<PAGE>
  AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 3, 1996
 
                                                      REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------
 
                                    FORM S-1
                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933
                            ------------------------
                          DELTA FINANCIAL CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
<TABLE>
<S>                                       <C>                                       <C>
                DELAWARE                                    6162                                   11-3336165
    (STATE OR OTHER JURISDICTION OF             (PRIMARY STANDARD INDUSTRIAL                    (I.R.S. EMPLOYER
     INCORPORATION OR ORGANIZATION)             CLASSIFICATION CODE NUMBER)                  IDENTIFICATION NUMBER)
</TABLE>
 
                            ------------------------
                         1000 WOODBURY ROAD, SUITE 200
                         WOODBURY, NEW YORK 11797-9003
                                  516-364-8500
              (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
       INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
                            ------------------------
 
                                 HUGH I. MILLER
                            CHIEF EXECUTIVE OFFICER
                          DELTA FINANCIAL CORPORATION
                         1000 WOODBURY ROAD, SUITE 200
                         WOODBURY, NEW YORK 11797-9003
                                  516-364-8500
 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
                             OF AGENT FOR SERVICE)
                            ------------------------
 
                                   Copies to:
 
<TABLE>
<S>                                                             <C>
                   JAMES R. TANENBAUM, ESQ.                                      WILLIAM T. QUICKSILVER, ESQ.
                  STROOCK & STROOCK & LAVAN                                     MANATT, PHELPS & PHILLIPS LLP
                     SEVEN HANOVER SQUARE                                        11355 WEST OLYMPIC BOULEVARD
                NEW YORK, NEW YORK 10004-2696                                   LOS ANGELES, CALIFORNIA 90064
</TABLE>
 

                            ------------------------
 
     APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date
of this Registration Statement.
 
     If the only securities being registered on this form offered pursuant to
dividend or interest reinvestment plans, please check the following box: / /
 
     If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, other than securities offered only in connection with dividend
or interest reinvestment plans, please check the following box: / /
 
     If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. / /
 
     If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
 
     If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
                            ------------------------
 
                        CALCULATION OF REGISTRATION FEE
 
<TABLE>
<CAPTION>
                                                                       PROPOSED MAXIMUM    PROPOSED MAXIMUM
                                                                        OFFERING PRICE         AGGREGATE
              TITLE OF SECURITIES                    AMOUNT TO BE             PER              OFFERING             AMOUNT OF
                BEING REGISTERED                      REGISTERED           SHARE(1)            PRICE(1)          REGISTRATION FEE
<S>                                                <C>                 <C>                 <C>                 <C>
Common Stock, $.01 par value....................   4,600,000 shares         $16.00            $73,600,000           $25,379.31
</TABLE>
 
(1) Estimated solely for the purpose of calculating the registration fee in
    accordance with Rule 457 under the Securities Act of 1933.
                            ------------------------
 
     THIS REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OF
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

<PAGE>
                          DELTA FINANCIAL CORPORATION
                             CROSS REFERENCE SHEET
                            PURSUANT TO ITEM 501(B)
 
<TABLE>
<CAPTION>
                        ITEMS AND CAPTIONS                                     CAPTION OR LOCATION
                           IN FORM S-1                                            IN PROSPECTUS
      ------------------------------------------------------  ------------------------------------------------------
 
<C>   <S>                                                     <C>
 1.   Forepart of Registration Statement and Outside Front
        Cover Page of Prospectus............................  Outside Front Cover Page
 
 2.   Inside Front and Outside Back Cover Pages of
        Prospectus..........................................  Inside Front and Outside Back Cover Pages
 
 3.   Summary Information, Risk Factors and Ratio of
        Earnings to Fixed Charges...........................  Summary; Risk Factors; Selected Financial Information;
                                                                Management's Discussion and Analysis of Financial
                                                                Condition and Results of Operations
 
 4.   Use of Proceeds.......................................  Summary; Use of Proceeds
 
 5.   Determination of Offering Price.......................  Outside Front Cover Page; Underwriting
 
 6.   Dilution..............................................  Dilution
 
 7.   Selling Security Holders..............................  Summary; Description of Capital Stock; Principal
                                                                Stockholders
 
 8.   Plan of Distribution..................................  Outside Front Cover Page; Description of Capital
                                                                Stock; Underwriting
 
 9.   Description of Securities to be Registered............  Summary; Dividend Policy; Capitalization; Description
                                                                of Capital Stock
 
10.   Interests of Named Experts and Counsel................  Not Applicable
 
11.   Information with Respect to Registrant................  Outside Front Cover Page; Summary; Risk Factors;
                                                                Capitalization; Reorganization and Termination of S
                                                                Corporation Status; Dividend Policy; Selected
                                                                Financial Information; Management's Discussion and
                                                                Analysis of Financial Condition and Results of
                                                                Operations; Management; Principal Stockholders;
                                                                Description of Capital Stock; Legal Matters;
                                                                Experts; Available Information
 
12.   Disclosure of Commission Position on Indemnification
        for Securities Act Liabilities......................  Not Applicable
</TABLE>

<PAGE>

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission.  These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective.  This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.

              SUBJECT TO COMPLETION, DATED                  , 1996
PROSPECTUS
                                4,000,000 SHARES
 
                          DELTA FINANCIAL CORPORATION
 
                                  COMMON STOCK
                            ------------------------
 
     All of the shares of common stock, par value $.01 per share (the 'Common
Stock'), being offered hereby (the 'Offering') are being sold by Delta Financial
Corporation ('Delta' or the 'Company'). See 'Underwriting.'
 
     Prior to the Offering, there has been no public market for the Common
Stock. It is currently anticipated that the initial public offering price will
be between $14 and $16 per share. See 'Underwriting' for a discussion of factors
to be considered in determining the initial public offering price. Application
has been made for listing the Common Stock on the New York Stock Exchange (the
'NYSE') under the symbol 'DFC.'
                            ------------------------
 
     SEE 'RISK FACTORS' BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
                            ------------------------
 
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
    EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
       SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
          COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
              PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
                                          CRIMINAL OFFENSE.
                            ------------------------
 
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
    THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE
                                             CONTRARY IS UNLAWFUL.
 
<TABLE>
<CAPTION>
                                                                  UNDERWRITING
                                          PRICE TO               DISCOUNTS AND              PROCEEDS TO
                                           PUBLIC                COMMISSIONS(1)            COMPANY(2)(3)

<S>                               <C>                       <C>                       <C>
Per Share.......................             $                         $                         $
Total(3)........................             $                         $                         $
</TABLE>
 
(1) See 'Underwriting' for information relating to indemnification of the
    Underwriters by the Company and the existing stockholders of the Company
    (the 'Existing Stockholders') and other matters.
 
(2) Before deducting expenses payable by the Company estimated to be $800,000.
 
(3) The Company has granted the Underwriters a 30-day option to purchase up to
    600,000 additional shares of Common Stock solely to cover over-allotments,
    if any. To the extent that the option is exercised, the Underwriters will
    offer the additional shares at the Price to Public shown above. If the
    option is exercised in full, the total Price to Public, Underwriting
    Discounts and Commissions and Proceeds to the Company will be $          ,
    $          and $          , respectively. See 'Underwriting.'
                            ------------------------
 
     The shares of Common Stock are offered subject to prior sale when, as and
if delivered to and accepted by the Underwriters, and subject to certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
said offer and to reject orders in whole or in part. It is expected that
delivery of share certificates will be made in New York, New York, on or about
            , 1996.
 
NATWEST SECURITIES LIMITED
                          PRUDENTIAL SECURITIES INCORPORATED
                                                              PIPER JAFFRAY INC.
 
               THE DATE OF THIS PROSPECTUS IS              , 1996

<PAGE>
Description:
 
Map of the United States indicating the areas in which the Company originates or
purchases loans and the sites of the Company's offices and of its headquarters.
 
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
                               ------------------
 
     FOR UNITED KINGDOM PURCHASERS: The shares of Common Stock offered hereby or
sold in the United Kingdom other than to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments,
whether as principal or agent (except in circumstances that do not constitute an
offer to the public within the meaning of the Public Offers of Securities 
Regulations 1995 or the Financial Services Act 1986), and this Prospectus may
only be issued or passed on to any person in the United Kingdom if that person
is of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1995.
 
                                       2

<PAGE>
                               PROSPECTUS SUMMARY
 
     The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements and
notes thereto appearing elsewhere in this Prospectus. Prospective investors
should carefully consider the information set forth under 'Risk Factors'. Unless
the context indicates otherwise, (a) all references herein to the 'Company' or
'Delta' refer to Delta Financial Corporation and its wholly-owned subsidiary,
Delta Funding Corporation, (b) all references to the Company's or Delta's
activities, results of operations or financial condition prior to the date of
this Prospectus relate to the activities, results of operations or financial
condition of Delta Funding Corporation, and (c) all information in this
Prospectus assumes no exercise of the Underwriters' over-allotment option. See
'The Company.'
 
                                  THE COMPANY
 
     Delta is a specialty consumer finance company that has engaged in
originating, acquiring, selling and servicing home equity loans since 1982.
Throughout its 14 years of operating history, Delta has focused on lending to
individuals who generally have impaired or limited credit profiles or higher
debt to income ratios and typically have substantial equity in their homes. The
Company makes loans to these borrowers for such purposes as debt consolidation,
home improvement, refinancing or education, and these loans are primarily
secured by first mortgages on one- to four-family residential properties.
 
     Delta originates home equity loans through licensed mortgage brokers and
other real estate professionals ('brokers') who submit loan applications on
behalf of the borrower ('Brokered Loans'). Delta also purchases from approved
mortgage bankers and financial institutions ('correspondents') loans that
conform to Delta's underwriting guidelines ('Correspondent Loans'). During the
twelve month period ended June 30, 1996, the Company has originated loans
through 806 brokers and purchased loans from 186 correspondents. The Company
believes that it has a competitive advantage in serving brokers and
correspondents in the nonconforming home equity market that stems from its
substantial experience in this sector and its emphasis on providing quality
service that is prompt, responsive and consistent. The 19 members of the
Company's senior management have an average of over 12 years of nonconforming
mortgage loan experience, and more than one-quarter of the Company's employees
have been with the Company for at least five years. Management believes this
industry- and company-specific experience, coupled with the systems and programs
it has developed over the past 14 years, enable the Company to provide quality
services that include preliminary approval of most Brokered Loans and certain
Correspondent Loans within one day, consistent application of its underwriting
guidelines and funding or purchasing of loans within 14 to 21 days of
preliminary approval. In addition, the Company seeks to establish and maintain
productive relationships with its network of brokers and correspondents by
servicing each one with a business development representative, a team of
experienced underwriters and, in the case of Brokered Loans, a team of loan
officers and processors who are assigned to specific brokers to process all
applications submitted by each broker.
 
     During its first 12 years of operation, Delta concentrated its efforts on

serving brokers and correspondents primarily in New York, New Jersey and
Pennsylvania. Commencing in 1995, the Company began to implement a program to
expand its geographic focus into the New England, Mid-Atlantic and Midwest
regions. The Company currently originates and purchases the majority of its
loans in 21 states and the District of Columbia through a staff of 18 business
development representatives who operate from the Company's main office in New
York and from nine business development offices located in Michigan (2),
Missouri, New Jersey, Ohio (2), Pennsylvania, Rhode Island and Virginia. The
Company intends to open a full service office in Atlanta, Georgia in September
1996. Two members of Delta's senior management will relocate to this office
which will concentrate on developing Delta's Mid-Atlantic and Southeast markets.
As a consequence of its expansion into new markets, as well as of its further
penetration of existing markets, the Company increased its loan production
substantially in 1995 and the first six months of 1996. Total loan originations
and purchases increased from $119.7 million in 1994 to $287.8 million in 1995
and $244.1 million in the first six months of 1996. Of the total loan production
during the first six months of 1996, 56% was originated through the Company's
broker network and 44% was purchased from its correspondent network. See
'Business--Loans.'
 
     Since February 1991, Delta has sold $841 million of its mortgage loans
through 11 real estate mortgage investment conduit ('REMIC') securitizations.
Each of these securitizations has been credit enhanced by an insurance policy
provided through a monoline insurance company to receive ratings of Aaa from
Moody's Investors Service, Inc. ('Moody's') and AAA from Standard & Poor's
Ratings Group, a division of The McGraw-Hill
 
                                       3
<PAGE>
Companies, Inc. ('Standard & Poor's'). The Company has also sold $50.5 million
of its mortgage loans to institutional purchasers on a wholesale basis without
recourse since 1991. The Company sells loans through securitizations and on a
whole loan basis to enhance its operating leverage and liquidity, to minimize
financing costs and to reduce its exposure to fluctuations in interest rates.
 
     Since its inception, the Company has serviced substantially all of the
loans it has originated and purchased, including all of those that it has
subsequently sold through securitizations. Management believes that servicing
this portfolio enhances certain operating efficiencies and provides an
additional and profitable revenue stream that is less cyclical than the business
of originating and purchasing loans. As of June 30, 1996, Delta had a servicing
portfolio of $624.1 million. See 'Business--Loans.'
 
     The Company has been profitable in each of its 14 years of operation.
However, the Company's results of operations have improved significantly in
recent periods as a result of increased loan production and the improved
structure of its recent securitizations. During 1995 as compared to 1994, the
Company's total revenues increased 66% from $21.8 million to $36.1 million and
net income increased 130% from $2.0 million to $4.6 million. For the first six
months of 1996, total revenues and net income were $30.4 million and $15.3
million, respectively, representing increases of 120% and 739%, respectively,
over the results for the comparable six months of 1995. See 'Management's
Discussion and Analysis of Financial Condition and Results of Operations.'
 

     The Company's business strategy is to increase profitably the volume of its
loan originations and purchases and the size of its servicing portfolio by (i)
continuing to provide top quality service to its network of brokers and
correspondents, (ii) maintaining its underwriting standards, (iii) penetrating
further its established markets and recently entered markets and expanding into
new geographic markets, (iv) broadening its product offerings, (v) continuing
its investment in origination and servicing systems and (vi) strengthening its
loan production capabilities through acquisitions. See 'Business--Business
Strategy.'
 
     All of the Company's operations will be conducted through its wholly-owned
subsidiary, Delta Funding Corporation, which was incorporated in New York in
1982. In August 1996, Delta Financial Corporation was incorporated in Delaware
and prior to the date of this Prospectus, the stockholders of Delta Funding
Corporation will contribute their shares of common stock of Delta Funding
Corporation to Delta Financial Corporation in exchange for all of the
outstanding shares of common stock of Delta Financial Corporation. See
'Reorganization and Termination of S Corporation Status.'
 
     The principal executive offices of the Company are located at 1000 Woodbury
Road, Suite 200, Woodbury, New York 11797, and its telephone number is (516)
364-8500.
 
                                  THE OFFERING
 
<TABLE>
<S>                                         <C>
Common Stock offered(1)...................  4,000,000 shares
Common Stock to be outstanding after the
  Offering(2).............................  14,653,000 shares
Use of Proceeds...........................  To fund a distribution of $23 million to the Existing Stockholders in
                                            connection with termination of Delta Funding Corporation's status as
                                            a Subchapter S Corporation and to repay amounts outstanding under the
                                            Company's warehouse lines. See 'Use of Proceeds.'
Proposed New York Stock Exchange Symbol...  'DFC'
</TABLE>
 
- ------------------
 
(1) The Company has granted the Underwriters a 30-day option to purchase up to
    600,000 shares of Common Stock. See 'Underwriting.'
 
(2) Excludes approximately 500,000 shares of Common Stock subject to options
    granted upon the commencement of the Offering at a per share exercise price
    equal to the initial public offering price. See 'Management's Discussion and
    Analysis of Financial Condition and Results of Operations--Liquidity and
    Capital Resources,' 'Management--Stock Option Plan' and 'Shares Eligible for
    Future Sale.'
 
                                       4
<PAGE>
                         SUMMARY FINANCIAL INFORMATION
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>

<CAPTION>
                                                                                            SIX MONTHS ENDED JUNE 30,
                                                                                            -------------------------
                                                                                                      1995
                                                      YEAR ENDED DECEMBER 31,               -------------------------
                                          -----------------------------------------------
                                           1991      1992      1993      1994      1995            (UNAUDITED)
                                          -------   -------   -------   -------   -------
<S>                                       <C>       <C>       <C>       <C>       <C>       <C>
INCOME STATEMENT DATA:
Revenues:
  Net gain on sale of mortgage loans and
    servicing rights....................  $ 4,052   $ 4,757   $ 7,639   $ 6,661   $15,383            $ 5,335
  Interest..............................    4,747    13,402     9,156     9,839    13,588              5,362
  Servicing fees........................    1,460     1,892     2,101     2,183     2,856              1,240
  Other.................................    5,880     5,413     3,617     3,114     4,309              1,857
                                          -------   -------   -------   -------   -------         ----------
    Total revenues......................   16,139    25,464    22,513    21,797    36,135             13,793
                                          -------   -------   -------   -------   -------         ----------
    Total expenses......................   14,383    22,154    18,853    19,788    31,550             11,975
                                          -------   -------   -------   -------   -------         ----------
Earnings before extraordinary item......    1,756     3,310     3,660     2,009     4,586              1,818
Extraordinary item......................       --        --        --        --        --                 --
Net earnings............................    1,756     3,310     3,660     2,009     4,586              1,818
                                          =======   =======   =======   =======   =======         ==========
PRO FORMA INFORMATION:
Provision for pro forma income
  taxes(1)..............................      755     1,423     1,574       864     1,972                782
Pro forma net earnings(1)...............    1,001     1,887     2,086     1,145     2,614              1,036
PER SHARE DATA:
Pro forma earnings per share of common
  stock (1)(2):
  Before extraordinary item.............                                          $   .21
  Extraordinary item....................                                               --
                                                                                ---------
Pro forma net earnings per share........                                              .21
                                                                                =========
Pro forma weighted average number of
  shares outstanding(1)(2)..............                                       12,186,333
 
<CAPTION>
                                                    1996
                                          -------------------------
 
<S>                                       <C>
INCOME STATEMENT DATA:
Revenues:
  Net gain on sale of mortgage loans and
    servicing rights....................         $           17,800
  Interest..............................                      7,861
  Servicing.............................                      2,325
  Other.................................                      2,345
                                          -------------------------
    Total revenues......................                     30,331

    Total expenses......................                     18,239
Earnings before extraordinary item......                     12,093
Extraordinary item......................                      3,168
Net earnings............................                     15,261
Provision for pro forma income
  taxes(1)..............................                      6,562
Pro forma net earnings(1)...............                      8,699
PER SHARE DATA:
Pro forma earnings per share of common
  stock (1)(2):
  Before extraordinary item.............         $              .57
  Extraordinary item....................                        .14
                                          -------------------------
Pro forma net earnings per share........                        .71
                                          -------------------------
                                          -------------------------
Pro forma weighted average number of
  shares outstanding(1)(2)..............                 12,186,333
                                          -------------------------
                                          -------------------------
</TABLE>
 
<TABLE>
<CAPTION>
                                                    JUNE 30, 1996
                                               ------------------------
                                                           PRO FORMA AS
                                                ACTUAL     ADJUSTED(3)
                                               --------    ------------
<S>                                            <C>         <C>          
BALANCE SHEET DATA:
Loans held for sale.........................   $66,677..     $ 66,677
Interest only and residual certificates.....     43,233        43,233
Capitalized mortgage servicing rights.......      6,674         6,674
Total assets................................    155,812       155,812
Warehouse financing and other borrowings....     83,251        51,251
Investor payable............................     13,599        13,599
Total liabilities...........................    111,078        82,008
Stockholders' equity........................     44,734        73,803
</TABLE>
<TABLE>
<CAPTION>
                                                                                          SIX MONTHS ENDED JUNE 30,
                                                 YEAR ENDED DECEMBER 31,                  -------------------------
                                   ----------------------------------------------------             1995
                                     1991       1992       1993       1994       1995            (UNAUDITED)
<S>                                <C>        <C>        <C>        <C>        <C>        <C>
OPERATING DATA:
Loans originated or purchased:
  Brokered Loans.................  $ 78,394   $ 66,553   $ 76,220   $ 81,407   $175,738           $  64,250
  Correspondent Loans............     4,022     10,080     26,844     38,341    112,065              43,886
    Total........................    82,416     76,633    103,063    119,748    287,804             108,136
Average principal balance
  per loan:......................        43         51         60         67         74                  72

  Weighted average interest
    rate.........................      14.2%      13.5%      12.9%      12.1%      11.8%               12.3%
  Combined weighted average
    initial loan-to-value
    ratio........................      46.4%      47.8%      51.7%      55.2%      63.2%               60.9%
  Percent of loans secured by
    first mortgages..............      63.8%      71.5%      81.1%      88.0%      89.6%               88.8%
  Loan Sales: 
  Loans sold through
    securitizations..............  $142,955   $ 64,102   $ 88,943   $ 90,000   $229,997           $  79,998
  Whole loan sales...............       N/A      1,031      8,708     11,950     17,615               8,601
    Total........................   142,955     65,133     97,651    101,950    247,612              88,599
Total loans serviced.............   250,159    275,542    292,700    310,229    468,846             357,831
 
<CAPTION>
 
                                             1996
 
<S>                                <C>
OPERATING DATA:
Loans originated or purchased:
  Brokered Loans.................          $ 135,621
  Correspondent Loans............            108,472
    Total........................            244,093
Average principal balance
  per loan:......................                 79
  Weighted average interest
    rate.........................               11.3%
  Combined weighted average
    initial loan-to-value
    ratio........................               67.3%
  Percent of loans secured by
    first mortgages..............               94.4%
  Loan Sales: Loans sold through
    securitizations..............          $ 225,000
  Whole loan sales...............             11,238
    Total........................            236,238
Total loans serviced.............            624,097
</TABLE>
 
                                       5
<PAGE>
<TABLE>
<CAPTION>
                                                                                          SIX MONTHS ENDED JUNE 30,
                                                                                          -------------------------
                                                 YEAR ENDED DECEMBER 31,
                                   ----------------------------------------------------             1995
                                     1991       1992       1993       1994       1995            (UNAUDITED)
DELINQUENCY DATA:
<S>                                <C>        <C>        <C>        <C>        <C>        <C>
Total delinquencies as a
  percentage of loans serviced
  (period end)(4)................     19.80%     19.87%     13.50%     11.44%     10.64%               8.35%

Defaults as a percentage of loans
  serviced (period end)(5).......      1.90%      3.60%      5.35%      7.32%      5.87%               6.64%
Net losses as a percentage of
  average loans serviced for
  period.........................         0%     0.017%     0.031%     0.240%     0.658%              0.360%(6)
 
<CAPTION>
 
                                             1996
 
DELINQUENCY DATA:
<S>                                <C>
Total delinquencies as a
  percentage of loans serviced
  (period end)(4)................               7.85%
Defaults as a percentage of loans
  serviced (period end)(5).......               5.31%
Net losses as a percentage of
  average loans serviced for
  period.........................              0.542%(6)
</TABLE>
 
- ------------------
(1) Prior to October 1996, Delta Funding Corporation was treated as an S
    corporation for federal and state income tax purposes. See 'Reorganization
    and Termination of S Corporation Status.' The pro forma presentation
    reflects the provision for income taxes as if Delta Funding Corporation had
    always been a C corporation at an assumed effective tax rate of 43%. The pro
    forma provision for income taxes for the six months ended June 30, 1996
    includes a pro forma provision of $1,362,166 on the extraordinary item.
 
(2) Pro forma net income per share has been computed by dividing pro forma net
    income by the 10,653,000 of shares of common stock of Delta Financial
    Corporation to be received by the Existing Stockholders in exchange for the
    shares of Delta Funding Corporation, and, in accordance with a regulation
    of the Securities and Exchange Commission, the effect of the assumed
    issuance (at an assumed price of $15 per share) of 1,533,333 shares of
    common stock to generate sufficient cash to pay the Distribution Notes (as
    hereinafter defined) in the amount of $23,000,000. See 'Reorganization and
    Termination of Corporation Status.'
 
(3) Adjusted to reflect (i) the conversion of Delta Funding Corporation from an
    S corporation to a C corporation and (ii) the sale of 4,000,000 shares of
    Common Stock offered hereby at an initial offering price of $15 per share
    (the mid-point of the estimated range of the initial public offering price)
    after deducting underwriting discounts and commissions and expenses payable
    by the Company, and (iii) the application of the estimated net proceeds
    therefrom, including the payment of $23 million for the Distribution Notes
    issued to the Existing Stockholders of Delta Funding Corporation in
    connection with the termination of Delta Funding Corporation's S corporation
    status and the payment of $32 million to reduce outstanding balances under
    certain of the Company's warehouse facilities. Adjustments have not been
    made to account for the contingent dividend payable to the Existing
    Stockholders of Delta Funding Corporation in the event the over-allotment is

    exercised. See 'Use of Proceeds,' 'Capitalization' and 'Reorganization and
    Termination of S Corporation Status.'
 
(4) Represents the percentages of account balances contractually past due 30
    days or more, exclusive of home equity loans in foreclosure or real estate
    owned ('REO').
 
(5) Represents the percentages of account balances on loans in foreclosure or
    REO.
 
(6) Annualized.
 
     THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE
SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN 'RISK
FACTORS' AND IN 'MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION-- LIQUIDITY AND CAPITAL RESOURCES.'
 
                                       6

<PAGE>
                                  RISK FACTORS
 
     An investment in the Common Stock of the Company involves certain risks.
Prospective investors should carefully consider the following risk factors, in
addition to the other information contained in this Prospectus, in evaluating an
investment in the Common Stock offered hereby.
 
CAPITAL NEEDS AND ACCESS TO CAPITAL MARKETS
 
     Negative Cash Flow.  The Company has operated, and expects to continue to
operate, on a negative cash flow basis due to increases in the volume of loan
originations and purchases and due to the growth of its securitization program.
In securitizations, the Company recognizes a gain on sale for the loans
securitized upon the closing of the securitization and incurs associated taxes
and expenses but does not receive the cash representing such gain until it
receives the cash flows from the interest-only and residual certificates and 
from servicing of the loans, which are payable over the actual life of the loans
securitized. For the six months ended June 30, 1996, the Company operated on a
negative cash flow basis using $8.2 million more in operations than was
generated. Currently, the Company's primary cash requirements include the
funding of (i) mortgage originations and purchases pending their pooling and
sale, (ii) the points and expenses paid in connection with the acquisition of
correspondent loans, (iii) fees, expenses and tax payments incurred in
connection with its securitization program, and (iv) ongoing administrative and
other operating expenses. The Company funds these cash requirements primarily
through warehouse and other financing facilities, securitizations and whole loan
sales. See 'Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources.'
 
     Dependence on Securitizations.  The Company relies significantly upon
securitizations to generate cash proceeds for repayment of its warehouse
facilities and to create availability to originate and purchase additional
loans. Further, gains on sale of loans generated by the Company's
securitizations represent a significant portion of the Company's revenues.
Several factors affect the Company's ability to complete securitizations,
including conditions in the securities markets generally, conditions in the
asset-backed securities market specifically, the credit quality of the Company's
portfolio of loans and the Company's ability to obtain credit enhancement. If
the Company were unable to profitably securitize a sufficient number of loans in
a particular financial reporting period, then the Company's revenue for such
period would decline and could result in lower income or a loss for such period.
In addition, unanticipated delays in closing the securitizations could increase
the Company's interest rate risk by increasing the warehousing period for its
loans.
 
     The Company has relied on credit enhancements provided by monoline
insurance carriers to guarantee outstanding investor certificates in the related
trusts to enable it to obtain an AAA/Aaa rating for such investor certificates.
The Company has not attempted to structure a mortgage loan pool for sale through
a securitization based solely on the internal credit enhancements of the pool or
the Company's credit. Any substantial reductions in the size or availability of
such insurance policies, or increases in the price charged by, or required level
of protection to be provided to, the insurance companies issuing such policies,

could have a material adverse effect on the Company's results of operations and
financial condition. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources' and
'Business--Loan Sales.'
 
     Dependence on Warehouse and Residual Financing Sources.  The Company funds
substantially all of the loans which it purchases and originates through
borrowings under warehouse financing facilities, through repurchase agreements
and through internally generated funds. The Company's borrowings are in turn
repaid with the proceeds received by the Company from selling such loans through
securitizations or whole loan sales. The Company has relied upon a few lenders
to provide the primary credit facilities for its loan originations and
purchases. Any failure to renew or obtain adequate funding under these warehouse
financing facilities or other financings, or any substantial reduction in the
size of or increase in the cost of such facilities, could have a material
adverse effect on the Company's results of operations and financial condition.
To the extent that the Company is not successful in maintaining or replacing
existing financing, it would not be able to hold a large volume of loans pending
securitization and therefore would have to curtail its loan production
activities or sell loans either through whole loan sales or in smaller
securitizations, thereby having a material adverse effect on the Company's
results of operations and financial condition. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources.'
 
                                       7
<PAGE>
     The Company has relied upon residual financing agreements (credit
facilities secured by interest-only and residual certificates) to fund the tax
consequences of the recognition of the gains on sale when a securitization
occurs and other working capital needs prior to receipt of any cash flow from
the interest-only and residual certificates retained by the Company in its
securitizations. The Company has no commitments for future residual financing,
as such financings are typically obtained at the time of a securitization. If
the Company is unable to maintain its existing residual financing agreements and
to secure adequate funding or financing under additional residual financing
arrangements, or there is any substantial increase in the cost of such
facilities, it may be forced to either curtail its growth or to sell its loans
through whole loan sales which would have an adverse effect on its future
profitability.
 
     Need for Additional Financing.  The Company anticipates that the net
proceeds from the Offering, together with the funds available under the
warehouse facilities and additional residual financing arrangements, will be
sufficient to fund its operations for the next twelve months, if the Company's
future operations are consistent with management's expectations. The Company may
need to seek additional financing thereafter. The Company has no existing
commitments for additional residual financing arrangements, as such financings
are typically obtained at the time of a securitization, or for other additional
financing. There can be no assurance that the Company will be able to obtain
financing on a favorable or timely basis. The type, timing and terms of
financing selected by the Company will depend upon the Company's cash needs, the
availability of other financing sources and the prevailing conditions in the
financial markets. Future financing will likely involve the issuance of equity

securities which may result in further dilution to existing stockholders. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources.'
 
VALUATION AND POTENTIAL IMPAIRMENT OF INTEREST-ONLY AND RESIDUAL CERTIFICATES
 
     As a fundamental part of its business and financing strategy, the Company
sells substantially all of its loans through securitizations. In a
securitization, the Company sells loans that it has originated or purchased to a
trust for a cash purchase price and an interest in the loans securitized. The
cash purchase price is raised through an offering of pass-through certificates
by the trust. Following the securitization, purchasers of the pass-through
certificates receive the principal collected and the investor pass-through
interest rate on the principal balance, while the Company receives the cash
flows from the interest-only and residual certificates and servicing of the
loans. Servicing. The Excess Servicing represents, over the life of the loans,
the excess of the weighted average coupon on each pool of loans sold over the
sum of the pass-through interest rate plus a servicing fee, a trustee fee, a
bond insurance fee and an estimate of annual future credit losses related to the
loans ('Excess Servicing').
 
     The majority of the Company's gross income is recognized as gain on sale of
loans, which represents the present value of the interest-only and residual
certificates and servicing, less closing and underwriting costs. The Company
recognizes such gain on sale of loans in the fiscal quarter in which such loans
are sold, although cash is received by the Company over the life of the loans.
Concurrent with recognizing such gain on sale, the Company records the
capitalized Excess Servicing as an asset on its balance sheet, represented by
interest-only and residual certificates.
 
     At June 30, 1996, the Company's balance sheet reflected interest-only and
residual certificates of $43.2 million and these certificates are reduced as
cash distributions are received from the trust holding the loans pooled and
sold. Although management of the Company believes that it has made reasonable
estimates, on a pool-by-pool basis, of the Excess Servicing likely to be
realized, it should be recognized that assumptions utilized by the Company
represent estimates. Actual experience may vary from these estimates. The cash
flows are projected over the life of the interest-only and residual certificates
using prepayment, default and interest rate assumptions that market participants
would use for similar financial instruments, subject to prepayment, credit and
interest rate risks. These cash flows are discounted using an interest rate that
market participants would use for similar financial instruments. The fair
valuation also includes considerations of loan type, size, date of origination,
interest rate, term, collateral value and geographic location. If the Company's
assumptions used in deriving the value of interest-only and residual
certificates differ from the actual results, future cash flows and earnings
could be negatively affected and the Company may be required to write down the
value of its interest-only and residual certificates. Furthermore, there is no
liquid market for interest-only and residual certificates. Therefore, no
assurance can be given that all or any portion of the interest-only and residual
certificates could be sold at any price, including at their stated value on the
balance sheet, if at all. See '--Contingent Risks' and
 
                                       8

<PAGE>
'Management's Discussion and Analysis of Financial Condition and Results of
Operations--Certain Accounting Considerations.'
 
ECONOMIC CONDITIONS
 
     General.  The Company's business may be adversely affected by periods of
economic slowdown or recession which may be accompanied by decreased demand for
consumer credit and declining real estate values. In the mortgage business, any
material decline in real estate values reduces the ability of borrowers to use
the equity in their homes to support borrowings and increases the loan-to-value
ratios of loans previously made by the Company, thereby weakening collateral
coverage and increasing the possibility of a loss in the event of default.
Delinquencies, foreclosures and losses generally increase during economic
slowdowns or recessions.
 
     Because of the Company's focus on credit-impaired borrowers in the home
equity loan market, the actual rates of delinquencies, foreclosures and losses
on such loans could be higher under adverse economic conditions than
delinquencies, foreclosures and losses currently experienced in the mortgage
lending industry in general. In addition, in an economic slowdown or recession,
the Company's actual costs of servicing the loans may increase without an
increase in the servicing fee paid to the Company under its securitizations. Any
sustained period of increased delinquencies, foreclosures, losses or increased
costs could adversely affect the Company's ability to sell, and could increase
the cost of selling, loans through securitization or a whole loan basis, which
could adversely affect the Company's financial condition and results of
operations.
 
     Interest Rates.  The Company's profitability may be directly affected by
the levels of and fluctuations in interest rates, which affect the Company's
ability to earn a spread between interest received on its loans and the costs of
borrowing. The profitability of the Company is likely to be adversely affected
during any period of unexpected or rapid changes in interest rates. For example,
a substantial or sustained increase in interest rates could adversely affect the
ability of the Company to purchase and originate loans and would reduce the
value of loans that were originated prior to such increase. A significant
decline in interest rates could decrease the size of the Company's loan
servicing portfolio by increasing the level of loan prepayments. Additionally,
to the extent Excess Servicing has been capitalized on the books of the Company,
higher than anticipated rates of loan prepayments or losses could require the
Company to write down the value of such Excess Servicing, adversely impacting
earnings.
 
     Fluctuating interest rates also may affect the net interest income earned
by the Company, resulting from the difference between the yield to the Company
on fixed rate loans held pending sale and the interest paid by the Company for
funds borrowed under the Company's warehouse financing facilities at variable
rates. In addition, inverse or flattened interest yield curves could have an
adverse impact on the profitability of the Company because the loans pooled and
sold by the Company are priced upon long-term interest rates, while the senior
interests in the related REMIC trusts are priced on the basis of intermediate
rates. While the Company monitors the interest rate environment and currently
employs a hedging strategy designed to mitigate the impact of changes in

interest rates, there can be no assurance that the profitability of the Company
would not be adversely affected during any period of changes in interest rates.
See 'Business--Hedging.'
 
ABILITY TO SUSTAIN GROWTH
 
     Since January 1, 1995, the Company has expanded into new geographic regions
and substantially increased its volume of loans originated and purchased. In
light of such growth, the historical performance of the Company's earnings may
be of limited relevance in predicting future performance. Any credit or other
problems associated with the large number of loans originated and purchased in
the recent past would not become apparent until sometime in the future. The
Company's continued growth and expansion will place additional pressures on the
Company's personnel and systems. Any future growth may be limited by, among
other things, the Company's need for continued funding sources, access to
capital markets, ability to retain and attract qualified personnel, sensitivity
to economic slowdowns, fluctuations in interest rates and competition from other
consumer finance companies and from new market entrants. There can be no
assurance that the Company will successfully apply the human, operational and
financial resources needed to manage a developing and expanding business.
Failure by the Company to manage its growth effectively, or to sustain its
historical levels of performance in credit analysis and transaction structuring
with respect to the increased loan origination and purchase volume, could
 
                                       9
<PAGE>
have a material adverse effect on the Company's results of operations and
financial condition. See 'Business-- Business Strategy' and 'Management's
Discussion and Analysis of Financial Condition and Results of Operation.'
 
COMPETITION
 
     As a purchaser and originator of mortgage loans, the Company faces intense
competition, primarily from mortgage banking companies, commercial banks, credit
unions, savings and loans, credit card issuers and finance companies. Many of
these competitors in the financial services business are substantially larger
and have more capital and other resources than the Company. Competition can take
many forms, including convenience in obtaining a loan, service, marketing and
distribution channels and interest rates. Competition may be affected by
fluctuations in interest rates and general economic conditions. During periods
of rising rates, competitors which have 'locked in' low borrowing costs may have
a competitive advantage. During periods of declining rates, competitors may
solicit the Company's borrowers to refinance their loans. During economic
slowdowns or recessions, the Company's borrowers may have new financial
difficulties and may be receptive to offers by the Company's competitors.
Furthermore, the current level of gains realized by the Company and its
competitors on the sale of the type of loans purchased and originated is
attracting additional competitors into this market with the effect of lowering
the gains that may be realized by the Company on future loan sales. In addition,
greater investor acceptance of securities backed by loans comparable to the
Company's mortgage loans and greater availability of information regarding the
prepayment and default experience of such loans creates greater efficiencies in
the market for such securities. Such efficiencies may create a desire for even
larger transactions giving companies with greater volumes of originations a

competitive advantage. In addition, a more efficient market for such securities
may lead certain investors to purchase securities backed by other types of
assets where potential returns may be greater.
 
     Furthermore, certain large national finance companies and conforming
mortgage originators have announced their intention to adapt their conforming
origination programs and allocate resources to the origination of non-conforming
loans. In addition, certain of these larger mortgage companies, commercial banks
and savings and loans have begun to offer products similar to those offered by
the Company, targeting customers similar to those of the Company. The entrance
of these competitors into the Company's market could have a material adverse
effect on the Company's results of operations and financial condition. See
'Business--Competition.'
 
DEPENDENCE ON BROKERS AND CORRESPONDENTS
 
     The Company depends on brokers and correspondents for its originations and
purchases of new loans. None of these brokers or correspondents is contractually
obligated to do business with the Company. Further, the Company's competitors
also have relationships with the Company's brokers and correspondents and
actively compete with the Company in its efforts to expand its broker and
correspondent networks. Accordingly, there can be no assurance that the Company
will be successful in maintaining its existing relationships or expanding its
broker and correspondent networks.
 
     The Company originated and purchased loans in the twelve month period ended
June 30, 1996 from a network of 806 brokers and 186 correspondents. However, the
top 20 brokers and correspondents and the top broker accounted for approximately
48.7% and 12.6%, respectively, of the total volume of loans originated and
purchased during the six months ended June 30, 1996. Accordingly, the loss of a
significant number of any of these brokers or correspondents could have a
material adverse impact on the volume of loan originations and purchases and a
resulting material adverse effect on the Company's results of operations and
financial condition. See 'Business--Loans.'
 
CONTINGENT RISKS
 
     Although the Company sells substantially all of the loans that it purchases
and originates on a nonrecourse basis, the Company retains some degree of credit
risk on all loans purchased or originated. During the period of time that loans
are held pending sale, the Company is subject to the various business risks
associated with lending, including the risk of borrower default, the risk of
foreclosure and the risk that an increase in interest rates would result in a
decline in the value of loans to potential purchasers. The Company's
securitizations require the
 
                                       10
<PAGE>
use of Excess Servicing to reduce the principal balances of the related investor
certificates up to a specified amount. The resulting over-collateralization
amounts serve as credit enhancement for the related trust and therefore are
available to absorb losses realized on loans held by such trust. Although there
is no direct recourse to the Company for losses on securitized loans, the use of
the Excess Servicing to provide additional over-collateralization as a form of

credit enhancement may reduce the value of residual and interest-only
certificates carried on the Company's balance sheet. See 'Management's
Discussion and Analysis of Financial Condition and Results of Operations.' In
addition, agreements governing securitizations, including the Company's
securitizations, require the seller to commit to repurchase or replace loans
that do not conform to the representations and warranties made by the seller at
the time of sale. When borrowers are delinquent in making monthly payments on
loans included in a securitization, the Company is required to advance interest
payments with respect to such delinquent loans to the extent that the Company
deems such advances ultimately recoverable. These advances require funding from
the Company's capital resources but have priority of repayment from the
succeeding month's collections.
 
     Prior to 1991, the Company combined mortgage loans into pools and sold
these pools as well as individual mortgage loans directly to a network of
commercial banks, savings and loans, insurance companies, pension funds and
accredited investors. The Company generally sold these pools or individual loans
with recourse whereby the Company is obligated to repurchase any loan which
defaults and the related mortgaged property becomes an REO property. This
obligation is subject to various terms and conditions, including, in some
instances, a time limit. At June 30, 1996, $22.9 million or 3.7% of the
Company's $624.1 million servicing portfolio was subject to be repurchased in
the future should such loans become REO properties.
 
     In the ordinary course of its business, the Company is subject to claims
made against it by borrowers and private investors arising from, among other
things, losses that are claimed to have been incurred as a result of alleged
breaches of fiduciary obligations, misrepresentations, errors and omissions of
employees, officers and agents of the Company (including its appraisers),
incomplete documentation and failures by the Company to comply with various laws
and regulations applicable to its business. The Company believes that the
liability with respect to any currently asserted claims or legal actions is not
likely to be material to the Company's results of operations or financial
condition; however, any claims asserted in the future may result in legal
expenses or liabilities which could have a material adverse effect on the
Company's results of operations and financial condition. See '--Valuation and
Potential Impairment of Interest-Only and Residual Certificates.'
 
CONCENTRATION OF OPERATIONS
 
     For the six months ended June 30, 1996, 91.9% of the aggregate principal
balance of the mortgage loans purchased or originated by the Company were
secured by properties located in 10 states, with New York and New Jersey
accounting for 68.9% of those total originations and purchases. Although the
Company continues to expand its mortgage origination network in other regions of
the country, the Company's origination business is likely to remain concentrated
in the Northeast for the foreseeable future. Consequently, the Company's results
of operations and financial condition are dependent upon general trends in the
economy and the residential real estate market in the Northeast. See
'Business--Loans.'
 
CREDIT-IMPAIRED BORROWERS
 
     The Company targets credit-impaired borrowers. Loans made to such borrowers

generally entail a higher risk of delinquency and possibly higher losses than
loans made to more creditworthy borrowers. No assurance can be given that the
Company's underwriting policies and collection procedures will alleviate such
risks. In the event that pools of loans warehoused, sold and serviced by the
Company experience higher delinquencies, foreclosures or losses than
anticipated, the Company's results of operations or financial condition would be
adversely affected. See 'Business--Loans.'
 
LOSS OF SERVICING RIGHTS AND SUSPENSION OF FUTURE CASH FLOWS
 
     The Company's right to act as servicer under its securitizations can be
terminated under certain circumstances by the trustee or insurer of a particular
securitization. Such events include among other things: (i) failure by the
Company to pay when due any amount payable under the pooling and servicing
agreement
 
                                       11
<PAGE>
governing that securitization, (ii) failure of the Company to satisfy certain
financial tests, including a minimum net worth test, and (iii) the loss and
delinquency performance of the mortgage loans in the securitization exceeding
certain levels. Under some of the Company's servicing agreements, a failure by
the Miller family to continue to own, directly or indirectly, a majority of the
Company's outstanding voting stock, may result in a termination event. Any
termination of the Company's right to act as servicer under a securitization
would materially and adversely affect its ability to engage in future
securitizations which and would have a material adverse effect on the Company's
results of operations and financial condition. See 'Business--Loans--Loan
Servicing and Collections.'
 
LEGISLATIVE AND REGULATORY RISK
 
     Members of Congress and government officials from time to time have
suggested the elimination of the mortgage interest deduction for federal income
tax purposes, either entirely or in part, based on borrower income, type of loan
or principal amount. Because many of the Company's loans are made to borrowers
for the purpose of consolidating consumer debt or financing other consumer
needs, the competitive advantages of tax deductible interest, when compared with
alternative sources of financing, could be eliminated or seriously impaired by
such government action. Accordingly, the reduction or elimination of these tax
benefits could have a material adverse effect on the demand for loans of the
kind offered by the Company.
 
     The Company's business is subject to extensive regulation, supervision and
licensing by federal, state and local governmental authorities and is subject to
various laws and judicial and administrative decisions imposing requirements and
restrictions on part or all of its operations. The Company's consumer lending
activities are subject to the Federal Truth-in-Lending Act and Regulation Z
(including the Home Ownership and Equity Protection Act of 1994), the Federal
Equal Credit Opportunity Act and Regulation B, as amended ('ECOA'), the Fair
Credit Reporting Act of 1994, as amended, the Federal Real Estate Settlement
Procedures Act ('RESPA') and Regulation X, the Home Mortgage Disclosure Act and
the Federal Debt Collection Practices Act, as well as other federal and state
statutes and regulations affecting the Company's activities. The Company is also

subject to the rules and regulations of, and examinations by, the Department of
Housing and Urban Development ('HUD') and state regulatory authorities with
respect to originating, processing, underwriting, selling and servicing loans.
These rules and regulations, among other things, impose licensing obligations on
the Company, establish eligibility criteria for mortgage loans, prohibit
discrimination, provide for inspections and appraisals of properties, require
credit reports on loan applicants, regulate assessment, collection, foreclosure
and claims handling, investment and interest payments on escrow balances and
payment features, mandate certain disclosures and notices to borrowers and, in
some cases, fix maximum interest rates, fees and mortgage loan amounts. Failure
to comply with these requirements can lead to loss of approved status,
termination or suspension of servicing contracts without compensation to the
servicer, demands for indemnifications or mortgage loan repurchases, certain
rights of rescission for mortgage loans, class action lawsuits and
administrative enforcement actions. There can be no assurance that the Company
will maintain compliance with these requirements in the future without
additional expenses, or that more restrictive local, state or federal laws,
rules and regulations will not be adopted that would make compliance more
difficult for the Company. See 'Business--Regulation.'
 
POSSIBLE ENVIRONMENTAL LIABILITIES
 
     In the ordinary course of its business, the Company from time to time
forecloses on properties securing loans. Under various federal, state and local
environmental laws, ordinances and regulations, a current or previous owner or
operator of real estate may be required to investigate and clean up hazardous or
toxic substances or chemical releases at such property and may be held liable to
a governmental entity or to third parties for property damage, personal injury,
and investigation and cleanup costs incurred by such parties in connection with
the contamination. Such laws typically impose cleanup responsibility. Liability
under such laws has been interpreted to be joint and several unless the harm is
divisible, and there is a reasonable basis for allocation of responsibility. The
costs of investigation, remediation or removal of such substances may be
substantial, and the presence of such substances, or the failure to properly
remediate such property, may adversely affect the owner's ability to sell or
rent such property or to borrow using such property as collateral. Persons who
arrange for the disposal or treatment of hazardous or toxic substances also may
be liable for the
 
                                       12
<PAGE>
costs of removal or remediation of such substances at a disposal or treatment
facility, whether or not the facility is owned or operated by such person. In
addition, the owner or former owners of a contaminated site may be subject to
common law claims by third parties based on damages and costs resulting from
environmental contamination emanating from such property. See
'Business--Environmental Matters.'
 
ABSENCE OF PRIOR PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE
 
     Prior to the Offering, there has been no public market for the Common
Stock. The Company has applied to list the Common Stock on the NYSE. However,
there can be no assurance that an active public trading market for the Common
Stock will develop after the Offering or that, if developed, such market will be

sustained. The public offering price of the Common Stock offered hereby was
determined by negotiations among the Company and the representatives of the
Underwriters (the 'Representatives') and may not be indicative of the price at
which the Common Stock will trade after the Offering. See 'Underwriting.'
Consequently, there can be no assurance that the market price for the Common
Stock will not fall below the public offering price.
 
     The market price of the Common Stock may experience fluctuations unrelated
to the operating performance of the Company. In particular, the price of the
Common Stock may be affected by general market price movements as well as
developments specifically related to the consumer finance industry such as,
among other things, interest rate movements and delinquency trends. In addition,
the Company's operating income on a quarterly basis is significantly dependent
upon the Company's ability to access the securitization market and complete
significant securitization transactions in a particular quarter. Failure to
complete securitizations in a particular quarter may have a material adverse
impact on the Company's results of operations for that quarter and could
negatively affect the price of the Common Stock.
 
DILUTION
 
     Purchasers of the Common Stock offered hereby will experience immediate and
substantial dilution in net tangible book value per share of Common Stock of
$9.96 per share; assuming an initial public offering price of $15 per share (the
mid-point of the estimated range of the initial public offering price). See
'Dilution.'
 
DEPENDENCE ON KEY PERSONNEL
 
     The Company's growth and development to date have been largely dependent
upon the services of Sidney Miller, Hugh Miller and other key members of
management. Although the Company has been able to hire and retain other
qualified and experienced management personnel, the loss of either Sidney
Miller's or Hugh Miller's services for any reason could have a material adverse
effect on the Company. The Company has entered into employment agreements with
both persons, as well as with certain other members of senior management. See
'Management--Executive Compensation--Employment Agreements.'
 
CONTROL BY EXISTING STOCKHOLDERS
 
     Immediately after the Offering, the Existing Stockholders will beneficially
own an aggregate of 72.7% of the outstanding shares of Common Stock.
Accordingly, such persons, if they were to act in concert, would have majority
control of the Company, with the ability to approve certain fundamental
corporate transactions (including mergers, consolidations and sales of assets)
and to elect all members of the Board of Directors. As long as the Millers are
the controlling shareholders of the Company, third parties will not be able to
gain control of the Company through purchases of Common Stock not
beneficially-owned or otherwise controlled by the Millers. Accordingly, the
price of the Common Stock offered hereby would not reflect any premium which may
be attributable to such ability to exercise or obtain control over the Company.
See 'Principal Stockholders.'
 
SHARES AVAILABLE FOR FUTURE SALE

 
     All of the currently outstanding shares of Common Stock are beneficially
owned or otherwise controlled by Sidney Miller, Rona Miller or Hugh Miller,
either directly or through grantor retained annuity trusts in accordance with
Section 2702(b)(1) of the Internal Revenue Code of 1986, as amended (the
'Existing Stockholders'). Each grantor retained annuity trust is managed by a
Miller family trustee acting in a fiduciary capacity and exercising sole
dispositive authority over the trust. The 4,000,000 shares of Common Stock sold
in
 
                                       13
<PAGE>
the Offering will be freely tradeable by persons other than 'affiliates' of the
Company, as that term is defined in Rule 144 ('Rule 144') under the Securities
Act of 1933, as amended (the 'Securities Act'), without restriction under the
Securities Act. After completion of the Offering, the Existing Stockholders will
beneficially own or otherwise control an aggregate of 10,653,000 shares of the
Common Stock. Each of the Existing Stockholders has agreed not to sell any
shares beneficially owned by him or her, and not to permit any sales of any
shares otherwise controlled by him or her, for 180 days following completion of
the Offering without the prior written consent of the Representatives. However,
upon expiration of these agreements, the Existing Stockholders will be free to
sell any Common Stock held by them, subject to the rules and regulations
promulgated under the Securities Act. Furthermore, the Company intends to
register within 90 days of the date of the Offering approximately 2,200,000
shares of Common Stock reserved for issuance pursuant to the Company's stock
option plan, under which options to purchase 500,000 shares at the initial
public offering price are expected to become effective on the date of the
Offering. Any future sales of Common Stock could have a material adverse effect
on the prevailing market price of the Common Stock and could impair the
Company's future ability to raise capital through an offering of its equity
securities. See 'Shares Eligible for Future Sale' and 'Management--Stock Option
Plan.'
 
HOLDING COMPANY STRUCTURE
 
     Delta Financial Corporation is a holding company which will conduct all its
operations through its wholly-owned subsidiary, Delta Funding Corporation.
Substantially all of the assets of Delta will be owned by Delta Funding
Corporation. Therefore, Delta Financial Corporation's rights to participate in
the assets of Delta Funding Corporation upon such subsidiary's liquidation or
recapitalization will be subject to the prior claims of the subsidiary's
creditors, except to the extent that Delta may itself be a creditor with
recognized claims against the subsidiary. In addition, dividends from Delta
Funding Corporation are subject to certain contractual restrictions. See
'Dividend Policy.'
 
EFFECTS OF CERTAIN ANTI-TAKEOVER PROVISIONS
 
     Certain provisions of the Company's Certificate of Incorporation and Bylaws
and the Delaware General Corporation Law could delay or frustrate the removal of
incumbent directors and could make difficult a merger, tender offer or proxy
contest involving the Company, even if such events could be viewed as beneficial
by the Company's stockholders. For example, the Certificate of Incorporation

requires an 70% supermajority vote of stockholders to amend certain provisions
of the Bylaws pertaining to the calling of special meetings and the election and
removal of directors. The Company is also subject to provisions of the Delaware
General Corporation Law that prohibit a publicly held Delaware corporation from
engaging in a broad range of business combinations with a person who, together
with affiliates and associates, owns 15% or more of the corporation's
outstanding voting shares (an 'interested stockholder') for three years after
the person became an interested stockholder, unless the business combination is
approved in a prescribed manner. See 'Description of Capital Stock--Certain
Charter, Bylaws and Statutory Provisions.'
 
                                       14

<PAGE>
             REORGANIZATION AND TERMINATION OF S CORPORATION STATUS
 
     From July 1, 1985 until immediately prior to the date of the Prospectus,
Delta Funding Corporation has been and will be treated for federal income tax
purposes as an S corporation under Subchapter S of the Internal Revenue Code of
1986, as amended (the 'Code'), and has been treated as an S corporation for
certain state corporate income tax purposes under certain comparable state laws
(an 'S corporation'). As a result, Delta Funding Corporation's historical
earnings since July 1, 1985 have been taxed directly to Delta Funding
Corporation's stockholders, at their individual federal and state income tax
rates, rather than to Delta Funding Corporation. Prior to the date of the
Prospectus, pursuant to the terms of a contribution agreement (the 'Contribution
Agreement'), the current stockholders of Delta Funding Corporation will
contribute their stock to Delta Financial Corporation, in exchange for all of
the outstanding stock of the Company. Upon completion of such exchange, Delta
Funding Corporation will elect to terminate its status as an S corporation, as
described above. Upon termination of its S corporation status, the Company will
be fully subject to federal and state income taxes and will record a deferred
tax liability on its balance sheet. The amount of the deferred tax liability to
be recorded as of the date of termination of the S corporation status will
depend upon timing differences between tax and book accounting relating
principally to recognition of gains on sales of mortgage loans. If the S
corporation status had been terminated as of June 30, 1996, the amount of the
deferred tax liability would have been approximately $2.9 million. See
'Capitalization' and 'Selected Financial Data.'
 
     Since July 1, 1985, Delta Funding Corporation has paid approximately 15.8%
of its earnings before income tax to the Existing Stockholders in the form of S
corporation distributions (approximately $8.0 million was distributed from July
1, 1985 through June 30, 1996). Such distributions were paid to the Existing
Stockholders as a distribution of a portion of Delta Funding Corporation's
earnings and to pay their taxes. Prior to the Offering, Delta Funding
Corporation will distribute notes payable (the 'Distribution Notes') to the
Existing Stockholders in the aggregate principal amount of $23 million. The
principal amount of the Distribution Notes represents the sum of approximately
(i) $11 million in taxes payable at the applicable statutory rate by the
Existing Stockholders on the estimated net earnings of Delta Funding Corporation
for the period from January 1, 1996 to September 30, 1996, and (ii) $12 million
of previously earned and undistributed S corporation earnings. The Distribution
Notes will be promissory notes bearing interest at the rate of 6.15% per annum.
In addition, prior to the Offering, Delta Funding Corporation will declare a
contingent dividend (the 'Contingent Dividend') to the Existing Stockholders in
the amount of at least $30 and up to a maximum of $8,370,000 (the amount of the
net proceeds to the Company, after deducting the underwriting discount, if the
over-allotment option is exercised in full by the Underwriters). The maximum
amount of the Contingent Dividend shall become payable only upon the exercise by
the Underwriters of the entire over-allotment option granted to them by the
Company in connection with the Offering. The amount of the Contingent Dividend
which becomes payable shall bear a direct relation to the percentage of the
option granted to the Underwriters and exercised by them. If the over-allotment
option is not exercised in any amount, the Existing Stockholders will receive a
dividend of $30.
 

     Immediately prior to the Offering, Delta Funding Corporation and its
shareholders will enter into a tax indemnification agreement (the 'Tax
Agreement') relating to their respective income tax liabilities. Because the
Company will be fully subject to corporate income taxation after the termination
of the Company's S corporation status, the reallocation of income and deduction
between the period during which the Company was treated as an S corporation and
the period during which the Company will be subject to corporate income taxation
may increase the taxable income of one party while decreasing that of another
party. Accordingly, the Tax Agreement is intended to assure that taxes are borne
by the Company on the one hand and the Existing Stockholders on the other only
to the extent that such parties received the related income. The Tax Agreement
generally provides that, if an adjustment is made to the taxable income of the
Company for a year in which it was treated as an S corporation, the Company will
indemnify the Existing Stockholders and the Existing Stockholders will indemnify
the Company against any increase in the indemnified party's income tax liability
(including interest and penalties and related costs and expenses), with respect
to any tax year to the extent such increase results in a related decrease in the
income tax liability of the indemnifying party for that year. However, the Tax
Agreement specifically provides that the Existing Stockholders will not be
responsible for any portion of any deferred tax liability which may be recorded
on the balance sheet of Delta Funding Corporation upon termination of the S
corporation status. The Company will also indemnify the Existing Stockholders
for all taxes imposed upon them as the result of their receipt of an
indemnification payment under the Tax Agreement. Any payment made by the Company
to the Existing Stockholders pursuant to the Tax Agreement may be considered by
the Internal Revenue Service or state taxing authorities to be non-deductible by
the Company for income tax purposes. See 'Certain Relationships and Related
Party Transactions--Transactions in Connection with the Formation.'
 
                                       15
<PAGE>
                                USE OF PROCEEDS
 
     The net proceeds to the Company from the sale of the 4,000,000 shares of
Common Stock offered hereby are estimated to be $55 million, after deducting the
underwriting discount and estimated offering expenses and assuming a public
offering price of $15 per share.
 
     The Company will first use approximately $23 million of the net proceeds of
the Offering to pay the Distribution Notes issued to the Existing Stockholders
in connection with termination of Delta Funding Corporation's status as an S
corporation. These Distribution Notes were issued by the Company to distribute
$11 million in taxes payable at the applicable statutory tax rate by the
Existing Stockholders on the estimated net earnings of Delta Funding Corporation
for the period from January 1, 1996 to September 30, 1996 and $12 million in
previously earned and undistributed S corporation earnings. The Company will use
the remaining portion of the net proceeds to pay down amounts outstanding on the
Company's $150 million warehouse line of credit. The warehouse line of credit
bears interest at a variable rate based on a fixed spread over LIBOR. Any
remaining net proceeds will be used to fund future loan originations and
purchases, to support securitization transactions and for general corporate
purposes.
 
     If the Underwriters exercise the 30-day option granted by the Company to

purchase up to another 600,000 shares of Common Stock, the net proceeds to the
Company from such sale would be approximately $8,730,000, after deducting the
underwriting discounts and commissions, assuming full exercise of the option by
the Underwriters. The Company will cause its wholly owned subsidiary, Delta
Funding Corporation, to use the net proceeds from the exercise of the option to
pay the Contingent Dividend granted by Delta Funding Corporation to the Existing
Stockholders. The amount of the Contingent Dividend paid to the Existing
Stockholders shall bear a direct relation to the percentage of the option
exercised by the Underwriters. See 'Reorganization and Termination of S
Corporation Status' and 'Certain Relationships and Related Party
Transactions--Transactions in Connection with the Formation.'
 
     Pending their ultimate application, the net proceeds of the Offering will
be invested in short-term, investment grade, interest-bearing securities and
deposit accounts.
 
                                       16
<PAGE>
                                 CAPITALIZATION
 
     The following table shows the capitalization of Delta Financial Corporation
following the contribution of shares of Delta Funding Corporation held by the
Existing Stockholders as described in 'Reorganization and Termination of S
Corporation Status' and assumes consolidation of Delta Financial Corporation and
its wholly-owned subsidiary, Delta Funding Corporation. The table sets forth, as
of June 30, 1996 (i) the capitalization of the Company (using the assumptions
discussed above), (ii) the pro forma capitalization of the Company as adjusted
to give effect to the conversion of the Company from an S corporation to a C
corporation, together with Company's issuance of the Distribution Notes; and
(iii) the pro forma capitalization of the Company as adjusted to give effect to
the sale of the 4,000,000 shares of Common Stock offered by the Company hereby
(at an assumed initial public offering price of $15 per share) and the
application of the net proceeds therefrom, including payment of the Distribution
Notes and payment of amounts outstanding under certain warehouse lines. This
table should be read in conjunction with the Company's Financial Statements and
the notes thereto. See 'Use of Proceeds' and 'Reorganization and Termination of
S Corporation Status.' 
<TABLE>
<CAPTION>
                                                                                          JUNE 30, 1996
                                                                               -----------------------------------
                                                                                             PRO        PRO FORMA
                                                                                ACTUAL     FORMA(1)    AS ADJUSTED
                                                                               --------    --------    -----------
                                                                                     (DOLLARS IN THOUSANDS)
<S>                                                                            <C>         <C>         <C>
DEBT:
Warehouse financing and other borrowings....................................   $ 83,251    $ 83,251     $  51,251
Bank payable................................................................      6,524       6,524         6,524
Distribution Notes..........................................................         --      23,000            --
                                                                               --------    --------    -----------
  Total Debt................................................................   $ 89,775    $112,775     $  57,775
                                                                               --------    --------    -----------
                                                                               --------    --------    -----------

 
STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value; 49,000,000 shares authorized; 10,653,000
  shares outstanding, actual and pro forma and 14,653,000 shares outstanding
  pro forma as adjusted(2)..................................................   $    107    $    107     $     147
Preferred Stock, $.01 par value; 1,000,000 shares authorized;
  no shares outstanding.....................................................         --          --            --
Additional paid-in capital..................................................      3,225       3,225        58,185
Retained earnings(3)........................................................     41,402      15,471        15,471
                                                                               --------    --------    -----------
     Total shareholders' equity                                                  44,734      18,803        73,803
                                                                               --------    --------    -----------
       Total capitalization.................................................   $134,509    $131,578     $ 131,578
                                                                               --------    --------    -----------
                                                                               --------    --------    -----------
</TABLE> 
- ------------------
(1) Gives pro forma effect to (i) a distribution to the Existing Stockholders in
    the form of the Distribution Notes in the aggregate face amount of $23
    million made immediately prior to the date of the Prospectus in respect of
    certain tax liabilities, and (ii) the creation of a deferred tax liability
    in the amount of $2.9 million arising in connection with Delta Funding
    Corporation's termination of its S corporation status. See 'Reorganization
    and Termination of S Corporation Status,' and 'Use of Proceeds.'
 
