IMPAC MORTGAGE HOLDINGS INC
10-Q, 1999-05-17
REAL ESTATE INVESTMENT TRUSTS
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<PAGE>

                               United States
                     Securities and Exchange Commission
                          Washington, D.C. 20549

                                       Form 10-Q


[X]  Quarterly Report pursuant to Section 13 or 15(d) of the Securities 
     Exchange Act of 1934.

      For the quarterly period ended March 31, 1999

                                             OR

[_]  Transition report pursuant to Section 13 or 15(d) of the Securities 
     Exchange Act of 1934.

     For the transition period from _______________ to ______________


                            Commission File Number: 0-19861

                               Impac Mortgage Holdings, Inc.
                 (Exact name of registrant as specified in its charter)

                  Maryland                                    33-0675505
       (State or other jurisdiction of                      (I.R.S. Employer
          incorporation or organization)                    Identification No.)

                  1401 Dove Street
                  Newport Beach, CA                                   92660
        (Address of Principal Executive Offices)                    (Zip Code)

         Registrant's telephone number, including area code: (949) 475-3600

         Securities  registered pursuant to Section 12(b) of the Act:

                                                 Name of each exchange on
              Title of each class                    which registered  
- ------------------------------------------ -------------------------------------
          Common Stock $0.01 par value            American Stock Exchange


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

     On May  12, 1999 the  aggregate  market  value of the voting  stock held by
non-affiliates of the registrant was approximately $122.2 million,  based on the
closing  sales price of the Common Stock on the  American  Stock  Exchange.  For
purposes of the  calculation  only,  in addition to  affiliated  companies,  all
directors and executive  officers of the registrant have been deemed affiliates.
The  number  of  shares  of  Common  Stock  outstanding  as of May 12,  1999 was
22,725,770.

                    Documents incorporated by reference: None




<TABLE>
<CAPTION>
<PAGE>



                               IMPAC MORTGAGE HOLDINGS, INC.

                              1999 FORM 10-Q QUARTERLY REPORT

                                    TABLE OF CONTENTS


  <S>                                                                                                             <C>

                                                PART I. FINANCIAL INFORMATION

  Item 1.  CONSOLIDATED FINANCIAL STATEMENTS - IMPAC MORTGAGE HOLDINGS, INC.                                       Page #
           AND SUBSIDIARIES

           Consolidated Balance Sheets, March 31, 1999 and December 31, 1998                                          3

           Consolidated Statements of Operations and Comprehensive Earnings,
           For the Three Months Ended March 31, 1999 and 1998                                                         4

           Consolidated Statements of Cash Flows, For the Three Months Ended March 31, 1999 and 1998                  5

           Notes to Consolidated Financial Statements                                                                 6

  Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS                                                                                     13

  Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                24


                                                  PART II. OTHER INFORMATION

  Item 1.  LEGAL PROCEEDINGS                                                                                         25

  Item 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS                                                                 25

  Item 3.  DEFAULTS UPON SENIOR SECURITIES                                                                           25

  Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                       25

  Item 5.  OTHER INFORMATION                                                                                         25

  Item 6.  EXHIBITS AND REPORTS ON FORM 8-K                                                                          25

           SIGNATURES                                                                                                26

</TABLE>
<PAGE>


                               PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>

                                    IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
                                             CONSOLIDATED BALANCE SHEETS
                                     (dollars in thousands, except per share data)

 
                                                                                  March 31, 1999    December 31, 1998
                                                                                  ----------------  -------------------
<S>                                                                              <C>               <C>

                                     ASSETS
Cash and cash equivalents........................................................ $       15,574    $          33,876 
Investment securities available-for-sale.........................................        104,373               93,486 
Loan Receivables:
   CMO collateral................................................................      1,217,289            1,161,220 
   Finance receivables...........................................................        200,191              311,571 
   Mortgage loans held-for-investment............................................         53,030               20,627 
   Allowance for loan losses.....................................................         (5,970)              (6,959)
                                                                                  ----------------  -------------------
        Net loan receivables.....................................................      1,464,540            1,486,459 

Investment in Impac Funding Corporation..........................................         14,336               13,246 
Other real estate owned..........................................................         10,559                8,456 
Accrued interest receivable......................................................         10,521               10,039 
Due from affiliates..............................................................         10,142               17,904 
Other assets.....................................................................          1,982                2,038 
                                                                                  ----------------  -------------------
     Total assets................................................................ $    1,632,027    $       1,665,504 
                                                                                  ================  ===================

                      LIABILITIES AND STOCKHOLDERS' EQUITY
CMO borrowings................................................................... $    1,112,376    $       1,072,316 
Reverse repurchase agreements....................................................        255,047              323,625 
Senior subordinated debentures...................................................          6,448                  --  
Due to affiliates................................................................          4,752                2,670 
Accrued dividends payable........................................................          3,156               12,129 
Other liabilities................................................................          2,500                3,158 
                                                                                  ----------------  -------------------
     Total liabilities...........................................................      1,384,279            1,413,898 
                                                                                  ----------------  -------------------

Stockholders' Equity:
Preferred stock; $.01 par value; 6,300,000 shares authorized; none issued or
   outstanding at March 31, 1999 and at December 31, 1998, respectively..........             --                  --  
Series A junior participating preferred stock, $.01 par value; 2,500,000 shares
   authorized; none issued and outstanding at March 31, 1999 and December 31,
1998, respectively...............................................................             --                  --  
Series B 10.5% cumulative convertible preferred stock, $.01 par value;
liquidation
   value $30,000; 1,200,000 shares authorized; 1,200,000 issued and outstanding
   at March 31, 1999 and December 31, 1998, respectively.........................             12                   12 
Common stock; $.01 par value; 50,000,000 shares authorized; 22,725,567 and
   24,557,657 shares issued and outstanding at March 31, 1999 and at
   December 31, 1998, respectively...............................................            227                  246 
Additional paid-in capital.......................................................        333,388              342,945 
Accumulated other comprehensive earnings (loss)..................................            930               (1,736)
Notes receivable from common stock sales.........................................           (905)                (918)
Accumulated deficit:
   Cumulative dividends declared.................................................        (82,332)             (79,176)
   Accumulated deficit...........................................................         (3,572)              (9,767)
                                                                                  ----------------  -------------------
      Net accumulated deficit....................................................        (85,904)             (88,943)
                                                                                  ----------------  -------------------
        Total stockholders' equity...............................................        247,748              251,606 
                                                                                  ----------------  -------------------
        Total liabilities and stockholders'equity................................ $    1,632,027    $       1,665,504 
                                                                                  ================  ===================
 

</TABLE>

                    See accompanying notes to consolidated financial statements.

<PAGE>



<TABLE>
<CAPTION>


                                            IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

                                                 CONSOLIDATED STATEMENTS OF OPERATIONS

                                                      AND COMPREHENSIVE EARNINGS

                                                 (in thousands, except per share data)

                                                                                            For the Three Months
                                                                                              Ended March 31,
                                                                                      ---------------------------------
                                                                                           1999              1998
                                                                                      ----------------  ---------------
<S>                                                                                  <C>               <C>

INTEREST INCOME:
   Mortgage assets................................................................... $       29,687    $      37,861 
   Other interest income.............................................................            712              708 
                                                                                      ----------------  ---------------
     Total interest income...........................................................         30,399           38,569 

INTEREST EXPENSE:
   CMO borrowings....................................................................         17,081           16,029 
   Reverse repurchase agreements.....................................................          4,827           12,044 
   Senior subordinated debentures....................................................              7               -- 
   Other borrowings..................................................................            238              728 
                                                                                      ----------------  ---------------
     Total interest expense..........................................................         22,153           28,803 

   Net interest income...............................................................          8,246            9,766 
     Provision for loan losses.......................................................          1,499            1,904 
                                                                                      ----------------  ---------------
   Net interest income after provision for loan losses...............................          6,747            7,862 
                                                                                      ----------------  ---------------

NON-INTEREST INCOME:
   Equity in net earnings of Impac Funding Corporation...............................          1,090            2,156 
   Equity in net earnings of Impac Commercial Holdings, Inc..........................             --              378 
   Servicing fees....................................................................            466              314 
   Other income......................................................................            154              514 
                                                                                      ----------------  ---------------
     Total non-interest income.......................................................          1,710            3,362 
                                                                                      ----------------  ---------------

NON-INTEREST EXPENSE:
   Professional services.............................................................            811              343 
   (Gain) loss on sale of other real estate owned....................................            551             (692)
   Write-down on investment securities available-for-sale............................            422               -- 
   General and administrative and other expense......................................            359              361 
   Personnel expense.................................................................            119              108 
                                                                                      ----------------  ---------------
     Total non-interest expense......................................................          2,262              120 
                                                                                      ----------------  ---------------

     Net earnings....................................................................          6,195           11,104 
   Less: Cash dividends on Series B 10.5% cumulative convertible preferred stock.....           (888)              -- 
                                                                                      ----------------  ---------------
     Net earnings available to common stockholders...................................          5,307           11,104 

Other comprehensive earnings: 
     Unrealized gains (losses) on securities:
     Unrealized holding gains (losses) arising during period.........................          2,715              (15)
     Reclassification of realized gain (losses)  included in earnings................            (49)              -- 
                                                                                      ----------------  ---------------
        Net unrealized gains (losses) arising during period..........................          2,666              (15)
                                                                                      ----------------  ---------------
     Comprehensive earnings.......................................................... $        4,501    $      11,089
                                                                                      ================  ===============

     Net earnings per share--basic................................................... $         0.22    $        0.48 
     Net earnings per share--diluted................................................. $         0.20    $        0.48 
</TABLE>

          See accompanying notes to consolidated financial statements.


