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 June 30, 1998

                                       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 or other jurisdiction                             (I.R.S. Employer
of incorporation or organization)                       Identification No.)

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  46,749,435  shares of common stock  outstanding as of August 7,
1998.



<PAGE>



                           ContiFinancial Corporation

                                Table of Contents


                                     PART I

                                                                            Page
                                                                            ----

Item 1. Financial Statements (unaudited)

        Consolidated Balance Sheets .......................................    3
        Consolidated Statements of Income .................................    4
        Condensed Consolidated Statements of Cash Flows ...................    5
        Notes to Unaudited Condensed Consolidated Financial Statements ....    6

Item 2. Management's  Discussion and Analysis of Financial Condition
          and Results of Operations
        General ...........................................................    8
        Selected Financial Data ...........................................   10
        Results of Operations .............................................   12
        Gain on Sale of Receivables and Excess Spread Receivables .........   15
        Liquidity and Capital Resources ...................................   18
        Year 2000 .........................................................   20
        Forward-looking Statements ........................................   21

Item 3. Quantitative and Qualitative Disclosures About Market Risk ........   22

                                     PART II

Item 5. Other Information .................................................   23

Item 6. Exhibits and Reports on Form 8-K ..................................   23

Signatures ................................................................   24



                                       2
<PAGE>



                           CONTIFINANCIAL CORPORATION
                           Consolidated Balance Sheets
                     as of June 30, 1998 and March 31, 1998
                        (in thousands, except share data)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                                                  June 30,               March 31,
                                                                                                    1998                   1998
                                                                                                 -----------            -----------
<S>                                                                                              <C>                    <C>        
                                             Assets
Cash and cash equivalents ............................................................           $    76,691            $   173,588
Restricted cash ......................................................................                 1,391                  1,147
Securities purchased under agreements to resell ......................................             1,497,668                857,649
Trade receivables:
   Receivables held for sale .........................................................               857,012                726,990
   Other receivables .................................................................               126,602                117,678
   Due from affiliates ...............................................................                45,638                 46,922
   Allowance for loan losses .........................................................                (3,321)                (2,685)
                                                                                                 -----------            -----------
Total trade receivables, net .........................................................             1,025,931                888,905
                                                                                                 -----------            -----------
Interest-only and residual certificates ..............................................               698,188                648,785
Capitalized servicing rights .........................................................                87,209                 74,292
Premises and equipment, net of accumulated depreciation of $9,337
  and $7,951 as of  June 30, 1998 and March 31, 1998, respectively ...................                21,456                 18,887
Cost in excess of equity acquired ....................................................                80,124                 55,738
Equity investments in unconsolidated subsidiaries ....................................                55,035                 53,660
Other assets .........................................................................                43,423                 35,928
                                                                                                 -----------            -----------
         Total assets ................................................................           $ 3,587,116            $ 2,808,579
                                                                                                 ===========            ===========

                             Liabilities and Stockholders' Equity
Liabilities:
Accounts payable .....................................................................           $    89,302            $    91,179
Securities sold but not yet purchased ................................................             1,476,789                847,470
Trade receivables sold under agreements to repurchase ................................               244,757                245,556
Due to affiliates ....................................................................                   218                    163
Short-term debt ......................................................................               341,507                366,104
Taxes payable ........................................................................                76,834                 81,190
Long-term debt .......................................................................               699,304                499,553
Other liabilities ....................................................................                18,870                 30,427
                                                                                                 -----------            -----------
         Total liabilities ...........................................................             2,947,581              2,161,642
                                                                                                 -----------            -----------

Commitments and contingencies
Minority interest in subsidiaries ....................................................                 5,185                    629

Stockholders' equity:
   Preferred stock  (par value $0.01 per share;
     25,000,000 shares authorized; none issued
     at June 30, 1998 and March 31, 1998) ............................................                    --                     --
   Common stock (par value $0.01 per share;
     250,000,000 shares authorized; 47,657,539
    shares issued at June 30, 1998 and
    March 31, 1998, respectively) ....................................................                   477                    477
   Paid-in capital ...................................................................               400,101                399,776
   Retained earnings .................................................................               268,976                262,956
   Treasury Stock (783,104 and 201,209
     shares of common stock, at cost,
     at June 30, 1998 and March 31, 1998,
     respectively) ...................................................................               (22,676)                (5,794)
   Deferred compensation .............................................................               (12,528)               (11,107)
                                                                                                 -----------            -----------
         Total stockholders' equity ..................................................               634,350                646,308
                                                                                                 -----------            -----------
         Total liabilities and stockholders' equity ..................................           $ 3,587,116            $ 2,808,579
                                                                                                 ===========            ===========
</TABLE>

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



                                       3
<PAGE>



                           CONTIFINANCIAL CORPORATION
                        Consolidated Statements of Income
                for the three months ended June 30, 1998 and 1997
                        (in thousands, except share data)
                                   (unaudited)

                                                             Three Months
                                                             Ended June 30,
                                                         1998            1997
                                                     -----------     -----------
Gross income:
   Gain on sale of receivables .................     $    37,572     $    64,340
   Interest ....................................          71,980          49,679
   Net servicing income ........................          26,720          15,973
   Other income ................................           5,844           4,031
                                                     -----------     -----------
         Total gross income ....................         142,116         134,023
                                                     -----------     -----------

Expenses:
   Compensation and benefits ...................          43,324          30,234
   Interest ....................................          55,382          35,863
   Provision for loan losses ...................             722           1,311
   General and administrative ..................          32,511          21,070
                                                     -----------     -----------
         Total expenses ........................         131,939          88,478
                                                     -----------     -----------
Income before income taxes and minority                   
      interest .................................          10,177          45,545
Income taxes ...................................           4,101          18,641
                                                     -----------     -----------
Income before minority interest ................           6,076          26,904
Minority interest in subsidiaries ..............              56              31
                                                     -----------     -----------
         Net income ............................     $     6,020     $    26,873
                                                     ===========     ===========
Basic earnings per common share ................     $      0.13     $      0.60
                                                     ===========     ===========
Diluted earnings per common share ..............     $      0.13     $      0.59
                                                     ===========     ===========
Basic weighted average number of shares
      outstanding ..............................      46,685,863      44,757,322
                                                     ===========     ===========
Diluted weighted average number of shares
      outstanding ..............................      47,226,533      45,588,626
                                                     ===========     ===========


