<PAGE>



 UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549

 FORM 10-Q

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

 For the quarterly period ended September 30, 1996

 Commission File number: 0-19861



                  IMPERIAL CREDIT INDUSTRIES, INC.


   CALIFORNIA                                         95-4054791

 (State or other jurisdiction of           (IRS Employer Identification Number)
   incorporation or organization)



  23550 Hawthorne Boulevard, Building 1, Suite 110, Torrance, California 90505

                             (310) 791-8022


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

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest possible date:


      Class                          Shares Outstanding at November 12, 1996

Common Stock, no par value                            37,905,109



<PAGE>




                             IMPERIAL CREDIT INDUSTRIES, INC.

                                         FORM 10-Q
                                     TABLE OF CONTENTS


                                Part 1 - Financial Information

                                                                           Page
Item 1.       Financial Statements:

              Consolidated Balance Sheets -
              September 30, 1996 and December 31, 1995                        1

              Consolidated Statements of Income -
              Three months and nine months Ended September 30, 1996 
              and 1995                                                        2

              Consolidated Statements of Cash Flows
              Nine months Ended September 30, 1996 and 1995                   3

              Consolidated Statement of Changes in Shareholders' Equity       4

              Notes to Consolidated Financial Statements                      5

Item 2.       Management's Discussion and Analysis of Financial               7
              Condition and Results of Operations


                                 Part II - Other Information

Items 1-5.    Not Applicable

Item 6.       Exhibit - Statement Regarding Computation of Earnings
               Per Share                                                     26

              Signatures                                                     27



<PAGE>
<TABLE>
<CAPTION>

                                           ITEM 1. FINANCIAL STATEMENTS
                                         IMPERIAL CREDIT INDUSTRIES, INC.
                                            CONSOLIDATED BALANCE SHEETS
                                                  (In thousands)

                                                                                   (Unaudited)
                                                                                  September 30, 1996          December 31, 1995     
                                                                                  ------------------          -----------------     
<S>                                                                                <C>                        <C>              
                                       ASSETS
Cash......................................................................        $        57,938              $     39,166
Interest bearing deposits.................................................                314,192                   267,776
Investment in Federal Home Loan Bank stock................................                 16,900                    22,750
Securities available for sale, at market..................................                  7,937                     5,963
Loans held for sale (Fair value of $816,996 and $1,345,509                                                                          
   at September 30, 1996 and December 31 1995, respectively)..............                812,257                 1,341,810         
Loans held for investment, net............................................                803,205                   668,771
Capitalized excess servicing fees receivable..............................                 30,282                    34,396
Retained interest in loan and lease securitizations.......................                 33,196                    13,036
Interest-only and residual certificates, at market                                         58,854                    10,840
Purchased and originated servicing rights.................................                 14,038                    18,428
Accrued interest on loans.................................................                  8,880                    10,164
Premises and equipment, net...............................................                 12,388                    11,369
Other real estate owned, net..............................................                 11,303                     7,179
Goodwill..................................................................                 20,988                    20,346
Other assets..............................................................                 43,779                    38,641
                                                                                  -----------------          ----------------- 
   Total assets...........................................................        $     2,246,137           $     2,510,635
                                                                                  =================          =================

                   LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits..................................................................        $     1,052,352                $1,092,989
Borrowings from Imperial Bank.............................................                     --                     5,000
Borrowings from Federal Home Loan Bank....................................                338,000                   190,000
Other borrowings..........................................................                400,045                   875,815
Bonds.....................................................................                     --                   111,995
Senior Notes..............................................................                 88,169                    80,472
Minority interest in consolidated subsidiaries............................                 43,678                     1,452
Other liabilities.........................................................                102,544                    58,810
                                                                                 ------------------          ----------------  
Total liabilities.........................................................        $     2,024,788            $    2,416,533

Shareholders' equity:
Preferred stock, 8,000 shares authorized; none issued or
      outstanding.........................................................        $           --            $          --
Common stock, no par value. Authorized 80,000 shares;  37,903
      and 14,579 shares issued and outstanding at September 30, 1996
      and December 31, 1995, respectively.................................                142,943                    51,981
Retained earnings.........................................................                 74,082                    38,910
Unrealized gain on securities available for sale, net.....................                  4,324                     3,211
                                                                                ------------------          ----------------
  Total shareholders' equity.............................................                 221,349                    94,102
                                                                                ------------------          ----------------
   Total liabilities and shareholders' equity.............................        $     2,246,137           $     2,510,635
                                                                                 =================          =================

Escrow, agency premium funds, held in trust
   for various investors (segregated in special bank
   accounts - included in deposits)......................................         $         2,044           $        35,963
                                                                                  =================          =================

                            See accompanying notes to consolidated financial statements

</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                                         IMPERIAL CREDIT INDUSTRIES, INC.
                                         CONSOLIDATED STATEMENTS OF INCOME
                                                    (Unaudited)
                                  (Dollars in thousands except per share amounts)

<S>                                                           <C>                <C>            <C>                 <C>
                                                               Three months ended                    Nine months ended
                                                                  September 30,                          September 30,             
              
                                                                1996              1995              1996             1995
                                                              -------            ------           -------           --------       
  
Revenue:
   Gain on sale of loans.........................        $     28,640        $    14,929           $69,517           29,953
                                                              -------            ------            -------           --------

   Interest on loans............................               51,002             32,437           139,284           81,262
   Interest on investments......................                  442              1,651             2,831            2,635
   Interest on other finance activities.........                3,748                --              6,957              --
                                                               -------            ------           -------           -------
      Total interest income.....................               55,192             34,088           149,072           83,897
   Interest expense.............................               33,029             26,141           100,767           65,115
                                                               ------             ------           -------           -------
      Net interest income.......................               22,163              7,947            48,305           18,782
    Provision for loan losses...................                2,617              1,350             6,142            3,950
                                                               -------            ------           -------           --------      
                                                
                                                               19,546              6,597            42,163           14,832
                                                               ------              -----            ------           -------

   Loan servicing income........................                  702              3,272             2,264            9,813
   Gain on sale of servicing rights.............                   --                 --             7,808            2,921
   Gain on sale of SPFC stock...................                   --                 --            62,007               --
   Other income.................................                2,285                268             7,770              537
                                                                -----              -----             -----            ------
      Total other income........................                2,987              3,540            79,849           13,271
                                                                -----              -----            ------            ------

       Total revenue............................               51,173             25,066           191,529           58,056
                                                               -------            ------           -------           --------      
Expenses:
   Personnel expense............................               13,075             10,321            36,477           24,041
   Amortization of PMSR's and OMSR's............                  196              1,257             1,028            2,637
   Occupancy expense............................                1,038                973             3,308            2,895
   Data processing expense......................                  394                333             1,324            1,121
   Net expenses of other real estate owned......                  867                897             4,853            1,611
   Professional services........................                1,919                825             5,600            1,682
   FDIC insurance premiums (refund).............                  154                (9)               199            1,114
   Telephone and other communications...........                  563                493             2,108            1,807
   Restructuring provision - exit from
     mortgage banking operations................                   --                 --             3,800               --
   General and administrative expense...........                6,718              2,550            14,047            7,203
                                                               -------            ------           -------           --------       
       Total expenses...........................               24,924             17,640            72,744           44,111

   Income before income taxes...................               26,249              7,426           118,785           13,945
   Income taxes.................................               13,553              3,115            51,322            5,844
   Minority interest in income of consolidated
     subsidiaries...............................                3,263                --              6,373              --
                                                               -------            ------           -------           -------       

   Net income...................................                9,433              4,311            61,090            8,101
                                                               =======            ======           =======            =======

Net income per share:
Primary.........................................                 0.23               0.12              1.60             0.24
                                                                 ====               ====              ====             ====
Fully Diluted:.................................            $     0.23               0.12              1.60             0.23
                                                                 ====               ====              ====             ====

See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>



                                         IMPERIAL CREDIT INDUSTRIES, INC.

                                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                    (Unaudited)
                                              (Dollars in thousands)


          
                                                           Nine months ended        Nine months ended
                                                             September 30,            September 30,
                                                                1996                     1995
                                                               ----------                ---------- 
<S>                                                             <C>                        <C>
Cash flows from operating activities:
   Net income..........................................     $       61,090      $             8,101
   Adjustments to reconcile net income to net cash
       provided by operating activities:
   Provision for loan losses...........................              6,142                    3,950
   Depreciation and amortization.......................              4,373                    4,106
   Restructuring provision............................               3,800                       --
   Interest on other finance activities................             (6,957)                      --
   Gain on sale of servicing rights....................             (7,808)                  (2,921)
   Gain on sale of loans...............................            (69,517)                 (29,953)
   Gain on sale of SPFC stock.........................             (62,007)                      --
   Stock option compensation expense...................                --                       653
   Provision for losses on other real estate owned.....              2,459                    1,105
   Net change in loans held for sale...................            599,070                  (49,113)
   Net change in accrued interest on loans.............              1,284                     (301)
   Net change in other assets..........................            (59,513)                 (47,672)
   Net change in other liabilities.....................             83,275                   12,195
                                                                ----------                ----------
Net cash provided by (used in) operating activities:               555,691                  (99,850)
                                                                ----------                ----------
Cash flows from investing activities:
   Net change in interest bearing deposits.............            (89,936)                  (1,000)
   Purchase of servicing rights........................            (10,389)                  (6,205)
   Proceeds from sale of servicing rights..............             31,032                   11,798
   Proceeds from sale of other real estate owned.......              5,534                    1,594
   Purchase of securities available for sale...........           (219,702)                (220,547)
   Sale of securities available for sale...............            267,098                   12,630
   Net change in loans held for investment.............           (140,320)                 (68,618)
   Purchases of premises and equipment.................             (3,853)                    (842)
                                                                ----------                ----------
Net cash used in investing activities:                            (160,536)                (271,190)
                                                                ----------                ----------
Cash flows from financing activities:
   Net change in deposits..............................            (40,637)                 (27,255)
   Advances from Federal Home Loan Bank................            738,000                  502,000
   Repayments of advances from Federal Home Loan Bank..           (590,000)                (527,000)
   Net change in other borrowings......................           (480,771)                 403,836
   Sale of bonds.......................................           (111,995)                      --
   Proceeds from issuance of ICII common stock.........             59,228                       --
   Proceeds from sale of SPFC common stock.............             36,362                       --
   Proceeds from resale of Senior Notes................              7,615                       --
   Proceeds from exercise of stock options.............              5,815                      385
                                                                ----------                ----------
Net cash (used in) provided by financing activities:              (376,383)                 351,966
                                                                ----------                ----------
Net change in cash.....................................             18,772                  (19,074)
Cash at beginning of year..............................             39,166                   24,904
                                                                ----------                ----------
Cash at end of period..................................       $     57,938         $          5,830
                                                                ==========                ==========
Supplemental disclosure of cash flow information:
   Income taxes paid during the period.................       $     16,253         $          7,429
   Interest paid during the period.....................       $    104,427         $         65,555

                            See accompanying notes to consolidated financial statements
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
                                  IMPERIAL CREDIT INDUSTRIES, INC.

