Firstplus Financial Group Inc – ‘10-K’ for 9/30/96

As of:  Monday, 12/23/96   ·   For:  9/30/96   ·   Accession #:  912057-96-29960   ·   File #:  0-27550

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Annual Report   —   Form 10-K
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Document/Exhibit                   Description                      Pages   Size 

 1: 10-K        Annual Report                                         59    398K 
 2: EX-10.60    Material Contract                                     70    306K 
 3: EX-11       Statement re: Computation of Earnings Per Share        2±     8K 
 4: EX-23.1     Consent of Experts or Counsel                          1      6K 

10-K   —   Annual Report
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=============================================================================   
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C.  20549

   FORM 10-K

(Mark One)                                                                    
X   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES     
---                                                                       
EXCHANGE ACT OF 1934                                            

FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996                                    
      OR

____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES  
EXCHANGE ACT  OF 1934                                           

For the transition period from     ________ to ________                         

Commission File Number 0-27550                                                  

           RAC FINANCIAL GROUP, INC.
          (Exact name of registrant as specified in its charter)

Texas                                         75-2561052    
(State or other jurisdiction of                     (I.R.S. Employer          
incorporation or organization)                    Identification No.)       

1250 WEST MOCKINGBIRD LANE                                              
DALLAS, TEXAS                                       75247     
(Address of principal executive                           (Zip Code)            
offices)                                                    
Registrant's telephone number, including area code:  (214) 630-6006     

 Securities registered pursuant to Section 12(b) of the Act:
    None

     Securities registered pursuant to Section 12(g) of the Act:
      COMMON STOCK, $.01 PAR VALUE

        (Title of Class)
        ______________________________

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item    
405 of Regulation S-K is not contained herein, and will not be contained, to    
the best of registrant's knowledge, in definitive proxy statements              
incorporated by reference in Part III of this Form 10-K or any amendment to     
this Form 10-K. / /                                                             

The aggregate market value of Common Stock held by nonaffiliates of the       
registrant, based on the closing price of the Common Stock as reported by the   
Nasdaq National Market on November 29, 1996 was $326,435,410.  For purposes     
of this computation, all officers, directors and 10% beneficial owners of the   
registrant are deemed to be affiliates.  Such determination should not be       
deemed an admission that such officers, directors or 10% beneficial owners      
are, in fact, affiliates of the registrant.  As of November 30, 1996,           
27,497,758 shares of Common Stock were outstanding.                             

DOCUMENTS INCORPORATED BY REFERENCE 

The Company's definitive proxy statement in connection with the Annual        
Meeting of Shareholders to be held February 26, 1996, to be filed with the      
Commission not later than 120 days after September 30, 1996, is incorporated    
by reference into Part III of this report.                                      

=============================================================================   

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PART I      

ITEM 1. BUSINESS.                                                               

RAC Financial Group, Inc. (together with its subsidiaries, the        
"Company") is a specialized consumer finance company that operates under the    
trade name FIRSTPLUS. The Company originates, purchases, services and sells     
consumer finance receivables, substantially all of which are debt               
consolidation or home improvement loans secured primarily by second liens on    
real property. The Company offers uninsured home improvement and uninsured      
debt consolidation loans ("Conventional Loans") and to a lesser extent          
partially insured Title I home improvement loans ("Title I Loans"). The         
Company sells substantially all of its Conventional Loans and Title I Loans     
(together, the Company's "strategic loans") primarily through its               
securitization program and retains rights to service these loans. The Company   
originated and purchased an aggregate of $227.9 million and $1.1 billion of     
strategic loans in the fiscal years ended September 30, 1995 and 1996,          
respectively. For fiscal 1995 and 1996, the Company had total revenues of       
$33.9 million and $198.1 million, respectively, Gain on Sale of loans, net      
(but before provision for possible credit losses), of $29.1 million (of which   
$4.1 million was related to non-strategic loans) and $158.6 million (of which   
$8.4 million is related to non-strategic loans), respectively, and net income   
of $5.8 million and $34.2 million, or $0.28 and $ 1.31 per share on a fully     
diluted basis, respectively.                                                    

The Company relies principally on the creditworthiness of the borrower
for repayment of Conventional Loans.  The Company's borrowers typically have    
limited access to consumer financing for a variety of reasons, primarily        
insufficient home equity values.  The Company uses its own credit evaluation    
criteria to classify its applicants as "A+" through "D" credits. These          
criteria include, as a significant component, the credit evaluation scoring     
methodology developed by Fair, Issac and Company ("FICO").  The Company         
currently makes loans only to borrowers it classifies as "C+" or better on      
Conventional Loans and "C" or better on Title I Loans.  For fiscal 1995 and     
1996, 76.7% and 83.2%, respectively, of the Company's Conventional Loan         
originations were classified by the Company as "B" borrowers or better and      
62.7% and 53.2%, respectively, of the Company's Title I Loans were so           
classified.                                                                     

The Company's principal origination channel is its network of regional
independent correspondent lenders. Correspondent lenders tend to be             
commercial banks, thrifts or finance companies that do not have the             
infrastructure to hold and service portfolios of Conventional and Title I       
Loans. The Company's correspondent lenders originate loans using the            
Company's underwriting criteria and sell these loans to the Company. During     
fiscal 1995 and 1996, the Company originated loans through correspondent        
lenders ("Correspondent Loans") of $81.9 million and $1.0 billion,              
representing 68.5% and 93.9%, respectively, of the Company's originations of    
strategic loans during such periods.                                            

In early 1996, the Company expanded its efforts to originate loans    
directly to qualified homeowners ("Direct Loans"). The Company originates       
Direct Loans through television, radio and direct mail advertising campaigns    
and referrals from its independent home improvement contractors. The Company    
is pursuing a strategy to increase its Direct Loan originations because the     
Company believes that Direct Loans should prove to be more profitable and       
allow the Company to have better control over the quality and size of the       
Company's production. To achieve this goal, the Company is attempting to        
develop national recognition of the FIRSTPLUS brand name through increased      
advertising and the use of celebrity spokespersons, such as Dan Marino, a       
professional football player with the Miami Dolphins. The Company is            
expanding its direct mail and telemarketing campaigns, hiring                   
direct-to-consumer marketing professionals and increasing its local-market      
presence by acquiring or opening additional branches. The Company originated    
$906,000 and $45.1 million in Direct Loans in fiscal 1995 and 1996,             
respectively, representing 0.4% and 4.1%, respectively, of the Company's        
originations of strategic loans during such periods.                            

  As a result of the Company's recent acquisitions of FIRST PLUS Financial
West, Inc. ("FIRSTPLUS West") and FIRSTPLUS Financial East, Inc. ("FIRSTPLUS    
East"), the Company acquired certain loan origination programs that do not      
directly adhere to the Company's securitization parameters. Consequently,       
these non-strategic loans originated through such programs are sold to other    
lenders on a whole-loan basis with all servicing rights released. The Company   
originated $83.4 million of non-strategic loans during fiscal 1995 and $382.2   
million during the fiscal year ended September 30, 1996. The Company plans to   
convert the non-strategic loan operations to operations that will originate     
strategic loans that meet the Company's current securitization parameters.      

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  The Conventional Loans originated by the Company in fiscal 1995 and 1996
had an average principal amount of approximately $17,426 and $27,671,           
respectively, and had a weighed average interest rate of 15.1% and 14.5% per    
annum, respectively. Conventional Loans originated by the Company in fiscal     
1995 and 1996 had a weighted average maturity of 14.6 years and 18.7 years,     
respectively, and an average FICO score of 629 and 662, respectively.  See      
"Business -- Underwriting." Title I Loans are insured, subject to certain       
exceptions, for 90% of the principal balance and certain interest costs under   
the Title I Credit Insurance program (the "Title I Program") administered by    
the Federal Housing Administration (the "FHA"). The Title I Loans originated    
by the Company in fiscal 1995 and 1996 had an average principal amount of       
approximately $15,160 and $17,414, respectively, and had interest rates         
primarily ranging from 11.0% to 17.5% per annum.                                

   The Company sells substantially all of the Conventional Loans and Title I
Loans it originates and purchases through its securitization program and        
generally retains rights to service such loans.  The Company sold through       
nine securitization transactions approximately $234.8 million and $723.1        
million of strategic loans during fiscal 1995 and 1996, respectively. The       
Company earns servicing fees on a monthly basis ranging from 0.75% to 1.25%     
on the loans it services in the various securitization pools. At September      
30, 1996, the principal amount of strategic loans serviced by the Company       
(the "Serviced Loan Portfolio") was $1.3 billion.  The Serviced Loan            
Portfolio includes strategic loans held for sale and strategic loans that       
have been securitized and are serviced by the Company (including $68.0          
million of loans subserviced by a third party).                                 

LOAN PRODUCTS                                                                   

The Company originates Conventional and Title I Loans. Each of those  
products is typically secured by a mortgage lien, although the Company          
occasionally originates unsecured Title I Loans. The loans funded by the        
Company are used for debt consolidation and a wide variety of home              
improvement projects, such as exterior/interior finishing, structural           
additions, roofing, plumbing, heating and insulation. The Company lends to      
borrowers in various credit categories. See "--Underwriting."                   

 CONVENTIONAL LOANS.  A Conventional Loan is a non-insured consumer loan
specifically undertaken for debt consolidation and/or to pay for home           
improvement projects. Substantially all of the Conventional Loans originated    
by the Company are secured by second mortgage liens. The Company relies         
principally on the creditworthiness of the borrower, and to a lesser extent     
on the underlying collateral, for repayment of Conventional Loans. The          
average size of a Conventional Loan made by the Company during fiscal 1995      
and 1996 was approximately $17,426 and $27,671, respectively.                   

Under the Company's "Buster Plus" Conventional Loan program, a minimum
of 40% of the gross loan amount must be used for home improvement purposes.     
The remaining percentage of the gross loan amount can be used for any           
combination of debt consolidation, closing costs and an allowable cash out,     
subject to a cash out maximum.  The cash out, portion may be used to purchase   
property, other than real property.  The loan terms under the Buster Plus       
program range from one to 25 years.                                             

The following table sets forth certain information with respect to the
Company's Buster Plus program:                                                  

BUSTER PLUS       

CREDIT           FICO          MAXIMUM           MAXIMUM         MAXIMUM      
GRADE            SCORE       LOAN AMOUNT(1)       LTV(2)        CASH OUT(3)   
------            -----       --------------      --------       -----------    

A+                700 +         $80,000            125.0%          $25,000      
A                 680 - 699     $70,000            125.0%          $20,000      
B+                660 - 679     $60,000            125.0%          $15,000      
B                 640 - 659     $50,000            125.0%          $10,000      
C+                620 - 639     $40,000            125.0%          $ 5,000      
C/D               not available for this program                                

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(1) The maximum loan amount includes all closing costs and is $25,000 for       
condos, 2-4 units, or manufactured  housing, on all grades.             
(2) LTV is determined by adding all debt secured by the property and dividing   
 the result by the value of the property.  The maximum LTV for condos, 2-4
units, or manufactured housing is 100%, on all grades.  Does not give   
effect to any increased value from the home improvement portion of the  
loan.                                                                   
(3) Amounts are subject to a minimum of 40% being used for home improvement     
purposes.                                                               

   Under the Company's  "Debt Buster"  Conventional Loan program, the entire
loan amount can be used for any combination of debt consolidation, closing      
costs and an allowable cash out, subject to a cash out maximum.  The loan       
proceeds may be used to purchase property other than real property.  The loan   
terms under the Debt Buster program range from one  to 25 years.                

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The following table sets forth certain information with respect to the
Company's Debt Buster program:                                                  

DEBT BUSTER       

CREDIT           FICO          MAXIMUM           MAXIMUM         MAXIMUM      
GRADE            SCORE       LOAN AMOUNT(1)       LTV(2)        CASH OUT(3)   
------            -----       --------------      --------       -----------    
A+                700 +           $65,000           125.0%          $25,000     
A                 680 - 699       $55,000           125.0%          $20,000     
B+                660 - 679       $45,000           125.0%          $15,000     
B                 640 - 659       $35,000           125.0%          $10,000     
C+                620 - 639       $25,000           125.0%          $ 5,000     
C/D               not available for this program                                

(1) The maximum loan amount includes all closing costs and is $25,000 for       
condos, 2-4 units, or manufactured housing, on all grades.              
(2) LTV is determined by adding all debt secured by the property and dividing   
 the result by the value of the property.  The maximum LTV for condos, 2-4
units, or manufactured housing is 100%, on all grades.  Does not give   
effect to any increased value from the home improvement portion of the  
loan.                                                                   
(3) Amounts are subject to a minimum of 40% being used for home improvement     
purposes.                                                               

TITLE I LOANS.  Several types of loans may be made under the Title I  
Program, including property improvement loans to finance the alteration,        
repair or improvement of existing single family, multifamily and                
non-residential structures.   Under the Title I Program, loan processing and    
credit determination procedures are carried out by the lending institution.     
Under the Title I Program, the FHA does not review individual loans at the      
time of approval, except when the amount of a Title I Program loan would        
result in any borrower having a total unpaid principal obligation on all        
Title I Loans in excess of $25,000. No equity is required in the property       
subject to improvement for loans of $25,000 or less. Title I Loans are fully    
amortizing with maximum terms to maturity of 20 years. All borrowers are        
required to possess one-half vested interest or more in the property subject    
to improvement and are qualified based upon their ability to make monthly       
payments rather than on the loan-to-value ratio on the underlying real estate   
collateral.                                                                     

The Title I Program is an insurance program. A loan owner under the   
Title I Program assumes the risk of losing up to 10% of the principal balance   
on every loan, plus certain expenses submitted to the FHA for an insurance      
claim, plus a portion of the interest on such loans. The FHA insures the        
remaining 90% of the principal balance of each loan and certain interest        
costs, provided that the owner has not depleted its loss reserve account        
established with the Department of Housing and Urban Development ("HUD") and    
the loan was originated within HUD guidelines. The HUD loss reserve account     
balance is adjusted by HUD as claims are paid and new Title I Loans are         
acquired. If at any time claims exceed the loss reserve balance, the            
remaining Title I Loans will be uninsured until the reserve account balance     
is increased by new loan originations or purchases. When Title I Loans are      
securitized, all loss reserves related to the securitized loans are             
transferred to the securitization trust. As a result, the Company's loss        
reserve account is significantly reduced after each of the Company's            
securitization transactions until new originations or purchases replenish the   
Company's HUD loss reserve account.  The loan owner generally pays to HUD an    
insurance charge equal to 0.5% of the loan amount, multiplied by the number     
of years of the loan term.                                                      

 The average size of a Title I Loan originated by the Company for fiscal
1995 and 1996 was approximately $15,160 and $17,414 respectively. During        
fiscal 1994, fiscal 1995 and 1996, originations of Title I Loans accounted      
for approximately 43.8%, 49.3% and 11.1%, respectively, of the Company's        
total strategic loans originated.                                               

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CONSUMER LOANS.  On October 1, 1996, the Company acquired National    
Loans, Inc. ("National"), a personal consumer finance company with 26 branch    
offices located in Mississippi and Tennessee and with approximately $15.3       
million in finance receivables at the date of the acquisition.  The             
acquisition was accounted for as a pooling of interests.  It is the Company's   
desire to acquire additional consumer finance companies that have positive      
cash flows and established branch entworks.  The Company intends to deliver     
its Direct Loans, in addition to the traditional personal consumer finance      
products already offered, in such branches.                                     

Consumer finance loans are typically secured by personal property and 
other consumer products, evidenced by UCC filings, for amounts averaging        
between $1,500 and $2,000 per loan and for a term of approximately 18 months,   
although many of the loans are prior to maturity.  National makes its credit    
decisions primarily on its assessment of a customer's ability to repay the      
obligation.  In making a credit decision, in addition to the size of the        
obligation, National generally considers a customer s income level, type and    
length of employment, stability of residence, personal references and prior     
credit history.  Volume yields range from 24% to 39% on direct loans and 18%    
to 24% on sales finance contracts.  The average collection yield for all        
accounts is approximately 34%.                                                  

LOAN ORIGINATION CHANNELS                                                       

The Company originates Correspondent Loans through its network of regional    
correspondent lenders and Direct Loans through direct mail, telemarketing and   
advertising. Historically, the Company originated Contractor Loans through      
the Company's network of independent home improvement contractors. Recently,    
however, the Company discontinued its purchases of Contractor Loans and began   
using certain of its larger independent home improvement contractors for        
Direct Loan referrals. From time to time the Company makes selected purchases   
of Bulk Loans as another means of increasing the Serviced Loan Portfolio. As    
a result of its recent acquisitions, the Company makes certain non-strategic    
loans, which the Company intends to discontinue.                                

 The table below presents for strategic and non-strategic loans the loan
production and the weighted average coupon ("WAC") for each quarter since the   
beginning of fiscal 1995, subdivided into Conventional and Title I Loans:       

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                                                        [Enlarge/Download Table]

                                                      LOAN PRODUCTION AND WAC                                 

                                                        THREE MONTHS ENDED                                    
                     ------------------------------------------------------------------------------------     
                      DECEMBER 31, 1994      MARCH 31, 1995         JUNE 30, 1995      SEPTEMBER 30, 1995     
                     ------------------    ------------------    ------------------    ------------------     
                     DOLLARS  #UNITS WAC   DOLLARS #UNITS WAC    DOLLARS #UNITS WAC    DOLLARS #UNITS WAC     
                     -------  ------ ---   ------- ------ ---    ------- ------ ---    ------- ------ ---     
                                                       (DOLLARS IN THOUSANDS)                                 
                                                                                                              
STRATEGIC LOANS                                                                                               
Correspondent Loans:                                                                                          
  Conventional            $-     -      -%  $2,114   146 15.48%     $682     75 14.94%  $33,698 1,407 14.74%  
  Title I                  -     -      -    4,950   232 13.61    13,571    665 13.52    26,851 1,774 13.74   
                     -------- ----- ------ ------- ----- ------ -------- ------ ------ -------- ----- ------  
         Total            $-     -      -%  $7,064   378 13.64%  $14,253    740 13.66%  $60,549 3,181 14.22%  
                     -------- ----- ------ ------- ----- ------ -------- ------ ------ -------- ----- ------  
                     -------- ----- ------ ------- ----- ------ -------- ------ ------ -------- ----- ------  
Direct Loans:                                                                                                 
  Conventional            $-     -      -%      $-    -      -%       $-     -      -%     $310    13 15.54%  
  Title I                  -     -      -       16     2 15.26       454     30 15.07       126     8 15.14   
                     -------- ----- ------ ------- ----- ------ -------- ------ ------ -------- ----- ------  
          Total           $-     -      -%     $16     2 15.26%     $454     30 15.07%     $436    21 15.42%  
                     -------- ----- ------ ------- ----- ------ -------- ------ ------ -------- ----- ------  
                     -------- ----- ------ ------- ----- ------ -------- ------ ------ -------- ----- ------  
Contractor Loans:                                                                                             
  Conventional        $4,248    390 15.80%  $5,303   442 16.25%   $7,022    497 15.77%   $7,249   509 15.12%  
  Title I              2,719    256 15.56    2,968   278 15.56     3,690    333 14.97     3,612   311 14.24   
                     -------- ----- ------ ------- ----- ------ -------- ------ ------ -------- ----- ------  
         Total        $6,967    646 15.76%  $8,271   720 16.02%  $10,712    830 15.48%  $10,861   820 14.79%  
                     -------- ----- ------ ------- ----- ------ -------- ------ ------ -------- ----- ------  
                     -------- ----- ------ ------- ----- ------ -------- ------ ------ -------- ----- ------  
Bulk Loans:                                                                                                   
  Conventional          $108     25     -%  $2,063   142     -%  $12,392  1,036     -%   $1,454   108     -%  
  Title I              -         -      -    4,606   336     -    86,695  5,907     -     1,034   289     -   
                     -------- ----- ------ ------- ----- ------ -------- ------ ------ -------- ----- ------  
         Total          $108     25     -%  $6,669   478     -%  $99,087  6,943     -%   $2,488   397     -%  
                     -------- ----- ------ ------- ----- ------ -------- ------ ------ -------- ----- ------  
                     -------- ----- ------ ------- ----- ------ -------- ------ ------ -------- ----- ------  
Total Strategic Loan                                                                                          
 Production:                                                                                                  
  Conventional        $4,356    415 15.80%  $9,480   730 16.03%  $20,096  1,608 15.70%  $42,711 2,037 14.81%  
  Title I              2,719    256 15.56   12,540   848 14.34   104,410  6,935 13.86    31,623 2,382 13.80   
                     -------- ----- ------ ------- ----- ------ -------- ------ ------ -------- ----- ------  
         Total        $7,075    671 15.76% $22,020 1,578 14.92% $124,506  8,543 14.45%  $74,334 4,419 14.31%  
                     -------- ----- ------ ------- ----- ------ -------- ------ ------ -------- ----- ------  
                     -------- ----- ------ ------- ----- ------ -------- ------ ------ -------- ----- ------  
NON-STRATEGIC LOANS                                                                                           
Total Non-strategic                                                                                           
 Loan Production     $14,308    289  9.43% $11,809   465 12.06%  $18,784    683 11.94%  $38,522 1,023  9.84%  
                     -------- ----- ------ ------- ----- ------ -------- ------ ------ -------- ----- ------  
                     -------- ----- ------ ------- ----- ------ -------- ------ ------ -------- ----- ------  
Total Loan                                                                                                    
 Production:         $21,383    960 10.11% $33,829 2,043 13.54% $143,290  9,226 13.31% $112,856 5,442 12.68%  
                     -------- ----- ------ ------- ----- ------ -------- ------ ------ -------- ----- ------  
                     -------- ----- ------ ------- ----- ------ -------- ------ ------ -------- ----- ------  

                                                        THREE MONTHS ENDED                                    
                     ------------------------------------------------------------------------------------     
                      DECEMBER 31, 1995      MARCH 31, 1996         JUNE 30, 1996      SEPTEMBER 30, 1996     
                     ------------------    ------------------    ------------------    ------------------     
                     DOLLARS  #UNITS WAC   DOLLARS #UNITS WAC    DOLLARS  #UNITS  WAC    DOLLARS #UNITS WAC   
                     -------  ------ ---   ------- ------ ---    -------  ------  ---    ------- ------ ---   
                                                       (DOLLARS IN THOUSANDS)                                 
STRATEGIC LOANS                                                                                               
Correspondent Loans:                                                                                          
  Conventional        $73,165 2,871 14.77% $100,021 3,817 14.45% $233,343  8,141 14.63% $508,729 17,871 14.59%
  Title I              44,098 2,930 13.72    19,118   924 13.63    18,672    917 13.95    25,655  1,197 13.52 
                     -------- ----- ------ -------- ----- ------ -------- ------ ------ -------- ------ ------
         Total       $117,263 5,801 14.39% $119,139 4,741 14.32% $252,015  9,058 14.58% $534,384 19,068 14.54%
                     -------- ----- ------ -------- ----- ------ -------- ------ ------ -------- ------ ------
                     -------- ----- ------ -------- ----- ------ -------- ------ ------ -------- ------ ------
Direct Loans:                                                                                                 
  Conventional           $573    25 16.78%   $4,893   174 15.77%   $8,256    332 16.19%  $30,659  1,192 12.73%
  Title I                 111     4 15.71       237    12 15.97       277     17 15.62       109      8 12.69 
                     -------- ----- ------ -------- ----- ------ -------- ------ ------ -------- ------ ------
          Total          $684    29 16.60%   $5,130   186 15.78%   $8,533    349 16.16%  $30,768  1,200 12.73%
                     -------- ----- ------ -------- ----- ------ -------- ------ ------ -------- ------ ------
                     -------- ----- ------ -------- ----- ------ -------- ------ ------ -------- ------ ------
Contractor Loans:                                                                                             
  Conventional         $4,290   312 14.90%   $2,590   161 14.60%   $1,525     85 13.53%     $799     32 12.97%
  Title I               5,023   370 14.74     3,245   249 14.73     3,108    226 14.05       974     73 14.06 
                     -------- ----- ------ -------- ----- ------ -------- ------ ------ -------- ------ ------
         Total         $9,313   682 14.80%   $5,835   410 14.68%   $4,633    311 13.87%   $1,773    105 13.57%
                     -------- ----- ------ -------- ----- ------ -------- ------ ------ -------- ------ ------
                     -------- ----- ------ -------- ----- ------ -------- ------ ------ -------- ------ ------
Bulk Loans:                                                                                                   
  Conventional        $36,309 1,303     -%       $-     -     -%       $-      -     -%       $-      -     -%
  Title I                   -     -     -         -     -     -         -      -     -         -      -     - 
                     -------- ----- ------ -------- ----- ------ -------- ------ ------ -------- ------ ------
         Total        $36,309 1,303     -%       $-     -     -%       $-      -     -%       $-     -      -%
                     -------- ----- ------ -------- ----- ------ -------- ------ ------ -------- ------ ------
                     -------- ----- ------ -------- ----- ------ -------- ------ ------ -------- ------ ------
Total Strategic Loan                                                                                          
 Production:                                                                                                  
  Conventional       $114,337 4,511 14.79% $107,504 4,152 14.51% $243,124  8,558 14.68% $540,187 19,095 14.57%
  Title I              49,232 3,304 13.83    22,600 1,185 13.81    22,057  1,160 13.99    26,738  1,278 13.53 
                     -------- ----- ------ -------- ----- ------ -------- ------ ------ -------- ------ ------
         Total       $163,569 7,815 14.43% $130,104 5,337 14.39% $265,181  9,718 14.62% $566,925 20,373 14.52%
                     -------- ----- ------ -------- ----- ------ -------- ------ ------ -------- ------ ------
                     -------- ----- ------ -------- ----- ------ -------- ------ ------ -------- ------ ------
NON-STRATEGIC LOANS                                                                                           
Total Non-strategic                                                                                           
 Loan Production      $61,424 1,153  9.38% $141,129 1,948  8.33% $118,325  1,760  9.15%  $61,293  1,163  9.65%
                     -------- ----- ------ -------- ----- ------ -------- ------ ------ -------- ------ ------
                     -------- ----- ------ -------- ----- ------ -------- ------ ------ -------- ------ ------
Total Loan                                                                                                    
 Production:         $224,993 8,968 13.07% $271,233 7,285 11.82% $383,506 11,478 13.43% $628,218 21,536 14.04%
                     -------- ----- ------ -------- ----- ------ -------- ------ ------ -------- ------ ------
                     -------- ----- ------ -------- ----- ------ -------- ------ ------ -------- ------ ------

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CORRESPONDENT LOANS.  Correspondent Loans are originated and closed by
independent correspondent lenders in accordance with the Company's own          
underwriting standards and are subsequently purchased by the Company.           
Commencing in the second quarter of fiscal 1995, the Company implemented a      
Correspondent Loan program. During fiscal 1995 and 1996, the Company            
purchased approximately $81.9 million and $1.0 billion of Correspondent         
Loans, respectively. The Company typically purchases Correspondent Loans at     
or above the par value of such loans. The average principal amount of           
Correspondent Loans originated during fiscal 1995 and 1996 was $19,043 and      
$26,451, respectively. The Company anticipates that its correspondent           
operations will continue to expand and represent the majority of its overall    
business in the short-to-mid-term.                                              

The Company's Correspondent Loan program involves the purchase of both
Conventional Loans and Title I Loans from independent correspondent lenders     
with whom the Company maintains ongoing relationships. These lenders are        
usually situated in local markets where they are able to contact borrowers      
and independent home improvement contractors directly. Correspondent lenders    
tend to be commercial banks or finance companies that lack the infrastructure   
to hold and service portfolios of Conventional or Title I Loans. Instead,       
these entities concentrate on originating loans and then selling that           
production at a premium.                                                        

The Correspondent Loan program benefits the Company by providing a    
cost-effective means for the Company to market to borrowers who are not         
easily accessible by the Company. Furthermore, the correspondent agreements     
require that the selling institution warrant the validity and enforceability    
of the loan, thereby reducing the risk of fraud or improper documentation. In   
the event such warranty is breached, the Company may require the                
correspondent lender to repurchase such loan. The Correspondent Loan market     
is very competitive, and loans sold by correspondent lenders are generally      
priced at a premium of between 2% to 7% over par value, as compared to          
purchase prices at par or slightly below par for loans originated by the        
Company through indirect and direct channels.                                   

