<PAGE>

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

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


                                     FORM 10-Q


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

     FOR THE QUARTERLY PERIOD ENDED: SEPTEMBER 30, 1998

                                          OR

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

     FOR THE TRANSITION PERIOD FROM _____ TO _____


                          COMMISSION FILE NUMBER: 001-13637



                             APEX MORTGAGE CAPITAL, INC.
                (Exact name of Registrant as specified in its Charter)

           MARYLAND                                            95-4650863
(State or other jurisdiction of                             (I.R.S. Employer
 incorporation or organization)                           Identification Number)

865 SOUTH FIGUEROA STREET
LOS ANGELES, CALIFORNIA                                           90017
(Address of principal executive offices)                        (Zip Code)

          Registrant's telephone number, including area code (213) 244-0440


Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

     Yes   X       No
         -----        -----

                        APPLICABLE ONLY TO CORPORATE ISSUERS:


Indicate the number of shares outstanding of the issuer's classes of common
stock, as of the last practicable date.

Common Stock ($0.01 par value)                  5,753,000 as of November 10,1998


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


<PAGE>


                             APEX MORTGAGE CAPITAL, INC.
                                      FORM 10-Q


                                        INDEX
<TABLE>
<CAPTION>
PART I.  FINANCIAL INFORMATION                                            PAGE
                                                                          -----
<S>                                                                       <C>
 ITEM 1. FINANCIAL STATEMENTS

            BALANCE SHEETS AT SEPTEMBER 30, 1998 (UNAUDITED) AND
            DECEMBER 31, 1997                                               3

            STATEMENT OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED
            SEPTEMBER 30, 1998 (UNAUDITED)                                  4

            STATEMENT OF STOCKHOLDERS' EQUITY FOR THE NINE MONTHS
            ENDED SEPTEMBER 30, 1998 (UNAUDITED)                            5

            STATEMENTS OF CASH FLOWS FOR THE THREE AND NINE MONTHS ENDED
            SEPTEMBER 30, 1998 (UNAUDITED)                                  6

            NOTES TO FINANCIAL STATEMENTS (UNAUDITED)                       7

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

PART II.  OTHER INFORMATION

 ITEM 1.  LEGAL PROCEEDINGS                                                24

 ITEM 2.  CHANGES IN SECURITIES                                            24

 ITEM 3.  DEFAULTS UPON SENIOR SECURITIES                                  24

 ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS              24

 ITEM 5.  OTHER INFORMATION                                                24

 ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K                                 24

 SIGNATURES                                                                25
</TABLE>

<PAGE>

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                             APEX MORTGAGE CAPITAL, INC.

                                    BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                  SEPTEMBER 30, 1998   DECEMBER 31, 1997
<S>                                                                               <C>                  <C>
ASSETS                                                                                    (Unaudited)
     Cash and cash equivalents                                                    $        5,570,000    $      3,085,000
     Other investments, available-for-sale at fair value                                   9,706,000                   -
     Interest rate cap agreements (Note 4)                                                         -             174,000
     Mortgage-backed securities available-for-sale, at fair value (Note 3)               889,908,000         265,880,000
     Accrued interest receivable                                                           5,226,000           1,316,000
     Principal payments receivable                                                           158,000                   -
     Other assets                                                                            652,000             852,000
                                                                                  $      911,220,000    $    271,307,000
                                                                                  ------------------   -----------------
                                                                                  ------------------   -----------------

LIABILITIES AND STOCKHOLDERS' EQUITY

  Liabilities

     Reverse repurchase agreements (Note 5)                                       $      811,680,000   $      87,818,000
     Payable for unsettled securities                                                        140,000          88,638,000
     Accrued interest payable                                                              3,124,000             110,000
     Dividend payable                                                                      1,601,000             268,000
     Accrued expenses and other liabilities                                                  465,000           1,476,000

                                                                                  ------------------   -----------------
                                                                                         817,010,000         178,310,000
                                                                                  ------------------   -----------------
  Commitments and contingencies (Note 10)

  Stockholders' Equity

     Preferred Stock, par value $0.01 per share; 50,000,000 shares authorized;
       no shares outstanding
     Common Stock, par value $0.01 per share; 100,000,000 shares
       authorized; 6,700,100 shares outstanding (Notes 8 and 9)                               67,000              67,000
     Additional paid-in-capital                                                           92,944,000          92,860,000
     Accumulated other comprehensive income                                               12,047,000             188,000
     Accumulated dividend distributions in excess of net income                           (1,740,000)           (118,000)
     Treasury stock, at cost (782,500 shares) (Note 7)                                    (9,108,000)                  -

                                                                                  ------------------   -----------------
                                                                                          94,210,000          92,997,000
                                                                                  ------------------   -----------------
                                                                                  $      911,220,000   $     271,307,000
                                                                                  ------------------   -----------------
                                                                                  ------------------   -----------------
</TABLE>

See accompanying notes to financial statements

                                          3
<PAGE>

                             APEX MORTGAGE CAPITAL, INC.

                               STATEMENT OF OPERATIONS
                                     (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                     THREE MONTHS           NINE MONTHS
                                                                                         ENDED                 ENDED
                                                                                  SEPTEMBER 30, 1998    SEPTEMBER 30, 1998
<S>                                                                               <C>                   <C>
INTEREST INCOME:
     Mortgage-backed securities                                                   $       13,469,000    $       27,418,000
     Cash and cash equivalents                                                               173,000               629,000
                                                                                  ------------------    ------------------
                                                                                          13,642,000            28,047,000

INTEREST EXPENSE                                                                          11,271,000            24,281,000

                                                                                  ------------------    ------------------
NET INTEREST INCOME                                                                        2,371,000             3,766,000
                                                                                  ------------------    ------------------

GAIN ON INVESTMENT TRANSACTIONS, NET                                                           7,000               476,000

OTHER INCOME                                                                                 186,000               186,000

GENERAL AND ADMINISTRATIVE EXPENSES:
     Management fee (Note 8)                                                                 353,000               687,000
     Audit and tax fees                                                                       11,000                34,000
     Insurance expense                                                                        67,000               200,000
     Directors' fees                                                                          15,000                55,000
     Stock option expense                                                                     28,000                84,000
     Other                                                                                    98,000               202,000
                                                                                  ------------------    ------------------
                                                                                             572,000             1,262,000
                                                                                  ------------------    ------------------

NET INCOME                                                                        $        1,992,000    $        3,166,000
                                                                                  ------------------    ------------------
                                                                                  ------------------    ------------------

Net Income Per Share:
     Basic                                                                        $             0.33    $             0.50
                                                                                  ------------------    ------------------
                                                                                  ------------------    ------------------
     Diluted                                                                      $             0.33    $             0.50
                                                                                  ------------------    ------------------
                                                                                  ------------------    ------------------

Weighted Average Number of Shares Outstanding:
     Basic                                                                                 6,022,000             6,334,000
                                                                                  ------------------    ------------------
                                                                                  ------------------    ------------------
     Diluted                                                                               6,022,000             6,334,000
                                                                                  ------------------    ------------------
                                                                                  ------------------    ------------------

Dividends Declared Per Share                                                      $             0.27    $             0.77
                                                                                  ------------------    ------------------
                                                                                  ------------------    ------------------
</TABLE>


See accompanying notes to financial statements

                                          4
<PAGE>

                             APEX MORTGAGE CAPITAL, INC.

