FORM 10-Q
                                   ---------

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

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities  Exchange
Act of 1934
                 For the quarterly period ended June 30, 1997

                                       or

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
                  For the transition period from _____ to _____



                         Commission File Number 0-22342

                               TRIAD GUARANTY INC.
             (Exact name of registrant as specified in its charter)

       DELAWARE                                       56-1838519
(State of Incorporation)               (I.R.S. Employer Identification Number)

                      101 SOUTH STRATFORD ROAD, SUITE 500
                       WINSTON-SALEM, NORTH CAROLINA 27104
                    (Address of principal executive offices)

                                 (910) 723-1282
              (Registrant's telephone number, including area code)
                               -----------------

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

     Number of shares of Common Stock, $.01 par value,  outstanding as of
August 1, 1997: 6,645,361 shares.


<PAGE>
                               TRIAD GUARANTY INC.

                                      INDEX
                                                                           Page
                                                                          Number
Part I. Financial Information:

      Item 1. Financial Statements:

      Consolidated Balance Sheets as of June 30, 1997 (Unaudited)
         and December 31, 1996....................................... ........3

      Consolidated Statements of Income for the Three and Six Month
         Periods Ended June 30, 1997 and 1996 (Unaudited).....................4

      Consolidated Statements of Cash Flows for the Six Month
         Periods Ended June 30, 1997 and 1996 (Unaudited).....................5

      Notes to Consolidated Financial Statements..............................6

      Item 2. Management's Discussion and Analysis of Financial Condition
          and Results of Operations..........................................10

Part II. Other Information:

      Item 4. Submission of Matters to a Vote of Security Holders............17

      Signatures.............................................................18


                                        2

<PAGE>

                               TRIAD GUARANTY INC.
                           CONSOLIDATED BALANCE SHEETS

                                                      June 30,      December 31,
                                                       1997            1996
                                                  --------------   -------------
Assets                                               (Unaudited)
Invested assets:
  Securities available-for-sale, at fair value:
    Fixed maturities ............................. $  94,536,390   $  87,229,855
    Equity securities.............................     9,112,232       7,494,817
  Short-term investments..........................     2,707,012       3,302,125
                                                  --------------   -------------
                                                   $ 106,355,634      98,026,797

Cash..............................................       113,831         360,586
Accrued investment income.........................     1,354,419       1,126,642
Deferred policy acquisition costs.................    10,909,631      10,198,397
Property and equipment............................     1,967,310       1,705,389
Prepaid reinsurance premium.......................       291,202         300,200
Reinsurance recoverable...........................       191,085         153,274
Other assets......................................     1,138,597         531,238
                                                  --------------   -------------
Total assets...................................... $ 122,321,709   $ 112,402,523
                                                  ==============   =============

Liabilities and stockholders' equity Liabilities:
    Losses and loss adjustment expenses...........$    7,487,793       6,305,397
    Unearned premiums.............................     7,880,348       8,216,478
    Amounts payable to reinsurer..................           576           1,993
    Current taxes payable.........................         3,322           1,596
    Deferred income taxes.........................     5,574,265       4,276,081
    Unearned ceding commission....................        80,414          80,573
    Accrued expenses and other liabilities........     1,643,342       1,840,369
                                                  --------------   -------------
Total liabilities.................................    22,670,060      20,722,487
Commitments and contingent liabilities - Note 4
Stockholders' equity:
    Preferred stock, par value $.01 per share
      authorized 1,000,000 shares; no shares
      issued and outstanding......................        ---             ---
    Common stock, par value $.01 per share
      authorized 20,000,000 shares; 6,645,361
      shares issued and outstanding...............        66,453          66,453
    Additional paid-in capital....................    59,346,832      59,346,832
    Unrealized gain on available-for-sale
      securities, net of income tax liability
      of $1,094,201 at June 30, 1997 and
      $823,287 at December 31, 1996...............     2,060,326       1,568,800
   Retained earnings..............................    38,178,038      30,697,951
                                                  --------------   -------------
Total stockholders' equity.......................     99,651,649      91,680,036
                                                  --------------   -------------
Total liabilities and stockholders' equity.......  $ 122,321,709   $ 112,402,523
                                                  ==============   =============