The Company currently purchases Correspondent Loans in 26 states from 
306 independent correspondent lenders. During fiscal 1995 and 1996,             
approximately 79.8% and 48.6%, respectively (by dollar volume), of the          
Company's Correspondent Loans were originated from 10 independent               
correspondent lenders. The Company allows independent correspondent lenders     
to participate in the Company's correspondent operations only after a review    
of their reputation, consumer finance lending experience and financial          
condition, including a review of references, credit history and financial       
statements. The development of new independent correspondent lender             
relationships is directed by marketing managers.                                

Generally, the independent correspondent lender prepares the loan     
application, assembles the supporting documentation and processes the loan.     
Once the loan package is complete, it is submitted to the Company's             
Correspondent Loan underwriting personnel, who review each loan package and,    
in some cases, perform independent employment and credit verification and       
arrange for a review of the appraisal, if any, submitted with the loan          
package. Each Correspondent Loan is separately underwritten by the Company in   
accordance with the Company's own underwriting standards. See "-- Underwriting."
If the loan package meets the Company's underwriting criteria,                  
the Correspondent Loan is closed by the originating lender and then purchased   
by the Company. The Company typically approves the loan within two business     
days of a complete loan package being submitted by the correspondent lender.    

DIRECT LOANS.  The Company originated approximately $906,000 and $45.1
million principal amount of Direct Loans in fiscal 1995 and 1996,               
respectively. Direct Loans are typically originated through direct mailings,    
telemarketing and advertising. The Direct Loan origination channel is the       
Company's newest marketing strategy and is designed to decrease the costs and   
increase the volume, size and quality of its loan originations. The Company     
will target its marketing efforts at creditworthy homeowners who qualify as     
candidates for home improvement projects or have debt consolidation needs,      
but have little equity in their homes. Recently, the Company began using        
certain of its larger independent home improvement contractors for Direct       
Loan referrals. Direct Loan borrowers typically pay fees that range between     
3% to 7% of the loan amount at closing. Management believes that this program   
will distinguish the Company from other major home lenders as its FIRSTPLUS     
name recognition increases.                                                     

Direct Loan applications are processed and underwritten by Company    
personnel and are funded directly by the Company. Of all Direct Loans funded    
in fiscal 1995 and 1996, 75.2% and 70.2%, respectively, were made to            
borrowers who the Company classified as "B" credits or better. For Direct       
Loans originated during fiscal 1995 and 1996, the average principal amount      
was $17,094 and $25,575, respectively, the weighted average term to maturity    
was 175 months and 214 months, respectively, for Conventional Loans and 182     
months and 205 months, respectively, for Title I Loans, the weighted average    

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interest rate was 15.4% and 16.2%, respectively, for Conventional Loans and     
14.9% and 15.4%, respectively for Title I Loans.                                

 BULK PURCHASES.  The Company occasionally makes bulk purchases of pools
of home improvement and debt consolidation loans. Bulk Loans are originated     
and closed by various lenders that package the loans and then sell them in      
pools to financing companies such as the Company. Although the Company has      
significantly reduced its Bulk Loan purchases and instead has focused on        
Direct and Correspondent Loans, the Company may choose to compete in this       
loan origination channel again in subsequent quarters. The Company generally    
has purchased Bulk Loans from finance companies and savings and loan            
associations through a competitive bidding process.  The Company has            
typically purchased such loans at between 1% and 5% above the par value of      
such loans.  The Company reviews the Bulk Loan portfolio to ensure that it      
substantially complies with the Company's underwriting criteria. For larger     
Bulk Purchases, the Company generally hires a third party to undertake the      
review process, which consists of reviewing either all loans in the portfolio   
or a sample of loans, depending on the size of the portfolio. Since the         
Company usually must purchase the entire portfolio being offered, some          
individual loans may not meet the Company's underwriting standards.             

CONTRACTOR LOANS.  The Company  has discontinued its purchases of     
Contractor Loans and has begun using certain of its larger independent home     
improvement contractors for Direct Loan referrals.                              

NON-STRATEGIC LOANS.  The Company acquired FIRSTPLUS East primarily to
use its direct mail capabilities as a platform from which to expand the         
Company's Direct Loan program. FIRSTPLUS East began developing its Direct       
Loan program for marketing strategic loans during 1995 and has conducted        
Direct Loan mailings in the markets it serves in North and South Carolina.      
FIRSTPLUS East's historical operations consist of originating first lien home   
mortgage loans, including residential construction loans. FIRSTPLUS East        
originates these loans through its eight locations in North and South           
Carolina. Prior to its acquisition by the Company, FIRSTPLUS East sold its      
first mortgage production as a correspondent lender to various third-party      
financial institutions. The Company intends to discontinue originating first    
mortgage loans.                                                                 

  In addition, the Company acquired FIRSTPLUS West, a former correspondent
lender to the Company. FIRSTPLUS West is an originator of Conventional and      
Title I Loans and originated approximately $260.6 million of non-strategic      
(primarily subordinate lien) loans during fiscal year 1996. These loans were    
sold through third-party financial institutions on a whole-loan basis,          
servicing released. FIRSTPLUS West originates non-strategic Loans through its   
retail offices in Seattle, Denver and Atlanta and through an 80-person          
telemarketing division in Denver. Over time, the Company intends to phase out   
the origination of FIRSTPLUS West's non-strategic loan products and to          
emphasize FIRSTPLUS West's strategic Direct Loan products.                      

MARKETING                                                                       

The Company's marketing program is designed to develop national       
recognition of the FIRSTPLUS brand name.  To achieve this objective, the        
Company employs an advertising strategy that includes a combination of          
national television, local radio, direct mail and telemarketing.  The           
television campaign utilizes the Company's spokesperson, star quarterback Dan   
Marino. The national television advertising is reinforced through direct        
mailings and radio advertisements to targeted borrowers in local markets.       
Customer applications are taken by the Company through the use of its           
1-800-510-PLUS phone number and its telemarketing operation.                    

The Company also is pursuing an affinity marketing strategy.  The     
Company currently sponsors the Eddie Cheever Indy race team, the U.S. Indy      
Racing League, NASCAR racing and celebrity golf tournaments in Texas, Florida   
and Puerto Rico.  The Company has representatives at such events to gather      
information from prospective customers and also to provide loan applications.   
Additionally, the Company is developing alliances with home improvement         
retailers to further the distribution of its home improvement loan products,    
whereby customers will be able to apply for loans at kiosks located in home     
improvement stores throughout the country.                                      

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UNDERWRITING                                                                    

  The Company's underwriting group primarily operates out of the Company's
Dallas, Texas headquarters. The Company receives loan applications from its     
network of independent correspondent lenders and independent home improvement   
contractors via facsimile machines. In addition, individuals respond to the     
Company's direct marketing program by United States mail or through direct      
telephone contact with Company representatives. Loan applications are           
monitored by the Company's tracking department to ensure prompt turnaround,     
efficient underwriting procedures and accurate credit verification. The loan    
processing staff prepares an application file by obtaining credit bureau        
reports, highlighting any significant credit events and prioritizing            
applications that need immediate attention before submitting the application    
to the appropriate loan underwriter. The Company applies the same               
underwriting criteria to Correspondent Loans. The Company's underwriters have   
an average of seven years of banking, finance and consumer loan experience.     
The Company has put in place a credit policy that provides a number of          
guidelines to assist underwriters in the credit decision process.               

Loans are classified by the Company into seven gradations of quality, 
from "A+" to "D" credits. However, the Company currently makes loans only to    
borrowers it classifies as "C+" or better for Conventional Loans and "C" or     
better for Title I Loans.  The Company's methodology for determining loan       
quality considers primary credit characteristics, and a series of parameters    
based on property types. Primary characteristics include the borrower's FICO    
score, debt-to-income ratio, mortgage credit history, consumer credit           
history, bankruptcies, foreclosures, notice of defaults, deeds in lieu of       
foreclosure and repossessions. The Company believes that the most important     
credit characteristics are the borrower's FICO score and debt-to-income         
ratio, the latter of which, may not exceed 50% of the applicant's gross         
income and may only exceed 45% of the applicant s gross income for B+ or        
higher credits with strong disposable income.  The Company is currently         
developing an algorithm based on the consumer credit file, which, when          
coupled with the FICO score (a dominant factor used in assessing the consumer   
credit file), provide a means to assess the applicant's probability of          
default. The algorithm utilized by the Company includes such edit checks as     
age, present delinquency review, minimum satisfactory rated accounts and        
maximum derogatory counters. The Company's algorithm, when developed, will      
act as a cutoff, segregating likely deficit candidates from the entire pool     
of applicants in an automated fashion. The primary factors operate based upon   
the lowest common denominator principle and determine parameters to be          
followed for that loan. The parameters limit the size of the loan and           
loan-to-value by grade and property type. Generally, there are no               
loan-to-value restrictions for Title I Loans.                                   

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The following table summarizes the underlying borrower characteristics
for each classification used by the Company.                                    

                                                        [Enlarge/Download Table]
                                             CONSUMER                                           
                       EXISTING               HISTORY   BANKRUPTCY              DEBT SERVICE-TO-
CLASSIFICATION (1)     MORTGAGE             FICO SCORE   FILINGS                INCOME RATIO (2)
------------------     --------            -----------   -------                ----------------
                                                                                                

"A+"  Credit        No 30-day late             700+     None allowed            Generally 50% or
                    payment in last 12                                          less            
                    months and no 60-day                                                        
                    late payment ever                                                           

"A"  Credit         Maximum of one 30-      680 - 699   None allowed            Generally 50% or
                    day late payment in                                         less            
                    last 12 months and no                                                       
                    60-day late payment                                                         
                    ever                                                                        

"B+"  Credit        Maximum of two 30-      660 - 679   None allowed            Generally 50% or
                    day late payments in                                        less            
                    last 12 months and no                                                       
                    60-day late payments                                                        
                    ever                                                                        

"B" Credit          Maximum of two 30-      640 - 659   Must have been          Generally 45% or
                    day late payments in                discharged for at       less            
                    last 12 months and no               least three years with                  
                    60-day late payments                reestablished credit                    
                    ever                                prior to closing                        

"C+"  Credit        Maximum of three        620 - 639   Must have been          Generally 45% or
                    30-day late payments                discharged for at       less            
                    in last 12 months and               least three years with                  
                    no 60-day late                      reestablished credit                    
                    payment ever                        prior to closing                        


(1) The Company does not originate Conventional Loans to borrowers it           
classifies as "C" or "D" credits or Title I Loans to borrowers it       
classifies as "D" credits.                                              
(2) Calculated by dividing the borrower's debt obligations (after any debt      
consolidation) by their monthly gross earnings.                         

SERVICING OPERATIONS                                                            

GENERAL.  The Company  services all of the loans it originates or     
purchases at its headquarters in Dallas, Texas,  except for $68.0 million of    
loans subserviced by Citizens. Prior to the Combination and the acquisition     
of FIRSTPLUS Financial's loan servicing operations, SFAC did not service any    
of its loans. See "-- Combination." The Company's servicing includes            
collecting and remitting loan payments, accounting for principal and            
interest, contacting delinquent borrowers, handling borrower defaults,          
recording mortgages and assignments, investor and securitization reporting      
and management portfolio reporting. It is the Company's strategy to grow and    
build its Serviced Loan Portfolio.                                              

The Company receives a servicing fee based on a percentage of the     
declining principal balance of each loan serviced. Servicing fees are           
collected by the Company out of the borrower's monthly loan payments. In        
addition, the Company, as servicer, receives most late and assumption charges   
paid by the borrower, as well as other miscellaneous fees for performing        
various loan servicing functions. In connection with the $86.7 million Bulk     
Loan purchase from Citizens, the Company permitted Citizens to continue as      
subservicer of the purchased portfolio for a fee equal to one percent of the    
underlying loan balance (as collected). The Company made this decision in       
exchange for paying a lower purchase price for the loan portfolio. Although     
the Company intends to service substantially all Bulk Loans purchased in the    
future, the Company may again choose to allow the prior servicer to continue    
as servicer if the Company believes that it is economically beneficial for      
the Company. In general, such a decision by the Company should have an          
immaterial effect on the Company's results of operations and financial          
condition.                                                                      

The Serviced Loan Portfolio is subject to reduction by normal monthly 
payments, by prepayments, foreclosures and chargeoffs. In general, revenues     
from the Serviced Loan Portfolio may be adversely affected as interest rates    
decline and loan prepayments increase. In some states in which the Company      
currently operates, prepayment fees may be limited or prohibited                

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by applicable state law. In addition, the Company's ability to collect          
prepayment fees under certain circumstances will be restricted in future        
periods under recently enacted laws. Prepayment fees are prohibited on all      
Title I Loans. See "-- Regulation."                                             

  The following table sets forth the dollar amount and average loan amount
of Correspondent Loans, Contractor Loans, Direct Loans and Bulk Loans, each     
as subdivided into Conventional Loans and Title I Loans, included in the        
Serviced Loan Portfolio as of September 30, 1996, excluding loans subserviced   
by a third party:                                                               

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 SERVICED LOAN PORTFOLIO
AS OF SEPTEMBER 30, 1996

                                                                [Download Table]
                                  CONVENTIONAL                               
                                     LOANS      TITLE I LOANS       TOTAL    
                                  ------------  -------------  --------------
                                                                             
Correspondent Loans:                                                         
  Total dollar amount . . . . . . $764,913,659  $133,638,707   $  898,552,366
  Average loan amount . . . . . .       27,609        19,854           26,094
Contractor Loans:                                                            
  Total dollar amount . . . . . .   23,289,654    55,065,319       78,354,972
  Average loan amount . . . . . .       13,188         6,714            7,861
Direct Loans:                                                                
  Total dollar amount . . . . . .   44,691,397     1,330,405       46,021,802
  Average loan amount . . . . . .       25,744        16,425           25,328
Bulk Loans:                                                                  
  Total dollar amount . . . . . .  158,246,760    85,971,491      244,218,252
  Average loan amount . . . . . .       26,037        14,145           20,095
Total:                                                                       
  Total dollar amount . . . . . .  991,141,470   276,005,922    1,267,147,392
  Average loan amount . . . . . .       26,583        13,094           21,714

The Company originates loans from 45 states. The following table      
summarizes the loans in the Serviced Loan Portfolio by geographic location as   
of September 30, 1996:                                                          

GEOGRAPHIC CONCENTRATION OF STRATEGIC LOANS 
AS OF SEPTEMBER 30, 1996  

                                        LOANS              PERCENT
                                     ----------            -------
                                      (DOLLARS IN THOUSANDS)
STATE:                                                                
California . . . . . . . . . . . . .  $  750,883             59.2%  
Arizona. . . . . . . . . . . . . . .      63,260              5.0   
Nevada . . . . . . . . . . . . . . .      56,889              4.5   
Colorado . . . . . . . . . . . . . .      54,051              4.3   
Texas. . . . . . . . . . . . . . . .      29,868              2.4   
All others (40 states) . . . . . . .     312,196             24.6   
                                   ----------            -----
  Total. . . . . . . . . . . . . .  $1,267,147            100.0%
                                   ----------            -----
                                   ----------            -----

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LOANS HELD FOR SALE.  Loans held for sale are carried at the lower of 
cost or market.  These loans represent investments the Company has made in      
loans that it currently expects to sell within a 180-day period.  The Company   
may elect to hold the loans on its balance sheet for periods in excess of 180   
days in the future in order to maximize the interest income resulting from      
holding such loans on the balance sheet as well as to reduce the costs          
related to securitization transactions.  To implement such a strategy, it       
will be necessary for the Company to obtain alternative sources of funds to     
finance this longer warehouse period.                                           

The components of loans held for sale are as follows:                 

                                              YEAR ENDED SEPTEMBER 30,
                                              ----------------------------
                                              1995            1996
                                              -----------     ------------
  Conventional Loans. . . . . . . . . . . .   $14,066,740     $386,934,441
  Title I Loans . . . . . . . . . . . . . .     7,202,788       34,711,739
  Nonstrategic loans (1). . . . . . . . . .        27,871        3,540,347
                                              -----------     ------------
       Subtotal . . . . . . . . . . . . . .    21,297,399      425,186,527
Participations sold . . . . . . . . . . .      (902,390)          --  
   Allowance for possible credit losses. . .      (887,879)      (6,495,073)
Net purchase premiums (discount) on                                   
   conventional loans . . . . . . . . . . .       (71,953)      12,120,251
                                              -----------     ------------
       Total. . . . . . . . . . . . . . . .   $19,435,177     $430,811,705
                                              -----------     ------------
                                              -----------     ------------

(1)  Consists of first lien mortgage loans and construction loans.              

  The Serviced Loan Portfolio, which includes loans held for sale, as well
as loans serviced for the securitizations and other investors, consisted of     
$1.0 billion in Conventional Loans and $250.9 million in Title I Loans at       
September 30, 1996.                                                             

DELINQUENCIES AND FORECLOSURES.  The Company's collection operations  
include customer complaint monitoring, resolution of inspection                 
discrepancies, daily delinquency maintenance, legal remedies and HUD claims.    
Loans originated or purchased by the Company are generally secured by           
mortgages, deeds of trust, security deeds or deeds to secure debt, depending    
upon the prevailing practice in the state in which the property securing the    
loan is located. Depending on local law, foreclosure is effected by judicial    
action or nonjudicial sale, and is subject to various notice and filing         
requirements. In general, the borrower, or any person having a junior           
encumbrance on the real estate, may cure a monetary default by paying the       
entire amount in arrears plus other designated costs and expenses incurred in   
enforcing the obligation during a statutorily prescribed reinstatement          
period. Generally, state law controls the amount of foreclosure expenses and    
costs, including attorneys' fees, that may be recovered by a lender. After      
the reinstatement period has expired without the default having been cured,     
the borrower or junior lienholder no longer has the right to reinstate the      
loan and must pay the loan in full to prevent the scheduled foreclosure sale.   

 Typically, the Company has chosen not to pursue foreclosures due to the
costs involved. The Company may pursue foreclosure as an alternative in its     
default management process. The Company evaluates loans and determines          
whether foreclosure is economically and procedurally the most viable            
alternative for collection of each loan that is in default. For loans that      
reach the later states of delinquency (typically more than 91 days), a loan     
work-up is initiated. This work-up outlines the type of loan (Title I or        
Conventional Loan), lien position (first or junior) and other qualification     
information. An appraisal is ordered from a select group of qualified           
appraisers approved by the Company in order to assess property value and        
calculate potential equity. If this initial assessment suggests that equity     
exists above certain thresholds, the Company will order a title opinion from    
a qualified source. The title opinion reveals lien position as well as any      
potential tax delinquency issues or judgments. Upon completion of this          
work-up, the recovery potential is assessed. For Title I Loans, if the          
recovery potential approximates 100% of the principal balance plus a            
pre-determined amount, the loan is considered for foreclosure. If this          
potential recovery is not met, the loan will be referred to HUD as a claim.     
For Conventional Loans, a determination is made on the partial or full          
recovery of principal balance and associated expense. If the recovery           
potential is sufficient from a cost/benefit/loss perspective, the Company may   
initiate foreclosure proceedings. If the evaluations indicate that              
foreclosure offers no economic advantage to the Company, it may be determined   
to secure and file a judgment against the borrower instead of pursuing          
further foreclosure efforts and incurring additional costs.  In addition, the   
Company may choose to pursue garnishment proceedings against the borrower.      

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 The Company's loans under the Title I Loan Program are eligible for HUD
insurance; this insurance insures 90% of Title I Loans, provided that the       
Company has not depleted its loss reserve account established with HUD and      
provided the loans were originated within applicable HUD guidelines. The        
balance in the loss reserve account is adjusted by HUD as claims are paid and   
new Title I Loans are originated or purchased. At September 30, 1996, claims    
in process for all loans serviced by the Company were approximately $4.3        
million. If at any time claims exceed the Company's or any securitization       
trust's loss reserve balance, the remaining Title I Loans will be uninsured     
until the respective reserve account balance is increased by new loan           
originations or purchases. The Company's Conventional Loans are non-insured.    

The activity in the allowance for possible credit losses is summarized
as follows:                                                                     

                                                        [Enlarge/Download Table]
                                                           YEAR ENDED SEPTEMBER 30,       
                                                     ------------------------------------ 
                                                       1994        1995           1996    
                                                     --------   ----------    ----------- 
                                                                                          
Balance, beginning of year . . . . . . . . . . . . . $131,367   $  325,429    $ 4,794,385 
Allowance from FIRSTPLUS Financial acquisition . . .     -         160,000          -     
Provision for possible credit losses . . . . . . . .  264,429    4,452,286     59,644,195 
Participations purchased with a reserve. . . . . . .     -           -            214,909 
Charge-offs, net . . . . . . . . . . . . . . . . . .  (70,367)    (143,330)    (3,901,616)
Balance, end of year . . . . . . . . . . . . . . . . $325,429   $4,794,385    $60,751,873 
                                                     --------   ----------    ----------- 
                                                     --------   ----------    ----------- 

Components of Allowance:                                                                  
Allowance for possible credit losses on                                                   
loans held for sale. . . . . . . . . . . . . . . . . $325,429   $  887,879    $ 6,495,073 
Allowance for possible credit losses on                                                   
loans sold . . . . . . . . . . . . . . . . . . . . .     -       3,906,506     54,256,800 
                                                     --------   ----------    ----------- 

     Total . . . . . . . . . . . . . . . . . . . . . $325,429   $4,794,385    $60,751,873 
                                                     --------   ----------    ----------- 
                                                     --------   ----------    ----------- 

Allowance for possible credit losses on                                                   
loans held for sale as a percentage of                                                    
loans held for sale. . . . . . . . . . . . . . . . .     4.7%         4.2%           1.5% 
Allowance for possible credit losses on                                                   
loans sold as a percentage of the                                                         
outstanding balance of loans sold. . . . . . . . . .      - %         1.8%           6.1% 

  At September  30, 1996 and 1995, the gross allowance for possible credit
losses on loans sold was approximately $69.6 million and $6.8 million,          
respectively, which was recorded at a discount using a risk-free discount       
rate of 6.5%.                                                                   

  The following tables set forth delinquency, loss and default information
with respect to the Serviced Loan Portfolio at the dates and for the periods    
indicated:                                                                      

DELINQUENCY CHARACTERISTICS 
OF THE SERVICED LOAN PORTFOLIO  

                                                        [Enlarge/Download Table]
                           FIRSTPLUS FINANCIAL (1)                                 COMPANY                           
                        -----------------------------  --------------------------------------------------------------
                        SEPTEMBER 30,   SEPTEMBER 30,        SEPTEMBER 30, 1995             SEPTEMBER 30, 1996       
                             1993           1994       -----------------------------    -----------------------------
                        -------------   -------------                   CONVENTIONAL                     CONVENTIONAL
                        TITLE I LOANS   TITLE I LOANS  TITLE I LOANS       LOANS        TITLE I LOANS        LOANS   
                        -------------   -------------  -------------    ------------    -------------    ------------
                                                                                                                     
Amount of Serviced                                                                                                   
Loan Portfolio at end                                                                                                
of period . . . . . . .  $62,629,000     $52,835,000   $174,479,000     $64,105,000     $275,789,000     $991,358,000
Delinquent loans as                                                                                                  
 a percentage of                                                                                                     
 loans serviced                                                                                                      
 (period end)(2):                                                                                                    
 31-60 days . . . . . .         3.1%            2.5%           2.1%            1.0%             2.1%             0.4%
 61-90 days . . . . . .         0.8             0.8            0.7             0.8              1.0              0.2 
 91 days and                                                                                                         
  over. . . . . . . . .         2.9             3.6            1.9             2.8              4.8              0.8 
                         -----------     -----------   ------------     -----------     ------------     ------------

  Total . . . . . . . .         6.8%            6.9%           4.7%            4.6%             7.9%             1.4%
                         -----------     -----------   ------------     -----------     ------------     ------------
                         -----------     -----------   ------------     -----------     ------------     ------------

---------------                                                                 
(1) Data is presented for FIRSTPLUS Financial because prior to October 4, 1994  
the Company did not have servicing operations and because the servicing 
operations of FIRSTPLUS West for such periods related primarily to      
non-strategic loans.                                                    

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(2) Includes loans on properties on which the Company is foreclosing and        
properties in bankruptcy, but excludes real estate owned.               

LOSS AND DEFAULT CHARACTERISTICS    
OF THE SERVICED LOAN PORTFOLIO    

                                                        [Enlarge/Download Table]
                                        FIRSTPLUS FINANCIAL (1)                  COMPANY                 
                                        -----------------------  ----------------------------------------
                                        YEAR ENDED DECEMBER 31,                YEAR ENDED                
                                        -----------------------  ----------------------------------------
                                         1993             1994   DECEMBER 31, 1995     SEPTEMBER 30, 1996
                                        ------           ------  -----------------     ------------------
                                                                                                         
Net losses as a percentage of the                                                                        
average Serviced Loan Portfolio (2)      0.39%            0.44%        0.04%                  0.12%      

Defaults as a percentage of the                                                                          
average Serviced Loan Portfolio (2)(3)   2.04%            2.64%        0.69%                  1.29%      

---------------                                                                 
(1) Data is presented for FIRSTPLUS Financial because prior to October 4, 1994  
the Company did not have servicing operations and because the servicing 
operations of FIRSTPLUS West for such periods related primarily to      
non-strategic loans.                                                    

(2) The average Serviced Loan Portfolio is calculated by adding the beginning   
and ending balances for the fiscal year and dividing the sum by two.    

(3) A loan is defaulted when management deems that the loan is no longer        
collectible.  Generally, this occurs after 180 days of delinquency.     

