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, 2003

                                       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 jurisdiction of                      (I.R.S. Employer
      incorporation or organization)                     Identification No.)

       700 17th Street, Suite 2100
             Denver, Colorado                                   80202
 (Address of principal executive offices)                     (Zip Code)

       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
                         Preferred Share Purchase Rights
                                (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]

     Indicate by check mark whether the registrant is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [x]

     As of March 9, 2004, 6,518,981 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
June 30, 2003 was $22,756,700.  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 14, 2004 are  incorporated by reference into Part
III of this Form 10-K.

<PAGE>

<TABLE>
<CAPTION>
                                                        TABLE OF CONTENTS                                            Page
                                                                                                                     ----

                                                              PART I

    <C>           <C>                                                                                                  <C>
    Item 1.       Business..............................................................................................1
    Item 2.       Properties...........................................................................................24
    Item 3.       Legal Proceedings....................................................................................24
    Item 4.       Submission of Matters to a Vote of Security Holders..................................................27

                                                             PART II

    Item 5.       Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
                  Equity Securities....................................................................................28
    Item 6.       Selected Financial Data..............................................................................29
    Item 7.       Management's Discussion and Analysis of Financial Condition and Results of Operations................30
    Item 7A.      Quantitative and Qualitative Disclosures about Market Risk...........................................52
    Item 8.       Financial Statements and Supplementary Data..........................................................52
    Item 9.       Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.................52
    Item 9A.      Controls and Procedures..............................................................................52

                                                             PART III

    Item 10.      Directors and Executive Officers of the Registrant...................................................53
    Item 11.      Executive Compensation...............................................................................53
    Item 12.      Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.......53
    Item 13.      Certain Relationships and Related Transactions.......................................................53
    Item 14.      Principal Accountant Fees and Services...............................................................53

                                                             PART IV

    Item 15.      Exhibits, Financial Statement Schedules and Reports on Form 8-K......................................53
</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, trust and clearing activities, lending activities, mortgage
banking and other fee-based services. 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;   offering
brokerage,  consulting and analytical  services to financial  services companies
and  financial  institutions;  servicing  residential  mortgage  portfolios  for
investors;  and providing real estate management and disposition  services.  Our
trust and clearing  activities focus primarily on offering  specialized  custody
and clearing  services to banks,  trust companies,  broker-dealers,  third party
administrators  and investment  professionals,  as well as the administration of
self-directed  individual  retirement  accounts,  qualified business  retirement
plans and custodial and directed trust accounts.  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 a limited amount of financing to charter  schools for the purchase of
school sites and equipment.  Other  fee-based  services also include  nationwide
real estate  management and disposition  services  provided to financial service
companies and financial institutions.

     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."

Discontinued Operations

     On February 28, 2003,  Matrix  Capital Bank and Matrix  Financial  Services
Corporation  entered into a Purchase and Assumption  Agreement,  as amended (the
"Purchase  Agreement") to sell  substantially all of Matrix  Financial's  assets
associated with its wholesale mortgage  origination platform (the "Platform") to
AmPro Mortgage Corporation  ("AmPro" or the "Buyer").  On September 2, 2003, the
Company  announced the final closing and  substantial  completion of the sale by
Matrix Bank and Matrix Financial of substantially  all of its assets  associated
with its wholesale mortgage  origination  platform.  The effective sale date for
accounting purposes was August 31, 2003. Included in the sale were the wholesale
production   offices,   the  back  office  personnel  that  processed  the  loan
originations  and  a  significant  portion  of  the  corporate   operations  and
personnel.  After the sale, our remaining operations at Matrix Financial consist
of our mortgage  servicing  platform,  where we service  loans for ourselves and
third parties.

     As a result of the sale, the Company recorded an after tax loss on the sale
of the  Platform  of $(2.7)  million,  or $(0.43) per  diluted  share,  which is
included in the income from discontinued  operations of $3.3 million, net of tax
effect, on the consolidated statements of operations for the year ended December
31, 2003. For comparative  purposes,  the operating  income of the  discontinued
production  platform is reflected in  discontinued  operations  beginning in the
first  quarter of 2001,  and the  consolidated  financial  statements  have been
restated to reflect the  production  platform as a discontinued  operation.  For
further discussion and detail of the accounting for, and effects of, the sale of
the  Platform,  see Note 3 to the  consolidated  financial  statements  included
elsewhere in this document.

     Prior to and at the time of the  signing  of the  Purchase  Agreement,  and
throughout the period from signing of the Purchase  Agreement  through the Final
Closing Date (the "Transition Period"), Matrix Bank provided a warehouse line of
credit for substantially all of the loans originated by the Platform. At the end
of the  Transition  Period,  the Buyer  was  required  to  utilize  third  party
financings  to fund new  originations  by the buyer and the  warehouse  line was
required to be paid-off.  With the warehouse  line  paid-off,  Matrix Bank had a
significant  amount  of  liquidity  to  re-invest,  which  has been  re-invested
primarily in bulk loan portfolios of adjustable rate loans,  guaranteed portions
of Small Business Administration ("SBA") loans and mortgaged-backed securities.

     For a period of two years from  February 28,  2003,  Matrix Bank has agreed
that neither Matrix Bank nor any of its affiliates  will engage in,  directly or
indirectly,  the single-family retail or wholesale mortgage origination business
in those  states in which the  acquired  division  operated or was located as of
such date. However,  this non-compete provision does not prohibit Matrix Bank or
its affiliates from engaging in such business in order to comply with applicable
law, rule, regulation,  directive,  agreement or order from the Office of Thrift
Supervision ("OTS") or another party where it is

                                       3

<PAGE>

necessary to resolve  regulatory  or  supervisory  concerns.  Additionally,  the
non-compete  provision  does not apply in the event of a change  in  control  of
Matrix Bank or the Company.

Sale of Matrix Capital Bank Branches

     On January 30, 2004, Matrix Bank entered into definitive  agreement to sell
its two branches in Las Cruces, New Mexico to FirstBank,  a subsidiary of Access
Anytime  BanCorp,  Inc.  The sale is subject to  regulatory  approval  and other
customary  conditions,  and is expected to be completed in the second quarter of
2004.  The sale will include  deposits of the Las Cruces  branches  that totaled
approximately  $84.1  million at December 31, 2003,  and loans of  approximately
$23.8  million at  December  31,  2003.  The sale will allow us to reduce  costs
associated with the operations of the retail branch locations,  and will provide
us the  opportunity  to focus our efforts on pursuing  additional  institutional
depository  relationships,  in line  with our  strategic  plan.  The sale of the
branches is not anticipated to significantly impact our operations or liquidity,
or that of Matrix Bank.

The Subsidiaries

     Our  core  business   operations   are  conducted   through  the  operating
subsidiaries and an investment in a settlement and clearing operation  described
below.

     Matrix  Capital  Bank.  With offices in  Colorado,  New Mexico and Arizona,
Matrix Bank serves its local  communities by providing a broad range of personal
and business depository services, offering residential loans and commercial real
estate loans,  including  Small  Business  Administration  loans,  and providing
consumer loans. In 2002, Matrix Bank relocated its domicile from Las Cruces, New
Mexico to Denver,  Colorado where it offers all of its existing banking services
in the Denver market. In connection with the relocation,  a subsidiary of Matrix
Bank,  Matrix Tower  Holdings,  LLC,  purchased a high rise building in downtown
Denver,  Colorado in June 2002,  renamed Matrix Financial Center. In addition to
Matrix Bank, the Company and several of its subsidiaries relocated their offices
to Matrix Financial Center during 2002 and 2003.

     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.,  an  equity  method  investment.   These  deposits,  as  well  as  other
traditional  deposits,  are used primarily to fund bulk purchases of residential
mortgage loan  portfolios  throughout the United States,  a portion of which are
serviced for Matrix Bank by Matrix  Financial.  As of December 31, 2003,  Matrix
Bank had total assets of $1.6 billion.

     Matrix  Bank  and  several  of  our  other  subsidiaries  have  significant
experience in purchasing  mortgage  loans,  originating  multi-family  and other
loans secured by real estate,  including  Small Business  Administration  loans,
have familiarity with real estate markets  throughout the United States and have
traditionally  had access to 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 is a wholly
owned subsidiary of Matrix Bank,  historically has acquired  mortgage  servicing
rights on a nationwide  basis  through  purchases in the secondary  market,  has
retained originated mortgage servicing rights, and services the loans underlying
the purchased mortgage servicing rights and a portion of our originated mortgage
servicing rights.

     As of December 31, 2003,  Matrix  Financial  serviced over 50,000  borrower
accounts  representing  $3.2 billion in  principal  balances,  excluding  $176.9
million  in  subservicing  for  companies  that are  unaffiliated  with us. As a
servicer of mortgage loans,  Matrix Financial generally is required to establish
custodial  escrow  accounts  for  the  deposit  of  borrowers'  payments.  These
custodial  accounts are  maintained  at Matrix Bank.  At December 31, 2003,  the
custodial  escrow  accounts  related to our  servicing  portfolio  maintained at
Matrix Bank were $85.5 million.

     Prior to the  sale of the  production  platform  as  discussed  in "Item 1.
Business--Discontinued  Operations",  Matrix  Financial  originated  residential
mortgage  loans through its wholesale  loan  origination  network,  with offices
located in Atlanta, Dallas, Denver, Houston, Jacksonville,  Phoenix, Sacramento,
Santa Ana and St. Louis.  The mortgage loans originated by Matrix Financial were
retained and sold in the secondary  market.  Prior to the sale of the production
platform,

                                       4


<PAGE>

for the period  January 1, 2003  through  February 28,  2003,  Matrix  Financial
originated $758.9 million in residential mortgage loans.

     Matrix Bancorp  Trading,  Inc.  Matrix Bancorp  Trading,  formerly known as
Matrix Capital  Markets,  Inc.,  provides  brokerage and consulting  services to
financial  institutions and financial services companies in the mortgage banking
industry. These services include:

     o    the brokering, acquisition and analysis of loans;
     o    the  brokering,  analysis  and  sales  of  residential  mortgage  loan
          servicing rights;
     o    mortgage  loan  servicing  portfolio  valuations,  which  includes the
          "mark-to-market"  valuation and analysis  required under Statements of
          Financial Accounting Standards No. 133 and No. 140; and
     o    to a lesser extent,  consultation and brokerage services in connection
          with mergers and acquisitions of mortgage banking entities.

     Matrix Bancorp Trading's volume of brokerage  activity and the expertise of
its analytics department gives 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
loans that are well  suited to our  particular  servicing  platform,  investment
objectives and unique corporate structure.

     First Matrix Investment Services Corporation.  First Matrix, which became a
wholly owned subsidiary of Matrix Bancorp Trading in October 2001, is registered
with  the  National  Association  of  Securities  Dealers  ("NASD")  as a  fully
disclosed  broker-dealer,  with its headquarters in Denver,  Colorado and branch
offices  in Fort  Worth,  Texas and  Memphis,  Tennessee.  First  Matrix  offers
brokerage  services  related  to a wide  range of  investment  options  for both
individual and institutional  investors,  including stocks,  bonds, mutual funds
and fixed income and debt securities. The Fort Worth office focuses primarily on
long-term investing and retirement  planning for individuals.  The Denver office
works  primarily  with  financial  institutions  in  managing  their  investment
portfolios.   The  Memphis  office  focuses  on  the   acquisition,   brokering,
securitization  and sale of SBA loans and loan pools.  SBA loans are acquired by
Matrix Bank through the brokerage activities of First Matrix.

     Matrix  Asset  Management  Corporation.  Matrix Asset  Management  provides
nationwide  real  estate  management  and  disposition  services  on  foreclosed
properties  owned  by  financial  services  companies,  mortgage  companies  and
financial institutions. In addition to the unaffiliated clients currently served
by Matrix Asset  Management,  Matrix Bank and Matrix  Financial  utilize  Matrix
Asset  Management to handle the  disposition of foreclosed real estate for which
it is responsible as servicer.  As of December 31, 2003, Matrix Asset Management
had approximately 3,200 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.

     During 2003,  Matrix Asset Management began operations of an internet based
business,  reoSource,  that allows  buyers and agents to utilize the web to make
offers on the  foreclosed  properties  managed by Matrix Asset  Management,  and
posted on the site by clients of Matrix Asset Management.

     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, 2003,  Sterling Trust administered  approximately  36,000 accounts,
with assets under  administration of over $2.3 billion. As of December 31, 2003,
approximately  $179.0  million  of the $2.3  billion  represented  money  market
deposits held at Matrix Bank.

     ABS School  Services,  L.L.C.  ABS School Services  (sometimes  referred to
hereafter  collectively  with its  subsidiaries  as "ABS")  provides  outsourced
business services to charter schools, and operates under the name The GEO Group.
Charter schools are public schools that are an alternative to traditional public
schools. The primary services offered include fund accounting,  cash management,
budgeting,  governmental reporting,  payroll and accounts payable. The GEO Group
also offers  administrative  and  instructional  leadership  and  consults  with
schools  and offers  assistance  in the  following  areas:  facility  and safety
management,   technology,   policy   development,   grant   administration   and
comprehensive  insurance

                                       5

<PAGE>

programs.  Additionally,  The GEO Group has a financing division, which offers a
limited amount of financing to charter  schools for the purchase of school sites
and equipment.

     Matrix  Settlement  &  Clearance  Services,   L.L.C.  Matrix  Settlement  &
Clearance  Services  is a joint  venture in which we own a 45% equity  interest.
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. Effective January
2, 2002, Matrix Settlement & Clearance  Services' wholly owned subsidiary,  MSCS
Financial  Services,  LLC, began operations as a NASD registered  broker-dealer.
For the year ended  December 31, 2003,  Matrix  Settlement & Clearance  Services
consolidated   had  $9.1   million  of  revenues   and  pre-tax  net  income  of
approximately $2.6 million.

     As of December 31,  2003,  Matrix  Settlement & Clearance  Services had 126
customers  under contract.  These customers  administer and trade through Matrix
Settlement & Clearance Services  approximately $26.2 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, as 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, 2003, Matrix Settlement &
Clearance  Services'  customers had $85.3 million of deposits at Matrix Bank. In
addition,  many of Matrix  Settlement & Clearance  Services'  customers  require
trust and custody services. As of December 31, 2003, Matrix Bank held in custody
$11.0 billion of assets for customers of Matrix Settlement & Clearance Services.

     Please see Note 21 to the  consolidated  financial  statements  for further
financial information about our subsidiaries.

Lending Activities

     Purchase  and Sale of Bulk Loan  Portfolios.  The  majority  of our  assets
consist of  residential  mortgage loans that we generally  acquire  through bulk
acquisitions  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    Matrix Bancorp  Trading,  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; and
     o    Matrix  Bank's  subsidiary,   Matrix  Financial,   provides  servicing
          advantages  that a  typical  "stand-alone"  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.

     Over 75% 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 classified as held for sale at the lower of aggregate cost or
market value.  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  first lien
priority  loans  secured  primarily  by  one-to-four  single-family  residential
properties. To the extent that adjustable rate loans are available,  Matrix Bank
generally targets  adjustable over fixed rate portfolios.  Due to the accounting
treatment required, we believe that the focus on adjustable rate loans generally
reduces the effect of changing interest rates on the portfolio's market value.

     Matrix Bank purchases  mortgage loan  portfolios  from various  sellers who
have  either  originated  the  loans or  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  environment,  the  seasoning of the mortgage  loans,
payment  histories,  geographic  location of the underlying  collateral,  price,
yield, the current  liquidity of Matrix Bank and the product mix in its existing
mortgage loan portfolio.

     In the  past,  Matrix  Bank has  purchased  nonperforming  Federal  Housing
Administration  ("FHA") and  Veteran's  Administration  ("VA")  loans from third
party  sellers,  and currently  Matrix  Financial  purchases all of the eligible
delinquent  FHA and VA loans out of its servicing  portfolio.  The Department of
Housing and Urban  Development  ("HUD")  generally  guarantees  the  majority of
principal and interest on these  nonperforming  loans.  These loans are at fixed
rates and have a

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<PAGE>

relatively short average life since the loans are typically  liquidated  through
the foreclosure and subsequent  claim process with HUD. As of December 31, 2003,
we owned $12.2 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   nonconforming
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.

     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,  potentially less interest income and higher capital
ratios.

     During the year ended December 31, 2003, we made bulk purchases of mortgage
loans of  approximately  $637.3  million.  We made  bulk  sales  of 1-4  family,
multi-family and originated SBA loans of approximately  $252.2 million for a net
gain on sale of bulk mortgage loans of $12.0 million.

     Residential  Mortgage Loan Origination.  We originate  residential mortgage
loans  on a retail  basis  through  Matrix  Bank,  and  prior to the sale of the
production platform as discussed in "Item 1. Business--Discontinued Operations",
on a wholesale and retail basis through Matrix Financial. Since August 31, 2003,
we have not originated  mortgage loans on a wholesale basis,  with the exception
of our  participation  in the New Mexico Housing  Authority  program,  which was
excluded  from the  sale of the  production  platform,  and as noted in "Item 1.
Business--Discontinued Operations", we have agreed with the Buyer not to compete
in certain  respects.  Our  participation  in the New Mexico  Housing  Authority
program is anticipated to terminate in the second quarter of 2004.

     Retail Originations.  Matrix Bank originates  residential loans on a retail
basis  through its branches in Las Cruces,  New Mexico.  Matrix  Bank's  lending
office in Denver, Colorado primarily originates multi-family loans on a national
basis,  and residential  construction  loans and commercial  loans in that local
market  place.  Matrix Bank  attempts to convert the  construction  loans funded
through the Denver  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. As
discussed  in "Item 1.  Business--Sale  of Matrix  Capital  Bank  Branches",  an
agreement for the sale of the Matrix Bank branches in Las Cruces, New Mexico was
entered into January 2004,  subject to regulatory  approval and other  customary
conditions.  This sale,  anticipated  to be finalized  in the second  quarter of
2004, will eliminate our retail originations operations in New Mexico.

     Quality Control.  We have a loan quality control process designed to ensure
sound lending  practices and compliance with Fannie Mae, Freddie Mac, Ginnie Mae
and applicable private investor guidelines. Prior to funding any 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.

     Sale of Originated Loans. We generally sell the residential  mortgage loans
that we  originate.  Prior to the sale of the  Platform as discussed in "Item 1.
Business--Discontinued Operations.", under programs established with Fannie Mae,
Freddie Mac and Ginnie Mae,  conforming  conventional  and government loans were
sold on a cash basis or pooled by us and exchanged for securities  guaranteed by
Fannie Mae, Freddie Mac or Ginnie Mae. We then sold those securities to national
or regional  broker-dealers.  Mortgage loans sold to Fannie Mae,  Freddie Mac or
Ginnie Mae were sold on a nonrecourse basis, except for standard representations
and warranties,  so that foreclosure  losses were generally borne by Fannie Mae,
Freddie Mac or Ginnie Mae and not by us.

     Prior to the sale of the Production  Platform,  we also sold  nonconforming
and  conforming  residential  mortgage  loans  on a  nonrecourse  basis to other
secondary market investors.  Currently, all of the originated residential loans,
absent the

                                       7


<PAGE>

loans originated under the New Mexico Housing Authority Program,  are sold under
this method. 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.

     In the past, we sold residential mortgage loans on a servicing-retained  or
servicing-released basis. Currently, all loans are sold servicing released, with
the exception of loans under the New Mexico Housing Authority program. See "Item
1. Mortgage Servicing Activities--Residential Mortgage Loan Servicing."

     In connection with our residential mortgage loan originations and sales, we
make customary representations and warranties. Our past experience has been that
giving  such  representations  and  warranties  have not  resulted  in  material
repurchases.  However, due to the increased  originations activity that occurred
in 2001 and 2002, we have  experienced an increase in  repurchases.  The Company
has provided a reserve for anticipated losses related to the representations and
warranties.  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 made. We remain  responsible for all
loans originated through the Platform through February 28, 2003, as discussed in
"Item 1. Business--Discontinued Operations."

     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  consequently  change the market  value of the  mortgage
loans.  The change in the market value of the mortgage loans may occur after the
price  commitment is given to the borrower and before the time that the mortgage
loan is sold to the  investor.  Net gains  and  losses  on  Production  Platform
originated loans are recorded in net income from  discontinued  operations,  and
net gains and losses on all other  originated loans are recorded in gain or loss
on sale of loans and securities.

     Commercial and Other  Lending.  We have sought to diversify and enhance the
yield of our loan portfolio by originating  multi-family,  commercial  and, to a
lesser extent,  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 SBA loans; and a limited amount of financing to charter schools for
the purchase of real estate and equipment.  Matrix Bank's loan production office
in  Denver,  Colorado  principally  originates  single-family  construction  and
commercial  real estate loans.  Matrix  Bank's office in Las Cruces,  New Mexico
also originates a portion of these loans.

     Matrix Bank's small business  lending  division,  headquartered  in Denver,
Colorado,  offers the following  loan products:  SBA 7a loans;  first trust deed
loans through the SBA 504 program;  first trust deed  companion  loans senior to
SBA 7a loans;  and Business and Industry  Guaranteed  Loans offered  through the
United States  Department of Agriculture,  as well as certain  secondary  market
qualified conventional lending. Matrix Bank has been a SBA Preferred provider in
the  Colorado  market  area  since  1999,  and  was  awarded  expansion  of that
designation into New Mexico, Utah, Arizona, Oregon, Washington, Idaho and Texas.
Preferred  lender status allows Matrix Bank  delegated  authority to approve SBA
guaranteed loan  applications  without prior review from the SBA, in most cases,
thereby  accelerating the approval process for small business loan applications.
Preferred lenders also are granted unilateral  servicing powers over the term of
those loans. During 2003, Matrix Bank originated $33.0 million in SBA loans.

     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.

     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

                                       8
<PAGE>

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 originates loans on multi-family  residential  properties.  The
properties  are  located  throughout  the  United  States and are  generally  on
properties of between 5 to 150 units. In 2003, Matrix Bank originated over $41.0
million of multi-family  loans and sold $31.0 million of multi-family  loans. At
December  31,  2003,   Matrix  Bank  had  a   multi-family   loan  portfolio  of
approximately $58.0 million.

     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.

     ABS offers  limited  financing  to charter  schools  located  primarily  in
Arizona, Colorado,  Missouri, Florida and Texas for the purchase of real estate,
modular space and equipment. 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 2003, we began limiting to a large degree the
financing  activities  at  ABS.  We  expect  this  trend  to  continue  for  the
foreseeable  future  because our  objective is to reduce the overall size of our
charter school loan portfolio.  As of December 31, 2003, we had a total of $46.8
million loans outstanding 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
          100% and for furniture, fixtures and equipment and modular space it is
          100%;
     o    there are generally no personal guarantees; and
     o    cash flow to  service  the  financing  is  derived  from the  school's
          student enrollment.  If the school's student enrollment 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.

Mortgage Servicing Activities

     Residential  Mortgage Loan Servicing.  We conduct our residential  mortgage
loan servicing  activities  exclusively  through Matrix Financial  including the
residential   mortgage  loan  servicing  that  Matrix   Financial   provides  as
subservicer for Matrix Bank's servicing portfolio.  At December 31, 2003, Matrix
Financial  serviced  approximately  $3.2  billion of mortgage  loans,  excluding
$176.9 million 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,   2003,   Matrix   Financial's   annual
weighted-average servicing fee, including ancillary fees, was 0.50%.

     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, 2003, on the basis of outstanding  principal balances,
approximately  1.16% 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

                                       9
<PAGE>

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 Ginnie  Mae,  for which  agencies  we  provide
significant amounts of mortgage loan servicing.  As of December 31, 2003, we had
advanced  approximately  $12.9  million  in  funds  on  behalf  of  third  party
investors.  For the VA loans sold and serviced for Ginnie Mae, which are sold on
a nonrecourse  basis,  the VA loan guarantees may not cover the entire principal
balance and, in that case,  we are  responsible  for the losses which exceed the
VA's  guarantee.  Estimated  losses  related to  foreclosure  are  estimated and
reserved for, and included in the consolidated financial statements.

     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 Fidelity  Information  Services,
formerly known as Alltel Information Services, Inc. Because Fidelity Information
Services is one of the largest  mortgage  banking  service bureaus in the United
States,  we believe that this system gives Matrix Financial  capacity to support
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,
                                                                 ---------------------------------------------------
                                                                      2003              2002              2001
                                                                 --------------    --------------   ----------------
                                                                                  (In thousands)
<C>                                                               <C>               <C>                <C>
FHA insured/VA guaranteed residential........................     $  1,318,485      $ 2,128,363        $ 2,187,686
Conventional loans                                                   1,742,096        3,053,368          3,272,109
Other loans..................................................          122,955          151,896            196,570
                                                                  ------------     --------------    ---------------
     Total mortgage servicing portfolio......................     $  3,183,536      $ 5,333,627        $ 5,656,365
                                                                 ===============   ==============    ===============

Fixed rate loans.............................................     $  2,697,892      $ 4,688,672        $ 5,009,501
Adjustable rate loans........................................          485,644          644,955            646,864
                                                                 ---------------   --------------    ---------------
     Total mortgage servicing portfolio......................     $  3,183,536      $ 5,333,627        $ 5,656,365
                                                                 ===============   ==============    ===============
</TABLE>

     The following table shows the delinquency statistics for the mortgage loans
serviced by Matrix Financial,  excluding loans subserviced for others, 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.  The higher
levels of delinquencies result in a higher cost of servicing, however, a portion
of the higher cost is offset by the collection of late fees.

<TABLE>
<CAPTION>
                                                              As of December 31,
                        ---------------------------------------------------------------------------------------------
                                     2003                           2002                             2001
                        ------------------------------ -------------------------------- -----------------------------
                           Number       Percentage        Number         Percentage        Number        Percentage
                             of        of Servicing         of          of Servicing         of         of Servicing
                           Loans         Portfolio        Loans          Portfolio         Loans          Portfolio
                        ------------- ---------------- -------------  ----------------- -------------  --------------
<C>                          <C>            <C>             <C>                <C>           <C>               <C>
Loans delinquent for:
   30-59 days..........      3,366            6.62          4,276              5.65          4,610             5.35
   60-89 days..........      1,018            2.00          1,021              1.35            932             1.08
   90 days and over....      1,433            2.82            647              0.86            616             0.72
                        ------------- --------------   -------------  ---------------   -------------  --------------
   Total delinquencies.      5,817           11.44          5,944              7.86          6,158             7.15
                        ============= ==============   =============  ===============   =============  ==============
   Foreclosures........        438            0.86            540              0.71            757             0.88
                        ============= ==============   =============  ===============   =============  ==============
</TABLE>

     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:

                                       10
<PAGE>
<TABLE>
<CAPTION>
                                                                As of December 31,
                    -----------------------------------------------------------------------------------------------------------
                                   2003                                 2002                               2001
                    ----------------------------------- -----------------------------------------------------------------------
                                          Percentage                          Percentage                          Percentage
                     Number    Aggregate  of Aggregate   Number    Aggregate  of Aggregate  Number     Aggregate  of Aggregate
       Rate            of      Principal   Principal       of      Principal    Principal     of       Principal   Principal
                      Loans    Balance      Balance       Loans    Balance       Balance     Loans      Balance     Balance
                    --------   ---------  -----------   --------   ---------- ----------    -------   -----------  ------------
                                                             (Dollars in thousands)
<C>                   <C>      <C>            <C>         <C>     <C>             <C>         <C>     <C>             <C>
Less than 7.00%....   17,240   1,446,158       45.43%     23,345   $2,196,944      41.19%     16,024  $ 1,443,862      25.53%
 7.00%--7.99%......   10,950     846,330       26.58      19,043    1,634,054      30.64      23,815    1,895,797      33.52
 8.00%--8.99%......    8,492     390,254       12.26      13,424      724,053      13.57      19,002    1,144,290      20.23
 9.00%--9.99%......    6,237     215,188        6.76       8,755      349,308       6.55      12,122      542,621       9.59
10.00% and over....    7,936     285,606        8.97      11,080      429,268       8.05      15,192      629,795      11.13
                    --------   ---------  -----------   --------   ---------- ----------    --------  -----------  ---------
  Total............   50,855   3,183,536      100.00%     75,647   $5,333,627     100.00%     86,155  $ 5,656,365     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.

<TABLE>
<CAPTION>
                                                                  As of December 31,
                  ------------------------------------------------------------------------------------------------------------------
                                   2003                                   2002                                  2001
                  ------------------------------------------------------------------------------------------------------------------
                                            Percentage                             Percentage                             Percentage
                Number  Percentage Unpaid     Unpaid   Number  Percentage  Unpaid    Unpaid   Number  Percentage  Unpaid    Unpaid
                  of    of Number Principal Principal    of    of Number Principal Principal    of    of Number  Principal Principal
  Maturity       Loans   of Loans  Amount     Amount    Loans   of Loans   Amount    Amount    Loans   of Loans   Amount    Amount
                 -------------------------------------------------------------------------------------------------------------------
                                                                (Dollars in thousands)

<C>                <C>     <C>     <C>         <C>      <C>       <C>     <C>         <C>       <C>      <C>      <C>        <C>
 1--5 years......  11,431   22.48% $  190,283    5.98%  11,647     15.40% $  188,463    3.53%   11,539    13.39%    169,794    3.00%
 6--10 years......  4,958    9.75     169,379    5.32    8,954     11.84     271,438    5.09    14,711    17.08     442,458    7.82
11--15 years......  7,055   13.87     394,119   12.38   10,728     14.18     662,439   12.42    12,101    14.05     729,162   12.89
16--20 years......  8,080   15.89     620,435   19.49   12,914     17.07   1,042,962   19.56    18,013    20.91   1,428,794   25.26
21--25 years......  1,274    2.51      87,013    2.73    1,588      2.10     134,967    2.53     2,219     2.57     246,835    4.37
More than 25 years 18,057   35.50   1,722,307   54.10   29,816     39.41   3,033,358   56.87    27,572    32.00   2,639,322   46.66
                   ------  ------  ----------  ------   ------    ------  ----------  ------    ------   ------   ---------  -------
  Total..........  50,855  100.00% $3,183,536  100.00%  75,647    100.00% $5,333,627  100.00%   86,155   100.00%  5,656,365  100.00%
                   ======  ======  ==========  ======   ======    ======  ==========  ======    ======   ======   =========  =======
</TABLE>

Our  servicing   activity  is   diversified   throughout   all  50  states  with
concentrations in Missouri,  Texas, California,  Arizona, New Mexico and Florida
of approximately 14.50%, 14.28%,  13.87%, 9.03%. 8.16% and 5.01%,  respectively,
based on aggregate  outstanding  unpaid principal balances of the mortgage loans
serviced at December 31, 2003.

     Acquisition of Servicing Rights. Historically, our strategy with respect to
mortgage servicing was to focus on acquiring  servicing for which the underlying
mortgage  loans tended to be more  seasoned and to have higher  interest  rates,
lower  principal  balances  and  higher  custodial  escrow  balances  than newly
originated  mortgage loans.  We believed this strategy  allowed 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
because the cost savings to the borrower from  refinancing  can be  significant.
During 2003,  existing low interest rates  continued to decrease  throughout the
year. We purchased only nominal amounts of servicing in 2003 due to the interest
rates prevalent  during the year, the lack of the servicing  products  available
and a decision to retain a portion of our originated servicing.

     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:

<TABLE>
<CAPTION>
                              For the Years Ended December 31,
                    -----------------------------------------------------
                      2003(1)(4)         2002(2)(4)        2001(3)(4)
                    ----------------   ----------------  ----------------
<C>                        <C>                <C>                <C>
Quarter ended:
   December 31....         30.27 %            31.03 %            24.67%
   September 30...         41.23              23.30              25.13
   June 30........         38.90              19.00              24.63
   March 31.......         31.30              21.60              17.13
                    ----------------   ----------------  ----------------
Annual average....         35.43 %            23.73 %            22.89%
                    ================   ================  ================
</TABLE>

                                       11
 __________

(1)  These prepayment rates exclude prepayment experience for mortgage servicing
     rights  subserviced  for us by others of $176.9  million,  $192.8  million,
     $17.6  million  and $13.1  million  for the  quarters  ended  December  31,
     September 30, June 30, and March 31, 2003, respectively.
(2)  These prepayment rates exclude prepayment experience for mortgage servicing
     rights subserviced for us by others of $26.6 million,  $600 thousand,  $5.8
     million and $34.6 million for the quarters ended December 31, September 30,
     June 30, and March 31, 2002, respectively.
(3)  These prepayment rates exclude prepayment experience for mortgage servicing
     rights  subserviced  for us by others of $889.0  million,  $581.8  million,
     $306.9  million  and $1.1  billion  for the  quarters  ended  December  31,
     September 30, June 30, and March 31, 2001, respectively.
(4)  These  prepayment  rates do not include  prepayments  that resulted from us
     targeting our own servicing portfolio for refinance opportunities.