                          STATEMENT OF STOCKHOLDERS' EQUITY
                         NINE MONTHS ENDED SEPTEMBER 30, 1998
                                     (UNAUDITED)
<TABLE>
<CAPTION>
                                                                              Acccumulated
                                           Common Stock          Additional      Other
                                     -----------------------      Paid-in    Comprehensive
                                       Shares       Amount        Capital        Income
                                     ----------   ----------    -----------  -------------
<S>                                  <C>          <C>           <C>          <C>
Balance, December 31, 1997            6,700,100     $ 67,000    $92,860,000    $   188,000

Repurchases of common stock                  -            -              -              -

Issuance of stock options
  to non-employees (Note 9)                  -            -          28,000             -

Net income                                   -            -              -              -

Other comprehensive income:
  Net unrealized gain on
  mortgage-backed securities
  available-for-sale                         -            -              -       1,547,000

Comprehensive income

Dividends declared                           -            -              -              -
                                     ----------   ----------    -----------  -------------

Balance, March 31, 1998               6,700,100       67,000     92,888,000      1,735,000

Repurchases of common stock                  -            -              -              -

Issuance of stock options
  to non-employees (Note 9)                  -            -          28,000             -

Net income                                   -            -              -              -

Other comprehensive income:
  Net unrealized gain (loss) on
  mortgage-backed securities
  available-for-sale                         -            -              -        (291,000)

Comprehensive income                         -            -              -              -

Dividends declared                           -            -              -              -
                                     ----------   ----------    -----------  -------------

Balance, June 30, 1998                6,700,100       67,000     92,916,000      1,444,000

Repurchases of common stock                  -            -              -              -

Issuance of stock options
  to non-employees (Note 9)                  -            -          28,000             -

Net income                                   -            -              -              -

Other comprehensive income:
  Net unrealized gain (loss) on
  investments available-for-
  sale                                       -            -              -      10,603,000

Comprehensive income                         -            -              -              -

Dividends declared                           -            -              -              -

                                     ----------   ----------    -----------  -------------
Balance, September 30, 1998           6,700,100     $ 67,000    $92,944,000    $12,047,000
                                     ----------   ----------    -----------  -------------
                                     ----------   ----------    -----------  -------------

<CAPTION>
                                      Accumulated
                                       Dividend
                                     Distribution                     Treasury
                                     In Excess of  Comprehensive       Stock,
                                      Net Income       Income         At Cost         Total
                                     ------------  -------------   ------------   ------------
<S>                                  <C>           <C>             <C>            <C>
Balance, December 31, 1997            $  (118,000)   $        -     $        -     $92,997,000

Repurchases of common stock                    -              -      (2,535,000)    (2,535,000)

Issuance of stock options
  to non-employees (Note 9)                    -              -              -          28,000

Net income                                564,000        564,000             -         564,000

Other comprehensive income:
  Net unrealized gain on
  mortgage-backed securities
  available-for-sale                           -       1,547,000             -       1,547,000
                                                   -------------
Comprehensive income                                 $ 2,111,000
                                                   -------------
                                                   -------------

Dividends declared                     (1,626,000)                           -      (1,626,000)
                                     ------------                  ------------   ------------

Balance, March 31, 1998                (1,180,000)             0     (2,535,000)    90,975,000
                                     ------------                  ------------

Repurchases of common stock                    -              -      (3,901,000)    (3,901,000)

Issuance of stock options
  to non-employees (Note 9)                    -              -              -          28,000

Net income                                609,000        609,000             -         609,000

Other comprehensive income:
  Net unrealized gain (loss) on
  mortgage-backed securities
  available-for-sale                           -        (291,000)            -        (291,000)

                                                   -------------
Comprehensive income                                 $   318,000
                                                   -------------
                                                   -------------

Dividends declared                     (1,560,000)                           -      (1,560,000)
                                     ------------                  ------------   ------------

Balance, June 30, 1998                 (2,131,000)                   (6,436,000)    85,860,000
                                     ------------                  ------------

Repurchases of common stock                    -              -      (2,672,000)    (2,672,000)

Issuance of stock options
  to non-employees (Note 9)                    -              -              -          28,000

Net income                              1,992,000      1,992,000             -       1,992,000

Other comprehensive income:
  Net unrealized gain (loss) on
  investments available-for-
  sale                                         -      10,603,000             -      10,603,000

                                                   -------------
Comprehensive income                                 $12,595,000
                                                   -------------
                                                   -------------

Dividends declared                     (1,601,000)                           -      (1,601,000)

                                     ------------                  ------------   ------------
Balance, September 30, 1998           $(1,740,000)                  $(9,108,000)   $94,210,000
                                     ------------                  ------------   ------------
                                     ------------                  ------------   ------------
</TABLE>

See accompanying notes to financial statements

                                          5
<PAGE>

                               STATEMENT OF CASH FLOWS

                             APEX MORTGAGE CAPITAL, INC.
                                     (Unaudited)
<TABLE>
<CAPTION>
                                                            THREE MONTHS           NINE MONTHS
                                                                ENDED                 ENDED
                                                         SEPTEMBER 30, 1998    SEPTEMBER 30, 1998
<S>                                                      <C>                   <C>
OPERATING ACTIVITIES:
  Net Income                                             $        1,992,000    $        3,166,000
  Adjustments to reconcile net income to net cash
     provided by operating activities:
       Amortization                                                 413,000             3,148,000
       Gain on investment transactions, net                          (7,000)             (476,000)
       Change in assets and liabilities:
         Accrued interest receivable                                123,000            (3,910,000)
         Principal payments receivable                              799,000              (158,000)
         Receivable for unsettled securities                     56,593,000                    -
         Other assets                                               100,000               200,000
         Payable for unsettled securities                      (120,720,000)          (88,498,000)
         Accrued interest payable                                  (774,000)            3,014,000
         Accrued expenses and other liabilities                    (668,000)           (1,011,000)
                                                         ------------------    ------------------
       Net cash used in operating activities                    (62,149,000)          (84,525,000)
                                                         ------------------    ------------------

INVESTING ACTIVITIES:
  Purchase of other investments                                  (9,980,000)           (9,980,000)
  Purchase of interest rate cap agreements                               -                (80,000)
  Purchase of mortgage-backed securities                       (133,907,000)       (1,376,002,000)
  Proceeds from sales of mortgage-backed securities              80,199,000           541,801,000
  Principal payments on mortgage-backed securities               38,844,000           219,971,000
                                                         ------------------    ------------------
       Net cash used in investing activities                    (24,844,000)         (624,290,000)
                                                         ------------------    ------------------

FINANCING ACTIVITIES:
  Net proceeds from reverse repurchase agreements                57,928,000           723,862,000
  Dividend distributions                                         (1,560,000)           (3,454,000)
  Purchase of treasury stock                                     (2,672,000)           (9,108,000)
                                                         ------------------    ------------------
       Net cash provided by financing activities                 53,696,000           711,300,000
                                                         ------------------    ------------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS            (33,297,000)            2,485,000

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                 38,867,000             3,085,000
                                                         ------------------    ------------------

CASH AND CASH EQUIVALENTS AT END OF PERIOD               $       5,570,000     $        5,570,000
                                                         ------------------    ------------------
                                                         ------------------    ------------------

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid for interest                                 $       12,001,000    $       21,194,000
                                                         ------------------    ------------------
                                                         ------------------    ------------------

NONCASH INVESTING AND FINANCING ACTIVITIES:
  Net unrealized gain on assets
     available-for-sale                                  $       10,603,000    $       11,859,000
                                                         ------------------    ------------------
                                                         ------------------    ------------------
  Dividends declared, not yet paid                       $       1,601,000     $        1,601,000
                                                         ------------------    ------------------
                                                         ------------------    ------------------
</TABLE>

See accompanying notes to financial statements

                                          6
<PAGE>

                             APEX MORTGAGE CAPITAL, INC.

                            NOTES TO FINANCIAL STATEMENTS

                           QUARTER ENDED SEPTEMBER 30, 1998
                                     (UNAUDITED)

NOTE 1 - THE COMPANY

     Apex Mortgage Capital, Inc. (the "Company") was incorporated in Maryland
     on September 15, 1997. The Company commenced its operations of acquiring
     and managing a portfolio of mortgage assets on December 9, 1997, upon
     receipt of the net proceeds from the initial public offering of the
     Company's common stock. The Company uses its equity capital and borrowed
     funds to seek to generate income based on the difference between the
     yield on its mortgage-backed securities and the cost of its borrowings.
     The Company is structured for tax purposes as a real estate investment
     trust ("REIT") under the Internal Revenue Code of 1986, as amended (the
     "Code").

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     These interim financial statements are unaudited, internally prepared
     statements, that reflect the necessary interim adjustments which, in the
     opinion of management, are necessary to present a fair statement of the
     results for such interim period. The results of operations for this
     interim period are not indicative of the results for a full fiscal year.
     This filing should be read in conjunction with the Annual Report on Form
     10-K for the year ended December 31, 1997.

  CASH AND CASH EQUIVALENTS

     Cash and cash equivalents include cash on hand and highly liquid
     investments with original maturities of three months or less. The
     carrying amount of cash equivalents approximates their fair value.

