recognition of gain on
sale of receivables will have a negative impact on the cash flows of the Company
to the extent the Company is required to pay state and Federal  income  taxes on
these amounts in the period  recognized,  notwithstanding  that the Company does
not receive the cash  representing  the gain until later  periods as the related
loans are repaid or otherwise collected.

The Company's primary sources of liquidity are sales of loans,  leases and other
assets through securitization,  the sale of loans, leases and other assets under
the Purchase and Sale Facilities and trade  receivables sold under agreements to
repurchase, the sale of Excess Spread Receivables,  the sale of the Senior Notes
and the  unsecured  revolving  credit  facility.  While the Company sells Excess
Spread  Receivables from time to time, there is no liquid market for such Excess
Spread Receivables.

The Company had $2.3 billion of committed  sale capacity  under its Purchase and
Sale  Facilities with various  financial  institutions as of March 31, 1997. The
Purchase and Sale Facilities  allow the Company to sell, with limited  recourse,
interests  in  designated  pools of loans and  other  assets.  These  agreements

                                       36
<PAGE>

generally  have one year  renewable  terms (one Purchase and Sale Facility has a
two-year  term),  all of which will expire  between  May 1997 and June 1998.  On
March 31, 1997, the Company  utilized $590.7 million of the capacity under these
facilities.  The  Company  currently  anticipates  that it will be able to renew
these facilities when they expire and to obtain additional facilities.

On March  31,  1997,  the  Company  entered  into a funding  agreement  under an
agreement to  repurchase  ("Repurchase  Agreement").  The  Repurchase  Agreement
allows the Company to sell receivables held for sale to a financial  institution
under an agreement that the Company will  repurchase  the asset.  This agreement
has a one year renewable term which expires January 1998. The Company  currently
anticipates  that it will be able to renew this  facility when it expires and to
obtain additional facilities.

The Company sells Excess Spread Receivables,  with limited recourse,  to provide
cash to fund the Company's  securitization program. These sales aggregated $50.0
million in fiscal 1995, $54.5 million in fiscal 1996 and $96.5 million in fiscal
1997. At March 31, 1997, $144.9 million of these sales were  outstanding.  Under
the recourse provisions of the agreements, the Company is responsible for losses
incurred by the purchaser within an agreed-upon range. The Company's performance
obligations in these  transactions  are  guaranteed by Continental  Grain for an
agreed-upon   fee.   Although   the  Company   intends  to  continue  to  pursue
opportunities to sell Excess Spread Receivables,  no assurance can be given that
such opportunities will be available in the future.

In order to fund  the  Company's  growth  prior  to the IPO,  Continental  Grain
provided the Company  with  intercompany  financing  ("Intercompany  Debt").  To
refinance the Intercompany Debt,  simultaneously with the completion of the IPO,
Continental  Grain  purchased  from the Company a $125  million  five-year  note
issued under an indenture (the "Indenture  Note"), a $74 million  four-year note
(the "Four Year Note") and a $125  million  term note (the "Term Note") for $324
million in aggregate (collectively, the "Notes").

On August 14, 1996, the Company  issued the 8 3/8% Senior Notes maturing  August
15,  2003.  Interest on these notes is payable  semiannually  on February 15 and
August 15 commencing  February 15, 1997. The 8 3/8% Senior Notes are redeemable
as a whole or in part, at the option of the Company, at any time or from time to
time, at a redemption  price equal to the greater of (i) 100% of their principal
amount  and  (ii)  the sum of the  present  values  of the  remaining  scheduled
payments of principal and interest thereon  discounted to the date of redemption
on a semiannual  basis at the treasury yield plus 50 basis points,  plus in each
case, accrued interest to the date of redemption.  Proceeds to the Company,  net
of underwriting  fees,  market discount and other costs were $287.7 million.  Of
this  amount,  $125.0  million was used by the Company to repay in full the Term
Note payable to  Continental  Grain and the  remaining  funds have been used for
general corporate  purposes,  including funding loan originations and purchases,
supporting securitization transactions and other working capital needs.

On January 8, 1997, the Company closed a $200 million unsecured revolving credit
facility.   The   three-year   facility  has  several   interest   rate  pricing
alternatives,  including  those  based on LIBOR and  federal  funds  rates.  The
facility will be used for general corporate and liquidity purposes.

On March 12, 1997, the Company issued the 7 1/2% Senior Notes maturing March 15,
2002.  Proceeds to the Company,  net of underwriting  fees,  market discount and
other   costs  were  $197.7   million.   Interest  on  these  notes  is  payable
semi-annually on March 15 and September 15 commencing  September 15 ,1997.  This
amount, together with other funds of the Company, were used to repay in full the
Indenture  Note and the Four  Year  Note  payable  to  Continental  Grain  which
constituted  all of the  remaining  financing  indebtedness  due to  Continental
Grain.

On June 4, 1997, the Company completed a primary offering of 2,800,000 shares of
common stock and an additional 420,000 shares were purchased by the underwriters
for over allotments. The net proceeds of the offering to the Company were $100.8
million.

                                       37
<PAGE>

The net proceeds  from the IPO, the issuance of the 8 3/8% and the 7 1/2% Senior
Notes and the June 4,  1997  primary  offering,  were  used by the  Company  for
general corporate  purposes,  including funding loan originations and purchases,
supporting securitization transactions (including the retention of Excess Spread
Receivables),  other  working  capital  needs  and  to  make  certain  strategic
acquisitions.   Sales  of  the   loans,   leases   and  other   assets   through
securitizations,  the sale of loans under the Purchase and Sale Facilities,  the
sale of Excess  Spread  Receivables  and the June 4, 1997  primary  offering  of
2,800,000 shares of common stock, together with cash on hand, are expected to be
sufficient to fund the Company's liquidity requirements for at least the next 12
months if the Company's  future  operations  are  consistent  with  management's
current  growth  expectations.  The Company has no  commitments  for  additional
financing  and there can be no assurance  that the Company will be successful in
consummating  any such  financing  transactions  in the future on terms that the
Company would consider to be favorable.  Furthermore,  no assurance can be given
that  Continental  Grain will provide such financing if the Company is unable to
obtain  third party  financing or that the terms of the  Continental  Grain debt
agreements will permit the Company to obtain such financing.

During  fiscal  1995 and during  fiscal  1996,  prior to the close of its IPO on
February 14, 1996, the Company paid cash  dividends to Continental  Grain of $30
million and $0.3 million,  respectively. The Company has no current intention to
pay cash dividends on its Common Stock. As a holding company, the ability of the
Company to pay  dividends  is  dependent  upon the receipt of dividends or other
payments from its  subsidiaries.  Any future  determination as to the payment of
dividends will be at the discretion of the Company's Board of Directors and will
depend upon the Company's  operating  results,  financial  condition and capital
requirements,  contractual  restrictions,  general business  conditions and such
other factors as the Company's Board of Directors  deems relevant.  Furthermore,
covenants in the Company's and Continental  Grain's loan agreements restrict the
payment of dividends by the Company.  There can be no assurance that the Company
will have  earnings  sufficient  to pay a dividend on its Common  Stock or that,
even if  there  are  sufficient  earnings,  dividends  will be  permitted  under
applicable law.

Effects of Accounting Pronouncements

On January 1, 1997,  the  Company  adopted  the SFAS No.  125,  "Accounting  for
Transfers and Servicing of Financial Assets and  Extinguishment of Liabilities".
See "Certain Accounting  Considerations" for discussion of the statement and its
impact on the Company's financial condition and results of operations.

In February  1997,  the FASB issued SFAS No. 128  "Earnings  Per Share  ("EPS")"
("SFAS  128")  which is  effective  in fiscal  1998,  early  application  is not
permitted.  SFAS 128 simplifies the standards for computing  earnings per share.
It replaces the  presentation  of primary EPS with a presentation  of basic EPS.
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.  If SFAS  128 had  been  applied  to  fiscal  1997  results  of
operations,  the  Company's  basic EPS  would  have been  $2.44  (pro  forma) of
earnings per common  share based on net income of $106,004 and  weighted-average
number of common shares of 43,361,253  (pro forma).  Fully  dilutive EPS remains
the same under SFAS 128 but will be referred to as diluted EPS.

Forward-looking  Statements 

Certain  statements  contained  in this  Annual  Report  Form 10-K which are not
historical  fact,  may be  deemed  to be  forward-looking  statements  under the
federal  securities laws. There are many important  factors that could cause the
Company's  actual  results  to differ  materially  from those  indicated  in the
forward-looking  statements.  Such  factors  include,  but are not  limited  to,
general economic conditions,  interest rate risk, prepayment speeds, delinquency
and  default   rates,   changes   (legislative   and  otherwise)  in  the  asset
securitization  industry,  demand  for the  Company's  services,  the  impact of
certain  covenants in loan agreements of the Company and Continental  Grain, the
degree to which the Company is leveraged, its needs for  financing,  and   other

                                       38
<PAGE>

risks identified in the Company's Securities and Exchange Commission filings. In
addition, it should be noted that past financial and operational  performance of
the Company is not  necessarily  indicative of future  financial and operational
performance.


                                       39
<PAGE>


                                 
Item 8.   Financial Statements and Supplementary Data.
 

 
                     CONTIFINANCIAL CORPORATION
             INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>

 
                                                                                            Page
<S>                                                                                          <C>
Report of Independent Public Accountants                                                     41
Consolidated Balance Sheets as of March 31, 1997 and 1996                                    42
Consolidated Statements of Income for the years ended March 31, 1997, 1996
   and 1995                                                                                  43
Consolidated Statements of Changes in Stockholders' Equity for the years
   ended March 31, 1997, 1996 and 1995                                                       44
Consolidated Statements of  Cash Flows for the years ended March 31, 1997,
   1996 and 1995                                                                             45
Notes to Consolidated Financial Statements                                                   46
 
</TABLE>



                                       40
<PAGE>







                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS




To the Shareholders of ContiFinancial Corporation:

We have audited the accompanying  consolidated  balance sheets of ContiFinancial
Corporation (a Delaware  corporation)  and subsidiaries as of March 31, 1997 and
1996,   and  the  related   consolidated   statements  of  income,   changes  in
stockholders'  equity and cash  flows for each of the three  years in the period
ended March 31, 1997. These financial  statements are the  responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of ContiFinancial  Corporation as
of March 31, 1997 and 1996, and the results of its operations and its cash flows
for each of the three years in the period  ended March 31, 1997,  in  conformity
with generally accepted accounting principles.