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



                                       4
<PAGE>



                           CONTIFINANCIAL CORPORATION
                 Condensed Consolidated Statements of Cash Flows
                for the three months ended June 30, 1998 and 1997
                                 (in thousands)
                                   (unaudited)

                                                           Three Months Ended
                                                                June 30,
                                                            1998         1997
                                                         ---------    ---------
Net cash used in operating activities ................   $(215,290)   $(109,202)
                                                         ---------    ---------
Cash flows from investing activities:
      Acquisitions of majority owned subsidiaries
        (net of cash acquired) .......................     (21,595)          --
      Acquisitions of minority owned subsidiaries ....        (366)      (5,603)
      Purchase of property and equipment, net ........      (3,511)      (1,945)
                                                         ---------    ---------
         Net cash used in investing activities .......     (25,472)      (7,548)
                                                         ---------    ---------
Cash flows from financing activities:
      Increase (decrease) in due to affiliates, net ..          55      (29,376)
      Increase (decrease) in short-term debt .........     (24,678)     105,000
      Increase in long-term debt .....................     199,778           --
      Proceeds from exercise of employee stock options          --          288
      Debt issuance costs ............................     (11,658)          --
      Repurchase of common stock .....................     (19,632)          --
      Net proceeds from common stock offering ........          --      100,778
      Other, net .....................................          --            6
                                                         ---------    ---------
          Net cash provided by financing activities ..     143,865      176,696
                                                         ---------    ---------
Net increase (decrease) in cash and cash equivalents .     (96,897)      59,946
Cash and cash equivalents at beginning of  period ....     173,588       51,200
                                                         ---------    ---------
Cash and cash equivalents at end of period ...........   $  76,691    $ 111,146
                                                         =========    =========



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



                                       5
<PAGE>



                           CONTIFINANCIAL CORPORATION
         Notes to Unaudited Condensed Consolidated Financial Statements
                                  June 30, 1998

1. BASIS OF PRESENTATION

The  accompanying  unaudited  condensed  consolidated  financial  statements  of
ContiFinancial  Corporation and its majority owned  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 preparation of financial  statements  requires
management to make estimates and assumptions that affect the reported amounts of
assets and  liabilities  and the results of  operations.  Actual  results  could
differ from these  estimates.  In addition,  results for interim periods are not
necessarily  indicative of 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, 1998 (the "Annual
Report").  All  significant  intercompany  accounts and  transactions  have been
eliminated in consolidation.

2. RECENT ACCOUNTING PRONOUNCEMENT

In June 1998,  the  Financial  Accounting  Standards  Board 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,  1999.  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 statement of financial position and measure them
at fair value. The Company is currently evaluating the impact of SFAS 133 on its
financial position and results of operations.

3. STOCKHOLDERS' EQUITY

The following table presents a reconciliation  of basic and diluted earnings per
common share (dollars in thousands, except per share amounts).

                                                   Three months ended June 30,
                                                       1998          1997
                                                   -----------   -----------
    Net income .................................   $     6,020   $    26,873
                                                   ===========   ===========
    Basic weighted average number of
    shares outstanding .........................    46,685,863    44,757,322
    Adjustments for dilutive shares outstanding:
       Restricted shares .......................        55,235       150,914
       Options .................................       485,435       680,390
                                                   -----------   -----------
    Diluted weighted average number of
    shares outstanding .........................    47,226,533    45,588,626
                                                   ===========   ===========

    Earnings per common share:
         Basic .................................   $      0.13   $      0.60
                                                   ===========   ===========
         Diluted ...............................   $      0.13   $      0.59
                                                   ===========   ===========

 

                                       6
<PAGE>


                           CONTIFINANCIAL CORPORATION
   Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
                                  June 30, 1998


Options to  purchase  296,000  shares of common  stock,  at a  weighted  average
exercise price of $31.78 were outstanding during the three months ended June 30,
1998 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 up to
one million shares of the Company's  outstanding common stock.  During the three
months ended June 30, 1998, the Company  purchased  681,300 shares at an average
cost of $28.82 per share.  During  July 1998,  the Company  repurchased  125,000
shares,  completing the authorized repurchase.  The purchased shares are held in
treasury  for use in  connection  with  ContiFinancial's  1995  Long-Term  Stock
Incentive Plan (the "Stock Plan").

4. ACQUISITION

In April 1998,  the Company  acquired,  for  approximately  $18  million,  a 75%
interest in  Keystone  Mortgage  Partners  L.L.C.  ("Keystone").  Keystone is an
originator and servicer of commercial mortgage loans.

5. DEBT

Short-term  and long-term  debt at June 30, 1998 and March 31, 1998 consisted of
the following :

                                                             June 30,  March 31,

                                                               1998      1998
                                                             --------  ---------
                                                               (in thousands)
Short-term debt:
   Commercial paper ......................................   $271,129  $270,708
   Revolving Credit Facility .............................     70,000    95,000
   Current portion of long-term debt .....................        378       396
                                                             --------  --------
Total short-term debt ....................................   $341,507  $366,104
                                                             ========  ========

Long-term debt:
   8 3/8% Senior Notes, $300 million face amount, due 2003   $299,321  $299,295
   7 1/2% Senior Notes, $200 million face amount, due 2002    199,445   199,412
   8 1/8% Senior Notes, $200 million face amount, due 2008    199,782      --
   Capitalized lease .....................................        756       846
                                                             --------  --------
Total long-term debt .....................................   $699,304  $499,553
                                                             ========  ========

On April 2, 1998,  the Company  issued $200 million 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 $188.0 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 


                                       7
<PAGE>


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.


