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, 1999
                        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 of            (I.R.S. Employer Identification No.)
  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 30, 1999 the aggregate market value of the voting stock held by
non-affiliates of the registrant was $33,159,561.

The Company had 46,747,370 shares of common stock outstanding as of June 30,
1999.

DOCUMENTS 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, 1999.

<PAGE>

                           ContiFinancial Corporation

                                Table of Contents


                                    PART I.
                                                                            Page
                                                                            ----
Item 1.  Business ..........................................................  3
Item 2.  Properties ........................................................ 20
Item 3.  Legal Proceedings ................................................. 20
Item 4.  Submission of Matters to a Vote of Security Holders ............... 20

                                    PART II.

Item 5.  Market for Registrant's Common Equity and Related Stockholder
         Matters ........................................................... 21
Item 6.  Selected Financial Data ........................................... 22
Item 7.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations ............................................. 25
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ........ 53
Item 8.  Financial Statements and Supplementary Data ....................... 55
Item 9.  Changes in and Disagreements with Accountants on Accounting
         and Financial Disclosure .......................................... 93

                                    PART III.

Item 10. Directors and Executive Officers of the Registrant ................ 94
Item 11. Executive Compensation ............................................ 94
Item 12. Security Ownership of Certain Beneficial Owners and Management .... 94
Item 13. Certain Relationships and Related Transactions .................... 94

                                    PART IV.

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ... 94

Signatures ................................................................. 97


                                       2
<PAGE>

Forward-looking Statements

Certain statements contained in this Annual Report Form 10-K including, but not
limited to, statements relating to the Company's strategic objectives, raising
additional equity and future performance, 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,
including the ability of the Company, in fact, to successfully complete a
transaction with a buyer or equity investor. Such factors also include, but are
not limited to, general economic conditions, interest rate risk, prepayment
speeds, delinquency and default rates, credit losses, changes (legislative and
otherwise) in the asset securitization industry, demand for the Company's
services, residential and commercial real estate values, the ability of the
Company to negotiate agreements to sell whole loans, the impact of certain
covenants in debt agreements of the Company, the degree to which the Company is
leveraged, its needs for financing, the continued availability of the Company's
credit facilities, the risk of margin calls on the Company's credit facilities
and hedge positions, capital markets conditions, including the markets for
asset-backed securities and commercial mortgage loans, the performance of the
Company's subsidiaries and affiliates, the Company's Year 2000 issues and other
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.

                                     Part I.

Item 1. Business.

General

ContiFinancial Corporation together with its subsidiaries (collectively, the
"Company" or "ContiFinancial") engages in the consumer finance business by
originating and servicing primarily non-conforming home equity loans ("HELs").
Through ContiMortgage Corporation ("ContiMortgage") and ContiWest Corporation
("ContiWest"), the Company is a leading originator, purchaser, seller,
securitizer 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. These loans are primarily for debt consolidation,
home improvements, education or refinancing and are most often secured by first
mortgages on single family residential properties.

In fiscal 1999, the Company incurred a net loss of $426,257 and suffered a
critical loss of liquidity. The Company's Bank Facilities expire on August 20,
1999, and the Warehouse Facilities expire at various times from July 1999
through December 1999. The Company's continued operations are dependent on the
extension, renegotiation or refinancing, as well as availability through
scheduled maturity of the Bank and Warehouse Facilities. The Company's ability
to extend, renegotiate or refinance its facilities depends on the successful
completion of a transaction with a buyer or equity investor. As a result, there
is substantial doubt about the Company's ability to continue as a going concern.
See Note 1 to the Consolidated Financial Statements.

Historically, the Company operated as a more diversified consumer and commercial
financial intermediary that originated, securitized and serviced various loan
products in addition to HELs. These products included commercial real estate
loans, high loan-to-value mortgage loans, non-prime auto loans, charged-off
consumer receivables, equipment leases and franchise loans. In fiscal 1999,
severe turbulence in the capital markets (described in greater detail below)
contributed to significant losses and resulted in a critical loss of liquidity
that made it impossible for the Company to continue financing its diversified
product lines. As a result, the Company had to restrict its focus primarily to
the core HEL business and reduce or eliminate its involvement with most other
loan products. The Company's Consolidated Statement of Income for the year ended


                                       3
<PAGE>

March 31, 1999 reflects, under Commercial real estate valuation adjustments and
Other charges, total charges of $315.5 million related to losses incurred as a
result of these factors. See Note 4 to the Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.

ContiMortgage purchases and originates HELs through a diversified network of
correspondents and mortgage loan brokers and on a retail basis through its
direct consumer lending effort. As of March 31, 1999, ContiMortgage had 359
active correspondents, 1,766 active mortgage loan brokers and 119 Company-owned
retail branches or call centers. For the years ended March 31, 1999 and 1998,
the Company originated $8.2 billion and $6.8 billion, respectively, of home
equity, home improvement and other residential mortgage loans, and securitized
or sold $7.7 billion and $6.7 billion, respectively, of such loans.
Notwithstanding the increase in fiscal 1999 production volume over the prior
year, the Company significantly reduced production through its correspondent
division in the third and fourth quarters of fiscal 1999, which historically had
been the Company's largest and fastest growing production channel. Due to its
diminished liquidity position, the Company reduced the cash premiums it would
pay for correspondent product, opting instead to focus its production efforts on
broker and direct retail originations, which fundings are typically cash flow
positive due to points and fees collected from the borrowers. Of total HEL
production of $8.2 billion for fiscal 1999, $1.8 billion and $1.7 billion was
produced in the third and fourth quarters, respectively.

Recent Developments

Write-downs of Interest-only and Residual Certificates

During fiscal 1999, the Company recorded fair value adjustments to interest-only
and residual certificates totaling $329 million, resulting from
higher-than-estimated prepayment speeds and credit losses, and an increase to
the discount rate used in the valuation from 10% to 12% to reflect the capital
market's deteriorating view of the "sub-prime" industry in which the Company
operates. The Company believes its interest-only and residual certificates are
fairly valued at March 31, 1999 but can provide no assurances that future
prepayment and loss experience or changes in the required market discount rate
will not necessitate additional write-downs. If there are such additional
write-downs in future periods, the Company's income would be reduced and that
could cause the Company to report net losses for such periods. See Note 5 to the
Consolidated Financial Statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Gain on Sale of Receivables and
Interest-only and Residual Certificates."

Capital Markets Turbulence

The Company's operations were significantly and adversely affected by difficult
capital market conditions that commenced in the second quarter of fiscal 1999,
with the effects of these events, and their repercussions, continuing to affect
the Company's results in the third and fourth quarters. During the second
quarter, the economic instability in Asia and Russia precipitated a global debt
crisis (the "Debt Crisis") which caused a "flight to quality" by investors.
During this period, fixed income investors purchased large amounts of U.S.
Treasury securities, causing U.S. Treasury yields to decrease significantly. As
investor demand for U.S. Treasury securities increased, the demand for other
fixed income securities declined dramatically, causing yields on such other
securities to rise relative to U.S. Treasury securities. Since almost all of the
Company's loan originations were ultimately funded by the issuance of securities
backed by the loans it originates (securitization), these unusual interest rate
movements affected the market value of all of the Company's originations,
causing significant losses and leading to a critical loss of liquidity.


                                       4
<PAGE>

By late September, these unusual interest rate movements had caused the
near-collapse of a large hedge fund controlling over $90 billion in financial
assets. This event panicked the world's banking systems and further eroded the
value of financial assets. In October, one of the largest investors in the
subordinate classes of securities produced in commercial loan securitizations
(the "Investor") filed for bankruptcy protection under the weight of margin
calls by its lenders. These margin calls were made because of the loss in value
of the securities which collateralized the Investor's borrowings. This
bankruptcy removed a large source of liquidity from the commercial loan
securitization market.

The immediate impact of these events was an increase to the Company's margin
requirements under its warehouse financing facilities - the Purchase and Sale
Facilities and Repurchase Agreements (collectively, the "Warehouse Facilities")
and significant losses in the Company's related hedge positions in U.S. Treasury
securities. Because the Company's securities are priced based on a spread over
the U.S. Treasury yield, the Company's policy had been to hedge its inventory
position by selling short U.S. Treasury securities. During the "flight to
quality" the Company's short position lost money as U.S. Treasury yields
declined, and its long position (its inventory of loans) also lost value due to
(i) a decline in demand for the securities backed by its loans, and (ii) a
sudden over supply in the whole loan market as securitizers, en masse, attempted
to sell their inventories to a limited number of whole loan buyers. In response
to the decline in market value of the inventory securing the Warehouse
Facilities, the Company's lenders made margin calls for additional cash
collateral. The most significant hedge losses and margin calls occurred in the
Company's commercial loan portfolio due to the longer durations associated with
these loans and in the Company's high loan-to-value business because of the more
limited funding options for this product.

To lessen the drain on liquidity caused by the margin calls, the Company had to
sell inventory to reduce its margin exposure and to generate cash premiums.
Large whole loan sales of HELs and commercial loans had to be executed near the
bottom of the market, with the twofold result being that the Company sold
portfolios at a loss (some under par, others at sales premiums less than the
purchase premiums) and had to close out the related hedge positions at a loss,
eliminating any possibility of recovery as the Debt Crisis eventually eased and
U.S. Treasury yields began to rise.

While the Debt Crisis abated for other sectors of the economy over the remainder
of fiscal 1999, its impact and subsequent repercussions continued to affect the
"sub-prime" industry in which the Company operates. The sudden and significant
loss of liquidity experienced throughout the industry, occurring within the
context of increasing market skepticism about the quality of earnings reported
under "gain-on-sale accounting," intensified capital market concerns about the
industry and effectively eliminated access to the capital markets as a source of
new liquidity. Although the Company was successful in the third and fourth
quarters of fiscal 1999 in securitizing its products and selling its products on
a whole loan basis, its diminished liquidity position adversely affected the
Company's ability to continue to provide financing to its Strategic Alliance
clients. The continued viability of these client companies and the
recoverability of the Company's investments in and receivables from these
companies became contingent upon their ability to find alternative sources of
financing. As the evolving impact of the Debt Crisis on certain client companies
became known, the Company recorded write-downs or reserves against these
balances.

Revised Business Strategy and Additional Capital Requirements

In response to the new market environment and the severe capital constraints
under which the Company must operate, the Company has taken various steps to
reposition its business. Going forward, the Company will focus on those
businesses that (i) generate positive cash flow, (ii) represent platforms for
future growth and diversification, (iii) have the ability to achieve a position
of market leadership, and (iv) reduce reliance on securitization as a sole
funding source. Given these operating considerations, the Company intends to


                                       5
<PAGE>

focus on its HEL origination business through ContiMortgage. ContiMortgage will
continue its strategy to be a low cost producer generating loan volume through
multiple origination channels supported by experienced servicing, collections
and loss mitigation groups. ContiMortgage will continue to (i) de-emphasize
originations in its most cash intensive correspondent channel of production,
while also reducing the premiums paid for correspondent loans; (ii) increase its
higher margin broker and retail loan production channel; and (iii) diversify
loan funding strategies to increase the level of whole loan sales and reduce
reliance upon securitization.

There can be no assurances given that the Company will be successful in
implementing its revised business strategy, primarily because the Company has
debt obligations totaling $422 million as of July 13, 1999 that will mature in
August 1999. In addition, the Company's Warehouse Facilities expire at various
times from July 1999 through December 1999. The Company is operating on a
negative cash flow basis and is dependent on various financing sources for its
continued operations. In order to fund new loans and asset originations and
purchases, the Company is dependent on its Purchase and Sale Facilities and
Repurchase Agreements (collectively, the "Warehouse Facilities"). The Company is
also dependent on continued access to its Revolving Credit Facility and
Commercial Paper Program (collectively, the "Bank Facilities"). The Company is
required to comply with various financial covenants under its outstanding
long-term debt, Bank Facilities and Warehouse Facilities. As of March 31, 1999,
the Company's leverage ratio exceeded the leverage ratio test under the
covenants of its outstanding long-term debt. As a result, the Company is
prevented from issuing additional unsecured debt until its leverage ratio is
below such test. Additionally, the Company would not have been in compliance
with several of the financial covenants of the Bank Facilities and Warehouse
Facilities at December 31, 1998 and March 31, 1999 had these agreements not been
amended. The Company's continued operations are dependent on the extension,
renegotiation or refinancing, as well as availability through scheduled maturity
of the Bank and Warehouse Facilities. The Company's ability to extend,
renegotiate or refinance its facilities depends on the successful completion of
a transaction with a buyer or equity investor. As a result, there is substantial
doubt about the Company's ability to continue as a going concern. In order to
address this issue, the Company has been seeking a financially strong acquirer
or equity investor who can provide the necessary financing or provide the
Company's lenders with the requisite guarantees. The previously announced
discussions with Residential Funding Corporation, a subsidiary of General Motors
Acceptance Corporation, with respect to an acquisition of the Company have
terminated. The Company is in discussions with others to act as an acquiror or
equity investor and has commenced negotiations for a restructuring with the
providers of its Bank Facilities, Warehouse Facilities and long-term debt.

Home Equity Loan Origination and Servicing

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 may have a fixed or adjustable interest rate and is secured by a
first- or second-lien mortgage on the borrower's residence. For fiscal 1999,
over 94% of ContiMortgage/ContiWest loan originations were secured by a
first-lien mortgage. Non-conforming home equity loans are made to borrowers
whose needs may not be met by traditional financial institutions due to credit
exceptions. The Company obtains its loans through three primary production
channels in 47 states and the District of Columbia: correspondent, broker retail
and direct retail.

Correspondent. The correspondent division purchases closed loans from
independent mortgage bankers and other financial institutions, typically in
pools in excess of $1 million. Every loan is reunderwritten prior to purchase
for compliance with the ContiMortgage underwriting guidelines. For fiscal 1999,
ContiMortgage purchased loans from 359 correspondent sources, with the largest
source accounting for 11% of total correspondent volume, and the top five


                                       6
<PAGE>

sources accounting for 24% of total correspondent volume. At March 31, 1999, the
correspondent division had 15 employees based in ContiMortgage's headquarters in
Hatboro, PA and a west coast satellite office located in Orange County, CA.
Correspondent loan volume was $4.68 billion and $4.46 billion for fiscal years
1999 and 1998, respectively, representing 57% and 65% of total home equity loan
volume for the respective years. Notwithstanding the increase in fiscal 1999
correspondent production volume over the prior year, the Company's correspondent
division, which historically had been the Company's largest and fastest growing
production channel, experienced a significant decline in production volume in
the third and fourth quarters of fiscal 1999. Due to its diminished liquidity
position, the Company reduced the cash premiums it would pay for correspondent
product, opting instead to focus its production efforts on broker and direct
retail originations, which fundings are typically cash flow positive due to
points and fees collected from the borrowers. Of total correspondent production
of $4.68 billion for fiscal 1999, $1.01 billion and $732 million was produced in
the third and fourth fiscal quarters, respectively.

Broker Retail. The broker division sources loans through its network of
independent mortgage brokers which provides ContiMortage with qualified loan
applicants. All loans are underwritten, processed, closed and funded by
ContiMortgage. In fiscal 1999, the Company sourced loans through 1,766
independent brokers. At March 31, 1999, the broker division had 195 employees in
eight regional offices and five satellite offices. The regional offices are
located in Horsham, PA; Oak Brook, IL; Dallas, TX; Atlanta, GA; Phoenix, AZ;
Pleasanton, CA; Charlotte, NC; and Dublin, OH. Broker loan volume was $1.56
billion and $1.03 billion for fiscal years 1999 and 1998, respectively,
representing 19% and 15% of total home equity loan volume for the respective
years. Of total broker retail production of $1.56 billion for fiscal 1999, $377
million and $411 million was produced in the third and fourth fiscal quarters,
respectively.

Direct Retail. ContiMortgage originates loans on a direct-to-consumer basis
through ContiMortgage divisions and subsidiaries. As of March 31, 1999, the
Company had 119 retail offices including three call centers and a portfolio
retention group. Direct-to-consumer retail volume was $1.96 billion and $1.32
billion for fiscal years 1999 and 1998, respectively, representing 24% and 19%
of total home equity loan volume for the respective years. Of total direct
retail production of $1.96 billion for fiscal 1999, $457 million and $534
million was produced in the third and fourth fiscal quarters, respectively.

The direct-to-consumer retail network has been developed through a series of
acquisitions and start-ups of retail loan originators made by the Company during
fiscal years 1997 through 1999. These acquisitions and start-ups allow the
Company to vertically integrate, reducing its reliance on correspondent sources,
and to leverage the ContiMortgage securitization and servicing platforms. In
each case the companies acquired were former Strategic Alliance clients or
ContiMortgage loan origination sources. The Company's acquisition strategy was
to acquire companies whose products had a history of good performance and whose
management team had a strong, long-term relationship with ContiMortgage. Each
acquisition was structured with an upfront payment at closing and an earnout to
be paid over a three to five year period based on performance. During the second
quarter of fiscal 1999, ContiMortgage initiated the start up of ContiDirect, a
direct-to-consumer division which uses centralized call centers to conduct
out-bound telemarketing supported by direct mail. ContiDirect produced
approximately $18 million of direct retail origination in March 1999, its
seventh month of production. During the fourth quarter of fiscal 1999,
ContiMortgage acquired from a former Strategic Alliance client a retail branch
network of 18 origination offices.

The Company believes that direct-to-consumer originations will provide a
lower-cost alternative to correspondent production and will enable the Company
to increase its utilization of prepayment penalties and improve the quality and
consistency of loan underwriting, resulting in improved loan performance.


                                       7
<PAGE>

The following table details selected information regarding each of
ContiMortgage's retail direct-to-consumer loan production sources:

--------------------------------------------------------------------------------
                                                                     Retail
                                                                 Monthly Volume
                                                                  (March 1999)
       Name           Headquarters      Employees    Offices     (in millions)
--------------------------------------------------------------------------------
ContiDirect        Hatboro, PA             294          2              18
--------------------------------------------------------------------------------
United Lending     Irvine, CA              367          5              40
Group
--------------------------------------------------------------------------------
Resource One       Langhorne, PA           315         30              38
--------------------------------------------------------------------------------
Royal Mortgage     Orange, CA              198         25              15
--------------------------------------------------------------------------------
Crystal            Amherst, OH             240         23              22
--------------------------------------------------------------------------------
FMD                Lincolnshire, IL        129         15              12
--------------------------------------------------------------------------------
ContiMortgage      Hatboro, PA             165         18              21
Branches
--------------------------------------------------------------------------------
Portfolio          Hatboro, PA              53          1              42
Retention
--------------------------------------------------------------------------------

Underwriting. All home equity loans are underwritten in accordance with the
Company's 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 securing the loan. In the underwriting process, an
underwriter reviews a credit package which typically includes, among other
things, a current property appraisal from an independent appraiser, a credit
report, a title report and verification of employment and income. On a
case-by-case basis, an underwriter may approve a loan that varies in some
limited respect from the underwriting guidelines provided that compensating
factors exist; however, any significant variation from the underwriting
guidelines must be approved by a senior underwriter or senior credit officer.

ContiMortgage 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 would typically be fifteen years after origination but in no event less
than five years. The loan amounts generally range from a minimum of $10,000 to a
maximum of $350,000, unless a higher amount is specifically approved by senior
management. The current average home equity loan purchased or originated by
ContiMortgage has a balance of approximately $75,000. ContiMortgage and
ContiWest primarily purchase or originate non-purchase money first- or
second-lien mortgage loans, although ContiMortgage and ContiWest have programs
for origination of certain purchase money first-lien mortgages.

The properties used for collateral to secure the loans are residential one- to
four-family homes, condominiums or townhouses, mostly primary residences, but
may also include second homes, vacation homes or investor-owned residential
properties. Generally, each home must have a minimum appraised value of $40,000.
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 collateral 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 90%. If a
prior mortgage exists, ContiMortgage 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. ContiMortgage does not purchase or
originate loans where the first mortgage contains a shared appreciation clause.


                                       8
<PAGE>

ContiMortgage 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 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.

Each loan applicant is required to secure property insurance in an amount
sufficient to cover the new loan and any other outstanding mortgages. 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.


                                       9
<PAGE>

The following chart outlines the most significant parameters of the credit
grades of ContiMortgage's and ContiWest's current underwriting guidelines:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
                  "A" CREDIT GRADE "B" CREDIT GRADE "C" CREDIT GRADE "D" CREDIT GRADE
---------------------------------------------------------------------------------------
<S>               <C>              <C>              <C>              <C>
General Repayment Has good credit  Pays the         Marginal credit  Designed to
                  but might have   majority of      history which    provide a
                  some minor       accounts on      is offset by     borrower with
                  delinquency.     time but has     other positive   poor credit
                                   some 30-         attributes.      history an
                                   and/or  60-day                    opportunity to
                                   delinquency.                      correct past
                                                                     credit problems
                                                                     through lower
                                                                     monthly payments.
---------------------------------------------------------------------------------------
Existing          Current at       Current at       Cannot exceed    Must be paid in
Mortgage Loans    application      application      four 30-day      full from loan
                  time and a       time and a       delinquencies    proceeds and no
                  maximum of two   maximum of       or one 60-day    more than 119
                  30-day           three 30-day     delinquency in   days'
                  delinquencies    delinquencies    the past 12      delinquency.
                  in the past 12   in the past 12   months.
                  months.          months.
---------------------------------------------------------------------------------------
Non-Mortgage      Major credit     Major credit     Major credit     Major and minor
Credit            and installment  and installment  and installment  credit
                  debt should be   debt can         debt can         delinquency is
                  current but may  exhibit some     exhibit some     acceptable, but
                  exhibit some     minor 30-and/or  minor 30-and/or  must demonstrate
                  minor 30-day     60-day           90-day           some payment
                  delinquency.     delinquency.     delinquency.     regularity.
                  Minor credit     Minor credit     Minor credit
                  may exhibit      may exhibit up   may exhibit
                  some minor       to 90-day        more serious
                  delinquency.     delinquency.     delinquency.
---------------------------------------------------------------------------------------
Bankruptcy        Charge-offs,     Discharged more  Discharged more  Discharged prior
Filings           judgments,       than two years   than one year    to closing.
                  liens, and       with             with
                  former           reestablished    reestablished
                  bankruptcies     credit.          credit.
                  are generally
                  unacceptable.
---------------------------------------------------------------------------------------
Debt              Generally not    Generally not    Generally not    Generally not to
Service-to-Income to exceed 45%.   to exceed 45%.   to exceed 50%.   exceed 50%.
Ratio
---------------------------------------------------------------------------------------
Maximum
Loan-to-Value
Ratio:
---------------------------------------------------------------------------------------
Owner Occupied    Generally 90%    Generally 85%    Generally 80%    Generally 70%
                  for a            for a            for a            for a
                  1 to 4 family    1 to 4 family    1 to 4 family    1 to 4 family
                  dwelling; 75%    dwelling; 75%    dwelling; 70%    residence.
                  for a            for a            for a
                  condominium.     condominium.     condominium.
---------------------------------------------------------------------------------------
Non-Owner         Generally 75%    Generally 70%    Generally 65%    N/A
Occupied          for a 1 to 2     for a 1 to 2     for a 1 to 2
                  family dwelling  family dwelling  family dwelling
                  or condominium,  or condominium,  or condominium,
                  70% for a 3 to   65% for a 3 to   60% for a 3 to
                  4 family.        4 family.        4 family.
---------------------------------------------------------------------------------------
</TABLE>

Quality Control. The purpose of ContiMortgage's quality control program is (i)
to monitor and improve the overall quality of loan production generated by
regional offices, branches and subsidiaries, ContiWest and correspondent
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) an additional sample of loans underwritten at
the maximum LTV ratio for such risk class of loans, (iii) an additional 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.


                                       10
<PAGE>

Loan Securitization

The primary funding strategy of ContiMortgage historically has been to
securitize loans purchased or originated. The Company benefits from the reduced
cost of funds and greater leverage provided through securitization. Through
March 31, 1999, the Company had completed 36 ContiMortgage/ContiWest
AAA/Aaa-rated Real Estate Mortgage Investment Conduits ("REMIC" or "REMICs")
securitizations. Management has structured ContiMortgage's operations and
processes specifically for the purpose of efficiently originating, underwriting,
and servicing loans for securitization in order to meet the requirements of
rating agencies, credit enhancers and AAA/Aaa-rated REMIC pass-through
investors. ContiMortgage generally seeks to enter the public home equity
securitization market on at least 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 a retained interest in the loans or other assets securitized. See "Gain on
Sale of Receivables and Interest-only and Residual Certificates" in Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations for further discussion of the Company's securitization procedures.

The purchasers of the pass-through certificates receive a credit-enhanced
security. Credit enhancement is generally achieved by the Company's
subordination of its retained interest in the form of over-collateralization or
by one or both of the following: (i) subordination of subsidiary classes of
bonds to senior classes; and/or (ii) an insurance policy provided by an
AAA/Aaa-rated monoline insurance company. As a result, each offering of the
senior class of 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.

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 build up of over-collateralization of the REMIC
trust by application of excess spread, 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 or subordinate 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 monoline insurance company policies obtained for any
of the Company's ContiMortgage/ContiWest securitizations.

Whole Loan Sales

In response to the new market environment and the severe capital constraints
under which the Company must operate, the Company has made efforts to increase
the amount of whole loan sales. In a whole loan sale, the Company sells loans
directly to an investor on a servicing-released basis for a cash premium. In
contrast, the premium value of loans sold through securitization is realized
over the life of the securitization in the form of cash flow from the retained
interest spread. The economics of securitization are generally superior to those
of whole loan sales, but the increased volume of whole loan sales is made
necessary by cash flow considerations. As part of its whole loan strategy,
ContiMortgage negotiated a long-term sale commitment with a large financial
institution (see Note 13 to the Consolidated Financial Statements) and is


                                       11
<PAGE>

actively selling loans to several other whole loan investors on a monthly flow
basis. The Company will also bid pools of loans for sale or will enter into
one-time sale agreements with institutional investors.

During fiscal 1999, the Company sold $1.6 billion of home equity loans on a
whole loan basis, representing 19% of fiscal 1999 originations. This compares to
$596 million of home equity loans sold on a whole loan basis during fiscal 1998.
During the third and fourth quarters of fiscal 1999, the Company executed whole
loan sales of $782.6 million and $396.7 million, respectively, which represented
43% and 25% of total sales for the third and fourth quarters, respectively.

Loan Servicing

Overview. The Company retains the right to service the home equity loans
originated or purchased and included in ContiMortgage/ContiWest securitizations.
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, 1999,
ContiMortgage serviced 194,032 loans in 50 states and the District of Columbia
with an outstanding balance of $13.0 billion, an increase of 27.9% from March
31, 1998, earning a normal servicing fee of approximately 50 basis points per
annum plus ancillary servicing fees and prepayment penalties which amounted to
30 basis points per annum for fiscal 1999 and 23 basis points for fiscal 1998.

The key elements of any servicing operation are the quality and experience of
the staff and the effectiveness of the computer software. Senior management for
the various servicing functions has an average of 17 years of mortgage banking
experience. During fiscal 1999, the Company converted its servicing operations
to the Alltel servicing system. This system provides ContiMortgage with a
sophisticated mortgage-servicing platform that enables it to provide effective
and efficient processing of home equity loans. The Alltel system provides
state-of-the-art technology for payment processing, cashiering, hazard and tax
monitoring, investor reporting, on-line collection, default management, loss
mitigation and loan liquidation.

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. In addition, rating agencies and monoline bond insurers
conduct periodic due diligence on ContiMortgage.

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) to the related REMIC trusts on any loans
that are not paid through the last day of each monthly reporting period, but
only to the extent ContiMortgage deems such advances of interest to be
ultimately recoverable from future collections ("Delinquency Advances"). Due to
the Company's liquidity problems, in the third quarter ContiMortgage entered
into a subservicing agreement with Continental Grain whereby, for a fee,
Continental Grain makes Delinquency Advances to certain REMIC trusts, to a
maximum outstanding balance of $85 million.

Asset Management. The ContiMortgage asset management division comprises three
departments: collections, loss mitigation and default.

The collections department is organized into the following functional groups:
second mortgages, early payment default, 0-59 days past due and 60 days or more
past due. Each of these functions, with the exception of early payment default,
is now serviced by geographic region from either the asset management site in
Hatboro, PA or the new western asset management site in Tempe, AZ.


                                       12
<PAGE>

Generally, collection activity will commence once a loan has not been paid
within 15 days of the due date. Once a loan becomes 30 days past due, a
collections supervisor generally analyzes the account to determine the
appropriate course of action. On or about the 60th day of delinquency, property
inspections are automatically obtained to assess the condition of the
collateral. For accounts 60 days or more past due, collection activity typically
emphasizes curing the delinquency by working with each borrower to set up
repayment plans, formal forbearance plans, reinstatements, and various other
loss mitigation options including short sales and short refinances (accepting a
payoff that is less than the full amount due to avoid the foreclosure process).
The loss mitigation department works with the collections department to identify
accounts that are likely candidates for a loss mitigation strategy. Both the 60+
collections staff and the loss mitigation staff are trained to negotiate
outcomes that are mutually beneficial to ContiMortgage and its customers. In
most cases, accounts that cannot be cured by reasonable means will be moved to
foreclosure as soon as practicable in accordance with applicable law, but it is
the Company's policy to work with the customer to resolve the past due balance
prior to legal action being initiated.

As part of the increased efforts to reduce losses, ContiMortgage's loss
mitigation department was doubled in size, from 19 employees at March 31, 1998
to 42 employees at March 31, 1999. The loss mitigation department monitors
accounts in all phases of the collection and foreclosure process to identify
opportunities to work out deals with borrowers to resolve defaults in a manner
most beneficial to the borrowers, while reducing the amount of loss that the
Company would incur in a drawn out foreclosure, eviction and property
liquidation process. Dual tracking of all defaulted loans has been implemented,
permitting accounts which are in the process of foreclosure or in bankruptcy to
be pursued for alternative disposition strategies with results more favorable to
ContiMortgage. Additional emphasis on positive resolution strategies is placed
on loans in states with higher historical loss rates.

