IMPAC COMMERCIAL HOLDINGS INC, 10-K, 2000-03-30

IMPAC COMMERCIAL HOLDINGS INC
10-K, 2000-03-30
REAL ESTATE INVESTMENT TRUSTS

Previous: EMAILTHATPAYS COM INC, 10KSB, 2000-03-30

Next: BIORELIANCE CORP, 10-K405/A, 2000-03-30

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

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------

FORM 10-K

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR

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

FOR THE TRANSITION PERIOD FROM ______________________TO_________________

COMMISSION FILE NUMBER: 1-13091
--------------------

IMPAC COMMERCIAL HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

MARYLAND 33-0745075
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

1301 AVENUE OF THE AMERICAS, 42ND FLOOR, NEW YORK, NEW YORK 10019
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

(212) 798-6100
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
--------------------

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
COMMON STOCK $0.01 PAR VALUE AMERICAN STOCK EXCHANGE
--------------------

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

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

On March 27, 2000 the aggregate market value of the voting stock of Impac
Commercial Holdings, Inc. (the "Company") held by non-affiliates of the
Company was $37.3 million. For purposes of this calculation only, all
directors and executive officers have been deemed affiliates.

The number of shares of common stock, $0.01 par value per share, of the
Company outstanding as of March 27, 2000 was 8,418,200.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company's Definitive Proxy Statement, to be filed in
connection with the 2000 Annual Meeting of Stockholders of the Company, are
incorporated by reference into Part III.

IMPAC COMMERCIAL HOLDINGS, INC.

1999 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

PAGE
----

PART I

ITEM 1. BUSINESS.........................................................3
ITEM 2. PROPERTIES.......................................................4
ITEM 3. LEGAL PROCEEDINGS................................................4
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..............5

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS .............................................6
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.............................7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS........................................8
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK .....20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.....................20
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE........................................20

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..............21
ITEM 11. EXECUTIVE COMPENSATION..........................................21
ITEM 12. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL
OWNERS..........................................................21
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................21

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K........................................................22

SIGNATURES...............................................................24

PART I

ITEM 1. BUSINESS

GENERAL

Impac Commercial Holdings, Inc. ("Impac" or the "Company") was
incorporated in the Commonwealth of Maryland on February 3, 1997 to seek
and capitalize on opportunities in the commercial mortgage market. Impac is
a specialty commercial property finance company that elects to be taxed at
the corporate level as a real estate investment trust ("REIT") for federal
income tax purposes, which generally allows Impac to pass through income to
stockholders without payment of federal income tax at the corporate level
provided that Impac distributes at least 95% of its taxable income to its
stockholders. Impac earns income from investing in credit-sensitive
commercial mortgage assets on a leveraged basis and other activities in the
commercial mortgage market.

Impac was originally incorporated under the name Imperial Credit
Commercial Holdings, Inc. and changed its name to IMH Commercial Holdings,
Inc. in June 1997. Subsequently, by a vote of Impac's stockholders on
January 28, 1998, Impac changed its name to Impac Commercial Holdings, Inc.
Impac's subsidiaries include Impac Commercial Assets Corporation, IMH/ICH
Dove Street, LLC, Impac Commercial Capital Corporation ("ICCC") and ICCC
Secured Assets Corporation. Impac owns a 100% interest in Impac Commercial
Assets Corporation, a special-purpose finance entity that issued the Impac
1998-C1 CMO trust and ICCC, the entity through which Impac conducted its
mortgage conduit operations. In addition, Impac and its former affiliate,
Impac Mortgage Holdings, Inc., each own a 50% interest in IMH/ICH Dove
Street, LLC with Impac Mortgage Holdings, Inc., which was created to hold
real property investments. ICCC owns 100% of ICCC Secured Assets Corporation.

For further discussion of the Company's business, see "Item 7 -
Managements Discussion and Analysis of Financial Condition and Results of
Operations."

REGULATION

The rules and regulations applicable to the curtailed conduit
operations, among other things, prohibit discrimination and establish
underwriting guidelines that include provisions for inspections and
appraisals, require credit reports on prospective borrowers and fix maximum
loan amounts. Additionally, there are various state and local laws and
regulations that affect the conduit operations. Although the conduit
operations have been temporarily curtailed, Impac nevertheless believes it
is in material compliance with all material rules and regulations to which
the conduit operations are subject.

COMPETITION

In acquiring mortgage assets, Impac competes with other REITs,
investment banking firms, savings and loan associations, banks, mortgage
bankers, insurance companies, mutual funds, and other entities purchasing
mortgage assets, many of which have greater financial resources than Impac.
These competitors may increase competition for the available supply of
mortgage assets, resulting in higher prices and lower yields on any
investments made.

In issuing commercial mortgage-backed securities ("CMBS") or
collateralized mortgage obligations ("CMOs"), and originating commercial
mortgages, Impac competes with established mortgage conduit programs,
investment banking firms, savings and loan associations, banks, thrift and
loan associations, finance companies, mortgage bankers, insurance
companies, other lenders and other entities originating, purchasing and
securitizing mortgage assets. Additionally, CMBS and CMOs issued by Impac
face competition from other investment opportunities available to
prospective investors. Many of the institutions with which Impac competes
have significantly greater financial resources than Impac.

TAX STATUS

To maintain its qualification as a REIT, Impac intends to make
distributions to stockholders of at least 95% of its taxable income (which
may not necessarily equal net earnings as calculated in accordance with
generally accepted accounting principles ("GAAP")), determined without
regard to the deduction for dividends paid and excluding any net capital
gains. The dividend policy is subject to revision at the discretion of the
Board of Directors. All distributions in excess of those required to
maintain REIT status will be made at the discretion of the Board of
Directors and will depend on taxable earnings, financial condition and such
other factors as the Board of Directors deems relevant. The Board of
Directors has not established a minimum distribution level.

Distributions to stockholders will generally be taxable as ordinary
income, although a portion of such distributions may be designated as
capital gain or may constitute a tax-free return of capital. The Company
annually furnishes to each of its stockholders a statement setting forth
distributions paid during the preceding year and their characterization as
ordinary income, capital gains or return of capital. Of the dividends paid
for the 1999 tax year, approximately $1.9 million represented a tax-free
return of capital.

If Impac fails to qualify as a REIT in any taxable year, it will
become subject to federal income tax at regular corporate rates and will
not receive a deduction for dividends paid to stockholders. If this were to
occur, the amount of after-tax earnings available for distribution to
stockholders would decrease substantially.

Prior to it becoming a wholly owned subsidiary of Impac in 1999, ICCC
operated as a non-REIT corporation. As a result, its taxable income was
subject to federal and state income taxes, as applicable. As such, Impac's
taxable income historically included earnings of ICCC only upon payment to
Impac by distribution of such earnings, and only if such distributions were
made out of current year profits. No such distributions have been made.
Similarly, Impac's 1998 taxable income did not reflect the losses incurred
in 1998 by ICCC.

The foregoing is a summary only and is not intended to provide a
comprehensive description of the statutory and regulatory guidelines
affecting the taxation of Impac. Reference should be made to pertinent
Internal Revenue Code sections and the regulations issued thereunder for a
comprehensive statement of applicable federal income tax consequences.

EMPLOYEES

In connection with the restructuring of the Company's operations and
management changes discussed above, Impac terminated all but one of its
employees by December 31, 1999. Executive and administrative services are
provided by employees of FIC Management, its affiliates or the submanager.

ITEM 2. PROPERTIES

In October 1999 Impac sold its commercial office building located in
Newport Beach, California. The Company also has an office lease expiring
May 2001 for 3,600 square feet in Sherman Oaks, California.

ITEM 3. LEGAL PROCEEDINGS

On July 28, 1999, an action was filed against Impac in the Superior
Court for the State of California, County of Orange. Plaintiff in the
action, Bresta Futura V B.V., a Netherlands corporation, alleges that Impac
breached its lease agreement with Redstone Plaza Associates, a California
general partnership of which Bresta Futura is the general partner. The
lease with Redstone relates to a property which was to be occupied by ICCC.
Bresta Futura is seeking damages in excess of $1.0 million consisting of
unpaid rent from December 1, 1998 through the present time on the remaining
portion of the property that has not been subleased, late charges and
interest due on the unpaid rent, reasonable attorneys' fees and related
expenses. Impac answered Bresta Futura's complaint on September 14, 1999,
generally denying the allegations of the complaint and asserting specific
affirmative defenses. A trial has been scheduled for July 17, 2000.
Recently, Bresta Futura filed an application for right to attach order and
writ of attachment, seeking the right to attach property of Impac in the
amount of $1.0 million. At a hearing held on March 23, 2000 this
application was denied by the court. Impac intends to vigorously defend
this action.

On October 28, 1999, a civil action (the "Parnes Action") was
commenced against Impac and certain of its directors and officers alleging
breaches of fiduciary duty in connection with the Company's rejection of an
unsolicited acquisition proposal from Apex Mortgage Capital, Inc., see "Item
7 - Management's Discussion and Analysis of Financial Condition and Results
of Operations". Also on October 28, 1999, another civil action (the
"Hillson Action") was commenced against Impac, certain of its directors and
officers, Fortress Partners, FIC Management and Fortress Investment Corp.,
an affiliate of Fortress Partners, alleging breaches of fiduciary duty in
connection with the AMRESCO Capital Trust merger, see "Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and the rejected Apex Mortgage proposal. On December 3, 1999, a third civil
action (the "Brandeis Action") was commenced against the same parties named
in the Hillson Action and alleging the same causes of action. The Parnes
Action, the Hillson Action and the Brandeis Action were each dismissed
without prejudice in March 2000.

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

None.

PART II

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

The Company's common stock, $.01 par value per share, is listed for
trading on the American Stock Exchange ("AMEX") under the symbol "ICH". The
following table sets forth for the high and low sale prices and dividends
declared for the Compnay's Common Stock for the periods indicated:

1999 1998
----------------------- -----------------------
Stock Prices Divends Stock Prices Dividends
------------- ---------------
High Low Declared High Low Declared
------ ------ -------- ------- ------- -------
First quarter............... $ 6.63 $ 4.94 $ - $ 19.75 $ 17.00 $ 0.40
Second quarter.............. 7.25 4.63 0.125 18.13 14.00 0.45
Third quarter............... 6.69 4.63 0.125 15.25 8.81 0.45
Fourth quarter.............. 6.00 4.69 0.125 11.63 1.88 -

On March 27, 2000, the last reported sales price of the Company's
Common Stock on the AMEX was $5.00 per share. As of January 14, 2000 there
were 83 holders of record (including holders who are nominees for an
undetermined number of beneficial owners) of the Company's Common Stock.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

IMPAC COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------ COMMENCEMENT
1999 1998 PERIOD*
----------- ---------- -----------
<S> <C> <C> <C>

STATEMENT OF OPERATIONS DATA:
Interest income:
Commercial mortgage assets................ $30,385 $32,933 $6,720
Cash equivalents and due from affiliates.. 1,261 2,912 739
----------- ---------- -----------
Total interest income.................... 31,646 35,845 7,459
----------- ---------- -----------
Interest expense:
CMO borrowings............................ 21,166 7,203 15
Reverse repurchase and warehouse line
agreements................................ 1,332 13,461 1,962
Other borrowings.......................... 435 912 373
----------- ---------- -----------
Total interest expense................... 22,933 21,576 2,350
----------- ---------- -----------
Net interest income(loss)................. 8,713 14,269 5,109
Provision for loan losses................. -- 1,546 564
Net interest income after provision for
loan losses............................. 8,713 12,723 4,545
----------- ---------- -----------
Non-interest income(loss):
Equity in net earnings (loss) of ICCC..... -- (19,199) 1,694
Other income.............................. 2,198 701 174
----------- ---------- -----------
Total non-interest income................ 2,198 (18,498) 1,868
----------- ---------- -----------
Non-interest expense:
General and administrative and other expense 7,069 2,006 2,962
Write-down of residual interest in
securitizating held-for-trading........ 5,114 1,690 --
Professional services..................... 4,443 797 640
Management fees........................... -- 745 --
----------- ---------- -----------
Total non-interest expense............... 16,626 5,238 3,602
----------- ---------- -----------
Net earnings (loss)....................... (5,715) (11,013) 2,811
=========== ========== ===========
Net earnings (loss) per share-- basic
and diluted............................. (0.75) (1.26) 0.61
=========== ========== ===========
Dividends declared per share:
Common.................................... 0.375 1.30 0.53
=========== ========== ===========
Preferred................................. 1.394 -- --
=========== ========== ===========

AT DECEMBER 31
----------------------------------
1999 1998 1997
----------- ---------- -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Investment securities held available-for-sale......... 31,489 $ 17,154 $ 19,353
Residual interest in securitization held-for-trading.. 4,100 8,790 9,936
CMO collateral........................................ 312,152 326,559 4,255
Finance receivables................................... -- 40,972 95,711
Commercial mortgages held for investment.............. 4,362 24,569 62,790
Total assets......................................... 379,157 451,219 218,839
CMO borrowings........................................ 274,529 285,021 4,176
Reverse repurchase agreements......................... 3,936 4,869 9,841
Warehouse line agreements............................. -- 45,654 90,374
Total borrowings..................................... 278,465 335,544 104,391
Total stockholders' equity........................... 96,794 103,337 103,242
</TABLE>

NOTE: See "Management's Discussion and Analysis of Financial Condition" and
"Notes to Consolidated Financial Statements" for a discussion of changes to
the Company's operations that are expected to impact future operating
results.

* For the period from January 15, 1997 (commencement of operations) through
December 31, 1997.

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

Prior to August 1999, Impac's operations were divided into two
segments: long-term investment operations and commercial mortgage conduit
operations. Impac's long-term investment operations consist primarily of
investments in commercial mortgages and commercial mortgage- backed
securities, commonly referred to as CMBS. Impac's commercial mortgage
conduit operations, which were conducted by Impac's ICCC subsidiary,
originated, purchased, securitized and sold commercial mortgages. Due to
changes in the Company's business plan, the conduit operations have been
temporarily curtailed.

RECENT DEVELOPMENTS

In May 1999, Fortress Partners, L.P. ("Fortress Partners") made a
significant preferred stock investment in Impac and, concurrently with that
investment, an affiliate of Fortress Partners assumed responsibility for
the external management of Impac. In connection with these transactions,
all of Impac's executive officers and a number of Impac's directors
resigned and were replaced by designees of Fortress Partners. For a further
description of the transactions between Impac and Fortress Partners and its
affiliates during 1999, see "- Acquisition of Equity Interest in Impac and
Management Responsibilities by Fortress Partners L.P."

Impac's current management has formulated a new business plan for
Impac. Under the new business plan, during 1999 Impac substantially
completed repositioning the assets in its portfolio by selling certain
assets and is in the process of investing in higher yielding assets and
evaluating other strategies with the goal of restoring profitability. The
portfolio repositioning was deemed to be desirable because of the poor
strategic fit of Impac's assets with Impac's revised business plan and
Impac's general need for enhanced liquidity. Moreover, new management
determined that the results then being achieved by Impac's conduit
operations, did not meet its expectations for Impac and that activity has
been temporarily curtailed.

In August 1999, Impac entered into an Agreement and Plan of Merger
with AMRESCO Capital Trust ("AMRESCO") pursuant to which Impac was to be
merged with and into AMRESCO, with AMRESCO continuing as the surviving
entity in the merger. The AMRESCO merger was conditioned upon, among other
things, the satisfactory completion of due diligence and regulatory and
stockholder approvals. The benefits from the proposed merger were to
include larger capitalization and improved access to capital markets,
operational cost savings and other efficiencies.

Subsequent to entering into the merger agreement with AMRESCO, the
Company's Board of Directors received an unsolicited proposal from another
mortgage REIT, Apex Mortgage Capital, Inc. ("Apex Mortgage"), pursuant to
which Apex Mortgage proposed that Impac abandon the AMRESCO merger and
instead merge with Apex Mortgage. On October 22, 1999, following
significant deliberations with legal counsel and financial advisors, the
Board unanimously determined that a combination with Apex Mortgage was not
in the best interests of Impac and its stockholders.

On January 4, 2000 the Company announced that it had terminated its
proposed merger with AMRESCO citing changes in market conditions and
Impac's improved liquidity which made the proposed merger less
advantageous.

ACQUISITION OF EQUITY INTEREST IN IMPAC AND MANAGEMENT RESPONSIBILITIES BY
FORTRESS PARTNERS L.P.

On May 5, 1999, Impac issued to Fortress Partners 479,999 shares of a
newly created series of preferred stock for an aggregate purchase price of
approximately $12 million (the "Series B preferred shares"). The Series B
preferred shares are initially convertible into 1,683,635 Impac common
shares. Concurrently, FIC Management Inc. ("FIC Management"), an affiliate
of Fortress Partners, entered into a definitive agreement with RAI
Advisors, LLC, the then manager of Impac, pursuant to which RAI Advisors
assigned to FIC Management all of RAI Advisors' rights and interests in the
existing management agreement between RAI and Impac in exchange for $6
million in cash consideration. Following the assignment, FIC Management
became the exclusive manager of Impac.

In connection with the purchase of the Series B preferred shares and
the assignment of the management agreement described above, the following
additional events occurred: (i) the submanagement agreement among RAI
Advisors, Impac Mortgage Holdings, Inc., a former affiliate of Impac
("Impac Mortgage"), and Impac Funding Corp., a former affiliate of Impac
which conducted Impac Mortgage's conduit operations ("Impac Funding"), was
terminated and a new submanagement agreement was entered into among FIC
Management, Impac Mortgage and Impac Funding; (ii) the right of first
refusal agreement among Impac, ICCC, RAI Advisors, Impac Mortgage and Impac
Funding was terminated; (iii) James Walsh, Timothy Busch, Stephan Peers and
Thomas Poletti resigned as directors of Impac and Wesley Edens, Robert
Kauffman and Christopher Mahowald, all of whom are designees of Fortress
Partners, were appointed to the Impac Board of Directors (Joseph Tomkinson
and Frank Filipps, who served on the Board prior to the Fortress Partners
investment in Impac, remain as Impac directors); and (iv) the executive
officers of Impac then serving resigned as a group. Following these
resignations, the Board of Directors appointed Mr. Edens as Impac's new
chairman of the board and chief executive officer; Mr. Kauffman as Impac's
new president; Randal Nardone as Impac's new chief operating officer and
secretary; and Erik Nygaard as Impac's new chief information officer and
treasurer.