  MORTGAGE-BACKED SECURITIES

     The Company's mortgage-backed securities consist of securities backed by
     single-family residential real estate mortgage loans. Mortgage-backed
     securities are recorded at cost on the date the assets are purchased.
     Realized gains and losses on sales of the securities are determined on a
     specific identification basis. Substantially all of the Company's
     mortgage-backed securities are expected to qualify as real estate assets
     under the REIT provisions of the Code.

     Interest income is accrued based on the outstanding principal amount of
     the mortgage-backed securities and their contractual terms. Premiums and
     discounts are amortized into interest income over the lives of the
     securities using the effective yield method adjusted for the effects of
     estimated prepayments.

     The Company's policy is to generally classify its mortgage-backed
     securities as available-for-sale. The mortgage-backed securities are
     reported at fair value with unrealized gains and losses excluded from
     earnings and reported in other comprehensive income.

  OTHER INVESTMENTS

     The Company's other investments consist primarily of equity securities
     issued by other real estate investment trusts and other securities
     generally collateralized by mortgage assets.


                                          7

<PAGE>

     Dividend income on equity securities is recorded on the declaration
     date. Interest income on other securities is accrued using the effective
     interest method applied prospectively based on current market
     assumptions. Both dividend and interest income earned on other
     investments are included in other income.

     The Company's policy is to generally classify its other investments as
     available-for-sale. Other investments are reported at fair value with
     unrealized gains and losses excluded from earnings and reported in other
     comprehensive income.

  INTEREST RATE HEDGING TRANSACTIONS

     The Company enters into interest rate swap and interest rate cap
     agreements in order to mitigate the impact of rising interest rates on
     the cost of its short-term borrowings. Amounts payable or receivable
     from such agreements are accounted for on an accrual basis and
     recognized as a net adjustment to interest expense. Premiums paid for
     cap agreements accounted for as hedges are recorded on the balance sheet
     as interest rate cap agreements and are amortized over the lives of such
     agreements as an adjustment to interest expense.

  STOCK BASED COMPENSATION

     The Company grants stock options to its directors and officers and to
     certain directors, officers and employees of its investment manager and
     the investment manager itself, as discussed in Note 9. Options granted
     to directors of the Company are accounted for using the intrinsic
     method, and generally no compensation expense is recognized in the
     statement of operations for such options. Other options are accounted
     for using the fair value method; such options are measured at their fair
     value when they are granted and are recognized as a general and
     administrative expense during the periods when the options vest and the
     related services are performed.

  FEDERAL AND STATE INCOME TAXES

     The Company has elected to be taxed as a REIT and generally will not be
     subject to federal and state taxes on its income to the extent it
     distributes annually 95% of its predistribution taxable income to
     stockholders and meets certain other asset, income and stock ownership
     tests. As such, no accrual for income taxes has been included in the
     financial statements.

  NET INCOME PER SHARE

     Net income per share is computed in accordance with Statement of
     Financial Accounting Standards ("SFAS") No. 128, EARNINGS PER SHARE, and
     is calculated on the basis of the weighted average number of common
     shares outstanding during each period plus the additional dilutive
     effect of common stock equivalents. The dilutive effect of outstanding
     stock options is calculated using the treasury stock method.

     Stock options that could potentially dilute basic net income per share
     in the future were not included in the computation of diluted net income
     per share because to do so would have been antidilutive for the period
     presented.

  INCOME RECOGNITION

     Income and expenses are recorded on the accrual basis of accounting.

  CREDIT RISK

     At September 30, 1998, the Company has limited its exposure to credit
     losses on its portfolio of mortgage-backed securities by purchasing
     securities that are either rated "AAA" by at least one nationally
     recognized rating agency or are issued by the Federal Home Loan Mortgage
     Corporation ("FHLMC"), Fannie Mae (formerly known as the Federal
     National Mortgage Corporation) or the Government National Mortgage
     Association ("GNMA"). The payment of principal and interest on the
     FHLMC, Fannie Mae and GNMA securities are guaranteed by those respective
     agencies. At September 30, 1998, all of the Company's mortgage-backed
     securities have an actual or implied "AAA" rating.

                                          8
<PAGE>

  USE OF ESTIMATES

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

  COMPREHENSIVE INCOME

     During the nine months ended September 30, 1998, the Company adopted
     SFAS No. 130, REPORTING COMPREHENSIVE INCOME. This statement establishes
     standards for reporting and display of comprehensive income and its
     components in a full set of general-purpose financial statements.
     Comprehensive income is defined as "the change in equity of a business
     enterprise during a period from transactions and other events and
     circumstances from non-owner sources. It includes all changes in equity
     during a period except those resulting from investments by owners and
     distributions to owners."

  RECENTLY ISSUED ACCOUNTING STANDARDS

     In June 1998, the Financial Accounting Standards Board issued SFAS No.
     133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. The
     Statement establishes accounting and reporting standards requiring that
     every derivative instrument (including certain derivative instruments
     embedded in other contracts) be recorded in the balance sheet as either
     an asset or liability measured at its fair value. The Statement requires
     that changes in the derivative's fair value be recognized currently in
     earnings unless specific hedge accounting criteria are met. Special
     accounting for qualifying hedges allows a derivative's gains and losses
     to offset related results on the hedged item in the income statement,
     and requires that a company must formally document, designate, and
     assess the effectiveness of transactions that receive hedge accounting.
     SFAS No. 133 is effective for fiscal years beginning after June 15,
     1999. A company may also implement the Statement as of the beginning of
     any fiscal quarter after issuance (that is, fiscal quarters beginning
     June 16, 1998 and thereafter). Statement 133 cannot be applied
     retroactively. Statement 133 must be applied to (a) derivative
     instruments and (b) certain derivative instruments embedded in hybrid
     contracts that were issued, acquired, or substantively modified after
     December 31, 1997 (and, at the company's election, before January 1,
     1998). The Company will adopt the reporting requirements of SFAS No. 133
     by the first quarter of 2000. An earlier adoption may be made if
     circumstances warrant. The Company expects the impact of the adoption of
     the reporting requirements of SFAS No. 133 to include the recording of
     the approximate fair value of the Company's interest rate swaps as
     comprehensive income.

NOTE 3 - MORTGAGE-BACKED SECURITIES

     At September 30, 1998, mortgage-backed securities consisted of the
     following:

<TABLE>
<CAPTION>
                                        Adjustable Rate     Fixed Rate
     (in thousands)                            Mortgage       Mortgage
                                             Securities     Securities          Total
                                       -----------------------------------------------
     <S>                                <C>                 <C>              <C>
     Principal Amount                           $56,594       $819,673       $876,267
     Unamortized Premium (Discount)                 870            491          1,361
                                       -----------------------------------------------
     Amortized Cost                              57,464        820,164        877,628
     Unrealized Gains                                15         12,388         12,403
     Unrealized Losses                             (123)            --           (123)
                                       -----------------------------------------------
     Fair Value                                 $57,356       $832,552       $889,908
                                       -----------------------------------------------
                                       -----------------------------------------------
</TABLE>


                                          9
<PAGE>

     At December 31, 1997, mortgage-backed securities consisted of the
     following:

<TABLE>
<CAPTION>
                                        Adjustable Rate     Fixed Rate
     (in thousands)                            Mortgage       Mortgage
                                             Securities     Securities          Total
                                       -----------------------------------------------
     <S>                                <C>                 <C>              <C>
     Principal Amount                          $237,929        $24,826       $262,755
     Unamortized Premium                          2,743            194          2,937
                                       -----------------------------------------------
     Amortized Cost                             240,672         25,020        265,692
     Unrealized Gains                               162             41            203
     Unrealized Losses                              (15)             0            (15)
                                       -----------------------------------------------
     Fair Value                                $240,819        $25,061       $265,880
                                       -----------------------------------------------
                                       -----------------------------------------------
</TABLE>

     The contractual final maturity of the mortgage loans supporting the
     mortgage-backed securities is generally between 15 and 30 years at
     origination. Because of prepayments on the underlying mortgage loans,
     the actual weighted-average maturity is expected to be less.

     The adjustable rate mortgage-backed securities are typically subject to
     periodic and lifetime caps that limit the amount an adjustable rate
     mortgage-backed security's interest rate can change during any given
     period and over the life of the asset. At September 30, 1998, the
     average periodic cap on the adjustable rate mortgage assets was 1.9% per
     annum and the average lifetime cap was equal to 11.6%. At December 31,
     1997, the average periodic cap on the adjustable rate mortgage assets
     was 2.0% per annum and the average lifetime cap was equal to 11.4%.