New York, New York
May 8, 1997 (except with respect
to the matter discussed in Note 14,
as to which the date is June 4, 1997)




                                       41
<PAGE>


<TABLE>
<CAPTION>

                                 
                     CONTIFINANCIAL CORPORATION
                    Consolidated Balance Sheets
                   as of March 31, 1997 and 1996
             (dollars in thousands, except share data)
                                                                            

                                                                                          March 31,         
                                                                                          ---------         
                                                                                            
                                                                                     1997           1996           
                                                                                     ----           ----               
                                    Assets
<S>                                                                             <C>            <C>        
Cash and cash equivalents ...................................................   $    51,200    $    32,479
Restricted cash .............................................................           464            620
Securities purchased under agreements to resell .............................       223,962        179,875
Interest-only and  Residual Certificates ....................................       445,005        293,218
Capitalized servicing fees receivable .......................................        29,353         11,689
Trade  receivables:
   Receivables held for sale ................................................       625,545        303,679
   Other receivables ........................................................        87,353         50,470
   Allowance for loan losses ................................................       (3,747)        (1,824)
                                                                                     ------         ------ 
Total  trade  receivables, net .............................................        709,151        352,325
                                                                                    -------        -------
Premises and equipment, net of accumulated depreciation of $4,298
  and $2,497  as of  March 31, 1997 and 1996, respectively ..................         7,789          3,906
Cost in excess of equity ....................................................        48,200         14,573

Other assets ................................................................        30,674          3,855
                                                                                     ------          -----
        Total assets ........................................................   $ 1,545,798    $   892,540
                                                                                ===========    ===========


                     Liabilities and Stockholders' Equity
Liabilities:
Accounts payable and accrued expenses .......................................   $    87,770    $    73,459
Securities sold but not yet purchased .......................................       225,131        180,729
Trade receivables sold under agreements to repurchase .......................       251,539           --
Payables to affiliates:
   Due to affiliates ........................................................        36,367         13,734
   
   Notes payable ............................................................          --          324,000
                                                                                     -------       -------

Total payables to affiliates ...............................................         36,367        337,734
                                                                                     ------        -------
Short-term borrowed funds ...................................................        25,000           --
Long-term debt ..............................................................       498,817           --

Other liabilities ...........................................................        12,102          5,799
                                                                                     ------          -----
        
        Total liabilities ...................................................     1,136,726        597,721
                                                                                  ---------        -------
Commitments and contingencies
Minority interest of subsidiary .............................................         1,288           --
Stockholders' equity:
   Preferred stock  (par value $0.01 per share; 25,000,000 shares authorized;
   none issued  at March 31, 1997 and 1996) .................................          --             --
   Common stock (par value $0.01 per share;  250,000,000 shares authorized;
   44,390,335 and 44,378,953 shares issued at March 31, 1997 and 1996,
   respectively) ............................................................           444            444

   Paid-in capital ..........................................................       295,029        294,701
   Retained earnings ........................................................       128,652         22,648
   Treasury Stock (27,931 and 0 shares of common stock, at cost as of
   March 31, 1997 and 1996, respectively) ...................................          (586)          --
   Deferred  Compensation ...................................................       (15,755)       (22,974)
                                                                                    -------        ------- 
        Total stockholders' equity ..........................................       407,784        294,819
                                                                                    -------        -------
        Total liabilities and stockholders' equity ..........................   $ 1,545,798    $   892,540
                                                                                ===========    ===========

   The accompanying notes to consolidated financial statements are an integral part of these statements.
              
</TABLE>





                                       42
<PAGE>




                     CONTIFINANCIAL CORPORATION
                 Consolidated Statements of Income
         for the years ended March 31, 1997, 1996 and 1995
             (dollars in thousands, except share data)
 
<TABLE>
<CAPTION>

                                                                             Years Ended March 31,           
                                                                             ---------------------           
                                                                                            
                                                                          1997           1996           1995
                                                                          ----           ----           ----
<S>                                                                 <C>           <C>                <C>    
Gross income
   Gain on sale of receivables .................................   $    210,861    $    146,529   $     67,512
   Interest ....................................................        161,402          91,737         42,929
   Net servicing income ........................................         46,340          29,298          9,304
   Other income ................................................          9,227           4,252          2,252
                                                                          -----           -----          -----
        Total gross income .....................................        427,830         271,816        121,997
                                                                        -------         -------        -------

Expenses
   Compensation and benefits ...................................         82,170          52,203         23,812
   Interest (includes $18,598, $22,635, and $10,234
        for the years ended March 31, 1997, 1996
        and  1995, respectively, to affiliates) ................        120,636          74,770         29,635
   Provision for loan losses ...................................          3,043             285          1,935
   General and administrative ..................................         44,940          18,022          9,627
                                                                         ------          ------          -----
        Total expenses .........................................        250,789         145,280         65,009
                                                                        -------         -------         ------
Income before income taxes and
       minority interest .......................................        177,041         126,536         56,988
Income taxes                                                             71,341          49,096         22,168
                                                                         ------          ------         ------
Income before minority interest ................................        105,700          77,440         34,820
Minority interest of subsidiary ................................           (304)          3,310          8,728
                                                                           ----           -----          -----
        Net income .............................................   $    106,004    $     74,130   $     26,092
                                                                   ============    ============   ============

Primary and fully diluted earnings per common share (pro forma
at March 31, 1996) .............................................   $       2.40    $       2.00
                                                                   ============    ============

Fully diluted weighted average number of shares outstanding
(pro forma at March 31, 1996) ..................................     44,152,343      37,050,165
                                                                     ==========      ==========

Primary weighted average number of shares outstanding (pro forma
at March 31, 1996) at March 31, 1996) ..........................     44,090,095      36,995,631
                                                                     ==========      ==========

 The accompanying notes to consolidated financial statements are an
                 integral part of these statements.


</TABLE>



                                       43
<PAGE>




                                 44
                     CONTIFINANCIAL CORPORATION
     Consolidated Statements of Changes in Stockholders' Equity
         for the years ended March 31, 1997, 1996 and 1995
             (dollars in thousands, except share data)
 
<TABLE>
<CAPTION>

                                          Common
                                          Stock                                                                        Total
                                          -----                                                                        -----
                                   Number                      Paid-in      Retained  Treasury       Deferred       Stockholders 
                                   of Shares    Amount         Capital      Earnings   Stock       Compensation        Equity     
                                   ---------    ------         -------      --------   -----       ------------        ------   
                                                                                      
<S>                              <C>          <C>         <C>           <C>          <C>            <C>           <C>          
Balance at March 31, 1995 ....   $      3,100  $     1      $   34,000     $  33,914 $   --          $   --         $  67,915
Capital contribution .........           --       --            10,000          --       --              --            10,000
Net income for the period
from April 1, 1995 to
February 8, 1996 .............           --       --              --          51,482     --              --            51,482
Cash dividend paid ...........           --       --              --            (305)    --              --              (305)
                                       -----    -----          -----           -----   -----          -----             ----- 
Balance at February 8, 1996 ..          3,100        1          44,000        85,091     --              --           129,092
Reorganization:
   Transfer of stock .........         (3,100)      (1)           --            --       --              --                (1)
   Common stock issued .......     35,918,421      359          84,732       (85,091)    --              --                --
Common stock issued in
  public offering ............      7,130,000       72         138,041          --       --              --           138,113
Issuance of restricted stock .      1,330,532       13          27,928          --       --           (27,941)           --
Net income for the period
from February 9, 1996
to March 31, 1996 ............           --       --              --          22,648     --              --            22,648

Amortization of deferred
compensation .................           --       --              --            --       --             4,967           4,967
                                      -----     -----          -----          -----    -----            -----           -----   
Balance at March 31, 1996 ....     44,378,953      444         294,701        22,648     --           (22,974)        294,819
Net income ...................           --       --              --         106,004     --              --           106,004
Exercise of options ..........         11,382     --               240          --       --              --               240
Forfeiture of restricted stock           --       --              --            --       (712)            712            --
Restricted stock awards ......           --       --                88          --        126            (214)           --
Amortization of deferred
compensation .................           --       --              --            --       --             6,721           6,721
                                      -----     -----          -----         -----      -----           -----           -----    
Balance at March 31, 1997 ....     44,390,335  $   444    $    295,029  $    128,652   $ (586)   $    (15,755)   $    407,784
                                   ==========  =======    ============  ============   ======    ============    ============

</TABLE>

 The accompanying notes to consolidated financial statements are an
                 integral part of these statements.



                                       44
<PAGE>



                                

                     CONTIFINANCIAL CORPORATION
               Consolidated Statements of Cash Flows
         for the years ended March 31, 1997, 1996 and 1995
                       (dollars in thousands)
<TABLE>
<CAPTION>
                                                                                           Years Ended March 31,
                                                                                           ---------------------
<S>                                                                                <C>            <C>           <C> 
 Cash flows from operating activities:                                                1997           1996          1995
                                                                                      ----           ----          ----
   Net income ..........................................................       $    106,004   $     74,130  $     26,092
   Adjustments to reconcile net income to net cash
     used in operating activities:
      Amortization of deferred compensation ............................              6,721          4,967          --
      Depreciation and amortization ....................................              4,536          1,690           555
      Provision (benefit) for deferred taxes ...........................              5,680          3,830        (3,080)
      Provision for loan losses ........................................              3,043            285         1,935
   Net changes in operating assets and liabilities:
      Decrease in restricted cash ......................................                156            140           164
      Increase in interest-only and residual certificates ..............           (150,701)      (150,187)      (48,540)
      Increase in capitalized servicing fees receivable ................            (17,664)       (11,689)         --
      Increase  in receivables held for sale:
         Originations and purchases ....................................        (16,094,071)   (12,532,051)   (4,986,561)
         Sales and principal repayments ................................         15,774,222     12,304,078     4,951,227
      Increase in other receivables ....................................            (34,858)       (33,924)       (8,499)
      Increase in accounts payable and accrued expenses ................              7,908         31,356        24,207
      Increase in trade receivables sold under agreements to
         repurchase ....................................................            251,539           --            --
      Increase (decrease) in securities purchased under
         agreements to resell and securities sold but
         not yet purchased .............................................                315          3,887        (4,789)
      (Increase) decrease in minority interest of subsidiary ...........               (325)         3,310         8,728
      Other, net .......................................................            (15,689)          (279)        3,225
                                                                                    -------           ----         -----
          Net cash used in operating activities ........................           (153,184)      (300,457)      (35,336)
                                                                                   --------       --------       ------- 
Cash flows from investing activities:
  Acquisitions of subsidiaries (net of cash acquired) ..................            (28,277)       (34,600)         --
  Purchase of property and equipment ...................................             (3,535)        (2,643)       (1,816)
                                                                                     ------         ------        ------ 
         Net cash used in investing activities .........................            (31,812)       (37,243)       (1,816)
                                                                                    -------        -------        ------ 
Cash flows from financing activities:
   Net increase (decrease) in due to affiliates ........................             17,972        (94,451)       67,666
   Net increase (decrease) in notes payable to affiliates ..............           (324,000)       324,000          --
   Increase in short-term borrowed funds ...............................             25,000           --            --
   Increase in long-term debt ..........................................            498,423           --            --
   Debt issuance costs .................................................            (12,982)          --            --
   Other, net ..........................................................               (696)          --            --
   Net proceeds from initial public common stock offering ..............               --          138,113          --
   Dividends paid ......................................................               --             (305)      (30,000)
                                                                                    -----              ----       ------- 
          Net cash provided by financing activities ....................            203,717        367,357        37,666
Net increase in cash and cash equivalents ..............................             18,721         29,657           514
Cash and cash equivalents at beginning of  year ........................             32,479          2,822         2,308
                                                                                     ------          -----         -----
Cash and cash equivalents at end of year ...............................       $     51,200   $     32,479  $      2,822
                                                                               ============   ============  ============

Supplemental schedule of noncash financing activities:
For the year ended March 31, 1996, Continental Grain Company
forgave intercompany debt of  $10,000 and  such amount was
capitalized  as a capital contribution.
   The accompanying notes to consolidated financial statements are
               an integral part of these statements.

