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                                  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 quarter ended March 31, 2004

         |_|      Transition Report Pursuant to Section 13 or 15(d) of
                  the Securities Exchange Act of 1934


                          MERIT SECURITIES CORPORATION
             (Exact name of registrant as specified in its charter)

                         Commission file number 33-83524

                    Virginia                                     54-1736551
        (State or other jurisdiction of                       (I.R.S. Employer
         incorporation or organization)                      Identification No.)

 4551 Cox Road, Suite 300, Glen Allen, Virginia                     23060
    (Address of principal executive offices)                     (Zip Code)

                                 (804) 217-5800
              (Registrant's telephone number, including area code)

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 ninety days.
         |X| Yes  |_| No

Indicate by check  mark  whether  the  registrant  is an  accelerated  filer (as
         defined in Exchange Act Rule 12b-2). |_| Yes |X| No

As of May 10,  2004,  there were 1,000  shares of Merit  Securities  Corporation
common stock outstanding.

The registrant  meets the conditions set forth in General  Instructions H (1)(a)
and (b) of Form 10-Q and is  therefore  filing  this Form 10-Q with the  reduced
disclosure format.

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<PAGE>


                                        i
                          MERIT SECURITIES CORPORATION
                                    FORM 10-Q
                                      INDEX

<TABLE>
<CAPTION>
                                                                                                     Page Number
PART I.           FINANCIAL INFORMATION

Item 1.           Financial Statements
                      Condensed Consolidated Balance Sheets as of March 31, 2004
<S>                                    <C>                                                               <C>
                      and December 31, 2003 (unaudited)...................................................1

                      Condensed Consolidated Statements of Operations and Comprehensive (Loss)
                      Income for the three months ended March 31, 2004 and 2003 (unaudited)...............2

                      Condensed Consolidated Statements of Cash Flows for the three months ended
                      March 31, 2004 and 2003 (unaudited).................................................3

                  Notes to Unaudited Condensed Consolidated Financial Statements..........................4

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

Item 3.           Quantitative and Qualitative Disclosures about Market Risk.............................12

Item 4.           Controls and Procedures................................................................13


PART II.          OTHER INFORMATION

Item 1.           Legal Proceedings......................................................................14

Item 5.           Other Information......................................................................14

Item 6.           Exhibits and Reports on Form 8-K.......................................................14

SIGNATURES        .......................................................................................15
</TABLE>




                                       i
<PAGE>



                          PART I. FINANCIAL INFORMATION


Item 1.  Financial Statements

MERIT SECURITIES CORPORATION
Condensed Consolidated Balance Sheets, Unaudited

(amounts in thousands except share data)


                                              March 31,         December 31,
                                                2004                2003
                                            ----------------  ------------------

ASSETS:
   Securitized finance receivables:
     Loans                                    $    744,191      $       783,881
     Debt securities, available-for-sale           240,413              251,554
   Other loans                                       2,544                2,683
   Asset-backed security, held-to-maturity             724                  801
   Due from affiliates, net                         42,144               45,837
                                            ----------------  ------------------
                                              $  1,030,016      $     1,084,756
                                            ================  ==================

LIABILITIES AND SHAREHOLDER'S EQUITY

LIABILITIES:
   Non-recourse securitization financing    $      974,262    $       1,018,899
                                            ----------------  ------------------


SHAREHOLDER'S EQUITY:
   Common stock, no par value, 10,000 shares authorized, 1,000
     shares issued and outstanding                      10                   10
   Additional paid-in capital                       68,674               68,674
   Accumulated other comprehensive income (loss)       167                  (82)
   Accumulated deficit                            (13,097)               (2,745)
                                           ----------------   ------------------
                                                   55,754                65,857
                                           ----------------   ------------------
                                             $  1,030,016       $     1,084,756
                                           ================   ==================

See notes to unaudited condensed consolidated financial statements.



                                       1
<PAGE>




MERIT SECURITIES CORPORATION
Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income,
Unaudited
(amounts in thousands)
<TABLE>
<CAPTION>

                                                                                    Three Months Ended
                                                                                         March 31,
                                                                              --------------------------------
                                                                                  2004              2003
                                                                              -------------     --------------

Interest income:
<S>                                                                                   <C>            <C>
     Securitized finance receivables                                          $    16,763    $        22,354
     Other loans                                                                       34                 38
     Asset-backed security, held-to-maturity                                           52                 62
                                                                             --------------  ------------------
                                                                                   16,849             22,454
                                                                             --------------  ------------------

Interest and related expense:
     Interest expense on non-recourse securitization financing                     11,716             13,517
     Other non-recourse securitization financing expense                              400                238
                                                                             --------------  ------------------
                                                                                   12,116             13,755
                                                                             --------------  ------------------

Net interest margin before provision for loan losses                                4,733              8,699
Provision for loan losses                                                          (3,625)            (5,003)
                                                                             --------------  ------------------
Net margin                                                                          1,108              3,696
Impairment charges                                                                 (1,497)            (1,454)
Other income                                                                          227                 76
                                                                             --------------  ------------------
Net (loss) income                                                                    (162)             2,318
Change in net unrealized (loss) gain during period on:
     Investments classified as available-for-sale                                    (248)               464
                                                                             --------------  ------------------
Comprehensive (loss) income                                                   $      (410)     $       2,782
                                                                             ==============  ==================

See notes to unaudited condensed consolidated financial statements.
</TABLE>



                                       2
<PAGE>



MERIT SECURITIES CORPORATION
Condensed Consolidated Statements of Cash Flows, Unaudited
(amounts in thousands)

<TABLE>
<CAPTION>

                                                                 -------------------------------------------
                                                                             Three Months Ended
                                                                                 March 31,
                                                                 -------------------------------------------
                                                                        2004                    2003
                                                                 -------------------     -------------------

Operating activities:
<S>                                                                         <C>                        <C>
   Net (loss) income                                             $           (162)               $   2,318
   Adjustments to reconcile net income to net cash provided by
     operating activities:
       Impairment charges                                                   1,497                    1,454
       Provision for loan losses                                            3,625                    5,003
       Amortization, net                                                    1,760                    1,018
       Other                                                                  176                      837
                                                                 -------------------     -------------------
   Net cash provided by operating activities                                6,896                   10,630
                                                                 -------------------     -------------------

