IMPERIAL CREDIT MORTGAGE HOLDINGS INC
424B4, 1996-06-19
MORTGAGE BANKERS & LOAN CORRESPONDENTS
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<PAGE>
 
                                               FILED PURSUANT TO RULE 424(b)(4)
                                                     REGISTRATION NO. 333-04011

       
       
                                2,500,000 SHARES
 
 
                                 [LOGO of ICMH]

                                  COMMON STOCK
 
                                --------------
   
  All of the shares of Common Stock offered hereby are being sold by Imperial
Credit Mortgage Holdings, Inc. (the "Company"). At the request of the Company,
33,000 shares of Common Stock offered hereby have been reserved for sale to
certain members of the Company's senior management at the public offering
price. The Common Stock is listed on the American Stock Exchange (the "AMEX")
under the symbol "IMH". On June 18, 1996, the last reported sale price of the
Common Stock as reported by the AMEX was $15.75 per share. See "Price Range of
Common Stock."     
 
  SEE "RISK FACTORS" STARTING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OF COMMON
STOCK OFFERED HEREBY. THESE RISKS INCLUDE:
 
 . Changes in Interest Rates;       . Recent and Planned Expansion; Reliance on
  Prepayment Risks                   ICII's Origination Capability
 . Hedging Strategies               . Competition for Mortgage Loans
 . Risks Relating to Operations     . Experience of the Manager in Managing a
 . Risks of Potential Net             REIT
  Interest and OperatingLosses     . Consequences of Failure to Maintain REIT
  in Connection with Borrowings      Status; Company Subject to Tax as a
  andSubstantial Leverage;           Regular Corporation
  Liquidity                        . Investment Company Act Risk
 . Demand for Residential           . Preferred Stock; Restrictions on
  Mortgage Loans and the             Ownership of Common Stock; Anti-Takeover
  Company's Non-Conforming Loan      Risk
  Products
 . Limited History of Operations
 
                                --------------
 
 THESE SECURITIES HAVE NOT BEEN APPROVED  OR DISAPPROVED BY THE SECURITIES AND
  EXCHANGE  COMMISSION  OR  ANY  STATE  SECURITIES  COMMISSION  NOR  HAS  THE
   SECURITIES  AND EXCHANGE  COMMISSION OR  ANY STATE  SECURITIES COMMISSION
    PASSED  UPON   THE  ACCURACY  OR  ADEQUACY  OF  THIS   PROSPECTUS.  ANY
     REPRESENTATION TO
                      THE CONTRARY IS A CRIMINAL OFFENSE.
 
                                --------------
  THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
  THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

<TABLE>   
<CAPTION>
==========================================================================================
                                                          Underwriting
                                        Price to          Discounts and        Proceeds to
                                         Public          Commissions (1)       Company (2)
- ------------------------------------------------------------------------------------------
<S>                                <C>                 <C>                 <C>
Per Share........................        $15.75               $0.86              $14.89
- ------------------------------------------------------------------------------------------
Total............................      $39,375,000         $2,150,000          $37,225,000
- ------------------------------------------------------------------------------------------
Total Assuming Full Exercise of
 Over-Allotment Option (3).......      $45,281,250         $2,472,500          $42,808,750
==========================================================================================
</TABLE>    
(1) See "Underwriting."
(2) Before deducting expenses estimated at $750,000, all of which are payable
    by the Company.
(3) Assuming exercise in full of the 45-day option granted by the Company to
    the Underwriters to purchase up to 375,000 additional shares, on the same
    terms, solely to cover over-allotments. See "Underwriting."
 
                                --------------
   
  The shares of Common Stock are offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by the Underwriters, and
subject to their right to reject any orders in whole or in part. It is expected
that delivery of the Common Stock will be made in New York City on or about
June 24, 1996.     
 
                                --------------
 
PAINEWEBBER INCORPORATED
           OPPENHEIMER & CO., INC.
                       STIFEL, NICOLAUS & COMPANY
                                INCORPORATED
                                                        EVEREN SECURITIES, INC.
                  
               THE DATE OF THIS PROSPECTUS IS JUNE 18, 1996     
<PAGE>
 
                             AVAILABLE INFORMATION
 
  The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the shares of Common Stock offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and to the exhibits and
schedules filed therewith. Statements contained in this Prospectus as to the
contents of any contract or other document referred to are not necessarily
complete, and in each instance reference is made to the copy of such contract
or other document referred as an exhibit to the Registration Statement. A copy
of the Registration Statement may be inspected without charge at the offices
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and
copies of all or any part of the Registration Statement may be obtained from
the Public Reference Section of the Commission, Washington, D.C. 20549 upon
the payment of the fees prescribed by the Commission.
 
  The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files periodic reports and other information with the Commission.
The Registration Statement, including the exhibits and schedules thereto, as
well as such reports and other information filed by the Company with the
Commission, can be inspected, without charge, and copied at the public
reference facilities maintained by the Commission at the office of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, Room 1024, and at
the following Regional Offices of the Commission: 7 World Trade Center, New
York, New York 10048, Suite 1300; and 500 West Madison Street, Chicago,
Illinois 60661, Suite 1400. Copies of such materials can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C, 20549 upon the payment of the fees prescribed by the
Commission. Reports, proxy statements and other information concerning the
Company can be inspected at the American Stock Exchange, Inc., 86 Trinity
Place, New York, New York 10006.
 
 
  IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK EXCHANGE, IN
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
<PAGE>
 
 
                               PROSPECTUS SUMMARY
 
  The following summary is qualified in its entirety by the more detailed
information and the consolidated financial statements and related notes
appearing elsewhere in this Prospectus. Unless otherwise indicated, the
information in this Prospectus assumes that the Underwriters' over-allotment
option will not be exercised. Unless the context otherwise requires, references
herein to the "Company" refer to Imperial Credit Mortgage Holdings, Inc.
("IMH"), ICI Funding Corporation ("ICIFC") and Imperial Warehouse Lending
Group, Inc. ("IWLG"), collectively. References to "IMH" under "Federal Income
Tax Considerations" refer to IMH and IWLG, collectively. References in this
Prospectus (except for references in the section entitled "Federal Income Tax
Considerations") to "IMH" refer to Imperial Credit Mortgage Holdings, Inc. as a
separate entity from ICIFC and IWLG. Capitalized and certain other terms used
herein shall have the meanings assigned to them in the Glossary.
 
  This Prospectus contains forward-looking statements that inherently involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth under "Risk Factors" and elsewhere
in this Prospectus.
 
                                  THE COMPANY
 
  Imperial Credit Mortgage Holdings, Inc. is a recently-formed specialty
finance company, which operates three businesses: (1) the Long-Term Investment
Operations, (2) the Conduit Operations, and (3) the Warehouse Lending
Operations. The Long-Term Investment Operations is a recently-created business
that invests primarily in non-conforming residential mortgage loans and
securities backed by such loans. The Conduit Operations primarily purchases and
sells or securitizes non-conforming mortgage loans, and the Warehouse Lending
Operations provides short-term lines of credit to originators of mortgage
loans. These two businesses include certain ongoing operations contributed to
the Company by Imperial Credit Industries, Inc. ("ICII"), a leading specialty
finance company, on November 20, 1995 (the "Contribution Transaction"). IMH is
organized as a real estate investment trust ("REIT") for tax purposes, which
allows it generally to pass through earnings to stockholders without federal
income tax at the corporate level.
 
  Long-Term Investment Operations. The Long-Term Investment Operations,
conducted by IMH, invests primarily in non-conforming residential mortgage
loans and mortgage-backed securities secured by or representing interests in
such loans and, to a lesser extent, in second mortgage loans. Non-conforming
residential mortgage loans are residential mortgages that do not qualify for
purchase by government-sponsored agencies such as the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC").
Such loans generally provide higher yields than conforming loans. The principal
differences between conforming loans and non-conforming loans include the
applicable loan-to-value ratios, the credit and income histories of the
mortgagors, the documentation required for approval of the mortgagors, the type
of properties securing the mortgage loans, the loan sizes, and the mortgagors'
occupancy status with respect to the mortgaged properties. Second mortgage
loans are higher yielding mortgage loans made to borrowers owning single-family
homes, for the purpose of debt consolidation, home improvements, education and
a variety of other purposes. At March 31, 1996, the Company's investment
portfolio consisted of $311.5 million of non-conforming mortgage loans and
$33.2 million of mortgage-backed or other collateralized securities.
 
  Conduit Operations. The Conduit Operations, conducted by ICIFC, purchases
primarily non-conforming mortgage loans and, to a lesser extent, second
mortgage loans from its network of third party correspondents and subsequently
securitizes or sells such loans to permanent investors, including the Long-Term
Investment Operations. ICIFC's ability to design non-conforming mortgage loans,
which suit the needs of its correspondent loan originators and their borrowers
while providing sufficient credit quality to investors, as well as its
efficient loan purchasing process, flexible purchase commitment options and
competitive pricing, enables it to compete effectively with other non-
conforming mortgage loan conduits. In addition to its ongoing securitizations
and sales to third party investors, ICIFC supports the Long-Term Investment
Operations of the Company by supplying
 
                                       3
<PAGE>
 
IMH with non-conforming mortgage loans and securities backed by such loans at
costs which are lower than would be available through third parties. For the
three months ended March 31, 1996, ICIFC acquired $280.7 million in mortgage
loans and sold $314.9 million of mortgage loans to the Long-Term Investment
Operations. During the years ended December 31, 1995 and 1994, ICIFC acquired
mortgage loans from its correspondents, including ICII after the Contribution
Transaction, in the amounts of $1.1 billion and $1.7 billion, respectively.
Prior to the Contribution Transaction, ICIFC was a division or subsidiary of
ICII since 1990. IMH owns 99% of the economic interest in ICIFC while ICII is
the holder of all the outstanding voting stock of ICIFC. At March 31, 1996,
ICIFC maintained relationships with 223 correspondents.
 
  Warehouse Lending Operations. The Warehouse Lending Operations, conducted by
IWLG, provides short-term lines of credit to ICIFC and approved mortgage banks,
most of which are correspondents of ICIFC, to finance mortgage loans during the
time from the closing of the loans to their sale or other settlement with pre-
approved investors. At March 31, 1996, the Warehouse Lending Operations had
$196.1 million in net finance receivables outstanding, of which $173.4 million
was outstanding with ICIFC.
 
  IMH's principal sources of net income are (1) net income from its Long-Term
Investment Operations, (2) dividends from the Conduit Operations at ICIFC,
which are fully subject to federal and state income taxes, and (3) net income
from the Warehouse Lending Operations. The principal source of income from its
Long-Term Investment Operations is net interest income, which is the net spread
between interest earned on mortgage loans and securities held for investment
and the interest costs associated with the borrowings used to finance such
loans and securities. The principal sources of income from ICIFC are gains
recognized on the sale of mortgage loans and securities, net interest income
earned on loans purchased by ICIFC pending their securitization or resale,
servicing fees, commitment fees and processing fee income. The principal
sources of income from IWLG are the net spread between interest earned on
short-term lines of credit (warehouse loans) and the interest costs associated
with the borrowings used to finance such loans and the fee income received from
the borrowers in connection with such short-term borrowings.
 
                            RECENT OPERATING RESULTS
 
  For the three months ended March 31, 1996, the Company's first full quarter
of operations, the Company earned $1.7 million or $0.39 per share. On April 16,
1996 the Company declared a dividend of $0.39 per share payable on April 30,
1996, to stockholders of record as of April 24, 1996. On May 29, 1996 the
Company declared a dividend of $0.45 per share for the quarter ended June 30,
1996, payable on July 2, 1996 to stockholders of record as of June 13, 1996.
 
                               OPERATING STRATEGY
 
  The Company believes that a structural change in the mortgage banking
industry has occurred which has increased demand for higher yielding non-
conforming mortgage loans. This change has been caused by a number of factors,
including: (1) investors' demand for higher yielding assets due to historically
low interest rates over the past few years; (2) increased securitization of
high-yielding non-conforming mortgage loans by the investment banking industry;
(3) quantification and development of standardized credit criteria by credit
rating agencies for securities backed by non-conforming mortgage loans; (4)
increased competition in the securitization industry, which has reduced
borrower interest rates and fees, thereby making non-conforming mortgage loans
more affordable; and (5) the end of the refinance "boom" of 1992 and 1993,
which has caused many mortgage banks, attempting to sustain origination volume,
to seek out non-conforming mortgage loan borrowers.
 
  The Company's strategy is to take advantage of the increased demand for non-
conforming mortgage loans through ICIFC's network of correspondents, which
sells non-conforming mortgage loans to ICIFC for resale or securitization. The
Company's strategic objective is to exploit the structural changes in the non-
conforming mortgage loan market through the Conduit Operations and to invest in
the non-conforming mortgage loans and
 
                                       4
<PAGE>
 
mortgage-backed securities originated and created by its Conduit Operations.
Management believes that the Long-Term Investment Operations complements the
Conduit Operations by providing ICIFC with a reliable investor for a portion of
its loan sales and securitizations while ICIFC supports the Long-Term
Investment Operations by providing mortgage loans and mortgage-backed
securities at costs which are lower than would be available from third parties.
The Company believes the Warehouse Lending Operations provide synergies with
the Company's other operations because they extend the scope of the Company's
relationships with certain of its correspondent loan originators.
 
  The Company purchases, through its network of correspondents, and invests a
substantial portion of its portfolio in non-conforming mortgage loans because
management believes that there is a large demand for non-conforming mortgage
loans and because non-conforming mortgage loans provide an attractive net
earnings profile and produce higher yields without commensurately higher credit
risks when compared with conforming mortgage loans. The Company's strategy is
to increase the percentage of "B" and "C" grade mortgage loans purchased
through the Conduit Operations, as well as increasing the portion of such loans
for its investment portfolio at the Long-Term Investment Operations. In
general, "B" and "C" grade mortgage loans are residential mortgage loans made
to borrowers with lower credit ratings than borrowers of higher credit quality,
or so called "A" grade mortgage loans, and are normally subject to greater
frequency of losses and delinquency. As a result, "B" and "C" grade mortgage
loans normally bear a higher rate of interest and higher fees.
 
  Management believes that IMH's tax and corporate structure as a REIT provides
it with an advantage over other financial institutions and mortgage banking
competitors. As a REIT, IMH can generally pass through earnings to stockholders
without federal income tax at the corporate level. Thus, the Company expects to
be able to pay higher annual dividends than traditional mortgage lending
institutions, which are subject to federal income tax. In addition, management
believes that the Company provides a more attractive method of investing in
mortgages than regulated financial institutions because the Company is not
subject to most of the federal and state regulations imposed upon insured
financial institutions, and therefore, will not incur their related costs.
 
                       DIVIDEND POLICY AND DISTRIBUTIONS
 
  To maintain its qualification as a REIT, IMH intends to make annual
distributions to stockholders of at least 95% of its taxable income (which does
not necessarily equal net income as calculated in accordance with GAAP)
determined without regard to the deduction for dividends paid and by excluding
any net capital gains. IMH declared its initial dividend of $0.08 per share on
January 25, 1996 for the period of November 20, 1995 through December 31, 1995
(the "Interim Period") and dividend of $0.39 per share on April 16, 1996 for
the quarter ended March 31, 1996. On May 29, 1996 the Company declared a
dividend of $0.45 per share for the quarter ended June 30, 1996, payable on
July 2, 1996 to stockholders of record as of June 13, 1996. Any taxable income
remaining after the distribution of the regular quarterly dividends will be
distributed annually in a special dividend on or prior to the date of the first
regular quarterly dividend payment date of the following taxable year. The
dividend policy is subject to revision at the discretion of the Board of
Directors. All distributions in excess of those required for IMH to maintain
REIT status will be made by the Company at the discretion of the Board of
Directors and will depend on the taxable earnings of the Company, the financial
condition of IMH and such other factors as the Board of Directors deems
relevant. The Board of Directors has not established a minimum distribution
level.
 
  The Company has adopted a Dividend Reinvestment Plan ("DRP") that allows
stockholders who have enrolled in the DRP to reinvest their dividends
automatically in additional shares of Common Stock at the DRP Purchase Price,
which is 97% of the then current market price of such stock. The shares of
Common Stock to be acquired for distribution under the DRP may be purchased on
the open market or directly from the Company at the option of the Company. See
"Dividend Reinvestment Plan."
 
                                       5
<PAGE>
 
 
                                  THE MANAGER
 
  Imperial Credit Advisors, Inc. ("ICAI" or the "Manager"), a wholly-owned
subsidiary of ICII, oversees the day-to-day operations of the Company, subject
to the supervision of the Company's Board of Directors, pursuant to a
management agreement (the "Management Agreement") which became effective on
November 20, 1995. The Manager is involved in three primary activities: (1)
asset-liability management--primarily the analysis and oversight of the
acquisition, financing and disposition of Company assets; (2) capital
management--primarily the oversight of the Company's structuring, analysis,
capital raising and investor relations activities; and (3) operations
management--primarily the oversight of IMH's operating subsidiaries. ICIFC
conducts the Conduit Operations under substantially identical principles,
practices and policies implemented when it was a division of ICII. The Manager
oversees the operations of ICIFC to ensure that such principles, practices and
policies are implemented and followed. The Management Agreement has an initial
term of one year, renewable annually by agreement between the Company and the
Manager, subject to the approval of a majority of the Unaffiliated Directors.
The Management Agreement may be terminated by either party at any time upon 60
days' written notice. In the event that the Management Agreement is terminated
or not renewed by the Company without cause, the Company is obligated to pay
the Manager a termination or non-renewal fee determined by an independent
appraisal. See "Imperial Credit Advisors, Inc.--Management Agreement."
 
  The Manager is entitled to receive a per annum base management fee payable
monthly in arrears in an amount equal to (1) 3/8 of 1% of Gross Mortgage Assets
of IMH composed of other than Agency Certificates, conforming mortgage loans or
mortgage-backed securities secured by or representing interests in conforming
mortgage loans, plus (2) 1/8 of 1% of the remainder of Gross Mortgage Assets of
IMH plus (3) 1/5 of 1% of the average daily asset balance of the outstanding
amounts under IWLG's warehouse lending facilities. The Company also pays the
Manager, as incentive compensation for each fiscal quarter, an amount equal to
25% of the Net Income of the Company, before deduction of such incentive
compensation, in excess of the amount that would produce an annualized Return
on Equity equal to the Ten Year U.S. Treasury Rate plus 2% (the "25% Incentive
Payment"). "Return on Equity" is computed on Average Net Worth and has no
necessary correlation with the actual distributions received by stockholders.
The 25% Incentive Payment to the Manager is calculated quarterly in arrears
before any income distributions are made to stockholders for the corresponding
period. See "Imperial Credit Advisors, Inc.--Management Agreement" for a more
detailed explanation of the management fee arrangement and "Glossary" for full
definitions of the terms "Gross Mortgage Assets," "Net Income," "Return on
Equity," "Ten Year U.S. Treasury Rate" and "Average Net Worth."
 
                                  THE OFFERING
 
<TABLE>
<S>                                <C>
Common Stock Offered by the        
 Company (1)...................... 2,500,000 Shares
Common Stock to be Outstanding
 after the Offering (1)(2)........ 6,750,000 Shares
Use of Proceeds................... To provide funding for the Company's Long-
                                   Term Investment Operations and its Warehouse
                                   Lending Operations and for general corporate
                                   purposes.
American Stock Exchange Symbol.... "IMH"
</TABLE>
- --------
(1) Assumes that the Underwriters' option to purchase up to an additional
    375,000 shares of Common Stock to cover over-allotments is not exercised.
(2) Does not include 400,000 shares reserved for issuance pursuant to the
    Company's Stock Option Plan, of which options to acquire 250,000 shares are
    outstanding at a per share exercise price of $11.25 and options to acquire
    45,000 shares are outstanding at a per share exercise price of $13.00. The
    Company intends to increase the number of shares reserved for issuance
    under its Stock Option Plan by 400,000 shares, subject to stockholder
    approval, at the annual stockholders' meeting to be held in July 1996. See
    "Imperial Credit Mortgage Holdings, Inc.--Stock Options."
 
                                       6
<PAGE>
 
                                 RISK FACTORS
 
  Before investing in the shares of Common Stock offered hereby, prospective
investors should give special consideration to the information set forth
below, in addition to the information set forth elsewhere in this Prospectus.
The following risk factors are interrelated and, consequently, investors
should treat such risk factors as a whole.
 
  This Prospectus contains forward-looking statements that inherently involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth in the following risk factors and
elsewhere in this Prospectus.
 
CHANGES IN INTEREST RATES; PREPAYMENT RISKS
 
  The Company's earnings may be affected by changes in market interest rates.
In conducting its Conduit Operations, the Company is subject to the risk of
rising mortgage interest rates between the time the Company commits to
purchase mortgage loans at a fixed price and the time the Company sells or
securitizes those mortgage loans. An increase in interest rates will generally
result in a decrease in market value of loans that the Company has committed
to purchase at a fixed price, but has not yet sold or securitized.
 
  Higher rates of interest may discourage potential mortgagors from
refinancing mortgage loans, borrowing to purchase a home or seeking a second
mortgage loan, thus decreasing the volume of mortgage loans available to be
purchased by the Conduit Operations. In addition, an increase in short-term
interest rates may decrease or eliminate or, under certain circumstances,
cause to be negative, the Company's net interest spread during the
accumulation of mortgage loans held for sale or the net interest spread on
mortgage loans held for investment when such loans are financed through
reverse repurchase agreements. Should short-term interest rates exceed long-
term interest rates (an "inverted yield curve" scenario), the negative effect
on the Company's net interest spread would likely be coupled with a reduction
in any earnings on any servicing portfolio held by the Company to the extent
prepayments on the underlying mortgage loans increased as long-term interest
rates declined.
 
  In conducting its Long-Term Investment Operations, a significant portion of
the Company's mortgage assets held for long-term investment bear adjustable
interest ("ARMs") or pass-through rates based on short-term interest rates,
and substantially all of the Company's borrowings bear interest at fixed rates
and have maturities of less than one year. Consequently, changes in short-term
interest rates may significantly influence the Company's net interest income.
Mortgage loans owned by the Company that are ARMs or mortgage-backed
securities backed by ARMs are subject to periodic interest rate adjustments
based on objective indices such as the CMT Index or LIBOR. Interest rates on
the Company's borrowings are also based on short-term indices. To the extent
any of the Company's mortgage assets are financed with borrowings bearing
interest based on an index different from that used for the related mortgage
assets, so-called "basis" interest rate risk will arise. In such event, if the
index used for the subject mortgage assets is a "lagging" index (such as the
11th District Cost of Funds) that reflects market interest rate changes on a
delayed basis, and the rate borne by the related borrowings reflects market
rate changes more rapidly, the Company's net interest income will be adversely
affected in periods of increasing market interest rates. Additionally, the
Company's mortgage assets are subject to periodic interest rate adjustments
that may be less frequent than the increases or decreases in rates borne by
the borrowings or financings utilized by the Company. Accordingly, in a period
of increasing interest rates, the Company could experience a decrease in net
interest income or a net loss because the interest rates on borrowings could
adjust faster than the interest rates on the Company's ARMs or mortgage-backed
securities backed by ARMs. Moreover, ARMs are typically subject to periodic
and lifetime interest rate caps, which limit the amount an ARMs interest rate
can change during any given period. The Company's borrowings are not subject
to similar restrictions. Hence, in a period of rapidly increasing interest
rates, the Company could also experience a decrease in net interest income or
a net loss in the absence of effective hedging because the interest rates on
borrowings could increase without limitation by caps while the interest rates
on the Company's ARMs and mortgage-backed securities backed by ARMs would be
so limited. Further, some ARMs may be subject to periodic payment caps that
result in some portion of the interest accruing on the ARMs being deferred and
added to the principal
 
                                       7
<PAGE>
 
outstanding. This could result in less cash received by the Company on its
ARMs than is required to pay interest on the related borrowings, which will
not have such payment caps. The Company expects that the net effect of these
factors, all other factors being equal, will be to lower the Company's net
interest income or cause a net loss during periods of rapidly rising interest
rates, which could negatively impact the market price of the Common Stock. No
assurance can be given as to the amount or timing of changes in income. To the
extent that the Company utilizes short-term debt financing for fixed rate
mortgages or mortgage-backed securities backed by fixed rate mortgages, the
Company may also be subject to interest rate risks. To the extent that some of
the warehouse loans made by the Company bear interest based upon an
intermediate-term index while the Company's borrowings to fund such loans bear
interest based upon a short-term index, the Company will be subject to the
risk of narrowing interest rate spreads.
 
  Higher rates of interest may have a negative effect, in particular, on the
yield of any Company portfolio of "principal only" securities and other types
of mortgage-backed securities purchased at a discount. If under such
circumstances the Company were required to dispose of any "principal only"
securities held in its portfolio, a loss could be incurred. Lower long-term
rates of interest may negatively affect the yield on any Company portfolio of
"interest only" securities, servicing fees receivable, master servicing fees
receivable and other mortgage loan and mortgage-backed securities purchased at
a premium. It is also possible that in certain low interest rate environments
the Company would not fully recoup any initial investment in such securities
or investments. See "--Risks of Potential Net Interest and Operating Losses in
Connection with Borrowing and Substantial Leverage; Liquidity."
 
  Mortgage prepayment rates vary from time to time and may cause changes in
the amount of the Company's net interest income. Prepayments on ARMs and
mortgage-backed securities backed by ARMs generally increase when mortgage
interest rates fall below the then current interest rates on such ARMs.
Conversely, prepayments of such mortgage loans generally decrease when
mortgage interest rates exceed the then-current interest rate on such mortgage
loans. Prepayment experience also may be affected by the geographic location
of the property securing the mortgage loans, the credit grade of the mortgage
loan, the assumability of the mortgage loans, the ability of the borrower to
convert to a fixed-rate loan, conditions in the housing and financial markets
and general economic conditions. In addition, prepayments on ARMs are affected
by conditions in the fixed-rate mortgage market. If the interest rates on ARMs
increase at a rate greater than the interest rates on fixed-rate mortgage
loans, prepayments on ARMs will tend to increase. In periods of fluctuating
interest rates, interest rates on ARMs may exceed interest rates on fixed-rate
mortgage loans, which may tend to cause prepayments on ARMs to increase at a
greater rate than anticipated. Prepayment rates also vary by credit grade. For
the three months ended March 31, 1996 and the Interim Period, 63.4% and 31.9%,
respectively, of the loans acquired by the Company were non-conforming "A"
grade mortgage loans, as defined by the Company, which may be subject to
higher rates of prepayment than lesser credit grades of non-conforming loans.
Second mortgage loans generally have smaller average principal balances than
first mortgage loans and are not viewed by borrowers as permanent financing.
Accordingly, second mortgage loans may experience a higher rate of prepayment
than first mortgage loans. In addition, any future limitations on the right of
borrowers to deduct interest payments on mortgage loans for Federal income tax
purposes may result in a higher rate of prepayment mortgage loans. See
"Business--Conduit Operations--Marketing and Production."
 
  Prepayments of mortgage loans could affect the Company in several adverse
ways. A substantial portion of the ARMs acquired by the Company (either
directly as mortgage loans or through mortgage-backed securities backed by
ARMs) have been newly originated within six months of purchase and generally
bear initial interest rates which are lower than their "fully-indexed" rates
(the applicable index plus the margin). In the event that such an ARM is
prepaid prior to or soon after the time of adjustment to a fully-indexed rate,
the Company will have experienced an adverse effect on its net interest income
during the time it held such ARM compared with holding a fully-indexed ARM and
will have lost the opportunity to receive interest at the fully indexed rate
over the expected life of the ARM.
 
  The prepayment of any mortgage loan that had been purchased at a premium by
the Company would result in the immediate write-off of any remaining
capitalized premium amount and a consequent decrease in the
 
                                       8
<PAGE>
 
Company's interest income. The Long-Term Investment Operations' strategy at
the present time contemplates the purchase of certain mortgage loans on a
"servicing released" basis (i.e., the Company will acquire both the mortgage
loans and the rights to service them). This strategy requires payment of a
higher purchase price by the Company for the mortgage loans, and to the extent
a premium is paid, the Company is more exposed to the adverse effects of early
prepayments of the mortgage loans, as described above.
 
HEDGING STRATEGIES
 
  To mitigate risks associated with its Conduit Operations, the Company,
through ICIFC, enters into transactions designed to hedge interest rate risks,
which may include mandatory and optional forward selling of mortgage loans or
mortgage-backed securities, interest rate caps, floors and swaps and buying
and selling of futures and options on futures. To mitigate risks associated
with its Long-Term Investment Operations, the Company's policy is to attempt
to match the interest rate sensitivities of its adjustable rate mortgage
assets held for investment with the associated liabilities. The Company may
purchase interest rate caps, interest rate swaps or similar instruments to
attempt to mitigate the cost of its variable rate liabilities increasing at a
faster rate than the earnings on its subject assets during a period of rising
interest rates. The nature and quantity of the hedging transactions for the
Conduit Operations and the Long-Term Investment Operations is determined by
the management of the Company based on various factors, including market
conditions and the expected volume of mortgage loan purchases, and there have
been no limitations placed on management's use of certain instruments in such
hedging transactions. No assurance can be given that such hedging transactions
will offset the risks of changes in interest rates, and it is possible that
there will be periods during which the Company could incur losses after
accounting for its hedging activities. See "Business--Hedging."
 
 
RISKS RELATING TO OPERATIONS
 
  The Company makes long-term investments in mortgage loans and mortgage-
backed securities. The Company does not obtain credit enhancements such as
mortgage pool or special hazard insurance for its mortgage loans and
investments other than (1) FHA insurance, (2) VA guarantees and (3) private
mortgage insurance, in each case only when specified by its underwriting
criteria. Accordingly, during the time it holds mortgage loans for investment,
the Company is subject to risks of borrower defaults and bankruptcies and
special hazard losses that are not covered by standard hazard insurance (such
as those occurring from earthquakes or floods). In the event of a default on
any mortgage loan held by the Company, the Company bears the risk of loss of
principal to the extent of any deficiency between the value of the related
mortgaged property, plus any payments from an insurer or guarantor, and the
amount owing on the mortgage loan. Defaulted mortgage loans will also cease to
be eligible collateral for borrowings, and will have to be financed by the
Company out of other funds until ultimately liquidated.
 
  Credit risks associated with non-conforming mortgage loans, especially "B"
and "C" grade loans, may be greater than those associated with conforming
mortgage loans that comply with FNMA and FHLMC guidelines. Non-conforming
mortgage loans generally consist of jumbo mortgage loans (loans with a
principal balance in excess of $207,000) or loans that are originated in
accordance with underwriting or product guidelines that differ from those
applied by FNMA or FHLMC. The principal differences between conforming loans
and the non-conforming loans purchased by the Company include the applicable
loan-to-value ratios, the credit and income histories of the mortgagors, the
documentation required for approval of the mortgagors, the types of properties
securing the mortgage loans, loan sizes and the mortgagors' occupancy status
with respect to the mortgaged property. As a result of these and other
factors, the interest rates charged on non-conforming loans are often higher
than those charged for conforming loans. The combination of different
underwriting criteria and higher rates of interest may lead to higher
delinquency rates and/or credit losses for non-conforming as compared to
conforming loans and could have an adverse effect on the Company's operations
to the extent that the Company invests in such loans or securities evidencing
interests in such loans.
 
  In addition, with respect to second mortgage loans, the Company's security
interest in the property securing such loans is subordinated to the interest
of the first mortgage holder. If the value of the property securing the
 
                                       9
<PAGE>
 
second mortgage loan is not sufficient to repay the borrower's obligation to
the first mortgage holder upon foreclosure or if there is no additional value
in such property after satisfying the borrower's obligation to the first
mortgage loan holder, the borrower's obligation to the Company will likely not
be satisfied.
 
  The Company also bears risk of loss on any mortgage-backed securities it
purchases in the secondary mortgage market or otherwise. To the extent third
parties have been contracted to insure against these types of losses, the
Company would be dependent in part upon the creditworthiness and claims paying
ability of the insurer and the timeliness of reimbursement in the event of a
default on the underlying obligations. Further, the insurance coverage for
various types of losses is limited in amount, and losses in excess of the
limitation would be borne by the Company.
 
  The yield derived from certain classes of mortgage-backed securities created
in connection with securitizations by ICIFC and subsequently retained by the
Company, including, but not limited to, "interest only," "principal only" and
subordinated securities, is particularly sensitive to interest rate,
prepayment and credit risks. The Company's investment portfolio may include
each of these classes of securities, as well as investments in master
servicing fees receivable, which have characteristics comparable to "interest
only" securities insofar as their value tends to decline as prepayment rates
increase. See "--Changes in Interest Rates; Prepayment Risks." Because
subordinated securities, in general, bear all credit losses prior to the
related senior securities, the amount of credit risk associated with any
investment in such subordinated securities would be significantly greater than
that which would be associated with a comparable investment in the related
senior securities and, on a percentage basis, the risk would be greater than
holding the underlying mortgage loans directly. See "Business--Long-Term
Investment Operations--Investments in Mortgage-Backed Securities and Master
Servicing Fees Receivable."
 
  As a warehouse lender, the Company is a secured creditor of mortgage bankers
and is subject to the risks associated with such businesses, including the
risks of fraud, borrower default and bankruptcy, any of which could result in
credit losses for the Company. Any claim of the Company as a secured lender in
a bankruptcy proceeding may be subject to adjustment and delay. See
"Business--Warehouse Lending Operations."
   
  In connection with its Conduit Operations, ICIFC has engaged in
securitizations and bulk whole loan sales. In connection with the issuance of
mortgage-backed securities by ICIFC, such securities have been non-recourse to
ICIFC, except in the case of a breach of the standard representations and
warranties made by ICIFC when mortgage loans are securitized. While ICIFC has
recourse to the sellers of mortgage loans for any such breaches, there can be
no assurance of the sellers' abilities to honor their respective obligations.
ICIFC has engaged in bulk whole loan sales pursuant to agreements that provide
for recourse by the purchaser against ICIFC (and, in certain cases, IMH as
guarantor) in the event of a breach of representation or warranty made by
ICIFC, any fraud or misrepresentation during the mortgage loan origination
process or upon early default on such mortgage loans. ICIFC has generally
limited the remedies of such purchasers to the remedies ICIFC receives from
the persons from whom ICIFC purchased such mortgage loans. However, in some
cases, the remedies available to a purchaser of mortgage loans from ICIFC are
broader than those available to ICIFC against its seller, and should a
purchaser exercise its rights against ICIFC, ICIFC may not always be able to
enforce whatever remedies ICIFC may have against its sellers. ICIFC may from
time to time provide provisions for loan losses related to estimated losses
from the breach of a standard representation and warranty. ICIFC recorded a
provision for loan losses related to such estimated losses of $400,000 during
the three months ended March 31, 1996. During the three months ended March 31,
1996, no losses occurred and no loans were repurchased by ICIFC. In 1995, 1994
and 1993, the impact of loans repurchased as a result of borrower
misrepresentations was not material.     
 
RISKS OF POTENTIAL NET INTEREST AND OPERATING LOSSES IN CONNECTION WITH
BORROWINGS AND SUBSTANTIAL LEVERAGE; LIQUIDITY
 
  The Company has employed a financing strategy to increase the size of its
investment portfolio by borrowing a substantial portion (up to approximately
98%, depending on the nature of the underlying asset) of the market value of
substantially all of its investments in mortgage loans and mortgage-backed
securities. The
 
                                      10
<PAGE>
 
Company initially intended maintaining a ratio of equity capital (book value
of stockholders' equity) to total assets of approximately 15%. This target
ratio was developed on the assumption that the Company would utilize the sale
of pass-through mortgage-backed securities as the primary securitization
technique, as compared to financing the loans in the Company's long-term
investment portfolio through CMOs. However, the Company has elected to utilize
CMO financings because CMOs allow the Company to more fully realize the
benefits of IMH's REIT tax status. CMOs receive financing treatment as opposed
to sale treatment. Financing treatment allows the Company to recognize spread
income over time as qualifying income under the REIT gross income tests, as
compared to gains at ICIFC for pass-through securites which receive sale
treatment and are fully taxable. The assets collateralizing CMO financings
remain on the Company's balance sheet, while assets backing pass-through
securities are removed from the balance sheet. Consequently, CMO financing
tends to increase the assets of the Company and reduce the Company's ratio of
equity capital to total assets, as compared to the sale of pass-through
securities. It is expected that the continued use of CMOs will likely result
in a ratio of equity capital to total assets of between 7% to 8%. The
Company's ratio of equity capital to total assets at March 31, 1996 was 8.0%
and the ratio at December 31, 1995 was 7.4%.
 
  A majority of the Company's borrowings are collateralized, primarily in the
form of reverse repurchase agreements, which are based on the market value of
the Company's mortgage loans pledged to secure the specific borrowings. The
cost of borrowings under a reverse repurchase agreement corresponds to the
referenced interest rate (e.g., the CMT Index or LIBOR) plus or minus a
margin. The margin over or under the referenced interest rate varies depending
upon the lender, the nature and liquidity of the underlying collateral, the
movement of interest rates, the availability of financing in the market and
other factors. If the returns on the mortgage loans and mortgage-backed
securities purchased with borrowed funds fail to cover the cost of the
borrowings, the Company will experience net interest losses and may experience
net losses. See "Business--Long-Term Investment Operations."
 
  The use of CMOs as financing vehicles tends to increase the Company's
leverage as such loans are held for investment rather than resold in secondary
market transactions. For this reason the Company is exposed to greater
potential credit losses from the use of CMOs as financing vehicles. In
addition, the retention of residual interests in mortgage loans sold through
secondary market transactions exposes ICIFC to a risk of credit loss up to the
amount of ICIFC's investment in the residual interest. Should the Company
experience credit losses greater than expected, the Company's financial
condition and results of operations would be materially adversely affected.
 
  The ability of the Company to achieve its investment objectives depends not
only on its ability to borrow money in sufficient amounts and on favorable
terms but also on the Company's ability to renew or replace on a continuous
basis its maturing short-term borrowings. The Company's business strategy
relies on short-term borrowings to fund long-term mortgage loans. In the event
the Company is not able to renew or replace maturing borrowings, the Company
could be required to sell, under adverse market conditions, all or a portion
of its mortgage loans and mortgage-backed securities available-for-sale, and
could incur losses as a result. In addition, in such event the Company may be
required to terminate hedge positions, which could result in further losses to
the Company. Such events could have a materially adverse effect on the
Company.
 
  Certain of the Company's mortgage loans may be cross-collateralized to
secure multiple borrowing obligations of the Company to a single lender. A
decline in the market value of such assets could limit the Company's ability
to borrow or result in lenders initiating margin calls (i.e., requiring a
pledge of cash or additional mortgage loans to reestablish the ratio of the
amount of the borrowing to the value of the collateral). The Company could be
required to sell mortgage loans under adverse market conditions in order to
maintain liquidity. If these sales were made at prices lower than the carrying
value of its mortgage loans, the Company would experience losses. A default by
the Company under its collateralized borrowings could also result in a
liquidation of the collateral, including any cross-collateralized assets, and
a resulting loss of the difference between the value of the collateral and the
amount borrowed. Additionally, in the event of a bankruptcy of the Company,
certain reverse repurchase agreements may qualify for special treatment under
the Bankruptcy Code, the effect of which is, among other things, to allow the
creditors under such agreements to avoid the automatic stay provisions of the
Bankruptcy Code and to liquidate the collateral under such agreements without
delay. Conversely, in the event of a bankruptcy of a party with whom the
Company had a reverse repurchase agreement,
 
                                      11
<PAGE>
 
the Company might experience difficulty repurchasing the collateral under such
agreement if it were to be repudiated and the Company's claim against the
bankrupt lender for damages resulting therefrom were to be treated simply as
one of an unsecured creditor. Should this occur, the Company's claims would be
subject to significant delay and, if and when received, may be substantially
less than the damages actually suffered by the Company. Although the Company
has entered into reverse repurchase agreements with several different parties
and has developed procedures to reduce its exposure to such risks, no
assurance can be given that the Company will be able to avoid such third party
risks. See "Business--Long-Term Investment Operations--Financing."
 
  To the extent the Company is compelled to liquidate mortgage loans or
mortgage-backed securities classified as Qualified REIT Assets to repay
borrowings, IMH may be unable to comply with the REIT asset and income tests,
possibly jeopardizing IMH's status as a REIT. The Code does not provide for
any mitigating provisions with respect to the 30% gross income test.
Accordingly, if IMH failed to meet the 30% gross income test, its status as a
REIT would terminate automatically. See "Federal Income Tax Considerations--
Taxation of IMH--Income Tests."
 
  The REIT provisions of the Code require IMH to distribute to its
stockholders substantially all of its taxable income. As a result, such
provisions restrict the Company's ability to retain earnings and replenish the
capital committed to its business activities.
 
  The Company's liquidity is also affected by its ability to access the debt
and equity capital markets. To the extent that the Company is unable to
regularly access such markets, the Company could be forced to sell assets at
unfavorable prices or discontinue various business activities in order to meet
its liquidity needs. As a result, any such inability to access the capital
markets could have a negative impact on the Company's earnings.
 
  Substantially all of the assets of the Conduit Operations have been pledged
to secure the repayment of mortgage-backed securities issued in the
securitization process, reverse repurchase agreements or other borrowings. In
addition, substantially all of the mortgage loans that the Company has
acquired and will in the future acquire have been or will be pledged to secure
borrowings pending their securitization or sale or as a part of their long-
term financing. The cash flows received by the Company from its investments
that have not yet been distributed, pledged or used to acquire mortgage loans
or other investments may be the only unpledged assets available to unsecured
creditors and stockholders in the event of liquidation of the Company.
 
DEMAND FOR RESIDENTIAL MORTGAGE LOANS AND THE COMPANY'S NON-CONFORMING LOAN
PRODUCTS
 
  The availability of mortgage loans meeting the Company's criteria is
dependent upon, among other things, the size and level of activity in the
residential real estate lending market and, in particular, the demand for non-
conforming mortgage loans. The size and level of activity in the residential
real estate lending market depend on various factors, including the level of
interest rates, regional and national economic conditions and inflation and
deflation in residential property values, as well as the general regulatory
and tax environment as it relates to mortgage lending. See "Business--
Regulation." To the extent the Company is unable to obtain sufficient mortgage
loans meeting its criteria, the Company's business will be adversely affected.
 
  FNMA and FHLMC are not currently permitted to purchase mortgage loans with
original principal balances above $207,000. If this dollar limitation is
increased without a commensurate increase in home prices, the Company's
ability to maintain or increase its current acquisition levels could be
adversely affected as the size of the non-conforming mortgage loan market may
be reduced, and FNMA and FHLMC may be in a position to purchase a greater
percentage of the mortgage loans in the secondary market than they currently
acquire.
 
  In general, lower interest rates prompt greater demand for mortgage loans,
because more individuals can afford to purchase residential properties, and
refinancing and second mortgage loan transactions increase. However, if low
interest rates are accompanied by a weak economy and high unemployment, demand
for housing and residential mortgage loans may decline. Conversely, higher
interest rates and lower levels of housing finance
 
                                      12
<PAGE>
 
and refinance activity may decrease mortgage loan purchase volume levels,
resulting in decreased economies of scale and higher costs per unit, reduced
fee income, smaller gains on the sale of non-conforming mortgage loans and
lower net income.
 
  Although the Company seeks geographic diversification of the properties
underlying the Company's mortgage loans and mortgage-backed securities, it
does not set specific limitations on the aggregate percentage of its portfolio
composed of such properties located in any one area (whether by state, zip
code or other geographic measure). Concentration in any one area will increase
exposure of the Company's portfolio to the economic and natural hazard risks
associated with such area. At March 31, 1996, 76.5% of IMH's mortgage loans
held for investment were secured by properties in California. Certain parts of
California have experienced an economic downturn in recent years, particularly
in areas of high defense industry concentration, and have suffered the effects
of certain natural hazards such as earthquakes, fires and floods, as well as
riots.
 
LIMITED HISTORY OF OPERATIONS
 
  The Company commenced operations on November 20, 1995. Prior to the date of
the Contribution Transaction, ICIFC was a division or subsidiary of ICII and
IWLG was a division of SPTL. Although the Company was profitable for the year
ended December 31, 1995 and for the three months ended March 31, 1996, and has
experienced substantial growth in mortgage loan originations and total
revenues, there can be no assurance that the Company will be profitable in the
future or that these rates of growth will be sustainable or indicative of
future results. Prior to the Company's initial public offering (the "Initial
Public Offering"), each of ICIFC and IWLG benefited from the financial,
administrative and other resources of ICII and SPTL, respectively.
 
  Since the Company commenced operations in November 1995, its growth in
purchasing loans has been significant. In light of this growth, the historical
financial performance of the Company may be of limited relevance in predicting
future performance. Also, the loans purchased by the Company and included in
the Company's securitizations have been outstanding for a relatively short
period of time. Consequently, the delinquency and loss experience of the
Company's loans to date may not be indicative of future results. It is
unlikely that the Company will be able to maintain delinquency and loan loss
ratios at their present levels as the portfolio becomes more seasoned.
 
  A reduction in the number of loans available for purchase or a lack of
demand for the Company's mortgage loan products could limit the Company's
ability to fully invest the net proceeds of this Offering in mortgage loans
and mortgage-backed securities in a timely manner after completion of this
Offering. Should such an event occur, the Company will likely not be able to
maintain the level of performance it has achieved since the Contribution
Transaction.
 
RECENT AND PLANNED EXPANSION; RELIANCE ON ICII'S ORIGINATION CAPABILITY
 
  The Company's total revenues and net income have grown significantly since
the Company's inception, primarily due to increased mortgage purchasing, sales
and investing activities. The Company intends to continue to pursue a growth
strategy for the foreseeable future, and its future operating results will
depend largely upon its ability to expand its Long-Term Investment Operations,
its Conduit Operations and its Warehouse Lending Operations. Each of these
plans requires additional personnel and assets and there can be no assurance
that the Company will be able to successfully expand and operate its expanded
operations profitably. There can be no assurance that the Company will
anticipate and respond effectively to all of the changing demands that its
expanding operations will have on the Company's management, information and
operating systems, and the failure to adapt its systems could have a material
adverse effect on the Company's results of operations and financial condition.
There can be no assurance that the Company will successfully achieve its
planned expansion or, if achieved, that the expansion will result in
profitable operations.
 
                                      13
<PAGE>
 
  A significant portion of the Company's mortgage loan acquisitions since its
inception have been from ICII or its affiliates. Of the $280.7 million and
$1.1 billion of mortgage loans acquired by the Company for the three months
ended March 31, 1996 and the year ended December 31, 1995, respectively,
$166.2 million and $508.6 million, respectively, were purchased from ICII or
its affiliates. Mortgage loan acquisitions from ICII for the three months
ended March 31, 1996 consisted of acquisitions of mortgage loans from
correspondents associated with ICII. ICII has announced that it is
substantially divesting itself of its mortgage loan business except for those
activities referred to in the Non-Compete Agreement as described in "Certain
Transactions." As a result, the Company expects that the level of originations
provided by ICII should substantially decrease over time. Unless and until the
Company is able to acquire mortgage loans from other sources, the Company's
operations may be materially adversely affected.
 
COMPETITION FOR MORTGAGE LOANS
 
  In purchasing non-conforming mortgage loans and issuing securities backed by
such loans, the Company competes with established mortgage conduit programs,
investment banking firms, savings and loan associations, banks, thrift and
loan associations, finance companies, mortgage bankers, insurance companies,
other lenders and other entities purchasing mortgage assets. Continued
consolidation in the mortgage banking industry may also reduce the number of
current sellers to the Conduit Operations, thus reducing the Company's
potential customer base, resulting in the Company purchasing a larger
percentage of mortgage loans from a smaller number of sellers. Such changes
could negatively impact the Conduit Operations. See "--Demand for Residential
Mortgage Loans and the Company's Non-Conforming Loan Products," "Business--
Competition" and "Business Conduit Operations--Marketing and Production--
Mortgage Loans Acquired." Mortgage-backed securities issued through the
Conduit Operations face competition from other investment opportunities
available to prospective investors.
 
  The Company faces competition in its Conduit Operations and Warehouse
Lending Operations from other financial institutions, including but not
limited to banks and investment banks. Many of the institutions with which the
Company competes in these operations have significantly greater financial
resources than the Company. Increased competition in the Conduit Operations
and Warehouse Lending Operations could adversely affect the Company's
profitability. See "Business--Competition."
 
  The Company's operations may be affected by the activities of ICII and its
affiliates. As an end-investor in non-conforming mortgage loans, SPTL may
compete with the Company; this activity is not restricted by an agreement not
to compete executed by and among the Company, SPTL and ICII in connection with
the Contribution Transaction (the "Non-Compete Agreement"). Also, Southern
Pacific Funding Corporation is a subsidiary of ICII whose business is
primarily to act as a wholesale originator and a bulk purchaser of non-
conforming mortgage loans. These activities are not restricted by the Non-
Compete Agreement. In addition, after the expiration of the Non-Compete
Agreement, ICII or any 25% entity may compete with the Company's Long-Term
Investment Operations, the Conduit Operations and the Warehouse Lending
Operations. While the Company believes such activities will not have a
material adverse effect on the Company's operations, there can be no assurance
of this. See "--Relationship with ICII and its Affiliates; Conflicts of
Interest" and "Business--Competition."
 
EXPERIENCE OF THE MANAGER IN MANAGING A REIT
 
  The Company is dependent for the selection, structuring and monitoring of
its assets and associated borrowings on the diligence and skill of its
officers and the officers and employees of the Manager which has limited
experience in managing a REIT. See "Imperial Credit Advisors, Inc." for
further descriptions of the business experience of key management personnel.
 
                                      14
<PAGE>
 
RELATIONSHIP WITH ICII AND ITS AFFILIATES; CONFLICTS OF INTEREST
 
  The Company is subject to conflicts of interest arising from its
relationship with its manager, ICAI, and ICAI's affiliates. ICAI, through its
affiliation with ICII, has interests that may conflict with those of the
Company in fulfilling certain of its duties. In addition, certain of the
officers and Directors of ICII or its affiliates are also officers and
Directors of the Company, including H. Wayne Snavely and Joseph R. Tomkinson,
Chairman of the Board and Chief Executive Officer of IMH, respectively. See
"Imperial Credit Mortgage Holdings, Inc. Directors and Executive Officers" and
"Imperial Credit Advisors, Inc.--Directors and Executive Officers." The
Company also relies upon ICAI (which has entered into a subcontract with ICII
to provide certain management services to the Company as ICAI deems necessary)
for the oversight of day-to-day operations of its business. All other
operations of the Company are conducted through ICIFC and IWLG, which had
approximately 60 and three employees, respectively, as of March 31, 1996. No
assurance can be given that the Company's relationships with ICAI and its
affiliates will continue indefinitely. The failure or inability of ICAI to
provide the services required of it under the Management Agreement (or of ICII
to perform its obligations under its subcontract with ICAI) or any other
agreements or arrangements with the Company would have a material adverse
effect on the Company's business. In addition, as the holder of all of the
outstanding voting stock of ICIFC, ICII has the right to elect all directors
of ICIFC and the ability to control the outcome of all matters for which the
consent of the holders of the common stock of ICIFC is required.
 
  The Company intends to provide up to a $100 million warehouse facility to
FMAC on terms to be negotiated in an arms-length transaction. ICII owns 67% of
FMAC. See "Business--Warehouse Lending Operations--FMAC."
 
  It is the intention of the Company and ICII that any agreements and
transactions, taken as a whole, between the Company, on the one hand, and ICII
or its affiliates, on the other hand, are fair to both parties. To minimize or
avoid potential conflicts of interests, all three Unaffiliated Directors must
independently and by majority vote approve all such agreements and
transactions. However, there can be no assurance that each of such agreements
or transactions will be on terms at least as favorable to the Company as could
have been obtained from unaffiliated third parties. See "Imperial Credit
Mortgage Holdings, Inc.," "Imperial Credit Advisors, Inc.," "Relationships
with Affiliates" and "Certain Transactions."
 
  Pursuant to the Non-Compete Agreement, except as set forth below, ICII and
any 25% entity may not compete with the Warehouse Lending Operations and may
not establish a network of third party correspondent loan originators or
another end-investor in non-conforming mortgage loans. ICII has also agreed
(1) that, in addition to any other remedy that may be available to the
Company, it will sell, at a price determined by an independent appraisal, all
of the outstanding shares of common stock of ICIFC to be retained by ICII
pursuant to the Contribution Transaction to any third party reasonably
acceptable to the Company in the event that ICII or any 25% entity establishes
a network of third party correspondent loan originators or other end-investors
in non-conforming loans during the term of the Non-Compete Agreement and (2)
that any sale by ICIFC of shares of its capital stock or any sale or transfer
by ICII of any shares of the common stock of ICIFC which ICII owns may only be
made to a party reasonably acceptable to the Company. Pursuant to the Non-
Compete Agreement, SPTL may continue to act as an end-investor in non-
conforming mortgage loans and Southern Pacific Funding Corporation, a
subsidiary of ICII, may continue its business, which is primarily to act as a
wholesale originator and bulk purchaser of non-conforming mortgage loans.
Pursuant to a right of first refusal agreement executed by and between ICIFC
and ICII in connection with the Contribution Transaction (the "Right of First
Refusal Agreement"), ICII has granted ICIFC a right of first refusal to
purchase all non-conforming mortgage loans that ICII or any 25% entity
originates or acquires and subsequently offers for sale and ICIFC has granted
ICII or any 25% entity designated by ICII a right of first refusal to purchase
all conforming mortgage loans that ICIFC acquires and subsequently offers for
sale.
 
CONSEQUENCES OF FAILURE TO MAINTAIN REIT STATUS; COMPANY SUBJECT TO TAX AS A
REGULAR CORPORATION
 
  IMH currently operates and has operated in a manner intended to allow it to
qualify as a REIT under the Internal Revenue Code of 1986, as amended (the
"Code"). Although IMH believes that it will continue to
 
                                      15
<PAGE>
 
operate in such a manner, no assurance can be given that IMH will remain
qualified as a REIT. Qualification as a REIT involves the satisfaction of
numerous requirements (some on an annual and others on a quarterly basis)
established under highly technical and complex Code provisions for which there
are only limited judicial and administrative interpretations, and involve the
determination of various factual matters and circumstances not entirely within
the Company's control. For example, in order to qualify as a REIT, at least
95% of IMH's gross income (including the gross income of IWLG) in any year
must be derived from qualifying sources and IMH must pay distributions to
stockholders aggregating annually at least 95% of its (and IWLG's) taxable
income (calculated without regard to the dividends paid deduction and
excluding net capital gains). No assurance can be given that legislation, new
regulations, administrative interpretations or court decisions will not
significantly change the tax laws with respect to qualification as a REIT.
 
  Among the requirements for REIT qualification is that the value of any one
issuer's securities held by a REIT may not exceed the value of 5% of the
REIT's total assets on certain testing dates. See "Federal Income Tax
Considerations--Taxation of IMH--Requirements for Qualification." IMH believes
that the aggregate value of the securities of ICIFC held by IMH are less than
5% of the value of IMH's total assets.
 
  If IMH were to fail to qualify as a REIT in any taxable year, IMH would be
subject to federal income tax (including any applicable alternative minimum
tax) on its (and IWLG's) taxable income at regular corporate rates and would
not be allowed a deduction in computing its taxable income for amounts
distributed to its stockholders. Moreover, unless entitled to relief under
certain statutory provisions, IMH also would be disqualified from treatment as
a REIT for the four taxable years following the year during which
qualification is lost. This treatment would reduce the net earnings of IMH
available for investment or distribution to stockholders because of the
additional tax liability of IMH for the years involved. In addition,
distributions to stockholders would no longer be required to be made. See
"Federal Income Tax Considerations--Taxation of IMH--Requirements for
Qualification."
 