                   CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                                             (in thousands)




                                                                                            Unrealized
                                                                                             gain on
                                          Number of                                         securities         Total
                                            shares         Common         Retained          available      Shareholders'
                                          outstanding        stock           earnings     for sale, net          Equity
                                          -----------     ---------        ----------       ----------      ----------

<S>                                         <C>            <C>               <C>               <C>           <C>
Balance, December 31, 1995 ............    $ 14,579       $ 51,981          $ 38,910         $  3,211         $ 94,102
Exercise of stock options .............         474          1,408                --               --            1,408
Issuance of common stock...............       2,440         59,229                --               --           59,229
Stock dividend ........................       1,458         25,918           (25,918)              --               --
Stock split ...........................      18,952             --                --               --               --
Tax benefit from exercise
  stock options........................          --          4,407                --               --            4,407
Net change in unrealized gain
 on securities available for sale......          --             --                --            1,113            1,113
Net income for period (unaudited)                --             --            61,090               --           61,090
                                          -----------     ---------        ----------       ----------      ----------             
Balance September 30, 1996 (unaudited)    $  37,903       $142,943          $ 74,082         $  4,324         $221,349
                                                                                                                              

                            See accompanying notes to consolidated financial statements

</TABLE>

<PAGE>




                                    Notes to Consolidated Financial Statements
                                                    (Unaudited)

1.   Organization

     The consolidated  financial  statements include Imperial Credit Industries,
Inc. ("ICII"),  its wholly-owned  subsidiaries and  majority-owned  subsidiaries
(collectively  the "Company").  The wholly-owned  subsidiaries  include Southern
Pacific Thrift & Loan  Association  ("SPTL"),  Imperial  Business  Credit,  Inc.
("IBC")  and  Imperial  Credit  Advisors,   Inc.  ("ICAI").  The  majority-owned
consolidated subsidiaries include Southern Pacific Funding Corporation ("SPFC"),
Franchise Mortgage Acceptance Company, LLC ("FMAC"), and ICI Funding Corporation
("ICIFC").  The minority  interests of these  majority  owned  subsidiaries  are
included as "Minority  interest in consolidated  subsidiaries"  on the Company's
consolidated balance sheet. As of September 30, 1996, the Company owned 58.4% of
SPFC, with 41.6% owned by other public investors.  However, since that time, the
Company has sold an additional 7.2% of the outstanding shares of SPFC,  reducing
its ownership in SPFC to 51.2%.  The Company owns 66 2/3% of FMAC,  with 33 1/3%
of FMAC owned by the  President  of FMAC.  The  Company  owns 100% of the voting
common  stock of ICIFC which  entitles it to a 1%  economic  interest.  Imperial
Credit Mortgage Holdings,  Inc. ("ICMH"), an unconsolidated  affiliated company,
owns all of the ICIFC  non-voting  preferred  stock  which  entitles it to a 99%
economic interest. All material intercompany balances and transactions have been
eliminated.

     Imperial Credit Industries,  Inc. (the "Company"),  incorporated in 1986 in
the State of California,  is 24.8% owned by Imperial Bank

2.   Basis of Presentation

     The accompanying  consolidated  financial  statements have been prepared in
conformity  with  generally   accepted   accounting   principles  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 generally accepted
accounting  principles  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  months  ended  September  30,  1996  are not  necessarily
indicative  of the results that may be expected for the year ended  December 31,
1996.  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, 1995.

      In preparing  the  financial  statements,  management  is required to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities  as of the dates of the balance sheets and revenues and expenses for
the periods  presented.  Actual  results could differ  significantly  from those
estimates. Prior year's consolidated financial statements have been reclassified
to conform to the 1996 presentation

3.    Net Income Per Share Information

      Net income per common  share is  computed  based on the  weighted  average
number of shares  outstanding  during the periods  presented  plus common  stock
equivalents  deemed  to be  dilutive.  Common  stock  equivalents  deemed  to be
dilutive were calculated based on the average price per share during the periods
presented  for primary net income per share and based on the ending  stock price
per share, if greater than the average stock price per share,  for fully diluted
net income per share for the periods presented. The number of shares used in the
computations give retroactive effect to stock dividends and stock splits for all
periods  presented,  including the Company's  most recent 2-for-1 stock split on
October 23, 1996.
<PAGE>

      The weighted average number of shares  including common stock  equivalents
for the three  months  ended  September  30,  1996 and 1995 was  40,570,264  and
35,058,544  for fully  diluted  income per  share,  respectively.  The  weighted
average number of shares including common stock  equivalents for the nine months
ended  September  30,  1996 and 1995 was  38,293,874  and  35,004,055  for fully
diluted net income per share, respectively.

      The weighted average number of shares  including common stock  equivalents
for the three  months  ended  September  30,  1996 and 1995 was  40,382,302  and
34,697,623  for primary  income per share,  respectively.  The weighted  average
number of shares  including  common stock  equivalents for the nine months ended
September 30, 1996 and 1995 was 38,074,558 and 34,137,402 for primary income per
share, respectively.


4.   Loans Held for Sale

     Loans held for sale consisted of the following at September 30, 1996 and
     December 31, 1995:
              (Dollars in thousands)
<TABLE>

                                        At September 30, 1996      At December 31, 1995
                                              ---------------      -------------
<S>                                             <C>                  <C>                                                           

      Loans secured by real estate:
           Single family 1-4........      $      539,143        $     1,083,038
           Multi-family.............              93,666                171,199
                                              -----------             ----------       
                                                 632,809              1,254,237

      Leases........................               3,785                 17,787
      Commercial loans..............             175,663                 69,786
                                              ----------              ---------
                                           $     812,257       $      1,341,810
                                              ==========              ==========
</TABLE>

<PAGE>



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

         The  Company  is a  diversified  financial  services  company  offering
financial products,  principally through its subsidiaries, in the following five
sectors:  franchise  lending,  commercial  mortgage  banking,  business lending,
consumer lending, and non-conforming residential mortgage banking. The Company's
strategy  is to  concentrate  its  lending  activities  in  select  high  margin
commercial and consumer  markets in which loan and lease products  originated or
purchased  by the Company can be readily sold  through  securitization  or whole
loan sales in the secondary  market.  The Company  emphasizes (i)  opportunistic
expansion  into  niche  segments  of  the  financial  services  industry,   (ii)
conservative   underwriting  and  credit   guidelines,   (iii)  loan  and  lease
originations on a wholesale basis to maintain low overhead,  (iv) securitization
or sale in the secondary market of substantially  all of the Company's loans and
leases other than those held by its subsidiary,  Southern  Pacific Thrift & Loan
Association ("SPTL"),  for investment and (v) business and financial flexibility
to allow withdrawal from or entry into business  segments as warranted by market
conditions.

      Since 1995,  the Company has  attempted  to  diversify  its loan and lease
products by focusing on the  creation  and  acquisition  of  additional  finance
businesses in order to reduce dependency on residential  mortgage lending.  When
acquiring new businesses or targeting expansion opportunities, the Company seeks
to retain  existing  management or recruit  experienced  management to help make
continued  growth possible and to reduce the risks associated with market entry.
The financial products offered by the Company consist of loans and leases in the
following five sectors:

            franchise lending - franchise loans;

            commercial mortgage lending - income property loans;

            business finance lending - equipment leasing, asset-based financing
                                       and loan participations;

            consumer loans - sub-prime auto loans, home improvement loans and
                             other consumer credit

            non-conforming  residential mortgage lending - non conforming single
                            family mortgage loans.

      The majority of the Company's  loans and leases,  other than those held by
SPTL for investment,  are sold in the secondary market through  securitizations.
Securitizations  provide the Company  with  greater  flexibility  and  operating
leverage by allowing  the Company to generate fee and  interest  income  through
originations  and  investments  in loans with a  significantly  smaller  capital
commitment than that required by traditional portfolio lenders. In addition, the
Company believes that the use of securitizations results in a lower overall cost
of funds.  SPTL also accepts  Federal  Deposit  Insurance  Corporation  ("FDIC")
insured  deposits which are used to finance SPTL's  lending  activities  through
several active divisions.

Franchise Lending

    General

      Franchise  Mortgage  Acceptance  Company,  LLC  ("FMAC"),  a 66 2/3% owned
subsidiary,  makes  long-term,  fixed and  variable  rate  loans to  established
franchisees of major restaurant  franchise concepts,  which are then securitized
into  investment  grade  structures  and sold to  institutional  investors.  The
Company  believes that recent changes in the banking  environment have adversely
affected the ability of small business  operators to find credit,  regardless of
their track record and ratings. Franchise operations comprise a major portion of
overall  small  business  activity  in the United  States.  The  standardization
imposed by franchisors makes this market sector
<PAGE>
amenable to securitization. FMAC
targets "top tier" franchises whose franchisors exercise  significant  operating
and marketing  control.  It lends only to established,  successful  operators of
franchise  restaurants  with proven track records.  FMAC makes loans directly to
franchisees based on the enterprise value as well as the cash flow of individual
restaurants and, where applicable, the value of any associated real estate. FMAC
generally  lends  against  existing  cash flow.  It  generally  does not rely on
projected  sales  growth  to add  incremental  cash flow to help  service  debt.
Borrowers  must  demonstrate  positive cash flow on an EBITDA  (earnings  before
interest, taxes, depreciation and amortization) basis.

      During the nine months  ended  September  30,  1996,  loans to  individual
credits ranged from approximately  $241,000 to $7.0 million. For the nine months
ended  September  30,  1996,  FMAC  originated  or  acquired  $304.8  million of
franchise loans.  FMAC securitized  $167.4 million of franchise loans during the
nine months  ended  September  30, 1996.  At  September  30, 1996 FMAC had total
assets of $71.8  million.  FMAC's  total  revenues  and net  income for the nine
months  ended   September   30,  1996  were  $14.1  million  and  $6.4  million,
respectively.

    Commercial Mortgage Lending

      The  Company  engages in  commercial  lending,  which  consists  of income
property lending.

Income Property Lending

      SPTL's Income Property Loan Division  ("IPLD") was formed in February 1994
to expand the Company's apartment and commercial property lending business. IPLD
seeks to make 70% of its loans  secured by  apartment  buildings  and 30% of its
loans  secured  by other  commercial  properties.  Most of  IPLD's  business  is
generated through in house loan representatives who market the loans directly to
mortgage  brokers and  borrowers.  Virtually  all of IPLD's loans are secured by
properties in California. The focus of IPLD's lending activity is the small loan
market for  apartments  and  commercial  loans.  IPLD's  maximum  loan amount is
approximately $2.5 million.  The Company believes that IPLD employs conservative
underwriting  criteria,  which  include a maximum loan to value ratio of 70% and
minimum debt  coverage  ratio of 1.2 to 1 on all loans.  Loans secured by income
properties  entail  additional  risk as  compared to single  family  residential
lending.  The payment  experience  on such loans is  generally  dependent on the
successful  operation of the related commercial or multifamily property and thus
is  subject  to a greater  extent to adverse  conditions  in local  real  estate
markets or in the economy  generally.  For the nine months ended  September  30,
1996 and 1995,  IPLD funded  approximately  $182.2  million and $93.9 million in
loans, respectively. During the quarter ended September 30, 1996, SPTL completed
a securitization of approximately  $277.0 million of multi family and commercial
mortgage loans. This securitization  consisted primarily of loans originated and
purchased by the Income Property Lending Division of SPTL.

