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

                                    FORM 10-K

[x]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

                 For the fiscal year ended December 31, 2000

                                       OR

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

   For the transition period from __________________ to __________________

                         Commission file number: 0-21231

                                MATRIX BANCORP, INC.
                      (Exact name of registrant as specified in
                                    its charter)

       Colorado                                             84-1233716
    (State or other                                        (I.R.S. Employer
    jurisdiction of                                        Identification No.)
   incorporation or
     organization)

 1380 Lawrence Street, Suite 1400                                 80204
      Denver, Colorado                                          (Zip Code)
    (Address of principal
     executive offices)

      Registrant's telephone number, including area code: (303) 595-9898

       Securities registered pursuant to Section 12(b) of the Act: None

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

                   Common Stock, par value $.0001 per share
                                (Title of class)

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

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

   As of March 2, 2001, 6,525,904 shares of common stock were outstanding. The
aggregate market value of common stock held by non-affiliates of the registrant,
based on the closing sales price of such stock on the NASDAQ National Market on
March 1, 2001, was $23,967,808. For purposes of this computation, all
executive officers, directors and 10% beneficial owners of the registrant are
deemed to be affiliates. Such determination should not be deemed an admission
that such executive officers, directors and 10% beneficial owners are
affiliates.

DOCUMENTS INCORPORATED BY REFERENCE:

    Portions of the Company's definitive proxy statement for the Annual Meeting
of Shareholders to be held May 11, 2001 are incorporated by reference into Part
III of this Form 10-K.


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                                    TABLE OF CONTENTS                           Page
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                                         PART I

   Item 1.  Business...............................................................3
   Item 2.  Properties............................................................23
   Item 3.  Legal Proceedings.....................................................24
   Item 4.  Submission of Matters to a Vote of Security Holders...................26

                                         PART II

   Item 5.  Market for Registrant's Common Equity and Related Stockholder
            Matters...............................................................26
   Item 6.  Selected Financial Data...............................................27
   Item 7.  Management's Discussion and Analysis of Financial Condition and
            Results of Operations.................................................28
   Item 7A. Quantitative and Qualitative Disclosures about Market Risk............49
   Item 8.  Financial Statements and Supplementary Data...........................49
   Item 9.  Changes in and Disagreements With Accountants on Accounting and
            Financial Disclosure..................................................49

                                        PART III

   Item 10. Directors and Executive Officers of the Registrant....................49
   Item 11. Executive Compensation................................................49
   Item 12. Security Ownership of Certain Beneficial Owners and Management........49
   Item 13. Certain Relationships and Related Transactions........................49

                                         PART IV

   Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.......49



</TABLE>


<PAGE>
                                     PART I

Item 1.  Business

Matrix Bancorp, Inc.

     General. Matrix Bancorp, Inc. (occasionally referred to in this document,
on a consolidated basis, as "us," "we," the "Company" or similar terms), is a
unitary thrift holding company that, through our subsidiaries, focuses on
traditional banking, mortgage banking, trust and clearing activities and other
fee-based services and lending activities. Our traditional banking activities
include originating and servicing residential, commercial and consumer loans and
providing a broad range of depository services. Our mortgage banking activities
consist of purchasing and selling residential mortgage loans and residential
mortgage servicing rights; offering brokerage, consulting and analytical
services to financial services companies and financial institutions; servicing
residential mortgage portfolios for investors; originating residential
mortgages; and providing real estate management and disposition services. Our
trust and clearing activities focus primarily on the administration of
self-directed individual retirement accounts, qualified business retirement
plans and custodial and directed trust accounts, as well as offering specialized
custody and clearing services to banks, trust companies, broker-dealers, third
party administrators and investment professionals. Our other fee-based services
and lending activities include providing outsourced business services, such as
budgeting, governmental reporting, accounts payable, payroll, facility and
safety management and comprehensive insurance programs to charter schools. We
also offer financing to charter schools for the purchase of school sites and
equipment.

      Matrix Bancorp was incorporated in Colorado in June 1993 and was formerly
called "Matrix Capital Corporation." The trading symbol for our common stock on
the NASDAQ National Market is "MTXC."

The Subsidiaries

    Our core business operations are conducted through the seven operating
subsidiaries and an investment in a settlement and clearing operation described
below. See Note 22 to the consolidated financial statements included elsewhere
in this document for a presentation of financial information by industry
segment.

    Matrix Capital Bank. With its main office in Las Cruces, New Mexico, full
service branches in Sun City, Arizona and Las Cruces, New Mexico, and loan
offices in Phoenix, Arizona and Denver and Evergreen, Colorado, Matrix Bank
serves its local communities by providing a broad range of personal and business
depository services, offering residential loans and providing consumer and
commercial real estate loans, including Small Business Administration loans. For
a discussion of the depository services offered by Matrix Bank, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." For a discussion of the historical
loan portfolio of the Company, including that of Matrix Bank, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Asset
and Liability Management--Lending Activities."

    Matrix Bank holds the noninterest-bearing custodial escrow deposits related
to the residential mortgage loan portfolio serviced by Matrix Financial Services
Corporation, the interest-bearing money market accounts administered by Sterling
Trust Company and the deposits resulting from transactions in which Matrix Bank
acts as the clearing bank for clients of Matrix Settlement & Clearance Services,
L.L.C. These deposits, generated through activities of affiliates, as well as
other traditional deposits, are used primarily to fund bulk purchases of
residential mortgage loan portfolios throughout the United States, a substantial
portion of which are serviced for Matrix Bank by Matrix Financial following
their purchase. As of December 31, 2000, Matrix Bank had total assets of $1.3
billion.

     Matrix Bank and our other subsidiaries have significant experience in
purchasing and originating mortgage loans, have familiarity with real estate
markets throughout the United States and have traditionally had access to
relatively low-cost deposits. We believe that the resulting knowledge and
activities permit Matrix Bank to manage its funding and capital position in a
way that enhances its performance.

    Matrix Financial Services Corporation. Matrix Financial, which became a
direct, wholly owned subsidiary of Matrix Bank in August 2000, acquires mortgage
servicing rights on a nationwide basis through purchases in the secondary
market, services the loans underlying the mortgage servicing rights and
originates mortgage loans through its wholesale loan origination network.
<PAGE>

    As of December 31, 2000, Matrix Financial serviced 92,404 borrower accounts
representing $5.5 billion in principal balances, excluding $1.2 billion in
subservicing for companies that are unaffiliated with us. Many of these accounts
were seasoned loans having lower principal and higher custodial escrow balances
than newly originated mortgage loans. As a servicer of mortgage loans, Matrix
Financial is required to establish custodial escrow accounts for the deposit of
borrowers' payments. These custodial accounts are maintained at Matrix Bank. At
December 31, 2000, the custodial escrow accounts related to our servicing
portfolio maintained at Matrix Bank were $77.6 million.

    During 2000, Matrix Financial originated $512.5 million in residential
mortgage loans primarily through its regional wholesale production offices
located in Atlanta, Chicago, Dallas, Denver, Houston, Phoenix, Santa Ana and St.
Louis. The mortgage loans originated by Matrix Financial are typically sold in
the secondary market.

    United   Financial,   Inc.  United   Financial   provides   brokerage  and
consulting   services  to  financial   institutions  and  financial   services
companies in the mortgage banking industry.  These services include:

     o    the brokering and analysis of residential mortgage loan servicing
          rights and residential mortgage loans;

     o    corporate and mortgage loan servicing portfolio valuations, which
          includes the "mark-to-market" valuation and analysis required under
          Statements of Financial Accounting Standards No. 125 and No. 140;

     o    assisting companies with the development of mortgage loan servicing
          retention programs in lower interest rate environments; and

     o    to a lesser extent, consultation and brokerage services in connection
          with mergers and acquisitions of mortgage banking entities.

    United Financial provides brokerage services to the mortgage banking
entities of several of the nation's largest financial institutions. During 2000,
United Financial brokered the sale of 143 mortgage loan servicing portfolios
totaling $36.4 billion in outstanding mortgage loan principal balances.

    United Financial's volume of brokerage activity and the expertise of its
analytics department give us access to a wide array of information relating to
the mortgage banking industry, including emerging market trends, prevailing
market prices, pending regulatory changes and changes in levels of supply and
demand. Consequently, we are often able to identify certain types of mortgage
loan and mortgage loan servicing portfolios that are well suited to our
particular servicing platform, investment objectives and unique corporate
structure.

    Matrix Asset Management Corporation. Matrix Asset Management, formerly known
as United Special Services, Inc., provides nationwide real estate management and
disposition services on foreclosed properties owned by financial services
companies and financial institutions. In addition to the unaffiliated clients
currently served by Matrix Asset Management, Matrix Financial utilizes these
outsourced services offered by Matrix Asset Management exclusively in handling
the disposition of foreclosed real estate for which it is responsible. As of
December 31, 2000, Matrix Asset Management had approximately 950 foreclosed
properties under its management.

    Matrix Asset Management also provides limited collateral valuation opinions
to clients that are interested in assessing the value of the collateral
underlying mortgage loans, as well as to clients such as Matrix Bank and other
third party mortgage loan buyers evaluating potential bulk purchases of mortgage
loans.

     Sterling Trust Company. Sterling Trust, headquartered in Waco, Texas, was
incorporated in 1984 as a Texas non-bank trust company specializing in the
administration of self-directed individual retirement accounts, qualified
business retirement plans and custodial and directed trust accounts. As of
December 31, 2000, Sterling Trust administered approximately 39,200 accounts
with fiduciary assets under administration of over $3.8 billion, of which
approximately $121.4 million represented deposits under administration held at
Matrix Bank.

    First Matrix Investment Services Corporation. First Matrix is registered
with the NASD as a fully disclosed broker-dealer with its headquarters in Fort
Worth, Texas and a branch office in Denver, Colorado. First Matrix offers a wide
range of investment options for both individual and institutional investors,
including stocks, bonds, mutual funds and fixed income and debt securities.
Currently, First Matrix has over $100 million in assets under management. The
Fort Worth office focuses primarily on long-term investing and retirement
planning. The Denver office assists primarily financial
<PAGE>

institutions in managing their investment portfolios. Denver's client base
currently consists of more than 85 banks throughout the United States.

      ABS School Services, L.L.C. ABS provides outsourced business services to
charter schools. Charter schools are public schools that are an alternative to
traditional public schools. As of December 31, 2000, ABS was providing its
services to approximately 150 schools. The primary services offered include fund
accounting, cash management, budgeting, governmental reporting, payroll and
accounts payable. Additionally, ABS offers administrative and instructional
leadership, as well as consults with schools and offers assistance in the
following areas: facility and safety management, technology, policy development,
grant administration and comprehensive insurance programs. ABS also has a
financing division, which offers financing to charter schools for the purchase
of school sites and equipment.

     Matrix Settlement & Clearance Services, L.L.C. Much of our efforts to
expand our trust, custody and clearing services have centered on a recent joint
venture, Matrix Settlement & Clearance Services, in which we own a 45% equity
stake. Matrix Settlement & Clearance Services provides automated clearing of
mutual funds utilizing the National Securities Clearing Corporation's Fund/SERV
and Defined Contribution Clearance & Settlement platform for banks, trust
companies, third party administrators and registered investment advisors. For
the year ended December 31, 2000, Matrix Settlement & Clearance Services had
$1.5 million of revenues and a net loss of $955,000. We currently expect that
Matrix Settlement & Clearance Services will become a member of the NASD and a
registered broker-dealer, and we are currently evaluating our alternatives for
accomplishing this result.

     As of December 31, 2000, Matrix Settlement & Clearance Services had 33
clients under contract after its first full year of operations. These clients
administer approximately $8.9 billion in funds that would be eligible for
inclusion in the automated clearing environment of the National Securities
Clearing Corporation. Matrix Settlement & Clearance Services has developed
relationships with several Matrix Bancorp subsidiaries to assist in the
performance of services for its customers. For example, Matrix Bank is the
National Securities Clearing Corporation member, serves as the settlement bank
for Fund/SERV transactions and provides banking services for certain Matrix
Settlement & Clearance Services customers. This relationship helps generate
low-cost deposits for Matrix Bank. As of December 31, 2000, Matrix Settlement &
Clearance Services' clients had $25.9 million of deposits at Matrix Bank.

Sale of United Capital Markets, Inc.

     As previously disclosed, on August 1, 2000, we sold one of our wholly owned
subsidiaries, United Capital Markets, to an officer of that company. United
Capital Markets is a registered investment advisor that focuses on interest rate
management services for institutional clients.

Lending Activities

    Purchase and Sale of Bulk Loan Portfolios. In addition to our mortgage loan
origination and servicing-related activities, which are discussed under
"--Residential Mortgage Loan Origination" and "Mortgage Servicing Activities,"
respectively, we traditionally make bulk purchases of residential mortgage loans
in the secondary market through Matrix Bank. We believe that our structure
provides advantages over our competitors in the purchase of bulk mortgage loan
packages. In particular:

     o    United Financial, through its networking within the mortgage banking
          and financial services industries, is able to refer companies that are
          interested in selling mortgage loan portfolios directly to Matrix
          Bank. This direct contact reduces the number of portfolios that must
          be purchased through competitive bid situations, thereby reducing the
          cost associated with the acquisition of bulk residential mortgage loan
          portfolios.

     o    Matrix Bank's subsidiary, Matrix Financial, provides servicing
          advantages that a typical community bank does not possess. Matrix
          Financial acts as a subservicer for a majority of Matrix Bank's
          mortgage loan portfolio. Because Matrix Financial services loans
          throughout the entire United States, Matrix Bank can acquire various
          types of loans secured by property located in any of the fifty states.

     Substantially all of the residential mortgage loans that Matrix Bank
acquires are classified as held for sale. This accounting classification
requires Matrix Bank to carry the loans at the lower of aggregate cost or
market. The purchased loan portfolios typically include both fixed and
adjustable rate mortgage loans. Although Matrix Bank reviews many loan
portfolios for prospective acquisition, it focuses on acquiring seasoned first
lien priority loans secured primarily by one-to-four single-family residential
properties with unpaid principal balances of less than $350,000. To the extent
that adjustable rate loans are available, Matrix Bank generally targets
adjustable over fixed rate portfolios. Due to the accounting treatment required,
<PAGE>


we believe that the focus on seasoned and adjustable rate products is generally
expected to reduce the effect of rising interest rates on the portfolio's market
value.

     Matrix Bank purchases mortgage loan portfolios from various sellers who
have either originated the loans or, more typically, acquired the loan
portfolios in bulk purchases. Matrix Bank considers several factors prior to a
purchase. Among other factors, Matrix Bank considers the product type, the
current loan balance, the current interest rate

<PAGE>

environment, the seasoning of the mortgage loans, payment histories, geographic
location of the underlying collateral, price, the current liquidity of Matrix
Bank and the product mix in its existing mortgage loan portfolio.

    In some cases, the mortgage loan portfolios that Matrix Bank acquires are
purchased at yields that exceed market. Some of the loans in these portfolios
are considered performing loans that have had payment problems in the past or
have had document deficiencies. These types of portfolios afford Matrix Bank
with an opportunity to resell the loans at a higher price if the discount to
market on these portfolios accurately reflects the additional risks associated
with purchasing these types of loans. Loan document deficiencies are identified
in the due diligence process and, to the extent practical, are cured by Matrix
Bank prior to reselling the loans. Matrix Bank also analyzes the payment history
on each mortgage loan portfolio. Many prior problems may be a result of
inefficient servicing or may be attributable to several servicing transfers of
the loans over a short period of time. Because many considerations may impact
pricing or yield, Matrix Bank prices each loan package based on the specific
underlying loan characteristics.

     In the past, Matrix Bank has purchased nonperforming Federal Housing
Administration and Veteran's Administration loans from third party sellers. The
Department of Housing and Urban Development generally guarantees the majority of
principal and interest on these nonperforming loans. These loans are at fixed
rates and generally have a short average life as the loans are typically
liquidated through the foreclosure and claim process. As of December 31, 2000,
Matrix Bank owned $101.1 million of these loans.

     Matrix Bank performs due diligence on each mortgage loan portfolio that it
desires to purchase on a bulk basis. These procedures consist of analyzing a
representative sample of the mortgage loans in the portfolio and are typically
performed by Matrix Bank employees, but occasionally are outsourced to third
party contractors. The underwriter takes into account many factors and
statistics in analyzing the sample of mortgage loans in the subject portfolio,
including: the general economic conditions in the geographic area or areas in
which the underlying residential properties are located; the loan-to-value
ratios on the underlying loans; and the payment histories of the borrowers. In
addition, the underwriter attempts to verify that each sample loan conforms to
the standards for loan documentation set by Fannie Mae and Freddie Mac. In cases
where a significant portion of the sample loans contain non-conforming
documentation, Matrix Bank assesses the additional risk involved in purchasing
the loans. This process helps Matrix Bank determine whether the mortgage loan
portfolio meets its investment criteria and, if it does, the range of pricing
that is appropriate.

     As noted earlier, in August 2000, Matrix Financial became a direct, wholly
owned subsidiary of Matrix Bank. Prior to that time, Matrix Financial was a
direct, wholly owned subsidiary of Matrix Bancorp and accordingly, a "sister"
company of Matrix Bank. This new structure allows Matrix Bank to fund Matrix
Financial's residential loan production activities without the prior "affiliate"
restrictions imposed by Office of Thrift Supervision regulations. Much of the
Company's loan growth in late 2000 and projected loan growth in 2001 is due to
Matrix Financial's loan origination initiatives. See "--Residential Mortgage
Loan Origination" for additional discussion.

    Matrix Bank continually monitors the secondary market for purchases and
sales of mortgage loan portfolios and typically undertakes a sale of a
particular loan portfolio in an attempt to "match" an anticipated bulk purchase
of a particular mortgage loan portfolio or to generate current period earnings
and cash flow. To the extent that Matrix Bank is unsuccessful in matching its
purchases and sales of mortgage loans, Matrix Bank may have excess capital,
resulting in less leverage and higher capital ratios.

    During the year ended December 31, 2000, we made bulk purchases of mortgage
loans of approximately $225.9 million and made bulk sales of approximately
$108.5 million for a net gain on sale of bulk mortgage loans of $982,000.

    Residential Mortgage Loan Origination. We originate residential mortgage
loans on a wholesale basis through Matrix Financial and on a retail basis
through both Matrix Financial and Matrix Bank. Matrix Financial originated a
total of $512.5 million in residential mortgage loans for the year ended
December 31, 2000.

    Wholesale Originations. Matrix Financial's primary source of mortgage loan
originations is its wholesale division, which originates mortgage loans through
approved independent mortgage loan brokers. These brokers qualify to participate
in Matrix Financial's program through a formal application process that includes
an analysis of the broker's financial condition and sample loan files, as well
as the broker's reputation, general lending expertise and references. As of
December 31, 2000, Matrix Financial had approved relationships with
approximately 1,480 mortgage loan brokers. From Matrix Financial's offices in
Atlanta, Chicago, Dallas, Denver, Houston, Phoenix, Santa Ana and St. Louis, the
sales staff solicit mortgage loan brokers throughout the Southeastern, Western,
Midwestern and Rocky Mountain areas of the United
<PAGE>

States for mortgage loans that meet Matrix Financial's criteria. In January
2001, Matrix Financial opened an additional office in Sacramento.

    Mortgage loan brokers act as intermediaries between borrowers and Matrix
Financial in arranging mortgage loans. Matrix Financial, as an approved
seller/servicer for Fannie Mae, Freddie Mac, the Government National Mortgage
Association and a multitude of private investors, provides these brokers access
to the secondary market for the sale of mortgage loans that they otherwise
cannot access because they do not meet the applicable seller/servicer net worth
requirements. Matrix Financial attracts and maintains relationships with
mortgage loan brokers by offering a variety of services and products.

     To supplement our product offerings made through our wholesale loan
origination network, we offer a program tailored to borrowers who are unable or
unwilling to obtain mortgage financing from conventional mortgage sources. The
borrowers who need this type of loan product often have impaired or
unsubstantiated credit histories and/or unverifiable income and require or seek
a high degree of personalized service and swift response to their loan
applications. As a result, these borrowers generally are not averse to paying
higher interest rates for this loan product type, as compared to the interest
rates charged by conventional lending sources. We have established
classifications with respect to the credit profiles of these borrowers. The
classifications range from A- through D depending upon a number of factors,
including the borrower's credit history and employment status. During 2000,
Matrix Financial originated $97.7 million of A- through D credit residential
mortgage loans, the majority of which were sold to unaffiliated third party
investors on a nonrecourse basis under standard industry representations and
warranties. All current originations of A- through lesser quality credit loans
are originated under third party investor guidelines and are generally sold
monthly in bulk loan portfolios. This method of sale generally provides better
execution as compared to selling individual loans.

    In 2000, Matrix Financial acquired a servicing portfolio and production
platform in Missouri. The production platform specializes in the origination of
loans under a first-time home buyer program. Under this program, first-time home
buyers are able to obtain loans at rates that are generally below market. The
funding for the loans is available as a result of bond issues through various
state and local governmental units. As master servicer under the bond programs,
Matrix Financial purchases the loans from the originator, principally other
financial institutions or mortgage brokers. Once acquired by Matrix Financial,
the loans under the specific bond programs are packaged and Government National
Mortgage Association securities are issued to the bond trustees under the
programs.

     For strategic purposes, Matrix Financial's management has increased its
emphasis on wholesale originations through opening two new production offices in
2000 and another in January 2001, acquiring a servicing and production platform
and hiring additional administrative and production staff at existing offices.
In low or decreasing interest rate environments, increased loan origination
volumes, which generally result in increased fee income, can act as an economic
hedge against decreases in interest income and the decreasing value of mortgage
servicing portfolios caused by increased prepayments, which reduces revenues.

    Retail Originations.Matrix Bank originates residential loans on a retail
basis through its branches in Las Cruces, New Mexico and Sun City, Arizona. In
early 1997, Matrix Bank opened a lending office in Evergreen, Colorado. This
location primarily originates residential construction loans and commercial
loans in the local market place. We attempt to convert the construction loans
funded through the Evergreen office into permanent mortgage loans. The retail
loans originated by Matrix Bank consist of a broad range of residential loans,
at both fixed and adjustable rates, consumer loans and commercial real estate
loans.

    Matrix Financial has also developed a retention center that focuses on the
solicitation of our portfolio and others' owned servicing portfolios for
refinancing opportunities. The goal is to identify those mortgagees which are
likely to refinance and have them refinance with Matrix Financial. If the
borrower is from our servicing portfolio, we have effectively preserved a
portion of our servicing portfolio, as the borrower would have been likely to
refinance with another lender.

      Quality Control. We have a loan quality control process designed to ensure
sound lending practices and compliance with Fannie Mae, Freddie Mac and
applicable private investor guidelines. Prior to funding any wholesale or retail
loan, we perform a verbal or written verification of employment as required by
investor programs and utilize a detailed checklist to ensure accuracy of
documentation. In addition, on a monthly basis, we select 10% of all closed
loans for a detailed audit conducted by our own personnel or a third party
service provider. The quality control process entails performing a complete
underwriting review and independent re-verification of all employment
information, tax returns, source of down
<PAGE>

payment funds, bank accounts and credit. Furthermore, 10% of the audited loans
are chosen for an independent field review and standard factual credit report.
All discovered deficiencies in these audits are reported to our senior
management to determine trends and additional training needs. We then address
and cure all resolvable issues. We also perform a quality control audit on all
early payment defaults, first payment defaults and 60-day delinquent loans, the
findings of which are reported to the appropriate investor and/or senior
management.

    Sale of Originated Loans. We generally sell the residential mortgage loans
that we originate. Under ongoing programs established with Fannie Mae and
Freddie Mac, conforming conventional loans may be sold on a cash basis or pooled
by us and exchanged for securities guaranteed by Fannie Mae or Freddie Mac. We
then sell these securities to national or regional broker-dealers. Mortgage
loans sold to Fannie Mae or Freddie Mac are sold on a nonrecourse basis, except
for standard representations and warranties, so that foreclosure losses are
generally borne by Fannie Mae or Freddie Mac and not by us.

    We also sell nonconforming and conforming residential mortgage loans on a
nonrecourse basis to other secondary market investors. Nonconforming loans are
typically first lien mortgage loans that do not meet all of the agencies'
underwriting guidelines, and are originated instead for other institutional
investors with whom we have previously negotiated purchase commitments and for
which we occasionally pay a fee.

    We sell residential mortgage loans on a servicing-retained or
servicing-released basis. Certain purchasers of mortgage loans require that the
loan be sold to them servicing-released. We sell nonconforming loans on a
servicing-released basis and may sell conforming loans on a servicing-retained
or servicing-released basis. See "Mortgage Servicing Activities --Residential
Mortgage Loan Servicing."

     In connection with our residential mortgage loan originations and sales, we
make customary representations and warranties, similar in nature and scope to
those provided in connection with sales of mortgage servicing rights. Our
experience has been that giving such representations and warranties has not
resulted in material repurchases. However, there can be no assurance that we
will not be required to make a significant repurchase in the future or that
losses will not occur in the future due to the representations and warranties
issued.

    The sale of mortgage loans may generate a gain or loss for us. Gains or
losses result primarily from two factors. First, we may make a loan to a
borrower at a rate resulting in a price that is higher or lower than we would
receive if we had immediately sold the loan in the secondary market. These price
differences occur primarily as a result of competitive pricing conditions in the
primary loan origination market. Second, gains or losses may result from changes
in interest rates that result in changes in the market value of the mortgage
loans from the time that the price commitment is given to the borrower until the
time that the mortgage loan is sold to the investor. Net gains and losses on
originated loans sold are recorded in loan origination income.

    In order to hedge against the interest rate risk resulting from these timing
differences, we historically have committed to sell all closed originated
mortgage loans held for sale and a portion of the mortgage loans that are not
yet closed but for which the interest rate has been established, sometimes
referred to in this document as "pipeline loans." We adjust our net commitment
position daily either by entering into new commitments to sell or by buying back
commitments to sell depending upon our projection of the portion of the pipeline
loans that we expect to close. These projections are based on numerous factors,
including changes in interest rates and general economic trends. The accuracy of
the underlying assumptions bears directly upon the effectiveness of our use of
forward commitments and subsequent profitability. In addition, during the second
half of 2000, we began selling the majority of our pipeline loans, both
conforming and nonconforming, to third party investors on a best efforts basis.
By selling the loans on a best efforts basis, we significantly reduce our
hedging risk. The market value of loans committed for sale is determined based
on the related forward loan sale commitments. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations --Risk Sensitive
Assets and Liabilities" for information on our adoption of Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities.

    Commercial and Other Lending. We have sought to diversify and enhance the
yield of our loan portfolio by originating commercial and consumer loans and by
offering a full range of lending products to our customers. The Company offers a
variety of commercial loan products, including: single-family construction
loans; commercial real estate loans; business and Small Business Administration
loans; and financing to charter schools for the purchase of real estate and
equipment. Matrix Bank's loan production office in Evergreen, Colorado, a suburb
of Denver, principally originates
<PAGE>

single-family construction and commercial real estate loans. Matrix Bank's main
office in Las Cruces, New Mexico also originates a portion of these loans. ABS
performs underwriting and funding of financings for charter schools.

    Matrix Bank originates loans to builders for the construction of
single-family properties, and to a lesser extent, for the acquisition and
development of improved residential lots. Matrix Bank generally makes these
loans on commitment terms that last from nine to eighteen months and typically
adjust with the prime rate of interest. In many cases, the residential
properties have been pre-sold to the homeowner. It is generally considered that
construction lending involves a higher level of risk than secured lending on
existing properties because the properties securing construction loans are
usually more speculative and more difficult to evaluate and monitor.

    Matrix Bank generally limits its commercial lending to income-producing real
estate properties. The repayment of loans collateralized by income-producing
properties depends upon the successful operation of the related real estate
property and also on the credit and net worth of the borrower. Thus, repayment
is subject to the profitable operation of the borrower's business, conditions in
the real estate market, interest rate levels and overall economic conditions.
Loans on income-producing properties must generally meet internal underwriting
guidelines that include: a limit on the loan-to-value ratio of 75%; a review of
the borrower with regard to management talent, integrity, experience and
available financial resources; and, in most instances, a personal guarantee from
the borrower.

    In addition to origination, Matrix Bank also buys participations in
commercial real estate loans primarily from banks located in the Colorado
market. The loans that we acquire through participations are underwritten with
the same diligence and standards as though we were originating them directly.

    Matrix Bank's SBA division offers the following loan products: SBA 7a loans;
first trust deed loans under the SBA 504 program; first trust deed companion
loans, also known as "piggyback" loans; and Business and Industry Guaranteed
Loans offered through the United States Department of Agriculture. Matrix Bank
has received preferred lender status under the SBA program in the Denver,
Colorado market area. Preferred lender status allows Matrix Bank to approve
SBA-guaranteed loan applications without prior review from the SBA, thereby
accelerating the approval process for small business loan applications.
Preferred lenders also receive priority funding and service from the SBA. Matrix
Bank plans to apply for preferred lender status in other market areas such as
Arizona, New Mexico, Texas and Utah in 2001. During 2000, Matrix Bank originated
$27.7 million SBA loans.

     ABS offers financing to charter schools located primarily in Arizona,
Colorado, Florida and Texas for the purchase of real estate, modular space and
equipment. As previously mentioned, charter schools are public schools that
serve as an alternative to traditional public schools, thereby providing
additional academic choices for parents and students. The offered financing is
generally fully amortizing and completed on a tax-exempt basis. On occasion, we
also provide cash flow loans to charter schools. During 2000, we funded $30.5
million loans to charter schools and, as of December 31, 2000, we had a total of
$51.9 million loans to charter schools. Charter school financing involves
inherent risks such as:

     o    the loan-to-value ratio for real estate transactions can be as high as
          90% and for furniture, fixtures and equipment and modular space it is
          100%;

     o    there are no personal guarantees; and

     o    cash flow to service the financing is derived from the school's
          student count. If the school's student count decreases, or is less
          than projected, the school's ability to make scheduled payments on the
          financing may be impaired.

     In addition, Matrix Bank offers a variety of lending products to meet the
specific needs of its customers. These products include fully amortizing secured
installment loans, manufactured housing financing, credit card programs, home
equity loans, business loans and share loans. In addition to the secured
consumer loans, Matrix Bank extends unsecured loans, on a limited basis, to
qualified borrowers based on their financial statements and creditworthiness.
Matrix Bank originates the majority of its consumer lending within the Las
Cruces, New Mexico market area.
<PAGE>

Mortgage Servicing Activities

    Residential Mortgage Loan Servicing. We conduct our residential mortgage
loan servicing activities exclusively through Matrix Financial. At December 31,
2000, Matrix Financial serviced approximately $5.5 billion of mortgage loans,
excluding $1.2 billion subserviced for companies that are not affiliated with
us.

    Servicing mortgage loans involves a contractual right to receive a fee for
processing and administering loan payments. This processing involves collecting
monthly mortgage payments on behalf of investors, reporting information to those
investors on a monthly basis and maintaining custodial escrow accounts for the
payment of principal and interest to investors and property taxes and insurance
premiums on behalf of borrowers. These payments are held in custodial escrow
accounts at Matrix Bank. Matrix Bank invests this money in interest-earning
assets with returns that historically have been greater than could be realized
by Matrix Financial using the custodial escrow deposits as compensating balances
to reduce the effective borrowing cost on its warehouse credit facilities.

    As compensation for its mortgage servicing activities, Matrix Financial
receives servicing fees, plus any late charges collected from delinquent
borrowers and other fees incidental to the services provided. In the event of
default by the borrower, Matrix Financial receives no servicing fees until the
default is cured. At December 31, 2000, Matrix Financial's annual
weighted-average servicing fee was 0.40%.

     Servicing is provided on mortgage loans on a recourse or nonrecourse basis.
Our policy is to accept only a limited number of servicing assets on a recourse
basis. As of December 31, 2000, on the basis of outstanding principal balances,
less than 1% of our owned mortgage servicing contracts involved recourse
servicing. To the extent that servicing is done on a recourse basis, we are
exposed to credit risk with respect to the underlying loan in the event of a
repurchase. Additionally, many of our nonrecourse mortgage servicing contracts
owned require us to advance all or part of the scheduled payments to the owner
of the mortgage loan in the event of a default by the borrower. Many owners of
mortgage loans also require the servicer to advance insurance premiums and tax
payments on schedule even though sufficient escrow funds may not be available.
Therefore, we must bear the funding costs associated with making such advances.
If the delinquent loan does not become current, these advances are typically
recovered at the time of the foreclosure sale. Foreclosure expenses, which may
include legal fees or property maintenance, are generally not fully reimbursable
by Fannie Mae, Freddie Mac or the Government National Mortgage Association, for
which we provide significant amounts of mortgage loan servicing. As of December
31, 2000, we had advanced approximately $14.2 million in funds on behalf of
third party investors. For the Veteran's Administration loans sold and serviced
for the Government National Mortgage Association, which are sold on a
nonrecourse basis, the Veteran's Administration loan guarantees may not cover
the entire principal balance and, in that case, the Company is responsible for
the losses which exceed the Veteran's Administration's guarantee.

    Mortgage servicing rights represent a contractual right to service, and not
a beneficial ownership interest in, underlying mortgage loans. Failure to
service the loans in accordance with contract or other applicable requirements
may lead to the termination of the mortgage servicing rights and the loss of
future servicing fees. To date, there have been no terminations of mortgage
servicing rights by any mortgage loan owners because of our failure to service
the loans in accordance with our obligations.

    In order to track information on our servicing portfolio, Matrix Financial
utilizes a data processing system provided by Alltel Information Services, Inc.
Because Alltel is one of the largest mortgage banking service bureaus in the
United States, we believe that this system gives Matrix Financial capacity to
support expansion of our residential mortgage loan servicing portfolio.

    The following table sets forth certain information regarding the composition
of our mortgage servicing portfolio, excluding loans subserviced for others, as
of the dates indicated:
<TABLE>
<CAPTION>


                                                                                             As of December 31,
                                                                         -----------------------------------------------------------
                                                                               2000                1999                 1998
                                                                         -----------------    ----------------    ------------------
<S>                                                                          <C>                   <C>                 <C>
                                                                                                 (In thousands)
FHA insured/VA guaranteed residential.................................       $1,608,115             $ 926,179            $ 960,053
Conventional loans....................................................        3,764,586             4,891,809            4,338,308
Other loans...........................................................          145,262                71,727               59,368
                                                                          ---------------     ----------------      --------------
      Total mortgage servicing portfolio..............................       $5,517,963            $5,889,715           $5,357,729
                                                                          ===============     ================      ===============
Fixed rate loans......................................................       $4,346,813            $4,926,055           $4,234,349
Adjustable rate loans.................................................        1,171,150               963,660            1,123,380
                                                                         -----------------    -----------------     ---------------
      Total mortgage servicing portfolio..............................      $5,517,963            $5,889,715           $5,357,729
                                                                         =================    =================     ===============
</TABLE>

<PAGE>

     The following table shows the delinquency statistics for the mortgage loans
serviced by Matrix Financial, excluding loans subserviced for others, compared
with national average delinquency rates as of the dates presented. Delinquencies
and foreclosures for the mortgage loans serviced by us generally exceed the
national average due to high rates of delinquencies and foreclosures on certain
bulk loan and bulk servicing portfolios that we acquired at a discount. In
September 1999, we acquired a servicing portfolio with higher loan delinquency.
The majority of loans in that portfolio were in active bankruptcy or
foreclosure. This portfolio was responsible for the majority of the increase in
the percentage of our servicing portfolio that was delinquent at both December
31, 1999 and 2000.
<TABLE>
<CAPTION>


                                                  As of December 31,
                      ----------------------------------------------------------------------------------
                                        2000                                    1999
                      ----------------------------------------------------------------------------------
                                                   National                               National
                               Company            Average(1)            Company          Average(1)
                      ----------------------------------------------------------------------------------
                        Number      Percentage    Percentage     Number    Percentage    Percentage
                          of       of Servicing       of           of     of Servicing       of
                         Loans      Portfolio       Loans        Loans     Portfolio       Loans
                      --------------------------------------------------------------------------------
<S>                      <C>             <C>         <C>       <C>        <C>           <C>

Loans delinquent for:
   30-59 days........     5,214          5.64%        2.84%       4,079       4.50%        2.74%
   60-89 days........       992          1.07         0.64        1,120       1.24         0.63
   90 days and over..       530          0.58         0.56        2,426       2.68         0.56
                      ------------  ----------   ----------   ------------  -------   ----------
   Total
delinquencies........     6,736          7.29%        4.04%       7,625       8.42%        3.93%
                      ============  ==========   ==========   ============  =======   ==========
   Foreclosures......     1,027          1.11%        0.84%         905       1.00%        0.98%
                      ============  ==========   ==========   ============  =======   ==========


[Table Continued]

                               As of December 31,
                      -------------------------------------

                                    1998
                    ---------------------------------------
                                              National
                          Company            Average(1)
                     ---------------------------------------
                       Number      Percentage    Percentage
                         of       of Servicing       of
                        Loans      Portfolio       Loans
                     ---------------------------------------
 <S>                  <C>           <C>          <C>

Loans delinquent for:
   30-59 days........    3,120         3.98%        2.96%
   60-89 days........      612         0.78         0.68
   90 days and over..      712         0.91         0.60

   Total             ---------- ------------   ----------
delinquencies........    4,444         5.67%        4.24%
                     ========== ============   ==========
   Foreclosures......      727         0.93%        1.11%
                     ========== ============   ==========

</TABLE>

----------
[FN]
(1)   Source: Mortgage Bankers Association, "Delinquency Rates of 1- to 4-Unit
      Residential Mortgage Loans" (Seasonally Adjusted) (Data as of September
      30, 2000, December 31, 1999 and December 31, 1998, respectively. Data as
      of December 31, 2000 was not yet available).
</FN>

      The following table sets forth certain information regarding the number
and aggregate principal balance of the mortgage loans serviced by Matrix
Financial, including both fixed and adjustable rate loans, excluding loans
subserviced for others, at various interest rates:
<TABLE>
<CAPTION>

                                                                             As of December 31,
                        ------------------------------------------------------------------------------------
                                          2000                                      1999
                        ---------------------------------------- --------------------------------------------

<S>                         <C>        <C>               <C>           <C>       <C>             <C>
                                                    Percentage                                 Percentage
                          Number     Aggregate    of Aggregate     Number      Aggregate     of Aggregate
         Rate               of       Principal      Principal        of        Principal      Principal
                          Loans      Balance         Balance        Loans       Balance        Balance
                         ---------- -------------  -------------  -----------  ------------  --------------
                                                                          (Dollars in thousands)
Less than 7.00%........      6,317    $  474,596         8.60%         7,301  $    618,659        10.50%
  7.00%--7.99%.........     18,424     1,335,738        24.21         30,848     2,467,177        41.89
  8.00%--8.99%.........     27,691     1,801,131        32.64         28,620     1,822,777        30.95
  9.00%--9.99%.........     19,369     1,002,226        18.16         15,892       647,918        11.00
10.00%--10.99%..........    20,603       904,272        16.39          7,898       333,184         5.66
11.00%--11.99%..........        -             -            -              -             -            -
12.00% and over........         -             -            -              -             -            -
                        ----------- ------------   -----------    -----------    ----------  -----------
   Total...............     92,404    $5,517,963       100.00%        90,559  $  5,889,715       100.00%
                        =========== ============= ============   ============   =========== ============

[Table Continued]

                            ----------------------------------------
                                             1998
                            ----------------------------------------
                                                        Percentage
                              Number     Aggregate     of Aggregate
                                of       Principal       Principal
                              Loans       Balance         Balance
                            ----------------------------------------
<S>                         <C>           <C>             <C>
Less than 7.00%........     7,123   $    662,491       12.36%
  7.00%--7.99%.........    22,341      1,799,472       33.59
  8.00%--8.99%.........    26,702      1,859,471       34.71
  9.00%--9.99%.........    15,557        731,586       13.65
10.00%--10.99%..........    6,067        284,637        5.31
11.00%--11.99%..........       251          9,441       0.18
12.00% and over........       305         10,631        0.20
                         ----------  -------------  ----------
   Total...............    78,346   $  5,357,729      100.00%
                         ==========  =============  ==========
</TABLE>


      Loan administration fees decrease as the principal balance on the
outstanding loan decreases and as the remaining time to maturity of the loan
shortens. The following table sets forth certain information regarding the
remaining contractual maturity of the mortgage loans serviced by Matrix
Financial, excluding loans subserviced for others, as of the dates shown. The
changes in the remaining maturities as a percentage of unpaid principal between
2000, 1999 and 1998, as reflected below, are the result of acquisitions of
mortgage servicing rights completed during 2000 and 1999.
<TABLE>
<CAPTION>

                                                                               As of December 31,
                     -------------------------------------------------------------------------------------------
                                         2000                                          1999
                     --------------------------------------------- ---------------------------------------------
<S>                   <C>       <C>          <C>      <C>          <C>       <C>          <C>       <C>
                                                      Percentage                                    Percentage
                      Number   Percentage    Unpaid     Unpaid     Number   Percentage    Unpaid      Unpaid
                        of     of Number   Principal   Principal     of      of Number   Principal   Principal
      Maturity        Loans     of Loans     Amount     Amount      Loans    of Loans     Amount      Amount
                     -------  ----------  ----------  ----------  --------  ----------  ---------  -----------
                                                                             (Dollars in thousands)
  1--5 years....       19,489    21.09%     $  321,196     5.82%    34,990      38.64% $  1,043,559    17.72%
  6--10 years....      15,891    17.20         411,152     7.45     10,364      11.44       577,077     9.80
11--15 years.....      14,981    16.21         779,922    14.13      8,691       9.60       560,212     9.51
16--20 years.....      27,779    30.06       2,505,728    45.41     18,624      20.57     1,766,824    30.00
21--25 years.....       4,522     4.90         444,679     8.06      3,417       3.77       381,663     6.48
More than 25 years      9,742    10.54       1,055,286    19.13     14,473      15.98     1,560,380    26.49
                       ------   ------      ----------    -----     ------     ------  ------------  -------
   Total........       92,404   100.00%     $5,517,963   100.00%    90,559     100.00% $  5,889,715   100.00%
                       ======   ======       =========   ======     ======     ======  ============   ======


[Table Continued]

                   --------------------------------------------
                                   1998
                   --------------------------------------------
                                                       Percentage
                    Number       Percentage   Unpaid     Unpaid
                      of         of Number   Principal  Principal
                    Loans        of Loans     Amount     Amount
                   ---------     -------     ------     ------
 <S>                 <C>         <C>      <C>          <C>
  1--5 years....       9,478     12.10%  $  216,441      4.04%
  6--10 years....     21,320     27.21      943,428     17.61
11--15 years.....     10,231     13.06      534,187      9.97
16--20 years.....      7,870     10.04      545,628     10.18
21--25 years.....     12,524     15.99    1,184,562     22.11
More than 25 years    16,923     21.60    1,933,483     36.09
                     -------    -------   ----------   -------
   Total........      78,346    100.00%  $ 5,357,729   100.00%
                      ======    =======  ===========   ======

</TABLE>
<PAGE>


     Our servicing activity is diversified throughout all 50 states with
concentrations at December 31, 2000 in California, Texas, Missouri and Florida
of approximately 18.9%, 13.7%, 12.8% and 7.3%, respectively, based on aggregate
outstanding unpaid principal balances of the mortgage loans serviced.