Investing activities:
     Principal payments on collateral                                      45,426                   74,998
     Net decrease in other loans                                              138                      707
     Payments received on securities                                          159                      365
                                                                 -------------------     -------------------
       Net cash provided by investing activities                           45,723                   76,070
                                                                 -------------------     -------------------

Financing activities:
   Principal payments on non-recourse securitization financing            (46,123)                 (79,666)
   Decrease (increase) in due from affiliates                               3,693                   (7,034)
   Dividends distribution                                                 (10,189)                       -
                                                                 -------------------     -------------------
     Net cash used in financing activities                                (52,619)                 (86,700)
                                                                 -------------------     -------------------

Net decrease in cash                                                            -                        -
Cash, beginning of period                                                       -                        -
                                                                 -------------------     -------------------

Cash, end of period                                              $              -         $   -
                                                                 -------------------     -------------------
 disclosure of cash flow information:
   Cash paid for interest                                        $         10,460         $   13,181
                                                                 -------------------     -------------------

</TABLE>

See notes to unaudited condensed consolidated financial statements.




                                       3
<PAGE>



MERIT SECURITIES CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2004
(amounts in thousands)

NOTE 1 -- BASIS OF PRESENTATION

The accompanying  condensed consolidated financial statements have been prepared
in accordance  with the  instructions to Form 10-Q and do not include all of the
information and notes required by accounting  principles  generally  accepted in
the United States of America,  hereinafter  referred to as  "generally  accepted
accounting   principles"  for  complete  financial  statements.   The  financial
statements include the accounts of Merit Securities  Corporation (the "Company")
and its wholly owned subsidiary, Financial Asset Securitization,  Inc. ("FASI"),
which was purchased from Dynex Capital, Inc. ("Dynex"), its parent, on March 31,
2002.  The Company is a wholly  owned,  limited-purpose  finance  subsidiary  of
Issuer  Holding  Corporation  ("IHC").  IHC was formed on  September  4, 1996 to
acquire all of the outstanding stock of the Company and certain other affiliates
of Dynex.  IHC is a wholly owned  subsidiary  of Dynex.  Dynex has elected to be
treated as a real  estate  investment  trust  ("REIT")  for  federal  income tax
purposes under the Internal  Revenue Code of 1986.  Accordingly,  the Company is
not subject to federal  income tax. The Company was organized to facilitate  the
securitization  of loans through the issuance and sale of  collateralized  bonds
(the "Bonds").  All inter company balances and transactions have been eliminated
in the consolidation of the Company.

In the opinion of management,  all adjustments  considered  necessary for a fair
presentation  of the  financial  statements  have been  included.  The Condensed
Consolidated  Balance  Sheet at  March  31,  2004 and  December  31,  2003,  the
Condensed Consolidated  Statements of Operations and Comprehensive (Loss) Income
for the three months ended March 31, 2004 and 2003,  the Condensed  Consolidated
Statements of Cash Flows for the three months ended March 31, 2004 and 2003, and
the related notes to condensed  consolidated financial statements are unaudited.
Operating  results for the three months ended March 31, 2004 are not necessarily
indicative of the results that may be expected for the year ending  December 31,
2004. For further  information,  refer to the audited  financial  statements and
footnotes  included in the Company's  Form 10-K for the year ended  December 31,
2003.

Certain reclassifications have been made to the financial statements for 2003 to
conform  to  the   presentation  for  2004.   Certain  basis   adjustments  were
reclassified from securitized  finance receivables within assets to non-recourse
securitization  financing  within  liabilities  on  the  condensed  consolidated
balance  sheet  and from  interest  income to  interest  expense  on the  income
statement.  These  remaining  unamortized  deferred  hedging  amounts were basis
adjustments  recorded prior to 2001,  which related to financing  hedges and are
more appropriately recorded as part of the related debt.


NOTE 2 -- SECURITIZED FINANCE RECEIVABLES

Securitized  finance  receivables  consists of loans and debt securities  backed
primarily by  adjustable-rate  and  fixed-rate  mortgage  loans secured by first
liens on single family residential housing and manufactured  housing installment
loans  secured by a Unified  Commercial  Code ("UCC")  filing.  All  securitized
finance receivables are pledged to secure repayment of the related  non-recourse
securitization  financing.  All principal and interest  (less  servicing-related
fees) on the collateral is remitted to a trustee and is available for payment on
the non-recourse  securitization  financing.  The Company's  exposure to loss on
securitized finance receivables is generally limited to the amount of collateral
pledged in excess of the related non-recourse  securitization  financing issued,
as the non-recourse securitization financing is non-recourse to the Company. The
securitized finance receivables can be sold by the Company,  but only subject to
the lien of the non-recourse securitization financing indenture.

The following table summarizes the components of securitized finance receivables
at March 31, 2004 and December 31, 2003. Debt securities  pledged as securitized
finance  receivables  are  considered  available-for-sale,   and  are  therefore
recorded at fair value.  Loans pledged as securitized  finance  receivables  are
carried at amortized cost.

                                       4
<PAGE>

--------------------------------- ----------------------  ---------------------
                                     March 31, 2004        December 31, 2003
                                  ----------------------  ---------------------
  Loans, at amortized cost         $    766,568            $    804,871
  Allowance for loan losses             (22,377)                (20,990)
--------------------------------- ----------------------  ---------------------
                                        744,191                 783,881
  Debt securities, at fair value        240,413                 251,554
--------------------------------- ----------------------  ---------------------
                                   $    984,604            $  1,035,435
--------------------------------- ----------------------  ---------------------

The following table summarizes the amortized cost basis, gross unrealized gains,
and  estimated  fair value of debt  securities  pledged as  securitized  finance
receivables at March 31, 2004 and December 31, 2003:

-------------------------------------- --------------------  -------------------
                                          March 31, 2004      December 31, 2003
-------------------------------------- --------------------  -------------------
  Debt securities, at amortized cost    $    240,246          $    251,554
  Gross unrealized gains                         167                     -
-------------------------------------- --------------------  -------------------
  Estimated fair value                  $    240,413          $    251,554
-------------------------------------- --------------------  -------------------