<PAGE>

<TABLE>
<CAPTION>

                                     IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
                                         CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                     (in thousands)
                                                                                              For the Three Months
                                                                                                 Ended March 31,
                                                                                         --------------------------------
                                                                                              1999             1998
                                                                                         ----------------  --------------
<S>                                                                                     <C>               <C>

Cash flows from operating activities:
  Net earnings...........................................................................$        6,195    $     11,104 
  Adjustments to reconcile net earnings to net cash provided by operating activities:
     Equity in net earnings of Impac Funding Corporation.................................        (1,090)         (2,156)
     Equity in net earnings of Impac Commercial Holdings, Inc............................            --            (378)
     Provision for loan losses...........................................................         1,499           1,904 
     Depreciation and amortization.......................................................            --              54 
     Loss (gain) on sale of other real estate owned......................................           551            (692)
     Write-down of investment securities available-for-sale..............................           422              -- 
     Net change in accrued interest receivable...........................................          (482)          1,098 
     Net change in other assets and liabilities..........................................         9,079          17,718 
                                                                                         ----------------  --------------
       Net cash provided by operating activities.........................................        16,174          28,652 
                                                                                         ----------------  --------------
Cash flows from investing activities:
  Net change in CMO collateral...........................................................       (56,377)       (546,076)
  Net change in finance receivables......................................................       111,219         223,092 
  Net change in mortgage loans held-for-investment.......................................       (38,632)        100,156 
  Proceeds from sale of other real estate owned, net.....................................         1,556           3,058
  Purchase of investment securities available-for-sale...................................        (9,084)        (24,094)
  Net principal reductions on investment securities available-for-sale...................           441           1,236 
  Purchase of premises and equipment.....................................................            --             (70)
                                                                                         ----------------  --------------
       Net cash provided by (used in) investing activities...............................         9,123        (243,390)
                                                                                         ----------------  --------------
Cash flows from financing activities:
  Net change in reverse repurchase agreements............................................       (68,578)       (290,596)
  Proceeds from CMO borrowings...........................................................       186,140         582,195
  Repayments of CMO borrowings...........................................................      (146,080)        (78,468)
  Dividends paid.........................................................................       (12,129)        (10,371)
  Proceeds from exercise of stock options................................................            --              80 
  Repurchase of common stock.............................................................        (3,874)             -- 
  Proceeds from dividend reinvestment  and stock purchase plan...........................           909          16,803 
  Advances to purchase common stock, net of principal reductions.........................            13              84 
                                                                                         ----------------  --------------
       Net cash provided by (used in) financing activities...............................       (43,599)        219,727 
                                                                                         ----------------  --------------

Net change in cash and cash equivalents..................................................       (18,302)          5,681 
Cash and cash equivalents at beginning of period.........................................        33,876          16,214 
                                                                                         ================  ==============
Cash and cash equivalents at end of period...............................................$       15,574    $     21,895 
                                                                                         ================  ==============

Supplementary information:
  Interest paid..........................................................................$       22,787    $     30,291 

Non-cash transactions:
  Exchange of common stock for 11% senior subordinated debentures........................$        6,448    $         -- 
  Dividends declared and unpaid..........................................................         3,156          11,332 
  Increase in accumulated other comprehensive earnings (loss)............................         2,166             (15) 
  Loans transferred to other real estate owned...........................................         4,210           1,853 
</TABLE>

          See accompanying notes to consolidated financial statements.

<PAGE>


                         IMPAC MORTGAGE HOLDINGS, INC. and SUBSIDIARIES
                           Notes to Consolidated Financial Statements
                                         (unaudited)


         Unless  the  context  otherwise  requires,  references  herein  to  the
      "Company"'  refer  to  Impac  Mortgage   Holdings,   Inc.  (IMH)  and  its
      subsidiaries, IMH Assets Corporation (IMH Assets), Impac Warehouse Lending
      Group,  Inc.  (IWLG),  IMH/ICH  Dove St.,  LLC (Dove),  and Impac  Funding
      Corporation  (together  with its  wholly-owned  subsidiary,  Impac Secured
      Assets Corporation,  IFC), collectively.  References to IMH refer to Impac
      Mortgage Holdings,  Inc. as a separate entity from IMH Assets,  IWLG, Dove
      and IFC.

      1. Basis of Financial Statement Presentation

         The accompanying  consolidated  financial statements have been prepared
      in accordance with generally  accepted  accounting  principles  (GAAP) for
      interim  financial  information and with the instructions to Form 10-Q and
      Rule 10-01 of Regulation S-X. Accordingly,  they do not include all of the
      information  and  footnotes   required  by  GAAP  for  complete  financial
      statements.  In the opinion of management,  all adjustments (consisting of
      normal recurring adjustments) considered necessary for a fair presentation
      have been included.  Operating  results for the  three-month  period ended
      March 31, 1999 are not  necessarily  indicative of the results that may be
      expected  for  the  year  ending  December  31,  1999.  The   accompanying
      consolidated  financial  statements should be read in conjunction with the
      consolidated  financial  statements  and  related  notes  included  in the
      Company's Annual Report on Form 10-K for the year ended December 31, 1998.

         The operations of IMH have been presented in the consolidated financial
      statements  for the three months ended March 31, 1999 and 1998 and include
      the  financial  results of IMH's  equity  interest in net earnings of IFC,
      IMH's equity interest in net earnings of Impac Commercial  Holdings,  Inc.
      (ICH) and results of operations of IMH, IMH Assets, IWLG and Dove only as 
      stand-alone  entities.  Equity  interest in net earnings of Impac 
      Commercial  Holdings,  Inc.  and  financial  results for Dove are for 1998
      only.

         The results of operations of IFC, of which 99% of the economic interest
      is owned by IMH, are included in the results of  operations of the Company
      as "Equity in net earnings of Impac Funding  Corporation."  The results of
      operations  of ICH, of which 9.8% of ICH's  common  stock was owned by IMH
      prior to the sale of ICH common stock on October 21, 1998, are included in
      the  results of  operations  of IMH as "Equity  in net  earnings  of Impac
      Commercial Holdings, Inc."

      2. Organization

         The Company is a mortgage loan finance company which, together with its
      subsidiaries and related  companies,  primarily operates three businesses:
      (1) the Long-Term Investment Operations,  (2) the Conduit Operations,  and
      (3) the Warehouse Lending Operations.  The Long-Term Investment Operations
      invests  primarily  in  non-conforming   residential  mortgage  loans  and
      securities  backed by such loans.  The Conduit  Operations  purchases  and
      sells  or  securitizes  primarily   non-conforming   mortgage  loans.  The
      Warehouse Lending Operations  provides warehouse and repurchase  financing
      to  originators  of  mortgage  loans.  IMH is  organized  as a real estate
      investment  trust (REIT) for federal income tax purposes,  which generally
      allows it to pass through qualified income to stockholders without federal
      income tax at the corporate level,  provided that the Company  distributes
      95% of its taxable income to common stockholders.

         Long-Term Investment  Operations.  The Long-Term Investment Operations,
      conducted  by IMH and IMH  Assets,  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). The principal  differences
      between  conforming  loans and  non-conforming  loans  include  applicable
      loan-to-value  ratios,  credit and  income  histories  of the  mortgagors,
      documentation required for approval of the mortgagors,  type of properties
      securing the mortgage loans,  loan sizes,  and the  mortgagors'  occupancy
      status with respect to the mortgaged properties. Second mortgage loans are
      mortgage  loans  secured  by a  second  lien on the  property  and made to
      borrowers   owning   single-family   homes   for  the   purpose   of  debt
      consolidation,  home  improvements,  education  and  a  variety  of  other
      purposes.
<PAGE>
         Conduit Operations. The Conduit Operations, conducted by IFC, purchases
      primarily  non-conforming  mortgage loans and, to a lesser extent,  second
      mortgage  loans from its network of third party  correspondents  and other
      sellers,  IFC  subsequently  securitizes  or sells such loans to permanent
      investors,  including the Long-Term Investment Operations. IMH owns 99% of
      the  economic  interest in IFC,  while Joseph R.  Tomkinson,  Chairman and
      Chief Executive Officer, William S. Ashmore, President and Chief Operating
      Officer,  and  Richard J.  Johnson,  Executive  Vice  President  and Chief
      Financial Officer, are the holders of all the outstanding voting stock of,
      and 1% of the economic interest in, IFC.

         Warehouse  Lending   Operations.   The  Warehouse  Lending  Operations,
      conducted  by  IWLG,  provides  warehouse  and  repurchase   financing  to
      affiliated  companies and to approved  mortgage  banks,  most of which are
      correspondents  of IFC, to finance mortgage loans during the time from the
      closing of the loans to their sale or other  settlement with  pre-approved
      investors.

      3. Summary of Significant Accounting Policies

      Method of Accounting

         The consolidated financial statements are prepared on the accrual basis
     of  accounting  in  accordance  with GAAP.  The  preparation  of  financial
     statements in conformity with GAAP requires  management to make significant
     estimates  and  assumptions  that  affect the  reported  amounts of assets,
     liabilities  and  contingent  liabilities  at the  date  of  the  financial
     statements  and the reported  amounts of revenues  and expenses  during the
     reporting   period.   Actual  results  may  differ  materially  from  those
     estimates.

      Reclassifications

         Certain amounts in the consolidated  financial statements as of and for
      the three months ended March 31, 1998 have been reclassified to conform to
      the 1999 presentation.

      New Accounting Statements

         In October 1998, the Financial Accounting Standards Board (FASB) issued
      Statement of Financial  Accounting  Standards (SFAS) No. 134,  "Accounting
      for  Mortgage-Backed  Securities  Retained  after  the  Securitization  of
      Mortgage Loans Held-for-sale by a Mortgage Banking Enterprise" (SFAS 134).
      SFAS 134 is an  amendment to SFAS No. 65,  which  required  that after the
      securitization  of a mortgage  loan  held-for-sale,  an entity  engaged in
      mortgage  banking  activities   classify  the  resulting   mortgage-backed
      security as a trading  security.  SFAS 134 further  amends SFAS No. 65 and
      requires that after the securitization of mortgage loans held-for-sale, an
      entity  engaged in mortgage  banking  activities  classify  the  resulting
      mortgage-backed  securities  or  other  retained  interests  based  on its
      ability and intent to sell or to hold those investments. SFAS 134 conforms
      the subsequent accounting for securities retained after the securitization
      of mortgage  loans by a mortgage  banking  enterprise  with the subsequent
      accounting for securities retained after the securitization of other types
      of assets by non-mortgage banking  enterprises.  SFAS 134 is effective for
      the first fiscal  quarter  beginning  after December 15, 1998. The Company
      adopted SFAS 134 and  determined it did not have a material  impact on the
      Company's financial position or results of operations.

         In June 1998, the FASB issued SFAS No. 133,  "Accounting for Derivative
      Instruments  and  Hedging  Activities"  (SFAS 133).  SFAS 133  establishes
      accounting and reporting standards for derivative  instruments,  including
      certain derivative instruments embedded in other contracts,  (collectively
      referred to as derivatives) and for hedging  activities.  It requires that
      an entity recognize all derivatives as either assets or liabilities in the
      statement of  financial  position and measure  those  instruments  at fair
      value.  If certain  conditions are met, a derivative  may be  specifically
      designated  as (a) a hedge of the exposure to changes in the fair value of
      a recognized asset or liability or an unrecognized firm commitment,  (b) a
      hedge of the exposure to variable cash flows of a forecasted  transaction,
      or (c) a hedge of the foreign  currency  exposure of a net investment in a
      foreign operation, an unrecognized firm commitment,  an available-for-sale
      security, or a  foreign-currency-denominated  forecasted transaction. This
      statement is effective for all fiscal  quarters of fiscal years  beginning
      after June 15, 1999.  The Company  believes  that the adoption of SFAS 133
      will not have a material  impact on the  Company's  financial  position or
      results of operations.
<PAGE>
      4. Net Earnings per Share

         Basic  earnings  per share is  computed  on the  basis of the  weighted
      average number of shares outstanding for the period.  Diluted earnings per
      share is computed on the basis of the  weighted  average  number of shares
      and common equivalent shares outstanding for the period.