INVESTMENT COMPANY ACT RISK
 
  The Company at all times intends to conduct its business so as not to become
regulated as an investment company under the Investment Company Act.
Accordingly, the Company does not expect to be subject to the restrictive
provisions of the Investment Company Act. The Investment Company Act exempts
entities that are "primarily engaged in the business of purchasing or
otherwise acquiring mortgages and other liens on and interests in real estate"
("Qualifying Interests"). Under the current interpretation of the staff of the
Commission, in order to qualify for this exemption, the Company must maintain
at least 55% of its assets directly in mortgage loans, qualifying pass-through
certificates and certain other Qualifying Interests in real estate. In
addition, unless certain mortgage securities represent all the certificates
issued with respect to an underlying pool of mortgages, such mortgage
securities may be treated as securities separate from the underlying mortgage
loans and, thus, may not qualify as Qualifying Interests for purposes of the
55% requirement. The Company's ownership of certain mortgage loans therefore
may be limited by the provisions of the Investment Company Act. In addition,
in meeting the 55% requirement under the Investment Company Act, the Company
intends to consider privately issued certificates issued with respect to an
underlying pool as to which the Company holds all issued certificates as
Qualifying Interests. If the Commission, or its staff, adopts a contrary
interpretation with respect to such securities, the Company could be required
to restructure its activities to the extent its holdings of such privately
issued certificates did not comply with the interpretation. Such a
restructuring could require the sale of a substantial amount of privately
issued certificates held by the Company at a time it would not otherwise do
so. Further, in order to insure that the Company at all times continues to
qualify for the above exemption from the Investment Company Act, the Company
may be required at times to adopt less efficient methods of financing certain
of its mortgage loans and investments in mortgage-backed securities than would
otherwise be the case and may be precluded from acquiring certain types of
such mortgage assets whose yield is somewhat higher than the yield on assets
that could be purchased in a manner consistent with the exemption. The net
effect of these factors will be to lower at times the Company's net interest
income, although the Company does not expect the effect to be material. If the
Company fails to qualify for exemption from registration as an investment
company, its ability to use leverage would be substantially reduced, and it
would be unable to conduct its business as described herein. Any such failure
to qualify for such exemption could have a material adverse effect on the
Company.
 
                                      16
<PAGE>
 
FUTURE REVISIONS IN POLICIES AND STRATEGIES AT THE DISCRETION OF THE BOARD OF
DIRECTORS
 
  The Board of Directors, including a majority of the Unaffiliated Directors,
has established the investment policies and operating policies and strategies
set forth in this Prospectus as the investment policies and operating policies
and strategies of the Company. With respect to other matters, the Company may,
in the future, but currently has no present plans to, invest in the securities
of other REITs for the purpose of exercising control, offer securities in
exchange for property or offer to repurchase or otherwise reacquire its shares
or other securities. The Company does not currently intend to underwrite the
securities of other issuers. However, any of the policies, strategies and
activities referenced above or described in this Prospectus may be modified or
waived by the Board of Directors, subject in certain cases to approval by a
majority of the Unaffiliated Directors, without stockholder consent.
 
EFFECT OF FUTURE OFFERINGS ON MARKET PRICE OF COMMON STOCK
 
  The Company in the future may increase its capital resources by making
additional private or public offerings of its Common Stock, securities
convertible into its Common Stock, preferred stock or debt securities. The
actual or perceived effect of such offerings, the timing of which cannot be
predicted, may be the dilution of the book value or earnings per share of the
Common Stock outstanding, which may result in the reduction of the market
price of the Common Stock. The Company has adopted the DRP pursuant to which
shares are issuable at the DRP Price, which is 97% of the current market
price, thereby resulting in dilution to the extent such shares are issued by
the Company.
 
SHARES ELIGIBLE FOR FUTURE SALE
 
  Sale of substantial amounts of the Company's Common Stock in the public
market or the prospect of such sales could materially and adversely affect the
market price of the Common Stock. Of the 6,750,000 shares of Common Stock to
be outstanding after the Offering, 500,000 shares are restricted in nature and
are not saleable pursuant to Rule 144 or otherwise until November 1997 at the
earliest. The Company, ICII, SPTL and certain stockholders have agreed with
the Underwriters that, for a period of 120 days following the commencement of
this Offering, they will not sell, contract to sell or otherwise dispose of
any of such 500,000 shares or rights to acquire any shares of Common Stock
(other than pursuant to employee plans or the DRP) without the prior written
consent of PaineWebber Incorporated. See "Shares Eligible for Future Sale" and
"Underwriting." Additionally, there are outstanding stock options for
250,000 shares of Common Stock, which have been granted at a per share
exercise price of $11.25 per share, to executive officers and Directors of the
Company or of the Manager, none of which, except in the event of a change of
control of the Company, are exercisable until November 1998; stock options for
an additional 45,000 shares of Common Stock have been granted to Unaffiliated
Directors of the Company at a per share exercise price of $13.00, none of
which, except in the event of a change of control of the Company, are
exercisable until November 1996; and an additional 105,000 shares of Common
Stock are reserved for future issuance pursuant to the Company's Stock Option
Plan. The Company intends to register under the Securities Act shares reserved
for issuance pursuant to the DRP and the Stock Option Plan. See "Dividend
Reinvestment Plan" and "Imperial Credit Mortgage Holdings, Inc.--Stock
Options."
 
PREFERRED STOCK; RESTRICTIONS ON OWNERSHIP OF COMMON STOCK; ANTI-TAKEOVER RISK
 
  The Company's Articles of Incorporation and the amendments thereto (the
"Charter") authorizes the Board of Directors to issue shares of Preferred
Stock designated in one or more classes or series. The Preferred Stock may be
issued from time to time with such designations, any rights and preferences as
shall be determined by the Board of Directors. Preferred Stock would be
available for possible future financing of, or acquisitions by, the Company
and for general corporate purposes without any legal requirement that further
stockholder authorization for issuance be obtained. The issuance of Preferred
Stock could have the effect of making an attempt to gain control of the
Company more difficult by means of a merger, tender offer, proxy contest or
otherwise. The Preferred Stock, if issued, may have a preference on dividend
payments which could affect the ability of the Company to make dividend
distributions to the common stockholders. As of the date hereof, no shares of
Preferred Stock have been issued. Certain provisions of the Charter may also
have the effect of delaying, deferring or preventing a change in control of
the Company. See "Certain Provisions of Maryland Law and of the Company's
Charter and Bylaws" and "Description of Capital Stock."
 
                                      17
<PAGE>
 
  In order for IMH to maintain its qualification as a REIT, not more than 50%
in value of the outstanding shares of IMH's capital stock, including the
Common Stock, may be owned, actually or constructively, by or for five or
fewer individuals (as defined in the Code to include certain entities) during
the last half of a taxable year (other than the first year). Furthermore,
after the first taxable year for which a REIT election is made, IMH's shares
of capital stock, including the Common Stock, must be held by a minimum of 100
persons for at least 335 days of a 12-month year (or a proportionate part of a
short tax year). In order to protect IMH against the risk of losing REIT
status due to a concentration of ownership among its stockholders, the Charter
prohibits any person, other than ICII as to the 374,538 shares which it owns
(which excludes the 50,000 shares of Common Stock held by SPTL pursuant to the
Contribution Transaction, as to which ICII disclaims beneficial ownership),
from acquiring or holding, actually or constructively, shares of Common Stock
in excess of 9.5%, (in value or in number of shares, whichever is more
restrictive), of the aggregate of the outstanding shares of Common Stock (the
"Ownership Limit"). For this purpose, the term "ownership" is defined in
accordance with the REIT provisions of the Code, the constructive ownership
provisions of Section 544 of the Code, as modified by Section 856(h)(1)(B) of
the Code, and Rule 13d-3 promulgated by the Commission under the Exchange Act
and the term "person" is defined to include a "group," which is defined to
have the same meaning as that term has for purposes of Section 13(d)(3) of the
Exchange Act. Accordingly, shares of Common Stock owned or deemed to be owned
by a person who individually owns less than 9.5% of the shares outstanding may
nevertheless be in violation of the ownership limitations set forth in the
Charter. The Charter further prohibits (1) any person from actually or
constructively owning shares of Common Stock that would result in IMH being
"closely held" under Section 856(h) of the Code or otherwise cause IMH to fail
to qualify as a REIT, and (2) any person from transferring shares of Common
Stock if such transfer would result in shares of Common Stock being owned by
fewer than 100 persons. If any transfer of shares of Common Stock occurs
which, if effective, would result in any person actually or constructively
owning shares of Common Stock in excess or in violation of the above transfer
or ownership limitations, then that number of shares of Common Stock the
actual or constructive ownership of which otherwise would cause such person to
violate such limitations (rounded to the nearest whole shares) shall be
automatically transferred to a trustee (the "Trustee") as trustee of a trust
(the "Trust") for the exclusive benefit of one or more charitable
beneficiaries (the "Charitable Beneficiary"), and the intended transferee
shall not acquire any rights in such shares. Shares held by the Trustee shall
be issued and outstanding shares of Common Stock. The intended transferee
shall not benefit economically from ownership of any shares held in the Trust,
shall have no rights to dividends and shall not possess any rights to vote or
other rights attributable to the shares held in the Trust. The Trustee shall
have all voting rights and rights to dividends or other distributions with
respect to shares held in the Trust, which rights shall be exercised for the
exclusive benefit of the Charitable Beneficiary. Any dividend or other
distribution paid prior to the discovery by the Company that shares of Common
Stock have been transferred to the Trustee shall be paid with respect to such
shares to the Trustee upon demand and any dividend or other distribution
authorized but unpaid shall be paid when due to the Trustee. Any dividends or
distributions so paid over to the Trustee shall be held in trust for the
Charitable Beneficiary. The Board of Directors of the Company may, in their
discretion, waive these requirements on owning shares in excess of the
Ownership Limit.
 
  Within 20 days of receiving notice from the Company that shares of Common
Stock have been transferred to the Trust, the Trustee shall sell the shares
held in the Trust to a person, designated by the Trustee, whose ownership of
the shares will not violate the ownership limitations set forth in the
Charter. Upon such sale, the interest of the Charitable Beneficiary in the
shares sold shall terminate and the Trustee shall distribute the net proceeds
of the sale to the intended transferee and to the Charitable Beneficiary as
follows. The intended transferee shall receive the lesser of (1) the price
paid by the intended transferee for the shares or, if the intended transferee
did not give value for the shares in connection with the event causing the
shares to be held in the Trust (e.g., in the case of a gift, devise or other
such transaction), the Market Price (as defined below) of the shares on the
day of the event causing the shares to be held in the Trust and (2) the price
per share received by the Trustee from the sale or other disposition of the
shares held in the Trust. Any net sale proceeds in excess of the amount
payable to the intended transferee shall be immediately paid to the Charitable
Beneficiary. In addition, shares of Common Stock transferred to the Trustee
shall be deemed to have been offered for sale to the Company, or its designee,
at a price per share equal to the lesser of (1) the price per share in the
transaction that resulted in such transfer to the Trust (or in the case of a
devise or gift, the Market Price at the time of such devise or gift) and (2)
the Market Price on the date the Company, or its designee, accepts such offer.
The
 
                                      18
<PAGE>
 
Company shall have the right to accept such offer until the Trustee has sold
the shares held in the Trust. Upon such a sale to the Company, the interest of
the Charitable Beneficiary in the shares sold shall terminate and the Trustee
shall distribute the net proceeds of the sale to the intended transferee.
 
  The term "Market Price" on any date shall mean, with respect to any class or
series of outstanding shares of the Company's stock, the Closing Price (as
defined below) for such shares on such date. The "Closing Price" on any date
shall mean the last sale price for such shares, regular way, or, in case no
such sale takes place on such day, the average of the closing bid and asked
prices, regular way, for such shares, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the NYSE or, if such shares are not listed or
admitted to trading on the NYSE, as reported on the principal consolidated
transaction reporting system with respect to securities listed on the
principal national securities exchange on which such shares are listed or
admitted to trading or, if such shares are not listed or admitted to trading
on any national securities exchange, the last quoted price, or, if not so
quoted, the average of the high bid and low asked prices in the over-the-
counter market, as reported by the National Association of Securities Dealers,
Inc. Automated Quotation System or, if such system is no longer in use, the
principal other automated quotation system that may then be in use or, if such
shares are not quoted by any such organization, the average of the closing bid
and asked prices as furnished by a professional market maker making a market
in such shares selected by the Board of Directors or, in the event that no
trading price is available for such shares, the fair market value of the
shares, as determined in good faith by the Board of Directors.
 
  Every owner of more than 5% (or such lower percentage as required by the
Code or the Treasury Regulations promulgated thereunder) of all classes or
series of IMH's stock, including shares of Common Stock, within 30 days after
the end of each taxable year, is required to give written notice to IMH
stating the name and address of such owner, the number of shares of each class
and series of stock of IMH beneficially owned and a description of the manner
in which such shares are held. Each such owner shall provide to IMH such
additional information as IMH may request in order to determine the effect, if
any, of such beneficial ownership on IMH's status as a REIT and to ensure
compliance with the Ownership Limit.
 
  Subject to certain limitations, the Board of Directors may increase or
decrease the Ownership Limit.
 
  These provisions may inhibit market activity and the resulting opportunity
for the Company's stockholders to receive a premium for their shares that
might otherwise exist if any person were to attempt to assemble a block of
shares of the Company's Common Stock in excess of the number of shares
permitted under the Charter. Such provisions also may make the Company an
unsuitable investment vehicle for any person seeking to obtain ownership of
more than 9.5% of the outstanding shares of Common Stock.
 
  In addition, certain provisions of the Maryland General Corporation Law
("MGCL") and of the Company's Charter and Bylaws may also have the effect of
delaying, deterring or preventing a change in control of the Company. See
"Certain Provisions of Maryland Law and of the Company's Charter and Bylaws."
 
                                      19
<PAGE>
 
                                  THE COMPANY
 
  IMH was incorporated in the State of Maryland on August 28, 1995. The
Company operates in a manner that permits IMH to elect to be taxed as a REIT
for federal income tax purposes. The Company generates income for distribution
to its stockholders primarily from the net interest income derived from its
investments classified as Qualified REIT Assets and from its Conduit
Operations and Warehouse Lending Operations. As a result of its REIT status,
IMH is permitted to deduct dividend distributions to stockholders in
calculating its taxable income, thereby effectively eliminating the "double
taxation" that generally results when a corporation earns income and
distributes that income to stockholders in the form of dividends. IMH and any
Qualified REIT Subsidiary, including IWLG, generally are not subject to
federal income tax to the extent that certain REIT qualifications are met.
ICIFC is not consolidated with IMH for accounting purposes because IMH does
not own any of ICIFC's voting common stock and IMH does not control ICIFC. All
taxable income of ICIFC is subject to federal and state income taxes, where
applicable. See "Federal Income Tax Considerations--Other Tax Consequences."
 
  The principal executive offices of the Company are located at 20371 Irvine
Avenue, Santa Ana Heights, California 92707, telephone (714) 556-0122.
 
  The Manager, ICAI, oversees the day-to-day operations of the Company,
subject to the supervision of the Company's Board of Directors. The Manager is
involved in three primary activities: (1) asset-liability management--the
analysis and oversight of the acquisition, financing and disposition of
Company assets; (2) capital management--primarily the oversight of the
Company's structuring, analysis, capital raising and investor relations
activities; and (3) operations management--primarily the oversight of IMH's
operating subsidiaries. The Manager has employed personnel who have
significant experience in mortgage finance and in the purchase and
administration of mortgage assets. See "Imperial Credit Advisors, Inc.--
Management Agreement."
 
                                USE OF PROCEEDS
   
  The net proceeds of this Offering are estimated to be $36.5 million (or
$42.1 million if the Underwriters' over-allotment option is exercised in full)
after deducting estimated offering expenses and underwriting discounts and
commissions. It is expected that approximately 70% and 20% of such proceeds
will be used to provide funding for the Company's Long-Term Investment
Operations and its Warehouse Lending Operations, respectively. The balance of
such proceeds will be used for working capital and general corporate purposes.
Pending these uses, the proceeds may be invested temporarily to the extent
consistent with the REIT provisions of the Code.     
 
  The Company anticipates that it will fully invest the net proceeds of this
Offering in mortgage loans and mortgage-backed securities within 60 days after
completion of this Offering. The Company has not specifically identified any
mortgage loans and mortgage-backed securities in which to invest the proceeds
of this Offering.
 
                          PRICE RANGE OF COMMON STOCK
 
  The Company's Common Stock is listed on the AMEX under the symbol IMH. The
following table sets forth for the periods indicated the high and low sale
prices for the Common Stock as reported by the AMEX.
 
<TABLE>   
<CAPTION>
                                                                    HIGH   LOW
                                                                   ------ ------
<S>                                                                <C>    <C>
1995
Fourth Quarter (from November 20, 1995)........................... $13.25 $12.00
1996
First Quarter..................................................... $15.38 $12.88
Second Quarter (through June 18, 1996)............................  17.13  14.75
</TABLE>    
   
  On June 18, 1996, the last reported sale price of the Common Stock on the
AMEX was $15.75 per share. As of May 15, 1996, there were approximately 168
holders of record of the Company's Common Stock.     
 
                                      20
<PAGE>
 
                       DIVIDEND POLICY AND DISTRIBUTIONS
 
  To maintain its qualification as a REIT, IMH intends to make annual
distributions to stockholders of at least 95% of its taxable income (which may
not necessarily equal net income as calculated in accordance with GAAP),
determined without regard to the deduction for dividends paid and by excluding
any net capital gains. The Company declares regular quarterly dividend
distributions on or about the twenty-second day of the month following said
quarter. Any taxable income remaining after the distribution of the regular
quarterly dividends will be distributed annually in a special dividend on or
prior to the date of the first regular quarterly dividends payment date of the
following taxable year. The dividend policy is subject to revision at the
discretion of the Board of Directors. All distributions in excess of those
required for IMH to maintain REIT status will be made by the Company at the
discretion of the Board of Directors and will depend on the taxable earnings
of the Company, the financial condition of the Company and such other factors
as the Board of Directors deems relevant. The Board of Directors has not
established a minimum distribution level. The Company declared its initial
dividend of $0.08 per share on January 25, 1996 for the Interim Period, a
dividend of $0.39 per share on April 16, 1996 for the quarter ended March 31,
1996. On May 29, 1996 the Company declared a dividend of $0.45 per share for
the quarter ended June 30, 1996, payable on July 2, 1996 to stockholders of
record as of June 13, 1996.
 
  Distributions to stockholders will generally be taxable as ordinary income,
although a portion of such distributions may be designated by IMH as capital
gain or may constitute a tax-free return of capital. IMH will annually furnish
to each of its stockholders a statement setting forth distributions paid
during the preceding year and their characterization as ordinary income,
capital gains or return of capital. For a discussion of the federal income tax
treatment of distributions by IMH, see "Federal Income Tax Considerations."
 
                          DIVIDEND REINVESTMENT PLAN
 
  The Company has adopted a dividend reinvestment plan for stockholders who
wish to reinvest their dividend distributions in additional shares of Common
Stock. Stockholders owning 100 or more shares of Common Stock are eligible to
participate in the DRP. Pursuant to the DRP, dividends paid with respect to
shares of the Company's Common Stock owned by participants in the DRP will be
automatically invested in additional shares of Common Stock on the dividend
payment date or not later than 15 days thereafter at the DRP Purchase Price,
which is 97% of the then current market price of the Common Stock. Boston
EquiServe, L.P., the Company's transfer agent, acts as the trustee and
administrator of the DRP (the "Agent"). All dividends and cash distributions
paid with respect to the Common Stock owned by participants in the DRP will be
paid directly to the Agent. Dividends not immediately reinvested on the
payment date will be held in a non-interest bearing account pending the
investment in the Common Stock not later than 15 days thereafter. If the
dividend paid to any stockholder is not sufficient to purchase a whole number
of shares of Common Stock, such stockholder will be credited with fractional
shares, computed to four decimal places. DRP participants will generally be
treated as having received a taxable cash distribution or a taxable stock
distribution, depending on whether the Common Stock purchased with the
reinvested dividends is purchased in the open market or directly from the
Company, respectively. See "Federal Income Tax Considerations--Taxation of
Taxable U.S. Stockholders Generally."
 
  Shares of Common Stock will be acquired by the Agent in transactions on the
open market or purchased directly from the Company at the option of the
Company. All brokerage commissions and fees, if any, will be paid by
participants in the DRP from the amount of the dividend or distribution. No
brokerage commissions or discounts or fees will be paid to the Company with
respect to the purchase of Common Stock directly from the Company. To the
extent shares of Common Stock are not available for purchase, the Agent will
distribute the cash to participants in the DRP.
 
  Stockholders are not automatically enrolled in the DRP. Each stockholder
desiring to participate must complete and deliver to the Agent an enrollment
form, which will be sent to each eligible stockholder following this Offering
and the registration under the Securities Act of the shares to be offered by
the Company pursuant to the DRP. Participation in the DRP will commence with
all dividends and distributions payable after receipt of a participant's
authorization, provided that the authorization must be received by the Agent
prior to the record
 
                                      21
<PAGE>
 
date for any dividends in order for any stockholder to be eligible for
reinvestment of such dividends. A participant may terminate participation in
the DRP at any time upon delivery of a written notice to that effect to the
Agent, provided that the termination notice must be received by the Agent at
least two business days prior to the record date for any dividends in order
for the termination to be effective with respect to such dividends. Upon
termination, the Agent will send to the participant certificates evidencing
the whole shares in the participant's account and a check for any fractional
shares based on the current market value of the Common Stock on the date of
termination.
 
  Participants will be sent detailed statements showing the amount of dividend
or distribution received, the number and price of shares of the Common Stock
purchased for their accounts and the total number of shares held by the Agent
for their accounts. Tax information for each calendar year of the DRP will be
sent to participants by the Agent.
 
  The DRP may be amended by the Board of Directors provided that notice of
such amendment is sent to participants not later than 10 days prior to the
effective date thereof. Any such amendment will be effective only with respect
to dividends or distributions paid subsequent to the delivery of such notice.
The Board of Directors may terminate the DRP for any reason by delivering
notice thereof to all participants.
 
  The shares issuable by the Company pursuant to the DRP are not being
registered by means of the Registration Statement of which this Prospectus
forms a part. To the extent such shares are issued by the Company, such shares
will be registered under the Securities Act by means of a separate
registration statement.
 
                                      22
<PAGE>
 
                                CAPITALIZATION
   
  The following table sets forth the capitalization of the Company at March
31, 1996 and as adjusted to give effect to the Offering and the application of
the estimated net proceeds therefrom. See "Use of Proceeds."     
 
<TABLE>   
<CAPTION>
                                                           MARCH 31, 1996
                                                      -------------------------
                                                                      AS
                                                       ACTUAL   ADJUSTED (1)(2)
                                                      --------  ---------------
                                                           (IN THOUSANDS)
<S>                                                   <C>       <C>
Reverse repurchase agreements........................ $528,746     $528,746
Stockholders' equity:
  Preferred Stock, $.01 par value
   10,000,000 shares authorized; no shares issued and
   outstanding actual, and as adjusted...............      --           --
  Common Stock, $.01 par value
   50,000,000 shares authorized; 4,250,000 shares
   issued and outstanding actual, 6,750,000 shares as
   adjusted..........................................       43           68
  Additional paid-in capital.........................   44,971       81,421
  Investment securities valuation allowance..........      (67)         (67)
  Retained earnings..................................    1,669        1,669
                                                      --------     --------
    Total stockholders' equity.......................   46,616       83,091
                                                      --------     --------
    Total capitalization............................. $575,362     $611,837
                                                      ========     ========
</TABLE>    
- --------
(1) After deducting estimated underwriting discounts and commissions and
    estimated offering expenses of $750,000 payable by the Company, and
    assuming no exercise of the Underwriters' over-allotment option to
    purchase up to an additional 375,000 shares of Common Stock.
(2) Does not include 400,000 shares reserved for issuance pursuant to the
    Company's Stock Option Plan, of which options to acquire 250,000 shares
    are outstanding at a per share exercise price of $11.25 and options to
    acquire 45,000 shares are outstanding at a per share exercise price of
    $13.00. The Company intends to increase the number of shares reserved for
    issuance under its Stock Option Plan by 400,000 shares, subject to
    stockholder approval at its annual stockholders' meeting to be held in
    July 1996. See "Imperial Credit Mortgage Holdings, Inc.--Stock Options."
 
                                      23
<PAGE>
 
                            SELECTED FINANCIAL DATA
 
  The following selected consolidated statement of operations data for each of
the years in the three-year period ended December 31, 1995 and the
consolidated balance sheet data as of December 31, 1995 and 1994 were derived
from the Company's and ICIFC's financial statements audited by KPMG Peat
Marwick LLP ("KPMG"), independent auditors, whose reports with respect thereto
appear elsewhere herein. The selected consolidated statement of operations
data for the year ended December 31, 1992 and the selected consolidated
balance sheet data as of December 31, 1993 were derived from the combined
financial statements of the Company and ICIFC, audited by KPMG. The selected
consolidated balance sheet data as of December 31, 1992 was derived from the
unaudited financial statements of the Company and ICIFC. Such selected
financial data should be read in conjunction with those financial statements
and the notes thereto and with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" also included elsewhere herein.
The following selected financial data for the three month periods ended March
31, 1996 and 1995 were derived from the unaudited financial statements of the
Company and ICIFC and include adjustments, consisting only of normal recurring
adjustments, which management considers necessary for a fair presentation of
such financial information for those periods. Results for the three months
ended March 31, 1996 are not necessarily indicative of results for the year
ending December 31, 1996.
 
  As discussed further in the notes to the Company's financial statements,
Pre-Contribution Transaction (as defined below), the Company's financial
statements were prepared based upon the historical operations of IWLG, as a
division of SPTL, and include the Company's equity interest in ICIFC, as a
division of ICII. Since IWLG's operations began late in December of 1991, the
selected financial data begins with 1992. ICIFC selected financial data also
begins with 1992. Prior to 1992, operations of ICIFC were not maintained
separate from the operations of ICII. Since the Company believes the
operations of ICIFC prior to 1992 are not material, 1990 and 1991 statement of
operations and balance sheet data are not presented. Mortgage loan origination
volume of ICIFC for the year ended December 31, 1991 was approximately $178
million, and ICIFC 's servicing portfolio totaled $528 million at December 31,
1991.
 
                    IMPERIAL CREDIT MORTGAGE HOLDINGS, INC.
                                (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                     THREE MONTHS
                                   ENDED MARCH 31,   YEAR ENDED DECEMBER 31,
                                   --------------------------------------------
                                     1996     1995   1995   1994  1993    1992
                                   --------- -------------  ---- ------  ------
<S>                                <C>       <C>    <C>     <C>  <C>     <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
 Interest income.................  $  13,010 $   86 $2,851  $292 $  767  $  685
 Equity in net income of ICI
  Funding Corporation............        542    404  1,489   532  4,192   1,254
 Fee income......................        172     30    244    83    320     205
                                   --------- ------ ------  ---- ------  ------
                                      13,724    520  4,584   907  5,279   2,144
                                   --------- ------ ------  ---- ------  ------
Expenses:
 Interest on borrowings from
  reverse-repurchase agreements..      9,009    --   1,116   --     --      --
 Interest on borrowings from
  SPTL...........................        --      48    599   127    334     377
 Provision for loan losses.......      2,415    104    488    95    --      --
 Advisory fee....................        426    --      38   --     --      --
 General and administrative
  expense........................        180     32    209   225    197     103
                                   --------- ------ ------  ---- ------  ------
                                      12,030    184  2,450   447    531     480
                                   --------- ------ ------  ---- ------  ------
Income before income taxes.......      1,694    336  2,134   460  4,748   1,664
Income (taxes) benefit...........        --      28    (76)   30   (234)   (172)
                                   --------- ------ ------  ---- ------  ------
 Net income......................  $   1,694 $  364 $2,058  $490 $4,514  $1,492
                                   ========= ====== ======  ==== ======  ======
</TABLE>
 
<TABLE>
<CAPTION>
                                                        AT DECEMBER 31,
                                   AT MARCH 31, -------------------------------
                                       1996       1995    1994   1993    1992
                                   ------------ -------- ------ ------- -------
<S>                                <C>          <C>      <C>    <C>     <C>
BALANCE SHEET DATA:
Total assets......................   $582,180   $613,688 $9,365 $13,591 $10,287
Mortgage loans held for
 investment.......................    311,461        --     --      --      --
Finance receivables, net..........    196,066    582,921  3,024   8,135   9,022
Investment in ICI Funding
 Corporation......................      9,536        866  6,335   5,446   1,254
Borrowings from SPTL..............        --         --   2,511   7,585   8,785
Borrowings on reverse-repurchase
 agreements.......................    528,746    567,727    --      --      --
Total stockholders' equity........     46,616     45,236  6,853   6,006   1,492
</TABLE>
 
 
                                      24
<PAGE>
 
                            ICI FUNDING CORPORATION
                     (IN THOUSANDS, EXCEPT OPERATING DATA)
 
<TABLE>
<CAPTION>
                             THREE MONTHS
                              ENDED MARCH
                                  31,           YEAR ENDED DECEMBER 31,
                             --------------  ---------------------------------
                              1996    1995    1995     1994     1993     1992
                             -------  -----  -------  -------  -------  ------
<S>                          <C>      <C>    <C>      <C>      <C>      <C>
INCOME STATEMENT DATA:
Revenues:
 Interest income............ $11,119  $ --   $ 1,249  $   --   $   --   $  --
 Gain on sale of loans......   2,613    730    4,135    2,291    5,859   1,155
 Loan servicing income......      32  1,333    5,159    4,043    1,377   1,131
 Gain on sale of servicing
  rights....................     --     369      370    4,188    5,332   2,135
                             -------  -----  -------  -------  -------  ------
                              13,764  2,432   10,913   10,522   12,568   4,421
                             -------  -----  -------  -------  -------  ------
Expenses:
 Interest on borrowings.....  11,219    149    1,785      538      127     --
 General and administrative
  expense...................   1,200  1,132    3,663    6,333    4,507   1,988
 Provision for loan losses..     400    --       --       655      175     249
 Amortization of mortgage
  servicing rights..........      14    448    2,892    2,070      459     --
                             -------  -----  -------  -------  -------  ------
                              12,833  1,729    8,340    9,596    5,268   2,237
                             -------  -----  -------  -------  -------  ------
Income before income taxes..     931    703    2,573      926    7,300   2,184
Income taxes................    (383)  (295)  (1,069)    (389)  (3,066)   (917)
                             -------  -----  -------  -------  -------  ------
  Net income................ $   548  $ 408  $ 1,504  $   537  $ 4,234  $1,267
                             =======  =====  =======  =======  =======  ======
OPERATING DATA (IN
 MILLIONS):
Mortgage loan acquisitions
 (volume)(1)................ $   281  $ 117  $ 1,117  $ 1,709  $ 2,149  $  929
Servicing portfolio.........     652  1,947      512    1,868      950     623
</TABLE>
 
<TABLE>
<CAPTION>
                                                      AT DECEMBER 31,
                                 AT MARCH 31, --------------------------------
                                     1996       1995    1994    1993    1992
                                 ------------ -------- ------- ------- -------
<S>                              <C>          <C>      <C>     <C>     <C>
BALANCE SHEET DATA:
Total assets....................   $188,106   $552,631 $12,097 $10,158 $   137
Mortgage loans held for sale....    179,631    544,273     --      --      --
Mortgage servicing rights.......      2,657        --   11,453   9,551     --
Borrowings (receivable) from
 ICII...........................        --         --    5,698   4,657  (1,129)
Borrowings from IWLG............    173,408    550,291     --      --      --
Total shareholders' equity......      9,632        875   6,399   5,501   1,267
</TABLE>
- --------
(1)Represents principal amounts of mortgage loans purchased, excluding premiums
 and discounts.
 
                                       25
<PAGE>
 
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
  This Prospectus contains forward-looking statements that inherently involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth in the following section and
elsewhere in this Prospectus. The following discussion should be read in
conjunction with the Financial Statements and Notes thereto appearing
elsewhere in this Prospectus.
 
GENERAL
 
  IMH's principal sources of net income are (1) net income from its Long-Term
Investment Operations, (2) dividends from the Conduit Operations, which are
fully subject to federal and state income taxes, and (3) net income from IWLG,
the Warehouse Lending Operations. The principal source of income from its
Long-Term Investment Operations is net interest income, which is the net
spread between interest earned on mortgage loans and securities held for
investment and the interest costs associated with the borrowings used to
finance such loans and securities. The principal sources of income from ICIFC
are gains recognized on the sale of mortgage loans and securities, net
interest income earned on loans purchased by ICIFC pending their
securitization or resale, servicing fees, commitment fees and processing fee
income. The principal sources of income from IWLG are the net spread between
interest earned on short-term lines of credit (warehouse loans) and the
interest costs associated with the borrowings used to finance such loans and
the fee income received from the borrowers in connection with such loans.
 
 THE CONTRIBUTION TRANSACTION
 
  On November 20, 1995, ICII contributed to ICIFC certain of the operating
assets and certain customer lists of ICII's mortgage conduit operations,
including all of ICII's mortgage conduit operations' commitments to purchase
mortgage loans subject to rate locks from correspondents (having a principal
balance of $44.3 million on November 20, 1995), in exchange for shares
representing 100% of the common stock and 100% of the non-voting preferred
stock of ICIFC. Simultaneously, on November 20, 1995, in exchange for 500,000
shares of Common Stock, (i) ICII contributed to IMH all of the outstanding
non-voting preferred stock of ICIFC, which represents 99% of the economic
interest in ICIFC, (ii) SPTL contributed to IMH certain of the operating
assets and certain customer lists of SPTL's warehouse lending division, and
(iii) ICII and SPTL executed a Non-Compete Agreement and a Right of First
Refusal Agreement, each having a term of two years from November 20, 1995. Of
the 500,000 shares of Common Stock issued by IMH pursuant to the Contribution
Transaction, 450,000 shares were issued to ICII and 50,000 shares were issued
to SPTL. All of the outstanding shares of common stock of ICIFC were retained
by ICII. Lastly, IMH contributed to IWLG all of the aforementioned operating
assets of SPTL's warehouse lending operations contributed to it in exchange
for shares representing 100% of the common stock of IWLG thereby forming it as
a wholly owned subsidiary. On November 20, 1995, the net tangible book value
of the assets contributed pursuant to the Contribution Transaction was
$525,000. ICII and SPTL retained all other assets and liabilities related to
contributed operations, which at November 20, 1995 consisted mostly of $11.7
million of MSRs, $22.4 million of finance receivables and $26.6 million in
advances made by ICII and SPTL to fund mortgage conduit loan acquisitions and
to fund finance receivables, respectively.
 
  References to the Pre-Contribution Transaction period refer to the periods
prior to November 20, 1995. References to the Post-Contribution Transaction
period refer to periods after November 20, 1995. References to financial
information of IMH reflect the financial operations of IMH and its subsidiary
IWLG and IMH's equity interest in ICIFC Post-Contribution Transaction and the
pro forma financial data of IMH's equity interest in SPTL's warehouse lending
operations and ICII's mortgage conduit operations Pre-Contribution
Transaction. References to financial information of ICIFC reflect the
financial data of ICIFC Post-Contribution Transaction and the pro forma
financial information of ICII's mortgage conduit operation Pre-Contribution
Transaction.
 
 
                                      26
<PAGE>
 
  As discussed further in the Notes to ICIFC's financial statements, the
results of operations of ICIFC, of which 99% of the economic interest is owned
by IMH, are included in the results of operations for IMH as "Equity in net
income of ICI Funding Corporation." For Pre-Contribution Transaction, the
financial statements included elsewhere herein reflect management's estimate
of the level of previous capital and the amounts of interest charges and
general and administrative expense and taxes that ICII's mortgage conduit
operations would have incurred had it operated as an entity separate from
ICII.
 
 HISTORICAL TRENDS
 
  ICIFC's mortgage loan acquisitions decreased from $1.7 billion in 1994 to
$1.1 billion in 1995, which included $508.6 million in mortgage loans acquired
from ICII and its affiliates Post-Contribution Transaction. Management
attributes this decrease in mortgage loan acquisitions to the overall decrease
in mortgage loan originations throughout the mortgage industry as a result of
increased interest rates during 1995. In addition, the decrease in mortgage
loan acquisitions resulted from ICIFC's refocus from the conforming to the
non-conforming mortgage loan market and increased competition in such non-
conforming market. ICIFC was also adversely affected by the increase in
interest rates during 1994, resulting in a 20% decline in mortgage
acquisitions in 1994 to $1.7 billion from $2.1 billion originated in 1993. The
aforementioned decline in mortgage acquisitions resulted in higher operating
costs as a percentage of acquisitions, despite ICIFC's efforts to reduce
excess production capacity through 1994 and 1995.
   
  In an effort to increase profitability, ICIFC reduced operating expenses in
1994 and 1995, primarily through a reduction in personnel. At March 31, 1996,
ICIFC employed 60 employees, an increase of 43% from 42 employees at March 31,
1995. At December 31, 1995, ICIFC had 60 employees, a 15% decrease from 71
employees at December 31, 1994. At December 31, 1994, the conduit operations
of ICII employed 71 employees, a 57% decrease from 167 employees at December
31, 1993. ICIFC continues to assess its work force in order to properly match
its loan acquisition capacity to current market demands. In 1995, ICIFC also
emphasized the acquisition of higher margin non-conforming mortgage loan
products which provided a higher return than conforming mortgage loans.     
 
  During the three months ended March 31, 1996, ICIFC's mortgage loan
acquisitions increased 139% to $280.7 million as compared to $116.2 million
for the same period in 1995. Excluding the acquisition of mortgage loans from
ICII or its affiliated mortgage banking operations, ICIFC's mortgage loan
acquisitions declined 1% to $114.4 million in the first three months of 1996
as compared to $116.2 million for the same period in 1995. The increase in
mortgage loan acquisitions for the three months ended March 31, 1996 as
compared to the same period the previous year was primarily the result of the
Company's increased marketing and sales effort subsequent to the Initial
Public Offering and its acquisitions from ICII and the mortgage banking
operations affiliated with ICII. As ICII divests itself of its affiliated
mortgage banking operations, to the extent permitted by the Non-Compete
Agreement, ICIFC expects to continue to acquire loans from these newly-formed
mortgage banking entities. In conjunction with the increase in loan
acquisitions and ICIFC's divestiture from ICII, the Company has added
additional personnel to handle functions previously performed by ICII.
 
 ACCOUNTING FOR SERVICING RIGHTS
 
  When ICIFC purchases loans that include the associated servicing rights, the
allocated price paid for the servicing rights, net of amortization based on
assumed prepayment rates, is reflected on its financial statements as MSRs.
 
  On May 12, 1995, the Financial Accounting Standards Board issued SFAS No.
122, "Accounting for Mortgage Servicing Rights," an amendment to SFAS No. 65.
ICIFC elected to adopt this standard retroactive to January 1, 1995. SFAS No.
122 prohibits retroactive application to years prior to 1995.
 
  SFAS No. 122 requires that a portion of the cost of acquiring a mortgage
loan be allocated to the mortgage loan servicing rights based on its fair
value relative to the loan as a whole. To determine the fair value of the
 
                                      27
<PAGE>
 
servicing rights created, ICIFC uses a valuation model that calculates the
present value of future net servicing revenues to determine the fair value of
the servicing rights. In using this valuation method, ICIFC incorporates
assumptions that it believes market participants would use in estimating
future net servicing income which include estimates of the cost of servicing,
an inflation rate, ancillary income per loan, a prepayment rate, a default
rate and a market discount rate.
 
  ICIFC determines servicing value impairment by disaggregating its mortgage
conduit operations' servicing portfolio into its predominant risk
characteristics. ICIFC determines those risk characteristics to be loan
program type and interest rate. These segments of the portfolio are then
evaluated, using market prices under comparable servicing sale contracts, when
available, or alternatively using the same model as was used to originally
determine the fair value at acquisition, using current assumptions at the end
of the quarter. The calculated value is then compared to the capitalized
recorded value of each loan type and interest rate segment to determine if a
valuation allowance is required. At March 31, 1996, ICIFC had capitalized $2.7
million of MSRs.
 
  MSRs are subject to some degree of volatility in the event of unanticipated
prepayments or defaults. Prepayments in excess of those anticipated at the
time MSRs are recorded could result in a decline in the fair value of the MSRs
below their carrying value requiring a provision to increase the MSRs'
valuation allowance. The rate of prepayment of loans is affected by a variety
of economic and other factors, including prevailing interest rates and the
availability of alternative financing. The effect of those factors on loan
prepayment rates may vary depending on the particular type of loan. Estimates
of prepayment rates are made based on management's expectations of future
prepayment rates, which are based, in part, on the historical rate of
prepayment of ICIFC's loans, and other considerations. There can be no
assurance of the accuracy of management's prepayments estimates. If actual
prepayments with respect to loans serviced occur more quickly than were
projected at the time such loans were sold, the carrying value of the MSRs may
have to be reduced through a provision recorded to increase the MSR's
valuation allowance in the period the fair value declined below the MSRs'
carrying value. If actual prepayments with respect to loans occur more slowly
than estimated, the carrying value of MSRs would not increase, although total
income would exceed previously estimated amounts and the related valuation
allowances, if any, could be unnecessary.
 
 COMMITMENTS AND CONTINGENCIES
   
  As part of its marketing strategy, ICIFC establishes mortgage loan purchase
commitments ("Master Commitments") with sellers that, subject to certain
conditions, entitle the seller to sell to ICIFC and obligate ICIFC to purchase
a specified dollar amount of mortgage loans over a period generally ranging
from six months to one year. As of March 31, 1996 and December 31, 1995, ICIFC
had outstanding short-term Master Commitments with 28 and 18 sellers,
respectively, to purchase mortgage loans in the aggregate principal amount of
$595.0 million and $241.0 million, respectively, over periods generally
ranging from six months to one year, of which $93.1 and $35.7 million,
respectively, had been purchased or committed to be purchased pursuant to
rate-locks (as defined below). As of March 31, 1996 and December 31, 1995,
$220.0 million and none, respectively, of such outstanding short-term Master
Commitments were outstanding with affiliates. While none of ICIFC's Master
Commitment agreements as of November 20, 1995 were transferred to ICIFC
pursuant to the Contribution Transaction, ICIFC entered into similar Master
Commitments with its sellers subsequent to the Contribution Transaction.     
 
  Sellers that enter into Master Commitments with ICIFC sell mortgage loans to
ICIFC by executing individual, bulk or other rate-locks (each, a "rate-lock").
Each rate-lock, in conjunction with the related Master Commitment, specifies
the terms of the related sale, including the quantity and price of the
mortgage loans or the formula by which the price is determined, the rate-lock
type and the delivery requirements. The up-front fee paid by a seller to ICIFC
to obtain a Master Commitment on a mandatory delivery basis is often refunded
pro rata as the seller delivers loans pursuant to rate-locks.
 
                                      28
<PAGE>
 
RESULTS OF OPERATIONS; IMPERIAL CREDIT MORTGAGE HOLDINGS, INC.
 
 THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31,
1995
 
  Net income for the three months ended March 31, 1996 increased to $1.7
million as compared to $364,000 for the same period in 1995. Net income per
share for the three months ended March 31, 1996 was $0.39.
 
  Revenues for the three months ended March 31, 1996 increased to $13.7
million as compared to $520,000 for the same period in 1995, primarily as a
result of IWLG's increase in interest income from its finance receivables and,
to a lesser extent, IMH's investment securities available for sale and cash
and cash equivalents. Total finance receivables increased to $196.1 million at
March 31, 1996 as compared to $6.1 million at March 31, 1995 as a result of
IWLG providing warehouse facilities to ICIFC subsequent to the Initial Public
Offering. At March 31, 1996, ICIFC accounted for 88% of IWLG's total gross
finance receivables outstanding. In addition, IMH invested a portion of the
net proceeds of the Initial Public Offering in investment securities available
for sale held by the Long-Term Investment Operations which did not exist prior
to the Initial Public Offering. At March 31, 1996, IMH had total investment
securities available for sale and cash and cash equivalents of $50.3 million
as compared to none at March 31, 1995.
 
  Expenses for the three months ended March 31, 1996 increased to $12.0
million as compared to $184,000 for the same period in 1995 primarily as a
result of (1) an increase in borrowings associated with the financing of
IWLG's finance receivables, (2) an increase in the provision for loan losses
and (3) the payment of fees associated with the Management Agreement. Interest
expense from reverse-repurchase borrowings or borrowing from SPTL increased to
$9.0 million for the three months ended March 31, 1996 as compared to $48,000
for the same period in 1995. The increase in interest expense was the result
of increased borrowings to finance the growth in IMH's earning assets as
discussed above. The provision for loan losses increased to $2.4 million for
the three months ended March 31, 1996 as compared to $104,000 for the same
period in 1995 as a result of establishing an allowance for credit losses
related to the $313.8 million of mortgage loans held for investment at March
31, 1996, a portion of which underlies a CMO offering which closed in April
1996. The provision in 1995 was the result of a write-off of a customer's
outstanding balance on a finance receivable. While IMH believes that it has
adequately provided for any future credit losses, the Company may have to add
to its loan loss allowance based upon actual loan loss experience or an
increase in the Company's mortgage loans held for investment. Management fees
under the Management Agreement were $426,000 for the three months ended March
31, 1996 compared to no such fees during 1995.
 
  Finance receivables decreased to $196.1 million at March 31, 1996 from
$582.9 million at December 31, 1995 due to the sale of $314.9 million of
mortgage loans held for sale at ICIFC to IMH, where such loans were held for
investment. This transaction reduced ICIFC's borrowings from IWLG.
 
 YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
 
  Net income, including the equity interest in the net income of ICIFC,
increased 320% to $2.1 million in 1995 from $490,000 in 1994. The increase in
net income was primarily the result of the increase in the equity interest in
the net income of ICIFC, the increase in IWLG's finance receivables
outstanding during 1995, and to a lesser extent, the purchase of an investment
portfolio, Post-Contribution Transaction. Excluding the equity interest in the
net income of ICIFC, net income in 1995 was $569,000 as compared to a loss of
$42,000 in 1994. Net income per share for 1995 Post-Contribution Transaction
was $0.07.
 
  Revenues in 1995 increased 405% to $4.6 million as compared to $907,000 in
1994. Of the $4.6 million in 1995 revenue, $1.6 million was attributable to
the Post-Contribution Transaction entity. Such revenues primarily consisted of
interest income earned on the finance receivables, investments available for
sale, equipment lease payments, processing fee income and the equity interest
in ICIFC. The increase in revenues was primarily due to three factors: (1)
increased interest income earned on investments available for sale and a
higher outstanding balance of IWLG's finance receivables, (2) increased
profitability in the Conduit Operations as a result of cost savings and a
focus on higher margin mortgage products and (3) increased fee income as a
result of an increased number of transactions with IWLG's warehouse borrowers.
 
                                      29
<PAGE>
 
  Total interest income increased 874% to $2.9 million in 1995 as compared to
$293,000 in 1994. Interest income is primarily composed of interest earned on
IMH's investments and IWLG's outstanding finance receivables. The increase in
interest income was the result of the Company acquiring an investment
portfolio, Post-Contribution Transaction, and a substantial increase in the
average outstanding balance of IWLG's finance receivables. As a result of the
Initial Public Offering, the Company raised a net of $44.5 million of capital
to fund the Long-Term Investment Operations and to capitalize or fund the
Warehouse Lending Operations and Conduit Operations.
 
 With the capital raised in the Initial Public Offering, the Company acquired
four mortgage-backed securities at a recorded value of $17.4 million with a
weighted average yield of 11.2% at December 31, 1995. The mortgage-backed
securities ratings from one or more rating agencies range from investment
grade ("BBB") to non-investment grade ("B") quality. The mortgage loans
underlying the mortgage-backed securities are adjustable rate loans indexed
either to LIBOR or to the 11th District Cost of Funds. The Company also
acquired from Imperial Business Credit, Inc., a subsidiary of ICII, a
subordinated interest in an equipment-lease receivable securitization with a
carrying value of $8.4 million at December 31, 1995. See "Certain
Transactions."
 
  IWLG's average outstanding finance receivables increased 866% to $30.0
million for 1995 as compared to $3.1 million for 1994, which led to a
corresponding increase of 874% in interest income to $2.9 million in 1995 as
compared to $293,000 in 1994. IWLG's total finance receivable balances
outstanding at December 31, 1995 were $582.9 million, of which $550.3 million
represented balances outstanding from ICIFC. The increase in ICIFC's balances
were primarily the result of several bulk purchases from ICII and SPTL, in the
amount of $176.6 million and $332.0 million, respectively, of mortgage loans.
Pre-Contribution Transaction, ICIFC's mortgage loans held for sale and the
related income were retained on the books of ICII. Post-Contribution
Transaction, IWLG executed an agreement with ICIFC to provide warehouse lines
to fund the Conduit Operations. Lastly, equity in net income of ICI Funding
Corporation increased 180% to $1.5 million in 1995 as compared to $532,000 in
1994. The increase was due to factors as set forth in "--Results of
Operations; ICI Funding Corporation--Year Ended December 31, 1995 Compared to
Year Ended December 31, 1994."
 
  Expenses increased to $2.4 million in 1995 as compared to $447,000 in 1994.
The increase in expenses was primarily the result of increased interest on
borrowings Post-Contribution Transaction and a provision for finance
receivables charged to operations Pre-Contribution Transaction in 1995. The
increased interest on borrowings was the result of an increase in borrowings
associated with the funding of IWLG's finance receivables and IMH's investment
portfolio. As discussed previously, IWLG's average outstanding finance
receivables increased primarily as a result of borrowings by ICIFC in December
1995. Although interest expense increased 1,255% to $1.7 million in 1995 from
$127,000 in 1994, the increase was mainly Post-Contribution Transaction. The
increase in provision for finance receivables was primarily the result of
management's decision in 1995 to write off the outstanding balance of a
delinquent warehouse line. Approximately $388,000 of the charge-offs
represents the net outstanding balance on that committed line. As part of the
Contribution Transaction, these assets were retained, net of the allowance, by
SPTL. The remaining provision represents a Post-Contribution Transaction
general provision for loan losses. Expenses, other than interest on borrowings
and provision for finance receivable increased 9.8% to $247,000 in 1995 as
compared to $225,000 in 1994. Personnel expenses decreased 36.7% to $91,000 in
1995 as compared to $143,000 in 1994. Personnel expenses declined in 1995
primarily as a result of staffing reductions made in late 1994 in the
Warehouse Lending Operations. The advisory fee, which became effective on
November 20, 1995, was $38,000 in 1995. There was no advisory fee in 1994. See
"Certain Transactions; Management and Sub-Servicing Agreements."
 
 YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
 
  Net income in 1994 totaled $490,000, compared to $4.5 million in 1993. The
year-to-year decrease resulted primarily from a decrease in the equity
interest in the net income of ICIFC.
 
  Revenues, excluding the equity interest in the net income of ICI Funding
Corporation, for the year ended December 31, 1994 decreased 66% to $375,000 as
compared to $1.1 million for 1993. The Company's equity
 
                                      30
<PAGE>
 
interest in the net income of ICI Funding Corporation for the year ended
December 31, 1994 decreased to $532,000 from $4.2 million in 1993 due to those
factors set forth below in "--Results of Operations--ICI Funding Corporation--
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993." The
decrease in such revenues was the result of an industry-wide decline in
mortgage loan originations, a reduced number of transactions, and a reduction
in average outstanding balances and the number of committed lines of credit
outstanding.
 
  Expenses for the year ended December 31, 1994 decreased 16% to $447,000 as
compared to $531,000 for 1993. Total expenses for 1994 include a $95,000
provision for loan losses related to a warehouse lending agreement which had
been canceled, as discussed above. Personnel expenses increased 30% to
$143,000 for the year ended December 31, 1994 as compared to $110,000 for
1993. The increase in personnel expenses was the result of additional
personnel hired to process the growth in finance receivable transactions in
1993. Staffing reductions were made late in 1994 and were not fully reflected
in 1994 personnel expense levels.
 
RESULTS OF OPERATIONS; ICI FUNDING CORPORATION
 
 THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31,
1995
 
  Net income for ICIFC for the three months ended March 31, 1996 increased 34%
to $548,000 from $408,000 for the same period in 1995.
 
  Revenues for the three months ended March 31, 1996 increased to $13.8
million as compared to $2.4 million for the same period in 1995, as a result
of an increase in interest income from ICIFC's mortgage loans held for sale,
and to a lesser extent, an increase in gain on sale of loans, offset by a
reduction in loan servicing income. The increase in interest income for the
three months ended March 31, 1996 was the result of ICIFC retaining more
mortgage loans held for sale during the period. During the three months ended
March 31, 1995, which was prior to the Contribution Transaction, all of
ICIFC's mortgage loans held for sale were retained on the books of ICII and
all income derived from these loans were retained by ICII.
 
  Gain on sale of loans increased to $2.6 million for the three months ended
March 31, 1996 as compared to $730,000 for the same period in 1995 as the
result of a $175.8 million fixed rate non-conforming principal balance of
mortgage loan securitization and a $65.7 million whole loan sale for which
proceeds received were $67.5 million during the three months ended March 31,
1996. During the three months ended March 31, 1995, gain on sale of conforming
mortgage loans generated less income per loan than ICIFC earned on the sale of
its non-conforming loans during the first quarter of 1996. Loan servicing
income decreased to $32,000 for the three months ended March 31, 1996 as
compared to $1.3 million for the same period in 1995 as a result of ICII
retaining all mortgage servicing rights as part of the Contribution
Transaction. Servicing income for the three months ended March 31, 1996
relates to loan servicing rights generated only during the period subsequent
to November 20, 1995.
 
  Expenses for the three months ended March 31, 1996 increased to $12.8
million as compared to $1.7 million for the same period in 1995 primarily as a
result of an increase in borrowings associated with the financing of ICIFC's
mortgage loans held for sale and, to a lesser extent, increases in the
provision for loan losses and in personnel expenses, offset by an overall
reduction in general and administrative expenses. As noted above, prior to the
Contribution Transaction, ICIFC had no mortgage loans held for sale.
Subsequent to the Contribution Transaction, ICIFC entered into a warehouse
arrangement with IWLG to provide mortgage loan financing during the ICIFC
process of accumulating loans for sale and securitization. As a result of this
facility, ICIFC incurred $11.2 million in interest expense to finance its
mortgage loan acquisitions during the three months ended March 31, 1996. The
increase in the provision for loan losses to $400,000 for the three months
ended March 31, 1996, compared with no such provision in 1995, was the result
of establishing an allowance for estimated losses related to the potential
repurchase of previously sold loans due to breaches of standard
representations and warranties. Personnel expenses increased 61% to $835,000
for the three months ended March 31, 1996 as compared to $518,000 for the same
period in 1995 primarily as a result of ICIFC entering into employment
agreements with senior management that became effective on November 20, 1995.
Prior to the Contribution Transaction, ICIFC was allocated an apportionment of
these individual salaries by ICII. However, ICII retained a substantial
portion of the costs associated with the senior management of the Company
prior to the Contribution Transaction.
 
                                      31
<PAGE>
 
 YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
 
  Net income for the year ended December 31, 1995 increased 180% to $1.5
million as compared to $537,000 for the same period in 1994. The increase is
primarily due to increased profitability on the sale of mortgage loans and
reduced personnel and operating expenses. Overall, profitability was lower in
1994 as a result of lower profits on the sale of servicing-retained fixed rate
loans and a decrease in the principal amount of mortgage loans sold servicing-
released. Gain on sale of loans consists primarily of gains recorded upon the
sale of mortgage loans, net of associated expenses, and to a lesser extent,
fees received for commitments to fund mortgage loans. Prior to the
Contribution Transaction, financial information presented herein does not
reflect the net interest income from the mortgage loans held for sale during
accumulation and subsequent sale or securitization as this income was retained
by ICII, which provided the funding for such loans. Post-Contribution
Transaction for 1995, ICIFC earned interest income on mortgage loans held for
sale.
 
  Revenues in 1995 increased 3.7% to $10.9 million as compared to $10.5
million in 1994. While total revenues did not materially change from year to
year, mortgage loan acquisitions declined 35% to $1.1 billion in 1995 as
compared to $1.7 billion in 1994. Total revenues remained consistent in 1995
as compared to 1994 due to increased profitability on the sale of loans,
interest earned on the loans while being held for sale or securitization and
loan servicing income, partially offset by a reduction in the amount of
servicing sold and the related gain on the sale of servicing rights.
 
  Gain on sale of loans increased 80% to $4.1 million in 1995 as compared to
$2.3 million in 1994. The increased profitability on the sale of loans for the
year ended December 31, 1995 was due to several factors. As interest rates
stabilized, the calculated values of ICIFC's acquired servicing rights
increased, resulting in an increased amount of servicing value capitalized,
with a corresponding increase in the profitability of loan sales.
Additionally, the overall interest rate environment in 1995 was less volatile
than in 1994, which did not expose ICIFC to the same degree of losses as the
operations experienced in 1994.
   
  ICIFC sold a larger percentage of its acquired loans into mortgage-backed
securities in 1995 as compared to 1994. During 1995, ICIFC, Pre-Contribution
Transaction, sold its LIBOR-based adjustable and fixed rate mortgage loans
into REMIC securities that generated gains in excess of what could have been
earned on whole loan sales. There were no such securitization gains in 1994.
The securitization and sale of ICIFC's LIBOR-based adjustable and fixed rate
loans in 1995 resulted in the creation of excess servicing assets that were
purchased, at fair value concurrent with the sale, from ICIFC by ICII, thereby
reducing intercompany borrowings from ICII and any tax-related timing
differences. The securitization gains resulted in part from the allocation of
amounts calculated using the present value of the expected future revenue
using prepayment assumptions, and estimated losses at a market discount rate.
The securitization gains created tax liabilities at the time of sale based on
taxable income (the tax liability is not necessarily equal to the reported
gain) equal to the present value gains calculated as discussed above. This
securitization method requires cash to finance the related tax liability since
the income is received over the life of the loans and the tax is paid in the
current year. ICIFC generated no gain on sale of loans acquired during the
Post-Contribution Transaction period through December 31, 1995.     
 