As a result of the various transactions with Fortress Partners
described above,

o Fortress Partners now holds a significant equity interest in
Impac. Assuming the conversion of the Series B preferred shares
and including subsequent open market purchases of 832,400
common shares by an affiliate, Fortress Partners' equity
interest would represent approximately 25% of the voting of the
Company;

o the principal executive officers of Impac and a majority of the
members of the Impac board are designees of Fortress Partners;
and

o an affiliate of Fortress Partners, FIC Management, now controls
the external management of Impac's operations.

SIGNIFICANT TERMS OF THE MANAGEMENT AGREEMENT WITH FIC MANAGEMENT

The following is a summary of certain material terms of the
management agreement with FIC Management. This summary of the management
agreement is not intended to be exhaustive and is qualified in its entirety
by reference to the full text of the management agreement, a copy of which
has been publicly filed with the Securities and Exchange Commission (the
"SEC").

Under the terms of the management agreement, FIC Management is
currently responsible for:

o asset-liability management-- primarily the analysis and
oversight of the purchasing, financing and disposition of
Impac's assets,

o capital management-- primarily the oversight of Impac's capital
market activities, and

o investor relations activities and operations management --
primarily the oversight of Impac's day-to-day operations,
including corporate governance responsibilities.

Term And Termination Fees. The management agreement expires December
31, 2002 and may be extended with the consent of the manager and the
affirmative vote of a majority of the independent Impac directors, or by
majority vote of the holders of the Company's common stock. The management
agreement may be terminated for cause on 30 days notice. The agreement may
also be terminated without cause on 60 days notice by a majority vote of
the independent Impac directors or the holders of the Company's common
stock. If the agreement is terminated without cause or not renewed, the
manager is entitled to payment of all accrued management fees and
reimbursable expenses up to the date of termination plus a termination fee
or non-renewal fee, as the case may be, determined by an independent
appraisal. This appraisal must be conducted by a nationally recognized
appraisal firm mutually agreed upon by the parties. In the event that the
parties are unable to agree upon an appraisal firm, each party must select
an appraisal firm and the termination or non-renewal fee, as the case may
be, will be equal to the average of the two firms' appraisals. This
appraisal must be conducted within 45 days following the selection of the
appraisal firm or firms.

Management Fees. The manager is entitled to receive for each fiscal
quarter, an amount equal to 25% of Impac's taxable net earnings before
management fees, in excess of the amount that would produce an annualized
return on equity (as defined in the management agreement) equal to the
daily average 10-Year U.S. Treasury Rate plus 2%. The management fee is
calculated quarterly in arrears before any income distributions are made to
stockholders for the corresponding period. In addition, Impac pays all
operating expenses incurred by the manager under the management agreement,
including out-of-pocket costs, equipment, personnel required specifically
for Impac's operations, and amounts payable by the manager pursuant to
related submanagement agreements. Impac reimburses the manager for all such
reimbursable expenses, plus a service charge of 15% on all reimbursable
expenses incurred directly by the manager. No service charge is payable to
third party service providers.

STOCK REPURCHASE AUTHORIZATION

In September 1998 the Board of Directors authorized the Company to
repurchase up to $5.0 million of its common shares, in open market
purchases from time to time at the discretion of the Company's management.
Through February 16, 1999, the Company had not repurchased any shares under
this program. In March 1999 the Company repurchased 206,800 shares of its
common stock outstanding at an average price of $5.18 for a total purchase
price of $1.1 million. The acquired shares were canceled. On December 29,
1999 the Board of Directors superceded this initial repurchase
authorization with a new authorization to repurchase up to 10% of the
outstanding common shares from time to time at such prices and pursuant to
such procedures as management deems prudent and appropriate. On March 10,
2000 this authorization was increased to 20% of the outstanding common
shares, calculated assuming conversion of the newly issued Series B
preferred shares.

LONG-TERM INVESTMENT OPERATIONS

Impac's long-term investment operations invest primarily in
credit-sensitive CMBS and commercial mortgages. Acquisitions of mortgage
assets are financed with capital, borrowings under reverse repurchase
agreements and long-term financing through CMOs. Under its modified
business plan the Company anticipates further investments will be made in
higher yielding CMBS. To this end, subsequent to year-end, an additional
$74 million in adjustable-rate CMBS were acquired.

Until August 1999, Impac originated commercial mortgages through its
conduit operations at ICCC. Initially, the commercial mortgages were held
in Impac's long-term investment portfolio as commercial mortgages held for
investment and were financed through short-term warehouse line agreements
and capital. The commercial mortgages held for investment were used as
collateral for the issuance of CMOs, which provided Impac with a long- term
financing alternative. At the time CMOs were issued, the commercial
mortgages were reflected on Impac's balance sheet as CMO collateral with a
corresponding liability referred to as CMO borrowings. Although through
August 1999 Impac originated the commercial mortgages held in its long-term
investment portfolio, in the future loans may be purchased from third
parties for long-term investment or for resale.

Impac also may acquire CMBS and mortgage-backed securities created
through its own securitization efforts as well as CMBS and mortgage-backed
securities created by third parties. In connection with the issuance of
CMBS by Impac, Impac may retain the senior or subordinated securities as
regular interests in these securitizations on a short-term or long-term
basis. Any retained CMBS may include "principal-only," "interest-only" or
residual interest securities or other interest rate or prepayment sensitive
securities or investments. Any retained securities or investments may
subject Impac to credit, interest rate and/or prepayment risks (see "Item 7
- - Management's Discussion and Analysis of Financial Condition and Results
of Operations").

The executive officers of FIC Management are empowered to make
day-to-day investment decisions, including the issuance of commitments on
behalf of Impac to purchase mortgage loans and mortgage-backed securities
meeting the investment criteria set from time to time by Impac's Board of
Directors. Other than the observance of statutory limitations which allow
Impac to retain its classification as a REIT, there are no current
limitations set by the Board of Directors on the percentage of assets which
Impac may invest in any one type of investment or the percentage of CMBS of
any one issue which Impac may acquire. It is Impac's policy to acquire
assets primarily for income financed by reverse repurchase agreements, the
issuance of CMOs and CMBS, and proceeds from the issuance of capital stock.

CONDUIT OPERATIONS

As discussed above, new management has determined that Impac's
conduit operations conducted by ICCC no longer meet its expectations for
Impac and this activity has been temporarily curtailed.

RESULTS OF OPERATIONS -- IMPAC

1999 COMPARED TO 1998

Overview. For the year ended December 31, 1999, Impac recorded a net
loss of $5.7 million, or $(0.75) per common share, compared to net loss of
$11.0 million, or $(1.26) per common share, for the year ended December 31,
1998. The net loss was lower in 1999 because of lower losses from the
mortgage conduit operation which incurred substantial losses in late 1998
due to the liquidation of a large portion of its commercial loan portfolio.
These and subsequent sales of commercial mortgage loans, and the issuance
of a relatively high rate mezzanine-level CMO bond in late 1998,
contributed to lower net interest margins in 1999. In addition, diminished
cash flows on the residual interest in securitization held-for-trading
during the latter part of the year contributed to lower earnings on this
investment and a greater loss in market value than in the prior year. The
Company also incurred non-recurring charges related to its terminated
agreement to merge with AMRESCO and the curtailment of the mortgage conduit
operations.

The following table summarizes average balance, interest and weighted
average yield on mortgage assets and borrowings for the periods indicated
(dollars in thousands):

YEAR ENDED DECEMBER 31, 1999 YEAR ENDED DECEMBER 31, 1998
-------------------------------------- -----------------------------------------
WEIGHTED PERCENT WEIGHTED PERCENT
AVERAGE AVERAGE OF AVERAGE AVERAGE OF
BALANCE INTEREST YIELD PORTFOLIO BALANCE INTEREST YIELD PORTFOLIO
------- -------- -------- --------- ------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MORTGAGE ASSETS:
Investment and
residual securities $ 27,354 $ 3,390 12.39% 7.25% $ 28,349 $ 4,357 15.37% 7.36%
------- -------- -------- --------- -------- -------- ------ ------
Loan receivables:
Commercial mortgages
held for investment... 9,771 829 8.48 2.59 127,015 10,452 8.23 32.97
CMO collateral.... 319,403 24,519 7.68 84.61 122,122 9,061 7.42 31.70
Finance receivables..... -- -- -- -- 107,777 9,063 8.41 27.97
Commercial mortgages
held-for-sale......... 20,959 1,647 7.86 5.55 -- -- -- --
--------- -------- ------- ------- ------- -------- ------ ------
350,133 26,995 7.71 92.75 356,914 28,576 8.01 92.64
--------- -------- ------- ------- ------- -------- ------ ------
377,487 30,385 8.05 100.00 385,263 32,933 8.55 100.00%
--------- -------- ------- ------- ------- -------- ------ -------
RELATED BORROWINGS:
Warehouse line agreements.. 16,680 1,047 6.28 5.57% 193,370 12,947 6.70 63.44%
CMO borrowings.... 278,570 21,166 7.60 92.95 103,180 7,203 6.98 33.85
Reverse repurchase
agreements...... 4,455 285 6.40 1.49 8,270 514 6.22 2.71
--------- -------- ------- ------- ------- ------- ------- -------
299,705 22,498 7.51 100.00 304,820 20,664 6.78 100.00%
--------- -------- ------- ======= -------- ------- ------- =======

CAPITAL EMPLOYED/NET
INTEREST SPREAD..... $ 77,782 $7,887 0.54% $ 80,443 $12,269 1.77%
========= ======== ======= ======== ======== ======
RETURN ON ASSETS...... 2.09% 3.18%
======= ======
</TABLE>

Interest Income on Investment and Residual Securities. Interest
income on investment and residual securities decreased to $3.4 million
during 1999 compared to $4.4 million in 1998 as average balances, exclusive
of securities valuation allowance, decreased to $27.4 million compared to
$28.3 million, respectively. As the Company further implements its new
business plan, this portfolio is expected to have a greater impact on
operating results in future periods. The weighted average yield decreased
to 12.39% during 1999 compared to 15.37% during 1998 primarily due to not
recording any accretion of purchase discount for the residual interest in
securitization in the third and fourth quarters of 1999 due to reductions
in cash flow remittances.

Interest Income on Loan Receivables. Interest income on commercial
mortgages held for investment decreased while interest income on CMO
collateral increased as a result of the issuance of the Impac CMB 1998-C1
backed by $317.8 million in commercial mortgage loans in August 1998. The
weighted average yield on commercial mortgages held-for-investment
increased to 8.48% during 1999 compared to 8.23% during 1998 primarily
because of the reclass of lower yielding loans to CMO collateral in
connection with this securitization.

Interest income on finance receivables was eliminated during 1999 as
a result of the consolidation of ICCC into Impac and the elimination of
intercompany borrowings. For 1999, ICCC's commercial mortgage loans
held-for- sale appear as a single line item on the consolidated financial
statements of Impac. In previous periods' presentations, mortgage loans
held-for-sale appeared as finance receivables on Impac's balance sheet. For
comparative purposes, the average commercial mortgage loans held-for-sale
decreased to $21.0 million during 1999 compared to $107.8 million of
finance receivables during 1998 primarily because the decline and eventual
curtailment of the conduit operations' commercial mortgage originations
early in 1999 and sales of $172.3 million, $18.9 million and $31.2 million
in loans in fourth quarter 1998, second quarter 1999 and third quarter
1999, respectively.

Interest Expense on Related Borrowings. Interest expense on warehouse
lines used to fund finance receivables or mortgage loans held-for-sale
decreased to $1.0 million during 1999 compared to $12.9 million in 1998.
The average balance of warehouse lines decreased to $16.7 million during
1999 compared to $193.4 million in 1998. The decrease in warehouse line
borrowings was a direct result of declining originations at ICCC, the sale
of loans in the fourth quarter 1998 and the termination of these lines in
the spring of 1999. Weighted average borrowing rates on warehouse lines
decreased to 6.28% during 1999 compared to 6.70% during 1998 due primarily
to lower short-term interest rates in the first half of 1999 while these
lines were used.

Interest expense on CMO borrowings increased to $21.2 million during
1999 compared to $7.2 million in 1998 as average borrowings increased to
$278.6 million compared to $103.2 million, respectively. Average CMO
borrowings increased primarily due to the issuance of Impac CMB 1998-C1
in August 1998. The Company also issued a relatively high rate
mezzanine-level CMO bond in December 1998 that contributed significantly to
increased CMO borrowing rates in 1999 (7.60% during 1999 compared to 6.98%
during 1998).

Impac also pledges CMBS as collateral to borrow under reverse
repurchase agreements and expects that such use will increase as the
Company further implements its new business plan. Interest expense on these
reverse repurchase agreements decreased to $285,000 during 1999 compared to
$514,000 in 1998. The average balance under these reverse repurchase
agreements decreased to $4.5 million during 1999 compared to $8.3 million
in 1998. Weighted average borrowing rates on reverse repurchase agreements
increased to 6.40% during 1999 compared to 6.22% during 1998 as a
consequence of higher prevailing short-term interest rates during the
latter half of 1999.

Non-Interest Income (Loss). Total non-interest income (loss)
increased to income of $2.2 million for 1999 compared to a loss of $18.5
million in 1998. The increase was primarily due to the consolidation of
ICCC's operating results for 1999 with those of Impac compared to the same
period in 1998 when the Company's equity in ICCC's operating results were
accounted for under the equity method and reflected as a component of
non-interest income (loss). Impac recorded an equity in net loss of ICCC of
$19.2 million in 1998 primarily as a result of losses on sales of mortgage
loans due to turmoil in the commercial mortgage market during the fall of
1998. In addition, the Company recorded gains on the sale of mortgage
assets of $691,000 in 1999 compared to losses on the sale of mortgage
assets of $906,000 in 1998.

Non-Interest Expense. Total non-interest expense increased to $16.6
million for 1999 compared to $5.2 million in 1998 due in part to a write
down of $5.1 million on the residual interest in securitization
held-for-trading that is marked to market to earnings each balance sheet
date. This compares to a similar adjustment of $1.7 million in 1998. In
addition, professional services, personnel, occupancy, general and
administrative and other expenses increased to $11.5 million in 1999 from
$2.8 million in 1998 primarily as a result of the consolidation of ICCC's
operating expenses for 1999 with those of Impac, non-recurring costs
incurred in connection with the terminated agreement to merge with AMRESCO
and non-recurring lease settlement costs.

Management Fees. Management fees are computed quarterly on tax basis
earnings, which are calculated by adjusting Impac's operating results for
financial reporting purposes by various differences between financial
reporting basis earnings and tax basis earnings. No management fees were
recorded during 1999 because the Company did not meet the required return
on equity target during any quarter of 1999 for the manager to earn these
fees. This compares to $745,000 earned by the prior manager in 1998.

Credit Exposures. Impac did not record a provision for loan loss
during 1999 compared to $1.5 million recorded in 1998 based on ongoing
analysis of loss exposures as well as reduced loan acquisitions during the
period. The allowance for loan losses is determined primarily based on
management's judgment of net loss potential including specific allowances
for any known impaired loans, changes in the nature and volume of the
portfolio, value of the collateral and current economic conditions that may
affect the borrowers' ability to pay.

The following table sets forth delinquency statistics for commercial
mortgages held-for-investment and CMO collateral for the periods indicated
(dollars in thousands):

AT DECEMBER 31, 1999 AT DECEMBER 31, 1998
------------------------------- ---------------------------------
UNPAID PERCENT UNPAID PERCENT
NUMBER PRINCIPAL OF NUMBER PRINCIPAL OF
OF LOANS AMOUNT PORTFOLIO OF LOANS AMOUNT PORTFOLIO
--------- ------- --------- ---------- --------- ----------

Loans delinquent for:
<S> <C> <C> <C> <C> <C> <C>
30 days 2 $ 4,723 1.55% - $ - - %
90 days 4 1,233 0.40 5 4,479 1.18
Total delinquencies,
foreclosures
and bankruptcies 6 $ 5,956 1.95% 5 $ 4,479 1.18%
====== ======= ===== ==== ======= =====
</TABLE>

1998 COMPARED TO 1997

Net Earnings (Loss). Impac recorded a net loss of $11.0 million, or
$(1.26) per common share, for the year ended December 31, 1998 compared to
net earnings of $2.8 million, or $0.61 per common share, for the period
from January 15, 1997 (commencement of operations) through December 31,
1997 (the "Commencement Period"). Impac's net loss for 1998 was primarily
the result of losses on the sale of commercial mortgages by ICCC primarily
during the fourth quarter of 1998 in order to generate liquidity and help
to protect against any future margin calls on borrowings under warehouse
line and reverse repurchase facilities due to turmoil in the commercial
mortgage market experienced during the third and fourth quarters of 1998.
The sales increased Impac's liquidity by $25.6 million, at the time of
sale, which allowed Impac to pay its third quarter dividend, repurchase
shares of its common stock at a price significantly below book value,
purchase the remaining 50% ownership interest in its commercial office
building and provided Impac with additional liquidity for general working
capital needs. The 1998 net loss also includes a $1.7 million write-down of
the residual interest in securitization held-for-trading and an increase of
$982,000 in provision for loan losses. These increases to 1998 net loss
were partially offset by a 180% increase in net interest income to $14.3
million during 1998 compared to $5.1 million during the commencement
period.

The following table summarizes average balance, interest and weighted
average yield on commercial mortgage assets and related borrowings for
periods indicated (dollars in thousands):

YEAR ENDED DECEMBER 31, 1999 COMMENCEMENT PERIOD
---------------------------------------- ----------------------------------------
WEIGHTED PERCENT WEIGHTED PERCENT
AVERAGE AVERAGE OF AVERAGE AVERAGE OF
BALANCE INTEREST YIELD PORTFOLIO BALANCE INTEREST YIELD PORTFOLIO
------- -------- ------- --------- ------- -------- -------- ---------

<S> <C> <C> <C> <C> <C> <C> <C> <C>
MORTGAGE ASSETS:
Investment and
residual securities $ 28,349 $ 4,357 15.37% 7.36% $ 12,786 $ 2,234 17.47% 20.29%
--------- -------- ------- ------- -------- ------- ------ ------
Loan receivables:
Commercial mortgages
held for investment.... 127,015 10,452 8.23 32.97 22,030 2,066 9.38 34.97
CMO collateral........... 122,122 9,061 7.42 31.70 233 48 20.60 0.37
Finance receivables...... 107,777 9,063 8.41 27.97 27,956 2,372 8.48 44.37
--------- ------- ------ ----- ------- ------- ----- -----
356,914 28,576 8.01 92.64 50,219 4,486 8.93 79.71
--------- ------- ------ ----- ------- -------- ------ ------
385,263 32,933 8.55 100.00% 63,005 6,720 10.67 100.00%
--------- -------- ------ ======= ------- -------- ------ =======

RELATED BORROWINGS:
Warehouse line agreements.. 193,370 12,947 6.70 63.44% 25,463 1,847 7.25 85.06%
CMO borrowings............. 103,180 7,203 6.93 33.85 228 15 6.58 0.76
Reverse repurchase
agreements............... 8,270 514 6.22 2.71 1,938 115 5.93 6.47
Borrowings on residual
interest in
securitization.......... -- -- -- -- 2,307 275 11.92 7.71
--------- -------- ------- ------- ------- ------ ------ ------
304,820 20,664 6.78 100.00 29,936 2,252 7.52 100.00%
--------- -------- ------- ------- ------- ------ ------ -------
CAPITAL EMPLOYED/NET
INTEREST SPREAD........ $ 80,443 $12,269 1.77% $ 38,069 $4,468 3.15%
======== ======== ======= ======== ====== ======
RETURN ON ASSETS.. 3.18% 7.09%
======= ======

</TABLE>

Investment and Residual Securities. Interest income on investment and
residual securities increased to $4.4 million during 1998 compared to $2.2
during the Commencement Period as average balances, net of securities
valuation allowance, increased to $28.3 million compared to $12.8 million,
respectively. Weighted average yields decreased to 15.37% during 1998
compared to 17.47% during the Commencement Period.