The components of securitized finance receivables at March 31, 2004 and December
31, 2003 are as follows:
<TABLE>
<CAPTION>

------------------------------- ------------------------------------------ ------------------------------------------
                                             March 31, 2004                            December 31, 2003
------------------------------- ------------------------------------------ ------------------------------------------
                                 Loans, net       Debt          Total       Loans, net    Debt            Total
                                               Securities                                 Securities
------------------------------- ------------- ------------- -------------- -------------- ----------- ---------------
Collateral:
<S>                                    <C>           <C>           <C>            <C>            <C>         <C>
     Manufactured housing       $    455,796  $   168,476   $    624,272   $    470,319   $  172,847  $     643,166
     Single family                   292,839       69,867        362,706        317,552       76,749        394,301
                                ------------- ------------- -------------- -------------- ----------- ---------------
                                     748,635      238,343        986,978        787,871      249,596      1,037,467
Funds held by trustees                     1            -              1              1            -              1
Accrued interest receivable            4,600        1,502          6,102          4,847        1,565          6,412
Unamortized (discounts) and
    premiums, net                     (9,045)         401         (8,644)        (8,838)         393         (8,445)
Unrealized gain, net                       -          167            167              -            -              -
------------------------------- ------------- ------------- -------------- -------------- ----------- ---------------
                                 $   744,191   $  240,413    $   984,604   $    783,881    $ 251,554  $   1,035,435
------------------------------- ------------- ------------- -------------- -------------- ----------- ---------------
</TABLE>

All of the  securitized  finance  receivables  are  encumbered  by  non-recourse
securitized financing.


NOTE 3 -- ALLOWANCE FOR LOAN LOSSES

The following table summarizes the activity for the allowance for loan losses on
loans within  securitized  finance  receivables for the three months ended March
31, 2004 and March 31, 2003:

----------------------------------------- ------------------ -------------------
                                           March 31, 2004       March 31, 2003
----------------------------------------- ------------------ -------------------
 Beginning balance                            $  20,990            $  20,700
 Provision for loan losses                        3,625                5,003
 Losses charged-off, net of recoveries           (2,238)              (4,752)
----------------------------------------- ------------------ -------------------
 Ending balance                               $  22,377            $  20,951
----------------------------------------- ------------------ -------------------

The Company  continues to  experience  unfavorable  results in its  manufactured
housing loan portfolio in terms of elevated  delinquencies  and loss severity on
repossessed units. For the period ended March 31, 2004, the Company added $3,625
in  provisions  for  loan  losses  related  to  the  manufactured  housing  loan
portfolio.

The aggregate loss exposure is generally  limited to the amount of collateral in
excess of the related  investment-grade  non-recourse  securitization  financing
issued  (commonly  referred  to as  "over-collateralization"),  excluding  price
premiums and discounts  and hedge basis  adjustments.  Within each  non-recourse
securitization  financing,  a group of loans are held within the  securitization
structure as a credit reserve to provide  additional  cash flow to cover losses.


                                       5
<PAGE>

Once the cumulative  level of losses have surpassed the cash flow available from
the credit  reserve and losses has depleted the  over-collateralization,  future
losses are  passed to the  holders  of the  lowest  classes of bonds  within the
structure.  In some cases,  the aggregate  loss exposure may be increased by the
use of  surplus  cash  or cash  reserve  funds  contained  within  the  security
structure to cover losses.  On one of the deal structures of the Company,  total
cumulative losses have surpassed the cash flow available from the credit reserve
and have completely depleted the over-collateralization. During the three months
ended  December 31,  2003,  losses on this  securitization  began to pass to the
subordinate   class   bondholders.   The   reserves  for  loan  losses  on  this
securitization  decreased as these losses began to be borne by the  subordinated
bondholders.

The allowance for loan losses on the  over-collateralization  totaled $22,377 at
March 31, 2004 and $20,951 at March 31, 2003,  and are  included in  securitized
finance receivables in the accompanying  condensed  consolidated balance sheets.
Over-collateralization  at March 31, 2004 and March 31, 2003 totaled $34,380 and
$53,442 respectively.


NOTE 4 -- DUE FROM AFFILIATES, NET

Cash flows  generated by operations  are loaned by the Company to its parent and
interest  is  charged  to the  parent at the  Federal  funds rate plus 100 basis
points.  These  inter-company  loans are  subject  to a maximum  outstanding  of
balance of $50,000.  Interest income on amounts due from affiliates was $245 and
$4 for the three months ended March 31, 2004 and March 31, 2003, respectively.


NOTE 5-- FAIR VALUE

Securities  classified  as  available-for-sale  are carried in the  accompanying
financial  statements  at estimated  fair value.  The Company uses  estimates in
establishing fair value for its available-for-sale securities. Estimates of fair
value for securities may be based on market prices provided by certain  dealers.
Estimates  of  fair  value  for  certain  other  securities  are  determined  by
calculating  the present  value of the projected  cash flows of the  instruments
using market-based discount rates, prepayment rates and credit loss assumptions.
The  estimate  of fair  value for  securities  pledged  as  securitized  finance
receivables is determined by calculating the present value of the projected cash
flows of the  instruments  using  prepayment  rate  assumptions  and credit loss
assumptions  based on historical  experience and estimated future activity,  and
using discount rates  commensurate with those the Company believes would be used
by third parties.  Such discount rate used in the determination of fair value of
securities pledged as securitized  finance receivables was 16% at March 31, 2004
and  December 31,  2003.  Prepayment  rate  assumptions  at March 31, 2004,  and
December  31,  2003,  were  generally at a CPR ranging from 30%-35% at March 31,
2004 and 35%-40% at December  31,  2003,  for  securitized  finance  receivables
consisting of  securities  backed by  single-family  mortgage  loans,  and a CPR
equivalent of 8% for 2004 and 10% for 2003 for securitized  finance  receivables
consisting of securities  backed by manufactured  housing loans. CPR assumptions
for each year are based in part on the actual  prepayment rates  experienced for
the  prior  six-month  period  and in part on  management's  estimate  of future
prepayment  activity.  The  loss  assumptions  utilized  vary  depending  on the
collateral pledged.