    Business Finance Lending

      The Company,  through CBC, IBC, and the Loan  Participation and Investment
Group,  also engages in business finance lending,  which consists of asset-based
lending, commercial equipment leasing and loan participations.

    Asset Based Lending

    General

      The Company,  through its SPTL division, Coast Business Credit Corporation
("CBC"),  conducts  an asset based  lending  business.  CBC is a senior  secured
asset-based lender which lends primarily to qualified  companies  throughout the
nation.

      CBC's principal  business is asset-based  lending to small to medium-sized
businesses with annual revenues ranging from  approximately  $10 million to $100
million.  Generally,  such businesses are constrained  from obtaining  financing
from more traditional  credit sources such as commercial banks due to inadequate
equity  capitalization,  limited  operating  history,  lack of  profitability or
financing needs below commercial bank minimum size requirements. CBC has focused
its lending  activities on high  technology  businesses  engaged in the computer
industry.
<PAGE>

      At  September  30,  1996,   CBC's  loan  portfolio   represented   lending
relationships with  approximately 104 customers,  with an average total loan per
customer of $2.7 million.  During 1996, CBC executed an expansion plan which has
increased  the  customer  base of CBC  outside  the  State of  California.  This
includes production centers operating in the states of Massachusetts, Minnesota,
and Georgia.  At September 30, 1996 and December 31, 1995,  CBC had  outstanding
loans totaling  $278.9 million and $154.2  million,  respectively.  CBC had open
unused commitments of $236.4 million at September 30, 1996.

Equipment Leasing

    General

      Imperial Business Credit,  Inc. ("IBC") was formed by ICII in May, 1995 to
carry on the Company's equipment leasing business.  IBC carries out its business
equipment  leasing  operations from both its  headquarters  in Rancho  Bernardo,
California, and its operations center in Denver, Colorado.

      IBC is in the  business  of leasing  equipment,  including  copying,  data
processing,  communication, printing and manufacturing equipment, exclusively to
business users. Initial lease terms typically range from 24 months to 60 months.
IBC will commit to purchase this  equipment only when it has a signed lease with
a lessee who satisfies its credit and funding  requirements.  Substantially  all
the leases written by IBC are full payout ("direct financing") leases that allow
IBC to  sell or  release  the  equipment  upon  termination  of the  lease.  IBC
occasionally  purchases  small  portfolios  of  existing  equipment  leases from
brokers  with  whom  it has  established  relationships.  These  portfolios  are
evaluated on an individual basis according to IBC's  established  credit policy.
The Company  believes  that these  acquisitions  allow IBC to grow with  greater
efficiency  than usual at a level of decreased  risk due to the portfolio  aging
that has occurred in the books of the originating broker.

      In October 1996, the Company acquired from AVCO Financial  Services,  Inc.
("AFS"),  an $85 million  lease  portfolio  and the  operations  of the Business
Equipment  Lease  Division  of  AVCO  Leasing  Services,  Inc.  ("ALSI").  ALSI,
originates and services  leases for general office and business  equipment.  The
acquired  assets  will  be  consolidated   with  IBC.  The  purchase  price  was
approximately $95 million.

      IBC's lease  originations  totaled $60.9 million for the nine months ended
September  30, 1996.  IBC  securitized  $67.7  million of leases during the nine
months ended  September  30, 1996. At September 30, 1996 IBC had total assets of
$14.4  million.  IBC's total  revenues  and net income for the nine months ended
September 30, 1996 were $5.0 million and $1.3 million, respectively.

    Loan Participation and Investment Group

         The Company's Loan  Participation  and  Investment  Group ("LPIG") is a
division of SPTL that purchases for investment  nationally syndicated commercial
loan  participations  originated  by commercial  banks and insurance  companies,
primarily in the secondary market. The principal types of loans acquired by LPIG
are senior secured bank loans consisting of: (i) revolving lines of credit which
allow the  borrower to borrow and repay  proceeds as needed for working  capital
purposes;  (ii)  long-term  loans with a specific  amortization  schedule  which
requires  the  borrower  to repay the  borrowed  loans over  time,  usually on a
quarterly  basis;  or (iii)  letters of credit  which are  normally  funded as a
sublimit under the revolving line of credit commitment.  The loans are generally
secured by a first  priority  lien on all of the  borrower's  personal  property
including accounts receivable,  inventory and furniture, fixtures and equipment,
as  well  as  liens  on  owned  real  estate.   At  September  30,  1996,   loan
participations  held by LPIG  ranged  in size  from  approximately  $900,000  to
approximately  $10  million,  as  compared  to  approximately  $2 million to $10
million at December 31, 1995, respectively.
<PAGE>

      During the nine months ended  September  30, 1996,  LPIG has purchased and
funded  approximately  $174.7  million  of  senior  secured  loan  participation
commitments.   Loans  outstanding  under  LPIG's  participation  commitments  at
September 30, 1996 totaled $129.6 million.

    Consumer Lending

      Through SPTL, the Company also makes consumer  finance loans consisting of
sub-prime auto finance loans, home improvement loans and other consumer credit:

    Sub-Prime Auto Lending

      SPTL's  Sub-Prime Auto Lending Division ("ALD") was formed in October 1994
to fund  new  and  used  automobile  purchase  contracts.  ALD's  borrowers  are
generally credit impaired and therefore are unable to access alternative sources
of financing from banks and captive auto finance companies.  ALD seeks to offset
the increased risk of default in its portfolio with higher yields and aggressive
servicing and collection activities.

      ALD generated $24.8 and $19 million and in sub-prime auto loans during the
nine  months  and  year  ended   September  30,  1996  and  December  31,  1995,
respectively. The Company currently generates sub-prime auto loans through three
Northern  California  retail  offices and is expanding its activities to Central
California and areas outside California.

    Home Improvement Loans and Other Consumer Credit

      SPTL's Consumer Credit Division  ("CCD") was formed in early 1994 to offer
loans  primarily to finance home  improvements,  manufactured  housing and other
consumer goods.  CCD's business is developed  through a network of retailers and
contractors throughout California.  All loans are centrally processed,  approved
and funded at CCD's headquarters in Irvine, California.

      Home  improvement  loans  offered by CCD range from $5,000 to $350,000 and
include major remodeling  projects that are sometimes  coupled with refinancing.
CCD's  typical loan is secured by a junior  lien.  In  addition,  CCD  purchases
unsecured  installment sales contracts to finance certain home improvements such
as air conditioning, roofing and kitchen and bathroom remodeling.

      During the nine months ended  September  30, 1996 and year ended  December
31, 1995, CCD originated $16.5 million and $14.6 million in loans, respectively.

    Non-Conforming Residential Mortgage Lending

      The Company engages in non-conforming residential mortgage lending through
its majority owned subsidiary,  SPFC, and through the Bulk Acquisitions Division
of SPTL.

    SPFC

      Through  SPFC,  a 51.2% owned  subsidiary,  the Company is an  originator,
purchaser and seller of high  yielding,  single family non  conforming  mortgage
loans.  Substantially  all of  SPFC's  loans  are  secured  by first  or  second
mortgages  on owner  occupied  single  family  residences.  The  majority of the
originated  and purchased  loans are made to borrowers who do not qualify for or
are unwilling to obtain  financing  from  conventional  mortgage  sources.  SPFC
typically  packages a portfolio of originated and purchased loans and sells such
through securitization.

      SPFC's mortgage loan  production  increased to $490.2 million for the nine
months  ended  September  30, 1996 from $85.8  million for the nine months ended
September 30, 1995.  SPFC  securitized  $421.8 million of sub prime  residential
mortgage  loans for the nine months ended  September  30, 1996. At September 30,
1996 SPFC had total  assets of $235.1  million.  SPFC's  total  revenues and net
income for the nine months ended September 30, 1996 were $14.1 million and $17.8
million, respectively.
<PAGE>

    Strategic Divestitures

      During the fourth  quarter of 1995, the Company  contributed  its mortgage
conduit  operations and SPTL's warehouse  lending  operations to Imperial Credit
Mortgage Holdings,  Inc., a newly-formed  Maryland  corporation  ("ICMH"),  that
subsequently  engaged in an initial  public  offering of its common stock.  ICMH
operates three  businesses,  two of which were owned by ICII. ICMH elected to be
taxed as a real estate  investment trust. At the effective date of ICMH's public
offering  ("Offering"),  ICII contributed to ICI Funding  Corporation  ("ICIFC")
certain of the operating  assets and certain  customer lists of ICII's  mortgage
conduit  operations   including  all  of  ICII's  mortgage  conduit  operations'
commitments   to   purchase   mortgage   loans   subject   to  rate  locks  from
correspondents,  in exchange for 100% of the voting common stock and 100% of the
outstanding  non-voting  preferred  stock  of  ICIFC.  Simultaneously,   on  the
effective  date of the  Offering,  in exchange for 500,000  shares of the common
stock of ICMH, ICII (1)  contributed to ICMH all of the  outstanding  non-voting
preferred  stock of ICIFC,  which  represents  99% of the  economic  interest in
ICIFC, and (2) caused SPTL to contribute to ICMH certain of the operating assets
and  certain  customer  lists of  SPTL's  warehouse  lending  division,  and (3)
executed an agreement not to compete and a right of first  refusal  agreement in
each case for a period of two years from the effective date of the Offering. All
of the  outstanding  shares  of common  stock of ICIFC  were  retained  by ICII.
Lastly, ICMH contributed all of the aforementioned  operating assets contributed
by SPTL's  warehouse  lending  operation  to Imperial  Warehouse  Lending  Group
("IWLG") in exchange for shares  representing  100% of the common stock of IWLG.
At and for the nine months ended  September 30, 1996,  ICIFC had total assets of
$185.5 million, total revenues of $7.7 million, and net income of $726,000.

      The assets and operations of ICIFC are consolidated  with ICII. ICMH's 99%
economic  interest in the earnings of ICIFC are  eliminated  from the  Company's
consolidated   income  statement  through   "Minority   Interest  in  Income  of
Consolidated  Subsidiaries."  As a result,  the  assets and  liabilities  of the
Company  reflected  on its  consolidated  balance  sheet at  September  30, 1996
included   approximately  $185.5  million  in  assets,  and  $175.7  million  in
liabilities  related  to  ICIFC.  The  Company  will  retain  only 1% of the net
earnings or loss derived from such assets and  liabilities  along with the other
operations of ICIFC.

      The Company  currently  intends to reduce its  ownership in ICIFC to below
50% by December 31, 1996,  resulting  in the  deconsolidation  of the assets and
liabilities  of ICIFC  from  the  Company's  consolidated  balance  sheet.  Such
reduction  in  ownership  may occur as a result of the sale or  transfer of ICII
owned shares of ICIFC stock, or by other possible means.