     During the quarter ended September 30, 1998 the Company realized
     $104,000 in gains on the sale of $79.3 million of mortgage-backed
     securities which were classified as available-for-sale.

NOTE 4 - INTEREST RATE CAP AGREEMENTS

     Interest rate cap agreements include the carrying value of purchased
     interest rate caps, entered into by the Company in order to mitigate the
     impact of rising interest rates on the cost of its short-term
     borrowings. As discussed in Note 10, the Company has entered into
     certain interest rate swap transactions. The execution of these swaps
     eliminated the need for the cap protection previously purchased.
     Accordingly, the interest rate cap agreements no longer qualify for
     hedge accounting and were written down to zero during the quarter ended
     September 30, 1998 which approximates their fair value. A $97,000 charge
     for the write-off is included in Gain on Investment Transactions, net in
     the Statement of Operations.

     The terms of outstanding interest rate cap agreements are as follows:

<TABLE>
<CAPTION>
                                       At September 30, 1998  At December 31, 1997
                                      ---------------------------------------------
          <S>                          <C>                    <C>
          Notional Amount                   $900,000,000          $500,000,000
          Average Contract Rate                 10.4%                 10.0%
          Average Final Maturity          January 24, 2002      December 24, 2001
</TABLE>

     Under these agreements, the Company will receive cash payments to the
     extent of the excess of three month London Interbank Offered Rate
     ("LIBOR") over the agreements' contract rate times the notional amount.

NOTE 5 - REVERSE REPURCHASE AGREEMENTS

     The Company has entered into reverse repurchase agreements to finance
     certain of its mortgage-backed securities. These agreements are secured
     by a portion of the Company's mortgage-backed securities and bear
     interest rates that have historically moved in close relationship to
     LIBOR.

                                          10
<PAGE>

     At September 30, 1998, the Company had outstanding $811,680,000 of
     reverse repurchase agreements with a weighted average current borrowing
     rate of 5.53% and a maturity of 2.2 months. The reverse repurchase
     agreements were collateralized by mortgage-backed securities with an
     estimated fair value of $839,163,000.

     At December 31, 1997, the Company had outstanding $87,818,000 of reverse
     repurchase agreements with a weighted average current borrowing rate of
     5.82% and a maturity of 2.8 months. The reverse repurchase agreements
     were collateralized by mortgage-backed securities with an estimated fair
     value of $90,043,000.

     For the quarter ended September 30, 1998, the average reverse repurchase
     agreement balance was $774,420,000 with a weighted average interest cost
     of 5.74%. The maximum reverse repurchase agreement balance outstanding
     during the quarter ended September 30, 1998 was $818,540,000.

     For the nine months ended September 30, 1998, the average reverse
     repurchase agreement balance was $568,630,000 with a weighted average
     interest cost of 5.64%. The maximum reverse repurchase agreement balance
     outstanding during the nine months ended September 30, 1998 was
     $818,540,000.

NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS

     The following table presents the amortized cost and estimated fair
     values of the Company's financial instruments. SFAS No. 107, DISCLOSURES
     ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, defines the fair value of a
     financial instrument as the amount at which the instrument could be
     exchanged in a current transaction between willing parties, other than
     in a forced or liquidation sale (dollars in thousands):

<TABLE>
<CAPTION>
                                        At September 30, 1998               At December 31, 1997

                                    Amortized Cost     Fair Value      Amortized Cost     Fair Value
                                   -------------------------------    -------------------------------
     <S>                            <C>                <C>             <C>                <C>
     Mortgage-backed securities           $877,628       $889,908            $265,692       $265,880
     Interest Rate Cap Agreements               -              -                  174            174
     Other Investments                       9,803          9,706                  -              -
     Interest Rate Swaps                        -        (15,464)                  -              -
</TABLE>

     The Company bases its fair value estimates for mortgage-backed
     securities, other nivestments and interest rate swaps primarily on
     third-party price indications provided by dealers who make markets in
     these financial instruments when such indications are available.
     However, the fair value reported reflects estimates and may not
     necessarily be indicative of the amounts the Company could realize in a
     current market exchange. Cash and cash equivalents, interest receivable
     and reverse repurchase agreements are reflected in the financial
     statements at their costs, which approximates their fair value because
     of the short-term nature of these instruments.

NOTE 7 - STOCK REPURCHASE PROGRAM

     On September 16, 1998, the Company's Board of Directors authorized a
     program to repurchase up to an additional 750,000 shares of the
     Company's common stock having completed an original repurchase program
     of 750,000 shares. The Company repurchased 247,500 shares of its common
     stock during the third quarter and 782,500 shares for the nine months
     ended September 30, 1998. The average price per share repurchased during
     the quarter and the nine months ended September 30, 1998 was $10.80 and
     $11.64, respectively. The repurchased shares are held in treasury at
     cost in the financial statements herein.

     An additional 717,500 shares are currently authorized for potential
     repurchase in the future. The Company may continue to repurchase shares
     in the future when market conditions warrant.

                                          11
<PAGE>

NOTE 8 - TRANSACTIONS WITH AFFILIATES

     The Company has entered into a Management Agreement (the "Management
     Agreement") with TCW Investment Management Company (the "Manager"), a
     wholly owned subsidiary of The TCW Group, Inc., under which the Manager
     will manage its day-to-day operations, subject to the direction and
     oversight of the Company's Board of Directors. The Company will pay the
     Manager annual base management compensation, payable monthly in arrears,
     equal to 3/4 of 1% of the average net invested capital as further
     defined in the Management Agreement.

     The Company paid the Manager $156,000 in base management compensation in
     accordance with the terms of the Management Agreement for the quarter
     ended September 30, 1998. The Company paid the Manager $490,000 in base
     management compensation for the nine months ended September 30, 1998.

     The Company will also pay the Manager, as incentive compensation, an
     amount equal to 30% of the Net Income of the Company, before incentive
     compensation, in excess of the amount that would produce an annualized
     return on equity equal to the ten-year US Treasury rate plus 1% as
     further defined in the Management Agreement.

     The Company accrued $197,000 of incentive compensation to be paid to the
     Manager for the quarter and nine months ended September 30, 1998.

     At September 30, 1998, $249,000 of unpaid compensation was payable to
     the Manager. At December 31, 1997, $43,000 of unpaid compensation was
     payable to the Manager.

     The Company may also grant stock options to directors, officers and key
     employees of the Company, the Manager, its directors, officers and key
     employees.

     The Company's other investments include securities that are issued by
     special purpose companies that invest primarily in mortgage related
     assets. An affiliate of the Manager serves as the investment manager to
     these companies and is paid fees in connection with such services. The
     Company does not pay any management fees directly to any affiliate of
     the Manager in connection with these investments.


                                          12

<PAGE>

NOTE 9 - STOCK OPTIONS

     The Company has adopted a stock option plan (the "1997 Stock Option
     Plan") that provides for the grant of both qualified incentive stock
     options that meet the requirements of Section 422 of the Code, and
     non-qualified stock options, stock appreciation rights and dividend
     equivalent rights. Stock options may be granted to directors, officers
     and key employees of the Company, the Manager, its directors, officers
     and key employees.

     The exercise price for any stock option granted under the 1997 Stock
     Option Plan may not be less than 100% of the fair market value of the
     shares of common stock at the time the option is granted. Each option
     must terminate no more than ten years from the date it is granted.
     Subject to anti-dilution provisions for stock splits, stock dividends
     and similar events, the 1997 Stock Option Plan authorizes the grant of
     options to purchase an aggregate of up to 10% of the outstanding shares
     of the Company's common stock, but not more than 1,000,000 shares of
     common stock.

     No options were granted under the 1997 Stock Option Plan during the
     quarter or nine months ended September 30, 1998. The Company recognized
     compensation expense of $28,000 during the quarter ended September 30,
     1998 for stock options previously granted to non-employees. The Company
     recognized compensation expense of $84,000 during the nine months ended
     September 30, 1998 for stock options previously granted to non-employees.