Estimates of fair value for other  financial  instruments are based primarily on
management's  judgment.   Since  the  fair  value  of  the  Company's  financial
instruments is based on estimates, actual gains and losses recognized may differ
from  those  estimates   recorded  in  the  condensed   consolidated   financial
statements.


NOTE 6-- RECENT ACCOUNTING PRONOUNCEMENTS

In December 2003, the Accounting  Standards  Executive  Committee (AcSEC) of the
American  Institute  of  Certified   Professional   Accountants  (AICPA)  issued
Statement of Position  (SOP) No.  03-3,  "Accounting  for Certain  Loans or Debt
Securities Acquired in a Transfer." SOP No. 03-3 is effective for loans acquired
in  fiscal  years  beginning  after  December  15,  2004,  with  early  adoption
encouraged.  A certain transition provision applies for certain aspects of loans
currently within the scope of Practice  Bulletin 6, Amortization of Discounts on
Certain  Acquired  Loans.  SOP No. 03-3  addresses  accounting  for  differences
between  contractual  cash flows and cash flows expected to be collected from an
investor's  initial investment in loans or debt securities (loans) acquired in a


                                       6
<PAGE>

transfer if those  differences  are  attributable,  at least in part,  to credit
quality. It includes loans acquired in business  combinations and applies to all
non-governmental entities, including not-for-profit organizations.  SOP No. 03-3
does not apply to loans  originated by the entity.  The Company is reviewing the
implications  of SOP No. 03-3 but does not believe that its adoption will have a
significant  impact on its  financial  position,  results of  operations or cash
flows.

In March 2004,  the  Securities  and  Exchange  Commission  (SEC)  issued  Staff
Accounting Bulletin (SAB) No. 105, "Application of Accounting Principles to Loan
Commitments."  SAB No. 105  addresses  the  application  of  generally  accepted
accounting  practices which apply to loan commitments which are accounted for as
a derivative instrument and measured at fair value. The Company is reviewing the
implications  of SAB No. 105 but does not believe that its adoption  will have a
significant  impact on its  financial  position,  results of  operations or cash
flows.


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

The Company was organized to facilitate the  securitization of loans through the
issuance and sale of non-recourse  securitization  financing (the "Bonds").  The
Bonds are secured by  securities  and loans  backed  primarily  by: (i) mortgage
loans secured by first or second liens on residential property, and manufactured
housing  installment  loans  secured by either a UCC  filing or a motor  vehicle
title, (ii) other mortgage pass-through certificates or  mortgage-collateralized
obligations,   and  (iii)  consumer   installment   loans   (collectively,   the
"Collateral").  In the future,  the Company may also  securitize  other types of
loans   or   securities   such  as   Federal   National   Mortgage   Association
Mortgage-Backed   Certificates,   Federal   Home   Loan   Mortgage   Corporation
Mortgage-Backed   Certificates,  or  Government  National  Mortgage  Association
Mortgage-Backed Certificates.

After  payment  of  the  expenses  of an  offering  and  certain  administrative
expenses,  the net  proceeds  from an  offering  of  Bonds  is used to  purchase
Collateral  from IHC or various  third  parties.  IHC can be expected to use the
proceeds  to reduce  indebtedness  incurred  to obtain  such loans or to acquire
additional Collateral.  After the issuance of a series of Bonds, the Company may
sell the  Collateral  securing that series of Bonds,  subject to the lien of the
Bonds.

The  Company  is a  financial  services  company,  which  invests  in loans  and
securities consisting of or secured by, principally single family mortgage loans
and manufactured  housing  installment  loans. The loans and securities in which
the Company invests have generally been pooled and pledged (i.e. securitized) as
collateral for non-recourse  bonds  ("non-recourse  securitization  financing"),
which  provides  long-term  financing  for such  loans  while  limiting  credit,
interest rate and  liquidity  risk.  The Company  earns the net interest  spread
between  the  interest  income  on the loans and  securities  in its  investment
portfolio and the interest and other expenses  associated with the  non-recourse
securitization financing.

The Company owns the right to call  securitization  financing  previously issued
and sold by the Company once the outstanding  balance of such securities reaches
a call trigger,  generally either 35% or less of the original amount issued or a
specified   date.   Generally   interest  rates  on  the  bonds  issued  in  the
securitization  financing  increase by 0.30%-2.00% if the bonds are not redeemed
by the Company.  The Company will  evaluate the benefit of calling such bonds at
the time they are  redeemable.  An  estimated  $200  million  of  securitization
financing  were  redeemable in March 2004 and an estimated  $230 million will be
redeemable in August 2004.  These  non-recourse  securitization  financings  are
collateralized by manufactured  housing loans, and certain of the bonds may have
interest rates which exceed  current market rates.  The Company has the right to
call such bonds by class and is contemplating  calling these bonds and reissuing
them at the lower current market rates. On April 26, 2004, the Company  redeemed
the  senior-most  bond  classes with an  aggregate  principal  balance of $154.8
million in its Merit 12 securitization  and reissued the bonds at a $7.4 million
premium to the Company. At March 31, 2004, the aggregate callable balance at the
time of the  projected  call of  securitization  financing  which is expected to
reach  respective  call triggers  during the remainder of 2004 is  approximately
$230 million,  relating to one securitization  financing structure.  The Company
may or may not  elect  to call  all or part  of this  securitization,  or  other
securitizations, when eligible to call.

                          CRITICAL ACCOUNTING POLICIES

The discussion and analysis of the Company's  financial condition and results of
operations  are based in large part upon its  condensed  consolidated  financial
statements,  which have been prepared in conformity with  accounting  principles


                                       7
<PAGE>

generally  accepted  in  the  United  States  of  America  ("generally  accepted
accounting  principles".) The preparation of the financial  statements  requires
management to make estimates and assumptions that affect the reported amounts of
assets and  liabilities  and disclosure of contingent  assets and liabilities at
the date of the  financial  statements  and the reported  amounts of revenue and
expenses  during the reported  period.  Actual  results  could differ from those
estimates.