Interest Income on Loan Receivables. Interest income on commercial
mortgages held-for-investment increased to $10.5 million during 1998
compared to $2.1 million during the Commencement Period as average balances
increased to $127.0 million compared to $22.0 million, respectively. The
increase in average balances was the result of the acquisition of $522.1
million of commercial mortgages during 1998 compared to $41.2 million
during the Commencement Period. Weighted average yields decreased to 8.23%
during 1998 compared to 9.38% during the Commencement Period due to the
acquisition of lower yielding loans and the decrease in the 10-year
treasury yield, which Impac uses as an index to determine initial interest
rates on its commercial mortgages.

Interest income on finance receivables increased to $9.1 million
during 1998 compared to $2.4 million during the Commencement Period as
average balances increased to $107.8 million compared to $28.0 million,
respectively, primarily as a result of an increase in ICCC's loan
originations, which are financed by Impac until ICCC sells the loans to
third-party investors or to Impac. ICCC originated $425.1 million of
commercial mortgages during 1998 compared to $233.5 million during the
Commencement Period. The weighted average yield on finance receivables
decreased to 8.41% during 1998 compared to 8.48% during the Commencement
Period as the prime rate decreased during 1998, which is used as the index
to determine the interest rate on finance receivables.

Interest income on CMO collateral increased to $9.1 million during
1998 compared to $48,000 during the Commencement Period as the average
balance of CMO collateral increased to $122.1 million compared to $233,000,
respectively, with the August 1998 issuance of Impac CMB 1998 C-1.

Interest Expense on Related Borrowings. Interest expense on warehouse
line agreements used to fund finance receivables to ICCC and commercial
mortgages held for investment increased to $12.9 million during 1998
compared to $1.8 million during the Commencement Period as the average
balance of warehouse line agreements increased to $193.4 million and $25.5
million, respectively. The increase was a result of an increase in finance
receivables made available to ICCC to fund the acquisition of commercial
mortgages and to fund commercial mortgages held-for-investment. Weighted
average borrowing rates on warehouse line agreements decreased to 6.70%
during 1998 compared to 7.25% during the Commencement Period. Interest
expense on reverse repurchase agreements increased to $514,000 during 1998
compared to $115,000 during the Commencement Period as the average balance
on these reverse repurchase agreements increased to $8.3 million compared
to $1.9 million, respectively. Weighted average borrowing rates on reverse
repurchase agreements increased 6.22% during 1998 compared to 5.93% during
the Commencement Period.

Non-Interest Income (Loss). Equity in net loss of ICCC for 1998 was
$19.2 million compared to earnings of $1.7 million for the Commencement
Period. Poor results were primarily the result of the aforementioned $14.3
million loss on sale of commercial mortgages during 1998 compared to a gain
on sale of commercial mortgages of $3.7 million during the Commencement
Period.

Non-interest Expense. As previously noted, Impac recorded a $1.7
million write-down of its residual interest in securitizations
held-for-trading. In addition, general and administrative and other expense
increased to $1.1 million during 1998 compared to $156,000 during the
Commencement Period primarily as a result of operational expenses incurred
subsequent to August of 1997 as a result of becoming a public company.
Additionally, property expense on a commercial office building which Impac
owns increased to $779,000 during 1998 compared to $109,000 during the
Commencement Period. No charges were incurred for stock compensation as no
compensatory stock options were issued in 1998.

Management Fees. Although Impac recorded a net loss during 1998 for
financial reporting purposes, tax basis earnings, were approximately $11.7
million. As a result, Impac recorded management fees of $745,000 for 1998
under the terms of the management agreement with its former manager. Tax
basis earnings were substantially higher in 1998 because Impac's equity in
losses of ICCC totaling $19.2 million were excluded from taxable earnings
(ICCC, as a non-REIT corporation, filed a separate tax return).

Credit Exposures. Impac recorded provision for loan losses of $1.5
million during 1998 compared to $564,000 during the Commencement Period.
Correspondingly, the allowance for loan losses increased to $2.1 million at
December 31, 1998 compared to $564,000 at December 31, 1997. The provision
increased because of the increase in the commercial mortgage loan
portfolio.

RESULTS OF OPERATIONS--ICCC

1998 COMPARED TO 1997

Net Earnings. ICCC recorded a net loss of $(20.2) million during the
year ended December 31, 1998 compared to net earnings of $1.4 million in
1997. The Company's net loss for 1998 was primarily the result of an
increase of $18.0 million in loss on sale of commercial mortgages
held-for-sale, an increase of $1.0 million in net interest loss and an
increase of $4.2 million in other operating expense.

Net Interest Income (Expense). ICCC's net interest expense increased
by $1.0 million to $(1.0) million during 1998 compared to $57,000 during
1997 as the deterioration of the CMBS market forced ICCC to hold commercial
mortgages in its portfolio during 1998. Commercial mortgages held-for-sale
earned lower yields than interest rates paid on borrowings used to finance
the commercial mortgages. The average yield earned on commercial mortgages
held-for-sale was 7.88% during 1998 compared to financing costs of 8.40%.

Non-Interest Income. The loss on sale of commercial mortgages
held-for-sale during 1998 was $14.3 million compared to a gain on sale of
commercial mortgages held-for-sale of $3.7 million during 1997. The loss on
sale of commercial mortgages held-for-sale was the result of the sale of
commercial mortgages during the fourth quarter of 1998 in order to generate
liquidity and to help protect ICCC against any future margin calls on its
borrowings under warehouse line and reverse repurchase facilities. ICCC's
lenders required margin calls on the Company's warehouse line and reverse
repurchase facilities due to turmoil in the CMBS market during the third
and fourth quarters of 1998. In order to meet those margin calls and
provide additional liquidity, ICCC completed the sale of $172.3 million of
commercial mortgages during the fourth quarter of 1998.

Non-Interest Expense. Other operating expense increased to $5.5
million during 1998 compared to $1.4 million during 1997 as ICCC's loan
originations increased to $425.1 million compared to $233.5 million,
respectively. Personnel expense increased to $2.5 million during 1998
compared to $38,000 during 1997 as ICCC's staffing increased to 89
employees at September 30, 1998 compared to 50 employees at December 31,
1997 and 27 employees at September 30, 1997. During the fourth quarter of
1998, ICCC reduced its staff levels by 35% due to the decrease in loan
originations during the second half of 1998 compared to the first half of
1998. In addition, occupancy expense increased to $1.0 million during 1998
compared to $160,000 during 1997 and general and administrative and other
expense increased to $1.1 million compared to $288,000, respectively, due
to the increase in ICCC's staffing levels and the expansion of its loan
origination operations.

LIQUIDITY AND CAPITAL RESOURCES

Impac's business operations, including the acquisition of mortgage
assets, are primarily funded from monthly interest and principal payments
from its commercial mortgage and CMBS portfolios, reverse repurchase
agreements secured by commercial mortgages and CMBS, CMOs, proceeds from
the sale of commercial mortgages, and proceeds from stock issuances.
Impac's ability to meet its long-term liquidity requirements is subject to
the renewal of its credit and repurchase facilities and/or obtaining other
sources of financing, including additional debt or equity from time to
time. Any decision by Impac's lenders and/or investors to make additional
funds available to Impac in the future will depend upon a number of
factors, such as Impac's compliance with the terms of its existing credit
arrangements, Impac's financial performance, industry and market trends,
the general availability of and rates applicable to financing and
investments, such lenders' and/or investors' own resources and policies
concerning loans and investments, and the relative attractiveness of
alternative investment or lending opportunities (see "Effects of Interest
Rate Changes" and "Risks Associated with Credit-sensitive Investments").

As of December 31, 1999, borrowings under repurchase agreements were
secured by CMBS and other securities and had maturities of less than 31
days. The Company has uncommitted repurchase facilities with investment
banking firms to finance these assets, subject to certain conditions.
Interest rates on borrowings under these facilities are generally based on
overnight to 30-day London Interbank Offered Rate ("LIBOR") rates. The
terms and conditions of these agreements, including interest rates, are
negotiated on a transaction-by-transaction basis. Amounts available for
borrowing under these agreements are dependent upon the fair value of the
securities pledged as collateral, which may fluctuate with changes in
interest rates and the securities' credit quality.

Borrowings under reverse repurchase agreements secured by recent
purchases of adjustable-rate CMBS will more closely match the interest rate
adjustment features and expected life of these investments such that the
Company anticipates it can earn more consistent net interest spreads on
these investments.

INTEREST RATE SENSITIVITY ON OPERATING RESULTS

The Company performs earnings sensitivity analysis using an income
simulation model to estimate the effects that specific interest rate
changes will have on future earnings. All mortgage assets and derivative
financial instruments ("derivatives") held, if any, are included in this
analysis. The model incorporates management assumptions regarding the level
of prepayments on mortgage assets for a given level of market rate changes
using industry estimates of prepayment speeds for various coupon segments.
These assumptions are developed through a combination of historical
analysis and future expected pricing behavior. As of December 31, 1999 the
Company had the following interest sensitivity profile:

IMMEDIATE CHANGE IN:
(RATES IN BASIS POINTS, DOLLARS IN THOUSANDS)
---------------------------------------------
30-day LIBOR rate Down 100 Up 100
10-year U.S. Treasury rate Down 100 Up 100

2000 Projected 12-month earnings $(403) $404
change*

*Note that the impact of actual or planned acquisitions of mortgage assets
subsequent to year-end (beyond acquisitions necessary to replace runoff)
and any new business activities were not factored into the simulation model
for purposes of this disclosure.

Income simulation modeling is a primary tool used to assess the
direction and magnitude of changes in net margins on mortgage assets
resulting from changes in interest rates. Key assumptions in the model
include prepayment rates on mortgage assets, changes in market conditions,
and management's capital plans. These assumptions are inherently uncertain
and, as a result, the model cannot precisely estimate net margins or
precisely predict the impact of higher or lower interest rates on net
margins. Actual results will differ from simulated results due to timing,
magnitude and frequency of interest rate changes and other changes in
market conditions, management strategies and other factors.

EFFECTS OF INTEREST RATE CHANGES

Changes in interest rates may impact the Company's earnings in
various ways. The Company's earnings currently depend, in part, on the
difference between the interest received on mortgage assets, and the
interest paid on related short-term borrowings. The resulting spread may be
reduced or even turn negative in a rising short-term interest rate
environment. Because a substantial portion of the Company's mortgage assets
are adjustable-rate CMBS, the risk of rising short-term interest rates is
generally offset to some extent by increases in the rates of interest
earned on the underlying adjustable-rate CMBS. The Company may invest in
derivatives from time to time as a hedge against rising interest rates on a
portion of its short-term borrowings. At December 31, 1999 the Company did
not own any derivatives as a hedge against rising interest rates.

Another effect of changes in interest rates is that as long-term
interest rates decrease the rate of principal prepayments on loans
underlying CMBS may increase. To the extent the proceeds of prepayments on
mortgage assets cannot be reinvested at a rate of interest at least equal
to the rate previously earned on such investments, earnings may be
adversely affected. In addition, the rates of interest earned on
adjustable-rate CMBS generally will decline during periods of falling
short-term interest rates.

Changes in interest rates also impact earnings recognized from
interest-only mortgage securities. The amount of income that may be
generated from interest-only mortgage securities is dependent upon the rate
of principal prepayments on the underlying mortgage collateral. If mortgage
interest rates fall significantly below interest rates on the collateral,
principal prepayments may increase, reducing or even turning negative the
overall return on these investments. Conversely, if mortgage interest rates
rise, interest-only mortgage securities tend to perform favorably because
underlying mortgage loans will generally prepay at slower rates, thereby
increasing overall returns.

CMO residuals behave similarly to interest-only mortgage securities.
If mortgage interest rates fall, prepayments on the underlying mortgage
loans generally will be higher, thereby reducing or even turning negative
the overall returns on these investments. This is due primarily to the
acceleration of the amortization of bond discounts as bond classes are
repaid more rapidly than originally anticipated. Conversely, if mortgage
interest rates rise significantly above interest rates on the collateral,
principal prepayments will typically diminish, improving the overall return
on an investment in a fixed-rate CMO residual because of an increase in
time over which the Company receives the larger positive interest spread.

The Company may periodically sell mortgage assets, which may increase
income volatility because of the recognition of transactional gains or
losses. Such sales may become attractive as values of mortgage assets
fluctuate with changes in interest rates. At other times, such as in 1999,
it may become prudent to significantly reposition the mortgage asset
portfolios to mitigate exposure to further declines in mortgage interest
rates.

RISKS ASSOCIATED WITH CREDIT-SENSITIVE INVESTMENTS

CMBS are generally viewed as exposing an investor to greater risk of
loss than residential mortgage-backed securities since such securities are
typically secured by larger loans to fewer obligors than residential
mortgage- backed securities. Commercial property values and net operating
income are subject to volatility, and net operating income may be
sufficient or insufficient to cover debt service on the related mortgage
loan at any given time. The repayment of loans secured by income-producing
properties is typically dependent upon the successful operation of the
related real estate project and the ability of the applicable property to
produce net operating income rather than upon the liquidation value of the
underlying real estate. Even when the current net operating income is
sufficient to cover debt service, there can be no assurance that this will
continue to be the case in the future.

Additionally, commercial properties may not readily be convertible to
alternative uses if such properties were to become unprofitable due to
competition, age of improvements, decreased demand, regulatory changes or
other factors. The conversion of commercial properties to alternate uses
generally requires substantial capital expenditures, which may or may not
be available.

The availability of credit for commercial mortgage loans will be
significantly dependent upon economic conditions in the markets where such
properties are located, as well as the willingness and ability of lenders
to make such loans. The availability of funds in the credit markets
fluctuates and there can be no assurance that the availability of such
funds will increase above, or will not contract below current levels. In
addition, the availability of similar commercial properties, and the
competition for available credit, may affect the ability of potential
purchasers to obtain financing for the acquisition of properties. This
could effect the repayment of commercial mortgages pledged to secure CMBS.

Credit-sensitive residential mortgage-backed securities differ from
CMBS in several important ways, yet can still carry substantial credit
risk. Residential mortgage securities typically are secured by smaller
loans to more obligors than CMBS, thus spreading the risk of mortgagor
default. However, most of the mortgages supporting these securities are
made to homeowners that do not qualify for Agency loan programs for reasons
including loan size, financial condition, or work or credit history that
may be indicative of higher risk of default than loans qualifying for such
programs. As with CMBS, in instances of default the Company may incur
losses if the proceeds from the sale of the underlying collateral less
related foreclosure costs, are less than the unpaid principal balance of
the mortgage loan. However, with residential mortgage-backed securities,
this risk may be mitigated by various forms of credit enhancements
including, but not limited to, primary mortgage insurance.

Through the process of securitizing both commercial and residential
mortgages, credit risk can be heightened or minimized. Senior classes in
multi-class securitizations generally have first priority over cash flows
from a pool of mortgages and, as a result, carry the least risk, highest
investment ratings and the lowest yields. Typically a securitization will
also have mezzanine classes and subordinated classes. Mezzanine classes
will generally have somewhat lower credit ratings and may have average
lives that are longer than the senior classes. Subordinate classes are
junior in the right to receive cash flow from the underlying mortgages,
thus providing credit enhancement to the senior and mezzanine classes. As a
result, subordinated securities will have lower credit ratings because of
the elevated risk of credit loss inherent in these securities.

The availability of capital from external sources to finance
investments in credit-sensitive CMBS and residential mortgage-backed
securities that are not financed to maturity at acquisition may be
diminished during periods of mortgage finance market illiquidity, such as
was experienced in 1998. Additionally, if market conditions deteriorate
resulting in substantial declines in value of these securities, sufficient
capital may not be available to support the continued ownership of such
investments, requiring these securities to be sold at a loss.

There can be no assurance as to what extent, if any, beyond the
initial purchases of higher yielding CMBS described previously, the
Company's new business plan will be fully implemented and, if fully
implemented, whether or not it will be successful in meeting the Company's
goals. In addition, there can be no assurance that the Company will be able
to successfully assess and monitor these risks.

YEAR 2000 COMPLIANCE

On behalf of Impac, FIC Management took the necessary steps to ensure
that its software systems and applications would not fail or create
erroneous results by or at December 31, 1999 ("Year 2000 compliant"). FIC
Management also took steps to ensure that the vendors it utilizes and
institutions that it interfaces with on behalf of Impac had also taken the
necessary steps to become Year 2000 compliant. The financial costs to Impac
of becoming Year 2000 compliant did not exceed $50,000. Impac and FIC
Management experienced no material instances of Year 2000 compliance
failures.

FORWARD LOOKING STATEMENTS

This document contains "forward-looking statements" (within the
meaning of the Private Securities Litigation Reform Act of 1995) that
inherently involve risks and uncertainties. The Company's actual results
and liquidity can differ materially from those anticipated in these
forward-looking statements because of changes in the level and composition
of the Company's investments and unforeseen factors. These factors may
include, but are not limited to, changes in general economic conditions,
the availability of suitable investments, fluctuations in and market
expectations for fluctuations in interest rates and levels of mortgage
prepayments, deterioration in credit quality and ratings, the effectiveness
of risk management strategies, the impact of leverage, liquidity of
secondary markets and credit markets, increases in costs and other general
competitive factors.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133
establishes accounting and reporting standards for derivatives, including
certain derivatives embedded in other contracts and for hedging activities.
It requires that an entity recognizes all derivatives as either assets or
liabilities in the statement of financial position and measures those
instruments at fair value. If certain conditions are met, a derivative may
be specifically designated as (a) a hedge of the exposure to changes in the
fair value of a recognized asset or liability or an unrecognized firm
commitment, (b) a hedge of the exposure to variable cash flows of a
forecasted transaction, or (c) a hedge of the foreign currency exposure of
a net investment in a foreign operation, an unrecognized firm commitment,
an available-for-sale security, or a foreign-currency-denominated
forecasted transaction. This statement is effective for the Company's
fiscal year ending December 31, 2001. The Company believes that the
adoption of SFAS 133 will not have a material impact on the Company's
financial position or results of operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required by this item is included above in "Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations."