</TABLE>



                                       45
<PAGE>






                     CONTIFINANCIAL CORPORATION
             Notes to Consolidated Financial Statements
                   March 31, 1997, 1996 and 1995
                       (dollars in thousands)

1. BACKGROUND AND BASIS OF PRESENTATION

ContiFinancial Corporation  ("ContiFinancial" or the "Company") was incorporated
as a Delaware  corporation on September 29, 1995. The accompanying  consolidated
financial  statements  include the accounts of the Company and its direct wholly
or majority  owned  subsidiaries.  All  significant  intercompany  accounts  and
transactions have been eliminated in consolidation.


Reorganization

Prior to February 14, 1996, the consolidated  financial  statements  present the
financial  condition and results of operations of the Company which includes its
directly   wholly-owned   subsidiaries:   ContiSecurities  Asset  Funding  Corp.
("CSAF"),  ContiSecurities  Asset Funding II, L.L.C.  ("CSAF II"),  ContiFunding
Corporation   ("CFC"),   ContiTrade  Services  L.L.C.   ("CTS"),   ContiMortgage
Corporation ("CMC") (all Delaware  corporations or limited liability  companies)
and ContiFinancial Services Corporation ("CSC"), a New York corporation.

On February 14, 1996,  ContiFinancial  closed an initial public  offering in the
United States and internationally (the "IPO") of approximately 16% of its common
stock.   In  the   reorganization   that   occurred   in   December   1995  (the
"Reorganization"),  (i) ContiTrade  Services  Corporation  ("CTSC")  transferred
certain of its businesses  (excluding its trade finance business) to CTS and the
common  stock  of its  subsidiaries,  CMC and  CSC,  and its  interest-only  and
residual  certificates to Continental  Grain Company  ("Continental  Grain") and
(ii) Continental Grain transferred all of the common stock of CMC, CSC, CSAF and
CFC,  all of the  members'  interest  held  by it in CTS  and  CSAF  II and  the
transferred   interest-only   and   residual   certificates   (See  Note  7)  to
ContiFinancial.  As a result,  ContiFinancial  owns all of the  common  stock or
members'  interests in CTS, CMC, CSC, CFC, CSAF and CSAF II  (collectively,  the
"Previous  Companies").  Prior to the IPO, both  ContiFinancial and the Previous
Companies (exclusive of CMC) were direct or indirect  wholly-owned  subsidiaries
of Continental Grain. As described in Note 6, on June 19, 1995, CTSC effectively
acquired  control of the remaining 20% minority  interest in CMC, which became a
wholly-owned subsidiary of CTSC.

As a result of the  Reorganization,  the  Company  issued  35,918,421  shares of
common stock to Continental Grain.  Additionally,  the Company converted $84,732
of the Previous Companies retained earnings to paid-in capital.

The consolidated financial statements for the periods prior to the IPO have been
combined to reflect  the  Reorganization  accounted  for similar to a pooling of
interests method. All material intercompany transactions have been eliminated in
the  combination.  The  Consolidated  Financial  Statements  include  additional
charges and liabilities  related to expenses  incurred by Continental  Grain for
the  Previous  Companies,  which  historically  had not  been  allocated  to the
Previous  Companies.  These  charges  include  corporate  service  charges  from
Continental Grain and income taxes (See Note 7.).


                                       46
<PAGE>




                     CONTIFINANCIAL CORPORATION
       Notes to Consolidated Financial Statements (continued)
                   March 31, 1997, 1996 and 1995
                       (dollars in thousands)

Acquisitions

In fiscal  1997,  the  Company  acquired  100% of three home  equity  companies,
California  Lending  Group,  Inc.,  d/b/a United Lending  Group,  Inc.  ("ULG"),
Resource  One  Consumer  Discount  Company,  Inc.  ("Resource  One"),  and Royal
Mortgage Partners,  L.P., d/b/a Royal MortgageBanc  ("Royal") and 56% of an auto
finance  company,  Triad  Financial  Corporation  ("Triad"),  collectively,  the
"Acquisitions".  In each case,  the  companies  acquired  were former  Strategic
Alliances or CMC loan origination  sources. The Acquisitions have been accounted
for as  purchases,  and the results of  operations  have been  included with the
Company's results of operations since the effective acquisition date. ( See Note
6.).

Other

The Company organized ContiWest  Corporation  ("CWC"), a Nevada corporation,  in
fiscal 1997 to administer and underwrite a portion of the Company's  origination
portfolio.   Other  direct  or  indirect  wholly-owned  subsidiaries  were  also
organized in fiscal 1997.

2. NATURE OF BUSINESS

The  Company  engages  in  the  consumer  and  commercial  finance  business  by
originating  and servicing  home equity loans and providing  financing and asset
securitization  expertise to originators  of a broad range of loans,  leases and
receivables.  Securitization  provides significant  benefits,  including greater
operating leverage and reduced costs of funds, in the financing of assets,  such
as non-conforming  home equity loans,  equipment leases, home improvement loans,
franchisee loans,  commercial/multi-family  loans,  non-prime and sub-prime auto
loans and leases and timeshare loans. The Company  considers this business to be
one operating segment.

Through CMC and CWC,  the Company is an  originator,  purchaser  and servicer of
home  equity  loans  made  to  borrowers  who  may  not  otherwise  qualify  for
conventional  loans.  The  loans  are  then  sold  to  whole-loan  investors  or
securitized in the form of Real Estate Mortgage Investment Conduits  ("REMICs"),
owner trusts or grantor  trusts.  All of the  mortgages  are sold on a servicing
retained basis. The outstanding  principal  balance in CMC's mortgage  servicing
portfolio at March 31, 1997 and March 31, 1996 was  $6,423,376  and  $3,863,575,
respectively.  Through CTS and CSC, the Company provides  complete balance sheet
liability  management,  including  warehouse  financing,  interest  rate hedging
services and the  structuring  and placement of asset  portfolios in the form of
asset-backed   securities  to  CMC,  the  Acquisitions  and  other   originators
("Strategic  Alliances") of consumer and commercial loans,  leases,  receivables
and other assets  (collectively,  the  "Receivables").  The Strategic  Alliances
provide ContiFinancial with a consistent flow of securitizable  Receivables.  In
certain of the  Strategic  Alliances,  CTSC  receives  warrants or  warrant-like
equity  participations  ("Strategic Alliance Equity Interests") in the Strategic
Alliance client.  The Strategic  Alliance Equity Interests in existence prior to
the IPO  are  held by  Continental  Grain  and as  such  are  not  reflected  in
ContiFinancial's  consolidated  financial statements.  Strategic Alliance Equity
Interests  received from Strategic  Alliance clients  subsequent to the IPO have
been granted to  ContiFinancial.  If such Strategic  Alliance  Equity  Interests
develop a  readily  determinable  fair  value,  the  Strategic  Alliance  Equity
Interests will be recorded at fair value. If such value is not determinable, the
Strategic  Alliance Equity Interests will be recorded at cost adjusted for write
downs for impairments as appropriate.

                                       47
<PAGE>



                   CONTIFINANCIAL CORPORATION
       Notes to Consolidated Financial Statements (continued)
                   March 31, 1997, 1996 and 1995
                       (dollars in thousands)

The Company's business may be affected by many factors including real estate and
other asset values, the level of and fluctuations in interest rates,  changes in
the securitization market and competition. In addition, the Company's operations
require continued access to short and long term sources of cash.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the  reported  amounts of reserves  and expenses  during the  reporting  period.
Actual results could differ from these estimates.

Income Recognition

Gain on sale of receivables is recognized upon delivery and acceptance of loans,
leases or receivables by whole-loan  investors or upon the securitization of the
Receivables  in  the  form  of  REMICs,  owner  trusts  or  grantor  trusts,  as
applicable.  Gains  from  sales of  whole-loans  are  calculated  based upon the
difference  between the net sales  proceeds and the net  carrying  amount of the
loans sold.  Gains on sales of Receivables  from  securitizations  represent the
present  value of the  differential  between  the  interest  rate  earned on the
Receivables sold and the pass-through rate paid to the securitization investors,
after  considering  the effects of  estimated  prepayments,  defaults  and other
costs,  including  normal  servicing  fees,  less the costs of originating  such
Receivables,  and the  gain or loss on  certain  transactions  structured  as an
economic  hedge  that  are  designed  to  minimize  the  risk of  interest  rate
fluctuations.

Interest income is recorded as earned.  Interest income  represents the interest
earned on the loans and leases during the  warehousing  period (the period prior
to  their  securitization)  and  the  recognition  of  interest  income  on  the
interest-only  and  Residual  Certificates,  which  is  the  recognition  of the
increased time value of the discounted  interest-only and Residual  Certificates
over time.  Receivables  are placed on non-accrual  status when the loans become
sixty days past due. When a loan is classified  as  non-accrual,  the accrual of
interest income ceases, and all interest income previously accrued and unpaid on
such loans is reversed.
 
Income Taxes

The  Company  is  included  in the  consolidated  Federal  income  tax return of
Continental  Grain.  The Company has a tax sharing  arrangement with Continental
Grain whereby  Federal  income taxes are computed on a separate  company  basis.
Federal income taxes are settled through the due to affiliates accounts.

The Company  accounts  for income  taxes under the  provisions  of  Statement of
Financial  Accounting  Standards ("SFAS") No. 109, "Accounting for Income Taxes"
("SFAS 109").  SFAS 109 utilizes the balance sheet method and deferred taxes are
determined based on the estimated future tax effects of differences  between the
financial  statement and tax basis of assets and liabilities given the provision
of the enacted tax laws.


                                       48
<PAGE>



                    CONTIFINANCIAL CORPORATION
       Notes to Consolidated Financial Statements (continued)
                   March 31, 1997, 1996 and 1995
                       (dollars in thousands)

Cash and Cash Equivalents

The Company  considers  all highly  liquid debt  instruments  purchased  with an
original maturity of no more than three months to be cash equivalents.

Restricted Cash

As of March 31, 1997 and 1996, the Company had restricted cash of $464 and $620,
respectively,  related to the sale of mortgage loans with limited  recourse to a
counterparty.  The  amount  of cash  required  to be  restricted  is  based on a
percentage of the outstanding balance of the loans sold.

Securities  Purchased Under Agreements to Resell and Securities Sold But Not Yet
Purchased

In order to hedge the interest rate risk on loan purchases and commitments,  the
Company sells short United States Treasury  securities  which match the duration
of the Receivables and purchases the securities under agreements to resell.

Securities sold but not yet purchased are recorded on a trade date basis and are
carried at their sale amount.  The unrealized gain or loss on these  instruments
is deferred and recognized upon  securitization as an adjustment to the carrying
value of the hedged asset.

Securities  purchased  under  agreements  to resell are recorded on a trade date
basis  and  are  carried  at  the  amounts  at  which  the  securities  will  be
subsequently  resold,  plus accrued interest.  The agreements mature through May
1997 and have interest rates ranging from 4.9% to 5.4%.