(2) Excludes 500,000 shares of Common Stock to be granted upon consumation
    of the Offering pursuant to options outstanding under the Company's 1996
    Stock Option Plan. See 'Management--Stock Option Plan.'
 
(3) No adjustment has been made to give effect to the Company's net earnings for
    the period from July 1, 1996 through September 30, 1996, which earnings were
    included in the calculation of the portion of the Distribution Notes related
    to taxes payable by the Existing Stockholders. See "Reorganization and
    Termination of S Corporation Status."

                                      17
<PAGE>
                                DIVIDEND POLICY
 
     The Company has no present intention to pay cash dividends after the
Offering. Any determination in the future to pay dividends will depend on the
Company's financial condition, capital requirements, results of operations,
contractual limitations and any other factors deemed relevant by the Board of
Directors. For a discussion of distributions paid by the Company prior to the
Offering, see 'Reorganization and Termination of S Corporation Status.'
 
                                    DILUTION
 
     The net tangible book value of the Common Stock as of June 30, 1996 was
$44.7 million, or $4.20 per share of Common Stock. Net tangible book value per
share represents the amount of the Company's stockholders' equity, less
intangible assets, divided by the number of shares of Common Stock outstanding.
Dilution per share represents the difference between the amount per share paid
by purchasers of shares of Common Stock in the Offering made hereby and the pro

forma net tangible book value per share of Common Stock immediately after
completion of the Offering. After (i) giving effect to the sale of 4,000,000 of
the shares of Common Stock offered hereby by the Company at an assumed public
offering price of $15 per share, (ii) deducting the underwriting discount and
estimated offering expenses payable by the Company, (iii) the S corporation
distribution to the Existing Stockholders of an aggregate of $23 million in
payment of the Distribution Notes and, (iv) the creation of a deferred tax
liability in the amount of $2.9 million arising in connection with Delta Funding
Corporation's termination of its S corporation status, the pro forma net
tangible book value of the Company as of June 30, 1996 would have been $73.8
million, or $5.04 per share. This represents an immediate increase in pro forma
net tangible book value to the Existing Stockholders of $0.84 and an immediate
dilution of $9.96 to new public investors purchasing Common Stock in the
Offering, as illustrated in the following table:
 
<TABLE>
<S>                                                                                        <C>
Assumed initial public offering price per share.........................................      $ 15.00
  Net tangible book value per share at June 30, 1996....................................         4.20
  Decrease attributable to Distribution Notes...........................................        (2.16)
  Decrease due to deferred tax liability................................................        (0.28)
  Increase in tangible book value per share attributable to new public investors........         3.28
Pro forma net tangible book value per share after the Offering..........................         5.04
Dilution per share to new public investors..............................................         9.96
</TABLE>
 
     In the event the over-allotment option is exercised by the Underwriters,
the net proceeds received by the Company will be paid to the Existing
Stockholders pursuant to the Contingent Dividend. See 'Reorganization and
Termination of S Corporation Status.' In such event, the number of shares of
Common Stock outstanding will increase, but the stockholders' equity of the
Company will not increase. Accordingly, the pro forma tangible book value per
share after the Offering would decrease and the dilution per share to new
investors would increase.
 
     The following table sets forth on a pro forma basis as of June 30, 1996 the
difference between Existing Stockholders and the purchasers of shares in the
Offering with respect to the number of shares purchased from the Company, the
total consideration paid and the average price paid per share:
 
<TABLE>
<CAPTION>
                                                                                 TOTAL
                                                   SHARES PURCHASED          CONSIDERATION
                                                ---------------------    ---------------------    AVERAGE PRICE
                                                  NUMBER      PERCENT    AMOUNT        PERCENT      PER SHARE
                                                ----------    -------    -------       -------    -------------
<S>                                             <C>           <C>        <C>           <C>        <C>
Existing Stockholders.........................  10,653,000      72.7%    $18,803,000     23.9%       $  1.77
New public investors..........................   4,000,000      27.3%     60,000,000     76.1%       $ 15.00
                                                ----------    -------    -----------   -------
  Total.......................................  14,653,000     100.0%     78,803,000    100.0%
                                                ----------    -------    -----------   -------
                                                ----------    -------    -----------   -------

</TABLE>
 
     The information and tables above exclude the effect of 500,000 shares of
Common Stock subject to options to be granted at the commencement of the
Offering at the initial public offering price. The calculations also assume no
exercise of the Underwriters' over-allotment option.
 
                                       18
<PAGE>
                            SELECTED FINANCIAL DATA
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
 
     The following table sets forth historical selected financial and operating
data of the Company as of (i) December 31, 1991, 1992, 1993, 1994 and 1995 and
for each of the five years in the period ended December 31, 1995, and (ii) June
30, 1995 and 1996 and for the six month periods then ended.
 
     The following selected income statement data for each of the three years
ended December 31, 1993, 1994 and 1995 and the balance sheet data as of December
31, 1994 and 1995 are derived from the Company's audited financial statements
and notes thereto included elsewhere herein audited by KPMG Peat Marwick LLP,
independent public accountants, as set forth in their report also included
elsewhere herein. The selected income statement data for the years ended
December 31, 1991 and 1992 and the balance sheet data as of December 31, 1991,
1992 and 1993 are derived from the Company's audited financial statements not
included herein. The unaudited selected income statements data for the six month
periods ended June 30, 1995 and 1996 and the unaudited balance sheet data as of
June 30, 1996 are derived from the unaudited financial statements of the Company
prepared on the same basis as the audited financial statements and, in the
opinion of management, include all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of the Company's financial
position and results of operations. The results of operations for any interim
period are not necessarily indicative of results to be expected for the full
year.
 
     The information set forth below should be read in conjunction with
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' and all of the financial statements and the notes thereto and other
financial information included elsewhere in this Prospectus.
 
<TABLE>
<CAPTION>
                                                                                                   SIX MONTHS ENDED
                                                                                                       JUNE 30,
                                                       YEAR ENDED DECEMBER 31,                       (UNAUDITED)
                                         ---------------------------------------------------    ----------------------
                                          1991       1992       1993       1994       1995       1995         1996
                                         -------    -------    -------    -------    -------    -------    -----------
                                                                                                     (UNAUDITED)
<S>                                      <C>        <C>        <C>        <C>        <C>        <C>        <C>
INCOME STATEMENT DATA:
  Revenues:
    Gain on sale of loans, net........   $ 4,052    $ 4,757    $ 7,639    $ 6,661    $15,383    $ 5,335    $    17,800
    Interest..........................     4,747     13,402      9,156      9,839     13,588      5,362          7,861

    Servicing fees....................     1,460      1,892      2,101      2,183      2,856      1,240          2,325
    Other.............................     5,880      5,413      3,617      3,114      4,309      1,857          2,345
                                         -------    -------    -------    -------    -------    -------    -----------
         Total revenue................   $16,139    $25,464    $22,513    $21,797    $36,135    $13,793    $    30,331
                                         =======    =======    =======    =======    =======    =======    ===========
  Expenses:
    Payroll and related costs.........   $ 5,093    $10,713    $ 9,268    $ 8,815    $12,876    $ 4,359    $     6,685
    Interest expense..................     3,664      4,536      2,915      3,735      7,964      3,470          5,922
    General and administrative........     5,626      6,905      6,670      7,238     10,710      4,147          5,631
                                         -------    -------    -------    -------    -------    -------    -----------
         Total expenses...............   $14,383    $22,154    $18,853    $19,788    $31,550    $11,975    $    18,238
                                         =======    =======    =======    =======    =======    =======    ===========
    Earnings before pro forma
      provision for income taxes and
      extraordinary item..............   $ 1,756    $ 3,310    $ 3,660    $ 2,009    $ 4,586    $ 1,818    $    12,093
    Extraordinary item................        --         --         --         --         --         --          3,168
    Net earnings......................     1,756      3,310      3,660      2,009      4,586      1,818         15,261
PRO FORMA INFORMATION:
    Provision for pro forma income
      taxes(1)........................       755      1,423      1,574        864      1,972        782          6,562
    Pro forma net earnings(1).........     1,001      1,887      2,086      1,145      2,614      1,036          8,699
 
PER SHARE DATA:
    Pro forma earnings per share of
      common stock(1)(2):
         Before extraordinary item....                                           $       .21               $       .57
         Extraordinary item...........                                                    --                       .14
                                                                                 -----------               -----------
    Pro forma net earnings per share..                                           $       .21               $       .71
                                                                                 -----------               -----------
                                                                                 -----------               -----------
    Pro forma weighted average number
      of shares outstanding(1)(2).....                                            12,186,333                12,186,333
                                                                                 -----------               -----------
                                                                                 -----------               -----------
</TABLE>
 
                                       19
<PAGE>
 
<TABLE>
<CAPTION>
                                                            DECEMBER 31,                                JUNE 30,
                                           -----------------------------------------------   ------------------------------
                                            1991      1992      1993      1994      1995        1996              1996
                                           -------   -------   -------   -------   -------   -----------      -------------
                                                                                              (ACTUAL)        (PRO FORMA AS
                                                                                                              ADJUSTED) (3)
<S>                                        <C>       <C>       <C>       <C>       <C>       <C>              <C>
BALANCE SHEET DATA:
    Loans held for sale..................  $44,339   $47,079   $41,703   $48,833   $63,816     $66,677           $66,677
    Interest only and residual
      certificates.......................       --        --     2,204     7,514    25,310      43,233            43,233
    Capitalized mortgage servicing

      rights.............................    3,570     5,705     3,491     2,421     3,831       6,674             6,674
    Total assets.........................   82,093    80,775    81,143    98,589   139,612     155,812           155,812
                                           =======   =======   =======   =======   =======     =======       ===========
    Warehouse financing and other
      borrowings.........................   45,813    42,659    36,780    52,491    82,756      83,251            51,251
    Investor payable.....................    4,279     4,959     8,687    11,091    14,272      13,599            13,599
    Total liabilities....................   59,867    54,891    52,793    70,425   109,779     111,078            82,008
                                           -------   -------   -------   -------   -------     -------       -----------
    Stockholders' equity.................   22,226    25,884    28,350    28,164    29,833      44,734            73,803
                                           =======   =======   =======   =======   =======     =======       ===========
</TABLE>
 
<TABLE>
<CAPTION>
                                                                                                    SIX MONTHS ENDED
                                                        YEAR ENDED DECEMBER 31,                         JUNE 30,
                                         ------------------------------------------------------    -------------------
                                           1991       1992       1993        1994        1995       1995        1996
                                         --------    -------    -------    --------    --------    -------    --------
<S>                                      <C>         <C>        <C>        <C>         <C>         <C>        <C>
OPERATING DATA:
  Loans originated or purchased:
    Brokered Loans....................   $ 78,394    $66,553    $76,220    $ 81,407    $175,738    $64,250    $135,621
    Correspondent Loans                     4,022     10,080     26,844      38,341     112,065     43,886     108,472
         Total........................     82,416     76,633    103,063     119,748     287,804    108,136     244,093
  Average principal balance per loan..         43         51         60          67          74         72          79
  Weighted average interest rate......       14.2%      13.5%      12.9%       12.1%       11.8%      12.3%       11.3%
  Weighted average initial combined
    loan-to-value ratio...............       46.4%      47.8%      51.7%       55.2%       63.2%      60.9%       67.3%
  Percent of loans secured by first
    mortgages.........................       63.8%      71.5%      81.1%       88.0%       89.6%      88.8%       94.4%
  Loan Sales:
    Loans sold through
      securitizations.................   $142,955    $64,102    $88,943    $ 90,000    $229,997    $79,998    $225,000
    Whole loan sales..................        N/A      1,031      8,708      11,950      17,615      8,601      11,238
         Total........................    142,955     65,133     97,651     101,950     247,612     88,599     236,238
  Total loans serviced................    250,159    275,542    292,700     310,229     468,846    357,831     624,097
 
DELINQUENCY DATA:
  Total delinquencies as a percentage
    of loans serviced (period
    end)(4)...........................      19.80%     19.87%     13.50%      11.44%      10.64%      8.35%       7.85%
  Defaults as a percentage of loans
    serviced (period end)(5)..........       1.90%      3.60%      5.35%       7.32%       5.87%      6.64%       5.31%
  Net losses as a percentage of
    average loans serviced for
    period............................          0%     0.017%     0.031%      0.240%      0.658%     0.360%(6)    0.542%(6)
</TABLE>
 
- ------------------
(1) Prior to October 1996, Delta Funding Corporation was treated as an S
    corporation for federal and state income tax purposes. See 'Reorganization
    and Termination of S Corporation Status.' The pro forma presentation
    reflects the provision for income taxes as if Delta Funding Corporation had

    always been a C corporation at an assumed effective tax rate of 43%. The pro
    forma provision for income taxes for the six months ended June 30, 1996
    includes a pro forma provision of $1,362,166 on the extraordinary item.
 
(2) Pro forma net income per share has been computed by dividing pro forma net
    income by the 10,653,000 of shares of common stock of Delta Financial
    Corporation to be received by the Existing Stockholders in exchange for the
    shares of Delta Funding Corporation, and, in accordance with a regulation
    of the Securities and Exchange Commission, the effect of the assumed
    issuance (at an assumed price of $15 per share) of 1,533,333 shares of
    common stock to generate sufficient cash to pay the Distribution Notes in
    the amount of $23,000,000. See 'Reorganization and Termination of S
    Corporation Status.'
 
(3) Adjusted to reflect (i) the conversion of Delta Funding Corporation from an
    S corporation to a C corporation and (ii) the sale of 4,000,000 shares of
    Common Stock offered hereby at an initial offering price of $15 per share
    (the mid-point of the estimated range of the initial public offering price)
    after deducting underwriting discounts and commissions and expenses payable
    by the Company, and (iii) the application of the estimated net proceeds
    therefrom, including the payment of $23 million for the Distribution Notes
    issued to the Existing Stockholders of Delta Funding Corporation in
    connection with the termination of Delta Funding Corporation's S corporation
                                        status and the payment of $32 million to
 
                                              (Footnotes continued on next page)
 
                                       20
<PAGE>
(Footnotes continued from previous page)
    reduce outstanding balances under certain of the Company's warehouse
    facilities. Adjustments have not been made to account for the contingent
    dividend payable to the Existing Stockholders of Delta Funding Corporation
    in the event the over-allotment is exercised. See 'Use of Proceeds,'
    'Capitalization' and 'Reorganization and Termination of S Corporation
    Status.'
 
(4) Represents the percentages of account balances contractually past due 30
    days or more, exclusive of home equity loans in foreclosure or real estate
    owned ('REO').
 
(5) Represents the percentages of account balances on loans in foreclosure or
    REO.
 
(6) Annualized.
 
                                       21

<PAGE>
               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATION
 
     The following discussion should be read in conjunction with the Financial
Statements of the Company and accompanying Notes set forth therein.
 
GENERAL
 
  Overview
 
     The Company is a specialty consumer finance company engaged in the business
of originating, acquiring, selling and servicing mortgage loans secured
primarily by one- to four-family residences. Delta has focused on lending to
individuals who generally have impaired or limited credit profiles or higher
debt to income ratios and typically have substantial equity in their homes. The
Company primarily generates revenue from gain on sale of loans sold through
securitizations, gains recognized from premiums on loans sold through whole loan
sales, interest earned on loans held for sale, origination fees received as part
of the loan application process and fees earned from servicing loans.
 
  Recent Growth
 
     The Company has experienced significant growth in the last few years,
particularly since January 1, 1995. Management believes that this growth is
primarily attributable to (i) the Company's geographic expansion of its
operations, (ii) the Company's further penetration into its established markets,
and (iii) the Company's increased access to additional funding sources through
larger warehouse agreements which enabled the Company to accumulate larger pools
of loans for sales through securitizations.
 
     In connection with its geographic expansion, the Company has continued to
focus its resources on developing loan production from brokers and
correspondents. The Company has followed a two-pronged approach to increase the
volume of loan originations from these sources. The Company employs business
development representatives to initiate and expand relationships with brokers
and correspondents. In addition, the Company uses its loan officers and
correspondent underwriters to maintain and strengthen existing relationships.
There can be no assurance that the Company will continue to grow significantly
in the future. Any future growth will be limited by, among other things, the
Company's need for continued funding sources, access to capital markets,
sensitivity to economic slowdowns, ability to attract and retain qualified
personnel, fluctuations in interest rates and competition from other consumer
finance companies and from new market entrants.
 
CERTAIN ACCOUNTING CONSIDERATIONS
 
  Interest-Only and Residual Certificates
 
     The Company derives a substantial portion of its income by recognizing gain
on sale of loans sold through securitizations, represented by the interest-only
and residual certificates that the Company retains. In securitizations, the
Company sells loans that it has originated or purchased to a trust for a cash
purchase price and the interest-only and residual certificates. The cash

purchase price is raised through an offering by the trust of pass-through
certificates representing regular interests in the trust. Following the
securitizations, the purchasers of the pass-through certificates receive the
principal collected and the investor pass-through interest rate on the principal
balance, while the Company receives the excess of the interest rate payable by
an obligor on a loan over the interest rate passed through to the purchasers of
the regular-interest certificates (with respect to the interest-only and
residual certificates), as well as the Company's normal servicing fee and other
recurring fees. The interest-only and residual certificates which are
capitalized on the Company's balance sheet are reduced as cash distributions are
received. The interest-only and residual certificates are accounted for as
trading securities in accordance with SFAS 115, 'Accounting for Certain
Investments in Debt and Equity Securities,' and as such they are recorded at
their fair value. Changes in fair value are reflected in the statement of
operations. Fair value of the interest-only and residual certificates is
determined based on various economic factors, including considerations of loan
type, size, date of origination, interest rate, term, collateral value and
geographic location. Higher than anticipated rates of loan prepayments or losses
would require the Company to write down the fair
 
                                       22
<PAGE>
value of the interest-only and residual certificates, adversely impacting
earnings. Similarly, if delinquencies, liquidations or interest rates were to be
greater than was initially assumed, the fair value of the interest-only and
residual certificates would be negatively impacted which would have an adverse
effect on income for the period in which such events occurred. 
 
  SFAS No. 91
 
     In December 1986, the Financial Accounting Standards Board ('FASB') issued
Statement of Financial Accounting Standards ('SFAS') No. 91, 'Accounting for
Non-Refundable Fees and Costs Associated with Originating or Acquiring Loans and
Initial Direct Costs of Leases.' SFAS No. 91 establishes the accounting for
nonrefundable fees and costs associated with lending, committing to lend, or
purchasing a loan or a group of loans.
 
     Under SFAS No. 91, direct loan origination costs, net of loan origination
fees, are recognized as a reduction of the loan's yield over the earlier of the
life of the related loan or the sale of the loan. In effect, SFAS No. 91
requires that origination fees be offset by their related direct loan costs and
that net deferred fees be recognized over the earlier of the life of the loan or
the sale of the loan, whether the loan is sold through securitization or on a
whole loan basis.
 
     Prior to the second quarter of 1996, the Company generally sold loans
through securitization on a semiannual basis and, as such, carried a larger
inventory of loans on its books from quarter to quarter and from year to year,
which resulted in SFAS No. 91 adjustments being made during those periods. The
Company contemplates that in the future it will sell substantially all of its
loan originations and purchases on a quarterly basis primarily through
securitizations and, to a lesser extent, on a whole loan basis. This should
minimize the amount of loans being held in inventory and, therefore, minimize
the effects of SFAS No. 91 on the Company's financial statements.

 
  Mortgage Servicing Rights
 
     In May 1995, the FASB issued SFAS No. 122, 'Accounting for Mortgage
Servicing Rights,' which amends SFAS No. 65 'Accounting for Certain Banking
Activities.' Effective January 1, 1995, the Company adopted SFAS No. 122.
Because SFAS No. 122 prohibits retroactive application to years prior to
adoption thereof, the Company's historical financial results for periods prior
to 1995 have not been restated and, accordingly, are not directly comparable to
the financial results for 1995.
 
     SFAS No. 122 requires mortgage banking entities to recognize as a separate
asset the rights to service mortgage loans for others, regardless of how those
servicing rights are acquired. Mortgage banking entities that acquire or
originate loans and subsequently sell or securitize those loans and retain the
mortgage servicing rights are required to allocate the total cost of the loans
to the mortgage servicing rights and the mortgage loans. The Company determines
fair value based upon the present value of estimated net future servicing
revenues less the estimated cost to service loans, adjusted based on the same
assumptions used on the gain on sale calculation. The cost allocated to these
servicing rights is amortized in proportion to and over the period of estimated
net future cash flows related to servicing income. As a result of the adoption
of SFAS No. 122, the Company will recognize in the future greater revenues at
the time a loan is sold and smaller revenues during the period such loan is
serviced. To this end, adoption of SFAS No. 122 resulted in additional income
recorded as gain on sale of approximately $2.1 million and $3.3 million during
the year ended 1995 and the six months ended 1996, respectively.
 
     SFAS No. 122 also requires impairment evaluations of all amounts
capitalized as servicing rights, including those purchased before the adoption
of SFAS No. 122, based upon the fair value of the underlying servicing rights.
The Company periodically performs these evaluations on a disaggregated basis for
the predominant risk characteristics of the underlying loans which are loan
type, term, credit quality and interest rate. The continuing effects of SFAS No.
122 on the Company's financial position and results of operations will depend on
several factors, including, among other things, the amount of acquired or
originated loans sold or securitized, the type, term and credit quality of loans
and estimates of future prepayment rates. Higher than anticipated rates of loan
prepayments or losses would require the Company to write down the fair value of
the mortgage servicing rights,
 
                                       23
<PAGE>
adversely impacting earnings.

TERMINATION OF S CORPORATION STATUS AND INCOME TAXES
 
     Immediately prior to the date of the Prospectus, Delta Funding Corporation
will terminate its status as an S corporation. The Existing Stockholders of
Delta Funding Corporation, pursuant to the terms of the Contribution Agreement,
will contribute their shares of capital stock in Delta Funding Corporation to
the Company in exchange for all of the outstanding shares of Common Stock of the
Company.
 

     In connection with the termination of Delta Funding Corporation's S
corporation status, Delta Funding Corporation will make a final S corporation
distribution in the form of Distribution Notes and the Company will use $23
million of the net proceeds of the Offering, to pay such notes. In addition,
Delta Funding Corporation will declare the Contingent Dividend. See 'Use of
Proceeds' and 'Reorganization and Termination of S Corporation Status.'
 
     As an S corporation, the Company's income, whether or not distributed, was
taxed at the shareholder level for federal and state tax purposes. Upon
termination of its S corporation status, the Company will be fully subject to
federal and state income taxes and will record a deferred tax liability on its
balance sheet. The amount of the deferred tax liability to be recorded as of the
date of termination of the S corporation status will depend upon timing
differences between tax and book accounting relating principally to recognition
of gains on sale of mortgage loans. If the S corporation status had been
terminated as of June 30, 1996, the amount of the deferred tax liability would
have been approximately $2.9 million. The pro forma provision for income taxes
in the accompanying statements of income shows results as if the Company had
always been fully subject to federal and state taxes at an assumed tax rate of
43%.
 
RESULTS OF OPERATIONS
 
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
 
  Revenues
 
     Total revenues increased $16.6 million, or 120%, to $30.4 millon for the
six months ended June 30, 1996 from $13.8 million in the six months ended June
30, 1995. The increase in revenues was primarily due to the increased loan
originations and purchases sold through securitizations. The Company retains
100% of the servicing rights on loans it sells through securitizations.
 
     Gain on Sale of Loans, Net.  Gain on sale of mortgage loans, net increased
$12.5 million, or 234%, to $17.8 million for the six months ended June 30, 1996
from $5.3 million for the six months ended June 30, 1995. This increase was the
result of higher loan originations and purchases and the corresponding larger
amount of loans sold through securitizations or on a whole loan basis. During
the six months ended June 30, 1996, loan originations increased $71.3 million or
111% to $135.6 million compared to $64.3 million in the comparable period in
1995. During the same period, the Company's purchase volume increased $64.6
million or 147% to $108.5 million from $43.9 million. As a result, total loan
originations and purchases increased $136.0 million or 126% to $244.1 million in
the six months ended June 30, 1996 from $108.1 million in the comparable period
in 1995. Total loans of $236.2 million were either sold or securitized in the
six months ended June 30, 1996 compared to $88.6 million of loans sold or
securitized during the comparable period in 1995, with a weighted average net
gain on sale of 7.5% and 6.0%, respectively.
 
     Interest Income.  Interest income increased $2.5 million, or 47%, to $7.9
million for the six months ended June 30, 1996 from $5.4 million for the six
months ended June 30, 1995. The increase in interest income was primarily due to
a higher average balance of loans held for sale during 1996 and, to a lesser
extent, to the increase in interest-only and residual certificates held for

investment.
 
     Servicing Income.  Servicing income increased $1.1 million, or 88%, to
$2.3 million for the six months ended June 30, 1996 from $1.2 million for the
six months ended June 30, 1995. This increase was primarily the result of higher
loan servicing volume which resulted in a greater amount of contractual and
ancillary service
 
                                       24
<PAGE>
fees. During the six months ended June 30, 1996 the average balance of mortgage
loans serviced by the Company increased 68% to $555.3 million, compared to
$330.0 million in the comparable period in 1995.
 
     Other Income.  Other income increased $0.4 million, or 26%, to $2.3
million for the six months ended June 30, 1996 from $1.9 million for the six
months ended June 30, 1995. This increase was primarily due to the increase in
total loan originations and corresponding origination fees which is the largest
component of other income. During the six months ended June 30, 1996, loan
originations increased by $71.3 million, or 111%, to $135.6 million from $64.3
million in the comparable period in 1995.
 
  Expenses
 
     Total expenses increased $6.2 million, or 52%, to $18.2 million for the
six months ended June 30, 1996 from $12.0 million for the six months ended June
30, 1995. The increase in expenses was primarily the result of increased
interest expense on loans held for sale, the increased costs associated with the
additional personnel required for the greater volume of originations and higher
operating expenses related to the increase in loan originations and purchases
during the six months ended June 30, 1996 as compared to the six months ended
June 30, 1995.
 
     Payroll Expense.  Payroll expense increased $2.3 million, or 53.4%, to $6.7
million for the six months ended June 30, 1996 from $4.4 million for the six
months ended June 30, 1995. The increase in payroll expense was primarily due to
increased staffing in the Company's originations area. As of June 30, 1996, the
Company operated ten offices and employed 294 persons compared to operating two
offices employing 209 persons as of June 30, 1995.
 
     Interest Expense.  Interest expense increased $2.5 million, or 71%, to
$5.9 million for the six months ended June 30, 1996 from $3.5 million for the
six months ended June 30, 1995. The increase in interest expense was
attributable to the interest costs associated with a higher balance of loans
originated and held for sale during the six months ended June 30, 1996, and a
higher balance of loans held for sale at the beginning of the period ($66.7
million compared to $48.8 million for 1996 and 1995, respectively). The
Company's cost of funds on its floating rate warehouse facilities where it holds
mortgage loans until the time of sale, was 1.37% basis points lower for the six
months ended June 30, 1996 compared to the six months ended June 30, 1995. This
was due to lower interest rates, on average 0.62% lower, and a lower credit
spread of 0.75%, as the Company replaced its warehouse facility with a less
expensive source of funding in the fourth quarter of 1995.
 

     General and Administrative Expenses.  General and administrative expenses
which consist primarily of office and administrative, rent expenses, and health
care and insurance expenses increased $1.5 million, or 36%, to $5.6 million
for the six months ended June 30, 1996 from $4.1 million for the six months
ended June 30, 1995. The increase in general and administrative expenses was
primarily due to expenses incurred in association with the increases in loan
originations and purchases, increased employee benefit expenses and leasing of
additional office space at the Company's headquarters in Woodbury, New York. As
of June 30, 1996, the Company occupied approximately 55,000 square feet at its
headquarters compared to approximately 36,000 square feet as of June 30, 1995.
 
  Extraordinary Gain
 
     In May 1996, the Company closed out its long-term $31.7 million warehouse
facility with a European financial institution at a 10% discount. As a result,
the Company realized an extraordinary gain of $3.17 million in the six months
ended June 30, 1996.
 
YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE YEAR ENDED DECEMBER 31, 1994
 
  Revenues
 
     Total revenues increased $14.3 million, or 66%, to $36.1 million in 1995
from $21.8 million in 1994. The increase in revenues was primarily due to the
combined effect of increases in loan originations and purchases, the adoption of
SFAS No. 122 and higher gains realized on the sale of loans through
securitizations. See '--Accounting Considerations--Mortgage Servicing Rights.'
 
                                       25
<PAGE>
     Gain on Sale of Loans, Net.  Gain on sale of mortgage loans, net increased
$8.7 million, or 131%, to $15.4 million in 1995 from $6.7 million in 1994. This
increase was primarily due to the combined effect of increased loan originations
and purchases and subsequent sales of loans through securitizations and the
adoption of SFAS No. 122. See--'Accounting Considerations--Mortgage Servicing
Right.' Total loan originations and purchases increased $168.1 million, or 140%,
to $287.8 million in 1995 from $119.7 million in 1994. The Company sold or
securitized $247.6 million of loans in 1995 compared to $102.0 million in 1994,
with a weighted average net gain on sale of 6.2% and 6.5%, respectively.
Included in the gains on sale of loans in 1995 was $2.1 million which represents
the present value of mortgage servicing rights that the Company receives over
time, as it sells loans through securitization on a servicing-retained basis.
The Company implemented SFAS No. 122, effective as of January 1, 1995.
 
     Interest Income.  Interest income increased $3.8 million, or 38%, to $13.6
million in 1995 from $9.8 million in 1994. The increase in interest income was
primarily due to a higher average balance of loans held for sale during 1995
resulting from the increases in loan originations and purchases.
 
     Servicing Income.  Servicing income increased $0.7 million, or 31%, to $2.9
million in 1995 from $2.2 million in 1994. This increase was primarily the
result of higher loan servicing volume which resulted in a greater amount of
contractual and ancillary service fees. During 1995, the average balance of
mortgage loans serviced by the Company increased 24% to $373.4 million, compared

to $300.7 million in 1994. During 1995, the Company also increased its ancillary
servicing income by charging prepayment penalties in states where such charges
are allowed.
 
     Other Income.  Other income increased $1.2 million, or 38%, to $4.3 million
in 1995 from $3.1 million in 1994. This increase was primarily due to the
increase in loan origination fees, which is the largest component of other
income. During 1995, broker loan originations increased by $94.3 million, or
116%, to $175.7 million from $81.4 million in 1994.
 
  Expenses
 
     Total expenses increased $11.7 million, or 59%, to $31.5 million for 1995
from $19.8 million in 1994. The increase in expenses was primarily the result of
increased interest expense on loans held for sale, the increased expense
associated with additional personnel required to process the greater number of
loan originations and purchases, and higher operating expenses related to
increased loan volume during 1995, as compared to 1994.
 
     Payroll Expense.  Payroll expense increased $4.1 million, or 46%, to $12.9
million for 1995, from $8.8 million for 1994. The increase was due primarily to
bonus increases granted to certain members of senior management and, to a lesser
extent, due to increased staffing in the Company's originations area. As of
December 31, 1995, the Company employed 255 persons as compared to 197 persons
as of December 31, 1994.
 
     Interest Expense.  Interest expense increased $4.3 million, or 113%, to
$8.0 million in 1995 from $3.7 million in 1994. The increase in interest expense
was attributable to the interest costs associated with a higher balance of loans
pending sale during 1995, resulting from increases in loan originations and
purchases during the period, and a higher balance of loans held for sale at the
beginning of the period ($48.8 million compared to $41.7 million for 1995 and
1994, respectively). The Company's cost of funds on its floating rate warehouse
facilities where it holds mortgage loans until the time of sale, was, on
average, 1.51% basis points higher in 1995 compared to 1994.
 
     General and Administrative Expenses.  General and administrative expenses
compared to increased $3.5 million, or 48%, to $10.7 million in 1995 from $7.2
million in 1994. The increase in general and administrative expenses was
primarily due to expenses incurred in association with the increases in loan
originations and purchases and associated increases in personnel expenses and
the direct costs relating to the transfer of the Company's prior servicing
system to its current servicing system.
 
                                       26
<PAGE>
YEAR ENDED DECEMBER 31, 1994 COMPARED TO THE YEAR ENDED DECEMBER 31, 1993
 
  Revenues
 
     Total revenues decreased $0.7 million, or 3%, to $21.8 million in 1994 from
$22.5 million in 1993. The decrease in revenues was primarily due to lower rates
on mortgage loans resulting in narrowing interest spreads achievable in
securitizations and consequently lower gain on sale for the period.

 
     Gain on Sale of Loans, Net.  Gain on sale of mortgage loans, net decreased
$0.9 million, or 13%, to $6.7 million in 1994 from $7.6 million in 1993. This
decrease was primarily due to lower interest rates on mortgage loans, which was
reflected by an increased percentage of 'A' and 'B' credit borrowers. During
1994, the weighted average loan rate on mortgage loans sold or securitized was
12.38% as compared to 13.44% in 1993. The Company sold $102.0 million of loans
in 1994 as compared to $97.7 million in 1993, with a weighted average gain on
securitization of 6.5% and 7.8% respectively.
 
     Interest Income.  Interest income increased $0.7 million, or 7%, to $9.8
million in 1994 from $9.2 million in 1993. The increase in interest income was
primarily due to a longer holding period of loans held for sale during 1994.
During 1994, the Company completed two securitizations as compared to three
securitization transactions in 1993.
 
     Servicing Income.  Servicing income increased $0.1 million, or 4%, to $2.2
million in 1994 from $2.1 million in 1993. This increase was primarily the
result of higher loan servicing volume which resulted in a greater amount of
contractual and ancillary service fees. During 1994, the average balance of
mortgage loans serviced by the Company increased 6.5% to $300.7 million,
compared to $282.3 million in 1993.
 
     Other Income.  Other income decreased $.5 million, or 14%, to $3.1 million
in 1994 from $3.6 million in 1993. This decrease was primarily due to a decrease
in the origination fees earned on the mortgage loans. During 1994, loan
origination fees on mortgage loans averaged 3.3% compared to 4.0% in 1993. Loan
origination fees decreased due to competitive pressures and also due to the
increased proportion of 'A' and 'B' credits in the Company's portfolio.
 
  Expenses
 
     Total expenses increased $.9 million, or 5%, to $19.8 million for 1994 from
$18.9 million in 1993. The increase in expenses was primarily the result of
increased interest expense on loans held for sale, and one-time costs associated
with the Company's relocation.
 
     Payroll Expense.  Payroll expense decreased $0.5 million, or 5%, to $8.8
million for 1994 from $9.3 million for 1993. The decrease in payroll expense was
primarily due to decreases in officer's compensation. For the year ended 1994,
officer's compensation was $1.2 million as compared to $3.4 million in 1993;
however, this was partially offset by an increase in the number of employees
from 174 in 1993 to 197 in 1994.
 
     Interest Expense.  Interest expense increased $0.8 million, or 28%, to $3.7
million in 1994 from $2.9 million in 1993. The increase in interest expense was
attributable to a longer holding period for sale during 1994 due to the Company
securitizing twice during 1994 as opposed to three times during 1993. The
Company's cost of funds on its floating rate warehouse facilities where it holds
mortgage loans until the time of sale, was, on average, 1.25% basis points
higher in 1994 than in 1993.
 
     General and Administrative Expenses.  General and administrative expenses
which consist primarily of office and administrative, rent, and health care and

insurance expense increased $0.5 million, or 9%, to $7.2 million in 1994 from
$6.7 million in 1993. The increase in general and administrative expenses was
primarily due to expenses incurred in association with the Company's relocating
its headquarters in January of 1994. As a result, rent expense for 1994 was $0.4
million as compared to $0.2 million in 1993.
 
                                       27
<PAGE>
FINANCIAL CONDITION
 
JUNE 30, 1996 COMPARED TO DECEMBER 31, 1995
 
     Cash and interest bearing deposits decreased $7.4 million, or 45%, to $9.2
million at June 30, 1996 from $16.6 million at December 31, 1995. The decrease
was primarily due to the Company's use of its own operating funds to fund its
loan originations and purchases.
 
     Accounts receivable increased $0.7 million, or 10%, to $7.5 million at June
30, 1996 from $6.8 milion at December 31, 1995. This increase was primarily the
result of increased reimbursable servicing advances made by the Company acting
as the servicer for its servicing portfolio.
 
     Loans held for sale increased $2.9 million, or 4%, to $66.7 million at June
30, 1996 from $63.8 million at December 31, 1995. This increase was a result of
additional loan originations and purchases remaining in inventory subsequent to
the Company's second quarter 1996 securitization.
 
     Accrued interest and late charges receivable decreased $0.2 million, or 1%,
to $15.7 million at June 30, 1996 from $15.9 million at December 31, 1995. This
decrease was a function of the decrease in the delinquent loans the Company
services and the corresponding decline in the collection of associated accrued
interest and late charges.
 
     Capitalized mortgage servicing rights increased $2.9 million, or 74%, to
$6.7 million at June 30, 1996 from $3.8 million at December 31, 1995. This
increase was directly attributable to the application of SFAS 122, which allows
the Company to capitalize the fair market value of the servicing retained asset
after it securitizes. See '-- Mortgage Servicing Rights.'
 
     Interest-only and residual certificates increased $17.9 million, or 71%, to
$43.2 million at June 30, 1996 from $25.3 million at December 31, 1995. This
increase was directly related to the Company's securitizations in the second
quarter of 1996.
 
     Warehouse financing and other borrowings increased $0.5 million, or 0.6%,
to $83.3 million at June 30, 1996 from $82.8 million at December 31, 1995. This
increase was due to additional loans held for sale.
 
     Investor payable decreased $0.7 million, or 5%, to $13.6 million at June
30, 1996 from $14.3 million at December 31, 1995. The decrease was primarily due
to the amount of principal collected by the Company acting as servicer, which
funds must be remitted to the various trusts for the following distribution
period. The investor payable is comprised of all principal collected on mortgage
loans, either due to principal amortization or principal repayment, and accrued

certificate interest. Variability in this account is primarily due to the
principal prepayments collected within a given collection period.
 
     Stockholders' equity increased $14.9 million, or 50%, to $44.7 million at
June 30, 1996 from $29.8 million at December 31, 1995. This increase was
directly attributable to the Company's net income of $15.3 million, less a
distribution to stockholders of $0.4 million.
 
DECEMBER 31, 1995 COMPARED TO DECEMBER 31, 1994
 
     Cash and interest bearing deposits increased $7.2 million, or 78%, to $16.6
million at December 31, 1995 from $9.4 million at December 31, 1994 primarily
due to proceeds from bank loans.
 
     Accounts receivable increased $1.1 million, or 20%, to $6.8 million at
December 31, 1995 from $5.7 million at December 31, 1994 primarily due to an
increase in the cash surrender value of an officer's life insurance policy and
the increased reimbursable servicing advances made by the Company acting as
servicer for its servicing portfolio.

     Loans held for sale increased $15.0 million, or 31%, to $63.8 million at
December 31, 1995 from $48.8 million at December 31, 1994 due primarily to
increased loan origination and purchase volume which exceeded the volume of
loans sold.
 
     Accrued interest and late charges receivable increased $3.2 million, or
25%, to $15.9 million at December 31, 1995 from $12.7 million at December 31,
1994 principally due to a larger servicing portfolio.
 
                                       28
<PAGE>
     Capitalized servicing rights increased $1.4 million, or 58%, to $3.8
million at December 31, 1995 from $2.4 million at December 31, 1994. This
increase is directly attributable to the adoption of SFAS 122, effective January
1, 1995. See '--Mortgage Servicing Rights.'
 
     Interest-only and residual certificates increased $17.8 million, or 236.8%,
to $25.3 million at December 31, 1995 from $7.5 million at December 31, 1994
primarily due to interest-only and residual certificates acquired in connection
with securitizations completed during the year of $19.4 million.
 
     Warehouse financing and other borrowing increased $30.3 million, or 58%, to
$82.8 million at December 31, 1995 from $52.5 million at December 31, 1994
primarily due to an increase in volume of loans held for sale and additional
financing for financing of Interest-only and residual certificates.
 
     Investor payable increased $3.2 million, or 29%, to $14.3 million at
December 31, 1995 from $11.1 million at December 31, 1994 primarily due to the
increase in principal amortization and principal prepayment collected by the
Company acting as Servicer, which amounts are remitted to the various trusts on
the following distribution dates.
 
     Stockholders' equity increased $1.7 million, or 6%, to $29.8 million at
December 31, 1995 from $28.1 million at December 31, 1994, due to net income of

$4.6 million offset in part by a distribution to stockholders of $2.9 million.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     The Company has operated, and expects to continue to operate, on a negative
cash flow basis due to increases in the volume of loan purchases and
originations and due to the growth of its securitization program. Currently, the
Company's primary cash requirements include the funding of (i) mortgage
originations and purchases pending their pooling and sale, (ii) the points and
expenses paid in connection with the acquisition of correspondent loans, (iii)
fees, expenses and tax payments incurred in connection with its securitization
program, (iv) over-collaterization requirements in connection with loans pooled
and sold, and (v) ongoing administrative and other operating expenses. The
Company has relied upon a few lenders to provide the primary credit facilities
for its loan originations and purchases.
 
     The Company must be able to sell loans and obtain adequate credit
facilities and other sources of funding in order to continue to originate and
purchase loans. As a result of increased loan originations and purchases and the
increase in its securitization program, the Company, during 1994 and 1995 and
the six months ended June 30, 1996, used cash of approximately $10.2 million,
$23.9 million and $8.2 million, respectively.
 
     To accumulate loans for securitization, the Company borrows money on a
short-term basis through warehouse lines of credit. The Company has two
warehouse facilities of credit for this purpose. One warehouse facility is a
committed revolving line for $100 million with a variable rate of interest and
matures October 12, 1996. The Company's second warehouse facility is an
uncommitted revolving line with a variable rate of interest which was recently
increased from $50 million to $150 million. The outstanding balance as of June
30, 1996 for these warehouse facilities were $48.9 million and $2.2 million,
respectively.
 
     In addition, the Company has two one-year renewable credit lines to support
its daily operating requirements. The Company has a $2.5 million credit line
with a variable interest rate, renewable in April 1997. The Company's other
operating credit line is for $1 million with a variable rate, renewable in
September 1996. The Company expects to renew this line. The outstanding balances
on these credit lines were $2.5 million and $1.0 million, respectively, on June
30, 1996.
 
     The Company has obtained financing facilities for interest-only and
residual certificates acquired as part of the 1992-1, 1994-2, 1995-1, 1995-2 and
1996-1 securitizations. As of June 30, 1996, the outstanding balance on each of
these facilities was $1.1 million, $1.9 million, $3.0 million, $9.2 million and
$10.8 million, respectively. These facilities have variable interest rates and
mature between October 1997 and June 1999.
 
     The Company is required to comply with various operating and financial
covenants as provided in the agreements described above which are customary for
agreements of their type. The Company does not believe that its existing
financial covenants will restrict its operations or growth. The continued
availability of funds
 

                                       29
<PAGE>
provided to the Company under these agreements is subject to the Company's
compliance with these covenants. Management believes the Company is in
compliance with all such covenants under these agreements.
 
     The net proceeds of the Offering will be used to fund a distribution of
retained earnings, in the form of the Distribution Notes issued to the Existing
Stockholders, and to pay down the amounts outstanding under the Company's
warehouse lines. See 'Reorganization and Termination of S Corporation Status,'
'Use of Proceeds' and 'Certain Relationships and Related Party Transactions.'
The Company anticipates that the net proceeds from the Offering, together with
the funds available under its warehouse facilities, credit facilities and under
additional residual financing arrangements will be sufficient to fund its
operations for the next twelve months, if the Company's future operations are
consistent with management's expectations. The Company may need additional
financing thereafter. There can be no assurance that the Company will be able to
obtain financing on a favorable or timely basis. The type, timing and terms of
financing selected by the Company will depend on its cash needs, the
availability of other financing sources and the prevailing conditions in the
financial markets.
 
  Hedging
 
     The Company originates and purchases mortgage loans and then sells them
primarily through securitizations. At the time of securitization and delivery of
the loans, the Company recognizes gain on sale based on a number of factors
including the difference, or 'spread' between the interest rate on the loans and
the interest rate on treasury securities with maturities corresponding to the
anticipated life of the loans. If interest rates rise between the time the
Company originates or purchases the loans and the time the loans are priced at
securitization, the excess spread narrows, resulting in a loss in value of the
loans. To protect against such losses, the Company currently hedges the value of
the loans through the short sale of treasury securities. Prior to hedging, the
Company performs an analysis of its loans taking into account such factors as
interest rates, maturities, durations, inventory of loans and amount of loans in
the pipeline to determine the proportion of treasury securities to sell short so
that the risk to the value of the loans is most effectively hedged. The Company
will sell the treasury securities (typically through one of its warehouse
lenders and/or one of the investment bankers which underwrite the Company's
securitizations) and uses the proceeds from the sale to acquire treasury
securities under repurchase agreements. These securities are designated as
hedges in the Company's records and are closed out when the loans are sold
through securitization.
 
     If the value of the hedges decrease, offsetting an increase in the value of
the loans, the Company, upon settlement with its counterparty, will pay the
hedge loss in cash and realize the corresponding increase in the value of the
loans as part of its interest-only and residual certificates. Conversely, if the
value of the hedges increase, offsetting a decrease in the value of the loans,
the Company, upon settlement with its counterparty, will receive the hedge gain
in cash and realize the corresponding decrease in the value of the loans through
a reduction in the value of the corresponding interest-only and residual
certificates.

 
     The Company believes that its current hedging strategy of using treasury
securities is the most effective way to manage its interest rate risk on loans
prior to securitization.
 
INFLATION AND INTEREST RATES
 
     Inflation has had no material effect on the Company's results of
operations. Inflation affects the Company most significantly in the area of loan
originations and can have a substantial effect on interest rates. Interest rates
normally increase during periods of high inflation and decrease during periods
of low inflation. Profitability may be directly affected by the level and
fluctuation in interest rates which affect the Company's ability to earn a
spread between interest received on its loans and the costs of its borrowings.
The profitability of the Company is likely to be adversely affected during any
period of unexpected or rapid changes in interest rates. A substantial and
sustained increase in interest rates could adversely affect the ability of the
Company to purchase and originate loans and affect the mix of first and second
mortgage loan products. Generally, first mortgage production increases relative
to second mortgage production in response to low interest rates and second
mortgage production increases relative to first mortgage production during
periods of high interest rates. A significant decline in interest rates could
decrease the size of the Company's loan servicing portfolio by increasing the
level of loan prepayments. Additionally, to the extent servicing rights,
interest-only and residual classes of certificates have been capitalized on the
books of the Company, higher than anticipated rates of loan
 
                                       30
<PAGE>
prepayments or losses could require the Company to write down the value of such
servicing rights, interest-only and residual certificates, adversely impacting
earnings. Fluctuating interest rates also may affect the net interest income
earned by the Company resulting from the difference between the yield to the
Company on loans held pending sales and the interest paid by the Company for
funds borrowed under the Company's warehouse facilities. In addition, inverse or
flattened interest yield curves could have an adverse impact on the
profitability of the Company because the loans pooled and sold by the Company
have long-term rates, while the senior interests in the related trusts are
priced on the basis of intermediate rates.
 
CERTAIN OTHER ACCOUNTING PRONOUNCEMENTS
 
  FASB 125
 
     In June 1996, FASB issued SFAS No. 125 'Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities' ('SFAS No.
125') which provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities based on
consistent application of a financial-components approach that focuses on
control. SFAS No. 125 distinguishes transfers of financial assets that are sales
from transfers that are secured borrowings.
 
     SFAS No. 125 is effective for transfers and servicing of financial assets
and extinguishments of liabilities occurring after December 31, 1996, and is to

be applied prospectively. The Company has not completed its analysis of the
statement.
 
  FASB 123
 
     In October 1995, FASB issued SFAS No. 123 'Accounting for Stock-Based
Compensation' ('SFAS No. 123'). SFAS No. 123 establishes financial accounting
and reporting standards for stock-based employee compensation plans. Those plans
include all arrangements by which employees receive shares of stock or other
equity instruments of the employer or the employer incurs liabilities to
employees in amounts based on the price of the employer's stock. Examples are
stock purchase plans, stock options, restricted stock awards, and stock
appreciation rights. This statement also applies to transactions in which an
entity issues its equity instruments to acquire goods or services from
non-employees. Those transactions must be accounted for, or at least disclosed
in the case of stock options, based on the fair value of the consideration
received or the fair value of the equity instruments issued, whichever is more
reliably measurable. The accounting requirements of SFAS No. 123 are effective
for financial statements for fiscal years beginning after December 15, 1995, or
for an earlier fiscal year for which SFAS No. 123 is initially adopted for
recognizing compensation cost. The statement permits a company to choose either
a new fair value-based method or the current APB Opinion 25 intrinsic
value-based method of accounting for its stock-based compensation arrangements.
The statement requires pro forma disclosures of net earnings and earnings per
share computed as if the fair value-based method had been applied in financial
statements of companies that continue to follow current practice in accounting
for such arrangements under APB Opinion 25. Prior to the date of the Prospectus,
the Company will determine which method it will use to account for stock
options.
 
                                       31

<PAGE>
                                    BUSINESS
 
     Delta is a specialty consumer finance company that has engaged in
originating, acquiring, selling and servicing home equity loans since 1982.
Throughout its 14 years of operating history, Delta has focused on lending to
individuals who generally have impaired or limited credit profiles or higher
debt to income ratios and typically have substantial equity in their homes. The
Company makes loans to these borrowers for such purposes as debt consolidation,
home improvement, refinancing or education, and these loans are primarily
secured by first mortgages on one- to four-family residential properties.
 
     Delta originates home equity loans through licensed mortgage brokers and
other real estate professionals ('brokers') who submit loan applications on
behalf of the borrower ('Brokered Loans'). Delta also purchases from approved
mortgage bankers and financial institutions ('correspondents') loans that
conform to Delta's underwriting guidelines ('Correspondent Loans'). During the
twelve month period ended June 30, 1996, the Company has originated loans
through 806 brokers and purchased loans through 186 correspondents. The Company
believes that it has a competitive advantage in serving brokers and
correspondents in the nonconforming home equity market that stems from its
substantial experience in this sector and its emphasis on providing quality
service that is prompt, responsive and consistent. The 19 members of the
Company's senior management have an average of over 12 years of nonconforming
mortgage loan experience, and more than one-quarter of the Company's employees
have been with the Company for at least five years. Management believes this
industry- and company-specific experience, coupled with the systems and programs
it has developed over the past 14 years, enable the Company to provide quality
services that include preliminary approval of most Brokered Loans and certain
Correspondent Loans within one day, consistent application of its underwriting
guidelines and funding or purchasing of loans within 14 to 21 days of
preliminary approval. In addition, the Company seeks to establish and maintain
productive relationships with its network of brokers and correspondents by
servicing each one with a business development representative, a team of
experienced underwriters and, in the case of Brokered Loans, a team of loan
officers and processors who are assigned to specific brokers to process all
applications submitted by each broker.
 
     During its first 12 years of operation, Delta concentrated its efforts on
serving brokers and correspondents primarily in New York, New Jersey and
Pennsylvania. Commencing in 1995, the Company began to implement a program to
expand its geographic focus into the New England, Mid-Atlantic and Midwest
regions. The Company currently originates and purchases the majority of its
loans in 21 states and the District of Columbia through a staff of 18 business
development representatives who operate from the Company's main office in New
York and from nine business development offices located in Michigan (2),
Missouri, New Jersey, Ohio (2), Pennsylvania, Rhode Island and Virginia. The
Company intends to open a full service office in Atlanta, Georgia in September
1996. Two members of Delta's senior management will relocate to this office
which will concentrate on developing Delta's Mid-Atlantic and Southeast markets.
As a consequence of its expansion into new markets, as well as of its further
penetration of existing markets, the Company increased its loan production
substantially in 1995 and the first six months of 1996. Total loan originations
and purchases increased from $119.7 million in 1994 to $287.8 million in 1995

and $244.1 million in the first six months of 1996. Of the total loan production
during the first six months of 1996, 56% was originated through the Company's
broker network and 44% was purchased from its correspondent network. See
'--Loans.'
 
     Since February 1991, Delta has sold $841 million of its mortgage loans
through 11 REMIC securitizations. Each of these securitizations has been credit
enhanced by an insurance policy provided through a monoline insurance company to
receive ratings of Aaa from Moody's and AAA from Standard & Poor's. The Company
has also sold $51.3 million of its mortgage loans to institutional purchasers on
a wholesale basis without recourse since 1991. The Company sells loans through
securitizations and on a whole loan basis to enhance its operating leverage and
liquidity, to minimize financing costs and to reduce its exposure to
fluctuations in interest rates.
 
     Since its inception, the Company has serviced substantially all of the
loans it has originated and purchased, including all of those that it has
subsequently sold through securitizations. Management believes that servicing
this portfolio enhances certain operating efficiencies and provides an
additional and profitable revenue stream that is less cyclical than the business
of originating and purchasing loans. As of June 30, 1996, Delta had a servicing
portfolio of $624.1 million. See '--Loans.'
 
                                       32
<PAGE>
     The Company has been profitable in each of its 14 years of operation.
However, the Company's results of operations have improved significantly in
recent periods as a result of increased loan production and the improved
structure of its recent securitizations. During 1995 as compared to 1994, the
Company's total revenues increased 66% from $21.8 million to $36.1 million and
net income increased 130% from $2.0 million to $4.6 million. For the first six
months of 1996, total revenues and net income were $30.4 million and $15.3
million, respectively, representing increases of 120% and 739%,respectively,
over the results for the comparable six months of 1995. See 'Management's
Discussion and Analysis of Financial Condition and Results of Operations.'
 
BUSINESS STRATEGY
 
     The Company's business strategy is to increase profitably the volume of its
loan originations and purchases and the size of its servicing portfolio by (i)
continuing to provide top quality service to its network of brokers and
correspondents, (ii) maintaining its underwriting standards, (iii) penetrating
further its established markets and recently-entered markets and expanding into
new geographic markets, (iv) broadening its product offerings, (v) continuing
its investment in origination and servicing systems and (vi) strengthening its
loan production capabilities through acquisitions.
 
  Continuing to Provide Quality Service
 
     The Company provides a high level of service to its network of brokers and
correspondents that includes preliminary approval of most Brokered Loans and
certain Correspondent Loans within one day, consistent application of its
underwriting guidelines and funding or purchase of loans generally within 14 to
21 days of preliminary approval. In addition, the Company services each broker

and correspondent with a team of professionals that includes a business
development representative, a team of experienced underwriters and, in the case
of Brokered Loans, a team of loan officers working on a primarily commission
basis with processors assisting them to handle applications submitted by each
broker. The Company believes that this commitment to service provides it with a
competitive advantage in establishing and maintaining productive broker and
correspondent relationships.
 
  Maintaining Underwriting Standards
 
     Over its 14 years in existence, the Company has developed an underwriting
process designed to thoroughly, but efficiently, review and underwrite each
prospective loan. Based on its belief that an experienced staff provides a more
effective means of assessing credit risk, the Company employs 25 underwriters,
with an average of seven and one-half years of nonconforming mortgage loan
experience, to ensure that all originated or purchased loans satisfy the
Company's underwriting criteria. Each loan must be signed off by at least two
underwriters, undergo a full appraisal review and is subject to pre- and
post-funding audits to confirm compliance with the underwriting procedures and
guidelines. The Company believes that the depth and experience of its
underwriting staff, coupled with its consistent underwriting procedures and
criteria provide it with the infrastructure needed to manage and sustain the
Company's recent growth, while maintaining the quality of loans originated or
purchased.
 
  Further Penetrating Existing and Recently Entered Markets and Expanding into
  New Markets
 
     The Company intends to continue to increase the volume of its loans
originations and purchases through a three-pronged strategy that includes
greater originations and purchases from its existing brokers and correspondents,
establishment of new broker and correspondent relationships in recently entered
markets and expansion into new markets.
 
     During the twelve month period ended June 30, 1996, the Company originated
and purchased loans through a network of 806 brokers and 186 correspondents. Of
these, the top 20 brokers and correspondents and the top broker accounted for
48.7% and 12.6%, respectively, of the total loans originated and purchased
during the first six months of 1996. Accordingly, the Company believes that
there is an opportunity to increase loan volume from its existing brokers and
correspondents.
 
                                       33
<PAGE>
     Prior to 1995, the Company concentrated its efforts on serving brokers and
correspondents in New York, New Jersey and Pennsylvania. Commencing in 1995, the
Company began to implement a program to expand its geographic focus into the New
England, Mid-Atlantic and Midwest regions. To increase its network of brokers
and correspondents in these new markets, the Company has hired 11 new business
development representatives and opened seven new business development offices in
Michigan (2), Missouri, Ohio (2), Rhode Island and Virginia. During this period,
the Company has experienced significant growth in these newly targeted
geographic areas. In the New England, Mid-Atlantic and Midwest regions,
originations have increased by 505% from $6.6 million in 1994 to $39.8 million

in 1995, and 797% from $7.5 million in the first six months of 1995 to $67.3
million in the first six months of 1996. In addition, in September 1996, the
Company intends to open a full service office in Atlanta, Georgia to concentrate
its efforts and better service the Mid-Atlantic and Southeast regions. Two
members of the Company's senior management, a vice president in underwriting and
an assistant vice president in sales, who have been with Delta for an average of
seven and one-half years, are relocating to Atlanta to manage the new office.
 
     Finally, the Company will continue to consider expansion into new markets.
Potential new markets will include those with demographic statistics and
regulatory requirements comparable to or more favorable than those in the
Company's established markets and markets in which the Company is able to hire a
business development representative with substantial contacts with the local
brokers and correspondents.
 
  Broadening Product Offerings
 
     The Company frequently reviews its pricing and loan products relative to
its competitors and introduces new loan products in order to meet the needs of
its correspondents and brokers. The Company has recently introduced products for
multi-family and mixed-use real estate and continuously evaluates other
products.
 
  Investing in Information and Processing Technologies
 
     In its continued effort to increase efficiency, the Company has added a new
servicing system, purchased a secondary marketing system and a new general
ledger system and upgraded all of its computer hardware within the last year.
The Company intends to continually look for ways to improve efficiencies through
automation.
 
  Expanding through Acquisitions
 
     In addition to internal growth, management believes acquisitions are a
means of strengthening the Company's loan production capabilities. Given the
highly competitive and fragmented nature of the non-conforming mortgage finance
industry, acquisitions present an attractive opportunity for growth. The Company
will consider acquisition candidates which operate in geographic or product
areas that complement the Company's existing business.
 
LOANS
 
  Overview
 
     Delta's consumer finance activities consist of originating, acquiring,
selling and servicing mortgage loans. These loans are primarily secured by first
mortgages on one- to four-family residences. Once loan applications have been
received, the underwriting process completed and the loans funded or purchased,
Delta typically packages the loans in a portfolio and sells the portfolio
through a securitization. Delta retains the right to service the loans that it
securitizes. To a lesser extent, the Company sells loans on a whole loan basis
with servicing released.
 
  Loan Origination and Purchases

 
     The Company has increased its loan originations and purchases by 140% from
$119.7 million during 1994 to $287.8 million in 1995 and 126% from $108.1
million during the first six months of 1995 to $244.1 million during the first
six months of 1996.
 
                                       34
<PAGE>
     Delta currently originates and acquires the majority of its loans in 21
states and the District of Columbia through its network of 806 brokers and 186
correspondents.
 
     The following table shows the sources of the Company's loan originations
and acquisitions for the periods shown:
 
<TABLE>
<CAPTION>
                                                         YEAR ENDED                    SIX MONTHS
                                                        DECEMBER 31,                 ENDED JUNE 30,
                                              --------------------------------    --------------------
                                                1993        1994        1995        1995        1996
                                              --------    --------    --------    --------    --------
                                                               (DOLLARS IN THOUSANDS)
<S>                                           <C>         <C>         <C>         <C>         <C>
BROKER:
  Principal balance........................   $ 76,220    $ 81,407    $175,738    $ 64,250    $135,621
  Average principal balance per loan.......         62          66          76          71          86
  Combined weighted average initial
     loan-to-value ratio(1)................       53.1%       54.8%       62.3%       60.3%       67.0%
  Weighted average interest rate...........       12.3%       11.7%       11.4%       12.0%       10.8%
CORRESPONDENT:
  Principal balance........................   $ 26,844    $ 38,341    $112,065    $ 43,886    $108,472
  Average principal balance per loan.......         57          68          70          72          73
  Combined weighted average initial
     loan-to-value ratio(1)................       47.5%       56.2%       64.5%       61.8%       67.6%
  Weighted average interest rate...........       14.6%       13.0%       12.4%       12.8%       11.9%
TOTAL LOAN ORIGINATIONS AND PURCHASES:
  Principal balance........................   $103,063    $119,748    $287,805    $108,136    $244,093
  Average principal balance per loan.......         60          67          74          72          79
  Combined weighted average initial
     loan-to-value ratio(1)................       51.7%       55.2%       63.2%       60.9%       67.3%
  Weighted average interest rate...........       12.9%       12.1%       11.8%       12.3%       11.3%
PERCENTAGE OF LOANS SECURED BY:
  First Mortgage...........................       81.1%       88.0%       89.6%       88.8%       94.4%
</TABLE>
 
- ------------------
(1) The weighted average initial loan-to-value ratio of a loan secured by a
    first mortgage is determined by dividing the amount of the loan by the
    lesser of the purchase price or the appraised value of the mortgage property
    at origination. The weighted average initial loan-to-value ratio of loan
    secured by a second mortgage is determined by taking the sum of the loan
    secured by the first and second mortgages and dividing by the lesser of the
    purchase price or the appraised value of the mortgage property at

    origination.
 