     Acquisition of Servicing Rights. Our strategy with respect to mortgage
servicing focuses on acquiring servicing for which the underlying mortgage loans
tend to be more seasoned and to have higher interest rates, lower principal
balances and higher custodial escrow balances than newly originated mortgage
loans. We believe this strategy allows us to reduce our prepayment risk, while
allowing us to capture relatively high custodial escrow balances in relation to
the outstanding principal balance. During periods of declining interest rates,
prepayments of mortgage loans usually increase as homeowners seek to refinance
at lower interest rates, resulting in a decrease in the value of the servicing
portfolio. Mortgage loans with higher interest rates and/or higher principal
balances are more likely to result in prepayments since the cost savings to the
borrower from refinancing can be significant. Despite the strategy mentioned
above, we remain opportunistic in our acquisition philosophy. If higher balance,
less seasoned portfolios are available at our desired internal rate of return,
we may, from time to time, pursue such acquisitions.

    The following table shows quarterly and annual average prepayment rate
experience on the mortgage loans serviced by Matrix Financial, excluding loans
subserviced by and for others:


                                         For the Year Ended December 31,
                                        ------------------------------------
                                        2000(1)(4)   1999(2)(4)  1998(3)(4)
                                      -----------  ----------- -----------
          Quarter ended:
            December 31 ..........        12.50%       13.63%      28.36%
            September 30 .........        12.70        17.43       23.60
            June 30...............        12.70        24.70       21.53
            March 31..............        10.50        26.47       17.00
                                      -----------  ----------- -----------
          Annual average..........        12.10%       20.56%      22.62%
                                      ===========  =========== ===========

 -----------------
[FN]

(1)  These prepayment rates exclude prepayment experience for mortgage servicing
     rights subserviced for us by others of $447 million, $0, $16 million and $0
     for the quarters ended December 31, September 30, June 30, and March 31,
     2000, respectively.

(2)  These prepayment rates exclude prepayment experience for mortgage servicing
     rights subserviced for us by others of $0, $576 million, $1.0 billion and $
     238 million for the quarters ended December 31, September 30, June 30 and
     March 31, 1999, respectively.

(3)  These prepayment rates exclude prepayment experience for mortgage servicing
     rights subserviced for us by others of $930 million, $703 million, $0 and
     $1.3 billion for the quarters ended December 31, September 30, June 30, and
     March 31, 1998, respectively.

(4)  These prepayment rates do not include prepayments that resulted from us
     targeting our own servicing portfolio for refinance opportunities.
</FN>

     We acquire substantially all of our mortgage servicing rights in the
secondary market. The industry expertise of United Financial and Matrix
Financial allows us to capitalize upon inefficiencies in this market when
acquiring mortgage servicing rights. Prior to acquiring mortgaging servicing
rights, we analyze a wide range of characteristics of each portfolio considered
for purchase. This analysis includes projecting revenues and expenses and
reviewing geographic distribution, interest rate distribution, loan-to-value
ratios, outstanding balances, delinquency history and other pertinent
statistics. Due diligence is performed either by our employees or a designated
independent contractor on a representative sample of the mortgages involved. The
purchase price is based on the present value of the expected future cash flow,
calculated by using a discount rate, loan prepayment, default rate and other
assumptions that we consider to be appropriate to reflect the risk associated
with the investment. In 2000, we began to retain the mortgage servicing rights
generated from the origination of loans sold to the Government National Mortgage
Association. As of December 31, 2000, in terms of unpaid principal amount,
approximately $111 million of the mortgage servicing rights in our portfolio
were from loans originated and sold by Matrix Financial.

    Sales of Servicing Rights. We periodically sell our purchased mortgage
servicing portfolios and generally sell all mortgage servicing rights on new
loans that we originate, except as mentioned above with regard to loans sold to
the Government National Mortgage Association. These sales increase current
revenue, which is reflected in loan origination income for originated servicing
and gain on sale of servicing for purchased servicing, and generate cash at the
time of sale, but reduce future servicing fee income. We sold mortgage servicing
rights on loans that we originated having an aggregate principal amount of
$412.5 million during the year ended December 31, 2000. Periodically, we may
also sell purchased mortgage servicing rights to restructure our portfolio or
generate revenues. Purchased mortgage servicing rights were sold
<PAGE>

on loans having an aggregate principal amount of $1.1 billion during the year
ended December 31, 2000 for net gains of $2.6 million.

    We anticipate that we will continue to sell substantially all originated
mortgage servicing rights on new loans that we originate, except as noted above.
We also may sell purchased mortgage servicing rights. We intend to base
decisions regarding future mortgage servicing sales upon our cash requirements,
purchasing opportunities, capital needs, earnings and the market price for
mortgage servicing rights. During a quarter in which we sell purchased mortgage
servicing rights, reported income will tend to be greater than if we had not
made the sale during that quarter. Prices obtained for mortgage servicing rights
vary depending on servicing fee rates, anticipated prepayment rates, average
loan balances, remaining time to maturity, servicing costs, custodial escrow
balances, delinquency and foreclosure experience and purchasers' required rates
of return.

    In the ordinary course of selling mortgage servicing rights in accordance
with industry standards, we make certain representations and warranties to
purchasers of mortgage servicing rights. If a borrower defaults and there has
been a breach of representations or warranties and we have no third party
recourse, we may become liable for the unpaid principal and interest on
defaulted loans. In such a case, we may be required to repurchase the mortgage
loan and bear any subsequent loss on the loan. In connection with any purchases
of mortgage servicing rights that we make, we also are exposed to liability to
the extent that an originator or seller of the mortgage servicing rights is
unable to honor its representations and warranties. Historically, we have not
incurred material losses due to breaches of representations and warranties and
we do not anticipate any future material losses due to breaches of
representations and warranties; however, there can be no assurance that we will
not experience such losses.

    Hedging of Servicing Rights. Our investment in mortgage servicing rights is
exposed to potential impairment in certain interest rate environments. As
previously discussed, the prepayment of mortgage loans increases during periods
of declining interest rates as homeowners seek to refinance their loan to lower
interest rates. If the level of prepayment on segments of our mortgage servicing
portfolio reaches a level higher than we projected for an extended period of
time, the associated basis in the mortgage servicing rights may be impaired. To
mitigate this risk of impairment due to declining interest rates, we initiated a
hedging strategy during 1997 that uses a program of exchange-traded futures and
options. In terms of unpaid principal amount, we had hedged approximately 6.4%
of our servicing portfolio as of December 31, 2000. Through December 31, 2000,
our hedging program qualified for hedge accounting treatment based on a high
degree of statistical correlation and current accounting guidance. With the
required adoption of SFAS 133 on January 1, 2001, we will not attempt to qualify
for hedge accounting treatment due to the requirements in the standard that are
necessary to do so. Despite this, we have not made any changes to our hedging
program and, as such, we will have to record our outstanding derivatives at
their fair values on January 1, 2001, with subsequent changes in value
recognized in earnings. See additional information regarding the impact of SFAS
133 in Note 2 to the consolidated financial statements included elsewhere in
this document.

Brokerage, Consulting and Outsourcing Services

     Brokerage Services. United Financial operates as one of the nation's
leading full-service mortgage servicing and mortgage loan brokers. It is capable
of analyzing, packaging, marketing and closing transactions involving mortgage
servicing and loan portfolios and selected merger and acquisition transactions
for mortgage banking entities. United Financial markets its services to all
types and sizes of market participants, thereby developing diverse
relationships.

      Mortgage servicing rights are sold either on a bulk basis or a flow basis.
In a bulk sale, the seller identifies, packages and sells a portfolio of
mortgage servicing rights to a buyer in a single transaction. In a flow sale,
the seller agrees to sell to a specified buyer from time to time, at a
predetermined price, the mortgage servicing rights originated by the seller that
meet certain criteria. United Financial is capable of helping both buyers and
sellers with respect to bulk and flow sales of mortgage servicing rights.

      We believe that the client relationships developed by United Financial
through its national network of contacts with commercial banks, mortgage
companies, savings associations and other institutional investors represent a
significant competitive advantage and form the basis for United Financial's
national market presence. These contacts also enable United Financial to
identify prospective clients for our other subsidiaries and make referrals when
appropriate. See "--Consulting and Analytic Services."
<PAGE>

     The secondary market for purchasing and selling mortgage servicing rights
has become increasingly more active since its inception during the early 1980s.
Most institutions that own mortgage servicing rights have found that careful
management of these assets is necessary due to their susceptibility to interest
rate cycles, changing prepayment patterns of mortgage loans and fluctuating
earnings rates achieved on custodial escrow balances. Since companies must
capitalize originated mortgage servicing rights, management of mortgage
servicing assets has become even more critical. These management efforts,
combined with interest rate sensitivity of assets and the growth strategies of
market participants, create constantly changing supply and demand and,
therefore, constantly changing price levels in the secondary market for mortgage
servicing rights.

     The sale and transfer of mortgage servicing rights occurs in a market that
is inefficient and often requires an intermediary to match buyers and sellers.
Prices are unpublished and closely guarded by market participants, unlike most
other major financial secondary markets. This lack of pricing information
complicates an already difficult process of differentiating between servicing
product types, evaluating regional, economic and socioeconomic trends and
predicting the impact of interest rate movements. Due to its significant
contacts, reputation and market penetration, United Financial has access to
information on the availability of mortgage servicing portfolios, which helps it
bring interested buyers and sellers together.

       In addition, United Financial provides brokerage services to buyers and
sellers of all types of loan products. United Financial provides loan brokerage
services to both servicing brokerage clients and non-servicing brokerage
clients. During 2000, United Financial significantly enhanced its ability in the
areas of analyzing, brokering and acquisition of all loan products. This was
accomplished through hiring additional personnel and cross-training of existing
staff.

     Consulting and Analytic Services. United Financial continues to make
significant commitments to its analytics department, which has developed
expertise in helping companies implement and track their "mark-to-market"
valuations and analyses. United Financial has enhanced its existing valuation
models and has created a software program that can be customized to fit its
customers' many different needs and unique situations in performing valuations
and analyses. In addition, United Financial has the infrastructure and
management information system capabilities necessary to undertake the complex
analyses required by SFAS 125/SFAS 140. Many of the companies affected by the
implementation of SFAS 125/SFAS 140 have outsourced this function to a third
party rather than dedicate the resources necessary to develop systems for and
perform their own SFAS 125/SFAS 140 valuations.

     Because SFAS 125/SFAS 140 requires that mortgage servicing portfolios be
valued at the lower of cost or market value on a quarterly basis, active
management of servicing assets has become a critical component to holders of
mortgage servicing rights. Due to the risk of impairment of mortgage servicing
rights as a result of constantly changing interest rates and prepayment speeds
on the underlying mortgage portfolio, risk management of mortgage servicing
rights by holders of mortgage servicing rights portfolios, which typically takes
the form of hedging the portfolio, has become more prevalent. The SFAS 125/SFAS
140 "mark-to-market" analyses done by United Financial help clients assess which
of their portfolios of mortgage servicing rights are most susceptible to
impairment due to interest rate and prepayment risk.

      In 2000, United Financial expanded its analytic and consulting services to
include advisory services on business performance, including the risks and
rewards of various business lines, and loan retention programs.

     We believe that the services offered by the analytics department of United
Financial provide us with a competitive advantage in attracting and retaining
clients because we are able to offer financial services companies and financial
institutions a more complete package of services than our competitors. In
addition, United Financial is able to refer clients to Matrix Bank for financing
opportunities and bulk loan acquisitions and to Matrix Asset Management for real
estate management and disposition services. The full range of services offered
by United Financial and its affiliates further strengthens United Financial's
client relationships.

    Real Estate Management and Disposition Services. Matrix Asset Management,
formerly called United Special Services, recently changed its name to better
identify itself as affiliated with the Matrix family of companies. Matrix Asset
Management provides real estate management and disposition services on
foreclosed properties owned by financial services companies and financial
institutions across the United States. In addition to the unaffiliated clients
currently served by Matrix Asset Management, many of which are also clients of
United Financial, Matrix Financial uses Matrix Asset Management exclusively in
handling the disposition of foreclosed real estate for which it is responsible.
Having Matrix Asset Management, rather than Matrix Financial, provide this
service transforms the disposition process into a revenue generator for us,
since Matrix Asset Management typically collects a referral fee based on the
value of the foreclosed real
<PAGE>

estate from the real estate broker involved in the sale transaction. Because
Matrix Asset Management typically collects a portion of its fee from the real
estate broker, Matrix Asset Management is able to provide this disposition
service on an outsourced basis at a reduced cost to the mortgage loan servicer.
Matrix Asset Management is able to pass a portion of the cost of the disposition
on to the real estate broker because of the volume it generates.

    In addition, Matrix Asset Management provides limited collateral valuation
opinions to clients who are interested in assessing the value of the underlying
collateral on nonperforming mortgage loans, as well as to clients such as Matrix
Bank and other third party mortgage loan originators and buyers interested in
evaluating potential bulk purchases of mortgage loans.

    School Services. In addition to providing financing to charter schools as
mentioned in "Lending Activities --Commercial and Other Lending," ABS also
provides a wide variety of outsourced business and consulting services to
charter schools. The most basic services offered by ABS include fund accounting,
cash management, budgeting, governmental reporting and payroll and accounts
payable processing. Additionally, ABS consults with and offers programs to
charter schools in the following areas:

     o    facility and safety management;

     o    technology;

     o    policy development;

     o    grant administration; and

     o    comprehensive insurance coverage.

ABS also provides administrative and instructional leadership to some charter
schools by placing administrators on-site at the charter schools to take a
hands-on approach and work with the schools with regard to curriculum
development, special education and personnel management.

    The business services provided by ABS are integral to the financing
division, as these services allow ABS to use their knowledge of the school's
financial condition and the capability of the schools' operators to make
informed decisions in the underwriting of charter school financing. The services
also give ABS a significant advantage in the servicing and ongoing monitoring of
the schools, which we believe is imperative to the collection process and the
overall success of our financing efforts.

Self-Directed Trust, Custody and Clearing Activities

    Sterling Trust provides administrative services for self-directed individual
retirement accounts, qualified business retirement plans and personal custodial
accounts, as well as corporate escrow and paying agent services. In addition,
Sterling Trust offers specialized custody and clearing services to investment
professionals. These services are marketed on a nationwide basis to the
financial services industry, specifically broker-dealers, registered
representatives, financial planners and advisors, tax professionals, insurance
agents and investment product sponsors. The advantage offered by Sterling Trust
is the ability to hold a wide array of publicly-traded investments, as well as
nonstandard assets and private placement offerings.

    Sterling Trust does not offer financial planning or advising services, nor
does it recommend, sell or solicit any investments. Sterling Trust acts only as
a directed custodian and is not affiliated with any investment. It has always
been Sterling Trust's mission to keep this independence to ensure that high
quality services are offered without any conflicting interests. Sterling Trust
executes no investment transaction without the direction of the account holder
or the account holder's authorized representative.

     At December 31, 2000, Sterling Trust had assets under administration of
over $3.8 billion.

      Individual Retirement Account Services. Account holders have complete
control in the selection and management of all investments. Because investment
decisions are involved, account holders may choose to appoint their financial
planner, stockbroker or other individual to be their authorized representative.
The advantages offered by a Sterling Trust self-directed IRA include the freedom
to hold a wide array of investments and the convenience of consolidation.
<PAGE>

    A Sterling Trust self-directed IRA offers the ability to invest in all types
of publicly-offered investments such as mutual funds, stocks, annuities and
limited partnerships. In addition, a Sterling Trust IRA allows an account holder
to hold nonstandard investments such as real estate, trust deeds and promissory
notes, as well as private placement offereings of closely-held stock, limited
partnerships, limited liability companies and debt instruments. With this high
degree of investment flexiblity, a Sterling Trust self-directed IRA may enable
account holders to meet their retirement objectives.

    With a Sterling Trust self-directed IRA, several IRA accounts may be
consolidated into one IRA. This consolidation may potentially reduce
administrative fees, as well as save account holders time spent managing their
investments. Sterling Trust's quarterly statements allow account holders to view
their IRA holdings on one comprehensive, easy-to-read statement.

    Qualified Business Retirement Plan Services. Sterling Trust offers quality
record keeping and administration services on 401(k) plans, profit sharing
plans, money purchase pension plans and other types of defined contribution and
defined benefit plans. Prototype plan documents that provide cost-effective
compliance with the tax codes are available for employers of all sizes, from
sole proprietors to large corporations.

    Sterling Trust's qualified business retirement plans are designed to allow
the employer to choose the level of service needed, from simple bookkeeping and
government reporting, to complete, comprehensive services. No matter what level
of service an employer selects, Sterling Trust offers complete independence from
investment products, which allows the employer to choose among a full range of
investment options.

    In addition to choosing a plan that meets their service needs and provides
investment flexibility, the employer can also select from among a wide range of
plan features, which include daily valuation, participant loans, integration
with social security and the ability to hold life insurance within the plan.

    Custodial Services. Sterling Trust offers custodial services on both
qualified business retirement plans and personal custodial accounts. Custodial
services are also offered on 403(b) plans. By using Sterling Trust's custodial
services, individuals and businesses nationwide can monitor and track all
investments held within their portfolio. Sterling Trust will execute trades at
the direction of the account holder, hold title to the assets as custodian,
receive and process periodic reports and earnings and then summarize this
activity on quarterly account statements. At year-end, all tax reporting data is
prepared and sent to the account holder for income tax preparation purposes.
Custodial accounts are provided the same investment flexibility as that which is
offered on other types of accounts.

    Corporate Trust/Escrow Services. Sterling Trust offers escrow and paying
agent services for a variety of business transactions, primarily to investment
product sponsors. Sterling Trust will provide escrow and/or paying agent
services under service agreements, provided that it has no discretion with
regard to the investment of assets. Typical administrative services include
holding funds in escrow, maintenance of investor records and processing of fund
disbursements in accordance to the service agreement.

     Clearing Services. Matrix Settlement & Clearance Services, our joint
venture, provides automated clearing of mutual funds utilizing the National
Securities Clearing Corporation's Fund/SERV and Defined Contribution Clearance &
Settlement platform for banks, trust companies, third party administrators and
registered investment advisors. In performing services for its customers, Matrix
Settlement & Clearance Services generates low-cost deposits and trust and
custodial fees for the Company. As of December 31, 2000, Matrix Settlement &
Clearance Services had 33 clients under contract with those clients
administering approximately $8.9 billion in funds that would be eligible for
inclusion in the automated clearing environment of the National Securities
Clearing Corporation.

Competition

      We compete for the acquisition of mortgage servicing rights and bulk loan
portfolios mainly with mortgage companies, savings associations, commercial
banks and other institutional investors. We believe that we have competed
successfully for the acquisition of mortgage servicing rights and bulk loan
portfolios by relying on the advantages provided by our unique corporate
structure and the secondary market expertise of our employees.

    We believe that Matrix Bank's most direct competition for deposits comes
from local financial institutions. Customers distinguish between market
participants based primarily on price and, to a lesser extent, the quality of
customer service and name recognition. Matrix Bank's cost of funds fluctuates
with general market interest rates. During certain interest rate environments,
we expect additional significant competition for deposits from corporate and
governmental debt
<PAGE>

securities, as well as from money market mutual funds. Matrix Bank competes for
conventional deposits by emphasizing quality of service, extensive product lines
and competitive pricing.

     For mortgage loan and mortgage servicing rights brokerage and consulting,
we compete mainly with other mortgage banking consulting firms and national and
regional investment banking companies. We believe that the customers distinguish
between market participants based primarily on customer service. United
Financial competes for its brokerage and consulting activities by:

     o    recruiting qualified and experienced sales people;

     o    developing innovative sales techniques;

     o     offering superior analytical services;

     o    providing financing opportunities to its customers through its
          affiliation with Matrix Bank; and

     o    seeking to provide a higher level of service than is furnished by its
          competitors.

    In originating mortgage loans, Matrix Financial and Matrix Bank compete
mainly with other mortgage companies, finance companies, savings associations
and commercial banks. Customers distinguish among market participants based
primarily on price and, to a lesser extent, the quality of customer service and
name recognition. Aggressive pricing policies of our competitors, especially
during a declining period of mortgage loan originations, could in the future
result in a decrease in our mortgage loan origination volume and/or a decrease
in the profitability of our loan originations, thereby reducing our revenues and
net income. We compete for loans by offering competitive interest rates and
product types and by seeking to provide a higher level of personal service to
mortgage brokers and borrowers than is furnished by our competitors. However, we
do not have a significant market share of the lending markets in which we
conduct operations.

    Sterling Trust faces considerable competition in all of the services and
products that it offers, mainly from other self-directed trust companies and
broker-dealers. Sterling Trust also faces competition from other trust companies
and trust divisions of financial institutions. Sterling Trust's niche has been,
and will continue to be, providing high quality customer service and servicing
nonstandard retirement products. In an effort to increase market share, Sterling
Trust will endeavor to provide superior service, offer technologically advanced
solutions, expand its marketing efforts, provide competitive pricing and
continue to diversify its product mix.

    Matrix Asset Management competes against other companies that specialize in
providing real estate management and disposition services on foreclosed
property. Additionally, clients or potential clients that opt to perform these
services in-house diminish Matrix Asset Management's market.

    ABS competes with other outsourcing companies and Educational Management
Organizations, as well as schools that prefer to perform the services offered by
ABS in-house.

Employees

    At December 31, 2000, the Company had 735 employees. We believe that our
relations with our employees are good. The Company is not party to any
collective bargaining agreement.

Regulation and Supervision

      Set forth below is a brief description of various laws and regulations
affecting our operations. The description of laws and regulations contained in
this document does not purport to be complete and is qualified in its entirety
by reference to applicable laws and regulations.

    Any change in applicable laws, regulations or regulatory policies may have a
material effect on our business, operations and prospects.

    Matrix Bancorp. We are a unitary savings and loan holding company within the
meaning of the Home Owners' Loan Act of 1933. As such, we have registered with
the Office of Thrift Supervision and are subject to Office of Thrift Supervision
regulation, examination, supervision and reporting requirements. In addition,
the Office Thrift Supervision
<PAGE>
has enforcement authority over us and our savings association and non-savings
association subsidiaries. Among other things, this authority permits the Office
of Thrift Supervision to restrict or prohibit activities that are determined to
be a serious risk to the financial safety, soundness or stability of our
subsidiary savings institution, Matrix Bank. In addition, Matrix Bank must
notify the Office of Thrift Supervision at least 30 days before making any
capital distribution to us.

    As a unitary savings and loan holding company, we generally are not
restricted under existing laws as to the types of business activities in which
we may engage, provided that Matrix Bank continues to be a "qualified thrift
lender" under the Home Owners' Loan Act. To maintain its status as a qualified
thrift lender, Matrix Bank must maintain a minimum percentage of its assets in
qualified thrift investments unless the Office of Thrift Supervision grants an
exception to this requirement. In general, qualified thrift investments include
certain types of residential mortgage loans and mortgage-backed securities. Upon
any nonsupervisory acquisition by us of another savings association or of a
savings bank or a cooperative bank that is an insured bank that meets the
qualified thrift lender test and is deemed to be a savings association by the
Office of Thrift Supervision, we would become a multiple savings and loan
holding company if the acquired institution is held as a separate subsidiary.
Multiple savings and loan holding companies are subject to extensive limitations
on the types of business activities in which they may engage. The Home Owners'
Loan Act limits the activities of a multiple savings and loan holding company
and its uninsured institution subsidiaries primarily to activities permissible
for bank holding companies under Section 4(c)(8) of the Bank Holding Company Act
of 1956, subject to the prior approval of the Office of Thrift Supervision, and
activities authorized by Office of Thrift Supervision regulation. In addition,
if Matrix Bank fails to maintain its status as a qualified thrift lender, the
Home Owners' Loan Act would limit the types of business activities in which we
may engage to those permissible for a multiple savings and loan holding company,
and, except in limited circumstances, it would impose significant limitations on
the types of activities in which Matrix Bank would be permitted to engage, on
the ability of Matrix Bank to establish additional branch offices and on the
types of investments that Matrix Bank would be permitted to make and retain.

    Federal law imposes limitations on who may control us. Specifically, the
Change in Bank Control Act prohibits a person or group of persons from acquiring
control of a savings association directly, or indirectly by acquiring control of
a savings and loan holding company, unless the Office of Thrift Supervision has
been given 60 days prior written notice of the proposed acquisition and within
that time the Office of Thrift Supervision has not issued a notice disapproving
the proposed acquisition or extending for up to another 30 days the period
during which the Office of Thrift Supervision may issue such a disapproval. The
Office of Thrift Supervision may further extend the disapproval period under
certain circumstances. A proposed acquisition may be made prior to the
expiration of the disapproval period if the Office of Thrift Supervision issues
written notice of its intent not to disapprove the action.

    Notwithstanding the above, except in certain limited circumstances, the Home
Owners' Loan Act also requires that any "company" obtain the prior approval of
the Office of Thrift Supervision prior to acquiring control of a savings
association directly or indirectly by acquiring control of a savings and loan
holding company. In considering whether to approve such an acquisition, the
Office of Thrift Supervision must consider a number of factors, including: the
financial and managerial resources and future prospects of the acquirer and the
savings association involved, the effect of the acquisition on the savings
association, the insurance risk to the deposit insurance funds of the Federal
Deposit Insurance Corporation and the convenience and needs of the community to
be served. The Office of Thrift Supervision may not approve a proposed
acquisition which would result in a monopoly, or which would be in furtherance
of any combination or conspiracy to monopolize or attempt to monopolize the
savings and loan business in any part of the United States. The Office of Thrift
Supervision also may not approve any proposed acquisition the effect of which in
any part of the United States may be substantially to lessen competition, or
tend to create a monopoly, or which in any other manner would be in restraint of
trade, unless the Office of Thrift Supervision finds that the anticompetitive
effects of the proposed acquisition are clearly outweighed in the public
interest by the probable effect of the acquisition in meeting the convenience
and needs of the community to be served.

    Among other circumstances, under a conclusive presumption established by the
Office of Thrift Supervision regulations, an acquirer will be deemed to have
acquired control of a savings and loan holding company if the acquirer, directly
or indirectly, through one or more subsidiaries or transactions, or acting in
concert with one or more persons or companies, acquires control of more than 25
percent of any class of voting stock of the savings and loan holding company or
controls in any manner the election of a majority of the board of directors of
the savings and loan holding company. The Office of Thrift Supervision
regulations also establish other presumptions of control with respect to
acquisitions of interest in savings and loan holding companies.
<PAGE>

    Gramm-Leach-Bliley. The Gramm-Leach-Bliley Act of 1999 (otherwise known as
the "Financial Services Modernization Act") eliminated many federal and state
law barriers to affiliations among banks, securities firms, insurance companies
and other financial service providers. The law revised and expanded the Bank
Holding Company Act framework to permit a holding company structure to engage in
a full range of financial activities through a new entity known as a "Financial
Holding Company." "Financial activities" is broadly defined to include not only
banking, insurance and securities activities, but also merchant banking and
additional activities that the Federal Reserve Board, in consultation with the
Secretary of the Treasury, determined to be financial in nature, incidental to
such financial activities, or complementary activities that do not pose a
substantial risk to the safety and soundness of depository institutions or the
financial system generally.

    The Financial Services Modernization Act prohibits unitary savings and loan
holding companies formed after May 4, 1999 from engaging in nonfinancial
activities, and also prohibits purchase of unitary thrift holding companies by
commercial firms. The Financial Services Modernization Act grandfathers any
company that was a unitary savings and loan holding company on May 4, 1999 (or
has or will become a unitary savings and loan holding company pursuant to an
application pending on that date). Such a company may continue to operate under
present law as long as the company continues to control only one savings
institution, excluding supervisory acquisitions, and each controlled institution
must meet the qualified thrift lender test. It further requires that a
granfathered unitary savings and loan holding compnay must continue to control
at least one savings association, or a successor institution, that it controlled
on May 4, 1999.

    We are a grandfathered unitary savings and loan holding company. The
Financial Services Modernization Act has not had a material adverse effect on
our operations. However, the act permits banks, securities firms and insurance
companies to affiliate. This has continued a trend in the financial services
industry toward further consolidation. The Financial Services Modernization Act
could result in an increasing amount of competition from larger institutions and
other types of companies offering financial products, many of which may have
substantially more financial resources. In addition, the Financial Services
Modernization Act may have an anti-takeover effect because it may tend to limit
our attractiveness as an acquisition candidate to other savings and loan holding
companies and Financial Holding Companies.

    The Office of Thrift Supervision is proposing to require certain savings and
loan holding companies to notify the Office of Thrift Supervision 30 days before
undertaking certain significant new business activities. According to the Office
of Thrift Supervision, the notice will enable the agency to assess the potential
impact on the risk profile of the consolidated entity and subsidiary thrifts.
The Office of Thrift Supervision also seeks comment on its proposal to codify
its current practices for reviewing the capital adequacy of savings and loan
holding companies and, when necessary, requiring additional capital on a
case-by-case basis. The Office of Thrift Supervision could object to or
conditionally approve an activity or transaction if it finds a material risk to
the safety and soundness and stability of the thrift. It is possible that such
regulations, if adopted, would impose time delays and potential increased
capital costs to the operations of Matrix Bank.

    Federal Savings Bank Operations. Matrix Bank is subject to extensive
regulation, examination and supervision by the Office of Thrift Supervision, as
its chartering authority and primary regulator, and potentially by the Federal
Deposit Insurance Corporation, which insures its deposits up to applicable
limits. Such regulation and supervision:

     o    establishes a comprehensive framework of activities in which Matrix
          Bank can engage;

     o    limits the types and amounts of investments permissible for Matrix
          Bank;

     o    limits the ability of Matrix Bank to extend credit to any given
          borrower;

     o    imposes specified liquidity requirements;

     o    significantly limits the transactions in which Matrix Bank may engage
          with its affiliates;

     o    requires Matrix Bank to meet a qualified thrift lender test that
          imposes a level of portfolio assets in which Matrix Bank must invest
          in qualified thrift investments, which include primarily residential
          mortgage loans and related investments;

     o    places limitations on capital distributions by savings associations
          such as Matrix Bank, including cash dividends;

     o    imposes assessments to the Office of Thrift Supervision to fund its
          operations;
<PAGE>

     o    establishes a continuing and affirmative obligation, consistent with
          Matrix Bank's safe and sound operation, to help meet the credit needs
          of its community, including low and moderate income neighborhoods;

     o    requires Matrix Bank to maintain certain noninterest-bearing reserves
          against its transaction accounts;

     o    establishes various capital categories resulting in various levels of
          regulatory scrutiny applied to the institutions in a particular
          category; and

     o    establishes standards for safety and soundness.

    Matrix Bank must submit annual audit reports prepared by independent
auditors to federal and state regulators. Auditors must receive examination
reports, supervisory agreements and reports of enforcement actions. In addition,
an attestation by the auditor regarding the statements of management relating to
the internal controls must be submitted to the Office of Thrift Supervision. The
audit committees of such institutions must include members with experience in
banking or financial management, must have access to outside counsel and must
not include representatives of large customers. The regulatory structure is
designed primarily for the protection of the insurance fund and depositors. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities. Any change in
these regulations, whether by the Office of Thrift Supervision, the Federal
Deposit Insurance Corporation or Congress, could have a material impact on
Matrix Bank and its operations.

    Transactions with Affiliates. Under current federal law, Sections 23A and
23B of the Federal Reserve Act govern transactions between depository
institutions and their affiliates. These provisions are made applicable to
savings associations such as Matrix Bank by the Home Owners' Loan Act. In a
holding company context, in general, the parent holding company of a savings
association and any companies that are controlled by the parent holding company
are affiliates of the savings association. In addition, any companies that are
sponsored and advised on a controlled basis by a savings association or its
affiliates and any investment companies to which a savings association or its
affiliates act as investment advisors are deemed to be affiliates. Section 23A
limits the extent to which the savings association or its subsidiaries may
engage in certain transactions with its affiliates. These transactions include,
among other things, the making of loans or other extensions of credit to an
affiliate and the purchase of assets from an affiliate. Generally, these
transactions between the savings association and any one affiliate cannot exceed
10% of the savings association's capital stock and surplus, and these
transactions between the savings institution and all of its affiliates cannot,
in the aggregate, exceed 20% of the savings institution's capital stock and
surplus. Section 23A also establishes specific collateral requirements for loans
or extensions of credit to an affiliate, and for guarantees or acceptances on
letters of credit issued on behalf of an affiliate. Section 23B requires that
transactions covered by Section 23A and a broad list of other specified
transactions be on terms and under circumstances substantially the same, or no
less favorable to the savings association or its subsidiary, as similar
transactions with non-affiliates. In addition to the restrictions on
transactions with affiliates that Sections 23A and 23B of the Federal Reserve
Act impose on depository institutions, the regulations of the Office of Thrift
Supervision also generally prohibit a savings association from purchasing or
investing in securities issued by an affiliate. Matrix Bank engages in
transactions with its affiliates, which are structured with the intent of
complying with these regulations.

    Insurance of Accounts and Regulation by the Federal Deposit Insurance
Corporation. Matrix Bank is a member of the Savings Association Insurance Fund,
which is administered by the Federal Deposit Insurance Corporation. The deposits
of Matrix Bank are insured up to $100,000 per depositor by the Federal Deposit
Insurance Corporation. This insurance is backed by the full faith and credit of
the United States. As insurer, the Federal Deposit Insurance Corporation imposes
deposit insurance assessments and is authorized to conduct examinations of and
to require reporting by institutions insured by the Federal Deposit Insurance
Corporation. It also may prohibit any Federal Deposit Insurance
Corporation-insured institution from engaging in any activity the Federal
Deposit Insurance Corporation determines by regulation or order to pose a
serious risk to the Federal Deposit Insurance Corporation. The Federal Deposit
Insurance Corporation also may initiate enforcement actions against savings
associations and may terminate the deposit insurance if it determines that the
institution has engaged or is engaging in unsafe or unsound practices, or is in
an unsafe or unsound condition.

    The Federal Deposit Insurance Corporation Improvement Act of 1991 required
the Federal Deposit Insurance Corporation to implement a risk-based deposit
insurance assessment system. Under this risk-based assessment system, all
depository associations insured by the Savings Association Insurance Fund are
placed into one of nine categories and assessed based upon their level of
capital and supervisory evaluation. Under this system, associations classified
as well capitalized and considered healthy pay the lowest assessment, which is
currently 0 basis points (or, hundredths of one
<PAGE>

percent), while associations that are less than adequately capitalized and
considered of substantial supervisory concern pay the highest assessment, which
is currently 27 basis points. Matrix Bank currently qualifies for the lowest
assessment rate. In addition, under the Federal Deposit Insurance Corporation
Improvement Act, the Federal Deposit Insurance Corporation may impose special
assessments on Savings Association Insurance Fund members to repay amounts
borrowed from the United States Treasury or for any other reason deemed
necessary by the Federal Deposit Insurance Corporation. The Federal Deposit
Insurance Corporation may increase assessment rates, on a semiannual basis, if
it determines that the reserve ratio of the Savings Association Insurance Fund
will be less than the designated reserve ratio of 1.25% of deposits insured by
the Savings Association Insurance Fund. In setting these increased assessments,
the Federal Deposit Insurance Corporation must seek to restore the reserve ratio
to that designated reserve level, or such higher reserve ratio as established by
the Federal Deposit Insurance Corporation.

     The Financing Corporation is a government agency-sponsored entity that was
formed to borrow the money necessary to carry out the closing and ultimate
disposition of failed thrift institutions by the Resolution Trust Corporation.
Matrix Bank's portion of the payment on the Financing Corporation bonds was
 .0202% of deposits for the fourth quarter of 2000 and will be .0196% of the
deposits for the first quarter of 2001.

    The financing corporations created by the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 and the Competitive Equality Banking Act of
1987 are also empowered to assess premiums on savings associations to help fund
the liquidation or sale of troubled associations. Such premiums cannot, however,
exceed the amount of Savings Association Insurance Fund assessments and are paid
in lieu thereof.

     Brokered Deposits. Under the Federal Deposit Insurance Corporation
regulations governing brokered deposits, well capitalized associations, such as
Matrix Bank, are not subject to brokered deposit limitations, while adequately
capitalized associations are subject to certain brokered deposit limitations and
undercapitalized associations may not accept brokered deposits. At December 31,
2000, Matrix Bank had $203.6 million of brokered deposits. In the event Matrix
Bank is not permitted to accept brokered deposits in the future, it would have
to find replacement sources of funding. It is possible that such alternatives,
if available, would result in a higher cost of funds.

    Matrix Bank's Capital Ratios. Federal law requires, among other things, that
federal bank regulatory authorities take "prompt corrective action" with respect
to savings institutions that do not meet minimum capital requirements. For these
purposes, the law establishes five categories: well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized and critically
undercapitalized.

      The Office of Thrift Supervision has adopted regulations to implement the
prompt corrective action legislation. An institution is deemed to be:

     o    "well capitalized" if it has a total risk-based capital ratio of 10%
          or greater and a leverage ratio of 5% or greater;

     o    "adequately capitalized" if it has a total risk-based capital ratio of
          8% or greater, a Tier I risk-based capital ratio of 4% or greater and
          generally a leverage ratio of 4% or greater;

     o    "undercapitalized" if it has a total risk-based capital ratio of less
          than 8%, a Tier I risk-based capital ratio of less than 4%, or
          generally a leverage ratio of less than 4%;

     o    "significantly undercapitalized" if it has a total risk-based capital
          ratio of less than 6%, a Tier I risk-based capital ratio of less than
          3%, or a leverage ratio of less than 3%; and

     o    "critically undercapitalized" if it has a ratio of tangible equity (as
          defined in the regulations) to total assets that is equal to or less
          than 2%.