                             See accompanying notes

                                        3

<PAGE>

                               TRIAD GUARANTY INC.
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                          Three Months Ended           Six Months Ended
                                                               June 30                     June 30
                                                      -------------------------   --------------------------
                                                          1997          1996         1997           1996
                                                          ----          ----         ----           ----
<S>                                                   <C>           <C>           <C>            <C>        
Revenue:
Premiums written:
   Direct...........................................  $ 9,653,077   $ 6,112,251   $17,547,145    $11,791,151
   Assumed..........................................       10,014         4,799        16,054         15,747
   Ceded............................................     (535,109)     (558,200)   (1,056,713)    (1,174,959)
                                                      -----------   -----------   -----------   ------------
Net premiums written................................    9,127,982     5,558,850    16,506,486     10,631,939
Change in unearned premiums.........................     (143,248)      204,396       327,132        610,214
                                                      -----------   -----------   -----------   ------------
Earned premiums.....................................    8,984,734     5,763,246    16,833,618     11,242,153
Net investment income...............................    1,501,664     1,364,174     2,973,579      2,643,298
Realized investment gains...........................        6,732       (99,286)        5,851       (141,572)
Other income........................................        3,367             0         6,030              0
                                                      -----------   -----------   -----------   ------------
                                                       10,496,497     7,028,134    19,819,078     13,743,879
Losses and expenses:
Losses and loss adjustment expenses.................    1,142,592       652,371     2,384,138      1,332,878
Reinsurance recoveries..............................      (52,696)      (37,777)      (98,392)       (65,259)
                                                      -----------   -----------   -----------   ------------
Net losses and loss adjustment expenses.............    1,089,896       614,594     2,285,746      1,267,619
Amortization of deferred policy acquisition costs...      984,388       828,975     1,957,443      1,601,207
Other operating expenses (net)......................    2,545,600     1,761,021     4,667,363      3,376,115
                                                      -----------   -----------   -----------   ------------
                                                        4,619,884     3,204,590     8,910,552      6,244,941
                                                      -----------   -----------   -----------   ------------
Income before income taxes..........................    5,876,613     3,823,544    10,908,526      7,498,938
Income taxes:
   Current..........................................        1,710        21,688         2,168        (37,741)
   Deferred.........................................    1,841,704     1,149,787     3,426,270      2,335,595
                                                      -----------   -----------   -----------   ------------
                                                        1,843,414     1,171,475     3,428,438      2,297,854
                                                      -----------   -----------   -----------   ------------
Net income..........................................  $ 4,033,199   $ 2,652,069   $ 7,480,088    $ 5,201,084
                                                      ===========   ===========   ===========   ============

Earnings per common and common equivalent share:
   Primary..........................................     $.58          $.40         $1.08            $.78
                                                      ===========   ===========   ===========   ============
   Fully diluted....................................     $.58          $.39         $1.07            $.76
                                                      ===========   ===========   ===========   ============
Shares used in computing earnings per common
   and common equivalent share:
   Primary..........................................   6,928,485      6,636,407     6,913,238      6,632,408
                                                      ===========   ===========   ===========  =============
   Fully diluted....................................   6,994,424      6,837,428     6,994,424      6,833,429
                                                      ===========   ===========   ===========  =============
</TABLE>
                             See accompanying notes.

                                       4

<PAGE>
                               TRIAD GUARANTY INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOW
                                   (Unaudited)

                                                           Six Months Ended
                                                                June 30
                                                       -------------------------
                                                           1997          1996
                                                           ----          ----
Operating activities
Net income.............................................$ 7,480,088   $ 5,201,084
Adjustments to reconcile net income
   to net cash provided by operating activities:
   Loss and unearned premium reserves..................    846,266       26,679
   Accrued expenses and other liabilities..............   (191,160)       1,789
   Current taxes payable...............................      1,726      (38,335)
   Amounts due to/from reinsurers......................    (30,230)   1,821,496
   Accrued investment income...........................   (227,777)    (175,191)
   Policy acquisition costs deferred................... (2,668,677)  (3,319,548)
   Amortization of policy acquisition costs............  1,957,443    1,601,207
   Net realized investment gains ......................     (5,851)     141,572
   Provision for depreciation..........................    278,241      173,634
   Accretion of discount on investments................   (304,510)    (297,484)
   Deferred income taxes...............................  1,027,270    1,062,795
   Unearned ceding commission..........................       (159)    (517,156)
   Other assets........................................   (608,249)     272,023
                                                       ------------  -----------
Net cash provided by operating activities..............  7,554,421    5,954,565
Investing activities
Securities available-for-sale:
    Purchases - fixed maturities.......................(17,193,982) (14,758,381)
    Sales - fixed maturities........................... 10,180,132    6,626,542
    Purchases - equities............................... (2,035,585)  (1,990,238)
    Sales - equities...................................  1,191,623    1,736,306
  Purchase of property and equipment...................   (538,477)    (262,995)
                                                       ------------  -----------
Net cash used in investing activities.................. (8,396,289)  (8,648,766)
Financing activities
Proceeds from exercise of stock options................          0      205,536
Retirement of common stock (at cost)...................          0         (512)
                                                       ------------  -----------
Net cash provided by financing activities..............          0      205,024
                                                       ------------  -----------
Net change in cash and short-term investments..........   (841,868)  (2,489,177)
Cash and short-term investments at beginning
 of period.............................................  3,662,711    4,425,448
                                                       ------------  -----------
Cash and short-term investments at end of period.......$ 2,820,843  $ 1,936,271
                                                       ============  ===========
Supplemental  schedule of cash flow
  information Cash paid during the period for
  income taxes and United States Mortgage
  Guaranty Tax and Loss Bonds.......................... $2,399,677   $1,213,559
                                                       ============  ===========

                             See accompanying notes.