While the preceding tables generally indicate that the Company is     
experiencing declining delinquency, loss and default rates on its Serviced      
Loan Portfolio as a whole, such rates have followed the historical trends on    
a pool-by-pool basis, which trends assume increased rates of delinquencies      
over time. Although such increases to date have been within the parameters      
anticipated by the Company at the time of each securitization, there can be     
no assurance that such rates will not continue to increase. Loans selected by   
the Company to contribute to the securitization trusts generally possess        
reduced delinquency, default and loss rates due to certain requirements of      
the securitization trusts and to the Company's own policy with regard to        
selecting loans to contribute. As these loans age, the securitization trusts    
will tend to experience gradual increases in delinquency, default and loss      
rates as the securitized loans trend toward historically higher delinquency,    
default and loss rates. The overall decline in such rates on the Serviced       
Loan Portfolio is principally due to the increased volume of loans originated   
by the  Company. The Company calculates its delinquency and default rates by    
dividing the amount of delinquent or defaulted loans in the Serviced Loan       
Portfolio by the total Serviced Loan Portfolio. Since the Company is            
originating higher volumes of new loans that, due to their lack of seasoning,   
tend to have lower delinquency and default rates, the Company's overall         
delinquency and default rates have decreased. See "-- Securitization."          

The following table sets forth certain delinquency and default        
information with respect to the Company s securitizations:                      

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 DELINQUENCY AND DEFAULTS FOR THE COMPANY'S SECURITIZATIONS(1)

                                                        [Enlarge/Download Table]

                               1994-1           1995-1               1995-2              1995-3           1995-4       
                         ----------------- -----------------  -------------------  -----------------  -----------------
                                                                                                                       
As of September 30, 1995                                                                                               
Current                  $34,868,000 91.3% $15,139,000 92.5%  $96,420,000   96.0%  $65,297,000 99.4%                   
                        ------------ ---   ----------- ----  ------------  -----   ----------- ----                    
                        ------------ ---   ----------- ----  ------------  -----   ----------- ----                    
31-60 days                $1,387,000  3.6%    $453,000  2.8%   $1,800,000    1.8%     $199,000  0.3%                   
61-90 days                   473,000  1.3      250,000  1.5       793,000    0.8       191,000  0.3                    
91 days and over           1,444,000  3.8      526,000  3.2     1,433,000    1.4        30,000  0.0                    
                        ------------ ---   ----------- ----  ------------  -----   ----------- ----                    
 Total                    $3,304,000  8.7%  $1,229,000  7.5%   $4,026,000    4.0%     $420,000  0.6%                   
                        ------------ ---   ----------- ----  ------------  -----   ----------- ----                    
                        ------------ ---   ----------- ----  ------------  -----   ----------- ----                    
Defaults/Defaults as a                                                                                                 
percentage of average                                                                                                  
monthly balance              $71,000  0.2%       $  --  0.0%        $  --    0.0%        $  --  0.0%                   
                        ------------ ---   ----------- ----  ------------  -----   ----------- ----                    
                        ------------ ---   ----------- ----  ------------  -----   ----------- ----                    
As of December 31, 1995                                                                                                
Current                  $32,363,000 91.3% $14,259,000 93.0%  $91,198,000   94.6%  $72,189,000 98.0% $74,663,000 99.7% 
31-60 days                $1,778,000  5.0%    $444,000  2.9%   $2,080,000    2.2%     $947,000  1.3%    $218,000  0.3% 
61-90 days                   379,000  1.1      204,000  1.3       785,000    0.8       229,000  0.3       16,000  0.0  
91 days and over             939,000  2.6      425,000  2.8     2,345,000    2.4       317,000  0.4       25,000  0.0  
                        ------------ ---   ----------- ----  ------------  -----   ----------- ----  ----------- ----  
 Total                    $3,096,000  8.7%  $1,073,000  7.0%   $5,210,000    5.4%   $1,493,000  2.0%    $259,000  0.3% 
                        ------------ ---   ----------- ----  ------------  -----   ----------- ----  ----------- ----  
                        ------------ ---   ----------- ----  ------------  -----   ----------- ----  ----------- ----  
Defaults/Defaults as a                                                                                                 
percentage of average                                                                                                  
monthly balance             $987,000  2.4%    $490,000  3.0%     $558,000    0.6%        $  --  0.0%       $  --  0.0% 
                        ------------ ---   ----------- ----  ------------  -----   ----------- ----  ----------- ----  
                        ------------ ---   ----------- ----  ------------  -----   ----------- ----  ----------- ----  
As of March 31, 1996                                                                                                   
Current                  $30,713,649 94.2% $13,811,292 93.8%  $86,622,634   93.9% $69,665,579  96.1% $77,427,295 98.5% 
31-60 days                  $905,179  2.8%    $278,372  1.9%   $1,491,122    1.6%   $1,295,274  1.8%    $617,991  0.8% 
61-90 days                   239,990  0.7      125,908  0.9       838,610    0.9       549,267  0.8      225,096  0.3  
91 days and over             793,467  2.4      508,113  3.4     3,330,116    3.6       970,070  1.3      275,033  0.4  
                        ------------ ---   ----------- ----  ------------  -----   ----------- ----  ----------- ----  
 Total                    $1,938,636  5.9%    $912,393  6.2%   $5,659,848    6.1%   $2,814,611  3.9%  $1,118,120  1.5% 
                        ------------ ---   ----------- ----  ------------  -----   ----------- ----  ----------- ----  
                        ------------ ---   ----------- ----  ------------  -----   ----------- ----  ----------- ----  
Defaults/Defaults as a                                                                                                 
percentage of average                                                                                                  
monthly balance             $185,054  0.5%    $105,556  0.7%     $471,493    0.5%      $97,304  0.1%     $40,000  0.1% 
                        ------------ ---   ----------- ----  ------------  -----   ----------- ----  ----------- ----  
                        ------------ ---   ----------- ----  ------------  -----   ----------- ----  ----------- ----  
As of June 30, 1996                                                                                                    
Current                  $28,168,294 93.0% $13,019,667 92.9%  $81,073,528   92.8% $66,219,920  93.8% $73,917,023 95.9% 
                        ------------ ---   ----------- ----  ------------  -----   ----------- ----  ----------- ----  
                        ------------ ---   ----------- ----  ------------  -----   ----------- ----  ----------- ----  
31-60 days                  $855,792  2.8%    $398,922  2.8%   $1,820,636    2.1%   $1,287,665  1.8%  $1,283,481  1.7% 
61-90 days                   297,607  1.0      130,923  0.9       823,536    0.9       732,604  1.0      782,049  1.0  
91 days and over             970,497  3.2      475,344  3.4     3,700,779    4.2     2,429,046  3.4      108,581  1.4  
                        ------------ ---   ----------- ----  ------------  -----   ----------- ----  ----------- ----  
 Total                    $2,123,896  7.0%  $1,005,189  7.1%   $6,344,951    7.2%   $4,449,315  6.2%  $3,149,111  4.1% 
                        ------------ ---   ----------- ----  ------------  -----   ----------- ----  ----------- ----  
                        ------------ ---   ----------- ----  ------------  -----   ----------- ----  ----------- ----  
Defaults/Defaults as a                                                                                                 
percentage of average                                                                                                  
monthly balance             $199,381  0.6%    $225,326  1.6%   $1,110,712    1.2%     $137,237  0.2%    $100,109  0.1% 
                        ------------ ---   ----------- ----  ------------  -----   ----------- ----  ----------- ----  
                        ------------ ---   ----------- ----  ------------  -----   ----------- ----  ----------- ----  
As of September 30,1996                                                                                                
Current                  $26,144,645 93.0% $11,679,850 91.2%  $75,587,362   92.3%  $62,174,546 93.0% $70,611,343 95.4% 
                        ------------ ---   ----------- ----  ------------  -----   ----------- ----  ----------- ----  
                        ------------ ---   ----------- ----  ------------  -----   ----------- ----  ----------- ----  
31-60 days                  $715,727  2.5%    $550,826  4.3%   $1,774,053    2.2%   $1,664,704  2.5%  $1,379,826  1.9% 
61-90 days                   242,578  0.9      114,445  0.9       819,700    1.0       894,362  1.3      687,279  0.9  
91 days and over           1,004,791  3.6      464,207  3.6     3,722,225    4.5     2,118,067  3.2    1,356,079  1.8  
                        ------------ ---   ----------- ----  ------------  -----   ----------- ----  ----------- ----  
 Total                    $1,963,096  7.0%  $1,129,478  8.8%   $6,315,978(1) 7.7%   $4,677,133  7.0%  $3,423,184  4.6% 
                        ------------ ---   ----------- ----  ------------  -----   ----------- ----  ----------- ----  
                        ------------ ---   ----------- ----  ------------  -----   ----------- ----  ----------- ----  
Defaults/Defaults as a                                                                                                 
percentage of average                                                                                                  
monthly balance             $320,051  1.1%    $264,774  2.0%   $1,536,788    1.8%     $857,380  1.2%    $394,616  0.5% 
                        ------------ ---   ----------- ----  ------------  -----   ----------- ----  ----------- ----  
                        ------------ ---   ----------- ----  ------------  -----   ----------- ----  ----------- ----  

                                                        [Enlarge/Download Table]

                              1996-1             1996-2               1996-A             1996-3       
                        -----------------  ------------------   -----------------  ------------------ 
                                                                                                      
As of September 30, 1995                                                                              
Current                                                                                               
31-60 days                                                                                            
61-90 days                                                                                            
91 days and over                                                                                      
 Total                                                                                                
Defaults/Defaults as a                                                                                
percentage of average                                                                                 
monthly balance                                                                                       
As of December 31, 1995                                                                               
Current                                                                                               
31-60 days                                                                                            
61-90 days                                                                                            
91 days and over                                                                                      
 Total                                                                                                
Defaults/Defaults as a                                                                                
percentage of average                                                                                 
monthly balance                                                                                       
As of March 31, 1996                                                                                  
Current                 $117,918,981 99.3%                                                            
                        ------------ ----                                                             
                        ------------ ----                                                             
31-60 days                  $326,276  0.3%                                                            
61-90 days                   361,219  0.3                                                             
91 days and over              74,722  0.1                                                             
                        ------------ ----                                                             
 Total                      $762,217  0.7%                                                            
                        ------------ ----                                                             
                        ------------ ----                                                             
Defaults/Defaults as a                                                                                
percentage of average                                                                                 
monthly balance                $  --  0.0%                                                            
                        ------------ ----                                                             
                        ------------ ----                                                             
As of June 30, 1996                                                                                   
Current                 $113,928,024 97.4% $208,420,466 99.8 %  $8,333,228   99.2%                    
                        ------------ ----  ------------ -----   ----------   ----                     
                        ------------ ----  ------------ -----   ----------   ----                     
31-60 days                $1,511,784  1.3%     $427,930  0.2 %     $65,949    0.8%                    
61-90 days                   638,324  0.6            --  0.0             0    0.0                     
91 days and over             860,779  0.7        28,385  0.01            0    0.0                     
                        ------------ ----  ------------ -----   ----------   ----                     
 Total                    $3,010,887  2.6%     $456,315   .21%     $65,949    0.8%                    
                        ------------ ----  ------------ -----   ----------   ----                     
                        ------------ ----  ------------ -----   ----------   ----                     
Defaults/Defaults as a                                                                                
percentage of average                                                                                 
monthly balance                $  --  0.0% $         --  0.0 %       $  --    0.0%                    
                        ------------ ----  ------------ -----   ----------   ----                     
                        ------------ ----  ------------ -----   ----------   ----                     
As of September 30,1996                                                                               
Current                 $109,902,730 96.3% $243,902,224 98.9 %  $7,690,213   96.9% $254,868,067 100.0%
                        ------------ ----  ------------ -----   ----------   ----  ------------ ----- 
                        ------------ ----  ------------ -----   ----------   ----  ------------ ----- 
31-60 days                $1,336,403  1.2%   $1,480,512  0.6 %    $116,977    1.5%      $25,000   0.0%
61-90 days                   558,174  0.5       591,187  0.3        55,477    0.7        20,000   0.0 
91 days and over           2,266,643  2.0       589,090  0.2        72,897    0.9             0   0.0 
                        ------------ ----  ------------ -----   ----------   ----  ------------ ----- 
 Total                    $4,161,220  3.7%   $2,660,789  1.1 %    $245,351    3.1%      $45,000   0.0%
                        ------------ ----  ------------ -----   ----------   ----  ------------ ----- 
                        ------------ ----  ------------ -----   ----------   ----  ------------ ----- 
Defaults/Defaults as a                                                                                
percentage of average                                                                                 
monthly balance             $175,637  0.2%     $200,030  0.1 %       $  --    0.0%        $  --   0.0%
                        ------------ ----  ------------ -----   ----------   ----  ------------ ----- 
                        ------------ ----  ------------ -----   ----------   ----  ------------ ----- 

______________                                                                  
(1) A loan is defaulted when management deems that the loan is no longer        
collectible. Generally, this occurs after 180 days of deliquency.       

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MANAGEMENT INFORMATION SYSTEMS                                                  

The Company's servicing operations are currently operated on an IBM   
AS/400-based system. Management believes that the Company's existing computer   
capacity will be sufficient through fiscal 1997 but has begun to implement a    
program to upgrade and expand its current systems. Such plan includes           
upgrading and enhancing the Company's current "front-end" origination and       
servicing systems. In addition, the Company is evaluating certain document      
imaging technologies and direct "on line" communications with correspondent     
lenders. Management believes that such advances should increase the             
efficiency of the Company's underwriting and servicing operations.  The         
Company currently stores a duplicate of all system information in an off-site   
protected facility.  The Company is in the process of developing a complete     
disaster recovery plan that will result in only a few hours of down time in     
the event of a disaster.  This plan is expected to be completed during 1997.    
Consideration of future consumer finance company acquisitions will include      
the assessment of system capabilities as they relate to consumer finance        
loans.  Currently, National depends on a third party to maintain automated      
servicing records.                                                              

SECURITIZATION                                                                  

In fiscal 1995 and 1996, substantially all of the loans originated or 
purchased by the Company were sold through securitization transactions. The     
Company intends to execute securitizations regularly; however, there can be     
no assurance that it will be able to do so. The Company sold through nine       
securitization transactions approximately $234.8 million and $723.1 million     
of loans during fiscal 1995 and 1996, respectively.                             

In a securitization transaction, investors purchase pass-through      
certificates evidencing fractionalized but undivided beneficial ownership       
interests in a pool of loans sold to a grantor trust. The principal and         
interest payments on the pooled loans, less the servicing fee and certain       
expenses, are distributed by the trust to the senior certificate holders and    
to the Company as beneficial holder of the Excess Serving Receivable. In some   
cases the Company retains an unrated subordinate certificate that provides      
additional credit enhancement to the senior certificate.                        

The pooling and servicing agreements that govern the distribution of  
cash flows from the loans included in the securitization trusts require         
either (i) the establishment of a reserve account that may be funded with an    
initial cash deposit by the Company or (ii) the overcollateralization of the    
trust intended to result in receipts and collections on the loans that exceed   
the amounts required to be distributed to holders of interests. The Company's   
interest in each reserve account and overcollateralized amount is reflected     
in the Company's Financial Statements as "Receivable from trusts." To the       
extent that borrowers default on the payment of principal or interest on the    
loans, losses will be paid out of the reserve account or will reduce the        
overcollateralization to the extent that funds are available. The reserve       
account or overcollateralization account will thereafter be replenished, to     
the extent required by each securitization pooling and servicing agreement,     
to the extent of the appropriate Excess Servicing Receivable related to each    
securitization pool. If payment defaults exceed the amount in the reserve       
account or the amount of overcollateralization, as applicable, the Company's    
insurance policy, if applicable, will pay any further losses experienced by     
holders of the senior interests in the related trust to the extent these        
interests are insured; however, the Excess Servicing Receivable will not be     
paid until the insurer and the trust are repaid for any losses. At September    
30, 1996 the Company's reserve accounts in its securitizations totaled $26.3    
million. Sharing agreements required third parties to maintain certain          
reserve accounts in the trusts as of September 30, 1996 totaling $2.6           
million. The outstanding securitized loan balance was $887.3 million as of      
September 30, 1996.                                                             

The Company may be required either to repurchase or to replace loans  
that do not conform to the representations and warranties made by the Company   
in the pooling and servicing agreements entered into when the loans are         
pooled and securitized. To the extent these nonconforming loans breach a        
warranty made by a correspondent lender or the seller of such loan, the         
Company may require the correspondent lender or seller to repurchase the        
nonconforming loan; however, there is no assurance that the correspondent       
lender will have the financial capability to purchase the loan.                 

HOME IMPROVEMENT INDUSTRY                                                       

Home improvement lending is a large, highly fragmented industry. In   
recent years, a trend toward consolidation has developed. From the standpoint   
of individual owners, the Company believes that this trend results from         
family succession issues, a desire for liquidity and increasing tax estate      
planning and regulatory complexities, as well as the increasing competitive     
threat posed by larger lenders. From the standpoint of such larger lenders,     
it appears that the consolidation trend is driven by the benefits derived       
from economies of scale, improved managerial control and strategic planning.    

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Data from the U.S. Census Bureau indicates that 1995 home improvement 
spending totaled $111.7 billion. Management believes that the amount of home    
improvements financed in 1995 was a significant percentage of the total home    
improvement market.                                                             

While there are many factors driving the home improvement market the  
Company believes that appreciation of housing values is a key factor driving    
the growth of the industry. Other factors that affect the growth of the         
industry include aging and turnover rates of the housing stock, the length of   
time the homeowner has lived in the home and real rental rates.                 

COMPETITION                                                                     

The consumer finance market is highly competitive and fragmented. The   
Company competes with a number of finance companies providing financing         
programs to individuals who cannot qualify for traditional financing. To a      
lesser extent, the Company competes, or will compete, with commercial banks,    
savings and loan associations, credit unions, insurance companies and captive   
finance arms of major manufacturing companies that currently tend to apply      
more traditional lending criteria.  In addition, in recent months, several      
companies have announced loan programs that will compete directly with the      
Company's loan products, particularly its Conventional Loans.  Many of these    
competitors or potential competitors are substantially larger and have          
significantly greater capital and other resources than the Company. In fiscal   
1995 and 1996, approximately 68.5% and 93.9%, respectively, of the Company's    
loans originated were Correspondent Loans, which are expected to remain a       
significant part of the Company's loan production program. As a purchaser of    
Correspondent Loans, the Company is exposed to fluctuations in the volume and   
price of Correspondent Loans resulting from competition from other purchasers   
of such loans, market conditions and other factors. In addition, Fannie Mae     
has purchased and is expected to continue to purchase significant volumes of    
Title I Loans on a whole-loan basis.  Purchases by Fannie Mae could be made     
from sources from which the Company also purchases loans.  To the extent that   
purchasers of loans, such as Fannie Mae, enter, or increase their purchasing    
activities in, the markets in which the Company purchases loans, competitive    
pressures may decrease the availability of loans or increase the price the      
Company would have to pay for loans a phenomenon that has occurred with         
respect to Title I Loans.  In addition, increases in the number of companies    
seeking to originate loans tends to lower the rates of interest the Company     
can charge borrowers, thereby reducing the potential value of subsequently      
earned Gain on Sale of loans. To the extent that any of these lenders or        
Fannie Mae significantly expand their activities in the Company's market, or    
to the extent that new competitors enter the market, the Company's results of   
operations and financial condition could be materially adversely affected.      
However, by focusing primarily on higher LTV home improvement loans and debt    
consolidation loans and reliance on the creditworthiness of the borrower        
rather than the collateral, the Company believes it is able to differentiate    
itself from other participants in the market.                                   

REGULATION                                                                      

The operations of the Company are subject to extensive regulation,    
supervision and licensing by federal, state and local governmental              
authorities. Regulated matters include, without limitation, loan origination,   
credit activities, maximum interest rates and finance and other charges,        
disclosure to customers, the terms of secured transactions, the collection,     
repossession and claims handling procedures utilized by the Company, multiple   
qualification and licensing requirements for doing business in various          
jurisdictions and other trade practices.                                        

The Company's loan origination activities are subject to the laws and 
regulations in each of the states in which those activities are conducted.      
The Company's activities as a lender are also subject to various federal laws   
including the Truth in Lending Act ("TILA"), the Real Estate Settlement         
Procedures Act ("RESPA"), the Equal Credit Opportunity Act ("ECOA"), the Home   
Mortgage Disclosure Act ("HMDA") and the Fair Credit Reporting Act ("FCRA").    

TILA and Regulation Z promulgated thereunder contain disclosure       
requirements designed to provide consumers with uniform, understandable         
information with respect to the terms and conditions of loans and credit        
transactions in order to give them the ability to compare credit terms. TILA    
also guarantees consumers a three-day right to cancel certain credit            
transactions, including loans of the type originated by the Company.            
Management of the Company believes that it is in compliance with TILA in all    
material respects. If the Company was found not to be in compliance with        
TILA, aggrieved borrowers could have the right to rescind their loan            
transactions with the Company and to demand the return of finance charges       
paid to the Company.                                                            

In September 1994, the Riegle Community Development and Regulatory    
Improvement Act of 1994 (the "Riegle Act") was enacted. Among other things,     
the Riegle Act makes certain amendments to TILA. The TILA amendments, which     

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became effective in October 1995, generally apply to mortgage loans ("covered   
loans") with (i) total points and fees upon origination in excess of the        
greater of eight percent of the loan amount or $400, or (ii) an annual          
percentage rate of more than 10 percentage points higher than comparably        
maturing United States Treasury securities. A substantial majority of the       
loans originated or purchased by the Company are covered by the Riegle Act.     

  The TILA amendments impose additional disclosure requirements on lenders
originating covered loans and prohibit lenders from originating covered loans   
that are underwritten solely on the basis of the borrower's home equity         
without regard to the borrower's ability to repay the loan. The Company         
believes that only a small portion of its loans originated since fiscal 1994    
are of the type that, unless modified, are prohibited by the TILA amendments.   
The Company applies to all covered loans underwriting criteria that take into   
consideration the borrower's ability to repay.                                  

  The TILA amendments will also prohibit lenders from including prepayment
fee clauses in covered loans to borrowers with a debt-to-income ratio in        
excess of 50% or covered loans used to refinance existing loans originated by   
the same lender. The Company reported immaterial amounts of prepayment fee      
revenues in fiscal 1993, 1994, 1995 and 1996. The Company will continue to      
collect prepayment fees on loans originated prior to effectiveness of the       
TILA amendments and on non-covered loans, as well as on covered loans in        
permitted circumstances. Because the TILA amendments did not become effective   
until October 1995, the level of prepayment fee revenues were not affected in   
fiscal 1995, but the level of prepayment fee revenues may decline in future     
years. The TILA amendments impose other restrictions on covered loans,          
including restrictions on balloon payments and negative amortization            
features, which the Company does not believe will have a material effect on     
its operations.                                                                 

The Company is also required to comply with ECOA, which prohibits     
creditors from discriminating against applicants on the basis of race, color,   
sex, age or marital status. Regulation B promulgated under ECOA restricts       
creditors from obtaining certain types of information from loan applicants.     
It also requires certain disclosures by the lender regarding consumer rights    
and requires lenders to advise applicants of the reasons for any credit         
denial. In instances where the applicant is denied credit or the rate or        
charge for loans increases as a result of information obtained from a           
consumer credit agency, another statute, the Fair Credit Reporting Act of       
1970, as amended, requires lenders to supply the applicant with the name and    
address of the reporting agency. The Company is also subject to RESPA and is    
required to file an annual report with HUD pursuant to the HMDA.                

In addition, the Company is subject to various other federal and state
laws, rules and regulations governing, among other things, the licensing of,    
and procedures that must be followed by, mortgage lenders and servicers, and    
disclosures that must be made to consumer borrowers. Failure to comply with     
these laws may result in civil and criminal liability and may, in some cases,   
give consumer borrowers the right to rescind their mortgage loan transactions   
and to demand the return of finance charges paid to the Company.                

In the course of its business, the Company may acquire properties     
securing loans that are in default. See "--Servicing Operations--Delinquencies  
and Foreclosures." There is a risk that hazardous or toxic                      
waste could be found on such properties. In such event, the Company could be    
held responsible for the cost of cleaning up or removing such waste, and such   
cost could exceed the value of the underlying properties.                       

 Because the Company's business is highly regulated, the laws, rules and
regulations applicable to the Company are subject to subsequent modification    
and change. There are currently proposed various laws, rules and regulations    
which, if adopted, could have an adverse effect on the Company. There can be    
no assurance that these proposed laws, rules and regulations, or other such     
laws, rules or regulations, will not be adopted in the future that could make   
compliance much more difficult or expensive, restrict the Company's ability     
to originate, broker, purchase or sell loans, further limit or restrict the     
amount of commissions, interest and other charges earned on loans originated,   
brokered, purchased or sold by the Company, or otherwise adversely affect the   
business or prospects of the Company.                                           

COMBINATION                                                                     

The Company was incorporated in Nevada in October 1994, to combine the
operations of SFAC, a Conventional Loan originator and FIRSTPLUS Financial,     
an approved Title I Loan originator and servicer. The Company entered into an   
agreement with the shareholders of SFAC and with Farm Bureau Life Insurance     
Company, Inc. ("Farm Bureau"), which at the time was an affiliate of a          
principal shareholder of FIRSTPLUS Financial, whereby the shareholders of       
SFAC exchanged their common and preferred stock of SFAC and Farm Bureau         
exchanged its common stock of FIRSTPLUS Financial for common                    

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and preferred stock of the Company. Effective October 4, 1994, FIRSTPLUS        
Financial and SFAC became wholly owned subsidiaries of the Company, with the    
shareholders of SFAC controlling the voting shares of the Company. For          
accounting purposes, the Combination was treated as a purchase of FIRSTPLUS     
Financial by the Company, and SFAC was accounted for at book value in a         
manner similar to a pooling of interests as a transaction between entities      
under common control. In connection with the Combination, each of SFAC and      
FIRSTPLUS Financial changed their respective fiscal year end from a calendar    
year end to a September 30 year end.                                            

EMPLOYEES                                                                       

  At September 30, 1996 the Company employed 949 persons: 204 primarily in
loan origination, 121 primarily in loan servicing and the rest in various       
other clerical and administrative functions. Of the total number of employees   
at such date, 506 were located at the Company's headquarters in Dallas,         
Texas, and 443 at the Company's other offices. None of the Company's            
employees is subject to a collective bargaining agreement, and the Company      
believes that its relations with its employees are good.                        

ITEM 2. PROPERTIES.                                                             

The executive and administrative offices of the Company are located at
1250 West Mockingbird Lane, Dallas, Texas 75247, and consist of approximately   
113,431 square feet. The lease on the premises extends through January 31,      
2003 and the current annual rental is approximately $662,000.                   

The Company also leases space for 49 of its offices. These facilities 
aggregate approximately 104,358 square feet, with an annual aggregate base      
rental of approximately $1.0 million.  The terms of these leases vary as to     
duration and escalation provisions. In general, the leases expire through       
September 2000.                                                                 

The Company believes that its facilities are adequate for its current 
needs, but it will need additional space within the next 12 months. In order    
to support the growth of its business, the Company is pursuing the purchase     
and sale-leaseback of a significantly larger headquarters building in Dallas,   
Texas.                                                                          

ITEM 3. LEGAL PROCEEDINGS.                                                      

The Company is involved from time to time in routine litigation       
incidental to its business. However, the Company believes that it is not a      
party to any material pending litigation which, if decided adversely to the     
Company, would have a significant adverse effect on the business, income,       
assets or operations of the Company. The Company is not aware of any material   
threatened litigation that might involve the Company.                           

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

No matter was submitted to a vote of the shareholders of the Company  
during the fourth quarter of the fiscal year ended September 30, 1996.          

