IMPAC MORTGAGE HOLDINGS INC
10-Q, 1999-11-12
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 September 30, 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 November 8, 1999,  the aggregate  market value of the voting stock held
by non-affiliates of the registrant was  approximately  $87.4 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 November  8, 1999 was
21,742,506.


                   Documents incorporated by reference: None

<PAGE>

<TABLE>
<CAPTION>
                                                     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,
           As of September 30, 1999 and December 31, 1998                                                             3

           Consolidated Statements of Operations and Comprehensive Earnings (Loss),
           For the Three- and Nine Months Ended September 30, 1999 and 1998                                           4

           Consolidated Statements of Cash Flows,
           For the Nine Months Ended September 30, 1999 and 1998                                                      5

           Notes to Consolidated Financial Statements                                                                 7

  Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS                                                                                     15

  Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                32


                                                  PART II. OTHER INFORMATION

  Item 1.  LEGAL PROCEEDINGS                                                                                         33

  Item 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS                                                                 33

  Item 3.  DEFAULTS UPON SENIOR SECURITIES                                                                           33

  Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                       33

  Item 5.  OTHER INFORMATION                                                                                         33

  Item 6.  EXHIBITS AND REPORTS ON FORM 8-K                                                                          33

           SIGNATURES                                                                                                34

</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)
<S>                                                                                  <C>               <C>

                                                                                       September 30,      December 31,
                                                                                            1999              1998
                                                                                      ---------------   ---------------

                                       ASSETS
Cash and cash equivalents........................................................     $      16,447     $      33,876
Investment securities available-for-sale.........................................            95,247            93,486
Loan Receivables:
   CMO collateral................................................................         1,053,463         1,161,220
   Finance receivables...........................................................           209,426           311,571
   Mortgage loans held-for-investment............................................            10,451            20,627
   Allowance for loan losses.....................................................            (3,624)           (6,959)
                                                                                      ---------------   ---------------
        Net loan receivables.....................................................         1,269,716         1,486,459

Investment in Impac Funding Corporation..........................................            18,762            13,246
Due from affiliates..............................................................            14,500            17,904
Other real estate owned..........................................................            10,331             8,456
Accrued interest receivable......................................................            10,262            10,039
Other assets.....................................................................             1,950             2,038
                                                                                      ---------------   ---------------
     Total assets................................................................     $   1,437,215     $   1,665,504
                                                                                      ===============   ===============

                        LIABILITIES AND STOCKHOLDERS' EQUITY
CMO borrowings...................................................................     $     953,847     $   1,072,316
Reverse repurchase agreements....................................................           220,858           323,625
Senior subordinated debentures...................................................             6,615                --
Due to affiliates................................................................             7,204             2,670
Accrued dividends payable........................................................             3,659            12,129
Other liabilities................................................................             1,645             3,158
                                                                                      ---------------   ---------------
     Total liabilities...........................................................         1,193,828         1,413,898
                                                                                      ---------------   ---------------

Stockholders' Equity:
Preferred stock; $.01 par value; 6,300,000 shares authorized; none issued or
   outstanding at September 30, 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 September 30, 1999 and
   December 31, 1998, respectively...............................................               --                --
Series B 10.5% cumulative convertible preferred stock, $.01 par value;
   $30,000 liquidation value; 1,200,000 shares authorized; 1,200,000 issued
   and outstanding at September 30, 1999 and December 31, 1998, respectively.....                12                12
Common stock; $.01 par value; 50,000,000 shares authorized; 22,090,106 and
   24,557,657 shares issued and outstanding at September 30, 1999 and
   December 31, 1998, respectively...............................................               221               246
Additional paid-in capital.......................................................           330,664           342,945
Accumulated other comprehensive loss.............................................            (5,707)           (1,736)
Notes receivable from common stock sales.........................................              (906)             (918)
Accumulated deficit:
   Cumulative dividends declared.................................................           (89,510)          (79,176)
   Retained earnings (accumulated deficit).......................................             8,613            (9,767)
                                                                                      ---------------   ---------------
      Net accumulated deficit.......................................................        (80,897)          (88,943)
                                                                                      ---------------   ---------------
        Total stockholders' equity..................................................        243,387           251,606
                                                                                      ---------------   ---------------
        Total liabilities and stockholders' equity..................................  $   1,437,215     $   1,665,504
                                                                                      ===============   ===============



              See accompanying notes to consolidated financial statements.
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                                            IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

                                                 CONSOLIDATED STATEMENTS OF OPERATIONS
                                                   and COMPREHENSIVE EARNINGS (LOSS)

                                                 (in thousands, except per share data)

<S>                                                            <C>           <C>             <C>          <C>
                                                                   For the Three Months          For the Nine Months
                                                                   Ended September 30,           Ended September 30,
                                                                ---------------------------   --------------------------
                                                                     1999          1998           1999          1998
                                                                ------------- -------------   ------------ -------------
INTEREST INCOME:
   Mortgage Assets............................................. $    26,745   $    45,281     $   86,332   $   125,518
   Other interest income.......................................         582           635          1,727         2,073
                                                                ------------- -------------   ------------ -------------
        Total interest income.......                                 27,327        45,916         88,059       127,591
                                                                ------------- -------------   ------------ -------------
INTEREST EXPENSE:
   CMO borrowings..............................................      16,592        21,027         50,051        57,714
   Reverse repurchase agreements...............................       4,497        12,488         14,688        34,358
   Senior subordinated debentures..............................         358           --             636           --
   Other borrowings............................................           3           725            399         2,560
                                                                ------------- -------------   ------------ -------------
     Total interest expense....................................      21,450        34,240         65,774        94,632
                                                                ------------- -------------   ------------ -------------
   Net interest income.........................................       5,877        11,676         22,285        32,959
     Provision for loan losses.................................       1,367          (292)         4,356         2,099
                                                                ------------- -------------   ------------ -------------
   Net interest income after provision for loan losses.........       4,510        11,968         17,929        30,860

NON-INTEREST INCOME:
   Equity in net earnings (loss) of Impac Funding Corporation..       3,017        (7,860)         5,516        (3,912)
   Equity in net loss of Impac Commercial Holdings, Inc........         --         (1,840)           --           (998)
   Mark-to-market loss on loans held-for-sale..................         --         (1,200)           --         (1,200)
   Servicing fees..............................................         247           613          1,101         1,462
   Other income................................................         519           753            896         1,763
                                                                ------------- -------------   ------------ -------------
     Total non-interest income.................................       3,783        (9,534)         7,513        (2,885)

NON-INTEREST EXPENSE:
   Professional services.......................................         669           748          2,039         1,604
   Loss on disposition of other real estate owned..............         557           610          1,668           120
   Write-down on investment securities available-for-sale......         358        11,584          2,037        12,825
   General and administrative and other expense................         336           893            965         1,811
   Personnel expense...........................................         141           139            353           373
   Loss on equity investment...................................         --          9,076            --          9,076
                                                                ------------- -------------   ------------ -------------
     Total non-interest expense................................       2,061        23,050          7,062        25,809
                                                                ------------- -------------   ------------ -------------
   Net earnings (loss).........................................       6,232       (20,616)        18,380         2,166
   Less: Cash dividends on Series B 10.5%
        cumulative convertible preferred stock.................        (788)          --          (2,463)          --
                                                                ------------- -------------   ------------ -------------
   Net earnings (loss) available to common stockholders........       5,444       (20,616)        15,917         2,166

Other comprehensive earnings (loss):
   Unrealized losses on securities:
     Unrealized holding (gain)/losses arising during period....      (1,965)         (915)        (3,666)          528
       Less: Reclassification of realized (gain)/losses
     included in earnings.....................................           39        (4,718)           305        (4,290)
                                                                ------------- -------------   ------------ -------------
        Net unrealized gain/(losses) arising during period.....      (2,004)        5,633         (3,971)        3,762
                                                                ------------- -------------   ------------ -------------
   Comprehensive earnings (loss)............................... $     3,440   $   (14,983)    $   11,946   $     5,928
                                                                ============= =============   ============ =============
   Net earnings (loss) per share--basic........................ $      0.24   $     (0.85)    $     0.69   $      0.09
                                                                ============= =============   ============ =============
   Net earnings (loss) per share--diluted...................... $      0.22   $     (0.85)    $     0.63   $      0.09
                                                                ============= =============   ============ =============
</TABLE>

              See accompanying notes to consolidated financial statements.
<PAGE>

<TABLE>
<CAPTION>

                                      IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
                                          CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                      (in thousands)
 <S>                                                                                      <C>              <C>

                                                                                                 For the Nine Months
                                                                                                  Ended September 30,
                                                                                           -------------------------------
                                                                                                 1999            1998
                                                                                           ---------------  --------------
  Cash flows from operating activities:
    Net earnings.......................................................................... $     18,380     $     2,166
    Adjustments to reconcile net earnings to net cash provided by operating activities:
       Equity in net (earnings) loss of Impac Funding Corporation.........................       (5,516)          3,912
       Equity in net loss of Impac Commercial Holdings, Inc...............................          --              998
       Loss on equity investment in Impac Commercial Holdings, Inc........................          --            9,076
       Mark-to-market loss on mortgage loans held-for-sale................................          --            1,200
       Provision for loan losses..........................................................        4,356           2,099
       Depreciation and amortization......................................................          --              458
       Loss on disposition of other real estate owned.....................................        1,668             120
       Write-down of investment securities available-for-sale.............................        2,037          12,825
       Net change in accrued interest receivable..........................................         (223)          3,742
       Net change in other assets and liabilities.........................................        6,707          34,547
                                                                                           ---------------  --------------
         Net cash provided by operating activities........................................       27,409          71,143
                                                                                           ---------------  --------------
  Cash flows from investing activities:
    Net change in CMO collateral..........................................................       95,592        (501,650)
    Net change in finance receivables.....................................................      101,781         (29,570)
    Net change in mortgage loans held-for-investment......................................        1,749         225,410
    Net change in mortgage loans held-for-sale............................................          --          (62,381)
    Proceeds from sale of other real estate owned, net....................................        9,722           8,626
    Purchase of investment securities available-for-sale..................................      (18,295)        (64,589)
    Sale of investment securities available-for-sale......................................        3,803           5,303
    Net principal reductions on investment securities available-for-sale..................        6,723           6,152
    Dividends from Impac Commercial Holdings, Inc.........................................          --            1,184
    Purchase of premises and equipment....................................................          --           (1,318)
                                                                                           ---------------  --------------
         Net cash provided by (used in) investing activities..............................      201,075        (412,833)
                                                                                           ---------------  --------------
  Cash flows from financing activities:
    Net change in reverse repurchase agreements...........................................     (102,767)       (126,606)
    Proceeds from CMO borrowings..........................................................      298,076         767,355
    Repayments of CMO borrowings..........................................................     (416,545)       (311,188)
    Dividends paid........................................................................      (18,804)        (33,491)
    Proceeds from exercise of stock options...............................................          --              108
    Net proceeds from stock issued through structured equity shelf........................          --            3,289
    Repurchase of common stock............................................................       (6,831)            --
    Proceeds from dividend reinvestment  and stock purchase plan..........................          946          27,837
    Advances to purchase common stock, net of principal reductions........................           12             376
                                                                                           ---------------  --------------
         Net cash provided by (used in) financing activities..............................     (245,913)        327,680
                                                                                           ---------------  --------------

  Net change in cash and cash equivalents.................................................      (17,429)        (14,010)
  Cash and cash equivalents at beginning of period........................................       33,876          16,214
                                                                                           ===============  ==============
  Cash and cash equivalents at end of period.............................................. $     16,447     $     2,204
                                                                                           ===============  ==============

</TABLE>

           See accompanying notes to consolidated financial statements.