      In the first nine  months of 1996,  the Company  sold all of its  mortgage
origination  offices  related  to its  former  conforming  residential  mortgage
lending business. The Company's wholesale offices in Colorado,  Florida,  Oregon
and Washington were converted to SPFC offices.

      The  Company   recognized  that  maintaining  a  mortgage  loan  servicing
infrastructure  was not  economically  viable  in the  absence  of a  conforming
residential  mortgage loan  origination  business.  Thus,  during the first nine
months of 1996, the Company sold substantially all of its conforming residential
mortgage loan servicing rights. Additionally,  the Company has subcontracted all
remaining servicing generated by its non-conforming residential mortgage banking
business since  September 1995 to Advanta  Mortgage Corp. USA  ("Advanta").  The
Company has sold or  subcontracted  most of its servicing  related to its former
mortgage banking operations to other third party servicers.  The Company intends
to continue  servicing all loans and leases  originated by its equipment leasing
and Franchise Lending businesses, as well as all loans originated by SPTL.

      Manufactured Housing Community Lending ("MHCB") - During the quarter ended
September  30,  1996,  the MHCB  division of ICII was merged into SPTL,  and the
origination  operations  of MHCB  were  discontinued.  MHCB  will  operate  as a
division of SPTL only to satisfy its remaining commitments. The Company believes
that MHCB will cease all of its operations permanently during the fourth quarter
of 1996.
<PAGE>

    Business Strategies

      Since  September  30,  1996,  the  Company  has  completed  the sale of an
additional one million shares, or 7.3% of SPFC,  reducing its ownership to 51.2%
of SPFC.  The  registration  statement  filed with the  Securities  and Exchange
Commission  grants  the  underwriters  of the sale the  option to issue up to an
additional 150,000 shares of SPFC stock for sale. If so exercised, the Company's
ownership in SPFC would decline to 50.1%.

      The Company currently intends to reduce its ownership in SPFC to below 50%
by  December  31,  1996,  resulting  in the  deconsolidation  of the  assets and
liabilities  of  SPFC  from  the  Company's  consolidated  balance  sheet.  Such
reduction  in  ownership  may occur as a result of the  issuance  of  additional
shares of SPFC stock under SPFC's stock option plan,  by the sale or transfer of
additional ICII owned shares of SPFC stock, or by other possible means.

      In October 1996, as a part of the Company's strategy of expanding into new
business opportunities, the Company invested approximately $9 million, primarily
in  the  form  of a  subordinated  loan  to  Dabney/Resnick,  Inc.  ("DRI").  In
conjunction with the loan, the Company  received  warrants which are convertible
into a 49% ownership  interest in  Dabney/Resnick/Imperial,  LLC ("DRIL").  DRI,
headquartered in Beverly Hills, California,  with offices in Chicago,  Illinois,
Dallas,  Texas, and Sun Valley,  Idaho,  offers full service investment banking,
brokerage and asset management services.

      In October 1996, the Company acquired from AVCO Financial  Services,  Inc.
("AFS"),  an $85 million  lease  portfolio  and the  operations  of the Business
Equipment  Lease  Division  of  AVCO  Leasing  Services,  Inc.  ("ALSI").  ALSI,
originates and services  leases for general office and business  equipment.  The
acquired  assets  will  be  consolidated   with  IBC.  The  purchase  price  was
approximately $95 million.

    Securitization Transactions

      During the nine months ended September 30, 1996, the Company had completed
five  loan  and  lease  securitizations   totaling  $933.9  million.  Sub  prime
residential  mortgage loans securitized totaled $421.8 million,  multifamily and
commercial  mortgage  loans totaled  $277.0  million,  franchise  mortgage loans
totaled  $167.4  million,  and leases  totaled $67.7  million.  Of the principal
amount securitized during 1995, $505.0 million was securitized in the first nine
months.  The Company has retained  interests in loan and lease  securitizations,
representing the excess of the total amount of loans sold in the  securitization
over the amounts represented by interests in the security sold to investors. The
retained interests in the loan and lease  securitizations were $33.2 million and
$13.0 million at September 30, 1996 and December 31, 1995, respectively.

      The Company is subject to certain  recourse  provisions in connection with
these securitizations.  At September 30, 1996 and December 31, 1995, the Company
had  discounted   recourse   allowances  of  $15.8  million  and  $8.7  million,
respectively,  related to these  recourse  provisions  which are netted  against
capitalized   servicing   fees   receivable  and   interest-only   and  residual
certificates.

      As a fundamental part of its business and financing strategy,  the Company
sells the majority of its loans  through  loan  securitization  transactions.  A
significant  portion of the  Company's  revenue is recognized as gain on sale of
loans, which represents the present value of the difference between the interest
rate charged by the Company to a borrower and the interest  rate received by the
investors who  purchased  securities  collateralized  by the loans sold into the
securitization vehicle.

      The Company has created  capitalized  excess servicing fees receivable and
interest-only and residual  certificates as a result of the sale of loans and to
a lesser extent leases into various trust securitization vehicles. These various
trust  vehicles,   primarily  consisting  of  real  estate  mortgage  investment
conduits,  are  majority  owned by an  independent  third  party  who has made a
substantial  capital  investment  and  has  substantial  risks  and  rewards  of

<PAGE>
ownership of the assets of the trust;  therefore,  these trust  vehicles are not
consolidated with the Company.  Capitalized excess servicing fees receivable and
interest-only  and  residual  certificates  on the sale of loans and  leases are
determined by computing the present value of the excess of the weighted  average
coupon on the loans and leases  sold  (ranging  from 9.0% to 13.3%) over the sum
of: (1) the coupon in the pass through certificates (ranging from 5.6% to 7.4%),
(2) a base servicing fee paid to the loan or lease servicer  (ranging from 0.40%
to 0.50%),  (3)  expected  losses to be  incurred on the  portfolio  of loans or
leases  sold  (ranging  from  0.25% to 0.50%  over  the life of the  loan),  and
considering (4) prepayment assumptions.

      Prepayment  assumptions  are based on  recent  evaluations  of the  actual
prepayments of the Company's  servicing  portfolio or on market prepayment rates
on new portfolios and consideration of the current interest rate environment and
its potential impact on prepayment rates. The cash flows expected to be received
by the Company,  not  considering  the expected  losses,  are  discounted  at an
interest rate that the Company  believes an  unaffiliated  third party purchaser
would  require  as a rate of return  on such a  financial  instrument.  Expected
losses  are  discounted  using a rate  equivalent  to the  risk  free  rate  for
securities  with a duration  similar to that estimated for the underlying  loans
and leases sold. The combined  result is an effective  overall  discount rate of
approximately  15%. The excess servicing cash flows are available to the Company
to the extent that there is no impairment of the credit enhancements established
at the time the  loans  and  leases  are  sold.  Such  credit  enhancements  are
classified  as  retained  interest  in loan  and  lease  securitizations  on the
consolidated balance sheets and represent the amount of overcollateralization of
the  certificates.  To the extent that  actual  future  performance  results are
different  from the  excess  cash flows the  Company  estimated,  the  Company's
capitalized  excess  servicing fees receivable  will be adjusted  quarterly with
corresponding adjustments made to income in that period.

         A significant  portion of the Company's  reported income and all of the
related  capitalized  servicing fees receivable and  interest-only  and residual
certificates  included  in  the  Company's   consolidated  financial  statements
represent the recognition of the present value of the excess  servicing  spread,
which is based on certain  estimates  made by  management  at the time loans are
sold.  The rate of prepayment of loans and expected  losses may be affected by a
variety of economic and other factors,  including the  prevailing  interest rate
and the  availability of alternative  financing.  The effect of those factors on
loan  prepayment  rates  may  vary  depending  on the  particular  type of loan.
Estimates  of  prepayment  rate  and  losses  are  made  based  on  management's
expectations of future prepayment rates and losses, which are based, in part, on
the historical  rate of prepayment and previous loss experience of the Company's
loans,  and other  considerations.  There can be no assurance of the accuracy of
management's  initial  prepayment or loss estimates.  If actual  prepayments and
losses with respect to sold loans,  occur more quickly than was projected at the
time such loans were sold, the carrying value of the capitalized  servicing fees
receivable  may have to be  written  down  through a charge to  earnings  in the
period of adjustment.  If actual  prepayments  and losses,  with respect to sold
loans  occur more slowly  than  estimated,  the  carrying  value of  capitalized
servicing fees receivable on the Company's  consolidated balance sheet would not
increase,  although  total  income would exceed  previously  estimated  amounts.
Interest-only and residual certificates in loan securitizations  retained by the
Company's subsidiary Southern Pacific Funding  Corporation,  are held as trading
securities  and are adjusted to their  respective  market values  quarterly with
corresponding charges and credits made to income in the adjustment period.

    Servicing Rights

      When the Company  purchases  servicing rights from others,  or loans which
include  the  associated  servicing  rights,  the price  paid for the  servicing
rights,  net of amortization  based on assumed  prepayment rates, is included on
the consolidated balance sheet as "Purchased and Originated Servicing Rights."

      During  the nine  months  ended  September  30,  1996,  the  Company  sold
substantially all of its conforming  residential mortgage servicing with related
capitalized Purchased and Originated Servicing Rights. As a result of this sale,
of the $14.0 million of Purchased and Originated Servicing Rights outstanding at
September 30, 1996, $5.8 million are held at SPTL and $700,000 are held at ICAI,
with the  remaining  $7.5 million held at ICIFC in  connection  with its ongoing
mortgage banking operations.  (See "Notes to Consolidated  Financial  Statements
-Note 1. -Organization.")
<PAGE>

    Funding

      Until 1995,  apart from equity and debt offerings in the capital  markets,
the Company's  primary  sources of financing were  warehouse  lines of credit at
ICII and  deposits  with SPTL.  Typically,  ICII would  borrow  funds  under its
warehouse  lines  in  connection  with  its  wholesale  loan   originations  and
purchases,  while SPTL used its  deposits and  borrowings  from the Federal Home
Loan Bank of San Francisco ("FHLB") to finance its lending activities.

     In connection with its diversification  strategy, the Company believes that
lower cost financing is available through credit lines,  repurchase  facilities,
whole loan sales and securitization  programs established by SPFC, IBC and FMAC.
Therefore,  ICII expects that it will no longer  maintain its warehouse lines of
credit  beyond  December  31,  1996.  With  respect to all of its other  lending
activities,  the Company continues to rely on FDIC insured deposits generated by
SPTL,  but  it  also  utilizes  third  party   warehouse  lines  of  credit  and
securitizations. At September 30, 1996, SPTL had total deposits of approximately
$1.1 billion (excluding deposits of ICII maintained with SPTL).