         The following  table  represents  the  computation of basic and diluted
      earnings  per share for the three months ended March 31, 1999 and 1998 (in
      thousands, except per share data):

<TABLE>
<CAPTION>

                                                                                                 For the Three Months
                                                                                                   Ended March 31,
                                                                                             -----------------------------

                                                                                                 1999           1998
                                                                                             -------------- --------------
     <S>                                                                                    <C>            <C>

      Numerator:
         Numerator for basic earnings per share--
           Net earnings                                                                      $      6,195   $     11,104 
           Less: Dividends paid to preferred stockholders                                            (888)            -- 
                                                                                             ============== ==============
              Net earnings available to common stockholders                                  $      5,307   $     11,104 
                                                                                             ============== ==============

      Denominator:
         Denominator for basic earnings per share--
           Weighted average number of common shares
              outstanding during the period                                                        24,366         22,940 
              Impact of assumed conversion of convertible preferred stock                           6,061             -- 
           Net effect of dilutive stock options                                                        26            197 
                                                                                             -------------- --------------

              Weighted average common and common equivalent shares                                 30,453         23,137 
                                                                                             ============== ==============

           Net earnings per share--basic                                                     $       0.22   $       0.48 
                                                                                             ============== ==============

           Net earnings per share--diluted                                                   $       0.20   $       0.48 
                                                                                             ============== ==============
</TABLE>

<PAGE>


      5. Mortgage Assets

         Mortgage  Assets consist of investment  securities  available-for-sale,
      mortgage loans  held-for-investment,  CMO collateral,  finance receivables
      and loans held-for-sale. At March 31, 1999 and December 31, 1998, Mortgage
      Assets consisted of the following (in thousands):
<TABLE>
     
                                                                                         March 31,         December 31,
                                                                                           1999                1998
                                                                                      ----------------    ----------------
     <S>                                                                             <C>                 <C>
      Investment securities available-for-sale:
               Subordinated securities collateralized by mortgages                    $       92,642      $       89,825 
               Subordinated securities collateralized by other loans                          10,801               5,397 
               Net unrealized gains (losses)                                                     930              (1,736)
                                                                                      ----------------    ----------------
                    Carrying value                                                           104,373              93,486 
                                                                                      ----------------    ----------------
      Loan Receivables:
      CMO collateral--
               CMO collateral, unpaid principal balance                                    1,165,057           1,109,577 
               Unamortized net premiums on loans                                              39,028              39,369 
               Securitization expenses                                                        13,204              12,274 
                                                                                      ----------------    ----------------
                    Carrying value                                                         1,217,289           1,161,220 
      Finance receivables--
               Due from affiliates                                                           138,936             198,104 
               Due from other mortgage banking companies                                      61,255             113,467 
                                                                                      ----------------     ----------------
                    Carrying value                                                           200,191             311,571 
      Mortgage loans held-for-investment--
               Mortgage loans held-for-investment, unpaid principal balance                   52,362              20,145 
               Unamortized net premiums on loans                                                 668                 482 
                                                                                      ----------------     ----------------
                    Carrying value                                                            53,030              20,627 

                    Carrying value of Gross Loan Receivables                               1,470,510           1,493,418 

      Allowance for loan losses                                                               (5,970)             (6,959)
                                                                                      ----------------    ----------------
                    Carrying value of Net Loan Receivables                                 1,464,540           1,486,459 
                                                                                      ----------------    ----------------
                     Total carrying value of Mortgage Assets                          $    1,568,913      $    1,579,945 
                                                                                      ================    ================
</TABLE>



      6. Segment Reporting

         The Company's basis for its segments is to divide the entities into (a)
      the segments that derive income from  long-term  assets,  (b) the segments
      that  derive  income by  providing  financing,  and (c) the  segment  that
      derives income from the purchase and sale of mortgage loans.

         The Company  internally  reviews and  analyzes its entities as follows:
      (1) the Long-Term Investment Operations,  conducted by IMH and IMH Assets,
      invests  primarily  in  non-conforming   residential  mortgage  loans  and
      mortgage-backed  securities  secured by or representing  interests in such
      loans and in second mortgage loans, (2) the Warehouse  Lending  Operations
      provides warehouse and repurchase financing to affiliated companies and to
      approved  mortgage  banks,  most of which are  correspondents  of IFC,  to
      finance mortgage loans, and (3) the Conduit Operations,  conducted by IFC,
      purchases non-conforming mortgage loans and second mortgage loans from its
      network of third party correspondents and other sellers (a).



<PAGE>



<TABLE>
<CAPTION>

         The following table separates the Company's  reporting  segments as of March 31, 1999 and 
      for the three months ended March 31, 1999 (in thousands):



                                        Long-Term       Warehouse                                
                                        Investment       Lending                  Intercompany
                                        Operations     Operations     Other (b)  Elimination (c)    Consolidated
                                      --------------   ----------    ----------  ---------------    -------------
  <S>                                <C>              <C>           <C>         <C>                <C>    
   Balance Sheet Items:

       CMO collateral                 $  1,217,289     $       --    $     --    $         --       $  1,217,289
       Total assets                      1,487,795        273,699       5,442        (134,909)         1,632,027
       Total stockholders' equity          291,567         40,486         658         (84,963)           247,748

   Income Statement Items:

       Interest income                $     24,879     $    6,343    $     17    $       (840)      $     30,399
       Interest expense                     18,493          4,496           4            (840)            22,153
       Equity in IFC                            --             --          --           1,090              1,090
       Net earnings                          2,105          1,741          43           2,306              6,195
</TABLE>
<TABLE>
<CAPTION>

         The following table separates the Company's  reporting  segments as of March 31, 1998 
      and for the three months ended March 31, 1998 (in thousands):


                                        Long-Term       Warehouse
                                        Investment       Lending                  Intercompany
                                        Operations     Operations     Other (b)  Elimination (c)    Consolidated
                                      --------------   ----------    ----------  ---------------    -------------
  <S>                                <C>              <C>           <C>         <C>                <C>

   Balance Sheet Items:

       CMO collateral                 $   1,339,116    $       --    $     --    $         --       $  1,339,116
       Total assets                       1,726,985       493,322       6,559        (221,642)         2,005,224
       Total stockholders' equity           265,546        28,072       3,877         (51,741)           245,754

   Income Statement Items:

       Interest income                $      28,934    $   16,723    $     53    $     (7,141)      $     38,569
       Interest expense                      23,626        12,257          61          (7,141)            28,803
       Depreciation and amortization              4            --          50              --                 54
       Equity in IFC                             --            --          --           2,156              2,156
       Net earnings (loss)                    4,197         4,385         (12)          2,534             11,104
</TABLE>

      (a) The Conduit Operations is accounted for using the equity method and is
      an unconsolidated  subsidiary of the Company. 
      
      (b) Primarily  includes the operations of Dove, of which the Company owned
      a 50% interest  until the Company sold its interest to ICH in 1998,  and 
      account reclassifications.
     
      (c) Elimination of intercompany balance sheet and income statement items.

      7. Investment in Impac Funding Corporation

         The Company is entitled to 99% of the earnings or losses of IFC through
      its ownership of all of the  non-voting  preferred  stock of IFC. As such,
      the Company  records its investment in IFC using the equity method.  Under
      this method, original investments are recorded at cost and adjusted by the
      Company's  share of earnings or losses.  Gain or loss on the sale of loans
      or  securities  by IFC to IMH are deferred and  amortized or accreted over
      the estimated life of the loans or securities using the interest method.

         The  following  is  financial  information  for  IFC  for  the  periods
      presented (in thousands):


<PAGE>
<TABLE>
<CAPTION>


                                                               BALANCE SHEETS

                                                                                         March 31,       December 31,
                                                                                            1999             1998

                                                                                       ---------------   --------------
     <S>                                                                              <C>               <C>
                                           ASSETS
      Cash                                                                             $       9,533     $        422 
      Investment securities available-for-sale                                                   635            5,965 
      Investment securities available-for-trading                                                 --            5,300 
      Mortgage loans held-for-sale                                                           114,210          252,568 
      Mortgage servicing rights                                                               10,111           14,062 
      Due from affiliates                                                                      7,596            9,152 
      Premises and equipment, net                                                              2,066            1,978 
      Accrued interest receivable                                                                829            1,896 
      Other assets                                                                            13,565           22,529 
                                                                                       ---------------   --------------
                                                                                       $     158,545     $    313,872 
                                                                                       ==============    ===============
                            LIABILITIES AND SHAREHOLDERS' EQUITY
      Borrowings from IWLG                                                             $     109,323     $    192,900 
      Other borrowings                                                                           649           67,058 
      Due to affiliates                                                                       17,542           24,382 
      Deferred revenue                                                                        11,089           10,605 
      Other liabilities                                                                        5,356            6,064 
                                                                                       ---------------   --------------
              Total liabilities                                                              143,959          301,009 
                                                                                       ---------------   --------------
      Shareholders' Equity:
      Preferred stock                                                                         18,053           18,053 
      Common stock                                                                               182              182 
      Retained earnings                                                                       (3,751)          (4,852)
      Accumulated other comprehensive earnings (loss)                                            102             (520)
                                                                                       ---------------   --------------
             Total shareholders' equity                                                       14,586           12,863 
                                                                                       ---------------   --------------
                 Total liabilities and shareholders' equity                            $     158,545     $    313,872 
                                                                                       ===============   ==============
</TABLE>
<TABLE>
<CAPTION>

                                                       STATEMENTS OF OPERATIONS

                                                                                            For the Three Months
                                                                                               Ended March 31,
                                                                                       --------------------------------
                                                                                            1999             1998
                                                                                       ---------------   --------------
     <S>                                                                              <C>               <C>

      Interest income                                                                  $        4,833    $      14,799
      Interest expense                                                                          4,746           10,783
                                                                                       ---------------   --------------
         Net interest income                                                                       87            4,016
                                                                                       ---------------   --------------

      Gain on sale of loans                                                                     5,007            3,719
      Loan servicing income                                                                     2,141            1,001
      Other non-interest income                                                                   339              196
                                                                                       ---------------   --------------
           Total non-interest income                                                            7,487            4,916
                                                                                       ---------------   --------------
      
      Personnel expense                                                                         1,790            2,560
      Amortization of mortgage servicing rights                                                 1,427            1,392
      General and administrative and other expense                                              1,196            1,042
      Loss on sale of mortgage servicing rights                                                   567               --
      Write-down on securities available-for-sale                                                 559               --
      Provision for repurchases                                                                    20              170
                                                                                       ---------------   --------------
           Total non-interest expense                                                           5,559            5,164
                                                                                       ---------------   --------------
          Earnings before income taxes                                                          2,015            3,768
      Income taxes                                                                                914            1,591
                                                                                       ---------------   --------------
          Net earnings                                                                 $        1,101    $       2,177
                                                                                       ===============   ==============
<PAGE>
</TABLE>

      8.  Investment in Impac Commercial Holdings, Inc.

         Subsequent  to ICH's  initial  public  offering on August 4, 1997,  the
      Company was entitled to 17.4% of the earnings or losses of ICH through its
      ownership of 1,394,000  shares, or 9.8%, of the combined ICH voting Common
      Stock and ICH non-voting  Class A Common Stock.  The Company  recorded its
      investment  in ICH using the equity  method.  Under this method,  original
      investments  were recorded at cost and adjusted by the Company's  share of
      earnings or losses.  On October 21, 1998, ICH repurchased from IMH 937,084
      shares of Common  Stock and  456,916  shares of Class A Common  Stock at a
      price  of  $4.375  per  share  for a total  repurchase  of  $6.1  million,
      representing a loss to IMH of $9.1 million.  The Company had no investment
      in ICH at March 31, 1999 or December 31, 1998.

