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

                                    Form 10-Q


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

      For the quarterly period ended September 30, 1998

                                                OR

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

      For the transition period from _______________ to ______________

                         Commission File Number: 0-13091

                         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.)

           20371 Irvine Avenue
      Santa Ana Heights, California                     92707
  (Address of Principal Executive Offices)            (Zip Code)


       Registrant's telephone number, including area code: (714) 556-0122

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

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


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

      On November 11, 1998, the aggregate  market value of the voting stock held
by non-affiliates of the registrant was  approximately  $56.7 million,  based on
the closing sales price of the Common Stock on the American Stock Exchange.  For
purposes of the  calculation  only,  in addition to  affiliated  companies,  all
directors and executive  officers of the registrant have been deemed affiliates.
The number of shares of Common  Stock  outstanding  as of November  11, 1998 was
8,625,000.



                   Documents incorporated by reference: None
<PAGE>
 
                             IMPAC COMMERCIAL HOLDINGS, INC.

                             1998 FORM 10-Q QUARTERLY REPORT

                                   TABLE OF CONTENTS


                              PART I. FINANCIAL INFORMATION

<TABLE>
 <S>                                                                                                              <C>

  Item 1.  CONSOLIDATED FINANCIAL STATEMENTS - IMPAC COMMERCIAL HOLDINGS, INC.                                     Page #

           Consolidated Balance Sheets, September 30, 1998 and December 31, 1997                                      3

           Consolidated Statements of Operations, For the Three Months Ended September 30, 1998 and 1997
           and For the Nine Months Ended September 30, 1998 and For the Period from January 15, 1997
           (commencement of operations) through September 30, 1997                                                    4

           Consolidated  Statements  of Cash Flows,  For the Nine  Months  Ended
           September  30,  1998  and  For  the  Period  from  January  15,  1997
           (commencement of operations) through September 30, 1997 5

           Notes to Consolidated Financial Statements                                                                 6

  Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                RESULTS OF OPERATIONS                                                                                12

  Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                24

                                                  PART II. OTHER INFORMATION

  Item 1.  LEGAL PROCEEDINGS                                                                                         25

  Item 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS                                                                 25

  Item 3.  DEFAULTS UPON SENIOR SECURITIES                                                                           25

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

  Item 5.  OTHER INFORMATION                                                                                         25

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

           SIGNATURES                                                                                                26


</TABLE>
<PAGE>
 
                          PART I. FINANCIAL INFORMATION

ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS

                IMPAC COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                    (dollars in thousands, except share data)
<TABLE>
<CAPTION>

                                                                                           September 30,        December 31,
                                                                                                1998                1997
                                                                                         -----------------  -------------------
<S>                                                                                     <C>                <C>   
                                                                                                            
                                         ASSETS
Cash and cash equivalents                                                                $          7,177   $           15,908
Investment securities available-for-sale                                                           16,807               19,353
Residual interest in securitizations, held-for-trading                                              9,232                9,936
Loan receivables:
     CMO collateral                                                                               340,537                4,255
     Finance receivables                                                                          176,930               95,711
     Commercial Mortgages held-for-investment                                                      25,894               62,790
     Allowance for loan losses                                                                     (1,701)                (564)
                                                                                         -----------------  -------------------
          Net loan receivables                                                                    541,660              162,192
Due from affiliates                                                                                44,017                1,592
Premises and equipment, net                                                                         8,906                3,857
Investment in Impac Commercial Capital Corporation                                                (11,531)               4,182
Accrued interest receivable                                                                         3,606                1,361
Other assets                                                                                        1,616                  458
                                                                                         -----------------  -------------------
                                                                                         $        621,490   $          218,839
                                                                                         =================  ===================

                          LIABILITIES AND STOCKHOLDERS' EQUITY
CMO borrowings                                                                           $        284,841   $            4,176
Warehouse line agreements                                                                         180,181               90,374
Reverse repurchase agreements                                                                      13,895                9,841
Other borrowings                                                                                    6,502                   --
Due to affiliates                                                                                  14,560                8,067
Other liabilities                                                                                  10,352                3,139
                                                                                         -----------------  -------------------
          Total liabilities                                                                       510,331              115,597

Stockholders' Equity:
Preferred Stock; $.01 par value; 6,000,000 shares authorized; no shares
   issued and outstanding at September 30, 1998 and December 31, 1997                                  --                    --
Common Stock; $.01 par value; 46,000,000 shares authorized; 9,562,084 and
   7,344,789 shares issued and outstanding at September 30, 1998 and December
   31, 1997, respectively                                                                              96                   73
Class A Common Stock; $.01 par value; 4,000,000 shares authorized; 456,916 and
   674,211 shares issued and outstanding at September 30, 1998  and December
   31, 1997, respectively                                                                               5                    7
Additional paid-in-capital                                                                        133,127              104,761
Accumulated other comprehensive loss                                                                 (930)                (160)
Cumulative dividends declared                                                                     (15,575)              (4,250)
Retained earnings                                                                                  (5,564)               2,811
                                                                                         -----------------  -------------------
          Total stockholders' equity                                                              111,159              103,242
                                                                                         -----------------  -------------------
                                                                                         $        621,490   $          218,839
                                                                                         =================  ===================

                            See  accompanying   notes  to  consolidated financial statements.

</TABLE>
<PAGE>
 
<TABLE>

                                     IMPAC COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES
                                           CONSOLIDATED STATEMENTS OF OPERATIONS
                                       (in thousands, except earnings per share data)
<CAPTION>


                                                                                                         For the period from
                                                                                                           January 15, 1997
                                                                                                            (commencement

                                                    For the Three     For the Three     For the Nine        of operations)
                                                    Months Ended       Months Ended     Months Ended           through
                                                    September 30,     September 30,     September 30,       September 30,
                                                        1998               1997             1998                 1997
                                                   ----------------   ---------------  ---------------   ------------------
<S>                                               <C>                <C>               <C>              <C>    
Revenues:
    Interest income                                $         11,258   $        2,457    $       25,736   $           3,810
    Equity in net earnings (loss) of Impac
        Commercial Capital Corporation                      (14,837)             627           (15,714)                627
    Other income                                                594               58             1,021                  58
                                                   -----------------  ---------------   ---------------  ------------------
                                                             (2,985)           3,142            11,043               4,495
                                                   -----------------  ---------------   ---------------  ------------------

Expenses:
   Interest expense on warehouse line and
      reverse repurchase agreements                           4,826              540            11,861               1,206
   Interest expense on CMO borrowings                         2,124               --             2,259                  --
   Interest expense on other borrowings                           7              205               593                 341
   Write-down of residual interest in
       securitization, held-for trading                       1,085               --             1,085                  --
   Provision for loan losses                                  1,020               22             1,137                  55
   General and administrative and other expense                 718               75             1,363                  85
   Professional services                                        254              202               535                 380
   Management advisory fees                                     206                1               585                   1
   Stock compensation expense                                    --               --                --               2,697
                                                                                                        
                                                   -----------------  ---------------   ---------------  ------------------
                                                             10,240            1,045            19,418               4,765
                                                   -----------------  ---------------   ---------------  ------------------
Net earnings (loss)                                $        (13,225)  $        2,097    $       (8,375)  $            (270)
                                                   =================  ===============   ===============  ==================

Weighted average shares outstanding - basic                  10,019            5,511             8,721               2,974
                                                   =================  ===============   ===============  ==================

Weighted average shares outstanding - diluted                10,019            5,534             8,721               2,974
                                                   =================  ===============   ===============  ==================

Net earnings (loss) per share--basic and diluted    $         (1.32)  $         0.38    $        (0.96)  $           (0.09)
                                                   =================  ===============   ===============  ==================










                         See accompanying notes to consolidated financial statements.

</TABLE>
<PAGE>
 
                IMPAC COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
<TABLE>

                                                                                                      For the period from
                                                                                                        January 15, 1997
                                                                                For the Nine            (commencement of
                                                                                Months Ended           operations) through
                                                                             September 30, 1998        September 30, 1997
                                                                          -------------------------  -----------------------
<S>                                                                       <C>                       <C>    
Cash flows from operating activities:
   Net loss                                                                $                (8,375)  $                (270)
   Adjustments to reconcile net loss to net cash
        used in operating activities:
   Equity in net earnings (loss) of Impac Commercial Capital Corporation                    15,714                    (627)
   Stock compensation expense                                                                   --                   2,697
   Provision for loan losses                                                                 1,137                      55
   Depreciation                                                                                372                      16
   Net change in accrued interest on receivables                                            (2,245)                   (465)
   Net change in other assets and liabilities                                                  364                   5,559
   Net change in due from affiliates and due to affiliates                                 (35,932)                     70
                                                                          -------------------------  -----------------------
     Net cash provided by (used in) operating activities                                   (28,965)                  7,035
                                                                          -------------------------  -----------------------

Cash flows from investing activities:
   Net change in Commercial Mortgages held-for-investment                                   36,896                 (34,559)
   Net change in finance receivables                                                       (81,219)                (42,662)
   Net change in CMO collateral                                                           (336,282)                     --
   Purchase of investment securities available-for-sale                                         --                 (12,374)
   Principal reductions on investment securities available-for-sale                          1,776                     --
   Purchase of residual interest in securitizations                                             --                 (10,098)
   Principal reductions on residual interest in securitizations                                704                      99
   Purchase of premises and equipment                                                       (1,193)                 (3,917)
   Contributions to ICCC                                                                        --                  (2,375)
                                                                          -------------------------  -----------------------
     Net cash used in investing activities                                               (379,318)                (105,886)
                                                                          -------------------------  -----------------------

Cash flows from financing activities:
   Net change in warehouse line agreements                                                  89,807                  12,984
   Net change in reverse repurchase agreements                                               4,054                      --
   Increase in CMO borrowings                                                              284,231                      --
   Decrease in CMO borrowings                                                               (3,566)                     --
   Net change in other borrowings                                                            6,502                   2,526
   Issuance of Common Stock                                                                 28,387                 102,188
   Dividends paid                                                                           (9,863)                     --
                                                                          -------------------------  -----------------------
     Net cash provided by financing activities                                             399,552                 117,698
                                                                          -------------------------  -----------------------
Net change in cash and cash equivalents                                                     (8,731)                 18,847
Cash and cash equivalents at beginning of period                                            15,908                      --
                                                                          -------------------------  -----------------------
Cash and cash equivalents at end of period                                $                  7,177   $              18,847
                                                                          =========================  =======================

Supplementary information:
   Interest paid                                                          $                  4,620   $               1,477
Non-cash transactions:
   Increase in accumulated other comprehensive loss                       $                   (770)  $                  --
   Conversion of promissory notes to ICH Preferred stock                                        --                  15,000
   Dividends declared and unpaid                                                             4,509                      --


                          See  accompanying   notes  to  consolidated financial statements.

