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

                                    FORM 10-Q
                  (Mark One)
                  [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                  OF THE SECURITIES EXCHANGE ACT OF 1934
                  For the quarterly period ended  December 31, 1996
                                            OR
                           OF THE SECURITIES EXCHANGE ACT OF 1934
                  For the transition period from ___________ to ___________
                                                 
                                     1-14074
--------------------------------------------------------------------------------
                            (Commission File Number)

                  [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

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

          Delaware                                        13-3852588
--------------------------------------------------------------------------------
(State or 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
                                                       -------------------------

                                    no change
--------------------------------------------------------------------------------
              (Former name, former address and former fiscal year,
                         if changed since last report)

     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

The Company had 44,362,404 shares of common stock outstanding as of February 7,
1997.

<PAGE>

                           CONTIFINANCIAL CORPORATION
                           Consolidated Balance Sheets
                   as of December 31, 1996 and March 31, 1996
                    (dollars in thousands, except share data)
                                   (unaudited)
                                                                                
<TABLE>
<CAPTION>
                                                                                          December 31,     March 31,
                                                                                              1996            1996
                                                                                          ------------     ---------
                                     Assets
<S>                                                                                          <C>          <C>       
Cash and cash equivalents                                                                 $   39,043      $   32,479
Restricted cash                                                                                3,321             620
Securities purchased under agreements to resell                                              508,950         179,875

Interest-only and  Residual Certificates                                                     338,012         293,218
Capitalized servicing fees receivable                                                         23,820          11,689
Trade Receivables:
   Receivables held for sale                                                                 481,596         303,679
   Other receivables                                                                          75,021          50,470
  Allowance for loan losses                                                                   (4,483)         (1,824)
                                                                                          ----------      ----------
Total trade  receivables, net                                                                552,134         352,325
                                                                                          ----------      ----------
Premises and equipment, net of accumulated depreciation of  $3,054
   and $2,497 as of December 31, 1996 and March 31, 1996, respectively                         6,854           3,906
Cost in excess of minority interest equity                                                    47,000          14,573
Other assets                                                                                  23,604           3,855
                                                                                          ----------      ----------
         Total assets                                                                     $1,542,738      $  892,540
                                                                                          ==========      ==========
                           Liabilities and Stockholders' Equity
Liabilities:
Accounts payable and accrued expenses                                                     $  107,873      $   73,459
Securities sold but not yet purchased                                                        506,987         180,729
Payables to affiliates:
  Due to affiliates                                                                           40,245          13,734
  Notes payable                                                                              202,000         324,000
                                                                                          ----------      ----------
Total payables to affiliates                                                                 242,245         337,734
                                                                                          ----------      ----------
Senior Notes                                                                                 299,170              --
Other liabilities                                                                             11,169           5,799
                                                                                          ----------      ----------
         Total liabilities                                                                 1,167,444         597,721
                                                                                          ----------      ----------
Commitments and contingencies
Minority interest of subsidiary                                                                1,234              --
Stockholders' equity:
   Preferred stock  (par value $0.01 per share; 25,000,000 shares authorized;
      none issued or outstanding at December 31, 1996 and March 31, 1996)                         --              --
   Common stock (par value $0.01 per share; 250,000,000 shares authorized;
     44,380,949 and 44,347,018 shares issued and outstanding at December 31, 
     1996 and 44,378,953 shares issued and outstanding at March  31, 1996)                       444             444
   Paid-in capital                                                                           294,742         294,701
   Retained earnings                                                                          96,622          22,648
   Treasury stock (33,931 shares of common stock, at cost)                                      (713)             --
   Deferred  Compensation                                                                    (17,035)        (22,974)
                                                                                          ----------      ----------
         Total stockholders' equity                                                          374,060         294,819
                                                                                          ----------      ----------
         Total liabilities and stockholders' equity                                       $1,542,738      $  892,540
                                                                                          ==========      ==========
</TABLE>

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


                                       2
<PAGE>

                           CONTIFINANCIAL CORPORATION
                        Consolidated Statements of Income
         for the three and nine months ended December 31, 1996 and 1995
                    (dollars in thousands, except share data)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                                 
                                                           Three Months             Nine Months     
                                                        Ended December 31,       Ended December 31, 
                                                         1996        1995        1996         1995
                                                     ------------   -------  ------------   --------
<S>                                                  <C>            <C>      <C>            <C>     
Gross income
   Gain on sale of receivables ....................  $     58,404   $40,887  $    133,773   $101,031
   Interest .......................................        48,273    18,370       109,967     61,335
   Net servicing income ...........................        12,420     8,180        32,386     20,266
   Other income ...................................         2,235       419         4,652      2,227
                                                     ------------   -------  ------------   --------
         Total gross income .......................       121,332    67,856       280,778    184,859
                                                     ------------   -------  ------------   --------
Expenses
   Compensation and benefits ......................        23,674    13,149        51,870     33,101
   Interest (includes $4,066, $7,251, $15,372
and $16,587 for the three and nine
months ended December 31, 1996 and 1995,
respectively, to affiliates) ......................        36,001    13,737        79,989     51,255

   Provision for loan losses ......................           994       110         1,302        367
   General and administrative .....................        13,073     4,146        24,830     10,960
                                                     ------------   -------  ------------   --------
         Total expenses ...........................        73,742    31,142       157,991     95,683
                                                     ------------   -------  ------------   --------
Income before income taxes and
   minority interest ..............................        47,590    36,714       122,787     89,176
Income taxes ......................................        18,944    14,281        49,192     34,689
                                                     ------------   -------  ------------   --------
Income before minority interest ...................        28,646    22,433        73,595     54,487
Minority interest of subsidiary ...................          (379)     --            (379)     3,310
                                                     ------------   -------  ------------   --------
         Net income ...............................  $     29,025   $22,433  $     73,974   $ 51,177
                                                     ============   =======  ============   ========
Primary and fully diluted earnings per 
common share ......................................  $       0.66            $       1.68           
                                                     ============            ============           
Fully diluted weighted average number of shares
outstanding .......................................    44,282,407              44,091,627           
                                                     ============            ============           
Primary weighted average number of shares
outstanding .......................................    44,230,824              44,014,541           
                                                     ============            ============           
</TABLE>

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


                                       3
<PAGE>

                           CONTIFINANCIAL CORPORATION
                 Condensed Consolidated Statements of Cash Flows
              for the nine months ended December 31, 1996 and 1995
                             (dollars in thousands)
                                   (unaudited)

                                                          Nine Months
                                                       Ended December 31,
                                                     ---------------------
                                                        1996        1995
                                                     ---------   --------- 
Net cash used in operating activities .............  $(155,248)  $(252,226)
                                                     ---------   --------- 
Cash flows from investing activities:
  Acquisition of majority owned subsidiaries ......    (32,075)    (34,350)
  Acquisition of minority interest in subsidiaries      (2,404)       --
  Purchase of property and equipment ..............     (1,356)       (976)
                                                     ---------   --------- 
         Cash used in investing activities ........    (35,835)    (35,326)
                                                     ---------   --------- 
 Cash flows from financing activities:
   Net decrease in notes payable to affiliates ....   (122,000)       --
   Net proceeds from issuance of Senior Notes .....    293,136        --
   Net increase  in due to affiliates .............     26,511     289,322
                                                     ---------   --------- 
          Net cash provided by financing activities    197,647     289,322
                                                     ---------   --------- 
Net increase in cash and cash equivalents .........      6,564       1,770
Cash and cash equivalents at beginning of  period .     32,479       2,822
                                                     ---------   --------- 
Cash and cash equivalents at end of period ........  $  39,043   $   4,592
                                                     =========   =========