The default department includes teams of foreclosure and bankruptcy coordinators
which are assigned different geographic regions, and property services and real
estate owned ("REO") units that are responsible for monitoring and preserving
the collateral values and liquidating the properties.

All accounts that are more than 60 days delinquent, including loans in
foreclosure and REO, are automatically inspected on a monthly basis. The
property services unit reviews the accounts where properties are reported vacant
or damaged and makes repairs or takes whatever other actions are appropriate.
Additionally, other accounts are reviewed by the property services unit on an
as-needed basis as a result of third party information.

When a property moves to a foreclosure status, a foreclosure coordinator will
review all previous inspection reports, evaluate the lien and equity position
and obtain any additional information necessary to decide on the appropriate
course of action. The loss mitigation department performs a parallel assessment,
looking for opportunities to implement a loss mitigation strategy. 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.

See Item 6. Selected Financial Data for information regarding the ContiMortgage
servicing portfolio's delinquencies, defaults and loan loss experience.


                                       13
<PAGE>

Origination of Asset Classes Other Than Home Equity Loans

Other Businesses. The Company has been involved in other asset classes in
addition to HEL's, including commercial loans, high loan-to-value loans,
non-prime auto loans, equipment leases, franchise loans and charged-off consumer
receivables. Consistent with the Company's repositioning to focus on cash flow
positive businesses, the Company made a decision to focus on the core HEL
business and to reduce or eliminate its participation with most other loan
products. The Company's present plan is to continue its franchise loans and
charged-off consumer receivables businesses.

Commercial Loans. The Company executed its commercial mortgage 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 established a conduit for commercial/multi-family mortgages
("ContiMAP(R)"). The Company's role was 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 managed the ultimate sale or
securitization of the loans originated through ContiMAP(R).

In October 1998, the Company suspended issuing new loan purchase commitment
letters within ContiMAP(R) and decided to sell its commercial loan exposure
through an orderly liquidation process over a reasonable period of time. See
Note 4 to the Consolidated Financial Statements. In the future, the Company will
limit its commercial real estate activities to loan originations through
Keystone Mortgage Partners ("Keystone"), a subsidiary of the Company. Keystone
is a broker and servicer of commercial mortgage loans, primarily to the
insurance industry, but does not take principal risk.

High Loan-To-Value Loans. During the first quarter of fiscal 2000, the Company
entered into an agreement with Empire Funding Holding Corporation ("EFHC") which
will result in the Company's exiting the high loan-to-value business. See Note 4
to Consolidated Financial Statements for details of this agreement.

Non-Prime and Sub-Prime Auto Loans and Leases. Non-prime auto loans and leases
are originated primarily to "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. As of March 31, 1999, Triad Financial Corporation
("Triad"), a non-prime and sub-prime automobile lending business which
originates automobile loans to credit-impaired borrowers, has relationships with
over 3,500 dealerships in 33 states, with California representing approximately
29% of loan originations. As with ContiMortgage, Triad utilizes centralized
origination, underwriting and servicing techniques.

During the first quarter of fiscal 2000, the Company sold its interest in Triad
and exited the automobile lending business. See Note 16 to Consolidated
Financial Statements for details of the sale.

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 business
as opposed to more traditional financing, which is based upon hard collateral
values or the credit rating of the franchisor. During the second quarter of
fiscal 1999, the Company entered into a relationship with a startup franchisee
lender, American Commercial Capital ("ACC"). The Company is the primary source
of financing and securitization services to ACC and has a 50.1% interest in ACC.


                                       14
<PAGE>

Equipment Leasing. In November 1998, the Company sold its small-ticket equipment
leasing subsidiary for nominal cash consideration, which resulted in a loss of
$3.3 million. The Company's decision to exit this business was based on such
subsidiary's long-term cash flow characteristics.

Charged-off Consumer Receivables. In February 1998, the Company entered the
charged-off consumer receivables business through the formation of its
subsidiary ContiAsset Receivables Management LLC ("CARMA"). CARMA engages in
portfolio sourcing and scrubbing. In addition, the Company simultaneously
entered into a strategic alliance with and, through CARMA, made a minority
investment in, Arrow Financial Services LLC ("Arrow"), which is engaged in the
business of servicing charged-off consumer receivables, both for its own account
and for third-party clients. As part of its strategic alliance with Arrow, the
Company, through its subsidiary ContiTrade Services LLC ("ContiTrade"), provides
a warehouse line to Arrow for the acquisition of portfolios of charged-off
consumer receivables. Targeted portfolios include bank credit cards, consumer
loans, private label credit cards, installment loans and auto loan deficiency
balances. As of March 31, 1999, Arrow's warehouse line with the Company had an
outstanding balance of approximately $13.2 million, financing approximately $1.3
billion in face amount of charged-off consumer receivables.

Asset Securitization Services

General

The Company has a specialized investment banking group based in New York which,
through ContiTrade and ContiFinancial Services, has provided financing and asset
securitization services to its subsidiaries and Strategic Alliance clients.
Services provided include warehouse financing, hedging, excess spread
receivables financing, operational financing, as well as securitization
expertise. Consistent with the Company's business repositioning, the Company has
made a strategic decision to focus new financing and asset securitization
services on subsidiaries, principally in support of the HEL business. The
investment banking group also monitors loan performance and maintains an
extensive loan level data base for loans that have been sold into REMICs.
ContiTrade provides asset-backed finance and structuring capabilities to the
Company. ContiFinancial Services, a National Association of Securities Dealers,
Inc. ("NASD") member and broker/dealer, privately places or underwrites
offerings of asset-backed securities or sells assets on a whole loan basis on
behalf of the Company and its Strategic Alliance clients.

Securitization and Whole Loan Sale Services. The Company has significant
structured finance expertise. 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 an $8.2 billion shelf
registration statement with the Securities and Exchange Commission (the
"Commission") of which $7.1 billion was available as of March 31, 1999 to
securitize certain asset-backed securities. Additionally, ContiFinancial
Services manages the larger whole loan sales transactions for HEL production.
The marketing of HEL portfolios and the documentation of such sales has become a
primary focus for ContiFinancial Services.

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 or other subordinate security.


                                       15
<PAGE>

Warehouse Financing. The Company made financing available to its securitization
clients through secured loans or purchase commitments which facilitated the
accumulation of securitizable assets prior to securitization ("warehouse
financing"). As of March 31, 1999, through ContiTrade, the Company had committed
$345 million of financing to its third party clients and equity investments, of
which $317 million was drawn down.

Hedging. As clients accumulate assets for securitization or sale, they are
exposed to fluctuations in interest rates, and the Company has entered into
hedge positions on behalf of its Strategic Alliance clients. As of March 31,
1999, all hedge positions entered into by the Company are on its own behalf.

Excess Spread Receivables Financing. In certain cases, the Company has financed
a client's excess spread receivables in order to provide the client with cash to
cover the expenses and up-front negative cash flow associated with
securitization. The financing was typically in the form of a loan secured by the
excess spread receivable. The Company committed to provide such financing only
to its Strategic Alliance clients. In each case, in return for the financing,
the Company received ownership participations either in the Strategic Alliance
clients or in the portfolio of loans securitized. As of March 31, 1999, the
total amount outstanding of such financing was $41.4 million.

The following table illustrates the Company's securitizations and whole loan
sales volume by asset class:

                    The Company's Securitizations and Sales
                             Volume by Asset Class

<TABLE>
<CAPTION>
                                                                 Years Ended March 31,
                                                     ----------------------------------------------  Total By
(in millions)                                         1999     1998      1997      1996       1995  Asset Class
                                                    -------   -------   -------   -------   ------- -----------
<S>                                                 <C>       <C>       <C>       <C>       <C>     <C>
Home equity, home improvement and other
 residential mortgage loans:
   ContiMortgage/ContiWest securitizations ......   $ 6,099   $ 6,150   $ 3,454   $ 2,030   $ 1,259   $18,992
   Other home equity, home improvement and other
    residential mortgage sales ..................     1,569       596       586     1,260       475     4,486
                                                    -------   -------   -------   -------   -------   -------
Total home equity, home improvement and other
residential mortgage sales (1) ..................   $ 7,668   $ 6,746   $ 4,040   $ 3,290   $ 1,734   $23,478
                                                    -------   -------   -------   -------   -------   -------
Commercial real estate mortgage loans:
   Conduit (ContiMAP(R)and affiliates) ..........       581       897       742       186        89     2,495
   Whole loan sales .............................       466       601        --        --        --     1,067
   Keystone .....................................     1,104        --        --        --        --     1,104
                                                    -------   -------   -------   -------   -------   -------
Total commercial real estate mortgage loans .....     2,151     1,498       742       186        89     4,666
                                                    -------   -------   -------   -------   -------   -------
Non-prime and sub-prime auto loans and leases (1)       595       309        91       162        39     1,196
Equipment leasing ...............................        --        46       250       190       179       665
Title I home improvement loans ..................        --       139        --        --       149       288
Franchisee loans ................................        --        --        21       145        98       264
Other ...........................................        --        30        --        20        --        50
                                                    -------   -------   -------   -------   -------   -------
Total securitization volume .....................   $10,414   $ 8,768   $ 5,144   $ 3,993   $ 2,288   $30,607
                                                    =======   =======   =======   =======   =======   =======
</TABLE>

(1) Includes Strategic Alliances' sales.


                                       16
<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,
disclosures 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.

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.

The Riegle Community Development and Regulatory Improvement Act of 1994 (the
"Riegle Act") was enacted in September 1994. Among other things, the Riegle Act
makes certain amendments to TILA. The Riegle Act generally applies to certain
mortgage loans with (i) total points and fees upon origination exceeding the
greater of eight percent of the loan amount or $441 (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 Riegle Act imposes 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 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.

Equal Credit Opportunity Act of 1974, as amended ("ECOA"), 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
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.


                                       17
<PAGE>

The Real Estate Settlement Procedures Act ("RESPA") and Regulation X are
designed to protect borrowers against abusive practices, such as kick-backs and
hidden fees, and to provide additional disclosures so borrowers know the nature
and cost of the real estate settlement process, including escrow payments.

The Home Mortgage Disclosure Act ("HMDA") and Regulation C enables the
government and regulators to determine whether financial institutions are
serving the housing needs of their communities, assist public officials in
distributing public sector investments so as to attract private investment to
where there is economic decline, assist in identifying possible discriminatory
lending practices and enforce nondiscrimination statutes. Regulation C requires
lenders to collect and report certain information about applicants including:
loan type, loan purpose, loan amount, credit decision, location of the property,
race, sex and income of the applicant. HMDA requires lenders to place notices in
certain public locations regarding the availability of its reporting data.

The Fair Credit Reporting Act ("FCRA") is designed to regulate the consumer
reporting industry. It places disclosure obligations on the users of consumer
credit reports and is designed to ensure fair, timely, and accurate reporting of
credit information. FCRA also restricts the use of consumer credit reports and
in certain circumstances requires the deletion of obsolete information.

The Fair Debt Collection Practices Act ("FDCPA") generally specifies the manner
in which debt collectors may pursue debtors to receive payment for outstanding
obligations including, but not limited to, communication regarding a debt,
harassment or abuse, unfair practices or false or misleading representations.

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, consumer 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.

Also, 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.


                                       18
<PAGE>

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 placement agent in
asset-backed private 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.

Competition

See "Competition" in Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations for discussion of the Company's competition.

Employees

At March 31, 1999 the Company had 3,330 employees. None of the Company's
employees are represented by a labor union. The Company believes that its
relations with its employees are good.


                                       19
<PAGE>

Item 2. Properties.

The Company's corporate headquarters are located in approximately 24,000 square
feet of office space sublet from Continental Grain at 277 Park Avenue, New York,
New York 10172. The lease extends through February 28, 2000.

The ContiMortgage corporate headquarters are located in approximately 203,000
square feet of leased office space at 338 South Warminster Road, Hatboro,
Pennsylvania 19040. The lease extends through August 31, 2009.

The Company and its subsidiaries have various other loan origination and
processing operations located throughout the United States. These operations are
conducted from leased office facilities that have terms expiring through April
2004.

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

Item 3. Legal Proceedings.

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.


                                       20
<PAGE>

                                    Part II.

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

The Company's common stock is traded under the symbol "CFN" on the New York
Stock Exchange. The following table sets forth, for the periods 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, 1999:

                  First Quarter           $ 37.3750   $ 23.1250
                  Second Quarter          $ 25.2500   $  7.5000
                  Third Quarter           $  8.6875   $  3.1250
                  Fourth Quarter          $  8.2500   $  3.4375

Fiscal Year Ended March 31, 1998:

                  First Quarter           $36.8750    $26.5000
                  Second Quarter          $40.3125    $31.0000
                  Third Quarter           $32.3750    $23.7500
                  Fourth Quarter          $32.1875    $18.3125

As of June 1, 1999, the Company had 126 stockholders of record, and
approximately 6,282 beneficial owners of its common stock.

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 loan
agreements restrict the payment of dividends by the Company. 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. In addition, there
can be no assurance that dividends will be permitted under applicable law.


                                       21

<PAGE>

Item 6. Selected Financial Data.

                             SELECTED FINANCIAL DATA
                        (in thousands, except share data)

<TABLE>
<CAPTION>
                                                                                     Years Ended March 31,
                                                             -------------------------------------------------------------------
                                                                 1999           1998           1997           1996        1995
                                                             -----------    -----------    -----------    -----------   --------
<S>                                                          <C>            <C>            <C>            <C>           <C>
Income Statement Data:

Gross income
   Gain on sale of receivables ...........................   $       768    $   311,606    $   210,861    $   146,529   $ 67,512
   Commercial real estate valuation adjustments ..........      (167,927)            --             --             --         --
   Interest ..............................................       305,039        236,494        161,402         91,737     42,929
   Net servicing income ..................................        99,544         90,509         46,340         29,298      9,304
   Other income ..........................................        15,767         21,553          9,227          4,252      2,252
                                                             -----------    -----------    -----------    -----------   --------
         Total gross income ..............................       253,191        660,162        427,830        271,816    121,997
                                                             -----------    -----------    -----------    -----------   --------
Expenses
   Compensation and benefits .............................       192,753        161,992         82,170         52,203     23,812
   Interest ..............................................       233,598        165,904        120,636         74,770     29,635
   Provision for loan losses .............................         6,215          5,668          3,043            285      1,935
   General and administrative ............................       166,619        101,633         44,940         18,022      9,627
   Other charges .........................................       147,621             --             --             --         --
                                                             -----------    -----------    -----------    -----------   --------
         Total expenses ..................................       746,806        435,197        250,789        145,280     65,009
                                                             -----------    -----------    -----------    -----------   --------
Income (loss) before income taxes and minority interest ..      (493,615)       224,965        177,041        126,536     56,988
Provision (benefit) for income taxes .....................       (67,510)        91,149         71,341         49,096     22,168
Minority interest in earnings (losses) of subsidiaries ...           152           (488)          (304)         3,310      8,728
                                                             -----------    -----------    -----------    -----------   --------
Net income (loss) ........................................   $  (426,257)   $   134,304    $   106,004    $    74,130   $ 26,092
                                                             ===========    ===========    ===========    ===========   ========
Basic earnings (losses) per common share (pro
  forma for 1996) (1) ....................................   $     $9.21)   $      2.90    $      2.44    $      2.01
                                                             ===========    ===========    ===========    ===========
Diluted earnings (losses) per common share (pro
  forma for 1996) (1) ....................................   $     (9.21)   $      2.86    $      2.40    $      2.00
                                                             ===========    ===========    ===========    ===========
Basic weighted average number of shares outstanding
  (pro forma for 1996) (1) ...............................    46,283,940     46,330,810     43,361,253     36,942,363
                                                             ===========    ===========    ===========    ===========
Diluted weighted average number of shares
  outstanding (pro forma for 1996) (1) ...................    46,283,940     46,992,449     44,152,343     37,050,165
                                                             ===========    ===========    ===========    ===========
</TABLE>

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

<TABLE>
<CAPTION>
                                                                 As of March 31,
                                          --------------------------------------------------------------
                                             1999         1998         1997         1996         1995
                                          ----------   ----------   ----------   ----------   ----------
<S>                                       <C>          <C>          <C>          <C>          <C>
Balance Sheet Data:
Interest-only and residual certificates   $  722,012   $  648,785   $  445,005   $  293,218   $  143,031
Capitalized servicing rights ..........      105,273       74,292       29,353       11,689           --
Receivables held for sale, net ........    1,082,046      724,305      621,798      301,855       75,504
Total assets ..........................    2,355,164    2,808,579    1,545,798      892,540      327,742
Due to affiliates .....................        8,918          163       36,367      337,734      114,907
Short-term debt .......................      512,797      366,104       25,299           --           --
Long-term debt ........................      699,225      499,553      498,817           --           --
Total liabilities .....................    2,147,192    2,161,642    1,136,726      597,721      243,579
Minority interest in subsidiaries .....        4,721          629        1,288           --       16,248
Stockholders' equity ..................      203,251      646,308      407,784      294,819       67,915
</TABLE>

--------------------
(1) Because of the Company's December 1995 reorganization and changes in capital
structure, per share data for the year ended March 31, 1995 is not meaningful.


                                       22
<PAGE>

                      SELECTED FINANCIAL DATA--(continued)
                             (dollars in thousands)

<TABLE>
<CAPTION>
                                                                          Years Ended March 31,
                                                 -----------------------------------------------------------------------
                                                     1999           1998           1997           1996           1995
                                                 -----------    -----------    -----------    -----------    -----------
<S>                                              <C>            <C>            <C>            <C>            <C>
Loan Originations:
Home equity, home improvement and other
   residential mortgage loans:
   Brokers ...................................   $ 1,564,902    $ 1,031,465    $   827,096    $   505,587    $   265,535
   Correspondents ............................     4,676,707      4,455,070      2,921,296      1,736,909      1,023,704
   Direct retail .............................     1,955,678      1,321,596        293,842         68,975         38,919
                                                 -----------    -----------    -----------    -----------    -----------
Total home equity, home improvement and
   other residential mortgage loans ..........     8,197,287      6,808,131      4,042,234      2,311,471      1,328,158
                                                 -----------    -----------    -----------    -----------    -----------
Commercial real estate mortgage loans:
   Conduit (ContiMAP(R)& affiliates) .........     1,459,292      1,873,849        632,524        321,165        158,343
   Keystone ..................................     1,104,121             --             --             --             --
                                                 -----------    -----------    -----------    -----------    -----------
Total commercial real estate loans ...........     2,563,413      1,873,849        632,524        321,165        158,343
Triad auto loans .............................       386,447        191,967         47,049             --             --
                                                 -----------    -----------    -----------    -----------    -----------
   Total loan originations ...................   $11,147,147    $ 8,873,947    $ 4,721,807    $ 2,632,636    $ 1,486,501
                                                 ===========    ===========    ===========    ===========    ===========
Securitizations and sales:
ContiMortgage/ContiWest securitizations ......   $ 6,099,318    $ 6,150,000    $ 3,454,259    $ 2,030,000    $ 1,258,919
Other home equity, home improvement and
   other residential mortgage sales ..........     1,568,840        596,132        335,991            270         33,772
                                                 -----------    -----------    -----------    -----------    -----------
Total home equity, home improvement
   and other residential mortgage sales ......     7,668,158      6,746,132      3,790,250      2,030,270      1,292,691
                                                 -----------    -----------    -----------    -----------    -----------
Commercial real estate mortgage loans:
   Conduit (ContiMAP(R)& affiliates) .........       581,343        896,407        742,259        185,980         89,000
   Whole loan sales ..........................       465,783        601,100             --             --             --
   Keystone ..................................     1,104,121             --             --             --             --
                                                 -----------    -----------    -----------    -----------    -----------
Total commercial real estate mortgage loans ..     2,151,247      1,497,507        742,259        185,980         89,000
Triad auto loans .............................       377,674        177,985         43,530             --             --
Strategic alliances ..........................       217,188        346,464        568,401      1,776,700        906,000
                                                 -----------    -----------    -----------    -----------    -----------
Total securitizations and sales ..............   $10,414,267    $ 8,768,088    $ 5,144,440    $ 3,992,950    $ 2,287,691
                                                 ===========    ===========    ===========    ===========    ===========
ContiMortgage Servicing Portfolio:
Number of loans serviced  (at year end) ......       194,032        157,365        104,568         65,121         38,740
Serviced loan portfolio (at year end) ........   $12,966,131    $10,135,785    $ 6,423,376    $ 3,863,575    $ 2,192,190
Delinquencies:
   30-59 days ................................          1.39%          1.50%          2.18%          1.81%          0.83%
   60-89 days ................................          0.51%          0.51%          0.68%          0.47%          0.36%
   90 days and over ..........................          0.44%          0.35%          0.38%          0.23%          0.45%
                                                 -----------    -----------    -----------    -----------    -----------
   Total delinquencies (%) ...................          2.34%          2.36%          3.24%          2.51%          1.64%
                                                 ===========    ===========    ===========    ===========    ===========
   Total delinquencies ($) ...................   $   303,802    $   239,015    $   208,084    $    97,082    $    35,980
                                                 ===========    ===========    ===========    ===========    ===========
Defaults:
   Foreclosure ...............................          2.29%          2.31%          2.90%          2.42%          0.46%
   Bankruptcy ................................          1.65%          1.70%          1.15%          0.74%          0.41%
   Real estate owned .........................          1.04%          0.83%          0.52%          0.13%          0.09%
   Loss mitigation & legal ...................          1.24%          0.74%          0.13%          0.25%          0.20%
                                                 -----------    -----------    -----------    -----------    -----------
   Total defaults (%) ........................          6.22%          5.58%          4.70%          3.54%          1.16%
                                                 ===========    ===========    ===========    ===========    ===========
   Total defaults ($) ........................   $   806,656    $   565,238    $   302,164    $   136,796    $    25,486
                                                 ===========    ===========    ===========    ===========    ===========
</TABLE>


                                       23
<PAGE>

                      SELECTED FINANCIAL DATA--(continued)
                             (dollars in thousands)

                     Loan Loss Experience on ContiMortgage's
                    Servicing Portfolio of Home Equity Loans

<TABLE>
<CAPTION>
                                                                        Years Ended March 31,
                                               -----------------------------------------------------------------------
                                                   1999           1998           1997           1996           1995
                                               -----------    -----------    -----------    -----------    -----------
<S>                                            <C>            <C>            <C>            <C>            <C>
Loan loss experience (1):
Average amount outstanding ..................  $12,058,468    $ 8,166,407    $ 4,845,304    $ 2,858,790    $ 1,663,865
Net losses:
    REMICs and loans held pending
      securitization ........................  $   125,357    $    37,600    $    12,719          3,686    $     1,308
    Loans and properties purchased out
      of REMICs .............................        6,722         21,162          3,576             --             --
                                               -----------    -----------    -----------    -----------    -----------
      Total net losses ......................  $   132,079    $    58,762    $    16,295          3,686    $     1,308
                                               ===========    ===========    ===========    ===========    ===========
Realized net losses as a percentage of
 average amount outstanding:
    REMICs and loans held pending
      securitization ........................         1.04%          0.46%          0.26%          0.13%          0.08%
    Loans and properties purchased out
      of REMICs .............................         0.06%          0.26%          0.08%            --             --
                                               -----------    -----------    -----------    -----------    -----------
Total realized net losses as a percentage
 of average amount outstanding ..............         1.10%          0.72%          0.34%          0.13%          0.08%
                                               ===========    ===========    ===========    ===========    ===========
</TABLE>

(1) See "Defaults and Losses" included in Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations for a discussion of
the Company's loss mitigation program.


                                       24
<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. In
addition, this report includes a separate section Gain on Sale of Receivables
and Interest-only and Residual Certificates, which should be read in conjunction
with Results of Operations. Certain statements under this caption constitute
"forward-looking statements" under federal securities laws. See "Forward-looking
Statements" on page 3 of this annual report.

General

During fiscal 1999, ContiFinancial Corporation ("ContiFinancial" or the
"Company") incurred a net loss of $426,257 and suffered a critical loss of
liquidity. See "Liquidity and Capital Resources." The Company is operating on a
negative cash flow basis and is dependent on various financing sources for its
continued operations. In order to fund new loans and asset originations and
purchases, the Company is dependent on its Purchase and Sale Facilities and
Repurchase Agreements (collectively, the "Warehouse Facilities"). The Company is
also dependent on continued access to its Revolving Credit Facility and
Commercial Paper Program (collectively, the "Bank Facilities"). The Company is
required to comply with various financial covenants under its outstanding
long-term debt, Bank Facilities and Warehouse Facilities. As of March 31, 1999,
the Company's leverage ratio exceeded the leverage ratio test under the
covenants of its outstanding long-term debt. As a result, the Company is
prevented from issuing additional unsecured debt until its leverage ratio is
below such test. Additionally, the Company would not have been in compliance
with several of the financial covenants of the Bank Facilities and Warehouse
Facilities at December 31, 1998 and March 31, 1999 had these agreements not been
amended. The Bank Facilities expire in August 1999, and the Warehouse Facilities
expire at various times from July 1999 through December 1999.

The Company's continued operations are dependent on the extension, renegotiation
or refinancing, as well as availability through scheduled maturity of the Bank
and Warehouse Facilities. The Company's ability to extend, renegotiate or
refinance its facilities depends on the successful completion of a transaction
with a buyer or equity investor. As a result, there is substantial doubt about
the Company's ability to continue as a going concern. See Note 1 to the
Consolidated Financial Statements.

In order to address this issue, the Company has been seeking a financially
strong acquirer or equity investor who can provide the necessary financing or
provide the Company's lenders with the requisite guarantees. The previously
announced discussions with Residential Funding Corporation, a subsidiary of
General Motors Acceptance Corporation, with respect to an acquisition of the
Company have terminated. The Company is in discussions with others to act as an
acquiror or equity investor and has commenced negotiations for a restructuring
with the providers of its Bank Facilities, Warehouse Facilities and long-term
debt.

ContiFinancial engages in the consumer finance business by originating and
servicing primarily non-conforming home equity loans ("HELs"). ContiFinancial is
an originator, purchaser, seller, securitizer 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. These loans are
primarily for debt consolidation, home improvements, education or refinancing,
and are most often secured by first mortgages on single family residential
properties.

Historically, the Company operated as a more diversified consumer and commercial
financial intermediary that originated, securitized and serviced various loan
products in addition to HELs. These products included commercial real estate
loans, high loan-to-value mortgage loans, non-prime auto loans, charged-off
consumer receivables, equipment leases and franchise loans. In fiscal 1999,
severe turbulence in the capital markets (see Discussion of Events During Fiscal
1999 below) contributed to significant losses and resulted in a critical loss of
liquidity that made it impossible for the Company to continue financing its
diversified product lines. As a result, the Company had to restrict its focus
primarily to the core HEL business and reduce or eliminate its involvement with
most other loan products. The Company's Consolidated Statement of Income for the
year ended March 31, 1999 reflects, under Commercial real estate valuation
adjustments and Other charges, total charges of $315.5 million related to losses
incurred as a result of the factors discussed above. See Note 4 to the
Consolidated Financial Statements.


                                       25
<PAGE>

Discussion of Events During Fiscal 1999

Write-downs of Interest-only and Residual Certificates

During fiscal 1999, the Company recorded fair value adjustments to interest-only
and residual certificates totaling $329 million, resulting from
higher-than-estimated prepayment speeds and credit losses, and an increase to
the discount rate used in the valuation from 10% to 12% to reflect the capital
market's deteriorating view of the "sub-prime" industry in which the Company
operates. The Company believes its interest-only and residual certificates are
fairly valued at March 31, 1999, but can provide no assurances that future
prepayment and loss experience or changes in the required market discount rate
will not necessitate additional write-downs. If there are such additional
write-downs in future periods, the Company's income would be reduced and that
could cause the Company to report net losses for such periods. See Note 5 to the
Consolidated Financial Statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Gain on Sale of Receivables and
Interest-only and Residual Certificates".

Capital Markets Turbulence

The Company's operations were significantly and adversely affected by difficult
capital market conditions that commenced in the second quarter of fiscal 1999,
with the effects of these events, and their repercussions, continuing to affect
the Company's results in the third and fourth quarters. During the second
quarter, the economic instability in Asia and Russia precipitated a global debt
crisis (the "Debt Crisis") which caused a "flight to quality" by investors.
During this period, fixed income investors purchased large amounts of U.S.
Treasury securities, causing U.S. Treasury yields to decrease significantly. As
investor demand for U.S. Treasury securities increased, the demand for other
fixed income securities declined dramatically, causing yields on such other
securities to rise relative to U.S. Treasury securities. Since almost all of the
Company's loan originations were ultimately funded by the issuance of securities
backed by the loans it originates (securitization), these unusual interest rate
movements affected the market value of all of the Company's originations,
causing significant losses and leading to a critical loss of liquidity.

By late September, these unusual interest rate movements had caused the
near-collapse of a large hedge fund controlling over $90 billion in financial
assets. This event panicked the world's banking systems and further eroded the
value of financial assets. In October, one of the largest investors in the
subordinate classes of securities produced in commercial loan securitizations
(the "Investor") filed for bankruptcy protection under the weight of margin
calls by its lenders. These margin calls were made because of the loss in value
of the securities which collateralized the Investor's borrowings. This
bankruptcy removed a large source of liquidity from the commercial loan
securitization market.