<PAGE>


<TABLE>
<CAPTION>



                                      IMPAC MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
                                    CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
                                                      (in thousands)
 <S>                                                                                      <C>              <C>

  Supplementary information:
    Interest paid......................................................................... $     67,894     $     94,413

  Non-cash transactions:
    Transfer of mortgage loans from held-for investment to held-for-sale.................. $         --     $     62,381
    Exchange of common stock for 11% senior subordinated debentures.......................        6,448               --
    Dividends declared and unpaid.........................................................        3,659           12,033
    Accumulated other comprehensive gain/(loss)...........................................       (3,971)           3,762
    Loans transferred to other real estate owned..........................................       13,265            8,541


</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- and nine-month period
      ended  September  30, 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- and nine months  ended  September  30, 1999 and
      1998 and include the  financial  results of IMH's  equity  interest in net
      earnings  (loss)  of IFC,  IMH's  equity  interest  in net  loss of  Impac
      Commercial  Holdings,  Inc.  (ICH) and results of  operations  of IMH, IMH
      Assets, IWLG and Dove as stand-alone entities.  The equity interest in net
      loss of Impac Commercial Holdings,  Inc. and the financial results of Dove
      are included in three- and nine months ended September 30, 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  (loss) 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 loss of
      Impac Commercial Holdings, Inc."

      2. Organization

         The Company is a mortgage real estate  investment trust (Mortgage REIT)
      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 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  and nine  months  ended  September  30,  1998  may  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.  SFAS 133 was amended by SFAS No. 137,  which allows
      deferral  of SFAS 133 for all fiscal  quarters of fiscal  years  beginning
      after July 15, 2000.  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
     dilutive common equivalent shares outstanding for the period. The following
     tables  represent the  computation of basic and diluted  earnings per share
     for the  three-  and nine  months  ended  September  30,  1999 and 1998 (in
     thousands, except per share data):

<TABLE>
     <S>                                                                                    <C>             <C>
                                                                                                  For the Three Months
                                                                                                   Ended September 30,
                                                                                             -----------------------------
                                                                                                 1999           1998
                                                                                             -------------- --------------
      Numerator:
         Numerator for basic earnings per share--
           Net earnings (loss)                                                               $      6,232   $    (20,616)
           Less: Dividends paid to preferred stockholders                                            (788)            --
                                                                                             ============== ==============
              Net earnings (loss) available to common stockholders                           $      5,444   $    (20,616)
                                                                                             ============== ==============

      Denominator:
         Denominator for basic earnings per share--
           Weighted average number of common shares outstanding during the period                  22,636         24,351
                  Impact of assumed conversion of series B cumulative
                     convertible preferred stock                                                    6,061             --
              Net effect of dilutive stock options                                                     19             --
                                                                                             -------------- --------------
                Weighted average common and common equivalent shares                               28,716         24,351
                                                                                             ============== ==============
         Net earnings (loss) per share--basic                                                $       0.24   $      (0.85)
                                                                                             ============== ==============
         Net earnings (loss) per share--diluted                                              $       0.22   $      (0.85)
                                                                                             ============== ==============

</TABLE>
<TABLE>
     <S>                                                                                    <C>            <C>
                                                                                                      For the Nine Months
                                                                                                      Ended September 30,
                                                                                             -----------------------------
                                                                                                 1999           1998
                                                                                             -------------- --------------
      Numerator:
         Numerator for basic earnings per share--
           Net earnings                                                                      $     18,380   $      2,166
           Less: Dividends paid to preferred stockholders                                          (2,463)            --
                                                                                             ============== ==============
              Net earnings available to common stockholders                                  $     15,917   $      2,166
                                                                                             ============== ==============

      Denominator:
         Denominator for basic earnings per share--
           Weighted average number of common shares outstanding during the period                  23,233         23,699
                  Impact of assumed conversion of series B cumulative
                     convertible preferred stock                                                    6,061            --
              Net effect of dilutive stock options                                                     24            172
                                                                                             -------------- --------------
                Weighted average common and common equivalent shares                               29,318         23,871
                                                                                             ============== ==============
         Net earnings (loss) per share--basic                                                $       0.69   $       0.09
                                                                                             ============== ==============
         Net earnings (loss) per share--diluted                                              $       0.63   $       0.09
                                                                                             ============== ==============

</TABLE>

      5. Mortgage Assets

         Mortgage  Assets consist of investment  securities  available-for-sale,
      mortgage   loans   held-for-investment,   CMO   collateral   and   finance
      receivables.  At September 30, 1999 and December 31, 1998, Mortgage Assets
      consisted of the following (in thousands):
<PAGE>
<TABLE>
     <S>                                                                             <C>                 <C>

                                                                                       September 30,         December 31,
                                                                                           1999                1998
                                                                                      ----------------    ----------------
      Investment securities available-for-sale:
               Subordinated securities collateralized by mortgages                    $       95,401      $       89,825
               Subordinated securities collateralized by other loans                           5,553               5,397
               Net unrealized losses                                                          (5,707)             (1,736)
                                                                                      ----------------    ----------------
                    Carrying value                                                            95,247              93,486
                                                                                      ----------------    ----------------
      Loan Receivables:
      CMO collateral--
               CMO collateral, unpaid principal balance                                    1,008,212           1,109,577
               Unamortized net premiums on loans                                              32,289              39,369
               Securitization expenses                                                        12,962              12,274
                                                                                      ----------------    ----------------
                    Carrying value of CMO collateral                                       1,053,463           1,161,220
      Finance receivables--
               Due from affiliates                                                            93,070             198,104
               Due from other mortgage banking companies                                     116,356             113,467
                                                                                      ----------------    ----------------
                    Carrying value of finance receivables                                    209,426             311,571
      Mortgage loans held-for-investment--
               Mortgage loans held-for-investment, unpaid principal balance                   14,271              20,145
               Unamortized net premiums (discounts) on loans                                  (3,820)                482
                                                                                      ----------------    ----------------
                    Carrying value of mortgage loans held-for-investment                      10,451              20,627
                                                                                      ----------------    ----------------

                    Carrying value of Gross Loan Receivables                               1,273,340           1,493,418
                    Allowance for loan losses                                                 (3,624)             (6,959)
                                                                                      ----------------    ----------------
                    Carrying value of Net Loan Receivables                                 1,269,716           1,486,459
                                                                                      ----------------    ----------------
                     Total carrying value of Mortgage Assets                          $    1,364,963      $    1,579,945
                                                                                      ================    ================
</TABLE>


      6. Segment Reporting

         The Company's  basis for segment  reporting is to separate its entities
      into the  following:  segments  that  derive  income  from  investment  in
      long-term  Mortgage  Assets,  segments  that  derive  income by  providing
      short-term  financing,  and segments  that derive income from the purchase
      and sale or securitization 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,
      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,  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.


<PAGE>


         The following tables shows the Company's  reporting  segments as of and
      for the three and nine months ended September 30, 1999 (in thousands):
<TABLE>
     <S>                                   <C>               <C>            <C>           <C>               <C>

                                               Long-Term        Warehouse
           For the three months ended          Investment        Lending                      Intercompany
               September 30, 1999              Operations       Operations     Other (b)     Elimination (c)  Consolidated
      ------------------------------------- ----------------  -------------  ------------  ----------------  ---------------
      Statement of Operations Items:
          Interest income                   $       21,932    $     5,901    $       --    $         (506)   $       27,327
          Interest expense                          17,715          4,241            --              (506)           21,450
           Equity interest in net earnings
                 of IFC (a)                             --             --            --             3,017             3,017
          Net earnings                               1,710          1,505            --             3,017             6,232
</TABLE>
<TABLE>

     <S>                                   <C>               <C>            <C>           <C>               <C>

                                               Long-Term        Warehouse
            As of and for nine months          Investment        Lending                      Intercompany
            ended September 30, 1999           Operations       Operations     Other (b)     Elimination (c)  Consolidated
      ------------------------------------- ----------------  -------------  ------------  ----------------  ---------------
      Balance Sheet Items:
          CMO collateral                    $    1,053,463    $        --    $       --    $           --    $    1,053,463
          Total assets                           1,275,559        253,802         7,204           (99,350)        1,437,215
          Total stockholders' equity               283,190         45,477            --           (85,280)          243,387

      Statement of Operations Items:
          Interest income                   $       71,139    $    20,938    $       21    $       (4,039)   $       88,059
          Interest expense                          56,023         13,785             5            (4,039)           65,774
           Equity interest in net earnings
                 of IFC (a)                             --             --            --             5,516             5,516
          Net earnings                               4,874          6,732            41             6,733            18,380

         The following  table shows the Company's  reporting  segments as of and
      for the three and nine months ended September 30, 1998 (in thousands):
</TABLE>
<TABLE>

     <S>                                   <C>               <C>            <C>           <C>               <C>

                                               Long-Term        Warehouse
           For the three months ended          Investment        Lending                      Intercompany
               September 30, 1998              Operations       Operations     Other (b)     Elimination (c)  Consolidated
      ------------------------------------- ----------------  -------------  ------------  ----------------  ---------------
      Statement of Operations Items:
          Interest income                   $      30,751     $   17,147     $      96     $       (2,078)   $      45,916
          Interest expense                         24,256         12,182          (120)            (2,078)          34,240
          Depreciation and amortization               --             --            106                --               106
           Equity interest in net loss
                 of IFC (a)                             --             --            --            (7,860)          (7,860)
          Net earnings (loss)                     (15,939)         4,732           581             (9,990)         (20,616)

</TABLE>
<TABLE>

      <S>                                  <C>               <C>            <C>           <C>               <C>

                                               Long-Term        Warehouse
            As of and for nine months          Investment        Lending                      Intercompany
            ended September 30, 1998           Operations       Operations     Other (b)     Elimination (c)  Consolidated
      ------------------------------------- ----------------  -------------  ------------  ----------------  ---------------
      Balance Sheet Items:
          CMO collateral                    $   1,291,722     $        --    $       --    $           --    $   1,291,722
          Total assets                          1,636,185         620,375        32,206          (173,018)       2,115,748
          Total stockholders' equity              250,026          36,450         8,402           (63,463)         231,415
<PAGE>
      Statement of Operations Items :
          Interest income                   $      93,284     $    47,508    $      303    $      (13,504)   $     127,591
          Interest expense                         73,735          34,278           123           (13,504)          94,632
          Depreciation and amortization                11              --           306               --               317
           Equity interest in net loss
                 of IFC (a)                             --             --            --            (3,912)          (3,912)
          Net earnings (loss)                      (5,922)         12,762           525            (5,199)           2,166

