IMC MORTGAGE CO, 10-K405, 1998-03-31

IMC MORTGAGE CO
10-K405, 1998-03-31
MORTGAGE BANKERS & LOAN CORRESPONDENTS

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<PAGE> 1

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

SECURITIES EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

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

FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NO. 333-3954

----------------
IMC MORTGAGE COMPANY
(Exact name of issuer as specified in its charter)
----------------
Florida 59-3350574
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

5901 E. Fowler Avenue
Tampa, Florida 33617
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (813) 984-8801
----------------
Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of class)

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

Indicate by check mark if disclosure of delinquent filer pursuant to
Item 405 of Regulation 2-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

The aggregate market value of Common Stock held by nonaffiliates of the
registrant, based on the closing price of Common Stock as reported by the Nasdaq
National Market on March 20, 1998 was $370,476,384. For purposes of this
computation, all officers, directors, and 10% beneficial owners of the
registrant are deemed to be affiliates. Such determination should not be deemed
an admission that such officers, directors or 10% beneficial owners are, in
fact, affiliates of the registrant. As of March 20, 1998, 30,750,867 shares of
Common Stock were outstanding.

Documents Incorporated by Reference:

Registrants proxy statement for its 1998 annual meeting of stockholders,
which will be filed with the Securities and Exchange Commission not more than
120 days after December 31, 1997, is incorporated by reference in Part III.

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

<PAGE> 2

IMC MORTGAGE COMPANY AND SUBSIDIARIES
INDEX

<TABLE>
<CAPTION>
PART I.
<S> <C> <C>
Item 1 Business .................................................................. 1
Item 2 Properties ................................................................ 27
Item 3 Legal Proceedings ......................................................... 27
Item 4 Submission of Matters to a Vote of Security Holders ....................... 27

PART II.
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters ..... 28
Item 6 Selected Financial Data ................................................... 30
Item 7 Management's Discussion and Analysis of Financial Condition and
Results Of Operations .................................................... 33
Item 8 Financial Statements and Supplementary Data ............................... 50
Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures .................................................... 80

PART III.
Item 10 Directors and Executive Officers of the Registrant ........................ 81
Item 11 Executive Compensation .................................................... 81
Item 12 Security Ownership of Certain Beneficial Owners and Management ............ 81
Item 13 Certain Relationships and Related Transactions ............................ 81

PART IV.
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K ........... 82
Signatures ................................................................ 83
</TABLE>

<PAGE> 3

PART I

Item 1. Business

Certain statements contained in this Annual Report on Form 10-K which
are not historical fact may be deemed to be forward-looking statements under the
federal securities laws. Such forward-looking statements involve risks and
uncertainties. IMC Mortgage Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
important factors such as reduced demand for non-conforming loans, competitive
forces, prepayment speeds, delinquency and default rates, rapid fluctuations in
interest rates, lower than expected performance by acquired companies,
limitations on available funds, market forces affecting the price of the IMC
Mortgage Company's shares, and other risks identified in IMC Mortgage Company's
Securities and Exchange Commission filings. In addition, it should be noted that
past financial and operational performance of IMC Mortgage Company is not
necessarily indicative of future financial and operational performance.

IMC Mortgage Company is a specialized consumer finance company engaged
in purchasing, originating, servicing and selling home equity loans secured
primarily by first liens on one- to four-family residential properties. The
Company focuses on lending to individuals whose borrowing needs are generally
not being served by traditional financial institutions due to such individuals'
impaired credit profiles and other factors. Loan proceeds typically are used by
such individuals to consolidate debt, to finance home improvements, to pay
educational expenses and for a variety of other uses. By focusing on individuals
with impaired credit profiles and by providing prompt responses to their
borrowing requests, the Company has been able to charge higher interest rates
for its loan products than typically are charged by conventional mortgage
lenders. References herein to "IMC" or the "Company" mean IMC Mortgage Company,
a Florida corporation, and its subsidiaries on a consolidated basis, unless the
context otherwise requires.

IMC purchases and originates non-conforming home equity loans through a
diversified network of correspondents and mortgage loan brokers and on a retail
basis through its direct consumer lending effort. As of December 31, 1997, IMC
had in excess of 560 approved correspondents and 2,150 approved mortgage loan
brokers and had 82 Company-owned retail branches. IMC has experienced
considerable growth in loan production from total purchases and originations of
approximately $1.8 billion for the year ended December 31, 1996 to $5.9 billion
for the year ended December 31, 1997. IMC's network of correspondents accounted
for approximately 89.4% and 73.7% of loan production in 1996 and 1997,
respectively. Through its network of mortgage brokers, IMC generated
approximately 6.8% and 13.3% of its loan production in 1996 and 1997,
respectively. IMC's direct consumer lending effort contributed approximately
3.8% and 13.0% of loan production in 1996 and 1997, respectively. IMC is
continuing to expand its direct consumer lending by opening branch offices and
expanding its use of advertising, direct mail and other marketing strategies.

The Company's total revenues increased from $65.7 million for the year
ended December 31, 1996 to $238.8 million for the year ended December 31, 1997,
while net income increased from $17.9 million on a pro forma basis for the year
ended 1996 to $47.9 million for the year ended December 31, 1997. Gain on sale
of loans, net, represented $42.1 million, or 64.1% of total revenues, for the
year ended 1996 and $181.0 million, or 75.8% of total revenues, for the year
ended December 31, 1997. Servicing income, net warehouse interest income and
other revenues in the aggregate increased from $23.6 million, or 35.9% of total
revenues, for the year ended 1996 to $57.8 million, or 24.2% of total revenues,
for the year ended December 31, 1997.

IMC sells the majority of its loans through its securitization program
and retains the right to service such loans. Through December 31, 1997, IMC had
completed sixteen securitizations totaling $6.3 billion of loans. The Company
earns servicing fees at a rate of 0.50% per year, which fees are payable on a
monthly basis, and ancillary fees on the loans it services. As of December 31,
1996 and 1997, IMC had a servicing portfolio, including mortgage loans held for
sale, of $2.15 billion and $6.96 billion, respectively.

1
<PAGE> 4

IMC was formed in 1993 by a team of executives experienced in the
non-conforming home equity loan industry. IMC was originally structured as a
partnership, with the limited partners consisting of originators of
non-conforming home equity loans (the "Industry Partners") and certain members
of management. The original Industry Partners included: Approved Financial Corp.
(formerly American Industrial Loan Association) ("Approved"); Champion Mortgage
Co. Inc. ("Champion"); Cityscape Corp.; Equitysafe, a Rhode Island general
partnership ("Equitystars"); Investors Mortgage, a Washington limited
partnership ("Investors Mortgage"); Mortgage America Inc. ("Mortgage America");
Residential Money Centers; First Government Mortgage and Investors Corp.;
Investaid Corp.; and New Jersey Mortgage and Investment Corp. In 1994, TMS
Mortgage Inc., a wholly-owned subsidiary of The Money Store Inc., ("The Money
Store"), and Equity Mortgage, a Maryland limited partnership ("Equity
Mortgage"), became Industry Partners. Branchview, Inc., a wholly-owned
subsidiary of Lakeview Savings Bank("Lakeview"), became an Industry Partner in
1995. Since inception, a majority of the Industry Partners have made commitments
to sell to IMC, on prevailing market terms and conditions, a minimum amount of
home equity loans per year. As of December 31, 1997, the Industry Partners had
commitments to sell $126.0 million annually in home equity loans. Actual sales
to IMC by the Industry Partners approximated $338 million, or 19.1% of total
purchases and originations, for the year ended December 31, 1996 and $400
million, or 6.8% of total purchases and originations, for the year ended
December 31, 1997.

BUSINESS STRATEGY

MAINTENANCE OF UNDERWRITING QUALITY AND LOAN SERVICING

The Company's underwriting and servicing staff have extensive
experience in the non-conforming home equity loan industry. The management of
IMC believes that the depth and experience of its underwriting and servicing
staff provide the Company with the infrastructure necessary to sustain its
recent growth and maintain its commitment to high standards in its underwriting
and loan servicing. As the Company continues to grow, it is committed to
applying consistent underwriting procedures and criteria and to attracting,
training and retaining experienced staff.

MAXIMIZE FINANCIAL FLEXIBILITY AND IMPROVE CASH FLOW

The Company intends to maximize its financial flexibility in a number
of ways, including maintaining a significant quantity of mortgage loans held for
sale on its balance sheet. Maintenance of a substantial amount of mortgage loans
held for sale, which the Company can sell when necessary or desirable either
through securitizations or whole loans sales, permits IMC to improve management
of its cash flow by increasing its net interest income and to reduce its
exposure to the volatility of the capital markets. During 1996 and 1997, the
Company securitized approximately 52.8% and 82.4% of its loan production,
respectively. Maintaining a substantial inventory of loans for sale also
provides an opportunity for the Company to time its loan sales to achieve higher
margins and better executions. Since its inception, the Company has financed its
growth through access to the equity and securitization capital markets, sale of
interest-only and residual certificates, committed and uncommitted warehouse
financing, interest-only and residual financing and unsecured credit. See "Item
7. - Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

Expansion Through Acquisitions

The Company is actively pursuing a strategy of acquiring originators of
non-conforming home equity loans. IMC's acquisition strategy focuses on entities
that originate non-conforming mortgages either directly from the consumer or
through broker networks. In 1996, IMC acquired Equitystars and in January and
February 1997 completed the acquisitions of Mortgage America, CoreWest Banc
("CoreWest"), Equity Mortgage, and American Mortgage Reduction, Inc. ("American
Reduction"). In July 1997, IMC acquired National Lending Center, Inc. ("National
Lending Center") and Central Money Mortgage Co., Inc. ("Central Money
Mortgage"). In October and November, 1997, respectively, IMC acquired
Residential Mortgage Corporation and Alternative Capital Group, Inc.
("Alternative Capital Group").

2
<PAGE> 5

Equitystars, Mortgage America and Equity Mortgage were Industry Partners.
Management believes that the acquisition of non-conforming home equity loan
originators will benefit IMC by: (i) increasing IMC's loan production volume by
capturing all of the acquired company's production instead of only a portion;
(ii) improving IMC's profitability and profit margins because broker and
direct-to-consumer originated loans typically result in better profit margins
than loans purchased from correspondents; (iii) adding experienced management;
and (iv) broadening IMC's distribution system for offering new products. In
order to incent management of the acquired companies, IMC typically structures
its acquisitions to include an initial payment upon closing of the transaction
and to provide for contingent payments tied to future production and
profitability of the acquired company. While the Company believes that
acquisitions are important to the Company's business strategy, at the time of
each acquisitions, none of the acquisitions, individually or in the aggregate,
represents a significant amount of revenues, income, or assets in relation to
the Company. See "-- Acquisitions and Strategic Alliances."

Diversification of Origination Channels

IMC intends to continue to increase its loan production from direct
lending through its acquisitions, which focus on developing contacts with
individual borrowers, local brokers and referral sources such as accountants,
attorneys and financial planners. IMC believes that direct lending typically has
a lower cost of origination and provides for more direct customer contact than
IMC's other origination channels. At December 31, 1997, IMC had 82 retail
branches. In addition, IMC's direct consumer loan expansion strategy includes:
(i) targeting cities where the population density and economic indicators are
favorable for home equity lending, the foreclosure rate is within reasonable
ranges and the non-conforming loan market has been underserved; (ii) testing the
target market prior to the establishment of a branch office, where local
regulations permit, via newspaper, radio, direct mail advertising and through a
toll-free telephone number which routes borrower inquiries directly to a loan
officer in one of the Company's regional offices; (iii) if test marketing is
positive, establishing a small branch office, generally with an initial staff of
two business development representatives; and (iv) setting up branch offices in
executive office space with short-term leases, which eliminates high startup
costs for office equipment, furniture and leasehold improvements and allows IMC
to exit the market easily if the office does not meet expectations.

Expansion of Correspondent Network

The Company intends to continue to increase loan production from
correspondents by increasing its market share through geographic expansion,
tailored marketing strategies and a continued focus on servicing smaller
correspondents in regions that historically have not been actively served by
non-conforming home equity lenders. IMC believes that providing attractive
products and responsive service in conjunction with consistent underwriting and
competitive prices strengthens its relationships with correspondents.

Broadening of Product Offerings

The Company continues to introduce new non-conforming home equity loan
products to meet the needs of its correspondents, brokers and borrowers which
management believes will expand its market share to new customers. The Company
has recently introduced one such product, a Home Equity Line of Credit or HELOC.
See " -- New Products and Services."

Strategic Alliances and International Operations

To increase the Company's volume and diversify its sources of loan
originations over the long term, the Company seeks to enter into strategic
alliances with selected mortgage lenders, pursuant to which the Company provides
working capital and financing arrangements and a commitment to purchase
qualifying loans. In return, the Company expects to receive a more predictable
flow of loans and, in some cases, an option to acquire an equity interest in the
strategic partner.

3
<PAGE> 6

The Company is exploring opportunities to serve underserved non-conforming
segments of the home equity loan markets in locations outside the United States.
To date, the Company has entered into three strategic alliances in the United
States and a joint venture in the United Kingdom and has begun operations in
Canada through a wholly-owned subsidiary.

LOANS

OVERVIEW

IMC's consumer finance activities consist primarily of purchasing,
originating, selling and servicing mortgage loans. The vast majority of these
loans are non-conforming mortgage loans that are secured by first or second
mortgages on one- to four-family residences. Once loan applications have been
received, the underwriting process completed and the loans funded, IMC typically
packages the loans in a portfolio and sells the portfolio, either through a
securitization or on a whole loan basis directly to institutional purchasers.
IMC retains the right to service the loans that it securitizes and may or may
not release the right to service the loans it sells through whole loan sales.

LOAN PURCHASES AND ORIGINATIONS

As of December 31, 1997, IMC purchased and originated loans through in
excess of 560 approved correspondents and 2,150 approved brokers and through its
82 retail branch offices.

The following table shows channels of loan purchases and originations
for the periods shown:

<TABLE>
<CAPTION>
Year Ended
December 31,
------------------------------------------
1994 1995 1996 1997
---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Correspondent(1):
Principal balance (in millions) ................... $ 233 $ 544 $ 1,582 $ 4,342
Average principal balance per loan (in thousands) . 66 62 66 73
Weighted average loan-to-value
ratio(2)(3) ...................................... 69.2% 70.6% 72.8% 75.6%
Weighted average interest rate .................... 11.2% 12.1% 11.5% 11.0%
Broker:
Principal balance (in millions) ................... $ 49 $ 67 $ 121 $ 782
Average principal balance per loan (in thousands) . 56 47 54 71
Weighted average loan-to-value
ratio(2)(3) ...................................... 71.8% 72.6% 73.4% 76.9%
Weighted average interest rate .................... 12.0% 12.0% 11.5% 10.7%
Direct consumer loan originations:
Principal balance (in millions) ................... $ 1 $ 11 $ 67 $ 769
Average principal balance per loan (in thousands) . 88 49 58 68
Weighted average loan-to-value
ratio(2) ......................................... 80.0% 72.6% 72.5% 71.9%
Weighted average interest rate .................... 11.3% 11.7% 10.7% 10.7%
Total loan purchases and originations:
Principal balance (in millions) ................... $ 283 $ 622 $ 1,770 $ 5,893
Average principal balance per loan (in thousands) . 64 60 65 71
Weighted average loan-to-value
ratio(2)(3)(4) ................................... 69.7% 70.9% 72.9% 75.3%
Weighted average interest rate ................... 11.4% 12.1% 11.5% 10.9%
</TABLE>

(1) Includes purchases from the Industry Partners with principal balances
of approximately $116 million, or 41.0% of total purchases and
originations, for the year ended December 31, 1994, approximately $148
million, or 23.9% of total purchases and originations, for the year
ended December 31, 1995, $338
(footnotes continued on next page)

4
<PAGE> 7

(footnotes continued from previous page)

million, or 19.1% of total purchases and originations, for the year
ended December 31, 1996 and approximately $400 million, or 6.8% of
total purchases and originations, for the year ended December 31, 1997.

(2) The weighted average loan-to-value ratio of a loan secured by a first
mortgage is determined by dividing the amount of the loan by the lesser
of the purchase price or the appraised value of the mortgaged property
at origination. The weighted average loan-to-value ratio of loans
secured by a second mortgage is determined by taking the sum of the
loans secured by the first and second mortgages and dividing by the
lesser of the purchase price or the appraised value of the mortgaged
property at origination.

(3) The weighted average loan-to-value ratio has increased due to
increasing competition in the non-conforming home equity loan market
and an increase since 1995 in the percentage of the Company's loans in
the "A" Risk category (see "-- Loans -- Loan Underwriting"). "A" Risk
loans are generally made to more credit worthy borrowers and therefore
typically carry less credit risk and involve higher loan-to-value
ratios than other categories of non-conforming loans. The Company does
not believe that these increases in the loan-to-value ratios subject it
to material increased levels of potential default and foreclosure
losses, although no assurance can be given with respect thereto.

(4) Includes loans with loan-to-value ratios between 80% and 100% in the
amount of approximately $173 million, or 27.9% of total purchases and
originations, for the year ended December 31, 1995, approximately $700
million, or 39.6% of total purchases and originations, for the year
ended December 31, 1996 and approximately $2.8 billion, or 48.3% of
total purchases and originations, for the year ended December 31, 1997.
The increase in loan purchases and originations with loan-to-value
ratios between 80% and 100% was primarily related to the increase in
purchases and originations of "A" Risk loans as a percentage of total
loans purchased and originated. The Company's whole loan sales are
typically comprised of a majority of "A" Risk loans. See "--Loan
Sales". Some of the companies that the Company acquired during 1997
originate or purchase loans with loan-to-value ratios in excess of
100%, but generally they have a prior "take-out" commitment for such
loans. At the present time neither IMC, nor the companies it acquired,
has included such loans in its securitized pools.

5
<PAGE> 8

The following table shows channels of loan purchases and originations
on a quarterly basis for the fiscal quarters shown:

<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------------------------------------------------
March 31, June 30, September 30, December 31, March 31, June 30, September 30, December 31,
1996 1996 1996 1996 1997 1997 1997 1997
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Correspondent(1):
Principal balance (in millions). $ 237 $ 370 $ 428 $ 547 $ 631 $ 1,096 $ 1,440 $ 1,175
Average principal balance
per loan (in thousands) ....... 65 66 67 66 69 73 77 70
Weighted average loan-to-
value ratio(2)(3) ............. 71.2% 71.9% 72.3% 74.7% 74.2% 74.9% 72.3% 76.1%
Weighted average interest
rate .......................... 11.5% 11.4% 11.6% 11.6% 11.3% 11.0% 10.8% 11.0%
Broker:
Principal balance (in millions). $ 21 $ 25 $ 31 $ 44 $ 53 $ 105 $ 270 $ 354
Average principal balance
per loan (in thousands) ....... 54 53 53 54 69 72 67 74
Weighted average loan-to-
value ratio(2)(3) ............. 74.6% 72.8% 73.5% 73.1% 73.9% 75.0% 77.4% 77.5%
Weighted average interest
rate .......................... 11.2% 11.6% 11.8% 11.4% 10.6% 10.6% 11.0% 10.6%
Direct consumer loan
originations:
Principal balance (in millions). $ 6 $ 7 $ 21 $ 33 $ 135 $ 191 $ 198 $ 245
Average principal balance
per loan (in thousands) ....... 48 52 59 63 66 67 64 73
Weighted average loan-to-
value ratio(2)(3) ............. 73.9% 73.7% 71.3% 72.8% 69.8% 71.0% 72.3% 73.5%
Weighted average interest
rate .......................... 11.1% 11.0% 11.0% 10.4% 10.8% 10.9% 10.8% 10.3%
Total loan purchases and
originations:
Principal balance (in millions). $ 264 $ 402 $ 480 $ 624 $ 819 $ 1,392 $ 1,908 $ 1,774
Average principal balance
per loan (in thousands) ....... 64 64 66 65 69 72 74 71
Weighted average loan-to-
value ratio(2)(3)(4) .......... 71.5% 72.0% 72.2% 74.4% 73.5% 74.4% 76.0% 76.0%
Weighted average interest
rate .......................... 11.4% 11.4% 11.6% 11.5% 11.2% 10.9% 10.8% 10.8%
</TABLE>

(1) Includes purchases from the Industry Partners of an aggregate principal
balance of approximately $148 million, or 23.9% of total purchases and
originations, for the year ended December 31, 1995, approximately $338
million, or 19.1% of total purchases and originations, for the year
ended December 31, 1996 and approximately $400 million, or 6.8% of
total purchases and originations, for the year ended December 31, 1997.

6
<PAGE> 9

(footnotes continued from previous page)

(4) Includes loans with loan-to-value ratios between 80% and 100% in the
amount of approximately $173 million, or 27.9% of total purchases and
originations, for the year ended December 31, 1995, approximately $700
million, or 39.6% of total purchases and originations, for the year
ended December 31, 1996 and approximately $2.8 billion, or 48.3% of
total purchases and originations, for the year ended December 31, 1997.
The increase in loan purchases and originations with loan-to-value
ratios between 80% and 100% was primarily related to the increase in
purchases and originations of "A" Risk loans as a percentage of total
loans purchased and originated. The Company's whole loan sales are
typically comprised of a majority of "A" Risk loans. See "--- Loan
Sales". Some of the companies that the Company acquired during 1997
originate or purchase loans with loan-to-value ratios in excess of
100%, but generally they have a prior "take-out" commitment for such
loans. At the present time neither IMC, nor the companies it acquired,
has included such loans in its securitized pools.

The following table shows lien position, weighted average interest
rates and loan-to-value ratios for the periods shown.

<TABLE>
<CAPTION>
Year Ended
December 31,
----------------------------------
1994 1995 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
First mortgages:
Percentage of total purchases and originations .. 82.4% 77.0% 90.3% 92.1%
Weighted average interest rate .................. 11.3 12.1 11.4 10.8
Weighted average loan-to-value ratio(1) ......... 69.8 70.7 72.6 75.2
Second mortgages:
Percentage of total purchases and originations .. 17.6% 23.0% 9.7% 7.9%
Weighted average interest rate .................. 11.7 12.4 12.2 12.4
Weighted average loan-to-value ratio(1) ......... 68.8 71.7 75.6 78.5
</TABLE>

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

(1) The weighted average loan-to-value ratio of a loan secured by a first
mortgage is determined by dividing the amount of the loan by the lesser
of the purchase price or the appraised value of the mortgaged property
at origination. The weighted average loan-to-value ratio of loans
secured by a second mortgage is determined by taking the sum of the
loans secured by the first and second mortgages and dividing by the
lesser of the purchase price or the appraised value of the mortgaged
property at origination.

Correspondents. The largest percentage of IMC's loan volume is
purchased through correspondents. Total loan purchases and originations through
IMC's mortgage correspondent network were $233 million, or 82.5% of IMC's total
purchases and originations, for the year ended December 31, 1994, $544 million
or 87.5% of IMC's total loan purchases and originations for the year ended
December 31, 1995, $1.6 billion or 89.4% of IMC's total loan purchases and
originations for the year ended December 31, 1996, and approximately $4.3
billion or 73.7% of IMC's total loan purchases and originations for the year
ended December 31, 1997. The Industry Partners contributed approximately $116
million, or 41.0% of IMC's total loan purchases and originations, for the year
ended December 31, 1994, $148 million or 23.9% of IMC's total loan purchases and
originations for the year ended December 31, 1995, $338 million or 19.1% of such
purchases and originations for the year ended December 31, 1996 and $400 million
or 6.8% of such purchases and originations for the year ended December 31, 1997.

IMC has a list of approved correspondents from which it will purchase
loans on a wholesale basis. Prior to approving a financial institution or
mortgage banker as a loan correspondent, IMC performs an investigation of, among
other things, the proposed correspondent's lending operations, its licensing or
registration and the performance of its

7
<PAGE> 10

previously originated loans. The investigation typically includes contacting the
agency that licenses or registers such loan correspondent and other purchasers
of the correspondent's loans and reviewing the correspondent's financial
statements. IMC requires that the correspondent remain current on all licenses
required by federal and state laws and regulations and that it maintains
sufficient equity to fund its loan operations. IMC periodically reviews and
updates the information it has relating to each approved correspondent to ensure
that all legal requirements are current and that lending operations continue to
meet IMC's standards.

Before purchasing loans from correspondents, IMC requires that each
loan correspondent enter into a purchase and sale agreement with customary
representations and warranties regarding such loans. Correspondents will then
sell loans to IMC either on a flow basis or through block sales. IMC will make a
flow basis purchase when a correspondent approaches IMC with the application of
a prospective borrower. Because the correspondent has not yet granted a loan,
IMC has the opportunity to preapprove the loan. In the preapproval process, the
correspondent provides IMC with information about the borrower and the
collateral for the potential loan, including the applicant's credit, employment
history, current assets and liabilities, a copy of recent tax returns and the
estimated property value of the collateral. If IMC preapproves the loan, the
correspondent lends to the borrower pursuant to certain IMC guidelines. After
the correspondent has made the loan, IMC purchases the loan from the
correspondent. A block purchase occurs when the correspondent has made numerous
loans without seeking preapproval from IMC. The correspondent offers a block of
loans to IMC and IMC will purchase those loans in the block that meet its
underwriting standards. At the time of purchase, IMC generally pays the
correspondent a premium, representing a value in excess of the par value of the
loans (par value representing the unpaid balance of the loan amount). In its
purchase agreements with its correspondents, IMC requires its correspondents to
rebate premium payments if loans sold to IMC are prepaid within a specified
period of time after the sale. As of December 31, 1996 and 1997, premium rebates
due to IMC were $2.9 million and $4.1 million, respectively.

Brokers. For the years ended December 31, 1995, 1996 and 1997, IMC
originated approximately $67 million, $121 million and $782 million,
respectively, of the loans it purchased and originated through broker
transactions, equal to 10.7%, 6.8% and 13.3%, respectively, of the total loans
it purchased and originated in these periods. As with correspondents, IMC
maintains an approved list of brokers. Brokers become part of IMC's network
after IMC performs a thorough license and credit check. If a broker is approved,
IMC will accept loan applications from the broker for prospective borrowers.
Because brokers may submit loan applications to several prospective lenders
simultaneously, IMC makes every effort to provide a quick response. IMC will
process each application obtained by a broker from a prospective borrower and
grant or deny preliminary approval of the application generally within one
business day. In the case of an application denial, IMC will make all reasonable
attempts to ensure that there is no missing information concerning the borrower
that might change the decision on the loan. In addition, IMC emphasizes service
to the broker and loan applicant by having loan processors follow the loan from
the time of the initial application, through the underwriting verification and
audit process to the funding and closing process. IMC believes that consistent
underwriting, quick response times and personal service are critical to
successfully originating loans through brokers.

Direct Consumer Loans. For the years ended December 31, 1995, 1996 and
1997, IMC originated approximately $11 million, $67 million and $769 million,
respectively, of loans it purchased and originated directly to borrowers through
its retail branch offices, equal to 1.8%, 3.8% and 13.0%, respectively, of the
total loans purchased or originated in these periods. As of December 31, 1997,
IMC had 82 retail branch offices located in 31 states. Prior to the
establishment of a branch office, where local regulations permit, IMC tests the
target market via newspaper, radio and direct mail advertising and through a
toll-free telephone number which routes borrower inquiries directly to a loan
officer in one of the Company's regional offices. If test marketing is positive,
the branch offices are staffed with two business development representatives and
established in executive office space with short-term leases, which eliminates
the high startup costs for office equipment, furniture and leasehold
improvements and allows IMC to exit the market easily if the office does not
meet expectations. IMC plans to use the branch office network for marketing to
and meeting with individual borrowers, local brokers and referral sources such
as accountants, attorneys and financial planners. All advertising, payment of
branch expenses, regulatory disclosure, appraisals, title searches, loan
processing, underwriting and funding

8
<PAGE> 11

of branch office loans take place in one of the regional offices of IMC or other
centralized underwriting locations. The centralization of loan origination and
processing allows IMC to control branch expenses, supervise regulatory
compliance and offer consistent underwriting and processing to its customers.
IMC believes that this strategy will result in a more efficient use of its
capital and increased loan production. Negative pre-testing results could limit
expansion into new locations, but should also limit the size of potential
losses. IMC plans to continue to open new branch offices nationwide through its
acquisitions and estimates that new branches should typically reach a monthly
operating break-even point by the fifth month of operation. Additionally, IMC
believes that, by centralizing its marketing and advertising efforts, economies
of scale will be obtained and expenses will be controlled.

Because borrowers may submit loan applications to several prospective
lenders simultaneously, IMC makes every effort to provide a quick response. IMC
will process each application from a borrower and grant or deny preliminary
approval for the application generally typically within one business day from
receipt of the application. In addition, the borrower usually has direct contact
with an underwriter who follows the loan from the application to the closing
process. IMC believes that consistent underwriting, quick response times and
personal service are critical to successfully originating loans directly with
potential borrowers.

Geographic Distribution of Loans. Although IMC is licensed or
registered in all 50 states, the District of Columbia and Puerto Rico, it has
historically concentrated its business in the mid-Atlantic states. While this
concentration has declined, New York contributed 12.4%, 14.0%, and 12.6% of
IMC's total loan purchase and origination volume for the years ended December
31, 1995, 1996, and 1997, respectively. IMC intends to expand and geographically
diversify its loan purchase and origination activities through acquisitions,
strategic alliances, continued correspondent expansion, expansion of its
nationwide retail branch office network, and opportunities outside the United
States. See " -- New Products and Services -- Acquisitions and Strategic
Alliances."

The following table shows geographic distribution of loan purchases and
originations for the periods shown.

<TABLE>
<CAPTION>
Year Ended
December 31,
1994 1995 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
States:
New York .......................... 11.7% 12.4% 14.0% 12.6%
California ........................ -- 0.3 3.0 7.4
Florida ........................... 4.2 6.2 6.7 7.3
Michigan .......................... 7.3 8.8 7.8 7.1
Illinois .......................... 2.0 3.0 4.3 5.9
Maryland .......................... 18.6 12.8 7.3 5.2
Pennsylvania ...................... 5.3 4.3 3.8 5.1
New Jersey ........................ 6.6 9.9 7.6 4.5
Ohio .............................. 4.9 4.7 4.3 4.9
All other states .................. 39.4 37.6 41.2 40.0
</TABLE>

Loan Underwriting

IMC's origination volume is generated primarily from correspondents
selling loans to IMC either on a flow basis or through block sales. For
correspondents and brokers that originate loans on a flow basis, IMC provides
them with its underwriting guidelines. Loan applications received from
correspondents and brokers on a flow basis are classified according to certain
characteristics including available collateral, loan size, debt ratio,
loan-to-value ratio and the credit history of the applicant. Loan applicants
with less favorable credit ratings generally are offered loans with higher
interest rates and lower loan-to-value ratios than applicants with more
favorable credit ratings. IMC also purchases loans on a block sale basis, in
which a correspondent makes several loans without the preapproval of the Company
and offers them

9
<PAGE> 12

to the Company for block purchase. Because IMC only chooses loans that meet its
underwriting requirements and reunderwrites them, block loans follow the same
underwriting guidelines as flow loan purchases.