  Loan servicing income in 1995 increased 28% to $5.2 million as compared to
$4.0 million in 1994, primarily due to an increase in the average balance of
mortgage loans serviced during 1995, as compared to 1994. However, as part of
the Contribution Transaction, ICII retained all the assets of ICIFC except for
certain assets as described in the Contribution Agreement. ICII retained all
the MSRs; therefore, future loan servicing income will be substantially less
than in past periods until ICIFC builds its own loan servicing portfolio.
ICIFC generated no servicing income during the Post-Contribution Transaction
period through December 31, 1995.
 
  Gain on sale of servicing rights decreased 91% to $370,000 in 1995 as
compared to $4.2 million in 1994. The total principal balance of loans
underlying servicing sold was $76.3 million for 1995 as compared to $619.8
million for 1994. The decrease in profitability on the sale of servicing
rights was primarily the result of a higher percentage of the mortgage loans
serviced having capitalized MSRs for 1995 as compared to 1994. Historically,
the Company's incentive to sell mortgage servicing rights has been based on
cash flow and income purposes.
 
                                      32
<PAGE>
 
Gain on the sale of servicing rights consists of the total sales price of the
bulk sale of servicing rights, net of related MSRs. The decision to buy or
sell servicing rights is based upon management's assessment of the market for
servicing rights and ICIFC's current and future cash flow and income
objectives. ICIFC generated no gain on sale of servicing rights for the Post-
Contribution Transaction through December 31, 1995.
 
  Total expenses decreased 13% in 1995 to $8.3 million as compared to $9.6
million in 1994. This decrease was primarily due to a decrease in personnel
and operational expenses. Expenses for 1995 decreased primarily as a result of
significant reductions in ICIFC's mortgage loan production and administrative
staff and related reductions in personnel and general and administrative
expenses, offset by $1.3 million of interest expenses on borrowings from IWLG.
Pre-Contribution Transaction, all net interest income was retained by ICII.
However, Post-Contribution Transaction, ICIFC financed its mortgage loan
acquisitions through IWLG and therefore earned and paid any interest income or
interest expense associated with these borrowings, respectively. Total
interest on borrowings from IWLG was $1.3 million or 16% of the total expenses
for 1995. Excluding this item, total expenses decreased 27% to $7.0 million in
1995 as compared to $9.6 million 1994. ICIFC reduced personnel expenses by 46%
to $1.6 million in 1995 as compared to $3.0 million in 1994. ICIFC attained
this reduction primarily by reducing staffing by 60% from December 31, 1994.
However, ICIFC continued to experience increased unit acquisition costs as a
result of lower loan acquisition volumes during the first half of 1995 until
staffing could be reduced to match current acquisitions. ICIFC expects that
personnel expenses should increase in 1996 as a percentage of revenue due to
amounts payable under the employment agreements that were in effect on the
date of the Initial Public Offering and the hiring of additional support
staff.
 
  Amortization of MSRs increased to $2.9 million in 1995 as compared to $2.1
million in 1994. The increase was primarily due to an increase in the average
outstanding balance of the mortgage servicing portfolio.
 
  Occupancy expense decreased 49% to $150,000 in 1995 as compared to $296,000
in 1994. The decrease in occupancy expense was primarily the result of the
reallocation of ICII's corporate personnel to occupy the unused space after
the downsizing of ICIFC's operations in 1994 and 1995. General and
administrative expenses, which include other general and administrative
expenses, professional services, telephone and other communications and data
processing, decreased 38% to $1.9 million in 1995 as compared to $3.1 million
in 1994. The decrease was the result of reduced loan acquisition volume and
reduced levels of ICIFC's personnel and related expenses. No provision for
loan losses was taken in 1995 compared to a $655,000 provision taken in 1994.
The provision in 1994 was the result of a default on an unsecured loan by one
of ICIFC's correspondents. Management does not intend to make unsecured loans
to its correspondents in the future.
 
 YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
 
  Net income in 1994 decreased 87% to $537,000 as compared to $4.2 million in
1993. The decrease in profitability was due to an increase in all expense
categories except professional services, resulting from the expansion of
ICII's mortgage conduit operations in 1993. Revenues for the year ended
December 31, 1994 decreased 16% to $10.5 million as compared to $12.6 million
for 1993. Gain on sale of loans decreased 61% to $2.3 million in 1994 as
compared to $5.9 million in 1993. The decrease was primarily the result of a
lower profitability on the sale of fixed rate loans sold servicing retained
and a decrease in the principal amount of mortgage loans sold servicing
released during 1994. Loan servicing income in 1994 increased 194% to $4.0
million as compared to $1.4 million in 1993. The increase in loan servicing
income was primarily due to a substantially higher average balance of loans
serviced. The servicing portfolio increased 97% to $1.9 billion at December
31, 1994 from $950.3 million at December 31, 1993. During 1994 and 1993,
ICII's mortgage conduit operations sold MSRs relating to $619.8 million and
$701.4 million principal amount of loans, respectively, resulting in pre-tax
gains of $4.2 million and $5.3 million, respectively. As interest rates
increased and prepayment rates decreased in 1994, the market value of ICII's
mortgage conduit operations' servicing portfolio increased, resulting in
higher sales prices and greater gains on sale of servicing.
 
                                      33
<PAGE>
 
  Expenses in 1994 increased 82% to $9.6 million from $5.3 million in 1993.
The increase in expenses was primarily due to increased levels of staffing
during the first half of 1994 as a result of the expansion of ICII's mortgage
conduit operations' activities in 1993. Personnel expenses increased 17% to
$3.0 million in 1994 as compared to $2.5 million in 1993. Amortization of MSRs
increased 351% to $2.1 million in 1994 as compared to $459,000 in 1993. The
increase was primarily due to a substantially higher average outstanding
balance of capitalized MSRs and an increase in amortization as a result of
mortgage loan prepayments. Amortization due to prepayments of mortgage loans
increased to $313,000 in 1994 as compared to $183,000 in 1993. Occupancy
expense increased 53% to $296,000 in 1994 as compared to $193,000 in 1993. The
increase reflects the costs associated with the expansion of ICII's mortgage
conduit operations' office late in 1993. General and administrative expenses
including other general and administrative expenses, professional services,
telephone and other communications and data processing, increased 72% to $3.1
million in 1994 as compared to $1.8 million in 1993. The increase was the
result of expenses associated with the expansion of the mortgage conduit
operations and installation of new data processing systems. During the latter
part of 1994, as interest rates increased, ICII's mortgage conduit operations
implemented cost containment and revenue enhancement programs to offset the
pressures of reduced loan acquisitions on earnings. In order to control costs,
the staffing was reduced by 57% at December 31, 1994 as compared to the level
at December 31, 1993. The provision for loan losses increased to $655,000 in
1994 as compared to $175,000 in 1993. The increase in the provision in 1994
was the result of a write down of an unsecured loan made to one of ICII's
mortgage conduit operations' correspondents as mentioned above.
 
  The Financial Accounting Standards Board issued Statement No. 109,
"Accounting for Income Taxes" ("SFAS 109"), which was effective for fiscal
years beginning December 15, 1992 was adopted by ICII's mortgage conduit
operations on January 1, 1993 on a prospective basis. Implementation of SFAS
109 had no material impact on ICII's mortgage conduit operations' financial
position or results of operations for the year ended December 31, 1993.
 
LIQUIDITY AND CAPITAL RESOURCES
 
  The Company's principal liquidity requirements result from the need to fund
the acquisition of mortgage loans held for sale by ICIFC, the long-term
investment in mortgage loans by IMH, and short-term loans by IWLG. Pre-
Contribution Transaction, ICIFC was funded by ICII through committed reverse
repurchase agreements and capital contributions. Historically, SPTL's
warehouse lending operations was funded by SPTL through deposits, other
borrowings and equity. However, Post-Contribution Transaction, the Long-Term
Investment Operations, the Conduit Operations and the Warehouse Lending
Operations are funded by reverse repurchase agreements, the sale of mortgage
securities and the issuance of CMOs and the proceeds from the issuance of
common stock.
 
  During the three months ended March 31, 1996 and 1995 and the years ended
December 31, 1995, 1994 and 1993, net cash provided by (used in) operating
activities was $4.5 million, $62,000, $(72,000), $58,000, and $313,000,
respectively. Net cash for the three months ended March 31, 1995 and for
fiscal 1995, 1994 and 1993 was negatively affected by lower net income from
reduced demand for SPTL's warehouse lending facilities resulting from adverse
market conditions in the mortgage banking industry. Net cash for 1993 was
positively affected by improved market conditions in the mortgage banking
industry. For the three months ended March 31, 1996, cash provided by
operating activities was positively affected by an increase in payables as
compared to payables outstanding as of December 31, 1995.
 
  Net cash provided by (used in) investing activities for the three months
ended March 31, 1996 and 1995 and the years ended December 31, 1995, 1994 and
1993 was $49.6 million, $(3.2) million, $(629.1) million, $5.0 million, and
$887,000, respectively. For the three months ended March 31, 1996 and 1995 and
in fiscal 1995, fundings of finance receivables exceeded prepayment rates of
such receivables primarily due to higher finance receivables from greater
mortgage loan acquisition volumes Post-Contribution Transaction. For 1994 and
1993, net cash was negatively affected by higher repayments of finance
receivables than mortgage loans funded.
 
                                      34
<PAGE>
 
  For the three months ended March 31, 1996 and 1995 and the year ended
December 31, 1995, 1994 and 1993, net cash provided by (used in) financing
activities was $(39.3) million, $3.1 million, $631.5 million, $(5.1) million
and $(1.2) million, respectively. These net cash figures were affected by the
Company increasing investment in finance receivables and mortgage loan
acquisitions, thereby requiring it to raise additional cash to finance such
receivables and acquisitions. As a result of such factors, borrowings to fund
mortgage loan acquisitions fluctuated accordingly. Post-Contribution
Transaction, such borrowings consisted of reverse repurchase agreements. Pre-
Contribution Transaction such borrowings consisted of borrowings from SPTL.
 
  At March 31, 1996 the Company had reverse repurchase facilities to provide
up to $631.6 million to finance the Company's three businesses. Terms of the
reverse repurchase agreements require that the mortgages be held by an
independent third party custodian, which gives the Company the ability to
borrow against the collateral as a percentage of the outstanding principal
balance. The borrowing rates quoted vary from 65 basis points to 100 basis
points over one-month LIBOR, depending on the type of collateral provided by
the Company. The margins on the reverse repurchase agreements are based on the
type of mortgage collateral used and generally range from 90% to 98% of the
fair market value of the collateral.
 
  By December 31, 1995, the Company utilized approximately 65%, 20% and 10% of
the net proceeds from its Initial Public Offering to provide funding for the
Warehouse Lending Operations, Long-Term Investment Operations and its Conduit
Operations, respectively. Management believes that cash flow from operations
and the aforementioned potential financing arrangements is sufficient to meet
the current liquidity needs of the three businesses.
 
INFLATION
 
  The Financial Statements and Notes thereto presented herein have been
prepared in accordance with GAAP, which require the measurement of financial
position and operating results in terms of historical dollars without
considering the changes in the relative purchasing power of money over time
due to inflation. The impact of inflation is reflected in the increased costs
of the Company's operations. Unlike industrial companies, nearly all of the
assets and liabilities of the Company's operations are monetary in nature. As
a result, interest rates have a greater impact on the Company's operations'
performance than do the effects of general levels of inflation. Inflation
affects the Company's operations primarily through its effect on interest
rates, since interest rates normally increase during periods of high inflation
and decrease during periods of low inflation. During periods of increasing
interest rates, demand for mortgage loans and a borrower's ability to qualify
for mortgage financing in a purchase transaction may be adversely affected.
 
                                      35
<PAGE>
 
                                   BUSINESS
 
  The following Business section contains forward-looking statements that
inherently involve risks and uncertainties. The Company's actual results could
differ materially from those anticipated in these forward-looking statements
as a result of certain factors, including those set forth under "Risk Factors"
and elsewhere in this Prospectus.
 
GENERAL
   
  IMH is a recently-formed specialty finance company, which operates three
businesses: (1) the Long-Term Investment Operations, (2) the Conduit
Operations and (3) the Warehouse Lending Operations. The Long-Term Investment
Operations is a recently-created business that invests primarily in non-
conforming residential mortgage loans and securities backed by such loans. The
Conduit Operations primarily purchases and sells or securitizes non-conforming
mortgage loans, and the Warehouse Lending Operations, provides short-term
lines of credit to originators of mortgage loans. The latter two businesses
include certain ongoing operations contributed to the Company by ICII on
November 20, 1995. IMH is organized as a REIT for tax purposes, which allows
it generally to pass through earnings to stockholders without federal income
tax at the corporate level.     
 
  Long-Term Investment Operations. The Long-Term Investment Operations,
conducted by IMH, invests primarily in non-conforming residential mortgage
loans and mortgage-backed securities secured by or representing interests in
such loans and, to a lesser extent, in second mortgage loans. Non-conforming
residential mortgage loans are residential mortgages that do not qualify for
purchase by government-sponsored agencies such as FNMA and FHLMC. Such loans
generally provide higher yields than conforming loans. The principal
differences between conforming loans and non-conforming loans include the
applicable loan-to-value ratios, the credit and income histories of the
mortgagors, the documentation required for approval of the mortgagors, the
type of properties securing the mortgage loans, the loan sizes and the
mortgagors' occupancy status with respect to the mortgaged properties. Second
mortgage loans are higher yielding mortgage loans made to borrowers owning
single-family homes, for the purpose of debt consolidation, home improvements,
education and a variety of other purposes. At March 31, 1996 the Company's
investment portfolio consisted of $311.5 million of non-conforming mortgage
loans and $33.2 million of mortgage-backed or other collateralized securities.
   
  Conduit Operations. The Conduit Operations, conducted by ICIFC, purchases
primarily non-conforming mortgage loans and, to a lesser extent, second
mortgage loans from its network of third party correspondents and subsequently
securitizes or sells such loans to permanent investors, including the Long-
Term Investment Operations. ICIFC's ability to design non-conforming mortgage
loans, which suit the needs of its correspondent loan originators and their
borrowers while providing sufficient credit quality to investors, as well as
its efficient loan purchasing process, flexible purchase commitment options
and competitive pricing, enables it to compete effectively with other non-
conforming mortgage loan conduits. In addition to ongoing securitizations and
sales to third party investors, ICIFC supports the Long-Term Investment
Operations of the Company by supplying IMH with non-conforming mortgage loans
and securities backed by such loans at costs which the Company believes to be
lower than would be available through third parties. For the three months
ended March 31, 1996, ICIFC acquired $280.7 million in mortgage loans and sold
$314.9 million of mortgage loans to the Long-Term Investment Operations.
During the years ended December 31, 1995 and 1994, ICIFC acquired mortgage
loans from its correspondents, including ICII after the Contribution
Transaction, in the amount of $1.1 billion and $1.7 billion, respectively.
Prior to the Contribution Transaction, ICIFC was a division or subsidiary of
ICII since 1990. IMH owns all of the outstanding preferred stock of ICIFC,
representing 99% of the economic interest in ICIFC while ICII is the holder of
all of the outstanding voting stock of ICIFC, which represents the remaining
1% of the economic interest in ICIFC.     
 
  Warehouse Lending Operations. The Warehouse Lending Operations, conducted by
IWLG, provides short-term lines of credit to ICIFC and approved mortgage
banks, most of which are correspondents of ICIFC, to finance mortgage loans
during the time from the closing of the loans to their sale or other
settlement with pre-
 
                                      36
<PAGE>
 
approved investors. At March 31, 1996, the Warehouse Lending Operations had
$196.1 million in net finance receivables outstanding, of which $173.4 million
was outstanding with ICIFC.
 
LONG-TERM INVESTMENT OPERATIONS
 
 GENERAL
 
  IMH acquires mortgage loans and mortgage-backed securities, principally non-
conforming residential mortgage loans and securities backed by such loans, for
long-term investment. The Long-Term Investment Operations also invests, to a
lesser extent, in second mortgage loans. Currently, the Long-Term Investment
Operations include certain other assets which were purchased from ICII and its
affiliates, including FMAC. See "Certain Transactions--Other Transactions."
Income is earned principally from the net interest income received by the
Company on the mortgage loans and mortgage-backed securities acquired and held
in its portfolio. Such acquisitions are financed with a portion of the
Company's capital, as well as borrowings provided through reverse repurchase
agreements and CMO financings. On March 31, 1996 and December 31, 1995, the
Company had total outstanding borrowings under reverse repurchase agreements
of $528.7 million and $567.7 million, respectively. In April 1996, the Company
completed a $296.3 million CMO financing. ICIFC supports the investment
objectives of IMH by supplying all mortgage loans and mortgage-backed
securities to IMH at costs which the Company believes are lower than those
available through investment bankers and other third parties.
 
  The following table sets forth the portfolio composition of the Long-Term
Investment Operations on the dates indicated.
 
<TABLE>
<CAPTION>
                                   AT MARCH 31, 1996                 AT DECEMBER 31, 1995
                          ----------------------------------- -----------------------------------
                          CARRYING   WEIGHTED     PERCENTAGE  CARRYING   WEIGHTED     PERCENTAGE
                           VALUE   AVERAGE YIELD OF PORTFOLIO  VALUE   AVERAGE YIELD OF PORTFOLIO
                          -------- ------------- ------------ -------- ------------- ------------
                                                  (DOLLARS IN THOUSANDS)
ASSET TYPE (1)
<S>                       <C>      <C>           <C>          <C>      <C>           <C>
Money Market Account....   $14,105      5.28%         2.50%   $    750      5.73%         0.12%
Investment Securities
 Available for Sale (2).    33,243     12.64          5.88      17,378     11.23          2.85
Mortgage Loans Held for
 Investment:
 Adjustable Rate Loans-
  First Lien Mortgages..   277,854      8.14         49.16         --        --            --
 Fixed Rate Loans-Second
  Mortgage Loans........    35,897     13.19          6.35         --        --            --
                          --------                  ------    --------                  ------
                           313,751      8.72         55.51         --        --            --
                          --------                  ------    --------                  ------
Finance Receivables.....   196,291      8.34         34.73     583,021      8.80         95.64
Lease Payment
 Receivables Held for
 Sale...................     7,806     12.00          1.38       8,441     12.00          1.38
                          --------                  ------    --------
  Total Interest Bearing
   Assets...............  $565,196      8.78        100.00%   $609,590      8.91        100.00%
                          --------                  ======    --------                  ======
BORROWING TYPE
Reverse Repurchase
 Agreements.............  $527,660      6.11        100.00%   $566,652      6.67        100.00%
                          ========     -----                  ========     -----
  Net Interest Spread...                2.67%                               2.24%
                                       =====                               =====
</TABLE>
- -------
(1) At March 31, 1996 and December 31, 1995 the Company had $164,000 and none,
    respectively, of non-performing mortgage loans attributable to Long-Term
    Investment Operations.
(2) Represents securities purchased from ICII and an affiliate of ICII. See
    "Certain Transactions--Other Transactions--Purchases of Other
    Investments."
 
                                      37
<PAGE>
 
 MORTGAGE LOANS HELD IN THE PORTFOLIO
 
  The Company originates, through its network of correspondents, and invests a
substantial portion of its portfolio in non-conforming mortgage loans and, to
a lesser extent, second mortgage loans. The Company also purchases such loans
from third parties for long-term investment and for resale. Management
believes that there is a large demand for non-conforming mortgage loans and
that non-conforming mortgage loans provide an attractive net earnings profile
and produce higher yields without commensurately higher credit risks when
compared with conforming mortgage loans. A portion of the loans purchased
through the Conduit Operations as well as a portion of the investment
portfolio of the Long-Term Investment Operations are "B" and "C" grade
mortgage loans. The Company believes that a structural change in the mortgage
banking industry has occurred which has increased demand for higher yielding
non-conforming mortgage loans. This change has been caused by a number of
factors, including: (1) investors' demand for higher yielding assets due to
historically low interest rates over the past few years; (2) increased
securitization of high-yielding non-conforming mortgage loans by the
investment banking industry; (3) quantification and development of
standardized credit criteria by credit rating agencies for securities backed
by non-conforming mortgage loans; (4) increased competition in the
securitization industry, which has reduced borrower interest rates and fees,
thereby making non-conforming mortgage loans more affordable; and (5) the end
of the refinance "boom" of 1992 and 1993, which has caused many mortgage
banks, attempting to sustain origination volume, to seek out non-conforming
mortgage loan borrowers.
 
 INVESTMENTS IN MORTGAGE-BACKED SECURITIES AND MASTER SERVICING FEES
RECEIVABLE
   
  The Company also acquires mortgage-backed securities generated through its
own securitization efforts as well as those generated by third parties. In
connection with the issuance of mortgage-backed securities by the Company in
the form of REMICs, IMH may retain the senior or subordinated securities as
regular interests (not including residual interests) on a short-term or long-
term basis. In connection with its February 1996 $175.8 REMIC security, the
Company retained securities as regular interest in the amount of $8.5 million.
Any such retained regular interest may include "principal only" or "interest
only" securities or other interest rate or prepayment sensitive securities or
investments. Any such retained securities or investments may subject the
Company to credit, interest rate and/or prepayment risks. The Company
anticipates it will retain such securities only on terms which it believes are
sufficiently attractive to compensate it for assuming such associated risks.
    
  The Company expects in the future to retain master servicing fees
receivable. See"--Servicing and Master Servicing." Master servicing fees
receivable have characteristics similar to interest only securities;
accordingly, they have many of the same risks inherent in interest only
securities, including the risk that they will lose a substantial portion of
their value as a result of rapid prepayments occasioned by declining interest
rates.
 
  Master servicing fees receivable represent the present value of the
difference between the interest rate on mortgage loans purchased by the
Conduit Operations and the interest rate received by investors who purchase
the securities backed by such loans, in excess of the normal loan servicing
fees charged by either (1) the Conduit Operations on loans acquired "servicing
released" or (2) correspondents who sold loans to the Conduit Operations with
the "servicing retained" (the "Excess Servicing Fees"). At March 31, 1996 and
December 31, 1995, the Company had no master servicing fees receivable.
   
  When the Conduit Operations purchases loans which include the associated
servicing rights, the allocated price paid for the servicing rights will be
reflected on its financial statements as MSRs. MSRs differ from master
servicing fees receivable primarily by the required amount of servicing to be
performed, the loss exposure to the owner of the instrument and the financial
liquidity of the instrument. In contrast to MSRs, where the owner of the
instrument acts as the servicer, master servicing fees receivable do not
require the owner of the instrument to service the underlying mortgage loan.
In addition, master servicing fees receivable subject their owners to greater
loss exposure from delinquencies or foreclosure on the underlying mortgage
loans than MSRs because a master servicer stands behind the servicer (or
subservicer) and potentially the owner of the mortgage loan in priority of
payment. Both MSRs and master servicing fees receivable are traded in the
public financial markets. However, MSRs are generally more liquid and are
traded at less of a discount as compared to master servicing fees receivable.
At March 31, 1996 and December 31, 1995, ICIFC had $2.7 million and none,
respectively, of MSRs.     
 
                                      38
<PAGE>
 
  To the extent that servicing fees on a mortgage loan exceed a "normal"
servicing fee (typically ranging from 0.25% to 0.375% per annum of the
mortgage loan principal amount), the Conduit Operations will generate master
servicing fees receivable as an asset that represents an estimated present
value of those excess fees assuming a prepayment rate on the mortgage loan. In
determining present value of future cash flows, the Conduit Operations will
use a market discount rate. Prepayment assumptions will be based on recent
evaluations of the actual prepayments of the Conduit Operations' servicing
portfolio or on market prepayment rates on new portfolios on which the Conduit
Operations has no experience and the interest rate environment at the time the
master servicing fees receivable are created. There can be no assurance of the
accuracy of management's prepayment estimates. If actual prepayments with
respect to sold mortgage loans occur more quickly than was projected at the
time such mortgage loans were sold, the carrying value of the master servicing
fees receivable may have to be written down through a charge to earnings in
the period of adjustment. If actual prepayments with respect to sold mortgage
loans occur more slowly than estimated, the carrying value of master servicing
fees receivable on the Company's statement of financial condition would not
increase, although total income would exceed previously estimated amounts.
 
  Management of the Company believes that because of the current level of
interest rates, investments in current coupon master servicing fees receivable
are prudent, and if interest rates rise, these investments will mitigate
declines in income that may occur in the Conduit Operations. The Company
intends to hold the master servicing fees receivable for investment. Currently
there is a limited liquid secondary market for master servicing fees
receivable; accordingly, if the Company had to sell these receivables, the
value received may or may not be at or above the values at which the Company
carried them on its balance sheet.
 
  The Company has purchased and retained subordinated securities, with ratings
ranging from "B" to "BBB", collaterized by adjustable rate mortgages. The
subordinated securities are primarily backed by 30-year amortizing mortgage
loans that adjust monthly, semi-annually or annually based on the 6-month
LIBOR and 11th District Cost of Funds rates. In general, subordinated classes
of a particular series of securities bear all losses prior to the related
senior classes. Losses in excess of expected losses at the time such
securities are purchased would adversely affect the Company's yield on such
securities and, in extreme circumstances, could result in the failure of the
Company to recoup its initial investment.
 
  The Company will not acquire REMIC or CMO residuals, excluding residual
interests for which the Company owns all of the outstanding interests in the
REMIC or the CMO or which result from a securitization transaction by the
Conduit Operations. See "--Conduit Operations--Securitization and Sale
Process."
 
 FINANCING
 
  Mortgage loans and securities backed by mortgage loans are financed
primarily at short-term borrowing rates through reverse repurchase agreements
and other financings which the Company may establish with approved
institutional lenders. Reverse repurchase agreements are the principal
financing devices utilized by the Company to leverage its mortgage loan
portfolio. Upon repayment of each borrowing in the form of a reverse
repurchase agreement, the collateral is immediately used for borrowing in the
form of a new reverse repurchase agreement. The Company obtained financings in
amounts and at interest rates that are consistent with its financing
objectives described herein with five different third-party lenders and
expects to increase the number of lenders in the future. For a discussion of
the terms of the Company's reverse repurchase facilities, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources." The Company is seeking to establish
commitment agreements under which certain of its lenders would be required to
enter into new reverse repurchase agreements as needed by the Company during a
specified period of time.
 
  A reverse repurchase agreement, although structured as a sale and repurchase
obligation, acts as a financing under which the Company effectively pledges
its mortgage loans and mortgage securities as collateral to secure a short-
term loan. Generally, the other party to the agreement makes the loan in an
amount equal to a percentage of the market value of the pledged collateral. At
the maturity of the reverse repurchase agreement, the Company is required to
repay the loan and correspondingly receives back its collateral. Under reverse
repurchase agreements, the Company generally retains the incidents of
beneficial ownership, including the right to distributions on the collateral
and the right to vote on matters as to which certificate holders vote. Upon a
payment default under such agreements, the lending party may liquidate the
collateral.
 
                                      39
<PAGE>
 
  The Company's borrowing agreements require the Company to pledge cash or
additional securities backed by mortgage loans in the event the market value
of existing collateral declines. To the extent that cash reserves are
insufficient to cover such deficiencies in collateral, the Company may be
required to sell assets to reduce its borrowings.
 
  Reverse repurchase agreements take the form of a sale of securities to the
lender at a discounted price in return for the lender's agreement to resell
the same securities to the borrower at a future date (the maturity of the
borrowing) at an agreed price. In the event of the insolvency or bankruptcy of
the Company, certain reverse repurchase agreements may qualify for special
treatment under the Bankruptcy Code, the effect of which is, among other
things, to allow the creditor under such agreements to avoid the automatic
stay provisions of the Bankruptcy Code and to foreclose on the collateral
agreements without delay. In the event of the insolvency or bankruptcy of a
lender during the term of a reverse repurchase agreement, the lender may be
permitted, under the Bankruptcy Code, to repudiate the contract, and the
Company's claim against the lender for damages therefrom may be treated simply
as one of the unsecured creditors. In addition, if the lender is a broker or
dealer subject to the Securities Investor Protection Act of 1970, the
Company's ability to exercise its rights to recover its securities under a
reverse repurchase agreement or to be compensated for any damages resulting
from the lender's insolvency may be further limited by such statute. If the
lender is an insured depository institution subject to the Federal Deposit
Insurance Act, the Company's ability to exercise its rights to recover its
securities under a reverse repurchase agreement or to be compensated for
damages resulting form the lender's insolvency may be limited by such statute
rather than the Bankruptcy Code. The effect of these various statutes is,
among other things, that a bankrupt lender, or its conservator or receiver,
may be permitted to repudiate or disaffirm its reverse repurchase agreements,
and the Company's claims against the bankrupt lender for damages resulting
therefrom may be treated simply as one of an unsecured creditor. Should this
occur, the Company's claims would be subject to significant delay and, if and
when received, may be substantially less than the damages actually suffered by
the Company.
 
  To reduce its exposure to the credit risk of reverse repurchase agreement
lenders, the Company entered into such agreements with several different
parties and follows its own credit exposure procedures. The Company monitors
the financial condition of its reverse repurchase agreement lenders on a
regular basis, including the percentage of mortgage loans that are the subject
of reverse repurchase agreements with a single lender. Notwithstanding these
measures, no assurance can be given that the Company will be able to avoid
such third party risks.
 
 ISSUANCE OF MORTGAGE-BACKED SECURITIES
 
  Collateralized Mortgage Obligations. In addition to the financing strategies
set forth above, as mortgage loans are accumulated, the Company issues CMOs
secured by such loans as a means of financing its Long-Term Investments
Operations. The decision to issue CMOs is based on the Company's current and
future investment needs, market conditions and other factors. For accounting
and tax purposes, the mortgage loans financed through the issuance of CMOs are
treated as assets of the Company, and the CMOs are treated as debt of the
Company. Each issue of CMOs is fully payable from the principal and interest
payments on the underlying mortgage loans collateralizing such debt, any cash
or other collateral required to be pledged as a condition to receiving the
desired rating on the debt, and any investment income on such collateral. The
Long-Term Investment Operations earns the net interest spread between the
interest income on the mortgage loans and the interest and other expenses
associated with the CMO financing. The net interest spread may be directly
impacted by the levels of prepayment of the underlying mortgage loans and to
the extent CMO classes have variable rates of interest, may be affected by
changes in short-term interest rates.
 
  When the Company issues CMOs for financing purposes, it seeks an investment
grade rating for such CMOs by a nationally-recognized rating agency. To secure
such a rating, it is often necessary to pledge collateral ("Additional
Collateral") in excess of the principal amount of the CMOs to be issued, or to
obtain other forms of credit enhancements such as additional mortgage loan
insurance. The need for Additional Collateral or other credit enhancements
depends upon factors such as the type of collateral provided and the interest
rates paid
 
                                      40
<PAGE>
 
thereon, the geographic concentration of the mortgaged property securing the
collateral and other criteria established by the rating agency. The pledge of
Additional Collateral reduces the capacity of the Company to raise additional
funds through short-term secured borrowings or additional CMOs and diminishes
the potential expansion of its investment portfolio. As a result, the
Company's objective is to pledge collateral for CMOs only in the amount
required to obtain an investment grade rating for the CMOs by a nationally-
recognized rating agency.
 
  The Company believes that under prevailing market conditions, an issuance of
CMOs receiving other than an investment grade rating would require payment of
an excessive yield to attract investors. No assurance can be given that the
Company will achieve the ratings it plans to seek for the CMOs. As of March
31, 1996, the Company had not issued any CMOs for financing its Long-Term
Investment Operations. However, during the second quarter of 1996, the Company
completed a $296.3 million CMO financing. The CMO was structured as a one
month LIBOR "floater" with interest payable monthly at LIBOR plus 0.50%. The
CMO is guaranteed for the holders thereof by a mortgage loan insurer giving
the CMO the highest rating established by a nationally-recognized rating
agency. The underlying principal balance of the mortgages supporting the CMO
represent approximately $267.2  million of six month LIBOR adjustable rate
mortgage loans with varying grade quality and $34.4 million of second mortgage
loans.
 
  Other Mortgage-Backed Securities. As an additional alternative for the
financing of its Long-Term Investment Operations, the Company may issue other
mortgage-backed securities, if, in the determination of ICIFC, the issuance of
such other securities is advantageous. In particular, mortgage pass-through
certificates representing an undivided interest in pools of mortgage loans
formed by the Company may prove to be an attractive vehicle for raising funds.
 
  The holders of mortgage pass-through certificates receive their pro rata
share of the principal payments made on a pool of mortgage loans and interest
at a pass-through interest rate that is fixed at the time of offering. The
Company may retain up to a 100% undivided interest in a significant number of
the pools of mortgage loans underlying such pass-through certificates. The
retained interest, if any, may also be subordinated so that, in the event of a
loss, payments to certificate holders will be made before the Company receives
its payments. Unlike the issuance of CMOs, the issuance of mortgage pass-
through certificates will not create an obligation of the Company to security
holders in the event of a borrower default. However, as in the case of CMOs,
the Company may be required to obtain various forms of credit enhancements in
order to obtain an investment grade rating for issues of mortgage pass-through
certificates by a nationally-recognized rating agency. As of March 31, 1996,
IMH had not issued any such mortgage-backed securities.
 
                                      41
<PAGE>
 
CONDUIT OPERATIONS
 
 GENERAL
 
  ICIFC began its mortgage conduit operations as a division of ICII in 1990.
As of March 31, 1996, ICIFC maintained relationships with 223 correspondents.
Correspondents originate and close mortgage loans under ICIFC's mortgage loan
programs offered through the secondary market on a flow (loan by loan) basis
or acquire loans on a bulk acquisition commitment. Correspondents include
savings and loan associations, commercial banks, mortgage bankers and mortgage
brokers. During the three months ended March 31, 1996, the Interim Period, and
the years ended December 31, 1995 and 1994, ICIFC acquired from its
correspondents, including ICII after the Contribution Transaction, $280.7
million, $547.2 million, $1.1 billion and $1.7 billion, respectively, of
mortgage loans.
 
  The Conduit Operations consists of the purchase and sale of mortgage loans
primarily secured by first liens and, to a lesser extent, second liens on
single (one-to-four) family residential properties that are originated in
accordance with ICIFC's underwriting guidelines. As a non-conforming mortgage
loan conduit, ICIFC acts as a intermediary between the originators of mortgage
loans that do not currently meet the guidelines for purchase by government-
sponsored entities (i.e., FNMA and FHLMC) that guarantee mortgage-backed
securities and permanent investors in mortgage-backed securities secured by or
representing an ownership interest in such mortgage loans. ICIFC also acts as
a bulk purchaser of primarily non-conforming mortgage loans. The Company
believes that non-conforming mortgage loans provide an attractive net earnings
profile, producing higher yields without commensurately higher credit risks
when compared to mortgage loans that qualify for purchase by FNMA or FHLMC. In
addition, based on the Company's experience in the mortgage banking industry
and in the mortgage conduit business, the Company believes it provides
mortgage loan sellers with an expanded and competitively priced array of non-
conforming and "B" and "C" grade mortgage loan products, timely purchasing of
loans, mandatory, best efforts and optional rate-lock commitments, and
flexible Master Commitments.
 
  All non-conforming loans purchased by ICIFC are made available for sale to
IMH at the same price at which the loans were acquired by ICIFC or fair market
value at the date of sale and subsequent transfer to IMH. In addition, ICII
granted ICIFC a right of first refusal to purchase all non-conforming loans
that ICII or any 25% entity originates or acquires and subsequently offers for
sale, and ICIFC granted ICII, or any 25% entity designated by ICII, a right of
first refusal to purchase all conforming mortgage loans that ICIFC acquires
and subsequently offers for sale. See "Certain Transactions--The Contribution
Transaction."
 
 MARKETING AND PRODUCTION
 
  Marketing Strategy. The Company's competitive strategy is, in part, to be a
low cost national acquirer, through its national correspondent network, of
mortgage loans to be held for investment or sold in the secondary market as
whole loans or securitized as mortgage-backed securities. A key feature of
this approach is the use of a large national network of correspondent
originators, which enables the Company to shift the high fixed costs of
interfacing with the homeowner to the correspondents. The marketing strategy
for the Conduit Operations is designed to accomplish three objectives: (1)
attract a geographically diverse group of both large and small correspondent
loan originators, (2) establish relationships with such correspondents and
facilitate their ability to offer a variety of loan products designed by ICIFC
and (3) purchase the loans and securitize or sell them into the secondary
market or to IMH. In order to accomplish these objectives, ICIFC designs and
offers loan products that are attractive to potential non-conforming borrowers
as well as to end-investors in non-conforming mortgage loans and mortgage-
backed securities.
 
  ICIFC has historically emphasized and continues to emphasize flexibility in
its mortgage loan product mix as part of its strategy to attract
correspondents and establish relationships. ICIFC also maintains relationships
with numerous end-investors so that it may develop products that they may be
interested in as market conditions change, which in turn may be offered
through the correspondent network. As a consequence, ICIFC is less
 
                                      42
<PAGE>
 
dependent on acquiring conforming mortgage loans than many mortgage bankers
and has, in the past, both as a division or subsidiary of ICII and as a
subsidiary of IMH, acquired significant volumes of non-conforming loans.
 
  In response to the needs of its non-conforming mortgage loan correspondents
and as part of its strategy to facilitate the sale of its loans through the
Conduit Operations, ICIFC's marketing strategy offers efficient response time
in the purchase process, direct and frequent contact with Sellers through a
trained sales force and flexible commitment programs. Finally, due to the
price sensitivity of most home buyers, ICIFC is competitive in pricing its
products in order to attract sufficient numbers of borrowers.
 
  Mortgage Loans Acquired. A majority of the mortgage loans purchased through
the Conduit Operations are non-conforming mortgage loans. Currently, the
maximum principal balance for a conforming loan is $207,000. Loans that exceed
such maximum principal balance are referred to as "jumbo loans." Non-
conforming mortgage loans generally consist of jumbo loans or other loans that
are originated in accordance with underwriting or product guidelines that
differ from those applied by FNMA and FHLMC. Such non-conforming loans may
involve some greater risk as a result of such different underwriting and
product guidelines. A portion of the loans purchased through the Conduit
Operations are "B" and "C" grade loans, as described below, which may entail
greater credit risks than other non-conforming loans. ICIFC generally does not
acquire mortgage loans with principal balances above $750,000 for "A" quality
loans, and $400,000 for "B" and "C" grade loans.
 
  Non-conforming loans purchased by ICIFC pursuant to its underwriting
programs typically differ from those purchased pursuant to the guidelines
established by FNMA and FHLMC primarily with respect to loan-to-value ratios,
borrower income or credit history, required documentation, interest rates,
borrower occupancy of the mortgaged property and/or property types. To the
extent that these programs reflect underwriting standards different from those
of FNMA and FHLMC, the performance of loans made thereunder may reflect higher
delinquency rates and/or credit losses. The Company believes that non-
conforming mortgage loans produce higher yields without commensurately higher
credit risk when compared to conforming mortgage loans.
 
  ICIFC's focus on the acquisition of non-conforming mortgage loans may affect
the Company's financial performance. For example, the purchase market for non-
conforming loans has typically provided for higher interest rates in order to
compensate for the lower liquidity of such loans, thereby potentially
enhancing the interest income earned by the Company during the accumulation
phase for loans held for sale and during the holding period for loans held for
investment. In addition, due to the lower level of liquidity in non-conforming
loan market, the Company may realize higher returns upon securitization of
such loans than would be realized upon securitization of conforming loans. On
the other hand, such lower levels of liquidity may from time to time cause the
Company to hold such loans or other mortgage-related assets supported by such
loans. In addition, by retaining for investment either the loans or other
mortgage-related assets supported by such loans, the Company assumes the
potential risk of any increased delinquency rates and/or credit losses as well
as interest rate risk.
 
  Mortgage loans acquired by ICIFC are generally secured by first liens and,
to a lesser extent, second liens on single (one-to-four) family residential
properties with either fixed or adjustable interest rates. During the three
months ended March 31, 1996, fixed-rate mortgage loans and ARMs accounted for
approximately 87.8% and 12.2%, respectively, of the mortgage loans purchased
by ICIFC. Fixed-rate mortgage loans have a constant interest rate over the
life of the loan, which is generally 15 or 30 years. The interest rate on an
ARM is typically tied to an index (such as LIBOR or the CMT Index) and is
adjustable periodically at various intervals. Such mortgage loans are
typically subject to lifetime interest rate caps and periodic interest rate
and/or payment caps. The interest rates on ARMs are typically lower than the
average comparable fixed rate loan initially, but may be higher than average
comparable fixed rate loans over the life of the loan. Substantially all
mortgage loans purchased by ICIFC will fully amortize over their remaining
terms. Currently, ICIFC purchases (1) fixed rate mortgage loans that have
original terms to maturity ranging from 10 to 30 years, (2) ARM mortgage loans
that adjust based on LIBOR or the CMT Index, and (3) 5/25 mortgage loans that
adjust on a one-time basis approximately five years following origination to
an interest rate based upon a defined index plus a spread. ICIFC may from time
to time purchase mortgage loans with other interest rate and maturity
characteristics.
 
                                      43
<PAGE>
 
  A summary of ICIFC's mortgage loan acquisitions by type of loan excluding
net premiums is shown below.
 
<TABLE>
<CAPTION>
                                                                  PERIOD FROM
                                                               NOVEMBER 20, 1995
                                            THREE MONTHS ENDED      THROUGH
                                              MARCH 31, 1996   DECEMBER 31, 1995
                                            ------------------ -----------------
                                                   (DOLLARS IN MILLIONS,
                                               EXCEPT FOR AVERAGE LOAN SIZE)
<S>                                         <C>                <C>
Conventional Conforming Loans:
  Volume of loans..........................      $   32.1          $  152.3
  Percentage of total volume...............          11.5%             28.2%
Conventional Non-conforming Loans:
  Volume of loans..........................      $  248.4          $  388.3
  Percentage of total volume...............          88.5%             71.8%
                                                 --------          --------
                                                 $  280.5          $  540.6
                                                 ========          ========
Fixed Rate Loans:
  Volume of loans..........................      $  246.3          $  142.9
  Percentage of total volume...............          87.8%             26.4%
Adjustable Rate Loans:
  Volume of loans..........................      $   34.2          $  397.7
  Percentage of total volume...............          12.2%             73.6%
                                                 --------          --------
                                                 $  280.5          $  540.6
                                                 ========          ========
Average Loan Size..........................      $126,229          $143,017
</TABLE>
 
  The credit quality of the loans purchased by ICIFC varies depending upon the
specific program under which such loans are purchased. For example, a
principal credit risk inherent in adjustable-rate mortgage loans is the
potential "payment shock" experienced by the borrower as rates rise, which
could result in increased delinquencies and credit losses. In the case of
negative amortization mortgage loans, a portion of the interest due accrues to
the underlying principal balance of the loan, thereby increasing the loan-to-
value ratio of the mortgage loans. As a general rule, mortgage loans with
higher loan-to-value ratios are vulnerable to higher delinquency rates given
the borrower's lower equity investment in the underlying property. Limited
documentation mortgage loans, by contrast, must meet lower loan-to-value
ratios and more rigorous criteria for borrower credit quality in order to
compensate for the reduced level of lender review with respect to the
borrower's earnings history and capacity.
 
  ICIFC's loan purchase activities have and are expected in the future to
continue to focus on those regions of the country where higher volumes of non-
conforming mortgage loans are originated, including California, Colorado,
Florida, Illinois, Maryland, New Jersey, New York, Oregon and Washington. The
highest concentration of non-conforming mortgage loans purchased by ICIFC
relates to properties located in California because of the generally higher
property values and mortgage loan balances prevalent there. At March 31, 1996
76.5% of IMH's mortgage loans held for investment were secured by properties
in California. In addition, of the $1.1 billion in loans acquired during the
year ended December 31, 1995, $814.7 million (or 73.1%) were acquired from
ICIFC's top ten sellers, including ICII, by volume of sales. No sellers other
than ICII or SPTL are an affiliate of the Company. SPTL, ICII and DITECH
Funding Group, each accounted for more than 10% of the total mortgage loans
acquired by ICIFC during 1995.
 
                                      44
<PAGE>
 
  The following table sets forth the geographic distribution of ICIFC's
mortgage loan acquisitions excluding net premiums.
 
<TABLE>
<CAPTION>
                                                                   PERIOD FROM
                                                                NOVEMBER 20, 1995
                                         THREE MONTHS ENDED          THROUGH
                                           MARCH 31, 1996       DECEMBER 31, 1995
                                         ---------------------  -----------------
                                         DOLLAR    PERCENTAGE   DOLLAR PERCENTAGE
                                         AMOUNT     OF TOTAL    AMOUNT  OF TOTAL
                                         --------- -----------  ------ ----------
                                                 (DOLLARS IN MILLIONS)
<S>                                      <C>       <C>          <C>    <C>
California.............................. $   151.0       53.8%  $370.6    68.5%
Florida.................................      27.9       10.0     20.7     3.8
New Jersey..............................      23.2        8.3     22.1     4.1
New York................................      13.7        4.9      5.7     1.0
Oregon..................................       8.8        3.1     18.9     3.5
Washington..............................       8.0        2.8     23.3     4.3
Colorado................................       6.4        2.3     23.6     4.4
North Carolina..........................       6.2        2.2      2.4     0.4
Nevada..................................       6.0        2.1      4.5     0.8
Utah....................................       4.9        1.7      5.4     1.0
Maryland................................       3.3        1.2      7.4     1.4
Pennsylvania............................       3.1        1.1      3.7     0.7
Illinois................................       2.9        1.0      2.1     0.4
Georgia.................................       1.7        0.6      2.1     0.4
Hawaii..................................       1.5        0.5      4.4     0.8
Arizona.................................       1.3        0.5      5.9     1.1
Texas...................................       1.3        0.5      1.5     0.3
Virginia................................       1.3        0.5      2.0     0.4
Other ..................................       8.0        2.9     14.3     2.6
                                         ---------   --------   ------   -----
                                         $   280.5      100.0%  $540.6   100.0%
                                         =========   ========   ======   =====
</TABLE>
 
  To date, a portion of the loans purchased by ICIFC comprise "B" and "C"
grade residential mortgage loans. In general, "B" and "C" grade loans are
residential mortgage loans made to borrowers with lower credit ratings than
borrowers of higher quality, or so called "A" grade mortgage loans, and are
normally subject to higher rates of loss and delinquency than the other non-
conforming loans purchased by ICIFC. As a result, "B" and "C" grade loans
normally bear a higher rate of interest, and are typically subject to higher
fees (including greater prepayment fees and late payment penalties), than non-
conforming loans of "A" quality. In general, greater emphasis is placed upon
the value of the mortgaged property and, consequently, the quality of
appraisals thereof, and less upon the credit history of the borrower in
underwriting "B" and "C" grade mortgage loans than in underwriting "A" grade
loans. In addition, "B" and "C" grade loans are generally subject to lower
loan-to-value ratios than "A" grade loans. Under ICIFC's "B" and "C" mortgage
loan program, underwriting authority is delegated only to correspondents who
meet those strict underwriting guidelines established by ICIFC. See "--
Underwriting and Quality Control."
 
  ICIFC purchases "B" and "C" grade loans on a "servicing-released" basis
rather than on a "servicing-retained" basis due to its belief that control
over the servicing and collection functions with respect to such loans is
important to the realization of a satisfactory return thereon. In connection
therewith, the Company contracted with ICII for the performance of such
servicing functions. In the first quarter of 1996, ICII contracted to sell
substantially all of its mortgage servicing portfolio and began to eliminate a
substantial portion of its mortgage servicing department. In response to
ICII's decision to exit the mortgage servicing business, ICIFC is in the
process of negotiations with another third party sub-servicer. As part of this
process, the Company may in the future form a separate collection group to
assist a new sub-servicer in the servicing of these loans. See "--Servicing
and Master Servicing."
 
                                      45
<PAGE>
 
  In connection with the securitization of "B" and "C" grade loans, the levels
of subordination required as credit enhancement for the more senior classes of
securities issued in connection therewith are higher than those with respect
to its "A" grade non-conforming loans. Similarly, in connection with the
securitization of mortgage loans secured by second liens, the levels of
subordination required as credit enhancement for the more senior classes of
securities issued in connection therewith are higher than those with respect
to its mortgage loans secured by first liens. Thus, to the extent that the
Company retains any of the subordinated securities created in connection with
such securitizations and losses with respect to such pools of "B" and "C"
grade loans or mortgage loans secured by second liens are higher than
expected, the Company's future earnings could be adversely affected.
   
  Seller Eligibility Requirements. The mortgage loans acquired by the Conduit
Operations are originated by various sellers, including savings and loan
associations, banks, mortgage bankers and other mortgage brokers. Sellers are
required to meet certain regulatory, financial, insurance and performance
requirements established by ICIFC before they are eligible to participate in
its mortgage loan purchase program, and must submit to periodic reviews by
ICIFC to ensure continued compliance with these requirements. ICIFC's current
criteria for seller participation generally include a minimum tangible net
worth requirement ($300,000 in its non-delegated program, $500,000 in its
partially delegated program and at least $1 million in its fully delegated
program, as described below), approval as a FNMA or FHLMC Seller/Servicer in
good standing and a HUD approved mortgagee in good standing or a financial
institution that is insured by the FDIC or comparable federal or state agency,
and that the seller is examined by a federal or state authority. In addition,
sellers are required to have comprehensive loan origination quality control
procedures. In connection with its qualification, each seller enters into an
agreement that generally provides for recourse by ICIFC against the seller in
the event of a breach of representations or warranties made by the seller with
respect to mortgage loans sold to ICIFC, any fraud or misrepresentation during
the mortgage loan origination process, and upon early payment default on such
loans. As of March 31, 1996, 223 sellers had been approved by ICIFC as being
eligible to participate in the Conduit Operations.     
 
 PURCHASE COMMITMENT PROCESS AND PRICING
   
  Master Commitments. As part of its marketing strategy, ICIFC has established
mortgage loan purchase commitments ("Master Commitments") with sellers that,
subject to certain conditions, entitle the seller to sell and obligate ICIFC
to purchase a specified dollar amount of non-conforming mortgage loans over a
period generally ranging from six months to one year. The terms of each Master
Commitment specify whether a seller may sell loans to ICIFC on a mandatory,
best efforts or optional basis, or a combination thereof. Master Commitments
do not generally obligate ICIFC to purchase loans at a specific price, but
rather provide the seller with a future outlet for the sale of its originated
loans based on ICIFC's quoted prices at the time of purchase. Master
Commitments specify the types of mortgage loans the seller is entitled to sell
to ICIFC and generally range from $2 million to $50 million in aggregate
committed principal amount. The provisions of ICIFC's Seller/Servicer Guide
are incorporated in each of the Conduit Operations' Master Commitments and may
be modified by negotiations between the parties. In addition, there are
individualized Master Commitment options available to sellers, which include
alternative pricing structures or specialized loan products. In order to
obtain a Master Commitment, a seller may be asked to pay a non-refundable up
front or non-delivery fee, or both, to the Company. As of March 31, 1996,
ICIFC had outstanding Master Commitments with 28 sellers to purchase mortgage
loans in the aggregate principal amount of $595 million over periods generally
ranging from six months to one year, of which $93.1 million were committed to
be purchased pursuant to rate-locks (as defined below).     
 
  Sellers who have entered into the aforementioned Master Commitments are
expected to continue to sell mortgage loans to the Conduit Operations by
executing individual, bulk or other rate-locks (each, a "rate-lock"). Each
rate-lock, in conjunction with the related Master Commitment, specifies the
terms of the related sale, including the quantity and price of the mortgage
loans or the formula by which the price will be determined, the rate-lock type
and the delivery requirements. Historically, the up front fee paid by a seller
to ICIFC to obtain a
 
                                      46
<PAGE>
 
Master Commitment on a mandatory delivery basis has often been refunded pro
rata as the seller delivers loans pursuant to rate-locks. Any remaining fee
after the Master Commitment expires is retained by the Conduit Operations.
 
  Bulk and Other Rate-Locks. ICIFC also acquires mortgage loans from sellers
that are not purchased pursuant to Master Commitments. These purchases may be
made on a bulk or individual rate-lock basis. Bulk rate-locks obligate the
seller to sell and ICIFC to purchase a specific group of loans, generally
ranging from $1 million to $50 million in aggregate committed principal
amount, at set prices on specific dates. Bulk rate-locks enable ICIFC to
acquire substantial quantities of loans on a more immediate basis. The
specific pricing, delivery and program requirements of these purchases are
determined by negotiation between the parties but are generally in accordance
with the provisions of ICIFC's Seller/Servicer Guide. Due to the active
presence of investment banks and other substantial investors in this area,
bulk pricing is extremely competitive. Loans are also purchased from
individual sellers (typically smaller originators of mortgage loans) who do
not wish to sell pursuant to either a Master Commitment or bulk rate-lock. The
terms of these individual purchases are based primarily on ICIFC's
Seller/Servicer Guide and standard pricing provisions, and are offered on a
mandatory basis.
 
  Mandatory, Best Efforts and Optional Rate-Locks. Mandatory rate-locks
require the seller to deliver a specified quantity of loans to ICIFC over a
specified period of time regardless of whether the loans are actually
originated by the seller or whether circumstances beyond the seller's control
prevent delivery. ICIFC is required to purchase all loans covered by the rate-
lock at prices established at the time of rate-lock. If the seller is unable
to deliver the specified loans, it may instead deliver comparable loans
approved by ICIFC within the specified delivery time. Failure to deliver the
specified mortgage loans or acceptable substitute loans under a mandatory
rate-lock obligates the seller to pay ICIFC a penalty, and, if ICIFC's
mortgage loan yield requirements have declined, the present value of the
difference in yield ICIFC would have obtained on the mortgage loans that the
seller agreed to deliver and the yield available on similar mortgage loans
subject to mandatory rate-lock issued at the time of such failure to deliver.
In contrast, mortgage loans sold on a best efforts basis must be delivered to
ICIFC only if they are actually originated by the seller. The best efforts
rate-lock provides sellers with an effective way to sell loans during the
origination process without any penalty for failure to deliver. Optional rate-
locks gives the seller the option to deliver mortgage loans to ICIFC at a
fixed price on a future date and requires the payment of up front fees to
ICIFC. Any up front fees paid in connection with best efforts and optional
rate-locks are retained by ICIFC whether or not the loans are delivered.
 
  Pricing. ICIFC sets purchase prices at least once every business day for
mortgage loans it acquires for its Conduit Operations based on prevailing
market conditions. Different prices are established for the various types of
loans, rate-lock periods and types of rate-locks (mandatory, best efforts or
optional). ICIFC's standard pricing is based on the anticipated price it
receives upon sale or securitization of the loans, the anticipated interest
spread realized during the accumulation period, the targeted profit margin and
the anticipated issuance, credit enhancement and ongoing administrative costs
associated with such sale or securitization. The credit enhancement cost
component of ICIFC's pricing is established for individual mortgage loans or
pools of mortgage loans based upon the characteristics of such loan or loan
pool. As the characteristics of the loan or loan pool vary, this cost
component is correspondingly adjusted upward or downward to reflect the
variation. ICIFC's adjustments are reviewed periodically by management to
reflect changes in the costs of credit enhancement. Adjustments to ICIFC's
standard pricing may also be negotiated on an individual basis under Master
Commitments or bulk or individual rate-locks with sellers. See "--
Securitization and Sale Process."
 
  Following the issuance of a specific rate-lock, ICIFC is subject to the risk
of interest rate fluctuations and enters into hedging transactions to diminish
such risk. Hedging transactions may include mandatory or optional forward
sales of mortgage loans or mortgage-backed securities, interest rate caps,
floors and swaps, mandatory forward sales, mandatory or optional sales of
futures and other financial futures transactions. The nature and quantity of
hedging transactions are determined by the management of ICIFC based on
various factors, including market conditions and the expected volume of
mortgage loan purchases. Gains and losses on hedging transactions are recorded
as incurred.
 