Interest-only and Residual Certificates

The Company purchases  Receivables for the purpose of  securitization  and sale.
The Company  securitizes the  Receivables  primarily into the form of a REMIC. A
REMIC is a multi-class  security  structure  with certain tax  advantages  which
derives its monthly principal paydowns from a pool of underlying mortgages.  The
senior classes of the REMICs are sold, with the subordinated classes retained by
the  Company.  The  subordinated  classes are in the form of  interest-only  and
residual  certificates.  These  subordinated  classes  of  REMICs  represent  an
interest  in the  REMIC,  or in other  minor  cases an owner  trust or a grantor
trust,  as compared to the right to receive  funds under the form of retained or
capitalized excess servicing assets.

In  accordance  with the  provisions  of SFAS No. 115,  "Accounting  for Certain
Investments in Debt and Equity Securities",  the Company classifies subordinated
classes of REMICs,  owner trusts and grantor trusts as "trading securities" and,
as such,  they are recorded at fair value with the resultant  unrealized gain or
loss  recorded in the results of  operations in the period of the change in fair
value.  The  Company  determines  fair  value  based on a  discounted  cash flow
analysis.  The cash flows are  estimated as the excess of the  weighted  average
coupon  on each  pool  of  Receivables  sold  over  the sum of the  pass-through
interest rate plus a normal  servicing  fee, a trustee fee, an insurance fee and
an  estimate  of  annual  future  credit  losses  related  to  the   Receivables
securitized,  over the life of the  Receivables.  These cash flows are projected
over the life of the Receivables  using prepayment,  default,  and interest rate
assumptions that market participants would use for similar financial instruments
subject to prepayment, credit and interest rate risk and are discounted using an
interest  rate that a  purchaser  unrelated  to the  seller of such a  financial
instrument  would  demand.  The fair  valuation  includes  consideration  of the

                                       49
<PAGE>

following characteristics:  loan type, size, interest rate, date of origination,
term and geographic location.  The Company also uses other available information
such as  externally  prepared  reports  on  prepayment  rates,  interest  rates,
collateral value, economic forecasts and historical default and prepayment rates
of the portfolio under review.

Receivables Held for Sale/Trade Receivables Sold Under Agreements to Repurchase

Receivables  held for sale are  mortgages,  loans,  leases and other  assets the
Company plans to sell or securitize and other related assets including  deposits
made with financial  institutions.  Receivables  held for sale are stated at the
lower of cost, the origination  costs plus accrued interest,  or market.  Market
value is  determined  by  outstanding  commitments  from  investors  or  current
investor  yield  requirements  plus any deferred  hedging gain less any deferred
hedging loss  calculated on the  aggregate  loan basis.  The carrying  amount of
receivables  held for  sale is a  reasonable  estimate  of fair  value  based on
current pricing of whole-loan transactions.

On January 1, 1997, the Company  adopted SFAS No. 125  "Accounting for Transfers
and Servicing of Financial  Assets and  Extinguishment  of  Liabilities"  ("SFAS
125") which addresses the accounting for transfers of financial  assets in which
the  transferor  has  some  continuing   involvement   either  with  the  assets
transferred or with the transferee.  A transfer of financial assets in which the
transferor  surrenders  control over those assets is accounted  for as a sale to
the extent that consideration  other than beneficial interest in the transferred
assets  is  received  in  exchange.  SFAS  125  requires  that  liabilities  and
derivatives  incurred  or  obtained  by  transferors  as part of a  transfer  of
financial  assets be  initially  measured  at fair  value,  if  practicable.  In
addition,   SFAS  125  requires  that  servicing   assets  and   liabilities  be
subsequently  measured  by  the  amortization  over  their  estimated  life  and
assessment of asset impairment be based on such assets' fair value.  SFAS 125 is
effective for transfers and servicing of financial assets and extinguishments of
liabilities   occurring   after   December  31,  1996,  and  is  to  be  applied
prospectively.  The adoption of this standard did not have a material  impact on
the Company's  results of  operations.  However,  certain of the assets that the
Company has sold under the Purchase and Sale Facilities subsequent to January 1,
1997 did not  qualify  for sale  treatment  under  SFAS 125 and as a result  are
accounted  for on the balance sheet of the Company on a trade date basis and are
carried at their sale amount of $251,539 as of March 31, 1997. In the opinion of
management,  SFAS 125 does not in any way effect the  ability of the  Company to
finance these assets.

Capitalized Servicing Fees Receivable

Effective  April 1, 1995,  the  Company  adopted  SFAS No. 122  "Accounting  for
Mortgage  Servicing  Rights"  ("SFAS  122")  which  requires  that  upon sale or
securitization of servicing retained  mortgages,  companies  capitalize the cost
associated with the right to service mortgage loans based on their relative fair
values.  Effective  January 1, 1997,  SFAS 122 was  superseded  by SFAS 125,  as
discussed above, with minor amendments.  The Company determines fair value based
on the present  value of  estimated  net future cash flows  related to servicing
income. The cost allocated to the servicing rights is amortized in proportion to
and over the period of estimated net future servicing fee income.

Prior to the adoption of SFAS 122,  income related to servicing  rights acquired
through loan  origination  activities  was recorded in the period the loans were
serviced.  Under SFAS 122 and SFAS 125, the Company capitalized,  at fair value,
$24,004  and  $13,828 of such costs  during the years  ended  March 31, 1997 and
1996,  respectively.  During  the  same  periods,  amortization  of  capitalized
servicing  rights were  $7,676 and $2,139,  respectively.  Also  increasing  the
capitalized  servicing fees receivable were prepayment  premiums paid during the

                                       50
<PAGE>

                    CONTIFINANCIAL CORPORATION
       Notes to Consolidated Financial Statements (continued)
                   March 31, 1997, 1996 and 1995
                       (dollars in thousands)



year ended March 31, 1997 of $1,336.  At March 31, 1997 and 1996 the capitalized
servicing  rights  approximated  fair value.  The Company  periodically  reviews
capitalized servicing fees receivable for valuation  impairment.  This review is
performed on a disaggregated  basis for the predominant risk  characteristics of
the  underlying  loans  which are loan  type,  loan-to-value  ratio  and  credit
quality.  The Company  generally makes loans to credit impaired  borrowers whose
borrowing  needs may not be met by  traditional  financial  institutions  due to
credit  exceptions.  The Company has found that credit  impaired  borrowers  are
payment sensitive rather than interest rate sensitive.  As such the Company does
not consider  interest rates a predominant risk  characteristic  for purposes of
valuation impairment. Impairment is recognized in a valuation allowance for each
disaggregated stratum in the period of impairment.

Other Receivables

Other  receivables  consist primarily of amounts relating to the origination and
execution  of  securitization   transactions  which  include  advances  made  to
Strategic  Alliances to finance  their  purchase of  interest-only  and residual
certificates,   servicing  advances,   short-term  receivables,   mortgage  loan
advances, and accrued interest on loans and other receivables.

Allowance for Loan Losses

The allowance for loan losses  represents an amount  considered by management to
be adequate to cover estimated losses and valuation  adjustments  related to the
balance of mortgage and non-prime  auto  receivables  held for sale and mortgage
receivables sold with limited  recourse.  The allowance for loan losses is based
upon  periodic  analysis  of the  portfolio,  economic  conditions  and  trends,
historical  credit loss experience,  borrowers'  ability to repay and collateral
values. The Company's  charge-off policy is based on a review of each individual
receivable.

Premises and Equipment, Net of Accumulated Depreciation

Property and equipment are carried at cost and  depreciated  on a  straight-line
basis over the estimated useful lives of the assets.  Leasehold improvements are
amortized over the lesser of the useful lives of the improvements or term of the
leases.  The  estimated  useful lives of property and  equipment  and  leasehold
improvements are between two to twelve years.

Other Assets

Other  assets is  comprised  of prepaid  expenses,  margin  and other  deposits,
deferred bond issuance costs and other investments.  Certain of these assets are
periodically reviewed for impairment.

Stock Based Compensation

In October 1995, the Financial  Accounting  Standards  Board (the "FASB") issued
SFAS No. 123,  "Accounting for Stock-Based  Compensation"  ("SFAS 123") which is
effective beginning in fiscal 1997. SFAS 123 allows companies either to continue
to account for stock-based employee compensation plans under existing accounting
standards or adopt a fair value based method of accounting  for stock options as
compensation  expense over the service period  (generally the vesting period) as
defined in the new standard.  SFAS 123 requires  that if a company  continues to
account for stock options under Accounting  Principles Board ("APB") Opinion No.

                                       51
<PAGE>
                    CONTIFINANCIAL CORPORATION
       Notes to Consolidated Financial Statements (continued)
                   March 31, 1997, 1996 and 1995
                       (dollars in thousands)

25, it must provide pro forma net income and earnings per share  information "as
if " the new fair value approach had been adopted.  The Company will continue to
account  for stock  based  compensation  under APB  Opinion  No. 25 and made the
required disclosures in fiscal 1997 (See Note 9.).

Recent Accounting Pronouncements

In February  1997,  the FASB issued SFAS No. 128  "Earnings  Per Share  ("EPS")"
("SFAS  128")  which is  effective  in fiscal  1998,  early  application  is not
permitted.  SFAS 128 simplifies the standards for computing  earnings per share.
It replaces the  presentation  of primary EPS with a presentation  of basic EPS.
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.  If SFAS  128 had  been  applied  to  fiscal  1997  results  of
operations,  the  Company's  basic EPS  would  have been  $2.44  (pro  forma) of
earnings per common  share based on net income of $106,004 and  weighted-average
number of common shares of 43,361,253  (pro forma).  Fully  dilutive EPS remains
the same under SFAS 128 but will be referred to as diluted EPS.

Consolidated Statements of Cash Flows--Supplemental Disclosures

Total interest paid was $119,223, $71,539, and $29,635 for the years ended March
31, 1997,  1996, and 1995,  respectively.  Total income taxes paid were $45,624,
$896, and $441 for the years ended March 31, 1997, 1996 and 1995,  respectively.
For the year ended March 31, 1997,  federal income taxes were paid, on a current
basis, to Continental Grain in accordance with the provisions of the tax sharing
agreement  (See Note 7.). As such,  these  amounts were included in total income
taxes paid for the year ended March 31, 1997.  Prior to the IPO,  federal income
taxes were included in due to  affiliates,  which was not repaid to  Continental
Grain on a current  basis,  and as such were not  included in total income taxes
paid for the years ended March 31, 1996 and 1995.

Pro Forma Earnings Per Common Share and Earnings Per Common Share

Due to the  Reorganization  and the  issuance  of common  stock in the IPO,  net
earnings per common  share for the year ended March 31, 1996 have been  computed
on a pro forma basis,  assuming the Reorganization  occurred at the beginning of
fiscal 1996,  and includes the number of common  shares issued by the Company in
the IPO from the date of  issuance  plus the effect of common  stock  equivalent
shares under the  restricted  stock awards and stock options plans (See Note 9.)
from that same date.  Because of the  Company's  Reorganization  and  changes in
capital  structure,  per share  data for the year  ended  March 31,  1995 is not
meaningful.