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this Item 8 is incorporated by reference
to the Consolidated Financial Statements of Impac and related Independent
Auditors' Report beginning at page F-1 of this Form 10-K.

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

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item is included in the Company's
2000 definitive Proxy Statement under the captions "Election of Directors"
and "Management" and is incorporated by reference herein pursuant to General
Instruction G(3) of Form 10-K. This Proxy Statement will be filed with the
SEC prior to April 30, 2000.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is included in the Company's
2000 definitive Proxy Statement under the captions "Compensation Committee
Report on Executive Compensation" "Performance Graph," and "Executive
Compensation" and is incorporated by reference herein pursuant to General
Instruction G(3) of Form 10-K. This Proxy Statement will be filed with the
SEC prior to April 30, 2000.

ITEM 12. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS

The information required by this item is included in the Company's
2000 definitive Proxy Statement under the caption "Security Ownership of
Management and Certain Beneficial Owners" and is incorporated by reference
herein pursuant to General Instruction G(3) of Form 10-K. This Proxy
Statement will be filed with the SEC prior to April 30, 2000.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is included in the Company's
audited financial statements for the year ended December 31, 1999. See
"Item 8 - Financial Statements and Supplementary Data" specifically Notes
13 and 14.

PART IV

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

(a) All schedules, other than the required financial data schedule
filed as exhibit 27 hereto, have been omitted because they are either not
applicable, not required or the information required has been disclosed in
the Consolidated Financial Statements and related Notes to Consolidated
Financial Statements at page F-1, or are otherwise included in Form 10-K.

(b) Reports on Form 8-K--None.

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

3.1 Amended and Restated Articles of Incorporation of the
Company.(1)
3.1(a) Articles of Amendment of Company.(1)
3.1(b) Articles of Amendment of Company.(2)
3.1(c) Articles Supplementary and Certificate of Correction for Series
A Junior Participating Preferred Stock of the Company.(6)
3.1(d) Articles Supplementary for Series B 8.5% Cumulative Convertible
Preferred Stock of the Company.(5)
3.2 Bylaws of the Company.(1)
4.1 Form of Common Stock Certificate of the Company.(1)
4.2 Rights Agreement, dated October 7, 1998, between the Company
and BankBoston, N.A.(3)
10.1 Stock Purchase Agreement, dated May 5, 1999, between Fortress
Partners, L.P. and the Company.(5)
10.2 Amended and Restated Management Agreement, dated May 5, 1999,
between FIC Management and the Company.(5)
10.3 Submanagement Agreement, dated May 6, 1999, between FIC
Management, Inc., Fortress Partners, L.P. and the Company.(5)
10.4 Registration Rights Agreement, dated May 5, 1999, between
Fortress Partners, L.P. and the Company.(5)
10.5 1997 Stock Option and Awards Plan.(1)
10.6 Lease, dated December 8, 1997, among the Company, Impac
Commercial Capital Corporation and The Irvine Company.(1)
10.7 Revolving Credit and Term Loan Agreement, dated August 21,
1997, between the Company and Impac Mortgage Holdings, Inc.(4)
10.8 Real Estate Purchase, Sale and Escrow Agreement, dated August
25, 1997, by and between TW/BRP Dove, LLC and IMH/ICH Dove
Street, LLC. (4)
21 Subsidiaries of the Company.*
23.1 Consent of KPMG LLP re: Company.*
23.2 Consent of KPMG LLP re: Impac Commercial Capital Corporation.*
24.1 Power of Attorney (included on signature page).
27 Financial Data Schedule (electronic filing only).*

(1) Incorporated by reference to, and all such exhibits have the
corresponding exhibit number filed as part of the Company's
registration statement on Form S-11 (File No. 333-25423) and
Amendments Nos. 1, 2, 3, 4, and 5 thereto filed with the Securities
and Exchange Commission on April 18, June 10, June 30, July 8, July
17 and July 29, 1997, respectively.
(2) Incorporated by reference to exhibit number 3.1(a) of the Company's
Current Report on Form 8-K, as amended, dated January 28, 1998.
(3) Incorporated by reference to the corresponding exhibit number of the
Company's Registration Statement on Form 8-A as filed with the
Securities and Exchange Commission on October 14, 1998.
(4) Incorporated by reference to the corresponding exhibit number of the
Company's Quarterly Report on Form 10-Q for the period ended
September 30, 1997.
(5) Incorporated by reference to the corresponding exhibit number of the
Company's Current Report on Form 8- K filed with the Securities and
Exchange Commission on May 20, 1999.
(6) Incorporated by reference to the corresponding exhibit number of the
Annual Report on Form 10-K for the period ended December 31, 1998.
* Filed herewith.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized in the
City of New York, State of New York, on the 29th day of March, 2000.

IMPAC COMMERCIAL HOLDINGS, INC.

By: /s/ Randal A. Nardone
-----------------------------
Randal A. Nardone
Secretary

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

SIGNATURE TITLE DATE
--------- ----- ----

/s/ Wesley Edens Chairman of the Board and Chief March 29, 2000
- ------------------------- Executive Officer (Principal
Wesley Edens Executive Officer)

/s/ Gregory Hughes Chief Financial Officer March 29, 2000
- ------------------------- (Principal Accounting Financial
Gregory Hughes and Accounting Officer)

/s/ Robert Kauffman President and Director March 29, 2000
- -------------------------
Robert Kauffman

/s/ Frank P. Filipps Director March 29, 2000
- --------------------------
Frank P. Filipps

/s/ Joseph R. Tomkinson Director March 29, 2000
- ---------------------------
Joseph R. Tomkinson

/s/ Christopher Mahowald Director March 29, 2000
- ---------------------------
Christopher Mahowald

INDEPENDENT AUDITORS' REPORT AND
CONSOLIDATED FINANCIAL STATEMENTS

INDEX

IMPAC COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES
------------------------------------------------

PAGE

<S> <C>
Independent Auditors' Report................................................................................... F-2
Consolidated Balance Sheets at December 31, 1999 and 1998...................................................... F-3
Consolidated Statements of Operations and Comprehensive Earnings (Loss) for the years ended December 31,
1999 and 1998 and for the period from January 15, 1997 (commencement of operations) through
December 31, 1997........................................................................................... F-4
Consolidated Statement of Changes in Stockholders' Equity for the period from January 15, 1997
(commencement of operations) through December 31, 1999...................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1999
and 1998 and for the period from January 15, 1997 (commencement of
operations) through December 31, 1997.........................................................................F-6
Notes to Consolidated Financial Statements..................................................................... F-7

IMPAC COMMERCIAL CAPITAL CORPORATION AND SUBSIDIARY
---------------------------------------------------

Independent Auditors' Report................................................................................... F-19
Consolidated Balance Sheet at December 31, 1998................................................................ F-20
Consolidated Statements of Operations for the year ended December 31, 1998 and for the period from F-21
January 15, 1997 (commencement of operations) through December 31, 1997.....................................
Consolidated Statement of Changes in Shareholders' Equity and for the period from January 15, 1997 F-22
(commencement of operations) through December 31, 1998......................................................
Consolidated Statements of Cash Flows for the year ended December 31, 1998 and for the period from F-23
January 15, 1997 (commencement of operations) through December 31, 1997.....................................
Notes to Consolidated Financial Statements..................................................................... F-24

</TABLE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Impac Commercial Holdings, Inc.:

We have audited the accompanying consolidated balance sheets of Impac
Commercial Holdings, Inc. and subsidiaries as of December 31, 1999 and
1998, and the related consolidated statements of operations and
comprehensive earnings (loss), changes in stockholders' equity and cash
flows for the years ended December 31, 1999 and 1998 and for the period
from January 15, 1997 (commencement of operations) through December 31,
1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Impac Commercial Holdings, Inc. and subsidiaries as of December
31, 1999 and 1998 and the results of their operations and their cash flows
for the years ended December 31, 1999 and 1998 and for the period from
January 15, 1997 (commencement of operations) through December 31, 1997 in
conformity with generally accepted accounting principles.

/S/ KPMG LLP
------------

Orange County, California
March 3, 2000, except as to
Notes 10 and 11 to the
consolidated financial
statements, which are as
of March 23, 2000.

IMPAC COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

DECEMBER 31
----------------------------
1999 1998
------------ ------------

ASSETS
------
<S> <C> <C>
Cash and cash equivalents............................................................... $ 25,418 $ 14,161
Investment securities held available-for-sale........................................... 31,489 17,154
Residual interest in securitization held-for-trading.................................... 4,100 8,790
Loan receivables:
Collateralized mortgage obligation ("CMO") collateral................................ 312,152 326,559
Finance receivables.................................................................. -- 40,972
Commercial mortgages held for investment............................................. 4,362 24,569
Allowance for loan losses............................................................ (1,427) (2,110)
------------ ------------
Net loan receivables............................................................. 315,087 389,990
Investment in Impac Commercial Capital Corporation ("ICCC")............................. -- (15,016)
Due from affiliates..................................................................... -- 22,131
Premises and equipment, net............................................................. 1 9,146
Accrued interest receivable............................................................. 2,355 2,627
Other assets............................................................................ 707 2,236
------------ ------------
$ 379,157 $ 451,219
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CMO borrowings.......................................................................... $ 274,529 $ 285,021
Reverse repurchase agreements........................................................... 3,936 4,869
Warehouse line agreements............................................................... -- 45,654
Due to affiliates....................................................................... 67 11,170
Other liabilities....................................................................... 3,831 1,168
------------ ------------
282,363 347,882

Commitments and contingencies
Stockholders' equity:
Preferred Stock; $0.01 par value; 5,520 shares authorized; no shares outstanding..... -- --
Class A Convertible Preferred Stock; $0.01 par value; 3,000 shares authorized;
no shares outstanding.............................................................. -- --
Series A Junior Participating Preferred Stock; $0.01 par value; 1,000 shares
authorized; no shares outstanding.................................................. -- --
Series B 8.5% Cumulative Convertible Preferred Stock; $0.01 par value; 480 shares
authorized, issued and outstanding at December 31, 1999 and none as of
December 31, 1998 ($12,000 aggregate liquidation preference)....................... 5 --
Class A Common Stock; $0.01 par value; 4,000 shares authorized;
no shares outstanding.............................................................. -- --
Common Stock; $0.01 par value; 46,000 shares authorized; 8,418 and 8,625
shares issued and outstanding at December 31, 1999 and 1998, respectively.......... 84 86
Additional paid-in-capital........................................................... 137,522 127,004
Accumulated other comprehensive earnings (loss)...................................... (7,497) 24
Accumulated deficit.................................................................. (33,320) (23,777)
------------ ------------
96,794 103,337
------------ ------------
$ 379,157 $ 451,219
============ ============

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

IMPAC COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE EARNINGS (LOSS)

(IN THOUSANDS, EXCEPT EARNINGS PER SHARE DATA)

YEAR ENDED DECEMBER 31
---------------------- COMMENCEMENT
1999 1998 PERIOD
--------- ---------- -------------
INTEREST INCOME:
<S> <C> <C> <C>
Commercial mortgage assets.......................................... $ 30,385 $ 32,933 $ 6,720
Cash equivalents and due from affiliates............................ 1,261 2,912 739
------------ ------------ ----------
Total interest income............................................. 31,646 35,845 7,459
------------ ------------ ----------

INTEREST EXPENSE:
CMO borrowings_ 21,166 7,203 15
Reverse repurchase and warehouse line agreements.................... 1,332 13,461 1,962
Other borrowings.................................................... 435 912 373
------------ ------------ ----------
Total interest expense............................................ 22,933 21,576 2,350
------------ ------------ ----------

Net interest income................................................. 8,713 14,269 5,109
Provision for loan losses......................................... -- 1,546 564
------------ ------------ ----------
Net interest income after provision for loan losses................. 8,713 12,723 4,545
------------ ------------ ----------

NON-INTEREST INCOME (LOSS):
Equity in net earnings (loss) of ICCC............................... -- (19,199) 1,694
Gain (loss) on sale of loans........................................ 691 (906) --
Rental income....................................................... 1,244 1,521 160
Other income........................................................ 263 86 14
------------ ------------ ----------
Total non-interest income (loss).................................. 2,198 (18,498) 1,868
------------ ------------ ----------

NON-INTEREST EXPENSE:
Write-down of residual interest in securitization held-for-trading.. 5,114 1,690 --
Professional services............................................... 4,443 797 640
General and administrative and other expense........................ 3,735 1,106 156
Personnel expense................................................... 1,560 19 --
Occupancy expense................................................... 1,054 102 --
Property expense.................................................... 720 779 109
Management fees..................................................... -- 745 --
Stock compensation expense.......................................... -- -- 2,697
------------ ------------ ----------
Total non-interest expense........................................ 16,626 5,238 3,602
------------ ------------ ----------

NET EARNINGS (LOSS)................................................. (5,715) (11,013) 2,811
Less cash dividends on cumulative convertible preferred stock..... (669) -- --
------------ ------------ ----------
Net earnings (loss) available to common stockholders................ $ (6,384) $ (11,013) $ 2,811
============ ============ ==========

NET EARNINGS (LOSS) PER SHARE--BASIC AND DILUTED................... $ (0.75) $ (1.26) $ 0.61
============ ============ ==========

OTHER COMPREHENSIVE EARNINGS (LOSS):
Net earnings (loss)................................................. $ (5,715) $ (11,013) $ 2,811
Unrealized gains (losses)........................................... (7,521) 184 (160)
------------ ------------ ----------
Comprehensive earnings (loss)....................................... $ (13,236) $ (10,829) $ 2,651
============ ============ ==========

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

IMPAC COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(IN THOUSANDS, EXCEPT PER SHARE DATA)

CLASS A ACCUMULATED
PREFERRED STOCK COMMON STOCK COMMON STOCK OTHER
--------------- ------------ ------------ ADDIT- COMPRE- TOTAL
NUMBER NUMBER NUMBER IONAL HENSIVE ACCUMU- STOCK-
OF DOLLAR OF DOLLAR OF DOLLAR PAID-IN EARNINGS LATED HOLDERS'
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL (LOSS) DEFICIT EQUITY
------ ------ ------ ------ ------ ------ ------- --------- ------- -------

<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 15, 1997
(commencement of operations)........ -- $-- -- $-- -- $-- $ -- $ -- $ -- $ --
Sale of common stock to IMH
and certain officers and
directors of the Company .......... 599 6 -- -- 2,697 -- -- 2,703
Conversion of promissory
notes to preferred stock........... 3,000 30 -- -- -- -- 14,970 -- -- 15,000
Dividends declared ($0.53 per share)... -- -- -- -- -- -- -- -- (4,250) (4,250)
Net proceeds from public stock offering -- -- 6,325 63 -- -- 86,961 -- -- 87,024
Class A Common Stock issued to IMH for
ICCC preferred stock................. -- -- -- -- 95 1 113 -- -- 114
Conversion of preferred shares to
Class A Common Stock................. (3,000) (30) 720 7 280 3 20 -- -- --
Conversion of common shares to
Class A Common Stock................. -- -- (299) (3) 299 3 -- -- -- --
Other comprehensive loss............... -- -- -- -- -- -- -- (160) -- (160)
Net earnings........................... -- -- -- -- -- -- -- -- 2,811 2,811
------- ---- ------ ---- ---- --- ------- ------ -------- --------
BALANCE, DECEMBER 31, 1997............. -- -- 7,345 73 674 7 104,761 (160) (1,439) 103,242
Dividends declared ($1.30 per share)... -- -- -- -- -- -- -- -- (11,325) (11,325)
Net proceeds from public stock offering -- -- 2,217 22 (217) (2) 28,368 -- -- 28,388
Repurchase of capital stock............ -- -- (937) (9) (457) (5) (6,125) -- -- (6,139)
Other comprehensive earnings........... -- -- -- -- -- -- -- 184 -- 184
Net loss............................... -- -- -- -- -- -- -- -- (11,013) (11,013)
----- ---- ------ --- ----- --- ------- ------ -------- --------
BALANCE, DECEMBER 31, 1998............. -- -- 8,625 86 -- -- 127,004 24 (23,777) 103,337
Dividends declared:
Common ($0.375 per share)............ -- -- -- -- -- -- -- -- (3,159) (3,159)
Preferred ($1.394 per share)......... -- -- -- -- -- -- -- -- (669) (669)
Repurchase of capital stock............ -- -- (207) (2) -- -- (1,070) -- -- (1,072)
Net proceeds from issuance of
preferred stock ..................... 480 5 -- -- -- -- 11,588 -- -- 11,593
Other comprehensive loss............... -- -- -- -- -- -- -- (7,521) -- (7,521)
Net loss............................... -- -- -- -- -- -- -- -- (5,715) (5,715)
----- ---- ------ ---- ----- --- --------- ------- -------- ---------
BALANCE, DECEMBER 31, 1999............. 480 $ 5 8,418 $84 -- $-- $137,522 $(7,497) $(33,320) $ 96,794
===== ==== ====== ==== ===== === ======== ======== ========= =========

See accompanying notes to consolidated financial statements.