IMC maintains a staff of experienced underwriters strategically placed
across the country. IMC's loan application and approval process generally is
conducted via facsimile submission of the credit application to IMC's
underwriters. An underwriter reviews the applicant's credit history based on the
information contained in the application and reports available from credit
reporting bureaus in order to determine if the applicant's credit history is
acceptable under IMC's underwriting guidelines. Based on this review, the
underwriter assigns a preliminary rating to the application. The proposed terms
of the loan are then communicated to the correspondent or broker responsible for
the application who in turn discusses the proposal with the loan applicant. When
a potential borrower applies for a loan through a branch office, the underwriter
will discuss the proposal directly with the applicant. IMC endeavors to respond,
and in most cases does respond, to the correspondent, broker or borrower within
one business day from when the application is received. If the applicant accepts
the proposed terms, the underwriter will contact the broker or the loan
applicant to gather additional information necessary for the closing and funding
of the loan.

All loan applicants must have an appraisal of their collateral property
prior to closing the loan. IMC requires correspondents and brokers to use
licensed appraisers that are listed on or qualify for IMC's approved appraiser
list. IMC approves appraisers based upon a review of sample appraisals,
professional experience, education, membership in related professional
organizations, client recommendations and review of the appraiser's experience
with the particular types of properties that typically secure IMC's loans. In
the case of loans purchased in blocks, if an appraisal was performed by an
appraiser that is not approved by IMC, IMC will review the appraisal and accept
it if the appraisal meets its underwriting standards.

The decision to provide a loan to an applicant is based upon the value
of the underlying collateral, the applicant's creditworthiness and IMC's
evaluation of the applicant's ability and intent to repay the loan. A number of
factors determine a loan applicant's creditworthiness, including debt ratios
(the borrower's average monthly expenses for debts, including fixed monthly
expenses for housing, taxes and installment debt, as a percentage of gross
monthly income), payment history on existing mortgages and the combined
loan-to-value ratio for all existing mortgages on a property.

Assessment of the applicant's ability to pay is one of the principal
elements in distinguishing IMC's lending specialty from methods employed by
traditional lenders, such as thrift institutions and commercial banks. All
lenders utilize debt ratios and loan-to-value ratios in the approval process.
Many lenders simply use software packages to score an applicant for loan
approval and fund the loan after auditing the data provided by the borrower. In
contrast, IMC employs experienced non-conforming mortgage loan underwriters to
scrutinize an applicant's credit profile and to evaluate whether an impaired
credit history is a result of previous adverse circumstances or a continuing
inability or unwillingness to meet credit obligations in a timely manner.
Personal circumstances including divorce, family illnesses or deaths and
temporary job loss due to layoffs and corporate downsizing will often impair an
applicant's credit record. Among IMC's specialties is the ability to identify
and assist this type of borrower in the establishment of improved credit. Upon
completion of the loan's underwriting and processing, the closing of the loan is
scheduled with a closing attorney or agent approved by IMC. The closing attorney
or agent is responsible for completing the loan transaction in accordance with
applicable law and IMC's operating procedures. Title insurance that insures
IMC's interest as mortgagee and evidence of adequate homeowner's insurance
naming IMC as an additional insured are required on all loans.

IMC has established classifications with respect to the credit profiles
of loans based on certain of the applicant's characteristics. Each loan
applicant is placed into one of four letter ratings "A" through "D," with
subratings within those categories. Ratings are based upon a number of factors
including the applicant's credit history, the value of the property and the
applicant's employment status, and are subject to the discretion of IMC's
trained underwriting staff. Terms of loans made by IMC, as well as the maximum
loan-to-value ratio and debt service-to-income coverage (calculated by dividing
fixed monthly debt payments by gross monthly income), vary depending upon the
classification of the borrower.

10
<PAGE> 13

Borrowers with lower credit ratings generally pay higher interest rates and loan
origination fees. The general criteria currently used by IMC's underwriting
staff in classifying loan applicants are set forth below.

<TABLE>
<CAPTION>
"A" RISK "B" RISK "C" RISK "D" RISK
-------- -------- -------- --------
<S> <C> <C> <C> <C>
General repayment.............. Has repaid Has generally May have May have
installment repaid experienced experienced
or revolving debt installment or significant past significant past
revolving credit credit problems credit problems

Existing mortgage loans........ Current at Current at May not be Must be paid
application time application time current at full from loan
and a maximum and a maximum application time proceeds and no
of two 30-day of three 30-day and a maximum more than 149
late payments in late payments in of four 30-day days delinquent
the last 12 in the last 12 late payments at closing and
months months and one 60-day an explanation
late payment in is required
the last 12
months

Non-mortgage credit............ Minor Some prior Significant prior Significant prior
derogatory items defaults allowed delinquencies defaults may
allowed with a but major credit may have have occurred,
letter of or installment occurred, but if but must
explanation; no debt paid as major credit or demonstrate an
open collection agreed may installment debt ability to
accounts or offset some in recent periods maintain
charge-offs, delinquency; have been paid regularity in
judgements or open charge-offs, as agreed, may payment of
liens judgements or offset some credit
liens are significant prior
permitted on a delinquency
case-by-case obligations in
basis the past

Bankruptcy filings............. Discharged more Discharged more Discharged more Discharged
than three years than two years than one year prior to closing
prior to closing prior to closing prior to closing
and credit and credit and credit
reestablished reestablished reestablished

Debt service-to-income ratio... Generally 45% Generally 45% Generally 50% Generally 50%
or less or less or less or less
</TABLE>

11
<PAGE> 14

<TABLE>
<CAPTION>
"A" RISK "B" RISK "C" RISK "D" RISK
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Maximum loan-to-value ratio:

Owner-occupied................. Up to 100% for a Generally 80% Generally 75% Generally 65%
one- to two- (or 85%*) for a (or 80% for first (or 70% for first
family residence; one- to two- liens*) for a liens*) for a
75% for a family residence; one- to two- one- to two-
condominium 70% for family residence; family
and for a three- condominium 65% for a residence; 60%
to four- family and for a three- condominium; for a three-
residence to four- family 60% for a three- to four-family
residence to four-family residence or
residence condominium

Non-owner-occupied............. Generally 75% Generally 70% Generally 65% N/A
for a one- to for a one- to for a one- to
four-family two-family two-family
residence residence residence
</TABLE>

* On an exception basis.
----------------------------------------

The Company uses the foregoing categories and characteristics as
guidelines only. On a case-by-case basis, the Company may determine that the
prospective borrower warrants an exception. Exceptions may generally be allowed
if the application reflects certain compensating factors such as loan-to-value
ratio, debt ratio, length of employment and other factors. For example, a higher
debt ratio may be acceptable with a lower loan-to-value ratio. Accordingly, the
Company may classify in a more favorable risk category certain mortgage loans
that, in the absence of such compensating factors, would satisfy only the
criteria of a less favorable risk category.

The following table sets forth certain information with respect to
IMC's loan purchases and originations by borrower classification, along with
weighted average coupons, for the periods shown.

<TABLE>
<CAPTION>
Year Ended
December 31,
---------------------------------------------------------------------------------------------------
1994 1995 1996 1997
---------------------- ---------------------- ---------------------- ----------------------
Weighted Weighted Weighted Weighted
Borrower % of Average % of Average % of Average % of Average
Classification Total Total Coupon Total Total Coupon Total Total Coupon Total Total Coupon
- -------------- ----- ----- ------ ----- ----- ------ ----- ----- ------ ----- ----- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
"A" Risk ..... $156 55.0% 10.6% $276 44.4% 11.4% $ 883 49.9% 10.9% $3,156 53.6% 10.4%
"B" Risk ..... 74 26.3 11.6 177 28.5 12.0 443 25.0 11.5 1,377 23.4 10.9
"C" Risk ..... 38 13.5 13.0 126 20.2 13.0 338 19.1 12.3 1,092 18.5 11.7
"D" Risk ..... 15 5.2 14.4 43 6.9 14.4 106 6.0 13.6 268 4.5 13.1
---- ----- ---- ----- ------ ----- ------ -----

Total .... $283 100.0% 11.4 $622 100.0% 12.1 $1,770 100.0% 11.5 $5,893 100.0% 10.9%
==== ===== ==== ===== ====== ===== ====== =====

</TABLE>

The weighted average loan-to-value ratio of the Company's loans has
increased due to increasing competition in the non-conforming home equity loan
market and an increase since 1995 in the percentage of the Company's loans in
the "A" Risk category. Loans with loan-to-value ratios in excess of 80% amounted
to approximately $173 million, or 27.9% of total purchases and originations, for
the year ended December 31, 1995, $700 million, or 39.6% of total purchases and
originations, for the year ended December 31, 1996 and $2.8 billion, or 48.3% of
total purchases and originations, for the year ended December 31, 1997. The
increase in loan and originations with loan-to-value ratios between 80% and 100%
since 1995 is primarily related to the increase in purchases and originations of
?A? Risk loans as a percentage of total loans purchased and originated. The
Company's whole loan sales are typically comprised of a

12
<PAGE> 15

majority of "A" Risk loans. See " -- Loan Sales". The majority of the Company's
loans with loan-to-value ratios in excess of 80% are "A" Risk loans, and
substantially all of such loans are "A" Risk or "B" Risk loans. Some of the
companies acquired by IMC during 1997 originate or purchase loans with
loan-to-value ratios in excess of 100%, but generally they have a prior
"take-out" commitment for such loans. At the present time neither IMC, nor the
companies it acquired, has included such loans in its securitized pools.

LOAN SALES

Currently, IMC sells the loans it purchases or originates through one
of two methods: (i) securitization, which involves the private placement or
public offering of pass-through mortgage-backed securities; and (ii) whole loan
sales, which involve selling blocks of loans to single purchasers. This dual
approach allows IMC the flexibility to better manage its cash flow, take
advantage of favorable conditions in either the securitization or whole loan
market when selling its loan production, diversify its exposure to the potential
volatility of the capital markets and maximize the revenues associated with the
gain on sale of loans given market conditions existing at the time of
disposition. For the years ended December 31, 1994, 1995, 1996, and 1997, IMC
sold approximately $262 million, $459 million, $1.1 billion and $5.0 billion of
loan production, respectively.

The following table sets forth certain information with respect to
IMC's channels of loan sales by type of sale for the periods shown.

<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------
1994 1995 1996 1997
---- ---- ---- ----
% of % of % of % of
Total Total Total Total Total Total Total Total
----- ----- ----- ----- ----- ----- ----- -----
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securitizations ..... $ 82 31.2% $388 84.7% $ 935 87.9% $4,858 97.1%
Whole loan sales .... 180 68.8 71 15.3 129 12.1 145 2.9
---- ----- ---- ----- ------ ----- ------ ------
Total loan sales ... $262 100.0% $459 100.0% $1,064 100.0% $5,003 100.0%
==== ===== ==== ===== ====== ===== ====== ======
</TABLE>

Securitizations. Through December 31, 1997, the Company completed
sixteen securitizations totaling approximately $6.3 billion. During the year
ended December 31, 1997, IMC sold $4.9 billion of its loan volume through
securitizations. IMC markets its loan inventory through securitization when
management believes that employing this strategy will create greater long-term
economic benefit to IMC stockholders. IMC intends to continue to conduct loan
sales through securitizations, either in private placements or in public
offerings, when market conditions are attractive for such loan sales. Of IMC's
sixteen securitizations through December 31, 1997, thirteen were public
offerings and three were private offerings. When IMC securitizes loans, it
typically sells a portfolio of loans to a "real estate mortgage investment
conduit" (a "REMIC") or owner trust that issues classes of certificates
representing undivided ownership interests in the income stream to the trust.
IMC may be required either to repurchase or to replace loans which do not
conform to the representations and warranties made by IMC in the pooling and
servicing agreements entered into when a portfolio of loans is sold through a
securitization. In its capacity as servicer for each securitization trust, the
Company collects and remits principal and interest payments to the appropriate
trust, which in turn passes through payments to certificate owners. IMC retains
the servicing rights and an interest in the interest-only and residual classes
of certificates of the trust.

The purchasers of trust certificates receive a credit-enhanced
security. Credit enhancement is generally achieved by subordination of a
subsidiary class of bonds to senior classes or an insurance policy by a monoline
insurance company. As a result, each offering of the senior REMIC pass-through
certificates has received ratings of AAA from Standard & Poor's and Aaa from
Moody's Investors Service. In addition, credit enhancement is provided by
over-collateralization, which is intended to result in receipts and collections
on the loans in excess of the amounts required to be distributed to certificate
holders of the senior interests. Although expected loss is calculated into the
pricing of the sale of loans to the trust, to the extent that borrowers default
on the payment of principal and interest above the expected rate of default,
such

13
<PAGE> 16

loss will reduce the value of the Company's interest-only and residual class
certificate. If payment defaults exceed the amount of over-collateralization,
the insurance policy maintained by the trust will pay any further losses
experienced by certificate holders of the senior interests in the trust or a
subordinate class will bear the loans.

As part of IMC's cash flow management strategy, the first six
securitizations were structured so that ContiFinancial received a portion of the
interest-only and residual interest in the related trust. See Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Transactions with ContiFinancial.

Whole Loan Sales. With the initiation of the sale of loans through
securitizations in 1994, whole loan sales declined to 68.8%, 15.3%, 12.1% and
2.9% of total loan sales for the years ended December 31, 1994, 1995, 1996 and
1997, respectively. Upon the sale of a loan portfolio, IMC generally receives a
premium, representing a value in excess of the par value of the loans (par value
representing the unpaid balance of the loan amount). IMC maximizes its premium
on whole loan sale revenue by closely monitoring institutional investors'
requirements and focusing on originating the types of loans that meet those
requirements and for which institutional purchasers tend to pay higher rates.

IMC will sell some of its loan volume to various institutional
investors on a non-recourse basis with customary representations and warranties
covering loans sold. IMC may be required to repurchase a loan in the event that
its representations and warranties with respect to such loans prove to be
inaccurate. Occasionally, IMC will agree to rebate a portion of the premium
earned if a loan is prepaid during a limited period of time after sale, usually
six months and no more than one year.

LOAN SERVICING AND COLLECTIONS

IMC has been servicing loans since April 1994. IMC's loan servicing
operation is divided into three departments: (i) collections; (ii) customer
service for both borrowers and investors; and (iii) tax, insurance and tax and
insurance escrow. These departments monitor loans, collect current payments due
from borrowers, remit principal and interest payments to current owners of loans
and pay taxes and insurance. The collections department furnishes reports and
enforces the holder's rights, including recovering delinquent payments,
instituting loan foreclosures and liquidating the underlying collateral. IMC
intends to increase its loan servicing operations and thus its revenue stream by
continuing to retain the majority of servicing rights on all its securitized
loans and certain whole loan sales. IMC retained the servicing rights to
approximately $401 million, $963 million, and $4.9 billion, or 87.3%, 90.5% and
97.1%, of the loans it sold in 1995, 1996 and 1997, respectively.

As of December 31, 1997, IMC was servicing loans representing an
aggregate of approximately $7.0 billion. Revenues generated from loan servicing
amounted to 7.8%, 10.3% and 8.6% of IMC's total revenues for the years ended
December 31, 1995 and 1996 and 1997, respectively. Management believes that the
Company's loan servicing provides a consistent revenue stream to augment its
loan purchasing and originating activities.

IMC's collections policy is designed to identify payment problems
sufficiently early to permit IMC to address delinquency problems quickly and,
when necessary, to act to preserve equity before a property goes into
foreclosure. IMC believes that these policies, combined with the experience
level of independent appraisers engaged by IMC, help to reduce the incidence of
charge-offs on first or second mortgage loans.

Collection procedures commence upon identification of a past due
account by IMC's automated servicing system. If the first payment due is
delinquent, a collector will telephone to remind the borrower of the payment.
Five days after any payment is due, generally a written notice of delinquency is
sent to the borrower. Eleven days after payment is due, generally the account is
automatically placed in the appropriate collector's queue and the collector will
send a late notice to the borrower. During the delinquency period, the collector
will continue to frequently contact the borrower. Company collectors have
computer access to telephone numbers, payment histories, loan information and
all past collection notes.

14
<PAGE> 17

All collection activity, including the date collection letters were sent and
detailed notes on the substance of each collection telephone call, is entered
into a permanent collection history for each account.

IMC's loan servicing software also tracks and maintains homeowners'
insurance information. Expiration reports are generated weekly listing all
policies scheduled to expire within 30 days. When policies lapse, a letter is
issued advising the borrower of the lapse and that IMC will obtain force-placed
insurance at the borrower's expense. IMC also has an insurance policy in place
that provides coverage automatically for IMC in the event that IMC fails to
obtain force-placed insurance.

Notwithstanding the above, charge-offs occur. Prior to a foreclosure
sale, IMC performs a foreclosure analysis with respect to the mortgaged property
to determine the value of the mortgaged property and the bid that IMC will make
at the foreclosure sale. This analysis includes: (i) a current valuation of the
property obtained through a drive-by appraisal conducted by an independent
appraiser; (ii) an estimate of the sale price of the mortgaged property obtained
by sending two local realtors to inspect the property; (iii) an evaluation of
the amount owed, if any, to a senior mortgagee and for real estate taxes; and
(iv) an analysis of marketing time, required repairs and other costs, such as
real estate broker fees, that will be incurred in connection with the
foreclosure sale.

All foreclosures are assigned to outside counsel located in the same
state as the secured property. Bankruptcies filed by borrowers are also assigned
to appropriate local counsel who are required to provide monthly reports on each
loan file.

The following table provides certain delinquency and default experience
as a percentage of outstanding principal balances of IMC's servicing portfolio
for the periods shown.

<TABLE>
<CAPTION>
At December 31,
---------------------------------------------------
1994 1995 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Servicing portfolio (in thousands) ... $ 92,003 $ 535,798 $ 2,148,068 $ 6,956,905
Delinquency percentages(1):
30-59 days ................... 0.72% 2.54% 3.01% 2.35%
60-89 days ................... 0.15 0.59 1.01 1.21
90+ days ..................... 0.00 0.30 1.28 1.84
--------- ---------- ------------ ------------
Total delinquency .......... 0.87% 3.43% 5.30% 5.40%
--------- ---------- ------------ ------------

Default percentages(2):
Foreclosure .................. 0.00% 0.75% 0.94% 1.42%
Bankruptcy ................... 0.12 0.25 0.53 0.73
--------- ---------- ------------ ------------
Total default .............. 0.12% 1.00% 1.47% 2.15%
--------- ---------- ------------ ------------
Total delinquency and default ........ 0.99% 4.43% 6.77% 7.55%
========= ========== ============ ============
</TABLE>

(1) Represents the percentages of account balances contractually past due,
exclusive of home equity loans in foreclosure, bankruptcy and real
estate owned.

(2) Represents the percentages of account balances on loans in foreclosure
and bankruptcy, exclusive of real estate owned.

15
<PAGE> 18

The following table provides certain delinquency and default experience
as a percentage of outstanding principal balance for each of the Company's
securitization trusts completed through December 31, 1997, prior to any
potential recoveries:

DELINQUENCY AND DEFAULTS FOR THE COMPANY'S SECURITIZATIONS(1)(2)(3)
(dollars in thousands)
<TABLE>
<CAPTION>
1994-1 1995-1 1995-2 1995-3
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
As of March 31, 1996:
Delinquency:
30-59 days ................. $1,317 2.07% $2,286 2.80% $1,028 0.99% $2,451 1.74%
60-89 days ................. 274 0.43 243 0.30 580 0.56 103 0.07
90 days and over ........... 39 0.06 191 0.23 120 0.11 359 0.26
------ ---- ------ ---- ------ ---- ------ ----
Total ................... $1,630 2.56% $2,720 3.33% $1,728 1.66% $2,913 2.07%
------ ---- ------ ---- ------ ---- ------ ----
Total defaults ............. $2,129 3.35% $1,968 2.41% $2,643 2.54% $1,666 1.19%
====== ==== ====== ==== ====== ==== ====== ====
As of June 30, 1996:
Delinquency:
30-59 days ................. $1,002 1.74% $1,679 2.33% $3,232 3.37% $5,086 3.86%
60-89 days ................. 387 0.67 238 0.33 801 0.84 505 0.38
90 days and over ........... 121 0.21 147 0.20 2 0.00 478 0.36
------ ---- ------ ---- ------ ---- ------ ----
Total .................... $1,510 2.62% $2,064 2.86% $4,035 4.21% $6,069 4.60%
====== ==== ====== ==== ====== ==== ====== ====
Total defaults ............. $1,611 2.80% $1,920 2.67% $3,053 3.19% $2,703 2.05%
====== ==== ====== ==== ====== ==== ====== ====

As of September 30, 1996:
Delinquency:
30-59 days ................. $2,132 4.01% $1,602 2.45% $2,542 2.96% $ 999 0.85%
60-89 days ................. 299 0.56 321 0.49 1,151 1.34 645 0.55
90 days and over ........... 223 0.42 141 0.22 466 0.54 341 0.29
------ ---- ------ ---- ------ ---- ------ ----
Total .................... $2,654 4.99% $2,064 3.16% $4,159 4.84% $1,985 1.69%
====== ==== ====== ==== ====== ==== ====== ====
Total defaults ............. $2,288 4.31% $1,962 3.00% $4,116 4.79% $3,073 2.62%
====== ==== ====== ==== ====== ==== ====== ====

As of December 31, 1996:
Delinquency:
30-59 days ................. $2,615 5.42% $1,352 2.30% $3,315 4.31% $5,797 5.44%
60-89 days ................. 462 0.96 562 0.96 850 1.10 899 0.84
90 days and over ........... 264 0.55 104 0.18 1,527 1.99 703 0.66
------ ---- ------ ---- ------ ---- ------ ----
Total .................... $3,341 6.93% $2,018 3.44% $5,692 7.40% $7,399 6.94%
====== ==== ====== ==== ====== ==== ====== ====
Total defaults ............. $2,568 5.32% $2,229 3.80% $3,597 4.68% $3,320 3.11%
====== ==== ====== ==== ====== ==== ====== ====

As of March 31, 1997:
Delinquency:
30-59 days ................. $1,394 3.10% $1,576 2.89% $2,666 3.82% $4,157 4.23%
60-89 days ................. 205 0.46 353 0.65 868 1.24 770 0.78
90 days and over ........... 776 1.73 425 0.78 1,136 1.63 1,305 1.33
------ ---- ------ ---- ------ ---- ------ ----
Total ................... $2,375 5.29% $2,354 4.32% $4,670 6.69% $6,232 6.34%
====== ==== ====== ==== ====== ==== ====== ====
Total defaults ............. $2,422 5.38% $2,710 4.98% $3,942 5.64% $3,711 3.78%
====== ==== ====== ==== ====== ==== ====== ====

As of June 30, 1997:
Delinquency:
30-59 days ................. $ 817 1.99% $2,545 5.21% $2,126 3.35% $2,365 2.63%
60-89 days ................. 148 0.36 104 0.21 835 1.32 632 0.70
90 days and over ........... 5 0.01 221 0.45 419 0.66 167 0.19
------ ---- ------ ---- ------ ---- ------ ----
Total ................... $ 970 2.36% $2,870 5.87% $3,380 5.33% $3,164 3.52%
====== ==== ====== ==== ====== ==== ====== ====
Total defaults ............. $2,900 7.08% $3,041 6.23% $4,789 7.55% $4,202 4.67%
====== ==== ====== ==== ====== ==== ====== ====
</TABLE>

16
<PAGE> 19

<TABLE>
<CAPTION>
1994-1 1995-1 1995-2 1995-3
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
As of September 30, 1997:
Delinquency:
30-59 days ................. $ 867 2.32% $ 925 2.03% $1,926 3.32% $2,804 3.50%
60-89 days ................. 293 0.79 642 1.40 1,375 2.37 633 0.79
90 days and over ........... 211 0.57 72 0.16 1,314 2.26 712 0.89
------ ---- ----- ---- ------ ---- ------ ----
Total .................... $1,371 3.68% 1,639 3.59% $4,615 7.95% $4,149 5.18%
====== ==== ====== ==== ====== ==== ====== ====
Total defaults ............. $3,239 8.68% $3,512 7.69% $4,378 7.54% $4,938 6.17%
====== ==== ====== ==== ====== ==== ====== ====

As of December 31, 1997:
Delinquency:
30-59 days ................. $ 661 1.89% $1,358 3.26% $1,223 2.33% $ 953 1.28%
60-89 days ................. 294 0.84 523 1.26 837 1.59 1,556 2.10
90 days and over ........... 1,114 3.19 1,043 2.51 2,723 5.19 1,774 2.39
------ ---- ----- ---- ------ ---- ------ ----
Total .................... $2,069 5.92% $2,924 7.03% $4,783 9.11% $4,283 5.77%
====== ==== ====== ==== ====== ==== ====== ====
Total defaults ............. $2,831 8.11% $2,469 5.94% $4,316 8.22% $4,428 5.96%
====== ==== ====== ==== ====== ==== ====== ====

<CAPTION>
1996-1 1996-2 1996-3 1996-4
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
As of March 31, 1996:
Delinquency:
30-59 days ................. $ 3,462 2.04%
60-89 days ................. 629 0.37
90 days and over ........... 534 0.31
------- ----
Total .................... $ 4,625 2.72%
======= ====
Total defaults ............. $ 485 0.29%
======= ====

As of June 30, 1996:
Delinquency:
30-59 days ................. $ 3,544 2.20% $ 4,046 2.09%
60-89 days ................. 1,090 0.68 916 0.47
90 days and over ........... 642 0.40 843 0.44
------- ---- ------- ----
Total .................... $ 5,276 3.28% $ 5,805 3.00%
======= ==== ======= ====
Total defaults ............. $ 1,710 1.06% $ 471 0.24%
======= ==== ======= ====

As of September 30, 1996:
Delinquency:
30-59 days ................. $ 5,206 3.44% $ 3,598 1.96% $ 6,949 2.88%
60-89 days ................. 1,666 1.10 1,451 0.79 3,222 1.34
90 days and over ........... 853 0.56 1,223 0.67 1,671 0.69
------- ---- ------- ---- ------- ----
Total .................... $ 7,725 5.10% $ 6,272 3.42% $11,842 4.91%
======= ==== ======= ==== ======= ====
Total defaults ............. $ 2,671 1.76% $ 4,287 2.33% $ 1,693 0.70%
======= ==== ======= ==== ======= ====

As of December 31, 1996:
Delinquency:
30-59 days ................. $ 8,386 6.10% $ 3,662 2.17% $ 3,325 1.46% $ 6,440 2.17%
60-89 days ................. 2,463 1.79 1,635 0.97 3,405 1.50 2,482 0.84
90 days and over ........... 2,821 2.05 1,823 1.08 5,651 2.48 4,943 1.67
------- ---- ------- ---- ------- ---- ------- ----
Total .................... $13,670 9.94% $ 7,120 4.22% $12,381 5.44% $13,865 4.68%
======= ==== ======= ==== ======= ==== ======= ====
Total defaults ............. $ 2,723 1.98% $ 4,665 2.76% $ 3,176 1.39% $ 629 0.21%
======= ==== ======= ==== ======= ==== ======= ====

As of March 31, 1997:
Delinquency:
30-59 days ................. $ 4,089 3.27% $ 8,329 5.35% $ 4,742 2.20% $ 8,189 2.92%
60-89 days ................. 1,424 1.14 1,656 1.06 1,727 0.80 2,355 0.84
90 days and over ........... 2,111 1.69 1,074 0.69 4,186 1.95 4,471 1.59
------- ---- ------- ---- ------- ---- ------- ----
Total ...................... $ 7,624 6.10% $11,059 7.10% $10,655 4.95% $15,015 5.35%
======= ==== ======= ==== ======= ==== ======= ====
Total defaults ............. $ 4,973 3.97% $ 6,164 3.96% $ 6,304 2.43% $ 5,573 1.98%
======= ==== ======= ==== ======= ==== ======= ====
</TABLE>

17
<PAGE> 20

<TABLE>
<CAPTION>
1996-1 1996-2 1996-3 1996-4
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
As of June 30, 1997:
Delinquency:
30-59 days ................. $ 3,721 3.25% $ 5,952 4.19% $ 6,644 3.41% $ 8,009 3.11%
60-89 days ................. 1,206 1.05 1,700 1.20 2,757 1.42 3,029 1.18
90 days and over ........... 430 0.38 154 0.11 334 0.17 1,676 0.65
------- ---- ------- ---- ------- ---- ------- ----
Total .................... $ 5,357 4.68% $ 7,806 5.50% $ 9,735 5.00% $12,714 4.94%
======= ==== ======= ==== ======= ==== ======= ====
Total defaults ............. $ 6,549 5.72% $ 8,104 5.71% $10,997 5.65% $10,117 3.93%
======= ==== ======= ==== ======= ==== ======= ====

As of September 30, 1997:
Delinquency:
30-59 days ................. $ 2,630 2.50% $ 4,184 3.19% $ 3,538 1.99% $ 8,275 3.58%
60-89 days ................. 911 0.87 1,242 0.95 1,590 0.90 3,436 1.49
90 days and over ........... 1,794 1.71 1,163 0.89 934 0.53 3,714 1.60
------- ---- ------- ---- ------- ---- ------- ----
Total .................... $ 5,335 5.08% $ 6,589 5.03% $ 6,062 3.42% $15,425 6.67%
======= ==== ======= ==== ======= ==== ======= ====
Total defaults ............. $ 7,649 7.29% $ 8,534 6.51% $13,091 7.38% $12,662 5.47%
======= ==== ======= ==== ======= ==== ======= ====

As of December 31, 1997:
Delinquency:
30-59 days ................. $ 1,658 1.72% 3,794 3.20% $ 3,887 2.39% $ 5,686 2.69%
60-89 days ................. 1,445 1.50 2,135 1.80 2,224 1.36 2,420 1.14
90 days and over ........... 2,788 2.90 2,267 1.91 3,680 2.26 4,263 2.02
------- ---- ------- ---- ------- ---- ------- ----
Total .................... $ 5,891 6.12% $ 8,196 6.91% $ 9,791 6.01% $12,369 5.85%
======= ==== ======= ==== ======= ==== ======= ====
Total defaults ............. $ 7,279 7.57% $ 8,660 7.30% $ 9,605 5.90% $14,014 6.63%
======= ==== ======= ==== ======= ==== ======= ====
<CAPTION>

1996-1 1996-2 1996-3 1996-4
------------- ------------- ------------- -------------
As of March 31, 1997:
Delinquency:
30-59 days ................. $ 9,414 3.01% $10,561 2.67%
60-89 days ................. 3,594 1.15 4,641 1.17
90 days and over ........... 5,217 1.67 843 0.21
------- ---- ------- ----
Total .................... $18,225 5.83% $16,045 4.05%
======= ==== ======= ====
Total defaults ............. $ 1,170 0.37% $ 369 0.09%
======= ==== ======= ====

As of June 30, 1997:
Delinquency:
30-59 days ................. $10,117 3.45% $ 9,817 2.62% $29,002 3.67%
60-89 days ................. 2,463 0.84 2,863 0.76 6,201 0.78
90 days and over ........... 5,631 1.92 3,971 1.06 927 0.12
------- ---- ------- ---- ------- ----
Total .................... $18,211 6.21% $16,651 4.44% $36,130 4.57%
======= ==== ======= ==== ======= ====
Total defaults ............. $ 4,533 1.55 $ 4,248 1.13% $ 241 0.03%
======= ==== ======= ==== ======= ====

As of September 30, 1997:
Delinquency:
30-59 days ................. $ 7,452 2.78% $ 9,753 2.81% $22,580 2.98% $12,446 2.22%
60-89 days ................. 2,507 0.94 3,420 0.98 7,906 1.04 5,525 0.99
90 days and over ........... 7,163 2.68 5,925 1.71 14,067 1.85 4,627 0.83
------- ---- ------- ---- ------- ---- ------- ----
Total .................... $17,122 6.40% $19,098 5.50% $44,553 5.87% $22,598 4.04%
======= ==== ======= ==== ======= ==== ======= ====
Total defaults ............. $ 8,796 3.29% $10,848 3.13% $ 7,040 0.93% $ 798 0.14%
======= ==== ======= ==== ======= ==== ======= ====

As of December 31, 1997:
Delinquency:
30-59 days ................. $ 6,182 2.56% $ 9,823 3.13% $18,556 2.58% $ 8,691 1.63%
60-89 days ................. 2,918 1.21 4,646 1.48 9,243 1.29 5,398 1.02
90 days and over ........... 5,369 2.22 5,067 1.61 21,463 2.99 10,659 2.00
------- ---- ------- ---- ------- ---- ------- ----
Total .................... $14,469 5.99% $19,536 6.22% $49,262 6.86% $24,748 4.65%
======= ==== ======= ==== ======= ==== ======= ====
Total defaults ............. $13,589 5.63% $16,574 5.28% $16,467 2.32% $ 4,765 0.90%
======= ==== ======= ==== ======= ==== ======= ====
</TABLE>

18
<PAGE> 21

<TABLE>
<CAPTION>
1997-5 1997-6 1997-7 1997-8
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
As of September 30, 1997:
Delinquency:
30-59 days ................. $34,046 3.52%
60-89 days ................. 5,176 0.53
90 days and over ........... 764 0.08
------- ----
Total .................... $39,986 4.13%
======= ====
Total defaults ............. $ 150 0.16%
======= ====

As of December 31, 1997:
Delinquency:
30-59 days ................. $17,978 1.92% $17,015 2.50% $30,032 4.00% $ 7,904 2.59%
60-89 days ................. 11,256 1.20 10,046 1.48 12,353 1.64 2,975 0.98
90 days and over ........... 23,104 2.47 15,325 2.25 5,266 0.70 794 0.26
------- ---- ------- ---- ------- ---- ------- ----
Total .................... $52,338 5.59% $42,386 6.23% $47,651 6.34% $11,673 3.83%
======= ==== ======= ==== ======= ==== ======= ====
Total defaults ............. $ 3,254 0.35% $ 3,659 0.54% $ 0 0% $ 0 0%
======= ==== ======= ==== ======= ==== ======= ====
</TABLE>

(1) Delinquency is the dollar value of account balances contractually past
due, excluding loans in foreclosure, bankruptcy and real estate owned.