Critical  accounting  policies  are  defined  as those  that are  reflective  of
significant  judgements  or  uncertainties,  and which may result in  materially
different results under different assumptions and conditions, or the application
of which may have a material impact on the Company's financial  statements.  The
following are the Company's critical accounting policies.

Consolidation of Subsidiaries. The consolidated financial statements include the
accounts of the Company and its  wholly-owned  subsidiaries,  after  significant
inter-company transactions have been eliminated.

Impairments.  The Company  evaluates the debt and asset backed securities in its
investment  portfolio  for  other-than-temporary   impairments.  A  security  is
generally  defined to be  other-than-temporarily  impaired if, for a period of a
maximum of three  consecutive  quarters,  the  carrying  value of such  security
exceeds its estimated fair value and the Company  estimates,  based on projected
future cash flows or other fair value  determinants,  that the fair value is not
likely  to  exceed  the  carrying  value  in  the  foreseeable   future.  If  an
other-than-temporary  impairment  is deemed to exist,  the  Company  records  an
impairment  charge to adjust  the  carrying  value of the  security  down to its
estimated   fair   value.   In   certain   instances,   as  a   result   of  the
other-than-temporary impairment analysis, the recognition or accrual of interest
will be discontinued and the security will be placed on non-accrual status.

Fair  Value.  Securities  classified  as  available-for-sale  are carried in the
accompanying   consolidated   financial  statements  at  estimated  fair  value.
Estimates of fair value for securities may be based on market prices provided by
certain  dealers.  Estimates  of fair value for  certain  other  securities  are
determined by  calculating  the present value of the projected cash flows of the
instruments using market-based discount rates,  prepayment rates and credit loss
assumptions.  The estimate of fair value for  securities  pledged as securitized
finance  receivables  is  determined  by  calculating  the present  value of the
projected cash flows of the instruments  using  prepayment rate  assumptions and
credit loss  assumptions  based on historical  experience  and estimated  future
activity,  and using  discount rates  commensurate  with those believed would be
used by third  parties.  Such  discount rate used in the  determination  of fair
value of securities pledged as securitized  finance receivables was 16% at March
31, 2004 and December 31, 2003.  Prepayment  rate  assumptions at March 31, 2004
and December 31, 2003 were  generally at a "constant  prepayment  rate," or CPR,
ranging  from  30%-35% in 2004 and  35%-40%  in 2003,  for  securitized  finance
receivables consisting of securities backed by single-family mortgage loans, and
a CPR  equivalent  ranging  from 8% for 2004  and 10% for  2003 for  securitized
finance  receivables  consisting of securities  backed by  manufactured  housing
loans. CPR assumptions for each year are based in part on the actual  prepayment
rates  experienced  for the prior  six-month  period and in part on management's
estimate of future  prepayment  activity.  The loss  assumptions  utilized  vary
depending on the collateral pledged.

Estimates of fair value for other  financial  instruments are based primarily on
management's  judgment.   Since  the  fair  value  of  the  Company's  financial
instruments  are based on  estimates,  actual  gains and losses  recognized  may
differ from those estimates recorded in the consolidated financial statements.

Allowance  for Loan  Losses.  The Company  has  limited  exposure to credit risk
retained on loans, which it has securitized through the issuance of non-recourse
securitization  financing.  The aggregate loss exposure is generally  limited to
the amount of collateral in excess of the related investment-grade  non-recourse
securitization     financing     issued     (commonly     referred     to     as
"over-collateralization"),  excluding  price  premiums and  discounts  and hedge
basis  adjustments.  The  allowance  for loan losses is included in  securitized
finance receivables in the accompanying condensed consolidated balance sheets.

An allowance for loan losses has been  estimated and  established  for currently
existing probable losses to the extent losses are borne by the Company under the
terms of the securitization  transaction.  Factors considered in establishing an
allowance  include  current  loan   delinquencies,   historical  cure  rates  of
delinquent  loans,  and historical and anticipated loss severity of the loans as
they are  liquidated.  The  allowance  for  losses  is  evaluated  and  adjusted
periodically by management  based on the actual and estimated  timing and amount


                                       8
<PAGE>

of probable  credit losses,  using the above  factors,  as well as industry loss
experience. Where loans are considered homogeneous, the allowance for losses are
established and evaluated on a pool basis.  Otherwise,  the allowance for losses
is  established  and  evaluated on a  loan-specific  basis.  Provisions  made to
increase the allowance are a current period  expense to  operations.  Generally,
the Company considers manufactured housing loans to be impaired when they are 30
days past due. The Company also  provides an allowance  for  currently  existing
credit losses within outstanding  manufactured housing loans that are current as
to payment but which the Company has  determined to be impaired based on default
trends,  current market conditions and empirical observable  performance data on
the loans.  Single-family  loans are  considered  impaired when they are 60 days
past due. The Company's  actual  credit  losses may differ from those  estimates
used to establish the allowance.

                               FINANCIAL CONDITION

------------------------------------------------- -------------- ---------------
                                                     March 31,     December 31,
(amounts in thousands except series outstanding)        2004           2003
------------------------------------------------- -------------- ---------------

Securitized finance receivables:
    Loans, net                                    $    744,191   $    783,881
    Debt securities, available-for-sale                240,413        251,554
Other loans                                              2,544          2,683
Asset-backed security                                      724            801
Non-recourse securitization financing                  974,262      1,018,899
Shareholder's equity                                    55,754         65,857

Securitization financing bond series outstanding             4              4
------------------------------------------------- -------------- ---------------

Securitized finance receivables

As of both March 31, 2004 and  December  31,  2003,  the Company had 4 series of
collateralized bonds outstanding.  The securitized finance receivables decreased
to $984.6  million at March 31, 2004  compared to $1.0  billion at December  31,
2003.  This decrease of $50.8 million is the result of $45.4 million in paydowns
on the collateral,  $3.6 million of increased provisions for loan losses, a $1.5
million of  impairment  losses on  securities,  and a 0.3  million  increase  in
accrued interest receivable.