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PART II   

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER           
MATTERS.                                                        

The share price information below has been retroactively adjusted to  
give effect to the one-for-one Common Stock dividend paid by the Company on     
November 29, 1996 to stockholders of record on November 15, 1996.  The Common   
Stock has been quoted on the Nasdaq National Market under the symbol "RACF"     
since the Company's initial public offering in February 1996 at $8.50 per       
share. The following table sets forth the high and low sales prices of the      
Common Stock for the periods indicated, as reported by the Nasdaq National      
Market.                                                                         

YEAR ENDED SEPTEMBER 30, 1996                             HIGH          LOW     
-----------------------------                             ----          ---     
Second Quarter (beginning February 1, 1996)............  $11.88        $ 8.75   
Third Quarter..........................................  $16.25        $11.00   
Fourth Quarter.........................................  $22.88        $12.44   
YEAR ENDING SEPTEMBER 30, 1997                                                  
------------------------------                                                  
First Quarter (through December 18, 1996)..............  $30.75        $19.75   

On December 18, the last reported sales price for the Common Stock was
$20.75 per share.  As of November 30, 1996, the Company had 23,057,082          
outstanding shares of Voting Common Stock held by 42 stockholders of record.    
As of November 30, 1996, the Company had 4,440,676 outstanding shares of        
Non-Voting Common Stock held by three stockholders of record.                   

  The Company has never paid, and has no present intention of paying, cash
dividends on its Common Stock. The Company currently intends to retain its      
earnings to finance the growth and development of its business. 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.    
Under the terms of the Company's warehouse facilities and Subordinated Notes,   
the Company's ability to pay cash dividends to its stockholders is limited.     

ITEM 6. SELECTED FINANCIAL DATA.                                                

  The following table sets forth historical selected financial information
of the Company as of the dates and for the periods indicated. The Company was   
formed by the shareholders and management of SFAC and the parent of FIRSTPLUS   
Financial to acquire FIRSTPLUS Financial in the Combination, which was          
accounted for as a purchase of FIRSTPLUS Financial and was consummated on       
October 4, 1994. In May 1996, the Company acquired FIRSTPLUS West in a          
transaction accounted for as a pooling of interests. As a result of the         
pooling, the historical financial information of the Company has been           
restated to include the financial information of FIRSTPLUS West. The            
financial information for FIRSTPLUS West included in the three years ended      
September 30, 1995, reflects information for FIRSTPLUS West's three fiscal      
years ended April 30, 1995. The financial information for the fiscal years      
ended September 30, 1996 has been recast to conform to the Company's fiscal     
year end. See Note 1 to the consolidated financial statements of the Company.   

The income statement and balance sheet data is derived from the       
consolidated audited financial statements of the Company. 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 Report.                                              

                                                        [Enlarge/Download Table]
                                                              YEAR ENDED SEPTEMBER 30              
                                                              -----------------------              
                                                       1993       1994       1995       1996       
                                                       ----       ----       ----       ----       
                                                   (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)   
                                                                                                   
INCOME STATEMENT DATA:                                                                             
 Revenues:                                                                                         
  Gain on sale of loans, before sharing.............  $17,115    $27,671    $40,112    $159,175    
  Sharing arrangements..............................     -          -       (10,999)       (536)   

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   Gain on sale of loans, net (1)(2)................   17,115       27,671      29,113     158,639 
  Interest..........................................      145        1,845       2,860      25,727 
  Servicing income..................................     -              72       1,049       4,008 
  Other income......................................       54          252         873       9,683 
                                                      -------      -------     -------    -------- 
   Total revenue....................................   17,314       29,840      33,895     198,057 
 Expenses:                                                                                         
  Salaries and employee benefits....................    7,265       17,054      10,110      36,402 
  Interest..........................................       28        1,041       2,660      16,892 
  Other operating expense...........................    2,632        6,465       6,963      29,938 
  Provision for possible credit losses..............      -            125       4,420      59,644 
                                                      -------      -------     -------    -------- 
   Total expenses...................................    9,925      24,685       24,153     142,876 
                                                      -------      -------     -------    -------- 

 Income before income taxes.........................    7,389       5,155        9,742      55,181 
 Provision for income taxes.........................      -           -         (3,903)    (20,969)
                                                       -------     -------     -------    -------- 

 Net income (3).....................................   $7,389       $5,155      $5,839     $34,212 
                                                      -------      -------     -------    -------- 
                                                      -------      -------     -------    -------- 

PER SHARE DATA (3):                                                                                
Net income per share of common stock (2)(3):                                                       
 Primary............................................  $  0.47      $  0.31     $  0.28     $  1.35 
                                                      -------      -------     -------    -------- 
                                                      -------      -------     -------    -------- 
 Fully diluted......................................  $  0.47      $  0.31     $  0.28     $  1.31 
                                                      -------      -------     -------    -------- 
                                                      -------      -------     -------    -------- 
Weighted average common and common                                                                 
equivalent shares outstanding:                                                                     
 Primary.......................................    15,596,874   16,276,874  20,296,874  25,358,162 
                                                   ----------   ----------  ----------  ---------- 
                                                   ----------   ----------  ----------  ---------- 
 Fully diluted.................................    15,596,874   16,276,874  20,296,874  26,353,526 
                                                   ----------   ----------  ----------  ---------- 
                                                   ----------   ----------  ----------  ---------- 


                                         SEPTEMBER 30,
                                         -------------
                                            1994          1995          1996
                                            ----          ----          ----

BALANCE SHEET DATA:                                     (IN THOUSANDS)          

 Excess servicing receivable, net.......    $  -           $29,744      $187,230
 Loans held for sale....................      6,105         19,435       430,812
 Total assets...........................     12,141         61,341       710,384
 Warehouse financing facilities.........      4,995         18,530       354,481
 Warehouse Lender Term Line.............       -             9,249        57,465
 Subordinated notes.....................       -             8,003         7,003
 Convertible Subordinated Notes.........       -              -          100,000
 Total liabilities......................      7,821         49,607       615,815
 Stockholders' equity...................      4,321         11,734        94,569
-------------------                                                             

(1) Gain on sale of loans, net, is net of sharing arrangements and the          
premiums related to and costs of securitizations but not net of the     
Company's related provision for possible credit losses.                 

(2) Excluding the effect of the pooling of interests with FIRSTPLUS West,       
 gain on sale of loans, net, was $439,000, $2.1 million, $25.1 million and
$149.4 million for fiscal 1993, 1994, 1995 and 1996, respectively.      
 Excluding the effect of the pooling of interests with FIRSTPLUS West, the
Company experienced a loss of $180,000 and $647,000 for fiscal 1993 and 
1994, respectively, and earned $6.9 million and $34.3 million, or $0.36 
and $1.35 per share on a fully diluted basis, for fiscal 1995 and 1996, 
respectively. See Notes 1 and 9 to the consolidated financial statements
of the Company.                                                         

(3) Net income per common share is computed by dividing net income, less        
 accrued and unpaid dividends on preferred stock (the balance of which was
redeemed in connection with the Company's initial public offering in    
February 1996), by the weighted average common and common equivalent    
shares outstanding.                                                     

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND         
RESULTS OF OPERATIONS.                                          

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The following analysis of the financial condition and results of      
operations of the Company should be read in conjunction with the preceding      
"Selected Financial Data."  Additionally, the Company's Consolidated            
Financial Statements and the notes thereto, and the separate financial          
statements of FIRSTPLUS Financial and the notes thereto, as well as other       
data included in this Report, should be read and analyzed in combination with   
the analysis below.                                                             

GENERAL                                                                         

The Company is a specialized consumer finance company that originates,
purchases, services and sells consumer finance receivables, substantially all   
of which are home improvement or debt consolidation loans secured primarily     
by second liens on real property. The Company offers Conventional Loans and     
Title I Loans to certain qualified borrowers and sells substantially all of     
such strategic loans primarily through its securitization program, retaining    
rights to service these loans. The Company originated and purchased an          
aggregate of $227.9 million and $1.1 billion of strategic loans (including      
bulk purchases of loans) in the fiscal years ended September 30, 1995 and       
September 30, 1996, respectively. The Company securitized an aggregate of       
$234.8 million and $723.1 million of loans in fiscal 1995 and 1996,             
respectively. The Company also originated $83.4 million and $382.2 million of   
non-strategic loans in fiscal 1995 and 1996, respectively, which it sold to     
third-party lenders on a whole-loan basis, with servicing rights released. As   
of September 30, 1996, the principal amount of loans in the Serviced Loan       
Portfolio was $1.3 billion.                                                     

CERTAIN ACCOUNTING CONSIDERATIONS                                               

As a fundamental part of its business and financing strategy, the     
Company sells substantially all of its strategic loans to third-party           
investors in securitization transactions. In a securitization transaction,      
loans originated and purchased by the Company are sold to an independent        
entity, generally a grantor or owner trust, which holds the loans as trustee    
for third-party investors. The Company retains the right to service the         
securitized loans or appoint an approved subservicer. In addition, the          
Company is entitled to receive excess cash flows generated by the securitized   
loans calculated as the difference between (a) interest at the stated rate      
paid by borrowers and (b) the sum of (i) pass-through interest paid to third    
party investors, (ii) trustee fees, (iii) FHA insurance fees, (iv)              
third-party credit enhancement fees, (v) normal servicing fees and (vi) loan    
portfolio losses. The Company's right to receive this excess cash flow stream   
begins after certain reserve requirements have been met, which are specific     
to each securitization and are used as a means of credit enhancement. The       
Company determines the present value of this anticipated revenue stream at      
the time each securitization transaction closes utilizing valuation             
assumptions appropriate for each particular transaction and records it as an    
asset called Excess Servicing Receivable.  The significant assumptions are      
generally related to the anticipated average lives of the loans sold and the    
anticipated credit losses related thereto.  In order to determine the present   
value of this excess cash flow, the Company currently applies an estimated      
market discount rate of between 10% and 11% to the expected pro forma gross     
cash flow calculated utilizing the weighted average maturity of the             
securitized loans, and currently applies a risk free discount rate of 6.5% to   
the anticipated losses attendant to this pro forma cash flow stream (the        
"Allowance for Possible Credit Losses on Loans Sold"). Accordingly, the         
overall effective discount rate utilized on the cash flows, net of expected     
credit losses is approximately 12.5%. As of September 30, 1996, the Company's   
Excess Servicing Receivable was $187.2 million, and its Allowance for           
Possible Credit Losses on Loans Sold was $54.3 million or approximately 26.6%   
of the Company's Excess Servicing Receivable.  The present value of the         
Company's portion of the expected future excess cash flow to be received on     
loans sold through securitization transactions, in excess of securitization     
costs and net premiums paid, is recorded as Gain on Sale of loans revenue,      
and the discounted value of the anticipated losses is recorded as provision     
for possible credit losses, in the period during which the securitization       
occurs.  "Gain on Sale of loans, net" refers to Gain on Sale of loans less      
any sharing arrangements, but before any provision for possible credit losses.  

With respect to the calculation of the gross charge-off rate for a    
particular securitization pool, the Company, in part, utilizes the FICO         
scores of that securitization pool to measure the creditworthiness of the       
borrowers whose loans are included in the pool. The Company's securitization    
pool score distribution typically falls between 590 and 750 with a weighted     
average pool score of between 650 and 680. A FICO score of 590 or below will    
generally constitute a borrower that the Company classifies as a "D" credit     
with an estimated average annual default rate of 4.0% or more, and a FICO       
score of approximately                                                          

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680 or better will generally constitute a borrower that the Company             
classifies as an "A" credit with an estimated average annual default rate of    
1.2% or less. The Company estimates default rates for FICO scores based on      
historical loan performance and other data available to the Company.  The       
Company has developed historical default rates for its borrowers based on       
each ten point increment of the FICO score range.  Using the expected default   
rate for each ten point FICO score interval for each securitization, the        
Company estimates the default rate for the borrowers in the securitized pool.   
When valuing the Excess Servicing Receivable attributable to these              
securitizations, the Company assumes that its securitization pools will         
produce annual default rates that correspond to the historical default rates    
for the FICO score ranges associated with the individual pools, adjusted for    
accelerated levels of defaults for loan pools with FICO scores lower than 620   
and for seasoned loans that have little or no increase in the frequency of      
defaults.                                                                       

In its estimates of annual default rates and total delinquencies, the 
Company utilizes assumptions that it believes are reasonable.  During fiscal    
1996, the Company recognized a provision for losses on loans sold of between    
4.5% and 10.2%.  The Company estimates annual default rates and total           
delinquencies based upon FICO scores, the life of the loans and the mix of      
the Title I Loans to Conventional Loans in the securitization.  To more         
accurately reflect the timing of the actual loan default rates and the impact   
of the defaults on the overall prepayment rates, the Company began utilizing    
default curves beginning in the 1996-3 securitization rather than assuming      
defaults occur in a straight line manner over time.  The use of the default     
curves does not impact the estimated total amount of defaults in a              
securitization, only the timing of when such defaults will occur.  As of        
September 30, 1996, the Allowance Possible Credit losses on Loans Sold          
equaled $39.1 million or 29.0% of the Company's Excess Servicing Receivable.    
The Company believes that this allowance is adequate to cover anticipated       
losses.  The Company also estimates total deliquencies (i.e., loans more than   
30 days past due) to average 6% to 9% over the life of each securitization.     

As of September 30, 1996, the allowance for possible credit losses on 
the loans held for sale equaled $6.5 million, or 1.5% of the Company's $430.8   
million portfolio of loans held for sale. The Company nets this allowance       
against its loans held for sale on the balance sheet. The Company believes      
this allowance is adequate to cover anticipated losses resulting from           
liquidation of outstanding loans.                                               

The annual prepayment rate of the securitized loans is a function of  
full and partial prepayments and defaults. In the calculation of its Gain on    
Sale, the Company makes an assumption of the prepayment rate, which the         
Company believes is reasonable.  During fiscal 1996, the prepayment             
assumptions utilized by the Company ranged from 13.5% to 16.0%.  The Company    
estimates the prepayment speeds of its loans based on prior performance, the    
presence or absence of prepayment penalties, the LTV of the loans and           
industry analysis.  Beginning with the 1996-3 securitization, the Company       
began utilizing a prepayment curve developed by the Company's structured        
finance and risk management groups, which the Company believes will             
approximate the timing of payments over the life of the loans.  The Company     
currently expects the prepayment curves on the loans it securitizes to          
generally begin slowly in the first month, gradually increasing to 13% to 15%   
annual prepayment rate in years two to four, then decreasing gradually and      
flattening thereafter.                                                          

The estimated weighted average life of the Company's loan pools       
determines the structure and duration of the securities issued as well as the   
U.S. Treasury instruments upon which the prices of the loan tranches are        
based.  Weighted average lives are based on the remaining maturities and        
estimated prepayment rates of the loans to be securitized. The terms of the     
Company's loan originations range from six to 300 months.  The majority of      
the Company's originations carry contractual terms to maturity from 180 to      
300 months.                                                                     

The Company records its loans at the lower of cost or market. The     
Company typically originates Direct Loans and Contractor Loans at or below      
par and Correspondent Loans at or above par. Any originations below par are     
recorded as loan origination discounts, thereby reducing the Company's cost     
basis in such loans. Any purchases above par are recorded as loan purchase      
premiums, thereby increasing the Company's cost basis in its loans. If the      
Company's accounts reflect net discounts in excess of premiums at the time it   
securitizes such loans, the Company recognizes such net discount as a           
reduction to its cost of loans sold. Conversely, if the Company's accounts      
reflect net premiums in excess of discounts at the time it securitizes its      
loans, the Company recognizes such net premium as an addition to its cost of    
loans sold.                                                                     

The Gain on Sale and the related Excess Servicing Receivable is       
recognized in the period during which loans are sold, although subsequently     
earned servicing fees paid to the Company by the securitization trustee are     
recognized as received over the lives of the securitized loans. The Company     
records the Excess Servicing Receivable as an asset on its balance sheet in     
an amount equal to the present value of the pro forma cash flow utilizing the   
prepayment and charge-off curves described above.  The receivable is            
subsequently reduced as cash attributable to the Excess Servicing Receivable    
is collected by the Company. The Company also reports any origination           
premiums (net of origination discounts) as reductions of  income at the time    
the securitization transaction closes. The Company earns additional income      
from its Excess Servicing Receivable, which it records on an interest accrual   
method, and servicing revenues and fees (ranging from 0.75% to 1.00% of the     
outstanding loan balance serviced) as they are earned and collected.            

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  There can be no assurance that the Company's estimates used to determine
the Gain on Sale and Excess Servicing Receivable valuations will remain         
appropriate for the life of each securitization. If actual loan prepayments     
or defaults exceed the Company's estimates, the carrying value of the           
Company's Excess Servicing Receivable may have to be written down or the        
Company may increase its Allowance for Possible Credit Losses on Loans Sold     
through a charge against earnings during the period within which management     
recognizes the disparity. The Company will not write up its Excess Servicing    
Receivable to reflect slower than expected prepayments, although slow           
prepayments may ultimately result in subsequent additional earnings for the     
Company if actual excess cash flows exceed the original excess cash flow        
estimates used to record the sale.  Other factors may also result in a          
writedown of the Company's Excess Servicing Receivable in subsequent periods.   
See Note 5 to the consolidated financial statements of the Company.             

The Company also originates non-strategic loans, which it sells to        
third-party lenders, on a servicing-released basis. These loans are either      
first liens or subordinate liens that do not meet the Company's                 
securitization criteria.  The Company plans to convert the non-strategic loan   
operations to operations that will originate strategic loans that meet the      
Company's current securitization parameters.                                    

RESULTS OF OPERATIONS                                                           

FISCAL YEAR ENDED SEPTEMBER 30, 1996                                            
VERSUS FISCAL YEAR ENDED SEPTEMBER 30, 1995                                 

  The Company's total revenues increased to $198.0 million for fiscal 1996
from $33.9 million for fiscal 1995, a $164.2 million increase or 484.3%.        
Excluding the effect of the pooling of interests with FIRSTPLUS West, the       
Company's total revenues increased to $185.9 million for fiscal 1996 from       
$29.0 million for fiscal 1995, an increase of $156.9 million or 542.1%. This    
increase was primarily the result of increases in the Company's Gain on Sale    
of loans, net, although the Company also experienced significant increases in   
its servicing related income, interest income and other income during this      
time period.                                                                    

The following table sets forth information regarding the components of
the Company's revenues for fiscal 1995 and 1996:                                

                                            YEAR ENDED SEPTEMBER 30,
                                            ------------------------
                                            1995                1996
                                        (IN THOUSANDS)
Gain on sale of loans, before sharing.......     $40,113             $159,175   
Sharing arrangements........................     (10,999)                (536)  
                                             --------             --------
Gain on sale of loans, net (1).............      29,114               158,639 
Interest income.............................       2,860                25,727  
Servicing income............................       1,049                 4,008  
Other income................................         873                 9,683  
                                              --------             ---------
 Total....................................     $33,896              $198,057
                                              --------             ---------
                                              --------             ---------
-------------------                                                             

(1) Gain on sale of loans, net, is net of sharing arrangements and the          
premiums related to and costs of securitizations but not net of the     
Company's related provision for possible credit losses.                 

Gain on Sale of loans, net, increased to $158.6 million for fiscal 1996 
from $29.1 million for fiscal 1995, an increase of $129.5 million or 444.9%.    
The Company securitized and sold $723.1 million of strategic loans during       
fiscal 1996 (resulting in Gain on Sale of loans, net, of $158.6 million) and    
$234.8 million of strategic loans during fiscal 1995 (resulting in Gain on      
Sale of loans, net of $26.6 million) an increase of $488.6 million or 208.1%.   
The Company sold $290.5 million of non-strategic loans in whole-loan sales      
during fiscal 1996 (resulting in Gain on Sale of loans, net, of $8.4 million)   
and $113.9 million of non-strategic loans in whole-loan sales during fiscal     
year 1995 (resulting in Gain on Sale of loans, net, of $4.1 million).           
Additionally, the Company earned a weighted average 13.3% profit margin (the    
ratio                                                                           

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of its Gain on Sale of loans, after provision for possible credit losses, as    
a percentage of loans securitized and sold) on the loans it securitized and     
sold during fiscal 1996, compared to a 8.8% weighted average profit margin on   
the loans securitized and sold during 1995.                                     

 The following table sets forth certain data with respect to each of the
securitizations the Company closed during fiscal 1996:                          

                                                        [Enlarge/Download Table]

                                               1995-3(1)  1995-4       1996-1      1996-2      1996-A (2)   1996-3(3) 
                                               ---------  ------       ------      ------      ----------   --------- 

                                                                  (DOLLARS IN THOUSANDS)                              
                                                                                                                      
Loans sold.................................... $9,284     $77,599       $115,559    $241,625     $8,516    $299,887   
Overcollateralization.........................   -          2,400          4,440       8,375       -            113(4)
                                               ------     -------       --------    --------     ------    --------   
Total loans securitized....................... $9,284     $79,999       $119,999    $250,000      $8,516   $300,000   
                                               ------     -------       --------    --------     ------    --------   
                                               ------     -------       --------    --------     ------    --------   
Gain on sale of loans, net.................... $2,040     $16,049        $24,190     $43,131       $691     $67,197   
Provision for possible credit losses..........    537       3,505          5,751      12,547        203      30,681   
                                               ------     -------       --------    --------     ------    --------   

Gain on sale of loans, after provision for                                                                            
 possible credit losses....................... $1,503     $12,544        $18,439     $30,585       $488     $36,516   
                                               ------     -------       --------    --------     ------    --------   
                                               ------     -------       --------    --------     ------    --------   

Net gain after provision for credit losses                                                                            
 as a percentage of total loans securitized                                                                           
 and sold (profit margin) (5).................   16.2%       16.2%          16.0%       12.7%       5.7%       12.2%  
Weighted average maturity of                                                                                          
 certificates sold (yrs.).....................    4.9         4.2            4.4         4.8        2.9         5.4   
Weighted average FICO score...................    636         645            656         662        651         664   
Percentage of total loans securitized:                                                                                
 Conventional.................................   53.9%       62.5%          80.7%       89.0%      41.5%      100.0%  
 Title I......................................   46.1%       37.5%          19.3%       11.0%      58.5%        0.0%  


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

(1) Reflects remaining portion of securitization, the larger portion of which   
was completed during the quarter ended September 30, 1995.              

(2) Most of the Title I Loans in this securitization were unsecured.            

(3) Only $255.4 million of the $300.0 million securitization was funded         
 during fiscal 1996.  Therefore, $5.9 million of the gain will be recorded
subsequently in fiscal 1997.                                            

(4) Represents the portion of the initial overcollateralization requirement     
that is funded with loans.                                              

(5) Gain after commissions earned, premiums paid and provision for possible     
credit losses.                                                          

The Company's increased securitization activity is related to the       
increased origination of strategic loans for fiscal 1996. The Company was       
able to increase its production of strategic loans during fiscal 1996,          
compared to fiscal 1995, due to the following reasons:                          

1. The Company increased the size of its correspondent network during this  
 time period, both in number (306 versus 86 for the respective periods),
     and geographically (26 states versus 19 states during the respective fiscal
years);                                                               

2. The Company increased its production of Direct Loans from $906,000 to    
$45.1 million during the respective fiscal years;                     

3. The Company decreased its production of Contractor Loans, which are      
    generally of lower quality, from $36.8 million to $21.6 million during the
respective fiscal years; and                                          

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4. The Company acquired FIRSTPLUS East in December 1995 in a purchase       
transaction and FIRSTPLUS West in May 1996 in a pooling transaction.  
  During fiscal 1996, FIRSTPLUS East and FIRSTPLUS West originated a total
of $206.0 million of strategic loans.                                 

During fiscal 1996, the Company originated and securitized a greater    
percentage of Conventional Loans, when compared to fiscal 1995. This            
continued increase in Conventional Loan emphasis is a result of the             
relatively small size of the Title I Loan market (the Company estimates this    
market at approximately $2 billion in originations annually) and the            
Company's desire to meet the needs of its customers, who generally request      
higher loan amounts and more flexible loan proceeds utilization than the        
Title I program offers. Although Conventional Loans require the Company to      
reserve greater amounts for anticipated losses than do Title I Loans, Title I   
Loans generally produce lower gross revenues, due to the increased premiums     
paid in acquiring Title I Loans.                                                

The Company's profit margin on securitized loans sold increased from a
weighted average of 8.8% for fiscal 1995 to 13.3% for fiscal 1996.  A portion   
of this increase was due to the fact that the Company was required to share     
its securitization gains in its 1994-1 and 1995-2 securitizations, which        
closed in December 1994 and June 1995, respectively. The Company was not        
required to share any securitization gain for any securitizations closed        
during fiscal 1996; however, $9.2 million of loans delivered in October 1995,   
which were attributable to the 1995-3 securitization, were subject to sharing   
with the Warehouse Lender. Profit margin increases also resulted from the       
favorable interest rate environment during the period from October 1995 to      
January 1996, and from increases in interest paid over the life of the loan.    

  The Company's Gain on Sale profit margin for the four fiscal quarters of
1996 was 16.2%, 16.0%, 12.4% and 12.2%.  During fiscal 1996, the Company's      
Gain on Sale profit margin was reduced, primarily due to the sharp increases in 
general interest rates during the period from February 1996 to June 1996.       

The Company paid net loan premiums of $36.4 million for fiscal 1996,    
compared to $826,082 of net loan discounts received for fiscal 1995. This       
represented an average loan purchase price of 102.4% of par for fiscal 1996,    
and 99.6% of par for fiscal 1995. This increase resulted from the Company       
purchasing loans with relatively higher FICO scores and increased competition   
for Title I Loans. Loan purchase prices are directly related to the quality     
of the loans purchased, the face interest rate of the acquired loans, the       
quantity of loans the correspondent lender commits to sell, the nature and      
longevity of the relationship the Company maintains with the correspondent      
lender and competitive pressures.                                               

Interest income increased from $2.9 million for fiscal 1995, to $25.7   
million for fiscal 1996, an increase of $22.9 million or 799.5%. This           
increase was primarily the result of a significant increase in the Company's    
average balance of Loans Held for Sale and an increased balance in its Excess   
Servicing Receivable. The Company securitizes its loans on a regular basis;     
however, it earns interest income on the loans it originates prior to such      
securitizations. During fiscal 1995  and 1996, the Company's average monthly    
balance of Loans Held for Sale, including non-strategic loans, was $19.4        
million and $430.8 million at par, respectively, an increase of $411.4          
million or 2120.6%.                                                             

  Servicing fee income increased from $1.0 million for fiscal 1995 to $4.0
million for fiscal 1996, a 282.0% increase. This increase was primarily the     
result of a significant increase in the average balance of the Serviced Loan    
Portfolio for the respective time periods: $238.6 million for fiscal 1995 to    
$1.3 billion for fiscal 1996, a $1.0 billion or a 431.1% increase. This         
increase in the Company's average Serviced Loan Portfolio was the result of     
the Company's increases in loan originations and securitizations during the     
respective time period.                                                         

  Other income increased from $873,077 for fiscal 1995 to $9.7 million for
fiscal 1996, an increase of $8.8 million or 1009.0%. Other income consists      
primarily of loan application fees that are funded by borrowers at closing.     