Net  earnings  per  common  share for the year  ended  March 31,  1997 have been
computed using the weighted average number of common shares  outstanding  during
the year, after giving effect of common stock equivalents issued under the "1995
Long-Term Stock Incentive Plan" (See Note 9.).

Reclassifications

Certain  reclassifications  of prior years' amounts have been made to conform to
the current year presentation.


                                       52
<PAGE>

                     CONTIFINANCIAL CORPORATION
       Notes to Consolidated Financial Statements (continued)
                   March 31, 1997, 1996 and 1995
                       (dollars in thousands)
4. STOCKHOLDERS' EQUITY

The  stockholders'  equity as of March 31, 1995  reflects  the  combined  common
stock, paid-in capital and retained earnings of the Previous Companies.

CMC is subject to minimum capital requirements imposed by the states in which it
operates,  with the highest being $250. In addition, CMC is required by the U.S.
Department of Housing and Urban  Development to maintain minimum capital of $250
plus an  amount  based on the  volume of  Federal  Housing  Authority  business.
Furthermore,  CMC is  required  by the  Federal  National  Mortgage  Association
("FNMA") to maintain minimum capital of $250 plus .20% of the principal  balance
of the portfolio being serviced for FNMA.

CSC is registered as a broker/dealer with the Securities and Exchange Commission
and is subject to the SEC's  Uniform Net Capital  Rule  15c3-1,  under which the
ratio of aggregate  indebtedness to net capital,  as those are defined,  may not
exceed 15 to 1.

5. ALLOWANCE FOR LOAN LOSSES

The  allowance  for loan  losses and related  additions  and  deductions  to the
allowance for the years ended March 31, 1997,1996, and 1995, were as follows:
<TABLE>
<CAPTION>

                    Balance at                      Additions Charged   Deductions
        Year Ended  Beginning      Acquired from       to Costs and        and      Balance at End
         March 31,   of Year       Acquisitions        Expenses         Reversals      of Year
         ---------   -------       ------------        --------         ---------      -------
                                                                              
<S>       <C>       <C>             <C>                <C>              <C>           <C>    
          1997      $ 1,824         $ 1,547            $ 3,043          $(2,667)      $ 3,747
          1996        1,808            --                  285             (269)        1,824
          1995        2,401            --                1,935           (2,528)        1,808
</TABLE>

The  deductions  in the  allowance for loan losses for the years ended March 31,
1997,  1996,  and  1995  relate  to  the  reversal  of  reserves  and  net  loan
charge-offs.


                                       53
<PAGE>




                    CONTIFINANCIAL CORPORATION
       Notes to Consolidated Financial Statements (continued)
                   March 31, 1997, 1996 and 1995
                       (dollars in thousands)

6. ACQUISITIONS

On June 19,  1995,  CTSC  effectively  acquired  control  of the  remaining  20%
minority interest of CMC for $34,600.  The acquisition has been accounted for by
the purchase method of accounting.  Associated cost in excess of equity is being
amortized  over 25 years on a  straight-line  basis.  The Company  assesses  the
future  useful life of this asset  whenever  events or changes in  circumstances
indicate that the current useful life has diminished.  The Company considers the
future  undiscounted  cash  flows of the  acquired  business  in  assessing  the
recoverability  of  this  asset.  If the  fair  value  of the  estimated  future
undiscounted  cash flows from this business is lower than the carrying  value of
this asset,  and the decline is deemed to be other than  temporary,  the Company
will write down the asset to fair value.

The March 31, 1996 consolidated  statement of income of the Company reflects the
entire  results of the  operations  of CMC for the period  from June 19, 1995 to
March 31, 1996.

The pro forma  results of operations of the Company for the year ended March 31,
1996 would be as follows to reflect the acquisition of the minority  interest as
if the acquisition  occurred as of April 1, 1995: Gross income of $271,816,  Net
income of $77,319 and pro forma  primary and fully  diluted  earnings per common
share of $2.09.

On November 8, 1996, the Company purchased 100% of the outstanding stock of ULG,
a west  coast-based home equity lender  specializing in retail  originations via
direct mail and  telemarketing  throughout  the United  States.  On November 15,
1996,  the Company,  through its  subsidiary  CMC,  purchased  100% of Royal,  a
California-based  wholesale and retail  originator of fixed and adjustable  rate
home equity  loans.  On November 21, 1996,  the Company  purchased  53.5% of the
common  stock of Triad and an  additional  2.5% of the  common  stock in January
1997.  Triad  is  a  California-based   auto  finance  company  specializing  in
origination  of non-prime auto finance  contracts for used and new vehicles.  On
December 16, 1996, the Company,  through its subsidiary  CMC,  purchased 100% of
the outstanding stock of Resource One, a  Pennsylvania-based  home equity lender
specializing   in  retail   origination   via  direct  mail,   television,   and
telemarketing  throughout the eastern and mid-western  states.  In each case the
companies  acquired  were former  Strategic  Alliances  or CMC loan  origination
sources.  These  transactions  have been  accounted  for as  purchases,  and the
results  of  operations  have  been  included  with  the  Company's  results  of
operations since the effective  acquisition dates. The cumulative purchase price
was  approximately  $38,000,  which includes  deferred payments of approximately
$5,000. As a result of the acquisitions, approximately $35,000 of cost in excess
of equity was recorded which will be amortized on a  straight-line  basis over a
25 year useful life.  Certain  acquisition's  terms contain  payments  which are
contingent upon future earnings or employment of key management. Such contingent
payments will be recorded as purchase  price or  compensation  as is appropriate
for the  nature of the  payments.  The  Company  has a right and  obligation  to
purchase the remaining 44% of the common stock of Triad over the next 4.5 years.
The purchase  price will be based upon the future  earnings of Triad and will be
recorded,  when  determinable.  The excess of the  purchase  price over the fair
value of the net assets  acquired  will be  recorded  as an  increase in cost in
excess of equity. The Acquisitions are not material to the financial position or
results of operations of the Company.



                                       54
<PAGE>



                     CONTIFINANCIAL CORPORATION
       Notes to Consolidated Financial Statements (continued)
                   March 31, 1997, 1996 and 1995
                       (dollars in thousands)


7. RELATED PARTY TRANSACTIONS

Notes Payable

In  connection  with the IPO (See  Note 1.),  the  Company  entered  into a note
purchase agreement with Continental  Grain,  pursuant to which Continental Grain
purchased  from the Company a $125,000  five-year note issued under an indenture
(the "Indenture  Note"),  a $74,000  four-year note (the "Four Year Note") and a
$125,000   term  note  (the  "Term   Note")  for   $324,000  in  the   aggregate
(collectively, the "Notes"). As of March 12, 1997 the intercompany debt was paid
in  full  and  the  Company  is no  longer  subject  to  the  covenants  of  the
intercompany debt.

The Company is  indirectly  subject to the  financial  covenants of  Continental
Grain's debt  agreements  which  restrict  dividends  by less than  wholly-owned
subsidiaries.  If these  covenants  are  still in place at the time the  Company
decides to declare a dividend,  a waiver from the related  lenders would have to
be obtained.

Due to Affiliates

Prior to the IPO,  Continental  Grain provided interest bearing and non-interest
bearing funds to support  operations of the Company.  On February 14, 1996, this
support of  operations  was replaced by the Notes.  The interest  bearing  funds
("Interest  Bearing  Funds")  provided  by  Continental  Grain  were  subject to
interest  charges which  represent  Continental  Grain's all inclusive  weighted
average cost of short term funds (the "FMA Rate").  Interest expense incurred at
the FMA Rate was  $19,584  and  $10,234  for the years  ended March 31, 1996 and
1995, respectively.

The average  Interest Bearing Funds for the years ended March 31, 1996 and 1995,
were $325,355 and $160,659,  respectively.  The weighted  average interest rates
charged on the  Interest  Bearing  Funds for the years  ended March 31, 1996 and
1995 were 6.88% and 6.37%, respectively.

The March 31, 1997 and 1996 due to affiliates balance represents payments due on
the  Services  Agreement,  the Tax  Sharing  Agreement,  the  Employee  Benefits
Allocation Agreement and the Sublease Agreement, as defined below. The March 31,
1996 due to affiliates balance also included accrued interest due to Continental
Grain under the terms of the Notes.

Affiliate Charges

Continental  Grain  incurs  certain  general and  administrative  expenses  that
support the Company's operations. Expenses directly attributable to the Company,
such as  occupancy  and  communication  charges,  are  directly  charged  to the
Company. Other general and administrative  expenses indirectly charged relate to
support  services  such as treasury  functions,  tax  services,  human  resource
management,   information  technology,   internal  audit  functions,   insurance
management,  legal services, and others. The amount of such expenses was $1,749,
$1,907  and  $2,848  for  the  years  ended  March  31,  1997,  1996  and  1995,
respectively.

The  determination of expenses  incurred by Continental  Grain applicable to the
Company is based  first,  on  identifying  specific  expenses  that are directly
attributable to its operations and second, on estimating that portion of general
and administrative  expenses of Continental Grain used to support the operations

                                       55
<PAGE>

                           CONTIFINANCIAL CORPORATION
             Notes to Consolidated Financial Statements (continued)
                          March 31, 1997, 1996 and 1995
                             (dollars in thousands)

of the Company  based on the service hours  attributable  to the Company and the
asset base of the Company.  Management believes that the method of allocation of
general and administrative expenses is reasonable.

On February 14, 1996,  the Company  entered into an agreement  with  Continental
Grain  (the  "Services  Agreement")  under  which  Continental  Grain  agrees to
continue to provide the Company certain corporate  services,  including treasury
administration,   risk  management,   internal  audit,  Federal  and  state  tax
(including  payroll)  administration,  management  information and communication
support services,  public affairs,  and facilities  management through March 31,
1999 and from year-to-year thereafter.

Interest-only and Residual Certificates  Transfer

On February 14, 1996,  the Company  entered into an agreement  with  Continental
Grain to transfer $60,701 of its interest-only and residual certificates at book
value to Continental Grain in order to reduce the amount of due to affiliates to
$324,000 on such date. Based upon management's  valuation of these interest-only
and residual  certificates  and other sales  transactions  with unrelated  third
parties,  the Company  believes  that the book value of such  interest-only  and
residual  certificates  represented  the fair  value of such  interest-only  and
residual certificates.

Tax Sharing Agreement

On February  14,  1996,  Continental  Grain and the Company  entered  into a tax
sharing  agreement  (the  "Tax  Sharing  Agreement")  which  (i)  defines  their
respective rights and obligations with respect to Federal,  state, local and all
other  taxes for all  taxable  periods  both prior to and after the IPO and (ii)
governs  the conduct of all audits and other tax  controversies  relating to the
Company.  Pursuant to the Tax Sharing Agreement,  the Company will be charged or
credited,  as the case may be, for its Federal  income tax  liability  or refund
that would have been  payable  or  received  by the  Company  for such year,  or
portion  thereof,  determined  as if the  Company  had filed a separate  Federal
income tax return computed in accordance with prevailing Federal income tax laws
and regulations as applied to the Company as if it were a separate taxpayer.