     If the Company had recorded stock option grants to Company directors at
     fair value and related compensation expense, the pro forma effect on the
     Company's net income and earnings per share would have been as follows:

<TABLE>
<CAPTION>
                                                             Quarter Ended      Nine Months Ended
                                                          September 30, 1998   September 30, 1998
                                                         -----------------------------------------
     <S>                                                  <C>                  <C>
     Net income - as reported                                 $1,992,000          $3,166,000
     Net income - pro forma                                    1,951,000           3,023,000

     Basic and diluted earnings per share - as reported            $0.33               $0.50
     Basis and diluted earnings per share - pro forma              $0.32               $0.48
</TABLE>

     The fair value of each option grant was estimated to be $1.05 as of the
     grant date using the Black-Scholes option pricing model with the
     following assumptions: dividend yield of 11% per annum; expected
     volatility of 30%; risk free interest rate of 5.82% per annum; and an
     expected life of 10 years.

     Information regarding stock option activity for the quarter and nine
     months ended September 30, 1998 is as follows:

<TABLE>
<CAPTION>
                                                    Shares
                                                -------------
     <S>                                        <C>
     Outstanding, beginning of period              400,000
     Exercised                                         -
     Expired                                           -
                                                -------------
     Outstanding, end of period                    400,000
                                                -------------
                                                -------------
</TABLE>

     The original contractual life as of December 3, 1997 of each option was
     ten years. The options vest in three equal installments on February 3,
     1999, December 3, 1999 and December 3, 2000.

                                          13
<PAGE>

NOTE 10 - CONTRACTUAL COMMITMENTS

     The Company has entered into interest rate swap agreements with notional
     amounts as stated below. Under these agreements, the Company receives a
     floating rate and pays a fixed rate.

<TABLE>
<CAPTION>

    Current
Notional Amount                                                       Termination     Unrealized
     (000)               Type          Fixed Rate   Floating Rate         Date       Gains (Losses)
----------------------------------------------------------------------------------------------------
<S>               <C>                  <C>          <C>               <C>            <C>
    $ 95,000      Interest Rate Swap     5.880%       1Mo LIBOR         5/29/00         $ (1,663)
      30,000      Interest Rate Swap     5.905%       1Mo LIBOR         6/30/00             (576)
      28,636      Interest Rate Swap     5.765%       1Mo LIBOR         7/25/00             (446)
      62,489      Interest Rate Swap     5.775%       1Mo LIBOR         8/25/00           (1,030)
      47,811      Interest Rate Swap     5.710%       1Mo LIBOR         8/28/00             (755)
      60,000      Interest Rate Swap     5.900%       1Mo LIBOR         5/18/01           (1,638)
      98,694      Interest Rate Swap     5.883%       1Mo LIBOR         5/25/01           (2,407)
     123,879      Interest Rate Swap     5.905%       1Mo LIBOR         5/25/01           (2,638)
      55,172      Interest Rate Swap     5.750%       1Mo LIBOR         7/14/01           (1,136)
      65,000      Interest Rate Swap     5.791%       1Mo LIBOR         7/25/01           (1,645)
      49,134      Interest Rate Swap     5.960%       1Mo LIBOR         5/15/02           (1,530)
----------------                                                                    ----------------

    $715,815                                                                            $(15,464)
----------------                                                                    ----------------
----------------                                                                    ----------------
</TABLE>

     The Company is generally required to deposit collateral with the swap
     agreement counter-parties in an amount at least equal to the amount of
     any unrealized losses. At September 30, 1998, the Company had securities
     with a fair market value of 16,984,000 on deposit with its
     counter-parties.

                                          14
<PAGE>

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

                        SAFE HARBOR/FORWARD LOOKING STATEMENTS

Certain information contained in this Quarterly Report on Form 10-Q
constitutes "forward-looking statements" which can be identified by the use
of forward-looking terminology such as "may," "will," "should," "expect,"
"anticipate," "estimate," "intend," "continue," or "believes" or the
negatives thereof or other variations thereon or comparable terminology.
Discussed below are some important factors that would cause actual results to
differ materially from those in any forward-looking statements, including
changes in interest rates; domestic and foreign business, market, financial
or legal conditions; differences in the actual allocation of the assets of
the company from those assumed; and the degree to which assets are hedged and
the effectiveness of the hedge, among others. In addition, the degree of risk
is increased by the company's leveraging of its assets. For additional
discussion of factors that could cause actual results to differ from those
contained in such forward-looking statements, see "Risk Factors" in the
Prospectus included in the Registration Statement on Form S-11 (333-36069)
filed by the Company on November 29, 1997 and incorporated by reference as
Exhibit 99.1 in the Company's annual report on Form 10-K for the year ended
December 31, 1997. The Company does not undertake, and specifically disclaims
any obligation, to update any forward-looking statements to reflect
occurrences or unanticipated events or circumstances after the date of such
statements.

                                       GENERAL

Apex Mortgage Capital, Inc. (the "Company"), a Maryland corporation, was
formed on September 15, 1997, primarily to acquire United States agency
securities, other mortgage securities and mortgage loans. The Company
commenced operations on December 9, 1997, upon receipt of the net proceeds
from the initial public offering of the Company's common stock. The Company's
principal executive offices are located at 865 South Figueroa Street, Suite
1800, Los Angeles, California 90017, and its telephone number is (213)
244-0440.

The Company uses its equity capital and borrowed funds to seek to generate
income based on the difference between the yield on its mortgage assets and
the cost of its borrowings. The Company has elected to be taxed as a real
estate investment trust ("REIT") under the Internal Revenue Code of 1986, as
amended (the "Code"). The Company should not generally be subject to federal
taxes on its income to the extent that it distributes its net income to its
stockholders and maintains its qualification as a REIT.

The goal of the Company is to be an efficient investor in mortgage assets.
The Company generally acquires mortgage assets primarily in the secondary
mortgage market through the operational experience and market relationships
of TCW Investment Management Company (the "Manager") and its affiliates.

The day-to-day operations of the Company are managed by the Manager subject
to the direction and oversight of the Company's Board of Directors, a
majority of whom are unaffiliated with the Manager. The Manager is a
wholly-owned subsidiary of The TCW Group, Inc. ("TCW"). The Manager was
established in 1992 and TCW began operations in 1971 through one of its
affiliates. The Company's investment management team consists of selected
members of TCW's mortgage-backed securities group, all of whom have over ten
years of experience in raising and managing mortgage capital. The Company has
elected to be externally managed by the Manager to take advantage of the
existing operational systems, expertise and economies of scale associated
with the Manager's current business operations, among other reasons.


                                       STRATEGY

To achieve its business objective and generate dividend yields that provide a
competitive rate of return for its stockholders, the Company's strategy is to:

     -    purchase primarily single-family mortgage assets;

                                          15
<PAGE>

     -    manage the credit risk of its mortgage assets through, among other
          activities (i) carefully selecting mortgage assets to be acquired,
          (ii) complying with the Company's policies with respect to credit risk
          concentration which, among other things, require the Company to
          maintain a mortgage asset portfolio with a weighted average rating
          generally equivalent to AA (or a comparable rating) or better, (iii)
          actively monitoring the ongoing credit quality and servicing of its
          mortgage assets, and (iv) maintaining appropriate capital levels and
          allowances for possible credit losses;

     -    finance purchases of mortgage assets with the net proceeds of equity
          offerings and to utilize leverage to increase potential returns to
          stockholders through borrowings (primarily reverse repurchase
          agreements) with interest rates that will generally reflect changes in
          short-term market interest rates; and

     -    utilize interest rate caps, swaps and similar financial instruments to
          mitigate the risk of the cost of its variable-rate liabilities
          exceeding the earnings on its mortgage assets during a period of
          rising interest rates.

The Company has established the foregoing strategies along with certain
operating policies and procedures to implement them. However, these
strategies and policies may be modified or waived by the Board of Directors
at any time without the consent or approval of the Company's stockholders.
The ultimate effect of any such changes is uncertain.

FINANCIAL CONDITION

MORTGAGE ASSETS

At September 30, 1998, the Company held $889,908,000 of mortgage assets as
compared to $265,880,000 at December 31, 1997. The original maturity of a
significant portion of the mortgage assets ranges from fifteen to thirty
years; the actual maturity is subject to change based on the prepayments of
the underlying mortgage loans.