</TABLE>

IMPAC COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

YEAR ENDED DECEMBER 31
----------------------- COMMENCEMENT
1999 1998 PERIOD
-------- ---------- -------------
OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net earnings (loss)..................................................... $ (5,715) $(11,013) $ 2,811
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Equity in losses (earnings) of ICCC.................................. -- 19,199 (1,694)
Stock compensation expense........................................... -- -- 2,697
Provision for loan losses/repurchases................................ 47 1,546 564
Purchase of residual interest in securitization held-for-trading..... -- -- (10,098)
Principal reductions on residual interest in securitization
held-for-trading.................................................. 470 1,387 1,178
Write-down of residual interest in securitization held-for-trading... 5,114 1,690 --
Accretion of residual interest in securitization held-for-trading.... (894) (1,931) (1,016)
Amortization of investment securities discount....................... (164) (152) (48)
Depreciation and amortization........................................ 2,856 1,503 65
Writedown of REO..................................................... 3,480 -- --
Net change in commercial mortgages held-for-sale..................... 45,089 -- --
Net change in accrued interest receivable............................ 544 (1,266) (1,361)
Net change in other assets and liabilities........................... 4,850 848 (366)
Net change in due from and due to affiliates......................... 810 (29,536) 6,475
-------- --------- --------
Net cash provided by (used in) operating activities................. 56,487 (17,725) (793)
-------- --------- --------

INVESTING ACTIVITIES:
Purchase of commercial mortgages held for investment.................... -- (478,840) (74,967)
Proceeds from sale of commercial mortgages held for investment.......... 4,017 165,380 --
Principal reductions on commercial mortgages held for investment........ 8,365 26,612 7,922
Increase in finance receivables......................................... -- (438,495) (228,821)
Principal reductions on finance receivables............................. -- 493,235 133,110
Investment in CMO collateral............................................ -- (14,286) --
Principal reductions on CMO collateral.................................. 6,993 16,046 --
Purchase of investment securities held available-for-sale............... (24,357) -- (20,202)
Principal reductions on investment securities held available-for-sale... 2,666 2,535 737
Purchase of premises and equipment...................................... (2,317) (1,338) (3,922)
Proceeds from sale of premises and equipment............................ 11,700 -- --
Contributions to ICCC................................................... 692 -- (2,375)
-------- --------- ---------
Net cash provided by (used in) investing activities................ 7,759 (229,151) (188,518)
-------- ---------- ---------

FINANCING ACTIVITIES:
Net change in warehouse line and reverse repurchase agreements.......... (50,497) (49,692) 100,215
Net change in CMO borrowings............................................ (10,492) 280,845 4,176
Issuance of common and preferred shares................................. 11,593 28,348 87,031
Repurchase of common shares............................................. (1,072) -- --
Issuance of promissory notes............................................ -- -- 15,000
Dividends paid.......................................................... (2,521) (14,372) (1,203)
-------- -------- ---------
Net cash provided by financing activities.......................... (52,989) 245,129 205,219
-------- -------- ---------
Net change in cash and cash equivalents.................................... 11,257 (1,747) 15,908
Cash and cash equivalents at beginning of period........................... 14,161 15,908 --
-------- -------- ---------
Cash and cash equivalents at end of period................................. $25,418 $ 14,161 $15,908
======= ======== =========
SUPPLEMENTARY INFORMATION:
Interest paid........................................................... $23,107 $ 20,236 $ 1,974
NON-CASH TRANSACTIONS:
Transfer of loans from held for investment to CMO collateral............ 3,169 325,001 4,255
Transfer of loans to other real estate owned............................ 4,632 -- --
Repurchase of common shares and Class A Common Stock.................... -- 6,139 --
Acquisition of premises and other assets in exchange for debt........... -- 6,000 --
Increase (decrease) in accumulated other comprehensive earnings (losses) (7,521) 184 (160)
Class A Common Stock issued to IMH for ICCC preferred shares............ -- -- 114
Conversion of promissory notes to preferred shares...................... -- -- 15,000
Conversion of common and preferred shares to Class A Common Stock....... -- -- 15,003
Dividends declared and unpaid........................................... 1,307 -- 3,047

See accompanying notes to consolidated financial statements.

</TABLE>

IMPAC COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS
DECEMBER 31, 1999

NOTE 1--BUSINESS

Impac Commercial Holdings, Inc. and subsidiaries ("Impac" or the
"Company"), a specialty commercial property finance company, earns income
from investing in commercial mortgage assets on a leveraged basis and other
activities in the commercial mortgage market. In response to certain market
conditions and other factors, certain management changes were made in 1999
and the Company's business plan has been modified. During 1999 Impac
substantially completed repositioning the assets in its portfolio by
selling certain assets, temporarily curtailing its mortgage conduit
operations and is in the process of investing in higher yielding assets and
evaluating other strategies with the goal of restoring profitability.

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF FINANCIAL STATEMENT PRESENTATION

The consolidated financial statements include the accounts of Impac
Commercial Holdings, Inc. (the "Parent"), its special-purpose finance
subsidiary and certain other entities, including, beginning January 1,
1999, Impac Commercial Capital Corporation ("ICCC"). ICCC was previously
reflected as an unconsolidated affiliate using the equity method; however,
on March 31, 1999 the Parent acquired the outstanding common stock of ICCC
representing 5% of the economic interest in ICCC. As a result, ICCC is now
a wholly-owned subsidiary of the Parent and beginning January 1, 1999 the
consolidated financial statements include the accounts of ICCC. All
significant intercompany balances and transactions have been eliminated.
Substantially all of the assets of the special-purpose finance subsidiary
are pledged to secure collateralized mortgage obligations ("CMOs") and are
not available for the satisfaction of general claims of Impac. The Parent
has no responsibility for CMOs beyond the assets pledged as collateral.

COMMENCEMENT PERIOD

The Company commenced operations on January 15, 1997. References to
the commencement period refer to the period from January 15, 1997 to
December 31, 1997.

RECLASSIFICATIONS

Certain amounts have been reclassified to conform to the current year
presentation.

USE OF ESTIMATES

Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the
consolidated financial statements, and the reported amounts of revenues and
expenses during the reporting period to prepare these consolidated
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include unrestricted cash on hand and highly
liquid investments with original maturities of three months or less.

COMMERCIAL MORTGAGE ASSETS AND FINANCE RECEIVABLES

Commercial mortgage assets held in the form of mortgage-backed
securities are debt securities. Management determines the appropriate
classification of debt securities at the time of purchase or
securitization, if previously held as mortgage loans, and periodically
reevaluates such designation. Debt securities are classified as
held-to-maturity when the Company has the positive intent and ability to
hold the securities to maturity. Held-to-maturity securities are stated at
amortized cost. Debt securities not classified as held-to-maturity are
classified as available-for-sale. Available-for-sale securities are stated
at fair value with unrealized gains (losses) reported as a separate
component of Accumulated other comprehensive earnings (loss) in
stockholders' equity. Trading securities are stated at fair value with
unrealized gains and losses included in earnings. Mortgage loans are
carried at the lower of cost or market determined on an aggregate basis.

Interest is recorded as income when earned. Any premium or discount is
recognized as an adjustment to interest income by the interest method over
the life of the related mortgage asset. Realized gains (losses) are
included in Other income. The cost of assets sold is based on the specific
identification method.

Commercial mortgage assets, including commercial mortgages underlying
finance receivables when held (see below), are continually evaluated for
collectibility and, if appropriate, may be placed on nonaccrual status,
generally when payments are 90 days past due, and previously accrued
interest may be reversed from income. Other than temporary impairment, if
any, is recognized in operating results at such time as a determination is
made that the Company will not recover its recorded investment. Any such
other than temporary impairment represents the difference between fair
value of the impaired asset and its carrying value.

Prior to August 1999, the Company, operated a mortgage conduit,
originating commercial loans through ICCC. Finance receivables represented
warehouse lines of credit with ICCC collateralized by commercial mortgage
loans. As a result of the consolidation of ICCC and the curtailment of the
conduit operations, the balance of finance receivables was zero as of
December 31, 1999. Finance receivables were stated at the principal balance
outstanding. Interest income was recorded on the accrual basis in
accordance with the terms of the underlying commercial mortgages.

ALLOWANCE FOR LOAN LOSSES

The Company maintains an allowance for losses on commercial mortgages
held for investment, CMO collateral and, previously, Finance receivables,
at an amount which it believes is sufficient to provide adequate protection
against losses on these investments. The allowance is based on management's
judgment of net loss potential, including specific allowances for known
impaired loans and other factors such as changes in the nature and volume
of these investments, and current economic conditions that may affect the
borrower's ability to pay. A provision is recorded for all loans or
portions thereof deemed to be uncollectible thereby increasing the
allowance for loan losses. Subsequent recoveries previously charged off are
credited back to the allowance.

DERIVATIVE FINANCIAL INSTRUMENTS

The Company may acquire derivative financial instruments
("Derivatives") for risk management purposes. Derivatives acquired from
time to time may include interest rate floors, swaps and caps, U.S.
Treasury futures contracts and options; written options on mortgage assets
or various other Derivatives available in the market place that are
compatible with the Company's risk management objectives. Owners of
Derivatives have credit risk associated with the counterparties to the
instruments. The Company manages this risk by dealing only with large,
financially sound investment banking firms. The Company did not hold any
Derivatives during 1999.

Realized and unrealized gains (losses) on Derivatives not designated
as hedges are taken directly to operating results. Realized and unrealized
gains (losses) on Derivatives designated as hedges reduce (increase) the
carrying amount of the assets hedged. Ongoing correlation and effectiveness
of such Derivatives is measured by comparing the change in value of the
hedges with the change in value of the assets hedged. Should a hedge prove
ineffective, hedge accounting would cease and the change in value of the
hedge instruments would be reflected in operating results. The cost of
acquiring Derivatives designated as hedges is reflected as a charge to
operating results as a component of the related hedged item over the
contractual lives of the instruments.

In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement o Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133
establishes accounting and reporting standards for Derivatives, including
certain Derivatives embedded in other contracts and for hedging activities.
It requires that an entity recognizes all Derivatives as either assets or
liabilities in the statement of financial position and measures those
instruments at fair value. If certain conditions are met, a Derivative may
be specifically designated as (a) a hedge of the exposure to changes in the
fair value of a recognized asset or liability or an unrecognized firm
commitment, (b) a hedge of the exposure to variable cash flows of a
forecasted transaction, or (c) a hedge of the foreign currency exposure of
a net investment in a foreign operation, an unrecognized firm commitment,
an available-for-sale security, or a foreign-currency-denominated
forecasted transaction. This statement is effective for the Company's
fiscal year ending December 31, 2001. The Company believes that the
adoption of SFAS 133 will not have a material impact on the Company's
financial position or results of operations.

PREMISES AND EQUIPMENT

Premises and equipment are stated at cost, less accumulated
depreciation or amortization. Depreciation on premises and equipment is
recorded using the straight-line method over the estimated useful lives of
individual assets (three to twenty years).

BORROWINGS

CMOs and borrowings under repurchase arrangements are carried at their
unpaid principal balances, net of unamortized discount or premium. Any
discount or premium is recognized as an adjustment to interest expense by
the interest method over the expected term of the related borrowings.

INCOME TAXES

Impac operates so as to qualify as a real estate investment trust
(REIT) under the requirements of the Internal Revenue Code (the Code).
Requirements for qualification as a REIT include various restrictions on
ownership of Impac's stock, requirements concerning distribution of
taxable income and certain restrictions on the nature of assets and
sources of income. A REIT must distribute at least 95% of its taxable
income to its stockholders, of which 85% must be distributed within the
taxable year in order to avoid the imposition of an excise tax and the
remaining balance may extend until timely filing of its tax return in the
subsequent taxable year. Qualifying distributions of its taxable income
are deductible by a REIT in computing its taxable income. If in any tax
year Impac should not qualify as a REIT, it would be taxed as a
corporation and distributions to the stockholders would not be deductible
in computing taxable income. If Impac were to fail to qualify as a REIT in
any tax year, it would not be permitted to qualify for that year and the
succeeding four years. In any year in which the Company qualifies as a
REIT, it generally will not be subject to Federal income tax on that
portion of its taxable income or net capital gain that is distributed to
its stockholders. The Company will, however, be subject to tax at normal
corporate rates on any net income or net capital gain not distributed. The
Company intends to distribute substantially all of its taxable income to
its stockholders.

NET EARNINGS (LOSS) PER SHARE

Basic net earnings per share are computed on the basis of the weighted
average number of shares outstanding. Diluted net earnings per share are
computed on the basis of the weighted average number of shares and common
equivalent shares outstanding, and assuming the conversion of outstanding
preferred shares, if the effects of conversion are dilutive. Stock options
and convertible preferred shares were not dilutive in 1999 and 1998
because of losses. The following table represents the computation of basic
and diluted earnings per share for the periods indicated (in thousands,
except per share data):

YEAR ENDED DECEMBER 31
------------------------ COMMENCEMENT
1999 1998 PERIOD
---------- ---------- ---------------

NUMERATOR:
Numerator for basic earnings per share--
<S> <C> <C> <C>
Net earnings (loss).............................................. $(5,715) $(11,013) $2,811
Less: Preferred stock dividends paid or accrued................. (669) -- --
-------- --------- -------
Net earnings (loss) available to common stockholders.......... $(6,384) $(11,013) $2,811
======= ======== ======
DENOMINATOR:
Denominator for basic earnings per share--weighted average
number of common shares outstanding during the period............ 8,462 8,773 4,631
Net effect of dilutive stock options.......................... -- -- 14
Net effect of dilutive convertible preferred shares*.......... -- -- --
------- --------- -------
Denominator for diluted earnings per share......................... 8,462 8,773 4,645
======= ========= =======

Net earnings (loss) per share--basic and diluted.................... $(0.75) $ (1.26) $ 0.61
======= ========= =======

* The assumed conversion of convertible preferred shares issued in May
1999 would have increased weighted average common shares outstanding
by 1,111,000 in 1999.
</TABLE>

STOCK-BASED COMPENSATION

Compensation cost for stock-based awards is generally measured as the
excess, if any, of the quoted market price of the Company's stock at the
date of the grant over the amount an employee must pay to acquire the stock
and is recognized as compensation expense as the awards vest and
restrictions lapse.

NOTE 3--INVESTMENT SECURITIES HELD AVAILABLE-FOR-SALE

The Company's investment securities are primarily secured by
commercial real property. The yield to maturity on each security depends,
among other things, on the rate and timing of principal payments (including
prepayments, repurchases, defaults and liquidations), the pass-through
rate, and interest rate fluctuations. Average effective interest rates
(calculated for the indicated year and excluding unrealized gains and
losses) along with amortized cost and estimated fair value information for
investment securities held available-for-sale is summarized as follows
(dollars in thousands):
<TABLE>
<CAPTION>
AVERAGE
AMORTIZED UNREALIZED UNREALIZED ESTIMATED EFFECTIVE
COST GAIN LOSS FAIR VALUE RATE
---------- ---------- ---------- ---------- -----------
AT DECEMBER 31, 1999:
Fixed-rate commercial mortgage-backed
<S> <C> <C> <C> <C> <C> <C>
securities ("CMBS").............................. $ 6,635 $-- $(3,915) $ 2,720 11.88%
Adjustable-rate CMBS............................... 24,396 22 (4) 24,414 8.24
Interest-only securities........................... 7,955 16 (3,616) 4,355 12.44
--------- ---- -------- ------- -----
$38,986 $38 $(7,535) $ 31,489 9.14%
======= === ======== ======= ======

AT DECEMBER 31, 1998:
Fixed-rate CMBS.................................... $ 6,515 $-- $ -- $ 6,515 11.88%
Interest-only securities........................... 10,615 24 -- 10,639 12.42
-------- ---- -------- -------- -----
$17,130 $24 $ -- $ 17,154 12.22%
======= === ======== ======= ======
</TABLE>

As of December 31, 1999 and 1998, the amortized cost of CMBS included
unamortized purchase discounts of $1.7 million and $1.3 million,
respectively. Interest-only securities are entitled to receive only coupon
interest stripped from pools of commercial mortgage loans, consequently,
the amortized cost of these securities represents unamortized purchase
premium.

NOTE 4--RESIDUAL INTEREST IN SECURITIZATION HELD-FOR-TRADING

The Company owns the residual interest in Southern Pacific Secured
Assets Corp. Mortgage Pass-Through Certificate 1995-2 (the "Residual).
Under the terms of the securitization, the Residual is required to build
over-collateralization to specified levels using excess cash flows after
payments required to senior securities until set percentages of the
securitized portfolio are attained. Future cash flows to the Residual
holder are all held by the real estate mortgage investment conduit
("REMIC") trust until a specific percentage of either the original or
current certificate balance is attained which percentage can be raised if
certain charge-off and delinquency ratios are exceeded. The certificate
holders' recourse for credit losses is limited to the amount of
over-collateralization in the REMIC trust or excess cash flows pending
distribution to the Residual holder. Upon maturity of the certificates or
upon exercise of an option ("clean up call") to repurchase all the
remaining commercial mortgages (once the balance of the commercial
mortgages in the trust and reduced to 10% of a specified balance of the
original commercial mortgages in the trust), any remaining amounts in the
trust are distributed. The current amount of any over-collateralization
balance held by the trust are recorded as part of the Residual.

NOTE 5--LOAN RECEIVABLES

CMO COLLATERAL

CMO collateral includes various types of mortgages secured by
commercial real property and loans to developers secured by first liens on
condominium complexes. All CMO collateral is pledged to secure CMO
borrowings. Approximately 50% of the principal amount of CMO collateral at
both December 31, 1999 and 1998 were collateralized by properties located
in California. During 1999 and 1998, the Company issued $3.1 million and
$301.8 million, respectively, of CMOs borrowings, which were collateralized
by $3.2 million and $325.0 million, respectively, of commercial mortgages.
The components of CMO collateral are summarized in the following table (in
thousands):

AT DECEMBER 31
-------------------------
1999 1998
---------- ----------

Commercial mortgages held as CMO collateral........ $301,198 $313,211
Unamortized net premiums........................... 3,338 6,134
Prepaid securitization costs....................... 7,616 7,214
-------- ----------
$312,152 $326,559
======== =========

Weighted average yields on CMO collateral for the years ended December
31, 1999 and 1998 were 7.68% and 7.42%, respectively.

COMMERCIAL MORTGAGES HELD FOR INVESTMENT AND FINANCE RECEIVABLES

Commercial mortgages held for investment include various types
mortgages secured by commercial real property and loans to developers
secured by first liens on condominium complexes. Approximately 72% of the
principal amount of commercial mortgages held for investment at December
31, 1999 were collateralized by properties located in Florida.
Approximately 47% of the principal amount of commercial mortgages held for
investment at December 31, 1998 were collateralized by properties located
in Arizona. Weighted average yields on commercial mortgages held for
investment for the years ended December 31, 1999 and 1998 were 8.48% and
8.23%, respectively. As of December 31, 1999, and 1998, commercial
mortgages held for investment included unamortized net premiums of $11,000
and $42,000, respectively.

In 1998, commercial mortgages held for sale by ICCC (which was
consolidated in 1999) were financed by Impac and reflected as Finance
receivables at December 31, 1998.

ALLOWANCE FOR LOAN LOSSES

Activity in the allowance for loan losses was as follows (in
thousands):

YEAR ENDED DECEMBER 31
---------------------- COMMENCEMENT
1999 1998 PERIOD
-------- -------- -------------
Balance, beginning of period... $2,110 $ 564 $ --
Provision for loan losses...... -- 1,546 564
Charge-offs.................... (683) -- --
------ -------- -------------
Balance, end of period......... $1,427 $2,110 $564
====== ======== =============

NOTE 6--PREMISES AND EQUIPMENT, NET

Premises and equipment totaled $3,000 and $9,710,000 at December 31,
1999 and 1998, respectively, before accumulated depreciation of $2,000 and
$564,000, respectively. On October 22, 1999 the Company sold its commercial
office building (the "Dove Street property") and related improvements for
$11.9 million recording a gain of $505,000.