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 included herein,
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

ContiFinancial  engages in the  consumer  and  commercial  finance  business  by
originating  home equity loans,  commercial real estate loans and non-prime auto
loans.   ContiFinancial   also  provides  financing  and  asset   securitization
structuring  and placement  services to  originators  of a broad range of loans,
leases,  receivables and other assets.  ContiFinancial is a leading  originator,
purchaser, seller and servicer of home equity loans to borrowers whose 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  secured  primarily  by first
mortgages on one- to four-family residential properties.

The Company, through ContiTrade Services L.L.C.  ("ContiTrade"),  a wholly-owned
subsidiary,  provides financing and asset securitization  structuring expertise,
and through ContiFinancial Services Corporation  ("ContiFinancial  Services"), a
wholly-owned  subsidiary,  provides placement services.  ContiTrade's management
and execution of the Company's financing, hedging and securitization needs serve
as a model for the Company's  "strategic  alliances" with originators of a broad
range of consumer and commercial loans and other assets ("Strategic Alliances").
The Company offers  Strategic  Alliance clients complete balance sheet liability
management,  including warehouse  financing,  interest rate hedging services and
structuring  and  placement  of asset  portfolios  in the  form of  asset-backed
securities.

The Company, through investments and strategic acquisitions,  as well as through
internal  growth,  has continued to expand and diversify its businesses.  Within
its core home equity  business,  the Company has developed a significant  retail
origination  platform  to  complement  its  established   wholesale  origination
capabilities.  The retail origination  subsidiaries,  discussed below, provide a
source of cash revenues through loan origination  points and fees and whole loan
sales.  Significant  growth  in  origination  volume  has  been  accompanied  by
infrastructure   investments  that  have  enhanced  and  expanded  ContiMortgage
Corporation's  ("ContiMortgage")  home equity  loan  servicing  capacity,  which
represents  another  source  of cash  income  to the  Company.  In  addition  to
expanding  its retail  origination  capabilities,  the Company has expanded home
equity loan  originations  through its broker network,  which represents a lower
cost source of origination  volume.  Originations  from direct retail operations
and brokers were $841.8 million in three months ended June 30,1998,  or 38.4% of
total  home  equity,  home  improvement  and  other  residential  mortgage  loan
origination  volume.  This  compares  with  $409.0  million,  or  29.4% of total
originations in the corresponding period of fiscal 1998.

The Company's commercial real estate activities have grown considerably. Notable
developments with respect to this business include the April 1998 acquisition of
a  75%  interest  in  Keystone  Mortgage  Partners  L.L.C.  ("Keystone").  Total
commercial real estate loan  originations were $936.7 million in the fiscal 1999
first quarter,  including  $218.0  million of  originations  by Keystone.  Total
originations in the fiscal 1998 first quarter were $191.8 million.


                                       8
<PAGE>


In fiscal  1997,  the  Company  acquired  100% of three home  equity  companies,
California Lending Group, Inc., d/b/a United Lending Group ("ULG"), Resource One
Consumer Discount Company, Inc. ("Resource One"), Royal Mortgage Partners, L.P.,
d/b/a Royal  MortgageBanc  ("Royal") and 56% of an auto finance  company,  Triad
Financial  Corporation  ("Triad").  In fiscal  1998,  the Company  acquired  the
remaining  44% of  Triad  and  100% of two  additional  home  equity  companies,
Fidelity  Mortgage  Decisions  Corporation  ("Fidelity")  and  Crystal  Mortgage
Company,   Inc.  ("Crystal")  along  with  its  subsidiary  Lenders  M.D.,  Inc.
("Lenders").  These  home  equity  and auto  retail  origination  companies  are
collectively referred to herein as the "Retail Subsidiaries".  In each case, the
companies  acquired were former Strategic  Alliances or  ContiMortgage/ContiWest
loan origination sources.









                                       9
<PAGE>


Selected Financial Data
-----------------------

                           ContiFinancial Corporation
                  Loan Originations, Securitizations and Sales
                             (dollars in thousands)
                                   (unaudited)

                                              For the three months ended    %
                                                       June 30,           Incr.
                                                  1998         1997      (Decr.)
                                               ----------   ----------   -------

Originations
------------

Home equity, home improvement
     and other residential mortgage loans:
   Wholesale:
       Brokers .............................   $  308,188   $  207,089    48.8%
       Correspondents ......................    1,349,429      983,264    37.2%
    Direct retail ..........................      533,632      201,878   164.3%
                                               ----------   ----------   -----

Total home equity, home improvement
      and other residential mortgage loans .    2,191,249    1,392,231    57.4%
                                               ----------   ----------   -----

Commercial real estate mortgage loans:

   Conduit (ContiMAP and affiliates) .......      718,783      191,806   274.7%

   Conforming ..............................      217,952           --      --
                                               ----------   ----------   -----

Total commercial real estate mortgage
     loans .................................      936,735      191,806   388.4%
                                               ----------   ----------   -----
Triad auto loans ...........................       70,546       38,056    85.4%
                                               ----------   ----------   -----
        Total loan originations ............   $3,198,530   $1,622,093    97.2%
                                               ==========   ==========   =====

Securitizations and sales
-------------------------

ContiMortgage/ContiWest
   securitizations .........................   $1,750,000   $1,265,000    38.3%

Other home equity, home improvement and
   other residential  mortgage sales .......      196,183       85,879   128.4%
                                               ----------   ----------   -----

Total home equity, home improvement
and other residential mortgage sales .......    1,946,183    1,350,879    44.1%
                                               ----------   ----------   -----
Commercial real estate mortgage loans:

   Conduit (ContiMAP and affiliates) .......           --      158,816      --

   Conforming ..............................      217,952           --      --
                                               ----------   ----------   -----



Total commercial real estate
mortgage loans .............................      217,952      158,816    37.2%
                                               ----------   ----------   -----

Triad auto loans ...........................       57,667       45,881    25.7%
Strategic alliances ........................      100,249      174,200   (42.5)%
                                               ----------   ----------   -----

       Total securitizations and sales .....   $2,322,051   $1,729,776    34.2%
                                               ==========   ==========   =====




                                       10
<PAGE>


                            ContiMortgage Corporation
                       Delinquencies, Defaults and Losses
                             (dollars in thousands)
                                   (unaudited)