The immediate impact of these events was an increase to the Company's margin
requirements under its Warehouse Facilities and significant losses in the
Company's related hedge positions in U.S. Treasury securities. Because the
Company's securities are priced based on a spread over the U.S. Treasury yield,
the Company's policy had been to hedge its inventory position by selling short
U.S. Treasury securities. During the "flight to quality" the Company's short
position lost money as Treasury yields declined, and its long position (its
inventory of loans) also lost value due to (i) a decline in demand for the
securities backed by its loans, and (ii) a sudden over supply in the whole loan
market as securitizers, en masse, attempted to sell their inventories to a
limited number of whole loan buyers. In response to the decline in market value
of the inventory securing the Warehouse Facilities, the Company's lenders made
margin calls for additional cash collateral. The most significant hedge losses
and margin calls occurred in the Company's commercial loan portfolio due to the
longer durations associated with these loans, and in the Company's high
loan-to-value business because of the more limited funding options available for
this product.


                                       26
<PAGE>

To lessen the drain on liquidity caused by the margin calls, the Company had to
sell inventory to reduce its margin exposure and to generate cash premiums.
Large whole loan sales of HELs and commercial loans had to be executed near the
bottom of the market, with the twofold result being that the Company sold
portfolios at a loss (some under par, others at sales premiums less than the
purchase premiums) and had to close out the related hedge positions at a loss,
eliminating any possibility of recovery as the Debt Crisis eventually eased and
Treasury yields began to rise.

While the Debt Crisis abated for other sectors of the economy over the remainder
of fiscal 1999, its impact and subsequent repercussions continued to affect the
"sub-prime" industry in which the Company operates. The sudden and significant
loss of liquidity experienced throughout the industry, occurring within the
context of increasing market skepticism about the quality of earnings reported
under "gain-on-sale accounting," intensified capital market concerns about the
industry and effectively eliminated access to the capital markets as a source of
new liquidity. Although the Company was successful in the third and fourth
fiscal quarters in securitizing its products and selling its products on a whole
loan basis, its diminished liquidity position adversely affected the Company's
ability to continue to provide financing to its Strategic Alliance clients. The
continued viability of these client companies and the recoverability of the
Company's investments in and receivables from these companies became contingent
upon their ability to find alternative sources of financing. As the evolving
impact of the Debt Crisis on certain client companies became known, the Company
recorded write-downs or reserves against these balances.

Revised Business Strategy and Additional Capital Requirements

In response to the new market environment and the severe capital constraints
under which the Company must operate, the Company has taken various steps to
reposition its business. Going forward, the Company will focus on those
businesses that (i) generate positive cash flow, (ii) represent platforms for
further growth and diversification, (iii) have the ability to achieve a position
of market leadership, and (iv) reduce reliance on securitization as a sole
funding source. Given these operating considerations, the Company intends to
focus on its HEL origination business through ContiMortgage Corporation
("ContiMortgage"). ContiMortgage will continue its strategy to be a low cost
producer generating loan volume through multiple origination channels supported
by experienced servicing, collections and loss mitigation groups. ContiMortgage
will continue to (i) de-emphasize originations in its most cash intensive
correspondent channel of production, while also reducing the premiums paid for
correspondent loans, (ii) increase its higher margin broker and retail loan
production channel, and (iii) diversify loan funding strategies to increase the
level of whole loan sales and reduce reliance upon securitization.

There can be no assurances given that the Company will be successful in
implementing its revised business strategy, primarily because the Company has
debt obligations totaling $422 million as of July 13, 1999 that will mature in
August 1999. In addition, the Company's Warehouse Facilities expire at various
times from July 1999 through December 1999. The Company's continued operations
are dependent on the extension, renegotiation or refinancing, as well as
availability through scheduled maturity of the Bank and Warehouse Facilities.
The Company's ability to extend, renegotiate or refinance its facilities depends
on the successful completion of a transaction with a buyer or equity investor.
As a result, there is substantial doubt about the Company's ability to continue
as a going concern. In order to address this issue, the Company has been seeking
a financially strong acquirer or equity investor who can provide the necessary
financing or provide the Company's lenders with the requisite guarantees. The
previously announced discussions with Residential Funding Corporation, a
subsidiary of General Motors Acceptance Corporation, with respect to an
acquisition of the Company have terminated. The Company is in discussions with
others to act as an acquiror or equity investor and has commenced negotiations
for a restructuring with the providers of its Bank Facilities, Warehouse
Facilities and long-term debt.


                                       27
<PAGE>

Commercial Real Estate Valuation Adjustments and Other Charges

The market disruptions, as detailed above, affected many participants in the
commercial real estate and sub-prime home equity industries, including several
of the Company's majority- and minority-owned affiliates. The worst affected
were those businesses whose products had a longer average life (e.g., commercial
mortgages), making those products more sensitive to changes in interest rates,
and those that dealt in niche products with limited funding options outside of
securitization (e.g., high loan-to-value mortgages). The working capital
required to operate such businesses increased dramatically as warehouse lenders
either abandoned the businesses entirely or significantly increased their margin
requirements. Due to the Company's diminished liquidity position, it was forced
to terminate or reduce the scope of its involvement in many business
relationships at significant losses.

In the Company's Consolidated Statements of Income for the year ended March 31,
1999, losses resulting from these adverse developments are included in
Commercial real estate valuation adjustments in the amount of $167.9 million and
Other charges in the amount of $147.6 million. Commercial real estate valuation
adjustments represent losses incurred in liquidating the Company's portfolio of
commercial real estate mortgage loans. At September 30, 1998, when the Company
decided to discontinue its commercial real estate lending activities, the
Company had commercial real estate loans totaling $970.4 million either held for
sale on its Consolidated Balance Sheet or sold with limited recourse under the
Company's asset purchase and sale facilities with certain financial institutions
(the "Purchase and Sale Facilities"). Other charges represents the write-down of
investments in and receivables from affiliated companies and Strategic Alliance
clients and costs incurred in terminating or reducing the scope of certain
business activities and restructuring the remaining businesses. Details of these
adjustments are provided in the table below:


                                       28
<PAGE>

<TABLE>
<CAPTION>
                                                                                   Year Ended
                                                                                 March 31, 1999
                                                                                 --------------
                                                                                 (in thousands)
<S>                                                                                 <C>
Commercial real estate valuation adjustments:
     Realized losses ...........................................................    $109,768
     Unrealized losses .........................................................      58,159
                                                                                    --------

Total Commercial real estate valuation adjustments .............................     167,927
                                                                                    --------

Other charges:
     Write-offs and reserves on receivables from affiliates and Strategic
      Alliance clients .........................................................      91,921
     Write-downs or losses on the disposition of investments in affiliates .....      38,117
     Severance for approximately 310 terminated employees ......................       6,892
     Exit costs (excluding severance) for reduction of commercial real estate
      activity .................................................................       5,764
     Other restructuring costs .................................................       4,927
                                                                                    --------
Total other charges ............................................................     147,621
                                                                                    --------

Total commercial real estate valuation adjustments and other charges ...........    $315,548
                                                                                    ========
</TABLE>

The commercial real estate realized losses of $109.8 million consisted of $80.6
million from hedge losses and $29.2 million from sales of commercial loans.
Prior to sale or securitization, the Company's commercial real estate loans held
for sale are carried at the lower of aggregate cost or market value. The Company
hedged its resulting exposure to absolute movement in interest rates, typically
through the short sale of U.S. Treasury securities, interest rate futures
contracts or options on U.S. Treasury securities. During the second fiscal
quarter, the significant decline in interest rates on U.S. Treasury securities
resulted in significant losses on hedge positions. If interest rate spreads
between U.S. Treasury securities and the securities to be issued (backed by the
commercial real estate loans) had remained at the levels that prevailed when the
hedges were executed, the market value of the loans would have increased,
offsetting the hedge losses. However, the market value of the loans declined due
to a decreased demand for the securities backed by the loans which, in turn,
caused a sudden over supply in the whole loan market. Due to the decline in the
market value of the loans, the Company's lenders made margin calls for
additional cash collateral. To satisfy the margin calls, the Company was forced
to sell loans at executions near the bottom of the market and close out the
related hedge positions at a loss.

In October 1998, the Company suspended issuing new loan purchase commitment
letters within ContiMAP(R) (a commercial mortgage conduit program) and decided
to sell its commercial loan exposure in an orderly liquidation process over a
reasonable period of time. At March 31, 1999, the Company had remaining net
commercial real estate loans of $257.6 million included in Receivables held for
sale in the accompanying Consolidated Balance Sheets and $217.4 million of
commercial real estate loans sold with limited recourse under the Company's
Purchase and Sale Facilities for a total exposure, on- and off-balance sheet, of
$475 million. As of June 15, 1999, the remaining portfolio of commercial real
estate loans had been reduced to approximately $154 million. The Company intends
to sell the remaining commercial real estate loans over the next six months. In
the future, the Company will limit its commercial real estate activities to loan
originations through Keystone Mortgage Partners LLC ("Keystone"), a subsidiary
of the Company. Keystone is a broker and servicer of commercial mortgage loans,
primarily to the insurance industry, but does not take principal risk.

In addition to the commercial mortgage exposure discussed above, at March 31,
1999, the Company had market exposure related to a $222 million commercial
mortgage portfolio, net of reserves, owned by Red Mountain Funding, L.L.C.
("RMF"), a commercial affiliate. Included in Other charges is a $27.2 million
reserve for margin call advances related to this portfolio paid on behalf of RMF
to a warehouse lender. With regard to the RMF margin advances, because the
Company would have to fund additional margin calls if such calls were to be
made, and because RMF does not have the financial resources to repay the Company
for the advances, the Company is exposed to market risk on the entire balance of
RMF's financed portfolio. As of June 15, 1999, the net balance remaining of the
RMF portfolio had been reduced to $133 million.


                                       29
<PAGE>

The largest component of Other charges is $65 million of losses related to the
Company's high loan-to-value ("HLTV") mortgage business. This amount includes
the write-off of the Company's 24% equity investment in Empire Funding Holding
Corporation ("EFHC") in the amount of $27.6 million, and additional write-downs
of $37.4 million related to receivables from EFHC. Due to the adverse market
conditions which commenced in the second quarter of fiscal 1999, the
securitization of HLTV mortgage loans began to require large initial cash
investments, and warehouse financing for HLTV mortgage loans became very costly
and difficult to obtain. Because the Company no longer had the liquidity to
finance EFHC's operations, the Company entered into negotiations to terminate
its financial obligations to EFHC. In April 1999, the Company finalized and
executed an agreement with EFHC pursuant to which, among other things, the
Company relinquished all ownership interests in EFHC, and EFHC agreed to
transfer to the Company, subject to required third-party consents, certain
servicing rights, residual interests and interest-only strips (collectively, the
"Residual Interests") in exchange for the complete satisfaction of certain
outstanding debts and the termination of the related credit facilities. The fair
value of the Residual Interests was determined by the Company to be
approximately $72.7 million as of March 31, 1999, which value was the primary
basis for measuring the impairment of receivables from EFHC as of that date. As
a part of the agreement with EFHC, the Company was also required to provide EFHC
with a $25 million warehouse line of credit for a term of six months.

Also included in Other Charges is $21.4 million of losses on investments and
receivables related to affiliates and Strategic Alliance clients engaged in the
home equity business.

Effects on Liquidity

In the second quarter of fiscal 1999, interest rate spreads between U.S.
Treasury securities and securities backed by commercial real estate loans and,
to a lesser extent, securities backed by sub-prime home equity and other
residential mortgage loans, widened. As a result, the collateral value of the
loans declined, and the Company's warehouse lenders made margin calls for
additional cash collateral. The margin represents the difference between a
loan's principal value and the amount that can be borrowed by pledging the loan
as collateral. In the normal course of its business activities, the Company
maintains substantial inventories of loans held for sale or securitization and,
as a result, has significant financing requirements. As a result of the
reduction in the value of loans pledged as collateral for secured borrowings
and/or the increase in related margins, the Company was required to post net
cash collateral of $55.4 million, $49.7 million and $35.8 million during the
second, third and fourth quarters of fiscal 1999, respectively.

On an ongoing basis, the Company is required to maintain margin deposits in
connection with its hedge positions. As noted earlier, the Company incurred
significant hedge losses during the second quarter. As a result, the net cash
outflow in connection with its hedge positions was $114.1 million and $18.6
million over the course of the second and third quarters of fiscal 1999,
respectively. Hedge positions were closed in the fourth quarter due to liquidity
constraints. The Company had hedged its interest rate exposure on its loan
portfolio through the short sale of U.S. Treasury securities, interest rate
futures contracts or options on interest rate futures contracts. The Company has
made adjustments to its hedging strategy accordingly. See Securitizations -
Hedging Interest Rate Risk.


                                       30
<PAGE>

During the third and fourth quarters of fiscal 1999, the Company reduced the
volume of home equity and other residential mortgage loan originations. Loan
originations for the three months ended December 31, 1998 and March 31, 1999,
were $1.8 billion and $1.7 billion, respectively, compared with originations of
$2.5 billion during the three months ended September 30, 1998. The reduction was
focused on correspondent originations, as opposed to retail originations, since
the Company typically pays premiums in connection with the purchase of loans
from correspondents. The Company is taking these actions to improve the cash
flow characteristics of its business activities in order to focus on its direct
origination (i.e., retail) and small broker channels, and to reduce the level of
loan purchases from correspondent originations. The Company's objective with
respect to correspondent originations is to pursue a pricing policy that will
facilitate a continuous flow of cash positive whole loan sales.

In connection with the foregoing actions, the Company implemented a staff
reduction. Most of the positions eliminated related to home equity correspondent
originations and funding. During the third and fourth quarters of fiscal 1999,
charges against earnings of $6.9 million were recorded for severance plans
established for approximately 310 employees. At March 31, 1999, $3.9 million of
such accrual remained.

Another factor influencing financing requirements is the timing of loan sales
and securitizations. The Company has generally executed one large home equity
securitization each quarter. During the third and fourth quarters of fiscal
1999, the Company executed whole loan sales of $782.6 million and $396.7
million, respectively, and executed three securitizations totaling $2.2 billion.
By pursuing this approach to increase the frequency of loan sales through a
combination of whole loan sales and smaller, but more frequent, securitizations,
the Company expects that the financing required to fund loan inventory will be
less than that required under the previous strategy of maximizing securitization
size. In January 1999, in order to establish a consistent and committed whole
loan sale program, ContiMortgage entered into a two year agreement with a
financial institution to sell, with servicing released, not less than $2.25
billion and up to a maximum of $7.2 billion of home equity loans. See Note 13 to
the Consolidated Financial Statements. The agreement establishes a sale price
that can be adjusted upon occurrence of specific events. During the fourth
quarter of fiscal 1999 and the first quarter of fiscal 2000, ContiMortgage
executed sales totaling $60.0 million and approximately $167.3 million under
this agreement.

In the fourth quarter of fiscal 1999 and the first quarter of fiscal 2000, many
Warehouse Facility lenders reduced or terminated their Warehouse Facilities to
the Company. While the Company currently has sufficient warehouse lines to
operate on a daily basis, no assurance can be given that such warehouse
facilities will be extended when they come up for renewal commencing in July, or
that lenders will not terminate these facilities or reduce availability prior to
the scheduled maturity.

Results of Operations

In order to reduce its reliance on correspondent sources of loan production, the
Company has been pursuing a strategy of expanding its retail origination
capabilities through acquisitions (see Note 8 to the Company's Consolidated
Financial Statements); through the internal development of a centralized
direct-to-consumer HEL division (ContiDirect); and through the expansion of the
existing network of regional offices that originate loans through brokers. The
costs associated with originating loans through retail channels are primarily
compensation, marketing and other operating expenses, whereas the cost of
acquiring loans through the correspondent channel consists primarily of purchase
premiums, which are reflected in gain on sale of receivables. Consequently, the
expansion of the Company's retail operations has resulted in large increases in
operating expenses, partially offset by origination fee income that is reflected
in gain on sale of receivables.


                                       31
<PAGE>

During the first two quarters of fiscal 1999, the Company continued to expand
most of its business channels, but the market disruptions that commenced in the
second quarter caused the Company to reduce the scope of its operations during
the third and fourth quarters of fiscal 1999. Because the Company believes its
retail operations account for the greatest part of the Company's franchise
value, most of the business reductions were directed toward non-retail
operations. Although large head count reductions were made by certain retail
subsidiaries to consolidate support functions, the Company continued to develop
the new ContiDirect division and completed the acquisition of a branch network
from a former Strategic Alliance client. Despite the scale back of operations
that occurred in the second half of fiscal 1999, total head count at the end of
fiscal 1999 exceeded by 16% the head count at the end of fiscal 1998 as a result
of the expansion that occurred in the first half of fiscal 1999, as well as the
Company's continued commitment to its retail platform.

Year Ended March 31, 1999 Compared to Year Ended March 31, 1998 and Year Ended
March 31, 1997

Net loss for the year ended March 31, 1999 was $426.3 million compared with net
income of $134.3 million and $106.0 million for the years ended March 31, 1998
and 1997, respectively. The Company's total gross income decreased 61.6% to
$253.2 million in fiscal 1999 from $660.2 million in fiscal 1998, which in turn
increased 54.3% from $427.8 million in fiscal 1997. As discussed previously in
the "Discussion of Events During Fiscal 1999," the net loss for the year ended
March 31, 1999 and the decline in gross income were primarily caused by (i)
downward commercial real estate valuation adjustments of $167.9 million, (ii)
other charges against earnings of $147.6 million, and (iii) ESR fair value
write-downs of $328.7 million, primarily to home equity ESR.

See "Gain on Sale of Receivables and Interest-only and Residual Certificates"
for a discussion of year-to-year changes in the amount and composition of gain
on sale of receivables. See also "Discussion of Events During Fiscal 1999 -
Commercial Real Estate Valuation Adjustments and Other Charges."

Interest Income and Expense

Interest income increased $68.5 million or 29.0% in fiscal 1999 over fiscal
1998, and increased $75.1 million or 46.5% in fiscal 1998 over fiscal 1997.
Interest expense increased $67.7 million or 40.8% in fiscal 1999 over fiscal
1998, and increased $45.3 million or 37.5% in fiscal 1998 over fiscal 1997.

In the normal course of its activities, the Company carries inventories of loans
pending sale or securitization and earns a positive spread between the interest
income earned on those loans and its cost of financing those loans. Interest
income also includes accrued imputed interest on Excess Spread Receivables
("ESR"). In addition to the cost of financing loans pending sale or
securitization, interest expense includes the cost of financing the Company's
longer term capital requirements, including the cost of strategic acquisitions.

Net interest income in fiscal 1999 remained relatively flat at $71.4 million as
compared to $70.6 million in fiscal 1998. This resulted from an increase in
origination, securitization and sales volume in the first half of fiscal 1999,
offset by decreased volume in the second half of fiscal 1999. In fiscal 1998 as
compared to fiscal 1997, the Company's sales and securitization volume increased
significantly, contributing to a commensurate increase in the average level of
loans held in inventory pending securitization. As a result, net interest income
increased significantly, reaching $70.6 million in fiscal 1998 compared with
$40.8 million in fiscal 1997.


                                       32
<PAGE>

Net Servicing Income

Net servicing income consists of servicing fees and prepayment penalties
collected from borrowers, and capitalized servicing activity. Net servicing
income increased $9.0 million or 10.0% in fiscal 1999 over fiscal 1998, and
increased $44.2 million or 95.3% in fiscal 1998 over fiscal 1997. The following
table presents the components of servicing income for fiscal 1999, 1998 and
1997:

<TABLE>
<CAPTION>
                                                                     Year Ended March 31,
                                                          ------------------------------------------
                                                               1999           1998           1997
                                                          ------------    -----------    -----------
<S>                                                       <C>             <C>            <C>
(in thousands)
Capitalized servicing created .........................   $     76,603    $    63,609    $    25,340
Premiums paid for capitalized prepayment penalties ....        (20,939)        (7,250)        (1,336)
Amortization of capitalized servicing .................        (45,622)       (18,670)        (7,676)
Fees and prepayment penalty collections ...............         89,502         52,820         30,012
                                                          ------------    -----------    -----------
Net servicing income ..................................   $     99,544    $    90,509    $    46,340
                                                          ============    ===========    ===========
Total ContiMortgage/ContiWest securitization volume ...   $  6,099,318    $ 6,150,000    $ 3,454,259
Average ContiMortgage servicing portfolio
   (excluding warehouse) ..............................   $ 10,518,800    $ 7,194,715    $ 4,448,975
</TABLE>

The increase of $13.0 million in capitalized servicing created in fiscal 1999
over fiscal 1998 was primarily related to an increase in the volume and value of
prepayment penalties being written on the Company's loans, as reflected in the
higher level of premiums being paid for such prepayment penalties. The increase
in capitalized servicing created in fiscal 1998 as compared to fiscal 1997 of
$38.3 million is primarily due to the Company's securitization volume in fiscal
1998 exceeding that of fiscal 1997 by $2.7 billion.

The increase in amortization of capitalized servicing of $27.0 million in fiscal
1999 from fiscal 1998 was primarily due to the large increase in capitalized
servicing created in fiscal 1998, which is being amortized in fiscal 1999. In
addition, because prepayment penalties have set expiration dates that may be as
short as six months, capitalized prepayment penalties are, on average, amortized
over a much shorter period than normal servicing fees.

The fees and prepayment penalty collections component of net servicing income
represents cash income earned from the servicing of loans in Real Estate
Mortgage Investment Conduits ("REMICs"), other trusts and other servicing
retained investor portfolios, and is primarily based on the level of loans
serviced and the types of ancillary fee income associated with the loans. Fees
and prepayment penalties collected in fiscal 1999 increased by $36.7 million
from fiscal 1998, primarily due to an increase of $3.3 billion in the average
balance of the ContiMortgage portfolio of loans serviced for others, an increase
in the percentage of prepaid loans with prepayment penalties, and a higher level
of late fees. The increase of $22.8 million in fiscal 1998 from 1997 was
primarily attributable to the $2.7 billion increase in the average balance of
the ContiMortgage portfolio of loans serviced for others.

Capitalized servicing rights reflected on the accompanying Consolidated Balance
Sheets consists of servicing assets recorded in connection with new
securitizations (i.e., the present value of future servicing income, net of
expenses), reduced by amortization of capitalized servicing from prior
securitizations. The following table presents an analysis of capitalized
servicing rights activity during the year ended March 31, 1999:


                                       33
<PAGE>

Capitalized Servicing Rights (in thousands):

Balance as of March 31, 1998 .....................................    $  74,292
   New securitizations ...........................................       76,603
   Amortization of capitalized servicing receivable ..............      (45,622)
                                                                      ---------
Balance as of March 31, 1999 .....................................    $ 105,273
                                                                      =========
Other income

Other income consists primarily of purchase premium refunds, gains (losses) on
marketable securities and mortgage banking fees. Other income decreased to $15.8
million in fiscal 1999 from $21.6 million in fiscal 1998 and increased in fiscal
1998 from $9.2 million in fiscal 1997. Purchase premium refunds are received
from certain correspondent origination sources when loans prepay within a
specified time period. Purchase premium refunds were $6.3 million in 1999, $8.1
million in 1998 and $4.6 million in 1997. Mortgage banking fees were $3.7
million in 1999, $3.4 million in 1998 and $1.2 million in 1997. In fiscal 1999,
Other income included loss from unconsolidated subsidiaries of $4.3 million and
gains on marketable securities of $4.7 million. In fiscal 1998, Other income
included income from unconsolidated subsidiaries of $5.4 million and income of
$1.1 million relating to the sale of stock warrants in a Strategic Alliance
company.

Compensation and benefits and General and administrative expenses


                                                     Years Ended March 31,
                                               1999          1998         1997
                                             --------      --------      -------
                                                    (dollars in thousands)

Compensation and benefits .............      $192,753      $161,992      $82,170
Less: incentive compensation ..........         6,169        31,252       24,580
                                             --------      --------      -------
Compensation and benefits, net ........      $186,584      $130,740      $57,590
                                             ========      ========      =======
Year-end head count ...................         3,330         2,881        1,562
Average head count for the year .......         3,329         2,191        1,008

General and administrative expenses          $166,619      $101,633      $44,940
                                             ========      ========      =======

In fiscal 1999, compensation and benefits increased by $30.8 million or 19% from
fiscal 1998. However, net of incentive compensation of $6.2 million in fiscal
1999 and $31.3 million in fiscal 1998, the increase in compensation and benefits
in fiscal 1999 was $55.8 million or 43% over fiscal 1998, as compared to a 52%
increase in average head count. This difference in the percentage increase
between head count and net compensation and benefits for fiscal 1999 over fiscal
1998 reflects a change in the composition of the work force as a result of the
business restructuring that occurred in fiscal 1999. The increase in average
head count for fiscal 1999 was most significantly impacted by the acquisition of
FMD and Crystal in the latter part of fiscal 1998, which combined added over 400
employees, and by the fiscal 1999 start up of the ContiDirect retail division
and the acquisition of a branch network from a former Strategic Alliance client,
which combined added over 450 employees.


                                       34
<PAGE>

The increase in net compensation in fiscal 1998 of $73.1 million over fiscal
1997 was consistent with the increase in average head count and primarily
reflected a number of retail acquisitions that were completed in the latter part
of fiscal 1996.

General and administrative expense ("G&A Expense") increased by $64.9 million or
64% in fiscal 1999 from fiscal 1998. This increase primarily reflects the
continued expansion of the Company's retail operations, but also reflects an
expansion of the Company's servicing operations in response to a 28% increase in
the size of the year-end servicing portfolio. The rate of increase in G&A
Expense in fiscal 1999 over fiscal 1998 exceeded the rate of increase in head
count for the same period (64% and 52%, respectively) because the increase in
head count was a net number consisting of increases in the Company's retail
operations, which require a higher level of G&A Expense, and decreases in
non-retail operations, which require less G&A Expense.

The increase in G&A Expense in fiscal 1998 of $56.7 million from fiscal 1997 was
consistent with the increase in average head count and primarily reflected a
number of retail acquisitions that were completed in the latter part of fiscal
1996.

Minority Interest

In fiscal 1999, minority interest was primarily attributable to the 25% minority
shareholders of Keystone. In fiscal 1998 and 1997, minority interest was
primarily attributable to the 44% minority shareholders of Triad prior to the
Company's March 1998 acquisition of that interest.

Gain on Sale of Receivables and Interest-only and Residual Certificates

General

A major source of income for the Company is the recognition of gains in
connection with securitizations and whole loan sales. In a typical
securitization, the Company sells loans or other assets to a special purpose
entity, established for the limited purpose of buying the assets from the
Company and transferring such assets to a trust, most often a REMIC. The REMIC
issues interest-bearing securities that are collateralized by the underlying
pool of mortgage loans or other assets, as the case may be. The proceeds are
used as consideration to purchase the assets from the Company. Typically, the
securities are sold at an amount that is the same (or nearly the same) as the
underlying mortgage loan amounts, and the Company retains a residual interest
that represents its right to receive, over the life of the securitization, the
excess of the weighted average coupon on the loans securitized over the sum of
the interest rate on the securities sold, a normal servicing fee, a trustee fee,
an insurance fee (where applicable) and the credit losses relating to the loans
or other assets securitized (the "Excess Spread Receivable" or "ESR"). In
accordance with SFAS No.125, the present value of the estimated ESR is treated
as additional sale proceeds and included in Gain on Sale of Receivables at the
time of securitization. In a securitization, the Company may also sell a portion
of the ESR in the form of interest-only securities. In a whole loan sale, the
Company sells its entire interest in the loans directly to an investor, with all
proceeds realized in cash at the time of sale. Gain on sale of receivables also
includes any adjustments to ESR that may result from the quarterly fair value
evaluation, and also includes points, origination fees and direct origination
costs associated with broker and direct retail mortgage originations; purchase
premiums associated with the acquisition of whole loans from correspondents;
hedge results; transaction costs; and fees earned in connection with
securitzation services provided to Strategic Alliance clients. All such fees and
costs are recognized in Gain on Sale of Receivables at the time the related
loans are sold or securitized. See "Accounting for ESR - Valuation Process and
Significant Assumptions" below.


                                       35
<PAGE>

See Hedging Interest Rate Risk under Gain on Sale of Receivables for a
discussion of the impact of hedging activities on gain on sale of receivables.

ESR, reported as "Interest-only and residual certificates" in the accompanying
Consolidated Balance Sheets, is the present value of the retained residual
interest (as described above) that the Company expects to receive over the life
of a securitization, taking into consideration estimated prepayment speeds and
credit losses, and is discounted at a rate which the Company believes is an
appropriate risk-adjusted market rate of return for the ESR asset. ESR is
realized over the life of the securitization as cash distributions are received
from the trust.

As a credit enhancement to support the sale of senior collateralized securities,
the Company's ESR is subordinate to the rights of such senior securities. The
terms of the REMIC and other trust agreements generally require the
establishment of a level of over-collateralization, based largely on estimated
cumulative default and loss levels of the underlying pools of mortgages. The
required level of over-collateralization is attained by utilizing cash flows
otherwise distributable to ESR holders either to pay down outstanding principal
of senior interests or to fund segregated deposit accounts. At March 31, 1999,
over-collateralization of ContiMortgage/ContiWest REMICs totaled $195.8 million.

Gain on Sale of Receivables

The following table sets forth the components of gain on sale of receivables for
each of the last three fiscal years:

<TABLE>
<CAPTION>
                                      Year Ended        Year Ended       Year Ended
(In thousands)                      March 31, 1999    March 31, 1998   March 31, 1997
                                    --------------    --------------   --------------
<S>                                    <C>               <C>              <C>
Home equity/home improvement .....     $(11,930)         $246,280         $186,123
Commercial real estate ...........       (1,129)           37,058           16,420
Auto .............................       14,610            20,781            4,976
Other ............................         (783)            7,487            3,342
                                       --------          --------         --------
    Total ........................     $    768          $311,606         $210,861
                                       ========          ========         ========
</TABLE>

Gain on sale of receivables includes gain from current year's sales, net of fair
value adjustments for all securitizations, including prior years. Such fair
value adjustments were a negative $328.7 million in fiscal year 1999 and a
negative $63.3 million in fiscal year 1998. See "ESR Fair Value Adjustment"
below.