NOTE 7--CMO BORROWINGS

Each issue of CMOs are fully payable from the principal and interest
payments on the underlying mortgage loans collateralizing such debt and any
investment income on such collateral. The maturity of each class of CMO is
directly affected by the rate of principal prepayments on the related CMO
collateral. Each CMO series is also subject to redemption according to
specific terms of the respective indentures. As a result, the actual
maturity of any class of a CMO series is likely to occur earlier than the
stated maturities of the underlying mortgage loans. The components of CMOs,
along with related other information, are summarized as follows (dollars in
thousands):

DECEMBER 31
--------------------------------------
1999 1998
--------------- ----------------

CMO borrowings:
Fixed-rate $253,230 $256,428
Adjustable-rate 24,857 33,335
Accrued interest payable 1,530 1,455
----------- -----------
Total obligation 279,617 291,218
Unamortized discount (5,088) (6,197)
----------- -----------
$274,529 $285,021
======== ========

Range of fixed interest rates* 6.06% to 7.58% 6.06% to 7.58%
Range of adjustable-rate
margins over 1-month LIBOR* 0.28% 0.18% to 1.30%
Number of series 2 3

* Excludes Impac CMB Trust 1999-1 with a $565,000 outstanding
balance at December 31, 1999 that adjusts every 6 months based on
6-month LIBOR, plus a margin of 2.88% to 7.40%, with interest
rates ranging from 10.00% to 18.25%.

The weighted average coupon on CMOs was approximately 6.60% and 6.50%
at December 31, 1999 and December 31, 1998, respectively.

NOTE 8--REVERSE REPURCHASE AGREEMENTS AND TERMINATED WAREHOUSE LINE AGREEMENTS

The Company enters into reverse repurchase agreements whereby specific
CMBS and interest-only securities are pledged as collateral to secure
short-term loans. Interest is payable upon the maturity of the loans. The
interest rates on the loans are based on one-month LIBOR plus a margin
depending on the type of collateral provided by the Company. The following
table sets forth information regarding reverse repurchase agreements with
maturities of 31 days or less (dollars in thousands):

AT DECEMBER 31, 1999 AT DECEMBER 31, 1998
--------------------------------------- ---------------------------------------
REVERSE WEIGHTED REVERSE WEIGHTED
TYPE OF REPURCHASE UNDERLYING AVERAGE REPURCHASE UNDERLYING AVERAGE
COLLATERAL LIABILITY COLLATERAL RATE LIABILITY COLLATERAL RATE
----------------------------------- ------------- ------------- ----------- ------------- ------------- ----------

<S> <C> <C> <C> <C> <C> <C>
CMBS and interest-only securities $3,936 $5,408 7.28% $4,869 $12,839 6.67%
</TABLE>

At December 31, 1999 and 1998, reverse repurchase agreements included
accrued interest payable of $11,000 and $15,000, respectively. The weighted
average effective interest rate on borrowings under reverse repurchase
arrangements was 6.40% and 6.22% during 1999 and 1998, respectively.

Prior to curtailing its mortgage conduit operations, the Company used
warehouse line agreements with investment banks to fund the purchase of
commercial mortgages. No such borrowings were outstanding at December 31,
1999 as these lines were not renewed upon expiration in 1999. The interest
rates on the loans were based on 1-month LIBOR or Eurodollar Rate plus a
margin depending on the type of mortgage collateral provided. The loan
amounts generally ranged from 75% to 92% of the fair market value of the
collateral. At December 31, 1998, $45.7 million of these borrowings were
outstanding, including accrued interest of $244,000, and were secured by
$59.8 million in collateral. The weighted average borrowing rates were
6.28% and 6.70% in 1999 and 1998, respectively.

NOTE 9--DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair value of financial instruments have been determined
using available market information and appropriate valuation methodologies;
however, considerable judgment is necessarily required to interpret market
data to develop the estimates of fair value. In addition, fair values
fluctuate on a daily basis. Accordingly, the estimates presented herein are
not necessarily indicative of the amounts that could be realized in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair
value amounts.

The carrying amounts of cash and cash equivalents, due from/to
affiliates, and borrowings under reverse repurchase agreements approximate
fair value. The fair value of mortgage assets were estimated using either
(i) quoted market prices when available, including quotes made by lenders
in connection with designating collateral for borrowings, or (ii) offer
prices for similar assets or market positions. The fair value of fixed-rate
CMO borrowings was estimated based on the use of a bond model, which
incorporates certain assumptions such as yield, prepayments and losses. The
fair value of adjustable-rate CMO borrowings approximate carrying amount
because of the variable interest rates nature of the borrowings. The
following table summarizes fair value disclosures for financial instruments
(in thousands):
<TABLE>
<CAPTION>

AT DECEMBER 31, 1999 AT DECEMBER 31, 1998
-------------------------- -------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------------ ------------ ------------ ------------
ASSETS
------
<S> <C> <C> <C> <C>
Cash and cash equivalents.................................... $ 25,418 $ 25,418 $ 14,161 $ 14,161
Investment securities held available-for-sale................ 31,489 31,489 17,154 17,154
Residual interest in securitization held-for-trading......... 4,100 4,100 8,790 8,790
CMO collateral............................................... 312,152 268,284 326,559 324,923
Commercial mortgages held for investment..................... 4,362 4,362 24,569 23,941
Finance receivables.......................................... -- -- 40,972 40,972
Due from affiliates.......................................... -- -- 22,131 22,131

LIABILITIES
-----------
CMO borrowings............................................... 274,529 251,698 285,021 286,637
Reverse repurchase agreements................................ 3,936 3,936 4,869 4,869
Warehouse line agreements.................................... -- -- 45,654 45,654
Due to affiliates............................................ 67 67 11,170 11,170
</TABLE>

NOTE 10--COMMITMENTS AND CONTINGENCIES

COMMERCIAL MORTGAGE LOAN SALES COMMITMENTS

The Company has exposure to liability under representations and
warranties made to purchasers and insurers of mortgage loans and the
purchasers of servicing rights in the ordinary course of the curtailed
mortgage conduit operations. Under certain circumstances, Impac may be
required to repurchase mortgage loans if there had been a breach of
representations or warranties.

LITIGATION

The Bresta Futura Action. On July 28, 1999, an action was filed
against Impac in the Superior Court for the State of California, County of
Orange. Plaintiff in the action, Bresta Futura V B.V., a Netherlands
corporation, alleges that Impac breached its lease agreement with Redstone
Plaza Associates, a California general partnership of which Bresta Futura
is the general partner. The lease with Redstone relates to a property which
was to be occupied by ICCC. Bresta Futura is seeking damages in excess of
$1.0 million consisting of unpaid rent from December 1, 1998 through the
present time on the remaining portion of the property that has not been
subleased, late charges and interest due on the unpaid rent, reasonable
attorneys' fees and related expenses. Impac answered Bresta Futura's
complaint on September 14, 1999, generally denying the allegations of the
complaint and asserting specific affirmative defenses. A trial has been
scheduled for July 17, 2000. Recently, Bresta Futura filed an application
for right to attach order and writ of attachment, seeking the right to
attach property of Impac in the amount of $1.0 million. At a hearing held
on March 23, 2000 this application was denied by the court. Impac intends
to vigorously defend this action.

In August 1999 the Company entered into an Agreement and Plan of
Merger with AMRESCO Capital Trust ("AMRESCO") pursuant to which Impac was
to be merged with and into AMRESCO, with AMRESCO continuing as the
surviving entity in the merger. The AMRESCO merger was conditioned upon,
among other things, the satisfactory completion of due diligence and
regulatory and stockholder approvals. Subsequent to entering into the
merger agreement with AMRESCO, the Company's Board of Directors received an
unsolicited proposal from another mortgage REIT, Apex Mortgage Capital,
Inc. ("Apex"), pursuant to which Apex proposed that the Company abandon the
AMRESCO merger and instead merge with Apex. On October 22, 1999, following
significant deliberations with legal counsel and financial advisors, the
Board unanimously determined that a combination with Apex was not in the
best interests of the Company and it stockholders. On January 4, 2000 the
Company announced that it had terminated its proposed merger with AMRESCO
citing changes in market conditions and Impac's improved liquidity which
made the proposed merger less advantageous. Three civil actions: (i) Parnes
v. Impac Commercial Holdings, Inc., et al; (ii) Hillson Partners, LP v.
Impac Commercial Holdings, Inc., et al.; and (iii) Lee S. Brandeis v. Impac
Commercial Holdings, Inc. et al recently filed against Impac and certain
other parties in connection with the merger of the Company with AMRESCO and
the Company's rejection of the unsolicited offer from Apex, have been
dismissed.

NOTE 11--STOCKHOLDERS' EQUITY

On May 5, 1999 the Company entered into a stock purchase agreement
with Fortress Partners L.P. ("Fortress"), an affiliate of the Company's new
manager (see Note 13). Under the terms of the stock purchase agreement, the
Company issued to Fortress 479,999 shares of a newly created series
non-voting convertible of preferred stock for an aggregate purchase price
of $11,999,975 ($25 per share) in an unregistered private placement
pursuant to Section 4(2) of the Securities Act of 1933. The preferred
stock, which has been designated "Series B 8.5% Cumulative Convertible
Preferred Stock," is entitled to a cumulative fixed dividend at an annual
rate of $2.125 (8.5% of the issue price), paid quarterly in arrears, and is
initially convertible into 1,683,635 shares of the common stock, subject to
adjustment under certain circumstances. Under the terms of a related
registration rights agreement, Fortress has the right to require the
Company to register under federal and applicable state securities laws the
common stock issuable upon conversion of the Company's Series B preferred
stock. The Series B shares have a liquidation preference of $25 per share
and are redeemable at $25 per share at the Company's option after May 5,
2004. The Company may redeem the shares sooner if the average closing
price of the Company's common shares exceeds 150% of the Series B shares,
conversion price (currently $7.13 per share) for at least 20 consecutive
trading days. Costs associated with this issuance totaled $597,000. At
December 31, 1999, the Company accrued $255,000 in preferred stock
dividends.

Subsequent to its acquisition of the preferred shares, an affiliate of
Fortress acquired 832,400 common shares through open market purchases.
Assuming conversion of the preferred shares and including these open market
purchases of common shares, Fortress' equity interest would represent
approximately 25% of the combined voting power of the Company.

In September 1998 the Board of Directors authorized the Company to
repurchase up to $5.0 million of its common shares, in open market
purchases from time to time at the discretion of the Company's management.
Through February 16, 1999, the Company had not repurchased any shares under
this program. In March 1999 the Company repurchased 206,800 common shares
outstanding at an average price of $5.18 for a total purchase price of $1.1
million. The acquired shares were canceled. On December 29, 1999 the Board
superceded this initial repurchase authorization with a new authorization
to repurchase up to 10% of the outstanding common shares from time to time
at such prices and pursuant to such procedures as management deems prudent
and appropriate. On March 10, 2000 this authorization was increased to 20%
of the outstanding common shares calculated assuming conversion of the
Series B preferred shares.

On October 7, 1998 the Company's Board of Directors adopted a
Stockholder Rights Plan in which Preferred Stock Purchase Rights ("Rights")
were distributed to holders of the Company's common shares as a dividend on
October 19, 1998 at the rate of one Right for each outstanding common
share. The Rights are attached to the common shares and expire October 19,
2008. The Rights will be exercisable and trade separately only if a person
or group acquires or announces the intent to acquire 10% or more of the
Company's common shares and such person or group does not subsequently
reduce its ownership below 10% at the request of the Board. Each Right will
entitle stockholders to buy one one-hundredth of a share of a new series of
Series A junior participating preferred stock at an exercise price of
$16.25. If the Company is acquired in a merger or other transaction after a
person has acquired 10% or more of the outstanding common shares, each
Right will entitle the stockholder to purchase, at the Right's then-current
exercise price, a number of the acquiring company's common shares having a
market value of twice such price or a number of the Company's common shares
having a market value of twice such price, depending on the structure of
the transaction. Following such an acquisition, and before an acquisition
of 50% or more of the outstanding common shares, the Board may exchange the
Rights (other than the Rights owned by such person) at an exchange ratio of
one common share per Right. Before a person or group acquires ownership of
10% or more common shares, the Rights are redeemable for $0.0001 per right
at the option of the Board.

In August 1997 the Company completed its initial public common stock
offering raising $88.2 million, net of underwriting expenses, through the
issuance of 6,325,000 common shares at a price of $15.00 per share. In June
1998 the Company completed an additional public common stock offering
raising $28.4 million, net of underwriting expenses, through the issuance
of 2,000,000 common shares at a price of $15.3125 per share.

NOTE 12--STOCK OPTION AND AWARDS PLAN

In 1997 the Company adopted a Stock Option and Awards Plan (the
"Plan") which provides for the grant of qualified incentive stock options
("ISOs"), options not qualified ("NQSOs") and deferred stock, restricted
stock, stock appreciation, and limited stock appreciation rights awards
("Awards") and dividend equivalent rights. The Plan is administered by the
Board of Directors or a committee of directors appointed by the Board. ISOs
may be granted to the officers and key employees of the Company. NQSOs and
Awards may be granted to the directors, officers and key employees of the
Company or its subsidiaries, and to the directors, officers and key
employees of ICCC. The exercise price for any NQSO or ISO granted under the
Plan may not be less than 100% (or 110% in the case of ISOs granted to an
employee who is deemed to own in excess of 10% of the outstanding Common
Stock) of the fair market value of the shares of Common Stock at the time
the NQSO or ISO is granted. Unless previously terminated by the Board of
Directors, the Plan will terminate in April 2007. Options granted under the
Plan will become exercisable as directed by the administrator. As of
December 31, 1999, 1998 and 1997, and 590,991, 214,078 shares and 420,250
shares respectively, were available for future grants under the Plan. The
following table provides information regarding common stock option activity
for the periods indicated:
<TABLE>
<CAPTION>

WEIGHTED
NUMBER OF AVERAGE RANGE OF
SHARES EXERCISE PRICE EXERCISE PRICE
---------- -------------- --------------
<S> <C> <C> <C>
As of January 15, 1997 -- $ -- $ --
Granted 222,250 15.41 15.00-18.80
Forfeited or canceled (10,000) 15.41 15.00-18.80
---------- -------------- --------------
As of December 31, 1997 (none exercisable) 212,250 15.41 15.00-18.80
Granted (average fair value: $1.48 per share) 293,510 9.77 6.00-17.60
Forfeited or canceled (87,338) 16.76 6.00-18.80
---------- -------------- --------------
As of December 31, 1998 (65,663 exercisable) 418,422 11.17 6.00-18.80
Forfeited or canceled (376,913) 11.26 6.00-18.80
---------- -------------- --------------
As of December 31, 1999 (37,169 exercisable) 41,509 $10.34 $ 6.00-15.00
========== ============== ==============
</TABLE>

In November 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). SFAS 123 permits the Company to
either recognize as expense over the vesting period, the fair market value
of all stock based compensation awards on the date of grant, or continue to
apply the provisions of Accounting Principles Board ("APB") Opinion No. 25
and provide pro forma disclosures of net earnings (loss) computed as if the
fair value based method as defined in SFAS 123 had been applied. The
Company elected to continue to apply APB Opinion No. 25 in accounting for
the Plan and, accordingly, no compensation cost has been recognized for its
stock options in the financial statements.

Had the Company determined compensation cost based on the fair value
at the grant date for its stock options exercisable under SFAS No. 123, the
Company's net earnings (loss) and earnings (loss) per share would have
decreased (increased) to the pro forma amounts indicated below (in
thousands):
<TABLE>
<CAPTION>

YEAR ENDED DECEMBER 31 COMMENCEMENT
1999 1998 PERIOD
--------- ---------- ---------------

<S> <C> <C> <C>
Net earnings (loss) as reported................................. $(5,715) $(11,013) $2,811
Pro forma net earnings (loss)................................... (5,715) (12,010) 2,280
Basic and diluted earnings (loss) per share as reported......... (0.75) (1.26) 0.61
Basic and diluted pro forma earnings (loss) per share........... (0.75) (1.37) 0.49
</TABLE>

No options were granted in 1999. The derived fair value of the options
granted during 1998 and 1997 was approximately $3.90 and $2.39 per share,
respectively, using the Black-Scholes option pricing model with the
following assumptions: risk-free interest rate of 5.10% and 5.84%,
respectively, dividend yield of 8.1% and 8.7%, respectively, expected lives
of 3.9 and 9.3 years, respectively, and expected volatility of 92.7% and
37.2%, respectively.

NOTE 13--MANAGEMENT AGREEMENT

On May 5, 1999, FIC Management Inc., ("FIC Management" or the
"Manager") an affiliate of Fortress, entered into an agreement with RAI
Advisors, the then manager of Impac, pursuant to which RAI Advisors
assigned to FIC Management all of RAI Advisors' rights and interests in the
existing management agreement between RAI Advisors and Impac in exchange
for cash consideration in the aggregate amount of $6.0 million. Following
the assignment, FIC Management became the external manager of Impac. The
Manager is responsible for asset and liability management, capital
management, investor relations activities and operations management.

The manager is entitled to receive for each fiscal quarter, an amount
equal to 25% of Impac's taxable net income before management fees, in
excess of the amount that would produce an annualized return on equity (as
defined in the agreement) equal to the daily average 10-Year U.S. Treasury
Rate plus 2%. The management fee is calculated quarterly in arrears before
any income distributions are made to stockholders for the corresponding
period.

In addition, Impac pays all operating expenses incurred by the
Manager under the management agreement, including out-of-pocket costs,
equipment, personnel required specifically for Impac's operations, and
amounts payable by the Manager pursuant to related submanagement
agreements. Impac reimburses the Manager for all such reimbursable
expenses, plus a service charge of 15% on all reimbursable expenses
incurred directly by the Manager. No service charge is payable to third
party service providers. Amounts paid to FIC Management by Impac for
reimbursable express in 1999 were $1.6 million. Amounts paid to the former
managers by Impac and ICCC for reimbursable expenses totaled $464,000, $1.1
million and $1.0 million during 1999, 1998 and 1997, respectively.

The management agreement expires December 31, 2002 and may be extended
with the consent of the Manager and by the affirmative vote of a majority
of independent Impac directors, or by majority vote of the common
stockholders. The agreement may be terminated for cause on 30 days notice.
The agreement may be terminated without cause on 60 days notice by a
majority vote of the independent Impac directors or the common
stockholders. If the agreement is terminated without cause or not renewed,
the Manager is entitled to payment of all accrued management fees and
reimbursable expenses up to the date of termination plus a termination fee
or non-renewal fee, as the case may be, determined by an independent
appraisal.