The following table is a schedule of mortgage assets held listed by security
type (dollars in thousands):

<TABLE>
<CAPTION>
                                       September 30, 1998          December 31, 1997
                                  ------------------------------------------------------

                                    Carrying     Percent of     Carrying     Percent of
     Mortgage-Backed Securities        Value      Portfolio        Value      Portfolio
     -----------------------------------------------------------------------------------
     <S>                            <C>          <C>            <C>          <C>
     Adjustable Rate (1)            $ 57,356           6.4%     $240,819          90.6%
     Fixed Rate                      832,552          93.6%       25,061           9.4%
                                    --------         ------     --------         ------
     Totals                         $889,908         100.0%     $265,880         100.0%
                                    --------         ------     --------         ------
                                    --------         ------     --------         ------
</TABLE>

     (1)  At September 30, 1998, the interest rate indices for 95% and 5% of the
          adjustable rate mortgage securities were based on the one-year U.S.
          Treasury rate and the six-month London Inter-Bank Offered Rate,
          respectively. At December 31, 1997, the interest rate index for all
          adjustable rate mortgage securities was based on the one-year U.S.
          Treasury rate.

                                          16
<PAGE>

The following table shows various weighted average characteristics of the
mortgage assets held by the Company at September 30, 1998 (dollars in
thousands):

<TABLE>
<CAPTION>
                                                  Percent of                                           Weighted
                                        Par       Total Par      Amortized      Market     Current     Average
Security Type                          Amount      Amount        Cost Basis     Price      Coupon      Life (1)
---------------------------------------------------------------------------------------------------------------
<S>                                   <C>         <C>            <C>           <C>         <C>         <C>
15 Year Agency/AAA Pass-throughs      $307,959        35.1%       100.43%      101.95%      6.51%         3.5
20 Year Agency Pass-throughs           189,517        21.6%       100.36%      101.92%      6.50%         5.0
AAA CMOs                               322,198        36.8%        99.53%      101.01%      6.81%         2.1
                                      --------       ------       -------      -------      -----         ---
Total Fixed Rate Holdings              819,674        93.5%       100.06%      101.57%      6.63%         3.3
Adjustable Rate Holdings                56,593         6.5%       101.54%      101.35%      6.58%         1.0
                                      --------       ------       -------      -------      -----         ---
Total Portfolio                       $876,267       100.0%       100.16%      101.56%      6.62%         3.1
                                      --------       ------       -------      -------      -----         ---
                                      --------       ------       -------      -------      -----         ---
</TABLE>

The following table shows various weighted average characteristics of the
mortgage assets held by the Company at December 31, 1997 (dollars in
thousands):

<TABLE>
<CAPTION>
                                                  Percent of                                           Weighted
                                        Par       Total Par      Amortized      Market     Current     Average
Security Type                          Amount      Amount        Cost Basis     Price      Coupon      Life (1)
---------------------------------------------------------------------------------------------------------------
<S>                                   <C>         <C>            <C>           <C>         <C>         <C>
Fixed Rate Agency CMO                  $24,826         9.5%       100.78%      100.95%      7.50%         0.9
Adjustable Rate Holdings               237,929        90.5%       101.12%      101.21%      6.90%         0.6
                                      --------       ------       -------      -------      -----         ---
Total Portfolio                       $262,755       100.0%       101.11%      101.19%      6.66%         0.6
                                      --------       ------       -------      -------      -----         ---
                                      --------       ------       -------      -------      -----         ---

</TABLE>

     (1)  The weighted average life of the fixed rate mortgage securities is 
     based upon market prepayment expectations as of the dates shown. The 
     actual weighted average life could be longer or shorter depending on the 
     actual prepayment rates experienced over the life of the securities. The 
     weighted average life shown for the adjustable rate mortgage assets 
     represents the average time until the next coupon reset date. All 
     averages are shown in years.

HEDGING INSTRUMENTS AND OTHER INVESTMENTS

The Company utilizes interest rate caps, swaps and similar financial
instruments to mitigate the risk of the cost of its variable-rate liabilities
exceeding the earnings on its mortgage assets during a period of rising
interest rates. The Company is currently utilizing both interest rate cap and
interest rate swap agreements.

Interest rate cap agreements consisted of London Interbank Offered Rate
("LIBOR") based agreements as follows:

<TABLE>
<CAPTION>
                                     At September 30, 1998     At December 31, 1997
                                    ------------------------------------------------
          <S>                        <C>                       <C>
          Notional Amount                $900,000,000               $500,000,000
          Average Contract Rate              10.4%                      10.0%
          Average Final Maturity        January 24, 2002         December 24, 2001

</TABLE>

Under these agreements, the Company will receive cash payments to the extent
of the excess of three-month LIBOR over the agreements' contract rate times
the notional amount. The interest rate cap agreements no longer qualify for
hedge accounting because the Company has entered into additional hedging
transactions as discussed below. Accordingly, the Company now records the cap
agreements at fair market value. During the quarter ended September 30, 1998,
a $97,000

                                          17
<PAGE>

charge against earnings was taken to write the cap agreements down to zero
which approximates their fair market value in the current market environment.
The charge is included as an adjustment to gain on investment transactions on
the income statement.

The Company has entered into interest rate swap agreements with current
notional amounts as stated below. Under these agreements, the Company
receives a floating rate and pays a fixed rate.

<TABLE>
<CAPTION>
   Current
Notional Amount                                                    Termination    Unrealized
     (000)              Type         Fixed Rate    Floating Rate       Date      Gains (Losses)
-----------------------------------------------------------------------------------------------
<S>              <C>                 <C>           <C>             <C>           <C>
   $ 95,000      Interest Rate Swap    5.880%        1Mo LIBOR        5/29/00       $ (1,663)
     30,000      Interest Rate Swap    5.905%        1Mo LIBOR        6/30/00           (576)
     28,636      Interest Rate Swap    5.765%        1Mo LIBOR        7/25/00           (446)
     62,489      Interest Rate Swap    5.775%        1Mo LIBOR        8/25/00         (1,030)
     47,811      Interest Rate Swap    5.710%        1Mo LIBOR        8/28/00           (755)
     60,000      Interest Rate Swap    5.900%        1Mo LIBOR        5/18/01         (1,638)
     98,694      Interest Rate Swap    5.883%        1Mo LIBOR        5/25/01         (2,407)
    123,879      Interest Rate Swap    5.905%        1Mo LIBOR        5/25/01         (2,638)
     55,172      Interest Rate Swap    5.750%        1Mo LIBOR        7/14/01         (1,136)
     65,000      Interest Rate Swap    5.791%        1Mo LIBOR        7/25/01         (1,645)
     49,134      Interest Rate Swap    5.960%        1Mo LIBOR        5/15/02         (1,530)
---------------                                                                 ---------------

  $ 715,815                                                                         $(15,464)
---------------                                                                 ---------------
---------------                                                                 ---------------
</TABLE>

The weighted average coupon the Company pays on the interest rate swap
agreements at September 30, 1998 was 5.85%. The weighted average life of the
agreements at September 30, 1998 was 2.1 years.

The Company is generally required to deposit collateral with the swap
agreement counter-parties in an amount at least equal to the amount of any
unrealized losses. At September 30, 1998, the Company had securities with a
fair market value of 16,984,000 on deposit with its counter-parties. If the
unrealized losses on the interest rate swap agreements were to increase, the
Company would be required to deposit additional collateral.

There can be no assurance that the Company will enter into hedging activities
or that, if entered into, such activities will have the desired beneficial
impact on the Company's results of operations or financial condition.
Moreover, no hedging activity can completely insulate the Company from the
risks associated with changes in interest rates and prepayment rates.

Hedging involves risk and typically involves costs, including transaction
costs. Such costs increase dramatically as the period covered by the hedging
increases and during periods of rising and volatile interest rates. The
Company may increase its hedging activity and, thus, increase its hedging
costs during such periods when interest rates are volatile or rising and
hedging costs have increased. The Company intends generally to hedge as much
of the interest rate risk as the Manager determines is in the best interest
of the shareholders of the Company given the cost of such hedging
transactions and the Company's desire to maintain its status as a REIT. The
Company's policies do not contain specific requirements as to the percentages
or amount of interest rate risk which the Manager is required to hedge.

LIABILITIES

The Company has entered into reverse repurchase agreements to finance certain
of its mortgage-backed securities. These agreements are secured by a portion
of the Company's mortgage-backed securities and bear interest rates that have
historically moved in close relationship to LIBOR.

                                      18
<PAGE>

At September 30, 1998, the Company had outstanding $811,680,000 of reverse
repurchase agreements with a weighted average current borrowing rate of 5.53%
and a maturity of 2.2 months. The reverse repurchase agreements were
collateralized by mortgage-backed securities with an estimated fair value of
$839,163,000.