 ContiMortgage                  June 30,          March 31,         June 30,
 Servicing Portfolio             1998               1998              1997
 -------------------         --------------    --------------    --------------
 (at period end)

Serviced loan portfolio ...  $   11,154,731    $   10,135,785    $    7,269,361
                             ==============    ==============    ==============
 Delinquencies:

    30 - 59 days ..........            2.57%             1.50%             2.69%

    60 - 89  days .........            0.85%             0.51%             0.69%

    90 days and over ......            0.49%             0.35%             0.30%
                             --------------    --------------    --------------
    Total delinquencies (%)            3.91%             2.36%             3.68%
                             --------------    --------------    --------------
    Total delinquencies ($)  $      435,927    $      239,015    $      267,368
                             ==============    ==============    ==============
 Defaults:

    Foreclosures ..........            2.14%             2.31%             3.24%

    Bankruptcies ..........            1.54%             1.70%             1.29%

    Real estate owned .....            0.92%             0.83%             0.48%

    Loss mitigation (1) ...            0.76%             0.74%             0.04%
                             --------------    --------------    --------------
    Total defaults (%) ....            5.36%             5.58%             5.05%
                             --------------    --------------    --------------
    Total defaults ($) ....  $      598,226    $      565,238    $      367,146
                             ==============    ==============    ==============

(1) This category includes  non-performing  accounts specifically identified for
accelerated  resolution under the Company's loss mitigation program.  Resolution
strategies include  refinances,  reinstatements,  and full payoffs;  forbearance
plans;  pre-foreclosure sales for less than full payoff; third party foreclosure
sales; deed-in-lieu (or "cash for keys"); and charge-offs.

                                             For the three    For the twelve
 ContiMortgage                                months ended     months ended
 Loan Loss experience                        June 30, 1998    June 30, 1998
 --------------------                        -------------    -------------- 
      Average serviced loan portfolio .....   $10,742,598       $ 9,163,255
                                              ===========       ===========
      Net losses :                                              
         REMICs and loans held                                  
              pending securitization ......   $    19,571       $    52,187
         Loans and properties                                   
              purchased out of REMICs .....         2,613            18,570
                                              -----------       -----------
                    Total net losses ......   $    22,184       $    70,757
                                              ===========       ===========
      Net losses as a percentage of average                     
         amount outstanding (2):                                
         REMICs and loans held                                  
               pending securitization .....          0.73%             0.57%
         Loans and properties                                   
               purchased out of REMICs ....          0.10%             0.20%
                                              -----------       -----------
      Total net losses as a percentage of                       
      average amount outstanding ..........          0.83%             0.77%
                                              ===========       ===========
                                                            
(2) Amounts for the three months ended June 30, 1998 are annualized.



                                       11
<PAGE>



Results of Operations

The Company's  development of its retail origination  platform has resulted in a
change  in  the  profile  of  the  Consolidated  Statements  of  Income.  Retail
origination  expenses focus heavily on compensation and benefits and general and
administrative  expenses,  whereas  wholesale  origination  costs in the form of
origination   points,   are  netted   against  gain  on  sale  of   receivables.
Consequently,  the  accompanying  unaudited  Consolidated  Statements  of Income
reflect  increases  in  operating  expenses,  as  well  as  higher  income  from
origination points.

Three Months Ended June 30, 1998  Compared  with the Three Months Ended June 30,
1997

Net income decreased $20.9 million or 77.6% to $6.0 million for the three months
ended June 30, 1998 from $26.9 million for the three months ended June 30, 1997.
The Company's total gross income  increased 6.0% to $142.1 million for the three
months  ended June 30, 1998 from $134.0  million for the three months ended June
30,  1997.  The  decrease  in net  income was  largely  the result of fair value
adjustments to Excess Spread  Receivables  ("ESR") to reflect higher  prepayment
speeds.  See "Gain on Sale of  Receivables  and Excess Spread  Receivables"  for
further discussion.


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 June 30,
                                                         ----------------
     Gross income:                                        1998      1997
                                                         ------    ------
         Gain on sale of receivables .................    26.44%    48.00%
         Interest ....................................    50.65     37.07
         Net servicing income ........................    18.80     11.92
         Other income ................................     4.11      3.01
                                                         ------    ------
            Total gross income .......................   100.00%   100.00%
                                                         ------    ------

      Expenses:
         Compensation and benefits ...................    30.48%    22.56%
         Interest ....................................    38.97     26.76
         Provision for loan losses ...................     0.51      0.98
         General and administrative ..................    22.88     15.72
                                                         ------    ------
           Total expenses ............................    92.84%    66.02%
                                                         ------    ------

      Income before income taxes and minority interest     7.16     33.98
      Income taxes ...................................     2.88     13.91
      Minority interest ..............................     0.04      0.02
                                                         ------    ------
            Net income ...............................     4.24%    20.05%
                                                         ======    ======



                                       12
<PAGE>



Interest Income and Expense:

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.  The
Company's   origination,   securitization   and  sales   volume  has   increased
significantly,  contributing  to a concurrent  increase in the average  level of
loans held in inventory pending securitization. As a result, net interest income
increased  to $16.6  million for the three months ended June 30, 1998 from $13.8
million for the three months ended June 30, 1997.  Interest income also includes
accrued 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.  Interest income  increased  $22.3 million,  or
44.9%,  in the first  quarter  of fiscal  1999 over the first  quarter of fiscal
1998.  Interest expense increased $19.5 million,  or 54.4%, for the three months
ended June 30, 1998 over the three months ended June 30, 1997.