                                       35
<PAGE>
     The following table shows channels of loan originations and purchases on a
quarterly basis for the fiscal quarters shown:
 
<TABLE>
<CAPTION>
                                                                           THREE MONTHS ENDED
                                                   ------------------------------------------------------------------
                                                   JUNE 30,    SEPTEMBER 30,    DECEMBER 31,    MARCH 31,    JUNE 30,
                                                     1995          1995             1995          1996         1996
                                                   --------    -------------    ------------    ---------    --------
                                                                         (DOLLARS IN THOUSANDS)
<S>                                                <C>         <C>              <C>             <C>          <C>
BROKER:
  Principal balance.............................   $ 36,442       $48,837         $ 62,651      $  66,389    $ 69,232
  Average principal balance per loan............         72            75               84             85          86
  Combined weighted average initial
     loan-to-value ratio(1).....................       60.7%         62.5%            64.1%          66.8%       67.1%
  Weighted average interest rate................       11.8%         11.3%            10.9%          10.4%       11.1%
 
CORRESPONDENT:
  Principal balance.............................   $ 29,425       $29,783         $ 38,396      $  49,373    $ 59,099
  Average principal balance per loan............         72            68               67             70          75
  Combined weighted average initial
     loan-to-value ratio(1).....................       63.1%         66.2%            66.3%          68.1%       67.2%
  Weighted average interest rate................       12.8%         12.3%            12.1%          11.8%       11.9%
 
TOTAL LOAN PURCHASES AND ORIGINATIONS:
  Principal balance.............................   $ 65,867       $78,621         $101,047      $ 115,762    $128,331
  Average principal balance per loan............         72            72               77             78          81
  Combined weighted average initial
     loan-to-value ratio(1).....................       61.7%         63.9%            65.0%          67.4%       67.1%
  Weighted average interest rate................       12.3%         11.7%            11.4%          11.0%       11.5%
</TABLE>
 
- ------------------
(1) The weighted average initial loan-to-value ratio of a loan secured by a
    first mortgage is determined by dividing the amount of the loan by the
    lesser of the purchase price or the appraised value of the mortgage property
    at origination. The weighted average initial loan-to-value ratio of loan
    secured by a second mortgage is determined by taking the sum of the loan
    secured by the first and second mortgages and dividing by the lesser of the
    purchase price or the appraised value of the mortgage property at
    origination.
 
     The following table shows lien position, weighted average interest rates
and loan-to-value ratios for the periods shown:
 
<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31,

                                                            -----------------------    SIX MONTHS ENDED
                                                            1993     1994     1995      JUNE 30, 1996
                                                            -----    -----    -----    ----------------
<S>                                                         <C>      <C>      <C>      <C>
FIRST MORTGAGE:
  Percentage of total purchases and originations.........   81.1%    88.0%    89.6%          94.4%
  Weighted average interest rate.........................   12.9%    12.1%    11.8%          11.3%
  Weighted average initial loan-to-value ratio(1)........   51.8%    54.8%    63.2%          67.5%
 
SECOND MORTGAGE:
  Percentage of total purchases and originations.........   19.0%    12.0%    10.4%           5.6%
  Weighted average interest rate.........................   12.9%    12.1%    11.9%          11.4%
  Weighted average initial loan-to-value ratio(1)........   51.2%    57.0%    62.9%          62.9%
</TABLE>
 
- ------------------
(1) The weighted average initial loan-to-value ratio of a loan secured by a
    first mortgage is determined by dividing the amount of the loan by the
    lesser of the purchase price or the appraised value of the mortgage property
    at origination. The weighted average initial loan-to-value ratio of loan
    secured by a second mortgage is determined by taking the sum of the loan
    secured by the first and second mortgages and dividing by the lesser of the
    purchase price or the appraised value of the mortgage property at
    origination.
 
                                       36
<PAGE>
     The following table shows the geographic distribution of loan purchases and
originations for the periods indicated:
 
<TABLE>
<CAPTION>
                                     YEAR ENDED           YEAR ENDED           YEAR ENDED           SIX MONTHS ENDED
STATE                             DECEMBER 31, 1993    DECEMBER 31, 1994    DECEMBER 31, 1995        JUNE 30, 1996
- -------------------------------   -----------------    -----------------    -----------------    ----------------------
<S>                               <C>                  <C>                  <C>                  <C>
New York.......................         74.8%                80.9%                73.8%                   62.5%
New Jersey.....................         14.9%                10.6%                 8.1%                    6.4%
Illinois.......................          0.1%                 0.9%                 2.2%                    4.5%
Pennsylvania...................          3.5%                 3.0%                 4.3%                    3.5%
Michigan.......................          2.6%                 1.0%                 0.7%                    3.4%
Ohio...........................          0.2%                 0.1%                 0.9%                    3.2%
Massachusetts..................          0.0%                 0.0%                 0.8%                    2.9%
North Carolina.................          0.0%                 0.1%                 1.4%                    2.2%
Missouri.......................          0.0%                 0.0%                 0.6%                    1.7%
Florida........................          0.0%                 0.3%                 0.5%                    1.6%
All Other......................          3.9%                 3.1%                 6.7%                    8.1%
</TABLE>
 
     Broker and Correspondent Marketing.  Throughout its history Delta has been
successful in establishing and maintaining relationships with brokers and
correspondents interested in offering non-conforming mortgage products to their
clientele, and management believes that this success is primarily attributable
to the quality of service the Company provides to its network of brokers and

correspondents. See 'Business Strategy-- Continuing to Provide Quality Service.'
 
     Delta typically initiates contact with a broker or correspondent through
Delta's Business Development Department which is comprised of 18 business
development representatives who are supervised by a senior officer with over ten
years of sales and marketing experience in the industry. The Company typically
hires business development representatives who have contacts with brokers and
correspondents that originate nonconforming mortgage loans within their
geographic territory. The business development representatives are responsible
for developing and maintaining the Company's broker and correspondent networks
within their geographic territory, by frequent visits to the broker or
correspondent, communicating the Company's underwriting guidelines,
disseminating new product information and pricing changes, and a continuing
commitment to understanding the needs of the customer. The business development
representatives attend industry trade shows, and are a source of information to
Delta concerning products and pricing offered by competitors and new market
entrants, all of which assists Delta in refining its programs and product
offerings in order to offer competitive service. Business development
representatives are compensated with a base salary and commissions based on the
volume of loans purchased or originated as a result of their efforts.
 
     Approval Process.  Before a broker or correspondent becomes part of Delta's
network, it must go through an approval process. Once approved, brokers and
correspondents may immediately begin submitting applications and/or loans to
Delta.
 
     To be approved, a broker must demonstrate that it is properly licensed and
registered in the state in which it seeks to transact business, submit to a
credit check, and sign a standard broker agreement with Delta. A correspondent
is eligible to submit loans to Delta for purchase only after an extensive
investigation of the prospective correspondent's lending operations including an
on-site visit, a review of the correspondent's financial statements for the
prior two years, a credit report on the correspondent, a review of sample loan
documentation, and business references provided by the correspondent. Once
approved, Delta requires that each correspondent sign an Agreement of Purchase
and Sale in which the correspondent makes representations and warranties
governing both the mechanics of doing business with Delta and the quality of the
loan submissions themselves. Delta also performs an annual review of each
approved correspondent in order to ensure continued compliance with legal
requirements and that lending operations and financial information continue to
meet Delta's standards. In addition, Delta regularly reviews the performance of
loans originated or purchased through its brokers or correspondents.
 
     Brokers.  For the year ended December 31, 1995, the Company's broker
network accounted for $175.7 million or 61% of Delta's loan purchases and
originations compared to $81.4 million or 68% of Delta's loan purchases and
originations for the year ended December 31, 1994. During the six months ended
June 30, 1996,
 
                                       37
<PAGE>
the Company's broker network accounted for $135.6 million or 56% of Delta's loan
purchases and originations. No single broker contributed more than 6.2% or 12.6%
of Delta's total purchases or originations in 1995 and the first six months of

1996, respectively.
 
     Once approved, a broker may submit loan applications for prospective
borrowers to Delta. To process broker submissions, Delta's broker originations
area is organized into teams, consisting of loan officers and processors, which
are generally assigned to specific brokers. Because Delta operates in a highly
competitive environment where brokers may submit the same loan application to
several prospective lenders simultaneously, Delta strives to provide brokers
with a rapid and informed response. Loan officers analyze the application and
provide the broker with a preliminary approval, subject to final underwriting
approval, or a denial, typically within one business day. If the application is
approved by the Company's underwriters, a 'conditional approval' will be issued
to the broker with a list of specific conditions to be met and additional
documents to be supplied prior to funding the loan. The loan officer and
processor team will then work directly with the submitting broker to collect the
requested information and meet all underwriting conditions. In most cases, the
Company funds loans within 14 to 21 days after preliminary approval of the loan
application. In the case of a denial, Delta will make all reasonable attempts to
ensure that there is no missing information concerning the borrower or the
application that might change the decision on the loan.
 
     The Company compensates its loan officers, who on a loan-by-loan basis are
the primary relationship contacts with the brokers, predominantly on a
commission basis. The Company believes its primarily commission-based
compensation for loan officers gives it a competitive advantage over its
competitors, who, the Company believes, typically assign non- or
lower-commissioned processors to handle this function. Furthermore, all loan
officers must complete an extensive 9 to 12 month training program to attain the
level of knowledge and experience integral to the Company's commitment to
providing the highest quality service for brokers. Management believes that by
maintaining an efficient, trained and experienced staff, it has addressed two
central factors which determine where a broker will send its business: (i) the
speed with which a lender closes loans and (ii) the knowledge the lender has
with respect to the borrower and his business and (iii) and support a lender
provides.
 
     Correspondents.  For the year ended December 31, 1995, Delta's
correspondent network accounted for $112.1 million or 39% of Delta's loan
purchases and originations, compared to $38.3 million or 32% of Delta's loan
purchases and originations for the year ended December 31, 1994. During the six
months ended June 30, 1996, Delta's correspondent network accounted for $108.5
million or 44% of Delta's loan purchases and originations. No single
correspondent contributed more than 6.3% or 3.8% of Delta's total loan purchases
and originations in 1995 or the first six months of 1996, respectively.
 
     An approved correspondent is a licensed mortgage banker or savings and loan
who sells loans to Delta which the correspondent has originated, processed,
closed and funded in its own name in conformity with Delta's underwriting
standards. The loans are sold to Delta either on an individual flow basis or in
block sales. When selling on a flow basis, a correspondent will typically seek a
preapproval from Delta prior to closing the loan, and Delta will approve the
loan based on a partial or full credit package, stipulating for any items needed
to complete the package in adherence to Delta's underwriting guidelines. On a
block sale, a correspondent will offer a group of loans to Delta for sale (not

necessarily loans that have been preapproved), and Delta will underwrite and
purchase those loans in the block that meet Delta's underwriting criteria. As
with the broker network, Delta's Correspondent Division has a commitment to
quick and knowledgeable service, and is staffed by some of the most capable
mortgage professionals within the Company.
 
  Loan Underwriting
 
     All of Delta's brokers and correspondents are provided with the Company's
underwriting guidelines. Loan applications received from brokers and
correspondents are classified according to certain characteristics, including
but not limited to: condition and location of the collateral, credit history of
the applicant, ability to pay, loan-to- value ratio and general stability of the
applicant in terms of employment history and time in residence. Delta has
established classifications with respect to the credit profile of the applicant,
and each loan is placed into one of four letter ratings 'A' through 'D', with
subratings within those categories. Terms of loans made by Delta, as well as
maximum loan-to-value ratios and debt-to-income ratios, vary depending on the
classification of
 
                                       38
<PAGE>
the applicant. Loan applicants with less favorable credit ratings are generally
offered loans with higher interest rates and lower loan-to-value ratios than
applicants with more favorable credit ratings. The general criteria used by
Delta's underwriting staff in classifying loan applicants are set forth below.
 
               UNDERWRITING CRITERIA OF DELTA FUNDING CORPORATION
 
<TABLE>
<CAPTION>
                       'A' RISK               'B' RISK               'C' RISK               'D' RISK
                       ---------------------  ---------------------  ---------------------  ---------------------
<S>                    <C>                    <C>                    <C>                    <C>
Credit profile.......  Excellent credit       Good overall credit    Good to fair credit    Fair to poor credit
                       history
 
Existing mortgage
  history............  Current at             Current at             Up to 30 days          Mortgage rating not a
                       application time and   application time and   delinquent at          factor
                       a maximum of two       a maximum of four      application time and
                       30-day late payments   30-day late payments   a maximum of four
                       in the last 12 months  in the last 12 months  30-day late payments,
                                                                     two 60-day late
                                                                     payments and one
                                                                     90-day late payment
                                                                     in the last 12 months
 
Other credit.........  Minor 30-day late      Some slow pays         Slow pays, some open   Not a factor.
                       items allowed with a   allowed but majority   delinquencies          Derogatory credit
                       letter of              of credit and          allowed. Isolated      must be paid with
                       explanation; no open   installment debt paid  charge-offs,           proceeds. Must
                       collection accounts,   as agreed. Small       collection accounts    demonstrate ability
                       charge-offs,           isolated charge-offs,  or judgments case-by-  to pay

                       judgments              collections, or        case
                                              judgments allowed
                                              case-by-case
 
Bankruptcy filings...  Discharged more than   Discharged more than   Discharged more than   May be open at
                       four years prior to    three years prior to   one year prior to      closing, but must be
                       closing and excellent  closing and excellent  closing and good       paid off with
                       reestablished credit   reestablished credit   reestablished credit   proceeds
 
Debt Service to
  Income ratio.......  Generally 45% or less  Generally 50% or less  Generally 50% or less  Generally 50% or less
 
Maximum loan-to-value
  ratio:
 
  Owner-occupied.....  Generally 80% (up to   Generally 80% (up to   Generally 75% (up to   Generally 65% (up to
                       90%*) for a one- to    85%*) for a one- to    80%*) for a one- to    70%*) for a one- to
                       four-family residence  four-family residence  four-family residence  four-family residence
 
  Non-owner            Generally 70% (up to   Generally 70% (up to   Generally 65% (up to   Generally 55% (up to
    occupied.........  80%*) for a one- to    80%*) for a one- to    75%*) for a one- to    60%*) for a one- to
                       four-family residence  four-family residence  four-family residence  four-family residence
 
Employment...........  Minimum 2 years        Minimum 2 years        Minimum 2 years        No minimum required
                       employment in the      employment in the      employment in the
                       same field             same field             same field
</TABLE>
 
- ------------------
 
* On an exception basis
 
     Delta uses the foregoing categories and characteristics as guidelines only.
On a case-by-case basis, the Company may determine that the prospective borrower
warrants an exception, if sufficient compensating factors exist. Examples of
such compensating factors are: low loan-to-value ratio, low debt ratio,
long-term stability of employment and/or residence, excellent payment history on
past mortgages, or a significant reduction in monthly housing expenses.
 
                                       39
<PAGE>
     The following table sets forth certain information with respect to Delta's
loan purchases and originations by borrower classification, along with weighted
average coupons, for the periods shown.
 
<TABLE>
<CAPTION>
                                                PERCENT
YEAR            CREDIT          TOTAL           OF TOTAL         WAC(1)         WLTV(2)
- --------        ------         --------         --------         ------         -------
<S>             <C>            <C>              <C>              <C>            <C>
1993               A           $ 15,221            14.8%         10.9%           56.9%
                   B             17,177            16.7%         11.8%           54.6%
                   C             31,621            30.7%         12.9%           51.7%

                   D             39,044            37.9%         14.2%           48.3%
                               --------         --------         ------         -------
       Totals                  $103,063           100.0%         12.9%           51.7%
                               --------         --------         ------         -------
                               --------         --------         ------         -------
1994               A           $ 35,121            29.3%         10.8%           58.9%
                   B             38,575            32.2%         11.7%           56.4%
                   C             25,562            21.3%         12.8%           52.9%
                   D             20,491            17.1%         14.3%           49.3%
                               --------         --------         ------         -------
       Totals                  $119,748           100.0%         12.1%           55.2%
                               --------         --------         ------         -------
                               --------         --------         ------         -------
1995               A           $ 89,830            31.2%         10.7%           66.8%
                   B            124,954            43.4%         11.6%           64.5%
                   C             37,190            12.9%         12.8%           59.6%
                   D             35,831            12.4%         14.5%           53.2%
                               --------         --------         ------         -------
       Totals                  $287,805           100.0%         11.8%           63.2%
                               --------         --------         ------         -------
                               --------         --------         ------         -------
1996(3)            A           $ 71,381            29.2%         10.3%           71.4%
                   B             94,012            38.5%         11.0%           68.5%
                   C             57,889            23.7%         12.1%           64.3%
                   D             20,810             8.5%         13.9%           55.9%
                               --------         --------         ------         -------
       Totals                  $244,093           100.0%         11.3%           67.3%
                               --------         --------         ------         -------
                               --------         --------         ------         -------
</TABLE>
 
- ------------------
(1) Weighted Average Coupon ('WAC').
(2) Weighted Average Initial Loan-to-Value Ratio ('WLTV').
(3) Six months ended June 30, 1996.
 
     Assessment of an applicant's ability and willingness to pay is one of the
principal elements in distinguishing Delta's lending specialty from methods
employed by traditional lenders, such as savings and loans and commercial banks.
All lenders utilize debt ratios and loan-to-value ratios in the approval
process. Many lenders simply use software packages to score an applicant for
loan approval and fund the loan after auditing the data provided by the
borrower. In contrast, Delta employs experienced non-conforming mortgage loan
credit underwriters to scrutinize the applicant's credit profile and to evaluate
whether an impaired credit history is a result of adverse circumstances or a
continuing inability or unwillingness to meet credit obligations in a timely
manner. Personal circumstances including divorce, family illnesses or deaths and
temporary job loss due to layoffs and corporate downsizing will often impair an
applicant's credit record.
 
     Delta has a staff of 25 underwriters, with an average of more than seven
and one-half years of non-conforming underwriting experience. At present, all
underwriting functions are centralized in its Woodbury, New York office. Delta
does not delegate underwriting authority to any broker or correspondent. Delta's

Underwriting Department functions independently of its Business Development and
Mortgage Origination Departments and does not report to any individual directly
involved in the origination process. No underwriter at Delta is compensated on
an incentive or commission basis.
 
     Delta has instituted underwriting checks and balances that are designed to
ensure that every loan is reviewed and approved by a minimum of two
underwriters, with certain higher loan amounts requiring a third approval.
Management believes that by requiring each file be seen by a minimum of two
underwriters, a high degree of accuracy and quality control is ensured
throughout the underwriting process and before funding.
 
                                       40
<PAGE>
     Delta's underwriting of every loan submitted consists not only of a
thorough credit review, but also (i) a separate appraisal review conducted by
Delta's Appraisal Review Department, and, (ii) a full compliance review, to
ensure that all documents have been properly prepared, all applicable
disclosures given in a timely fashion, and proper compliance with all federal
and state regulations. Appraisals are performed by third party, fee-based
appraisers or by the Company's staff appraisers and generally conform to current
FNMA/FHLMC secondary market requirements for residential property appraisals.
Each such appraisal includes, among other things, an inspection of the exterior
of the subject property and, where available, data from sales within the
preceding 12 months of similar properties within the same general location as
the subject property. In addition, in certain situations, the Company also
obtains broker price opinions from independent real estate agents.
 
     Delta performs a thorough appraisal review on each loan prior to closing or
prior to purchasing. While Delta recognizes that the general practice by
conventional mortgage lenders is to perform only drive-by appraisals after
closings, management believes this practice does not provide sufficient
protection. In addition to reviewing each appraisal for accuracy, the Company
accesses other sources to validate sales used in the appraisal to determine
market value. These sources include: interfacing with Multiple Listing Services
and Comps, Inc. to access current sales and listing information; its own
in-house database which contains comparable sales from all appraisals ordered by
Delta during the past eight years; and other sources for verification, including
broker price opinions and market analyses by local real estate agents.
 
     Post closing, in addition to its normal due diligence, the Company randomly
selects one out of every ten appraisals, and performs a drive-by appraisal. This
additional step gives the Company an added degree of comfort with respect to
appraisers with which the Company has had limited experience. Delta actively
tracks all appraisers from which it accepts appraisals for quality control
purposes and does not accept work from appraisers who have not conformed to its
review standards.
 
     Upon completion of a broker loan's underwriting and processing, the closing
of the loan is scheduled with a closing attorney or agent approved by Delta. The
closing attorney or agent is responsible for completing the loan closing
transaction in accordance with applicable law and Delta's operating procedures.
Title insurance that insures Delta's interest as mortgagee and evidence of
adequate homeowner's insurance naming Delta as an additional insured party are

required on all loans.
 
     The Company performs a post-funding quality control review to monitor and
evaluate the Company's loan origination policies and procedures. The Quality
Control Department is separate from the Underwriting Department, and reports
directly to a member of senior management.
 
     At least 10% of all loan originations and purchases are subjected to a full
quality control re-underwriting and review, the results of which are reported to
senior management on a monthly basis. Discrepancies noted by the audit are
analyzed and corrective actions are instituted. A typical quality control review
currently includes: (a) obtaining a new drive-by appraisal for each property;
(b) running a new credit report from a different credit report agency; (c)
reviewing loan applications for completeness, signatures, and for consistency
with other processing documents; (d) obtaining new written verification of
income and employment; (e) obtaining new written verification of mortgage to
re-verify any outstanding mortgages; and (f) analyzing the underwriting and
program selection decisions. The quality control process is updated from time to
time as the Company's policies and procedures change.
 
  Loan Sales
 
     Delta sells substantially all the loans it originates or purchases through
one of two methods: (i) securitizations, which involve the private placement or
public offering of pass-through mortgage-backed securities and (ii) whole loan
sales, which include the sale of blocks of individual loans to institutional or
individual investors. Since 1991, the Company has sold approximately $841
million of the loans it originated or purchased through securitization and $50.5
million through whole loan sales.
 
                                       41
<PAGE>
     Securitizations.  To date, Delta has completed 11 securitizations. The
following table sets forth certain information with respect to Delta's
securitizations by offering size, including prefunded amounts, weighted average
pass-through rate and credit rating of securities sold.
 
<TABLE>
<CAPTION>
                               OFFERING SIZE    WEIGHTED AVERAGE      CREDIT RATING OF
SECURITIZATION    COMPLETED     (MILLIONS)      PASS-THROUGH RATE    SECURITIES SOLD(1)
- --------------    ---------    -------------    -----------------    ------------------
<S>               <C>          <C>              <C>                  <C>
1991-1            02/22/91        $  92.4             9.000%               AAA/Aaa
1991-2            12/12/91        $  50.6             7.850%               AAA/Aaa
1992-1            11/25/92        $  64.1             7.875%               AAA/Aaa
1993-1            03/31/93        $  27.4             6.850%               AAA/Aaa
1993-3            08/31/93        $  31.6             6.180%               AAA/Aaa
1993-4            12/15/93        $  30.0             6.380%               AAA/Aaa
1994-1            03/30/94        $  30.0             6.950%               AAA/Aaa
1994-2            10/26/94        $  60.0             8.310%               AAA/Aaa
1995-1            05/10/95        $  80.0             7.527%               AAA/Aaa
1995-2            11/30/95        $ 150.0             6.791%               AAA/Aaa
1996-1            06/12/96        $ 225.0             6.598%               AAA/Aaa

</TABLE>
 
- ------------------
(1) Ratings by Standard & Poor's and Moody's, respectively
 
     Outstanding securitizations include two public and nine private offerings.
When Delta securitizes loans, it sells a portfolio of loans to a trust (the
'Home Equity Loan Trust') and issues classes of certificates representing an
undivided ownership interest in the Home Equity Loan Trust. In its capacity as
servicer for each securitization, the Company collects and remits principal and
interest payments to the appropriate Home Equity Loan Trust which in turn passes
through payments to certificate owners. In the 1995-2 and 1996-1 transactions,
Delta retained 100% of the interests in the interest-only and residual classes
of certificates and management contemplates continuing to do so in the future.
 
     Each Home Equity Loan Trust has the benefit of a financial guaranty
insurance policy from a monoline insurance company, which insures the timely
payment of interest and the ultimate payment of principal of the investor
certificate. In addition to such insurance policies, the Excess Servicing is
applied as an additional payment of principal of the investor certificates,
thereby accelerating the amortization of the investor certificates relative to
the amortization of the loans. This use of the Excess Servicing creates
over-collateralization (i.e., the principal amount of the loans exceeds the
principal amount of the investor certificates). Once the level of over-
collateralization reaches a pre-determined level set by the monoline insurance
company, the use of Excess Servicing to create over-collateralization stops
unless it subsequently become necessary to again obtain or maintain the required
level of over-collateralization. Over-collateralization is intended to create a
source of cash (the payments on the 'extra' loans) to absorb losses prior to
making a claim on the financial guaranty insurance policy. To date, no claims
have been made on the financial guarantee insurance policies for any of the
Company's securitizations.
 
     Delta may be required either to repurchase or to replace loans which do not
conform to the representations and warranties made by Delta in the pooling and
servicing agreement entered into when the portfolio of loans are sold through a
securitization. To date, Delta has not had to make any such repurchases or
replacements. Delta intends to continue to conduct loans sales through
securitization, either in private placements or in public offerings, when market
conditions are attractive for such loan sales.
 
     Whole Loan Sales Without Recourse.  The Company has determined from time to
time that some of its 'A' loans and higher loan-to-value ratio loans receive
better execution by being sold on a whole loan, non-recourse basis to third
party institutions. The Company intends to continue this practice as long as it
is deemed to be more profitable for the Company. For the calendar year 1995 and
in the first six months of 1996, Delta sold $17.6 million and $11.2 million
which represents 6.3% and 4.6%, respectively, of its originations and purchases.
 
     Whole Loan Sales With Recourse.  Prior to 1991, Delta combined mortgage
loans into pools and sold those pools as well as individual mortgage loans
directly to a network of commercial banks, savings and loans, insurance
companies, pension funds and accredited investors. Delta generally sold these
pools or individual loans for 100% of the principal balance and negotiated the

pass-through rate of interest to be paid to the investor with
 
                                       42
<PAGE>
the excess interest retained by Delta. Delta sold loans to investors with
recourse whereby Delta would repurchase any loan which became REO property. This
obligation is subject to various terms and conditions, including, in some
instances, a time limit. At June 30, 1996, there were approximately $22.9
million of loans which Delta could be required to repurchase in the future
should such loans become REO property.
 
  Loan Servicing and Collections
 
     Delta has been servicing loans since its inception in 1982, and Delta has
serviced or is servicing substantially all of the loans that it has originated
or purchased. Servicing involves, among other things, collecting payments when
due, remitting payments of principal and interest and furnishing reports to the
current owners of the loans and enforcing such owners rights with respect to the
loans, including, recovering delinquent payments, instituting foreclosure and
liquidating the underlying collateral. The Company receives a servicing fee for
servicing residential mortgage loans of 0.65% per annum on the declining
principal balance of all loans sold through securitization and on the declining
principal balance of the loans sold to investors on a recourse basis, which
servicing fees are collected out of the monthly mortgage payments. Management
believes that servicing the Company's own portfolio enhances certain operating
efficiencies and provides an additional and profitable revenue stream that is
less cyclical than the business of originating and purchasing loans. As of June
30, 1996, Delta had a servicing portfolio of $624.1 million loans.
 
     Delta services all loans out of its headquarters in Woodbury, New York,
utilizing a leading 'in-house' loan servicing system ('LSAMS') which it
purchased in 1995. LSAMS replaced Delta's former 'service bureau' loan servicing
system, and has provided Delta with considerably more flexibility to adapt the
system to Delta's specific needs as a nonconforming home equity lender. As such,
Delta has achieved significant cost efficiencies by automating a substantial
number of previously manual servicing procedures and functions since its
conversion to LSAMS on July 1, 1995. Management believes that even greater cost
efficiencies can be realized through further automation provided by LSAMS, which
runs on an IBM AS-400 base.
 
     At the same time that it upgraded its primary servicing system, Delta
purchased a default management sub-servicing system ('TPLS')--with separate
'modules' for foreclosure, bankruptcy, and REO--to provide it with the ability
to more efficiently monitor and service loans in default. These sub-servicing
modules provide detailed tracking of all key events in foreclosure and
bankruptcy on a loan-by-loan and portfolio-wide basis; the ability to track and
account for all pre- and post-petition payments received in bankruptcy from the
borrower and/or trustee; and the ability to monitor, market and account for all
aspects necessary to liquidate an REO property after foreclosure. Additionally,
Delta's Management Information Systems Department has created a market value
analysis program to run with LSAMS, and provides Delta with the ability to
monitor its equity position on a loan-by-loan and/or portfolio-wide basis.
 
     Centralized controls and standards have been established by Delta for the

servicing and collection of mortgage loans in its portfolio. Delta revises such
policies and procedures from time to time in connection with changing economic
and market conditions and changing legal and regulatory requirements.
 
     Delta's collections policy is designed to identify payment problems
sufficiently early to permit Delta to quickly address delinquency problems and,
when necessary, to act to preserve equity in a preforeclosure property. Delta
believes that these policies, combined with the experience level of independent
appraisers engaged by Delta, help to reduce the incidence of charge-offs of a
first or second mortgage loan.
 
     Borrowers are billed on a monthly basis in advance of the due date.
Collection procedures commence upon identification of a past due account by
Delta's automated servicing system. If timely payment is not received, LSAMS
automatically places the loan in the assigned collector's 'auto queue' and
collection procedures are generally initiated on the day immediately following
the payment due date for chronic late payers, or the day immediately following
the end of the grace period for those borrowers who usually pay within the grace
period or shortly thereafter. LSAMS automatically queues up each loan in the
assigned collector's 'auto queue' at one of these two dates based upon a
particular borrower's payment history over the prior 12 months. The account
remains in the queue unless and until a payment is received, at which point
LSAMS automatically removes the loan from that collector's auto queue until the
next month's payment is due and/or becomes delinquent.
 
                                       43
<PAGE>
     When a loan appears in a collector's auto queue, a collector will telephone
to remind the borrower that a payment is due. Follow-up telephone contacts are
attempted until the account is current or other payment arrangements have been
made. Standard form letters are utilized when attempts to reach the borrower by
telephone fail and/or, in some circumstances, to supplement the phone contacts.
During the delinquency period, the collector will continue to contact the
borrower. Company collectors have computer access to telephone numbers, payment
histories, loan information and all past collection notes. All collection
activity, including the date collection letters were sent and detailed notes on
the substance of each collection telephone call, is entered into a permanent
collection history for each account on LSAMS. Additional guidance with the
collection process is derived through frequent communication with Delta's senior
management.
 
     For those loans in which collection efforts have been exhausted without
success, the Pre-foreclosure Manager recommends the loans be sent to foreclosure
at one of two Foreclosure Committee Meetings held each month. At each such
committee meeting, the Pre-foreclosure Manager meets with the Foreclosure
Manager and a member of the Executive Department, to determine whether
foreclosure proceedings are appropriate, based upon their analysis of all
relevant factors, including a market value analysis, reason for default and
efforts by the borrower to cure the default.
 
     Regulations and practices regarding the liquidation of properties (e.g.,
foreclosure) and the rights of a borrower in default vary greatly from state to
state. As such, all foreclosures are assigned to outside counsel, located in the
same state as the secured property. Bankruptcies filed by borrowers are

similarly assigned to appropriate local counsel. All aspects of foreclosures and
bankruptcies are closely monitored by Delta through its TPLS sub-servicing loan
system described above and through monthly status reports from attorneys.
 
     Prior to foreclosure sale, Delta performs an in-depth market value analysis
on all defaulted loans. This analysis includes: (i) a current valuation of the
property obtained through a drive-by appraisal or Broker's Price Opinion
conducted by an independent appraiser and/or a broker from Delta's network of
real estate brokers, complete with a description of the condition of the
property, recent price lists of comparable properties, recent closed
comparables, estimated marketing time and required or suggested repairs, and an
estimate of the sales price; (ii) an evaluation of the amount owed, if any, for
real estate taxes; (iii) an evaluation of the amount owed, if any, to a senior
mortgagee; and (iv) estimated carrying costs, brokers' fee, repair costs and
other related costs associated with real estate owned properties. Delta bases
the amount it will bid at foreclosure sales on this analysis.
 
     If Delta acquires title to a property at a foreclosure sale or otherwise,
the REO Department immediately begins working the file by obtaining an estimate
of the sale price of the property by sending at least two local real estate
brokers to inspect the premises, and then hiring one to begin marketing the
property. If the property is not vacant when acquired, local eviction attorneys
are hired to commence eviction proceedings and/or negotiations are held with
occupants in an attempt to get them to vacate without incurring the additional
time and cost of eviction. Repairs are performed if it is determined that they
will increase the net liquidation proceeds, taking into consideration the cost
of repairs, the carrying costs during the repair period and the marketability of
the property both before and after the repairs.
 
     Delta's loan servicing software also tracks and maintains homeowners'
insurance information and tax and insurance escrow information. Expiration
reports are generated bi-weekly listing all policies scheduled to expire within
the next 15 days. When policies lapse, a letter is issued advising the borrower
of such lapse and notifying the borrower that Delta will obtain force-placed
insurance at the borrower's expense. Delta also has an insurance policy in place
that provides coverage automatically for Delta in the event that Delta fails to
obtain force-placed insurance.
 
                                       44
<PAGE>
     The following table sets forth information relating to the delinquency and
loss experience of Delta for its servicing portfolio of mortgage loans
(including mortgage loans serviced for others) for the periods indicated.
 
<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31,                SIX MONTHS
                                                  --------------------------------------------        ENDED
                                                      1993            1994            1995        JUNE 30, 1996
                                                  ------------    ------------    ------------    -------------
<S>                                               <C>             <C>             <C>             <C>
Total Outstanding Principal Balance............   $292,700,193    $310,228,743    $468,846,079    $ 624,097,051
Average Outstandings(1)........................   $282,851,206    $300,678,046    $373,384,417    $ 555,347,369
DELINQUENCY

30-59 Days:
  Principal Balance............................   $ 21,124,005    $ 22,569,938    $ 35,052,951    $  33,367,677
Percent of Delinquency(2)......................           7.22%           7.28%           7.48%            5.35%
60-89 Days:
  Principal Balance............................   $  7,551,379    $  6,398,055    $  8,086,230    $   9,727,343
Percent of Delinquency(2)......................           2.58%           2.06%           1.72%            1.56%
90 Days or More:
  Principal Balance............................   $ 10,823,367    $  6,517,506    $  6,748,061    $   5,915,799
Percent of Delinquency(2)......................           3.70%           2.10%           1.44%            0.95%
Total Delinquencies:
  Principal Balance............................   $ 39,498,751    $ 35,485,499    $ 49,887,241    $  49,010,819
Percent of Delinquency(2)......................          13.50%          11.44%          10.64%            7.85%
FORECLOSURES
  Principal Balance............................   $ 14,311,077    $ 20,768,336    $ 23,506,751    $  28,942,764
Percent of Foreclosures by Dollar(2)...........           4.89%           6.69%           5.01%            4.64%
REO............................................   $  1,359,537    $  1,926,922    $  4,020,295    $   4,051,572
Net Gains/(Losses) on liquidated loans.........   $    (88,994)   $   (720,872)   $ (2,457,982)   $  (1,504,470)
Percentage of Net Gains/(Losses) on liquidated
  loans (based on Average Outstanding Principal
  Balance).....................................         (0.031)%        (0.240)%        (0.658%)         (0.542)%(3)
</TABLE>
 
- ------------------
(1) Calculated by summing the actual outstanding principal balances at the end
    of each month and dividing the total by the number of months in the
    applicable period.
(2) Percentages are expressed based upon the total outstanding principal balance
    at the end of the indicated period.
(3) Annualized.
 
COMPETITION
 
     As an originator and purchaser of mortgage loans, the Company faces intense
competition, primarily from mortgage banking companies, commercial banks, credit
unions, savings and loans, credit card issuers and finance companies. Many of
these competitors in the financial services business are substantially larger
and have more capital and other resources than the Company. Competition can take
many forms, including convenience in obtaining a loan, service, marketing and
distribution channels and interest rates. Furthermore, the current level of
gains realized by the Company and its competitors on the sale of the type of
loans originated and purchased is attracting additional competitors into this
market with the effect of lowering the gains that may be realized by the Company
on future loan sales. In addition, greater investor acceptance of securities
backed by loans comparable to the Company's mortgage loans and greater
availability of information regarding the prepayment and default experience of
such loans creates greater efficiencies in the market for such securities. Such
efficiencies may create a desire for even larger transactions giving companies
with greater volumes of originations a competitive advantage. In addition, a
more efficient market for such securities may lead certain investors to purchase
securities backed by other types of assets where potential returns may be
greater. Competition may be affected by fluctuations in interest rates and
general economic conditions. During periods of rising rates, competitors which
have 'locked in' low borrowing costs may have a competitive advantage. During
periods of declining rates, competitors may solicit the Company's borrowers to

refinance their loans. During economic slowdowns or recessions, the Company's
borrowers may have new financial difficulties and may be receptive to offers by
the Company's competitors.
 
     Furthermore, certain large national finance companies and conforming
mortgage originators have announced their intention to adapt their conforming
origination programs and allocate resources to the origination of non-conforming
loans. In addition, certain of these larger mortgage companies and commercial
banks have begun to offer products similar to those offered by the Company,
targeting customers similar to those of the Company. The entrance of these
competitors into the Company's market could have a material adverse effect on
the Company's results of operations and financial condition.
 
                                       45
<PAGE>
REGULATION
 
     Delta's business is subject to extensive regulation, supervision and
licensing by federal, state and local governmental authorities and is subject to
various laws and judicial and administrative decisions imposing requirements and
restrictions on part or all of its operations. Delta's consumer lending
activities are subject to the Federal Truth-in-Lending Act and Regulation Z
(including the Home Ownership and Equity Protection Act of 1994), ECDA, the Fair
Credit Reporting Act of 1970, as amended, RESPA, and Regulation X, the Home
Mortgage Disclosure Act and the Federal Debt Collection Practices Act, as well
as other federal and state statutes and regulations affecting Delta's
activities. Delta is also subject to the rules and regulations of, and
examinations by HUD and state regulatory authorities with respect to
originating, processing,underwriting and servicing loans. These rules and
regulations, among other things, impose licensing obligations on Delta,
establish eligibility criteria for mortgage loans, prohibit discrimination,
provide for inspections and appraisals of properties, require credit reports on
loan applicants, regulate assessment, collection, foreclosure and claims
handling, investment and interest payments on escrow balances and payment
features, mandate certain disclosures and notices to borrowers and, in some
cases, fix maximum interest rates, fees and mortgage loan amounts. Failure to
comply with these requirements can lead to loss of approved status, termination
or suspension of servicing contracts without compensation to the servicer,
demands for indemnifications or mortgage loans repurchases, certain rights of
rescission for mortgage loan repurchases, certain rights of rescission for
mortgage loans, class action lawsuits and administrative enforcement actions.
Delta believes that it is in compliance in all material respects with applicable
federal and state laws and regulations.
 
ENVIRONMENTAL MATTERS
 
     To date, Delta has not been required to perform any investigation or clean
up activities, nor has it been subject to any environmental claims. There can be
no assurance, however, that this will remain the case in the future. In the
ordinary course of its business, Delta from time to time forecloses on
properties securing loans. Although Delta primarily lends to owners of
residential properties, there is a risk that Delta could be required to
investigate and clean up hazardous or toxic substances or chemical releases at
such properties after acquisition by Delta, and may be held liable to a

governmental entity or to third parties for property damage, personal injury and
investigation and cleanup costs incurred by such parties in connection with the
contamination. In addition, the owner or former owners of a contaminated site
may be subject to common law claims by third parties based on damages and costs
resulting from environmental contamination emanating from such property.
 
EMPLOYEES
 
     As of June 30, 1996, Delta had a total of 294 employees, 278 of whom were
working at its Woodbury, New York headquarters. None of Delta's employees is
covered by a collective bargaining agreement. Delta considers its relations with
its employees to be good.
 
PROPERTIES
 
     Delta's executive and administrative offices, including its servicing
operation and full-service production office, are located at 1000 Woodbury Road,
Suite 200, Woodbury, New York 11797, where Delta leases approximately 55,000
square feet of office space at an aggregate annual rent of approximately
$965,000. The lease provides for certain scheduled rent increases and expires in
January 2004.
 
     Delta maintains business development offices in New Jersey; Missouri;
Virginia; Pennsylvania; Ohio (2); Michigan (2); and Rhode Island.
 
LEGAL PROCEEDINGS
 
     Delta is a party to various routine legal proceedings arising out of the
ordinary course of its business. Management believes that none of these actions,
individually or in the aggregate, will have a material adverse effect on the
results of operations or financial condition of Delta.
 
                                       46
<PAGE>
                                   MANAGEMENT
 
DIRECTORS AND EXECUTIVE OFFICERS
 
     The following table sets forth certain information regarding the current
directors and executive officers of the Company.
 
<TABLE>
<CAPTION>
NAME                                            AGE    POSITION WITH THE COMPANY
- ---------------------------------------------   ---    -------------------------------------------------
<S>                                             <C>    <C>
Sidney A. Miller.............................   62     Chairman of the Board of Directors
Hugh I. Miller...............................   32     Chief Executive Officer, President and Director
Richard Blass................................   33     Senior Vice President and Director
Martin D. Payson.............................   60     Proposed Director
Arnold B. Pollard............................   54     Proposed Director
Irwin Fein...................................   60     Chief Financial Officer, Treasurer and Secretary
Christopher Donnelly.........................   36     Senior Vice President
Teresa E. Ginter.............................   57     Senior Vice President

Randall F. Michaels..........................   37     Senior Vice President
Frank Pellegrin..............................   46     Senior Vice President
</TABLE>
 
     SIDNEY A. MILLER is the founder of the Company and the Chairman of the
Board of Directors. Mr. Miller has been involved in the mortgage banking
industry since 1974. Prior to 1974, Mr. Miller was involved in life insurance,
financial and corporate planning. Mr. Miller is also a director of the Home
Equity Lenders Leadership Organization and the National Home Equity Mortgage
Association, as well as an Associate Trustee of North Shore University Hospital
and other philanthropic organizations.
 
     HUGH I. MILLER is the Chief Executive Officer, President and a Director of
the Company. Mr. Miller has been employed by the Company since 1985 and has been
President since 1991. From 1985 to 1990, Mr. Miller served as an Executive Vice
President of the Company responsible for all phases of the Company's business.
Hugh I. Miller is the son of Sidney A. Miller.
 
     RICHARD BLASS is a Senior Vice President of Finance and Securitization and
was elected a Director of the Company in August 1996. Mr. Blass joined the
Company in 1992. Prior to being employed by Delta, Mr. Blass was a money market
and derivatives trader at Citicorp Securities.
 
     MARTIN D. PAYSON will be elected a Director of the Company prior to the
date of the Prospectus. Mr. Payson served as Vice Chairman of Time Warner, Inc.
from January 1990 until December 1992. Prior to the merger of Time Inc. and
Warner Communications, Inc., Mr. Payson held the position of Office of the
President and General Counsel of Warner Communications, Inc., of which he also
was a Director for 14 years. Currently, Mr. Payson is also a director of
Renaissance Communications, Corp., Meridian Sports Incorporated, Unapix
Entertainment Inc., all publicly-held companies, and these privately-held
companies: Latin Communications Group Inc., Ithaca Holdings Inc., and SCUUL Ltd.
 
     ARNOLD B. POLLARD, Ph.D. will be elected a Director of the Company prior to
the date of the Prospectus. Since 1993, Dr. Pollard has been the President and
Chief Executive Officer of Chief Executive Group, which publishes 'Chief
Executive' magazine. For nearly 20 years, Dr. Pollard has been President of
Decision Associates, a management consulting firm specializing in organizational
strategy and structure. Dr. Pollard was a founding member of the Strategic
Decision Analysis Group of SRI, a company engaged in management consulting and
contract research. From 1989 to 1991, Dr. Pollard served as Chairman and Chief
Executive Officer of Biopool International, a biodiagnostic company focusing on
blood related testing. Dr. Pollard is also a director of GKN Securities, Inc., a
public company, and The Landry Service Co., Inc., a private company. He also
serves on the advisory board of Simply Interactive, Inc., a private company.
 
                                       47
<PAGE>
     IRWIN FEIN is the Chief Financial Officer, Secretary and Treasurer of
the Company. Prior to his employment by the Company in 1987, Mr. Fein was
employed by ITT Corporation, the National Broadcasting Company and General
Electric Corporation.
 
     CHRISTOPHER DONNELLY is a Senior Vice President of the Company. Mr.

Donnelly joined the Company in 1987 and since 1991, has been responsible for
supervising all aspects of credit and underwriting including the Broker and
Correspondent Divisions and Appraisal Review. From 1989 to 1991, Mr. Donnelly
served as Assistant Manager of Originations.
 
     TERESA E. GINTER is a Senior Vice President of the Company. Ms. Ginter has
been with the Company since its inception. Ms. Ginter's primary responsibilities
include supervising the internal operations of the Broker Division.
 
     RANDALL F. MICHAELS is a Senior Vice President and National Sales Manager.
Mr. Michaels joined Delta in 1995. Mr. Michaels has over 14 years experience in
the nonconforming mortgage loan markets. Prior to joining Delta, Mr. Michaels
was Regional Sales Manager of Quality Mortgage/Express Funding Inc. for two
years and, before that, Regional Sales Manager for American Funding Group for
six years.
 
     FRANK PELLEGRIN is a Senior Vice President and Servicing Manager. Mr.
Pellegrin joined the Company in early 1996. Mr. Pellegrin has been involved in
the mortgage banking industry for 24 years. From 1979 to 1995, Mr. Pellegrin
served as Senior Vice President in charge of servicing and data processing of
Mid-Coast Mortgage Company.
 
     The directors are divided into three classes, denominated Class I, Class II
and Class III, with the terms of office of each class expiring at the 1997, 1998
and 1999 annual meeting of stockholders, respectively. At each annual meeting
following such initial classification and election, directors elected to succeed
those directors whose terms expire will be elected for a term to expire at the
third succeeding annual meeting of stockholders after their election. The
directors will initially be divided into classes as follows: Class I--Arnold B.
Pollard and Richard Blass, Class II--Martin D. Payson and Sidney A. Miller, and
Class III--Hugh I. Miller. All officers are appointed by and serve, subject to
the terms of their employment agreements, if any, at the discretion of the Board
of Directors.
 
COMMITTEES OF THE BOARD OF DIRECTORS
 
     The Board of Directors has established three standing committees: the
Executive Committee, the Compensation Committee and the Audit Committee. Sidney
Miller and Hugh Miller serve on the Executive Committee which is empowered to
exercise the powers of the Board of Directors between meetings. However, the
Executive Committee may not (i) amend the Certificate of Incorporation or the
By-laws of the Company, (ii) adopt an agreement of merger or consolidation,
(iii) recommend to the stockholders the sale, lease, or exchange of all or
substantially all of the Company's property and assets, (iv) recommend to the
stockholders a dissolution of the Company or revoke a dissolution, (v) elect a
director, or (vi) declare a dividend or authorize the issuance of stock. Messrs.
Payson and Pollard will serve on the Compensation Committee and the Audit
Committee. The Compensation Committee is responsible for recommending to the
Board of Directors the Company's executive compensation policies for senior
officers and administering the 1996 Employee Stock Option Plan (the 'Stock
Option Plan'). See '--Stock Option Plan.' The Audit Committee is responsible for
recommending independent auditors, reviewing the audit plan, the adequacy of
internal controls, the audit report and the management letter, and performing
such other duties as the Board of Directors may from time to time prescribe.

 
EMPLOYMENT AGREEMENTS; KEY-MAN LIFE INSURANCE
 
  Employment Agreements
 
     Effective August 26, 1996, the Company entered into employment agreements
with Sidney Miller, Hugh Miller, Christopher Donnelly and Randall Michaels.
Sidney Miller's and Hugh Miller's employment agreements are for terms of five
years, and Christopher Donnelly's and Randall Michaels' employment agreements
are for terms of three years.
 
                                       48
<PAGE>
     Under the terms of the respective employment agreements, the Company pays
Sidney Miller a minimum base salary of $350,000 per year, Hugh Miller a minimum
base salary of $350,000 per year, Christopher Donnelly a minimum base salary of
$150,000 per year and Randall Michaels a minimum base salary of $125,000 per
year. Each of these officers is entitled to participate generally in the
Company's employee benefit plans, including the Stock Option Plan, and is
eligible for an incentive bonus from the Company's executive bonus pool. The
cash bonuses available to Christopher Donnelly and Randall Michaels are made at
the discretion of the Board of Directors and are based on subjective performance
criteria. Under the terms of their employment agreements, Sidney Miller and Hugh
Miller are eligible for cash bonuses in any one fiscal year of up to 400% of
their annual salary, payable on a quarterly basis 60 days after the relevant
quarter. The amount of such quarterly cash bonus is calculated under the
agreements as follows: for each 1% increase in net earnings per share for the
relevant fiscal quarter greater than 10% as measured against the corresponding
quarter in the prior fiscal year, each of Sidney Miller and Hugh Miller will
receive a quarterly cash bonus of 15% of his respective current annual salary.
 
     Under the terms of their respective employment agreements, Sidney Miller
and Hugh Miller also are granted benefits covering life insurance, medical
expenses not covered by insurance and allowances for business related travel and
entertainment.
 
     If the executive officer is terminated 'for cause,' which definition
generally includes termination by the Company due to the executive's willful
failure to perform his duties under the employment agreement, the executive's
personal dishonesty, or the executive's breach of his fiduciary duties or the
employment agreement to which he is a party, then the Company is obligated to
pay the executive so terminated only his base salary up to the date of his
termination 'for cause.' However, if either Christopher Donnelly or Randall
Michaels is terminated without cause, the Company is obligated to pay such
executive officer certain amounts set forth in the agreement which would be paid
to Mr. Donnelly or Mr. Michaels in equal installments over the six months
following any such termination without cause. If either Sidney Miller or Hugh
Miller is terminated without cause, the Company is obligated to pay such
executive officer his base salary, bonus and benefits for the remaining term of
his employment agreement. If either Sidney Miller or Hugh Miller resigns for
'good reason,' which generally includes the executive officer's resignation due
to a breach by the Company of his employment agreement or a change of control,
the Company must pay such executive officer his salary, bonus and benefits for
the remaining term of the employment agreement.

 
  Key-Man Life Insurance
 
     The Company maintains a key-man life insurance policy in the amount of
approximately $1 million on Hugh Miller, on which the Company is named as
beneficiary. The Company does not maintain key-man life insurance policies on
any of its other executive officers, however, the Company would be reimbursed
from Sidney Miller's split-dollar life insurance policy for the lesser of the
cash value or all premiums paid during the term of the policy. See 'Certain
Relationships and Related Party Transactions--Other Transactions.'
 
COMPENSATION OF DIRECTORS
 
     Following completion of the Offering, the Company intends to pay each
nonemployee director compensation of $20,000 per annum and a fee of $1,000 for
each meeting of the Board of Directors that he attends. The Company will
initially grant 10,000 options to each nonemployee director, one-quarter of
which will vest immediately, with an additional one-quarter vesting each year
thereafter. The Company will reimburse each director for ordinary and necessary
travel expenses related to such director's attendance at Board of Directors and
committee meetings.
 
EXECUTIVE COMPENSATION
 
     The Summary Compensation Table below provides certain summary information
concerning compensation paid or accrued during the years ended December 31,
1993, 1994 and 1995 by the Company to or on behalf of the Chief Executive
Officer and the four other highest paid executive officers of the Company.
 
                                       49
<PAGE>
                           SUMMARY COMPENSATION TABLE
 
<TABLE>
<CAPTION>
                                                                                     ANNUAL COMPENSATION
                                                                          -----------------------------------------
NAME AND                                                      FISCAL                                 OTHER ANNUAL
PRINCIPAL POSITION                                             YEAR        SALARY       BONUS       COMPENSATION(3)
- -----------------------------------------------------------   ------      --------    ----------    ---------------
<S>                                                           <C>         <C>         <C>           <C>
Sidney A. Miller ..........................................     1995      $      0    $3,000,000            N/A
  Chairman of the Board                                         1994       624,000       150,000            N/A
                                                                1993       624,000     1,150,000            N/A
Hugh I. Miller ............................................     1995      $419,200    $  275,000            N/A
  Chief Executive Officer                                       1994       520,000        50,000            N/A
                                                                1993       460,000       800,000        $60,725
Irwin Fein ................................................     1995      $120,750    $    7,500            N/A
  Chief Financial Officer, Treasurer and Secretary              1994       121,757         7,500            N/A
                                                                1993       100,884         7,500            N/A
Randall F. Michaels .......................................     1995(1)   $ 32,298    $    1,000        $ 6,155
  Senior Vice President                                         1995(2)    120,294         3,724         22,925
                                                                1994           N/A           N/A            N/A
                                                                1993           N/A           N/A            N/A

Teresa E. Ginter ..........................................     1995      $ 78,213    $   13,700        $40,132
  Senior Vice President                                         1994        76,236         6,500         21,935
                                                                1993        66,882         6,500          1,861
</TABLE>
 
- ------------------
(1) Actual 1995 compensation, starting date 9/25/95.
 
(2) Annualized compensation.
 
(3) Commissions paid on originations.
 
STOCK OPTION PLAN
 
     The Company will adopt the 1996 Stock Option Plan (the 'Stock Option Plan')
prior to the date of this Prospectus, and the Stock Option Plan will be
submitted for approval to the Company's stockholders at a special meeting to be
held prior to the date of this Prospectus. The Stock Option Plan is administered
by the Compensation Committee. All key employees and directors of, and
consultants to, the Company as may be determined from time to time by the
Compensation Committee are eligible to receive options under the Stock Option
Plan.
 
     A total of 2,200,000 shares will be authorized for issuance under the Stock
Option Plan. Not more than 1,000,000 shares of Common Stock may be the subject
of options granted to any individual during the duration of the Stock Option
Plan. On the effective date of this Offering, the Company will grant options
with respect to 500,000 shares at exercise prices equal to the initial public
offering price to certain eligible participants under the Stock Option Plan.
 
     The exercise price of an incentive stock option and a non-qualified stock
option is fixed by the Compensation Committee at the date of grant; however, the
exercise price under an incentive stock option must be at least equal to the
fair market value of the Common Stock at the date of grant, and 110% of the fair
market value of the Common Stock at the date of grant for any incentive stock
option granted to a member of the Miller family.
 
     Stock options are exercisable for a duration determined by the 
Compensation Committee, but in no event more than ten years after the date of
grant. Options shall be exercisable at such rate and times as may be fixed by
the Compensation Committee on the date of grant. The aggregate fair market value
(determined at the time the option is granted) of the Common Stock with respect
to which incentive stock options are exercisable for the first time by a
participant during any calendar year (under all stock option plans of the
Company) shall not exceed $100,000; to the extent this limitation is exceeded,
such excess options shall be treated as non-qualified stock options for purposes
of the Stock Option Plan and the Code.
 
                                       50
<PAGE>
     At the time a stock option is granted, the Compensation Committee may, in
its sole discretion, designate whether the stock option is to be considered an
incentive stock option or non-qualified stock option plan. Stock options with no
such designation shall be deemed incentive stock options to the extent that the

$100,000 limit described above is met.
 
     Payment of the purchase price for shares acquired upon the exercise of
options may be made by any one or more of the following methods: in cash, by
check, by delivery to the Company of shares of Common Stock already owned by the
option holder, or by such other method as the Compensation Committee may permit
from time to time. However, a holder may not use previously owned shares of
Common Stock to pay the purchase price under an option, unless the holder has
beneficially owned such shares for at least six months.
 
     Stock options which are vested become immediately exercisable in full
upon the disability or death of the holder while in the employ of, or service
with, the Company or upon the occurrence of such special circumstances as in the
opinion of the Compensation Committee merit special consideration.
 
     Stock options terminate at the end of the 30th business day following the
holder's termination of employment or service. This period is extended to one
year in the case of the disability or death of the holder and, in the case of
death, the stock option is exercisable by the holder's estate.
 
     The options granted under the Stock Option Plan contain anti-dilution
provisions which will automatically adjust the number of shares subject to the
option in the event of a stock dividend, split-up, conversion, exchange,
reclassification or substitution. In the event of any other change in the
corporate structure or outstanding shares of Common Stock, the Compensation
Committee may make such equitable adjustments to the number of shares and the
class of shares available under the Stock Option Plan or to any outstanding
option as it shall deem appropriate to prevent dilution or enlargement of
rights.
 
     The Company shall obtain such consideration for granting options under the
Stock Option Plan as the Compensation Committee in its discretion may request.
 
     Each option may be subject to provisions to assure that any exercise or
disposition of Common Stock will not violate the securities laws.
 
     No option may be granted under the Stock Option Plan after the day
preceding the tenth anniversary of the adoption of the Stock Option Plan.
 
     The Board of Directors or the Compensation Committee may at any time
withdraw or amend the Stock Option Plan and may, with the consent of the
affected holder of an outstanding option at any time withdraw or amend the terms
and conditions of outstanding options. Any amendment which would increase the
number of shares issuable pursuant to the Stock Option Plan or to any individual
thereunder or change the class of individuals to whom options may be granted
shall be subject to the approval of the stockholders of the Company.
 
401(K) SAVINGS PLAN
 
     In 1994, Delta Funding Corporation established a 401(k) Savings Plan (the
'Plan'), which is intended to comply with Sections 401(a) and 401(k) of the
Code, and the applicable provisions of the Employee Retirement Income Security
Act of 1974, as amended. Amounts contributed to the Plan are held under a trust
intended to be exempt from income tax pursuant to Section 501(a) of the Code.

All employees of Delta Funding Corporation that have completed at least one year
of service and who are at least 21 years old are eligible to participate in the
Plan. Participating employees are entitled to make pre-tax contributions to
their accounts, subject to certain maximum annual limits imposed by law ($9,500
in 1996), and certain other limitations. Delta Funding Corporation may elect to
make discretionary contribution to the Plan each year. Employees are always
fully vested in their own contributions, Delta Funding Corporation's
contributions vest in participating employees over a six-year period.
Distributions generally are payable in a lump-sum after retirement, disability
or death and, in certain circumstances, upon termination of employment with
Delta Funding Corporation for other reasons.
 
                                       51
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
 
     Prior to August 1996, the Company had no compensation committee or any
other committee of the Board of Directors performing similar functions.
Decisions concerning executive compensation for 1995 were made by the Board of
Directors, including Sidney Miller, Hugh Miller and Irwin Fein, all of whom were
and continue to be executive officers of the Company and participated in
deliberations of the Board of Directors regarding executive officer
compensation. The Board of Directors of the Company has established a
Compensation Committee. See '--Committees of the Board of Directors.'
 
     None of the executive officers of the Company currently serves on the
compensation committee of another entity or any other committee of the board of
directors of another entity performing similar functions. For other related
party transactions, see 'Certain Relationships and Related Party Transactions.'
 
              CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
 
STOCKHOLDER NOTES
 
     A note due from Hugh I. Miller in the amount of $990,000 which had an
interest rate of 7.5% per annum and a maturity date in 2001 was repaid in full
in June 1996.
 
     A note due from Sidney A. Miller in the amount of $2,000,000 which had an
interest rate of 7.8% per annum was repaid in full when it matured in December
1995.
 
OTHER TRANSACTIONS
 
     The Company previously sub-leased its Woodbury, New York office space from
Commercial Capital Corp. of New York ('Commercial Capital'), a corporation which
is wholly-owned by certain members of the Miller family. This lease was assigned
to the Company on August 2, 1996. Prior to this assignment, the Company paid
rent to Commercial Capital in an amount equal to that which Commercial Capital
paid the landlord.
 
     Long Island Closing Corporation, a company wholly-owned by Rona Miller
(Sidney Miller's wife), is hired by title abstract companies as closing agent to
clear titles on substantially all of the Company's Broker Loan closings held at

the Company's headquarters. All fees for these services are paid by the
borrower.
 
     Miller Planning Corporation, a corporation which is wholly-owned by Sidney
Miller, receives commissions on the Company's group health, disability and life
insurance policies. This same affiliate previously offered life and disability
credit insurance to the Company's borrowers for which this affiliate received
commissions.
 
     The Company pays the annual premium on a $25 million split-dollar life
insurance policy for Sidney Miller. The beneficiaries on the policy are certain
members of the Miller family; however, in the event of Sidney Miller's demise,
the Company is first reimbursed out of the proceeds of the policy for the lesser
of the cash value or all premiums it has paid during the term of the policy.
 
     The Company currently has two lines of credit with institutions, one in the
amount of $1 million, which is personally guaranteed by Sidney Miller, and the
other in the amount of $2.5 million, which is personally guaranteed, jointly and
severally, by Sidney Miller and Hugh Miller.
 
TRANSACTIONS IN CONNECTION WITH THE FORMATION
 
     Prior to the date of the Prospectus, pursuant to the terms of a
contribution agreement (the 'Contribution Agreement'), the Existing Stockholders
will contribute their stock to Delta Financial Corporation, in exchange for all
of the outstanding stock of the Company. Upon completion of such exchange, Delta
Funding Corporation will elect to terminate its status as an S corporation. Upon
termination of its S corporation status, the Company will be fully subject to
federal and state income taxes and will record a deferred tax liability on its
balance sheet. The amount of the deferred tax liability to be recorded as of the
date of termination of the S corporation status will depend upon timing
differences between tax and book accounting relating principally to recognition
of gains on sales of mortgage loans. If the S corporation status had been
terminated as of June 30, 1996, the amount of the deferred tax liability would
have been approximately $2.9 million.
                                       52
<PAGE>
     Since July 1, 1985, Delta Funding Corporation has paid approximately 15.8%
of its earnings before income tax to the Existing Stockholders in the form of S
corporation distributions (approximately $8.0 million from July 1, 1985 through
June 30, 1996). Such distributions were paid to the Existing Stockholders as a
distribution of a portion of Delta Funding Corporation's earnings and to pay
their taxes. Prior to the Offering, Delta Funding Corporation will distribute
the Distribution Notes to the Existing Stockholders in the aggregate principal
amount of $23 million. The principal amount of the Distribution Notes represents
the sum of approximately (i) $11 million in taxes payable at the applicable
statutory rate by the Existing Stockholders on the estimated net earnings of
Delta Funding Corporation for the period from January 1, 1996 to September 30,
1996, and (ii)  $12 million of previously earned and undistributed S corporation
earnings. The Distribution Notes will be promissory notes bearing interest at
the rate of 6.15% per annum. In addition, prior to the Offering Delta Funding
Corporation will declare a Contingent Dividend to the Existing Stockholders in
the amount of at least $30 and up to a maximum of $8,370,000. The maximum amount
of the Contingent Dividend shall become payable only upon the exercise by the

Underwriters of the entire over-allotment option granted to them by the Company
in connection with the Offering. The amount of the Contingent Dividend which
becomes payable shall bear a direct relation to the percentage of the option
granted to the Underwriters and exercised by them. If the over-allotment option
is not exercised in any amount, the Existing Stockholders will receive a
dividend of $30.
 