At December 31, 1997, the Company had outstanding $87,818,000 of reverse
repurchase agreements with a weighted average current borrowing rate of 5.82%
and a maturity of 2.8 months. The reverse repurchase agreements were
collateralized by mortgage-backed securities with an estimated fair value of
$90,043,000.

The Company had $5,330,000 and $90,492,000 of other liabilities at September
30, 1998 and December 31, 1997, respectively, consisting primarily of
payables for unsettled securities. The Company anticipates settling all other
liabilities within one year by entering into additional reverse repurchase
agreements.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998

For the quarter ended September 30, 1998, the Company's net income was
$1,992,000, or $0.33 per share on both a basic and diluted basis, based on a
weighted average of 6,022,000 shares outstanding. Net interest income for the
period was $2,371,000 consisting of interest income on mortgage assets and
cash balances less interest expense on reverse repurchase agreements. The
Company reported a net gain of $104,000 on the sale of mortgage-backed
securities, which was offset by a charge of $97,000 to write off the interest
rate cap agreements. The Company reported other income of $186,000 from
dividends received on equity investments and interest income on other
securities. The Company incurred operating expenses of $572,000 for the
quarter consisting of management fees, audit, tax, legal, printing, insurance
and other expenses.

As a REIT, the Company is required to declare dividends amounting to 85% of
each year's taxable income by the end of each calendar year and to have
declared dividends amounting to 95% of its taxable income for each year by
the time it files its applicable tax return. The Company currently intends to
distribute approximately 100% of its taxable net income each year.

The Company anticipates that it will experience differences between its net
income based on generally accepted accounting principles ("GAAP") and its
taxable net income due primarily to differences in the methods used to
amortize purchase premiums and discounts and to the recognition of certain
compensation expenses that are not recognized for tax purposes. During the
quarter ended September 30, 1998, the Company elected to use a different
premium amortization method for its adjustable rate mortgage securities than
had been used in the previous two quarters to estimate taxable income. The
net effect of this change is generally expected to decrease the ordinary
taxable income recognized on the Company's adjustable rate mortgage
securities and decrease the loss recognized on the sale of such securities
during the taxable year ended December 31, 1998.

During the quarter ended September 30, 1998, the Company began investing in
other investments that generally only report taxable income information
annually. Accordingly, the Company will no longer report taxable income on a
quarterly basis as this information is generally not available on a timely
basis for all of the Company's investments.

At September 30, 1998, the Company had distributed $1,740,000 in excess of
reported net income.

                                      19
<PAGE>

The following table reflects the average balances for each category of the
Company's interest earning assets, excluding other investments, as well as
the Company's interest bearing liabilities, with the corresponding annualized
effective yield recognized for the three months ended September 30, 1998
(dollars in thousands):

<TABLE>
<CAPTION>
                                           AVERAGE BALANCE AND YIELD TABLE
                                                (Dollars in thousands)

                                                For the Quarter Ended
                                                  September 30, 1998
                                           -------------------------------
                                             Average           Effective
                                             Balance             Yield
                                           -----------        ------------
<S>                                        <C>                <C>
Interest Earning Assets:
   Mortgage Assets                          $830,079             6.49%
   Cash and Cash Equivalents                  13,185             5.25%
                                           -----------        ------------
   Total Interest Earning Assets             843,264             6.47%
                                           -----------        ------------

Interest Bearing Liabilities:
   Reverse Repurchase Agreements             774,420             5.82%
                                           -----------        ------------
Net Interest Earning Assets and Spread      $ 68,844             0.65%
                                           -----------        ------------
                                           -----------        ------------
</TABLE>

The following table reflects the average balances for each category of the
Company's other investments with the corresponding annualized effective yield
recognized for the three months ended September 30, 1998 (dollars in
thousands):

<TABLE>
<CAPTION>
                                           AVERAGE BALANCE AND YIELD TABLE
                                                (Dollars in thousands)

                                                For the Quarter Ended
                                                  September 30, 1998
                                           -------------------------------
                                             Average           Effective
                                             Balance             Yield
                                           -----------        ------------
<S>                                        <C>                <C>
Other Investments:
   Equity Securities                           $3,343              16.73%
   Other Securities                             1,245              15.04%
                                           -----------        ------------
   Total Other Investments                      4,588              16.27%
                                           -----------        ------------
                                           -----------        ------------
</TABLE>

The effective yield data is computed by dividing the annualized net interest
income or expense into the average daily balance shown.

On September 16, 1998, the Company's Board of Directors authorized a program
to repurchase up to an additional 750,000 shares of the Company's common
stock having completed an original repurchase program of 750,000 shares. The
Company repurchased 247,500 shares of its common stock pursuant to both
programs during the quarter ended September 30, 1998. The average price per
share repurchased was $10.80. The repurchased shares are held in treasury at
cost in the financial statements herein.

An additional 717,500 shares are currently authorized for potential
repurchase in the future. The Company may continue to repurchase shares in
the future when market conditions warrant.

                                      20
<PAGE>

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998

For the nine months ended September 30, 1998, the Company's net income was
$3,166,000, or $0.50 per share on both a basic and diluted basis, based on a
weighted average of 6,334,000 shares outstanding. Net interest income for the
period was $3,766,000 consisting of interest income on mortgage assets and
cash balances less interest expense on reverse repurchase agreements. The
Company reported a net gain of $686,000 on the sale of mortgage-backed
securities, which was offset by a charge of $210,000 to write off the
interest rate cap agreements. The Company reported other income of $186,000
from dividends received on equity investments and interest income on other
securities. The Company incurred operating expenses of $1,262,000 for the
period consisting of management fees, audit, tax, legal, printing, insurance
and other expenses.

The following table reflects the average balances for each category of the
Company's interest earning assets, excluding other investments, as well as
the Company's interest bearing liabilities, with the corresponding annualized
effective yield recognized for the nine months ended September 30, 1998
(dollars in thousands):

<TABLE>
<CAPTION>
                                           AVERAGE BALANCE AND YIELD TABLE
                                                (Dollars in thousands)

                                               For the Nine Months Ended
                                                  September 30, 1998
                                           -------------------------------
                                             Average           Effective
                                             Balance             Yield
                                           -----------        ------------
<S>                                        <C>                <C>
Interest Earning Assets:
   Mortgage Assets                           $621,082              5.89%
   Cash and Cash Equivalents                   16,306              5.14%
                                           -----------        ------------
   Total Interest Earning Assets              637,388              5.87%
                                           -----------        ------------

Interest Bearing Liabilities:
   Reverse Repurchase Agreements              568,630              5.69%
                                           -----------        ------------
Net Interest Earning Assets and Spread       $ 68,758              0.18%
                                           -----------        ------------
                                           -----------        ------------
</TABLE>

The effective yield data is computed by dividing the annualized net interest
income or expense into the average daily balance shown.

On September 16, 1998, the Company's Board of Directors authorized a program
to repurchase up to an additional 750,000 shares of the Company's common
stock having completed an original repurchase program of 750,000 shares. The
Company repurchased 782,500 shares of its common stock pursuant to both
programs during the nine months ended September 30, 1998. The average price
per share repurchased was $11.64. The repurchased shares are held in treasury
at cost in the financial statements herein.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary sources of funds for the quarter ended September 30,
1998 consisted of reverse repurchase agreements totaling $811,860,000. The
Company expects to continue to borrow funds in the form of reverse repurchase
agreements. At September 30, 1998, the Company had borrowing arrangements
with twenty-three different investment-banking firms. Increases in short-term
interest rates could negatively impact the valuation of the Company's
mortgage assets which could limit the Company's borrowing ability or cause
its lenders to initiate margin calls.

                                      21
<PAGE>

The Company will also rely on the cash flow from operations; primarily 
monthly principal and interest payments to be received on the mortgage 
assets, for liquidity.

During the quarter ended September 30, 1998, the Company noted a distinct 
impairment in overall liquidity in the capital markets. Specifically, several 
other mortgage companies, hedge funds and other leveraged mortgage investors 
publicly announced an inability to obtain suitable financing in the capital 
markets including the inability to obtain reverse repurchase agreement 
financing. In light of these conditions, some of the Company's lenders have 
increased the equity requirement for financing certain mortgage assets 
through reverse repurchase agreements. If liquidity conditions in the capital 
markets continue to deteriorate, the Company's lenders may continue to 
increase the equity required to obtain financing or the lenders may stop 
providing financing altogether. If this were to occur, the Company's 
liquidity would be adversely affected, which could negatively impact 
operating results.