     ICII and its subsidiaries have various revolving  warehouse lines of credit
available at September 30, 1996, as follows:
<TABLE>
<CAPTION>
                                            Weighted
                                            average
                                            interest      
                                            rate           Commitment         Outstanding                 Index
                                            --------       --------           ----------              ------------                 
                                                                  (Dollars in thousands)
                                            
<S>                                         <C>               <C>                <C>        <C>
PaineWebber (ICII)................           6.18%         $   200,000           $ 13,774    Libor+65bp - 100bp
Banco Santander (FMAC)............           7.78%              50,000             26,141    Libor+225bp
Stanley Mortgage Capital (SPFC)...             --              150,000               --      FedFunds+65bp - 85bp
Greenwich (FMAC)..................           7.23%              33,086             33,086    Libor+175bp
Lehman Brothers (SPFC)............           6.28%             200,000            141,078    Libor+30bp
Imperial Warehouse
   Lending Group (ICIFC)..........           8.25%             600,000            171,504    Bank of America Prime
Warehouse Lending
   Corporation of America (ICII)..           7.94%              20,000             14,462    Libor+250bp
                                                             -----------         ---------
                                                             $1,253,086          $400,045

</TABLE>
<PAGE>



      Results of Operations

    Quarter Ended September 30, 1996 Compared to Quarter Ended September 30,1995

      Revenues for the quarter ended  September 30, 1996 increased 104% to $51.2
million as compared to $25.1  million for the same period of the previous  year.
Expenses for the quarter ended September 30, 1996 increased 41% to $24.9 million
as compared  to $17.6  million for the same  period of the  previous  year.  Net
income for the quarter  ended  September  30, 1996  increased to $9.4 million as
compared to $4.3 million for the same period of the previous year. Fully diluted
net income per share for the quarter  ended  September  30,  1996 was $0.23,  as
compared to $0.12 for the same period of the previous year. Net income increased
primarily  due to the  increased  revenues  from  gain on sale of loans  and net
interest income, partially offset by increases in total expenses. Net income per
share  increased at a lower rate than net income due an increase in  outstanding
shares used for net income per share  calculations  as a result of the Company's
common  stock  offering,  and as a result of the  increased  dilutive  effect of
outstanding  shares under the Company's  stock option plans.  (See Liquidity and
Capital Resources,  below.) The Company had 40.6 million shares of fully diluted
common stock and common stock equivalents  outstanding  during the quarter ended
September 30, 1996 as compared to 35.1 million shares of common stock and common
stock equivalents outstanding during the same period of the previous year.

      The number of shares used in the computations of net income per share give
retroactive  effect  to  stock  dividends  and  stock  splits  for  all  periods
presented,  including the Company's  most recent  2-for-1 stock split on October
23, 1996.

      Net income and net income per share from core  operations  (defined as net
income less the net gain from the sale of SPFC  stock,  and less the net gain or
loss on  sales  of  servicing  rights)  and  excluding  the net  expense  of the
restructuring  provision for the quarter ended September 30, 1996 increased 120%
and 90% to $9.5  million  and $0.23 per share  from $4.3  million  and $0.12 per
share in the same period of the previous year, respectively.

      Gain on sale of loans increased 92% to $28.6 million for the quarter ended
September  30,  1996 as  compared  to $14.9  million  for the same period of the
previous year.  Gain on sale of loans consists  primarily of gains recorded upon
the sale of loans,  net of associated  expenses,  and to a lesser  extent,  fees
received on the origination of loans,  and fees received for commitments to fund
loans. The increase was primarily the result of  substantially  increased volume
and profitability on the sale of various  servicing  retained variable and fixed
rate loan products through securitizations. Gain on sale of loans includes $17.0
million in gains recorded as a result of the securitization of $189.5 million of
the Company's sub prime  residential  mortgage  loans at SPFC,  $11.2 million in
gains  resulting from the sale of $277.0 million of commercial and  multi-family
loans at SPTL,  less a $900,000  loss  recorded as a result of the sale of loans
held by the Company's former mortgage banking  operations in connection with the
planned exit from this business.  Upon completion of an analysis of the carrying
values of the Company's excess  servicing  assets during the third quarter,  the
Company wrote down the balance of excess servicing assets by $2.5 million.  Also
included  in gain on sale of loans was $1.3  million  in gains  from the sale of
loans  at  the  Company's  consolidated   subsidiary,   ICIFC.  (See  "Notes  to
Consolidated Financial Statements -Note 1. - Organization.")

      As a part of the SPTL securitization of $277.0 million of multi-family and
commercial   mortgage  loans,   the  Company  retained   subordinate   bonds  of
approximately  $22 million and  delivered  the bonds into a total rate of return
swap with JP Morgan.  The  provisions of the swap entitle the Company to receive
the total return on the  subordinate  bonds delivered in exchange for a floating
payment  of Libor  plus a spread  of  1.95%.  The swap is an off  balance  sheet
instrument.

      Net interest  income,  which consists of interest and fees net of interest
charges,  and net interest margin at Southern  Pacific Thrift & Loan Association
for the quarter ended September  30,1996 increased 179% and 87% to $22.2 million
and 4.15% compared to $7.9 million and 2.22% for the same period of the previous
year, respectively.  The increase in net interest income and net interest margin
was due  primarily  to two factors.  The increase in net interest  income can be
directly  attributed to the acquisitions  completed  throughout the last half of
1995,  and the resultant  change in the  composition  of loans held for sale and
investment from primarily
<PAGE>
conforming single family residential mortgage loans to
a more  diversified mix of higher yielding loan products from the Company's four
primary businesses. The product mix of the Company's interest earning assets now
includes a much larger percentage of higher-yielding  loan and lease products as
compared to the previous year. Interest income also increased as a result of the
Company's loan and lease  securitizations,  which contributed interest income of
$3.7 million from the accretion of discounts on the Company's capitalized excess
servicing  fees  receivable.  In  anticipation  of potential  writedowns  of the
Company's excess servicing fees, the Company began to slow the rate of accretion
of the discounts  related to excess  servicing  assets in the second  quarter of
1996. Upon completion an analysis of the carrying values of the Company's excess
servicing  assets during the third quarter,  the Company  accreted into interest
income those discounts which had been deferred,  and  simultaneously  wrote down
the balance of excess servicing fees receivable.  The net result of these events
was  to  increase  interest  income  by  approximately  $2.5  million,  with  an
offsetting  writedown of excess  servicing assets through gain on sale of loans.
The increase in interest income due to the factors described above was partially
offset by an increase  in the  average  costs of  borrowings  from all  sources,
including  warehouse  lines of credit,  borrowings  from the FHLB,  and customer
deposits.

      Loan servicing  income for the quarter ended  September 30, 1996 decreased
79% to $702,000 as compared to $3.3  million for the same period in the previous
year.  The decrease in loan  servicing  income was  primarily due to a decreased
average balance of residential mortgage loans serviced for others,  primarily as
a  result  of  the  Company's  sale  or  transfer  of  substantially  all of its
conforming  residential  mortgage loan servicing  rights in connection  with the
Company's exit from the conforming mortgage banking business. Additionally, loan
servicing  income was negatively  affected by increased  direct  servicing costs
related  to  the  loan  foreclosure  and  property  liquidation  process  of the
remaining  conforming  residential  mortgage loan portfolio.  As a result of the
Company's  strategic  divestitures,  the Company does not expect loan  servicing
income to be a strong  contributor  to total  revenues in the near future.  This
reduced  contribution  to revenues is  anticipated  to be offset by increases in
other  finance  activity  revenues,  as well as from a  reduction  in  servicing
related expenses.

      In addition to the above referenced servicing portfolio,  the Company also
services a variety of other loan products at its other business  operations that
make  positive  contributions  to total  revenue.  At September  30, 1996,  FMAC
serviced  franchise  loans for others  totaling  $527.2  million,  and SPTL serv
iced multifamily or commercial loans for others of $328.6 million.  SPFC acts as
master servicer for $497.8 million of sub prime  residential  loans serviced for
others. As a result of the  sub  servicing  fee  arrangement  with  SPFC's  sub 
servicer;  however, significant servicing revenues are not realized from this 
operation.  ICIFC also acts as master servicer for $1.2 billion of non 
conforming  residential mortgage loans.   (See   "Notes   to   Consolidated   
Financial   Statements   -Note   1. Organization.").

      Other income for the quarter ended  September  30, 1996  increased to $2.3
million as compared to $268,000 for the same period of the previous  year.  This
increase  was  primarily  due to  $986,000  of fee  income  generated  from  the
Company's  advisory  contract  of with ICMH and  dividend  payments  of $193,000
received by the Company on its investment in ICMH. Additionally, impacting other
income was the  resolution  and recovery of $1.4 million of certain  outstanding
reconciling items at SPTL.


<PAGE>




      Personnel  expenses  increased  27% to $13.1 million for the quarter ended
September  30,  1996 as  compared  to $10.3  million  for the same period of the
previous  year.  This increase was  primarily  the result of personnel  expenses
related to the Company's  acquisition  and expansion  activities  throughout the
second half of 1995,  partially offset by reductions in personnel expense at the
Company's former mortgage banking operations.

      Amortization  of PMSR's  and  OMSR's  decreased  84% to  $196,000  for the
quarter ended September 30, 1996 as compared to $1.3 million for the same period
of the previous  year.  The  decrease was the result of a decreased  outstanding
balance  of PMSR's and OMSR's as a result of the  Company's  sale of  conforming
residential  mortgage loan  servicing  rights  generated by its former  mortgage
banking operations. As a result of this sale, of the $14.0 million of PMSR's and
OMSR's  outstanding  at  September  30,  1996,  $5.8  million  are held at SPTL,
$700,000  are held at ICAI,  with the  remaining  $7.5  million held at ICIFC in
connection  with it's continuing  mortgage  banking  operations.  (See "Notes to
Consolidated Financial Statements-Note 1. -Organization.")

      Occupancy  expense remained  relatively  unchanged at $1.0 million for the
quarter ended  September 30, 1996 as compared to $973,000 for the same period of
the previous year.  Occupancy expense remained relatively  unchanged despite the
Company's  shift in business focus and related  expansion  activities due to the
reduction  of  occupancy  costs  from  the  Company's  former  mortgage  banking
operations.  The Company expanded its lease obligations in the current year as a
result of the Company's  acquisition  of Coast  Business  Credit,  First Concord
Leasing,  and Franchise  Mortgage  Acceptance  Company LLC in the second half of
1995.

      Net  expenses  of OREO  decreased  3% to $867,000  for the  quarter  ended
September  30, 1996 as compared to $897,000  for the same period of the previous
year.  The  decrease  in net  expense  of OREO was  primarily  the  result  of a
reduction on the average  loss on the sale of  properties  foreclosed  on by the
Company's former mortgage banking operations.

      All other general and administrative expenses,  including data processing,
professional  services, and telephone and other communications expense increased
132% to $9.7  million for the quarter  ended  September  30, 1996 as compared to
$4.2 million for the same period of the previous  year.  The increase in general
and  administrative  expenses was due primarily to the Company's  acquisition of
CBC, FCAC, and FMAC, as well as to the start up of ICAI late in 1995.