</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 and account reclassifications.
        (c) Elimination of intersegment 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):
<TABLE>
<CAPTION>

                                                               BALANCE SHEETS
     <S>                                                                           <C>                  <C>

                                                                                       September 30,         December 31,
                                                                                           1999                 1998
                                                                                    -----------------    ------------------
                                         ASSETS
      Cash                                                                          $        10,455      $            422
      Investment securities available-for-sale                                                2,219                 5,965
      Investment securities available-for-trading                                               --                  5,300
      Mortgage loans held-for-sale                                                           98,983               252,568
      Mortgage servicing rights                                                              14,189                14,062
      Due from affiliates                                                                     8,148                 9,152
      Premises and equipment, net                                                             2,531                 1,978
      Accrued interest receivable                                                               191                 1,896
      Other assets                                                                            8,247                22,529
                                                                                    -----------------    ==================
               Total assets                                                         $       144,963      $        313,872
                                                                                    =================    ==================

                          LIABILITIES AND SHAREHOLDERS' EQUITY
      Borrowings from IWLG                                                          $        92,924      $        192,900
      Other borrowings                                                                          182                67,058
      Due to affiliates                                                                      14,648                24,382
      Deferred revenue                                                                        8,878                10,605
      Other liabilities                                                                       9,294                 6,064
                                                                                    -----------------    ------------------
               Total liabilities                                                            125,926               301,009
                                                                                    -----------------    ------------------
      Shareholders' Equity:
      Preferred stock                                                                        18,053                18,053
      Common stock                                                                              182                   182
      Retained earnings (accumulated deficit)                                                   720                (4,852)
      Accumulated other comprehensive earnings (loss)                                            82                  (520)
                                                                                    -----------------    ------------------
             Total shareholders' equity                                                      19,037                12,863
                                                                                    =================    ==================
               Total liabilities and shareholders' equity                           $       144,963      $        313,872
                                                                                    =================    ==================

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                       STATEMENTS OF OPERATIONS

<S>                                                          <C>           <C>             <C>          <C>
                                                                 For the Three Months          For the Nine Months
                                                                  Ended September 30,          Ended September 30,
                                                              ----------------------------  --------------------------
                                                                   1999           1998          1999          1998
                                                              ------------- --------------  ------------ -------------
Interest income                                               $     4,491   $     15,673    $   13,986   $    40,330
Interest expense                                                    4,099         14,287        13,144        33,594
                                                              ------------- --------------  ------------ -------------
       Net interest income                                            392          1,386           842         6,736

Gain on sale of loans                                               8,296         10,061        22,787        18,932
Loan servicing income                                               1,758          1,815         5,452         4,521
Other non-interest income                                             373             63           856           374
                                                              ------------- --------------  ------------ -------------
       Total non-interest income                                   10,427         11,939        29,095        23,827

Personnel expense                                                   2,048          2,582         5,399         7,363
General and administrative and other expense                        1,936          1,658         5,384         3,943
Amortization of mortgage servicing rights                           1,372          1,758         3,935         4,683
Provision for repurchases                                             188             26           366           366
Write-down on investment securities available-for-sale                --             --          4,223           --
Loss on sale of mortgage servicing rights                             --             --            877           --
Mark to market loss on mortgage loans                                 --          21,041           --         21,041
                                                              ------------- --------------  ------------ -------------
        Total non-interest expense                                  5,544         27,065        20,184        37,396
                                                              ------------- --------------  ------------ -------------
Net earnings (loss) before income taxes                             5,275        (13,740)        9,753        (6,833)
Income taxes                                                        2,227         (5,800)        4,181        (2,885)
                                                              ------------- --------------  ------------ -------------
   Net earnings (loss)                                        $     3,048   $     (7,940)   $    5,572   $    (3,948)
                                                              ============= ==============  ============ =============

</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 September 30, 1999 or December 31, 1998.

         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. 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  sub-management  agreement among RAI, IMH and IFC was terminated and a
      new  sub-management  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 sub-management  agreement,  IMH and IFC provide
      various  services  including  accounting,  data  processing  and secondary
      marketing  to ICH,  as  Fortress  deems  necessary,  for an annual  fee of
      $250,000.
<PAGE>
      9. Stockholders' Equity

         During the nine months ended  September  30, 1999,  the Company  raised
     capital of $946,000 from the sale of 216,156  shares of common stock issued
     through its Dividend Reinvestment and Stock Purchase Plan (DRSPP).

         During  the  nine  months  ended   September  30,  1999,   the  Company
      repurchased  1,324,200 shares of common stock for $6.8 million pursuant to
      the Board of  Directors  approval  to  repurchase  up to $10.0  million of
      common stock.

         During the nine months ended September 30, 1999, the Company  exchanged
      1,359,507  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  September  22,  1999,  the  Company  declared a third  quarter cash
     dividend of $788,000 or $0.66 per share to series B preferred stockholders.
     This dividend was paid on October 26, 1999.

         On  September  22,  1999,  the Company  declared a third  quarter  cash
      dividend  on  common  stock of $2.9  million,  or $0.13  per  share.  This
      dividend was paid on October 15, 1999 to common  stockholders of record on
      September 30, 1999.

         On June 22, 1999,  the Company  declared a second  quarter cash
     dividend of $788,000 or $0.66 per share to series B preferred stockholders.
     This dividend was paid on July 27, 1999.

         On June 22, 1999,  the Company  declared a second  quarter cash
     dividend on common stock of $2.7 million, or $0.12 per share. This dividend
     was paid on July 15,  1999 to  common  stockholders  of  record on June 30,
     1999.

         On March 30, 1999,  the Company  declared a first quarter cash
     dividend on common stock 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 cash
     dividend of $888,000 or $0.74 per share to series B preferred stockholders.
     This dividend was paid on April 27, 1999.

      10. Subsequent Events

         On October 21, 1999, the Company completed a  re-securitization  of its
      investment  securities  available-for-sale,  which raised  additional cash
      liquidity for the Company of  approximately  $23.3 million after  repaying
      reverse repurchase agreements  collateralized by the investment securities
      available-for-sale.  The cash  proceeds can be used to grow the  Company's
      balance sheet, repurchase common stock or for business expansion.

         On December  22, 1998,  the Company  issued  1,200,000  shares of 10.5%
      Cumulative Convertible Preferred Stock, having a liquidation preference of
      $25 per share. The shares were originally convertible into Common Stock at
      $4.95 per share,  or an aggregate of  6,606,606  shares.  The terms of the
      acquisition provided for a downward adjustment of the conversion price if,
      among other things certain earning levels were not attained by the Company
      through June 30, 1999.  Subsequent to September 30, 1999,  the  conversion
      rate was adjusted, by an agreement in principle,  to $4.72 per share or an
      aggregate of 6,355,932 shares of common stock.

<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
      growth and  expansion  of the  Company's  new  divisions,  any delays with
      respect  to  the  acquisition  of  the  thrift  and  loan,   unanticipated
      interruptions  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,
      fluctuations and increase in prepayment rates 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 and
      other  factors  referenced  in this report and other  reports filed by the
      Company with the SEC, including its Annual Report on Form 10-K.

      SIGNIFICANT TRANSACTIONS

      Exchange Offering

         In March of 1999, the Company exchanged  1,359,507 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 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,  at which the 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 ("CMOs")

         The Company  issued two CMOs during the first nine months of 1999.  The
      first CMO was  issued  in  February  of 1999 for  $183.1  million  and was
      collateralized  by $120.8 million of  adjustable-rate  mortgages and $77.8
      million of residential loans secured by second trust deeds. The second CMO
      was issued in June of 1999 for $115.0  million and was  collateralized  by
      $117.6  million of primarily  adjustable-rate  mortgages.  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.

      Definitive Agreement to Acquire a California Thrift and Loan

         During the first  quarter of 1999,  the Company  completed a definitive
      agreement to acquire a California  Thrift and Loan  ("Bank").  As provided
      for in the agreement,  the Company submitted its application in the second
      quarter  of  1999  for a  change  of  control  to the  state  and  federal
      regulatory  agencies for their  approval.  During the process of reviewing
      the application,  the federal regulator raised certain issues. The Company
      was not able to give the federal agency sufficient comfort with respect to
      those issues without  modifying the proposal.  Also, the state  regulatory
      department requested  significant  additional  information,  which had the
      effect of delaying the  approval  process.  At this time,  the Company has
      decided  to  withdraw  its state and  federal  applications  for change of
      control and intends on resubmitting a new application at a later date that
      addresses  the business  concerns  expressed by the  regulators.  However,
      there are no assurances  that a new application for change of control will
      be  received  favorably  by either of the  state and  federal  regulators.
      Therefore,  the Company is  continuing  to expand its wholesale and retail
      operations,  which the Company  intends to contribute to the Bank,  within
      IFC.  In the event that the  Company  is  unsuccessful  in its  efforts to
      obtain the Bank charter, management believes that it will have no material
      effect on the future profitability of the Company.
<PAGE>
      Advance to Impac Funding Corporation

         During the second  quarter of 1999, IMH advanced $14.5 million in cash,
      in  exchange  for an  interest  only note in  anticipation  of the initial
      capitalization of the Bank.

      BUSINESS OPERATIONS

         Long-Term Investment Operations:  During the first nine months of 1999,
      the  Long-Term  Investment  Operations,  conducted  by IMH and IMH Assets,
      acquired  $283.0  million  of  mortgages  from IFC as  compared  to $841.6
      million of mortgages  acquired  during the same period in 1998.  Mortgages
      purchased by the  Long-Term  Investment  Operations  during the first nine
      months of 1999  consisted of $196.1 million of  adjustable-rate  mortgages
      ("ARMs") secured by first liens on residential  property and $86.9 million
      of fixed-rate  mortgages  ("FRMs") primarily secured by second trust deeds
      on residential property.  During the first nine months of 1999, IMH Assets
      issued CMOs totaling  $298.1  million as compared to CMOs totaling  $768.0
      million  during the same period in 1998.  As of September  30,  1999,  the
      Long-Term Investment  Operations' portfolio of mortgage loans consisted of
      $1.0 billion of mortgage  loans held in trust as  collateral  for CMOs and
      $10.5   million   of   mortgage   loans   held-for-investment,   of  which
      approximately 43% were FRMs and 57% were ARMs. The weighted average coupon
      of the Long-Term  Investment  Operations  portfolio of mortgage  loans was
      9.41% at September 30, 1999 with a weighted  average margin of 4.41%.  The
      portfolio  of  mortgage  loans   included  78%  of  "A"  credit   quality,
      non-conforming  mortgage  loans  and 22% of "B" and  "C"  credit  quality,
      non-conforming mortgage loans, as defined by the Company. During the first
      nine months of 1999, the Long-Term  Investment  Operations  acquired $18.3
      million of  securities  from IFC as compared to $64.6  million  during the
      same period in 1998.  These  securities were generated  primarily from the
      periodic issuance of real estate mortgage  investment  conduits ("REMICs")
      by IFC. As of September 30, 1999, the Long-Term Investment  Operations had
      $95.2 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 42% to $1.1 billion during the first nine
      months of 1999 as compared to $1.9  billion of mortgages  acquired  during
      the same period in 1998. IFC sold whole loans to third party  investors or
      securitized $1.0 billion,  which  contributed to the gain on sale of loans
      of $22.8 million,  during the first nine months of 1999.  This compares to
      securitizations  and whole loan  sales to third  party  investors  of $1.2
      billion,  resulting in gain on sale of loans of $18.9 million,  during the
      same  period  in  1998.  Of the  $1.0  billion  of whole  loan  sales  and
      securitizations during the first nine months of 1999, IFC issued one REMIC
      for $133.2  million.  IFC had deferred income of $8.9 million at September
      30, 1999 as  compared to $10.6  million at  December  31,  1998.  Deferred
      income  results  from the sale of  mortgages to IMH which are deferred and
      amortized or accreted  over the  estimated  life of the loans.  During the
      first nine months of 1999, IFC sold $287.6 million in principal balance of
      mortgages  to IMH as  compared  to $817.9  million  during  the first nine
      months of 1998. IFC's servicing portfolio decreased 35% to $2.2 billion at
      September 30, 1999 as compared to $3.4 billion at September 30, 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 5.28% at September 30, 1999 as compared to 6.18%, 5.66%,
      4.82%, and 5.21% for the last four quarter-end periods.