The following table sets forth information regarding the components of
the Company's expenses for fiscal 1996 and 1995:                                

                                          YEAR ENDED SEPTEMBER 30,
                                         -----------------------
                                         1995               1996
                                         ----               ----
                                        (IN THOUSANDS)
Salaries and employee benefits...............  $10,110             $36,402      
Interest expense.............................    2,660              16,892      

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Other expenses...............................    6,963              29,938      
Provision for possible credit losses.........    4,420              59,644      
                                         -------            --------
Total.......................................  $24,153            $142,876     
                                         -------            --------
                                         -------            --------

Salaries and employee benefits increased from $10.1 million for fiscal
1995 to $36.4 million for fiscal 1996, an increase of $26.3 million or          
260.0%.  The Company employed 484 persons as of September 30, 1995 and 949      
persons as of September 30, 1996, an increase of 96.1%. However, during the     
same time, total revenues increased from $33.9 million to $198.1 million, an    
increase of $164.2 million or 484.0%. Therefore, although the number of         
employees increased, the Company's employees were able to originate,            
securitize and service a disproportionately larger amount of loan volume,       
thereby generating disproportionately larger revenues per employee. The         
Company earned $70,034 of revenue per employee for fiscal 1995 compared to      
$208,701 of revenue per employee for fiscal 1996.                               

Interest expense increased from $2.7 million for fiscal 1995 to $16.9 
million for fiscal 1996, an increase of $14.2 million or 535.0%. Interest       
expense increased primarily because of the significant increases in             
borrowings under the Company's warehouse facilities incurred during fiscal      
1996 when compared to fiscal 1995, partially offset by more favorable           
interest rates. As of September 30, 1996, the Company's warehouse debt          
totaled $354.5 million and bore interest at a weighted average rate of          
approximately 6.6%. As of September 30, 1995, the Company's warehouse debt      
totaled $18.5 million and bore interest at a weighted average interest rate     
of approximately 9.25%.                                                         

Other operating expenses increased to accommodate the significantly   
expanded loan origination, loan servicing and loan securitization volumes       
during the respective fiscal years.  Other operating expenses consist           
primarily of Title I Program insurance premiums paid upon the origination of    
Title I Loans, professional fees, rents and the costs associated with           
marketing, underwriting, administration and servicing. The Company expects to   
incur significantly greater marketing expenses in fiscal 1997,  due to its      
strategy of increasing its brand name recognition, and its goal of generating   
significantly larger amounts of Direct Loans.                                   

  The provision for possible credit losses increased from $4.4 million for
fiscal 1995 to $59.6 million for fiscal 1996, an increase of $55.2 million or   
1,249.5%. The increase was primarily attributable to the 208.1% increase in     
volume of loans securitized in fiscal 1996 ($723.1 million) compared to         
fiscal 1995 ($234.8 million) and to the fact that a greater amount of           
securitized loans in fiscal 1996 were Conventional Loans, which require the     
Company to provide for a higher level of losses as compared to insured Title    
I Loans. To a lesser extent, the increase is the result of (i) an increase of   
$2.5 million because the default rate for a pool of Bulk Loans included in      
the 1995-2 securitization exceeded the estimates made at the time of the        
securitization, which adjustment was determined in conformity with the          
Company's current estimation methodology, (ii) an increase of $5.6 million      
taken for the increased amount of loans held for sale on the Company's          
balance sheet and (iii) the Company's change from a constant default rate to    
default curves commencing in the fourth quarter of fiscal 1996.                 

Income tax expense increased from $3.9 million for fiscal 1995, to $21.0
million for fiscal 1996, an increase of $17.1 million or 437.0%. The income     
tax expense was recorded at statutory rates.                                    

FISCAL YEAR ENDED SEPTEMBER 30, 1995                                            
VERSUS FISCAL YEAR ENDED SEPTEMBER 30, 1994                                 

The Company's total revenues increased to $33.9 million in fiscal 1995
from $29.8 million in fiscal 1994, an increase of $4.1 million or 13.7%.        
Excluding the effect of the pooling of interests with FIRSTPLUS West, the       
Company's total revenues increased to $29.0 million in fiscal 1995 from $2.4    
million in fiscal 1994, an increase of $26.5 million or 1,084%. The increase    
in the volume of strategic loans originated and purchased by the Company and    
the commencement of the Company's securitization program in fiscal 1995 were    
primarily responsible for this increase in revenues, although interest,         
servicing and other income also increased substantially during fiscal 1995.     
The Company's securitization transactions resulted in Gain on Sale, which is    
treated as a revenue item. Gain on Sale increased because the Company was       
able to sell a larger volume of loans more efficiently through securitization   
transactions than through whole-loan sales.                                     

Total expenses decreased from $24.7 million in fiscal 1994 to $24.2   
million in fiscal 1995, a decrease of $500,000 or 2.2%. Excluding the effect    
of the pooling of interests with FIRSTPLUS West, total expenses increased       
from $3.1 million to $18.2 million, an increase of $15.1 million or 488%;       
however, as a percentage of total revenues, total expenses decreased from       
126.5% in fiscal 1994 to 62.8% in fiscal 1995. The Company incurred an income   
tax expense of $3.9 million in fiscal                                           

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1995. As a result of the improved revenues, net income increased from $5.2      
million for fiscal 1994 to net income of $5.8 million for fiscal 1995.          

The following table sets forth information regarding the components of  
the Company's revenues for the years ended September 30, 1994 and 1995:         

                                          YEAR ENDED SEPTEMBER 30,
                                         -----------------------
                                         1994               1995
                                         ----               ----
                                        (IN THOUSANDS)

Gain on sale of loans, before sharing......... $27,671              $40,113     
Sharing arrangements..........................    --                (10,999)    
                                          -------             --------
Gain on sale of loans, net (1)...............  27,671               29,114    
Interest income...............................   1,845                2,860     
Servicing income..............................      72                1,049     
Other income..................................     252                  873     
                                          -------              -------
Total...................................... $29,840              $33,896  
                                          -------              -------
                                          -------              -------
-------------------                                                             
(1) Gain on sale of loans, net, is net of sharing arrangements and the          
premiums related to and costs of securitizations but not net of the     
Company's related provision for possible credit losses.                 

Gain on Sale of loans, net, increased to $29.1 million in fiscal 1995   
from $27.7 million in fiscal 1994, an increase of $1.4 million or 5.2%.         
Excluding the effect of the pooling of interests with FIRSTPLUS West, Gain on   
Sale of loans, net, increased to $25.1 million from $2.1 million, an increase   
of $23.0 million or 1,110%. The increase was the result of the Company          
beginning its securitization program in fiscal 1995 following the acquisition   
of FIRSTPLUS Financial. The Company completed four securitizations in fiscal    
1995 as compared to none in fiscal 1994.                                        

 The acquisition of FIRSTPLUS Financial allowed the Company to enter the
securitization market for Conventional Loans and Title I Loans by providing     
the Company with a Title I Loan portfolio, which the Company could continue     
to expand, and a servicing platform, which was necessary for the Company to     
pursue a successful securitization strategy. Each of the Company's four         
securitizations in fiscal 1995 included a majority of Title I Loans. The FHA    
insurance associated with these loans was passed through to the                 
securitization investors. The following table sets forth certain data with      
respect to each of the four securitizations completed in fiscal 1995:           

                                                        [Enlarge/Download Table]

                                                                             1994-1     1995-1     1995-2     1995-3(1)   
                                                                             ------     ------     ------     --------    
                                                                                       (DOLLARS IN THOUSANDS)             

                                                                                                                          

Loans sold.................................................................. $46,768    $17,331    $104,935    $73,250    
Overcollateralization.......................................................    --         --          --        1,750 (2)
                                                                             -------    -------    --------    -------    
Total loans securitized..................................................... $46,768    $17,331    $104,935    $75,000    
                                                                             -------    -------    --------    -------    
                                                                             -------    -------    --------    -------    
Gain on sale of loans, net.................................................  $ 1,973    $ 2,623    $ 10,767    $11,214    
Provision for possible credit losses.......................................      704        800       1,485      2,181    
                                                                             -------    -------    --------    -------    
Gain on sale of loans, after provision for possible credit                                                                
 losses..................................................................... $ 1,269    $ 1,823    $  9,282    $ 9,033    
                                                                             -------    -------    --------    -------    
                                                                             -------    -------    --------    -------    
Net gain after provision for credit losses as a percentage of                                                             
total loans securitized and sold (profit margin)...........................      2.7%      10.5%        8.8%      12.3%   
Weighted average maturity of certificates sold (yrs.)......................      3.2        5.1         5.0        4.9    
Weighted average FICO score................................................      636        620         667        634    
Percentage of total loans securitized:                                                                                    
   Conventional............................................................       10%       33.6%       7.9%      62.2%   
   Title I.................................................................       90%       66.4%      92.1%      37.8%   


(1)  Only $65.7 million of the $75.0 million securitization was funded during   
   the fiscal year ended September 30, 1995.  Therefore, $1.5 million of the
gain is recorded in the subsequent fiscal year.                       

(2)  Represents the portion of the initial overcollateralization requirement    
that is funded with loans.                                            

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The 1995-2 securitization included $8.3 million of Conventional Loans 
originated by the Company, $10.0 million of Title I Loans originated by the     
Company and $86.7 million of Title I Loans purchased by the Company in a bulk   
purchase from Citizens Thrift & Loan ("Citizens"). These Citizens loans         
represented 82.6% of the 1995-2 securitization. Conventional Loans originated   
by the Company therefore totaled 45% of the total loans originated by the       
Company and sold in the 1995-2 securitization (i.e., excluding bulk             
purchases).  The 1995-3 securitization included $40.9 million of Conventional   
Loans and $24.8 million of Title I Loans, or 62.2% and 37.8%, respectively,     
of the loans securitized in the fourth quarter of fiscal year 1995. The         
Company originated increasingly larger percentages of Conventional Loans with   
each succeeding fiscal 1995 quarter.                                            

  In June 1995, the Company entered into the Warehouse Lender Facility and
the Warehouse Lender Term Line. In exchange for entering into these             
facilities, the Warehouse Lender was entitled to purchase from the Company,     
at cost, a percentage of the Excess Servicing Receivable earned from loan       
securitizations. Additionally, the Excess Servicing Receivable generated from   
the 1994-1 securitization of $4.5 million was shared with Farm Bureau in the    
amount of $2.6 million, as it was the owner of a portion of the loans that      
were securitized in the transaction.                                            

For various reasons, including the existence of higher quality loan   
pools with longer average lives and higher coupon rates, as well as a           
declining interest rate environment, the Company's Gain on Sale before          
sharing arrangements as a percentage of loans securitized increased from 7.9%   
in the 1994-1 securitization to 17.3% in the 1995-3 securitization.             

Due to the Company's ability to access the securitization markets,    
whole-loan sales decreased during fiscal 1995. Whole-loan sale gains            
decreased to $478,000 in fiscal 1995 from $777,000 in fiscal 1994, a decrease   
of $300,000 or 39%.                                                             

The Company earned net discounts of $1.3 million in fiscal 1994, as   
compared with net loan premiums of $826,082 in fiscal 1995. This represented    
an average loan purchase price of 90% of par in fiscal 1994 and an average      
loan purchase price of 100.4% of par in fiscal 1995. During fiscal 1995, the    
Company significantly reduced its origination and purchases of loans to         
borrowers it classifies as "D" credits in order to furnish securitization       
investors with a higher grade investment. Additionally, in fiscal 1995, the     
Company expanded its longer term relationships with larger independent          
contractors and correspondents in order to increase its loan volume. Also,      
the Company experienced greater competitive pressures during fiscal 1995, as    
competitors became more familiar with the Title I product. The combination of   
these three factors required the Company to buy its loans at greater prices     
during fiscal 1995 as compared with fiscal 1994. The effect of this increase    
in prices has been reduced by the increased volume of loans purchased by the    
Company.                                                                        

Interest income increased from $1.8 million during fiscal 1994 to $2.9
million in fiscal 1995, an increase of $1.0 million or 55%. Excluding the       
effect of the pooling of interests with FIRSTPLUS West, interest income         
increased from $143,000 in fiscal 1994 to $2.3 million in fiscal 1995, an       
increase of $2.2 million or 1,543%; this increase was a result of the           
Combination and the Company's securitization program. Interest income is        
earned primarily from loans owned and accumulated by the Company for future     
securitizations. During fiscal 1994, the Company's average monthly loan         
portfolio was $19.2 million at par. During fiscal 1995, the Company's average   
monthly loan portfolio was $21.5 million at par. The significant increase in    
interest income is primarily due to the Company's increases in the average      
monthly loan portfolio.                                                         

Servicing fee income increased from $72,000 in fiscal 1994 to $1.0    
million in fiscal 1995. Servicing fees are approximately 1% of the              
unamortized loan balance and are paid monthly. The Company's Serviced Loan      
Portfolio at September 30, 1995 was $238.6 million; however, $83.1 million of   
this amount is subserviced by Citizens as the Company elected not to replace    
Citizens as the servicer when it acquired such loans from Citizens in           
September 1995. The servicing fees earned by the Company for the loans          
subserviced by Citizens are minimal. See "Business -- Servicing Operations --   
General."                                                                       

Other income increased from $252,000 in fiscal 1994 to $873,077 in    
fiscal 1995, an increase of $621,311 or 246.8%. Other income is proportional    
to the Company's loan origination volume from selected dealers. It consists     
primarily of loan application fees, which are funded by borrowers at closing.   

The following table sets forth information regarding the components of
the Company's expenses for the years ended September 30, 1994 and 1995:         

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                                          YEAR ENDED SEPTEMBER 30,
                                         -----------------------
                                         1994               1995
                                         ----               ----
                                        (IN THOUSANDS)

Salaries and employee benefits...............   $17,054            $10,110      
Interest expense.............................     1,041              2,660      
Other expenses...............................     6,465              6,963      
Provision for possible credit losses.........       125              4,420      
                                          -------            -------
Total.....................................   $24,685            $24,153   
                                          -------            -------
                                          -------            -------

Salaries and employee benefits decreased from $17.0 million in fiscal 
1994 to $10.1 million in fiscal 1995, a decrease of $6.9 million or 40.7%.      
Excluding the effect of the pooling of interests with FIRSTPLUS West,           
salaries and employee benefits increased from $1.6 million in fiscal 1994 to    
$6.2 million in fiscal 1995, an increase of $4.6 million or 295%. The           
increase was attributable to the Company hiring additional personnel in order   
to generate increased levels of loan originations and to manage the increased   
servicing activity.                                                             

Interest expense increased from $1.0 million in fiscal 1994 to $2.7   
million in fiscal 1995, an increase of $1.6 million or 155.7%. Excluding the    
effect of the pooling of interests with FIRSTPLUS West, interest expense        
increased from $198,000 in fiscal 1994 to $2.4 million in fiscal 1995, an       
increase of $2.2 million or 1,120%; interest expense increased because of the   
significant increases in warehouse debt and other debts incurred by the         
Company during fiscal 1995 as a result of higher levels of loan originations    
and purchases and the incurrence of securitization costs and increased          
infrastructure costs. Total debt outstanding at September 30, 1994 was $5.6     
million as compared with $36.6 million at September 30, 1995. As a percentage   
of total revenues, interest expense increased from 3.5% in fiscal 1994          
compared to 7.8% in fiscal 1995.                                                

Other operating expenses increased from $6.5 million in fiscal 1994 to
$7.0 million in fiscal 1995, or 7.7%. Excluding the effect of the pooling of    
interests with FIRSTPLUS West, other operating expenses increased from $1.2     
million in fiscal 1994 to $5.1 million in fiscal 1995, an increase of $3.9      
million or 328%. Other operating expenses increased in order to accommodate     
the significantly expanded loan origination, loan servicing and loan            
securitization volumes experienced by the Company during fiscal 1995. Other     
operating expenses consist primarily of Title I Program insurance premiums      
paid upon the origination of Title I Loans, professional fees, rents, and the   
costs associated with marketing, underwriting, administration and servicing.    

The provision for possible credit losses increased from $125,000 for  
fiscal 1994 to $4.4 million for fiscal 1995, an increase of $4.3 million. The   
provision increased primarily because no loans were securitized in fiscal       
1994, and the Company securitized and sold $234.8 million of loans during       
fiscal 1995. This provision for fiscal 1995 represented 1.9% of the loans       
securitized and sold during the period.                                         

   Income tax expense was $3.9 million during fiscal year 1995. The income
tax expense was recorded at statutory rates, but was reduced by net operating   
loss carryovers.                                                                

LIQUIDITY AND CAPITAL RESOURCES                                                 

The Company's operations require continued access to financing sources. 
The Company's primary operating cash requirements include the funding of (i)    
loan originations and purchases, (ii) reserve accounts, overcollateralization   
requirements, fees and expenses incurred in connection with its                 
securitization transactions, (iii) tax payments due on the Company's taxable    
net income, (iv) television, radio and direct mail advertising and other        
marketing, and (v) administrative and other operating expenses.                 

Adequate credit facilities and other sources of funding, which permit 
the Company to fund its operating cash requirements and to securitize or sell   
loans in the secondary market, are essential to the continuation of the         
Company's ability to originate and purchase loans. After utilizing available    
working capital, the Company borrows money to fund its loan originations and    
purchases, and repays these borrowings as the loans are repaid or sold. Upon    
the securitization or sale of loans and the subsequent repayment of the         
borrowings, the Company's working capital and warehouse lines of credit then    
become available to fund additional loan originations and purchases.            

The Warehouse Lender Facility is secured by loans originated or     
purchased by the Company and bears interest payable monthly at the rate of      
1.25% over the commercial paper rate of the Warehouse Lender's parent (6.6%     
per annum as of September 30, 1996).  This warehouse facility has a loan        
advance rate equal to the lesser of loan cost or 95% of the market              

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value as determined by the Warehouse Lender.  Advances under the Warehouse      
Lender Facility were and will continue to be incurred to originate and          
purchase loans. In February 1996, the Company increased the Warehouse Lender    
Facility from $100 million to $130 million, extended its expiration to March    
1997 and eliminated all sharing arrangements.                                   

  The Company also has the Warehouse Lender Term Line with the Warehouse
Lender, which is secured by the Company's servicing rights and Excess           
Servicing Receivable. This line of credit bears interest at the rate of 2.5%    
over the commercial paper rate of the Warehouse Lender's parent (7.8% per       
annum as of September 30, 1996), with advances of principal amortized over 60   
months.  The Warehouse Lender Term Line may be utilized for any working         
capital need; to date, however, the Company has used the Warehouse Lender       
Term Line primarily to finance the Company's share of premium costs, cost of    
issuance and initial reserve deposits for credit enhancement. The Company may   
only borrow up to 65% of the value of the Company's Excess Servicing            
Receivable (as calculated by the lender) under this facility. Portions of the   
Excess Servicing Receivable earned upon the successful execution of the         
1995-2 and 1995-3 securitization were shared between the Company and the        
Warehouse Lender as specified in the Warehouse Lender Term Line agreement. At   
September 30, 1996, the Company had borrowed $62.5 million under this           
facility and $7.5 million remained available for borrowing, subject to the      
Company completing future securitizations. In January 1996, the Warehouse       
Lender increased the Warehouse Lender Term Line from $20 million to $70         
million, eliminated the Warehouse Lender Term Line excess servicing             
arrangements effective with respect to the 1995-4 securitization (which was     
funded primarily in November and December 1995) and extended the expiration     
of the Warehouse Lender Term Line to March 1997. In order to facilitate the     
increased size of the line, and to secure other modifications favorable to      
the Company, Farm Bureau, BOCP II, Limited Liability Company ("BOCP II"),       
formerly Banc One Capital Partners II, Limited Partnership, Banc One Capital    
Partners V, Ltd. ("BOCP V"), Ronald M. Mankoff and the Phillips Partnership     
sold to the Warehouse Lender an aggregate of 250,000 shares of Common Stock     
owned by them for $3.50 per share and the Company issued to Warehouse Lender    
warrants to purchase 500,000 shares of Common Stock at an exercise price of     
$7.00 per share. See "Description of Capital Stock -- Registration Rights."     

The Company has the $110 million Bank One Facility, which is secured by 
loans originated or purchased by the Company and expires on October 16, 1997.   
Interest is payable monthly and accrues at 1.00% over the thirty-day federal    
funds rate. This warehouse facility has a loan advance rate generally equal     
to the lesser of 100% of the face amount of the loan or 97% of loan cost or     
market value of the loan as determined by Bank One. At September 30, 1996,      
approximately $50.9 million was outstanding under this line of credit. Upon     
the repayment of underlying loan principal payments or the sale or              
refinancing of the underlying loans, this facility is paid down. In January     
1996, the Company increased the Bank One Facility from $20 million to $40       
million, increased the advance rate from 95% to 97% and decreased the           
interest rate on the facility from prime plus 1% to the federal funds rate      
plus 1.25%. In June 1996, the Company increased the Bank One Facility from      
$40 million to $60 million.  In October 1996, the Company increased the Bank    
One Facility from $60 million to $110 million.                                  

 In May 1996, the Company entered into the Bear Stearns Facility. The term
of the financing matures and is renewed on a daily basis. The interest rate     
on the amount financed is computed on a daily basis and is paid monthly in      
arrears. The agreement is not a committed facility; therefore, the Company      
could incur a significant repurchase obligation in the event the lender is      
unable or unwilling to continue with the repurchase agreement. In August        
1996, the Company increased the Bear Stearns Facility from $200 million to      
$300 million.  In October 1996, the Company increased the Bear Stearns          
Facility from $300 million to $500 million.                                     

 In November 1996, the Company entered into the $75 million Bear Stearns
Term Line.  The Bear Stearns Term Line may be utilized by the Company with      
respect to Excess Servicing Receivable generated by securitization in which     
Bear Stearns is the lead Manager.                                               

 In December 1996, the Company entered into the $100 million PaineWebber
Term Line and the $400 million PaineWebber Facility.  The PaineWebber Term      
Line bears interest at LIBOR plus 2.1% and the PaineWebber Facility bears       
interest at LIBOR plus 1.00%.                                                   

In August 1996, the issued the Convertible Notes in the aggregate     
principal amount of $100 million.  The Notes mature in August 2003, Company     
and bear interest at 7.25% and are convertible into Common Stock at a           
conversion price of $16.30 per share.  On December 17, 1996, a holder agreed    
to convert $17.1 million principal amount of  Convertible Notes into            
1,047,852 shares of Common Stock, plus approximately $402,000, representing     
accrued interest from August 20, 1996, and additional shares of Common Stock    
as an incentive for the early conversion of the Convertible Notes.              

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The Company also has two other warehouse facilities with other lenders  
aggregating $70 million, which are secured by Loans originated or purchased     
by the Company.                                                                 

As of September 30, 1996, the Company owed an aggregate of $7.0 million 
principal amount of Subordinated Notes to BOCP II, BOCPV and Farm Bureau. The   
Subordinated Notes are secured by certain assets of the Company, but are        
subordinated to the rights of the warehouse lenders. Interest is payable        
quarterly, and the Subordinated Notes may be prepaid with written consent of    
the warehouse lenders without penalty.                                          

 At September 30, 1996, the Company also had certain other notes payable
totaling approximately $2.0 million with maturities in September 1998. In       
addition, at September 30, 1996, FIRSTPLUS East had $9.2 million outstanding    
under its $22.5 million warehouse facilities, primarily with Leader Federal     
Bank of Bartlet, Tennessee, and FIRSTPLUS West had $33.9 million outstanding    
under its $40 million warehouse facilities, primarily with Bank United of       
Texas.                                                                          

As indicated above, the Company's ability to continue to originate and
purchase loans is dependent, in large part, upon its ability to securitize or   
sell the loans in the secondary market in order to generate cash proceeds for   
new originations and purchases. The value of and market for the Company's       
loans are dependent upon a number of factors, including general economic        
conditions, interest rates and governmental regulations. Adverse changes in     
such factors may affect the Company's ability to purchase, securitize or sell   
loans for acceptable prices within a reasonable period of time. A prolonged,    
substantial reduction in the size of the secondary market for loans of the      
type originated or purchased by the Company may adversely affect the            
Company's ability to securitize or sell loans in the secondary market, with a   
consequent adverse impact on the Company's profitability and ability to         
continue to originate and purchase loans.                                       

 As a result of the Company's increasing volume of loan originations and
purchases, and its expanding securitization activities, the Company has         
operated, and expects to continue to operate, on a negative operating cash      
flow basis, which is expected to increase as the volume of the Company's loan   
purchases and originations increase and its securitization program grows. The   
Company's operations provided $5.0 million and $3.7 million of cash in fiscal   
1993 and fiscal 1994, respectively, and used $25.7 million and $496.7 million   
of cash in fiscal 1995 and fiscal 1996, respectively. The increase in the use   
of cash in operations is primarily related to the cost of an enlarged           
infrastructure, employee base, and the costs that accompany the Company's       
securitization strategy (which increases the Gain on Sale of loans but          
reduces the amount of cash received on the sale of loans as compared to         
whole-loan sales). In June 1996, the Commission declared effective the          
Company's shelf registration statement covering up to $1 billion dollars of     
asset-backed securities. The Company's first drawdown under this registration   
statement was the 1996-2 securitization. The Company completed total            
securitizations in the amount of $234.8 million and $723.1 million for fiscal   
1995 and the fiscal year ended September 30, 1996, respectively. In             
connection with securitizations, the Company is required to provide credit      
enhancements in the form of reserve accounts and/or overcollateralizations.     
The accumulated amounts of such cash reserves are reflected on the Company's    
balance sheet as "receivable from trusts" and equaled $26.3  million as of      
September 30, 1996. These accounts cannot be used by the Company for            
operating purposes. The Company's financings and investing activities used      
cash in the amount of $2.7 million in fiscal 1994, and generated cash in the    
amount $25.9 million and $517.3 million in fiscal 1995 and 1996,                
respectively. Cash from financing and investing activities increased            
primarily due to additional borrowings related to the Subordinated Notes and    
the various warehouse and term line facilities which have been used to fund     
loan originations, working capital and securitization costs.                    

In addition, the Company has begun to implement a strategy of         
maintaining a significant quantity of loans on its balance sheet, thus          
increasing the length of time that loans are held for sale and materially       
increasing its interest rate risk.  Because the Company's present loan          
facilities bear interest at variable rates, the Company has a need for medium   
to long term, fixed-rate financing.  If the Company is unable to obtain such    
financing, it could have a material adverse effect on the Company's results     
of operations and financial condition.                                          

 The increased use of securitization transactions as a funding source by
the Company has resulted in a significant increase in the amount of Gain on     
Sale (from securitizations) recognized by the Company. During fiscal 1996,      
the Company recognized Gain on Sale (from securitizations) in the amount of     
approximately $158.6 million compared to $25.6 for fiscal 1995. This Gain on    
Sale has a negative impact on the cash flow of the Company since the Company    
may be required to pay state and federal income taxes and must currently pay    
securitization costs, including overcollateralization costs, in the period      
the income is recognized, although the Company does not receive the cash        
representing the gain until later periods as the related loans are repaid or    
otherwise collected. Beginning with 1996-3, the Company began utilizing an      
owner trust securitization structure, which allows the Company to defer an      
increased percentage of the book gain for tax purposes and                      

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therefore the requirement to pay such federal income taxes on a current         
basis.  The Company has funded these cash requirements primarily through its    
Warehouse Lender Term Line. The Company had cash of approximately $23.2         
million at September 30, 1996.                                                  

   Based on the Company's anticipated rate of growth, the Company believes
that it will need to arrange additional warehouse lines of credit or other      
financing sources within the next 90 days. The Company is currently             
negotiating for increased and/or additional warehouse facilities. The           
Company's existing warehouse lines of credit restrict its ability to incur      
other indebtedness. The Company has no commitments for such increased and/or    
additional financings, and there can be no assurance that the Company will be   
successful in consummating any such financing transactions in the future or     
on terms the Company would consider to be favorable. In such event, the         
Company's growth and operations could be curtailed, which could have a          
material adverse effect on the Company's results of operations and financial    
condition. See "Risk Factors -- Liquidity and Capital Resources."               