Net servicing Income:

Net servicing  income  increased $10.7 million or 67.3% for the first quarter of
fiscal 1999 over the corresponding  period in fiscal 1998 due to the increase in
the size of the  servicing  portfolio  and the  volume of  securitizations.  The
Company's  home equity loan  servicing  portfolio  increased to $11.2 billion at
June 30, 1998 from $7.3 billion at June 30, 1997.  Servicing  income consists of
fee  income  and  capitalized  servicing.  The fee  income  component  (which is
realized in cash) represents income earned from Real Estate Mortgage  Investment
Conduits  ("REMICs") and other trusts based on the level of loans serviced.  The
fee income component of servicing income was $18.5 million for the first quarter
of fiscal 1999 and $11.0  million for the  corresponding  period in fiscal 1998.
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  amortization  of  capitalized   servicing  from  prior
securitizations. The net capitalized servicing component of servicing income was
$8.2  million for the first  quarter of fiscal 1999  compared  with $5.0 for the
corresponding period in fiscal 1998.

Compensation and Benefits and General and Administrative Expenses:

The table below allocates the Company's  compensation and benefits,  general and
administrative  expenses and headcount  between the Retail  Subsidiaries and all
other activities.  As noted previously,  the Company has significantly  expanded
its retail  origination  platform,  which in turn has resulted in a  significant
increase in expenses.  From the date of the  acquisition of majority  ownership,
expenses of the acquired subsidiaries are included in the Company's consolidated
expenses.

As  demonstrated in the table below,  the acquisition of the retail  origination
subsidiaries  has resulted in  significantly  higher levels of compensation  and
benefits and general and administrative  expenses. With respect to the Company's
activities  exclusive  of the Retail  Subsidiaries,  the expense  increases  are
indicative of the significant growth in ContiMortgage's  origination volume, its
serviced  loan  portfolio  and the related  growth in headcount to support these
activities.  Combined  compensation and benefits and general and  administrative
expenses for ContiMortgage  (exclusive of its retail subsidiaries)  increased by
$7.1 million during the first quarter of fiscal 1999.  ContiMortgage's headcount
(exclusive  of its retail  subsidiaries)  was 1,140 as of June 30, 1998 compared
with 687 as of June 30, 1997. Combined compensation and benefits and general and
administrative  expenses for activities other than  ContiMortgage and the Retail
Subsidiaries increased by $1.7 million for the first quarter of fiscal 1999 over
the corresponding period in fiscal 1998. This is due in part to the expansion of
the Company's  commercial  real estate  business,  including the  acquisition of
Keystone.



                                       13
<PAGE>


<TABLE>
<CAPTION>
                                                Three Months
                                                Ended June 30,      Increase
                                                1998      1997    Amount      %
                                              -------   -------   -------   ---- 
                                                     (dollars in thousands)
<S>                                           <C>       <C>       <C>       <C>  
Compensation and benefits:
   Retail Subsidiaries ....................   $21,276   $12,340   $ 8,936   72.4%
   Operations excluding Retail Subsidiaries    22,048    17,894     4,154   23.2%
                                              -------   -------   -------   ---- 
Total compensation and benefits ...........   $43,324   $30,234   $13,090   43.3%
                                              =======   =======   =======   ==== 

General and administrative:
  Retail Subsidiaries .....................   $16,446   $ 9,663   $ 6,783   70.2%
  Operations excluding Retail Subsidiaries     16,065    11,407     4,658   40.8%
                                              -------   -------   -------   ---- 
Total general and administrative ..........   $32,511   $21,070   $11,441   54.3%
                                              =======   =======   =======   ==== 

Headcount (at period end):
   Retail Subsidiaries ....................     1,813       974       839   86.1%
   Headcount excluding Retail Subsidiaries      1,296       770       526   68.3%
                                              -------   -------   -------   ---- 
Total headcount ...........................     3,109     1,744     1,365   78.3%
                                              =======   =======   =======   ==== 
</TABLE>


Defaults and Losses:
(See  "ContiMortgage  Corporation - Delinquencies,  Defaults and Losses" on page
11)

Early in the life of a  securitization,  realized losses are generally very low.
Losses as a percentage of average serviced loans have increased over time as the
portfolio  has  seasoned  and  annual  growth  has  decelerated.  Losses  in the
portfolio are  overwhelmingly  attributable to the time period a loan remains in
foreclosure  status and are  primarily a function  of  interest  foregone on the
loans and the  deterioration  of  collateral  value over this  time.  During the
course of fiscal 1998,  the Company  implemented an aggressive  loss  mitigation
program  focused on this issue,  with the  long-term  objective of a significant
reduction in the time period defaulted loans are held in the serviced portfolio.
This program,  which includes  purchasing loans and properties out of REMICs for
early  disposition,  results in a near term  acceleration of losses and a longer
term  mitigation of total potential  losses.  The Company  anticipates  that the
continuation  of this program in fiscal 1999 will result,  in aggregate,  on the
order of 75 to 85 basis points as a percentage of loans  serviced (on a trailing
12 month basis).  However,  due in part to this acceleration of losses in fiscal
1998 and 1999,  the Company  expects a reduction in total losses as a percentage
of serviced  loans in fiscal 2000 and beyond.  As of June 30, 1998,  the Company
projects  an  average  annual  loss rate over  remaining  REMIC  lives of 0.63%.
Estimated future credit losses  (undiscounted)  over the lives of the REMICs are
approximately $202 million. Combined historical and estimated future losses as a
percentage of original pool balances was 1.81% as of June 30, 1998.



                                       14
<PAGE>



Gain on Sale of Receivables and Excess Spread Receivables
---------------------------------------------------------

Gain on Sale of Receivables:

The following table sets forth the components of gain on sale of receivables for
the three months ended June 30, 1998 and 1997:


<TABLE>
<CAPTION>
                                             Three Months Ended    Three Months Ended
                                               June 30, 1998          June 30, 1997
                                                      Percent                Percent
                                                        of                      of
                                              Amount   Total        Amount    Total
                                             -------   -----        -------   ----- 
 Home equity/home improvement:                        (dollars in thousands)
<S>                                          <C>        <C>         <C>        <C>  
   ContiMortgage/ContiWest securitizations   $11,493    30.6%       $38,006    59.1%
   Other (including whole loan sales,                              
   origination points and fees) ..........    19,650    52.3         14,146    22.0
                                             -------   -----        -------   ----- 
Total home equity/home improvement .......    31,143    82.9         52,152    81.1
Commercial real estate ...................     1,262     3.4          4,373     6.8
Auto .....................................     4,867    13.0          7,008    10.9
Other ....................................       300     0.7            807     1.2
                                             -------   -----        -------   ----- 
       Total .............................   $37,572   100.0%       $64,340   100.0%
                                             =======   =====        =======   ===== 
</TABLE>