      9. Stockholders' Equity

         During the three  months  ended  March 31,  1999,  the  Company  raised
      capital of $909,000 from the sale of 209,426 shares of Common Stock issued
      through its Dividend  Reinvestment  and Stock  Purchase Plan (DRSPP).  The
      Company repurchased  684,100 shares of Common Stock for $3.9 million.  The
      Company  exchanged  1,357,416  shares of its Common  Stock,  at an average
      price of $5.70 per share,  for 11% senior  subordinated  debentures due to
      mature on February 15, 2004.

         On March 31, 1999, the Company declared a first quarter dividend of
     $2.3 million,  or $0.10 per share.  This dividend was paid on April 23, 
     1999 to common stockholders of record on April 9, 1999.

         On March 23, 1999, the  Company  declared a first  quarter  dividend of
      $888,000 to Series B preferred  stockholders.  This  dividend  was paid on
      April 27, 1999.

      10. Subsequent Events

         On May 5, 1999,  ICH executed a stock  purchase  agreement  pursuant to
      which it issued to Fortress  Partners  LP  ("Fortress")  $12.0  million of
      Series B Convertible  Preferred Stock of ICH. In addition,  FIC Management
      Inc.  ("FIC"),  an  affiliate  of  Fortress,  entered  into  a  definitive
      agreement  with RAI  Advisors,  LLC  ("RAI") for the  assignment  of RAI's
      rights and interests in the  Management  Agreement with ICH. In connection
      with these  transactions,  the submanagement  agreement among RAI, IMH and
      IFC was  terminated  and a new  submanagement  agreement  was entered into
      among FIC, IMH and IFC and the Right of First Refusal Agreement among RAI,
      ICH,  ICCC,  IMH and  IFC  was  terminated.  Under  the new  submanagement
      agreement, IMH and IFC will provide various services including accounting,
      data processing and secondary marketing to ICH as Fortress deems necessary
      for an annual fee of $250,000.



<PAGE>


      ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                      RESULTS OF OPERATIONS

         Certain information contained in the following Management's  Discussion
      and Analysis of Financial  Condition and Results of Operations  constitute
      forward-looking  statements  within  the  meaning  of  Section  27A of the
      Securities Act of 1933, as amended, and Section 21E of the Exchange Act of
      1934, as amended,  which can be  identified by the use of  forward-looking
      terminology  such  as  "may,"  "will,"   "expect,"   "intend,"   "should,"
      "anticipate,"  "estimate," or "believe" or the negatives  thereof or other
      variations thereon or comparable terminology. The Company's actual results
      may  differ  materially  from  those  contained  in  the   forward-looking
      statements.  Factors  which may cause a  difference  to occur  include the
      success of the  Company's  new  divisions, any delays with  respect to the
      acquisition of the thrift and loan,  increased costs and delays related to
      Year 2000 compliance,  the availability of suitable  opportunities for the
      acquisition, ownership and disposition of Mortgage Assets (which depend on
      the type of Mortgage  Asset  involved) and yields  available  from time to
      time on such Mortgage Assets, interest rates, changes in estimates of book
      basis and tax basis earnings,  the availability of suitable  financing and
      investments,  and trends in the economy which affect confidence and demand
      on the Company's portfolio of Mortgage Assets.


      SIGNIFICANT TRANSACTIONS

      Exchange Offering

         The  Company  exchanged  1,357,416  shares of its Common  Stock,  at an
      average price of $5.70 per share, for 11% senior  subordinated  debentures
      due  to  mature  on  February  15,  2004.  The  debentures  are  unsecured
      obligations  of  the  Company  subordinated  to  all  indebtedness  of the
      Company's subsidiaries. The debentures will bear interest at 11% per annum
      from their date of issuance,  payable quarterly,  commencing May 15, 1999,
      until the debentures  are paid in full. The debentures  mature on February
      15,  2004,  which date may be  extended  once by the Company to a date not
      later than May 15,  2004,  provided  that the  Company  satisfies  certain
      conditions.   Commencing  on  February  15,  2001,   the   debentures  are
      redeemable,  at the Company's option, in whole at any time or in part from
      time to time,  at the  principal  amount to be redeemed  plus  accrued and
      unpaid interest thereon to the redemption date.

      Collateralized Mortgage Obligations ("CMO")

         The  Company  completed  its first CMO since June of 1998.  The CMO was
      issued in February of 1999 for $186.1  million and was  collateralized  by
      $124.0  million  of   adjustable-rate   mortgages  and  $77.8  million  of
      residential loans secured by second trust deeds.

      Definitive Agreement to Acquire a California Thrift and Loan

         During the first quarter of 1999, the Company entered into a definitive
      agreement to acquire a California  thrift and loan. The Company  currently
      does not  anticipate any  significant  regulatory  impediments  during the
      application  process.  The  thrift and loan will be  headquartered  at the
      Company's  new location in Newport  Beach,  California,  where the Company
      consolidated its business operations during the first quarter of 1999.

      New Divisions at IFC

         During the first quarter of 1999, IFC introduced two new divisions. The
      new  divisions  are focused on getting  closer to the  borrower  through a
      retail based portfolio retention program,  along with interacting directly
      with the mortgage broker community.
<PAGE>

      BUSINESS OPERATIONS

         Long-Term Investment Operations:  During the first quarter of 1999, the
      Long-Term Investment Operations, conducted by IMH and IMH Assets, acquired
      $202.0  million  of  mortgages  from IFC as  compared  to  $677.7  million
      acquired  during  the same  period  in 1998.  Mortgages  purchased  by the
      Long-Term Investment Operations during the first quarter of 1999 consisted
      of  $343,000  of  fixed-rate  mortgages  ("FRMs")  and  $122.3  million of
      adjustable-rate  mortgages  ("ARMs") secured by first liens on residential
      property and $79.4  million of  fixed-rate  second trust deeds  secured by
      residential property.  During the first quarter of 1999, IMH Assets issued
      CMOs totaling  $186.1 million as compared to CMOs totaling  $583.0 million
      during  the same  period in 1998.  As of March  31,  1999,  the  Long-Term
      Investment  Operations  portfolio  of  mortgage  loans  consisted  of $1.2
      billion of mortgage  loans held in trust as collateral  for CMOs and $53.0
      million of mortgage loans held-for-investment,  of which approximately 46%
      were FRMs and 54% were ARMs. The weighted  average coupon of the Long-Term
      Investment  Operations  portfolio of mortgage loans was 9.35% at March 31,
      1999 with a weighted  average  margin of 4.43%.  The portfolio of mortgage
      loans included 65% of "A" credit  quality,  non-conforming  mortgage loans
      and 35% of "B" and "C" credit quality,  non-conforming  mortgage loans, as
      defined by the Company. The Long-Term Investment Operations also sold $5.8
      million  of  mortgage  loans to IFC  during  the first  quarter of 1999 as
      compared to $136.7  million  during the same period in 1998.  In addition,
      during  the first  quarter  of 1999 the  Long-Term  Investment  Operations
      acquired  $9.1  million of  securities  from by IFC as  compared  to $24.1
      million during the same period in 1998.  These  securities  were generated
      mainly  from the  periodic  issuance of real  estate  mortgage  investment
      conduits  ("REMICs")  As of  March  31,  1999,  the  Long-Term  Investment
      Operations had $104.4 million of investment securities available-for-sale.

         Conduit Operations: The Conduit Operations, conducted by IFC, continues
      to support the Long-Term Investment Operations of the Company by supplying
      IMH  and  IMH  Assets  with  mortgages  for  IMH's  long-term   investment
      portfolio.  In acting  as the  mortgage  conduit  for the  Company,  IFC's
      mortgage  acquisitions  decreased 58% to $257.6  million  during the first
      quarter of 1999 as compared to $608.0 million of mortgages acquired during
      the same period in 1998. IFC did not issue any REMICs in the first quarter
      of 1999.  In  addition,  IFC sold  whole  loans to third  party  investors
      totaling  $163.0  million,  resulting  in gain on  sale of  loans  of $5.0
      million,   during  the  first   quarter   of  1999.   This   compares   to
      securitizations  and whole loan sales to third parties of $367.2  million,
      resulting in gain on sale of loans of $3.7 million, during the same period
      in 1998.  IFC had  deferred  income of $11.1  million at March 31, 1999 as
      compared to $10.6  million at December 31, 1998.  The increase in deferred
      income  relates  to the sale of $198.8  million  in  principal  balance of
      mortgages to IMH during the first quarter of 1999,  which are deferred and
      amortized  or  accreted  over  the  estimated  life  of the  loans.  IFC's
      servicing  portfolio  decreased  13% to $2.8  billion at March 31, 1999 as
      compared to $3.2 billion at March 31, 1998. The loan  delinquency  rate of
      mortgages  in IFC's  servicing  portfolio  which were 60 or more days past
      due, inclusive of foreclosures and delinquent  bankruptcies,  was 5.66% at
      March 31, 1999 as compared to 4.82%,  5.21%, 4.29%, and 3.20% for the last
      four quarter-end periods.

         Warehouse Lending Operations:  At March 31, 1999, the Warehouse Lending
      Operations,  conducted by IWLG, had $860.2  million of warehouse  lines of
      credit available to 29 borrowers,  of which $246.4 million was outstanding
      thereunder,  including  $109.3  million  outstanding to IFC, $50.3 million
      outstanding  to the  Long-Term  Investment  Operations,  and $25.5 million
      outstanding to Walsh Securities, Inc. ("WSI"). James Walsh, Executive Vice
      President of WSI, is also a Director of IMH and ICH.


      RESULTS OF OPERATIONS--
      IMPAC MORTGAGE HOLDINGS, INC.