                                      47
<PAGE>
 
 UNDERWRITING AND QUALITY CONTROL
 
  Purchase Guidelines. ICIFC has developed comprehensive purchase guidelines
for the acquisition of mortgage loans by the Conduit Operations. Subject to
certain exceptions, each loan purchased must conform to the loan eligibility
requirements specified in ICIFC's Seller/Servicer Guide with respect to, among
other things, loan amount, type of property, loan-to-value ratio, type and
amount of insurance, credit history of the borrower, income ratios, sources of
funds, appraisals and loan documentation. ICIFC also performs a legal
documentation review prior to the purchase of any mortgage loan. ICIFC either
delegates the underwriting function to its correspondents or performs the
function itself. Additionally, for mortgage loans that are underwritten by
contract underwriters, ICIFC does not perform a full underwriting review prior
to purchase, but instead relies on the credit review and analysis performed by
the contract underwriter, as well as its own pre-purchase eligibility process
to ensure that the loan meets the program acceptance guidelines and a post-
purchase quality control review.
 
  Underwriting Methods. ICIFC has established a delegated underwriting
program, which is similar in concept to the delegated underwriting programs
established by FNMA and FHLMC. Under this program, qualified sellers are
required to underwrite loans in compliance with ICIFC's underwriting
guidelines as set forth in ICIFC's Seller/Servicer Guide or an individual
Master Commitment. As part of the approval process for a seller to become a
delegated underwriter, the seller must submit a small sample of loans for a
pre-purchase quality control review by ICIFC. If the submitted loans comply
with the Company's underwriting guidelines and the seller meets ICIFC's
financial and performance criteria, the seller will be approved for the
delegated underwriting program. In connection with its approval, the seller
must represent and warrant to ICIFC that all mortgage loans sold to ICIFC will
comply with ICIFC's underwriting guidelines. The current financial, historical
loan quality and other criteria for seller participation in this program
generally include a minimum net worth requirement and verification of the
seller's good standing with FNMA and FHLMC. As of March 31, 1996, 142 sellers
had qualified by ICIFC for participation in the delegated underwriting
program.
 
  The delegated underwriting program consists of two separate subprograms.
ICIFC's principal delegated underwriting subprogram is a fully delegated
program designed for loan sellers that meet higher financial and performance
criteria than those applicable to sellers generally. Qualifying sellers have
delegated underwriting authority for all mortgage products under this
subprogram, except for "B" and "C" grade loans. The second subprogram is a
partially delegated program pursuant to which sellers only have delegated
underwriting authority for ICIFC's conforming mortgage loan products.
 
  Mortgage loans acquired under ICIFC's non-delegated underwriting program are
either fully underwritten by ICIFC's underwriting staff or involve the use of
contract underwriters. ICIFC has contracted with several national mortgage
insurance firms that conduct contract underwriting for mortgage loan
acquisitions by ICIFC. Under these contracts, ICIFC relies on the credit
review and analysis of the contract underwriter, as well as its own pre-
purchase eligibility review to ensure that the loan meets program acceptance,
its own follow-up quality control procedures and the representations and
warranties of the contract underwriter.
 
  Loans that are not acquired under either delegated or contract underwriter
methods are fully underwritten by ICIFC's underwriting staff. In such cases,
ICIFC performs a full credit review and analysis to ensure compliance with its
loan eligibility requirements. This review specifically includes, among other
things, an analysis of the underlying property and associated appraisal and an
examination of the credit, employment and income history of the borrower.
Under all of these methods, loans are purchased only after completion of a
legal documentation and eligibility criteria review.
 
  Although the delegated underwriting program could be deemed to present
inherently greater risks due to the lower level of individual loan review, the
Company believes that this risk is mitigated by the higher net worth
requirements applicable to loan sellers eligible for the delegated
underwriting program and ICIFC's eligibility control prior to purchase,
thereby enhancing the financial support for the representations and warranties
made by such sellers. ICIFC also relies on such sellers' experience and
demonstrated performance with the government-sponsored entities referred to
above with respect to the delegated underwriting program.
 
                                      48
<PAGE>
 
  Under all of ICIFC's underwriting methods, loan documentation requirements
for verifying the borrowers' income and assets, vary according to loan-to-
value ratios and other factors. This variation is necessary to be competitive
and responsive to the needs of the non-conforming mortgage loan sellers.
Generally, as the standards for required documentation are lowered, borrowers'
down payment requirements are increased and the required loan-to-value ratios
are decreased. These types of loans with less documentation are reviewed on a
risk analysis underwriting basis, similar to the underwriting analysis
utilized by mortgage insurance companies. Reduced documentation loans require
the borrower to have a stronger credit history and larger cash reserves to
show a savings pattern history, and the appraisal of the property is validated
by either an enhanced desk or field review. Within the underwriting philosophy
of the ICIFC guidelines, the underwriters utilize a "risk analysis" approach
to determine the borrower's ability and willingness to repay the debt and to
determine if the property taken as security has sufficient value to recover
the debt in the event that the loan defaults. Each loan is reviewed for
compensating factors (i.e., credit reports, sufficient assets, appraisal, job
stability, savings pattern), and overall compensating factors are reviewed to
fully analyze the risk. Full documentation is requested if it is the judgment
of the underwriter that the compensating factors are insufficient for loan
approval.
   
  Quality Control. Ongoing quality control reviews are conducted by ICIFC to
ensure that the mortgage loans purchased meet its quality standards. The type
and extent of the quality control review depend on the nature of seller and
the characteristics of the loans. Loans acquired under the delegated
underwriting program are reviewed in accordance with the quality control
procedures described above. ICIFC reviews on a post-purchase basis a portion
of all loans submitted with delegated underwriting to determine that the loans
were purchased in compliance with the guidelines set forth by ICIFC. ICIFC
reviews a higher portion of certain categories of mortgage loans, such as
loans with reduced documentation, loans with higher loan-to-value ratios
(above 80%) and cash out refinances. In performing a quality control review on
a loan, ICIFC analyzes the underlying property appraisal and examines the
credit and income history of the borrower. In addition, all documents
submitted in connection with the purchase of the loans, including insurance
policies, title policies, deeds of trust or mortgages and promissory notes,
are examined for compliance with ICIFC's guidelines and to ensure compliance
to state and federal regulations.     
 
 SECURITIZATION AND SALE PROCESS
 
  General. The Conduit Operations primarily uses a warehouse line of credit
from IWLG and equity to finance the acquisition of mortgage loans from
correspondents. When a sufficient volume of mortgage loans with similar
characteristics has been accumulated, generally $100 million to $200 million,
ICIFC will securitize them through the issuance of mortgage-backed securities
in the form of a REMIC or resell them in bulk whole loan sales. The period
between the time ICIFC commits to purchase a mortgage loan and the time it
sells or securitizes such mortgage loan generally range from 10 to 90 days,
depending on certain factors, including the length of the purchase commitment
period, the loan volume by product type and the securitization process.
 
  Any decision to form REMICs or to sell the loans in bulk by ICIFC is
influenced by a variety of factors. REMIC transactions are generally accounted
for as sales of the mortgage loans and can eliminate or minimize any long-term
residual investment in such loans. REMIC securities consist of one or more
classes of "regular interests" and a single class of "residual interest." The
regular interests are tailored to the needs of investors and may be issued in
multiple classes with varying maturities, average lives and interest rates.
These regular interests are predominantly senior securities but, in
conjunction with providing credit enhancement, may be subordinated to the
rights of other regular interests. The residual interest represents the
remainder of the cash flows from the mortgage loans (including, in some
instances, reinvestment income) over the amounts required to be distributed to
the regular interests. In some cases, the regular interests may be structured
so that there is no significant residual cash flow, thereby allowing ICIFC to
sell its entire interest in the mortgage loans. As a result, in some cases,
all of the capital originally invested in the mortgage loans by the Company is
redeployed in the Conduit Operations. As part of its operations, ICIFC may
retain regular and residual interests on a short-term or long-term basis. In
the first quarter of 1996, the Conduit Operations created its first Post-
Contribution Transaction REMIC security composed of $175.8 million of fixed
rate non-conforming principal balance of mortgage loans.
 
                                      49
<PAGE>
 
  Credit Enhancement. Any REMICs or CMOs created by the Conduit Operations or
the Long-Term Investment Operations are expected to be structured so that one
or more of the classes of such securities are rated investment grade by at
least one nationally recognized rating agency. In contrast to Agency
Certificates in which the principal and interest payments are guaranteed by
the U.S. government or an agency thereof, securities created by the Conduit
Operations or the Long-Term Investment Operations do not benefit from any such
guarantee. The ratings for the Conduit Operations' mortgage-backed securities
or the Long-Term Investment Operations' CMOs are based upon the perceived
credit risk by the applicable rating agency of the underlying mortgage loans,
the structure of the securities, and the associated level of credit
enhancement. Credit enhancement is designed to provide protection to the
security holders in the event of borrower defaults and other losses including
those associated with fraud or reductions in the principal balances or
interest rates on mortgage loans as required by law or a bankruptcy court.
 
  The Conduit Operations or the Long-Term Investment Operations can utilize
multiple forms of credit enhancement, including special hazard insurance,
private mortgage pool insurance reserve funds, letters of credit, surety
bonds, over-collateralization and subordination or any combination thereof. In
determining whether to provide credit enhancement through subordination or
other credit enhancement methods, the Conduit Operations and the Long-Term
Investment Operations take into consideration the costs associated with each
method. The Company's Post-Contribution Transaction $175.8 million REMIC
security and $296.3 million CMO financing were credit enhanced by a mortgage
pool insurance bringing the ratings of the senior bonds issued in connection
therewith to the highest rating established by a nationally recognized rating
agency.
 
  Each series of mortgage-backed securities is typically fully payable from
the mortgage assets underlying such series, and the recourse of investors is
limited to such assets and any associated credit enhancement features, such as
senior/subordinated structures. To the extent the Company holds subordinated
securities, a form of credit enhancement, the Company generally bears all
losses prior to the related senior security holders. Generally, any losses in
excess of the credit enhancement obtained are borne by the security holders.
Except in the case of a breach of the standard representations and warranties
made by the Company when mortgage loans are securitized, such securities are
non-recourse to the Company. Typically, the Company has recourse to the
sellers of loans for any such breaches, but there are no assurance of the
sellers' abilities to honor their respective obligations.
 
  Ratings of mortgage-backed securities are based primarily upon the
characteristics of the pool of underlying mortgage loans and associated credit
enhancement. A decline in the credit quality of such pools (including
delinquencies and/or credit losses above initial expectations), or of any
third party credit enhancer, or adverse developments in general economic
trends affecting real estate values or the mortgage industry, could result in
downgrades of such ratings.
 
WAREHOUSE LENDING OPERATIONS
 
 GENERAL
 
  The Company's third line of business is its Warehouse Lending Operations.
Such operations primarily consist of warehouse lending for approved mortgage
banks acting as correspondents of ICIFC and other mortgage banks. Warehouse
lending facilities typically provide short-term revolving lines of credit to
finance mortgage loans from the time of closing the loan to the time of its
sale or other settlement with the pre-approved investor. Generally, the non-
conforming mortgage loans funded with such warehouse lines of credit are
acquired by ICIFC. The specific terms of any warehouse line of credit,
including the amount, are determined based upon the financial strength,
historical performance and other qualifications of the borrower. As a
warehouse lender, IWLG is a secured creditor of the mortgage bankers and
brokers to which it extends credit and subject to the risks inherent in that
status, including the risks of borrower default and bankruptcy. Any claim of
IWLG as a secured lender in a bankruptcy proceeding may be subject to
adjustment and delay.
 
 
                                      50
<PAGE>
 
  In addition to providing warehouse lines to certain of the Conduit
Operations' correspondents, IWLG provided a $600 million warehouse line to
ICIFC. The terms of the warehouse line are based on Bank of America's prime
rate with advance rates between 90% and 98% of the fair value of the mortgage
loans outstanding. The warehouse line balances outstanding on IWLG's balance
sheet are structured to qualify under the REIT asset tests and to generate
income qualifying under the 75% gross income test. The warehouse lines are
non-recourse and IWLG can only look to the sale or liquidation of the mortgage
loans as a source of repayment.
   
  At March 31, 1996, IWLG had $196.3 million of warehouse lines of credit
outstanding to nine borrowers, including $173.4 million to ICIFC. IWLG
finances its Warehouse Lending Operations through reverse repurchase
agreements and equity. At March 31, 1996, IWLG had entered into repurchase
facilities with two investment banks.     
 
 FMAC
 
  The Company intends to use a portion of the net proceeds of this Offering,
together with the proceeds of other financing, to establish up to a
$100 million warehouse facility with FMAC at terms to be negotiated in an
arms-length transaction. The other financing which the Company intends to use
to finance advances under this warehouse facility consist of borrowings under
reverse repurchase agreements, which it expects to establish with one or more
third party institutional lenders.
   
  FMAC makes long-term loans to established franchisees of major restaurant
franchise concepts, such as Burger King, Taco Bell, KFC, TGI Friday's,
Wendy's, Pizza Hut and Hardee's. The loans are then securitized into
investment grade structures and sold to institutional investors. In parallel
with the accumulation of the collateral and the structuring of the securities
sold in each securitization, independent rating agencies are retained to rate
each series of securities issued. In each securitization completed to date,
the securities have received investment grade ratings (BBB- and above).     
 
HEDGING
 
  The Company conducts certain hedging activities in connection with both its
Long-Term Investment Operations and its Conduit Operations.
 
  Long-term Investment Operations. To the extent consistent with IMH's
election to qualify as a REIT, the Company follows a hedging program intended
to protect against interest rate changes and to enable the Company to earn net
interest income in periods of generally rising, as well as declining or
static, interest rates. Specifically, the Company's hedging program is
formulated with the intent to offset the potential adverse effects resulting
from (1) interest rate adjustment limitations on its mortgage loans and
securities backed by mortgage loans and (2) the differences between the
interest rate adjustment indices and interest rate adjustment periods of its
adjustable rate mortgage loans and mortgage-backed securities secured by such
loans and related borrowings. As part of its hedging program, the Company also
monitors on an ongoing basis the prepayment risks that arise in fluctuating
interest rate environments.
 
  The Company's hedging program encompasses a number of procedures. First, the
Company structures its commitments to purchase mortgage loans so that the
mortgage loans purchased will have interest rate adjustment indices and
adjustment periods that, on an aggregate basis, correspond as closely as
practicable to the interest rate adjustment indices and interest rate
adjustment periods of the anticipated financing source. In addition, the
Company will structure its borrowing agreements to have a range of different
maturities (although substantially all will have maturities of less than one
year). As a result, the Company adjusts the average maturity of its borrowings
on an ongoing basis by changing the mix of maturities as borrowings come due
and are renewed. In this way, the Company minimizes any differences between
interest rate adjustment periods of mortgage loans and related borrowings that
may occur due to prepayments of mortgage loans or other factors.
 
                                      51
<PAGE>
 
  The Company may occasionally purchase interest rate caps to limit or
partially offset adverse changes in interest rates associated with its
borrowings. In a typical interest rate cap agreement, the cap purchaser makes
an initial lump sum cash payment to the cap seller in exchange for the
seller's promise to make cash payments to the purchaser on fixed dates during
the contract term if prevailing interest rates exceed the rate specified in
the contract. In this way, the Company generally hedges as much of the
interest rate risk arising from lifetime rate caps on its mortgage loans and
from periodic rate and/or payment caps as the Company determines is in the
best interests of the Company, given the cost of such hedging transactions and
the need to maintain IMH's status as a REIT. Such periodic caps on the
Company's mortgage loans may also be hedged by the purchase of mortgage
derivative securities. Mortgage derivative securities can be effective hedging
instruments in certain situations as the value and yields of some of these
instruments tend to increase as interest rates rise and tend to decrease in
value and yields as interest rates decline, while the experience for others is
the converse. The Company intends to limit its purchases of mortgage
derivative securities to investments that qualify as Qualified REIT Assets or
Qualified Hedges so that income from such investments will constitute
qualifying income for purposes of the 95% and 75% gross income tests. To a
lesser extent, the Company, through its Conduit Operations, enters into
interest rate swap agreements, buys and sells financial futures contracts and
options on financial futures contracts and trade forward contracts as a hedge
against future interest rate changes; however, the Company will not invest in
these instruments unless the Company and the Manager are exempt from the
registration requirements of the Commodity Exchange Act or otherwise comply
with the provisions of that Act. The REIT provisions of the Code may restrict
the Company's ability to purchase certain instruments and may severely
restrict the Company's ability to employ other strategies. See "Federal Income
Tax Considerations." In all its hedging transactions, the Company deals only
with counterparties that the Company believes are sound credit risks. During
the three months ended March 31, 1996 and the year ended December 31, 1995,
the Company had not purchased any interest rate caps, swaps or other hedging
instruments.
 
  Conduit Operations. In conducting its Conduit Operations, ICIFC is subject
to the risk of rising mortgage interest rates between the time it commits to
purchase mortgage loans at a fixed price and the time it sells or securitizes
those mortgage loans. To mitigate this risk, ICIFC enters into transactions
designed to hedge interest rate risks, which may include mandatory and
optional forward selling of mortgage loans or mortgage-backed securities,
interest rate caps, floors and swaps, and buying and selling of futures and
options on futures. The nature and quantity of these hedging transactions are
determined by the management of ICIFC based on various factors, including
market conditions and the expected volume of mortgage loan purchases.
 
  Costs and Limitations. The Company has implemented a hedging program
designed to provide a level of protection against interest rate risks.
However, an effective hedging strategy is complex, and no hedging strategy can
completely insulate the Company from interest rate risks. Moreover, as noted
above, certain of the federal income tax requirements that IMH must satisfy to
qualify as a REIT limit the Company's ability to fully hedge its interest rate
risks. The Company monitors carefully, and may have to limit, its hedging
strategies to assure that it does not realize excessive hedging income or hold
hedging assets having excess value in relation to total assets, which would
result in IMH's disqualification as a REIT or, in the case of excess hedging
income, the payment of a penalty tax for failure to satisfy certain REIT
income tests under the Code, provided such failure was for reasonable cause.
See "Federal Income Tax Considerations."
 
  In addition, hedging involves transaction and other costs, and such costs
increase dramatically as the period covered by the hedging protection
increases and also increase in periods of rising and fluctuating interest
rates. Therefore, the Company may be prevented from effectively hedging its
interest rate risks, without significantly reducing the Company's return on
equity.
 
                                      52
<PAGE>
 
SERVICING AND MASTER SERVICING
 
  ICIFC currently acquires substantially all of its mortgage loans on a
"servicing released" basis and thereby acquires the servicing rights. ICIFC
subcontracts all of its servicing obligations under such loans to ICII
pursuant to a sub-servicing agreement. The Company believes that the terms of
such agreement are comparable to industry standards. In the first quarter of
1996, ICII contracted to sell substantially all of its mortgage servicing
portfolio and began to eliminate a substantial portion of its mortgage
servicing department. In response to ICII's decision to exit the mortgage
servicing business, ICIFC is in the process of negotiations with another third
party sub-servicer. ICIFC expects that the transfer of servicing
responsibilities will take place in June 1996. However, there are no
assurances that ICIFC will be able to complete the transfer by this date.
Servicing includes collecting and remitting loan payments, making required
advances, accounting for principal and interest, holding escrow or impound
funds for payment of taxes and insurance, if applicable, making required
inspections of the mortgaged property, contacting delinquent borrowers and
supervising foreclosures and property dispositions in the event of unremedied
defaults in accordance with the Company's guidelines. Servicing fees generally
range from 0.25% to 0.375% per annum on the declining principal balances of
the loans serviced.
 
  The following table sets forth certain information regarding the ICIFC's
servicing portfolio of loans for the periods shown.
 
<TABLE>
<CAPTION>
                                                                 PERIOD FROM
                                                              NOVEMBER 20, 1995
                                           THREE MONTHS ENDED      THROUGH
                                             MARCH 31, 1996   DECEMBER 31, 1995
                                           ------------------ -----------------
                                                      (IN MILLIONS)
<S>                                        <C>                <C>
Beginning servicing portfolio.............      $ 512.1            $  -- (1)
Loans added to the servicing portfolio....        280.5             540.6
Loans sold servicing released and
 principal paydowns.......................       (140.7)            (28.5)
                                                -------            ------
Ending servicing portfolio................      $ 651.9            $512.1
                                                =======            ======
</TABLE>
- --------
(1) Pursuant to the Contribution Transaction, ICII retained ICIFC's servicing
    portfolio at November 20, 1995.
 
  In the future, ICIFC expects to offer its sellers of mortgage loans the
right to retain servicing. In the case of servicing retained mortgage loans
the Company will enter into agreements (the "Servicing Agreements") with the
sellers of mortgage loans, to service the mortgage loans they sell to the
Company. Each Servicing Agreement will require the servicer to service the
Company's mortgage loans in a manner generally consistent with FNMA and FHLMC
guidelines and procedures and with any servicing guidelines promulgated by the
Company. Each servicer will collect and remit principal and interest payments,
administer mortgage escrow accounts, submit and pursue insurance claims and
initiate and supervise foreclosure proceedings on the mortgage loans so
serviced. Each servicer will also provide accounting and reporting services
required by the Company for such loans. The servicer will be required to
follow such collection procedures as are customary in the industry. The
servicer may, at its discretion, arrange with a defaulting borrower a schedule
for the liquidation of delinquencies, provided primary mortgage insurance
coverage is not adversely affected. Each Servicing Agreement will provided
that the servicer may not assign any of its obligations with respect to the
mortgage loans serviced for the Company, except with the Company's consent. At
March 31, 1996, ICIFC had no servicers or sub-servicers other than ICII.
 
  Each servicer will be required to pay all expenses related to the
performance of its duties under its Servicing Agreement. The servicer will be
required to make advances of principal and interest, taxes and required
insurance premiums that are not collected from borrowers with respect to any
mortgage loan, only if the servicer determines that such advances are
recoverable from the mortgagor, insurance proceeds or other sources with
respect to such mortgage loan. If such advances are made, the servicer
generally will be reimbursed prior to the Company receiving the remaining
proceeds. The servicer also will be entitled to reimbursement by the Company
for expenses incurred by it in connection with the liquidation of defaulted
mortgage loans and in connection
 
                                      53
<PAGE>
 
with the restoration of mortgaged property. If claims are not made or paid
under applicable insurance policies or if coverage thereunder has ceased, the
Company suffers a loss to the extent that the proceeds from liquidation of the
mortgaged property, after reimbursement of the servicer's expenses in the
sale, are less than the principal balance of the related mortgage loan. The
servicer will be responsible to the Company for any loss suffered as a result
of the servicer's failure to make and pursue timely claims or as a result of
actions taken or omissions made by the servicer which cause the policies to be
canceled by the insurer. Each servicer will be required to represent and
warrant that the mortgage loans it services comply with any loan servicing
guidelines promulgated by the Company and agree to repurchase, at the request
of the Company, any mortgage loan it services in the event that the servicer
fails to make such representations or warranties or any such representation or
warranty is untrue.
   
  The Company may terminate a Servicing Agreement with any servicer upon the
happening of one or more of the events specified in the Servicing Agreement.
Such events relate generally to the servicer's proper and timely performance
of its duties and obligations under the Servicing Agreement and the servicer's
financial stability. In addition, the Company will have the right to terminate
any Servicing Agreement without cause upon 30 days' notice and upon payment of
a termination fee that is competitive with that which is obtainable generally
in the industry. The termination fee will be based on the aggregate
outstanding principal amount of the loans then serviced under the agreement.
With respect to mortgage loans that support CMOs or other mortgage-backed
securities, the Company may not be able to terminate a servicer without the
approval of the trustee or bond insurer for such securities.     
 
  As is customary in the mortgage loan servicing industry, servicers are
entitled to retain any late payment charges, penalties and assumption fees
collected in connection with the mortgage loans. The servicers receive any
benefit derived from interest earned on collected principal and interest
payments between the date of collection and the date of remittance to the
Company and from interest earned on tax and insurance impound funds. The
servicer will be required to remit to the Company no later than the 18th day
of each month all principal and interest due from borrowers on the first day
of such month.
   
  ICIFC will generally perform the function of master servicer with respect to
mortgage loans it sells or securitizes. The master servicer's function
includes collecting loan payments from servicers of loans and remitting loan
payments, less master servicing fees receivable and other fees, to a trustee
or other purchaser for each series of mortgage-backed securities or loans
master serviced. In addition, as master servicer, ICIFC monitors compliance
with its servicing guidelines and is required to perform, or to contract with
a third party to perform, all obligations not adequately performed by any
servicer. A master servicer typically employs servicers to carry out servicing
functions. Servicers typically perform servicing functions for the master
servicer as independent contractors. ICIFC is the master servicer for the
$175.8 million fixed rate REMIC security it issued in February 1996. In
addition, ICIFC acts as the servicer or master servicer for all loans acquired
by the Long-Term Investment Operations. The master servicer's responsibility
with respect to the Long-Term Investment Operations' mortgage investment
portfolio is to provide management, guidance, valuation and accounting.     
 
  As compensation for master servicing services performed to IMH, ICIFC
charges a monthly fee of 0.02% based on the outstanding principal balance of
each such loan master serviced by it as of the last day of each month. ICIFC
has represented to IMH that this fee is competitive with that which is
obtainable generally in the industry. With respect to its function as a
servicer for IMH, ICIFC and IMH entered into a Servicing Agreement effective
on November 20, 1995 having terms substantially similar to those described
above.
 
                                      54
<PAGE>
 
  The following table shows the Company's delinquency statistics for its
servicing portfolio for the periods presented.
 
<TABLE>
<CAPTION>
                                                               AT DECEMBER 31,
                                          AT MARCH 31, 1996         1995
                                         ------------------- -------------------
                                                     % OF                % OF
                                         NUMBER OF SERVICING NUMBER OF SERVICING
                                           LOANS   PORTFOLIO   LOANS   PORTFOLIO
                                         --------- --------- --------- ---------
<S>                                      <C>       <C>       <C>       <C>
Loans delinquent for:
  30-59 days............................     84      1.83%       26      0.74%
  60-89 days............................      7      0.15        --
  90 days+..............................      2      0.04        --        --
                                            ---      ----       ---      ----
    Total Delinquencies.................     93      2.02%       26      0.74%
                                            ===      ====       ===      ====
</TABLE>
 
  The loans purchased by the Company since the Contribution Transaction and
thereafter securitized and sold in the secondary market have not been
outstanding for any periods comencing earlier than November 20, 1995.
Consequently, the Company's delinquency and foreclosure experience to date may
not be indicative of future results.
 
  During periods of declining interest rates, prepayments of mortgage loans
increase as homeowners look to refinance at lower rates, resulting in a
decrease in the value of the servicing portfolio. Mortgage loans with higher
interest rates are more likely to result in prepayments. For a discussion
regarding how prepayments may affect the Company's operations, see "Risk
Factors--Changes in Interest Rates; Prepayment Risks." The following table
sets forth certain information regarding the number of and aggregate principal
balance of the mortgage loans serviced by the Company, including both fixed
and adjustable rate loans, at various mortgage interest rates.
 
<TABLE>
<CAPTION>
                                AT MARCH 31, 1996               AT DECEMBER 31, 1995
                         -------------------------------- --------------------------------
                                  AGGREGATE   WEIGHTED             AGGREGATE   WEIGHTED
                          NUMBER  PRINCIPAL    AVERAGE     NUMBER  PRINCIPAL    AVERAGE
                         OF LOANS  BALANCE  INTEREST RATE OF LOANS  BALANCE  INTEREST RATE
                         -------- --------- ------------- -------- --------- -------------
                              (DOLLARS IN THOUSANDS)           (DOLLARS IN THOUSANDS)
<S>                      <C>      <C>       <C>           <C>      <C>       <C>
Less than 5%............      4   $    503       4.79%       --    $    --         -- %
5.00-5.49...............      5        693       5.18        --         --         --
5.50-5.99...............      7      1,305       5.75          6        976       5.74
6.00-6.49...............     95     13,458       6.20         84     12,014       6.22
6.50-6.99...............    112     17,074       6.72         85     13,693       6.68
7.00-7.49...............    199     38,140       7.22        146     29,157       7.22
7.50-7.99...............    563    103,955       7.71        505     96,681       7.71
8.00-8.49...............    793    141,134       8.21        727    132,122       8.20
8.50-8.99...............  1,343    215,596       8.70        797    133,324       8.70
9.00-9.49...............    349     48,120       9.15        218     33,031       9.17
9.50-9.99...............    172     23,314       9.67        108     16,939       9.68
10.00-10.49.............     69      7,477      10.17         49      6,240      10.14
10.50-10.99.............     73      7,955      10.67         55      6,832      10.66
11.00-11.49.............     18      2,080      11.16         11      1,481      11.11
11.50+..................    796     31,068      13.38        742     29,633      13.53
                          -----   --------                 -----   --------
                          4,598   $651,872       8.57%     3,533   $512,127       8.58%
                          =====   ========                 =====   ========
</TABLE>
 
 
                                      55
<PAGE>
 
  The following table sets forth the geographic distribution of the Company's
servicing portfolio.
 
<TABLE>
<CAPTION>
                           AT MARCH 31, 1996           AT DECEMBER 31, 1995
                      ---------------------------- ----------------------------
                                           % OF                         % OF
                               AGGREGATE AGGREGATE          AGGREGATE AGGREGATE
                       NUMBER  PRINCIPAL PRINCIPAL  NUMBER  PRINCIPAL PRINCIPAL
                      OF LOANS  BALANCE   BALANCE  OF LOANS  BALANCE   BALANCE
                      -------- --------- --------- -------- --------- ---------
                         (DOLLARS IN THOUSANDS)       (DOLLARS IN THOUSANDS)
<S>                   <C>      <C>       <C>       <C>      <C>       <C>
California...........  2,573   $422,034    64.74%   2,175   $356,931    69.70%
Florida..............    383     39,684     6.09      181     19,958     3.90
New Jersey...........    247     31,507     4.83      152     18,848     3.68
Washington...........    204     23,522     3.61      186     21,522     4.20
Oregon...............    202     21,933     3.36      159     17,433     3.40
Colorado.............    167     22,523     3.46      155     20,634     4.03
New York.............    107     14,929     2.29       39      5,663     1.11
Utah.................     92      7,440     1.14       71      5,404     1.06
Nevada...............     80      9,915     1.52       41      4,458     0.87
Maryland.............     76      7,864     1.21       64      6,008     1.17
Arizona..............     75      7,042     1.08       60      5,648     1.10
Illinois.............     36      4,510     0.69       13      1,394     0.27
Georgia..............     33      3,521     0.54       18      2,144     0.42
Hawaii...............     26      4,137     0.63       23      3,499     0.68
Texas................     23      2,862     0.44       12      1,391     0.27
Virginia.............     22      2,044     0.31       17      1,448     0.28
Massachusetts........     15      1,885     0.29        8      1,377     0.27
Others (1)...........    237     24,520     3.77      159     18,367     3.59
                       -----   --------    -----    -----   --------    -----
                       4,598   $651,872    100.0%   3,533   $512,127    100.0%
                       =====   ========    =====    =====   ========    =====
</TABLE>
- --------
(1) No other state accounted for greater than 1% of the Company's mortgage
    loan servicing portfolio.
 
REGULATION
 
  The rules and regulations applicable to the Conduit Operations, among other
things, prohibit discrimination and establish underwriting guidelines that
include provisions for inspections and appraisals, require credit reports on
prospective borrowers and fix maximum loan amounts. Mortgage loan acquisition
activities are subject to, among other laws, the Equal Credit Opportunity Act,
Federal Truth-in-Lending Act and the Real Estate Settlement Procedures Act and
the regulations promulgated thereunder that prohibit discrimination and
require the disclosure of certain basic information to mortgagors concerning
credit terms and settlement costs.
 
  Subsequent to November 20, 1995, ICIFC applied and became an approved FNMA
seller/servicer. ICIFC is currently in the process of applying with FHLMC to
become an approved FHLMC seller/servicer. Upon approval, the Conduit
Operations will be subject to the rules and regulations of FNMA and FHLMC with
respect to acquiring, processing, selling and servicing conforming mortgage
loans. In addition, ICIFC will be required annually to submit to FNMA and
FHLMC audited financial statements, and each regulatory entity has its own
financial requirements for sellers/servicers. For any conforming mortgage loan
activities, ICIFC's affairs would also be subject to examination by FNMA and
FHLMC at any time to assure compliance with the applicable regulations,
policies and procedures.
 
  In addition, the elimination of or a substantial reduction in the current
home mortgage interest tax deduction could curtail mortgage loan originations,
which could materially adversely affect the Company's results of operations
and financial condition.
 
  Additionally, there are various state and local laws and regulations
affecting the Conduit Operations. ICIFC is licensed in those states requiring
such a license. Mortgage operations also may be subject to applicable state
usury statutes. The Company is presently in material compliance with all
material rules and regulations to which it is subject.
 
                                      56
<PAGE>
 
COMPETITION
 
  In purchasing non-conforming mortgage loans and issuing securities backed by
such loans, the Company competes with established mortgage conduit programs,
investment banking firms, savings and loan associations, banks, thrift and
loan associations, finance companies, mortgage bankers, insurance companies,
other lenders and other entities purchasing mortgage assets. Continued
consolidation in the mortgage banking industry may also reduce the number of
current sellers to the Conduit Operations, thus reducing the Company's
potential customer base, resulting in ICIFC's purchasing a larger percentage
of mortgage loans from a smaller number of sellers. Such changes could
negatively impact the Conduit Operations. Mortgage-backed securities issued by
the Conduit Operations and the Long-Term Investment Operations face
competition from other investment opportunities available to prospective
investors.
 
  The Company faces competition in its Conduit Operations and Warehouse
Lending Operations from other financial institutions, including but not
limited to banks and investment banks. Many of the institutions with which the
Company competes in its Conduit Operations and Warehouse Lending Operations
have significantly greater financial resources than the Company.
 
  The Company's operations may be affected by the activities of ICII and its
affiliates. As an end-investor in non-conforming mortgage loans, SPTL may
compete with the Company as this activity is not restricted by the Non-Compete
Agreement. Also, Southern Pacific Funding Corporation is a wholly-owned
subsidiary of ICII whose business is primarily to act as a wholesale
originator and a bulk purchaser of non-conforming mortgage loans. These
activities are not restricted by the Non-Compete Agreement. In addition, after
the expiration of the Non-Compete Agreement, ICII or any 25% entity may
compete with the Company's Long-Term Investment Operations, the Conduit
Operations and the Warehouse Lending Operations. While the Company believes
such activities will not have a material adverse effect on the Company's
operations there can be no assurance of this.
 
EMPLOYEES
 
  As of March 31, 1996, ICIFC and IWLG employed 60 and three persons,
respectively. However, as part of the transition from a division or subsidiary
of ICII to ICIFC, some employees are shared by both entities although ICII and
ICIFC expect such sharing to end prior to December 31, 1996. Expenses
associated with these employees are shared by both parties in relation to the
time spent working for each entity. The Company believes that relations with
its employees are good. The Company is not a party to any collective
bargaining agreement.
 
FACILITIES
 
  The Company's executive offices and administrative facilities occupy
approximately 10,000 square feet of space in Santa Ana Heights, California.
The Company subleases its facilities from ICII pursuant to a sublease
agreement expiring in 2002 at an aggregate monthly rental of approximately
$12,900. The terms of the sublease allow for increases in rent as dictated by
the master lease. Management believes that the terms of the sublease are at
least as favorable as could have been obtained from an unaffiliated third
party. Management believes that these facilities are adequate for the
Company's foreseeable needs and that alternate space at comparable rental
rates is available, if necessary.
 
LEGAL PROCEEDINGS
  ComUnity National Asset Corporation, a Maryland corporation v. Thomas O.
Markel, Jr., an individual; Homemac Mortgage Bankers, a business association
of unknown form; Homemac Corporation, a California corporation; Homemac
Finance Corporation; Homemac Institutional Mortgage Corporation, a California
corporation; Imperial Credit Mortgage Holdings, Inc., a Maryland corporation;
and DOES 1 through 100, inclusive, Orange County Superior Court Case No.
761786.
 
 
                                      57
<PAGE>
 
  On April 1, 1996, ComUnity National Asset Corporation ("ComUnity") filed a
lawsuit in Orange County Superior Court against Thomas O. Markel, Jr., several
Homemac entities, and IMH. The complaint seeks damages for statutory and
common law misappropriation of trade secrets, restitution for unfair
competition, damages for negligence and conversion.
 
  ComUnity seeks damages in an unspecified amount, but in no event less than
$200,000, alleging that said amount is not less than the amount spent and/or
obligations incurred by ComUnity in setting up its business and organizational
plan to become a REIT dealing primarily in B and C grade mortgage loans and to
take ComUnity public in an initial public offering, together with punitive
damages. ComUnity is also seeking attorneys' fees and costs. ComUnity alleges
that IMH wrongfully received consideration in the form of, among other things,
reduced expenses and legal fees, salary, wages, stock options, and other forms
of consideration arising out of the commercial exploitation of ComUnity
confidential information, and that ComUnity is also entitled to an order of
restitution compelling IMH and the other defendants to pay to ComUnity all
profits from the commercial exploitation of information allegedly received
from ComUnity. The Company believes that the complaint is without merit and
intends to vigorously defend the action.
 
  Other than the foregoing, the Company is not a party to any material legal
proceedings.
 
                                      58
<PAGE>
 
                    IMPERIAL CREDIT MORTGAGE HOLDINGS, INC.
 
DIRECTORS AND EXECUTIVE OFFICERS
 
  The Company was incorporated in the State of Maryland on August 28, 1995.
The following table sets forth certain information with respect to the
directors and executive officers of IMH, ICIFC and IWLG:
 
<TABLE>
<CAPTION>
 NAME                                 AGE POSITION
 ----                                 --- --------
 <C>                                  <C> <S>
 H. Wayne Snavely....................  54 Chairman of the Board of IMH
 Joseph R. Tomkinson.................  48 Vice Chairman of the Board and Chief
                                          Executive Officer of IMH and Chairman
                                          of the Board and Chief Executive
                                          Officer of ICIFC and IWLG
 William S. Ashmore..................  46 President and Chief Operating Officer
                                          of IMH and Executive Vice President
                                          and a Director of ICIFC and IWLG
 Richard J. Johnson..................  34 Senior Vice President, Chief
                                          Financial Officer, Treasurer and
                                          Secretary of IMH, ICIFC and IWLG and
                                          a Director of ICIFC
 Mary C. Glass.......................  42 Vice President of IMH and Senior Vice
                                          President, Operations, of ICIFC and
                                          IWLG
 James Walsh+........................  45 Director of IMH
 Frank P. Filipps+...................  48 Director of IMH
 Stephan R. Peers+...................  43 Director of IMH
</TABLE>
- --------
+Unaffiliated Director
 
  H. WAYNE SNAVELY has been the Chairman of the Board of IMH since its
formation. He has been Chairman of the Board and Chief Executive Officer of
ICII since December 1991. Mr. Snavely is also Chairman of the Board of ICAI,
the Manager. He has been a Director of Imperial Bancorp and Imperial Bank
since 1993, and was also a director of Imperial Bank from 1975 to 1983. From
1983 to February 1991, Mr. Snavely served as Executive Vice President of
Imperial Bancorp and Imperial Bank with direct management responsibility for
the following bank subsidiaries and divisions: Imperial Bank Mortgage,
Southern Pacific Thrift and Loan, Imperial Trust Company, Wm. Mason & Company,
Imperial Ventures, Inc. and The Lewis Horwitz Organization. From 1983 through
1986, Mr. Snavely was employed as Chief Financial Officer of Imperial Bancorp
and Imperial Bank.
 
  JOSEPH R. TOMKINSON has been the Vice Chairman of the Board and Chief
Executive Officer of IMH and the Chairman of the Board and Chief Executive
Officer of ICIFC and IWLG since their formation. Mr. Tomkinson is also Vice
Chairman of the Board of ICAI, the Manager. Mr. Tomkinson served as President
of ICII from January 1992 to February 1996 and from 1986 to January 1992 he
was President of Imperial Bank Mortgage, a subsidiary of Imperial Bank, one of
the companies that combined to become ICII in 1992. Mr. Tomkinson has been a
Director of ICII since December 1991. From 1984 to 1986, he was employed as
Executive Vice President of Loan Production for American Mortgage Network, a
privately owned mortgage banker. Mr. Tomkinson brings 21 years of combined
experience in real estate, real estate financing and mortgage banking to the
Company.
 
  WILLIAM S. ASHMORE has been the President and Chief Operating Officer of IMH
and Executive Vice President and a Director of ICIFC and IWLG since their
formation. Mr. Ashmore is also Executive Vice President and a Director of
ICAI, the Manager. From August 1993 to February 1996, he was Executive Vice
President and a Director of Secondary Marketing at ICII, having been its
Senior Vice President of Secondary Marketing since January 1988. From 1985 to
1987, he was Chief Executive Officer and Vice Chairman of the Board of Century
National Mortgage Corporation, a wholesale mortgage banking company. From 1978
to 1985, Mr. Ashmore was the President and co-owner of Independent Homes Real
Estate Company, which evolved in 1980 into a mortgage banking firm that was
sold to Century National Bank in 1985. Mr. Ashmore has over 20 years of
combined experience in real estate, real estate financing and mortgage
banking.
 
                                      59
<PAGE>
 
  RICHARD J. JOHNSON has been Senior Vice President, Chief Financial Officer,
Treasurer and Secretary of IMH, IWLG, and ICIFC since their formation. In
March of 1996, Mr. Johnson was appointed as a director of ICIFC. From March
1995 to March 1996, Mr. Johnson was the Chief Financial Officer of ICAI, the
Manager. From September 1992 to March 1995, Mr. Johnson was Senior Vice
President and Chief Financial Officer of ICII. From November 1989 to September
1992, Mr. Johnson was Vice President and Controller of ICII. From February
1988 to October 1989, he was Vice President and Chief Financial Officer of
Bayhill Service Corporation, a mortgage banking company, and Vice President of
Capital Savings and Loan, the parent of Bayhill Service Corporation. From
January 1987 to February 1988, Mr. Johnson was Vice President of Finance for
Merrill Lynch Huntoon Paige, Inc., a mortgage banking subsidiary of Merrill
Lynch Capital Markets. Mr. Johnson is a Certified Public Accountant.
 
  MARY C. GLASS has been Vice President of IMH and Senior Vice President,
Operations of ICIFC and IWLG since their formation. From April 1995 through
November 1996, Ms. Glass was the Senior Vice President and Managing Director
of Imperial Capital Markets Group, a division of ICII, and from February 1993
to April 1995, she was Senior Vice President of ICIFC, a division of ICII.
From 1991 through 1993, Ms. Glass acted as a mortgage banking consultant. From
1990 through 1991, she was an Executive Vice President at PriMerit Mortgage
Corporation. From 1988 to 1990, Ms. Glass was the President of SCS Mortgage.
From September 1984 through September 1988, Ms. Glass was Senior Vice
President of Concor Financial Services.
 
  JAMES WALSH has been a Director of the Company since August 1995. Mr. Walsh
is an executive vice president of Walsh Securities, Inc. where he directs
mortgage loan production, sales and securitization. Mr. Walsh was an executive
of Donaldson, Lufkin and Jenrette Securities Corporation from January 1989
through March 1996 where he oversaw residential mortgage securitization,
servicing brokerage and mortgage banking services. From February 1987 to
December 1988, Mr. Walsh was an executive in the mortgage banking department
at Bear Stearns & Company. From December 1985 to February 1987, Mr. Walsh was
a senior banking officer at Carteret Savings Bank.
 
  FRANK P. FILIPPS has been a Director of the Company since August 1995. Mr.
Filipps was elected President of CMAC Investment Corporation and Chairman,
President and Chief Executive Officer of Commonwealth Mortgage Assurance
Company ("CMAC") in January 1995. Mr. Filipps joined CMAC in 1992 as Senior
Vice President and Chief Financial Officer, where he was responsible for the
company's financial, investment and data processing operations, as well as the
legal and human resources functions. In 1994, Mr. Filipps was promoted to
Executive Vice President and Chief Operating Officer for both CMAC Investment
Corporation and CMAC, where his additional responsibilities included the
company's sales, marketing, underwriting and risk management. In 1975, Mr.
Filipps joined American International Group, and from 1989 to 1992, he was
Vice President and Treasurer. Prior to that, he was a Second Vice President
for Chase Manhattan Bank, N.A., in New York.
 
  STEPHAN R. PEERS has been a Director of the Company since October 1995.
Since April 1993, Mr. Peers has been an Executive Vice President of
International Strategic Finance Corporation, Ltd., where he performs corporate
finance services for overseas issuers. From April 1989 to April 1993, Mr.
Peers was a Vice President in corporate finance at Montgomery Securities where
he specialized in financial services institutions. From March 1987 to March
1989, Mr. Peers was a Vice President at The First Boston Corporation in
mortgage finance specializing in mortgage related products. Mr. Peers has
served as a Managing Director of Resource Bancshares Corporation since August
1995.
 
  All directors are elected at each annual meeting of the Company's
stockholders for a term of one year, and hold office until their successors
are elected and qualify. Replacements for vacancies occurring among the
Unaffiliated Directors will be elected by a majority vote of the remaining
Directors, including a majority of the Unaffiliated Directors. All officers
serve at the discretion of the Board of Directors. The Company pays an annual
director's fee to each Unaffiliated Director equal to $20,000 and reimburses
such Directors' costs and expenses for attending Board meetings.
 
 
                                      60
<PAGE>
 
LIMITATION OF LIABILITY AND INDEMNIFICATION
 
  The MGCL permits a Maryland corporation to include in its Charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The Charter of the
Company contains such a provision, which eliminates such liability to the
maximum extent permitted by the MGCL.
 
  The Charter of the Company authorizes it, to the maximum extent permitted by
Maryland law, to obligate itself to indemnify and to pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to (a) any
present or former director or officer or (b) any individual who, while a
director of the Company and at the request of the Company, serves or has
served another corporation, partnership, joint venture, trust, employee
benefit plan or any other enterprise as a director, officer, partner or
trustee of such corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise. The Bylaws of the Company obligate it, to
the maximum extent permitted by Maryland law, to indemnify and to pay or
reimburse reasonable expenses in advance of final disposition of a proceeding
to (a) any present or former director or officer who is made a party to the
proceeding by reason of his service in that capacity or (b) any individual
who, while a director of the Company and at the request of the Company, serves
or has served another corporation, partnership, joint venture, trust, employee
benefit plan or any other enterprise as a director, officer, partner or
trustee of such corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise and who is made a party to the proceeding by
reason of his service in that capacity. The Charter and Bylaws also permit the
Company to indemnify and advance expenses to any person who served a
predecessor of the Company in any of the capacities described above and to any
employee or agent of the Company or a predecessor of the Company.
 
  The MGCL requires a corporation (unless its Charter provides otherwise,
which the Company's Charter does not) to indemnify a director or officer who
has been successful, on the merits or otherwise, in the defense of any
proceeding to which he is made a party by reason of his service in that
capacity. The MGCL permits a corporation to indemnify its present and former
directors and officers, among others, against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection
with any proceeding to which they may be made a party by reason of their
service in those or other capacities unless it is established that (a) the act
or omission of the director or officer was material to the matter giving rise
to the proceeding and (1) was committed in bad faith or (2) was the result of
active and deliberate dishonesty, (b) the director or officer actually
received an improper personal benefit in money, property or services or (c) in
the case of any criminal proceeding, the director or officer had reasonable
cause to believe that the act or omission was unlawful. However, a Maryland
corporation may not indemnify for an adverse judgment in a suit by or in the
right of the corporation. In addition, the MGCL requires the Company, as a
condition to advancing expenses, to obtain (a) a written affirmation by the
director or officer of his good faith belief that he has met the standard of
conduct necessary for indemnification by the Company as authorized by the
Bylaws and (b) a written undertaking by him or on his behalf to repay the
amount paid or reimbursed by the Company if it shall ultimately be determined
that the standard of conduct was not met. The Company has entered into
indemnification agreements with all of its officers and directors which
provide for the indemnification of such officers and directors to the fullest
extent permitted under Maryland law. Insofar as indemnification by the Company
for liabilities arising under the Securities Act may be permitted to
directors, officers and controlling persons of the Company pursuant to the
indemnity agreements referenced herein or otherwise, the Company has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act, and is, therefore,
unenforceable.
 
                                      61
<PAGE>
 
EXECUTIVE COMPENSATION
 
  From November 20, 1995 to December 31, 1995, none of the executive officers
of the Company earned more than $100,000 in total compensation. However, the
following table contains information on the annual cash compensation to be
paid to the executive officers of the Company for the year ending December 31,
1996 for services rendered.
 
<TABLE>
<CAPTION>
 NAME OF INDIVIDUAL             CAPACITIES IN WHICH SERVED              CASH COMPENSATION (1)
 ------------------             --------------------------              ---------------------
 <C>                 <S>                                                <C>
 Joseph R. Tomkinson Vice Chairman of the Board and Chief Executive           $250,000 (2)(3)(4)
                     Officer of IMH and Chairman of the Board and
                     Chief Executive Officer of ICIFC and IWLG
 William S. Ashmore  President and Chief Operating Officer of IMH and         $200,000 (2)(3)(4)
                     Executive Vice President of ICIFC and IWLG
 Richard J. Johnson  Senior Vice President, Chief Financial Officer,          $100,000 (2)(3)
                     Treasurer and Secretary of IMH, ICIFC and IWLG
 Mary C. Glass       Vice President of IMH and Senior Vice-President,         $ 90,000 (2)(3)
                     Operations, of ICIFC and IWLG
</TABLE>
- --------
(1) Pursuant to the Management Agreement, the Company will reserve up to 1/5
    of the Company's 25% Incentive Payment (see "Imperial Credit Advisors,
    Inc.--The Management Agreement--Management Fees") for distribution as
    bonuses to its employees in amounts to be determined by the Company's
    Board of Directors. Such payment shall be made in lieu of payment of a
    like amount to the Manager under the Management Agreement.
(2) On November 20, 1995, each of the persons in the above table entered into
    a five-year employment agreement at an annual salary as stated in the
    table, subject to adjustment for inflation, plus bonuses described in
    footnote (3) and in the case of Messrs. Tomkinson and Ashmore those
    additional bonuses described in footnote (4).
(3) Each of the persons in the above table is entitled to be paid a quarterly
    bonus equal to the aggregate dividend such person would have received from
    the Company on all shares of Common Stock underlying unexercised stock
    options held by such person which were outstanding as of the date of the
    Initial Public Offering and on the date of payment of said bonus, provided
    however that (i) quarterly bonuses will be paid for each of the first
    three quarters of calendar 1996 only if the dividend that would be payable
    by the Company on shares of its Common Stock for the subject quarter after
    payment of all such quarterly bonuses equals or exceeds ten percent (10%)
    (on an annualized basis) of $13.00, (ii) quarterly bonuses will be paid
    for the next four calendar quarters thereafter only if the dividend that
    would be payable by the Company on shares of its Common Stock for the
    subject quarter after payment of all such quarterly bonuses equals or
    exceeds fifteen percent (15%) (on an annualized basis) of $13.00 and (iii)
    quarterly bonuses will be paid for each calendar quarter thereafter, if
    the dividend that would be payable by the Company on shares of its Common
    Stock for the subject quarter equals or exceeds such level as determined
    by a majority of the Unaffiliated Directors. Such persons will not be
    required to refund any portion of such bonuses previously earned
    regardless of the level of dividends in subsequent quarters. For the three
    months ended March 31, 1996 Messrs. Tomkinson, Ashmore and Johnson and Ms.
    Glass received bonuses of $37,050, $19,500, $9,750 and $9,750,
    respectively.
(4) Messrs. Tomkinson and Ashmore are each entitled to performance and
    profitability bonuses, in no event to exceed their respective base
    salaries. For the three months ended March 31, 1996 Messrs. Tomkinson and
    Ashmore received bonuses of $73,631 and $29,772.
 
STOCK OPTIONS
 
  The Company has adopted a Stock Option, Deferred Stock and Restricted Stock
Plan (the "Stock Option Plan"), which provides for the grant of qualified
incentive stock options ("ISOs") that meet the requirements of Section 422 of
the Code, stock options not so qualified ("NQSOs") and deferred stock,
restricted stock, stock
 
                                      62
<PAGE>
 
appreciation rights and limited stock appreciation rights awards ("Awards").
The Stock Option Plan is administered by a committee of directors appointed by
the Board of Directors (the "Committee"). ISOs may be granted to the officers
and key employees of the Company. NQSOs and Awards may be granted to the
directors, officers and key employees of the Company or any of its
subsidiaries, to the directors, officers and key employees of the Manager, or
to the Manager itself, and to the directors, officers and key employees of
ICIFC. The exercise price for any option granted under the Stock Option Plan
may not be less than 100% (or 110% in the case of ISOs granted to an employee
who is deemed to own in excess of 10% of the outstanding Common Stock) of the
fair market value of the shares of Common Stock at the time the option is
granted. The purpose of the Stock Option Plan is to provide a means of
performance-based compensation in order to attract and retain qualified
personnel and to provide an incentive to those whose job performance affects
the Company. The effective date of the Stock Option Plan was August 31, 1995.
 
  Subject to anti-dilution provisions for stock splits, stock dividends and
similar events, the Stock Option Plan authorizes the grant of options to
purchase, and Awards of, up to 400,000 shares. If an option granted under the
Stock Option Plan expires or terminates, or an Award is forfeited, the shares
subject to any unexercised portion of such option or Award will again become
available for the issuance of further options or Awards under the Stock Option
Plan. The Company intends to have a proposal on its agenda for its
stockholders' meeting in July 1996 to increase the size of its Stock Option
Plan by 400,000 shares.
 
  Under the Stock Option Plan, the Company may make loans available to stock
option holders, subject to Board of Directors' approval, in connection with
the exercise of stock options granted under the Stock Option Plan. If shares
of Common Stock are pledged as collateral for such indebtedness, such shares
may be returned to the Company in satisfaction of such indebtedness. If so
returned, such shares shall again be available for issuance in connection with
future stock options and Awards under the Stock Option Plan.
 
  Unless previously terminated by the Board of Directors, no options or Awards
may be granted under the Stock Option Plan after August 31, 2005.
 
  Options granted under the Stock Option Plan will become exercisable in
accordance with the terms of the grant made by the Committee. Awards will be
subject to the terms and restrictions of the award made by the Committee. The
Committee has discretionary authority to select participants from among
eligible persons and to determine at the time an option or Award is granted
and, in the case of options, whether it is intended to be an ISO or a NQSO,
and when and in what increments shares covered by the option may be purchased.
 
  Under current law, ISOs may not be granted to any individual who is not also
an officer or employee of the Company. To ensure that IMH qualifies as a REIT,
the Stock Option Plan provides that no options may be granted under the Stock
Option Plan to any person who, assuming exercise of all options held by such
person, would own or be deemed to own more than 9.5% of the outstanding shares
of Common Stock of IMH.
 
  Each option must terminate no more than 10 years from the date it is granted
(or 5 years in the case of ISOs granted to an employee who is deemed to own in
excess of 10% of the combined voting power of the Company's outstanding Common
Stock). Options may be granted on terms providing for exercise in whole or in
part at any time or times during their respective terms, or only in specified
percentages at stated time periods or intervals during the term of the option,
as determined by the Committee.
 
  The exercise price of any option granted under the Stock Option Plan is
payable in full (1) in cash, (2) by surrender of shares of the Company's
Common Stock already owned by the option holder having a market value equal to
the aggregate exercise price of all shares to be purchased including, in the
case of the exercise of NQSOs, restricted stock subject to an Award under the
Stock Option Plan, (3) by cancellation of indebtedness owed by the Company to
the option holder, (4) by a full recourse promissory note executed by the
option holder, or (5) by any combination of the foregoing. The terms of any
promissory note may be changed from time to time by the Board of Directors to
comply with applicable Service or Commission regulations or other relevant
pronouncements.
 
 
                                      63
<PAGE>
 
  The Board of Directors may from time to time revise or amend the Stock
Option Plan, and may suspend or discontinue it at any time. However, no such
revision or amendment may impair the rights of any participant under any
outstanding Award without his consent or may, without stockholder approval,
increase the number of shares subject to the Stock Option Plan or decrease the
exercise price of a stock option to less than 100% of fair market value on the
date of grant (with the exception of adjustments resulting from changes in
capitalization), materially modify the class of participants eligible to
receive options or Awards under the Stock Option Plan, materially increase the
benefits accruing to participants under the Stock Option Plan or extend the
maximum option term under the Stock Option Plan.
 