     Prior to 2001,  we acquired  substantially  all of our  mortgage  servicing
rights in the secondary market. The industry expertise of Matrix Bancorp Trading
and Matrix Financial allowed us to capitalize upon inefficiencies in this market
when acquiring mortgage servicing rights.  Prior to acquiring mortgage 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 a portion  of the  mortgage
servicing rights generated from the origination  platform.  Throughout 2000, and
for the majority of 2001, we generally  retained the servicing on the loans sold
to Ginnie Mae. In the fourth  quarter of 2001,  we began to retain the servicing
on loans sold to Fannie Mae and Freddie Mac and sold our newly originated Ginnie
Mae servicing. In April through August of 2002, we retained all of the servicing
originated  on Fannie Mae and Ginnie Mae loans.  Beginning  in September of 2002
and for all of 2003,  we entered into an  assignment  of trade  contract  with a
national mortgage banker to sell the majority of our originated  servicing.  The
decision  on which  servicing  to retain or sell is based on  factors  including
interest rate  environment,  secondary  market  pricing for the  servicing,  our
capital  levels and  liquidity.  As of  December  31,  2003,  in terms of unpaid
principal amount, approximately $1.4 billion of the underlying mortgage loans in
our servicing  portfolio were from loans originated and sold by Matrix Financial
prior  to the  sale  of the  production  platform,  as  discussed  in  "Item  1.
Business--Discontinued  Operations".  Based  on the fact  that we have  sold our
Platform,  and the limited amount of seasoned servicing  available in the market
place, it is unlikely that we will acquire or add significantly to our servicing
portfolio. To the extent that any additions to our servicing portfolio are done,
the  acquisitions  are  likely to be  portfolios  with  characteristics  of more
seasoning,  lower balances and higher escrows.  Any future  acquisitions will be
based on  availability  of desired  product,  our  capital  levels,  our current
investment  in  mortgage  servicing  assets  and  the  prevalent  interest  rate
environment.

     Sales of  Servicing  Rights.  Historically,  we have sold a portion  of our
purchased  mortgage  servicing  portfolios  and sold a portion  of the  mortgage
servicing  rights on loans that we originated  prior to the sale of the Platform
as discussed in "Item 1.  Business--Discontinued  Operations",  and as mentioned
above.  Sales  generate cash at the time of sale but reduce future cash flow and
servicing  fee income.  We did not have any sales of mortgage  servicing  rights
during 2003 due to the prevailing  market  conditions.  We will pursue strategic
sales of segments of our portfolio if market conditions are favorable.

     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,  consistent
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 or the

                                       12
<PAGE>

estimated  future  prepayment  activity on segments  of our  mortgage  servicing
portfolio  reaches  levels  higher than we projected  for an extended  period of
time, the associated basis in the mortgage servicing rights may be impaired.  To
mitigate a portion of this risk of impairment due to declining  interest  rates,
through  December 31, 2000, we initiated a hedging  strategy that used a program
of  exchange-traded  future and options,  and our hedging program  qualified for
hedge accounting treatment based on a high degree of statistical correlation and
then current accounting guidance.  With the required adoption of the SFAS 133 on
January 1, 2001,  we did not attempt to qualify for hedge  accounting  treatment
due to the requirements in the standard that are necessary to do so.  Consistent
with the program  implemented  in the fourth quarter of 2002, in 2003 we elected
to  reinstate  our hedging  program to mitigate a portion of our  investment  in
mortgage servicing rights from further  impairment,  identical to the previously
used program. The decision was based on the historically low interest rates, the
continued  weakening  economy,  the geopolitical  environment and the impairment
that we  incurred  to-date.  During  2003,  we hedged  approximately  15% of our
portfolio.  As of December 31, 2003,  we have  maintained  consistency  with the
percentage of coverage at  approximately  19%. We did not attempt to qualify for
hedge  accounting  treatment  due to the  requirements  in SFAS  133  that  were
necessary to do so.  During 2003,  we earned  approximately  $700  thousand from
hedging  activities.  The decision to increase or decrease our hedging  coverage
will be based on several  factors,  including those discussed  above, as well as
the composition of our current servicing portfolio.

     Our servicing portfolio is valued at least quarterly in accordance with the
guidelines  set forth in SFAS 140. Under SFAS 140, we are required to record our
investment in mortgage  servicing rights at the lower of cost or fair value. The
fair value of mortgage  servicing  rights is determined  based on the discounted
future  servicing  income  stratified  based  on one or  more  predominant  risk
characteristics  of the  underlying  loans.  We stratify our mortgage  servicing
rights by  product  type and  investor  to reflect  the  predominant  risks.  To
determine  the fair  value of this  investment,  we use a  valuation  model that
calculates  the present  value of  discounted  future cash flows.  In the fiscal
years 2003 and 2003, we made no changes to the significant  assumptions inherent
in the valuation of the servicing portfolio.  These significant  assumptions are
more fully described in Note 2 to the consolidated financial statements included
elsewhere in this document.

     During  2002,  based on a valuation  model which  incorporates  among other
things, prepayment speeds, we recorded provisions for impairment on our mortgage
servicing rights totaling  approximately  $14.2 million.  Prepayment  speeds are
highly  impacted by changes in interest  rates,  as when interest  rates decline
there is a greater incentive for the homeowners to refinance their mortgages. In
2002, mortgage rates increased in the first quarter of the year and we recovered
$181 thousand of previously recorded impairment.  In the quarters ended June 30,
2002, September 30, 2002 and December 31, 2002, we recorded an impairment charge
of $1.4 million, $8.0 million and $5.0 million, respectively.  These impairments
are highly  correlated to the decline in mortgage  interest  rates that occurred
during these periods.  During 2003,  based on our servicing  valuation model, we
recorded  impairment in the amount of $2.4 million in the quarter ended June 30,
2003 as mortgage  interest rates reached their lowest level in over 45 years. In
the quarter ended September 30, 2003,  mortgage  interest rates increased and we
recorded an  impairment  recovery of $5.1  million.  Also,  in the quarter ended
September  30,  2003,  we  determined  that it was remote  that $5.0  million of
previously  recorded  impairment would be recovered,  and thus recorded a direct
write-down  to the value of the  servicing  asset for such amount.  Based on our
valuation model, we recorded an additional  impairment recovery of $250 thousand
for the quarter ended December 31, 2003.  Our impairment  reserve as of December
31, 2003 was $6.5 million. Further decreases in interest rates, or other factors
that result in an increase in anticipated  future prepayment  speeds,  may cause
additional impairment charges in future years.

Brokerage, Consulting and Outsourcing Services

     Brokerage Services. We provide brokerage services through our subsidiaries,
Matrix Bancorp Trading and First Matrix Investment Services Corporation.

     Matrix Bancorp  Trading.  Matrix Bancorp Trading operates as a full-service
mortgage  servicing  and  mortgage  loan  broker.  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.  Matrix Bancorp Trading promotes its services to all types and
sizes of market participants, thereby developing diverse relationships.

     Matrix  Bancorp  Trading  brokers and principals all types of loan products
with the majority of the loan products  centering on residential  mortgages.  In
most cases, Matrix Bancorp Trading acts as the intermediary  between the sellers
and buyers of the various loan products.

     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

                                       13
<PAGE>

to a  specified  buyer  from  time  to  time,  at a
predetermined price, the mortgage servicing rights originated by the seller that
meet certain criteria.  Matrix Bancorp Trading 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 Matrix  Bancorp
Trading 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  Matrix  Bancorp
Trading's  national market  presence.  These contacts also enable Matrix Bancorp
Trading to  identify  prospective  clients for our other  subsidiaries  and make
referrals  when  appropriate.  See "Item 1.  Business--Consulting  and  Analytic
Services" below.

     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.  Because
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 fluctuating 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,  Matrix Bancorp Trading has access
to information on the availability of mortgage servicing portfolios, which helps
it bring interested buyers and sellers together.  Due to the consolidation  that
has taken place in the mortgage  banking  industry,  as well as the low interest
rate environment experienced in 2003 that depressed the value of servicing,  the
overall  market,  including the number of buyers and sellers of  servicing,  has
decreased.  As a result,  we have  experienced  an overall  decrease in both the
portfolios  brokered and the corresponding  revenue. As interest rates increase,
and the level of mortgage originations decrease, we would expect that the market
for bulk servicing trades would increase. If that occurs, we believe we are well
positioned to take  advantage of the  increased  brokerage  activity.  .........
First Matrix Investment  Services  Corporation.  First Matrix is registered with
the NASD as a fully disclosed broker-dealer,  headquartered in Denver, Colorado.
First Matrix  conducts a wide range of general  securities  business,  including
fixed income  brokerage,  retail  brokerage,  investment  banking and structured
finance services. First Matrix clears all of its securities transactions through
First Southwest Company based in Dallas, Texas on a fully disclosed basis.

     First Matrix provides  brokerage  services through fixed income trading and
SBA pooling,  retail brokerage,  and structured  finance deals. First Matrix has
traditionally   focused  its  fixed  income  business   primarily  on  financial
institutions in the Rocky Mountain Region.  First Matrix brokers U.S. government
treasury obligations, agencies, municipal bonds and corporate debt. The majority
of its fixed  income  business is of an  institutional  nature,  and its clients
include  banks,  savings and loans,  insurance  companies,  mutual funds,  money
managers and hedge funds.

     Through the SBA group in Memphis,  First Matrix has  diversified its client
base and its  product  mix.  First  Matrix,  acting  as agent for  Matrix  Bank,
purchases the guaranteed  portion of SBA 7A loans from bank and non-bank lenders
around  the  country.  These  loans  are  assembled  and later  pooled  into SBA
securities  which  are sold  into the  secondary  market  to  institutional  and
sophisticated  investors.  This  trading  strategy  enables  Matrix Bank to earn
attractive  yields on high credit  quality  assets with reduced  exposure to the
traditional risks associated with investing in any fixed income asset.

     In  retail  brokerage  services,  the  First  Matrix  focus  is to  attract
experienced investment professionals with established relationships,  looking to
provide  their  clients  with the safety and  expanded  services  provided  by a
broker-dealer  connected to a  well-capitalized,  regional bank holding company.
Our brokers have  long-standing  relationships  with a broad range of retail and
small  business  clients.  Although  First  Matrix'  product  mix will  focus on
fee-based  products,  it will  continue to offer  traditional  fixed  income and
equity investment services to its retail client base.

     Consulting and Analytic Services.  Matrix Bancorp Trading 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 on servicing portfolios. Matrix Bancorp Trading utilizes
a nationally  recognized  valuation  model to fit its customers'  many different
needs and unique situations in performing  valuations and analyses. In addition,

                                       14
<PAGE>

Matrix Bancorp Trading has the infrastructure and management  information system
capabilities  necessary to undertake the complex analyses  required by SFAS 140.
Many of the companies affected by the implementation of 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 140 valuations.

     Because SFAS 140 requires that mortgage  servicing  portfolios be valued at
the lower of cost or market value,  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 140  "mark-to-market"  analyses
done by Matrix Bancorp Trading helps clients assess which of their portfolios of
mortgage  servicing  rights are most  susceptible  to impairment due to interest
rate and prepayment risk.

     We believe that the services offered by the analytics  department of Matrix
Bancorp  Trading  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.
Because of our analytics capabilities,  we are able to attract brokerage clients
that we may not otherwise be able to do. In addition,  Matrix Bancorp Trading is
able to refer  clients to Matrix Bank for bulk loan  acquisitions  and to Matrix
Asset Management for real estate management and disposition  services.  The full
range of services  offered by Matrix Bancorp Trading and its affiliates  further
strengthens Matrix Bancorp Trading's client relationships.

     Real Estate  Management and Disposition  Services.  Matrix Asset Management
provides  real  estate   management  and  disposition   services  on  foreclosed
properties  owned  by  financial  services  companies,  mortgage  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 Matrix Bancorp  Trading,  Matrix Bank and Matrix Financial use 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, because Matrix Asset Management  typically  collects a
referral  fee based on the value of the  foreclosed  real  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 or loan holder.  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.

     In the third quarter of 2003,  Matrix Asset  Management began operations of
our internet based business, reoSource, that allows buyers and agents to utilize
the web to make  offers on the  foreclosed  properties  managed by Matrix  Asset
Management,  and posted on the site by clients of Matrix  Asset  Management.  We
believe  this  will  provide   Matrix  Asset   Management   significant   growth
opportunities.

     School  Services.  In addition to  providing  limited  financing to charter
schools as mentioned in "Lending  Activities  - Commercial  and Other  Lending,"
ABS,  operating  under the name The GEO Group,  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,  we consult  with and offer  programs  to  charter  schools in the
following areas:

     o        facility and safety management;
     o        technology;
     o        policy development; and
     o        grant administration.

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.

                                       15


<PAGE>

     The  business  services  provided  by ABS  are  integral  to the  financing
division,  as these  services  allow  us to use our  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 us 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

     Self-Directed  Trust and Custody Services.  The Company's trust and custody
activities are provided through Sterling Trust and Matrix Bank.

     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.

     During 2002, Matrix Bank, through its Denver,  Colorado location,  expanded
the variety and depth of its trust services, primarily by partnering with Matrix
Settlement & Clearance  Services in providing  trust and  custodial  services to
over 50 nationally  recognized third party  administrators,  broker-dealers  and
banks.  Trust and custodial services range from accepting  qualified  retirement
plan contributions,  facilitating the trading and settlement of plan securities,
making  distributions to individual plan participants,  to withholding state and
federal taxes and producing annual tax forms.

     These  services  are  marketed  in  conjunction  with Matrix  Settlement  &
Clearance  Services 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 Matrix Bank's trust  department is the ability to hold
and report on a wide array of publicly traded  investments.  Matrix Bank's trust
department acts only as a direct trustee and does not offer  financial  planning
or advising.

     At December 31, 2003,  Sterling Trust had 35,688 accounts with assets under
administration of over $2.3 billion, and the trust department of Matrix Bank had
14,563 accounts with assets under administration of approximately $11.0 billion.

     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.  At December  31,  2003,  Matrix  Settlement &
Clearance  Services  had 126  customers  under  contract  with  those  customers
administering  approximately  $26.2  billion in funds that would be eligible for
inclusion in the  automated  clearing  environment  of the  National  Securities
Clearing Corporation.

     MSCS  Financial  Services,   LLC,  a  wholly  owned  subsidiary  of  Matrix
Settlement & Clearance  Services,  began operations on January 2, 2002 as a NASD
registered broker-dealer.

     Through our wholly owned  subsidiary,  Matrix  Advisory  Services,  LLC, we
began to offer  in 2003 an  Internet-based  private  wealth  management  service
through  the   utilization  of  proprietary   asset   allocation   models  as  a
complementary  business to the clearing  operation.  The model was developed and
will be supported by a nationally  recognized  research and investment firm. The
advantage that Matrix Advisory  Services'  product offers is a turnkey  approach
with the  automation of the mutual fund clearing and custody of plan assets,  if
needed.

                                       16
<PAGE>


Competition

     We  compete  nationally  for 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
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  other  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 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.  Matrix Bancorp
Trading 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 have
historically  competed 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.  After the sale of the Platform,  we have
agreed  with the Buyer not to compete in certain  respects.  We do not  believe,
however,  that this stipulation will impact  substantially the ability of Matrix
Bank to  effectively  serve  its  local  markets  or  customers.  See  "Item  1.
Business--Discontinued 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, 2003,  the Company had 509  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,  regulatory
authorities and associated 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.

                                       17

<PAGE>

     Aspects of the Company's public disclosure, corporate governance principles
and internal control  environment are subject to the  Sarbanes-Oxley Act of 2002
and  related  regulations  and rules of the SEC and the  NASDAQ.  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.  As such,  we are  subject  to OTS
regulation,  examination,  supervision and reporting requirements.  In addition,
the OTS has  enforcement  authority  over us and  our  savings  association  and
non-savings association subsidiaries. Among other things, this authority permits
the OTS 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 OTS at least
30 days before declaring any capital distribution to us.

     As a unitary  savings and loan  holding  company that has been in existence
prior to May 4, 1999, 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 OTS grants an exception to this  requirement.  In general,  qualified
thrift  investments  include  certain types of  residential  mortgage  loans and
mortgage-backed securities. If we acquire control of another savings association
as a separate  subsidiary,  we would become a multiple  savings and loan holding
company.  Multiple  savings and loan holding  companies may only engage in those
activities  permissible  for a financial  holding company under the Bank Holding
Company Act of 1956, as amended. Generally, financial holding companies may only
engage in activities such as banking,  insurance and securities  activities,  as
well as merchant banking activities under certain circumstances. In addition, if
Matrix Bank fails to maintain its status as a qualified  thrift  lender,  within
one year of Matrix Bank's  failure,  we would be required to convert Matrix Bank
to a commercial  bank and to register as a bank holding  company  under the Bank
Holding Company Act of 1956, as amended.

     The Change in Bank Control Act, as amended, provides that no person, acting
directly or indirectly or through or in concert with one or more other  persons,
may acquire  control of a savings  association  unless the OTS has been given 60
days prior  written  notice.  The Home Owners' Loan Act provides that no company
may acquire control of a savings  association  without the prior approval of the
OTS. Any company that acquires  such control  becomes a savings and loan holding
company subject to registration, examination and regulation by the OTS. Pursuant
to federal  regulations,  control of a savings  association  (which includes its
holding  company) is  conclusively  deemed to have been acquired by, among other
things,  the  acquisition  of more than 25% of any class of voting  stock of the
association  or the  ability  to  control  the  election  of a  majority  of the
directors  of the  association.  Moreover,  control  is  presumed  to have  been
acquired,  subject to  rebuttal,  upon the  acquisition  of more than 10% of any
class of  voting  stock,  but less  than 25% of any  class of stock of a savings
association,  where certain  enumerated  control factors are also present in the
acquisition.  The OTS may prohibit an  acquisition of control if it would result
in a monopoly or substantially  lessen  competition,  the financial condition of
the  acquiring   person  might   jeopardize  the  financial   stability  of  the
association, or the competence,  experience or integrity of the acquiring person
indicates  that it would not be in the interest of the  depositors or the public
to permit the acquisition of control by such person.

     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. 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 Financial Services Modernization 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.

                                       18


<PAGE>

     The USA  Patriot  Act was signed  into law on  October  26,  2001.  The USA
Patriot Act gives the federal government new powers to address terrorist threats
through enhanced  domestic  security  measures,  expanded  surveillance  powers,
increased information sharing and broadened anti-money laundering  requirements.
The USA Patriot Act also  requires  the  federal  banking  agencies to take into
consideration  the effectiveness of controls designed to combat money laundering
activities  in  determining  whether  to  approve a merger or other  acquisition
application of a member  institution.  Accordingly,  if we engage in a merger or
other  acquisition,  our controls  designed to combat money  laundering would be
considered as part of the application  process.  We have  established  policies,
procedures and systems designed to comply with these regulations.

     The  Sarbanes-Oxley  Act of 2002 was signed into law on July 30, 2002.  The
Sarbanes-Oxley  Act  of  2002  is a law  that  addresses,  among  other  issues,
corporate  governance,  auditing and  accounting,  executive  compensation,  and
enhanced and timely disclosure of corporate information.  As directed by Section
302(a) of Sarbanes-Oxley  Act of 2002, the Company's Co-Chief Executive Officers
and Chief  Financial  Officer are each  required to certify  that the  Company's
quarterly and annual  reports do not contain any untrue  statement of a material
fact.  The rules have several  requirements,  including  having  these  officers
certify that: they are responsible for  establishing,  maintaining and regularly
evaluating the  effectiveness of our internal  controls;  they have made certain
disclosures  to our auditors  and the audit  committee of the Board of Directors
about our internal controls; and they have included information in our quarterly
and  annual  reports  about  their   evaluation  and  whether  there  have  been
significant  changes in our  internal  controls or in other  factors  that could
significantly  affect internal  controls  subsequent to the evaluation.  We have
existing  policies,  procedures  and  systems  designed  to  comply  with  these
regulations, and are further enhancing and documenting such policies, procedures
and systems to ensure continued compliance with these regulations.

     Federal  Savings  Bank  Operations.  Matrix  Bank is subject  to  extensive
regulation,  examination  and  supervision  by the OTS, as its  primary  federal
regulator,   and  potentially  by  the  Federal  Deposit  Insurance  Corporation
("FDIC"),  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    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
          requires Matrix Bank to 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 OTS to fund their operations;
     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  financial  reports  audited by  independent
auditors to federal  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 OTS. 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 OTS,  the FDIC or  Congress,  could  have a
material impact on Matrix Bank and its operations.

     Transactions  with Affiliates.  Sections 23A and 23B of the Federal Reserve
Act and its implementing  regulations,  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.  However, the OTS has the discretion
to treat  subsidiaries  of savings  associations as affiliates on a case-by-case
basis.  Section  23A limits the extent to which the savings  association  or its
subsidiaries  may

                                       19

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.  Applicable  regulations
prohibit  a  savings  association  from  lending  to any  affiliate  engaged  in
activities  not  permissible  for a bank  holding  company or for the purpose of
acquiring  the  securities  of  most  affiliates.   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 OTS 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 rules.

     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 FDIC. The deposits of Matrix Bank are insured up to
$100  thousand per depositor by the FDIC.  This  insurance is backed by the full
faith and credit of the United  States.  As insurer,  the FDIC  imposes  deposit
insurance  assessments  and is  authorized  to  conduct  examinations  of and to
require reporting by institutions  insured by the FDIC. It also may prohibit any
FDIC-insured  institution  from engaging in any activity the FDIC  determines by
regulation or order to pose a serious risk to the insurance  fund. The FDIC 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 FDIC's  deposit  insurance  premiums are assessed  through a risk-based
system under which all insured  depository  institutions  are placed into one of
nine  categories  and  assessed  insurance  premiums  based upon their  level of
capital and supervisory evaluation. Under the system, institutions classified as
well  capitalized,  as defined  below,  and  considered  healthy  pay the lowest
premium while institutions that are less than adequately capitalized, as defined
below,  and  considered  of  substantial  supervisory  concern  pay the  highest
premium.  Risk classification of all insured depository  institutions is made by
the FDIC for each semi-annual assessment period.

     The FDIC is  authorized  to increase  assessment  rates,  on a  semi-annual
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 the
Savings  Association   Insurance  Fund's  insured  deposits.  In  setting  these
increased  assessments,  the FDIC must seek to restore the reserve ratio to that
designated  reserve  level,  or such higher  reserve ratio as established by the
FDIC.  The FDIC may also  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 FDIC.

     Since January 1, 1997, the premium schedule for insured institutions in the
Bank Insurance Fund and the Savings Association Insurance Fund has ranged from 0
to 27  basis  points.  However,  Savings  Association  Insurance  Fund  and Bank
Insurance Fund insured institutions are required to pay a Financing  Corporation
or "FICO"  assessment,  in order to fund the interest on bonds issued to resolve
thrift failures in the 1980s.  For the quarter ended December 31, 2003, the FICO
assessment for both Savings  Association  Insurance Fund and Bank Insurance Fund
insured  institutions  was equal to 1.52 basis  points for each $100 in domestic
deposits maintained at the institution.  These assessment, which will be revised
based upon the level of Savings  Association  Insurance  Fund and Bank Insurance
Fund deposits, will continue until the bonds mature in the year 2017.

     Brokered Deposits.  Under the FDIC 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, 2003, Matrix Bank had $104.6 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

                                       20
<PAGE>

purposes,  the law establishes five  categories:  well  capitalized,  adequately
capitalized,  undercapitalized,  significantly  undercapitalized  and critically
undercapitalized.

     The OTS 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, 2003, 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 OTS  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 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 OTS 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:

<TABLE>
<CAPTION>
                                                                                          As of December 31, 2003
                                                                                     ----------------------------------
                                                                                         Core            Risk-Based
                                                                                        Capital           Capital
                                                                                   ------------------ -----------------
                                                                                          (Dollars in thousands)

    <C>                                                                            <C>                <C>
    Shareholder's equity/GAAP capital............................................. $     106,194      $     106,194
    Intangible assets.............................................................          (877)              (877)
    Disallowed assets.............................................................        (3,816)            (3,816)
    Unrealized gain on available for sale securities..............................          (208)              (208)
    Additional capital items:
         General valuation allowances.............................................             -              7,396
            Residual interests....................................................             -                  -
                                                                                   ------------------ -----------------
    Regulatory capital as reported to the OTS.....................................       101,293            108,689
    Minimum capital requirement as reported to the OTS............................        65,715             72,104
                                                                                   ------------------ -----------------
    Regulatory capital--excess.................................................... $      35,578      $      36,585
                                                                                   ================== =================
    Capital ratios................................................................          6.17%             12.06%
    Well capitalized requirement..................................................          5.00%             10.00%
</TABLE>

     FHLBank  System.  Matrix  Bank is a member  of the  FHLBank  system,  which
consists of 12 regional FHLBanks. The FHLBank provides a central credit facility
primarily for member  associations  and  administers  the home financing  credit
function  of  savings  associations.  The  FHLBank  advances  must be secured by
specified types of collateral.  The FHLBank funds its operations  primarily from
proceeds  derived  from  the sale of  consolidated  obligations  of the  FHLBank
system.  Matrix Bank, as a member of the FHLBank  system,  must acquire and hold
shares of  capital  stock in its  regional  FHLBank  in an  amount  equal to the
greater  of 1% of the  aggregate  principal  amount  of its  unpaid  residential
mortgage loans and

                                       21
<PAGE>

similar  obligations  at the beginning of each year,  0.3% of
total assets, or 5% of its advances  ("borrowings")  from the FHLBank.  Prior to
relocating  its  domicile,  Matrix  Bank was a member of the  FHLBank of Dallas.
Effective March 25, 2002,  Matrix Bank became a member of the FHLBank of Topeka.
Matrix Bank was in compliance with the requirement  discussed with an investment
in FHLBank of Dallas and FHLBank of Topeka stock at December  31, 2003  totaling
$30.7 million.

     Federal Reserve System.  The Federal Reserve Board regulations  require all
depository  institutions to maintain  noninterest-earning  reserves at specified
levels against their  transaction  accounts  (primarily NOW and regular checking
accounts).  At December 31, 2003, Matrix Bank was in compliance with the Federal
Reserve Board's reserve requirements. Savings associations, such as Matrix Bank,
are authorized to borrow from the Federal Reserve Bank "discount window". Matrix
Bank is deemed by the Federal Reserve to be generally sound and thus is eligible
to obtain  primary  credit from its Federal  Reserve  Bank.  Generally,  primary
credit is extended on a very short-term basis to meet the liquidity needs of the
institution.  Loans must be secured by acceptable collateral and carry a rate of
interest of 100 basis points above the Federal Open Market  Committee's  federal
funds target rate.

     Mortgage Banking Operations.  Our mortgage banking operations are conducted
through Matrix Financial.  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  HUD,  Fannie  Mae,  Freddie  Mac and  Ginnie  Mae,  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 HUD,  Fannie Mae,  Freddie Mac and Ginnie Mae 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 OTS, as primary regulatory authority over Matrix Bank (the parent
of Matrix  Financial),  examines our mortgage  banking  operations as well.  See
discussion  of the sale of the  production  platform,  which was the bulk of our
mortgage  banking  operations  as discussed  in "Item 1.  Business--Discontinued
Operations."

     Regulation of Sterling  Trust Company.  Sterling  Trust provides  custodial
services and directed,  non-discretionary  trustee  services.  Sterling Trust is
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  Banking Act 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 promissory notes; and
     o    exercise  powers  incidental to the  enumerated  powers of Texas trust
          companies as set forth in the Texas Banking Act.

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

     Limitation on Capital  Distributions.  The Texas  Finance Code  prohibits a
Texas trust company from reducing its outstanding  capital and certified surplus
through  redemption  or other  capital  distribution  without the prior  written
approval of the Texas Banking Commissioner. Moreover, Sterling Trust did not pay
cash  dividends  in 2003 and  anticipates  that it will  not pay cash  dividends
during 2004.

     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

                                       22

<PAGE>

investment  otherwise permitted by law. Generally,  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.

     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.  In no event,  however, may a
Texas trust company  lease real property in a transaction  involving an officer,
director,  principal  shareholder or affiliate without the prior approval of the
Texas Banking Commissioner.

     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
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 against a Texas trust company (penalties against
individuals  may be higher) for  violations  of a cease and  desist,  removal or
prohibition order. The Texas Banking Commissioner may also refer violations of a
cease and desist order to the attorney general for enforcement by injunction.

     The  Texas  Banking  Commissioner  may  pursue an order of  supervision  or
conservatorship if:

     o    the Texas Banking Commissioner determines that the Texas trust company
          is in a  hazardous  condition  and that the  continuation  of business
          would be hazardous to the public or to the  shareholders  or creditors
          of the Texas trust company;
     o    the Texas Banking Commissioner determines that the Texas trust company
          has exceeded its powers;
     o    the Texas trust company has violated the law; or
     o    the Texas  trust  company  gives  written  consent to  supervision  or
          conservatorship.

     The  Texas  Banking  Commissioner  also has the  authority  to  pursue  the
appointment of an independent receiver for a Texas trust company.

     Capital  Requirements.  Applicable  law  generally  requires a Texas  trust
company to have and maintain minimum  restricted capital of at least $1 million.
Sterling Trust was in compliance with the requirement at December 31, 2003.

     A Texas trust company may not have at anytime outstanding liabilities in an
amount that exceeds five times its capital  stock and surplus,  except that with
the approval of the Texas Banking  Commissioner,  a Texas trust company may have
outstanding  liabilities in an amount that does not exceed ten times its capital
stock and surplus. 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, or in the event  Sterling  Trust  fails to
maintain  capital of at least $1 million,  there is no assurance  that  Sterling
Trust would be able to restore its capital or meet such additional requirements.
In either 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.

     Regulation  of  First  Matrix   Investment   Services  Corp.  First  Matrix
Investment  Services  Corp.  is a registered  broker-dealer  subsidiary  that is
subject to the  Securities  and Exchange  Commission's  net capital  rule,  Rule
15c3-1,  promulgated under the Securities  Exchange Act of 1934. The net capital
rule is designed to measure the general  financial  condition and liquidity of a
broker-dealer.  Net  capital  generally  is the net  worth of a broker or dealer
(assets minus  liabilities),  less deductions for certain types of assets.  If a
firm fails to maintain the required net capital, it may be subject to suspension
or revocation of  registration  by the  Securities  and Exchange  Commission and
suspension  or expulsion by the NASD,  and could  ultimately  lead to the firm's
liquidation.  The net capital rule also limits the ability of  broker-dealers to
transfer large amounts of capital to parent companies and other  affiliates.  At
December 31, 2003,  as adjusted,  First Matrix had a net capital  deficiency  of
$(211)  thousand,  which was $281 thousand under its required net capital of $69
thousand.  In connection with a routine  examination of First Matrix's books and
records by the NASD,  differences  were  identified  between First  Matrix's net
capital calculation  performed at December 31, 2003 and the calculation prepared
by the NASD.

                                       23


<PAGE>

The NASD noted two  technical  exceptions  related to excess  cash on hand at an
affiliated bank, and to deductible limits on fidelity bonds. Upon receipt of the
NASD's calculation of net capital deficiency, First Matrix transferred cash from
Matrix Bank to its clearing firm, which cured the capital deficiency.

     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>


                                                                                                                     Monthly Rent
                                                                                                                     or Mortgage
      Location             Square Feet/Acres               Owned/Leased                      Occupant                  Payment
----------------------     -------------------   ---------------------------------- ----------------------------  ----------------

<C>                            <C>               <C>                                <C>
Denver, CO...........(1)           182,623       Owned                              Matrix Bancorp and various               N/A
                                                                                    of its subsidiaries (1)
Phoenix, AZ..........(4)            62,771       Leased through February 28, 2007   Matrix Financial and ABS        $     62,771
Las Cruces, NM.......(3)             1,800       Owned                              Matrix Bank                              N/A
Las Cruces, NM.......(2)            30,000       Owned                              Matrix Bank                              N/A
Sun City, AZ.........                3,000       Owned                              Matrix Bank                              N/A
Waco, TX.............               11,294       Leased through June 30, 2006       Sterling Trust                  $     13,553
Waco, TX.............                  928       Leased through January 31, 2005    Sterling Trust                 $       1,021
Waco, TX.............                1,204       Leased through December 31, 2006   Sterling Trust                 $       1,385
Fort Worth, TX.......(5)             1,148       Leased through November 30, 2004   First Matrix                   $       1,710
Fort Worth, TX.......(6)             1,856       Leased through September 30, 2008  First Matrix                   $       3,498
Memphis, TN..........                3,305       Leased through September 7, 2006   First Matrix and Matrix        $       5,731
                                                                                    Bancorp Trading
Cottonwood, AZ.......                1,879       Owned                              ABS                                      N/A
Houston, TX..........               71,437       Owned                              ABS                                      N/A
Phoenix, AZ..........               11,304       Owned                              ABS                                      N/A
Phoenix, AZ..........              5 Acres       Owned                              ABS                                      N/A
Mesa, AZ.............          6.729 Acres       Owned                              ABS                                      N/A
Mesa, AZ.............                7,616       Owned                              ABS                                      N/A
Springerville, AZ....               12,904       Owned                              ABS                                      N/A
Lakeland, FL.........                8,521       Owned                              ABS                                      N/A
St. Louis, MO........                6,144       Leased through June 30, 2012       ABS                              $    12,500
St. Louis, MO........                5,500       Owned                              ABS                                      N/A
St. Louis, MO........               42,000       Owned                              ABS                                      N/A
Snow Flake, AZ.......                2,850       Owned                              ABS                                      N/A
</TABLE>

__________

(1)  Of this 182,623 square feet, approximately 58,167 square feet are leased to
     the  Company  and  certain of its  subsidiaries.  Substantially  all of the
     remaining space is rented to unaffiliated third parties at market prices.
(2)  Of this 30,000 square feet,  approximately  10,100 square feet serve as the
     branch for Matrix Bank.  Substantially all of the remaining space is rented
     to unaffiliated third parties at market prices. This space will be included
     in  the  sale  of  the  Las  Cruces  branches  as  discussed  in  "Item  1.
     Business--Sale of Matrix Capital Bank Branches."
(3)  This  space will be  included  in the sale of the Las  Cruces  branches  as
     discussed in "Item 1. Business--Sale of Matrix Capital Bank Branches."
(4)  Of this 62,771 square fee,  approximately  29,725 square feet are leased to
     Matrix  Financial  and ABS.  Substantially  all of the  remaining  space is
     subleased to the buyer of the production  platform,  an unaffiliated  third
     party. See "Item 1. Business--Discontinued Operations."
(5)  This lease had been  subleased  by First  Matrix to an  unaffiliated  third
     party at no gain or loss to the Company.
(6)  The lease is with a limited partnership in which an officer of First Matrix
     is a limited partner.