    As of December 31, 2000, Matrix Bank was a "well capitalized" institution.

    "Undercapitalized" institutions must adhere to growth, capital distribution
and dividend and other limitations and are required to submit a capital
restoration plan with the Office of Thrift Supervision within 45 days after an
association receives notice of such undercapitalization. A savings institution's
compliance with its capital restoration plan is required to be guaranteed by any
company that controls the "undercapitalized" institution in an amount equal to
the lesser of 5% of total assets when deemed "undercapitalized" or the amount
necessary to achieve the status of "adequately capitalized." If
<PAGE>

an "undercapitalized" savings institution fails to submit an acceptable plan, it
is treated as if it is "significantly undercapitalized." "Significantly
undercapitalized" institutions must comply with one or more of a number of
additional restrictions, including an order by the Office of Thrift Supervision
to sell sufficient voting stock to become "adequately capitalized," requirements
to reduce total assets and cease receipt of deposits from correspondent banks or
dismiss directors or officers, and restriction on interest rates paid on
deposits, compensation of executive officers and capital distributions to the
parent holding company. "Critically undercapitalized" institutions must comply
with additional sanctions, including, subject to a narrow exception, the
appointment of a receiver or conservator within 270 days after it obtains this
status.

    The following table indicates Matrix Bank's regulatory capital ratios at
December 31, 2000:

                                                                   As of
                                                              December 31, 2000
                                                        ------------------------
                                                         Core      Risk-Based
                                                         Capital      Capital
                                                       ------------ ------------
                                                         (Dollars in thousands)

 Shareholder's equity/GAAP capital....................  $  98,920    $ 98,920
 Disallowed assets....................................      3,812       3,812
 Gain on available for sale securities................       (819)       (819)
 Additional capital items:
     General valuation allowances.....................        --        5,802
                                                       ------------ ------------
 Regulatory capital as reported to the Office of
 Thrift Supervision...................................     94,289     100,091
 Minimum capital requirement as reported to the
 Office of Thrift Supervision.........................     53,694      65,387
                                                       ------------ ------------
 Regulatory capital--excess............................ $  40,595    $ 34,704
                                                       ============ ============
 Capital ratios.......................................      7.02%       12.25%
 Well capitalized requirement.........................      5.00%       10.00%

      Federal Home Loan Bank System. Matrix Bank is a member of the Federal Home
Loan Bank system, which consists of 12 regional Federal Home Loan Banks. The
Federal Home Loan Bank provides a central credit facility primarily for member
associations and administers the home financing credit function of savings
associations. The Federal Home Loan Bank advances must be secured by specified
types of collateral and may only be obtained for the purpose of providing funds
for residential housing finance. The Federal Home Loan Bank funds its operations
primarily from proceeds derived from the sale of consolidated obligations of the
Federal Home Loan Bank system. Matrix Bank, as a member of the Federal Home Loan
Bank system, must acquire and hold shares of capital stock in its regional
Federal Home Loan Bank in an amount equal to the greater of 1% of the aggregate
principal amount of its unpaid residential mortgage loans and similar
obligations at the beginning of each year, 0.3% of total assets, or 5% of its
advances (borrowings) from the Federal Home Loan Bank. Matrix Bank was in
compliance with this requirement with an investment in Federal Home Loan Bank
stock at December 31, 2000 of $27.8 million.

    Federal Reserve System. The Federal Reserve Board regulations require
depository institutions to maintain noninterest-earning reserves against their
transaction accounts (primarily NOW and regular checking accounts). The Federal
Reserve Board regulations generally require that reserves be maintained against
aggregate transaction accounts as follows:

     o    for that portion of transaction accounts aggregating $44.3 million or
          less, which may be adjusted by the Federal Reserve Board, the reserve
          requirement is 3%; and

     o    for accounts greater than $44.3 million, the reserve requirement is
          $1.329 million plus 10% of amounts over $44.3 million, which may be
          adjusted by the Federal Reserve Board between 8% and 14%, against that
          portion of total transaction accounts in excess of $44.3 million.

     At December 31, 2000, Matrix Bank had $8.7 million of reserves with the
Federal Reserve System and was in compliance with the Federal Reserve Board's
reserve requirements.

      Mortgage Banking Operations. The rules and regulations applicable to our
mortgage banking operations establish underwriting guidelines that, among other
things, include anti-discrimination provisions, require provisions for
inspections, appraisals and credit reports on prospective borrowers and fix
maximum loan amounts. Moreover, we are required annually to submit audited
financial statements to the Department of Housing and Urban Development, Fannie
Mae, Freddie Mac and the Government National Mortgage Association, and each
regulatory entity maintains its own financial guidelines for determining net
worth and eligibility requirements. Our operations are also subject to
examination by the Department of Housing and Urban Development, Fannie Mae,
Freddie Mac and the Government National Mortgage Association at any time to
assure compliance with the applicable regulations, policies and procedures.
Mortgage loan origination activities are subject to, among other laws, the Equal
Credit Opportunity Act, the Federal Truth-in-Lending Act and the Real Estate
Settlement Procedures Act of 1974, and the regulations promulgated under these
laws that prohibit discrimination and require the disclosure of certain basic
information to mortgagors concerning credit terms and settlement costs.
Moreover, the Office of Thrift Supervision, as primary regulatory authority over
Matrix Bank (the parent of Matrix Financial), examines our mortgage banking
operations as well.

    Additionally, there are various state and local laws and regulations
affecting our operations. We are licensed in those states in which we do
business requiring such a license where the failure to be licensed would have a
material adverse effect on us, our business, or our assets. Mortgage origination
operations also may be subject to state usury statutes.

      Regulation of Sterling Trust Company. Sterling Trust provides custodial
services and directed, non-discretionary trustee services. Sterling Trust was
chartered under the laws of the State of Texas, and as a Texas trust company is
subject to supervision, regulation and examination by the Texas Department of
Banking. Under applicable law, a Texas trust company, such as Sterling Trust, is
subject to virtually all provisions of the Texas Finance Code as if the trust
company were a state chartered bank. The activities of a Texas trust company are
limited by applicable law generally to acting as a trustee, executor,
administrator, guardian or agent for the performance of any lawful act, and to
lend and accumulate money when authorized under applicable law. In addition, a
Texas trust company with capital of $1 million or more, such as Sterling Trust,
has the power to:

     o    purchase, sell, discount and negotiate notes, drafts, checks and other
          evidences of indebtedness;

     o    purchase and sell securities;

     o    issue subordinated debentures and capital notes with the written
          consent of the Texas Banking Commissioner; and

     o    exercise powers incidental to the enumerated powers described in the
          Texas Finance Code.

    A Texas trust company, such as Sterling Trust, is generally prohibited from
accepting demand or time deposits if not insured by the Federal Deposit
Insurance Corporation.

    Limitation on Capital Distributions. The Texas Finance Code prohibits a
Texas trust company from reducing its outstanding capital and restricted surplus
through redemption or other capital distribution without the prior written
approval of the Texas Banking Commissioner. The Texas Finance Code does not
prohibit the declaration and payment of pro rata share dividends consistent with
the Texas Business Corporation Act. Moreover, Sterling Trust anticipates that it
will not pay cash dividends during 2001.

    Investments. A Texas trust company is generally obligated to maintain an
amount equal to 40% of its capital and surplus in investments that are readily
marketable and that can be converted into cash within four business days. So
long as it complies with those requirements, a Texas trust company generally is
permitted to invest its corporate assets in any investment permitted by law.
However, unless otherwise permitted by the Texas Finance Code, a Texas trust
company cannot invest an amount in excess of 15% of its capital and certified
surplus in the securities of a single issuer without the prior written consent
of the Texas Banking Commissioner.

    Branching. The Texas Finance Code permits a Texas trust company to establish
and maintain branch offices at any location within the state if it first obtains
written approval of the Texas Banking Commissioner.

    Transactions with Related Parties. The Texas Finance Code prohibits the sale
or lease of an asset of a Texas trust company, or the purchase or lease of an
asset by a Texas trust company, where the transaction involves an officer,
director, principal shareholder or affiliate, unless the transaction is approved
by a disinterested majority of the board of directors or the written approval of
the Texas Banking Commissioner is first obtained.

    Enforcement. Under applicable provisions of the Texas Finance Code, the
Texas Banking Commissioner has the power to issue enforcement actions against a
Texas trust company or any officer, employee or director of a Texas trust
<PAGE>

company. In addition, in certain circumstances, the Texas Banking Commissioner
may remove a present or former officer, director or employee of a Texas trust
company from office or employment, and may prohibit a shareholder or other
persons participating in the affairs of a Texas trust company from such
participation. The Texas Banking Commissioner has the authority to assess civil
penalties of up to $500 per day for violations of a cease and desist, removal or
prohibition order.

    Capital Requirements. Applicable law generally requires a Texas trust
company to have and maintain minimum restricted capital of at least $1 million.
The Texas Banking Commissioner may require additional capital of a Texas trust
company if the Texas Banking Commissioner determines it necessary to protect the
safety and soundness of such company. If the Texas Banking Commissioner were to
do so, there is no assurance that Sterling Trust would be able to meet such
additional requirements. In such case, the Texas Banking Commissioner could
pursue various enforcement actions, such as appointing either a conservator or a
receiver for Sterling Trust. Currently, however, Sterling Trust is in compliance
with all capital requirements under Texas law.

    The foregoing is an attempt to summarize some of the relevant laws, rules
and regulations governing unitary savings and loan holding companies and savings
institutions but does not purport to be a complete summary of all applicable
laws, rules and regulations governing such financial institutions.

Item 2.  Properties

    We believe that all of our present facilities are adequate for our current
needs and that additional space is available for future expansion on acceptable
terms. The following table sets forth certain information concerning the real
estate that we own or lease:

<TABLE>
<CAPTION>
<S>                         <C>             <C>                                  <C>                        <C>
                                                                                                                   Monthly Rent or
        Location            Square Feet             Owned/Leased                 Occupant                          Mortgage Payment
-------------------------- --------------  ------------------------------------- -------------------------------- ------------------

Denver, CO..............       29,298      Leased through July 31, 2006          Matrix Bancorp, United                  $ 44,168
                                                                                 Financial, Matrix Asset
                                                                                 Management, Matrix Bank, First
                                                                                 Matrix and Matrix Settlement &
                                                                                 Clearance Services
Denver, CO..............       8,100       Leased through June 30, 2001          Matrix Asset Management                  $ 8,746
Newtown, PA.............       1,365       Leased through June 30, 2003          Matrix Asset Management                  $ 2,446
Phoenix, AZ.............      62,771       Leased through February 28, 2007      Matrix Financial, Matrix Bank,           $50,133
                                                                                 ABS and Matrix Bancorp
Atlanta, GA.............       4,129       Leased through August 31, 2003        Matrix Financial                         $ 4,843
Chesterfield, MO........       1,570       Leased through May 1, 2001            Matrix Financial                         $ 2,355
Chicago, IL.............         294       Leased through April 30, 2003         Matrix Financial                         $ 2,729
Clayton, MO.............       6,718       Leased through June 30, 2003          Matrix Financial                         $13,996
Dallas, TX..............       6,205       Leased through May 31, 2004           Matrix Financial                         $ 7,756
Denver, CO..............       9,549       Leased through June 30, 2002          Matrix Financial                         $11,401
Houston, TX.............       4,011       Leased through October 31, 2003       Matrix Financial                         $ 5,682
Phoenix, AZ.............       4,040       Leased through June 14, 2002          Matrix Financial                         $ 6,902
Sacramento, CA..........       4,202       Leased through December 31, 2003      Matrix Financial                         $ 7,353
Santa Ana, CA...........       8,851       Leased through August 31, 2003        Matrix Financial                         $13,277
Albuquerque, NM.........         143       Leased through August 15, 2001        Matrix Bank                              $   450
Evergreen, CO...........       1,855       Leased through February 1, 2003       Matrix Bank                              $ 4,085
Las Cruces, NM..........       1,800       Owned                                 Matrix Bank                                  N/A
Las Cruces, NM..........      30,000(1)    Owned                                 Matrix Bank                                  N/A
Sandy, UT...............         245       Leased through July 1, 2001           Matrix Bank                              $ 1,255
Sun City, AZ............       3,000       Owned                                 Matrix Bank                                  N/A
Westminster, CO.........         823       Leased through March 1, 2003          Matrix Bank                              $ 1,419
Waco, TX................      11,300       Leased through June 30, 2001(2)(3)    Sterling Trust                           $13,553
Waco, TX................         928       Leased through June 30, 2001(3)       Sterling Trust                           $ 1,021
Fort Worth, TX..........       1,148       Leased through November 30, 2004      First Matrix                             $ 1,579
Cottonwood, AZ..........       2,400       Owned                                 ABS                                          N/A
Cottonwood, AZ..........         600       Leased month to month                 ABS                                      $   365
Peoria, AZ..............       3,319       Leased through June 6, 2002           ABS                                      $ 5,360
Tuscon, AZ..............       1,879       Leased through September 30, 2002     ABS                                      $ 2,322
Snowflake, AZ...........       2,850       Leased month to month                 ABS                                      $ 2,760
Deerfield Beach, FL              500       Leased month to month                 ABS                                      $   795

</TABLE>
[FN]

(1)Of this 30,000 square feet, approximately 17,800 square feet serve as the
   headquarters for Matrix Bank. Substantially all of the remaining space is
   rented to unaffiliated third parties at market prices.

(2)The lease agreement provides for renewal options and allocation of certain
   expenses the lessee would reimburse over a specified amount during the life
   of the lease.

(3)Management anticipates renewal of this lease at its expiration.

</FN>

Item 3.  Legal Proceedings

    General. We are from time to time party to various litigation matters, in
most cases, involving ordinary and routine claims incidental to our business.
With respect to all litigation matters, our ultimate legal and financial
responsibility, if any, cannot be estimated with certainty. Nevertheless, we do
not believe any of such litigation matters will result in a material adverse
impact on our consolidated financial condition, results of operations or cash
flows, except that no such assurances can be given with respect to the
litigation matters set forth below, against which no accrual for loss has been
made as of December 31, 2000.

    Matrix Bancorp. In early 1999, Matrix Bancorp and Matrix Bank instituted an
arbitration action with the American Arbitration Association in Phoenix, Arizona
against Fidelity National Financial, Inc. The arbitration action arose out of an
alleged breach by Fidelity of a Merger Termination Agreement entered into
between Matrix Bancorp and Fidelity in connection with the termination of their
proposed merger. The arbitration panel has ruled that the entire Merger
Termination Agreement was unenforceable. Matrix Bancorp and Matrix Bank have
filed an appeal of the arbitration panel's decision in federal district court in
Phoenix, Arizona. Matrix Bancorp and Matrix Bank believe they have meritorious
points of appeal and intend to prosecute the appeal vigorously.

     Matrix Bancorp, The Vintage Group, Inc., Vintage Delaware Holdings, Inc.,
Matrix Bank, and Guy A. Gibson, President and Chief Executive Officer of Matrix
Bancorp, Richard V. Schmitz, Chairman of the Board of Matrix Bancorp, and D.
Mark Spencer, Vice Chairman of Matrix Bancorp, have been named defendants in an
action styled Roderick Adderley, et. al. v. Guy A. Gibson, et. al. pending in
the District Court of Tarrant County, Texas, seeking to impose joint and several
liability on these defendants for the judgment against Sterling Trust in
Roderick Adderley, et. al. v. Advance Financial Services, Inc., et. al. See
"--Sterling Trust" below. The plaintiffs have asserted various theories of
liability, including control person theories of liability under the Texas
Securities Act and fraudulent transfer theories of liability. The defendants
believe they have adequate defenses and intend to vigorously defend this action.
The ultimate legal and financial liability of the Company, if any, in this
matter cannot be estimated with certainty at this time.

     Matrix Bancorp and Sterling Trust have been named defendants in an action
styled Victor Doroski v. David M. Mobley, et. al. pending before the American
Arbitration Association in Waco, Texas. This action was initially filed by the
plaintiff in the United States District Court for the Southern District of
California, but was ordered to arbitration by the court in July 2000. In this
action, the plaintiff has alleged that Sterling Trust and Matrix Bancorp
violated various provisions of the Commodities Exchange Act in connection with
plaintiff's investment of certain monies in his self-directed IRA in various
funds allegedly affiliated with Mr. Doroski's appointed representative, David M.
Mobley (the "Mobley Funds"). Sterling Trust acted only as self-directed
custodian for Mr. Doroski's IRA. Matrix Bancorp never had any dealings with Mr.
Mobley, the Mobley Funds or Mr. Doroski. The arbitration hearing is set for June
2001. The defendants believe they have adequate defenses and intend to
vigorously defend this action.  The ultimate legal and financial liability of
the Company, if any, in this matter cannot be estimated with certainty at this
time.

    Matrix Bank. A former customer of Matrix Bank is a debtor in a Chapter 11
proceeding under the Bankruptcy Code styled In re Apponline.com, Inc. and Island
Mortgage Network, Inc. pending in the United States Bankruptcy Court for the
Eastern District of New York. Prior to the bankruptcy filing, Matrix Bank had
provided the customer, Island Mortgage Network, Inc., with a purchase/repurchase
facility under which Matrix Bank purchased residential mortgage loans from
Island Mortgage, with Island Mortgage having the right or obligation to
repurchase such mortgage loans within a specified
<PAGE>

     period of time. Several other financial institutions had provided Island
Mortgage with warehouse financing or additional purchase/repurchase facilities
(the "Origination Facilities"). At this time, it appears that no other financial
institution that provided an Origination Facility to Island Mortgage has a
conflicting interest with Matrix Bank in respect of the loans purchased by
Matrix Bank, which were approximately $12.4 million in original principal amount
(the "Purchased Loans"). However, several third parties have instituted lawsuits
against Matrix Bank claiming an equitable interest in a portion of the Purchased
Loans (approximately $2.4 million in original principal amount). These third
parties consist primarily of title companies, closing attorneys and other
closing agents that provided settlement funds in connection with the funding of
a borrower's mortgage loan, in many cases, we believe in violation of various
"good funds" laws, which typically require a closing agent to wait for receipt
of "good funds" prior to disbursement of settlement funds on the origination of
a loan. After providing settlement funds, these closing agents discovered that
Island Mortgage had either provided company checks with insufficient funds or
had inappropriately placed a stop payment on the checks. In addition, parties in
the chain of title to property securing approximately $2.5 million loans,
including sellers and prior lienholders are seeking to void or rescind their
transactions on the theory that they never received consideration. Matrix Bank
believes it has adequate defenses and intends to vigorously defend these
actions.  The ultimate legal and financial liability of the Company, if any, in
these matters cannot be estimated with certainty at this time.

     The trustee for Island Mortgage has received an order from the Bankruptcy
Court finding that the Purchased Loans are a part of the estate of Island
Mortgage. Nevertheless, the trustee and Matrix Bank have reached an agreement,
in principle, whereby the trustee will release all of its right in and to the
Purchased Loans if the trustee, after performance of a "due diligence" review,
determines that Matrix Bank owns the Purchased Loans or, would otherwise have a
perfected security interest in the Purchased Loans. Matrix Bank believes it can
adequately demonstrate to the trustee that it is the owner of the Purchased
Loans, or otherwise has a perfected security interest in the Purchased Loans.
The Company intends to vigorously defend its position in this matter. The
ultimate legal and financial liability of the Company, if any, in this
bankruptcy cannot be estimated with certainty at this time.

     For a description of Roderick Adderley, et al. v. Guy A. Gibson, et al.,
please see "Matrix Bancorp" above.

     Sterling Trust. Sterling Trust has been named a defendant in an action
styled Roderick Adderley, et. al. v. Advanced Financial Services, Inc., et. al.
that was tried in Tarrant County, Texas district court in the spring of 2000.
The jury returned a verdict adverse to Sterling Trust with respect to two of 12
theories of liability posed by the plaintiffs, and the court has signed a
judgment for certain of the plaintiffs in the amount of approximately $6.4
million. Sterling Trust has filed an appeal of this judgment and believes it has
meritorious points of appeal. It intends to vigorously prosecute the appeal of
this action against which no accrual for loss has been made. The ultimate
resolution of this matter, which is expected to occur in nine to 18 months,
could result in a loss of up to $6.4 million plus post-judgment interest and
additional attorneys' fees. The ultimate legal and financial liability, if any,
of Sterling Trust cannot be estimated with certainty at this time.

     Sterling Trust has been named a defendant in an action styled John A.
Redin, et. al. v. Sterling Trust Company, et. al. pending in the Superior Court
of the State of California for the County of Los Angeles. The plaintiffs in this
action seek to certify a class action on behalf of all persons and entities that
invested in promissory notes issued by Personal Choice Opportunities. The
plaintiffs allege, among other things, that Sterling Trust, as custodian of the
plaintiffs' self-directed IRAs, breached its fiduciary duty and was negligent.
Sterling Trust believes it has adequate defenses and intends to vigorously
defend this action.  The ultimate legal and financial liability of the Company,
if any, in this matter cannot be estimated with certainty at this time.

     Sterling Trust has been named a defendant in several lawsuits pending in
the United States District Court for the Western District of Pennsylvania. All
of such actions have been instituted by one law firm. The style of these actions
are as follows: Douglas Wheeler, et. al. v. Pacific Air Transport, et. al.; Paul
C. Jared, et. al. v. South Mountain Resort and Spa, Inc., et. al.; Lawrence
Rehrig, et. al. v. Caffe Diva, et. al.; Merrill B. Christman, et. al. v.
Millennium 2100, Inc., et. al.; David M. Veneziale, et. al. v. Sun Broadcasting
Systems, Inc., et. al.; Don Glazer, et. al. v. Technical Support Servs., Inc.,
et. al.; and Donald Maudlin, et. al. v. World Vision Entertainment, Inc., et.
al. Each case seeks certification of a class action and alleges negligent
misrepresentation, breach of fiduciary duty, negligence and civil conspiracy
against Sterling Trust in connection with Sterling Trust's performance of its
duties as self-directed custodian for the plaintiffs' IRAs, which participated
in promissory note programs issued by the various companies named in the style
of the cases above. Sterling Trust believes it has adequate defenses and intends
to vigorously defend these actions.  The ultimate legal and financial liability
of the Company, if any, in these matters cannot be estimated with certainty at
this time.

      For a description of the Doroski arbitration, please see "-Matrix Bancorp"
above.
<PAGE>

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

     No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 2000.

                                       PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters

     Our common stock, $.0001 par value, is traded on the NASDAQ National Market
under the symbol "MTXC." The following table sets forth the high and low sales
prices for our common stock on the NASDAQ National Market for the periods
indicated.


<TABLE>
<CAPTION>

                                                          Market Price
                                                       --------------------
      Quarter Ended:                                     High       Low
                                                        --------  ---------
        <S>                                             <C>       <C>

         December 31, 2000............................ $ 8.250   $  6.031
         September 30, 2000...........................  12.938      5.500
         June 30, 2000................................   9.000      6.750
         March 31, 2000 ..............................  14.125      7.875

         December 31, 1999............................$ 15.125   $ 11.000
         September 30, 1999...........................  16.063     11.250
         June 30, 1999................................  18.000      7.625
         March 31, 1999...............................  18.500     11.625

</TABLE>


     On March 1, 2001, the closing price of our common stock was $8.813 per
share. Also, as of that date, the approximate number of holders of record of our
common stock was 48. This number does not include beneficial owners who hold
their shares in a depository trust in "street" name.

    In May 2000, we announced the adoption of a Common Stock Repurchase Program.
Under this program, we repurchased a total of 237,000 shares through December
31, 2000, for a total purchase price of approximately $1.8 million. Our ability
to repurchase stock is limited due to various provisions in Matrix Bancorp's
debt instruments, the most restrictive of which is our bank stock loan. Under
the bank stock loan, Matrix Bancorp is allowed to make certain restricted
payments, which includes repurchases of stock and payments of dividends to
shareholders, in an amount of up to $3 million plus 25% of the Company's
cumulative consolidated net income for fiscal quarters beginning with the
quarter ending March 31, 2001.

      We have not paid any dividends on our equity for the last two fiscal
years. Any future determination as to dividend policy will be made at the
discretion of the Board of Directors of the Company and will depend on a number
of factors, including our future earnings, capital requirements, financial
condition and future prospects and such other factors the Board of Directors may
deem relevant. Our ability to pay dividends is restricted by the same provisions
that restrict our ability to repurchase our stock, as described in the
immediately preceding paragraph. Additionally, Matrix Bancorp is prohibited from
paying dividends on its common stock if the scheduled payments on our junior
subordinated debentures and trust preferred securities have not been made. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and Note 9 to the consolidated
financial statements included elsewhere in this document. In addition, the
ability of Sterling Trust and Matrix Bank to pay dividends to Matrix Bancorp may
be restricted in certain instances. See "Regulation and Supervision."

Item 6.  Selected Financial Data

          SELECTED CONSOLIDATED FINANCIAL AND OPERATING INFORMATION

                             OF MATRIX BANCORP, INC.

     The following selected consolidated financial data and operating
information of Matrix Bancorp, Inc. should be read in conjunction with the
consolidated financial statements and notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations," each of which is
included elsewhere in this document. In February 1997, we completed our
acquisition of The Vintage Group in a transaction accounted for as a pooling of
interests. As a result of the pooling, our historical financial and other
information has been restated to include the financial and other information of
The Vintage Group.

<TABLE>
<CAPTION>

                                                     As of and for the
                                                  Year Ended December 31,

                                --------------------------------------------------------
                                 2000       1999         1998        1997        1996
                                --------   ---------   ---------   ----------   --------
                                    (Dollars in thousands, except per share data)
<S>                             <C>        <C>         <C>         <C>          <C>

Statement of Income Data
Net interest income before
  provision for loan
  and valuation losses....... $  29,785   $  29,463   $  24,190   $   13,888  $   6,059
Provision for loan and
   valuation losses..........     4,235       3,180       4,607          874        143
                                --------   ---------   ---------   ----------   --------
Net interest income after
   provision for loan
   and valuation losses......    25,550      26,283      19,583       13,014      5,916
Noninterest income:             --------   ---------   ---------   ----------   --------
  Loan administration........    23,850      23,686      17,411       16,007      8,827
  Brokerage..................     5,476       6,156       7,054        3,921      4,364
  Trust services.............     4,923       4,840       4,169        3,561      3,061
  Real estate disposition
    services.................     3,677       3,659       2,036        1,121        564
  Gain on sale of loans and
    mortgage-backed
    securities...............       982       3,247       3,108        2,441      3,121
  Gain on sale of mortgage
    servicing rights.........     2,634         363         803        3,365      3,232
  Loan origination...........     7,587       6,218       5,677        4,694      1,809
  School services............     4,240       2,813          46            -          -
  Other......................     5,423       9,378       6,441        2,919      1,609
                                --------   ---------   ---------   ----------   --------
   Total noninterest income..    58,792      60,360      46,745       38,029     26,587
Noninterest expense..........    77,841      69,586      52,939       37,746     26,655
                                --------   ---------   ---------   ----------   --------
Income before income taxes...     6,501      17,057      13,389       13,297      5,848
Income taxes.................     2,243       6,278       4,876        5,159      2,278
                                --------   ---------   ---------   ----------   -------
Net income................... $   4,258    $ 10,779    $  8,513    $   8,138  $   3,570
                                ========   =========   =========   ==========   =======
Net income per share
   assuming dilution(1) ..... $    0.63    $   1.58    $   1.24    $    1.20  $    0.68
Weighted average common
   shares assuming dilution.. 6,748,857   6,833,546   6,881,890    6,781,808  5,077,321
Cash dividends(2)............ $      --   $      --   $      --    $      --  $     201

Balance Sheet Data

Total assets.................$1,418,795  $1,283,746  $1,012,155    $ 606,581  $ 274,559
Mortgage-backed securities...    66,616        --          --           --         --
Total loans, net............. 1,116,021   1,103,515     848,448      511,372    212,361
Mortgage servicing rights,
   net.......................    71,529      63,479      57,662       36,276     23,680
Deposits(3)(4)...............   602,669     562,194     490,516      224,982     90,179
Custodial escrow balances....    77,647      94,206      96,824       53,760     37,881
FHLB borrowings..............   519,433     405,000     168,000      171,943     51,250
Borrowed money(5)............   124,503     142,101     178,789       89,909     42,431
Total shareholders' equity...    64,023      60,497      49,354       40,610     32,270

Operating Ratios and Other
Selected Data

Return on average assets(6)..      0.32 %      1.02 %      1.02 %       1.78%      1.69%
Return on average equity(6)..      6.79       19.79       18.92        22.71      24.30
Average equity to average
   assets(6).................      4.75        5.16        5.41         7.86       6.97
Net interest margin(6)(7)....      2.51        3.25        3.37         3.70       3.45
Operating efficiency ratio(8)     76.76       59.21       59.74        60.14      74.20
Total amount of loans
   purchased................  $ 225,898   $ 701,952   $ 678,150     $493,693   $159,015
Balance of owned servicing
   portfolio (end of period). 5,517,963   5,889,715   5,357,729    3,348,062  2,505,036
Trust assets under
   administration (end of
   period) .................. 3,847,038   2,545,060   2,089,562   1,437,478   1,162,231
Wholesale loan origination
   volume....................   512,541     443,363     574,963     402,984     583,279

Ratios of Earnings to Fixed
Charges(9)

Including interest on
   deposits..................     1.09x       1.38x       1.36x        1.71x      1.54x
Excluding interest on
   deposits..................     1.15x       1.75x       1.64x        2.30x      1.84x

Loan Performance Ratios and
Data

Allowance for loan and
   valuation losses.......... $  8,581      $ 6,354    $ 3,710      $ 1,756  $   1,039
Nonperforming loans(10) .....   28,516       25,641     13,209        4,990      3,903
Nonperforming loans/total
   loans(10) ................     2.54 %       2.31%      1.55 %       0.97%      1.83%
Nonperforming assets/total
   assets(10) ...............     2.20         2.06       1.40         1.03       1.89
Net loan charge-offs/average
loans(6) ....................     0.18         0.06       0.38         0.04       0.03
Allowance for loan and
    valuation losses/
    total loans .............     0.72         0.57       0.44         0.34       0.49
Allowance for loan and
valuation losses/
   nonperforming loans ......    30.09        24.78      28.09        35.19      26.62
</TABLE>
<PAGE>

----------
[FN]
(1)  Net income per common share assuming dilution is based on the weighted
     average number of common shares outstanding during each period and the
     dilutive effect, if any, of stock options and warrants outstanding. There
     are no other dilutive securities.

(2)  Represents dividends paid by The Vintage Group prior to its acquisition by
     us.

(3)  Following our acquisition of The Vintage Group in February 1997, Sterling
     Trust moved approximately $80.0 million of fiduciary deposits from a third
     party institution to Matrix Bank.

(4)  Beginning in February 1998, Matrix Bank began accepting brokered deposits.
     At December 31, 2000, 1999 and 1998, the total balance of brokered deposits
     was $203.6 million, $221.5 million and $148.7 million, respectively.

(5)  Included in borrowed money at December 31, 2000 and 1999, is $27.5 million
     pertaining to the guaranteed preferred beneficial interests in the Matrix
     Bancorp's 10% junior subordinated debentures. See additional discussion
     under "Management's Discussion and Analysis of Financial Condition and
     Results of Operations-Liquidity and Capital Resources."

(6)  Calculations are based on average daily balances where available and
     monthly averages otherwise.

(7)  Net interest margin has been calculated by dividing net interest income
     before loan and valuation loss provision by average interest-earning
     assets.

(8)  The operating efficiency ratio has been calculated by dividing noninterest
     expense, excluding amortization of mortgage servicing rights, by operating
     income. Operating income is equal to net interest income before provision
     for loan and valuation losses plus noninterest income.

(9)  For purposes of calculating the ratio of earnings to fixed charges,
     earnings consist of income before taxes plus interest and rent expense.
     Fixed charges consist of interest and rent expense.

(10)See "Management's Discussion and Analysis of Financial Condition and Results
     of Operations--Asset and Liability Management--Nonperforming Assets" for a
     discussion of the impact of certain bulk purchases of mortgage loan
     portfolios on the level of nonperforming loans and the effect of
     repurchasing sub-prime automobile loans.
</FN>

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

      You should read the following management's discussion and analysis of the
financial condition and results of operations in conjunction with the preceding
"Selected Consolidated Financial and Operating Information." Additionally, our
consolidated financial statements and the notes thereto, as well as other data
included in this document, should be read and analyzed in combination with the
analysis below.

General

      Matrix Bancorp was formed in June 1993 when the founding shareholders of
Matrix Financial and United Financial, two of our subsidiaries, exchanged all of
their outstanding capital stock for shares of our stock in a series of
transactions that were each accounted for as a pooling of interests. In
September 1993, we acquired Dona Ana Savings and Loan Association, FSB, which
was subsequently renamed Matrix Capital Bank. The acquisition was accounted for
using the purchase method of accounting. We formed Matrix Asset Management,
formerly United Special Services, in June 1995 and United Capital Markets in
December 1996. In February 1997, we acquired The Vintage Group in a pooling of
interests and, accordingly, no goodwill was recorded and our consolidated
financial statements for the prior periods have been restated. Additionally, we
acquired ABS in March 1999. The acquisition was accounted for using the purchase
method of accounting. On August 1, 2000, we sold the stock of United Capital
Markets to one of the officers of that company, as previously disclosed.
Additionally, on August 1, 2000, Matrix Financial, our mortgage banking
operation, became an operating subsidiary of Matrix Bank.

    The principal components of our revenues consist of:

o     net interest income recorded by Matrix Bank;

o     loan administration fees generated by Matrix Financial;

o     brokerage  and  consulting  and  disposition  services  fees realized by
      United Financial and Matrix Asset Management, respectively;

o     loan  origination fees and gains on sales of mortgage loans and mortgage
      servicing rights generated by Matrix Bank and Matrix Financial;

o     trust service fees generated by Sterling Trust; and,

o     school service fees generated by ABS.

   Our results of operations are influenced by changes in interest rates and the
effect of these changes on our interest spreads, the volume of loan
originations, mortgage loan prepayments and the value of mortgage servicing
portfolios.
<PAGE>

Comparison of Results of Operations for Fiscal Years 2000 and 1999

   Net Income; Return on Average Equity. Net income decreased $6.5 million to
$4.3 million for fiscal year 2000 as compared to $10.8 million for fiscal year
1999. On a per share basis, net income was $.63 per share for fiscal year 2000
and $1.58 for fiscal year 1999. Return on average equity decreased to 6.8% for
fiscal year 2000 as compared to 19.8% for fiscal year 1999. The decreases in net
income, earnings per share and return on average equity were caused primarily by
the substantial increase in the cost of our interest-bearing liabilities, which
resulted from the higher interest rate environment of fiscal year 2000 as
compared to fiscal year 1999. Additionally, we incurred losses related to loans
that we acquired under a previously existing purchase/repurchase facility, as
well as related to the settlement of the Harbor Financial Mortgage Corporation
bankruptcy. Our legal expenses in fiscal year 2000 were substantially higher
than the prior fiscal year relating to litigation at Sterling Trust and the two
losses mentioned above. See "Legal Proceedings."

   Net Interest Income. Net interest income before provision for loan and
valuation losses increased $322,000 to $29.8 million for fiscal year 2000 as
compared to $29.5 million for fiscal year 1999. Our net interest income before
provision for loan and valuation losses increased only slightly in spite of the
$276.9 million, or 30.5%, increase in our interest-earning assets. The reason
for the small increase in net interest income before provision for loan and
valuation losses was due to the interest rate environment, which caused the cost
of our interest-bearing liabilities to increase significantly more than the
yield on our interest-earning assets. The cost of our interest-bearing
liabilities increased by 87 basis points, whereas the yield on our
interest-earning assets only increased 9 basis points between the comparable
periods. The increase in the cost of our interest-bearing liabilities caused our
net interest margin to decrease to 2.51% for fiscal year 2000 as compared to
3.25% for fiscal year 1999 and our interest rate spread to decrease to 2.07% for
fiscal year 2000 as compared to 2.85% for fiscal year 1999. As noted above, the
compression in our net interest margin was a result of the interest rate
environment during 2000 and our continued philosophy of acquiring
adjustable-rate mortgages. For a tabular presentation of the changes in net
interest income due to changes in volume of interest-earning assets and changes
in interest rates, see "--Analysis of Changes in Net Interest Income Due to
Changes in Interest Rates and Volumes."

   Provision for Loan and Valuation Losses. The provision for loan and valuation
losses increased $1.0 million, or 33.2%, to $4.2 million for fiscal year 2000 as
compared to $3.2 million for fiscal year 1999. This increase was primarily
attributable to ABS' charge-off of a $768,000 loan during 2000 due to the
closing of one of its school customers. The remaining increase was due to
increases in the provision at ABS, Matrix Bank and Matrix Financial. For a
discussion of the components of the allowance for loan losses, see "--Asset and
Liability Management--Analysis of Allowance for Loan and Valuation Losses." For
a discussion on the allowance as it relates to nonperforming assets, see
"--Asset and Liability Management--Nonperforming Assets."

   Loan Administration. Loan administration income represents service fees
earned from servicing loans for various investors, which are based on a
contractual percentage of the outstanding principal balance plus late fees and
other ancillary charges. Loan administration fees were consistent with an
increase of only $164,000 to $23.9 million for fiscal year 2000 as compared to
$23.7 million for fiscal year 1999. Loan administration fees are affected by
factors that include the size of our residential mortgage loan servicing
portfolio, the servicing spread, the timing of payment collections and the
amount of ancillary fees received. Our mortgage loan servicing portfolio
decreased to an average balance of $5.4 billion for fiscal year 2000 as compared
to an average balance of $5.6 billion for fiscal year 1999. This decrease was
offset by a small increase in the average service fee rate, including all
ancillary income, to 0.44% for fiscal year 2000 as compared to 0.43% for fiscal
year 1999.

   Brokerage fees. Brokerage fees represent income earned from brokerage and
consulting services performed pertaining to mortgage servicing rights. Brokerage
fees decreased $680,000, or 11.0%, to $5.5 million for fiscal year 2000 as
compared to $6.2 million for fiscal year 1999. This decrease was the result of a
decrease in the balance of residential mortgage servicing portfolios brokered by
United Financial, which in terms of aggregate unpaid principal balances on the
underlying loans, decreased $11.3 billion to $36.4 billion for fiscal year 2000
as compared to $47.7 billion for fiscal year 1999. Brokerage fees vary from
quarter to quarter as the timing of servicing sales is dependent upon the
seller's need to recognize a sale or to receive cash flows.

     Trust Services. Trust service fees increased $83,000, or 1.7%, to $4.9
million for fiscal year 2000 as compared to $4.8 million for fiscal year 1999.
Trust accounts under administration at Sterling Trust increased to 39,220
accounts at December 31, 2000 from 36,546 accounts at December 31, 1999 and
total fiduciary assets under administration increased to $3.8 billion at
December 31, 2000 from $2.5 billion at December 31, 1999. Most of the growth in
accounts and assets under administration occurred in third party administrator
accounts, which are generally priced at lower fees based on the level of
administration required.
<PAGE>

   Real Estate Disposition Services. Real estate disposition services represents
fees earned by Matrix Asset Management for real estate management and
disposition services provided on foreclosed properties owned by third party
financial services companies and financial institutions. Real estate disposition
service income was consistent between the fiscal years 2000 and 1999, with only
an $18,000 increase in fiscal year 2000 over fiscal year 1999.

     Gain on Sale of Loans and Mortgage-Backed Securities. Gain on sale of loans
and mortgage-backed securities decreased $2.3 million to $982,000 for fiscal
year 2000 as compared to $3.2 million for fiscal year 1999. These loan sales
were completed under standard purchase and sale agreements, with standard
representations and warranties and without recourse. The gains from these sales
represent cash gains. Gain on sale of loans can fluctuate significantly from
year to year based on a variety of factors, such as the current interest rate
environment, the supply and mix of loan portfolios available in the market, the
type of loan portfolios we purchase and the particular loan portfolios we elect
to sell.