         Warehouse  Lending  Operations:  At September  30, 1999,  the Warehouse
      Lending Operations, conducted by IWLG, had $1.4 billion of warehouse lines
      of  credit  available  to  52  borrowers,  of  which  $223.5  million  was
      outstanding thereunder,  including $92.9 million outstanding to IFC, $14.1
      million outstanding to the Long-Term Investment  Operations,  and $146,000
      outstanding to Walsh Securities, Inc. ("WSI"). James Walsh, Executive Vice
      President of WSI, is also a Director of IMH.

<PAGE>

      RESULTS OF OPERATIONS--
      IMPAC MORTGAGE HOLDINGS , INC.

      For the Three  Months  Ended  September  30, 1999 as compared to the Three
      Months Ended September 30, 1998

      Results of Operations

         The Company recorded net earnings of $6.2 million, or $0.22 per diluted
      common share,  during the third quarter of 1999 as compared to net loss of
      $(20.6)  million,  or $(0.85) per diluted  common share,  during the third
      quarter of 1998. The increase in net earnings, during the third quarter of
      1999 as compared to the third  quarter of 1998,  was  primarily  due to an
      increase in  non-interest  income of $13.3 million and a decrease of $21.0
      million in  non-interest  expense.  These  increases to net earnings  were
      partially offset by a decrease of $5.8 million in net interest income.

         Due to the deterioration of the mortgage-backed  securitization  market
      during the latter part of 1998,  the Company sold  Mortgage  Assets during
      the fourth quarter of 1998 to increase liquidity.  As a result of the sale
      of  Mortgage  Assets,  total  assets  decreased  33% to  $1.4  billion  at
      September 30, 1999 as compared to $2.1 billion at September 30, 1998 while
      the Company's ratio of debt to equity  ("Leverage  Ratio") also decreased.
      The  combination  of  decreased  average  Mortgage  Assets  and  decreased
      leverage  was  primarily  responsible  for the  reduction  of net interest
      income  during the third  quarter of 1999 as compared to the third quarter
      of 1998.  However, as the mortgage sector stabilized during the first nine
      months of 1999 and recovered from the volatility  that occurred during the
      latter part of 1998,  the Company  returned to overall  profitability  and
      profitability  on the sale of its mortgage  loans during the third quarter
      of 1999.

         The Company continued to maintain reduced leverage and strong liquidity
      levels during the third  quarter of 1999.  The  Company's  Leverage  Ratio
      decreased  to  4.85:1  at  September  30,  1999 as  compared  to 5.55:1 at
      December 31, 1998 and 7.90:1 at  September  30, 1998.  The  Company's  and
      IFC's  liquidity  position at September  30, 1999 totaled $26.9 million of
      cash and cash  equivalents  as compared to $34.3  million at December  31,
      1998. The Company  continued to reduce its reliance on reverse  repurchase
      agreements  to  finance  its  investment   securities   available-for-sale
      portfolio.  The Company's reverse repurchase agreements were $11.4 million
      at September  30, 1999 as compared to $24.1  million at December 31, 1998.
      The Company  completed a  re-securitization  of its investment  securities
      available-for-sale  on October 21,  1999,  which  raised  additional  cash
      liquidity for the Company of  approximately  $23.3 million after  repaying
      reverse repurchase agreements  collateralized by the investment securities
      available-for-sale.  The cash  proceeds can be used to grow the  Company's
      balance  sheet,  repurchase  common stock or for business  expansion.  The
      following  table  summarizes  the  Company's  liquidity  position  for the
      periods presented (in thousands):

<TABLE>
     <S>                          <C>         <C>           <C>          <C>          <C>          <C>

                                      9/30/99     6/30/99      3/31/99      12/31/98     9/30/98      6/30/98    3/31/98
                                   ----------- ------------- ------------ ------------ ------------ ----------- ----------
      Cash and marketable
        securities (1)                47,454        49,421       58,416       76,468       49,173      47,698     35,960
      Debt (2)                       233,326       239,286      265,425      341,582      662,073     526,143    511,243
                                   ----------- ------------- ------------ ------------ ------------ ----------- ----------
      Liquidity ratio                  20.34%        20.65%       22.01%       22.39%        7.43%       9.07%      7.03%
                                   ----------- ------------- ------------ ------------ ------------ ----------- ----------
</TABLE>

(1) Calculated as cash and marketable securities rated AAA through BBB.
(2) Calculated as warehouse  borrowings,  reverse  repurchase  agreements,
    dividends payable, and other short-term liabilities.

         The Company was also  successful  in  increasing  book value per common
      share,  which  increased  to $9.66  per  common  share  (calculated  after
      reduction  of  $30.0  million  liquidation  value of  series B  cumulative
      convertible  preferred  stock) at September  30, 1999 as compared to $9.02
      per common  share at December  31,  1998.  The  increase in book value was
      attributable to the retention of earnings, the exchange offer completed in
      the second  quarter of 1999 and the  repurchase  of the  Company's  common
      stock in the open market  during 1999.  The Company  anticipates  that the
      retention  of  earnings  in  excess  of  dividend  distributions  for  the
      remainder of 1999 and additional common stock repurchases will continue to
      improve the  Company's  book value per common share and  increase  capital
      levels.
<PAGE>
      Net Interest Income

         Net interest  income  decreased  50% to $5.9  million  during the third
      quarter of 1999 as compared to $11.7  million  during the third quarter of
      1998 primarily due to a decrease in average  Mortgage  Assets  outstanding
      and reduced  leverage on Mortgage Assets  outstanding.  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. The
      Company  deleveraged its balance sheet and increased liquidity in response
      to the global liquidity  crisis,  which occurred during the latter part of
      1998 and resulted in a deterioration of the mortgage-backed securitization
      market.  In  order to  reduce  leverage  and  increase  liquidity  to meet
      potential  margin calls,  the Company sold Mortgage  Assets at significant
      losses during the fourth  quarter of 1998. As a result,  average  Mortgage
      Assets  decreased 32% to $1.5 billion  during the third quarter of 1999 as
      compared to $2.2 billion  during the third quarter of 1998.  This decrease
      was also related to a decrease in finance receivables made to IFC as IFC's
      sold whole loans monthly to third parties  instead of  accumulating  loans
      for sale to IMH for issuance of CMO's.  The  combination  of lower average
      Mortgage Assets and decreased  leverage was primarily  responsible for the
      reduction  of net  interest  income  during  the third  quarter of 1999 as
      compared to the third quarter of 1998.

         Net interest income also decreased as the net interest margin decreased
      to 1.52% during the third  quarter of 1999 as compared to 2.09% during the
      third  quarter  of  1998.  The net  interest  margin  on  Mortgage  Assets
      decreased  primarily  due to a decrease in the net interest  spread on CMO
      collateral, which decreased to (0.12)% during the third quarter of 1999 as
      compared to 0.77% during the third quarter of 1998.  The margin  decreased
      mainly  due  to  increases  in the  one-month  libor  rate  to  which  the
      borrowings are indexed and contractual  increases in the pass-thru rate on
      certain of the bonds.

         The following table summarizes  average balance,  interest and weighted
      average yield on Mortgage Assets and borrowings on Mortgage Assets for the
      third quarters of 1999 and 1998 and includes  interest  income on Mortgage
      Assets and interest  expense related to borrowings on Mortgage Assets only
      (dollars in thousands):
<TABLE>
     <S>                                                <C>            <C>          <C>        <C>          <C>         <C>

                                                                  For the Three Months                For the Three Months
                                                                Ended September 30, 1999            Ended September 30, 1998
                                                         -------------------------------------  ----------------------------------
                                                             Average                Weighted      Average                 Weighted
                                                             Balance     Interest   Avg Yield     Balance     Interest    Avg Yield
                                                         -------------- ---------- -----------  ------------ ----------  ----------
                     MORTGAGE ASSETS
      Investment securities available-for-sale:
        Securities collateralized by mortgages           $       79,435 $   3,015     15.18 %   $   102,662  $  3,234      12.60 %
        Securities collateralized by other loans                  5,495       193     14.05           5,379       153      11.38
                                                         -------------- ----------              ------------ ----------
          Total investment securities available-for-sale         84,930     3,208     15.11         108,041     3,387      12.54
                                                         -------------- ----------              ------------ ----------

      Loan receivables:
      CMO collateral                                          1,131,926    17,907      6.33       1,374,131    25,256       7.35
      Mortgage loans held-for-investment                         13,849       253      7.31          62,294     1,372       8.81
      Finance receivables:
        Affiliated                                              183,856     3,597      7.83         610,378    13,041       8.55
        Non-affiliated                                           77,743     1,780      9.16          93,581     2,225       9.51
                                                         -------------- ----------              ------------ ----------
           Total finance receivables                            261,599     5,377      8.22         703,959    15,266       8.67
                                                         -------------- ----------              ------------ ----------
              Total Loan Receivables                          1,407,374    23,537      6.69       2,140,384    41,894       7.83
                                                         -------------- ----------              ------------ ----------
           Total Mortgage Assets                         $    1,492,304 $  26,745      7.17 %   $ 2,248,425  $ 45,281       8.06 %
                                                         ============== ==========              ============ ==========
                       BORROWINGS
      CMO borrowings                                     $    1,028,494 $  16,592      6.45 %   $ 1,277,826  $ 21,027       6.58 %
      Reverse repurchase agreements - mortgages                 261,900     4,238      6.47         716,216    11,849       6.62
      Reverse repurchase agreements - securities                 15,545       259      6.66          38,150       639       6.70
                                                         ============== ==========              ============ ==========
           Total borrowings on Mortgage Assets           $    1,305,939 $  21,089      6.46 %   $ 2,032,192  $ 33,515       6.60 %
                                                         ============== ==========              ============ ==========

      Net Interest Spread                                                              0.71 %                               1.46 %

      Net Interest Margin                                                              1.52 %                               2.09 %

</TABLE>
<PAGE>

         Interest Income on Mortgage Assets

         Interest income on CMO collateral decreased 29% to $17.9 million during
      the third  quarter of 1999 as compared to $25.3  million  during the third
      quarter of 1998 as average CMO collateral decreased 21% to $1.1 billion as
      compared to $1.4 billion,  respectively.  Average CMO borrowings decreased
      as the Long-Term Investment Operations issued CMOs totaling $298.1 million
      since  the  end of  the  third  quarter  of  1998  while  total  principal
      prepayments on CMOs since the end of the third quarter of 1998 were $525.4
      million.  An increase in mortgage  rates during the third  quarter of 1999
      and IFC's increased control over flow acquisitions through agreements with
      certain correspondents providing right of first refusal on loan production
      has  contributed  to  greater  stability  in  prepayments.   Additionally,
      approximately  40% of IFC's new loan  production  during  the  first  nine
      months of 1999 include  prepayment  penalties as compared to approximately
      14%  during the same  period of the prior  year.  Therefore,  due to IFC's
      correspondent  agreements  and increased  levels of prepayment  penalties,
      subsequent CMO collateral acquired by the Long-Term Investment  Operations
      from  IFC  should  contribute  to a  reduction  in  prepayment  rates  and
      stability of earnings. Interest income on CMO collateral also decreased as
      the weighted  average yield decreased to 6.33% during the third quarter of
      1999 as compared to 7.35% during the third  quarter of 1998.  The weighted
      average  yield  on CMO  collateral  decreased  due to an  increase  in the
      amortization of premiums and securitization costs due to prepayments.