(2) Defaults are the dollar value of account balances contractually past
due on loans in foreclosure and bankruptcy, exclusive of real estate
owned.

(3) The percentage of loans with loan-to-value ratios between 80% and 100%
included in the 1994-1, 1995-1, 1995-2, 1995-3, 1996-1, 1996-2, 1996-3,
1996-4, 1997-1, 1997-2, 1997-3, 1997-4, 1997-5, 1997-6, 1997-7 and
1997-8 securitization trusts, as of the closing date of each
securitization, was 24.2%, 32.4%, 26.6%, 10.4%, 11.0% 12.2%, 15.7%,
18.3%, 18.0%, 20.4%, 24.2%, 21.92%, 29.08%, 29.56%, 29.55%, and 30.38%,
respectively. The LTV's are calculated as of the origination date of
each mortgage loan based on the appraised value at the time of
origination.

The following table describes certain loan loss experience of IMC's
servicing portfolio of home equity loans for the fiscal years ended December 31,
1994, 1995, 1996 and 1997.

<TABLE>
<CAPTION>
Year Ended
December 31,
---------------------------------------------------
1994 1995 1996 1997
---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Average amount outstanding(1) .............. $ 52,709 $294,252 $1,207,172 $4,315,238
Losses(2) .................................. -- 279 1,580 6,274
Annualized losses as a percentage of average
amount outstanding ........................ 0.00% 0.09% 0.13% 0.15%
</TABLE>

(1) Average amount outstanding during the period is the arithmetic average
of the principal balances of home equity loans outstanding on the last
business day of each month during the period.

(2) Losses are actual losses incurred on liquidated properties for each
respective period. Losses include all principal, foreclosure costs and
accrued interest.

19
<PAGE> 22

MARKETING

Correspondent and Broker Networks. Marketing to correspondents and
brokers is conducted through IMC's business development representatives who
establish and maintain relationships with IMC's principal sources of loan
purchases and originations, including financial institutions and mortgage
bankers. The business development representatives provide various levels of
information and assistance to correspondents and brokers and are principally
responsible for maintaining IMC's relationships with its networks. Business
development representatives endeavor to increase the volume of loan originations
from brokers and correspondents located within the geographic territory assigned
to that representative. The representatives visit customers' offices, attend
trade shows and supervise advertisements in broker trade magazines. The
representatives also provide IMC with information relating to correspondents,
borrowers and brokers and products and pricing offered by competitors and new
market entrants, all of which assist IMC in refining its programs in order to
offer competitive products. The business development representatives are
compensated with a base salary and commissions based on the volume of loans that
are purchased or originated as a result of their efforts.

Direct Consumer Lending. As of December 31, 1997, IMC marketed its
direct consumer lending services through 82 branch offices. IMC intends to
continue to open new retail branches during 1998. IMC's direct consumer loan
expansion strategy involves: (i) targeting cities where the population density
and economic indicators are favorable for home equity lending, the foreclosure
rate is within reasonable ranges and the non-conforming loan market has been
underserved; (ii) testing the target market prior to the establishment of a
branch office, and where local regulations permit, via newspaper, radio and
direct mail advertising and through a toll-free telephone number which routes
borrower inquiries directly to a loan officer in one of the Company's regional
offices; (iii) if test marketing is positive, establishing a small branch
office, generally with an initial staff of two business development
representatives; and (iv) setting up branch offices in executive office space
with short-term leases, which eliminates high startup costs for office
equipment, furniture and leasehold improvement and allows IMC to exit the market
easily if the office does not meet expectations. The branch office network is
used for marketing to and meeting with IMC's local borrowers and brokers.

ACQUISITIONS AND STRATEGIC ALLIANCES

The Company is actively pursuing a strategy of acquiring originators of
non-conforming home equity loans. IMC's acquisition strategy focuses on entities
that originate non-conforming mortgages either directly from the consumer or
through broker networks. In 1996, IMC acquired Equitystars and in January and
February 1997 completed the acquisitions of Mortgage America, CoreWest, Equity
Mortgage and American Reduction. In July 1997, IMC acquired National Lending
Center and Central Money Mortgage. In October and November 1997, IMC acquired
Residential Mortgage Corporation and Alternative Capital Group. Equitystars,
Mortgage America and Equity Mortgage were Industry Partners.

Each of the foregoing acquisitions has been accounted for under the
purchase method of accounting and the results of operations have been included
with those of the Company from the dates of acquisition. The fair value of the
acquired Companies' assets approximated the liabilities assumed, and
accordingly, the majority of the initial purchase prices has been recorded as
goodwill which will be amortized on a straight line basis for periods up to
thirty (30) years. The initial purchase price for all of the assets of
Equitystars was 239,666 shares of common stock. The aggregate purchase price for
the eight acquisitions completed in 1997 included gross cash of approximately
$20.9 million, approximately 5.0 million shares of common stock, $13.2 million
of notes payable to former shareholders and assumption of a stock option plan
which resulted in the issuance of options to acquire 334,596 shares of the
Company's common stock. The aggregate fair value of assets acquired was
approximately $71.2 million and liabilities assumed approximated $70.4 million.
The Company recorded goodwill of approximately $87.0 million related to these
acquisitions. Most of the acquisitions include earn-out arrangements that
provide for additional consideration if the acquired company achieves certain
performance targets after the acquisition. Additional purchase price of
approximately $5.8 million was recorded as goodwill during

20
<PAGE> 23

the year ended December 31, 1997 related to the contingent payment terms of the
acquisitions. Any such contingent payments will result in an increase in the
amount of recorded goodwill related to such acquisition.

Management believes that the acquisitions of these and similar
non-conforming home equity loan originators will benefit IMC by: (i) increasing
IMC's loan production volume by capturing all of the acquired company's
production instead of only a portion; (ii) improving IMC's profitability and
profit margins because broker and direct-to-consumer originated loans typically
result in better profit margins than loans purchased from correspondents; (iii)
adding experienced management; and (iv) broadening IMC's distribution system for
offering new products. In order to incent management of the acquired companies,
IMC typically structures its acquisitions to include an initial payment upon
closing of the transaction and to provide for contingent payments tied to future
production and profitability of the acquired company.

IMC believes that by using a "family of companies" approach to
potential acquisitions it is able to differentiate itself from other potential
acquirers competing for acquisitions of non-conforming mortgage lenders. Under
this approach, IMC seeks to derive the benefit of the entrepreneurial energies
and organizational and marketing skills already developed by existing companies
by allowing those companies to operate after acquisition by the Company as
relatively independent lending units. IMC believes this approach appeals to
owners of certain existing companies who see a number of benefits from IMC's
concept, including: (i) the benefit of being allowed to continue to run their
companies as subsidiaries or independent divisions of IMC after acquisition;
(ii) the assurance that the previous owner controls the employees of the
acquired company following the acquisition; and (iii) the benefit of financial
support from IMC, which provides warehouse and working capital lines as needed
on an agreed business plan, thereby allowing the former owners to concentrate on
growing their business and obtaining efficient execution of the loan marketing
process.

21
<PAGE> 24

The Company's acquisitions are summarized in the table below:

<TABLE>
<CAPTION>
National Central Residential Alternative
Mortgage Equity American Lending Money Mortgage Capital
Equitystars America CoreWest Mortgage Reduction Center Mortgage Corp. Group
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Industry Partner Yes Yes No Yes No No No No No

Effective Date
of Acquisition 1/1/96 1/1/97 1/1/97 1/1/97 2/1/97 7/1/97 7/1/97 10/1/97 11/1/97

Approximate
1997
originations $369 $365 $324 $40 $114 $391 $122 $129 $70
million million million million million million million million million

Approximate
1997
originations
prior to date of $5 $166 $52 $99 $48
acquisition N/A N/A N/A N/A million million million million million

Los Owings Deerfield,
Headquarters Lincoln, Bay City, Angeles, Baltimore, Mills, Beach, Columbia, Cranston, Dallas,
RI MI CA MD MD FL MD RI TX
Primary States
of Operations CT, ME, AZ, AR, AZ, CA, DE, DC, DC, DE, AZ, CO, CO, DC CT, FL, CO, ID,
MA, NH, CO, CA, CO, CT, GA, MD, GA, MA, FL, GA, DE, IN, KS, MA OK, OR
NY, RI FL, GA, FL, GA, MI, NY, MD, MO, IL, IN, IL, MD, ME, MI, NM, TX,
IL, IN, HI, ID, PA, VA NC, OH, NC, MI, MI, NC, MO, NY, WA
KS, KY, IL, IN, PA, VA MS, NV, PA, VA NC, RI,
MD, MI, MA, MN, OH, SC, SC
MN, MO, MO, NM, TN, TX,
MS, NC, NV, NY, UT, WI,
NY, NE, OH, OR, WY
OH, OK, TX, UT,
PA, SC, WA, WY
TN, VA,
WV, WI
</TABLE>

ACQUISITION OF EQUITYSTARS

Effective January 1, 1996, IMC acquired all of the assets of
Equitystars, one of the Industry Partners. Equitystars is a non-conforming
lender that purchases and originates residential mortgage loans in Rhode Island,
New York, Connecticut, Massachusetts, Maine and New Hampshire. Equitystars
originated approximately $369 million of residential mortgage loans in 1997.

ACQUISITION OF MORTGAGE AMERICA

Effective January 1, 1997, IMC acquired all of the assets of Mortgage
America, an Industry Partner. Mortgage America is a non-conforming lender based
in Bay City, Michigan that originates residential mortgage loans from a network
of 35 retail offices located in 20 states. Mortgage America originated
approximately $365 million of residential mortgage loans in 1997.

22
<PAGE> 25

ACQUISITION OF COREWEST

Effective January 1, 1997, IMC acquired all of the outstanding common
stock of CoreWest, a non-conforming lender based in Los Angeles, California.
CoreWest, which commenced operations in early 1996, originates residential
mortgage loans primarily through a network of 31 mortgage centers located in
fifteen states. CoreWest originated approximately $324 million of residential
mortgage loans in 1997.

ACQUISITION OF EQUITY MORTGAGE

Effective January 1, 1997, IMC acquired all of the assets of Equity
Mortgage, an Industry Partner. Equity Mortgage is a non-conforming lender that
originates residential mortgage loans from its offices in the greater Baltimore
metropolitan region. Equity Mortgage originated approximately $40 million of
residential mortgage loans in 1997.

ACQUISITION OF AMERICAN REDUCTION

Effective February 1, 1997, IMC acquired all of the assets of American
Reduction, a non-conforming lender based in Owings Mills, Maryland. American
Reduction originates residential mortgage loans from its main office in Owings
Mills, and eight satellite offices located in four states. American Reduction
originated over $114 million of residential mortgage loans in 1997, including
approximately $5 million of residential mortgage loans originated prior to the
date of acquisition.

ACQUISITION OF NATIONAL LENDING CENTER

Effective July 1, 1997, IMC acquired substantially all of the assets on
National Lending Center, a non-conforming mortgage lender based in Deerfield
Beach, Florida. National Lending Center originates residential mortgage loans
primarily through mortgage brokers and has operations in 17 states. National
Lending Center originated approximately $391 million of residential loans in
1997, including approximately $166 million of residential mortgage loans
originated prior to the date of acquisition. IMC purchased approximately $74
million of residential mortgage loans from National Lending Center during 1997
prior to the date of acquisition.

ACQUISITION OF CENTRAL MONEY MORTGAGE

Effective July 1, 1997, IMC acquired substantially all of the assets of
Central Money Mortgage, a non-conforming mortgage lender based in Columbia,
Maryland. Central Money Mortgage originates residential mortgage loans primarily
through mortgage brokers in nine states and through one retail office in
Maryland. Central Money Mortgage originated approximately $122 million of
residential mortgage loans in 1997, including approximately $52 million of
residential mortgage loans originated prior to the date of acquisition. IMC
purchased approximately $35 million of residential mortgage loans from Central
Money Mortgage during 1997 prior to the date of acquisition.

ACQUISITION OF RESIDENTIAL MORTGAGE CORPORATION

Effective October 1, 1997, IMC acquired substantially all of the assets
of Residential Mortgage Corporation, a residential mortgage lender based in
Cranston, Rhode Island. Residential Mortgage originates residential mortgage
loans primarily through a network of mortgage brokers in eleven states.
Residential Mortgage originated approximately $129 million of residential
mortgage loans in 1997, including approximately $99 million of residential
mortgage loans originated prior to the date of acquisition. IMC purchased
approximately $9 million of residential mortgage loans from Residential Mortgage
during 1997 prior to the date of acquisition.

<PAGE> 26

ACQUISITION OF ALTERNATIVE CAPITAL GROUP

Effective November 1, 1997, IMC acquired substantially all of the
assets of Alternative Capital Group, a residential mortgage lender based in
Dallas, Texas. Alternative Capital Group originates residential mortgage loans
through a network of brokers and two retail locations. Alternative Capital Group
originated approximately $70 million of residential mortgage loans in 1997,
including approximately $48 million of residential mortgage loans originated
prior to the date of acquisition. IMC purchased approximately $25 million of
residential mortgage loans from Alternative Capital Group during 1997 prior to
the date of acquisition.

STRATEGIC ALLIANCES

In order to increase the Company's volume and diversify its sources of
loan originations, the Company seeks to enter into strategic alliances with
selected mortgage lenders, pursuant to which the Company provides working
capital and financing arrangements and a commitment to purchase qualifying
loans. In return, the Company expects to receive a more predictable flow of
loans and, in some cases, an option or obligation to acquire an equity interest
in the related strategic participant. To date, the Company has completed three
strategic alliances.

INTERNATIONAL OPERATIONS

In April 1996, the Company formed Preferred Mortgages, a United Kingdom
joint venture. The Joint Venture Partners are IMC, Foxgard Limited ("Foxgard")
and Financial Security Assurance Inc. ("FSA"). Preferred Mortgages is owned 45%
by IMC, 45% by Foxgard and 10% by FSA. Through Preferred Mortgages, IMC intends
to explore opportunities to serve what management believes to be an underserved
segment of the home equity loan market in the United Kingdom by lending to
borrowers with impaired credit profiles similar to its domestic customers. As of
December 31, 1997, Preferred Mortgages had a $78 million line of credit from
National Westminster Bank, Plc for the purchase and origination of mortgage
loans (the "NatWest Facility"), and FSA has provided an insurance policy as
credit enhancement for the NatWest Facility.

In June 1997, IMC's wholly-owned subsidiary IMC Mortgage Company,
Canada Ltd. ("IMC Canada") began operations in the Canadian Province of Ontario.
IMC Canada intends to serve the non-conforming home equity market in the Toronto
marketplace and expand into additional Provinces.

IMC intends to explore opportunities to serve underserved nonconforming
segments of the home equity loan markets in other locations outside the United
States.

NEW PRODUCTS AND SERVICES

HOME EQUITY LINE OF CREDIT ("HELOC")

In late 1996, IMC introduced the HELOC product, which enables customers
to borrow on a revolving basis against the equity of their homes. After
repayment of the initial advance, the availability of credit under the line
increases in proportion to the amount repaid. In the past, this type of product
has been offered primarily by commercial banks due to the complexity of the
methodology necessary to process and maintain the loans. IMC developed the
methodology to facilitate the HELOC program through an agreement with a large
commercial bank. This new product offers the convenience of a revolving mortgage
credit line to the non-conforming borrower. IMC offers HELOCs to borrowers using
the same general underwriting criteria IMC uses for its non-conforming lending
business.

<PAGE> 27

PREFERRED PARTNERS PROGRAM

As originally conceived, the Preferred Partners Program was for the
benefit of mortgage companies attempting to diversify their product offering and
enter the non-conforming loan business. Now, however, the Preferred Partners
Program has expanded to encompass a diverse group of projects with a common
goal: to introduce certain entities not previously involved in non-conforming
lending to the business. The entities taking part in the Preferred Partners
Program now include credit unions, banks and brokerage houses. Under the
program, IMC acts as a consultant in certain aspects of the non-conforming loan
business, including marketing, regulatory compliance, underwriting,
risk-adjusted pricing, processing, funding, servicing and selling loans. Working
with the companies either on-site or out of IMC's offices, IMC helps the
entities develop new product lines that they would not typically underwrite on
their own. In return, IMC anticipates receiving a part of the production
generated by the entity. To date, the Preferred Partners Program has not
generated a significant amount of loan production for the Company.

COMPETITION

As a purchaser and originator of mortgage loans the proceeds of which
are used for a variety of purposes, including to consolidate debt, to finance
home improvements and to pay educational expenses, the Company faces intense
competition primarily from other mortgage banking companies and commercial
banks, credit unions, thrift institutions, credit card issuers and finance
companies. Many of these competitors are substantially larger and have more
capital and other resources than the Company. Some of the Company's competitors
may, in some locations, also include the Industry Partners, all of which
purchase and originate non-conforming home equity loans and some of which,
including The Money Store and Champion Mortgage Co., Inc., engage in the
securitization and servicing of non-conforming home equity loans. Furthermore,
numerous large national finance companies and originators of conforming
mortgages have expanded from their conforming origination programs and have
allocated resources to the origination of non-conforming loans. In addition,
many of these larger mortgage companies and commercial banks have begun to offer
products similar to those offered by the Company, targeting customers similar to
those of the Company. The entrance of these competitors into the Company's
market requires the Company to pay higher premiums for loans it purchases,
increases the likelihood of earlier prepayments through refinancings and could
have a material adverse effect on the Company's results of operations and
financial condition. In addition, competition could also result in the purchase
or origination of loans with lower interest rates and higher loan-to-value
ratios, which could have a material adverse effect on the Company's results of
operations and financial condition. Premiums paid to correspondents as a
percentage of loans purchased from correspondents by the Company increased from
5.0% for the year ended December 31, 1996 to 5.3% for the year ended December
31, 1997. The weighted average interest rate for loans purchased or originated
by the Company decreased from 12.1% for the year ended December 31, 1995 to
11.5% for the year ended December 31, 1996 to 10.9% for the year ended December
31, 1997. The combined weighted average loan-to-value ratio of loans purchased
or originated by the Company increased from 70.9% for the year ended December
31, 1995 to 72.9% for the year ended December 31, 1996 and to 75.3% for the year
ended December 31, 1997.

Competition takes many forms, including convenience in obtaining a
loan, service, marketing and distribution channels and interest rates.
Furthermore, the current level of gains realized by the Company and its
competitors on the sale of the type of loans purchased and originated is
attracting additional competitors into this market, including at least one
quasi-governmental agency, with the effect of lowering the gains that may be
realized by the Company on future loan sales. Competition may be affected by
fluctuations in interest rates and general economic conditions. During periods
of rising rates, competitors which have "locked-in" low borrowing costs may have
a competitive advantage. During periods of declining rates, competitors may
solicit the Company's borrowers to refinance their loans. During economic
slowdowns or recessions, the Company's borrowers may have new financial
difficulties and may be receptive to offers by the Company's competitors.

<PAGE> 28

The Company depends largely on brokers, financial institutions and
other mortgage bankers for its purchases and originations of new loans. The
Company's competitors also seek to establish relationships with the Company's
brokers and financial institutions and other mortgage bankers. The Company's
future results may become more exposed to fluctuations in the volume and cost of
its wholesale loans resulting from competition from other purchasers of such
loans, market conditions and other factors.

REGULATION

IMC's business is subject to extensive regulation, supervision and
licensing by federal, state and local governmental authorities and is subject to
various laws and judicial and administrative decisions imposing requirements and
restrictions on part or all of its operations. IMC's consumer lending activities
are subject to the Federal Truth-in-Lending Act and Regulation Z (including the
Home Ownership and Equity Protection Act of 1994), ECOA, the Fair Credit
Reporting Act of 1994, as amended, RESPA, and Regulation X, the Home Mortgage
Disclosure Act and the Federal Debt Collection Practices Act, as well as other
federal and state statutes and regulations affecting IMC's activities. IMC is
also subject to the rules and regulations of and examinations by HUD and state
regulatory authorities with respect to originating, processing, underwriting,
selling and servicing loans. These rules and regulations, among other things,
impose licensing obligations on IMC, establish eligibility criteria for mortgage
loans, prohibit discrimination, provide for inspections and appraisals of
properties, require credit reports on loan applicants, regulate assessment,
collection, foreclosure and claims handling, investment and interest payments on
escrow balances and payment features, mandate certain disclosures and notices to
borrowers and, in some cases, fix maximum interest rates, fees and mortgage loan
amounts. Failure to comply with these requirements can lead to loss of approved
status, termination or suspension of servicing contracts without compensation to
the servicer, demands for indemnifications or mortgage loan repurchases, certain
rights of rescission for mortgage loans, class action lawsuits and
administrative enforcement actions. IMC believes, however, that it is in
compliance in all material respects with applicable federal and state laws and
regulations.

ENVIRONMENTAL MATTERS

To date, IMC has not been required to perform any investigation or
clean up activities, nor has it been subject to any environmental claims. There
can be no assurance, however, that this will remain the case in the future. In
the ordinary course of its business, IMC from time to time forecloses on
properties securing loans. Although IMC primarily lends to owners of residential
properties, there is a risk that IMC could be required to investigate and clean
up hazardous or toxic substances or chemical releases at such properties after
acquisition by IMC, and could be held liable to a governmental entity or to
third parties for property damage, personal injury and investigation and cleanup
costs incurred by such parties in connection with the contamination. In
addition, the owner or former owners of a contaminated site may be subject to
common law claims by third parties based on damages and costs resulting from
environmental contamination emanating from such property.

EMPLOYEES

As of December 31, 1997, IMC had a total of 2,227 employees, 476 of
whom were working from its Tampa, Florida headquarters. None of IMC's employees
is covered by a collective bargaining agreement. IMC considers its relations
with its employees to be good. Several members of senior management have
previously worked as a team at other lending institutions. Many employees have
been associated with senior management in previous employment positions. During
the year ended December 31, 1997 IMC added in excess of 1,840 employees,
primarily as a result of the recent acquisitions. IMC believes that it will be
necessary to continue to increase its staff to support its growth.

<PAGE> 29

ITEM 2. PROPERTIES

On July 7, 1997, the Company moved its corporate headquarters to an
approximately 83,000 square foot building located at 5901 E. Fowler Avenue,
Tampa, Florida 33617. The building was purchased in January 1997 for $2.6
million and the Company spent approximately $2.2 million to renovate the
building which houses IMC's executive and administrative offices, including its
servicing operation and full-service production office.

At December 31, 1997, IMC maintained short-term leases for regional
full-service offices and retail branch offices in executive spaces in a number
of locations throughout regional the United States. See also Note 13 of Notes to
Consolidated Financial Statements.

ITEM 3. LEGAL PROCEEDINGS

IMC is a party to various legal proceedings arising out of the ordinary
course of its business. Management believes that none of these actions,
individually or in the aggregate, will have a material adverse effect on the
results of operations or financial condition of IMC.

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

None.

<PAGE> 30

PART II.

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

The Company's common stock is traded on the Nasdaq Stock Market
("Nasdaq") under the symbol "IMCC". The following table sets forth, for the
periods indicated, the high and low sales price for the Common Stock as reported
on Nasdaq, and reflects a two-for-one stock split paid on February 13, 1997 to
stockholders of record on February 6, 1997.

<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Year Ended December 31, 1996:
Second Quarter (from June 25, 1996)(1) ....... $11.50 $ 9.38
Third Quarter ................................ 17.44 10.75
Fourth Quarter ............................... 20.50 13.63

Year Ended December 31, 1997:
First Quarter ................................ $25.00 $14.38
Second Quarter ............................... 18.00 11.13
Third Quarter ................................ 18.44 15.38
Fourth Quarter ............................... 19.31 11.50
</TABLE>

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

(1) The Common Stock commended trading on Nasdaq on June 25, 1996.

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

As of March 20, 1998, there were approximately 6,315 holders of record
of the Common Stock.

As the Company intends to retain all of its future earnings to finance
its operations, the Company has not paid, and currently has no intention to pay,
any cash dividends on its Common Stock. Any decision to declare dividends in the
future will be made by the Company's Board of Directors and will depend upon the
Company's future earnings, capital requirements, financial condition and other
factors deemed relevant by the Company's Board of Directors. In addition,
certain agreements to which the Company is a party restrict the Company's
ability to pay dividends on the Common Stock.

RECENT REGISTRATION AND SALES OF SECURITIES

On April 23, 1997, the Company sold 6,300,000 shares of registered
common stock to the public. Of the 6,300,000 shares of common stock, 5,040,000
shares were offered by the Company and 1,260,000 shares were offered by certain
shareholders of the Company. The Company did not receive any of the proceeds
from the sale of shares by the selling shareholders. The net proceeds from the
sale of 5,040,000 shares of common stock approximated $58.0 million, of which
approximately $27.0 million was used to reduce certain indebtedness of the
Company, and the remaining net proceeds were used to fund loan purchases and
originations, to support securitization transactions, to fund acquisitions of
loan originators and expenses associated with the opening of new direct lending
branch offices and for general corporate purposes.

In January 1997, the Company acquired substantially all of the assets
of Mortgage America and all of the common stock of CoreWest. In July 1997, the
Company acquired substantially all of the assets of Central Money Mortgage and
all of the common stock of National Lending Center. In October and November
1997, the Company acquired substantially all of the assets of Residential
Mortgage Corporation and Alternative Capital Group, respectively. The aggregate
purchase price for these acquisitions included the issuance of 5,043,763 shares
of common stock and the

<PAGE> 31

assumption of Mortgage America's stock option plan, which resulted in the
conversion of outstanding options under the Mortgage America plan to options to
acquire 334,596 shares of the Company's common stock. The aggregate fair value
of the assets acquired was approximately $70.9 million and liabilities assumed
approximated $70.2 million. In each acquisition, the stock was issued to fewer
than 10 persons, each of which acquired such shares for investment purposes. The
issuance of the common stock was exempt from registration under the Securities
Act by virtue of Section 4(2) thereof.

During the years ended December 31, 1995, 1996 and 1997, the Company
issued options to acquire 1,150,866, 360,302 and 20,000 shares, respectively, of
the Company's common stock. Generally, such options are issued at prices which
are equal to the market value of the stock on the date of grant, vest at various
rates over a three or five year period and expire ten years subsequent to award.
During the year ended December 31, 1997, 401,102 shares were issued at an
aggregate exercise price of approximately $1.5 million upon the exercise of such
options. Both the issuance of the stock options and the issuance of common stock
upon exercise of such options are exempt from registration under the Securities
Act by virtue of Section 4(2) thereof.

During 1997, the Company issued an aggregate of 16,259 shares of common
stock to Industry Partners that sold mortgage loans to the Company in excess of
double their contractual commitment. The issuance of the common stock was exempt
from registration under the Securities Act by virtue of Section 4(2) thereof.

In March 1996, the Company issued a debenture due September 18, 1996 to
Rotch Property Group Limited for $1.8 million. Pursuant to the debenture, Rotch
Property Group Limited had the right to convert the debenture into shares of
common stock of the Registrant and receive shares of common stock, $.01 par
value per share, at a price equal to 93% of the price to the public in the
Company's initial public offering. The Company paid all amounts due under the
Rotch Debenture from the proceeds of the Company's initial public offering in
June 1996. The issuance of the Rotch Debenture was exempt from registration
under the Securities Act by virtue of Section 4(2) thereof.