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.  We
accrue  for  contingent  liabilities  with  respect  to  litigation  matters  in
accordance with the requirements of Statement of Financial  Accounting Standards
("SFAS") No. 5,  "Accounting for  Contingencies",  which generally  requires the
Company  to  accrue  a loss  for a  litigation  matter  involving  a  contingent
liability  if the loss is  probable  and the  amount  of the loss is  reasonably
estimable.  In order to  determine  whether  the two  conditions  necessary  for
accrual  are  met,  management  necessarily  makes a  number  of  judgments  and
assumptions.  Because  the  outcome of most  litigation  matters  is  inherently
uncertain,  the  Company  will  generally  only  accrue  a  loss  for a  pending
litigation  matter if,

                                       24


<PAGE>

for example,  the parties to the matter have entered into definitive  settlement
agreements or a final judgment adverse to the Company has been entered.

     In many cases, these settlements or final judgments are not material to the
consolidated  financial  position,  results of  operations  or cash flows of the
Company.  Nevertheless,  an adverse  decision in certain  matters,  as described
below,  may  have a  material,  adverse  impact  on our  consolidated  financial
position, results of operations or cash flows.

     Matrix  Bancorp.  In early 1999, the Company 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 the Company and Fidelity in  connection  with the  termination  of their
proposed  merger.  The  arbitration  panel  has  ruled  that the  entire  Merger
Termination  Agreement was  unenforceable.  The Company and Matrix Bank filed an
appeal of the arbitration panel's decision in federal district court in Phoenix,
Arizona,  which has been denied.  In October 2001,  Fidelity  initiated a second
arbitration to determine the validity of a release given in connection  with the
Merger  Termination  Agreement.  Matrix  Bancorp  claimed that the releases were
valid and, in the alternative,  made a counterclaim  against Fidelity  demanding
restitutional  damages  for the value of the  releases  if they were  determined
valid.  The arbitration  panel has held the releases to be valid and enforceable
and has denied the Company's claim for restitutional damages. Fidelity has filed
a motion with the arbitration  panel  requesting that it be awarded its attorney
fees,  and the panel has  awarded  Fidelity  approximately  $500  thousand.  The
Company has  appealed the decision of the  arbitration  panel,  and the ultimate
legal and financial  liability of the Company,  if any, in this matter cannot be
estimated with certainty at this time.

     Matrix Bancorp,  The Vintage Group, Inc., Vintage Delaware Holdings,  Inc.,
Matrix Bank, and Guy A. Gibson,  currently a director of Matrix Bancorp, Richard
V. Schmitz,  currently  Co-Chief  Executive Officer and Chairman of the Board of
Matrix Bancorp, and D. Mark Spencer, currently the President, Co-Chief Executive
Officer  and a director  of Matrix  Bancorp,  have been named  defendants  in an
action filed in November 2000 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. ("Adderley I") 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 parties  have agreed to abate the action  pending the
outcome  of  Adderley  I. The  ultimate  legal and  financial  liability  of the
Company, if any, in this matter cannot be estimated with certainty at this time.

     Matrix Bancorp,  Matrix Bank , The Vintage Group, Inc. and Vintage Delaware
Holdings,  Inc. have also been named as defendants in the Munoz matter described
below. See "--Sterling Trust."

     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 period of time.  Several other
financial  institutions had provided Island Mortgage with warehouse financing or
additional  purchase/repurchase  facilities. The total value of the loans Matrix
Bank  purchased  from Island  Mortgage  that are subject to the  bankruptcy  was
approximately  $12.4  million  in  original  principal  amount  (the  "Purchased
Loans"). The principals of Island Mortgage were indicted for fraud in connection
with financial improprieties committed by Island Mortgage.

     Various  third  parties  instituted  lawsuits,   adversary  proceedings  or
competing  bankruptcy claims against Matrix Bank claiming an equitable  interest
in approximately  eighteen of the Purchased Loans (approximately $2.1 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.  To  date,  Matrix  Bank  has  reached
settlements  or prevailed on the merits in  connection  with all of these loans,
with the  exception of third parties  claiming  ownership of, or an interest in,
seven loans having an original principal balance of approximately $830 thousand.
Matrix Bank to date has paid  approximately $210 thousand in connection with the
claims in this category that it has settled.  Matrix Bank intends to continue to
vigorously  defend  the  claims  of these  third  parties  with  respect  to the
remaining seven loans in this category to which there continues to be a

                                       25
<PAGE>

dispute.  The ultimate legal and financial  liability of the Company, if any, in
any of the  matters  involving  these  seven  loans  cannot  be  estimated  with
certainty at this time.

     Additionally,  certain  parties in the chain of title to property  securing
approximately $2.7 million of loans (a total of twenty loans), including sellers
and prior lien holders, are seeking to void or rescind their transactions on the
theory  that  they  never  received  consideration.   Matrix  Bank  has  reached
settlements  with  respect to all of these  loans,  with the  exception of third
parties  claiming  ownership  of, or an interest in, seven of these  properties.
Matrix Bank to date has paid  approximately  $1.1 million in connection with the
claims in this category that it has settled.  Matrix Bank intends to continue to
vigorously  defend  the  claims  of these  third  parties  with  respect  to the
remaining seven loans in this category to which there continues to be a dispute.
The ultimate legal and financial liability of the Company, if any, in any of the
matters  involving  these seven loans cannot be estimated with certainty at this
time.

     In connection with his review of the  relationship  between Matrix Bank and
Island Mortgage,  the trustee for Island Mortgage claimed an interest in each of
the loans that had been  purchased  by Matrix  Bank from  Island  Mortgage.  His
claims included theories that, with respect to certain loans,  Matrix Bank was a
secured  creditor (as opposed to a purchaser) and, with respect to certain other
loans,  Matrix  Bank was an  unsecured  creditor  (as  opposed to a  purchaser).
Accordingly,  the trustee concluded,  depending on which of the above theories a
particular  loan fit into,  that he was  either  entitled  to a  surcharge  with
respect  to the loans or that the  estate in fact  continued  to own the  loans.
During  2003,  Matrix Bank and the trustee  reached an agreement to settle these
claims, under which Matrix Bank paid the trustee approximately $930 thousand for
the trustee to relinquish any right the estate might have in any of these loans.
This matter has now been closed.

     The trustee also initiated an adversary  action against Matrix Bank seeking
to recover as an avoidable  preference the $6.1 million Island  Mortgage paid to
Matrix Bank. Matrix Bank believes that it will  successfully  demonstrate to the
Bankruptcy Court that the $6.1 million the trustee seeks to recover was purchase
money  belonging to Matrix Bank  returned by Island  Mortgage for loans that did
not close and were not sold to Matrix Bank. Matrix Bank believes it has adequate
defenses and intends to vigorously  defend this action.  The ultimate  legal and
financial  liability of the Company,  if any, in any of these matters  cannot be
estimated with certainty at this time.

     Additionally,  Matrix Bank has  initiated  an adversary  claim  against the
State Bank of Long Island ("State Bank"). State Bank was the depository bank for
Island  Mortgage,  and Matrix Bank believes that State Bank bears  liability for
any loss sustained by Matrix Bank as a result of the fraud perpetrated by Island
Mortgage.  Matrix Bank also believes that any loss it may sustain as a result of
its dealings  with Island  Mortgage are insured.  Matrix Bank cannot  accurately
assess at this time whether and to what extent it will receive compensation from
any source for any loss it may incur as a result of its relationship with Island
Mortgage.

     Matrix Bancorp,  Matrix Bank, The Vintage Group,  Inc. and Vintage Delaware
Holdings,  Inc. have also been named as defendants in the Munoz matter described
below. See "--Sterling Trust."

     Sterling  Trust.  Sterling  Trust has been named a  defendant  in an action
filed July 1999 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,   plus  post-judgment   interest  and  conditional
attorneys'  fees for the  plaintiffs  in connection  with any appeals.  Sterling
Trust  appealed the judgment to the Court of Appeals for the Second  District of
Texas (Fort Worth). On July 31, 2003, the Court of Appeals affirmed and reversed
in part the jury  verdict.  The Court of Appeals  affirmed  the jury's award for
actual damages of approximately $6.2 million,  plus  post-judgment  interest and
conditional   attorneys'  fees  for  the  appeals  (currently  estimated  to  be
approximately $2.8 million), but denied the punitive award of approximately $250
thousand.  Sterling  Trust  continues  to believe it has  meritorious  points of
appeal to the decision.  On October 31, 2003,  Sterling Trust filed its Petition
for Review with the Supreme  Court of Texas.  On January 29,  2004,  the Supreme
Court of Texas  notified the parties that it was  requesting  full briefing from
the parties on the matter.  We consider this request to be a significant step in
possibly  having the Court grant our  petition  for review and agree to hear the
case.  However,  we continue to caution  that an appeal to the Supreme  Court of
Texas is discretionary  in nature,  meaning that the Supreme Court of Texas does
not  automatically  have to hear the case.  Notwithstanding  the  request by the
Court for full  briefing  on the  matter,  there can be no  assurances  that the
Supreme Court of Texas will agree to hear the case or that,  if heard,  Sterling
Trust's appeal will be  successful.  Despite the fact that a final judgment from
the trial court and the  intermediate  appellate  court has been entered against
Sterling in this matter,  management has determined that the loss in this matter
is not probable within FAS 5;  accordingly,  no accrual for loss with respect to
this matter has been  recorded in the  consolidated  financial  statements.  The
ultimate  legal and financial  liability of the Company,  if any, in this matter
cannot be estimated with certainty at this time.

                                       26
<PAGE>

     Sterling  Trust was named a  defendant  in several  putative  class  action
lawsuits instituted in November 2000 by one law firm in Pennsylvania. The styles
of such  lawsuits  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.; and Don Glazer, et al. v. Technical Support
Servs.,  Inc., et al. All of such lawsuits were  originally  filed in the United
States  District Court for the Western  District of  Pennsylvania.  On April 26,
2001, the District Court for the Western  District of Pennsylvania  ordered that
all of such cases be  transferred  to the United States  District  Court for the
Western  District of Texas so that  Sterling  Trust could  properly  present its
motion to compel  arbitration.  Sterling Trust filed separate  motions to compel
arbitration  in  these  actions,  all of  which  were  granted.  Each of the six
plaintiffs  timely  filed  arbitration  demands  with the  American  Arbitration
Association.  The  demands  seek  damages  and allege  Sterling  Trust  breached
fiduciary   duties  and  was  negligent  in   administrating   each   claimant's
self-directed  individual  retirement  account  holding a nine-month  promissory
note. Each of these  arbitration  actions has been abated pending the outcome of
the Munoz matter  described  below.  Sterling Trust believes it has  meritorious
defenses  and is  defending  the  matters  vigorously.  The  ultimate  legal and
financial  liability of the Company,  if any, in this matter cannot be estimated
with certainty at this time.

     Sterling Trust had been named a defendant in an action filed in August 2002
styled  Charles W. and Wanda Davis v. Lionel  Sanchez,  et al. that was filed in
the Second  Judicial  District Court in the County of  Bernalillo,  State of New
Mexico.  The  plaintiffs  claimed they were  defrauded in connection  with their
investment of approximately  $200 thousand through their  self-directed IRA held
by Sterling Trust.  In November 2003, the Court dismissed the plaintiffs  claims
without prejudice.

     Sterling Trust,  Matrix Bancorp,  Matrix Bank, The Vintage Group,  Inc. and
Vintage Delaware  Holdings,  Inc. have been named a defendant in an action filed
in December 2001 styled Heraclio A. Munoz, et al. v. Sterling Trust Company, et.
al. that is pending in Superior Court of the State of California.  The complaint
seeks class action status,  requests  unspecified  damages and alleges negligent
misrepresentation,  breach of fiduciary  duty and breach of written  contract on
the part of Sterling Trust. The Company believes it has meritorious defenses and
is defending the matter vigorously.  The ultimate legal and financial  liability
of the Company,  if any, in this matter  cannot be estimated  with  certainty at
this time.

     In addition,  Sterling Trust has been the subject of numerous  lawsuits and
arbitration  proceedings in which customers and, in some cases,  persons who are
not  customers  allege  various  theories of  liability  against the Company for
losses suffered by these  claimants in connection with their failed  investments
in  several  enterprises.  To  the  extent  that  Sterling  Trust  has  had  any
relationship with any of such claimants, it has been solely as custodian of such
claimants  self-directed  IRAs  pursuant to  contracts  that specify the limited
nature of Sterling  Trust's  obligations.  We believe Sterling Trust has in each
case acted in accordance  with its  obligations  under the  contracts  and/or as
otherwise  imposed by law. We further believe that the ultimate  outcome of each
of these cases will not be material to the consolidated  financial  position and
results of operations  of Company;  but,  there can be no assurances  that there
will not be an  adverse  outcome  in any one or more of these  cases or that any
such adverse outcome will not have a material adverse effect on the consolidated
financial position and results of operations of the Company.

     Matrix  Financial.  Matrix  Financial  has been named as a defendant  in an
arbitration  action  filed on September  17, 2003 with the American  Arbitration
Association  styled  Veteran  Home  Loans,  Inc. v.  Matrix  Financial  Services
Corporation.  The complaint alleges that Matrix Financial underpaid Veteran Home
Loans for  services  provided  to Matrix  Financial  by  Veteran  Home  Loans in
connection with its assistance in originating  mortgage loans, and seeks general
damages for breach of contract and an accounting.  Matrix Financial  believes it
has meritorious  defenses and is defending this matter vigorously.  The ultimate
legal and financial  liability of the Company,  if any, in this matter cannot be
estimated with certainty at this time.

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, 2003.

                                       27


<PAGE>

                                     PART II

Item 5. Market for Registrant's  Common Equity,  Related Stockholder Matters and
        Issuer Purchases of Equity Securities
        -------------------------------------

     Our  common  stock,  $0.0001  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
                                                                                  ------------   ------------
             <C>                                                                  <C>            <C>
             December 31, 2003................................................    $     9.321    $     8.010
             September 30, 2003...............................................         10.350          8.790
             June 30, 2003....................................................         10.240          8.600
             March 31, 2003...................................................          9.590          8.000

             December 31, 2002................................................    $     9.920    $     7.400
             September 30, 2002...............................................         11.690          9.500
             June 30, 2002....................................................         13.500         10.800
             March 31, 2002...................................................         11.750         10.100
</TABLE>

     On March 9, 2004,  the  closing  price of our  common  stock was $10.65 per
share. Also, as of that date, the approximate number of holders of record of our
common  stock was 36. 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 which we were  authorized  to  repurchase up to $3.0 million of our common
stock.  In June 2002,  the Board of  Directors  of the  Company  authorized  the
repurchase  of up to an additional  $2.5 million of common  stock,  bringing the
total  authorization  to-date  under the  repurchase  program to $5.5 million of
common stock.  Under the program,  we have repurchased a total of 389,560 shares
through  December 31, 2003,  for a total purchase  price of  approximately  $3.2
million. No executive officer or director  participated in this repurchase.  Our
ability to  repurchase  stock is further  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 $3.0 million plus 25% of the
Company's cumulative  consolidated net income for fiscal quarters beginning with
the quarter  ending March 31, 2001.  Although we have no present plans to do so,
we may seek in the future  authorization  from the Board of  Directors of Matrix
Bancorp to  repurchase  additional  shares of our Common  Stock under the Common
Stock Repurchase Program.  Any such additional  authorization will be consistent
with the restrictions and limitations under our debt covenants,  including those
of the bank stock loan described above.

     We have not paid any  dividends  on our equity  for the last  three  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
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of  Operations--Liquidity  and  Capital  Resources"  and  Notes 10 and 11 to the
consolidated  financial  statements  included  elsewhere  in this  document.  In
addition,  the ability of Sterling  Trust,  First  Matrix and Matrix Bank to pay
dividends  to  Matrix  Bancorp  may  be  restricted  due to  certain  regulatory
requirements. See "Item 1. Business--Regulation and Supervision."

     The following table provides  information as of December 31, 2003 regarding
compensation plans (including individual compensation  arrangements) under which
equity  securities  of the  Company are  authorized  for  issuance.  For further
information, see Note 15 to the consolidated financial statements.

                                       28

<PAGE>
<TABLE>
<CAPTION>

                                                                                                Number of
                                                                                               securities
                                                                                                remaining
                                                                                              available for
                                                                                             future issuance
                                                                                              under equity
                                                Number of securities    Weighted average   compensation plans
                                                 to be issued upon     exercise price of       (excluding
                                                    exercise of           outstanding          securities
                                                outstanding options,   options, warrants     reflected in
             Plan Category                      warrants and rights        and rights          column (a))
---------------------------------------------------------------------------------------------------------------
                                                        (a)                   (b)                  (c)
<C>                                                    <C>                  <C>                 <C>
Equity  compensation  plans approved by
security holders                         (1)           609,750              10.10               362,741
                                               ======================= =================== ====================
</TABLE>

     (1) Column (a)  includes  the options  granted  under the 1996 Stock Option
Plan,  which  amended and  restated the  Company's  Stock Option Plan adopted in
1995.  Column  (a) does not  include  outstanding  options  under the  Company's
Amended and Restated  Employee  Stock  Purchase Plan (the  "ESPP"),  which has a
shareholder  approved  reserve of 250,000 shares that is included in column (c).
Under the ESPP,  each eligible  employee may purchase a limited number of shares
of common  stock at annual  intervals  each year at a  purchase  price per share
equal to 85% of the fair market value of the Company's common stock as of either
the beginning or ending date of the annual purchase period.

 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.  and  subsidiaries  should  be  read  in
conjunction  with the  consolidated  financial  statements and notes thereto and
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations," each of which is included elsewhere in this document.

     Information  presented in this table is from continuing  operations,  which
excludes the financial results of the wholesale  production  platform for all of
the years  presented.  The  platform  was sold in 2003 as  discussed in "Item 1.
Business - Discontinued  Operations." The results from continuing  operations as
reflected  herein are not necessarily  reflective of the financial  results that
might have  occurred had the  disposition  of the  platform  had  actually  been
completed on the indicated  date, and are not indicative of any future  results.
See further  discussion  at "Item 7.  Management's  Discussion  and  Analysis of
Financial  Condition and Results of Operations - Discontinued  Operations - Sale
of Wholesale Production Platform."


<TABLE>
<CAPTION>
                                                                                 As of and for the
                                                                              Year Ended December 31,
                                               ----------------------------------------------------------------------------------
                                                  2003             2002              2001             2000              1999
                                               ------------    -------------     -------------    --------------     ------------
                                                               (Dollars in thousands, except per share data)
Statement of Operations Data
<C>                                            <C>             <C>               <C>              <C>                <C>
Net interest income before provision for
loan                                           $   41,708      $     42,710      $    30,183      $      28,552      $    28,397
  and valuation losses.....................
Provision for loan and valuation losses....         3,641             2,821            2,980              3,840            3,180
                                               ------------    -------------     ------------     --------------     ------------
Net interest income after provision for
loan and valuation losses..................        38,067            39,889           27,203             24,712           25,217
                                               ------------    -------------     ------------     --------------     ------------
Noninterest income:
  Loan administration......................        21,668            27,359           28,273             23,850           23,686
  Brokerage................................        10,873             8,105            4,815              8,119            6,156
    Trust services.........................         6,781             5,345            4,036              4,923            4,840
    Real estate disposition services.......         6,624             4,153            2,572              3,677            3,659
  Gain on sale of loans and securities .           14,267             5,480            4,163                982            3,247
  Gain on sale of mortgage servicing
    rights, net............................             -               675              167              2,634              363
  School services..........................         2,420             4,616            5,427              4,240            2,813
  Other....................................         6,696             6,201            8,934              4,536            9,445
                                               ------------    -------------     ------------     --------------     ------------
    Total noninterest income...............        69,329            61,934           58,387             52,961           54,209
Noninterest expense........................       110,968           118,848           85,585             67,635           61,403
                                               ------------    -------------     ------------     --------------     ------------
(Loss) income from continuing operations
   before income taxes.....................        (3,572)         (17,025)                5             10,038           18,023
Income tax (benefit) expense...............        (2,575)          (7,756)            (887)              3,632            6,658
                                               ------------    -------------     ------------     --------------     ------------
(Loss) income from continuing operations...    $     (997)     $    (9,269)      $       892      $       6,406      $    11,365
                                               ============    =============     ============     ==============     ============
(Loss) income from continuing operations
   per share assuming dilution(1) .........    $    (0.15)     $     (1.43)      $      0.14      $        0.95      $      1.66
Weighted average common shares assuming
   dilution................................     6,539,195         6,462,272        6,560,454          6,748,857        6,833,546

Balance Sheet Data
Total assets...............................    $1,723,924     $   1,701,405      $ 1,646,940      $   1,418,773      $ 1,283,746
Securities.................................       152,508            29,073            6,963             66,616               --
Total loans, net...........................     1,344,256         1,393,810        1,340,700          1,095,045        1,103,515
Mortgage servicing rights, net.............        39,744            63,200           78,712             71,529           63,479
</TABLE>

                                       29
<PAGE>
<TABLE>
<CAPTION>
                                                                                 As of and for the
                                                                              Year Ended December 31,
                                               ----------------------------------------------------------------------------------
                                                  2003             2002              2001             2000              1999
                                               ------------    -------------     -------------    --------------     ------------
                                                               (Dollars in thousands, except per share data)
<C>                                            <C>            <C>                <C>              <C>                <C>

Deposits(2)................................    $  974,059     $     933,957      $   866,235      $     602,669      $   562,194
Custodial escrow balances..................        85,466           151,790          129,665             77,647           94,206
FHLBank borrowings.........................       458,204           385,785          303,361            519,433          405,000
Other borrowings...........................       114,495           125,903          222,032            124,503          142,101
Total shareholders' equity.................        69,684            66,936           71,312             64,023           60,497

Operating Ratios and Other Selected Data
Return from continuing operations on
   average assets(3).......................         (0.06)%           (0.57)%           0.56%              0.49%            1.08%
Return from continuing operations on
   average equity(3).......................         (1.45)           (13.07)            1.34              10.22            20.87
Average equity to average assets(3)........          4.16              4.35             4.18               4.75             5.16
Net interest margin(3)(4)..................          2.88              3.06             2.14               2.41             3.13
Operating efficiency ratio(5)..............         73.33             76.88            71.95              70.89            54.48
Total amount of loans purchased for sale...  $  1,636,986     $   1,127,632      $    97,486      $     204,922      $   701,952
Balance of owned servicing portfolio (end
   of period)..............................     3,183,536         5,333,627        5,656,365          5,517,963        5,889,715
Trust assets under administration (end of
   period) ................................    13,280,435         7,876,329        6,017,085          3,847,038        2,545,060

Ratios of Earnings to Fixed Charges(6)
Including interest on deposits.............          0.89x             0.60x            1.00x              1.15x            1.40x
Excluding interest on deposits.............          0.82x             0.18x            0.99x              1.23x            1.79x

Loan Performance Ratios and Data
Allowance for loan and valuation losses....  $      9,789     $       9,343      $     9,338      $       8,581      $     6,354
Nonperforming loans(7) ....................        31,450            30,818           37,251             28,516           25,641
Nonperforming loans/total loans(7) ........          2.32%             2.20%            2.76%              2.54%            2.31%
Nonperforming assets/total assets(7) ......          2.32              2.30             2.77               2.20             2.06
Net loan charge-offs/average loans(3) .....          0.23              0.21             0.17               0.18             0.06
Allowance for loan and valuation losses/
   total loans ............................          0.72              0.67             0.69               0.76             0.57
Allowance for loan and valuation losses/
   nonperforming loans ....................         31.13             30.32            25.07              30.09            24.78
</TABLE>
_________

(1)  Net (loss)  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)  At December 31,  2003,  2002,  2001,  2000 and 1999,  the total  balance of
     brokered deposits was $95.5 million, $327.3 million, $303.0 million, $203.6
     million and $221.5 million, respectively.
(3)  Calculations  are based on  average  daily  balances  where  available  and
     monthly averages otherwise.
(4)  Net interest  margin has been  calculated  by dividing net interest  income
     from  continuing  operations  before loan and valuation  loss  provision by
     average  interest-earning  assets.
(5) The operating  efficiency ratio has
     been calculated by dividing noninterest expense from continuing operations,
     excluding  amortization of mortgage  servicing  rights, by operating income
     from continuing operations.  Operating income from continuing operations is
     equal to net interest income before provision for loan and valuation losses
     plus  noninterest  income.
(6)  For  purposes  of  calculating  the  ratio of  earnings  to fixed  charges,
     earnings  consist of income from  continuing  operations  before taxes plus
     interest  and rent  expense.  Fixed  charges  consist of interest  and rent
     expense.
(7)  See  "Management's  Discussion  and  Analysis of  Financial  Condition  and
     Results  of  Operations--Asset   and  Liability   Management--Nonperforming
     Assets" for a discussion of the level of nonperforming loans.

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.

Overview

     The primary source of the Company's  revenue is net interest income,  which
is the difference  between interest income earned on loans and investments,  and
interest  expense paid on deposits and borrowed  money.  Net interest income can
change  significantly  from period to period based on general levels of interest
rates, customer prepayment patterns,  the mix of interest earning assets and the
mix of interest  bearing and non-interest  bearing deposits and borrowings.  The
Company manages the risk of changes in interest rates on its net interest income
through an  Asset/Liability  Committee  and through  related  interest rate risk
monitoring  and  management  policies and  practices.  In addition,  the Company
generates  revenue through fee- based services.  Many of these services  provide
additional low-cost deposits for, or have other synergies with, the core banking
operations.

                                       30


<PAGE>

     During 2003,  the Company sold its wholesale  loan  origination  production
platform (as discussed in "Item 1. Business - Discontinued Operations.") We sold
the Platform because we were concerned that, over an extended period of time, we
would find it  difficult  to compete in the  highly  competitive,  lower  margin
mortgage  origination  industry,  and believe that the synergies provided to our
core  operations  from this line of business were no longer  beneficial  from an
operational risk standpoint.  The Company was able to successfully  reinvest the
liquidity generated by the sale of the production platform without substantially
impacting its net interest income.

     The historically low interest rates in 2003 were a significant challenge to
our Asset/Liability Committee. We have maintained our positive net interest gap,
which  means  that  our  assets  are  expected  to  re-price  quicker  than  our
liabilities  as  interest  rates  change.  See  a  detailed  discussion  of  our
strategies  to  manage  our risk in "Item 7. - Asset and  Liability  Management"
which  follows.  The low  interest  rate  environment  in 2003 caused  continued
compression of our net interest income and was the cause of a significant amount
of amortization expense on our mortgage servicing rights. The mortgage servicing
rights are amortized based on the expected pattern and life of related servicing
revenues and our  investment  is also  evaluated  quarterly for  impairment.  As
interest rates fall, there is a higher probability of prepayment as the borrower
can generally  refinance the loan. The historically  low mortgage  interest rate
environment  in 2003  led to  high  prepayments  and  refinancing  resulting  in
continued high levels of servicing rights amortization. If interest rates remain
at  current  levels or  increase  in 2004,  there  should be  reduced  refinance
activity and reduced  related  amortization,  and a  possibility  of  additional
recovery on the recorded impairment.  Conversely,  if interest rates decrease to
levels of the summer of 2003,  levels of amortization  and impairments  could be
significant.

     Certain of our fee based business, including the acquisition, brokerage and
sale of SBA  loans  and loan  pools,  fees  generated  from the  management  and
disposition of foreclosed  properties  owned by independent  financial  services
companies,  and our  investment  in Matrix  Settlement  and  Clearance  Services
continue to be a strong point in our operations, and in positively impacting our
core banking  operations.  Growth in core deposits continued in 2003,  primarily
driven by deposits  generated by subsidiaries of the Company for Matrix Bank. We
will  focus on these  businesses  and our core  banking  operations  in 2004 and
beyond.

     The following portions of the Management's Discussion and Analysis focus in
more  detail  on the  results  of  operations  for  2003,  2002  and 2001 and on
information  about the Company's  balance sheet,  credit quality,  liquidity and
funding resources, capital, critical accounting estimates and other matters.

General

     Matrix  Bancorp was formed in June 1993 when the founding  shareholders  of
Matrix Financial and United Financial,  now known as Matrix Bancorp Trading, 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  (whose  primary  subsidiary  is Sterling  Trust) in a pooling of
interests  and,  accordingly,  no goodwill  was  recorded  and our  consolidated
financial  statements  for the prior  periods were  restated.  Additionally,  we
acquired ABS in March 1999. The acquisition was accounted for using the purchase
method of  accounting.  We entered into our joint venture,  Matrix  Settlement &
Clearance  Services,  in September of 1999. On August 1, 2000, we sold the stock
of United Capital  Markets to one of the officers of that company.  On August 1,
2000,  Matrix  Financial,  our mortgage banking  operation,  became an operating
subsidiary of Matrix Bank. On October 31, 2001, First Matrix,  our broker-dealer
operation, became an operating subsidiary of Matrix Bancorp Trading.

     The principal components of our revenues consist of:

     o    net interest income recorded by Matrix Bank,  Matrix Financial and ABS
          School Services;
     o    brokerage and consulting  fees generated by Matrix Bancorp Trading and
          First Matrix;
     o    disposition services fees generated by Matrix Asset Management;
     o    gains on sales of mortgage  loans  generated by Matrix Bank and Matrix
          Financial;
     o    loan administration fees generated by Matrix Financial;
     o    trust service fees generated by Sterling Trust and Matrix Bank; and
     o    school service fees generated by ABS.

                                       31


<PAGE>

     Our results of operations  are  influenced by changes in interest rates and
the effect of these changes on our interest  margins,  mortgage loan prepayments
and the value of mortgage  servicing  portfolios.  Our fee-based  businesses are
effected  to a lesser  extent  by  interest  rates and more by  competition  and
general market conditions.

Discontinued Operations - Sale of Wholesale Production Platform

     On  September 2, 2003,  we announced  the final  closing,  and  substantial
completion of the sale by Matrix  Financial of  substantially  all of its assets
associated  with its  wholesale  mortgage  origination  platform.  See  "Item 1.
Business--Discontinued  Operations" for a more detailed discussion. We agreed to
sell the Platform  because we were concerned  that,  over an extended  period of
time, we would find it difficult to compete in the highly  competitive  mortgage
origination  industry  that  generally  operates on high volume and low margins.
Based on the size of our  wholesale  production  platform,  we were  required to
commit a  significant  percentage  of our capital to a line of business  that is
fairly cyclical and the earnings were difficult for us to estimate.  The sale of
platform has allowed us to reduce our operational risks and the costs associated
with the platform.  We were successful in reinvesting the liquidity created from
the sale into  predominately  adjustable rate loans,  SBA loans and high quality
mortgage-backed  securities,  thereby  reducing  the  financial  impact of being
underinvested due to the sale of the production platform.

     The  operations  of the  production  platform,  which  reflect  income from
discontinued  operations,  net of tax effect, of $3.3 million,  $5.3 million and
$7.6 million for the years ended December 31, 2003, 2002 and 2001, respectively,
are  reported  as  discontinued   operations  in  the   consolidated   financial
statements, and will be presented as such in future releases and filings, and as
such are not included in the  discussion of results from  continuing  operations
below.  It should  be noted  the  discontinued  operations  are  based  upon the
Company's  historical  results  from  operations  of  the  production  platform,
adjusted to reflect the impact of the sale of the production  platform.  Because
there was an opportunity cost of owning the production platform,  the historical
results are not  necessarily  indicative of the results that might have occurred
if the  disposition  had actually been completed on the indicated  date, and are
not indicative of any future results.