The Company believes that equity capital, combined with the cash flow from 
operations and the utilization of borrowings, will be sufficient to enable 
the Company to meet anticipated liquidity requirements. If the Company's cash 
resources are at any time insufficient to satisfy the Company's liquidity 
requirements, the Company may be required to liquidate mortgage assets or 
sell debt or additional equity securities. If required, the sale of mortgage 
assets at prices lower than the carrying value of such assets would result in 
losses.

The Company may in the future increase its capital resources by making 
additional offerings of equity and debt securities, including classes of 
preferred stock, common stock, commercial paper, medium-term notes, CMOs and 
senior or subordinated notes. All debt securities, other borrowings, and 
classes of preferred stock will be senior to the common stock in a 
liquidation of the Company. The effect of additional equity offerings may be 
the dilution of the equity of stockholders of the Company or the reduction of 
the price of shares of the common stock, or both. The Company is unable to 
estimate the amount, timing or nature of additional offerings as they will 
depend upon market conditions and other factors.

EFFECTS OF INTEREST RATE CHANGES

The Company invests in adjustable-rate mortgage assets that are typically 
subject to periodic and lifetime interest rate caps that limit the amount an 
adjustable-rate mortgage asset's interest rate can change during any given 
period, as well as the minimum rate payable. The Company's borrowings will 
not be subject to similar restrictions. Hence, in a period of increasing 
interest rates, interest rates on its borrowings could increase without 
limitation by caps, while the interest rates on its mortgage assets are 
generally limited by caps. This problem will be magnified to the extent the 
Company acquires mortgage assets that are not fully indexed. Further, some 
adjustable-rate mortgage assets may be subject to periodic payment caps that 
result in some portion of the interest being deferred and added to the 
principal outstanding. This could result in receipt by the Company of less 
cash income on its adjustable-rate mortgage assets than is required to pay 
interest on the related borrowings. These factors could lower the Company's 
net interest income or cause a net loss during periods of rising interest 
rates, which would negatively impact the Company's financial condition, cash 
flows and results of operations.

The Company intends to fund its acquisitions of adjustable-rate mortgage 
assets with borrowings that have interest rates based on indices and 
repricing terms similar to, but of somewhat shorter maturities than, the 
interest rate indices and repricing terms of the mortgage assets. Thus, the 
Company anticipates that in most cases the interest rate indices and 
repricing terms of its mortgage assets and its funding sources will not be 
identical, thereby creating an interest rate mismatch between assets and 
liabilities. While the historical spread between relevant short-term interest 
rate indices has been relatively stable, there have been periods, especially 
during the 1979-1982 and 1994 interest rate environments, when the spread 
between such indices was volatile. During periods of changing interest rates, 
such interest rate mismatches could negatively impact the Company's financial 
condition, cash flows and results of operations.

Prepayment rates generally increase when prevailing interest rates fall below 
the interest rates on existing mortgage assets. In addition, prepayment rates 
generally increase when the difference between long-term and short-term 
interest rates declines. Prepayments of mortgage assets could adversely 
affect the Company's results of operations in several ways. The Company 
anticipates that a substantial portion of its adjustable-rate mortgage assets 
may bear initial "teaser" interest rates that are lower than their "fully 
indexed" rates (the applicable index plus a margin). In the event that such 
an adjustable-

                                      22
<PAGE>

rate mortgage asset is prepaid prior to or soon after the time of adjustment 
to a fully indexed rate, the Company will have held the mortgage asset while 
it was less profitable and lost the opportunity to receive interest at the 
fully indexed rate over the expected life of the adjustable-rate mortgage 
asset. In addition, the prepayment of any mortgage asset that had been 
purchased at a premium by the Company would result in the immediate write-off 
of any remaining capitalized premium amount and consequent reduction of the 
Company's net interest income by such amount. Finally, in the event that the 
Company is unable to acquire new mortgage assets to replace the prepaid 
mortgage assets, its financial condition, cash flow and results of operations 
could be materially adversely affected.

The Company also invests in fixed-rate mortgage assets that are expected to 
be funded with short-term borrowings. During periods of rising interest 
rates, the borrowing costs associated with funding such fixed-rate assets are 
subject to increase while the income earned on such assets may remain 
substantially unchanged. This would result in a narrowing of the net interest 
spread between the related assets and borrowings and may even result in 
losses. The Company may enter into derivative transactions seeking to 
mitigate the negative impact of a rising interest rate environment. Hedging 
techniques will be based, in part, on assumed levels of prepayments of the 
Company's mortgage assets. If prepayments are slower or faster than assumed, 
the life of the mortgage assets will be longer or shorter which would reduce 
the effectiveness of the Company's hedging techniques and may result in 
losses on such transactions. Hedging techniques involving the use of 
derivative securities are highly complex and may produce volatile returns. 
The hedging activity of the Company will also be limited by the asset and 
sources of income requirements applicable to the Company as a REIT.

The Company's current allocation to fixed-rate mortgage assets was 93.5% at 
September 30, 1998. The Company may increase or decrease this allocation as 
market conditions warrant. As mentioned above, there are certain risks 
associated with investing in fixed-rate mortgage assets in combination with 
hedging instruments. The two main risks the Company faces are that of 
extension risk and prepayment risk.

EXTENSION RISK

Fixed-rate assets are generally acquired with a projected weighted average 
life based on certain assumptions regarding prepayments. In general, when a 
fixed-rate mortgage asset is acquired with borrowings, the Company may enter 
into an interest rate swap agreement or other hedging instrument that 
effectively fixes the Company's borrowing costs for a period close to the 
anticipated average life of the related asset. This strategy is designed to 
protect the Company from rising interest rates because the borrowing costs 
are fixed for the duration of the asset. However, if prepayment rates 
decrease in a rising interest rate environment, the life of the mortgage 
asset could extend beyond the term of the swap agreement or other hedging 
instrument. This situation could negatively impact the Company as borrowing 
costs would no longer be fixed after the end of the hedging instrument while 
the income earned on the asset would remain fixed. This situation may also 
cause the market value of the Company's mortgage assets to decline with 
little or no offsetting gain from the related hedging transactions. In 
certain situations, the Company may be forced to sell assets and incur losses 
to maintain adequate liquidity.

PREPAYMENT RISK

Fixed-rate assets in combination with hedging instruments are also subject to 
prepayment risk. In falling interest rate scenarios, the fixed-rate mortgage 
assets may prepay faster such that the average life becomes shorter than its 
related hedging instrument. If this were to happen, the Company would 
potentially need to reinvest at rates lower than that of the related hedging 
instrument. This situation may result in the narrowing of interest rate 
spreads or may cause losses.

                                      23
<PAGE>

PART 2. OTHER INFORMATION

Item 1. Legal Proceedings

          None

Item 2. Changes in Securities

          Not Applicable

Item 3. Defaults Upon Senior Securities

          Not Applicable

Item 4. Submission of Matters to a Vote of Security Holders

          At the 1998 Annual Meeting of Shareholders held July 1, 1998
          shareholders of record as of April 30, 1998 ratified the selection
          of Deloitte & Touche LLP as the Company's independent auditors. In
          total, 6,342,792 shares were voted for the proposal, 15,365 shares
          were voted against the proposal, no shares were withheld, 21,150
          shares abstained and no shares were broker non-votes.

Item 5. Other Information

          None

Item 6. Exhibits and Reports on Form 8-K:

        (a) Exhibits

             Exhibit #27    Financial Data Schedule

        (b) Reports on Form 8-K

             None




                                      24
<PAGE>

                                   SIGNATURES

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

                                          Apex Mortgage Capital, Inc.

Dated: November 12, 1998

                                     By:  /s/ Philip A. Barach
                                          -----------------------------------
                                          Philip A. Barach
                                          President and Chief Executive Officer
                                          (Principal Executive Officer)


                                     By:  /s/ Daniel K. Osborne
                                          -----------------------------------
                                          Daniel K. Osborne
                                          Executive Vice President
                                          Chief Operating Officer
                                          Chief Financial Officer
                                          (Principal Accounting Officer)





                                        25