Employee Benefits Allocation Agreement

On February 14, 1996, Continental Grain and the Company entered into an employee
benefits  allocation  agreement (the "Employee Benefits  Allocation  Agreement")
which  permits  the  Company's  employees  to  continue  to  participate  in the
Continental  Grain employee benefit plans. The cost of the Company's  employees'
participation  in these  programs  will be allocated to the Company based on the
actual cost of benefit accruals and an allocated cost of  administration  of the
plans and overhead (See Note 9.).

Sublease Agreement

On February 14, 1996,  Continental Grain and the Company entered into a sublease
agreement  with  subsequent   amendments  (the  "Sublease  Agreement")  for  the
utilization  of the  facilities  leased from  Continental  Grain.  The  Sublease
Agreement will require an annual payment of approximately  $787 through the year
2000.


                                       56
<PAGE>



                           CONTIFINANCIAL CORPORATION
             Notes to Consolidated Financial Statements (continued)
                          March 31, 1997, 1996 and 1995
                             (dollars in thousands)
8. DEBT

In fiscal 1996, debt financing was provided by Continental  Grain (See Note 7.).
During  fiscal 1997,  this debt was retired and replaced  with  publicly  issued
debt. Long-term debt at March 31, 1997 consists of the following:
                                                                     March 31,
                                                                       1997    
                                                                       ----    
8 3/8% Senior Notes, $300 million face amount, due 2003              $299,194
7 1/2% Senior Notes, $200 million face amount, due 2002               199,288
Capitalized lease                                                         335
                                                                     --------  
Total long-term debt                                                 $498,817
                                                                     ========

On August 14, 1996,  the Company  issued $300 million of unsecured  senior notes
(the "8 3/8% Senior Notes") due August 15, 2003. Proceeds to the Company, net of
underwriting  fees,  market discount and other costs were $287,742.  Interest on
these notes is payable  semi-annually  on  February 15 and August 15  commencing
February 15, 1997. The 8 3/8% Senior Notes are redeemable as a whole or in part,
at the option of the Company,  at any time or from time to time, at a redemption
price equal to the greater of (i) 100% of their principal amount or (ii) the sum
of the present  values of the  remaining  scheduled  payments of  principal  and
interest  thereon  discounted to the date of redemption on a semiannual basis at
the treasury yield plus 50 basis points, plus, in each case, accrued interest to
the date of  redemption.  Interest  expense on the unsecured 8 3/8% Senior Notes
was $15,484 for fiscal 1997.

On March 12, 1997,  the Company  issued $200  million of unsecured  senior notes
(the "7 1/2% Senior  Notes") due March 15, 2002 (together with the 8 3/8% Senior
Notes, the "Senior Notes").  Proceeds to the Company,  net of underwriting fees,
market  discount  and other  costs were  $197,700.  Interest  on these  notes is
payable  semi-annually  on March 15 and  September 15  commencing  September 15,
1997. Interest expense on the 7 1/2% Senior Notes was $756 for fiscal 1997.

The Company is required to comply with various operating and financial covenants
as set forth in the agreements governing the issuance of the Senior Notes. Among
other restrictions, the Company must comply with limitations on indebtedness and
restricted payments.

The Senior  Notes are equal in right of  payment  with all  existing  and future
senior indebtedness of the Company and will be senior in right of payment to all
future subordinated indebtedness of the Company.

On January 8, 1997, the Company closed a $200 million unsecured revolving credit
facility (the "Short-Term  Borrowing").  The three-year Short-Term Borrowing has
several interest rate pricing alternatives,  including those based on the London
Interbank  Offering Rate ("LIBOR") and federal funds rate. The amount  available
under the  Short-Term  Borrowing  is based on a formula  based on certain of the
Company's consolidated assets.  Interest expense on the Short-Term Borrowing was
$164 for fiscal 1997.



                                       57
<PAGE>



                           CONTIFINANCIAL CORPORATION
             Notes to Consolidated Financial Statements (continued)
                          March 31, 1997, 1996 and 1995
                             (dollars in thousands)

 9. EMPLOYEE BENEFITS

The Company's  employees are included in Continental  Grain's employee  benefits
programs,  and the Company  reimburses  Continental Grain for the actual cost of
benefit accruals and an allocable cost of administration and overhead.

Continental  Grain  has a  number  of  noncontributory  pension  plans  covering
substantially  all United States  employees.  The pension plan covering salaried
employees  provides  benefits  that are  generally  based on a percentage of the
employee's salary during the five years before retirement.  Continental  Grain's
funding  policy  for  these  plans  is  generally  to make  the  minimum  annual
contribution  required by applicable  regulations.  Pension costs charged to the
Company by Continental  Grain were $374, $118, and $91 for the years ended March
31, 1997, 1996 and 1995, respectively.

Post-retirement  health care coverage under Continental  Grain's Salaried Health
Care Plan is  available  on a cost  sharing  basis to  retired  employees.  Life
insurance  coverage is provided on a noncontributory  basis to substantially all
retirees.   Post-retirement   health  care  costs  charged  to  the  Company  by
Continental  Grain were $419,  $680 and $394 for the years ended March 31, 1997,
1996,  and  1995,  respectively.  Effective  April 1,  1996,  Continental  Grain
transferred  the  Company's  portion  of  the  accrual,  as of  such  date,  for
post-retirement  health care costs. This accrual was determined on a stand alone
basis for the Company.

The Company has in effect an incentive  compensation  program which is a formula
plan based on pre-tax income targets. Incentive compensation for the years ended
March 31, 1997, 1996 and 1995 was $24,580, $27,986 and $12,400, respectively.
 
Upon acquisition of ULG, the Company  established a long term incentive plan for
certain key  employees  of ULG. The program is a formula plan based on after-tax
income.  The Company recognized $200 in expense for this plan for the year ended
March 31, 1997.

1995 Long-Term Stock Incentive Plan

On February 9, 1996, the Company adopted the 1995 Long-Term Stock Incentive Plan
(the "Stock Plan") pursuant to which the Company was authorized to grant certain
key employees  4,437,895 of options and restricted stock, in the common stock of
the Company.  The aggregate equity interests in the Company  available under the
Stock Plan is not to exceed 9% of all equity  interests in the Company as of the
date the plan was adopted.  In fiscal 1997 and fiscal 1996, the Company  granted
stock options and restricted stock under the Stock Plan.

The  Company  applies APB  Opinion  No. 25 and the  related  interpretations  in
accounting  for the Stock Plan.  In October  1995,  the FASB issued SFAS 123. If
fully adopted,  SFAS 123 changes the method for  measurement  and recognition of
stock-based  compensation on plans similar to those of the Company.  The Company
has adopted  the  disclosure  requirements  established  by SFAS 123.  Pro forma
disclosures  as if the Company had  adopted  the cost  recognition  requirements
under SFAS 123 are presented below.



                                       58
<PAGE>



                             
                     CONTIFINANCIAL CORPORATION
       Notes to Consolidated Financial Statements (continued)
                   March 31, 1997, 1996 and 1995
             (dollars in thousands, except share data)

Stock options granted under the Stock Plan are nonqualified  stock options that:
(1) are  granted at prices  which are equal to the market  value of the stock on
the date of grant;  (2) subject to a  grantee's  continued  employment  with the
Company,  vest at various  periods over a four year  period;  and (3) expire ten
years subsequent to the award.

A summary of the status of the Company's  stock options as of March 31, 1997 and
1996 and the changes during the year is presented below:
                                                                 
<TABLE>
<CAPTION>
                                            March 31, 1997              March 31, 1996                       
                                            --------------              --------------                       
                                                      Weighted                       Weighted       
                                                       Average                       Average
                                        Shares      Exercise Price     Shares     Exercise Price
                                        ------      --------------     ------     --------------
<S>                                   <C>               <C>          <C>             <C>    
Outstanding at beginning of year      2,623,500         $21.11            --         $    --
Granted                                  50,000          35.63        2,623,500         21.11
Exercised                               (11,382)         21.11            --              --
Forfeited                              (177,388)         21.11            --              --
Outstanding at end of year            2,484,730         $21.41        2,623,500        $21.11
Options exercisable at end of year      491,946         $21.26          196,763        $21.11
</TABLE>

The fair value of each  option  granted  during  fiscal  1997 and fiscal 1996 is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following  assumptions:  (1) dividend yield of zero; (2) expected volatility
49.75%;  (3)  risk-free  interest rate of 5.05% for 1996 and 6.32% for 1997 and;
(4)  expected  life of 3.5 years.  The  weighted  average  fair value of options
granted during 1997 and 1996 was $15.33 and $8.78, respectively.

Had  compensation  cost for the Company's fiscal 1997 and fiscal 1996 grants for
stock options been determined  consistent with SFAS 123, the Company's pro forma
net income and pro forma net income per common  share for fiscal 1997 and fiscal
1996 would approximate the pro forma amounts below:

<TABLE>
<CAPTION>

                                                   March 31, 1997               March 31, 1996 
                                                   --------------               -------------- 
                                               As Reported    Pro Forma    As Reported   Pro Forma
                                               -----------    ---------    -----------   ---------
<S>                                             <C>           <C>            <C>         <C>    
Net income                                      $106,004      $99,730        $74,130     $72,217
Net income per common share:
        Primary                                    $2.40        $2.25          $2.00       $1.95
        Fully diluted                              $2.40        $2.25          $2.00       $1.95
</TABLE>

The  restricted  stock  granted  under the Stock Plan is  recorded  as  deferred
compensation in  stockholders'  equity.  The deferred  compensation is amortized
over the vesting period of the restricted stock. The restricted stock vests over
a 3 to 4 year period and is subject to the employee's  continued employment with
the Company.




                                       59
<PAGE>




                     CONTIFINANCIAL CORPORATION
       Notes to Consolidated Financial Statements (continued)
                   March 31, 1997, 1996 and 1995
             (dollars in thousands, except share data)

In  connection  with  the  restricted  stock  issuance,   the  Company  recorded
compensation  expense  of $6,721  and  $4,967 in fiscal  1997 and  fiscal  1996,
respectively.