Gain on sale of receivables decreased to $0.8 million in fiscal 1999 from $311.6
million in fiscal 1998 primarily due to negative ESR fair value adjustments
recorded during fiscal 1999 of $328.7 million as compared to a negative fair
value adjustment of $63.3 million in fiscal 1998. Excluding the ESR fair value
adjustments, gain on sale of receivables decreased $45.4 million in fiscal 1999
as compared to fiscal 1998 and increased $100.7 million in fiscal 1998 as
compared to fiscal 1997. The components of these changes are discussed below.

Gain on Sales of Home Equity/Home Improvement Loans. The sale of home equity
loans, either through securitization or whole loan sale, accounts for the
largest component of gain on sale of receivables. Gains on sales of home equity
loans, excluding ESR fair value adjustments of $312.7 million in fiscal 1999 and
$63.3 million in fiscal 1998, were $300.8 million in fiscal 1999 compared with
$309.5 million in fiscal 1998 and $186.1 million in fiscal 1997. The fiscal 1999
fair value adjustment includes $14.4 million related to portfolios other than
ContiMortgage and ContiWest.


                                       36
<PAGE>

The decrease in gain on sale of home equity loans of $8.7 million (excluding ESR
fair value adjustments) in fiscal 1999 from fiscal 1998 reflects an increase in
sale volume to $7.6 billion in fiscal 1999 from $6.7 billion in fiscal 1998,
offset by a decrease in the gain on sale profit percentage to 3.92% in fiscal
1999 from 4.59% in fiscal 1998. The reduced gain on sale percentage reflects
higher interest spreads required by investors during fiscal 1999, partially
offset by a lower cost to acquire the product due to the effect of liquidity
problems within the industry on the amount of purchase premiums paid for loans.
Notwithstanding the increase in fiscal 1999 volume over the prior year, the
Company experienced a significant decline in production volume in the third and
fourth fiscal quarters of 1999. Of total HEL origination production of $8.2
billion for fiscal 1999, $1.8 billion and $1.7 billion was produced in the third
and fourth fiscal quarters, respectively.

The increase in gain on sale of home equity loans of $123.4 million (excluding
ESR fair value adjustments of $63.3 million in 1998) in fiscal 1998 from fiscal
1997 reflects an increase in sale volume to $6.7 billion in fiscal 1998 from
$3.8 billion in fiscal 1997, offset by a decrease in the gain on sale profit
percentage to 4.59% in fiscal 1998 from 4.91% in fiscal 1997. The Company and
the industry in general were expanding rapidly in fiscal 1998, and profit
margins were reduced by increased competition.

Gain on Sales of Commercial Real Estate Loans. Due to the difficult capital
market conditions that commenced in the second quarter of fiscal 1999, the
Company discontinued its commercial real estate lending activities with the
exception of Keystone, which brokers loans to investors. In addition to losses
of $167.9 million reflected in the commercial real estate valuation adjustments
(see "Commercial Real Estate Valuation Adjustments and Other Charges"), the
Company recorded a loss on the sale of commercial real estate loans in fiscal
1999 of $1.1 million, which included revenues of $7.7 million from Keystone and
a loss of $8.8 million on the fiscal 1999 second quarter commercial mortgage
loan securitization.

In fiscal 1998, commercial real estate loan sales and securitizations generated
gains on sale of $37.1 million, up from $16.4 million in 1997, reflecting a
general expansion of the Company's commercial real estate lending activities.

Gain on Sales of Auto Loans. Gain on sale of receivables in connection with
automobile loan securitizations, exclusive of negative fair value adjustments of
$11.9 million, was $26.5 million in fiscal 1999, of which $24.5 million was
attributable to Triad. The ESR fair value adjustment was required due to greater
than estimated credit losses and a change in the discount rate assumption from
10% to 12%. Gain on sale of receivables for Triad securitizations, excluding the
ESR fair value write-downs, was $24.5 million in fiscal 1999 compared with $20.8
million in fiscal 1998. The increase is primarily due to an increase in
securitized volume of $199.7 million in fiscal 1999 compared to fiscal 1998.
This increase was partially offset by a decrease in the gain on sale profit
percentage due to a narrowing of the spread between the weighted average
interest rate on auto loans securitized and the pass-through interest rate on
securities sold. During fiscal 1999, investors demanded higher yields on these
securities due to adverse market conditions. The gain on sale profit percentage
for sales of auto loans was 7.0% in fiscal 1999 as compared to 11.7% in fiscal
1998.

Gain on sale of receivables for auto loans was $20.8 million in fiscal 1998
compared with $5.0 million in fiscal 1997. The increase was primarily due to an
increase in securitized volume of $134.5 million in fiscal 1998 compared to
fiscal 1997. The gain on sale profit percentage for sales of auto loans was
11.7% in fiscal 1999 as compared to 11.4% in fiscal 1997.

Gain on sales of Other Loans. Gain on sales of other loans primarily consists of
franchise loan and small equipment leasing activity. In fiscal 1999, the Company
discontinued the origination of small equipment leases because the
securitization of such loans became unprofitable due to the market disruptions
experienced during the year.


                                       37
<PAGE>

ESR Fair Value Adjustments

The Company recorded negative fair value adjustments included in gain on sale of
receivables of $328.7 million in fiscal 1999 and $63.3 million in fiscal 1998.
The fiscal 1998 fair value adjustment primarily reflected accelerated
prepayments in the ContiMortgage/ContiWest portfolio. The following table
presents the components of the ESR fair value adjustments of $328.7 million
included in gain on sale of receivables for fiscal 1999:

           ESR Fair Value Adjustments for Fiscal 1999 (in thousands):

<TABLE>
<CAPTION>
                                                ContiMortgage        Auto            Other           Total
                                                -------------      --------        --------       ---------
<S>                                               <C>              <C>             <C>            <C>
Actual and future credit losses ...........       $(191,051)       $ (9,028)       $(12,078)      $(212,157)
Actual and future prepayments .............         (81,380)             --              --         (81,380)
Change in discount rate ...................         (52,198)         (2,885)         (2,349)        (57,432)
Changes in interest rates and other factors          26,280              --          (4,000)         22,280
                                                  ---------        --------        --------       ---------
   Total Fiscal 1999 ......................       $(298,349)       $(11,913)       $(18,427)      $(328,689)
                                                  =========        ========        ========       =========
</TABLE>

In fiscal 1999, the Company recorded negative fair value adjustments of $191
million related to credit losses in the ContiMortgage/ContiWest ESR portfolio.
During fiscal 1999, both the portfolio default rate and the loss severity on
liquidated accounts increased to levels exceeding those previously estimated.
The portfolio default rate, after having decreased over the first two quarters
of fiscal 1999, from 5.58% at March 31, 1998 to 5.32% at September 30, 1998,
increased sharply and unexpectedly over the final two quarters, to 5.82% at
December 31, 1998 and 6.22% at March 31, 1999. Loss severities, which had
declined significantly over the prior three years, stabilized in the first half
of fiscal 1999, and then increased sharply and unexpectedly during the second
half of fiscal 1999. These increases in default rates and severities not only
resulted in higher realized losses in fiscal 1999, but also caused the Company
to increase significantly its expectation of future losses. See further
discussion under "Accounting for ESR - Valuation Process and Significant
Assumptions - Credit Losses."

The increase in credit losses for auto loans of $9.0 million reflects an
increase in estimated future default rates based on actual experience to date
being greater than prior projections. Other credit losses of $12.1 million is
primarily related to ESR associated with home equity portfolios originated and
serviced by other companies, and the experience in these other portfolios in
fiscal 1999 was consistent with that experienced in the ContiMortgage/ContiWest
portfolio.

In fiscal 1999, the Company recorded negative fair value adjustments of $81.4
million related to prepayment speeds in excess of previous projections in the
ContiMortgage/ContiWest ESR portfolio. These higher prepayment levels were
driven by a significant decline in mortgage rates available to borrowers, caused
by the combination of (i) a long-term decline in market interest rates, (ii)
improvements in borrower credit due to the strong economy, and (iii) a
substantial increase in competition. This combination of factors caused
prepayments to reach levels that exceeded the Company's prior estimates. See
further discussion under "Accounting for ESR - Valuation Process and Significant
Assumptions - Prepayment Speeds."

In fiscal 1999, the Company recorded negative fair value adjustments of $57.4
million related to a change in the discount rate assumption used in determining
the fair value of its ESR portfolio. Due to the capital market's deteriorating
view of the sub-prime industry as evidenced by higher investor spreads on
securitizations, the Company concluded that its prior discount rate assumption
of 10% no longer represented an appropriate market rate of return on its ESR
portfolio. Accordingly, at March 31, 1999, the Company increased its ESR
discount rate to 12%, which the Company believes is an appropriate
risk-adjusted, market rate of return consistent with the inherent prepayment and
loss risks associated with the portfolio and the assumptions about such risks
that the Company applied in its fair value assessment at March 31, 1999.


                                       38
<PAGE>

A number of other factors can affect the fair value analysis of ESR, although
typically to a much lesser extent than losses, prepayments and the discount
rate. In fiscal 1999, the Company recorded positive ESR fair value adjustments
totaling $22.3 million, primarily reflecting the beneficial impact of falling
interest rates on its securitized adjustable rate portfolios.

The Company believes its interest-only and residual certificates are fairly
valued at March 31, 1999 but can provide no assurances that future prepayment
and loss experience or changes in the required market discount rate will not
necessitate additional write-downs. Such write-downs would reduce the income of
future periods and could cause the Company to report net losses for such
periods. See Note 5 to the Consolidated Financial Statements.

Hedging Interest Rate Risk

One of the most significant variables in the determination of gain (loss) on
sale of receivables is the spread between the weighted average coupon on the
portfolio of loans to be sold or securitized (the "Portfolio Rate") and the
weighted average pass-through rate or yield to be paid to the purchasers of the
securities or whole loans (the "Pass-through Rate"). In the interim period
between the loan commitment and the securitization or sale of such loans (the
"Warehousing Period"), the Company is exposed to interest rate risk because the
Portfolio Rate is fixed as of the loan commitment dates, but the Pass-through
Rate is not fixed until the pricing of the securitization or sale. If market
interest rates were to rise during the Warehousing Period, the spread between
the Portfolio Rate and the Pass-through Rate would narrow, and the market value
of the loans would decline.

Through the end of the third quarter of fiscal 1999, the Company mitigated this
interest rate exposure primarily through short sales of U.S. Treasury securities
and U.S. Treasury interest rate futures contracts. These instruments were used
because the Pass-through Rates on the securities are established as a spread
over the U.S. Treasury yield for a comparable maturity. This hedging strategy
was effective to the extent that the Pass-through Rates required by investors
moved in sync with U.S. Treasury yields, which had been the case historically.
However, during a "flight-to-quality" that occurred during the second and third
quarters of fiscal 1999, the relationship between Pass-through Rates and U.S.
Treasury yields broke down, and the Company incurred significant losses because
it lacked the liquidity to meet the ongoing margin calls necessary to maintain
its hedge positions until prior market relationships were restored.

The Company revised its hedging strategy in the fourth quarter of fiscal 1999.
The Company now manages its hedge positions by using a combination of Eurodollar
futures, U.S. Treasury securities, financial futures contracts and options on
U.S. Treasury instruments. Recent research has shown that changes in interest
rate swap levels are more positively correlated to the changes in market yields
for the Company's assets than U.S. Treasury securities because of the liquidity
premium attached to U.S. Treasury securities. The use of interest rate swaps is
designed to reduce the Company's exposure to both the absolute movements in U.S.
Treasury yields and the widening in the spread relationship between the
Company's assets and U.S. Treasury yields. Since executing individual swap
contracts to match the volume fluctuations and amortization of the Company's
underlying assets is cumbersome, expensive and involves counterparty risk, the
Company sells a series of Eurodollar futures contracts that match the amount and
timing of the estimated cash flows on the assets to be hedged. This transaction
is designed to approximate the economics of an interest rate swap. In addition,
the Company uses options on U.S. Treasury instruments to hedge its assets
against wide swings in rates.


                                       39
<PAGE>

The Company only hedges a portion of its total exposure to interest rate risk;
consequently, even if the hedging strategy works as intended, the Company would
still incur net losses to the fair value of its interest rate sensitive assets
in a rising interest rate environment. Even to the extent that the Company does
hedge its interest rate exposure, there can be no assurances provided that the
Company's hedging strategy will produce the intended results.

The Company accounts for its positions using the hedge method of accounting.
Positions are designated as hedges against specific market exposures, and senior
management monitors the correlation between the change in market value of the
hedge instruments and the assets being hedged. Under the hedge method of
accounting, gains or losses on hedge instruments are recognized at the time the
gains or losses on the assets being hedged are recognized. In the event a high
degree of correlation is not maintained, the hedge instruments are then marked
to market. If a hedge instrument matures or is terminated prior to the maturity
or sale of the designated hedged asset or liability, the realized gain or loss
on the hedge instrument would be deferred until the maturity or sale of the
designated asset or liability. If a designated asset or liability matures or is
sold prior to the maturity or termination of the hedge instrument, the hedge
instrument would be marked to market at that time.

Unrealized hedge gains or losses related to the Company's warehouse and pipeline
positions are reflected in the Company's lower-of-aggregate-cost-or-market
evaluation of receivables held for sale and are ultimately recognized upon the
sale or securitization of the related receivables and included in gains or
losses on sales of receivables. Hedge gains or losses related to the Company's
ESR portfolio are recognized on a current basis in gains or losses on sales of
receivables because the ESR portfolio is recorded at fair value. Hedge
transactions are expected to occur within one year.

With respect to ContiMortgage/ContiWest securitizations and whole loan sales,
gain on sale included hedge losses of $27,330, $11,946 and $5,413 in fiscal
1999, 1998 and 1997, respectively. In fiscal 1999, hedge losses relating to the
commercial loan portfolio totaled $88,614, of which $80,574 was reflected in
Commercial real estate valuation adjustments and $8,040, relating to a
securitization, was included in gain on sale.


                                       40
<PAGE>

Interest-only and Residual Certificates

At March 31, 1999 and 1998, the Company's ESR portfolio consisted of the
following :

<TABLE>
<CAPTION>
                                       March 31,       Percentage         March 31,       Percentage
                                         1999           of Total            1998           of Total
                                       --------        ----------         --------        ----------
                                                             ($ in thousands)
<S>                                    <C>                 <C>            <C>                 <C>
Home equity:
  ContiMortgage/ContiWest ....         $611,320             84.7%         $555,884             85.7%
  Other servicers ............           24,800              3.4            37,428              5.8
                                       --------         --------          --------         --------
   Total home equity .........          636,120             88.1           593,312             91.5
Home improvement .............            4,046              0.5             7,919              1.2
Commercial real estate .......            6,263              0.9             8,233              1.3
Auto .........................           69,804              9.7            28,223              4.3
Leases .......................            4,615              0.6             8,960              1.4
Franchise ....................            1,164              0.2             2,138              0.3
                                       --------         --------          --------         --------
   Total ESR portfolio .......         $722,012            100.0%         $648,785            100.0%
                                       ========         ========          ========         ========
</TABLE>

The changes in ESR from March 31, 1997 to March 31, 1999 are presented in the
table below:

Interest-only and residual certificates (in thousands):

                                                            1999         1998
                                                         ---------    ---------
Balance at beginning of year ..........................  $ 648,785    $ 445,005
   New securitizations ................................    446,238      462,585
   Cash distributions from REMICs and trusts ..........   (122,075)     (70,580)
   Accruals of imputed interest income ................     57,091       41,991
   Fair value adjustments (see discussion below) ......   (328,689)     (63,300)
   Other sales, purchases and recourse payments, net ..     20,662     (166,916)
                                                         ---------    ---------
Balance at end of year ................................  $ 722,012    $ 648,785
                                                         =========    =========

Although ESR does not carry a stated rate of interest, it represents the present
value of an estimated stream of future cash flows. Accordingly, over the life of
the asset imputed interest income is accrued, and as a result, the carrying
value of ESR is increased. As cash distributions are received, ESR is reduced.
The aggregate value of ESR at March 31, 1999 was $722.0 million, compared with
$648.8 million at March 31, 1998.

Accounting for ESR - Valuation Process and Significant Assumptions

Pursuant to Statement of Financial Accounting Standards ("SFAS") No. 125,
"Accounting for Transfer and Servicing of Financial Assets and Extinguishment of
Liabilities," the fair value of the retained ESR is accounted for as a component
of sale proceeds. Consequently, the Company recognizes a gain upon completion of
the securitization.

In accordance with SFAS No. 134, "Accounting for Mortgage-Backed Securities
Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage
Banking Enterprise," the Company continues to classify ESR as "trading
securities." As such, they are carried at fair value in the Consolidated Balance
Sheets. Unrealized changes in ESR fair value are included in Gain on sale of
receivables on the accompanying Consolidated Statements of Income in the period
of the change.


                                       41
<PAGE>

The Company has, from time to time, completed sales of ESR as either sales with
limited recourse or Net Interest Margin Securities ("NIMS") sales. Nevertheless,
there is only a limited market for the sale of ESR. Consequently, the Company
estimates the fair value of ESR through the application of a discounted cash
flow analysis, which requires the use of various assumptions. A significant
factor affecting the level of estimated future ESR cash flows is the rate at
which the underlying principal of the securitized loans is reduced. Prepayments
represent principal reductions in excess of contractually scheduled reductions,
and prepayment speeds are generally expressed as an annualized Conditional (or
Constant) Prepayment Rate ("CPR"). Estimated future CPR is a significant
assumption in the determination of ESR fair value. Additional significant
assumptions include estimated future credit losses and the discount rate.

The Company continuously monitors the fair value of ESR and reviews the factors
expected to influence future CPR and credit losses. In developing assumptions
regarding estimated future CPR, the Company considers a variety of factors, many
of which are interrelated. These factors include, among other things, historical
performance, characteristics of borrowers (e.g. credit quality and loan-to-value
relationships) and market factors that influence competition. If changes in
assumptions regarding estimated future CPR or credit losses are necessary, ESR
fair value is adjusted accordingly.

Assumptions regarding future CPR and credit losses are subject to volatility
that could materially affect operating results. Both the amount and timing of
estimated ESR cash flows are dependent on the performance of the underlying
loans, and actual cash flows may vary significantly from expectations. If actual
prepayments or credit losses were to exceed the assumptions used to determine
ESR fair value, the ESR carrying value would be reduced through a charge to
earnings, which could cause the Company to report losses in future periods.
Similarly, actual prepayments or credit losses that are less than the
assumptions used to determine ESR fair value could result in an increase in ESR
carrying value and earnings in future periods. See "Gain on Sale of Receivables
and Interest-Only and Residual Certificates" in Note 5 to the Consolidated
Financial Statements for discussion of ESR Fair Value Assumptions.


                                       42
<PAGE>

Prepayment Speeds

The following table presents historical data as well as estimated future CPR for
ContiMortgage/ContiWest related ESR amounts, which represent 85% of the
Company's total ESR value at March 31, 1999.

<TABLE>
<CAPTION>
                                                        REMICs by Year of Issue (a)
                                                        ---------------------------
                                                              ($ in millions)
                                      1995 and
                                       earlier     1996       1997       1998       1999       Total
                                       -------     ----       ----       ----       ----       -----
<S>                                    <C>        <C>        <C>        <C>        <C>        <C>
Pool balances:
   Original .......................    $2,368     $2,030     $3,454     $6,150     $6,099     $20,101
   At March 31, 1999 ..............    $  510     $  582     $1,323     $3,899     $5,653     $11,967
Fair value of ESR .................    $   22     $   30     $   64     $  224     $  271     $   611

CPR:
  Actual life-to-date .............      24.5%      28.7%      31.9%      26.3%      10.0%       22.2%

  Estimated for the remaining
  pool over its estimated
  remaining life ..................      26.2%      27.1%      26.9%      27.9%      29.2%       28.3%
</TABLE>

(a) This table includes ContiMortgage/ContiWest REMICs, based on fiscal years
ended March 31.

In developing assumptions regarding estimated future CPR, the Company considers
a variety of factors, many of which are interrelated. The Company's CPR
assumptions are subject to review and potential adjustment each quarter. Since
CPR, by its nature, tends to be volatile, monthly variations in either direction
may not be indicative of longer term trends. These factors include, among other
things, historical performance, characteristics of borrowers and market factors
that influence competition.

For example, historical performance indicates that the rate of prepayments
within a portfolio generally increases from a low level shortly after loan
origination and peaks in approximately 12 to 15 months. Subsequently, as the
loan portfolio "seasons," the level of prepayments generally declines. This is
commonly referred to as the prepayment "ramp" or "curve". For the most part, the
fiscal 1999 securitizations included in the table have not yet reached the
estimated peak of the prepayment ramp. Consequently, actual life-to-date CPR for
those transactions is lower than that of the prior years' transactions.
Conversely, REMICs for fiscal years prior to fiscal 1999 are approaching or are
past the peak of their respective prepayment ramps, and prepayments are
generally expected to decline over the remaining life of these securitizations.
Once a loan portfolio has passed the peak of the prepayment ramp, actual
life-to-date CPR will be greater than the estimated remaining CPR.

As stated previously, the Company's weighted average assumption for estimated
future CPR for ContiMortgage/ContiWest REMICs was increased during fiscal 1999
from 27% to 28%. The increase was required due to the higher levels of actual
prepayments over those previously estimated. These higher prepayment levels were
driven by a significant decline in interest rates available to borrowers, caused
by the combination of (i) a long-term decline in interest rates, (ii)
improvements in borrower credit due to the strong economy, and (iii) a
substantial increase in competition. The market disruptions of fiscal 1999 seem
to have reversed the trends in interest rates and competition, and prepayment
speeds began to moderate in the second half of the fiscal year.

The shape of the prepayment curve (i.e., rate of CPR increase, timing of the
peak, timing and extent of subsequent decline, absolute CPR levels, etc.) may
vary considerably based upon the characteristics of the underlying loans. For
example, prepayment speeds for variable-rate loans significantly exceed
prepayment speeds for fixed-rate loans, and specific terms, such as the
existence of prepayment penalties, will further influence prepayment
performance. For various reasons, historical performance may not necessarily be
indicative of future performance. Nevertheless, it is one of many factors that
are considered.


                                       43
<PAGE>

Credit Losses

Like prepayment assumptions, there are a variety of interrelated factors that
the Company considers in determining future credit loss assumptions, such as
historical experience, default frequency, loss severity and the length of the
foreclosure and liquidation process. The following table presents historical
credit loss information as well as estimated future credit losses for the
ContiMortgage/ContiWest REMIC portfolios, including loans and properties
purchased out of the REMIC portfolios, for the fiscal years ended March 31, 1999
and 1998.

<TABLE>
<CAPTION>
                                                                              1999             1998
                                                                            --------         --------
<S>                                                                       <C>              <C>
Annualized Loss rate as a percentage of average pool balances:
   Weighted average life-to-date loss rate as of fiscal year end .....            0.71%            0.47%
   Estimated loss rate over remaining REMIC lives ....................            0.98%            0.62%

Aggregate losses as a percent of original pool balances:
   Actual life-to-date (including losses on loans purchased out of
    REMICs) ..........................................................            1.04%            0.51%
   Estimated over entire life (i.e., historical plus future losses) ..            2.91%            1.84%
Estimated future credit losses (undiscounted) ........................    $375 million     $185 million
</TABLE>

In fiscal 1999, ESR fair value write-downs of $191.0 million were recorded
related to credit losses in ContiMortgage/ContiWest related ESR portfolios. See
"ESR Fair Value Adjustments" above for further discussion.

Discount Rate

The Company determines the discount rate utilized in determining fair value by
selecting a rate that it believes is commensurate with the risks involved. The
Company recognizes that the ESR discount rate when interacting with the other
two assumptions, loss and prepayment, is a "risk-adjusted" rate. In determining
this rate the Company considers many factors including a comparison to the
yields on other financial instruments with prepayment or credit risk. The future
cash flows estimated as of March 31, 1999 and March 31, 1998, taking into
consideration estimated prepayment rates and credit losses, were discounted at
rates of 12% and 10%, respectively, to arrive at the fair value amounts
presented in the accompanying Consolidated Balance Sheets. See "ESR Fair Value
Adjustments" above for further discussion.

Sensitivity of Changes in ESR Fair Value Assumption

If actual prepayments, credit losses or discount rate are greater than the
assumptions used to determine ESR fair value, the ESR carrying value will be
written down through a charge to earnings. Given the size of
ContiMortgage/ContiWest's servicing portfolio, even a modest change in ESR fair
value assumptions can have a relatively large impact on ESR fair value. The
table below illustrates the impact of a positive or negative change in a single
assumption used to determine fair value for ContiMortgage/ContiWest related ESR
while keeping the absolute value of the other two assumptions constant. The
impact of changes in these assumptions are not linear. As of March 31, 1999,
changes in the assumptions would have approximately the following impact on fair
value:


                                       44
<PAGE>

      Factor                     Change                    Fair value impact
      ------                     ------                    -----------------
      Annual CPR                 +100 basis points         $(30 million)
      Annual  CPR                -100 basis points         $ 31 million
      Annual credit losses       + 10 basis points         $(32 million)
      Annual credit losses       - 10 basis points         $ 32 million
      Discount rate              +100 basis points         $(25 million)
      Discount rate              -100 basis points         $ 27 million

Liquidity and Capital Resources

The following discussion of Liquidity and Capital Resources should be read in
conjunction with the separate discussion of Gain on Sale of Receivables and
Interest-only and Residual Certificates. Also, see "Discussion of Events During
Fiscal 1999" at the beginning of this Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations".

Funding Requirements

The Company requires continued access to short- and long-term sources of funding
for its operations. The Company's primary cash requirements include the funding
of (i) mortgage, loan and lease originations and purchases pending their pooling
and sale, (ii) premiums paid in connection with the acquisition of correspondent
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 tax obligations, (vii)
interest and principal payments relating to the Company's long-term debt and
short-term borrowed funds, (viii) the costs of sales under the Company's
Warehouse Facilities, and (ix) the cost of any new acquisitions and subsequent
contingent purchase price payments on prior acquisitions.

The Company's Revolving Credit Facility and Commercial Paper Program (together,
the "Bank Facilities") mature in August 1999 resulting in a funding requirement
of $422.0 million at such time. The Company's continued operations are dependent
on the extension, renegotiation or refinancing of the Bank Facilities. See the
discussion below under "Sources of Liquidity and Capital".

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 majority of the cash representing such gain until it realizes the Excess
Spread Receivables, which occurs over the actual lives of the loans or other
assets securitized. Home equity securitizations are cash flow negative upon
their initial execution, primarily as a result of premiums paid to acquire loans
from correspondent sources.

The Company has taken steps to improve the cash flow characteristics of its
business activities. For example, the Company has implemented a home equity
whole loan sale strategy to accelerate recapture of origination costs.
Furthermore, development of the Company's retail home equity origination
platform provides a source of cash income through origination points and fees.
The reduction in correspondent origination volume has significantly reduced the
total amount of premiums paid to originate a loan. Market events have also
contributed to the improved cash flow characteristics of the Company. As
competition has decreased, the cost of originating correspondent loans has also
dropped significantly, benefiting the Company through lower purchase premiums.


                                       45
<PAGE>

Sources of Liquidity and Capital

The Company's primary sources of liquidity are sales of loans and other assets
through securitization and whole loan sales; the sale of loans and other assets
under the Warehouse Facilities; the issuance of shares of common stock; and the
issuance of long-term debt and short-term borrowed funds.

The Company had $1.7 billion of committed and $1.3 billion of uncommitted sale
capacity under the Warehouse Facilities as of March 31, 1999. As of March 31,
1999, the Company had utilized $1.5 billion of the capacity under the Warehouse
Facilities. The Purchase and Sale Facilities allow the Company to sell, with
limited recourse, interests in designated pools of loans and other assets. The
Repurchase Agreements allow the Company to sell receivables held for sale to a
financial institution under an agreement to repurchase the receivables. As of
July 13, 1999, the Company had the following Warehouse Facilities which expire
between July 1999 and December 1999 (amounts in thousands):

<TABLE>
<CAPTION>
                                           Committed   Uncommitted      Total
                Expiration                  Facility     Facility      Facility
                ----------                 ---------   -----------    ----------
<S>                                         <C>         <C>           <C>
Demand                                      $     --    $  715,000    $  715,000
July, 1999                                    92,000            --        92,000
September, 1999                              250,000       450,000       700,000
December, 1999                               300,000       200,000       500,000
                                            --------    ----------    ----------
   Total Warehouse Facilities               $642,000    $1,365,000    $2,007,000
                                            ========    ==========    ==========
</TABLE>

The Bank Facilities expire on August 20, 1999, and the Warehouse Facilities
expire at various times from July 1999 through December 1999. The Company's
continued operations are dependent on the extension, renegotiation or
refinancing, as well as availability through scheduled maturity of the Bank and
Warehouse Facilities. The Company's ability to extend, renegotiate or refinance
its facilities depends on the successful completion of a transaction with a
buyer or equity investor. As a result, there is substantial doubt about the
Company's ability to continue as a going concern.

In order to address this issue, the Company has been seeking a financially
strong acquirer or equity investor who can provide the necessary financing or
provide the Company's lenders with the requisite guarantees. The previously
announced discussions with Residential Funding Corporation, a subsidiary of
General Motors Acceptance Corporation, with respect to an acquisition of the
Company have terminated. The Company is in discussions with others to act as an
acquiror or equity investor and has commenced negotiations for a restructuring
with the providers of its Bank Facilities, Warehouse Facilities and long-term
debt.