     Immediately prior to the Offering, Delta Funding Corporation and its
shareholders will enter into a tax indemnification agreement (the 'Tax
Agreement') relating to their respective income tax liabilities. Because the
Company will be fully subject to corporate income taxation after the termination
of the Company's S corporation status, the reallocation of income and deduction
between the period during which the Company was treated as an S corporation and
the period during which the Company will be subject to corporate income taxation
may increase the taxable income of one party while decreasing that of another
party. Accordingly, the Tax Agreement is intended to assure that taxes are borne
by the Company on the one hand and the Existing Stockholders on the other only
to the extent that such parties received the related income. The Tax Agreement
generally provides that, if an adjustment is made to the taxable income of the
Company for a year in which it was treated as an S corporation, the Company will
indemnify the Existing Stockholders and the Existing Stockholders will indemnify
the Company against any increase in the indemnified party's income tax liability
(including interest and penalties and related costs and expenses), with respect
to any tax year to the extent such increase results in a related decrease in the
income tax liability of the indemnifying party for that year. However, the Tax
Agreement specifically provides that the Existing Stockholders will not be
responsible for any portion of any deferred tax liability which may be recorded
on the balance sheet of Delta Funding Corporation upon termination of the S
corporation status. The Company will also indemnify the Existing Stockholders
for all taxes imposed upon them as the result of their receipt of an
indemnification payment under the Tax Agreement. Any payment made by the Company
to the Existing Stockholders pursuant to the Tax Agreement may be considered by
the Internal Revenue Service or state taxing authorities to be non-deductible by
the Company for income tax purposes.
 
     In connection with the Underwriting Agreement, the Company and the Existing
Stockholders have agreed to enter into an agreement apportioning between them
the indemnification and contribution obligations undertaken by them pursuant to
the terms of the Underwriting Agreement. See 'Underwriting.'
 
                                       53

<PAGE>
                             PRINCIPAL STOCKHOLDERS
 
     The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of the date of the Prospectus, following
consummation of the transactions described under 'Reorganization and Termination
of S Corporation Status,' and as adjusted to reflect the sale of the shares of
Common Stock offered hereby, of (i) each person known by the Company to own
beneficially five percent or more of the outstanding Common Stock immediately
prior to the Offering; (ii) each of the Company's directors; (iii) each of the
executive officers named in the Summary Compensation Table; and (iv) all
directors and executive officers of the Company as a group. The address of each
person listed below is 1000 Woodbury Road, Suite 200, Woodbury, New York 11797,
unless otherwise indicated.
 
<TABLE>
<CAPTION>
                                                                                      PERCENTAGE BENEFICIALLY OWNED(1)
                                                                                      ---------------------------------
NAME OF BENEFICIAL OWNER                                          NUMBER OF SHARES    BEFORE OFFERING    AFTER OFFERING
- ---------------------------------------------------------------   ----------------    ---------------    --------------
<S>                                                               <C>                 <C>                <C>
Sidney A. Miller(2)............................................        7,161,725            67.22%            48.87%
Hugh I. Miller(2)(3)...........................................        5,312,736            49.86%            36.25%
Rona V. Miller(3)..............................................        2,000,305            18.77%            13.65%
Irwin Fein.....................................................                0              N/A               N/A
Richard Blass..................................................                0              N/A               N/A
Martin D. Payson*..............................................                0              N/A               N/A
Arnold B. Pollard*.............................................                0              N/A               N/A
Randall F. Michaels............................................                0              N/A               N/A
Christopher Donnelly...........................................                0              N/A               N/A
Frank Pellegrin................................................                0              N/A               N/A
Teresa E. Ginter...............................................                0              N/A               N/A
All directors and executive officers as a group................       10,653,000              100%            72.70%
</TABLE>
 
- ------------------
* Mr. Payson and Dr. Pollard will be elected Directors prior to the date of the
  Prospectus.
 
(1) Based on 10,653,000 shares of Common Stock outstanding prior to the Offering
    and, assuming no exercise of the Underwriters' over-allotment option,
    14,653,000 shares of Common Stock outstanding immediately after the
    Offering. Beneficial ownership is determined in accordance with the rules of
    the Securities and Exchange Commission and generally includes voting or
    investment power with respect to securities. Except as indicated in the
    footnotes to this table and subject to applicable community property laws,
    the person named in the table has sole voting and investment power with
    respect to all shares of Common Stock beneficially owned.
 
(2) Includes 1,820,461 shares of Common Stock held by the Sidney A. Miller
    Grantor Retained Annuity Trust of which Sidney A. Miller and Hugh I. Miller
    are trustees.
 

(3) Includes 2,000,305 shares of Common Stock held by the Rona V. Miller Grantor
    Retained Annuity Trust of which Rona V. Miller and Hugh I. Miller are
    trustees.
 
                                       54
<PAGE>
                          DESCRIPTION OF CAPITAL STOCK
 
     The following description of the capital stock of the Company is subject to
the Delaware General Corporation Law ('DGCL') and to provisions contained in the
Company's Certificate of Incorporation and By-Laws, copies of which have been
filed as exhibits to the Registration Statement of which this Prospectus forms a
part. Reference is made to such exhibits for a detailed description of the
provisions thereof summarized below.
 
     The authorized capital stock of the Company consists of 1,000,000 shares of
Preferred Stock, $.01 par value (the 'Preferred Stock'), none of which is
presently issued and outstanding, and 49,000,000 shares of Common Stock, $.01
par value, of which 10,653,000 shares will be issued and outstanding following
the contribution by the shareholders of their stock in Delta Funding Corporation
to the Company pursuant to the Contribution Agreement and will be beneficially
owned by Sidney A. Miller, Hugh I. Miller, the Sidney A. Miller Grantor Retained
Annuity Trust and the Rona V. Miller Grantor Retained Annuity Trust. Holders of
capital stock of the Company have no preemptive or other subscriptive rights.
 
COMMON STOCK
 
     Subject to prior rights of any Preferred Stock then outstanding and to
contractual limitations, if any, the holders of outstanding shares of Common
Stock are entitled to receive dividends out of assets legally available
therefor, as declared by the Board of Directors and paid by the Company. Certain
financing and servicing agreements of Delta Funding Corporation, a wholly-owned
subsidiary of the Company, contain financial covenants requiring Delta Funding
Corporation to maintain certain minimum levels of net worth. These restrictions
may indirectly restrict the Company's ability to pay dividends.
 
     In the event of any liquidation, dissolution or winding-up of the Company,
holders of Common Stock will be entitled to share equally and ratably in all
assets available for distribution after payment of creditors, holders of any
series of Preferred Stock outstanding at the time, and any other debts,
liabilities and preferences. Since the Company's Board of Directors has the
authority to fix the rights and preferences of, and to issue, the Company's
authorized but unissued Preferred Stock without approval of the holders of its
Common Stock, the rights of such holders may be materially limited or qualified
by the issuance of the Preferred Stock.
 
     The Common Stock presently outstanding is, and the Common Stock offered and
sold hereby will be, fully paid and non-assessable.
 
PREFERRED STOCK
 
     The Board of Directors is empowered to issue Preferred Stock from time to
time in one or more series, without shareholder approval, and with respect to
each series to determine (subject to limitations prescribed by law) (1) the

number of shares constituting such series, (2) the dividend rate on the shares
of each series, whether such dividends shall be cumulative and the relation of
such dividends to the dividends payable on any other class of stock, (3) whether
the shares of each series shall be redeemable and the terms of any redemption
thereof, (4) whether the shares shall be convertible into Common Stock or other
securities and the terms of any conversion privileges, (5) the amount per share
payable on each series or other rights of holders of such shares on liquidation
or dissolution of the Company, (6) the voting rights, if any, forares of each
series, (7) the provision of a sinking fund, if any, for each series, and (8)
generally any other rights and privileges not in conflict with the Certificate
of Incorporation for each series and any qualifications, limitations or
restrictions thereof. The Company currently has no plans to issue any Preferred
Stock.
 
OPTIONS
 
     As of the date of this Prospectus, the Company has granted options to
purchase up to 500,000 shares of Common Stock, at exercise prices equal to the
initial public offering price, pursuant to the provisions of the Company's Stock
Option Plan. See 'Management--Stock Option Plan.' The Company intends to file a
registration statement on Form S-8 under the Securities Act to register these
shares. See 'Shares Eligible for Future Sale.'
 
                                       55
<PAGE>
VOTING RIGHTS
 
     Stockholders are entitled to one vote for each share of Common Stock held
of record.
 
CERTAIN CHARTER, BYLAWS AND STATUTORY PROVISIONS
 
     The Company's Certificate of Incorporation contains certain provisions that
could discourage potential takeover attempts and make more difficult attempts by
stockholders to change management. Effective as of the next meeting for the
election of directors, the Certificate of Incorporation provides for a
classified Board of Directors consisting of three classes as nearly equal in
size as practicable. Each class will hold office until the third annual meeting
for election of directors following the election of such class; provided,
however, that the initial terms of the directors in the first, second and third
classes of the Board of Directors will expire in 1997, 1998 and 1999,
respectively. The Company's Certificate of Incorporation provides that no
director may be removed except for cause and by the vote of not less than 70% of
the total outstanding voting power of the securities of the corporation which
are then entitled to vote in the election of directors. The Certificate of
Incorporation permits the Board of Directors to create new directorships and the
Company's Bylaws permit the Board of Directors to elect new directors to serve
the full term of the class of directors in which the new directorship was
created. The Bylaws also provide that the Board of Directors (or its remaining
members, even though less than a quorum) is empowered to fill vacancies on the
Board of Directors occurring for any reason for the remainder of the term of the
class of directors in which the vacancy occurred. A vote of not less than 70% of
the total outstanding voting power of the securities of the Company which are
then entitled to vote in the election of directors is required to amend the

foregoing provisions of the Certificate of Incorporation.
 
     Effective as of the date of the Prospectus, the Certificate of
Incorporation prohibits any action required to be taken or which may be taken at
any annual or special meeting of stockholders of the Company to be taken,
without a meeting, denying the power of stockholders of the Company to consent
in writing, without a meeting, to the taking of any action. This provision may
discourage another person or entity from making a tender offer for the Company's
Common Stock because such person or entity, even if it acquired a majority of
the outstanding voting securities of the Company, would be able to take action
as a stockholder (such as electing new directors or approving a merger) only at
a duly called stockholders meeting, and not by written consent.
 
     Certain provisions in the Certificate of Incorporation, the Bylaws and the
DGCL could have the effect of delaying, deferring or preventing changes in
control of the Company. See 'Risk Factors--Effects of Certain Anti-Takeover
Provisions.'
 
CERTAIN PROVISIONS OF DELAWARE LAW
 
     The Company is a Delaware corporation and is subject to Section 203 of the
DGCL. In general, Section 203 prevents an 'interested stockholder' (defined
generally as a person owning 15% or more of the Company's outstanding voting
stock) from engaging in a 'business combination' (as defined in Section 203)
with the Company for three years following the date that person became an
interested stockholder unless: (i) before that person became an interested
stockholder, the Board approved the transaction in which the interested
stockholder became an interested stockholder or approved the business
combination; (ii) upon completion of the transaction that resulted in the
interested stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the Company outstanding at
the time the transaction commenced (excluding stock held by directors who are
also officers of the Company and by employee stock plans that do not provide
employees with the right to determine confidentially whether shares held subject
to the plan will be tendered in a tender or exchange offer); or (iii) on or
following the date on which that person became an interested stockholder, the
business combination is approved by the Company's Board and authorized at a
meeting of stockholders by the affirmative vote of the holders of at least
66 2/3% of the outstanding voting stock of the Company not owned by the
interested stockholder.
 
     Under Section 203, these restrictions also do not apply to certain business
combinations proposed by an interested stockholder following the announcement or
notification of one of certain extraordinary transactions involving the Company
and a person who was not an interested stockholder during the previous three
years or who became an interested stockholder with the approval of a majority of
the Company's directors, if that extraordinary transaction is approved or not
opposed by a majority of the directors (but not less than one) who
 
                                       56
<PAGE>
were directors before any person became an interested stockholder in the
previous three years or who were recommended for election or elected to succeed
such directors by a majority of such directors then in office.

 
INDEMNIFICATION OF DIRECTORS AND OFFICERS
 
     Article NINTH of the Company's Certificate of Incorporation provides that,
to the full extent permitted by the DGCL, directors shall not be personally
liable to the Company or its stockholders for damages for breach of any duty
owed to the Company or its shareholders.
 
     The Company's Certificate of Incorporation and By-Laws provide that the
Company shall indemnify its directors and officers to the fullest extent
permitted by the DGCL.
 
     The Company maintains directors' and officers' liability insurance which is
intended to provide the Company's Directors and officers protection from
personal liability in addition to the protection provided by the Company's
Certificate of Incorporation and By-Laws as described above.
 
TRANSFER AGENT
 
     The transfer agent for the Common Stock is ChaseMellon Shareholder Services
LLC.
 
                                       57

<PAGE>
                        SHARES ELIGIBLE FOR FUTURE SALE
 
GENERAL
 
     Upon completion of the Offering, the Company will have outstanding
14,653,000 shares of Common Stock. The 4,000,000 shares of Common Stock to be
sold in the Offering, and any of the 600,000 shares that may be sold upon
exercise of the Underwriters' over-allotment option will be freely tradable by
persons other than 'affiliates' of the Company, as that term is defined in Rule
144 under the Securities Act, without restriction or registration under the
Securities Act. The remaining 10,653,000 shares outstanding (all such shares
being referred to herein as the 'Existing Stockholders Shares') will be held by
the Company's Existing Stockholders. The Existing Stockholders Shares may not be
sold unless they are registered under the Securities Act or sold pursuant to an
applicable exemption from registration, including an exemption pursuant to Rule
144 under the Securities Act.
 
     As currently in effect, Rule 144 generally permits the public sale in
ordinary trading transactions of 'restricted securities' and of securities owned
by 'affiliates' beginning 90 days after the date of this Prospectus if the other
restrictions enumerated in Rule 144 are met. Restricted securities are
securities acquired directly or indirectly from an issuer or an affiliate of the
issuer in an action not involving a public offering. In general, under Rule 144,
if a period of at least two years has elapsed since the date the restricted
securities were acquired from the Company or an affiliate of the Company, as
applicable, then the holder of such restricted securities (including an
affiliate) is entitled, subject to certain conditions, to sell within any
three-month period a number of shares which does not exceed the greater of (i)
1% of the Company's then outstanding shares of Common Stock or (ii) the share's
average weekly trading volume during the four calendar weeks preceding such
sale. Sales under Rule 144 are also subject to certain manner-of-sale provisions
and requirements as to notice and the availability of current public information
about the Company. Affiliates may sell shares not constituting restricted
securities in accordance with the foregoing limitations and requirements but
without regard to the two-year period. However, a person who is not and has not
been an affiliate of the Company at any time during the 90 days preceding the
sale of the shares, and who has beneficially owned restricted securities for at
least three years, is entitled to sell such shares under the requirements of
Rule 144. The Existing Stockholders who hold in the aggregate 10,653,000 shares
have agreed during the 180 day-period immediately following the date of this
Prospectus not to sell or otherwise dispose of any securities of the Company
without the consent of the representatives of the Underwriters, subject to
certain specified exemptions.
 
     The Company has reserved 2,200,000 shares of its Common Stock for issuance
under the Stock Option Plan. All of the shares issued as the result of any
grants under the foregoing plans shall also be restricted securities unless the
Company files a registration statement under the Securities Act relating to the
issuance of the shares. The Company currently intends to register the shares of
Common Stock reserved under such employee benefit plans. Subject to compliance
with Rule 144 by affiliates of the Company, any shares issued upon exercise of
options granted under such employee benefit plans will become freely tradable at
the effective date of the registration statement for the shares reserved under

such plans.
 
     Prior to the Offering, there has been no public market for the Common
Stock, and no prediction can be made as to the effect, if any, that sales of
shares or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of substantial amounts of
Common Stock in the public market could adversely affect prevailing market
prices.
 
                                       58
<PAGE>
                                  UNDERWRITING
 
     The Underwriters named below, acting through their representatives, NatWest
Securities Limited, Prudential Securities Incorporated and Piper Jaffray Inc.,
have severally agreed, subject to the terms and conditions of the Underwriting
Agreement, to purchase from Company, the number of shares of Common Stock set
forth opposite their respective names below:
 
<TABLE>
<CAPTION>
UNDERWRITERS                                               NUMBER OF SHARES
- --------------------------------------------------------   ----------------
<S>                                                        <C>
NatWest Securities Limited..............................
Prudential Securities Incorporated......................
Piper Jaffray Inc.......................................
 
                                                           ----------------
     Total..............................................       4,000,000
                                                           ----------------
                                                           ----------------
</TABLE>
 
     The Underwriters are committed to purchase all of the shares of Common
Stock, if any shares of Common Stock are purchased.
 
     The Underwriters propose to offer the shares of Common Stock directly to
the public at the public offering price set forth on the cover page of this
Prospectus and to certain securities dealers at such price less a concession not
in excess of $      per share of Common Stock. The Underwriters may allow, and
such selected dealers may reallow, a concession not in excess of $    per share
of Common Stock to certain brokers and dealers. The Underwriters have informed
the Company that the Underwriters do not intend to confirm sales to any account
over which they exercise discretionary authority.
 
     The Company has granted to the Underwriters an option for 30 days after the
date of this Prospectus to purchase at the public offering price, less the
underwriting discount, as set forth on the cover page of the Prospectus, up to
600,000 additional shares of Common Stock. If the Underwriters exercise their
option to purchase any of the additional shares of Common Stock, each of the
Underwriters will have a firm commitment, subject to certain conditions, to
purchase approximately the same percentage thereof which the number of shares of
Common Stock to be purchased by each of them as shown in the above table bears

to the Underwriters' initial commitment. The Underwriters may exercise such
option only to cover over-allotments in connection with the sale of Common Stock
offered hereby.
 
     The Company and the Existing Stockholders have agreed that they will not,
directly or indirectly, without the prior written consent of the
Representatives, offer to sell, sell, contract to sell, grant any option to
purchase or otherwise dispose (or announce any offer, sale, grant of any option
to purchase or other disposition) of any shares of Common Stock for a period of
180 days after the date hereof, except grants of options by the Company in
connection with the Stock Option Plan.
 
     The Underwriting Agreement provides that the Company and the Existing
Stockholders will jointly and severally indemnify the several Underwriters
against certain liabilities, including civil liabilities under the Act, or will
contribute to payments the Underwriters may be required to make in respect
thereof. The Existing Stockholders and the Company have agreed among themselves,
without limitation to the rights of the
 
                                       59
<PAGE>
Underwriters under the Underwriting Agreement that, if any of them is obligated
to indemnify, or to contribute to the losses of, any Underwriter, then as
between the Existing Stockholders and the Company, such obligation shall be
borne by them in the same proportion as the gross proceeds received by the
Company from the Offering bears to the total amount of the distributions
received by the Existing Stockholders in connection with the Distribution Notes
and the Contingent Dividend.
 
     NatWest Securities Limited ('NatWest'), a United Kingdom broker-dealer and
a member of the Securities and Futures Authority Limited, has agreed that, as
part of its distribution of the shares of the Common Stock offered hereby and
subject to certain exceptions, it will not offer or sell any shares of Common
Stock within the U.S., its territories or possessions or to persons who are
citizens thereof or residents therein. The Underwriting Agreement does not limit
the sale of the Common Stock offered hereby outside the U.S.
 
     NatWest has further represented and agreed that (i) it has not offered or
sold and will not offer or sell any Common Stock to persons in the United
Kingdom prior to admission of the Common Stock to listing in accordance with
Part IV of the Financial Services Act 1986 (the 'Act') except to persons whose
ordinary activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purpose of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995 or the Act, (ii) it has complied and will
comply with all applicable provisions of the Act with respect to anything done
by it in relation to the Common Stock in, from or otherwise involving the United
Kingdom and (iii) it has only issued or passed on, and will only issue or pass
on, in the United Kingdom any document received by it in connection with the
issue of the Common Stock, other than any document which consists of or any part
of listing particulars, supplementary listing particulars or any other document
required or permitted to be published by listing rules under Part IV of the Act,
to a person who is of a kind described in Article 11(3) of the Financial

Services Act 1986 (Investment Advertisements)(Exemptions) Order 1995 or is a
person to whom the document may otherwise lawfully be issued or passed on.
 
     National Westminster Bank Plc ('NWB'), an affiliate of NatWest, has
provided the Company with a $100 million warehouse financing facility that is
secured by certain of the Company's mortgages held for sale and term loans in
the aggregate principal amount of $22.3 million secured by certain of the
Company's interest-only and residual certificates.
 
     NatWest and its affiliates have also provided, and may in the future
provide, investment banking and/or other advisory services to the Company for
which it received customary compensation.
 
     Prudential Securities Incorporated and NatWest Capital Markets Limited, an
affiliate of NatWest, have provided investment banking services to the Company
in connection with securitization transactions and received fees in connection
therewith.
 
     Prior to this Offering, there has been no previous public market for the
Common Stock of the Company. The public offering price for the Common Stock will
be determined by negotiations among the Company and the Underwriters. The
factors to be considered in determining the initial public offering price will
include an assessment of the history and the prospects for the industry in which
the Company operates, the ability of the Company's management, the past and
present operations of the Company, the historical results of operations of the
Company, the prospects for future earnings of the Company, the general
conditions of the securities markets at the time of the Offering and the prices
of similar securities of comparable companies.
 
                                 LEGAL MATTERS
 
     The validity of the issuance of the shares of the Common Stock offered
hereby will be passed upon for the Company by Stroock & Stroock & Lavan, New
York, New York. Certain legal matters in connection with the Offering will be
passed upon for the Underwriters by Manatt, Phelps & Phillips, LLP, Los Angeles,
California.
 
                                       60
<PAGE>
                                    EXPERTS
 
     The financial statements of the Company at December 31, 1994 and 1995 and
for each of the years in the three year period ended December 31, 1995,
appearing in this Prospectus and Registration Statement, have been audited by
KPMG Peat Marwick LLP, independent auditors, as set forth in their report
thereon appearing elsewhere in this Prospectus and Registration Statement and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
 
                             ADDITIONAL INFORMATION
 
     The Company has filed with the Securities and Exchange Commission (the
'Commission') a Registration Statement on Form S-1 under the Securities Act, of
which this Prospectus forms a part, with respect to the Common Stock offered

hereby. This Prospectus omits certain information contained in the Registration
Statement, and reference is made to the Registration Statement for further
information with respect to the Company and the Common Stock offered hereby.
Statements contained herein concerning the provisions of documents are
necessarily summaries of such documents and when any such document is an exhibit
to the Registration Statement, each such statement is qualified in its entirety
by reference to the copy of such document filed with the Commission. Copies of
the Registration Statement may be acquired upon payment of the prescribed fees
or examined without charge at the public reference facilities of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, the Registration
Statement may be accessed electronically at the Commission's site on the World
Wide Web located at http://www.sec.gov.
 
     Upon completion of the Offering, the Company will be subject to the
informational requirements of the Securities and Exchange Act of 1934, as
amended, and, in accordance therewith, will file reports, proxy and information
statements with the Commission. Such reports, proxy and information statements
and other information can be inspected and copied at the address and web site
set forth above.
 
                            REPORTS TO STOCKHOLDERS
 
     The Company intends to furnish its stockholders with annual reports
containing audited financial statements and a report thereon by independent
certified public accountants and with quarterly reports for the first three
quarters of each year containing unaudited summary financial information.
 
                                       61

<PAGE>
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
<TABLE>
<CAPTION>
                                                                                                             PAGE
                                                                                                             ----
 
<S>                                                                                                          <C>
Report of Independent Accountants.........................................................................    F-2
 
Financial Statements of Delta Funding Corporation:
 
  Balance Sheets as of December 31, 1994, 1995 and June 30, 1996..........................................    F-3
 
  Statements of Operations for the years ended December 31, 1993, 1994 and 1995 and the six months ended
     June 30, 1995 and 1996...............................................................................    F-4
 
  Statements of Stockholders' Equity for the years ended December 31, 1993, 1994 and 1995 and the six
     months ended June 30, 1995 and 1996..................................................................    F-5
 
  Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995 and the six months ended
     June 30, 1996........................................................................................    F-6
 
  Notes to Financial Statements...........................................................................    F-7
</TABLE>
 
                                      F-1

<PAGE>
                          INDEPENDENT AUDITORS' REPORT
 
The Stockholders
Delta Funding Corporation:
 
We have audited the accompanying balance sheets of Delta Funding Corporation as
of December 31, 1995 and 1994, and the related statements of operations, changes
in stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Delta Funding Corporation as of
December 31, 1995 and 1994, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1995 in
conformity with generally accepted accounting principles.

KPMG Peat Marwick LLP 
New York, New York
March 28, 1996
 
                                      F-2

<PAGE>
                           DELTA FUNDING CORPORATION
                                 BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                                                            JUNE 30,
                                                             DECEMBER 31,          ---------------------------
                                                      --------------------------                   PRO FORMA
                                                         1994           1995           1996           1996
                                                      -----------   ------------   ------------   ------------
<S>                                                   <C>           <C>            <C>            <C>
                                                                                    (unaudited)
                       ASSETS
Cash and interest bearing deposits..................  $ 9,357,173   $ 16,635,135   $  9,176,930   $  9,176,930
Accounts receivable.................................    5,709,329      6,845,947      7,507,501      7,507,501
Loans held for sale.................................   48,833,288     63,816,298     66,676,971     66,676,971
Accrued interest and late charges receivable........   12,721,571     15,946,847     15,738,548     15,738,548
Capitalized mortgage servicing rights...............    2,421,313      3,830,996      6,673,925      6,673,925
Equipment, net......................................      906,849      1,550,099      2,064,401      2,064,401
Cash held for advance payments......................    3,286,482      3,119,558      2,705,790      2,705,790
Real estate owned...................................      699,747        250,908        215,908        215,908
Interest only and residual certificates.............    7,513,550     25,309,548     43,233,429     43,233,429
Prepaid and other assets............................    3,070,335      1,316,702      1,818,244      1,818,244
Due from stockholders...............................    3,155,000        990,000             --             --
Due from affiliates.................................      913,870             --             --             --
                                                      -----------   ------------   ------------   ------------
                                                      $98,588,507   $139,612,038   $155,811,647   $155,811,647
                                                      -----------   ------------   ------------   ------------
                                                      -----------   ------------   ------------   ------------
 
        LIABILITIES AND STOCKHOLDERS' EQUITY
Bank payable........................................  $   974,762   $  5,100,087   $  6,523,559   $  6,523,559
Warehouse financing and other borrowings............   52,490,644     82,756,232     83,251,432     83,251,432
Accounts payable and accrued expenses...............    2,941,824      4,843,719      5,248,532      5,248,532
Investor payable....................................   11,090,962     14,271,967     13,598,620     13,598,620
Advance payment by borrowers for taxes
  and insurance.....................................    2,926,501      2,806,818      2,455,774      2,455,774
Deferred income taxes...............................           --             --             --      2,930,485
S Corporation distribution notes....................           --             --             --     23,000,000
                                                      -----------   ------------   ------------   ------------
                                                       70,424,693    109,778,823    111,077,917    137,008,402
                                                      -----------   ------------   ------------   ------------
Stockholders' equity:
  Capital stock, no par value. Authorized
     10,000 shares;
     issued and outstanding 5,805 shares............    2,031,450      2,031,450      2,031,450      2,031,450
  Additional paid-in capital........................    1,300,695      1,300,695      1,300,695      1,300,695
  Retained earnings.................................   24,831,669     26,501,070     41,401,585     15,471,100
                                                      -----------   ------------   ------------   ------------
Total stockholders' equity..........................   28,163,814     29,833,215     44,733,730     18,803,245
Commitments and contingencies.......................           --             --             --             --
                                                      -----------   ------------   ------------   ------------
                                                      $98,588,507   $139,612,038   $155,811,647   $155,811,647

                                                      -----------   ------------   ------------   ------------
                                                      -----------   ------------   ------------   ------------
</TABLE>
 
                See accompanying notes to financial statements.
                                      F-3

<PAGE>
                           DELTA FUNDING CORPORATION
                            STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                        FOR THE YEAR ENDED              FOR THE SIX MONTHS ENDED
                                                           DECEMBER 31,                         JUNE 30,
                                              ---------------------------------------   -------------------------
                                                 1993          1994          1995          1995          1996
                                              -----------   -----------   -----------   -----------   -----------
                                                                                               (UNAUDITED)
<S>                                           <C>           <C>           <C>           <C>           <C>
Revenues:
  Net gain on sale of mortgage loans and
     servicing rights.......................  $ 7,639,346   $ 6,661,163   $15,382,960   $ 5,334,734   $17,800,438
  Interest..................................    9,156,073     9,839,484    13,587,807     5,361,620     7,861,311
  Servicing fees............................    2,100,718     2,182,568     2,855,642     1,239,638     2,324,684
  Other.....................................    3,616.997     3,113,692     4,308,985     1,857,354     2,344,754
                                              -----------   -----------   -----------   -----------   -----------
                                               22,513,134    21,796,907    36,135,394    13,793,346    30,331,187
                                              -----------   -----------   -----------   -----------   -----------
Expenses:
  Payroll and related costs.................    9,268,271     8,815,355    12,875,714     4,357,805     6,685,160
  Interest expense..........................    2,915,230     3,734,877     7,963,613     3,469,969     5,922,152
  General and administrative................    6,669,731     7,238,140    10,710,179     4,147,111     5,631,187
                                              -----------   -----------   -----------   -----------   -----------
                                               18,853,232    19,788,372    31,549,506    11,974,885    18,238,499
                                              -----------   -----------   -----------   -----------   -----------
Earnings before extraordinary item..........    3,659,902     2,008,535     4,585,888     1,818,461    12,092,688
Gain on extinguishment of debt..........               --            --            --            --     3,167,828
                                              -----------   -----------   -----------   -----------   -----------
Net earnings................................  $ 3,659,902   $ 2,008,535   $ 4,585,888   $ 1,818,461   $15,260,516
                                              -----------   -----------   -----------   -----------   -----------
                                              -----------   -----------   -----------   -----------   -----------
Unaudited pro forma information:
  Provision for pro-forma income taxes
     (including pro forma income taxes of
     $1,362,166 on extraordinary item)......    1,573,758       863,670     1,971,932       781,938     6,562,022
                                              -----------   -----------   -----------   -----------   -----------
Pro forma net earnings......................  $ 2,086,144   $ 1,144,865   $ 2,613,956   $ 1,036,523   $ 8,698,494
                                              -----------   -----------   -----------   -----------   -----------
                                              -----------   -----------   -----------   -----------   -----------
Pro forma earnings per share of
  common stock:
  Before extraordinary item.................                              $       .21                 $       .57
  Extraordinary item........................                                       --                         .14
                                                                          -----------                 -----------
Pro forma net earnings per share............                              $       .21                 $       .71
                                                                          -----------                 -----------
                                                                                                      -----------
Pro forma weighted average number of shares
  outstanding...............................                               12,186,333                  12,186,333
                                                                          -----------                 -----------

                                                                          -----------                 -----------
</TABLE>
 
                See accompanying notes to financial statements.
 
                                      F-4

<PAGE>
                           DELTA FUNDING CORPORATION
                  STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
 
<TABLE>
<CAPTION>
                                                                          ADDITIONAL
                                                                           PAID-IN       RETAINED
                                                         CAPITAL STOCK     CAPITAL       EARNINGS         TOTAL
                                                         -------------    ----------    -----------    -----------
 
<S>                                                      <C>              <C>           <C>            <C>
Balance at December 31, 1992..........................    $ 2,031,450     $1,300,695    $22,552,281    $25,884,426
 
Net Earnings..........................................             --             --      3,659,902      3,659,902
 
Distributions.........................................             --             --     (1,193,993)    (1,193,993)
                                                         -------------    ----------    -----------    -----------
 
Balance at December 31, 1993..........................      2,031,450      1,300,695     25,018,190     28,350,335
 
Net earnings..........................................             --             --      2,008,535      2,008,535
 
Distributions.........................................             --             --     (2,195,056)    (2,195,056)
                                                         -------------    ----------    -----------    -----------
 
Balance at December 31, 1994..........................      2,031,450      1,300,695     24,831,669     28,163,814
 
Net earnings..........................................             --             --      4,585,888      4,585,888
 
Distributions.........................................             --             --     (2,916,487)    (2,916,487)
                                                         -------------    ----------    -----------    -----------
 
Balance at December 31, 1995..........................      2,031,450      1,300,695     26,501,070     29,833,215
 
Net earnings..........................................             --             --     15,260,516     15,260,516
 
Distributions.........................................             --             --       (360,001)      (360,001)
                                                         -------------    ----------    -----------    -----------
 
Balance at June 30, 1996 (unaudited)..................    $ 2,031,450     $1,300,695    $41,401,585    $44,733,730
                                                         -------------    ----------    -----------    -----------
                                                         -------------    ----------    -----------    -----------
</TABLE>
 
                See accompanying notes to financial statements.
 
                                      F-5

<PAGE>
                           DELTA FUNDING CORPORATION
                            STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                             FOR THE YEAR ENDED             FOR THE SIX MONTHS ENDED
                                                                DECEMBER 31,                        JUNE 30,
                                                   --------------------------------------   -------------------------
                                                      1993         1994          1995          1995          1996
                                                   ----------   -----------   -----------   -----------   -----------
                                                                                                   (UNAUDITED)
<S>                                                <C>          <C>           <C>           <C>           <C>
Cash flows from operating activities:
  Net earnings...................................  $3,659,902   $ 2,008,535   $ 4,585,888   $ 1,818,461    15,260,516
    Adjustments to reconcile net earnings to net
      cash provided by (used in) in operating 
      activities:
      Provision for loan losses..................     589,559       169,867        99,761            --        49,881
      Depreciation and amortization..............     169,977       277,956       564,310       149,396       327,262
      Mortgage servicing rights, net of
         amortization............................   2,213,645     1,069,652    (1,409,683)     (326,641)   (2,842,929)
      Deferred origination fees..................    (468,627)      220,794        55,329      (268,809)   (1,515,865)
      Interest only and residual certificates....          --    (4,159,550)  (16,750,157)   (3,770,621)  (18,062,704)
      Unrealized (gain) loss on interest only and
         residual certificates...................          --    (1,150,000)   (1,045,841)           --       138,823
    Changes in operating assets and liabilities:
      Increase in accounts receivable, net.......  (2,227,142)   (2,365,992)   (1,136,618)     (571,144)     (661,554)
      Increase in accrued interest and late
         charges receivable......................  (3,030,509)   (1,783,978)   (3,225,276)     (454,316)      208,299
      (Increase)/decrease in loans held for
         sale....................................   5,255,064    (7,447,873)  (15,021,532)   (9,575,017)   (1,584,529)
      (Increase)/decrease in cash held for
         advance payments........................     713,895       141,478       166,924       (56,750)      413,768
      (Increase)/decrease in real estate owned...    (613,694)      650,121       448,839       167,453        35,000
      (Increase)/decrease in prepaid and other
         assets..................................  (1,850,773)      110,509     1,637,065     1,123,655      (311,703)
      Decrease in due from stockholders..........     165,000       165,000     2,165,000            --       990,000
      Increase/(decrease) in accounts payable and
         accrued expenses........................   1,395,041      (354,737)    1,901,895     3,479 886       404,814
      Increase/(decrease) in investor payable....   3,728,321     2,403,676     3,181,005      (289,053)   (1,675,975)
      Increase in interest payable on investor
         loans...................................          --            --            --       237,388     1,002,628
      Increase/(decrease) in advance payment by
         borrowers for taxes and insurance.......    (919,785)     (115,629)     (119,683)       60,780      (351,045)
                                                   ----------   -----------   -----------   -----------   -----------
Net cash provided by (used in) operating 
         activities..............................   8,779,874   (10,160,171)  (23,902,774)   (8,275,332)   (8,175,313)
                                                   ----------   -----------   -----------   -----------   -----------
Cash flows from investing activities:
  Payment for purchase of equipment..............     (63,585)     (917,512)   (1,207,560)     (664,132)     (841,564)
                                                   ----------   -----------   -----------   -----------   -----------
Cash flows from financing activities:
  Proceeds from/(repayments) of warehouse

    financing and other borrowings net...........  (6,062,098)   15,710,632    30,265,588     8,285,037       495,200
  Increase/(decrease) in bank payable, net.......    (240,095)      (11,954)    4,125,325     2,687,074     1,423,472
  Distributions..................................  (1,193,993)   (2,195,056)   (2,916,487)   (2,556,487)     (360,000)
  Payments (made to) received from affiliates....     357,052       (43,366)      913,870     1,159,914            --
                                                   ----------   -----------   -----------   -----------   -----------
Net cash provided by (used in) financing 
   activities....................................  (7,139,134)   13,460,256    32,388,296     9,575,538     1,558,672
                                                   ----------   -----------   -----------   -----------   -----------
Net increase/(decrease) in cash..................   1,577,155     2,382,573     7,277,962       636,074    (7,458,205)
Cash at beginning of year........................   5,397,445     6,974,600     9,357,173     9,357,173    16,635,135
                                                   ----------   -----------   -----------   -----------   -----------
Cash at end of year..............................  $6,974,600   $ 9,357,173   $16,635,135   $ 9,993,247   $ 9,176,930
                                                   ----------   -----------   -----------   -----------   -----------
                                                   ----------   -----------   -----------   -----------   -----------
</TABLE>
 
                See accompanying notes to financial statements.
 
                                      F-6

<PAGE>
                           DELTA FUNDING CORPORATION
                         NOTES TO FINANCIAL STATEMENTS
                       DECEMBER 31, 1993, 1994, 1995 AND
              SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (UNAUDITED)
 
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
  (a) Organization
 
     Delta Funding Corporation (the 'Company') was organized on January 8, 1982
for the purpose of originating, selling, servicing and investing in residential
first and second mortgages.
 
  (b) Origination Fees
 
     The Company accounts for origination fee income on mortgages held for sale
in conformity with Statement of Financial Accounting Standards (SFAS) No. 91.
This Statement requires that origination fees be offset by their direct loan
costs and the net deferred fees be recognized over the life of the loan or upon
sale of the loan, if earlier.
 
  (c) Loans held for sale
 
     Loans held for sale are carried at the lower of cost or market, determined
on a net aggregate basis. Adjustments to market are made by charges or credits
to income.
 
  (d) Income Taxes
 
     The Company has elected for both Federal and state income tax purposes to
be treated as an S Corporation (effective July l, 1985). Consequently, the net
earnings of the Company are taxed directly to the stockholders, rather than the
Company.
 
  (e) Sale of Mortgage Loans
 
     The Company sells whole loans with servicing retained. Gains or losses on
such sales are recognized at the time of sale and are determined by the
differences between net sales proceeds and the unpaid principal balance of the
loans sold adjusted for the present value of any yield differential.
 
  (f) Securitization
 
     The Company sells pools of loans on a servicing retained basis. Gains or
losses are determined at the time of sale between the net sales proceeds and the
present value of the future stream of servicing fees, adjusted for estimated
prepayments. The Company continues to service these loans for a normal servicing
fee.
 
     Included in the gain on sale of loans is gain on securitization
representing the fair value of the interest-only and residual certificates
received by the Company. Fair value of these certificates is determined based on
various economic factors, including loan types, sizes, interest rates, dates of

origination, terms and geographic locations. The Company also uses other
available information such as reports on prepayment rates, collateral value,
discount rates, economic forecasts and historical default and prepayment rates
of the portfolio under review. The Company reviews these factors and, if
necessary, adjusts the remaining assets to the fair value of the interest-only
and residual certificates.
 
  (g) Real Estate Acquired Through Foreclosure
 
     Properties acquired through foreclosure or a deed in lieu of foreclosure
are recorded at the lower of the unpaid loan balance, or fair value, at the date
of acquisition. The carrying value of the individual properties is subsequently
adjusted to the extent it exceeds estimated fair value less costs to sell, at
which time a provision for losses on such real estate is charged to operations.
 
  (h) Equipment
 
     Equipment, including leasehold improvements, is stated at cost, less
accumulated depreciation and amortization. Depreciation of equipment is computed
using the straight-line or accelerated method over the estimated useful lives of
three to five years. Leasehold improvements are amortized over the lesser of the
terms of the lease or the estimated useful lives of the improvements.
Expenditures for betterments and major renewals are capitalized and ordinary
maintenance and repairs are charged to operations as incurred.
 
                                      F-7
<PAGE>
                           DELTA FUNDING CORPORATION
                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
                       DECEMBER 31, 1993, 1994, 1995 AND
              SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (UNAUDITED)
 
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
  (i) Interest Only and Residual Certificates
 
     Interest only and residual certificates are carried at fair value in
accordance with SFAS No. 115, 'Accounting for Certain Investments in Debt and
Equity Securities.' Unrealized gains and losses are included in the statement of
operations.
 
  (j) Mortgage Servicing Rights
 
     Effective January 1, 1995 the Company adopted Financial Accounting
Standards Board Statement No. 122 'Accounting for Mortgage Servicing Rights'.
The Statement amends Statement No. 65 to require that a mortgage banking
enterprise recognize as a separate asset the rights to service mortgage loans
for others, however those servicing rights are acquired. The Statement requires
the assessment of capitalized mortgage servicing rights for impairment to be
based on the current fair value of those rights. Mortgage servicing rights are
amortized in proportion to and over the period of the estimated net servicing
income.
 
  (k) Fair Value of Financial Instruments
 

     Statement of Financial Accounting Standards No. 107, 'Disclosure About Fair
Value of Financial Instruments' (SFAS 107) requires the Company to disclose the
fair value of financial instruments for which is practicable to estimate fair
value. Fair value is defined as the amount at which a financial instrument could
be exchanged in a current transaction between willing parties, other than in a
forced sale or liquidation and is best evidenced by a quoted market price.
Substantially all the Company's assets and liabilities deemed to be financial
instruments other than interest-only and residual certificates are carried at
cost, which approximates their fair value.
 
  (l) Use of Estimates
 
     Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
 
  (m) Servicing Income
 
     Servicing income includes servicing fees, prepayment penalties and late
payment charges earned for servicing mortgage loans owned by investors. All fees
and charges are recognized into income when collected.
 
(2) UNAUDITED INFORMATION
 
     The unaudited financial statements and related notes as of June 30, 1996
and for the six-month periods ended June 30, 1995 and 1996 reflect, in the
opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to fairly present the statements of operations, cash
flows and balance sheets as of and for the periods presented. These unaudited
financial statements should be read in conjunction with the audited financial
statements and related notes thereto. The results for the interim period
presented are not necessarily indicative of results to be expected for the full
year.
 
(3) LOANS HELD FOR SALE
 
     The Company owns first and second mortgages with a weighted average
interest rate of 12%. These mortgages are being held as inventory for future
sale at the lower of cost or market. Certain of these mortgages are pledged as
collateral for a portion of the warehouse financing and other borrowings.
 
     Included in loans held for sale are deferred origination fees and purchase
premiums in the amount of $2,339,684, $1,013,658, $952,419 and an allowance for
loan losses of $799,882, $750,000, $700,000, as of June 30, 1996 and December
31, 1995 and 1994, respectively.
 
     Mortgages are payable in monthly installments of principal and interest and
have due dates varying from five to thirty years.
 
                                      F-8
<PAGE>
                           DELTA FUNDING CORPORATION

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
                       DECEMBER 31, 1993, 1994, 1995 AND
              SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (UNAUDITED)
 
(3) LOANS HELD FOR SALE--(CONTINUED)
     The changes in the allowance for loan losses are as follows:
 
<TABLE>
<CAPTION>
                                                      SIX MONTHS ENDED
                                                          JUNE 30,             YEAR ENDED
                                                        (UNAUDITED)           DECEMBER 31,
                                                      ----------------    --------------------
                                                            1996            1995        1994
                                                      ----------------    --------    --------
<S>                                                   <C>                 <C>         <C>
Balance at beginning of year.......................       $750,000         700,000     650,000
Provisions.........................................         49,882          99,761     169,867
Charge-offs........................................             --         (49,761)   (119,867)
                                                      ----------------    --------    --------
Balance at end of year.............................       $799,882        $750,000    $700,000
                                                      ----------------    --------    --------
                                                      ----------------    --------    --------
</TABLE>
 
     The Company transferred $0, $122,261 and $521,831 of loans held for sale to
real estate owned for the six-months ended June 30, 1996 and the years ended
December 31, 1995 and 1994, respectively.
 
(4) ACCOUNTS RECEIVABLE
 
     Accounts receivable consist of the following:
 
<TABLE>
<CAPTION>
                                                        June 30,          December 31,
                                                          1996          1995          1994
                                                       ----------    ----------    ----------
                                                       (unaudited) 
<S>                                                    <C>           <C>           <C>
Securitization......................................   $4,159,289    $3,168,100    $3,156,304
Escrow receivable...................................      657,085       662,572       575,802
Insurance premiums..................................    1,087,285     1,003,285       769,149
Other...............................................    1,603,842     2,011,990     1,208,074
                                                       ----------    ----------    ----------
                                                       $7,507,501    $6,845,947    $5,709,329
                                                       ----------    ----------    ----------
                                                       ----------    ----------    ----------
</TABLE>
 
(5) WAREHOUSE FINANCING AND OTHER BORROWINGS
 
     During 1995, the Company opened a warehouse line of credit in the
amount of $100,000,000. The line is collateralized by specific

mortgage receivables, which are equal to the outstanding balance under the
line at any point in time. The interest rate is 1% above the London Interbank
Offered Rate ('LIBOR') and the line expires October 13, 1996. At June 30, 1996
and December 31, 1995, the Company had $48,880,615 and $30,132,844
outstanding under this agreement, respectively.

     The Company had an additional warehouse line of credit in the aggregate
amount of $45,000,000. The line was also collateralized by specific mortgage
receivables, which were equal to or greater than the outstanding balances under
the line at any point in time. The interest rate was 2% above LIBOR. At
December 31, 1995, the Company had $30,498,168 outstanding. In May 1996 the
Company extinguished this line of credit at a discount. An extraordinary gain of
$3,167,828 was recorded in connection with this extinguishment of debt. 

     During 1996, the Company opened a new warehouse facility in the amount of
$50,000,000. The line, which bears interest at a variable rate based on LIBOR,
is collateralized by specific mortgage receivables which are equal to the amount
outstanding on the line at any time. The line expires on May 9, 1997 and had
$2,196,124 outstanding at June 30, 1996.

     During the first half of 1996, the Company negotiated a new uncommitted
warehouse facility for $150 million with a variable interest rate. As of June
30, 1996, the Company had $2.2 million outstanding under this facility. 

     The Company has lines of credit in the aggregate amount of $5,500,000, with
separate banks. The individual lines available, and their interest rates, are as
follows: $2,500,000 at 1/2% above prime, $1,000,000 at 2.9% above the 30-day
dealer commercial paper rate, $2,000,000 at 1% over the Bank's prime lending
rate. At June 30, 1996 (unaudited) and December 31, 1995, the Company had
$2,500,000, $995,378 and $683,210, and $2,500,000, $981,843, and $879,710 drawn
down from these sources, respectively.

     At June 30, 1996 and December 31, 1995 the Company had $1,956,705 and
$1,586,935, respectively, outstanding from two leasing companies for financing
of capitalized assets.
 
     The Company has obtained financing facilities for interest-only and
residual certificates acquired as part of the 1992-1, 1994-2, 1995-1, 1995-2 and
1996-1 securitizations. As of June 30, 1996 and December 31, 1995, the
aggregate outstanding balance on these facilities was $26,039,400 and
$16,176,732, respectively. These facilities have variable interest rates and
mature between October 1997 and June 1999.
 
                                      F-9
<PAGE>
                           DELTA FUNDING CORPORATION
                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
                       DECEMBER 31, 1993, 1994, 1995 AND
              SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (UNAUDITED)
 
(6) BANK PAYABLE
 
     In order to maximize its cash management practices, the Company has
instituted a procedure whereby checks written against its operating account are
covered as they are presented to the bank for payment, either by drawing down

its lines of credit or from subsequent deposits of operating cash.
 
(7) INVESTOR PAYABLE
 
     Investor payable represent the collection of mortgage payments by the
Company, from mortgagors, which were remitted to investors subsequent to year
end.
 
(8) CAPITALIZED MORTGAGE SERVICING RIGHTS
 
     The Company sells mortgage loans to generate servicing income and provide
funds for additional investment and lending activities. The Company previously 
accounted for the sale of mortgage loans in conformity with Statement of
Financial Accounting Standards No. 65, 'Accounting for Certain Mortgage Banking
Activities.' This Statement requires that the gain on sale be recognized at the
time of sale, using the present value of the future cash flows of the difference
between the servicing fee to be received and a normal servicing fee. The cash
flow has been computed over the average estimated life of the mortgages, 
adjusted for prepayments and recorded as capitalized mortgage servicing rights.
Periodically, the Company adjusted the balance of the asset, if necessary, based
on the difference between the original estimate and actual loan prepayments.
 
     Effective January 1, 1995, the Company adopted Financial Standards Board
Statement No. 122-- 'Accounting for Mortgage Servicing Rights'. This statement
prospectively changed the methodology for capitalized mortgage servicing rights
and the methodology used to measure impairment of its capitalized mortgage
servicing rights asset. The Company measures the asset's impairment on a
disaggregate basis based on the predominant risk characteristic of the portfolio
and discounted the asset's estimated future cash flow using a current market
rate. The Company has determined the predominant risk characteristic to be
interest rate risk. The fair value of the existing mortgage servicing rights as
of June 30, 1996 and December 31, 1995 approximated its book value and did not
require a valuation allowance to be established. To determine the fair value of
mortgage servicing rights, the Company estimates the expected future net
servicing revenue based on common industry assumptions, as well as on the
Company's historical experience.
 
(9) HEDGING TRANSACTIONS

     The Company regularly securitizes and sells fixed-rate mortgage loans. To
offset the effects of interest rate fluctuations on the value of its fixed-rate
loans held for sale, the Company in certain cases will hedge its interest rate
risk related to loans held for sale by selling U.S. Treasury securities short or
in the forward market. The Company classifies these sales as hedges of specific
loans held for sale. The gains or losses derived from these sales are deferred
and recognized as an adjustment to gains on sales of loans when the loans are
sold or securitized.

     As of December 31, 1994 and 1995, the Company had no open hedge positions.
As of June 30, 1996, the Company had an open hedge position of $(102,573). The
Company included gains (losses) of $0, $137,871, $(1,721,860) and $614,024 on
the short sale of U.S. Treasury securities as part of gains on sale of loans in
1993, 1994, 1995 and the six months ended June 30, 1996, respectively.

 
(10) RELATED PARTY TRANSACTIONS
 
     The Company had notes due from stockholders in the amounts of $990,000 and
$3,155,000 at December 31, 1995 and 1994, respectively. These notes were repaid
during 1996.
 
                                      F-10
<PAGE>
                           DELTA FUNDING CORPORATION
                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
                       DECEMBER 31, 1993, 1994, 1995 AND
              SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (UNAUDITED)
 
(11) EMPLOYEE PROFIT SHARING PLAN
 
     The Company has an employee profit sharing plan covering all eligible
employees, as defined, with at least 30 months of service. The Company
contributed $100,000, $120,000, $90,000 and $120,000 to the plan for the
six-month period ended June 30, 1996 and for the years ended December 31, 1995,
1994 and 1993, respectively.
 
(12) COMMITMENTS AND CONTINGENCIES
 
     The Company has repurchase agreements with a few of the institutions that
have purchased mortgages. Currently, some of the agreements provide for the
repurchase by the Company of any of the mortgage loans that go to actual
foreclosure sale. At the foreclosure sale, the Company will repurchase the
mortgage, if necessary, and make the institution whole. The dollar amount of the
Company's exposure is approximately $23 million at June 30, 1996.

     The Company previously subleased its Woodbury offices from an affiliated
company. On August 2, 1996 the lease was assigned to the Company. This lease
provides for rent to be paid on a month-to-month basis. Rental expense, net of
sublease income, for the six-months ended June 30, 1996 and the years ended
December 31, 1995 and 1994 amounted to $353,260, $476,674 and $382,704,
respectively.

     In the normal course of business, the Company is subject to various legal
proceedings and claims, the resolution of which, in management's opinion, will
not have a material adverse effect on the financial position or the results of
operations of the Company.
 
(13) SUPPLEMENTAL CASH FLOW INFORMATION
 
     The Company paid $5,922,152, $7,659,000, $3,796,047 and $2,499,623 for
interest during the six-months ended June 30, 1996 and the years ended December
31, 1995, 1994 and 1993, respectively.
 
(14) UNAUDITED PRO FORMA INFORMATION
 
     The pro forma financial information has been presented to show what the
significant effects on the historical financial position might have been had the
distribution of S Distribution Notes and the revocation of the Company's S

corporation status occurred as of June 30, 1996, and to show what the
significant effects on the historical results of operations might have been had
the Company not been treated as an S corporation for income tax purposes as of
the beginning of the earliest period presented.
 
     Pro Forma Net Income and Pro Forma Balance Sheet--Pro forma net income
represents the results of operations adjusted to reflect a change in the
Company's income tax status from an S corporation to a C corporation, using a
pro forma income tax rate of 43%. The pro forma balance represents the balance
sheet as of June 30, 1996 adjusted to give effect to (i) S corporation
distribution notes with a total principal amount of $23,000,000, and (ii) the
establishment of $2,930,485 of deferred tax liabilities that would have been
recorded had the Company's S corporation status been revoked as of June 30,
1996. The amount of liability to be recorded will be dependent upon temporary
differences existing at the date of revocation of the Company's S corporation
status. The principal components of the Company's net deferred tax liabilities
relate to recognition of gains on sale of mortgage loans.
 
     Pro forma net income per share has been computed by dividing pro forma net
income by the 10,653,000 of shares of common stock of Delta Financial
Corporation to be received in exchange for the Company's shares, and in
accordance with a regulation of the Securities and Exchange Commission, the
effect of the assumed issuance (at an assumed price of $15 per share) of
1,533,333 shares of common stock to generate sufficient cash to pay an S
corporation distribution in the amount of $23,000,000.
 
     The accompanying pro forma balance sheet at June 30, 1996 does not reflect
the sale of shares in the initial public offering, nor the amount relating to a
contingent S corporation distribution of up to $8,370,000, which would be paid
out of the net proceeds of the sale of the overallotment shares.
 
                                      F-11

<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
 
     NO DEALER, SALES REPRESENTATIVE, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE SHARES OF COMMON STOCK TO WHICH IT RELATES OR AN OFFER TO, OR A
SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
                            ------------------------
                                TABLE OF CONTENTS 
<TABLE>
<CAPTION>
                                                  PAGE
                                                  ----
<S>                                               <C>
Prospectus Summary.............................     3
Summary Financial Information..................     5
Risk Factors...................................     7
Reorganization and Termination of S Corporation
  Status.......................................    15
Use of Proceeds................................    16
Capitalization.................................    17
Dividend Policy................................    18
Dilution.......................................    18
Selected Financial Data........................    19
Management's Discussion and Analysis of
  Financial Condition and Results of
  Operations...................................    22
Business.......................................    32
Management.....................................    47
Certain Relationships and Related Party
  Transactions.................................    52
Principal Stockholders.........................    54
Description of Capital Stock...................    55
Shares Eligible for Future Sale................    58
Underwriting...................................    59
Legal Matters..................................    60
Experts........................................    61
Additional Information.........................    61
Reports to Stockholders........................    61
Index to Financial Statements..................   F-1
</TABLE>
                            ------------------------
 
     UNTIL            , 1996 (25 DAYS AFTER THE DATE
OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
 
                                4,000,000 SHARES


                                DELTA FINANCIAL
                                  CORPORATION


                                  COMMON STOCK


                            ------------------------
                                   PROSPECTUS
                            ------------------------


                           NATWEST SECURITIES LIMITED

                        PRUDENTAL SECURTES INCORPORATED

                               PIPER JAFFRAY INC.


                                           , 1996
 
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

<PAGE>
                                    PART II
                     INFORMATION NOT REQUIRED IN PROSPECTUS
 
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
 
     The Registrant estimates that expenses payable by it in connection with the
offering described in this registration statement (other than the underwriting
discount and commissions) will be as follows:
 
<TABLE>
<S>                                                                                   <C>
SEC registration fee...............................................................   $25,379
Legal fees and expenses............................................................         *
Accounting fees and expenses.......................................................         *
Printing and engraving.............................................................         *
NYSE listing application fee.......................................................   151,100
Blue sky qualification fees and expenses...........................................    35,000
NASD Fee...........................................................................     7,860
Transfer Agent's Fees..............................................................     3,000
Miscellaneous......................................................................         *
                                                                                      -------
  Total............................................................................   $     *
                                                                                      -------
                                                                                      -------
</TABLE>
 
- ------------------
* To be completed by amendment.
 
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
 
     The Registrant's Certificate of Incorporation eliminates, to the fullest
extent permitted by the Law of the State of Delaware, personal liability of
directors to the Registrant and its stockholders for monetary damages for breach
of fiduciary duty as directors.
 
     Section 145(a) of the Delaware General Corporation Law ('DGCL') provides in
relevant part that 'a corporation may indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.'
With respect to derivative actions, Section 145(b) of the DGCL provides in
relevant part that '[a] corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or

completed action or suit by or in the right of the corporation to procure a
judgment in its favor... [by reason of his service in one of the capacities
specified in the preceding sentence] against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement or such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.'
 
     Article NINTH of the Company's Certificate of Incorporation, provides:
 
     'To the full extent permitted by the Delaware General Corporation Law or
any other applicable law currently or hereafter in effect, no Director of the
Company will be personally liable to the Company or its stockholders for or with
respect to any acts or omissions in the performance of his or her duties as a
Director of the Company. Any repeal or modification of this Article Ninth will
not adversely affect any right or protection of a Director of the Company
existing prior to such repeal or modification.'
 
                                      II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
 
     None.
 
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
 
     (a) Exhibits:
 
<TABLE>
<C>     <C>   <S>
 1       --   Form of Underwriting Agreement
 3.1*    --   Certificate of Incorporation of the Registrant
 3.2*    --   Bylaws of the Registrant
 4       --   Specimen of Certificate for Common Stock
 5       --   Opinion of Stroock & Stroock & Lavan
10.1     --   Employment Agreement dated as of August 26, 1996 between the Registrant and Sidney A. Miller
10.2     --   Employment Agreement dated as of August 26, 1996 between the Registrant and Hugh I. Miller
10.3     --   Employment Agreement dated as of August 26, 1996 between the Registrant and Christopher Donnelly
10.4     --   Employment Agreement dated as of August 26, 1996 between the Registrant and Randall F. Michaels
10.5     --   Lease Agreement between the Delta Funding Corporation and the Tilles Investment Company
10.6     --   1996 Stock Option Plan
11       --   Statement re computation of the Registrant's pro forma earnings per common share
21       --   Subsidiaries of the Registrant
23.1*    --   Consent of KPMG Peat Marwick LLP.
23.2     --   Consent of Stroock & Stroock & Lavan (contained in 5.1)
</TABLE>
 

- ------------------
* Filed herewith.
 
ITEM 17. UNDERTAKINGS.
 
     (a) Insofar as indemnification for liabilities arising under the Securities
         Act of 1933 may be permitted to directors, officers and controlling
         persons of the Registrant pursuant to the foregoing provisions, or
         otherwise, the Registrant has been advised that in the opinion of the
         Securities and Exchange Commission such indemnification is against
         public policy as expressed in the Act and is, therefore, unenforceable.
         In the event that a claim for indemnification against such liabilities
         (other than the payment by the Registrant of expenses incurred or paid
         by a director, officer or controlling person of the Registrant in the
         successful defense of any action, suit or proceeding) is asserted by
         such director, officer or controlling person in connection with the
         securities being registered, the Registrant will, unless in the opinion
         of its counsel the matter has been settled by controlling precedent,
         submit to a court of appropriate jurisdiction the question whether such
         indemnification by it is against public policy as expressed in the Act
         and will be governed by the final adjudication of such issue.
 
     (b) The undersigned Registrant hereby undertakes that:
 
        (1) For purposes of determining any liability under the Securities Act
            of 1933, the information omitted from the form of prospectus filed
            as part of this Registration Statement in reliance upon Rule 430A
            and contained in a form of prospectus filed by the Registrant
            pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
            of 1933 shall be deemed to be part of this Registration Statement as
            of the time it was declared effective.
 
        (2) For the purpose of determining any liability under the Securities
            Act of 1933, each post-effective amendment that contains a form of
            prospectus shall be deemed to be a new registration statement
            relating to the securities offered therein, and the offering of such
            securities at that time shall be deemed to be the initial bona fide
            offering thereof.
 
                                      II-2
<PAGE>
                                   SIGNATURES
 
     Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the State of New York
on the 30th day of August, 1996.
 
                                          DELTA FINANCIAL CORPORATION
 
                                          By: /s/ Hugh I. Miller
                                              --------------------------------
                                                       Hugh I. Miller
                                                 President, Chief Executive

                                                    Officer and Director
 
                               POWER OF ATTORNEY
 
     KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Sidney A. Miller and Hugh I. Miller, or
any of them, his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for him or her and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the same
with all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting said attorney-in-fact and agent and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or any of them, or their or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
 
     Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following person in the
capacities and on the dates indicated.
 