    Asset Quality

      As a result of the continuing  change in the  composition of the Company's
investment loan portfolio, earnings were reduced by an increase in the provision
for loan losses. The provision for loan losses increased 94% to $2.6 million for
the quarter  ended  September 30, 1996, as compared to $1.4 million for the same
period of the previous  year.  The increase in the  provision  was primarily the
result of an  increase  in  nonaccrual  loans,  an increase in the amount of net
charge-offs, and the continuing change in the composition of the investment loan
portfolio to higher-yielding loan products. Total nonaccrual loans increased 50%
to $46.6 million at September 30, 1996, as compared to $31.0 million at December
31, 1995.  Total  nonaccrual  loans as a percentage of loans held for investment
were 5.56% and 4.50% at September 30, 1996 and December 31, 1995, respectively.

      Net  charge-offs  for the quarter and nine months ended September 30, 1996
were $2.2 million and $5.4 million, as compared to $772,000 and $2.1 million for
the same period of the previous year. Net  charge-offs  for the quarter and nine
months ended  September  30, 1996 by product  type were as follows:  Multifamily
loans $50,000 and $1.0 million, Consumer loans $165,000 and $599,000, Conforming
Residential Mortgage loans $822,000 and $2.0 million,  Commercial loans $183,000
and $432,000, Leases $942,000 and $1.5 million, respectively.

<PAGE>
<TABLE>
     Loans held for investment  consisted of the following at September 30, 1996
     and December 31, 1995:
                                                                      (Dollars in thousands)

<CAPTION>
                                                            September 30, 1996             December 31, 1995
                                                                 ------------                 -------------
<S>                                                                  <C>                              <C>
        Loans secured by real estate:
        Single Family 1-4...................                   $        59,204                $        228,721
        Multi Family........................                           234,608                           7,028
        Commercial..........................                            25,698                         133,189
                                                                  --------------                --------------            
                                                                       319,510                         368,938
        Leases..............................                               120                           7,297
        Installment loans...................                            28,094                           1,900
        Commercial..........................                           481,819                         311,122
                                                                   -------------                 -------------   
                                                                       829,543                         689,257
        Unearned income.....................                           (6,138)                         (5,217)
        Deferred loan fees..................                           (5,739)                         (1,540)
                                                                    ------------                 -------------
                                                                      817,666                         682,500
        Allowance for loan losses...........                          (14,461)                        (13,729)
                                                                    ------------                 -------------
                                                              $        803,205                 $       668,771

</TABLE>
     The Company's  loans held for investment  are primarily  comprised of first
and second lien  mortgages  secured by  residential  and income  producing  real
property in California, leases secured by equipment, asset based loans to middle
market companies mainly in California,  and loans to experienced  franchisees of
nationally recognized restaurant concepts. As a result, the loan portfolio has a
high  concentration  in the same geographic  region.  Although the Company has a
diversified  portfolio,  a substantial  portion of its debtors' ability to honor
their contracts is dependent upon the economy of California.


     Activity in the allowance for loan losses was as follows:
                              (Dollars in thousands)
<TABLE> 
<CAPTION>
                                                      Nine months ended         Year ended
                                                      September 30, 1996      December 31, 1995
                                                       -----------------       ----------------
<S>                                                           <C>                    <C>
Balance, beginning of year......................        $      13,729        $         7,054
Provision for losses charged to expense.........                6,142                  5,450
Business acquisitions and bulk loan purchases...                   --                  4,320

Loans charged off...............................               (5,523)                (3,106)
Recoveries on loans previously charged off......                  113                     11
                                                           ------------             ----------
Net charge offs.................................               (5,410)                (3,095)

Balance, end of period..........................     $         14,461         $       13,729
                                                            ===========              =========

     As of September  30, 1996 and December 31, 1995  non-accrual  loans  
totaled  $46.6  million and $31.0 million, respectively.
</TABLE>
<PAGE>





         The following table sets forth the amount of NPA's  attributable to the
Company's  former  mortgage  banking  operations and to all of its other lending
activities.
<TABLE>
<CAPTION>
                                             At September 30,           At December 31,
                                                1996                        1995

                                                        Former                    Former
                                         All Other     Mortgage     All Other    Mortgage
                                          Lending      Banking      Lending      Banking
                                         Activities   Operations    Activities   Operations
                                         -----------  ----------    ----------   ------------
<S>                                     <C>            <C>            <C>        <C>
(Dollar amounts in thousands)
 Nonaccrual loans:
     One to four family.............        27,005        11,842         2,652       20,990
     Commercial property............         2,684            --         1,824          --
     Multifamily property...........         5,054            --         5,522          --
                                         -----------  ----------    ----------   ------------                                       
Total nonaccrual loans..............        34,743        11,842         9,998       20,990

Other real estate owned:
     One to four family.............         5,383         3,797         1,937        4,173
     Commercial property............         1,076           --            211          --
      Multifamily property..........         1,047           --            858          --
                                         -----------  ----------    ----------   ------------                                      
Total other real estate owned.......         7,506         3,797         3,006        4,173

Loans with modified terms:
     One to four family.............         1,314           --            870          --
     Commercial property............           --            --             --          --
     Multifamily property...........           --            --             --          --
                                         -----------  ----------    ----------   ------------                                      
Total loans with modified terms.....         1,314           --            870          --

Total non performing assets.........    $   43,563      $ 15,639      $ 13,874     $ 25,163
                                         -----------  ----------    ----------   ------------
Total loans and OREO................    $1,584,403      $ 68,700    $1,168,783     $869,463

Total NPA's as a percentage of
   loans and OREO...................          2.75%        22.76%        1.19%     2.89%
</TABLE>

     The  provision  for loan losses was $2.6  million and $6.1  million for the
quarter and nine months ended September 30, 1996,  increases of 94% and 55% from
$1.4 million and $4.0  million and for the same  periods of the  previous  year,
respectively.  The increase in the  provision in both periods was  primarily the
result of the increase in nonaccrual loans and the increase in the amount of net
charge-offs.  The ratio of the allowance for loan losses to total loans held for
investment  was 1.74%, a decrease from the 1.99% at December 31, 1995. The ratio
of the  allowance  for loan losses to  nonaccrual  loans  decreased  to 31.0% at
September 30, 1996 from 44.3% at December 31, 1995.  Although  nonaccrual  loans
have  increased  since  December  31,  1995,  with a  corresponding  decrease in
allowance  coverage,  the Company evaluates  expected losses on these nonaccrual
loans on a loan-by-loan  basis and has determined that the allowance is adequate
to cover both  expected  losses on nonaccrual  loans and inherent  losses in the
remainder of the  Company's  loans held for  investment  portfolio.  The Company
believes that the allowance for loan losses is adequate.

      The  percentage of the allowance for loan losses to nonaccrual  loans will
not remain constant due to the nature of the Company's  portfolio of loans.  The
collateral  for each  nonperforming  mortgage loan is analyzed by the Company to
determine potential loss exposure,  and in conjunction with other factors,  this
loss  exposure  contributes  to the overall  assessment  of the  adequacy of the
allowance for loan losses.  On an ongoing  basis,  management  monitors the loan
portfolio  and  evaluates  the adequacy of the  allowance  for loan  losses.  In
determining the adequacy of the allowance for loan losses,  management considers
such factors as historical loan loss experience,
<PAGE>
underlying  collateral values,
evaluations  made  by  bank  regulatory  authorities,   assessment  of  economic
conditions  and  other  appropriate  data to  identify  the  risks  in the  loan
portfolio.  Loans deemed by  management to be  uncollectible  are charged to the
allowance  for loan  losses.  Recoveries  on loans  previously  charged  off are
credited to the allowance. Provisions for loan losses are charged to expense and
credited to the allowance in amounts deemed appropriate by management based upon
its  evaluation of the known and inherent  risks in the loan  portfolio.  Future
additions to the allowance for loan losses may be necessary.

    Nine months Ended September 30, 1996 Compared to Nine months Ended September
30, 1995

      Revenues for the nine months ended  September 30, 1996  increased  230% to
$191.5  million as compared to $58.1 million for the same period of the previous
year.  Expenses for the nine months ended  September  30, 1996  increased 65% to
$72.7  million as compared to $44.1  million for the same period of the previous
year. Net income for the nine months ended  September 30, 1996 increased 654% to
$61.1  million as compared to $8.1  million for the same period of the  previous
year. Net income increased primarily due to increased revenues from gain on sale
of loans, net interest income, and gain on sale of SPFC stock,  partially offset
by increased  total  expenses.  Fully  diluted net income per share for the nine
months ended  September 30, 1996 increased  596% to $1.60,  as compared to $0.23
for the same period of the previous year. The Company had 38.3 million shares of
fully diluted common stock and common stock equivalents  outstanding  during the
nine  months  ended  September  30,  1996 as  compared  to 35.0  million  shares
outstanding during the same period of the previous year.

      The number of shares used in the computations of net income per share give
retroactive  effect  to  stock  dividends  and  stock  splits  for  all  periods
presented,  including the Company's  most recent  2-for-1 stock split on October
23, 1996.

      Net income and net income per share from  "core"  operations  for the nine
months ended  September  30, 1996  increased  368% and 333% to $30.0  million or
$0.78 per share from $6.4  million or $0.18 per share in the same  period of the
previous year, respectively.

      Gain on sale of loans  increased 132% to $69.5 million for the nine months
ended September 30, 1996 as compared to $30.0 million for the same period of the
previous year.  Gain on sale of loans consists  primarily of gains recorded upon
the sale of loans,  net of associated  expenses,  and to a lesser  extent,  fees
received on the origination of loans,  and fees received for commitments to fund
loans. The increase was primarily the result of  substantially  increased volume
and profitability on the sale of various  servicing  retained variable and fixed
rate loan  products.  Gain on sale of loans  includes;  $37.8  million  in gains
recorded as a result of the  securitization  of $421.8  million of the Company's
sub prime  residential  mortgage loans at SPFC,  $3.6 million in gains resulting
from the sale of the Company's retained interest in the securitization of $105.2
million  of  franchise  mortgage  loans at FMAC  which  was  accounted  for as a
financing at December 31,  1995,  $4.6 million in gains  recorded as a result of
the securitization of $167.4 million of franchise loans in the second quarter of
1996, $11.2 million in gains recorded  resulting from the sale of $277.0 million
of multi-family and commercial mortgage loans at SPTL, and $1.5 million in gains
recorded as a result of the sale of loans held by the Company's  former mortgage
banking operations. Upon completion of an analysis of the carrying values of the
Company's excess  servicing  assets during the third quarter,  the Company wrote
down the balance of excess  servicing  assets by $2.5 million.  Also included in
gain on sale of loans  were $5.9  million in gains from the sale of loans at the
Company's consolidated subsidiary,  ICIFC. (See "Notes to Consolidated Financial
Statements - Note 1. Organization.")