         Interest income on mortgage loans held-for-investment  decreased 82% to
      $253,000  during the third  quarter of 1999 as  compared  to $1.4  million
      during   the   third   quarter   of  1998  as   average   mortgage   loans
      held-for-investment  decreased  78% to $13.8  million as compared to $62.3
      million,   respectively.   Average   mortgage  loans   held-for-investment
      decreased primarily as mortgage loans acquired by the Long-Term Investment
      Operations  decreased to none during the third quarter of 1999 as compared
      to $47.7 million  during the third quarter of 1998.  The weighted  average
      yield on mortgage loans held-for-investment  decreased to 7.31% during the
      third  quarter of 1999 as  compared to 8.81%  during the third  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 65% to $5.4 million
      during the third quarter of 1999 as compared to $15.3  million  during the
      third  quarter of 1998 as average  finance  receivables  decreased  63% to
      $261.6 million as compared to $704.0 million,  respectively.  The decrease
      in interest  income on finance  receivables  was primarily the result of a
      70%  decrease in average  finance  receivables  to  affiliated  companies,
      primarily  IFC.  Average  finance  receivables  to  affiliated   companies
      decreased to $183.9  million  during the third quarter of 1999 as compared
      to $610.4  million  during the third quarter of 1998.  IFC's mortgage loan
      acquisitions  decreased to $440.0 million during the third quarter of 1999
      as compared to $604.7  million  during the third quarter of 1998. As such,
      interest income on finance receivables to affiliates decreased 72% to $3.6
      million  during the third  quarter of 1999 as  compared  to $13.0  million
      during the third quarter of 1998. The weighted average yield on affiliated
      finance receivables decreased to 7.83% during the third quarter of 1999 as
      compared  to 8.55%  during the third  quarter of 1998  primarily  due to a
      decrease in the prime rate which is the index used to  determine  interest
      rates on finance receivables.

         Interest  income on  finance  receivables  to  non-affiliated  mortgage
      banking  companies  decreased 18% to $1.8 million during the third quarter
      of 1999 as compared to $2.2  million  during the third  quarter of 1998 as
      average finance receivables outstanding to non-affiliated mortgage banking
      companies  decreased  17% to $77.7  million as compared to $93.6  million,
      respectively.  Average  finance  receivables  decreased,  during the third
      quarter of 1999 as compared to the third quarter of 1998, primarily due to
      an overall  market  decrease in mortgage loan  originations.  The weighted
      average yield on  non-affiliated  finance  receivables  decreased to 9.16%
      during the third  quarter of 1999 as  compared  to 9.51%  during the third
      quarter of 1998  primarily  due to a decrease in the prime rate from 8.50%
      to 8.00%.

         Interest income on investment securities  available-for-sale  decreased
      6% to $3.2  million  during the third  quarter of 1999 as compared to $3.4
      million during the third quarter of 1998 as average investment  securities
      available-for-sale,  net of securities valuation allowance,  decreased 21%
      to $84.9 million as compared to $108.0 million, respectively. The decrease
      in average securities  available-for-sale  was the result of the Long-Term
      Investment Operations purchasing and retaining mortgage-backed  securities
      of $18.3 million during the first nine months of 1999 as compared to $64.6
      million during the first nine months of 1998.  The weighted  average yield
      on investment securities available-for-sale increased to 15.11% during the
      third  quarter of 1999 as compared to 12.54%  during the third  quarter of
      1998.
<PAGE>
         Interest Expense on Mortgage Assets

         Interest  expense  on CMO  borrowings  decreased  21% to $16.6  million
      during the third quarter of 1999 as compared to $21.0  million  during the
      third quarter of 1998 as average  borrowings on CMO  collateral  decreased
      23% to $1.0 billion as compared to $1.3 billion, respectively. Average CMO
      borrowings  decreased as the Long-Term  Investment  Operations issued CMOs
      totaling  $298.1  million  since the end of the third  quarter  of 1998 as
      compared  to CMOs  totaling  $768.0  million  since  the end of the  third
      quarter  of  1997.  In  addition,   total  principal  prepayments  on  CMO
      collateral,   which  passes  through  to   bondholders   and  reduces  CMO
      borrowings, was $525.4 million since the end of the third quarter of 1998.
      The weighted average yield of CMO borrowings decreased to 6.45% during the
      third  quarter of 1999 as  compared to 6.58%  during the third  quarter of
      1998.

         Interest  expense on  reverse  repurchase  agreements  used to fund the
      acquisition  of mortgage  loans and finance  receivables  decreased 64% to
      $4.2 million during the third quarter of 1999 as compared to $11.8 million
      during the third quarter of 1998 as average reverse repurchase  agreements
      decreased   63%  to  $261.9   million  as  compared  to  $716.2   million,
      respectively. This decrease was primarily related to a decrease in finance
      receivables  made to IFC as IFC sold whole loans  monthly to third parties
      instead of accumulating  loans for sale to IMH for issuance of CMO's.  The
      weighted average yield on reverse repurchase agreements decreased to 6.47%
      during  the third  quarter  of 1999 as  compared  6.62%  during  the third
      quarter of 1998.  The  decrease in the weighted  average  yield on reverse
      repurchase agreements was due to the decrease in six-month LIBOR, which is
      the primary interest rate index of these instruments.

         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  decreased 59% to $259,000  during the third quarter of 1999 as
      compared to $639,000 during the third quarter of 1998. The average balance
      on these  reverse  repurchase  agreements  decreased  59% to $15.5 million
      during the third quarter of 1999 as compared to $38.2  million  during the
      third quarter of 1998  primarily due to improved  liquidity.  The weighted
      average yield of these reverse  repurchase  agreements  decreased to 6.66%
      during  the third  quarter  of 1999 as  compared  6.70%  during  the third
      quarter of 1998.

      Provision for Loan Losses

         The Company  recorded loan loss  provisions of $1.4 million  during the
      third quarter of 1999 as compared to  $(292,000)  during the third quarter
      of 1998.  The  provision  for loan losses is  determined  primarily on the
      basis of management's  judgment of net loss potential  including  specific
      allowances for known impaired  loans,  changes in the nature and volume of
      the portfolio,  value of the collateral  and current  economic  conditions
      that may affect the borrowers' ability to pay.

         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 0.28% at  September  30, 1999 as
      compared to 0.47% at December 31, 1998. The decrease in the allowance as a
      percentage  of Gross Loan  Receivables  was due to the sale of  delinquent
      loans and the  reduction in  delinquent  loan  balances in mortgage  loans
      held-for-investment  and CMO collateral,  as well as an improved cure rate
      on delinquent loans.

      Non-Interest Income

         Non-interest  income increased to $3.8 million during the third quarter
      of 1999 as compared  to $(9.5)  million  during the third  quarter of 1998
      primarily due to an increase in equity in net earnings of IFC, a reduction
      in equity in net loss of ICH,  and a reduction in  mark-to-market  loss on
      loans held-for-sale.
<PAGE>
         Equity in Net Earnings of IFC

         Equity in net  earnings of IFC  increased  to $3.0  million  during the
      third  quarter  of 1999 as  compared  to $(7.9)  million  during the third
      quarter of 1998. IFC's net earnings  increased during the third quarter of
      1999  primarily  due to a $21.0  million  mark to market  loss on mortgage
      loans  recorded  during  the  third  quarter  of 1998 as a  result  of the
      deterioration  of the  mortgage-backed  securitization  market  during the
      latter  part of 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.

         IFC's net  interest  income  decreased  to  $392,000  during  the third
      quarter of 1999 as compared to $1.4  million  during the third  quarter of
      1998 as  average  mortgage  loans  held-for-sale  decreased  70% to $198.5
      million as  compared to $655.6  million,  respectively.  Average  mortgage
      loans held-for-sale  decreased as mortgage loan acquisitions decreased 27%
      to $440.0 million during the third quarter of 1999 as compared to mortgage
      loan  acquisitions  of $604.7 million during the third quarter of 1998 and
      IFC sold whole  loans  monthly to third  parties  instead of  accumulating
      loans for sale to IMH for issuance of CMO's.  Mortgage  loan  acquisitions
      decreased  during  the  third  quarter  of 1999 as  compared  to the third
      quarter of 1998 due to the residual effects of the liquidity crisis, which
      occurred  during the latter half of 1998.  In  response  to the  liquidity
      crisis,  IFC raised  interest rates on its loan programs and decreased the
      amount of premiums  paid on its loan  acquisitions,  which  caused some of
      IFC's correspondent  sellers to use other sources for the funding of their
      mortgage  loans.  During the first nine months of 1999,  IFC  continued to
      rebuild its mortgage loan  acquisitions to previous levels by offering its
      sellers   competitive  and  flexible  mortgage  products.   Mortgage  loan
      acquisitions  increased 16% to $440.0  million during the third quarter of
      1999 as compared to $604.7 million during the third quarter of 1998.

         IFC's gain on sale of loans  decreased to $8.3 million during the third
      quarter of 1999 as compared to $10.1  million  during the third quarter of
      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. During the
      third quarter of 1999, IFC sold mortgages  totaling $380.6  million,  on a
      servicing  released  basis,  to third party  investors as compared to loan
      sales of $459.3  million  during the third  quarter  of 1998.  The sale of
      these  loans on a  servicing  released  basis  reduced  IFC's  exposure to
      prepayment  risk.  IFC also  sold no  mortgages  to IMH  during  the third
      quarter of 1999 as compared to $47.7  million  during the third quarter of
      1998.