Comparison of Results of Operations for Fiscal Years 2003 and 2002

     Loss from  Continuing  Operations.  A loss of $(1.0) million for the fiscal
year 2003 was  recognized,  an improvement of $8.3 million to the loss of $(9.3)
million for fiscal year 2002.  On a basic and diluted per share basis,  loss was
$(0.15)  for the fiscal  year 2003 as  compared to $(1.43) for fiscal year 2002.
Our loss in 2003 was  primarily  caused by the  incurrence  of $32.5  million of
amortization of our mortgage  servicing asset, which increased $8.3 million from
2002 levels.  This increase was due to an increase in the  prepayment  speeds on
the loans  underlying the mortgage  servicing asset caused by the historical low
interest rate environment.  The impact of the increased  amortization was offset
by a recovery  of $2.9  million  of  impairment  charges  recorded  against  our
mortgage servicing rights asset,  whereas in 2002 there was a $14.2 million, net
pre-tax, impairment charge against the value of the mortgage servicing rights.

     Net Interest  Income.  Net interest  income  before  provision for loan and
valuation  losses decreased $(1.0) million to $41.7 million for fiscal year 2003
as compared  to $42.7  million for fiscal  year 2002.  Our net  interest  margin
decreased  15 basis  points to 2.88% for the year ended  December  31, 2003 from
3.06% for the year ended December 31, 2002,  and interest rate spread  decreased
to 2.57% for the year  ended  December  31,  2003 from  2.72% for the year ended
December 31, 2002.  The  decrease in net interest  margin and the interest  rate
spread is due to a combination  of a 94 basis point decrease in the average rate
earned on average  interest-earning  assets to 5.08% for the year ended December
31, 2003 as compared to 6.02% for the year ended  December 31, 2002. The effects
of the decrease in rates on  interest-earning  assets was offset  partially by a
decrease in the cost of our  interest-bearing  liabilities of 79 basis points to
2.51% for the year ended  December  31,  2003 as  compared to 3.30% for the year
ended  December  31,  2002.  Both the decrease in the rate earned on our average
interest-earning   assets,   and  the  decrease  in  the  cost  of  our  average
interest-bearing  liabilities  is  driven  by  continued  low  levels  of market
interest rates  prevalent  throughout  2003. The impact of the low interest rate
environment  is not as direct for the average  interest-bearing  liabilities  as
certain of the term borrowings are at fixed rates. 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 $800 thousand,  or 29.1%, to $3.6 million for fiscal
year 2003 as compared to $2.8  million for fiscal year 2002.  This  increase was
attributable  to increased  levels of reserves as a result of an increase in our
homogeneous  residential

                                       32
<PAGE>

loan  portfolio  acquired  to replace  the  originated
wholesale loans, which liquidity was available due to the sale of the production
platform  as  discussed  in "Item  1.  Business--Discontinued  Operations".  The
Company's historic experience is that our homogeneous residential loan portfolio
has slightly  greater losses than mortgage loans that are sold within 45 days of
origination.  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 decreased $(5.7) million to
$21.7  million for fiscal year 2003 as compared to $27.4 million for fiscal year
2002.  Loan  service  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 $4.2 billion for
fiscal year 2003 as compared  to an average  balance of $5.7  billion for fiscal
year 2002.  The impact of the decrease in the average  balance of the  servicing
portfolio  was  partially  offset by an  increase  in the  average  service  fee
(including  all ancillary  income) to 0.50% for the year ended December 31, 2003
as compared to 0.45% for the year ended  December  31,  2002.  Matrix  Financial
anticipates  loan  administration  fees to continue to decrease as its servicing
portfolio decreases through normal prepayments.

     Brokerage Fees.  Brokerage fees represent  income earned from brokerage and
consulting  services performed  pertaining to mortgage servicing rights, as well
as  brokerage  income  earned  from whole loan and  retail  activities,  and SBA
trading fees.  Brokerage fees increased $2.8 million, or 34.2%, to $10.9 million
for fiscal  year 2003 as compared  to $8.1  million  for fiscal year 2002.  This
increase  was  primarily  the  result of  strong  performance  and the  revenues
generated from the acquisition, pooling and selling of SBA loans and securities,
which increased to $3.1 million for the year ended December 31, 2003 as compared
to $1.7 million for the year ended December 31, 2002.

     Trust  Services.  Trust service fees increased $1.4 million,  or 26.9%,  to
$6.8  million for fiscal  year 2003 as compared to $5.4  million for fiscal year
2002.  The  increase  is  due to an  increase  in  total  trust  accounts  under
administration  of 50,251  accounts at December 31, 2003 from 45,097 accounts at
December  31,  2002,  and total  fiduciary  assets  under  administration  which
increased  to $13.3  billion at December  31, 2003 from $7.9 billion at December
31, 2002.  The growth was due to increases  at Matrix  Bank's trust  department,
driven by the business referred to us by Matrix Settlement & Clearance Services.

     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 revenue increased $2.5 million, or 59.5%,  between the fiscal years 2003
and 2002 to $6.6  million  for the year ended  December  31, 2003 as compared to
$4.1 million for the year ended  December 31, 2002.  The increase was due to the
increase in the number of  properties  closed during the year,  which  increased
54.2%,  to 3,521 from 2,283 in 2002.  Additionally,  the  increase is due to new
clients obtained, and increased volumes from existing clients.  Properties under
management  were 3,183 at December 31, 2003 as compared to 2,071 at December 31,
2002.

     Gain on Sale of Loans and Securities.  Gain on sale of loans and securities
increased  $8.8  million,  or 160.3%,  to $14.3  million for fiscal year 2003 as
compared to $5.5 million for fiscal year 2002.  The increase  includes  gains on
sale of repurchased FHA and VA loans previously sold from our mortgage servicing
rights  portfolio  of $10.2 for the year ended  December 31, 2003 as compared to
$4.9 million for the year ended December 31, 2002.  Gains on sale of repurchased
FHA and VA loans relate to delinquent loans that are purchased out of loan pools
of which Matrix  Financial acts as servicer and then re-sells into the secondary
market.  The gains on sale of loans and securities  also includes an increase of
$1.7  million in gains on the sale of  originated  SBA and multi family loans at
Matrix Bank,  to $1.8 million for the year ended  December 31, 2003, as compared
to $100  thousand  for the  year  ended  December  31,  2002.  Gains on sale 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 or securities
portfolios  available  in the  market,  and as market  conditions  dictate,  the
particular loan portfolios we elect to sell.

     Gain  on Sale  of  Mortgage  Servicing  Rights.  Gain  on sale of  mortgage
servicing  rights  decreased  to $0 for fiscal year 2003 from $700  thousand for
fiscal year 2002.  Due to the low  interest  rate  environment  prevalent in the
second half of 2002 and all of 2003,  the market  conditions  were not favorable
for our servicing  portfolio.  If interest rates increase and prices become more
attractive, we may sell a portion of our servicing asset. 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.

                                       33

<PAGE>

     School  Services.  School  services  income  represents fees earned by ABS,
operating as The GEO Group,  for  outsourced  business and  consulting  services
provided  primarily to charter schools.  School services income decreased $(2.2)
million,  or 47.6%,  to $2.4  million  for fiscal  year 2003 as compared to $4.6
million for fiscal year 2002.  This  decrease was primarily due to a decrease in
the number of, and rates paid by our core business service clients,  as a result
of the strategic decision in mid 2002 to downsize the level of capital committed
to ABS, and to reduce our operating exposure in this line of business.

     Other Income. Other income, which includes loan origination income,  equity
in earnings of unconsolidated subsidiaries, service and ATM fees, rental income,
structured finance trading activities,  and other miscellaneous items, increased
$500 thousand, or 8.0%, to $6.7 million for fiscal year 2003 as compared to $6.2
million for fiscal year 2002.  The increase was  primarily due to an increase of
$900  thousand  in  income  generated  from  our  equity  investment  in  Matrix
Settlement  and  Clearance,  to $1.1 million for fiscal 2003 as compared to $200
thousand for fiscal 2002.

     Noninterest Expense. Noninterest expense decreased $(7.9) million, or 6.6%,
to $111.0  million for fiscal year 2003 as compared to $118.9 million for fiscal
year  2002.  This  decrease  was  primarily  due  to a  $14.2  million  non-cash
impariment charge on mortgage servicing rights incurred in 2002 as compared to a
$3.0 million  recovery of such impairment in fiscal 2003. This decrease was also
due to a $1.0 million  charge to write-off the goodwill  balance at ABS incurred
in 2002,  whereas a similar charge was not incurred in fiscal 2003. The decrease
was offset by an increase in the level of amortization on our mortgage servicing
rights asset.  The following  table details the major  components of noninterest
expense for the periods indicated:

<TABLE>
<CAPTION>
                                                                                                    Year Ended
                                                                                                  December 31,
                                                                                          -------------------------------
                                                                                               2003             2002
                                                                                          ---------------  --------------
                                                                                                 (In thousands)
     <C>                                                                                  <C>              <C>
     Compensation and employee benefits                                                   $    34,984      $    36,350
     Amortization of mortgage servicing rights ..........................................      32,497           24,176
     Occupancy and equipment.............................................................       6,172            5,600
        Postage and communication........................................................       2,435            2,676
     Professional fees...................................................................       3,357            2,770
     Data processing.....................................................................       2,860            2,796
        (Recovery of) impairment on mortgage servicing rights............................      (2,950)          14,219
     Other general and administrative....................................................      31,613           30,261
                                                                                          ---------------  --------------
          Total.......................................................................... $   110,968      $   118,848
                                                                                          ===============  ==============
</TABLE>

     Compensation and employee  benefits  decreased $(1.4) million,  or 3.8%, to
$35.0  million for fiscal year 2003 as compared to $36.4 million for fiscal year
2002.  This decrease was  primarily  the result of decreased  salaries and wages
associated with reductions in the overall number of employees, primarily at ABS,
and by decreases in medical benefits expense associated with the structural rate
changes  implemented  for the 2003  benefit  year.  The  Company  had an overall
decrease of 47  employees,  or 8.5%,  to 509  employees  at December 31, 2003 as
compared to 556 employees at December 31, 2002.

     Amortization of mortgage servicing rights increased $8.3 million, or 34.4%,
to $32.5  million for fiscal  year 2003 as compared to $24.2  million for fiscal
year 2002.  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
continued historic low interest rates prevalent in the market, prepayment speeds
on our servicing  portfolio  continued to increase to an average of 35.4% during
fiscal year 2003 as compared to 23.7% during  fiscal year 2002,  which  increase
offset  the  effects  of a  decrease  in the  average  balance  of our  mortgage
servicing  rights to $48.7 million for the 2003 fiscal year as compared to $81.0
million for the 2002 fiscal year.

     (Recovery of) impairment on mortgage servicing rights,  which is a non-cash
item,  reflects a recovery for the year ended  December 31, 2003 of $2.9 million
as compared to an impairment charge of $14.2 million for the year ended December
31, 2002. The Company is required to record its investment in mortgage servicing
rights at the lower of cost or fair value. The fair value of mortgage  servicing
rights 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  mortgage  servicing  rights by  product  type and
investor to reflect the  predominant  risks.  To determine the fair value of its
investment, the Company uses a valuation model that calculates the present value
of future cash flows.  Due to increases in interest  rates in 2003, a portion of
the previously recorded  impairment was recovered  increasing the carrying basis
to fair value.  It is not possible to estimate if future  recoveries will occur,
and further  decreases in market  interest  rates,  or increases in  anticipated
future  prepayment  speeds,  may cause additional  impairment  charges in future
periods.

                                       34

<PAGE>

     The  remainder  of  noninterest  expense,   which  includes  occupancy  and
equipment expense, postage and communication, professional fees, data processing
costs and other expenses  increased $2.3 million,  or 5.3%, to $46.4 million for
fiscal year 2003 as compared to $44.1 million for fiscal year 2002. The increase
is primarily  related to increased levels of  subaccounting  fees paid by Matrix
Bank, increased consulting fees, consisting of accounting, auditing, information
services,  legal and other, incurred at Matrix Bank, Matrix Financial and Matrix
Tower Holdings in fiscal year 2003 above those from fiscal year 2002, litigation
settlement  costs in fiscal year 2003 at Matrix  Financial that were not present
in fiscal year 2002,  writedown of real estate owned at ABS in 2003,  and losses
realized on loans  repurchased  at Matrix  Financial  related to the  production
platform in 2003 that were not present in 2002.

     Income Taxes.  Income taxes reflect a benefit of $(2.6)  million for fiscal
year 2003 as compared to a benefit of $(7.8)  million for fiscal year 2002.  Our
effective tax benefit was 72.1% for fiscal year 2003 as compared to an effective
tax benefit of 45.6% for fiscal year 2002.  The effective tax rates are affected
by the level of  tax-exempt  income at ABS and Matrix Bank in  proportion to the
level of net loss. The net tax exempt  interest income was $3.7 million and $2.9
million for the years ended December 31, 2003 and 2002, respectively.

Comparison of Results of Operations for Fiscal Years 2002 and 2001

     Net Income (Loss) from  Continuing  Operations.  A net loss from continuing
operations of $(9.3) million for the fiscal year 2002 was recognized,  a $(10.2)
million  decrease to the net income of $892  thousand for fiscal year 2001. On a
basic and diluted  per share  basis,  net loss from  continuing  operations  was
$(1.43)  for the fiscal  year 2002 as  compared to net income of $0.14 per basic
and diluted share for fiscal year 2001.  The  decreases in net income,  earnings
per share and return on average  equity were caused  primarily by $14.2 million,
net  pre-tax,  non-cash  impairment  charges  against the value of the  mortgage
servicing  rights and  related  advances,  $1.0  million  write-off  of goodwill
balances at ABS in  accordance  with SFAS No. 142, and a $700  thousand  loss on
subleasing of office space.

     Net Interest  Income.  Net interest  income  before  provision for loan and
valuation  losses  increased $12.5 million to $42.7 million for fiscal year 2002
as compared  to $30.2  million for fiscal  year 2001.  Our net  interest  margin
increased 92 basis points  (equivalent to 0.0092 percentage points) to 3.06% for
the year ended  December  31,  2002 from 2.14% for the year ended  December  31,
2001,  and interest rate spread  increased to 2.72% for the year ended  December
31, 2002 from 1.59% for the year ended  December 31,  2001.  The increase in net
interest income before  provision for loan valuation losses was primarily due to
a 184 basis  point  decrease  in the cost of our  interest-bearing  liabilities,
driven by decreases in interest  rates,  which have  significantly  impacted the
rates paid by Matrix Bank for FHLBank  borrowings and  certificates  of deposit.
The cost of FHLBank borrowings  decreased 173 basis points to 2.89% for the year
ended  December  31, 2002 as compared to 4.62% for the year ended  December  31,
2001. The cost of  certificates  of deposit  decreased 233 basis points to 3.65%
for the year ended  December  31,  2002 as  compared to 5.98% for the year ended
December 31, 2001. The interest rate on short-term  borrowings  fluctuates  with
the federal funds rate,  which remain at historic lows. The decrease in our cost
of interest-bearing  liabilities was partially offset by a decrease in the yield
earned on our average loan  portfolio  to 6.16% for the year ended  December 31,
2002 as compared to 6.85% for the year ended December 31, 2001. The increase was
also due to a $64.0 million increase in our average noninterest-bearing deposits
between the two  comparable  years,  offset by a slight  decrease in our average
interest-earning assets to $1.40 billion for the year ended December 31, 2002 as
compared to $1.41  billion for the year ended  December 31, 2001.  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 $(200) thouand,  or 5.3%, to $2.8 million for fiscal
year 2002 as compared to $3.0  million for fiscal year 2001.  This  decrease was
attributable  to lower  levels of  reserves  recorded  at Matrix Bank and Matrix
Financial due to  improvements in nonaccrual  loans,  offset by higher levels of
reserves  recorded at ABS due to higher loan losses versus levels in 2001. 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 decreased $(900) thousand to
$27.4  million for fiscal year 2002 as compared to $28.3 million for fiscal year
2001.  Loan  service  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

                                       35
<PAGE>

mortgage loan servicing  portfolio  increased  slightly to an average balance of
$5.7  billion for fiscal  year 2002 as  compared  to an average  balance of $5.5
billion  for fiscal year 2001.  There was a decrease in the average  service fee
(including  all ancillary  income) to 0.45% for the year ended December 31, 2002
as compared to 0.50% for the year ended December 31, 2001,  excluding for fiscal
2001 a $550  thousand  transition  adjustment,  as  well  as  $275  thousand  of
subservicing  income from a portfolio sold in 2001 not  transferred  until 2002.
The decrease in the service fees was due to Matrix  Financial's  decision in the
third  quarter  of 2002 to begin to sell the  majority  of its newly  originated
servicing under an assignment of trade contract.

     Brokerage  Fees.  Brokerage fees increased $3.3 million,  or 68.3%, to $8.1
million for fiscal  year 2002 as compared to $4.8  million for fiscal year 2001.
This  increase  was the result of strong  performance  in whole  loan  brokerage
activities, where fees increased to $5.9 million for the year ended December 31,
2002 as compared to $1.9 million for the year ended  December 31, 2001,  as well
as  revenues  generated  as a  result  of  the  focus  by  First  Matrix  on the
acquisition,  pooling  and  selling of SBA loans and  securities  where  revenue
increased  to $1.7  million for the year ended  December 31, 2002 as compared to
$100 thousand for the year ended December 31, 2001 when the SBA activity began.

     Trust  Services.  Trust service fees increased $1.3 million,  or 32.4%,  to
$5.3  million for fiscal  year 2002 as compared to $4.0  million for fiscal year
2001. During 2002, the trust department at Matrix Bank began its operations. The
increase is due to an increase in total trust accounts under  administration  at
Sterling  Trust and Matrix Bank of 45,097  accounts  at  December  31, 2002 from
41,329  accounts  at  December  31,  2001  and  total  fiduciary   assets  under
administration  which  increased  to $7.9 billion at December 31, 2002 from $6.0
billion at December 31, 2001. Much of the growth was driven by business referred
to us by Matrix Settlement & Clearance Services.

     Real Estate Disposition  Services.  Real estate disposition  service income
increased $1.6 million, or 61.5%, between the fiscal years 2002 and 2001 to $4.2
million. The increase was due to the increase in the number of properties closed
during  the  year,   which  increased  58.1%,  to  2,283  from  1,444  in  2001.
Additionally,  the increase is due to new clients  obtained as a result of prior
marketing  efforts.  Properties under management were 2,071 at December 31, 2002
as compared to 1,146 at December 31, 2001.

     Gain on Sale of Loans and Securities.  Gain on sale of loans and securities
increased  $1.3  million,  or 31.7%,  to $5.5  million  for fiscal  year 2002 as
compared to $4.2 million for fiscal year 2001.  The increase  includes  gains on
sale of  previously  repurchased  FHA and VA loans from our  mortgage  servicing
rights  portfolio  of $4.9 for the year ended  December  31, 2002 as compared to
$1.8 million for the year ended  December 31, 2001.  Gains on sale of previously
repurchased FHA and VA loans relate to delinquent  loans which are purchased out
of loan pools of which Matrix  Financial acts as servicer and then re-sells into
the secondary  market.  Gains on sale 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 or securities  portfolios  available in
the market, and as market conditions dictate,  the particular loan portfolios we
elect to sell.

     Gain  on Sale  of  Mortgage  Servicing  Rights.  Gain  on sale of  mortgage
servicing  rights  increased  $500 thousand to  approximately  $700 thousand for
fiscal  year 2002 as  compared  to $200  thousand  for  fiscal  year  2001.  The
increased  gain  was  despite  a  decrease  in terms  of  aggregate  outstanding
principal  balances of mortgage loans underlying such mortgage  servicing rights
which we sold being $681.0 million in purchased mortgage servicing rights during
fiscal year 2002 as compared to $1.7 billion during fiscal year 2001. 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, and as market
conditions  dictate,  we  anticipate  selling  additional  servicing  rights  to
decrease our overall investment.

     School Services.  School services income  represents fees earned by ABS for
outsourced  business  and  consulting  services  provided  primarily  to charter
schools.  School services income decreased  $(800)  thousand,  or 14.9%, to $4.6
million for fiscal  year 2002 as compared to $5.4  million for fiscal year 2001.
This  decrease  was  primarily  due to a decrease  in the rates paid by our core
business  service  clients,  which stood at 142 schools at  December  31,  2002.
During the first six months of 2002,  in an effort to  increase  our client base
and fee income on a national basis, ABS incurred significant costs for personnel
and marketing efforts. Ultimately, ABS was not able to attract the amount of new
contracts that it had targeted for the new school year,  which begins in July of
each  year.  As a result of the lower than  projected  revenue,  management  has
elected  to focus  on  expense  reductions  and  client  retention  rather  than
significant  expansion.  See "Management's  Discussion and Analysis of Financial
Condition and Results of  Operations-  Comparison  of Results of Operations  for
Fiscal  Years 2002 and  2001-Noninterest  Expense"  for  discussion  of goodwill
write-off.

                                       36
<PAGE>

     Other Income.  Other income  decreased  $(2.7)  million,  or 30.6%, to $6.2
million for fiscal  year 2002 as compared to $8.9  million for fiscal year 2001.
The 2001 fiscal year income included $3.4 million pre-tax gain on sale of assets
generated due to the  condemnation of real estate held by Matrix Bank in Denver,
Colorado,  which was going to be used for relocation of Matrix Bank's  domicile.
The City and County of Denver  condenmed the property in October 2001. A similar
gain was not present in 2002.

     Noninterest Expense. Noninterest expense increased $33.3 million, or 38.9%,
to $118.9  million for fiscal year 2002 as compared to $85.6  million for fiscal
year 2001.  This  increase was  primarily  due to inclusion of the $14.2 million
non-cash  impariment  charge on  mortgage  servicing  rights as compared to $181
thousand in 2001, a $1.0 million  charge to  write-off  the goodwill  balance at
ABS, a $700 thousand loss on subleasing office space associated with the move to
Matrix  Financial  Center and $1.0 million  incremental  reserves  against other
assets  during the year ended  December  31,  2002.  In  addition,  the  Company
experienced increases in compensation and benefits expense and other general and
administrative  expense due to increases to support  growth and volume at Matrix
Bank and First  Matrix.  The  following  table  details the major  components of
noninterest expense for the periods indicated:

<TABLE>
<CAPTION>
                                                                                                    Year Ended
                                                                                                  December 31,
                                                                                          -------------------------------
                                                                                               2002             2001
                                                                                          ---------------  --------------
                                                                                                 (In thousands)
     <C>                                                                                  <C>              <C>
     Compensation and employee benefits.................................................. $    36,350      $    30,603
     Amortization of mortgage servicing rights ..........................................      24,176           21,862
     Occupancy and equipment.............................................................       5,600            4,545
     Postage and communication...........................................................       2,676            2,410
     Professional fees...................................................................       2,770            2,590
     Data processing.....................................................................       2,796            2,370
     Impairment of mortgage servicing rights.............................................      14,219              181
     Other general and administrative....................................................      30,261           21,024
                                                                                          ---------------  --------------
          Total.......................................................................... $   118,848      $    85,585
                                                                                          ===============  ==============
</TABLE>

     Compensation  and employee  benefits  increased $5.7 million,  or 18.8%, to
$36.3  million for fiscal year 2002 as compared to $30.6 million for fiscal year
2001.  This increase was primarily the result of increases in personnel costs at
Matrix Bank,  First Matrix and ABS. The increased costs are due to a combination
of increased  personnel  and the inclusion of a full year of salary and benefits
costs for employees  added during 2001.  The increase  also  reflects  increased
costs of medical  benefits for the year ended December 31, 2002 at these and the
Company's  other  subsidiaries.  The  Company  had  an  overall  decrease  of 58
employees,  or 9.4%,  to 556  employees  at December 31, 2002 as compared to 614
employees at December 31, 2001,  excluding estimated  employees  attributable to
the  discontinued  operations of the production  platform.  Much of the decrease
occurred  in the  latter  part of 2002.  See in "Item 1.  Business--Discontinued
Operations".

     Amortization of mortgage servicing rights increased $2.3 million, or 10.6%,
to $24.2  million for fiscal  year 2002 as compared to $21.9  million for fiscal
year 2001.  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
continued low interest rates prevalent in the market,  prepayment  speeds on our
servicing  portfolio increased to an average of 23.7% during fiscal year 2002 as
compared  to 22.9%  during  fiscal  year 2001,  and the  average  balance of our
mortgage servicing rights increased to $81.0 million for the 2002 fiscal year as
compared to $73.4 million for the 2001 fiscal year. However,  the fourth quarter
of 2002  experienced  a much  higher  prepayment  speed of 31.0%  than  what was
experienced in the first three quarters of 2002.

     Impairment  of  mortgage  servicing  rights,  which is a  non-cash  charge,
increased to $14.2  million for the year ended  December 31, 2002 as compared to
$181  thousand  for the  year  ended  December  31,  2001.  With  regard  to the
impairment  charge, the Company is required to record its investment in mortgage
servicing  rights at the lower of cost or fair value. The fair value of mortgage
servicing rights 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  mortgage  servicing  rights by
product type and investor to reflect the  predominant  risks.  To determine  the
fair value of its investment, the Company uses a valuation model that calculates
the present value of future cash flows. Due to the drop in interest rates,  both
the  actual  and  anticipated  prepayment  speeds  used in the  valuation  model
increased causing the fair value of the servicing to decrease below the carrying
basis which resulted in an impairment. The majority of the impairment related to
the servicing rights retained by the Company on its  originations  over the last
year.

                                       37

<PAGE>
     The  remainder  of  noninterest  expense,   which  includes  occupancy  and
equipment expense,  postage and communication  expense,  professional fees, data
processing costs and other expenses, increased $11.2 million, or 33.9%, to $44.1
million for fiscal year 2002 as compared to $32.9  million for fiscal year 2001.
The increase is primarily  related to the charges and reserves  noted above,  as
well as increases in  foreclosure  expenses at Matrix  Financial,  miscellaneous
operation  expenses  associated  with  additional  volume at Matrix Bank,  First
Matrix and Matrix Asset Management,  and incremental  reserves and write-offs of
receivables primarily at ABS.

     Income Taxes.  Income taxes reflect a benefit of $(7.8)  million for fiscal
year 2002 as compared to $(887) thousand for fiscal year 2001. Our effective tax
benefit was 45.6% for fiscal year 2002.  The  effective  tax rate is affected by
the level of  tax-exempt  income at ABS in proportion to the level of net income
(loss).

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
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,
                                           ----------------------------------------------------------------------------------------
                                                     2003                          2002                         2001
                                           -------------------------    ---------------------------  ------------------------------
                                           Average           Average     Average           Average   Average            Average
                                           Balance   Interest Rate      Balance   Interest  Rate      Balance  Interest  Rate
                                           --------- ---------------    ------------------ --------  ------------------------------
                                                                          (Dollars in thousands)
Assets
<C>                                     <C>         <C>        <C>       <C>         <C>       <C>      <C>         <C>       <C>
Interest-earning assets:
  Loans receivable .....................$1,376,723  $ 71,202     5.17%   $1,333,390  $82,121     6.16%  $1,338,613  $91,731    6.85%
  Securities............................    28,437     1,465     5.15        11,003      594     5.40       17,667    1,335    7.56
  Interest-earning deposits.............    14,227       135     0.95        24,285      337     1.39       33,746    1,008    2.99
  FHLBank stock.........................    30,611       905     2.96        26,393      936     3.55       23,281      996    4.28
                                         ---------  --------   ------    ----------  -------   ------   ----------  -------  ------
    Total interest-earning assets.......$1,449,998    73,707     5.08%   $1,395,071  $83,988     6.02%  $1,413,307  $95,070    6.73%

Noninterest-earning assets:
  Cash..................................    46,451                         42,393                         24,196
  Allowance for loan and valuation          (9,008)                        (9,445)                        (9,038)
    losses..............................
  Premises and equipment................    25,542                         22,454                         17,838
  Other assets..........................   153,114                        178,450                        142,914
                                        ----------                     ----------                     ----------
    Total noninterest-earning assets....   216,099                        233,852                        175,910
                                        ----------                     ----------                     ----------
    Total assets........................$1,666,097                     $1,628,923                     $1,589,217
                                        ==========                     ==========                     ==========
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
  Passbook accounts.....................$    5,706        74     1.30%   $    5,998      117     1.95%       3,467      108    3.12%
  Money market and NOW accounts.........
    ("NOW") accounts....................   444,468     3,928     0.88       302,479    4,254     1.41      493,354    5,220    2.18
  Certificates of deposit...............   336,623     9,336     2.77       469,226   17,125     3.65      493,954   29,544    5.98
  FHLBank borrowings....................   366,627     9,379     2.56       328,057    9,478     2.89      347,807   16,071    4.62
  Borrowed money and guaranteed
     preferred beneficial interests.....   120,471     9,282     7.70       143,843   10,304     7.16      176,980   13,944    7.88
                                        ----------  --------   ------    ----------  -------   ------   ----------  -------  ------
    Total interest-bearing liabilities..$1,273,895    31,999     2.51%   $1,249,603   41,278     3.30%  $1,262,149   64,887    5.14%

Noninterest-bearing liabilities:
  Demand deposits (including custodial
    escrow balances)....................   317,693                        268,957                         55,764
  Other liabilities.....................     5,510                         39,459                         55,764
                                        ----------                     ----------                     ----------
      Total noninterest-bearing
         liabilities....................   323,203                        308,416                        260,687
  Shareholders' equity..................    68,999                         70,904                         66,381
                                        ----------                     ----------                     ----------
    Total liabilities and shareholders' $1,666,097                     $1,628,923                     $1,589,217
       equity...........................==========                     ==========                     ==========
Net interest income before provision
for loan and valuation losses...........$   41,708                     $   42,710                     $   30,183
                                        ==========                     ==========                     ==========
Interest rate spread....................                         2.57%                           2.72%                         1.59%
                                                               ======                          ======                        ======
Net interest margin.....................                         2.88%                           3.06%                         2.14%
                                                               ======                          ======                        ======
Ratio of average interest-earning
   assets to average interest bearing
   liabilities..........................                       113.82%                       111.64%                         111.98%
                                                               ======                       ========                         =======
</TABLE>

                                       38

<PAGE>

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.

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, 2003 vs. 2002    Year Ended December 31, 2002 vs. 2001
                                           Increase (Decrease) Due to Change in     Increase (Decrease) Due to Change in
                                         ----------------------------------------------------------------------------------
                                            Volume         Rate           Total      Volume          Rate           Total
                                         ------------   -----------  ------------------------  --------------  ------------
                                                                          (In thousands)
Interest-earning assets:
  <C>                                     <C>           <C>            <C>          <C>           <C>          <C>
  Loans receivable......................  $    2,604    $  (13,523)    $ (10,919)   $   (357)     $ (9,253)    $   (9,610)
  Securities............................         900           (29)          871        (422)         (319)          (741)
  Interest-earning deposits.............        (114)          (88)         (202)       (231)         (440)          (671)
  FHLBank stock.........................         138          (169)          (31)        123          (183)           (60)
                                          ----------    ----------     ---------    --------      --------     ----------
    Total interest-earning assets.......       3,528       (13,809)      (10,281)       (887)      (10,195)       (11,082)
                                          -----------   ----------     ---------    --------      --------     ----------
Interest-bearing liabilities:
  Passbook accounts.....................         (6)           (37)          (43)         59           (50)             9
  Money market and NOW accounts.........       1,599        (1,925)         (326)      1,152        (2,118)          (966)
  Certificates of deposit...............      (4,203)       (3,586)       (7,789)     (1,414)      (11,005)       (12,419)
  FHLBank borrowings....................       1,049        (1,148)          (99)       (868)       (5,725)        (6,593)
  Borrowed money and guaranteed
     preferred beneficial interest......      (1,759)          737        (1,022)     (2,448)       (1,192)        (3,640)
                                          ----------    ----------     ---------    --------      --------       --------
    Total interest-bearing liabilities..      (3,320)       (5,959)       (9,279)     (3,519)      (20,090)       (23,609)
                                          ----------    ----------     ---------    --------      --------       --------
Change in net interest income before
     provision for loan and
     valuation losses...................  $    6,848    $   (7,850)    $  (1,002)   $  2,632      $  9,895       $ 12,527
                                          ===========   ==========     =========    ========      ========       ==========
</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    Increasing  focus on lines of  business  that are less  interest  rate
          sensitive,   such  as  brokerage   activities,   consulting  services,
          self-directed  trust  services,  clearing  operations  and real estate
          disposition;
     o    Purchasing adjustable rate mortgages;
     o    Increasing  emphasis on the origination of construction,  multi-family
          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    Acquisition and sales of guaranteed  portions of SBA loans,  which are
          generally at adjustable rates;
     o    Extending  the  maturity  of  our   interest-bearing   liabilities  by
          borrowing longer-term advances from the FHLBank;
     o    Pursuing  institutional  alliances or  depository  relationships  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;
     o    Focusing on  noninterest-bearing  custodial escrow balances related to
          our mortgage servicing rights;
     o    Hedging segments of our servicing portfolio;
     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    Expanding our trust activities to provide custodial services to Matrix
          Settlement  & Clearance  Services'  clients to increase fee income and
          low cost deposits.