      Net interest  income,  which consists of interest and fees net of interest
charges,  and net interest  margin at SPTL for the nine months  ended  September
30,1996  increased  157% and 87% to $48.3  million  and 4.03%  compared to $18.8
million and 2.16% for the same period in the previous  year. The increase in net
interest  income and net interest  margin was due primarily to two factors.  The
increase in net interest income can be directly  attributed to the  acquisitions
completed  throughout  the last half of 1995,  and the  resultant  change in the
composition  of loans held for sale and  investment  from  primarily  conforming
single  family  residential  mortgage  loans to a more  diversified  mix of loan
products  from the  Company's  four primary  businesses.  The product mix of the
Company's  interest  earning  assets now  includes a much larger  percentage  of
higher-yielding  loan and lease  products  as  compared  to the  previous  year.
Interest  income  also  increased  as a result of the  Company's  loan
<PAGE>
and lease
securitizations,  which  contributed  interest  income of $7.0  million from the
accretion  of discounts  on the  Company's  capitalized  excess  servicing  fees
receivable.  In  anticipation  of potential  writedowns of the Company's  excess
servicing fees, the Company began to slow the rate of accretion of the discounts
related  to  excess  servicing  assets  in the  second  quarter  of  1996.  Upon
completion  of an  analysis  of the  carrying  values  of the  Company's  excess
servicing  assets during the third quarter,  the Company  accreted into interest
income those discounts which had been deferred,  and  simultaneously  wrote down
the balance of its excess servicing  assets.  The net result of these events was
to increase  interest income by approximately  $2.5 million,  with an offsetting
writedown of excess servicing assets through gain on sale of loans. The increase
in interest income due to the factors described above was partially offset by an
increase in the average costs of borrowing from all sources, including warehouse
lines of credit, borrowings from the FHLB, and customer deposits.

      Loan  servicing  income  for the nine  months  ended  September  30,  1996
decreased 77% to $2.3 million as compared to $9.8 million for the same period in
the previous year. The decrease in loan servicing  income was primarily due to a
decreased average balance of conforming  residential mortgage loans serviced for
others, primarily as a result of the Company's sale or transfer of substantially
all of its conforming  residential  mortgage servicing rights in connection with
the  Company's  exit from the  mortgage  banking  business.  Additionally,  loan
servicing  income  continues  to be  negatively  affected  by  increased  direct
servicing  costs  related  to the  loan  foreclosure  and  property  liquidation
process.

      During the nine months ended September 30, 1996 and 1995, the Company sold
mortgage  loan  servicing  rights  relating to $3.2  billion and $350.6  million
principal  amount of loans,  resulting in pre-tax gains of $7.7 million and $2.9
million, respectively. Gain on the sale of servicing rights consists of the cash
proceeds  received on the "bulk" sale of  servicing  rights,  net of the related
capitalized   purchased  or  originated   servicing   rights.   The  decline  in
profitability  on the  sale of the  conforming  residential  mortgage  servicing
rights was due a lower average  purchase price and due to the increased  amounts
of capitalized  servicing  rights on the portfolio sold in the nine months ended
September  30, 1996 as compared  to the same  period of the  previous  year as a
result of the Company's  adoption of SFAS 122 in the first quarter of 1995.  The
decision to sell  servicing  rights was based upon the Company's  exit plan from
its former mortgage banking operations.

      During  the nine  months  ended  September  30,  1996,  the  Company  sold
approximately 42% of its common stock in SPFC through an initial public offering
of 5.0 million shares of SPFC common stock. The Company sold 2.3 million shares,
with SPFC  selling  3.5 million  primary  shares.  As a result of the sale,  the
Company recorded a pre tax gain of $62.0 million. Since the Company continues to
own a  majority  ownership  interest  in SPFC,  the  Company  will  continue  to
consolidate  SPFC's  operations  with its other  majority  owned or wholly owned
subsidiaries. However, as a result of the Company's requirement to record income
tax expense on its  ownership  interest in SPFC's after tax income,  the Company
will only retain  approximately 34% of SPFC's net income or loss, so long as the
Company maintains a 58% ownership interest in SPFC.

      Other income for the nine months  ended  September  30, 1996  increased to
$7.8 million as compared to $537,000  for the same period of the previous  year.
This  increase was  primarily  due to fee income  generated  from the  Company's
advisory contract with ICMH and dividend payments received by the Company on its
investment in ICMH. Additionally,  impacting other income was the resolution and
recovery of $2.5 million of certain outstanding reconciling items at SPTL.

      Personnel  expenses  increased  52% to $36.5  million  for the nine months
ended September 30, 1996 as compared to $24.0 million for the same period of the
previous  year.  This increase was  primarily  the result of personnel  expenses
related to the Company's  acquisition  and expansion  activities  throughout the
second half of 1995,  partially offset by reductions in personnel expense at the
Company's former mortgage banking operations.

      Amortization  of PMSR's and OMSR's  decreased  61% to $1.0 million for the
nine months  ended  September  30, 1996 as compared to $2.6 million for the same
period  of the  previous  year.  The  decrease  was the  result  of a  decreased
outstanding  balance of PMSR's and OMSR's as a result of the  Company's  sale of
servicing  rights on  conforming  residential  mortgage  loans  generated by the
former mortgage banking operations.
<PAGE>
      Occupancy  expense increased 14% to $3.3 million for the nine months ended
September  30,  1996 as  compared  to $2.9  million  for the same  period of the
previous year. The increase  primarily reflects an increase in lease expenses as
a result of the Company's  acquisition of Coast Business  Credit,  First Concord
Leasing, and Franchise Mortgage Acceptance Company in the second half of 1995.

      Net  expenses of OREO  increased  201% to $4.9 million for the nine months
ended  September 30, 1996 as compared to $1.6 million for the same period of the
previous  year.  The increase in net expense of OREO was primarily the result of
the dramatic increase in the volume of properties foreclosed on by the Company's
former mortgage banking operations.

      FDIC  insurance  premiums  decreased  82% to $200,000  for the nine months
ended  September 30, 1996 as compared to $1.1 million for the same period of the
previous year.  FDIC  insurance  premiums  decreased  primarily as a result of a
decrease in the rate of the insurance  premium  charged to SPTL for FDIC deposit
insurance.

      Restructuring  charges  were  $3.8  million  for  the  nine  months  ended
September  30, 1996 as compared to no charge for the same period of the previous
year.  The  charge  represents  those  costs  incurred  in  connection  with the
Company's exit from the conforming  mortgage banking business in accordance with
the  provisions  of  Emerging  Issues Task Force  ("EITF")  Abstract  No.  94-3,
"Accounting for  Restructuring  Charges."  During the first quarter of 1996, the
Company  committed  itself  to,  and began the  execution  of, an exit plan that
specifically  identified the necessary  actions to be taken to complete the exit
from the  origination,  sale and  servicing of conforming  residential  mortgage
loans.  During the nine months ended  September 30, 1996,  the Company  incurred
charges  against  the  allowance  of  approximately  $2.3  million.  The Company
believes that significant  changes to the exit plan are not likely, and that the
exit plan should be completed by December, 1996. The Company has included in the
restructuring  charge  those  costs  resulting  from the exit  plan that are not
associated  with,  nor would have benefit for the  continuing  operations of the
Company.

      All other general and administrative expenses,  including data processing,
professional  services, and telephone and other communications expense increased
97% to $23.3 million for the nine months ended September 30, 1996 as compared to
$11.8 million for the same period of the previous  year. The increase in general
and  administrative  expenses was due primarily to the Company's  acquisition of
CBCC, FCAC, and FMAC, as well as to the start up of ICAI in 1995.

      As a result of the change in the  composition of the Company's  investment
loan  portfolio,  earnings were reduced by an increase in the provision for loan
losses. The provision for loan losses increased 55% to $6.1 million for the nine
months ended September 30, 1996, as compared to $4.0 million for the same period
of the previous year.

    Inflation

      The Consolidated  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 cost of the
Company's operations.  Unlike industrial companies, nearly all of the assets and
liabilities of the Company are monetary in nature.  As a result,  interest rates
have a greater  impact  on the  Company's  performance  than do the  effects  of
general levels of inflation. Inflation affects the Company primarily through its
effect on interest rates,  since interest rates normally increase during periods
of high inflation and decrease  during periods of low inflation.  During periods
of  increasing  interest  rates,  demand for 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 are more likely
to refinance  their  existing  loans which may  negatively  impact the Company's
investments in capitalized excess servicing assets.
<PAGE>
    Regulatory Matters:

      On September 30, 1996 the Omnibus  spending bill was signed into law. This
bill  includes a  comprehensive  legislative  package on  BIF-SAIF.  The package
includes  the  following  provisions  which impact the Company 1) a FICO premium
assessment on BIF-insured  deposits as one-fifth the premium rate (approximately
1.3 basis  points)  imposed on  SAIF-insured  deposits for the three year period
beginning in 1997. In the year 2000, the bill required BIF-insured  institutions
to share in the  payment of the FICO  obligations  on a pro-rata  basis with all
thrift institutions, with annual assessments expected to equal approximately 2.4
basis points until the year 2017, and to be completely  phased out by 2019; 2) a
merger of the BIF and SAIF on January 1, 1999, if no thrift  institutions  exist
on that date; 3) the FDIC is prohibited  from setting  insurance  premiums above
the amount  which  would  result in the deposit  insurance  fund  exceeding  its
designated  reserve  ratio -  currently  1.25%  and 4) the  FDIC was  given  the
authority to refund assessments paid to it in excess of amounts due.

      On  September  30, 1996 SPTL  entered  into an  agreement  [Memorandum  of
Understanding]  with the FDIC. This agreement  requires that SPTL shall (i) have
and retain  qualified  management,  (ii)  within 120 days,  adopt and  implement
comprehensive risk management  policies,  programs and systems,  (iii) within 30
days, take all reasonable and good faith steps to ensure future  compliance with
all  applicable  laws and  regulations,  (iv)  within 60 days,  develop a credit
review program,  (v) within 60 days,  update the lending,  investments and audit
policies,  and  (vi)  provide  quarterly  progress  reports  to the  FDIC.  This
agreement  will  remain  in effect  until  terminated  by the  FDIC.  Management
believes  that  it is in  compliance  with  the  terms  and  conditions  of  the
agreement.

    Liquidity and Capital Resources

      The Company's  principal  liquidity  requirements result from the need for
the Company to fund mortgage  loans  originated or acquired for purposes of sale
or investment. In addition, the Company, as a loan servicer, requires funding to
make advances of delinquent principal and interest payments and escrow balances,
and as basic working capital. SPTL has historically provided the funding for its
lending activities through its deposits and FHLB borrowings.  During the quarter
and nine months ended  September 30, 1996, the Company had sufficient  liquidity
to meet its operating  needs.  In April 1996, the Company  completed a secondary
stock offering of 4,879,808  shares of its Common Stock.  The shares issued were
sold for $13.00 per share.  The Company  received net proceeds from the offering
of $59.2  million.  Also,  during the nine months ended  September 30, 1996, the
Company  completed its initial public  offering of SPFC common stock.  After the
offering ICII owned 58.4% of the issued and outstanding  shares of SPFC's common
stock,  excluding  shares  issuable  upon  exercise of options  granted or to be
granted pursuant to SPFC's stock option plans. The Company received net proceeds
from the offering of SPFC stock of $36.4 million.