   Gain on Sale of Mortgage Servicing Rights. Gain on sale of mortgage servicing
rights increased $2.3 million to $2.6 million for fiscal year 2000 as compared
to $363,000 for fiscal year 1999. In terms of aggregate outstanding principal
balances of mortgage loans underlying such mortgage servicing rights, we sold
$1.1 billion in purchased mortgage servicing rights during fiscal year 2000 as
compared to $161.2 million during fiscal year 1999. Gains from the sale of
mortgage servicing rights can fluctuate significantly from year to year based on
the market value of our servicing portfolio, the particular servicing portfolios
we elect to sell and the availability of similar portfolios in the market. Due
to our position in and knowledge of the market, we expect to, at times, pursue
opportunistic sales of mortgage servicing rights. The current year sale was
undertaken to take advantage of aggressive pricing in the marketplace.

   Loan Origination. Loan origination income includes all mortage loan fees,
secondary marketing activity on new loan originations and servicing release
premiums on new originations sold, net of origination costs. Loan origination
income increased $1.4 million, or 22.0%, to $7.6 million for fiscal year 2000 as
compared to $6.2 million for fiscal year 1999. Approximately $806,000 of this
increase related to loans originated loans as a result of increased originated
and sold by Matrix Bank's SBA loan department. The remainder of the increase is
attributable to an increase in wholesale residential mortgage loan production by
$69.1 million, or 15.6%, to $512.5 million during fiscal year 2000 as compared
to $443.4 million during fiscal year 1999.

   School Services. School services income represents fees earned by ABS for
outsourced business and consulting services provided to scdhools. School
services income increased $1.7 million, or 50.7%, to $4.2 million for fiscal
year 2000 as compared to $2.8 million for fiscal year 1999. This increase was
primarily due to an increase in the pricing for ABS services, the addition of
new school customers and our acquisition of ABS in March 1999, which resulted in
less than a full year of revenues being recognized in 1999.

   Other Income. Other income decreased $4.0 million, or 42.2%, to $5.4 million
for fiscal year 2000 as compared to $9.4 million for fiscal year 1999. The
decrease in other income was primarily due to:

o     a $1.9 million decrease in consulting income from United Capital Markets
      because of its August sale and an overall slower year for that company;
      and

o     a decrease in Matrix Bank's income from certain financing transactions,
      which decreased miscellaneous fee income by $1.7 million compared to the
      prior fiscal year.


   Noninterest Expense. Noninterest expense increased $8.2 million, or 11.9%, to
$77.8 million for fiscal year 2000 as compared to $69.6 million for fiscal year
1999. This increase was primarily due to increased compensation and benefits
expense, increased other general and administrative expense and increased
professional fees. These increases were offset by
<PAGE>

a decrease in the amortization of mortgage servicing rights. The following table
details the major components of noninterest expense for the periods indicated:
<TABLE>
<CAPTION>

                                                                          Year Ended  December 31,
                                                                       ------------------------------
                                                                           2000             1999
                                                                       --------------   -------------
                                                                              (In thousands)
<S>                                                                     <C>             <C>

Compensation and employee benefits....................................   $    34,245         $ 29,336
Amortization of mortgage servicing rights ............................         9,851           16,403
Occupancy and equipment...............................................         4,785            3,727
Postage and communication.............................................         2,812            2,688
Professional fees.....................................................         4,687            2,385
Data processing.......................................................         2,413            1,688
Other general and administrative......................................        19,048           13,359
                                                                       --------------   -------------
      Total...........................................................   $   77,841        $   69,586
                                                                       ==============   =============
</TABLE>


      Compensation and employee benefits increased $4.9 million, or 16.7%, to
$34.2 million for fiscal year 2000 as compared to $29.3 million for fiscal year
1999. This increase was primarily the result of increased salary expense at
Matrix Financial, ABS, Matrix Bancorp and Matrix Bank. Matrix Financial's salary
expense increased towards the later half of 2000 related to its initiative to
build a production platform. This initiative involved opening two new production
offices, acquiring a servicing and production platform and hiring additional
administrative and production staff. We had an overall increase of 135
employees, or 22.5%, to 735 employees at December 31, 2000 as compared to 600
employees at December 31, 1999.

   Amortization of mortgage servicing rights decreased $6.5 million, or 39.9%,
to $9.9 million for fiscal year 2000 as compared to $16.4 million for fiscal
year 1999. Amortization of mortgage servicing rights fluctuates based on the
size of our mortgage servicing portfolio and the prepayment rates experienced
with respect to the underlying mortgage loan portfolio. In response to the
higher interest rates prevalent in the market, prepayment speeds on our
servicing portfolio decreased to an average of 12.1% during fiscal year 2000 as
compared to 20.6% during fiscal year 1999.

   The remainder of noninterest expense, which includes occupancy and equipment
expense, postage and communication expense, professional fees, data processing
costs and other expenses, increased $9.9 million, or 41.5%, to $33.7 million for
fiscal year 2000 as compared to $23.8 million for fiscal year 1999. The $5.7
million increase in other general and administrative expense increase was
primarily attributable to previously mentioned losses from a purchase/repurchase
facility and the Harbor settlement. Additionally, we experienced a $2.3 million
increase in professional fees related mainly to litigation at Sterling Trust and
legal expenses associated with the Harbor settlement.

    Provision for Income Taxes. Our provision for income taxes decreased $4.1
million to $2.2 million for fiscal year 2000 as compared to $6.3 million for
fiscal year 1999. The decrease in pre-tax income was further enhanced by a
reduction in our effective tax rate to 34.5% for fiscal year 2000 from 36.8% for
fiscal year 1999. The decrease in the effective tax rate was the result of our
reduced earnings and our origination of tax-exempt financing.

Comparison of Results of Operations for Fiscal Years 1999 and 1998

    Net Income; Return on Average Equity. Net income increased $2.3 million, or
26.6%, to $10.8 million for fiscal year 1999 as compared to $8.5 million for
fiscal year 1998. On a per share basis, net income was $1.58 per share for
fiscal year 1999 and $1.24 for fiscal year 1998. Return on average equity
increased to 19.8% for fiscal year 1999 as compared to 18.9% for fiscal year
1998. Excluding 1998 non-recurring charges, net income increased $869,000, or
8.8%, to $10.8 million for fiscal year 1999 as compared to $9.9 million for
fiscal year 1998. Non-recurring charges in 1998, on a pre-tax basis, consisted
of a $2.3 million loss recorded related to alleged fraud committed by MCA
Mortgage Corporation ("MCA"). The alleged fraud involved loans acquired by
Matrix Financial from MCA for which MCA continued to provide servicing on Matrix
Financial's behalf. Excluding non-recurring charges, earnings per share and
return on average equity for fiscal year 1998 were $1.44 and 22.0%,
respectively.

    Net Interest Income. Net interest income before provision for loan and
valuation losses increased $5.3 million, or 21.8%, to $29.5 million for fiscal
year 1999 as compared to $24.2 million for fiscal year 1998. The increase in net
interest income before provision for loan and valuation losses was due to a
26.7% increase in our average loans, which was offset by a decrease in our
average yield on loans to 8.25% in 1999 from 8.59% in 1998, primarily due to the
continuation of lower interest rates in the market during the first half of
1999, as well as our acquisition of fewer discounted loans. The decrease in the
average yield on loans was offset by a reduction in the cost of our
interest-bearing liabilities to 5.28% in 1999 from 5.50% in 1998, as we
experienced significant decreases in our costs for deposits and Federal Home
Loan Bank borrowings. Average
<PAGE>

interest-earning assets and average interest-bearing liabilities both increased
26.3% in fiscal year 1999 as compared to the prior year. Our net interest margin
decreased to 3.25% for fiscal year 1999 as compared to 3.37% for fiscal year
1998. For a tabular presentation of the changes in net interest income due to
changes in volume of interest-earning assets and changes in interest rates, see
"--Analysis of Changes in Net Interest Income Due to Changes in Interest Rates
and Volumes."

    Provision for Loan and Valuation Losses. The provision for loan and
valuation losses decreased $1.4 million to $3.2 million for fiscal year 1999 as
compared to $4.6 million for fiscal year 1998. This decrease was primarily
attributable to the $2.2 million pre-tax provision recorded in 1998, related to
MCA, but was offset by increases made to the provision due to the increase in
the balance of net loans receivable, which increased to $1.1 billion at December
31, 1999 as compared to $848.4 million at December 31, 1998 and our origination
of additional non-residential mortgage loans. For a discussion of the components
of the allowance for loan losses, see "--Asset and Liability
Management--Analysis of Allowance for Loan and Valuation Losses." For a
discussion on the allowance as it relates to nonperforming assets, see "--Asset
and Liability Management--Nonperforming Assets."

    Loan Administration. Loan administration fees increased $6.3 million, or
36.0%, to $23.7 million for fiscal year 1999 as compared to $17.4 million for
fiscal year 1998. Loan administration fees are affected by factors that include
the size of our residential mortgage loan servicing portfolio, the servicing
spread, the timing of payment collections and the amount of ancillary fees
received. The mortgage loan servicing portfolio increased to an average balance
of $5.6 billion for fiscal year 1999 as compared to an average balance of $4.0
billion for fiscal year 1998. Our average service fee rates (including all
ancillary income) were comparable during the two years with 0.43% for fiscal
year 1999 as compared to 0.44% for fiscal year 1998.

    Brokerage Fees. Brokerage fees decreased $898,000, or 12.7%, to $6.2 million
for fiscal year 1999 as compared to $7.1 million for fiscal year 1998. This
decrease is the result of a decrease in the balance of residential mortgage
servicing portfolios brokered by United Financial, which in terms of aggregate
unpaid principal balances on the underlying loans, decreased $18.7 billion to
$47.7 billion for fiscal year 1999 as compared to $66.4 billion for fiscal year
1998. The decrease is attributable to a slow down in the market for the purchase
and sale of mortgage servicing rights, which was seen primarily in the last
quarter of 1999. Brokerage fees vary from quarter to quarter as the timing of
servicing sales is dependent upon the seller's need to recognize a sale or to
receive cash flows.

    Trust Services. Trust service fees increased $671,000, or 16.1%, to $4.8
million for fiscal year 1999 as compared to $4.2 million for fiscal year 1998.
This increase is associated with the growth in total assets under administration
to over $2.5 billion at December 31, 1999 from $2.1 billion at December 31,
1998, primarily as a result of increased mutual fund values at year-end 1999.
The number of trust accounts remained fairly constant with 36,546 accounts at
December 31, 1999 and 36,374 accounts at December 31, 1998. Most of the growth
in accounts and assets under administration occurred in third party
administrator accounts, which aregenerally priced at lower fees based on the
level of administration required.

    Real Estate Disposition Services. Real estate disposition service income
increased $1.7 million, or 79.7%, to $3.7 million for fiscal year 1999 as
compared to $2.0 million for fiscal year 1998.

     Gain on Sale of Loans and Mortgage-Backed Securities. During fiscal years
1999 and 1998, we made bulk loan sales of approximately $192.7 million and
$319.4 million, for gains on sale of bulk mortgage loans of $3.2 million and
$3.1 million, respectively. Gain on sale of loans can fluctuate significantly
from year to year based on a variety of factors, such as the current interest
rate environment, the supply and mix of loan portfolios available in the market,
the type of loan portfolios we purchase and the particular loan portfolios we
elect to sell.

    Gain on Sale of Mortgage Servicing Rights. Gain on sale of mortgage
servicing rights decreased $440,000, or 54.8%, to $363,000 for fiscal year 1999
as compared to $803,000 for fiscal year 1998. In terms of aggregate outstanding
principal balances of mortgage loans underlying such mortgage servicing rights,
we sold $161.2 million in purchased mortgage servicing rights during fiscal year
1999 as compared to $175.3 million during fiscal year 1998. Gains from the sale
of mortgage servicing rights can fluctuate significantly from year to year based
on the market value of our servicing portfolio, the particular servicing
portfolios we elect to sell and the availability of similar portfolios in the
market. Due to our position in and knowledge of the market, we will at times
pursue opportunistic sales of mortgage servicing rights.

    Loan Origination. Loan origination income increased $541,000, or 9.5%, to
$6.2 million for fiscal year 1999 as compared to $5.7 million for fiscal year
1998. Approximately $391,000 of this increase related to loans originated and
sold by Matrix Bank's SBA loan department. The remaining increase resulted
primarily from differences in the pricing and mix of loans originated, which
offset the $131.6 million decrease in wholesale residential mortgage loan
production. We
<PAGE>

originated $443.4 million of wholesale residential mortgage loans in 1999 as
compared to $575.0 million in 1998. We attribute the decrease in wholesale
originations primarily to the effects of rising interest rates in the last half
of 1999.

     School Services. School services income increased to $2.8 million for
fiscal year 1999 as compared to $46,000 for fiscal year 1998. The increase was
due to our acquisition of ABS in March 1999.

   Other Income. Other income increased $3.0 million, or 45.6%, to $9.4
million for fiscal year 1999 as compared to $6.4 million for fiscal year 1998.
The increase in other income was primarily due to certain of our financing
transactions which increased miscellaneous fee income approximately $2.3 million
over the prior fiscal year.

    Noninterest Expense. Noninterest expense increased $16.7 million, or 31.4%,
to $69.6 million for fiscal year 1999 as compared to $52.9 million for fiscal
year 1998. This increase was primarily due to our overall growth and expansion,
including the acquisition of ABS, and an increase in the amortization of
mortgage servicing rights. The following table details the major components of
noninterest expense for the periods indicated:
<TABLE>
<CAPTION>


                                                                Year Ended  December 31,
                                                              ------------------------------
                                                                   1999            1998
                                                              --------------   -------------
                                                                     (In thousands)
<S>                                                           <C>              <C>
Compensation and employee benefits...........................    $   29,336         $ 22,194
Amortization of mortgage servicing rights ...................        16,403           10,563
Occupancy and equipment......................................         3,727            3,059
Postage and communication....................................         2,688            2,393
Professional fees............................................         2,385            1,439
Data processing..............................................         1,688            1,344
Other general and administrative.............................        13,359           11,947
                                                              --------------     ------------
      Total..................................................   $   69,586           $52,939
                                                              ==============     ============
</TABLE>

    Compensation and employee benefits increased $7.1 million, or 32.2%, to
$29.3 million for fiscal year 1999 as compared to $22.2 million for fiscal year
1998. This increase was primarily the result of our acquisition of ABS, which
resulted in increased compensation expense of $2.3 million. Additionally,
expansions in the operations of Matrix Financial, Matrix Bank and Sterling Trust
also increased compensation expense. We had an overall increase of 153
employees, or 34.2%, to 600 employees at December 31, 1999 as compared to 447
employees at December 31, 1998, of which 84 were at ABS.

    Amortization of mortgage servicing rights increased $5.8 million, or 55.3%,
to $16.4 million for fiscal year 1999 as compared to $10.6 million for fiscal
year 1998. Amortization of mortgage servicing rights fluctuates based on the
size of our mortgage servicing portfolio and the prepayment rates experienced.
Our prepayment rates on our servicing portfolio averaged 20.6% during fiscal
year 1999 as compared to 22.6% during fiscal year 1998. In response to the lower
interest rates prevalent in the market during the first half of 1999, prepayment
speeds remained high due to borrowers refinancing into lower interest rate
mortgages. However, we have seen significant decreases in our prepayment speeds
in the latter half of 1999.

    The remainder of noninterest expense, which includes occupancy and equipment
expense, postage and communication expense, professional fees, data processing
costs and other expenses, increased $3.6 million, or 18.2%, to $23.8 million for
fiscal year 1999 as compared to $20.2 million for fiscal year 1998. The increase
was generally attributable to increased legal expenses and increased servicing
costs associated with the nonperforming Federal Housing Administration/Veteran's
Administration loans that were transferred to us in September 1999 as part of
the loans acquired from Harbor. See "--Asset and Liability
Management--Nonperforming Assets."

    Provision for Income Taxes. Our provision for income taxes increased $1.4
million to $6.3 million for fiscal year 1999 as compared to $4.9 million for
fiscal year 1998. The increase was a result of our increased pre-tax income, as
well as a slight increase in the effective tax rate to 36.8% for fiscal year
1999 from 36.4% for fiscal year 1998.

Average Balance Sheet

    The following table sets forth for the periods and as of the dates
indicated, information regarding our average balances of assets and liabilities,
as well as the dollar amounts of interest income from interest-earning assets
and interest expense on interest-bearing liabilities and the resultant yields or
costs. Ratio, yield and rate information is based on average daily balances
<PAGE>

where available; otherwise, average monthly balances have been used. Nonaccrual
loans are included in the calculation of average balances for loans for the
periods indicated.

<TABLE>
<CAPTION>
                                                                                         Year Ended December 31,
                                                  -----------------------------------------------------------------
                                                               2000                              1999
                                                  -------------------------------   -------------------------------
                                                  Average               Average      Average              Average
                                                   Balance    Interest    Rate       Balance    Interest    Rate
                                                  ----------- --------- ---------   ----------- --------- ----------
                                                                                        (Dollars in thousands)
<S>                                              <C>          <C>       <C>         <C>         <C>        <C>
Assets
Interest-earning assets:
  Loans receivable, net ....................... $ 1,086,041 $  90,591      8.34 % $   877,117 $  72,355       8.25
  Mortgage-backed securities...................      45,253     3,374      7.46            --        --         --
  Interest-earning deposits....................      28,831     1,508      5.23        16,326       629       3.85
  Federal Home Loan Bank stock.................      24,199     1,913      7.91        13,934       766       5.50
                                                  ----------- --------- ---------   ----------- --------- ----------
    Total interest-earning assets..............   1,184,324    97,386      8.22       907,377    73,750       8.13

Noninterest-earning assets:
  Cash.........................................      16,305                            18,090
  Allowance for loan and valuation losses......      (7,302)                          (4,392)
  Premises and equipment.......................      10,318                            10,765
  Other assets.................................     116,602                           122,705
                                                  -----------                       -----------
    Total noninterest-earning assets...........     135,923                           147,168
                                                  -----------                       -----------
    Total assets............................... $ 1,320,247                       $ 1,054,545
                                                  ===========                       ===========

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
  Passbook accounts............................ $     2,981       102      3.42   $     2,758        96       3.48
  Money market and NOW accounts................     156,649     3,671      2.34       213,192     6,356       2.98
  Certificates of deposit......................     361,084    22,502      6.23       287,347    15,137       5.27
  Federal Home Loan Bank borrowings............     430,331    27,242      6.33       175,619     9,184       5.23
  Borrowed money...............................     147,377    14,084      9.56       159,272    13,514       8.48
                                                  ----------- --------- ---------   ----------- --------- -----------
    Total interest-bearing liabilities.........   1,098,422    67,601      6.15       838,188    44,287       5.28
                                                  ----------- --------- ---------   ----------- --------- -----------

Noninterest-bearing liabilities:
  Demand deposits (including custodial escrow
  balances)....................................     140,615                           140,847
  Other liabilities............................      18,505                            21,054
                                                  -----------                       -----------
  Total noninterest-bearing liabilities........     159,120                           161,901
  Shareholders' equity.........................      62,705                            54,456
                                                  -----------                       -----------
    Total liabilities and shareholders' equity. $ 1,320,247                       $ 1,054,545
                                                  ===========                       ===========
Net interest income before provision for loan
    and valuation losses.......................             $  29,785                         $  29,463
                                                              =========                         =========
Interest rate spread...........................                            2.07 %                             2.85 %
                                                                        =========                         ==========
Net interest margin............................                            2.51 %                             3.25 %
                                                                        =========                         ==========
Ratio of average interest-earning assets to
average
    interest-bearing liabilities...............                          107.82 %                            108.25%
                                                                        =========                         ==========

[Table Continued]

                                                      Year Ended December 31,
                                               ----------------------------------
                                                              1998
                                                 --------------------------------
                                                 Average               Average
                                                  Balance    Interest    Rate
                                                 ----------- --------------------
<S>                                             <C>          <C>       <C>

Assets
Interest-earning assets:

  Loans receivable, net .......................$    692,443  $ 59,452      8.59 %
  Mortgage-backed securities...................          --        --        --
  Interest-earning deposits....................      15,042       627      4.17
  Federal Home Loan Bank stock.................      10,719       615      5.74
                                                 --------------------------------
    Total interest-earning assets..............     718,204    60,694      8.45

Noninterest-earning assets:
  Cash.........................................     13,241
  Allowance for loan and valuation losses......     (2,223)

  Premises and equipment.......................      9,913
  Other assets.................................     93,208
                                                 ------------
    Total noninterest-earning assets...........    114,139
                                                 ------------
    Total assets...............................$   832,343
                                                 ============

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
  Passbook accounts............................$      2,859       102      3.57
  Money market and NOW accounts................     142,382     4,432      3.11
  Certificates of deposit......................     211,592    11,687      5.52
  Federal Home Loan Bank borrowings............     159,381     8,554      5.37
  Borrowed money...............................     147,368    11,729      7.96
                                                 --------------------------------
    Total interest-bearing liabilities.........     663,582    36,504      5.50
                                                 --------------------------------

Noninterest-bearing liabilities:
  Demand deposits (including custodial escrow
    balances)..................................     106,247
  Other liabilities............................      17,518
                                                 ------------
  Total noninterest-bearing liabilities........     123,765
  Shareholders' equity.........................      44,996
                                                 ------------
    Total liabilities and shareholders' equity.$    832,343
                                                 ============
Net interest income before provision for loan
    and valuation losses.......................              $  24,190
                                                             ==========
Interest rate spread...........................                            2.95 %
                                                                       ==========
Net interest margin............................                            3.37 %

                                                                       ==========
Ratio of average interest-earning assets to
average interest-bearing liabilities...........                          108.23 %
                                                                       ==========
</TABLE>

Analysis of Changes in Net Interest Income Due to Changes in Interest Rates
and Volumes

    The following table presents the dollar amount of changes in interest income
and interest expense for major components of interest-earning assets and
interest-bearing liabilities. It distinguishes between the increase or decrease
related to changes in balances and changes in interest rates. For each category
of interest-earning assets and interest-bearing liabilities, information is
provided on changes attributable to:

o     changes in volume,  in other words,  changes in volume multiplied by old
       rate; and

o     changes  in rate,  in other  words,  changes in rate  multiplied  by old
       volume.


<PAGE>

 For purposes of this table, changes attributable to both rate and volume, which
 cannot be segregated, have been allocated proportionately to the change due to
 volume and the change due to rate.
<TABLE>
<CAPTION>

                                           Year Ended December 31, 2000 vs. 1999          Year Ended December 31, 1999 vs. 1998
                                           Increase (Decrease) Due to Change in            Increase (Decrease) Due to Change in
                                         --------------------------------------------- ---------------------------------------------
                                         Volume            Rate            Total         Volume           Rate            Total
                                         ------------  --------------  --------------- -------------  --------------  --------------
                                                                              (In thousands)
<S>                                     <C>            <C>             <C>             <C>            <C>             <C>

Interest-earning assets:
   Loans receivable, net................. $  17,438     $       798     $     18,236   $    15,308     $   (2,405)     $     12,903
    Mortgage-backed securities...........     3,374              --            3,374            --              --               --
   Interest-earning deposits.............       599             280              879            52            (50)                2
   Federal Home Loan Bank stock..........       719             428            1,147           177            (26)              151
                                          ----------      -----------     ------------   -----------     -----------     -----------
     Total interest-earning assets.......    22,130           1,506           23,636        15,537         (2,481)           13,056
                                          -----------     -----------     ------------   -----------     -----------     -----------
Interest-bearing liabilities:
   Passbook accounts.....................         8             (2)                6           (5)             (1)              (6)
   Money market and NOW accounts.........    (1,886)           (799)          (2,685)        2,120           (196)            1,924
   Certificates of deposit...............     4,307           3,058            7,365         4,009           (559)            3,450
   Federal Home Loan Bank advances.......    15,770           2,288           18,058           853           (223)              630
   Borrowed money........................      (957)          1,527              570           986            799             1,785
                                          -----------     -----------     ------------   -----------     -----------     -----------
     Total interest-bearing liabilities..    17,242           6,072           23,314         7,963           (180)            7,783
                                          -----------     -----------     ------------   -----------     -----------     -----------
Change in net interest income before
   provision for loan and
   valuation losses......................$    4,888     $    (4,566)    $        322   $     7,574     $  (2,301)      $      5,273
                                          ===========     ===========     ============   ===========     ===========     ===========
</TABLE>

Asset and Liability Management

    General. A significant portion of our revenues and net income is derived
from net interest income and, accordingly, we strive to manage our
interest-earning assets and interest-bearing liabilities to generate what we
believe to be an appropriate contribution from net interest income. Asset and
liability management seeks to control the volatility of our performance due to
changes in interest rates. We constantly attempt to achieve an appropriate
relationship between rate sensitive assets and rate sensitive liabilities. We
have responded to interest rate volatility by developing and implementing asset
and liability management strategies designed to increase noninterest income and
improve the match between interest-earning assets and interest-bearing
liabilities. These strategies include:

o    Utilizing mortgage servicing rights as a source of noninterest income and
     as a countermeasure against the decline in the value of mortgage loans
     during a rising interest rate environment. Increases in interest rates tend
     to increase the value of mortgage servicing rights because of the resulting
     decrease in prepayment rates on the underlying loans;

o     Focusing on  noninterest-bearing  custodial  escrow balances  related to
     our mortgage servicing rights;

o    Increasing focus on lines of business that are less interest rate
     sensitive, such as brokerage activities, consulting services, self-directed
     trust services, real estate disposition and school business services;

o    Maintaining a wholesale loan origination operation. Wholesale originations
     provide a form of hedge against the balance of mortgage servicing rights.
     In a decreasing interest rate environment, the value of the servicing
     portfolio tends to decrease due to increased prepayments of the underlying
     loans. During this same environment, however, the volume of loan
     originations generally increases;

o    Originating and purchasing adjustable rate mortgages and selling newly
     originated fixed rate residential mortgages in the secondary market;

o    Increasing emphasis on the origination of construction and commercial real
     estate lending, including SBA loans, which tend to have higher interest
     rates with shorter loan maturities than residential mortgage loans and
     generally are at adjustable rates;

o    Increasing  retail  deposits,  which are less  susceptible to changes in
     interest rates than other funding sources;

o    Pursuing strategic acquisitions or alliances that provide fee-based income
     or generate liabilities that are less expensive or less interest rate
     sensitive than retail deposits or borrowings from third party institutions
     to fund our investing activities;
<PAGE>

o    Using Matrix Bank as the settlement bank for settlement and clearing
     services offered by Sterling Trust and Matrix Settlement & Clearance
     Services to generate low-cost deposits; and

o    Hedging segments of our servicing portfolio and selling forward commitments
     on our loan pipeline.

    Lending Activities. Our major interest-earning asset is our loan portfolio.
Consequently, a significant part of our asset and liability management involves
monitoring the composition of our loan portfolio, including the corresponding
maturities. The following table sets forth the composition of our loan portfolio
by loan type as of the dates indicated. The amounts in the table below are shown
net of discounts and other deductions.
<TABLE>
<CAPTION>

                                                                              As of December 31,
                              ------------------------------------------------------------------------------------------------------
                                         2000                        1999                      1998                     1997
                              --------------------------   ------------------------   ----------------------   ---------------------
                                   Amount       Percent         Amount     Percent        Amount    Percent        Amount    Percent
                              --------------  ----------   ------------- ----------   ----------- ----------   ----------- ---------
                                                                                    (Dollars in thousands)
<S>                           <C>             <C>         <C>             <C>        <C>            <C>        <C>           <C>

Residential.................  $    903,955       81.00%    $   954,424      86.49  %  $ 732,512      86.34%   $  462,604      90.46%
Multi-family,
commercial
   real estate and
commercial..................       123,491       11.07          78,046       7.07        52,689       6.21        29,492       5.77
School
financing...................        51,909        4.65          31,748       2.88        24,429       2.88         2,708       0.53
Construction ...............        36,768        3.29          36,056       3.26        27,648       3.26         7,591       1.48
Consumer....................         8,479        0.76           9,595       0.87        14,880       1.75        10,733       2.10
                                 ---------    --------      ----------    ----------    -------    -------     ---------  ---------
      Total loans...........     1,124,602      100.77       1,109,869     100.57       852,158     100.44       513,128     100.34
Less allowance for loan
   and valuation losses.....         8,581        0.77           6,354       0.57         3,710       0.44         1,756       0.34
                                 ---------    --------     -----------    ----------  ---------    -------     ---------  ---------
Loans receivable, net.......  $  1,116,021      100.00%    $ 1,103,515     100.00%    $ 848,448     100.00%   $  511,372     100.00%
                                 =========    ========     ===========    ==========  =========    =======    ==========  =========

[Table Continued]
                                   As of December 31,
                              -------------------------
                                         1996
                               ------------------------
                                    Amount     Percent
                               ------------- ----------
<S>                             <C>           <C>

Residential.................    $ 192,118       90.47 %
Multi-family, commercial
  real estate and
  commercial................       15,352        7.23
School financing............          --          --
Construction ...............        1,061        0.50
Consumer....................        4,869        2.29
                                 ----------  ----------
      Total loans...........      213,400      100.49
Less allowance for loan
   and valuation losses.....        1,039        0.49
                                 ----------  ----------
Loans receivable, net.......    $ 212,361      100.00 %
                                 ==========  ==========
</TABLE>


    The following table presents the aggregate maturities of loans in each major
category of our loan portfolio as of December 31, 2000, excluding the allowance
for loan losses. Loans held for sale are classified as maturing over five years.
Actual maturities may differ from the contractual maturities shown below as a
result of renewals and prepayments or the timing of loan sales.
<TABLE>
<CAPTION>

                                                                                     As of December 31, 2000
                                                         -------------------------------------------------------------
                                                            Less than         One to        Over Five
                                                            One Year        Five Years       Years          Total
                                                         ----------------- -------------- ----------------------------
                                                                               (In thousands)
<S>                                                     <C>                <C>          <C>            <C>

Residential............................................. $     302,206   $    593,873   $       7,876  $     903,955
Multi-family, commercial real estate and commercial.....        23,911         30,982          68,598        123,491
School financing........................................         3,400         48,509               -         51,909
Construction............................................        29,385          6,078           1,305         36,768
Consumer                                                         2,915          3,964           1,600          8,479
                                                           -------------   ------------   ------------   ------------
      Total loans ...................................... $     361,817   $    683,406   $      79,379  $   1,124,602
                                                           =============   ============   =============  =============
</TABLE>

      Loans held for sale, which are contractually due in less than one to five
years, are split between fixed and adjustable rates as follows:

<TABLE>
<CAPTION>

                                                                      As of December 31, 2000
                                                          ------------------------------------------------
                                                             Less than      One to Five
                                                             One Year          Years           Total
                                                          ----------------- -------------- ---------------
                                                                          (In thousands)
<S>                                                      <C>                <C>            <C>
Fixed.....................................................$     182,290   $    242,447   $       424,737
Adjustable................................................      123,521        400,712           524,233
                                                            -------------   ------------   ---------------
      Total loans.........................................$     305,811   $    643,159   $       948,970
                                                            =============   ============   ===============
</TABLE>

    Loans held for investment, which are contractually due in one or more years,
are split between fixed and adjustable rates as follows:
<TABLE>
<CAPTION>


                                                                    As of December 31, 2000
                                                        ------------------------------------------------
                                                          One to Five      Over Five
                                                             Years           Years           Total
                                                        ----------------- -------------- ---------------
                                                                        (In thousands)
<S>                                                     <C>            <C>              <C>

Fixed.................................................. $      28,759   $     16,632   $        45,391
Adjustable.............................................        68,524         61,717           130,241
                                                          -------------   ------------   ---------------
      Total loans...................................... $      97,283   $     78,349   $       175,632
                                                          =============   ============   ===============

</TABLE>

<PAGE>

      Nonperforming Assets. As part of asset and liability management, we
monitor nonperforming assets on a monthly basis. Nonperforming assets consist
primarily of nonaccrual loans and foreclosed real estate. Loans are placed on
nonaccrual when full payment of principal or interest is in doubt or when they
are past due 90 days as to either principal or interest. Foreclosed real estate
arises primarily through foreclosure on mortgage loans owned. The following
table sets forth our nonperforming assets as of the dates indicated:

<TABLE>
<CAPTION>


                                                                                             As of December 31,
                                                           -----------------------------------------------------------------------
                                                                2000              1999             1998              1997
                                                             ------------      ------------     ------------      ------------
                                                                                           (Dollars in thousands)
<S>                                                       <C>                 <C>             <C>               <C>

Nonaccrual mortgage loans................................   $    23,160        $   20,185      $     8,208        $    4,796
Nonaccrual commercial loans and school
   financing ............................................         5,224             5,301            4,349                --
Nonaccrual consumer loans................................           132               155              652               194
                                                             ------------      ------------     ------------      ------------
      Total nonperforming loans..........................        28,516            25,641           13,209             4,990
Foreclosed real estate...................................         2,646               800              916             1,242
Repossessed automobiles..................................            --                --               --                --
                                                             ------------      ------------     ------------      ------------
      Total nonperforming assets.........................   $    31,162        $   26,441       $   14,125        $    6,232
                                                             ============      ============     ============      ============
Total nonperforming loans

   to total loans........................................          2.54   %          2.31  %          1.55   %          0.97  %
Total nonperforming assets to total assets...............          2.20   %          2.06  %          1.40   %          1.03  %
Ratio of allowance for loan and valuation losses
    to total nonperforming loans.........................         30.09   %         24.78  %         28.09   %         35.19  %
Interest income on nonperforming loans not included in
interest income..........................................     $   1,016           $   979        $     524           $     89

[Table Continued]


                                                             As of December 31,
                                                           ---------------------
                                                                1996
                                                             ------------
                                                        (Dollars in Thousands)
<S>                                                       <C>

Nonaccrual mortgage loans................................  $      3,031
Nonaccrual commercial loans and school
   financing ............................................            --
Nonaccrual consumer loans................................           872
                                                             ------------
      Total nonperforming loans..........................         3,903
Foreclosed real estate...................................           788
Repossessed automobiles..................................           506
                                                             ------------
      Total nonperforming assets.........................  $      5,197
                                                             ============
Total nonperforming loans
   to total loans........................................          1.83  %
Total nonperforming assets to total assets...............          1.89  %
Ratio of allowance for loan and valuation losses
    to total nonperforming loans.........................         26.62  %
Interest income on nonperforming loans not included in
interest income..........................................        $  120
</TABLE>

     As of December 31, 2000, we had approximately $89,000 of non-government
accruing loans that were contractually past due 90 days or more. We accrue for
interest on government-sponsored loans such as Federal Housing Administration
<PAGE>

insured and Veteran's Administration guaranteed loans which are past due 90 or
more days, as the majority of the interest on these loans is insured by the
federal government. The aggregate unpaid principal balance of
government-sponsored accruing loans that were past due 90 or more days was
$101.1 million, $147.9 million and $165.7 million as of December 31, 2000, 1999
and 1998, respectively. Nonaccrual mortgage loans as a percentage of total loans
were 2.1% at December 31, 2000, 1.8% at December 31, 1999, 1.0% at December 31,
1998, 0.9% at December 1997 and 1.4% at December 31, 1996. A significant portion
of the increases in 1999 and 2000 can be primarily attributed to several
portfolios. The first is a sub-prime residential portfolio that we acquired on a
scheduled interest and scheduled principal remittance with full recourse to the
seller/servicer. In October 1999, however, the seller/servicer declared
bankruptcy and the servicing was transferred to us. The total principal balance
of the sub-prime portfolio was $12.2 million at December 31, 2000 and
approximately $3.1 million was 90 or more days delinquent at that time.
Associated with these loans, we have a $303,000 specific reserve. The second
portfolio was principally associated with the Harbor settlement and consists of
$11.2 million of loans at December 31, 2000, of which $5.0 million loans were 90
days or more delinquent at that time. Recorded against the $11.2 million of
loans, we have $1.9 million of discounts.

    The increase in nonaccrual commercial loans and school financing in 1999 and
1998 is primarily the result of our origination of tax-exempt financing for
charter schools for the purchase of real estate and equipment. Several of the
charter schools for which we have provided financing have encountered enrollment
and/or state funding delays, which has caused them to become delinquent on their
obligations to us. With the start of the new fiscal year for the schools, which
began on July 1, 2000, and through the efforts of ABS employees who have worked
with several of the schools on their cash flow issues, we were able to remove
several schools from nonaccrual status during 2000. Offsetting the decrease in
nonaccrual commercial loans and school financing related to charter schools were
several SBA loans that went into nonaccrual status during 2000.

     The prior delinquency and anticipated future delinquencies are taken into
consideration in the pricing of the loans acquired. We generally purchase such
loans at discounts and, in limited instances, receive recourse from the seller
to further reduce our risk of loss associated with the loans' nonaccrual status.
At December 31, 2000, $15.4 million, or 54.1%, of the nonaccrual loans were
loans that were residential loans purchased in bulk loan portfolios and remain
classified as "held for sale." Total loans held for sale at December 31, 2000,
were $942.5 million, of which $25.4 million, or 2.7%, were nonaccrual loans.

      The percentage of the allowance for loan and valuation losses to
nonaccrual loans varies widely due to the nature of our portfolio of mortgage
loans, which are collateralized primarily by residential real estate. We analyze
the collateral for each nonperforming mortgage loan to determine potential loss
exposure. In conjunction with other factors, this loss exposure contributes to
the overall assessment of the adequacy of the allowance for loan and valuation
losses.
<PAGE>

    Analysis of Allowance for Loan and Valuation Losses. The following table
sets forth information regarding changes in our allowance for loan and valuation
losses for the periods indicated. The table includes the allowance for both
loans held for investment and loans held for sale.
<TABLE>
<CAPTION>


                                                                                   As of and for the
                                                  ----------------------------------------------------------------------------------
                                                                                 Year Ended December 31,
                                                  --------------------------------------------------------------------------------
                                                        2000               1999             1998          1997             1996
                                                     -------------   ------------     ------------    ------------     -----------
                                                                              (Dollars in thousands)
<S>                                              <C>                 <C>            <C>              <C>              <C>
Balance at beginning of period................... $        6,354      $   3,710      $   1,756        $  1,039         $    943
Charge-offs:
      Real estate-mortgage.......................            434             98          1,922              22               64
      Real estate-construction...................            320             --             --              --               --
      Commercial loans and school financing .....            819             --             --              --               --
      Consumer...................................            476            509            789             166                6
                                                     -------------   ------------   ------------    ------------     ------------
            Total charge-offs....................          2,049            607          2,711             188               70
Recoveries:
      Real estate-mortgage.......................              1              2              2              --                8
      Consumer...................................             40             69             56              31               15
                                                     -------------   ------------   ------------    ------------     ------------
            Total recoveries.....................             41             71             58              31               23
                                                     -------------   ------------   ------------    ------------     ------------
Net charge-offs..................................          2,008            536          2,653             157               47
Provision for loan losses charged to operations..          4,235          3,180          4,607             874              143
                                                     -------------   ------------   ------------    ------------     ------------
Balance at end of period......................... $        8,581      $   6,354      $   3,710       $   1,756        $   1,039
                                                     =============   ============   ============    ============     ============
Ratio of net charge-offs to average loans(1).....           0.18   %       0.06  %        0.38   %        0.04  %          0.03  %
                                                     =============   ============   ============    ============     ============
Average loans outstanding during the period...... $    1,086,041      $ 877,117      $ 692,443       $ 355,848        $ 162,648
                                                     =============   ============   ============    ============     ============


</TABLE>

------------
[FN]
(1)    Excluding charge-offs related to charter schools and our credit card
       operations in 2000, our credit card operations in 1999 and related to MCA
       and our credit card operations in 1998, the ratio of net charge-offs to
       average loans was 0.09%, 0.02% and 0.03%, respectively.
</FN>

    A majority of the increase in real estate-mortgage charge-offs for 1998 as
compared to 1997 is due to the loss recognized related to MCA. See "--Comparison
of Results of Operations for Fiscal Years 1999 and 1998--Net Income; Return on
Average Equity" for additional information. Additionally, the increases in
consumer charge-offs in 2000, 1999 and 1998 pertains to losses experienced on
our credit card portfolio. Credit card loans accounted for 0.12%, 0.27% and
0.53% of our total loan portfolio as of December 31, 2000, 1999 and 1998,
respectively. The majority of our credit card portfolio was originated in 1996
and the balance of our unsecured credit card portfolio at December 31, 2000 was
$1.4 million.