  The following table sets forth the stock options granted to the Company's
current executive officers under the Stock Option Plan as of December 31,
1995:
 
<TABLE>
<CAPTION>
                                      INDIVIDUAL GRANTS
                         --------------------------------------------
                                                                          POTENTIAL
                                                                      REALIZABLE VALUE
                                                                      AT ASSUMED ANNUAL
                                                                       RATES OF STOCK
                          NUMBER OF                                         PRICE
                           SHARES    PERCENTAGE                       APPRECIATION FOR
                         UNDERLYING  OF OPTIONS  EXERCISE              OPTION TERM (4)
                           OPTIONS   GRANTED TO   PRICE    EXPIRATION -----------------
NAME                     GRANTED (1) EMPLOYEES  ($/SH) (2)  DATE (3)   5%($)   10%($)
- ----                     ----------- ---------- ---------- ---------- ------- ---------
<S>                      <C>         <C>        <C>        <C>        <C>     <C>
Joseph R. Tomkinson.....   95,000       48.7%     11.25    8/30/2005  672,131 1,703,312
William S. Ashmore......   50,000       25.7      11.25    8/30/2005  353,753   896,480
Richard J. Johnson......   25,000       12.8      11.25    8/30/2005  176,877   448,240
Mary C. Glass...........   25,000       12.8      11.25    8/30/2005  176,877   448,240
</TABLE>
- --------
(1) Such stock options vest 100% on the third anniversary of the date of
    grant.
(2) The exercise price for all options equals the fair market value of such
    shares at the date of grant as determined by the Committee.
(3) Such stock options expire seven years from the date of vesting or earlier
    upon termination of employment.
(4) Amounts reflect assumed rates of appreciation set forth in the
    Commission's executive compensation disclosure requirements.
 
  The Company has granted to Messrs. Snavely, Shugerman and Markel, officers
or Directors of the Manager, options to purchase 20,000, 20,000, and 15,000
shares of Common Stock, respectively, at a per share exercise price of $11.25,
which was equal to the fair market value of such shares at the date of grant
as determined by the Committee, with the same terms as the options set forth
above. On the effective date of the Company's Initial Public Offering, the
Company also granted to each of the Unaffiliated Directors options to purchase
15,000 shares of Common Stock at a per share exercise price equal to $13.00,
vesting 100% on the first anniversary of the date of grant.
 
401(K) PLAN
 
  On the effective date of the Initial Public Offering, the Company commenced
participation in the ICII contributory retirement plan ("401(k) Plan") for all
full time employees with at least six months of service, which is designed to
be tax deferred in accordance with the provisions of Section 401(k) of the
Code. The 401(k) Plan provides that each participant may contribute from 2% to
14% of his or her salary, and the Company will contribute to the participant's
plan account at the end of each plan year 50% of the first 4% of salary
contributed by a participant. Under the 401(k) Plan, employees may elect to
enroll on the first day of any month, provided that they have been employed
for at least six months.
 
  Subject to the rules for maintaining the tax status of the 401(k) Plan, an
additional Company contribution may be made at the discretion of the Company,
as determined by the Unaffiliated Directors. Should a discretionary
contribution be made, the contribution would first be allocated to those
employees deferring salaries in excess of 4%. The matching contribution would
be 50% of any deferral in excess of 4% up to a maximum deferral of 8%. Should
discretionary contribution funds remain following the allocation outlined
above, any remaining Company matching funds would be allocated as a 50% match
of employee contributions, on the first 4% of the employee's deferrals.
Company matching contributions will be made as of December 31st each year. No
contributions for any period presented herein are considered by management to
be material.
 
                                      64
<PAGE>
 
                        IMPERIAL CREDIT ADVISORS, INC.
 
THE MANAGER
 
  The Manager, ICAI, is a recently formed corporation, which commenced
operations as of January 23, 1995. Prior to November 20, 1995, ICAI had no
prior experience in managing or operating a REIT. Each of the executive
officers of the Manager has significant experience in purchasing, financing,
servicing and investing in mortgage loans and mortgage securities; however,
they have not previously managed a REIT. ICAI is a wholly-owned subsidiary of
ICII.
 
  The Company has elected an outside advisor and in particular an advisor
associated with ICII in order to efficiently and economically coordinate,
assist and manage the duties and responsibilities of the Company. The Company
believes that ICAI is more adequately suited than the Company to provide or
advise it with contract negotiation, market information, implementation of
cost controls, asset/liability modeling and management, servicing systems and
management information systems. In addition, the Company believes that ICAI is
better equipped than the Company to manage human resources and facilities
because ICAI and ICII, with which ICAI has entered into a submanagement
agreement to perform such administrative services for the Company as ICAI
deems necessary, has experienced teams in these areas. The Company believes
that ICAI, as an affiliate of ICII, is particularly appropriate to act as the
Company's advisor because ICAI provides continuity to those businesses
contributed pursuant to the Contribution Transaction and because of ICII's
familiarity with such businesses.
 
  The address of the Manager is 20371 Irvine Avenue, Santa Ana Heights,
California 92707, telephone (714) 474-8500.
 
DIRECTORS AND EXECUTIVE OFFICERS
 
  The directors and executive officers of the Manager are as follows:
 
<TABLE>
<CAPTION>
      NAME                       POSITION
      ----                       --------
      <C>                        <S>
      H. Wayne Snavely*          Chairman of the Board
      Joseph R. Tomkinson*       Vice Chairman of the Board
      Thomas O. Markel, Jr.      President and Director
      William S. Ashmore*        Executive Vice President and Director
      Stephen Shugerman          Executive Vice President
      Glenn R. Wilson, Jr.       Director
</TABLE>
- --------
*Each of these persons also serve as directors or executive officers of the
 Company.
 
  For biographical information on Messrs. Snavely, Tomkinson, and Ashmore, see
"Imperial Credit Mortgage Holdings, Inc.--Directors and Executive Officers."
 
  THOMAS O. MARKEL, JR. has been President and a Director of ICAI since March
1995. He has been President and Chief Executive Officer of HomeMac Corporation
since August 1993. Prior to August 1993, he had been Executive Vice President,
Chief Operating Officer and a Director of HomeMac since 1990. Mr. Markel is
also Chairman of the Board, Chief Executive Officer and a Director of
Homeowners' Mortgage Acceptance Corporation, the parent of HomeMac
Corporation, which is currently inactive. Since 1990, Mr. Markel has primarily
been involved in activities related to the analysis, financing and acquisition
of mortgage banking entities and related assets. From March 1986 to March
1990, Mr. Markel was a Senior Vice President of Lepercq Capital Partners,
responsible for capital market activities in the Western United States. Mr.
Markel is a member of the Mortgage Bankers Association Educational and Loan
Administration and Legislative Committees.
 
  STEPHEN SHUGERMAN has been Executive Vice President of ICAI since August
1995 and was a Director of ICAI from August 1995 through October 1995. Mr.
Shugerman has been a Director of ICII since December 1991 and has been
President of SPTL since June 1987. From June 1985 to May 1987, Mr. Shugerman
was President
 
                                      65
<PAGE>
 
of ATI Thrift & Loan Association, a privately owned thrift and loan
association, and, from 1979 to 1985, he was Senior Vice President of Imperial
Thrift and Loan Association, a former subsidiary of Imperial Bank.
Mr. Shugerman has recently served as president of the California Association
of Thrift & Loan Companies.
 
  GLENN R. WILSON, JR. has been a Director of ICAI since October 1995. He has
been Chairman since May 1995, and President and Chief Executive Officer of
Knutson Mortgage Corporation since June 1988. From February 1987 to June 1988,
Mr. Wilson served as President and Chief Executive Officer of FirsTier
Mortgage Company. From May 1985 through February 1987, Mr. Wilson served as
President of the Government National Mortgage Association. Mr. Wilson has
served on the Board of Governors of the Mortgage Bankers Association of
America since March 1993.
 
MANAGEMENT AGREEMENT
 
  The Company has entered into a Management Agreement with the Manager
effective on November 20, 1995, for an initial term of one year. Successive
extensions, each for a period not to exceed one year, may be made by agreement
between the Company and the Manager. The Management Agreement may be
terminated by the Company or the Manager without cause at any time upon 60
days' written notice. Any such termination or failure to extend by the Company
without cause shall result in the payment of a termination or non-renewal fee
to the Manager determined by an independent appraisal. In addition, the
Company and the Manager will have the right to terminate the Management
Agreement upon the occurrence of certain specified events, including a breach
by the other party of any provision contained in the Management Agreement
which remains uncured for 30 days. The Company may renew or terminate the
Management Agreement by a majority vote of its Unaffiliated Directors or by a
vote of the holders of a majority of the outstanding shares of Common Stock.
The Manager may terminate the Management Agreement by a majority vote of its
Board of Directors.
 
  Since November 20, 1995 ICIFC has conducted its Conduit Operations under
substantially identical principles, practices and policies employed when it
was a subsidiary of ICII. The Manager oversees the operations of ICIFC to
ensure that such principles, practices and policies are employed and followed.
 
  The terms of the Management Agreement, including the management fees, were
determined by arms-length discussion based upon what management of both ICAI
and IMH believe are comparable with other advisory relationships and have been
approved by the Board of Directors of ICAI and the Unaffiliated Directors of
IMH. IMH's Bylaws provide that the Unaffiliated Directors shall determine at
least annually that the compensation paid to the Manager is reasonable in
relation to the nature and quality of the services performed by the Manager.
 
  The Manager is at all times be subject to the supervision of the Company's
Board of Directors and provides advisory services to the Company in accordance
with the terms of the Management Agreement. The Manager is involved in three
primary activities: (1) capital management--primarily the oversight of the
Company's structuring, analysis, capital raising and investor relations
activities; (2) asset management--primarily the analysis and oversight of the
acquisition, management and disposition of Company assets; and (3) operations
management--primarily the oversight of IMH's operating subsidiaries.
Specifically, the Manager performs such services and activities relating to
the assets and operations of the Company as may be appropriate, including:
 
    (1) serving as the Company's consultant with respect to formulation of
  investment criteria by its Board of Directors;
 
    (2) advising as to the issuance of commitments on behalf of the Company
  to purchase mortgage loans or purchasing mortgage loans and Agency
  Certificates meeting the investment criteria set from time to time by the
  Company's Board of Directors;
 
    (3) advising the Company in connection with and assisting in its Long-
  Term Investment Operations;
 
    (4) furnishing reports and statistical and economic research to the
  Company regarding the Company's activities and the services performed for
  the Company by the Manager;
 
 
                                      66
<PAGE>
 
    (5) monitoring and providing to the Board of Directors on an on-going
  basis price information and other data, obtained from certain nationally-
  recognized dealers who maintain markets in mortgage loans identified by the
  Board of Directors from time to time, and providing data and advice to the
  Board of Directors in connection with the identification of such dealers;
 
    (6) providing the executive and administrative personnel, office space
  and services required in rendering services to the Company;
 
    (7) overseeing the day-to-day operations of IMH and supervising the
  performance of such other administrative functions necessary in the
  management of IMH as directed by the Board of Directors of IMH;
 
    (8) advising on the negotiation of agreements on behalf of the Company
  with banking institutions and other lenders to provide for the short-term
  borrowing of funds by the Company;
 
    (9) communicating on behalf of the Company with the holders of the equity
  and debt securities of the Company as required to satisfy the reporting and
  other requirements of any governmental bodies or agencies and to maintain
  effective relations with such holders;
 
    (10) subject to an agreement executed by the Company, advising as to the
  designation of a servicer for those loans sold by ICIFC whereby ICIFC
  elected not to service such loans;
 
    (11) counseling the Company in connection with policy decisions to be
  made by its Board of Directors; and
 
    (12) upon request by and in accordance with the direction of the Board of
  Directors of the Company, investing or reinvesting any money of the
  Company.
 
  The Manager has entered into a submanagement agreement with ICII to perform
such administrative services for the Company as the Manager deems necessary.
The Manager may enter into additional contracts with other parties, including
ICII, to provide any such services for the Manager, which third party shall be
approved by the Company's Board of Directors.
 
  As of March 31, 1996, ICAI had a total of nine officers and directors
dedicated to the oversight of the Company's operations.
 
 MANAGEMENT FEES
 
  The Manager is entitled to receive a per annum base management fee payable
monthly in arrears of an amount equal to (1) 3/8 of 1% of Gross Mortgage
Assets of IMH composed of other than Agency Certificates, conforming mortgage
loans or mortgage-backed securities secured by or representing interests in
conforming mortgage loans, plus (2) 1/8 of 1% of the remainder of Gross
Mortgage Assets of IMH plus (3) 1/5 of 1% of the average daily asset balance
of the outstanding amounts under IWLG's warehouse lending facilities. The term
"Gross Mortgage Assets" means for any month the weighted average book value of
the Mortgage Assets, before accumulated depreciation or bad debts or other
similar noncash allowances, computed at the end of such month. For the three
months ended March 31, 1996 and for the year ended December 31, 1995, the
Manager earned $426,000 and $38,000 in management fees, respectively.
 
  The Manager is entitled to receive as incentive compensation for each fiscal
quarter, an amount equal to 25% of the Net Income of the Company, before
deduction of such incentive compensation, in excess of the amount that would
produce an annualized Return on Equity equal to the Ten Year U.S. Treasury
Rate plus 2%. The term "Return on Equity" is calculated for any quarter by
dividing the Company's Net Income for the quarter by its Average Net Worth for
the quarter. For such calculations, the "Net Income" of the Company means the
income of the Company determined in accordance with GAAP before the Manager's
incentive compensation, the deduction for dividends paid and any net operating
loss deductions arising from losses in prior periods. A deduction for all of
the Company's interest expenses for borrowed money is also taken in
calculating Net Income. "Average Net Worth" for any period means the
arithmetic average of the sum of the gross proceeds
 
                                      67
<PAGE>
 
from any offering of its equity securities by the Company, before deducting
any underwriting discounts and commissions and other expenses and costs
relating to the offering, plus the Company's retained earnings (without taking
into account any losses incurred in prior periods) computed by taking the
daily average of such values during such period. The definition "Return on
Equity" is only for purposes of calculating the incentive compensation
payable, and is not related to the actual distributions received by
stockholders. The 25% Incentive Payment to the Manager will be calculated
quarterly in arrears before any income distributions are made to stockholders
for the corresponding period. For the three months ended March 31, 1996 and
for the year ended December 31, 1995, the Manager earned $129,000 and zero,
respectively, for the Manager's Incentive Payment.
 
  Pursuant to the Management Agreement, the Company will reserve up to 1/5 of
the Company's 25% Incentive Payment for distribution as bonuses to its
employees in amounts to be determined by the Company's Board of Directors.
Such payment shall be made in lieu of payment of a like amount to the Manager
under the Management Agreement.
 
  The Manager's base and incentive fees are calculated by the Manager within
60 days after the end of each calendar quarter, with the exception of the
fourth quarter for which compensation will be computed within 30 days, and
such calculation shall be promptly delivered to the Company. The Company is
obligated to pay the base fee within 90 days after the end of each calendar
quarter.
 
 EXPENSES
 
  Pursuant to the Management Agreement, the Company also pays all operating
expenses except those specifically required to be borne by the Manager under
the Management Agreement. The operating expenses generally required to be
borne by the Manager include the compensation and other employment costs of
the Manager's officers in their capacities as such and the cost of office
space and out-of-pocket costs, equipment and other personnel required for
oversight of the Company's operations. The expenses that will be paid by the
Company will include issuance and transaction costs incident to the
acquisition, disposition and financing of investments, regular legal and
auditing fees and expenses of the Company, the fees and expenses of the
Company's Directors, premiums for directors' and officers' liability
insurance, premiums for fidelity and errors and omissions insurance, servicing
and sub-servicing expenses, the costs of printing and mailing proxies and
reports to stockholders, and the fees and expenses of the Company's custodian
and transfer agent, if any. Reimbursements of expenses incurred by the Manager
which are the responsibility of the Company are made monthly. For the three
months ended March 31, 1996 and for the year ended December 31, 1995, there
were no monies paid to the Manager as reimbursement of expenses.
 
 STOCK OPTION PLAN
 
  The Company has adopted the Stock Option Plan and the Manager and the
directors, officers and employees of the Manager have been granted certain
options or rights under the Stock Option Plan, and may in the future be
granted additional options or rights under the Stock Option Plan. See
"Imperial Credit Mortgage Holdings, Inc.--Stock Options."
 
 LIMITS OF RESPONSIBILITY
 
  Pursuant to the Management Agreement, the Manager does not assume any
responsibility other than to render the services called for thereunder and is
not responsible for any action of the Company's Board of Directors in
following or declining to follow its advice or recommendations. The Manager,
its directors, officers, shareholders and employees, reliable to the Company,
any mortgage security issuer, any subsidiary of the Company, the Unaffiliated
Directors, the Company's stockholders or any subsidiary's shareholders for
acts performed in accordance with and pursuant to the Management Agreement,
except by reason of acts or omissions constituting bad faith, willful
misconduct, gross negligence or reckless disregard of their duties under the
Management Agreement. The Manager is a recently formed company and does not
have significant assets. Consequently, there can be no assurance that the
Company would be able to recover any damages for claims it may have against
the Manager. The Company has agreed to indemnify the Manager, and its
directors, officers,
 
                                      68
<PAGE>
 
shareholders and employees with respect to all expenses, losses, damages,
liabilities, demands, charges and claims arising from any acts or omissions of
the Manager made in good faith in the performance of its duties under the
Management Agreement. See "Risk Factors--Relationship with ICII and its
Affiliates; Conflicts of Interest."
 
                         RELATIONSHIPS WITH AFFILIATES
 
  ICII is a publicly traded company whose shares of common stock are listed on
the Nasdaq National Market. ICAI, a wholly-owned subsidiary of ICII, is the
Manager and provides advisory services to the Company in accordance with the
terms of the Management Agreement. As previously described, the Company
utilizes the mortgage banking experience, management expertise and resources
of ICII and ICAI in conducting its business. At May 15, 1996, ICII and SPTL,
its wholly owned subsidiary, owned in the aggregate 10.0% of the Common Stock
of the Company. In addition, a number of Directors and officers of the Company
and ICIFC also serve as Directors and/or officers of ICII and ICAI. See
"Imperial Credit Mortgage Holdings, Inc." and "Imperial Credit Advisors, Inc."
The Company currently utilizes ICII as a resource for loan servicing,
technology, information services, human resources services, management
information services and accounting. However, the amount of services provided
by ICII are expected to decrease as the Company takes on certain of these
responsibilities. As of March 31, 1996 ICII owned all of the voting common
stock and a 1% economic interest in ICIFC, and IMH owned all of the non-voting
preferred stock of ICIFC, representing 99% of the economic interest in ICIFC.
ICII has the power to elect all of the directors of ICIFC and the ability to
control the outcome of all matters for which the consent of the holders of the
common stock of ICIFC is required.
 
  With a view toward protecting the interests of the Company's stockholders,
the Charter and the Bylaws of the Company provide that a majority of the Board
of Directors (and a majority of each committee of the Board of Directors) must
not be "Affiliates" of ICAI, as that term is defined in the Bylaws, and that
the investment policies of the Company must be reviewed annually by a majority
of the Unaffiliated Directors. Moreover, approval, renewal or termination of
the Management Agreement requires the affirmative vote of a majority of the
Unaffiliated Directors. The Management Agreement may be terminated by either
the Company or the Manager upon 60 days' notice. Any such termination or
failure to extend by the Company without cause shall result in the payment of
a termination or non-renewal fee to the Manager determined by an independent
appraisal. In addition, any transaction between the Company and any Affiliated
Person requires the affirmative vote of a majority of the Unaffiliated
Directors.
 
  Certain activities of ICII and its affiliates may adversely affect the
Company's operations. For a further description of such activities and the
possible effects to the Company therefrom, including the terms and conditions
of the Non-Compete Agreement and the Right of First Refusal Agreement, see
"Certain Transactions--The Contribution Transaction" and "--Relationship with
ICII and its Affiliates; Conflicts of Interest."
 
                             CERTAIN TRANSACTIONS
 
THE CONTRIBUTION TRANSACTION
 
  On November 20, 1995, ICII contributed to ICIFC certain of the operating
assets and certain customer lists of ICII's mortgage conduit operations
including all of ICII's mortgage conduit operations' commitments to purchase
mortgage loans subject to rate locks from correspondents (having a principal
balance of $44.3 million at November 20, 1995), in exchange for shares
representing 100% of the common stock and 100% of the outstanding non-voting
preferred stock of ICIFC. Simultaneously, on November 20, 1995, in exchange
for 500,000 shares of Common Stock, ICII (1) contributed to IMH all of the
outstanding non-voting preferred stock of ICIFC, which represents 99% of the
economic interest in ICIFC, (2) caused SPTL to contribute to IMH certain of
the operating assets and certain customer lists of SPTL's warehouse lending
division, and (3) executed the Non-Compete Agreement and the Right of First
Refusal Agreement, each having a term of two years from
 
                                      69
<PAGE>
 
November 20, 1995. Of the 500,000 shares issued pursuant to the Contribution
Transaction, 450,000 shares were issued to ICII and 50,000 shares were issued
to SPTL. All of the outstanding shares of common stock of ICIFC were retained
by ICII. Lastly, IMH contributed all of the aforementioned operating assets of
SPTL's warehouse lending operations contributed to it by SPTL to IWLG in
exchange for shares representing 100% of the common stock of IWLG thereby
forming it as a wholly owned subsidiary. At November 20, 1995, the net
tangible book value of the assets contributed pursuant to the Contribution
Transaction was $525,000. ICII and SPTL retained all other assets and
liabilities related to the contributed operations which at November 20, 1995
consisted mostly of $11.7 million of MSRs, $22.4 million of finance
receivables and $26.6 million in advances made by ICII and SPTL to fund
mortgage conduit loan acquisitions and to fund finance receivables,
respectively.
 
  Pursuant to the Non-Compete Agreement, ICII, except as set forth below, and
any 25% entity may not compete with the Warehouse Lending Operations and may
not establish a network of third party correspondent loan originators or
another end-investor in non-conforming mortgage loans. ICII has also agreed
(1) that, in addition to any other remedy that may be available to the
Company, it will sell all of the outstanding shares of common stock of ICIFC
retained by ICII pursuant to the Contribution Transaction to any third party
reasonably acceptable to the Company in the event that ICII or a 25% entity
establishes a network of third party correspondent loan originators during the
term of the Non-Compete Agreement and (2) that any sale by ICIFC of shares of
its capital stock or sale or transfer by ICII of any shares of the common
stock of ICIFC which ICII owns may only be made to a party reasonably
acceptable to the Company. Pursuant to the Non-Compete Agreement, SPTL may
continue to act as an end-investor in non-conforming mortgage loans and
Southern Pacific Funding Corporation, a wholly-owned subsidiary of ICII, may
continue its business, which is primarily to act as a wholesale originator and
bulk purchaser of non-conforming mortgage loans. Pursuant to the Right of
First Refusal Agreement, ICII has granted ICIFC a right of first refusal to
purchase all non-conforming mortgage loans that ICII or any 25% entity
originates or acquires and subsequently offers for sale and ICIFC has granted
ICII, or any 25% entity designated by ICII, a right of first refusal to
purchase all conforming mortgage loans that ICIFC acquires and subsequently
offers for sale.
 
ARRANGEMENTS AND TRANSACTIONS WITH ICII
 
  The Company and ICII have entered into agreements for the purpose of
defining their ongoing relationships. These agreements have been developed in
the context of a parent/subsidiary relationship and therefore are not the
result of arms length negotiations between independent parties. It is the
intention of the Company and ICII that such agreements and the transactions
provided for therein, taken as a whole, are fair to both parties, while
continuing certain mutually beneficial arrangements. However, there can be no
assurance that each of such agreements, or the transactions provided for
therein, have been effected on terms at least as favorable to the Company as
could have been obtained from unaffiliated third parties.
 
  The Company has entered into a sublease with ICII to lease a portion of its
facilities as the Company's executive offices and administrative facilities.
The Company believes that the terms of the sublease are at least as favorable
as could have been obtained from an unaffiliated third party. For the three
months ended March 31, 1996 and for the year ended December 31, 1995, $38,700
and $12,900, respectively, were paid by the Company to ICII under the
sublease. See "Business--Facilities."
 
  Additional or modified arrangements and transactions may be entered into by
the Company, ICII, and their respective subsidiaries, in the future. Any such
future arrangements and transactions will be determined through negotiation
between the Company and ICII, and it is possible that conflicts of interest
will be involved. The Unaffiliated Directors, consisting of directors
independent of the Company, any manager of the Company (including ICAI) and
ICII and its Affiliated Persons, must independently approve all transactions
by and between the Company and ICII.
 
                                      70
<PAGE>
 
  The following is a summary of certain arrangements and transactions between
the Company and ICII.
 
 TAX AGREEMENT
 
  IMH has entered into an agreement (the "Tax Agreement") effective November
20, 1995 with ICII for the purposes of (1) providing for filing certain tax
returns, (2) allocating certain tax liability and (3) establishing procedures
for certain audits and contests of tax liability.
 
  Under the Tax Agreement, ICII has agreed to indemnify and hold IMH harmless
from any tax liability attributable to periods ending on or before November
20, 1995, in excess of such taxes as IMH has already paid or provided for. For
periods ending after November 20, 1995, IMH will pay its tax liability
directly to the appropriate taxing authorities. To the extent (1) there are
audit adjustments that result in a tax detriment to IMH or (2) IMH incurs
losses that are carried back to an earlier year and any such adjustment
described in (1) or loss described in (2) results in a tax benefit to ICII or
its affiliates, then ICII will pay to IMH an amount equal to the tax benefit
as that benefit is realized. ICII will also agree to indemnify IMH for any
liability associated with the contribution of the preferred stock of ICIFC and
certain operational assets of SPTL's warehouse lending division or any
liability arising out of the filing of a federal consolidated return by ICII
or any return filed with any state or local counterpart liability. To the
extent there are audit adjustments that result in any tax detriment to ICII or
any of its affiliates with respect to any period ending on or before November
20, 1995, as a result thereof, IMH for any taxable period after November 20,
1995 realizes a tax benefit, then IMH shall pay to ICII the amount of such
benefit at such time or times as IMH actually realizes such benefit.
 
  ICII generally controls audits and administrative and judicial proceedings
with respect to periods ending on or before November 20, 1995, although ICII
cannot compromise or settle any issue that increases IMH's liability without
first obtaining the consent of IMH. IMH generally controls all other audits
and administrative and judicial proceedings.
 
 SERVICES AGREEMENT
 
  Prior to November 20, 1995, the predecessors of ICIFC and IWLG were
historically allocated expenses of various administrative services provided by
ICII. The costs of such services were not directly attributable to a specific
division or subsidiary and primarily included general corporate overhead, such
as accounting and cash management services, human resources and other
administrative functions. These expenses were calculated as a pro rata share
of certain administrative costs based on relative assets and liabilities of
the division or subsidiary, which management believed was a reasonable method
of allocation. The allocations of expenses for the period January 1, 1995 to
November 19, 1995, the three months ended March 31, 1995, and for the years
ended December 31, 1994 and 1993 were $269,000, $75,000, $517,000, and
$459,000, respectively.
 
  The Company and ICII have entered into a services agreement effective as of
November 20, 1995 (the "Services Agreement") under which ICII provides various
services to the Company, including data processing, human resource
administration, general ledger accounts, check processing and payment of
accounts payable. ICII charges fees for each of the services which it provides
under the Services Agreement based upon usage. The Services Agreement has an
initial term that ends on December 31, 1996 and is renewable annually
thereafter. The Company may terminate the Services Agreement, in whole or in
part, upon one month's written notice. As part of the services to be provided
under the Services Agreement, ICII provides the Company with insurance
coverage and self insurance programs, including health insurance. The charge
to the Company for coverage will be based upon a pro rata portion of the costs
to ICII for the various policies. Management believes that the terms of the
Services Agreement are as favorable to the Company as could be obtained from
independent third parties. For the three months ended March 31, 1996 and for
the Interim Period, total expenses allocated to the Company related to these
services were $114,000 and $29,000, respectively.
 
LOAN PURCHASE AND ADMINISTRATIVE SERVICES AGREEMENT
 
  To facilitate the acquisition of mortgage loans and to monitor loans not
serviced by ICIFC, the Company entered into an agreement (the "Loan Purchase
and Administrative Services Agreement") with ICIFC effective as of November
20, 1995.
 
 
                                      71
<PAGE>
 
  To assure a source of mortgage loans for the Long-Term Investment
Operations, ICIFC granted the Company an option to purchase all non-conforming
mortgage loans meeting the Company's investment criteria and policies.
Commitments to acquire loans will obligate the Company to purchase such loans
from ICIFC upon the closing and funding of the loans, pursuant to the terms
and conditions specified in the commitment. Commitment fees to be paid by
ICIFC in connection with the loans purchased by the Company shall be
determined based on criteria established from time to time by ICIFC's Board of
Directors, including a majority of the Unaffiliated Directors, at amounts
which, in its judgment, are comparable to commitment fees then generally paid
by other mortgage loan originators for loans of similar size and credit
characteristics to those being acquired.
 
  In the event that a commitment expires or is canceled because the underlying
loan does not close, ICIFC may renegotiate and the Company may agree to
purchase a new loan with the borrower. As to each renegotiated loan, ICIFC,
after deducting its customary expenses for such loan, shall reduce the price
of such loan sold to the Company by 50% of the excess, if any, of (i) the
Company's then current effective price for a similar mortgage loan with an
identical interest rate at the time of the renegotiation over (ii) ICIFC's
realized price from the borrower for such mortgage loan. ICIFC will furnish
reports to the Company on a periodic basis with respect to the calculation and
amounts of such differentials retained by ICIFC.
 
  To provide additional protection for the Company's investments, ICIFC
monitors and administers the servicing of the Company's mortgage loans which
it is not then servicing, other than loans pooled to secure the issuance of
mortgage-backed securities. Such monitoring and administrative services
include, but are not limited to, the following activities: serving as the
Company's consultant with respect to the servicing of loans; collection of
information and submission of reports pertaining to the mortgage loans and to
monies remitted to ICIFC or the Company by servicers; periodic review and
evaluation of the performance of each servicer to determine its compliance
with the terms and conditions of each servicing agreement and, if deemed
appropriate, recommending to the Company the termination of such servicing
agreement; acting as a liaison between servicers and the Company and working
with servicers to the extent necessary to improve their servicing performance;
review of and recommendations as to fire losses, easement problems and
condemnation, delinquency and foreclosure procedures with regard to the
mortgage loans; review of servicers' delinquency, foreclosure and other
reports on mortgage loans; supervising claims filed under any mortgage
insurance policies; enforcing the obligation of any servicer to repurchase
mortgage loans from the Company; and coordinating and overseeing the
performance of the servicing of the mortgage loans by the servicers to ensure
that the mortgage loans meet the Company's eligibility requirements.
 
  Under the terms of the Loan Purchase and Administrative Services Agreement,
ICIFC advances and remits to the Company any payment of principal and interest
and any principal prepayments which another servicer fails to advance or remit
on a timely basis, excluding certain nonrecoverable advances. In addition, if
a servicer defaults in the performance of its servicing duties or, with the
consent of the Company, assigns such duties to the Company, ICIFC assumes the
servicing function of that servicer and all responsibilities set forth in the
related servicing agreement, for the same fee the servicer was receiving at
the time of such default.
 
  Pursuant to the terms of the Loan Purchase and Administrative Services
Agreement, ICIFC receives a monthly administrative services fee equal to 0.02%
of the outstanding principal balance, as of the last day of the month for
which the fee is paid, of the mortgage loans monitored and administered under
the agreement on which principal and interest remittances for such month have
been made in full to the Company. Additionally, ICIFC is paid for services
rendered under any master servicing agreement which it may enter into with the
Company or any subsidiary of the Company that has issued CMOs or other
mortgage collateralized debt, an amount equal to 0.02% of the average CMO
assets for each fiscal quarter. For the three months ended March 31, 1996 and
the year ended December 31, 1995, no fees associated with the Loan Purchase
and Administrative Service Agreement were paid or earned.
 
  The Loan Purchase and Administrative Services Agreement remains in force
until one year after the effective date of the Initial Public Offering and
thereafter it will be automatically renewed unless written notice
 
                                      72
<PAGE>
 
is delivered by either the Company or ICIFC 30 days prior to the end of the
term or any renewal term of the agreement.
 
  The Company may terminate the Loan Purchase and Administrative Services
Agreement upon 30 days' notice following the happening of one or more events
specified in the agreement. Such events relate generally to ICIFC's proper and
timely performance of its duties and obligations under the agreement. In
addition, either party may terminate the Loan Purchase and Administrative
Services Agreement without cause upon 30 days' notice.
 
OTHER TRANSACTIONS
 
 MANAGEMENT AND SUB-SERVICING AGREEMENTS
 
  ICAI, a wholly-owned subsidiary of ICII, oversees the day-to-day operations
of the Company, subject to the supervision of the Company's Board of
Directors, pursuant to the Management Agreement which became effective on
November 20, 1995. For a description of the terms of the Management Agreement,
see "Imperial Credit Advisors, Inc.--Management Agreement."
 
  ICIFC acts as a servicer of mortgage loans acquired on a servicing released
basis by the Company in its Long-Term Investment Operations pursuant to the
terms of a Servicing Agreement which became effective on November 20, 1995.
For a general description of the terms of such a Servicing Agreement, see
"Business-- Servicing and Master Servicing." ICIFC subcontracts all of its
servicing obligations under such loans to ICII pursuant to a sub-servicing
agreement. The Company believes that the terms of such agreement are
comparable to industry standards. In the first quarter of 1996, ICII
contracted to sell substantially all of its mortgage servicing portfolio and
eliminate a substantial portion of its mortgage servicing department. In
response to ICII's decision to exit the mortgage servicing business, ICIFC is
in the process of negotiations with another third party sub-servicer. ICIFC
expects that the transfer of servicing responsibilities will take place in
June 1996. However, there are no assurances that ICIFC will be able to
complete the transfer by this date.
 
 BULK MORTGAGE LOAN PURCHASES
 
  During the three months ended March 31, 1996, ICIFC purchased from ICII bulk
mortgage loans packages of 30-year fully amortizing six-month adjustable LIBOR
and 30- and 15-year fixed rate first and second trust deed mortgages having a
principal balance of $164.2 million with net premiums paid of $1.9 million.
Servicing rights on all mortgage loans were released to ICIFC.
 
  On December 5, 1995 and December 13, 1995, ICIFC purchased from ICII two
bulk mortgage loan packages of 30-year fully amortizing six-month adjustable
LIBOR and one-year adjustable Treasury Bill rate loans and 30- and 15-year
fixed rate second trust deed mortgages with servicing rights on all mortgage
loans released to ICIFC. The principal balances of the mortgages at the time
of purchase was $172.9 million, with net premiums paid of $3.7 million.
 
  On December 29, 1995, ICIFC purchased from SPTL two bulk mortgage loan
packages of 30-year fully amortizing six-month adjustable LIBOR, one-year
adjustable Treasury Bill rate loans and 30- and 15-year fixed rate fully
amortizing mortgage loans. The principal balances of the loans in the
servicing released and servicing retained bulk packages, respectively, at the
time of purchase was $328.5 million with net premiums paid of $3.5 million.
   
  ICIFC had a 30 to 90 day recourse period from the dates of the purchase from
ICII and SPTL for any loan(s) that were 30 to 60 day delinquent and/or lead to
foreclosure. In this case, ICII or SPTL will repurchase the loans from ICIFC
within 10 to 15 days of written notice from ICIFC. As to loans that do not
have a prepayment penalty that pay off within the first six months of
purchase, ICII and SPTL will generally reimburse ICIFC the premium paid at
purchase. ICIFC had 60 days from the date of purchases to complete its due
diligence. Any loan that was     
 
                                      73
<PAGE>
 
found by ICIFC during this period to not comply with ICIFC's underwriting
guidelines, unless an exception is approved by ICIFC, is subject to repurchase
by ICII and SPTL. ICII and SPTL will repurchase the loan(s) within 15 days of
written notice from ICIFC and reimburse ICIFC any fee paid at purchase.
 
 PURCHASE OF MORTGAGE-BACKED SECURITIES
 
  On December 29, 1995, the Company purchased from SPTL DLJ Mortgage
Acceptance Corp. Pass-Through Certificates Series 1995-4, Class B-1 and Class
B-2 issued August 29, 1995. These certificates are backed primarily by a pool
of certain conventional, 11th District Cost of Funds adjustable rate, one-to-
four family, first lien mortgage loans, with terms to maturity of not more
than 30 years. The mortgage loans underlying the certificates were originated
or acquired by ICII. All of the mortgage loans are serviced by ICII in its
capacity as master servicer. The Company purchased Class B-1 certificates
having a current principal balance of $4.8 million and Class B-2 certificates
having a current principal balance of $2.3 million, at a discount of $1.0
million and $0.7 million, respectively. The Class B-1 certificates are "B"
rated and the Class B-2 are "BB" rated. There was no gain or loss recorded by
either party as a result of this transaction.
 
 PURCHASE OF OTHER INVESTMENTS
 
  On December 29, 1995, IMH purchased a subordinated interest in a lease
receivable securitization from Imperial Business Credit, Inc. ("IBC"), a
wholly-owned subsidiary of ICII. The lease receivables underlying the security
were originated by IBC. IMH purchased the subordinated lease receivables at
the present value of estimated cash flows based on a discount rate of 12%
amounting to a purchase price of $8.4 million. As a result of this
transaction, IBC recorded a gain of $164,000. The discount rate used in
determining the purchase price of the asset was confirmed by an independent
third party.
 
  On March 28, 1996, the Company purchased from ICII the beneficial interest
in the Class A Trust Certificate for the Franchise Loan Receivable Trust 1995-
B. The trust is securitized by loans originated by FMAC and secured by the
franchisee's assets for the loan. The purchase price was $2.8 million based
upon a discount rate of 16%.
 
  On March 8, 1996, the Company purchased from ICII $5.0 million of its Senior
Note obligations at a price of $4.5 million plus accrued interest. The
obligations are currently unregistered debt of ICII and cannot be traded or
sold by the Company. ICII has agreed to register the notes under the
Securities Act so the Company has the ability to sell them in the future.
 
  The Company may, from time to time, enter into additional transactions in
the ordinary course of business with institutions with which certain of the
Unaffiliated Directors are employed.
 
                        SHARES ELIGIBLE FOR FUTURE SALE
 
  Upon completion of this Offering, the Company will have outstanding
6,750,000 shares of Common Stock, of which 500,000 shares are "restricted
securities" as that term is defined in Rule 144, which will not become
eligible for sale under Rule 144 until November 20, 1997, at the earliest. As
described below, Rule 144 permits resales of restricted securities subject to
certain restrictions. In general, under Rule 144 as currently in effect, a
person (or persons whose shares are aggregated) who beneficially owned shares
for at least two years, including any person who may be deemed an "affiliate"
of the Company, would be entitled to sell within any three-month period a
number of such shares that does not exceed the greater of 1% of the shares of
the Company's Common Stock then outstanding or the average weekly trading
volume in the Company's Common Stock during the four calendar weeks preceding
the date on which notice of the sale is filed with the Commission. A person
who is not deemed to have been an "affiliate" of the Company at any time
during the three months immediately preceding a sale and who has beneficially
owned shares for at least three years would be entitled to sell such shares
under Rule 144 without regard to the volume limitation described above.
 
                                      74
<PAGE>
 
  ICII, SPTL and certain stockholders, who own in the aggregate 500,000 shares
of Common Stock, and the Company have agreed with the Underwriters that, for a
period of 120 days following the commencement of this Offering, they will not
sell, contract to sell or otherwise dispose of any shares of Common Stock or
rights to acquire such shares (other than pursuant to employee plans or the
DRP) without the prior written consent of PaineWebber Incorporated.
 
  In addition, the Company has outstanding options to purchase 295,000 shares
of Common Stock and has reserved an additional 105,000 shares for grant of
future options under the Stock Option Plan. The Company intends to have a
proposal on its agenda for its stockholders' meeting in July 1996 to increase
the size of its Stock Option Plan by 400,000 shares. The Company intends to
file a Registration Statement on Form S-8 covering the shares that have been
reserved for issuance under the Stock Option Plan, thus permitting the resale
of such shares in the public market after such stock options have been
exercised.
 
  The Company has also adopted the DRP, which will allow stockholders to have
their dividend distributions from the Company automatically reinvested in
additional shares of Common Stock that may be either issued by the Company or
purchased on the open market. To the extent such shares are issued by the
Company, such shares will be registered under the Securities Act, thus
permitting the resale of such shares in the public market. See "Dividend
Reinvestment Plan."
 
                            PRINCIPAL STOCKHOLDERS
 
  The following table sets forth certain information known to the Company with
respect to beneficial ownership of the Company's Common Stock as of May 15,
1996, as adjusted to reflect the sale of Common Stock being offered hereby, by
(1) each person known to the Company to beneficially own more than five
percent of the Company's Common Stock, (2) each Director, (3) the Company's
executive officers, and (4) all Directors and executive officers as a group.
Unless otherwise indicated in the footnotes to the table, the beneficial
owners named have, to the knowledge of the Company, sole voting and investment
power with respect to the shares beneficially owned, subject to community
property laws where applicable.
 
<TABLE>
<CAPTION>
                                                            PERCENTAGE OF SHARES
                                         NUMBER OF           BENEFICIALLY OWNED
                                           SHARES         -------------------------
                                        BENEFICIALLY        BEFORE         AFTER
NAME OF BENEFICIAL OWNER                   OWNED           OFFERING       OFFERING
- ------------------------                ------------      ----------     ----------
<S>                                     <C>               <C>            <C>
Imperial Credit Industries, Inc. (1)..    374,538             8.8%           5.5%
Southern Pacific Thrift and Loan Asso-
 ciation (2)..........................     50,000             1.2%             *
H. Wayne Snavely......................        --               --             --
Joseph R. Tomkinson...................        --               --             --
William S. Ashmore....................      1,075               *              *
Richard J. Johnson....................      3,076               *              *
Mary C. Glass.........................        --               --             --
James Walsh...........................        --               --             --
Frank P. Fillips......................        --               --             --
Stephan R. Peers......................        --               --             --
All directors and executive officers
 as a group (8 persons)...............      4,151               *              *
</TABLE>
- --------
* less than 1%
(1) ICII's address is 23550 Hawthorne Boulevard, Building One, Suite 110,
    Torrance, California 90505. ICII disclaims beneficial ownership of all
    50,000 shares of the Company held by SPTL.
 
 
(2) SPTL's address is 12300 Wilshire Boulevard, Los Angeles, California 90025.
    SPTL is a wholly-subsidiary of ICII.
 
 
                                      75
<PAGE>
 
                         DESCRIPTION OF CAPITAL STOCK
 
  The authorized stock of the Company consists of 50,000,000 shares of Common
Stock, $0.01 par value per share, and 10,000,000 shares of Preferred Stock,
$0.01 par value per share. Each share of Common Stock is entitled to
participate equally in dividends when and as declared by the Board of
Directors and in the distribution of assets of the Company upon liquidation.
Each share of Common Stock is entitled to one vote and will be fully paid and
nonassessable by the Company upon issuance. Shares of the Common Stock of the
Company have no preference, conversion, exchange, preemptive or cumulative
voting rights. The authorized stock of the Company may be increased and
altered from time to time as permitted by Maryland law. The Charter authorizes
the Board of Directors to reclassify any unissued shares of its Common Stock
in one or more classes or series.
 
  Meetings of the stockholders of the Company are to be held annually, and
special meetings may be called by the Board of Directors, the Chairman of the
Board, the President, the Vice Chairman or a majority of the Unaffiliated
Directors. The Charter reserves to the Company the right to amend any
provision thereof in the manner prescribed by law.
 
  The Charter authorizes the Board of Directors to issue shares of Preferred
Stock designated in one or more classes or series. The Preferred Stock may be
issued from time to time with such designations, rights and preferences as
shall be determined by the Board of Directors. Preferred Stock would be
available for possible future financing of, or acquisitions by, the Company
and for general corporate purposes without any legal requirement that further
stockholder authorization for issuance be obtained. The issuance of Preferred
Stock could have the effect of making an attempt to gain control of the
Company more difficult by means of a merger, tender offer, proxy contest or
otherwise. The Preferred Stock, if issued, may have a preference on dividend
payments which could affect the ability of the Company to make dividend
distributions to the common stockholders. As of the date hereof no shares of
Preferred Stock have been issued. Certain provisions of the Company's Charter
may also have the effect of delaying, deferring or preventing a change in
control of the Company. See "Certain Provisions of Maryland Law and of the
Company's Charter and Bylaws."
 
  Repurchase of Shares and Restrictions on Transfer. Two of the requirements
of qualification for the tax benefits accorded by the REIT provisions of the
Code are that (1) during the last half of each taxable year not more than 50%
in value of the outstanding shares may be owned, actually or constructively,
by or for five or fewer individuals (as defined in the Code to include certain
entities), and (2) there must be at least 100 stockholders on 335 days of each
taxable year of 12 months.
 
  In order that IMH may meet these requirements at all times, the Charter
prohibits any person, other than ICII, as to the 374,538 shares which it owns
(which excludes the 50,000 shares of Common Stock issued to SPTL pursuant to
the Contribution Transaction, as to which ICII disclaims beneficial
ownership), or groups of persons from acquiring or holding, actually or
constructively, shares of Common Stock in excess of 9.5% (in value or in
number of shares, whichever is more restrictive) of the aggregate of the
outstanding shares of Common Stock. For this purpose, the term "ownership" is
defined in accordance with the REIT provisions of the Code, the constructive
ownership provisions of Section 544 of the Code, as modified by Section
856(h)(1)(B) of the Code, and Rule 13d-3 promulgated by the Commission under
the Exchange Act and the term "person" is defined to include a "group," which
is defined to have the same meaning as that term has for purposes of Section
13(d)(3) of the Exchange Act. Accordingly, shares of Common Stock owned or
deemed to be owned by a person who individually owns less than 9.5% of the
shares outstanding may nevertheless be in violation of the ownership
limitations set forth in the Company's Charter.
 
  The constructive ownership provisions applicable under Section 544 of the
Code attribute ownership of securities owned by a corporation, partnership,
estate or trust proportionately to its stockholders, partners or
beneficiaries, attribute ownership of securities owned by family members to
other members of the same family, treat securities with respect to which a
person has an option to purchase as actually owned by that person, and set
forth rules as to when securities constructively owned by a person are
considered to be actually owned for the application of such attribution
provisions (i.e., "reattribution"). For purposes of determining
 
                                      76
<PAGE>
 
whether a person holds shares of Common Stock in violation of the ownership
limitations set forth in the Company's Charter, a person or group will thus be
treated as owning not only shares of Common Stock actually or constructively
owned, but also any shares of Common Stock attributed to such person or group
under the attribution rules described above. Ownership of shares of the
Company's Common Stock through such attribution is generally referred to as
constructive ownership.
 
  The Company's Charter further prohibits (a) any person from actually or
constructively owning shares of Common Stock that would result in IMH being
"closely held" under Section 856(h) of the Code or otherwise cause IMH to fail
to qualify as a REIT, and (b) any person from transferring shares of Common
Stock if such transfer would result in shares of Common Stock being owned by
fewer than 100 persons. If any transfer of shares of Common Stock occurs
which, if effective, would result in any person actually or constructively
owning shares of Common Stock in excess or in violation of the above transfer
or ownership limitations, then that number of shares of Common Stock the
actual or constructive ownership of which otherwise would cause such person to
violate such limitations (rounded to the nearest whole share) shall be
automatically transferred to a trustee (the "Trustee") as trustee of a trust
(the "Trust") for the exclusive benefit of one or more charitable
beneficiaries (the "Charitable Beneficiary"), and the intended transferee
shall not acquire any rights in such shares. Shares held by the Trustee shall
be issued and outstanding shares of Common Stock. The intended transferee
shall not benefit economically from ownership of any shares held in the Trust,
shall have no rights to dividends and shall not possess any rights to vote or
other rights attributable to the shares held in the Trust. The Trust shall
have all voting rights and rights to dividends or other distributions with
respect to shares held in the Trust, which rights shall be exercised for the
exclusive benefit of the Charitable Beneficiary. Any dividend or other
distribution paid prior to the discovery by the Company that shares of Common
Stock have been transferred to the Trustee shall be paid with respect to such
shares to the Trustee upon demand and any dividend or other distribution
authorized but unpaid shall be paid when due to the Trustee. Any dividends or
distributions so paid over to the Trustee shall be held in trust for the
Charitable Beneficiary. The Board of Directors of the Company may, in their
discretion, waive these requirements on owning shares in excess of the
Ownership Limit.
 
  Within 20 days of receiving notice from the Company that shares of Common
Stock have been transferred to the Trust, the Trustee shall sell the shares
held in the Trust to a person, designated by the Trustee, whose ownership or
the shares will not violate the ownership limitations set forth in the
Company's Charter. Upon such sale, the interest of the Charitable Beneficiary
in the shares sold shall terminate and the Trustee shall distribute the net
proceeds of the sale to the intended transferee and to the Charitable
Beneficiary as follows. The intented transferee shall receive the lesser of
(1) the price paid by the intended tranasferee for the shares or, if the
intended transferee did not give value for the shares in connection with the
event causing the shares to be held in the Trust (e.g., in the case of a gift,
devise or other such transaction), the Market Price (as defined below) of the
shares on the day of the event causing the shares to be held in the Trust and
(2) the price per share received by the Trustee from the sale or other
disposition of the shares held in the Trust. Any net sale proceeds in excess
of the amount payable to the intended transferee shall be immediately paid to
the Charitable Beneficiary. In addition, shares of Common Stock transferred to
the Trustee shall be deemed to have been offered for sale to the Company, or
its designee, at a price per share equal to the lesser of (i) the price per
share in the transaction that resulted in such transfer to the Trust (e.g., in
the case of a devise or gift, the Market Price at the time of such devise or
gift) and (ii) the Market Price on the date the Company, or its designee,
accepts such offer. The Company shall have the right to accept such offer
until the Trustee has sold the shares held in the Trust. Upon such a sale to
the Company, the interest of the Charitable Beneficiary in the shares sold
shall terminate and the Trustee shall distribute the net proceeds of the sale
to the intended transferee.
 
  The term "Market Price" on any date shall mean, with respect to any class or
series of outstanding shares of the Company's stock, the Closing Price (as
defined below) for such shares on such date. The "Closing Price" on any date
shall mean the last sale price for such shares, regular way, or, in case no
such sale takes place on such day, the average of the closing bid and asked
prices, regular way, for such shares, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the NYSE or, if such shares are not listed or
admitted to trading on the NYSE, as reported on the principal
 
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<PAGE>
 
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which such shares are listed or
admitted to trading or, if such shares are not listed or admitted to trading
on any national securities exchange, the last quoted price, or, if not so
quoted, the average of the high bid and low asked prices in the over-the-
counter market, as reported by the National Association of Securities Dealers,
Inc. Automated Quotation System or, if such system is no longer in use, the
principal other automated quotation system that may then be in use or, if such
shares are not quoted by any such organization, the average of the closing bid
and asked prices as furnished by a professional market maker making a market
in such shares selected by the Board or Directors or, in the event that no
trading price is available for such shares, the fair market value of the
shares, as determined in good faith by the Board of Directors.
 
  Every owner of more than 5% (or such lower percentage as required by the
Code or the regulations promulgated thereunder) of all classes or series of
the Company's stock, including shares of Common Stock, within 30 days after
the end or each taxable year, is required to give written notice to the
Company stating the name and address of such owner, the number of shares of
each class and series of stock of the Company beneficially owned and a
description of the manner in which such shares are held. Each such owner shall
provide to the Company such additional information as the Company may request
in order to determine the effect, if any, of such beneficial ownership on
IMH's status as a REIT and to ensure compliance with the Ownership Limit.
 
  The transfer agent and registrar for the Company's Common Stock is Boston
EquiServe, L.P., North Quincy, Massachusetts.
 
                    CERTAIN PROVISIONS OF MARYLAND LAW AND
                      OF THE COMPANY'S CHARTER AND BYLAWS
 
  The following summary of certain provisions of the MGCL and of the Charter
and the Bylaws of IMH does not purport to be complete and is subject to and
qualified in its entirety by reference to Maryland law and the Charter and the
Bylaws of IMH, copies of which are filed as exhibits to the Registration
Statement of which this Prospectus is a part. See "Additional Information."
 
REMOVAL OF DIRECTORS
 
  The Charter provides that a director may be removed at any time but only by
the affirmative vote of at least two-thirds of the votes entitled to be cast
in the election of directors.
 
BUSINESS COMBINATIONS
 
  Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange or, in certain circumstances, an asset transfer
or issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns 10% or more of the voting
power of the corporation's shares or an affiliate of the corporation who, at
any time within the two-year period prior to the date in question, was the
beneficial owner of 10% or more of the voting power of the then outstanding
voting stock of the corporation (an "Interested Stockholder") or an affiliate
of such an Interested Stockholder are prohibited for five years after the most
recent date on which the Interested Stockholder becomes an Interested
Stockholder. Thereafter, any such business combination must be recommended by
the board of directors of such corporation and approved by the affirmative
vote of at least (a) 80% of the votes entitled to be cast by holders of
outstanding shares of voting stock of the corporation and (b) two-thirds of
the votes entitled to be cast by holders of voting stock of the corporation
other than shares held by the Interested Stockholder with whom (or with whose
affiliate) the business combination is to be effected, unless, among other
conditions, the corporation's common stockholders receive a minimum price (as
defined in the MGCL) for their shares and the consideration is received in
cash or in the same form as previously paid by the Interested Stockholder for
its shares. These provisions of Maryland law do not apply, however, to
business combinations that are approved or exempted by the board of directors
of the
 
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<PAGE>
 
   
corporation prior to the time that the Interested Stockholder becomes an
Interested Stockholder. Since ICII now beneficially owns less than 10.0% of
the Company's voting shares (excluding 50,000 shares of Common Stock issued to
SPTL in the Contribution Transaction as to which ICII disclaims beneficial
ownership), ICII is not subject to the business combination provisions of the
MGCL. In addition, pursuant to the statute, the Company has exempted any
business combinations involving ICII and, consequently, the five-year
prohibition and the super-majority vote requirements of the statute will not
in any event apply to business combinations between ICII and the Company. As a
result, ICII may be able to enter into business combinations with the Company,
which may not be in the best interest of the stockholders, without compliance
by the Company with the super-majority vote requirements and the other
provisions of the statute.     
 
CONTROL SHARE ACQUISITIONS
 
  The MGCL provides that "control shares" of a Maryland corporation acquired
in a "control share acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the
matter, excluding shares of stock owned by the acquiror, by officers or by
directors who are employees of the corporation. "Control shares" are voting
shares of stock which, if aggregated with all other such shares of stock
previously acquired by the acquiror or in respect of which the acquiror is
able to exercise or direct the exercise of voting power (except solely by
virtue of a revocable proxy), would entitle the acquiror to exercise voting
power in electing directors within one of the following ranges of voting
power: (1) one-fifth or more but less than one-third, (2) one-third or more
but less than a majority, or (3) a majority or more of all voting power.
Control shares do not include shares the acquiring person is then entitled to
vote as a result of having previously obtained stockholder approval. A
"control share acquisition" means the acquisition of control shares, subject
to certain exceptions.
 
  A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses)
may compel the board of directors of the corporation to call a special meeting
of stockholders to be held within 50 days of demand to consider the voting
rights of the shares. If no request for a meeting is made, the corporation may
itself present the question at any stockholders meeting.
 
  If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute,
then, subject to certain conditions and limitations, the corporation may
redeem any or all of the control shares (except those for which voting rights
have previously been approved) for fair value determined, without regard to
the absence of voting rights for the control shares, as of the date of the
last control share acquisition by the acquiror or of any meeting of
stockholders at which the voting rights of such shares are considered and not
approved. If voting rights for control shares are approved at a stockholders
meeting and the acquiror becomes entitled to vote a majority of the shares
entitled to vote, all other stockholders may exercise appraisal rights. The
fair value of the shares as determined for purposes of such appraisal rights
may not be less than the highest price per share paid by the acquiror in the
control share acquisition.
 
  The control share acquisition statute does not apply (a) to shares acquired
in a merger, consolidation or share exchange if the corporation is a party to
the transaction or (b) to acquisitions approved or exempted by the charter or
bylaws of the corporation.
 
  The Bylaws of the Company contain a provision exempting from the control
share acquisition statute any and all acquisitions by any person of the
Company's shares of stock. There can be no assurance that such provision will
not be amended or eliminated at any time in the future.
 
AMENDMENT TO THE CHARTER
 
  The Company reserves the right from time to time to make any amendment to
its Charter, now or hereafter authorized by law. The Charter may be amended
only by the affirmative vote of the stockholders of not less than majority of
all of the votes entitled to be cast on the matter; provided however,
provisions on removal of directors
 
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<PAGE>
 
may be amended only by the affirmative vote of the holders of not less than
two-thirds of all of the votes entitled to be cast in the election of
directors.
 
DISSOLUTION OF THE COMPANY
 
  The dissolution of the Company must be approved by the affirmative vote of
the holders of not less than a majority of all of the votes entitled to be
cast on the matter.
 