Pursuant to the Pre-IPO Agreement, dated as of March 30, 1996, the
Company issued 6,150,000 shares of Common Stock (including 150,000 shares issued
in exchange for limited partnership interest acquired upon exercise by
Branchview, Inc. of a portion of the Conti Option acquired in a transaction to
which the Company was not a party) to the Industry Partners and management in
exchange for their interests in the Partnership. The issuance of the common
stock was exempt from registration under the Securities Act by virtue of Section
4(2) thereof.

As of December 31, 1995, the Company entered into an agreement with
ContiTrade Services Corporation in which the Company issued an option to
purchase limited partnership interests which became a warrant for 3.0 million
shares of the Registrant's common stock, $.01 par value per share. On April 23,
1997, 540,000 shares of common stock were issued to ContiTrade Services
Corporation upon exercise of a portion of the Conti Warrant. The issuance of the
Conti Option, its exchange for the Conti Warrant, and the issuance of shares of
common stock upon exercise were transactions exempt from registration under the
Securities Act by virtue of Section 4(2) thereof.

<PAGE> 32

ITEM 6. SELECTED FINANCIAL DATA

The historical Statement of Operations and Balance Sheet data set forth
below as of and for the period from inception to December 31, 1993 and the
fiscal years ended December 31, 1994, 1995, 1996, and 1997 have been derived
from the Consolidated Financial Statements and Notes thereto of the Company.
This data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and Notes thereto (dollars in thousands, except share
data).

<TABLE>
<CAPTION>
Period From
Inception
(August 12, 1993) Year Ended
Through December 31,
December 31, --------------------------------------------------------
1993 1994 1995 1996 1997
---------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Gain on sale of loans(1)(2) ......................... $ 439 $ 8,583 $ 20,681 $ 46,230 $ 180,963
Additional securitization transaction expense (3) ... -- (560) (5,547) (4,158) --
----------- ----------- ----------- ----------- -----------
Gain on sale of loans, net ........................ 439 8,023 15,134 42,072 180,963
----------- ----------- ----------- ----------- -----------
Warehouse interest income ........................... 97 2,510 7,885 37,463 123,432
Warehouse interest expense .......................... (50) (1,611) (6,007) (24,535) (98,720)
----------- ----------- ----------- ----------- -----------
Net warehouse interest income ..................... 47 899 1,878 12,928 24,712
----------- ----------- ----------- ----------- -----------
Servicing fees ...................................... -- 99 1,543 6,750 20,593
Other ............................................... 28 1,073 1,118 3,904 12,491
----------- ----------- ----------- ----------- -----------
Total servicing fees and other .................... 28 1,172 2,661 10,654 33,084
----------- ----------- ----------- ----------- -----------
Total revenues ............................ 514 10,094 19,673 65,654 238,759
----------- ----------- ----------- ----------- -----------

Expenses:
Compensation and benefits ........................... 508 3,348 5,139 16,007 82,051
Selling, general and administrative expenses(2) ..... 356 2,000 3,478 15,652 64,999
Other ............................................... -- 14 298 2,321 14,280
Sharing of proportionate value of equity(4) ......... -- 1,689 4,204 2,555 --
----------- ----------- ----------- ----------- -----------
Total expenses ............................ 864 7,051 13,119 36,535 161,330
----------- ----------- ----------- ----------- -----------
Pre-tax income (loss) ................................... (350) 3,043 6,554 29,119 77,429
Pro forma provision (benefit) for income taxes(5)(6)
(7) ................................................... (134) 1,187 2,522 11,190 29,500
----------- ----------- ----------- ----------- -----------
Pro forma net income (loss)(2)(6)(7) .................... $ (216) $ 1,856 $ 4,032 $ 17,929 $ 47,929
=========== =========== =========== =========== ===========

Pro forma basic net income per common share(8) .......... $ (0.02) $ 0.15 $ 0.34 $ 1.12 $ 1.76
Pro forma diluted net income per common share(8) ........ $ (0.02) $ 0.15 $ 0.34 $ 0.92 $ 1.54
Pro forma basic average common shares outstanding (8) ... 12,000,000 12,000,000 12,000,000 15,981,521 27,299,827
Pro forma diluted average common shares outstanding (8) . 12,000,000 12,000,000 12,000,000 19,539,963 31,147,944

BALANCE SHEET DATA:
Mortgage loans held for sale .......................... $ 7,972 $ 28,996 $ 193,003 $ 914,587 $ 1,673,144
Interest-only and residual certificates ............... -- 3,404 14,073 86,247 223,306
Borrowings under warehouse finance
facilities .......................................... 7,213 27,732 189,819 895,132 1,732,609
Term debt ............................................. -- -- 11,121 47,430 112,291
Shareholders' equity .................................. 1,449 5,856 5,609 89,337 254,064
Total assets .......................................... 8,861 36,642 354,551 1,707,348 2,945,932
</TABLE>

<PAGE> 33

<TABLE>
<CAPTION>
Period From
Inception
(August 12, 1993) Year Ended
Through December 31,
December 31, -----------------------------------------
1993 1994 1995 1996 1997
---------------- ---- ---- ------ ------
<S> <C> <C> <C> <C> <C>
OPERATING DATA (DOLLARS IN MILLIONS):
Loans purchased or originated ........................ $ 30 $ 283 $ 622 $1,770 $5,893
Loans sold through securitization .................... -- 82 388 935 4,858
Whole loan sales ..................................... 22 180 71 129 145
Serviced loan portfolio (period end) ................. -- 92 536 2,148 6,957
DELINQUENCY DATA:
Total delinquencies as a percentage of loans serviced
(period end)(9)(10) ............................. 0.00% 0.87% 3.43% 5.30% 5.40%
Defaults as a percentage of loans services
(period end)(10)(11) ............................ 0.00 0.12 1.00 1.47 2.15
Net annualized losses as a percentage of average loans
services for period(10) ......................... 0.00 0.00 0.09 0.13 0.15
</TABLE>

(1) Prior to June 1996, includes interest-only and residual certificates
received by ContiFinancial in connection with IMC's agreement with
ContiFinancial. See Item 1. - "Business -- Loans -- Loan Sales -
Securitizations" and Item 7. - "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Transactions with
ContiFinancial -- Additional Securitization Transaction Expense."

(2) Beginning January 1, 1996, the Company adopted SFAS 122 which resulted
in additional gain on sale of $7.8 million and additional amortization
expense of $1.2 million for the year ended December 31, 1996. The
effect on unaudited pro forma net income and pro forma net income per
common share for the year ended December 31, 1996 was an increase of
$4.1 million and $0.21, respectively.

(3) In 1994, 1995, and 1996, ContiFinancial received interest-only and
residual certificates with estimated values of $3.0 million, $25.1
million, and $13.4 million in exchange for cash payments of $2.1
million, $18.4 million, and $8.6 million, respectively. In addition,
ContiFinancial paid IMC $0.4 million, $1.1 million, and $0.7 million in
1994, 1995, and 1996, respectively, in expenses related to
securitizations. See Item 7. - "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Transactions with
ContiFinancial -- Additional Securitization Transaction Expense."

(4) Reflects expenses recorded in connection with the value sharing
arrangement with ContiFinancial (the "Conti VSA") which terminated in
March 1996. The Company's pre-tax income before the Conti VSA for 1994,
1995, and 1996 was $4.7 million, $10.8 million, and $31.7 million,
respectively. See Item 7. - "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Transactions with
ContiFinancial -- Sharing of Proportionate Value of Equity," "Certain
Accounting Considerations Relating to the Conti VSA," and Note 5 of
Notes to Consolidated Financial Statements.

(5) The Partnership which is included in the Consolidated Financial
Statements became a wholly-owned subsidiary of the company after the
plan of exchange described in Note 1 to the Consolidated Financial
Statements was consummated. The Partnership made no provision for
income taxes since the Partnership's income or losses were passed
through to the partners individually. The Partnership's income became
subject to income taxes at the corporate level as of June 24, 1996, the
effective date of the exchange described in Note 1 to the Consolidated
Financial Statements.

(footnotes continued on next page)

<PAGE> 34

(footnotes continued from previous page)

(6) Pro forma data reflects a provision for income taxes to indicate what
these taxes would have been had the exchange described in Note 1 to the
Consolidated Financial Statements occurred in prior years.

(7) Amounts are actual for the year ended December 31, 1997.

(8) Pro forma per share data reflects the weighted average number of common
and dilutive common share equivalents outstanding during the period
after giving effect to the recapitalization described in Note 1 to the
Consolidated Financial Statements.

(9) Represents the percentages of account balances contractually past due
30 days or more, exclusive of home equity loans in foreclosure,
bankruptcy and real estate owned.

(10) Total delinquencies, defaults and net annualized losses as a percentage
of loans serviced have each trended upward as a result of the aging of
the Company's loan portfolios. The Company does not believe that this
trend should have a material adverse effect on the Company's revenues
and net income, although no assurance can be given with respect
thereto.

(11) Represents the percentages of account balances of loans in foreclosure
and bankruptcy, exclusive of real estate owned.

<PAGE> 35

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

The following management's discussion and analysis of the Company's
financial condition and results of operations contains forward-looking
statements which involve risks and uncertainties. The Company's actual results
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors. The following discussion should be
read in conjunction with Consolidated Financial Statements of the Company and
the Notes thereto.

GENERAL

The Company is a specialized consumer finance company engaged in
purchasing, originating, servicing and selling home equity loans secured
primarily by first liens on one- to four-family residential properties. The
Company focuses on lending to individuals whose borrowing needs are generally
not being served by traditional financial institutions due to such individuals'
impaired credit profiles and other factors. Loan proceeds are typically used by
such individuals to consolidate or refinance debt, to finance home improvements,
to pay educational expenses and for a variety of other uses. By focusing on
individuals with impaired credit profiles and providing prompt responses to
their borrowing requests, the Company has been able to charge higher interest
rates for its loan products than typically are charged by conventional mortgage
lenders.

Pursuant to the Company's acquisition strategy, effective January 1,
1996 the Company acquired all of the assets of EquityStars, and effective
January 1, 1997 the Company acquired all of the assets of Mortgage America and
Equity Mortgage and all of the outstanding common stock of CoreWest. Effective
February 1, 1997, the Company acquired all of the assets of American Reduction.
Effective July 1, 1997, the Company acquired substantially all of the assets of
National Lending Center and Central Money Mortgage. Effective October 1, 1997,
the Company acquired substantially all of the assets of Residential Mortgage
Corporation, and effective November 1, 1997, the Company acquired substantially
all of the assets of Alternative Capital Group.

These acquisitions have been accounted for using the purchase method of
accounting and the results of operations have been included with the Company's
results of operations since the effective acquisition dates. The fair value of
the acquired companies' tangible assets approximated the liabilities assumed,
and accordingly, the majority of the initial purchase prices has been recorded
as goodwill which will be amortized on a straight-line basis for periods up to
30 years.

Several acquisitions included earn-out arrangements that provide the
sellers with additional consideration if the acquired company reaches certain
performance targets after the acquisition. Any such contingent payments will
result in an increase in the amount of goodwill recorded on the Company's
balance sheet related to each acquisition. Goodwill represents the excess of
cost over fair market value of the net assets acquired in each acquisition and
is amortized through periodic charges to earnings up to 30 years.

<PAGE> 36

CERTAIN ACCOUNTING CONSIDERATIONS

INTEREST-ONLY AND RESIDUAL CERTIFICATES

The Company purchases and originates loans for the purpose of sale
primarily through securitizations. In a securitization transaction, the Company
sells a pool of mortgages to a trust which simultaneously sells senior interests
to third-party investors. The Company retains the residual interests (or a
portion thereof) represented by residual class certificates and interest-only
certificates. The Company retains the rights to service the pool of mortgages
owned by the trust. In addition, by retaining the residual class certificates,
the Company is entitled to receive the excess cash flows generated by the
securitized loans calculated as the difference between (a) the monthly interest
payments from the loans and (b) the sum of (i) pass-through interest paid to
third-party investors, (ii) trustee fees, (iii) third-party credit enhancement
fees, and (iv) servicing fees. The Company's right to receive this excess cash
flow stream begins after certain over-collateralization requirements have been
met, which are specific to each securitization and are used to provide credit
enhancement.

The Company initially records these securities at their allocated cost
based upon the present value of the interest in the cash flows retained by the
Company after considering various economic factors, including interest rates,
collateral value and estimates of the value of future cash flows from the
securitized mortgage pools under expected loss and prepayment assumptions
discounted at a market yield. The weighted average rates used to discount the
cash flows range from 11% to 14.5% based on the risks associated with each
securitized mortgage pool. The Company utilizes prepayment and loss curves which
the Company believes will approximate the timing of prepayments and losses over
the life of the securitized loans. Prepayments on fixed rate loans securitized
by the Company are expected to gradually increase from a constant prepayment
rate ("CPR") of 4% to 28% in the first year of the loan and remain at 28%
thereafter. The Company currently expects prepayments on adjustable rate loans
to gradually increase from a CPR of 4% to 35% in the first year of the loan and
remain at 35% thereafter. The CPR measures the annualized percentage of mortgage
loans which prepay during a given period. The CPR represents the annual
prepayment rate such that, in the absence of regular amortization, the total
prepayment over the year would equal that percent of the original principal
balance of the mortgage loan. The Company expects losses from defaults to
gradually increase from zero in the first six months of securitization to 100
basis points after 36 months. The loss curve utilized by the Company
approximates an assumed loss rate of approximately 65 basis points per year at
inception of the securitization.

MORTGAGE SERVICING RIGHTS

Effective January 1, 1996, the Company adopted SFAS 122. Because SFAS
122 prohibited retroactive application, the historical accounting results for
the periods ended December 31, 1994 and 1995 have not been restated and,
accordingly, the accounting results for the year ended December 31, 1996 are not
comparable to any previous period. In June 1996, the FASB released SFAS 125,
which superseded SFAS 122 and was adopted by the Company January 1, 1997.

SFAS 122 required that a mortgage banking entity recognize as a
separate asset the rights to service mortgage loans for others. Mortgage banking
entities that acquire or originate loans and subsequently sell or securitize
those loans and retain the mortgage servicing rights are required to allocate
the total cost of the loans between the mortgage servicing rights and the
mortgage loans. The Company was also required to assess capitalized mortgage
servicing rights for impairment based upon the fair value of those rights. The
impact of the adoption of SFAS 122 on the Company's Statement of Operations for
the year ended December 31, 1996 resulted in additional operating income of
approximately $6.6 million and an additional pro forma provision for income tax
expense of approximately $2.6 million. The effect on unaudited pro forma net
income and pro forma net income per common share for the year ended December 31,
1996 was an increase of $4.1 million and $0.21 per share, respectively.

<PAGE> 37

SFAS 125 addresses the accounting for all types of securitization
transactions, securities lending and repurchase agreements, collateralized
borrowing arrangements and other transactions involving the transfer of
financial assets. SFAS 125 distinguishes transfers of financial assets that are
sales from transfers that are secured borrowings. SFAS 125 is generally
effective for transactions that occur after December 31, 1996 and has been
applied prospectively. SFAS 125 requires the Company to allocate the total cost
of mortgage loans sold among the mortgage loans sold (servicing released), I/O
and residual certificates and servicing rights based on their relative fair
values. The Company is required to assess the I/O and residual certificates and
servicing rights for impairment based upon the fair value of those assets. SFAS
125 also requires the Company to provide additional disclosure about the I/O and
residual certificates in its securitizations and to account for these assets
each quarterly reporting period at fair value in accordance with SFAS 115. The
application of the provisions of SFAS 125 did not cause earnings to differ
materially from the results which would have been reported under SFAS 122.

GAIN ON SALE OF LOANS, NET

Gain on sale of loans, net, which arises primarily from
securitizations, includes all related revenues and costs, including the proceeds
from sales of residual class certificates, the value of such certificates,
hedging gains or losses and underwriting fees and other related securitization
expenses and fees. See " -- Transactions with ContiFinancial --Additional
Securitization Transaction Expense."

NET WAREHOUSE INTEREST INCOME

Net warehouse interest income is interest earned from the Company's
mortgage loans which generally carry long-term interest rates, less interest
expense on borrowings to finance the funding of such mortgage loans. The Company
generally sells loans in its inventory within 210 days and finances such loans
under its secured borrowing facilities, which bear short-term interest rates.
Ordinarily, short-term interest rates are lower than long-term interest rates,
and the Company earns net interest income from this difference, or spread,
during the period the mortgage loans are held by the Company.

SERVICING FEES

The Company generally retains servicing rights and recognizes servicing
income from fees, prepayment penalties and late payment charges earned for
servicing the loans owned by certificate holders and others. Servicing fees are
generally earned at a rate of approximately 1/2 of 1%, on an annualized basis,
of the unamortized loan balance being serviced.

TRANSACTIONS WITH CONTIFINANCIAL

ADDITIONAL SECURITIZATION TRANSACTION EXPENSE

IMC, in conjunction with the start up of its operations, maintained an
investment banking relationship with ContiFinancial from August 1993 to June
1996. As part of this relationship, ContiFinancial provided warehouse and
revolving credit facilities to IMC and acted as placement agent and underwriter
of certain securitizations. In addition, as part of its cash flow management
strategy, the first six securitizations were structured so that ContiFinancial
received, in exchange for cash, a portion of the I/O and residual interest in
such securitizations. These transactions reduced IMC's gain on sale of loans by
approximately $5.5 million in 1995 and $4.2 million in 1996. ContiFinancial also
had a warrant to purchase 2.7 million shares of Common Stock (subject to certain
adjustments) for a de minimis amount, of which 0.5 million shares have been
issued. IMC continues to maintain a financing relationship with ContiFinancial.

<PAGE> 38

SHARING OF PROPORTIONATE VALUE OF EQUITY

Prior to March 26, 1996, the Company's financing and investment banking
agreements with ContiFinancial included the ContiFinancial Value Sharing
Arrangement ("Conti VSA"). The existence of the Conti VSA had no cash impact on
the Company, but resulted in reductions of $4.2 million and $2.6 million in the
Company's pre-tax income for the years ended December 31, 1995 and 1996,
respectively. The Conti VSA was converted into an option entitling
ContiFinancial on exercise to approximately 18% of the equity of the Partnership
for a de minimus amount (the "Conti Option") on March 26, 1996. Consequently,
subsequent to March 26, 1996, no liability has been reflected on the Company's
balance sheet, and no expense has been reflected on the Company's income
statement with respect to the Conti VSA subsequent to that date.

The Company's pre-tax income before and after the Conti VSA for
the years ended December 31, 1995 and 1996 was as follows:

<TABLE>
<CAPTION>
Year Ended
December 31,
--------------------
1995 1996
------- -------
(in thousands)
<S> <C> <C>
Total revenues .............................. $19,673 $65,654
Total expenses .............................. 13,119 36,535
------- -------

Pre-tax income after Conti VSA ......... 6,554 29,119

Effect of Conti VSA ......................... 4,204 2,555
------- -------

Pre-tax income before Conti VSA ........ $10,758 $31,674
======= =======
</TABLE>

RESULTS OF OPERATIONS

Year Ended December 31,1997 Compared to Year Ended December 31, 1996

Net income for the year ended December 31, 1997 was $47.9 million
representing an increase of $30.0 million or 167.3% over pro forma net income of
$17.9 million for the year ended December 31, 1996. Pro forma net income is
calculated on the basis of historical net income, adjusted for a pro forma
income tax expense as if the Company had been taxable as a corporation since its
inception.

The increase in net income resulted principally from increases in
net gain on sale of loans of $138.9 million or 330.1% to $181.0 million for the
year ended December 31, 1997 from $42.1 million for the year ended December 31,
1996. Also contributing to the increase in net income was an $11.8 million or
91.1% increase in net warehouse interest income to $24.7 million for the year
ended December 31, 1997 from $12.9 million for the year ended December 31, 1996,
a $13.8 million or 205.1% increase in servicing fees to $20.6 million for the
year ended December 31, 1997 from $6.7 million for the year ended December 31,
1996 and an $8.6 million or 220.0% increase in other revenues to $12.5 million
for the year ended December 31, 1997 from $3.9 million for the year ended
December 31, 1996.

The increase in income was partially offset by a $66.0 million or
412.6% increase in compensation and benefits to $82.1 million for the year ended
December 31, 1997 from $16.0 million for the year ended December 31, 1996, of
which $48.9 million consisted of compensation and benefits relating to the
acquisitions of Mortgage America, CoreWest, Equity Mortgage, American Reduction,
National Lending Center, Central Money Mortgage, Residential Mortgage
Corporation and Alternative Capital Group (collectively, the "Acquisitions") and
the remainder related primarily to the growth of the Company. The increase in
income was also partially offset by a $49.3 million or 315.3% increase in
selling, general and administrative expenses to $65.0 million for the year ended
December 31, 1997 from $15.7 million for the year ended December 31, 1996, of
which increase $27.9 million consisted of expenses relating to the Acquisitions
for the year ended December 31, 1997 and the remainder related primarily to the
growth of the Company. The increase in income was further offset by a $12.0
million or 515.1% increase in other interest expense to $14.3 million for the
year ended

<PAGE> 39

December 31, 1997 from $2.3 million for the year ended December 31, 1996.
Finally, income for the year ended December 31, 1997 was favorably affected by a
$2.6 million or 100% decrease in the sharing of proportionate value of equity
representing the Conti VSA to $0 for the year ended December 31, 1997 from $2.6
million for the year ended December 31, 1996.

Income before taxes was reduced by a provision for income taxes of
$29.5 million for the year ended December 31, 1997 compared to a pro forma
provision for income taxes of $11.2 million for the year ended December 31,
1996, representing an effective tax rate of approximately 38.1% for the year
ended December 31, 1997. The provisions for income taxes prior to June 24, 1996
are pro forma amounts because prior to that date the Company operated as a
partnership and did not pay income taxes.

Revenues

The following table sets forth information regarding components of the
Company's revenues for the year ended December 31, 1996 and 1997:

<TABLE>
<CAPTION>
For the Year
Ended December 31,
------------------------
1996 1997
-------- ---------
(in thousands)
<S> <C> <C>
Revenues:
Gain on sales of loans $ 46,230 $ 180,963
Additional securitization transaction expense (4,158) --
-------- ---------
Gain on sale of loans, net 42,072 180,963
-------- ---------
Warehouse interest income 37,463 123,432
Warehouse interest expense (24,535) (98,720)
-------- ---------
Net warehouse interest income 12,928 24,712
-------- ---------
Servicing fees 6,750 20,593
Other 3,904 12,491
-------- ---------
Total revenues $ 65,654 $ 238,759
======== =========
</TABLE>

Gain on Sale of Loans, Net.

For the year ended December 31, 1997, gain on sale of loans increased
to $181.0 million from $46.2 million for the year ended December 31, 1996, an
increase of 291.4%, reflecting increased loan production and securitizations for
the year ended December 31, 1997. Additional securitization expense decreased to
$0 for the year ended December 31, 1997 from $4.2 million for the year ended
December 31, 1996. For the year ended December 31, 1997, gain on sale of loans,
net, increased to $181.0 million from $42.1 million for the year ended December
31, 1996, an increase of 330.1%, reflecting increased loan production and
securitizations in the year ended December 31, 1997.

The total volume of loans produced increased by 232.9% to approximately
$5.9 billion for the year ended December 31, 1997 compared with a total volume
of $1.8 billion for the year ended December 31, 1996. Originations by the
Company's correspondent network increased 174.5% to $4.3 billion for the year
ended December 31, 1997 from $1.6 billion for the year ended December 31, 1996,
while production from the Company's broker network and direct lending operations
increased to $1.6 billion or 725% for the year ended December 31, 1997 from $188
million for the year ended December 31, 1996. Production volume increased during
the 1997 period due to : (i) the Company's expansion program; (ii) the increase
of its securitization activity; (iii) the growth of its loan servicing
capability; and (iv) the Acquisitions, which accounted for approximately $1.2
billion in residential mortgage loans originated during the year ended December
31, 1997.

<PAGE> 40

The gain on sale as a percentage of loans sold and securitized
decreased to 3.7% for the year ended December 31, 1997 from 4.4% for the year
ended December 31, 1996. The decrease in the gain on sale percentage was
primarily due to the increase in securitization of adjustable rate mortgage
loans, higher premiums paid on loan production and higher prepayment speed
assumptions used to calculate the gain on sale of securitized loans. In 1996,
less than 2% of the $935 million mortgage loans securitized by the Company were
adjustable rate mortgages. In 1997, approximately $1.7 billion or 34% of the
$4.9 billion mortgage loans securitized by the Company were adjustable rate
mortgages. The prepayment curve utilized by the Company to recognize the gain on
sale of securitized fixed rate loans reaches a maximum CPR of 28% as compared to
the prepayment curve utilized to recognize the gain on sale of adjustable rate
loans, which reaches a maximum CPR of 35%. The higher prepayment assumption for
adjustable rate loans, which is based on historical adjustable rate loan
prepayment patterns, results in the recognition of a lower gain on sale for
adjustable rate loans than for fixed rate loans. The average premium paid for
loan production was 5.0% for the year ended December 31, 1996 compared to 5.3%
for the year ended December 31, 1997. The maximum CPR assumed for fixed mortgage
loans securitized increased from 26% for the year ended December 31, 1996 to 28%
(35% for adjustable rate mortgage loans) for the year ended December 31, 1997.
The decrease in the gain on sale percentage was partially offset by an increase
in retail loan production. Upfront points and origination fees related to retail
loan production are recognized as gain on sale at the time the loan is sold.
Total retail production increased from approximately $67 million for the year
ended December 31, 1996 to approximately $769 million for the year ended
December 31, 1997.

Net Warehouse Interest Income

Net warehouse interest income increased to $24.7 million for the year
ended December 31, 1997 from $12.9 million for the year ended December 31, 1996,
an increase of 91.1%. The increase in the year ended December 31, 1997 reflected
higher interest income resulting primarily from increased mortgage loan
production and mortgage loans held for sale in inventory for longer periods of
time, partially offset by interest expense associated with warehouse facilities.
The mortgage loans held for sale increased to $1.7 billion at December 31, 1997,
an increase of 82.9%, from $914.6 million at December 31, 1996.

The increase in net warehouse interest income was partially offset by
an increase in the securitization of adjustable rate mortgage loans. In a fixed
rate mortgage loan securitization transaction, the Company receives the
pass-through rate of interest on the loans conveyed to the securitization trust
for the period between the cut-off date (generally the first day of the month a
securitization transaction occurs) and the closing date of the securitization
transaction (typically during the third week of the month). The cut-off date
represents the date when interest on the mortgage loans accrues to the
securitization trust rather than the Company. The pass-through rate, which is
less than the weighted average interest rate on the mortgage loans, represents
the interest rate to be received by investors who purchase passthrough
certificates in the securitization trust on the closing date. The Company
continues to incur interest expense on its warehouse financings related to loans
conveyed to the trust until the closing date, at which time the warehouse line
is repaid. In an adjustable rate mortgage loan securitization, the Company
receives no interest on mortgage loans conveyed to the securitization trust for
the period between the cut-off date and the closing date of the securitization.
For the year ended December 31, 1997, the Company incurred warehouse interest
expense of approximately $6.9 million related to the period between the cut-off
date and the closing date of adjustable rate mortgage loan securitizations for
which no corresponding interest income was recognized. The Company had an
insignificant amount of warehouse interest expense related to adjustable rate
mortgage loans securitized in 1996.

Servicing Fees

Servicing fees increased to $20.6 million for the year ended December
31, 1997 from $6.7 million for the year ended December 31, 1996, an increase of
205.1%. Servicing fees for the year ended December 31, 1997 were positively
affected by an increase in mortgage loans serviced over the prior period. The
Company increased its servicing portfolio

<PAGE> 41

by $4.9 billion or 233.3% to $7.0 billion as of December 31, 1997 from $2.1
billion as of December 31, 1996.

Other

Other revenues, consisting principally of the recognition of the
increase or accretion of the discounted value of interest on interest-only and
residual certificates, over time, increased to $12.5 million or 220.0% for the
year ended December 31, 1997 from $3.9 million in the year ended December 31,
1996 as a result of increased securitization volume and investment in
interest-only and residual certificates.

Expenses

The following table sets forth information regarding components of the
Company's expenses for the year ended December 31, 1996 and 1997:

<TABLE>
<CAPTION>
For the Year
Ended December 31,
---------------------
1996 1997
------- --------
(in thousands)
<S> <C> <C>
Compensation and benefits $16,007 $ 82,051
Selling, general and administrative expenses 15,652 64,999
Other interest expense 2,321 14,280
Sharing of proportionate value of equity 2,555 0
------- --------
Total expenses $36,535 $161,330
======= ========
</TABLE>

Compensation and benefits increased by $66.0 million or 412.6% to $82.1
million for the year ended December 31, 1997 from $16.0 million for the year
ended December 31, 1996, principally due to an increase in the number of
employees related to the Company's increased mortgage loan production, including
$48.9 million of compensation and benefits relating to the Acquisitions,
additions of personnel to service the Company's increased loan servicing
portfolio, and a $2.4 million increase in executive incentive compensation from
$2.6 million for the year ended December 31, 1996 to $5.0 million for the year
ended December 31, 1997. It is anticipated that the Company's compensation and
benefits will increase as the Company expands; however, the amount of executive
bonuses is directly related to increases in the Company's earnings per share.

Selling, general and administrative expenses increased by $49.3 million
or 315.3% to $65.0 million for the year ended December 31, 1997 from $15.7
million for the year ended December 31, 1996. Excluding $27.9 million of
compensation and benefits relating to the Acquisitions, the increase was
principally due to an increase in underwriting, originating and servicing costs
as a result of an increase in the volume of mortgage loan production, an
increase in amortization expense related to capitalized servicing rights of $4.7
million and a $10.4 million increase in the provision for loan losses.

Other interest expense increased by $12.0 million or 515.3% to $14.3
million for the year ended December 31, 1997 from $2.3 million for the year
ended December 31, 1996 principally as a result of increased term debt
borrowings.

The sharing of proportionate value of equity, representing the amount
payable under the Conti VSA, decreased to $0 for the year ended December 31,
1997 from $2.6 million for the year ended December 31, 1996. The Company's
obligation to make payments under the Conti VSA terminated in March 1996.

Pro Forma Income Taxes

<PAGE> 42

The effective income tax rate for the year ended December 31, 1997 was
approximately 38.1%, which differed from the federal tax rate of 35% primarily
due to state income taxes. The increase in the provision for income taxes of
$18.3 million or 163.6% to $29.5 million for the year ended December 31, 1997
from the pro forma provision for income taxes of $11.2 million for the year
ended December 31, 1996 was proportionate to the increase in pre-tax income. The
provision for income taxes prior to June 24, 1996 is a pro forma amount because
prior to that date the Company operated as a partnership and did not pay any
income taxes.

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

Pro forma net income for the year ended December 31, 1996 was $17.9
million representing an increase of $13.9 million or 344.7% over pro forma net
income of $4.0 million for the year ended December 31, 1995. Pro forma net
income is calculated on the basis of historical net income, adjusted for a pro
forma income tax expense as if the Company had been taxable as a corporation
since its inception.