IMPACT OF INFLATION                                                             

Increases in the inflation rate generally result in increased interest
rates. Since the Company borrows funds at a variable rate, increased interest   
rates will increase the borrowing costs of the Company. Inflation will also     
increase the operating costs of the Company. The Company may not be able to     
pass on the effects of inflation and accompanying higher interest rates to      
its borrowers due to usury or other regulatory restrictions or competitive      
pressures.                                                                      

SEASONALITY                                                                     

 The Company is affected by consumer demand for home improvements, which
is partially influenced by regional trends, economic conditions and personal    
preferences. The Company's business is generally subject to seasonal trends,    
with home improvements generally peaking during the spring and summer seasons   
and declining to lower levels in the fall and winter months. Delinquencies on   
loan payments typically increase in November and December of each calendar      
year.                                                                           

RECENT ACCOUNTING PRONOUNCEMENTS                                                

In June 1996, the FASB issued FASB 125, "Accounting for Transfer and  
Servicing of Financial Assets and Extinguishment of Liabilities".   FASB 125    
addresses the accounting for all types of securitization transactions,          
securities lending and repurchase agreements, collateralized borrowing          
arrangements and other transactions involving the transfer of financial         
assets.  FASB 125 distinguishes transfers of financial assets that are sales    
from transfers that are secured borrowings.  FASB 125 is generally effective    
for transactions that occur after December 31, 1996, and it is to be applied    
prospectively.  FASB 125 will require the Company to allocate the total cost    
of mortgage loans sold to the mortgage loans sold (servicing released),         
retained certificates and servicing rights based on their relative fair values. 
The Company will be required to assess the retained certificates and servicing  
rights for impairment based upon the fair value of those rights.  The           
pronouncement also will require the Company to provide additional disclosure    
about the retained certificates in its securitizations and to account for       
these assets at fair value in accordance with FASB 115.  The Company will       
apply the new rules prospectively beginning in the first calendar quarter of    
1997 and, based on current circumstances, does not believe the application of   
the new rules will have a material impact on the Company's financial            
statements.  There can be no assurance, however, that the implementation by     
the Company of FASB 125 will not reduce the Company s Gain on Sale of Loans     
in the future or otherwise adversely affect the Company's results of            
operations or financial condition.                                              

FORWARD LOOKING STATEMENTS                                                      

Certain information contained in this Form 10-K constitutes           
"Forward-Looking Statements" within the meaning of Section 27A of the           
Securities Act of 1933, as amended, and Section 21E of the Securities           
Exchange Act of 1934, as amended, which can be identified by the use of         
forward-looking terminology such as "may," "will," "expect," " anticipate,"     
"estimate" or "continue" or the negative thereof or other variations thereon    
or comparable terminology.  The statements in "Risk Factors" contained in the   
Company's current report on Form 8-K, filed with the Securities and Exchange    
Commission on December 19, 1996, constitute cautionary statements identifying   
important factors, including certain risks and uncertainties, with respect to   
such forward-looking statements that could cause actual results to differ       
materially from those reflected in such forward-looking statements.             

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.                            

The Financial Statements and Supplementary Data are set forth herein  
commencing on page F-1 of this Report.                                          

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND         
FINANCIAL DISCLOSURE.                                           

Not Applicable.                                                       

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    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.                    

  The information required in response to this Item is incorporated herein
by reference to the Company's proxy statement to be filed with the Securities   
and Exchange Commission pursuant to Regulation 14A, not later than 120 days     
after the end of the fiscal year covered by this report.                        

ITEM 11. EXECUTIVE COMPENSATION.                                                

  The information required in response to this Item is incorporated herein
by reference to the Company's proxy statement to be filed with the Securities   
and Exchange Commission pursuant to Regulation 14A, not later than 120 days     
after the end of the fiscal year covered by this report.                        

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.        

  The information required in response to this Item is incorporated herein
by reference to the Company's proxy statement to be filed with the Securities   
and Exchange Commission pursuant to Regulation 14A, not later than 120 days     
after the end of the fiscal year covered by this report.                        

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.                        

  The information required in response to this Item is incorporated herein
by reference to the Company's proxy statement to be filed with the Securities   
and Exchange Commission pursuant to Regulation 14A, not later than 120 days     
after the end of the fiscal year covered by this report.                        

PART IV 

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.       

(a) Documents filed as part of Report.                                        

1. FINANCIAL STATEMENTS:                                              

The Financial Statements are listed in the index to Consolidated
Financial Statements on page F-1 of this Report.                                

2. FINANCIAL STATEMENT SCHEDULES:                                     

Not applicable                                                  

3. EXHIBITS:                                                          

The exhibits are listed on the Exhibit Index attached hereto.   

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      INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                          Page
                                                                          ------
RAC FINANCIAL GROUP, INC. AND SUBSIDIARIES                                      

 Report of Independent Auditors........................................F-2

 Consolidated Balance Sheets as of September 30, 1995 and 1996.........F-3

Consolidated Statements of Income for the Years Ended                   
 September 30, 1994, 1995 and 1996.....................................F-4

Consolidated Statements of Stockholders' Equity for the                 
 Years Ended September 30, 1994, 1995 and 1996.........................F-5

Consolidated Statements of Cash Flows for the Years Ended               
 September 30, 1994, 1995 and 1996.....................................F-6

 Notes to Consolidated Financial Statements............................F-7

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      REPORT OF INDEPENDENT AUDITORS

Board of Directors                                                              
RAC Financial Group, Inc.                                                       

We have audited the accompanying consolidated balance sheets of RAC     
Financial Group, Inc. and subsidiaries as of September 30, 1996 and 1995, and   
the related consolidated statements of income, stockholders' equity, and cash   
flows for each of the three years in the period ended September 30, 1996.  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 consolidated financial position of RAC    
Financial Group, Inc. and subsidiaries at September 30, 1996 and 1995, and      
the consolidated results of their operations and their cash flows for each of   
the three years in the period ended September 30, 1996, in conformity with      
generally accepted accounting principles.                                       

         /s/ Ernst & Young LLP

Dallas, Texas                                                                   
October 25, 1996                                                                

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      RAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

     CONSOLIDATED BALANCE SHEETS

                                                        [Enlarge/Download Table]

                        ASSETS (NOTE 7)                                                  
                                                                      SEPTEMBER 30,      
                                                              ---------------------------
                                                                  1995           1996    
                                                             ------------   ------------ 
                                                                                         
Cash and cash equivalents. . . . . . . . . . . . . . . . .   $  2,485,511   $ 23,167,198 
Loans held for sale, net (Notes 3 and 4) . . . . . . . . .     19,435,177    430,811,705 
Excess servicing receivable (Note 5) . . . . . . . . . . .     29,743,987    187,229,584 
Subordinated certificates held for sale (Note 5) . . . . .      1,312,500     16,527,471 
Receivable from trusts . . . . . . . . . . . . . . . . . .      2,571,668     32,105,423 
Other assets (Note 6). . . . . . . . . . . . . . . . . . .      5,791,665     20,542,375 
                                                             ------------   ------------ 
Total assets . . . . . . . . . . . . . . . . . . . . . . .   $ 61,340,508   $710,383,756 
                                                             ------------   ------------ 
                                                             ------------   ------------ 

                 LIABILITIES AND STOCKHOLDERS' EQUITY                                    
Accounts payable and accrued liabilities . . . . . . . . .    $ 6,936,703  $  19,669,370 
Warehouse financing facilities (Note 7). . . . . . . . . .     18,529,557    354,480,790 
Warehouse Lender term line of credit (Note 7). . . . . . .      9,248,872     57,464,872 
Notes payable (Note 7) . . . . . . . . . . . . . . . . . .        871,906      1,966,818 
Subordinated notes payable (Note 7). . . . . . . . . . . .      8,002,500      7,002,500 
Convertible subordinated notes . . . . . . . . . . . . . .             --    100,000,000 
Allowance for possible credit losses on loans                                            
   sold (Note 4)   . . . . . . . . . . . . . . . . . . . .      3,906,506     54,256,800 
Deferred tax liabilities, net (Note 8) . . . . . . . . . .      2,110,593     20,973,879 
                                                             ------------   ------------ 
     Total liabilities . . . . . . . . . . . . . . . . . .     49,606,637    615,815,029 
                                                             ------------   ------------ 
Contingencies and Commitments (Note 14)                                                  
Stockholders' equity:                                                                    
  Preferred stock Series A, non-voting, $1.00 par value,                                 
    8% cumulative dividend (Note 9):                                                     
    Authorized -- 300,000                                                                
    Issued and outstanding shares -- 100,000 -- 1995;                                    
    none -- 1996 . . . . . . . . . . . . . . . . . . . . .        100,000             -- 
  Preferred stock Series B, non-voting, $1.00 par value,                                 
    8% cumulative dividend (Note 9):                                                     
    Authorized, issued, and outstanding shares -- 2,300,000                              
      - 1995; none - 1996. . . . . . . . . . . . . . . . .      2,300,000             -- 
  Common stock, $0.01 par value (Note 9):                                                
    Authorized shares -- 100,000,000                                                     
    Issued and outstanding shares -- 15,000,000 -- 1995;                                 
    22,499,140 -- 1996 . . . . . . . . . . . . . . . . . .        150,000        224,991 
  Non-voting common stock, $0.01 par value (Note 9):                                     
    Authorized shares -- 25,000,000                                                      
    Issued and outstanding shares -- 2,948,804 -- 1995;                                  
    4,440,676 -- 1996. . . . . . . . . . . . . . . . . . .         29,488         44,407 
  Additional capital . . . . . . . . . . . . . . . . . . .      3,537,184     54,695,558 
  Retained earnings. . . . . . . . . . . . . . . . . . . .      5,617,199     39,603,771 
                                                             ------------   ------------ 
    Total stockholders' equity . . . . . . . . . . . . . .     11,733,871     94,568,727 
                                                             ------------   ------------ 
    Total liabilities and stockholders' equity . . . . . .    $61,340,508   $710,383,756 
                                                             ------------   ------------ 
                                                             ------------   ------------ 


     See accompanying notes.

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      RAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

     CONSOLIDATED STATEMENTS OF INCOME

                                                        [Enlarge/Download Table]

                                                         YEAR ENDED SEPTEMBER 30,       
                                              ------------------------------------------
                                                  1994           1995           1996    
                                             ------------   ------------  ------------- 
                                                                                        
Revenues:                                                                               
  Gains on sales of loans, net . . . . . . .  $27,671,211    $29,113,701   $158,639,463 
  Interest income. . . . . . . . . . . . . .    1,845,001      2,860,372     25,726,629 
  Servicing income . . . . . . . . . . . . .       71,982      1,049,188      4,007,544 
  Other income . . . . . . . . . . . . . . .      251,766        873,077      9,683,463 
                                             ------------   ------------  ------------- 
     Total revenues. . . . . . . . . . . . .   29,839,960     33,896,338    198,057,099 
Expenses:                                                                               
  Salaries and employee benefits . . . . . .   17,054,236     10,110,448     36,401,629 
  Interest . . . . . . . . . . . . . . . . .    1,040,552      2,660,407     16,891,544 
  Other operating. . . . . . . . . . . . . .    6,464,674      6,962,933     29,938,395 
  Provision for possible credit losses . . .      125,000      4,419,736     59,644,195 
                                             ------------   ------------  ------------- 
     Total expenses. . . . . . . . . . . . .   24,684,462     24,153,524    142,875,763 
                                             ------------   ------------  ------------- 
Income before income taxes . . . . . . . . .    5,155,498      9,742,814     55,181,336 
Provision for income taxes . . . . . . . . .           --     (3,903,304)   (20,968,908)
                                             ------------   ------------  ------------- 
Net income . . . . . . . . . . . . . . . . .   $5,155,498     $5,839,510    $34,212,428 
                                             ------------   ------------  ------------- 
                                             ------------   ------------  ------------- 

Weighted average common shares and                                                      
common equivalent shares outstanding . . . .   16,276,874     20,296,874     25,358,162 
                                             ------------   ------------  ------------- 
                                             ------------   ------------  ------------- 
Primary net income per share of                                                         
common stock . . . . . . . . . . . . . . . .         $.31           $.28          $1.35 
                                             ------------   ------------  ------------- 
                                             ------------   ------------  ------------- 
Weighted average fully diluted common                                                   
and common equivalent shares outstanding . .   16,276,874     20,296,874     26,353,526 
                                             ------------   ------------  ------------- 
                                             ------------   ------------  ------------- 
Fully diluted net income per share of                                                   
common stock . . . . . . . . . . . . . . . .        $0.31          $0.28          $1.31 
                                             ------------   ------------  ------------- 
                                             ------------   ------------  ------------- 


     See accompanying notes.

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      RAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
     CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                                                        [Enlarge/Download Table]

                                                                             PREFERRED STOCK                                       
                                                           -----------------------------------------------                         
                                                                    SERIES "A"              SERIES "B"                             
                                                           ------------------------  ---------------------                         
                                                                SHARES    AMOUNT     SHARES      AMOUNT                            
                                                               ------     ------     ------      ------                            
                                                                                                                                   
Balance at September 30, 1993. . . . . . . . . . . . .        300,000    $300,000                                                  
Preferred stock dividends. . . . . . . . . . . . . . .                                                                             
Issuance of common stock . . . . . . . . . . . . . . .                                                                             
Cancellation of loans to officer assumed by                                                                                        
    stockholders . . . . . . . . . . . . . . . . . . .                                                                             
Distributions (Note 1) . . . . . . . . . . . . . . . .                                                                             
Net (loss) income. . . . . . . . . . . . . . . . . . .                                                                             
                                                              -------     -------   ---------  ----------                          
Balance at September 30, 1994. . . . . . . . . . . . .        300,000     300,000                                                  
Investment in subsidiary -- RNFC . . . . . . . . . . .                              2,300,000  $2,300,000                          
Issuance of common stock and exercise of                                                                                           
     warrants. . . . . . . . . . . . . . . . . . . . .                                                                             
Redemption of preferred stock. . . . . . . . . . . . .       (200,000)   (200,000)                                                 
Preferred stock dividends. . . . . . . . . . . . . . .                                                                             
Distributions (Note 1) . . . . . . . . . . . . . . . .                                                                             
Net (loss) income. . . . . . . . . . . . . . . . . . .                                                                             
                                                              -------     -------   ---------  ----------                          
Balance at September 30, 1995. . . . . . . . . . . . .        100,000     100,000   2,300,000   2,300,000                          
Issuance of common stock and exercise of stock                                                                                     
    warrants . . . . . . . . . . . . . . . . . . . . .                                                                             
Transfer of non-                                                                                                                   
    voting to voting . . . . . . . . . . . . . . . . .                                                                             
Redemption of preferred stock. . . . . . . . . . . . .       (100,000)   (100,000) (2,300,000) (2,300,000                          
Preferred stock dividends. . . . . . . . . . . . . . .                                                                             
Net income (loss). . . . . . . . . . . . . . . . . . .                                                                             
Other. . . . . . . . . . . . . . . . . . . . . . . . .                                                                             
                                                              -------     -------   ---------  ----------                          
Balance at September 30, 1996. . . . . . . . . . . . .           -        $  -          -      $    -                              
                                                              -------     -------   ---------  ----------                          
                                                              -------     -------   ---------  ----------                          

                                                                 COMMON STOCK                                                      
                                                ---------------------------------------------                                      
                                                           VOTING             NON-VOTING                      RETAINED             
                                                ----------------------  ---------------------  ADDITIONAL     EARNINGS             
                                                   SHARES     AMOUNT      SHARES    AMOUNT     CAPITAL       (DEFICIT)     TOTAL   
                                                   ------     ------      ------    ------    ----------    ---------   ---------- 
                                                                                                                                   
Balance at September 30, 1993. . . . . . . . .   10,300,000  $103,000                         $4,537,920    $(295,377)  $4,645,543 
Preferred stock dividends. . . . . . . . . . .                                                                (70,500)     (70,500)
Issuance of common stock . . . . . . . . . . .      680,000     6,800                          1,656,448                 1,663,248 
Cancellation of loans to officer assumed by                                                                                        
    stockholders . . . . . . . . . . . . . . .                                                               (200,000)    (200,000)
Distributions (Note 1) . . . . . . . . . . . .                                                (6,872,928)               (6,872,928)
Net (loss) income. . . . . . . . . . . . . . .                                                 5,802,860     (647,362)   5,155,498 
                                                 ----------  --------   ---------   -------  -----------  -----------  ----------- 
Balance at September 30, 1994. . . . . . . . .   10,980,000   109,800                          5,124,300   (1,213,239)   4,320,861 
Investment in subsidiary -- RNFC . . . . . . .    4,020,000    40,200                          1,127,139                 3,467,339 
Issuance of common stock and exercise of                                                                                           
     warrants. . . . . . . . . . . . . . . . .                          2,948,804   $29,488      470,512                   500,000 
Redemption of preferred stock. . . . . . . . .                                                                            (200,000)
Preferred stock dividends. . . . . . . . . . .                                                                (26,864)     (26,864)
Distributions (Note 1) . . . . . . . . . . . .                                                (2,166,975)               (2,166,975)
Net (loss) income. . . . . . . . . . . . . . .                                                (1,017,792)   6,857,302    5,839,510 
                                                 ----------  --------   ---------   -------  -----------  -----------  ----------- 
Balance at September 30, 1995. . . . . . . . .   15,000,000   150,000   2,948,804   $29,488    3,537,184    5,617,199   11,733,871 
Issuance of common stock and exercise of stock                                                                                     
    warrants . . . . . . . . . . . . . . . . .    6,590,000    65,900   2,401,012    24,010   51,121,044                51,210,954 
Transfer of non-                                                                                                                   
    voting to voting . . . . . . . . . . . . .      909,140     9,091    (909,140)   (9,091)                                 --    
Redemption of preferred stock. . . . . . . . .                                                                          (2,400,000)
Preferred stock dividends. . . . . . . . . . .                                                               (264,842)    (264,842)
Net income (loss). . . . . . . . . . . . . . .                                                   (38,986)  34,251,414   34,212,428 
Other. . . . . . . . . . . . . . . . . . . . .                                                    76,316                    76,316 
Balance at September 30, 1996. . . . . . . . .   22,499,140  $224,991   4,440,676   $44,407  $54,695,558  $39,603,771  $94,568,727 
                                                 ----------  --------   ---------   -------  -----------  -----------  ----------- 
                                                 ----------  --------   ---------   -------  -----------  -----------  ----------- 


     See accompanying notes.

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      RAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

     CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                        [Enlarge/Download Table]

                                                                         YEAR ENDED SEPTEMBER 30,               
                                                           -----------------------------------------------------
                                                                1994                1995               1996     
                                                                ----                ----               ----     
                                                                                                                
OPERATING ACTIVITIES:                                                                                           
Net income . . . . . . . . . . . . . . . . . . . . . . . .   $5,155,498          $5,839,510         $34,212,428 
Adjustments to reconcile net  income to net cash provided                                                       
by (used in) operating activities:                                                                              
 Provision for possible credit losses. . . . . . . . . . .      264,429           4,387,186          59,644,195 
 Depreciation and amortization . . . . . . . . . . . . . .      359,629             419,801             663,294 
 Gain on sales of loans. . . . . . . . . . . . . . . . . .   (2,071,620)        (34,009,029)       (170,679,358)
 Changes in operating assets and liabilities:                                                                   
    Excess servicing receivable amortization . . . . . . .           --             487,618          13,391,590 
    Loans originated or acquired . . . . . . . . . . . . .     (812,643)       (208,709,884)     (1,662,943,324)
    Principal collected and proceeds from sale of loans. .           --         203,840,116       1,257,526,186 
    Accrued interest receivable. . . . . . . . . . . . . .           --             457,945          (3,030,595)
    Excess servicing receivable, net . . . . . . . . . . .           --           1,364,909            (197,829)
    Receivable from trusts . . . . . . . . . . . . . . . .           --          (2,417,202)        (33,323,944)
    Subordinated certificates held for sale. . . . . . . .           --          (1,312,500)        (15,214,971)
    Other assets . . . . . . . . . . . . . . . . . . . . .     (639,279)         (1,048,753)         (7,845,077)
    Accounts payable and accrued expenses. . . . . . . . .      979,293           2,381,646          12,303,330 
    Other liabilities. . . . . . . . . . . . . . . . . . .      416,532             483,988                  -- 

    Deferred tax liability . . . . . . . . . . . . . . . .           --           2,110,593          18,841,605 
                                                             ----------         -----------      -------------- 
NET CASH PROVIDED BY (USED IN) OPERATING                                                                        
 ACTIVITIES. . . . . . . . . . . . . . . . . . . . . . . .    3,651,839         (25,724,056)       (496,652,470)
INVESTING ACTIVITIES:                                                                                           
Cash from acquisitions . . . . . . . . . . . . . . . . . .           --             624,571             251,894 
Acquisition costs of RNFC. . . . . . . . . . . . . . . . .           --            (530,562)                 -- 
Advances to stockholders . . . . . . . . . . . . . . . . .     (776,168)            552,932                  -- 
Marketable securities. . . . . . . . . . . . . . . . . . .      628,735                  --                  -- 
Purchases of equipment and leasehold improvements. . . . .     (635,366)           (761,132)         (4,447,279)
                                                             ----------         -----------      -------------- 
NET CASH USED IN INVESTING ACTIVITIES. . . . . . . . . . .     (782,799)           (114,191)         (4,195,385)
FINANCING ACTIVITIES:                                                                                           
Borrowings on warehouse financing facilities, net. . . . .      157,260          10,436,052         324,891,823 
Borrowings on term line of credit. . . . . . . . . . . . .    2,888,872           9,248,872          48,216,000 
Borrowings on notes payable, net . . . . . . . . . . . . .      350,000             221,906             875,607 
Proceeds from subordinated notes payable to affiliates . .           --           8,002,500                  -- 
Proceeds from convertible subordinated notes . . . . . . .           --                  --         100,000,000 
Repayments on subordinated notes payable to affiliates . .           --                  --          (1,000,000)
Redemptions of preferred stock . . . . . . . . . . . . . .           --            (200,000)         (2,400,000)
Common stock issued. . . . . . . . . . . . . . . . . . . .    1,663,248             500,000          51,210,954 
Distributions. . . . . . . . . . . . . . . . . . . . . . .   (6,872,928)         (2,166,975)                 -- 
Preferred stock dividends. . . . . . . . . . . . . . . . .      (70,500)            (26,864)           (264,842)
                                                             ----------         -----------      -------------- 
NET CASH PROVIDED BY (USED IN) FINANCING                                                                        
 ACTIVITIES. . . . . . . . . . . . . . . . . . . . . . . .   (1,884,048)         26,015,491         521,529,542 
                                                             ----------         -----------      -------------- 
INCREASE IN CASH . . . . . . . . . . . . . . . . . . . . .      984,992             177,244          20,681,687 
Cash and cash equivalents at beginning of year . . . . . .    1,323,275           2,308,267           2,485,511 
                                                             ----------         -----------      -------------- 
Cash and cash equivalents at end of year . . . . . . . . .   $2,308,267          $2,485,511         $23,167,198 
                                                             ----------         -----------      -------------- 
                                                             ----------         -----------      -------------- 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW                                                                            
 INFORMATION:                                                                                                   
Interest paid during the year. . . . . . . . . . . . . . .   $1,040,552          $1,997,129         $16,891,543 
                                                             ----------         -----------      -------------- 
                                                             ----------         -----------      -------------- 
Non-cash investing and financing activities:                                                                    
Acquisition of assets, net . . . . . . . . . . . . . . . .           --          $2,312,206                  -- 

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


     See accompanying notes.

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      RAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      SEPTEMBER 30, 1996

1.  DESCRIPTION OF BUSINESS AND ACQUISITIONS                                    

RAC Financial Group, Inc., a Nevada corporation (RAC or the Company),   
through its four subsidiaries, FIRSTPLUS Financial, Inc. (FIRSTPLUS Financial), 
formerly known as Remodelers National Funding Corp., a Texas corporation, SFA:  
State Financial Acceptance Corp., a Texas corporation (SFAC), FIRSTPLUS         
Financial West, Inc., formerly known as Mortgage Plus Incorporated, a Colorado  
corporation, and First Security Mortgage Corporation (FIRSTPLUS East), a South  
Carolina corporation, is a specialized consumer finance company that originates,
services, and sells Conventional and Title I home improvement, debt             
consolidation and combination home improvement/ debt consolidation loans. The   
Company originates loans through wholesale purchase, contractor referrals and   
direct to consumer transactions. The Company historically sold substantially all
of the loans it originated or purchased through asset-backed securitizations to 
investors in the form of pass-through certificates and retains the loan         
servicing rights.                                                               

SFAC is a conventional home improvement lender. In prior years, SFAC    
purchased property improvement loans at a discount from contractors and sold    
packages of these loans at a premium. On October 4, 1994, RAC was formed to     
combine the operations of SFAC and FIRSTPLUS Financial, an approved Title I Loan
originator and servicer.  The Company entered into an agreement with the        
shareholders of SFAC and with Farm Bureau Life Insurance Company ("Farm         
Bureau"), which at the time was an affiliate of a principal shareholder of      
FIRSTPLUS Financial, whereby the shareholders of SFAC exchanged their common and
preferred stock of SFAC and FIRSTPLUS Financial exchanged its common stock of   
FIRSTPLUS Financial for common and preferred stock of the Company.  FIRSTPLUS   
Financial and SFAC became wholly owned subsidiaries of the Company (the         
Combination).                                                                   

   In May 1996, 1,600,000 common shares of the Company were issued in exchange
for all of the outstanding common stock of Mortgage Plus Incorporated (MPI), in 
a transaction accounted for as a pooling of interests. MPI was subsequently     
renamed FIRSTPLUS Financial West, Inc. (FIRSTPLUS West). As such, the           
consolidated financial information of the Company has been restated to include  
the accounts of FIRSTPLUS West for all periods presented. As FIRSTPLUS West was 
a Subchapter S corporation prior to the pooling with RAC, its retained earnings 
activity (net income (loss) and distributions) on a separate company basis has  
been reclassified to additional capital. Prior to the acquisition, FIRSTPLUS    
West operated on a fiscal year end of April 30. FIRSTPLUS West's prior years    
financial statements have been combined with the Company's financial statements 
without recasting the periods presented, except for the financial information as
of and for the fiscal years ended September 30, 1996 and 1995. Such combination 
results in operations for FIRSTPLUS West for the period from July 1, 1995       
through September 30, 1995 being excluded from the presentation. Net income for 
FIRSTPLUS West for this period was approximately $58,000. Separate results of   
the Company and FIRSTPLUS West for the periods presented are as follows (dollars
in thousands):                                                                  

                                                        [Enlarge/Download Table]

                                                              YEAR ENDED SEPTEMBER 30,   
                                                        ---------------------------------
                                                         1994        1995        1996    
                                                       --------    --------   ---------  
                                                                                         
Revenue:                                                                                 
   RAC . . . . . . . . . . . . . . . . . . . . . . . . $  2,446    $ 28,951   $ 180,307  
   FIRSTPLUS West. . . . . . . . . . . . . . . . . . .   27,394       4,962      21,622  
   Elimination of intercompany transactions. . . . . .       --         (18)     (3,872) 
                                                       --------    --------   ---------  
                                                         29,840      33,895     198,057  
Expenses:                                                                                
   RAC . . . . . . . . . . . . . . . . . . . . . . . .    3,093      18,172     121,389  
   FIRSTPLUS West. . . . . . . . . . . . . . . . . . .   21,592       5,981      21,487  
   Provision for income taxes. . . . . . . . . . . . .       --       3,903      20,969  
                                                       --------    --------   ---------  
                                                         24,685      28,056     163,845  
Net income (loss):                                                                       
   RAC . . . . . . . . . . . . . . . . . . . . . . . .     (647)      6,876      37,949  
   FIRSTPLUS West. . . . . . . . . . . . . . . . . . .    5,802      (1,019)        135  
   Elimination of intercompany transactions. . . . . .       --         (18)     (3,872) 
                                                       --------    --------   ---------  
                                                         $5,155      $5,839     $34,212  
                                                       --------    --------   ---------  
                                                       --------    --------   ---------  


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      RAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.  SIGNIFICANT ACCOUNTING POLICIES                                             

PRINCIPLES OF CONSOLIDATION                                                     

 The consolidated financial statements include the accounts of RAC and its
wholly owned subsidiaries. All significant intercompany balances and            
transactions have been eliminated in consolidation.                             