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
 
  The Bylaws provide that (a) with respect to an annual meeting of
stockholders, nominations of persons for election to the Board of Directors
and the proposal of business to be considered by stockholders may be made only
(1) pursuant to the Company's notice of the meeting, (2) by the Board of
Directors or (3) by a stockholder who is entitled to vote at the meeting and
has complied with the advance notice procedures set forth in the Bylaws and
(b) with respect to special meetings of stockholders, only the business
specified in the Company's notice of meeting may be brought before the meeting
of stockholders and nominations of persons for election to the Board of
Directors may be made only (1) pursuant to the Company's notice of the
meeting, (2) by the Board of Directors or (3) provided that the Board of
Directors has determined that directors shall be elected at such meeting, by a
stockholder who is entitled to vote at the meeting and has complied with the
advance notice provisions set forth in the Bylaws.
 
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE CHARTER
AND BYLAWS
 
  The business combination provisions and, if the applicable provision in the
Bylaws is rescinded, the control share acquisition provisions of the MGCL, the
provisions of the Charter on removal of directors and the advance notice
provisions of the Bylaws could delay, defer or prevent a transaction or a
change in control of the Company that might involve a premium price of holders
of Common Stock or otherwise be in their best interest.
 
                       FEDERAL INCOME TAX CONSIDERATIONS
 
  The following summary of material federal income tax considerations
regarding the Company and the offering described herein is based on current
law, is for general information only and is not tax advice. This summary does
not purport to deal with all aspects of taxation that may be relevant to
prospective purchasers of Common Stock in light of such purchasers' particular
investment or tax circumstances, or to certain types of purchasers subject to
special treatment under the federal income tax laws, including insurance
companies, financial institutions, broker-dealers, tax-exempt organizations
(except to the extent discussed under the heading "Taxation of Tax-Exempt
Stockholders"), or foreign corporations and persons who are not citizens or
residents of the United States. In addition, the summary below does not
consider the effect of any foreign, state, local or other tax laws that may be
applicable to prospective purchasers of Common Stock. Unless the context
otherwise requires, references in the summary below to "IMH" refer to IMH and
IWLG, IMH's Qualified REIT Subsidiary, collectively.
 
  PROSPECTIVE PURCHASERS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND
SALE OF THE COMMON STOCK, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND
OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP AND SALE AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
 
TAXATION OF IMH
 
  General. IMH elected to be taxed as a REIT under Sections 856 through 860 of
the Code, commencing with its taxable year ended December 31, 1995. IMH
believes that, commencing with such taxable year, it has been organized and
has operated in such a manner as to qualify for taxation as a REIT under the
Code
 
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<PAGE>
 
commencing with such taxable year, and IMH intends to continue to operate in
such a manner, but no assurance can be given that it has operated or will
continue to operate in such a manner so as to qualify or remain qualified.
 
  These sections of the Code are highly technical and complex. The following
summary sets forth the material aspects of the sections that govern the
federal income tax treatment of a REIT and its stockholders. This summary is
qualified in its entirety by the applicable Code provisions, rules and
regulations promulgated thereunder, and administrative and judicial
interpretations thereof.
   
  In the opinion of Latham & Watkins, commencing with IMH's taxable year ended
December 31, 1995, IMH was organized in conformity with the requirements for
qualification as a REIT, and its proposed method of operation has enabled and
will enable it to meet the requirements for qualification and taxation as a
REIT under the Code. It must be emphasized that this opinion is based on
various factual assumptions relating to the organization and operation of IMH
and is conditioned upon certain representations made by IMH as to factual
matters. In addition, this opinion is based upon the factual representations
of IMH concerning its business and assets as set forth in the Prospectus.
Moreover, such qualification and taxation as a REIT depends upon IMH's ability
to meet (through actual annual operating results, distribution levels and
diversity of stock owenership) the various qualification tests imposed under
the Code discussed below, the results of which have not been and will not be
reviewed by Latham & Watkins. Accordingly, no assurance can be given that the
actual results of IMH's operation for any particular taxable year have
satisfied or will satisfy such requirements. Further, the anticipated income
tax treatment described in this Prospectus may be changed, perhaps
retroactively, by legislative, administrative or judicial action at any time.
See "Risk Factors--Consequences of Failure to Maintain REIT Status; Company
Subject to Tax as Regular Corporation" and "Failure to Qualify."     
 
  If IMH qualifies for taxation as a REIT, it generally will not be subject to
federal corporate income taxes on its net income that is currently distributed
to stockholders. This treatment substantially eliminates the "double taxation"
(at the corporate and stockholder levels) that generally results from
investment in a regular corporation. However, IMH will be subject to federal
income tax as follows: First, IMH will be taxed at regular corporate rates on
any undistributed REIT taxable income, including undistributed net capital
gains. Second, under certain circumstances, IMH may be subject to the
"alternative minimum tax" on its items of tax preference. Third, if IMH has
(i) net income from the sale or other disposition of foreclosure property
(generally, property acquired at or in lieu of foreclosure of the mortgage
secured by such property or as a result of a default under a lease of such
property) which is held primarily for sale to customers in the ordinary course
of business, or (ii) other nonqualifying income from foreclosure property, it
will be subject to tax at the highest corporate rate on such income. Fourth,
if IMH has net income from prohibited transactions (which are, in general,
certain sales or other dispositions of property held primarily for sale to
customers in the ordinary course of business other than foreclosure property),
such income will be subject to a 100% tax. Fifth, if IMH should fail to
satisfy the 75% gross income test or the 95% gross income test (as discussed
below), but has nonetheless maintained its qualification as a REIT because
certain other requirements have been met, it will be subject to a 100% tax on
an amount equal to (a) the gross income attributable to the greater of the
amount by which IMH fails the 75% or 95% test multiplied by (b) a fraction
intended to reflect IMH's profitability. Sixth, if IMH should fail to
distribute during each calendar year at least the sum of (i) 85% of its REIT
ordinary income for such year, (ii) 95% of its REIT capital gain net income
for such year, and (iii) any undistributed taxable income from prior periods,
IMH would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. Seventh, with respect to
any asset (a "Built-In Gain Asset") acquired by IMH from a corporation which
is or has been a C corporation (i.e., generally a corporation subject to full
corporate-level tax) in a transaction in which the basis of the Built-In Gain
Asset in the hands of IMH is determined by reference to the basis of the asset
in the hands of the C corporation, if IMH recognizes gain on the disposition
of such asset during the ten-year period (the "Recognition Period") beginning
on the date on which such asset was acquired by IMH, then, to the extent of
the Built-In Gain (i.e., the excess of (a) the fair market value of such asset
over (b) IMH's adjusted basis in such asset, determined as of the beginning of
the Recognition Period), such gain will be subject to tax at the highest
regular corporate rate pursuant to Treasury Regulations that have not yet been
promulgated. The results described above with respect to the recognition of
Built-In Gain assume that IMH will make an election pursuant to Notice 88-19
and that such treatment is not modified by certain revenue proposals in the
Administration's 1997 Budget Proposal.
 
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<PAGE>
 
  Requirements for Qualification. The Code defines a REIT as a corporation,
trust or association (i) which is managed by one or more trustees or
directors; (ii) the beneficial ownership of which is evidenced by transferable
shares, or by transferable certificates of beneficial interest; (iii) which
would be taxable as a domestic corporation, but for Sections 856 through 859
of the Code; (iv) which is neither a financial institution nor an insurance
company subject to certain provisions of the Code; (v) the beneficial
ownership of which is held by 100 or more persons; (vi) during the last half
of each taxable year not more than 50% in value of the outstanding stock of
which is owned, actually or constructively, by or for five or fewer
individuals (as defined in the Code to include certain entities); and (vii)
which meets certain other tests, described below, regarding the nature of its
income and assets. The Code provides that conditions (i) to (iv), inclusive,
must be met during the entire taxable year and that condition (v) must be met
during at least 335 days of a taxable year of twelve months, or during a
proportionate part of a taxable year of less than twelve months.
 
  The Company believes that it has previously issued sufficient shares of
Common Stock with sufficient diversity of ownership to allow IMH to satisfy
conditions (v) and (vi). In addition, the Charter provides for restrictions
regarding the transfer and ownership of shares, which restrictions are
intended to assist IMH in continuing to satisfy the share ownership
requirements described in (v) and (vi) above. Such ownership and transfer
restrictions are described in "Description of Capital Stock--Repurchase of
Shares and Restrictions on Transfer." These restrictions may not ensure that
IMH will, in all cases, be able to satisfy the share ownership requirements
described above. If IMH fails to satisfy such share ownership requirements,
IMH's status as a REIT will terminate. See "--Failure to Qualify."
 
  In addition, a corporation may not elect to become a REIT unless its taxable
year is the calendar year. IMH has a calendar taxable year.
 
  Ownership of IWLG. IMH has owned 100% of the stock of IWLG at all times IWLG
has been in existence. As a result, IWLG will be treated as a "qualified REIT
subsidiary." Code Section 856(i) provides that a corporation which is a
"qualified REIT subsidiary" will not be treated as a separate corporation, and
all assets, liabilities, and items of income, deduction, and credit of a
"qualified REIT subsidiary" will be treated as assets, liabilities and such
items (as the case may be) of the REIT for all purposes of the Code including
the REIT qualification tests. Thus, in applying the requirements described
herein, IWLG will be ignored, and all assets, liabilities and items of income,
deduction and credit of such subsidiary will be treated as assets, liabilities
and such items (as the case may be) of IMH. IWLG, therefore, will not be
subject to federal income tax. In addition, IMH's ownership of the voting
stock of IWLG will not violate the restrictions against ownership of
securities of any one issuer which constitute more than 10% of such issuer's
voting securities or more than 5% of the value of IMH's total assets,
described below under "--Asset Tests."
 
  Income Tests. In order to maintain its qualification as a REIT, IMH annually
must satisfy three gross income requirements. First, at least 75% of IMH's
gross income (excluding gross income from prohibited transactions) for each
taxable year must be derived directly or indirectly from: (i) rents from real
property; (ii) interest on obligations secured by mortgages on real property
or on interests in real property; (iii) gain from the sale or other
disposition of real property (including interests in real property and
interests in mortgages on real property) not held primarily for sale to
customers in the ordinary course of business; (iv) dividends or other
distributions on, and gain (other than gain from prohibited transactions) from
the sale or other disposition of, transferable shares in other real estate
investment trusts; (v) abatements and refunds of taxes on real property; (vi)
income and gain derived from foreclosure property; (vii) amounts (other than
amounts the determination of which depend in whole or in part on the income or
profits of any person) received or accrued as consideration for entering into
agreements (a) to make loans secured by mortgages on real property or on
interests in real property or (b) to purchase or lease real property
(including interests in real property and interests in mortgages on real
property); (viii) gain from the sale or other disposition of a real estate
asset which is not a prohibited transaction; and (ix) qualified temporary
investment income. Second, at least 95% of IMH's gross income (excluding gross
income from prohibited transactions) for each taxable year must be derived
from the sources described above with respect to the 75% gross income test,
dividends, interest, and gain from the sale or disposition of stock or
securities (or from any combination of the foregoing). Third, short-term gain
from the
 
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<PAGE>
 
sale or other disposition of stock or securities, gain from prohibited
transactions, and gain on the sale or other disposition of real property held
for less than four years (apart from involuntary conversions and sales or
other disposition of foreclosure property) must represent less than 30% of
IMH's gross income (including gross income from prohibited transactions) for
each taxable year.
 
  The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends
in whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "interest"
solely by reason of being based on a fixed percentage or percentages of
receipts or sales.
 
  Generally, if a loan is secured by both personal property and real property,
interest must be allocated between the personal property and the real
property, with only the interest allocable to the real property qualifying as
mortgage interest under the 75% gross income test. Treasury Regulations
provide that if a loan is secured by both personal and real property and the
fair market value of the real property as of the commitment date equals or
exceeds the amount of the loan, the entire interest amount will qualify under
the 75% gross income test. If the amount of the loan exceeds the fair market
value of the real property, the interest income allocated to the real property
is an amount equal to the interest income multiplied by a fraction, the
numerator of which is the fair market value of the real property as of the
commitment date, and the denominator of which is the amount of the loan. The
interest income allocated to the personal property is an amount equal to the
excess of the total interest income over the interest income allocated to the
real property.
 
  Interest earned on mortgage loans, and mortgage-backed securities secured by
or representing an interest in such loans, pursuant to IMH's Long-Term
Investment Operations will qualify as "interest" for purposes of the 95% and
75% gross income tests if such assets are treated as obligations secured by
mortgages on real property or on interests in real property. However, income
attributable to securities (other than Qualified REIT Assets) that IMH holds
directly or through IWLG, dividends on stock (including any dividends IMH
receives from ICIFC), interest on any other obligations not secured by real
property, and gains from the sale or disposition of stock or other securities
that are not Qualified REIT Assets will not qualify under the 75% gross income
test if such income is not treated as interest on obligations secured by
mortgages on real property or on interests in real property or gain from the
sale or other disposition of a Qualified REIT Asset, which is not a prohibited
transaction. Such income will qualify under the 95% gross income test,
however, if such income constitutes interest, dividends or gain from the sale
or disposition of stock or securities. Income from loan guarantee fees,
mortgage servicing contracts or other contracts under which IMH would earn
fees for performing services will not qualify under either the 95% or 75%
gross income tests if such income constitutes fees for services rendered by
IMH or is not treated as interest (on obligations secured by mortgages on real
property or on interests in real property for purposes of the 75% gross income
test). Similarly, income from hedging, including the sale of hedges, will not
qualify under the 75% or 95% gross income tests unless such hedges constitute
Qualified Hedges, in which case such income will qualify under the 95% gross
income test.
 
  Furthermore, ICIFC receives servicing and processing fees and income from
gain on the sale of certain mortgage loans and mortgage securities in
connection with the Conduit Operations. Such fees do not accrue to IMH, but
IMH receives dividends on its nonvoting preferred stock in ICIFC. Such
dividends will qualify under the 95% gross income test, but will not qualify
under the 75% gross income test.
 
  In order to comply with the 95% and 75% gross income tests, IMH has limited
and will continue to limit substantially all of the assets that it acquires to
Qualified REIT Assets. As a result, IMH may limit the type of assets,
including hedging contracts, that it otherwise might acquire and, therefore,
the type of income it otherwise might receive, including income from hedging,
other than income from Qualified Hedges. See "Business--Hedging."
 
  In addition, to comply with the 30% gross income test, IMH may have to hold
mortgage loans and mortgage-backed securities for four or more years and
securities (other than securities that are Qualified REIT Assets) and hedges
for one year or more at times when IMH might otherwise have opted for the
disposition of such assets for short term gains.
 
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<PAGE>
 
  In order to comply with the REIT gross income tests, IMH has monitored and
will continue to monitor its income, including income from dividends,
warehouse lending, hedging transactions, futures contracts, servicing and
sales of Mortgage Assets, gains on the sale of securities, and other income
not derived from Qualified REIT Assets. IMH believes that the aggregate amount
of any nonqualifying income in any taxable year has not exceeded and will not
exceed the limit on nonqualifying income under the gross income tests.
 
  If IMH fails to satisfy one or both of the 75% or 95% gross income tests for
any taxable year, it may nevertheless qualify as a REIT for such year if it is
entitled to relief under certain provisions of the Code. These relief
provisions will be generally available if IMH's failure to meet such tests was
due to reasonable cause and not due to willful neglect, IMH attaches a
schedule of the sources of its income to its federal income tax return, and
any incorrect information on the schedule was not due to fraud with intent to
evade tax. It is not possible, however, to state whether in all circumstances
IMH would be entitled to the benefit of these relief provisions. For example,
if IMH fails to satisfy the gross income tests because nonqualifying income
that IMH intentionally incurs exceeds the limits on such income, the Internal
Revenue Service (the "Service") could conclude that IMH's failure to satisfy
the tests was not due to reasonable cause. If these relief provisions are
inapplicable to a particular set of circumstances involving IMH, IMH will not
qualify as a REIT. As discussed above in "Federal Income Tax Considerations--
Taxation of IMH--General," even if these relief provisions apply, a tax would
be imposed with respect to the excess net income. There can be no assurance
that IMH will always be able to maintain compliance with the gross income
tests for REIT qualification despite its periodic monitoring procedures. No
similar mitigation provision provides relief if IMH fails the 30% gross income
test. In such case, IMH would cease to qualify as a REIT. See "--Failure to
Qualify.
 
  Any gain realized by IMH on the sale of any property (including mortgage
loans and mortgage-backed securities) held as inventory or other property held
primarily for sale to customers in the ordinary course of business will be
treated as income from a prohibited transaction that is subject to a 100%
penalty tax. Such prohibited transaction income may also have an adverse
effect upon IMH's ability to satisfy the income tests for qualification as a
REIT. Under existing law, whether property is held as inventory or primarily
for sale to customers in the ordinary course of a trade or business is a
question of fact that depends on all the facts and circumstances with respect
to the particular transaction. ICIFC securitizes mortgage loans and sells the
resulting mortgage securities. See "Business--Conduit Operations--
Securitization and Sale Process." If IMH were to sell such mortgage securities
on a regular basis, there is a substantial risk that such sales would
constitute prohibited transactions and that all of the profits therefrom would
be subject to a 100% tax. Therefore, such sales have been made and will be
made only by ICIFC. ICIFC is not subject to the 100% penalty tax on income
from prohibited transactions, which is only applicable to a REIT.
 
  Asset Tests. IMH, at the close of each quarter of its taxable year, must
also satisfy three tests relating to the nature of its assets. First, at least
75% of the value of IMH's total assets must be represented by Qualified REIT
Assets, cash, cash items and government securities. Qualified REIT Assets
include (i) interests in real property and interests in mortgages on real
property, (ii) interests in REMICs, and (iii) stock or debt instruments held
for not more than one year purchased with the proceeds of a stock offering or
long-term (at least five years) public debt offering of IMH. Second, not more
than 25% of IMH's total assets may be represented by securities other than
those in the 75% asset class. Third, of the investments included in the 25%
asset class, the value of any one issuer's securities owned by IMH may not
exceed 5% of the value of IMH's total assets and IMH may not own more than 10%
of any one issuer's outstanding voting securities. IMH believes that
substantially all of its assets, other than the nonvoting preferred stock of
ICIFC, are Qualified REIT Assets.
 
  As described above, IMH will be treated as owning all assets, liabilities
and items of income, deduction, and credit of IWLG, IMH's wholly-owned
Qualified REIT Subsidiary. Pursuant to IWLG's Warehouse Lending Operations,
IWLG provides short-term lines of credit ("warehouse loans") to ICIFC and
approved mortgage banks, most of which are correspondents of ICIFC, to finance
mortgage loans during the time from the closing of the loans to their sale or
other settlement with pre-approved investors, including the Long-Term
Investment Operations. IWLG's warehouse loans are secured by pledges of
mortgage notes owned by the borrowers that in turn are secured by mortgages on
real property. The Service has ruled that similar warehouse loans are
Qualified REIT Assets and that interest received on such loans is qualifying
interest under the 75% gross income test.
 
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<PAGE>
 
  As described above, IMH owns 100% of the nonvoting preferred stock of ICIFC.
IMH does not and will not own any of the voting securities of ICIFC, and
therefore IMH will not be considered to own more than 10% of the voting
securities of ICIFC. In addition, IMH believes that the aggregate value of its
securities of ICIFC have not at any time exceeded, 5% of the total value of
IMH's assets, and will not exceed such amount in the future. However, there
can be no assurance that the Service will not contend that the value of the
securities of ICIFC held by IMH exceeds the 5% value limitation.
 
  The 5% value test requires that IMH revalue its assets at the end of each
calendar quarter in which IMH acquires additional securities in ICIFC for the
purpose of applying such test. Although IMH plans to take steps to ensure that
it satisfies the 5% value test for any quarter with respect to which retesting
is to occur, there can be no assurance that such steps will always be
successful, or will not require a reduction in IMH's overall interest in
ICIFC.
 
  IMH has taken and will continue to take measures to prevent the value of
securities issued by any one entity that do not constitute Qualified REIT
Assets from exceeding 5% of the value of IMH's total assets as of the end of
each calendar quarter. In particular, as of the end of each calendar quarter,
IMH has limited and diversified and will continue to limit and diversify its
ownership of securities of ICIFC and other securities that do not constitute
Qualified REIT Assets to less than 25%, in the aggregate, by value of its
portfolio, to less than 5% by value as to any single issuer, including ICIFC,
and to less than 10% of the voting stock of any single issuer. Moreover,
pursuant to its compliance guidelines, the Manager has monitored and will
continue to monitor (on not less than a quarterly basis) the purchase and
holding of IMH's assets in order for IMH to comply with the above asset tests.
 
  When purchasing mortgage-related securities, IMH and its counsel may rely on
opinions of counsel for the issuer or sponsor of such securities given in
connection with the offering of such securities, or statements made in related
offering documents, for purposes of determining whether and to what extent
those securities (and the income therefrom) constitute Qualified REIT Assets
(and income) for purposes of the REIT asset tests (and the REIT gross income
tests discussed above).
 
  A regular or residual interest in a REMIC will be treated as a Qualified
REIT Asset for purposes of the REIT asset tests and income derived with
respect to such interests will be treated as interest on obligations secured
by mortgages on real property, assuming that at least 95% of the assets of the
REMIC are Qualified REIT Assets. If less than 95% of the assets of the REMIC
are Qualified REIT Assets, only a proportionate share of the assets of and
income derived from the REMIC will be treated as qualifying under the REIT
asset and income tests. IMH believes that its REMIC interests fully qualify
for purposes of the REIT income and asset tests.
 
  If IMH invests in a partnership, it will be deemed to own its proportionate
share of the assets of the partnership and will be deemed to be entitled to
the income of the partnership attributable to such share. In addition, the
character of the assets and gross income of the partnership shall retain the
same character in the hands of IMH for purposes of the REIT gross income tests
and the asset tests.
 
  After initially meeting the asset tests at the close of any quarter, IMH
will not lose its status as a REIT for failure to satisfy the asset tests at
the end of a later quarter solely by reason of changes in asset values. If the
failure to satisfy the asset tests results from an acquisition of securities
or other property during a quarter, the failure can be cured by disposition of
sufficient nonqualifying assets within 30 days after the close of that
quarter. IMH intends to maintain adequate records of the value of its assets
to ensure compliance with the asset tests and to take such other actions
within 30 days after the close of any quarter as may be required to cure any
noncompliance. If IMH fails to cure noncompliance with the asset tests within
such time period, IMH would cease to qualify as a REIT.
 
 
                                      85
<PAGE>
 
  Annual Distribution Requirements. IMH, in order to qualify as a REIT, is
required to distribute dividends (other than capital gain dividends) to its
stockholders in an amount at least equal to (i) the sum of (a) 95% of IMH's
"REIT taxable income" (computed without regard to the dividends paid deduction
and by excluding IMH's net capital gain) and (b) 95% of the net income (after
tax), if any, from foreclosure property, minus (ii) the sum of certain items
of noncash income. In addition, if IMH disposes of any Built-In Gain Asset
during its Recognition Period, IMH will be required, pursuant to Treasury
Regulations which have not yet been promulgated, to distribute at least 95% of
the Built-in Gain (after tax), if any, recognized on the disposition of such
asset. Such distributions must be paid in the taxable year to which they
relate, or in the following taxable year if declared before IMH timely files
its tax return for such year and if paid on or before the first regular
dividend payment date after such declaration and if IMH so elects and
specifies the dollar amount on its tax return. To the extent that IMH does not
distribute all of its net capital gain or distributes at least 95%, but less
than 100%, of its "REIT taxable income," as adjusted, it will be subject to
tax thereon at regular ordinary and capital gain corporate tax rates.
Furthermore, if IMH should fail to distribute during each calendar year at
least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95%
of its REIT capital gain net income for such year, and (iii) any undistributed
taxable income from prior periods, IMH would be subject to a 4% excise tax on
the excess of such required distribution over the amounts actually
distributed. IMH intends to make timely distributions sufficient to satisfy
these annual distribution requirements.
 
  IMH anticipates that it will generally have sufficient cash or liquid assets
to enable it to satisfy the distribution requirements described above. It is
possible, however, that IMH, from time to time, may not have sufficient cash
or other liquid assets to meet these distribution requirements due to timing
differences between (i) the actual receipt of income and actual payment of
deductible expenses and (ii) the inclusion of such income and deduction of
such expenses in arriving at taxable income of IMH. For instance, IMH may
realize income without a corresponding cash payment, as in the case of
original issue discount or accrued interest on defaulted Mortgage Loans. In
the event that such timing differences occur, in order to meet the
distribution requirements, IMH may find it necessary to sell assets, arrange
for short-term, or possibly long-term, borrowings, or pay dividends in the
form of taxable stock dividends.
 
  The Service has ruled that if a REIT's dividend reinvestment plan allows
stockholders of the REIT to elect to have cash distributions reinvested in
shares of the REIT at a purchase price equal to at least 95% of fair market
value on the distribution date, then such cash distributions reinvested
pursuant to such a plan qualify under the 95% distribution test. The terms of
IMH's DRP will comply with this ruling. See "Dividend Reinvestment Plan."
 
  Under certain circumstances, IMH may be able to rectify a failure to meet
the distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year, which may be included in IMH's deduction for
dividends paid for the earlier year. Thus, IMH may be able to avoid being
taxed on amounts distributed as deficiency dividends; however, IMH will be
required to pay interest based upon the amount of any deduction taken for
deficiency dividends.
 
RECORDKEEPING REQUIREMENTS
 
  A REIT is required to maintain certain records, including records regarding
the actual and constructive ownership of its shares, and within 30 days after
the end of its taxable year, to demand statements from persons owning above a
specified level of the REIT's shares (e.g., if IMH has over 200 but fewer than
2,000 stockholders of record, from persons holding 1% or more of IMH's
outstanding shares of common stock and if IMH has 200 or fewer shareholders of
record, from persons holding 1/2% or more of the Common Stock) regarding their
ownership of shares. In addition, IMH must maintain, as part of its records, a
list of those persons failing or refusing to comply with this demand.
Shareholders who fail or refuse to comply with the demand must submit a
statement with their tax returns setting forth the actual stock ownership and
other information. IMH has maintained and will continue to maintain the
records and demand statements as required by Treasury Regulations.
 
                                      86
<PAGE>
 
FAILURE TO QUALIFY
 
  If IMH fails to qualify for taxation as a REIT in any taxable year, and the
relief provisions do not apply, IMH will be subject to tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates. Distributions to stockholders in any year in which IMH fails to qualify
will not be deductible by IMH nor will they be required to be made. As a
result, IMH's failure to qualify as a REIT would substantially reduce the cash
available for distribution by IMH to its stockholders. In addition, if IMH
fails to qualify as a REIT, all distributions to stockholders will be taxable
as ordinary income, to the extent of IMH's current and accumulated earnings
and profits, and, subject to certain limitations of the Code, corporate
distributees may be eligible for the dividends received deduction. Unless
entitled to relief under specific statutory provisions, IMH will also be
disqualified from taxation as a REIT for the four taxable years following the
year during which qualification was lost. It is not possible to state whether
in all circumstances IMH would be entitled to such statutory relief. Failure
to qualify for even one year could result in the IMH's incurring substantial
indebtedness (to the extent borrowings are feasible) or liquidating
substantial investments in order to pay the resulting taxes.
 
TAXATION OF TAXABLE U.S. STOCKHOLDERS GENERALLY
 
  As used herein, the term "U.S. Stockholder" means a holder of shares of
Common Stock who (for United States federal income tax purposes) (i) is a
citizen or resident of the United States, (ii) is a corporation, partnership,
or other entity created or organized in or under the laws of the United States
or of any political subdivision thereof, or (iii) is an estate or trust the
income of which is subject to United States federal income taxation regardless
of its source.
 
  As long as IMH qualifies as a REIT, distributions made by IMH out of its
current or accumulated earnings and profits (and not designated as capital
gain dividends) will constitute dividends taxable to its taxable U.S.
Stockholders as ordinary income. Such distributions will not be eligible for
the dividends received deduction in the case of U.S. Stockholders that are
corporations. Distributions made by IMH that are properly designated by IMH as
capital gain dividends will be taxable to taxable U.S. Stockholders as long-
term capital gains (to the extent that they do not exceed IMH's actual net
capital gain for the taxable year) without regard to the period for which a
U.S. Stockholder has held his shares of Common Stock. U.S. Stockholders that
are corporations may, however, be required to treat up to 20% of certain
capital gain dividends as ordinary income. To the extent that IMH makes
distributions (not designated as capital gain dividends) in excess of its
current and accumulated earnings and profits, such distributions will be
treated first as a tax-free return of capital to each U.S. Stockholder,
reducing the adjusted basis which such U.S. Stockholder has in his shares of
Common Stock for tax purposes by the amount of such distribution (but not
below zero), with distributions in excess of a U.S. Stockholder's adjusted
basis in his shares taxable as capital gains (provided that the shares have
been held as a capital asset). IMH will notify stockholders at the end of each
year as to the portions of the distributions which constitute ordinary income,
net capital gain or return of capital. Dividends declared by IMH in October,
November, or December of any year and payable to a stockholder of record on a
specified date in any such month shall be treated as both paid by IMH and
received by the stockholder on December 31 of such year, provided that the
dividend is actually paid by IMH on or before January 31 of the following
calendar year. Stockholders may not include in their own income tax returns
any net operating losses or capital losses of IMH.
 
  Dividends paid with respect to Common Stock that a DRP participant reinvests
in Common Stock through purchases by the Agent in the open market will be
treated for federal income tax purposes as having been received by the
participant in the form of a taxable cash distribution. The amount of the cash
distribution will be treated as a dividend to the extent IMH has current or
accumulated earnings and profits for federal income tax purposes.
Alternatively, dividends paid with respect to Common Stock that a participant
reinvests in Common Stock that are registered and newly issued by IMH will be
treated for federal income tax purposes as having been received by the
participant in the form of a taxable stock distribution. In that case, the DRP
participant will be treated as having received a dividend, taxable as ordinary
income to the extent IMH has current or accumulated earnings and profits, in
an amount equal to the fair market value of the Common Stock purchased
 
                                      87
<PAGE>
 
with the reinvested dividends, generally on the date that the Agent credits
such Common Stock to the DRP participant's account, plus brokerage commissions
and fees, if any, subtracted from the participant's distribution.
 
  Distributions made by IMH and gain arising from the sale or exchange by a
U.S. Stockholder of shares of Common Stock will not be treated as passive
activity income, and, as a result, U.S. Stockholders generally will not be
able to apply any "passive losses" against such income or gain. Distributions
made by IMH (to the extent they do not constitute a return of capital)
generally will be treated as investment income for purposes of computing the
investment income limitation. Gain arising from the sale or other disposition
of Common Stock, however, will not be treated as investment income unless the
U.S. Stockholder elects to reduce the amount of such U.S. Stockholder's total
net capital gain eligible for the 28% maximum capital gains rate by the amount
of such gain with respect to such Common Stock.
 
  Upon any sale or other disposition of Common Stock, a U.S. Stockholder will
recognize gain or loss for federal income tax purposes in an amount equal to
the difference between (i) the amount of cash and the fair market value of any
property received on such sale or other disposition and (ii) the holder's
adjusted basis in such shares of Common Stock for tax purposes. Such gain or
loss will be capital gain or loss if the shares have been held by the U.S.
Stockholder as a capital asset, and will be long-term gain or loss if such
shares have been held for more than one year. In general, any loss recognized
by a U.S. Stockholder upon the sale or other disposition of shares of Common
Stock that have been held for six months or less (after applying certain
holding period rules) will be treated as a long-term capital loss, to the
extent of distributions received by such U.S. Stockholder from IMH which were
required to be treated as long-term capital gains.
 
  IMH does not expect to acquire or retain residual interests issued by
REMICs. Such residual interests, if acquired by a REIT, could generate excess
inclusion income taxable to the REIT's stockholders in proportion to the
dividends received from the REIT. Excess inclusion income cannot be offset by
net operating losses of a stockholder. If the stockholder of a REIT holding a
residual interest in a REMIC is a tax-exempt entity, the excess inclusion
income is fully taxable to such stockholder as unrelated business taxable
income. If allocated to a Non-U.S. Stockholder (as defined below), the excess
inclusion income is subject to federal income tax withholding without
reduction pursuant to any otherwise applicable tax treaty. Potential
investors, and in particular, tax-exempt entities, are urged to consult with
their tax advisors concerning this issue.
 
  IMH has financed and intends to continue to finance the acquisition of
mortgage assets by entering into reverse repurchase agreements, which are
essentially loans secured by IMH's mortgage assets. IMH has entered into
master repurchase agreements with secured lenders known as "counterparties."
Typically, such master repurchase agreements have cross-collateralization
provisions that afford the counterparty the right to foreclose on the mortgage
assets pledged as collateral. If the Service were to successfully take the
position that the cross-collateralization provisions of the master repurchase
agreements result in IMH having issued debt instruments (the reverse
repurchase agreements) with differing maturity dates secured by a pool of
mortgage loans, a portion of IMH's income could be characterized as excess
inclusion income. In the absence of any definitive authority on this issue,
there can be no complete assurance regarding whether the cross-
collateralization provisions of the master repurchase agreements will not
cause IMH to realize excess inclusion income.
 
BACKUP WITHHOLDING
 
  IMH will report to its U.S. Stockholders and the Service the amount of
dividends paid during each calendar year, and the amount of tax withheld, if
any. Under the backup withholding rules, a stockholder may be subject to
backup withholding at the rate of 31% with respect to dividends paid unless
such holder (a) is a corporation or comes within certain other exempt
categories and, when required, demonstrates this fact, or (b) provides a
taxpayer identification number, certifies as to no loss of exemption from
backup withholding, and otherwise complies with applicable requirements of the
backup withholding rules. A U.S. Stockholder that does not provide IMH with
his correct taxpayer identification number may also be subject to penalties
imposed by the Service. Any amount paid as backup withholding will be
creditable against the stockholder's income tax liability. In addition, IMH
may be required to withhold a portion of capital gain distributions to any
stockholders who fail to certify their non-foreign status to IMH.
 
                                      88
<PAGE>
 
TAXATION OF TAX-EXEMPT STOCKHOLDERS
 
  Generally, a tax-exempt investor that is exempt from tax on its investment
income, such as an individual retirement account (IRA) or a 401(k) plan, that
holds Common Stock as an investment will not be subject to tax on dividends
paid by IMH. However, if such tax-exempt investor is treated as having
purchased its Common Stock with borrowed funds, some or all of its dividends
from the Common Stock will be subject to tax. In addition, under some
circumstances certain pension plans (including 401(k) plans but not including
IRAs and government pension plans) that own more than 10% (by value) of IMH's
outstanding stock, including Common Stock, could be subject to tax on a
portion of their Common Stock dividends even if their Common Stock is held for
investment and is not treated as acquired with borrowed funds. The ownership
limit (see "Description of Capital Stock--Repurchase of Shares and
Restrictions on Transfer"), however, should prevent this result.
 
TAXATION OF NON-U.S. STOCKHOLDERS
 
  The preceding discussion does not address the rules governing United States
federal income taxation of the ownership and disposition of Common Stock by
persons that are not U.S. Stockholders ("Non-U.S. Stockholders"). In general,
Non-U.S. Stockholders may be subject to special tax withholding requirements
on distributions from IMH and with respect to their sale or other disposition
of Common Stock, except to the extent reduced or eliminated by an income tax
treaty between the United States and the Non-U.S. Stockholder's country. A
Non-U.S. Stockholder who is a stockholder of record and is eligible for
reduction or elimination of withholding must file an appropriate form with IMH
in order to claim such treatment. Non-U.S. Stockholders should consult their
own tax advisors concerning the federal income tax consequences to them of a
purchase of shares of IMH's Common Stock including the federal income tax
treatment of dispositions of interests in, and the receipt of distributions
from IMH.
 
OTHER TAX CONSEQUENCES
 
  ICIFC will not qualify as a REIT and will pay federal, state and local
income taxes on its taxable income at normal corporate rates. As a result,
ICIFC is able to distribute only its net after-tax earnings to its
shareholders, including IMH, as dividend distributions, thereby reducing the
cash available for distribution by IMH to its stockholders.
 
  IMH and its stockholders may be subject to state or local taxation in
various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of IMH and its
stockholders may not conform to the federal income tax consequences discussed
above. Consequently, prospective stockholders should consult their own tax
advisors regarding the effect of state and local tax laws on an investment in
IMH.
 
                                ERISA INVESTORS
 
  A fiduciary of a pension, profit-sharing, stock bonus plan or individual
retirement account, including a plan for self-employed individuals and their
employees or any other employee benefit plan (collectively, a "Plan") subject
to the prohibited transaction provisions of the Code or the fiduciary
responsibility provisions of the Employee Retirement Income Security Act of
1974 ("ERISA"), should consider (1) whether the ownership of the Common Stock
is in accordance with the documents and instruments governing the Plan, (2)
whether the ownership of the Common Stock is consistent with the fiduciary's
responsibilities and satisfies the requirements of Part 4 of Subtitle A of
Title I of ERISA (if applicable) and, in particular, the diversification,
prudence and liquidity requirements of Section 404 of ERISA, (3) the
prohibitions under ERISA on improper delegation of control over, or
responsibility for "plan assets" and ERISA's imposition of co-fiduciary
liability on a fiduciary who participates in, or permits (by action or
inaction) the occurrence of, or fails to remedy a known breach of duty by
another fiduciary with respect to plan assets, and (4) the need to value the
assets of the Plan annually.
 
 
                                      89
<PAGE>
 
                                 UNDERWRITING
 
  Under the terms of and subject to the conditions contained in the
underwriting agreement (the "Underwriting Agreement") between the Company and
the Underwriters named below (the "Underwriters"), for whom PaineWebber
Incorporated, Oppenheimer & Co., Inc., Stifel, Nicolaus & Company,
Incorporated and EVEREN Securities, Inc. are acting as representatives (the
"Representatives"), the Underwriters have severally agreed to purchase from
the Company and the Company has agreed to sell to the Underwriters severally
the respective number of shares set forth opposite its name below:
 
<TABLE>       
<CAPTION>
                                                                       NUMBER OF
      UNDERWRITERS                                                      SHARES
      ------------                                                     ---------
      <S>                                                              <C>
      PaineWebber Incorporated........................................   700,000
      Oppenheimer & Co., Inc. ........................................   700,000
      Stifel, Nicolaus & Company, Incorporated........................   300,000
      EVEREN Securities, Inc..........................................   300,000
      Crowell, Weedon & Co. ..........................................    50,000
      Dabney/Resnick Inc. ............................................    50,000
      Fahnestock & Co. Inc. ..........................................    50,000
      Friedman, Billings & Ramsey.....................................    50,000
      Gruntal & Co., Incorporated.....................................    50,000
      Ladenburg, Thalmann & Co., Inc. ................................    50,000
      Pennsylvania Merchant Group, Ltd. ..............................    50,000
      Rauscher Pierce Refsnes, Inc. ..................................    50,000
      Sutro & Co. Incorporated........................................    50,000
      Unterberg Harris................................................    50,000
                                                                       ---------
        Total......................................................... 2,500,000
                                                                       =========
</TABLE>    
 
  In the Underwriting Agreement, the Underwriters have severally agreed,
subject to the terms and conditions set forth therein, to purchase all of the
shares of Common Stock being sold pursuant to the Underwriting Agreement
(other than those covered by the over-allotment option described below), if
any shares of Common Stock are purchased. In the event of a default by any
Underwriter, the Underwriting Agreement provides that, in certain
circumstances, the purchase commitments of the nondefaulting Underwriters may
be increased or the Underwriting Agreement may be terminated.
   
  The Company has been advised by the Representatives that the Underwriters
propose to offer the shares in part to the public at the public offering price
set forth on the cover page of this Prospectus, and in part to certain
securities dealers (who may include Underwriters) at such price less a
concession not in excess of $0.50 per share, and that the Underwriters and
such dealers may reallow to certain dealers a discount not in excess of $0.10
per share. After commencement of the public offering, the public offering
price, concessions to selected dealers and the discount to other dealers may
be changed by the Representatives.     
 
  The Company has granted an option to the Underwriters, exercisable during
the 45-day period after the date of this Prospectus, to purchase, at the
Offering Price less the underwriting discount and commissions set forth on the
cover page of this Prospectus, 375,000 additional shares of Common Stock. The
Underwriters may exercise such option only to cover over-allotments, if any,
made in connection with the offering of the shares of Common Stock offered
hereby. To the extent the Underwriters exercise such option, each of the
Underwriters will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such option shares as it was obligated to
purchase pursuant to the Underwriting Agreement.
 
  The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Federal securities laws, or to
contribute to payments which the Underwriters may be required to make in
respect thereof.
 
                                      90
<PAGE>
 
  The Company, ICII, SPTL and certain stockholders have also agreed with the
Underwriters that, for a period of 120 days following the commencement of this
Offering, they will not offer, sell, contract to sell or otherwise dispose of
any shares of Common Stock or rights to acquire such shares (other than
pursuant to employee plans or the DRP) without the prior written consent of
PaineWebber Incorporated.
   
  At the request of the Company, 33,000 shares of Common Stock offered hereby
have been reserved for sale to certain members of the Company's senior
management at the public offering price. The number of shares available to the
general public will be reduced to the extent those persons purchase reserved
shares.     
 
  Certain of the Underwriters, including the Representatives, have in the past
performed, and may continue to perform investment banking services for the
Company and have received customary compensation therefor. In addition, an
affiliate of PaineWebber Incorporated has, in the ordinary course of business,
extended to the Company a secured warehouse and repurchase credit facility.
 
                                 LEGAL MATTERS
 
  The validity of the Common Stock offered hereby will be passed on for the
Company by Freshman, Marantz, Orlanski, Cooper & Klein, Beverly Hills,
California, certain legal matters, including certain tax matters, will be
passed on for the Company by Latham & Watkins, Los Angeles, California, and
certain legal matters with respect to Maryland law will be passed on for the
Company by Ballard Spahr Andrews & Ingersoll, Baltimore, Maryland. Certain
legal matters will be passed on for the Underwriters by Paul, Weiss, Rifkind,
Wharton & Garrison, New York, New York.
 
                                    EXPERTS
 
  The financial statements of Imperial Credit Mortgage Holdings, Inc. and ICI
Funding Corporation as of December 31, 1995 and 1994, and for each of the
years in the three-year period ended December 31, 1995, have been included
herein in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing. The report of
KPMG Peat Marwick LLP covering the December 31, 1995 financial statements
contains an explanatory paragraph that states the Company adopted the
provisions of Statement of Financial Accounting Standards No. 122, "Accounting
for Mortgage Servicing Rights" for the year ended December 31, 1995.
 
                            ADDITIONAL INFORMATION
 
  Copies of the Registration Statement of which this Prospectus forms a part
and the exhibits thereto are on file at the offices of the Commission in
Washington, D.C. and may be obtained at rates prescribed by the Commission
upon request to the Commission and inspected, without charge, at the offices
of the Commission. The Company is subject to the informational requirements of
the Exchange Act, and in accordance therewith, periodically files reports and
other information with the Commission. Such reports and other information can
be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W, Washington, D.C. 20549, and at the
Commission's regional offices at Northwestern Atrium Center, 500 West Madison
Street (Suite 1400), Chicago, Illinois 60661 and 7 World Trade Center, New
York, New York 10048. Copies of such material can also be obtained from the
Commission at prescribed rates through its Public Reference Section at 450
Fifth Street, N.W, Washington, D.C. 20549. Statements contained in this
Prospectus as to the contents of any contract or other document referred to
are not necessarily complete, and in each instance reference is made to the
copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
 
                                      91
<PAGE>
 
                                   GLOSSARY
 
  As used in this Prospectus, the capitalized and other terms listed below
have the meanings indicated.
 
  "Affiliated Person" means of any entity: (1) any person directly or
indirectly owning, controlling, or holding with the power to vote, five
percent (5%) or more of the outstanding securities of such entity; (2) any
person five percent (5%) or more of whose outstanding voting securities are
directly or indirectly owned, controlled, or held with power to vote, by such
entity; (3) any person directly or indirectly controlling, controlled by, or
under common control with, such entity or (4) any officer, director or
employee of such entity or any person set forth in (1), (2) or (3) above. Any
person who owns beneficially, either directly or through one or more
controlled companies, more than twenty-five percent (25%) of the voting
securities of any entity shall be presumed to control such entity. Any person
who does not so own more than twenty-five percent (25%) of the voting
securities of any entity shall be presumed not to control such entity. A
natural person shall be presumed not to be a controlled entity.
 
  "Agency" means FNMA, FHLMC or GNMA.
 
  "Agency Certificates" means Pass-Through Certificates guaranteed by FNMA,
FHLMC or GNMA.
 
  "AMEX" means American Stock Exchange, Inc.
 
  "ARM" means a mortgage loan or any mortgage loan underlying a Mortgage
Security that features adjustments of the underlying interest rate at
predetermined times based on an agreed margin to an established index. An ARM
is usually subject to periodic interest rate and/or payment caps and a
lifetime interest rate cap.
 
  "Average Net Worth" means the arithmetic average of the sum of the gross
proceeds from any sale of equity securities by the Company, before deducting
any underwriting discounts and commissions and other expenses and costs
relating to the offering, plus the Company's retained earnings (without taking
into account any losses incurred in prior periods) computed by taking the
daily average of such values during such period.
 
  "Bankruptcy Code" means Title 11, United States Code, as amended.
 
  "Charter" means the Articles of Incorporation of IMH and amendments thereto.
 
  "CMO" means an adjustable or fixed-rate debt obligation (bond) that is
collateralized by mortgage loans or mortgage certificates and issued by
private institutions or issued or guaranteed by FNMA, FHLMC or GNMA.
 
  "CMT Index" means the one year constant maturity Treasury index.
 
  "Code" means the Internal Revenue Code of 1986, as amended.
 
  "Commission" means the Securities and Exchange Commission.
 
  "Company" means IMH, ICIFC and IWLG as a combined entity unless the context
requires otherwise.
 
  "Conduit Operations" means ICIFC.
 
  "Conforming loan" or "conforming mortgage loan" means a mortgage loan that
complies with requirements for inclusion in credit support programs sponsored
by FHLMC or FNMA which are secured by first or second mortgages or deeds of
trust on single-family (one to four units) residences.
 
  "DRP" means the Dividend Reinvestment Plan adopted by the Company.
 
  "DRP Purchase Price" means (1) in the case of Common Stock purchased from
the Company, 97% of the average of the daily high and low of the Common Stock,
computed to three decimal places, as reported in the
 
                                      92
<PAGE>
 
NYSE Composite Transactions in The Wall Street Journal for the three days that
the Common Stock was traded on the NYSE immediately prior to the applicable
dividend payment date, (2) in the case of Common Stock purchased on the open
market, 97% of the weighted average, computed to three decimal places, of the
purchase prices for the Common Stock purchased by the DRP administrator (as
defined in the DRP).
 
  "11th District Cost of Funds" means the index made available monthly by the
Federal Home Loan Bank Board of the cost of funds to members of the Federal
Home Loan Bank 11th District.
 
  "ERISA" means the Employee Retirement Income Security Act of 1974.
 
  "ERISA Plan" or "Plan" means a pension, profit-sharing, retirement or other
employee benefit plan which is subject to ERISA.
 
  "Exchange Act" means the Securities Exchange Act of 1934, as amended.
 
  "5/25 mortgage loan" means a loan that adjusts on a one-time basis
approximately five years following origination to an interest rate based upon
a defined index plus a spread.
 
  "FHA" means the United States Federal Housing Administration.
 
  "FHLMC" means the Federal Home Loan Mortgage Corporation.
 
  "FMAC" means Franchise Mortgage Acceptance Company LLC.
 
  "FNMA" means the Federal National Mortgage Association.
 
  "GNMA" means Government National Mortgage Association.
 
  "GAAP" means generally accepted accounting principles.
 
  "Gross Mortgage Assets" means for any month the weighted average aggregate
book value of the Mortgage Assets, before reserves for depreciation or bad
debts or other similar noncash reserves, computed at the end of such month.
 
  "HUD" means the Department of Housing and Urban Development.
 
  "IMH" means Imperial Credit Mortgage Holdings, Inc., a Maryland corporation.
 
  "ICIFC" means ICI Funding Corporation, a California corporation that
conducts the Conduit Operations.
 
  "Interim Period" means the period from November 20, 1995 through December
31, 1995.
 
  "Investment Company Act" means the Investment Company Act of 1940, as
amended.
 
  "ISOs" means qualified incentive stock options granted under the Stock
Option Plan, which meet the requirements of Section 422 of the Code.
 
  "IWLG" means Imperial Warehouse Lending Group, Inc., a California
corporation that will be treated as a Qualified REIT Subsidiary of IMH.
 
  "Keogh Plans" means H.R. 10 Plans.
 
  "LIBOR" means the London interbank offered rate.
 
  "Long-Term Investment Operations" means IMH.
 
  "LTV" or "loan-to-value ratio" means the percentage obtained by dividing the
principal amount of a loan by the lower of the sales price or appraised value
of the mortgaged property when the loan is originated.
 
                                      93
<PAGE>
 
  "Master Commitments" means commitments issued by the Company which will
obligate the Company to purchase Mortgage Assets from the holders of the
commitment for a specified period of time, in a specified aggregate principal
amount and at a specified price.
 
  "MGCL" means the Maryland General Corporation Law, as amended from time to
time.
 
  "Mortgage Assets" means (1) mortgage loans, (2) mortgage-backed securities
and (3) other mortgage interests, which constitute Real Estate Assets.
 
  "MSRs" means mortgage servicing rights.
 
  "mortgage loans" means both conforming mortgage loans and non-conforming
mortgage loans.
 
  "mortgage-backed securities" means (1) pass-through certificates, (2) CMOs
and (3) REMICs.
 
  "Net Income" means the net income of the Company determined in accordance
with GAAP before the Manager's incentive compensation, the deduction for
dividends paid, and any net operating loss deductions arising from losses in
prior periods. The Company's interest expenses for borrowed money shall be
deducted in calculating Net Income.
 
  "non-conforming loan" or "non-conforming mortgage loan" means a mortgage
loan that does not qualify for purchase by government-sponsored entities such
as FNMA and FHLMC.
 
  "Ownership Limit" means 9.5% (in value or in number of shares, whichever is
more restrictive) of the aggregate of the outstanding shares of Common Stock,
as may be increased or reduced by the Board of Directors of the Company.
 
  "Pass-Through Certificates" means securities (or interests therein) which
are Qualified REIT Assets evidencing undivided ownership interests in a pool
of mortgage loans, the holders of which receive a "pass-through" of the
principal and interest paid in connection with the underlying mortgage loans
in accordance with the holders' respective, undivided interests in the pool.
Pass-Through Certificates evidence interests in loans secured by single
family, but not multifamily or commercial, real estate properties.
 
  "Privately-Issued Certificates" means privately-issued Pass-Through
Certificates issued by the Company or an affiliate of the Company or other
non-Agency third party issuer.
 
  "Qualified Hedge" means a bona fide interest rate swap or cap agreement
entered into by IMH to hedge variable rate indebtedness only, that IMH
incurred or expects to incur to acquire or carry Qualified REIT Assets, as
defined in Section 856(c)(6)(G) of the Code.
 
  "Qualified REIT Assets" means Pass-Through Certificates, mortgage loans,
Agency Certificates and other assets of the type described in Code Section
856(c)(6)(B).
 
  "Qualified REIT Subsidiary" means a corporation whose stock is entirely
owned by the REIT at all times during such corporation's existence.
 
  "Qualifying Interests" means "mortgages and other liens on and interests in
real estate," as defined in Section 3(c)(5)(C) under the Investment Company
Act.
 
  "Real Estate Asset" means interests in real property, interests in mortgages
on real property, and regular interests in REMICS.
 
  "REIT" means real estate investment trust as defined under Section 856 of
the Code.
 
 
                                      94
<PAGE>
 
  "REMIC" means serially maturing debt securities secured by a pool of
mortgage loans, the payments on which bear a relationship to the debt
securities and the issuer of which qualifies as a Real Estate Mortgage
Investment Conduit as defined under Section 860D of the Code.
 
  "reverse repurchase agreement" means a borrowing device by an agreement to
sell securities or other assets to a third party and a simultaneous agreement
to repurchase them at a specified future date and price, the price difference
constituting the interest on the borrowing.
 
  "Return on Equity" means return calculated for any quarter by dividing the
Company's Net Income for the quarter by its Average Net Worth for the quarter.
 
  "Securities Act" means the Securities Act of 1933, as amended.
 
  "Service" means the United States Internal Revenue Service.
 
  "SPTL" means Southern Pacific Thrift and Loans Association, a state
chartered industrial loan law.
 
  "Tax-Exempt Entity" means a qualified pension, profit-sharing or other
employee retirement benefit plan, Keogh Plan, bank commingled trust fund for
such plans, an IRA or other similar entity intended to be exempt from federal
income taxation.
 
  "Ten Year U.S. Treasury Rate" means the average of the weekly average yield
to maturity for U.S. Treasury securities (adjusted to a constant maturity of
10 years) as published weekly by the Federal Reserve Board during a quarter.
 
  "25% entity" means any entity of which ICII owns 25% or more of the voting
securities.
 
  "25% Incentive Payment" means incentive compensation for each fiscal
quarter, in an amount equal to 25% of the Net Income of the Company, before
deduction of such incentive compensation, in excess of the amount that would
produce an annualized Return on Equity equal to the Ten Year U.S. Treasury
Rate plus 2%.
 
  "UBTI" means "unrelated trade or business taxable income" as defined in
Section 512 of the Code.
 
  "Unaffiliated Director" means a Director who is independent of the Company,
any manager of the Company (including ICAI) and ICII and its Affiliated
Persons.
 
  "VA" means the United States Department of Veterans Affairs.
 
  "Warehouse Lending Operations" means IWLG.
 
                                      95
<PAGE>
 
                         INDEX TO FINANCIAL STATEMENTS
 
             IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARY
 
<TABLE>
<S>                                                                          <C>
 Independent Auditors' Report............................................... F-2
 Consolidated Balance Sheets................................................ F-3
 Consolidated Statements of Operations...................................... F-4
 Consolidated Statements of Changes in Stockholders' Equity................. F-5
 Consolidated Statements of Cash Flows...................................... F-6
 Notes to Consolidated Financial Statements................................. F-7
</TABLE>
 
                            ICI FUNDING CORPORATION
 
<TABLE>
<S>                                                                         <C>
 Independent Auditors' Report.............................................. F-26
 Balance Sheets............................................................ F-27
 Statements of Operations.................................................. F-28
 Statements of Changes in Shareholders' Equity............................. F-29
 Statements of Cash Flows.................................................. F-30
 Notes to Financial Statements............................................. F-31
</TABLE>
 
                                      F-1
<PAGE>
 
                         INDEPENDENT AUDITORS' REPORT
 
The Board of Directors
Imperial Credit Mortgage Holdings, Inc.:
 
We have audited the accompanying consolidated balance sheets of Imperial
Credit Mortgage Holdings, Inc. and subsidiary as of December 31, 1995 and
1994, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1995. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Imperial Credit Mortgage Holdings, Inc. and subsidiary as of December 31,
1995 and 1994, and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 1995 in
conformity with generally accepted accounting principles.
 
As discussed in note 1 to the consolidated financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 122,
"Accounting for Mortgage Servicing Rights" for the year ended December 31,
1995.
 
                                KMPG Peat Marwick LLP
 
 
Orange County, California
January 25, 1996
 
                                      F-2
<PAGE>
 

             IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARY
 
                          CONSOLIDATED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                               DECEMBER 31,
                             MARCH 31,    ------------------------
                                1996          1995         1994
                            ------------  ------------  ----------
                            (UNAUDITED)
          ASSETS
          ------
<S>                         <C>           <C>           <C> 
Cash and cash equivalents.  $ 17,067,858  $  2,284,482  $      --
Investment securities
 available-for-sale.......    33,242,883    17,378,238         --
Mortgage loans held for
 investment...............   311,460,948           --          --
Finance receivables, net..   196,065,560   582,921,113   3,024,440
Lease payment receivables
 held for sale............     7,805,691     8,440,644         --
Accrued interest receiv-
 able.....................     5,610,768     1,645,414       5,136
Due from affiliates.......     1,390,488       113,089         --
Investment in ICI Funding
 Corporation..............     9,535,887       865,839   6,335,058
Other assets..............           --         39,512         --
                            ------------  ------------  ----------
                            $582,180,083  $613,688,331  $9,364,634
                            ============  ============  ==========
<CAPTION>
     LIABILITIES AND STOCKHOLDERS'
     -----------------------------
          EQUITY
          ------
<S>                         <C>           <C>           <C> 
Due to affiliates.........  $  6,040,036  $        --   $      --
Reverse-repurchase agree-
 ments....................   528,745,568   567,727,361         --
Borrowings from SPTL......           --            --    2,511,379
Other liabilities.........       778,903       725,146         --
                            ------------  ------------  ----------
  Total liabilities.......   535,564,507   568,452,507   2,511,379
                            ------------  ------------  ----------
Commitments and contingen-
 cies
Stockholders' equity:
 Preferred stock, $0.1 par
  value; 10 million shares
  authorized; none issued
  or outstanding at March
  31, 1996 (unaudited) and
  at December 31, 1995 and
  1994....................           --            --          --
 Common stock, $.01 par
  value; 50 million shares
  authorized; 4,250,000
  shares issued and
  outstanding at March 31,
  1996 (unaudited) and at
  December 31, 1995 and
  none issued and
  outstanding at
  December 31, 1994.......        42,500        42,500         --
 Additional paid-in capi-
  tal.....................    44,970,544    44,970,544         --
 Contributed capital......           --            --      357,558
 Investment securities
  valuation allowance.....       (66,550)      (92,663)        --
 Retained earnings........     1,669,082       315,443   6,495,697
                            ------------  ------------  ----------
  Total stockholders' eq-
   uity...................    46,615,576    45,235,824   6,853,255
                            ------------  ------------  ----------
                            $582,180,083  $613,688,331  $9,364,634
                            ============  ============  ==========
</TABLE>

          See accompanying notes to consolidated financial statements.
 