         During the third quarter of 1999,  IFC's net earnings  were  positively
      affected by a reduction in  personnel  expense to $2.0 million as compared
      to $2.6  million  during  the third  quarter  of 1998  primarily  due to a
      reduction in staff.  During the fourth  quarter of 1998, IFC reduced staff
      in anticipation of decreased loan  acquisitions,  due to the deterioration
      of the  mortgage-backed  securitization  market, and to increase liquidity
      from operating activities. Net earnings were also positively affected by a
      reduction in  amortization of mortgage  servicing  rights during the third
      quarter of 1999 as compared to the third quarter of 1998.  Amortization of
      mortgage  servicing  rights  decreased  to $1.4  million  during the third
      quarter of 1999 as compared to $1.8  million  during the third  quarter of
      1998 as IFC sold mortgage servicing rights during the first nine months of
      1999.  These increases to net earnings,  during the third quarter of 1999,
      were  partially  offset by an increase in general and  administrative  and
      other expense.  General and  administrative and other expense increased to
      $1.9 million  during the third quarter of 1999 as compared to $1.7 million
      during  the  third  quarter  of  1998  primarily  due to  non-reimbursable
      start-up  costs  and  expenses  from  the  retail  and  wholesale  lending
      divisions that began operations in early 1999.

         Equity in Net Earnings of ICH

         Equity  in net  earnings  of ICH  decreased  to none  during  the third
      quarter of 1999 as compared  to equity in net loss of ICH of $1.8  million
      during the third  quarter of 1998,  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.

      Non-Interest Expense

         Non-interest expense decreased to $2.1 million during the third quarter
      of 1999 as compared  to $23.1  million  during the third  quarter of 1998.
      Non-interest  expense  during  the  third  quarter  of 1998  consisted  of
      write-down of investment  securities  available-for-sale  of $11.6 million
      and loss on equity  investment of $9.1  million,  which were caused by the
      deterioration  of the  mortgage-backed  securitization  market  during the
      latter part of 1998.  Excluding  the affect of  write-down  of  investment
      securities available-for-sale and loss on equity investment,  non-interest
      expense  decreased 29% to $1.7 million during the third quarter of 1999 as
      compared to $2.4 million during the third quarter of 1998.
<PAGE>
      RESULTS OF OPERATIONS--
      IMPAC MORTGAGE HOLDINGS , INC.

      For the Nine  Months  Ended  September  30,  1999 as  compared to the Nine
      Months Ended September 30, 1998

      Results of Operations

         The  Company  recorded  net  earnings  of $18.4  million,  or $0.63 per
      diluted common share,  during the first nine months of 1999 as compared to
      net earnings of $2.2 million,  or $0.09 per diluted  common share,  during
      the first nine months of 1998.  The increase in net  earnings,  during the
      first nine  months of 1999 as  compared  to the first nine months of 1998,
      was primarily due to an increase in  non-interest  income of $10.4 million
      and a decrease of $18.7 million in non-interest  expense.  These increases
      to net earnings  were  partially  offset by a decrease of $10.7 million in
      net interest income. As stated earlier,  as the mortgage sector stabilized
      during the first nine  months of 1999 and  recovered  from the  volatility
      that  occurred  during the latter part of 1998,  the  Company  returned to
      overall  profitability and profitability on the sale of its mortgage loans
      during the first nine months of 1999.

         The  retention  of earnings in excess of  dividend  distributions  will
      continue to improve the Company's book value per common share and increase
      capital levels. During the first nine months of 1999, the Company recorded
      net  earnings of $0.69 per basic common  share,  which was $0.34 per basic
      common  share in excess of declared  common  stock  dividends of $0.35 per
      common share.  The Company's  current common stock  dividend  policy is to
      partly  base  quarterly  dividends  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 GAAP  earnings  for the first nine  months of 1999 were as
      follows:  (1) amortization of the termination of the management  agreement
      with Imperial Credit Advisors, Inc. in December of 1997, which resulted in
      a deduction of approximately  $8.1 million,  (2) exclusion of $5.5 million
      of equity in net earnings of IFC, (3) actual loan charge-offs in excess of
      loan loss provisions,  which resulted in a deduction of approximately $3.3
      million,  and (4) deduction of Preferred  Stock dividends of $2.5 million.
      As such,  the Company's  best  estimate of taxable  earnings for the first
      nine months of 1999 was $1.0  million,  or $0.04 per basic  common  share.
      Therefore,  during  the first  nine  months of 1999 the  Company  declared
      common stock dividends of $0.35 per common share,  of which  approximately
      $0.31 per basic common share is in excess of estimated taxable earnings.

      Net Interest Income

         Net interest  income  decreased 32% to $22.3  million  during the first
      nine  months of 1999 as compared  to $33.0  million  during the first nine
      months of 1998  primarily  due to a decrease in average  Mortgage  Assets.
      Average  Mortgage  Assets  decreased 24% to $1.6 billion  during the first
      nine  months of 1999 as  compared  to $2.1  billion  during the first nine
      months of 1998 due to the  following:  (1) sale of Mortgage  Assets during
      the fourth quarter of 1998,  (2) 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 leverage.

         Net interest income also decreased as the net interest margin decreased
      to 1.84%  during the first nine months of 1999 as compared to 2.17% during
      the first nine months of 1998. The net interest  margin on Mortgage Assets
      decreased  primarily  due to a decrease in the net interest  spread on CMO
      collateral,  which decreased to 0.28% during the first nine months of 1999
      as  compared  to 0.78%  during the first nine  months of 1998.  The margin
      decreased mainly due to increases in the one-month libor rate to which the
      borrowings are indexed and contractual increases in the pass-thru rate on
      certain of the bonds

         The following table summarizes  average balance,  interest and weighted
      average yield on Mortgage Assets and borrowings on Mortgage Assets for the
      nine months ended September 30, 1999 and 1998 and includes interest income
      on Mortgage Assets and interest  expense related to borrowings on Mortgage
      Assets only (dollars in thousands):


<PAGE>

<TABLE>
     <S>                                                  <C>          <C>        <C>          <C>            <C>        <C>


                                                                  For the Nine Months                  For the Nine Months
                                                                Ended September 30, 1999            Ended September 30, 1998
                                                           -----------------------------------  ----------------------------------
                                                             Average                Weighted      Average                  Weighted
                                                             Balance     Interest   Avg Yield     Balance       Interest   Avg Yield
                                                           ------------ ---------- -----------  ------------   ---------- ----------
                     MORTGAGE ASSETS
      Investment securities available-for-sale:
        Securities collateralized by mortgages             $    86,700  $   9,330     14.35 %   $    86,944    $   7,986    12.25 %
        Securities collateralized by other loans                 8,052        629     10.42           5,356          533    13.27
                                                           ------------ ----------              ------------   ----------
          Total investment securities available-for-sale        94,752      9,959     14.01          92,300        8,519    12.31
                                                           ------------ ----------              ------------   ----------

      Loan receivables:
      CMO collateral                                         1,155,877     57,404      6.62       1,245,516       69,446     7.43
      Mortgage loans held-for-investment                        41,626      2,160      6.92         188,799       13,089     9.24
      Finance receivables:
        Affiliated                                             197,408     11,920      8.05         445,504       28,520     8.54
        Non-affiliated                                          72,015      4,889      9.05          83,188        5,944     9.53
                                                           ------------ ----------              ------------   ----------
           Total finance receivables                           269,423     16,809      8.32         528,692       34,464     8.69
                                                           ------------ ----------              ------------   ----------
              Total Loan Receivables                         1,466,926     76,373      6.94       1,963,007      116,999     7.95
                                                           ------------ ----------              ------------   ----------
           Total Mortgage Assets                           $ 1,561,678  $  86,332      7.37 %   $ 2,055,307    $ 125,518     8.14 %
                                                           ============ ==========               ===========   ==========

                       BORROWINGS
      CMO borrowings                                       $ 1,053,314  $  50,051      6.34 %   $ 1,156,748    $  57,714     6.65 %
      Reverse repurchase agreements - mortgages                290,542     13,718      6.30         668,176       33,109     6.61
      Reverse repurchase agreements - securities                19,727        970      6.56          25,687        1,249     6.48
                                                           ============ ==========              ============   ==========
           Total borrowings on Mortgage Assets             $ 1,363,583  $  64,739      6.33 %   $ 1,850,611    $  92,072     6.63 %
                                                           ============ ==========              ============   ==========

      Net Interest Spread                                                              1.04 %                                1.51 %

      Net Interest Margin                                                              1.84 %                                2.17 %
</TABLE>

         Interest Income on Mortgage Assets

         Interest income on CMO collateral decreased 17% to $57.4 million during
      the first nine  months of 1999 as  compared  to $69.4  million  during the
      first nine months of 1998 as the weighted average yield decreased to 6.62%
      as compared to 7.43%,  respectively.  The  weighted  average  yield on CMO
      collateral  decreased due to increases in the amortization of premiums and
      securitization costs due to high fluctuations in prepayments.  Average CMO
      collateral  during the first nine  months of 1999  decreased  slightly  to
      $1.16 billion as compared to $1.25 billion during the first nine months of
      1998. Constant prepayment rates on CMO collateral  decreased to 38% during
      the last twelve months ended  September 30, 1999 as compared to 43% during
      the same period  ended  September  30,  1998.  As stated  previously,  the
      Company  expects  that  right  of  first  refusal  agreements  with  IFC's
      correspondent  sellers and  increased  prepayment  penalties on IFC's loan
      acquisitions  should  contribute  to a reduction in  prepayment  rates and
      stability  of  earnings  on  subsequent  CMO  collateral  acquired  by the
      Long-Term Investment Operations from IFC.

         Interest income on mortgage loans held-for-investment  decreased 83% to
      $2.2  million  during the first nine  months of 1999 as  compared to $13.1
      million  during the first nine  months of 1998 as average  mortgage  loans
      held-for-investment  decreased  78% to $41.6 million as compared to $188.8
      million,   respectively.   Average   mortgage  loans   held-for-investment
      decreased  due to reduced  loan  acquisitions  by IMH,  which were  $283.0
      million during the first nine months of 1999 as compared to $841.6 million
      during  the first  nine  months of 1998.  The  weighted  average  yield on
      mortgage  loans  held-for-investment  decreased  to 6.92% during the first
      nine months of 1999 as  compared to 9.24%  during the first nine months 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.
<PAGE>
         Interest income on finance  receivables  decreased 51% to $16.8 million
      during the first nine months of 1999 as compared to $34.5  million  during
      the first nine months of 1998 as average finance receivables decreased 49%
      to $269.4  million  as  compared  to  $528.7  million,  respectively.  The
      decrease in  interest  income on finance  receivables  was  primarily  the
      result of a 56%  decrease in average  finance  receivables  to  affiliated
      companies,   primarily  IFC.  Average  finance  receivable  to  affiliated
      companies decreased to $197.4 million during the first nine months of 1999
      as compared to $445.5 million during the first nine months of 1998.  IFC's
      mortgage loan acquisitions decreased to $1.1 billion during the first nine
      months of 1999 as compared to $1.9 billion during the first nine months of
      1998.  As such,  interest  income on  finance  receivables  to  affiliates
      decreased  58% to $11.9  million  during the first nine  months of 1999 as
      compared  to $28.5  million  during  the first  nine  months of 1998.  The
      weighted  average yield on  affiliated  finance  receivables  decreased to
      8.05% during the first nine months of 1999 as compared to 8.54% during the
      first nine  months of 1998  primarily  due to a decrease in the prime rate
      which  is  the  index  used  to  determine   interest   rates  on  finance
      receivables.