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


                                       4

<PAGE>

                           CONTIFINANCIAL CORPORATION
         Notes to Unaudited Condensed Consolidated Financial Statements
                                December 31, 1996
                             (dollars in thousands)

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of
ContiFinancial Corporation and its consolidated subsidiaries (collectively,
"ContiFinancial" or the "Company") have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission and, in the opinion of
management, reflect all normal, recurring adjustments which are necessary for a
fair presentation of the financial position, results of operations, and cash
flows for each period shown. The results for interim periods are not necessarily
indicative of financial results for the full year. These unaudited condensed
consolidated financial statements should be read in conjunction with the audited
Consolidated Financial Statements and notes thereto included in the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 1996 (the "Annual
Report"). All significant intercompany accounts and transactions have been
eliminated in consolidation.

Certain reclassifications of March 31, 1996 amounts have been made to conform to
the current year presentation.

2. RECENT ACCOUNTING PRONOUNCEMENTS

On January 1, 1997, the Company adopted the Financial Accounting Standards Board
("FASB") Statement of Financial Accounting Standards ("SFAS") No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities" ("SFAS 125") which addresses the accounting for transfers of
financial assets in which the transferor has some continuing involvement either
with the assets transferred or with the transferee. A transfer of financial
assets in which the transferor surrenders control over those assets is accounted
for as a sale to the extent that consideration other than beneficial interest in
the transferred assets is received in exchange. SFAS 125 requires that
liabilities and derivatives incurred or obtained by transferors as part of a
transfer of financial assets be initially measured at fair value, if
practicable. In addition, SFAS 125 requires that servicing assets and
liabilities be subsequently measured by the amortization over their estimated
life and assessment of asset impairment be based on such assets' fair value.
SFAS 125 is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996, and is to be
applied prospectively. The adoption of this standard did not have a material
impact on the Company's financial position or results of operations. However the
Company expects that certain of the assets that it had financed under the
Purchase and Sale Facilities prior to January 1, 1997 will not qualify for sale
treatment under SFAS 125 and as a result will be accounted for on the balance
sheet of the Company. SFAS 125 does not in any way effect the ability of the
Company to finance these assets. The Company expects to replace the Purchase and
Sale Facilities with repurchase agreements for those asset types which do not
qualify for sale treatment. On December 31, 1996, approximately $398 million of
such assets not qualifying for sale treatment would be accounted for on the
balance sheet of the Company.


                                       5
<PAGE>

In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") which was adopted on April 1, 1996. SFAS 123 allows
companies either to continue to account for stock-based employee compensation
plans under existing accounting standards or adopt a fair value based method of
accounting for stock options as compensation expense over the service period
(generally the vesting period) as defined in the new standard. SFAS 123 requires
that if a company continues to account for stock options under Accounting
Principles Board ("APB") Opinion No. 25, it must provide annual pro forma net
income and earnings per share information "as if" the new fair value approach
had been adopted. The Company will continue to account for stock-based
compensation under APB Opinion No. 25 and will make the required disclosures at
March 31, 1997. As a result, the adoption of this standard did not have an
impact on the Company's financial position or results of operations.

3. SENIOR NOTES

On August 14, 1996, the Company issued $300 million of unsecured senior notes
(the "Senior Notes") due August 15, 2003. Proceeds to the Company, net of
underwriting fees and market discount were $293,136.

The Senior Notes bear interest at 8.375% payable semiannually on February 15 and
August 15 commencing February 15, 1997. The Senior Notes are redeemable as a
whole or in part, at the option of the Company, at any time or from time to
time, at a redemption price equal to the greater of (i) 100% of their principal
amount or (ii) the sum of the present values of the remaining scheduled payments
of principal and interest thereon discounted to the date of redemption on a
semiannual basis at the treasury yield plus 50 basis points, plus, in each case,
accrued interest to the date of redemption.

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

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

Interest expense on the Senior Notes was $6,121 and $9,177 for the three and
nine months ended December 31, 1996, respectively.

4. PAYABLES TO AFFILIATES

In connection with the sale of the Senior Notes (as discussed in Note 3), the
Company prepaid in full the $125,000 term note payable to Continental Grain
Company ("Continental Grain") originally due on September 30, 1997.

5.  ACQUISITIONS

On November 8, 1996, the Company purchased 100% of the outstanding stock of
California Lending Group, Inc. d/b/a United Lending Group, Inc. a west
coast-based home equity lender specializing in retail originations via direct
mail and telemarketing throughout the United States. On November 15, 1996, the
Company purchased 100% of the outstanding stock of Royal Mortgage Partners,
L.P., d/b/a Royal MortgageBanc, a California-based wholesale and retail
originator of fixed and adjustable rate home equity 


                                       6
<PAGE>

loans. On November 21, 1996, the Company purchased 53.5% of the common stock of
Triad Financial Corporation, a California-based auto finance company
specializing in origination of non-prime auto finance contracts for used and new
vehicles. On December 16, 1996, the Company purchased 100% of the outstanding
stock of Resource One Consumer Discount Company, Inc., a Pennsylvania-based home
equity lender specializing in retail origination via direct mail, television,
and telemarketing throughout the eastern and mid-western states. These
transactions have been accounted for as purchases, and the results of operations
have been included with the Company's results of operations since the effective
acquisition dates. The cumulative purchase price was $37.5 million. As a result
of the acquisitions, $33.0 million of cost in excess of minority interest equity
was recorded which will be amortized on a straight-line basis over a 25 year
useful life. Certain of these acquisitions provide for payments which are
contingent upon future earnings or employment of key management. Contingent
purchase payments based on earnings will be recorded when determinable as cost
in excess of minority interest equity. Contingent payments based on employment
agreements which require the continuing employment of key management will be
accounted for as compensation in the period earned. The Company has a right and
obligation to purchase the remaining 46.5% of the common stock of Triad at any
time subsequent to the effective date of the acquisition. The purchase price
will be based upon the future earnings of Triad and will be recorded, when
determinable. The excess of the purchase price over the fair value of the net
assets acquired will be recorded as an increase in cost in excess of minority
interest equity. The acquisitions are not material to the financial position or
results of operations of the Company.

6. SUBSEQUENT EVENT

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


                                       7
<PAGE>

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

This discussion should be read in conjunction with the accompanying unaudited
condensed consolidated financial statements and notes thereto, and the Company's
audited Consolidated Financial Statements and notes thereto included in the
Company's Annual Report. Certain statements under this caption constitute
"forward-looking statements" under federal securities laws.
See "Forward-looking  Statements."