A summary of the status of the Company's  restricted  stock as of March 31, 1997
and 1996 and the changes during the year is presented below:

<TABLE>
<CAPTION>
                                                   
                                      
                                             March 31, 1997              March 31, 1996                       
                                             --------------              --------------                       
                                                      Weighted                       Weighted       
                                                       Average                       Average           
                                      Shares         Grant Price      Shares       Grant Price
                                      ------         -----------      ------       -----------
<S>                                  <C>              <C>            <C>                 <C> 
Outstanding at beginning of year     1,330,532        $21.00            --            $ --
Granted                                  6,000         35.63         1,330,532        21.00
Forfeited                             (33,929)         21.00            --              --
Vested and transferable               (57,052)         21.00            --              --
Outstanding at end of year           1,245,551        $21.07         1,330,532       $21.00

</TABLE>

 




                                       60
<PAGE>




                     CONTIFINANCIAL CORPORATION
       Notes to Consolidated Financial Statements (continued)
                   March 31, 1997, 1996 and 1995
                       (dollars in thousands)

                                 

10. INCOME TAXES

Income  taxes  included  in the  consolidated  statements  of income
represent the following:
<TABLE>
<CAPTION>

                                                                      Current   Deferred    Total
                                                                      -------   --------    -----
<S>                                                                 <C>        <C>        <C>
Year ended March 31, 1997
   Federal .........................................................  $54,137    $ 4,661   $58,798
   State and local .................................................   11,524      1,019    12,543
                                                                       ------      -----    ------
                                                                      $65,661    $ 5,680   $71,341
                                                                      =======    =======   =======
Year ended March 31, 1996
   Federal .........................................................  $38,762    $ 3,278   $42,040
   State and local .................................................    6,504        552     7,056 
                                                                        -----        ---     ----- 
                                                                      $45,266    $ 3,830   $49,096
                                                                      =======    =======   =======
Year ended March 31, 1995
   Federal .........................................................  $21,354    $(2,605)  $18,749
   State and local .................................................    3,894      (475)     3,419
                                                                        -----      ----      -----
                                                                      $25,248    $(3,080)  $22,168
                                                                      =======    =======   =======
</TABLE>

The difference  between the "expected"  Federal tax rate and expense
computed  by  applying  the  statutory  tax  rate to  income  before
provision  for income taxes and the  effective  tax rate and expense
is as follows:
<TABLE>
<CAPTION>
 
 
                                            March 31, 1997      March 31, 1996         March 31, 1995
                                            --------------      --------------         --------------
                                                    Percent            Percent                 Percent 
                                                      of                  of                     of
                                                    Pre-Tax            Pre-Tax                 Pre-Tax
                                         Amount     Earnings  Amount   Earnings      Amount    Earnings
                                         ------     --------  ------   --------      ------    --------
<S>                                     <C>         <C>      <C>         <C>         <C>         <C>  
Computed "expected" tax provision ...   $61,963     35.0%    $44,288     35.0%       $19,946     35.0%
State and local taxes, net of related
  Federal benefit ...................     8,055      4.6%      4,808      3.8%         2,222      3.9%
Other ...............................     1,323      0.7%       --         --           --        --
                                          -----      ----      ----       ----        ----       ----                 
   Total ............................   $71,341     40.3%    $49,096     38.8%       $22,168     38.9%
                                        =======     ====     =======     ====        =======     ==== 
The effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax
liabilities  are as follows:
</TABLE>

<TABLE>
<CAPTION>
                                                             
                                                          March 31, 
                                                          --------- 
<S>                                             <C>         <C>          <C>        
                                                1997        1996         1995       
                                                ----        ----         ----       
Deferred Tax Assets:
   Provision for loan losses .............   $  1,069    $    982    $    605
   Deferred compensation .................      4,835        --          --
   Restricted stock awards ...............        301       1,927        --
   Other .................................      2,776         377          42
Deferred Tax Liabilities:
   Net servicing income ..................    (11,081)     (4,535)       --
   Interest-only and residual certificates    (12,942)     (9,813)     (7,881)
   Other .................................       (115)        (18)        (16)
                                                 ----         ---         --- 
Net deferred tax liability ...............   $(15,157)   $(11,080)   $ (7,250)
                                             ========    ========    ======== 
</TABLE>
 

                                       61
<PAGE>



                    CONTIFINANCIAL CORPORATION
       Notes to Consolidated Financial Statements (continued)
                   March 31, 1997, 1996 and 1995
                       (dollars in thousands)

11.  COMMITMENTS AND CONTINGENCIES

In addition to utilizing  facilities leased by Continental  Grain, the Company's
operations are conducted from leased facilities  located in various areas of the
United States.  These leases have clauses which provide for increases in rent in
the event of  increases  in real  estate  taxes and  maintenance  costs.  Rental
expense for the years ended March 31,  1997,  1996 and 1995 was $3,470,  $1,884,
and  $564,  respectively.  The  Company  also has a  capital  lease  on  certain
machinery and equipment included as part of "Premises and equipment". The future
minimum lease  payments  under the operating and capital leases for the Company,
are as follows:


                                               
                                                   Operating     Capital
         Fiscal Year                                Leases        Leases
         -----------                                ------        ------
         1998 .................................    $  6,653    $    362
         1999 .................................       7,580         174
         2000 .................................       7,222         121
         2001 .................................       5,960          64
         2002 .................................       5,159          18
         Thereafter ...........................      29,614           0
                                                     ------      ------
                                                   $ 62,188    $    739
                                                   ========    --------
         Less: amounts
         representing interest ................                    (104)
                                                              ---------   
         Present value of net
          minimum lease payments ..............                     635
         Less: current maturties ..............                    (300)
                                                              ---------
         Long-term obligation .................               $     335
                                                              =========

                                                     

Litigation

The Company is involved in certain  litigation  arising in the normal  course of
business.  The Company  believes that any  liability  with respect to such legal
actions,  individually or in the aggregate,  is not likely to be material to the
Company's consolidated financial position or results of operations.

12. FINANCIAL INSTRUMENTS AND OFF-BALANCE SHEET ACTIVITIES

Sales of Assets with Recourse

During 1997,  1996 and 1995,  the Company  utilized  agreements  with  financial
institutions  (the  "Purchasers") to sell, with limited  recourse,  interests in
designated  pools  of  securitized  and  whole  loans  receivables.   Under  the
agreements,  the  Purchasers  have given the Company a right of first refusal to
repurchase such receivables prior to third-party sales. Pursuant to the recourse
provisions of these  agreements,  the Company is responsible for losses incurred
by the Purchasers on third-party sales of the receivables up to either 5% or 10%
of the sale amounts.  The agreements are guaranteed by the Company.  The Company
monitors its exposure  associated  with these  agreements  and records  recourse
provisions,  as necessary, to address this potential exposure. During 1997, 1996
and 1995, the Company  utilized these  facilities to sell  receivables  totaling


                                       62
<PAGE>

                     CONTIFINANCIAL CORPORATION
       Notes to Consolidated Financial Statements (continued)
                   March 31, 1997, 1996 and 1995
                       (dollars in thousands)


approximately $7,350,000, $5,671,000 and $2,510,000,  respectively. At March 31,
1997  and  1996,  approximately  $591,000  and  $565,000,   respectively,   were
outstanding and offset against receivables held for sale.

During  1997,  1996,  and 1995,  the Company  sold,  with limited  recourse,  an
interest in certain interest-only and residual certificates for $96,545, $54,500
and $50,000,  respectively.  At March 31, 1997, 1996 and 1995, $144,926, $90,985
and $50,000, respectively, of these aforementioned sales were outstanding. Under
the recourse provisions of the agreements, the Company is responsible for losses
incurred  by the  purchaser  within an agreed  upon range.  The  agreements  are
guaranteed by Continental Grain for an agreed upon fee.

Financial  Instruments

SFAS No. 105,  "Disclosure  of  Information  about  Financial  Instruments  with
Off-Balance-Sheet  Risk and Financial  Instruments with Concentrations of Credit
Risk" and SFAS No. 119, "Disclosure about Derivative  Financial  Instruments and
Fair Value of  Financial  Instruments"  require the  disclosure  of the notional
amount or contractual amounts of financial instruments.

The Company  regularly  securitizes  and sells fixed and variable  rate mortgage
loan  receivables.  As part of its interest rate risk management  strategy,  the
Company  may choose to hedge its  interest  rate risk  related  to its  mortgage
portfolio and purchase  commitments by utilizing financial futures.  The Company
classifies  these  futures as hedges of specific loan  receivables  and purchase
commitments.  The gains and losses  derived  from these  financial  futures  are
deferred and included in the  carrying  amounts of the related  hedged items and
ultimately recognized in income. Deferred gains on the futures used to hedge the
anticipated  transactions amounted to $2,821, $1,968 and $359 at March 31, 1997,
1996, and 1995, respectively.

The  following  table  identifies  the contract  and market  values of financial
instruments as of March 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>

Futures Contracts:

                              Contract Value   Market Value      
                                  Short           Short 
                                  -----           ----- 
<S>                             <C>             <C>     
March 31, 1997 ..............    $364,900        $377,440
March 31, 1996 ..............     219,800         231,739
March 31, 1995 ..............      58,500          60,068
</TABLE>
 
Market Risk

In the normal  course of business the Company  enters into  various  contractual
commitments  involving  forward  settlement.  These  include  financial  futures
contracts and short sales. Commitments involving forward settlement give rise to
market risk,  which represents the potential loss that can be caused by a change
in the market value of a particular financial instrument.

The Company is also exposed to market  interest rate risk. A decline in interest
rates will typically  increase the amount of loan  prepayments  and decrease the
value of the interest-only and residual  certificates and capitalized  servicing
fees  receivable.  An  increase in interest  rates may  decrease  the demand for
consumer and commercial credit.


                                       63
<PAGE>


                    
                     CONTIFINANCIAL CORPORATION
       Notes to Consolidated Financial Statements (continued)
                   March 31, 1997, 1996 and 1995
                       (dollars in thousands)

Periods of economic slowdown or recession may be accompanied by decreased demand
for the market for Receivables or declines in real estate values.  These factors
will  influence  the  Company's  ability to obtain and  securitize  Receivables.
During these periods the Company's cost of servicing loans may increase as rates
of delinquency and foreclosure increase.

Fair Value of Financial Instruments

The  Company's  financial  instruments  recorded  at  contractual  amounts  that
approximate market or fair value primarily consist of securities purchased under
agreements to resell, trade receivables,  accounts payable and accrued expenses,
securities  sold  but  not  yet  purchased  and  trade  receivables  sold  under
agreements  to  repurchase.  As these  amounts  are short term in nature  and/or
generally  bear  market  rates  of  interest,  the  carrying  amounts  of  these
instruments are reasonable  estimates of their fair values. The carrying amounts
of the  Company's  long-term  debt  approximate  fair  value when  valued  using
available quoted market prices.

Credit Risk

The  Company  is  exposed  to  on-balance  sheet  credit  risk  related  to  its
Receivables and interest-only and residual certificates.  The Company is exposed
to  off-balance  sheet  credit  risk  related  to loans  which the  Company  has
committed to originate or buy and loans sold with limited recourse.

The Company utilizes securities  purchased under agreements to resell as part of
its interest rate management  strategy.  These instruments expose the Company to
credit  risk  which  is  measured  as the  loss  the  Company  would  record  if
counterparties  failed  to  perform  pursuant  to  terms  of  their  contractual
obligations  and the value of the  collateral  held, if any, was not adequate to
cover such losses.  The  Company's  policy is to take  possession  of securities
purchased under  agreements to resell.  The Company monitors the market value of
the assets  acquired to ensure their adequacy as compared to the amount at which
the  securities  will be resold.  The Company may  require the  counterparty  to
deposit  additional  collateral or reduce the loan balance when  necessary.  The
interest  rate on these  instruments  depends  upon,  among  other  things,  the
underlying  collateral,  the term of the agreement and the credit quality of the
counterparty.  At March 31,  1997 and 1996,  these  instruments  had a  weighted
average  interest rate of 5.1%, and 4.7%,  respectively.  The Company  transacts
these resale agreements primarily with three institutional broker/dealers.