</TABLE>
<PAGE>
 
                     IMPAC COMMERCIAL HOLDINGS, INC. and SUBSIDIARIES
                        Notes to Consolidated Financial Statements


     Unless the context otherwise  requires,  references herein to the "Company"
     refer to Impac Commercial Holdings, Inc. (ICH) and its subsidiaries,  Impac
     Commercial Assets Corp. (ICH Assets),  IMH/ICH Dove Street,  LLC (Dove) and
     Impac  Commercial  Capital  Corporation  (together  with its  wholly  owned
     subsidiary,   ICCC  Secured  Assets   Corporation,   ICCC),   collectively.
     References to ICH refer to Impac  Commercial  Holdings,  Inc. as a separate
     entity from ICH Assets, Dove or ICCC.

     1. Basis of Financial Statement Presentation

     The accompanying  consolidated  financial  statements have been prepared in
     accordance with generally accepted accounting principles (GAAP) for interim
     financial information and with the instructions to Form 10-Q and Rule 10-01
     of Regulation S-X. Accordingly,  they do not include all of the information
     and footnotes  required by GAAP for complete financial  statements.  In the
     opinion of management,  all  adjustments  (consisting  of normal  recurring
     adjustments)  considered  necessary  for  a  fair  presentation  have  been
     included.  Operating  results for the nine-month period ended September 30,
     1998 are not necessarily indicative of the results that may be expected for
     the year ending December 31, 1998. The accompanying  consolidated financial
     statements  should be read in conjunction with the  consolidated  financial
     statements  and related notes  included in the  Company's  Annual Report on
     Form 10-K for the year ended December 31, 1997.

     The  operations of ICH have been  presented in the  consolidated  financial
     statements  for the three months ended  September 30, 1998 and 1997 and for
     the nine months  ended  September  30, 1998 and for the period from January
     15,  1997   (commencement  of  operations)   through   September  30,  1997
     (Commencement  Period).  The consolidated  financial statements include the
     financial results of ICH as a stand-alone  entity, the financial results of
     ICH's  equity  interest  in net  earnings  (loss) in ICCC as a  stand-alone
     entity,  subsequent to ICH's  initial  public  offering  (IPO) on August 8,
     1997, and the financial results of ICH Assets and Dove.

     The Company is entitled  to 95% of the  earnings or losses of ICCC  through
     its ownership of all of the  non-voting  preferred  stock of ICCC. As such,
     the Company  records its investment in ICCC using the equity method.  Under
     this method,  original investments are recorded at cost and adjusted by the
     Company's  share of earnings or losses.  The results of  operations of ICCC
     are  included  in the  results  of  operations  for ICH as  "Equity  in net
     earnings  (loss) of ICCC." Gain or loss on the sale of loans or  securities
     by ICCC to ICH are deferred and  amortized or accreted  over the  estimated
     life of the loans or securities.

     2. Organization

     ICH was  incorporated  in Maryland in February 1997 under the name Imperial
     Credit Commercial  Holdings,  Inc. and in June 1997 ICH changed its name to
     IMH  Commercial  Holdings,  Inc. By a vote of  stockholders  on January 28,
     1998, a name change to Impac Commercial Holdings, Inc. was approved. ICH is
     a specialty  commercial  property finance company,  which has elected to be
     taxed at the corporate level as a real estate  investment  trust (REIT) for
     federal  income tax  purposes.  This  generally  allows the Company to pass
     through income to stockholders without payment of federal income tax at the
     corporate  level provided that the company  distributes at least 95% of its
     taxable  income  to  stockholders.  Impac  Mortgage  Holdings,  Inc.  (IMH)
     capitalized  ICH with $15.0  million in cash in March 1997. As of September
     30,  1998,  IMH owned  937,084,  or 9.8%,  of ICH voting  Common  Stock and
     456,916 shares, or 100%, of ICH non-voting Class A Common Stock. Subsequent
     to September 30, 1998, the Company  repurchased  from IMH 937,084 shares of
     Common  Stock  and  456,916  shares  of Class A  Common  Stock.  After  the
     repurchase,  the Company had 8,625,000  shares of Common Stock  outstanding
     and no shares of Class A Common Stock outstanding.
<PAGE>
 
     3. Summary of Significant Accounting Policies

     Method of Accounting

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

     Reclassifications

     Certain amounts in the consolidated  financial statements as of and for the
     three and nine months ended  September 30, 1997 have been  reclassified  to
     conform to the 1998 presentation.

     New Accounting Statements

     In June 1997,  the  Financial  Accounting  Standards  Board  (FASB)  issued
     Statement  of Financial  Accounting  Standards  (SFAS) No. 130,  "Reporting
     Comprehensive  Income," which is effective for fiscal years beginning after
     December 15, 1997 and requires  restatement of earlier financial statements
     for comparative purposes.  SFAS No. 130 establishes standards for reporting
     and the display of comprehensive income and its components in the financial
     statements.  SFAS No. 130  requires  that items  meeting the  criteria of a
     component  of  comprehensive  income  (such as gains or losses  on  certain
     investments    in   debt    and    equity    securities    classified    as
     available-for-sale), be shown in the financial statements as adjustments to
     reported net earnings to arrive at a disclosure  of  comprehensive  income.
     SFAS No.  130  provides  informative  disclosure  but does not and will not
     impact previously reported or future net earnings and earnings per share.

     The following table represents comprehensive income (in thousands):
<TABLE>
<CAPTION>

                                                                                                  For the period from
                                                                                                    January 15, 1997
                                                                                  For the Nine     (commencement of
                                                       For the Three Months       Months Ended    operations) through
                                                        Ended September 30,       September 30,       September 30,
                                                        1998           1997           1998                1997
                                                   -------------- -------------  ---------------  ---------------------
<S>                                               <C>            <C>            <C>              <C>

Net earnings (loss)                                $    (13,225)  $      2,097   $       (8,375)  $              (270)
Unrealized gains (losses) arising during period            (536)            16             (770)                   16
                                                   -------------- -------------- ---------------- ---------------------
     Comprehensive income (loss)                   $    (13,761)  $      2,113   $       (9,145)  $              (254)
                                                   ============== =============  ================ =====================
</TABLE>


     In June 1997, the FASB issued SFAS No. 131,  "Disclosures about Segments of
     an Enterprise and Related  Information." SFAS 131 establishes standards for
     the way that public enterprises report information about operating segments
     in annual financial statements and requires that selected information about
     those operating segments be reported in interim financial statements.  This
     statement  supersedes  SFAS 14,  "Financial  Reporting  for  Segments  of a
     Business  Enterprise."  SFAS No. 131 requires  that all public  enterprises
     report financial and descriptive information about its reportable operating
     segments.  Operating segments are defined as components evaluated regularly
     by the chief operating decision-maker in deciding how to allocate resources
     and in assessing performance.  This statement is effective for fiscal years
     beginning  after  December  15, 1997.  In the initial year of  application,
     comparative information for earlier years should be restated.

     In June 1998,  the FASB  issued SFAS No. 133,  "Accounting  for  Derivative
     Instruments and Hedging  Activities."  SFAS No. 133 establishes  accounting
     and  reporting  standards for  derivative  instruments,  including  certain
     derivative instruments embedded in other contracts,  (collectively referred
     to as derivatives) and for hedging  activities.  It requires that an entity
     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
<PAGE>
 
     (c) a hedge of the  foreign  currency  exposure  of a net  investment  in a
     foreign operation,  an unrecognized firm commitment,  an available-for-sale
     security, or a  foreign-currency-denominated  forecasted transaction.  This
     statement is effective  for all fiscal  quarters of fiscal years  beginning
     after June 15, 1999.

     4. Net Earnings (Loss) per Share

     Effective  December 31, 1997, the Company  adopted SFAS No. 128,  "Earnings
     per Share."  SFAS 128 replaces the  previously  reported  primary and fully
     diluted  earnings  per share with  basic and  diluted  earnings  per share.
     Unlike  primary  earning per share,  basic  earnings per share excludes any
     dilutive  effects of stock  options.  Diluted  earnings  per share are very
     similar to the previously  reported fully diluted earnings per share. Basic
     net earnings  per share are  computed on the basis of the weighted  average
     number of shares  outstanding  for the period.  Dilutive  net  earnings per
     share are  computed on the basis of the weighted  average  number of shares
     and common equivalent shares outstanding for the period.

     The  following  tables  represent  the  computation  of basic  and  diluted
     earnings  per share for the periods  presented  (in  thousands,  except per
     share data):
<TABLE>
<CAPTION>
     
                                                                             For the Three            For the Three
                                                                              Months Ended            Months Ended
                                                                           September 30, 1998      September 30, 1997
                                                                       ------------------------ ------------------------
       <S>                                                            <C>                      <C>

        Numerator:
             Numerator for basic earnings per share--
                  Net earnings (loss)                                  $               (13,225)  $                2,097
                                                                       ------------------------ ------------------------
        Denominator:
             Denominator for basic earnings per share--
                  Weighted average number of common shares
                     outstanding during the period                                      10,019                    5,511
                  Net effect of dilutive stock options                                      --                       23
                                                                       ------------------------ ------------------------
             Denominator for diluted earnings per share                                 10,019                    5,534
                                                                       ======================== ========================

             Net earnings (loss) per share--basic                      $                 (1.32) $                  0.38
                                                                       ======================== ========================

             Net earnings (loss) per share--diluted                    $                 (1.32) $                  0.38
                                                                       ======================== ========================

</TABLE>


<TABLE>
<CAPTION>
                                                                                                   For the period from
                                                                                                    January 15, 1997
                                                                              For the Nine          (commencement of
                                                                              Months Ended         operations) through
                                                                           September 30, 1998      September 30, 1997
                                                                       ------------------------ ------------------------
       <S>                                                            <C>                       <C>
        Numerator:
             Numerator for basic earnings per share--
                  Net loss                                             $                (8,375)  $                 (270)
                                                                       ------------------------ ------------------------

        Denominator:
             Denominator for basic earnings per share--
                  Weighted average number of common shares
                     outstanding during the period                                       8,721                    2,974
                  Net effect of dilutive stock options                                      --                       --
                                                                       ------------------------ ------------------------

             Denominator for diluted earnings per share                                  8,721                    2,974
                                                                       ======================== ========================