                                        5

<PAGE>
                               TRIAD GUARANTY INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 1997
                                   (Unaudited)


NOTE 1 -- THE COMPANY

     Triad Guaranty Inc. (the "Company") is a holding company which, through its
wholly-owned   subsidiary,   Triad  Guaranty  Insurance  Corporation  ("Triad"),
provides  private mortgage  insurance  coverage in the United States to mortgage
lenders to protect the lender  against  loss from  defaults on low down  payment
residential mortgage loans.

NOTE  2 -- BASIS OF PRESENTATION

     The  accompanying  unaudited  consolidated  financial  statements have been
prepared in accordance with generally accepted accounting principles for interim
financial  information and with the  instructions to Form 10-Q and Article 10 of
Regulation  S-X.  Accordingly,  they do not include all of the  information  and
footnotes  required by generally  accepted  accounting  principles  for complete
financial statements. In the opinion of management,  all adjustments (consisting
of normal recurring accruals)  considered necessary for a fair presentation have
been included.  Operating results for the three and six month periods ended June
30, 1997 are not necessarily  indicative of the results that may be expected for
the year  ending  December  31,  1997.  For  further  information,  refer to the
consolidated  financial  statements and footnotes  thereto included in the Triad
Guaranty Inc. annual report on form 10-K for the year ended December 31, 1996.

     Certain  prior year  amounts  have been  reclassified  to conform  with the
current year  presentation.  The  reclassifications  had no effect on previously
reported net income or stockholders' equity.

NOTE 3 -- CONSOLIDATION

     The consolidated financial statements include the amounts of Triad Guaranty
Inc. and its wholly-owned subsidiaries, Triad Guaranty Insurance Corporation and
Triad Guaranty Assurance Corporation.  All significant intercompany accounts and
transactions have been eliminated.

                                        6

<PAGE>
                               TRIAD GUARANTY INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
                                  June 30, 1997
                                   (Unaudited)


NOTE 4 -- COMMITMENTS AND CONTINGENT LIABILITIES

REINSURANCE  - Triad  assumes  and cedes  certain  premiums  and losses  from/to
reinsurers under various reinsurance  agreements.  Reinsurance  contracts do not
relieve Triad from its obligations to policyholders. Failure of the reinsurer to
honor its obligation could result in losses to Triad;  consequently,  allowances
are established for amounts when deemed uncollectible.

INSURANCE IN FORCE,  DIVIDEND  RESTRICTIONS,  AND STATUTORY  RESULTS - Insurance
regulations ave been eliminated.

                                        6

<PAGE>
                               TRIAD GUARANTY INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
                                  June 30, 1997
                                   (Unaudited)


NOTE 4 -- COMMITMENTS AND CONTINGENT LIABILITIES

REINSURANCE  - Triad  assumes  and cedes  certain  premiums  and losses  from/to
reinsurers under various reinsurance  agreements.  Reinsurance  contracts do not
relieve Triad from its obligations to policyholders. Failure of the reinsurer to
ho                           1997                 1996
                                          ----                 ----
Net risk..........................  $1,855,902,566       $1,452,824,414
                                   ===============      ===============
Statutory capital and surplus.....     $58,709,857          $57,070,475
Statutory contingency reserve.....      43,906,554           35,072,109
                                   ---------------      ---------------
Total.............................    $102,616,411          $91,142,584
                                   ===============      ===============
Risk-to-capital ratio.............    18.1-to-1            15.8-to-1
                                   ===============      ===============

     Triad is  required  under  the  Illinois  Insurance  Code (the  "Code")  to
maintain minimum statutory capital and surplus of $5,000,000. In addition, Triad
Guaranty  Assurance  Corporation is required under the Code to maintain  minimum
capital and surplus of  $5,000,000.  The Code permits  dividends to be paid only
out of  earned  surplus  and  also  requires  prior  approval  of  extraordinary
dividends.  An extraordinary dividend is any dividend or distribution of cash or
other property the fair value of which, together with that of other dividends or
distributions  made within a period of twelve  consecutive  months,  exceeds the

                                        7

<PAGE>
                               TRIAD GUARANTY INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
                                  June 30, 1997
                                   (Unaudited)


greater  of  (a)  ten  percent  of  Triad's  statutory  surplus  as  regards  to
policyholders,  or (b)  Triad's  statutory  net  income  for the  calendar  year
preceding the date of the dividend.