      SPTL  obtained  the  liquidity  necessary  to fund  the  Company's  former
mortgage banking operations and its own lending activities through deposits and,
if  necessary  through  borrowings  from the FHLB.  At  September  30,  1996 and
December 31, 1995, SPTL had available lines of credit from the FHLB equal to 35%
of its assets, or $559.4 million and $501.4 million,  respectively.  The highest
FHLB advance outstanding during the quarter ending September 30, 1996 was $338.0
million,  with an average outstanding balance of $229.0 million. The outstanding
balance  of FHLB  advances  was $338.0  million at  September  30,  1996.  Since
December  31,  1991,  SPTL has  increased  its  deposits  as  necessary  so that
deposits,  together  with  cash,  liquid  assets and FHLB  borrowings  have been
sufficient to provide the funding for its loans held for sale and investment.

      SPTL has been able to acquire new  deposits  through  its local  marketing
strategies  as well as domestic  money  markets.  Additionally,  SPTL  maintains
liquidity  in the form of cash and  interest  bearing  deposits  with  financial
institutions.  The Company tracks on a daily basis all new loan  applications by
office and, based on historical closing statistics, estimates expected fundings.
Cash management  systems at SPTL allow SPTL to anticipate both funding and sales
and adjust deposit levels and short-term  investments against the demands of the
Company's lending activities.
<PAGE>
      The  Company  has an  ongoing  need for  capital to  finance  its  lending
activities.  This need is expected  to  increase as the volume of the  Company's
loan and lease  originations and acquisitions  increases.  The Company's primary
cash  requirements  include the funding of (i) loan and lease  originations  and
acquisitions  pending their  pooling and sale,  (ii) points and expenses paid in
connection  with the  acquisition  of wholesale  loans,  (iii) fees and expenses
incurred   in    connection    with   its    securitization    programs,    (iv)
overcollateralization  or reserve account  requirements in connection with loans
and leases  pooled and sold,  (v)  ongoing  administrative  and other  operating
expenses,  (vi)  interest  and  principal  payments  under  ICII's  $90  million
principal  amount of Senior Notes due 2004 (the  "Notes") and (vii) the costs of
the Company's warehouse credit and repurchase  facilities with certain financial
institutions.  The  Company  has  financed  its  activities  through  repurchase
facilities,  warehouse  lines of credit from financial  institutions,  including
SPTL,  public  offerings of capital stock of ICII and SPFC,  the issuance of the
Notes, the issuance of convertible securities, and securitizations.  The Company
believes that such sources will be  sufficient  to fund the Company's  liquidity
requirements  for the foreseeable  future.  Any future financing may involve the
issuance of additional  Common Stock or other securities,  including  securities
convertible into or exercisable for Common Stock.

      The Company currently pools and sells through securitization a substantial
portion of the loans or leases  which it  originates  or  purchases,  other than
loans  held  by  SPTL  for  investment.  Accordingly,  adverse  changes  in  the
securitization market could impair the Company's ability to originate,  purchase
and sell loans or leases on a favorable  or timely  basis.  Any such  impairment
could have a material adverse effect upon the Company's  business and results of
operations.  In addition,  the securitization market for many types of assets is
relatively  undeveloped  and may be more  susceptible to market  fluctuations or
other adverse changes than more developed capital markets. Finally, any delay in
the sale of a loan or lease pool could cause the Company's earnings to fluctuate
from quarter to quarter.

      In a securitization, the Company recognizes a gain on sale of the loans or
leases securitized upon the closing of the securitization,  but does not receive
the cash  representing  such gain until it receives the excess  servicing  fees,
which are payable over the actual life of the loans or leases securitized.  As a
result,  such  transactions  may not  generate  cash flows to the Company for an
extended period.

      In addition, in order to gain access to the secondary market for loans and
leases,  the  Company  has relied on  monoline  insurance  companies  to provide
guarantees on outstanding senior interests in the trusts to which such loans and
leases are sold to enable it to obtain an "AAA/Aaa"  rating for such  interests.
Any  unwillingness of the monoline  insurance  companies to guarantee the senior
interests  in the  Company's  loan or lease pools could have a material  adverse
effect on the Company's financial position and results of operations.

      The Company is dependent upon its ability to access  warehouse  credit and
repurchase  facilities,  in addition to its ability to continue to pool and sell
loans and leases in the secondary  market, in order to fund new originations and
purchases.  The Company has warehouse lines of credit and repurchase  facilities
under which it had  available an aggregate of  approximately  $424.5  million in
financing at September 30, 1996 (excluding  financing available to the Company's
wholly owned  subsidiary,  ICI Funding  Corporation  ("ICIFC")).  (See "Notes to
Consolidated Financial Statements Note 1. Organization") Certain of these credit
and repurchase facilities will expire in 1996. The Company expects to be able to
maintain  existing  warehouse  lines of credit and repurchase  facilities (or to
obtain replacement or additional  financing) as current  arrangements  expire or
become fully  utilized;  however,  there can be no assurance that such financing
will be obtainable on favorable  terms. To the extent that the Company is unable
to arrange new warehouse lines of credit and repurchase facilities,  the Company
may have to curtail its loan origination and purchasing activities,  which could
have a  material  adverse  effect  on the  Company's  operations  and  financial
position.

      In December  1995, the Company,  through a Special  Purpose Entity ("SPE")
issued  pass  through  certificates  (the  Bonds)  secured by $105.2  million of
franchise mortgage loans to various  investors.  The debentures consist of three
separate  classes,  Class A,  Class B and Class C, with  principal  balances  at
December 31, 1995 of approximately $92.6 million, $4.2 million and $4.2 million,
respectively.  The Class C bonds are subordinate to Class B and both Class B and
C are  subordinate  to Class A. The bonds have a weighted  average  loan rate of
11.0%, a pass through rate of 8.59%,  and an anticipated  life of 13 years.  The
premium  associated  with the Bonds of $11  million  was being  amortized  as an
adjustment to interest  expense over the anticipated  life of the Bonds.  Due to
the Company's retained interest in the SPE and the disproportionate  payments on
the pass through  certificates,  the Company accounted for this transaction as a
financing at December 31, 1995. In the first  quarter of 1996,  the Company sold
its retained interest in the SPE,  resulting in the  deconsolidation  of the SPE
and a gain of $3.6 million.
<PAGE>

      In October 1995,  Imperial Bank extended ICII a $10 million revolving line
of credit  bearing  interest  at the prime rate (8.50% at  December  31,  1995).
During the quarter ended June 30, 1996,  the line of credit was increased to $15
million.  In April of 1996, the Company repaid its advances under this line with
a portion of the proceeds from its secondary stock offering.

         The Company  believes that SPTL,  together with liquidity  available at
ICII  and  its   subsidiaries,   will  adequately  fund  the  Company's  lending
activities. Under applicable regulations,  dividends and loans from SPTL to ICII
and its other  subsidiaries  are subject to various  limitations.  The liquidity
needs of ICII arise in operating its former  mortgage  banking  operations,  not
only to meet ICII operating expenses but also for its contractual  obligation as
a mortgage servicer.  As a mortgage servicer,  ICII is required to make advances
to investors  when a borrower is delinquent  in meeting its payment  obligation.
Although  these advances are recaptured  through a foreclosure  proceeding,  the
uncertainty  as to when an advance will be necessary  requires  ICII to maintain
liquidity.  Since December 31, 1992,  ICII's  liquidity  needs have included $51
million to make capital  contributions  to SPTL.  The  combination  of cash from
operations,  including servicing sales, the Company's $15 million line of credit
and the net  proceeds  received  by the Company  from its Senior  Note  offering
allowed  the  Company to meet its  required  liquidity  needs for 1994 and 1995.
These available sources, in addition to the proceeds received from the Company's
stock offering in April,  1996 and the  completion of the Company's  offering of
SPFC stock in June,  1996, are expected to meet the Company's  needs for capital
for at least the next 12 months.

    Current Accounting Issues

      In June, 1996 the Financial Accounting Standards Board issued Statement of
Accounting Standards No 125, Accounting for Transfers and servicing of Financial
Assets and Extinguishments of Liabilities ("SFAS 125").

      SFAS 125 provides  accounting  and  reporting  standards for transfers and
servicing of financial assets and extinguishment of liabilities. Those standards
are based on  consistent  application  of a financial  components  approach that
focuses on control.  Under that approach,  after a transfer of financial assets,
an entity  recognizes  the financial  and  servicing  assets it controls and the
liabilities it has incurred, derecognizes financial assets when control has been
surrendered,  and derecognizes liabilities when extinguished.  SFAS 125 provides
consistent  standards for distinguishing  transfers of financial assets that are
sales from transfers that are secured borrowings.

      SFAS 125 requires that liabilities and derivatives incurred or obtained by
transferors as part of a transfer of financial assets be initially measured at a
fair value,  if  practicable.  It also requires that servicing  assets and other
retained  interests  in the  transferred  assets be measured by  allocating  the
previous  carrying  amount  between  the  assets  sold,  if  any,  and  retained
interests,  if any,  based  in their  relative  fair  values  at the date of the
transfer.

      SFAS 125 included  specific  provisions to deal with  servicing  assets or
liabilities.  These provisions retain the impairment and amortization approaches
that are contained in Statement No. 122 but eliminates the  distinction  between
normal and excess servicing.

      SFAS 125 will be effective for  transactions  occurring after December 31,
1996. It is not  anticipated  that the financial  impact of this  statement will
have a material effect on Imperial Credit Industries, Inc.


<PAGE>

<TABLE>
<CAPTION>

                                             PART II OTHER INFORMATION
                                                  ITEM 6 EXHIBIT

                                         IMPERIAL CREDIT INDUSTRIES, INC.
                               STATEMENT REGARDING COMPUTATION OF EARNING PER SHARE
                                                     UNAUDITED
                                     (In thousands, except per share amounts)


                                                      Quarter ended                Nine months ended
                                                    September 30, 1996             September 30, 1996

Primary earnings per share:

<S>                                                          <C>                           <C>
Net income                                          $          9,433              $          61,090
                                                      ===============               ===============
Avg. number of shares outstanding                             37,895                         35,385

Net effect of dilutive stock options-
    Based on treasury stock method
    using average market price                                 2,487                          2,690
                                                      --------------                ---------------
      Total average shares                                    40,382                         38,075

Primary earnings per share                        $             0.23             $             1.60
                                                     ===============                ===============

Fully diluted earnings per share:

Net income                                          $          9,433               $         61,090
                                                     ===============                ===============
Avg. number of shares outstanding                             37,895                         35,385

Net effect of dilutive stock options-
    Based on treasury stock method
    using greater of ending or average                         2,675                          2,908
    market price                                      --------------                ---------------

Total average shares                                          40,570                         38,293

 Fully diluted earnings per share:                $             0.23             $             1.60
                                                     ===============                ===============

</TABLE>
<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.


                                              IMPERIAL CREDIT INDUSTRIES, INC.





Date:    November 14, 1996                    By: /s/Kevin Villani
                                                     Kevin Villani
                                                     Executive Vice President
                                                       and CFO




<PAGE>