<TABLE>
<CAPTION>
                SIGNATURE                              CAPACITY IN WHICH SIGNED                    DATE
- ------------------------------------------  ----------------------------------------------   ----------------
 
<C>                                         <S>                                              <C>
         /s/ Sidney A. Miller               Chairman of the Board of Directors                August 30, 1996
- ------------------------------------------
             Sidney A. Miller
 
           /s/ Hugh I. Miller               Chief Executive Officer, President and            August 30, 1996
- ------------------------------------------  Director
              Hugh I. Miller                (Principal Executive Officer)
 
            /s/ Richard Blass               Senior Vice President and Director                August 30, 1996
- ------------------------------------------
              Richard Blass
 
           /s/ Irwin Fein                   Chief Financial Officer, Treasurer and            August 30, 1996
- ------------------------------------------  Secretary
              Irwin Fein                    (Principal Accounting Officer)
</TABLE>
 
                                      II-3

<PAGE>
                                                    Registration No. 333-
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------

                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

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


                                   EXHIBITS

                                  FILED WITH

                                   FORM S-1



                            REGISTRATION STATEMENT
                                     UNDER
                          THE SECURITIES ACT OF 1933

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


                          DELTA FINANCIAL CORPORATION
            (Exact name of Registrant as specified in its charter)

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


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

<PAGE>
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
 EXHIBIT                                                                                                    SEQUENTIAL
  NUMBER     DESCRIPTION                                                                                     PAGE NO.
- ----------   --------------------------------------------------------------------------------------------   -----------
<C>          <C>   <S>                                                                                      <C>
    1.1       --   Form of Underwriting Agreement........................................................
    3.1*      --   Certificate of Incorporation of the Registrant........................................
    3.2*      --   By-laws of the Registrant.............................................................
    4.1       --   Specimen of Certificate for Common Stock..............................................
    5.1       --   Opinion of Stroock & Stroock & Lavan..................................................
   10.1       --   Employment Agreement dated as of August 26, 1996 between the Registrant and Sidney A.
                   Miller................................................................................
   10.2       --   Employment Agreement dated as of August 26, 1996 between the Registrant and Hugh I.
                   Miller................................................................................
   10.3       --   Employment Agreement dated as of August 26, 1996 between the Registrant and
                   Christopher Donnelly..................................................................
   10.4       --   Employment Agreement dated as of August 26, 1996 between the Registrant and Randall F.
                   Michaels..............................................................................
   10.5       --   Lease Agreement between the Delta Funding Corporation and the Tilles Investment
                   Company...............................................................................
   10.6       --   1996 Stock Option Plan................................................................
   11.1       --   Statement re computation of the Registrant's pro forma earnings per common share......
   21.1       --   Subsidiaries of the Registrant........................................................
   23.1*      --   Consent of KPMG Peat Marwick LLP......................................................
   23.2       --   Consent of Stroock & Stroock & Lavan (contained in 5.1)...............................
</TABLE>

- ----------
* Filed herewith
[{"type": "S-1", "sequence": "1", "description": "REGISTRATION STATEMENT", "secsgml_size_bytes": 350729}]
{"company-data": {"conformed-name": "DELTA FINANCIAL CORP", "cik": "0001021848", "assigned-sic": "[]", "irs-number": "113336165", "state-of-incorporation": "DE", "fiscal-year-end": "0131"}, "filing-values": {"form-type": "S-1", "act": "33", "file-number": "333-11289", "film-number": "96624928"}, "business-address": {"street1": "1000 WOODBURY", "street2": "STE 200", "city": "WOODBURY", "state": "NY", "zip": "11797", "phone": "5163648500"}, "mail-address": {"street1": "1000 WOODBURY", "street2": "STE 200", "city": "WOODBURY", "state": "NY", "zip": "11797"}}
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 3, 1996
 
                                                      REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------
 
                                    FORM S-1
                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933
                            ------------------------
                          DELTA FINANCIAL CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE                                    6162                                   11-3336165
    (STATE OR OTHER JURISDICTION OF             (PRIMARY STANDARD INDUSTRIAL                    (I.R.S. EMPLOYER
     INCORPORATION OR ORGANIZATION)             CLASSIFICATION CODE NUMBER)                  IDENTIFICATION NUMBER)
------------------------
                         1000 WOODBURY ROAD, SUITE 200
                         WOODBURY, NEW YORK 11797-9003
                                  516-364-8500
              (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
       INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
                            ------------------------
 
                                 HUGH I. MILLER
                            CHIEF EXECUTIVE OFFICER
                          DELTA FINANCIAL CORPORATION
                         1000 WOODBURY ROAD, SUITE 200
                         WOODBURY, NEW YORK 11797-9003
                                  516-364-8500
 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
                             OF AGENT FOR SERVICE)
                            ------------------------
 
                                   Copies to:
JAMES R. TANENBAUM, ESQ.                                      WILLIAM T. QUICKSILVER, ESQ.
                  STROOCK & STROOCK & LAVAN                                     MANATT, PHELPS & PHILLIPS LLP
                     SEVEN HANOVER SQUARE                                        11355 WEST OLYMPIC BOULEVARD
                NEW YORK, NEW YORK 10004-2696                                   LOS ANGELES, CALIFORNIA 90064
------------------------
 
     APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date
of this Registration Statement.
 
     If the only securities being registered on this form offered pursuant to
dividend or interest reinvestment plans, please check the following box: / /
 
     If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, other than securities offered only in connection with dividend
or interest reinvestment plans, please check the following box: / /
 
     If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. / /
 
     If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
 
     If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
                            ------------------------
 
                        CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM    PROPOSED MAXIMUM
                                                                        OFFERING PRICE         AGGREGATE
              TITLE OF SECURITIES                    AMOUNT TO BE             PER              OFFERING             AMOUNT OF
                BEING REGISTERED                      REGISTERED           SHARE(1)            PRICE(1)          REGISTRATION FEE
Common Stock, $.01 par value....................   4,600,000 shares         $16.00            $73,600,000           $25,379.31
(1) Estimated solely for the purpose of calculating the registration fee in
    accordance with Rule 457 under the Securities Act of 1933.
                            ------------------------
 
     THIS REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OF
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DELTA FINANCIAL CORPORATION
                             CROSS REFERENCE SHEET
                            PURSUANT TO ITEM 501(B)
ITEMS AND CAPTIONS                                     CAPTION OR LOCATION
                           IN FORM S-1                                            IN PROSPECTUS
      ------------------------------------------------------  ------------------------------------------------------
1.   Forepart of Registration Statement and Outside Front
        Cover Page of Prospectus............................  Outside Front Cover Page
 
 2.   Inside Front and Outside Back Cover Pages of
        Prospectus..........................................  Inside Front and Outside Back Cover Pages
 
 3.   Summary Information, Risk Factors and Ratio of
        Earnings to Fixed Charges...........................  Summary; Risk Factors; Selected Financial Information;
                                                                Management's Discussion and Analysis of Financial
                                                                Condition and Results of Operations
 
 4.   Use of Proceeds.......................................  Summary; Use of Proceeds
 
 5.   Determination of Offering Price.......................  Outside Front Cover Page; Underwriting
 
 6.   Dilution..............................................  Dilution
 
 7.   Selling Security Holders..............................  Summary; Description of Capital Stock; Principal
                                                                Stockholders
 
 8.   Plan of Distribution..................................  Outside Front Cover Page; Description of Capital
                                                                Stock; Underwriting
 
 9.   Description of Securities to be Registered............  Summary; Dividend Policy; Capitalization; Description
                                                                of Capital Stock
 
10.   Interests of Named Experts and Counsel................  Not Applicable
 
11.   Information with Respect to Registrant................  Outside Front Cover Page; Summary; Risk Factors;
                                                                Capitalization; Reorganization and Termination of S
                                                                Corporation Status; Dividend Policy; Selected
                                                                Financial Information; Management's Discussion and
                                                                Analysis of Financial Condition and Results of
                                                                Operations; Management; Principal Stockholders;
                                                                Description of Capital Stock; Legal Matters;
                                                                Experts; Available Information
 
12.   Disclosure of Commission Position on Indemnification
        for Securities Act Liabilities......................  Not Applicable
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission.  These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective.  This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.

              SUBJECT TO COMPLETION, DATED                  , 1996
PROSPECTUS
                                4,000,000 SHARES
 
                          DELTA FINANCIAL CORPORATION
 
                                  COMMON STOCK
                            ------------------------
 
     All of the shares of common stock, par value $.01 per share (the 'Common
Stock'), being offered hereby (the 'Offering') are being sold by Delta Financial
Corporation ('Delta' or the 'Company'). See 'Underwriting.'
 
     Prior to the Offering, there has been no public market for the Common
Stock. It is currently anticipated that the initial public offering price will
be between $14 and $16 per share. See 'Underwriting' for a discussion of factors
to be considered in determining the initial public offering price. Application
has been made for listing the Common Stock on the New York Stock Exchange (the
'NYSE') under the symbol 'DFC.'
                            ------------------------
 
     SEE 'RISK FACTORS' BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
                            ------------------------
 
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
    EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
       SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
          COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
              PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
                                          CRIMINAL OFFENSE.
                            ------------------------
 
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
    THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE
                                             CONTRARY IS UNLAWFUL.
UNDERWRITING
                                          PRICE TO               DISCOUNTS AND              PROCEEDS TO
                                           PUBLIC                COMMISSIONS(1)            COMPANY(2)(3)
Per Share.......................             $                         $                         $
Total(3)........................             $                         $                         $
(1) See 'Underwriting' for information relating to indemnification of the
    Underwriters by the Company and the existing stockholders of the Company
    (the 'Existing Stockholders') and other matters.
 
(2) Before deducting expenses payable by the Company estimated to be $800,000.
 
(3) The Company has granted the Underwriters a 30-day option to purchase up to
    600,000 additional shares of Common Stock solely to cover over-allotments,
    if any. To the extent that the option is exercised, the Underwriters will
    offer the additional shares at the Price to Public shown above. If the
    option is exercised in full, the total Price to Public, Underwriting
    Discounts and Commissions and Proceeds to the Company will be $          ,
    $          and $          , respectively. See 'Underwriting.'
                            ------------------------
 
     The shares of Common Stock are offered subject to prior sale when, as and
if delivered to and accepted by the Underwriters, and subject to certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
said offer and to reject orders in whole or in part. It is expected that
delivery of share certificates will be made in New York, New York, on or about
            , 1996.
 
NATWEST SECURITIES LIMITED
                          PRUDENTIAL SECURITIES INCORPORATED
                                                              PIPER JAFFRAY INC.
 
               THE DATE OF THIS PROSPECTUS IS              , 1996
Description:
 
Map of the United States indicating the areas in which the Company originates or
purchases loans and the sites of the Company's offices and of its headquarters.
 
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
                               ------------------
 
     FOR UNITED KINGDOM PURCHASERS: The shares of Common Stock offered hereby or
sold in the United Kingdom other than to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments,
whether as principal or agent (except in circumstances that do not constitute an
offer to the public within the meaning of the Public Offers of Securities 
Regulations 1995 or the Financial Services Act 1986), and this Prospectus may
only be issued or passed on to any person in the United Kingdom if that person
is of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1995.
 
                                       2
PROSPECTUS SUMMARY
 
     The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements and
notes thereto appearing elsewhere in this Prospectus. Prospective investors
should carefully consider the information set forth under 'Risk Factors'. Unless
the context indicates otherwise, (a) all references herein to the 'Company' or
'Delta' refer to Delta Financial Corporation and its wholly-owned subsidiary,
Delta Funding Corporation, (b) all references to the Company's or Delta's
activities, results of operations or financial condition prior to the date of
this Prospectus relate to the activities, results of operations or financial
condition of Delta Funding Corporation, and (c) all information in this
Prospectus assumes no exercise of the Underwriters' over-allotment option. See
'The Company.'
 
                                  THE COMPANY
 
     Delta is a specialty consumer finance company that has engaged in
originating, acquiring, selling and servicing home equity loans since 1982.
Throughout its 14 years of operating history, Delta has focused on lending to
individuals who generally have impaired or limited credit profiles or higher
debt to income ratios and typically have substantial equity in their homes. The
Company makes loans to these borrowers for such purposes as debt consolidation,
home improvement, refinancing or education, and these loans are primarily
secured by first mortgages on one- to four-family residential properties.
 
     Delta originates home equity loans through licensed mortgage brokers and
other real estate professionals ('brokers') who submit loan applications on
behalf of the borrower ('Brokered Loans'). Delta also purchases from approved
mortgage bankers and financial institutions ('correspondents') loans that
conform to Delta's underwriting guidelines ('Correspondent Loans'). During the
twelve month period ended June 30, 1996, the Company has originated loans
through 806 brokers and purchased loans from 186 correspondents. The Company
believes that it has a competitive advantage in serving brokers and
correspondents in the nonconforming home equity market that stems from its
substantial experience in this sector and its emphasis on providing quality
service that is prompt, responsive and consistent. The 19 members of the
Company's senior management have an average of over 12 years of nonconforming
mortgage loan experience, and more than one-quarter of the Company's employees
have been with the Company for at least five years. Management believes this
industry- and company-specific experience, coupled with the systems and programs
it has developed over the past 14 years, enable the Company to provide quality
services that include preliminary approval of most Brokered Loans and certain
Correspondent Loans within one day, consistent application of its underwriting
guidelines and funding or purchasing of loans within 14 to 21 days of
preliminary approval. In addition, the Company seeks to establish and maintain
productive relationships with its network of brokers and correspondents by
servicing each one with a business development representative, a team of
experienced underwriters and, in the case of Brokered Loans, a team of loan
officers and processors who are assigned to specific brokers to process all
applications submitted by each broker.
 
     During its first 12 years of operation, Delta concentrated its efforts on

serving brokers and correspondents primarily in New York, New Jersey and
Pennsylvania. Commencing in 1995, the Company began to implement a program to
expand its geographic focus into the New England, Mid-Atlantic and Midwest
regions. The Company currently originates and purchases the majority of its
loans in 21 states and the District of Columbia through a staff of 18 business
development representatives who operate from the Company's main office in New
York and from nine business development offices located in Michigan (2),
Missouri, New Jersey, Ohio (2), Pennsylvania, Rhode Island and Virginia. The
Company intends to open a full service office in Atlanta, Georgia in September
1996. Two members of Delta's senior management will relocate to this office
which will concentrate on developing Delta's Mid-Atlantic and Southeast markets.
As a consequence of its expansion into new markets, as well as of its further
penetration of existing markets, the Company increased its loan production
substantially in 1995 and the first six months of 1996. Total loan originations
and purchases increased from $119.7 million in 1994 to $287.8 million in 1995
and $244.1 million in the first six months of 1996. Of the total loan production
during the first six months of 1996, 56% was originated through the Company's
broker network and 44% was purchased from its correspondent network. See
'Business--Loans.'
 
     Since February 1991, Delta has sold $841 million of its mortgage loans
through 11 real estate mortgage investment conduit ('REMIC') securitizations.
Each of these securitizations has been credit enhanced by an insurance policy
provided through a monoline insurance company to receive ratings of Aaa from
Moody's Investors Service, Inc. ('Moody's') and AAA from Standard & Poor's
Ratings Group, a division of The McGraw-Hill
 
                                       3
Companies, Inc. ('Standard & Poor's'). The Company has also sold $50.5 million
of its mortgage loans to institutional purchasers on a wholesale basis without
recourse since 1991. The Company sells loans through securitizations and on a
whole loan basis to enhance its operating leverage and liquidity, to minimize
financing costs and to reduce its exposure to fluctuations in interest rates.
 
     Since its inception, the Company has serviced substantially all of the
loans it has originated and purchased, including all of those that it has
subsequently sold through securitizations. Management believes that servicing
this portfolio enhances certain operating efficiencies and provides an
additional and profitable revenue stream that is less cyclical than the business
of originating and purchasing loans. As of June 30, 1996, Delta had a servicing
portfolio of $624.1 million. See 'Business--Loans.'
 
     The Company has been profitable in each of its 14 years of operation.
However, the Company's results of operations have improved significantly in
recent periods as a result of increased loan production and the improved
structure of its recent securitizations. During 1995 as compared to 1994, the
Company's total revenues increased 66% from $21.8 million to $36.1 million and
net income increased 130% from $2.0 million to $4.6 million. For the first six
months of 1996, total revenues and net income were $30.4 million and $15.3
million, respectively, representing increases of 120% and 739%, respectively,
over the results for the comparable six months of 1995. See 'Management's
Discussion and Analysis of Financial Condition and Results of Operations.'
 

     The Company's business strategy is to increase profitably the volume of its
loan originations and purchases and the size of its servicing portfolio by (i)
continuing to provide top quality service to its network of brokers and
correspondents, (ii) maintaining its underwriting standards, (iii) penetrating
further its established markets and recently entered markets and expanding into
new geographic markets, (iv) broadening its product offerings, (v) continuing
its investment in origination and servicing systems and (vi) strengthening its
loan production capabilities through acquisitions. See 'Business--Business
Strategy.'
 
     All of the Company's operations will be conducted through its wholly-owned
subsidiary, Delta Funding Corporation, which was incorporated in New York in
1982. In August 1996, Delta Financial Corporation was incorporated in Delaware
and prior to the date of this Prospectus, the stockholders of Delta Funding
Corporation will contribute their shares of common stock of Delta Funding
Corporation to Delta Financial Corporation in exchange for all of the
outstanding shares of common stock of Delta Financial Corporation. See
'Reorganization and Termination of S Corporation Status.'
 
     The principal executive offices of the Company are located at 1000 Woodbury
Road, Suite 200, Woodbury, New York 11797, and its telephone number is (516)
364-8500.
 
                                  THE OFFERING
Common Stock offered(1)...................  4,000,000 shares
Common Stock to be outstanding after the
  Offering(2).............................  14,653,000 shares
Use of Proceeds...........................  To fund a distribution of $23 million to the Existing Stockholders in
                                            connection with termination of Delta Funding Corporation's status as
                                            a Subchapter S Corporation and to repay amounts outstanding under the
                                            Company's warehouse lines. See 'Use of Proceeds.'
Proposed New York Stock Exchange Symbol...  'DFC'
- ------------------
 
(1) The Company has granted the Underwriters a 30-day option to purchase up to
    600,000 shares of Common Stock. See 'Underwriting.'
 
(2) Excludes approximately 500,000 shares of Common Stock subject to options
    granted upon the commencement of the Offering at a per share exercise price
    equal to the initial public offering price. See 'Management's Discussion and
    Analysis of Financial Condition and Results of Operations--Liquidity and
    Capital Resources,' 'Management--Stock Option Plan' and 'Shares Eligible for
    Future Sale.'
 
                                       4
SUMMARY FINANCIAL INFORMATION
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SIX MONTHS ENDED JUNE 30,
                                                                                            -------------------------
                                                                                                      1995
                                                      YEAR ENDED DECEMBER 31,               -------------------------
                                          -----------------------------------------------
                                           1991      1992      1993      1994      1995            (UNAUDITED)
                                          -------   -------   -------   -------   -------
INCOME STATEMENT DATA:
Revenues:
  Net gain on sale of mortgage loans and
    servicing rights....................  $ 4,052   $ 4,757   $ 7,639   $ 6,661   $15,383            $ 5,335
  Interest..............................    4,747    13,402     9,156     9,839    13,588              5,362
  Servicing fees........................    1,460     1,892     2,101     2,183     2,856              1,240
  Other.................................    5,880     5,413     3,617     3,114     4,309              1,857
                                          -------   -------   -------   -------   -------         ----------
    Total revenues......................   16,139    25,464    22,513    21,797    36,135             13,793
                                          -------   -------   -------   -------   -------         ----------
    Total expenses......................   14,383    22,154    18,853    19,788    31,550             11,975
                                          -------   -------   -------   -------   -------         ----------
Earnings before extraordinary item......    1,756     3,310     3,660     2,009     4,586              1,818
Extraordinary item......................       --        --        --        --        --                 --
Net earnings............................    1,756     3,310     3,660     2,009     4,586              1,818
                                          =======   =======   =======   =======   =======         ==========
PRO FORMA INFORMATION:
Provision for pro forma income
  taxes(1)..............................      755     1,423     1,574       864     1,972                782
Pro forma net earnings(1)...............    1,001     1,887     2,086     1,145     2,614              1,036
PER SHARE DATA:
Pro forma earnings per share of common
  stock (1)(2):
  Before extraordinary item.............                                          $   .21
  Extraordinary item....................                                               --
                                                                                ---------
Pro forma net earnings per share........                                              .21
                                                                                =========
Pro forma weighted average number of
  shares outstanding(1)(2)..............                                       12,186,333
1996
                                          -------------------------
INCOME STATEMENT DATA:
Revenues:
  Net gain on sale of mortgage loans and
    servicing rights....................         $           17,800
  Interest..............................                      7,861
  Servicing.............................                      2,325
  Other.................................                      2,345
                                          -------------------------
    Total revenues......................                     30,331

    Total expenses......................                     18,239
Earnings before extraordinary item......                     12,093
Extraordinary item......................                      3,168
Net earnings............................                     15,261
Provision for pro forma income
  taxes(1)..............................                      6,562
Pro forma net earnings(1)...............                      8,699
PER SHARE DATA:
Pro forma earnings per share of common
  stock (1)(2):
  Before extraordinary item.............         $              .57
  Extraordinary item....................                        .14
                                          -------------------------
Pro forma net earnings per share........                        .71
                                          -------------------------
                                          -------------------------
Pro forma weighted average number of
  shares outstanding(1)(2)..............                 12,186,333
                                          -------------------------
                                          -------------------------
JUNE 30, 1996
                                               ------------------------
                                                           PRO FORMA AS
                                                ACTUAL     ADJUSTED(3)
                                               --------    ------------
BALANCE SHEET DATA:
Loans held for sale.........................   $66,677..     $ 66,677
Interest only and residual certificates.....     43,233        43,233
Capitalized mortgage servicing rights.......      6,674         6,674
Total assets................................    155,812       155,812
Warehouse financing and other borrowings....     83,251        51,251
Investor payable............................     13,599        13,599
Total liabilities...........................    111,078        82,008
Stockholders' equity........................     44,734        73,803
SIX MONTHS ENDED JUNE 30,
                                                 YEAR ENDED DECEMBER 31,                  -------------------------
                                   ----------------------------------------------------             1995
                                     1991       1992       1993       1994       1995            (UNAUDITED)
OPERATING DATA:
Loans originated or purchased:
  Brokered Loans.................  $ 78,394   $ 66,553   $ 76,220   $ 81,407   $175,738           $  64,250
  Correspondent Loans............     4,022     10,080     26,844     38,341    112,065              43,886
    Total........................    82,416     76,633    103,063    119,748    287,804             108,136
Average principal balance
  per loan:......................        43         51         60         67         74                  72

  Weighted average interest
    rate.........................      14.2%      13.5%      12.9%      12.1%      11.8%               12.3%
  Combined weighted average
    initial loan-to-value
    ratio........................      46.4%      47.8%      51.7%      55.2%      63.2%               60.9%
  Percent of loans secured by
    first mortgages..............      63.8%      71.5%      81.1%      88.0%      89.6%               88.8%
  Loan Sales: 
  Loans sold through
    securitizations..............  $142,955   $ 64,102   $ 88,943   $ 90,000   $229,997           $  79,998
  Whole loan sales...............       N/A      1,031      8,708     11,950     17,615               8,601
    Total........................   142,955     65,133     97,651    101,950    247,612              88,599
Total loans serviced.............   250,159    275,542    292,700    310,229    468,846             357,831
1996
OPERATING DATA:
Loans originated or purchased:
  Brokered Loans.................          $ 135,621
  Correspondent Loans............            108,472
    Total........................            244,093
Average principal balance
  per loan:......................                 79
  Weighted average interest
    rate.........................               11.3%
  Combined weighted average
    initial loan-to-value
    ratio........................               67.3%
  Percent of loans secured by
    first mortgages..............               94.4%
  Loan Sales: Loans sold through
    securitizations..............          $ 225,000
  Whole loan sales...............             11,238
    Total........................            236,238
Total loans serviced.............            624,097
5
SIX MONTHS ENDED JUNE 30,
                                                                                          -------------------------
                                                 YEAR ENDED DECEMBER 31,
                                   ----------------------------------------------------             1995
                                     1991       1992       1993       1994       1995            (UNAUDITED)
DELINQUENCY DATA:
Total delinquencies as a
  percentage of loans serviced
  (period end)(4)................     19.80%     19.87%     13.50%     11.44%     10.64%               8.35%

Defaults as a percentage of loans
  serviced (period end)(5).......      1.90%      3.60%      5.35%      7.32%      5.87%               6.64%
Net losses as a percentage of
  average loans serviced for
  period.........................         0%     0.017%     0.031%     0.240%     0.658%              0.360%(6)
1996
 
DELINQUENCY DATA:
Total delinquencies as a
  percentage of loans serviced
  (period end)(4)................               7.85%
Defaults as a percentage of loans
  serviced (period end)(5).......               5.31%
Net losses as a percentage of
  average loans serviced for
  period.........................              0.542%(6)
- ------------------
(1) Prior to October 1996, Delta Funding Corporation was treated as an S
    corporation for federal and state income tax purposes. See 'Reorganization
    and Termination of S Corporation Status.' The pro forma presentation
    reflects the provision for income taxes as if Delta Funding Corporation had
    always been a C corporation at an assumed effective tax rate of 43%. The pro
    forma provision for income taxes for the six months ended June 30, 1996
    includes a pro forma provision of $1,362,166 on the extraordinary item.
 
(2) Pro forma net income per share has been computed by dividing pro forma net
    income by the 10,653,000 of shares of common stock of Delta Financial
    Corporation to be received by the Existing Stockholders in exchange for the
    shares of Delta Funding Corporation, and, in accordance with a regulation
    of the Securities and Exchange Commission, the effect of the assumed
    issuance (at an assumed price of $15 per share) of 1,533,333 shares of
    common stock to generate sufficient cash to pay the Distribution Notes (as
    hereinafter defined) in the amount of $23,000,000. See 'Reorganization and
    Termination of Corporation Status.'
 
(3) Adjusted to reflect (i) the conversion of Delta Funding Corporation from an
    S corporation to a C corporation and (ii) the sale of 4,000,000 shares of
    Common Stock offered hereby at an initial offering price of $15 per share
    (the mid-point of the estimated range of the initial public offering price)
    after deducting underwriting discounts and commissions and expenses payable
    by the Company, and (iii) the application of the estimated net proceeds
    therefrom, including the payment of $23 million for the Distribution Notes
    issued to the Existing Stockholders of Delta Funding Corporation in
    connection with the termination of Delta Funding Corporation's S corporation
    status and the payment of $32 million to reduce outstanding balances under
    certain of the Company's warehouse facilities. Adjustments have not been
    made to account for the contingent dividend payable to the Existing
    Stockholders of Delta Funding Corporation in the event the over-allotment is

    exercised. See 'Use of Proceeds,' 'Capitalization' and 'Reorganization and
    Termination of S Corporation Status.'
 
(4) Represents the percentages of account balances contractually past due 30
    days or more, exclusive of home equity loans in foreclosure or real estate
    owned ('REO').
 
(5) Represents the percentages of account balances on loans in foreclosure or
    REO.
 
(6) Annualized.
 
     THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE
SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN 'RISK
FACTORS' AND IN 'MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION-- LIQUIDITY AND CAPITAL RESOURCES.'
 
                                       6
RISK FACTORS
 
     An investment in the Common Stock of the Company involves certain risks.
Prospective investors should carefully consider the following risk factors, in
addition to the other information contained in this Prospectus, in evaluating an
investment in the Common Stock offered hereby.
 
CAPITAL NEEDS AND ACCESS TO CAPITAL MARKETS
 
     Negative Cash Flow.  The Company has operated, and expects to continue to
operate, on a negative cash flow basis due to increases in the volume of loan
originations and purchases and due to the growth of its securitization program.
In securitizations, the Company recognizes a gain on sale for the loans
securitized upon the closing of the securitization and incurs associated taxes
and expenses but does not receive the cash representing such gain until it
receives the cash flows from the interest-only and residual certificates and 
from servicing of the loans, which are payable over the actual life of the loans
securitized. For the six months ended June 30, 1996, the Company operated on a
negative cash flow basis using $8.2 million more in operations than was
generated. Currently, the Company's primary cash requirements include the
funding of (i) mortgage originations and purchases pending their pooling and
sale, (ii) the points and expenses paid in connection with the acquisition of
correspondent loans, (iii) fees, expenses and tax payments incurred in
connection with its securitization program, and (iv) ongoing administrative and
other operating expenses. The Company funds these cash requirements primarily
through warehouse and other financing facilities, securitizations and whole loan
sales. See 'Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources.'
 
     Dependence on Securitizations.  The Company relies significantly upon
securitizations to generate cash proceeds for repayment of its warehouse
facilities and to create availability to originate and purchase additional
loans. Further, gains on sale of loans generated by the Company's
securitizations represent a significant portion of the Company's revenues.
Several factors affect the Company's ability to complete securitizations,
including conditions in the securities markets generally, conditions in the
asset-backed securities market specifically, the credit quality of the Company's
portfolio of loans and the Company's ability to obtain credit enhancement. If
the Company were unable to profitably securitize a sufficient number of loans in
a particular financial reporting period, then the Company's revenue for such
period would decline and could result in lower income or a loss for such period.
In addition, unanticipated delays in closing the securitizations could increase
the Company's interest rate risk by increasing the warehousing period for its
loans.
 
     The Company has relied on credit enhancements provided by monoline
insurance carriers to guarantee outstanding investor certificates in the related
trusts to enable it to obtain an AAA/Aaa rating for such investor certificates.
The Company has not attempted to structure a mortgage loan pool for sale through
a securitization based solely on the internal credit enhancements of the pool or
the Company's credit. Any substantial reductions in the size or availability of
such insurance policies, or increases in the price charged by, or required level
of protection to be provided to, the insurance companies issuing such policies,

could have a material adverse effect on the Company's results of operations and
financial condition. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources' and
'Business--Loan Sales.'
 
     Dependence on Warehouse and Residual Financing Sources.  The Company funds
substantially all of the loans which it purchases and originates through
borrowings under warehouse financing facilities, through repurchase agreements
and through internally generated funds. The Company's borrowings are in turn
repaid with the proceeds received by the Company from selling such loans through
securitizations or whole loan sales. The Company has relied upon a few lenders
to provide the primary credit facilities for its loan originations and
purchases. Any failure to renew or obtain adequate funding under these warehouse
financing facilities or other financings, or any substantial reduction in the
size of or increase in the cost of such facilities, could have a material
adverse effect on the Company's results of operations and financial condition.
To the extent that the Company is not successful in maintaining or replacing
existing financing, it would not be able to hold a large volume of loans pending
securitization and therefore would have to curtail its loan production
activities or sell loans either through whole loan sales or in smaller
securitizations, thereby having a material adverse effect on the Company's
results of operations and financial condition. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources.'
 
                                       7
The Company has relied upon residual financing agreements (credit
facilities secured by interest-only and residual certificates) to fund the tax
consequences of the recognition of the gains on sale when a securitization
occurs and other working capital needs prior to receipt of any cash flow from
the interest-only and residual certificates retained by the Company in its
securitizations. The Company has no commitments for future residual financing,
as such financings are typically obtained at the time of a securitization. If
the Company is unable to maintain its existing residual financing agreements and
to secure adequate funding or financing under additional residual financing
arrangements, or there is any substantial increase in the cost of such
facilities, it may be forced to either curtail its growth or to sell its loans
through whole loan sales which would have an adverse effect on its future
profitability.
 
     Need for Additional Financing.  The Company anticipates that the net
proceeds from the Offering, together with the funds available under the
warehouse facilities and additional residual financing arrangements, will be
sufficient to fund its operations for the next twelve months, if the Company's
future operations are consistent with management's expectations. The Company may
need to seek additional financing thereafter. The Company has no existing
commitments for additional residual financing arrangements, as such financings
are typically obtained at the time of a securitization, or for other additional
financing. There can be no assurance that the Company will be able to obtain
financing on a favorable or timely basis. The type, timing and terms of
financing selected by the Company will depend upon the Company's cash needs, the
availability of other financing sources and the prevailing conditions in the
financial markets. Future financing will likely involve the issuance of equity

securities which may result in further dilution to existing stockholders. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources.'
 
VALUATION AND POTENTIAL IMPAIRMENT OF INTEREST-ONLY AND RESIDUAL CERTIFICATES
 
     As a fundamental part of its business and financing strategy, the Company
sells substantially all of its loans through securitizations. In a
securitization, the Company sells loans that it has originated or purchased to a
trust for a cash purchase price and an interest in the loans securitized. The
cash purchase price is raised through an offering of pass-through certificates
by the trust. Following the securitization, purchasers of the pass-through
certificates receive the principal collected and the investor pass-through
interest rate on the principal balance, while the Company receives the cash
flows from the interest-only and residual certificates and servicing of the
loans. Servicing. The Excess Servicing represents, over the life of the loans,
the excess of the weighted average coupon on each pool of loans sold over the
sum of the pass-through interest rate plus a servicing fee, a trustee fee, a
bond insurance fee and an estimate of annual future credit losses related to the
loans ('Excess Servicing').
 
     The majority of the Company's gross income is recognized as gain on sale of
loans, which represents the present value of the interest-only and residual
certificates and servicing, less closing and underwriting costs. The Company
recognizes such gain on sale of loans in the fiscal quarter in which such loans
are sold, although cash is received by the Company over the life of the loans.
Concurrent with recognizing such gain on sale, the Company records the
capitalized Excess Servicing as an asset on its balance sheet, represented by
interest-only and residual certificates.
 
     At June 30, 1996, the Company's balance sheet reflected interest-only and
residual certificates of $43.2 million and these certificates are reduced as
cash distributions are received from the trust holding the loans pooled and
sold. Although management of the Company believes that it has made reasonable
estimates, on a pool-by-pool basis, of the Excess Servicing likely to be
realized, it should be recognized that assumptions utilized by the Company
represent estimates. Actual experience may vary from these estimates. The cash
flows are projected over the life of the interest-only and residual certificates
using prepayment, default and interest rate assumptions that market participants
would use for similar financial instruments, subject to prepayment, credit and
interest rate risks. These cash flows are discounted using an interest rate that
market participants would use for similar financial instruments. The fair
valuation also includes considerations of loan type, size, date of origination,
interest rate, term, collateral value and geographic location. If the Company's
assumptions used in deriving the value of interest-only and residual
certificates differ from the actual results, future cash flows and earnings
could be negatively affected and the Company may be required to write down the
value of its interest-only and residual certificates. Furthermore, there is no
liquid market for interest-only and residual certificates. Therefore, no
assurance can be given that all or any portion of the interest-only and residual
certificates could be sold at any price, including at their stated value on the
balance sheet, if at all. See '--Contingent Risks' and
 
                                       8
'Management's Discussion and Analysis of Financial Condition and Results of
Operations--Certain Accounting Considerations.'
 
ECONOMIC CONDITIONS
 
     General.  The Company's business may be adversely affected by periods of
economic slowdown or recession which may be accompanied by decreased demand for
consumer credit and declining real estate values. In the mortgage business, any
material decline in real estate values reduces the ability of borrowers to use
the equity in their homes to support borrowings and increases the loan-to-value
ratios of loans previously made by the Company, thereby weakening collateral
coverage and increasing the possibility of a loss in the event of default.
Delinquencies, foreclosures and losses generally increase during economic
slowdowns or recessions.
 
     Because of the Company's focus on credit-impaired borrowers in the home
equity loan market, the actual rates of delinquencies, foreclosures and losses
on such loans could be higher under adverse economic conditions than
delinquencies, foreclosures and losses currently experienced in the mortgage
lending industry in general. In addition, in an economic slowdown or recession,
the Company's actual costs of servicing the loans may increase without an
increase in the servicing fee paid to the Company under its securitizations. Any
sustained period of increased delinquencies, foreclosures, losses or increased
costs could adversely affect the Company's ability to sell, and could increase
the cost of selling, loans through securitization or a whole loan basis, which
could adversely affect the Company's financial condition and results of
operations.
 
     Interest Rates.  The Company's profitability may be directly affected by
the levels of and fluctuations in interest rates, which affect the Company's
ability to earn a spread between interest received on its loans and the costs of
borrowing. The profitability of the Company is likely to be adversely affected
during any period of unexpected or rapid changes in interest rates. For example,
a substantial or sustained increase in interest rates could adversely affect the
ability of the Company to purchase and originate loans and would reduce the
value of loans that were originated prior to such increase. A significant
decline in interest rates could decrease the size of the Company's loan
servicing portfolio by increasing the level of loan prepayments. Additionally,
to the extent Excess Servicing has been capitalized on the books of the Company,
higher than anticipated rates of loan prepayments or losses could require the
Company to write down the value of such Excess Servicing, adversely impacting
earnings.
 
     Fluctuating interest rates also may affect the net interest income earned
by the Company, resulting from the difference between the yield to the Company
on fixed rate loans held pending sale and the interest paid by the Company for
funds borrowed under the Company's warehouse financing facilities at variable
rates. In addition, inverse or flattened interest yield curves could have an
adverse impact on the profitability of the Company because the loans pooled and
sold by the Company are priced upon long-term interest rates, while the senior
interests in the related REMIC trusts are priced on the basis of intermediate
rates. While the Company monitors the interest rate environment and currently
employs a hedging strategy designed to mitigate the impact of changes in

interest rates, there can be no assurance that the profitability of the Company
would not be adversely affected during any period of changes in interest rates.
See 'Business--Hedging.'
 
ABILITY TO SUSTAIN GROWTH
 
     Since January 1, 1995, the Company has expanded into new geographic regions
and substantially increased its volume of loans originated and purchased. In
light of such growth, the historical performance of the Company's earnings may
be of limited relevance in predicting future performance. Any credit or other
problems associated with the large number of loans originated and purchased in
the recent past would not become apparent until sometime in the future. The
Company's continued growth and expansion will place additional pressures on the
Company's personnel and systems. Any future growth may be limited by, among
other things, the Company's need for continued funding sources, access to
capital markets, ability to retain and attract qualified personnel, sensitivity
to economic slowdowns, fluctuations in interest rates and competition from other
consumer finance companies and from new market entrants. There can be no
assurance that the Company will successfully apply the human, operational and
financial resources needed to manage a developing and expanding business.
Failure by the Company to manage its growth effectively, or to sustain its
historical levels of performance in credit analysis and transaction structuring
with respect to the increased loan origination and purchase volume, could
 
                                       9
have a material adverse effect on the Company's results of operations and
financial condition. See 'Business-- Business Strategy' and 'Management's
Discussion and Analysis of Financial Condition and Results of Operation.'
 
COMPETITION
 
     As a purchaser and originator of mortgage loans, the Company faces intense
competition, primarily from mortgage banking companies, commercial banks, credit
unions, savings and loans, credit card issuers and finance companies. Many of
these competitors in the financial services business are substantially larger
and have more capital and other resources than the Company. Competition can take
many forms, including convenience in obtaining a loan, service, marketing and
distribution channels and interest rates. Competition may be affected by
fluctuations in interest rates and general economic conditions. During periods
of rising rates, competitors which have 'locked in' low borrowing costs may have
a competitive advantage. During periods of declining rates, competitors may
solicit the Company's borrowers to refinance their loans. During economic
slowdowns or recessions, the Company's borrowers may have new financial
difficulties and may be receptive to offers by the Company's competitors.
Furthermore, the current level of gains realized by the Company and its
competitors on the sale of the type of loans purchased and originated is
attracting additional competitors into this market with the effect of lowering
the gains that may be realized by the Company on future loan sales. In addition,
greater investor acceptance of securities backed by loans comparable to the
Company's mortgage loans and greater availability of information regarding the
prepayment and default experience of such loans creates greater efficiencies in
the market for such securities. Such efficiencies may create a desire for even
larger transactions giving companies with greater volumes of originations a

competitive advantage. In addition, a more efficient market for such securities
may lead certain investors to purchase securities backed by other types of
assets where potential returns may be greater.
 
     Furthermore, certain large national finance companies and conforming
mortgage originators have announced their intention to adapt their conforming
origination programs and allocate resources to the origination of non-conforming
loans. In addition, certain of these larger mortgage companies, commercial banks
and savings and loans have begun to offer products similar to those offered by
the Company, targeting customers similar to those of the Company. The entrance
of these competitors into the Company's market could have a material adverse
effect on the Company's results of operations and financial condition. See
'Business--Competition.'
 
DEPENDENCE ON BROKERS AND CORRESPONDENTS
 
     The Company depends on brokers and correspondents for its originations and
purchases of new loans. None of these brokers or correspondents is contractually
obligated to do business with the Company. Further, the Company's competitors
also have relationships with the Company's brokers and correspondents and
actively compete with the Company in its efforts to expand its broker and
correspondent networks. Accordingly, there can be no assurance that the Company
will be successful in maintaining its existing relationships or expanding its
broker and correspondent networks.
 
     The Company originated and purchased loans in the twelve month period ended
June 30, 1996 from a network of 806 brokers and 186 correspondents. However, the
top 20 brokers and correspondents and the top broker accounted for approximately
48.7% and 12.6%, respectively, of the total volume of loans originated and
purchased during the six months ended June 30, 1996. Accordingly, the loss of a
significant number of any of these brokers or correspondents could have a
material adverse impact on the volume of loan originations and purchases and a
resulting material adverse effect on the Company's results of operations and
financial condition. See 'Business--Loans.'
 
CONTINGENT RISKS
 
     Although the Company sells substantially all of the loans that it purchases
and originates on a nonrecourse basis, the Company retains some degree of credit
risk on all loans purchased or originated. During the period of time that loans
are held pending sale, the Company is subject to the various business risks
associated with lending, including the risk of borrower default, the risk of
foreclosure and the risk that an increase in interest rates would result in a
decline in the value of loans to potential purchasers. The Company's
securitizations require the
 
                                       10
use of Excess Servicing to reduce the principal balances of the related investor
certificates up to a specified amount. The resulting over-collateralization
amounts serve as credit enhancement for the related trust and therefore are
available to absorb losses realized on loans held by such trust. Although there
is no direct recourse to the Company for losses on securitized loans, the use of
the Excess Servicing to provide additional over-collateralization as a form of

credit enhancement may reduce the value of residual and interest-only
certificates carried on the Company's balance sheet. See 'Management's
Discussion and Analysis of Financial Condition and Results of Operations.' In
addition, agreements governing securitizations, including the Company's
securitizations, require the seller to commit to repurchase or replace loans
that do not conform to the representations and warranties made by the seller at
the time of sale. When borrowers are delinquent in making monthly payments on
loans included in a securitization, the Company is required to advance interest
payments with respect to such delinquent loans to the extent that the Company
deems such advances ultimately recoverable. These advances require funding from
the Company's capital resources but have priority of repayment from the
succeeding month's collections.
 
     Prior to 1991, the Company combined mortgage loans into pools and sold
these pools as well as individual mortgage loans directly to a network of
commercial banks, savings and loans, insurance companies, pension funds and
accredited investors. The Company generally sold these pools or individual loans
with recourse whereby the Company is obligated to repurchase any loan which
defaults and the related mortgaged property becomes an REO property. This
obligation is subject to various terms and conditions, including, in some
instances, a time limit. At June 30, 1996, $22.9 million or 3.7% of the
Company's $624.1 million servicing portfolio was subject to be repurchased in
the future should such loans become REO properties.
 
     In the ordinary course of its business, the Company is subject to claims
made against it by borrowers and private investors arising from, among other
things, losses that are claimed to have been incurred as a result of alleged
breaches of fiduciary obligations, misrepresentations, errors and omissions of
employees, officers and agents of the Company (including its appraisers),
incomplete documentation and failures by the Company to comply with various laws
and regulations applicable to its business. The Company believes that the
liability with respect to any currently asserted claims or legal actions is not
likely to be material to the Company's results of operations or financial
condition; however, any claims asserted in the future may result in legal
expenses or liabilities which could have a material adverse effect on the
Company's results of operations and financial condition. See '--Valuation and
Potential Impairment of Interest-Only and Residual Certificates.'
 
CONCENTRATION OF OPERATIONS
 
     For the six months ended June 30, 1996, 91.9% of the aggregate principal
balance of the mortgage loans purchased or originated by the Company were
secured by properties located in 10 states, with New York and New Jersey
accounting for 68.9% of those total originations and purchases. Although the
Company continues to expand its mortgage origination network in other regions of
the country, the Company's origination business is likely to remain concentrated
in the Northeast for the foreseeable future. Consequently, the Company's results
of operations and financial condition are dependent upon general trends in the
economy and the residential real estate market in the Northeast. See
'Business--Loans.'
 
CREDIT-IMPAIRED BORROWERS
 
     The Company targets credit-impaired borrowers. Loans made to such borrowers

generally entail a higher risk of delinquency and possibly higher losses than
loans made to more creditworthy borrowers. No assurance can be given that the
Company's underwriting policies and collection procedures will alleviate such
risks. In the event that pools of loans warehoused, sold and serviced by the
Company experience higher delinquencies, foreclosures or losses than
anticipated, the Company's results of operations or financial condition would be
adversely affected. See 'Business--Loans.'
 
LOSS OF SERVICING RIGHTS AND SUSPENSION OF FUTURE CASH FLOWS
 
     The Company's right to act as servicer under its securitizations can be
terminated under certain circumstances by the trustee or insurer of a particular
securitization. Such events include among other things: (i) failure by the
Company to pay when due any amount payable under the pooling and servicing
agreement
 
                                       11
governing that securitization, (ii) failure of the Company to satisfy certain
financial tests, including a minimum net worth test, and (iii) the loss and
delinquency performance of the mortgage loans in the securitization exceeding
certain levels. Under some of the Company's servicing agreements, a failure by
the Miller family to continue to own, directly or indirectly, a majority of the
Company's outstanding voting stock, may result in a termination event. Any
termination of the Company's right to act as servicer under a securitization
would materially and adversely affect its ability to engage in future
securitizations which and would have a material adverse effect on the Company's
results of operations and financial condition. See 'Business--Loans--Loan
Servicing and Collections.'
 
LEGISLATIVE AND REGULATORY RISK
 
     Members of Congress and government officials from time to time have
suggested the elimination of the mortgage interest deduction for federal income
tax purposes, either entirely or in part, based on borrower income, type of loan
or principal amount. Because many of the Company's loans are made to borrowers
for the purpose of consolidating consumer debt or financing other consumer
needs, the competitive advantages of tax deductible interest, when compared with
alternative sources of financing, could be eliminated or seriously impaired by
such government action. Accordingly, the reduction or elimination of these tax
benefits could have a material adverse effect on the demand for loans of the
kind offered by the Company.
 
     The Company's business is subject to extensive regulation, supervision and
licensing by federal, state and local governmental authorities and is subject to
various laws and judicial and administrative decisions imposing requirements and
restrictions on part or all of its operations. The Company's consumer lending
activities are subject to the Federal Truth-in-Lending Act and Regulation Z
(including the Home Ownership and Equity Protection Act of 1994), the Federal
Equal Credit Opportunity Act and Regulation B, as amended ('ECOA'), the Fair
Credit Reporting Act of 1994, as amended, the Federal Real Estate Settlement
Procedures Act ('RESPA') and Regulation X, the Home Mortgage Disclosure Act and
the Federal Debt Collection Practices Act, as well as other federal and state
statutes and regulations affecting the Company's activities. The Company is also

subject to the rules and regulations of, and examinations by, the Department of
Housing and Urban Development ('HUD') and state regulatory authorities with
respect to originating, processing, underwriting, selling and servicing loans.
These rules and regulations, among other things, impose licensing obligations on
the Company, establish eligibility criteria for mortgage loans, prohibit
discrimination, provide for inspections and appraisals of properties, require
credit reports on loan applicants, regulate assessment, collection, foreclosure
and claims handling, investment and interest payments on escrow balances and
payment features, mandate certain disclosures and notices to borrowers and, in
some cases, fix maximum interest rates, fees and mortgage loan amounts. Failure
to comply with these requirements can lead to loss of approved status,
termination or suspension of servicing contracts without compensation to the
servicer, demands for indemnifications or mortgage loan repurchases, certain
rights of rescission for mortgage loans, class action lawsuits and
administrative enforcement actions. There can be no assurance that the Company
will maintain compliance with these requirements in the future without
additional expenses, or that more restrictive local, state or federal laws,
rules and regulations will not be adopted that would make compliance more
difficult for the Company. See 'Business--Regulation.'
 
POSSIBLE ENVIRONMENTAL LIABILITIES
 
     In the ordinary course of its business, the Company from time to time
forecloses on properties securing loans. Under various federal, state and local
environmental laws, ordinances and regulations, a current or previous owner or
operator of real estate may be required to investigate and clean up hazardous or
toxic substances or chemical releases at such property and may be held liable to
a governmental entity or to third parties for property damage, personal injury,
and investigation and cleanup costs incurred by such parties in connection with
the contamination. Such laws typically impose cleanup responsibility. Liability
under such laws has been interpreted to be joint and several unless the harm is
divisible, and there is a reasonable basis for allocation of responsibility. The
costs of investigation, remediation or removal of such substances may be
substantial, and the presence of such substances, or the failure to properly
remediate such property, may adversely affect the owner's ability to sell or
rent such property or to borrow using such property as collateral. Persons who
arrange for the disposal or treatment of hazardous or toxic substances also may
be liable for the
 
                                       12
costs of removal or remediation of such substances at a disposal or treatment
facility, whether or not the facility is owned or operated by such person. In
addition, the owner or former owners of a contaminated site may be subject to
common law claims by third parties based on damages and costs resulting from
environmental contamination emanating from such property. See
'Business--Environmental Matters.'
 
ABSENCE OF PRIOR PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE
 
     Prior to the Offering, there has been no public market for the Common
Stock. The Company has applied to list the Common Stock on the NYSE. However,
there can be no assurance that an active public trading market for the Common
Stock will develop after the Offering or that, if developed, such market will be

sustained. The public offering price of the Common Stock offered hereby was
determined by negotiations among the Company and the representatives of the
Underwriters (the 'Representatives') and may not be indicative of the price at
which the Common Stock will trade after the Offering. See 'Underwriting.'
Consequently, there can be no assurance that the market price for the Common
Stock will not fall below the public offering price.
 
     The market price of the Common Stock may experience fluctuations unrelated
to the operating performance of the Company. In particular, the price of the
Common Stock may be affected by general market price movements as well as
developments specifically related to the consumer finance industry such as,
among other things, interest rate movements and delinquency trends. In addition,
the Company's operating income on a quarterly basis is significantly dependent
upon the Company's ability to access the securitization market and complete
significant securitization transactions in a particular quarter. Failure to
complete securitizations in a particular quarter may have a material adverse
impact on the Company's results of operations for that quarter and could
negatively affect the price of the Common Stock.
 
DILUTION
 
     Purchasers of the Common Stock offered hereby will experience immediate and
substantial dilution in net tangible book value per share of Common Stock of
$9.96 per share; assuming an initial public offering price of $15 per share (the
mid-point of the estimated range of the initial public offering price). See
'Dilution.'
 
DEPENDENCE ON KEY PERSONNEL
 
     The Company's growth and development to date have been largely dependent
upon the services of Sidney Miller, Hugh Miller and other key members of
management. Although the Company has been able to hire and retain other
qualified and experienced management personnel, the loss of either Sidney
Miller's or Hugh Miller's services for any reason could have a material adverse
effect on the Company. The Company has entered into employment agreements with
both persons, as well as with certain other members of senior management. See
'Management--Executive Compensation--Employment Agreements.'
 
CONTROL BY EXISTING STOCKHOLDERS
 
     Immediately after the Offering, the Existing Stockholders will beneficially
own an aggregate of 72.7% of the outstanding shares of Common Stock.
Accordingly, such persons, if they were to act in concert, would have majority
control of the Company, with the ability to approve certain fundamental
corporate transactions (including mergers, consolidations and sales of assets)
and to elect all members of the Board of Directors. As long as the Millers are
the controlling shareholders of the Company, third parties will not be able to
gain control of the Company through purchases of Common Stock not
beneficially-owned or otherwise controlled by the Millers. Accordingly, the
price of the Common Stock offered hereby would not reflect any premium which may
be attributable to such ability to exercise or obtain control over the Company.
See 'Principal Stockholders.'
 
SHARES AVAILABLE FOR FUTURE SALE

 
     All of the currently outstanding shares of Common Stock are beneficially
owned or otherwise controlled by Sidney Miller, Rona Miller or Hugh Miller,
either directly or through grantor retained annuity trusts in accordance with
Section 2702(b)(1) of the Internal Revenue Code of 1986, as amended (the
'Existing Stockholders'). Each grantor retained annuity trust is managed by a
Miller family trustee acting in a fiduciary capacity and exercising sole
dispositive authority over the trust. The 4,000,000 shares of Common Stock sold
in
 
                                       13
the Offering will be freely tradeable by persons other than 'affiliates' of the
Company, as that term is defined in Rule 144 ('Rule 144') under the Securities
Act of 1933, as amended (the 'Securities Act'), without restriction under the
Securities Act. After completion of the Offering, the Existing Stockholders will
beneficially own or otherwise control an aggregate of 10,653,000 shares of the
Common Stock. Each of the Existing Stockholders has agreed not to sell any
shares beneficially owned by him or her, and not to permit any sales of any
shares otherwise controlled by him or her, for 180 days following completion of
the Offering without the prior written consent of the Representatives. However,
upon expiration of these agreements, the Existing Stockholders will be free to
sell any Common Stock held by them, subject to the rules and regulations
promulgated under the Securities Act. Furthermore, the Company intends to
register within 90 days of the date of the Offering approximately 2,200,000
shares of Common Stock reserved for issuance pursuant to the Company's stock
option plan, under which options to purchase 500,000 shares at the initial
public offering price are expected to become effective on the date of the
Offering. Any future sales of Common Stock could have a material adverse effect
on the prevailing market price of the Common Stock and could impair the
Company's future ability to raise capital through an offering of its equity
securities. See 'Shares Eligible for Future Sale' and 'Management--Stock Option
Plan.'
 
HOLDING COMPANY STRUCTURE
 
     Delta Financial Corporation is a holding company which will conduct all its
operations through its wholly-owned subsidiary, Delta Funding Corporation.
Substantially all of the assets of Delta will be owned by Delta Funding
Corporation. Therefore, Delta Financial Corporation's rights to participate in
the assets of Delta Funding Corporation upon such subsidiary's liquidation or
recapitalization will be subject to the prior claims of the subsidiary's
creditors, except to the extent that Delta may itself be a creditor with
recognized claims against the subsidiary. In addition, dividends from Delta
Funding Corporation are subject to certain contractual restrictions. See
'Dividend Policy.'
 
EFFECTS OF CERTAIN ANTI-TAKEOVER PROVISIONS
 
     Certain provisions of the Company's Certificate of Incorporation and Bylaws
and the Delaware General Corporation Law could delay or frustrate the removal of
incumbent directors and could make difficult a merger, tender offer or proxy
contest involving the Company, even if such events could be viewed as beneficial
by the Company's stockholders. For example, the Certificate of Incorporation

requires an 70% supermajority vote of stockholders to amend certain provisions
of the Bylaws pertaining to the calling of special meetings and the election and
removal of directors. The Company is also subject to provisions of the Delaware
General Corporation Law that prohibit a publicly held Delaware corporation from
engaging in a broad range of business combinations with a person who, together
with affiliates and associates, owns 15% or more of the corporation's
outstanding voting shares (an 'interested stockholder') for three years after
the person became an interested stockholder, unless the business combination is
approved in a prescribed manner. See 'Description of Capital Stock--Certain
Charter, Bylaws and Statutory Provisions.'
 
                                       14
REORGANIZATION AND TERMINATION OF S CORPORATION STATUS
 
     From July 1, 1985 until immediately prior to the date of the Prospectus,
Delta Funding Corporation has been and will be treated for federal income tax
purposes as an S corporation under Subchapter S of the Internal Revenue Code of
1986, as amended (the 'Code'), and has been treated as an S corporation for
certain state corporate income tax purposes under certain comparable state laws
(an 'S corporation'). As a result, Delta Funding Corporation's historical
earnings since July 1, 1985 have been taxed directly to Delta Funding
Corporation's stockholders, at their individual federal and state income tax
rates, rather than to Delta Funding Corporation. Prior to the date of the
Prospectus, pursuant to the terms of a contribution agreement (the 'Contribution
Agreement'), the current stockholders of Delta Funding Corporation will
contribute their stock to Delta Financial Corporation, in exchange for all of
the outstanding stock of the Company. Upon completion of such exchange, Delta
Funding Corporation will elect to terminate its status as an S corporation, as
described above. Upon termination of its S corporation status, the Company will
be fully subject to federal and state income taxes and will record a deferred
tax liability on its balance sheet. The amount of the deferred tax liability to
be recorded as of the date of termination of the S corporation status will
depend upon timing differences between tax and book accounting relating
principally to recognition of gains on sales of mortgage loans. If the S
corporation status had been terminated as of June 30, 1996, the amount of the
deferred tax liability would have been approximately $2.9 million. See
'Capitalization' and 'Selected Financial Data.'
 
     Since July 1, 1985, Delta Funding Corporation has paid approximately 15.8%
of its earnings before income tax to the Existing Stockholders in the form of S
corporation distributions (approximately $8.0 million was distributed from July
1, 1985 through June 30, 1996). Such distributions were paid to the Existing
Stockholders as a distribution of a portion of Delta Funding Corporation's
earnings and to pay their taxes. Prior to the Offering, Delta Funding
Corporation will distribute notes payable (the 'Distribution Notes') to the
Existing Stockholders in the aggregate principal amount of $23 million. The
principal amount of the Distribution Notes represents the sum of approximately
(i) $11 million in taxes payable at the applicable statutory rate by the
Existing Stockholders on the estimated net earnings of Delta Funding Corporation
for the period from January 1, 1996 to September 30, 1996, and (ii) $12 million
of previously earned and undistributed S corporation earnings. The Distribution
Notes will be promissory notes bearing interest at the rate of 6.15% per annum.
In addition, prior to the Offering, Delta Funding Corporation will declare a
contingent dividend (the 'Contingent Dividend') to the Existing Stockholders in
the amount of at least $30 and up to a maximum of $8,370,000 (the amount of the
net proceeds to the Company, after deducting the underwriting discount, if the
over-allotment option is exercised in full by the Underwriters). The maximum
amount of the Contingent Dividend shall become payable only upon the exercise by
the Underwriters of the entire over-allotment option granted to them by the
Company in connection with the Offering. The amount of the Contingent Dividend
which becomes payable shall bear a direct relation to the percentage of the
option granted to the Underwriters and exercised by them. If the over-allotment
option is not exercised in any amount, the Existing Stockholders will receive a
dividend of $30.
 

     Immediately prior to the Offering, Delta Funding Corporation and its
shareholders will enter into a tax indemnification agreement (the 'Tax
Agreement') relating to their respective income tax liabilities. Because the
Company will be fully subject to corporate income taxation after the termination
of the Company's S corporation status, the reallocation of income and deduction
between the period during which the Company was treated as an S corporation and
the period during which the Company will be subject to corporate income taxation
may increase the taxable income of one party while decreasing that of another
party. Accordingly, the Tax Agreement is intended to assure that taxes are borne
by the Company on the one hand and the Existing Stockholders on the other only
to the extent that such parties received the related income. The Tax Agreement
generally provides that, if an adjustment is made to the taxable income of the
Company for a year in which it was treated as an S corporation, the Company will
indemnify the Existing Stockholders and the Existing Stockholders will indemnify
the Company against any increase in the indemnified party's income tax liability
(including interest and penalties and related costs and expenses), with respect
to any tax year to the extent such increase results in a related decrease in the
income tax liability of the indemnifying party for that year. However, the Tax
Agreement specifically provides that the Existing Stockholders will not be
responsible for any portion of any deferred tax liability which may be recorded
on the balance sheet of Delta Funding Corporation upon termination of the S
corporation status. The Company will also indemnify the Existing Stockholders
for all taxes imposed upon them as the result of their receipt of an
indemnification payment under the Tax Agreement. Any payment made by the Company
to the Existing Stockholders pursuant to the Tax Agreement may be considered by
the Internal Revenue Service or state taxing authorities to be non-deductible by
the Company for income tax purposes. See 'Certain Relationships and Related
Party Transactions--Transactions in Connection with the Formation.'
 
                                       15
USE OF PROCEEDS
 
     The net proceeds to the Company from the sale of the 4,000,000 shares of
Common Stock offered hereby are estimated to be $55 million, after deducting the
underwriting discount and estimated offering expenses and assuming a public
offering price of $15 per share.
 
     The Company will first use approximately $23 million of the net proceeds of
the Offering to pay the Distribution Notes issued to the Existing Stockholders
in connection with termination of Delta Funding Corporation's status as an S
corporation. These Distribution Notes were issued by the Company to distribute
$11 million in taxes payable at the applicable statutory tax rate by the
Existing Stockholders on the estimated net earnings of Delta Funding Corporation
for the period from January 1, 1996 to September 30, 1996 and $12 million in
previously earned and undistributed S corporation earnings. The Company will use
the remaining portion of the net proceeds to pay down amounts outstanding on the
Company's $150 million warehouse line of credit. The warehouse line of credit
bears interest at a variable rate based on a fixed spread over LIBOR. Any
remaining net proceeds will be used to fund future loan originations and
purchases, to support securitization transactions and for general corporate
purposes.
 
     If the Underwriters exercise the 30-day option granted by the Company to

purchase up to another 600,000 shares of Common Stock, the net proceeds to the
Company from such sale would be approximately $8,730,000, after deducting the
underwriting discounts and commissions, assuming full exercise of the option by
the Underwriters. The Company will cause its wholly owned subsidiary, Delta
Funding Corporation, to use the net proceeds from the exercise of the option to
pay the Contingent Dividend granted by Delta Funding Corporation to the Existing
Stockholders. The amount of the Contingent Dividend paid to the Existing
Stockholders shall bear a direct relation to the percentage of the option
exercised by the Underwriters. See 'Reorganization and Termination of S
Corporation Status' and 'Certain Relationships and Related Party
Transactions--Transactions in Connection with the Formation.'
 
     Pending their ultimate application, the net proceeds of the Offering will
be invested in short-term, investment grade, interest-bearing securities and
deposit accounts.
 