Gain on sale of  receivables  decreased  $26.8  million  or 41.6%  in the  first
quarter  of fiscal  1999 from the  corresponding  quarter  of fiscal  1998.  The
decrease  was  primarily  the result of lower gain on sale of  receivables  from
ContiMortgage/ContiWest  securitizations; $11.5 million in the fiscal 1999 first
quarter, down $26.5 million from $38.0 million in the fiscal 1998 first quarter.
Gain  on  sale  of   receivables   with   respect   to   ContiMortgage/ContiWest
securitizations   includes   the   gain   recorded   upon  the   completion   of
securitizations  as well as  unrealized  gains or losses  that  result  from the
quarterly  adjustment of ESR to fair value.  The completion of the $1.75 billion
ContiMortgage  Home Equity Loan Trust 1998-2 resulted in new ESR of $100 million
and a pretax gain on sale of  receivables  of $68.3  million.  Premiums  paid to
acquire loans from wholesale sources (as a percentage of loans securitized) were
more than 100 basis  points  lower in the fiscal 1999 first  quarter than in the
comparable quarter last year. This positive  development was offset in part by a
narrowing of the spread, by approximately 30 basis points,  between the weighted
average interest rate on mortgage loans  securitized and the  pass-through  rate
interest rate on securities  sold.  This was  attributable  in part to a flatter
U.S.  Treasury  yield curve in the 1999 quarter  compared  with the prior year's
quarter. The gain on sale of receivables from the ContiMortgage Home Equity Loan
Trust  1998-2  securitization  was offset in part by a $56.2  million fair value
adjustment  to ESR  from  prior  ContiMortgage/ContiWest  securitizations.  This
adjustment was primarily  attributable  to higher  prepayment  speeds.  As noted
below, the Company  increased the weighted average  estimated future CPR for its
ContiMortgage/ContiWest  ESR portfolio from 27% at March 31, 1998 to 28% at June
30, 1998.  The  adjustment  also  includes  $8.0 million  attributable  to yield
maintenance  agreements on certain  Interest-only  securities sold in connection
with six ContiMortgage/ContiWest securitizations from late 1995 to early 1997.




                                       15
<PAGE>



Excess Spread Receivables ("ESR"):

At June 30, 1998 and March 31,1998, the Company's ESR portfolio was comprised of
the following :

                                  June 30,   Percentage   March 31,   Percentage
                                    1998      of Total      1998       of Total
                                  --------   ----------   --------    ----------
                                               (dollars in thousands)
Home equity:

    ContiMortgage/ContiWest ...   $605,485      86.7%     $555,884      85.7%

    Other servicers ...........     36,346       5.2        37,428       5.8
                                  --------     -----      --------     -----
       Total home equity ......    641,831      91.9       593,312      91.5

Home improvement ..............      4,972       0.7         7,919       1.2

Commercial real estate ........      7,756       1.1         8,233       1.3

Auto ..........................     33,300       4.8        28,223       4.3

Leases ........................      8,113       1.2         8,960       1.4

Franchise .....................      2,216       0.3         2,138       0.3
                                  --------     -----      --------     -----
       Total ESR portfolio ....   $698,188     100.0%     $648,785     100.0%
                                   ========     =====      ========     =====


The  ESR  is  reported  as  "Interest-only  and  residual  certificates"  in the
accompanying  unaudited  Consolidated  Balance  Sheets.  The ESR  represents the
present  value of an  estimated  stream of future  cash flows  that the  Company
expects to receive over the life of a securitization,  taking into consideration
estimated  prepayment  speeds and credit  losses.  These cash flows  include the
excess of the weighted  average coupon on the loans or other assets  securitized
over the sum of the  pass-through  interest  rate,  a normal  servicing  fee,  a
trustee fee, an insurance fee (where  applicable) and the credit losses relating
to the loans or other assets  securitized.  At June 30, 1998, ESR totaled $698.2
million,  of which $605.5 million,  or 86.7% of the total,  was  attributable to
ContiMortgage/ContiWest securitizations.

The predominant 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   Prepayment  Rate  ("CPR").   In  determining  fair  value  of  the
ContiMortgage/ContiWest  ESR  portfolio,  the  Company  increased  its  weighted
average estimated future CPR from 27% as of March 31, 1998 to 28% as of June 30,
1998.

Additional  factors that are considered in determining the fair value of ESR are
estimated  future credit losses and the discount rate. As a credit  enhancement,
the ESR is subordinate  to the rights of the holders of the senior  pass-through
securities.  The  weighted  average  annual  credit loss  provision  used in the
determination  of the fair  value of  ContiMortgage's  ESR at June 30,  1998 was
0.63% compared with 0.62% as of March 31, 1998. The future cash flows  estimated
as of  June  30,  and  March  31,  1998,  taking  into  consideration  estimated
prepayment  rates and credit losses,  were discounted at a rate of 10% to arrive
at the fair value amounts presented in the accompanying  unaudited  Consolidated
Balance  Sheets.  If actual  prepayments  or credit  losses are greater than 


                                       16
<PAGE>


the assumptions used to determine ESR fair value, the ESR carrying value will be
written down through a charge to earnings.