General

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

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

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

     o    On November 8, 1996, the Company purchased 100% of the outstanding
          stock of ULG, a west coast-based home equity lender specializing in
          retail originations via direct mail and telemarketing throughout the
          United States. ContiMortgage will service the product originated by
          ULG and retained by the Company for securitization.

     o    On November 15, 1996, the Company, through its subsidiary
          ContiMortgage, purchased 100% of the outstanding stock of Royal. Royal
          is a California-headquartered wholesale and retail originator 


                                       8
<PAGE>

          of fixed and adjustable rate home equity loans.

     o    On November 21, 1996, the Company acquired a 53.5% equity interest in
          Triad, a California-based non-prime auto finance company. The Company
          has the right and obligation to acquire the common stock of Triad from
          existing shareholders.

     o    On December 16, 1996, the Company, through its subsidiary
          ContiMortgage, purchased 100% of the outstanding stock of Resource
          One. Resource One, headquartered in Langhorne Pennsylvania, is a
          retail branch home equity loan originator that utilizes direct mail,
          television, telemarketing, referrals and other sources to generate
          loan inquires directly from borrowers.

The Acquisitions have been accounted for as purchases, and the results of
operations have been included with the Company's results of operations since the
effective acquisition dates. The cumulative purchase price was $37.5 million,
resulting in $33.0 million of cost in excess of minority interest equity which
will be amortized on a straight-line basis over a 25 year useful life. Certain
acquisition's terms contain payments which are contingent upon future earnings
or employment of key management. Such contingent payments will be recorded as
purchase price or compensation as is appropriate for the nature of the payments.
The Company has a right and obligation to purchase the remaining 46.5% of the
common stock of Triad at any time subsequent to the effective date of the
acquisition. The purchase price will be determined based upon the future
earnings of Triad and will be recorded, when determinable. The excess of the
purchase price over the fair value of the net assets acquired will be recorded
as an increase in cost in excess of minority interest equity. The Acquisitions
are not material to the financial position or results of operations of the
Company.

The following table presents loan portfolio data relating to the three and nine
month periods ended December 31, 1996 and 1995:

<TABLE>
<CAPTION>
                                                          Three Months                     Nine Months   
                                                       Ended December 31,               Ended December 31, 
                                                       ------------------               ------------------ 
Loan Portfolio Data                                    1996          1995              1996            1995
                                                     ----------    ----------       ----------      ----------
                                                                          (in thousands)
<S>                                                  <C>           <C>              <C>             <C>       
ContiMortgage serviced loan portfolio ..........     $5,699,145    $3,427,190       $5,699,145      $3,427,190
Home Equity loan originations ..................     $1,300,940      $648,160       $2,864,475      $1,654,972
Sub-prime Auto loan originations ...............        $12,428            --          $12,428              --
Securitizations and sales:
    ContiMortgage ..............................       $900,180      $650,086       $2,407,554      $1,400,270
    Strategic alliances ........................        309,609       489,680          922,008       1,372,680
                                                     ----------    ----------       ----------      ----------
Total securitizations and sales ................     $1,209,789    $1,139,766       $3,329,562      $2,772,950
                                                     ==========    ==========       ==========      ==========
</TABLE>

Certain Accounting Considerations

For a discussion of recent accounting pronouncements, see Note 2 to the
unaudited condensed consolidated financial statement.


                                       9
<PAGE>

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

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

Due to the fact that the gain recognized in the year of sale is equal to the
present value of the estimated future cash flows from the Excess Spread, the
amount of cash actually received over the lives of the loans or other assets
normally exceeds the gain previously recognized at the time the loans or other
assets were sold and therefore interest income is recognized over the life of
the loans or other assets securitized. In periods subsequent to the sale, the
Company may recognize an increase in fair value of Excess Spread Receivable as
gain on sale of receivables to the extent that estimates of the loan pools
future remaining lives exceed those originally projected. This estimate of
extended life is performed by reviewing past prepayment experience and
estimating future prepayment experience by considering numerous factors which
include current market assumptions, the interest rate environment and economic
factors. If actual prepayments with respect to sold loans occur faster or credit
experience is worse than projected at the time such loans were sold, the
carrying value of the Excess Spread Receivable may have to be written down
through a charge to earnings in the period of adjustment. To date, the Company
has not been required to record such a downward adjustment on its portfolio as a
whole. The Company believes that one factor contributing to this positive
experience is the Company's determination that over time home equity loan
prepayments have been less volatile than conventional mortgage prepayments.

Additionally, upon sale or securitization of servicing retained mortgages, the
Company capitalizes the cost associated with the right to service mortgage loans
based on its relative fair value. The Company determines fair value based on the
present value of estimated net future cash flows related to servicing income.
The cost allocated to the servicing rights is amortized in proportion to and
over the period of estimated net future servicing fee income. The Company
periodically reviews capitalized servicing fees receivable for 


                                       10
<PAGE>

valuation impairment. This review is performed on a disaggregated basis for the
predominant risk characteristics of the underlying loans which are loan type,
term and credit quality. The Company generally makes loans to credit impaired
borrowers whose borrowing needs may not be met by traditional financial
institutions due to credit exceptions. The Company has found that credit
impaired borrowers are payment sensitive rather than interest rate sensitive. As
such the Company does not consider interest rates a predominant risk
characteristic for purposes of valuation impairment. Impairment is recognized in
a valuation allowance for each disaggregated stratum in the period of
impairment.

Financial Condition

December 31, 1996

Securities purchased under agreements to resell increased $329.1 million from
$179.9 million at March 31, 1996 to $509.0 million at December 31, 1996. The
Company hedges its interest rate exposure on its receivables held for sale and
loans and other assets sold, with recourse, under its asset purchase and sale
facilities with certain financial institutions ("Purchase and Sale Facilities"),
through the use of United States Treasury securities and futures contracts.
Securities purchased under agreements to resell are part of this hedging
strategy. The increase in securities purchased under agreements to resell was
primarily due to the increase in receivables held for sale.

Interest-only and residual certificates increased $44.8 million from $293.2
million at March 31, 1996 to $338.0 million at December 31, 1996. Excluding the
Acquisitions during the third quarter of fiscal 1997, interest-only and residual
certificates increased by $43.7 million. This increase represented $150.2
million recorded during the nine months ended December 31, 1996 related to new
securitizations and recorded interest income of $23.9 million partially offset
by $96.5 million of sales of such certificates and $33.9 million of collections.

Capitalized servicing fees receivable increased $12.1 million from $11.7 million
at March 31, 1996 to $23.8 million at December 31, 1996. This balance reflected
the capitalization of $17.1 million of servicing rights partially offset by
amortization of $5.0 million.

Trade receivables, net increased by $199.8 million from $352.3 million at March
31, 1996 to $552.1 million at December 31, 1996. Excluding the Acquisitions
during the third quarter of fiscal 1997, trade receivables increased by $114.2
million. This increase was primarily due to a net increase in receivables held
for sale from $303.7 million as of March 31, 1996 to $394.6 million at December
31, 1996. The net increase in receivables held for sale was primarily due to the
investment of the net cash proceeds available from the Company's initial public
offering in February 1996 (the "IPO"), the sale of the $300.0 million Senior
Notes, and the sale of certain excess spread receivables partially offset by the
repayment of the $125.0 million term note ("the Term Note") payable to
Continental Grain Company ("Continental Grain"), in addition to the investment
in the Acquisitions.