             Net loss  per share--basic                                $                 (0.96) $                 (0.09)
                                                                       ======================== ========================

             Net loss per share--diluted                               $                 (0.96) $                 (0.09)
                                                                       ======================== ========================


       Antidilutive options outstanding as of September 30, 1998 were 9,000.
</TABLE>
<PAGE>
 
     5. Investment in Impac Commercial Capital Corporation

     The Company is entitled  to 95% of the  earnings or losses of ICCC  through
     its ownership of all of the  non-voting  preferred  stock of ICCC. As such,
     the Company  records its investment in ICCC using the equity method.  Under
     this method,  original investments are recorded at cost and adjusted by the
     Company's share of earnings or losses. Gain or loss on the sale of loans or
     securities  by ICCC to ICH are deferred and  amortized or accreted over the
     estimated life of the loans or securities.
<PAGE>
 
     The following is financial  information for ICCC for the periods  presented
     (in thousands):

<TABLE>
                                                               BALANCE SHEETS
<CAPTION>
                                                                                      September 30,         December 31,
                                                                                           1998                 1997
                                                                                    -----------------  --------------------
  <S>                                                                              <C>                <C>
                                        ASSETS
   Cash                                                                             $          5,154   $             2,273
   Commercial Mortgages held-for-sale                                                        186,111               106,654
   Due from affiliates                                                                         6,988                 1,538
   Premises and equipment, net                                                                   915                   381
   Other assets                                                                                2,405                 1,789
                                                                                    -----------------  --------------------

                                                                                    $        201,573   $           112,635
                                                                                    =================  ====================

                         LIABILITIES AND SHAREHOLDERS' EQUITY
   Warehouse line agreements with affiliates                                        $        193,703   $           104,219
   Due to affiliates                                                                          16,307                   758
   Other liabilities                                                                           3,699                 3,255
                                                                                    -----------------  --------------------

        Total liabilities                                                                    213,709               108,232
                                                                                    -----------------  --------------------

   Shareholders' Equity:
   Preferred stock; no par value; 50,000 shares authorized; 9,500 shares issued
      and outstanding at September 30, 1998 and December 31, 1997                              2,875                 2,875
   Common stock; no par value; 50,000 shares authorized; 500 shares issued
      and outstanding at September 30, 1998 and December 31, 1997                                  1                     1
   Contributed capital                                                                           150                   150
   Retained earnings                                                                         (15,162)                1,377
                                                                                    -----------------  --------------------

        Total shareholders' equity                                                           (12,136)                4,403
                                                                                    -----------------  --------------------

                                                                                    $        201,573   $           112,635
                                                                                    =================  ====================

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

                                                                                                            For the period from
                                                                                                              January 15, 1997
                                                      For the Three     For the Three      For the Nine       (commencement of
                                                       Months Ended      Months Ended      Months Ended     operations) through
                                                      September 30,     September 30,      September 30,       September 30,
                                                           1998              1997              1998                 1997
                                                     ----------------- ----------------- ------------------ ---------------------
 <S>                                                <C>               <C>              <C>                 <C>   
  
  Revenues:
      Interest income                                $          2,242  $          1,090  $           8,445  $              1,321
      Mark to market loss on mortgage loans                   (15,022)               --            (15,022)                   --
      Gain on sale of loans held-for-sale                          --             1,508                 --                 1,527
      Other income                                                 90                16                435                    36
                                                     ----------------- ----------------- ------------------ ---------------------
                                                              (12,690)            2,614             (6,142)                2,884
   Expenses:
      Interest expense on warehouse line
         and reverse repurchase agreements                      2,414                --              8,585                    --
      Interest on borrowings from affiliates                      197             1,076                566                 1,291
      General and administrative and other expense              1,391               232              2,621                   537
      Professional services                                       242               196                617                   374
      Stock compensation expense                                   --               125                 --                   150
      Provision for repurchases                                    --                69                 --                    90
                                                     ----------------- ----------------- ------------------ ---------------------
                                                                4,244             1,698             12,389                 2,442

   Earnings (loss) before income taxes                        (16,934)              916            (18,531)                  442

   Income taxes (benefit)                                      (1,318)              387             (1,992)                  189
                                                     ----------------- ----------------- ------------------ ---------------------
      Net earnings (loss)                            $        (15,616) $            529  $         (16,539) $                253
                                                     ================= ================= ================== =====================
</TABLE>
<PAGE>
 
     6. Stockholders' Equity

     The Company  completed a secondary  common stock offering,  which closed in
     June 1998. The Company raised additional  capital of $29.1 million,  net of
     underwriting discounts and before other expenses, as stockholders purchased
     2,000,000 shares of common stock at a price of $15.3125 per share.

     On September 28, 1998,  the Company  declared a third  quarter  dividend of
     $4.5  million,  or $0.45  per  share.  The  original  payment  date of this
     dividend was set for October 26, 1998 to  stockholders of record on October
     9, 1998.  However,  on October 8, 1998 the Company announced that the third
     quarter dividend payment would be paid by January 6, 1999.

     On June 8, 1998,  the Company  declared a second  quarter  dividend of $3.6
     million,  or $0.45 per share.  This  dividend  was paid on July 15, 1998 to
     stockholders of record on June 19, 1998.

     On April 1, 1998,  the Company  declared a first  quarter  dividend of $3.2
     million,  or $0.40 per share.  This  dividend was paid on April 24, 1998 to
     stockholders of record on April 9, 1998.
     
     7. Subsequent Events

     On October 7, 1998, the Company's Board of Directors  adopted a Stockholder
     Rights Plan in which Preferred Stock Purchase Rights were  distributed as a
     dividend  at the rate of one  Right  for each  outstanding  share of common
     stock on October 19, 1998. The Rights are attached to the Company's  common
     stock. For additional  information  regarding the Stockholder  Rights Plan,
     refer  to "Item 2.  Management's  Discussion  of  Financial  Condition  and
     Results of Operations-- Significant Transactions."

     On October 21, 1998,  the Company  repurchased  from IMH 937,084  shares of
     Common  Stock and  456,916  shares  of Class A Common  Stock at a per share
     price of $4.375,  based upon the closing  price on October 19, 1998,  for a
     total repurchase of $6.1 million.

     On October 27,  1998,  the Company  purchased  from IMH its  remaining  50%
     ownership  interest  in a  commercial  office  building  in Newport  Beach,
     California.  After the purchase of the 50% ownership interest from IMH, the
     Company has a 100% ownership interest in the building.

     On October 30,  1998,  ICCC sold $150.9  million of  Commercial  Mortgages,
     which increased the Company's  liquidity by $22.3 million after paying down
     borrowings  on  warehouse  lines.  The  financial  result  of the  sale  of
     Commercial Mortgages was in line with the marked-to-market  charge taken by
     the Company in the third quarter of 1998.

     On  November 6, 1998,  the  Company  paid the  previously  announced  third
     quarter dividend of $0.45 per share to stockholders of record on October 9,
     1998. The Company paid interest in the form of an additional  cash dividend
     at a rate of 4% per  annum for the  period  from the  previously  announced
     payment date of October 26, 1998 through November 6, 1998. The total amount
     of the interest the Company paid as a result of the dividend  payment delay
     was approximately $5,434.96 or $0.0006 per common share outstanding.
<PAGE>
 
     ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                       RESULTS OF OPERATIONS

     Certain information contained in the following Management's  Discussion and
     Analysis  of  Financial  Condition  and  Results of  Operations  constitute
     forward-looking  statements  within  the  meaning  of  Section  27A  of the
     Securities Act of 1933, as amended,  and Section 21e of the Exchange Act of
     1934, as amended,  which can be  identified  by the use of  forward-looking
     terminology  such  as  "may,"  "will,"  "expect,"  "intend,"  "anticipate,"
     "estimate,"  "believe"  or  "should"  or the  negatives  thereof  or  other
     variations thereon or comparable terminology.  The Company's actual results
     may  differ   materially  from  those  contained  in  the   forward-looking
     statements.  Factors  which may cause a  difference  to occur  include  the
     effectiveness  of the Stockholder  Rights Plan,  increased costs and delays
     related to Year 2000 compliance, the availability of suitable opportunities
     for the  acquisition,  ownership and  dispositions  of mortgage  assets and
     yields available from time to time on such mortgage assets,  interest rates
     and  their affect on mortgages and MBS, including Commercial Mortgages and 
     CMBS, changes in estimates of book basis and tax basis earnings, the 
     availability of suitable  financing  and  investments,  and trends in the 
     economy  which affect confidence and demand on the Company's portfolio of 
     mortgage assets.
  


  GENERAL

     ICH was  incorporated in the state of Maryland on February 3, 1997. ICH was
     formed to seek opportunities in the commercial mortgage market.  Commercial
     mortgage  assets  include  mortgage  loans on  condominium-conversions  and
     mortgage loans on commercial  properties,  such as industrial and warehouse
     space,  office  buildings,  retail  space and  shopping  malls,  hotels and
     motels, nursing homes, hospitals,  multifamily,  congregate care facilities
     and senior  living  centers  (collectively,  "Commercial  Mortgages").  The
     Company  operates  the  Long-Term   Investment   Operations  which  invests
     primarily in mortgage loans and  mortgage-backed  securities  ("MBSs").  To
     date,  the  Long-Term  Investment  Operations  has  invested  primarily  in
     Commercial   Mortgages   and   mortgage-backed   securities  on  commercial
     properties  ("CMBSs").  The Company also engages in the Conduit Operations,
     ICCC,  which  originates,  purchases  and sells or  securitizes  Commercial
     Mortgages.  ICCC operates three divisions: the ConduitExpress Division, the
     CommercialExpress Division, and the CondoSelect Division.