The following table presents an analysis of ESR activity during the three months
ended June 30, 1998:



Interest-only and residual certificates (in thousands):
---------------------------------------

Balance as of March 31, 1998 ........................                 $ 648,785
   New securitizations:
       ContiMortgage 1998-2 .........................       99,991
       Triad 1998-2 .................................        6,165      106,156
                                                         ---------   
   Net cash distributions from REMICs and trusts ....                    (9,717)
   Accruals of interest income ......................                    12,512
   Fair value adjustments  ..........................                   (59,548)
                                                                      ---------
Balance as of June 30, 1998 .........................                 $ 698,188
                                                                      =========






                                       17
<PAGE>


Liquidity and Capital Resources

The following  table  summarizes the principal  components of the Company's cash
flows for the twelve months ended June 30, 1998 and 1997:

<TABLE>
<CAPTION>
                                                                    Twelve months 
                                                                    ended June 30,
                                                                   ----------------
                                                                    1998      1997
                                                                   ------    ------
Cash component of pretax income:                                     (in millions)
<S>                                                                <C>       <C>   
    Cash gross income, net of interest expense (a):
       Gain on sale of receivables:
             CMC securitizations -
                 Proceeds from NIMs sales ......................   $159.7    $  0.0
                 Proceeds from IO sales ........................    100.8      69.0
                 Premiums paid to third-party originators ......   (255.2)   (170.1)
                 Transaction related expenses and hedge results     (30.5)    (22.8)
                                                                   ------    ------
              Total CMC securitizations - cash basis ...........    (25.2)   (123.9)
              Other cash gain on sale (b) ......................    112.7      52.0
                                                                   ------    ------
         Total gain on sale of receivables .....................     87.5     (71.9)
         Interest income, net of interest expense ..............     15.1       8.0
       Net servicing income ....................................     62.2      33.2
       ESR cash distributions ..................................     69.7      49.9
       Other income ............................................     17.0      12.3
                                                                   ------    ------
          Total cash gross income, net of interest expense .....    251.5      31.5
     Cash operating expenses (c) ...............................    271.6     153.3
                                                                   ------    ------
          Pretax income - cash basis ...........................    (20.1)   (121.8)
                                                                   ------    ------
Other cash requirements:
     Growth in trade receivables, net of warehouse financing (d)   (273.8)   (120.0)
     Acquisitions and infrastructure investments ...............    (82.9)    (39.3)
     Other cash inflows (outflows) (e) .........................    (69.8)    (25.4)
                                                                   ------    ------
          Other cash requirements ..............................   (426.5)   (184.7)
                                                                   ------    ------
Aggregate cash requirements ....................................   (446.6)   (306.5)
Proceeds from debt and equity issues ...........................    412.1     392.7
                                                                   ------    ------
Increase (decrease) in cash and cash equivalents ...............   $(34.5)   $ 86.2
                                                                   ======    ======
</TABLE>

(a)  Cash  gross  income,  net of  interest  expense,  reflects  gain on sale of
     receivables  on a cash basis.  Consequently,  it excludes  ESR  retained in
     connection  with  securitizations  and  is  reduced  by  premiums  paid  to
     third-party  originators.  Cash gross income also excludes accrued interest
     income on ESR,  capitalized  servicing income net of related  amortization,
     and undistributed earnings of less than 50% owned subsidiaries.  Cash gross
     income  includes ESR cash flows (i.e.,  distributions  received from trusts
     and proceeds from NIMS and IO sales).

(b)  Other cash gain on sale includes,  among other things,  gains from the sale
     of commercial real estate mortgage loans,  whole loan sales and origination
     points and fees.

(c)  Cash operating  expenses exclude interest,  depreciation,  amortization and
     deferred compensation.


                                       18
<PAGE>


(d)  Trade receivables, net of warehouse financing, are higher at month ends due
     to the  concentration of loan  originations in the latter part of the month
     and the timing difference  between the date of origination and the date the
     loan is financed through the Company's warehouse facilities (usually 1 to 4
     days).

(e)  Other cash inflows and outflows include,  among other things, tax payments,
     cash expended for common share  repurchases,  proceeds from the exercise of
     employee stock  options,  payments of amounts due to affiliates and changes
     in other receivables and liabilities.


Sources of Liquidity and Capital

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
its asset  purchase  and sale  facilities  with certain  financial  institutions
("Purchase  and Sale  Facilities")  and funding under an agreement to repurchase
(the "Repurchase Agreement"),  collectively,  the "Facilities";  the issuance of
shares of common stock,  the issuance of long-term debt and short-term  borrowed
funds.

In previous  fiscal  years,  the Company  sold ESR,  with limited  recourse,  to
provide cash to fund the Company's  securitization  program.  Under the recourse
provisions of the agreements,  the Company is responsible for losses incurred by
the purchaser  within an  agreed-upon  range.  At June 30, 1998 $83.9 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.  Although  the  Company
intends to continue to pursue opportunities to sell ESR, there is only a limited
market  for  such   instruments   and  no  assurance  can  be  given  that  such
opportunities will be available in the future.

The Company had $2.8 billion of committed and $3.1 billion of  uncommitted  sale
capacity  under  the  Facilities  as of June 30,  1998.  The  Purchase  and Sale
Facilities  allow the  Company to sell,  with  limited  recourse,  interests  in
designated pools of loans and other assets. The Repurchase  Agreement allows the
Company to sell  receivables held for sale to a financial  institution  under an
agreement to repurchase the receivables.  The Facilities generally have one year
renewable  terms,  which expire  between June 1999 and December 1999. As of June
30,  1998,  the Company had  utilized  $1.5  billion of the  capacity  under the
Facilities.  Although the Company currently  anticipates that it will be able to
renew these  facilities  when they expire and to obtain  additional  facilities,
there can be no assurance that such financing will be obtainable on as favorable
terms, if at all.

In February 1998, the Company's Board of Directors authorized the purchase up to
one million shares of the Company's  outstanding  common stock. This program 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.

On April 2, 1998,  the Company  issued $200 million 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  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.


                                       19
<PAGE>


In anticipation of growth in the Company's operations, additional financing will
be required.  The Company  currently has commitments  for financing  through the
unsecured  revolving credit facility and, in April 1998,  issued $200 million of
senior unsecured debt. However,  there can be no assurance that the Company will
be successful in obtaining  additional financing 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.

The Company hedges,  in part, its interest rate exposure on receivables held for
sale and loans and other assets sold, with limited recourse,  through the use of
futures  contracts  and  short  sales  of  United  States  Treasury  securities.
Securities purchased under agreements to resell increased from $857.6 million at
March 31, 1998 to $1.5  billion at June 30,  1998.  Securities  sold but not yet
purchased  increased  from $847.5  million at March 31, 1998 to $1.5  billion at
June 30, 1998. The increases in securities  purchased under agreements to resell
and securities  sold but not yet  purchased,  which are integral to this hedging
strategy,  reflect  growth  in the level of loans  and  other  assets  sold with
limited recourse or held for sale.