         Interest  income on  finance  receivables  to  non-affiliated  mortgage
      banking  companies  decreased  17% to $4.9  million  during the first nine
      months of 1999 as compared to $5.9 million during the first nine months of
      1998 as average finance receivables outstanding to non-affiliated mortgage
      banking  companies  decreased  13% to $72.0  million as  compared to $83.2
      million,  respectively.  Average finance receivables decreased, during the
      first nine  months of 1999 as  compared  to the first nine months of 1998,
      primarily due to an overall market decrease in mortgage loan originations.
      The weighted average yield on non-affiliated finance receivables decreased
      to 9.05%  during the first nine months of 1999 as compared to 9.53% during
      the first nine  months of 1998  primarily  due to a decrease  in the prime
      rate.

         Interest income on investment securities  available-for-sale  increased
      18% to $10.0  million  during the first nine months of 1999 as compared to
      $8.5  million  during the first nine months of 1998 as average  investment
      securities  available-for-sale,  net of  securities  valuation  allowance,
      increased 3% to $94.8 million as compared to $92.3 million,  respectively.
      The increase in average  securities  available-for-sale  was the result of
      the   Long-Term   Investment    Operations    purchasing   and   retaining
      mortgage-backed  securities  of $18.3  million,  which were issued by IFC,
      since the end of the third quarter of 1998. The weighted  average yield on
      investment  securities  available-for-sale  increased to 14.01% during the
      first  nine  months of 1999 as  compared  to 12.31%  during the first nine
      months of 1998.

         Interest expense on Mortgage Assets

         Interest  expense  on CMO  borrowings  decreased  13% to $50.1  million
      during the first nine months of 1999 as compared to $57.7  million  during
      the  first  nine  months  of 1998 as the  weighted  average  yield  on CMO
      borrowings decreased to 6.34% as compared to 6.65%, respectively.  Average
      CMO  borrowings  decreased to $1.1 billion during the first nine months of
      1999 as compared to $1.2 billion during the first nine months of 1998.

         Interest  expense on  reverse  repurchase  borrowings  used to fund the
      acquisition  of mortgage  loans and finance  receivables  decreased 59% to
      $13.7  million  during the first nine  months of 1999 as compared to $33.1
      million during the first nine months of 1998. The average balance of these
      reverse repurchase  agreements  decreased 57% to $290.5 million during the
      first nine months of 1999 as compared to $668.2  million  during the first
      nine months 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 nine months of 1999 as compared the first nine
      months of 1998.  The weighted  average yield of these  reverse  repurchase
      agreements  decreased  to 6.30%  during the first  nine  months of 1999 as
      compared  6.61% during the first nine months of 1998.  The decrease in the
      weighted  average yield on reverse  repurchase  agreements  was due to the
      decrease in six-month  LIBOR,  which is the primary interest rate index of
      these instruments.

         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  decreased 17% to $1.0 million  during the first nine months of
      1999 as compared to $1.2 million during the first nine months of 1998. The
      average balance on these reverse  repurchase  agreements  decreased 23% to
      $19.7  million  during the first nine  months of 1999 as compared to $25.7
      million  during the first nine  months of 1998  primarily  due to improved
      liquidity.   The  weighted  average  yield  of  these  reverse  repurchase
      agreements  increased  to 6.56%  during the first  nine  months of 1999 as
      compared 6.48% during the first nine months of 1998.
<PAGE>
      Provision for Loan Losses

         The Company  recorded loan loss  provisions of $4.4 million  during the
      first nine  months of 1999 as compared  to $2.1  million  during the first
      nine months of 1998. The provision for loan losses is determined primarily
      on the basis of  management's  judgment  of net loss  potential  including
      specific  allowances for known impaired  loans,  changes in the nature and
      volume of the  portfolio,  value of the  collateral  and current  economic
      conditions that may affect the borrowers' ability to pay.

      Non-Interest Income

         Non-interest  income  increased to $7.5  million  during the first nine
      months of 1999 as compared to $(2.9)  million during the first nine months
      of 1998  primarily  due to an increase in equity in net earnings of IFC, a
      reduction in equity in net loss of ICH, and a reduction in  mark-to-market
      loss on loans held-for-sale.

         Equity in Net Earnings of IFC

         Equity in net  earnings of IFC  increased  to $5.5  million  during the
      first nine months of 1999 as compared to $(3.9)  million  during the first
      nine months of 1998.  IFC's net earnings  increased to $5.6 million during
      the first nine  months of 1999 as compared  to $(3.9)  million  during the
      first nine months of 1998  primarily due to a $21.0 million mark to market
      loss on  mortgage  loans  recorded  during the third  quarter of 1998 as a
      result of the deterioration of the mortgage-backed  securitization  market
      during the latter part of 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.

         IFC's  net  interest  income   decreased  as  average   mortgage  loans
      held-for-sale decreased 61% to $206.5 million during the first nine months
      of 1999 as  compared  to $528.8  million  during the first nine  months of
      1998.  Average  mortgage  loans  held-for-sale  decreased as mortgage loan
      acquisitions decreased 42% to $1.1 billion during the first nine months of
      1999 as compared to mortgage loan  acquisitions of $1.9 billion during the
      first nine months of 1998. Mortgage loan acquisitions decreased during the
      first nine months of 1999 as compared to the first nine months of 1998 due
      to the residual effects of the liquidity crisis, which occurred during the
      latter  half of 1998.  In  response to the  liquidity  crisis,  IFC raised
      interest  rates on its loan  programs and decreased the amount of premiums
      paid on its loan  acquisitions,  which caused some of IFC's  correspondent
      sellers to use other  sources  for the  funding of their  mortgage  loans.
      During  the first  nine  months of 1999,  IFC  continued  to  rebuild  its
      mortgage  loan  acquisitions  to previous  levels by offering  its sellers
      competitive and flexible mortgage products. IFC's net interest income also
      decreased  during the first nine  months of 1999 as the  weighted  average
      yield on mortgage loans held-for-sale  decreased to 8.57% as compared to a
      weighted  average  yield of 9.55%  during the first  nine  months of 1998.
      IFC's yield on mortgage loans  held-for-sale  during the first nine months
      of 1998  included the  acquisition  of  high-yielding  second trust deeds,
      which IFC acquired from  Preferred  Credit  Corporation  during the fourth
      quarter of 1997.  The  majority of these  second  trust deeds were sold to
      third  party  investors  during 1998 or sold to the  Long-Term  Investment
      Operations for CMO collateral during the first quarter of 1999.

         IFC's gain on sale of loans increased to $22.8 million during the first
      nine  months of 1999 as compared  to $18.9  million  during the first nine
      months of 1998.  However,  gain on sale of loans  during  the  first  nine
      months of 1999 included a reduction of  mark-to-market  allowances of $4.1
      million.  Excluding the reduction of  mark-to-market  allowances,  gain on
      sale for the first nine  months of 1999 was $18.7  million as  compared to
      $18.9 million  during the first nine months of 1998, as IFC was profitable
      on the sale of its mortgage  loans 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.  During the first nine
      months of 1999, IFC sold mortgages  totaling $1.0 billion,  on a servicing
      released  basis,  to third party  investors  as compared to loan sales and
      securitizations  of $1.2 billion during the first nine months of 1998. The
      sale of these loans on a servicing  released  basis reduced IFC's exposure
      to prepayment  risk. IFC also sold $287.6 million in principal  balance of
      mortgages  to IMH  during  the first nine  months of 1999 as  compared  to
      $817.9 million during the first nine months of 1998.
<PAGE>
         During the first nine months of 1999 IFC's net earnings were positively
      affected by a reduction in  personnel  expense to $5.4 million as compared
      to $7.4 million  during the first nine months of 1998  primarily  due to a
      reduction in staff.  During the fourth  quarter of 1998, IFC reduced staff
      in anticipation of decreased loan  acquisitions,  due to the deterioration
      of the  mortgage-backed  securitization  market, and to increase liquidity
      from operating activities. Net earnings were also positively affected by a
      reduction in  amortization of mortgage  servicing  rights during the first
      nine  months  of 1999 as  compared  to the  first  nine  months  of  1998.
      Amortization of mortgage servicing rights decreased to $3.9 million during
      the first nine months of 1999 as compared to $4.7 million during the first
      nine months of 1998 as IFC sold mortgage servicing rights during the first
      six months of 1999. These increases to net earnings, during the first nine
      months of 1999,  were  partially  offset by an  increase  in  general  and
      administrative  and other expense.  General and  administrative  and other
      expense  increased to $5.4 million during the first nine months of 1999 as
      compared to $3.9  million  during the first nine months of 1998  primarily
      due to  non-reimbursable  start-up  costs and expenses from the retail and
      wholesale lending divisions that began operations in early 1999.

         Equity in Net Earnings of ICH

         Equity in net  earnings of ICH  decreased to none during the first nine
      months of 1999 as compared to equity in net loss of ICH of $(1.0)  million
      during the first nine months of 1998,  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.

      Non-Interest Expense

         Non-interest  expense  decreased to $7.1 million  during the first nine
      months of 1999 as compared to $25.8  million  during the first nine months
      of 1998.  Non-interest  expense  during  the  first  nine  months  of 1998
      consisted of  write-down of investment  securities  available-for-sale  of
      $12.8 million and loss on equity  investment  of $9.1  million,  which was
      caused by the deterioration of the mortgage-backed  securitization  market
      during the latter  part of 1998.  Excluding  the affect of  write-down  of
      investment  securities  available-for-sale  and loss on equity investment,
      non-interest  expense  increased  to $5.0  million  during  the first nine
      months of 1999 as compared to $3.9 million during the first nine months of
      1998.  This increase was primarily due to a $1.5 million  increase in loss
      on disposition of other real estate owned.

      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. In July
      of 1999,  the Company  decided to suspend its DRSSP.  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 primarily funded from reverse  repurchase  agreements,  the
      sale of mortgage loans and mortgage-backed securities, and the issuance of
      REMICs.  Short-term warehouse financing, or finance receivables,  provided
      by the Warehouse Lending  Operations to affiliated  companies and to IFC's
      correspondent  sellers 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.
<PAGE>
         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  potential  margin calls.  The sale of
      Mortgage  Assets and the  issuance of  Preferred  Stock  during the fourth
      quarter of 1998  provided  the Company  with much needed  liquidity at the
      time. In addition,  the Company  decreased its Leverage Ratio at September
      30, 1999 as compared to September  30, 1998 and, as a result,  the Company
      had no margin calls on its
      reverse  repurchase  agreements  during  the  first  nine  months of 1999.
      Furthermore,  the mortgage-backed  securitization market stabilized during
      the first nine months of 1999 and  allowed  the  Company to  complete  two
      CMOs. The issuance of CMOs provides the Company with immediate  liquidity,
      a locked-in  interest rate spread and eliminates the Company's exposure to
      margin  calls on such loans.  A decrease in loan  acquisitions  during the
      first  nine  months  of 1999  along  with a return  to  profitability  has
      provided  additional  liquidity from operating  activities.  However,  the
      Company  expects  loan  acquisitions  and  originations  from  its two new
      divisions will increase on a go-forward basis,  along with a corresponding
      increase in staff, which will require additional cash.

