Delta Financial Corporation Reports Second Quarter 2007 Results, Announces $70 Million in Additional Capital with Angelo, Gordon & Co. and Mohnish Pabrai

Business Wire, August 14, 2007

WOODBURY, N.Y. -- Delta Financial Corporation (NASDAQ: DFC) today reported net income of $777,000, or $0.03 per diluted share, for the quarter ended June 30, 2007, compared to net income of $7.2 million, or $0.31 per diluted share, for the same period last year. Delta originated a record $1.4 billion of mortgage loans, an approximate 9% increase from the first quarter 2007 and an approximate 39% increase from the second quarter of 2006.

For additional information on the second quarter earnings, please see the section later in this release entitled More on Our Second Quarter Earnings.

"Liquidity has become one of the most important issues facing lending institutions today as the credit disruption widens and rating agencies modify their reserve level requirements," explained Hugh Miller, president and chief executive officer. "This has created a capital intensive environment in which it is increasingly more costly to operate. While our adherence to Delta's proven business model, with a focus on fixed rate loans and a diversified wholesale/retail origination platform, provided some insulation and helped us generate positive earnings during the second quarter, it became apparent this current environment would unduly strain our liquidity."

"Accordingly, I am pleased to announce we have entered into two transactions to help strengthen our Company and provide additional financial flexibility," continued Mr. Miller. "First, we obtained a $60.0 million financing facility from an affiliate of Angelo, Gordon & Co., a leading alternative asset management firm. The financing is collateralized by all of our currently existing securitization cashflow certificates. As part of the transaction, Angelo, Gordon & Co. will receive warrants to purchase 10.0 million shares of our Common Stock with an initial exercise price of $5.00 per share, expiring February 2009, subject to extension if we do not obtain stockholder approval for the warrant issuance within 90 days of the closing date. The fair value of the warrants issued will be amortized to interest expense as a non-cash yield adjustment over the life of the associated financing facility."

"At the same time, we have agreed to issue $10.0 million of convertible notes to funds managed by Mr. Mohnish Pabrai, one of our largest stockholders," Mr. Miller explained. "The notes are convertible into an aggregate of 2.0 million shares of our Common Stock, at a conversion price of $5.00 per share. The exercise of most of the warrants and the issuance of all of the shares upon conversion of the notes are both subject to shareholder approval, which we intend to pursue in the near future."

"We are pleased to be associated with Delta Financial," said David Roberts, Senior Managing Director of Angelo, Gordon & Co. "We have confidence in the Company's business model, which is focused on fixed-rate loans, and its experienced management team, which is well-qualified, to execute the Company's strategy."

Mohnish Pabrai stated, "Delta is one of the best companies and management teams in this space. I look for them to emerge from the current market disruption and be well-positioned to take advantage of a less populated competitive landscape."

"In addition to the new capital infusion, we have taken other steps to strengthen the Company including increasing our mortgage rates, modifying our underwriting guidelines, and discontinuing certain loan products," explained Mr. Miller. "The effects of these recently-made changes to rates and products are expected to mitigate, to some extent, the impact of rating agencies' changes. However, for those loans originated under our previous guidelines but not yet securitized or in our pipeline, we expect to receive materially less favorable securitization or whole loan execution."

"With uncertainty still in the credit and mortgage-backed securities markets, and the housing market expected to further soften, the second half of 2007 is proving to be very challenging. As such, we will not be providing any guidance at this time as it relates to portfolio growth, net interest margins or whole loan sale premiums, and we are suspending any prior guidance. While there is pressure on short term earnings, we believe our new financing arrangements will help enable us to weather the storm," continued Mr. Miller.

More on Second Quarter Earnings

"Although we set a record for quarterly loan originations and cost to originate this quarter, our earnings were lower than expected primarily due to the effect of slower than forecasted prepayment speeds on our fixed-rate loans, which comprise the vast majority of our portfolio," explained Mr. Miller. "It was necessary to record a $3.9 million non-cash reduction to our net interest income to reflect an adjustment to the prepayment assumptions we use to accrete deferred income under the interest method in accordance with accounting pronouncement SFAS No. 91." The deferred income is comprised primarily of the net origination fees collected at the time mortgage loans are originated, and the purchase price received when the Company sells mortgage servicing rights in connection with securitizations, both of which are recognized over the estimated life of the related mortgage loans.