     The  strategies  outlined have been adhered to over the past several years.
As a result of the  strategies,  Matrix Bank is positively  gapped,  which means
that its assets will re-price  quicker than its  liabilities  as interest  rates
fluctuate.  As a result,  if interest rates increase,  the rising interest rates
should have a positive impact on the net interest income.  However,  if

                                       39
<PAGE>

interest  rates remain static or decrease  further,  we should  experience  some
compression in our net interest  income as certain of our  interest-bearing  and
noninterest-bearing  liabilities  cannot re-price any lower. Due to the historic
low interest rate environment,  our investment in mortgage  servicing rights was
very  unprofitable in 2003 and 2002. In the current  interest rate  environment,
the investment in mortgage  servicing  rights will cause the amortization of the
investment to remain at higher levels that initially estimated.  Due to the sale
of the  production  platform,  as discussed  in "Item 1.  Business--Discontinued
Operations",  we  do  not  anticipate  increasing  our  investment  in  mortgage
servicing  rights. We also face the challenge of managing the servicing costs of
our servicing operation as our investment continues to decrease,  as many of the
costs are fixed.  The increased  cost in relation to the level of investment may
cause the investment to be even less profitable. We may consider several options
related to the servicing  operations,  including the reduction of expenses,  the
potential sale of the operations, and strategic sales of the servicing asset.

     During the first quarter of 2004, as dicussed in "Item 1. Business--Sale of
Matrix Capital Bank Branches", we announced the potential sale of our two retail
branch  locations  in  Las  Cruces,  New  Mexico.   Included  in  the  sale  are
approximately $80.0 million of retail deposits, representing less than 5% of our
interest  bearing   liabilities,   and  approximately  $20.0  million  of  loans
originated in the Las Cruces  market.  The decision to sell the  locations  will
allow us to focus our efforts on generating  institutional  depository alliances
which we believe is a less expensive funding strategy.

     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,
                          ----------------------------------------------------------------------------------------------------------
                                 2003                     2002                   2001                  2000                   1999
                          ------------------- -------------------- --------------------  ---------------------  --------------------
                             Amount  Percent    Amount    Percent    Amount   Percent     Amount      Percent     Amount   Percent
                             ------  -------    ------    -------    ------   -------    -------      -------     ------   -------
                                                                                     (Dollars in thousands)
<C>                       <C>         <C>     <C>         <C>     <C>           <C>     <C>            <C>     <C>          <C>

Residential               $  903,186   67.19% $1,001,885   71.88% $1,055,284     78.71% $  903,955      81.00% $  954,424    86.49%
Multi-family, commercial
   real estate and           379,931   28.26     313,237   22.47     192,225     14.34     123,491      11.07      78,046     7.07
   commercial
School Financing              46,765    3.48      49,560    3.56      61,969      4.62      51,909       4.65      31,748     2.88
Construction                  21,201    1.58      34,160    2.45      35,158      2.62      36,768       3.29      36,056     3.26
Consumer                       2,962    0.22       4,311    0.31       5,403      0.40       8,479       0.76       9,595     0.87
                           ---------  ------   ---------  ------  ----------    ------   ---------     ------  ----------   -------
     Total loans           1,354,045  100.73   1,403,153  100.67   1,350,038    100.70   1,124,602     100.77   1,109,869   100.57
Less allowance for loan
   and valuation losses        9,789    0.73       9,343    0.67       9,338      0.70       8,581       0.77       6,354     0.57
                           ---------  ------   ---------  ------  ----------    ------   ---------     ------  ----------  -------
Loans receivable, net .   $1,344,256  100.00% $1,393,810  100.00% $1,340,700    100.00% $1,116,021     100.00% $1,103,515   100.00%
                           =========  ======   =========  ======  ==========    ======   =========     ======  ==========  =======
</TABLE>

     The  following  table  presents the  aggregate  maturities of loans in each
major  category of our loan  portfolio as of December 31,  2003,  excluding  the
allowance for loan losses.  Loans held for sale are  classified as maturing over
five years.  Actual  maturities may differ from the maturities  shown below as a
result of renewals and prepayments or the timing of loan sales.
<TABLE>
<CAPTION>

                                                                               As of December 31, 2003
                                                                ------------------------------------------------------
                                                                 Less than      One to      Over Five
                                                                 One Year     Five Years       Years        Total
                                                                ------------- ------------  ------------ -------------
                                                                                   (In thousands)
      <C>                                                       <C>           <C>           <C>          <C>

      Residential.............................................. $   219,689   $  658,153    $   25,344   $   903,186
      Multi-family, commercial real estate and commercial......     284,445       85,411        10,075       379,931
      School financing.........................................       9,353       37,412             -        46,765
      Construction.............................................       7,713       12,051         1,437        21,201
      Consumer.................................................       1,360        1,544            58         2,962
                                                                ------------- ------------  ------------ -------------
           Total loans ........................................ $   522,560   $  794,571    $   36,914   $ 1,354,045
                                                                ============= ============  ============ =============
</TABLE>

     Loans held for sale,  excluding the  allowance  for loan losses,  which are
primarily  contractually  due in less than one to five years,  are split between
fixed and adjustable rates as follows:
<TABLE>
<CAPTION>


                                                                              As of December 31, 2003
                                                                -----------------------------------------------------
                                                                 Less than      One to      Over Five
                                                                 One Year     Five Years       Years       Total
                                                                ------------- ------------  ------------ ------------
                                                                                  (In thousands)
      <C>                                                       <C>           <C>                 <C>     <C>

      Fixed ................................................... $    37,076   $   50,131             -       87,207
      Adjustable...............................................     365,604      551,446             -      917,050
                                                                ------------- ------------  ------------ ------------
           Total loans ........................................ $   402,680   $  601,577             -    1,004,257
                                                                ============= ============  ============ ============
</TABLE>

                                       40
<PAGE>

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

                                                                              As of December 31, 2003
                                                                -----------------------------------------------------
                                                                 Less than      One to      Over Five
                                                                 One Year     Five Years      Years        Total
                                                                ------------- ------------  ------------ ------------
                                                                                  (In thousands)
      <C>                                                       <C>           <C>               <C>        <C>

      Fixed ................................................... $    57,869   $   95,797        19,588     173,254
      Adjustable...............................................      60,331       98,613        17,590     176,534
                                                                ------------- ------------  ------------ ------------
           Total loans ........................................ $   118,200   $  194,410        37,178     349,788
                                                                ============= ============  ============ ============
</TABLE>

     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,
                                                   --------------------------------------------------------------------------
                                                       2003           2002           2001           2000           1999
                                                    -----------    -----------    -----------    -----------    -----------
                                                                            (Dollars in thousands)
<C>                                                    <C>            <C>            <C>            <C>            <C>

Nonaccrual residential mortgage loans............      19,599         15,123         19,039         22,592         20,185
Nonaccrual commercial real estate, commercial
loans                                                  11,851         15,649         18,172          5,792          5,301
    and school financing ........................
Nonaccrual consumer loans........................           -             46             40            132            155
                                                    -----------    -----------    -----------    -----------    -----------
     Total nonperforming loans...................      31,450         30,818         37,251         28,516         25,641
Foreclosed real estate...........................       8,538          8,343          8,355          2,646            800
                                                    -----------    -----------    -----------    -----------    -----------
     Total nonperforming assets..................      39,988         39,161         45,606         31,162         26,441
                                                    ===========    ===========    ===========    ===========    ===========
Total nonperforming loans to total loans.........        2.32  %        2.20           2.76           2.54           2.31%
Total nonperforming assets to total assets.......        2.32  %        2.30           2.77           2.20           2.06%
Ratio of allowance for loan and valuation losses
    to total nonperforming loans.................       31.13  %       30.32          25.07          30.09          24.78%
Interest on nonperforming loans not included in
    interest income..............................       1,084            916          1,773          1,016            979
</TABLE>

     We accrue for  interest on  government-sponsored  loans such as FHA insured
and VA  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 $12.2  million,  $34.8  million  and  $55.2  million  at
December 31, 2003, 2002 and 2001, respectively.

     Nonaccrual  residential  mortgage loans as a percentage of total loans were
1.4% at December 31, 2003, 1.1% at December 31, 2002, 1.4% at December 31, 2001,
2.1% at December 31, 2000 and 1.8% at December 1999. The nonaccrual  residential
mortgage  loans have  increased at December 31, 2003 as compared to December 31,
2002. The increase is due to residential portfolios added at Matrix Financial in
the latter  part of 2003.  The  increase at Matrix  Financial  is related to our
origination  activity prior to the sale of the  production  platform in February
2003,  as  discussed  in  "Item  1.   Business--Discontinued   Operations."  The
nonaccrual loans relate to loans that have been repurchased from investors for a
breach of a  representation  or warranty  primarily  consisting of not obtaining
mortgage  insurance  from the FHA.  We do not  anticipate  an  increase  in 2004
because we have ceased our origination activities.

     The decrease in nonaccrual commercial loans and school financing in 2003 is
primarily  attributable  to the decreased  amount of commercial  real estate and
construction  loans in nonaccrual  status,  which decreased $1.3 million to $900
thousand at December 31, 2003. In addition,  there were decreases in the balance
of SBA originated and purchased loans in nonaccrual status, which decreased $1.3
million  to $7.9  million  at  December  31,  2003.  It  should  be  noted  that
approximately  $5.7  million of the  interest  and  principal  of these loans is
guaranteed, and as such, our credit risk is minimized by those guarantees.  With
regard to our school financing, a majority of our past origination of tax-exempt
financing for charter  schools is for the purchase of real estate and equipment.
The balance of these loans in nonaccrual  status  decreased $1.2 million to $3.0
million at December 31, 2003. The decrease is due to our success at working with
the  schools  to either  become  current on their  loans or to have their  loans
refinanced with unaffiliated  institutions,  which results in the pay-off of the
balances  outstanding with us. Not included in the 2003 balance is $600 thousand

                                       41
<PAGE>

of delinquent school financing that was sold to a third party with recourse. The
losses related to the delinquencies  and foreclosures  would be recorded as part
of noninterest expense.

     The prior delinquency and anticipated  future  delinquencies are taken into
consideration in the pricing of the loans acquired.  At December 31, 2003, $10.4
million,  or 33.2%,  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, 2003,  were $1.3  billion,  of
which $21.0 million, or 2.15%, were in nonaccrual status.

     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,
                                                --------------------------------------------------------------------------------
                                                    2003            2002              2001            2000             1999
                                                --------------  --------------    -------------    ------------     ------------
                                                                            (Dollars in thousands)
<C>                                                <C>              <C>              <C>             <C>                <C>

Allowance for Loan and valuation losses,
beginning of year.............................          9,343           9,338            8,581          6,354            3,710
Charge-offs:
     Real estate - mortgage...................          1,998           1,239              872            434               98
     Real estate - construction ..............             74              --               31            320               --
     Commercial loans and school financing....          1,319           1,482              746            819               --
     Consumer.................................            139             276              659            476              509
                                                  ------------    ------------     ------------    ------------      -----------
          Total charge-offs...................          3,530           2,997            2,308          2,049              607
Recoveries:
     Real estate - mortgage...................            101              97                4              1                2
     Commercial loans and school financing....            110              17                -              -                -
     Consumer.................................            124              67               81             40               69
                                                  ------------    ------------     ------------    ------------      -----------
          Total recoveries....................            335             181               85             41               71
                                                  ------------    ------------     ------------    ------------      -----------
Net charge-offs...............................          3,195           2,816            2,223          2,008              536
Provision for loan and valuation losses
charged to operations.........................          3,641           2,821            2,980          4,235            3,180
                                                  ------------    ------------     ------------    ------------      -----------
Balance at end of year........................          9,789           9,343            9,338          8,581            6,354
                                                  ============    ============     ============    ============      ===========
Ratio of net charge-offs to average loans.....           0.23 %           0.2%            0.17           0.18 %           0.06%
                                                  ============    ============     ============    ============      ===========
Average loans outstanding during the year.....     1,376,723        1,333,390        1,338,613       1,086,041          877,117
</TABLE>

     The allowance  for loan and  valuation  losses is analyzed by management as
discussed below and is increased by the provision for loan and valuation losses,
which is  charged  to  operations,  as  necessary.  The  allowance  for loan and
valuation losses is calculated, in part, based on historical loss experience. In
addition, management takes into consideration other factors, such as:

     o    qualitative evaluations of individual classified assets;
     o    geographic and other portfolio concentrations;
     o    new products or markets;
     o    evaluations  of  the  changes  in  the  historical   loss   experience
          component; and
     o    projections  of this  component  into the current  and future  periods
          based on current knowledge and conditions.

     These loss factors range from 0.10% for FHA/VA loans guaranteed by the HUD,
to 8.0% for  unsecured  credit card loans.  The loss  factors are applied to the
outstanding principal balance of loans in their respective categories.  Loans in
the commercial and school finance  portfolios are assigned loss factors based on
items similar to those listed,  plus  additional  individual  loan review on all
significant  loans,  including SBA loans, which result in loans being classified
as watch, substandard or doubtful.

     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. Accordingly,  potential impaired
loans of the Company include only  commercial  loans,  real estate  construction
loans,  commercial real estate mortgage loans and school  financing.  Impairment
allowances are considered by the Company in determining the overall  adequacy of
the allowance for loan losses.

                                       42
<PAGE>

     After an allowance has been established for the loan portfolio,  management
establishes a portion of the  allowance for loan losses,  which is attributed to
factors that cannot be associated  with a specific loan or loan  portfolio.  The
Company  evaluates its residential  loans  collectively due to their homogeneous
nature. These factors include:

     o    general economic conditions;
     o    recognition of specific regional geographic concerns;
     o    loan type and the assessed risk inherent in each loan category; and
     o    trends in the portfolio and portfolio growth trends.

     Substandard and doubtful loans of homogeneous  loan portfolios are assigned
loss factors of 5.00% to 50.00%. The loss factors are applied to the outstanding
principal balances of loans in their respective categories.

     The total for all  categories as described  above  determines our allowance
for loan and  valuation  losses.  Loan losses are charged  against the allowance
when the probability of collection is considered remote.

     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,
                           ---------------------------------------------------------------------------------------------------------
                                   2003               2002                 2001                  2000                   1999
                           ------------------- --------------------- ---------------------  -------------------- -------------------
                                     Percentage           Percentage           Percentage             Percentage          Percentage
                                     of Loans             of Loans             of Loans               of Loans             of Loans
                                     in each              in each              in each                in each              in each
                                     Category             Category             Category               Category             Category
                           Amount      to       Amount     to        Amount     to         Amount      to        Amount     to
                                     Total                Total                Total                  Total                Total
                                     Loans                Loans                Loans                  Loans                Loans
                           --------  -------- --------- ----------  -------- -----------   -------- ----------  --------  ----------
                                                                        (Dollars in thousands)
<C>                         <C>      <C>      <C>       <C>        <C>         <C>        <C>         <C>        <C>        <C>

Residential..............   $4,018    66.70%  $3,199     71.40%    $3,918       78.30%    $4,133       80.39%    $3,591       86.00%
Multi-family, commercial
real estate and commercial   3,653    28.06    2,768     22.32      2,400       14.15      1,684       11.28        835        7.02
School financing.........    1,766     3.45    2,810      3.53      2,527        4.56      2,329        4.31      1,320        2.86
Construction.............      326     1.57      542      2.44        445        2.59        302        3.27        286        3.25
Consumer.................       26     0.22       24      0.31         48        0.40        133        0.75        322        0.87
                           -------  --------- ------- -----------  ------- -----------    ------- -----------    ------- -----------
                            $9,789   100.00%  $9,343    100.00%    $9,338      100.00%    $8,581      100.00%    $6,354      100.00%
                           =======  ========= ======= ===========  ======= ===========    ======= ===========    ======= ===========
</TABLE>

     The ratio of the allowance for loan and valuation losses to total loans was
0.73% at December  31, 2003,  0.67% at December 31, 2002,  0.70% at December 31.
2001,  0.77% at December 31, 2000 and 0.57% at December 31, 1999.  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  has increased,  due to the increase in these loans in nonaccrual
status,   while  the  balance  of  loan  and  valuation   losses   allocated  to
multi-family,   commercial  real  estate,   commercial,   school  financing  and
construction  loans has decreased  mainly due to the decreased  outstanding loan
principal balances in these loan categories. As of December 31, 2003, we believe
that the allowance,  when taken as a whole,  is adequate to absorb losses in the
current loan portfolio.

     Risk Sensitive Assets and Liabilities. As discussed in "Asset and Liability
Management--General"  a  significant  portion  of our  operations  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. 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;  in  an  increasing  interest  rate  environment,  prepayments  tend  to
decrease, which increases expected future servicing income.

     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.

                                       43
<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.  We have  engaged a third  party to provide
consulting  services to assist us with our asset/liability  management.  We meet
with this  consulting  firm quarterly to monitor the interest rate risk position
and to analyze and discuss strategies related to asset/liability  management. In
2002, we purchased  the software  from our third party  consultant to be able to
internally   model   asset/liability   and  interest  rate  risk  positions  and
alternatives  as requested by the Asset and Liability  Committee.  We anticipate
that we will  continue to engage this  consulting  firm on a quarterly  basis to
perform quarter end models of interest rate risk and  asset/liability  positions
and will use our internal modeling to support asset/liability  decisions between
quarter end. Part of the modeling is done to comply with the requirements of the
OTS.

     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,  multi-family 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. In the fourth quarter of
2001, we began a strategy of purchasing  with the intent to sell the  guaranteed
portion of SBA loans.  Again,  the loans generally adjust with prime and present
very little  interest rate risk.  The risk  associated  with the  guaranteed SBA
loans  acquired  resides with the  significant  premium paid for the loans.  The
other  significant  asset that in the past we have  invested  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.  The scenario  discussed
of  decreasing  interest  rates is exactly what  happened in 2003 and 2002.  The
interest  rate  environment  in 2003  remained at  historically  low levels.  In
response to the low interest  rates,  we experienced  significant  runoff in our
servicing  portfolio.  Due to the volatility of the value of mortgage servicing,
we do not  anticipate  increasing  our  investment in 2004. To the contrary,  we
expect our overall  investment in 2004 to again decrease  through normal runoff.
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 initiated a hedging program on a
portion  of our  investment.  During  2003  prior to the sale of the  production
platform as discussed in "Item 1.  Business--Discontinued  Operations",  we sold
substantially  all of our newly  originated  servicing rights with the intent of
reducing our overall  investment in mortgage servicing rights. We expect in 2004
to  attempt  to  sell  portions  of  our  mortgage  servicing  portfolio  as the
opportunity  presents itself,  and continue to reduce our overall  investment in
this asset.

     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 that uses,  or its clients use,  Matrix
Bank as the clearing bank and custodian, which creates low-cost deposits.

     With  regards  to our  interest-sensitive  liabilities,  in  order  to take
advantage of the declining and low interest rate environment present in 2002 and
2001,  and to extend  the  average  lives of our  interest-bearing  liabilities,
Matrix Bank entered into short option  agreements and other longer term advances
(2 to 10 years) totaling $266.0 million,  which have interest rates ranging from
1.27% to 5.63%.  It is anticipated  that our interest margin will benefit in the
long term as interest rates increase.

     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 FHLBank for
Matrix Bank,  third party credit facility for ABS, and the revolving  portion of
the bank stock loan for Matrix Bancorp. See "Liquidity and Capital Resources."

                                       44
<PAGE>

     The  following  table  sets forth a summary  of our  short-term  borrowings
during 2003, 2002 and 2001 and as of the end of each such period:
<TABLE>
<CAPTION>


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

At or for the year ended December 31, 2003:
      FHLBank borrowings(2).................... $     458,204  $     366,627   $     592,211           2.56%           2.17%
      Revolving lines of credit................             -          5,883          18,362           4.88               -
      School financing.........................        30,439         31,586          32,367           4.03            3.96
At or for the year ended December 31, 2002:
      FHLBank borrowings(3)....................       385,785        328,057         446,923           2.89            2.64
      Revolving lines of credit................        10,000         15,820          30,850           3.45            2.79
      School financing.........................        32,328         41,293          50,252           4.77            4.37
At or for the year ended December 31, 2001:
      FHLBank borrowings(4)....................       303,361        347,807         478,921           4.62            2.94
      Revolving lines of credit................        95,450         58,673          95,450           4.54            2.51
      School financing.........................        44,965         46,160          60,100           6.02            4.65
__________
<FN>

(1)  Calculations  are  based on daily  averages  where  available  and  monthly
     averages otherwise.
(2)  A total of $266.0 million of the FHLBank borrowings outstanding at December
     31, 2003 were  borrowed  under short  option  advance  agreements  with the
     FHLBank.  The interest rates on the short option advance  borrowings ranged
     from 1.27% to 5.63% at  December  31,  2003 and their  possible  call dates
     varied from January 2004 to November  2006.  Additionally,  $1.2 million of
     the FHLBank borrowings outstanding at December 31, 2003 are fixed-term/rate
     advances,  which were  borrowed from the FHLBank 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 2014.
(3)  A total of $266.0 million of the FHLBank borrowings outstanding at December
     31,  2002 were  borrowed  under short  option  advance  agreement  with the
     FHLBank.  The interest rates on the short option advance  borrowings ranged
     from 1.27% to 5.63% at  December  31,  2002 and their  possible  call dates
     varied from December 2002 to November 2006.  Additionally,  $1.3 million of
     the FHLBank borrowings outstanding at December 31, 2002 are fixed-term/rate
     advances,  which were  borrowed from the FHLBank 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 2014.
(4)  A total of $136.0 million of the FHLBank borrowings outstanding at December
     31, 2001 were  borrowed  under short  option  advance  agreements  with the
     FHLBank.  The interest rates on the short option advance  borrowings ranged
     from 2.69% to 5.63% at  December  31,  2001 and their  possible  call dates
     varied from February 2002 to November 2006.  Additionally,  $1.4 million of
     the FHLBank borrowings outstanding at December 31, 2001 are fixed-term/rate
     advances,  which were  borrowed from the FHLBank 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 2014.
</FN>
</TABLE>

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;
     o    the issuance of junior subordinated  debentures through Matrix Bancorp
          Capital Trust I in 1999,  Matrix Bancorp  Capital Trust II, III and IV
          in 2001 and Matrix Bancorp Capital Trust V in 2002;
     o    the issuance of subordinated debt offering in February 2004;
     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, 2003,  Matrix Bancorp had $82.1 million in  indebtedness
outstanding.   The  borrowed  funds  have  been  used  historically  as  capital
injections to Matrix Bank, Matrix Financial, Matrix Bancorp Trading and ABS.

                                       45
<PAGE>

     On March 29, 2003,  Matrix Bancorp  amended its bank stock loan  agreement.
The amended bank stock loan agreement has two  components,  an $8.2 million term
loan and a revolving line of credit of $12.0  million.  As of December 31, 2003,
the balance of the term loan was $6.1  million and the balance of the  revolving
line of credit was $0. The amended bank stock loan  requires  Matrix  Bancorp to
maintain total shareholders' equity of $60.0 million. Matrix Bank is required to
maintain  classified assets of less than 4% of total assets from January 1, 2003
to and including  March 31, 2004,  and 3% of total assets  thereafter,  and must
also earn in excess of $7.5 million over the  previous  four  quarters as of the
end of each fiscal quarter from June 30, 2003 forward. The covenants must be met
quarterly.  As of December 31, 2003, we were in compliance  with all  covenants.
The term loan has a maturity date of December 31, 2004.  The  revolving  line of
credit is annually  renewed and currently has a maturity date of March 31, 2004.
We are in the  process  of  renewing  the  revolving  line of credit  and are in
negotiations  regarding  extending the maturity date of the term loan.  However,
there can be no assurances that the bank stock loan will be renewed or any terms
modified.

     The Company has sponsored  five trusts,  Matrix  Bancorp  Capital  Trusts I
through  V, of which  100% of the  common  equity is owned by the  Company.  The
trusts were formed for the purposes of issuing corporation-obligated mandatorily
redeemable  capital   securities  (the  "capital   securities")  to  third-party
investors and  investing  the proceeds from the sale of such capital  securities
solely in junior  subordinated  debt  securities of the Company.  The debentures
held by each  trust are the sole  assets  of that  trust.  Distributions  on the
capital  securities  issued  by each  trust  are  payable  either  quarterly  or
semiannually  at a rate per annum equal to the interest rate being earned by the
trust on the debentures held by that trust.  The capital  securities are subject
to mandatory  redemption,  in whole or in part, upon repayment o the debentures.
The Company has entered into agreements  which,  taken  collectively,  fully and
unconditionally  guarantee the capital securities subject to the term of each of
the guarantees.  See details and further  discussion of these trusts included in
Note 11 to the consolidated financial statements.

     In February  2004, the Company  issued $10.0 million of  subordinated  debt
with a ten-year  maturity.  The  interest  rate adjusts  quarterly  based on the
90-day LIBOR at a margin of 2.75%.  Interest  payments are to be made quarterly.
Generally,  the debt covenants are no less  restrictive  than the Capital Trusts
discussed  below. The net proceeds will be used to satisfy the full repayment of
the 11.5% senior notes (discussed in the following paragraph) in September 2004.

     On September  29, 1997,  we completed a registered  debt  offering of $20.0
million  in  senior  notes  due in  September  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. 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. As of December 31, 2003, due to repurchases made by the Company
of the senior notes,  there remained $9.5 million of the debt issue outstanding.
Through  issuances of the  subordinated  debt in February  2004,  we should have
adequate liquidity and intend to payoff the balance of the senior notes in 2004.

     Matrix  Bancorp has  guaranteed  the  indebtedness  of Matrix  Settlement &
Clearance  Services  to U.S.  Bank,  N.A.,  in an amount not  greater  than $6.0
million.  The  guaranty  relates to a $6.0  million  line of credit with a third
party that is utilized by Matrix  Settlement & Clearance  Services in situations
where  its  clients  do not wire  funds to settle  trades.  If the  guaranty  is
utilized, our joint venture partner guarantees half of any such obligation.  The
line is used very  infrequently  and Matrix  Settlement & Clearance  Services is
adequately  secured in the case that the  utilization  of the line is  required.
There was $0  outstanding  at Matrix  Settlement  &  Clearance  Services on such
indebtedness at December 31, 2003.

     The trend of net cash used by our operating activities experienced over the
reported periods results  primarily from the growth at Matrix Bank, Matrix Asset
Management and First Matrix.  We anticipate  that in 2004,  this trend should in
part  reverse as any  further  growth at Matrix  Bank and First  Matrix  will be
funded through additional  revenues at those companies,  however,  as the growth
initiatives at Matrix Asset Management are still in the early stages for certain
of their new initiatives, cash will be required to fund this growth.

     The Company is reliant on dividend and tax payments  from its  subsidiaries
in order to fund  operations,  meet debt  obligations and grow new or developing
lines of  business.  A long-term  inability  of a  subsidiary  to make  dividend
payments could significantly impact the Company's liquidity.  Historically,  the
majority  of the  dividend  payments  have  been  made by  Matrix  Bank  and its


                                       46
<PAGE>

consolidated  subsidiaries,  which include Matrix Financial.  Due to the success
experienced  by Matrix  Bancorp  Trading and Matrix  Asset  Management  in 2003,
dividends  were also paid by these  subsidiaries  to the  Company.  The  current
dividend  policy approved by Matrix Bank is 75% of the  consolidated  cumulative
earnings  of Matrix  Bank.  Matrix  Bank made  dividend  payments  in 2003,  for
earnings  through  April,  2003,  and is  anticipating  payment of the remaining
calculated  dividends for 2003 in 2004. The current  dividend policy approved by
Matrix  Bancorp  Trading and Matrix Asset  Management  is 90% of the earnings of
those  subsidiaries.  Absent these  dividend  payments,  the Company  intends to
utilize  the line of credit on its bank stock loan,  as needed,  to meet its own
and  the  other  subsidiaries   financial  obligations.   Additionally,   it  is
anticipated that during 2004, a portion of the capital that was committed to ABS
will be returned through  dividends to Matrix Bancorp as the loans receivable at
ABS are liquidated  under a strategy  adopted in 2003. The timing and amounts of
this  liquidation  are fluid,  but are  anticipated to provide  liquidity to the
Company during 2004.

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

     o    trust deposits;
     o    custodial escrow balances;
     o    brokered deposits;
     o    FHLBank borrowings;
     o    retail and wholesale deposits;
     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 FHLBank as its primary source for borrowings.  At December 31,
2003,  Matrix Bank had overnight and term  borrowings from the FHLBank of $458.2
million.  The  availability  of  FHLBank  borrowings  is based  on the  level of
collateral  pledged.  Generally,  the  availability  will be  limited  based  on
eligible  collateral  pledged  or 50% of  total  assets.  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 occurs.  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,  currently  concentrated  primarily  in Las Cruces and Sun
City, with lesser amounts in Denver.  Matrix Bank relies principally on customer
service,  marketing programs and its relationships with customers to attract and
retain in-market deposits. As discussed in "in "Item 1. Business--Sale of Matrix
Bank  Branches",  in February 2004,  Matrix Bank announced the potential sale of
its  two  retail  branch  locations  in Las  Cruces.  Included  in the  sale  is
approximately   $80.0  million  of  retail   deposits,   less  than  5%  of  our
interest-bearing liabilities. The sale of the branches is not expected to have a
significant  impact on the  liquidity  at Matrix  Bank.  Other  funding  sources
discussed will be utilized to replace the deposits.

     Brokered  deposits are 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.

     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:

                                       47
<PAGE>

<TABLE>
<CAPTION>

                                                              Year Ended December 31,
                             -------------------------------------------------------------------------------------------
                                         2003                           2002                           2001
                             -----------------------------  -----------------------------  -----------------------------
                                              Weighted                       Weighted                       Weighted
                                Average        Average         Average        Average         Average        Average
                                Balance         Rate           Balance         Rate           Balance         Rate
                             -------------- --------------  -------------- --------------  -------------- --------------
                                                              (Dollars in thousands)
<C>                           <C>                 <C>        <C>                 <C>       <C>                  <C>

Passbook accounts...........  $      5,706        1.30 %     $      5,998        1.95 %    $      3,467         3.12 %
NOW accounts................       159,140        0.21            119,585        0.48            98,872         0.94
Money market accounts.......       444,468        0.81            302,479        1.22           203,757         2.11
Time deposits ..............       114,175        1.92            130,544        4.55           181,535         5.60
Brokered deposits...........       222,448        2.28            338,682        3.30           312,419         6.20
                                ----------- ------------       ----------- -----------       ------------ -----------
     Total deposits.........  $    945,937        1.41 %     $    897,288        2.40 %    $    800,050         4.36 %
                                ----------- ------------       ----------- -----------       ------------ -----------
</TABLE>

     The following table sets forth the amount of Matrix Bank's  certificates of
deposit that are greater than $100 thousand by time remaining  until maturity as
of December 31, 2003:
<TABLE>
<CAPTION>

                                                                            Weighted
                                                           Amount         Average Rate
                                                                              Paid
                                                        --------------- ------------------
                                                             (Dollars in thousands)
     <C>                                               <C>                          <C>

     Three months or less............................ $         2,025               2.38 %
     Over three months through six months............             857               3.02
     Over six months through twelve months...........           4,869               3.21
     Over twelve months..............................          10,203               4.37
                                                        --------------- ------------------
          Total...................................... $        17,954               3.77 %
                                                        --------------- ------------------
</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
dependent upon retention of a portion of its earnings and will be funded through
wholesale  deposit growth,  brokered  deposits,  borrowings from the FHLBank and
custodial deposits directed by affiliates.

     ABS  School  Services'  principal  source of funding  for school  financing
consists of its internal  capital,  sales of loans to a third party  institution
and  partnership  trusts  with  unaffiliated  financial  institutions.   Amounts
available  to be sold and  amounts to be  financed  are at the  purchaser's  and
lender's sole discretion. We continue to pursue additional third party financing
and sale  options for ABS. We do not  anticipate  significantly  increasing  our
current loan portfolio.

     The Company has placed tax-exempt  financing of approximately $29.1 million
at December 31, 2003 it originated to charter  schools into two 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  under the two  grantor  trusts are  guaranteed  by a
letter of credit issued by a unaffiliated financial institution for one, and the
second one is guaranteed equally by two unaffiliated financial institutions. The
first trust's letter of credit arrangement,  which currently holds approximately
$13.0 million of tax-exempt  financing,  is scheduled to mature  September 2004.
The  second  trust's  letter  of  credit  arrangement,   which  currently  holds
approximately  $17.0  million of  tax-exempt  financing,  is scheduled to mature
September 2005.  Without the letters of credit, ABS will be required to fund the
tax-exempt financings.  We are in the process of attempting to refinance several
of  the  financings  with  third  party  lenders.  To  the  extent  that  we are
unsuccessful,  we will  attempt to extend the letter of credit  arrangements  or
seek  other  borrowing  options.  The "A"  Certificates'  interest  rate  may be
determined  weekly,  monthly or for a term of 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 by the Company.  The interest rate paid on
the "A" Certificates is considered the Company's financing cost. The approximate
cost of the  financing  at  December  31,  2003 and 2002 was  1.65%  and  1.55%,
respectively.  The interest that the Company receives through its part ownership
of the "B" Certificates is tax-exempt.