REVENUE RECOGNITION                                                             

 The Company generates revenue from the sale of loans through asset-backed
securitizations by selling pass-through certificates through grantor trusts or  
asset-backed notes through owner trusts (the Trusts). Excess servicing gains on 
sales of loans through securitizations principally represent the present value  
of the differential between the interest rates charged on the loans and the     
interest rates passed on to the purchasers of the certificates, after           
considering the effects of estimated prepayments, servicing fees, and other     
administrative costs. Excess servicing gains on sales of loans are recorded at  
the settlement date. All related premiums or discounts on the loans sold are    
netted against the gain on sale of the loans.                                   

  An excess servicing receivable (the Receivable) is recorded at the time of
sale that is equal to the excess servicing gain on sale of loans before         
reductions for related premiums and costs.  The Receivable is amortized in      
proportion to and over the expected lives of the related loans giving effect to 
the prepayment assumptions utilized in its determination and is carried at its  
estimated net realizable value.                                                 

The carrying value of the Receivable is analyzed for possible impairment
quarterly by the Company on a disaggregated basis by the predominant risk       
characteristic of loan type to determine whether prepayment and default         
experience has an impact on carrying value. Expected cash flows of the          
underlying loans sold are reviewed based upon current economic conditions and   
the type of loans originated and are revised as necessary using the original    
discount rate used in calculating the gain on sale. The Company generally makes 
loans to borrowers whose borrowing needs may not be met by traditional financial
institutions due to credit qualification requirements, primarily due to high    
loan-to-value ratios. The Company has found that its borrowers are payment      
sensitive rather than interest-rate sensitive. As such, the Company does not    
consider interest rates to be a predominant risk characteristic for purposes of 
valuation impairment. Impairment losses, if any, arising from adverse prepayment
and default experience are recognized as a charge to earnings while favorable   
experience is not recognized until realized.                                    

During the fiscal year ended September 30, 1996, the Company pooled and 
securitized $723.1 million of loans through five grantor trusts and one owner   
trust.  Four trusts sold pass-through certificates in private placements. One   
trust (1996-2) sold pass-through certificates in a public offering. One Trust   
(1996-3) sold mortgage-backed notes in a public offering.  The certificates have
fixed coupon rates and estimated remaining maturities ranging from 2 to         
20 years.                                                                       

To a lesser extent, the Company generates revenue from the bulk sale of 
loans. Bulk sale gains represent the difference between the sale price, which is
received in cash, and the cost of the loans sold.                               

The Company generally retains servicing rights and recognizes servicing 
income from fees, prepayment penalties and late payment charges earned for      
servicing the loans owned by investors, certificate holders, and others.        
Servicing and other fees are generally earned at rates ranging from             
approximately 0.75% to 1.00% of the unamortized loan balance being serviced.    
Servicing income is recognized when collected.                                  

Interest income from loans is recognized using the interest method. The 
Company ceases to accrue interest income on loans which become 90 days past due.

CASH EQUIVALENTS                                                                

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      RAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company considers all highly liquid investments with maturities of  
three months or less when purchased to be cash equivalents.                     

LOANS HELD FOR SALE                                                             

  Loans held for sale are carried at the lower of cost or market. Typically,
the Company obtains a second or third property improvement lien as collateral.  

RECEIVABLE FROM TRUSTS                                                          

The Company is required to maintain a deposit with the trustees for the 
Trusts equal to a set percentage of the par value of the securitized portfolio  
to supplement unanticipated shortfalls in payments to certificate holders (the  
Receivable from Trusts). The certificate holders' recourse to the Company is    
limited to this required reserve balance and the Receivable related to the      
specific securitization. The amounts on deposit are invested in certain         
short-term instruments as permitted by each Trust's pooling and servicing       
agreement. To the extent that amounts on deposit exceed specified levels,       
distributions are made to the Company. Upon maturity of the certificates, any   
remaining amounts on deposit are distributed to the Company.                    

ALLOWANCE FOR POSSIBLE CREDIT LOSSES                                            

 Provision for credit losses is charged to income in amounts sufficient to
maintain the allowance at a level considered adequate to cover anticipated      
losses resulting from liquidation of outstanding loans. The allowance for credit
losses is based upon periodic analysis of the portfolio, economic conditions and
trends, historical credit loss experience, borrowers' ability to repay, and     
collateral values. The allowance for credit losses on loans sold represents the 
Company's best estimate of future credit losses likely to be incurred over the  
life of the loans sold. This allowance has been discounted at 6.5% which is     
considered to be equivalent to the risk-free market rate for securities with a  
duration consistent with the estimated timing of losses. The Company charges off
defaulted loans based on a review of each individual receivable.                

INCOME TAXES                                                                    

Federal and state income taxes are accounted for utilizing the liability
method, and deferred tax assets and liabilities are determined based on         
differences between financial reporting and tax bases of assets and liabilities 
and are measured using enacted tax rates and laws that will be in effect when   
the differences are expected to reverse.                                        

EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE                                 

Primary earnings per common and common equivalent share are computed by 
dividing net income less preferred dividends by the weighted average number     
of shares of Common Stock and Common Stock equivalents outstanding for the      
period. Common Stock equivalents consist of the dilutive effect of Common       
Stock which may be issued assuming exercise of stock options or warrants for    
the period such options or warrants were outstanding,  using the treasury       
stock method.  Fully diluted earnings per share reflect the dilutive effect     
of Common Stock that may be issued, assuming conversion of the convertible      
subordinated notes and exercise of stock options and warrants.  Pursuant to     
the requirements of the Securities and Exchange Commission, common shares and   
common equivalent shares issued at prices below the estimated initial public    
offering price during the 12 months immediately preceding the date of the       
filing of the registration statement relating thereto have been included in     
the calculation of common shares and common share equivalents, using the        
treasury stock method, as if they were outstanding for all periods presented.   

USE OF ESTIMATES                                                                

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      RAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The preparation of financial statements in conformity with generally    
accepted accounting principles requires management to make estimates and        
assumptions that affect the amounts reported in the financial statements and    
accompanying notes. Actual results could differ from those estimates.           

FAIR VALUE OF FINANCIAL INSTRUMENTS                                             

   The Company's financial instruments at September 30, 1996 and September 30,
1995 consist primarily of loans held for sale, excess servicing receivable and  
subordinated certificates held for sale as well as warehouse financing          
facilities, term lines of credit and other debt instruments. The loans held for 
sale represent recent production and as such, their carrying value approximates 
their current fair value.  On a quarterly basis, the performance of the excess  
servicing receivable is analyzed by management for impairment, focusing on      
market discount rates, prepayment and default assumptions.  Accordingly, based  
on such analysis, management believes that the carrying value of the excess     
servicing receivable approximates its fair value.  All significant outstanding  
debt, including the warehouse financing facilities, term lines of credit and    
other debt instruments, are at variable rates at terms the Company believes     
represent present market conditions. As such, the carrying amounts of the       
Company's outstanding debt instruments approximate their respective fair values.

RECENT ACCOUNTING PRONOUNCEMENTS                                                

In June 1996, the Financial Accounting Standards Board ("FASB") issued  
Statement of Financial Accounting Standards No. 125 ("FASB 125"). "Accounting   
for Transfer and Servicing of Financial Assets and Extinguishment of            
Liabilities." FASB 125 addresses the accounting for all types of                
securitization transactions, securities lending and repurchase agreements,      
collateralized borrowing arrangements and other transactions involving the      
transfer of financial assets. FASB 125 distinguishes transfers of financial     
assets that are sales from transfers that are secured borrowings. FASB 125 is   
generally effective for transactions that occur after December 31, 1996, and    
it is to be applied prospectively. FASB 125 will require the Company to         
allocate the total cost of mortgage loans sold to the mortgage loans sold       
(servicing released), retained certificates and servicing rights based on       
their relative fair values. The Company will be required to assess the retained 
certificates and servicing rights for impairment based upon the fair value of   
those rights. The pronouncement also will require the Company to provide        
additional disclosure about the retained certificates in its securitizations    
and to account for these assets at fair value in accordance with FASB 115.      
The Company will apply the new rules prospectively beginning in the first       
calendar quarter of 1997 and, based on current circumstances, does not          
believe the application of the new rules will have a material impact on the     
Company's financial statements.                                                 

  In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which is effective beginning in the Company's 1997 fiscal year.  
SFAS No. 123 allows companies to continue to account for stock-based employee   
compensation plans under the existing accounting standard Accounting Principles 
Board ("APB") Opinion No. 25, or adopt a fair value-based method of accounting  
for stock options as compensation expense over the service period (generally the
vesting period) as defined in the new standard. SFAS No. 123 requires that if a 
company continues to account for stock options under APB Opinion No. 25, it must
provide pro forma net income and earnings per share information "as if" the new 
fair value approach had been adopted. The Company plans to continue to account  
for stock-based compensation under APB Opinion No. 25 and will make the required
disclosures in its 1997 fiscal year financial statements.                       

3.  LOANS HELD FOR SALE                                                         

The components for loans held for sale are as follows:                  

                                                       SEPTEMBER 30,
                                                     -------------------------
                                                   1995         1996
                                                   -----------  ------------
Conventional loans . . . . . . . . . . . . . .     $14,066,740  $386,934,441
Title I loans. . . . . . . . . . . . . . . . .       7,202,788    34,711,739
First lien mortgages . . . . . . . . . . . . .          27,871     1,713,497
Construction loans . . . . . . . . . . . . . .              --     1,826,850
                                                   -----------  ------------
   Subtotal. . . . . . . . . . . . . . . . . .      21,297,399   425,186,527
Participations sold. . . . . . . . . . . . . .        (902,390)           --
 Allowance for possible credit losses . . . . .        (887,879)   (6,495,073)
Net purchase premiums (discount) on                                         
 conventional loans. . . . . . . . . . . . . .         (71,953)   12,120,251
                                                   -----------  ------------
   Total . . . . . . . . . . . . . . . . . . .     $19,435,177  $430,811,705
                                                   -----------  ------------
                                                   -----------  ------------
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      RAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The serviced loan portfolio, which includes the loans held for sale, as 
well as loans serviced for the securitizations and other investors, consisted of
$1.0 billion in Conventional Loans and $250.9 million in Title I loans at       
September 30, 1996.                                                             

4.  ALLOWANCE FOR POSSIBLE CREDIT LOSSES                                        

 The activity in the allowance for possible credit losses is summarized as
follows:                                                                        

                                                      YEAR ENDED SEPTEMBER 30,
                                                      ------------------------
                                                      1995          1996
                                                    ----------   -----------
Balance, beginning of year . . . . . . . . . . .        $325,429    $4,794,385  
Allowance from FIRSTPLUS Financial acquisition .         160,000            --  
Provision for possible credit losses . . . . . .       4,452,286    59,644,195  
Participations purchased with a reserve. . . . .              --       214,909  
Charge-offs, net . . . . . . . . . . . . . . . .        (143,330)   (3,901,616) 
                                                    ----------   -----------
Balance, end of year . . . . . . . . . . . . . .      $4,794,385   $60,751,873  
                                                    ----------   -----------
                                                    ----------   -----------

Components of Allowance:                                                        
Allowance for possible credit losses on                                         
loans held for sale. . . . . . . . . . . . . .        $887,879    $6,495,073
Allowance for possible credit losses on                                         
loans sold . . . . . . . . . . . . . . . . . .       3,906,506    54,256,800
                                                    ----------   -----------
  Total  . . . . . . . . . . . . . . . . . . .      $4,794,385   $10,751,845
                                                    ----------   -----------
                                                    ----------   -----------

At September  30, 1996 and 1995, the gross allowance for possible credit
losses on loans sold was approximately $69.6 million and $6.8 million,          
respectively, which was recorded at a discount using a risk-free discount rate  
of 6.5%.                                                                        

5.  EXCESS SERVICING RECEIVABLE AND SUBORDINATED CERTIFICATES AVAILABLE FOR     
SALE                                                                    

The activity in the Receivable is summarized as follows:                

                                                      YEAR ENDED SEPTEMBER 30,
                                                     -------------------------
                                                   1995           1996
                                                   -----------  ------------
Balance, beginning of year . . . . . . . . . . .             $--   $29,743,987  
Acquired in FIRSTPLUS East and FIRSTPLUS                                        
 West acquisition. . . . . . . . . . . . . . .       1,685,887       197,829
Excess servicing gains . . . . . . . . . . . . .      30,065,093   170,679,358  
Excess servicing write-off . . . . . . . . . . .        (969,412)     (408,915) 
Amortization . . . . . . . . . . . . . . . . . .        (487,618)  (12,982,675) 
Receivable reclassified to Receivable                                           
from Trust  . . . . . . . . . . . . . . . .            (549,963)           -- 
                                                   -----------  ------------
Balance, end of year . . . . . . . . . . . . . .     $29,743,987  $187,229,584  
                                                   -----------  ------------
                                                   -----------  ------------

  The Company discounts the cash flows on the securitized loans at a rate it
believes a purchaser would require as a rate of return. The rates used to       
discount the cash flows were between 10% and 11% for the fiscal years ended     
September 30, 1995 and September 30, 1996.                                      

At September 30, 1996, the Company held as available for sale four      
subordinated certificates from securitizations. The certificates were unrated   
and as such there was no current established market values. Estimates of the    
fair market value based on discounted cash flow analysis indicates that the     
carrying value of the subordinated certificates approximates their fair value.  

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      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6.  OTHER ASSETS                                                                

Other assets consist of the following:                                  

                                                     SEPTEMBER 30,
                                                     -------------------------
                                                   1995         1996
                                                   -----------  ------------
Goodwill, net. . . . . . . . . . . . . . . . . .        $477,506      $423,951  
Furniture, equipment and leasehold improvements,                                
   net . . . . . . . . . . . . . . . . . . . .       1,277,660     5,497,037
Debt offering costs. . . . . . . . . . . . . . .             ---     3,112,341  
Prepaids and other . . . . . . . . . . . . . . .       4,036,499    11,509,046  
                                                   -----------  ------------
                                                    $5,791,665   $20,542,375
                                                   -----------  ------------
                                                   -----------  ------------

Depreciable assets are stated at cost less accumulated depreciation.    
Equipment is depreciated using a straight-line method based on estimated useful 
lives ranging from 1 to 5 years. Leasehold improvements are amortized over the  
life of the lease or asset whichever is shorter.                                

Goodwill is amortized on a straight-line basis over ten years.          

7.  DEBT                                                                        

WAREHOUSE FINANCING FACILITIES                                                  

   The Company has a $60 million warehouse facility (Bank One Warehouse Lender
Facility) with Bank One, Texas, N.A., an affiliate, for warehousing loans prior 
to sale through securitization. In March 1996, the Company increased the Bank   
One Facility from $20 million to $40 million, and, in June 1996, increased the  
Bank One Facility to $60 million. At September 30, 1996, approximately          
$50.9 million was outstanding under the Bank One Warehouse Lender Facility. This
warehouse facility bears interest at the federal funds rate (5.3% at            
September 30, 1996) plus 1.25%, payable monthly. During the term of the         
facility, borrowings have no stated maturity other than the repayment           
obligations coincident with the principal payments of the underlying loans. Upon
the sale of the warehoused loans, borrowings under the warehouse facility are   
repaid. The Bank One Warehouse Lender Facility matures in March 1997.           

The Company also has a $130 million warehouse financing facility with a 
nationally recognized finance company (the Warehouse Lender) for warehousing    
loans prior to sale through securitization. This warehouse facility bears       
interest at a rate based on the commercial paper rate of the Warehouse Lender's 
parent plus 125 basis points payable monthly. This warehouse facility matures in
March 1997. The Warehouse Lender received a participation interest in the       
securitizations completed in June and September 1995. At September 30, 1996,    
approximately $116.4 million was outstanding under this warehouse facility.     

Additionally, at September 30, 1996, the Company had approximately      
$42.5 million outstanding under several other warehouse lines bearing interest  
at rates primarily based on spreads above LIBOR or prime.                       

In May 1996, the Company entered into a master repurchase agreement with
Bear Stearns Home Equity Trust 1996-1, which provided the Company with a        
$200 million loan repurchase facility (the "Bear Stearns Facility") which bears 
interest based on a spread over the 30-day LIBOR and expires in May 1997.       
Approximately $144.6 million was outstanding under this facility at             
September 30, 1996.  In August 1996, the Bear Stearns Facility was increased to 
$300 million.                                                                   

WAREHOUSE LENDER TERM LINE OF CREDIT                                            

  The Company has a $70 million working capital term line of credit with the
Warehouse Lender that is secured by the Company's subordinated certificates and 
the Company's excess servicing receivable.  This line of credit bears interest  
at the rate of 2.5% over the thirty day rate for commercial paper issued by the 
Warehouse Lender's parent with the principal                                    

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      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

amortized over 60 months. No additional borrowings may occur under the term line
beyond March 1997. The line of credit matures in February 1999.                 

SUBORDINATED NOTES                                                              

   At September 30, 1996, the Company had $5.7 million principal amount of 12%
fixed rate subordinated notes (the Notes) outstanding which are held by Banc    
One, which is an affiliate. The Notes mature on March 31, 2000. In addition, at 
September 30, 1996, the Company had $1.3 million principal amount of Notes      
outstanding, which are held by Farm Bureau, which is an affiliate. Advances     
under the facility carry 12% interest rates with principal due March 31, 2000.  

Both the Banc One Notes and the Farm Bureau Notes referred to above were
issued with detachable stock warrants, allowing the affiliates to purchase a    
total of 15% of the Company. All such warrants were exercised in February 1996. 
See Note 9. The Notes are recorded at a discount which equals the value of the  
warrants at the time of issuance. The Notes are secured by the assets of the    
Company, but are subordinated to the rights of the warehouse lenders.           

In August 1996, the Company issued the Convertible Subordinated Notes in
the aggregate principal amount of $100 million.   The Notes mature in August    
2003 and bear interest at 7.25%, and are convertible into Common Stock at a     
conversion price of $16.30 per share. Common Stock reserved for conversion      
totaled 6,134,970 at September 30, 1996.                                        

In conjunction with the various borrowings, the Company has agreed to   
certain financial covenants regarding tangible net worth and leverage.  In      
addition, FIRSTPLUS Financial is restricted from transferring the Excess        
Servicing receivable to RAC or any of its subsidiaries.  The Company was in     
compliance with all such financial covenants at September 30, 1996.             

8.  INCOME TAXES                                                                

The provision for income taxes consists of the following:               

                                                      YEAR ENDED SEPTEMBER 30,
                                                     -------------------------
                                                    1995          1996
                                                   -----------  ------------
Current:                                                                        
  Federal. . . . . . . . . . . . . . . . . . .      $1,613,443    $1,883,977
  State. . . . . . . . . . . . . . . . . . . .         179,268       221,645
                                                   -----------  ------------
                                                     1,792,711     2,105,622

Deferred:                                                                       
  Federal. . . . . . . . . . . . . . . . . . .       1,794,000    16,877,677
  State. . . . . . . . . . . . . . . . . . . .         316,593     1,985,609
                                                   -----------  ------------
                                                     2,110,593    18,863,286
                                                   -----------  ------------
                                                    $3,903,304   $20,968,908
                                                   -----------  ------------
                                                   -----------  ------------

   The tax effects of temporary differences that give rise to the deferred tax
asset and liabilities are as follows:                                           

                                                       SEPTEMBER 30,
                                                      ------------------------
                                                    1995          1996
                                                    ----------   -----------
Deferred tax asset --                                                           
  allowance for possible credit losses . . . .      $1,787,800    $2,566,376
Deferred tax liabilities:                                                       
  Excess servicing rights. . . . . . . . . . .       3,705,325    23,455,459
  Other. . . . . . . . . . . . . . . . . . . .         193,068        84,796
                                                    ----------   -----------
                                                     3,898,393    23,540,255
                                                    ----------   -----------
Net deferred tax liabilities . . . . . . . . . .      $2,110,593   $20,973,879  
                                                    ----------   -----------
                                                    ----------   -----------
  A reconciliation of the statutory federal income tax rate to the Company's
effective tax rate is as follows:                                               
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      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                                 SEPTEMBER 30,
                                                    ----------------------------
                                                  1995          1996
                                                    -------------  -------------
Statutory rate . . . . . . . . . . . . . . . . .      34.0 %         35.0%      
State tax, net of federal benefit. . . . . . . .       3.0            3.0       
Non deductible S-Corp losses . . . . . . . . . .      (3.5)          --         
Other. . . . . . . . . . . . . . . . . . . . . .       (.4)          --         
                                                    -------------  -------------
                                                40.1 %         38.0%
                                                    -------------  -------------
                                                    -------------  -------------

Net income reflects the effect of FIRSTPLUS West as a Subchapter S      
corporation and, accordingly, FIRSTPLUS West included no federal income taxes in
its financial statements since its income was taxed at the shareholder level.   
Due to net operating losses experienced by RAC prior to the pooling with        
FIRSTPLUS West and as FIRSTPLUS West was a Subchapter S corporation, no tax     
provision was necessary for the year ended September 30, 1994.                  

9.  STOCKHOLDERS' EQUITY                                                        

PREFERRED STOCK                                                                 

 The Series A Preferred Stock and Series B Preferred Stock paid dividends,
when declared by the Board of Directors, at an annual rate of $0.08 per share.  
The dividends accrued and were payable upon redemption. The remaining           
outstanding shares of the preferred stock were redeemed and all related         
dividends were paid in February 1996.                                           

WARRANTS                                                                        

 As of September 30, 1995, the Company had outstanding stock warrants held
by affiliates that were exercised for 2,401,012 shares of Non-voting Common     
Stock for a nominal exercise price during the fiscal year ended September 30,   
1996. The warrants were associated with the issuance of and amendments to the   
Notes. In January 1996, to facilitate the increase in the term line, the Company
issued the Warehouse Lender warrants to purchase 500,000 shares of the Common   
Stock at an exercise price of $7.00 per share.                                  

10. EMPLOYEE STOCK OPTION, DIRECTOR STOCK OPTION, AND EMPLOYEE STOCK PURCHASE   
PLANS                                                                           

The Company has adopted the 1995 Employee Stock Option Plan. The 1995   
Employee Stock Option Plan provides for grants of incentive stock options       
(Incentive Options) and nonqualified stock options (Nonqualified Options) to all
eligible employees of the Company and its subsidiaries. All Incentive Options   
will have an exercise price per share no less than the market value of the      
Company's Common Stock on the date the option is granted. Nonqualified Options  
may be granted with an exercise price per share less than fair market value of  
the Common Stock at the date of grant. No options under the 1995 Employee Option
Plan may be exercised more than ten years from the date of grant. A maximum of  
3,200,000 shares of Common Stock have been reserved for sale upon exercise of   
options under this plan. Approximately  1,331,650 options have been granted     
during the fiscal year ended September 30, 1996 at exercise prices equal to the 
market value on the date of grant.  No options have been exercised through      
September 30, 1996.                                                             

The Company has adopted the 1995 Non-Employee Director Plan to grant    
options to members of the Board of Directors who are not employees of the       
Company or its subsidiaries on the date they become a director. Each            
non-employee director, at the time the 1995 Non-Employee Director Plan was      
adopted, received an option to purchase 10,000 shares of Common Stock (Initial  
Option) at the initial public offering price less the underwriter's discount.   
Subsequently, on the date of each annual stockholders' meeting, after such      
director's Initial Option has vested, the director will receive a nonqualified  
stock option to purchase 2,000 shares of Common Stock with an exercise price    
equal to the fair market value of the Common Stock on the date of grant. A      
maximum of 100,000 shares of Common Stock have been reserved under the 1995     
Director Plan.                                                                  
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      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company has adopted the RAC Financial Group, Inc. Employee Stock    
Purchase Plan (Purchase Plan) and reserved a total number of common shares      
issuable under this plan of 500,000. The Purchase Plan provides a means for     
employees to purchase shares of Common Stock at 85% of the fair market value.   