Other loans

Other loans  decreased  to $2.6  million at March 31, 2004 from $2.7  million at
December 31, 2003. Other loans is composed of non-performing  loans not included
in the  securitization  completed in April 2002 which were reclassified to Other
loans from securitized finance receivables. This decrease resulted from paydowns
on the loans of $0.1 million.

Asset-backed security

Asset-backed  security decreased to $0.7 million at March 31, 2004,  compared to
$0.8  million at December 31,  2003,  as a result of principal  payments of $0.1
million during the year.

Non-recourse securitization financing

Non-recourse securitized financing decreased to $974.3 million at March 31, 2004
from $1.0 billion at December 31, 2003.  This  decrease of $44.6  million is the
result of $46.1 million in paydowns  offset by $1.5 million of  amortization  of
premium and discounts during the three months ended March 31, 2004.

Shareholder's equity

Shareholder's  equity  decreased  to $55.8  million at March 31, 2004 from $65.9
million at December 31, 2003. This decrease was the result of a net loss of $0.2
million  during the three months ended March 31, 2004 and a dividend  payment of
                                       9
<PAGE>
$10.2  million to its parent  company,  IHC offset by a $0.3 million  unrealized
gain on investments classified as available-for-sale.




                              RESULTS OF OPERATIONS

----------------------------- --------------------------------------------------
                                           Three Months Ended
                                                March 31,
----------------------------- --------------------------------------------------
   (amounts in thousands)              2004                   2003
----------------------------- ----------------------- --------------------------
   Interest income                  $   16,849             $   22,454
   Interest expense                     12,116                 13,755
   Provision for loan losses             3,625                  5,003
   Net interest margin                   1,108                  3,696
   Impairment charges                   (1,497)                (1,454)
   Net (loss) income                      (162)                 2,318
----------------------------- ----------------------- --------------------------

Interest income  decreased to $16.8 million for the three months ended March 31,
2004 from $22.5 million for the three months ended March 31, 2003. This decrease
was  primarily  a result of the  continued  impact of  prepayments  on  interest
income, as average securitized finance receivables declined from $1.3 billion at
March 31,  2003 to $1.0  billion at March 31,  2004,  coupled  with the  overall
decline in one-month London InterBank Offered Rate ("LIBOR") from 1.30% at March
31, 2003 to 1.09% at March 31, 2004.

Interest and other expense decreased to $12.1 million for the three months ended
March 31,  2004 from $13.8  million  for the three  months  ended March 31, 2003
primarily due to the decrease in one-month LIBOR from 1.30% at March 31, 2003 to
1.09% at March 31,  2004 and the  decline  in average  securitization  financing
bonds due to  paydowns  on the  related  securitized  finance  receivables.  The
average  securitization  financing  bonds decreased from $1.2 billion in 2003 to
$962 million in 2004.

Provision  for loan losses  decreased to $3.6 million for the three months ended
March 31,  2004 from $5.0  million  for the same  period in 2003 due  largely to
losses on one securitization now being borne by the subordinated bondholders.

Net  interest  margin for the three months ended March 31, 2004 was $1.1 million
compared  to $3.7  million for the same period in 2003.  This  decrease  for the
three months  ended March 31, 2004 was the result of a $1.4 million  decrease in
provision  for loan losses and a $1.6  million  decrease  in interest  and other
expense,  offset by a $5.6  million  decrease in interest  income,  as discussed
above.

Impairment  charges  increased  to $1.5 million for the three months ended March
31, 2004 from $1.4 million for the same period in 2003.  This increase  resulted
from the under-performance of the Company's  manufactured housing loan portfolio
in debt securities.

Credit Exposures

With  non-recourse  securitization  financing  structures,  the Company  retains
credit  risk  relative  to the  amount  of  over-collateralization  required  in
conjunction  with the bond insurance.  Losses are generally first applied to the
over-collateralized  amount,  with any losses in excess of that amount  borne by
the  holders  of the  subordinated  classes of the  non-recourse  securitization
financing.  Generally,  surplus  cash that would  otherwise  be  released to the
Company is  retained  within the  securitization  structure  if losses  exceed a
certain  threshold.  The Company  only incurs  credit  losses to the extent that
losses are incurred in the repossession,  foreclosure and sale of the underlying
collateral.  Such  losses  generally  equal the excess of the  principal  amount
outstanding,  less any  proceeds  from  mortgage or hazard  insurance,  over the
liquidation  value of the  collateral.  To compensate  the Company for retaining
this loss  exposure,  the  Company  generally  receives  an excess  yield on the
collateralized  loans relative to the yield on the  non-recourse  securitization
financing.  At March 31, 2004,  the Company  retained $34.4 million in aggregate
principal amount of over-collateralization compared to $37.9 million at December
31,  2003.  For certain  other  securitizations,  since  cumulative  losses have
depleted  the  required  level  of  over-collateralization  provided  as  credit
enhancement,  surplus  cash in the amount of $1.0  million was retained to cover
losses.  Other forms of credit enhancement that benefit the Company,  based upon


                                       10
<PAGE>

the  performance  of the underlying  loans,  may provide  additional  protection
against  losses.   These  additional   protections  include  loss  reimbursement
guarantees with a remaining balance of $27.5 million and a remaining  deductible
aggregating $0.8 million on $47.0 million of securitized  single family mortgage
loans, which are subject to such reimbursement  agreements.  In addition, $153.6
million of  securitized  single  family  mortgage  loans are  subject to various
mortgage  pool  insurance  policies  whereby  losses  would  need to exceed  the
remaining  stop loss of at least 82% on such  policies  before the Company would
incur losses.