In connection with the transactions described above, the following
additional events occurred: (i) the submanagement agreement among RAI
Advisors, Impac Mortgage Holdings, Inc., a former affiliate of Impac
("Impac Mortgage"), and Impac Funding Corp., a former affiliate of Impac
which conducted Impac Mortgage's conduit operations ("Impac Funding"), was
terminated and a new submanagement agreement was entered into among FIC
Management, Impac Mortgage and Impac Funding; (ii) the right of first
refusal agreement among Impac, ICCC, RAI Advisors, Impac Mortgage and Impac
Funding was terminated; (iii) James Walsh, Timothy Busch, Stephan Peers and
Thomas Poletti resigned as directors of Impac and Wesley Edens, Robert
Kauffman and Christopher Mahowald, all of whom are designees of Fortress,
were appointed to the Impac Board of Directors (Joseph Tomkinson and Frank
Filipps, who served on the Impac Board prior to the Fortress investment,
remain as Impac directors); and (iv) the executive officers of Impac then
serving resigned as a group. Following these resignations, the Board of
Directors appointed Mr. Edens as Impac's new chairman of the board and
chief executive officer; Mr. Kauffman as Impac's new president; Randal
Nardone as Impac's new chief operating officer and secretary; and Erik
Nygaard as Impac's new chief information officer and treasurer.

The new submanagement agreement with Impac Mortgage and Impac Funding
provides for substantially all administrative services required by the
Company including facilities and costs associated therewith, technology,
human resources, management information systems, general ledger accounts,
check processing and accounts payable. The Manager may also enter into
additional contracts with other parties to provide any such services for
the Manager, which third party shall be approved by the Company's Board of
Directors.

NOTE 14--RELATED PARTY TRANSACTIONS

The bylaws of Impac provide that a majority of the Impac board of
directors -- and at least a majority of each committee of the board of
directors -- must not be affiliates of the Manager, and that the investment
policies of Impac must be reviewed annually by Impac's unaffiliated
directors. These policies and any restrictions thereon may be established
from time to time by the board of directors, including a majority of
Impac's unaffiliated directors. In addition, any transaction between Impac
and any affiliated person requires the affirmative vote of a majority of
the unaffiliated directors.

On December 31, 1997, IMH/ICH Dove Street, LLC, in which Impac owns a
50% interest, financed its acquisition of the Dove Street property with a
loan for $5.2 million from ICCC, of which $2.6 million represented Impac's
portion. During 1998, the highest amount outstanding under the loan was
$5.2 million. The terms of the loan provided for a 25-year amortization
period due in 10 years at an adjustable rate of 9.0% with monthly principal
and interest payments of $44,000, of which Impac paid $22,049. ICCC
received loan fees of $71,000 upon origination of the loan in 1997. The
loan was paid in full in the fourth quarter of 1998 with proceeds from the
sale of commercial mortgages. On October 27, 1998, Impac purchased from
Impac Mortgage its remaining 50% ownership interest in the Dove Street
property for $6.0 million. Impac then owned 100% of the property until it
was sold in October 1999. In June 1998, Impac Mortgage and Impac Funding
entered into a premises operating lease with IMH/ICH Dove Street, LLC to
rent approximately 74,000 square feet of office space located at the Dove
Street property. The lease was transferred to Impac in connection with the
above transaction. The lease agreement is for a term of 10 years expiring
in May 2008 with monthly lease payments of approximately $145,000 per
month. For the years ended December 31, 1999 and 1998, Impac Mortgage and
Impac Funding paid an aggregate of approximately $1.2 million and $888,000,
respectively, under the lease.

During the normal course of business, Impac may advance to or borrow
funds on a short-term basis from affiliated companies. Advances to
affiliates are reflected on Impac's balance sheet as "Due From Affiliates"
while borrowings are reflected as "Due To Affiliates." These short-term
advances and borrowings bear interest at a fixed rate of 8.00% per annum.
As of December 31, 1999, no amount was due from affiliates and there was a
$67,000 balance due to affiliates. In August 1997, Impac entered into a
revolving credit arrangement with Impac Mortgage whereby Impac agreed to
advance to Impac Mortgage up to a maximum amount of $15.0 million. Advances
under the revolving credit arrangement were at an interest rate and
maturity to be determined at the time of each advance -- typically, prime
plus 1% -- with interest and principal paid monthly. During 1998, the
largest aggregate amount outstanding under the credit arrangement was $13.2
million at an interest rate of 9.5%. The credit arrangement was terminated
in January 1999. On November 9, 1998, Impac Funding borrowed $5.0 million
from Impac on a demand note secured by mortgage servicing rights of $1.1
billion at an interest rate of 10%. This rate was adjusted to 15% on
December 15, 1998. The largest amount outstanding under the note during
1998 was $5.0 million. On December 22, 1998, this note was paid in full.

As of December 31, 1999, Impac had $10.1 million of cash and cash
equivalents on deposit with Southern Pacific Bank (SPB), a subsidiary of
Imperial Credit Industries, Inc. of which Mr. Tomkinson is a director.

NOTE 15--SEGMENT REPORTING

The Company's basis for segment reporting is to divide its operations
into two segments that derive income from (a) long-term assets and (b) the
origination and sale of mortgage loans (the curtailed conduit operations
conducted by ICCC). The following table breaks out ICH's segments as of and
for the periods indicated (in thousands):
<TABLE>
<CAPTION>

1999 1998 1997
--------------------------------------------- ------------------- --------------------
LONG-TERM LONG-TERM LONG-TERM
INVESTMENT CONDUIT ELIMINATIONS CONSOLIDATED INVESTMENT CONDUIT INVESTMENT CONDUIT
---------- ------- ------------ ------------ ---------- ------- ---------- -------
* ** **
BALANCE SHEET:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net loan receivables........ $315,087 $ -- $ -- $315,087 $389,990 $44,854 $162,192 $106,654
Total assets................ 381,136 510 (2,488) 379,157 451,219 54,200 218,839 112,635
Total stockholders' equity.. 99,302 (19) (2,488) 96,794 103,337 (15,804) 103,242 4,403

STATEMENT OF OPERATIONS:
Net interest income (expense) 8,527 (229) 415 8,713 14,269 (1,025) 5,109 47
Net intersegment interest
income
(expense)................ 1,784 (1,784) -- -- 9,064 (9,064) 2,372 (2,372)
Equity in net earnings (loss) -- -- -- -- (19,199) -- 1,694 --
in ICCC..................
Net earnings (loss)......... (21,501) 15,786 -- (5,715) (11,013) (20,207) 2,811 1,377
</TABLE>

* Eliminations of intersegment balances and transactions between the
long-term investment and the conduit operations.
** For 1998 the conduit operations were accounted for based on the equity
method and not consolidated. See "Note 2 - Basis of Financial Statement
Presentation."

NOTE 16--QUARTERLY FINANCIAL DATA (UNAUDITED)

The following is a summary of selected quarterly financial data (in
thousands, except per share data). See Note 1 for discussion of significant
changes to the Company's operations during 1999 and 1998 that have impacted
quarterly results and may impact future operations.
<TABLE>
<CAPTION>

FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ------------ ----------- -------------
YEAR ENDED DECEMBER 31, 1999:*

<S> <C> <C> <C> <C>
Net interest income after provision for loan losses.... $ 2,577 $ 2,448 $ 1,885 $ 1,803
Non-interest income.................................... 249 761 879 309
Non-interest expense................................... 3,046 2,352 8,002 3,226
Net earnings (loss).................................... (220) 858 (5,238) (1,115)
Net earnings (loss) per share - basic and diluted**.... (0.03) 0.08 (0.65) (0.16)
Dividends declared per common share.................... -- 0.125 0.125 0.125

YEAR ENDED DECEMBER 31, 1998:*

Net interest income after provision for loan losses.... 3,010 3,570 3,306 2,837
Non-interest income (loss)............................. (345) (105) (14,243) (3,805)
Non-interest expense................................... 488 792 2,288 1,670
Net earnings (loss).................................... 2,177 2,673 (13,225) (2,638)
Net earnings (loss) per share - basic and diluted**.... 0.27 0.33 (1.32) (0.30)
Dividends declared per common share.................... 0.40 0.45 0.45 --
</TABLE>

* Conforms to current year presentation.
** Earnings per share are computed independently for each of the
quarters presented. Therefore, the sum of the quarterly earnings per
share may not equal the total for the year.

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Impac Commercial Capital Corporation:

We have audited the accompanying consolidated balance sheet of Impac
Commercial Capital Corporation and subsidiary as of December 31, 1998, and
the related consolidated statements of operations, changes in shareholders'
equity and cash flows for the year ended December 31, 1998 and for the
period from January 15, 1997 (commencement of operations) through December
31, 1997. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Impac Commercial Capital Corporation and subsidiary as of
December 31, 1998, and the results of their operations and their cash flows
for the year ended December 31, 1998 and for the period from January 15,
1997 (commencement of operations) through December 31, 1997 in conformity
with generally accepted accounting principles.

/S/ KPMG LLP
------------
Orange County, California
February 3, 1999

IMPAC COMMERCIAL CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(DOLLAR AMOUNTS IN THOUSANDS)

DECEMBER 31, 1998
-----------------
ASSETS
------
<S> <C>
Cash.................................................................................... $ 692
Commercial mortgages held-for-sale...................................................... 44,854
Due from affiliates..................................................................... 5,740
Premises and equipment, net............................................................. 909
Accrued interest receivable............................................................. 272
Deferred tax asset...................................................................... --
Other assets............................................................................ 1,733
--------------
Total assets....................................................................... $ 54,200
==============

LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Warehouse line agreements............................................................... $ 44,881
Due to affiliates....................................................................... 21,101
Other liabilities....................................................................... 4,022
--------------
Total liabilities.................................................................. 70,004
--------------
Commitments and contingencies

Shareholders' Equity:
Preferred stock; no par value; 50,000 shares authorized;
9,500 shares issued and outstanding................................................ 2,875
Common stock; no par value; 50,000 shares authorized;
500 shares issued and outstanding.................................................. 1
Contributed capital.................................................................. 150
Accumulated deficit.................................................................. (18,830)
--------------
Total shareholders' equity......................................................... (15,804)
--------------
$ 54,200
==============
</TABLE>

See accompanying notes to consolidated financial statements.

IMPAC COMMERCIAL CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS)

YEAR ENDED COMMENCEMENT
DECEMBER 31, 1998 PERIOD
------------------- ---------------

INTEREST INCOME:
<S> <C> <C>
Commercial mortgages held-for-sale....................................... $ 9,573 $2,787
Cash and due from affiliates............................................. 205 17
---------- ---------
Total interest income.................................................. 9,778 2,804
--------- -------

INTEREST EXPENSE:
Borrowings from ICH...................................................... 9,064 2,372
Other affiliated borrowings.............................................. 1,739 375
--------- --------
Total interest expense................................................. 10,803 2,747
-------- -------

Net interest income (expense)............................................ (1,025) 57

NON-INTEREST INCOME:
Gain (loss) on sale of loans............................................. (14,345) 3,657
Other income............................................................. 24 62
------------ ---------
Total non-interest income.............................................. (14,321) 3,719

NON-INTEREST EXPENSE:
Personnel expense........................................................ 2,507 38
General and administrative and other expense............................. 1,070 288
Occupancy expense........................................................ 1,036 160
Professional services.................................................... 752 540
Provision for repurchases................................................ 176 201
Stock compensation expense............................................... -- 150
----------- --------
Total non-interest expense............................................. 5,541 1,377
---------- -------

Net earnings (loss) before income taxes.................................. (20,887) 2,399
Income taxes (benefit)................................................... (680) 1,022
------------ -------
Net earnings (loss)...................................................... $(20,207) $1,377
======== ======

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

IMPAC COMMERCIAL CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(DOLLAR AMOUNTS IN THOUSANDS)

PREFERRED STOCK COMMON STOCK
------------------- ------------------- RETAINED
NUMBER NUMBER EARNINGS TOTAL
OF DOLLAR OF DOLLAR CONTRIBUTED (ACCUMULATED SHAREHOLDERS
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT) EQUITY
--------- --------- --------- ------- ----------- ------------ --------------
BALANCE, JANUARY 15, 1997
<S> <C> <C> <C> <C> <C> <C> <C>
(commencement of operations)..... -- $ -- -- $ -- $ -- $ -- $ --
Issuance of common stock............ -- -- 500 1 25 -- 26
Issuance of preferred stock......... 9,500 500 -- -- -- -- 500
Capital contribution................ -- 2,375 -- -- 125 -- 2,500
Net earnings........................ -- -- -- -- -- 1,377 1,377
------ -------- --- --- ----- ---------- ----------
BALANCE, DECEMBER 31, 1997.......... 9,500 2,875 500 1 150 1,377 4,403
----- ------- --- ----- ----- ---------- ----------
Net loss -- -- -- -- -- (20,207) (20,207)
------ -------- --- --- ----- ---------- ---------
BALANCE, DECEMBER 31, 1998.......... 9,500 $2,875 500 $ 1 $150 $(18,830) $(15,804)
===== ====== === ==== ==== ======== ========

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

IMPAC COMMERCIAL CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

YEAR ENDED COMMENCEMENT
DECEMBER 31, 1998 PERIOD
-------------------- ------------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net earnings (loss) ..................................................... $ (20,207) $ 1,377
Adjustments to reconcile net earnings (loss) to net cash provided by
(used in) operating activities:
Depreciation........................................................... 226 50
Deferred income taxes.................................................. 924 (924)
Stock compensation expense............................................. -- 150
Provision for repurchases.............................................. 176 201
Net change in accrued interest receivable.............................. 65 (337)
Net change in due from affiliates and due to affiliates................ 16,141 (780)
Net change in other assets and liabilities............................. (614) 2,526
------------- -------------
Net cash provided by (used in) operating activities................. (3,289) 2,263
------------- -------------

INVESTING ACTIVITIES:
Originations of Commercial Mortgages held-for-sale...................... (425,096) (233,545)
Sale of Commercial Mortgages held-for-sale............................... 486,896 126,891
Purchases of premises and equipment...................................... (754) (431)
------------- -------------
Net cash provided by (used) in investing activities................. 61,046 (107,085)
------------- -------------

FINANCING ACTIVITIES:
Net change in warehouse line agreements.................................. (59,338) 104,219
Issuance of preferred stock.............................................. -- 500
Issuance of common stock................................................. -- 1
Contributions from ICH................................................... -- 2,375
------------- -------------
Net cash provided by (used in) financing activities................. (59,338) 107,095
------------- -------------

Net change in cash and cash equivalents..................................... (1,581) 2,273
Cash and cash equivalents at beginning of period............................ 2,273 --
------------- -------------
Cash and cash equivalents at end of period.................................. $ 692 $ 2,273
============= =============

SUPPLEMENTARY INFORMATION:
Interest paid............................................................ $ 11,779 $ 2,276
Taxes paid............................................................... 486 422

NON-CASH TRANSACTIONS:
Issuance of Common Stock................................................. $ -- $ 25
Capital contribution of common stockholders.............................. -- 125

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

NOTE A--SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

1. BASIS OF FINANCIAL STATEMENT PRESENTATION

The operations of the Company have been presented in the consolidated
financial statements for the year ended December 31, 1998 and for the
period from January 15, 1997 (commencement of operations) through December
31, 1997 ("Commencement Period") and include the financial results of Impac
Commercial Capital Corporation ("ICCC") as a stand-alone company.

Interest income on affiliated short-term advances (Due from
affiliates) has been earned at the rate of 8% per annum. Interest expense
on affiliated short-term borrowings (Due to affiliates), has been incurred
at the rate of 8% per annum. Costs and expenses of IMH have been allocated
to ICCC in proportion to services provided, plus a 15% service charge.
Certain amounts in the prior period's consolidated financial statements
have been reclassified to conform to the current presentation.

Management of ICCC has made a number of estimates and assumptions
relating to the reporting of assets and liabilities, the 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 to prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates.

2. CASH AND CASH EQUIVALENTS

For purposes of the statement of cash flows, cash and cash equivalents
consist of cash and money market mutual funds. The Company considers
investments with maturities of three months or less at date of purchase to
be cash equivalents.

3. COMMERCIAL MORTGAGES HELD-FOR-SALE

Commercial mortgages held-for-sale are stated at the lower of cost or
market in the aggregate as determined by outstanding commitments from
investors or current investor yield requirements. Interest is recognized as
revenue when earned according to the terms of the commercial mortgages and
when, in the opinion of management, it is collectible. Nonrefundable fees
and direct costs associated with the origination or purchase of loans are
deferred and recognized when the loans are sold as gain or loss on sale of
mortgage loans, except related to loans sold to ICH, which nonrefundable
fees and costs fees are deferred and recognized over the life of the loans
using the interest method.

4. GAIN ON SALE OF LOANS

ICCC recognizes gains or losses on sale of loans when the sales
transaction settles and the risks and rewards of ownership are determined
to have passed to the purchasing party. Gains on sale of loans or
securities to ICH are deferred and accreted over the estimated life of the
loans or securities using the interest method.

5. INCOME TAXES

Income taxes are accounted for under the asset and liability method of
accounting for income taxes. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax basis. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.

6. COMMERCIAL MORTGAGE SERVICING INCOME

Servicing income is reported as earned, principally on a cash basis
when the majority of the service process is completed.

NOTE B--COMMERCIAL MORTGAGES HELD-FOR-SALE

Substantially all commercial mortgages originated by ICCC are
fixed-rate or adjustable-rate commercial mortgage loans secured by first
liens on commercial properties. Approximately 32% of commercial mortgages
held-for-sale at December 31, 1998 are collateralized by commercial real
properties located in California. During the year ended December 31, 1998
and the Commencement Period, ICCC originated $425.1 million and $233.5
million, respectively, of commercial mortgages and sold none and $73.4
million, respectively, of commercial mortgages to third party investors. In
addition, ICCC sold $525.2 million and $23.7 million, respectively, of
commercial mortgages to ICH during the year ended December 31, 1998 and for
the Commencement Period.

DECEMBER 31, 1998
-----------------
(IN THOUSANDS)

Commercial mortgages................................... $45,524
Unamortized net discounts on commercial mortgages...... (721)
Deferred loan fees..................................... 77
Deferred hedging....................................... (26)
--------
$44,854
========

At December 31, 1998 other liabilities includes an allowance for
repurchases of $377,000.