                                      F-3
<PAGE>

             IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARY
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                         FOR THE THREE MONTHS
                           ENDED MARCH 31,     FOR THE YEAR ENDED DECEMBER 31,            
                         --------------------  -------------------------------
                            1996       1995      1995       1994      1993
                         ----------- --------  ----------  -------- ----------
                             (UNAUDITED)
<S>                      <C>         <C>       <C>         <C>      <C>         
Revenues:
  Interest income....... $13,009,977 $ 85,660  $2,851,216  $292,665 $  766,875
  Equity in net income
   of ICI Funding
   Corporation..........     542,149  403,747   1,489,276   531,688  4,191,701
  Fee income............     172,096   30,766     243,155    82,742    320,173
                         ----------- --------  ----------  -------- ----------
                          13,724,222  520,173   4,583,647   907,095  5,278,749
                         ----------- --------  ----------  -------- ----------
Expenses:
  Interest on borrowings
   from reverse
   repurchase
   agreements...........   9,009,167      --   1,116,287       --         --
  Interest on borrowings
   from SPTL............         --    47,698    598,421   126,524    334,220
  Provision for loan
   losses...............   2,415,000  104,152    487,505    95,374        --
  Advisory fee..........     426,222      --      37,888       --         --
  General and adminis-
   trative expense......      88,469    5,019     40,113    32,517     32,700
  Professional services.      44,493    4,305     54,336    14,460     17,590
  Personnel expense.....      43,792   18,455     90,737   143,308    110,269
  Telephone and other
   communications.......       2,122    3,023     11,112    11,039      8,876
  Occupancy expense.....       1,095    1,026      9,405    19,611     24,504
  Data processing ex-
   pense................         223      810      3,619     4,229      3,173
                         ----------- -------- ----------  -------- ----------
                          12,030,583  184,488  2,449,423   447,062    531,332
                         ----------- -------- ----------  -------- ----------
Income before income
 taxes..................   1,693,639  335,685  2,134,224   460,033  4,747,417
Income (taxes) benefit..         --    28,586    (75,849)   30,095   (233,401)
                         ----------- -------- ----------  -------- ----------
  Net income............ $ 1,693,639 $364,271 $2,058,375  $490,128 $4,514,016
                         =========== ======== ==========  ======== ==========
  Net income per share.. $       .39      --  $      .07       --         --
                         =========== ======== ==========  ======== ==========
</TABLE>

          See accompanying notes to consolidated financial statements.
 
                                      F-4
<PAGE>

             IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARY
 
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
 
<TABLE>
<CAPTION>
                           NUMBER OF          ADDITIONAL              SECURITIES                  TOTAL
                            SHARES    COMMON    PAID-IN   CONTRIBUTED VALUATION   RETAINED    STOCKHOLDERS'
                          OUTSTANDING  STOCK    CAPITAL     CAPITAL   ALLOWANCE   EARNINGS       EQUITY
                          ----------- ------- ----------- ----------- ---------- -----------  -------------
<S>                       <C>         <C>     <C>         <C>         <C>        <C>          <C>
Balance, December 31,
 1992...................         --   $   --  $       --   $    --     $    --   $ 1,491,553   $ 1,491,553
Net income, 1993........         --       --          --        --          --     4,514,016     4,514,016
                           ---------  ------- -----------  --------    --------  -----------   -----------
Balance, December 31,
 1993...................         --       --          --        --          --     6,005,569     6,005,569
Capital contribution....         --       --          --    357,558         --           --        357,558
Net income, 1994........         --       --          --        --          --       490,128       490,128
                           ---------  ------- -----------  --------    --------  -----------   -----------
Balance, December 31,
 1994...................         --       --          --    357,558         --     6,495,697     6,853,255
Contribution Transac-
 tion...................     500,000    5,000     514,750  (357,558)        --    (8,238,629)   (8,076,437)
Net proceeds, from ini-
 tial public offering...   3,750,000   37,500  44,455,794       --          --
Net income, 1995........         --       --          --        --          --     2,058,375     2,058,375
Securities valuation al-
 lowance, net...........         --       --          --        --      (92,663)         --        (92,663)
                           ---------  ------- -----------  --------    --------  -----------   -----------
Balance, December 31,
 1995...................   4,250,000   42,500  44,970,544       --      (92,663)     315,443    45,235,824
Dividends paid ($.08 per
 share) (unaudited).....         --       --          --        --          --      (340,000)     (340,000)
Net income, three months
 ended March 31, 1996
 (unaudited)............         --       --          --        --          --     1,693,639     1,693,639
Change in securities
 valuation allowance
 (unaudited)............         --       --          --        --       26,113          --         26,113
                           ---------  ------- -----------  --------    --------  -----------   -----------
Balance, March 31, 1996
 (unaudited)............   4,250,000  $42,500 $44,970,544  $    --     $(66,550) $ 1,669,082   $46,615,576
                           =========  ======= ===========  ========    ========  ===========   ===========
</TABLE>

          See accompanying notes to consolidated financial statements.
 
                                      F-5
<PAGE>

             IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARY
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                              FOR THE THREE MONTHS
                                 ENDED MARCH 31,           FOR THE YEAR ENDED DECEMBER 31,
                            --------------------------  ---------------------------------------
                                1996          1995          1995          1994         1993
                            -------------  -----------  -------------  -----------  -----------
                                   (UNAUDITED)
 <S>                        <C>            <C>          <C>            <C>          <C>
 Cash flows from operat-
  ing activities:
  Net income.............   $   1,693,639  $   364,271  $   2,058,375  $   490,128  $ 4,514,016
  Adjustments to
   reconcile net income
   to net cash provided
   by (used in) operating
   activities:
  Equity in net income of
   ICI Funding
   Corporation...........        (542,149)    (403,747)    (1,489,276)    (531,688)  (4,191,701)
  Provision for loan
   losses................       2,415,000      104,152        487,505       95,374          --
  Net change in accrued
   interest on loans.....      (3,965,354)      (3,008)    (1,701,133)       4,565       (9,701)
  Net change in other
   assets and
   liabilities...........       4,855,906          --         572,545          --           --
                            -------------  -----------  -------------  -----------  -----------
   Net cash provided by
    (used in) operating
    activities...........       4,457,042       61,668        (71,984)      58,379      312,614
                            -------------  -----------  -------------  -----------  -----------
 Cash flows from invest-
  ing activities:
  Change in mortgage
   loans held for
   investment, net.......    (313,750,948)         --             --           --           --
  Change in finance
   receivables...........     386,730,553   (3,179,559)  (602,737,414)   5,015,658      886,512
  Purchases of investment
   securities available-
   for-sale..............     (15,838,531)         --     (17,470,901)         --           --
  Net decrease (increase)
   in lease payment
   receivables...........         634,953          --      (8,440,644)         --           --
  Contributions to ICIFC.      (8,127,900)         --        (495,000)         --           --
                            -------------  -----------  -------------  -----------  -----------
   Net cash provided by
    (used in) investing
    activities...........      49,648,127   (3,179,559)  (629,143,959)   5,015,658      886,512
                            -------------  -----------  -------------  -----------  -----------
 Cash flows from financ-
  ing activities:
  Proeeds from initial
   public offering, net..             --           --      44,493,294          --           --
  Net change in
   borrowings from SPTL..             --     3,117,891     19,279,770   (5,074,037)  (1,199,126)
  Net change in reverse-
   repurchase agreements.     (38,981,793)         --     567,727,361          --           --
  Dividends paid.........        (340,000)         --             --           --           --
                            -------------  -----------  -------------  -----------  -----------
   Net cash provided by
    (used in) financing
    activities...........     (39,321,793)   3,117,891    631,500,425   (5,074,037)  (1,199,126)
                            -------------  -----------  -------------  -----------  -----------
 Net change in cash and
  cash equivalents.......      14,783,376          --       2,284,482          --           --
 Cash and cash
  equivalents at
  beginning of period....       2,284,482          --             --           --           --
                            -------------  -----------  -------------  -----------  -----------
 Cash and cash
  equivalents at end of
  period.................   $  17,067,858  $       --   $   2,284,482  $       --   $       --
                            =============  ===========  =============  ===========  ===========
 Supplementary informa-
  tion:
  Interest paid..........   $   8,998,886  $    47,698  $   1,714,708  $   126,524  $   334,220
  Income taxes paid
   (refunded)............             --       (32,941)           --       (30,095)     233,401
                            =============  ===========  =============  ===========  ===========
 Non-cash transactions:
 Contribution Transaction
 on November 20, 1995:
 Net assets reverted to
 ICII and SPTL:
  Finance receivables....   $         --   $       --   $  22,353,236  $       --   $       --
  Investment in ICIFC....             --           --       7,973,245          --           --
  Accrued interest
   receivable............             --           --          60,855          --           --
  Borrowings from SPTL...             --           --      21,791,149          --           --
  Contributed capital....             --           --         357,558          --           --
  Retained earnings......             --           --       8,238,629          --           --
 Contribution by ICII of
 100% of the preferred
 stock of ICI Funding
 Corporation (represent-
 ing a 99% economic
 interest)...............             --           --         519,750          --           --
 Unrealized losses on
  investment securities
  available-for-sale.....          26,113          --         (92,663)         --           --
</TABLE>

          See accompanying notes to consolidated financial statements.
 
                                      F-6
<PAGE>
 
            IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARY
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
        FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (UNAUDITED)
               AND THE THREE-YEAR PERIOD ENDED DECEMBER 31, 1995
 
1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
 
 BUSINESS
 
  Imperial Credit Mortgage Holdings, Inc. and subsidiary (IMH or the Company)
is a Maryland corporation formed on August 28, 1995 that operates three
businesses, two of which were formerly owned and operated by Imperial Credit
Industries, Inc. (ICII), a leading diversified financial services company and
mortgage bank. IMH intends to operate so as to qualify as a real estate
investment trust (REIT) under the requirements of the Internal Revenue Code.
The business objectives are discussed in the succeeding three paragraphs.
 
  The Long-Term Investment Operations, a newly created business, invests
primarily in non-conforming residential mortgage loans and mortgage-backed
securities secured by or representing interests in such loans. The Long-Term
Investment Operations also invest, to a lesser extent, in second mortgages.
 
  The Conduit Operations, conducted in ICI Funding Corporation (ICIFC),
primarily purchases non-conforming mortgage loans and, to a lesser extent,
second mortgage loans from its network of third party correspondents and
subsequently securitizes or sells such loans to permanent investors. ICIFC, in
addition to its ongoing securitizations and sales to third party investors,
supports the Long-Term Investment Operations of the Company by supplying IMH
with non-conforming mortgage loans and securities backed by non-conforming
mortgage loans at costs which the Company believes are lower than would be
available through third parties.
 
  The Warehouse Lending Operations provides short-term lines of credit to
ICIFC and other approved mortgage banks, most of which are correspondents of
ICIFC, to finance mortgage loans during the time from the closing of the loans
to their sale or other settlement with pre-approved investors.
 
 CONTRIBUTION TRANSACTION
 
  On November 20, 1995, the effective date of IMH's initial public offering
(Initial Public Offering), ICII contributed to ICIFC certain operating assets
and certain customer lists of ICII's mortgage conduit operations, including
all of ICII's mortgage conduit operations' commitments to purchase mortgage
loans, subject to rate locks from correspondents, in exchange for shares
representing 100% of the common stock and 100% of the non-voting preferred
stock of ICIFC. Simultaneously, on the effective date of the Initial Public
Offering, in exchange for 500,000 shares of IMH Common Stock, ICII (1)
contributed to IMH all of the outstanding non-voting preferred stock of ICIFC,
which represents 99% of the economic interest in ICIFC, (2) caused Southern
Pacific Thrift and Loan Association (SPTL), a wholly owned subsidiary of ICII,
to contribute to IMH certain operating assets and certain customer lists of
SPTL's warehouse lending division, and (3) executed an agreement not to
compete and a right of first refusal agreement, each having a term of two
years from the effective date of the Initial Public Offering. This
contribution is known as the "Contribution Transaction." All of the
outstanding shares of common stock of ICIFC were retained by ICII. Lastly, IMH
contributed all of the aforementioned operating assets of SPTL's warehouse
lending operations contributed to it by SPTL to Imperial Warehouse Lending
Group (IWLG) in exchange for shares representing 100% of the common stock of
IWLG thereby forming it as a wholly owned subsidiary. On the effective date of
the Initial Public Offering, the net tangible book value of the assets
contributed pursuant to the Contribution Transaction was $525,000. The assets
contributed were recorded by IMH at the net book value of SPTL and ICII. ICII
and SPTL retained all other assets and liabilities related to the contributed
operations which consist of mortgage servicing rights (MSRs), finance
receivables and advances made by ICII and SPTL to fund mortgage conduit loan
acquisitions and to fund finance receivables.
 
                                      F-7
<PAGE>
 
            IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
 BASIS OF FINANCIAL STATEMENT PRESENTATION
 
  Prior to the Contribution Transaction, the operations of IWLG are combined
with the Company in a manner similar to a "pooling-of-interests" and the
Company's investment in ICIFC is recorded using the equity method of
accounting, with the accompanying consolidated financial statements and notes
reflecting the historical operations of IWLG for those periods presented.
 
  The historical operations of IWLG, formerly a division of SPTL, have been
presented in the consolidated financial statements for the period January 1,
1995 to November 19, 1995 and for the years ended December 31, 1994 and 1993
as a stand-alone company. Certain adjustments, as described below, were made
to historical operations in order to provide fair presentation of the
financial operations of IWLG.
 
  The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles and prevailing practices within the
financial services industry. In preparing the consolidated financial
statements, management is required to make estimates and assumptions that
affect the reported amounts of assets and liabilities as of the date of the
balance sheet and revenues and expenses for the period. Actual results could
differ significantly from those estimates.
 
  All material intercompany balances and transactions with IMH's consolidated
subsidiary (IWLG) have been eliminated in consolidation.
 
 CASH AND CASH EQUIVALENTS
 
  For purposes of the consolidated statements of cash flows, cash and cash
equivalents consists of cash and money market mutual funds. The Company
considers investments with maturities of three months or less at date of
acquisition to be cash equivalents.
 
 BORROWINGS FROM SPTL
 
  Historical operations of IWLG have been adjusted to reflect the funding of
net assets by SPTL. The adjustments are disclosed in the accompanying
consolidated balance sheets as "Borrowings from SPTL." These borrowings were
recorded at no more than 98% of total finance receivables which is the maximum
advance rate allowed under current ICII warehouse lines of credit.
Additionally, the historical operations of IWLG have been adjusted to reflect
the estimated interest charges on these borrowings. In order to reflect all
costs of doing business in the financial statements, interest charges have
been allocated to IWLG in the accompanying consolidated statements of
operations.
 
                                      F-8
<PAGE>
 
            IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The interest charges allocated are based upon estimated average borrowings
balances of IWLG and SPTL's average cost of funds, which were computed based
on a weighted average of SPTL borrowings. The average borrowings and interest
rates used to determine the interest on IWLG borrowings are as follows:
 
<TABLE>
<CAPTION>
                                                         FOR THE YEAR ENDED
                                                            DECEMBER 31,
                                                        ----------------------
                           JANUARY 1,
                              1995          FOR THE
                             THROUGH     THREE MONTHS
                            NOVEMBER    ENDED MARCH 31,
                            19, 1995         1995          1994        1993
                           -----------  --------------- ----------  ----------
                                          (UNAUDITED)
<S>                        <C>          <C>             <C>         <C>
Estimated average
 borrowings............... $11,258,467    $3,343,987    $3,045,442  $9,821,232
Interest rate.............        5.80%         5.71%         4.15%       3.40%
Interest allocation....... $   598,421    $   47,698    $  126,524  $  334,220
</TABLE>
 
 EQUITY
 
  Prior to the effective date of the offering, IWLG had no capital or retained
earnings recorded in its accounts. To properly reflect the historical
financial operations of IWLG, retained earnings were recorded as a result of
net income or loss from operations on an adjusted historical basis.
 
 INVESTMENT IN ICI FUNDING CORPORATION
 
  The Company records its investment in ICIFC on the equity method. ICII owns
all of the common stock of ICIFC and is entitled to 1% of the earnings or loss
of ICIFC. The Company is entitled to 99% of the earnings or losses of ICIFC
through its ownership of all of the non-voting preferred stock in ICIFC. ICIFC
is a mortgage loan conduit organization, which purchases mortgage loans and
subsequently securitizes or sells such loans to permanent investors, including
IMH (see note 14).
 
 INVESTMENT SECURITIES AVAILABLE FOR SALE
 
  The Company accounts for investment securities in accordance with Statement
of Financial Accounting Standard No. 115 "Accounting for Certain Investments
in Debt and Equity Securities." This statement requires the Company to
classify investment and mortgage-backed securities as held-to-maturity,
available-for-sale, and/or trading securities. Held-to-maturity investment and
mortgage-backed securities are reported at amortized cost, available-for-sale
securities are reported at fair value with unrealized gains and losses, net of
related income taxes, as a separate component of stockholders' equity, and
trading securities are reported at fair value with unrealized gains and losses
reported in income. Discounts obtained on investment securities are amortized
to interest income over the estimated life of the investment securities using
the interest method.
 
  The Company's investment securities are held as available-for-sale, reported
at fair value with unrealized gains and losses reported as a separate
component of stockholders' equity. As the Company qualifies as a REIT and no
income taxes are paid, the unrealized gains and losses are reported gross in
stockholders' equity.
 
 MORTGAGE LOANS HELD FOR INVESTMENT
 
  The Company purchases certain non conforming mortgage loans to be held as
long-term investments. Mortgage loans held for investment are recorded at cost
at the date of purchase. Mortgage loans held for investment include various
types of adjustable-rate loans secured by mortgages on single-family
residential real estate properties and fixed-rate loans secured by second
trust deeds on single-family residential real estate properties, accounting
for 89% (unaudited) and 11% (unaudited), respectively, of the long-term
investment portfolio at March 31, 1996. At December 31, 1995 the Company had
no mortgage loans held for investment.
 
                                      F-9
<PAGE>
 
            IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
Approximately 76.5% (unaudited) of the mortgage loans held for investment at
March 31, 1996 were collateralized by properties located in California.
Premiums and discounts and the market valuation related to these loans are
amortized over their estimated lives using the interest method. Loans are
continually evaluated for collectibility and, if appropriate, the loan may be
placed on nonaccrual status, generally 90 days past due, and previously
accrued interest reversed from income. As of March 31, 1996, there were no
loans on nonaccrual status and the Company had an allowance for loan losses of
$2.2 million (unaudited).
 
  The Company maintains an allowance for losses on mortgage loans held for
investment at an amount which it believes is sufficient to provide adequate
protection against future losses in the mortgage loans portfolio. The
allowance for losses is determined primarily on the basis of management's
judgment of net loss potential, including specific allowances for known
impaired loans and other factors such as changes in the nature and volume of
the portfolio, value of the collateral and current economic conditions that
may affect the borrowers' ability to pay. A provision is recorded for all
loans or portions thereof deemed to be uncollectible thereby increasing the
allowance for loan losses.
 
 FINANCE RECEIVABLES
 
  Finance receivables represent transactions with customers, including ICIFC,
involving predominantly residential real estate lending. As a warehouse
lender, the Company is a secured creditor of the mortgage bankers and brokers
to which it extends credit and is subject to the risks inherent in that
status, including the risk of borrower default and bankruptcy. Any claim of
the Company as a secured lender in a bankruptcy proceeding may be subject to
adjustment and delay.
 
  The Company maintains an allowance for losses on financing receivables at an
amount which it believes is sufficient to provide adequate protection against
future losses in the portfolio. The allowance for losses is determined
primarily on the basis of management's judgment of net loss potential,
including specific allowances for known impaired loans. A provision is
recorded for all accounts or portions thereof deemed to be uncollectible.
 
  Finance receivables are stated at the principal balance outstanding.
Interest income is recorded on the accrual basis in accordance with the terms
of the loans. Finance receivables are continually evaluated for collectibility
and, if appropriate, the receivable is placed on non accrual status, generally
90 days past due. Future collections of interest income are included in
interest income or applied to the loan balance based on an assessment of the
likelihood that the loans will be repaid.
 
 LEASE PAYMENT RECEIVABLES HELD FOR SALE
 
  The Company's subordinated interest in lease receivables is collateralized
by liens on equipment. Revenue on the lease receivables is accrued as earned,
except where a reasonable doubt exists as to the collectibility of the related
principal, in which case the accrual of income is discontinued.
 
 INCOME TAXES
 
  IWLG did not record income taxes in its historical operations. The
accompanying consolidated financial statements reflect income taxes (benefit)
for IWLG as if it had been a separate subsidiary of SPTL for the period
January 1, 1995 through November 19, 1995 and the years ended December 31,
1994 and 1993. As a separate subsidiary of SPTL, IWLG would file a
consolidated Federal income tax return and a combined California franchise tax
return with ICII. ICII's income tax allocation policy for financial statement
purposes is to allocate income tax provision or benefit based on income (loss)
before income taxes (benefit) of each entity within its consolidated group,
adjusted for nontaxable or nondeductible items of income and expense. ICIFC's
taxable income is included in ICII's Federal and State income tax returns.
Post-Contribution, ICIFC will file its own tax return.
 
                                     F-10
<PAGE>
 
            IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  Effective January 1, 1993, IWLG adopted SFAS 109, resulting in no material
adjustment to income. Prior to the Contribution Transaction, deferred tax
assets and liabilities were recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
 
  IMH intends to operate so as to qualify as a real estate investment trust
(REIT) under the requirements of the Internal Revenue Code (the Code).
Requirements for qualification as a REIT include various restrictions on
ownership of IMH's stock, requirements concerning distribution of taxable
income and certain restrictions on the nature of assets and sources of income.
A REIT must distribute at least 95% of its taxable income to its stockholders,
the distribution of which 85% must be within the taxable year and the
remaining balance may extend until timely filing of its tax return in its
subsequent taxable year. Qualifying distributions of its taxable income are
deductible by a REIT in computing its taxable income. Although IMH did not
make any distributions during the calendar year of 1995, it can nevertheless
retain its qualified REIT status and eliminate its 1995 taxable income by
making a qualified distribution after the close of the 1995 taxable year in
accordance with the provisions of section 858 of the Code. IMH intends to and
has taken steps to satisfy the requirements of section 858 of the Code and to
elect to apply amounts out of its first distributions in calendar year 1995 to
effectively distribute 100% of its 1995 taxable income. The 1995 provision for
income taxes for IMH in the consolidated financial statements pertains to the
period prior to the Contribution Transaction. If in any tax year IMH should
not qualify as a REIT, it would be taxed as a corporation and distributions to
the stockholders would not be deductible in computing taxable income. If IMH
were to fail to qualify as a REIT in any tax year, it would not be permitted
to qualify for that year and the succeeding four years.
 
 ADVERTISING
 
  The Company accounts for its advertising costs as non-direct response
advertising. Accordingly, advertising costs are expensed as incurred.
 
 NET INCOME PER SHARE
 
  Net income per share is computed on the basis of the weighted average number
of shares outstanding for the year. The effect on the net income per share
resulting from dilution is not material during any period.
 
  Pro forma net income per share as if all stock options and ICII ownership
interest in IMH were outstanding since January 1, 1993 and actual net income
per share for the three months ended March 31, 1996 and after the Offering for
the period from November 20, 1995 through December 31, 1995 is:
 
<TABLE>
<CAPTION>
                                         ACTUAL        ACTUAL
                                      FOR THE THREE NOVEMBER 20, PRO FORMA FOR
                                      MONTHS ENDED  1995 THROUGH THE YEAR ENDED
                                        MARCH 31,   DECEMBER 31,  DECEMBER 31,
                                          1996          1995          1995
                                      ------------- ------------ --------------
                                       (UNAUDITED)
   <S>                                <C>           <C>          <C>
   Weighted average shares outstand-
    ing.............................    4,307,158    4,284,015        955,248
   Net income.......................   $1,693,639    $ 315,443     $2,058,375
   Net income per share.............   $      .39    $     .07     $     2.16
                                       ==========    =========     ==========
</TABLE>
 
  The 1994 and 1993 pro forma net income per share is not presented as the
information is not meaningful.
 
                                     F-11
<PAGE>
 
            IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  There were no dividends paid in 1995. An $0.08 cash dividend was paid on
January 30, 1996 (unaudited). A $0.39 cash dividend was paid on April 30, 1996
(unaudited).
 
 RECLASSIFICATIONS
 
  Certain items in prior periods have been reclassified to conform to the
current presentation.
 
 MORTGAGE SERVICING RIGHTS
 
  On May 12, 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing
Rights" ("SFAS 122"), as an amendment to SFAS 65. The Company elected to adopt
this standard for the year ended December 31, 1995. The impact on the Company
from adoption of SFAS 122 is only to the extent mortgage servicing rights are
recognized by ICIFC.
 
 RECENT ACCOUNTING PRONOUNCEMENTS
 
  In November 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). This
statement establishes financial accounting standards for stock-based employee
compensation plans. SFAS 123 permits the Company to choose either the fair
value based method from SFAS 123 or intrinsic value based method of accounting
for its stock-based compensation arrangements under APB Opinion 25. SFAS 123
requires pro forma disclosures of net income and income per share computed as
if the fair value based method had been applied in financial statements of
companies that continue to follow current practice in accounting for such
arrangements under Opinion 25. SFAS 123 applies to all stock-based employee
compensation plans in which an employer grants shares of its stock or other
equity instruments to employees except for employee stock ownership plans.
SFAS 123 also applies to plans in which the employer incurs liabilities to
employees in amounts based on the price of the employer's stock, i.e., stock
option plans, stock purchase plans, restricted stock plans, and stock
appreciation rights. The statement also specifies the accounting for
transactions in which a company issues stock options or other equity
instruments for services provided by nonemployees or to acquire goods or
services from outside suppliers or vendors. The recognition provision of SFAS
123 for companies choosing to adopt the new fair value based method of
accounting for stock-based compensation arrangements may be adopted
immediately and will apply to all transactions entered into in fiscal years
that begin after December 15, 1995. The disclosure provisions of SFAS 123 are
effective for fiscal years beginning after December 15, 1995; however,
disclosure of the pro forma net income and income per share, as if the fair
value method of accounting for stock-based compensation had been elected, is
required for all awards granted in fiscal years beginning after December 31,
1994. The Company will continue to account for stock-based compensation under
APB Opinion 25 and, as a result, SFAS 123 will not have a material impact on
the Company's operations.
 
2. INVESTMENT SECURITIES AVAILABLE FOR SALE
 
 
  The Company's mortgage-backed securities are secured by conventional, one-
to-four family mortgage loans. The yield to maturity on each security depends
on, among other things, the rate and timing of principal payments (including
prepayments, repurchases, defaults and liquidations), the pass-through rate
and interest rate fluctuations. The Company's interest in these securities is
subordinated so that, in the event of a loss, payments to senior certificate
holders will be made before the Company receives its payments.
 
                                     F-12
<PAGE>
 
             IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The amortized cost and estimated fair value of mortgage-backed securities
available-for-sale are summarized as follows:
 
<TABLE>
<CAPTION>
                                                MARCH 31, 1996
                                                  (UNAUDITED)
                                 ----------------------------------------------
                                               GROSS      GROSS
                                  AMORTIZED  UNREALIZED UNREALIZED   ESTIMATED
                                    COST        GAIN       LOSS     FAIR VALUE
                                 ----------- ---------- ----------  -----------
<S>                              <C>         <C>        <C>         <C>
Donaldson, Lufkin and Jenrette
 Series:
  1995-Q6, Class B-1............ $ 6,584,972       --   $ (147,645) $ 6,437,327
  1995-4, Class B-1.............   3,828,628       --     (150,567)   3,678,061
  1995-4, Class B-2.............   1,661,480       --      (65,894)   1,595,586
Salomon Brothers
 Series VII 95-A, Class B-2.....   5,409,551   114,326         --     5,523,877
Bear Stearns Mortgage Securi-
 ties, Inc. 1996-1 XI...........   8,512,711    58,230         --     8,570,941
                                 -----------  --------  ----------  -----------
                                 $25,997,342  $172,556  $ (364,106) $25,805,792
                                 ===========  ========  ==========  ===========
</TABLE>
 
<TABLE>
<CAPTION>
                                                 DECEMBER 31, 1995
                                   ---------------------------------------------
                                                 GROSS      GROSS
                                    AMORTIZED  UNREALIZED UNREALIZED  ESTIMATED
                                      COST        GAIN       LOSS    FAIR VALUE
                                   ----------- ---------- ---------- -----------
<S>                                <C>         <C>        <C>        <C>
Donaldson, Lufkin and Jenrette
 Series:
  1995-Q6, Class B-1.............  $ 6,585,440       --    $(36,496) $ 6,548,944
  1995-4, Class B-1..............    3,793,799       --      (7,962)   3,785,837
  1995-4, Class B-2..............    1,641,124       --      (4,321)   1,636,803
Salomon Brothers Series VII 95-A,
 Class B-2.......................    5,450,538       --     (43,884)   5,406,654
                                   -----------  --------   --------  -----------
                                   $17,470,901       --    $(92,663) $17,378,238
                                   ===========  ========   ========  ===========
 
  The Company purchased two of its mortgage-backed securities from SPTL in
December 1995 (see note 9).
 
  The Company holds other securities available-for-sale with estimated fair
values as follows:
 
<CAPTION>
                                                  MARCH 31, 1996
                                                    (UNAUDITED)
                                   ---------------------------------------------
                                                 GROSS      GROSS
                                    AMORTIZED  UNREALIZED UNREALIZED  ESTIMATED
                                      COST        GAIN       LOSS    FAIR VALUE
                                   ----------- ---------- ---------- -----------
<S>                                <C>         <C>        <C>        <C>
Imperial Credit Industries, Inc.
 9 3/4% Senior Notes.............  $ 4,500,000  $125,000   $    --   $ 4,625,000
Franchise Loan Receivables Trust
 1995-B..........................    2,812,091        --        --     2,812,091
                                   -----------  --------   --------  -----------
                                   $ 7,312,091  $125,000   $    --   $ 7,437,091
                                   ===========  ========   ========  ===========
</TABLE>
 
  The equity in the Franchise Loans Receivables Trust 1995-B was purchased from
ICII in the first quarter of 1996 (unaudited).
 
3. MORTGAGE LOANS HELD FOR INVESTMENT
 
  Mortgage loans held for investment consist of the following:
 
<TABLE>
<CAPTION>
                                                                 AT MARCH 31,
                                                                     1996
                                                                 ------------
                                                                 (UNAUDITED)
      <S>                                                        <C>
      Loans secured by single-family residential real estate
       properties............................................... $309,816,250
       Premiums on loans........................................    3,934,698
       Allowance for loan losses................................   (2,290,000)
                                                                 ------------
                                                                 $311,460,948
                                                                 ============
</TABLE>
 
                                      F-13
<PAGE>
 
            IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  There were no mortgage loans held for investment at December 31, 1995.
 
  The allowance for loan loss activity for the three months ended March 31,
1996 consisted only of a provision. There were no charge-offs or recoveries
during that period (unaudited).
 
4. FINANCE RECEIVABLES
 
  The Company's finance receivables represent warehouse lines of credit with
mortgage banking companies collateralized by mortgage loans on single family
residences. Because of the concentration of mortgage loans underlying the
Company's finance receivables located in California, which was 63% at December
31, 1995, a significant decline in regional economic conditions, or some other
regional catastrophe, could result in mortgage banking companies being unable
to sell mortgage loans and the Company suffering losses on their warehouse
lines or in fewer mortgage loans available for warehouse lending by the
Company and ultimately a decline in interest income and fee income. No other
significant concentrations existed at December 31, 1995.
 
  Finance receivables consist of the following:
 
<TABLE>
<CAPTION>
                                                           AT DECEMBER 31,
                                         AT MARCH 31,  ------------------------
                                             1996          1995         1994
                                         ------------  ------------  ----------
                                         (UNAUDITED)
   <S>                                   <C>           <C>           <C>
   Due from ICIFC......................  $173,407,629  $550,290,862  $      --
   Due from other mortgage banking com-
    panies.............................    22,882,931    32,730,251   3,119,814
                                         ------------  ------------  ----------
                                          196,290,560   583,021,113   3,119,814
   Allowance for finance receivable
    losses.............................      (225,000)     (100,000)    (95,374)
                                         ------------  ------------  ----------
                                         $196,065,560  $582,921,113  $3,024,440
                                         ============  ============  ==========
</TABLE>
 
  The Company earns interest rates at prime (8.5% at December 31, 1995) on
warehouse lines to ICIFC and prime plus one-half to two percent on its
warehouse lines to other mortgage banking companies. These lines have
maturities which range from on demand to one year and are generally
collateralized by mortgages on single family residences.
 
  Activity in the allowance for finance receivable losses for the year ended
December 31 was as follows:
 
<TABLE>
<CAPTION>
                                             FOR THE THREE     FOR THE YEAR
                                             MONTHS ENDED     ENDED DECEMBER
                                               MARCH 31,            31,
                                           ----------------- ------------------
                                             1996     1995     1995      1994
                                           -------- -------- ---------  -------
                                                       (UNAUDITED)
   <S>                                     <C>      <C>      <C>        <C>
   Balance, beginning of period........... $100,000 $ 95,374 $  95,374  $   --
   Provision for finance receivable 
    losses................................  125,000  104,152   487,505   95,374
   Charge-offs............................      --       --   (482,879)     --
                                           -------- -------- ---------  -------
   Balance, end of period................. $225,000 $199,526 $ 100,000  $95,374
                                           ======== ======== =========  =======
</TABLE>
 
  The charge-offs reflected in the above table were recorded prior to the
effective date of the Initial Public Offering and are related to one borrower.
 
  There was no allowance for finance receivable losses in 1993.
 
                                     F-14
<PAGE>
 
            IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
5. REVERSE-REPURCHASE AGREEMENTS
 
  IMH enters into reverse-repurchase agreements with major brokerage firms for
its mortgage warehouse lending operations and to fund the purchase of mortgage
loans and mortgage-backed securities. Mortgage loans underlying certain of the
agreements are delivered to the dealers that arrange the transactions. The
following tables present information regarding reverse-repurchase agreements:
 
<TABLE>
<CAPTION>
                                             MARCH 31, 1996 (UNAUDITED)
                                      ----------------------------------------
                                        REVERSE
                                       REPURCHASE   UNDERLYING
   UNDERLYING COLLATERAL               LIABILITY    COLLATERAL  MATURITY DATE
   ---------------------              ------------ ------------ --------------
   <S>                                <C>          <C>          <C>
   Paine Webber:
     Mortgage loans.................. $309,695,709 $310,019,647  July 30, 1996
   Merrill Lynch:
     Mortgage loans..................  199,812,859  200,021,861 April 30, 1996
   Salomon Brothers:
     MBS Salomon 1995-A..............    4,951,000    5,523,877 April 4, 1996
   Donaldson, Lufkin and Jenrette
    (DLJ):
     MBS DLJ:
       1995-4 B-1....................    1,839,000    3,678,061 April 29, 1996
       1995-4 B-2....................      798,000    1,595,586 April 29, 1996
       1995-Q6 B-1...................    5,149,000    6,437,327 April 15, 1996
                                      ------------ ------------
                                         7,786,000   11,710,974
   Bear Stearns:
     MBS Bear Stearns 1996-1 X1......    6,500,000    8,570,941  April 1, 1996
                                      ------------ ------------
         Total....................... $528,745,568 $535,847,300
                                      ============ ============
</TABLE>
 
<TABLE>
<CAPTION>
                                                  DECEMBER 31, 1995
                                      ------------------------------------------
                                        REVERSE
                                       REPURCHASE   UNDERLYING
   UNDERLYING COLLATERAL               LIABILITY    COLLATERAL   MATURITY DATE
   ---------------------              ------------ ------------ ----------------
   <S>                                <C>          <C>          <C>
   Paine Webber:
     Mortgage loans.................. $239,628,464 $251,423,244  January 8, 1996
   Merrill Lynch:
     Mortgage loans..................  323,180,005  332,660,022 January 25, 1996
   Salomon Brothers:
     MBS Salomon 1995-A..............    4,918,892    5,406,654  January 5, 1996
                                      ------------ ------------
         Total....................... $567,727,361 $589,489,920
                                      ============ ============
</TABLE>
 
  There were no reverse-repurchase agreements at December 31, 1994.
 
  At March 31, 1996 (unaudited) and December 31, 1995, reverse-repurchase
liability includes accrued interest payable of $1,085,792 and $1,075,511,
respectively.
 
 
  The following table presents certain information on reverse-repurchase
agreements, excluding accrued interest payable:
 
<TABLE>
<CAPTION>
                                                      MARCH 31,    DECEMBER 31,
                                                         1996          1995
                                                     ------------  ------------
                                                     (UNAUDITED)
   <S>                                               <C>           <C>
   Maximum Month-End Outstanding Balance............ $634,209,986  $566,651,850
   Average Balance Outstanding......................  571,018,235    16,343,476
   Weighted Average Rate............................         6.31%         6.83%
</TABLE>
 
                                     F-15
<PAGE>
 
            IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
   
  The maximum amount available under the reverse-repurchase agreement at March
31, 1996 (unaudited) and December 31, 1995 is $632 million and $623 million,
respectively.     
 
6. INCOME TAXES
 
  The Company, as a qualified REIT for the period from November 20, 1995 to
December 31, 1995 is not subject to income taxes. The Company's income taxes
(benefit) for the periods it was not a REIT follow:
 
<TABLE>
<CAPTION>
                                                      1995     1994      1993
                                                     ------- --------  --------
   <S>                                               <C>     <C>       <C>
   Current:
     Federal........................................ $36,951 $(10,775) $177,135
     State..........................................   2,054    2,555    57,978
                                                     ------- --------  --------
       Total current................................  39,005   (8,220)  235,113
                                                     ------- --------  --------
   Deferred:
     Federal........................................  26,257  (11,602)   (1,712)
     State..........................................  10,587  (10,273)        0
                                                     ------- --------  --------
       Total deferred...............................  36,844  (21,875)   (1,712)
                                                     ------- --------  --------
   Total income taxes (benefit)..................... $75,849 $(30,095) $233,401
                                                     ======= ========  ========
</TABLE>
 
  The income tax provision prior to the formation of IMH as a REIT differs
from statutory Federal corporate income tax rate primarily due to state income
taxes and equity in earnings of ICIFC.
 
  Deferred income taxes arise from differences in the bases of assets and
liabilities for tax and financial reporting purposes. The following table
shows the primary components of the IWLG's net deferred taxes at December 31,
1994:
 
<TABLE>
      <S>                                                               <C>
      Deferred tax assets:
        Allowance for finance receivable losses........................ $40,057
        Other..........................................................   3,597
                                                                        -------
          Total........................................................  43,654
        Valuation allowance............................................     --
                                                                        -------
        Deferred tax assets, net of valuation allowance................  43,654
      Deferred tax liabilities:
        State taxes....................................................  (2,701)
                                                                        -------
          Total........................................................  (2,701)
                                                                        -------
      Net deferred tax assets (included in borrowings from SPTL)....... $40,953
                                                                        =======
</TABLE>
 
  The Company had no deferred taxes at December 31, 1995.
 
  In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Management considers the scheduled reversal
of deferred tax liabilities and available tax carrybacks in making this
assessment. Based upon the schedule of reversals and available tax carrybacks,
management believes it is more likely than not the Company will realize the
benefits of the deferred tax assets. All deferred tax balances were
transferred to ICII on November 20, 1995 as part of the Contribution
Transaction.
 
                                     F-16
<PAGE>
 
            IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
7. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
 
  The following disclosure of the estimated fair value of financial
instruments as of December 31, 1995 is made in accordance with the
requirements of Statement of Financial Accounting Standards (SFAS) No. 107,
Disclosures About Fair Value of Financial Instruments, and SFAS No. 119,
Disclosures About Derivative Financial Instruments and Fair Value of Financial
Instruments. The estimated fair value amounts have been determined by IMH
using available market information and appropriate valuation methodologies;
however, considerable judgment is necessarily required to interpret market
data to develop the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts IMH could
realize in a current market exchange. The use of different market assumptions
and/or estimation methodologies may have a material effect on the estimated
fair value amounts.
 
<TABLE>
<CAPTION>
                                                             DECEMBER 31, 1995
                                                            -------------------
                                                            CARRYING ESTIMATED
                                                             AMOUNT  FAIR VALUE
                                                            -------- ----------
                                                              (IN THOUSANDS)
   <S>                                                      <C>      <C>
   Assets:
     Cash and cash equivalents............................. $  2,284  $  2,284
     Investment securities available-for-sale..............   17,378    17,378
     Finance receivables...................................  582,921   582,921
     Lease payment receivables held for sale...............    8,441     8,441
   Liabilities:
     Reverse-repurchase agreements, net of accrued
      interest.............................................  566,652   566,652
     Off balance-sheet unrealized gains (losses):
       Short-term commitments
        to extend credit...................................      --        --
</TABLE>
 
  The fair value estimates as of December 31, 1995 are based on pertinent
information available to management as of that date. Although management is
not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued for
purposes of these financial statements since those dates and, therefore,
current estimates of fair value may differ significantly from the amounts
presented herein.
 
  The following describes the methods and assumptions used by IMH in
estimating fair values.
 
 CASH AND CASH EQUIVALENTS
 
  The carrying amount for cash and cash equivalents approximates fair value
because these instruments are demand deposits and money market mutual funds
and do not present unanticipated interest rate or credit concerns.
 
 INVESTMENT SECURITIES AVAILABLE FOR SALE
 
  The fair value of investment securities is estimated based on quoted market
prices from dealers and brokers for similar types of mortgage-backed
securities.
 
 FINANCE RECEIVABLES
 
  The fair value approximates the carrying amounts because of the short-term
nature of the assets and do not present unanticipated interest rate or credit
concerns.
 
                                     F-17
<PAGE>
 
            IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
 LEASE PAYMENT RECEIVABLES HELD FOR SALE
 
  The fair value is estimated by discounting future cash flows using credit
and discount rates the Company believes reflect the estimated credit, interest
rate and prepayment risks associated with similar types of instruments.
 
 REVERSE-REPURCHASE AGREEMENTS
 
  Fair values approximate the carrying amounts because of the short-term
maturity of the liabilities and do not present unanticipated interest rate or
credit concerns.
 
 SHORT-TERM COMMITMENTS TO EXTEND CREDIT
 
  There are no commitment fees associated with IMH's lines of credit extended
under the warehouse lending program. Accordingly, these commitments do not
have an estimated fair value.
 
8. EMPLOYEE BENEFIT PLANS
 
 PROFIT SHARING AND 401(K) PLAN
 
  Prior to July 1, 1993, Imperial Bancorp (the primary shareholder of ICII)
had a noncontributory profit sharing plan in which employees of the Company
were eligible to participate at year end if they had been employed for at
least 1,000 hours during the year. For 1993, there was no contribution charged
to operations.
 
  Imperial Bancorp also had a 401(k) plan in which all employees of the
Company had been eligible to participate. On July 1, 1993, ICII terminated its
participation in Imperial Bancorp's 401(k) and profit sharing plans,
establishing its own 401(k) plan (the Plan) in which employees of the Company
were eligible to participate. On September 30, 1993, Imperial Bancorp
transferred all plan assets to ICII.
 
  Under ICII's 401(k) plan, employees of the Company may contribute up to 14%
of their salaries. The Company will match 50% of the first 4% of employee
contributions. An additional Company contribution may be made at the
discretion of the Company.
 
  The Company does not have its own 401(K) or profit sharing plan. As such,
employees of the Company participate in ICII's 401(K) plan. The Company's
matching and discretionary contributions were not significant for any period
presented.
 
9. RELATED PARTY TRANSACTIONS
 
 RELATED PARTY COST ALLOCATIONS AND CHARGES
 
  Prior to the Contribution Transaction, IWLG was allocated various costs from
SPTL and charged for certain ICII services. The costs of these services were
not directly attributable to IWLG and primarily include general corporate
overhead such as human resources, data processing, professional services,
telephone and other communications, and general and administrative expense
including a fixed asset user charge. These expenses were allocated or charged
based typically on a per employee basis, which management believes is
reasonable. Total related party allocations and charges for the period January
1, 1995 through November 19, 1995, for the three months ended March 31, 1995
(unaudited) and for the years ended December 31, 1994, and 1993 were $46,865,
$9,465, $56,128 and $52,739, respectively.
 
                                     F-18
<PAGE>
 
            IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  Interest income recorded by the Company, related to finance receivables due
from ICIFC, was $11,219,048 and $1,348,424 for the three months ended March
31, 1996 (unaudited) and for the year ended December 31, 1995.
 
  On the effective date of the Initial Public Offering, IMH entered into a
services agreement with ICII under which ICII provides various services to the
Company, including data processing, human resource administration, general
ledger accounts, check processing, remittance processing and payment of
accounts payable. ICII charges fees for each of the services based upon usage.
As part of the services provided, ICII provides IWLG with insurance coverage
and self insurance programs, including health insurance. The charge to IWLG
for coverage is based upon a pro rata portion of the costs to ICII for its
various policies. Total charges for the three months ended March 31, 1996
(unaudited) and for the period November 20, 1995 through December 31, 1995
were $17,767 and $4,462, respectively.
 
 CASH
 
  Prior to the Contribution Transaction, IWLG had no cash accounts. All
operations were funded directly by SPTL. Adjustments were made to IWLG's
financial statements to reflect these fundings as borrowings from SPTL. IWLG
did not reflect any accounts receivable or payable on its balance sheet prior
to the Contribution Transaction because all transactions of IWLG either
increased or decreased its borrowings from SPTL.
 
 PURCHASE OF MORTGAGE-BACKED SECURITIES
 
  On December 29, 1995, the Company purchased, at market value, from SPTL, DLJ
Mortgage Acceptance Corp. Pass-Through Certificates Series 1995-4, Class B-1
and Class B-2 issued August 29, 1995. These certificates consist primarily of
a pool of certain conventional, 11th district cost of funds adjustable rate,
one-to-four family, first lien mortgage loans, with terms to maturity of not
more than 30 years. The mortgage loans underlying the certificates were
originated or acquired by ICII. All of the mortgage loans were serviced by
ICII in its capacity as master servicer at December 31, 1995. ICII sold the
servicing related to these mortgage loans to an unrelated third party during
the first quarter of 1996 (unaudited).
 
  The Company purchased the Class B-1 certificates having a current
certificate principal balance of $4,822,722 and the Class B-2 certificates
having a current certificate principal balance of $2,338,290 for a price of
78.54 and 70.01, respectively, equating to a discount of $1,028,923 and
$697,166, respectively.
 
 PURCHASE OF BULK MORTGAGE LOANS (UNAUDITED)
 
  On March 29, 1996, IMH purchased from ICIFC bulk mortgage loan packages of
30-year fully amortizing six-month adjustable LIBOR and 15-year fixed rate
second trust deed mortgages having a principal balance of $276,273,072 and
$34,725,305 with premiums paid of $2,762,731 and $1,171,979, respectively.
Servicing rights on all mortgage loans were retained by ICIFC.
 
 PURCHASE OF SUBORDINATED LEASE RECEIVABLES
 
  On December 29, 1995, IMH purchased a subordinated interest in a lease
receivable securitization from Imperial Business Credit, Inc. (IBC) a wholly-
owned subsidiary of ICII. The lease receivables underlying the security were
originated by IBC. IMH purchased the subordinated lease receivable at the
present value of estimated cash flows based on a discount rate of 12%
amounting to a purchase price of $8,440,644.
 
 NON-COMPETE AGREEMENT AND RIGHT OF FIRST REFUSAL AGREEMENT
 
  Pursuant to the Non-Compete Agreement, ICII and any entity of which ICII
owns more than 25% of the voting securities (a 25% entity) may not compete
with the Company's Warehouse Lending Operations and may not establish a
network of third party correspondent loan originators or another end-investor
in non-conforming mortgage loans. The agreement expires two years from the
effective date of the Initial Public Offering.
 
                                     F-19
<PAGE>
 
            IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  Pursuant to the Right of First Refusal Agreement, ICII granted ICIFC a right
of first refusal to purchase all non-conforming mortgage loans that ICII or
any 25% entity originates or acquires and subsequently offers for sale and
ICIFC granted ICII, or any 25% entity designated by ICII, a right of first
refusal to purchase all non-conforming mortgage loans that ICIFC acquires and
subsequently offers for sale. In addition, for a period of the earlier of nine
months from the effective date of the Initial Public Offering and that date
upon which IMH accumulates $300 million of mortgage loans and/or mortgage-
backed securities, neither ICII nor any 25% entity will be permitted to
purchase any non-conforming bulk loan package having a principal balance of
$50 million or more without first allowing ICIFC the opportunity to bid to
purchase said package. Additional related party transactions are described
elsewhere in the financial statement footnotes.
 
10. COMMITMENTS AND CONTINGENCIES
 
 FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
 
  IMH is a party to financial instruments with off-balance-sheet risk in the
normal course of business. Such instruments include short-term commitments to
extend credit to borrowers under warehouse lines of credit which involve
elements of credit risk. In addition, IMH is exposed to credit loss in the
event of nonperformance by the counterparties to the various agreements
associated with loan purchases. However, IMH does not anticipate
nonperformance by such borrowers or counterparties. Unless noted otherwise,
IMH does not require collateral or other security to support such commitments.
 
  The Company uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet instruments. The
contract or notional amounts of forward contracts do not represent exposure to
credit loss. The Company controls the credit risk of its forward contracts
through credit approvals, limits and monitoring procedures.
 
 LEASE COMMITMENTS
 
  Minimum rental commitments under a noncancelable premises operating sub-
lease with ICII at December 31, 1995 were as follows:
 
<TABLE>
      <S>                                                             <C>
      1996........................................................... $  163,200
      1997...........................................................    170,200
      1998...........................................................    171,600
      1999...........................................................    174,400
      2000...........................................................    180,000
      Thereafter.....................................................    180,000
                                                                      ----------
        Total........................................................ $1,039,400
                                                                      ==========
</TABLE>
 
  The sublease is for the period from December 1, 1995 through January 1, 2002
and calls for rent to be paid based on what ICII pays according to its master
lease agreement.
 
  Rent expense for the three months ended March 31, 1996 and 1995 (unaudited)
and for the years ended December 31, 1995, 1994, and 1993, was $1,095, $1,026,
$9,405, and $19,611, and $24,504, respectively. Rent expense is allocated to
ICIFC based on number of employees.
 
 LOAN COMMITMENTS
 
  IWLG's warehouse lending program provides secured short-term revolving
financing to small- and medium-size mortgage originators and ICIFC to finance
mortgage loans from the closing of the loans until sold to permanent
investors. As of December 31, 1995, the Company had extended 11 committed
lines of credit in the aggregate principal amount of approximately $640
million, of which $583 million was outstanding.
 
                                     F-20
<PAGE>
 
            IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
 LEGAL PROCEEDINGS
 
  ComUnity National Asset Corporation, a Maryland corporation v. Thomas O.
Markel, Jr., an individual, Homemac Mortgage Bankers, a business association
of unknown form; Homemac Corporation, a California corporation; Homemac
Finance Corporation; Homemac Institutional Mortgage Corporation, a California
corporation; Imperial Credit Mortgage Holdings, Inc., a Maryland corporation;
and DOES 1 through 100, inclusive, Orange County Superior Court Case No.
761786.
 
  On April 1, 1996, ComUnity National Asset Corporation ("ComUnity") filed a
lawsuit in Orange County Superior Court against Thomas O. Markel, Jr., several
Homemac entities, and IMH. The complaint seeks damages for statutory and
common law misappropriation of trade secrets, restitution for unfair
competition, damages for negligence and conversion.
 
  ComUnity seeks damages in an unspecified amount, but in no event less than
$200,000, alleging that said amount is not less than the amount spent and/or
obligations incurred by ComUnity in setting up its business and organizational
plan to become a REIT dealing primarily in B and C grade mortgage loans and to
take ComUnity public in an initial public offering, together with punitive
damages. ComUnity is also seeking attorneys' fees and costs. ComUnity alleges
that IMH wrongfully received consideration in the form of, among other things,
reduced expenses and legal fees, salary, wages, stock options, and other forms
of consideration arising out of the commercial exploitation of ComUnity's
confidential information, and that ComUnity is also entitled to an order of
restitution compelling IMH and other defendants to pay to ComUnity all profits
from the Commerical exploitation of information allegedly received from
ComUnity. The Company believes that the complaint is without merit and intends
to vigorously defend the action.
 
  The Company is involved in additional litigation arising in the normal
course of business of which management believes based in part upon the advice
of legal counsel, will not have a material effect on the Company.
 
11. MANAGEMENT CONTRACT
 
  On the effective date of the Offering, the Company entered into an agreement
with Imperial Credit Advisors, Inc. (ICAI) for an initial term of one year, to
provide management services to the Company. These services include the
purchase, financing, servicing and administration of mortgage loans and
mortgage loan securities.
 
  As manager of the Company, ICAI receives a per annum base management fee
payable monthly in arrears of an amount equal to (1) 3/8 of 1% of Gross
Mortgage Assets of IMH comprised of other than Agency Certificates, conforming
mortgage loans or mortgage-backed securities secured by or representing
interests in conforming mortgage loans, plus (2) 1/8 of 1% of the remainder of
Gross Mortgage Assets of IMH plus (3) 1/5 of 1% of the average daily asset
balance of the outstanding amounts under IWLG's warehouse lending facilities.
An advisory fee of $297,522 and $37,888 was paid for the three months ended
March 31, 1996 (unaudited) and for the year ended December 31, 1995,
respectively.
 
  As incentive compensation, ICAI will be entitled to receive for each fiscal
quarter, an amount equal to 25% of the net income of the Company, before
deduction of such incentive compensation, in excess of the amount that would
produce an annualized Return on Equity equal to the daily average Ten Year
U.S. Treasury Rate plus 2%. The Company's incentive compensation calculation
will be made quarterly in arrears before any income distributions are made to
stockholders for the corresponding period. Incentive compensation of $128,700
was accrued for the three months ended March 31, 1996 (unaudited). No
incentive compensation was accrued for the period November 20, 1995 through
December 31, 1995.
 
  Concurrent with the management agreement, ICAI entered into a submanagement
agreement with ICII for ICII to perform such management services for the
Company as ICAI deems necessary.
 
                                     F-21
<PAGE>
 
            IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
12. STOCK OPTION PLAN/EXECUTIVE COMPENSATION
 
  In August, 1995 the Company adopted a Stock Option, Deferred Stock and
Restricted Stock Plan (the Stock Option Plan) which provides for the grant of
qualified incentive stock options (ISOs), options not qualified (NQSOs) and
deferred stock, restricted stock, stock appreciation, dividend equivalent
rights and limited stock appreciation rights awards (Awards). The Stock Option
Plan is administered by a committee of directors appointed by the Board of
Directors and is composed solely of "disinterested persons." ISOs may be
granted to the officers and key employees of the Company. NQSOs and Awards may
be granted to the directors, officers and key employees of the Company or any
of its subsidiaries, to the directors, officers and key employees of ICIFC. At
December 31, 1995, shares reserved for issuance pursuant to the Company's
Stock Option Plan were 400,000.
 
  The exercise price for any NQSO or ISO granted under the Stock Option Plan
may not be less than 100% (or 110% in the case of ISOs granted to an employee
who is deemed to own in excess of 10% of the outstanding Common Stock) of the
fair market value of the shares of Common Stock at the time the NQSO or ISO is
granted.
 