The Company is operating on a negative cash flow basis and is dependent on
various financing sources for its continued operations. In order to fund new
loans and asset originations and purchases, the Company is dependent on its
ability to fund loans and other assets under its Warehouse Facilities. The
Company is dependent on securitizations and whole loan sales to generate the
cash flow to repay these lines and to create availability on such lines for new
fundings. Adverse conditions in the securitization and whole loan sale markets,
or the inability of the Company to access such markets due to the Company's
financial condition, could impair the Company's ability to originate, purchase
and sell loans and other assets on a favorable or timely basis. The Company is
also dependent on continued access to the Bank Facilities or obtaining new bank
facilities in order to meet its cash needs. Failure of the Company to have
continued access to the securitization and whole loan sale markets and its
Warehouse Facilities and the Bank Facilities would have a material adverse
effect on the Company. If the Company's lenders do not renew, renegotiate or
refinance the Warehouse Facilities or the Bank Facilities or if the lenders
terminate these facilities or reduce availability prior to the scheduled
maturity, it would have a material adverse effect on the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - General" for further discussion.


                                       46
<PAGE>

The Company is required to comply with various financial covenants under its
outstanding Senior Notes, Revolving Credit Facility and Commercial Paper
Program, as well as under certain provisions of two of the Repurchase
Agreements, including, among other things, leverage ratios, minimum net worth
tests and interest coverage ratios. As of December 31, 1998 and continuing
through March 31, 1999, the Company's leverage ratio exceeded the leverage ratio
test under the covenants of its outstanding Senior Notes. As a result, the
Company is prevented from issuing additional unsecured debt until its leverage
ratio is below such test. As of December 31, 1998, the Company and two of its
lenders agreed to amend certain provisions of the Repurchase Agreements.
Amendments were received from the Repurchase Agreement lenders changing the
leverage ratio to 2.75 to 1. These Repurchase Agreements were again amended as
of March 31, 1999. One agreement was amended to remove all financial covenants
through August 20, 1999, while the other removed the financial covenants to the
maturity date of the facility of July 1, 1999. As of December 31, 1998, amended
financial covenants were also received changing the leverage and fixed charge
ratios and the minimum net worth test in the Bank Facilities, and lenders agreed
to exclude certain charges from the covenant ratio calculations. As of March 31,
1999, the Bank Facilities and certain of the Warehouse Facilities amended the
related agreements to eliminate the financial covenants and borrowing base
provisions, among other things. As part of the bank amendment, the Company
agreed to reduce commitments under the Bank Facilities by 75% of the total
proceeds received by the Company for the sale of Triad Financial Corporation
("Triad"). On June 11, 1999, the sale of Triad was closed, and the Bank
Facilities commitments were reduced by approximately $95 million. If the above
mentioned amendments had not been obtained, the Company would not have been in
compliance with the covenants. The Company was in compliance with the amended
covenants of the Revolving Credit Facility, the Commercial Paper Program and the
Repurchase Agreements as of March 31, 1999. As part of the December amendments
to the Revolving Credit Facility, the Company has agreed to prepay the Revolving
Credit Facility on August 20, 1999, which makes the Revolving Credit Facility
coterminous with the Commercial Paper Program. As part of the March amendments,
the interest rate of the Revolving Credit Facility and the Commercial Paper
Program were increased to LIBOR plus 300 basis points.

Without an equity infusion there can be no assurance that the Company will be
able to renew the Revolving Credit Facility and the Commercial Paper Program, or
obtain new bank debt, when the Revolving Credit Facility and the Commercial
Paper Program terminate in August 1999, on as favorable terms, if at all.

The Company has taken steps to reduce its financing needs and provide continued
access to liquidity. Continental Grain Company ("Continental Grain"), which owns
approximately 78% of the Company's outstanding common stock, provides monthly
servicer advances, up to an aggregate outstanding of $85 million, to certain
REMICs for which ContiMortgage, a wholly-owned subsidiary, is the servicer.
Continental Grain has agreed to make these advances, for a fee, through October
15, 1999. Although the advances have been made to, and repaid by, the REMICs,
and not by the Company or ContiMortgage, Continental Grain's advances improve
the liquidity of the Company by relieving it of the significant portion of its
obligation to make these advances itself. See Note 9 to the Consolidated
Financial Statements "Subservicing Agreement" for further discussion.

In May 1999, Continental Grain extended a short-term warehouse financing
facility to the Company for a maximum amount of $60.0 million. Availability
under the facility is subject to a combined maximum amount of $85 million of
this facility and the servicer advances facility, and terminates upon the
earlier of October 1, 1999 or a change in control of the Company.


                                       47
<PAGE>

On June 11, 1999, the Company sold its interest in Triad to Fairlane Credit LLC,
a wholly-owned subsidiary of Ford Motor Credit Company. The sale of Triad
resulted in a gain to the Company of approximately $20 million and provided
gross proceeds of approximately $134 million through sale proceeds, repayment of
intercompany debt and net return of intercompany warehouse financing. Of this
amount, approximately $95 million was used to pay down the Company's Bank
Facilities, thereby reducing the commitments under the Bank Facilities by the
pay down amount.

In previous fiscal years, the Company sold ESR, with limited recourse, to
provide cash to fund the Company's operations. Under the recourse provisions of
the agreements, the Company is responsible for losses incurred by the purchaser
within an agreed-upon range. At March 31, 1999, $22.6 million of these sales
were outstanding. The Company's performance obligations in these transactions
are guaranteed by Continental Grain for an agreed-upon fee. Another method of
generating liquidity from the ESR is through the sale of NIMS, which generated
proceeds of $159.7 million in fiscal 1998. No such sales were recorded in fiscal
1999, and the Company does not intend to pursue such sales in the foreseeable
future, rather, the Company intends to retain ESR in the portfolio allowing ESR
cash flow to build over time.

On February 18, 1999, Standard & Poor's lowered its senior unsecured debt and
long-term debt credit ratings to B-. On May 20, 1999, Moody's Investors Service
downgraded the Company's long-term debt ratings to Caa1. On June 4, 1999, Fitch
IBCA reduced the Company's long-term debt rating to CCC+.

On April 2, 1998, the Company issued $200 million aggregate principal amount of
8 1/8% unsecured Senior Notes due April 1, 2008. Proceeds to the Company, net of
underwriting fees, market discount and other costs, were $188.1 million.
Interest on these notes is payable semi-annually on April 1 and October 1
commencing October 1, 1998. The notes are redeemable in 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.

On August 21, 1998, the Company increased its Commercial Paper Program backed by
an irrevocable direct-pay letter of credit provided by a syndicate of banks from
$275.0 million to $317.5 million. At March 31, 1999, $312.5 million of
commercial paper was outstanding. As of March 1999, the Company was fully drawn
under the Company's Commercial Paper Program and its $200 million unsecured
Revolving Credit Facility.

In February 1998, the Company's Board of Directors authorized the purchase of up
to one million shares of the Company's outstanding common stock. The repurchase
of one million shares was completed in July 1998 at an average cost of $27.66
per share. The purchased shares are held in treasury for use in connection with
ContiFinancial's Stock Plan.

See Note 10 to the Consolidated Financial Statements for further discussion of
the Company's short- and long-term borrowings. See Note 14 to the Consolidated
Financial Statements for further discussion of the Company's sales of assets
with recourse and loan warehousing activities.


                                       48
<PAGE>

Financial Position - March 31, 1999 compared with March 31, 1998

Stockholders' equity decreased $443.0 million from $646.3 million at March 31,
1998 to $203.3 million at March 31, 1999. This decrease was primarily the result
of net losses of $426.3 million incurred in fiscal 1999 as discussed in
"Discussion of Events During Fiscal 1999" and "Results of Operations".

Equity investments in unconsolidated subsidiaries decreased $48.7 million from
$53.7 million at March 31, 1998 to $5.0 million at March 31, 1999, primarily due
to the impairment and resulting write-down of investments and related cost in
excess of equity acquired in affiliated companies in fiscal 1999, as detailed in
"Discussion of Events During Fiscal 1999 Commercial Real Estate Valuation
Adjustments and Other Charges".

Cost in excess of equity acquired increased $29.7 million from $55.7 million at
March 31, 1998 to $85.4 million at March 31, 1999, primarily due to the
acquisition of a 75% interest in Keystone. Keystone is a broker and servicer of
commercial mortgage loans, primarily to the insurance industry, but does not
take principal risk. Also see Note 8 to the Consolidated Financial Statements
for further discussion.

At March 31, 1998, the Company mitigated its interest rate exposure primarily
through short sales of U.S. Treasury securities and U.S. Treasury interest rate
futures contracts. The short sales of U.S. Treasury securities and related
purchase of securities under agreements to resell were reflected on the
accompanying Consolidated Balance Sheets as Securities sold but not yet
purchased and Securities purchased under agreements to resell. The Company
revised its hedging strategy in the fourth quarter of fiscal 1999, and by March
31, 1999, had closed out its short positions in U.S Treasury securities. See
"Gain on Sale of Receivables and Interest-only and Residual Certificates -
Hedging Interest Rate Risk".

Other assets increased $16.2 million, from $35.9 million at March 31, 1998 to
$52.1 million at March 31, 1999, primarily due to an increase in marketable
securities and margin deposits.

Other significant events affecting financial position are discussed in "Gain on
Sale of Receivables and Interest-only and Residual Certificates" relating to
Interest-only and residual certificates and Receivables held for sale; "Results
of Operations - Net Servicing Income" relating to Capitalized servicing rights;
and Note 10 to the Consolidated Financial Statements relating to short- and
long-term debt.

Dividend Policy

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 loan
agreements restrict the payment of dividends by the Company. 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. In addition, there
can be no assurance that dividends will be permitted under applicable law.

Year 2000

The "Year 2000" issue, the ability of systems to identify dates in the 21st
century, is a critical business and operational issue being addressed by the
Company. The issue primarily encompasses computer programs and applications that
were written using two digits (instead of four) to describe an applicable year.
Failure to successfully modify such programs and applications to be Year 2000
compliant could have a material adverse impact on the Company. Exposure arises
not only from potential consequences (e.g., business interruption) of certain of
the Company's own applications not being Year 2000 compliant, but also from the
impact of noncompliance by certain significant counterparties, including
Strategic Alliances.


                                       49
<PAGE>

The Company has undertaken a project to bring its systems into Year 2000
compliance. This project includes an assessment to determine the anticipated
cost to remediate its systems and applications to make them Year 2000 compliant.
Project efforts are being coordinated by a Year 2000 Task Force whose members
include the Company's senior management and information technology, finance,
accounting and legal staffs, supported by external consultants. Similar task
forces have been formed by each of Company's majority owned subsidiaries.

The Company's Year 2000 Task Force established the following five step project
methodology to address the Company's Year 2000 issues: (1) awareness and project
definition, (2) systems inventory and assessment, (3) remediation, (4) testing,
and (5) implementation. The chart below describes the Company's current and
anticipated progress on the Year 2000 issue.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
                                               TARGET
                       PHASE                    DATE            STATUS                COMMENTS
------------------------------------------------------------------------------------------------------
<S>                                           <C>            <C>                 <C>
Awareness and Project Definition -
Heighten awareness of the Company's           March, 15,       Complete
Year 2000 issues and formulate plans to         1998
address them.
------------------------------------------------------------------------------------------------------
Systems Inventory and Assessment -
Inventory all hardware, software and          April 15,      Substantially       A portion of  the
computerized systems and identify those         1998           Complete*         facilities assessment
requiring Year 2000 remediation.                                                 is incomplete.
------------------------------------------------------------------------------------------------------
Remediation - Modify or replace all
hardware, software and computerized           August 31,     Substantially       Awaiting Year 2000
systems that are not Year 2000                  1998           Complete*         compliant software
compliant.                                                                       upgrades from some
                                                                                 vendors.
------------------------------------------------------------------------------------------------------
Testing - Test modifications to and
replacements of all hardware, software       December 31,    Substantially       Awaiting Year 2000
and computerized systems                        1998           Complete*          compliant software
for Year 2000 compliance.                                                        upgrades from some
                                                                                 vendors.
------------------------------------------------------------------------------------------------------
Implementation - Integrate the
remediated and tested hardware,               March 31,       Partially          Anticipated
software and computerized systems               1999          Completed*         completion date:
into the Company's operations.                                                   July 31, 1999.
------------------------------------------------------------------------------------------------------
</TABLE>

* The Company does not expect a material adverse effect as a result of not
meeting these targets.

The Company has taken a prioritized approach to addressing the Year 2000 issue
and has directed its efforts in achieving compliance in the most critical
systems first. Systems and functions such as loan servicing, loan origination,
payroll, human resources, financial, communications and other systems have taken
priority over facilities. The Company is also dependent on third party property
managers for facility compliance information which has not yet been received in
full. The facilities inventory and assessment is substantially complete, but,
until it is finalized, the Company cannot complete the System Inventory and
Assessment phase of the project. The Company plans on addressing facilities and
does not expect a material adverse effect as a result of not meeting its project
phase target dates for facilities related systems.


                                       50
<PAGE>

The Company did not meet its March 31, 1999 target date for completion of its
Year 2000 project due to the unavailability of Year 2000 compliant systems from
some vendors. The Company expects these systems to be available for remediation,
testing and implementation by July 31, 1999. In addition, facilities inventory
and assessment, remediation, testing and implementation will be completed by
July 31, 1999.

Based on its analysis of the data from the systems inventory and assessment
phase, the Company has concluded that the greatest risk posed by the Year 2000
issue concerns the computerized loan servicing systems utilized by its home
equity operations. If such systems fail to operate properly as a result of the
Year 2000 issue, the loan servicing process could not be executed efficiently in
a manual environment. ContiMortgage, the Company's largest home equity
originator, uses a loan servicing system under a service arrangement with a
vendor. This system interfaces with related key ancillary systems which are
operated and maintained in-house and complete the servicing function. Conversion
to a new system and servicing software could take up to twelve months.
Accordingly, a large part of the Company's remediation effort currently focuses
on ensuring that ContiMortgage's loan servicing systems will not be negatively
impacted by the Year 2000 issue.

ContiMortgage has received notice from its loan servicing software service
provider that their product line and data center environment is Year 2000
compliant as of December 31, 1998. Through 1999, the vendor will facilitate
client based testing, participate in industry testing, and continue future date
testing of their systems and underlying third-party products to verify ongoing
compliance. ContiMortgage's loan servicing software vendor is one of the largest
in the financial services industry, and its Year 2000 remediation and testing
efforts are being scrutinized by the Federal Financial Institutions Examination
Council. The loan servicing software vendor has retained an independent auditor
to monitor its Year 2000 remediation and testing efforts and to provide regular
reports to the vendor's customers. Although the Company has the highest level of
confidence in its loan servicing vendor, it has undertaken the preparation of a
plan that would facilitate the identification of Year 2000 related issues by
users and outline the actions to be taken to address the issues in the event
that compliance issues arise within the loan servicing system. Even with a
contingency plan in place, it is possible that ContiMortgage could suffer a
business disruption that could have a material adverse impact on the Company.
ContiMortgage's remediation, testing and implementation of other primary systems
and applications for Year 2000 compliance is complete.

The Company is also working to ensure that other operations are not materially
affected by the Year 2000 issue. The ability of the Company's subsidiaries to
generate new business would be severely impacted if the Company's primary long
distance telephone carrier experiences Year 2000 related difficulties.
Telecommunications networks are difficult to test and it is highly unlikely that
the Company's long distance telephone carrier will provide written assurance
that the Company's telecommunications network will not experience Year
2000-related interruptions. Therefore, the Company will have to rely on its long
distance carrier's reputation, public statements and internal testing
procedures.

Another function that could be adversely effected by the Year 2000 issue are the
credit reporting agencies which provide the Company's home equity subsidiaries
with information about the creditworthiness of potential borrowers. The
Company's subsidiaries make extensive use of these credit reporting agencies,
which in turn rely on consumer information provided to them by third parties.
The credit reporting agencies have stated that they will continue to test their
systems through 1999 and do not anticipate interruption of service due to the
Year 2000. However, some credit industry estimates indicate that over half of
all consumer reports from credit reporting agencies could be inaccurate or
incomplete as a result of the Year 2000 issue. If the credit reporting agencies,
or the third parties upon which they rely, experience such difficulties, this
could have a material adverse impact on the Company's business operations.


                                       51
<PAGE>

The Company believes that through the execution of its Year 2000 project
methodology, it will significantly reduce the risk of a major business
interruption due to Year 2000 failures. The major risks are associated with the
Year 2000 remediation efforts of third party vendors utilized by the Company.
The vendors have provided information indicating that they will remediate their
Year 2000 issues prior to December 31, 1999. The Company is in the process of
developing contingency plans for use in the event that any of its hardware,
software or other computerized systems, or those of a vendor, are not ready for
the Year 2000.

The Company reaffirms its estimate that the direct cost of its Year 2000
remediation, including contingency planning, will be approximately $5.0 million.
This estimate is subject to change as the project progresses. To date, the
Company has spent approximately $1.7 million on the Year 2000 issue. The Company
presently believes, based on the information obtained during the systems
inventory and assessment phase, that the Year 2000 issue will not have a
material adverse impact on its computer systems or operations. However, the
interdependent nature of the Company's operations, in particular its substantial
reliance on third party vendors, makes it impossible to say with certainty that
the Year 2000 issue will not have a material adverse impact on those computer
systems and operations. The Company will reassess the expected cost of
compliance and the risk that the Year 2000 issue will have a material adverse
impact during the remediation, testing and implementation phases of its Year
2000 conversion effort.

Competition

The home equity lender 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. In addition, in recent years so-called government
sponsored agencies such as FHLMC have been exploring their possible entry into
the industry. Many of these competitors are substantially larger than the
Company and have more capital and other resources, as well as a lower cost of
funds. However, 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.

As more fully discussed under "Discussion of Events During Fiscal 1999 - Market
Turbulence," the operations of many participants in the sub-prime industry in
which the Company operates were significantly and adversely affected by capital
market turbulence in fiscal 1999. The resulting loss of liquidity experienced
throughout the industry, occurring within the context of increasing market
skepticism about the quality of earnings reported under "gain-on sale
accounting," intensified capital market concerns about the industry and
effectively eliminated access to the capital markets as a source of new
liquidity. Lack of liquidity forced many competitors to exit the industry. As a
result of the decrease in competition, the cost to acquire correspondent product
declined dramatically; however, the benefit of this decline was offset by
investor demand for higher yields on securitization and whole loan sale
transactions. This increase in the Company's effective cost of funds may make it
more difficult to compete on the basis of price against the larger financial
institutions.

Although the Company has diversified its origination capabilities with the
acquisition of home equity companies with retail capabilities, correspondent
loans are expected to remain a significant part of the Company's home equity
loan production program. As a purchaser of correspondent loans, the Company is
exposed to fluctuations in the cost of correspondent loans resulting from
changes in competition.


                                       52
<PAGE>

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The primary market risk exposure that the Company faces is interest rate risk.
The Company is most vulnerable to changes in U.S. Treasury yields, LIBOR yields,
and the yield spread requirements of the investors who buy the Company's
securities and loans. The Company's material exposures of interest rate
sensitive financial instruments, which are entered into for other than trading
purposes, are its committed pipeline of loans, its loan inventories (including
off-balance-sheet exposures), its interest-only and residual certificates, its
capitalized servicing rights, and the various derivative financial instruments
that the Company uses to manage the interest rate risk related to the
aforementioned other financial instruments. The overall objective of the
Company's interest rate risk management policies is to mitigate the effect of
changing interest rates on the fair value of its other financial instruments.
See Note 14 to the accompanying Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Position and Results of
Operations - "Hedging Interest Rate Risk," for further discussion of financial
instruments and the Company's hedging policies.

The Company does not have an ongoing hedging program to manage interest rate
risk associated with its interest-only and residual certificates and its
capitalized servicing rights. The primary risk involved is that a decline in
interest rates could result in an acceleration of prepayment speeds that would
adversely impact the fair value of these assets. However, because of the
relatively short average lives of the Company's home equity loans, prepayment
speeds related to the Company's portfolios are not as interest rate sensitive as
those of traditional mortgage products; therefore, the Company believes it would
require a substantial and sustained decline in interest rates, beyond what the
Company would consider to be a "reasonably possible near-term change," to impact
prepayment speeds to a material extent. The Company is also exposed to basis
risk in its portfolio of interest-only and residual certificates in that a
portion of the Company's securities have interest rates that adjust on a monthly
basis, whereas the interest rates on the loans that collateralize the securities
may be fixed or have adjustment intervals and indices that are different than
those of the underlying securities.

As part of its interest rate risk management process, the Company performs
various sensitivity analyses that attempt to quantify the net change in fair
value of its interest rate sensitive financial instruments. These analyses
assume hypothetical scenarios of instantaneous and permanent shifts in the U.S.
Treasury and/or LIBOR yield curves. The Company employs various discounted cash
flow models to determine the fair value of its interest rate sensitive financial
instruments under these scenarios. The primary assumptions used in the
discounted cash flow models are prepayment rates, credit losses, discount rates
and investor yield spread requirements. See Management's Discussion and Analysis
of Financial Position and Results of Operations - "Accounting for ESR -
Valuation Process and Significant Assumptions."

Using the sensitivity analysis described above, as of March 31, 1999, the
Company estimates that a parallel, instantaneous and permanent increase in the
U.S. Treasury yield curve of 50 basis points (.50%), all else being constant,
would result in an aggregate decrease in the fair value of its interest rate
sensitive financial instruments (derivative and other) of approximately $27
million; an instantaneous and permanent increase in the LIBOR yield curve of 50
basis points (.50%), all else being constant, would result in an aggregate
decrease in the fair value of its interest rate sensitive financial instruments
(derivative and other) of approximately $0.3 million; an instantaneous and
permanent increase in the discount rate of 120 basis points (1.20%), all else
being constant, would result in an aggregate decrease in the fair value of its
interest rate sensitive financial instruments (derivative and other) of
approximately $35 million; and an instantaneous and permanent increase in the
investor yield spread requirement of 50 basis points (.50%), all else being
constant, would result in an aggregate decrease in the fair value of its
interest rate sensitive financial instruments (derivative and other) of
approximately $33 million.


                                       53
<PAGE>

The Company assumed there would be no material change in prepayment speeds under
the interest rate change scenarios presented above. The Company estimates that a
100 basis points (1.0%) increase in prepayment speeds would decrease the fair
value of the interest-only and residual certificates by approximately $30
million and would decrease the fair value of the capitalized servicing rights by
$0.2 million (net of the estimated benefit from increased prepayment penalty
income). See Management's Discussion and Analysis of Financial Position and
Results of Operations - "Sensitivity of Changes in ESR Fair Value Assumptions"
for the effect of changes in prepayment speeds and other assumptions on the
interest-only and residual certificates.

These sensitivity analyses are limited by the fact that that they are performed
at a particular point in time and do not incorporate other factors that may
impact the fair value of the Company's interest rate sensitive financial
instruments in each scenario. The above scenarios do not reflect the Company's
expectations regarding future movements in interest rates or prepayment speeds.
Consequently, the preceding estimates should not be viewed as a forecast.


                                       54

<PAGE>


Item 8.      Financial Statements and Supplementary Data.

                           CONTIFINANCIAL CORPORATION
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                            Page
                                                                            ----

Report of Independent Public Accountants ..................................   56
Consolidated Balance Sheets as of March 31, 1999 and 1998 .................   57
Consolidated Statements of Income for the years ended
  March 31, 1999, 1998 and 1997 ...........................................   58
Consolidated Statements of Changes in Stockholders'
  Equity for the years ended March 31, 1999, 1998 and 1997 ................   59
Consolidated Statements of Cash Flows for the years
  ended March 31, 1999, 1998 and 1997 .....................................   60
Notes to Consolidated Financial Statements ................................   62


                                       55
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors
and Stockholders of
ContiFinancial Corporation:

We have audited the accompanying consolidated balance sheets of ContiFinancial
Corporation (a Delaware corporation) and subsidiaries as of March 31, 1999 and
1998, 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, 1999. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of ContiFinancial
Corporation and its subsidiaries as of March 31, 1999 and 1998, and the results
of their operations and their cash flows for each of the three years in the
period ended March 31, 1999 in conformity with generally accepted accounting
principles.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has incurred a significant
operating loss in fiscal 1999 and suffered a critical loss of liquidity that
raises substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
consolidated financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.


                                             /s/ ARTHUR ANDERSEN LLP


New York, New York
July 14, 1999


                                       56
<PAGE>

                           CONTIFINANCIAL CORPORATION
            Consolidated Balance Sheets as of March 31, 1999 and 1998
                        (in thousands, except share data)

<TABLE>
<CAPTION>
                                                                                                             March 31,
                                                                                                    ----------------------------
                                                                                                       1999              1998
                                                                                                    ----------        ----------
<S>                                                                                                 <C>              <C>
                                            Assets
                                            ------
Cash and cash equivalents ........................................................................  $  112,839       $   173,588
Restricted cash ..................................................................................       4,072             1,147
Securities purchased under agreements to resell ..................................................          --           857,649
Receivables held for sale:
   Receivables held for sale .....................................................................   1,089,410           726,990
   Allowance for loan losses .....................................................................     (7,364)           (2,685)
                                                                                                    ----------        ----------
Receivables held for sale, net ...................................................................   1,082,046           724,305
Other receivables ................................................................................      95,984           117,678
Due from affiliates ..............................................................................      53,680          46,922
Interest-only and residual certificates ..........................................................     722,012           648,785
Capitalized servicing rights .....................................................................     105,273            74,292
Premises and equipment, net of accumulated depreciation of  $13,454
   and $7,951 as of March 31, 1999 and 1998, respectively ........................................      23,792            18,887
Cost in excess of equity acquired ................................................................      85,388            55,738
Equity investments in unconsolidated subsidiaries ................................................       4,978            53,660
Taxes receivable .................................................................................      13,024                --
Other assets .....................................................................................      52,076            35,928
                                                                                                    ----------        ----------
         Total assets ............................................................................  $2,355,164        $2,808,579
                                                                                                    ==========        ==========
                                 Liabilities and Stockholders' Equity
                                 ------------------------------------
Liabilities:
Accounts payable .................................................................................  $   90,412        $   91,179
Securities sold but not yet purchased ............................................................          --           847,470
Receivables sold under agreements to repurchase ..................................................     804,524           245,556
Due to affiliates ................................................................................       8,918               163
Short-term debt ..................................................................................     512,797           366,104
Taxes payable ....................................................................................          --            81,190
Long-term debt ...................................................................................     699,225           499,553
Other liabilities ................................................................................      31,316            30,427
                                                                                                    ----------        ----------
         Total liabilities .......................................................................   2,147,192         2,161,642
                                                                                                    ----------        ----------
Commitments and contingencies
Minority interest in subsidiaries ................................................................       4,721               629

Stockholders' equity:
   Preferred stock (par value $0.01 per share; 25,000,000 shares authorized; none
      issued at March 31, 1999 and 1998) .........................................................          --                --
   Common stock (par value $0.01 per share; 250,000,000 shares authorized;
      47,657,539 shares issued at March 31, 1999 and 1998) .......................................         477               477
   Paid-in capital ...............................................................................     398,209           399,776
   Retained earnings (accumulated deficit) .......................................................    (163,301)          262,956
   Treasury Stock (910,169 and 201,209 shares of common stock, at cost, at
      March 31, 1999 and 1998, respectively) .....................................................     (25,106)           (5,794)
   Deferred compensation .........................................................................      (7,028)          (11,107)
                                                                                                    ----------        ----------
         Total stockholders' equity ..............................................................     203,251           646,308
                                                                                                    ----------        ----------
         Total liabilities and stockholders' equity ..............................................  $2,355,164        $2,808,579
                                                                                                    ==========        ==========
</TABLE>

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


                                       57
<PAGE>

                           CONTIFINANCIAL CORPORATION
                        Consolidated Statements of Income
                for the years ended March 31, 1999, 1998 and 1997
                        (in thousands, except share data)

<TABLE>
<CAPTION>
                                                                                                 Years Ended March 31,
                                                                                       -------------------------------------------
                                                                                           1999            1998            1997
                                                                                       -----------     -----------     -----------
<S>                                                                                    <C>             <C>             <C>
Gross income:
   Gain on sale of receivables .....................................................   $       768     $   311,606     $   210,861
   Commercial real estate valuation adjustments (Note 4) ...........................      (167,927)             --              --
   Interest ........................................................................       305,039         236,494         161,402
   Net servicing income ............................................................        99,544          90,509          46,340
   Other income ....................................................................        15,767          21,553           9,227
                                                                                       -----------     -----------     -----------
         Total gross income ........................................................       253,191         660,162         427,830
                                                                                       -----------     -----------     -----------

Expenses:
   Compensation and benefits .......................................................       192,753         161,992          82,170
   Interest ........................................................................       233,598         165,904         120,636
   Provision for loan losses .......................................................         6,215           5,668           3,043
   General and administrative ......................................................       166,619         101,633          44,940
   Other charges (Note 4) ..........................................................       147,621              --              --
                                                                                       -----------     -----------     -----------
         Total expenses ............................................................       746,806         435,197         250,789
                                                                                       -----------     -----------     -----------
Income (loss) before income taxes and minority interest ............................      (493,615)        224,965         177,041
Provision (benefit) for income taxes (Note 12) .....................................       (67,510)         91,149          71,341
                                                                                       -----------     -----------     -----------
Income (loss) before minority interest .............................................      (426,105)        133,816         105,700
Minority interest in earnings (losses) of subsidiaries .............................           152            (488)           (304)
                                                                                       -----------     -----------     -----------
         Net income (loss) .........................................................   $  (426,257)    $   134,304     $   106,004
                                                                                       ===========     ===========     ===========

Basic earnings (loss) per common share .............................................   $     (9.21)    $      2.90     $      2.44
                                                                                       ===========     ===========     ===========
Diluted earnings (loss) per common share ...........................................   $     (9.21)    $      2.86     $      2.40
                                                                                       ===========     ===========     ===========
Basic weighted average number of shares
            outstanding ............................................................    46,283,940      46,330,810      43,361,253
                                                                                       ===========     ===========     ===========