Recent Accounting Pronouncements

In December 2003, the Accounting  Standards  Executive  Committee (AcSEC) of the
American  Institute  of  Certified   Professional   Accountants  (AICPA)  issued
Statement of Position  (SOP) No.  03-3,  "Accounting  for Certain  Loans or Debt
Securities Acquired in a Transfer." SOP No. 03-3 is effective for loans acquired
in  fiscal  years  beginning  after  December  15,  2004,  with  early  adoption
encouraged.  A certain transition provision applies for certain aspects of loans
currently within the scope of Practice  Bulletin 6, Amortization of Discounts on
Certain  Acquired  Loans.  SOP No. 03-3  addresses  accounting  for  differences
between  contractual  cash flows and cash flows expected to be collected from an
investor's  initial investment in loans or debt securities (loans) acquired in a
transfer if those  differences  are  attributable,  at least in part,  to credit
quality. It includes loans acquired in business  combinations and applies to all
non-governmental entities, including not-for-profit organizations.  SOP No. 03-3
does not apply to loans  originated by the entity.  The Company is reviewing the
implications  of SOP No. 03-3 but does not believe that its adoption will have a
significant  impact on its  financial  position,  results of  operations or cash
flows.

In March 2004,  the  Securities  and  Exchange  Commission  (SEC)  issued  Staff
Accounting Bulletin (SAB) No. 105, "Application of Accounting Principles to Loan
Commitments."  SAB No. 105  addresses  the  application  of  generally  accepted
accounting  practices which apply to loan commitments which are accounted for as
a derivative instrument and measured at fair value. The Company is reviewing the
implications  of SAB No. 105 but does not believe that its adoption  will have a
significant  impact on its  financial  position,  results of  operations or cash
flows.

Other Matters

At March 31, 2004,  the Company had securities of  approximately  $308.6 million
remaining for issuance under a registration  statement filed with the Securities
and Exchange Commission. The Company anticipates issuing additional Bonds in the
future.


Item 3.  Quantitative and Qualitative Disclosures about Market Risk

Market  risk  generally  represents  the risk of loss that may  result  from the
potential  change in the value of a financial  instrument due to fluctuations in
interest  and in equity and  commodity  prices.  Market risk is inherent to both
derivative and non-derivative financial instruments,  and accordingly, the scope
of the Company's  market risk management  extends beyond  derivatives to include
all  market  risk  sensitive  financial  instruments.  As a  financial  services
company,  net interest margin  comprises the primary  component of the Company's
earnings and cash flows.  The Company is subject to risk resulting from interest
rate  fluctuations  to the extent  that there is a gap between the amount of the
Company's interest-earning assets and the amount of interest-bearing liabilities
that are prepaid,  mature or re-price within  specified  periods.  The Company's
strategy  has been to mitigate  interest  rate risk  through  the  creation of a
diversified investment portfolio that generates stable income and cash flow in a
variety of interest rate and prepayment environments.

The Company and IHC monitor the  aggregate  cash flow,  projected  net yield and
estimated  market value of the  securitized  finance  receivables  under various
interest rate and prepayment assumptions.  While certain investments may perform
poorly  in  an  increasing  or  decreasing  interest  rate  environment,   other
investments may perform well, and others may not be impacted at all.

The Company  focuses on the  sensitivity of its investment  portfolio cash flow,
and measures such sensitivity to changes in interest rates.  Changes in interest
rates are defined as interest  rate  movements  in 100 basis point and 200 basis
point ratable increments,  both up and down, over the ensuing twelve months from
the  measurement  date. The Company  estimates its net interest margin cash flow


                                       11
<PAGE>

for the next  twenty-four  months  assuming that  interest  rates over such time
period  follow the forward LIBOR curve (based on the 90-day  Eurodollar  futures
contract)  as of March 31,  2004.  Once the base case has been  estimated,  cash
flows are  projected  for each of the defined  interest  rate  scenarios.  Those
scenario  results  are then  compared  against  the base case to  determine  the
estimated change to cash flow.

The following  table  summarizes the Company's net interest margin cash flow and
market value sensitivity analysis as of March 31, 2004. This analysis represents
management's  estimate of the percentage change in net interest margin cash flow
and value  expressed  as a  percentage  change in  shareholders'  equity given a
parallel shift in interest rates, as discussed above. The "Base" case represents
the interest  rate  environment  as it existed as of March 31, 2004. As of March
31, 2004,  one-month LIBOR was 1.09% and six-month LIBOR was 1.16%. The analysis
is heavily  dependent  upon the  assumptions  used in the  model.  The effect of
changes in future  interest  rates,  the shape of the yield  curve or the mix of
assets and  liabilities  may cause  actual  results to differ  from the  modeled
results.  In  addition,  certain  financial  instruments  provide  a  degree  of
"optionality." The most significant option affecting the Company's  portfolio is
the borrower's  option to prepay the loans.  The model applies  prepayment  rate
assumptions  representing  management's  estimate  of  prepayment  activity on a
projected basis for each collateral pool in the investment portfolio.  The model
applies the same prepayment rate assumptions for all five cases indicated below.
Given the current composition and performance of the investment  portfolio,  and
the  limitation to  estimating  twenty-four  months of net interest  margin cash
flows,  variations in  prepayment  rate  assumptions  are not expected to have a
material impact on the net interest margin cash flows.  Projected results assume
no additions or  subtractions to the Company's  portfolio,  and no change to the
Company's liability structure. Historically, there have been significant changes
in the Company's non-recourse  securitization financing,  underlying collateral,
and  asset-backed  securities  held-to-maturity  and there are likely to be such
changes in the future.


                              Projected in Net
       Basis Point          Interest Margin Cash   Projected Change in Value,
 Increase (Decrease) in          Flow From          expressed as a percentage of
     Interest Rates              Base Case            Shareholders'Equity
------------------------- ------------------------- ----------------------------
          +200                    (18.4)%                  (14.4)%
          +100                    (11.4)%                   (7.2)%
          Base
          -100                     13.0%                    10.1%
          -200                     19.1%                    18.5%

Approximately  $326.8 million of the Company's  investment portfolio as of March
31, 2004 is comprised of loans or securities that have coupon rates which adjust
over time (subject to certain periodic and lifetime  limitations) in conjunction
with changes in short-term interest rates.  Approximately 71% and 14% of the ARM
loans or securities underlying the Company's securitized finance receivables are
indexed to and reset based upon the level of six-month  LIBOR and one-year  CMT,
respectively.  These ARM assets are financed with  adjustable-rate  non-recourse
securitization financing borrowings.