      For the Three  Months Ended March 31, 1999 as compared to the Three Months
      Ended March 31, 1998

      Results of Operations

         The Company recorded net earnings of $6.2 million, or $0.20 per diluted
      common share, during the first quarter of 1999 as compared to net earnings
      of $11.1  million,  or $0.48 per diluted  common  share,  during the first
      quarter of 1998.  Net earnings  decreased  primarily due to the following:
      (1) a $1.5  million  decrease  in net  interest  income as a result of the
      Company reducing leverage in its balance sheet and increasing liquidity in
      response to the global liquidity crisis,  which occurred during the latter
      part of 1998,  (2) an increase  in  non-interest  expense of $2.1  million
      primarily due to losses on REO  properties  and partially from an increase
      in   professional   services  and  write-down  on  investment   securities
      available-for-sale,  and (3) a decrease  of $1.1  million in equity in net
      earnings of Impac Funding Corporation.
<PAGE>
         Net earnings  during the first quarter of 1999 decreased as compared to
      the first quarter of 1998 as the Company moved towards  reducing  leverage
      in its balance sheet and increasing  liquidity during the first quarter of
      1999 and the fourth  quarter of 1998. In response to the global  liquidity
      crisis during the latter part of 1998,  which resulted in a  deterioration
      of the  mortgage-backed  securitization  market, the Company sold Mortgage
      Assets at  significant  losses as the  Company  reduced  its  market  risk
      exposure rather than continue to expose its  stockholders to further risk.
      As a result of the sale of Mortgage Assets, liquidity increased during the
      first quarter of 1999 as cash and cash equivalents averaged $21.3 million,
      which  reflected  the payment of the Company's  third quarter  dividend of
      $12.1  million on January 6, 1999,  as compared  to average  cash and cash
      equivalents  of $8.7 million  during the fourth  quarter of 1998.  Because
      liquidity  improved  during  the first  quarter  of 1999  over the  fourth
      quarter of 1998 the Company was able to  complete  its first CMO  issuance
      since  June of 1998.  The CMO was  issued in  February  of 1999 for $186.1
      million  and was  collateralized  by  $124.0  million  of  adjustable-rate
      mortgages and $77.8 million of  residential  loans secured by second trust
      deeds. The issuance of CMOs provides the Company with immediate liquidity,
      a locked-in net interest rate spread and eliminates the Company's exposure
      to  margin  calls on such  loans.  The  Company's  ratio of debt to equity
      decreased  to 5.54 at March 31, 1999 as  compared to 5.55 at December  31,
      1998 and 7.90 at  September  30, 1998 due to the sale of  Mortgage  Assets
      during the fourth  quarter of 1998,  the issuance of  1,200,000  shares of
      Series B 10.5% Cumulative  Convertible Preferred Stock in December of 1998
      and the issuance of the CMO during the first quarter of 1999.

         Because  of  reduced  leverage,   the  Company's  net  interest  income
      decreased, (as discussed below) however, the Company experienced no margin
      calls on its reverse  repurchase  agreements  during the first  quarter of
      1999. As the mortgage sector  stabilized and recovered from the volatility
      that  occurred  during the latter part of 1998,  the  Company  returned to
      profitability  on the  sale of its  mortgage  loans.  In  addition  to the
      Company's   success  in  raising  cash,  the  Company  was  successful  in
      increasing the Company's book value per common share,  which  increased to
      $9.58 per common  share at March 31,  1999 as compared to $9.02 per common
      share at December  31,  1998.  The  Company's  book value per common share
      increased,  in part,  due to the  retention of $3.0 million of earnings in
      excess of the first quarter dividend  distribution to common and preferred
      stockholders. The Company expects that the retention of earnings in excess
      of  dividend  distributions  for the  remainder  of 1999 will  continue to
      improve the Company's book value per common share.  The Company's  current
      common stock  dividend  policy is to base  quarterly  dividends per common
      share upon the Company's  best  estimate of taxable  earnings for the year
      ending  December 31, 1999.  However,  the Board of Directors  reserves the
      right to make adjustments to this policy as actual results may differ from
      earnings projections. The most significant adjustments to taxable earnings
      during the first quarter of 1999 were the  amortization of the termination
      of the Company's management agreement with Imperial Credit Advisors,  Inc.
      in  December  of  1997,  which  resulted  in  quarterly   amortization  of
      approximately $2.7 million, and the exclusion of $1.1 million of equity in
      net earnings of Impac Funding Corporation.

      Net Interest Income

         Net interest  income  decreased  $1.6 million,  or 16%, to $8.2 million
      during the first  quarter of 1999 as compared to $9.8  million  during the
      first  quarter  of 1998 due to a  decrease  in  average  Mortgage  Assets.
      Interest  income is  primarily  interest  earned on  Mortgage  Assets  and
      includes  interest  earned  on cash  and  cash  equivalents  and due  from
      affiliates.  Interest expense is primarily  interest paid on borrowings on
      Mortgage Assets and includes interest paid on due to affiliates and senior
      subordinated  debentures.  Average  Mortgage Assets  decreased 16% to $1.6
      billion  during the first  quarter  of 1999 as  compared  to $1.9  billion
      during  the first  quarter of 1998 due to the  following:  (1) the sale of
      Mortgage  Assets  during the fourth  quarter of 1998,  (2) a reduction  in
      mortgage  loan  production at IFC,  which  decreased  average  outstanding
      finance receivables,  and (3) the Company's concentration on strengthening
      book value and conserving capital by reducing the Company's leverage.  Net
      interest  income also  decreased as the Company's  net interest  spread on
      Mortgage  Assets  decreased to 1.16%  during the first  quarter of 1999 as
      compared  to 1.42%  during  the first  quarter of 1998.  The net  interest
      spread on Mortgage  Assets  decreased  primarily  as the  Company  sold or
      securitized  high-yielding residential loans secured by second trust deeds
      during 1998. As a result,  the weighted  average  yield on mortgage  loans
      held-for-investment decreased to 6.01% during the first quarter of 1999 as
      compared to 10.30% during the first quarter of 1998.
<PAGE>
         The following table summarizes  average balance,  interest and weighted
      average yield on Mortgage Assets and borrowings on Mortgage Assets for the
      three months ended March 31, 1999 and 1998 and includes interest income on
      Mortgage  Assets and interest  expense  related to  borrowings on Mortgage
      Assets only (dollars in thousands):
<TABLE>
<CAPTION>
                                                              For the Three Months                   For the Three Months
                                                              Ended March 31, 1999                   Ended March 31, 1998
                                                   ----------------------------------------   --------------------------------------
                                                      Average                    Weighted       Average                 Weighted
                                                      Balance      Interest      Avg Yield      Balance     Interest    Avg Yield
                                                   -------------  ------------   ---------- ------------- ------------ ------------
   <S>                                             <C>           <C>             <C>        <C>          <C>              <C>
  
                   MORTGAGE ASSETS 
Investment securities available-for-sale:
   Sub-securities collateralized by mortgages       $     92,576  $    3,102      13.40 %    $    66,505  $     1,814      10.91 %
   Sub-securities collateralized by other loans            7,911         223      11.28            5,319          231      17.37
                                                    ------------- -----------                ------------ -------------
    Total investment securities available-for-sale       100,487       3,325      13.24           71,824        2,045      11.39
                                                    ------------- -----------                ------------ -------------

   Loan receivables:
   CMO collateral                                      1,176,853      20,009       6.80        1,049,111       17,750       6.77
   Mortgage loans held-for-investment                     53,376         802       6.01          328,318        8,453      10.30
   Finance receivables:
     Affiliated                                          183,941       3,984       8.66          379,756        8,151       8.59
     Non-affiliated                                       69,495       1,567       9.02           63,727        1,462       9.18
                                                    ------------- -----------                ------------ -------------
         Total finance receivables                       253,436       5,551       8.76          443,483        9,613       8.67
                                                    ------------ ------------                ------------ -------------
            Total Loan Receivables                     1,483,665      26,362       7.11        1,820,912       35,816       7.87
                                                    ------------- ----------                 ------------ -------------   
         Total Mortgage Assets                      $  1,584,152  $   29,687       7.50 %    $ 1,892,736  $    37,861       8.00 %
                                                    ============= ==========                 ============ =============

                      BORROWINGS
    CMO borrowings                                  $  1,078,797  $   17,081       6.33 %    $   974,106  $    16,029       6.58 %
    Reverse repurchase agreements - mortgages            281,471       4,447       6.32          716,903       11,811       6.59
    Reverse repurchase agreements - securities            22,992         380       6.61           15,106          233       6.17
                                                    ------------- ----------                 ------------ -------------
         Total borrowings on Mortgage Assets        $  1,383,260  $   21,908       6.34 %    $ 1,706,115  $    28,073       6.58 %
                                                    ============= ==========                 ============ =============   
    Net Interest Spread                                                            1.16 %                                   1.42 %

    Net Interest Margin                                                            1.96 %                                   2.07 %
</TABLE>


         Interest Income on Mortgage  Assets:  Interest income on CMO collateral
      increased  12% to  $20.0  million  during  the  first  quarter  of 1999 as
      compared to $17.8 million  during the first quarter of 1998 as average CMO
      collateral  increased  20% to $1.2  billion as compared  to $1.0  billion,
      respectively. Average CMO collateral increased as the Long-Term Investment
      Operations issued CMOs totaling $371.1 million,  which were collateralized
      by $391.0  million  of  mortgage  loans held by the  Long-Term  Investment
      Operations  since  the end of the  first  quarter  of 1998.  The  weighted
      average  yield on CMO  collateral  increased  to 6.80%  during  the  first
      quarter of 1999 as compared to 6.77% during the first quarter of 1998. The
      net interest  spread between CMO  collateral  and borrowings  increased to
      0.47%  during the first  quarter of 1999 as compared  to 0.19%  during the
      first quarter of 1998.

         Interest income on mortgage loans held-for-investment  decreased 91% to
      $802,000  during the first  quarter of 1999 as  compared  to $8.5  million
      during   the   first   quarter   of  1998  as   average   mortgage   loans
      held-for-investment  decreased  84% to $53.4 million as compared to $328.3
      million,   respectively.   Average   mortgage  loans   held-for-investment
      decreased due to decreased  loan  acquisitions  by IMH,  which were $202.0
      million  during the first  quarter of 1999 as compared  to $677.7  million
      during the first quarter of 1998.  The weighted  average yield on mortgage
      loans held-for-investment  decreased to 6.01%, during the first quarter of
      1999, as compared to 10.30% during the first quarter of 1998. The decrease
      in  the  weighted   average  yield  was  primarily  due  to  the  sale  of
      high-yielding second trust deeds throughout 1998 and the securitization of
      high yielding second trust deeds during the first quarter of 1999.

         Interest  income on finance  receivables  decreased 42% to $5.6 million
      during the first  quarter of 1999 as compared to $9.6  million  during the
      first  quarter of 1998 as average  finance  receivables  decreased  43% to
      $253.4 million as compared to $443.5 million,  respectively.  The decrease
      in interest  income on finance  receivables  was primarily the result of a
      decrease of 52% in average finance receivables to affiliated  companies to
      $183.9  million,  during the first  quarter of 1999, as compared to $380.0
      million,  during  the  first  quarter  of  1998,  as IFC's  mortgage  loan
      acquisitions  decreased to $257.6  million as compared to $608.0  million,
      respectively.   Interest  income  on  finance  receivables  to  affiliates

<PAGE>
      decreased 51% to $4.0 million during the first quarter of 1999 as compared
      to $8.2 during the first  quarter of 1998.  The weighted  average yield on
      affiliated finance receivables increased to 8.66% during the first quarter
      of 1999 as compared to 8.59%  during the first  quarter of 1998.  Interest
      income on finance receivables to non-affiliated mortgage banking companies
      increased  7% to $1.6  million,  during  the  first  quarter  of 1999,  as
      compared to $1.5  million,  during the first  quarter of 1998,  as average
      finance  receivables   outstanding  to  non-affiliated   mortgage  banking
      companies  increased  9% to $69.5  million as compared  to $63.7  million,
      respectively.   The  weighted  average  yield  on  non-affiliated  finance
      receivables  decreased  to  9.02%  during  the  first  quarter  of 1999 as
      compared to 9.18% during the first quarter of 1998.  The overall  weighted
      average yield on finance  receivables  increased to 8.76% during the first
      quarter of 1999 as compared to 8.67% during the first quarter of 1998.