Diluted weighted average number of shares
            outstanding ............................................................    46,283,940      46,992,449      44,152,343
                                                                                       ===========     ===========     ===========
</TABLE>

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


                                       58
<PAGE>

                           CONTIFINANCIAL CORPORATION
               Consolidated Statements of Changes in Stockholders'
                 Equity for the years ended March 31, 1999, 1998
                                    and 1997
                        (in thousands, except share data)

<TABLE>
<CAPTION>
                                         Number of Shares
                                         of Common Stock                          Retained                                Total
                                      ---------------------   Common  Paid-in     Earnings    Treasury     Deferred    Stockholders'
                                      Issued       Treasury   Stock   Capital     (Deficit)    Stock     Compensation     Equity
                                      ------       --------   -----   -------     ---------    -----     ------------     ------
<S>                                   <C>          <C>        <C>     <C>         <C>          <C>         <C>          <C>
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 ....           --    33,931      --          --           --        (712)        712            --
Restricted stock awards ...........           --    (6,000)     --          88           --         126        (214)           --
Amortization of deferred
  compensation ....................           --        --      --          --           --          --       6,721         6,721
                                      ----------   -------    ----    --------    ---------    --------    --------     ---------
Balance at March 31, 1997 .........   44,390,335    27,931     444     295,029      128,652        (586)    (15,755)      407,784

Net income ........................           --        --      --          --      134,304          --          --       134,304
Common stock issued in public
  offering ........................    3,220,000        --      32     100,746           --          --          --       100,778
Repurchase of common stock ........           --   193,700      --          --           --      (5,636)         --        (5,636)
Exercise of options ...............       47,204        --       1         994           --          --          --           995
Forfeiture of restricted stock ....           --    15,978      --          --           --        (335)        335            --
Restricted stock awards ...........           --   (36,400)     --         364           --         763      (1,127)           --
Amortization of deferred
  compensation ....................           --        --      --       2,643           --          --       5,440         8,083
                                      ----------   -------    ----    --------    ---------    --------    --------     ---------
Balance at March 31, 1998 .........   47,657,539   201,209     477     399,776      262,956      (5,794)    (11,107)      646,308
Net loss ..........................           --        --      --          --     (426,257)         --          --      (426,257)
Repurchase of common stock ........           --   806,300      --          --           --     (22,052)         --       (22,052)
Forfeiture of restricted stock ....           --     2,065      --         (54)          --         (10)         64            --
Restricted stock awards ...........           --   (99,405)     --         325           --       2,750      (3,075)           --
Amortization of deferred
  compensation ....................           --        --      --      (1,838)          --          --       7,090         5,252
                                      ----------   -------    ----    --------    ---------    --------    --------     ---------
Balance at March 31, 1999 .........   47,657,539   910,169    $477    $398,209    $(163,301)   $(25,106)   $ (7,028)    $ 203,251
                                      ==========   =======    ====    ========    =========    ========    ========     =========
</TABLE>


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


                                       59
<PAGE>

                           CONTIFINANCIAL CORPORATION
                      Consolidated Statements of Cash Flows
                for the years ended March 31, 1999, 1998 and 1997
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                                  Years Ended March 31,
                                                                                       ---------------------------------------------
Cash flows from operating activities:                                                      1999            1998            1997
                                                                                       ------------    ------------    ------------
<S>                                                                                    <C>             <C>             <C>
   Net income (loss) ...............................................................   $   (426,257)   $    134,304    $    106,004
   Adjustments to reconcile net income (loss) to net cash
     used in operating activities:
      Amortization of deferred compensation ........................................          7,090           5,440           6,721
      Depreciation and amortization ................................................         18,037           9,106           4,536
      Impairment of equity investments in and receivables from
       unconsolidated subsidiaries (net of dividends received) .....................        100,332          (4,919)             --
      Minority interest in earnings (losses) of subsidiaries .......................            152            (488)           (304)
      Provision (benefit) for deferred taxes .......................................        (87,607)         72,449           5,680
      Provision for loan losses ....................................................          6,215           5,668           3,043
   Net changes in operating assets and liabilities:
      (Increase) decrease in restricted cash .......................................         (2,925)           (683)            156
      (Increase) decrease in receivables held for sale:
         Originations and purchases ................................................    (23,114,278)    (23,644,616)    (16,094,071)
         Sales and principal repayments ............................................     22,748,593      23,544,786      15,774,222
      (Increase) decrease in due from affiliates and other receivables .............        (27,121)        (78,071)        (34,858)
      Increase in interest-only and residual certificates ..........................        (73,227)       (203,780)       (150,701)
      Increase in capitalized servicing rights .....................................        (30,981)        (44,939)        (17,664)
      Increase (decrease) in accounts payable ......................................        (15,647)         17,359          (5,612)
      (Increase) decrease in securities purchased under agreements to resell
         less the increase (decrease) in securities sold but not yet purchased .....         10,179         (11,348)            315
      Increase (decrease) in trade receivables sold under agreements to
         repurchase ................................................................        558,968          (5,983)        251,539
      Increase (decrease) in taxes payable .........................................            302           6,613          13,520
      Other, net ...................................................................        (14,149)            844         (15,950)
                                                                                       ------------    ------------    ------------
         Net cash used in operating activities .....................................       (342,324)       (198,258)       (153,424)
                                                                                       ------------    ------------    ------------
Cash flows from investing activities:
      Acquisitions of majority-owned subsidiaries (net of cash acquired) ...........        (25,203)        (10,315)        (28,277)
      Acquisitions of minority-owned subsidiaries ..................................         (1,565)        (44,385)             --
      Purchase of premises and equipment, net ......................................        (12,585)        (13,922)         (3,535)
      Proceeds from sale of unconsolidated subsidiaries                                       1,857              --              --
                                                                                       ------------    ------------    ------------
         Net cash used in investing activities .....................................        (37,496)        (68,622)        (31,812)
                                                                                       ------------    ------------    ------------
</TABLE>

                                                                     (continued)

                                       60
<PAGE>

                           CONTIFINANCIAL CORPORATION
                     Consolidated Statements of Cash Flows,
                     continued for the years ended March 31,
                               1999, 1998 and 1997
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                               Years Ended March 31,
                                                                                    ---------------------------------------------
                                                                                      1999              1998               1997
                                                                                    --------          --------          ---------
<S>                                                                                 <C>               <C>               <C>
Cash flows from financing activities:
      Increase (decrease) in due to affiliates, net .......................                8           (48,156)            17,972
      Increase (decrease) in notes payable to affiliates ..................               --                --           (324,000)
      Increase in short-term debt .........................................          146,332           340,573             25,000
      Increase in long-term debt ..........................................          199,778               714            498,423
      Proceeds from exercise of employee stock options ....................               --               995                240
      Debt issuance costs .................................................           (4,766)               --            (12,982)
      Repurchase of common stock ..........................................          (22,052)           (5,636)                --
      Net proceeds from common stock offering .............................               --           100,778                 --
      Other, net ..........................................................             (229)               --               (696)
                                                                                    --------          --------          ---------
          Net cash provided by financing activities .......................          319,071           389,268            203,957
                                                                                    --------          --------          ---------
Net increase (decrease) in cash and cash equivalents ......................          (60,749)          122,388             18,721

Cash and cash equivalents at beginning of  year ...........................          173,588            51,200             32,479
                                                                                    --------          --------          ---------
Cash and cash equivalents at end of year ..................................         $112,839          $173,588          $  51,200
                                                                                    ========          ========          =========
</TABLE>

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

                                       61
<PAGE>

                           CONTIFINANCIAL CORPORATION
                   Notes to Consolidated Financial Statements
                          March 31, 1999, 1998 and 1997
                (in thousands, except share data and where noted)

1.     FINANCIAL RESULTS AND LIQUIDITY

During fiscal 1999, ContiFinancial Corporation's ("ContiFinancial" or the
"Company") operations were significantly and adversely affected by difficult
capital market conditions that commenced in the second quarter, with the effects
of these events, and their repercussions, continuing to affect the Company's
results in the third and fourth quarters. The Company incurred a net loss of
$426,257 and suffered a critical loss of liquidity in fiscal 1999 that made it
impossible for the Company to continue financing its diversified product lines
and investments. As a result, the Company has restricted its focus primarily to
originating and servicing non-conforming home equity loans.

The Company is operating on a negative cash flow basis and is dependent on
various financing sources for its continued operations. In order to fund new
loans and asset originations and purchases, the Company is dependent on its
Purchase and Sale Facilities and Repurchase Agreements (collectively, the
"Warehouse Facilities"). The Company is also dependent on continued access to
its Revolving Credit Facility and Commercial Paper Program (collectively, the
"Bank Facilities"). The Company is required to comply with various financial
covenants under its outstanding long-term debt, Bank Facilities and Warehouse
Facilities. As of March 31, 1999, the Company's leverage ratio exceeded the
leverage ratio test under the covenants of its outstanding long-term debt. As a
result, the Company is prevented from issuing additional unsecured debt until
its leverage ratio is below such test. Additionally, the Company would not have
been in compliance with several of the financial covenants of the Bank
Facilities and Warehouse Facilities at December 31, 1998 and March 31, 1999 had
these agreements not been amended. The Bank Facilities expire in August 1999,
and the Warehouse Facilities expire at various times from July 1999 through
December 1999.

The Company's continued operations are dependent on the extension, renegotiation
or refinancing, as well as availability through scheduled maturity of the Bank
and Warehouse Facilities. The Company's ability to extend, renegotiate or
refinance its facilities depends on the successful completion of a transaction
with a buyer or equity investor. As a result, there is substantial doubt about
the Company's ability to continue as a going concern. The accompanying
consolidated financial statements have been prepared assuming the Company will
continue as a going concern. Accordingly, the financial statements do not
include any adjustments relating to the recoverability and classification of
asset carrying amounts or the amount and classification of liabilities that
might result should the Company be unable to continue as a going concern.

In order to address this issue, the Company has been seeking a financially
strong acquirer or equity investor who can provide the necessary financing or
provide the Company's lenders with the requisite guarantees. The previously
announced discussions with Residential Funding Corporation, a subsidiary of
General Motors Acceptance Corporation, with respect to an acquisition of the
Company have terminated. The Company is in discussions with others to act as an
acquiror or equity investor and has commenced negotiations for a restructuring
with the providers of its Bank Facilities, Warehouse Facilities and long-term
debt.

2. NATURE OF BUSINESS

The Company was incorporated in Delaware on September 29, 1995. The Company,
together with its subsidiaries, engages in the consumer finance business by

                                       62
<PAGE>

                           CONTIFINANCIAL CORPORATION
                   Notes to Consolidated Financial Statements
                          March 31, 1999, 1998 and 1997
                (in thousands, except share data and where noted)

originating and servicing primarily non-conforming home equity loans ("HELs").
Through ContiMortgage Corporation ("ContiMortgage") and ContiWest Corporation
("ContiWest"), the Company is an originator, purchaser, seller, securitizer 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 loans are 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 securitized loans are sold on a servicing retained basis. The
outstanding principal balance of ContiMortgage's mortgage servicing portfolio at
March 31, 1999 and 1998 was $12,966,131 and $10,135,785, respectively.

Historically, the Company operated as a more diversified consumer and commercial
financial intermediary that originated, securitized and serviced various loan
products in addition to HELs. These products included commercial real estate
loans, high loan-to-value mortgage loans, non-prime auto loans, charged-off
consumer receivables, equipment leases and franchise loans. In fiscal 1999,
severe turbulence in the capital markets (see Note 1 - Financial Results and
Liquidity) caused the Company to incur significant losses and resulted in a
critical loss of liquidity that made it impossible for the Company to continue
financing its diversified product lines. As a result, the Company had to
restrict its focus primarily to the core HEL business and reduce or eliminate
its involvement with most other loan products.

ContiMortgage is subject to minimum capital requirements imposed by the states
in which it operates, with the highest being $250. In addition, ContiMortgage 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, ContiMortgage is required by the Federal
National Mortgage Association ("FNMA") to maintain minimum capital of $250 plus
0.20% of the principal balance of the portfolio being serviced for FNMA.

ContiFinancial Services is registered as a broker/dealer with the Securities and
Exchange Commission ("SEC") and is subject to the SEC's Uniform Net Capital Rule
15c3-1, under which the ratio of aggregate indebtedness to net capital, as
defined, may not exceed 15 to 1. At March 31, 1999, ContiFinancial Services' net
capital, as defined, totaled $2,335 which was $2,235 in excess of the SEC
regulatory requirement of $100; its ratio of aggregate indebtedness to net
capital was .0112 to 1.

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

Basis of Presentation

The accompanying consolidated financial statements include the accounts of the
Company and its majority- owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. 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, liabilities and results of operations. Actual
results could differ from these estimates.

                                       63
<PAGE>

                           CONTIFINANCIAL CORPORATION
                   Notes to Consolidated Financial Statements
                          March 31, 1999, 1998 and 1997
                (in thousands, except share data and where noted)

Income Recognition

See Note 5 for a discussion of "Gain on Sale of Receivables and Interest-Only
and Residual Certificates."

Net servicing income consists of servicing fees and prepayment penalties
collected from borrowers, and capitalized servicing activity. The fee and
prepayment penalty income component represents cash income earned from the
servicing of loans in REMICs, other trusts and other servicing retained
portfolios and is primarily based on the level of assets serviced and the types
of ancillary fee income associated with the loans. Capitalized servicing
consists of servicing assets recorded in connection with new securitizations
(i.e., the present value of future servicing income, net of expenses), reduced
by both premiums paid for prepayment penalties acquired and amortization of
capitalized servicing from prior securitizations.

Interest income is recorded as earned. Interest income primarily represents the
interest earned on the loans ("Receivables") during the warehousing period (the
period prior to their securitization or sale) and the accrual of interest income
on the interest-only and residual certificates ("ESR"). Receivables are placed
on non-accrual status when they become sixty days past due. When a Receivable is
classified as non-accrual, the accrual of interest income ceases, and all
interest income previously accrued and unpaid on such Receivable is reversed.

Cash, Cash Equivalents and Restricted Cash

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 includes amounts segregated in connection with the sale of
mortgage loans with limited recourse and amounts specifically designated for pay
downs of warehouse financing.

Hedging Interest Rate Risk

See Note 14 for a discussion of the Company's hedging activities.

Receivables Held for Sale/Receivables Sold Under Agreements to Repurchase

Receivables held for sale include mortgages, loans, leases and other assets the
Company plans to sell or securitize, and other related assets. Receivables held
for sale are stated at the lower of aggregate cost or market. Market value is
determined by outstanding commitments from investors or current investor yield
requirements, adjusted for unrealized hedging gains or losses, as appropriate.
Based on current purchases of whole loans, the carrying amount of receivables
held for sale is a reasonable estimate of fair value.

Receivables sold under agreements to repurchase are recorded at the amounts at
which the receivables will be repurchased, plus accrued interest. The agreements
mature through December 31, 1999 and, at March 31, 1999 had interest rates
ranging from 5.64% to 7.45%.

On January 1, 1997, the Company adopted 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

                                       64
<PAGE>

                           CONTIFINANCIAL CORPORATION
                   Notes to Consolidated Financial Statements
                          March 31, 1999, 1998 and 1997
                (in thousands, except share data and where noted)

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 amortized over their
estimated life and assessment of asset impairment be based on such assets' fair
value.

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.

Other Receivables

Other receivables consist primarily of servicing advances, accrued interest on
loans and other receivables, servicing income receivables and, in fiscal 1998,
advances made to Strategic Alliances in the form of working capital lines and
subordinated debt.

Capitalized Servicing Rights

Upon sale or securitization of servicing retained receivables, the fair value
associated with the right to service such receivables is capitalized. The
Company determines fair value based on the present value of estimated net future
cash flows relating to servicing. Net future cash flows consist of servicing
fees received relating to sold receivables and prepayment penalties, where
applicable, reduced by direct servicing expenses. Capitalized servicing rights
are amortized in proportion to and over the period of estimated net future
servicing cash flow.

The Company capitalized $76,603 and $63,609 of servicing rights during the
fiscal years ended March 31, 1999 and 1998, respectively. During the same
periods, amortization of these assets was $45,622 and $18,670, respectively. At
March 31, 1999 and 1998, the carrying value of capitalized servicing rights
approximated fair value. The Company periodically reviews capitalized servicing
rights 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 the strength of the prepayment penalty. Due
to the relatively short average life of the loan products, they are not as
sensitive to changes in interest rates as traditional mortgage products. As
such, the Company does not consider interest rates alone to be 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.

Premises and Equipment, Net of Accumulated Depreciation

Premises and equipment are carried at cost and depreciated on a straight-line
basis over the estimated useful lives of the assets. Leasehold improvements are

                                       65
<PAGE>

                           CONTIFINANCIAL CORPORATION
                   Notes to Consolidated Financial Statements
                          March 31, 1999, 1998 and 1997
                (in thousands, except share data and where noted)

amortized over the lesser of the useful lives of the improvements or term of the
leases. The estimated useful lives of premises and equipment and leasehold
improvements are generally between two to twelve years.

Cost in excess of equity acquired

Cost in excess of equity acquired represents the excess of investments in
subsidiaries over the net asset value at acquisition, adjusted for subsequent
amortization. Amortization is recorded on a straight line basis over the
estimated useful life of the capitalized asset, based on the nature of the
business acquired, but not to exceed 25 years. The Company uses discounted
income projections for the respective subsidiary over the remaining life of the
assets to evaluate for possible impairment. During fiscal 1999, the Company
recognized impairment losses of $29.9 million relating to certain equity
investments in unconsolidated subsidiaries, as reflected in Other charges in the
accompanying Consolidated Statement of Income. See Note 4 for further
discussion.

Other Assets

Other assets is primarily comprised of deferred bond issuance costs, margin and
other deposits, marketable securities and prepaid expenses.

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 was
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 to 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 standard. SFAS 123 requires that if a company continues to
account for stock options under Accounting Principles Board ("APB") Opinion No.
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 continues to
account for stock based compensation under APB Opinion No. 25.

Recent Accounting Pronouncements

In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive Income"
("SFAS 130") which is effective for fiscal years beginning after December 15,
1997. SFAS 130 establishes standards for reporting comprehensive income and its
components in a full set of general-purpose financial statements. SFAS 130
requires that all components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. The adoption of this standard did not have an impact on the
Company's financial position or results of operations.

In June 1997, the FASB issued SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes standards
for reporting information about operating segments in annual financial
statements and in interim financial reports. The Company's business is domestic
in nature with no operations outside the United States. The Company utilizes a

                                       66
<PAGE>

                           CONTIFINANCIAL CORPORATION
                   Notes to Consolidated Financial Statements
                          March 31, 1999, 1998 and 1997
                (in thousands, except share data and where noted)

common support platform for management of its operations, consisting of shared
management strategies. Management views its operations as one segment;
accordingly, there are no specific operating or geographic disclosures required
pursuant to SFAS 131.

In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133")
which is effective for all fiscal quarters of fiscal years beginning after June
15, 2000. SFAS 133 standardizes the accounting for derivative instruments,
including certain derivative instruments embedded in other contracts, by
requiring that an entity recognize those items as assets or liabilities in the
Consolidated Balance Sheets and measure them at fair value. The Company is
currently evaluating the impact of SFAS 133 on its financial position and
results of operations.

In October 1998, the FASB issued SFAS No. 134 "Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise" ("SFAS 134"). SFAS 134 requires that after the
securitization of a mortgage loan held for sale, an entity engaged in mortgage
banking activities classify the resulting mortgage-backed security as a trading
security. After the securitization of mortgage loans held for sale, an entity
engaged in mortgage banking activities should classify the resulting
mortgage-backed securities or other retained interests based on its ability and
intent to sell or hold those investments. SFAS 134 is effective for the first
fiscal quarter beginning after December 15, 1998. The Company adopted SFAS 134
on January 1, 1999. The adoption of this Statement did not have an impact on the
Company's financial position and results of operations.

Earnings Per Common Share

Common shares issued by the Company plus the effect of equivalent common shares
under the restricted stock awards and stock option plans are included in basic
and diluted earnings per common share, as appropriate, from the date of issuance
(see Notes 6 and 11). Basic and diluted earnings per share are computed using
the weighted average number of shares outstanding in accordance with SFAS No.
128 "Earnings Per Share," adopted in fiscal 1998. The effects of this statement
have been applied to fiscal 1997 results. Diluted earnings per share equals
basic earnings per share in fiscal 1999, as the dilutive calculation would have
an antidilutive impact as a result of the net loss incurred in that fiscal year.

Consolidated Statements of Cash Flows--Supplemental Disclosures

Total interest paid was $222,453, $164,772 and $119,223 for the years ended
March 31, 1999, 1998, and 1997, respectively. Total income taxes paid were
$20,298, $59,684 and $45,624 for the years ended March 31, 1999, 1998 and 1997,
respectively. Through June 4, 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 9). As such, these amounts were included in total income
taxes paid for the year ended March 31, 1997.

Reclassifications

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

                                       67
<PAGE>

                           CONTIFINANCIAL CORPORATION
                   Notes to Consolidated Financial Statements
                          March 31, 1999, 1998 and 1997
                (in thousands, except share data and where noted)


4.     COMMERCIAL REAL ESTATE VALUATION ADJUSTMENTS AND OTHER CHARGES

The Company's operations were significantly and adversely affected by difficult
capital market conditions that commenced in the second quarter of fiscal 1999,
with the effects of these events, and their repercussions, continuing to affect
the Company's results in the third and fourth quarters. During the second
quarter, fixed income investors purchased large amounts of U.S. Treasury
securities in a "flight to quality," causing U.S. Treasury yields to decrease
significantly. As investor demand for U.S. Treasury securities increased, the
demand for other fixed income securities declined dramatically, causing yields
on such other securities to rise relative to U.S. Treasury securities. Since
almost all of the Company's loan originations were ultimately funded by the
issuance of securities backed by the loans it originates (securitization), these
unusual interest rate movements affected the market value of all of the
Company's originations, causing significant losses and leading to a critical
loss of liquidity.

These market disruptions affected many participants in the commercial real
estate and sub-prime home equity industries, including several of the Company's
majority- and minority-owned affiliates. The worst affected were those
businesses whose products had a longer average life (e.g., commercial
mortgages), making those products more sensitive to changes in interest rates,
and those businesses that dealt in niche products with limited funding options
outside of securitization (e.g., high loan-to-value mortgages). The working
capital required to operate such businesses increased dramatically as warehouse
lenders either abandoned the businesses entirely or significantly increased
their margin requirements. Due to the Company's diminished liquidity position,
it was forced to terminate or reduce the scope of its involvement in many
business relationships at significant losses.

In the Company's Consolidated Statements of Income for the year ended March 31,
1999, losses resulting from these adverse developments are included in
Commercial real estate valuation adjustments in the amount of $167.9 million and
Other charges in the amount of $147.6 million. Commercial real estate valuation
adjustments represent losses incurred in liquidating the Company's portfolio of
commercial real estate mortgage loans. At September 30, 1998, when the Company
decided to discontinue its commercial real estate lending activities, the
Company had commercial real estate loans totaling $970.4 million either held for
sale on its Consolidated Balance Sheet or sold with limited recourse under the
Company's asset purchase and sale facilities (the "Purchase and Sale
Facilities"). Other charges represents the write-down of investments in and
receivables from affiliated companies and Strategic Alliance clients and costs
incurred in terminating or reducing the scope of certain business activities and
restructuring the remaining businesses. Details of these adjustments are
provided in the table below:

                                       68
<PAGE>

                           CONTIFINANCIAL CORPORATION
                   Notes to Consolidated Financial Statements
                          March 31, 1999, 1998 and 1997
                (in thousands, except share data and where noted)

<TABLE>
<CAPTION>
                                                                                        Year Ended
                                                                                      March 31, 1999
                                                                                      --------------
<S>                                                                                      <C>
Commercial real estate valuation adjustments:
     Realized losses ...............................................................     $109,768
     Unrealized losses .............................................................       58,159
                                                                                         --------

Total Commercial real estate valuation adjustments .................................      167,927
                                                                                         --------

Other charges:
     Write-offs and reserves on receivables from affiliates and Strategic
       Alliance clients ............................................................       91,921
     Write-downs or losses on the disposition of investments in affiliates .........       38,117
     Severance for approximately 310 terminated employees ..........................        6,892
     Exit costs (excluding severance) for reduction of commercial real estate
       activity ....................................................................        5,764
     Other restructuring costs .....................................................        4,927
                                                                                         --------
Total other charges ................................................................      147,621
                                                                                         --------

Total commercial real estate valuation adjustments and other charges ...............     $315,548
                                                                                         ========
</TABLE>

The commercial real estate realized losses of $109,768 consisted of $80,574 from
hedge losses and $29,194 from sales of commercial loans. Prior to sale or
securitization, the Company's commercial real estate loans held for sale are
carried at the lower of aggregate cost or market value. The Company hedged its
resulting exposure to absolute movement in interest rates, typically through the
short sale of U.S. Treasury securities, interest rate futures contracts or
options on U.S. Treasury securities. During the second fiscal quarter, the
significant decline in interest rates on U.S. Treasury securities resulted in
significant losses on hedge positions. If interest rate spreads between U.S.
Treasury securities and the securities to be issued (backed by the commercial
real estate loans) had remained at the levels that prevailed when the hedges
were executed, the market value of the loans would have increased, offsetting
the hedge losses. However, the market value of the loans declined due to a
decreased demand for the securities backed by the loans which in turn caused a
sudden over supply in the whole loan market. Due to the decline in the market
value of the loans, the Company's lenders made margin calls for additional cash
collateral. To satisfy the margin calls, the Company was forced to sell loans at
executions near the bottom of the market and close out the related hedge
positions at a loss.

At March 31, 1999, the Company had remaining net commercial real estate loans of
$257.6 million included in Receivables held for sale in the accompanying
Consolidated Balance Sheets and $217.4 million of commercial real estate loans
sold with limited recourse under the Company's Purchase and Sale Facilities for
a total exposure, on- and off-balance sheet, of $475 million. As of June 15,
1999, the remaining commercial real estate loans exposure had been reduced to
approximately $154 million. In addition, as further explained below, at March
31, 1999, the Company had market exposure related to $222 million of commercial
real estate loans owned by Red Mountain Funding, L.L.C. ("RMF"), a commercial
affiliate. As of June 15, 1999, the net balance remaining of the RMF portfolio
had been reduced to $133 million.

The largest component of Other charges is $65.0 million of losses related to the
Company's high loan-to-value ("HLTV") mortgage business. This amount includes

                                       69
<PAGE>

                           CONTIFINANCIAL CORPORATION
                   Notes to Consolidated Financial Statements
                          March 31, 1999, 1998 and 1997
                (in thousands, except share data and where noted)

the write-off of the Company's 24% equity investment in Empire Funding Holding
Corporation ("EFHC") in the amount of $27.6 million, and additional write-downs
of $37.4 million related to receivables from EFHC. Due to the adverse market
conditions which commenced in the second quarter of fiscal 1999, the
securitization of HLTV mortgage loans began to require large initial cash
investments, and warehouse financing for HLTV mortgage loans became very costly
and difficult to obtain. Because the Company no longer had the liquidity to
finance EFHC's operations, the Company entered into negotiations to terminate
its financial obligations to EFHC. In April 1999, the Company finalized and
executed an agreement with EFHC pursuant to which, among other things, the
Company relinquished all ownership interests in EFHC, and EFHC agreed to
transfer to the Company, subject to required third-party consents, certain
servicing rights, residual interests and interest-only strips (collectively, the
"Residual Interests") in exchange for the complete satisfaction of certain
outstanding debts and the termination of the related credit facilities. The fair
value of the Residual Interests was determined by the Company to be
approximately $72.7 million as of March 31, 1999, which value was the primary
basis for measuring the impairment of receivables from EFHC as of that date. As
a part of the agreement with EFHC, the Company was also required to provide EFHC
with a $25 million warehouse line of credit with a term of six months.

Also included in Other charges is $21.4 million of losses on investments and
receivables related to affiliates and Strategic Alliance clients engaged in the
home equity business, and a $27.2 million reserve for margin call advances paid
on behalf of RMF to a warehouse lender. With regard to the RMF margin advances,
because the Company would have to fund additional margin calls if such calls
were to be made, and because RMF does not have the financial resources to repay
the Company for the advances, the Company is exposed to market risk on the
entire balance of RMF's financed portfolio, which was $222 million at March 31,
1999.


5.     GAIN ON SALE OF RECEIVABLES AND INTEREST-ONLY AND RESIDUAL CERTIFICATES

Gain on sale of receivables

A major source of income for the Company is the recognition of gains in
connection with securitizations and whole loan sales. In a typical
securitization, the Company sells loans or other assets to a special purpose
entity, established for the limited purpose of buying the assets from the
Company and transferring such assets to a trust, most often a REMIC. The REMIC
issues interest-bearing securities that are collateralized by the underlying
pool of mortgage loans or other assets, as the case may be. The proceeds are
used as consideration to purchase the assets from the Company. Typically, the
securities are sold at an amount that is the same (or nearly the same) as the
underlying mortgage loan amounts, and the Company retains a residual interest
that represents its right to receive, over the life of the securitization, the
excess of the weighted average coupon on the loans securitized over the sum of
the interest rate on the securities sold, a normal servicing fee, a trustee fee,
an insurance fee (where applicable) and the credit losses relating to the loans
or other assets securitized (the "Excess Spread Receivable" or "ESR"). In
accordance with SFAS No. 125, the present value of the estimated ESR is treated
as additional sale proceeds and included in Gain on Sale of Receivables at the
time of securitization. In a securitization, the Company may also sell a portion
of the ESR in the form of interest-only securities. In a whole loan sale, the
Company sells its entire interest in the loans directly to an investor, with all
proceeds realized in cash at the time of sale. Gain on sale of receivables also
includes any adjustments to ESR that may result from the quarterly fair value
evaluation, and also includes points, origination fees and direct origination
costs associated with broker and direct retail mortgage originations; purchase
premiums associated with the acquisition of whole loans from correspondents;
hedge results; transaction costs; and fees earned in connection with
securitzation services provided to Strategic Alliance clients. All such fees and

                                       70
<PAGE>

                           CONTIFINANCIAL CORPORATION
                   Notes to Consolidated Financial Statements
                          March 31, 1999, 1998 and 1997
                (in thousands, except share data and where noted)

costs are recognized in Gain on Sale of Receivables at the time the related
loans are sold or securitized. See Note 14 for a discussion of the impact of
hedging activities on gain on sale of receivables.