     Net income as determined in accordance with statutory  accounting practices
was  $10,170,417  for the six months ended June 30, 1997 and $13,396,769 for the
year ended December 31, 1996.

     At June 30, 1997,  Triad could pay out to the parent  company a dividend of
$292,055,  representing  the earned surplus,  on a statutory  basis, of Triad on
that date.  At December  31, 1996,  no dividend  could be paid out to the parent
company,  because the surplus of Triad, on a statutory  basis,  was a deficit of
$1,347,326.

LOSS  RESERVES - The  Company  establishes  loss  reserves  to  provide  for the
estimated  costs of  settling  claims  with  respect to loans  reported to be in
default and loans in default which have not been reported to the Company. Due to
the inherent  uncertainty in estimating  reserves for losses and loss adjustment
expenses,  there can be no assurance that the reserves will prove to be adequate
to cover ultimate loss development.

NOTE 5 - - EARNINGS PER SHARE

     Primary  and fully  diluted  earnings  per share are based on the  weighted
average daily number of shares  outstanding.  For both primary and fully diluted
earnings per share,  computation of the weighted  average daily number of shares
outstanding includes common stock equivalents.  Common stock equivalents include
stock options that have a dilutive effect on earnings per share.

NOTE 6 - - NEW ACCOUNTING STANDARDS

     In February 1997, the Financial Accounting Standards Board issued Statement
No. 128,  Earnings  per Share,  which is required to be adopted on December  31,
1997. At that time, the Company will be required to change the method  currently
used to compute  earnings per share and to restate all prior periods.  Under the
new requirements for calculating primary earnings per share, the dilutive effect
of stock  options  will be  excluded.  The  impact is  expected  to result in an
increase in primary earnings per share for the three and six month periods ended
June 30, 1997 of $ .03 and $ .05 per share, respectively.  For the three and six
month periods  ended June 30, 1996,  the impact of Statement 128 is not expected
to be material.  The impact of Statement 128 on the calculation of fully diluted
earnings per share for these quarters is not expected to be material.

                                        8

<PAGE>
                               TRIAD GUARANTY INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
                                  June 30, 1997


     In June 1997, the Financial Accounting Standards Board issued Statement No.
130,  "Reporting  Comprehensive  Income"  which is  effective  for fiscal  years
beginning  after  December 31, 1997.  The  Statement  establishes  standards for
reporting and display of  comprehensive  income and its  components in financial
statements.  The Company expects to adopt the provisions of Statement No. 130 in
the first  quarter of 1998 and will  reclassify  the  financial  statements  for
earlier periods provided for comparative  purposes as required by the Statement.
The  application  of the new  rules  will not have an  impact  on the  Company's
financial position or results of operations.





















                                        9

<PAGE>
ITEM 2.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATION.

RESULTS OF OPERATIONS

     Net income for the first six months of 1997 increased 43.8% to $7.5 million
compared  to $5.2  million in the first six  months of 1996.  Net income for the
second quarter of 1997 increased 52.1% to $4.0 million  compared to $2.7 million
for the second  quarter of 1996.  This  improvement is  attributable  to a 49.7%
(55.9% in the second quarter) increase in earned premiums, a 12.5% (10.1% in the
second quarter)  increase in net investment income and an improved combined loss
and expense ratio.

     Net income per share  assuming full dilution  increased  40.5% to $1.07 for
the  first  six  months  of 1997  compared  to $0.76 per share for the first six
months of 1996. Net income per share for the second quarter of 1997 was $0.58 on
a fully diluted  basis  compared to $0.39 per share for the same period of 1996.
Operating  earnings per share were $1.07 for the first half of 1997  compared to
$0.78 for the first half of 1996.  Operating  earnings exclude realized gains of
approximately  $6,000  in the first six  months of 1997 and  realized  losses of
approximately $142,000 in the same period of 1996.

     New insurance  written during the first six months of 1997 was $2.0 billion
compared to $1.1 billion in the first six months of 1996,  an increase of 83.6%.
For the second  quarter,  new  insurance  written  totaled  $1.3 billion in 1997
compared to $612 million in 1996.  This increase in gross new insurance  written
is the result of continued  geographic  expansion and the penetration of Triad's
products in the marketplace  including  Triad's new risk sharing  products.  The
Company  has  also   benefited   from  the  January   1997  upgrade  of  Triad's
claims-paying   ability   rating  from  "AA-"  to  "AA"  by  Standard  &  Poor's
Corporation.  A favorable  interest rate  environment in the first six months of
1997 caused home buying activities to remain strong. Refinance activity declined
to 14.0% of new  insurance  written in the first six months of 1997  compared to
23.5% of insurance written in the same period of 1996. Total direct insurance in
force reached $8.0 billion at June 30, 1997 compared to $5.8 billion at June 30,
1996, an increase of 37.9%.