          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. During the
      first  quarter of 1999,  the Company  completed a definitive  agreement to
      acquire a bank. As provided for in the  agreement,  the Company  submitted
      its  application  in the second quarter of 1999 for a change of control to
      the state and federal regulatory  agencies for their approval.  During the
      process of reviewing the application, the federal regulator raised certain
      issues.  The Company was not able to give the  federal  agency  sufficient
      comfort with respect to those issues without modifying our proposal. Also,
      the  state  regulatory   department   requested   significant   additional
      information which had the effect of delaying the approval process. At this
      time,   the  Company  has  decided  to  withdraw  its  state  and  federal
      applications  for change of control  and  intends  on  resubmitting  a new
      application at a later date that addresses the business concerns expressed
      by the regulators.  However, there are no assurances that new applications
      for change of control  will be received  favorably  by either of the state
      and federal regulators. Therefore, the Company is continuing to expand its
      wholesale and retail  operations,  which was intended to be contributed to
      the Bank, within IFC. In the event that the Company is unsuccessful in its
      efforts to obtain the Bank charter,  management believes that it will have
      no effect on the future profitability of the Company.

      Long-Term Investment Operations

      Primary Source of Funds

         The  Long-Term  Investment  Operations  uses CMO  borrowings to finance
      substantially  its  entire  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.  For the  first  nine  months of 1999,  the
      Company issued CMOs totaling  $298.1 million that were  collateralized  by
      $316.2  million of  residential  mortgages.  At September  30,  1999,  the
      Long-Term Investment  Operations had $1.0 billion of CMO borrowings used
      to finance $1.1 billion of CMO collateral.  During the first nine months
      of 1999, total principal  reductions on CMO collateral  provided liquidity
      of $378.6 million.

         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 56% to 200% depending on the
      type of  collateral  provided.  As of September  30, 1999,  the  Long-Term
      Investment  Operations had $11.4 million  outstanding  under these reverse
      repurchase  agreements  which were secured by $29.2 million in fair market
      value of mortgage-backed securities.
<PAGE>
         During the first nine  months of 1999,  the Company  raised  capital of
     $946,000 from the sale of 216,156 shares of common stock issued through its
     DRSPP. The DRSPP was suspended in July 1999.

      Primary Use of Funds

         During the first nine months of 1999,  IMH acquired  $287.6  million in
     principal balance of mortgage loans from IFC.

         During the first nine months of 1999, IMH  repurchased 1,324,200 shares
     of Common  Stock for $6.8  million  and paid  common  and  preferred  stock
     dividends of $18.8 million.

         IMH has a reverse  repurchase  arrangement  with a commercial bank. 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  with terms
      that require monthly principal payments of $833,000 plus accrued interest.
      As of September 30, 1999, IMH's  outstanding  borrowings under the reverse
      repurchase  arrangement was $4.2 million.  This was  subsequently  paid in
      full from the proceeds of the Company's re-securitization.

      Warehouse Lending Operations

      Primary 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 advance rate 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 September 30, 1999 (dollars in thousands):
<TABLE>
     <S>                                                  <C>               <C>

                                                                Amount
                                                             Outstanding           Interest rate
                                                           ---------------  --------------------------

      Lender A (1)                                         $      207,943     Libor + 0.85% to 2.00%
      Lender B (1)                                                    304         Libor + 1.00%
                                                           ---------------
                                                           $      208,247
                                                           ===============
           Total
</TABLE>

      (1) Uncommitted reverse repurchase agreement.

      Conduit Operations

      Primary Source of Funds

         The Conduit Operations has entered into reverse  repurchase  agreements
      to obtain  financing  of up to $1.1  billion  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 8.25% at September 30, 1999. At
      September 30, 1999, the Conduit  Operations had $92.9 million  outstanding
      under the reverse repurchase agreement.
<PAGE>
         During the first nine months of 1999, the Conduit  Operations sold $1.0
      billion in principal  balance of mortgage loans to third-party  investors.
      In  addition,  IFC sold $287.6  million in  principal  balance of mortgage
      loans to the Long-Term Investment  Operations during the first nine months
      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 nine months of 1999.

      Primary Use of Funds

         During the first nine months of 1999, the Conduit  Operations  acquired
      $1.1 billion of mortgage loans.

      Cash Flows

         Operating  Activities  - During the first nine  months of 1999 net cash
      provided by  operating  activities  was $27.4  million.  Cash  provided by
      operating  activities  was  primarily due to net earnings of $18.4 million
      and $6.7 million in net change in other assets and liabilities.

         Investing  Activities  - During the first nine  months of 1999 net cash
      provided by investing  activities  was $201.1  million.  Cash  provided by
      investing   activities   was  primarily  due  to  a  decrease  in  finance
      receivables of $101.8 million as loan acquisitions at IFC decreased during
      the  first  nine  months  of 1999  and a  decrease  $95.6  million  in CMO
      collateral.

         Financing  Activities  - During the first nine  months of 1999 net cash
      used in financing  activities was $245.9  million.  Cash used in financing
      activities  was  primarily  due to repayment of CMO  borrowings  of $416.5
      million and reverse repurchase  agreements of $102.8 million.  This use of
      funds was partially offset by proceeds from the issuance of CMOs of $298.1
      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  100% complete as of
      September  30,  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's  in-house IT  department  took over the project from its
      outside  vendors during the second quarter of 1999. The Company's  primary
      IT systems include loan  servicing,  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 our vendor's  progress on Year 2000 compliance.  The loan tracking
      system is currently in  compliance  with Year 2000.  The master  servicing
      system was tested and Year 2000  compliant.  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 are Year 2000  compliant.  As of June 30, 1999, the upgrade of the
      Company's  communication  systems  was  completed.  Testing  on all  other
      in-house hardware was completed as of June 30, 1999.
<PAGE>
         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
      reviews the progress of the Company's  Year 2000 project  through  monthly
      status  reports and reviews with the Company's IT manager.  In August 1999
      the Vice President of Information  Technology  presented the Company's Y2K
      compliance update to the board members.

      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 July 31, 1999,  these  portions of Phase II were complete.

         Software/Data Testing. The remaining tasks within this process included
      analyzing a list of software  being used,  testing all software  programs,
      testing all data from  incoming  sources,  and testing all  outgoing  data
      processes and reporting. As of July 31, 1999, this portion of Phase II was
      completed.

         Hardware Testing. 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 was not material to the Company's  financial
      condition.  The cost to upgrade the  Company's  communications  system was
      $140,000.  As of October 31,  1999,  the Company had paid  $273,000 to the
      outside  vendor for  completed  work on the project.  The Company does not
      anticipate  any  additional  cost for the  project.  The  majority  of the
      Company's  estimated  cost for the Year  2000  compliance  was be spent on
      software  upgrades  and writing new program  code on existing  proprietary
      software.  Since the Company's hardware had been purchased within the last
      two years, the cost of replacing hardware was 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.
<PAGE>

      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.  Acceptance  testing and sign-off is 100% complete 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.  The IT  department
      will be working on January  1st and 2nd,  2000 to test to ensure  that all
      systems are operational and functioning properly. 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.

      Transactions with Related Parties

         During the second  quarter of 1999, IMH advanced $14.5 million in cash,
      in the  form  of an  interest-only  note  payable,  to IFC as  part of the
      initial  capitalization of the Bank. During the third quarter of 1999, the
      Company received interest income of $344,000 on this note.

         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 +
      0.50%. As of September 30, 1999, there was $146,000  outstanding under the
      warehouse line agreement.


<PAGE>



      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 $35.8 million and $43.1 million  outstanding  at
      September 30, 1999 and December 31, 1998, respectively.  These instruments
      are carried at market value at  September  30, 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

      On July 27,1999, the Company held it's annual meeting of stockholders.  Of
      the total number of shares eligible to vote (22,725,770), 21,769,111 votes
      were returned,  or 96%, formulating a quorum. At the stockholders meeting,
      the following matters were submitted to stockholders for vote:  Proposal I
      - Election of  Directors,  Proposal II - Ratify  appointment  of Company's
      independent auditors, KPMG LLP.

      The results of voting on these proposals are as follows:

      Proposal I - Election of Directors
<TABLE>
       <S>                                      <C>                         <C>                    <C>

        Director                                     For                     Against                Elected

        Joseph R. Tomkinson                      21,224,792                  544,319                   Yes
        William S. Ashmore                       21,237,541                  531,570                   Yes
        James Walsh                              21,226,612                  542,499                   Yes
        Frank P. Filipps                         21,248,237                  520,874                   Yes
        Stephan R. Peers                         21,248,187                  520,924                   Yes

</TABLE>

      All directors are elected  annually at the Company's  annual  stockholders
      meeting.

      Proposal II - Appointment of independent auditors

      Proposal II was approved with 21,503,228  shares voted for,  146,909 voted
      against,   and  118,974   abstained  from  voting  thereby  ratifying  the
      appointment of KPMG LLP as the Company's independent auditors.

      ITEM 5: OTHER INFORMATION

      None.

      ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K

(a)        Exhibits:

      27 Financial Data Schedule.

      (b) Reports on Form 8-K:

      None.


<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:  November 11, 1999


<PAGE>

<TABLE> <S> <C>

<ARTICLE>                    5
<MULTIPLIER> 1,000


<S>                                                                             <C>


<PERIOD-TYPE>                                                                          9-MOS
<FISCAL-YEAR-END>                                                                DEC-31-1998
<PERIOD-START>                                                                   JAN-01-1999
<PERIOD-END>                                                                     SEP-30-1999
<CASH>                                                                                16,447
<SECURITIES>                                                                          95,247
<RECEIVABLES>                                                                      1,273,340
<ALLOWANCES>                                                                          (3,624)
<INVENTORY>                                                                                0
<CURRENT-ASSETS>                                                                     250,635
<PP&E>                                                                                     0
<DEPRECIATION>                                                                             0
<TOTAL-ASSETS>                                                                     1,437,215
<CURRENT-LIABILITIES>                                                                231,721
<BONDS>                                                                                    0
                                                                      0
                                                                               12
<COMMON>                                                                                 221
<OTHER-SE>                                                                           243,154
<TOTAL-LIABILITY-AND-EQUITY>                                                       1,437,215
<SALES>                                                                               88,059
<TOTAL-REVENUES>                                                                      95,572
<CGS>                                                                                      0
<TOTAL-COSTS>                                                                              0
<OTHER-EXPENSES>                                                                       7,062
<LOSS-PROVISION>                                                                       4,356
<INTEREST-EXPENSE>                                                                    65,774
<INCOME-PRETAX>                                                                       18,380
<INCOME-TAX>                                                                               0
<INCOME-CONTINUING>                                                                   18,380
<DISCONTINUED>                                                                             0
<EXTRAORDINARY>                                                                            0
<CHANGES>                                                                                  0
<NET-INCOME>                                                                          18,380
<EPS-BASIC>                                                                           0.69
<EPS-DILUTED>                                                                           0.63



</TABLE>


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