     SIGNIFICANT TRANSACTIONS

     On September 25, 1998,  the  Company's  Board of Directors  authorized  the
     Company to  repurchase  up to $5.0 million of the  Company's  common stock,
     $.01  par  value,  in  open  market  purchases  from  time  to  time in the
     discretion  of the  Company's  management;  the  timing  and  extent of the
     repurchases will depend on market conditions. The Company intends to effect
     such  repurchases,  if any, in  compliance  with the Rule 10b-18  under the
     Securities Exchange Act of 1934. The acquired shares will be canceled

     On October 7, 1998, the Company's Board of Directors  adopted a Stockholder
     Rights Plan in which Preferred Stock Purchase Rights were  distributed as a
     dividend  at the rate of one  Right  for each  outstanding  share of common
     stock. The dividend  distribution was made on October 19, 1998,  payable to
     stockholders  of  record on that  date.  The  Rights  are  attached  to the
     Company's common stock. The Rights will be exercisable and trade separately
     only in the event that a person or group  acquires or announces  the intent
     to acquire 10 percent or more of the  Company's  common  stock.  Each Right
     will entitle stockholders to buy one-hundredth of a share
     of a new  series of 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  percent  or more of Company
     outstanding  common  stock,  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. In addition, if a person or group acquires 10 percent or more of the
     Company's common stock, each Right will entitle the stockholder (other than
     the acquiring  person) to purchase,  at the Right's  then-current  exercise
     price,  a number of shares of the  Company's  common  stock having a market
     value of twice such  price.  Following  the  acquisition  by a person of 10
     percent or more of the Company's  common stock and before an acquisition of
     50 percent or more of the common stock, the Board of Directors may exchange
     the Rights  (other  than the Rights  owned by such  person) at an  exchange
     ratio of one share of  common  stock  per  Right.  Before a person or group
     acquires beneficial ownership of 10 percent or more of the Company's common
     stock,  the Rights are redeemable for $.0001 per right at the option of the
     Board of Directors.  The Rights will expire on October 19, 2008. The Rights
     distribution  is not taxable to  stockholders.  The Rights are  intended to
     enable all the Company stockholders to realize the long-term value of their
     investment  in the  Company.  They will not  prevent a takeover  but should
     encourage anyone seeking to acquire the Company to negotiate with the Board
     of Directors prior to attempting a takeover.
<PAGE>
 
     On October 21,  1998,  ICH  repurchased  from IMH 937,084  shares of Common
     Stock and  456,916  Class A Common  Stock at a per share  price of  $4.375,
     based upon the closing price on October 19, 1998, for a total repurchase of
     $6.1 million.

     On October 27,  1998,  the Company  purchased  from IMH its  remaining  50%
     ownership  interest  in a  commercial  office  building  in Newport  Beach,
     California.  After the purchase of the 50% ownership interest from IMH, the
     Company has a 100% ownership interest in the building.

     BUSINESS OPERATIONS

     Long-Term Investment Operations:

     During the nine months ended  September 30, 1998, the Long-Term  Investment
     Operations,  conducted  by  ICH,  acquired  $331.6  million  of  Commercial
     Mortgages  from ICCC as compared to $37.1 million of  Commercial  Mortgages
     acquired from ICCC during the  Commencement  Period.  Commercial  Mortgages
     purchased  from ICCC  during the first  nine  months of 1998  consisted  of
     $308.0  million  of  fixed-rate  mortgages  ("FRMs")  and $23.6  million of
     adjustable-rate  mortgages  ("ARMs")  secured by first liens on  commercial
     property.  Commercial  Mortgages  purchased from ICCC during the first nine
     months of 1998 consisted of $209.3 million of ConduitExpress  loans, $109.6
     million of CommercialExpress  loans and $12.7 million of CondoSelect loans.
     As of September 30, 1998, the Long-Term Investment  Operations portfolio of
     mortgage  loans   consisted  of  $25.9  million  of  Commercial   Mortgages
     held-for-investment and $340.5 million of mortgage loans held as collateral
     for Collateralized  Mortgage  Obligations  ("CMOs") of which  approximately
     88.56% were FRMs and 11.44% were ARMs.  The weighted  average coupon of the
     Long-Term Investment Operations portfolio of Commercial Mortgages was 7.97%
     at September 30, 1998. In addition, the Long-Term Investment Operations had
     outstanding  finance receivables of $176.9 million,  investment  securities
     available-for   sale  of   $16.8   million   and   residual   interest   in
     securitizations of $9.2 million at September 30, 1998.

     Conduit Operations:

     The  Conduit   Operations,   conducted  by  ICCC,  supports  the  Long-Term
     Investment  Operations  of the  Company by  supplying  ICH with  Commercial
     Mortgages for its long-term investment portfolio. In acting as the mortgage
     conduit for the Company,  ICCC originated  $235.7 million of ConduitExpress
     loans  during the first nine months of 1998 as  compared  to $69.6  million
     during the Commencement Period. The  CommercialExpress  Division originated
     $154.2  million  during the first nine  months of 1998 as compared to $11.6
     million during the Commencement Period. The CondoSelect Division originated
     $12.7 million during the first nine months of 1998 and $19.7 million during
     the  Commencement  Period.  ICCC's  servicing  portfolio  increased 662% to
     $510.1  million as of September 30, 1998 as compared to $66.9 million as of
     September 30, 1997. The loan  delinquency  rate of Commercial  Mortgages in
     ICCC's servicing portfolio was 0.83% at September 30, 1998.

     RESULTS OF OPERATIONS; IMPAC COMMERCIAL HOLDINGS, INC.
     THREE MONTHS ENDED SEPTEMBER 30, 1998 AS COMPARED TO THREE MONTHS ENDED 
     SEPTEMBER 30, 1997

     Net Earnings

     The Company  recorded a net loss of $(13.2)  million,  or $(1.32) basic and
     diluted loss per common share, for the third quarter of 1998 as compared to
     net  earnings of $2.1  million,  or $0.38 basic and  diluted  earnings  per
     common  share,  for the third  quarter of 1997.  The net loss for the third
     quarter of 1998 was  primarily  the  result of a  non-cash  charge of $15.0
     million related to a marked-to-market  adjustment on loans held-for-sale at
     ICCC  and a  non-cash  charge  of $1.1  million  on the  write-down  of the
     residual interest in securitization  held-for-trading  at ICH. 
     The  non-cash  charge of $15.0  million  at ICCC  resulted  in a deficit in
     equity in net  earnings  (loss) of ICCC of  $(14.8)  million  for the third
     quarter of 1998 as compared to earnings of $627,000  for the third  quarter
     of 1997.  The Company sold $150.9  million of  Commercial  Mortgages in the
     fourth quarter of 1998, which improved the Company's liquidity position and
     help protect it against any future  margin calls on the  Company's  current
     warehouse  lines of  credit.  
<PAGE>
 
     The  non-cash  charge of $1.1  million  was a  write-down  on the  residual
     interest in  securitization  held-for trading to reflect the current market
     value of the security.  In addition,  net earnings during the third quarter
     of  1998  were  negatively  affected  by an  increase  of $1.0  million  in
     provision for loan losses and a decrease of $1.5 million in gain on sale of
     loans at ICCC as compared to the third quarter of 1997. While earnings were
     negatively  affected by the non-cash charges recorded by the Company in the
     third quarter of 1998,  earnings were positively affected by a $2.6 million
     increase  in net  interest  income  during  the  third  quarter  of 1998 as
     compared to the third quarter of 1997.

     Subsequent  to  quarter-end,  the Company made  significant  changes in its
     business strategy and operations to restore profitability. In addition, the
     Company  completed  various  transactions that provided positive results in
     the Company's liquidity position.

     Business Strategy.  The Company's business strategy was revised to focus on
     the origination of smaller  balance loans that have higher  margins,  wider
     spreads and more profitability. Therefore, the Company is concentrating its
     efforts on the origination of  CommercialExpress  loans and  de-emphasizing
     the  origination  of  ConduitExpress  loans.  CommercialExpress  loans  are
     Commercial  Mortgages with balances generally from $500,000 to $3.0 million
     while ConduitExpress loans are Commercial Mortgages with balances generally
     from $3.0  million to $10.0  million.  While the Company  expects that this
     decision will result in lower origination balances in the fourth quarter of
     1998 and possibly into early 1999, the Company  anticipates  better results
     on the subsequent sale or securitization of its loans.

     Historically,  the  Company's  experience  has been that  CommercialExpress
     loans have  generally  had better  pricing in the  execution  of whole loan
     sales and structured  transactions  than prices received on  ConduitExpress
     loans. A factor in the higher profitability on  CommercialExpress  loans is
     the higher  interest rate margins on these loans which generally range from
     100 basis  points to 150 basis  points more than  interest  rate margins on
     ConduitExpress   loans.  In  conjunction  with  the  concentration  on  the
     origination   of   CommercialExpress   loans   and   the   de-emphasis   of
     ConduitExpress  loan originations,  the Company has taken positive steps by
     reducing staff levels at ICCC by 38%.

     Liquidity.  In  October  1998,  the  Company  completed  the sale of $150.9
     million of Commercial  Mortgages in order to generate liquidity and help to
     protect the Company against margin calls on existing  borrowings  under its
     current  warehouse line and reverse  repurchase  facilities.  The financial
     result  of  the  sale  of  Commercial   Mortgages  was  in  line  with  the
     marked-to-market  charge  taken in the third  quarter of 1998.  The sale of
     Commercial  Mortgages  increased the  Company's  liquidity by $22.3 million
     after paying down borrowings on warehouse lines.

     Book Value per Share. The loss during the third quarter of 1998 resulted in
     the  Company's  book value  decreasing to $11.09 per share at September 30,
     1998. However, the Company repurchased 1,394,000 shares of Common Stock and
     Class A Common  Stock at a price of $4.375  per share,  a total  repurchase
     price of $6.1 million,  resulting in a $1.09 increase in the Company's book
     value per share. Therefore, the Company's estimated book value increased to
     $12.18 per share,  calculated  on 8,625,000  shares  outstanding  after the
     repurchase of common stock, as compared to book values per share of $12.92,
     $13.09 and $12.87 at June 30,  1998,  March 31, 1998 and December 31, 1997,
     respectively.

     Net Interest Income

     Net interest income increased 153% to $4.3 million during the third quarter
     of 1998 as  compared  to $1.7  million  during  the third  quarter of 1997.
     Interest income is primarily  interest on Commercial  Mortgage Assets, and
     includes  interest  income  on cash  and  cash  equivalents  and  due  from
     affiliates.   Interest  expense  is  primarily,  borrowings  on  Commercial
     Mortgage  Assets  and includes  interest  expense on due to affiliates The
     increase in net interest  income was primarily the result of higher average
     Commercial  Mortgage  Assets  which increased to $506.6 million during the
     third quarter of 1998 as compared to $77.0 million during the third quarter
     of 1997. The net interest spread on Commercial Mortgage Assets decreased to
     1.58%  during the third  quarter of 1998 as  compared  to 3.00%  during the
     third  quarter of 1997.  The decrease in net interest  spread on Commercial
     Mortgage Assets was primarily due to an increase in lower yielding  finance
     receivables  outstanding with ICCC and a decrease in the ten-year  treasury
     yield  which the Company  uses as an index to  determine  initial  interest
     rates on its Commercial Mortgages.