    The allowance for loan and valuation losses is increased by the provision
for loan and valuation losses (which is charged to operations) for particular
loans where management considers ultimate collection to be questionable. We
evaluate all other loans as part of their respective categories and not on an
individual basis. Each category of loans in the loan portfolio is assigned a
loss factor based on:

o     the assessed risk inherent in each loan category;

o     certain qualitative evaluations of individual classified assets;

o     trends in the portfolio;

o     geographic and portfolio concentrations;

o     new products or markets; and

o     evaluations of the changes in the historical loss experience component
      and projections of this component into the current and future periods
      based on current knowledge and conditions.

These loss factors range from 0.10% for Federal Housing Administration/Veteran's
Administration loans guaranteed by the Department of Housing and Urban
Development to 8.00% for credit card loans. Additionally substandard and
doubtful loans
<PAGE>

of homogeneous loan portfolios are assigned loss factors of 5.00% to 50.00% and
50.00%, respectively. We had $5.2 million, $5.3 million and $4.3 million of
impaired commercial loans and school financing at December 31, 2000, 1999, and
1998, respectively. We had no impaired loans as of December 31, 1997 and 1996.
The loss factors are applied to the outstanding principal balance of loans in
their respective categories, and the total for all categories determines our
allowance for loan and valuation losses. The following table shows information
regarding the components of our allowance for loan and valuation losses as of
the dates indicated.
<TABLE>
<CAPTION>


                                                                                       As of December 31,
                               -------------------------------------------------------------------------------
                                        2000                       1999                       1998
                               ------------------------   ------------------------   ------------------------

                                           Percentage                 Percentage                 Percentage
                                            of Loans                   of Loans                   of Loans
                                             in each                    in each                    in each
                                           Category to                Category to                Category to
                                Amount     Total Loans     Amount     Total Loans     Amount     Total Loans
                               ----------  ------------   ----------  ------------   ----------  ------------
                                                                                     (Dollars in thousands)
<S>                            <C>         <C>            <C>        <C>             <C>        <C>

Residential..................  $  4,133         80.39  %  $  3,591         86.00  %  $  2,295         85.96  %
Multi-family, commercial real
 estate and commercial ......     1,684         11.28          835          7.02          564          6.18
School financing.............     2,329          4.31        1,320          2.86          275          2.87
Construction.................       302          3.27          286          3.25          207          3.24
Consumer                            133          0.75          322          0.87          369          1.75
                                  -------  ------------      -------  ------------      -------  ------------
                               $  8,581        100.00  %  $  6,354        100.00  %  $  3,710        100.00  %
                                  =======  ============      =======  ============      =======  ============
[Table Continued]


                                              As of December 31,
                               ----------------------------------------------------
                                         1997                       1996
                                ------------------------   ------------------------

                                            Percentage                 Percentage
                                             of Loans                   of Loans
                                              in each                    in each
                                            Category to                Category to
                                 Amount     Total Loans     Amount     Total Loans
                                ----------  ------------   ----------  ------------

<S>                             <C>         <C>            <C>         <C>

Residential..................   $  1,234         90.15  %  $    911         90.03  %
Multi-family, commercial real
 estate and commercial ......         91          5.75           51          7.19
School financing.............         --          0.53           --            --
Construction.................         23          1.48            6          0.50
Consumer                             408          2.09           71          2.28
                                   -------  ------------      -------  ------------
                                $  1,756        100.00  %  $  1,039        100.00  %
                                   =======  ============      =======  ============
</TABLE>

     The ratio of the allowance for loan and valuation losses to total loans was
0.77% at December 31, 2000; 0.57% at December 31, 1999; 0.44% at December 31,
1998; 0.34% at December 31, 1997; and 0.49% at December 31, 1996. The allowance
for loan and valuation losses is reduced by loans charged off, net of
recoveries. The balance of the allowance for loan and valuation losses allocated
to residential, multi-family, commercial real estate, commercial, school
financing and construction loans has increased mainly due to the increased
outstanding loan principal balances in these loan categories. In addition, we
have increased our origination of non 1-4 family loans, which are perceived to
be higher risk and also is a contributor to the overall increase in the balance
of the allowance. As of December 31, 2000, we believe that the allowance, when
taken as a whole, is adequate to absorb the inherent losses in the current loan
portfolio.

      Risk Sensitive Assets and Liabilities. As discussed in "Asset and
Liability Management - General" a significant portion of our earnings and
ultimate success is partially dependent upon our ability to manage our interest
rate risk. Interest rate risk can be defined as the exposure of our net interest
income to adverse movements in interest rates. Although we manage other risks,
such as credit, operational and liquidity risk in the normal course of business,
we consider interest rate risk to be a significant market risk which could
potentially have the largest material effect on our financial condition and
results of operations. The majority of our market risk related to interest rates
exists within the operations of Matrix Bank. However, Matrix Financial also has
interest rate risk related to its primary asset, mortgage servicing rights, and
also related to its loan origination volumes, as well as the net interest income
earned on its originated loans that are funded through warehouse lines of
credit. With the majority of Matrix Financial's operations being funded by
Matrix Bank, this is a smaller risk to the Company as compared to when Matrix
Financial's operations were funded entirely by unaffiliated financial
institutions. The susceptibility to movements in interest rates affects the cash
flows generated from the mortgage servicing rights which are recorded in other
income versus interest income. In a decreasing interest rate environment, the
underlying servicing portfolio tends to prepay faster which reduces future
servicing income; while in an increasing interest rate environment, prepayments
tend to decrease, which increases expected future servicing income. As it
relates to Matrix Financial's lending activities, Matrix Financial originates
residential mortgage loans, which are generally pre-sold. However, between the
time that the loan is originated and sold to the ultimate investor, Matrix
Financial earns interest income. The loans are funded through the use of
warehouse credit facilities or borrowings from Matrix Bank, both of which are
generally priced based on short-term interest rates. Therefore, the net interest
income that is earned by Matrix Financial is generally dependent on the spread
between long-term mortgage rates and short-term interest rates. Additionally,
rising interest rate environments typically decrease loan origination volumes,
whereas falling interest rate environments typically increase loan origination
volumes.

    We currently do not maintain a trading portfolio. As a result, we are not
exposed to market risk as it relates to trading activities. The majority of our
residential loan portfolio is held for sale which requires us to perform
quarterly market valuations of the portfolio in order to properly record the
portfolio at the lower of aggregate cost or market. Therefore, we continually
monitor the interest rates of our loan portfolio as compared to prevalent
interest rates in the market.
<PAGE>

     Interest rate risk management at Matrix Bank is the responsibility of the
Asset and Liability Committee, which reports to the board of directors of Matrix
Bank. The Asset and Liability Committee establishes policies that monitor and
coordinate our sources, uses and pricing of funds. The Asset and Liability
Committee is also involved in formulating our budget and strategic plan as it
relates to investment objectives. Due to the historical size of Matrix Bank's
loan portfolio and the high degree of purchase and sale activity, the Asset and
Liability Committee has relied on the Office of Thrift Supervision interest rate
risk exposure report to assist in the overall monitoring of Matrix Bank's
interest rate sensitivity. Based on the information and assumptions used in the
Office of Thrift Supervision exposure report as of December 31, 2000, a downward
200 basis point shock over a twelve month period would decrease Matrix Bank's
capital by approximately 6%, and an upward 200 basis point shock over a twelve
month period would decrease Matrix Bank's capital by approximately 12%. As
Matrix Bank grew to in excess of $1 billion in total assets in 1999, we can no
longer rely on the Office of Thrift Supervision reports to manage our interest
rate risk. We have engaged a third party to provide consulting services that
assists us with our asset/liability management. We meet with this consulting
firm quarterly to review the results of our interest rate risk analysis and to
discuss strategies. We are also researching various asset/liability software
packages for possible future acquisition by Matrix Bank.

    We continue to attempt to reduce the volatility in net interest income by
managing the relationship of interest rate sensitive assets to interest rate
sensitive liabilities. To accomplish this, we focus on acquiring adjustable rate
residential mortgages and have increased our efforts regarding the origination
of residential construction loans, commercial real estate loans, SBA loans and
limited consumer lending, which re-price or mature more quickly than fixed rate
residential real estate loans. The other significant asset that we invest in is
residential mortgage servicing rights. The value and cash flows from residential
mortgage servicing rights respond counter-cyclically to the value of fixed rate
mortgages. When interest rates increase and the value of fixed rate mortgages
decrease, in turn decreasing net interest income, the value of the mortgage
servicing rights increase. In a decreasing interest rate environment, the
inverse occurs. It is important to note, however, that an equal increase or
decrease in interest rates will not affect the value of our mortgage servicing
rights portfolio equally. A decrease in interest rates causes a greater
reduction in the value of the portfolio as compared to the increase in value in
the portfolio from an equal increase in interest rates. Another significant
strategy that we focus on in managing interest rate risk is identifying lines of
business that generate noninterest rate sensitive liabilities. Examples of this
strategy are the investment in mortgage servicing rights, which generate no cost
escrow deposits; Sterling Trust's operations, which administer deposits with
relatively low costs; and our investment in Matrix Settlement & Clearance
Services, which uses Matrix Bank as the clearing bank, which creates low-cost
deposits.

     In the ordinary course of business, we make commitments to originate
residential mortgage loans and hold originated loans until delivery to an
investor. Inherent in this business are risks associated with changes in
interest rates and the resulting change in the market value of the pipeline
loans. We mitigate this risk through the use of mandatory and best effort
forward commitments to sell loans and mortgage-backed securities. As of December
31, 2000, we had $109.5 million and $132.0 million in pipeline and funded loans,
respectively, offset with mandatory forward commitments of $70.7 million and
best effort forward commitments of $122.0 million. The market value of loans
committed for sale is determined based on the related forward loan sale
commitments. Effective January 1, 2001, with the adoption of SFAS 133, we are
required to treat substantially all mortgage loan commitments and loan sale
commitments (both mandatory and best effort) as derivatives and record the fair
value of those derivatives on the balance sheet and any subsequent changes in
the fair value of those derivatives through current earnings. As the changes in
fair value of the loan commitments and the loan sale commitments are generally
expected to offset one another, we do not anticipate any material impact to our
future earnings from pipeline loans as a result of the adoption of SFAS 133.

     Ownership of mortgage servicing rights exposes us to impairment of their
value in certain interest rate environments. The incidence of prepayment of a
mortgage loan increases during periods of declining interest rates as the
homeowner seeks to refinance the loan to a lower interest rate. If the level of
prepayment on segments of our mortgage servicing portfolio achieves a level
higher than we projected for an extended period of time, then an impairment in
the associated basis in the mortgage servicing rights may occur. To mitigate
this risk of impairment due to declining interest rates, we hedged a segment of
our portfolio beginning in September 1997. We had identified and hedged $353.2
million as of December 31, 2000 and $604 million as of December 31, 1999 of our
mortgage servicing portfolio using a program of exchange-traded futures and
options. As discussed in the notes to the consolidated financial statements
presented elsewhere in this document, we are currently not seeking hedge
accounting treatment following our adoption of SFAS 133 on January 1, 2001. As a
result, interest rate fluctuation will impact the value of our hedging
instruments and the resulting change in value will be reflected in our current
operating results. Under prior accounting methods, the gain or loss associated
with the change in the value of the hedging instruments would be included as an
adjustment in the basis of our investment in mortgage servicing rights.
Following the adoption of SFAS 133, economically, and from a cash flow
perspective, we are in the same position as under
<PAGE>

the prior accounting method. However, the recognition of the change in the value
of the hedging instruments is required to be recognized currently in earnings as
opposed to over the life of the servicing asset. As a result, SFAS 133 may cause
fluctuations in quarterly earnings that we did not incur under the prior
accounting method.

    The following tables represent, in tabular form, contractual balances of our
on balance sheet financial instruments in dollars at the expected maturity
dates, as well as the fair value of those on balance sheet financial instruments
for the periods ended December 31, 2000 and 1999. The expected maturity
categories take into consideration historical and anticipated prepayment speeds,
as well as actual amortization of principal and do not take into consideration
the reinvestment of cash. Our assets and liabilities that do not have a stated
maturity date, such as interest-earning deposits, Federal Home Loan Bank stock
and certain other deposits, are considered to be long term in nature and are
reported in the thereafter column. We are very active in the secondary market as
it relates to the purchase and sale of mortgage loans. In the past, we have made
the assumption that the entire portfolio of loans held for sale will mature in
the first three years, as the total amount of loans sold generally represent a
significant portion of our held for sale portfolio. In the past year, loans sold
as a percentage of the held for sale portfolio has decreased. The total amount
of loans sold by Matrix Bank in 2000 and 1999 approximated 10% and 30%,
respectively, of Matrix Bank's total held for sale portfolio at December 31,
1999 and 1998. This proves our intent to sell the loans classified as held for
sale, but no longer supports our three-year maturity assumption. We will now use
a five-year maturity assumption for all of Matrix Bank's held for sale loans and
school financing in 2000, and we will continue to use a one-year maturity
assumption for Matrix Financial's originated loans held for sale. We also treat
the Federal Home Loan Bank and revolving borrowings as long term in nature, as
the continued availability of these amounts is anticipated indefinitely. Third
party servicers service a portion of our loan portfolio; as a result, a portion
of the information presented is based on the best available information.

     For the most part, the carrying amounts of interest-earning deposits,
Federal Home Loan Bank stock, Federal Home Loan Bank borrowings and borrowed
money approximate those assets' and liabilities' fair values. The fair values of
the loan portfolios for held for sale and held for investment are based on
quoted market prices or outstanding commitments from investors. If quoted market
prices are not available, fair values are based on quoted market prices of
similar loans sold in securitization transactions, adjusted for differences in
loan characteristics. The fair values of demand deposits are, by definition,
equal to the amount payable upon demand at the reporting date. The fair value of
time deposits are based upon the discounted value of contractual cash flows,
which is estimated using interest rates currently being offered on certificates
to a schedule of aggregated expected periodic maturities on time deposits.

    Mortgage servicing rights are not included in the tabular presentation, as
the investment does not directly affect interest income. As noted, however,
earnings from mortgage servicing rights directly correlate with market risk as
it relates to interest rate fluctuations. We mitigate this risk through both the
type of mortgage servicing rights acquired and hedging of mortgage servicing
rights. The loans underlying the servicing rights acquired tend to be more
seasoned and have lower principal balances. Management believes that the more
seasoned, lower balance servicing portfolios carry less prepayment risk than
less seasoned, higher balance mortgage servicing, because the cost savings of
refinancing a lower balance loan tend to be less than for a higher balance loan
with a comparable interest rate. We also believe that if a loan has been
outstanding for a period of time and has been through several declining interest
rate cycles without refinancing, the risk of prepayment in the future is less
than a newly originated loan. Although significantly higher in 1999 and 1998,
the prepayment percentages which we have experienced over the past three years
have been lower than experienced in the industry, as a whole. The prepayment
speeds for the years ended December 31, 2000, 1999 and 1998 were 12.1%, 20.6%
and 22.6%, respectively. In the tables below, prepayment speeds of 12% were used
for all loan types to project expected cash flows. These assumptions are based
on our historical prepayment speeds, as well as our knowledge and experience in
the market.
<PAGE>

    The Company's on balance sheet financial instruments for the period ended
December 31, 2000:

<TABLE>
<CAPTION>

Expected Maturity Date - Fiscal Year Ended December 31,
                                          -----------------------------------------------------------------------------------------
                                                                                                                          Fair
                                              2001       2002       2003       2004      2005     There-after    Total     Value
                                          ----------- ---------- ---------- ---------- ---------- -----------  --------- ----------
                                                                           (Dollars in thousands)
<S>                                           <C>        <C>        <C>        <C>        <C>        <C>          <C>       <C>

Interest-earning assets:
   Available for sale:
      Fixed-rate mortgage-
         backed securities..................$  4,540   $   ---    $   ---    $  ---     $   ---    $   ---     $  4,540   $  4,540
         Average interest rate..............    7.54%      --- %      --- %     --- %       --- %      --- %       7.54%
      Adjustable rate mortgage-
         backed securities..................$ 62,076   $   ---    $   ---    $  ---     $   ---    $   ---     $ 62,076   $ 62,076
         Average interest rate..............    8.31%      --- %      --- %     --- %       --- %      --- %       8.31%

   Held for sale (1)(2):
      Fixed-rate residential loans..........$176,811   $ 48,130   $ 48,130   $ 48,130   $ 48,130   $   ---     $369,331   $371,637
          Average interest rate.............    8.28%      8.56%      8.56%      8.56%      8.56%      --- %       8.42%
      Adjustable-rate residential loans.....$124,104   $ 99,858   $ 99,858   $ 99,857   $ 99,857   $   ---     $523,534   $526,802
          Average interest rate.............    8.51%      8.47%      8.47%      8.47%      8.47%      --- %       8.47%
      Fixed-rate commercial loans...........$  9,926   $  9,926   $  9,926   $  9,926   $  9,926   $   ---     $ 49,630   $ 49,630
          Average interest rate.............   10.65%     10.65%     10.65%     10.65%     10.65%      --- %      10.65%

   Held for investment(2):
      Fixed-rate residential loans..........$    602   $    526   $    460   $    402   $    351   $  2,139    $  4,480   $  4,665
          Average interest rate(3)..........    8.10%      8.10%      8.10%      8.10%      8.10%      8.10%       8.10%
      Adjustable-rate residential loans(4)..$    495   $    432   $    377   $    329   $    287   $  1,608    $  3,528   $  3,673
          Average interest rate(3)..........    8.47%      8.47%      8.47%      8.47%      8.47%      8.47%       8.47%
      Fixed-rate consumer loans.............$  2,513   $  2,170   $  1,870   $    ---   $   ---    $   ---     $  6,553   $  6,538
          Average interest rate(3)..........   10.93%     10.93%     10.93%       ---%      --- %      --- %      10.93%
      Adjustable-rate consumer loans(4).....$    351   $    306   $    265   $    230   $    199   $    322    $  1,673   $  1,669
          Average interest rate(3)..........   11.04%     11.04%     11.04%     11.04%     11.04%     11.04%      11.04%
      Fixed-rate other loans(5).............$  9,064   $  7,787   $  6,670   $  5,694   $  4,842   $   ---     $ 34,057   $ 34,182
          Average interest rate(3)..........    9.31%      9.31%      9.31%      9.31%      9.31%      --- %       9.31%
      Adjustable-rate other loans(4)(5).....$ 24,048   $ 20,919   $ 18,172   $ 15,761   $ 13,646   $ 30,688    $123,234   $123,688
          Average interest rate(3)..........   10.66%     10.66%     10.66%     10.66%     10.66%     10.66%      10.66%

   Federal funds sold.......................$ 20,000   $   ---    $   ---    $   ---    $   ---    $   ---    $ 20,000   $ 20,000
          Average interest rate.............    5.94%      --- %      --- %      --- %      --- %      --- %      5.94%
   Interest-earning deposits................$   ---    $   ---    $   ---    $   ---    $   ---    $ 15,631   $ 15,631   $ 15,631
          Average interest rate.............    --- %      --- %      --- %      --- %      --- %      4.27%      4.27%
   Federal Home Loan Bank stock.............$   ---    $   ---    $   ---    $   ---    $   ---    $ 27,814   $ 27,814   $ 27,814
          Average interest rate.............    --- %      --- %      --- %      --- %      --- %      6.52%      6.52%

      Total interest-earning assets.........$434,530   $190,054   $185,728   $180,329   $177,238   $ 78,202 $1,246,081 $1,252,545
                                            ========   ========   ========   ========   ========   ======== ========== ==========

Interest-bearing liabilities:
   Passbook accounts........................$   ---    $   ---    $   ---    $   ---    $   ---    $  3,010   $  3,010   $  3,010
          Average interest rate.............    --- %      --- %      --- %      --- %      --- %      3.44%      3.44%
   NOW accounts(6)..........................$   ---    $   ---    $   ---    $   ---    $   ---    $ 33,000   $ 33,000   $ 33,000
          Average interest rate.............    --- %      --- %      --- %      --- %      --- %      2.01%      2.01%
   Money market accounts....................$   ---    $   ---    $   ---    $   ---    $   ---    $122,992   $122,992   $122,992
          Average interest rate.............    --- %      --- %      --- %      --- %      --- %      2.37%      2.37%
   Certificates of deposit over $100,000....$ 11,382    $ 5,161   $    871   $   ---    $  1,401   $   ---    $ 18,815   $ 18,916
          Average interest rate.............    6.54%      6.67%      6.47%      --- %      6.58%      --- %      6.57%
  Brokered certificates of deposit..........$175,600   $ 28,000   $   ---    $   ---    $   ---    $   ---    $203,600   $204,129
      Average interest rate.................    6.42%      6.53%      --- %      --- %      --- %      --- %      6.44%
   Other certificates of deposit............$120,968   $ 33,448   $  4,870   $  1,440   $  7,540   $   ---    $168,266   $169,390
          Average interest rate.............    6.48%      6.58%      6.13%      5.59%      6.68%      --- %      6.49%
   Federal Home Loan Bank borrowings(7).....$   ---    $   ---    $   ---    $   ---    $   ---    $519,433   $519,433   $521,194
          Average interest rate.............    --- %      --- %      --- %      --- %      --- %      6.29%      6.29%
   Revolving borrowings.....................$   ---    $   ---    $   ---    $   ---    $   ---    $ 66,288   $ 66,288   $ 66,288
          Average interest rate.............    --- %      --- %      --- %      --- %      --- %      8.26%      8.26%
   Term borrowings..........................$  3,793   $  1,468   $  5,398   $ 20,056   $   ---    $ 27,500   $ 58,215   $ 52,965
          Average interest rate.............    9.65%      8.28%      8.28%     11.50%      --- %     10.00%     10.29%

      Total interest-bearing liabilities....$311,743   $ 68,077   $ 11,139   $ 21,496   $  8,941   $772,223 $1,193,619 $1,191,884
                                            ========   ========   ========   ========   ========   ======== ========== ==========

</TABLE>
  ----------
 (1) Loans held for sale are assumed to mature within one year, as the intent is
     to sell the loans.
 (2) Balances are stated net of discounts and other deductions.
 (3) For the  fixed-rate  loans held for  investment,  we computed a weighted
     average interest rate and a weighted average maturity for the loan
     portfolio and then applied a prepayment assumption of 12% in determining
     the cash flows. The same approach was used for the adjustable-rate loans,
     which are generally fully indexed loans.
 (4) The adjustable-rate loans generally are indexed to the 1-year treasury.
     However, included in the balance are loans indexed to 11th district cost of
     funds, prime and 3-, 5- and 7-year treasury.
 (5) Other consists of multi-family, commercial real estate, commercial, land
     and construction loans.
 (6) Excludes  noninterest-bearing  demand  deposits  of  approximately  $53.0
     million.
 (7) See "--Short-term Borrowings" for additional discussion on the term of the
     Federal Home Loan Bank borrowings.
<PAGE>

      The Company's on balance sheet financial instruments for the period ended
December 31, 1999 were:

<TABLE>
<CAPTION>

                                                        Expected Maturity Date - Fiscal Year Ended December 31,
                                           ----------------------------------------------------------------------------------

                                               2000          2001          2002          2003          2004      There-after
                                            -----------  ------------- ------------- ------------- ------------ -------------
                                                                                        (Dollars in thousands)
<S>                                       <C>           <C>            <C>           <C>           <C>           <C>

Interest-earning assets:
   Held for sale (1)(2):
      Fixed-rate residential loans........ $  131,830     $   91,413     $  91,413   $        --   $       --    $       --
          Average interest rate...........       8.60  %        8.56 %        8.56 %          -- %         -- %          -- %
      Adjustable-rate residential loans... $  210,472     $  209,606     $ 209,606   $             $       --    $       --
          Average interest rate...........       7.55  %        7.55 %        7.55 %          -- %         -- %          -- %
      Fixed-rate commercial loans......... $   33,411     $       --     $      --   $        --   $       --    $       --
          Average interest rate...........      11.35  %          -- %          -- %          -- %         -- %          -- %

   Held for investment(2):
      Fixed-rate residential loans........ $      598      $     524      $    459   $       402   $      352    $    2,177
          Average interest rate(3)........       9.01  %        9.01 %        9.01 %        9.01 %       9.01 %        9.01 %
      Adjustable-rate residential loans(4) $      365      $     319      $    278   $       243   $      211    $    1,248
          Average interest rate(3)........       7.45  %        7.45 %        7.45 %        7.45 %       7.45 %        7.45 %
      Fixed-rate consumer loans........... $    3,256      $   2,797      $  2,394   $        --   $       --    $       --
          Average interest rate(3)........      10.17  %       10.17 %       10.17 %          -- %         -- %          -- %
      Adjustable-rate consumer loans(4)... $      162      $     142      $    125   $       109   $       95    $      402
          Average interest rate(3)........      11.83  %       11.83 %       11.83 %       11.83 %      11.83 %       11.83 %
      Fixed-rate other loans(5)........... $   11,851      $  10,120      $  8,611   $     7,294   $       --    $       --
          Average interest rate(3)........       8.84  %        8.84 %        8.84 %        8.84 %         -- %          -- %
      Adjustable-rate other loans(4)(5)... $   27,587      $  23,574      $ 20,069   $        --   $       --    $       --
          Average interest rate(3)........       9.45  %        9.45 %        9.45 %          -- %         -- %          -- %

   Interest-earning deposits.............. $       --      $      --      $     --   $        --   $       --    $   13,172
          Average interest rate...........         --  %          -- %          -- %          -- %         -- %        4.77 %
   Federal Home Loan Bank stock........... $       --      $      --      $     --   $        --   $       --    $   22,414
          Average interest rate...........         --  %          -- %          -- %          -- %         -- %        5.75 %

      Total interest-earning assets....... $  419,532      $ 338,495     $ 332,955   $     8,048   $      658    $   39,413
                                            ===========   ============  ============   ===========   ==========    ==========

Interest-bearing liabilities:
   Passbook accounts...................... $       --      $      --     $      --   $        --   $       --    $    2,793
          Average interest rate...........         --  %          -- %          -- %          -- %         -- %        3.40 %
   NOW accounts(6)........................ $       --      $      --     $      --   $        --   $       --    $   21,609
          Average interest rate...........         --  %          -- %          -- %          -- %         -- %        2.45 %
   Money market accounts.................. $       --      $      --     $      --   $        --   $       --    $  141,641
          Average interest rate...........         --  %          -- %          -- %          -- %         -- %        2.56 %
   Certificates of deposit over $100,000.. $   11,179      $     773     $   1,032   $       666   $      223    $       --
          Average interest rate...........       5.50  %        5.91 %        6.18 %        5.89 %       5.77 %          -- %
  Brokered certificates of deposit........ $  221,510      $      --     $      --   $        --   $       --    $       --
      Average interest rate...............       5.71  %          -- %          -- %          -- %         -- %          -- %
   Other certificates of deposit.......... $  112,544      $  10,647     $   9,432   $     4,646   $    2,321    $       --
          Average interest rate...........       5.49  %        5.61 %        6.04 %        5.79 %       5.45 %          -- %
   Federal Home Loan Bank borrowings(7)... $       --      $      --     $      --   $        --   $       --    $  405,000
          Average interest rate...........         --  %          -- %          -- %          -- %         -- %        5.64 %
   Revolving borrowings................... $       --      $      --     $      --   $        --   $       --    $   54,180
          Average interest rate...........         --  %          -- %          -- %          -- %         -- %        7.30 %
   Term borrowings........................ $    5,991      $  13,877     $   6,003   $     5,962   $    4,807    $   51,281
          Average interest rate...........       7.56  %        7.97 %        7.29 %        7.30 %       7.31 %       10.35 %

      Total interest-bearing liabilities.. $  351,224      $  25,297     $  16,467   $    11,274   $    7,351    $  676,504
                                            ===========   ============  ============   ===========   ==========    ==========
[Table Continued]

<PAGE>

                         Expected Maturity Date - Fiscal Year Ended December 31,
                    ----------------------------------------------------------------
                                                             Fair
                                             Total           Value
                                          --------------  --------------

<S>                                       <C>             <C>

Interest-earning assets:
   Held for sale (1)(2):
      Fixed-rate residential loans....... $    314,656      $  316,241
          Average interest rate..........         8.58  %
      Adjustable-rate residential loans.. $    629,684      $  632,873
          Average interest rate..........         7.55  %
      Fixed-rate commercial loans........ $     33,411      $   33,411
          Average interest rate..........        11.35  %

   Held for investment(2):
      Fixed-rate residential loans....... $      4,512      $    4,429
          Average interest rate(3).......         9.01  %
      Adjustable-rate residential loans(4 $      2,664      $    2,616
          Average interest rate(3).......         7.45  %
      Fixed-rate consumer loans.......... $      8,447      $    8,691
          Average interest rate(3).......        10.17  %
      Adjustable-rate consumer loans(4).. $      1,035      $    1,064
          Average interest rate(3).......        11.83  %
      Fixed-rate other loans(5).......... $     37,876      $   38,199
          Average interest rate(3).......         8.84  %
      Adjustable-rate other loans(4)(5).. $     71,230      $   71,837
          Average interest rate(3).......         9.45  %

   Interest-earning deposits............. $     13,172      $   13,172
          Average interest rate..........         4.77  %
   Federal Home Loan Bank stock.......... $     22,414      $   22,414
          Average interest rate..........         5.75  %

      Total interest-earning assets...... $  1,139,101     $ 1,144,947
                                            ============   =============

Interest-bearing liabilities:
   Passbook accounts..................... $      2,793       $   2,793
          Average interest rate..........         3.40  %
   NOW accounts(6)....................... $     21,609       $  21,609
          Average interest rate..........         2.45  %
   Money market accounts................. $    141,641       $ 141,641
          Average interest rate..........         2.56  %
   Certificates of deposit over $100,000. $     13,873       $  13,449
          Average interest rate..........         5.59  %
  Brokered certificates of deposit....... $    221,510       $ 219,619
      Average interest rate..............         5.71  %
   Other certificates of deposit......... $    139,590       $ 143,073
          Average interest rate..........         5.54  %
   Federal Home Loan Bank borrowings(7).. $    405,000       $ 405,067
          Average interest rate..........         5.64  %
   Revolving borrowings.................. $     54,180       $  54,180
          Average interest rate..........         7.30  %
   Term borrowings....................... $     87,921       $  87,921
          Average interest rate..........         9.20  %

      Total interest-bearing liabilities. $  1,088,117     $ 1,089,352
                                            ============   =============
</TABLE>
  ----------
[FN]
 (1) Loans held for sale are assumed to mature within one year, as the intent is
     to sell the loans.
 (2) Balances are stated net of discounts and other deductions.
 (3) For the  fixed-rate  loans held for  investment,  we computed a weighted
     average interest rate and a weighted average maturity for the loan
     portfolio and then applied a prepayment assumption of 12% in determining
     the cash flows. The same approach was used for the adjustable-rate loans,
     which are generally fully indexed loans.
 (4) The adjustable-rate loans generally are indexed to the 1-year treasury.
     However, included in the balance are loans indexed to 11th district cost of
     funds, prime and 3,5 and 7-year treasury.
 (5) Other consists of multi-family, commercial real estate, commercial
     (including SBA), land and construction loans.
 (6) Excludes  noninterest-bearing  demand  deposits  of  approximately  $21.2
     million.
 (7) See "--Short-term Borrowings" for additional discussion on the term of the
     Federal Home Loan Bank borrowings.
</FN>

<PAGE>

     Short-term Borrowings. A primary function of asset and liability management
is to ensure adequate liquidity. In addition to cash and cash equivalents, we
rely heavily on short-term borrowing capabilities for liquidity and as a funding
vehicle. The primary sources for short-term borrowings are the Federal Home Loan
Bank for Matrix Bank, and Matrix Bank and unaffiliated financial institutions
for Matrix Financial. See "Liquidity and Capital Resources."

      The following table sets forth a summary of our short-term borrowings
during 2000, 1999 and 1998 and as of the end of each such period:
<TABLE>
<CAPTION>

                                                                               Average
                                                            Amount             Amount             Maximum            Weighted
                                                         Outstanding         Outstanding        Outstanding      Average Interest
                                                              at             During the            at any          Rate During
                                                           Year End            Year(1)           Month End           the Year
                                                      ------------------- ------------------ -------------------- ------------------
                                                                                            (Dollars in thousands)

<S>                                                   <C>                 <C>               <C>                  <C>
At or for the year ended December 31, 2000:

      Federal Home Loan Bank borrowings (2)...........          $519,433            $430,331      $526,450                6.33%
      Revolving lines of credit.......................            21,956              40,701        52,750                8.23
      Repurchase agreements...........................               385               3,240         6,906               10.70
      School financing................................            44,308              30,262        44,308                8.18
At or for the year ended December 31, 1999:

      Federal Home Loan Bank borrowings(3)............           405,000             175,619       417,606                5.23
      Revolving lines of credit.......................            28,205              49,762        73,878                6.38
      Repurchase agreements...........................             3,156               7,157        12,467               10.11
      School financing................................            22,819              21,853        25,379                7.56
At or for the year ended December 31, 1998:

      Federal Home Loan Bank borrowings(4)............           168,000             159,381       271,000                5.37
      Revolving lines of credit.......................            86,936              74,973        92,507                6.55
      Repurchase agreements...........................             7,350               1,445         7,350                9.06
      School financing................................            22,559               9,304        22,559                7.32


[Table Continued]

                                                            Weighted
                                                        Average Interest
                                                            Rate at
                                                            Year End
                                                      ----------------------
                                                      (Dollars in thousands)

<S>                                                   <C>
At or for the year ended December 31, 2000:

      Federal Home Loan Bank borrowings (2)...........           6.29%
      Revolving lines of credit.......................           7.63
      Repurchase agreements...........................           8.75
      School financing................................           8.56
At or for the year ended December 31, 1999:

      Federal Home Loan Bank borrowings(3)............           5.64
      Revolving lines of credit.......................           6.71
      Repurchase agreements...........................           8.67
      School financing................................           7.77
<PAGE>

At or for the year ended December 31, 1998:

      Federal Home Loan Bank borrowings(4)............           4.90
      Revolving lines of credit.......................           6.23
      Repurchase agreements...........................           9.02
      School financing................................           7.27

</TABLE>

---------
[FN]
(1) Calculations are based on daily averages where available and monthly
    averages otherwise.
(2) A total of $26.0 million of the Federal Home Loan Bank borrowings
    outstanding at December 31, 2000 were borrowed under a short option advance
    agreement with the Federal Home Loan Bank. These short option advance
    borrowings have a term of ten years, but are callable by the Federal Home
    Loan Bank beginning after a six-month or one-year lockout period depending
    on the particular short option advance borrowing. After the expiration of
    the lock-out period, the short option advance borrowings are callable at
    three month intervals. If the Federal Home Loan Bank exercises its call
    option on a short option advance borrowing, the Federal Home Loan Bank is
    required to offer replacement funding to us at a market rate of interest for
    the remaining term of the short option advance borrowing. The interest rates
    on the short option advance borrowings ranged from 5.40% to 5.63% at
    December 31, 2000 and their possible call dates varied from February 20,
    2001 to March 26, 2001. Under the terms of the short option advance
    agreement, we are not permitted to prepay or otherwise retire a callable
    short option advance borrowing prior to the final maturity date.
    Additionally, $1.4 million of the Federal Home Loan Bank borrowings
    outstanding at December 31, 2000 are fixed-term/rate advances, which were
    borrowed from the Federal Home Loan Bank to offset specific loans originated
    by Matrix Bank. The principal amount of these fixed-term/rate advances
    adjust monthly based on an amortization schedule. The principal amount of
    these fixed-term/rate advances adjust monthly based on an amortization
    schedule. The interest rate on the fixed-term/rate advances was 5.84% and
    their maturity date is June 2, 2014. Matrix Bank also had short-term,
    fixed-term/rate borrowings outstanding at December 31, 2000 from the Federal
    Home Loan Bank. These short-term, fixed-term/rate borrowings totaled $150.0
    million, with interest rates ranging from 6.00% to 6.23% and maturity dates
    ranging from March 27, 2001 through June 26, 2001.
(3) A total of $100.0 million of the Federal Home Loan Bank borrowings
    outstanding at December 31, 1999 were borrowed under a short option advance
    agreement with the Federal Home Loan Bank. The interest rates on the short
    option advance borrowings ranged from 4.90% to 5.63% at December 31, 1999
    and their possible call dates varied from January 14, 2000 to December 26,
    2000. Additionally, $1.5 million of the Federal Home Loan Bank borrowings
    outstanding at December 31, 1999 are fixed-term/rate advances, which were
    borrowed from the Federal Home Loan Bank to offset specific loans originated
    by Matrix Bank. The principal amount of these fixed-term/rate advances
    adjust monthly based on an amortization schedule. The interest rate on the
    fixed-term/rate advances was 5.84%, and their maturity date is June 2, 2014.
(4) A total of $47.0 million of the Federal Home Loan Bank borrowings
    outstanding at December 31, 1998 were borrowed under a short option advance
    agreement with the Federal Home Loan Bank. The interest rates on the short
    option advance borrowings ranged from 4.85% to 4.94% at December 31, 1998
    and their possible call dates varied from January 15, 1999 to April 14,
    1999.
</FN>

Liquidity and Capital Resources

      Liquidity is our ability to generate funds to support asset growth,
satisfy disbursement needs, maintain reserve requirements and otherwise operate
on an ongoing basis. To date, our principal source of funding for our investing
activities has been:

o     secured senior debt provided by unaffiliated financial institutions;

<PAGE>

o     the issuance of 10% preferred  securities through Matrix Bancorp Capital
      Trust I in July 1999;

o     the issuance of 11.5% senior notes in September 1997;

o     a bank stock loan; and

o     our initial public offering.

    As of December 31, 2000, Matrix Bancorp had $55.7 million in indebtedness
outstanding. The borrowed funds have been used historically as capital
injections to Matrix Bank, Matrix Financial and ABS.

     On December 27, 2000, Matrix Bancorp amended its bank stock loan agreement.
The amended bank stock loan agreement has two components, a $10.0 million term
loan and a revolving line of credit of $10.0 million. As of December 31, 2000,
the balance of the term loan was $8.2 million and there was no outstanding
balance on the revolving line of credit. As part of the amended agreement, the
balance of the term loan was increased to $10.0 million on January 2, 2001. The
amended bank stock loan requires Matrix Bancorp to maintain total shareholders'
equity of $60.0 million.

     On July 30, 1999, Matrix Bancorp Capital Trust I, a Delaware business trust
formed by Matrix Bancorp, completed the sale of $27.5 million of 10% preferred
securities. Matrix Bancorp Capital Trust I also issued common securities to
Matrix Bancorp and used the net proceeds from the offering to purchase $28.6
million in principal amount of 10% junior subordinated debentures of Matrix
Bancorp due September 30, 2029. The junior subordinated debentures are the sole
assets of Matrix Bancorp Capital Trust I and are eliminated, along with the
related income statement effects, in the consolidated financial statements. We
used the proceeds from the sale of the junior subordinated debentures to redeem
our outstanding senior subordinated notes due July 15, 2002, to make
contributions to Matrix Bank, Matrix Financial and ABS to fund their respective
operations, to redeem other higher interest rate indebtedness and for other
general corporate purposes. Capitalized expenses associated with the offering of
approximately $1.4 million are included in other assets at December 31, 2000 and
are being amortized on a straight-line basis over the life of the junior
subordinated debentures.

    The preferred securities accrue and pay distributions quarterly at an annual
rate of 10% of the stated liquidation amount of $25 per preferred security. We
have fully and unconditionally guaranteed all of the obligations of Matrix
Bancorp Capital Trust I under the preferred securities. The guarantee covers the
quarterly distributions and payments on liquidation or redemption of the
preferred securities, but only to the extent of funds held by Matrix Bancorp
Capital Trust I.

    The preferred securities are mandatorily redeemable upon the maturity of the
junior subordinated debentures or upon earlier redemption as provided in the
indenture. We have the right to redeem the junior subordinated debentures, in
whole or in part on or after September 30, 2004, at a redemption price specified
in the indenture plus any accrued but unpaid interest to the redemption date.
See Note 9 to the consolidated financial statements included elsewhere in this
document. Under the indenture, we are prohibited from paying dividends on our
common stock if the scheduled payments on our junior debentures and trust
preferred securities have not been made.

    On September 29, 1997, we completed a registered debt offering of $20.0
million in senior notes due 2004, raising net proceeds of approximately $19.1
million. Interest on the senior notes of 11.5% is payable semi-annually on March
31 and September 30 of each year, commenced on March 31, 1998, with a balloon
payment for the entire principal balance due in September 2004. The 11.5% senior
notes require us to:

o     maintain  consolidated  tangible  equity  capital  of not less  than $35
      million; and

o     meet the requirements necessary such that Matrix Bank will not be
      classified as other than "well capitalized" as defined by applicable
      regulatory guidelines.