     Although "A"  Certificates  are guaranteed by  unaffiliated  entities,  the
Company is obligated on a full recourse  basis to the  unaffiliated  entities 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. In addition,  under
a purchase and sale agreement, ABS has sold school financings to an unaffiliated
financial  institution.  The school  financings  were sold with full recourse to

                                       48
<PAGE>

ABS. ABS services the school financings on a scheduled/scheduled  remittance and
in the  case  of a loss or  default,  upon  the  liquidation  of the  underlying
collateral,  ABS is required to reimburse for any shortfall.  Due to the control
that the unaffiliated  financial institution has over the school financing,  the
transaction was accounted for as a sale. The recourse provisions were considered
by us at the time of the sale. No gain or loss was booked at the sale date.  The
total balance of the school  financings  sold with recourse was $10.5 million at
December 31, 2003.

     Matrix Bank and Sterling  Trust are  restricted in certain  instances  from
paying dividends to Matrix Bancorp due to certain regulatory  requirements.  See
"Item 1. Business--Regulation and Supervision."

     As discussed in "Item 3. Legal Proceedings," we are from time to time party
to various litigation matters, in most cases,  involving ordinary routine claims
incidental to our business. We accrue for contingent liabilities with respect to
litigation  matters  in  accordance  with  the  requirements  of SFAS  5,  which
generally  requires  the  Company  to  accrue  a loss  for a  litigation  matter
involving a  contingent  liability if the loss is probable and the amount of the
loss is reasonably  estimable.  With respect to all pending litigation  matters,
our ultimate  legal and financial  responsibility,  if any,  cannot be estimated
with  certainty.  As such,  the impact on our  liquidity  and capital  cannot be
estimated  with  certainty,  and,  an adverse  decision in certain  matters,  as
described in "Item 3. Legal Proceedings," may have a material, adverse impact on
our consolidated liquidity or capital.

     With regard to the Adderley  case at Sterling  Trust  discussed in "Item 3.
Legal  Proceedings,"  it was noted  that the  Court of  Appeals  for the  Second
District of Texas (Fort  Worth)  affirmed a portion of the jury's  award for the
plaintiffs and against  Sterling Trust for actual damages of $6.2 million,  plus
post-judgment  interest and conditional  attorneys fees for the appeals. We also
noted that we are appealing  this  decision to the Supreme  Court of Texas,  but
noted that there are no assurances that the Supreme Court of Texas will agree to
hear the case, or that, if heard, Sterling Trust's appeal will be successful. If
we are unsuccessful in this appeal, and if we elect to contribute the capital to
Sterling Trust to pay the judgment,  there would be a significant  impact on the
liquidity of the Company.

     During  the fourth  quarter of 2002,  the  Company  executed a  Shareholder
Rights  Plan at which  time the Board of  Directors  of the  Company  declared a
dividend of one preferred stock purchase right for each outstanding share of the
Company's  common  stock.  Each of  these  Rights,  which  are  not  immediately
exercisable,  entitles the holder to purchase one  one-thousandth  of a share of
the Company's newly designated Series A Junior Participating  Preferred Stock at
an exercise price of $40.00. The Rights are not exercisable until certain events
occur,  are not detachable  from the Company's  common stock and do not have any
immediate value to  stockholders.  The Rights  distribution was made on November
15, 2002, payable to shareholders of record on that date. The Rights will expire
on November 5, 2012.

Inflation and Changing Prices

     The  consolidated  financial  statements and related data presented in this
document have been prepared in accordance with accounting  principles  generally
accepted in the United  States of America,  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.

Critical Accounting Policies

     The  Company  and its  subsidiaries  have  established  various  accounting
policies  which  govern  the  application  of  accounting  principles  generally
accepted in the United States of America in the preparation and  presentation of
the Company's  consolidated  financial  statements.  The significant  accounting
policies of the Company are  described in Note 2 of the  consolidated  financial
statements,  and along with the  disclosures  presented  in the other  financial
statement notes,  provide  information on how significant assets and liabilities
are value in the  financial  statements  and how those  values  are  determined.
Certain  accounting  policies  involve  significant  judgments,  assumptions and
estimates by  management  that have a material  impact on the carrying  value of
certain  assets and  liabilities,  which  management  considers  to be  critical
accounting policies. The judgments, assumptions and estimates used by management

                                       49
<PAGE>

are based on historical experience, knowledge of the accounts and other factors,
which are  believed to be  reasonable  under the  circumstances.  Because of the
nature of the judgments and assumptions made by management, actual results could
differ from these judgments and estimates, which could have a material impact on
the carrying  values of assets and  liabilities and the results of operations of
the Company.

     The Company currently views the determination of the allowance for loan and
valuation  losses  as a  critical  accounting  policy  that  requires  the  most
significant  judgments,  assumptions  and estimates  used in  preparation of its
consolidated  financial  statements.  The allowance  for loan losses  represents
management's estimate of probable credit losses inherent in the loan portfolios,
which  represent  the  largest  asset type on the  consolidated  balance  sheet.
Estimating  the amount of the  allowance  for loan losses  requires  significant
judgment and the use of  estimates  related to the amount and timing of expected
future cash flows on impaired  loans,  estimated  losses on pools of homogeneous
loans based on historical loss experience, and consideration of current economic
trends and  conditions,  all of which may be susceptible to significant  change.
Loan losses are charged off against the allowance,  while  recoveries of amounts
previously  charged off are  credited  to the  allowance.  A provision  for loan
losses is charged to operations based on management's periodic evaluation of the
factors previously mentioned, as well as other pertinent factors.

     The  allowance  for loan losses  consists of an allocated  component and an
unallocated component. The components of the allowance for loan losses represent
an estimation done pursuant to either SFAS 5, "Accounting for Contingencies", or
SFAS 114, "Accounting by Creditors for Impairment of a Loan", as appropriate.

     The unallocated portion of the allowance reflects  management's estimate of
probable   inherent  but   undetected   losses   within  the  portfolio  due  to
uncertainties in economic conditions, delays in obtaining information, including
unfavorable  information about a borrower's financial condition,  the difficulty
in identifying  triggering  events that correlate  perfectly to subsequent  loss
rates,  and  risk  factors  that  have  not yet  manifested  themselves  in loss
allocation factors.  The Company has expanded the geographic  footprint in which
it  operates,  and  changed  its  portfolio  mix in recent  years.  As a result,
historical loss experience data used to establish  allocation  estimates may not
precisely  correspond  to the current  portfolio.  Uncertainty  surrounding  the
strength  and timing of economic  cycles also  affects  estimates  of loss.  The
historical  losses used may not be  representative  of actual  unrealized losses
inherent in the portfolio.

     The allocated  component of the allowance for loan losses reflects expected
losses resulting from analyses developed through specific credit allocations for
individual  loans and historical  loss  experience  for each loan category.  The
specific credit  allocations  are based on regular  analyses of all loans over a
fixed-dollar  amount  where  the  internal  credit  rating  is  at  or  below  a
predetermined  classification.  These analyses involve a high degree of judgment
in  estimating  the amount of loss  associated  with specific  loans,  including
estimating the amount and timing of future cash flows and collateral values. The
historical loan loss element is generally  based on historical loss  experience,
loss factors are updated as needed  based on actual  experience.  The  allocated
component  of the  allowance  for loan losses  also  includes  consideration  of
concentrations and changes in portfolio mix and volume.

     There are many factors  affecting the  allowance for loan losses;  some are
quantitative  while others require  qualitative  judgment.  Although  management
believes its process for determining the allowance  adequately  considers all of
the  potential  factors  that could  potentially  result in credit  losses,  the
process  includes  subjective  elements and may be  susceptible  to  significant
change.  To  the  extent  actual  outcomes  differ  from  management  estimates,
additional  provision for credit  losses could be required that could  adversely
affect earnings or financial position in future periods.

     The Company also considers the valuation of mortgage servicing rights to be
a critical accounting policy that requires judgments,  assumptions and estimates
concerning impairment of their value in certain interest rate environments.  Our
mortgage  servicing  portfolio  does not trade in an  active  open  market  with
readily observable market prices. Although sales of mortgage servicing rights do
occur,  the exact terms and  conditions may not be readily  available.  As such,
mortgage servicing rights are established and valued in accordance with SFAS 140
using discounted cash flow modeling  techniques which require management to make
estimates  regarding future net servicing cash flows,  taking into consideration
actual and expected  mortgage loan prepayment rates,  discount rates,  servicing
costs,  and other  economic  factors.  The expected and actual rates of mortgage
loan prepayments are the most significant  factors driving the value of mortgage
servicing rights asset.  Increases in mortgage loan prepayments reduce estimated
future net  servicing  cash flows  because  the life of the  underlying  loan is
reduced.  In  determining  the fair  value  of the  mortgage  servicing  rights,
mortgage  interest  rates,  which are used to determine  prepayment  rates,  and
discount  rates are held  constant  over the  estimated  life of the  portfolio.
Expected mortgage loan prepayment rates are derived from a third-party model and
may be  adjusted  to  reflect  the  specific  characteristics  of the  Company's
portfolio.  Mortgage  servicing  rights are  carried at the lower of the initial
capitalized amount, net of accumulated  amortization,  or fair value. Management
compares its fair value  estimates and  assumptions  to  observable  market data
where  available and to recent market activity and believes that the fair values
and  related   assumptions   are  comparable  to  those  used  by  other  market
participants.  The Company has recorded  impairment  reserves and  recoveries of

                                       50
<PAGE>

such  reserves  based  on the  market  conditions  and the  valuation  analysis.
Although  management believes its process for determining the impairment reserve
required   adequately   considers  all  of  the  potential  factors  that  could
potentially  result in declines in value of the mortgage  servicing rights,  the
process  includes  subjective  elements and may be  susceptible  to  significant
change.  To  the  extent  actual  outcomes  differ  from  management  estimates,
additional  provision  for  impairment  could be required  that could  adversely
affect earnings or financial  position in future periods.  The Company mitigates
risk associated with declines in the estimated fair value of mortgage  servicing
rights  due to  increases  in  mortgage  loan  prepayments  through  the  use of
derivative  instruments  that are  expected to  increase in value when  interest
rates decline.

     The  Company  also  considers  the  judgments  and  assumptions  concerning
litigation as a critical  accounting  policy. The Company has been notified that
we are a defendant in a number of legal proceedings. Most of these cases involve
ordinary and routine claims incidental to our business. We accrue for contingent
liabilities   with  respect  to  litigation   matters  in  accordance  with  the
requirements  of SFAS 5, which  generally  requires the Company to accrue a loss
for a litigation matter involving a contingent liability if the loss is probable
and the amount of the loss is reasonably  estimable.  See a full  description of
such  proceedings  at "Item 3. Legal  Proceedings."  With respect to all pending
litigation  matters,  our  ultimate  legal  responsibility,  if any,  cannot  be
estimated with certainty. Based on the ultimate outcome of such proceedings,  it
is possible that future results of operations  for any  particular  quarterly or
annual period could be materially affected by changes in our assumptions related
to such proceedings.

     Any material effect on the  consolidated  financial  statements  related to
these critical accounting areas is also discussed in this financial review.

Recent Accounting Pronouncements

     Note 2 to the consolidated  financial  statements  discusses new accounting
policies  adopted  by the  Company  during  2003  and  the  expected  impact  of
accounting  policies  recently  issued or  proposed  but not yet  required to be
adopted.  To the extent the  adoption  of new  accounting  standards  materially
affects financial condition,  results of operations,  or liquidity,  the impacts
are discussed in the applicable  section(s) of this  discussion and the notes to
the consolidated financial statements.

Contractual  Obligations,  Commitments,  Contingent  Liabilities and Off-Balance
Sheet Arrangements

     The  following  table  presents,  as of December  31, 2003,  the  Company's
significant fixed and determinable  contractual obligations by payment date. The
payment amounts  represent those amounts  contractually due to the recipient and
do not include any unamortized premiums or discounts, hedge basis adjustments or
other similar carrying value  adjustments.  Further  discussion of the nature of
each obligation is included in the referenced Note to the consolidated financial
statements.
<TABLE>
<CAPTION>

                                                                    As of December 31, 2003
                                      ------------------------------------------------------------------------------------
                                          Note          1 Year    1 to 3 Years     3 to 5     Over 5 Years
                                        Reference      or Less                      Years                       Total
                                      -------------- -------------------------- ------------------------------------------
                                                                        (In thousands)
<C>                                           <C>     <C>             <C>          <C>          <C>           <C>

Contractual Obligations
Deposits (passbook, NOW and money
   market)..................................   9      $      -        $     -      $     -      $762,496      $762,496
Certificate accounts........................   9       121,003         70,162       20,398             -       211,563
FHLBank borrowings..........................  12             -              -            -       458,204       458,204
Borrowed money..............................  10        31,097         16,873            -             -        47,970
Junior subordinated debentures owed
   to unconsolidated subsidiary trusts......  11             -              -            -        66,525        66,525
Operating leases............................  16         1,158          2,007          548           525         4,238

</TABLE>

A schedule of significant commitments at December 31, 2003 follows:

              Commitments                                    (In thousands)
              Loans secured by mortgages..................         $ 50,155
              Construction loans..........................           12,833
              Commercial lines of credit..................            1,583
              Commercial loans............................              747
              Consumer loans..............................              848

                                       51
<PAGE>

Further  discussion  of  these  commitments  is  included  in  Note  16  of  the
consolidated  financial statements.  In addition,  the Company has contingencies
due to various  litigation  matters  which are also  discussed in Note 16 of the
consolidated financial statements.

     The Company may also have liabilities under certain contractual  agreements
contingent  upon  the  occurrence  of  certain  events.   A  discussion  of  the
significant  contractual  arrangements  under  which  the  Company  may be  held
contingently liable, including guarantee arrangements, is included in Note 16 of
the consolidated financial statements.

     The Company's significant off-balance sheet arrangements include the use of
school financing sale agreements  which are discussed  further in Note 10 of the
consolidated financial statements.

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 failure of the Buyer to perform
its obligations  under the Purchase  Agreement (See "Item 1.  Business--Sale  of
Wholesale  Production  Platform"),  and actions or  inactions  of those that are
parties to the existing or future  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

         None.

Item 9A.  Controls and Procedures

     Management of the Company is responsible for  establishing  and maintaining
effective  disclosure controls and procedures,  as defined under Rules 13a-15(e)
and 15d-15(b) of the  Securities  Exchange Act of 1934. As of December 31, 2003,
an evaluation was performed under the supervision and with the  participation of
the Company's  management,  including the Co-Chief  Executive Officers and Chief
Financial  Officer,  of the  effectiveness  of the design and  operation  of the
Company's  disclosure  controls and procedures.  Based on that  evaluation,  the
Company's  management  concluded  that the  Company's  disclosure  controls  and
procedures as of December 31, 2003 were  effective in ensuring that  information
required  to be  disclosed  in this  Annual  Report on Form  10-K was  recorded,
processed, summarized, and reported within the time period required by the SEC's
rules  and  forms.  There  have been no  significant  changes  in the  Company's
internal  controls over  financial  reporting  that occurred  during the quarter
ended  December  31,  2003 that have  significantly  affected,  or are likely to
materially affect, the Company's internal controls over financial reporting.

                                       52
<PAGE>


                                    PART III
Items 10 through 14.

     The information for these items is incorporated  from the definitive  proxy
statement to be filed with the Commission within 120 days of December 31, 2003.


                                     PART IV

Item 15.  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

               The Company  filed a Form 8-K with the  Securities  and  Exchange
          Commission  on  November  4,  2003  (Item 7) which  contained  a press
          release announcing the third quarter 2003 earnings of the Company.

      (c)  Exhibits

          See Exhibit Index, beginning on page II-1.

     (d)  Financial Statement Schedules

            None.

                                       53
<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 12th day of
March, 2004.

                                         MATRIX BANCORP, INC.


Dated:       March 12, 2004              /s/ D. Mark Spencer
             -----------------------     ---------------------------------------
                                         D. Mark Spencer
                                         President and Co-Chief Executive
                                         Officer
                                         (Principal Executive Officer)

Dated:       March 12, 2004              /s/ Richard V. Schmitz
             -----------------------     ---------------------------------------
                                         Richard V. Schmitz
                                         Co-Chief Executive Officer

Dated:       March 12, 2004              /s/ David W. Kloos
             -----------------------     ---------------------------------------
                                         David W. Kloos
                                         Senior Vice President and Chief
                                         Financial Officer
                                         (Principal Accounting and Financial
                                         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.
<TABLE>
<CAPTION>

Signatures                                  Title                                       Date
----------                                  -----                                       ----
<C>                                         <C>                                         <C>

/s/ D. Mark Spencer                         President, Co-Chief Executive               March 12, 2004
----------------------------                Officer and a Director
D. Mark Spencer                             (Principal Executive Officer)

/s/ Richard V. Schmitz                      Co-Chief Executive Officer and              March 12, 2004
----------------------------                Chairman of the Board
Richard V. Schmitz


/s/ Guy A. Gibson                           Director                                    March 12, 2004
----------------------------
Guy A. Gibson

/s/ David A. Frank                          Director                                    March 12, 2004
----------------------------
David A. Frank

/s/ Robert T. Slezak                        Director                                    March 12, 2004
----------------------------
Robert T. Slezak

/s/ Lester Ravitz                           Director                                    March 12, 2004
----------------------------
Lester Ravitz

/s/ Dr. James Bullock                       Director                                    March 12, 2004
----------------------------
Dr. James Bullock

</TABLE>

                                       54
<PAGE>


                                      INDEX TO EXHIBITS

3.1        //////   Articles of Amendment to the Articles of Incorporation (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        /////    First  Amendment to the  Indenture,  dated as of December 5,
                    2001, by and between the  Registrant  and U.S. Bank National
                    Association   (the   successor   to  First  Trust   National
                    Association),  as trustee,  relating to 11.50%  Senior Notes
                    due 2004 (4.2)
4.3        +        Specimen  Certificate  for  Common  Stock of the  Registrant
                    (4.1)
4.4        + o      Amended and Restated 1996 Stock Option Plan (4.2)
4.5        ***o     Amendment  No. 1 to the 1996 Amended and  Restated  Employee
                    Stock Option Plan of the Registrant (4.1)
4.6        ***o     Amendment  No. 2 to the 1996 Amended and  Restated  Employee
                    Stock Option Plan of the Registrant (4.2)
4.7        // o     Employee Stock Purchase Plan, as amended (4.4)
4.8        ^        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)
4.9        ^        Form of Junior Subordinated Debentures (4.8)
4.10       ^        Certificate of Trust of Matrix Bancorp Capital Trust I (4.9)
4.11       ^        Amended  and  Restated  Trust  Agreement  of Matrix  Bancorp
                    Capital Trust I (4.10)
4.12       ^        Preferred  Security  Certificate  for Matrix Bancorp Capital
                    Trust I (4.11)
4.13       ^        Preferred  Securities  Guarantee  Agreement  of the  Company
                    relating to the Preferred Securities (4.12)
4.14       ^        Agreement as to the Expenses and Liabilities (4.13)
4.15       ^^       Amended and Restated  Trust  Agreement,  dated May 11, 2001,
                    between Matrix Bancorp,  Inc. and Matrix  Bancorp,  Inc., as
                    Trustee (4.2)
4.16       *        Indenture   between  the  Registrant  and  Wilmington  Trust
                    Company,  as debenture trustee,  dated as of March 28, 2001,
                    relating  to  the  10.18%  junior  subordinated   deferrable
                    interest debentures due June 8, 2031 (10.5)
4.17       *        Amended and Restated  Declaration of Trust of Matrix Bancorp
                    Capital Trust II, dated as of March 28, 2001 (10.6)
4.18       *        Common  Securities  Guarantee  Agreement of the  Registrant,
                    dated as of March 28, 2001 (10.7)
4.19       *        Capital  Securities  Guarantee  Agreement of the Registrant,
                    dated as of March 28, 2001 (10.8)
4.20       **       Indenture  between the  Registrant and The Bank of New York,
                    as debenture trustee, dated as of July 16, 2001, relating to
                    the   10.25%   junior   subordinated   deferrable   interest
                    debentures due July 25, 2031 (10.3)
4.21       **       Amended and Restated  Declaration of Trust of Matrix Bancorp
                    Capital Trust III, dated as of July 16, 2001 (10.4)
4.22       **       Common Securities  Subscription Agreement of the Registrant,
                    dated as of July 16, 2001 (10.5)
4.23       **       Capital Securities Agreement of the Registrant,  dated as of
                    June 28, 2001 (10.6)
4.24       /////    Indenture   between  the  Registrant  and  Wilmington  Trust
                    Company, as trustee, dated as of November 28, 2001, relating
                    to Floating Rate Junior  Subordinated  Debt  Securities  due
                    2031 (4.26)
4.25       /////    Amended and Restated  Declaration of Trust of Matrix Bancorp
                    Capital Trust IV, dated as of November 28, 2001 (4.27)
4.26       /////    Guarantee Agreement of the Registrant,  dated as of November
                    28, 2001 (4.28)
4.27       ******   Junior Indenture  between the Registrant and The Bank of New
                    York,  as trustee,  dated as of July 25,  2002,  relating to
                    Floating Rate Junior Subordinated Debt Securities,  due July
                    25, 2032 (4.1)
4.28       ******   Amended  and  Restated  Trust  Agreement  of Matrix  Bancorp
                    Capital Trust V, dated as of July 25, 2002 (4.2)
4.29       ******   Guarantee Agreement of Matrix Bancorp Capital Trust V, dated
                    as of July 25, 2002 (4.3)
4.30       ++++     Rights  Agreement  dated as of  November  4,  2002,  between
                    Matrix Bancorp, Inc. and Computershare Trust Company,  which
                    includes the form of Articles of Amendment to State Terms of
                    Series A Junior  Participating  Preferred  Stock,  $0.01 par
                    value,  the form of Right  Certificate  and the  Summary  of
                    Rights (4.1)



                                       II-1
<PAGE>

4.31       ++++     Form of  Articles  of  Amendment  to State Terms of Series A
                    Junior Participating Preferred Stock (4.2)
4.32       FH       Indenture,  dated February 13, 2004,  between Registrant and
                    Wells Fargo  Bank,  as  Trustee,  relating to Floating  Rate
                    Subordinated Debt Security due 2014.
10.1       +        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)
10.2       ?        Amendment to Assignment and Assumption  Agreement,  dated as
                    of August 13, 2002, by and among Mariano C. DeCola,  William
                    M. Howdon, R. James Nicholson and Matrix Funding Corp.
10.3       +        Development Management Agreement, dated as of June 28, 1996,
                    by and among Matrix Funding Corp. and Nicholson Enterprises,
                    Inc. (10.31)
10.4       ///      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)
10.5       +        Fort  Lupton  Golf  Course   Residential  and  Planned  Unit
                    Development Agreement, dated as of November 28, 1995 (10.36)
10.6       ???      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)
10.7       *        First  Amendment to Credit  Agreement,  dated as of March 5,
                    2001, by and between Matrix Financial Services  Corporation,
                    as borrower,  and U.S. Bank National Association,  as agent,
                    and certain lenders, as lenders (10.1)
10.8       *        Second Amendment to Credit Agreement,  dated as of April 11,
                    2001, by and between Matrix Financial Services  Corporation,
                    as borrower,  and U.S. Bank National Association,  as agent,
                    and certain lenders, as lenders (10.2)
10.9       **       Third  Amendment to Credit  Agreement,  dated as of June 29,
                    2001, by and between Matrix Financial Services  Corporation,
                    as borrower,  and U.S. Bank National Association,  as agent,
                    and certain lenders, as lenders (10.1)
10.10      ***      Fourth Amendment to Credit Agreement,  dated as of September
                    28,  2001,  by  and  between   Matrix   Financial   Services
                    Corporation,   as   borrower,   and   U.S.   Bank   National
                    Association,  as agent,  and  certain  lenders,  as  lenders
                    (10.1)
10.11      /////    Fifth  Amendment to Credit  Agreement,  dated as of November
                    20,  2001,  by  and  between   Matrix   Financial   Services
                    Corporation,   as   borrower,   and   U.S.   Bank   National
                    Association,  as agent,  and  certain  lenders,  as  lenders
                    (10.11)
10.12      ****     Sixth Amendment to Credit  Agreement,  dated as of March 31,
                    2002, by and between Matrix Financial Services  Corporation,
                    as borrower,  and U.S. Bank National Association,  as agent,
                    and certain lenders, as lenders (10.1)
10.13      ?        Seventh Amendment to Credit Agreement,  dated as of December
                    2,  2002,   by  and  between   Matrix   Financial   Services
                    Corporation,   as   borrower,   and   U.S.   Bank   National
                    Association, as agent, and certain lenders, as lenders
10.14      ???      Guaranty,   dated  as  of  September  29,  2000,   from  the
                    Registrant  to U.S.  Bank  National  Association,  as  agent
                    (10.3)
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
                    (10.15)
10.16      *        First  Amendment to Credit  Agreement,  dated as of March 5,
                    2001, by and between Registrant,  as borrower, and U.S. Bank
                    National  Association,  as agent,  and certain  lenders,  as
                    lenders (10.3)
10.17      **       Second Amendment to Credit  Agreement,  dated as of July 27,
                    2001, by and between Registrant,  as borrower, and U.S. Bank
                    National  Association,  as agent,  and certain  lenders,  as
                    lenders (10.2)
10.18      /////    Third  Amendment to Credit  Agreement,  dated as of December
                    26, 2001, by and between Registrant,  as borrower,  and U.S.
                    Bank National Association, as agent, and certain lenders, as
                    lenders (10.19)
10.19      ****     Fourth Amendment to Credit Agreement,  dated as of March 31,
                    2002, by and between Registrant,  as borrower, and U.S. Bank
                    National  Association,  as agent,  and certain  lenders,  as
                    lenders (10.2)

                                       II-2
<PAGE>

10.20      *******  Fifth Amendment to Credit  Agreement,  dated as of March 29,
                    2003, by and between Registrant,  as borrower, and U.S. Bank
                    National  Association,  as agent,  and certain  lenders,  as
                    lenders (10.1)
10.21      ////     Lease dated as of September 1, 1999,  by and between  Matrix
                    Financial   Services   Corporation  and  Suncor  Development
                    Company (10.22)
10.22      ////     Lease with a  reference  date of 1999,  by and  between  the
                    Registrant  and the  Regents of the  University  of Colorado
                    (10.23)
10.23      /////    Lease  dated as of December  21, 2001 by and between  Matrix
                    Bancorp, Inc. and WXI/SEV Realty, LLC (10.1)
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 (10.24)
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 (10.25)
10.26      ////o    Matrix Bancorp, Inc. Executive Incentive Plan (10.27)
10.27      /////o   Matrix  Bancorp,  Inc.  (f/k/a Matrix  Capital  Corporation)
                    401(k) Profit Sharing Plan (10.29)
10.28      /////o   Amendment  No. 1,  effective  as of January 1, 1994,  to the
                    Registrant's 401(k) Profit Sharing Plan (10.30)
10.29      /////o   Amendment  No.  2,  effective  as of May  20,  1996,  to the
                    Registrant's 401(k) Profit Sharing Plan (10.31)
10.30      /////o   Amendment  No.  3,  effective  as of April 1,  1997,  to the
                    Registrant's 401(k) Profit Sharing Plan (10.32)
10.31      /////o   Amendment  No. 4,  effective as of December 30, 2001, to the
                    Registrant's 401(k) Profit Sharing Plan (10.33)
10.32      *****    Warehousing Credit and Security Agreement, dated as of March
                    29, 2002, by and between  Matrix Bancorp  Trading,  Inc., as
                    borrower,  and  Residential  Funding  Corporation,  as agent
                    (10.1)
10.33      *****    First   Amendment   to   Warehousing   Credit  and  Security
                    Agreement,  dated as of May 24, 2002, by and between  Matrix
                    Bancorp Trading,  Inc., as borrower, and Residential Funding
                    Corporation, as agent (10.2)
10.34      +++o     Consulting  Agreement,  dated  as of  June 5,  2002,  by and
                    between Guy A. Gibson and Matrix Bancorp, Inc. (10.1)
10.35      +++++    Purchase and Assumption Agreement,  dated as of February 28,
                    2003, by Matrix Financial Services  Corporation,  as seller,
                    and AmPro Mortgage Corporation, as purchaser (10.1)
10.36      *******  First Amendment to Purchase and Assumption Agreement,  dated
                    as of  April  18,  2003,  by and  between  Matrix  Financial
                    Services  Corporation,  as seller,  Matrix  Capital Bank, as
                    parent, and AmPro Mortgage Corporation, as purchaser (10.2)
10.37      ******** Second Amendment to Purchase and Assumption Agreement, dated
                    as of  July  22,  2003,  by  and  between  Matrix  Financial
                    Services  Corporation,  as seller,  Matrix  Capital Bank, as
                    parent, and AmPro Mortgage Corporation, as purchaser (10.1)
10.38      +++++    Third Amendment to Purchase and Assumption Agreement,  dated
                    as of August  31,  2003,  by and  between  Matrix  Financial
                    Services  Corporation,  as seller,  Matrix  Capital Bank, as
                    parent, and AmPro Mortgage Corporation, as purchaser (10.4)
10.39      FHo      Change of Control Agreement, dated as of October 28, 2003 by
                    and between Matrix Bancorp, Inc. and David W. Kloos
10.40      FHo      Change of Control Agreement, dated as of October 28, 2003 by
                    and between Matrix Bancorp, Inc. and T. Allen McConnell
10.41      FH       Branch Purchase and Deposit Assumption  Agreement,  dated as
                    of January 30, 2004 by and between  Matrix  Capital Bank and
                    FirstBank
12         FH       Statement Re: Computations of Ratios
21         FH       Subsidiaries of the Registrant
23.1       FH       Consent of KPMG LLP
31.1       FH       Certification  by D.  Mark  Spencer  pursuant  to 18  U.S.C.
                    Section  1350,  as adopted  pursuant  to Section  302 of the
                    Sarbanes-Oxley Act of 2002.
31.2       FH       Certification  by Richard V.  Schmitz  pursuant to 18 U.S.C.
                    Section  1350,  as adopted  pursuant  to Section  302 of the
                    Sarbanes-Oxley Act of 2002.


                                       II-3
<PAGE>

31.3       FH       Certification  by  David  W.  Kloos  pursuant  to 18  U.S.C.
                    Section  1350,  as adopted  pursuant  to Section  302 of the
                    Sarbanes-Oxley Act of 2002.
32.1       FH       Certification  by D.  Mark  Spencer  pursuant  to 18  U.S.C.
                    Section  1350,  as adopted  pursuant  to Section  906 of the
                    Sarbanes-Oxley Act of 2002.
32.2       FH       Certification  by Richard V.  Schmitz  pursuant to 18 U.S.C.
                    Section  1350,  as adopted  pursuant  to Section  906 of the
                    Sarbanes-Oxley Act of 2002.
32.3       FH       Certification  by  David  W.  Kloos  pursuant  to 18  U.S.C.
                    Section  1350,  as adopted  pursuant  to Section  906 of the
                    Sarbanes-Oxley Act of 2002.

__________

FH  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 on August 15, 1996.

++   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 on September 4, 1997.

/    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, 2000, 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, 2001, 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, 2002, 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  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  report  on Form  8-K  filed by the  Registrant  with the
     Commission on June 6, 2002.

++++ 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 November 6, 2002.

+++++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 March 4, 2003.

++++++  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 September 15, 2003.

                                       II-4
<PAGE>

?    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  quarterly report on Form 10-Q for the quarter ended March
     31, 2001, 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, 2001, 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, 2001, 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 March
     31, 2002, 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, 2002, 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, 2002, 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
     March 31, 2003, 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, 2003, 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. 333-79731),  filed
     by the Registrant with the Commission on June 1, 1999.

^^   Incorporated by reference from the exhibit number shown in parenthesis from
     the Registrant's registration statement on Form S-8 (No. 333-75000),  filed
     by the Registrant with the Commission on December 12, 2001.

o    Management contract or compensatory plan or arrangement.








                                      II-5



<PAGE>
                          INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>


Consolidated Financial Statements of Matrix Bancorp, Inc. and Subsidiaries

<C>                                                                                                   <C>

Independent Auditors' Report..........................................................................F-2

Consolidated Balance Sheets--December 31, 2003 and 2002...............................................F-3

Consolidated Statements of Operations--for the years ended
December 31, 2003, 2002 and 2001......................................................................F-4

Consolidated Statements of Shareholders' Equity and Comprehensive Income (Loss)
for the years ended December 31, 2003, 2002 and 2001..................................................F-6

Consolidated Statements of Cash Flows--for the years ended
December 31, 2003, 2002 and 2001......................................................................F-7

Notes to Consolidated Financial Statements............................................................F-9

</TABLE>

                                      F-1
<PAGE>


                          Independent Auditors' Report




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

We have audited accompanying consolidated balance sheets of Matrix Bancorp, Inc.
and subsidiaries (the Company) as of December 31, 2003 and 2002, and the related
consolidated  statements of operations,  shareholders'  equity and comprehensive
income  (loss),  and cash flows for each of the years in the  three-year  period
ended  December  31,  2003.  These  consolidated  financial  statements  are the
responsibility of the Company'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 of  America.  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 financial position of Matrix Bancorp, Inc.
and  subsidiaries  as of December  31,  2003 and 2002,  and the results of their
operations and their cash flows for each of the years in the  three-year  period
ended  December 31, 2003, in conformity  with  accounting  principles  generally
accepted in the United States of America.