Interest-only and residual certificates

ESR, reported as "Interest-only and residual certificates" in the accompanying
Consolidated Balance Sheets, is the present value of the retained residual
interest (as described above) that the Company expects to receive over the life
of a securitization, taking into consideration estimated prepayment speeds and
credit losses, and discounted at a rate which the Company believes is an
appropriate risk-adjusted market rate of return for the ESR asset. ESR is
realized over the life of the securitization as cash distributions are received
from the trust.

In accordance with SFAS No. 134, "Accounting for Mortgage-Backed Securities
Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage
Banking Enterprise," the Company continues to classify ESR as "trading
securities". As such, they are carried at fair value in the Consolidated Balance
Sheets. Unrealized changes in ESR fair value are included in Gain on sale of
receivables on the accompanying Consolidated Statements of Income in the period
of the change.

At March 31, 1999 and 1998, the Company's ESR portfolio was comprised of the
following:

                                                    March 31,         March 31,
                                                      1999             1998
                                                      ----             ----
Home Equity:
    ContiMortgage/ContiWest                         $611,320         $555,884
    Other Servicers ............................      24,800           37,428
                                                    --------         --------
       Total Home Equity ..                          636,120          593,312
Home Improvement ...............................       4,046            7,919
Commercial Real Estate .........................       6,263            8,233
Auto ...........................................      69,804           28,223
Leases .........................................       4,615            8,960
Franchise ......................................       1,164            2,138
                                                    --------         --------
       Total ESR Portfolio                          $722,012         $648,785
                                                    ========         ========

ESR fair value assumptions

The Company has, from time to time, completed sales of ESR as either sales with
limited recourse or Net Interest Margin Securities ("NIMS") sales. Nevertheless,
there is only a limited market for the sale of ESR. Consequently, the Company
estimates the fair value of ESR through the application of a discounted cash
flow analysis, which requires the use of various assumptions. A significant
factor affecting the level of estimated future ESR cash flows is the rate at
which the underlying principal of the securitized loans is reduced. Prepayments
represent principal reductions in excess of contractually scheduled reductions;
prepayment speeds are generally expressed as an annualized Conditional (or
Constant) Prepayment Rate ("CPR"). Estimated future CPR is a significant

                                       71
<PAGE>

                           CONTIFINANCIAL CORPORATION
                   Notes to Consolidated Financial Statements
                          March 31, 1999, 1998 and 1997
                (in thousands, except share data and where noted)

assumption in the determination of ESR fair value. Additional assumptions
include estimated future credit losses and the discount rate.

The Company continuously monitors the fair value of ESR and reviews the factors
expected to influence future CPR and credit losses. In developing assumptions
regarding estimated future CPR, the Company considers a variety of factors, many
of which are interrelated. These include, among other things, historical
performance, characteristics of borrowers (e.g. credit quality and loan-to-value
relationships) and market factors that influence competition. If changes in
assumptions regarding estimated future CPR or credit losses are necessary, ESR
fair value is adjusted accordingly.

Assumptions regarding future CPR and credit losses are subject to volatility
that could materially affect operating results. Both the amount and timing of
estimated ESR cash flows are dependent on the performance of the underlying
loans, and actual cash flows may vary significantly from expectations. If actual
prepayments or credit losses were to exceed the assumptions used to determine
ESR fair value, the ESR carrying value would be reduced through a charge to
earnings, which could cause the Company to report losses in future periods.
Similarly, actual prepayments or credit losses that are less than the
assumptions used to determine ESR fair value could result in an increase in ESR
carrying value and earnings in future periods. See further discussion under "ESR
Fair Value Adjustments" below.

The following table presents historical data as well as estimated future CPR for
ContiMortgage/ContiWest related ESR, which represent 85% of the Company's total
ESR value at March 31, 1999.

<TABLE>
<CAPTION>
                                                                 REMICs by Year of Issue (a)
                                                                 ---------------------------
                                                                    (dollars in millions)
                                            1995 and
                                             earlier      1996         1997          1998           1999        Total
                                             -------      ----         ----          ----           ----        -----
<S>                                         <C>          <C>          <C>           <C>            <C>         <C>
Pool balances:
   Original ..............................  $2,368       $2,030       $3,454        $6,150         $6,099      $20,101
   At March 31, 1999 .....................  $  510       $  582       $1,323        $3,899         $5,653      $11,967
Fair value of ESR ........................  $   22       $   30       $   64        $  224         $  271      $   611
CPR:
   Actual life-to-date ...................    24.5%        28.7%        31.9%         26.3%          10.0%        22.2%
   Estimated for the remaining
   pool over its estimated
   remaining life ........................    26.2%        27.1%        26.9%         27.9%          29.2%        28.3%
</TABLE>

(a) This table includes ContiMortgage/ContiWest REMICs, based on fiscal years
ended March 31.

In developing assumptions regarding estimated future CPR, the Company considers
a variety of factors, many of which are interrelated. The Company's CPR
assumptions are subject to review and potential adjustment each quarter. CPR, by
its nature, tends to be volatile, monthly variations in either direction may not
be indicative of longer term trends. These include, among other things,
historical performance, characteristics of borrowers, and market factors that
influence competition.

                                       72
<PAGE>

                           CONTIFINANCIAL CORPORATION
                   Notes to Consolidated Financial Statements
                          March 31, 1999, 1998 and 1997
                (in thousands, except share data and where noted)

The Company's weighted average assumption for estimated future CPR for
ContiMortgage/ContiWest REMICs was increased during fiscal 1999 from 27% to 28%.
In fiscal 1999, ESR fair value write-downs of $81.4 million were recorded
related to accelerated prepayment experience in the ContiMortgage/ContiWest ESR
portfolios. See "ESR Fair Value Adjustments" below.

Like prepayment assumptions, there are a variety of interrelated factors that
the Company considers in determining future credit loss assumptions, such as
historical experience, default frequency, loss severity and the length of the
foreclosure and liquidation process. The following table presents historical
credit loss information, as well as estimated future credit losses, for
ContiMortgage/ContiWest REMICs, including loans and properties purchased out of
the REMICs. Annual loss rates represent losses as a percentage of the average
loan principal outstanding for such year.

<TABLE>
<CAPTION>
                                                                                            1999                1998
                                                                                            ----                ----
<S>                                                                                     <C>                 <C>
Annualized Loss rates as a percentage of average pool balances:
---------------------------------------------------------------
   Weighted average life-to-date loss rate as of fiscal year end .....................          0.71%               0.47%
   Estimated loss rate over remaining REMIC lives ....................................          0.98%               0.62%

Aggregate losses as a percentage of original pool balances:
-----------------------------------------------------------
   Actual life-to-date (including losses on loans purchased out of REMICs) ...........          1.04%               0.51%
   Estimated over entire life (i.e., historical plus future losses) ..................          2.91%               1.84%
Estimated future credit losses (undiscounted) ........................................  $375 million        $185 million
</TABLE>

In fiscal 1999, ESR fair value write-downs of approximately $191 million were
recorded related to credit losses in ContiMortgage/ContiWest related ESR
portfolios. See "ESR Fair Value Adjustments" below.

The Company determines the discount rate utilized in determining fair value by
selecting a rate that it believes is commensurate with the risks involved. The
Company recognizes that the ESR discount rate when interacting with the other
two assumptions, loss and prepayment, is a "risk-adjusted" rate. In determining
this rate the Company considers many factors including a comparison to the
yields on other financial instruments with prepayment or credit risk. The future
cash flows estimated as of March 31, 1999 and March 31, 1998, taking into
consideration estimated prepayment rates and credit losses, were discounted at
rates of 12% and 10%, respectively, to arrive at the fair value amounts
presented in the accompanying Consolidated Balance Sheets. In fiscal 1999, ESR
fair value write-downs of $57.4 million were recorded related to the change in
discount rate from 10% to 12%. See "ESR Fair Value Adjustments" below for
further discussion.

ESR fair value adjustments

The Company recorded negative fair value adjustments included in gain on sale of
receivables of $328.7 million in fiscal 1999 and $63.3 million in fiscal 1998.
The fiscal 1998 fair value adjustments primarily reflected accelerated
prepayments in the ContiMortgage/ContiWest portfolio. The following table

                                       73
<PAGE>

                           CONTIFINANCIAL CORPORATION
                   Notes to Consolidated Financial Statements
                          March 31, 1999, 1998 and 1997
                (in thousands, except share data and where noted)

presents the components of the ESR fair value adjustments of $328.7 million
included in gain on sale of receivables for fiscal 1999:

           ESR Fair Value Adjustments for Fiscal 1999 (in thousands):

<TABLE>
<CAPTION>
                                                    ContiMortgage       Auto         Other          Total
                                                    -------------       ----         -----          -----
<S>                                                   <C>             <C>           <C>           <C>
Actual and future credit losses ..................    $(191,051)      $ (9,028)     $(12,078)     $(212,157)
Actual and future prepayments ....................      (81,380)            --            --        (81,380)
Change in discount rate ..........................      (52,198)        (2,885)       (2,349)       (57,432)
Changes in interest rates and other factors ......       26,280             --        (4,000)        22,280
                                                      ---------       --------      --------      ---------
          Total Fiscal 1999 ......................    $(298,349)      $(11,913)     $(18,427)     $(328,689)
                                                      =========       ========      ========      =========
</TABLE>

The Company believes its interest-only and residual certificates are fairly
valued at March 31, 1999 but can provide no assurances that future prepayment
and loss experience or changes in the required market discount rate will not
necessitate additional write-downs. Such write-downs would reduce the income of
future periods and could cause the Company to report net losses for such
periods.

Sensitivity of changes in ESR fair value assumption

If actual prepayments, credit losses or discount rate are greater than the
assumptions used to determine ESR fair value, the ESR carrying value will be
written down through a charge to earnings. Given the size of
ContiMortgage/ContiWest's servicing portfolio, even a modest change in ESR fair
value assumptions can have a relatively large impact on ESR fair value. The
table below illustrates the impact of a positive or negative change in a single
assumption used to determine fair value for ContiMortgage/ContiWest related ESR
while keeping the absolute value of the other two assumptions constant. The
impact of changes in these assumptions are not linear. As of March 31, 1999,
changes in the assumptions would have approximately the following impact on fair
value:

   Factor                           Change                     Fair value impact
   ------                           ------                     -----------------
   Annual CPR                       +100 basis points          $(30 million)
   Annual CPR                       -100 basis points          $ 31 million
   Annual credit losses             + 10 basis points          $(32 million)
   Annual credit losses             - 10 basis points          $ 32 million
   Discount rate                    +100 basis points          $(25 million)
   Discount rate                    -100 basis points          $ 27 million

                                       74
<PAGE>

                           CONTIFINANCIAL CORPORATION
                   Notes to Consolidated Financial Statements
                          March 31, 1999, 1998 and 1997
                (in thousands, except share data and where noted)

6.     STOCKHOLDERS' EQUITY

On June 4, 1997, the Company completed a primary offering of 2,800,000 shares of
common stock; an additional 420,000 shares were issued to cover over-allotments.
The proceeds of the offering to the Company, net of expenses and underwriting
discount, were $100.8 million. The net proceeds were used for general corporate
purposes including funding loan originations and purchases, supporting
securitization transactions (including the retention of ESR), supporting other
working capital needs and financing certain strategic acquisitions. The offering
reduced Continental Grain's ownership of the Company from 81% to 75% and caused
the vesting of certain outstanding employee stock options.

The following table presents a reconciliation of basic and diluted earnings
(loss) per common share.

<TABLE>
<CAPTION>
                                                                         Year ended March 31,
                                                                --------------------------------------
                                                                    1999          1998         1997
                                                                -----------   -----------  -----------
<S>                                                             <C>           <C>          <C>
Net income (loss) ............................................  $  (426,257)  $   134,304  $   106,004
                                                                ===========   ===========  ===========
Basic weighted average number of
  shares outstanding .........................................   46,283,940    46,330,810   43,361,253
Adjustments for dilutive shares outstanding:
  Restricted shares ..........................................           --       194,190      246,576
  Options ....................................................           --       467,449      544,514
                                                                -----------   -----------  -----------
Diluted weighted average number of
  shares outstanding .........................................   46,283,940    46,992,449   44,152,343
                                                                ===========   ===========  ===========

Earnings (loss) per common share:
     Basic ...................................................  $     (9.21)  $      2.90  $      2.44
                                                                ===========   ===========  ===========
     Diluted .................................................  $     (9.21)  $      2.86  $      2.40
                                                                ===========   ===========  ===========
</TABLE>

For the year ended March 31, 1999, diluted earnings per share equals basic
earnings per share, as the dilutive calculation would have an antidilutive
impact as a result of the net loss incurred in that fiscal year. Options to
purchase 295,000 and 347,319 shares of common stock, at weighted average strike
prices of $31.78 and $30.88, were outstanding during the third and fourth
quarters of fiscal 1998, respectively, but were not included in the computation
of diluted earnings per share, as they were antidilutive.

In February 1998, the Company's Board of Directors authorized the purchase of up
to one million shares of the Company's outstanding common stock. During fiscal
1998, the Company repurchased 193,700 shares at an average cost of $29.07 per
share. During fiscal 1999, the Company purchased 806,300 shares at an average
cost of $27.35 per share, completing the authorized one million share
repurchase. The purchased shares are held in treasury for use in connection with
ContiFinancial's 1995 Long-Term Stock Incentive Plan (the "Stock Plan").

                                       75
<PAGE>

                           CONTIFINANCIAL CORPORATION
                   Notes to Consolidated Financial Statements
                          March 31, 1999, 1998 and 1997
                (in thousands, except share data and where noted)

7.     ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses and related additions and deductions to the
allowance for the years ended March 31, 1999, 1998 and 1997, were as follows:

<TABLE>
<CAPTION>
                 Balance at                                            Reversals
Year Ended        Beginning    Acquired from    Additions Charged         and        Balance at End
 March 31,         of Year     Acquisitions        to Expenses        Charge-offs       of Year
----------       ----------    -------------    -----------------     -----------    --------------
<S>                <C>            <C>                 <C>               <C>             <C>
1999               $2,685         $   --              $6,215            $(1,536)        $7,364
1998                3,747            654               5,668             (7,384)         2,685
1997                1,824          1,547               3,043             (2,667)         3,747
</TABLE>

8.     ACQUISITIONS

On November 8, 1996, the Company purchased 100% of the outstanding stock of
California Lending Group, Inc., d/b/a United Lending Group ("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 ContiMortgage purchased 100% of Royal Mortgage Partners,
L.P., d/b/a Royal MortgageBanc ("Royal"), a California-based broker 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
Financial Corporation ("Triad"), an additional 2.5% of the common stock in
January 1997 and the remaining 44% of the common stock in March 1998. Triad is a
California-based auto finance company specializing in origination of non-prime
auto finance contracts for used and new vehicles. Subsequent to March 31, 1999,
the Company sold its interest in Triad. See Note 16 for further discussion.

On December 16, 1996, ContiMortgage purchased 100% of the outstanding stock of
Resource One Consumer Discount Company, Inc. ("Resource One"), a
Pennsylvania-based home equity lender specializing in retail origination via
direct mail, television and telemarketing.

On October 1, 1997, ContiMortgage purchased 100% of the equity of Fidelity
Mortgage Decisions Corporation ("Fidelity"). Fidelity, headquartered in
Lincolnshire, Illinois, is a correspondent and retail originator of fixed and
adjustable rate home equity loans.

On January 8, 1998, ContiMortgage purchased 100% of the equity of Crystal
Mortgage Company, Inc. ("Crystal") and its subsidiary Lenders M.D., Inc.
("Lenders"). Crystal is a retail mortgage broker, and Lenders is a mortgage
bank. Both Crystal and Lenders are based in Amherst, Ohio, and work together to
originate conforming and non-conforming mortgage loans.

In April 1998, the Company acquired, for approximately $18.0 million, a 75%
interest in Keystone Mortgage Partners L.L.C. ("Keystone"). Keystone is a broker
and servicer of commercial mortgage loans, primarily to the insurance industry,
but does not take principal risk.

                                       76
<PAGE>

                           CONTIFINANCIAL CORPORATION
                   Notes to Consolidated Financial Statements
                          March 31, 1999, 1998 and 1997
                (in thousands, except share data and where noted)

In January 1999, ContiMortgage acquired a branch network for a purchase price of
approximately $4.8 million, consisting of the forgiveness of a note receivable
and assumption of certain debt.

ULG, Royal, Triad, Resource One, Fidelity, Crystal, Keystone and the branch
network are collectively referred to as the "Acquisitions". These transactions
have been accounted for as purchases, and the results of operations have been
included in the Company's results of operations since the effective acquisition
dates. The aggregate purchase price of the Acquisitions during fiscal 1999, 1998
and 1997 was approximately $25,000, $11,000 and $38,000, respectively. As a
result of the Acquisitions, approximately $34,000, $9,000 and $35,000 of cost in
excess of equity acquired was recorded during fiscal 1999, 1998 and 1997,
respectively, which is being amortized on a straight-line basis over periods not
to exceed 25 years, based on the nature of the business acquired. Certain
acquisitions' terms provide for payments which are contingent upon future
earnings or employment of key management. Such contingent payments are recorded
as additions to cost in excess of equity acquired or compensation, as is
appropriate.

On December 5, 1997, the Company acquired, for approximately $30,000, 24% of the
equity of EFHC. EFHC owns 100% of Empire Funding Corp. ("Empire"). Empire,
headquartered in Austin, Texas, originates, services and securitizes high
loan-to-value home improvement loans. The Company's appropriate share of EFHC's
results of operations have been included in the Company's Consolidated
Statements of Income in "Other Income" beginning December 5, 1997. In the second
half of fiscal 1999, the investment and related goodwill totaling $27,653 was
written off as a result of impairment and is reflected in Other charges in the
accompanying Consolidated Statements of Income. See Note 4 for further
discussion.

During fiscal 1998, the Company made other equity investments in unconsolidated
subsidiaries totaling approximately $15,000.


9.     RELATED PARTY TRANSACTIONS

Due from Affiliates

Due from affiliates primarily consists of subordinated loans, financed
residuals, receivables related to hedge reimbursement, receivables for margin
call advances and related interest receivable. During the year ended March 31,
1999, certain amounts were deemed uncollectible, resulting in a charge of
$70,618 which has been reflected in Other charges in the Company's Consolidated
Statements of Income (see Note 4).

Due to Affiliates

On February 14, 1996, Continental Grain and the Company entered into a 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) governed the conduct of all audits and
other tax matters relating to the Company. Pursuant to the Tax Sharing
Agreement, for each jurisdiction that a consolidated or combined return was
filed with Continental Grain, the Company was charged or credited for its

                                       77
<PAGE>

                           CONTIFINANCIAL CORPORATION
                   Notes to Consolidated Financial Statements
                          March 31, 1999, 1998 and 1997
                (in thousands, except share data and where noted)

respective 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 income tax return computed in accordance with that
jurisdiction's prevailing income tax laws and regulations as applied to the
Company as if it were a separate taxpayer. Effective June 4, 1997, upon the
completion of the primary offering of common stock, Continental Grain's
ownership of the Company decreased from 81% to 75%. Consequently, from that
date, the Company was no longer included in Continental Grain's consolidated
U.S. Federal income tax return, however, the Company does continue to file
certain consolidated or combined state returns with Continental Grain. Due to
affiliates of $8,918 as reflected in the accompanying Consolidated Balance
Sheets as of March 31, 1999 primarily represents amounts payable to Continental
Grain under the Tax Sharing Agreement.

Affiliate Charges

On February 14, 1996, the Company entered into an agreement with Continental
Grain (the "Services Agreement") under which Continental Grain provides the
Company with certain corporate services through March 31, 1999 and on a
year-to-year basis thereafter.

Continental Grain incurs certain general and administrative expenses on behalf
of the Company. Expenses directly attributable to the Company, such as occupancy
and communication charges, are directly charged to the Company. The
determination of other general and administrative expenses incurred by
Continental Grain and 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 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. The amount of such indirect expenses charged to the Company was
$2,060, $2,138 and $1,749 for the years ended March 31, 1999, 1998 and 1997,
respectively. 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 requires a payment of approximately $1,229 through February
2000.

Subservicing Agreement

On November 1, 1998, ContiMortgage (the "Servicer"), Continental Grain and
Manufacturers and Traders Trust Company (the "Trustee") entered into a
subservicing agreement (the "Subservicing Agreement"). Pursuant to the
Subservicing Agreement, Continental Grain, as subservicer, agrees to advance to
the Trustee on each monthly remittance date an amount equal to the delinquency
advance, if any, that is required to be made by the Servicer under the Pooling
and Servicing Agreements related to certain ContiMortgage/ContiWest
securitizations, but not in excess of $85 million of aggregate outstanding
advances. As compensation for this service, Continental Grain is entitled to
receive a subservicing fee. The amount paid by the Servicer to Continental Grain
was $582 for the year ended March 31, 1999.

In May 1999, Continental Grain extended a short-term warehouse financing
facility to the Company for a maximum amount of $60.0 million. Availability
under the facility is subject to a combined maximum amount of $85 million of
this facility and the servicer advances facility under the Subservicing
Agreement.

                                       78
<PAGE>

                           CONTIFINANCIAL CORPORATION
                   Notes to Consolidated Financial Statements
                          March 31, 1999, 1998 and 1997
                (in thousands, except share data and where noted)

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 permitted 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 was allocated to the Company based on the actual
cost of benefit accruals and an allocated cost of administration of the plans
and overhead. Effective April 1, 1998, the Company discontinued its
participation in the Continental Grain health care plan and obtained independent
coverage, and effective July 1, 1998, the Company discontinued participation in
the Continental Grain pension plan (see Note 11).


10.     DEBT

Short-term and long-term debt at March 31, 1999 and 1998 consisted of the
following:

<TABLE>
<CAPTION>
                                                                                March 31,        March 31,
                                                                                  1999             1998
                                                                                --------         --------
<S>                                                                             <C>              <C>
Short-term debt:
   Commercial paper .......................................................     $312,477         $270,708
   Revolving Credit Facility ..............................................      200,000           95,000
   Current portion of long-term debt ......................................          320              396
                                                                                --------         --------

Total short-term debt .....................................................     $512,797         $366,104
                                                                                ========         ========

Long-term debt:
   8 3/8% Senior Notes, $300 million face amount, due 2003 ................     $299,405         $299,295
   7 1/2% Senior Notes, $200 million face amount, due 2002 ................      199,547          199,412
   8 1/8% Senior Notes, $200 million face amount, due 2008 ................      199,792               --
   Capitalized lease ......................................................          481              846
                                                                                --------         --------
Total long-term debt ......................................................     $699,225         $499,553
                                                                                ========         ========
</TABLE>

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.

On March 12, 1997, the Company issued $200 million of unsecured senior notes
(the "7 1/2% Senior Notes") due March 15, 2002. 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.

                                       79
<PAGE>

                           CONTIFINANCIAL CORPORATION
                   Notes to Consolidated Financial Statements
                          March 31, 1999, 1998 and 1997
                (in thousands, except share data and where noted)

On April 2, 1998, the Company issued $200 million of unsecured senior notes (the
"8 1/8% Senior Notes) due April 1, 2008 (together with the 8 3/8% Senior Notes
and the 7 1/2% Senior Notes, the "Senior Notes"). Proceeds to the Company, net
of underwriting fees, market discount and other costs, were $188,264. Interest
on these notes is payable semi-annually on April 1 and October 1 commencing
October 1, 1998. The Senior Notes are redeemable in 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.

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 "Revolving Credit Facility"). The three-year Revolving Credit
Facility has several interest rate pricing alternatives, including the prime
rate, London Inter-Bank Offered Rates ("LIBOR") and federal funds rate. The
amount available under the Revolving Credit Facility is formula-driven, based on
certain of the Company's consolidated assets. The weighted average interest rate
on the Revolving Credit Facility was 6.68% and 6.57% for fiscal 1999 and 1998,
respectively, and the rate in effect on March 31, 1999 was 7.36.%.

On September 9, 1997, the Company initiated a $275 million one year renewable
unsecured Commercial Paper Program ("Commercial Paper Program") backed by an
irrevocable direct-pay letter of credit that is being provided by a syndicate of
banks. On August 21, 1998, the Company increased its Commercial Paper Program
from $275.0 million to $317.5 million. The weighted average interest rate on the
Commercial Paper Program was 5.42% and 5.62% for fiscal 1999 and 1998,
respectively, and the rate in effect on March 31, 1999 was 4.92%.

The Company is required to comply with various financial covenants under its
outstanding Senior Notes, Revolving Credit Facility and Commercial Paper
Program, as well as under certain provisions of two of the Repurchase
Agreements, including, among other things, leverage ratios, minimum net worth
tests and interest coverage ratios. As of December 31, 1998 and continuing
through March 31, 1999, the Company's leverage ratio exceeded the leverage ratio
test under the covenants of its outstanding Senior Notes. As a result, the
Company is prevented from issuing additional unsecured debt until its leverage
ratio is below such test. As of December 31, 1998, the Company and two of its
lenders agreed to amend certain provisions of the Repurchase Agreements.
Amendments were received from the Repurchase Agreement lenders changing the
leverage ratio to 2.75 to 1. These Repurchase Agreements were again amended as
of March 31, 1999. One agreement was amended to remove all financial covenants
through August 20, 1999, while the other removed the financial covenants to the
maturity date of the facility of July 1, 1999. As of December 31, 1998, amended
financial covenants were also received changing the leverage and fixed charge
ratios and the minimum net worth test in the Bank Facilities, and lenders agreed
to exclude certain charges from the covenant ratio calculations. As of March 31,
1999 the Bank Facilities and certain of the Warehouse Facilities amended the
related agreements to eliminate the financial covenants and borrowing base
provisions, among other things. As part of the bank amendment, the Company
agreed to reduce commitments under the Bank Facilities by 75% of the total
proceeds received by the Company for the sale of Triad. On June 11, 1999, the
sale of Triad was closed, and the Bank Facilities commitments were reduced by
approximately $95 million. If the above mentioned amendments had not been
obtained, the Company would not have been in compliance with the covenants. The
Company was in compliance with the amended covenants of the Revolving Credit


                                       80
<PAGE>

                           CONTIFINANCIAL CORPORATION
                   Notes to Consolidated Financial Statements
                          March 31, 1999, 1998 and 1997
                (in thousands, except share data and where noted)

Facility, the Commercial Paper Program and the Repurchase Agreements as of March
31, 1999. As part of the December amendments to the Revolving Credit Facility,
the Company has agreed to prepay the Revolving Credit Facility on August 20,
1999, which makes the Revolving Credit Facility coterminous with the Commercial
Paper Program. As part of the March amendments, the interest rates of the
Revolving Credit Facility and the Commercial Paper Program were increased to
LIBOR plus 300 basis points.


11.     EMPLOYEE BENEFITS

Effective July 1, 1998, the Company adopted the ContiFinancial Employee Savings
Plan and discontinued its participation in the Continental Grain pension plan.
The pension benefits accrued to employees from the Continental Grain pension
plan were transferred to the ContiFinancial Retirement Annuity Plan ("qualified
plan") and the newly adopted Supplemental Retirement Plan ("SERP"). The accrual
of additional benefits ceased under the qualified plan and continued to accrue
under the SERP for certain employees.

The accumulated benefit obligation and the fair value of the plan assets for the
qualified plan at March 31, 1999 were $3,405 and $3,596, respectively. The
accumulated benefit obligation at March 31, 1999 for the SERP, which is
currently unfunded, was $386.

For the year ended March 31, 1999, costs for the Supplemental Retirement plan
were $283. Under the Continental Grain pension plan, the Company reimbursed
Continental Grain for the actual cost of benefit accruals and an allocable cost
of administration and overhead. Pension costs charged to the Company by
Continental Grain were $465 and $374 for the years ended March 31, 1998 and
1997, respectively. For the year ended March 31, 1999, costs for the
ContiFinancial Employee Savings Plan were $3,811.

In fiscal 1997, post-retirement health care coverage under Continental Grain's
Salaried Health Care Plan was available on a cost sharing basis to retired
employees. Post-retirement health care costs were $419 for fiscal 1997. The
Company's participation in this plan ceased in 1998 and, consequently, no
post-retirement health care costs were expensed during the years ended March 31,
1998 and 1999.

The Company has in effect an incentive compensation program which is a formula
plan based on pretax income targets. In fiscal 1999, there was a discretionary
bonus plan. Incentive compensation for the years ended March 31, 1999, 1998 and
1997 was $6,169, $31,252 and $24,580, 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 $3,609 and $200 in expense for this plan for the
years ended March 31, 1998 and 1997, respectively. No expense was recorded in
fiscal 1999.

1995 Long-Term Stock Incentive Plan

The Company has adopted the Stock Plan pursuant to which the Company is
authorized to grant certain key employees 5,437,895 of options and restricted
stock. In fiscal 1999, 1998 and 1997, the Company granted stock options and
restricted stock under the Stock Plan as shown in the tables below.