Additionally, the 11.5% senior notes contain other covenants regarding certain
restricted payments, incurrence of indebtedness and issuance of preferred stock,
liens, merger, consolidation or sale of assets and transactions with affiliates.

      The trend of net cash used by our operating activities experienced over
the reported periods results primarily from the growth at Matrix Bank. We
anticipate the trend of a net use of cash from operations to continue for the
foreseeable future.
<PAGE>

This anticipation results from the expected growth, albeit less than our
historical growth at Matrix Bank, which we believe will consist primarily of
increased activity in the purchasing of loan portfolios and increased loan
production projected at Matrix Financial. However, due to liquidity and capital
availability, we do not anticipate growth to be as significant as in prior
periods.

    Matrix Bank's primary source of funds for use in lending, purchasing bulk
loan portfolios, investing and other general purposes are:

o     retail deposits;

o     trust deposits;

o     custodial escrow balances;

o     brokered deposits;

o     Federal Home Loan Bank borrowings;

o     sales of loan portfolios; and

o     proceeds from principal and interest payments on loans.

Contractual loan payments and net deposit inflows are a generally predictable
source of funds, while loan prepayments and loan sales are significantly
influenced by general market interest rates and economic conditions. Borrowings
on a short-term basis are used as a cash management vehicle to compensate for
seasonal or other reductions in normal sources of funds. Matrix Bank utilizes
advances from the Federal Home Loan Bank as its primary source for borrowings.
At December 31, 2000, Matrix Bank had overnight and term borrowings from the
Federal Home Loan Bank of $519.4 million. To increase its available liquidity,
Matrix Bank swapped approximately $27.2 million of residential loans during the
first quarter of 2000 and $48.8 million of residential loans during the third
quarter of 2000 with the agencies in exchange for agency securities. In
combination, these securities had a balance of $66.6 million at December 31,
2000. Matrix Bank is able to pledge these securities with the Federal Home Loan
Bank at a higher advance rate. Additionally, the market for securities is more
liquid than the market for whole loans. The custodial escrow balances held by
Matrix Bank fluctuate based upon the mix and size of the related mortgage
servicing rights portfolios and the timing of payments for taxes and insurance,
as well as the level of prepayments which occur. For a tabular presentation of
the our short-term borrowings, see "Asset and Liability Management--Short-term
Borrowings."

      Matrix Bank offers a variety of deposit accounts having a range of
interest rates and terms. Matrix Bank's retail deposits principally consist of
demand deposits and certificates of deposit. The flow of deposits is influenced
significantly by general economic conditions, changes in prevailing interest
rates and competition. Matrix Bank's retail deposits are obtained from areas in
which it is located, as well as through an Internet service. Therefore, its
retail deposits are concentrated primarily in Las Cruces and Sun City, except
for the Internet deposits, which could be out-of-market retail deposits. Matrix
Bank relies principally on customer service, marketing programs and its
relationships with customers to attract and retain in-market deposits. Beginning
in February 1998, brokered deposits were accepted and have been utilized to
support growth at Matrix Bank. In pricing deposit rates, management considers
profitability, the matching of term lengths with assets, the attractiveness to
customers and rates offered by competitors. Matrix Bank intends to continue its
efforts to attract deposits as a primary source of funds to support its lending
and investing activities.
<PAGE>

    The following table sets forth the average balances for each major category
of Matrix Bank's deposit accounts and the weighted-average interest rates paid
for interest-bearing deposits for the periods indicated:
<TABLE>
<CAPTION>

                                                                           Year Ended December 31,
                            --------------------------------------------------------------------------------------------------------
                                           2000                                1999                                1998
                            ----------------------------------  ----------------------------------  --------------------------------
                                                 Weighted                            Weighted                            Weighted
                                Average           Average           Average           Average           Average           Average
                                Balance            Rate             Balance            Rate             Balance            Rate
                            ----------------- ----------------  ----------------- ----------------  ----------------- --------------
                                                                     (Dollars in thousands)
<S>                          <C>              <C>               <C>               <C>               <C>               <C>

Passbook accounts..........  $        2,981          3.42  %     $        2,758          3.48  %     $        2,859          3.58  %
NOW accounts...............          64,523          0.96                24,038          2.50                17,586          2.97
Money market accounts......         130,592          2.34               189,154          3.04               124,796          3.13
Time deposits
  (except brokered)........         177,399          6.10               131,054          5.45               108,107          5.79
Brokered deposits..........         183,685          6.36               156,293          5.11               103,485          5.25
                               -------------- -------------        -------------- -------------        -------------- -------------
      Total deposits.......  $      559,180          4.70  %     $      503,297          4.29  %     $      356,833          4.37  %
                               ============== =============        ============== =============        ============== ==============
</TABLE>


    The following table sets forth the amount of Matrix Bank's certificates of
deposit that are greater than $100,000 by time remaining until maturity as of
December 31, 2000:
<TABLE>
<CAPTION>

                                                     As of December 31, 2000
                                                    --------------------------
                                                                   Weighted
                                                                   Average
                                                       Amount     Rate Paid
                                                    ------------ -------------
                                                     (Dollars in thousands)
<S>                                                <C>           <C>

    Three months or less..........................  $    2,248        6.13 %
    Over three months through six months..........       3,706        6.56
    Over six months through twelve months.........       5,428        6.69
    Over twelve months............................       7,433        6.63
                                                      ---------- -----------
       Total......................................  $   18,815        6.57 %
                                                      ========== ===========

</TABLE>

    We actively monitor Matrix Bank's compliance with regulatory capital
requirements. Historically, Matrix Bank has increased its core capital through
the retention of a portion of its earnings. Matrix Bank's future growth is
expected to be achieved through deposit growth, brokered deposits, borrowings
from the Federal Home Loan Bank and custodial deposits from affiliates. We
anticipate that such growth will require additional capital. The capital
requirements related to the anticipated growth will in part be fulfilled through
retention of earnings, potentially increasing our bank stock loan and future
possible debt or equity offerings.

    Prior to Matrix Financial becoming a subsidiary of Matrix Bank, our
principal source of funding for our servicing acquisition activities and working
capital needs of Matrix Financial consisted of a line of credit facility and a
working capital facility provided to Matrix Financial by an unaffiliated
financial institution. As noted earlier, effective August 1, 2000, Matrix
Financial became a wholly owned subsidiary of Matrix Bank. The contribution of
Matrix Financial increased the capital of Matrix Bank by approximately $25
million, which will provide capital for future growth at Matrix Bank. In
addition, effective August 1, through financing provided by Matrix Bank, Matrix
<PAGE>

Financial paid off its line of credit for the financing on its servicing
acquisitions. In addition, Matrix Financial paid off approximately $4 million of
higher costing borrowings under its purchase/repurchase facilities and paid off
its working capital facility.

    Matrix Financial's principal source of funding for its loan origination
business consists of a warehouse line of credit provided to Matrix Financial by
Matrix Bank. Additionally, we have a warehouse line of credit provided to Matrix
Financial and a sale/repurchase facility provided to ABS by unaffiliated
financial institutions. As of September 29, 2000, Matrix Financial's warehouse
line of credit facility provided by an unaffiliated financial institution was
amended. It aggregates $60.0 million, of which $38.4 million was available to be
utilized as of December 31, 2000. The September 29, 2000 warehouse agreement
provides financing for Matrix Financial's wholesale lending without sub-limits
for such items as servicing acquisitions or working lines of credit. At December
31, 2000, $21.6 million was outstanding under the warehouse line at a weighted
average interest rate of 7.63%. Borrowings under the warehouse line of credit
are secured by all of the mortgage loans funded with warehouse loan proceeds and
bear interest at the LIBOR rate plus a negotiated margin. The sale/repurchase
facility provided to ABS houses school financing. As of December 31, 2000, $17.1
million was outstanding under the sale/repurchase facility at a weighted average
interest rate of 8.95%. Borrowings under the sale/repurchase facility are
secured by all of the school financing funded with sale/repurchase facility
proceeds and bear interest at 8.00% on the tax-exempt school financing and 9.00%
on all other school financing.

    Our principal sources of funding for school financing are internal capital,
a line of credit facility and a partnership trust with an unaffiliated financial
institution. Amounts available under the line of credit facility and the
partnership trust are at the lender's sole discretion.

     During 2000, 1999 and 1998, the Company placed tax-exempt financing it
originated to charter schools into several grantor trusts. The trusts then
issued Class "A" Certificates and Class "B" Certificates, with the Class "A"
Certificates being sold to various third party investors under a private
placement at a price of par.

     The "A" Certificates are guaranteed by a letter of credit issued by a third
party investment bank, and the underlying financing. The "A" Certificates'
interest rate may be determined weekly, monthly or for a term for up to one
year. The interest rate and the term of the interest rate are determined by the
Remarking Agent, which is also the investment bank. Generally, the trusts are
short-term in nature with an average life of one year or less.

    The "B" Certificates are owned in part by the Company and in part by the
investment bank. The interest rate paid on the "A" Certificates and the "B"
Certificates owned by the investment bank is considered the Company's financing
cost. The approximate cost of the financing at December 31, 2000 and 1999 was
7.23% and 7.63%, respectively. The interest that the Company receives through
its part ownership of the "B" Certificates is tax-exempt.

    Although the investment bank acts as a guarantor to the "A" Certificates,
the Company provides limited recourse to the investment bank in all cases of
loss or default. Due to the nature of the recourse and the ability of the "A"
Certificate holders to put the certificates to the trusts, the transactions have
been accounted for as a secured financing.

     Matrix Bank and Sterling Trust are restricted from paying dividends to
Matrix Bancorp due to certain regulatory requirements. See "Regulation and
Supervision. "Matrix Financial is prohibited from paying dividends to Matrix
Bank under its credit agreement dated September 29, 2000. At December 31, 2000,
we were in compliance with all debt covenants.

Inflation and Changing Prices

    The consolidated financial statements and related data presented in this
document have been prepared in accordance with generally accepted accounting
principles, which require the measurement of financial position and operating
results in terms of historical dollars without considering changes in the
relative purchasing power of money over time due to inflation. Unlike most
industrial companies, substantially all of our assets and liabilities are
monetary in nature. As a result, interest rates have a more significant impact
on our performance than the effects of general levels of inflation. Interest
rates do not necessarily move in the same direction or in the same magnitude as
prices of goods and services. We disclose the estimated fair market value of our
financial instruments in accordance with Statement of Financial Accounting
<PAGE>

     Standards No. 107. See Note 16 to the consolidated financial statements
included elsewhere in this document.

Recent Accounting Pronouncements

     In June 1998, the Financial Accounting Standards Board issued SFAS 133. In
June 1999, the FASB issued Statement of Financial Accounting Standards No. 137,
Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133. In June 2000, the FASB issued
Statement of Financial Accounting Standards No. 138, Accounting for Certain
Derivative Instruments and Certain Hedging Activities, which amends certain
provisions of SFAS 133. These statements establish accounting and reporting
standards requiring that all derivatives, including certain derivative
instruments embedded in other contracts, be recorded in the balance sheet as
either an asset or liability measured at fair value and that changes in fair
value be recognized currently in earnings, unless specific hedge accounting
criteria are met. These statements become effective for the Company on January
1, 2001, and generally, will affect the Company in two principal areas, the
hedging activities related to our investment in mortgage servicing rights and
certain mortgage banking related commitments made by us in our wholesale
mortgage operations, as well as forward loan sale commitments.

     Currently, in terms of unpaid principal amount, we have approximately 6% of
our $71.5 million investment in mortgage servicing rights hedged through an
investment in exchange-traded futures and options. We are currently unable to
achieve hedge accounting treatment due to the systems and operational issues
surrounding the tracking required to do so. The financial impact to future
earnings related to our hedging strategies on mortgage servicing rights,
assuming that we continue to hedge with exchange-traded
<PAGE>

futures and options and elect not to achieve hedge accounting treatment, can not
be estimated and will largely depend on future market conditions.

     Based on an October 2000 FASB tentative conclusion, loan commitments that
relate to the origination or acquisition of mortgage loans that will be held for
resale ("pipeline") will be accounted for as derivatives under SFAS 133.
Additionally, we determined that both our mandatory and best effort forward loan
sale commitments meet the SFAS 133 derivative definition, and accordingly, are
required to be recorded at fair value as an asset or liability upon adoption of
SFAS 133. Since the fair values of the pipeline and the forward loan sale
commitments (both mandatory and best effort) used to economically hedge all or a
portion of the pipeline are generally expected to offset each other, we do not
believe the adoption of SFAS 133, with respect to these instruments, will result
in a material impact to our operations in the first quarter of 2001 and
prospectively. In addition to the pipeline loans, we also use both mandatory and
best effort loan sale commitments to hedge our originated loans held for sale.
To the extent that we do not receive hedge accounting treatment related to our
originated loans held for sale, we will be required to record these loans at the
lower of aggregate cost or market with the corresponding loans' sale commitments
recorded at fair value.

     In September 2000, the FASB issued Statement No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,
that replaces, in its entirety, SFAS 125. SFAS 140 revises the standards for
accounting for securitizations and other transfers of financial assets and
collateral and requires certain disclosures. SFAS 140 is effective for transfers
occurring after March 31, 2001 and the expanded disclosure requirements
regarding securitizations and collateral are effective for fiscal years ended
after December 15, 2000. We believe that the adoption of SFAS 140 on April 1,
2001, will have no material impact on our net income.

Forward Looking Statements

      Certain statements contained in this annual report that are not historical
facts, including, but not limited to, statements that can be identified by the
use of forward-looking terminology such as "may," "will," "expect,"
"anticipate," "predict," "believe," "plan," "estimate" or "continue" or the
negative thereof or other variations thereon or comparable terminology, are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, and involve a number of risks and uncertainties.
The actual results of the future events described in such forward-looking
statements in this annual report could differ materially from those stated in
such forward-looking statements. Among the factors that could cause actual
results to differ materially are: third party claims or actions in relation to
the ongoing or future bankruptcies of the Company's customers; interest rate
fluctuations; level of delinquencies; defaults and prepayments; general economic
conditions; competition; government regulation; possible future litigation; the
actions or inactions of third parties, including those that are parties to the
existing bankruptcies of the Company's customers or litigation related thereto;
unanticipated developments in connection with the bankruptcy actions or
litigation described above, including judicial variation from existing legal
precedent and the decision by one or more parties to appeal decisions rendered;
the risks and uncertainties discussed elsewhere in this annual report and in the
Company's current report on Form 8-K, filed with the Securities and Exchange
Commission on March 14, 2001; and the uncertainties set forth from time to time
in the Company's periodic reports, filings and other public statements.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

    See Item 7."Management's Discussion and Analysis of Financial Condition and
Results of Operations - Asset and Liability Management - Risk Sensitive Assets
and Liabilities" and Item 1."Business- Mortgage Servicing Activities - Hedging
of Servicing Rights."

Item 8.  Financial Statements and Supplementary Data

      See Index to Financial Statements on page F-1.

Item 9.  Changes in and Disagreements with Accountants on Accounting and

Financial Disclosure

      Not Applicable.

<PAGE>

                                    PART III

Items 10 through 13.

    The information for these items is incorporated from the definitive proxy
statement to be filed with the Commission.

                                     PART IV

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K

      (a) (1) and (a) (2) Financial statements and financial statement
schedules

        See Index to Financial Statements on page F-1.

      (b)  Reports on Form 8-K

        None.

      (c)  Exhibits

        See Exhibit Index, beginning on page II-1.

(d)   Financial Statement Schedules

       None.

<PAGE>



                                   SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on the 16th day of
March, 2001.

                                        Matrix Bancorp, Inc.

                                        By: /s/ Guy A. Gibson
                                                Guy A. Gibson
                                            President and Chief Executive
                                            Officer

    Pursuant to the requirements of the Securities 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.

 Signatures                         Title                          Date
 ----------                         -----                          ----

/s/ Guy A. Gibson                 President, Chief
    Guy A. Gibson                 Executive                    March 16, 2001
                                  Officer and a Director
                                  (Principal Executive
                                  Officer)


/s/ Richard V. Schmitz            Chairman of the Board        March 16, 2001
    Richard V. Schmitz



/s/ D. Mark Spencer               Vice Chairman and
    D. Mark Spencer               Director                     March 16, 2001



/s/ Thomas M. Piercy              Director                     March 16, 2001
    Thomas M. Piercy


/s/ David W. Kloos                Senior Vice President,
    David W. Kloos                Chief Financial             March 16, 2001
                                  Officer and a
                                  Director
                                  (Principal Accounting
                                  and Financial Officer)

/s/ Stephen Skiba                 Director                    March 16, 2001
    Stephen Skiba


/s/ David A. Frank                Director                    March 16, 2001
    David A. Frank


<PAGE>


                                INDEX TO EXHIBITS

3.1     ///    Amended and Restated Articles of Incorporation of the Registrant
               (3.1)
3.2     +      Bylaws, as amended, of the Registrant (3.2)
4.1     ++     Indenture by and among the Registrant and First Trust National
               Association, as trustee, relating to 11.50% Senior Notes due
               2004 (4.1)
4.2     +      Specimen certificate for Common Stock of the Registrant (4.1)
4.3     + o    Amended and Restated 1996 Stock Option Plan (4.2)
4.4     // o   Employee Stock Purchase Plan, as amended (4.4)
4.5     +      Form of Common Stock Purchase Warrant by and between the
               Registrant and Piper Jaffray, Inc. (4.4)
4.6     +      Form of Common Stock Purchase Warrant by and between the
               Registrant and Keefe, Bruyette & Woods, Inc. (4.5)
4.7     ^      Indenture by and among the Registrant and State Street Bank and
               Trust Company, as trustee, relating to the 10% Junior
               Subordinated Debentures due 2029 (4.7)
4.8     ^      Form of Junior Subordinated Debentures (4.8)
4.9     ^      Certificate of Trust of Matrix Bancorp Capital Trust I (4.9)
4.10    ^      Amended and Restated Trust Agreement of Matrix Bancorp Capital
               Trust I (4.10)
4.11    ^      Preferred Security Certificate for Matrix Bancorp Capital Trust
               I (4.11)
4.12    ^      Preferred Securities Guarantee Agreement of the Company relating
               to the Preferred Securities (4.12)
4.13    ^      Agreement as to the Expenses and Liabilities (4.13)
4.14    ^^o    Matrix Bancorp, Inc. Executive Deferred Compensation Plan (4.1)
4.15    ^^     Trust Agreement, dated December 7, 2000 between Matrix Bancorp,
               Inc. and Matrix Bancorp, Inc., as Trustee (4.2)
10.1    + o    Employment Agreement, dated as of January 1, 1995, between Matrix
               Capital Bank and Gary Lenzo and as amended January 1, 1996
               (10.5)
10.2    +      Mortgage Loan Purchase and Servicing Agreement, dated as of
               August 1, 1993, by and between Argo Federal Savings Bank,
               FSB, and Matrix Financial Services Corporation (10.11)
10.3    +      Assignment and Assumption Agreement, dated as of June 28, 1996,
               by and among Mariano C. DeCola, William M. Howdon, R. James
               Nicholson and Matrix Funding Corp. (10.30)
10.4    +      Development Management Agreement, dated as of June 28, 1996, by
               and among Fort Lupton, L.L.C. and Matrix Funding Corp. (10.31)
10.5    ///    Coyote Creek Planned Unit Development Agreement, dated as of July
               1, 1998, by and among Fort Lupton, L.L.C. and Matrix Funding
               Corp. (10.12)
10.6    ////   Employment Agreement Addendum of Gary Lenzo, dated December 14,
               1999 (10.7)
10.7    *      Promissory Note, dated as of January 31, 2001, from D. Mark
               Spencer, as maker, to the Registrant, as payee
10.8    +      Fort Lupton Golf Course Residential and Planned Unit Development
               Agreement, dated as of November 28, 1995 (10.36)
10.9    +      Loan Agreement, dated as of June 21, 1996, by and between Matrix
               Funding Corporation and The First Security Bank (10.41)
10.10   +      Loan Agreement, dated July 10, 1992, by and between American
               Strategic Income Portfolio, Inc. and Matrix Financial
               Services Corporation  (10.45)
10.11   +      Promissory Note, dated as of July 10, 1992, by Matrix Financial
               Services Corporation, as maker, to American Strategic Income
               Portfolio, Inc., as payee (10.46)
10.12   ***    Credit Agreement, dated as of September 29, 2000, between
               Matrix Financial Services Corporation, as borrower, and U.S.
               Bank National Association, as agent, and certain lenders, as
               lenders (10.2)
10.13   ***    Guaranty, dated as of September 29, 2000, from the Registrant to
               U.S. Bank National Association, as agent (10.3)
10.14   / o    Employment Agreement, dated as of February 4, 1997, by and
               between The Vintage Group, Inc. and Paul Skretny (10.38)
10.15   *      Credit Agreement, dated as of December 27, 2000, by and between
               Registrant, as borrower, and U.S. Bank National Association,
               as agent, and certain lenders, as lenders
10.16   //o    Agreement, dated October 1, 1997, with T. Allen McConnell (10.37)
10.17   +++    Agreement and Plan of Merger, dated as of March 25, 1998, among
               Fidelity National Financial, Inc., MCC Merger, Inc. and Matrix
               Capital Corporation (99.2)
10.18   ++     Merger Termination Agreement between Matrix Capital Corporation,
               Fidelity National Financial, Inc., and MCC Merger Sub, Inc.,
               dated August 28, 1998 (10.1)


                                      II-1
<PAGE>

10.19   *      Promissory Note, dated as of February 21, 2001, from Thomas P.
               Cronin, as maker, to the Registrant, as payee
10.20   +o     Amendment of Employment Agreement dated as of February 4, 1997,
               dated as of February 4, 2000, by and between The Vintage
               Group, Inc. and Paul E. Skretny (10.32)
10.21   **     Executive Employment Agreement, dated as of April 20, 2000, by
               and between United Financial, Inc. and Carl G. de Rozario
               (10.6)
10.22   *      Lease dated as of September 1, 1999, by and between Matrix
               Financial Services Corporation and Suncor Development Company
10.23   *      Lease with a reference date of 1999, by and between the
               Registrant and the Regents of the University of Colorado
10.24   *      First Amendment to Lease, dated as of July, 2000, by and
               between the Registrant and the Regents of the University of
               Colorado, amending the Lease with a reference date of 1999
               between the parties
10.25   *      Second Amendment to Lease, dated as of October, 2000, by and
               between the Registrant and the Regents of the University of
               Colorado, amending the Lease with a reference date of 1999
               between the parties
10.26   *      Promissory Note, dated as of February 21, 2001, from Thomas
               M. Piercy, as maker, to the Registrant, as payee
10.27   *.     Matrix Bancorp, Inc. Executive Incentive Plan
10.28   +.     Executive Employment Agreement, dated as of January 1, 1996,
               by and between the Registrant and David W. Kloos (10.4)
12      *      Statement Re: Computations of Ratios
21      *      Subsidiaries of the Registrant
23      *      Consent of Ernst & Young LLP

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


*    Filed herewith

+    Incorporated by reference from the exhibit number shown in parenthesis from
     the Registrant's registration statement on Form S-1 (No. 333-10223), filed
     by the Registrant with the Commission.

++   Incorporated by reference from the exhibit number shown in parenthesis from
     the Registrant's registration statement on Form S-1 (No. 333-34977), filed
     by the Registrant with the Commission.

+++  Incorporated by reference from the exhibit number shown in parenthesis from
     the Registrant's report on Form 8-K, filed by the Registrant with the
     Commission on April 8, 1998.

/    Incorporated by reference from the exhibit number shown in parenthesis from
     the Registrant's annual report on Form 10-K for the fiscal year ended
     December 31, 1996, filed by the Registrant with the Commission.

//   Incorporated by reference from the exhibit number shown in parenthesis from
     the Registrant's annual report on Form 10-K for the fiscal year ended
     December 31, 1997, filed by the Registrant with the Commission.

///  Incorporated by reference from the exhibit number shown in parenthesis from
     the Registrant's annual report on Form 10-K for the fiscal year ended
     December 31, 1998, filed by the Registrant with the Commission.

//// Incorporated by reference from the exhibit number shown in parenthesis from
     the Registrant's annual report on Form 10-K for the fiscal year ended
     December 31, 1999, filed by the Registrant with the Commission.

+    Incorporated by reference from the exhibit number shown in parenthesis from
     the Registrant's current report on Form 8-K filed by the Registrant with
     the Commission on June 30, 2000.

++   Incorporated by reference from the exhibit number shown in parenthesis from
     the Registrant's quarterly report on Form 10-Q for the quarter ended
     September 30, 1998, filed by the Registrant with the Commission.

**   Incorporated by reference from the exhibit number shown in parenthesis from
     the Registrant's quarterly report on Form 10-Q for the quarter ended June
     30, 2000, filed by the Registrant with the Commission.

***  Incorporated by reference from the exhibit number shown in parenthesis from
     the Registrant's quarterly report on Form 10-Q for the quarter ended
     September 30, 2000, filed by the Registrant with the Commission.

^    Incorporated by reference from the exhibit number shown in parenthesis from
     the Registrant's registration statement on Form S-1/A (No. 333-79731),
     filed by the Registrant with the Commission.

                                      II-2

<PAGE>


^^   Incorporated by reference from the exhibit number shown in parenthesis from
     the Registrant's registration statement on Form S-8 (No. 333-51516), filed
     by the Registrant with the Commission.

o    Management contract or compensatory plan or arrangement.
<PAGE>



                 INDEX TO FINANCIAL STATEMENTS

Consolidated Financial Statements of Matrix Bancorp, Inc.


Report of Independent Auditors..............................................F-2

Consolidated Balance Sheets--December 31, 2000 and 1999.....................F-3

Consolidated Statements of Income--for the years ended
December 31, 2000, 1999 and 1998............................................F-4

Consolidated Statements of Shareholders' Equity--for the years ended
December 31, 2000, 1999 and 1998............................................F-5

Consolidated Statements of Cash Flows--for the years ended
December 31, 2000, 1999 and 1998............................................F-6

Notes to Consolidated Financial Statements--December 31, 2000...............F-7

<PAGE>




                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders of
Matrix Bancorp, Inc.

We have audited the accompanying consolidated balance sheets of Matrix Bancorp,
Inc. and subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 2000. These consolidated
financial statements are the responsibility of Matrix Bancorp, Inc.'s
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Matrix
Bancorp, Inc. and subsidiaries at December 31, 2000 and 1999, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States.


Phoenix, Arizona                                /s/ Ernst & Young LLP
February 23, 2001
<PAGE>


                            Matrix Bancorp, Inc.

                           Consolidated Balance Sheets

                             (Dollars in thousands)

                                                      December 31,
                                                    2000        1999
                                               -------------------------
Assets

Cash.............................................$   17,539  $   13,437
Federal funds sold...............................    20,000           -
Interest-earning deposits........................    15,631      13,172
Mortgage-backed securities available for sale....    66,616           -
Loans held for sale, net.........................   942,496     977,751
Loans held for investment, net...................   173,525     125,764
Mortgage servicing rights, net...................    71,529      63,479
Other receivables................................    58,262      44,933
Federal Home Loan Bank of Dallas stock...........    27,814      22,414
Premises and equipment, net......................    13,189      10,817
Other assets.....................................    12,194      11,979
                                                -------------------------
Total assets.................................... $1,418,795  $1,283,746
                                                =========================

Liabilities and shareholders' equity

Liabilities:
  Deposits.......................................$  602,669  $  562,194
  Custodial escrow balances......................    77,647      94,206
  Payable for purchase of mortgage servicing
    rights.......................................    12,666       3,163
  Federal Home Loan Bank of Dallas borrowings....   519,433     405,000
  Borrowed money.................................    97,003     114,601
  Guaranteed preferred beneficial interests in
    company's 10 percent junior subordinated
    debentures....................................   27,500      27,500
  Other liabilities...............................   14,504      14,826
  Income taxes payable............................    3,350       1,759
                                                -------------------------
Total liabilities................................ 1,354,772   1,223,249

Commitments and contingencies

Shareholders' equity:
  Preferred stock, par value $.0001; authorized
    5,000,000 shares; no shares outstanding.......        -           -
  Common stock, par value $.0001; authorized
    50,000,000 shares; issued and outstanding
    6,558,904 and 6,759,241 shares at
    December 31, 2000 and 1999, respectively......        1           1
  Additional paid-in capital......................   23,004      22,780
  Treasury shares at cost, 237,000 shares
    at December 31, 2000..........................   (1,775)          -
  Retained earnings...............................   41,974      37,716
  Accumulated other comprehensive income..........      819           -
                                                -------------------------
Total shareholders' equity.......................    64,023      60,497
                                                -------------------------
Total liabilities and shareholders' equity.......$1,418,795  $1,283,746
                                                =========================
<PAGE>

See accompanying notes.



<PAGE>


                              Matrix Bancorp, Inc.

                        Consolidated Statements of Income

             (Dollars in thousands except per share information)

                                           Year Ended December 31,
                                        2000        1999        1998
                                     -------------------------------------
Interest income:
  Loans and mortgage-backed
    securities...................... $   93,965  $   72,355  $   59,452
  Interest-earning deposits.........      3,421       1,395       1,242
                                    -------------------------------------
   Total interest income............     97,386      73,750      60,694

Interest expense:
  Savings and time deposits..........    22,603      15,233      11,789
  Demand and money market deposits...     3,672       6,356       4,432
  Federal Home Loan Bank of Dallas
    borrowings.......................    27,242       9,184       8,554
  Borrowed money.....................    14,084      13,514      11,729
                                    -------------------------------------
Total interest expense...............    67,601      44,287      36,504
                                    -------------------------------------
Net interest income before
  provision for loan and valuation
  losses.............................    29,785      29,463      24,190
Provision  for  loan  and  valuation
  losses.............................     4,235       3,180       4,607
                                    -------------------------------------
Net interest income after provision
  for loan and valuation losses......    25,550      26,283      19,583

Noninterest income:
  Loan administration................    23,850      23,686      17,411
  Brokerage..........................     5,476       6,156       7,054
  Trust services.....................     4,923       4,840       4,169
  Real estate disposition services...     3,677       3,659       2,036
  Gain on sale of loans and
    mortgage-backed securities.......       982       3,247       3,108
  Gain on sale of mortgage
    servicing rights.................     2,634         363         803
  Loan origination...................     7,587       6,218       5,677
  School services....................     4,240       2,813          46
  Other..............................     5,423       9,378       6,441
                                    -------------------------------------
Total noninterest income.............    58,792      60,360      46,745

Noninterest expense:
  Compensation and employee benefits..   34,245      29,336      22,194
  Amortization of mortgage
    servicing rights..................    9,851      16,403      10,563
  Occupancy and equipment.............    4,785       3,727       3,059
  Postage and communication...........    2,812       2,688       2,393
  Professional fees...................    4,687       2,385       1,439
  Data processing.....................    2,413       1,688       1,344
  Other general and administrative....   19,048      13,359      11,947
                                    -------------------------------------
Total noninterest expense............    77,841      69,586      52,939
                                    -------------------------------------
Income before income taxes...........     6,501      17,057      13,389
Provision for income taxes...........     2,243       6,278       4,876
                                    -------------------------------------
Net income...........................$    4,258  $   10,779  $    8,513
                                    =====================================


<PAGE>

                              Matrix Bancorp, Inc.

                Consolidated Statements of Income (continued)

             (Dollars in thousands except per share information)

                                           Year Ended December 31
                                        2000        1999        1998
                                    -------------------------------------

Net income per common share..........$     0.63  $     1.60  $     1.27
                                    =====================================
Net income per common share -
  assuming dilution..................$     0.63  $     1.58  $     1.24
                                    =====================================
Weighted average common shares....... 6,713,251   6,728,211   6,704,991
                                    =====================================
Weighted average common shares -
  assuming dilution.................. 6,748,857   6,833,546   6,881,890
                                    =====================================

See accompanying notes.


<PAGE>

                              Matrix Bancorp, Inc.

               Consolidated Statements of Shareholders' Equity

                             (Dollars in thousands)

<TABLE>
<CAPTION>


                                                                                Accumulated

                                    Common Stock     Additional                         Other
                                  -----------------   Paid In    Treasury  Retained  Comprehensive          Comprehensive
                                  Shares     Amount   Capital     Shares   Earnings     Income        Total    Income
                                  ---------------------------------------------------------------------------------------
<S>                                 <C>        <C>      <C>         <C>      <C>          <C>          <C>       <C>

Balance at December 31, 1997..... 6,703,880  $    1   $22,185    $     -   $18,424     $    -        $40,610
  Issuance of stock related to
    employee stock purchase plan
    and options..................    20,031       -       231          -         -          -            231
  Net income.....................         -       -        -           -     8,513          -          8,513
                                  ---------------------------------------------------------------------------------------
Balance at December 31, 1998..... 6,723,911       1    22,416          -    26,937          -         49,354
  Issuance of stock related to
    employee stock purchase plan
    and options..................    35,330       -       364          -         -          -            364
  Net income.....................         -       -         -          -    10,779          -         10,779
                                  ---------------------------------------------------------------------------------------
Balance at December 31, 1999..... 6,759,241       1    22,780          -    37,716          -         60,497
  Shares repurchased.............  (237,000)      -         -     (1,775)        -          -         (1,775)
  Issuance of stock related to
    employee stock purchase plan
    and options..................    36,663       -       224          -         -          -            224
  Comprehensive income:
    Net income...................         -       -         -          -     4,258          -          4,258   $ 4,258
    Net unrealized holding gains          -       -         -          -         -        819            819       819
                                                                                                               ----------
  Comprehensive income...........                                                                              $ 5,077
                                  -----------------------------------------------------------------------------==========
Balance at December 31, 2000..... 6,558,904  $    1   $23,004    $(1,775)  $41,974     $  819        $64,023
                                  =============================================================================
See accompanying notes.

</TABLE>

<PAGE>

                              Matrix Bancorp, Inc.

                      Consolidated Statements of Cash Flows

                             (Dollars in thousands)

                                             Year Ended December 31,
                                           2000       1999       1998
                                        ---------------------------------
Operating activities

Net income...............................$   4,258  $  10,779  $   8,513
Adjustments to reconcile net income to
  net cash used in operating activities:
   Depreciation and amortization.........    2,583      4,424      2,519
   Provision for loan and valuation
     losses..............................    4,235      3,180      4,607
   Amortization of mortgage servicing
     rights..............................    9,851     16,403     10,563
   Unrealized gain on securities.........      819          -          -
   Deferred income taxes.................     (518)      (391)        48
   Gain on sale of loans and
     mortgage-backed securities..........     (982)    (3,247)    (3,108)
   Gain on sale of mortgage servicing
     rights..............................   (2,634)      (363)      (803)
   Gain on sale of premises and
     equipment...........................   (1,159)         -          -
   Loans originated for sale, net of
     loans sold.......................... (125,944)    69,722    (76,544)
   Loans purchased for sale.............. (225,898)  (701,952)  (678,150)
   Proceeds from sale of loans
     purchased for sale..................  108,466    192,722    319,430
   Originated mortgage servicing
     rights, net.........................      (16)    (1,514)        24
   Decrease(increase) in other receivables
     and other assets....................    6,777     (6,796)   (23,743)
   Increase in other liabilities and
     income taxes payable................    3,682      2,369      1,935
                                        ---------------------------------
Net cash used in operating activities     (216,480)  (414,664)  (434,709)

Investing activities
Loans originated and purchased for
  investment............................. (202,300)  (118,327)   (82,547)
Principal repayments on loans............  353,713    303,026    176,520
Purchase of Federal Home Loan Bank of
  Dallas stock...........................   (5,400)    (6,771)    (6,943)
Purchases of premises and equipment......   (7,089)    (2,615)    (3,028)
Hedging of servicing portfolio, net......       95     (3,257)       321
Acquisition of mortgage servicing rights.  (22,380)   (28,694)   (31,388)
Proceeds from the sale of premises and
  equipment..............................    3,664          -          -
Proceeds from sale of mortgage
  servicing rights.......................    3,537      2,827      5,160
                                        ---------------------------------
Net cash provided by investing
  activities.............................  123,840    146,189     58,095

<PAGE>

                              Matrix Bancorp, Inc.

                      Consolidated Statements of Cash Flows

                             (Dollars in thousands)

                                             Year Ended December 31,
                                           2000       1999       1998
                                        ---------------------------------

Financing activities

Net increase in deposits................ $  40,475  $  71,678  $ 265,534
Net (decrease) increase in custodial
  escrow balances.......................   (16,559)    (2,618)    43,064
Increase in revolving lines and
  repurchase agreements, net............   125,743    174,334     64,564
Payments of notes payable...............   (31,169)   (31,890)   (64,539)
Proceeds from notes payable.............     2,325     33,395     85,078
Payment of financing arrangements.......       (63)      (117)      (166)
Payment of subordinated debt............         -     (2,910)         -
Proceeds from junior subordinated
  debentures............................         -     26,063          -
Treasury shares repurchased.............    (1,775)         -          -
Proceeds from issuance of common stock
  related to employee stock purchase
  plan and options......................       224        364        231
                                        ---------------------------------
Net cash provided by financing
  activities............................   119,201    268,299    393,766
                                        ---------------------------------
Increase (decrease) in cash and cash
  equivalents...........................    26,561       (176)    17,152
Cash and cash equivalents at beginning
  of year...............................    26,609     26,785      9,633
                                        ---------------------------------
Cash and cash equivalents at end of
  year.................................. $  53,170  $  26,609  $  26,785
                                        =================================

Supplemental disclosure of cash flow
  information

Cash paid for interest expense.......... $  68,298  $  41,139  $  34,547
                                        =================================
Cash paid for income taxes.............. $   1,592  $   5,248  $   4,664
                                        =================================

See accompanying notes.


<PAGE>

                              Matrix Bancorp, Inc.

                  Notes to Consolidated Financial Statements

                                December 31, 2000

1. Organization

Matrix Bancorp, Inc. (Company) is a unitary thrift holding company that, through
its subsidiaries, is a diversified financial services company headquartered in
Denver, Colorado. The Company's operations are conducted primarily through
Matrix Capital Bank (Matrix Bank), Matrix Financial Services Corporation (Matrix
Financial), United Financial, Inc. (United Financial), Matrix Asset Management
Corporation (Matrix Asset Management), ABS School Services, L.L.C. (ABS),
Sterling Trust Company (Sterling) and First Matrix Investment Services
Corporation (First Matrix), all of which are wholly owned.

Matrix Bank, a federally chartered savings and loan association, serves its
local communities of Las Cruces, New Mexico, and Phoenix, Arizona, by providing
personal and business depository services, offering residential loans and
providing, on a limited basis, commercial real estate and consumer loans.

The Company's mortgage banking business is primarily conducted through Matrix
Financial, and was established with the primary objective of acquiring,
originating and servicing residential mortgage loan servicing rights. Servicing
mortgage loans involves the contractual right to receive a fee for processing
and administering mortgage loan payments. The Company acquires servicing rights
primarily in the secondary market. Matrix Financial originates residential loans
primarily through its wholesale loan origination offices in the Atlanta, Dallas,
Denver, Chicago, Houston, Phoenix, Santa Ana and St. Louis metropolitan areas.

United Financial provides brokerage and consulting services to financial
institutions and financial services companies in the mortgage banking industry,
primarily related to the brokerage and analysis of residential mortgage loan
servicing rights and residential mortgage loans, corporate and mortgage loan
servicing portfolio valuations, development of mortgage loan servicing retention
programs, and, to a lesser extent, consultation and brokerage services in
connection with mergers and acquisitions of mortgage banking entities.

Matrix Asset Management, formerly known as United Special Services, Inc.,
provides real estate management and disposition services on foreclosed
properties owned by financial services companies and financial institutions.

ABS provides outsourced business services and financing to charter schools.

<PAGE>

                              Matrix Bancorp, Inc.

            Notes to Consolidated Financial Statements (continued)



1. Organization (continued)

Sterling's operations, which are located in Texas, consist of a nonbank trust
company specializing in the administration of self-directed individual
retirement accounts, qualified business retirement plans and personal custodial
accounts, as well as corporate escrow and paying agent services.

First Matrix is registered with the National Association of Securities Dealers
as a fully disclosed broker-dealer with headquarters in Fort Worth, Texas and a
branch office in Denver, Colorado.

The accounting and reporting policies of the Company and its subsidiaries
conform to accounting principles generally accepted in the United States and to
general practices within the financial services industry. The following is a
description of the more significant policies which the Company follows in
preparing and presenting its consolidated financial statements.