     The   following   table   summarizes   average   balance,    interest   and
     weighted-average yield on Commercial Mortgage Assets and borrowings for the
     three  months  ended  September  30,  1998 and 1997 and includes interest
     income on Commercial Mortgage Assets and interest expense related to 
     borrowings  on  Commercial  Mortgage  Assets only  (dollars in thousands):
<PAGE>
 
<TABLE>
<CAPTION>


                                                              For the Three Months                For the Three Months
                                                            Ended September 30, 1998            Ended September 30, 1997
                                                       ----------------------------------- ------------------------------------
                                                         Average                Weighted      Average                Weighted
                                                         Balance     Interest  Avg Yield      Balance     Interest  Avg Yield
                                                       ----------------------------------- ------------------------------------
    <S>                                               <C>           <C>        <C>        <C>           <C>         <C>

                COMMERCIAL MORTGAGE ASSETS
     Investment and residual securities                $     28,400  $   1,183      16.66% $      13,496 $      725      21.49%
     Loan receivables:
        Commercial Mortgages held-for-investment            233,955      4,504       7.70         18,720        389       8.32
        CMO collateral                                      140,370      2,752       7.84             --         --         --
        Finance receivables                                 103,908      2,214       8.52         44,785        960       8.56
                                                       ------------------------            -------------------------
           Total Loan Receivables                           478,233      9,470       7.92         63,505      1,349       8.50
                                                       ========================            =========================
             Total Commercial Mortgage Assets          $    506,633  $  10,653       8.40  $      77,001 $    2,074      10.77
                                                       ========================            =========================

                        BORROWINGS
     Warehouse line agreements                         $    282,277  $   4,749       6.73  $      30,184 $      540       7.16
     CMO borrowings                                         117,965      2,124       7.20             --         --         --
     Reverse repurchase agreements                            7,332         77       4.20             --         --         --
     Borrowings on residual interest in securitization           --         --         --          7,872        199      10.11
                                                       ========================            =========================
             Total Borrowings                          $    407,574  $   6,950       6.82% $      38,056 $      739       7.77%
                                                       ========================            =========================

          Net Interest Spread                                                        1.58%                                3.00%
          Net Interest Margin                                                        2.92%                                6.94%

</TABLE>

     Interest  income  on  Commercial   Mortgage  Assets:   Interest  income  on
     Commercial Mortgages  held-for-investment  increased to $4.5 million during
     the third quarter of 1998 as compared to $389,000  during the third quarter
     of 1997 as average Commercial  Mortgages  held-for-investment  increased to
     $234.0 million as compared to $18.7 million,  respectively. The increase in
     average  Commercial  Mortgages  held-for-investment  was the  result of the
     Long-Term  Investment  Operations  acquiring  $328.7  million of Commercial
     Mortgages  held-for-investment  from  ICCC  during  the nine  months  ended
     September 30, 1998.  The  weighted-average  yield on  Commercial  Mortgages
     held-for-investment  decreased to 7.70% during the third quarter of 1998 as
     compared  to 8.32%  during the same  period of 1997.  The  decrease  in the
     weighted-average  yield  during  the third  quarter  of 1998 was due to the
     acquisition of lower yielding ConduitExpress loans as compared to the third
     quarter of 1997 and the decrease in the ten-year  treasury  yield which the
     Company  uses as an  index  to  determine  initial  interest  rates  on its
     Commercial Mortgages.

     Interest income on finance receivables increased to $2.2 million during the
     third  quarter of 1998 as compared to $960,000  during the third quarter of
     1997 as average finance receivables increased to $103.9 million as compared
     to $44.8 million, respectively. The increase was primarily the result of an
     increase in ICCC's loan originations, which increased 77% to $101.7 million
     during the third  quarter of 1998 as compared to $57.3  million  during the
     third quarter of 1997. The  weighted-average  yield on finance  receivables
     decreased  to 8.52%  during the third  quarter of 1998 as compared to 8.56%
     during the third quarter of 1997.

     Interest  income on CMO  collateral  increased to $2.8  million  during the
     third  quarter of 1998 as compared to none during the third quarter of 1997
     as average CMO collateral  increased to $140.4 million as compared to none,
     respectively.  Average CMO collateral increased as the Long-Term Investment
     Operations issued CMOs totaling $276.5 million,  which were  collateralized
     by  $317.8   million  in  Commercial   Mortgages,   in  August  1998.   The
     weighted-average yield on CMO collateral was 7.84% during the third quarter
     of 1998.

     Interest income on investment  securities  available-for-sale  increased to
     $1.2  million  during the third  quarter of 1998 as  compared  to  $725,000
     during  the  third  quarter  of  1997  as  average  investment   securities
     available-for-sale,  net of securities  valuation  allowance,  increased to
     $28.4   million  as   compared   to  $13.5   million,   respectively.   The
     weighted-average   yield  on   investment   securities   available-for-sale
     decreased to 16.66%  during the third quarter of 1998 as compared to 21.49%
     during the third quarter of 1997.

     Interest expense on borrowings: Interest expense on warehouse lines used to
     fund finance receivables to ICCC increased to $4.7 million during the third
     quarter of 1998 as compared to $540,000  during the third  quarter of 1997.
     The average  balance of warehouse  lines increased to $282.3 million during
     the third  quarter of 1998 as  compared to $30.2  million  during the third
     quarter  of 1997.  The  increase  was a result of an  increase  in  finance
     receivables  made to ICCC to fund the acquisition of Commercial  Mortgages.
     The weighted-average yield of warehouse lines decreased to 6.73% during the
     third  quarter of 1998 as  compared  to 7.16%  during the third  quarter of
     1997.

     Interest  expense on CMO  borrowings  increased to $2.1 million  during the
     third  quarter of 1998 as compared to none during the third quarter of 1997
     as average  borrowings  on CMO  collateral  increased to $118.0  million as
     compared to none,  respectively.  Average CMO  borrowings  increased as the
     Long-Term Investment  Operations issued CMOs totaling $276.5 million during
     the third quarter of 1998. The weighted-average yield of CMO borrowings was
     7.20% during the third quarter of 1998.
<PAGE>
 
     Interest  expense on  borrowings  on residual  interest  in  securitization
     decreased to none during the third  quarter of 1998 as compared to $199,000
     during the third quarter of 1997 as average borrowings on residual interest
     in   securitization   decreased  to  none  as  compared  to  $7.9  million,
     respectively.  Average  borrowings on residual  interest on  securitization
     decreased during the third quarter of 1998 as compared to the third quarter
     of 1997 as the borrowings were  liquidated with proceeds  received from the
     Company's  IPO.  The  weighted-average  yield  of  borrowings  on  residual
     interest in securitization was 10.11% during the third quarter of 1997.

     The  Company  also  uses  CMBSs  as  collateral  to  borrow  under  reverse
     repurchase  agreements  to fund  the  purchase  of  CMBSs  and to act as an
     additional  source of  liquidity  for the  Company's  operations.  Interest
     expense on these reverse repurchase  agreements increased to $77,000 during
     the third  quarter of 1998 as compared to none during the third  quarter of
     1997. The average balance on these reverse repurchase  agreements increased
     to $7.3 million during the third quarter of 1998 as compared to none during
     the third  quarter of 1997.  The  weighted-average  yield of these  reverse
     repurchase agreements was 4.20% during the third quarter of 1998.

     Earnings from ICCC

     Equity in net earnings  (loss) of ICCC for the third  quarter of 1998 was a
     loss of $(14.8)  million as compared to equity in net  earnings of $627,000
     for the third  quarter  of 1997.  The  decrease  in equity in net  earnings
     (loss)  of ICCC  for  the  third  quarter  of 1998  was the  result  of the
     aforementioned $15.0 million  marked-to-market  adjustment  representing an
     unrealized  loss on $150.9  million of principal balance of mortgage  loans
     held-for-sale by ICCC. The non-cash  adjustment  reflects market bid prices
     the Company  received in  anticipation  of selling such loans in the fourth
     quarter  of 1998 to  improve  the  Company's  liquidity  position  and help
     protect  the  Company  against  any future  margin  calls on the  Company's
     warehouse line of credit.

     Excluding the  aforementioned  non-cash charges,  the decrease in equity in
     net  earnings  (loss) of ICCC was  primarily  because ICCC did not sell any
     loans in the third  quarter of 1998 as compared to whole loan sales by ICCC
     of $36.7  million,  resulting  in a gain on sale of loans of $1.5  million,
     during  the third  quarter  of 1997.  The  decrease  in  earnings  was also
     attributed to an increase in general and  administrative and other expense.
     General and administrative and other expense increased 503% to $1.4 million
     during the third  quarter of 1998 as compared to $232,000  during the third
     quarter  of 1997 due to  ICCC's  expansion  of its  commercial  origination
     operations in the first and second quarters of 1998 as compared to the same
     periods in 1997. As of September 30, 1998,  ICCC's staff  increased 230% to
     89 as compared to 27 as of  September  30,  1997.  However,  subsequent  to
     quarter-end,  the Company reduced staffing at ICCC by approximately  38% to
     55 employees.

     The Company  records 95% of the earnings or losses from ICCC as the Company
     owns 100% of ICCC's preferred  stock,  which represents 95% of the economic
     interest in ICCC.
<PAGE>
 
     General and Administrative and Other Expense

     General and  administrative  and other expense increased to $718,000 during
     the third  quarter of 1998 as compared to $75,000  during the third quarter
     of 1997. The increase in general and  administrative  expense was primarily
     related to operational  expenses the Company incurred  subsequent to August
     of 1997 as a result of becoming a public  Company.  Additionally,  property
     expense on a  commercial  office  building  in which the  Company had a 50%
     ownership  interest prior to quarter-end  increased to $167,000  during the
     third  quarter of 1998 as compared to $30,000  during the third  quarter of
     1997.


     Advisory Fees

     Although  the  Company  recorded a net loss for the third  quarter of 1998,
     advisory  fees are computed on tax basis  earnings  which is  calculated by
     adjusting the Company's book basis earnings by various  differences between
     book basis earnings and tax basis earnings.  Differences between book basis
     earnings  and tax  basis  earnings  are  estimates  that are  derived  from
     management's best knowledge as of September 30, 1998. Therefore,  since the
     advisory  fees for the third  quarter of 1998 were  calculated on estimated
     taxable  earnings  of $2.8  million,  the  Company  recorded  an expense of
     $206,000  during the third quarter of 1998 as compared to $1,000 during the
     third quarter of 1997.