Premises and equipment, net of accumulated depreciation, increased by $3.0
million from $3.9 million at March 31, 1996 to $6.9 million at December 31,
1996. Excluding the Acquisitions during the third quarter of fiscal 1997,
premises and equipment decreased by $0.04 million. This decrease was primarily
as a result of office equipment acquisitions which were more than offset by the
normal periodic depreciation of owned equipment.


                                       11
<PAGE>

Cost in excess of minority interest equity increased by $32.4 million from $14.6
million at March 31, 1996 to $47.0 million at December 31, 1996. The increase
was primarily due to the Acquisitions during the third quarter of fiscal 1997.

Other assets increased $19.7 million from $3.9 million at March 31, 1996 to
$23.6 million at December 31, 1996. Excluding the Acquisitions during the third
quarter of fiscal 1997, other assets increased by $17.9 million. This increase
is primarily due to an increase of approximately $10.6 million of deferred
issuance costs on the Senior Notes and an increase of $4.2 million in escrow
deposits.

Accounts payable and accrued expenses increased $34.4 million from $73.5 million
at March 31, 1996 to $107.9 million at December 31, 1996. Excluding the
Acquisitions during the third quarter of fiscal 1997, accounts payable and
accrued expenses increased by $29.2 million. The balance increased primarily due
to an increase in accrued interest payable due to the issuance of the Senior
Notes, an increase in amounts due to brokers in relation to the purchase of
loans and an increase in general accounts payable due to the increase in volume.

Securities sold but not yet purchased increased $326.3 million from $180.7
million at March 31, 1996 to $507.0 million at December 31, 1996. The Company
hedges its interest rate exposure on its receivables held for sale, loans and
other assets sold with recourse under its Purchase and Sale Facilities through
the use of United States Treasury securities and futures contracts. Securities
sold but not yet purchased are part of this hedging strategy. This increase in
securities sold but not yet purchased was primarily due to the increase in
receivables held for sale.

On August 14, 1996 the Company issued the $300.0 million Senior Notes and
received net proceeds of $293.1 million, after underwriting fees and market
discount, resulting in the balance sheet increase from March 31, 1996. The
Senior Notes were issued at a discount which is being amortized over the life of
the Senior Notes, resulting in the balance of $299.2 million as of December 31,
1996.

Payables to affiliates decreased $95.5 million from $337.7 million at March 31,
1996 to $242.2 million at December 31, 1996. The decrease was primarily due to
the prepayment of the $125.0 million Term Note payable to Continental Grain upon
receipt of the proceeds from the issuance of the Senior Notes offset by an
increase in taxes payable to Continental Grain under the Company's tax sharing
agreement due to increased pre-tax income.

Other liabilities increased $5.4 million from $5.8 million at March 31, 1996 to
$11.2 million at December 31, 1996. The increase is primarily due to amounts
recorded as deferred purchase price liabilities of the Acquisitions. Excluding
the Acquisitions during the third quarter of fiscal 1997, other liabilities
decreased by $0.7 million. The decrease is primarily due to a decrease in
deferred income in connection with the origination and securitization of loans
and other assets.

Stockholders' equity increased $79.2 million from $294.8 million at March 31,
1996 to $374.0 million at December 31, 1996 due to net income of $74.0 million
and the amortization of deferred compensation of $5.2 million.


                                       12
<PAGE>

Results of Operations

Three Months Ended December 31, 1996 Compared to Three Months Ended December 31,
1995

The Company's total gross income increased from $67.9 million for the three
months ended December 31, 1995 to $121.3 million for the three months ended
December 31, 1996, representing a 79% increase. Excluding the Acquisitions
during the third quarter of fiscal 1997, gross income increased by $42.8
million, or 63%. Net income increased from $22.4 million for the three months
ended December 31, 1995 to $29.0 million for the three months ended December 31,
1996, representing a 29% increase. Excluding the Acquisitions during the third
quarter of fiscal 1997, net income increased by $7.8 million, or 35%.

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

                                                              Three Months
                                                           Ended December 31,
                                                          --------------------
Gross income                                                1996        1995
                                                          -------      -------
   Gain on sale of receivables ........................    48.13%       60.26%
   Interest ...........................................    39.79%       27.07%
   Net servicing income ...............................    10.24%       12.05%
   Other income .......................................     1.84%        0.62%
                                                          -------      -------
      Total gross income ..............................   100.00%      100.00%
                                                          -------      -------
Expenses
   Compensation and benefits ..........................    19.51%       19.38%
   Interest ...........................................    29.67%       20.24%
   Provision for loan losses ..........................     0.82%        0.16%
   General and administrative .........................    10.78%        6.11%
                                                          -------      -------
     Total expenses ...................................    60.78%       45.89%
                                                          -------      -------
Income before income taxes and minority interest ......    39.22%       54.11%
Income taxes ..........................................    15.61%       21.05%
Minority interest of subsidiary .......................   (0.31%)        0.00%
                                                          -------      -------
      Net income ......................................    23.92%       33.06%
                                                          =======      =======

Income. The increase in total gross income was due to a greater volume of loans
originated as a result of the expansion of the Company's wholesale and broker
home equity loan origination sources.


                                       13
<PAGE>

The following table sets forth information regarding the components of the
Company's total gross income in each of the three month periods ended December
31:

                                                Three Months
                                             Ended December 31,
                                            --------------------
                                              1996        1995
                                            -------      -------
                                               (in thousands)
Gain on sale of receivables ............  $  58,404      $40,887
Interest ...............................     48,273       18,370
Net servicing income ...................     12,420        8,180
Other income ...........................      2,235          419
                                          ---------      -------
   Total gross income ..................  $ 121,332      $67,856
                                          =========      =======

Gain on sale of receivables was the primary component of total gross income,
comprising 48% and 60% of total gross income in the three months ended December
31, 1996 and 1995, respectively. Gain on sale of receivables increased $17.5
million or 43% for the three months ended December 31, 1996 as compared to the
corresponding period in 1995. Excluding the Acquisitions during the third
quarter of fiscal 1997, gain on sale of receivables increased by $9.2 million or
22%. Gain on sale of receivables as a percentage of total gross income was lower
for the third quarter of fiscal 1997 due to an increase in the outstanding
balance of interest earning assets.

Gain on sale of receivables represents income primarily from the structuring and
sale of pools of home equity loans, originated by ContiMortgage and Strategic
Alliance clients of the Company, to REMICs, owner trusts and grantor trusts. In
addition, gains on sale of receivables are earned upon whole loan sales and upon
the securitization of commercial and multi-family loans, Title I home
improvement loans, franchise loans, small business loans and equipment leases
which are sold into REMICs and whole loan and other trust structures.

The increase in the amount of gain on sale of receivables was primarily due to a
larger gain on sale percentage earned in the three months ended December 31,
1996 as compared to the corresponding period in 1995. The larger gain on sale
percentage was due partially to an increased proportion of ContiMortgage
securitizations which yield higher gain on sale percentages than securitizations
and placements for Strategic Alliance clients. For the three months ended
December 31, 1996, ContiMortgage securitizations represented $900.2 million of
total volume as compared to $650.1 million for the three months ended December
31, 1995. This contributed to a gain of 55 basis points in Excess Spread or a
$6.3 million increase in gain on sale of receivables in the three months ended
December 31, 1996 as compared to the corresponding period in 1995.