The increase in pro forma net income resulted principally from
increases in net gain on sale of loans of $27.0 million or 178.0% to $42.1
million for the year ended December 31, 1996 from $15.1 million for the year
ended December 31, 1995. Also contributing to the increase in pro forma net
income was a $11.0 million or 588.5% increase in net warehouse interest income
to $12.9 million for the year ended December 31, 1996 from $1.9 million for the
year ended December 31, 1995, a $5.2 million or 337.4% increase in servicing
fees to $6.7 million for the year ended December 31, 1996 from $1.5 million for
the year ended December 31, 1995 and a $2.8 million or 249.2% increase in other
revenues to $3.9 million for the year ended December 31, 1996 from $1.1 million
for the year ended December 31, 1995.

The increase in income was partially offset by a $10.9 million or
211.4% increase in compensation and benefits to $16.0 million for the year ended
December 31, 1996 from $5.1 million for the year ended December 31, 1995, of
which increase $2.2 million related to the acquisition of Equitystars on January
1, 1996, $2.6 million related to the payment of bonuses to the Company's
executives and the remainder related primarily to the growth of the Company. The
increase in income was also partially offset by a $12.2 million or 350.1%
increase in selling, general and administrative expenses to $15.7 million for
the year ended December 31, 1996 from $3.5 million for the year ended December
31, 1995. The Company expects its compensation and benefits and selling, general
and administrative expenses to increase substantially in 1997 as a result of the
expansion of the business of the Company and its recent acquisitions. The
increase in income was further offset by a $2.0 million or 679.7% increase in
other expense to $2.3 million for the year ended December 31, 1996 from $ 0.3
million for the year ended December 31, 1995. Finally, income was favorably
affected by a $1.6 million or 39.2% decrease in the Conti VSA to $2.6 million
for the year ended December 31, 1996 from $4.2 million for the year ended
December 31, 1995. See " -- Transactions with ContiFinancial --Sharing of
Proportionate Value of Equity," and Note 5 of Notes to Consolidated Financial
Statements.

Income before taxes was reduced by pro forma provision for income taxes
of $11.2 million for the year ended December 31, 1996 compared to $2.5 million
for the year ended December 31, 1995, representing an effective tax rate of
approximately 38.5%. The provision for income taxes prior to June 24, 1996 are
pro forma amounts because prior to that date the Company operated as a
partnership and did not pay income taxes.

<PAGE> 43
Revenues

The following table sets forth information regarding components of the
Company's revenues for the years ended December 31, 1995 and 1996:

<TABLE>
<CAPTION>
Year Ended
December 31,
-----------------------
1995 1996
-------- --------
(in thousands)
<S> <C> <C>
Gain on sale of loans ............................ $ 20,681 $ 46,230
Additional securitization transaction expense .... (5,547) (4,158)
-------- --------
Gain on sale of loans, net .................. 15,134 42,072
-------- --------
Warehouse interest income ........................ 7,885 37,463
Warehouse interest expense ....................... (6,007) (24,535)
-------- --------
Net warehouse interest income ............... 1,878 12,928
-------- --------
Servicing fees ................................... 1,543 6,750
Other ............................................ 1,118 3,904
-------- --------
Total revenues .............................. $ 19,673 $ 65,654
======== ========
</TABLE>

Gain on Sale of Loans, Net. For the year ended December 31, 1996, gain
on sale of loans increased to $46.2 million from $20.7 million for the year
ended December 31, 1995, an increase of 123.5%, reflecting increased loan
production and securitizations for the year ended December 31, 1996 and the
adoption of SFAS 122. The total volume of loans produced increased by 184.8% to
$1.8 billion for the year ended December 31, 1996 as compared with a total
volume of $621.6 million for the year ended December 31, 1995. Originations by
the Company's correspondent network increased 191.0% to $1.6 billion for the
year ended December 31, 1996 from $543.6 million for the year ended December 31,
1995, while production from the Company's broker network and direct lending
operations increased to $188.3 million or 141.4% for the year ended December 31,
1996 from $78.0 million for the year ended December 31, 1995. Production volume
increased during the 1996 period due to: (i) the Company's expansion program;
(ii) the increase of its securitization activity; (iii) the growth of its loan
servicing capability; and (iv) the acquisition of the assets and business of
Equitystars in January 1996. For the year ended December 31, 1996, the Company
experienced higher gains as it sold more loans through securitizations.
Securitizations increased by $555 million, an increase of 146.1%, to $935
million for the year ended December 31, 1996 from $380 million for the year
ended December 31, 1995. The number of approved correspondents increased by 161
or 75.6% to 374 at December 31, 1996 from 213 at December 31, 1995 and the
number of brokers increased by 595 or 54.2% to 1,693 at December 31, 1996 from
1,098 at December 31, 1995. Additional securitization expense decreased to $4.2
million for the year ended December 31, 1996, a decrease of 25.0%, from $5.5
million for the year ended December 31, 1995. For the year ended December 31,
1996, gain on sale of loans, net, increased to $42.1 million from $15.1 million
for the year ended December 31, 1995, an increase of 178.0%, reflecting
increased loan production and securitizations in the 1996 period.

Net Warehouse Interest Income. Net warehouse interest income increased
to $12.9 million for the year ended December 31, 1996 from $1.9 million for the
year ended December 31, 1995, an increase of 588.5%. The increase in the 1996
period reflected higher interest income resulting from increased mortgage loan
production and mortgage loans held for sale which was partially offset by
interest costs associated with warehouse facilities. The mortgage loans held for
sale increased to $914.6 million at December 31, 1996, an increase of 373.9%,
from $193.0 million at December 31, 1995.

Servicing Fees. Servicing fees increased to $6.7 million for the year
ended December 31, 1996 from $1.5 million for the year ended December 31, 1995,
an increase of 337.4%. Servicing fees for the year ended December 31, 1996 were
positively affected by an increase in mortgage loans serviced over the prior
period. During 1996, the Company increased its servicing portfolio by $1.6
billion or 300.9% to $2.15 billion as of December 31, 1996, from $535.8 million
as of December 31, 1995.

Other. Other revenues, consisting principally of the recognition of the
increase or accretion of the discounted value of interest-only and residual
certificates, increased to $5.3 million or 370.0% in the year ended December 31,
1996 from $1.1 million in the year ended December 31, 1995 as a result of
increased securitization volume.

<PAGE> 44
Expenses

The following table sets forth information regarding components of the
Company's expenses for the years ended December 31, 1995 and 1996.

<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1995 1996
------- -------
(in thousands)
<S> <C> <C>
Compensation and benefits ........................ $ 5,139 $16,007
Selling, general and administrative expenses ..... 3,478 15,652
Other ............................................ 298 2,321
Sharing of proportionate value of equity ......... 4,204 2,555
------- -------
Total expenses .............................. $13,119 $36,535
======= =======
</TABLE>

Compensation and benefits increased by $10.9 million or 211.4% to $16.0
million for the year ended December 31, 1996 from $5.1 million for the year
ended December 31, 1995, principally due to an increase in the number of
employees to service the Company's increased mortgage loan production, the
acquisition of the assets and business of Equitystars and an increase in
executive bonuses. Compensation expense related to the Equitystars business
(which was acquired January 1, 1996) for the year ended December 31, 1996 was
$2.2 million, and executive bonuses increased $2.6 million in 1996. It is
anticipated that the Company's compensation and benefits will increase as the
Company expands; however, the amount of executive bonuses is directly related to
increases in the Company's earnings per share (see "Management -- Executive
Compensation -- Employment Agreements").

Selling, general and administrative expenses increased by $12.2 million
or 350.1% to $15.7 million for the year ended December 31, 1996 from $3.5
million for the year ended December 31, 1995, principally due to an increase in
the volume of mortgage loan production, an additional $2.0 million of marketing
expenses related to the expansion of retail production, the acquisition of the
assets and business of Equitystars, an increase of $2.5 million in the cost to
carry of securities purchased under agreements to resell, an increase in loan
losses of $1.1 million and an increase in amortization expense related to
capitalized mortgage servicing rights of $1.2 million.

Other expenses increased by $2.0 million or 679.7% to $2.3 million for
the year ended December 31, 1996 from $0.3 million for the year ended December
31, 1995 principally as a result of increased term debt borrowings.

The sharing of proportionate value of equity, representing the amount
payable under the Conti VSA, decreased to $2.6 million or 39.2% for the year
ended December 31, 1996 from $4.2 million for the year ended December 31, 1995.
The Company's obligation to make payments under the Conti VSA terminated in
March 1996.

Pro Forma Income Taxes. The effective pro forma income tax rate for the
year ended December 31, 1996 was approximately 38.5%, which differed from the
federal tax rate of 35% primarily due to state income taxes. The increase in pro
forma provision for income taxes of $8.7 million or 343.7% to $11.2 million for
the year ended December 31, 1996 from $2.5 million for the year ended December
31, 1995 was proportionate to the increase in pre-tax income.

FINANCIAL CONDITION

DECEMBER 31, 1997 COMPARED TO DECEMBER 31, 1996

The Company hedges, in part, its interest rate exposure on fixed-rate
mortgage loans held for sale through the use of securities sold but not yet
purchased and securities purchased under agreements to resell. Securities
purchased under agreements to resell increased $113.1 million or 17.1% from
$659.5 million at December 31, 1996 to $772.6 million at December 31, 1997 and
securities sold but not yet purchased increased $114.3 million or 17.3% from
$661.1 million at December 31, 1996 to $775.3 million at December 31, 1997 due
primarily to the increase in fixed-rate mortgage loans held for sale at December
31, 1997 as compared to December 31, 1996.

<PAGE> 45

Mortgage loans held for sale at December 31, 1997 were $1.7 billion,
representing an increase of $758.6 million or 82.9% over mortgage loans held for
sale of $914.6 million at December 31, 1996. This increase was a result of the
Company's strategy to increase its financial flexibility by increasing its
balance of mortgage loans held for sale. The increase in the volume of loan
originations, allowing the Company to increase its financial flexibility, was a
result of increased loans purchases and originations as the Company expanded
into new states, loan originations from the Acquisitions since their effective
dates and increased purchasing and origination efforts in states in which the
Company had an existing market presence.

Accounts receivable increased $18.6 million or 669.1% from $2.8 million
at December 31, 1996 to $21.3 million at December 31, 1997 primarily due to an
increase in servicing advances of $8.0 million, receivables from securitization
transactions of $4.2 million, and $2.6 million related to the Acquisitions.
Receivables from securitization transactions reflect short-term timing
differences in receiving amounts due from the securitization trusts. The
increase in servicing advances was due to an increase in advances by the Company
on loans it services due to an overall dollar increase in delinquencies from
1996 to 1997 as the Company's servicing portfolio increases and matures. As the
servicer for the securitization trusts, the Company is required to advance
certain principal, interest and escrow amounts to the securitization trusts for
delinquent mortgagors. The Company then collects the past due amounts from the
mortgagors or from the proceeds from liquidation of foreclosed properties. The
Company expects the overall dollar amount of delinquencies to increase in future
periods as the servicing portfolio increases and securitization pools continue
to mature.

Interest-only and residual certificates at December 31, 1997 were
$223.3 million, representing an increase of $137.1 million or 158.9% over
interest-only and residual certificates of $86.2 million at December 31, 1996.
This increase was a result of the Company completing eight securitizations
during the twelve months ended December 31, 1997 for an aggregate of $4.9
billion. The increase was offset by the sale on a non-recourse basis of certain
interest-only and residual certificates that had a net book value of $267
million. The sale was effected through a securitization (the "Excess Cashflow
Securitization") by which the Company received approximately $228 million of net
cash proceeds, or approximately 85% of the estimated net book value, and
retained a subordinated residual certificate for the remaining balance. The
Company used the net proceeds to retire or reduce certain term debt.

Capitalized mortgage servicing rights increased $28.3 million or 427.9%
from $6.6 million at December 31, 1996 to $35.0 million at December 31, 1997 due
to the increase in the Company's securitization volume for the year ended
December 31, 1997 compared to December 31, 1996. The increase consists of the
capitalization of $34.3 million of servicing rights offset by amortization of
$5.9 million.

Warehouse financings due from correspondents increased $20.9 million or
413.6% from $5.0 million at December 31, 1996 to $25.9 million at December 31,
1997 due to a $27.5 million increase in committed warehouse financing provided
to correspondents as a result the addition of new correspondents and an increase
in the utilization of such lines by the correspondents.

Property, furniture, fixtures and equipment increased $13.2 million or
787.5% from $1.7 million at December 31, 1996 to $14.9 million at December 31,
1997 primarily due to $5.1 million related to the purchase and renovation of the
Company's corporate headquarters building and $5.4 million related to the
Acquisitions.

Goodwill increased $90.1 million from $1.8 million at December 31, 1996
to $92.0 million at December 31, 1997 due to the recording of $87.0 million of
costs in excess of fair value of net assets acquired in acquisition transactions
and $5.8 related to contingent payment accruals related to acquisitions. The
increase was offset by amortization of $2.7 million. Goodwill is being amortized
on a straight-line basis over periods from five to thirty years.

Borrowings under warehouse financing facilities at December 31, 1997
were $1.7 billion, representing an increase of $837.5 million or 93.6% over
warehouse financing facilities of $895.1 million at December 31, 1996. This

<PAGE> 46

increase was a result of increased mortgage loans held for sale and higher
utilization of warehouse financing facilities which fund a portion of the
premiums paid on loans purchased.

Term debt at December 31, 1997 was $112.3 million, representing an
increase of $64.9 million or 136.8% over term debt of $47.4 million at December
31, 1996. This increase was primarily a result of financing the increase in
interest-only and residual certificates.

Notes payable increased $18.2 million from $0 at December 31, 1996 to
$18.2 million at December 31, 1997 due to $13.2 million in notes payable issued
related to an acquisition and a $5.0 million mortgage note payable obtained
subsequent to the purchase and renovation of the Company's corporate
headquarters building.

Accounts payable and accrued liabilities increased $23.9 million or
307.7% from $7.8 million at December 31, 1996 to $31.7 million at December 31,
1997 primarily due to accrual of contingent stock payments related to
acquisitions of $5.8 million, accruals for securitization obligations of $5.9
million, a $2.4 million increase in incentive compensation accruals and $6.1
million related to the Acquisitions. Accruals for securitization obligations
represent timing differences on amounts due to the securitization trusts.

The Company's net deferred tax liability increased $13.7 million from a
net deferred tax asset of $2.7 million at December 31, 1996 to a net deferred
tax liability of $10.9 million at December 31, 1997 primarily due to the
structuring of certain securitization transactions to allow debt treatment for
tax purposes.

Stockholders' equity as of December 31, 1997 was $254.1 million,
representing an increase of $164.7 million over stockholders' equity of $89.3
million at December 31, 1996. This increase was primarily a result of proceeds
of approximately $58.0 million from the sale of 5,040,000 shares of common stock
(net of underwriting discount and expenses associated with the offering), common
stock issued in acquisition transactions and net income for the year ended
December 31, 1997.

DECEMBER 31, 1996 COMPARED TO DECEMBER 31, 1995

Mortgage loans held for sale at December 31, 1996 were $914.6 million,
representing an increase of $721.6 million or 373.9% over mortgage loans held
for sale of $193.0 million at December 31, 1995. This increase was a result of
increased loan purchases and originations as the Company expanded into new
states and increased purchasing and origination efforts in states in which the
Company had an existing market presence. This increase was also a result of the
Company's strategy to increase its financial flexibility by increasing its
balance of mortgage loans held for sale.

I/O and residual certificates at December 31, 1996 were $86.2 million,
representing an increase of $72.1 million or 512.9% over I/O and residual
certificates of $14.1 million at December 31, 1995. This increase was a result
of the Company completing four securitizations, one in each of the four quarters
of 1996, for an aggregate of $935.0 million.

Borrowings under warehouse financing facilities at December 31, 1996
were $895.1 million, representing an increase of $705.3 million or 371.6% over
borrowings under warehouse financing facilities of $189.8 million at December
31, 1995. This increase was a result of increased mortgage loans held for sale.

Term debt at December 31, 1996 was $47.4 million, representing an
increase of $36.3 million or 326.5% over term debt of $11.1 million at December
31, 1995. This increase was primarily a result of financing the increase in I/O
and residual certificates.

Stockholders' equity as of December 31, 1996 was $89.3 million,
representing an increase of $83.7 million over stockholders' equity of $5.6
million at December 31, 1995. This increase was primarily a result of the
Company's initial

<PAGE> 47

public offering of 7.1 million shares of common stock for $9.00 per share, the
net proceeds of which amounted to $58.2 million, the conversion of the Conti VSA
into the Conti Option of $8.5 million, and net income for the year ended
December 31, 1996, offset by $9.8 million of distributions to former partners of
the Partnership for taxes payable by these former partners with respect to the
income of the Partnership.

LIQUIDITY AND CAPITAL RESOURCES

The Company uses its cash flow from the sale of loans through
securitizations, whole loans sales, loan origination fees, processing fees, net
interest income, servicing fees and borrowings under its warehouse facilities
and term debt to meet its working capital needs. The Company's cash requirements
include the funding of loan purchases and originations, payment of interest
costs, funding of over-collateralization requirements for securitizations,
operating expenses, income taxes, acquisitions when acquired for cash and
capital expenditures.

The Company has an ongoing need for substantial amounts of capital.
Adequate credit facilities and other sources of funding, including the ability
of the Company to sell loans through whole loan sales, are essential to the
continuation of the Company's ability to purchase and originate loans. As a
result of increased loan purchases and originations and its growing
securitization program, the Company has operated, and expects to continue to
operate, on a negative cash flow basis. During the year ended December 31, 1997,
the Company used cash flow for operating activities of $878.4 million, an
increase of $101.6 million, or 13.1%, over cash flows used for operating
activities of $776.7 million during the year ended December 31, 1996. During the
year ended December 31, 1997, the Company received cash flows from financing
activities of $916.4 million, an increase of $127.7 million or 16.2% over cash
flows received from financing activities of $788.7 million during the year ended
December 31, 1996. The cash flows used for operating activities related
primarily to the funding of mortgage loan purchases or originations and cash
flows received from financing activities related primarily to the funding of the
mortgage loan purchases or originations.

The Company's sale of loans through securitizations has resulted in an
increase in the amount of gain on sale recognized by the Company. Significant
cash outflows are incurred upon the closing of a securitization transaction;
however, the Company does not receive a significant portion of the cash
representing the gain until later periods when the related loans are repaid or
otherwise collected. The Company borrows funds on a short-term basis to support
the accumulation of loans prior to sale. These short-term borrowings are made
under warehouse lines of credit with various lenders.

At December 31, 1997, the Company had a $1.25 billion uncommitted
warehouse facility with Paine Webber Real Estate Securities, Inc. This facility
bears interest at rates ranging from LIBOR plus 0.65% to LIBOR plus .90%.
Approximately $920.9 million was outstanding under this facility as of December
31, 1997.

At December 31, 1997, the Company had a $1.0 billion uncommitted
warehouse facility with Bear Stearns Home Equity Trust 1996-1. This facility
bears interest at LIBOR plus 0.875%. Approximately $592.1 million was
outstanding under this facility at December 31, 1997.

Additionally, at December 31, 1997, the Company had approximately $865
million available under other warehouse lines of credit. As of December 31,
1997, approximately $219.6 million was outstanding under these lines of credit.
Interest rates ranged from 6.6% to 7.6% as of December 31, 1997, and all
borrowings mature within one year.

Outstanding borrowings on the Company's warehouse financing facilities
are collateralized by mortgage loans held for sale, warehouse financing due from
correspondents and servicing rights on approximately $250 million of mortgage
loans. Upon the sale of these loans and the repayment of warehouse financing due
from correspondents, the borrowings under these lines will be repaid.

<PAGE> 48

At December 31, 1997, the Company had borrowed $70.8 million under its
credit facility with Paine Webber Real Estate Securities, Inc. Outstanding
borrowings bear interest at LIBOR plus 2.0% and are collateralized by the
Company's interest in certain interest-only and residual certificates.

Bear, Stearns & Co. Inc. and its affiliates, Bear Stearns Mortgage
Capital Corporation and Bear, Stearns International Limited, provide the Company
with an $85 million credit facility which is collateralized by certain
interest-only and residual certificates owned by the Company. At December 31,
1997, $30 million was outstanding under this credit facility, which bears
interest at 1.75% per annum in excess of LIBOR.

At December 31, 1997, the Company had borrowed $4.7 million under an
agreement which matures August 1998, bears interest at 2.0% per annum in excess
of LIBOR and is collateralized by certain interest-only and residual
certificates.

The Company also has available a $7 million credit facility which
matures July 31, 1999 and bears interest at 10% per annum from an affiliate of a
stockholder. At December 31, 1997, $6.8 million was outstanding under this
credit facility.

The Bank of Boston provides the Company a revolving credit facility
which matures October 1998, bears interest at LIBOR plus 2.75% and provides for
borrowings up to $50 million subject to the following terms: (i) to finance
interest-only and residual certificates, to be repaid according to a repayment
schedule calculated by Bank of Boston with a maximum amortization period after
October 1998 of three years; or (ii) for acquisitions or bridge financing. No
amounts were outstanding under this credit facility as of December 31, 1997.

The Bank of Boston, with participation from another financial
institution, provides the Company with a $45 million working capital facility,
which bears interest at LIBOR plus 2.75% and matures October, 1998. No amounts
were outstanding under this facility at December 31, 1997.

Subsequent to December 31, 1997, the Company received from German
American Capital Corporation a $1.0 billion committed warehouse credit facility
to be collateralized by mortgage loans held for sale which includes $100 million
credit facility to be collateralized by interest-only and residual certificates.

The Company's warehouse lines and term debt contain various affirmative
and negative covenants customary for credit arrangements of their type and which
the Company believes will not have a material effect on its operations, growth
and financial flexibility. The credit facility with Bank of Boston also contains
certain financial covenants requiring the maintenance of certain debt-to-equity
or debt-to-net worth ratios and establishes limits on the ability of the Company
to incur unsecured indebtedness. The Company does not believe that the existing
financial covenants will restrict its operations within the next twelve months.
Management believes the Company is in compliance with all such covenants under
these agreements.

The Company's current warehouse lines generally are subject to one-year
terms. Certain warehouse lines have automatic renewal features subject to the
absence of defaults and permit the lender to terminate the facility on notice to
the Company. There can be no assurance either that the Company's current
creditors will renew their facilities as they expire or that the Company will be
able to obtain additional credit lines.

On April 23, 1997, the Company completed an offering of 6,300,000
shares of common stock, of which 5,040,000 shares were offered by the Company
and 1,260,000 shares were offered by certain stockholders of the Company. The
Company received approximately $58.0 million from the sale of these shares, net
of underwriting discount

<PAGE> 49

and associated expenses.

On November 4, 1997, the Company sold, on a non-recourse basis,
interest-only and residual certificates that had an estimated net book value of
$267 million. The sale was effected through an excess cashflow securitization by
which the Company received approximately $228 million of net cash proceeds, or
approximately 85% of the estimated net book value of the interest-only and
residual certificates and retained a subordinated residual certificate for the
remaining balance. The Company used the net proceeds to retire or reduce certain
term debt.

The Company's business requires continual access to short- and
long-term sources of debt and equity capital. The Company believes that its
current warehouse and other facilities and internally generated funds will be
sufficient (assuming renewal or replacement of existing warehouse and term debt
facilities as they mature) to fund its liquidity requirements, including the
implementation of its business strategy through 1998. However, the Company has
substantial capital requirements and it anticipates that it may need to arrange
for additional external cash resources through additional excess cashflow
securitizations, financings, or the sale or placement of other debt or equity
securities. There can be no assurance that existing warehouse and term debt
facilities can be extended or refinanced, that the Company will be able to
arrange excess cashflow securitizations in the future on terms the Company would
consider favorable, that other debt or equity sources will be available to the
Company at any given time or as to the favorability of the terms on which such
sources may be available, or that funds generated from operations will be
sufficient to repay its existing debt obligations or meet its operating and
capital requirements. To the extent that the Company is not successful in
maintaining or replacing existing financing, it would not be able to hold a
large volume of loans pending securitization and therefore would have to curtail
its loan production activities or attempt to sell loans through whole loan
sales. There can be no assurance the Company would be successful in selling the
volume of whole loan sales required to sustain operations if the existing
warehouse and term debt facilities can not be renewed, extended, replaced or
refinanced.

RISK MANAGEMENT

The Company purchases and originates mortgage loans and then sells them
primarily through securitizations. At the time of securitization and the
delivery of the loans, the Company recognizes gain on sale based on a number of
factors including the difference, or "spread", between the interest rate on the
loans and the interest rate paid to investors (which typically is priced based
on the Treasury security with a maturity corresponding to the anticipated life
of the loans). If interest rates rise between the time the Company originates or
purchases the loans and the time the loans are priced at securitization, the
spread narrows, resulting in a loss in value of the loans. To protect against
such losses, the Company hedges the value of the loans through the short sale of
Treasury securities. Prior to hedging, the Company performs an analysis of its
loans taking into account, among other things, interest rates and maturities to
determine the amount, type, duration and proportion of each Treasury security to
sell short so that the risk to the value of the loans is effectively hedged. The
Company executes the sale of the Treasury securities with large, reputable
securities firms and uses the proceeds received to acquire Treasury securities
under repurchase agreements with large, reputable securities firms. These
securities are designated as hedges in the Company's records and are closed out
when the loans are sold.

If the value of the hedges decreases, offsetting an increase in the
value of the loans, the Company will pay the hedge loss in cash and realize the
corresponding increase in the value of the loans as part of its interest-only
and residual certificates. Conversely, if the value of the hedges increase,
offsetting a decrease in the value of the loans, the Company will receive the
hedge gain in cash and realize the corresponding decrease in the value of the
loans through a reduction in the value of the corresponding interest-only and
residual certificates.

The Company believes that its hedging activities using Treasury
securities are substantially similar in purpose, scope and execution to
customary hedging activities using Treasury securities engaged in by many of its
competitors.

INFLATION

<PAGE> 50

Inflation historically has had no material effect on the Company's
results of operations. Inflation affects the Company most in the area of loan
originations and can have an effect on interest rates. Interest rates normally
increase during periods of high inflation and decrease during periods of low
inflation.

Profitability may be directly affected by the level and fluctuation in
interest rates which affect the Company's ability to earn a spread between
interest received on its loans and the costs of its borrowings. The
profitability of the Company is likely to be adversely affected during any
period of unexpected or rapid changes in interest rates. A substantial and
sustained increase in interest rates could adversely affect the ability of the
Company to purchase and originate loans and affect the mix of first and second
mortgage loan products. Generally, first mortgage production increases relative
to second mortgage production in response to low interest rates and second
mortgage production increases relative to first mortgage production during
periods of high interest rates. A significant decline in interest rates could
decrease the size of the Company's loan servicing portfolio by increasing the
level of loan prepayments. Additionally, to the extent servicing rights and
interest-only and residual certificates have been capitalized on the books of
the Company, higher than anticipated rates of loan prepayments or losses could
require the Company to write down the value of such servicing rights and
interest-only and residual certificates which would have a material adverse
effect on the Company's results of operations and financial condition.
Conversely, lower than anticipated rates of loan prepayments or gains would
allow the Company to increase the value of interest-only and residual
certificates which could have a favorable effect on the Company's results of
operations and financial condition. Fluctuating interest rates also may affect
the net interest income earned by the Company from the difference between the
yield to the Company on loans held pending sales and the interest paid by the
Company for funds borrowed under the Company's warehouse facilities. In
addition, inverse or flattened interest yield curves could have an adverse
impact on the profitability of the Company because the loans pooled and sold by
the Company have long-term rates, while the senior interests in the related
securitization trusts are priced on the basis of intermediate term rates.

48
<PAGE> 51

RECENT ACCOUNTING PRONOUNCEMENTS

In March 1997, the FASB issued SFAS No. 129 "Disclosure of Information
about Capital Structure" ("SFAS 129"), which consolidates existing disclosure
requirements. SFAS 129 contains no change in existing disclosure requirements
and is effective for fiscal years ending after December 15, 1997.

In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive
Income" and SFAS No. 131 "Disclosures About Segments of an Enterprise and
Related Information". These statements, which are effective for fiscal years
beginning after December 15, 1997, establish standards for reporting and display
of comprehensive income and disclosure requirements related to segments. The
application of the new rules are not anticipated to have an impact on the
Company's financial position or results of operations.

YEAR 2000

The Company utilizes a number of software systems to originate,
securitize and service its various loan products. The Company has and will
continue to make certain investments in its software systems and applications to
ensure the Company is Year 2000 compliant. The financial impact of becoming year
2000 compliant has not been and is not expected to be material to the Company,
to its financial position or results of operations in a given year.

49
<PAGE> 52

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

IMC MORTGAGE COMPANY AND SUBSIDIARIES INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Independent
Accountants............................................................... 51
Financial Statements:
Consolidated Balance Sheets as of December 31, 1996 and 1997.......... 52
Consolidated Statements of Operations for the years ended
December 31, 1995, 1996 and 1997..................................... 53
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1995, 1996 and 1997............................... 54
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1996 and 1997..................................... 55
Notes to Consolidated Financial Statements............................ 56
</TABLE>

50
<PAGE> 53

REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders of
IMC MORTGAGE COMPANY AND SUBSIDIARIES

We have audited the accompanying consolidated balance sheets of IMC
Mortgage Company and Subsidiaries as of December 31, 1996 and 1997, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of IMC Mortgage Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of IMC
Mortgage Company and Subsidiaries as of December 31, 1996 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.

As discussed in Note 2, effective January 1, 1996 the Company changed
its method of accounting for mortgage servicing rights.

/S/ COOPERS & LYBRAND L.L.P.

Tampa, Florida
February 20, 1998, except for the
fourth paragraph of Note 4 as to which the
date is March 19, 1998.

51
<PAGE> 54

IMC MORTGAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1997
---- ----
ASSETS

<S> <C> <C>
Cash and cash equivalents .................................. $ 13,289 $ 26,750
Securities purchased under agreements to resell ............ 659,490 772,586
Accrued interest receivable ................................ 8,636 29,272
Accounts receivable ........................................ 2,776 21,349
Mortgage loans held for sale, net .......................... 914,587 1,673,144
Interest-only and residual certificates .................... 86,247 223,306
Warehouse financing due from correspondents ................ 5,045 25,913
Property, furniture, fixtures and equipment, net ........... 1,677 14,884
Capitalized mortgage servicing rights ...................... 6,621 34,954
Income tax receivable ...................................... -- 18,841
Goodwill ................................................... 1,843 91,963
Other assets ............................................... 7,137 12,970
---------- ----------
Total .................................................. $1,707,348 $2,945,932
========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
Warehouse finance facilities ............................ $ 895,132 $1,732,609
Term debt ............................................... 47,430 112,291
Notes payable ........................................... -- 18,189
Securities sold but not yet purchased ................... 661,061 775,324
Accounts payable and accrued liabilities ................ 7,767 31,665
Accrued interest payable ................................ 4,078 10,857
Deferred tax liability .................................. -- 10,933
Income tax payable ...................................... 2,543 --
---------- ----------
Total liabilities ...................................... 1,618,011 2,691,868
---------- ----------

Commitments and Contingencies (Note 13)
Stockholders' equity:
Preferred stock, par value $.01 per share; 10,000,000
shares authorized; none issued and outstanding ....... -- --
Common stock, par value $.01 per share; 50,000,000
authorized; 19,669,666, and 30,710,790
shares issued and outstanding ........................ 197 307
Additional paid-in capital .............................. 76,490 193,178
Retained earnings ....................................... 12,650 60,579
---------- ----------
Total stockholders' equity ........................... 89,337 254,064
---------- ----------
Total ................................................ $1,707,348 $2,945,932
========== ==========
</TABLE>

The accompanying notes are an integral part of these consolidated
financial statements.