As discussed in note 2 to the  consolidated  financial  statements,  the Company
changed its method of  accounting  for  variable  interest  entities in 2003 and
changed its method of  accounting  for goodwill and other  intangible  assets in
2002.





                                         KPMG LLP


Denver, Colorado
March 5, 2004





                                      F-2
<PAGE>

<TABLE>
<CAPTION>

                      Matrix Bancorp, Inc. and Subsidiaries
                           Consolidated Balance Sheets

                             (Dollars in thousands)

                                                                                  December 31,
                                                                             2003              2002
                                                                       ------------------------------------
<C>                                                                     <C>              <C>

Assets
Cash and cash equivalents                                               $       32,538   $        58,705
Interest-earning deposits and federal funds sold                                 1,972             3,707
Investment securities                                                          152,508            29,073
Loans held for sale, net                                                       999,454         1,136,159
Loans held for investment, net                                                 344,802           257,651
Mortgage servicing rights, net                                                  39,744            63,200
Other receivables                                                               43,884            54,818
FHLBank stock, at cost                                                          30,682            30,379
Foreclosed real estate                                                           8,538             8,343
Premises and equipment, net                                                     24,981            27,705
Bank owned life insurance                                                       20,613                 -
Other assets, net                                                               24,208            31,665
                                                                       ------------------------------------
Total assets                                                            $    1,723,924   $     1,701,405
                                                                       ====================================

Liabilities and shareholders' equity
Liabilities:
   Deposits                                                             $      974,059   $       933,957
   Custodial escrow balances                                                    85,466           151,790
   Draft Payable                                                                     -             7,097
   FHLBank borrowings                                                          458,204           385,785
   Borrowed money                                                               47,970            61,403
   Junior subordinated debentures owed to unconsolidated subsidiary
     trusts                                                                     66,525                 -
   Corporation-obligated mandatorily redeemable capital securities of
     subsidiary trusts holding solely debentures of  the Company                     -            64,500
   Other liabilities                                                            18,508            23,165
   Income taxes payable and deferred income tax liability                        3,508             6,772
                                                                       ------------------------------------
Total liabilities                                                            1,654,240         1,634,469
                                                                       ------------------------------------

Commitments and contingencies (Note 16)

Shareholders' equity:
   Preferred stock, par value $0.0001; authorized
     5,000,000 shares; no shares outstanding                                          -                -
   Common stock, par value $0.0001; authorized 50,000,000 shares;
     issued and outstanding 6,518,981 and 6,489,543 shares at
     December 31, 2003 and 2002, respectively                                         1                1
   Additional paid-in capital                                                    20,615           20,375
   Retained earnings                                                             48,859           46,534
   Accumulated other comprehensive income                                           209               26
                                                                       ------------------------------------
Total shareholders' equity                                                       69,684           66,936
                                                                       ------------------------------------
Total liabilities and shareholders' equity                              $     1,723,924  $     1,701,405
                                                                       ====================================

</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-3
<PAGE>


                      Matrix Bancorp, Inc. and Subsidiaries
                      Consolidated Statements of Operations

                (Dollars in thousands, except share information)
<TABLE>
<CAPTION>


                                                                                  Years Ended December 31,
                                                                             2003           2002           2001
                                                                        ----------------------------------------------
<C>                                                                      <C>            <C>           <C>

Interest and dividend income:
   Loans and securities                                                  $     72,667   $     82,715  $     93,066
   Interest-earning deposits                                                    1,040          1,273         2,004
                                                                        ----------------------------------------------
Total interest and dividend income                                             73,707         83,988        95,070

Interest expense:
   Savings and time deposits                                                    9,410         17,242        29,652
   Demand and money market deposits                                             3,928          4,254         5,220
   FHLBank borrowings                                                           9,379          9,478        16,071
   Borrowed money and junior subordinated debentures                            9,282         10,304        13,944
                                                                        ----------------------------------------------
Total interest expense                                                         31,999         41,278        64,887
                                                                        ----------------------------------------------
Net interest income before provision for loan and valuation losses             41,708         42,710        30,183
Provision for loan and valuation losses                                         3,641          2,821         2,980
                                                                        ----------------------------------------------
Net interest income after provision for loan and valuation losses              38,067         39,889        27,203

Noninterest income:
   Loan administration                                                         21,668         27,359        28,273
   Brokerage                                                                   10,873          8,105         4,815
   Trust services                                                               6,781          5,345         4,036
   Real estate disposition services                                             6,624          4,153         2,572
   Gain on sale of loans and securities                                        14,267          5,480         4,163
   Gain on sale of mortgage servicing rights, net                                   -            675           167
   School services                                                              2,420          4,616         5,427
   Other                                                                        6,696          6,201         8,934
                                                                        ----------------------------------------------
Total noninterest income                                                       69,329         61,934        58,387

Noninterest expense:
   Compensation and employee benefits                                          34,984         36,350        30,603
   Amortization of mortgage servicing rights                                   32,497         24,176        21,862
   Occupancy and equipment                                                      6,172          5,600         4,545
   Postage and communication                                                    2,435          2,676         2,410
   Professional fees                                                            3,357          2,770         2,590
   Data processing                                                              2,860          2,796         2,370
   (Recovery of) impairment on mortgage servicing rights                       (2,950)        14,219           181
   Other general and administrative                                            31,613         30,261        21,024
                                                                        ----------------------------------------------
Total noninterest expense                                                     110,968        118,848        85,585

(Loss) income from continuing operations before income taxes                   (3,572)       (17,025)            5
Income tax benefit                                                             (2,575)        (7,756)         (887)
                                                                        ----------------------------------------------
(Loss) income from continuing operations                                         (997)        (9,269)          892
                                                                        ----------------------------------------------

Discontinued operations:
Income from discontinued operations, net of income tax provision of
   $2,149, $3,439 and $5,162, respectively                                      3,322          5,317         7,620
                                                                        ----------------------------------------------
Net income (loss)                                                       $       2,325  $      (3,952) $      8,512
                                                                        ==============================================

</TABLE>


                                      F-4

<PAGE>


                      Matrix Bancorp, Inc. and Subsidiaries
                      Consolidated Statements of Operations

                (Dollars in thousands, except share information)
<TABLE>
<CAPTION>

                                                                                  Years Ended December 31,
                                                                             2003           2002           2001
                                                                        ----------------------------------------------
<C>                                                                     <C>            <C>           <C>

                                                                        ----------------------------------------------
(Loss) income from continuing operations per share - basic              $      (0.15)  $    (1.43)   $       0.14
                                                                        ----------------------------------------------
(Loss) income from continuing operations per share - assuming dilution
                                                                        $      (0.15)  $    (1.43)   $       0.14
                                                                        ----------------------------------------------

Income from discontinued operations per share - basic                   $       0.51   $     0.82    $       1.17
                                                                        ----------------------------------------------
Income from discontinued operations per share - assuming dilution
                                                                        $       0.51   $     0.82    $       1.16
                                                                        ----------------------------------------------

Net income (loss) per share - basic                                     $       0.36   $    (0.61)   $       1.31
                                                                        ==============================================
Net income (loss) per share - assuming dilution                         $       0.36   $    (0.61)   $       1.30
                                                                        ==============================================

Weighted average shares - basic                                              6,494,803     6,462,272      6,495,583
                                                                        ==============================================
Weighted average shares - assuming dilution                                  6,539,195     6,462,272      6,560,454
                                                                        ==============================================

</TABLE>

See accompanying notes to consolidated financial statements.





                                      F-5
<PAGE>

<TABLE>
<CAPTION>

                      Matrix Bancorp, Inc. and Subsidiaries
 Consolidated Statements of Shareholders' Equity and Comprehensive Income (Loss)

                             (Dollars in thousands)

                                                                                                   Accumulated
                                         Common Stock      Additional                                Other             Comprehensive
                                      ------------------    Paid-In     Treasury     Retained     Comprehensive            Income
                                       Shares    Amount     Capital      Shares      Earnings       Income       Total      (loss)
                                      ----------------------------------------------------------------------------------------------
<C>                                    <C>        <C>     <C>          <C>         <C>           <C>           <C>         <C>

Balance at December 31, 2000           6,558,904  $   1   $  23,004    $  (1,775)  $  41,974     $   819       $  64,023
   Shares repurchased                    (86,500)     -        (746)           -           -           -            (746)
   Shares retired (323,500 shares)             -      -      (1,775)       1,775           -           -               -
   Issuance of stock related to
     employee stock purchase plan
     and options                          46,200      -         317            -           -           -             317
   Comprehensive income:
     Net income                                -      -           -            -       8,512           -           8,512   $  8,512
     Net unrealized holding losses             -      -           -            -           -        (794)           (794)      (794)
                                                                                                                         -----------
   Comprehensive income                                                                                                    $7,718
                                      -----------------------------------------------------------------------------------===========
Balance at December 31, 2001           6,518,604  $  1    $  20,800    $       -   $  50,486     $    25       $  71,312
                                      -----------------------------------------------------------------------------------
Shares repurchased                       (66.060)    -            -         (726)          -           -            (726)
Shares retired (389,560 shares)                -     -         (726)         726           -           -               -
Issuance of stock related to
  employee stock purchase
  plan and options                        36,999     -          301            -           -           -             301

Comprehensive (loss):
       Net loss                                -     -            -            -      (3,952)          -          (3,952)  $ (3,952)
       Net unrealized holding
        gains(1)                               -     -            -            -           -           1               1          1
                                                                                                                           ---------
Comprehensive (loss)                                                                                                       $ (3,951)
                                      -------------------------------------------------------------------------------------=========
Balance at December 31, 2002           6,489,543  $  1    $  20,375    $       -   $  46,534     $    26       $  66,936
                                      -------------------------------------------------------------------------------------
Issuance of stock related to employee
  stock purchase                          29,438     -          240            -           -           -             240
  plan and options
Comprehensive income:
       Net income                              -     -            -            -       2,325           -           2,325   $  2,325
       Net unrealized holding
        gains(1)                               -     -            -            -           -         183             183        183
                                                                                                                           ---------
Comprehensive income                                                                                                       $  2,508
                                      -------------------------------------------------------------------------------------=========
Balance at December 31, 2003           6,518,981  $  1    $  20,615    $       -   $  48,859     $   209       $  69,684
                                      -------------------------------------------------------------------------------------

(1) Disclosure of reclassification amount
    Unrealized holding gain arising during the year ended December 31, 2003                                                $    183
    Less: reclassification adjustment of gains included in net income (loss)                                                      -
                                                                                                                           ---------
   Net unrealized holding gain on securities                                                                               $    183
                                                                                                                           =========
</TABLE>


See accompanying notes to consolidated financial statements.

                                      F-6
<PAGE>

<TABLE>
<CAPTION>

                      Matrix Bancorp, Inc. and Subsidiaries
                      Consolidated Statements of Cash Flows

                             (Dollars in thousands)

                                                                             Years Ended December 31,
                                                                         2003            2002         2001
                                                                   ---------------------------------------------
<C>                                                                 <C>             <C>             <C>

Operating activities
Net (loss) income from continuing operations                        $        (997)  $      (9,269)  $     892


Adjustments to reconcile  net (loss)  income from
 continuing  operations to net cash used in operating activities:
     Depreciation and amortization                                          3,652           3,978       2,473
     Provision for loan and valuation losses                                3,641           2,821       2,980
     Amortization of mortgage servicing rights                             32,497          24,176      21,862
     (Recovery) impairment on mortgage servicing rights                    (2,950)         14,219         181
     Gain on sale of loans and securities                                 (14,267)         (5,480)     (4,163)
     Gain on sale of mortgage servicing rights                                  -            (675)       (167)
     Loss (gain) on sale of building and equipment                              -              17      (3,425)
     Gain on sale of foreclosed real estate                                  (925)           (284)        (16)
Changes in assets and liabilities:
     Loans originated for sale, net of loans sold                         (16,216)       (109,014)   (753,783)
     Loans purchased for sale                                          (1,636,986)     (1,127,632)    (97,486)
     Principal payments on, and proceeds from sale of loans held          743,713         684,364     261,802
       for sale
     Originated mortgage servicing rights, net                             (5,717)        (34,511)    (30,266)
     (Increase) decrease in other receivables and other assets             18,508          10,608     (19,844)
     Decrease in payable for purchase of mortgage servicing rights           (581)         (3,956)     (7,791)
     (Decrease) increase in other liabilities, income taxes
       payable and deferred income tax liability                           (5,191)         26,964     (29,519)
                                                                   ---------------------------------------------
Net cash used in operating activities from continuing operations         (881,819)       (523,674)   (656,270)
     Net cash provided by discontinued operations                         353,903         139,964     417,609
                                                                   ---------------------------------------------
Net cash used in operating activities                                    (527,916)       (383,710)   (238,661)
                                                                   ---------------------------------------------

Investing activities
Loans originated and purchased for investment                            (236,055)       (253,672)   (159,619)
Principal repayments on loans held for investment                         130,302         137,972     144,002
Purchase of available for sale securities                                 (29,397)        (10,994)     (1,042)
Proceeds from sale of available for sale securities                       653,744         422,685      72,705
Proceeds from maturity and prepayment of available for sale                 1,348           1,728       5,912
   securities
Purchase of held to maturity securities                                   (40,440)              -           -
(Purchase) redemption of FHLBank stock, net                                  (303)        (12,198)      9,633
Purchase of bank owned life insurance                                     (20,000)              -           -
Purchases of premises and equipment                                        (4,121)        (17,614)    (14,415)
Acquisition of mortgage servicing rights                                     (374)              -        (530)
Proceeds from the sale of building and equipment                                -              45      14,601
Proceeds from sale of foreclosed real estate                               12,306           8,306       1,521
Proceeds from sale of mortgage servicing rights                                 -           9,682       1,600
                                                                   ---------------------------------------------
Net cash provided by investing activities                                 467,010         285,940      74,368
                                                                   ---------------------------------------------


</TABLE>



                                      F-7

<PAGE>

<TABLE>
<CAPTION>

                      Matrix Bancorp, Inc. and Subsidiaries
                Consolidated Statements of Cash Flows (continued)

                             (Dollars in thousands)


                                                                           Years Ended December 31,
                                                                       2003            2002         2001
                                                                 ---------------------------------------------
<C>                                                              <C>              <C>            <C>

Financing activities
Net increase in deposits                                         $        40,102  $      67,722  $  263,566
Net (decrease) increase in custodial escrow balances                    (66,324)         22,125      52,018
Increase (decrease) in revolving lines, net                              60,530         (18,663)   (138,946)
Payments of notes payable                                                (1,515)         (1,981)    (13,298)
Proceeds from notes payable                                                   -           2,000       1,786
Payment of financing arrangements                                           (29)            (61)        (86)
Proceeds from issuance of capital securities of subsidiary
   trusts                                                                     -           5,000      30,977
Treasury shares repurchased                                                   -            (726)       (746)
Proceeds from issuance of common stock related to employee stock
   purchase plan and options                                                240             301         317
                                                                 ---------------------------------------------
Net cash provided by financing activities                                33,004          75,717     195,588
                                                                 ---------------------------------------------
(Decrease) increase in cash and cash equivalents                        (27,902)        (22,053)     31,295
Cash and cash equivalents at beginning of the year                       62,412          84,465      53,170
                                                                 ---------------------------------------------
Cash and cash equivalents at end of the year                     $        34,510  $      62,412   $  84,465
                                                                 =============================================

Supplemental disclosure of non-cash activity
Loans transferred to foreclosed real estate                      $        12,572  $       8,010   $   7,214
                                                                 =============================================
Loans transferred to securities available for sale               $       708,507  $     435,528   $  19,196
                                                                 =============================================

Supplemental disclosure of cash flow information
Cash paid for interest                                           $        32,592  $       45,050  $  62,520
                                                                 =============================================
Cash paid (received) for income taxes                            $         2,879  $      (4,074)  $   4,557
                                                                 =============================================
</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-8
<PAGE>


                      Matrix Bancorp, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements

1.   Organization

Matrix  Bancorp,  Inc. (the "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"),  Matrix Bancorp Trading, Inc. ("Matrix Bancorp
Trading"), Matrix Asset Management Corporation ("Matrix Asset Management"),  ABS
School Services,  L.L.C. ("ABS"),  Sterling Trust Company ("Sterling") and First
Matrix Investment Services Corp. ("First Matrix"), all of which are wholly owned
subsidiaries of the Company.

Matrix  Bank, a federally  chartered  savings and loan  association,  serves its
local  communities of Denver,  Colorado,  Las Cruces,  New Mexico,  and Phoenix,
Arizona, by providing personal and business depository services, trust services,
offering  residential loans and providing commercial real estate, Small Business
Administration,  multi-family  and  consumer  loans.  During  2002,  Matrix Bank
completed the  relocation of its domicile from Las Cruces to Denver.  On January
30,  2004,  Matrix Bank  entered  into a  definitive  agreement  to sell its two
branches in Las Cruces to Access Anytime BanCorp, Inc.'s subsidiary,  FirstBank.
The sale is subject to regulatory approval and other customary  conditions,  and
is  expected  to be  completed  in the second  quarter  of 2004.  The sale would
include  deposits  and loans of the Las  Cruces  branches  (approximately  $84.1
million and $23.8  million as of December 31, 2003,  respectively).  The sale of
the branches is not expected to significantly impact the operations or liquidity
of Matrix Bank or the Company.

The Company's  mortgage banking business is primarily  conducted  through Matrix
Financial,  and was  established  with the  primary  objective  of  originating,
acquiring and servicing  residential  mortgage  loans. On September 2, 2003, the
Company announced the final closing,  and substantial  completion of the sale by
Matrix  Financial  of  substantially  all  of its  assets  associated  with  its
wholesale  mortgage  origination  platform,  as  discussed  more fully in Note 3
below. The servicing  platform was retained.  Servicing  mortgage loans involves
the contractual right to receive a fee for processing and administering mortgage
loan payments.

Matrix Bancorp Trading, formerly known as Matrix Capital Markets, Inc., 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  and, to a lesser  extent,  consultation  and  brokerage  services in
connection with mergers and acquisitions of mortgage banking entities.

Matrix Asset Management provides real estate management and disposition services
on  foreclosed  properties  owned by financial  service  companies and financial
institutions.

Sterling is a non-bank  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.

                                      F-9
<PAGE>




                      Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)

1.   Organization (continued)

First Matrix is registered with the National  Association of Securities  Dealers
as a fully disclosed  broker-dealer.  First Matrix is  headquartered  in Denver,
Colorado and has branch  offices in Fort Worth,  Texas and  Memphis,  Tennessee.
First Matrix offers a wide range of investment  options for both  individual and
institutional  investors,  long term investing and retirement planning,  and the
acquisition,  brokering and sale of Small Business  Administration  ("SBA") loan
pools.

ABS, operating under the trade name The GEO Group,  provides outsourced business
services and financing primarily to charter schools.

The  accounting  and  reporting  policies of the  Company  and its  subsidiaries
conform to  accounting  principles  generally  accepted in the United  States of
America.  The following is a description of the more  significant  policies that
the Company  follows in preparing  and  presenting  its  consolidated  financial
statements.

2.   Significant Accounting Policies

Basis of Presentation

Accounting  Research  Bulletin  No.  51  ("ARB  51"),   Consolidated   Financial
Statements,  requires a company's  consolidated  financial statements to include
subsidiaries  in which the company has a controlling  financial  interest.  This
requirement  has been applied to  subsidiaries in which a company has a majority
voting  interest.  Investments  in  companies  in  which  the  Company  controls
operating and  financing  decisions  (principally  defined as owning a voting or
economic interest greater than 50%) are consolidated,  and intercompany accounts
and transactions have been eliminated in consolidation. The Company's investment
in Matrix Settlement & Clearance Services, LLC ("MSCS") in which the Company has
significant  influence  over  operating  and  financing  decisions  (principally
defined as owning a voting or economic  interest of 20% to 50%) is accounted for
by the equity method of accounting.  This investment is included in other assets
and the  Company's  proportionate  share of income or loss is  included in other
noninterest income.

The voting interest  approach defined in ARB 51 is not applicable in identifying
controlling  financial  interests in entities that are not controllable  through
voting  interests  or in which the  equity  investors  do not bear the  residual
economic  risks.  In  such   instances,   Interpretation   No.  46  ("FIN  46"),
"Consolidation of Variable Interest Entities", and the reissued FIN 46, indicate
when  a  company  should  include  in  its  financial   statements  the  assets,
liabilities and activities of another entity.  In general,  a variable  interest
entity  ("VIE")  is a  corporation,  partnership,  trust,  or  any  other  legal
structure used for business  purposes that either does not have equity investors

                                      F-10
<PAGE>

                      Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


with  voting  rights or has  equity  investors  that do not  provide  sufficient
financial  resources for the entity to support its  activities.  FIN 46 provides
guidance on how to identify a VIE and  determine  when the assets,  liabilities,
noncontrolling  interests, and results of operations of a VIE are to be included
in an entity's consolidated  financial statements.  A VIE exists when either the
total  equity  investment  at risk is not  sufficient  to permit  the  entity to
finance  its  activities  by  itself,  or  2.  Significant  Accounting  Policies
(continued)

the equity investors lack one of three characteristics  associated with owning a
controlling  financial  interest.  Those  characteristics  include the direct or
indirect ability to make decisions about an entity's  activities  through voting
rights or similar  rights,  the  obligation to absorb the expected  losses of an
entity if they occur, or the right to receive the expected  residual  returns of
the  entity  if  they  occur.  The  Company  has 5  VIE's  in  the  form  of its
wholly-owned  subsidiary  trusts that issued  capital  securities to third-party
investors   and  to  certain   direct  and  indirect   interests  in  investment
partnerships,  commonly  referred to as Trust Preferred  securities.  Such VIE's
have been  deconsolidated  in the financial  statements as of December 31, 2003.
Further discussion regarding these  securitization  trusts is included below and
in Note 11.

Critical Accounting Policies and Estimates

The Company and its subsidiaries have established  various  accounting  policies
which govern the application of accounting  principles generally accepted in the
United States of America in the  preparation  and  presentation of the Company's
consolidated   financial   statements.   Certain  accounting   policies  involve
significant  judgments,  assumptions  and  estimates by  management  that have a
material impact on the carrying value of certain assets and  liabilities,  which
management  considers  to  be  critical  accounting  policies.   The  judgments,
assumptions and estimates used by management are based on historical experience,
knowledge of the accounts and other factors, which are believed to be reasonable
under the circumstances.  Because of the nature of the judgments and assumptions
made by  management,  actual  results  could  differ  from these  judgments  and
estimates,  which could have a material  impact on the carrying values of assets
and liabilities and the results of operations of the Company.

The Company  believes the allowance for loan and valuation  losses is a critical
accounting policy that requires the most significant judgments,  assumptions and
estimates used in  preparation of its  consolidated  financial  statements.  See
further detail in this Note for a detailed  description of the Company's process
and methodology related to the allowance for loan and valuation losses.

The Company also  considers the valuation of mortgage  servicing  rights to be a
critical  accounting policy that requires  judgments,  assumptions and estimates
concerning impairment of their value in certain interest rate environments.  See
further  detail in this Note for a  detailed  discussion  concerning  the use of
estimates in the valuation of mortgage servicing rights.

The Company also considers the judgments and assumptions  concerning  litigation
as a critical  accounting  policy.  The Company has been  notified that we are a
defendant in a number of legal  proceedings,  as discussed in detail in Note 16.
Most of these cases  involve  ordinary  and  routine  claims  incidental  to our
business.  We accrue for  contingent  liabilities  with  respect  to  litigation
matters in accordance with the requirements of Statement of Financial Accounting
Standards  ("SFAS")  No. 5,  "Accounting  for  Contingencies,"  which  generally
requires  the  Company  to accrue a loss for a  litigation  matter  involving  a
contingent  liability  if the loss is  probable  and the  amount  of the loss is
reasonably estimable. In order to determine whether the two conditions

                                      F-11
<PAGE>

                      Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


2.   Significant Accounting Policies (continued)

necessary  for  accrual  are met,  management  makes a number of  judgments  and
assumptions.  Because  the  outcome of most  litigation  matters  is  inherently
uncertain,  the  Company  will  generally  only a accrue  a loss  for a  pending
litigation  matter if, for example,  the parties to the matter have entered into
definitive  settlement agreements or a final judgment adverse to the Company has
been entered. With respect to all pending litigation matters, our ultimate legal
responsibility,  if any,  cannot  be  estimated  with  certainty.  Based  on the
ultimate  outcome of such  proceedings,  it is possible  that future  results of
operations  for any  particular  quarterly or annual  period could be materially
affected by changes in our assumptions related to such proceedings.

The  preparation of the  consolidated  financial  statements in conformity  with
accounting  principles  generally  accepted  in the  United  States  of  America
requires management to make estimates and assumptions that affect the amounts of
assets and liabilities at the date of the consolidated financial statements, and
disclosures of contingent  assets and  liabilities  and the reported  amounts of
revenue and expenses  during the reporting  period.  Actual results could differ
from these estimates.  See discussion above regarding estimates used in critical
accounting policy areas.

Certain  reclassifications have been made to prior years' consolidated financial
statements and related notes to conform with current year presentation.

Derivative Instruments and Hedging Activities

The Company,  through its subsidiary  Matrix  Financial,  enters into derivative
transactions  principally  to  protect  against  the  risk of  adverse  price or
interest  rate  movements on the value of certain  assets and  liabilities.  The
Company is also  required to recognize  certain  contracts  and  commitments  as
derivatives when the characteristics of those contracts and commitments meet the
definition of a derivative.

Under the guidelines of SFAS No. 133, "Accounting for Derivative Instruments and
Certain Hedging Activities", as amended, all derivative instruments are required
to be carried at fair value on the  balance  sheet.  SFAS 133  provides  special
hedge  accounting  provisions,  which permit the change in the fair value of the
hedged item related to the risk being hedged to be recognized in earnings in the
same period and in the same income statement line as the change in fair value of
the derivative.

                                      F-12
<PAGE>

                      Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


At December 31, 2003,  the Company has no hedge that meets the hedge  accounting
provisions provided under SFAS 133. However, the Company does have contracts and
commitments  that meet the definition of a derivative as well as economic hedges
outstanding. SFAS 133 requires the Company to record its best effort commitments
associated  with its mortgage loan  origination  activities on the  consolidated
balance sheets.


2.   Significant Accounting Policies (continued)

The  Company  also  utilizes  derivative  instruments  to hedge a portion of its
investment in mortgage  servicing  rights.  The  Company's  hedge is an economic
hedge to offset  changes in fair value of mortgage  servicing  rights  caused by
changes in interest  rates with  changes in hedge  instruments  that  consist of
futures  contracts  and options on futures.  The change in the fair value of the
derivative  instruments  is recorded  with a  corresponding  charge or credit to
earnings.

Investment Securities

Securities  available  for  sale  include  mortgage-backed  securities  and  SBA
securities  available  for sale.  Securities  available  for sale are carried at
estimated fair value with the change in unrealized  gains and losses reported in
other  comprehensive  income,  net of  tax,  which  is  included  as a  separate
component in shareholders' equity. Realized gains and losses on the sale of, and
other-than-temporary  impairment  charges on,  available for sale securities are
recorded   in   gains   on   sale   of   loans   and   securities    using   the
specific-identification    method.   Securities   held   to   maturity   include
mortgage-backed  securities.  Securities are classified as held to maturity when
management  has the  positive  intent  and  ability  to hold the  securities  to
maturity. Securities held to maturity are carried at amortized cost.

Loans Held for Sale

Loans purchased or originated  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 fair market value. Estimated fair 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, are recognized in a valuation
allowance by charges to operations.  SFAS No. 91,  "Accounting for Nonrefundable
Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct
Costs of  Leases,"  requires  discounts  or  premiums  on loans held for sale be
deferred until the related loan is sold. However, the Company accretes discounts
and amortizes premiums related to repayment of loan principal, which is included
in interest income. The loans are primarily secured by 1-to-4 family residential
real estate located throughout the United States.

                                      F-13
<PAGE>

                      Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


Loans  are  considered  sold  when  the  Company  surrenders  control  over  the
transferred  assets  to  the  purchaser,   with  standard   representations  and
warranties. At such time, the loan is removed from the loan portfolio and a gain
or loss is recorded on the sale.  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  estimated  fair  value  of any  assets  or
liabilities  that are  newly  created  as a result  of the  transaction.  Losses
related to  recourse  provisions  are  accrued as a  liability  at the time such
additional losses are determined,  and recorded as part of noninterest  expense.
Losses related to asset quality are recorded  against the allowance for loan and
valuation losses at the time the loss is probable and quantifiable.
2.   Significant Accounting Policies (continued)

Loans Held for Investment

Loans  held for  investment  are  stated at unpaid  principal  balances,  net of
unearned  discounts  and premiums,  deferred  loan fees,  and allowance for loan
losses.  The  loans  include  residential  mortgage  loans,   commercial  loans,
multi-family,  and SBA loans,  and are  primarily  secured by real estate.  Loan
origination  fees, net of certain  direct  origination  costs,  are deferred and
amortized  into  interest  income as an adjustment to the yield over the term of
the loan.

Allowance for Loan and Valuation Losses

The allowance for loan and valuation  losses is  calculated,  in part,  based on
historical loss experience.  In addition,  management  takes into  consideration
other  factors  such as the size and current  risk  characteristics  of the loan
portfolio,   any  qualitative   evaluations  of  individual  classified  assets,
geographic  portfolio  concentrations,   new  products  or  markets,  regulatory
guidance,   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.  The loss factors are applied to the
outstanding  principal  balance of loans in their  respective  categories,  plus
additional  loan review is performed on all  significant  commercial  and school
finance loans.  After an allowance has been  established for the loan portfolio,
from the factors  described  above,  management  evaluates other factors such as
trends in  delinquency  such as loans in  foreclosure,  loans in bankruptcy  and
other relevant  factors,  and  establishes a valuation  allowance that cannot be
associated  with a specific loan or loan  portfolio.  The Company  evaluates its
residential loans  collectively due to their homogeneous  nature.  These factors
include general economic conditions, recognition of specific regional geographic
concerns,  loan type, trends in portfolio growth and historical loss experience.
Loan losses are charged against the allowance when the probability of collection
is considered remote. In the opinion of management, the allowance 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 and the recorded  investment in
the loan exceeds its fair value.  Estimated  fair value is measured using either
the present  value of expected  future  cash flows  discounted  using loan rate,
market  price  of the  loan or  fair  value  of the  collateral,  if  collateral
dependent.  All loans considered  impaired are included in nonperforming  loans.
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,  larger multi-family loans and school financing loans classified
as nonperforming loans.  Impairment  allowances are considered by the Company in
determining the overall adequacy of the allowance for loan losses.

                                      F-14
<PAGE>

                      Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)



2.   Significant Accounting Policies (continued)

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.

Mortgage Servicing Rights

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

The estimated 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,  interest  rate and  investor  to reflect  the  predominant  risk
characteristics. To determine the estimated fair value of MSRs, the Company uses
a valuation  model that  calculates  the present value of future cash flows.  In
using this valuation  model,  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,  foreclosure expenses and losses, 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 estimates fair value using the following primary assumptions: prepayment
speeds  ranging  from 91 PSA (Public  Securities  Association  prepayment  speed
measurement)  to 1,316 PSA;  discount  rates  ranging from 9.00% to 22.00%;  and
default rates ranging from 0% to 100%. 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, 2003 and 2002, a valuation  allowance
of $6,450,000 and $14,400,000, respectively, was required, and the fair value of
the aggregate MSRs was approximately $39,744,000 and $63,200,000, respectively.

                                      F-15
<PAGE>

                      Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


Gain on sale of MSRs is  recorded  when title to MSRs and the risks and  rewards
inherent in owning the MSRs have been transferred to the buyer.


2.   Significant Accounting Policies (continued)

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 2 to 7 years for software,  office furniture and
equipment and 40 years for buildings.

Foreclosed Real Estate

Residential or commercial real estate acquired through foreclosure, deed in lieu
of  foreclosure  or in judgment is carried at the lower of estimated 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 estimated fair value,  less estimated  costs to
sell.

Bank Owned Life Insurance

Bank owned life insurance  represents the cash surrender value of life insurance
policies  purchased  to insure the lives of certain  officers  and  directors of
Matrix Bank.  Earnings are credited to the balance and recorded as part of other
income in the consolidated statements of operations.

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 asset and 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 and all other income is recognized when the related payments are received.

                                      F-16
<PAGE>

                      Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


2.   Significant Accounting Policies (continued)

Brokerage Income

Brokerage income represents fees earned related to consulting services performed
pertaining to mortgage  servicing rights, as well as brokerage income from whole
loan activities,  retail and fixed income activities,  SBA trading fees and fees
earned  related  to  third  party  servicing  brokerage.   Brokerage  income  is
recognized when services are performed.

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  over the contract period in
proportion to when the services are performed.

Real Estate Disposition Services Income

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

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 services are performed.