     Net new insurance  written,  which excludes coverage on seasoned loans, was
$1.3 billion during the first half of 1997 compared to $1.1 billion for the same
period of 1996,  an  increase of 23.9%.  According  to  industry  data,  Triad's
national market share,  which is calculated based on net new insurance  written,
increased by  approximately  50% to 2.5% for the six months of 1997  compared to
1.7% for the same period of 1996.

     There exist  regulatory and industry issues regarding the future of certain
risk sharing  programs,  such as captive  reinsurance,  currently being marketed
within the mortgage insurance  industry.  Triad's new risk sharing programs have
been well received. In the first half of 1997, a significant portion of Triad's

                                        10

<PAGE>
ITEM 2.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATION - - CONTINUED


production,  which does not include captive  reinsurance,  resulted from its new
risk sharing  programs.  However,  the resolution of the regulatory and industry
questions  regarding risk sharing programs make the continued  viability of such
programs uncertain.

     Total direct  premiums  written were $17.5 million for the first six months
of 1997, an increase of 48.8% compared to $11.8 million for the first six months
of 1996. Net premiums  written  increased by 55.3% to $16.5 million in the first
six months of 1997 compared to $10.6 million for the same period in 1996. Earned
premiums  increased 49.7% to $16.8 million for the first half of 1997 from $11.2
million in the first half of 1996.  Contributing  to this  growth in written and
earned premium were the increase in new insurance  written and an improvement in
the Company's  persistency  rate. Sales under the Company's monthly premium plan
represented 94.2% of new insurance written in the first half of 1997 compared to
92.3% in the same period of 1996.  Annualized  persistency has improved to 84.6%
in the first six  months of 1997  compared  to 83.2% in the first six  months of
1996 reflecting the decline in refinance activity.

     In the 1996 fourth quarter,  Triad  introduced its revised Stick With Triad
program featuring the Slam Dunk Loan(SM) approval process whereby Triad issues a
certificate of insurance based on the borrower's credit score. The popularity of
this product,  to a large extent, has replaced customer use of Triad's delegated
underwriting   program.   Commitments   processed   through  Triad's   delegated
underwriting  program accounted for 11.0% of commitments  received for the first
half of 1997,  compared  to 36.2% in the first half of 1996 and 38.0% for all of
1996.

     Net investment income for the first half of 1997 was $3.0 million,  a 12.5%
increase over $2.6 million in the first half of 1996. Net investment  income for
the second  quarter of 1997 was $1.5 million,  a 10.1%  increase over the second
quarter of 1996.  This  increase  resulted  from the growth in average  invested
assets of $12.8  million to $99.3 million at June 30, 1997 from $86.5 million at
June 30, 1996. The yield on average invested assets  decreased  slightly to 6.0%
for the first six months of 1997  compared  to 6.1% for the same period of 1996.
The portfolio's  tax-equivalent  yield was 7.9% for the first six months of 1997
up  from  7.7%  for all of  1996.  Approximately  66% or  $62.2  million  of the
Company's  fixed  maturity  portfolio at June 30, 1997 was composed of state and
municipal tax-preferred securities.

     The Company's loss ratio (the ratio of incurred losses to earned  premiums)
was 13.6% for the first six months of 1997 compared to 11.3% for the same period
of 1996 and 13.3%  for all of 1996.  The loss  ratio  was  12.1% for the  second
quarter of 1997  compared  to 10.7% for the second  quarter of 1996.  The higher
loss ratios for 1997 reflect an expected higher level of  delinquencies  reduced
by the effects of the increase in earned premiums. While the Company experienced

                                        11

<PAGE>
ITEM 2.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATION - - CONTINUED


an increase in its loss  ratio,  paid losses  continue to remain low at 6.8% and
5.8% of  earned  premium  for the  first  half of 1997 and  1996,  respectively.
Management  believes,  based upon its experience and industry data,  that claims
incidence for it and other private mortgage insurers is generally highest in the
third through sixth years after loan origination.  The Company's  favorable loss
ratio reflects the low level of delinquencies  compared to the number of insured
loans and the fact that  approximately  73% of the Company's  insurance in force
was  originated  in the last 36 months.  Although the claims  experience  on new
insurance  written in  previous  years has been  quite  favorable,  the  Company
expects its incurred  losses to increase as a greater amount of its insurance in
force reaches its anticipated highest claim frequency years. Due to the inherent
uncertainty  of future premium  levels,  losses,  economic  conditions and other
factors that impact  earnings,  it is  impossible  to predict with any degree of
certainty the impact of such higher claims frequencies on future earnings.