52
<PAGE> 55

IMC MORTGAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
For the Year Ended December 31,
---------------------------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Revenues:
Gain on sales of loans ............................ $ 20,681 $ 46,230 $ 180,963
Additional securitization transaction
expense (Note 5) ............................... (5,547) (4,158) --
------------ ------------ ------------
Net gain on sale of loans ..................... 15,134 42,072 180,963
------------ ------------ ------------
Warehouse interest income ......................... 7,885 37,463 123,432
Warehouse interest expense ........................ (6,007) (24,535) (98,720)
------------ ------------ ------------
Net warehouse interest income ............... 1,878 12,928 24,712
------------ ------------ ------------
Servicing fees .................................... 1,543 6,750 20,593
Other revenues .................................... 1,118 3,904 12,491
------------ ------------ ------------
Total servicing fees and other .............. 2,661 10,654 33,084
------------ ------------ ------------
Total revenues .............................. 19,673 65,654 238,759
------------ ------------ ------------

Expenses:
Compensation and benefits ......................... 5,139 16,007 82,051
Selling, general and administrative
expenses ....................................... 3,478 15,652 64,999
Sharing of proportionate value of
equity (Note 5) ................................ 4,204 2,555 --
Other interest expense ............................ 298 2,321 14,280
------------ ------------ ------------
Total expenses .............................. 13,119 36,535 161,330
------------ ------------ ------------
Income before income taxes ........................ 6,554 29,119 77,429
Provision for income taxes ........................ -- 4,206 29,500
------------ ------------ ------------
Net income ............................................ $ 6,554 $ 24,913 $ 47,929
============ ============ ============

Unaudited Pro Forma Data (actual data for
the year ended December 31, 1997)
giving effect to provision for income taxes:
Income before provision for income
taxes .......................................... $ 6,554 $ 29,119 $ 77,429
Pro forma provision for income taxes
(Note 2) ....................................... 2,522 11,190 29,500
------------ ------------ ------------
Pro forma net income .............................. $ 4,032 $ 17,929 $ 47,929
============ ============ ============
Pro forma net income per common share:
Basic ......................................... $ 0.34 $ 1.12 $ 1.76
Diluted ....................................... $ 0.34 $ 0.92 $ 1.54
Pro forma weighted average shares outstanding:
Basic ......................................... 12,000,000 15,981,521 27,299,827
Diluted ....................................... 12,000,000 19,539,963 31,147,944
</TABLE>

The accompanying notes are an integral part of these consolidated
financial statements.

53
<PAGE> 56

IMC MORTGAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
Common Stock Additional
-------------------------- Paid-In Retained
Shares Amount Capital Earnings Total
------ ------ ------- -------- -----
<S> <C> <C> <C> <C> <C>
Stockholders' equity at
January 1, 1995 ...................... 6,000,000 $ 60 $ 3,825 $ 1,971 $ 5,856
Cash contributions ..................... -- -- 20 -- 20
Net income ............................. -- -- -- 6,554 6,554
Distributions for taxes (Note 2) ....... -- -- -- (6,821) (6,821)
---------- ---------- ---------- ---------- ----------
Stockholders' equity at
December 31, 1995 ...................... 6,000,000 60 3,845 1,704 5,609
Issuance of options to
ContiFinancial (Note 5) .............. -- -- 8,448 -- 8,448
Common stock issued in public
offering ............................. 3,565,000 36 58,168 -- 58,204
Reclassification of partnership
earnings ............................. -- -- 4,124 (4,124) --
Conversion of convertible
preferred stock ...................... 119,833 1 2,005 -- 2,006
Stock options exercised ................ 150,000 2 (2) -- --
Net income ............................. -- -- -- 24,913 24,913
Distributions for taxes (Note 2) ....... -- -- -- (9,843) (9,843)
Two-for-one stock split (Note 1) ...... 9,834,833 98 (98) -- --
---------- ---------- ---------- ---------- ----------
Stockholders' equity at
December 31, 1996 .................... 19,669,666 197 76,490 12,650 89,337
Common stock issued in public
offering ............................. 5,040,000 50 57,977 -- 58,027
Common stock issued in
acquisition transactions ............. 5,043,763 50 51,962 -- 52,012
Common stock issued under stock
option and incentive plans and
related tax benefits ................ 957,361 10 6,749 -- 6,759
Net income ............................. -- -- -- 47,929 47,929
---------- ---------- ---------- ---------- ----------
Stockholders' equity at
December 31, 1997 ...................... 30,710,790 $ 307 $ 193,178 $ 60,579 $ 254,064
========== ========== ========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these consolidated
financial statements.

54
<PAGE> 57

IMC MORTGAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
For the Year Ended December 31,
-----------------------------------------
1995 1996 1997
---- ---- ----

<S> <C> <C> <C>
Operating activities:
Net income ......................................... $ 6,554 $ 24,913 $ 47,929
Adjustments to reconcile net income to
net cash used in operating activities:
Sharing of proportionate value of equity ........ 4,204 2,555 --
Depreciation and amortization ................... 164 1,650 10,144
Capitalized mortgage servicing rights ........... -- (7,862) (34,252)
Net loss in joint venture ....................... -- 852 1,813
Non-recurring benefit associated with the
conversion of Partnership to C Corporation .... -- (3,600) --
Change in deferred taxes ........................ -- 879 13,654
Net change in operating assets and liabilities,
net of effects from acquisitions:
Increase in mortgage loans held for sale ........ (164,007) (721,347) (702,927)
Decrease in securities purchased under
agreement to resell and securities sold
but not yet purchased ......................... 1,142 429 1,167
Increase in accrued interest receivable ......... (1,653) (6,763) (20,615)
Decrease (increase) in warehouse financing
due from correspondents ....................... 4 (4,992) (25,674)
Increase in interest-only and residual
certificates .................................. (10,669) (72,174) (137,060)
Increase in other assets ........................ (371) (2,200) (7,495)
Increase in accounts receivable ................. (885) (1,596) (16,450)
Increase in income tax receivable ............... -- -- (15,241)
Increase in accrued interest payable ............ 547 3,022 6,779
Decrease in deferred income ..................... (451) -- --
Increase (decrease) in income tax payable ....... -- 2,543 (2,543)
Increase in accrued and other liabilities ....... 142 6,978 2,421
--------- --------- ---------
Net cash used in operating activities ........... (165,279) (776,713) (878,350)
--------- --------- ---------
Investing activities:
Investment in joint venture ..................... -- (2,591) (1,781)
Purchase of property, furniture, fixtures and
equipment ..................................... (391) (1,218) (12,772)
Acquisition of businesses, net of cash
acquired and including other cash
payments associated with the acquisitions ..... -- -- (10,008)
--------- --------- ---------
Net cash used in investing activities ........... (391) (3,809) (24,561)
--------- --------- ---------
Financing activities:
Issuance of common stock ........................ -- 58,203 59,923
Contributions from partners ..................... 20 -- --
Distributions to partners for taxes ............. (5,515) (11,149) --
Net borrowings on warehouse facilities .......... 162,087 705,313 787,911
Borrowings -- term debt ......................... 11,121 51,066 401,240
Borrowings - notes payable ...................... -- -- 5,000
Repayments of borrowings - term debt ............ -- (14,756) (337,702)
--------- --------- ---------
Net cash provided by financing activities ....... 167,713 788,677 916,372
--------- --------- ---------
Net increase in cash and cash equivalents ....... 2,043 8,155 13,461
Cash and cash equivalents, beginning of
period ........................................ 3,091 5,134 13,289
--------- --------- ---------
Cash and cash equivalents, end of period ........ $ 5,134 $ 13,289 $ 26,750
========= ========= =========
</TABLE>

The accompanying notes are an integral part of these consolidated
financial statements.

55
<PAGE> 58

IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

1. ORGANIZATION AND BASIS OF PRESENTATION

IMC Mortgage Company and its wholly-owned subsidiaries (the "Company")
purchase and originate mortgage loans made to borrowers who may not otherwise
qualify for conventional loans for the purpose of securitization and sale. The
Company typically securitizes these mortgages into the form of a Real Estate
Mortgage Investment Conduit ("REMIC") or owner trust. A significant portion of
the mortgages are sold on a servicing retained basis.

The Company was formed in 1993 by a team of executives experienced in
the non-conforming home equity loan industry. The Company was originally
structured as a partnership, Industry Mortgage Company, L.P. (the
"Partnership"), which became a wholly owned subsidiary of IMC Mortgage Company
(the "Parent") in June 1996 when the limited partners (the "Partners") and the
general partner exchanged their partnership interests for voting common shares
(the "exchange" or "recapitilization") of the Parent. The exchange was
consummated on an historical cost basis as all entities were under common
control. Accordingly, since June 1996, the Parent has owned 100% of the limited
partnership interests in the Partnership and 100% of the general partnership
interest in the Partnership. At the time of the exchange, the retained earnings
previously reflected by the Partnership were transferred to additional paid-in
capital. On December 31, 1997, the Partnership and the general partner were
merged into the Parent. The accompanying consolidated financial statements
include the accounts of the Parent, the Partnership and their wholly owned
subsidiaries, after giving effect to the exchange as if it had occurred at
inception.

On January 27, 1997, the Board of Directors declared a two-for-one
split of common stock payable on February 13, 1997 to stockholders of record as
of February 6, 1997. A total of $98 was transferred from additional
paid-in-capital to the stated value of common stock in connection with the stock
split. This transaction has been recorded herein in the year ended December 31,
1996. The par value of the common stock remains unchanged. All share and per
share amounts have been restated retroactively herein to reflect the stock split
except with respect to periods presented in the consolidated statements of
stockholders' equity prior to December 31, 1996.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the
Parent and its wholly-owned subsidiaries after elimination of inter-company
accounts and transactions.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of cash on hand and on deposit at
financial institutions and short term investments with original maturities of 90
days or less when purchased.

INTEREST-ONLY AND RESIDUAL CERTIFICATES

The Company originates and purchases mortgages for the purpose of
securitization and whole loan sale. The Company securitizes these mortgages
primarily into the form of a REMIC or owner trust. A REMIC is a multi-class
security with certain tax advantages which derives its monthly principal
paydowns from a pool of underlying mortgages. The senior class certificates
issued by the trust are sold, with the subordinated classes (or a portion
thereof) retained by the

56
<PAGE> 59

IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

Company. The subordinated classes are in the form of interest-only and residual
certificates. The documents governing the Company's securitizations require the
Company to build over-collateralization levels through payment of distributions
to holders of senior certificates, for a period of time, otherwise payable to
the Company as the residual interest holder. This overcollateralization causes
the aggregate principal amount of the loans in the related pool to exceed the
aggregate principal balance of the outstanding investor certificates. Such
excess amounts serve as credit enhancement for the related trust. To the extent
that borrowers default on the payment of principal or interest on the loans,
losses will reduce the overcollateralization and cash flows otherwise payable to
the residual interest security holder to the extent that funds are available. If
payment defaults exceed the amount of overcollateralization, as applicable, the
insurance policy maintained on certain REMIC trusts will pay any further losses
experienced by holders of the senior interests in those related REMIC trusts or
a subordinated class will bear the loss. The Company does not have any recourse
obligations for credit losses in the trust. During 1995, the Company securitized
$380 million of loans through three trusts; during 1996, the Company securitized
$935 million of loans through four trusts; and during the year ended December
31, 1997, the Company securitized $4.9 billion of loans through eight trusts.
See Note 11.

On January 1, 1997, the Company adopted the Financial Accounting
Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS")
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities ("SFAS 125"), which was effective for transfers
of the Company's financial assets made after December 31, 1996. SFAS 125
addresses the accounting for all types of securitization transactions,
securities lending and repurchase agreements, collateralized borrowing
arrangements and other transactions involving the transfer of financial assets.
SFAS 125 distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings. SFAS 125 requires the Company to allocate
the total cost of mortgage loans sold among the mortgage loans sold (without
servicing rights), interest-only and residual certificates and servicing rights
based on their relative fair values. The adoption of SFAS 125 did not have a
material effect on the Company's financial position or results of operations.

The Company initially records interest-only and residual certificates
at their allocated cost based upon the present value of the interest in the cash
flows retained by the Company after considering various economic factors,
including interest rates, collateral value and estimates of the value of future
cash flows from the securitized mortgage pools under expected loss and
prepayment assumptions discounted at a market yield. The weighted average rates
used to discount the cash flows range from 11% to 14.5% based on the risks
associated with each REMIC mortgage pool. The Company utilizes prepayment and
loss curves which the Company believes will approximate the timing of
prepayments and losses over the life of the securitized loans. Prepayments on
fixed rate loans securitized by the Company are expected to gradually increase
from a constant prepayment rate ("CPR") of 4% to 28% in the first year of the
loan and remain at 28% thereafter. The Company expects prepayments on adjustable
rate loans to gradually increase from a CPR of 4% to 35% in the first year of
the loan and remain at 35% thereafter. The CPR measures the annualized
percentage of mortgage loans which prepay during a given period. The CPR
represents the annual prepayment rate such that, in the absence of regular
amortization, the total prepayment over the year would equal that percent of the
original principal balance of the mortgage loan. The Company expects losses from
defaults to gradually increase from zero in the first six months of
securitization to 100 basis points after 36 months. The loss curve utilized by
the Company approximates an assumed loss rate of approximately 65 basis points
per year at inception of the securitization.

In accordance with the provisions of Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS 115"), the Company classifies interest-only and residual
certificates as "trading securities" and, as such, they are recorded at fair
value with the resultant unrealized

57
<PAGE> 60

IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

gain or loss recorded in the results of operations in the period of the change
in value. The Company determines fair value at inception and on an ongoing basis
based on a discounted cash flow analysis. The cash flows are estimated as the
excess of the weighted average coupon on each pool of mortgage loans sold over
the sum of the pass-through interest rate plus a normal servicing fee, a trustee
fee, an insurance fee when applicable and an estimate of annual future credit
losses related to the mortgage loans securitized over the life of the mortgage
loans.

These cash flows are projected over the life of the mortgage loans
using prepayment, default, and interest rate assumptions that market
participants would use for similar financial instruments subject to prepayment,
credit and interest rate risk. The fair valuation includes consideration of the
following characteristics: loan type, size, interest rate, date of origination,
term and geographic location. The Company also used other available information
such as externally prepared reports on prepayment rates, interest rates,
collateral value, economic forecasts and historical default and prepayment rates
of the portfolio under review.

CAPITALIZED MORTGAGE SERVICING RIGHTS

Effective January 1, 1996, the Company adopted SFAS No. 122 "Accounting
for Mortgage Servicing Rights" ("SFAS 122"), superseded in June 1996 by SFAS
125, which was adopted by the Company effective January 1, 1997. The SFAS's
require that upon sale or securitization of mortgages, companies capitalize the
cost associated with the right to service mortgage loans based on their relative
fair values. The Company determines fair value based on the present value of
estimated net future cash flows related to servicing income. The cost allocated
to the servicing rights is amortized in proportion to and over the period of
estimated net future servicing fee income. Under SFAS 122 and SFAS 125, the
Company capitalized mortgage servicing rights of approximately $7,818 and
$34,252 for the year ended December 31, 1996 and 1997, respectively, and
amortized $1,197 and $5,920 for the same periods. The adoption of SFAS 122
resulted in additional operating income of approximately $6,621 for the year
ended December 31, 1996. The effect on unaudited pro forma net income for the
year ended December 31, 1996 was an increase of $4,050. The effect on pro forma
basic net income per common share and pro forma diluted net income per common
share was $0.25 and $0.21, respectively.

Prior to the adoption of SFAS 122, servicing rights acquired through
loan origination activities were recorded in the period the loans were serviced.

The Company periodically reviews capitalized servicing rights
receivable for impairment. This review is performed on a disaggregated basis for
the predominant risk characteristics of the underlying loans which are loan
type, term, credit quality and, to a lesser extent, interest rate. The Company
generally makes loans to borrowers whose borrowing needs may not be met by
traditional financial institutions due to credit exceptions. The Company has
found that these borrowers tend to be more payment sensitive rather than
interest rate sensitive. Impairment is recognized in a valuation allowance for
each disaggregated stratum in the period of impairment. The carrying amount of
capitalized mortgage servicing rights is deemed to be a reasonable estimate of
their fair value.

SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL/SECURITIES SOLD BUT NOT YET
PURCHASED

To hedge the interest rate risk on loan purchases, the Company sells short
United States Treasury securities

58
<PAGE> 61

IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

which match the duration of the fixed rate mortgage loans held for sale and
borrows the securities under agreements to resell.

Securities sold but not yet purchased are recorded on a trade date
basis and are carried at market value. The unrealized gain or loss on these
instruments is deferred and recognized upon securitization as an adjustment to
the carrying value of the hedged mortgage loans. The cost to carry securities
purchased under agreements to resell is recorded as incurred.

Securities purchased under agreements to resell are recorded on a trade
date basis and are carried at the amounts at which the securities will be
resold.

MORTGAGE LOANS HELD FOR SALE, NET

Mortgage loans held for sale are mortgages the Company plans to sell or
securitize. Mortgage loans held for sale are stated at lower of aggregate cost
or market. The cost is net of any deferred hedging gain or loss and deferred
loan origination fees and certain direct costs. Market value is determined by
outstanding commitments from investors, if any, or current investor yield
requirements on the aggregate basis. Included in mortgages held for sale at
December 31, 1996 and 1997 were $8,187 and $53,924, respectively, of mortgage
loans which were not eligible for securitization due to delinquency and other
factors (loans under review). The amount by which cost exceeds market value on
loans under review is accounted for as a valuation allowance. Changes in the
valuation allowance are included in the determination of net income in the
period of change. The valuation allowance at December 31, 1996 and 1997 was
$1,100 and $11,500, respectively.

REVENUE RECOGNITION

Gains on the sale of mortgage loans representing the difference between
the sales price and the net carrying amount (which includes any hedging gains
and losses) are recognized when mortgage loans are sold and delivered to
investors. For securitizations of mortgage loans, the gain on the sale of the
loans represents the present value of the differential (spread) between (i)
interest earned on the portion of loans sold and (ii) interest paid to investors
with related costs over the expected life of the loans, including expected
charge-offs, foreclosure expenses and a normal servicing fee. The spread is
adjusted for estimated prepayments.

The increase or accretion of the value of the discounted interest-only
and residual certificates over time is included in other revenues in the
statement of operations and is recognized on the interest method as earned and
deemed collectible. Other income consists primarily of accretion of
interest-only and residual certificates and earnings on deposits. Warehouse
interest income on mortgage loans held for sale is recognized on the accrual
method.

59
<PAGE> 62

IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

PROPERTY, FURNITURE, FIXTURES AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION

Property, furniture, fixtures and equipment are carried at cost and
depreciated on a straight-line basis over the estimated useful lives of the
assets. Leasehold improvements are amortized over the useful life of the
improvements.

ADVERTISING

The Company expenses the production costs of advertising as incurred.
Advertising expense was approximately $150, $499, and $9,023 for the years ended
December 31, 1995, 1996 and 1997.

GOODWILL

Goodwill represents the excess of cost over fair value of net assets
acquired by acquisition. Such excess of cost over fair value of net assets
acquired is being amortized on a straight-line basis over periods from five to
thirty years. Amortization expense approximated $71 and $2,679 for the years
ended December 31, 1996 and 1997, respectively. Accumulated amortization
approximated $71 and $2,750 at December 31, 1996 and 1997.

Management periodically reviews the potential impairment of goodwill on
a non-discounted cash flow basis to assess recoverability. If the estimated
future cash flows are projected to be less than the carrying amount, an
impairment write-down (representing the carrying amount of the goodwill which
exceeds the present value of estimated expected future cash flows) would be
recorded as a period expense.

TRANSLATION OF FOREIGN CURRENCY

Assets and liabilities of the Company's Canadian subsidiary, which was
incorporated during the year ended December 31, 1997, are translated at year-end
rates of exchange, and the income statement is translated at weighted average
rates of exchange for the year. For the year ended December 31, 1997, the
financial position and results of operations of the Company's Canadian
subsidiary was not material in relation to the financial position or results of
operations of the Company.

INCOME TAXES

Income tax expense is provided for using the asset and liability
method, under which deferred tax assets and liabilities are determined based
upon the temporary differences between the financial statement and income tax
bases of assets and liabilities, using currently enacted tax rates.

STOCK-BASED COMPENSATION

SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123")
encourages, but does not require, companies to record compensation cost for
stock-based employee compensation plans at fair value. The Company has elected
to continue to account for its stock-based compensation plans using the
intrinsic value method prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"). Under the provisions of
APB 25, compensation cost for stock options is measured as the excess, if any,
of the quoted market price

60
<PAGE> 63

IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

of the Company's common stock at the date of grant over the amount an employee
must pay to acquire the stock.

CONSOLIDATED STATEMENT OF CASH FLOWS - SUPPLEMENTAL DISCLOSURES

The Company paid $5,460, $23,834 and $106,221 for interest during the
years ended December 31, 1995, 1996, and 1997, respectively. Total income taxes
paid were $796 and $33,482 for the years ended December 31, 1996 and 1997,
respectively. During the year ended December 31, 1997, the Company recorded a
receivable of $3,600 for the income tax benefit related to the issuance of
common stock under stock option and incentive plans.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive
Income" and SFAS No. 131, "Disclosures About Segments of an Enterprise and
Related Information". These statements, which are effective for fiscal years
beginning after December 15, 1997, establish standards for reporting and display
of comprehensive income and disclosure requirements related to segments. The
application of the new rules are not anticipated to have an impact on the
Company's financial position or results of operations.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

RECLASSIFICATIONS

Certain amounts in the 1995 and 1996 financial statements have been
reclassified to conform with the 1997 classifications.

UNAUDITED PRO FORMA DATA

The Partnership which is included in the consolidated financial
statements became a wholly owned subsidiary of the Parent after the plan of
exchange described in Note 1 was consummated. The Partnership made no provision
for income taxes since the Partnership's income or losses were passed through to
the partners individually. Under the terms of the partnership agreement, the
Partnership was obligated to make quarterly cash distributions to the partners
equal to 45% of profits (as defined in the partnership agreement) to enable the
partners to pay taxes with respect to their partnership interests. Distributions
to partners for income taxes were $6,821 and $9,843 for the years ended December
31, 1995 and 1996. At December 31, 1995, $1,307 was payable to partners for
income taxes.

61
<PAGE> 64

IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

The Partnership's income became subject to income taxes at the
corporate level as of June 24, 1996, the effective date of the exchange. The
unaudited pro forma data included in the consolidated statements of operations
of the Company includes a pro forma provision for income taxes to indicate what
these taxes would have been had the exchange occurred in prior periods.

The following unaudited pro forma information reflects the income tax
expense that the Company would have incurred if it had been subject to federal
and state income taxes for the entire year ended December 31, 1995 and 1996.

<TABLE>
<CAPTION>
December 31,
-----------------------
1995 1996
---- ----
<S> <C> <C>
Pro forma current:
Federal .................................. $ 3,904 $ 8,910
State .................................... 649 1,894
-------- -------
4,553 10,804
-------- --------
Pro forma deferred:
Federal .................................. (1,843) 318
State .................................... (188) 68
-------- --------
(2,031) 386
-------- --------
Pro forma provision for income taxes ......... $ 2,522 $ 11,190
======== ========
</TABLE>

The following unaudited pro forma information reflects the
reconciliation between the statutory provision for income taxes and the pro
forma provision relating to the income tax expense the Company would have
incurred had the Partnership been subject to federal and state income taxes.

<TABLE>
<CAPTION>
For the Year Ended
December 31,
-----------------------
1995 1996
---- ----

<S> <C> <C>
Income tax at federal statutory rate ......... $ 2,272 $ 10,192
State taxes, net of federal benefit .......... 232 1,310
Nondeductible expenses ....................... 18 36
Other, net ................................... -- (348)
-------- --------
Pro forma provision for income taxes ......... $ 2,522 $ 11,190
======== ========
</TABLE>

PRO FORMA EARNINGS PER SHARE AND EARNINGS PER SHARE

In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings per Share" ("SFAS 128"), which became effective for the
Company for reporting periods ending after December 15, 1997. Under the
provisions of SFAS 128, basic earnings per share is determined using net income,
adjusted for preferred stock dividends, and divided by weighted average shares
outstanding. Diluted earnings per share, as defined by SFAS No. 128, is computed
based on the amount of income that would be available for each common share,
assuming all dilutive potential common shares were issued. All prior period
earnings per share data has been restated in accordance with the provisions of
SFAS 128.

62
<PAGE> 65

IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

Due to the recapitalization described in Note 1, earnings per share for
the years ended December 31, 1996 and 1995 have been computed on a pro forma
basis, assuming the recapitalization occurred at the beginning of 1995. Amounts
used in the determination of basic and diluted earnings per share are shown in
the table below.

<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----

<S> <C> <C> <C>
Pro forma net income (actual net income for 1997) . . $ 4,032 $ 17,929 $ 47,929
Less preferred dividends. . . . . . . . . . . . . . . -- 79 --
----------- ----------- -----------
Income available to common stockholders-basic . . . . 4,032 17,850 47,929
Add interest expense attributable to convertible
debentures and accrued preferred dividends . . . . -- 97 --
----------- ----------- -----------
Income available to common stockholders-diluted . . . $ 4,032 $ 17,947 $ 47,929
=========== =========== ===========

Weighted average common shares outstanding. . . . . . 12,000,000 15,981,521 27,299,827
Adjustments for dilutive securities:
Stock warrants. . . . . . . . . . . . . . . . . . -- 2,139,344 2,327,178
Stock options . . . . . . . . . . . . . . . . . . -- 1,240,553 1,281,995
Contingent shares . . . . . . . . . . . . . . . . -- 9,827 238,944
Preferred stock . . . . . . . . . . . . . . . . . -- 115,248 --
Convertible debentures. . . . . . . . . . . . . . -- 53,470 --
----------- ----------- -----------
Diluted common shares . . . . . . . . . . . . . . . . 12,000,000 19,539,963 31,147,944
=========== =========== ===========
</TABLE>

3. BUSINESS COMBINATIONS

FOR THE YEAR ENDED DECEMBER 31, 1996

On January 1, 1996, the Company acquired certain assets of Mortgage
Central Corp., a Rhode Island corporation ("MCC"), a mortgage banking company
which did business under the name "Equitystars" primarily in Rhode Island, New
York, Connecticut and Massachusetts. The initial purchase price ($2,006) for
certain assets of MCC was paid by delivery to MCC of Series A voting,
convertible preferred stock of the Company, with contingency payments over two
years based on performance. The preferred stock had a liquidation preference of
$100 per share plus preferred dividends accruing at 8% per annum from the date
of issuance until redemption or liquidation. The preferred stock was converted
into 239,666 shares of the Company's common stock upon closing of the Company's
initial public offering in June 1996.

The acquisition was accounted for using the purchase method of
accounting and, accordingly, the purchase price of $2,006 has been allocated to
the assets purchased and the liabilities assumed based upon the fair values at
the date of acquisition. The excess of the purchase price of $2,006 over the
fair values of the assets acquired of approximately $333 and liabilities assumed
of $57 was recorded as goodwill. Additional purchase price consideration of
approximately $480 has been recorded as goodwill related to the contingent
payment terms of the acquisition through December 31, 1997.

63
<PAGE> 66

IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

The operating results of MCC have been included in the consolidated
statements of operations from the date of acquisition on January 1, 1996. On the
basis of an unaudited pro forma consolidation of the results of operations as if
the acquisition had taken place at the beginning of 1995, consolidated total
revenues would have approximated $24,193 for the year ended December 31, 1995.
Consolidated income would not have been materially different from the reported
amount for the year ended December 31, 1995. Such amounts are not necessarily
indicative of what the actual consolidated results of operations might have been
if the acquisition had been effective at the beginning of 1995.

FOR THE YEAR ENDED DECEMBER 31, 1997

Effective January 1, 1997, the Company acquired all of the assets of
Mortgage America, Inc., a non-conforming mortgage lender based in Bay City,
Michigan and Equity Mortgage Co., Inc., a non-conforming mortgage lender based
in Baltimore, Maryland, and all of the outstanding common stock of CoreWest
Banc, a non-conforming mortgage lender based in Los Angeles, California.
Effective February 1, 1997, the Company acquired all of the assets of American
Mortgage Reduction, Inc., a non-conforming mortgage lender based in Owings
Mills, Maryland. Effective July 1, 1997, the Company acquired all of the
outstanding common stock of National Lending Center, Inc., a non-conforming
mortgage lender based in Deerfield Beach, Florida, and substantially all of the
assets of Central Money Mortgage Co., Inc., a non-conforming mortgage lender
based in Baltimore, Maryland. Effective October 1, 1997, the Company acquired
substantially all of the assets of Residential Mortgage Corporation, a
non-conforming mortgage lender based in Cranston, Rhode Island. Effective
November 1, 1997, the Company acquired substantially all of the assets of
Alternative Capital Group, Inc., a non-conforming mortgage lender based in
Dallas, Texas.

All acquisitions were accounted for using the purchase method of
accounting and the results of operations have been included with those of the
Company from the dates of the acquisition. The fair value of the acquired
companies' assets approximated the liabilities assumed, and accordingly, the
majority of the initial purchase prices has been recorded as goodwill which will
be amortized on a straight-line basis for periods up to 30 years. The aggregate
purchase price for the eight acquisitions completed in 1997 included 5,043,763
shares of common stock, gross cash paid of approximately $20,994, $13,189 of
notes payable to former shareholders and assumption of a stock option plan which
resulted in the issuance of options to acquire 334,596 shares of the Company's
common stock. The aggregate fair value of assets acquired was approximately
$71,223 and liabilities assumed approximated $70,423. The Company recorded
goodwill of approximately $86,993 related to these acquisitions. Most of the
acquisitions include earn-out arrangements that provide for additional
consideration if the acquired company achieves certain performance targets after
the acquisition. Additional purchase price of approximately $5,569 was recorded
as goodwill during the year ended December 31, 1997 related to the contingent
payment terms of the acquisitions. Any such contingent payments will result in
an increase in the amount of recorded goodwill related to such acquisition.