2. Significant Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. Significant intercompany accounts and
transactions have been eliminated in consolidation.

The Company contributed 100 percent of Matrix Financial's stock to Matrix Bank
on August 1, 2000. All of Matrix Financial's assets and liabilities were
transferred at their carrying or book basis. This transaction had no impact on
the consolidated financial statements.

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and the accompanying notes. Actual results could differ from these
estimates.

<PAGE>

                              Matrix Bancorp, Inc.

            Notes to Consolidated Financial Statements (continued)


2. Significant Accounting Policies (continued)

Mortgage-Backed Securities Available for Sale

Securities available for sale include mortgage-backed securities. Securities
available for sale are carried at estimated fair values with the net unrealized
gains or losses reported in accumulated other comprehensive income, which is
included as a separate component in shareholders' equity. The Company records
its securities portfolio at estimated fair value at the end of each quarter
based on public market quotes. At disposition, the realized gain or loss is
included in earnings on a specific identification basis.

Loans Held for Sale

Loans originated or purchased with the intent for sale in the secondary market
are carried at the lower of aggregate cost, net of discounts or premiums and a
valuation allowance, or estimated market value. Market value is determined using
forward commitments to sell loans or mortgage-backed securities to permanent
investors or current market rates for loans of similar quality and type. Net
unrealized losses, if any, would be recognized in a valuation allowance by
charges to income. Discounts or premiums on loans held for sale are not accreted
or amortized into income on an interest method; however, discounts and premiums
related to payments of loan principal are recorded in interest income. The loans
are primarily secured by one-to-four family residential real estate located
throughout the United States.

Gains and losses on loan sales are determined based on the difference between
the allocated cost basis of the assets sold and the proceeds, which includes the
fair value of any assets or liabilities that are newly created as a result of
the transaction. Losses related to recourse provisions in excess of the amount
originally provided are accrued as a liability at the time such additional
losses are determined, and recorded as part of noninterest expense.

Loans Held for Investment

Loans held for investment are stated at unpaid principal balances, less unearned
discounts and premiums, deferred loan fees, loans in process and allowance for
loan losses.

<PAGE>

                              Matrix Bancorp, Inc.

            Notes to Consolidated Financial Statements (continued)


2. Significant Accounting Policies (continued)

Allowance for Loan Losses

The allowance for loan losses is calculated, in part, based on historical loss
experience. In addition, management takes into consideration other factors such
as any qualitative evaluations of individual classified assets, geographic
portfolio concentrations, new products or markets, evaluations of the changes in
the historical loss experience component, and projections of this component into
the current and future periods based on current knowledge and conditions. After
an allowance has been established for the loan portfolio, management establishes
an unallocated portion of the allowance for loan losses, which is attributable
to factors that cannot be associated with a specific loan or loan portfolio.
These factors include general economic conditions, recognition of specific
regional geographic concerns, loan type and trends in portfolio growth. Loan
losses are charged against the allowance when the probability of collection is
considered remote. In the opinion of management, the allowance, when taken as a
whole, is adequate to absorb the inherent losses in the current loan portfolio.

The Company considers a loan impaired when, based on current information and
events, it is probable that it will be unable to collect all amounts due
according to the contractual terms of the loan. The Company evaluates its
residential loans collectively due to their homogeneous nature. Accordingly,
potential impaired loans of the Company include only commercial loans, real
estate construction loans, commercial real estate mortgage loans and school
financing classified as nonperforming loans. Impairment allowances are
considered by the Company in determining the overall adequacy of the allowance
for loan losses. As of December 31, 2000 and 1999, the Company had $5,224,000
and $5,301,000, respectively, of impaired commercial loans and school financing
with related specific allowances for loan and valuation losses of $287,000 and
$649,000, respectively.

Loans are placed on nonaccrual status when full payment of principal or interest
is in doubt, or generally when they are past due 90 days as to either principal
or interest, unless the interest is guaranteed by a creditworthy entity through
recourse provisions. Previously accrued but unpaid interest is reversed and
charged against interest income, if not collectible, and future accruals are
discontinued. Interest payments received on nonaccrual loans are recorded as
interest income unless there is doubt as to the collectibility of the recorded
investment. In those cases, cash received is recorded as a reduction in
principal.

<PAGE>

                              Matrix Bancorp, Inc.

            Notes to Consolidated Financial Statements (continued)


2. Significant Accounting Policies (continued)

Mortgage Servicing Rights

The Company recognizes mortgage servicing rights (MSRs) as an asset separate
from the underlying originated mortgage loan and initially, upon sale of the
loans, measures retained MSRs by allocating the previous carrying amount of the
originated mortgage loan between the loan and the servicing right based on their
respective fair values. Purchased MSRs are initially measured at fair value.
MSRs are carried at the lower of cost (allocated cost for originated MSRs), less
accumulated amortization, or fair value. MSRs are amortized in proportion to and
over the period of the estimated future net servicing income.

The fair value of MSRs is determined based on the discounted future servicing
income stratified based on one or more predominant risk characteristics of the
underlying loans. The Company stratifies its MSRs by product type and investor
to reflect the predominant risk characteristics. To determine the fair value of
MSRs, the Company uses a valuation model that calculates the present value of
future cash flows. In using this valuation method, the Company incorporates
assumptions that market participants would use in estimating future net
servicing income, which includes estimates of the cost of servicing per loan,
including incremental interest cost of servicer advances, the discount rate,
float value, an inflation rate, ancillary income per loan, prepayment speeds and
default rates. For purposes of performing an impairment analysis on MSRs, the
Company estimated fair value using the following primary assumptions: prepayment
speeds ranging from 133 PSA to 2,000 PSA (Public Securities Association
prepayment speed measurement), discount rates ranging from 9.50 percent to 22
percent, and default rate's ranging from 0 percent to 50 percent. The Company
records a valuation allowance where the estimated fair value is below the
carrying amount of individual stratifications, even though the overall fair
value of the servicing assets may exceed amortized cost. As of December 31,
2000, no valuation allowance was required, and the fair value of the aggregate
MSRs was approximately $75,185,000.

Gain on sale of MSRs is recognized when title to MSRs and substantially all the
risks and rewards inherent in owning the MSRs have been transferred to the
buyer, and any protection provisions retained by the Company are minor and can
be reasonably estimated.

Premises and Equipment

Premises and equipment are carried at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated lives
of the assets, which range from three to seven years for office furniture,
equipment and software and 30 years for buildings.

Foreclosed Real Estate

Real estate acquired through foreclosure, deed in lieu of foreclosure or in
judgment is carried at the lower of fair value, less estimated costs to sell, or
the related loan balance at the date of foreclosure. Valuations are periodically
performed by management and an allowance for loss is established by a charge to
operations if the carrying value of a property exceeds its fair value, less
estimated costs to sell. The net carrying value of foreclosed real estate, which
is classified in other assets, was $2,646,000 and $800,000 at December 31, 2000
and 1999, respectively. A substantial majority of the Company's foreclosed
properties relate to residential real estate as of December 31, 2000 and 1999.

<PAGE>

                              Matrix Bancorp, Inc.

            Notes to Consolidated Financial Statements (continued)


2. Significant Accounting Policies (continued)

Acquired Real Estate

Costs directly attributable to the acquisition, development and construction of
land development are capitalized. Such costs include preacquisition costs,
direct project costs and holding costs. The investment in land development is
carried at the lower of cost, which includes capitalized costs, or net
realizable value. Net unrealized losses, if any, would be recognized in a
valuation allowance. As of December 31, 2000, there was no valuation allowance
necessary for the land development.

Income Taxes

The Company and its subsidiaries file consolidated federal and state income tax
returns. The subsidiaries are charged for the taxes applicable to their profits
calculated on the basis of filing separate income tax returns. Matrix Bank
qualifies as a savings and loan association for income tax purposes.

The Company uses the liability method in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax basis of assets and liabilities, and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.

Loan Administration Income

Loan administration income represents service fees and other income earned from
servicing loans for various investors. Loan administration income includes
service fees that are based on a contractual percentage of the outstanding
principal balance plus late fees and other ancillary charges. Service fees on
loans that are not delinquent or are delinquent by no more than 60 days are
recognized when earned. All other income is recognized when the related payments
are received.

Brokerage Income

Brokerage income represents fees earned related to servicing brokerage and
consulting services. Brokerage income is recognized when earned.

<PAGE>

                              Matrix Bancorp, Inc.

            Notes to Consolidated Financial Statements (continued)


2. Significant Accounting Policies (continued)

Trust Services Income

Trust services income represents fees earned related to services provided for
self-directed individual retirement accounts, qualified benefit plans and escrow
arrangements. Trust services income is recognized when earned.

Real Estate Disposition Services Income

Real estate disposition services income represents fees earned related to real
estate management and disposition services. Real estate disposition services
income is recognized when earned.

Loan Origination Income

Loan origination income for loans originated for sale, which includes all
mortgage origination fees, secondary marketing activity and servicing-released
premiums on mortgage loans sold, net of outside origination costs, is recognized
as income at the time the loan is sold and funded by the investor.

Loan origination income for loans originated for investment, which includes
mortgage origination fees and certain direct costs associated with loan
originations, is deferred and amortized as a yield adjustment over the
contractual life of the related loan using the interest method, adjusted for
estimated prepayments.

School Services Income

School services income represents fees earned related to outsourced business and
consulting services provided to schools. School services income is recognized
when earned.

<PAGE>

                              Matrix Bancorp, Inc.

            Notes to Consolidated Financial Statements (continued)


2. Significant Accounting Policies (continued)

Cash and Cash Equivalents

Cash equivalents, for purposes of the consolidated statements of cash flows,
consist of nonrestricted cash, federal funds sold and interest-earning deposits
with banks with original maturities, when purchased, of three months or less.

Risk Management Activities for MSRs

The Company hedges a segment of its servicing portfolio using exchange-traded
futures and options. A change in the market value of the futures contract is
deferred and amortized in proportion to and over the period of the estimated
future net servicing income of the hedged servicing portfolio. The option
premium or cost is amortized ratably over the period of the option. If any of
the hedged servicing portfolio is sold, then the realized and unrealized gain or
loss from the futures and options attributable to the portion sold is included
in the basis of the MSRs sold for purposes of calculating gain or loss on sale.
These realized and unrealized hedging gains and losses are considered in the
determination of the fair value of the MSRs. Effective January 1, 2001, the
Company's derivative instruments used in risk management activities for MSRs
will be accounted for in accordance with Statement No. 133.

Net Income Per Share

Basic earnings per share (EPS), or net income per common share, excludes
dilution and is computed by dividing net income by the weighted average number
of common shares outstanding for the period. Net income per common share
assuming dilution is computed by dividing net income by the weighted average
number of common shares outstanding for the period and the dilutive effect, if
any, of stock options and warrants outstanding for the period.

<PAGE>

                              Matrix Bancorp, Inc.

            Notes to Consolidated Financial Statements (continued)


2. Significant Accounting Policies (continued)


Investment in Joint Venture

The Company's 45 percent-owned investment in Matrix Settlement & Clearance
Services, L.L.C. (MSCS) is accounted for using the equity method. This
investment was classified in other assets, and had a carrying value of $653,000
and $276,000 as of December 31, 2000 and 1999, respectively. For the years ended
December 31, 2000 and 1999, the Company recorded losses of $478,000 and
$324,000, respectively, in other income related to MSCS operations.

<PAGE>

                              Matrix Bancorp, Inc.

            Notes to Consolidated Financial Statements (continued)


2. Significant Accounting Policies (continued)

Impact of Recently Issued Accounting Standards

Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended, generally requires the Company
to recognize all free standing and embedded derivative instruments as either
assets or liabilities on the balance sheet at fair value. Derivatives that are
not hedges must be adjusted to fair value through earnings. Statement No. 133
allows for hedge accounting treatment for derivatives used to hedge various
risks and sets forth specific documentation requirements and qualifying criteria
to be used to determine when hedge accounting can be applied. Depending on the
nature of the hedging relationship, hedge accounting treatment provides for
changes in the fair value of derivatives to be either offset against the change
in fair value of assets, liabilities, or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings.

Derivative instruments designated and qualifying to hedge the exposure to
changes in the fair value of an asset, a liability or a firm commitment, or an
identified portion thereof that is attributable to a particular risk, such as
interest rate risk, are considered fair value hedges under Statement No.133.
Fair value hedges are accounted for by recognizing the changes in fair value of
the derivative currently in earnings, offset by a concurrent recognition in
earnings of gains or losses on the hedged item attributable to the hedged risk
and adjusting the carrying value of the hedged item. Derivative instruments
designated and qualifying to hedge the exposure to variability in expected
future cash flows, such as forecasted transactions, are considered cash flow
hedges. Cash flow hedges are accounted for by recording the derivative
instrument on the balance sheet as either an asset or a liability with a
corresponding offset, representing the effective portion of the hedge, recorded
in other comprehensive income within shareholders' equity, net of related income
taxes. Amounts are reclassified from other comprehensive income to earnings in
the same period or periods during which the hedged transaction affects earnings.
Generally, under both hedging methods, derivative gains and losses which relate
to permissible hedge ineffectiveness are recognized currently in earnings.

As discussed in Note 14, the Company uses derivative instruments to protect
against the risk of adverse price or interest rate movements on the value of
certain assets and liabilities or on future cash flows. The fair value of these
derivatives is currently not recognized on the balance sheet. On January 1,
2001, the Company adopted Statement No. 133, and at that time, designated anew
certain of its derivative instruments used for mortgage banking risk management
activities into hedging relationships in accordance with the requirements of the
new standard. The Company's transition adjustment of $550,000, offset by the
related income taxes of $190,000, resulting from the adoption of Statement No.
133 on January 1, 2001 will be recorded as a cumulative effect transition
adjustment in earnings in the 2001 consolidated financial statements. This
transition adjustment relates primarily to the Company's mortgage banking
activities, including mandatory and best effort forward commitments to sell
loans, forward commitments to sell mortgage-backed securities, loan origination
commitments (interest rate locks), and certain derivative instruments used in
risk management activities for MSRs.

<PAGE>


                              Matrix Bancorp, Inc.

            Notes to Consolidated Financial Statements (continued)



2. Significant Accounting Policies (continued)

Impact of Recently Issued Accounting Standards (continued)


The transition amount was determined by the Company based on the existing
interpretive guidance issued by the Financial Accounting Standards Board (FASB).
The FASB continues to issue interpretive guidance that could require changes in
the Company's application of Statement No. 133 and may impact future earnings.

Statement No. 133, as applied to the Company's risk management strategies in
mortgage banking activities, may increase or decrease quarterly or annual net
income and shareholders' equity prospectively, depending on future levels of
interest rates and other variables affecting the fair values of derivative
instruments and hedged items, but will have no effect on future cash flows and
will not modify the Company's economic risks associated with its activities.

<PAGE>

                              Matrix Bancorp, Inc.

            Notes to Consolidated Financial Statements (continued)


2. Significant Accounting Policies (continued)

Impact of Recently Issued Accounting Standards (continued)

In  September  2000,  the  FASB  issued  Statement  No.  140,  Accounting  for
Transfers  and   Servicing  of  Financial   Assets  and   Extinguishments   of
Liabilities,   that  replaces,  in  its  entirety,  FASB  Statement  No.  125.
Statement  No. 140 revises the standards for  accounting  for  securitizations
and other  transfers of financial  assets and collateral and requires  certain
disclosures.  Statement  No. 140 is effective for  transfers  occurring  after
March 31,   2001,   and  the  expanded   disclosure   requirements   regarding
securitizations  and  collateral  are  effective for fiscal years ended after
December 15,  2000.  The Company  believes  that the adoption of Statement No.
140 on April 1, 2001, will have no material impact on net income.

Reclassifications

Certain amounts in the prior period consolidated financial statements have been
reclassified to conform to the current period presentation.

3. Net Income Per Share

The following table sets forth the computation of net income per share and net
income per share, assuming dilution:

                                     Year Ended December 31,
                                  2000        1999        1998
                              -------------------------------------
                                     (Dollars in thousands)
Numerator:
  Net income available to
    common shareholders........$    4,258  $   10,779  $    8,513
                              =====================================
Denominator:
  Weighted average shares
    outstanding................ 6,713,251   6,728,211   6,704,991
Effect of dilutive securities:
  Common stock options.........    35,606      95,899     150,478
  Common stock warrants........         -       9,436      26,421
                              -------------------------------------
Dilutive potential common
  shares......................     35,606     105,335     176,899
                              -------------------------------------
Denominator for net income
  per share, assuming
  dilution....................   6,748,857   6,833,546   6,881,890
                              =====================================



<PAGE>

                              Matrix Bancorp, Inc.

            Notes to Consolidated Financial Statements (continued)


4. Mortgage-Backed Securities Available for Sale

At December 31, 2000, mortgage-backed securities available for sale were as
follows:

                                         Gross
                        Amortized      Unrealized
                          Cost           Gains         Fair Value
                        -------------------------------------------
                                     (In thousands)
Mortgage-backed
  securities..........  $  65,375     $   1,241       $   66,616

The Company expects to receive payments on securities over periods that are
considerably shorter than the contractual maturities of the securities, which
range from six to 30 years, due to prepayments. Unrealized gains of $1,241,000
were recorded in other comprehensive income, net of the related income taxes of
$422,000, as of December 31, 2000.

5. Loans Receivable

Loans Held for Investment

Loans held for investment consist of the following:

                                                December 31,
                                              2000        1999
                                          -------------------------
                                               (In thousands)

Residential loans........................  $    8,382  $    7,473
Multi-family, commercial real estate, and
  commercial.............................     123,118      76,185
Construction loans.......................      50,131      48,819
Consumer loans and other.................       8,438       9,903
                                          -------------------------
                                              190,069     142,380
Less:
  Loans in process.........................    13,146      14,167
  Purchase discounts, net..................       569         252
  Unearned fees............................       722         764
  Allowance for loan losses................     2,107       1,433
                                          -------------------------
                                               16,544      16,616
                                          -------------------------
                                           $  173,525  $  125,764
                                          =========================

Activity in the allowance for loan losses is summarized as follows:

                                     Year Ended December 31,
                                  2000        1999        1998
                              -------------------------------------
                                         (In thousands)

<PAGE>

                              Matrix Bancorp, Inc.

            Notes to Consolidated Financial Statements (continued)


Balance at beginning of year...$    1,433  $    1,136  $      689
Provision for loan losses......     1,508         735       1,178
Charge-offs....................      (874)       (509)       (789)
Recoveries.....................        40          71          58
                                -------------------------------------
Balance at end of year.........$    2,107  $    1,433  $    1,136
                              =====================================


<PAGE>

                                Matrix Bancorp, Inc.

            Notes to Consolidated Financial Statements (continued)


5. Loans Receivable (continued)

Loans Held for Investment (continued)

Nonaccrual loans in the loans held for investment portfolio totaled
approximately $3,087,000 and $498,000, or 1.8 percent and 0.4 percent, of the
total loans held for investment portfolio at December 31, 2000 and 1999,
respectively.

Loans Held for Sale

Loans held for sale consist of the following as of:

                                                December 31,
                                              2000        1999
                                           -------------------------
                                               (In thousands)

Residential loans......................... $  893,034  $  945,095
Commercial  loans,  school  financing  and
  other...................................     54,540      36,911
                                          -------------------------
                                              947,574     982,006
Less:
  Purchase premiums, net..................     (1,396)       (666)
  Valuation allowance.....................      6,474       4,921
                                          -------------------------
                                                5,078       4,255
                                          -------------------------
                                           $  942,496  $  977,751
                                          =========================

Activity in the valuation allowance is summarized as follows:

                                     Year Ended December 31,
                                  2000        1999        1998
                              -------------------------------------
                                         (In thousands)

Balance at beginning of year...$    4,921  $    2,574  $    1,067
Provision     for    valuation
  allowance....................     2,727       2,445       3,429
Charge-offs....................    (1,175)        (98)     (1,922)
Recoveries.....................         1           -           -
                              -------------------------------------
Balance at end of year.........$    6,474  $    4,921  $    2,574
                              =====================================



<PAGE>

                              Matrix Bancorp, Inc.

            Notes to Consolidated Financial Statements (continued)

5. Loans Receivable (continued)

Loans Held for Sale (continued)

Nonaccrual loans related to the loans and school financing held for sale
portfolio aggregated approximately $25,429,000 and $25,143,000 at December 31,
2000 and 1999, respectively. Interest income that would have been recorded for
nonaccrual loans was approximately $1,016,000, $979,000 and $524,000 during
the years ended December 31, 2000, 1999 and 1998, respectively.

The Company continues to accrue interest on government-sponsored loans such as
Federal Housing Administration (FHA) insured and Department of Veterans' Affairs
(VA) guaranteed loans which are past due 90 or more days, as the majority of the
interest on these loans is insured or guaranteed by the federal government. The
aggregate unpaid principal balance of government-sponsored accruing loans that
were past due 90 or more days was $101,104,000 and $147,869,000 as of December
31, 2000 and 1999, respectively.

6. Premises and Equipment

Premises and equipment consist of the following:

                                                December 31,
                                              2000        1999
                                          -------------------------
                                               (In thousands)

Land.................................      $      830  $      754
Buildings............................           6,314       4,775
Leasehold improvements...............           1,590         997
Office furniture and equipment.......          12,216       9,384
Other equipment......................               -       1,381
                                          -------------------------
                                               20,950      17,291
Less accumulated depreciation and
  amortization.......................           7,761       6,474
                                          -------------------------
                                           $   13,189  $   10,817
                                          =========================

Included in occupancy and equipment expense is depreciation and amortization
expense of premises and equipment of approximately $2,212,000, $2,126,000 and
$1,712,000 for the years ended December 31, 2000, 1999 and 1998, respectively.

<PAGE>

                              Matrix Bancorp, Inc.

            Notes to Consolidated Financial Statements (continued)


7. Mortgage Servicing Rights

The activity in the MSRs is summarized as follows:

                                     Year Ended December 31,
                                  2000        1999        1998
                              -------------------------------------
                                         (In thousands)

Balance at beginning of year...$   63,479  $   57,662  $   36,276
Purchases......................    31,883      19,754      34,831
Originated, net of MSRs sold...        16       1,514         (24)
Hedging (gain) loss............       (95)      3,257        (321)
Amortization...................    (9,851)    (16,403)    (10,563)
Sales..........................   (13,903)     (2,305)     (2,537)
                              -------------------------------------
Balance at end of year.........$   71,529  $   63,479  $   57,662
                              =====================================

The Company's servicing activity is diversified throughout 50 states with
concentrations at December 31, 2000, in California, Texas, Missouri and Florida
of approximately 18.9 percent, 13.7 percent, 12.8 percent and 7.3 percent,
respectively, based on aggregate outstanding unpaid principal balances of the
mortgage loans serviced. As of December 31, 2000 and 1999, the Company
subserviced loans for others of approximately $1,163,811,000 and $205,929,000,
respectively.

<PAGE>

                              Matrix Bancorp, Inc.

            Notes to Consolidated Financial Statements (continued)


7. Mortgage Servicing Rights (continued)

The Company's servicing portfolio (excluding subserviced loans) comprised the
following:

                                       December 31,
                                2000                 1999
                        -------------------------------------------
                                  Principal            Principal
                         Number    Balance    Number    Balance
                        of Loans Outstanding of Loans Outstanding
                        -------------------------------------------
                                  (Dollars in thousands)

Freddie Mac.............. 16,476  $  836,054   20,028  $1,334,058
Fannie Mae............... 34,706   1,887,925   38,779   2,427,053
GNMA..................... 20,930   1,106,939   11,720     558,086
VA, FHA, conventional
  and other loans........ 20,292   1,687,045   20,032   1,570,518
                        -------------------------------------------
                          92,404  $5,517,963   90,559  $5,889,715
                        ===========================================

The Company's custodial escrow balances shown in the accompanying consolidated
balance sheets at December 31, 2000 and 1999, pertain payments held in escrow in
respect of taxes and insurance and the float on principal and interest payments
on loans serviced and owned by the Company of approximately $77,647,000 and
$94,045,000, respectively. The Company also has custodial accounts on deposit
from other mortgage companies aggregating approximately $0 and $161,000 at
December 31, 2000 and 1999, respectively. The custodial accounts are maintained
at Matrix Bank in noninterest-bearing accounts. The balance of the custodial
accounts fluctuates from month to month based on the pass-through of the
principal and interest payments to the ultimate investors and the timing of
taxes and insurance payments.

<PAGE>


                             Matrix Bancorp, Inc.

            Notes to Consolidated Financial Statements (continued)


8. Deposits

Deposit account balances are summarized as follows:

                                        December 31,
                              2000                      1999
                    ----------------------------------------------------
                                     Weighted                  Weighted
                                     Average                   Average
                     Amount  Percent   Rate   Amount   Percent   Rate

                    ----------------------------------------------------
                                  (Dollars in thousands)

Passbook accounts... $ 3,010    0.50%   3.43% $ 2,793    0.50%    3.48%
NOW accounts .......  85,986   14.27    0.96   42,787    7.61     1.33
Money market
  accounts ......... 122,992   20.41    2.34  141,641   25.19     3.04
                    ----------------------------------------------------
                     211,988   35.18    1.91  187,221   33.30     2.72
Certificate accounts 390,681   64.82    6.23  374,973   66.70     5.27
                    ----------------------------------------------------
                     $602,669 100.00%   4.70% $562,194 100.00%    4.12%
                    ====================================================

Included in NOW accounts are noninterest-bearing demand deposit accounts of
$52,986,000 and $21,178,000 at December 31, 2000 and 1999, respectively.

Contractual maturities of certificate accounts as of December 31, 2000:

                                Under 12    12 to 36    36 to 60
                                 months      months      months
                              -------------------------------------
                                         (In thousands)

4.00-4.99% ................... $      968  $      387  $      140
5.00-5.99% ...................     16,078       5,563       1,117
6.00-6.99% ...................    282,503      63,536       8,462
7.00-7.99% ...................      8,401       2,865         661
                              -------------------------------------
                               $  307,950  $   72,351  $   10,380
                              =====================================



<PAGE>

                              Matrix Bancorp, Inc.

            Notes to Consolidated Financial Statements (continued)

8. Deposits (continued)

     Approximately $131,443,000 and $133,589,000 of fiduciary assets under
administration by Sterling are included in NOW and money market accounts as of
December 31, 2000 and 1999, respectively. Of the $131,443,000 at December 31,
2000, $10,028,000 was held by Sterling under a temporary paying
agent agreement. Included in certificate accounts is $203,600,000 and
$221,510,000 of brokered deposits as of December 31, 2000 and 1999,
respectively.

Interest expense on deposits is summarized as follows:

                                     Year Ended December 31,
                                  2000        1999        1998
                              -------------------------------------
                                         (In thousands)

Passbook accounts ...........  $      102  $       96  $      102
NOW accounts  ...............         619         600         522
Money market  ...............       3,053       5,756       3,910
Certificates of deposit .....      22,501      15,137      11,687
                              -------------------------------------
                               $   26,275  $   21,589  $   16,221
                              =====================================

The aggregate amount of deposit accounts with a balance greater than $100,000
(excluding brokered deposits) was approximately $18,815,000 and $13,873,000 at
December 31, 2000 and 1999, respectively.

<PAGE>

                              Matrix Bancorp, Inc.

            Notes to Consolidated Financial Statements (continued)


9. Borrowed Money and Guaranteed Preferred Beneficial Interests

Borrowed money and guaranteed preferred beneficial interests are summarized as
follows:

                                                        December 31
                                                      2000        1999
                                                  -------------------------
                                                       (In thousands)
Revolving Lines

  $120,000,000 revolving warehouse loan
    agreement with banks, secured by
    mortgage loans held for sale, interest
    at federal funds rate plus
    0.85 percent to 1.50 percent ................. $  -         $ 25,864
  $10,000,000 working capital facility
    with banks secured by mortgage loans
    held for sale, MSRs, eligible servicing
    advance receivables and eligible
    delinquent mortgage receivables; interest
    at federal funds rate plus 1.5 percent .......    -              541
  $10,000,000 revolving line of credit
    with a third party financial institution,
    secured by common stock of Matrix
    Bank; interest due monthly at LIBOR plus
    2.65 percent; $10,000,000
    available at December 31, 2000 ...............    -            1,800
  $60,000,000 revolving warehouse loan
    agreement (which was increased to
    $80,000,000 on March 5, 2001),
    secured by mortgage loans held
    for sale, interest at LIBOR plus
    1.07 percent (7.63 percent rate
    at December 31, 2000); $38,405,000
    available at December 31, 2000 ...............   21,595           -
                                                  -------------------------
Total revolving lines  ...........................   21,595       28,205

Term Notes Payable
  $45,000,000 servicing acquisition loan
    agreement with a bank, secured by MSRs,
    due at the earlier of the maturity of the
    MSRs or amortized over five to six
    years from the date of the borrowing
    through June 30, 2005; interest at
    federal funds rate plus 2 percent  ...........      -         28,088
  Senior notes, interest at 11.50 percent
    payable semiannually, unsecured and
    maturing September 30, 2004  .................   20,000       20,000
  $10,000,000 note payable to a third party
    financial institution due in quarterly
    installments of $357,000 plus
    interest, through December 31, 2003,
    collateralized by the common stock of
    Matrix Bank; interest at LIBOR plus 2.65
    percent at December 31, 2000 .................    8,214        9,286
  Financing agreement with a bank,
    secured by real estate, interest at
    prime plus 1 percent .........................    2,325          -
  Other  .........................................      -          2,008
                                                  -------------------------
Total term notes..................................   30,539       59,382


<PAGE>

                              Matrix Bancorp, Inc.

            Notes to Consolidated Financial Statements (continued)


9. Borrowed Money and Guaranteed Preferred Beneficial Interests (continued)

                                                         December 31
                                                      2000        1999
                                                  -------------------------
                                                       (In thousands)
Other

  Agreements with a bank to sell school
    financing originated by the Company
    under agreements to repurchase. The
    agreement can be terminated upon 90
    days written notice by either party;
    interest rates are variable from 8
    percent to 9.50 percent. Total
    commitment is at the option of the
    bank. Increases are at the discretion
    of the bank .................................  $ 17,094     $ 11,545
  Financing agreement, collateralized by
    school financing; interest variable .........    27,599       14,430
  Other financing agreements  ...................       176        1,039
                                                    ----------- ---------
Total other .....................................    44,869       27,014
                                                    ---------------------
Total borrowed money  ...........................   $97,003     $114,601
                                                    =====================
Guaranteed preferred beneficial interests
  in Company's 10 percent junior
  subordinated debentures payable
  quarterly, unsecured and maturing
  September 30, 2029  ...........................  $ 27,500    $ 27,500
                                                    =====================

As of December 31, 2000, the maturities of term notes payable
are as follows:

                                                     (In thousands)

2001 ................................................. $    3,753
2002 .................................................      1,428
2003 .................................................      5,358
2004 .................................................     20,000
                                                      -------------
                                                       $   30,539
                                                      =============

<PAGE>

                              Matrix Bancorp, Inc.

            Notes to Consolidated Financial Statements (continued)


9. Borrowed Money and Guaranteed Preferred Beneficial Interests (continued)

The Company must comply with certain financial and other covenants related to
the foregoing debt agreements including, among other things, the maintenance of
specific ratios, net income, net worth and other amounts as defined in the
credit agreements, limiting the Company's and its subsidiaries' ability to
declare dividends or incur additional debt, and requirements to maintain certain
capital levels in certain subsidiaries. These covenants include requirements for
the Company to maintain consolidated tangible capital of not less than
$60,000,000, maintain classified assets of not greater than three percent and
maintain the requirements necessary such that Matrix Bank will not be classified
as other than "well capitalized," as defined.

The credit facility agreement for the $60,000,000 warehouse loan agreement
requires Matrix Financial to maintain, among other things, net worth, as
defined, of at least $25,000,000, a leverage ratio of no more than eight to one
and a minimum cash flow coverage ratio for four consecutive quarters of no less
than 1.3 to 1.0.

At December 31, 2000, the Company and its subsidiaries were in compliance with
these covenants.

School Financing Agreement

During 2000 and 1999, the Company placed tax-exempt financing it originated to
charter schools into several grantor trusts (Trusts). The Trusts then issued
Class "A" Certificates and Class "B" Certificates, with the Class "A"
Certificates being sold to various third party investors under a private
placement at a price of par.

The "A" Certificates are guaranteed by a letter of credit issued by a third
party investment bank (Investment Bank) and the underlying financing. The "A"
Certificates' interest rate may be determined weekly, monthly or for a term for
up to one year. The interest rate and the term of the interest rate are
determined by the Remarking Agent, which is also the Investment Bank. Generally,
the Trusts are short-term in nature with an average life of one year or less.

The "B" Certificates are owned in part by the Company and in part by the
Investment Bank. The interest rate paid on the "A" Certificates and the "B"
Certificates owned by the Investment Bank is considered the Company's financing
cost. The approximate cost of the financing at December 31, 2000 and 1999 was
7.23% and 7.63%, respectively. The interest that the Company receives through
its part ownership of the "B" Certificates is tax-exempt.

<PAGE>

                              Matrix Bancorp, Inc.

            Notes to Consolidated Financial Statements (continued)

9. Borrowed Money and Guaranteed Preferred Beneficial Interests (continued)

School Financing Agreement (continued)

Although the Investment Bank acts as a guarantor to the "A" Certificates, the
Company provides limited recourse to the Investment Bank in all cases of loss or
default. Due to the nature of the recourse and the ability of the "A"
Certificate holders to put the certificates to the Trusts, the transactions have
been accounted for as a secured financing.

Guaranteed Preferred Beneficial Interests in Company's 10 Percent Junior
Subordinated Debentures

On July 30, 1999, Matrix Bancorp Capital Trust I (MBC Trust), a Delaware
business trust formed by the Company, completed the sale of $27,500,000 of 10
percent preferred securities. The MBC Trust also issued common securities to the
Company and used the net proceeds from the offering to purchase $28,600,000 in
principal amount of 10 percent junior subordinated debentures of the Company due
September 30, 2029. The junior subordinated debentures are the sole assets of
MBC Trust and are eliminated, along with the related income statement effects,
in the consolidated financial statements. Capitalized expenses associated with
the offering of approximately $1,370,000 are included in other assets at
December 31, 2000 and are being amortized on a straight-line basis over the life
of the junior subordinated debentures.

The preferred securities accrue and pay distributions quarterly at an annual
rate of 10 percent of the stated liquidation amount of $25 per preferred
security. The Company has fully and unconditionally guaranteed all of the
obligations of MBC Trust under the preferred securities. The guarantee covers
the quarterly distributions and payments on liquidation or redemption of the
preferred securities, but only to the extent of funds held by MBC Trust.

The preferred securities are mandatorily redeemable upon the maturity of the
junior subordinated debentures or upon earlier redemption as provided in the
indenture. The Company has the right to redeem the junior subordinated
debentures, in whole or in part on or after September 30, 2004, at a redemption
price specified in the indenture plus any accrued but unpaid interest to the
redemption date.

<PAGE>

                              Matrix Bancorp, Inc.

            Notes to Consolidated Financial Statements (continued)


10. Federal Home Loan Bank of Dallas Borrowings

Federal Home Loan Bank of Dallas (FHLB) borrowings aggregated $519,433,000 and
$405,000,000 at December 31, 2000 and 1999, respectively. Advances of
$26,000,000 and $100,000,000 at December 31, 2000 and 1999, respectively, were
borrowed under a Short Option Advance (SOA) Agreement with the FHLB. These SOA
borrowings have a term of ten years, but are callable by the FHLB beginning
after a six month or one year lock-out period depending on the particular SOA
borrowing. After the expiration of the lock-out period, the SOA borrowings are
callable at three-month intervals. If the FHLB exercises its call option on a
SOA borrowing, the FHLB is required to offer replacement funding to the Company
at a market rate of interest for the remaining term of the SOA borrowing.
Additionally, under the terms of the SOA Agreement, the Company is not permitted
to prepay or otherwise retire a callable SOA borrowing prior to the final
maturity date. At December 31, 2000, the interest rates on the SOA borrowings
ranged from 5.40 percent to 5.63 percent and their possible call dates varied
from February 20, 2001 to March 26, 2001. At December 31, 1999, the interest
rates on the SOA borrowings ranged from 4.90 percent to 5.63 percent and their
possible call dates varied from January 14, 2000 to December 26, 2000. Advances
of $151,433,000 and $1,501,000 at December 31, 2000 and 1999, respectively, were
borrowed under a fixed term and rate. These advances are at a rate from 5.84
percent to 6.23 percent and mature from March 27, 2001 through June 2, 2014. All
advances are secured by first lien mortgage loans of Matrix Bank and all of its
FHLB stock.

Matrix Bank is on full custody status, which requires Matrix Bank to place loan
collateral at the FHLB. As of December 31, 2000, Matrix Bank had available
unused borrowings from the FHLB for advances of approximately $31,041,000.

<PAGE>

                              Matrix Bancorp, Inc.

            Notes to Consolidated Financial Statements (continued)


11. Income Taxes

The income tax provision consists of the following:

                                     Year ended December 31,
                                  2000        1999        1998
                              -------------------------------------
                                         (In thousands)
Current:
  Federal ...................  $    2,350  $    5,340  $    3,837
  State .....................         411       1,329         991
Deferred:
  Federal ...................        (451)       (341)         42
  State .....................        ( 67)        (50)          6
                              -------------------------------------
                               $    2,243  $    6,278  $    4,876
                              =====================================

A reconciliation of the provision for income taxes with the expected income
taxes based on the statutory federal income tax rate follows:

                                     Year ended December 31,
                                  2000        1999        1998
                              -------------------------------------
                                         (In thousands)

Expected income tax provision .$    2,210  $    5,799  $    4,552
Effect of federal tax brackets.       -            52          13
State income taxes  ...........       343         827         660
Other .........................      (310)       (400)       (349)
                              -------------------------------------
                               $    2,243  $    6,278  $    4,876
                              =====================================



<PAGE>

                              Matrix Bancorp, Inc.

            Notes to Consolidated Financial Statements (continued)

11. Income Taxes (continued)

Deferred tax assets and liabilities result from the tax effects of temporary
differences between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes shown below.

                                                December 31,
                                              2000        1999

                                          -------------------------
                                               (In thousands)

Deferred tax assets:
  Allowance for loan and valuation losses .$    5,400  $    2,713
  Discounts and premiums  .................        71         141
  Deferred fees ...........................     1,141       1,145
  Delinquent interest .....................       413         287
  Other ...................................       197           -
                                          -------------------------
Total deferred tax assets                       7,222       4,286

Deferred tax liabilities:
  Gain on sale of loans ...................    (2,773)     (1,436)
  Amortization of mortgage servicing rights    (3,178)     (1,814)
  Depreciation  ...........................      (354)       (539)
  Other ...................................        -          (98)
                                          -------------------------
Total deferred tax liabilities  ...........    (6,305)     (3,887)
                                          =========================
Net deferred tax asset  ...................$      917  $      399
                                          =========================

12. Regulatory

The Company is a unitary thrift holding company and, as such, is subject to the
regulation, examination and supervision of the Office of Thrift Supervision
(OTS).

Matrix Bank is also subject to various regulatory capital requirements
administered by the OTS. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on Matrix
Bank's consolidated financial statements. Under capital adequacy guidelines and
the regulatory framework for prompt corrective action, Matrix Bank must meet
specific capital guidelines that involve quantitative measures of Matrix Bank's
assets, liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. Matrix Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings and other factors.

<PAGE>

                              Matrix Bancorp, Inc.

            Notes to Consolidated Financial Statements (continued)

12. Regulatory (continued)

Quantitative measures established by regulation to ensure capital adequacy
require Matrix Bank to maintain minimum amounts and ratios (set forth in the
following table) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to total
assets (as defined). Management believes, as of December 31, 2000 and 1999, that
Matrix Bank met all applicable capital adequacy requirements.

As of December 31, 2000, the most recent notification from the OTS categorized
Matrix Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, Matrix Bank must
maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios
as set forth in the following table. There have been no conditions or events
since that notification that management believes have changed the institution's
category.