     Credit Exposures

     The Company  recorded  provision for loan losses of $1.0 million during the
     third  quarter of 1998 as compared to $22,000  during the third  quarter of
     1997.  Correspondingly,  the  allowance  for loan losses  increased to $1.7
     million at September 30, 1998 as compared to $564,000 at December 31, 1997.
     At September 30, 1998 and December 31, 1997,  the  Company's  allowance for
     loan  losses   expressed   as  a   percentage   of   Commercial   Mortgages
     held-for-investment,  CMO collateral and finance receivables  (collectively
     "Gross  Loan  Receivables")  was 0.31% and  0.35%,  respectively.  The loan
     delinquency rate expressed as a percentage of Gross Loan Receivables  which
     were 30 or more days past due was 0.83% at  September  30, 1998 as compared
     to none for all  quarter-end  periods  prior to  September  30,  1998.  The
     allowance  for  loan  losses  is  determined  primarily  on  the  basis  of
     management's  judgment of net loss potential  including specific allowances
     for any known  impaired  loans,  changes  in the  nature  and volume of the
     portfolio, value of the collateral and current economic conditions that may
     affect the  borrowers'  ability to pay.  In  addition,  ICCC  maintains  an
     allowance for repurchases of $201,000 as of September 30, 1998 and December
     31, 1997. The allowance for repurchases is based upon a percentage of total
     loan  sales,  which  totaled  $73.4  million as of  September  30, 1998 and
     December 31, 1997.  Management  expects to maintain  ICCC's  allowance  for
     repurchases, expressed as a percentage of loans sold in future periods.

     RESULTS OF OPERATIONS; IMPAC COMMERCIAL HOLDINGS, INC.
     NINE MONTHS ENDED SEPTEMBER 30, 1998 AS COMPARED TO THE COMMENCEMENT PERIOD

     Net Earnings

     The Company  recorded a net loss of $(8.4)  million,  or $(0.96)  basic and
     diluted  loss per  common  share,  for the  first  nine  months  of 1998 as
     compared to net loss of $(270,000),  or $(0.09) basic and diluted  earnings
     per common share, for the Commencement  Period. The actual net loss for the
     first nine months of 1998 was primarily the result of a non-cash  charge of
     $15.0   million   related  to  a   marked-to-market   adjustment  on  loans
     held-for-sale  at  ICCC  and a  non-cash  charge  of  $1.1  million  on the
     write-down of the residual interest in securitization  held-for-trading  at
     ICH recorded in the third  quarter of 1998.  The  non-cash  charge of $15.0
     million at ICCC  resulted in a deficit in equity in net earnings  (loss) of
     ICCC of $(15.7)  million  for the first nine  months of 1998 as compared to
     earnings of $627,000 for the Commencement  Period.  The Company sold $150.9
     million  of  Commercial  Mortgages  in the fourth  quarter  of 1998,  which
     improved the Company's  liquidity  position and help protect it against any
     future  margin  calls  on the  Company's  warehouse  lines of  credit.  The
     non-cash  charge of $1.1 million was a write-down on the residual  interest
     in  securitization  held-for trading to reflect the current market value of
     the  security.  In addition,  net earnings  during the first nine months of
     1998 were  negatively  affected by an increase of $1.1 million in provision
     for loan losses and a decrease of $1.5  million in gain on sale of loans at
     ICCC as compared to the Commencement Period. While earnings were negatively
     affected by the non-cash  charges  recorded by the Company during the first
     nine months of 1998,  earnings were positively  affected by an $8.7 million
     increase  in net  interest  income  during the first nine months of 1998 as
     compared to the Commencement Period.
<PAGE>
 
     Tax Basis Earnings

     The  Company's  estimated  tax basis  earnings  for the nine  months  ended
     September  30,  1998 was  approximately  $9.6  million,  or $1.10 basic and
     diluted  earnings per common  share.  Tax basis  earnings is  calculated by
     adjusting the Company's book basis earnings by various  differences between
     book basis earnings and tax basis earnings.  Differences between book basis
     earnings  and tax  basis  earnings  are  estimates  that are  derived  from
     management's  best  knowledge  as of September  30, 1998.  Actual tax basis
     earnings may differ materially from current estimates.  As of September 30,
     1998, the Company declared or paid dividends for the 1998 tax year totaling
     $12.6 million. Therefore, total dividends declared or paid for the 1998 tax
     year exceed  estimated  tax basis  earnings by $3.0  million,  or $0.35 per
     basic and diluted common share on 8,625,000 common shares outstanding after
     the Company's repurchase of 1,394,000 common shares.

     Net Interest Income

     Net interest  income  increased 378% to $11.0 million during the first nine
     months of 1998 as compared to $2.3 million during the Commencement  Period.
     Interest income is primarily,  interest on Commercial  Mortgage Assets, and
     includes  interest  income  on cash  and  cash  equivalents  and  due  from
     affiliates.   Interest  expense  is  primarily,  borrowings  on  Commercial
     Mortgage Assets,  and includes  interest expense on due to affiliates.  The
     increase in net interest  income was primarily the result of higher average
     Commercial  Mortgage  Assets,  which increased to $356.9 million during the
     first  nine  months  of  1998 as  compared  to  $42.0  million  during  the
     Commencement  Period. The net interest spread on Commercial Mortgage Assets
     decreased  to 2.05%  during the first nine  months of 1998 as  compared  to
     2.68%  during the  Commencement  Period.  The decrease in the yield and net
     interest  spread on  Commercial  Mortgage  Assets was  primarily  due to an
     increase in lower yielding finance receivables  outstanding with ICCC and a
     decrease in the ten-year  treasury yield which the Company uses as an index
     to  determine  initial  interest  rates on its  Commercial  Mortgages.  The
     following table summarizes average balance,  interest and  weighted-average
     yield on  Commercial  Mortgage  Assets and  borrowings  for the nine months
     ended  September 30, 1998 and 1997. The following  table includes  interest
     income on  Commercial  Mortgage  Assets  and  interest  expense  related to
     borrowings on Commercial Mortgage Assets only. (dollars in thousands):

<TABLE>
<CAPTION>

                                                                                             For the period from January 15,
                                                              For the Nine Months           1997 (commencement of operations)
                                                            Ended September 30, 1998           through September 30, 1997
                                                       ----------------------------------- ------------------------------------
                                                         Average                Weighted      Average                Weighted
                                                         Balance     Interest  Avg Yield      Balance     Interest  Avg Yield
                                                       ----------------------------------- ------------------------------------
    <S>                                               <C>           <C>         <C>        <C>          <C>         <C>
  
              COMMERCIAL MORTGAGE ASSETS
     Investment and residual securities                $     28,853  $   3,354      15.50% $       8,493 $    1,243      19.51%
     Loan receivables:
        Commercial Mortgages held-for-investment            153,501      9,267       8.05         15,479        970       8.36
        CMO collateral                                       50,121      2,979       7.92             --         --         --
        Finance receivables                                 124,422      7,903       8.47         18,074      1,149       8.48
                                                       ------------------------            -------------------------
           Total Loan Receivables                           328,044     20,149       8.19         33,553      2,119       8.42
                                                       ========================            ==========================
             Total Commercial Mortgage Assets          $    356,897  $  23,503       8.78  $      42,046 $    3,362      10.66
                                                       ========================            =========================

                        BORROWINGS
     Warehouse line agreements                         $    229,205  $  11,524       6.70  $      21,568 $    1,206       7.46
     CMO borrowings                                          42,503      2,259       7.09             --         --         --
     Reverse repurchase agreements                            8,100        337       5.55             --         --         --
     Borrowings on residual interest in securitization           --         --         --          2,681        245      12.18
                                                       ========================            =========================
             Total Borrowings                          $    279,808  $  14,120       6.73% $      24,249 $    1,451       7.98%
                                                       ========================            =========================

          Net Interest Spread                                                        2.05%                                2.68%
          Net Interest Margin                                                        3.51%                                6.06%

</TABLE>
<PAGE>
 
     Interest  income  on  Commercial   Mortgage  Assets:   Interest  income  on
     Commercial Mortgages  held-for-investment  increased to $9.3 million during
     the  first  nine  months  of  1998  as  compared  to  $970,000  during  the
     Commencement  Period as average  Commercial  Mortgages  held-for-investment
     increased to $153.5 million as compared to $15.5 million, respectively. The
     increase in average Commercial Mortgages held-for-investment was the result
     of  the  Long-Term  Investment   Operations  acquiring  $328.7  million  of
     Commercial Mortgages  held-for-investment  from ICCC during the nine months
     ended  September  30,  1998.  The  weighted-average   yield  on  Commercial
     Mortgages  held-for-investment  decreased  to 8.05%  during  the first nine
     months of 1998 as compared to 8.36% during the Commencement Period.

     Interest income on finance receivables increased to $7.9 million during the
     first  nine  months  of  1998  as  compared  to  $1.1  million  during  the
     Commencement  Period as average  finance  receivables  increased  to $124.4
     million as  compared  to $18.1  million,  respectively.  The  increase  was
     primarily  the result of an  increase in ICCC's  loan  originations,  which
     increased  383% to $402.6  million  during the first nine months of 1998 as
     compared   to  $83.3   million   during  the   Commencement   Period.   The
     weighted-average yield on finance receivables decreased to 8.47% during the
     first nine  months of 1998 as  compared  to 8.48%  during the  Commencement
     Period.

     Interest  income on CMO  collateral  increased to $3.0  million  during the
     first nine  months of 1998 as  compared  to none  during  the  Commencement
     Period as average CMO collateral  increased to $50.1 million as compared to
     none,  respectively.  Average CMO  collateral  increased  as the  Long-Term
     Investment  Operations  issued CMOs  totaling  $276.5  million,  which were
     collateralized by $317.8 million in Commercial  Mortgages,  in August 1998.
     The  weighted-average  yield on CMO  collateral  was 7.92% during the first
     nine months of 1998.

     Interest income on investment  securities  available-for-sale  increased to
     $3.4  million  during the first  nine  months of 1998 as  compared  to $1.2
     million during the  Commencement  Period as average  investment  securities
     available-for-sale,  net of securities  valuation  allowance,  increased to
     $28.9   million   as   compared   to  $8.5   million,   respectively.   The
     weighted-average   yield  on   investment   securities   available-for-sale
     decreased  to 15.50%  during the first nine  months of 1998 as  compared to
     19.51% during the Commencement Period.

     Interest expense on borrowings: Interest expense on warehouse lines used to
     fund finance  receivables  to ICCC  increased to $11.5  million  during the
     first  nine  months  of  1998  as  compared  to  $1.2  million  during  the
     Commencement  Period.  The average  balance of warehouse lines increased to
     $229.2  million  during the first nine  months of 1998 as compared to $21.6
     million  during the  Commencement  Period.  The increase was a result of an
     increase in finance  receivables  made to ICCC to fund the  acquisition  of
     Commercial  Mortgages.   The  weighted-average  yield  of  warehouse  lines
     decreased to 6.70%  during the first nine months of 1998 as compared  7.46%
     during the Commencement Period.