  Under the Stock Option Plan, the Company may make loans available to stock
option holders in connection with the exercise of stock options granted under
the Stock Option Plan. If shares of Common Stock are pledged as collateral for
such indebtedness, the shares may be returned to the Company in satisfaction
of the indebtedness. If returned, the shares become available for issuance in
connection with future stock options and Awards under the Stock Option Plan.
 
  Unless previously terminated by the Board of Directors, the Stock Option
Plan will terminate in August of 2005. Options granted under the Stock Option
Plan will become exercisable as directed by a committee of the Board of
Directors at the time of grant.
 
  A summary of stock options outstanding at December 31, 1995 follows:
 
<TABLE>
<CAPTION>
                                            NUMBER OF EXERCISE
                                             SHARES    PRICE     DATE OF GRANT
                                            --------- -------- -----------------
   <S>                                      <C>       <C>      <C>
   Officers of IMH.........................  220,000   $11.25   August 30, 1995
   Officers of ICAI........................   55,000    11.25   August 30, 1995
   Unaffiliated directors..................   45,000    13.00  November 20, 1995
                                             -------
                                             320,000
                                             =======
</TABLE>
 
  No shares were exercisable at December 31, 1995.
 
  The 220,000 and 55,000 stock options become exercisable three years from the
date of grant and expire seven years from the date they become exercisable.
The 45,000 stock options become exercisable on the first anniversary of the
date of grant and expire nine years from the date they become exercisable.
 
  On January 31, 1996, 25,000 of the 220,000 stock options were canceled.
 
13. STOCKHOLDERS' EQUITY
 
  On November 20, 1995, the Company completed its initial public offering of
3,750,000 shares of common stock. The Company raised $44,493,294 in the
offering net of $4,256,706 of offering expenses. The Company intends to
distribute 95% or more of its net taxable income (which does not necessarily
equal net income as calculated in accordance with GAAP) to its common
stockholders each year so as to comply with the REIT provisions of the
Internal Revenue Code. Holders of the common stock are entitled to such
dividends as the Company's Board of Directors, in its discretion, may declare
out of funds available. In the event of liquidation
 
                                     F-22
<PAGE>
 
            IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
of the Company, holders of common stock are entitled to receive, pro rata, all
of the assets of the Company available for distribution. Holders of the common
stock have no conversion or preemptive or other subscription rights and there
are no redemption or sinking fund provisions applicable to the common stock.
At December 31, 1995, 50 million shares of common stock are authorized and
4,250,000 shares are issued and outstanding.
 
  The Company is authorized to issue shares of preferred stock designated in
one or more classes or series. The preferred stock may be issued from time to
time with such designations, rights and preferences as shall be determined by
the Board of Directors. The preferred stock, if issued, may have a preference
on dividend payments which could affect the ability of the Company to make
dividend distributions to the common stockholders. As of December 31, 1995, 10
million shares of preferred stock are authorized and no shares have been
issued or are outstanding.
 
14. SUBSEQUENT EVENTS (UNAUDITED)
 
  On April 16, 1996, the Board of Directors declared a $0.39 cash dividend,
all to be taxable as ordinary income, to be paid on April 30, 1996 to
stockholders of record on April 24, 1996. On May 29, 1996, the Board of
Directors declared a $0.45 cash dividend, all to be taxable as ordinary
income, to be paid on July 2, 1996 to stockholders of record on June 13, 1996.
 
  During the second quarter of 1996, the Company completed a $296.3 million
CMO financing.
 
15. ICI FUNDING CORPORATION
 
  The following condensed financial information summarizes the financial
condition, results of operations and cash flows of ICI Funding Corporation:
 
                                BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                            DECEMBER 31,
                                          MARCH 31,   -------------------------
                                             1996         1995         1994
                                         ------------ ------------  -----------
                                         (UNAUDITED)
<S>                                      <C>          <C>           <C>
                 ASSETS
Cash.................................... $        --  $  2,184,344  $       --
Mortgage loans held for sale............  179,630,533  544,274,962          --
Accrued interest receivable.............      763,352    2,984,867          --
Due from affiliates.....................    4,472,461    2,541,743          --
Mortgage servicing rights...............    2,656,626          --    11,453,240
Premises and equipment, net.............      490,000      516,250      643,971
Other assets............................       92,779      129,205          --
                                         ------------ ------------  -----------
                                         $188,105,751 $552,631,371  $12,097,211
                                         ============ ============  ===========
  LIABILITIES AND SHAREHOLDERS' EQUITY
Borrowings from IWLG.................... $173,407,629 $550,290,862  $       --
Borrowings from ICII....................          --           --     5,698,162
Accrued interest expense................    2,894,545    1,348,424          --
Other liabilities.......................    1,827,583      117,500          --
Due to affiliate........................      343,784          --           --
                                         ------------ ------------  -----------
  Total liabilities.....................  178,473,541  551,756,786    5,698,162
                                         ------------ ------------  -----------
Commitments and contingencies
Shareholders' equity:
  Preferred stock.......................    9,142,650    1,014,750          --
  Common stock..........................       92,350       10,250          --
  Contributed capital...................          --           --       361,170
  Retained earnings (accumulated
   deficit).............................      397,210     (150,415)   6,037,879
                                         ------------ ------------  -----------
    Total shareholders' equity..........    9,632,210      874,585    6,399,049
                                         ------------ ------------  -----------
                                         $188,105,751 $552,631,371  $12,097,211
                                         ============ ============  ===========
</TABLE>
 
                                     F-23
<PAGE>
 
             IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
                            STATEMENT OF OPERATIONS
 
<TABLE>
<CAPTION>
                           THREE MONTHS ENDED
                               MARCH 31,            FOR THE YEAR ENDED DECEMBER 31,
                         -----------------------  -------------------------------------
                            1996         1995        1995         1994         1993
                         -----------  ----------  -----------  -----------  -----------
                              (UNAUDITED)
<S>                      <C>          <C>         <C>          <C>          <C>
Revenues:
  Gain on sale of loans. $ 2,613,620  $  729,922  $ 4,135,373  $ 2,291,143  $ 5,859,378
  Interest income.......  11,119,272         --     1,249,000          --           --
  Loan servicing income.      31,708   1,332,928    5,158,812    4,042,798    1,377,247
  Gain on sale of
   servicing rights.....         --      369,703      369,703    4,188,282    5,332,026
                         -----------  ----------  -----------  -----------  -----------
                          13,764,600   2,432,553   10,912,888   10,522,223   12,568,651
                         -----------  ----------  -----------  -----------  -----------
Expenses:
  Interest on borrowings
   from IWLG............  11,219,048         --     1,348,424          --           --
  Other General and
   administrative.......   1,200,017   1,132,498    3,662,080    6,332,479    4,507,534
  Provision for loan
   losses...............     400,000         --           --       655,294      175,000
  Amortization of
   mortgage servicing
   rights...............      14,319     447,650    2,892,341    2,070,387      459,233
  Interest on borrowings
   from ICII............         --      149,259      436,668      538,100      126,814
                         -----------  ----------  -----------  -----------  -----------
                          12,833,384   1,729,407    8,339,513    9,596,260    5,268,581
                         -----------  ----------  -----------  -----------  -----------
Income before income
 taxes..................     931,216     703,146    2,573,375      925,963    7,300,070
Income taxes............    (383,591)   (295,321)  (1,069,056)    (388,904)  (3,066,029)
                         -----------  ----------  -----------  -----------  -----------
    Net income.......... $   547,625  $  407,825  $ 1,504,319  $   537,059  $ 4,234,041
                         ===========  ==========  ===========  ===========  ===========
</TABLE>
 
 
                                      F-24
<PAGE>
 
             IMPERIAL CREDIT MORTGAGE HOLDINGS, INC. AND SUBSIDIARY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
                            STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                           FOR THE THREE MONTHS
                              ENDED MARCH 31,           FOR THE YEAR ENDED DECEMBER 31,
                         --------------------------  ----------------------------------------
                             1996          1995          1995          1994          1993
                         -------------  -----------  -------------  -----------  ------------
                                (UNAUDITED)
<S>                      <C>            <C>          <C>            <C>          <C>
Cash flows from
 operating activities:
  Net income............ $     547,625  $   407,825  $   1,504,319  $   537,059  $  4,234,041
  Adjustments to
   reconcile net income
   to net cash provided
   by (used in)
   operating activities:
   Provision for loan
    losses..............       400,000          --             --       655,294       175,000
   Depreciation and
    amortization........        40,569      487,328      2,911,752    2,219,262       518,789
   Gain on sale of
    servicing rights....           --      (369,703)      (369,703)  (4,188,282)   (5,332,026)
  Net change in mortgage
   loans held for sale..   364,244,429          --    (544,274,962)         --            --
  Net change in other
   assets and
   liabilities..........     3,927,211          --      (4,189,891)         --            --
                         -------------  -----------  -------------  -----------  ------------
  Net cash provided by
   (used in) operating
   activities...........   369,159,834      525,450   (544,418,485)    (776,667)     (404,196)
                         -------------  -----------  -------------  -----------  ------------
Cash flows from
 investing activities:
  Proceeds from sale of
   servicing rights.....           --       915,106      1,250,092    8,996,662     7,757,268
  Purchase of servicing
   rights...............    (2,670,945)  (1,155,334)    (3,865,605)  (8,781,244)  (12,435,238)
  Purchases of premises
   and equipment........           --           --             --      (433,199)     (419,203)
  Advances on loans held
   for investment.......           --           --             --      (408,054)     (284,780)
                         -------------  -----------  -------------  -----------  ------------
   Net cash used in
    investing
    activities..........    (2,670,945)    (240,228)    (2,615,513)    (625,835)   (5,381,953)
                         -------------  -----------  -------------  -----------  ------------
Cash flows from
 financing activities:
  Net change in
   borrowings...........  (376,883,233)    (285,222)   548,718,342    1,041,332     5,786,149
  Capital contributions.     8,210,000          --         500,000      361,170           --
                         -------------  -----------  -------------  -----------  ------------
   Net cash (used in)
    provided by
    financing
    activities..........  (368,673,233)    (285,222)   549,218,342    1,402,502     5,786,149
                         -------------  -----------  -------------  -----------  ------------
Net change in cash......    (2,184,344)         --       2,184,344          --            --
Cash at beginning of
 period.................     2,184,344          --             --           --            --
                         -------------  -----------  -------------  -----------  ------------
Cash at end of period... $         --   $       --   $   2,184,344  $       --   $        --
                         =============  ===========  =============  ===========  ============
Supplementary
 information:
  Interest paid......... $   9,672,927  $   149,259  $   1,785,092  $   538,100  $    126,814
  Taxes paid............       383,591      295,321      1,069,056      388,904     3,066,029
                         =============  ===========  =============  ===========  ============
Non-cash transactions:
  Contribution
   Transaction on
   November 20, 1995 net
   assets reverted to
   ICII:
   Premises and
    equipment........... $         --   $       --   $     498,486  $       --   $        --
   Mortgage servicing
    rights..............           --           --      11,680,939          --            --
   Borrowings from ICII.           --           --       4,125,642          --            --
   Contributed capital..           --           --         361,170          --            --
   Retained earnings....           --           --       7,692,613          --            --
</TABLE>
 
 
                                      F-25
<PAGE>
 
                         INDEPENDENT AUDITORS' REPORT
 
The Board of Directors
ICI Funding Corporation:
 
We have audited the accompanying balance sheets of ICI Funding Corporation as
of December 31, 1995 and 1994, and the related statements of operations,
changes in shareholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ICI Funding Corporation as of
December 31, 1995 and 1994, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1995
in conformity with generally accepted accounting principles.
 
As discussed in note 1 to the financial statements, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 122, "Accounting
for Mortgage Servicing Rights" for the year ended December 31, 1995.
 
                                          KPMG Peat Marwick LLP
 
Orange County, California
January 25, 1996
 
                                     F-26
<PAGE>
 
                            ICI FUNDING CORPORATION
 
                                 BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                            DECEMBER 31,
                                          MARCH 31,   -------------------------
                                             1996         1995         1994
                                         ------------ ------------  -----------
                                          (UNAUDITED)
<S>                                      <C>          <C>           <C>
                 ASSETS
Cash.................................... $        --  $  2,184,344  $       --
Mortgage loans held for sale............  179,630,533  544,274,962          --
Accrued interest receivable.............      763,352    2,984,867          --
Due from affiliates.....................    4,472,461    2,541,743          --
Mortgage servicing rights...............    2,656,626          --    11,453,240
Premises and equipment, net.............      490,000      516,250      643,971
Other assets............................       92,779      129,205          --
                                         ------------ ------------  -----------
                                         $188,105,751 $552,631,371  $12,097,211
                                         ============ ============  ===========
  LIABILITIES AND SHAREHOLDERS' EQUITY
Borrowings from IWLG.................... $173,407,629 $550,290,862  $       --
Borrowings from ICII....................          --           --     5,698,162
Accrued interest expense................    2,894,545    1,348,424
Other liabilities.......................    1,827,583      117,500          --
Due to affiliate........................      343,784          --           --
                                         ------------ ------------  -----------
  Total liabilities.....................  178,473,541  551,756,786    5,698,162
                                         ------------ ------------  -----------
Commitments and contingencies
Shareholders' equity:
  Preferred stock, no par value; 10,000
   shares authorized; 10,000 shares
   issued and outstanding at March 31,
   1996 (unaudited) and at December 31,
   1995 and none issued and outstanding
   at December 31, 1994.................    9,142,650    1,014,750          --
  Common stock, no par value; 10,000
   shares authorized; 10,000 shares
   issued and outstanding at March 31,
   1996 (unaudited) and at December 31,
   1995 and none issued and outstanding
   at December 31, 1994.................       92,350       10,250          --
  Contributed capital...................          --           --       361,170
  Retained earnings (accumulated
   deficit).............................      397,210     (150,415)   6,037,879
                                         ------------ ------------  -----------
    Total shareholders' equity..........    9,632,210      874,585    6,399,049
                                         ------------ ------------  -----------
                                         $188,105,751 $552,631,371  $12,097,211
                                         ============ ============  ===========
</TABLE>
 
                See accompanying notes to financial statements.
 
                                      F-27
<PAGE>
 
                            ICI FUNDING CORPORATION
 
                            STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                          FOR THE THREE MONTHS
                            ENDED MARCH 31,         FOR THE YEAR ENDED DECEMBER 31,
                         -----------------------  -------------------------------------
                            1996         1995        1995         1994         1993
                         -----------  ----------  -----------  -----------  -----------
                              (UNAUDITED)
<S>                      <C>          <C>         <C>          <C>          <C>
Revenues:
  Interest income....... $11,119,272  $      --   $ 1,249,000  $       --   $       --
  Gain on sale of loans.   2,613,620     729,922    4,135,373    2,291,143    5,859,378
  Loan servicing income.      31,708   1,332,928    5,158,812    4,042,798    1,377,247
  Gain on sale of
   servicing rights.....         --      369,703      369,703    4,188,282    5,332,026
                         -----------  ----------  -----------  -----------  -----------
                          13,764,600   2,432,553   10,912,888   10,522,223   12,568,651
                         -----------  ----------  -----------  -----------  -----------
Expenses:
  Interest on borrowings
   from IWLG............  11,219,048         --     1,348,424          --           --
  Personnel expense.....     834,791     517,875    1,592,282    2,958,534    2,522,271
  Provision for loan
   losses...............     400,000         --           --       655,294      175,000
  Other general and
   administrative.......     134,210     461,032    1,539,942    2,611,567    1,466,119
  Professional services.     116,511      45,781      203,593      118,979      146,947
  Occupancy expense.....      49,114      53,637      149,825      296,215      193,226
  Data processing
   expense..............      36,286      29,314       89,223      154,621       81,670
  Telephone and other
   communications.......      29,105      24,859       87,215      192,563       97,301
  Amortization of
   mortgage servicing
   rights...............      14,319     447,650    2,892,341    2,070,387      459,233
  Interest on borrowings
   from ICII............         --      149,259      436,668      538,100      126,814
                         -----------  ----------  -----------  -----------  -----------
                          12,833,384   1,729,407    8,339,513    9,596,260    5,268,581
                         -----------  ----------  -----------  -----------  -----------
Income before income
 taxes..................     931,216     703,146    2,573,375      925,963    7,300,070
Income taxes............    (383,591)   (295,321)  (1,069,056)    (388,904)  (3,066,029)
                         -----------  ----------  -----------  -----------  -----------
    Net income.......... $   547,625  $  407,825  $ 1,504,319  $   537,059  $ 4,234,041
                         ===========  ==========  ===========  ===========  ===========
</TABLE>
 
 
                See accompanying notes to financial statements.
 
                                      F-28
<PAGE>
 
                            ICI FUNDING CORPORATION
 
                 STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
 
<TABLE>
<CAPTION>
                                                                               RETAINED
                                                                               EARNINGS        TOTAL
                          NUMBER OF PREFERRED  NUMBER OF COMMON  CONTRIBUTED (ACCUMULATED  SHAREHOLDERS'
                           SHARES     STOCK     SHARES    STOCK    CAPITAL     DEFICIT)       EQUITY
                          --------- ---------- --------- ------- ----------- ------------  -------------
<S>                       <C>       <C>        <C>       <C>     <C>         <C>           <C>
Balance, December 31,
 1992...................      --    $      --      --    $   --   $     --   $ 1,266,779    $ 1,266,779
Net income, 1993........      --           --      --        --         --     4,234,041      4,234,041
                           ------   ----------  ------   -------  ---------  -----------    -----------
Balance, December 31,
 1993...................      --           --      --        --         --     5,500,820      5,500,820
Capital contributions,
 1994...................      --           --      --        --     361,170          --         361,170
Net income, 1994........      --           --      --        --         --       537,059        537,059
                           ------   ----------  ------   -------  ---------  -----------    -----------
Balance, December 31,
 1994...................                                            361,170    6,037,879      6,399,049
Contribution
 Transaction............   10,000      519,750  10,000     5,250   (361,170)  (7,692,613)    (7,528,783)
Capital contribution,
 December 28, 1995......      --       495,000     --      5,000        --           --         500,000
Net income, 1995........      --           --      --        --         --     1,504,319      1,504,319
                           ------   ----------  ------   -------  ---------  -----------    -----------
Balance, December 31,
 1995...................   10,000    1,014,750  10,000    10,250        --      (150,415)       874,585
Capital Contributions,
 1996 (unaudited).......      --     8,127,900     --     82,100        --           --       8,210,000
Net income, three months
 ended March 31, 1996
 (unaudited)............      --           --      --        --         --       547,625        547,625
                           ------   ----------  ------   -------  ---------  -----------    -----------
Balance, March 31, 1996
 (unaudited)............   10,000   $9,142,650  10,000   $92,350  $     --   $   397,210    $ 9,632,210
                           ======   ==========  ======   =======  =========  ===========    ===========
</TABLE>
 
 
                See accompanying notes to financial statements.
 
                                      F-29
<PAGE>
 
                            ICI FUNDING CORPORATION
 
                            STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                           FOR THE THREE MONTHS
                              ENDED MARCH 31,           FOR THE YEAR ENDED DECEMBER 31,
                         --------------------------  ----------------------------------------
                             1996          1995          1995          1994          1993
                         -------------  -----------  -------------  -----------  ------------
                                (UNAUDITED)
<S>                      <C>            <C>          <C>            <C>          <C>
Cash flows from
 operating activities:
  Net income............ $     547,625  $   407,825  $   1,504,319  $   537,059  $  4,234,041
  Adjustments to
   reconcile net income
   to net cash provided
   by (used in)
   operating activities:
   Provision for loan
    losses..............       400,000          --             --       655,294       175,000
   Depreciation and
    amortization........        40,569      487,328      2,911,752    2,219,262       518,789
   Gain on sale of
    servicing rights....           --      (369,703)      (369,703)  (4,188,282)   (5,332,026)
  Net change in mortgage
   loans held for sale..   364,244,429          --    (544,274,962)         --            --
  Net change in accrued
   interest
   receivable...........     2,221,515          --      (2,984,867)         --            --
  Net change in other
   assets and
   liabilities..........       159,575          --      (2,553,448)         --            --
  Net change in accrued
   interest expense.....     1,546,121          --       1,348,424          --            --
                         -------------  -----------  -------------  -----------  ------------
  Net cash provided by
   (used in) operating
   activities...........   369,159,834      525,450   (544,418,485)    (776,667)     (404,196)
                         -------------  -----------  -------------  -----------  ------------
Cash flows from
 investing activities:
  Proceeds from sale of
   servicing rights.....           --       915,106      1,250,092    8,996,662     7,757,268
  Purchase of servicing
   rights...............    (2,670,945)  (1,155,334)    (3,865,605)  (8,781,244)  (12,435,238)
  Purchases of premises
   and equipment........           --           --             --      (433,199)     (419,203)
  Advances on loans held
   for investment.......           --           --             --      (408,054)     (284,780)
                         -------------  -----------  -------------  -----------  ------------
   Net cash used in
    investing
    activities..........    (2,670,945)    (240,228)    (2,615,513)    (625,835)   (5,381,953)
                         -------------  -----------  -------------  -----------  ------------
Cash flows from
 financing activities:
  Net change in
   borrowings from ICII.           --      (285,222)    (1,572,520)   1,041,332     5,786,149
  Net change in
   borrowings from IWLG.  (376,883,233)         --     550,290,862          --            --
  Capital contributions.     8,210,000          --         500,000      361,170           --
                         -------------  -----------  -------------  -----------  ------------
   Net cash (used in)
    provided by
    financing
    activities..........  (368,673,233)    (285,222)   549,218,342    1,402,502     5,786,149
                         -------------  -----------  -------------  -----------  ------------
Net change in cash......    (2,184,344)         --       2,184,344          --            --
Cash at beginning of
 period.................     2,184,344          --             --           --            --
                         -------------  -----------  -------------  -----------  ------------
Cash at end of period... $         --   $       --   $   2,184,344  $       --   $        --
                         =============  ===========  =============  ===========  ============
Supplementary
 information:
  Interest paid......... $   9,672,927  $   149,259  $   1,785,092  $   538,100  $    126,814
  Taxes paid............       383,591      295,321      1,069,056      388,904     3,066,029
                         =============  ===========  =============  ===========  ============
Non-cash transactions:
  Contribution
   Transaction on
   November 20, 1995 net
   assets reverted to
   ICII:
   Premises and
    equipment........... $         --   $       --   $     498,486  $       --   $        --
   Mortgage servicing
    rights..............           --           --      11,680,939          --            --
   Borrowings from ICII.           --           --       4,125,642          --            --
   Contributed capital..           --           --         361,170          --            --
   Retained earnings....           --           --       7,692,613          --            --
</TABLE>
 
                See accompanying notes to financial statements.
 
                                      F-30
<PAGE>
 
                            ICI FUNDING CORPORATION
 
                         NOTES TO FINANCIAL STATEMENTS
 
 FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (UNAUDITED) AND THE THREE-
                      YEAR PERIOD ENDED DECEMBER 31, 1995
 
1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
 
  ICI Funding Corporation (ICIFC or the Company) is a wholly-owned subsidiary
of Imperial Credit Industries, Inc. (ICII). Historically, ICIFC was a division
or subsidiary of ICII that began operations in 1990. ICIFC is a mortgage loan
conduit organization which purchases mortgage loans from a network of third
party correspondent loan originators and subsequently securitizes or sells
such loans to permanent investors.
 
  The mortgage banking business is highly competitive. The Company competes
with a number of national, local and regional mortgage banking companies with
operations similar to those of the Company. In addition, competitors or
potential competitors include other types of financial services companies,
such as commercial banks, savings and loan associations and finance companies
who possess substantially greater financial, marketing, technical, personnel
and other resources than the Company.
 
  The financial statements have been prepared in conformity with generally
accepted accounting principles and prevailing practices within the mortgage
banking industry. In preparing the financial statements, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities as of the date of the balance sheet and revenues and
expenses for the period. Actual results could differ significantly from those
estimates.
 
 CONTRIBUTION TRANSACTION
 
  On November 20, 1995, the effective date of Imperial Credit Mortgage
Holdings' (IMH) initial public offering (Offering), ICII contributed to ICI
Funding Corporation (ICIFC) certain operating assets and certain customer
lists of ICII's mortgage conduit operations, including all of ICII's mortgage
conduit operations' commitments to purchase mortgage loans subject to rate
locks from correspondents, in exchange for shares representing 100% of the
common stock and 100% of the non-voting preferred stock of ICIFC.
Simultaneously, on the effective date of the Offering, in exchange for 500,000
shares of IMH Common Stock, ICII (1) contributed to IMH all of the outstanding
non-voting preferred stock of ICIFC, which represents 99% of the economic
interest in ICIFC, (2) caused Southern Pacific Thrift and Loan Association
(SPTL), a wholly owned subsidiary of ICII, to contribute to IMH certain
operating assets and certain customer lists of SPTL's warehouse lending
division, and (3) executed an agreement not to compete and a right of first
refusal agreement, each having a term of two years from the effective date of
the Offering. This contribution is known as the Contribution Transaction. All
of the outstanding shares of common stock of ICIFC were retained by ICII.
Lastly, IMH contributed all of the aforementioned operating assets of SPTL's
warehouse lending operations contributed to it by SPTL to Imperial Warehouse
Lending Group (IWLG) in exchange for shares representing 100% of the common
stock of IWLG. On the effective date of the Offering, the net tangible book
value of the assets contributed pursuant to the Contribution Transaction was
$525,000. The assets contributed were recorded by IMH at the net book value of
SPTL and ICII which were also estimated to be their fair value. ICII and SPTL
retained all other assets and liabilities related to the contributed
operations which consist of $11.7 million mortgage servicing rights (MSRs),
$22.4 million finance receivables and $26.6 million in advances made by ICII
and SPTL to fund mortgage conduit loan acquisitions and to fund finance
receivables, respectively.
 
BASIS OF FINANCIAL STATEMENT PRESENTATION
 
  The operations of ICIFC as a division or subsidiary of ICII prior to the
Contribution Transaction are presented in the financial statements as a stand-
alone company. Certain adjustments, as described below, were made to
historical operations in order to provide fair presentation of the financial
operations of ICIFC.
 
                                     F-31
<PAGE>
 
                            ICI FUNDING CORPORATION
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
 GAIN (LOSS) ON SALE OF LOANS
 
  ICII entered into an agreement with SPTL, its wholly owned subsidiary, under
which ICII provides loan solicitation and origination services, including
credit review, asset appraisal and documentation, pursuant to specific
underwriting criteria established by SPTL and consistent with the Federal
National Mortgage Association, Federal Home Loan Mortgage Company or other
investor guidelines. Final loan approval is given by SPTL prior to issuance of
any commitments. ICII also, under the agreement, may purchase mortgage loans
at book value from SPTL and sell them to ICII investors.
 
  Prior to the Contribution Transaction, as a division of ICII, ICIFC
historically, under this agreement, provided these solicitation and
origination services relating to its correspondent customers, and purchased
mortgage loans at book value from SPTL concurrent with sales to investors by
ICIFC. ICIFC received as compensation all origination fees and points
received, and recognized all gains or losses in connection with the sale of
loans.
 
  Prior to the Contribution Transaction, gain (loss) on sale of loans included
amounts allocated to ICIFC from ICII's forward contracts and other loan
hedging activities. Gains and losses from these activities were allocated to
ICIFC based on the ratio of ICIFC's principal amount of loan sales to ICII's
total principal amount of loans sold. For the period January 1, 1995 through
November 19, 1995 and for the years ended December 31, 1994, 1993, the total
gains or (losses) allocated were $2.6 million, $3.8 million and ($1.4)
million, respectively. ICII did not allocate outstanding commitments to ICIFC
at the end of any reporting period. After the date of the Contribution
Transaction, ICII discontinued these allocations for ICIFC, and ICIFC hedges
its own loans.
 
  ICIFC recognizes gain or loss on the sale of loans when the sales
transaction settles and the risks and rewards of ownership are determined to
have passed to the purchasing party.
 
 BORROWINGS FROM ICII
 
  Historical operations of ICIFC, prior to the Contribution Transaction, have
been adjusted to reflect the funding of net assets by ICII. These adjustments
are disclosed in the accompanying financial statements as "Borrowings from
ICII." Because these borrowings would have been secured primarily by ICIFC's
mortgage servicing rights, its most significant assets, no more than 50% of
the mortgage servicing rights was reflected in the borrowings from ICII (based
on management's assumption that a lender would not lend more than 50% of an
asset of this type). Additionally, the historical operations of ICIFC have
been adjusted to reflect the estimated interest charges on these borrowings,
in the accompanying statements of operations.
 
  The interest charges allocated are based upon estimated average borrowing
balances and ICII's estimated cost of funds, computed based on a weighted
average of borrowings. Borrowing rates used were ICII's actual average cost of
funds. The average borrowings and interest rates used to determine the
interest on borrowings are as follows:
 
<TABLE>
<CAPTION>
                          JANUARY 1,                      FOR THE YEAR ENDED
                         1995 THROUGH                        DECEMBER 31,
                         NOVEMBER 20, THREE MONTHS ENDED ----------------------
                             1995       MARCH 31, 1995      1994        1993
                         ------------ ------------------ ----------  ----------
                                         (UNAUDITED)
<S>                      <C>          <C>                <C>         <C>
Estimated average
 borrowings.............  $4,785,268      $5,807,761     $5,234,439  $1,806,470
Interest rate...........       10.28%          10.28%         10.28%       7.02%
Interest allocation.....  $  436,668      $  149,259     $  538,100  $  126,814
</TABLE>
 
                                     F-32
<PAGE>
 
                            ICI FUNDING CORPORATION
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
 EQUITY
 
  Prior to the effective date of the Offering, ICIFC had no contributed
capital or retained earnings recorded in its accounts. To properly reflect the
historical financial operations of ICIFC, retained earnings were recorded as a
result of net income or loss from operations on an adjusted historical basis,
and contributed capital was recorded to fund ICIFC's assets in the amount of
the shortfall of borrowings plus retained earnings. Under this criteria,
allocated capital contributions were reflected in 1994 in the amount of
$361,170.
 
 INCOME TAXES
 
  ICIFC did not record income taxes in its historical operations. The
accompanying financial statements have been adjusted to reflect income taxes
for ICIFC as if it had been a separate company. As a subsidiary of ICII, ICIFC
would file a consolidated Federal income tax return and a combined California
franchise tax return with ICII. ICII's tax allocation policy for financial
statement purposes is to allocate income tax provision or benefit based on
income (loss) before income taxes (benefit) of each entity within its
consolidated group, adjusted for nontaxable or nondeductible items of income
and expense.
 
  Effective January 1, 1993, ICIFC adopted SFAS 109, resulting in no material
adjustment to income. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax base. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
 
 MORTGAGE LOANS HELD FOR SALE
 
  Mortgage loans held for sale are stated at the lower of cost or market in
the aggregate as determined by outstanding commitments from investors or
current investor yield requirements.
 
  Interest is recognized as revenue when earned according to the terms of the
mortgage loans and when, in the opinion of management, it is collectible.
Nonrefundable fees and direct costs associated with the origination or
purchase of loans are deferred and recognized when the loans are sold as gain
or loss on sale of mortgage loans.
 
 PREMISES AND EQUIPMENT
 
  Premises and equipment are stated at cost, less accumulated depreciation or
amortization. Depreciation on premises and equipment is recorded using the
straight-line method over the estimated useful lives of individual assets
(three to seven years).
 
 FORWARD CONTRACTS AND COMMITMENTS
 
  In order for ICII to maintain an orderly market for the loans it acquires,
ICIFC sells mortgage-backed securities through forward delivery contracts.
Income or loss on these contracts is recorded at the time of sale of the
related contracts or loans as a component of the gain or loss on sale of the
loan.
 
  If any party to the contracts noted above failed completely to perform,
ICIFC would be exposed to additional interest rate risk. The Company's
principal hedging activity consists of optional and mandatory commitments to
deliver closed mortgage loans to institutional investors, which do not require
any collateral deposits.
 
                                     F-33
<PAGE>
 
                            ICI FUNDING CORPORATION
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
 SERVICING INCOME
 
  Servicing income is reported as earned, principally on a cash basis when the
majority of the service process is completed.
 
 MORTGAGE SERVICING RIGHTS
 
  Mortgage servicing rights (MSRs) represent the cost of acquiring the rights
to service mortgage loans. ICIFC amortizes MSRs in proportion to, and over the
period of, expected future net servicing income.
 
  On May 12, 1995, the Financial Accounting Standards Board issued SFAS No.
122, "Accounting for Mortgage Servicing Rights," an amendment to SFAS No. 65.
ICIFC elected to adopt this standard retroactive to January 1, 1995 which had
no impact on 1995 operations.
 
  SFAS No. 122 requires that a portion of the mortgage loan's cost be
allocated to the mortgage loan servicing right based on its fair value
relative to the loan as a whole. To determine the fair value of the servicing
rights created, ICIFC uses a valuation model that calculates the present value
of future net servicing revenues to determine the fair value of the servicing
rights. In using this valuation method, ICIFC incorporates assumptions that
market participants would use in estimating future net servicing income which
includes estimates of the cost of servicing, a discount rate, an inflation
rate, ancillary income per loan, a prepayment rate, and a default rate.
 
  ICIFC determines servicing value impairment by disaggregating ICIFC's
servicing portfolio into its predominant risk characteristics. ICIFC
determines those risk characteristics to be loan program type and interest
rate. Interest rates are stratified using 100 basis point increments. These
segments of the portfolio are then evaluated, using market prices under
comparable servicing sale contracts, when available, or alternatively using a
valuation model that calculates the present value of future net servicing
revenues using current market assumptions at the end of the quarter. The
calculated value is then compared to the capitalized recorded value of each
loan type and interest rate segment to determine if a valuation allowance is
required.
 
  ICIFC continuously evaluates its MSRs to determine if fair value is below
the carrying values of its MSRs. If the undiscounted projected net future
servicing income is less than the carrying amount of any individual mortgage
servicing portfolio, the portfolio may have to be reduced through a provision
recorded to increase the MSR valuation allowance in the period the fair value
declined below the MSR's carrying value. In preparing its evaluation, ICIFC
uses constant prepayment rates (CPR's) relating to interest rates on each
portfolio, loan types, and maturity dates to determine the appropriate amount
of amortization of the MSRs.
 
 SALES OF SERVICING RIGHTS
 
  ICIFC recognizes gain or loss on the sale of servicing rights when the sales
contract has been executed and the risks and rewards of ownership are
determined to have passed to the purchasing party. Gains and losses are
computed by deducting the basis in the servicing rights and any other costs
associated with the sale from the purchase price.
 
 ADVERTISING
 
  The Company accounts for its advertising costs as non-direct response
advertising. Accordingly, advertising costs are expensed as incurred.
 
                                     F-34
<PAGE>
 
                            ICI FUNDING CORPORATION
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
 RECLASSIFICATIONS
 
  Certain items in prior periods have been reclassified to conform to the
current presentation.
 
2. LOANS HELD FOR INVESTMENT
 
  Activity in the allowance for loan losses for loans held for investment was
as follows:
 
<TABLE>
<CAPTION>
                                                           FOR THE YEAR ENDED
                                                              DECEMBER 31,
                                                           --------------------
                                                             1994       1993
                                                           ---------  ---------
   <S>                                                     <C>        <C>
   Balance, beginning of year............................. $  36,823  $ 249,075
   Provision for losses charged to expense................   655,294    175,000
   Loans charged off......................................  (692,117)  (387,252)
                                                           ---------  ---------
   Balance, end of year................................... $     --   $  36,823
                                                           =========  =========
</TABLE>
 
  There were no loans held for investment at March 31, 1996 (unaudited),
December 31, 1995, March 31, 1995 (unaudited) or December 31, 1994.
 
3. MORTGAGE LOANS HELD FOR SALE
 
  Mortgage loans held for sale consisted of the following:
 
<TABLE>
<CAPTION>
                                                       MARCH 31,   DECEMBER 31,
                                                          1996         1995
                                                      ------------ ------------
                                                      (UNAUDITED)
   <S>                                                <C>          <C>
   Mortgage loans held for sale...................... $176,524,309 $536,356,411
   Premium on loans..................................    3,106,224    7,918,551
                                                      ------------ ------------
                                                      $179,630,533 $544,274,962
                                                      ============ ============
</TABLE>
 
  There were no mortgage loans held for sale as of December 31, 1994.
 
  Substantially all of the mortgage loans purchased by ICIFC are fixed-rate or
adjustable-rate conforming mortgage loans secured by first liens on single-
family residential properties. Because of the concentration of the Company's
mortgage loans located in California, which was 60% at December 31, 1995, a
significant decline in regional economic conditions, or some other regional
catastrophe, could result in fewer mortgage loans available for lending by the
Company and ultimately a decline in interest income and fee income. Moreover,
such an event or events could affect the ability of borrowers to payoff their
loan with the Company.
 
4. PREMISES AND EQUIPMENT
 
  Premises and equipment consisted of the following:
 
<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                   MARCH 31,  -----------------
                                                     1996       1995     1994
                                                  ----------- -------- --------
                                                  (UNAUDITED)
   <S>                                            <C>         <C>      <C>
   Premises and equipment........................  $525,000   $733,431 $852,402
   Less accumulated depreciation.................    35,000    217,181  208,431
                                                   --------   -------- --------
                                                   $490,000   $516,250 $643,971
                                                   ========   ======== ========
</TABLE>
 
                                     F-35
<PAGE>
 
                            ICI FUNDING CORPORATION
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
5. MORTGAGE SERVICING RIGHTS
 
  Changes in mortgage servicing rights were as follows:
 
<TABLE>
<CAPTION>
                               MARCH 31,                      DECEMBER 31,
                         -----------------------  --------------------------------------
                            1996        1995          1995         1994         1993
                         ----------  -----------  ------------  -----------  -----------
                              (UNAUDITED)
<S>                      <C>         <C>          <C>           <C>          <C>
Beginning Balance....... $      --   $11,453,240  $ 11,453,240  $ 9,550,763  $       --
Additions...............  2,670,945    1,155,334     4,000,429    8,781,244   12,435,238
Sales of servicing
 rights.................        --      (545,403)     (880,389)  (4,808,380)  (2,425,242)
Amortization............    (14,319)    (447,650)   (2,892,341)  (2,070,387)    (459,233)
Transfer to ICII........        --           --    (11,680,939)         --           --
                         ----------  -----------  ------------  -----------  -----------
Ending balance.......... $2,656,626  $11,615,521  $        --   $11,453,240  $ 9,550,763
                         ==========  ===========  ============  ===========  ===========
</TABLE>
 
6. RELATED PARTY TRANSACTIONS
 
 RELATED PARTY COST ALLOCATIONS
 
  ICIFC was allocated various costs from ICII. The costs of these services
were not directly attributable to ICIFC and primarily include general
corporate overhead such as human resources, data processing, telephone and
other communications and general and administrative expense (including loan
administration costs, accounting, legal and insurance). These expenses were
allocated by ICII to all divisions based typically either on a per employee
basis, based on origination volume or an even allocation of total expense.
Management believes these methods of allocation are reasonable. Total
allocations of expense for the period January 1, 1995 through November 19,
1995, for the three months ended March 31, 1995 (unaudited) and for the years
endedDecember 31, 1994 and 1993 were $222,361, $65,237, $460,638 and $406,421,
respectively.
 
  On the effective date of the Initial Public Offering, ICIFC entered into a
services agreement with ICII under which ICII provides various services to
ICIFC, including data processing, human resource administration, general
ledger accounts, check processing, remittance processing and payment of
accounts payable. ICII charges fees for each of the services based upon usage.
As part of the services, ICII provides ICIFC with insurance coverage and self
insurance programs, including health insurance. The charge to ICIFC for
coverage is based upon a pro rata portion of the costs to ICII for its various
policies which amounted to $96,692 and $24,669 for the three months ended
March 31, 1996 (unaudited) and the period November 20, 1995 through December
31, 1995.
 
 SUB-SERVICING
 
  For all periods presented in ICIFC's financial statements, ICII provided
sub-servicing to ICIFC for a sub-servicing fee of approximately $7.50 per loan
per month, which management believes to be a market rate. The sub-servicing
fee offsets "Loan Servicing Income" in the accompanying statements of
operations of ICIFC and amounted to $96,415, $292,696, $1,100,259, $1,054,940
and $442,039 for the three months ended March 31, 1996 and 1995 (unaudited)
and for the years ended December 31, 1995, 1994 and 1993, respectively.
 
 CASH
 
  Prior to the Contribution Transaction ICIFC had no cash accounts. All
operations were funded directly by ICII. Adjustments were made to ICIFC's
financial statements to reflect these fundings as Borrowings from ICII. ICIFC
did not reflect any accounts receivable or payable on its balance sheets prior
to the Contribution Transaction because all transactions of ICIFC either
increased or decreased its borrowings from ICII.
 
                                     F-36
<PAGE>
 
                            ICI FUNDING CORPORATION
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
  At March 31, 1996 (unaudited), $1,468,178 of the mortgage servicing rights
relates to $310 million of mortgage loans sold, servicing retained by ICIFC,
to IMH in March 1996.
 
 BORROWINGS
 
  The Company has a $600 million warehouse borrowing agreement with IWLG of
which $173 million and $550 million was outstanding at March 31, 1996
(unaudited) and December 31, 1995, respectively. Interest expense recorded
related to this borrowing was $11,219,048 and $1,348,424 for the three months
endedMarch 31, 1996 (unaudited) and for the year ended December 31, 1995,
respectively.
 
 BULK MORTGAGE LOAN PURCHASES
 
  During the first quarter of 1996 (unaudited), ICIFC purchased from ICII bulk
mortgage loans packages of 30-year fully amortizing six-month adjustable LIBOR
and 30 and 15-year fixed rate first and second trust deed mortgages having a
principal balance of $164,295,525 with net premiums paid of $1,917,427.
Servicing rights on all mortgage loans were released to ICIFC.
 
  On December 5, 1995 and December 13, 1995, ICIFC purchased from ICII bulk
mortgage loan packages of 30-year fully amortizing six-month adjustable LIBOR
and one-year adjustable Treasury Bill rate loans and 30 and 15-year fixed rate
second trust deed mortgages with servicing rights on all mortgage loans
released to ICIFC. The principal balances of the mortgages at the time of
purchase was $172,960,030, with net premiums paid of $3,664,157.
 
  On December 29, 1995, ICIFC purchased from SPTL two bulk mortgage loan
packages of 30-year fully amortizing six-month adjustable LIBOR, one-year
adjustable Treasury Bill rate loans and 30- and 15-year fixed rate fully
amortizing loans. The principal balances of the loans in the servicing
released and servicing retained bulk package at the time of purchase was
$328,450,611 with net premiums paid of $3,517,076.
 
 BULK MORTGAGE LOAN SALES (UNAUDITED)
 
  On March 29, 1996, ICIFC sold to IMH bulk mortgage loans packages of 30-year
fully amortized six-month adjustable LIBOR and 15-year fixed rate second trust
deed mortgages having a principal balance of $310,998,377 (unaudited) with net
premiums paid of $3,934,710 (unaudited). In conjunction with this sale, ICIFC
recorded originated mortgage servicing rights of $1,468,178 and a deferred
gain of $571,615, which will be amortized over the life of the loans.
 
 OCCUPANCY
 
  Subsequent to the Contribution Transaction, the Company is allocated rent
expense from IMH based on number of employees. Such allocation was $12,210 for
the period November 21, 1995 through December 31, 1995.
 
 NON-COMPETE AGREEMENT AND RIGHT OF FIRST REFUSAL AGREEMENT
 
  Pursuant to the Non-Compete Agreement, ICII and any entity of which ICII
owns more than 25% of the voting securities (a 25% entity) may not compete
with IWLG's Warehouse Lending Operations and may not establish a network of
third party correspondent loan originators or another end-investor in non-
conforming mortgage loans. The agreement expires two years from the effective
date of the Offering.
 
                                     F-37
<PAGE>
 
                            ICI FUNDING CORPORATION
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
  Pursuant to the Right of First Refusal Agreement, ICII granted ICIFC a right
of first refusal to purchase all non-conforming mortgage loans that ICII or
any 25% entity originates or acquires and subsequently offers for sale and
ICIFC granted ICII, or any 25% entity designated by ICII, a right of first
refusal to purchase all non-conforming mortgage loans that ICIFC acquires and
subsequently offers for sale. In addition, for a period of the earlier of nine
months from the effective date of the Offering and that date upon which IMH
accumulates $300 million of mortgage loans and/or mortgage-backed securities,
neither ICII nor any 25% entity will be permitted to purchase any non-
conforming bulk loan package having a principal balance of $50 million or more
without first allowing ICIFC the opportunity to bid to purchase said package.
 
  Additional related party transactions are described elsewhere in the
financial statement footnotes.
 
7. INCOME TAXES
 
  The Financial Accounting Standards Board issued Statement No. 109,
"Accounting For Income Taxes" (SFAS 109) which was effective for fiscal years
beginning after December 15, 1992. ICIFC adopted SFAS 109 on January 1, 1993
on a prospective basis. Implementation of SFAS 109 had no material impact on
ICIFC's financial position or results of operations for the year ended
December 31, 1993.
 
  ICIFC's income taxes were as follows:
 
<TABLE>
<CAPTION>
                                               FOR THE YEAR ENDED DECEMBER 31,
                                               --------------------------------
                                                  1995      1994        1993
                                               ---------- ---------  ----------
   <S>                                         <C>        <C>        <C>
   Current:
     Federal.................................. $  862,926 $(316,465) $ (769,178)
     State....................................    169,241  (109,137)   (265,259)
                                               ---------- ---------  ----------
   Total current..............................  1,032,167  (425,602) (1,034,437)
                                               ---------- ---------  ----------
   Deferred:
     Federal..................................     11,614   605,643   3,048,990
     State....................................     25,275   208,863   1,051,476
                                               ---------- ---------  ----------
   Total deferred.............................     36,889   814,506   4,100,466
                                               ---------- ---------  ----------
   Total income taxes......................... $1,069,056 $ 388,904  $3,066,029
                                               ========== =========  ==========
</TABLE>
 
  The income tax provision differs from statutory Federal corporate income tax
rate primarily due to state income taxes.
 
  Deferred income taxes arise from differences in the bases of assets and
liabilities for tax and financial reporting purposes. The following table
shows the primary components of ICIFC's net deferred tax liability at December
31, 1995 and 1994.
 
<TABLE>
<CAPTION>
                                                              1995      1994
                                                             ------- ----------
   <S>                                                       <C>     <C>
   Deferred tax liabilities:
     Mortgage servicing rights.............................. $   --  $4,810,361
     State tax benefit......................................  10,967        --
                                                             ------- ----------
       Total................................................ $10,967 $4,810,361
                                                             ======= ==========
</TABLE>
 
  ICIFC's net deferred tax liabilities are included on the balance sheets in
other assets and borrowings from ICII at December 31, 1995 and 1994,
respectively.
 
  There were no deferred tax assets at December 31, 1995 and 1994.
 
                                     F-38
<PAGE>
 
                            ICI FUNDING CORPORATION
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
8. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
 
  The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of Statement of
Financial Accounting Standards (SFAS) No. 107, "Disclosures About Fair Value
of Financial Instruments," and SFAS No. 119, "Disclosures About Derivative
Financial Instruments and Fair Value of Financial Instruments." The estimated
fair value amounts have been determined by ICIFC using available market
information and appropriate valuation methodologies, however, considerable
judgment is necessarily required to interpret market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts ICIFC could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
 
<TABLE>
<CAPTION>
                                                             DECEMBER 31, 1995
                                                            -------------------
                                                            CARRYING ESTIMATED
                                                             AMOUNT  FAIR VALUE
                                                            -------- ----------
                                                                (DOLLARS IN
                                                                THOUSANDS)
   <S>                                                      <C>      <C>
   Assets:
     Cash.................................................. $  2,184  $  2,184
     Mortgage loans held for sale..........................  544,273   544,273
   Liabilities:
     Borrowings from IWLG..................................  550,291   550,291
     Off balance-sheet commitments, unrealized gains
      (losses).............................................      --    (38,021)
</TABLE>
 
  The fair value estimates as of December 31, 1995 are based on pertinent
information available to management as of that date. Although management is
not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued for
purposes of these financial statements since those dates and, therefore,
current estimates of fair value may differ significantly from the amounts
presented herein.
 
  The following describes the methods and assumptions used by ICIFC in
estimating fair values.
 
 CASH
 
  The carrying amount for cash approximates fair value because these
instruments are demand deposits and do not present unanticipated interest rate
or credit concerns.
 
 MORTGAGE LOANS HELD FOR SALE
 
  The fair value of mortgage loans held for sale is estimated based on quoted
market prices from dealers and brokers for similar types of mortgage loans.
 
 BORROWINGS FROM IWLG
 
  Fair values approximate the carrying amounts because of the short-term
maturity of the liabilities.
 
 OFF BALANCE SHEET COMMITMENTS
 
  The fair value of commitments to purchase mortgage loans is equal to the
unamortized commitment fee received by the Company from sellers to purchase
such mortgage loans.
 
                                     F-39
<PAGE>
 
                            ICI FUNDING CORPORATION
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
9. EMPLOYEE BENEFIT PLANS
 
 PROFIT SHARING AND 401(K) PLAN
 
  Prior to July 1, 1993, Imperial Bancorp (the majority shareholder of ICII)
had a noncontributory profit sharing plan in which employees the Company were
eligible to participate at year end if they had been employed for at least
1,000 hours during the year. For 1993, there was no contribution charged to
operations.
 
  Imperial Bancorp also had a 401(k) plan in which all employees of ICIFC had
been eligible to participate. On July 1, 1993, ICII terminated its
participation in Imperial Bancorp's 401(k) and profit sharing plans,
establishing its own 401(k) plan (the Plan) in which employees of ICIFC were
eligible to participate. On September 30, 1993, Imperial Bancorp transferred
all plan assets to ICII.
 
  Under the ICII's 401(k) plan, employees of the Company may contribute up to
14% of their salaries. The Company will match 50% of the first 4% of employee
contributions. An additional Company contribution may be made at the
discretion of ICIFC.
 
  ICIFC does not have its own 401(k) or profit sharing plan. As such,
employees of ICIFC participate in ICII's 401(k) plan. The Company's matching
and discretionary contributions were not significant for any period presented.
 
10. COMMITMENTS AND CONTINGENCIES
 
 LOAN SERVICING
 
  As of December 31, 1994, ICIFC was servicing loans for others totaling
approximately $1.9 billion. Properties securing the mortgage loans in ICIFC's
servicing portfolio are primarily located in California. No loans were
serviced for others at December 31, 1995.
 
  Related fiduciary funds are held in trust for investors in non-interest
bearing accounts. These funds are segregated in special bank accounts and are
held as deposits at SPTL.
 
 SALES OF LOANS AND SERVICING RIGHTS
 
  In the ordinary course of business, ICIFC is exposed to liability under
representations and warranties made to purchasers and insurers of mortgage
loans and the purchasers of servicing rights. Under certain circumstances,
ICIFC is required to repurchase mortgage loans if there has been a breach of
representations or warranties. In the opinion of management, the potential
exposure related to these representations and warranties will not have a
material adverse effect on the financial position and operating results of
ICIFC.
 
  During the year ended December 31, 1994, ICIFC retained servicing rights on
$1.6 billion of mortgage loans sold and released servicing rights to the
purchasers on $199 million of mortgage loans sold. During the year ended
December 31, 1993, ICIFC retained servicing rights on $1.2 billion of mortgage
loans sold and released servicing rights to the purchasers on $552 million of
mortgage loans sold.
 
 COMMITMENTS
 
  ICIFC establishes mortgage loan purchase commitments (master commitments)
with sellers that, subject to certain conditions, entitle the seller to sell
and obligate ICIFC to purchase a specified dollar amount of non-conforming
mortgage loans over a period generally ranging from six months to one year.
The terms of each master commitment specify whether a seller may sell loans to
ICIFC on a mandatory, best efforts or optional
 
                                     F-40
<PAGE>
 
                            ICI FUNDING CORPORATION
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
basis, or a combination thereof. Master commitments generally do not obligate
ICIFC to purchase loans at a specific price, but rather provide the seller
with a future outlet for the sale of its originated loans based on ICIFC's
quoted prices at the time of purchase.
 
  ICIFC may from time to time provide provisions for loan losses related to
estimating losses from the breach of a standard representation and warranty on
mortgage loans previously sold. ICIFC recorded such provision for the three
months ended March 31, 1996 (unaudited) of $400,000.
 
  As of March 31, 1996 (unaudited) and December 31, 1995, ICIFC had
outstanding short term master commitments with 28 and 18 sellers to purchase
mortgage loans in the aggregate principal amount of approximately $595.0
million and $241.0 million over periods ranging from six months to one year,
of which $93.1 million and $35.7 million, respectively, had been purchased or
committed to be purchased pursuant to rate locks. These rate-locks were made
pursuant to master commitments, bulk rate-locks and other negotiated rate-
locks. There is no exposure to credit loss in this type of commitment until
the loans are funded, and interest rate risk associated with the short-term
commitments is mitigated by the use of forward contracts to sell loans to
investors.
 
 FORWARD CONTRACTS
 
  The Company sells mortgage-backed securities through forward delivery
contracts with major dealers in such securities. At March 31, 1996 (unaudited)
and December 31, 1995, the Company had $125,000,000 and $86,700,000,
respectively, in outstanding commitments to sell mortgage loans through
mortgage-backed securities. These commitments allow the Company to enter into
mandatory commitments when the Company notifies the investor of its intent to
exercise a portion of the forward delivery contracts. The Company was not
obligated under mandatory commitments to deliver loans to such investors at
March 31, 1996 (unaudited) and December 31, 1995.
 
  The credit risk of forward contracts relates to the counterparties' ability
to perform under the contract. The Company evaluates counterparties based on
their ability to perform prior to entering into any agreements.
 
 OPTIONS
 
  In order to protect against changes in the value of mortgage loans held for
sale, the Company may sell call or buy put options on U.S. Treasury bonds and
mortgage-backed securities. The Company generally sells call or buys put
options to hedge against adverse movements of interest rates affecting the
value of its mortgage loans held for sale.
 
  The risk in writing a call option is that the Company gives up the
opportunity for profit if the market price of the mortgage loans increases and
the option is exercised. The Company also has the additional risk of not being
able to enter into a closing transaction if a liquid secondary market does not
exist. The risk of buying a put option is limited to the premium the Company
paid for the put option.
 
  The Company had written option contracts with an outstanding principal
balance of $16 million at December 31, 1995. The Company received
approximately $100,000 in premiums on these options.
 
                                     F-41
<PAGE>
 
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
 
  NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THE OFFER OTHER THAN THOSE CONTAINED IN BY
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF
OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO ITS DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR A SOLICITATION OF
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY
CIRCUMSTANCES IN WHICH SUCH OFFER OF SOLICITATION IS UNLAWFUL.
 
 
                                ---------------
 
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
                                                                            PAGE
                                                                            ----
<S>                                                                         <C>
Prospectus Summary........................................................    3
Risk Factors..............................................................    7
The Company...............................................................   20
Use of Proceeds...........................................................   20
Price Range of Common Stock...............................................   20
Dividend Policy and Distributions.........................................   21
Dividend Reinvestment Plan................................................   21
Capitalization............................................................   23
Selected Financial Data...................................................   24
Management's Discussion and Analysis of Financial Condition and Results of
 Operations...............................................................   26
Business..................................................................   36
Imperial Credit Mortgage Holdings, Inc. ..................................   59
Imperial Credit Advisors, Inc. ...........................................   65
Relationships with Affiliates.............................................   69
Certain Transactions......................................................   69
Shares Eligible for Future Sale...........................................   74
Principal Stockholders....................................................   75
Description of Capital Stock..............................................   76
Certain Provisions of Maryland Law and of the Company's Charter and
 Bylaws...................................................................   78
Federal Income Tax Considerations.........................................   80
ERISA Investors...........................................................   89
Underwriting..............................................................   90
Legal Matters.............................................................   91
Experts...................................................................   91
Additional Information....................................................   91
Glossary..................................................................   92
Index to Financial Statements.............................................  F-1
</TABLE>
 
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
 ------------------------------------------------------------------------------
 ------------------------------------------------------------------------------
 
 
                               2,500,000 SHARES
 
 
                                [LOGO OF ICMH]
 
 
                                 COMMON STOCK
 
                               ---------------
 
                                  PROSPECTUS
 
                               ---------------
 
                           PAINEWEBBER INCORPORATED
 
                           OPPENHEIMER & CO., INC.
 
                          STIFEL, NICOLAUS & COMPANY
                                 INCORPORATED
 
                           EVEREN SECURITIES, INC.
 
                               ---------------
                                   
                                JUNE 18, 1996      
 
 ------------------------------------------------------------------------------
 ------------------------------------------------------------------------------

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