64
<PAGE> 67

IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

The pro forma results of operations listed below reflect purchase
accounting adjustments assuming the acquisitions occurred on January 1, 1996.

<TABLE>
<CAPTION>
1996 1997
---- ----
(unaudited) (unaudited)

<S> <C> <C>
Revenues $137,920 $273,659
Net income 23,765 56,370
Basic earnings per share 1.13 1.96
Diluted earnings per share 0.97 1.73
</TABLE>

The pro forma results of operations are not necessarily indicative of
what the actual consolidated results of operations would have been if the
acquisitions had been effective at the beginning of 1996.

4. COLLATERALIZED OBLIGATIONS

WAREHOUSE FINANCE FACILITIES

At December 31, 1997, the Company had a $1.25 billion uncommitted
credit facility with Paine Webber Real Estate Securities, Inc. Outstanding
warehouse borrowings, which bear interest at rates ranging from LIBOR (5.7% at
December 31, 1997) plus 0.65% to LIBOR plus .90%, were approximately $920,896
under this facility at December 31, 1997.

At December 31, 1997, the Company had a $1.0 billion uncommitted
warehouse facility with Bear Stearns Home Equity Trust 1996-1. This facility
bears interest at LIBOR plus 0.875%. Approximately $592,118 was outstanding
under this facility at December 31, 1997.

Additionally, at December 31, 1997, the Company had $865,000 available
under numerous other warehouse lines of credit. As of December 31, 1997,
approximately $219,595 was outstanding under these lines of credit. Interest
rates ranged from 6.6% to 7.6% as of December 31, 1997, and all borrowings
mature within one year.

Subsequent to December 31, 1997, the Company received from German
American Capital Corporation a $1.0 billion committed warehouse credit facility
to be collateralized by mortgage loans held for sale which includes a $100,000
credit facility to be collateralized by interest-only and residual certificates.

Outstanding borrowings on the Company's warehouse financing facilities
are collateralized by mortgage loans held for sale, warehouse financing due from
correspondents and servicing rights on approximately $250,000 of mortgage loans.
Upon the sale of these loans and the repayment of warehouse financing due from
correspondents, the borrowings under these lines will be repaid.

65
<PAGE> 68

IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

TERM DEBT

At December 31, 1997, the Company had borrowed $70,756 under its credit
facility with Paine Webber Real Estate Securities, Inc. Outstanding borrowings
bear interest at LIBOR plus 2.0% and are collateralized by the Company's
interest in certain interest-only and residual certificates.

Bear, Stearns & Co. Inc. and its affiliates, Bear Stearns Mortgage
Capital Corporation and Bear, Stearns International Limited, provide the Company
with an $85,000 credit facility which is collateralized by certain interest-only
and residual certificates owned by the Company. At December 31, 1997, $30,000
was outstanding under this credit facility, which bears interest at 1.75% per
annum in excess of LIBOR.

At December 31, 1997, the Company had borrowed $4,735 under an
agreement which matures August 1998, bears interest at 2.0% per annum in excess
of LIBOR and is collateralized by certain interest-only and residual
certificates.

The Company also has available a $7,000 credit facility which matures
July 31, 1999 and bears interest at 10% per annum from an affiliate of a
stockholder. At December 31, 1997, $6,800 was outstanding under this credit
facility.

The Bank of Boston provides the Company a revolving credit facility
which matures October 1998, bears interest at LIBOR plus 2.75% and provides for
borrowings up to $50,000 subject to the following terms: (i) to finance
interest-only and residual certificates, to be repaid according to a repayment
schedule calculated by Bank of Boston with a maximum amortization period after
October 1998 of three years; or (ii) for acquisitions or bridge financing. No
amounts were outstanding under this credit facility as of December 31, 1997.

The Bank of Boston, with participation from another financial
institution, provides the Company with a $45,000 working capital facility, which
bears interest at LIBOR plus 2.75% and matures October 1998. No amounts were
outstanding under this facility at December 31, 1997.

The warehouse notes and term debt have requirements that the Company
maintain certain debt to equity ratios and certain agreements restrict the
Company's ability to pay dividends on common stock. Capital expenditures are
limited by certain agreements. Management believes the Company is in compliance
with all such covenants of these agreements.

NOTES PAYABLE

At December 31, 1997, $5,000 was outstanding under a mortgage note
payable, which bears interest at 8.16% per annum and expires December 2007. The
note is collateralized by the Company's headquarters building.

66
<PAGE> 69

IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

At December 31, 1997, $13,189 was outstanding under notes payable
issued to shareholders related to an acquisition completed in 1997. See Note 3.
These notes bear interest at prime through July 1, 1998 and prime plus 2.0%
thereafter. The notes mature on July 1, 1999.

Note payable maturities for the next five years are as follows: $500 in
1998; $13,689 in 1999; $500 in 2000; $500 in 2001; and $500 in 2002.

5. STRATEGIC ALLIANCE

The Company, prior to 1997, relied on ContiFinancial Corporation and
its subsidiaries and affiliates ("ContiFinancial") to provide the original
credit facility for funding its loan purchases and originations as well as their
expertise and assistance in loan securitization. In 1995 and 1996, the
securitizations were structured so that ContiFinancial received, in exchange for
cash of $18,425 and $8,633, respectively, interest-only and residual
certificates with estimated values of $25,054 and $13,444, respectively. In
addition, ContiFinancial paid $1,082 and $654 in expenses related to
securitizations in 1995 and 1996, respectively. The difference between the
estimated value of the interest-only and residual certificates provided to
ContiFinancial and the total amount of cash received and expenses paid by
ContiFinancial amounts to $5,547 and $4,158 in 1995 and 1996, respectively, and
has been recorded as additional securitization transaction expense.

In August 1993, the Company entered into a five-year agreement ("1993
Agreement") with ContiFinancial which provided the Company with a warehouse line
of credit, a standby credit facility, and certain investment banking services.
Pursuant to the 1993 Agreement, the Company agreed to share the value of the
partnership through a contingent fee based on a percentage of Residual Company
Equity (as defined in the 1993 Agreement) to be paid in cash at the termination
of the agreement. At December 31, 1993, there was no Residual Company Equity and
accordingly no liability was recorded. At December 31, 1994, the Company had
Residual Company Equity and accordingly the Company accrued a liability (sharing
of proportionate value of equity) to reflect the contingent fee payable of
$1,689 at December 31, 1994 with a corresponding charge in the statement of
operations.

On January 12, 1995, the Company and ContiFinancial entered into a
revised ten-year agreement (the "1995 Agreement") which replaced the 1993
Agreement and provided for contingent fees based on the fair market value of the
Company (as defined). The amount of the contingent fee ranged from 15% to 25% of
the fair market value of the Company if ContiFinancial or the Company,
respectively, elected to terminate these arrangements. In the event that the
agreement expired with neither ContiFinancial nor the Company electing to
terminate the arrangements, the fee would have been 20% of the fair market value
of the Company. If the Company made any distributions to the partners other than
those made as tax distributions and returns of partnership equity, the Company
would have been required to distribute an amount to ContiFinancial equal to 25%
of these other distributions. At December 31, 1995, the Company accrued $5,893
(based on an independent appraisal of the fair market value of the Company)
representing the estimated amount that would have been payable to ContiFinancial
had ContiFinancial elected to terminate the 1995 Agreement as of December 31,
1995. The increase in the amount of the accrual at December 31, 1995 related to
the 1995 Agreement over the amount accrued at December 31, 1994 related to the
1993 Agreement was recorded as a charge to earnings for 1995.

67
<PAGE> 70

IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

In March 1996, the Company and ContiFinancial replaced the 1995
Agreement with an agreement (the 1996 Agreement) which eliminated the ability of
ContiFinancial to obtain or require a cash payment as provided for in the 1993
and 1995 Agreements and provided ContiFinancial options to acquire an interest
in the Company for a nominal amount. On June 24, 1996, the effective date of the
exchange described in Note 1, the option was converted into a warrant
exercisable for a de minimus amount for 3,000,000 shares of the Company's common
stock. The warrant contains normal anti-dilution provisions. ContiFinancial has
certain rights to join in registration of additional shares of stock and, under
certain conditions after the expiration of a four-year time period, to require
that shares subject to ContiFinancial's warrants be registered by the Company or
its successor. The liability that had been established under the 1995 Agreement
was reclassified to paid in capital in March 1996 in conjunction with the
issuance of the ContiFinancial option. The fair value of the option at the date
of grant (March 26, 1996) was estimated to be $8,448 based on an independent
appraisal of the option. The Company recorded expense of $2,555 for the year
ended December 31, 1996, representing the excess of the estimated fair value of
the option at the date of grant over the amount accrued at December 31, 1995
pursuant to the 1995 Agreement. At December 31, 1997 the warrant was exercisable
for 2,160,000 shares of the Company's common stock. The warrant expires on March
31, 2011.

6. OTHER ASSETS

Other assets consist of the following:
<TABLE>
<CAPTION>
1996 1997
---- ----

<S> <C> <C>
Prepaid expenses .................. $ 913 $ 3,106
Real estate owned ................. 460 1,805
Investment in joint venture ....... 1,739 1,707
Hedge deposits .................... 589 4,356
Notes receivable .................. -- 1,003
Net deferred tax asset ............ 2,721 --
Other ............................. 715 993
------- -------
$ 7,137 $12,970
======= =======
</TABLE>

In March 1996, the Company entered into an agreement to form a joint
venture (Preferred Mortgages Limited) in the United Kingdom to originate and
purchase mortgages made to borrowers who may not otherwise qualify for
conventional loans for the purpose of securitization and sale. The Company and a
second party each own 45% of the joint venture, and a third party owns the
remaining 10%. The original investment in the joint venture represents the
acquisition of 675,000 shares of the joint venture stock for $1,032 and a note
receivable from the joint venture for $1,032. Additionally, at December 31, 1996
and December 31, 1997, the Company had loaned to the joint venture $528 and
$1,781, respectively. The note and loan bear interest at 3% per annum above
LIBOR. Principal repayment on the note is to begin when the joint venture's
Board of Directors determine the joint venture has sufficient available profits.
The loan is due upon demand. To the extent not previously repaid, all principal
is due December 31, 2040. The investment in the joint venture is accounted for
under the equity method and is included in other assets.

68
<PAGE> 71

IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

7. SERVICING PORTFOLIO

The total servicing portfolio of loans was approximately $536 million,
$2.1 billion, and $7.0 billion at December 31, 1995, 1996 and 1997,
respectively.

8. INTEREST-ONLY AND RESIDUAL CERTIFICATES

Activity in interest-only and residual certificates consisted of the
following:

<TABLE>
<CAPTION>
For the year ended
December 31,
--------------------------
1996 1997
---- ----

<S> <C> <C>
Balance, beginning of year ........ $ 14,073 $ 86,247
Additions ......................... 77,011 384,971
Cash receipts ..................... (4,837) (247,912)
--------- ---------
Balance, end of year .............. $ 86,247 $ 223,306
========= =========
</TABLE>

Cash receipts include gross receipts of approximately $232,444 from the
sale, on a non-recourse basis of certain interest-only and residual
certificates. The sale was effected through a securitization (the "Excess
Cashflow Securitization") by which the Company sold interest-only and residual
certificates that had an estimated net book value of approximately $266,571 and
received net cash proceeds equal to approximately 85% of the estimated net book
value and a subordinated residual certificate for the remaining balance. The
Company did not recognize any gain or loss as a result of the Excess Cashflow
Securitization, although costs of the transaction of approximately $4,870 were
expensed as incurred. The Company used the net proceeds to retire or reduce
certain term debt.

9. PROPERTY, FURNITURE, FIXTURES AND EQUIPMENT

Property, furniture, fixtures and equipment consists of the following:

<TABLE>
<CAPTION>
December 31,
-----------------------
1996 1997
---- ----
<S> <C> <C>
Building ............................... $ -- $ 5,113
Computer systems ....................... 1,089 4,430
Office equipment ....................... 589 3,603
Furniture .............................. 485 3,465
Leasehold improvements ................. 29 512
Other .................................. 4 335
-------- --------
Total ............................ 2,196 17,458
Less accumulated depreciation........... (519) (2,574)
-------- --------
Property, furniture, fixtures and
equipment, net ...................... $ 1,677 $ 14,884
======== ========
</TABLE>

Depreciation expense was $143, $317, and $1,547 for 1995, 1996 and
1997, respectively.

69
<PAGE> 72

IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

10. INCOME TAXES

The Partnership which is included in the consolidated financial
statements became a wholly owned subsidiary of the Company after the plan of
exchange described in Note 1 was consummated. The Partnership made no provision
for income taxes since the Partnership's income or losses were passed through to
the partners individually. The Partnership became subject to income taxes as of
June 24, 1996, the effective date of the exchange, and began accounting for the
effect of income taxes under SFAS No. 109, "Accounting for Income Taxes," on
that date. Taxable income for 1996 is calculated on the days method whereby the
previous partners are responsible for the tax liability generated through June
24, 1996.

The components of the provision for income taxes allocable to the
Company consist of the following:

<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Current income tax expense:
Federal ............................ $ 5,713 $ 13,070
State .............................. 1,214 2,776
-------- --------
6,927 15,846
-------- --------
Deferred income tax expense:
Federal ............................ 725 11,262
State .............................. 154 2,392
-------- --------
879 13,654
-------- --------
Non-recurring benefit associated with the
conversion of Partnership to C
Corporation .............................. (3,600) --
-------- --------
Total provision for income taxes ............ $ 4,206 $ 29,500
======== ========
</TABLE>

Total provision for income taxes differs from the amount which would be
provided by applying the statutory federal income tax rate to income
before income taxes as indicated below:

<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Income tax at federal statutory rate ....................... $ 10,192 $ 27,100
State income taxes, net of federal benefit ................. 1,310 3,484
Non-recurring benefit associated with the conversion
of the Partnership to a C Corporation .................. (3,600) --
Goodwill amortization ...................................... -- 817
Other, net ................................................. (312) (1,901)
Effect of applying statutory federal and state income
tax rates to partnership income ........................ (3,384) --
-------- --------
Total provision for income taxes .................. $ 4,206 $ 29,500
======== ========
</TABLE>

70
<PAGE> 73

IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

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

<TABLE>
<CAPTION>
1996 1997
----- ----
<S> <C> <C>
Deferred tax assets:
Stock warrants ............................. $ 3,003 $ 2,403
Allowance for loan losses .................. 435 5,095
Interest-only and residual certificates .... 853 3,722
Deferred fees .............................. 141 3,269
Joint venture .............................. 320 1,037
Mortgage servicing rights .................. 204 1,700
Other ...................................... 105 365
Deferred tax liabilities:
Interest-only and residual certificates .... (1,228) (27,110)
Mortgage servicing rights .................. (934) (834)
Other ...................................... (178) (580)
-------- --------
Net deferred tax asset (liability) ......... $ 2,721 $(10,933)
======== ========
</TABLE>

11. FINANCIAL INSTRUMENTS AND OFF BALANCE SHEET ACTIVITIES

FINANCIAL INSTRUMENTS

SFAS No. 105 "Disclosure of Information about Financial Instruments
with Off-Balance Sheet Risks and Financial Instruments with Concentrations of
Credit Risk" and SFAS No. 119, "Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments" require disclosure of the
notional amount or contractual amounts of financial instruments.

The Company regularly securitizes and sells fixed and variable rate
mortgage loan receivables. As part of its interest rate risk management
strategy, the Company may choose to hedge its fixed rate interest rate risk
related to its mortgage loans held for sale by utilizing treasury securities.
The Company classifies these transactions as hedges. The gains and losses
derived from these financial securities are deferred and included in the
carrying amounts of the mortgage loans held for sale and ultimately recognized
in income when the related mortgage loans are sold. Deferred losses on the
United States Treasury securities used to hedge the anticipated transactions
amounted to approximately $1,571, and $2,738 at December 31, 1996 and 1997,
respectively.

MARKET RISK

The Company is subject to market risk from financial instruments,
including interest-only and residual certificates and short sales of treasury
securities, in that changes in market conditions can unfavorably affect the
market value of such contracts.

71
<PAGE> 74

IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

FAIR VALUES OF FINANCIAL INSTRUMENTS

SFAS No. 107, "Disclosures about Fair Values of Financial Instruments,"
requires disclosure of fair value information about financial instruments,
whether or not recognized in the financial statements, for which it is
practicable to estimate that value. In cases where quoted market prices are not
available, fair values are based upon estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and the estimated future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. SFAS No. 107 excludes certain
financial instruments and all non-financial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts do not represent the
underlying value of the Company.

The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate the value:

Cash and cash equivalents: The carrying amount of cash and cash
equivalents is considered to be a reasonable estimate of fair market
value.

Accrued interest receivable and accounts receivable: The carrying
amounts are considered to approximate fair value. All amounts that are
assumed to be uncollectible within a reasonable time are written off.

Securities purchased under agreements to resell and securities
sold but not yet purchased: The carrying amounts approximate fair value
as these amounts are short-term in nature and bear market rates of
interest.

Mortgage loans held for sale: The estimate of fair values is based
on current pricing of whole loan transactions that a purchaser
unrelated to the seller would demand for a similar loan. The fair value
of the mortgage loans held for sale approximated $932,000 and
$1,732,000 at December 31, 1996 and 1997, respectively.

Warehouse financing due from correspondents: The carrying amounts
are considered to approximate fair value as the amounts are short term
in nature and bear market rates of interest.

Interest-only and residual certificates: The fair value is
determined by discounting the estimated cash flow over the life of the
certificate using prepayment, default, and interest rate assumptions
that market participants would use for similar financial instruments
subject to prepayment, credit and interest rate risk. The carrying
amount is considered to be a reasonable estimate of fair market value.

Warehouse finance facilities, term debt and notes payable: The
warehouse finance facilities have maturities of less than one year and
bear interest at market interest rates and, therefore, the carrying
value is a reasonable estimate of fair value. The carrying amount of
outstanding term debt and notes payable, which bear market rates of
interest, approximates fair value.

72
<PAGE> 75

IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

CREDIT RISK

The Company uses securities purchased under agreements to resell as
part of its interest rate management strategy. These instruments expose the
Company to credit risk which is measured as the loss the Company would record if
counterparties failed to perform pursuant to the terms of their contractual
obligations and the value of the collateral held, if any, was not adequate to
cover such losses. The Company's policy is to keep the securities at the
financial institution which instituted the trade on behalf of the Company. The
Company monitors the market value of the assets acquired to ensure their
adequacy as compared to the amount at which the securities will be resold. The
interest rate of these instruments depends upon, among other things, the
underlying collateral, the term of the agreement and the credit quality of the
counterparty. The Company transacts these resale agreements with institutional
broker/dealers.

The Company is a party to financial instruments with off-balance sheet
credit risk in the normal course of business. These financial instruments
include commitments to extend credit to borrowers and commitments to purchase
loans from correspondents. The Company has a first or second lien position on
all of its loans, and the maximum combined loan-to-value ratio ("CLTV")
permitted by the Company's underwriting guidelines is 100%. The CLTV represents
the combined first and second mortgage balances as a percentage of the lesser of
appraised value or the selling price of the mortgaged property, with the
appraised value determined by an appraiser with appropriate professional
designations. Loans with CLTV in excess of 100% are sometimes originated or
purchased, but generally only if a prior "take-out" commitment for such loans is
obtained. The Company has not included any loans with CLTV in excess of 100% in
its securitization pools to date. A title insurance policy is required for all
loans.

As of December 31, 1996 and 1997, the Company had outstanding
commitments to extend credit at fixed rates or purchase loans in the amounts of
$121,000 and $515,000, respectively. Commitments to extend credit or to purchase
a loan are granted for a period of thirty days and are contingent upon the
borrower and the borrower's collateral satisfying the Company's underwriting
guidelines. Since many of the commitments are expected to expire without being
exercised, the total commitment amount does not necessarily represent future
cash requirements or future credit risk.

The Company is exposed to on-balance sheet credit risk related to its
mortgage loans held for sale and interest-only and residual certificates.

Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and cash equivalents,
mortgages held for sale, securities purchased under agreements to resell, and
securities sold but not yet purchased. The Company places its cash and cash
equivalents with what management believes to be high-quality financial
institutions and thereby limits its exposure to credit risk. As of December 31,
1996 and 1997, a significant amount of mortgage loans with on balance sheet and
off balance sheet risks were collateralized by properties located in the
mid-atlantic region of the United States.

73
<PAGE> 76

IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

WAREHOUSE EXPOSURE

The Company makes available to certain correspondents warehouse
financing which bear interest at rates ranging from 1.75% to 2.50% per annum in
excess of LIBOR. As of December 31, 1997 the Company had $44,500 of committed
warehousing available to these correspondents, of which $25,912 was outstanding.
There was $5,045 outstanding as of December 31, 1996 under warehouse facilities
due from correspondents. Interest income on these warehouse financing facilities
were $23, $191, and $1,525 for 1995, 1996, and 1997, respectively. The warehouse
commitments are for terms of less than one year. Mortgage loans originated by
the correspondents remain in the warehouse for a period of 30 days at which
point the mortgage loans are either purchased by the Company or sold to another
investor. At December 31, 1997, $8,000 of committed warehouse financing was
available to a director and stockholder of the Company, and no amounts were
outstanding under the warehouse financing facility at December 31, 1997.

12. EMPLOYEE BENEFIT PLANS

DEFINED CONTRIBUTION PLANS

The Company adopted a defined contribution plan (401(k)) for all
eligible employees during August 1995. Additionally, the Company assumed many
401(k) plans of acquired subsidiaries and merged these plans into the Company's
plan. Contributions to the plan are in the form of employee salary deferrals
which may be subject to an employer matching contribution up to a specified
limit at the discretion of the Company. The Company's contribution to the plan
amounted to $107, $277 and $960 for 1995, 1996 and 1997, respectively.

The Company's subsidiary, National Lending Center, Inc. ("National
Lending Center"), sponsors a 401(k) plan for eligible employees. National
Lending Center's policy is to match 25% of the first 6% of employees'
contributed amounts. Contributions to the plan included in the accompanying
Consolidated Statement of Operations for the year ended December 31, 1997 were
approximately $24.

STOCK AWARD PLANS

Effective October 1997, the Company adopted the Executive Officer
Unregistered Stock Plan (the "Executive Officer Plan") and the Vice-Presidents'
Unregistered Stock Plan (the "Vice Presidents' Plan") which provide compensation
for certain officers of the Company in the form of unregistered shares of the
Company's common stock. Under the Executive Officer Plan, if the Company
achieves an increase in net earnings per share for two consecutive years of 10%
or more, eligible participants receive a grant of fully-vested unregistered
shares of the Company's common stock at the end of each fiscal year beginning in
1997. The number of unregistered shares granted to each participant equals the
officer's base salary divided by the closing price of the Company's common stock
on the last calendar day of the year. Each participant also receives a cash
payment equal to the income tax benefit the Company obtains from the issuance of
the common stock. Shares of unregistered stock granted under the Executive
Officer Plan for the year ended December 31, 1997 totaled 104,463, resulting in
compensation expense of $2,981.

Under the Vice-Presidents' Plan, certain vice-presidents as determined
by the Compensation Committee of the Board of Directors may receive a grant of
unregistered shares of the Company's common stock at the end of each

74
<PAGE> 77

IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

fiscal year beginning with the year ending December 31, 1997. The number of
unregistered shares granted to each designated vice-president shall equal such
vice-president's base salary at the year end divided by the closing price for
the Company's common stock on the last day of the fiscal year. The unregistered
shares granted to each vice-president vest over a three year period with
one-third vesting immediately, and an additional one-third vesting on the last
day of each of the next two fiscal years so long as the vice-president is still
employed by the Company on such date. No unregistered shares were granted under
the Vice-Presidents' Plan during the year ended December 31, 1997.

STOCK OPTION PLANS

On December 11, 1995, the Partnership adopted the Partnership Option
Plan pursuant to which the Partnership was authorized to grant certain key
employees, directors of the General Partner and certain non-employee advisors
(collectively, "Eligible Persons") options to acquire an equity interest in the
Partnership. In April 1996, the Company adopted the Company Incentive Plan and
the Directors Stock Option Plan. All options granted under the Partnership
Option Plan were assumed by the Company pursuant to the Company Incentive Plan
and the Directors Stock Option Plan. The aggregate equity interest in the
Company available under the Company Incentive Plan and the Director Stock Option
Plan is not to exceed 12% of all equity interests in the Company as of the date
the plan was adopted.

In July 1997, the Company adopted the IMC Mortgage Company 1997
Incentive Plan (the "1997 Incentive Plan") pursuant to which the Company is
authorized to grant to eligible employees options to purchase shares of common
stock of the Company. The 1997 Incentive Plan provides that options to acquire a
maximum of 250,000 shares may be granted thereunder at exercise prices of not
less than 100% of the fair market value of the common stock at the date of each
grant. Such options expire ten years after the date of grant. At December 31,
1997, no options had been granted under the 1997 Incentive Plan.

The Company applies APB 25 and related interpretations in accounting
for its plans. SFAS 123 was issued by the FASB in 1995 and, if fully adopted,
changes the method for recognition of cost on plans similar to those of the
Company. The Company has adopted the disclosure alternative established by SFAS
123. Therefore pro forma disclosures as if the Company adopted the cost
recognition requirements under SFAS 123 are presented below.

The Company's stock option plans provide primarily for the granting of
nonqualified stock options to certain key employees, non-employee directors and
non-employee advisors. Generally, options outstanding under the Company's stock
option plans: (1) are granted at prices which are equal to the market value of
the stock on the date of grant, (2) vest at various rates over a three or five
year period and (3) expire ten years subsequent to award.

75
<PAGE> 78

IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

A summary of the status of the Company's stock options as of December
31, 1995, 1996 and 1997 and the changes during the year is presented below:

<TABLE>
<CAPTION>
1995 1996 1997
---------------------- --------------------- ----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year ................. 0 1,150,866 $ 2.35 1,511,168 $4.18
Granted .......................................... 1,150,866 $2.35 360,302 $10.00 354,596 $4.94
Exercised ........................................ 0 0 401,103 $3.77
Canceled ......................................... 0 0 0
---------- ---------- ----------
Outstanding at end of year ....................... 1,150,866 $2.35 1,511,168 $ 4.18 1,464,661 $3.59
========== ========== ==========
Options exercisable at end of year ............... 690,520 1,010,456 1,258,820
========== ========== ==========
Options available for future grant ............... 894,588 534,286 179,690
========== ========== ==========
Weighted average fair value of options granted
during year .................................. $ 1.10 $ 5.75 $ 5.92
========== ========== ==========
</TABLE>

The fair value of each option granted during 1996 is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
assumptions: (1) dividend yield of zero, (2) expected volatility of 54%, (3)
risk-free interest rate of 5.5% and (4) expected life of 1.3 years.

The 1996 grants included 120,000 employee option shares granted at
exercise prices less than the market price of the stock on the date of grant.
The exercise price of the options, market price of the common shares at grant
date and estimated fair value of such options at grant date were $8.00, $12.00
and $8.11 per share, respectively. The Company records compensation expense for
such grants over their vesting periods in accordance with APB 25. Such expense
totaled approximately $40 and $96 in 1996 and 1997.

The 1996 grants also include 20,000 option shares, which were granted
to advisors to the Company at exercise prices equal to the market price of the
stock at grant date. Expense representing the estimated fair value of such
grants of approximately $20 and $57 has been recognized in 1996 and 1997 under
the provisions of SFAS 123.

The Company assumed the stock option plan of its acquired subsidiary,
Mortgage America, Inc. ("Mortgage America"), in accordance with the terms of the
purchase agreement. On January 1, 1997, the effective date of the acquisition,
the fully vested outstanding options under the Mortgage America stock option
plan were converted to fully-vested options to acquire 334,596 shares of the
Company's common stock (see Note 3). The exercise price of the options and
market price of the common stock at the acquisition date were $4.19 and $16.75,
respectively.

76
<PAGE> 79

IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

The following table summarizes information about stock options
outstanding at December 31, 1997:

<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------- ---------------------------
Weighted Number
Number average Weighted exercisable at Weighted
outstanding at remaining average December average
December 31, contractual exercise 31, exercise
1997 life price 1997 price
---- ---- ----- ---- -----
<S> <C> <C> <C> <C> <C>
Range of exercise prices
$2.35 .................... 1,009,463 8.0 $ 2.35 1,009,463 $ 2.35
$4.00 to $8.00 ........... 385,198 8.6 $ 7.02 233,492 $ 6.39
$12.00 to $20.25 ......... 70,000 8.8 $14.14 15,865 $13.63
--------- ---------
Total ........... 1,464,661 8.2 $ 4.14 1,258,820 $ 3.24
========= =========
</TABLE>

Had compensation cost for the Company's 1995, 1996, and 1997 grants for
stock-based compensation plans been determined consistent with SFAS 123, the
Company's pro forma net income and pro forma net income per common share for
1995 and 1996 and net income and net income per common share for 1997 would
approximate the pro forma amounts below.

<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1995 December 31, 1996 December 31, 1997
-------------------------- -------------------------- -------------------------
As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma
----------- --------- ----------- --------- ----------- ---------
(In millions except per share data)
<S> <C> <C> <C> <C> <C> <C>
Pro forma (actual for 1997) net income ... $ 4.0 $ 3.6 $ 17.9 $ 17.3 $ 47.9 $ 47.5
Pro forma (actual for 1997) basic earnings
per share ............................. $ 0.34 $ 0.30 $ 1.12 $ 1.08 $ 1.76 $ 1.74
Pro forma (actual for 1997) diluted
earnings per share .................... $ 0.34 $ 0.30 $ 0.92 $ 0.88 $ 1.54 $ 1.52
</TABLE>

The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. There were no awards prior to 1995 and additional
awards in future years are anticipated.

13. COMMITMENTS AND CONTINGENCIES

INDUSTRY PARTNERS INCENTIVE PLAN

As of December 31, 1997, a majority of the Partners were required to
sell to the Company on prevailing market terms and conditions, an aggregate of
$126.0 million of home equity loans per year. Loans purchased from Partners
during 1995, 1996 and 1997 approximated $148,420, $337,505, and $399,749,
respectively. In 1996, the Company created an incentive plan (the "Industry
Partners Incentive Plan") to encourage partners to sell more mortgage loans to
the Company than required under their commitments. Under that Plan, options
exercisable for five years after grant to acquire a total of 20,000 shares of
Common Stock at $9.00 per share were awarded to Partners for the quarter ending
September 30, 1996. The market price of the stock at date of grant was $16.00
per share. The 20,000 options were allocated among those Partners that doubled
their commitments, pro rata, to the extent the Partners exceeded that doubled
commitment for the quarter. The plan was amended and, for each quarter beginning
December 31, 1996,

77
<PAGE> 80

IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

Industry Partners that double their commitments will be eligible to receive on a
pro rata basis fully paid shares of common stock equal to $105 divided by the
market price of the common stock at the end of each quarter. The fully paid
shares of common stock will be issued among those Industry Partners that double
their commitments, pro rata, to the extent the Industry Partner exceeded its
doubled commitment for the quarter. The Industry Partners Incentive Plan
continues through the quarter ended June 30, 2000. Expense recorded under the
plan in 1996 and 1997 amounted to approximately $257 and $252, respectively.