                                       16
CAPITALIZATION
 
     The following table shows the capitalization of Delta Financial Corporation
following the contribution of shares of Delta Funding Corporation held by the
Existing Stockholders as described in 'Reorganization and Termination of S
Corporation Status' and assumes consolidation of Delta Financial Corporation and
its wholly-owned subsidiary, Delta Funding Corporation. The table sets forth, as
of June 30, 1996 (i) the capitalization of the Company (using the assumptions
discussed above), (ii) the pro forma capitalization of the Company as adjusted
to give effect to the conversion of the Company from an S corporation to a C
corporation, together with Company's issuance of the Distribution Notes; and
(iii) the pro forma capitalization of the Company as adjusted to give effect to
the sale of the 4,000,000 shares of Common Stock offered by the Company hereby
(at an assumed initial public offering price of $15 per share) and the
application of the net proceeds therefrom, including payment of the Distribution
Notes and payment of amounts outstanding under certain warehouse lines. This
table should be read in conjunction with the Company's Financial Statements and
the notes thereto. See 'Use of Proceeds' and 'Reorganization and Termination of
S Corporation Status.'
JUNE 30, 1996
                                                                               -----------------------------------
                                                                                             PRO        PRO FORMA
                                                                                ACTUAL     FORMA(1)    AS ADJUSTED
                                                                               --------    --------    -----------
                                                                                     (DOLLARS IN THOUSANDS)
DEBT:
Warehouse financing and other borrowings....................................   $ 83,251    $ 83,251     $  51,251
Bank payable................................................................      6,524       6,524         6,524
Distribution Notes..........................................................         --      23,000            --
                                                                               --------    --------    -----------
  Total Debt................................................................   $ 89,775    $112,775     $  57,775
                                                                               --------    --------    -----------
                                                                               --------    --------    -----------

 
STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value; 49,000,000 shares authorized; 10,653,000
  shares outstanding, actual and pro forma and 14,653,000 shares outstanding
  pro forma as adjusted(2)..................................................   $    107    $    107     $     147
Preferred Stock, $.01 par value; 1,000,000 shares authorized;
  no shares outstanding.....................................................         --          --            --
Additional paid-in capital..................................................      3,225       3,225        58,185
Retained earnings(3)........................................................     41,402      15,471        15,471
                                                                               --------    --------    -----------
     Total shareholders' equity                                                  44,734      18,803        73,803
                                                                               --------    --------    -----------
       Total capitalization.................................................   $134,509    $131,578     $ 131,578
                                                                               --------    --------    -----------
                                                                               --------    --------    -----------
- ------------------
(1) Gives pro forma effect to (i) a distribution to the Existing Stockholders in
    the form of the Distribution Notes in the aggregate face amount of $23
    million made immediately prior to the date of the Prospectus in respect of
    certain tax liabilities, and (ii) the creation of a deferred tax liability
    in the amount of $2.9 million arising in connection with Delta Funding
    Corporation's termination of its S corporation status. See 'Reorganization
    and Termination of S Corporation Status,' and 'Use of Proceeds.'
 
(2) Excludes 500,000 shares of Common Stock to be granted upon consumation
    of the Offering pursuant to options outstanding under the Company's 1996
    Stock Option Plan. See 'Management--Stock Option Plan.'
 
(3) No adjustment has been made to give effect to the Company's net earnings for
    the period from July 1, 1996 through September 30, 1996, which earnings were
    included in the calculation of the portion of the Distribution Notes related
    to taxes payable by the Existing Stockholders. See "Reorganization and
    Termination of S Corporation Status."

                                      17
DIVIDEND POLICY
 
     The Company has no present intention to pay cash dividends after the
Offering. Any determination in the future to pay dividends will depend on the
Company's financial condition, capital requirements, results of operations,
contractual limitations and any other factors deemed relevant by the Board of
Directors. For a discussion of distributions paid by the Company prior to the
Offering, see 'Reorganization and Termination of S Corporation Status.'
 
                                    DILUTION
 
     The net tangible book value of the Common Stock as of June 30, 1996 was
$44.7 million, or $4.20 per share of Common Stock. Net tangible book value per
share represents the amount of the Company's stockholders' equity, less
intangible assets, divided by the number of shares of Common Stock outstanding.
Dilution per share represents the difference between the amount per share paid
by purchasers of shares of Common Stock in the Offering made hereby and the pro

forma net tangible book value per share of Common Stock immediately after
completion of the Offering. After (i) giving effect to the sale of 4,000,000 of
the shares of Common Stock offered hereby by the Company at an assumed public
offering price of $15 per share, (ii) deducting the underwriting discount and
estimated offering expenses payable by the Company, (iii) the S corporation
distribution to the Existing Stockholders of an aggregate of $23 million in
payment of the Distribution Notes and, (iv) the creation of a deferred tax
liability in the amount of $2.9 million arising in connection with Delta Funding
Corporation's termination of its S corporation status, the pro forma net
tangible book value of the Company as of June 30, 1996 would have been $73.8
million, or $5.04 per share. This represents an immediate increase in pro forma
net tangible book value to the Existing Stockholders of $0.84 and an immediate
dilution of $9.96 to new public investors purchasing Common Stock in the
Offering, as illustrated in the following table:
Assumed initial public offering price per share.........................................      $ 15.00
  Net tangible book value per share at June 30, 1996....................................         4.20
  Decrease attributable to Distribution Notes...........................................        (2.16)
  Decrease due to deferred tax liability................................................        (0.28)
  Increase in tangible book value per share attributable to new public investors........         3.28
Pro forma net tangible book value per share after the Offering..........................         5.04
Dilution per share to new public investors..............................................         9.96
In the event the over-allotment option is exercised by the Underwriters,
the net proceeds received by the Company will be paid to the Existing
Stockholders pursuant to the Contingent Dividend. See 'Reorganization and
Termination of S Corporation Status.' In such event, the number of shares of
Common Stock outstanding will increase, but the stockholders' equity of the
Company will not increase. Accordingly, the pro forma tangible book value per
share after the Offering would decrease and the dilution per share to new
investors would increase.
 
     The following table sets forth on a pro forma basis as of June 30, 1996 the
difference between Existing Stockholders and the purchasers of shares in the
Offering with respect to the number of shares purchased from the Company, the
total consideration paid and the average price paid per share:
TOTAL
                                                   SHARES PURCHASED          CONSIDERATION
                                                ---------------------    ---------------------    AVERAGE PRICE
                                                  NUMBER      PERCENT    AMOUNT        PERCENT      PER SHARE
                                                ----------    -------    -------       -------    -------------
Existing Stockholders.........................  10,653,000      72.7%    $18,803,000     23.9%       $  1.77
New public investors..........................   4,000,000      27.3%     60,000,000     76.1%       $ 15.00
                                                ----------    -------    -----------   -------
  Total.......................................  14,653,000     100.0%     78,803,000    100.0%
                                                ----------    -------    -----------   -------
                                                ----------    -------    -----------   -------
The information and tables above exclude the effect of 500,000 shares of
Common Stock subject to options to be granted at the commencement of the
Offering at the initial public offering price. The calculations also assume no
exercise of the Underwriters' over-allotment option.
 
                                       18
SELECTED FINANCIAL DATA
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
 
     The following table sets forth historical selected financial and operating
data of the Company as of (i) December 31, 1991, 1992, 1993, 1994 and 1995 and
for each of the five years in the period ended December 31, 1995, and (ii) June
30, 1995 and 1996 and for the six month periods then ended.
 
     The following selected income statement data for each of the three years
ended December 31, 1993, 1994 and 1995 and the balance sheet data as of December
31, 1994 and 1995 are derived from the Company's audited financial statements
and notes thereto included elsewhere herein audited by KPMG Peat Marwick LLP,
independent public accountants, as set forth in their report also included
elsewhere herein. The selected income statement data for the years ended
December 31, 1991 and 1992 and the balance sheet data as of December 31, 1991,
1992 and 1993 are derived from the Company's audited financial statements not
included herein. The unaudited selected income statements data for the six month
periods ended June 30, 1995 and 1996 and the unaudited balance sheet data as of
June 30, 1996 are derived from the unaudited financial statements of the Company
prepared on the same basis as the audited financial statements and, in the
opinion of management, include all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of the Company's financial
position and results of operations. The results of operations for any interim
period are not necessarily indicative of results to be expected for the full
year.
 
     The information set forth below should be read in conjunction with
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' and all of the financial statements and the notes thereto and other
financial information included elsewhere in this Prospectus.
SIX MONTHS ENDED
                                                                                                       JUNE 30,
                                                       YEAR ENDED DECEMBER 31,                       (UNAUDITED)
                                         ---------------------------------------------------    ----------------------
                                          1991       1992       1993       1994       1995       1995         1996
                                         -------    -------    -------    -------    -------    -------    -----------
                                                                                                     (UNAUDITED)
INCOME STATEMENT DATA:
  Revenues:
    Gain on sale of loans, net........   $ 4,052    $ 4,757    $ 7,639    $ 6,661    $15,383    $ 5,335    $    17,800
    Interest..........................     4,747     13,402      9,156      9,839     13,588      5,362          7,861

    Servicing fees....................     1,460      1,892      2,101      2,183      2,856      1,240          2,325
    Other.............................     5,880      5,413      3,617      3,114      4,309      1,857          2,345
                                         -------    -------    -------    -------    -------    -------    -----------
         Total revenue................   $16,139    $25,464    $22,513    $21,797    $36,135    $13,793    $    30,331
                                         =======    =======    =======    =======    =======    =======    ===========
  Expenses:
    Payroll and related costs.........   $ 5,093    $10,713    $ 9,268    $ 8,815    $12,876    $ 4,359    $     6,685
    Interest expense..................     3,664      4,536      2,915      3,735      7,964      3,470          5,922
    General and administrative........     5,626      6,905      6,670      7,238     10,710      4,147          5,631
                                         -------    -------    -------    -------    -------    -------    -----------
         Total expenses...............   $14,383    $22,154    $18,853    $19,788    $31,550    $11,975    $    18,238
                                         =======    =======    =======    =======    =======    =======    ===========
    Earnings before pro forma
      provision for income taxes and
      extraordinary item..............   $ 1,756    $ 3,310    $ 3,660    $ 2,009    $ 4,586    $ 1,818    $    12,093
    Extraordinary item................        --         --         --         --         --         --          3,168
    Net earnings......................     1,756      3,310      3,660      2,009      4,586      1,818         15,261
PRO FORMA INFORMATION:
    Provision for pro forma income
      taxes(1)........................       755      1,423      1,574        864      1,972        782          6,562
    Pro forma net earnings(1).........     1,001      1,887      2,086      1,145      2,614      1,036          8,699
 
PER SHARE DATA:
    Pro forma earnings per share of
      common stock(1)(2):
         Before extraordinary item....                                           $       .21               $       .57
         Extraordinary item...........                                                    --                       .14
                                                                                 -----------               -----------
    Pro forma net earnings per share..                                           $       .21               $       .71
                                                                                 -----------               -----------
                                                                                 -----------               -----------
    Pro forma weighted average number
      of shares outstanding(1)(2).....                                            12,186,333                12,186,333
                                                                                 -----------               -----------
                                                                                 -----------               -----------
19
DECEMBER 31,                                JUNE 30,
                                           -----------------------------------------------   ------------------------------
                                            1991      1992      1993      1994      1995        1996              1996
                                           -------   -------   -------   -------   -------   -----------      -------------
                                                                                              (ACTUAL)        (PRO FORMA AS
                                                                                                              ADJUSTED) (3)
BALANCE SHEET DATA:
    Loans held for sale..................  $44,339   $47,079   $41,703   $48,833   $63,816     $66,677           $66,677
    Interest only and residual
      certificates.......................       --        --     2,204     7,514    25,310      43,233            43,233
    Capitalized mortgage servicing

      rights.............................    3,570     5,705     3,491     2,421     3,831       6,674             6,674
    Total assets.........................   82,093    80,775    81,143    98,589   139,612     155,812           155,812
                                           =======   =======   =======   =======   =======     =======       ===========
    Warehouse financing and other
      borrowings.........................   45,813    42,659    36,780    52,491    82,756      83,251            51,251
    Investor payable.....................    4,279     4,959     8,687    11,091    14,272      13,599            13,599
    Total liabilities....................   59,867    54,891    52,793    70,425   109,779     111,078            82,008
                                           -------   -------   -------   -------   -------     -------       -----------
    Stockholders' equity.................   22,226    25,884    28,350    28,164    29,833      44,734            73,803
                                           =======   =======   =======   =======   =======     =======       ===========
SIX MONTHS ENDED
                                                        YEAR ENDED DECEMBER 31,                         JUNE 30,
                                         ------------------------------------------------------    -------------------
                                           1991       1992       1993        1994        1995       1995        1996
                                         --------    -------    -------    --------    --------    -------    --------
OPERATING DATA:
  Loans originated or purchased:
    Brokered Loans....................   $ 78,394    $66,553    $76,220    $ 81,407    $175,738    $64,250    $135,621
    Correspondent Loans                     4,022     10,080     26,844      38,341     112,065     43,886     108,472
         Total........................     82,416     76,633    103,063     119,748     287,804    108,136     244,093
  Average principal balance per loan..         43         51         60          67          74         72          79
  Weighted average interest rate......       14.2%      13.5%      12.9%       12.1%       11.8%      12.3%       11.3%
  Weighted average initial combined
    loan-to-value ratio...............       46.4%      47.8%      51.7%       55.2%       63.2%      60.9%       67.3%
  Percent of loans secured by first
    mortgages.........................       63.8%      71.5%      81.1%       88.0%       89.6%      88.8%       94.4%
  Loan Sales:
    Loans sold through
      securitizations.................   $142,955    $64,102    $88,943    $ 90,000    $229,997    $79,998    $225,000
    Whole loan sales..................        N/A      1,031      8,708      11,950      17,615      8,601      11,238
         Total........................    142,955     65,133     97,651     101,950     247,612     88,599     236,238
  Total loans serviced................    250,159    275,542    292,700     310,229     468,846    357,831     624,097
 
DELINQUENCY DATA:
  Total delinquencies as a percentage
    of loans serviced (period
    end)(4)...........................      19.80%     19.87%     13.50%      11.44%      10.64%      8.35%       7.85%
  Defaults as a percentage of loans
    serviced (period end)(5)..........       1.90%      3.60%      5.35%       7.32%       5.87%      6.64%       5.31%
  Net losses as a percentage of
    average loans serviced for
    period............................          0%     0.017%     0.031%      0.240%      0.658%     0.360%(6)    0.542%(6)
- ------------------
(1) Prior to October 1996, Delta Funding Corporation was treated as an S
    corporation for federal and state income tax purposes. See 'Reorganization
    and Termination of S Corporation Status.' The pro forma presentation
    reflects the provision for income taxes as if Delta Funding Corporation had

    always been a C corporation at an assumed effective tax rate of 43%. The pro
    forma provision for income taxes for the six months ended June 30, 1996
    includes a pro forma provision of $1,362,166 on the extraordinary item.
 
(2) Pro forma net income per share has been computed by dividing pro forma net
    income by the 10,653,000 of shares of common stock of Delta Financial
    Corporation to be received by the Existing Stockholders in exchange for the
    shares of Delta Funding Corporation, and, in accordance with a regulation
    of the Securities and Exchange Commission, the effect of the assumed
    issuance (at an assumed price of $15 per share) of 1,533,333 shares of
    common stock to generate sufficient cash to pay the Distribution Notes in
    the amount of $23,000,000. See 'Reorganization and Termination of S
    Corporation Status.'
 
(3) Adjusted to reflect (i) the conversion of Delta Funding Corporation from an
    S corporation to a C corporation and (ii) the sale of 4,000,000 shares of
    Common Stock offered hereby at an initial offering price of $15 per share
    (the mid-point of the estimated range of the initial public offering price)
    after deducting underwriting discounts and commissions and expenses payable
    by the Company, and (iii) the application of the estimated net proceeds
    therefrom, including the payment of $23 million for the Distribution Notes
    issued to the Existing Stockholders of Delta Funding Corporation in
    connection with the termination of Delta Funding Corporation's S corporation
                                        status and the payment of $32 million to
 
                                              (Footnotes continued on next page)
 
                                       20
(Footnotes continued from previous page)
    reduce outstanding balances under certain of the Company's warehouse
    facilities. Adjustments have not been made to account for the contingent
    dividend payable to the Existing Stockholders of Delta Funding Corporation
    in the event the over-allotment is exercised. See 'Use of Proceeds,'
    'Capitalization' and 'Reorganization and Termination of S Corporation
    Status.'
 
(4) Represents the percentages of account balances contractually past due 30
    days or more, exclusive of home equity loans in foreclosure or real estate
    owned ('REO').
 
(5) Represents the percentages of account balances on loans in foreclosure or
    REO.
 
(6) Annualized.
 
                                       21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATION
 
     The following discussion should be read in conjunction with the Financial
Statements of the Company and accompanying Notes set forth therein.
 
GENERAL
 
  Overview
 
     The Company is a specialty consumer finance company engaged in the business
of originating, acquiring, selling and servicing mortgage loans secured
primarily by one- to four-family residences. Delta has focused on lending to
individuals who generally have impaired or limited credit profiles or higher
debt to income ratios and typically have substantial equity in their homes. The
Company primarily generates revenue from gain on sale of loans sold through
securitizations, gains recognized from premiums on loans sold through whole loan
sales, interest earned on loans held for sale, origination fees received as part
of the loan application process and fees earned from servicing loans.
 
  Recent Growth
 
     The Company has experienced significant growth in the last few years,
particularly since January 1, 1995. Management believes that this growth is
primarily attributable to (i) the Company's geographic expansion of its
operations, (ii) the Company's further penetration into its established markets,
and (iii) the Company's increased access to additional funding sources through
larger warehouse agreements which enabled the Company to accumulate larger pools
of loans for sales through securitizations.
 
     In connection with its geographic expansion, the Company has continued to
focus its resources on developing loan production from brokers and
correspondents. The Company has followed a two-pronged approach to increase the
volume of loan originations from these sources. The Company employs business
development representatives to initiate and expand relationships with brokers
and correspondents. In addition, the Company uses its loan officers and
correspondent underwriters to maintain and strengthen existing relationships.
There can be no assurance that the Company will continue to grow significantly
in the future. Any future growth will be limited by, among other things, the
Company's need for continued funding sources, access to capital markets,
sensitivity to economic slowdowns, ability to attract and retain qualified
personnel, fluctuations in interest rates and competition from other consumer
finance companies and from new market entrants.
 
CERTAIN ACCOUNTING CONSIDERATIONS
 
  Interest-Only and Residual Certificates
 
     The Company derives a substantial portion of its income by recognizing gain
on sale of loans sold through securitizations, represented by the interest-only
and residual certificates that the Company retains. In securitizations, the
Company sells loans that it has originated or purchased to a trust for a cash
purchase price and the interest-only and residual certificates. The cash

purchase price is raised through an offering by the trust of pass-through
certificates representing regular interests in the trust. Following the
securitizations, the purchasers of the pass-through certificates receive the
principal collected and the investor pass-through interest rate on the principal
balance, while the Company receives the excess of the interest rate payable by
an obligor on a loan over the interest rate passed through to the purchasers of
the regular-interest certificates (with respect to the interest-only and
residual certificates), as well as the Company's normal servicing fee and other
recurring fees. The interest-only and residual certificates which are
capitalized on the Company's balance sheet are reduced as cash distributions are
received. The interest-only and residual certificates are accounted for as
trading securities in accordance with SFAS 115, 'Accounting for Certain
Investments in Debt and Equity Securities,' and as such they are recorded at
their fair value. Changes in fair value are reflected in the statement of
operations. Fair value of the interest-only and residual certificates is
determined based on various economic factors, including considerations of loan
type, size, date of origination, interest rate, term, collateral value and
geographic location. Higher than anticipated rates of loan prepayments or losses
would require the Company to write down the fair
 
                                       22
value of the interest-only and residual certificates, adversely impacting
earnings. Similarly, if delinquencies, liquidations or interest rates were to be
greater than was initially assumed, the fair value of the interest-only and
residual certificates would be negatively impacted which would have an adverse
effect on income for the period in which such events occurred. 
 
  SFAS No. 91
 
     In December 1986, the Financial Accounting Standards Board ('FASB') issued
Statement of Financial Accounting Standards ('SFAS') No. 91, 'Accounting for
Non-Refundable Fees and Costs Associated with Originating or Acquiring Loans and
Initial Direct Costs of Leases.' SFAS No. 91 establishes the accounting for
nonrefundable fees and costs associated with lending, committing to lend, or
purchasing a loan or a group of loans.
 
     Under SFAS No. 91, direct loan origination costs, net of loan origination
fees, are recognized as a reduction of the loan's yield over the earlier of the
life of the related loan or the sale of the loan. In effect, SFAS No. 91
requires that origination fees be offset by their related direct loan costs and
that net deferred fees be recognized over the earlier of the life of the loan or
the sale of the loan, whether the loan is sold through securitization or on a
whole loan basis.
 
     Prior to the second quarter of 1996, the Company generally sold loans
through securitization on a semiannual basis and, as such, carried a larger
inventory of loans on its books from quarter to quarter and from year to year,
which resulted in SFAS No. 91 adjustments being made during those periods. The
Company contemplates that in the future it will sell substantially all of its
loan originations and purchases on a quarterly basis primarily through
securitizations and, to a lesser extent, on a whole loan basis. This should
minimize the amount of loans being held in inventory and, therefore, minimize
the effects of SFAS No. 91 on the Company's financial statements.

 
  Mortgage Servicing Rights
 
     In May 1995, the FASB issued SFAS No. 122, 'Accounting for Mortgage
Servicing Rights,' which amends SFAS No. 65 'Accounting for Certain Banking
Activities.' Effective January 1, 1995, the Company adopted SFAS No. 122.
Because SFAS No. 122 prohibits retroactive application to years prior to
adoption thereof, the Company's historical financial results for periods prior
to 1995 have not been restated and, accordingly, are not directly comparable to
the financial results for 1995.
 
     SFAS No. 122 requires mortgage banking entities to recognize as a separate
asset the rights to service mortgage loans for others, regardless of how those
servicing rights are acquired. Mortgage banking entities that acquire or
originate loans and subsequently sell or securitize those loans and retain the
mortgage servicing rights are required to allocate the total cost of the loans
to the mortgage servicing rights and the mortgage loans. The Company determines
fair value based upon the present value of estimated net future servicing
revenues less the estimated cost to service loans, adjusted based on the same
assumptions used on the gain on sale calculation. The cost allocated to these
servicing rights is amortized in proportion to and over the period of estimated
net future cash flows related to servicing income. As a result of the adoption
of SFAS No. 122, the Company will recognize in the future greater revenues at
the time a loan is sold and smaller revenues during the period such loan is
serviced. To this end, adoption of SFAS No. 122 resulted in additional income
recorded as gain on sale of approximately $2.1 million and $3.3 million during
the year ended 1995 and the six months ended 1996, respectively.
 
     SFAS No. 122 also requires impairment evaluations of all amounts
capitalized as servicing rights, including those purchased before the adoption
of SFAS No. 122, based upon the fair value of the underlying servicing rights.
The Company periodically performs these evaluations on a disaggregated basis for
the predominant risk characteristics of the underlying loans which are loan
type, term, credit quality and interest rate. The continuing effects of SFAS No.
122 on the Company's financial position and results of operations will depend on
several factors, including, among other things, the amount of acquired or
originated loans sold or securitized, the type, term and credit quality of loans
and estimates of future prepayment rates. Higher than anticipated rates of loan
prepayments or losses would require the Company to write down the fair value of
the mortgage servicing rights,
 
                                       23
adversely impacting earnings.

TERMINATION OF S CORPORATION STATUS AND INCOME TAXES
 
     Immediately prior to the date of the Prospectus, Delta Funding Corporation
will terminate its status as an S corporation. The Existing Stockholders of
Delta Funding Corporation, pursuant to the terms of the Contribution Agreement,
will contribute their shares of capital stock in Delta Funding Corporation to
the Company in exchange for all of the outstanding shares of Common Stock of the
Company.
 

     In connection with the termination of Delta Funding Corporation's S
corporation status, Delta Funding Corporation will make a final S corporation
distribution in the form of Distribution Notes and the Company will use $23
million of the net proceeds of the Offering, to pay such notes. In addition,
Delta Funding Corporation will declare the Contingent Dividend. See 'Use of
Proceeds' and 'Reorganization and Termination of S Corporation Status.'
 
     As an S corporation, the Company's income, whether or not distributed, was
taxed at the shareholder level for federal and state tax purposes. Upon
termination of its S corporation status, the Company will be fully subject to
federal and state income taxes and will record a deferred tax liability on its
balance sheet. The amount of the deferred tax liability to be recorded as of the
date of termination of the S corporation status will depend upon timing
differences between tax and book accounting relating principally to recognition
of gains on sale of mortgage loans. If the S corporation status had been
terminated as of June 30, 1996, the amount of the deferred tax liability would
have been approximately $2.9 million. The pro forma provision for income taxes
in the accompanying statements of income shows results as if the Company had
always been fully subject to federal and state taxes at an assumed tax rate of
43%.
 
RESULTS OF OPERATIONS
 
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
 
  Revenues
 
     Total revenues increased $16.6 million, or 120%, to $30.4 millon for the
six months ended June 30, 1996 from $13.8 million in the six months ended June
30, 1995. The increase in revenues was primarily due to the increased loan
originations and purchases sold through securitizations. The Company retains
100% of the servicing rights on loans it sells through securitizations.
 
     Gain on Sale of Loans, Net.  Gain on sale of mortgage loans, net increased
$12.5 million, or 234%, to $17.8 million for the six months ended June 30, 1996
from $5.3 million for the six months ended June 30, 1995. This increase was the
result of higher loan originations and purchases and the corresponding larger
amount of loans sold through securitizations or on a whole loan basis. During
the six months ended June 30, 1996, loan originations increased $71.3 million or
111% to $135.6 million compared to $64.3 million in the comparable period in
1995. During the same period, the Company's purchase volume increased $64.6
million or 147% to $108.5 million from $43.9 million. As a result, total loan
originations and purchases increased $136.0 million or 126% to $244.1 million in
the six months ended June 30, 1996 from $108.1 million in the comparable period
in 1995. Total loans of $236.2 million were either sold or securitized in the
six months ended June 30, 1996 compared to $88.6 million of loans sold or
securitized during the comparable period in 1995, with a weighted average net
gain on sale of 7.5% and 6.0%, respectively.
 
     Interest Income.  Interest income increased $2.5 million, or 47%, to $7.9
million for the six months ended June 30, 1996 from $5.4 million for the six
months ended June 30, 1995. The increase in interest income was primarily due to
a higher average balance of loans held for sale during 1996 and, to a lesser
extent, to the increase in interest-only and residual certificates held for

investment.
 
     Servicing Income.  Servicing income increased $1.1 million, or 88%, to
$2.3 million for the six months ended June 30, 1996 from $1.2 million for the
six months ended June 30, 1995. This increase was primarily the result of higher
loan servicing volume which resulted in a greater amount of contractual and
ancillary service
 
                                       24
fees. During the six months ended June 30, 1996 the average balance of mortgage
loans serviced by the Company increased 68% to $555.3 million, compared to
$330.0 million in the comparable period in 1995.
 
     Other Income.  Other income increased $0.4 million, or 26%, to $2.3
million for the six months ended June 30, 1996 from $1.9 million for the six
months ended June 30, 1995. This increase was primarily due to the increase in
total loan originations and corresponding origination fees which is the largest
component of other income. During the six months ended June 30, 1996, loan
originations increased by $71.3 million, or 111%, to $135.6 million from $64.3
million in the comparable period in 1995.
 
  Expenses
 
     Total expenses increased $6.2 million, or 52%, to $18.2 million for the
six months ended June 30, 1996 from $12.0 million for the six months ended June
30, 1995. The increase in expenses was primarily the result of increased
interest expense on loans held for sale, the increased costs associated with the
additional personnel required for the greater volume of originations and higher
operating expenses related to the increase in loan originations and purchases
during the six months ended June 30, 1996 as compared to the six months ended
June 30, 1995.
 
     Payroll Expense.  Payroll expense increased $2.3 million, or 53.4%, to $6.7
million for the six months ended June 30, 1996 from $4.4 million for the six
months ended June 30, 1995. The increase in payroll expense was primarily due to
increased staffing in the Company's originations area. As of June 30, 1996, the
Company operated ten offices and employed 294 persons compared to operating two
offices employing 209 persons as of June 30, 1995.
 
     Interest Expense.  Interest expense increased $2.5 million, or 71%, to
$5.9 million for the six months ended June 30, 1996 from $3.5 million for the
six months ended June 30, 1995. The increase in interest expense was
attributable to the interest costs associated with a higher balance of loans
originated and held for sale during the six months ended June 30, 1996, and a
higher balance of loans held for sale at the beginning of the period ($66.7
million compared to $48.8 million for 1996 and 1995, respectively). The
Company's cost of funds on its floating rate warehouse facilities where it holds
mortgage loans until the time of sale, was 1.37% basis points lower for the six
months ended June 30, 1996 compared to the six months ended June 30, 1995. This
was due to lower interest rates, on average 0.62% lower, and a lower credit
spread of 0.75%, as the Company replaced its warehouse facility with a less
expensive source of funding in the fourth quarter of 1995.
 

     General and Administrative Expenses.  General and administrative expenses
which consist primarily of office and administrative, rent expenses, and health
care and insurance expenses increased $1.5 million, or 36%, to $5.6 million
for the six months ended June 30, 1996 from $4.1 million for the six months
ended June 30, 1995. The increase in general and administrative expenses was
primarily due to expenses incurred in association with the increases in loan
originations and purchases, increased employee benefit expenses and leasing of
additional office space at the Company's headquarters in Woodbury, New York. As
of June 30, 1996, the Company occupied approximately 55,000 square feet at its
headquarters compared to approximately 36,000 square feet as of June 30, 1995.
 
  Extraordinary Gain
 
     In May 1996, the Company closed out its long-term $31.7 million warehouse
facility with a European financial institution at a 10% discount. As a result,
the Company realized an extraordinary gain of $3.17 million in the six months
ended June 30, 1996.
 
YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE YEAR ENDED DECEMBER 31, 1994
 
  Revenues
 
     Total revenues increased $14.3 million, or 66%, to $36.1 million in 1995
from $21.8 million in 1994. The increase in revenues was primarily due to the
combined effect of increases in loan originations and purchases, the adoption of
SFAS No. 122 and higher gains realized on the sale of loans through
securitizations. See '--Accounting Considerations--Mortgage Servicing Rights.'
 
                                       25
Gain on Sale of Loans, Net.  Gain on sale of mortgage loans, net increased
$8.7 million, or 131%, to $15.4 million in 1995 from $6.7 million in 1994. This
increase was primarily due to the combined effect of increased loan originations
and purchases and subsequent sales of loans through securitizations and the
adoption of SFAS No. 122. See--'Accounting Considerations--Mortgage Servicing
Right.' Total loan originations and purchases increased $168.1 million, or 140%,
to $287.8 million in 1995 from $119.7 million in 1994. The Company sold or
securitized $247.6 million of loans in 1995 compared to $102.0 million in 1994,
with a weighted average net gain on sale of 6.2% and 6.5%, respectively.
Included in the gains on sale of loans in 1995 was $2.1 million which represents
the present value of mortgage servicing rights that the Company receives over
time, as it sells loans through securitization on a servicing-retained basis.
The Company implemented SFAS No. 122, effective as of January 1, 1995.
 
     Interest Income.  Interest income increased $3.8 million, or 38%, to $13.6
million in 1995 from $9.8 million in 1994. The increase in interest income was
primarily due to a higher average balance of loans held for sale during 1995
resulting from the increases in loan originations and purchases.
 
     Servicing Income.  Servicing income increased $0.7 million, or 31%, to $2.9
million in 1995 from $2.2 million in 1994. This increase was primarily the
result of higher loan servicing volume which resulted in a greater amount of
contractual and ancillary service fees. During 1995, the average balance of
mortgage loans serviced by the Company increased 24% to $373.4 million, compared

to $300.7 million in 1994. During 1995, the Company also increased its ancillary
servicing income by charging prepayment penalties in states where such charges
are allowed.
 
     Other Income.  Other income increased $1.2 million, or 38%, to $4.3 million
in 1995 from $3.1 million in 1994. This increase was primarily due to the
increase in loan origination fees, which is the largest component of other
income. During 1995, broker loan originations increased by $94.3 million, or
116%, to $175.7 million from $81.4 million in 1994.
 
  Expenses
 
     Total expenses increased $11.7 million, or 59%, to $31.5 million for 1995
from $19.8 million in 1994. The increase in expenses was primarily the result of
increased interest expense on loans held for sale, the increased expense
associated with additional personnel required to process the greater number of
loan originations and purchases, and higher operating expenses related to
increased loan volume during 1995, as compared to 1994.
 
     Payroll Expense.  Payroll expense increased $4.1 million, or 46%, to $12.9
million for 1995, from $8.8 million for 1994. The increase was due primarily to
bonus increases granted to certain members of senior management and, to a lesser
extent, due to increased staffing in the Company's originations area. As of
December 31, 1995, the Company employed 255 persons as compared to 197 persons
as of December 31, 1994.
 
     Interest Expense.  Interest expense increased $4.3 million, or 113%, to
$8.0 million in 1995 from $3.7 million in 1994. The increase in interest expense
was attributable to the interest costs associated with a higher balance of loans
pending sale during 1995, resulting from increases in loan originations and
purchases during the period, and a higher balance of loans held for sale at the
beginning of the period ($48.8 million compared to $41.7 million for 1995 and
1994, respectively). The Company's cost of funds on its floating rate warehouse
facilities where it holds mortgage loans until the time of sale, was, on
average, 1.51% basis points higher in 1995 compared to 1994.
 
     General and Administrative Expenses.  General and administrative expenses
compared to increased $3.5 million, or 48%, to $10.7 million in 1995 from $7.2
million in 1994. The increase in general and administrative expenses was
primarily due to expenses incurred in association with the increases in loan
originations and purchases and associated increases in personnel expenses and
the direct costs relating to the transfer of the Company's prior servicing
system to its current servicing system.
 
                                       26
YEAR ENDED DECEMBER 31, 1994 COMPARED TO THE YEAR ENDED DECEMBER 31, 1993
 
  Revenues
 
     Total revenues decreased $0.7 million, or 3%, to $21.8 million in 1994 from
$22.5 million in 1993. The decrease in revenues was primarily due to lower rates
on mortgage loans resulting in narrowing interest spreads achievable in
securitizations and consequently lower gain on sale for the period.

 
     Gain on Sale of Loans, Net.  Gain on sale of mortgage loans, net decreased
$0.9 million, or 13%, to $6.7 million in 1994 from $7.6 million in 1993. This
decrease was primarily due to lower interest rates on mortgage loans, which was
reflected by an increased percentage of 'A' and 'B' credit borrowers. During
1994, the weighted average loan rate on mortgage loans sold or securitized was
12.38% as compared to 13.44% in 1993. The Company sold $102.0 million of loans
in 1994 as compared to $97.7 million in 1993, with a weighted average gain on
securitization of 6.5% and 7.8% respectively.
 
     Interest Income.  Interest income increased $0.7 million, or 7%, to $9.8
million in 1994 from $9.2 million in 1993. The increase in interest income was
primarily due to a longer holding period of loans held for sale during 1994.
During 1994, the Company completed two securitizations as compared to three
securitization transactions in 1993.
 
     Servicing Income.  Servicing income increased $0.1 million, or 4%, to $2.2
million in 1994 from $2.1 million in 1993. This increase was primarily the
result of higher loan servicing volume which resulted in a greater amount of
contractual and ancillary service fees. During 1994, the average balance of
mortgage loans serviced by the Company increased 6.5% to $300.7 million,
compared to $282.3 million in 1993.
 
     Other Income.  Other income decreased $.5 million, or 14%, to $3.1 million
in 1994 from $3.6 million in 1993. This decrease was primarily due to a decrease
in the origination fees earned on the mortgage loans. During 1994, loan
origination fees on mortgage loans averaged 3.3% compared to 4.0% in 1993. Loan
origination fees decreased due to competitive pressures and also due to the
increased proportion of 'A' and 'B' credits in the Company's portfolio.
 
  Expenses
 
     Total expenses increased $.9 million, or 5%, to $19.8 million for 1994 from
$18.9 million in 1993. The increase in expenses was primarily the result of
increased interest expense on loans held for sale, and one-time costs associated
with the Company's relocation.
 
     Payroll Expense.  Payroll expense decreased $0.5 million, or 5%, to $8.8
million for 1994 from $9.3 million for 1993. The decrease in payroll expense was
primarily due to decreases in officer's compensation. For the year ended 1994,
officer's compensation was $1.2 million as compared to $3.4 million in 1993;
however, this was partially offset by an increase in the number of employees
from 174 in 1993 to 197 in 1994.
 
     Interest Expense.  Interest expense increased $0.8 million, or 28%, to $3.7
million in 1994 from $2.9 million in 1993. The increase in interest expense was
attributable to a longer holding period for sale during 1994 due to the Company
securitizing twice during 1994 as opposed to three times during 1993. The
Company's cost of funds on its floating rate warehouse facilities where it holds
mortgage loans until the time of sale, was, on average, 1.25% basis points
higher in 1994 than in 1993.
 
     General and Administrative Expenses.  General and administrative expenses
which consist primarily of office and administrative, rent, and health care and

insurance expense increased $0.5 million, or 9%, to $7.2 million in 1994 from
$6.7 million in 1993. The increase in general and administrative expenses was
primarily due to expenses incurred in association with the Company's relocating
its headquarters in January of 1994. As a result, rent expense for 1994 was $0.4
million as compared to $0.2 million in 1993.
 
                                       27
FINANCIAL CONDITION
 
JUNE 30, 1996 COMPARED TO DECEMBER 31, 1995
 
     Cash and interest bearing deposits decreased $7.4 million, or 45%, to $9.2
million at June 30, 1996 from $16.6 million at December 31, 1995. The decrease
was primarily due to the Company's use of its own operating funds to fund its
loan originations and purchases.
 
     Accounts receivable increased $0.7 million, or 10%, to $7.5 million at June
30, 1996 from $6.8 milion at December 31, 1995. This increase was primarily the
result of increased reimbursable servicing advances made by the Company acting
as the servicer for its servicing portfolio.
 
     Loans held for sale increased $2.9 million, or 4%, to $66.7 million at June
30, 1996 from $63.8 million at December 31, 1995. This increase was a result of
additional loan originations and purchases remaining in inventory subsequent to
the Company's second quarter 1996 securitization.
 
     Accrued interest and late charges receivable decreased $0.2 million, or 1%,
to $15.7 million at June 30, 1996 from $15.9 million at December 31, 1995. This
decrease was a function of the decrease in the delinquent loans the Company
services and the corresponding decline in the collection of associated accrued
interest and late charges.
 
     Capitalized mortgage servicing rights increased $2.9 million, or 74%, to
$6.7 million at June 30, 1996 from $3.8 million at December 31, 1995. This
increase was directly attributable to the application of SFAS 122, which allows
the Company to capitalize the fair market value of the servicing retained asset
after it securitizes. See '-- Mortgage Servicing Rights.'
 
     Interest-only and residual certificates increased $17.9 million, or 71%, to
$43.2 million at June 30, 1996 from $25.3 million at December 31, 1995. This
increase was directly related to the Company's securitizations in the second
quarter of 1996.
 
     Warehouse financing and other borrowings increased $0.5 million, or 0.6%,
to $83.3 million at June 30, 1996 from $82.8 million at December 31, 1995. This
increase was due to additional loans held for sale.
 
     Investor payable decreased $0.7 million, or 5%, to $13.6 million at June
30, 1996 from $14.3 million at December 31, 1995. The decrease was primarily due
to the amount of principal collected by the Company acting as servicer, which
funds must be remitted to the various trusts for the following distribution
period. The investor payable is comprised of all principal collected on mortgage
loans, either due to principal amortization or principal repayment, and accrued

certificate interest. Variability in this account is primarily due to the
principal prepayments collected within a given collection period.
 
     Stockholders' equity increased $14.9 million, or 50%, to $44.7 million at
June 30, 1996 from $29.8 million at December 31, 1995. This increase was
directly attributable to the Company's net income of $15.3 million, less a
distribution to stockholders of $0.4 million.
 
DECEMBER 31, 1995 COMPARED TO DECEMBER 31, 1994
 
     Cash and interest bearing deposits increased $7.2 million, or 78%, to $16.6
million at December 31, 1995 from $9.4 million at December 31, 1994 primarily
due to proceeds from bank loans.
 
     Accounts receivable increased $1.1 million, or 20%, to $6.8 million at
December 31, 1995 from $5.7 million at December 31, 1994 primarily due to an
increase in the cash surrender value of an officer's life insurance policy and
the increased reimbursable servicing advances made by the Company acting as
servicer for its servicing portfolio.

     Loans held for sale increased $15.0 million, or 31%, to $63.8 million at
December 31, 1995 from $48.8 million at December 31, 1994 due primarily to
increased loan origination and purchase volume which exceeded the volume of
loans sold.
 
     Accrued interest and late charges receivable increased $3.2 million, or
25%, to $15.9 million at December 31, 1995 from $12.7 million at December 31,
1994 principally due to a larger servicing portfolio.
 
                                       28
Capitalized servicing rights increased $1.4 million, or 58%, to $3.8
million at December 31, 1995 from $2.4 million at December 31, 1994. This
increase is directly attributable to the adoption of SFAS 122, effective January
1, 1995. See '--Mortgage Servicing Rights.'
 
     Interest-only and residual certificates increased $17.8 million, or 236.8%,
to $25.3 million at December 31, 1995 from $7.5 million at December 31, 1994
primarily due to interest-only and residual certificates acquired in connection
with securitizations completed during the year of $19.4 million.
 
     Warehouse financing and other borrowing increased $30.3 million, or 58%, to
$82.8 million at December 31, 1995 from $52.5 million at December 31, 1994
primarily due to an increase in volume of loans held for sale and additional
financing for financing of Interest-only and residual certificates.
 
     Investor payable increased $3.2 million, or 29%, to $14.3 million at
December 31, 1995 from $11.1 million at December 31, 1994 primarily due to the
increase in principal amortization and principal prepayment collected by the
Company acting as Servicer, which amounts are remitted to the various trusts on
the following distribution dates.
 
     Stockholders' equity increased $1.7 million, or 6%, to $29.8 million at
December 31, 1995 from $28.1 million at December 31, 1994, due to net income of

$4.6 million offset in part by a distribution to stockholders of $2.9 million.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     The Company has operated, and expects to continue to operate, on a negative
cash flow basis due to increases in the volume of loan purchases and
originations and due to the growth of its securitization program. Currently, the
Company's primary cash requirements include the funding of (i) mortgage
originations and purchases pending their pooling and sale, (ii) the points and
expenses paid in connection with the acquisition of correspondent loans, (iii)
fees, expenses and tax payments incurred in connection with its securitization
program, (iv) over-collaterization requirements in connection with loans pooled
and sold, and (v) ongoing administrative and other operating expenses. The
Company has relied upon a few lenders to provide the primary credit facilities
for its loan originations and purchases.
 
     The Company must be able to sell loans and obtain adequate credit
facilities and other sources of funding in order to continue to originate and
purchase loans. As a result of increased loan originations and purchases and the
increase in its securitization program, the Company, during 1994 and 1995 and
the six months ended June 30, 1996, used cash of approximately $10.2 million,
$23.9 million and $8.2 million, respectively.
 
     To accumulate loans for securitization, the Company borrows money on a
short-term basis through warehouse lines of credit. The Company has two
warehouse facilities of credit for this purpose. One warehouse facility is a
committed revolving line for $100 million with a variable rate of interest and
matures October 12, 1996. The Company's second warehouse facility is an
uncommitted revolving line with a variable rate of interest which was recently
increased from $50 million to $150 million. The outstanding balance as of June
30, 1996 for these warehouse facilities were $48.9 million and $2.2 million,
respectively.
 
     In addition, the Company has two one-year renewable credit lines to support
its daily operating requirements. The Company has a $2.5 million credit line
with a variable interest rate, renewable in April 1997. The Company's other
operating credit line is for $1 million with a variable rate, renewable in
September 1996. The Company expects to renew this line. The outstanding balances
on these credit lines were $2.5 million and $1.0 million, respectively, on June
30, 1996.
 
     The Company has obtained financing facilities for interest-only and
residual certificates acquired as part of the 1992-1, 1994-2, 1995-1, 1995-2 and
1996-1 securitizations. As of June 30, 1996, the outstanding balance on each of
these facilities was $1.1 million, $1.9 million, $3.0 million, $9.2 million and
$10.8 million, respectively. These facilities have variable interest rates and
mature between October 1997 and June 1999.
 
     The Company is required to comply with various operating and financial
covenants as provided in the agreements described above which are customary for
agreements of their type. The Company does not believe that its existing
financial covenants will restrict its operations or growth. The continued
availability of funds
 

                                       29
provided to the Company under these agreements is subject to the Company's
compliance with these covenants. Management believes the Company is in
compliance with all such covenants under these agreements.
 
     The net proceeds of the Offering will be used to fund a distribution of
retained earnings, in the form of the Distribution Notes issued to the Existing
Stockholders, and to pay down the amounts outstanding under the Company's
warehouse lines. See 'Reorganization and Termination of S Corporation Status,'
'Use of Proceeds' and 'Certain Relationships and Related Party Transactions.'
The Company anticipates that the net proceeds from the Offering, together with
the funds available under its warehouse facilities, credit facilities and under
additional residual financing arrangements will be sufficient to fund its
operations for the next twelve months, if the Company's future operations are
consistent with management's expectations. The Company may need additional
financing thereafter. There can be no assurance that the Company will be able to
obtain financing on a favorable or timely basis. The type, timing and terms of
financing selected by the Company will depend on its cash needs, the
availability of other financing sources and the prevailing conditions in the
financial markets.
 
  Hedging
 
     The Company originates and purchases mortgage loans and then sells them
primarily through securitizations. At the time of securitization and delivery of
the loans, the Company recognizes gain on sale based on a number of factors
including the difference, or 'spread' between the interest rate on the loans and
the interest rate on treasury securities with maturities corresponding to the
anticipated life of the loans. If interest rates rise between the time the
Company originates or purchases the loans and the time the loans are priced at
securitization, the excess spread narrows, resulting in a loss in value of the
loans. To protect against such losses, the Company currently hedges the value of
the loans through the short sale of treasury securities. Prior to hedging, the
Company performs an analysis of its loans taking into account such factors as
interest rates, maturities, durations, inventory of loans and amount of loans in
the pipeline to determine the proportion of treasury securities to sell short so
that the risk to the value of the loans is most effectively hedged. The Company
will sell the treasury securities (typically through one of its warehouse
lenders and/or one of the investment bankers which underwrite the Company's
securitizations) and uses the proceeds from the sale to acquire treasury
securities under repurchase agreements. These securities are designated as
hedges in the Company's records and are closed out when the loans are sold
through securitization.
 
     If the value of the hedges decrease, offsetting an increase in the value of
the loans, the Company, upon settlement with its counterparty, will pay the
hedge loss in cash and realize the corresponding increase in the value of the
loans as part of its interest-only and residual certificates. Conversely, if the
value of the hedges increase, offsetting a decrease in the value of the loans,
the Company, upon settlement with its counterparty, will receive the hedge gain
in cash and realize the corresponding decrease in the value of the loans through
a reduction in the value of the corresponding interest-only and residual
certificates.

 
     The Company believes that its current hedging strategy of using treasury
securities is the most effective way to manage its interest rate risk on loans
prior to securitization.
 
INFLATION AND INTEREST RATES
 
     Inflation has had no material effect on the Company's results of
operations. Inflation affects the Company most significantly in the area of loan
originations and can have a substantial effect on interest rates. Interest rates
normally increase during periods of high inflation and decrease during periods
of low inflation. Profitability may be directly affected by the level and
fluctuation in interest rates which affect the Company's ability to earn a
spread between interest received on its loans and the costs of its borrowings.
The profitability of the Company is likely to be adversely affected during any
period of unexpected or rapid changes in interest rates. A substantial and
sustained increase in interest rates could adversely affect the ability of the
Company to purchase and originate loans and affect the mix of first and second
mortgage loan products. Generally, first mortgage production increases relative
to second mortgage production in response to low interest rates and second
mortgage production increases relative to first mortgage production during
periods of high interest rates. A significant decline in interest rates could
decrease the size of the Company's loan servicing portfolio by increasing the
level of loan prepayments. Additionally, to the extent servicing rights,
interest-only and residual classes of certificates have been capitalized on the
books of the Company, higher than anticipated rates of loan
 
                                       30
prepayments or losses could require the Company to write down the value of such
servicing rights, interest-only and residual certificates, adversely impacting
earnings. Fluctuating interest rates also may affect the net interest income
earned by the Company resulting from the difference between the yield to the
Company on loans held pending sales and the interest paid by the Company for
funds borrowed under the Company's warehouse facilities. In addition, inverse or
flattened interest yield curves could have an adverse impact on the
profitability of the Company because the loans pooled and sold by the Company
have long-term rates, while the senior interests in the related trusts are
priced on the basis of intermediate rates.
 
CERTAIN OTHER ACCOUNTING PRONOUNCEMENTS
 
  FASB 125
 
     In June 1996, FASB issued SFAS No. 125 'Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities' ('SFAS No.
125') which provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities based on
consistent application of a financial-components approach that focuses on
control. SFAS No. 125 distinguishes transfers of financial assets that are sales
from transfers that are secured borrowings.
 
     SFAS No. 125 is effective for transfers and servicing of financial assets
and extinguishments of liabilities occurring after December 31, 1996, and is to

be applied prospectively. The Company has not completed its analysis of the
statement.
 
  FASB 123
 
     In October 1995, FASB issued SFAS No. 123 'Accounting for Stock-Based
Compensation' ('SFAS No. 123'). SFAS No. 123 establishes financial accounting
and reporting standards for stock-based employee compensation plans. Those plans
include all arrangements by which employees receive shares of stock or other
equity instruments of the employer or the employer incurs liabilities to
employees in amounts based on the price of the employer's stock. Examples are
stock purchase plans, stock options, restricted stock awards, and stock
appreciation rights. This statement also applies to transactions in which an
entity issues its equity instruments to acquire goods or services from
non-employees. Those transactions must be accounted for, or at least disclosed
in the case of stock options, based on the fair value of the consideration
received or the fair value of the equity instruments issued, whichever is more
reliably measurable. The accounting requirements of SFAS No. 123 are effective
for financial statements for fiscal years beginning after December 15, 1995, or
for an earlier fiscal year for which SFAS No. 123 is initially adopted for
recognizing compensation cost. The statement permits a company to choose either
a new fair value-based method or the current APB Opinion 25 intrinsic
value-based method of accounting for its stock-based compensation arrangements.
The statement requires pro forma disclosures of net earnings and earnings per
share computed as if the fair value-based method had been applied in financial
statements of companies that continue to follow current practice in accounting
for such arrangements under APB Opinion 25. Prior to the date of the Prospectus,
the Company will determine which method it will use to account for stock
options.
 
                                       31
BUSINESS
 
     Delta is a specialty consumer finance company that has engaged in
originating, acquiring, selling and servicing home equity loans since 1982.
Throughout its 14 years of operating history, Delta has focused on lending to
individuals who generally have impaired or limited credit profiles or higher
debt to income ratios and typically have substantial equity in their homes. The
Company makes loans to these borrowers for such purposes as debt consolidation,
home improvement, refinancing or education, and these loans are primarily
secured by first mortgages on one- to four-family residential properties.
 
     Delta originates home equity loans through licensed mortgage brokers and
other real estate professionals ('brokers') who submit loan applications on
behalf of the borrower ('Brokered Loans'). Delta also purchases from approved
mortgage bankers and financial institutions ('correspondents') loans that
conform to Delta's underwriting guidelines ('Correspondent Loans'). During the
twelve month period ended June 30, 1996, the Company has originated loans
through 806 brokers and purchased loans through 186 correspondents. The Company
believes that it has a competitive advantage in serving brokers and
correspondents in the nonconforming home equity market that stems from its
substantial experience in this sector and its emphasis on providing quality
service that is prompt, responsive and consistent. The 19 members of the
Company's senior management have an average of over 12 years of nonconforming
mortgage loan experience, and more than one-quarter of the Company's employees
have been with the Company for at least five years. Management believes this
industry- and company-specific experience, coupled with the systems and programs
it has developed over the past 14 years, enable the Company to provide quality
services that include preliminary approval of most Brokered Loans and certain
Correspondent Loans within one day, consistent application of its underwriting
guidelines and funding or purchasing of loans within 14 to 21 days of
preliminary approval. In addition, the Company seeks to establish and maintain
productive relationships with its network of brokers and correspondents by
servicing each one with a business development representative, a team of
experienced underwriters and, in the case of Brokered Loans, a team of loan
officers and processors who are assigned to specific brokers to process all
applications submitted by each broker.
 
     During its first 12 years of operation, Delta concentrated its efforts on
serving brokers and correspondents primarily in New York, New Jersey and
Pennsylvania. Commencing in 1995, the Company began to implement a program to
expand its geographic focus into the New England, Mid-Atlantic and Midwest
regions. The Company currently originates and purchases the majority of its
loans in 21 states and the District of Columbia through a staff of 18 business
development representatives who operate from the Company's main office in New
York and from nine business development offices located in Michigan (2),
Missouri, New Jersey, Ohio (2), Pennsylvania, Rhode Island and Virginia. The
Company intends to open a full service office in Atlanta, Georgia in September
1996. Two members of Delta's senior management will relocate to this office
which will concentrate on developing Delta's Mid-Atlantic and Southeast markets.
As a consequence of its expansion into new markets, as well as of its further
penetration of existing markets, the Company increased its loan production
substantially in 1995 and the first six months of 1996. Total loan originations
and purchases increased from $119.7 million in 1994 to $287.8 million in 1995

and $244.1 million in the first six months of 1996. Of the total loan production
during the first six months of 1996, 56% was originated through the Company's
broker network and 44% was purchased from its correspondent network. See
'--Loans.'
 
     Since February 1991, Delta has sold $841 million of its mortgage loans
through 11 REMIC securitizations. Each of these securitizations has been credit
enhanced by an insurance policy provided through a monoline insurance company to
receive ratings of Aaa from Moody's and AAA from Standard & Poor's. The Company
has also sold $51.3 million of its mortgage loans to institutional purchasers on
a wholesale basis without recourse since 1991. The Company sells loans through
securitizations and on a whole loan basis to enhance its operating leverage and
liquidity, to minimize financing costs and to reduce its exposure to
fluctuations in interest rates.
 
     Since its inception, the Company has serviced substantially all of the
loans it has originated and purchased, including all of those that it has
subsequently sold through securitizations. Management believes that servicing
this portfolio enhances certain operating efficiencies and provides an
additional and profitable revenue stream that is less cyclical than the business
of originating and purchasing loans. As of June 30, 1996, Delta had a servicing
portfolio of $624.1 million. See '--Loans.'
 
                                       32
The Company has been profitable in each of its 14 years of operation.
However, the Company's results of operations have improved significantly in
recent periods as a result of increased loan production and the improved
structure of its recent securitizations. During 1995 as compared to 1994, the
Company's total revenues increased 66% from $21.8 million to $36.1 million and
net income increased 130% from $2.0 million to $4.6 million. For the first six
months of 1996, total revenues and net income were $30.4 million and $15.3
million, respectively, representing increases of 120% and 739%,respectively,
over the results for the comparable six months of 1995. See 'Management's
Discussion and Analysis of Financial Condition and Results of Operations.'
 
BUSINESS STRATEGY
 
     The Company's business strategy is to increase profitably the volume of its
loan originations and purchases and the size of its servicing portfolio by (i)
continuing to provide top quality service to its network of brokers and
correspondents, (ii) maintaining its underwriting standards, (iii) penetrating
further its established markets and recently-entered markets and expanding into
new geographic markets, (iv) broadening its product offerings, (v) continuing
its investment in origination and servicing systems and (vi) strengthening its
loan production capabilities through acquisitions.
 
  Continuing to Provide Quality Service
 
     The Company provides a high level of service to its network of brokers and
correspondents that includes preliminary approval of most Brokered Loans and
certain Correspondent Loans within one day, consistent application of its
underwriting guidelines and funding or purchase of loans generally within 14 to
21 days of preliminary approval. In addition, the Company services each broker

and correspondent with a team of professionals that includes a business
development representative, a team of experienced underwriters and, in the case
of Brokered Loans, a team of loan officers working on a primarily commission
basis with processors assisting them to handle applications submitted by each
broker. The Company believes that this commitment to service provides it with a
competitive advantage in establishing and maintaining productive broker and
correspondent relationships.
 
  Maintaining Underwriting Standards
 
     Over its 14 years in existence, the Company has developed an underwriting
process designed to thoroughly, but efficiently, review and underwrite each
prospective loan. Based on its belief that an experienced staff provides a more
effective means of assessing credit risk, the Company employs 25 underwriters,
with an average of seven and one-half years of nonconforming mortgage loan
experience, to ensure that all originated or purchased loans satisfy the
Company's underwriting criteria. Each loan must be signed off by at least two
underwriters, undergo a full appraisal review and is subject to pre- and
post-funding audits to confirm compliance with the underwriting procedures and
guidelines. The Company believes that the depth and experience of its
underwriting staff, coupled with its consistent underwriting procedures and
criteria provide it with the infrastructure needed to manage and sustain the
Company's recent growth, while maintaining the quality of loans originated or
purchased.
 
  Further Penetrating Existing and Recently Entered Markets and Expanding into
  New Markets
 
     The Company intends to continue to increase the volume of its loans
originations and purchases through a three-pronged strategy that includes
greater originations and purchases from its existing brokers and correspondents,
establishment of new broker and correspondent relationships in recently entered
markets and expansion into new markets.
 
     During the twelve month period ended June 30, 1996, the Company originated
and purchased loans through a network of 806 brokers and 186 correspondents. Of
these, the top 20 brokers and correspondents and the top broker accounted for
48.7% and 12.6%, respectively, of the total loans originated and purchased
during the first six months of 1996. Accordingly, the Company believes that
there is an opportunity to increase loan volume from its existing brokers and
correspondents.
 
                                       33
Prior to 1995, the Company concentrated its efforts on serving brokers and
correspondents in New York, New Jersey and Pennsylvania. Commencing in 1995, the
Company began to implement a program to expand its geographic focus into the New
England, Mid-Atlantic and Midwest regions. To increase its network of brokers
and correspondents in these new markets, the Company has hired 11 new business
development representatives and opened seven new business development offices in
Michigan (2), Missouri, Ohio (2), Rhode Island and Virginia. During this period,
the Company has experienced significant growth in these newly targeted
geographic areas. In the New England, Mid-Atlantic and Midwest regions,
originations have increased by 505% from $6.6 million in 1994 to $39.8 million

in 1995, and 797% from $7.5 million in the first six months of 1995 to $67.3
million in the first six months of 1996. In addition, in September 1996, the
Company intends to open a full service office in Atlanta, Georgia to concentrate
its efforts and better service the Mid-Atlantic and Southeast regions. Two
members of the Company's senior management, a vice president in underwriting and
an assistant vice president in sales, who have been with Delta for an average of
seven and one-half years, are relocating to Atlanta to manage the new office.
 
     Finally, the Company will continue to consider expansion into new markets.
Potential new markets will include those with demographic statistics and
regulatory requirements comparable to or more favorable than those in the
Company's established markets and markets in which the Company is able to hire a
business development representative with substantial contacts with the local
brokers and correspondents.
 
  Broadening Product Offerings
 
     The Company frequently reviews its pricing and loan products relative to
its competitors and introduces new loan products in order to meet the needs of
its correspondents and brokers. The Company has recently introduced products for
multi-family and mixed-use real estate and continuously evaluates other
products.
 
  Investing in Information and Processing Technologies
 
     In its continued effort to increase efficiency, the Company has added a new
servicing system, purchased a secondary marketing system and a new general
ledger system and upgraded all of its computer hardware within the last year.
The Company intends to continually look for ways to improve efficiencies through
automation.
 
  Expanding through Acquisitions
 
     In addition to internal growth, management believes acquisitions are a
means of strengthening the Company's loan production capabilities. Given the
highly competitive and fragmented nature of the non-conforming mortgage finance
industry, acquisitions present an attractive opportunity for growth. The Company
will consider acquisition candidates which operate in geographic or product
areas that complement the Company's existing business.
 
LOANS
 
  Overview
 
     Delta's consumer finance activities consist of originating, acquiring,
selling and servicing mortgage loans. These loans are primarily secured by first
mortgages on one- to four-family residences. Once loan applications have been
received, the underwriting process completed and the loans funded or purchased,
Delta typically packages the loans in a portfolio and sells the portfolio
through a securitization. Delta retains the right to service the loans that it
securitizes. To a lesser extent, the Company sells loans on a whole loan basis
with servicing released.
 
  Loan Origination and Purchases

 
     The Company has increased its loan originations and purchases by 140% from
$119.7 million during 1994 to $287.8 million in 1995 and 126% from $108.1
million during the first six months of 1995 to $244.1 million during the first
six months of 1996.
 
                                       34
Delta currently originates and acquires the majority of its loans in 21
states and the District of Columbia through its network of 806 brokers and 186
correspondents.
 
     The following table shows the sources of the Company's loan originations
and acquisitions for the periods shown:
YEAR ENDED                    SIX MONTHS
                                                        DECEMBER 31,                 ENDED JUNE 30,
                                              --------------------------------    --------------------
                                                1993        1994        1995        1995        1996
                                              --------    --------    --------    --------    --------
                                                               (DOLLARS IN THOUSANDS)
BROKER:
  Principal balance........................   $ 76,220    $ 81,407    $175,738    $ 64,250    $135,621
  Average principal balance per loan.......         62          66          76          71          86
  Combined weighted average initial
     loan-to-value ratio(1)................       53.1%       54.8%       62.3%       60.3%       67.0%
  Weighted average interest rate...........       12.3%       11.7%       11.4%       12.0%       10.8%
CORRESPONDENT:
  Principal balance........................   $ 26,844    $ 38,341    $112,065    $ 43,886    $108,472
  Average principal balance per loan.......         57          68          70          72          73
  Combined weighted average initial
     loan-to-value ratio(1)................       47.5%       56.2%       64.5%       61.8%       67.6%
  Weighted average interest rate...........       14.6%       13.0%       12.4%       12.8%       11.9%
TOTAL LOAN ORIGINATIONS AND PURCHASES:
  Principal balance........................   $103,063    $119,748    $287,805    $108,136    $244,093
  Average principal balance per loan.......         60          67          74          72          79
  Combined weighted average initial
     loan-to-value ratio(1)................       51.7%       55.2%       63.2%       60.9%       67.3%
  Weighted average interest rate...........       12.9%       12.1%       11.8%       12.3%       11.3%
PERCENTAGE OF LOANS SECURED BY:
  First Mortgage...........................       81.1%       88.0%       89.6%       88.8%       94.4%
- ------------------
(1) The weighted average initial loan-to-value ratio of a loan secured by a
    first mortgage is determined by dividing the amount of the loan by the
    lesser of the purchase price or the appraised value of the mortgage property
    at origination. The weighted average initial loan-to-value ratio of loan
    secured by a second mortgage is determined by taking the sum of the loan
    secured by the first and second mortgages and dividing by the lesser of the
    purchase price or the appraised value of the mortgage property at

    origination.
 