     Net losses and loss  adjustment  expenses (net of  reinsurance  recoveries)
increased by 80.3% in the first six months of 1997 to $2.3  million  compared to
$1.3  million  in the  first  six  months of 1996.  Losses  and loss  adjustment
expenses for the second  quarter of 1997 were $1.1 million  compared to $615,000
for the second  quarter of 1996.  This  increase  reflects  the  increase in the
Company's  insurance in force and the resulting  recognition of a greater amount
of insurance in force reaching its higher claim frequency years.

     Amortization  of deferred  policy  acquisition  costs increased by 22.2% to
$2.0  million in the first six months of 1997  compared to $1.6  million for the
first six months of 1996.  These costs were  $984,000 for the second  quarter of
1997 compared to $829,000 for the second  quarter of 1996, an increase of 18.7%.
The  increase in  amortization  reflects a growing  balance of  deferred  policy
acquisition  costs to  amortize  as the Company  builds its total  insurance  in
force.

     Other operating expenses increased to $4.7 million for the first six months
of 1997  compared to $3.4  million  for the same period in 1996.  For the second
quarter of 1997,  other  operating  expense  increase to $2.5  million from $1.8
million in the second  quarter of 1996.  This  increase in expenses is primarily
attributable to advertising,  personnel, facilities and equipment costs required
to support the Company's product development, geographic expansion and increased
production.  A decline in ceding  commissions  earned,  which are  reported as a
reduction  in other  operating  expenses,  also  contributed  to the increase in
expenses.

     The expense ratio (ratio of underwriting  expenses to net premiums written)
for the first  half of 1997 was 40.1%  compared  to 46.8% for the first  half of
1996 and 43.8% for all of 1996. The expense ratio for the second quarter of 1997

                                       12

<PAGE>
ITEM 2.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATION - - CONTINUED

improved  to 38.7%  from 46.6%  reported  a year  earlier.  The  primary  factor
contributing to this improvement was the higher level of written premiums in the
first half of 1997.

     The effective tax rate for the first six months of 1997 was 31.4%  compared
to 30.6% in the first six months of 1996.  This increase is primarily the result
of the  phase-in  of the 35% Federal  statutory  income tax rate  applicable  to
companies with annual taxable income above $10 million.  Management  expects the
Company's  effective  tax rate to remain about the same or increase  slightly as
long as yields  from new  funds  invested  in  tax-preferred  securities  remain
favorable in relation to fully taxable securities.

LIQUIDITY AND CAPITAL RESOURCES

     The  Company's  sources of operating  funds  consist  primarily of premiums
written and  investment  income.  Operating  funds are applied  primarily to the
payment of claims and expenses.

     The Company generated positive cash flow from operating  activities for the
first six months of 1997 of $7.6 million  compared to $6.0 million for the first
six months of 1996.  The increase in Triad's  operating  cash flow  reflects the
growth in insurance written and insurance in force that has more than offset any
increases in claims paid and other expenses.

     The  Company's  business  does not routinely  require  significant  capital
expenditures. Positive cash flows are invested pending future payments of claims
and expenses.  Cash flow  shortfalls,  if any,  could be funded through sales of
short term investments and other investment portfolio securities.

     The parent  company's cash flow is dependent on cash dividends and revenues
from  management  fees from Triad.  The insurance  laws of the State of Illinois
impose certain  restrictions on dividends from Triad. These restrictions,  based
on statutory  accounting  practices,  include requirements that dividends may be
paid only out of statutory earned surplus and limit the amount of dividends that
may be paid without prior approval of the Illinois Insurance  Department.  Triad
had an earned surplus of $292,000 at June 30, 1997 and a deficit of $1.3 million
at December 31, 1996. Triad has no immediate plans to pay a cash dividend to the
parent company. The Illinois Insurance Department permits expenses of the parent
company to be charged to Triad in the form of management fees.

     Consolidated  invested  assets  were  $106.4  million  at  June  30,  1997,
including  a total of $103.6  million in fixed  maturity  securities  and equity

                                       13

<PAGE>
ITEM 2.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATION - - CONTINUED


securities classified as available-for-sale.  Net unrealized investment gains on
equity  securities were $1.7 million and on fixed maturity  securities were $1.4
million at June 30, 1997.