     Interest  expense on CMO  borrowings  increased to $2.3 million  during the
     first nine  months of 1998 as  compared  to none  during  the  Commencement
     Period as average  borrowings on CMO collateral  increased to $42.5 million
     as compared to none, respectively.  Average CMO borrowings increased as the
     Long-Term Investment  Operations issued CMOs totaling $276.5 million during
     the third quarter of 1998. The weighted-average yield of CMO borrowings was
     7.09% during the first nine months of 1998.

     Interest  expense on  borrowings  on residual  interest  in  securitization
     decreased  to none  during the first  nine  months of 1998 as  compared  to
     $245,000 during the Commencement  Period as average  borrowings on residual
     interest in  securitization  decreased to none as compared to $2.7 million,
     respectively.  Average  borrowings on residual  interest on  securitization
     decreased  during the third quarter of 1998 as compared to the Commencement
     Period as the borrowings were  liquidated  with proceeds  received from the
     Company's IPO in August of 1997. The  weighted-average  yield of borrowings
     on residual interest in  securitization  was 12.18% during the Commencement
     Period.

     The  Company  also  uses  CMBSs  as  collateral  to  borrow  under  reverse
     repurchase  agreements  to fund  the  purchase  of  CMBSs  and to act as an
     additional  source of  liquidity  for the  Company's  operations.  Interest
     expense on these reverse repurchase agreements increased to $337,000 during
     the first nine months of 1998 as  compared to none during the  Commencement
     Period.  The  average  balance  on  these  reverse  repurchase   agreements
     increased to $8.1 million  during the first nine months of 1998 as compared
     to none during the Commencement Period. The weighted-average yield of these
     reverse  repurchase  agreements  was 5.55%  during the first nine months of
     1998.
<PAGE>
 
     Earnings from ICCC

     Equity in net earnings (loss) of ICCC for the first nine months of 1998 was
     a loss of $(8.4)  million as compared to equity in net loss of  $($270,000)
     for the Commencement  Period. The decrease in equity in net earnings (loss)
     of  ICCC  for  the  first  nine  months  of  1998  was  the  result  of the
     aforementioned $15.0 million  marked-to-market  adjustment  representing an
     unrealized loss on $150.9 million of mortgage loans  held-for-sale by ICCC.
     The non-cash  adjustment reflects market bid prices the Company received in
     anticipation of selling such loans in the fourth quarter of 1998 to improve
     the  Company's  liquidity  position  and help  protect the Company  against
     future  margin calls on existing  borrowings  under the  Company's  current
     warehouse line and repurchase facilities.

     Excluding the  aforementioned  non-cash charges,  the decrease in equity in
     net  earnings  (loss) of ICCC was  primarily  because ICCC did not sell any
     loans in during the first  nine  months of 1998 as  compared  to whole loan
     sales by ICCC of  $36.7  million,  resulting  in a gain on sale of loans of
     $1.5 million,  during the Commencement Period. The decrease in earnings was
     also  attributed  to an increase in general  and  administrative  and other
     expense.  General and  administrative  and other expense  increased 247% to
     $3.2  million  during the first nine months of 1998 as compared to $921,000
     during the  Commencement  Period due to ICCC's  expansion of its commercial
     origination operations in the first and second quarters of 1998 as compared
     to the same  periods  in 1997.  As of  September  30,  1998,  ICCC's  staff
     increased  230% to 89 as compared to 27 as of September 30, 1997.  However,
     subsequent  to  quarter-end,  the  Company  reduced  staffing  at  ICCC  by
     approximately 38% to 55 employees.

     General and Administrative and Other Expense

     General and  administrative  and other  expense  increased  to $1.4 million
     during  the first nine  months of 1998 as  compared  to $85,000  during the
     Commencement Period. The increase in general and administrative expense was
     primarily related to operational  expenses the Company incurred  subsequent
     to August of 1997 as a result of becoming a public  Company.  Additionally,
     property expense on a commercial office building that the Company had a 50%
     ownership  interest prior to quarter-end  increased to $504,000  during the
     first nine months of 1998 as compared  to $30,000  during the  Commencement
     Period.

     Advisory Fees

     Although the Company recorded a net loss for the first nine months of 1998,
     advisory  fees are computed on tax basis  earnings  which is  calculated by
     adjusting the Company's book basis earnings by various  differences between
     book basis earnings and tax basis earnings.  Differences between book basis
     earnings  and tax  basis  earnings  are  estimates  that are  derived  from
     management's best knowledge as of September 30, 1998. Therefore,  since the
     advisory  fees  for the  first  nine  months  of 1998  were  calculated  on
     estimated taxable earnings of $9.1 million, the Company recorded an expense
     of  $585,000  during the first nine  months of 1998 as  compared  to $1,000
     during the Commencement Period.


     LIQUIDITY AND CAPITAL RESOURCES

     Overview.  The Company's  business  operations  are  primarily  funded from
     monthly interest and principal  payments from its Commercial  Mortgages and
     CMBS portfolios,  warehouse line and reverse repurchase  agreements secured
     by Commercial Mortgages and CMBS, CMO financing,  proceeds from the sale of
     Commercial Mortgages, short-term unsecured borrowings and proceeds from the
     issuance of Common Stock. The acquisition of Commercial  Mortgages and CMBS
     by the Long-Term  Investment  Operations are primarily  funded from monthly
     principal  and  interest   payments,   warehouse  and  reverse   repurchase
     agreements,  CMO financing,  short-term  unsecured  borrowings and proceeds
     from the sale of Common Stock.  The acquisition of Commercial  Mortgages by
     the Conduit  Operations are funded from reverse  repurchase  agreements and
     the  sale of  Commercial  Mortgages.  The  Company's  ability  to meet  its
     long-term  liquidity  requirements  is subject to the renewal of its credit
     and  repurchase  facilities  and/or  obtaining  other sources of financing,
     including  additional debt or equity from time to time. Any decision by the
     Company's  lenders and/or  investors to make additional  funds available to
     the Company in the future will depend upon a number of factors, such as the
     Company's  compliance with the terms of its existing  credit  arrangements,
     the  Company's  financial  performance,  industry and market  trends in the
     Company's  various  businesses,  the  general  availability  of  and  rates
     applicable to financing and  investments,  such lenders' and/or  investors'
     own  resources  and  policies  concerning  loans and  investments,  and the
     relative attractiveness of alternative investment or lending opportunities.
<PAGE>
 
     During the third  quarter of 1998,  the  deterioration  of the CMBS  market
     created a lack of liquidity for the Company as the  Company's  lenders made
     margin calls on their warehouse and reverse repurchase lines.  Margin calls
     result from the Company's lenders evaluating the market value of underlying
     collateral securing the warehouse lines of credit and requiring  additional
     equity or collateral on the warehouse lines. These margin calls resulted in
     the Company  delaying its third  quarter  dividend  and selling  Commercial
     Mortgages.  Subsequent to  quarter-end,  the Company  completed the sale of
     $150.9  million of  Commercial  Mortgages,  which  increased  the Company's
     liquidity by $22.3 million after paying down borrowings on warehouse lines.
     With the net cash  proceeds  from the  sale of  Commercial  Mortgages,  the
     Company  was able to pay its third  quarter  dividend  on November 6, 1998,
     purchase the 50% ownership  interest in its commercial office building from
     IMH, and maintain additional working capital for operations.

     By selling Commercial Mortgages, the company reduced its exposure to margin
     calls  on  existing   borrowing  under  its  current  warehouse  lines  and
     repurchased  facilities  by paying  down  outstanding  borrowings  on these
     facilities.  In addition, the Company believes that by concentrating on the
     origination of  CommercialExpress  loans which have lower loan balances and
     higher interest  margins,  the Company's  liquidity should be improved on a
     go-forward  basis.  Based upon past  experience,  the Company has  received
     better  execution,  both in terms of price  and  completion  time,  on both
     securitizations  and whole  loan sales on  CommercialExpress  loans than on
     ConduitExpress  loans, which have larger loan balances and smaller interest
     margins. Also, by de-emphasizing  originations of ConduitExpress loans, the
     Company expects loan originations to decrease in the fourth quarter of 1998
     and possibly  through the first quarter of 1999 and reduce  borrowing needs
     during  this  period of market  volatility.  The  Company  expects  that by
     originating primarily  CommercialExpress  loans the length of time fundings
     for specific loans are outstanding on the Company's warehouse lines will be
     reduced. The Company also expects that the reduction in staff in the fourth
     quarter  of  1998  will  provide   additional   liquidity   from  operating
     activities.

     However, future cash flows will be negatively impacted by the deterioration
     of the CMBS market and the subsequent  sale of Commercial  Mortgages as the
     Company  will  not  benefit  from  positive  cash  flows  created  by these
     financial instruments.  In addition, any future margin calls or termination
     of warehouse  lines or repurchase  facilities by the Company's  lenders may
     adversely affect the Company's future  operations.  Many former lenders are
     no longer in the business of providing  warehouse  lines for the funding of
     Commercial  Mortgages which may affect the Company's  ability to obtain new
     financing at comparable rates and terms or at all.

     Long-Term Investment Operations: ICH, as a stand-alone entity, entered into
     committed warehouse line agreements with two investment banks, one of which
     expires  in May 1999 and one of which  expires  in  February  1999  (unless
     terminated earlier), which provide up to an aggregate of $600.0 million (of
     which $200.0 million is uncommitted) to finance the Company's operations as
     needed.  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.  The  borrowing  rates are
     expressed in basis points over the one-month LIBOR or Eurodollar  Rate. The
     margins on the warehouse line  agreements are based on the type of mortgage
     collateral used and the loan amounts generally range from 75% to 92% of the
     fair market value of the collateral. As of September 30, 1998, an aggregate
     of $180.2 million was outstanding  under the warehouse line agreements.  In
     addition,  ICH has entered into reverse  repurchase  agreements whereby ICH
     pledges  specific  CMBSs as  collateral  to secure  short-term  loans.  The
     interest rates on the loans are based on the one-month  LIBOR plus a margin
     depending  on the type of  collateral.  As of September  30, 1998,  amounts
     outstanding on the reverse repurchase agreements were $13.9 million.