<TABLE>
<CAPTION>

                                                                                To Be Well Capitalized
                                                        For Capital             Under Prompt Corrective
                                Actual                 Adequacy Purposes             Action Provisions
                       -------------------------------------------------------------------------------
                        Amount          Ratio           Amount         Ratio     Amount  Ratio
                       -------------------------------------------------------------------------------
                                     (Dollars in thousands)
<S>                     <C>             <C>             <C>             <C>       <C>    <C>

As of December 31, 2000
  Total Capital
    (to Risk Weighted
    Assets) ...........$100,091         12.2%           $65,387         8.0%   $81,734   10.0%
  Core Capital
    (to Adjusted
    Tangible Assets)...  94,289          7.0             53,694         4.0     67,117    5.0
  Tier I Capital
    (to Risk Weighted
    Assets) ...........  94,289         11.5              N/A                   49,041    6.0
As of December 31, 1999
  Total Capital
    (to Risk Weighted
    Assets) ...........  70,236         10.5             53,397         8.0     66,746   10.0
  Core Capital
    (to Adjusted
    Tangible Assets)...  65,987          5.8             45,548         4.0     56,935    5.0
  Tier I Capital
    (to Risk Weighted
    Assets) ...........  65,987          9.9              N/A                   40,048    6.0

The various federal banking statutes to which Matrix Bank is subject also
include other limitations regarding the nature of the transactions in which it
can engage or assets it may hold or liabilities it may incur.
</TABLE>

<PAGE>

                              Matrix Bancorp, Inc.

            Notes to Consolidated Financial Statements (continued)

12. Regulatory (continued)

Matrix Bank is required to maintain vault cash or balances with the Federal
Reserve Bank of Dallas in a noninterest-earning account based on a percentage of
deposit liabilities. Such balances averaged $13,168,000 and $14,720,000 in 2000
and 1999, respectively.

Matrix Bank is required by Federal regulations to maintain a minimum level of
liquid assets of four percent. Matrix Bank exceeded the Federal requirement at
December 31, 2000 and 1999.

As a wholly owned subsidiary of Matrix Bank, Matrix Financial is subject to OTS
regulation. In addition, Matrix Financial is also subject to examination by
various regulatory agencies involved in the mortgage banking industry. Each
regulatory agency requires the maintenance of a certain amount of net worth, the
most restrictive of which required $4,566,000 at December 31, 2000 and
$5,104,000 at December 31, 1999. At December 31, 2000 and 1999, Matrix Financial
was in compliance with these regulatory requirements.

Sterling, a Texas trust company, is generally required to maintain minimum
restricted capital of at least $1,000,000, and may be required to maintain
additional capital if the Texas Banking Commissioner determines that it is
necessary to protect the safety and soundness of Sterling. At December 31, 2000,
Sterling was in compliance with all capital requirements under Texas law.


<PAGE>

                              Matrix Bancorp, Inc.

            Notes to Consolidated Financial Statements (continued)

13. Shareholders' Equity (continued)

Stock Option Plan

The Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations in
accounting for its employee stock options. Under Opinion No. 25, because the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized.

In September 1996, the board of directors and shareholders adopted the 1996
Stock Option Plan, which amended and restated the Company's stock option plan
adopted in 1995. The Company's 1996 Stock Option Plan, as amended, allows for
the grant of options to substantially all of the Company's full-time employees
and directors for up to 750,000 shares of the Company's common stock. Options
granted generally have ten-year terms and vest based on the determination by the
Company's compensation committee.

The 1996 Stock Option Plan authorized the granting of incentive stock options
(Incentive Options) and nonqualified stock options (Nonqualified Options) to
purchase common stock to eligible persons. The 1996 Stock Option Plan is
currently administered by the compensation committee (administrator) of the
board of directors. The 1996 Stock Option Plan provides for adjustments to the
number of shares and to the exercise price of outstanding options in the event
of a declaration of stock dividend or any recapitalization resulting in a stock
split-up, combination or exchange of shares of common stock.

No Incentive Option may be granted with an exercise price per share less than
the fair market value of the common stock at the date of grant. The Nonqualified
Options may be granted with any exercise price determined by the administrator
of the 1996 Stock Option Plan. The expiration date of an option is determined by
the administrator at the time of the grant, but in no event may an option be
exercisable after the expiration of ten years from the date of grant of the
option.

<PAGE>

                              Matrix Bancorp, Inc.

            Notes to Consolidated Financial Statements (continued)

13. Shareholders' Equity (continued)

Stock Option Plan (continued)

The 1996 Stock Option Plan further provides that, in most instances, an option
must be exercised by the optionee within 30 days after the termination of the
consulting contract between such consultant and the Company or termination of
the optionee's employment with the Company, as the case may be, if and to the
extent such option was exercisable on the date of such termination.

Pro forma information regarding net income and earnings per share is required by
Statement No. 123, Accounting for Stock-Based Compensation, which also requires
that the information be determined as if the Company had accounted for its
employee stock options granted subsequent to December 31, 1994, under the fair
value method of that Statement. The fair value for these options was estimated
at the date of grant using a Black-Scholes option pricing model with the
following weighted-average assumptions for 2000, 1999 and 1998, respectively:
risk-free interest rates of 5.1 percent, 5.4 percent and 5.4 percent; a dividend
yield of zero percent; volatility factors of the expected market price of the
Company's common stock of .63, .56 and .39; and a weighted-average expected life
of the option of four years.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.

<PAGE>

                              Matrix Bancorp, Inc.

            Notes to Consolidated Financial Statements (continued)


13. Shareholders' Equity (continued)

Stock Option Plan (continued)

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows:

                                           Year ended December 31,
                                        2000        1999        1998
                                    -------------------------------------
                                      (Dollars in thousands except per
                                                share data)

Pro forma net income................ $   3,980   $   10,462  $    8,256
Pro forma earnings per share:
  Basic.............................      0.59         1.55        1.23
  Diluted ..........................      0.59         1.53        1.20

A summary of the Company's stock option activity and related information is as
follows:

                                   Year ended December 31,
                          2000              1999             1998
                    -----------------------------------------------------
                            Weighted          Weighted         Weighted
                             Average           Average          Average
                            Exercise          Exercise         Exercise
                    Options   Price   Options   Price  Options   Price
                    -----------------------------------------------------
Outstanding,
 beginning of year..431,600  $  11.07 387,700  $   10.90 330,150  $  10.55
Granted............. 95,000      7.65  55,500      12.34  63,000     12.96
Exercised...........   (500)    10.00  (6,100)     12.36  (1,725)    12.25
Forfeited...........(29,400)    10.77  (5,500)     12.32  (3,725)    14.00
                    ---------        ----------          ---------
Outstanding, end of
  year.............. 496,700    10.54  431,600     11.07 387,700     10.90
                    =========        ==========         =========

Exercisable end of
  year.............. 286,500    10.34  226,150      9.70 167,350      8.49
Weighted average
  fair value of
  options granted
  during the year... $  4.86           $  7.68           $  6.03
                    =========        ==========        =========


<PAGE>

                              Matrix Bancorp, Inc.

            Notes to Consolidated Financial Statements (continued)

13. Shareholders' Equity (continued)

Stock Option Plan (continued)

Options outstanding at December 31, 2000, have exercise prices ranging from
$5.13 to $26.50 per share, as outlined in the following table:

                          Weighted    Weighted                Weighted
                          Average      Average                Average
  Range of    Number of   Exercise    Remaining   Number of   Exercise
  Exercise     Options   Price Per   Contractual  Options      Price
   Prices    Outstanding  Share         Life      Exercisable  Per Share
-------------------------------------------------------------------------

 $5.13           79,500    $   5.13       4.00       79,500     $   5.13
  6.50 - 7.13    12,500        6.98       9.88            -         -
  8.00 - 8.44    97,500        8.31       8.91       11,500         8.11
 10.0            98,200       10.00       5.79       83,250        10.00
 11.50 -
 13.88          113,000       12.88       7.10       51,750        13.09
 14.25 -
 17.25           93,000       15.17       6.59       57,500        15.16
 26.50            3,000       26.50       7.33        3,000        26.50
            -----------                            -----------
                496,700       10.54       6.68      286,500        10.34
            ===========                            ===========

Restricted Net Assets

As a result of the regulatory requirements and debt covenants, substantially all
of the net assets of the Company are restricted at December 31, 2000 and 1999.

Warrants

The Company issued warrants exercisable for an aggregate of 75,000 shares of its
common stock to its primary underwriters upon the closing of the Company's
initial public offering. The warrants are exercisable, from time to timefrom
October 1997 to October 2001. The exercise price for the shares of common stock
underlying such warrants is $12 per share. The shares of common stock underlying
such warrants are entitled to certain demand and incidental registration rights.
The warrants expire on October 18, 2001.

<PAGE>

                              Matrix Bancorp, Inc.

            Notes to Consolidated Financial Statements (continued)


13. Shareholders' Equity (continued)

Employee Stock Purchase Plan

In September 1996, the board of directors and shareholders adopted on Employee
Stock Purchase Plan (Purchase Plan) and authorized 125,000 shares of common
stock (ESPP Shares) for issuance thereunder. The Purchase Plan became effective
upon consummation of the initial public offering. The price at which ESPP Shares
are sold under the Purchase Plan is 85 percent of the lower of the fair market
value per share of common stock on the enrollment or the purchase date. In May
2000, the authorized number of shares available for issuance under the Purchase
Plan was increased to 250,000 shares. As of December 31, 2000, there were
145,552 ESPP Shares available for future issuance.

14. Commitments, Contingencies and Related Party Transactions

Leases

The Company leases office space and certain equipment under noncancelable
operating leases. Annual amounts due under the office and equipment leases as of
December 31, 2000, are approximately as follows:

                                                      (In thousands)

2001.................................................. $    2,557
2002..................................................      2,358
2003..................................................      2,067
2004..................................................      1,513
2005..................................................      1,487
Thereafter............................................      1,320
                                                      -------------
                                                       $   11,302
                                                      =============

Total rent expense aggregated approximately $2,319,000, $1,327,000 and $955,000
for the years ended December 31, 2000, 1999 and 1998, respectively, and is
recorded in occupancy and equipment expense.

Off-Balance Sheet Risk and Concentration of Commitments

The Company is party to various financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include undisbursed commercial mortgage
construction loans, commercial lines of credit and letters of credit. These
financial instruments involve, to varying degrees, elements of credit risk in
excess of the amounts recognized in the consolidated financial statements.

The Company's exposure to credit loss, in the event of nonperformance by the
other party, to off-balance sheet financial instruments with credit risk is
represented by the contractual amounts of those instruments. The Company uses
the same credit policies in making commitments and conditional obligations as it
does for on balance sheet instruments with credit risk.

Commercial credit off-balance sheet instruments are agreements to lend to, or to
provide credit guarantee for, a customer as long as there is no violation of any
condition established in the contract. Such instruments generally have fixed
expiration dates or other termination clauses and may require the payment of a
fee. Since many of these instruments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily represent future cash
requirements. The Company evaluates each customer's creditworthiness on a
case-by-case basis, and the amount of collateral or other security obtained is
based on management's credit evaluation of the customer.

As of December 31, 2000 and 1999, the Company had commercial credit off-balance
sheet instruments of $27,905,000 and $40,475,000, respectively.


<PAGE>

                              Matrix Bancorp, Inc.

            Notes to Consolidated Financial Statements (continued)


14. Commitments, Contingencies and Related Party Transactions (continued)

Mortgage Banking Risk Management Activities

In the ordinary course of business, the Company makes commitments to originate
residential mortgage loans (Pipeline) and holds originated loans until delivery
to an investor. Inherent in this business is a risk associated with changes in
interest rates and the resulting change in the market value of the Pipeline and
funded loans. The Company mitigates this risk through the use of mandatory and
best effort forward commitments to sell loans or mortgage-backed securities. At
December 31, 2000, the Company had $109,490,000 and $132,000,000 in Pipeline and
funded loans, respectively, offset with mandatory forward commitments of
$70,730,000 and best effort forward commitments of $121,950,000. At December 31,
1999, the Company had $10,663,000 and $30,515,000 in Pipeline and funded loans,
respectively, offset with mandatory forward commitments of $35,127,000 and best
effort forward commitments of $3,690,000. Effective January 1, 2001, the Company
adopted Statement No. 133, which impacts the accounting for both Pipeline and
risk management activities for Pipeline and funded loans.

Risk Management Activities for MSRs

Ownership of MSRs exposes the Company to impairment of its value in certain
interest rate environments. The incidence of prepayment of a mortgage loan
increases during periods of declining interest rates as the homeowner seeks to
refinance the loan to a lower interest rate. If the level of prepayment on
segments of the Company's mortgage servicing portfolio achieves a level higher
than projected by the Company for an extended period of time, then an impairment
in the associated basis in the MSRs may occur. To mitigate this risk of
impairment due to declining interest rates, the Company hedges a segment of its
mortgage servicing portfolio. As of December 31, 2000, the Company had
identified and hedged approximately $353 million of its mortgage servicing
portfolio, in terms of principal loan balance outstanding, using a program of
exchange-traded futures and options.

<PAGE>

                              Matrix Bancorp, Inc.

            Notes to Consolidated Financial Statements (continued)


14. Commitments, Contingencies and Related Party Transactions (continued)

Hedging of MSRs (continued)

At December 31, 2000, the Company had the following open positions:

                                                          Unrecognized
                                      Open                    Gain
                           Expiration Positions  Notional   (Loss) on
                              Date    (No. of     Amount      Open
                                      Contracts)            Positions
                           --------------------------------------------

Ten year Treasury Note
  futures ................ March 2001    118   $11,800,000    $ 302,649
Ten year Treasury Note
  put options ............ March 2001     45     4,500,000       (6,374)
Ten year Treasury Note
  call options............ March 2001     37     3,700,000        8,277

Contingencies

The Company and its subsidiaries are parties to various litigation matters, in
most cases, involving ordinary and routine claims incidental to the business of
the Company. The Company accrues liabilities when it is probable that future
costs will be incurred and such costs can be reasonably estimated. Such accruals
are based upon developments to date, the Company's estimates of the outcome of
these matters and its experience in contesting, litigating and settling other
matters. Based on evaluation of the Company's litigation matters and discussions
with internal and external legal counsel, management believes that an adverse
outcome on one or more of the matters set forth below, against which no accrual
for loss has been made as of December 31, 2000, is reasonably possible but not
probable, and that the outcome with respect to one or more of these matters, if
adverse, is reasonably likely to have a material adverse impact on the
consolidated financial condition, results of operations or cash flows of the
Company.

<PAGE>

                              Matrix Bancorp, Inc.

            Notes to Consolidated Financial Statements (continued)

14. Commitments, Contingencies and Related Party Transactions (continued)


Contingencies (continued)

The Company has been named defendant in an arbitration action in which the
plaintiff alleges that the Company violated various provisions of the
Commodities Exchange Act in connection with plaintiff's investment of certain
monies in his self-directed IRA. The plaintiff seeks compensatory damages of
$250,000 plus interest and other costs, including attorneys' fees. The
arbitration hearing is set for June 2001. The Company believes it has adequate
defenses and intends to vigorously defend this action. The ultimate legal
and financial liability of the Company, if any, in this matter, cannot be
estimated with certainty at this time.

A former customer of the Company is a debtor in a Chapter 11 proceeding under
the Bankruptcy Code. Prior to the bankruptcy filing, the Company had provided
the customer with a purchase/repurchase facility under which the Company
purchased residential mortgage loans from the customer, with the customer having
the right or obligation to repurchase such mortgage loans within a specified
period of time. Several other financial institutions had provided the customer
with warehouse financing or additional purchase/repurchase facilities (the
Origination Facilities). At this time, it appears that no other financial
institution that provided an Origination Facility to the customer has a
conflicting interest with the Company in respect of the loans purchased by the
Company, which were approximately $12,400,000 in original principal amount (the
Purchased Loans). However, several third parties have instituted lawsuits
against the Company claiming an equitable interest in a portion of the Purchased
Loans (approximately $2,400,000 in original principal amount). In addition,
parties in the chain of title to property securing approximately $2,500,000 of
loans, including sellers and prior lienholders, are seeking to void or rescind
their transactions on the theory that they never received consideration. The
Company believes it has adequate defenses and intends to vigorously defend these
actions.  The ultimate legal and financial liability of the Company, if any, in
these matters cannot be estimated with certainty at this time.

The trustee for the customer mentioned above has received an order from the
Bankruptcy Court finding that the Purchased Loans are a part of the estate of
the customer. Nevertheless, the trustee and the Company have reached an
agreement, in principle, whereby the trustee will release all of its right in
and to the Purchased Loans if the trustee, after performance of a "due
diligence" review, determines that the Company owns the Purchased Loans or,
would otherwise have a perfected security interest in the Purchased Loans. The
Company believes it can adequately demonstrate to the trustee that it is the
owner of the Purchased Loans, or otherwise has a perfected security interest in
the Purchased Loans. The Company intends to vigorously defend its position in
this matter. The ultimate legal and financial liability of the Company, if any,
in this bankruptcy cannot be estimated with certainty at this time.

<PAGE>

                              Matrix Bancorp, Inc.

            Notes to Consolidated Financial Statements (continued)


14. Commitments, Contingencies and Related Party Transactions (continued)

Contingencies (continued)

The Company has been named a defendant in an action that was tried in Tarrant
County, Texas, district court in the spring of 2000. The jury returned a verdict
adverse to the Company with respect to two of 12 theories of liability posed by
the plaintiffs, and the court has signed a judgment for certain of the
plaintiffs in the amount of approximately $6,400,000. The Company has filed an
appeal of this judgment and believes it has meritorious points of appeal. It
intends to vigorously prosecute the appeal of this action. The ultimate
resolution of this matter, which is expected to occur in nine to 18 months,
could result in a loss of up to $6,400,000 plus post-judgment interest and
additional attorneys' fees. The ultimate legal and financial liability, if any,
of the Company cannot be estimated with certainty at this time.

Related to the matter described in the previous paragraph, the Company and
several officers have been named defendants in an action in which the plaintiffs
have asserted various theories of liability, including control person theories
of liability under the Texas Securities Act and fraudulent transfer theories of
liability, to seek to impose liability on the defendants for the judgment
described above.  The defendants believe they have adequate defenses and intend
to vigorously defend this action.  The ultimate legal and financial liability
of the Company, if any, in this matter cannot be estimated with certainty at
this time.

The Company has been named a defendant in approximately nine alleged class
actions in which the plaintiffs allege, among other things, that the Company, as
custodian of the plaintiffs' self-directed IRAs, breached its fiduciary duty and
was negligent.  In each case, the plaintiff seeks unspecified damages and costs.
The Company believes it has adequate defenses and intends to vigorously
defend these actions.  The ultimate legal and financial liability of the
Company, if any, in these matters cannot be estimated with certainty at
this time.

Related Party Transactions

At December 31, 2000, the Company had unsecured loan receivables from executive
officers and a shareholder of $230,000 and approximately $68,000, respectively,
which all bear interest at varying rates and are renewable at the Company's
option.

15. Defined Contribution Plan

The Company has a 401(k) defined contribution plan (Plan) covering all employees
who have elected to participate in the Plan. Each participant may make pretax
contributions to the Plan up to 15 percent of such participant's earnings with a
maximum of $10,500 in 2000. The Company makes a matching contribution of 25
percent of the participant's total contribution. Matching contributions made by
the Company vest over six years. The cost of the plan approximated $261,000,
$211,000 and $162,000 during the years ended December 31, 2000, 1999 and 1998,
respectively, and was recorded in compensation and employee benefits expense in
the consolidated statements of income.

<PAGE>

                              Matrix Bancorp, Inc.

            Notes to Consolidated Financial Statements (continued)


16. Financial Instruments

Fair Value of Financial Instruments

The carrying amounts and estimated fair value of financial instruments are as
follows:

                                               December 31,
                                         2000              1999
                                 -------------------------------------
                                  Carrying   Fair   Carrying   Fair
                                   Amount    Value   Amount    Value
                                 -------------------------------------
                                            (In thousands)
Financial assets:
  Cash and cash equivalents.......$ 53,170 $ 53,170 $ 26,609 $ 26,609
  Mortgage-backed securities......  66,616   66,616        -        -
  Loans held for sale, net........ 942,496  948,069  977,751  982,525
  Loans held for investment,
    net........................... 173,525  174,581  125,764  126,937
  FHLB stock......................  27,814   27,814   22,414   22,414
Financial liabilities:
  Deposits........................ 602,669  604,423  562,194  563,473
  Custodial escrow balances.......  77,647   77,647   94,206   94,206
  Payable for purchase of MSRs....  12,666   12,666    3,163    3,163
  FHLB borrowings................. 519,433  521,194  405,000  405,067
  Borrowed money and
    guaranteed preferred
    beneficial interests.......... 124,503  119,253  142,101  142,101


<PAGE>

                              Matrix Bancorp, Inc.

            Notes to Consolidated Financial Statements (continued)


16. Financial Instruments (continued)

Fair Value of Financial Instruments (continued)

The following methods and assumptions were used by the Company in estimating the
fair value of the financial instruments:

The carrying amounts reported in the balance sheet for cash and cash
equivalents, FHLB stock, payable for purchase of MSRs and certain components of
borrowed money approximate those assets' and liabilities' fair values.

The fair values of loans are based on quoted market prices where available or
outstanding commitments from reputable investors. If quoted market prices are
not available, fair values are based on quoted market prices of similar loans
sold in securitization transactions, adjusted for differences in loan
characteristics.

The fair value disclosed for FHLB borrowings are estimated using a discounted
cash flow calculation that applies interest rates currently being offered on
FHLB borrowings. The fair value for the remainder of borrowed money, which
includes the Company's 11.50 percent senior notes and guaranteed preferred
beneficial interests, is based on over the counter (OTC) market prices.

The fair value disclosed for demand deposits (e.g., interest and noninterest
checking, savings and money market accounts) are, by definition, equal to the
amount payable on demand at the reporting date (i.e., their carrying amounts).
Fair values for fixed-rate certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered on certificates to a schedule of aggregated expected periodic maturities
on time deposits. The component commonly referred to as deposit base intangible,
was not estimated at December 31, 2000 and 1999, and is not considered in the
fair value amount. The fair value disclosed for custodial escrow balances
liabilities (noninterest checking) is, by definition, equal to the amount
payable on demand at the reporting date (i.e., their carrying amounts).

<PAGE>

                              Matrix Bancorp, Inc.

            Notes to Consolidated Financial Statements (continued)

17. Parent Company Condensed Financial Information

Condensed  financial  information  of  Matrix  Bancorp,  Inc.  (Parent)  is as
follows:

                                                December 31,
                                              2000        1999
                                          -------------------------
                                               (In thousands)

Condensed Balance Sheets
Assets:
  Cash......................................$     -    $        2
  Other receivables.........................      279       1,801
  Premises and equipment, net...............      989       2,254
  Other assets..............................    2,489       2,693
  Investment in and advances to
    subsidiaries............................  123,755     117,290
                                            -----------------------
Total assets................................$ 127,512  $  124,040
                                            =======================

Liabilities and shareholders' equity:
  Borrowed money and guaranteed preferred
    beneficial interests (a)...............$   55,714  $   59,568
  Other liabilities........................     7,775       3,975
                                            -----------------------
Total liabilities..........................    63,489      63,543

Shareholders' equity:
  Common stock.............................         1           1
  Treasury shares .........................    (1,775)          -
  Additional paid in capital...............    23,004      22,780
  Retained earnings........................    42,793      37,716
                                            -----------------------
Total shareholders' equity.................    64,023      60,497
                                            -----------------------
Total liabilities and shareholders' equity.$  127,512  $  124,040
                                          =========================

(a)The Parent's debt is set forth below. The Parent also guarantees the
   revolving warehouse loan agreement and the financing related to charter
   schools.

<PAGE>

                              Matrix Bancorp, Inc.

            Notes to Consolidated Financial Statements (continued)


17. Parent Company Condensed Financial Information (continued)

                                                  December

                                              2000        1999
                                          -------------------------
                                               (In thousands)

Senior notes..............................  $  20,000   $  20,000

Bank stock loan...........................      8,214       9,286

Other.....................................        -         2,782
                                          -------------------------
Total term notes..........................     28,214      32,068

Guaranteed preferred beneficial interests.     27,500      27,500
                                          -------------------------

Total debt................................  $  55,714   $  59,568
                                          =========================

As of December 31, 2000, the maturities of term notes payable are as follows:

                                                      (In thousands)

2001.................................................. $    1,428
2002..................................................      1,428
2003..................................................      5,358
2004..................................................     20,000
                                                      -------------
                                                       $   28,214
                                                      =============



<PAGE>

                              Matrix Bancorp, Inc.

            Notes to Consolidated Financial Statements (continued)


17. Parent Company Condensed Financial Information (continued)

                                     Year ended December 31,
                                  2000        1999        1998
                               -----------------------------------
                                         (In thousands)

Condensed Statements of Income
Income:
  Interest income on loans.....  $  2,202    $  1,257      $   17
  Other........................     1,362         616         463
                               -----------------------------------
Total income...................     3,564       1,873         480

Expenses:
  Compensation and employee
    benefits...................     3,686       2,628       2,412
  Occupancy and equipment......       674         718         600
  Interest on borrowed money...     6,923       5,521       3,601
  Professional fees............       510         400         295
  Other general and
    administrative.............     2,209       1,948       1,416
                               -----------------------------------
Total expenses.................    14,002      11,215       8,324
                               -----------------------------------

Loss before income taxes and
  equity income of
  subsidiaries.................   (10,438)     (9,342)     (7,844)
Income taxes (a)...............        -           -           -
                               -----------------------------------
Loss before equity income of
  subsidiaries.................   (10,438)     (9,342)     (7,844)
Equity income of subsidiaries..    14,696      20,121      16,357
                               -----------------------------------
Net income.....................$    4,258  $   10,779  $    8,513
                               ===================================

(a)The Company's tax-sharing agreement with its subsidiaries provides that the
   subsidiaries will pay the Parent an amount equal to its individual current
   income tax provision calculated on the basis of the subsidiary filing a
   separate return. In the event a subsidiary incurs a net operating loss in
   future periods, the subsidiary will be paid an amount equal to the current
   income tax refund the subsidiary would be due as a result of carryback of
   such loss, calculated on the basis of the subsidiary filing a separate
   return. Accordingly, the Parent's condensed statements of income do not
   include any income tax benefit for the current losses.

<PAGE>

                              Matrix Bancorp, Inc.

            Notes to Consolidated Financial Statements (continued)


17. Parent Company Condensed Financial Information (continued)

                                       Year ended December 31
                                    2000        1999        1998
                                -------------------------------------
                                           (In thousands)

Condensed Statements of Cash
  Flows
  Operating activities:
  Net income........................$ 4,258    $ 10,779     $ 8,513
  Adjustments to reconcile net
    income to net cash provided
    by (used in) operating
    activities:
     Equity income of
      subsidiaries..................(14,696)    (20,121)    (16,357)
     Dividend from subsidiaries.....  6,509      11,468       4,534
     Depreciation  and
      amortization..................    621         763         281
     Unrealized gain on
      securities....................    819           -           -
     Gain on sale of premises.......   (823)          -           -
     Increase in other
      liabilities...................  3,800       2,556         169
     Decrease (increase) in
      other receivables and
      other assets..................  1,459      (1,754)        945
                                    ---------------------------------
Net cash provided by (used in)
  operating activities..............  1,947       3,691      (1,915)

Investing activities:
  Purchases of premises and
    equipment.......................   (457)       (221)       (964)
  Proceeds from sale of premises....   2,191           -           -
  Investment in and net change in
    advances to subsidiaries.........  1,722     (19,846)    (14,926)
                                    ---------------------------------
Net cash provided by (used in)
  investing activities..............  3,456     (20,067)    (15,890)

Financing activities:
  Repayments of notes payable
    and revolving line of credit....(39,554)    (30,007)    (14,774)
  Proceeds from notes payable
    and revolving line of credit.... 35,700      19,800      31,047
  Shares repurchased................ (1,775)          -           -
  Proceeds from junior
    subordinated debentures.........      -      26,063           -
  Proceeds from issuance of
    common stock....................    224         364         231
                                    ---------------------------------
Net cash (used in) provided by
  financing activities.............. (5,405)     16,220      16,504
                                    ---------------------------------
Decrease in cash....................     (2)       (156)     (1,301)
Cash at beginning of year...........      2         158       1,459
                                    ---------------------------------
Cash at end of year.................$    -     $      2     $   158
                                    =================================



<PAGE>

                              Matrix Bancorp, Inc.

            Notes to Consolidated Financial Statements (continued)


18. Selected Quarterly Financial Data (Unaudited)

                                               2000

                           ---------------------------------------------
                             Fourth      Third     Second      First
                             Quarter    Quarter    Quarter    Quarter
                           ---------------------------------------------
                           (Dollars in thousands except per share data)
Operations
Net interest income
  after provision for
  loan and valuation
  losses................... $   7,084  $   6,191  $   6,242  $   6,033
Noninterest income.........    14,971     15,340     14,705     13,440
Noninterest expense........    20,234     19,849     20,462     16,960
                            -------------------------------------------
Income before income taxes.     1,821      1,682        485      2,513
Income taxes...............       513        615        151        964
                            -------------------------------------------
Net income................. $   1,308  $   1,067  $     334  $   1,549
                            ===========================================

Net Income Per Share
  Data
Basic...................... $     .20  $     .16  $     .05  $     .23
                            ===========================================
Diluted.................... $     .20  $     .16  $     .05  $     .23
                            ===========================================

Balance Sheet

Total assets...............$1,418,795 $1,367,647 $1,293,828 $1,302,593
Total loans, net........... 1,116,021  1,086,388  1,073,630  1,088,170
Shareholders' equity.......    64,023     63,664     62,730     62,051

                                            1999
                        ---------------------------------------------
                          Fourth      Third     Second      First
                          Quarter    Quarter    Quarter    Quarter

                        ---------------------------------------------
                         (Dollars in thousands except per share data)
Operations
Net interest income
  after provision for
  loan and valuation
  losses.................$   6,847  $   6,454  $   6,429  $   6,553
Noninterest income.......   15,383     15,085     15,686     14,206
Noninterest expense......   17,820     17,091     17,816     16,859
                          -------------------------------------------
Income before income
  taxes..................    4,410      4,448      4,299      3,900
Income taxes.............    1,712      1,662      1,509      1,395
                          -------------------------------------------
Net income...............$   2,698  $   2,786  $   2,790  $   2,505
                          ===========================================

Net Income Per Share Data

Basic....................$      .40 $      .41 $      .41 $      .37
                          ===========================================
Diluted..................$      .40 $      .41 $      .41 $      .37
                          ===========================================

Balance Sheet

Total assets.............$1,283,746 $1,059,815 $1,034,699 $  996,519
Total loans, net......... 1,103,515    887,032    835,960    803,002
Shareholders' equity.....    60,497     57,500     54,714     51,869


<PAGE>

                              Matrix Bancorp, Inc.

            Notes to Consolidated Financial Statements (continued)


19. Transactions with MCA Mortgage Corporation

During recent years, the Company entered into several purchase transactions with
MCA Mortgage Corporation (MCA), a Michigan-based mortgage banking entity. At
December 31, 1998, the Company was carrying approximately $5,000,000 of
residential mortgage loans on its balance sheet that were purchased from MCA on
a servicing retained basis. The Company also had an outstanding receivable
relating to brokerage and consulting services provided to MCA. In January 1999,
the Company learned that MCA was closing its operations. Additionally, in
February 1999, the Company learned that MCA had declared bankruptcy and it
appeared likely that some of the loans purchased by the Company had been sold
multiple times or pledged multiple times as security for repayment of various
credit facilities. The Company also discovered that there appeared to be
servicing issues relating to some of the purchased loans. The servicing issues
consisted of instances in which loans owned by the Company and serviced by MCA
had previously paid off, but for which MCA had continued to remit monthly
principal and interest, rather than the payoff proceeds. As a result of the
above MCA issues, the Company recorded a provision for valuation losses of
approximately $2,200,000 as of December 31, 1998. Additionally, the Company
wrote off approximately $100,000 of accounts receivable and accrued interest
relating to MCA as of December 31, 1998.

20. Transactions with Harbor Financial Mortgage Corporation

During 1999 and 1998, the Company entered into several transactions with Harbor
Financial Mortgage Corporation and its wholly owned subsidiary New America
Financial Inc. (collectively Harbor). The transactions included the purchase of
nonperforming FHA/VA loans, servicing retained, on a scheduled/actual
remittance; the purchase of performing residential mortgage loans including
sub-prime loans, servicing retained, on a scheduled/scheduled remittance with
full recourse; the acquisition of MSRs; and the purchase of receivables related
to servicing sales by Harbor to third parties.

In July 1999, Harbor, as servicer for the nonperforming FHA/VA loans, breached
its servicing contract. As a result, in September 1999, the Company transferred
the servicing of the loans to Matrix Financial.

<PAGE>

                              Matrix Bancorp, Inc.

            Notes to Consolidated Financial Statements (continued)


20. Transactions with Harbor Financial Mortgage Corporation (continued)

In October 1999, Harbor filed for bankruptcy. Subsequent to the bankruptcy there
were several lawsuits filed by and against the Company and third parties,
generally surrounding the ownership and competing interest in certain of the
Harbor assets that the Company had acquired. In August 2000, the Company entered
into a global settlement with all of the third parties. As part of the
settlement, the Company acquired additional assets from the Harbor estate and
was required to make settlement payments. Related to the settlement,
curtailments and legal expenses the Company expensed approximately $2,800,000,
the majority of which was recorded in other general and administrative expense
in the consolidated statement of income for the year ended December 31, 2000.

The most significant assets which remain from the Harbor transactions are the
nonperforming FHA/VA loans with a balance of $80,025,000 at December 31, 2000.
Because the principal and interest is largely insured or guaranteed by the
federal government at a stated debenture rate, the Company continues to accrue
interest on the loans. However, both the interest and advances made on the loans
are subject to certain curtailments. The interest and advances are analyzed
quarterly by the Company for collectibility.

21. Transactions with Island Mortgage Network

Over the past two years, the Company provided Island Mortgage Network (Island),
a New York mortgage banking entity, with a purchase/repurchase facility under
which the Company purchased residential mortgage loans from Island, with Island
having the right or obligation to repurchase such mortgage loans within a
specified period of time. In June 2000, Island breached terms of its agreement
with the Company and, in July, Island filed for bankruptcy. At the time of the
bankruptcy, the Company had approximately $12,400,000 of loans that it had
acquired from Island. Relating to $2,400,000 of the loans, there have been
lawsuits initiated by third parties alleging a competing interest in the loans.
With respect to an additional $2,500,000 of loans, the Company believes that the
loans were never closed with good funds. As of December 31, 2000, the Company
had $11,600,000 of loans and receivables originated by Island. As a result of
the above Island issues, the Company recorded a provision for losses in other
general and administrative expense of approximately $2,600,000 for the year
ended December 31, 2000.

<PAGE>

                              Matrix Bancorp, Inc.

            Notes to Consolidated Financial Statements (continued)

22. Segments of the Company and Related Information

The Company has four reportable segments under Statement No. 131, Disclosures
about Segments of an Enterprise and Related Information: a traditional banking
subsidiary, a mortgage banking subsidiary, a servicing brokerage and consulting
subsidiary and a school services subsidiary. The traditional banking subsidiary
provides deposit and lending services to its customers and also makes
investments in residential mortgage loans and residential MSRs. The mortgage
banking subsidiary acquires residential MSRs and services the mortgage loans
underlying those MSRs and, in addition, originates residential mortgage loans
through its wholesale loan origination offices. The servicing brokerage
subsidiary offers brokerage and consulting services for residential MSRs. The
school services subsidiary provides outsourced business and consulting services,
as well as financing to charter schools. The remaining subsidiaries are included
in the "all other" category for purposes of Statement No. 131 disclosures and
consist of the Company's trust operations, real estate disposition services, a
broker-dealer and the Parent company operations.

The Company evaluates performance and allocates resources based on operating
profit or loss before income taxes. The accounting policies of the reportable
segments are the same as those described in the summary of significant
accounting policies. Transactions between affiliates, the resulting revenues of
which are shown in the intersegment revenue category, are conducted at market
prices (i.e., prices that would be paid if the companies were not affiliates).

<PAGE>

                              Matrix Bancorp, Inc.

            Notes to Consolidated Financial Statements (continued)


22. Segments of the Company and Related Information (continued)

For the years ended December 31:

                                     Servicing
                                     Brokerage
               Traditional Mortgage   and       School     All
                 Banking   Banking  Consulting  Services  Others   Total
                 --------------------------------------------------------
2000                                  (In thousands)
Revenues from
  external
  customers:
    Interest
     income.........$86,535 $ 5,973  $     -  $ 4,691   $   187   $97,386
    Noninterest
     income.........  9,144  27,430    6,871    4,240    11,107    58,792

Intersegment
  revenues..........  3,620   5,746      220        -     2,233    11,819

Interest expense.... 47,978   8,296        7    4,413     6,907    67,601

Depreciation/
  amortization......  2,447   8,469      155      269     1,094    12,434

Segment income
  (loss) before
  income taxes...... 17,170   2,209    1,431   (4,019)  (10,290)    6,501

Segment assets
(a).............. 1,286,971 259,726    2,304   62,245    30,740 1,641,986
1999
Revenues from external
  customers:
    Interest
     income......... 66,057   4,433        -    3,249        11    73,750
    Noninterest
     income......... 13,903  24,779    9,662    2,813     9,203    60,360

Intersegment
  revenues..........    (68)  2,782      861        -     3,183     6,758

Interest expense.... 30,812   6,572        1    2,586     4,316    44,287

Depreciation/
  amortization......  3,691  13,498      216      183       942    18,530

Segment income
  (loss) before
  income taxes...... 29,047  (4,529)   3,871   (1,895)   (9,437)   17,057

Segment assets (a)1,138,650  93,252    1,803   37,640    29,446 1,300,791
1998
Revenues from external
  customers:
    Interest
     income.........52,445    6,566        -    1,661        22   60,694
    Noninterest
     income......... 7,603   21,971    9,993       46     7,132   46,745

Intersegment
  revenues..........  (133)     991      501        -     1,665    3,024

Interest expense....24,972    6,767        1    1,128     3,636   36,504

Depreciation/
  amortization...... 1,516   10,306      227       28     1,005   13,082

Segment income
  (loss) before
  income taxes......21,470   (3,983)   4,119     (742)   (7,475)  13,389

<PAGE>

                              Matrix Bancorp, Inc.

            Notes to Consolidated Financial Statements (continued)

Segment assets(a)..821,448  156,523    3,143   24,875    28,304 1,034,293

(a) See reconciliation to total consolidated assets in the following table.

<PAGE>

                              Matrix Bancorp, Inc.

            Notes to Consolidated Financial Statements (continued)

22. Segments of the Company and Related Information (continued)

                                        2000        1999        1998
                                    -------------------------------------
                                               (In thousands)
Revenues for year ended December 31,
Interest income for reportable
  segments...........................$   97,199  $   73,739  $   60,672
Noninterest income for reportable
  segments...........................    47,685      51,157      39,613
Intersegment revenues for reportable
  segments...........................     9,586       3,575       1,359
Other revenues.......................    13,527      12,397       8,819
Elimination of intersegment revenues.   (11,819)     (6,758)     (3,024)
                                    -------------------------------------
Total consolidated revenues..........$  156,178  $  134,110  $  107,439
                                    =====================================

Profit for year ended December 31,
Total profit for reportable segments.$   16,791  $   26,494  $   20,864
Other loss...........................   (10,803)     (9,152)     (7,367)
Adjustment to intersegment profit
  (loss) in consolidation............       513        (285)       (108)
                                     ------------------------------------
Income before income taxes...........$    6,501  $   17,057  $   13,389
                                     ====================================

Assets as of December 31,
Total assets for reportable segments.$1,611,246  $1,271,345  $1,005,989
Other assets.........................    30,740      29,446      28,304
Elimination of intercompany
  receivables........................  (215,998)    (16,689)    (21,905)
Other eliminations...................    (7,193)       (356)       (233)
                                     ------------------------------------
Total consolidated assets............$1,418,795  $1,283,746  $1,012,155
                                     ====================================

Other Significant Items for the
  year ended December 31,
Depreciation/amortization expense:
  Segment totals.....................$   11,340  $   17,588  $   12,077
  Adjustments........................     1,094         942       1,005
                                     ------------------------------------
Consolidated totals..................$   12,434  $   18,530  $   13,082
                                     ====================================

Interest expense:
  Segment totals.....................$   60,694  $   39,971  $   32,868
  Adjustments........................     6,907       4,316       3,636
                                     ------------------------------------
Consolidated totals..................$   67,601  $   44,287  $   36,504
                                     ====================================