The Company is a party to financial  instruments with  off-balance  sheet credit
risk in the normal  course of  business.  These  financial  instruments  include
commitments  to extend credit to borrowers,  commitments  to purchase loans from
correspondents, and recourse provided on loans sold to investors in prior years.
The  Company has a first or second  lien  position on all of its loans,  and the
combined  loan-to-value  ratio  ("CLTV")  permitted  by the  Company's  mortgage
underwriting  guidelines  generally may not exceed 85%. The CLTV  represents the
combined  first and second  mortgage  balances as a percentage  of the appraised
value or the  mortgaged  property,  with the  appraised  value  determined by an
appraiser with appropriate professional  designations.  A title insurance policy
is required for all loans.

As of March 31, 1997 and 1996, the Company had outstanding commitments to extend
credit or purchase  loans in the amount of $428,234 and $206,314,  respectively.
As these amounts are short term in nature and/or  generally bear market rates of
interest,  the contractual amounts of these instruments are reasonable estimates
of their fair values.

                                       


                                       64
<PAGE>


                    CONTIFINANCIAL CORPORATION
       Notes to Consolidated Financial Statements (continued)
                   March 31, 1997, 1996 and 1995
                       (dollars in thousands)
 
Commitments  to extend  credit or to purchase a loan are granted for a period of
thirty days and are contingent  upon the borrower and the borrower's  collateral
satisfying the Company's underwriting guidelines.  Since many of the commitments
are expected to expire without being exercised, the total commitment amount does
not necessarily represent future cash requirements or future credit risk.

The Company  monitors  concentrations  of credit risk  associated  with business
conducted with financial  institutions  and minimizes  credit risk by avoiding a
concentration with any single financial  institution.  As of March 31, 1997, and
1996 the majority of loans with  on-balance  sheet and  off-balance  sheet risks
were collateralized by properties located in the Eastern United States.

Warehousing Exposure

The Company makes warehouse financing available to its securitization clients to
facilitate the accumulation of securitizable  products prior to  securitization.
As of March 31,  1997 and 1996,  the  Company  had  $1,567,600  and  $981,600 of
committed  warehousing  available to its third party clients,  of which $566,029
and $425,378,  respectively, was drawn down. Warehouse commitments are typically
for a term of one year or less and are  designated  to fund  only  securitizable
assets.  Assets from a particular client remain in the warehouse for a period of
90-120  days at which  point  they  are  securitized  and sold to  institutional
investors.  As these  amounts  are short term in nature  and/or  generally  bear
market rates of  interest,  the  contractual  amounts of these  instruments  are
reasonable estimates of their fair values.

13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

The following table presents the quarterly results of operations for the year 
ended March 31, 1997:

<TABLE>
<CAPTION>
                                                 
                                                              Three Months Ended
<S>                                             <C>        <C>          <C>          <C>
                                                  June 30,  September 30, December 31,    March 31,
                                                    1996        1996          1996          1997 
                                                    ----        ----          ----          ---- 
Total gross income                               $ 69,763    $ 89,683       $121,332      $147,052
Net income                                         19,433      25,516         29,025        32,030
Primary and fully diluted earning per common
share                                            $   0.44      $ 0.58        $ 0.66        $ 0.72
                                                 ========      ======        ======        ======
                                                   
</TABLE>

14. SUBSEQUENT EVENT

On June 4, 1997 the Company  completed a primary offering of 2,800,000 shares of
common stock and an additional 420,000 shares were purchased by the underwriters
for over  allotments.  The  proceeds  of the  offering  to the  Company,  net of
estimated expenses and underwriting  discount,  were $100,778. The proceeds will
be used  for  general  corporate  purposes,  including  strategic  acquisitions,
funding loan originations and purchases, supporting securitization transactions,
and  other  working  capital  needs.  The  completion  of the  offering  reduces
Continental   Grain's  ownership  of  the  Company  from  approximately  81%  to
approximately 75%.

                                       


                                       65
<PAGE>

                 CONTIFINANCIAL CORPORATION
       Notes to Consolidated Financial Statements (continued)
                   March 31, 1997, 1996 and 1995
                       (dollars in thousands)

The  consummation  of the public  offering causes the vesting of certain options
granted.  The additional vesting would cause options exercisable as of March 31,
1997 to increase to 1,734,311.




                                       66
<PAGE>

                                          
Item 9.

Changes in and  Disagreements  with  Accountants  on  Accounting  and  Financial
Disclosure.

None.



                                       67
<PAGE>


                                       Part III.

Item 10.    Directors and Executive Officers of  the Registrant.
 
     The Company  incorporates  by  reference  herein  information  in its proxy
     statement which complies with the information  called for by Item 10 of the
     Form 10-K.  The proxy will be filed at a later date,  that is not more than
     120  days  after  the end of the  Company's  1997  fiscal  year,  with  the
     Commission. 

Item 11.    Executive Compensation

     The Company  incorporates  by  reference  herein  information  in its proxy
     statement which complies with the information  called for by Item 11 of the
     Form 10-K.  The proxy will be filed at a later date,  that is not more than
     120  days  after  the end of the  Company's  1997  fiscal  year,  with  the
     Commission.

Item 12.    Security Ownership of Certain Beneficial Owners and Management.

     The Company  incorporates  by  reference  herein  information  in its proxy
     statement which complies with the information  called for by Item 12 of the
     Form 10-K.  The proxy will be filed at a later date,  that is not more than
     120  days  after  the end of the  Company's  1997  fiscal  year,  with  the
     Commission.

Item 13.    Certain Relationships and Related Transactions.

     The Company  incorporates  by  reference  herein  information  in its proxy
     statement which complies with the information  called for by Item 13 of the
     Form 10-K.  The proxy will be filed at a later date,  that is not more than
     120  days  after  the end of the  Company's  1997  fiscal  year,  with  the
     Commission.
                                       Part IV.

Item 14.    Exhibits, Financial Statement Schedules and Reports on Form 8-K.

(a)  Financial Statements, Financial Statement Schedules and Exhibits.

      (1) Financial Statements
 
            See Item 8.  "Financial Statements and Supplementary Data."

      (2) Financial Statement Schedules

     No Financial statement schedules are included because of the absence of the
     conditions  under which they are  required or because  the  information  is
     included in the financial statements or the notes thereto.


                                       68
<PAGE>

<TABLE>
<CAPTION>
                                           

(3) Exhibits

<S>                                                                             <C>
Exhibit
  No.                                          Description
  ---                                          -----------
 3.1  Restated Certificate of Incorporation of  the Company (1)
 3.2  By-laws of the Company (1)
 4.1  Indenture between the Company and the Trustee with form of Indenture Note (1)
 4.2  Form of Term Note issued by the Company to Continental Grain (1)
 4.3  Form of Four Year Note issued by The Company to Continental Grain (1)
10.1  Indemnification Agreement between the Company and Continental Grain (1)
10.2  Tax Sharing Agreement between the Company and Continental Grain (1)
10.3  Employee Benefit Allocation Agreement between the Company and Continental Grain(2)
10.4  Services Agreement between the Company and Continental Grain (1)
10.5  Note Purchase Agreement between the Company and Continental Grain (1)
10.6  Common Stock Registration Rights Agreement between the Company and Continental Grain (1)
10.7  Indenture Note Registration Rights Agreement between the Company and Continental Grain (1)
10.8  Sublease Agreement between the Company and Continental Grain (1)
10.9  ContiFinancial Corporation 1995 Long -Term Stock Incentive Plan (1)
10.10 ContiFinancial Services Long -Term Incentive Compensation Plan (1)
10.11 1997 ContiFinancial Services Division Incentive Compensation Plan (1)
10.12 1997 ContiMortgage Corporation Incentive Compensation Plan (1)
10.13 Form of Stock Option Agreement (1)
10.14 Form of Restricted  Stock Award Agreement (1)
10.15 Agreement  of  Lease  between  LC/N  Keith  Valley  Limited   Partnership  I  and
      ContiTrade Services Corporation and amendments thereto (1)
10.16 ContiFinancial Corporation Directors Retainer Fee Plan (1)
10.17 Assignment and Transfer of Excess Spread  Receivables  between  Continental Grain
      and certain subsidiaries of the Company (1)
10.18 Secured Promissory Note (2)
11.1  Computation of the Company's pro forma earnings per common share
21.1  List of Subsidiaries of the Company
23.2  Consent of Arthur Andersen LLP (2)
24.1  Attorneys-In-Fact and Agents for James J. Bigham (2)
24.2  Attorneys-In-Fact and Agents for Paul J. Fribourg (2)
24.3  Attorneys-In-Fact and Agents for John W. Spiegel (2)
24.4  Attorneys-In-Fact and Agents for Donald L. Staheli (2)
24.5  Attorneys-In-Fact and Agents for John P. Tierney (2)
24.6  Attorneys-In-Fact and Agents for Lawrence G. Weppler (2)
24.7  Attorneys-In-Fact and Agents for Daniel J. Willett (2)
24.8  Attorneys-In-Fact and Agents for Michael J. Zimmerman
27.1  Financial Data Schedule
                       
(1) Incorporated by reference to the exhibit of the same number from the Company's
    Registration Statement on Form S-1, File No. 33-98016.

(2)  Incorporated  by  reference  to the exhibit of the same number from the  Company's
     Annual  Report  on Form  10-K for the  fiscal  year  ended  March  31,  1996,  File No.
     1-14074.
 
(b)  Reports on Form 8-K.
      None

(c)  Exhibits.
      See (a) (3) above.

(d)  Financial Statement Schedules.
      See (a) (2) above.
</TABLE>

                                       69
<PAGE>

                                           







                                      SIGNATURES

     Pursuant to the  requirements  of Section 13 or 15(d) of the Securities Act
     of 1934,  ContiFinancial  Corporation  has duly  caused  this  report to be
     signed on its behalf by the undersigned, thereunto duly authorized.
                                    CONTIFINANCIAL CORPORATION


                            By:  /s/ James E. Moore                     
                                     James E. Moore
                                     President, Chief Executive 
                                     Officer and Director                
                              Date: June 27, 1997
 
     Pursuant to the requirements of the Securities 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                         Title                        Date

/s/ James E. Moore            President, Chief Executive           June 27, 1997
James E. Moore                Officer and Director (Principal
                              Executive Officer)

/s/ Daniel J. Willett         Senior Vice President and Chief      June 27, 1997
Daniel J. Willett                Financial Officer (Principal
                                 Financial Officer)

/s/ Susan E. O'Donovan        Vice President and Controller        June 27, 1997
Susan E. O'Donovan               (Principal Accounting
                              Officer)

      *                       Director and Chairman of the         June 27, 1997
James J. Bigham               Board


                              
     *                        Director                            June 27, 1997
Paul J. Fribourg

                              
     *                       Director                             June 27, 1997
John W. Spiegel

                                  
     *                       Director                             June 27, 1997
Donald L. Staheli

                              
     *                       Director                             June 27, 1997
John P. Tierney

                              
     *                        Director                            June 27, 1997
Lawrence G. Weppler

                             
     *                        Director                            June 27, 1997
Michael J. Zimmerman

* By: /s/ James E. Moore
          James E. Moore
          Attorney-In-Fact



                                       70
<PAGE>


    

                                     Exhibit Index

Exhibit
   No.                        Description


11.1  Computation of the Company's pro forma earnings per common share
21.1  List of Subsidiaries of the Company
24.8  Attorneys-In-Fact and Agents for Michael J. Zimmerman
27.1  Financial Data Schedule



                                       71
<PAGE>