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 the applicable year.
Failure to  successfully  modify such programs and  applications to be Year 2000
compliant would 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 the impact of
noncompliance  by  certain  significant   counterparties,   including  Strategic
Alliances.

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
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.  To date,  the Company has  completed  the Awareness and Project
Definition  and  Systems  Inventory  and  Assessment  phases  and has  begun the
Remediation  and Testing  phases.  During the Systems  Inventory and  Assessment
phase,  the  Company  completed  an  inventory  of all  hardware,  software  and
computerized systems and identified those which require remediation for the Year
2000. The Systems Inventory and Assessment phase also included the establishment
of criteria for prioritizing modifications,  developing strategies and a process
to  certify  that  third  party  products  are  compliant,   and  beginning  the
development of contingency  plans in the event systems are not compliant or fail
to operate  properly.  Implementation  is  expected  to  commence in the quarter
ending  September 30, 1998 and continue  through  March 31, 1999,  the Company's
target date for resolution of its Year 2000 issues. The Company will continue to
test its systems  through the Year 2000 to ensure that  compliance is maintained
as normal system updates, enhancements and modifications are made.

Based on its  analysis of the data from the  Systems  Inventory  and  Assessment
phases,  the Company has concluded that the greatest risk posed by the Year 2000
issue relates to the  computerized  loan servicing  systems utilized by its home
equity, auto and commercial lending operations.  If such systems fail to operate
properly as a result of the Year 2000 issue,  the loan  servicing  process could
not be executed in a manual  environment.  The Company's loan servicing software
have been developed by outside  vendors and are 


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<PAGE>


executed  either  in-house or by third parties under  contract with the Company.
Conversion  to  new  servicing   software   could  take  up  to  twelve  months.
Accordingly,  a large part of the Company's Remediation effort currently focuses
on insuring that these loan servicing systems will not be negatively impacted by
the Year 2000 issue.  Information  received  from the Company's  loan  servicing
software vendors indicates that the systems should be ready for the Year 2000 by
late 1998,  with additional  testing during the first quarter of 1999.  However,
should the  software  vendors be unable to correct  all Year 2000  issues by the
target dates, this could have a material adverse impact on the Company.

The  Company is also  working to insure  that its  business  operations  are not
interrupted  by the failure of its long  distance  telephone  carrier and credit
service  bureaus to  adequately  prepare  for the Year 2000.  The ability of the
Company's  subsidiaries  to generate new business would be severely  impacted if
the Company's main long distance telephone carrier experiences Year 2000-related
difficulties.  The Company's current long distance telephone carrier anticipates
that its systems will be Year  2000-compliant  by late 1998.  The Company's home
equity and auto lending subsidiaries also make extensive use of credit reporting
agencies to determine the creditworthiness of potential borrowers.  These credit
reporting  agencies  in turn rely on  consumer  information  provided to them by
third  parties.  Each credit  reporting  agency has informed the Company that it
plans to be Year  2000-compliant by late 1998.  However, if the credit reporting
agencies, or the third parties upon which they rely, experience  difficulties as
a result of the Year 2000,  this could have an adverse  impact on the  Company's
business operations.

The  Company  believes  that  through  the  execution  of its Year 2000  project
methodology,  the  likelihood of a material  business  disruption is small.  The
major risks are associated with the Year 2000 remediation efforts of third party
vendors  utilized  by the  Company.  Based on the  information  provided  by its
vendors,  the Company  believes  that these  vendors will meet their  respective
target  deadlines  for  resolution  of Year 2000  issues.  The Company is in the
process of developing  contingency plans that will be used 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; these  contingency  plans should be complete by
late 1998.


At this time, the Company  estimates that the cost of its Year 2000  remediation
will be  approximately  $5.0 million.  This estimate is subject to change as the
project  progresses.  The Company presently  believes,  based on the information
obtained during the Assessment and Systems Inventory phases,  that the Year 2000
issue  will not have a  material  adverse  impact  on its  computer  systems  or
operations.  The Company will, however, reassess the expected cost of compliance
and the risk that the Year 2000 issue will have a material adverse impact during
the  Remediation  and  Testing  and  Implementation  phases  of  its  Year  2000
conversion effort.


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,  interest rate risk, prepayment speeds, delinquency
and default rates, loss 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,  the degree to which the
Company is leveraged,  its needs for  financing,  the Net Interest  Margin Notes
market , 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.


                                       21
<PAGE>


Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.












                                       22
<PAGE>


                            PART II OTHER INFORMATION


Item 5. Other Information

     The Securities and Exchange  Commission (the "SEC")  recently  amended Rule
     14a-4,  which  governs  the  use by the  Company  of  discretionary  voting
     authority  with  respect to  shareholder  proposals.  SEC Rule  14a-4(c)(1)
     provides  that, if the proponent of a shareholder  proposal fails to notify
     the  Company  at least 45 days  prior to the month and day of  mailing  the
     prior year's proxy statement, the proxies of the Company's management would
     be permitted to use their  discretionary  authority at the  Company's  next
     annual meeting of  shareholders  if the proposal were raised at the meeting
     without any discussion of the matter in the proxy  statement.  For purposes
     of the Company's 1999 Annual Meeting of Shareholders, this deadline will be
     June 13, 1999.

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

     (a)  Exhibits

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

     11.1              Computation of the Company's Earnings Per Common Share

     12.1              Ratio of Earnings to Fixed Charges

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

August 14, 1998      /s/ Daniel J. Willett      Senior Vice President and Chief
                     ----------------------       Financial Officer (Principal
                     Daniel J. Willett            Financial Officer)          
                                                   

August 14, 1998      /s/ Dennis G. Sullivan     Vice President and Controller
                     ----------------------       (Principal Accounting Officer)
                     Dennis G. Sullivan           







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