NOTE C--PREMISES AND EQUIPMENT, NET

Premises and equipment are stated at cost, less accumulated
depreciation. Depreciation on premises and equipment is recorded using the
straight-line method over the estimated useful lives of individual assets
(3 to 7 years).

DECEMBER 31, 1998
-----------------
(IN THOUSANDS)

Premises and equipment................................. $1,185
Less accumulated depreciation.......................... (276)
------
$ 909
======

NOTE D--WAREHOUSE LINE AGREEMENTS

ICCC enters into warehouse line agreements with ICH and IMH to fund
the origination and purchase of commercial mortgages. Terms of the
warehouse line agreements require that the commercial mortgages be held by
an independent third party custodian, which gives the Company the ability
to borrow against the collateral as a percentage of the fair market value
of the commercial mortgages.

ICCC has entered into warehouse facilities with ICH to obtain
financing up to an aggregate of $900.0 million. The margins on the
warehouse facility are at 90% of the fair market value of the collateral.
The interest rates on the borrowings are at Bank of America's prime rate.
ICCC has entered into a warehouse facility with IMH to provide financing as
needed. The margins on the warehouse line agreement are at 8% of the fair
market value of the collateral. The interest rates on the borrowings are
Bank of America's prime rate. The following tables set forth information
regarding warehouse line agreements (in thousands):

AT DECEMBER 31, 1998
------------------------------------------------------------------
MAXIMUM WAREHOUSE UNDERLYING
TYPE OF UNCOMMITTED LINE COLLATERAL MATURITY
COLLATERAL AMOUNT LIABILITY (1) DATE
------------ ------------ ---------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Impac Commercial Holdings, Inc...................... Mortgages $900,000 $ 41,217 $ 41,963 N/A
Impac Mortgage Holdings, Inc. ...................... Mortgages N/A 3,664 3,730 N/A
----------- -------------
Total.......................................... $ 44,881 $ 45,693
=========== =============
</TABLE>

* The amount of underlying collateral represents the unpaid principal
balance of commercial mortgages provided as collateral for the
warehouse lines.

NOTE E--INCOME TAXES

The components of income taxes consist of the following (in
thousands):
<TABLE>
<CAPTION>

YEAR ENDED COMMENCEMENT
DECEMBER 31, 1998 PERIOD
-------------------- ------------------

Current income taxes:
<S> <C> <C>
Federal............................................................. $ (1,604) $ 1,483
State............................................................... -- 463
----------- -----------
Total current income taxes........................................ (1,604) 1,946
----------- -----------
Deferred income taxes:
Federal............................................................. 724 (723)
State............................................................... 200 (201)
----------- -----------
Total deferred income taxes....................................... 924 (924)
----------- -----------
Total income taxes............................................. $ (680) $ 1,022
=========== ===========
</TABLE>

The Company's effective income taxes differ from the amount computed
by applying the federal income tax rate of 34% to income before income
taxes as a result of the following (in thousands):

YEAR ENDED COMMENCEMENT
DECEMBER 31, 1998 PERIOD
----------------------- -----------------

<S> <C> <C>
Computed "expected" income tax (benefit) at federal rate..................... $ (7,102) $ 816
California franchise tax, net of federal income tax (benefit)................ (727) 173
Valuation allowance.......................................................... 7,779 --
Effect of change in state valuation allowance................................ (443) --
Other........................................................................ (187) 33
----------- ----------
$ (680) $ 1,022
=========== ==========
</TABLE>

The tax effects that give rise to significant portions of the deferred
tax assets and deferred tax liabilities are as indicated (in thousands):
<TABLE>
<CAPTION>

DECEMBER 31, 1998
--------------------
Deferred tax assets:
-------------------
<S> <C>
Deferred revenue..................................................................... $ 1,346
Future state tax benefit............................................................. --
Loan mark-to-market.................................................................. --
Provision for repurchases............................................................ 167
Non-accrual loan..................................................................... 96
Accrued vacation..................................................................... 31
Minimum tax credit................................................................... 86
Net operating losses................................................................. 7,045
---------
Total gross deferred tax assets................................................. 8,771

Valuation allowance............................................................. 7,779

Deferred tax liabilities:
------------------------
Mortgage servicing rights............................................................ 985
Depreciation......................................................................... 7
---------
Net deferred tax asset.......................................................... $ --
=========
</TABLE>

As of December 31, 1998, the Company has net operating loss
carry-forwards for federal and state income tax purposes of $17.5 million
and $10.7 million, respectively, which are available to offset future
taxable income, if any, through 2018 and 2003, respectively. In addition,
the Company has an alternative minimum tax credit carry-forward of
approximately $86,000 which is available to reduce future federal regular
income taxes, if any, over an indefinite period.

The Company believes that the deferred tax asset will not be realized
with the reversal of the deferred tax liability and expected future taxable
income, and therefore, the Company has established a valuation allowance of
$7.8 million. ICCC does not have a current tax payable as of December 31,
1998.

NOTE F--DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair value of financial instruments have been determined
by ICCC using available market information and appropriate valuation
methodologies, however, considerable judgment is necessarily required to
interpret market data to develop the estimates of fair value. Accordingly,
the estimates presented herein are not necessarily indicative of the
amounts ICCC could realize in a current market exchange. The use of
different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts.
<TABLE>
<CAPTION>

DECEMBER 31, 1998
-------------------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
------------ ------------
(IN THOUSANDS)
Assets:
<S> <C> <C>
Cash and cash equivalents............................... $ 692 $ 692
Commercial Mortgages held-for-sale...................... 44,854 46,625
Due from affiliates..................................... 5,740 5,740

Liabilities:
Warehouse line agreements............................... 44,881 44,881
Due to affiliates....................................... 21,101 21,101
Futures contracts....................................... -- 97
Off balance-sheet loan commitments...................... -- --
</TABLE>

The fair value estimates as of December 31, 1998 are based on
pertinent information available to management as of that date. Although
management is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since those dates and,
therefore, current estimates of fair value may differ significantly from
the amounts presented herein. The following describes the methods and
assumptions used by ICCC in estimating fair values:

Cash and Cash Equivalents. Fair value approximates carrying amount as
these instruments are demand deposits and do not present
unanticipated interest rate or credit concerns.
Commercial Mortgages Held-for-Sale. Fair value is based on estimated
quoted market prices from dealers and brokers for similar types of
mortgage loans.
Due From / To Affiliates. Fair value approximates carrying amount
because of the short-term maturity of the liabilities and does not
present unanticipated interest rate or credit concerns.
Warehouse Line Agreements. Fair value approximates carrying amount
because of the short-term maturity of the liabilities.
Futures Contracts. Fair value is based on estimated quoted market
prices from dealers and brokers for similar types of instruments.
Off Balance-Sheet Loan Commitments. Fair value of commitments,
including hedging position, is determined in the aggregate on
current investor yield requirements.

NOTE G--EMPLOYEE BENEFIT PLANS

Profit Sharing and 401(k) Plan

ICCC does not have its own 401(k) or profit sharing plan. As such,
employees of ICCC participate in ICII's 401(k) plan. The 401(k) plan
provides that each participant may contribute from 2% to 14% of his or her
salary and the Company will contribute to the participant's plan account at
the end of each plan year 50% of the first 4% of salary contributed by a
participant. Under the 401(k) plan, employees may elect to enroll on the
first day of any month, provided that they have been employed for at least
six months.

Subject to the rules for maintaining the tax status of the 401(k)
plan, an additional Company contribution may be made at the discretion of
the Company, as determined by the Unaffiliated Directors. Should a
discretionary contribution be made, the contribution would first be
allocated to those employees deferring salaries in excess of 4%. The
matching contribution would be 50% of any deferral in excess of 4% up to a
maximum deferral of 8%. If discretionary contribution funds remain
following the allocation outlined above, any remaining Company matching
funds would be allocated as a 50% match of employee contributions on the
first 4% of the employee's deferrals. Company matching contributions will
be made as of December 31st of each year in the form of Company Common
Stock. The Company contributed matching and discretionary amounts to the
401(k) plan for the year ended December 31, 1998 and for the period from
January 15, 1997 (commencement of operations) through December 31, 1997 of
$63,000 and $17,000, respectively.

NOTE H-LIQUIDITY

ICCC recorded a net loss for the year ended December 31, 1998 of $20.2
million resulting in negative net worth of $15.8 million as of December 31,
1998. The loss for 1998 was primarily due to the deterioration of the
commercial mortgage backed securitization market in the third and fourth
quarters of 1998. To the extent necessary, ICH intends to support and fund
the cash flow requirements of ICCC for the next 12 months through December
31, 1999. During the first quarter of 1999, ICCC anticipates selling a
significant portion of its Commercial Mortgage portfolio thus eliminating
related net interest expense. In addition, ICCC may pursue opportunities in
retail loan originations operations, which could generate loan origination
fees. Management is also exploring opportunities to form an alliance with
one or more strategic partners which will allow ICCC to fund the growth its
operations. Management anticipates the alliance will also enable ICCC to
access the securitization marketplace and achieve better sale execution.

NOTE I--RELATED PARTY TRANSACTIONS

Credit Arrangements

ICCC has entered into warehouse line agreements with ICH which provide
up to an aggregate of $900.0 million to finance ICCC's operations as
needed. The interest rates on the borrowings are at Bank of America's prime
rate, which was 7.75% at December 31, 1998. The margins on the warehouse
line agreements are up to 90% of the fair market value of the collateral
provided. As of December 31, 1998, amounts outstanding on ICCC's warehouse
line agreements with ICH were $41.2 million. Interest expense recorded by
ICCC for the year ended December 31, 1998 and for the period from January
15, 1997 (commencement of operations) through December 31, 1997 was $9.1
million and $2.4 million, respectively.

ICCC has entered into an uncommitted warehouse line agreement with IMH
to provide financing as needed. The margins on the warehouse line agreement
are at 8% of the fair market value of the collateral provided. The interest
rates on the borrowings are at Bank of America's prime rate. As of December
31, 1998, outstanding amounts on the warehouse line agreement were $3.7
million. Interest expense recorded by ICCC for the year ended December 31,
1998 and for the period from January 15, 1997 (commencement of operations)
through December 31, 1997 was $785,000 and $262,000, respectively.

During the normal course of business, ICCC may advance or borrow funds
on a short-term basis with affiliated companies. Advances to affiliates are
reflected as "Due from affiliates" while borrowings are reflected as "Due
to affiliates" on ICCC's balance sheet. These short-term advances and
borrowings bear interest at a fixed rate of 8.00% per annum. Interest
income recorded by ICCC for the year ended December 31, 1998 and for the
period from January 15, 1997 (commencement of operations) through December
31, 1997 related to short-term advances due from affiliates was $204,000
and $16,000, respectively. Interest expense recorded by ICCC for the year
ended December 31, 1998 and for the period from January 15, 1997
(commencement of operations) through December 31, 1997 related to
short-term advances due to affiliates was $954,000 and $113,000,
respectively.

Repurchase of Commercial Mortgages

During the year ended December 31, 1998 ICCC purchased $43.2 million
of commercial mortgages from ICH at no gain or loss.

Sale of Commercial Mortgages

During the year ended December 31, 1998 and for the period from
January 15, 1997 (commencement of operations) through December 31, 1997,
ICCC sold $525.2 million and $23.7 million, respectively, in principal
balance of commercial mortgages to ICH at a net discount of $3.1 million
and a net premium of $111,000, respectively.

Stock Compensation Expense

Stock compensation expense of $25,000 represents the difference
between the price at which ICCC issued 500 shares of Common Stock to
directors and officers of IMH and ICH on February 10, 1997, and the net
book value, which the Company's management believes approximated the
difference between fair value and the amount of the 5% economic interest in
ICCC purchased by the common shareholders.

Submanagement Agreement

IFC entered into a submanagement agreement with RAI under which, IMH
and IFC provide various services to ICCC as RAI deems necessary, including
facilities and costs associated therewith, technology, human resources,
management information systems, general ledger accounts, check processing
and accounts payable, plus a 15% service charge. RAI charges ICCC for these
services based upon usage. Total cost allocations IFC charged to ICCC for
the year ended December 31, 1998 and for the period from January 15, 1997
(commencement of operations) through December 31, 1997 were $574,000 and
$456,000, respectively.

Non-Compete Agreement and Right of First Refusal Agreement

Pursuant to the Non-Compete Agreement executed on the date of the ICH
initial public offering, IFC will not acquire any commercial mortgages for
a period of the earlier of nine months from the closing of the ICH initial
public offering or the date upon which ICH and/or ICCC accumulates (for
investment or sale) $300.0 million of commercial mortgages or commercial
mortgage-backed securities. This agreement expired in March 1998.

Pursuant to the Right of First Refusal Agreement by and among ICH,
IMH, IFC, ICCC and RAI, pursuant to which, in part, RAI will agree that any
mortgage loan or mortgage-backed security investment opportunity which is
offered to it on behalf of either ICH, IMH any affiliated REIT will first
be offered to that entity whose initial primary business as described in
its initial public offering documentation most closely aligns with such
investment opportunity.

NOTE J--COMMITMENTS AND CONTINGENCIES

Commercial Mortgage Loan Sales Commitments

In the ordinary course of business, ICCC is exposed to liability under
representations and warranties made to purchasers and insurers of mortgage
loans and the purchasers of servicing rights. Under certain circumstances,
ICCC is required to repurchase mortgage loans if there had been a breach of
representations or warranties. ICH has guaranteed the performance
obligation of ICCC under such representation and warranties related to
loans included in securitizations.

Futures Contracts

To remain competitive and control risk, ICCC uses futures and options
on futures. The use of these instruments provides for increased liquidity,
lower transaction costs and more effective short-term coverage than cash
and mortgage-backed securities. However, ICCC is vulnerable to the basis
risk that is inherent in cross-hedging. ICCC uses the buying and selling of
futures contracts on Treasury bonds and Treasury notes when the market is
vulnerable to day-to-day corrections. Executing hedges with these
instruments allows ICCC to more effectively hedge the risks of corrections
or reverses in the market without committing mandatory sales on
mortgage-backed securities or cash. ICCC utilizes these instruments on a
short-term basis to fine tune its overall hedge position at a lower cost.
The unrealized gains and losses on the hedging transactions are recorded as
an adjustment to the basis of the loans. Gains and losses are recognized
upon the sale of loans.

The Company sells future contracts against 5- and 10-year Treasury
notes with major dealers in such securities. At December 31, 1998 the
Company had $20.0 million in outstanding commitments to sell U.S. Treasury
notes.

Lease Commitments

ICH and ICCC, as tenants in common, lease approximately 18,000 square
feet of office space in Irvine, California, approximately 3,600 square feet
in Sherman Oaks, California and approximately 4,300 square feet in Dallas,
Texas under premises operating leases expiring in November 2000, May 2001
and August 2003, respectively. Minimum premises rental commitments are as
follows (in thousands):

1999................................................. $ 734
2000................................................. 691
2001................................................. 166
2002................................................. 126
2003................................................. 84
----------
Total........................................... $ 1,801
==========

All rent expense associated with the lease is charged to ICCC as
ICCC's employees occupy 100% of office space.

NOTE K--QUARTERLY FINANCIAL DATA (UNAUDITED)

Selected quarterly financial data for the year ended December 31, 1998
follows (in thousands, except per share data):
<TABLE>
<CAPTION>

FOR THE THREE MONTHS ENDED
------------------------------------------------------------------
DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
---------------- ---------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Net interest expense*............................. $ (319) $ (369) $ (264) $ (73)
Non-interest income* ............................. 264 (14,932) 263 84
Non-interest expense* ............................ 3,613 315 444 489
Net loss.......................................... (3,668) (15,616) (445) (478)
</TABLE>

Selected quarterly financial data for the period from January 15, 1997
(commencement of operations) through December 31, 1997 follows (in
thousands, except per share data):
<TABLE>
<CAPTION>

FOR THE THREE MONTHS ENDED
------------------------------------------------------------------
DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
----------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C>
Net interest income*.................................. $ 27 $ 14 $ 15 $ 1
Non-interest income*.................................. 2,156 1,524 37 2
Non-interest expense*................................. 1,059 1,009 142 189
Net earnings (loss)................................... 1,124 529 (90) (186)

* Conforms to current year presentation.
</TABLE>

EXHIBIT 21

Subsidiaries of the Company as of March 29, 2000.

Impac Commercial Assets Corporation (California)
IMH/ICH Dove Street, LLC (California)
Impac Commercial Capital Corporation (California)
ICCC Secured Assets Corporation (California)
Impac Commercial Capital Corporation owns 100% of the common stock of
ICCC Secured Assets Corporation.

EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors
Impac Commercial Holdings, Inc.:

We consent to incorporation by reference in the registration statement (No.
333-62979) on Form S-8 of Impac Commercial Holdings, Inc. of our report
dated March 3, 2000, except as to Notes 10 and 11 to the consolidated
financial statements which are as of March 23, 2000, relating to the
consolidated balance sheets of Impac Commercial Holdings, Inc. as of
December 31, 1999 and 1998, and the related consolidated statements of
operations and comprehensive earnings (loss), changes in stockholders'
equity and cash flows for the years ended December 31, 1999 and 1998, and
for the period from January 15, 1997 (commencement of operations) through
December 31, 1997, which report appears in the December 31, 1999 annual
report on Form 10-K of Impac Commercial Holdings, Inc.

/S/ KPMG LLP
------------

Orange County, California
March 29, 2000

EXHIBIT 23.2

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors
Impac Commercial Capital Corporation:

We consent to incorporation by reference in the registration statement (No.
333-333-62979) on Form S-8 of Impac Commercial Holdings, Inc. of our report
dated February 3, 1999, relating to the consolidated balance sheet of Impac
Commercial Capital Corporation as of December 31, 1998, and the related
consolidated statements of operations, changes in shareholders' equity and
cash flows for the year ended December 31, 1998 and for the period from
January 15, 1997 (commencement of operations) through December 31, 1997,
which report appears in the December 31, 1999 annual report on Form 10-K of
Impac Commercial Holdings, Inc.

/S/ KPMG LLP
------------

Orange County, California
March 29, 2000

<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Impac
Commercial Holdings, Inc. Annual Report on Form 10-K for the period ended
December 31, 1999 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 25,418
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 379,157
<CURRENT-LIABILITIES> 7,834
<BONDS> 274,529
0
5
<COMMON> 84
<OTHER-SE> 96,705
<TOTAL-LIABILITY-AND-EQUITY> 379,157
<SALES> 0
<TOTAL-REVENUES> 33,844
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 16,626
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,933
<INCOME-PRETAX> (6,384)
<INCOME-TAX> (6,384)
<INCOME-CONTINUING> (6,384)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,684)
<EPS-BASIC> (0.75)
<EPS-DILUTED> (0.75)

</TABLE>