The Company structured and sold $1.2 billion of mortgages and leases in the
three months ended December 31, 1996, an increase of $70.0 million from the
three months ended December 31, 1995, which increased the gain on sale of
receivables by $2.9 million. The combination of the $6.3 million increase due to
a higher gain on sale percentage and the $2.9 million increase due to increased
volume resulted in a total increase in gain on sale


                                       14
<PAGE>

of receivables from the three months ended December 31, 1995 of $9.2 million.
The gain on sale of receivables as a percentage of loans securitized and sold
for the three months ended December 31, 1996 and 1995 was 4.8% and 3.6%,
respectively.

Interest income increased $29.9 million or 163% for the three months ended
December 31, 1996 from the corresponding period in 1995. Excluding the
Acquisitions during the third quarter of fiscal 1997, interest income increased
by $28.5 million, or 155%. Interest income represents interest earned on loans
originated or purchased by the Company during the period from their origination
or purchase until the actual sale of the loans, as well as the recognition of
the increased value of the discounted Excess Spread Receivables over time. The
interest earned on loans originated and purchased contributed $25.8 million to
the increase between the three months ended December 31, 1996 and 1995. The
increase in interest earned on loans originated and purchased was due primarily
to a $951 million increase in the average balance of loans originated and
purchased but not yet securitized during the periods. The recognition of the
increased value of the discounted Excess Spread Receivables over time accounted
for $2.7 million of the increase in interest income which was due to the
increase in the average investment in Excess Spread Receivables in the three
months ended December 31, 1996 as compared to the corresponding period in 1995.

Net servicing income increased $4.2 million or 52% for the three months ended
December 31, 1996 compared to the corresponding period in 1995 due to the
increase in the size of the servicing portfolio and the volume of loan sales and
securitizations. Excluding the Acquisitions during the third quarter of fiscal
1997, net servicing income increased by $4.1 million, or 51%. The Company's loan
servicing portfolio increased $2.3 billion from $3.4 billion to $5.7 billion on
December 31, 1995 as compared to December 31, 1996, contributing to a $3.4
million increase in net servicing income between the three months ending
December 31, 1995 and 1996. Additionally, net servicing income increased by $0.7
million in the third quarter of fiscal 1997 as compared to the third quarter of
fiscal 1996 due to capitalized servicing income associated with the 38% increase
in the ContiMortgage home equity loan sales and securitizations for the three
months ended December 31, 1996 as compared to the corresponding period in 1995.

Other income increased $1.8 million or 433% for the three month period ended
December 31, 1996 compared to the corresponding period in 1995. Excluding the
Acquisitions during the third quarter of fiscal 1997, other income increased by
$0.9 million, or 215%. Other income consists primarily of "purchase premium
refunds" received from certain origination sources related to loans that prepay
within a contractually set time period. Upon origination of a loan, the Company
will pay a wholesale originator a purchase premium for the loan or pools of
loans. The Company negotiates agreements with wholesale originators that provide
that a portion of such purchase premium will be repaid if individual loans are
repaid within a contractually set time period. The income from "purchase premium
refunds" increased due to the increase in ContiMortgage origination volume.

Expenses. Total expenses for the three months ended December 31, 1996 increased
$42.6 million or 137% from the corresponding period in 1995. Excluding the
Acquisitions during the third quarter of fiscal 1997, total expenses increased
by $29.9 million, or 96%. This increase in total expenses was due to the
increase in number of employees, the granting of "restricted" common stock and
costs associated with increased home equity loan volume.


                                       15
<PAGE>

The following table sets forth the components of the Company's expenses for the
three months ended December 31, 1996 and 1995.

                                                Three Months
                                             Ended December 31,
                                            --------------------
                                              1996        1995
                                            -------      -------
                                               (in thousands)
Compensation and benefits ...............  $  23,674     $13,149
Interest ................................     36,001      13,737
Provision for loan losses ...............        994         110
General and administrative ..............     13,073       4,146
                                           ---------     -------
    Total expenses ......................  $  73,742     $31,142
                                           =========     =======

Compensation and benefits expense increased $10.5 million or 80.0% for the three
months ended December 31, 1996 compared to the corresponding period in 1995.
Excluding the Acquisitions during the quarter, compensation and benefits expense
increased by $3.5 million, or 27%. This increase was primarily due to the
addition of new personnel, changes in incentive compensation plans, the granting
of restricted common stock and commissions paid to certain employees on volume
of loan originations. On December 31, 1996, the Company had 1,346 employees, 692
from the Acquisitions, as compared to 332 employees on December 31, 1995, which
primarily contributed to a $8.4 million increase in salary partially offset by a
$5.0 million decrease in incentive compensation for the three months ended
December 31, 1996 as compared to the corresponding period in 1995. In connection
with the IPO, shares of "restricted" common stock were granted to certain key
employees. The "restricted" common stock granted, subject to the employee's
continued employment with the Company, vests between February 14, 1996 and March
31, 2000. The granting of "restricted" common stock increased the compensation
expense for three months ended December 31, 1996 by $1.1 million compared to the
corresponding period in 1995. The commissions paid to certain ContiMortgage
employees decreased $1.0 million for the three months ended December 31, 1996 as
compared to the corresponding period in 1995. Compensation and benefits expense
represented 20% and 19% of total gross income for the three months ended
December 31, 1996 and 1995, respectively.

Interest expense increased $22.3 million or 163% to $36.0 million for the three
months ended December 31, 1996 as compared to $13.7 million for the
corresponding period in 1995. Excluding the Acquisitions during the third
quarter of fiscal 1997, interest expense increased by $22.2 million, or 162% to
$35.9 million. This increase was primarily a result of interest expense
associated with the issuance of the Senior Notes, the costs of the sale, with
limited recourse, of certain Excess Spread Receivables and an overall increase
in the cost of borrowing offset by decreased expenses from the Purchase and Sale
Facilities and decreased borrowing from Continental Grain. The average
borrowings from Continental Grain, the Purchase and Sale Facilities, the Senior
Notes and the Excess Spread Receivables sold, with limited recourse, increased
by $1.3 billion for the three months ended December 31, 1996, as compared to the
corresponding period in 1995 resulting in a $22.9 million increase in interest
expense. The decrease in the Company's combined interest rates by 14 basis
points decreased interest expense by $0.6 million for the three months ended
December 31, 1996 as compared to the corresponding period in 1995. The
combination of the $0.6 million decrease due to a lower combined interest rate
and the $22.9 million increase due to increased balances resulted in a total
increase of $22.3 million in interest expense for the three months ended
December 31, 1996 compared to the corresponding period in 1995.


                                       16
<PAGE>

Provision for loan losses increased to $1.0 million for the three months ended
December 31, 1996 as compared to $0.11 million for the three months ended
December 31, 1995. Excluding the Acquisitions during the third quarter of fiscal
1997, provision for loan losses increased by $.01 million, or 9%. Provision for
loan losses is recorded in sufficient amounts to maintain an allowance at a
level considered adequate to cover anticipated losses resulting from liquidation
of receivables held for sale and receivables sold with limited recourse under
the Purchase and Sale Facilities, prior to securitization. Provision for credit
losses recorded at securitization is reserved in the value of interest-only and
residual certificates. The slight increase in the three months ended December
31, 1996 as compared to the corresponding period in 1995 resulted from a
determination of adequate reserves in light of actual loss experience.