                                       35
The following table shows channels of loan originations and purchases on a
quarterly basis for the fiscal quarters shown:
THREE MONTHS ENDED
                                                   ------------------------------------------------------------------
                                                   JUNE 30,    SEPTEMBER 30,    DECEMBER 31,    MARCH 31,    JUNE 30,
                                                     1995          1995             1995          1996         1996
                                                   --------    -------------    ------------    ---------    --------
                                                                         (DOLLARS IN THOUSANDS)
BROKER:
  Principal balance.............................   $ 36,442       $48,837         $ 62,651      $  66,389    $ 69,232
  Average principal balance per loan............         72            75               84             85          86
  Combined weighted average initial
     loan-to-value ratio(1).....................       60.7%         62.5%            64.1%          66.8%       67.1%
  Weighted average interest rate................       11.8%         11.3%            10.9%          10.4%       11.1%
 
CORRESPONDENT:
  Principal balance.............................   $ 29,425       $29,783         $ 38,396      $  49,373    $ 59,099
  Average principal balance per loan............         72            68               67             70          75
  Combined weighted average initial
     loan-to-value ratio(1).....................       63.1%         66.2%            66.3%          68.1%       67.2%
  Weighted average interest rate................       12.8%         12.3%            12.1%          11.8%       11.9%
 
TOTAL LOAN PURCHASES AND ORIGINATIONS:
  Principal balance.............................   $ 65,867       $78,621         $101,047      $ 115,762    $128,331
  Average principal balance per loan............         72            72               77             78          81
  Combined weighted average initial
     loan-to-value ratio(1).....................       61.7%         63.9%            65.0%          67.4%       67.1%
  Weighted average interest rate................       12.3%         11.7%            11.4%          11.0%       11.5%
- ------------------
(1) The weighted average initial loan-to-value ratio of a loan secured by a
    first mortgage is determined by dividing the amount of the loan by the
    lesser of the purchase price or the appraised value of the mortgage property
    at origination. The weighted average initial loan-to-value ratio of loan
    secured by a second mortgage is determined by taking the sum of the loan
    secured by the first and second mortgages and dividing by the lesser of the
    purchase price or the appraised value of the mortgage property at
    origination.
 
     The following table shows lien position, weighted average interest rates
and loan-to-value ratios for the periods shown:
YEAR ENDED DECEMBER 31,

                                                            -----------------------    SIX MONTHS ENDED
                                                            1993     1994     1995      JUNE 30, 1996
                                                            -----    -----    -----    ----------------
FIRST MORTGAGE:
  Percentage of total purchases and originations.........   81.1%    88.0%    89.6%          94.4%
  Weighted average interest rate.........................   12.9%    12.1%    11.8%          11.3%
  Weighted average initial loan-to-value ratio(1)........   51.8%    54.8%    63.2%          67.5%
 
SECOND MORTGAGE:
  Percentage of total purchases and originations.........   19.0%    12.0%    10.4%           5.6%
  Weighted average interest rate.........................   12.9%    12.1%    11.9%          11.4%
  Weighted average initial loan-to-value ratio(1)........   51.2%    57.0%    62.9%          62.9%
- ------------------
(1) The weighted average initial loan-to-value ratio of a loan secured by a
    first mortgage is determined by dividing the amount of the loan by the
    lesser of the purchase price or the appraised value of the mortgage property
    at origination. The weighted average initial loan-to-value ratio of loan
    secured by a second mortgage is determined by taking the sum of the loan
    secured by the first and second mortgages and dividing by the lesser of the
    purchase price or the appraised value of the mortgage property at
    origination.
 
                                       36
The following table shows the geographic distribution of loan purchases and
originations for the periods indicated:
YEAR ENDED           YEAR ENDED           YEAR ENDED           SIX MONTHS ENDED
STATE                             DECEMBER 31, 1993    DECEMBER 31, 1994    DECEMBER 31, 1995        JUNE 30, 1996
- -------------------------------   -----------------    -----------------    -----------------    ----------------------
New York.......................         74.8%                80.9%                73.8%                   62.5%
New Jersey.....................         14.9%                10.6%                 8.1%                    6.4%
Illinois.......................          0.1%                 0.9%                 2.2%                    4.5%
Pennsylvania...................          3.5%                 3.0%                 4.3%                    3.5%
Michigan.......................          2.6%                 1.0%                 0.7%                    3.4%
Ohio...........................          0.2%                 0.1%                 0.9%                    3.2%
Massachusetts..................          0.0%                 0.0%                 0.8%                    2.9%
North Carolina.................          0.0%                 0.1%                 1.4%                    2.2%
Missouri.......................          0.0%                 0.0%                 0.6%                    1.7%
Florida........................          0.0%                 0.3%                 0.5%                    1.6%
All Other......................          3.9%                 3.1%                 6.7%                    8.1%
Broker and Correspondent Marketing.  Throughout its history Delta has been
successful in establishing and maintaining relationships with brokers and
correspondents interested in offering non-conforming mortgage products to their
clientele, and management believes that this success is primarily attributable
to the quality of service the Company provides to its network of brokers and

correspondents. See 'Business Strategy-- Continuing to Provide Quality Service.'
 
     Delta typically initiates contact with a broker or correspondent through
Delta's Business Development Department which is comprised of 18 business
development representatives who are supervised by a senior officer with over ten
years of sales and marketing experience in the industry. The Company typically
hires business development representatives who have contacts with brokers and
correspondents that originate nonconforming mortgage loans within their
geographic territory. The business development representatives are responsible
for developing and maintaining the Company's broker and correspondent networks
within their geographic territory, by frequent visits to the broker or
correspondent, communicating the Company's underwriting guidelines,
disseminating new product information and pricing changes, and a continuing
commitment to understanding the needs of the customer. The business development
representatives attend industry trade shows, and are a source of information to
Delta concerning products and pricing offered by competitors and new market
entrants, all of which assists Delta in refining its programs and product
offerings in order to offer competitive service. Business development
representatives are compensated with a base salary and commissions based on the
volume of loans purchased or originated as a result of their efforts.
 
     Approval Process.  Before a broker or correspondent becomes part of Delta's
network, it must go through an approval process. Once approved, brokers and
correspondents may immediately begin submitting applications and/or loans to
Delta.
 
     To be approved, a broker must demonstrate that it is properly licensed and
registered in the state in which it seeks to transact business, submit to a
credit check, and sign a standard broker agreement with Delta. A correspondent
is eligible to submit loans to Delta for purchase only after an extensive
investigation of the prospective correspondent's lending operations including an
on-site visit, a review of the correspondent's financial statements for the
prior two years, a credit report on the correspondent, a review of sample loan
documentation, and business references provided by the correspondent. Once
approved, Delta requires that each correspondent sign an Agreement of Purchase
and Sale in which the correspondent makes representations and warranties
governing both the mechanics of doing business with Delta and the quality of the
loan submissions themselves. Delta also performs an annual review of each
approved correspondent in order to ensure continued compliance with legal
requirements and that lending operations and financial information continue to
meet Delta's standards. In addition, Delta regularly reviews the performance of
loans originated or purchased through its brokers or correspondents.
 
     Brokers.  For the year ended December 31, 1995, the Company's broker
network accounted for $175.7 million or 61% of Delta's loan purchases and
originations compared to $81.4 million or 68% of Delta's loan purchases and
originations for the year ended December 31, 1994. During the six months ended
June 30, 1996,
 
                                       37
the Company's broker network accounted for $135.6 million or 56% of Delta's loan
purchases and originations. No single broker contributed more than 6.2% or 12.6%
of Delta's total purchases or originations in 1995 and the first six months of

1996, respectively.
 
     Once approved, a broker may submit loan applications for prospective
borrowers to Delta. To process broker submissions, Delta's broker originations
area is organized into teams, consisting of loan officers and processors, which
are generally assigned to specific brokers. Because Delta operates in a highly
competitive environment where brokers may submit the same loan application to
several prospective lenders simultaneously, Delta strives to provide brokers
with a rapid and informed response. Loan officers analyze the application and
provide the broker with a preliminary approval, subject to final underwriting
approval, or a denial, typically within one business day. If the application is
approved by the Company's underwriters, a 'conditional approval' will be issued
to the broker with a list of specific conditions to be met and additional
documents to be supplied prior to funding the loan. The loan officer and
processor team will then work directly with the submitting broker to collect the
requested information and meet all underwriting conditions. In most cases, the
Company funds loans within 14 to 21 days after preliminary approval of the loan
application. In the case of a denial, Delta will make all reasonable attempts to
ensure that there is no missing information concerning the borrower or the
application that might change the decision on the loan.
 
     The Company compensates its loan officers, who on a loan-by-loan basis are
the primary relationship contacts with the brokers, predominantly on a
commission basis. The Company believes its primarily commission-based
compensation for loan officers gives it a competitive advantage over its
competitors, who, the Company believes, typically assign non- or
lower-commissioned processors to handle this function. Furthermore, all loan
officers must complete an extensive 9 to 12 month training program to attain the
level of knowledge and experience integral to the Company's commitment to
providing the highest quality service for brokers. Management believes that by
maintaining an efficient, trained and experienced staff, it has addressed two
central factors which determine where a broker will send its business: (i) the
speed with which a lender closes loans and (ii) the knowledge the lender has
with respect to the borrower and his business and (iii) and support a lender
provides.
 
     Correspondents.  For the year ended December 31, 1995, Delta's
correspondent network accounted for $112.1 million or 39% of Delta's loan
purchases and originations, compared to $38.3 million or 32% of Delta's loan
purchases and originations for the year ended December 31, 1994. During the six
months ended June 30, 1996, Delta's correspondent network accounted for $108.5
million or 44% of Delta's loan purchases and originations. No single
correspondent contributed more than 6.3% or 3.8% of Delta's total loan purchases
and originations in 1995 or the first six months of 1996, respectively.
 
     An approved correspondent is a licensed mortgage banker or savings and loan
who sells loans to Delta which the correspondent has originated, processed,
closed and funded in its own name in conformity with Delta's underwriting
standards. The loans are sold to Delta either on an individual flow basis or in
block sales. When selling on a flow basis, a correspondent will typically seek a
preapproval from Delta prior to closing the loan, and Delta will approve the
loan based on a partial or full credit package, stipulating for any items needed
to complete the package in adherence to Delta's underwriting guidelines. On a
block sale, a correspondent will offer a group of loans to Delta for sale (not

necessarily loans that have been preapproved), and Delta will underwrite and
purchase those loans in the block that meet Delta's underwriting criteria. As
with the broker network, Delta's Correspondent Division has a commitment to
quick and knowledgeable service, and is staffed by some of the most capable
mortgage professionals within the Company.
 
  Loan Underwriting
 
     All of Delta's brokers and correspondents are provided with the Company's
underwriting guidelines. Loan applications received from brokers and
correspondents are classified according to certain characteristics, including
but not limited to: condition and location of the collateral, credit history of
the applicant, ability to pay, loan-to- value ratio and general stability of the
applicant in terms of employment history and time in residence. Delta has
established classifications with respect to the credit profile of the applicant,
and each loan is placed into one of four letter ratings 'A' through 'D', with
subratings within those categories. Terms of loans made by Delta, as well as
maximum loan-to-value ratios and debt-to-income ratios, vary depending on the
classification of
 
                                       38
the applicant. Loan applicants with less favorable credit ratings are generally
offered loans with higher interest rates and lower loan-to-value ratios than
applicants with more favorable credit ratings. The general criteria used by
Delta's underwriting staff in classifying loan applicants are set forth below.
 
               UNDERWRITING CRITERIA OF DELTA FUNDING CORPORATION
'A' RISK               'B' RISK               'C' RISK               'D' RISK
                       ---------------------  ---------------------  ---------------------  ---------------------
Credit profile.......  Excellent credit       Good overall credit    Good to fair credit    Fair to poor credit
                       history
 
Existing mortgage
  history............  Current at             Current at             Up to 30 days          Mortgage rating not a
                       application time and   application time and   delinquent at          factor
                       a maximum of two       a maximum of four      application time and
                       30-day late payments   30-day late payments   a maximum of four
                       in the last 12 months  in the last 12 months  30-day late payments,
                                                                     two 60-day late
                                                                     payments and one
                                                                     90-day late payment
                                                                     in the last 12 months
 
Other credit.........  Minor 30-day late      Some slow pays         Slow pays, some open   Not a factor.
                       items allowed with a   allowed but majority   delinquencies          Derogatory credit
                       letter of              of credit and          allowed. Isolated      must be paid with
                       explanation; no open   installment debt paid  charge-offs,           proceeds. Must
                       collection accounts,   as agreed. Small       collection accounts    demonstrate ability
                       charge-offs,           isolated charge-offs,  or judgments case-by-  to pay

                       judgments              collections, or        case
                                              judgments allowed
                                              case-by-case
 
Bankruptcy filings...  Discharged more than   Discharged more than   Discharged more than   May be open at
                       four years prior to    three years prior to   one year prior to      closing, but must be
                       closing and excellent  closing and excellent  closing and good       paid off with
                       reestablished credit   reestablished credit   reestablished credit   proceeds
 
Debt Service to
  Income ratio.......  Generally 45% or less  Generally 50% or less  Generally 50% or less  Generally 50% or less
 
Maximum loan-to-value
  ratio:
 
  Owner-occupied.....  Generally 80% (up to   Generally 80% (up to   Generally 75% (up to   Generally 65% (up to
                       90%*) for a one- to    85%*) for a one- to    80%*) for a one- to    70%*) for a one- to
                       four-family residence  four-family residence  four-family residence  four-family residence
 
  Non-owner            Generally 70% (up to   Generally 70% (up to   Generally 65% (up to   Generally 55% (up to
    occupied.........  80%*) for a one- to    80%*) for a one- to    75%*) for a one- to    60%*) for a one- to
                       four-family residence  four-family residence  four-family residence  four-family residence
 
Employment...........  Minimum 2 years        Minimum 2 years        Minimum 2 years        No minimum required
                       employment in the      employment in the      employment in the
                       same field             same field             same field
- ------------------
 
* On an exception basis
 
     Delta uses the foregoing categories and characteristics as guidelines only.
On a case-by-case basis, the Company may determine that the prospective borrower
warrants an exception, if sufficient compensating factors exist. Examples of
such compensating factors are: low loan-to-value ratio, low debt ratio,
long-term stability of employment and/or residence, excellent payment history on
past mortgages, or a significant reduction in monthly housing expenses.
 
                                       39
The following table sets forth certain information with respect to Delta's
loan purchases and originations by borrower classification, along with weighted
average coupons, for the periods shown.
PERCENT
YEAR            CREDIT          TOTAL           OF TOTAL         WAC(1)         WLTV(2)
- --------        ------         --------         --------         ------         -------
1993               A           $ 15,221            14.8%         10.9%           56.9%
                   B             17,177            16.7%         11.8%           54.6%
                   C             31,621            30.7%         12.9%           51.7%

                   D             39,044            37.9%         14.2%           48.3%
                               --------         --------         ------         -------
       Totals                  $103,063           100.0%         12.9%           51.7%
                               --------         --------         ------         -------
                               --------         --------         ------         -------
1994               A           $ 35,121            29.3%         10.8%           58.9%
                   B             38,575            32.2%         11.7%           56.4%
                   C             25,562            21.3%         12.8%           52.9%
                   D             20,491            17.1%         14.3%           49.3%
                               --------         --------         ------         -------
       Totals                  $119,748           100.0%         12.1%           55.2%
                               --------         --------         ------         -------
                               --------         --------         ------         -------
1995               A           $ 89,830            31.2%         10.7%           66.8%
                   B            124,954            43.4%         11.6%           64.5%
                   C             37,190            12.9%         12.8%           59.6%
                   D             35,831            12.4%         14.5%           53.2%
                               --------         --------         ------         -------
       Totals                  $287,805           100.0%         11.8%           63.2%
                               --------         --------         ------         -------
                               --------         --------         ------         -------
1996(3)            A           $ 71,381            29.2%         10.3%           71.4%
                   B             94,012            38.5%         11.0%           68.5%
                   C             57,889            23.7%         12.1%           64.3%
                   D             20,810             8.5%         13.9%           55.9%
                               --------         --------         ------         -------
       Totals                  $244,093           100.0%         11.3%           67.3%
                               --------         --------         ------         -------
                               --------         --------         ------         -------
- ------------------
(1) Weighted Average Coupon ('WAC').
(2) Weighted Average Initial Loan-to-Value Ratio ('WLTV').
(3) Six months ended June 30, 1996.
 
     Assessment of an applicant's ability and willingness to pay is one of the
principal elements in distinguishing Delta's lending specialty from methods
employed by traditional lenders, such as savings and loans and commercial banks.
All lenders utilize debt ratios and loan-to-value ratios in the approval
process. Many lenders simply use software packages to score an applicant for
loan approval and fund the loan after auditing the data provided by the
borrower. In contrast, Delta employs experienced non-conforming mortgage loan
credit underwriters to scrutinize the applicant's credit profile and to evaluate
whether an impaired credit history is a result of adverse circumstances or a
continuing inability or unwillingness to meet credit obligations in a timely
manner. Personal circumstances including divorce, family illnesses or deaths and
temporary job loss due to layoffs and corporate downsizing will often impair an
applicant's credit record.
 
     Delta has a staff of 25 underwriters, with an average of more than seven
and one-half years of non-conforming underwriting experience. At present, all
underwriting functions are centralized in its Woodbury, New York office. Delta
does not delegate underwriting authority to any broker or correspondent. Delta's

Underwriting Department functions independently of its Business Development and
Mortgage Origination Departments and does not report to any individual directly
involved in the origination process. No underwriter at Delta is compensated on
an incentive or commission basis.
 
     Delta has instituted underwriting checks and balances that are designed to
ensure that every loan is reviewed and approved by a minimum of two
underwriters, with certain higher loan amounts requiring a third approval.
Management believes that by requiring each file be seen by a minimum of two
underwriters, a high degree of accuracy and quality control is ensured
throughout the underwriting process and before funding.
 
                                       40
Delta's underwriting of every loan submitted consists not only of a
thorough credit review, but also (i) a separate appraisal review conducted by
Delta's Appraisal Review Department, and, (ii) a full compliance review, to
ensure that all documents have been properly prepared, all applicable
disclosures given in a timely fashion, and proper compliance with all federal
and state regulations. Appraisals are performed by third party, fee-based
appraisers or by the Company's staff appraisers and generally conform to current
FNMA/FHLMC secondary market requirements for residential property appraisals.
Each such appraisal includes, among other things, an inspection of the exterior
of the subject property and, where available, data from sales within the
preceding 12 months of similar properties within the same general location as
the subject property. In addition, in certain situations, the Company also
obtains broker price opinions from independent real estate agents.
 
     Delta performs a thorough appraisal review on each loan prior to closing or
prior to purchasing. While Delta recognizes that the general practice by
conventional mortgage lenders is to perform only drive-by appraisals after
closings, management believes this practice does not provide sufficient
protection. In addition to reviewing each appraisal for accuracy, the Company
accesses other sources to validate sales used in the appraisal to determine
market value. These sources include: interfacing with Multiple Listing Services
and Comps, Inc. to access current sales and listing information; its own
in-house database which contains comparable sales from all appraisals ordered by
Delta during the past eight years; and other sources for verification, including
broker price opinions and market analyses by local real estate agents.
 
     Post closing, in addition to its normal due diligence, the Company randomly
selects one out of every ten appraisals, and performs a drive-by appraisal. This
additional step gives the Company an added degree of comfort with respect to
appraisers with which the Company has had limited experience. Delta actively
tracks all appraisers from which it accepts appraisals for quality control
purposes and does not accept work from appraisers who have not conformed to its
review standards.
 
     Upon completion of a broker loan's underwriting and processing, the closing
of the loan is scheduled with a closing attorney or agent approved by Delta. The
closing attorney or agent is responsible for completing the loan closing
transaction in accordance with applicable law and Delta's operating procedures.
Title insurance that insures Delta's interest as mortgagee and evidence of
adequate homeowner's insurance naming Delta as an additional insured party are

required on all loans.
 
     The Company performs a post-funding quality control review to monitor and
evaluate the Company's loan origination policies and procedures. The Quality
Control Department is separate from the Underwriting Department, and reports
directly to a member of senior management.
 
     At least 10% of all loan originations and purchases are subjected to a full
quality control re-underwriting and review, the results of which are reported to
senior management on a monthly basis. Discrepancies noted by the audit are
analyzed and corrective actions are instituted. A typical quality control review
currently includes: (a) obtaining a new drive-by appraisal for each property;
(b) running a new credit report from a different credit report agency; (c)
reviewing loan applications for completeness, signatures, and for consistency
with other processing documents; (d) obtaining new written verification of
income and employment; (e) obtaining new written verification of mortgage to
re-verify any outstanding mortgages; and (f) analyzing the underwriting and
program selection decisions. The quality control process is updated from time to
time as the Company's policies and procedures change.
 
  Loan Sales
 
     Delta sells substantially all the loans it originates or purchases through
one of two methods: (i) securitizations, which involve the private placement or
public offering of pass-through mortgage-backed securities and (ii) whole loan
sales, which include the sale of blocks of individual loans to institutional or
individual investors. Since 1991, the Company has sold approximately $841
million of the loans it originated or purchased through securitization and $50.5
million through whole loan sales.
 
                                       41
Securitizations.  To date, Delta has completed 11 securitizations. The
following table sets forth certain information with respect to Delta's
securitizations by offering size, including prefunded amounts, weighted average
pass-through rate and credit rating of securities sold.
OFFERING SIZE    WEIGHTED AVERAGE      CREDIT RATING OF
SECURITIZATION    COMPLETED     (MILLIONS)      PASS-THROUGH RATE    SECURITIES SOLD(1)
- --------------    ---------    -------------    -----------------    ------------------
1991-1            02/22/91        $  92.4             9.000%               AAA/Aaa
1991-2            12/12/91        $  50.6             7.850%               AAA/Aaa
1992-1            11/25/92        $  64.1             7.875%               AAA/Aaa
1993-1            03/31/93        $  27.4             6.850%               AAA/Aaa
1993-3            08/31/93        $  31.6             6.180%               AAA/Aaa
1993-4            12/15/93        $  30.0             6.380%               AAA/Aaa
1994-1            03/30/94        $  30.0             6.950%               AAA/Aaa
1994-2            10/26/94        $  60.0             8.310%               AAA/Aaa
1995-1            05/10/95        $  80.0             7.527%               AAA/Aaa
1995-2            11/30/95        $ 150.0             6.791%               AAA/Aaa
1996-1            06/12/96        $ 225.0             6.598%               AAA/Aaa
- ------------------
(1) Ratings by Standard & Poor's and Moody's, respectively
 
     Outstanding securitizations include two public and nine private offerings.
When Delta securitizes loans, it sells a portfolio of loans to a trust (the
'Home Equity Loan Trust') and issues classes of certificates representing an
undivided ownership interest in the Home Equity Loan Trust. In its capacity as
servicer for each securitization, the Company collects and remits principal and
interest payments to the appropriate Home Equity Loan Trust which in turn passes
through payments to certificate owners. In the 1995-2 and 1996-1 transactions,
Delta retained 100% of the interests in the interest-only and residual classes
of certificates and management contemplates continuing to do so in the future.
 
     Each Home Equity Loan Trust has the benefit of a financial guaranty
insurance policy from a monoline insurance company, which insures the timely
payment of interest and the ultimate payment of principal of the investor
certificate. In addition to such insurance policies, the Excess Servicing is
applied as an additional payment of principal of the investor certificates,
thereby accelerating the amortization of the investor certificates relative to
the amortization of the loans. This use of the Excess Servicing creates
over-collateralization (i.e., the principal amount of the loans exceeds the
principal amount of the investor certificates). Once the level of over-
collateralization reaches a pre-determined level set by the monoline insurance
company, the use of Excess Servicing to create over-collateralization stops
unless it subsequently become necessary to again obtain or maintain the required
level of over-collateralization. Over-collateralization is intended to create a
source of cash (the payments on the 'extra' loans) to absorb losses prior to
making a claim on the financial guaranty insurance policy. To date, no claims
have been made on the financial guarantee insurance policies for any of the
Company's securitizations.
 
     Delta may be required either to repurchase or to replace loans which do not
conform to the representations and warranties made by Delta in the pooling and
servicing agreement entered into when the portfolio of loans are sold through a
securitization. To date, Delta has not had to make any such repurchases or
replacements. Delta intends to continue to conduct loans sales through
securitization, either in private placements or in public offerings, when market
conditions are attractive for such loan sales.
 
     Whole Loan Sales Without Recourse.  The Company has determined from time to
time that some of its 'A' loans and higher loan-to-value ratio loans receive
better execution by being sold on a whole loan, non-recourse basis to third
party institutions. The Company intends to continue this practice as long as it
is deemed to be more profitable for the Company. For the calendar year 1995 and
in the first six months of 1996, Delta sold $17.6 million and $11.2 million
which represents 6.3% and 4.6%, respectively, of its originations and purchases.
 
     Whole Loan Sales With Recourse.  Prior to 1991, Delta combined mortgage
loans into pools and sold those pools as well as individual mortgage loans
directly to a network of commercial banks, savings and loans, insurance
companies, pension funds and accredited investors. Delta generally sold these
pools or individual loans for 100% of the principal balance and negotiated the

pass-through rate of interest to be paid to the investor with
 
                                       42
the excess interest retained by Delta. Delta sold loans to investors with
recourse whereby Delta would repurchase any loan which became REO property. This
obligation is subject to various terms and conditions, including, in some
instances, a time limit. At June 30, 1996, there were approximately $22.9
million of loans which Delta could be required to repurchase in the future
should such loans become REO property.
 
  Loan Servicing and Collections
 
     Delta has been servicing loans since its inception in 1982, and Delta has
serviced or is servicing substantially all of the loans that it has originated
or purchased. Servicing involves, among other things, collecting payments when
due, remitting payments of principal and interest and furnishing reports to the
current owners of the loans and enforcing such owners rights with respect to the
loans, including, recovering delinquent payments, instituting foreclosure and
liquidating the underlying collateral. The Company receives a servicing fee for
servicing residential mortgage loans of 0.65% per annum on the declining
principal balance of all loans sold through securitization and on the declining
principal balance of the loans sold to investors on a recourse basis, which
servicing fees are collected out of the monthly mortgage payments. Management
believes that servicing the Company's own portfolio enhances certain operating
efficiencies and provides an additional and profitable revenue stream that is
less cyclical than the business of originating and purchasing loans. As of June
30, 1996, Delta had a servicing portfolio of $624.1 million loans.
 
     Delta services all loans out of its headquarters in Woodbury, New York,
utilizing a leading 'in-house' loan servicing system ('LSAMS') which it
purchased in 1995. LSAMS replaced Delta's former 'service bureau' loan servicing
system, and has provided Delta with considerably more flexibility to adapt the
system to Delta's specific needs as a nonconforming home equity lender. As such,
Delta has achieved significant cost efficiencies by automating a substantial
number of previously manual servicing procedures and functions since its
conversion to LSAMS on July 1, 1995. Management believes that even greater cost
efficiencies can be realized through further automation provided by LSAMS, which
runs on an IBM AS-400 base.
 
     At the same time that it upgraded its primary servicing system, Delta
purchased a default management sub-servicing system ('TPLS')--with separate
'modules' for foreclosure, bankruptcy, and REO--to provide it with the ability
to more efficiently monitor and service loans in default. These sub-servicing
modules provide detailed tracking of all key events in foreclosure and
bankruptcy on a loan-by-loan and portfolio-wide basis; the ability to track and
account for all pre- and post-petition payments received in bankruptcy from the
borrower and/or trustee; and the ability to monitor, market and account for all
aspects necessary to liquidate an REO property after foreclosure. Additionally,
Delta's Management Information Systems Department has created a market value
analysis program to run with LSAMS, and provides Delta with the ability to
monitor its equity position on a loan-by-loan and/or portfolio-wide basis.
 
     Centralized controls and standards have been established by Delta for the

servicing and collection of mortgage loans in its portfolio. Delta revises such
policies and procedures from time to time in connection with changing economic
and market conditions and changing legal and regulatory requirements.
 
     Delta's collections policy is designed to identify payment problems
sufficiently early to permit Delta to quickly address delinquency problems and,
when necessary, to act to preserve equity in a preforeclosure property. Delta
believes that these policies, combined with the experience level of independent
appraisers engaged by Delta, help to reduce the incidence of charge-offs of a
first or second mortgage loan.
 
     Borrowers are billed on a monthly basis in advance of the due date.
Collection procedures commence upon identification of a past due account by
Delta's automated servicing system. If timely payment is not received, LSAMS
automatically places the loan in the assigned collector's 'auto queue' and
collection procedures are generally initiated on the day immediately following
the payment due date for chronic late payers, or the day immediately following
the end of the grace period for those borrowers who usually pay within the grace
period or shortly thereafter. LSAMS automatically queues up each loan in the
assigned collector's 'auto queue' at one of these two dates based upon a
particular borrower's payment history over the prior 12 months. The account
remains in the queue unless and until a payment is received, at which point
LSAMS automatically removes the loan from that collector's auto queue until the
next month's payment is due and/or becomes delinquent.
 
                                       43
When a loan appears in a collector's auto queue, a collector will telephone
to remind the borrower that a payment is due. Follow-up telephone contacts are
attempted until the account is current or other payment arrangements have been
made. Standard form letters are utilized when attempts to reach the borrower by
telephone fail and/or, in some circumstances, to supplement the phone contacts.
During the delinquency period, the collector will continue to contact the
borrower. Company collectors have computer access to telephone numbers, payment
histories, loan information and all past collection notes. All collection
activity, including the date collection letters were sent and detailed notes on
the substance of each collection telephone call, is entered into a permanent
collection history for each account on LSAMS. Additional guidance with the
collection process is derived through frequent communication with Delta's senior
management.
 
     For those loans in which collection efforts have been exhausted without
success, the Pre-foreclosure Manager recommends the loans be sent to foreclosure
at one of two Foreclosure Committee Meetings held each month. At each such
committee meeting, the Pre-foreclosure Manager meets with the Foreclosure
Manager and a member of the Executive Department, to determine whether
foreclosure proceedings are appropriate, based upon their analysis of all
relevant factors, including a market value analysis, reason for default and
efforts by the borrower to cure the default.
 
     Regulations and practices regarding the liquidation of properties (e.g.,
foreclosure) and the rights of a borrower in default vary greatly from state to
state. As such, all foreclosures are assigned to outside counsel, located in the
same state as the secured property. Bankruptcies filed by borrowers are

similarly assigned to appropriate local counsel. All aspects of foreclosures and
bankruptcies are closely monitored by Delta through its TPLS sub-servicing loan
system described above and through monthly status reports from attorneys.
 
     Prior to foreclosure sale, Delta performs an in-depth market value analysis
on all defaulted loans. This analysis includes: (i) a current valuation of the
property obtained through a drive-by appraisal or Broker's Price Opinion
conducted by an independent appraiser and/or a broker from Delta's network of
real estate brokers, complete with a description of the condition of the
property, recent price lists of comparable properties, recent closed
comparables, estimated marketing time and required or suggested repairs, and an
estimate of the sales price; (ii) an evaluation of the amount owed, if any, for
real estate taxes; (iii) an evaluation of the amount owed, if any, to a senior
mortgagee; and (iv) estimated carrying costs, brokers' fee, repair costs and
other related costs associated with real estate owned properties. Delta bases
the amount it will bid at foreclosure sales on this analysis.
 
     If Delta acquires title to a property at a foreclosure sale or otherwise,
the REO Department immediately begins working the file by obtaining an estimate
of the sale price of the property by sending at least two local real estate
brokers to inspect the premises, and then hiring one to begin marketing the
property. If the property is not vacant when acquired, local eviction attorneys
are hired to commence eviction proceedings and/or negotiations are held with
occupants in an attempt to get them to vacate without incurring the additional
time and cost of eviction. Repairs are performed if it is determined that they
will increase the net liquidation proceeds, taking into consideration the cost
of repairs, the carrying costs during the repair period and the marketability of
the property both before and after the repairs.
 
     Delta's loan servicing software also tracks and maintains homeowners'
insurance information and tax and insurance escrow information. Expiration
reports are generated bi-weekly listing all policies scheduled to expire within
the next 15 days. When policies lapse, a letter is issued advising the borrower
of such lapse and notifying the borrower that Delta will obtain force-placed
insurance at the borrower's expense. Delta also has an insurance policy in place
that provides coverage automatically for Delta in the event that Delta fails to
obtain force-placed insurance.
 
                                       44
The following table sets forth information relating to the delinquency and
loss experience of Delta for its servicing portfolio of mortgage loans
(including mortgage loans serviced for others) for the periods indicated.
YEAR ENDED DECEMBER 31,                SIX MONTHS
                                                  --------------------------------------------        ENDED
                                                      1993            1994            1995        JUNE 30, 1996
                                                  ------------    ------------    ------------    -------------
Total Outstanding Principal Balance............   $292,700,193    $310,228,743    $468,846,079    $ 624,097,051
Average Outstandings(1)........................   $282,851,206    $300,678,046    $373,384,417    $ 555,347,369
DELINQUENCY

30-59 Days:
  Principal Balance............................   $ 21,124,005    $ 22,569,938    $ 35,052,951    $  33,367,677
Percent of Delinquency(2)......................           7.22%           7.28%           7.48%            5.35%
60-89 Days:
  Principal Balance............................   $  7,551,379    $  6,398,055    $  8,086,230    $   9,727,343
Percent of Delinquency(2)......................           2.58%           2.06%           1.72%            1.56%
90 Days or More:
  Principal Balance............................   $ 10,823,367    $  6,517,506    $  6,748,061    $   5,915,799
Percent of Delinquency(2)......................           3.70%           2.10%           1.44%            0.95%
Total Delinquencies:
  Principal Balance............................   $ 39,498,751    $ 35,485,499    $ 49,887,241    $  49,010,819
Percent of Delinquency(2)......................          13.50%          11.44%          10.64%            7.85%
FORECLOSURES
  Principal Balance............................   $ 14,311,077    $ 20,768,336    $ 23,506,751    $  28,942,764
Percent of Foreclosures by Dollar(2)...........           4.89%           6.69%           5.01%            4.64%
REO............................................   $  1,359,537    $  1,926,922    $  4,020,295    $   4,051,572
Net Gains/(Losses) on liquidated loans.........   $    (88,994)   $   (720,872)   $ (2,457,982)   $  (1,504,470)
Percentage of Net Gains/(Losses) on liquidated
  loans (based on Average Outstanding Principal
  Balance).....................................         (0.031)%        (0.240)%        (0.658%)         (0.542)%(3)
- ------------------
(1) Calculated by summing the actual outstanding principal balances at the end
    of each month and dividing the total by the number of months in the
    applicable period.
(2) Percentages are expressed based upon the total outstanding principal balance
    at the end of the indicated period.
(3) Annualized.
 
COMPETITION
 
     As an originator and purchaser of mortgage loans, the Company faces intense
competition, primarily from mortgage banking companies, commercial banks, credit
unions, savings and loans, credit card issuers and finance companies. Many of
these competitors in the financial services business are substantially larger
and have more capital and other resources than the Company. Competition can take
many forms, including convenience in obtaining a loan, service, marketing and
distribution channels and interest rates. Furthermore, the current level of
gains realized by the Company and its competitors on the sale of the type of
loans originated and purchased is attracting additional competitors into this
market with the effect of lowering the gains that may be realized by the Company
on future loan sales. In addition, greater investor acceptance of securities
backed by loans comparable to the Company's mortgage loans and greater
availability of information regarding the prepayment and default experience of
such loans creates greater efficiencies in the market for such securities. Such
efficiencies may create a desire for even larger transactions giving companies
with greater volumes of originations a competitive advantage. In addition, a
more efficient market for such securities may lead certain investors to purchase
securities backed by other types of assets where potential returns may be
greater. Competition may be affected by fluctuations in interest rates and
general economic conditions. During periods of rising rates, competitors which
have 'locked in' low borrowing costs may have a competitive advantage. During
periods of declining rates, competitors may solicit the Company's borrowers to

refinance their loans. During economic slowdowns or recessions, the Company's
borrowers may have new financial difficulties and may be receptive to offers by
the Company's competitors.
 
     Furthermore, certain large national finance companies and conforming
mortgage originators have announced their intention to adapt their conforming
origination programs and allocate resources to the origination of non-conforming
loans. In addition, certain of these larger mortgage companies and commercial
banks have begun to offer products similar to those offered by the Company,
targeting customers similar to those of the Company. The entrance of these
competitors into the Company's market could have a material adverse effect on
the Company's results of operations and financial condition.
 
                                       45
REGULATION
 
     Delta's business is subject to extensive regulation, supervision and
licensing by federal, state and local governmental authorities and is subject to
various laws and judicial and administrative decisions imposing requirements and
restrictions on part or all of its operations. Delta's consumer lending
activities are subject to the Federal Truth-in-Lending Act and Regulation Z
(including the Home Ownership and Equity Protection Act of 1994), ECDA, the Fair
Credit Reporting Act of 1970, as amended, RESPA, and Regulation X, the Home
Mortgage Disclosure Act and the Federal Debt Collection Practices Act, as well
as other federal and state statutes and regulations affecting Delta's
activities. Delta is also subject to the rules and regulations of, and
examinations by HUD and state regulatory authorities with respect to
originating, processing,underwriting and servicing loans. These rules and
regulations, among other things, impose licensing obligations on Delta,
establish eligibility criteria for mortgage loans, prohibit discrimination,
provide for inspections and appraisals of properties, require credit reports on
loan applicants, regulate assessment, collection, foreclosure and claims
handling, investment and interest payments on escrow balances and payment
features, mandate certain disclosures and notices to borrowers and, in some
cases, fix maximum interest rates, fees and mortgage loan amounts. Failure to
comply with these requirements can lead to loss of approved status, termination
or suspension of servicing contracts without compensation to the servicer,
demands for indemnifications or mortgage loans repurchases, certain rights of
rescission for mortgage loan repurchases, certain rights of rescission for
mortgage loans, class action lawsuits and administrative enforcement actions.
Delta believes that it is in compliance in all material respects with applicable
federal and state laws and regulations.
 
ENVIRONMENTAL MATTERS
 
     To date, Delta has not been required to perform any investigation or clean
up activities, nor has it been subject to any environmental claims. There can be
no assurance, however, that this will remain the case in the future. In the
ordinary course of its business, Delta from time to time forecloses on
properties securing loans. Although Delta primarily lends to owners of
residential properties, there is a risk that Delta could be required to
investigate and clean up hazardous or toxic substances or chemical releases at
such properties after acquisition by Delta, and may be held liable to a

governmental entity or to third parties for property damage, personal injury and
investigation and cleanup costs incurred by such parties in connection with the
contamination. In addition, the owner or former owners of a contaminated site
may be subject to common law claims by third parties based on damages and costs
resulting from environmental contamination emanating from such property.
 
EMPLOYEES
 
     As of June 30, 1996, Delta had a total of 294 employees, 278 of whom were
working at its Woodbury, New York headquarters. None of Delta's employees is
covered by a collective bargaining agreement. Delta considers its relations with
its employees to be good.
 
PROPERTIES
 
     Delta's executive and administrative offices, including its servicing
operation and full-service production office, are located at 1000 Woodbury Road,
Suite 200, Woodbury, New York 11797, where Delta leases approximately 55,000
square feet of office space at an aggregate annual rent of approximately
$965,000. The lease provides for certain scheduled rent increases and expires in
January 2004.
 
     Delta maintains business development offices in New Jersey; Missouri;
Virginia; Pennsylvania; Ohio (2); Michigan (2); and Rhode Island.
 
LEGAL PROCEEDINGS
 
     Delta is a party to various routine legal proceedings arising out of the
ordinary course of its business. Management believes that none of these actions,
individually or in the aggregate, will have a material adverse effect on the
results of operations or financial condition of Delta.
 
                                       46
MANAGEMENT
 
DIRECTORS AND EXECUTIVE OFFICERS
 
     The following table sets forth certain information regarding the current
directors and executive officers of the Company.
NAME                                            AGE    POSITION WITH THE COMPANY
- ---------------------------------------------   ---    -------------------------------------------------
Sidney A. Miller.............................   62     Chairman of the Board of Directors
Hugh I. Miller...............................   32     Chief Executive Officer, President and Director
Richard Blass................................   33     Senior Vice President and Director
Martin D. Payson.............................   60     Proposed Director
Arnold B. Pollard............................   54     Proposed Director
Irwin Fein...................................   60     Chief Financial Officer, Treasurer and Secretary
Christopher Donnelly.........................   36     Senior Vice President
Teresa E. Ginter.............................   57     Senior Vice President

Randall F. Michaels..........................   37     Senior Vice President
Frank Pellegrin..............................   46     Senior Vice President
SIDNEY A. MILLER is the founder of the Company and the Chairman of the
Board of Directors. Mr. Miller has been involved in the mortgage banking
industry since 1974. Prior to 1974, Mr. Miller was involved in life insurance,
financial and corporate planning. Mr. Miller is also a director of the Home
Equity Lenders Leadership Organization and the National Home Equity Mortgage
Association, as well as an Associate Trustee of North Shore University Hospital
and other philanthropic organizations.
 
     HUGH I. MILLER is the Chief Executive Officer, President and a Director of
the Company. Mr. Miller has been employed by the Company since 1985 and has been
President since 1991. From 1985 to 1990, Mr. Miller served as an Executive Vice
President of the Company responsible for all phases of the Company's business.
Hugh I. Miller is the son of Sidney A. Miller.
 
     RICHARD BLASS is a Senior Vice President of Finance and Securitization and
was elected a Director of the Company in August 1996. Mr. Blass joined the
Company in 1992. Prior to being employed by Delta, Mr. Blass was a money market
and derivatives trader at Citicorp Securities.
 
     MARTIN D. PAYSON will be elected a Director of the Company prior to the
date of the Prospectus. Mr. Payson served as Vice Chairman of Time Warner, Inc.
from January 1990 until December 1992. Prior to the merger of Time Inc. and
Warner Communications, Inc., Mr. Payson held the position of Office of the
President and General Counsel of Warner Communications, Inc., of which he also
was a Director for 14 years. Currently, Mr. Payson is also a director of
Renaissance Communications, Corp., Meridian Sports Incorporated, Unapix
Entertainment Inc., all publicly-held companies, and these privately-held
companies: Latin Communications Group Inc., Ithaca Holdings Inc., and SCUUL Ltd.
 
     ARNOLD B. POLLARD, Ph.D. will be elected a Director of the Company prior to
the date of the Prospectus. Since 1993, Dr. Pollard has been the President and
Chief Executive Officer of Chief Executive Group, which publishes 'Chief
Executive' magazine. For nearly 20 years, Dr. Pollard has been President of
Decision Associates, a management consulting firm specializing in organizational
strategy and structure. Dr. Pollard was a founding member of the Strategic
Decision Analysis Group of SRI, a company engaged in management consulting and
contract research. From 1989 to 1991, Dr. Pollard served as Chairman and Chief
Executive Officer of Biopool International, a biodiagnostic company focusing on
blood related testing. Dr. Pollard is also a director of GKN Securities, Inc., a
public company, and The Landry Service Co., Inc., a private company. He also
serves on the advisory board of Simply Interactive, Inc., a private company.
 
                                       47
IRWIN FEIN is the Chief Financial Officer, Secretary and Treasurer of
the Company. Prior to his employment by the Company in 1987, Mr. Fein was
employed by ITT Corporation, the National Broadcasting Company and General
Electric Corporation.
 
     CHRISTOPHER DONNELLY is a Senior Vice President of the Company. Mr.

Donnelly joined the Company in 1987 and since 1991, has been responsible for
supervising all aspects of credit and underwriting including the Broker and
Correspondent Divisions and Appraisal Review. From 1989 to 1991, Mr. Donnelly
served as Assistant Manager of Originations.
 
     TERESA E. GINTER is a Senior Vice President of the Company. Ms. Ginter has
been with the Company since its inception. Ms. Ginter's primary responsibilities
include supervising the internal operations of the Broker Division.
 
     RANDALL F. MICHAELS is a Senior Vice President and National Sales Manager.
Mr. Michaels joined Delta in 1995. Mr. Michaels has over 14 years experience in
the nonconforming mortgage loan markets. Prior to joining Delta, Mr. Michaels
was Regional Sales Manager of Quality Mortgage/Express Funding Inc. for two
years and, before that, Regional Sales Manager for American Funding Group for
six years.
 
     FRANK PELLEGRIN is a Senior Vice President and Servicing Manager. Mr.
Pellegrin joined the Company in early 1996. Mr. Pellegrin has been involved in
the mortgage banking industry for 24 years. From 1979 to 1995, Mr. Pellegrin
served as Senior Vice President in charge of servicing and data processing of
Mid-Coast Mortgage Company.
 
     The directors are divided into three classes, denominated Class I, Class II
and Class III, with the terms of office of each class expiring at the 1997, 1998
and 1999 annual meeting of stockholders, respectively. At each annual meeting
following such initial classification and election, directors elected to succeed
those directors whose terms expire will be elected for a term to expire at the
third succeeding annual meeting of stockholders after their election. The
directors will initially be divided into classes as follows: Class I--Arnold B.
Pollard and Richard Blass, Class II--Martin D. Payson and Sidney A. Miller, and
Class III--Hugh I. Miller. All officers are appointed by and serve, subject to
the terms of their employment agreements, if any, at the discretion of the Board
of Directors.
 
COMMITTEES OF THE BOARD OF DIRECTORS
 
     The Board of Directors has established three standing committees: the
Executive Committee, the Compensation Committee and the Audit Committee. Sidney
Miller and Hugh Miller serve on the Executive Committee which is empowered to
exercise the powers of the Board of Directors between meetings. However, the
Executive Committee may not (i) amend the Certificate of Incorporation or the
By-laws of the Company, (ii) adopt an agreement of merger or consolidation,
(iii) recommend to the stockholders the sale, lease, or exchange of all or
substantially all of the Company's property and assets, (iv) recommend to the
stockholders a dissolution of the Company or revoke a dissolution, (v) elect a
director, or (vi) declare a dividend or authorize the issuance of stock. Messrs.
Payson and Pollard will serve on the Compensation Committee and the Audit
Committee. The Compensation Committee is responsible for recommending to the
Board of Directors the Company's executive compensation policies for senior
officers and administering the 1996 Employee Stock Option Plan (the 'Stock
Option Plan'). See '--Stock Option Plan.' The Audit Committee is responsible for
recommending independent auditors, reviewing the audit plan, the adequacy of
internal controls, the audit report and the management letter, and performing
such other duties as the Board of Directors may from time to time prescribe.

 
EMPLOYMENT AGREEMENTS; KEY-MAN LIFE INSURANCE
 
  Employment Agreements
 
     Effective August 26, 1996, the Company entered into employment agreements
with Sidney Miller, Hugh Miller, Christopher Donnelly and Randall Michaels.
Sidney Miller's and Hugh Miller's employment agreements are for terms of five
years, and Christopher Donnelly's and Randall Michaels' employment agreements
are for terms of three years.
 
                                       48
Under the terms of the respective employment agreements, the Company pays
Sidney Miller a minimum base salary of $350,000 per year, Hugh Miller a minimum
base salary of $350,000 per year, Christopher Donnelly a minimum base salary of
$150,000 per year and Randall Michaels a minimum base salary of $125,000 per
year. Each of these officers is entitled to participate generally in the
Company's employee benefit plans, including the Stock Option Plan, and is
eligible for an incentive bonus from the Company's executive bonus pool. The
cash bonuses available to Christopher Donnelly and Randall Michaels are made at
the discretion of the Board of Directors and are based on subjective performance
criteria. Under the terms of their employment agreements, Sidney Miller and Hugh
Miller are eligible for cash bonuses in any one fiscal year of up to 400% of
their annual salary, payable on a quarterly basis 60 days after the relevant
quarter. The amount of such quarterly cash bonus is calculated under the
agreements as follows: for each 1% increase in net earnings per share for the
relevant fiscal quarter greater than 10% as measured against the corresponding
quarter in the prior fiscal year, each of Sidney Miller and Hugh Miller will
receive a quarterly cash bonus of 15% of his respective current annual salary.
 
     Under the terms of their respective employment agreements, Sidney Miller
and Hugh Miller also are granted benefits covering life insurance, medical
expenses not covered by insurance and allowances for business related travel and
entertainment.
 
     If the executive officer is terminated 'for cause,' which definition
generally includes termination by the Company due to the executive's willful
failure to perform his duties under the employment agreement, the executive's
personal dishonesty, or the executive's breach of his fiduciary duties or the
employment agreement to which he is a party, then the Company is obligated to
pay the executive so terminated only his base salary up to the date of his
termination 'for cause.' However, if either Christopher Donnelly or Randall
Michaels is terminated without cause, the Company is obligated to pay such
executive officer certain amounts set forth in the agreement which would be paid
to Mr. Donnelly or Mr. Michaels in equal installments over the six months
following any such termination without cause. If either Sidney Miller or Hugh
Miller is terminated without cause, the Company is obligated to pay such
executive officer his base salary, bonus and benefits for the remaining term of
his employment agreement. If either Sidney Miller or Hugh Miller resigns for
'good reason,' which generally includes the executive officer's resignation due
to a breach by the Company of his employment agreement or a change of control,
the Company must pay such executive officer his salary, bonus and benefits for
the remaining term of the employment agreement.

 
  Key-Man Life Insurance
 
     The Company maintains a key-man life insurance policy in the amount of
approximately $1 million on Hugh Miller, on which the Company is named as
beneficiary. The Company does not maintain key-man life insurance policies on
any of its other executive officers, however, the Company would be reimbursed
from Sidney Miller's split-dollar life insurance policy for the lesser of the
cash value or all premiums paid during the term of the policy. See 'Certain
Relationships and Related Party Transactions--Other Transactions.'
 
COMPENSATION OF DIRECTORS
 
     Following completion of the Offering, the Company intends to pay each
nonemployee director compensation of $20,000 per annum and a fee of $1,000 for
each meeting of the Board of Directors that he attends. The Company will
initially grant 10,000 options to each nonemployee director, one-quarter of
which will vest immediately, with an additional one-quarter vesting each year
thereafter. The Company will reimburse each director for ordinary and necessary
travel expenses related to such director's attendance at Board of Directors and
committee meetings.
 
EXECUTIVE COMPENSATION
 
     The Summary Compensation Table below provides certain summary information
concerning compensation paid or accrued during the years ended December 31,
1993, 1994 and 1995 by the Company to or on behalf of the Chief Executive
Officer and the four other highest paid executive officers of the Company.
 
                                       49
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
                                                                          -----------------------------------------
NAME AND                                                      FISCAL                                 OTHER ANNUAL
PRINCIPAL POSITION                                             YEAR        SALARY       BONUS       COMPENSATION(3)
- -----------------------------------------------------------   ------      --------    ----------    ---------------
Sidney A. Miller ..........................................     1995      $      0    $3,000,000            N/A
  Chairman of the Board                                         1994       624,000       150,000            N/A
                                                                1993       624,000     1,150,000            N/A
Hugh I. Miller ............................................     1995      $419,200    $  275,000            N/A
  Chief Executive Officer                                       1994       520,000        50,000            N/A
                                                                1993       460,000       800,000        $60,725
Irwin Fein ................................................     1995      $120,750    $    7,500            N/A
  Chief Financial Officer, Treasurer and Secretary              1994       121,757         7,500            N/A
                                                                1993       100,884         7,500            N/A
Randall F. Michaels .......................................     1995(1)   $ 32,298    $    1,000        $ 6,155
  Senior Vice President                                         1995(2)    120,294         3,724         22,925
                                                                1994           N/A           N/A            N/A
                                                                1993           N/A           N/A            N/A

Teresa E. Ginter ..........................................     1995      $ 78,213    $   13,700        $40,132
  Senior Vice President                                         1994        76,236         6,500         21,935
                                                                1993        66,882         6,500          1,861
- ------------------
(1) Actual 1995 compensation, starting date 9/25/95.
 
(2) Annualized compensation.
 
(3) Commissions paid on originations.
 
STOCK OPTION PLAN
 
     The Company will adopt the 1996 Stock Option Plan (the 'Stock Option Plan')
prior to the date of this Prospectus, and the Stock Option Plan will be
submitted for approval to the Company's stockholders at a special meeting to be
held prior to the date of this Prospectus. The Stock Option Plan is administered
by the Compensation Committee. All key employees and directors of, and
consultants to, the Company as may be determined from time to time by the
Compensation Committee are eligible to receive options under the Stock Option
Plan.
 
     A total of 2,200,000 shares will be authorized for issuance under the Stock
Option Plan. Not more than 1,000,000 shares of Common Stock may be the subject
of options granted to any individual during the duration of the Stock Option
Plan. On the effective date of this Offering, the Company will grant options
with respect to 500,000 shares at exercise prices equal to the initial public
offering price to certain eligible participants under the Stock Option Plan.
 
     The exercise price of an incentive stock option and a non-qualified stock
option is fixed by the Compensation Committee at the date of grant; however, the
exercise price under an incentive stock option must be at least equal to the
fair market value of the Common Stock at the date of grant, and 110% of the fair
market value of the Common Stock at the date of grant for any incentive stock
option granted to a member of the Miller family.
 
     Stock options are exercisable for a duration determined by the 
Compensation Committee, but in no event more than ten years after the date of
grant. Options shall be exercisable at such rate and times as may be fixed by
the Compensation Committee on the date of grant. The aggregate fair market value
(determined at the time the option is granted) of the Common Stock with respect
to which incentive stock options are exercisable for the first time by a
participant during any calendar year (under all stock option plans of the
Company) shall not exceed $100,000; to the extent this limitation is exceeded,
such excess options shall be treated as non-qualified stock options for purposes
of the Stock Option Plan and the Code.
 
                                       50
At the time a stock option is granted, the Compensation Committee may, in
its sole discretion, designate whether the stock option is to be considered an
incentive stock option or non-qualified stock option plan. Stock options with no
such designation shall be deemed incentive stock options to the extent that the

$100,000 limit described above is met.
 
     Payment of the purchase price for shares acquired upon the exercise of
options may be made by any one or more of the following methods: in cash, by
check, by delivery to the Company of shares of Common Stock already owned by the
option holder, or by such other method as the Compensation Committee may permit
from time to time. However, a holder may not use previously owned shares of
Common Stock to pay the purchase price under an option, unless the holder has
beneficially owned such shares for at least six months.
 
     Stock options which are vested become immediately exercisable in full
upon the disability or death of the holder while in the employ of, or service
with, the Company or upon the occurrence of such special circumstances as in the
opinion of the Compensation Committee merit special consideration.
 
     Stock options terminate at the end of the 30th business day following the
holder's termination of employment or service. This period is extended to one
year in the case of the disability or death of the holder and, in the case of
death, the stock option is exercisable by the holder's estate.
 
     The options granted under the Stock Option Plan contain anti-dilution
provisions which will automatically adjust the number of shares subject to the
option in the event of a stock dividend, split-up, conversion, exchange,
reclassification or substitution. In the event of any other change in the
corporate structure or outstanding shares of Common Stock, the Compensation
Committee may make such equitable adjustments to the number of shares and the
class of shares available under the Stock Option Plan or to any outstanding
option as it shall deem appropriate to prevent dilution or enlargement of
rights.
 
     The Company shall obtain such consideration for granting options under the
Stock Option Plan as the Compensation Committee in its discretion may request.
 
     Each option may be subject to provisions to assure that any exercise or
disposition of Common Stock will not violate the securities laws.
 
     No option may be granted under the Stock Option Plan after the day
preceding the tenth anniversary of the adoption of the Stock Option Plan.
 
     The Board of Directors or the Compensation Committee may at any time
withdraw or amend the Stock Option Plan and may, with the consent of the
affected holder of an outstanding option at any time withdraw or amend the terms
and conditions of outstanding options. Any amendment which would increase the
number of shares issuable pursuant to the Stock Option Plan or to any individual
thereunder or change the class of individuals to whom options may be granted
shall be subject to the approval of the stockholders of the Company.
 
401(K) SAVINGS PLAN
 
     In 1994, Delta Funding Corporation established a 401(k) Savings Plan (the
'Plan'), which is intended to comply with Sections 401(a) and 401(k) of the
Code, and the applicable provisions of the Employee Retirement Income Security
Act of 1974, as amended. Amounts contributed to the Plan are held under a trust
intended to be exempt from income tax pursuant to Section 501(a) of the Code.

All employees of Delta Funding Corporation that have completed at least one year
of service and who are at least 21 years old are eligible to participate in the
Plan. Participating employees are entitled to make pre-tax contributions to
their accounts, subject to certain maximum annual limits imposed by law ($9,500
in 1996), and certain other limitations. Delta Funding Corporation may elect to
make discretionary contribution to the Plan each year. Employees are always
fully vested in their own contributions, Delta Funding Corporation's
contributions vest in participating employees over a six-year period.
Distributions generally are payable in a lump-sum after retirement, disability
or death and, in certain circumstances, upon termination of employment with
Delta Funding Corporation for other reasons.
 
                                       51
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
 
     Prior to August 1996, the Company had no compensation committee or any
other committee of the Board of Directors performing similar functions.
Decisions concerning executive compensation for 1995 were made by the Board of
Directors, including Sidney Miller, Hugh Miller and Irwin Fein, all of whom were
and continue to be executive officers of the Company and participated in
deliberations of the Board of Directors regarding executive officer
compensation. The Board of Directors of the Company has established a
Compensation Committee. See '--Committees of the Board of Directors.'
 
     None of the executive officers of the Company currently serves on the
compensation committee of another entity or any other committee of the board of
directors of another entity performing similar functions. For other related
party transactions, see 'Certain Relationships and Related Party Transactions.'
 
              CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
 
STOCKHOLDER NOTES
 
     A note due from Hugh I. Miller in the amount of $990,000 which had an
interest rate of 7.5% per annum and a maturity date in 2001 was repaid in full
in June 1996.
 
     A note due from Sidney A. Miller in the amount of $2,000,000 which had an
interest rate of 7.8% per annum was repaid in full when it matured in December
1995.
 
OTHER TRANSACTIONS
 
     The Company previously sub-leased its Woodbury, New York office space from
Commercial Capital Corp. of New York ('Commercial Capital'), a corporation which
is wholly-owned by certain members of the Miller family. This lease was assigned
to the Company on August 2, 1996. Prior to this assignment, the Company paid
rent to Commercial Capital in an amount equal to that which Commercial Capital
paid the landlord.
 
     Long Island Closing Corporation, a company wholly-owned by Rona Miller
(Sidney Miller's wife), is hired by title abstract companies as closing agent to
clear titles on substantially all of the Company's Broker Loan closings held at

the Company's headquarters. All fees for these services are paid by the
borrower.
 
     Miller Planning Corporation, a corporation which is wholly-owned by Sidney
Miller, receives commissions on the Company's group health, disability and life
insurance policies. This same affiliate previously offered life and disability
credit insurance to the Company's borrowers for which this affiliate received
commissions.
 
     The Company pays the annual premium on a $25 million split-dollar life
insurance policy for Sidney Miller. The beneficiaries on the policy are certain
members of the Miller family; however, in the event of Sidney Miller's demise,
the Company is first reimbursed out of the proceeds of the policy for the lesser
of the cash value or all premiums it has paid during the term of the policy.
 
     The Company currently has two lines of credit with institutions, one in the
amount of $1 million, which is personally guaranteed by Sidney Miller, and the
other in the amount of $2.5 million, which is personally guaranteed, jointly and
severally, by Sidney Miller and Hugh Miller.
 
TRANSACTIONS IN CONNECTION WITH THE FORMATION
 
     Prior to the date of the Prospectus, pursuant to the terms of a
contribution agreement (the 'Contribution Agreement'), the Existing Stockholders
will contribute their stock to Delta Financial Corporation, in exchange for all
of the outstanding stock of the Company. Upon completion of such exchange, Delta
Funding Corporation will elect to terminate its status as an S corporation. Upon
termination of its S corporation status, the Company will be fully subject to
federal and state income taxes and will record a deferred tax liability on its
balance sheet. The amount of the deferred tax liability to be recorded as of the
date of termination of the S corporation status will depend upon timing
differences between tax and book accounting relating principally to recognition
of gains on sales of mortgage loans. If the S corporation status had been
terminated as of June 30, 1996, the amount of the deferred tax liability would
have been approximately $2.9 million.
                                       52
Since July 1, 1985, Delta Funding Corporation has paid approximately 15.8%
of its earnings before income tax to the Existing Stockholders in the form of S
corporation distributions (approximately $8.0 million from July 1, 1985 through
June 30, 1996). Such distributions were paid to the Existing Stockholders as a
distribution of a portion of Delta Funding Corporation's earnings and to pay
their taxes. Prior to the Offering, Delta Funding Corporation will distribute
the Distribution Notes to the Existing Stockholders in the aggregate principal
amount of $23 million. The principal amount of the Distribution Notes represents
the sum of approximately (i) $11 million in taxes payable at the applicable
statutory rate by the Existing Stockholders on the estimated net earnings of
Delta Funding Corporation for the period from January 1, 1996 to September 30,
1996, and (ii)  $12 million of previously earned and undistributed S corporation
earnings. The Distribution Notes will be promissory notes bearing interest at
the rate of 6.15% per annum. In addition, prior to the Offering Delta Funding
Corporation will declare a Contingent Dividend to the Existing Stockholders in
the amount of at least $30 and up to a maximum of $8,370,000. The maximum amount
of the Contingent Dividend shall become payable only upon the exercise by the

Underwriters of the entire over-allotment option granted to them by the Company
in connection with the Offering. The amount of the Contingent Dividend which
becomes payable shall bear a direct relation to the percentage of the option
granted to the Underwriters and exercised by them. If the over-allotment option
is not exercised in any amount, the Existing Stockholders will receive a
dividend of $30.
 