   The activity related to options granted during the year ended September 30,
1996, is as follows:                                                            

                                                    NUMBER
                NUMBER OF           OPTION PRICE     OF SHARES
                  SHARES              PER SHARE      EXERCISABLE
                ---------------      --------------   ------------
Outstanding                                                                     

September 30, 1995                                                          

Granted               1,450,020           $7.00 - 22.69        --           

Forfeitures              48,370            7.00                --           
           ---------           -------------       ---
September 30, 1996    1,401,650           $7.00 - 22.69        --           
           ---------           -------------       ---
           ---------           -------------       ---

11.  GAINS ON SALES OF LOANS                                                    

  The gains on sales of loans, as defined in Note 2, and the related cost is
as follows:                                                                     

                                                      YEAR ENDED SEPTEMBER 30,
                                                     ---------------------------
                                                   1995         1996
                                                     ------------- -------------
  Excess servicing gain. . . . . . . . . . . .     $41,064,028  $171,215,906
  Sharing arrangements . . . . . . . . . . . .    (10,998,935)     (536,548)
                                                     ------------- -------------
                                                    30,065,093   170,679,358
  Gain on whole loan and bulk sales. . . . . .       4,517,100    11,196,110
                                                     ------------- -------------
                                                    34,582,193   181,875,468
  Residual interest income . . . . . . . . . .              --     5,114,883
  Premiums, net. . . . . . . . . . . . . . . .     (1,993,613)  (20,835,867)
  Transaction costs. . . . . . . . . . . . . .     (3,474,879)   (7,515,021)
                                                     ------------- -------------
  Gains on sales of loans, net . . . . . . . .     $29,113,701  $158,639,463
                                                     ------------- -------------
                                                     ------------- -------------

12.  TRANSACTIONS WITH AFFILIATES                                               

  In December 1994, the Company repurchased certain loan participations from
an affiliate, Farm Bureau, and other investors at par value. The repurchased    
loans were sold in a securitization transaction. The affiliate received a       
participation interest in the securitization. The affiliate held $2,569,706 of  
loan participations at September 30, 1995.  These participations were           
subsequently repurchased by the Company.                                        

The Company has a warehouse facility with Bank One, an affiliate of Banc
One Capital Partners II and Banc One Capital Partners V, which are stockholders 
of the Company (See Note 7).                                                    

  The Company has issued the Notes to Banc One Capital Partners II, Banc One
Capital Partners V, and Farm Bureau.                                            

Additionally, the Company used Bear, Stearns & Co. Inc., as co-placement
agent in the Company's 1995-4, 1996-1, , 1996-2 and 1996-3 securitization       
transactions. The Company also is provided financing through the Bear Stearns   
Facility. A managing director from Bear, Stearns & Co. Inc., is a director of   
the Company. (See Note 7).                                                      

  The Company had a credit facility with Farm Bureau, which is a stockholder
of the Company (See Note 7).                                                    

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      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13.  EMPLOYEE BENEFIT PLANS                                                     

 The Company has an Employees' 401(k) Savings Plan (the Plan) for eligible
employees. An employee is eligible to participate in the Plan after employment  
of at least one month.                                                          

 Participants may elect to make contributions to the Plan in amounts equal
to not less than 1% nor more than 15% of their eligible compensation. The       
Company may elect to match elective contributions up to a maximum of 4% of the  
participant's eligible compensation. The Company has made no such contributions 
for the fiscal year ended September 30, 1996.                                   

14.  CONTINGENCIES AND COMMITMENTS                                              

The Company leases premises and equipment under operating leases with   
various expiration dates. Approximate future minimum lease payments are as      
follows:                                                                        

1997 . . . . . . . . . . . . . . . . . . . .      $4,605,659            
1998 . . . . . . . . . . . . . . . . . . . .       3,677,977            
1999 . . . . . . . . . . . . . . . . . . . .       3,059,760            
2000 . . . . . . . . . . . . . . . . . . . .       2,750,515            
                                     -----------
                                     $14,093,911
                                     -----------
                                     -----------

Rent expense for the years ended September 30, 1994, 1995 and 1996 was  
$1,221,113, $715,088 and $2,803,011, respectively.                              

  The Company is involved in certain litigation arising in the normal course
of business. Management's opinion is that the resolution of such litigation will
not have a material adverse effect on the Company's financial condition.        

15.  CONCENTRATION OF CREDIT RISK                                               

The Company is active in originating loans to customers throughout the  
United States. All loans are made on a secured or unsecured basis after         
reviewing each potential borrower's credit application and evaluating their     
financial history and ability to repay.                                         

  Approximately 59% of the loans in the Company's serviced loan portfolio at
September 30, 1996 was secured by residential properties located in California. 
No other state accounted for more than 10%.                                     

16. QUARTERLY RESULTS OF OPERATIONS (unaudited)                                 

The quarterly results of operations for the year end September 30, 1996 
are as follows:                                                                 

                                                        [Enlarge/Download Table]
                                                        QUARTER ENDED                               
                             -----------------------------------------------------------------------
                             DECEMBER 31, 1995   MARCH 31, 1996   JUNE 30, 1996   SEPTEMBER 30, 1996
                             -----------------   --------------   -------------   ------------------
                                                                                                    
REVENUES                         $ 20,273           $28,220          $41,322           $68,824      
Gain on Sales of Loans, net                                                                         
Sale of Servicing Rights                                                                            
Interest                            1,767             2,290            6,704            14,965      
Servicing Income                      694               940            1,040             1,334      
Other Income                          734             2,348            2,310             4,292      
                                 --------           -------          -------           -------      
Total Revenues                     23,468            33,798           51,376            89,415      

EXPENSES                                                                                            
Salaries and Employee Benefits      5,459             7,699            9,383            13,859      
Interest                            2,043             2,816            3,751             8,282      
Other Operating                     3,761             5,100            8,458            12,619      
Provision for Possible Credit                                                                       
 Loss                               4,649             7,855           14,058            33,084      
                                 --------           -------          -------           -------      
Total Expenses                     15,912            23,470           35,650            67,844      
                                 --------           -------          -------           -------      
Income Before Income Taxes          7,556            10,328           15,726            21,571      

Provision for Income Taxes         (2,871)           (3,929)          (5,976)           (8,193)     
                                 --------           -------          -------           -------      
Net Income                        $ 4,685            $6,399           $9,750           $13,378      
                                 --------           -------          -------           -------      
                                 --------           -------          -------           -------      

17.  PARENT COMPANY ONLY INFORMATION                                            

   The condensed financial statements of RAC Financial Group, Inc., prepared
on a parent company unconsolidated basis are as follows:                        

Condensed Balance Sheet                                               
                                  September 30, 1996
                                 -----------------
Assets                                                                          
Cash and cash equivalents                      $      31,351              
Investment in subsidiaries                       206,548,089              
Receivable from subsidiary                         2,166,124              
Other assets                                       6,648,763              
                                 -------------
                                 $ 215,394,327
                                 -------------
                                 -------------

Liabilities and Stockholders' Equity                                            
Accrued expenses and other liabilities         $  20,825,600              
Convertible subordinated notes                   100,000,000              

Stockholders' equity                                                      
Common stock                                      224,991           
Non-voting common stock                            44,407           
Additional capital                             54,695,558           
Retained earnings                              39,603,771           
                                 -------------
                                    94,568,727
                                 -------------
                                 $ 215,394,327
                                 -------------
                                 -------------

Condensed Statement of Income                                       
                                For the year ended
                                September 30, 1996
                                 -----------------
Equity in earnings of subsidiaries               $   57,045,490                 
Interest expense                                        814,384                 
Other operating expenses                              1,049,770                 
                                --------------
Income before income taxes                        55,181,336              
Provision for income taxes                           20,968,908                 
                                --------------
Net income                                    $   34,212,428              
                                --------------
                                --------------

Condensed Statement of Cash Flow                                      
                                  For the year ended
                                  September 30, 1996
                                 -----------------
Operating Activities                                                            
Net income                                    $   34,212,428              
Undistributed earnings in equity of                                 
subsidiaries                                 (57,045,490)         
Other operating activities                     10,798,084           
                                --------------
Net Cash Used for Operating Activities        (12,034,978)          

Investing Activities                                                            
Capital contributions to subsidiaries           (136,480,909)             
Net Cash Used by Investing Activities                               

Financing Activities                                                            
Redemptions of preferred stock                    (2,400,000)             
Proceeds of convertible note                     100,000,000              
Issuance of common stock                          51,210,959              
Preferred stock dividends                           (264,842)             
                                --------------
Net Cash Provided by Financing Activities     148,546,117           

Increase in cash and cash equivalents                    30,230                 

Cash and cash equivalents at beginning of year            1,121                 
                                --------------
Cash and cash equivalents at end of year         $       31,351                 
                                --------------
                                --------------

18. SUBSEQUENT EVENTS                                                           

ACQUISITION OF NATIONAL LOANS, INC.                                             

On October 1, 1996, FIRSTPLUS Consumer Finance, Inc., a wholly owned    
subsidiary of the Company, acquired National Loans, Inc. ("National") through   
an exchange of stock, in a transaction accounted for as a pooling of            
interest. However, because of the relative size of the acquisition, the         
Company does not plan to restate its historical statements of income to         
account for the acquisition. As such, beginning retained earnings will be       
restated for the effect of all years prior to the year of acquisition.  The     
Company issued 501,996 shares of its Common Stock to the former shareholders    
of National. National is an originator of small, personal consumer loans and    
had a net loan portfolio of $15.3 million at the date of acquisition.           

FINANCING FACILITIES                                                            

In October 1996, the Company increased the Bank One Facility to $110    
million with a one-year maturity by syndicating the line with Guaranty Federal  
Bank. The Company also increased its master repurchase facility, which matures  

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      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

in May 1997, with Bear Stearns to $500 million in October.  The Company         
executed an agreement with PaineWebber Real Estate Securities, Inc. ("Paine")   
whereby Paine will provide a $400 million repurchase facility for funding       
loan originations and a $100 million Term facility, secured by certain Excess   
Servicing Receivables.                                                          

STOCK SPLIT                                                                     

On October 22, 1996, the Company's Board of Directors approved a        
two-for-one common stock split. The split, effectuated as a stock dividend of   
one newly issued share of Common Stock for each share of Common Stock           
outstanding, was effective for shareholders of record at the close of business  
on November 15, 1996, and payable on November 29, 1996. Par value will remain at
$0.01 per share. Financial information contained in these financial statements  
has been adjusted to reflect the impact of the common stock split.              

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SIGNATURES  

Pursuant to the requirements of Section 13 or 15(d) of the Securities 
Exchange Act of 1934, the registrant has duly caused this report to be signed   
on its behalf by the undersigned, thereunto duly authorized in the City of      
Dallas, State of Texas, on December 20, 1996.                                   

                     RAC FINANCIAL GROUP, INC.

                  /s/ Daniel T. Phillips
                                      ------------------------------------------
                                      DANIEL T. PHILLIPS, CHAIRMAN OF THE BOARD,
                                 PRESIDENT AND CHIEF EXECUTIVE OFFICER

Pursuant to the requirements of the Securities Exchange Act of 1934,  
this report has been signed below by the following persons on behalf of the     
registrant and in the capacities and on the dates indicated.                    

Signature                      Capacity                       Date  
---------                      --------                       ----  

/s/ Daniel T. Phillips    Chairman of the Board, President     December 20, 1996
----------------------    and Chief Executive Officer                           
Daniel T. Phillips        (Principal Executive Officer)                         

/s/ Eric C. Green         Executive Vice President and         December 20, 1996
----------------------    Chief Financial Officer (Principal                    
Eric C. Green             Financial and Accounting officer)                     

/s/ John Fitzgerald       Director                             December 20, 1996
----------------------                                                          
John Fitzgerald                                                                 

/s/ Dan Jessee            Director                             December 20, 1996
----------------------                                                          
Dan Jessee                                                                      

/s/ Paul Seegers          Director                             December 20, 1996
----------------------                                                          
Paul Seegers                                                                    

/s/ Sheldon I. Stein      Director                             December 20, 1996
----------------------                                                          
Sheldon I. Stein                                                                

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EXHIBIT INDEX                                                                 

EXHIBIT                                                                       
NUMBER                           DOCUMENT DESCRIPTION                         
-------                          --------------------                         

3.1 *         Amended and Restated Articles of Incorporation of the Registrant  
(Exhibit 3.1)                                       
3.2 *         Amended and Restated Bylaws of the Registrant (Exhibit 3.2)       
4.1 *         Specimen certificate for Common Stock of the Registrant           
(Exhibit 4)                                         
4.2 ****      Indenture, dated August 20, 1996, between the Registrant and      
Bank One, Columbus, N.A., as trustee thereunder     
4.3 ****      Note Resale Registration Rights Agreement, dated August 20, 1996, 
         among the Registrant and the Initial Purchasers named therein
4.4 ****      Form of Definitive 7.25% Convertible Subordinated Note Due 2003   
of the Registrant                                   
4.5 ****      Form of Restricted Global 7.25% Convertible Subordinated Note Due 
2003 of the Registrant                              
4.6 ****      Form of Regulation S Global 7.25% Convertible Subordinated Note   
Due 2003 of the Registrant                          
10.1 *        Form of Home Improvement Buy-Sell Agreement (Exhibit 10.1)        
10.2 *        Form of Continuous Purchase FHA Title I Loan Correspondent        
Agreement (Exhibit 10.2)                            
10.3 *        Form of Continuous Purchase Conventional Direct Loan Broker       
Agreement (Exhibit 10.3)                            
10.4 *        1995 Employee Stock Option Plan for RAC Financial Group, Inc.     
(Exhibit 10.4)                                      
10.5 *        Non-Employee Director Stock Option Plan for RAC Financial Group,  
Inc. (Exhibit 10.5)                                 
10.6 *        RAC Financial Group, Inc. Employee Stock Purchase Plan            
(Exhibit 10.6)                                      
10.7 *        Description of Officer Bonus Program (Exhibit 10.7)               
10.8 *        Credit Agreement among RAC Financial Group, Inc., Remodelers      
       National Funding Corporation, and Bank One, Texas, National
        Association, dated as of March 17, 1995, as amended by First
         Amendment to Credit Agreement dated as of May 12, 1995 and by
         Second Amendment to Credit Agreement dated as of June 6, 1995
(Exhibit 10.8)                                      
10.9 *        Promissory Note, dated as of June 6, 1995, from Remodelers        
       National Funding Corporation, as maker, to Bank One, Texas,
National Association (Exhibit 10.9)                 
10.10*        Security Agreement, dated as of March 17, 1995, among Remodelers  
      National Funding Corporation and Bank One, Texas, National
Association (Exhibit 10.10)                         
10.11*        Guaranty, dated as of March 17, 1995, from RAC Financial Group,   
         Inc. to Bank One, Texas, National Association (Exhibit 10.11)
10.12*        Warehousing Credit, Term Loan and Security Agreement, dated as    
            of June 15, 1995, among Remodelers National Funding Corporation,
           RAC Financial Group, Inc., and Residential Funding Corporation,
            as amended by First Amendment to The Warehouse Credit, Term Loan
         and Security Agreement, dated August 25, 1995 (Exhibit 10.12)
10.13*        Promissory Note, dated as of June 15, 1995, from Remodelers       
          National Funding Corporation, as maker, to Residential Funding
Corporation (Exhibit 10.13)                         
10.14*        Promissory Note, dated as of June 29, 1995, from Remodelers       
          National Funding Corporation, as maker, to Residential Funding
Corporation (Exhibit 10.14)                         
10.15*        Guaranty, dated as of June 15, 1995, from RAC Financial Group,    
   Inc. to Residential Funding Corporation (Exhibit 10.15)
10.16*        Custodian Agreement, dated as of June 15, 1995, among Remodelers  
    National Funding Corporation, RAC Financial Group, Inc.,
    Residential Funding Corporation and First Trust National
Association (Exhibit 10.16)                         
10.17*        Senior Subordinated Note and Warrant Purchase Agreement, dated    
             as of March 31, 1995, among RAC Financial Group, Inc., Remodelers
         National Funding Corporation, SFA: State Financial Acceptance
          Corporation, Banc One Capital Partners II, Limited Partnership
  and Farm Bureau Life Insurance Company (Exhibit 10.17)

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10.18*        Senior Subordinated Note, dated as of March 31, 1995, from RAC    
          Financial Group, Inc., Remodelers National Funding Corporation
          and SFA: State Financial Acceptance Corporation, as makers, to
Farm Bureau Life Insurance Company (Exhibit 10.18)  
10.19*        Senior Subordinated Note, dated as of March 31, 1995, from RAC    
          Financial Group, Inc., Remodelers National Funding Corporation
          and SFA: State Financial Acceptance Corporation, as makers, to
             Banc One Capital Partners II, Limited Partnership (Exhibit 10.19)
10.20*        RAC Financial Group, Inc. Warrant Certificate, dated as of        
      April 12, 1995, for Farm Bureau Life Insurance Corporation
     (including registration rights agreement) (Exhibit 10.20)
10.21*        RAC Financial Group, Inc. Warrant Certificate, dated as of        
     March 31, 1995, for Banc One Capital Partners II, Limited
 Partnership (including registration rights agreement)
(Exhibit 10.21)                                     
10.22*        Subordinated Security Agreement, dated as of March 31, 1995,      
        among RAC Financial Group, Inc., Remodelers National Funding
     Corporation, SFA: State Financial Acceptance Corporation,
       Banc Once Capital Partners II, Limited Partnership and Farm
Bureau Life Insurance Company (Exhibit 10.22)       
10.23*        Security Agreement -- Assignment of Servicing Agreements, dated   
  as of March 31, 1995, among RAC Financial Group, Inc.,
         Remodelers National Funding Corporation, SFA: State Financial
     Acceptance Corporation and Banc Once Capital Partners II,
           Limited Partnership, as agent for Banc One Capital Partners II,
      Limited Partnership and Farm Bureau Life Insurance Company
(Exhibit 10.23)                                     
10.24*        Security Agreement -- Pledge of Common Stock, dated as of         
        March 31, 1995, among RAC Financial Group, Inc. and Banc One
           Capital Partners II, Limited Partnership, as agent for Banc One
         Capital Partners II, Limited Partnership and Farm Bureau Life
Insurance Company (Exhibit 10.24)                   
10.25*        Employment Agreement by and between RAC Financial Group, Inc.     
and Ronald M. Mankoff (Exhibit 10.25)               
10.26*        Employment Agreement by and between RAC Financial Group, Inc.     
and Daniel T. Phillips (Exhibit 10.26)              
10.27*        Employment Agreement by and between RAC Financial Group, Inc.     
and Eric C. Green (Exhibit 10.27)                   
10.28*        Employment Agreement by and between RAC Financial Group, Inc.     
and James H. Poythress (Exhibit 10.28)              
10.29*        Loan Commitment from Bank One, Texas, N.A., to RAC Financial      
Group, Inc. (Exhibit 10.29)                         
10.30*        Form of Continuous Purchase Home Improvement Broker Agreement     
(Exhibit 10.30)                                     
10.31*        Form of Pass-Through Home Improvement Financing Agreement         
(Exhibit 10.31)                                     
10.32*        Form of Dealer/Contractor Application (Exhibit 10.32)             
10.33*        Form of Broker/Correspondent Application (Exhibit 10.33)          
10.34*        Promissory Note, dated December 29, 1995, from RAC Financial      
          Group, Inc., Remodelers National Funding Corporation and State
       Financial Acceptance Corporation, as makers, to Farm Bureau
Life Insurance Company (Exhibit 10.34)              
10.35*        Loan Commitment from Residential Funding Corporation to           
            Remodelers National Funding Corporation and RAC Financial Group,
Inc. (Exhibit 10.35)                                
10.36*        Stock Purchase and Sale Agreement, dated as of November 30, 1995, 
           by and among RAC Financial Group, Inc., FIRSTPLUS East Mortgage
Corporation and its shareholders (Exhibit 10.36)    
10.37*        First Amendment to Credit Agreement and Note, dated as of         
   June 21, 1995, by and among Remodelers National Funding
     Corporation, SFA: State Financial Acceptance Corporation,
      RAC Financial Group, Inc. and Banc One Capital Partners V,
Ltd. (Exhibit 10.37)                                
10.38*        Senior Subordinated Note, dated November 1, 1995, from RAC        
          Financial Group, Inc., Remodelers National Funding Corporation
     and State Financial Acceptance Corporation, as makers, to
             Banc One Capital Partners II, Limited Partnership (Exhibit 10.38)
10.39*        Senior Subordinated Note, dated November 16, 1995, from RAC       
          Financial Group, Inc., Remodelers National Funding Corporation
         and State Financial Acceptance Corporation, as makers, to and
             Banc One Capital Partners II, Limited Partnership (Exhibit 10.39)
10.40*        Senior Subordinated Note, dated September 27, 1995, from RAC      
          Financial Group, Inc., Remodelers National Funding Corporation
          and State Financial Acceptance Corporation, as makers, to Farm
Bureau Life Insurance Company (Exhibit 10.40)       
10.41*        Senior Subordinated Note, dated September 27, 1995, from RAC      
          Financial Group, Inc., Remodelers National Funding Corporation
          and State Financial Acceptance Corporation, as makers, to Farm
Bureau Life Insurance Company (Exhibit 10.41)       

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10.42*        Senior Subordinated Note and Warrant Purchase Agreement, amended  
        and restated as of July 16, 1995, among RAC Financial Group,
        Inc., Remodelers National Funding Corporation and SFA: State
      Financial Acceptance Corporation, as sellers, and Banc One
      Capital Partners II, Limited Partnership, Farm Bureau Life
       Insurance Company and Banc One Capital Partners V, Ltd., as
purchasers (Exhibit 10.42)                          
10.43*        RAC Financial Group, Inc. Warrant Certificate, dated as of        
July 16, 1995, for Banc One Capital Partners V, Ltd.
(Exhibit 10.43)                                     
10.44*        Second Amended and Restated Subordinated Security Agreement,      
      amended and restated as of September 27, 1995, made by RAC
          Financial Group, Inc., Remodelers National Funding Corporation
           and SFA: State Financial Acceptance Corporation for the benefit
             of Banc One Capital Partners II, Limited Partnership, Farm Bureau
        Life Insurance Company and Banc One Capital Partners V, Ltd.
(Exhibit 10.44)                                     
10.45*        Second Amended and Restated Security Agreement -- Pledge of       
        Common Stock, amended and restated as of September 27, 1995,
          made by RAC Financial Group, Inc., for the benefit of Banc One
      Capital Partners II, Limited Partnership, Farm Bureau Life
   Insurance Company and Banc One Capital Partners V, Ltd.
(Exhibit 10.45)                                     
10.46*        Second Amended and Restated Security Agreement -- Assignment of   
          Servicing Agreements, amended and restated as of September 27,
       1995, made by RAC Financial Group, Inc., for the benefit of
          Banc One Capital Partners II, Limited Partnership, Farm Bureau
        Life Insurance Company and Banc One Capital Partners V, Ltd.
(Exhibit 10.46)                                     
10.47*        Second Amendment to the Warehouse Credit, Term Loan and Security  
   Agreement, dated as of September 15, 1995, by and among
            Remodelers National Funding Corp., RAC Financial Group, Inc. and
Residential Funding Corporation (Exhibit 10.47)     
10.48*        Form of Letter Agreement, dated January 29, 1996, by and between  
          RAC Financial Group, Inc. and Residential Funding Corporation,
             regarding the Warehouse Credit, Term Loan and Security Agreement,
dated June 15, 1995 (Exhibit 10.48)                 
10.49*        Form of Letter Agreement, dated January 29, 1996, by and between  
   RAC Financial Group, Inc. and Banc One, Texas, National
    Association, regarding the Credit Agreement, dated as of
March 17, 1995 (Exhibit 10.49)                      
10.50*        Form of Letter Agreement, dated January 29, 1996, by and among    
            RAC Financial Group, Inc., Banc One Capital Partners II, Limited
        Partnership, Farm Bureau Life Insurance Company and Banc One
            Capital Partners V, Ltd., regarding the Senior Subordinated Note
      and Warrant Purchase Agreement, dated as of March 31, 1995
(Exhibit 10.50)                                     
10.51*        Third Amendment to the Warehouse Credit, Term Loan and Security   
            Agreement, dated as of January 22, 1996, by and among Remodelers
             National Funding Corp., RAC Financial Group, Inc. and Residential
Funding Corporation (Exhibit 10.51)                 
10.52*        Subordinated Loan Agreement, dated as of September 27, 1995, by   
            and among RAC Financial Group, Inc., Remodelers National Funding
     Corporation and SFA: State Financial Acceptance Corp., as
            borrowers, and Banc One Capital Partners II, Limited Partnership
          and Farm Bureau Life Insurance Company, as lenders, as amended
             by First Amendment to Subordinated Loan Agreement (Exhibit 10.52)
10.53*        Letter Agreement, dated June 7, 1995, between Banc One Capital    
         Corporation and RAC Financial Group, Inc. regarding financial
advisory and consultation services (Exhibit 10.53)  
10.54**       Registration Rights Agreement, dated as of March 31, 1996, by     
       and among RAC Financial Group, Inc. and the shareholders of
Mortgage Plus Incorporated (Exhibit 10.2)           
10.55**       Agreement and Plan of Merger, dated as of May 22, 1996, among     
     RAC Financial Corporation, Inc., FIRSTPLUS West, Inc. and
          Mortgage Plus Incorporated and the shareholders (Exhibit 10.1)
10.56***      Master Repurchase Agreement, dated as of May 10, 1996, by and     
          between FIRSTPLUS Financial, Inc. and Bear Stearns Home Equity
Trust 1996-1 (Exhibit 10.1)                         
10.57***      Custody Agreement, dated May 10, 1996, among FIRSTPLUS            
       Financial, Inc., Bear Stearns Home Equity Trust 1996-1, and
Bank One Texas, N.A. (Exhibit 10.2)                 
10.58***      Fifth Amendment to Credit Agreement, dated June 20, 1996, by and  
          among FIRSTPLUS Financial, Inc., RAC Financial Group, Inc. and
Bank One, Texas, National Association (Exhibit 10.3)
10.59***      Promissory Note, dated June 30, 1996, between FIRSTPLUS           
     Financial, Inc. and Bank One, Texas, National Association
(Exhibit 10.4)                                      

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10.60         Credit Agreement, dated October 17, 1996, between FIRSTPLUS       
    Financial, Inc. and Bank One Texas, National Association
11            Statement regarding computation of per Share earnings             
21****        Subsidiaries of Registrant (Exhibit 21)                           
23.1          Consent of Ernst & Young LLP                                      

-----------                                                                     
*    Incorporated by reference from exhibit shown in parenthesis contained in   
the Company's Registration Statement on Form S-1 (Registration No.    
33-96688), filed by the Company with the Commission.                  
**   Incorporated by reference from exhibit shown in parenthesis contained in   
 the Company's current report on Form 8-K, filed by the Company with the
Commission on June 14, 1996.                                          
***  Incorporated by reference from exhibit shown in parenthesis contained in   
the Company's Form 10-Q for the quarterly period ended June 30, 1996, 
filed by the Company with the Commission on August 6, 1996.           
**** Incorporated by reference from exhibit shown in parenthesis contained in   
the Company's Registration Statement on Form S-1 (Registration No.    
333-14171), filed by the Company with the Commission.                 

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘10-K’ Filing		Date		First		Last			Other Filings
		1/31/03		21
		3/31/00		50
		10/16/97		33
		9/30/97		22					10-K
		12/31/96		35		47			10-Q
Filed on:		12/23/96							S-1
		12/20/96		55
		12/19/96		35					8-K
		12/18/96		22
		12/17/96		33					424B3
		11/30/96		1		22
		11/29/96		1		54
		11/15/96		22		54
		10/25/96		39
		10/22/96		54
		10/17/96		59
		10/1/96		6		53
For Period End:		9/30/96		1		53			10-K/A
		8/20/96		33		56
		8/6/96		59					10-Q
		6/30/96		7		59			10-Q
		6/20/96		58
		6/14/96		59					8-K
		5/22/96		58
		5/10/96		58
		3/31/96		7		58
		2/26/96		1
		2/1/96		22
		1/29/96		58
		1/22/96		58
		12/31/95		7		53
		12/29/95		57
		11/30/95		57
		11/16/95		57
		11/1/95		57
		9/30/95		2		53
		9/27/95		57		58
		9/15/95		58
		8/25/95		56
		7/16/95		58
		7/1/95		44
		6/30/95		7
		6/29/95		56
		6/21/95		57
		6/15/95		56		58
		6/7/95		58
		6/6/95		56
		5/12/95		56
		4/30/95		22
		4/12/95		57
		3/31/95		7		58
		3/17/95		56		58
		12/31/94		7
		10/4/94		15		44
		9/30/94		29		53
		9/30/93		42
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