     Approximately 8% or $7.4 million of the Company's fixed maturity  portfolio
at June 30, 1997 was composed of mortgage-backed  securities,  substantially all
of which are guaranteed by U.S.  Government  Agencies.  Certain  mortgage-backed
securities are subject to significant  prepayment  risk due to the fact that, in
periods of declining  interest rates,  mortgages may be repaid more rapidly than
scheduled  as borrowers  refinance  higher rate  mortgages to take  advantage of
lower rates.  As a result,  holders of  mortgage-backed  securities  may receive
large  prepayments on their investments which must be reinvested at then current
rates.

     Included in the  Company's  fixed  maturity  portfolio  of mortgage  backed
securities  at June 30, 1997 was $3.4 million  invested in planned  amortization
class ("PAC") collateralized mortgage obligations ("CMOs"). PACs are tranches of
CMOs  specifically  designed  to amortize  in a more  predictable  manner and to
protect against  prepayments as interest rates decline.  In periods of declining
interest  rates,  prepayments  are first applied to the non-PAC  tranches of the
CMO,  creating  improved  call  protection  for the PAC tranche.  Only after all
non-PAC tranches have been paid off are prepayments  applied to the PAC tranche.
In periods of increasing  interest  rates,  prepayments are first applied to the
PAC tranche,  thus reducing  extension  risk for PACs. As a result,  PACs have a
more  stable cash flow than most other  mortgage  securities  because  they have
better call protection and less extension risk. All principal  balances invested
in CMOs by the Company are U.S. Government agency sponsored or guaranteed.

     The  Company's  loss  reserves  increased  to $7.5 million at June 30, 1997
compared to $6.3 million at December 31, 1996.  This growth is the result of the
increases in new  insurance  written and the maturing of the  Company's  risk in
force.  Consistent with industry practices,  the Company does not establish loss
reserves for future  claims on insured loans which are not currently in default.
The Company's  reserves per delinquent loan were $23,000 at June 30, 1997 and at
December 31, 1996.  The  Company's  delinquency  ratio,  the ratio of delinquent
insured  loans to total  insured  loans,  was 0.45% at June 30, 1997 compared to
0.44% at December 31, 1996.

     The  Company's  unearned  premium  reserve of $7.9 million at June 30, 1997
decreased from $8.2 million at December 31, 1996.  This decline is  attributable
primarily to the continued high production of the monthly premium product, which


                                       14

<PAGE>
ITEM 2.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATION - - CONTINUED


produces little unearned premium compared to annual and single premium products.
Refinance  activity is also  responsible for the decrease in unearned  premiums,
whereby older annual premium policies are replaced by monthly premium policies.

     Total stockholders' equity increased to $99.7 million at June 30, 1997 from
$91.7 million at December 31, 1996.  This  increase  resulted from net income of
$7.5 million for the first six months of 1997 and an increase in net  unrealized
gains on invested assets  classified as  available-for-sale  of $492,000 (net of
income tax).

     Triad's total statutory  policyholders'  surplus increased to $58.7 million
at June 30, 1997 from $57.1 million at December 31, 1996. This increase resulted
from  net  income  of $10.2  million  offset  primarily  by an  increase  in the
statutory contingency reserve of $8.8 million.  Triad's statutory earned surplus
was $292,000 at June 30, 1997  compared to a deficit of $1.3 million at December
31, 1996, reflecting growth in statutory net income greater than the increase in
the statutory  contingency  reserve.  The balance in the  statutory  contingency
reserve was $43.9 million at June 30, 1997 compared to $35.1 million at December
31, 1996.

     The Company expects to incur aggregate capital costs of approximately  $2.0
million  in 1997 and 1998 to  upgrade  and  enhance  its  computer  systems  and
technological  capabilities.  The Company expects to fund such expenditures with
cash flow from operations.

     Triad's ability to write  insurance  depends on the adequacy of its capital
in  relation  to  risk  in  force.  A  significant  reduction  of  capital  or a
significant  increase  in risk may impair  Triad's  ability to write  additional
insurance.   Freddie   Mac  and  Fannie  Mae   require   Triad  to   maintain  a
risk-to-capital ratio of no more than 25-to-1. A number of states also generally
limit  Triad's  risk-to-capital  ratio to 25-to-1.  As of June 30, 1997  Triad's
risk-to-capital ratio was 18.1-to-1,  and as of December 31, 1996 was 15.8-to-1,
as compared to 19.4-to-1  for the industry as a whole at December 31, 1996,  the
latest industry data available.  Management  believes its risk- to-capital ratio
can  increase  up to  approximately  20-to-1  without an  adverse  effect on its
claims-paying  ability ratings. With increasing  production,  management and the
Board of Directors are  evaluating  the  Company's  needs and  alternatives  for
additional capital for Triad.