     Immediately prior to the Offering, Delta Funding Corporation and its
shareholders will enter into a tax indemnification agreement (the 'Tax
Agreement') relating to their respective income tax liabilities. Because the
Company will be fully subject to corporate income taxation after the termination
of the Company's S corporation status, the reallocation of income and deduction
between the period during which the Company was treated as an S corporation and
the period during which the Company will be subject to corporate income taxation
may increase the taxable income of one party while decreasing that of another
party. Accordingly, the Tax Agreement is intended to assure that taxes are borne
by the Company on the one hand and the Existing Stockholders on the other only
to the extent that such parties received the related income. The Tax Agreement
generally provides that, if an adjustment is made to the taxable income of the
Company for a year in which it was treated as an S corporation, the Company will
indemnify the Existing Stockholders and the Existing Stockholders will indemnify
the Company against any increase in the indemnified party's income tax liability
(including interest and penalties and related costs and expenses), with respect
to any tax year to the extent such increase results in a related decrease in the
income tax liability of the indemnifying party for that year. However, the Tax
Agreement specifically provides that the Existing Stockholders will not be
responsible for any portion of any deferred tax liability which may be recorded
on the balance sheet of Delta Funding Corporation upon termination of the S
corporation status. The Company will also indemnify the Existing Stockholders
for all taxes imposed upon them as the result of their receipt of an
indemnification payment under the Tax Agreement. Any payment made by the Company
to the Existing Stockholders pursuant to the Tax Agreement may be considered by
the Internal Revenue Service or state taxing authorities to be non-deductible by
the Company for income tax purposes.
 
     In connection with the Underwriting Agreement, the Company and the Existing
Stockholders have agreed to enter into an agreement apportioning between them
the indemnification and contribution obligations undertaken by them pursuant to
the terms of the Underwriting Agreement. See 'Underwriting.'
 
                                       53
PRINCIPAL STOCKHOLDERS
 
     The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of the date of the Prospectus, following
consummation of the transactions described under 'Reorganization and Termination
of S Corporation Status,' and as adjusted to reflect the sale of the shares of
Common Stock offered hereby, of (i) each person known by the Company to own
beneficially five percent or more of the outstanding Common Stock immediately
prior to the Offering; (ii) each of the Company's directors; (iii) each of the
executive officers named in the Summary Compensation Table; and (iv) all
directors and executive officers of the Company as a group. The address of each
person listed below is 1000 Woodbury Road, Suite 200, Woodbury, New York 11797,
unless otherwise indicated.
PERCENTAGE BENEFICIALLY OWNED(1)
                                                                                      ---------------------------------
NAME OF BENEFICIAL OWNER                                          NUMBER OF SHARES    BEFORE OFFERING    AFTER OFFERING
- ---------------------------------------------------------------   ----------------    ---------------    --------------
Sidney A. Miller(2)............................................        7,161,725            67.22%            48.87%
Hugh I. Miller(2)(3)...........................................        5,312,736            49.86%            36.25%
Rona V. Miller(3)..............................................        2,000,305            18.77%            13.65%
Irwin Fein.....................................................                0              N/A               N/A
Richard Blass..................................................                0              N/A               N/A
Martin D. Payson*..............................................                0              N/A               N/A
Arnold B. Pollard*.............................................                0              N/A               N/A
Randall F. Michaels............................................                0              N/A               N/A
Christopher Donnelly...........................................                0              N/A               N/A
Frank Pellegrin................................................                0              N/A               N/A
Teresa E. Ginter...............................................                0              N/A               N/A
All directors and executive officers as a group................       10,653,000              100%            72.70%
- ------------------
* Mr. Payson and Dr. Pollard will be elected Directors prior to the date of the
  Prospectus.
 
(1) Based on 10,653,000 shares of Common Stock outstanding prior to the Offering
    and, assuming no exercise of the Underwriters' over-allotment option,
    14,653,000 shares of Common Stock outstanding immediately after the
    Offering. Beneficial ownership is determined in accordance with the rules of
    the Securities and Exchange Commission and generally includes voting or
    investment power with respect to securities. Except as indicated in the
    footnotes to this table and subject to applicable community property laws,
    the person named in the table has sole voting and investment power with
    respect to all shares of Common Stock beneficially owned.
 
(2) Includes 1,820,461 shares of Common Stock held by the Sidney A. Miller
    Grantor Retained Annuity Trust of which Sidney A. Miller and Hugh I. Miller
    are trustees.
 

(3) Includes 2,000,305 shares of Common Stock held by the Rona V. Miller Grantor
    Retained Annuity Trust of which Rona V. Miller and Hugh I. Miller are
    trustees.
 
                                       54
DESCRIPTION OF CAPITAL STOCK
 
     The following description of the capital stock of the Company is subject to
the Delaware General Corporation Law ('DGCL') and to provisions contained in the
Company's Certificate of Incorporation and By-Laws, copies of which have been
filed as exhibits to the Registration Statement of which this Prospectus forms a
part. Reference is made to such exhibits for a detailed description of the
provisions thereof summarized below.
 
     The authorized capital stock of the Company consists of 1,000,000 shares of
Preferred Stock, $.01 par value (the 'Preferred Stock'), none of which is
presently issued and outstanding, and 49,000,000 shares of Common Stock, $.01
par value, of which 10,653,000 shares will be issued and outstanding following
the contribution by the shareholders of their stock in Delta Funding Corporation
to the Company pursuant to the Contribution Agreement and will be beneficially
owned by Sidney A. Miller, Hugh I. Miller, the Sidney A. Miller Grantor Retained
Annuity Trust and the Rona V. Miller Grantor Retained Annuity Trust. Holders of
capital stock of the Company have no preemptive or other subscriptive rights.
 
COMMON STOCK
 
     Subject to prior rights of any Preferred Stock then outstanding and to
contractual limitations, if any, the holders of outstanding shares of Common
Stock are entitled to receive dividends out of assets legally available
therefor, as declared by the Board of Directors and paid by the Company. Certain
financing and servicing agreements of Delta Funding Corporation, a wholly-owned
subsidiary of the Company, contain financial covenants requiring Delta Funding
Corporation to maintain certain minimum levels of net worth. These restrictions
may indirectly restrict the Company's ability to pay dividends.
 
     In the event of any liquidation, dissolution or winding-up of the Company,
holders of Common Stock will be entitled to share equally and ratably in all
assets available for distribution after payment of creditors, holders of any
series of Preferred Stock outstanding at the time, and any other debts,
liabilities and preferences. Since the Company's Board of Directors has the
authority to fix the rights and preferences of, and to issue, the Company's
authorized but unissued Preferred Stock without approval of the holders of its
Common Stock, the rights of such holders may be materially limited or qualified
by the issuance of the Preferred Stock.
 
     The Common Stock presently outstanding is, and the Common Stock offered and
sold hereby will be, fully paid and non-assessable.
 
PREFERRED STOCK
 
     The Board of Directors is empowered to issue Preferred Stock from time to
time in one or more series, without shareholder approval, and with respect to
each series to determine (subject to limitations prescribed by law) (1) the

number of shares constituting such series, (2) the dividend rate on the shares
of each series, whether such dividends shall be cumulative and the relation of
such dividends to the dividends payable on any other class of stock, (3) whether
the shares of each series shall be redeemable and the terms of any redemption
thereof, (4) whether the shares shall be convertible into Common Stock or other
securities and the terms of any conversion privileges, (5) the amount per share
payable on each series or other rights of holders of such shares on liquidation
or dissolution of the Company, (6) the voting rights, if any, forares of each
series, (7) the provision of a sinking fund, if any, for each series, and (8)
generally any other rights and privileges not in conflict with the Certificate
of Incorporation for each series and any qualifications, limitations or
restrictions thereof. The Company currently has no plans to issue any Preferred
Stock.
 
OPTIONS
 
     As of the date of this Prospectus, the Company has granted options to
purchase up to 500,000 shares of Common Stock, at exercise prices equal to the
initial public offering price, pursuant to the provisions of the Company's Stock
Option Plan. See 'Management--Stock Option Plan.' The Company intends to file a
registration statement on Form S-8 under the Securities Act to register these
shares. See 'Shares Eligible for Future Sale.'
 
                                       55
VOTING RIGHTS
 
     Stockholders are entitled to one vote for each share of Common Stock held
of record.
 
CERTAIN CHARTER, BYLAWS AND STATUTORY PROVISIONS
 
     The Company's Certificate of Incorporation contains certain provisions that
could discourage potential takeover attempts and make more difficult attempts by
stockholders to change management. Effective as of the next meeting for the
election of directors, the Certificate of Incorporation provides for a
classified Board of Directors consisting of three classes as nearly equal in
size as practicable. Each class will hold office until the third annual meeting
for election of directors following the election of such class; provided,
however, that the initial terms of the directors in the first, second and third
classes of the Board of Directors will expire in 1997, 1998 and 1999,
respectively. The Company's Certificate of Incorporation provides that no
director may be removed except for cause and by the vote of not less than 70% of
the total outstanding voting power of the securities of the corporation which
are then entitled to vote in the election of directors. The Certificate of
Incorporation permits the Board of Directors to create new directorships and the
Company's Bylaws permit the Board of Directors to elect new directors to serve
the full term of the class of directors in which the new directorship was
created. The Bylaws also provide that the Board of Directors (or its remaining
members, even though less than a quorum) is empowered to fill vacancies on the
Board of Directors occurring for any reason for the remainder of the term of the
class of directors in which the vacancy occurred. A vote of not less than 70% of
the total outstanding voting power of the securities of the Company which are
then entitled to vote in the election of directors is required to amend the

foregoing provisions of the Certificate of Incorporation.
 
     Effective as of the date of the Prospectus, the Certificate of
Incorporation prohibits any action required to be taken or which may be taken at
any annual or special meeting of stockholders of the Company to be taken,
without a meeting, denying the power of stockholders of the Company to consent
in writing, without a meeting, to the taking of any action. This provision may
discourage another person or entity from making a tender offer for the Company's
Common Stock because such person or entity, even if it acquired a majority of
the outstanding voting securities of the Company, would be able to take action
as a stockholder (such as electing new directors or approving a merger) only at
a duly called stockholders meeting, and not by written consent.
 
     Certain provisions in the Certificate of Incorporation, the Bylaws and the
DGCL could have the effect of delaying, deferring or preventing changes in
control of the Company. See 'Risk Factors--Effects of Certain Anti-Takeover
Provisions.'
 
CERTAIN PROVISIONS OF DELAWARE LAW
 
     The Company is a Delaware corporation and is subject to Section 203 of the
DGCL. In general, Section 203 prevents an 'interested stockholder' (defined
generally as a person owning 15% or more of the Company's outstanding voting
stock) from engaging in a 'business combination' (as defined in Section 203)
with the Company for three years following the date that person became an
interested stockholder unless: (i) before that person became an interested
stockholder, the Board approved the transaction in which the interested
stockholder became an interested stockholder or approved the business
combination; (ii) upon completion of the transaction that resulted in the
interested stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the Company outstanding at
the time the transaction commenced (excluding stock held by directors who are
also officers of the Company and by employee stock plans that do not provide
employees with the right to determine confidentially whether shares held subject
to the plan will be tendered in a tender or exchange offer); or (iii) on or
following the date on which that person became an interested stockholder, the
business combination is approved by the Company's Board and authorized at a
meeting of stockholders by the affirmative vote of the holders of at least
66 2/3% of the outstanding voting stock of the Company not owned by the
interested stockholder.
 
     Under Section 203, these restrictions also do not apply to certain business
combinations proposed by an interested stockholder following the announcement or
notification of one of certain extraordinary transactions involving the Company
and a person who was not an interested stockholder during the previous three
years or who became an interested stockholder with the approval of a majority of
the Company's directors, if that extraordinary transaction is approved or not
opposed by a majority of the directors (but not less than one) who
 
                                       56
were directors before any person became an interested stockholder in the
previous three years or who were recommended for election or elected to succeed
such directors by a majority of such directors then in office.

 
INDEMNIFICATION OF DIRECTORS AND OFFICERS
 
     Article NINTH of the Company's Certificate of Incorporation provides that,
to the full extent permitted by the DGCL, directors shall not be personally
liable to the Company or its stockholders for damages for breach of any duty
owed to the Company or its shareholders.
 
     The Company's Certificate of Incorporation and By-Laws provide that the
Company shall indemnify its directors and officers to the fullest extent
permitted by the DGCL.
 
     The Company maintains directors' and officers' liability insurance which is
intended to provide the Company's Directors and officers protection from
personal liability in addition to the protection provided by the Company's
Certificate of Incorporation and By-Laws as described above.
 
TRANSFER AGENT
 
     The transfer agent for the Common Stock is ChaseMellon Shareholder Services
LLC.
 
                                       57
SHARES ELIGIBLE FOR FUTURE SALE
 
GENERAL
 
     Upon completion of the Offering, the Company will have outstanding
14,653,000 shares of Common Stock. The 4,000,000 shares of Common Stock to be
sold in the Offering, and any of the 600,000 shares that may be sold upon
exercise of the Underwriters' over-allotment option will be freely tradable by
persons other than 'affiliates' of the Company, as that term is defined in Rule
144 under the Securities Act, without restriction or registration under the
Securities Act. The remaining 10,653,000 shares outstanding (all such shares
being referred to herein as the 'Existing Stockholders Shares') will be held by
the Company's Existing Stockholders. The Existing Stockholders Shares may not be
sold unless they are registered under the Securities Act or sold pursuant to an
applicable exemption from registration, including an exemption pursuant to Rule
144 under the Securities Act.
 
     As currently in effect, Rule 144 generally permits the public sale in
ordinary trading transactions of 'restricted securities' and of securities owned
by 'affiliates' beginning 90 days after the date of this Prospectus if the other
restrictions enumerated in Rule 144 are met. Restricted securities are
securities acquired directly or indirectly from an issuer or an affiliate of the
issuer in an action not involving a public offering. In general, under Rule 144,
if a period of at least two years has elapsed since the date the restricted
securities were acquired from the Company or an affiliate of the Company, as
applicable, then the holder of such restricted securities (including an
affiliate) is entitled, subject to certain conditions, to sell within any
three-month period a number of shares which does not exceed the greater of (i)
1% of the Company's then outstanding shares of Common Stock or (ii) the share's
average weekly trading volume during the four calendar weeks preceding such
sale. Sales under Rule 144 are also subject to certain manner-of-sale provisions
and requirements as to notice and the availability of current public information
about the Company. Affiliates may sell shares not constituting restricted
securities in accordance with the foregoing limitations and requirements but
without regard to the two-year period. However, a person who is not and has not
been an affiliate of the Company at any time during the 90 days preceding the
sale of the shares, and who has beneficially owned restricted securities for at
least three years, is entitled to sell such shares under the requirements of
Rule 144. The Existing Stockholders who hold in the aggregate 10,653,000 shares
have agreed during the 180 day-period immediately following the date of this
Prospectus not to sell or otherwise dispose of any securities of the Company
without the consent of the representatives of the Underwriters, subject to
certain specified exemptions.
 
     The Company has reserved 2,200,000 shares of its Common Stock for issuance
under the Stock Option Plan. All of the shares issued as the result of any
grants under the foregoing plans shall also be restricted securities unless the
Company files a registration statement under the Securities Act relating to the
issuance of the shares. The Company currently intends to register the shares of
Common Stock reserved under such employee benefit plans. Subject to compliance
with Rule 144 by affiliates of the Company, any shares issued upon exercise of
options granted under such employee benefit plans will become freely tradable at
the effective date of the registration statement for the shares reserved under

such plans.
 
     Prior to the Offering, there has been no public market for the Common
Stock, and no prediction can be made as to the effect, if any, that sales of
shares or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of substantial amounts of
Common Stock in the public market could adversely affect prevailing market
prices.
 
                                       58
UNDERWRITING
 
     The Underwriters named below, acting through their representatives, NatWest
Securities Limited, Prudential Securities Incorporated and Piper Jaffray Inc.,
have severally agreed, subject to the terms and conditions of the Underwriting
Agreement, to purchase from Company, the number of shares of Common Stock set
forth opposite their respective names below:
UNDERWRITERS                                               NUMBER OF SHARES
- --------------------------------------------------------   ----------------
NatWest Securities Limited..............................
Prudential Securities Incorporated......................
Piper Jaffray Inc.......................................
 
                                                           ----------------
     Total..............................................       4,000,000
                                                           ----------------
                                                           ----------------
The Underwriters are committed to purchase all of the shares of Common
Stock, if any shares of Common Stock are purchased.
 
     The Underwriters propose to offer the shares of Common Stock directly to
the public at the public offering price set forth on the cover page of this
Prospectus and to certain securities dealers at such price less a concession not
in excess of $      per share of Common Stock. The Underwriters may allow, and
such selected dealers may reallow, a concession not in excess of $    per share
of Common Stock to certain brokers and dealers. The Underwriters have informed
the Company that the Underwriters do not intend to confirm sales to any account
over which they exercise discretionary authority.
 
     The Company has granted to the Underwriters an option for 30 days after the
date of this Prospectus to purchase at the public offering price, less the
underwriting discount, as set forth on the cover page of the Prospectus, up to
600,000 additional shares of Common Stock. If the Underwriters exercise their
option to purchase any of the additional shares of Common Stock, each of the
Underwriters will have a firm commitment, subject to certain conditions, to
purchase approximately the same percentage thereof which the number of shares of
Common Stock to be purchased by each of them as shown in the above table bears

to the Underwriters' initial commitment. The Underwriters may exercise such
option only to cover over-allotments in connection with the sale of Common Stock
offered hereby.
 
     The Company and the Existing Stockholders have agreed that they will not,
directly or indirectly, without the prior written consent of the
Representatives, offer to sell, sell, contract to sell, grant any option to
purchase or otherwise dispose (or announce any offer, sale, grant of any option
to purchase or other disposition) of any shares of Common Stock for a period of
180 days after the date hereof, except grants of options by the Company in
connection with the Stock Option Plan.
 
     The Underwriting Agreement provides that the Company and the Existing
Stockholders will jointly and severally indemnify the several Underwriters
against certain liabilities, including civil liabilities under the Act, or will
contribute to payments the Underwriters may be required to make in respect
thereof. The Existing Stockholders and the Company have agreed among themselves,
without limitation to the rights of the
 
                                       59
Underwriters under the Underwriting Agreement that, if any of them is obligated
to indemnify, or to contribute to the losses of, any Underwriter, then as
between the Existing Stockholders and the Company, such obligation shall be
borne by them in the same proportion as the gross proceeds received by the
Company from the Offering bears to the total amount of the distributions
received by the Existing Stockholders in connection with the Distribution Notes
and the Contingent Dividend.
 
     NatWest Securities Limited ('NatWest'), a United Kingdom broker-dealer and
a member of the Securities and Futures Authority Limited, has agreed that, as
part of its distribution of the shares of the Common Stock offered hereby and
subject to certain exceptions, it will not offer or sell any shares of Common
Stock within the U.S., its territories or possessions or to persons who are
citizens thereof or residents therein. The Underwriting Agreement does not limit
the sale of the Common Stock offered hereby outside the U.S.
 
     NatWest has further represented and agreed that (i) it has not offered or
sold and will not offer or sell any Common Stock to persons in the United
Kingdom prior to admission of the Common Stock to listing in accordance with
Part IV of the Financial Services Act 1986 (the 'Act') except to persons whose
ordinary activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purpose of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995 or the Act, (ii) it has complied and will
comply with all applicable provisions of the Act with respect to anything done
by it in relation to the Common Stock in, from or otherwise involving the United
Kingdom and (iii) it has only issued or passed on, and will only issue or pass
on, in the United Kingdom any document received by it in connection with the
issue of the Common Stock, other than any document which consists of or any part
of listing particulars, supplementary listing particulars or any other document
required or permitted to be published by listing rules under Part IV of the Act,
to a person who is of a kind described in Article 11(3) of the Financial

Services Act 1986 (Investment Advertisements)(Exemptions) Order 1995 or is a
person to whom the document may otherwise lawfully be issued or passed on.
 
     National Westminster Bank Plc ('NWB'), an affiliate of NatWest, has
provided the Company with a $100 million warehouse financing facility that is
secured by certain of the Company's mortgages held for sale and term loans in
the aggregate principal amount of $22.3 million secured by certain of the
Company's interest-only and residual certificates.
 
     NatWest and its affiliates have also provided, and may in the future
provide, investment banking and/or other advisory services to the Company for
which it received customary compensation.
 
     Prudential Securities Incorporated and NatWest Capital Markets Limited, an
affiliate of NatWest, have provided investment banking services to the Company
in connection with securitization transactions and received fees in connection
therewith.
 
     Prior to this Offering, there has been no previous public market for the
Common Stock of the Company. The public offering price for the Common Stock will
be determined by negotiations among the Company and the Underwriters. The
factors to be considered in determining the initial public offering price will
include an assessment of the history and the prospects for the industry in which
the Company operates, the ability of the Company's management, the past and
present operations of the Company, the historical results of operations of the
Company, the prospects for future earnings of the Company, the general
conditions of the securities markets at the time of the Offering and the prices
of similar securities of comparable companies.
 
                                 LEGAL MATTERS
 
     The validity of the issuance of the shares of the Common Stock offered
hereby will be passed upon for the Company by Stroock & Stroock & Lavan, New
York, New York. Certain legal matters in connection with the Offering will be
passed upon for the Underwriters by Manatt, Phelps & Phillips, LLP, Los Angeles,
California.
 
                                       60
EXPERTS
 
     The financial statements of the Company at December 31, 1994 and 1995 and
for each of the years in the three year period ended December 31, 1995,
appearing in this Prospectus and Registration Statement, have been audited by
KPMG Peat Marwick LLP, independent auditors, as set forth in their report
thereon appearing elsewhere in this Prospectus and Registration Statement and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
 
                             ADDITIONAL INFORMATION
 
     The Company has filed with the Securities and Exchange Commission (the
'Commission') a Registration Statement on Form S-1 under the Securities Act, of
which this Prospectus forms a part, with respect to the Common Stock offered

hereby. This Prospectus omits certain information contained in the Registration
Statement, and reference is made to the Registration Statement for further
information with respect to the Company and the Common Stock offered hereby.
Statements contained herein concerning the provisions of documents are
necessarily summaries of such documents and when any such document is an exhibit
to the Registration Statement, each such statement is qualified in its entirety
by reference to the copy of such document filed with the Commission. Copies of
the Registration Statement may be acquired upon payment of the prescribed fees
or examined without charge at the public reference facilities of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, the Registration
Statement may be accessed electronically at the Commission's site on the World
Wide Web located at http://www.sec.gov.
 
     Upon completion of the Offering, the Company will be subject to the
informational requirements of the Securities and Exchange Act of 1934, as
amended, and, in accordance therewith, will file reports, proxy and information
statements with the Commission. Such reports, proxy and information statements
and other information can be inspected and copied at the address and web site
set forth above.
 
                            REPORTS TO STOCKHOLDERS
 
     The Company intends to furnish its stockholders with annual reports
containing audited financial statements and a report thereon by independent
certified public accountants and with quarterly reports for the first three
quarters of each year containing unaudited summary financial information.
 
                                       61
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
                                                                                                             ----
Report of Independent Accountants.........................................................................    F-2
 
Financial Statements of Delta Funding Corporation:
 
  Balance Sheets as of December 31, 1994, 1995 and June 30, 1996..........................................    F-3
 
  Statements of Operations for the years ended December 31, 1993, 1994 and 1995 and the six months ended
     June 30, 1995 and 1996...............................................................................    F-4
 
  Statements of Stockholders' Equity for the years ended December 31, 1993, 1994 and 1995 and the six
     months ended June 30, 1995 and 1996..................................................................    F-5
 
  Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995 and the six months ended
     June 30, 1996........................................................................................    F-6
 
  Notes to Financial Statements...........................................................................    F-7
F-1
INDEPENDENT AUDITORS' REPORT
 
The Stockholders
Delta Funding Corporation:
 
We have audited the accompanying balance sheets of Delta Funding Corporation as
of December 31, 1995 and 1994, and the related statements of operations, changes
in stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Delta Funding Corporation as of
December 31, 1995 and 1994, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1995 in
conformity with generally accepted accounting principles.

KPMG Peat Marwick LLP 
New York, New York
March 28, 1996
 
                                      F-2
DELTA FUNDING CORPORATION
                                 BALANCE SHEETS
JUNE 30,
                                                             DECEMBER 31,          ---------------------------
                                                      --------------------------                   PRO FORMA
                                                         1994           1995           1996           1996
                                                      -----------   ------------   ------------   ------------
(unaudited)
                       ASSETS
Cash and interest bearing deposits..................  $ 9,357,173   $ 16,635,135   $  9,176,930   $  9,176,930
Accounts receivable.................................    5,709,329      6,845,947      7,507,501      7,507,501
Loans held for sale.................................   48,833,288     63,816,298     66,676,971     66,676,971
Accrued interest and late charges receivable........   12,721,571     15,946,847     15,738,548     15,738,548
Capitalized mortgage servicing rights...............    2,421,313      3,830,996      6,673,925      6,673,925
Equipment, net......................................      906,849      1,550,099      2,064,401      2,064,401
Cash held for advance payments......................    3,286,482      3,119,558      2,705,790      2,705,790
Real estate owned...................................      699,747        250,908        215,908        215,908
Interest only and residual certificates.............    7,513,550     25,309,548     43,233,429     43,233,429
Prepaid and other assets............................    3,070,335      1,316,702      1,818,244      1,818,244
Due from stockholders...............................    3,155,000        990,000             --             --
Due from affiliates.................................      913,870             --             --             --
                                                      -----------   ------------   ------------   ------------
                                                      $98,588,507   $139,612,038   $155,811,647   $155,811,647
                                                      -----------   ------------   ------------   ------------
                                                      -----------   ------------   ------------   ------------
 
        LIABILITIES AND STOCKHOLDERS' EQUITY
Bank payable........................................  $   974,762   $  5,100,087   $  6,523,559   $  6,523,559
Warehouse financing and other borrowings............   52,490,644     82,756,232     83,251,432     83,251,432
Accounts payable and accrued expenses...............    2,941,824      4,843,719      5,248,532      5,248,532
Investor payable....................................   11,090,962     14,271,967     13,598,620     13,598,620
Advance payment by borrowers for taxes
  and insurance.....................................    2,926,501      2,806,818      2,455,774      2,455,774
Deferred income taxes...............................           --             --             --      2,930,485
S Corporation distribution notes....................           --             --             --     23,000,000
                                                      -----------   ------------   ------------   ------------
                                                       70,424,693    109,778,823    111,077,917    137,008,402
                                                      -----------   ------------   ------------   ------------
Stockholders' equity:
  Capital stock, no par value. Authorized
     10,000 shares;
     issued and outstanding 5,805 shares............    2,031,450      2,031,450      2,031,450      2,031,450
  Additional paid-in capital........................    1,300,695      1,300,695      1,300,695      1,300,695
  Retained earnings.................................   24,831,669     26,501,070     41,401,585     15,471,100
                                                      -----------   ------------   ------------   ------------
Total stockholders' equity..........................   28,163,814     29,833,215     44,733,730     18,803,245
Commitments and contingencies.......................           --             --             --             --
                                                      -----------   ------------   ------------   ------------
                                                      $98,588,507   $139,612,038   $155,811,647   $155,811,647

                                                      -----------   ------------   ------------   ------------
                                                      -----------   ------------   ------------   ------------
See accompanying notes to financial statements.
                                      F-3
DELTA FUNDING CORPORATION
                            STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED              FOR THE SIX MONTHS ENDED
                                                           DECEMBER 31,                         JUNE 30,
                                              ---------------------------------------   -------------------------
                                                 1993          1994          1995          1995          1996
                                              -----------   -----------   -----------   -----------   -----------
                                                                                               (UNAUDITED)
Revenues:
  Net gain on sale of mortgage loans and
     servicing rights.......................  $ 7,639,346   $ 6,661,163   $15,382,960   $ 5,334,734   $17,800,438
  Interest..................................    9,156,073     9,839,484    13,587,807     5,361,620     7,861,311
  Servicing fees............................    2,100,718     2,182,568     2,855,642     1,239,638     2,324,684
  Other.....................................    3,616.997     3,113,692     4,308,985     1,857,354     2,344,754
                                              -----------   -----------   -----------   -----------   -----------
                                               22,513,134    21,796,907    36,135,394    13,793,346    30,331,187
                                              -----------   -----------   -----------   -----------   -----------
Expenses:
  Payroll and related costs.................    9,268,271     8,815,355    12,875,714     4,357,805     6,685,160
  Interest expense..........................    2,915,230     3,734,877     7,963,613     3,469,969     5,922,152
  General and administrative................    6,669,731     7,238,140    10,710,179     4,147,111     5,631,187
                                              -----------   -----------   -----------   -----------   -----------
                                               18,853,232    19,788,372    31,549,506    11,974,885    18,238,499
                                              -----------   -----------   -----------   -----------   -----------
Earnings before extraordinary item..........    3,659,902     2,008,535     4,585,888     1,818,461    12,092,688
Gain on extinguishment of debt..........               --            --            --            --     3,167,828
                                              -----------   -----------   -----------   -----------   -----------
Net earnings................................  $ 3,659,902   $ 2,008,535   $ 4,585,888   $ 1,818,461   $15,260,516
                                              -----------   -----------   -----------   -----------   -----------
                                              -----------   -----------   -----------   -----------   -----------
Unaudited pro forma information:
  Provision for pro-forma income taxes
     (including pro forma income taxes of
     $1,362,166 on extraordinary item)......    1,573,758       863,670     1,971,932       781,938     6,562,022
                                              -----------   -----------   -----------   -----------   -----------
Pro forma net earnings......................  $ 2,086,144   $ 1,144,865   $ 2,613,956   $ 1,036,523   $ 8,698,494
                                              -----------   -----------   -----------   -----------   -----------
                                              -----------   -----------   -----------   -----------   -----------
Pro forma earnings per share of
  common stock:
  Before extraordinary item.................                              $       .21                 $       .57
  Extraordinary item........................                                       --                         .14
                                                                          -----------                 -----------
Pro forma net earnings per share............                              $       .21                 $       .71
                                                                          -----------                 -----------
                                                                                                      -----------
Pro forma weighted average number of shares
  outstanding...............................                               12,186,333                  12,186,333
                                                                          -----------                 -----------

                                                                          -----------                 -----------
See accompanying notes to financial statements.
 
                                      F-4
DELTA FUNDING CORPORATION
                  STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
ADDITIONAL
                                                                           PAID-IN       RETAINED
                                                         CAPITAL STOCK     CAPITAL       EARNINGS         TOTAL
                                                         -------------    ----------    -----------    -----------
Balance at December 31, 1992..........................    $ 2,031,450     $1,300,695    $22,552,281    $25,884,426
 
Net Earnings..........................................             --             --      3,659,902      3,659,902
 
Distributions.........................................             --             --     (1,193,993)    (1,193,993)
                                                         -------------    ----------    -----------    -----------
 
Balance at December 31, 1993..........................      2,031,450      1,300,695     25,018,190     28,350,335
 
Net earnings..........................................             --             --      2,008,535      2,008,535
 
Distributions.........................................             --             --     (2,195,056)    (2,195,056)
                                                         -------------    ----------    -----------    -----------
 
Balance at December 31, 1994..........................      2,031,450      1,300,695     24,831,669     28,163,814
 
Net earnings..........................................             --             --      4,585,888      4,585,888
 
Distributions.........................................             --             --     (2,916,487)    (2,916,487)
                                                         -------------    ----------    -----------    -----------
 
Balance at December 31, 1995..........................      2,031,450      1,300,695     26,501,070     29,833,215
 
Net earnings..........................................             --             --     15,260,516     15,260,516
 
Distributions.........................................             --             --       (360,001)      (360,001)
                                                         -------------    ----------    -----------    -----------
 
Balance at June 30, 1996 (unaudited)..................    $ 2,031,450     $1,300,695    $41,401,585    $44,733,730
                                                         -------------    ----------    -----------    -----------
                                                         -------------    ----------    -----------    -----------
See accompanying notes to financial statements.
 
                                      F-5
DELTA FUNDING CORPORATION
                            STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED             FOR THE SIX MONTHS ENDED
                                                                DECEMBER 31,                        JUNE 30,
                                                   --------------------------------------   -------------------------
                                                      1993         1994          1995          1995          1996
                                                   ----------   -----------   -----------   -----------   -----------
                                                                                                   (UNAUDITED)
Cash flows from operating activities:
  Net earnings...................................  $3,659,902   $ 2,008,535   $ 4,585,888   $ 1,818,461    15,260,516
    Adjustments to reconcile net earnings to net
      cash provided by (used in) in operating 
      activities:
      Provision for loan losses..................     589,559       169,867        99,761            --        49,881
      Depreciation and amortization..............     169,977       277,956       564,310       149,396       327,262
      Mortgage servicing rights, net of
         amortization............................   2,213,645     1,069,652    (1,409,683)     (326,641)   (2,842,929)
      Deferred origination fees..................    (468,627)      220,794        55,329      (268,809)   (1,515,865)
      Interest only and residual certificates....          --    (4,159,550)  (16,750,157)   (3,770,621)  (18,062,704)
      Unrealized (gain) loss on interest only and
         residual certificates...................          --    (1,150,000)   (1,045,841)           --       138,823
    Changes in operating assets and liabilities:
      Increase in accounts receivable, net.......  (2,227,142)   (2,365,992)   (1,136,618)     (571,144)     (661,554)
      Increase in accrued interest and late
         charges receivable......................  (3,030,509)   (1,783,978)   (3,225,276)     (454,316)      208,299
      (Increase)/decrease in loans held for
         sale....................................   5,255,064    (7,447,873)  (15,021,532)   (9,575,017)   (1,584,529)
      (Increase)/decrease in cash held for
         advance payments........................     713,895       141,478       166,924       (56,750)      413,768
      (Increase)/decrease in real estate owned...    (613,694)      650,121       448,839       167,453        35,000
      (Increase)/decrease in prepaid and other
         assets..................................  (1,850,773)      110,509     1,637,065     1,123,655      (311,703)
      Decrease in due from stockholders..........     165,000       165,000     2,165,000            --       990,000
      Increase/(decrease) in accounts payable and
         accrued expenses........................   1,395,041      (354,737)    1,901,895     3,479 886       404,814
      Increase/(decrease) in investor payable....   3,728,321     2,403,676     3,181,005      (289,053)   (1,675,975)
      Increase in interest payable on investor
         loans...................................          --            --            --       237,388     1,002,628
      Increase/(decrease) in advance payment by
         borrowers for taxes and insurance.......    (919,785)     (115,629)     (119,683)       60,780      (351,045)
                                                   ----------   -----------   -----------   -----------   -----------
Net cash provided by (used in) operating 
         activities..............................   8,779,874   (10,160,171)  (23,902,774)   (8,275,332)   (8,175,313)
                                                   ----------   -----------   -----------   -----------   -----------
Cash flows from investing activities:
  Payment for purchase of equipment..............     (63,585)     (917,512)   (1,207,560)     (664,132)     (841,564)
                                                   ----------   -----------   -----------   -----------   -----------
Cash flows from financing activities:
  Proceeds from/(repayments) of warehouse

    financing and other borrowings net...........  (6,062,098)   15,710,632    30,265,588     8,285,037       495,200
  Increase/(decrease) in bank payable, net.......    (240,095)      (11,954)    4,125,325     2,687,074     1,423,472
  Distributions..................................  (1,193,993)   (2,195,056)   (2,916,487)   (2,556,487)     (360,000)
  Payments (made to) received from affiliates....     357,052       (43,366)      913,870     1,159,914            --
                                                   ----------   -----------   -----------   -----------   -----------
Net cash provided by (used in) financing 
   activities....................................  (7,139,134)   13,460,256    32,388,296     9,575,538     1,558,672
                                                   ----------   -----------   -----------   -----------   -----------
Net increase/(decrease) in cash..................   1,577,155     2,382,573     7,277,962       636,074    (7,458,205)
Cash at beginning of year........................   5,397,445     6,974,600     9,357,173     9,357,173    16,635,135
                                                   ----------   -----------   -----------   -----------   -----------
Cash at end of year..............................  $6,974,600   $ 9,357,173   $16,635,135   $ 9,993,247   $ 9,176,930
                                                   ----------   -----------   -----------   -----------   -----------
                                                   ----------   -----------   -----------   -----------   -----------
See accompanying notes to financial statements.
 
                                      F-6
DELTA FUNDING CORPORATION
                         NOTES TO FINANCIAL STATEMENTS
                       DECEMBER 31, 1993, 1994, 1995 AND
              SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (UNAUDITED)
 
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
  (a) Organization
 
     Delta Funding Corporation (the 'Company') was organized on January 8, 1982
for the purpose of originating, selling, servicing and investing in residential
first and second mortgages.
 
  (b) Origination Fees
 
     The Company accounts for origination fee income on mortgages held for sale
in conformity with Statement of Financial Accounting Standards (SFAS) No. 91.
This Statement requires that origination fees be offset by their direct loan
costs and the net deferred fees be recognized over the life of the loan or upon
sale of the loan, if earlier.
 
  (c) Loans held for sale
 
     Loans held for sale are carried at the lower of cost or market, determined
on a net aggregate basis. Adjustments to market are made by charges or credits
to income.
 
  (d) Income Taxes
 
     The Company has elected for both Federal and state income tax purposes to
be treated as an S Corporation (effective July l, 1985). Consequently, the net
earnings of the Company are taxed directly to the stockholders, rather than the
Company.
 
  (e) Sale of Mortgage Loans
 
     The Company sells whole loans with servicing retained. Gains or losses on
such sales are recognized at the time of sale and are determined by the
differences between net sales proceeds and the unpaid principal balance of the
loans sold adjusted for the present value of any yield differential.
 
  (f) Securitization
 
     The Company sells pools of loans on a servicing retained basis. Gains or
losses are determined at the time of sale between the net sales proceeds and the
present value of the future stream of servicing fees, adjusted for estimated
prepayments. The Company continues to service these loans for a normal servicing
fee.
 
     Included in the gain on sale of loans is gain on securitization
representing the fair value of the interest-only and residual certificates
received by the Company. Fair value of these certificates is determined based on
various economic factors, including loan types, sizes, interest rates, dates of

origination, terms and geographic locations. The Company also uses other
available information such as reports on prepayment rates, collateral value,
discount rates, economic forecasts and historical default and prepayment rates
of the portfolio under review. The Company reviews these factors and, if
necessary, adjusts the remaining assets to the fair value of the interest-only
and residual certificates.
 
  (g) Real Estate Acquired Through Foreclosure
 
     Properties acquired through foreclosure or a deed in lieu of foreclosure
are recorded at the lower of the unpaid loan balance, or fair value, at the date
of acquisition. The carrying value of the individual properties is subsequently
adjusted to the extent it exceeds estimated fair value less costs to sell, at
which time a provision for losses on such real estate is charged to operations.
 
  (h) Equipment
 
     Equipment, including leasehold improvements, is stated at cost, less
accumulated depreciation and amortization. Depreciation of equipment is computed
using the straight-line or accelerated method over the estimated useful lives of
three to five years. Leasehold improvements are amortized over the lesser of the
terms of the lease or the estimated useful lives of the improvements.
Expenditures for betterments and major renewals are capitalized and ordinary
maintenance and repairs are charged to operations as incurred.
 
                                      F-7
DELTA FUNDING CORPORATION
                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
                       DECEMBER 31, 1993, 1994, 1995 AND
              SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (UNAUDITED)
 
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
  (i) Interest Only and Residual Certificates
 
     Interest only and residual certificates are carried at fair value in
accordance with SFAS No. 115, 'Accounting for Certain Investments in Debt and
Equity Securities.' Unrealized gains and losses are included in the statement of
operations.
 
  (j) Mortgage Servicing Rights
 
     Effective January 1, 1995 the Company adopted Financial Accounting
Standards Board Statement No. 122 'Accounting for Mortgage Servicing Rights'.
The Statement amends Statement No. 65 to require that a mortgage banking
enterprise recognize as a separate asset the rights to service mortgage loans
for others, however those servicing rights are acquired. The Statement requires
the assessment of capitalized mortgage servicing rights for impairment to be
based on the current fair value of those rights. Mortgage servicing rights are
amortized in proportion to and over the period of the estimated net servicing
income.
 
  (k) Fair Value of Financial Instruments
 

     Statement of Financial Accounting Standards No. 107, 'Disclosure About Fair
Value of Financial Instruments' (SFAS 107) requires the Company to disclose the
fair value of financial instruments for which is practicable to estimate fair
value. Fair value is defined as the amount at which a financial instrument could
be exchanged in a current transaction between willing parties, other than in a
forced sale or liquidation and is best evidenced by a quoted market price.
Substantially all the Company's assets and liabilities deemed to be financial
instruments other than interest-only and residual certificates are carried at
cost, which approximates their fair value.
 
  (l) Use of Estimates
 
     Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
 
  (m) Servicing Income
 
     Servicing income includes servicing fees, prepayment penalties and late
payment charges earned for servicing mortgage loans owned by investors. All fees
and charges are recognized into income when collected.
 
(2) UNAUDITED INFORMATION
 
     The unaudited financial statements and related notes as of June 30, 1996
and for the six-month periods ended June 30, 1995 and 1996 reflect, in the
opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to fairly present the statements of operations, cash
flows and balance sheets as of and for the periods presented. These unaudited
financial statements should be read in conjunction with the audited financial
statements and related notes thereto. The results for the interim period
presented are not necessarily indicative of results to be expected for the full
year.
 
(3) LOANS HELD FOR SALE
 
     The Company owns first and second mortgages with a weighted average
interest rate of 12%. These mortgages are being held as inventory for future
sale at the lower of cost or market. Certain of these mortgages are pledged as
collateral for a portion of the warehouse financing and other borrowings.
 
     Included in loans held for sale are deferred origination fees and purchase
premiums in the amount of $2,339,684, $1,013,658, $952,419 and an allowance for
loan losses of $799,882, $750,000, $700,000, as of June 30, 1996 and December
31, 1995 and 1994, respectively.
 
     Mortgages are payable in monthly installments of principal and interest and
have due dates varying from five to thirty years.
 
                                      F-8
DELTA FUNDING CORPORATION

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
                       DECEMBER 31, 1993, 1994, 1995 AND
              SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (UNAUDITED)
 
(3) LOANS HELD FOR SALE--(CONTINUED)
     The changes in the allowance for loan losses are as follows:
SIX MONTHS ENDED
                                                          JUNE 30,             YEAR ENDED
                                                        (UNAUDITED)           DECEMBER 31,
                                                      ----------------    --------------------
                                                            1996            1995        1994
                                                      ----------------    --------    --------
Balance at beginning of year.......................       $750,000         700,000     650,000
Provisions.........................................         49,882          99,761     169,867
Charge-offs........................................             --         (49,761)   (119,867)
                                                      ----------------    --------    --------
Balance at end of year.............................       $799,882        $750,000    $700,000
                                                      ----------------    --------    --------
                                                      ----------------    --------    --------
The Company transferred $0, $122,261 and $521,831 of loans held for sale to
real estate owned for the six-months ended June 30, 1996 and the years ended
December 31, 1995 and 1994, respectively.
 
(4) ACCOUNTS RECEIVABLE
 
     Accounts receivable consist of the following:
June 30,          December 31,
                                                          1996          1995          1994
                                                       ----------    ----------    ----------
                                                       (unaudited)
Securitization......................................   $4,159,289    $3,168,100    $3,156,304
Escrow receivable...................................      657,085       662,572       575,802
Insurance premiums..................................    1,087,285     1,003,285       769,149
Other...............................................    1,603,842     2,011,990     1,208,074
                                                       ----------    ----------    ----------
                                                       $7,507,501    $6,845,947    $5,709,329
                                                       ----------    ----------    ----------
                                                       ----------    ----------    ----------
(5) WAREHOUSE FINANCING AND OTHER BORROWINGS
 
     During 1995, the Company opened a warehouse line of credit in the
amount of $100,000,000. The line is collateralized by specific

mortgage receivables, which are equal to the outstanding balance under the
line at any point in time. The interest rate is 1% above the London Interbank
Offered Rate ('LIBOR') and the line expires October 13, 1996. At June 30, 1996
and December 31, 1995, the Company had $48,880,615 and $30,132,844
outstanding under this agreement, respectively.

     The Company had an additional warehouse line of credit in the aggregate
amount of $45,000,000. The line was also collateralized by specific mortgage
receivables, which were equal to or greater than the outstanding balances under
the line at any point in time. The interest rate was 2% above LIBOR. At
December 31, 1995, the Company had $30,498,168 outstanding. In May 1996 the
Company extinguished this line of credit at a discount. An extraordinary gain of
$3,167,828 was recorded in connection with this extinguishment of debt. 

     During 1996, the Company opened a new warehouse facility in the amount of
$50,000,000. The line, which bears interest at a variable rate based on LIBOR,
is collateralized by specific mortgage receivables which are equal to the amount
outstanding on the line at any time. The line expires on May 9, 1997 and had
$2,196,124 outstanding at June 30, 1996.

     During the first half of 1996, the Company negotiated a new uncommitted
warehouse facility for $150 million with a variable interest rate. As of June
30, 1996, the Company had $2.2 million outstanding under this facility. 

     The Company has lines of credit in the aggregate amount of $5,500,000, with
separate banks. The individual lines available, and their interest rates, are as
follows: $2,500,000 at 1/2% above prime, $1,000,000 at 2.9% above the 30-day
dealer commercial paper rate, $2,000,000 at 1% over the Bank's prime lending
rate. At June 30, 1996 (unaudited) and December 31, 1995, the Company had
$2,500,000, $995,378 and $683,210, and $2,500,000, $981,843, and $879,710 drawn
down from these sources, respectively.

     At June 30, 1996 and December 31, 1995 the Company had $1,956,705 and
$1,586,935, respectively, outstanding from two leasing companies for financing
of capitalized assets.
 
     The Company has obtained financing facilities for interest-only and
residual certificates acquired as part of the 1992-1, 1994-2, 1995-1, 1995-2 and
1996-1 securitizations. As of June 30, 1996 and December 31, 1995, the
aggregate outstanding balance on these facilities was $26,039,400 and
$16,176,732, respectively. These facilities have variable interest rates and
mature between October 1997 and June 1999.
 
                                      F-9
DELTA FUNDING CORPORATION
                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
                       DECEMBER 31, 1993, 1994, 1995 AND
              SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (UNAUDITED)
 
(6) BANK PAYABLE
 
     In order to maximize its cash management practices, the Company has
instituted a procedure whereby checks written against its operating account are
covered as they are presented to the bank for payment, either by drawing down

its lines of credit or from subsequent deposits of operating cash.
 
(7) INVESTOR PAYABLE
 
     Investor payable represent the collection of mortgage payments by the
Company, from mortgagors, which were remitted to investors subsequent to year
end.
 
(8) CAPITALIZED MORTGAGE SERVICING RIGHTS
 
     The Company sells mortgage loans to generate servicing income and provide
funds for additional investment and lending activities. The Company previously 
accounted for the sale of mortgage loans in conformity with Statement of
Financial Accounting Standards No. 65, 'Accounting for Certain Mortgage Banking
Activities.' This Statement requires that the gain on sale be recognized at the
time of sale, using the present value of the future cash flows of the difference
between the servicing fee to be received and a normal servicing fee. The cash
flow has been computed over the average estimated life of the mortgages, 
adjusted for prepayments and recorded as capitalized mortgage servicing rights.
Periodically, the Company adjusted the balance of the asset, if necessary, based
on the difference between the original estimate and actual loan prepayments.
 
     Effective January 1, 1995, the Company adopted Financial Standards Board
Statement No. 122-- 'Accounting for Mortgage Servicing Rights'. This statement
prospectively changed the methodology for capitalized mortgage servicing rights
and the methodology used to measure impairment of its capitalized mortgage
servicing rights asset. The Company measures the asset's impairment on a
disaggregate basis based on the predominant risk characteristic of the portfolio
and discounted the asset's estimated future cash flow using a current market
rate. The Company has determined the predominant risk characteristic to be
interest rate risk. The fair value of the existing mortgage servicing rights as
of June 30, 1996 and December 31, 1995 approximated its book value and did not
require a valuation allowance to be established. To determine the fair value of
mortgage servicing rights, the Company estimates the expected future net
servicing revenue based on common industry assumptions, as well as on the
Company's historical experience.
 
(9) HEDGING TRANSACTIONS

     The Company regularly securitizes and sells fixed-rate mortgage loans. To
offset the effects of interest rate fluctuations on the value of its fixed-rate
loans held for sale, the Company in certain cases will hedge its interest rate
risk related to loans held for sale by selling U.S. Treasury securities short or
in the forward market. The Company classifies these sales as hedges of specific
loans held for sale. The gains or losses derived from these sales are deferred
and recognized as an adjustment to gains on sales of loans when the loans are
sold or securitized.

     As of December 31, 1994 and 1995, the Company had no open hedge positions.
As of June 30, 1996, the Company had an open hedge position of $(102,573). The
Company included gains (losses) of $0, $137,871, $(1,721,860) and $614,024 on
the short sale of U.S. Treasury securities as part of gains on sale of loans in
1993, 1994, 1995 and the six months ended June 30, 1996, respectively.

 
(10) RELATED PARTY TRANSACTIONS
 
     The Company had notes due from stockholders in the amounts of $990,000 and
$3,155,000 at December 31, 1995 and 1994, respectively. These notes were repaid
during 1996.
 
                                      F-10
DELTA FUNDING CORPORATION
                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
                       DECEMBER 31, 1993, 1994, 1995 AND
              SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (UNAUDITED)
 
(11) EMPLOYEE PROFIT SHARING PLAN
 
     The Company has an employee profit sharing plan covering all eligible
employees, as defined, with at least 30 months of service. The Company
contributed $100,000, $120,000, $90,000 and $120,000 to the plan for the
six-month period ended June 30, 1996 and for the years ended December 31, 1995,
1994 and 1993, respectively.
 
(12) COMMITMENTS AND CONTINGENCIES
 
     The Company has repurchase agreements with a few of the institutions that
have purchased mortgages. Currently, some of the agreements provide for the
repurchase by the Company of any of the mortgage loans that go to actual
foreclosure sale. At the foreclosure sale, the Company will repurchase the
mortgage, if necessary, and make the institution whole. The dollar amount of the
Company's exposure is approximately $23 million at June 30, 1996.

     The Company previously subleased its Woodbury offices from an affiliated
company. On August 2, 1996 the lease was assigned to the Company. This lease
provides for rent to be paid on a month-to-month basis. Rental expense, net of
sublease income, for the six-months ended June 30, 1996 and the years ended
December 31, 1995 and 1994 amounted to $353,260, $476,674 and $382,704,
respectively.

     In the normal course of business, the Company is subject to various legal
proceedings and claims, the resolution of which, in management's opinion, will
not have a material adverse effect on the financial position or the results of
operations of the Company.
 
(13) SUPPLEMENTAL CASH FLOW INFORMATION
 
     The Company paid $5,922,152, $7,659,000, $3,796,047 and $2,499,623 for
interest during the six-months ended June 30, 1996 and the years ended December
31, 1995, 1994 and 1993, respectively.
 
(14) UNAUDITED PRO FORMA INFORMATION
 
     The pro forma financial information has been presented to show what the
significant effects on the historical financial position might have been had the
distribution of S Distribution Notes and the revocation of the Company's S

corporation status occurred as of June 30, 1996, and to show what the
significant effects on the historical results of operations might have been had
the Company not been treated as an S corporation for income tax purposes as of
the beginning of the earliest period presented.
 
     Pro Forma Net Income and Pro Forma Balance Sheet--Pro forma net income
represents the results of operations adjusted to reflect a change in the
Company's income tax status from an S corporation to a C corporation, using a
pro forma income tax rate of 43%. The pro forma balance represents the balance
sheet as of June 30, 1996 adjusted to give effect to (i) S corporation
distribution notes with a total principal amount of $23,000,000, and (ii) the
establishment of $2,930,485 of deferred tax liabilities that would have been
recorded had the Company's S corporation status been revoked as of June 30,
1996. The amount of liability to be recorded will be dependent upon temporary
differences existing at the date of revocation of the Company's S corporation
status. The principal components of the Company's net deferred tax liabilities
relate to recognition of gains on sale of mortgage loans.
 
     Pro forma net income per share has been computed by dividing pro forma net
income by the 10,653,000 of shares of common stock of Delta Financial
Corporation to be received in exchange for the Company's shares, and in
accordance with a regulation of the Securities and Exchange Commission, the
effect of the assumed issuance (at an assumed price of $15 per share) of
1,533,333 shares of common stock to generate sufficient cash to pay an S
corporation distribution in the amount of $23,000,000.
 
     The accompanying pro forma balance sheet at June 30, 1996 does not reflect
the sale of shares in the initial public offering, nor the amount relating to a
contingent S corporation distribution of up to $8,370,000, which would be paid
out of the net proceeds of the sale of the overallotment shares.
 
                                      F-11
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
 
     NO DEALER, SALES REPRESENTATIVE, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE SHARES OF COMMON STOCK TO WHICH IT RELATES OR AN OFFER TO, OR A
SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
                            ------------------------
                                TABLE OF CONTENTS
PAGE
                                                  ----
Prospectus Summary.............................     3
Summary Financial Information..................     5
Risk Factors...................................     7
Reorganization and Termination of S Corporation
  Status.......................................    15
Use of Proceeds................................    16
Capitalization.................................    17
Dividend Policy................................    18
Dilution.......................................    18
Selected Financial Data........................    19
Management's Discussion and Analysis of
  Financial Condition and Results of
  Operations...................................    22
Business.......................................    32
Management.....................................    47
Certain Relationships and Related Party
  Transactions.................................    52
Principal Stockholders.........................    54
Description of Capital Stock...................    55
Shares Eligible for Future Sale................    58
Underwriting...................................    59
Legal Matters..................................    60
Experts........................................    61
Additional Information.........................    61
Reports to Stockholders........................    61
Index to Financial Statements..................   F-1
------------------------
 
     UNTIL            , 1996 (25 DAYS AFTER THE DATE
OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
 
                                4,000,000 SHARES

                                DELTA FINANCIAL
                                  CORPORATION

                                  COMMON STOCK

                            ------------------------
                                   PROSPECTUS
                            ------------------------

                           NATWEST SECURITIES LIMITED

                        PRUDENTAL SECURTES INCORPORATED

                               PIPER JAFFRAY INC.

                                           , 1996
 
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PART II
                     INFORMATION NOT REQUIRED IN PROSPECTUS
 
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
 
     The Registrant estimates that expenses payable by it in connection with the
offering described in this registration statement (other than the underwriting
discount and commissions) will be as follows:
SEC registration fee...............................................................   $25,379
Legal fees and expenses............................................................         *
Accounting fees and expenses.......................................................         *
Printing and engraving.............................................................         *
NYSE listing application fee.......................................................   151,100
Blue sky qualification fees and expenses...........................................    35,000
NASD Fee...........................................................................     7,860
Transfer Agent's Fees..............................................................     3,000
Miscellaneous......................................................................         *
                                                                                      -------
  Total............................................................................   $     *
                                                                                      -------
                                                                                      -------
- ------------------
* To be completed by amendment.
 
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
 
     The Registrant's Certificate of Incorporation eliminates, to the fullest
extent permitted by the Law of the State of Delaware, personal liability of
directors to the Registrant and its stockholders for monetary damages for breach
of fiduciary duty as directors.
 
     Section 145(a) of the Delaware General Corporation Law ('DGCL') provides in
relevant part that 'a corporation may indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.'
With respect to derivative actions, Section 145(b) of the DGCL provides in
relevant part that '[a] corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or

completed action or suit by or in the right of the corporation to procure a
judgment in its favor... [by reason of his service in one of the capacities
specified in the preceding sentence] against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement or such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.'
 
     Article NINTH of the Company's Certificate of Incorporation, provides:
 
     'To the full extent permitted by the Delaware General Corporation Law or
any other applicable law currently or hereafter in effect, no Director of the
Company will be personally liable to the Company or its stockholders for or with
respect to any acts or omissions in the performance of his or her duties as a
Director of the Company. Any repeal or modification of this Article Ninth will
not adversely affect any right or protection of a Director of the Company
existing prior to such repeal or modification.'
 
                                      II-1
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
 
     None.
 
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
 
     (a) Exhibits:
1       --   Form of Underwriting Agreement
 3.1*    --   Certificate of Incorporation of the Registrant
 3.2*    --   Bylaws of the Registrant
 4       --   Specimen of Certificate for Common Stock
 5       --   Opinion of Stroock & Stroock & Lavan
10.1     --   Employment Agreement dated as of August 26, 1996 between the Registrant and Sidney A. Miller
10.2     --   Employment Agreement dated as of August 26, 1996 between the Registrant and Hugh I. Miller
10.3     --   Employment Agreement dated as of August 26, 1996 between the Registrant and Christopher Donnelly
10.4     --   Employment Agreement dated as of August 26, 1996 between the Registrant and Randall F. Michaels
10.5     --   Lease Agreement between the Delta Funding Corporation and the Tilles Investment Company
10.6     --   1996 Stock Option Plan
11       --   Statement re computation of the Registrant's pro forma earnings per common share
21       --   Subsidiaries of the Registrant
23.1*    --   Consent of KPMG Peat Marwick LLP.
23.2     --   Consent of Stroock & Stroock & Lavan (contained in 5.1)
- ------------------
* Filed herewith.
 
ITEM 17. UNDERTAKINGS.
 
     (a) Insofar as indemnification for liabilities arising under the Securities
         Act of 1933 may be permitted to directors, officers and controlling
         persons of the Registrant pursuant to the foregoing provisions, or
         otherwise, the Registrant has been advised that in the opinion of the
         Securities and Exchange Commission such indemnification is against
         public policy as expressed in the Act and is, therefore, unenforceable.
         In the event that a claim for indemnification against such liabilities
         (other than the payment by the Registrant of expenses incurred or paid
         by a director, officer or controlling person of the Registrant in the
         successful defense of any action, suit or proceeding) is asserted by
         such director, officer or controlling person in connection with the
         securities being registered, the Registrant will, unless in the opinion
         of its counsel the matter has been settled by controlling precedent,
         submit to a court of appropriate jurisdiction the question whether such
         indemnification by it is against public policy as expressed in the Act
         and will be governed by the final adjudication of such issue.
 
     (b) The undersigned Registrant hereby undertakes that:
 
        (1) For purposes of determining any liability under the Securities Act
            of 1933, the information omitted from the form of prospectus filed
            as part of this Registration Statement in reliance upon Rule 430A
            and contained in a form of prospectus filed by the Registrant
            pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
            of 1933 shall be deemed to be part of this Registration Statement as
            of the time it was declared effective.
 
        (2) For the purpose of determining any liability under the Securities
            Act of 1933, each post-effective amendment that contains a form of
            prospectus shall be deemed to be a new registration statement
            relating to the securities offered therein, and the offering of such
            securities at that time shall be deemed to be the initial bona fide
            offering thereof.
 
                                      II-2
SIGNATURES
 
     Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the State of New York
on the 30th day of August, 1996.
 
                                          DELTA FINANCIAL CORPORATION
 
                                          By: /s/ Hugh I. Miller
                                              --------------------------------
                                                       Hugh I. Miller
                                                 President, Chief Executive

                                                    Officer and Director
 
                               POWER OF ATTORNEY
 
     KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Sidney A. Miller and Hugh I. Miller, or
any of them, his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for him or her and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the same
with all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting said attorney-in-fact and agent and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or any of them, or their or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
 
     Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following person in the
capacities and on the dates indicated.
SIGNATURE                              CAPACITY IN WHICH SIGNED                    DATE
- ------------------------------------------  ----------------------------------------------   ----------------
/s/ Sidney A. Miller               Chairman of the Board of Directors                August 30, 1996
- ------------------------------------------
             Sidney A. Miller
 
           /s/ Hugh I. Miller               Chief Executive Officer, President and            August 30, 1996
- ------------------------------------------  Director
              Hugh I. Miller                (Principal Executive Officer)
 
            /s/ Richard Blass               Senior Vice President and Director                August 30, 1996
- ------------------------------------------
              Richard Blass
 
           /s/ Irwin Fein                   Chief Financial Officer, Treasurer and            August 30, 1996
- ------------------------------------------  Secretary
              Irwin Fein                    (Principal Accounting Officer)
II-3
Registration No. 333-
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------

                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

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

                                   EXHIBITS

                                  FILED WITH

                                   FORM S-1

                            REGISTRATION STATEMENT
                                     UNDER
                          THE SECURITIES ACT OF 1933

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

                          DELTA FINANCIAL CORPORATION
            (Exact name of Registrant as specified in its charter)

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

- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
EXHIBIT INDEX
EXHIBIT                                                                                                    SEQUENTIAL
  NUMBER     DESCRIPTION                                                                                     PAGE NO.
- ----------   --------------------------------------------------------------------------------------------   -----------
1.1       --   Form of Underwriting Agreement........................................................
    3.1*      --   Certificate of Incorporation of the Registrant........................................
    3.2*      --   By-laws of the Registrant.............................................................
    4.1       --   Specimen of Certificate for Common Stock..............................................
    5.1       --   Opinion of Stroock & Stroock & Lavan..................................................
   10.1       --   Employment Agreement dated as of August 26, 1996 between the Registrant and Sidney A.
                   Miller................................................................................
   10.2       --   Employment Agreement dated as of August 26, 1996 between the Registrant and Hugh I.
                   Miller................................................................................
   10.3       --   Employment Agreement dated as of August 26, 1996 between the Registrant and
                   Christopher Donnelly..................................................................
   10.4       --   Employment Agreement dated as of August 26, 1996 between the Registrant and Randall F.
                   Michaels..............................................................................
   10.5       --   Lease Agreement between the Delta Funding Corporation and the Tilles Investment
                   Company...............................................................................
   10.6       --   1996 Stock Option Plan................................................................
   11.1       --   Statement re computation of the Registrant's pro forma earnings per common share......
   21.1       --   Subsidiaries of the Registrant........................................................
   23.1*      --   Consent of KPMG Peat Marwick LLP......................................................
   23.2       --   Consent of Stroock & Stroock & Lavan (contained in 5.1)...............................
- ----------
* Filed herewith