     The  Long-Term  Investment   Operations  uses  CMO  borrowings  to  finance
     Commercial  Mortgages as a means of  eliminating  certain risks  associated
     with  warehouse  line  and  reverse  repurchase  agreements  (such  as  the
     potential need for deposits of additional  collateral) that are not present
     with  CMO  borrowings.   Terms  of  the  CMO  borrowings  require  that  an
     independent third party custodian hold the mortgages.  The maturity of each
     class is directly  affected  by the rate of  principal  prepayments  on the
     related collateral.  Equity in the CMOs is established at the time the CMOs
     are issued at levels  sufficient to achieve  desired  credit ratings on the
     securities from rating  agencies.  The amount of equity invested in CMOs by
     the Long-Term Investment Operations is also determined by the Company based
     upon the anticipated return on equity as compared to the estimated proceeds
     from additional debt issuance. Total credit loss exposure is limited to the
     equity  invested in the CMOs at any point in time.  At September  30, 1998,
     the Long-Term  Investment  Operations  had $284.8 million of CMO borrowings
     used to finance $340.5 million of CMO collateral.
<PAGE>
 
     ICH has a credit  arrangement  with IMH whereby  ICH  advances to IMH up to
     maximum  amount of $15.0 million for general  working  capital  needs.  The
     credit  agreement  expires  on August 8,  1999.  Advances  under the credit
     arrangement are at an interest rate and maturity  determined at the time of
     each advance with interest and principal paid monthly.  As of September 30,
     1998 and December 31, 1997, IMH's  outstanding  borrowings under the credit
     arrangement were $6.9 million and none, respectively.

     ICH has a credit  arrangement  with IMH whereby  IMH  advances to ICH up to
     maximum  amount of $15.0 million for general  working  capital  needs.  The
     credit  agreement  expires  on August 8,  1999.  Advances  under the credit
     arrangement are at an interest rate and maturity  determined at the time of
     each advance with interest and principal paid monthly.  As of September 30,
     1998 and December 31, 1997, ICH's  outstanding  borrowings under the credit
     arrangement were none and $9.1 million, respectively.

     ICH entered into a revolving  credit  arrangement  with a  commercial  bank
     whereby  ICH can borrow up to maximum  amount of $10.0  million for general
     working capital needs. The revolving credit agreement  expires on March 29,
     1999.  Advances under the revolving credit  arrangement were at an interest
     rate of prime plus  0.25%.  Interest is paid  monthly and as an  open-ended
     revolving line of credit there is no set principal payment schedule.  As of
     September 30, 1998, ICH's outstanding borrowings under the revolving credit
     arrangement was $6.5 million.

     Conduit  Operations:  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.  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.  The
     borrowing  rates on the warehouse  line  agreements  are at the prime rate,
     which was 8.25% at September 30, 1998.  The margins on the  warehouse  line
     agreements are up to 90% of the fair market value of the collateral.  As of
     September  30, 1998 and December  31,1997,  amounts  outstanding  on ICCC's
     warehouse line  agreements  with ICH were $178.0 million and $95.7 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. The interest rates on
     the  borrowings are indexed to the prime rate. As of September 30, 1998 and
     December 31,1997,  outstanding amounts on the warehouse line agreement were
     $15.7 million and $8.5 million, respectively.

     Cash Flows

     Operating  Activities - During the first nine months of 1998, net cash used
     in  operating  activities  was $29.0  million.  Net cash used in  operating
     activities  was  primarily the result of a decrease of $35.9 million in net
     due from  and due to  affiliates,  which  was due to an  increase  of $23.2
     million related to the  aforementioned  warehouse line and revolving credit
     agreements  with IMH and an increase of $7.2 million related to advances to
     finance the operations of ICCC.

     Investing  Activities - During the first nine months of 1998, net cash used
     in  investing  activities  was $379.3  million.  Net cash used in investing
     activities  was  primarily  the result of the  acquisition  and  subsequent
     securitization of $317.8 million of Commercial Mortgages.

     Financing  Activities  - During  the first  nine  months of 1998,  net cash
     provided by financing  activities was $399.6 million.  Net cash provided by
     financing  activities  was  primarily  the  result  of an  increase  in CMO
     financing of $284.2 million and an increase in warehouse line agreements of
     $89.8 million.

     Inflation

     The  Financial  Statements  and Notes  thereto  presented  herein have been
     prepared  in  accordance  with  GAAP,  which  require  the  measurement  of
     financial  position and operating  results in terms of  historical  dollars
     without  considering the changes in the relative  purchasing power of money
     over time due to  inflation.  The impact of  inflation  is reflected in the
     increased costs of the Company's  operations.  Unlike industrial companies,
     nearly all of the assets and  liabilities  of the Company's  operations are
     monetary in nature.  As a result,  interest  rates have a greater impact on
     the Company's operations' performance than do the effects of general levels
     of inflation.  Inflation affects the Company's operations primarily through
     its effect on interest rates, since interest rates normally increase during
     periods of
<PAGE>
 
     high inflation and decrease during periods of low inflation. During periods
     of increasing  interest  rates,  demand for mortgage loans and a borrower's
     ability to qualify for mortgage financing in a purchase  transaction may be
     adversely affected.  During periods of decreasing interest rates, borrowers
     may  prepay  their  mortgages,  which  in turn  may  adversely  affect  the
     Company's  yield and  consequently  the value of its  portfolio of Mortgage
     Assets.

     Year 2000 Compliance
     
     Project Status

     The Company's  Year 2000 project was  approximately  50% complete as of the
     end of October  1998.  The  Company  contracted  with an outside  vendor to
     provide  coordination,  support,  testing and  implementation in regards to
     Year  2000  compliance  of  hardware  and  software  systems,  both  on  an
     information technology ("IT") and non-IT level.

     The Company  also has its own  in-house  IT  department  that is  currently
     assisting the outside vendor. The Company's primary IT systems include loan
     servicing,  which is contracted to an outside  vendor,  loan tracking,  and
     accounting and reporting. The Company has no information in regards to Year
     2000  compliance  from the loan  servicing  systems'  outside  vendor.  The
     Company's IT department  is currently  getting a project plan from the loan
     servicing vendor.  The loan tracking system is currently in compliance with
     Year 2000. The  accounting and reporting  system is not currently Year 2000
     compliant.  The vendor for this  software is  currently  upgrading to a new
     version, which will be Year 2000 compliant in 1999.

     The Company's  non-IT systems  include its file servers,  network  systems,
     workstations  and  communication  systems.  Testing  on all other  in-house
     hardware is currently underway and is expected to be complete by the end of
     the first quarter of 1999.

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

     Phase I - Define Scope of Project

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

     Phase II - Testing of Systems

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

     Compliance Questionnaires and Hardware Certification Information. As of the
     end of October 1998, these portions of Phase II were complete.

     Software/Data Testing. As of the end of October 1998, this portion of Phase
     II was approximately 50% complete.  The remaining tasks within this process
     include  analyzing  list of  software  being  used,  testing  all  software
     programs, testing all data from incoming sources, testing all outgoing data
     processes  and  reporting.  The Company  expects  that this process will be
     complete by March 31, 1999.

     Hardware  Testing.  As of the end of October 1998, this portion of Phase II
     had not  been  started.  This  phase is  contingent  on the  completion  of
     software/data  testing.  Tasks  yet  to  be  started  include  testing  all
     workstation,  servers  and  network  systems.  The  Company  expects  to be
     compliant  with all  internal  Year  2000  issues  by the end of the  first
     quarter of 1999. 
<PAGE>
 
     Costs

     The total cost associated with required  modifications  or installations to
     become Year 2000  compliant is not expected to be material to the Company's
     financial  condition.  The estimated  cost of the project is expected to be
     approximately $108,000. As of the end of October 1998, the Company had paid
     $33,000  to the  outside  vendor for  completed  work on the  project.  The
     majority of the Company's  estimated cost for the Year 2000  compliance has
     been or will be spent on software  upgrades and writing new program code on
     existing  proprietary  software.  Since most of the Company's  hardware has
     been purchased  within the last two years,  the cost of replacing  hardware
     will be minimal.

     Risks

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

     Contingency Plans

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

     Transactions with Related Parties

     On October 21, 1998,  the Company  repurchased  from IMH 937,084  shares of
     Common  Stock and  456,916  shares  of Class A Common  Stock at a per share
     price of $4.375,  based upon the closing  price on October 19, 1998,  for a
     total repurchase of $6.1 million.

     On October 27,  1998,  the Company  purchased  from IMH its  remaining  50%
     ownership  interest  in a  commercial  office  building  in Newport  Beach,
     California.  After the purchase of the 50% ownership interest from IMH, the
     Company has a 100% ownership interest in the building.

     ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Not applicable.
<PAGE>
 
     PART II.  OTHER INFORMATION

     ITEM 1: LEGAL PROCEEDINGS

     The Company is not a party to any material legal proceedings.

     ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

     Not applicable.

     ITEM 3: DEFAULTS UPON SENIOR SECURITIES

     Not applicable.

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

     On July 23,1998,  the Company held its annual meeting of  stockholders.  Of
     the total number of shares  eligible to vote  (7,344,789),  6,839,089 votes
     were returned,  or 93%, formulating a quorum. At the stockholders  meeting,
     the following matters were submitted to stockholders for vote: Proposal I -
     Election  of  Directors,  Proposal  II - Ratify  appointment  of  Company's
     independent auditors, KPMG Peat Marwick LLP. The results of voting on these
     proposals are as follows:

     Proposal I - Election of Directors
<TABLE>
<CAPTION>

        Director                                     For                     Against               Elected
       <S>                                       <C>                        <C>                   <C>

        Joseph R. Tomkinson                       6,793,984                  45,105                    Yes
        James Walsh                               6,795,734                  43,355                    Yes
        Frank P. Filipps                          6,795,734                  43,355                    Yes
        Stephan R. Peers                          6,794,234                  44,855                    Yes
        Thomas J. Poletti                         6,795,734                  43,355                    Yes
        Timothy R. Busch                          6,791,519                  47,570                    Yes
</TABLE>

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

     Proposal II - Appointment of independent auditors

     Proposal II was approved  with  6,781,665  shares  voted for,  29,789 voted
     against, and 27,635 abstained from voting thereby ratifying the appointment
     of KPMG Peat Marwick LLP as the Company's independent auditors.

     ITEM 5: OTHER INFORMATION

      On July 23, 1998,  Ronald M.  Morrison was appointed  General  Counsel and
      Secretary of the Company.


     ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K.

     (a)  Exhibits:

           27 Financial Data Schedule

     (b)  Reports on Form 8-K:  None
<PAGE>
 
     SIGNATURES


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


IMPAC COMMERCIAL HOLDINGS, INC.



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

Date: November 13, 1998