General and administrative expenses increased $8.9 million or 215% for the three
months ended December 31, 1996 compared to the corresponding period in 1995, and
represented 11% and 6% of total gross income for the three months ended December
31, 1996 and 1995, respectively. Excluding the Acquisitions during the third
quarter of fiscal 1997, general and administrative expenses increased by $4.2
million, or 102%. Other than the acquisitions, the primary cause of the increase
was a $1.7 million increase in costs associated with underwriting, originating
and servicing higher loan volumes. In the three months ended December 31, 1996,
the origination volume increased 101% as compared to the three months ended
December 31, 1995. Increased expense related to the implementation of collection
technology accounted for approximately $0.7 million of the increase. The
remaining increase was due primarily to an increase in general and
administrative expenses of $1.8 million related to the increase in the number of
employees to 654 on December 31, 1996, excluding employees of the Acquisitions,
from 332 on December 31, 1995.

Income Taxes. The Company is included in the consolidated Federal income tax
return of Continental Grain. The Company's provision for income taxes was $18.9
million and $14.3 million for the three months ended December 31, 1996 and 1995,
respectively. The increase in taxes of 33% for the three months ended December
31, 1996 compared to the corresponding period in 1995 was substantially related
to the increase in income before taxes and minority interest over the same
period. The effective tax rate for the three months ended December 31, 1996
increased to 40% from 39% in the comparable period in fiscal 1996 due to a
change in the provision for state income taxes.


                                       17
<PAGE>

Nine Months Ended December 31, 1996 Compared to Nine Months Ended December 31,
1995

The Company's total gross income increased from $184.9 million for the nine
months ended December 31, 1995 to $280.8 million for the nine months ended
December 31, 1996, representing a 52% increase. Excluding the Acquisitions
during the third quarter of fiscal 1997, gross income increased by $85.2 million
or 46%. Net income has increased from $51.2 million for the nine months ended
December 31, 1995 to $74.0 million for the nine months ended December 31, 1996,
representing a 45% increase. Excluding the Acquisition during the third quarter
of fiscal 1997, net income increase by $24.0 million or 47%.

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

                                                                 Nine Months    
                                                              Ended December 31,
                                                            --------------------
                                                              1996        1995  
                                                            -------      -------
Gross income
   Gain on sale of receivables ..........................    47.64%       54.65%
   Interest .............................................    39.17%       33.18%
   Net servicing income .................................    11.53%       10.96%
   Other income .........................................     1.66%        1.21%
                                                            -------      -------
      Total gross income ................................   100.00%      100.00%
                                                            -------      -------

Expenses
   Compensation and benefits ............................    18.47%       17.91%
   Interest .............................................    28.50%       27.72%
   Provision for loan losses ............................     0.46%        0.20%
   General and administrative ...........................     8.84%        5.93%
                                                            -------      -------
     Total expenses .....................................    56.27%       51.76%
                                                            -------      -------

Income before income taxes and minority interest ........    43.73%       48.24%
Income taxes ............................................    17.52%       18.77%
Minority interest of subsidiary .........................   (0.13%)        1.79%
                                                            -------      -------
      Net income ........................................    26.34%       27.68%
                                                            =======      =======


                                       18
<PAGE>

Income. The increase in total gross income was due to a greater volume of loans
originated as a result of the expansion of the Company's wholesale and broker
origination sources. The following table sets forth information regarding the
components of the Company's total gross income in each of the nine month periods
ended December 31:

                                                Nine Months
                                             Ended December 31,
                                            --------------------
                                              1996        1995
                                            -------      -------
                                               (in thousands)
Gain on sale of receivables ............    $133,773   $101,031
Interest ...............................     109,967     61,335
Net servicing income ...................      32,386     20,266
Other income ...........................       4,652      2,227
                                            --------   --------
   Total gross income ..................    $280,778   $184,859
                                            ========   ========
                                                    
Gain on sale of receivables was the primary component of total gross income,
comprising 48% and 55% of total gross income in the nine months ended December
31, 1996 and 1995, respectively. Gain on sale of receivables as a percentage of
total gross income was lower for the nine months ended December 31, 1996 due to
an increase in servicing income associated with a larger servicing portfolio and
a larger balance of interest earning assets. Gain on sale of receivables
increased $32.7 million or 32% for the nine months ended December 31, 1996 as
compared to the corresponding period in 1995. Excluding the Acquisitions during
the third quarter of fiscal 1997, gain on sale of receivables increased by $24.4
million, or 24%.

The increase in the amount of gain on sale of receivables was due primarily to
an increase in securitization volume in addition to a larger gain on sale
percentage in the nine months ended December 31, 1996. The Company structured
and sold $3.3 billion of mortgages and leases in the nine months ended December
31, 1996, an increase of $0.5 billion from the nine months ended December 31,
1995 which contributed $16.0 million of the increase in gain on sale of
receivables.

The larger gain on sale percentage was due to an increased proportion of
ContiMortgage securitizations which yield higher gain on sale percentages than
securitizations and placements for Strategic Alliance clients. For the nine
months ended December 31, 1996, ContiMortgage represented 72% of total volume as
compared to 50% for the nine months ended December 31, 1995. This shift in
securitization type resulted in a gain of 30 basis points in Excess Spread or an
$8.4 million increase in gain on sale of receivables in the nine months ended
December 31, 1996 as compared to the corresponding period in 1995. The
combination of the $8.4 million increase due to the gain on sale percentage and
the $16.0 million increase due to increased securitization volume resulted in a
total increase in gain on sale of receivables, excluding the Acquisitions during
the third quarter of fiscal 1997, of $24.4 million. The gain on sale of
receivables as a percentage of loans securitized and sold for the nine months
ended December 31, 1996 and 1995 was 4.0% and 3.6%, respectively.


                                       19
<PAGE>

Interest income increased $48.6 million or 79% for the nine months ended
December 31, 1996 from the corresponding period in 1995. Excluding the
Acquisitions during the third quarter of fiscal 1997, interest income increased
by $47.2 million, or 77%. Interest income represents interest earned on loans
originated or purchased by the Company during the period from their origination
or purchase until the actual sale of the loans, as well as the recognition of
the increased value of the discounted Excess Spread Receivables over time. The
interest earned on loans originated and purchased contributed $36.5 million to
the increase between the nine months ended December 31, 1996 and 1995. The
increase in interest earned on loans originated and purchased was due primarily
to the increase in the average balance of loans originated and purchased but not
yet securitized during the periods, an increase of $801.0 million in the nine
months ended December 31, 1996 as compared to the corresponding period in 1995.
The recognition of the increased value of the discounted Excess Spread
Receivables over time accounted for $10.7 million of the increase in interest
income which was due to the increase in the average investment in Excess Spread
Receivables in the nine months ended December 31, 1996 as compared to the
corresponding period in 1995.

Net servicing income increased $12.1 million or 60% for the nine months ended
December 31, 1996 compared to the corresponding period in 1995 due to the
increase in the size of the servicing portfolio and the volume of loan sales and
securitizations. The Company's loan servicing portfolio increased $2.3 billion
or 66% to $5.7 billion from December 31, 1995 to December 31, 1996, contributing
$8.7 million or 72% of the increase between the nine months ending December 31,
1996 and 1995. Additionally, net servicing income increased by $3.3 million in
the nine months ended December 31, 1996 as compared to the nine months ended
December 31, 1995 due to capitalized servicing income associated with the 72%
increase in the volume of ContiMortgage loan sales and securitizations for the
nine months ended December 31, 1996 as compared to the corresponding period in
1995.