NEW ACCOUNTING STANDARDS

     In February 1997, the Financial Accounting Standards Board issued Statement
No. 128,  Earnings  per Share,  which is required to be adopted on December  31,
1997. At that time, the Company will be required to change the method  currently
used to compute  earnings per share and to restate all prior periods.  Under the
new requirements for calculating primary earnings per share, the dilutive effect
of stock  options  will be  excluded.  The  impact is  expected  to result in an

                                       15

<PAGE>
ITEM 2.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATION - - CONTINUED


increase in primary earnings per share for the three and six month periods ended
June 30, 1997 of $ .03 and $ .05 per share, respectively.  For the three and six
month periods  ended June 30, 1996,  the impact of Statement 128 is not expected
to be material.  The impact of Statement 128 on the calculation of fully diluted
earnings per share for these quarters is not expected to be material.

     In June 1997, the Financial Accounting Standards Board issued Statement No.
130,  Reporting  Comprehensive  Income  which  is  effective  for  fiscal  years
beginning after December 31, 1997. The Statement  establishes  standards for the
reporting and display of  comprehensive  income and its  components in financial
statements.  The Company expects to adopt the provisions of Statement No. 130 in
the first  quarter of 1998 and will  reclassify  the  financial  statements  for
earlier periods provided for comparative  purposes as required by the Statement.
The  application  of the new  rules  will not have an  impact  on the  Company's
financial position or results of operations.

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

     Management's  Discussion  and  Analysis  and this  Report  contain  forward
looking statements relating to future plans,  expectations and performance which
involve  various  risks and  uncertainties,  including  but not  limited  to the
following:  interest  rates may  increase  from their  current  levels;  housing
transactions  and mortgage  issuance  may  decrease  for many reasons  including
changes in interest rates or economic conditions; the Company's market share may
change as a result of changes in underwriting  criteria or competitive  products
or rates;  the amount of new  insurance  written could be affected by changes in
federal  housing   legislation,   including   changes  in  the  Federal  Housing
Administration  loan limits and coverage  requirements of Freddie Mac and Fannie
Mae; the Company's  performance may be impacted by changes in the performance of
the financial  markets and general economic  conditions.  Economic  downturns in
regions where Triad's risk is more concentrated  could have a particular adverse
affect on Triad's financial condition and loss development.  Accordingly, actual
results  may differ  from  those set forth in the  forward  looking  statements.
Attention is also directed to other risk factors set forth in documents filed by
the Company with the Securities and Exchange Commission.







                                       16

<PAGE>



PART II

ITEM 1.  LEGAL PROCEEDINGS - None

ITEM 2.  CHANGES IN SECURITIES - None

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES - None

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

     The  Annual  Meeting  of  Stockholders  was  held on May 22,  1997.  Shares
entitled to vote at the Annual Meeting  totaled  6,645,361,  of which  5,724,708
shares were represented at the meeting.

     At the Annual  Meeting,  the following five  directors  were elected.  Also
shown are the  number of shares  cast for and  authorization  withheld  for each
nominee.


Name of Nominee             Number of Votes for    Authorization Withheld
---------------             -------------------    ----------------------
Robert T. David                  5,723,708                 1,000
Raymond H. Elliott               5,723,708                 1,000
William T. Ratliff, III          5,723,708                 1,000
Darryl W. Thompson               5,723,708                 1,000
David W. Whitehurst              5,723,708                 1,000

     Additionally,  at the Annual Meeting, stockholders approved a resolution to
amend the  Company's  Certificate  of  Incorporation  to increase  the number of
authorized shares of Common Stock from 10,000,000 to 20,000,000.

     No other  matters  came  before  the  Annual  Meeting  or any  adjournments
thereof.

ITEM 5.  OTHER INFORMATION - None


                                       17

<PAGE>

ITEM 6.    a.  EXHIBITS


          Exhibit No.                       Description
          -----------                       -----------
              3.1                Certificate of Incorporation of the
                                      Registrant, as Amended

              11                 Statement Re Computation of Net
                                      Income per Share

              27                 Financial Data Schedule

             b.  REPORTS ON FORM 8-K - None






                                   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.

                                          TRIAD GUARANTY INC.


Date: August 12, 1997
                                          /s/ Michael R. Oswalt
                                          ------------------------------
                                          Michael R. Oswalt
                                          Vice President and Controller,
                                          Principal Accounting Officer



                                       18

<PAGE>
                                  EXHIBIT INDEX




    EXHIBIT
    NUMBER                              DESCRIPTION
    ------                              -----------
      3.1            Certificate of Incorporation of the Registrant, as Amended

      11             Statement Re Computation of Net Income per Share

      27             Financial Data Schedule



                                       19