         Interest income on investment securities  available-for-sale  increased
      65% to $3.3 million  during the first  quarter of 1999 as compared to $2.0
      million during the first quarter of 1998 as average investment  securities
      available-for-sale,  net of securities valuation allowance,  increased 40%
      to $100.5  million as compared to $71.8  million.  The increase in average
      securities  available-for-sale  was the result of the Long-Term Investment
      Operations  purchasing and retaining  mortgage-backed  securities of $59.1
      million,  which were  issued by IFC as REMICs,  since the end of the first
      quarter of 1998.  The  weighted  average  yield on  investment  securities
      available-for-sale increased to 13.24% during the first quarter of 1999 as
      compared to 11.39 % during the first quarter of 1998.

         Interest  expense on  borrowings:  Interest  expense on CMO  borrowings
      increased 7% to $17.1 million during the first quarter of 1998 as compared
      to $16.0 million during the first quarter of 1997 as average borrowings on
      CMO  collateral  increased  13% to $1.1  billion  as  compared  to  $974.0
      million,  respectively.  Average CMO borrowings increased as the Long-Term
      Investment Operations issued CMOs totaling $371.1 million since the end of
      the first quarter of 1998.  The weighted  average yield of CMO  borrowings
      decreased to 6.33%  during the first  quarter of 1999 as compared to 6.58%
      during the first quarter of 1998.

         Interest  expense on  reverse  repurchase  borrowings  used to fund the
      acquisition  of mortgage  loans and finance  receivables  decreased 63% to
      $4.4 million during the first quarter of 1999 as compared to $11.8 million
      during the first  quarter of 1998.  The average  balance of these  reverse
      repurchase  agreements  decreased 61% to $281.5  million  during the first
      quarter of 1999 as compared to $716.9  million during the first quarter of
      1998.  This  decrease  was  primarily  related  to a  decrease  in finance
      receivables made to IFC as IFC's  acquisition of mortgage loans were lower
      during the first quarter of 1999 as compared to the first quarter of 1998.
      The  weighted  average  yield  of  these  reverse  repurchase   agreements
      decreased  to 6.32%  during the first  quarter of 1999 as  compared  6.59%
      during the first quarter of 1998.

         The Company  also uses  mortgage-backed  securities  as  collateral  to
      borrow  under  reverse  repurchase  agreements  to fund  the  purchase  of
      mortgage-backed securities and to act as an additional source of liquidity
      for the Company's operations. Interest expense on these reverse repurchase
      agreements  increased 63% to $380,000  during the first quarter of 1999 as
      compared to $233,000 during the first quarter of 1998. The average balance
      on these  reverse  repurchase  agreements  increased  52% to $23.0 million
      during the first quarter of 1999 as compared to $15.1  million  during the
      first  quarter  of 1998.  The  weighted  average  yield  of these  reverse
      repurchase  agreements increased to 6.61% during the first quarter of 1999
      as compared 6.17% during the first quarter of 1998.

      Provision for Loan Losses

         The Company  recorded loan loss  provisions of $1.5 million  during the
      first quarter of 1999 as compared to $1.9 million during the first quarter
      of 1998.  The amount  provided for loan losses during the first quarter of
      1999 decreased primarily due lower levels of mortgage loan acquisitions as
      compared to the first  quarter of 1998.  IMH  acquired  $202.0  million of
      mortgage  loans  during  the first  quarter  of 1999 as  compared  to loan
      acquisitions of $677.7 million during the first quarter of 1998.

      Non-Interest Income
<PAGE>
         Equity in Net Earnings of IFC

         During  the  first  quarter  of 1999,  equity  in net  earnings  of IFC
      decreased  to $1.1  million as compared to $2.2  million  during the first
      quarter of 1998.  Equity in net earnings of IFC decreased during the first
      quarter of 1999  primarily  due to a decrease of $3.9 million in IFC's net
      interest  income to $87,000,  as compared to $4.0 million during the first
      quarter of 1998.  The decrease in IFC's net interest  income was partially
      offset  by  increases  of $1.3  million  in gain on sale of loans and $1.1
      million in loan servicing income.

         IFC's  net  interest  income   decreased  as  average   mortgage  loans
      held-for-sale  decreased 60% to $209.6 million during the first quarter of
      1999 as  compared  to $527.7  million  during  the first  quarter of 1998.
      Average   mortgage   loans   held-for-sale   decreased  as  mortgage  loan
      acquisitions  decreased 58% to $257.6  million during the first quarter of
      1999 as compared to mortgage loan  acquisitions  of $608.0  million during
      the first quarter of 1998.  Mortgage loan  acquisitions  decreased as bulk
      loan  acquisitions  decreased to $13.7 million during the first quarter of
      1999 as compared to bulk loan  acquisitions  of $231.4  million during the
      first quarter of 1998.  Mortgage loan  acquisitions  also decreased during
      the  first   quarter  of  1999  as  IFC  continues  to  recover  from  the
      deterioration of the mortgage-backed  securitization market which occurred
      in 1998.  In response to the  deterioration  of the mortgage  market,  IFC
      raised  interest  rates on its loan  programs and  decreased the amount of
      premiums paid on its loan acquisitions.  As a result of this strategy, IFC
      experienced lower loan acquisition levels during the first quarter of 1999
      and the fourth  quarter of 1998.  During  the first  quarter of 1999,  IFC
      continued to rebuild its mortgage loan  acquisitions to previous levels by
      offering  its  sellers  competitive  and  flexible  mortgage  products  in
      addition to the  introduction of two new divisions.  The new divisions are
      focused on getting closer to the borrower through a retail based portfolio
      retention  program,  along with  interacting  directly  with the  mortgage
      broker community.  IFC expects to increase loan origination levels through
      the  introduction  of  these  new  divisions,  which  will be built on the
      current  centralized  Conduit  Operations'  and  will  employ  significant
      electronic technologies to further increase operational efficiencies.

         IFC's net interest  income also  decreased  during the first quarter of
      1999  as the  weighted  average  yield  on  mortgage  loans  held-for-sale
      decreased  to 8.72% as  compared  to a  weighted  average  yield of 10.75%
      during the first quarter of 1998. The weighted  average yield decreased as
      IFC sold or  securitized  high-yielding  second  trust  deeds it  acquired
      during  the  latter  half  of  1997.   IFC  acquired   $576.1  million  of
      high-yielding second trust deeds from Preferred Credit Corporation,  which
      were sold or securitized during 1998.

         IFC's gain on sale of loans  increased to $5.0 million during the first
      quarter of 1999 as compared to $3.7  million  during the first  quarter of
      1998.  IFC returned to  profitability  on the sale of its  mortgage  loans
      during the first quarter of 1999 as compared to the fourth quarter of 1998
      as the mortgage-backed securitization market recovered from the volatility
      that occurred during 1998. In line with the Company's  overall strategy to
      improve liquidity, IFC sold mortgage loans on a whole loan basis for cash,
      as opposed to sales  through  asset-backed  securitizations  for  non-cash
      gains. The sale of these loans on a servicing released basis reduced IFC's
      exposure to further  prepayment risk. The sale of delinquent loans reduced
      IFC's and the  Company's  exposure to future  losses.  IFC sold  mortgages
      totaling $163.0 million to third party investors, during the first quarter
      of 1999,  as  compared  to loan sales of $100.3  million  during the first
      quarter of 1998.  IFC also sold  $198.8  million in  principal  balance of
      mortgages  to IMH during the first  quarter of 1999 as  compared to $658.7
      million  during the first quarter of 1998. The sale of loans to IMH during
      the first quarter of 1999 increased IFC's deferred income to $11.1 million
      at March 31, 1999 as compared to $10.6 million at December 31, 1998.

         The  Company  records  99% of the  earnings  or losses  from IFC as the
      Company owns 100% of IFC's preferred  stock,  which  represents 99% of the
      economic interest in IFC.

         Equity in Net Earnings of ICH

         During  the  first  quarter  of 1999,  equity  in net  earnings  of ICH
      decreased  to none as  compared to  $378,000  during the first  quarter of
      1998.  Equity in net earnings of ICH decreased during the first quarter of
      1999 as the Company sold its  investment in ICH during the fourth  quarter
      of 1998. As such, the Company no longer records earnings or losses of ICH.

<PAGE>
      Non-Interest Expense

         During the first quarter of 1999, net earnings were adversely  affected
      by an  increase  in  non-interest  expense to $2.3  million as compared to
      $120,000  during the first quarter of 1998. The increase was primarily due
      to increases of $1.2 million in (gain) loss on  disposition of real estate
      owned  ("REO"),  $497,000 in  professional  services  and  $422,000 on the
      write-down of investment securities available-for-sale.

         During the first quarter of 1999, (gain) loss on disposition of REO was
      $551,000 as compared to $(692,000)  during the first quarter of 1998. 

         Professional services increased to $811,000 during the first quarter of
      1999 as compared to $343,000  during the first  quarter of 1998  primarily
      due to legal,  tax,  printing and  accounting  services  performed for the
      Company.

         The write-down on investment securities available-for-sale increased to
      $422,000,  during the first quarter of 1999,  as compared to none,  during
      the first quarter of 1998, as an  investment  security  available-for-sale
      was deemed to be other than temporarily impaired.

      Credit Exposures

         The Company's total allowance for loan losses expressed as a percentage
      of Gross Loan Receivables  which includes loans  held-for-investment,  CMO
      collateral and finance receivables was 0.41% at March 31, 1999 as compared
      to  0.47% at  December  31,  1998.  The  allowance  for  loan  losses  was
      determined  primarily  on the basis of  management's  judgment of net loss
      potential,  including  specific  allowances for any known impaired  loans,
      changes in the nature and volume of the loan  portfolio,  the value of the
      collateral, and current economic conditions that may affect the borrowers'
      ability to pay.


      LIQUIDITY AND CAPITAL RESOURCES

         Overview.  The Company's business  operations are primarily funded from
      monthly  interest  and  principal  payments  from  its  mortgage  loan and
      investment securities portfolios, reverse repurchase agreements secured by
      mortgage loans and mortgage-backed securities,  adjustable- and fixed-rate
      CMO  financing,  proceeds from the sale of mortgage loans and the issuance
      of  REMICs,  and  proceeds  from the  issuance  of  Common  Stock  through
      secondary stock  offerings,  DRSSP,  and its structured  equity shelf. The
      acquisition  of  mortgage  loans  and  mortgage-backed  securities  by the
      Long-Term   Investment   Operations  are  primarily  funded  from  monthly
      principal  and  interest  payments,  reverse  repurchase  agreements,  CMO
      financing,  and proceeds from the sale of Common Stock. The acquisition of
      mortgage  loans  by  the  Conduit   Operations  are  funded  from  reverse
      repurchase  agreements,  the sale of  mortgage  loans and  mortgage-backed
      securities,  and the  issuance of REMICs.  Short-term  financing  (finance
      receivables)  provided by the Warehouse Lending Operations are funded from
      reverse repurchase agreements and proceeds from the sale of Common Stock.