OPERATING LEASES

The Company leases office space and various office equipment under
operating lease agreements. Rent expense under operating leases was $363, $753,
and $4,090 in 1995, 1996, and 1997.

Future minimum lease payments under noncancellable operating lease
agreements at December 31, 1997 are as follows:

<TABLE>
<CAPTION>
Years Ending
December 31,
------------

<S> <C>
1998................................. $ 5,775
1999................................. 5,330
2000................................. 3,648
2001................................. 2,645
2002................................. 2,671
-------

$20,069
=======
</TABLE>

EMPLOYMENT AGREEMENTS

Certain members of management entered into employment agreements
expiring through 2001 which, among other things, provide for aggregate annual
compensation of approximately $1,241 plus bonuses ranging from 5% to 15% of base
salary in the relevant year for each one percent by which the increase in net
income on an earnings per share basis of the Company over the prior year exceeds
10%, up to a maximum of 300% of annual compensation. Each employment agreement
contains a restrictive covenant which prohibits the executive from competing
with the Company for a period of 18 months after termination.

SECURITIES SOLD BUT NOT YET PURCHASED

Securities sold but not yet purchased represent obligations of the
Company to deliver specified financial instruments at contracted prices, thereby
creating commitments to purchase the financial instruments in the market at
prevailing prices. Consequently, the Company's ultimate obligation to satisfy
the sale of financial instruments sold but not yet purchased may exceed the
amounts recognized in the consolidated balance sheet.

78
<PAGE> 81

IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

LEGAL PROCEEDINGS

The Company is party to various legal proceedings arising out of the
ordinary course of its business. Management believes that none of these matters,
individually or in the aggregate, will have a material adverse effect on the
consolidated financial condition or results of operations of the Company.

14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
Fiscal Quarter
-----------------------------------------------
1997 First Second Third Fourth
---- ----- ------ ----- ------

<S> <C> <C> <C> <C>
Revenues .................................... $38,421 $49,773 $73,729 $76,836
Net income .................................. $ 8,939 $10,711 $13,468 $14,811
Basic earnings per share .................... $ 0.41 $ 0.41 $ 0.45 $ 0.48
Diluted earnings per share .................. $ 0.34 $ 0.36 $ 0.40 $ 0.43

1996
----
Revenues .................................... $11,456 $14,285 $19,766 $20,147
Pro forma net income (actual for
third and fourth quarters) ................ $ 1,625 $ 3,653 $ 6,052 $ 6,599
Pro forma basic earnings per share
(actual for third and fourth quarters) ... $ 0.13 $ 0.29 $ 0.31 $ 0.34
Pro forma diluted earnings per share
(actual for third and fourth quarters).... $ 0.13 $ 0.22 $ 0.26 $ 0.28
</TABLE>

79
<PAGE> 82

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

None.

80
<PAGE> 83

PART III.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The Company incorporates by reference herein information in its proxy
statement, which complies with the information called for by Item 10 of the Form
10-K. The proxy will be filed at a later date, that is not more than 120 days
after the end of the Company's 1997 fiscal year, with the Commission.

ITEM 11. EXECUTIVE COMPENSATION

The Company incorporates by reference herein information in its proxy
statement, which complies with the information called for by Item 11 of the Form
10-K. The proxy will be filed at a later date, that is not more than 120 days
after the end of the Company's 1997 fiscal year, with the Commission.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

81
<PAGE> 84

PART IV.

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

(a) Documents filed as part of this Report.
(1) Financial Statements
See Item 8. "Financial Statements and Supplementary Data"
(2) Financial Statement Schedules
No Financial Statement Schedules are included because of the
absence of the conditions under which they are required or because
the information is included in the financial statements or notes
thereto.
(3) Exhibits
The exhibits are listed on the Exhibit Index attached hereto.

(a) Reports filed on Form 8-K.
None.

(b) Exhibits.
See (a) (3) above.

82
<PAGE> 85

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Annual Report on Form 10-K to be signed by
the undersigned, thereunto duly authorized.

IMC MORTGAGE COMPANY

By /S/ THOMAS G. MIDDLETON
----------------------------------
THOMAS G. MIDDLETON,
PRESIDENT

Pursuant to the requirements of the Securities Exchange Act of 1934,
this Annual Report on Form 10-K has been signed by the following persons on
behalf of the registrant and in the capacities indicated on March 31, 1998.

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----

<S> <C>
/s/ GEORGE NICHOLAS Chairman of the Board and Chief Executive
- --------------------------------- Officer (Principal Executive Officer)
(GEORGE NICHOLAS)

/s/ STUART D. MARVIN Chief Financial Officer (Principal Accounting
- --------------------------------- Officer and Principal Financial Officer)
(STUART D. MARVIN)

/s/ MITCHELL W. LEGLER Director
- ---------------------------------
(MITCHELL W. LEGLER)

/s/ THOMAS G. MIDDLETON Director
- ---------------------------------
(THOMAS G. MIDDLETON)

</TABLE>

83
<PAGE> 86

EXHIBIT INDEX

<TABLE>
<S> <C>
2.1 - Pre-IPO Agreement between the Partnership, the General Partners and
each Limited Partner.*
3.1 - Articles of Incorporation of the Registrant, as amended*
3.2 - Bylaws of the Registrant, as amended.*
4.1 - Specimen of Certificate for Common Stock.*
4.2 - Indenture Agreement between the Partnership and ContiTrade Services
Corporation.*
4.3 - Substitution Agreement between the Partnership and ContiTrade
Services Corporation.*
4.4 - Incentive Plan of the Company and related assumption agreements.*
4.5 - Outside Directors' Option Plan of the Company and related assumption
agreements.*
4.6 - Form of Common Stock Warrant issued to ContiTrade Services
Corporation.*
10.1 - Employment Agreement dated January 1, 1996 between the Partnership
and George Nicholas, as amended.*
10.2 - Employment Agreement dated January 1, 1996 between the Partnership
and Thomas G. Middleton, as amended.*
10.3 - Employment Agreement dated January 1, 1996 between the Partnership
and David MacDonald.*
10.4 - Lease Agreements between the Partnership and CLW Realty Asset Group,
Inc.*
10.5 - Share Subscription and Shareholders' Agreement between the
Partnership and Foxgard Limited, Financial Security Assurance Holdings,
Inc. and Preferred Mortgages Limited.*
10.6 - Transfer Agreement between the Partnership and Curzon Equity Finance
Corporation Limited, Preferred Mortgages Limited, Rotch Property Group
Limited, Foxgard Limited and Financial Security Assurance Holdings,
Inc.*
10.7 - Side letter relating to the Share Subscription and Shareholders'
Agreement between the Partnership and Foxgard Limited, Financial
Security Assurance Holdings, Inc. and Preferred Mortgage Limited.*
10.8 - Asset Purchase Agreement and Plan of Reorganization between the
Partnership, IMC Acquisition, Inc., Mortgage Central Corp. and the
shareholders of Mortgage Central Corp.*
10.9 - Registration Rights Agreement between the Partnership and the
shareholders of Mortgage Central Corp.*
10.10 - Investment Banking Services Agreement between the Partnership and
ContiTrade Services Corporation.*
10.11 - Standby Facility Agreement between the Partnership and ContiTrade
Services Corporation and Supplement hereto.*
10.12 - Amended and Restated Loan and Security Agreement between the
Partnership and ContiTrade Services Corporation.*
10.13 - Secured Note from the Partnership to ContiTrade Services
Corporation.*
10.14 - Amended and Restated Custodial Agreement among the Partnership,
ContiTrade Services Corporation and Bank of Boston.*
10.15 - 1995 Agreement between the Partnership and ContiTrade Services
Corporation.*
10.16 - Assignment, Assumption and Consent Agreement among the Partnership,
ContiTrade, ContiTrade Services LLC and First National Bank of Boston.*
10.17 - Master Repurchase Agreement Governing Purchase and Sales of Mortgage
Loans between the Partnership and Nomura Asset Capital Corporation and
related Power of Attorney.*
10.18 - Master Repurchase Agreement between the Partnership and Nomura
Securities International, Inc.*
10.19 - Global Master Repurchase Agreement between the Partnership and Nomura
Grand Cayman, Ltd.*
10.20 - Custodial Agreement among the Partnership, the First National Bank of
Boston and Nomura Asset Capital Corporation.*
10.21 - Loan and Security Agreement between the Partnership and First
National Bank of Boston and amendments thereto.*
10.22 - Interim Loan and Security Agreement between the Partnership and
National Westminster Bank PLC, New York Branch.*
10.23 - Custodial Agreement among the Partnership, National Westminster Bank
PLC and First National Bank of Boston.*
</TABLE>

84
<PAGE> 87

<TABLE>
<S> <C>
10.24 - Promissory Note between the Partnership and Lakeview Savings Bank.*
10.25 - Security Agreement Collateralizing Promissory Note between the
Partnership and Lakeview Savings Bank.*
10.26 - Master Repurchase Agreement among the Partnership and Bear Stearns
Home Equity Trust 1996-1.*
10.27 - Custody Agreement among the Partnership, IMC Corporation of America,
Bear Stearns Home Equity Trust 1996-1 and Bank of Boston.*
10.28 - Warehousing Credit and Security Agreement among the Partnership, IMC
Corporation of America and Residential Funding Corporation, as
amended.*
10.29 - Custodial Agreement among the First National Bank of Boston, the
Partnership, IMC Corporation of America and Residential Funding
Corporation.*
10.30 - Loan and Security Agreement between the Partnership and Approved
Financial Corp., Approved Residential Mortgage, Inc. and Armada
Residential Mortgage, LLC.*
10.31 - Loan and Security Agreement between the Partnership and Mortgage
Central Corp.*
10.32 - Custodial Agreement among the Partnership, Mortgage Central Corp. and
the First National Bank of Boston.*
10.33 - Custodial Agreement among the Partnership, American Industrial Loan
Association, Approved Residential Mortgage, Inc., Armada Residential
Mortgage, LLC and the First National Bank of Boston.*
10.34 - Employment Agreement dated August 1, 1996 between the Registrant and
Stuart D. Marvin.**
10.35 - Asset Purchase Agreement and Plan of Reorganization between the
Registrant, Mortgage America, Inc. and the shareholders of Mortgage
America, Inc.***
10.36 - First Amendment to the Asset Purchase Agreement and Plan of
Reorganization between the Registrant, Mortgage America, Inc. and the
shareholders of Mortgage America, Inc.***
10.37 - Form of Registration Rights Agreement between the Registrant and the
Shareholders of Mortgage America, Inc.***
10.38 - Agreement and Plan of Reorganization between the Registrant, CWB
Acquisitions, Inc., CoreWest Banc and the shareholders of CoreWest
Banc.***
10.39 - Registration Rights Agreement between the Registrant and the
shareholders of CoreWest Banc.***
10.40 - Form of Amended and Restated Loan Agreement between the Registrant,
the Partnership, IMC Corporation of America and Nomura Asset Capital
Corporation.***
10.41 - Form of Custodial Agreement between the Registrant, the Partnership,
IMC Corporation of America, Nomura Asset Capital Corporation and
LaSalle National Bank.***
10.42 - Form of Loan and Security Agreement among the Registrant, the
Partnership and The First National Bank of Boston.***
10.43 - Form of Asset Purchase Agreement between the Registrant, American
Mortgage Reduction, Inc., and the Shareholders of American Mortgage
Reduction, Inc.***
10.44 - Form of Asset Purchase Agreement between the Registrant and Equity
Mortgage Co., Inc.***
10.45 - Employment Agreement dated as of January 1, 1997 between the
Registrant and Mark J. Greenberg.***
10.46 - Form of Warehouse Security Agreement among the Registrant, the
Partnership and GE Capital Mortgage Services, Inc.***
10.47 - Form of Warehouse Credit Agreement among the Registrant, the
Partnership and GE Capital Mortgage Services, Inc.***
10.48 - Loan and Security Agreement among the Registrant, IMC Corporation of
America, the Partnership, IMC Investment Corp., CoreWest Banc and Paine
Webber Real Estate Securities Inc.***
10.49 - IMC Mortgage Company 1997 Incentive Plan.****
10.50 - IMC Mortgage Company Executive Officer Unregistered Stock Plan.
10.51 - IMC Mortgage Company Vice President Unregistered Stock Plan.
10.52 - First Amendment to Employment Agreement dated August 1, 1996 between
the Registrant and Stuart D. Marvin.
11.1 - Statement re computation of earnings per share (See Note 2 of the
Notes to the Consolidated Financial Statements).
</TABLE>

85
<PAGE> 88

<TABLE>
<S> <C>
16.1 - Letter dated April, 1996 from Deloitte & Touche, LLP to the
Registrant.*
21.1 - Subsidiaries of the Registrant.
27.1 - Financial Data Schedule.
99.1 - Third Amended and Restated Agreement of Limited Partnership.*
</TABLE>

- ----------------
Confidential treatment granted with respect to certain provisions.
* Incorporated by reference to the same exhibit to the Registrant's
Registration Statement on Form S-1 declared effective by the Securities
and Exchange Commission on June 25, 1996 (Registration No. 333-3954).
** Incorporated by reference to Exhibit 1 to Registrant's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1996.
*** Incorporated by reference to the same exhibit to the Registrant's
Registration Statement on Form S-1 (Registration No. 33-21823) filed by
the Company with the Commission.
**** Incorporated by reference to the Registrant's Proxy Statement dated
June 12, 1997.

<PAGE> 1

EXHIBIT 10.50

IMC MORTGAGE COMPANY

EXECUTIVE OFFICER UNREGISTERED STOCK PLAN

1. PURPOSE

The purpose of this Executive Officer Unregistered Stock Plan is to
advance the interests of the Company by encouraging and enabling the acquisition
of a larger personal proprietary interest in the Company by certain of the
Company's officers upon whose judgment and keen interest the Company is largely
dependent for the successful conduct of its operations and to provide an
enhanced incentive for those officers to focus on the value of the Company's
common stock in the public markets.. It is anticipated that the acquisition of
such proprietary interest in the Company will stimulate the efforts of such
officers on behalf of the Company and strengthen their desire to remain with the
Company.

2. DEFINITIONS

When used in this Plan, unless the context otherwise requires:

(1) "Board of Directors" shall mean the Board of Directors of the
Company, as constituted at any time.

(2) "Company" means IMC Mortgage Company, a Florida corporation.

(3) "Grant" means the issuance of Shares to a Participant under
the Plan.

(4) "Net Income Increase" means the excess of the Company's net
after-tax income calculated on an earnings per share basis for the year then
ended over the net after-tax income for the Company for the immediately
preceding year, expressed as a percentage of the prior years net after tax
income per share. Thus, if net after-tax earnings per share in one year is $1.20
and in the prior year is $1.00, the Net Income Increase would be 20%. All
calculations of Net Income increase shall be made without giving effect to the
impact on the Company's financial statements (i) of the value sharing
arrangements in the favor of Conti Trade Services Corporation and its affiliates
or (ii) of effect of any Grant under the Plan.

(5) "Participant" shall mean any one who is eligible to receive
Shares and who has been issued Shares pursuant to the Plan, as specified in
Section 3 hereof.

(6) "Plan" shall mean this 1997 Executive Officer Unregistered
Stock Plan of IMC Mortgage Company, as adopted by the Board of Directors at its
meeting held on September 9, 1997, as such Plan from time to time may be
amended. (1)

(7) "President" shall mean the person who at the time shall be the
President of the Company.

(8) "Relevant Year" shall mean each calendar year hereafter
beginning in 1997 until this Plan is terminated by its terms or by the Board of
Directors.

(9) "Share" shall mean a share of common stock of the Company, par
value $.01 per share.

87
<PAGE> 2

(10) "Share Market Value" means the closing price for a Share on
the stock exchange, if any, on which the Shares are primarily traded, but if no
Shares were traded on such date, then on the last previous date on which a Share
was so traded, or if Shares are not primarily traded on a stock exchange, the
average of the high and low sales prices at which one share is traded on the
over the counter market, as reported on the National Association of Securities
Dealers Automated Quotation System (NASDAQ), or, if none of the above is
applicable, the value of a Share as established by the Board of Directors for
such date using any reasonable method of valuation.

3. PARTICIPANTS

The Participants to whom Shares are issued under this Plan shall be the
Chairman and Chief Executive Officer, the President and Chief Operating Officer
and the Chief Financial Officer of the Company.

4. ISSUE OF SHARES - CONDITIONS

Each Relevant Year during the term of the Participants' employment with
the Company, the Participant will receive unregistered Shares so long as the
following conditions (the "Conditions") are both met:

A. Net Income Increase. The Net Income Increase is not
less than 10% for the Relevant Year and was not less
than 10% for the immediately preceding year during
the term of this agreement; and

B. Remain With Company. The Participants in question is
employed by the Company on the last day of the
Relevant Year.

5. NUMBER OF SHARES AWARDED

If the Conditions are met as to a Participant for the Relevant Year,
then effective on the January 30 next following the end of the Relevant Year,
the Participant will receive a Grant with the number of Shares issued pursuant
the Grant for the Relevant Year being calculated by dividing the Participant's
base compensation in effect as of the end of the Relevant Year by the Share
Market Value for the last trading day of the Relevant Year. The Grant shall be
fully vested and non-refundable upon receipt.

6. TAX BENEFIT

The Company will receive a tax benefit as a result of each Grant
hereunder and each Participant who receives a Grant will be required to pay
income taxes as to that Grant even though the Participant will not receive any
funds from the Grant to pay such taxes. Accordingly, to the extent the Company
expects to realize a reduction in its income taxes payable as a result of the
Grant, than an amount equal to that reduction in income taxes will be paid to
the Participant as a bonus payable at the time of the issuance of Shares to the
Participant pursuant to the Grant to aid the Participant in paying the
Participant's taxes created by such Grant. Each Participant, by accepting a
Grant, agrees to report taxable income equal to the deduction claimed by the
Company with respect to such Grant.

7. PAYMENT OF PAR VALUE

The Participant shall have thirty (30) business days from the date of
such issue of Shares pursuant to a Grant to pay to the Company, in cash or by
check, an amount equal to the par value of a Share multiplied by the number of
Shares which have been issued to him. Subject to the provisions of Section 9 and
Section 10, upon receipt of such payment the Company shall issue to such
Participant a certificate representing such Shares.

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<PAGE> 3

Each Share issued under the Plan shall be fully paid and non-assessable
and treated as any other outstanding Share.

8. NO RIGHT TO CONTINUED EMPLOYMENT

Nothing contained herein shall be construed to confer on any employee
any right to continue in the employ of the Company or any Subsidiary or confer
on any officer of the Company or Subsidiary any right to remain as such, or
derogate from any right of the Company and any Subsidiary to retire, request the
resignation or discharge such individual at any time, with or without cause.

9. ISSUANCE OF SHARES AND COMPLIANCE WITH SECURITIES LAWS

Each stock certificate representing Restricted Shares shall contain an
appropriate legend referring to the Plan and the necessity to comply with all
registration requirements under applicable securities laws, to use an exemption
therefrom, prior to any transfer of such Shares. Before issuing a certificate
with respect to any Shares, the Company may: (i) require the holder to give
satisfactory assurances that the Shares are being acquired for investment and
not with a view to resale or distribution, and will not be transferred in
violation of applicable securities laws; and (ii) restrict the transferability
of such Shares and require a legend to be endorsed on the certificates
representing the Shares.

10. INCOME TAX WITHHOLDING

If the Company shall be required to withhold any amounts by reason of
any federal, state or local tax rules or regulations in respect to the Grant
Shares pursuant to the Plan, the Company shall be entitled to deduct and
withhold such amounts from any cash payments to be made to the Participant. In
any event, the Participant shall make available to the Company, promptly when
requested by the Company, sufficient funds to meet the requirements of such
withholding and the Company shall be entitled to take and authorize such steps
as it may deem advisable in order to have such funds made available to the
Company or out of any funds or property due or to become due to the Participant.

The Participant may satisfy the obligation to pay such withholding tax
amounts, in whole or in by electing to have the Company withhold Shares or by
delivering Shares then owned by the Participant. The value of such Shares shall
be the Share Market Value on the date the amount of such withholding tax is to
be determined. Moreover, at the election of each Participant, which election may
be made in writing at any time during any calendar year, such Participant may
direct the Company to satisfy all or any part of such Participant's income tax
obligations arising from any compensation received from the Company for such
calendar year (or tax obligations created by surrendering Shares or options for
Shares to the Company pursuant to this Agreement), by surrendering Shares owned
by the Participant or by surrendering stock options for Shares held by the
Participant. In the event Shares or stock options for Shares are surrendered by
the Participant, than the value thereof to be used by the Company to satisfy
income tax obligations shall be (i) as to Shares, the Share Market Value on the
date of the delivery of such Shares by the Participant to the Company, and (ii)
as to options, the difference between the Share Market Value on the date the
Participant surrenders, in writing, such options and the exercise price for such
options surrendered.

11. ADMINISTRATION AND AMENDMENT OF THE PLAN

89
<PAGE> 4

be treated as the last day of the calendar year under the Plan so that the
Participants will receive a grant on such date, if eligible, and if all of the
conditions are satisfied (with the Net Income Increase calculated by comparing
the Company's earnings per share for the Relevant Year to date with the same
period of the prior year).

Determinations of the Board of Directors as to any questions which may
arise with respect to the interpretation of the provisions of the Plan or any
issue of Shares shall be final. The Board of Directors may authorize and
establish such rules, regulations and revisions thereof, not inconsistent with
the provisions of the Plan, as it may deem advisable to make the Plan and any
Shares issued thereunder effective or provide for their administration, and may
take such other action with regard to the Plan and any Shares issued thereunder,
as it shall deem desirable to effectuate their purpose.

12. FINAL ISSUANCE DATE

No Shares shall be issued under the Plan after January 30, 2007.

The undersigned president of the Company certifies that this Plan is
the Plan adopted by the Board of Directors of the Company on September 9, 1997.
This Plan is hereby executed this 3rd day of October, 1997.

/s/ THOMAS G. MIDDLETON
- -----------------------------------------------------------
Thomas M. Middleton, President of IMC Mortgage Company

<PAGE> 1

EXHIBIT 10.51

IMC MORTGAGE COMPANY

VICE-PRESIDENT UNREGISTERED STOCK PLAN

1. PURPOSE

2. DEFINITIONS

When used in this Plan, unless the context otherwise requires:

(1) "Board of Directors" shall mean the Board of Directors of the
Company, as constituted at any time.

(2) "Company" means IMC Mortgage Company, a Florida corporation.

(3) "Grant" means the issuance of Shares to a Participant under
the Plan.

(4)

(5) "Participant" shall mean any one who is eligible to receive
Shares and who has been issued Shares pursuant to the Plan, as specified in
Section 3 hereof.

(6) "Plan" shall mean this 1997 Vice-President Unregistered Stock
Plan of IMC Mortgage Company, as adopted by the Board of Directors at its
meeting held on September 9, 1997, as such Plan from time to time may be
amended.

(7) "President" shall mean the person who at the time shall be the
President of the Company.

(8) "Relevant Year" shall mean each calendar year hereafter
beginning in 1997 until this Plan is terminated by its terms or by the Board of
Directors.

(9) "Share" shall mean a share of common stock of the Company, par
value $.01 per share.

3. PARTICIPANTS

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<PAGE> 2

The Participants to whom Shares are issued under this Plan shall be
such Vice-Presidents of the Company as are designated by the Compensation
Committee of the Board from time to time as participants in the Plan.

4. ISSUE OF SHARES - CONDITIONS

Each Relevant Year during the term of the Participants' employment with
the Company, the Participant will receive unregistered Shares so long as the
following condition (the "Condition") is met: the Participants in question is
employed by the Company on the last day of the Relevant Year.

5. NUMBER OF SHARES AWARDED; VESTING

The Grant shall vest over three years with one-third of the Grant
vesting immediately, and an additional one-third vesting on each annual
anniversary of the last day of the Relevant Year so long as the Participant is
still employed by the Company on such anniversary. If any Participant leaves the
employment of the Company, for any reason, prior to any unvested Shares being
vested, then the unvested portion shall be forfeited. By way of example, if a
Participant receives a Grant of 9,000 shares at the end of a Relevant Year and
leaves the employ of the Company 18 months later, 6,000 of the Shares subject to
the Grant will be vested and the Participant will forfeit 3,000 of the Shares.

6. TAX BENEFIT

The Company will receive a tax benefit as a result of each Grant
hereunder as the Shares subject to such Grant vest, and each Participant who
receives a Grant will be required to pay income taxes as the Shares subject to
that Grant vest, even though the Participant will not receive any funds from the
Grant to pay such taxes. Accordingly, to the extent the Company expects to
realize a reduction in its income taxes payable as a result of the Grant, than
an amount equal to that reduction in income taxes will be paid to the
Participant as a bonus payable at the time of the issuance of Shares to the
Participant pursuant to the Grant to aid the Participant in paying the
Participant's taxes created by such Grant. Each Participant, by accepting a
Grant, agrees to report taxable income equal to the deduction claimed by the
Company with respect to such Grant.

7. PAYMENT OF PAR VALUE

Each Share issued under the Plan shall be fully paid and non-assessable
and treated as any other outstanding Share.

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<PAGE> 3

8. NO RIGHT TO CONTINUED EMPLOYMENT

9. ISSUANCE OF SHARES AND COMPLIANCE WITH SECURITIES LAWS

10. INCOME TAX WITHHOLDING

The Participant may satisfy the obligation to pay such withholding tax
amounts, in whole or in by electing to have the Company withhold Shares by
delivering Shares then owned by the Participant. The value of such Shares shall
be the Share Market Value on the date the amount of such withholding tax is to
be determined

11. ADMINISTRATION AND AMENDMENT OF THE PLAN

Except as hereinafter provided, the Board of Directors may at any time
withdraw or from time to time amend the Plan as it relates to, and the terms and
conditions of, any Shares not theretofore issued, and the Board of Directors may
terminate the Plan effective as to any calendar year following the year in which
the determination to terminate the Plan is communicated to the Participants;
provided, however, that in the event of a merger or acquisition of the Company
as a result of which the Company is not the survivor, the Plan shall terminate
on such event, but the day of such event shall be treated as the last day of the
calendar year under the Plan so that the Participants will receive a grant on
such date, if eligible, and if all of the conditions are satisfied (with the Net
Income Increase calculated by comparing the Company's earnings per share for the
Relevant Year to date with the same period of the prior year).

12. FINAL ISSUANCE DATE

No Shares shall be issued under the Plan after January 30, 2007.

The undersigned president of the Company certifies that this Plan is
the Plan adopted by the Board of Directors of the Company on September 9, 1997.
This Plan is executed this 3rd day of October, 1997.

/S/ THOMAS G. MIDDLETON
- -----------------------------------------------------------
Thomas M. Middleton, President of IMC Mortgage Company

<PAGE> 1

EXHIBIT 10.52

FIRST AMENDMENT TO EMPLOYMENT AGREEMENT

This First Amendment is entered into this 3rd day of October, 1997, by
and between IMC MORTGAGE COMPANY, a Florida corporation (the "Company"), and
STUART MARVIN ("Executive").

Recitals

A. The Company and the Executive have entered into an Employment
Agreement as of August 1, 1996 (which agreement is called the "Existing
Agreement").

B. The parties wish to amend the Existing Agreement so that
certain modifications in compensation due to the Executive as approved by the
Company's Board of Directors on September 9, 1997 and by the Company's Executive
Committee on September 26, 1997, are incorporated in the Employment Agreement
and to extend the term thereof until December 31, 2001.

Agreement

NOW THEREFORE, in consideration of the mutual benefits to be derived
herefrom, the parties hereto agree that the Existing Agreement is hereby
modified as follows:

1. Bonus Formula. The Bonus Compensation provisions of the
Existing Agreement are hereby modified to make the formula more consistent with
the formula applicable to the executive officers of the Company. Accordingly,
the first sentence of Section 4.2(b) is hereby amended to read as follows:

As "Bonus Compensation" each year, an amount calculated by
multiplying the Base Salary for the year then ending by
fifteen percent (15%) for each 1% by which the Net Income
Increase exceeds 10%; provided, however that Bonus
Compensation shall at no time exceed 100% of Base Salary for
the year ending December 31, 1997, and 300% of Base Salary
thereafter.

2. Term of Employment. Section 3.1 of the Existing Agreement is
hereby amended to extend the term of the Existing Agreement until December 31,
2001.

3. Base Compensation. Executive's Base Compensation beginning
September 1, 1997, is hereby agreed to be $300,000.

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<PAGE> 2

4. Ratification as to Other Respects. The Existing Agreement is
hereby ratified and confirmed and remains in full force and effect in all
respects except as modified hereby.

IN WITNESS WHEREOF, this agreement has been executed as of the day and
year first above written.

IMC MORTGAGE COMPANY, a Florida
corporation

By: /s/ GEORGE NICHOLAS
----------------------------------
George Nicholas
Chairman

/s/ STUART MARVIN
-------------------------------------
Stuart Marvin, Executive

<PAGE> 1

EXHIBIT 21.1

LIST OF SUBSIDIARIES OF THE COMPANY

LIST OF SUBSIDIARIES OF THE COMPANY AS OF DECEMBER 31, 1997:

IMC Corporation of America
IMC Credit Card, Inc.
IMC Mortgage Company, Canada LTD.
IMC Securities, Inc.
IMC Canada, LTD.
IMC Investment Corp.
IMC Investment Limited Partnership
ACG Financial Services (IMC), Inc.
American Mortgage Reduction, Inc.
Central Money Mortgage Co. (IMC), Inc.
CoreWest Banc
Equity Mortgage Co. (IMC), Inc.
Mortgage America (IMC), Inc.
National Lending Center, Inc.
National Lending Center TILT, Inc.
National Lending Group, Inc.
Residential Mortgage Corporation (IMC), Inc.

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 12,750
<SECURITIES> 0
<RECEIVABLES> 50,621
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 14,884
<DEPRECIATION> 2,574
<TOTAL-ASSETS> 2,945,932
<CURRENT-LIABILITIES> 0
<BONDS> 18,189
0
0
<COMMON> 307
<OTHER-SE> 253,757
<TOTAL-LIABILITY-AND-EQUITY> 2,945,932
<SALES> 180,763
<TOTAL-REVENUES> 238,759
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 161,330
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 98,720
<INCOME-PRETAX> 77,429
<INCOME-TAX> 29,500
<INCOME-CONTINUING> 47,929
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 47,929
<EPS-PRIMARY> 1.76
<EPS-DILUTED> 1.54

</TABLE>