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

                                       81
<PAGE>

                           CONTIFINANCIAL CORPORATION
                   Notes to Consolidated Financial Statements
                          March 31, 1999, 1998 and 1997
                (in thousands, except share data and where noted)

fully adopted, SFAS 123 would have changed the method for measurement and
recognition of stock-based compensation on plans similar to those of the
Company. As permitted, the Company elected not to adopt the accounting
prescribed by SFAS 123. However, as required, the Company has adopted the
disclosure requirements of SFAS 123. Pro forma disclosures as if the Company had
adopted the expense recognition requirements under SFAS 123 are presented below.

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 three to 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, 1999,
1998 and 1997 and the changes during the respective years is presented below:

<TABLE>
<CAPTION>
                                             March 31, 1999                    March 31, 1998                 March 31, 1997
                                      ----------------------------      ---------------------------     -------------------------
                                                       Weighted                        Weighted                        Weighted
                                                       Average                         Average                         Average
                                      Shares        Exercise Price      Shares       Exercise Price     Shares     Exercise Price
                                      ------        --------------      ------       --------------     ------     --------------
<S>                                 <C>                 <C>           <C>               <C>            <C>             <C>
Outstanding at
  beginning of year ............    3,428,815           $22.91        2,484,730         $21.41         2,623,500       $21.11
Granted ........................      811,400             6.24        1,053,500          26.38            50,000        35.63
Exercised ......................           --               --          (47,204)         21.11           (11,382)       21.11
Forfeited ......................     (162,791)           24.46          (62,211)         22.70          (177,388)       21.11
                                    ---------                         ---------                        ---------
Outstanding at end of
  year .........................    4,077,424           $19.50        3,428,815         $22.91         2,484,730       $21.41
                                    =========                         =========                        =========
Options exercisable at
  end of year ..................    2,601,981           $20.33        1,903,252         $21.38           491,946       $21.26
                                    =========                         =========                        =========
</TABLE>

The fair value of each option granted during fiscal 1999, 1998 and 1997 was
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
of 94.45% for fiscal 1999, 39.70% for fiscal 1998 and 49.75% for fiscal 1997,
(3) risk-free interest rate of 4.50% for fiscal 1999, 5.85% for fiscal 1998 and
6.32% for fiscal 1997, and (4) expected life of 3.5 years. The weighted average
fair value of options granted during fiscal 1999, 1998 and 1997 was $4.07, $9.63
and $15.33, respectively.

Had compensation cost for the Company's fiscal 1999, 1998 and 1997 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 1999, 1998 and
1997 would be:

                                       82
<PAGE>

                           CONTIFINANCIAL CORPORATION
                   Notes to Consolidated Financial Statements
                          March 31, 1999, 1998 and 1997
                (in thousands, except share data and where noted)

<TABLE>
<CAPTION>
                                            March 31, 1999                March 31, 1998                  March 31, 1997
                                       ------------------------      -------------------------      -------------------------
                                       As Reported    Pro Forma      As Reported     Pro Forma      As Reported     Pro Forma
                                       -----------    ---------      -----------     ---------      -----------     ---------
<S>                                     <C>           <C>             <C>            <C>             <C>            <C>
Net income (loss) ..................    $(426,257)    $(430,275)      $134,304       $131,540        $106,004       $99,730
Net income (loss) per common
share:
        Basic ......................       $(9.21)       $(9.30)         $2.90          $2.84           $2.44         $2.30
        Diluted ....................       $(9.21)       $(9.30)         $2.86          $2.80           $2.40         $2.25
</TABLE>

Restricted stock granted under the Stock Plan is recorded as deferred
compensation in the accompanying Consolidated Statements of Changes 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.
In connection with amortization of deferred compensation, the Company recorded
compensation expense of $7,090, $5,440 and $6,721 in fiscal 1999, 1998 and 1997,
respectively.

A summary of the status of the Company's restricted stock as of March 31, 1999,
1998 and 1997 and the changes during those years is presented below:

<TABLE>
<CAPTION>
                                             March 31, 1999                    March 31, 1999                 March 31, 1999
                                      ----------------------------      ---------------------------     -------------------------
                                                       Weighted                        Weighted                        Weighted
                                                       Average                         Average                         Average
                                      Shares        Exercise Price      Shares       Exercise Price     Shares     Exercise Price
                                      ------        --------------      ------       --------------     ------     --------------
<S>                                 <C>                 <C>           <C>               <C>            <C>              <C>
Outstanding at
  beginning of year .............   1,253,168           $21.36        1,245,551         $21.07         1,330,532        $21.00
Granted .........................      99,405            30.94           36,400          30.99             6,000         35.63

Forfeited .......................      (2,065)           30.94          (15,978)         21.00           (33,931)        21.00
Vested and transferable .........     (28,290)           21.69          (12,805)         21.00           (57,050)        21.00
                                    ---------                         ---------                        ---------
Outstanding at end
  of year .......................   1,322,218           $22.06        1,253,168         $21.36         1,245,551        $21.07
                                    =========                         =========                        =========
</TABLE>

                                       83
<PAGE>

                           CONTIFINANCIAL CORPORATION
                   Notes to Consolidated Financial Statements
                          March 31, 1999, 1998 and 1997
                (in thousands, except share data and where noted)

12.     INCOME TAXES

Provision (benefit) for income taxes included in the Consolidated Statements of
Income represent the following:

                                           Current       Deferred       Total
                                           -------       --------       -----
Year ended March 31, 1999
   Federal .............................   $17,526      $(72,101)     $(54,575)
   State and local .....................     2,571       (15,506)      (12,935)
                                           -------      --------      --------
                                           $20,097      $(87,607)     $(67,510)
                                           =======      ========      ========
Year ended March 31, 1998
   Federal .............................   $15,687      $ 59,608      $ 75,295
   State and local .....................     3,013        12,841        15,854
                                           -------      --------      --------
                                           $18,700      $ 72,449      $ 91,149
                                           =======      ========      ========
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
                                           =======      ========      ========

The following table reconciles the "expected" tax provision, computed by
applying the U.S. Federal statutory tax rate to income (loss) before income
taxes and minority interest, to the Company's actual effective tax rate and
expense:

<TABLE>
<CAPTION>
                                                   March 31, 1999                  March 31, 1998              March 31, 1997
                                            -----------------------------    -------------------------   -------------------------
                                                          Percent of Pre-              Percent of Pre-             Percent of Pre-
                                              Amount       Tax Earnings       Amount    Tax Earnings      Amount    Tax Earnings
                                              ------      ---------------     ------   ---------------    ------   ---------------
<S>                                         <C>               <C>            <C>           <C>           <C>            <C>
Computed "expected" tax provision ........  $(172,765)         35.0%         $78,738       35.0%         $61,963        35.0%
State and local taxes, net of Federal
   income tax effect .....................    (21,803)          4.4%          10,236        4.6%           8,055         4.6%
Goodwill and other equity write-
   downs not deductible for tax ..........      6,948          (1.4)%          1,078         .5%             440          .2%

Valuation allowance ......................    115,325         (23.4)%             --         --               --          --
Other ....................................      4,785          (1.0)%          1,097         .5%             883          .5%
                                             --------          ----          -------       ----          -------        ----
   Total .................................   $(67,510)         13.6%         $91,149       40.6%         $71,341        40.3%
                                             =========         ====          =======       ====          =======        ====
</TABLE>

                                       84
<PAGE>

                           CONTIFINANCIAL CORPORATION
                   Notes to Consolidated Financial Statements
                          March 31, 1999, 1998 and 1997
                (in thousands, except share data and where noted)

The effects of temporary differences that give rise to deferred tax assets and
deferred tax liabilities are as follows:

<TABLE>
<CAPTION>
                                                                                      March 31,
                                                                         ----------------------------------
                                                                          1999           1998        1997
                                                                         ---------    ---------    --------
<S>                                                                      <C>          <C>          <C>
Deferred Tax Assets:
   Interest-only and residual certificates ...........................   $  23,313    $      --    $     --
   Reserves not currently deductible .................................      73,689        5,268       1,069
   Compensation related ..............................................       7,929        4,985       5,136
   Net operating loss carryforwards ..................................      40,534           --          --
   Other .............................................................          --        1,874       2,776
Deferred Tax Liabilities:
   Capitalized servicing rights ......................................     (27,777)     (25,986)    (11,081)
   Interest-only and residual certificates ...........................          --      (73,531)    (12,942)
   Other .............................................................      (2,363)        (217)       (115)
                                                                         ---------    ---------    --------
Net deferred tax asset (liability) before valuation
allowance ............................................................     115,325      (87,607)    (15,157)
Valuation allowance ..................................................    (115,325)          --          --
                                                                         ---------    ---------    --------
Net deferred tax asset (liability) ...................................   $      --    $ (87,607)   $(15,157)
                                                                         =========    =========    ========
</TABLE>

Due to the Company's ownership of REMIC residual certificates, the current
Federal income tax provision for the fiscal year ended March 31, 1999 is based
on excess inclusion generated by the ownership of these certificates.

The Company expects a Federal income tax refund of approximately $11 million as
a result of carrying back a tax loss from its year ended March 31, 1999 to March
31, 1998. After the carryback, the Company will have net operating loss
carryforwards of approximately $107 million expiring in years 2004 through 2019.

SFAS No. 109 requires that deferred tax assets be reduced by a valuation
allowance if it is more likely than not that some portion of the deferred tax
assets will not be realized. The Company has provided a valuation allowance for
the entire amount of the net deferred tax asset since it is more likely than not
that the net deferred tax asset will not be realized.


13.     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, 1999, 1998 and 1997 was $14,558, $8,595
and $3,470, 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 Company's operating and capital leases, are as
follows:

                                       85
<PAGE>

                           CONTIFINANCIAL CORPORATION
                   Notes to Consolidated Financial Statements
                          March 31, 1999, 1998 and 1997
                (in thousands, except share data and where noted)

                                       Operating               Capital
Fiscal Year                              Leases                 Leases
-----------                            ---------               -------
2000 ...............................   19,263                    384
2001 ...............................   15,064                    287
2002 ...............................   11,252                    143
2003 ...............................    8,462                    104
2004 ...............................    4,757                     --
Thereafter .........................   25,670                     --
                                      -------                   ----
 ....................................  $84,468                   $918
                                      =======
Less: amounts
representing interest ..............                            (116)
                                                                ----
Present value of net
 minimum lease payments ............                             802
Less: current maturities ...........                            (320)
                                                                ----
Long-term obligation ...............                            $482
                                                                ====

Whole Loan Sale Agreement

In January 1999, ContiMortgage entered into a two year agreement with a
financial institution to sell a base commitment amount of $1.1 billion in fiscal
2000 and $1.0 billion in fiscal 2001 of home equity loans at prices adjusted
monthly based on floating market yields. The amount required to be sold under
the agreement may be less than the base commitment amount if the Company's
monthly production volume of qualifying loans falls below a specified level.

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.


14.     FINANCIAL INSTRUMENTS AND OFF-BALANCE SHEET ACTIVITIES

Sales of Assets with Recourse

During fiscal 1999, 1998 and 1997, the Company utilized agreements with
financial institutions (the "Purchasers") to sell, with limited recourse,
interests in designated pools of 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

                                       86
<PAGE>

                           CONTIFINANCIAL CORPORATION
                   Notes to Consolidated Financial Statements
                          March 31, 1999, 1998 and 1997
                (in thousands, except share data and where noted)

sale amounts. The agreements are guaranteed by the Company. The Company monitors
its exposure associated with these agreements and records recourse provisions as
necessary. During fiscal 1999, 1998 and 1997, the Company utilized these
agreements to sell receivables totaling approximately $13,315,694, $12,836,121
and $7,350,000, respectively. At March 31, 1999 and 1998, approximately $715,000
and $758,000, respectively, were outstanding and reflected as reductions in
Receivables held for sale in the Consolidated Balance Sheets.

During fiscal 1997 and prior years, the Company sold, with limited recourse,
interests in certain ESR for $201,045. At March 31, 1999 and 1998, $22,621 and
$100,867, respectively, of such sales were outstanding and reflected as
reductions in Interest-only and residual certificates in the accompanying
Consolidated Balance Sheets. 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.

Hedging Interest Rate Risk

One of the most significant variables in the determination of gain (loss) on
sale of receivables is the spread between the weighted average coupon on the
portfolio of loans to be sold or securitized (the "Portfolio Rate") and the
weighted average pass-through rate or yield to be paid to the purchasers of the
securities or whole loans (the "Pass-through Rate"). In the interim period
between the loan commitment and the securitization or sale of such loans (the
"Warehousing Period"), the Company is exposed to interest rate risk because the
Portfolio Rate is fixed as of the loan commitment dates, but the Pass-through
Rate is not fixed until the pricing of the securitization or sale. If market
interest rates were to rise during the Warehousing Period, the spread between
the Portfolio Rate and the Pass-through Rate would narrow, and the market value
of the loans would decline.

Through the end of the third quarter of fiscal 1999, the Company mitigated this
interest rate exposure primarily through short sales of U.S. Treasury securities
and U.S. Treasury interest rate futures contracts. These instruments were used
because the Pass-through Rates on the securities are established as a spread
over the U.S. Treasury yield for a comparable maturity. This hedging strategy
was effective to the extent that the Pass-through Rates required by investors
moved in sync with U.S. Treasury yields, which had been the case historically.
However, during a "flight-to-quality" that occurred during the second and third
quarters of fiscal 1999, the relationship between Pass-through Rates and U.S.
Treasury yields broke down, and the Company incurred significant losses because
it lacked the liquidity to meet the ongoing margin calls necessary to maintain
its hedge positions until prior market relationships were restored. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

The Company revised its hedging strategy in the fourth quarter of fiscal 1999.
The Company now manages its hedge positions by using a combination of Eurodollar
futures, U.S. Treasury securities, financial futures contracts and options on
U.S. Treasury instruments. Recent research has shown that changes in interest
rate swap levels are more positively correlated to the changes in market yields
for the Company's assets than U.S. Treasury securities because of the liquidity
premium attached to U.S. Treasury securities. The use of interest rate swaps is
designed to reduce the Company's exposure to both the absolute movements in U.S.
Treasury yields and the widening in the spread relationship between the
Company's assets and U.S. Treasury yields. Since executing individual swap
contracts to match the volume fluctuations and amortization of the Company's
underlying assets is cumbersome, expensive and involves counterparty risk, the
Company sells a series of Eurodollar futures contracts that match the amount and
timing of the projected cash flows on the assets to be hedged. This transaction
is designed to approximate the economics of an interest rate swap. In addition,
the Company uses options on U.S. Treasury instruments to hedge its assets
against wide swings in rates.

                                       87
<PAGE>

                           CONTIFINANCIAL CORPORATION
                   Notes to Consolidated Financial Statements
                          March 31, 1999, 1998 and 1997
                (in thousands, except share data and where noted)

The Company only hedges a portion of its total exposure to interest rate risk;
consequently, even if the hedging strategy works as intended, the Company would
still incur net losses to the fair value of its interest rate sensitive assets
in a rising interest rate environment. Even to the extent that the Company does
hedge its interest rate exposure, there can be no assurances provided that the
Company's hedging strategy will produce the intended results.

The Company accounts for its positions using the hedge method of accounting.
Positions are designated as hedges against specific market exposures, and senior
management monitors the correlation between the change in market value of the
hedge instruments and the assets being hedged. Under the hedge method of
accounting, gains or losses on hedge instruments are recognized at the time the
gains or losses on the assets being hedged are recognized. In the event a high
degree of correlation is not maintained, the hedge instruments are then marked
to market. If a hedge instrument matures or is terminated prior to the maturity
or sale of the designated hedged asset or liability, the realized gain or loss
on the hedge instrument would be deferred until the maturity or sale of the
designated asset or liability. If a designated asset or liability matures or is
sold prior to the maturity or termination of the hedge instrument, the hedge
instrument would be marked to market at that time.

Unrealized hedge gains or losses related to the Company's warehouse and pipeline
positions are reflected in the Company's lower-of-aggregate-cost-or-market
evaluation of receivables held for sale and are ultimately recognized upon the
sale or securitization of the related receivables and included in gains or
losses on sales of receivables. Hedge gains or losses related to the Company's
ESR portfolio are recognized on a current basis in gains or losses on sales of
receivables because the ESR portfolio is recorded at fair value. Hedge
transactions are expected to occur within one year.

The short sales of U.S. Treasury securities and related purchase of securities
under agreements to resell are reflected on the accompanying Consolidated
Balance Sheets as Securities sold but not yet purchased and Securities purchased
under agreements to resell. Securities sold but not yet purchased are recorded
on a trade date basis and are carried at their sale amount. 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.

With respect to ContiMortgage/ContiWest securitizations and whole loan sales,
gain on sale included hedge losses of $27,330, $11,946 and $5,413 in fiscal
1999, 1998 and 1997, respectively. In fiscal 1999, hedge losses relating to the
commercial loan portfolio totaled $88,614, of which $80,574 was reflected in
Commercial real estate valuation adjustments and $8,040, relating to a
securitization, was included in gain on sale.


                                       88
<PAGE>

                           CONTIFINANCIAL CORPORATION
                   Notes to Consolidated Financial Statements
                          March 31, 1999, 1998 and 1997
                (in thousands, except share data and where noted)

The following table identifies the notional or contractual amounts and
unrealized gains (losses) in connection with hedging activities as of March 31,
1999 and 1998:

<TABLE>
<CAPTION>
                                                                        1999
                                                      -------------------------------------------
                                                                                      Unrealized
                                                       Assets      Liabilities        Gain/(loss)
                                                       ------      -----------        -----------
<S>                                                   <C>           <C>                 <C>
U.S. Treasury Futures Contracts                       $     --      $  245,700          $1,867
Eurodollar Futures                                          --       5,548,000              97
Put Options on U.S. Treasury Securities                228,000         279,250             863
Call Options on U.S. Treasury Securities                57,750          58,750             (58)

                                                                        1998
                                                      -------------------------------------------
                                                                                      Unrealized
                                                       Assets      Liabilities        Gain/(loss)
                                                       ------      -----------        -----------
U.S. Treasury Futures Contracts                       $     --        $543,200          $1,082
Short sales of  U.S. Treasury Securities                    --         815,060          (3,088)
</TABLE>

Fair Value of Financial Instruments

The following disclosures of fair value were determined by management using
available market information and appropriate valuation methodologies.
Considerable judgment is necessary to interpret market data and develop
estimated fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts the Company could realize on disposition
of the financial instruments. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts.

The Company's financial instruments recorded at contractual amounts that
approximate market or fair value primarily consist of securities purchased under
agreements to resell, receivables held for sale, other receivables, due from
affiliates, other assets (as to the components representing financial
instruments), accounts payable, securities sold but not yet purchased,
receivables sold under agreements to repurchase, due to affiliates, taxes
payable and receivable, other liabilities and, in fiscal 1998, short-term debt.
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. Interest-only and residual certificates are recorded at fair
value (see Note 5), and the carrying value of capitalized servicing also
approximated fair value at March 31, 1999 and 1998 (see Note 3).

The fair value of the Company's long-term debt, excluding capital leases, was
$519,063 based upon quoted market prices at March 31, 1999. The carrying value
of long-term debt at March 31, 1998 approximated fair value based on quoted
market prices. Due to the current financial condition of the Company and the
doubt as to the Company's ability to obtain financing, a determination of fair
value of the short-term debt could not be made as of March 31, 1999.

Although management is not aware of any factors that would significantly affect
the estimated fair value amounts, such amounts have not been comprehensively
revalued for the purposes of the accompanying Consolidated Financial Statements
since that date, and current estimates of fair value may differ significantly
from the amounts presented herein.


                                       89
<PAGE>

                           CONTIFINANCIAL CORPORATION
                   Notes to Consolidated Financial Statements
                          March 31, 1999, 1998 and 1997
                (in thousands, except share data and where noted)

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 and ESR sold with limited recourse.

The Company may utilize 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 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,
1998 and 1997, these instruments had a weighted average interest rate of 5.3%
and 5.1%, 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 90%. The CLTV represents the
combined first and second mortgage balances as a percentage of the appraised
value of 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, 1999 and 1998, the Company had outstanding commitments to extend
credit or purchase loans in the amount of $456,460 and $666,380, 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.

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, 1999, and
1998 the majority of loans with on-balance-sheet and off-balance-sheet credit
risk were collateralized by properties located throughout the United States.

Warehousing Exposure

The Company utilizes warehouse financing in the form of asset purchase and sale
facilities with certain financial institutions and funding agreements under


                                       90
<PAGE>

                           CONTIFINANCIAL CORPORATION
                   Notes to Consolidated Financial Statements
                          March 31, 1999, 1998 and 1997
                (in thousands, except share data and where noted)

agreements to repurchase, collectively the ("Warehouse Facilities") to
facilitate the accumulation of securitizable products prior to securitization or
sale. As of March 31, 1999 and 1998, the Company had $1,667,000, and $2,780,000
of committed warehousing, and $1,270,000 and $3,100,000 of uncommitted
warehousing, respectively. As of March 31, 1999 and 1998, $1,519,737 and
$1,003,747, respectively, was drawn down. Warehouse commitments are typically
for a term of one year or less and are designated to fund only securitizable
assets. The majority of the assets remain in the Warehouse Facilities for a
period of up to 90 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. As of July 13, 1999,
the Company had $642,000 and $1,365,000 of committed and uncommitted
warehousing, respectively.

Affiliate Warehouse Line

The Company has made margin advances to a warehouse lender on behalf of Red
Mountain Funding, LLC ("RMF"), an unconsolidated commercial mortgage affiliate
in which the Company owns a 48% equity interest. One of the Company's warehouse
facilities contains cross-default provisions that could be triggered in the
event RMF defaults on its warehouse line. In order to avoid the possibility of
being declared in default under its own credit facilities, the Company would
have to fund additional margin calls if required. Consequently, in addition to
the on-balance-sheet credit risk related to the outstanding margin advances, the
Company also has off-balance-sheet interest rate and credit risk related to the
entire outstanding balance of the RMF portfolio, net of reserves, which was $222
million at March 31, 1999. As of June 15, 1999, that exposure had been reduced
to $133 million as a result of loan sales.

15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

The following table presents the quarterly results of operations for the years
ended March 31, 1999 and 1998:

<TABLE>
<CAPTION>
                                                                         Three Months Ended
                                                       June 30,   September 30,   December 31,     March 31,
                                                         1998          1998           1998           1999
                                                     -----------   -----------    -----------    -----------
<S>                                                  <C>           <C>            <C>            <C>
Gross income ..................................      $   142,116   $    10,855    $   125,568    $   (25,348)
Net income (loss) .............................            6,020      (114,251)       (58,800)      (259,226)
Basic earnings (loss) per common share ........             0.13         (2.48)         (1.27)         (5.62)
Diluted earnings (loss) per common share ......      $      0.13   $     (2.48)   $     (1.27)   $     (5.62)
</TABLE>

<TABLE>
<CAPTION>
                                                                         Three Months Ended
                                                       June 30,   September 30,   December 31,     March 31,
                                                         1997          1997           1997           1998
                                                     -----------   -----------    -----------    -----------
<S>                                                  <C>           <C>            <C>            <C>
Gross income ..................................      $   134,023   $   158,130    $   177,255    $   190,754
Net income ....................................           26,873        34,837         35,140         37,454
Basic earnings per common share ...............             0.60          0.74           0.75           0.80
Diluted earnings per common share .............      $      0.59   $      0.73    $      0.74    $      0.79
</TABLE>


                                       91
<PAGE>

                           CONTIFINANCIAL CORPORATION
                   Notes to Consolidated Financial Statements
                          March 31, 1999, 1998 and 1997
                (in thousands, except share data and where noted)

16. SUBSEQUENT EVENT

Sale of Triad

On June 11, 1999, the Company sold its interest in Triad to Fairlane Credit LLC,
a wholly-owned subsidiary of Ford Motor Credit Company. The sale of Triad
resulted in a gain of approximately $20 million, which will be reported in the
first quarter of fiscal 2000, and provided gross proceeds of approximately $134
million through sale proceeds, repayment of intercompany debt and net return of
intercompany warehouse financing. Of this amount, approximately $95 million was
used to pay down the Company's Bank Facilities thereby reducing the commitments
under the Bank Facilities by the pay down amount.


                                       92
<PAGE>

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

None.


                                       93
<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 1999
             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 1999
             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 1999
             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 1999
             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.

         (3)      Exhibits


                                       94
<PAGE>

<TABLE>
<CAPTION>
        Exhibit
          No.                             Description
        -------                           -----------
         <S>      <C>
         3.1      Restated Certificate of Incorporation of the Company (1)
         3.2      Restated By-laws of the Company*
         4.1      Indenture between the Company and the Trustee with form of Indenture Note (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)
         10.13a   Form of Stock Option Agreement (1)
         10.13b   Form of Stock Option Agreement*
         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)
         10.19    Indenture - 83/8 % Senior Notes due 2003 (3)
         10.20    First Amendment to Note Purchase Agreement (4)
         10.21    First Supplemental Indenture (5)
         10.22    Revolving credit facility-Credit Agreement (6)
         10.23    Letter of Credit and Reimbursement Agreement (8)
         10.24    Subservicing Agreement*
         10.25    Addendum Number 1 to Subservicing Agreement dated December 1, 1998*
         10.26    Addendum Number 2 to Subservicing Agreement dated March 1, 1999*
         10.27    Addendum Number 3 to Subservicing Agreement dated March 1, 1999*
         10.28    Purchase and Sale Agreement with Continental Grain Company*
         10.29    THIRD AMENDMENT to the Credit Agreement*
         10.30    THIRD AMENDMENT to the Letter of Credit and Reimbursement Agreement*
         10.31    Indenture, dated as of March 1, 1997 (9)
         10.32    Indenture, dated as of March 4, 1998 (10)
         11.1     Computation of the Company's earnings per common share*
         12.1     Ratio of Earnings to Fixed Charges*
         21.1     List of Subsidiaries of the Company*
         23.2     Consent of Arthur Andersen LLP (2)
         23.3     Consent of Arthur Andersen LLP *
         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 (7)
         27.1     Financial Data Schedule for the fiscal year ended March 31, 1999*
</TABLE>

----------
     * Filed herewith

     (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.


                                       95
<PAGE>

     (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.

     (3) Incorporated by reference to exhibit 10.2 from the Company's quarterly
     Report on Form 10-Q for the quarterly period ended September 30, 1996, File
     No. 1-14074.

     (4) Incorporated by references to exhibit 10.3 from the Company's Quarterly
     Report on Form 10-Q for the quarterly period ended September 30, 1996, File
     No. 1-14074.

     (5) Incorporated by references to exhibit 10.4 from the Company's Quarterly
     Report on Form 10-Q for the quarterly period ended September 30, 1996, File
     No. 1-14074.

     (6) Incorporated by reference to exhibit 10.5 from the Company's Quarterly
     Report on Form 10-Q for the quarterly period ended December 31, 1996, File
     No. 1-14074.

     (7) Incorporated by reference to exhibit 24.8 from the Company's Annual
     Report on Form 10-K for the fiscal year ended March 31, 1997, File No.
     1-14074.

     (8) Incorporated by reference to exhibit 10.23 from the Company's Quarterly
     Report on Form 10-Q for the quarterly period ended September 30, 1997, File
     No. 1-14074.

     (9) Incorporated by reference to the exhibits of the Company's Registration
     Statement on Form S-4, File No. 333-23963.

     (10) Incorporated by reference to the exhibits of the Company's
     Registration Statement on Form S-3, File No. 333-3852588.

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

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

(d)  Financial Statement Schedules. See (a) (2) above.


                                       96
<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: July 14, 1999

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.

<TABLE>
<CAPTION>
     Signature                                           Title                                             Date
     ---------                                           -----                                             ----
<S>                                        <C>                                                         <C>
/s/ James E. Moore                         President, Chief Executive Officer                          July 14, 1999
---------------------------                   and Director (Principal Executive
James E. Moore                                Officer)


/s/ Frank W. Baier                         Senior Vice President and Chief                             July 14, 1999
---------------------------                   Financial Officer (Principal
Frank W. Baier                                Financial Officer)


/s/ Daniel J. Egan                         Senior Vice President and Principal                         July 14, 1999
---------------------------                   Accounting Officer
Daniel J. Egan


           *                               Director and Chairman of the Board                          July 14, 1999
---------------------------
James J. Bigham


           *                               Director                                                    July 14, 1999
---------------------------
Paul J. Fribourg


           *                               Director                                                    July 14, 1999
---------------------------
John W. Spiegel


           *                               Director                                                    July 14, 1999
---------------------------
Donald L. Staheli


           *                               Director                                                    July 14, 1999
---------------------------
John P. Tierney


           *                               Director                                                    July 14, 1999
---------------------------
Lawrence G. Weppler


           *                               Director                                                    July 14, 1999
---------------------------
Michael J. Zimmerman


By: /s/ James E. Moore
    -----------------------
    James E. Moore
    Attorney-In-Fact
</TABLE>


                                       97
<PAGE>

                                  Exhibit Index

Exhibit
  No.                             Description
-------                           -----------

 3.2     Restated By-laws of the Company
10.13b   Form of Stock Option Agreement
10.24    Subservicing Agreement
10.25    Addendum Number 1 to Subservicing Agreement dated December 1, 1998
10.26    Addendum Number 2 to Subservicing Agreement dated March 1, 1999
10.27    Addendum Number 3 to Subservicing Agreement dated March 1, 1999
10.28    Purchase and Sale Agreement with Continental Grain Company
10.29    THIRD AMENDMENT to the Credit Agreement
10.30    THIRD AMENDMENT to the Letter of Credit and Reimbursement Agreement
11.1     Computation of the Company's earnings per common share
12.1     Ratio of Earnings to Fixed Charges
21.1     List of Subsidiaries of the Company
23.3     Consent of Arthur Andersen LLP
27.1     Financial Data Schedule for the fiscal year ended March 31, 1999


                                       98