         The Company's ability to meet its long-term  liquidity  requirements is
      subject to the  renewal of its credit  and  repurchase  facilities  and/or
      obtaining other sources of financing,  including additional debt or equity
      from time to time. Any decision by the Company's  lenders and/or investors
      to make  additional  funds  available  to the  Company in the future  will
      depend upon a number of factors, such as the Company's compliance with the
      terms  of  its  existing  credit  arrangements,  the  Company's  financial
      performance,   industry  and  market  trends  in  the  Company's   various
      businesses,  the general availability of and rates applicable to financing
      and  investments,  such  lenders'  and/or  investors'  own  resources  and
      policies concerning loans and investments, and the relative attractiveness
      of alternative investment or lending opportunities.

         During the latter half of 1998, a global liquidity crisis resulted in a
      deterioration  of the  mortgage-backed  securitization  market and created
      liquidity  problems for the Company as the  Company's  lenders made margin
      calls on their warehouse and reverse repurchase lines. Margin calls result
      from the  Company's  lenders  evaluating  the market  value of  underlying
      collateral  securing the  borrowings  and requiring  additional  equity or
      collateral.  The Company sold Mortgage Assets at significant losses during
      the fourth quarter of 1998 to meet the margin calls.  The sale of Mortgage
      Assets and the issuance of Series B 10.5% Cumulative Convertible Preferred
      Stock  provided much needed cash.  As a result,  the Company had no margin
      calls on its reverse  repurchase  agreements  during the first  quarter of
<PAGE>
      1999. The Company's ratio of debt to equity decreased to 5.54 at March 31,
      1999 as compared to 7.90 at  September  30,  1998.  Average  cash and cash
      equivalents  were  $21.3  million  during  the  first  quarter  of 1999 as
      compared to $8.7 million  during the fourth  quarter of 1998.  The Company
      paid its third quarter  dividend,  which had been previously  delayed,  on
      January 6, 1999.

         Further,  the  mortgage-backed  securitization  market  stabilized  and
      recovered  during the first  quarter of 1999 allowing the Company to close
      its first CMO since June of 1998.  The  issuance of the CMO  provides  the
      Company with  immediate  liquidity,  a locked-in  interest rate spread and
      eliminates  the  Company's  exposure to margin  calls on such  loans.  The
      reduction of staff at IFC during the fourth quarter of 1998 and a decrease
      in loan  acquisitions  during  the  fourth  quarter  of 1998 and the first
      quarter  of  1999  along  with a  return  to  profitability  has  provided
      additional  liquidity  from  operating  activities.  However,  the Company
      expects loan acquisitions and originations will increase during 1999 along
      with an increase in staff which will require cash.

         The  Company  does not believe  its  current  operating  cash flows are
      sufficient  to  fund  the  growth  of its  mortgage  loan  and  investment
      securities portfolios,  lending activities,  payment of cash dividends due
      to exposure  to margin  calls on its reverse  repurchase  agreements.  The
      Company continues to explore alternatives for increasing liquidity through
      additional asset sales and capital raising efforts. However, no assurances
      can be given that such  alternatives  will be available,  or if available,
      under comparable  rates and terms as currently exist. As such,  during the
      first quarter of 1999, the Company entered into a definitive  agreement to
      acquire a  California  thrift and loan.  The  Company  currently  does not
      anticipate any significant  regulatory  impediments during the application
      process. The acquisition of the thrift and loan could reduce the Company's
      reliance on outside  reverse  repurchase  facilities  with  commercial and
      investment  banks. In addition,  the thrift and loan could give IFC access
      to lower cost of funds and borrowings from the Federal Home Loan Bank.

      Long-Term Investment Operations

      Source of funds

         The  Long-Term  Investment  Operations  uses CMO  borrowings to finance
      substantially  all  of its  mortgage  loan  portfolio.  Terms  of the  CMO
      borrowings  require that an  independent  third party  custodian  hold the
      mortgages.  The maturity of each class is directly affected by the rate of
      principal  prepayments  on the related  collateral.  Equity in the CMOs is
      established  at the time  the CMOs are  issued  at  levels  sufficient  to
      achieve desired credit ratings on the securities from rating agencies. The
      amount of equity invested in CMOs by the Long-Term  Investment  Operations
      is also  determined  by the Company based upon the  anticipated  return on
      equity  as  compared  to  the  estimated  proceeds  from  additional  debt
      issuance.  Total credit loss exposure is limited to the equity invested in
      the CMOs at any point in time.  The  Company  issued a CMO in  February of
      1999 for $186.1  million  which was  collateralized  by $124.0  million of
      adjustable-rate  mortgages and $77.8 million of residential  loans secured
      by  second  trust  deeds.  At March 31,  1999,  the  Long-Term  Investment
      Operations had $1.1 billion of CMO borrowings used to finance $1.2 billion
      of CMO collateral.

         The  Long-Term   Investment   Operations  may  pledge   mortgage-backed
      securities  as  collateral  to  borrow  funds  under  reverse   repurchase
      agreements.  The terms  under  these  reverse  repurchase  agreements  are
      generally  for 30 days with  interest  rates  ranging  from the  one-month
      London  Interbank  Offered Rate ("LIBOR") plus 0.45% to 2.00% depending on
      the type of  collateral  provided.  As of March 31,  1999,  the  Long-Term
      Investment  Operations had $21.9 million  outstanding  under these reverse
      repurchase  agreements  which were secured by $73.1 million in fair market
      value of mortgage-backed securities.

         During  the first  quarter  of 1999,  the  Company  raised  capital  of
      $909,000  from the sale of 209,426  shares of Common Stock issued  through
      its DRSPP.

      Use of funds

         IMH has a reverse repurchase  arrangement with a commercial bank, which
      is an affiliate of ICII,  whereby IMH borrowed  $10.0  million for general
      working  capital  needs.  The reverse  repurchase  arrangement  expires on
      December 31, 1999. The interest rate on the reverse repurchase arrangement
      is LIBOR plus 2.0%.  Additional funds cannot be advanced under the reverse
      repurchase  arrangement  and terms  require  that  principal  payments  of
      $833,000  be  paid  monthly.  As of  March  31,  1999,  IMH's  outstanding
      borrowings under the reverse repurchase arrangement was $7.5 million.
<PAGE>
         IMH  purchased  $202.0  million of  mortgage  loans from IFC during the
       first quarter of 1999.

         The  Company  repurchased  684,100  shares  of  Common  Stock  for $3.9
      million.

      Warehouse Lending Operations

      Source of funds

         The Warehouse Lending  Operations  finances the acquisition of mortgage
      loans  by the  Long-Term  Investment  Operations  and  Conduit  Operations
      primarily through borrowings on reverse  repurchase  agreements with third
      party lenders.  IWLG has obtained reverse repurchase facilities from major
      investment  banks to provide  financing  as needed.  Terms of the  reverse
      repurchase agreements require that the mortgages be held by an independent
      third party custodian giving the Warehouse Lending  Operations the ability
      to borrow  against  the  collateral  as a  percentage  of the  outstanding
      principal  balance.  The borrowing  rates vary from 85 basis points to 200
      basis points over  one-month  LIBOR,  depending on the type of  collateral
      provided.  The margins on the reverse  repurchase  agreements are based on
      the type of mortgage  collateral used and generally range from 75% to 101%
      of the fair market value of the collateral.

         The  following   table  presents   information  on  available   reverse
      repurchase agreements as of March 31, 1999 (dollars in thousands):
<TABLE>
<CAPTION>

                                                             Borrowing          Amount
                                                               Limit         Outstanding            Interest rate
                                                           ---------------  --------------    -----------------------
<S>                                                        <C>             <C>                <C>
Lender A (1)............................................    $   210,014     $    210,014       Libor + 0.85% to 2.00%
Lender B (1)............................................         23,119           23,119             Libor + 1.00%
                                                           ---------------  --------------   
     Total                                                  $   231,133     $    231,133
                                                           ===============  ===============
</TABLE>

      (1) Uncommitted reverse repurchase facility.

      Conduit Operations

      Source of funds

         The Conduit Operations has entered into reverse  repurchase  agreements
      to obtain  financing of up to $600.0  million from the  Warehouse  Lending
      Operations to provide IFC mortgage loan  financing  during the period that
      IFC   accumulates   mortgage  loans  and  until  the  mortgage  loans  are
      securitized and sold. The margins on the reverse repurchase agreements are
      based on the type of collateral  provided and generally  range from 95% to
      100% of the fair market value of the collateral. The interest rates on the
      borrowings  are indexed to Prime,  which was 7.75% at March 31,  1999.  At
      March 31, 1999,  the Conduit  Operations  had $109.3  million  outstanding
      under the reverse repurchase agreement.

         During the first quarter of 1999,  the Conduit  Operations  sold $163.0
      million in principal balance of mortgage loans to third-party investors on
      a servicing  released  basis.  In  addition,  IFC sold  $198.8  million in
      principal balance of mortgage loans to the Long-Term Investment Operations
      during the first quarter of 1999. By  securitizing  and selling loans on a
      periodic  and  consistent  basis the reverse  repurchase  agreements  were
      sufficient  to handle IFC's  liquidity  needs during the first  quarter of
      1999.
<PAGE>

      Cash Flows

         Operating  Activities  -  During  the  first  quarter  of 1999 net cash
      provided by  operating  activities  was $16.2  million.  Cash  provided by
      operating  activities was primarily due to an increase in other assets and
      liabilities  of $9.1  million,  which was  primarily  the result of a $7.8
      million decrease in due from affiliates, and net earnings of $6.2 million.

         Investing  Activities  -  During  the  first  quarter  of 1999 net cash
      provided  by  investing  activities  was $9.1  million.  Cash  provided by
      investing   activities   was  primarily  due  to  a  decrease  in  finance
      receivables of $111.2 million as loan acquisitions at IFC decreased during
      the first  quarter  of 1999.  The  increase  in cash from a  reduction  in
      finance  receivables was partially  offset by an increase of $56.4 million
      in CMO collateral and $38.6 million in mortgage loans  held-for-investment
      as IMH acquired $202.0 million of mortgage loans from IFC during the first
      quarter of 1999.

         Financing  Activities - During the first  quarter of 1999 net cash used
      in  financing  activities  was  $43.6  million.  Cash  used  in  financing
      activities  was  primarily  due to a decrease of $68.6  million in reverse
      repurchase  agreements,  a $12.1 million  payment for the Company's  third
      quarter stock  dividend and the  repurchase of the Company's  Common Stock
      for $3.9 million.  CMO borrowings used to fund the acquisition of mortgage
      loans  partially  offset  cash  used in  financing  activities  by  $186.1
      million.