Generally,  during a period of rising  short-term  interest rates, the Company's
net interest  spread  earned on its  investment  portfolio  will  decrease.  The
decrease of the net  interest  spread  results from (i) the lag in resets of the
ARM loans  underlying  the ARM securities and  securitized  finance  receivables
relative to the rate resets on the associated borrowings and (ii) rate resets on
the ARM loans  which are  generally  limited  to 1% every six months or 2% every
twelve months and subject to lifetime caps, while the associated borrowings have
no such  limitation.  As short-term  interest rates  stabilize and the ARM loans
reset, the net interest margin may be restored to its former level as the yields
on the ARM loans adjust to market  conditions.  Conversely,  net interest margin
may increase following a fall in short-term interest rates. This increase may be
temporary  as the yields on the ARM loans  adjust to the new  market  conditions
after a lag period. In each case, however, the Company expects that the increase
or decrease in the net interest spread due to changes in the short-term interest
rates  to be  temporary.  The net  interest  spread  may  also be  increased  or
decreased  by the  proceeds  or  costs  of  interest  rate  swap,  cap or  floor
agreements, to the extent that the Company has entered into such agreements.



                                       12
<PAGE>

The remaining  portion of the Company's  securitized  finance  receivables as of
March 31, 2004,  approximately  $695.6 million,  is comprised of loans that have
coupon rates that are fixed.  The Company has limited its interest  rate risk on
such collateral  primarily  through (i) the issuance of fixed-rate  non-recourse
securitization financing which approximated $436.7 million as of March 31, 2004,
and (ii) equity,  which was $55.8 million.  Overall, the Company's interest rate
risk is primarily  related to the rate of change in short-term  interest  rates,
not the level of short-term interest rates.


Item 4.  Controls And Procedures

         (a) Evaluation of disclosure controls and procedures.

                  Disclosure  controls  and  procedures  are  controls and other
                  procedures  that  are  designed  to  ensure  that  information
                  required to be disclosed  in the  Company's  reports  filed or
                  submitted  under  the  Exchange  Act is  recorded,  processed,
                  summarized and reported  within the time periods  specified in
                  the SEC's rules and forms.  Disclosure controls and procedures
                  include, without limitation,  controls and procedures designed
                  to ensure that  information  required to be  disclosed  in the
                  Company's  reports filed under the Exchange Act is accumulated
                  and  communicated  to  management,   including  the  Company's
                  management,   as  appropriate,   to  allow  timely   decisions
                  regarding required disclosures.

                  As of the  end of the  period  covered  by  this  report,  the
                  Company carried out an evaluation of the  effectiveness of the
                  design and operation of the Company's  disclosure controls and
                  procedures  pursuant to Rule 13a-15  under the  Exchange  Act.
                  This evaluation was carried out under the supervision and with
                  the participation of the Company's management. Based upon that
                  evaluation,   the  Company's  management  concluded  that  the
                  Company's disclosure controls and procedures are effective.

                  In conducting  its review of disclosure  controls,  management
                  concluded that sufficient  disclosure  controls and procedures
                  did exist to ensure that information  required to be disclosed
                  in the Company's reports filed or submitted under the Exchange
                  Act is recorded, processed, summarized and reported within the
                  time periods specified in the SEC's rules and forms.


(b) Changes in internal controls.

                  The Company's  management is also responsible for establishing
                  and  maintaining  adequate  internal  control  over  financial
                  reporting. During the Company's last fiscal quarter, processes
                  were   implemented   to   monitor   overcollateralization   on
                  non-recourse   securitization  financing  to  more  accurately
                  predict  when  losses  will begin to be borne by  subordinated
                  bond  classes.  There were no other  changes in the  Company's
                  internal  control  over  financial  reporting   identified  in
                  connection  with  the  evaluation  that  occurred  during  the
                  Company's last fiscal quarter that materially affected, or are
                  reasonably  likely to materially  affect internal control over
                  financial reporting.


PART II.  OTHER INFORMATION


Item 1.  Legal Proceedings:

         None.


                                       13
<PAGE>

Item 5.  Other Information:

         None.


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

         a)       Exhibits

                  31.1     Certification of Principal Executive Officer pursuant
                           to  Section  302  of  the Sarbanes-Oxley Act of 2002.

                  31.2     Certification of Principal Financial Officer pursuant
                           to  Section  302  of  the Sarbanes-Oxley Act of 2002.

                  32.1     Certification of Principal Executive Officer pursuant
                           to  Section  906  of  the Sarbanes-Oxley Act of 2002.

                  32.2     Certification of Chief Financial  Officer pursuant to
                           Section 906 of the  Sarbanes-Oxley Act of 2002.


         b) Reports on Form 8-K

                  None.


                                       14
<PAGE>




I

                                   SIGNATURES


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

                                    MERIT SECURITIES CORPORATION




Dated:  May 21, 2004                By:    /s/ Stephen J. Benedetti
                                           -------------------------------------
                                           Stephen J. Benedetti
                                           President


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


<TABLE>
<CAPTION>
             Signature                                        Capacity                       Date


<S>                                                       <C>                                     <C>
/s/ Stephen J. Benedetti                        Principal Executive Officer/Director         May 21, 2004
--------------------------------------------
Stephen J. Benedetti


/s/ Kevin J. Sciuk                              Principal Financial Officer/Controller       May 21, 2004
--------------------------------------------
Kevin J. Sciuk
</TABLE>



                                       15
<PAGE>



                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
                                                                                              Sequentially
Exhibit                                                                                     Numbered Page

<S>                                       <C>                                                      <C>

31.1     Certification of Principal Executive Officer pursuant to
                        Section 302 of the Sarbanes-Oxley Act of 2002.                              I

31.2     Certification of Principal Financial Officer pursuant to
                        Section 302 of the Sarbanes-Oxley Act of 2002.                              II

32.1     Certification of Principal Executive Officer pursuant to
                        Section 906 of the Sarbanes-Oxley Act of 2002                               III

32.2     Certification of Chief Financial Officer pursuant to
                        Section 906 of the Sarbanes-Oxley Act of 2002.                              IV
</TABLE>




                                       16