Other income increased $2.4 million or 109% for the nine months ended December
31, 1996 compared to the corresponding period in 1995. Excluding the
Acquisitions during the third quarter of fiscal 1997, other income increased by
$1.6 million, or 72%. Other income consists primarily of "purchase premium
refunds" received from certain origination sources related to loans that prepay
within a contractually set time period. Upon origination of a loan, the Company
will pay a wholesale originator a purchase premium for the loan or pools of
loans. The Company negotiates agreements with wholesale originators that provide
that a portion of such purchase premium will be repaid if individual loans are
repaid within a contractually set time period. The income from "purchase premium
refunds" increased due to increases in origination volume.

Expenses. Total expenses for the nine months ended December 31, 1996 increased
$62.3 million or 65% from the corresponding period in 1995. Excluding the
Acquisitions during the third quarter of fiscal 1997, total expenses increased
$49.6 million or 52%. This increase in total expenses was due to the increase in
number of employees, the granting of "restricted" common stock and costs
associated with increased home equity loan volume.


                                       20
<PAGE>

The following table sets forth the components of the Company's expenses for the
nine months ended December 31, 1996 and 1995.

                                                 Nine Months
                                             Ended December 31,
                                            --------------------
                                              1996        1995
                                            -------      -------
                                               (in thousands)
Compensation and benefits ...............  $ 51,870     $ 33,101 
Interest ................................    79,989       51,255 
Provision for loan losses ...............     1,302          367 
General and administrative ..............    24,830       10,960 
                                           --------     -------- 
    Total expenses ......................  $157,991     $ 95,683 
                                           ========     ======== 

Compensation and benefits expense increased $18.8 million or 57% for the nine
months ended December 31, 1996 compared to the corresponding period in 1995 due
to the addition of new personnel, change in incentive compensation plans, and
the granting of restricted common stock. Excluding the Acquisitions during the
third quarter of fiscal 1997, compensation and benefits expense increased by
$11.7 million, or 35%. On December 31, 1996, the Company had 1,346 employees,
692 from the Acquisitions, as compared to 332 employees on December 31, 1995,
which primarily contributed to a $20.9 million increase in salary, $7.0 million
due to the Acquisitions, offset by a $7.3 million decrease in incentive
compensation for the nine months ended December 31, 1996 as compared to the
corresponding period in 1995. In connection with the IPO, shares of "restricted"
common stock were granted to certain key employees. The "restricted" common
stock granted, subject to the employee's continued employment with the Company,
vests between February 14, 1996 and March 31, 2000. The granting of "restricted"
common stock increased the compensation expense for nine months ended December
31, 1996 by $5.2 million. Compensation and benefits expense represented 18% of
total gross income for both the nine months ended December 31, 1996 and 1995.

Interest expense increased $28.7 million or 56% to $80.0 million for the nine
months ended December 31, 1996 as compared to $51.3 million for the
corresponding period in 1995 primarily as a result of interest expense incurred
in connection with the issuance of the Senior Notes, the costs of the sale, with
limited recourse, of certain Excess Spread Receivables and an overall increase
in the cost of borrowing offset by decreased expenses from the Purchase and Sale
Facilities and decreased borrowings from Continental Grain. The Acquisitions did
not affect interest expense as the Acquisitions' external financing arrangements
were terminated upon acquisition. The average borrowings from Continental Grain,
Purchase and Sale Facilities, the Senior Notes and the Excess Spread Receivables
sold, with limited recourse, increased by $533 million for the nine months ended
December 31, 1996, as compared to the corresponding period in 1995 resulting in
a $28.1 million increase in interest expense. The increase in the Company's
combined interest rates by 5 basis points increased interest expense by $0.6
million for the nine months ended December 31, 1996 as compared to the
corresponding period in 1995. The combination of the $0.6 million increase due
to a higher combined interest rate and the $28.1 million increase due to
increased balances resulted in a total increase of $28.7 million in interest
expense for the nine months ended December 31, 1996 compared to the
corresponding period in 1995.


                                       21
<PAGE>

Provision for loan losses increased $0.9 million to $1.3 million for the nine
months ended December 31, 1996 as compared to $0.4 million the nine months ended
December 31, 1995. Excluding the Acquisitions during the third quarter of fiscal
1997, provision for loan loss increased by $0.1 million, or 16%. Provision for
loan losses is recorded in sufficient amounts to maintain an allowance at a
level considered adequate to cover anticipated losses resulting from liquidation
of receivables held for sale and receivables sold with limited recourse under
Purchase and Sale Facilities, prior to sale or securitization. Provision for
credit losses recorded at securitization is reserved in the value of
interest-only and residual certificates. The slight increase in the nine months
ended December 31, 1996 as compared to the corresponding period in 1995 resulted
from a determination of adequate reserves in light of actual loss experience.

General and administrative expenses increased $13.9 million or 126% for the nine
months ended December 31, 1996 compared to the corresponding period in 1995, and
represented 9% and 6% of total gross income for the nine months ended December
31, 1996 and 1995, respectively. Excluding the Acquisitions during the third
quarter of fiscal 1997, general and administrative expenses increased by $9.2
million, or 84%. Other than the Acquisitions, the primary cause of the increase
was a $4.8 million increase in costs associated with underwriting, originating
and servicing higher loan volumes. In the nine months ended December 31, 1996,
the origination volume increased 73% as compared to the nine months ended
December 31, 1995. Expenses related to the implementation of collection
technology accounted for approximately $1.0 million of the increase. The
remaining increase was due primarily to an increase in general and
administrative expenses related to the increase in the number of employees to
654 on December 31, 1996 , excluding employees of the Acquisitions, as compared
to 332 on December 31, 1995 of approximately $3.4 million.

Income Taxes. The Company is included in the consolidated Federal income tax
return of Continental Grain. The Company's provision for income taxes was $49.2
million and $34.7 million for the nine months ended December 31, 1996 and 1995,
respectively. The increase in taxes of 42% for the nine months ended December
31, 1996 compared to the corresponding period in 1995 was substantially related
to the increase in income before taxes and minority interest over the same
period. The effective tax rate for the nine months ended December 31, 1996
increased to 40% from 39% in the comparable period in fiscal 1996 due to a
change in the provision for state income taxes.

Minority Interest. In fiscal 1996, minority interest represents the portion of
income before taxes and minority interest due to the 20% minority shareholders
of ContiMortgage. Minority interest was $3.3 million for the nine months ended
December 31, 1995. The change in minority interest was directly related to the
change in the Company's ownership percentage of ContiMortgage. On June 19, 1995,
ContiTrade Services Corporation ("ContiTrade Services") effectively acquired
control of the remaining 20% minority interest in ContiMortgage, which became a
wholly-owned subsidiary of ContiTrade Services. Accordingly, the results of
operations for the nine months ended December 31, 1995 include approximately
three months of minority interest of $3.3 million, while the comparable period
of fiscal 1997 reflected 100% ownership of ContiMortgage during the period.