      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.  During periods of
      decreasing interest rates, borrowers may prepay their mortgages,  which in
      turn may adversely  affect the Company's yield and  subsequently the value
      of its portfolio of Mortgage Assets.

      Year 2000 Compliance

      Project Status

         The Company's  Year 2000 project was  approximately  85% complete as of
      the end of April 1999.  The Company  contracted  with an outside vendor to
      provide  coordination,  support,  testing and implementation in regards to
      Year  2000  compliance  of  hardware  and  software  systems,  both  on an
      information technology ("IT") and non-IT level.

         The Company also has its own in-house IT  department  that is currently
      assisting the outside  vendor.  The Company's  primary IT systems  include
      loan servicing,  which is contracted to an outside vendor,  loan tracking,
      master  servicing and accounting  and reporting.  The Company has obtained
      information and the published plan in regards of Year 2000 compliance from
      the loan servicing  systems'  outside vendor.  The Company's IT department
      will  continue to monitor the vendor's  progress on Year 2000  compliance.
      The loan tracking  system is currently in compliance  with Year 2000.  The
      master  servicing system is currently being tested and the Company expects
      that this  system  will be Year 2000  compliant  in the second  quarter of
      1999.  The  accounting  and  reporting   system  is  currently  Year  2000
      compliant.  The Company's non-IT systems include its file servers, network
      systems, workstations and communication systems. As of March 31, 1999, the
      upgrade of the Company's  communication systems has been completed,  which
      regardless  of the Year 2000  issue,  required  an upgrade to comply  with
      terms of the service agreement. Testing on all other in-house hardware has
      been completed as of March 31, 1999.

         The Year 2000 project is divided into two primary  phases,  as follows:
      (1) define scope of project and identify  all IT and non-IT  systems,  and
      (2) testing of existing  systems and  implementation  of new  systems,  if
      required.  The outside contractor on the Year 2000 project submits monthly
      status  reports to the Company's IT manager and  communicates  with the IT
      department  on a daily basis.  The  Company's  executive  committee  which
      includes the CEO and  Chairman,  President,  and Chief  Financial  Officer
      review the progress of the  Company's  Year 2000 project  through  monthly
      status reports and reviews with the Company's IT manager.
<PAGE>
      Phase I - Define Scope of Project

         This phase  primarily  included  the  inventorying  of Year 2000 items,
      contacting  outside vendors,  including  reviewing  contractual  terms and
      conditions,  reviewing  internal  software for compliance and  determining
      costs to complete the project.  As of the end of October 1998,  Phase I of
      the project had been  completed.  Phase I of the project also included the
      testing and implementation or upgrade of non-IT systems.

      Phase II - Testing of Systems

         This phase of the Year 2000 project can be divided  into four  separate
      processes,  as  follows:  (1)  Compliance  Questionnaires,   (2)  Hardware
      Certification  Information,  (3) Software/Data  Testing,  and (4) Hardware
      Testing.

         Compliance  Questionnaires  and Hardware  Certification  Information.  
      As of April 30, 1999,  these  portions of Phase II were complete.

         Software/Data  Testing.  As of April 30, 1999, this portion of Phase II
      was  approximately  80% complete.  The remaining tasks within this process
      include  analyzing  list of  software  being used,  testing  all  software
      programs,  testing all data from  incoming  sources,  testing all outgoing
      data processes and reporting.  The Company  expects that this process will
      be complete by June 30, 1999.

         Hardware  Testing.  As of April 30, 1999,  this portion of Phase II had
      not been  started.  The Company has completed all testing and is compliant
      with all internal Year 2000 hardware issues.

      Costs

         The total cost associated with required  modifications or installations
     to  become  Year 2000  compliant  is not  expected  to be  material  to the
     Company's  financial  condition.  The  estimated  cost  of the  project  is
     expected to be approximately  $500,000, of which approximately  $108,000 of
     the cost will be paid by ICH.  The total  estimate of the project  includes
     the  cost  to  upgrade  the  Company's  communications  system,  which  was
     $140,000.  As of April 30,  1999,  the  Company  had paid  $268,000  to the
     outside  vendor for  completed  work on the  project.  The  majority of the
     Company's  estimated cost for the Year 2000  compliance has been or will be
     spent on  software  upgrades  and  writing  new  program  code on  existing
     proprietary  software.  Since  most  of the  Company's  hardware  has  been
     purchased within the last two years, the cost of replacing hardware will be
     minimal.

      Risks

         The  Company  does  not  anticipate  any  material  disruption  of  its
      operations  as a result of any  failure by the  Company  to be  compliant.
      However,  there can be no assurance  that there will not be a delay in, or
      increased costs  associated with, the need to address the Year 2000 issue.
      The Company also relies, directly and indirectly, on other businesses such
      as third party service  providers,  creditors and financial  organizations
      and governmental entities.  Even if the Company's computer systems are not
      materially  adversely  affected  by the Year  2000  issue,  the  Company's
      business  and  operations  could  be  materially   adversely  affected  by
      disruptions  in the operations of the  enterprises  with which the Company
      interacts.

      Contingency Plans

         The Company believes its Year 2000 compliance  process should enable it
      to be  successful  in  modifying  its  computer  systems  to be Year  2000
      compliant. As previously stated, acceptance testing and sign-off has begun
      with respect to the Company's  in-house systems.  In addition to Year 2000
      compliance  system  modification  plans  the  Company  has also  developed
      contingency  plans for all other  systems  classified as critical and high
      risk.  These  contingency  plans  provide  timetables  to  pursue  various
      alternatives based upon the failure of a system to be adequately  modified
      and/or  sufficiently  tested and validated to ensure Year 2000 compliance.
      However,  there can be no assurance that either the compliance  process or
      contingency plans will avoid partial or total system  interruptions or the
      costs  necessary to update hardware and software would not have a material
      adverse  effect  upon  the  Company's  financial  condition,   results  of
      operation, business or business prospects.
<PAGE>
      Transactions with Related Parties

         In January 1999,  IWLG extended a $50.0 million  warehouse line to WSI,
      which James Walsh, a Director of the Company, is Executive Vice President.
      Advances under the warehouse line bear interest at a rate of Prime + .50%.
      As of March  31,  1999,  there  was $25.2  million  outstanding  under the
      warehouse line agreement.

      ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Securitizations/Sales   -  Hedging   Interest   Rate  Risk.   The  most
      significant   variable  in  the   determination  of  gain  on  sale  in  a
      securitization  is the spread  between the weighted  average coupon on the
      securitized  loans and the  pass-through  interest  rate.  In the  interim
      period between loan origination or purchase and  securitization or sale of
      such loans,  the Company is exposed to interest rate risk. The majority of
      loans are  securitized  or sold within 90 days of origination of purchase.
      However, a portion of the loans are held-for-sale or securitization for as
      long as 12 months (or  longer,  in very  limited  circumstances)  prior to
      securitization  or sale. If interest rates rise during the period that the
      mortgage  loans  are held,  in the case of a  securitization,  the  spread
      between the weighted  average interest rate on the loans to be securitized
      and the  pass-through  interest  rates on the  securities  to be sold (the
      latter  having  increased  as a result of  market  rate  movements)  would
      narrow.  Upon  securitization or sale, this would result in a reduction of
      the Company's related gain or loss on sale.

      Interest-  and  Principal-Only  Strips.  The  Company  had  interest-  and
      principal-only  strips of $41.2 million and $43.1 million  outstanding  at
      March 31, 1999 and December 31, 1998, respectively.  These instruments are
      carried at market  value at March 31,  1999 and  December  31,  1998.  The
      Company values these assets based on the present value of future cash flow
      streams net of expenses using various assumptions.

         These assets are subject to risk of accelerated  mortgage prepayment or
      losses in excess of  assumptions  used in  valuation.  Ultimate cash flows
      realized from these assets would be reduced  should  prepayments or losses
      exceed assumptions used in the valuation.  Conversely, cash flows realized
      would be greater should prepayments or losses be below expectations.


<PAGE>


                                 PART II. OTHER INFORMATION


      ITEM 1: LEGAL PROCEEDINGS

      Not applicable.

      ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS

      Not applicable.

      ITEM 3: DEFAULTS UPON SENIOR SECURITIES

      Not applicable.

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

      No matters were  submitted to a vote of security  holders during the first
      quarter of 1999.

      ITEM 5: OTHER INFORMATION

      On March 1, 1999, H, Wayne Snavely resigned as a director from IMH's Board
      of Directors.

      ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K

(a)        Exhibits:

27       Financial Data Schedule.

      (b) Reports on Form 8-K:

          A current  report on Form 8-K was filed on February 19, 1999 reporting
          Items 5 and 7


<PAGE>



                                                                 SIGNATURES


      Pursuant to the  requirements of the Securities  Exchange Act of 1934, the
      Registrant  has duly  caused this report to be signed on its behalf by the
      undersigned, thereunto duly authorized.

      IMPAC MORTGAGE HOLDINGS, INC.



      By:  /s/ Richard J. Johnson
      Richard J. Johnson
      Executive Vice President
      and Chief Financial Officer

      Date:  May 13, 1999


<PAGE>

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<ARTICLE>                    5
<MULTIPLIER> 1,000
       
<S>                                                                              <C>
<PERIOD-TYPE>                                                                           3-MOS
<FISCAL-YEAR-END>                                                                 DEC-31-1998
<PERIOD-START>                                                                    JAN-01-1999
<PERIOD-END>                                                                      MAR-31-1999
<CASH>                                                                                 15,574
<SECURITIES>                                                                          104,373
<RECEIVABLES>                                                                       1,458,570
<ALLOWANCES>                                                                           (5,970)
<INVENTORY>                                                                                 0
<CURRENT-ASSETS>                                                                      236,428
<PP&E>                                                                                      0
<DEPRECIATION>                                                                              0
<TOTAL-ASSETS>                                                                      1,632,027
<CURRENT-LIABILITIES>                                                                 262,955
<BONDS>                                                                                     0
                                                                       0
                                                                                12
<COMMON>                                                                                  227
<OTHER-SE>                                                                            247,509
<TOTAL-LIABILITY-AND-EQUITY>                                                        1,632,027
<SALES>                                                                                30,399
<TOTAL-REVENUES>                                                                       32,109
<CGS>                                                                                       0
<TOTAL-COSTS>                                                                               0
<OTHER-EXPENSES>                                                                        2,262
<LOSS-PROVISION>                                                                        1,499
<INTEREST-EXPENSE>                                                                     22,153
<INCOME-PRETAX>                                                                         6,195
<INCOME-TAX>                                                                                0
<INCOME-CONTINUING>                                                                     6,195
<DISCONTINUED>                                                                              0
<EXTRAORDINARY>                                                                             0
<CHANGES>                                                                                   0
<NET-INCOME>                                                                            6,195
<EPS-PRIMARY>                                                                            0.22
<EPS-DILUTED>                                                                            0.20

        

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