In fiscal 1997, minority interest represents the portion of income before taxes
and minority interest due to the 46.5% minority shareholders of Triad. On
November 21, 1996, the Company acquired 53.5% of the common stock of Triad.
Minority interest was ($0.4) million for the nine month ended December 31, 1996.


                                       22
<PAGE>

Liquidity and Capital Resources

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

As a result of its growing securitization program, the Company has operated, and
expects to continue to operate, on a negative cash flow basis, which is expected
to increase as the volume of its loan and asset purchases and originations
increases and its securitization program grows. See "Forward-looking
Statements". The Company securitized and sold in the secondary market $3.3
billion of loans in the nine months ended December 31, 1996 compared to $2.8
billion in the nine months ended December 31, 1995. The Company used $155.2
million of cash in operations during the nine months ended December 31, 1996.

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

In addition, increased use of securitization transactions as a funding source by
the Company has resulted in a significant increase in the amount of gain on sale
of receivables recognized by the Company. During the nine months ended December
31, 1996, the Company recognized gain on sale of receivables in the amount of
$133.8 million compared to $101.0 million for the corresponding period in 1995.
The recognition of gain on sale of receivables will have a negative impact on
the cash flows of the Company to the extent the Company is required to pay state
and Federal income taxes on these amounts in the period recognized,
notwithstanding that the Company does not receive the cash representing the gain
until later periods as the related loans are repaid or otherwise collected.

The Company's primary sources of liquidity are sales of loans, leases and other
assets through securitization, the sale of loans, leases and other assets under
the Purchase and Sale Facilities, the sale of Excess Spread 


                                       23
<PAGE>

Receivables, the sale of $300.0 million of unsecured Senior Notes, the unsecured
revolving credit facility and the financing provided by Continental Grain. While
the Company sells Excess Spread Receivables from time to time, there is no
liquid market for such Excess Spread Receivables.

Through ContiTrade, the Company had $2.0 billion of committed sale capacity
under its Purchase and Sale Facilities with various financial institutions as of
December 31,1996. The Purchase and Sale Facilities allow ContiTrade to sell,
with limited recourse, interests in designated pools of loans and other assets.
The Company has guaranteed ContiTrade's obligations under the Purchase and Sale
Facilities. These agreements generally have one year renewable terms (one
Purchase and Sale Facility has a two-year term), all of which will expire
between February 1997 and June 1998. On December 31, 1996, the Company had
utilized $1.3 billion of the capacity under these facilities. The Company
currently anticipates that it will be able to renew these facilities when they
expire and to obtain additional facilities.

Since fiscal 1995, ContiSecurities Asset Funding Corp. ("CSAF"), has been
selling certain Excess Spread Receivables, with limited recourse, to provide
cash to fund the Company's securitization program. On March 31, 1996, $91.0
million of these sales were outstanding. On April 1, 1996, CSAF sold $96.5
million of certain interest-only and residual certificates, and ContiFinancial,
as well as Continental Grain, guaranteed CSAF's performance thereunder. At
December 31, 1996, $155.4 million of these sales were outstanding. Under the
recourse provisions of the agreements, CSAF is responsible for losses incurred
by the purchaser within an agreed-upon range. CSAF's performance obligations in
these transactions are guaranteed by Continental Grain for an agreed-upon fee.
Although the Company intends to continue to pursue opportunities to sell Excess
Spread Receivables, no assurance can be given that such opportunities will be
available in the future.

On August 14, 1996, the Company issued $300 million of unsecured Senior Notes
maturing August 15, 2003. The Senior Notes bear interest at 8.375% payable
semiannually on February 15 and August 15 commencing February 15, 1997. The
Senior Notes are redeemable as a whole or in part, at the option of the Company,
at any time or from time to time, at a redemption price equal to the greater of
(i) 100% of their principal amount and (ii) the sum of the present values of the
remaining scheduled payments of principal and interest thereon discounted to the
date of redemption on a semiannual basis at the treasury yield plus 50 basis
points, plus in each case accrued interest to the date of redemption. Proceeds
to the Company, net of underwriting fees and market discount were $293.1
million. Of this amount, $125.0 million was used by the Company to repay in full
the Term Note payable to Continental Grain and the remaining funds have been
used for general corporate purposes, including funding loan originations and
purchases, supporting securitization transactions and other working capital
needs.

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

In order to fund the Company's growth prior to the IPO, Continental Grain
provided the Company with intercompany financing ("Intercompany Debt"). To
refinance the Intercompany Debt, simultaneously with the completion of the IPO,
Continental Grain purchased from the Company a $125 million five-year note
issued under an indenture (the "Indenture Note"), a $74 million four-year note
(the "Four Year Note") and the $125 million Term Note for $324 million in
aggregate (collectively, the "Notes"). The Term Note was prepaid in full on
August 19, 1996 after the Company's issuance of $300 million of unsecured Senior
Notes 


                                       24
<PAGE>

as discussed above. The Company's ability to refinance the Notes is subject to
limitations contained in the Continental Grain d ebt Agreements such as
restrictions on the in currence of debt and liens and other financial covenants.

The net proceeds from the IPO and the issuance of the Senior Notes were used by
the Company for general corporate purposes, including funding loan originations
and purchases, supporting securitization transactions (including the retention
of Excess Spread Receivables) and other working capital needs. Sales of the
loans, leases and other assets through securitizations, the sale of loans under
the Purchase and Sale Facilities, the sale of Excess Spread Receivables and
further issuances of debt (subject to the covenants of the Notes), together with
cash on hand, are expected to be sufficient to fund the Company's liquidity
requirements for at least the next 12 months if the Company's future operations
are consistent with management's current growth expectations. The Company has no
commitments for additional financing and there can be no assurance that the
Company will be successful in consummating any such financing transactions in
the future on terms that the Company would consider to be favorable.
Furthermore, no assurance can be given that Continental Grain will provide such
financing if the Company is unable to obtain third party financing or that the
terms of the Continental Grain debt agreements will permit the Company to obtain
such financing. See "Forward-looking Statements".

Forward-looking Statements

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


                                       25
<PAGE>

                           PART II - OTHER INFORMATION

Item 1.  Legal Proceedings.

         For a description of certain litigation involving the Company, see
         the Company's Quarterly Report on Form 10-Q for the quarterly
         period ended September 30, 1996.

Item 2.  Changes in Securities.

         None.

Item 3.  Defaults Upon Senior Securities.

         None.

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

         None.

Item 5.  Other Information.

         None.

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

         (a) Exhibits

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

         11.2          Computation of the Company's earnings per common share

         10.5          Revolving credit facility - Credit Agreement

         27.1          Financial Data Schedule

         (b)  Reports on Form 8-K.

              None.


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<PAGE>

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                           ContiFinancial Corporation

Date                 Signature                 Title
----                 ---------                 -----

February 14, 1997    /s/ Daniel J. Willett     Senior Vice President and Chief
-----------------    ---------------------        Financial Officer (Principal
                     Daniel J. Willett            Financial Officer)          
                                                  

February 14, 1997    /s/ Susan E. O'Donovan    Vice President and Controller
-----------------    ----------------------       (Principal Accounting Officer)
                     Susan E. O'Donovan           


                                       27