Stock-Based Compensation

At December  31, 2003,  the Company has one  stock-based  employee  compensation
plan,  which  is  described  more  fully  in Note 15.  We  apply  the  intrinsic
value-based  method of  accounting  prescribed by  Accounting  Principles  Board
("APB") Opinion No. 25,  "Accounting for Stock Issued to Employees."  Under this
method,  compensation  expense  is  recorded  on the date of  grant  only if the
current market price of the underlying  stock exceeded the exercise price.  SFAS
123,  "Accounting  for  Stock-Based  Compensation"  established  accounting  and
disclosure  requirements  using a fair  value-based  method  of  accounting  for
stock-based  employee  compensation  plan.  As  allowed by SFAS 123 and SFAS 148
"Accounting  for Stock  Based  Compensation  -  Transition  and  Disclosure,  an
Amendment to FASB  Statement  No. 123," we have elected to continue to apply the
intrinsic value-based method of accounting described above, and have adopted the
disclosure   requirements  of  SFAS  123.  Accordingly,   we  do  not  recognize
compensation  expense for our  stock-based  plan,  as we do not issue options at
exercise  prices  below  the  market  value  at  the  date  of  the  grant.  Had
compensation cost for our stock-based plans been determined consistent with SFAS
No.  123,  our net income  (loss) and  income  (loss) per share  would have been
reduced to the pro forma amounts indicated below:

                                      F-17
<PAGE>

                      Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


2.   Significant Accounting Policies (continued)
<TABLE>
<CAPTION>

                                                                    Year ended December 31,
                                                            2003             2002              2001
                                                     ------------------------------------------------------
                                                         (Dollars in thousands except per share data)
<C>                                                   <C>               <C>             <C>

Net income (loss):
   Net income (loss) as reported                      $      2,325      $     (3,952)   $       8,512
   Deduct: Total stock-based employee compensation
   expense determined under fair value based method
   for awards, net of related tax effects                     (262)             (358)            (307)
                                                     ------------------------------------------------------
   Pro forma                                          $      2,063      $     (4,310)   $       8,205
                                                     ======================================================
Income (loss) per share:
   Basic, as reported                                $        0.36     $       (0.61)   $        1.31
                                                     ======================================================
   Basic, pro forma                                  $        0.32     $       (0.67)   $        1.26
                                                     ======================================================
   Diluted, as reported                              $        0.36     $       (0.61)   $        1.30
                                                     ======================================================
   Diluted, pro forma                                $        0.32     $       (0.67)   $        1.25
                                                     ======================================================
</TABLE>

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.

Income (Loss) Per Common Share

Basic income (loss) per common share from  continuing  operations is computed by
dividing (loss) income from continuing operations by the weighted average number
of common shares outstanding for the period. Basic and diluted income per common
share from  discontinued  operations  is computed  by  dividing  net income from
discontinued  operations by the weighted average number of common shares for the
period, and the effect of potentially dilutive securities, such as stock options
and warrants  outstanding for the year ("dilutive  securities").  Net income per
common  share  assuming  dilution  is  computed  by  dividing  net income by the
weighted average number of common shares outstanding for the year and the effect
of potentially dilutive securities. Due to the net loss in 2002, the potentially
dilutive  securities  were not used in the calculation of diluted loss per share
for the year ended December 31, 2002.

                                      F-18
<PAGE>

                      Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


Restructuring Charges

Associated with the purchase of Matrix  Financial Center by Matrix Bank in 2002,
Matrix  Bancorp  and certain  subsidiaries  with  various  leased  office  space
throughout  the Denver  metropolitan  area have moved their  offices into Matrix
Financial  Center.  Associated  with this move,  the Company  recorded a pre-tax
charge of $700,000 in other  general and  administrative  expenses  for the year
ended  December 31,  2002.  The charge  represents  the excess of costs to be 2.
Significant Accounting Policies (continued)

incurred on original  leased space in excess of expected  revenues on subleasing
of  the  space  or  terminating  original  lease  commitments.  Moving  expenses
associated  with  the  final  relocation  are  included  in  other  general  and
administrative expenses for the years ended December 31, 2003 and 2002.

Investment in Joint Venture

The  Company has a  45%-owned  investment  in MSCS,  and in MSCS'  wholly  owned
subsidiary,  MSCS Financial Services,  L.L.C.,  which is accounted for using the
equity  method.  This  investment  was  classified  in other  assets,  and had a
carrying  value of  $1,737,000  and  $802,000 as of December  31, 2003 and 2002,
respectively.  For the years ended December 31, 2003, 2002 and 2001, the Company
recorded income (losses) of $1,158,000, $213,000, and $(175,000),  respectively,
in other income related to MSCS consolidated operations.

As of  December  31,  2003 and 2002,  MSCS had total  assets of  $5,192,000  and
$3,362,000;  total  liabilities  of  $1,949,000  and  $1,709,000;  and equity of
$3,243,000 and $1,653,000,  respectively. For the years ended December 31, 2003,
2002 and 2001, MSCS had revenues of $9,061,000,  $7,714,000, and $3,517,000; and
pre-tax income (loss) of $2,573,000, $475,000, and $(388,000), respectively.

Fair Value of Financial Instruments

The Company  determines  the fair value of financial  instruments as required by
SFAS No.  107,  "Disclosures  about Fair Value of  Financial  Instruments."  The
amounts  disclosed  represent  the  Company's  best  estimate  of fair  value of
financial instruments required to be disclosed under the Statement.  The Company
also has disclosed the methods and significant  assumptions used to estimate the
fair value of its financial instruments.

Impact of Recently Issued Accounting Standards

On December 11, 2003,  the SEC staff  announced its intention to release a Staff
Accounting  Bulletin that would require all  registrants to account for mortgage
loan  interest rate lock  commitments  related to loans held for sale as written
options,  effective no later than for  commitments  entered into after March 31,
2004. The Company enters into such commitments with customers in connection with
residential mortgage loan applications, however, the amount of these commitments
is not  material  to  the  Company's  consolidated  financial  statements.  This
guidance,  if issued,  would require the Company to recognize a liability on its
consolidated balance sheet equal to the fair value of the commitment at the time
the loan  commitment  is issued.  As a result,  this  guidance  would  delay the
recognition of any revenue related to these  commitments  until such time as the
loan is sold, however, it would have no effect on the ultimate amount of revenue
or cash flows  recognized  over time.  The Company is  currently  assessing  the
impact of this pending  guidance on its  consolidated  results of operations and
financial position,

                                      F-19
<PAGE>

                      Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


2. Significant Accounting Policies (continued)

but does not  expect  the  implementation  to have a  significant  impact on the
consolidated financial statements.

In May 2003, the Financial  Accounting  Standards  Board (FASB) issued SFAS 150,
"Accounting  for Certain  Financial  Instruments  with  Characteristics  of both
Liabilities and Equity".  This Statement  establishes  standards for classifying
and measuring  certain  financial  instruments  that embody  obligations  of the
issuer and have  characteristics  of both liabilities and equity. The provisions
of SFAS 150 became effective June 1, 2003, for all financial instruments created
or modified  after May 31, 2003,  and otherwise  became  effective as of July 1,
2003.  The  adoption  of  this  standard  did  not  have a  material  impact  on
consolidated financial statements.

In April  2003,  the FASB  issued  SFAS  149,  "Amendment  of  Statement  133 on
Derivative  Instruments  and Hedging  Activities",  which  amends and  clarifies
financial  accounting  and  reporting  for  derivative  instruments  and hedging
activities  under  SFAS  133,  as well as amends  certain  other  existing  FASB
pronouncements.  In general,  SFAS 149 is effective for derivative  transactions
entered into or modified and for hedging relationships designated after June 30,
2003.  The  adoption  of  this  standard  did  not  have a  material  impact  on
consolidated financial statements.

In January  2003,  the FASB  issued FIN 46,  which  provides  guidance on how to
identify  a  variable  interest  entity  (VIE) and  determine  when the  assets,
liabilities, noncontrolling interests, and results of operations of a VIE are to
be included in an entity's consolidated financial statements.  A VIE exists when
either  the total  equity  investment  at risk is not  sufficient  to permit the
entity to finance its activities by itself,  or the equity investors lack one of
three  characteristics  associated with owning a controlling financial interest.
Those  characteristics  include the direct or indirect ability to make decisions
about an  entity's  activities  through  voting  rights or similar  rights,  the
obligation  to absorb the  expected  losses of an entity if they  occur,  or the
right to receive the expected  residual  returns of the entity if they occur. In
December  2003,  the  FASB  revised  FIN  46  with  certain   modifications  and
clarifications.  Application  of this  guidance was  effective  for interests in
certain  VIEs  commonly  referred to as  special-purpose  entities  (SPEs) as of
December 31, 2003.  Application  for all other types of entities is required for
periods ending after March 15, 2004, unless previously applied.

During the fourth quarter of 2003, the Company  applied the provisions of FIN 46
and the revised FIN 46 to its wholly-owned subsidiary trusts that issued capital
securities to third-party investors and to certain direct and indirect interests
in investment partnerships. The application of FIN 46, and early adoption of the
reissued  FIN  46,  resulted  in  the  deconsolidation  of  the  5  wholly-owned
subsidiary trusts. The assets and liabilities of the subsidiary trusts that were
deconsolidated  totaled $64,500,000 and $66,525,000,  respectively.  See Note 11
for further discussion of these trusts and the Company's related obligations.

                                      F-20
<PAGE>


                      Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)

2.   Significant Accounting Policies (continued)

In June  2001,  the FASB  issued  SFAS No 142,  "Goodwill  and Other  Intangible
Assets,"  that  supersedes  APB Opinion  No. 17.  Under SFAS 142,  goodwill  and
intangible assets deemed to have indefinite lives are no longer  amortized,  but
are to be reviewed at least annually for impairment, under impairment guidelines
established in the statement. SFAS 142 also changes the amortization methodology
in  intangible  assets that are deemed to have finite lives and adds to required
disclosures  regarding goodwill and intangible assets. SFAS 142 is effective for
fiscal years  beginning after December 15, 2001. The Company adopted SFAS 142 on
January  1, 2002 and its  unamortized  balance of  goodwill  as of that date was
$1,004,000.  Beginning in 2002, the Company ceased its amortization of goodwill.
During the fourth quarter of 2002, under guidelines  contained in the statement,
management performed an analysis concerning potential impairment of the goodwill
carried at ABS School  Services,  and  determined  an impairment of goodwill was
present,  and the entire  goodwill  balance of  $1,004,000  was written off. The
consolidated balance of goodwill is $0 at both December 31, 2003 and 2002.

3.   Discontinued Operations

On September 2, 2003, the Company  announced the final closing,  and substantial
completion of the sale by Matrix Financial Services Corporation of substantially
all of its assets associated with its wholesale mortgage origination platform.

On February  23,  2003,  the Company  announced  that its  subsidiaries,  Matrix
Financial and Matrix Bank, entered into a Purchase and Assumption Agreement,  as
amended ("Purchase Agreement"),  to sell substantially all of Matrix Financial's
assets associated with its wholesale mortgage origination platform  ("Platform")
to AmPro  Mortgage  Corporation  ("AmPro" or the "Buyer").  After the sale,  our
remaining  operations  at Matrix  Financial  consist of our  mortgage  servicing
platform,  where we service loans for third parties and  ourselves.  Included in
the sale were the wholesale  production offices,  the back office personnel that
process  the  loan  originations  and a  significant  portion  of the  corporate
operations  and personnel.  After the sale,  our remaining  operations at Matrix
Financial  consist  primarily of the mortgage  servicing  platform and a limited
amount of corporate personnel and operations.

Upon signing of the Purchase Agreement, the Buyer was not yet licensed to engage
in  any  mortgage  banking  activities  under  state  or  federal  law.  It  was
anticipated  that it would take  approximately  six months from execution of the
Purchase Agreement for the Buyer to obtain the necessary licensing. Accordingly,
Matrix Financial, Matrix Bank and the Buyer desired to structure the transaction
in a manner that transferred  substantially  all the economic risks and benefits
of the operation of the Platform during the Transition Period (defined below) to
the Buyer,  while at the same time  having  Matrix  Financial  and  Matrix  Bank
maintain  continuous  effective  control over the operations of the Platform for
regulatory  purposes.   The  Purchase  Agreement,   therefore,   contemplated  a
two-staged  closing.  The first closing ("Initial Closing Date") occurred on the
date  the  Purchase  Agreement  was  signed  and was the  effective  date for

                                      F-21
<PAGE>
                      Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)

3. Discontinued Operations (continued)

the sale of the fixed assets,  and the final or second closing  ("Final  Closing
Date")  occurred six months  following  the Initial  Closing Date, or August 31,
2003. The effective  sale date for accounting  purposes was considered to be the
Final  Closing  Date.  The period of  operation  of the  Platform in between the
Initial  Closing  Date  and  the  Final  Closing  Date  is  referred  to as  the
"Transition Period."

On the  Initial  Closing  Date,  the Buyer  purchased  substantially  all of the
tangible personal property and intangible property associated with the Platform.
There was no gain or loss on the sale of the assets.  The Buyer additionally has
taken the transfer and  assignment  of certain  contract  rights,  real property
leases and equipment  leases from Matrix Financial at or about the Final Closing
Date.

At the Final  Closing  Date,  the Buyer  purchased  any tangible and  intangible
personal property of the Platform that was acquired during the Transition Period
in the ordinary course of business or otherwise  inadvertently  not purchased on
the Initial Closing Date (the "Subsequently Acquired Assets"), as well as Matrix
Financial's loan files, pipeline applications and sales commitments.

The purchase price was determined as follows:

     o    The asset  payment  amount,  which was  $3,342,000  in payment for the
          tangible  and  intangible  assets of the  Platform  as of the  Initial
          Closing Date; plus
     o    The Subsequently Acquired Assets payment amount, which was $577,000 in
          payment for the book value of the  Subsequently  Acquired Assets as of
          the Final Closing Date; plus
     o    The production  premium,  which is generally 20 basis points times the
          original  principal  balance  of all loans  originated  during  the 12
          months  following the Initial  Closing Date at Matrix  Financial  loan
          production  offices  purchased  by Buyer.  The  production  premium is
          "capped" at  $9,100,000.  Through  December 31, 2003,  the  production
          premium earned and reflected in  discontinued  operations loss on sale
          is $6,836,000 before tax; plus
     o    The  aggregate  locked loan  profitability  amount,  which pays Matrix
          Financial  one-half of the profit over a  specified  threshold  amount
          (the threshold  being  generally 30 basis points) on loans that funded
          during  the first two  months  after the  Initial  Closing  Date which
          resulted from its locked  pipeline as of the Initial  Closing Date and
          which was $160,000 before tax; plus or minus
     o    The transition period gain or loss, which is a mechanism that provides
          for an  approximation  of the accounting for the transaction as if the
          entire sale and transfer occurs on the Initial  Closing Date.  Because
          the  Platform  generated  a profit  during  the  transition  period of
          $11,594,000  before tax,  Matrix  Financial  was  required to pay such
          profit  into an escrow  account,  and has  reflected  the  amount as a
          component of the loss on sale of discontinued operations.

                                      F-22
<PAGE>
                      Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)



3.   Discontinued Operations (continued)

As a result of the sale,  the Company  recorded an after tax loss on the sale of
the platform of $2,792,000,  or $(0.43) per diluted share,  which is included in
income  from   discontinued   operations  in  the  consolidated   statements  of
operations.  The operating  income of the  discontinued  production  platform is
reflected in discontinued operations beginning in the first quarter of 2001, and
the  consolidated  statements  of  operations  have been restated to reflect the
production  platform  as a  discontinued  operation.  Operating  results  of the
discontinued  operations,  previously  included in our mortgage banking segment,
were as follows:
<TABLE>
<CAPTION>

                                                                      Years Ended December 31,
                                                              2003                2002                 2001
                                                     ------------------------------------------------------------
                                                          (Dollars in thousands, except share information)
   <C>                                                 <C>                <C>                  <C>

   Net interest income after provision for  loan
     and valuation losses                              $        3,477     $         6,490      $        10,327
   Noninterest income                                          38,309              35,476               33,130
   Noninterest expense                                         31,717              33,210               30,865
                                                          -------------      ---------------      ---------------
     Operating income before taxes from
     discontinued operations                                   10,069               8,756               12,592
      Income tax provision                                      3,955               3,439                4,972
                                                          -------------      ---------------      ---------------
     Operating income from discontinued
     operations                                                 6,114               5,317                7,620

   Loss on sale of production platform, net of
     income tax benefit of $1,806                              (2,792)                  -                    -
                                                          -------------      ---------------      ---------------
   Income from discontinued operations, net of
     income taxes                                      $        3,322     $         5,317      $         7,620
                                                          =============      ===============      ===============

   Income from discontinued operations per share -
     basic                                             $       0.51       $         0.82       $         1.17
                                                          =============      ===============      ===============
   Income from discontinued operations per share -
     diluted                                           $       0.51       $         0.82       $         1.16
                                                          =============      ===============      ===============

</TABLE>

For a period of two years from the Initial Closing Date,  Matrix Bank has agreed
that neither Matrix Bank nor any of its affiliates  will engage in,  directly or
indirectly,  the single-family retail or wholesale mortgage origination business
in those states in which the acquired  division operates or is located as of the
Initial  Closing Date.  However,  this  non-compete  provision does not prohibit
Matrix Bank or its affiliates  from engaging in such business in order to comply
with applicable law, rules, regulations,  directives,  agreements or orders from
the Office of Thrift Supervision  ("OTS") or other parties where it is necessary
to resolve  regulatory or supervisory  concerns.  Additionally,  the non-compete
provision  does not apply in the event of a change in control of the Matrix Bank
or the Company.

                                      F-23
<PAGE>
                      Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


The Purchase  Agreement  requires  Matrix Bank to guarantee  Matrix  Financial's
obligations under the Purchase Agreement if certain events occur, such as Matrix
Financial's  bankruptcy,  failure to  maintain a minimum  net worth,  or loss of
voting control of Matrix Financial.

4.   Net Income (Loss) Per Share

The following  table sets forth the  computation  of basic net (loss) income per
share and net (loss) income per share, assuming dilution:
<TABLE>
<CAPTION>

                                                                  Years Ended December 31,
                                                          2003             2002              2001
                                                   -------------------------------------------------------
                                                                   (Dollars in thousands)
<C>                                                <C>               <C>              <C>

Numerator:
   (Loss) income from continuing operations, net
     of tax effects                                $         (997)   $       (9,269)  $            892
                                                   =======================================================
   Income from discontinued operations, net of tax
     effects                                        $       3,322    $        5,317   $          7,620
                                                   =======================================================
   Net income (loss)                                $       2,325    $       (3,952)  $          8,512
                                                   =======================================================

Denominator:
   Weighted average shares outstanding                  6,494,803         6,462,272         6,495,583
Effect of dilutive securities:
   Common stock options                                    44,392                 -            64,871
                                                   -------------------------------------------------------
Denominator for net (loss) income per share,
   assuming dilution                                    6,539,195         6,462,272         6,560,454
                                                   =======================================================
</TABLE>

For the year ended  December  31,  2002,  there were  90,702  stock  options and
warrants  outstanding  which  were  potentially  convertible  to  common  stock.
Assuming conversion at the beginning of the year, the aggregate weighted average
shares would have been  6,552,974 at December 31,  2002.  These  securities  are
anti-dilutive due to the net loss in 2002; therefore, these potentially dilutive
securities  have not been used in the  calculation of diluted loss per share for
the year ended December 31, 2002.

5.   Investment Securities

Investment securities available for sale were as follows:
<TABLE>
<CAPTION>

                                                   December 31, 2003                              December 31, 2002
                                   --------------------------------------------------    ------------------------------------
                                                   Gross        Gross                                   Gross
                                    Amortized   Unrealized   Unrealized   Carrying       Amortized    Unrealized   Carrying
                                      Cost         Gains       Losses       Value           Cost        Gains        Value
                                   ------------ ------------ ------------ -----------    ----------- ------------- ----------
                                                                        (In thousands)
<C>                                <C>          <C>          <C>          <C>            <C>         <C>           <C>

Mortgage-backed securities,
   available for sale              $    29,562  $      223   $        -   $  29,785      $    1,046  $       40    $  1,086
SBA Securities, available for
   sale                                82,515          124          (22)     82,617          27,987           -      27,987
                                   ------------ ------------ ------------ -----------    ----------- ------------- ----------
Total                              $  112,077   $      347   $      (22)  $ 112,402      $   29,033  $       40    $ 29,073
                                   ============ ============ ============ ===========    =========== ============= ==========
</TABLE>


                                      F-24
<PAGE>
                      Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


5.   Investment Securities (continued)

The Company expects to receive payments on investment  securities  available for
sale over periods that are considerably shorter than the contractual  maturities
of the securities, which range from 6 to 30 years, due to prepayments.  Realized
gains on the sale of  securities  available  for sale as  determined by specific
identification,  were  approximately  $0, $78,000,  and $1,198,000 for the years
ended December 31, 2003, 2002 and 2001, respectively. Carrying value of held for
sale securities equals the estimated fair value.

Investment securities held to maturity were as follows:
<TABLE>
<CAPTION>

                                                December 31, 2003                              December 31, 2002
                                      ---------------------------------------      ------------------------------------------
                                       Amortized                                    Amortized
                                        Cost and       Gross                         Cost and       Gross
                                        Carrying    Unrealized    Estimated          Carrying    Unrealized     Estimated
                                         Value         Gains     Fair Value           Value         Gains       Fair Value
                                      ------------- ------------ ------------      ------------- ------------ ---------------
                                                                          (In thousands)
<C>                                   <C>           <C>          <C>               <C>           <C>          <C>

Mortgage-backed securities, held to
   maturity                           $    40,106   $       66   $   40,172        $       -     $         -  $          -
                                      ------------- ------------ ------------      ------------- ------------ ---------------
Total                                 $    40,106   $       66   $   40,172        $       -     $         -  $          -
                                      ============= ============ ============      ============= ============ ===============
</TABLE>

The  amortized  cost and  estimated  fair  value  of  investment  securities  by
contractual maturity at December 31, 2003 is as follows:


<TABLE>
<CAPTION>

                                            Available for Sale                         Held to Maturity
                                    Amortized Cost     Estimated Fair          Amortized Cost     Estimated Fair
                                                           Value                                      Value
                                                                   (In thousands)
  <C>                              <C>               <C>                     <C>                 <C>


  Within 1 year                    $                 $                       $                   $
                                                 -                 -                        -                 -
  Over 1 year through 5 years                  193               193                        -                 -
  After 5 years through 10 years             5,364             5,381                        -                 -
  Over 10 years                             76,958            77,043                        -                 -
                                   ----------------- -------------------     ------------------- -----------------
                                            82,515            82,617                        -                 -
Mortgage-backed securities                  29,562            29,785                   40,106            40,172
                                   ----------------- -------------------     ------------------- -----------------
Total                              $       112,077   $          112,402      $         40,106    $       40,172
                                   ================= ===================     =================== =================

</TABLE>

At December 31, 2003 and 2002,  mortgage  backed  securities  and SBA securities
with a carrying value of $1,166,000 and $926,000,  respectively, were pledged to
secure public deposits and for other purposes required or permitted by law.


                                      F-25
<PAGE>
                      Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


6.   Loans Held for Sale and Investment

Loans Held for Investment

Loans held for investment consist of the following:
<TABLE>
<CAPTION>

                                                                                    December 31,
                                                                                2003             2002
                                                                          ----------------------------------
                                                                                   (In thousands)
<C>                                                                        <C>             <C>


Residential loans                                                          $    178,463    $      54,420
Multi-family, commercial real estate, SBA commercial                            148,842          168,316
Construction loans                                                               21,304           34,175
Consumer loans and other                                                          2,977            4,313
(Discounts) premium, net                                                         (1,000)             570
Unearned fees                                                                      (798)            (699)
                                                                          ----------------------------------
                                                                                349,788          261,095
Less:
   Allowance for loan and valuation losses                                        4,986            3,444
                                                                          ----------------------------------

Loans held for investment, net                                             $    344,802     $    257,651
                                                                          ==================================

<CAPTION>

Activity  in the  allowance  for loan and  valuation  losses  on loans  held for
investment is summarized as follows:
                                                             Years Ended December 31,
                                                     2003              2002             2001
                                               -----------------------------------------------------
                                                                  (In thousands)
<C>                                            <C>              <C>               <C>

Balance at beginning of year                   $                $         2,776   $         2,107
                                                         3,444
Provision for loan and valuation losses                  2,248            1,700             1,821
Charge-offs                                             (1,035)          (1,127)           (1,235)
Recoveries                                                 329               95                83
                                               -----------------------------------------------------
Balance at end of year                         $         4,986  $         3,444   $         2,776
                                               =====================================================
<CAPTION>


Loans Held for Sale

Loans held for sale consist of the following:
                                                                               December 31,
                                                                          2003             2002
                                                                    -----------------------------------
                                                                              (In thousands)
<C>                                                                   <C>             <C>

Residential loans                                                     $   722,192     $     941,249
SBA guaranteed commercial loans, school financing and other               267,705           191,400
Purchase premiums, net                                                     14,360             9,409
                                                                    -----------------------------------
                                                                        1,004,257         1,142,058
Less:
   Allowance for loan and valuation losses                                  4,803             5,899
                                                                    -----------------------------------

Loans held for sale, net                                              $   999,454      $  1,136,159
                                                                    ===================================
</TABLE>


                                      F-26
<PAGE>
                      Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


6.   Loans Held for Sale and Investment (continued)

Activity in the allowance  for loan and valuation  losses on loans held for sale
is summarized as follows:
<TABLE>
<CAPTION>

                                                          Years Ended December 31,
                                                   2003              2002             2001
                                            ------------------------------------------------------
                                                                (In thousands)
<C>                                         <C>               <C>               <C>

Balance at beginning of year                $         5,899   $        6,562    $          6,474
Provision for loan losses                             1,393            1,121              1,159
Charge-offs                                          (2,515)          (1,871)            (1,075)
Recoveries                                               26               87                  4
                                            ------------------------------------------------------
Balance at end of year                      $          4,803  $        5,899    $          6,562
                                            ======================================================


The  following  lists  information  related  to  nonperforming  loans  held  for
investment and held for sale:
<CAPTION>
                                                                                   December 31,
                                                                               2003            2002
                                                                         ---------------------------------
                                                                                  (In thousands)
<C>                                                                        <C>             <C>

Loans on nonaccrual status in the held for investment portfolio            $     21,006    $     11,604
Loans on nonaccrual status in the held for sale portfolio                        10,444          19,214
                                                                         ---------------------------------
Total nonperforming loans                                                  $     31,450    $     30,818
                                                                         =================================

Interest  income that would have been  recognized  at
   original contract terms                                                 $       1,084   $        916
                                                                         =================================
</TABLE>

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 $12,164,000 and $34,791,000 as of December 31,
2003 and 2002, respectively.

                                      F-27
<PAGE>
                      Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


7.   Premises and Equipment

Premises and equipment consist of the following:
<TABLE>
<CAPTION>

                                                                         December 31,
                                                                     2003             2002
                                                              ------------------------------------
                                                                        (In thousands)
<C>                                                           <C>               <C>

Land                                                          $         3,450   $        3,520
Buildings                                                              14,069           13,987
Leasehold improvements                                                  4,377            2,992
Office furniture and equipment                                         15,152           20,513
                                                              ------------------------------------
                                                                       37,048           41,012
Less accumulated depreciation                                          12,067           13,307
                                                              ------------------------------------
Premises and equipment, net                                   $        24,981    $      27,705
                                                              ====================================
</TABLE>

7.   Premises and Equipment

Included in premises and  equipment,  net at December 31, 2002 was $3,492,000 of
assets  sold  under  the  Purchase  Agreement  with the  sale of the  production
platform as discussed in Note 3 above. There was no gain or loss on the sale.

Included in occupancy and equipment expense is depreciation  expense of premises
and equipment of  approximately  $3,552,000,  $3,478,000  and $2,797,000 for the
years ended December 31, 2003, 2002 and 2001, respectively.

8.   Mortgage Servicing Rights

The activity in the MSRs is summarized as follows:
<TABLE>
<CAPTION>

                                                                 Years Ended December 31,
                                                          2003             2002              2001
                                                   ------------------------------------------------------
                                                                      (In thousands)
<C>                                                  <C>               <C>              <C>
Mortgage servicing rights
  Balance at beginning of year                       $    79,234       $     78,893     $     71,529
  Purchases                                                  375                  -              530
  Originations                                             5,082             34,511           30,129
  Amortization                                           (32,497)           (24,176)         (21,862)
  Sales                                                        -             (9,994)          (1,433)
  Application of valuation allowance to write down
   impaired MSRs                                          (5,000)                 -                -
                                                   ------------------------------------------------------
  Balance before valuation allowance at
    end of year                                           47,194             79,234           78,893
                                                   ------------------------------------------------------

Valuation allowance for impairment of mortgage
   servicing rights
  Balance at beginning of year                           (14,400)              (181)               -
  Additions                                               (2,400)           (14,219)            (181)
  Application of valuation allowance to write down
   impaired MSRs                                           5,000                  -                -
  Recovery                                                 5,350                  -                -
                                                   ------------------------------------------------------
  Balance at end of year                                  (6,450)           (14,400)            (181)
                                                   ------------------------------------------------------
Valuation allowance for foreclosure costs                 (1,000)            (1,634)               -
                                                   ------------------------------------------------------
Mortgage servicing rights, net                       $    39,744       $     63,200     $     78,712
                                                   ======================================================

</TABLE>

The  Company's  servicing  activity  is  diversified  throughout  50 states with
concentrations at December 31, 2003, in Missouri,  Texas,  California,  Arizona,
New Mexico and Florida of  approximately  14.5%,  14.3%,  13.9%,  9.0%, 8.2% and
5.0%, respectively,  based on aggregate outstanding unpaid principal balances of
the mortgage loans serviced. As of December 31, 2003, 2002 and 2001, the Company
subserviced  loans for others of  approximately  $176,921,000,  $26,613,000  and
$889,000,000, respectively.

                                      F-28
<PAGE>
                     Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


8.   Mortgage Servicing Rights (continued)

The Company's servicing portfolio (excluding  subserviced loans) is comprised of
the following:
<TABLE>
<CAPTION>

                                                             December 31,
                                                 2003                          2002
                                    --------------------------------------------------------------
                                                     Principal                      Principal
                                       Number         Balance         Number         Balance
                                      of Loans      Outstanding      of Loans      Outstanding
                                    --------------------------------------------------------------
                                                       (Dollars in thousands)
<C>                                      <C>      <C>                  <C>       <C>
Freddie Mac                               6,194   $      253,245        9,027    $      417,583
Fannie Mae                               19,257        1,164,589       27,678         1,832,276
Ginnie Mae                               16,370        1,068,975       24,453         1,823,706
VA, FHA, conventional and other
   loans                                  9,034          696,727       13,489         1,260,062
                                    --------------------------------------------------------------
Total servicing portfolio                50,855    $   3,183,536       75,647     $   5,333,627
                                    ==============================================================
</TABLE>

The Company's  custodial escrow balances shown in the accompanying  consolidated
balance sheets at December 31, 2003 and 2002, pertain to 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.  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.

The  estimated  aggregate  amortization  of our  MSR's for each of the next five
years  ending  December  31,  2004,  2005,  2006,  2007 and 2008 is  $9,158,000,
$6,929,000,  $5,249,000,  $4,032,000,  $3,118,000,  respectively.  The estimated
amortization  is based on several  assumptions  as of December 31, 2003 with the
most  significant  being the  anticipated  prepayment  speeds of the  underlying
mortgages.  It is  reasonably  possible  the  actual  repayment  speeds  of  the
underlying  mortgage  loans may differ  materially  from the estimate  repayment
speed, and thus, the actual amortization may be significantly different than the
amounts estimated.

                                      F-29
<PAGE>

                     Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


9.   Deposits

Deposit account balances are summarized as follows:
<TABLE>
<CAPTION>

                                                           December 31,
                                             2003                                 2002
                             ---------------------------------------------------------------------------
                                           Percent of   Weighted                Percent of   Weighted
                                             Total    Average Rate                Total    Average Rate
                                Amount      Deposits                 Amount      Deposits
                             ---------------------------------------------------------------------------
                                                             (Dollars in thousands)
<C>                           <C>            <C>           <C>    <C>             <C>           <C>

Passbook accounts             $     5,675      0.58%       1.28%  $     5,514       0.59%       1.31%
NOW accounts                      180,733     18.55        0.15       145,465      15.57        0.20
Money market accounts             576,088     59.14        0.71       334,508      35.82        0.91
                             ---------------------------------------------------------------------------
                                  762,496     78.28        0.58       485,487      51.98        0.69
Certificate accounts              211,563     21.72        2.89       448,470      48.02        2.63
                             ---------------------------------------------------------------------------
Deposits                        $ 974,059    100.00%       1.07%    $ 933,957     100.00%       1.62%
                             ===========================================================================
</TABLE>

Included in NOW accounts are  noninterest-bearing  DDA accounts of  $136,146,000
and $96,289,000 at December 31, 2003 and 2002, respectively.

Contractual  maturities of  certificate  accounts as of December 31, 2003 are as
follows:
<TABLE>
<CAPTION>

                                                Under 12      12 to 36        36 to 60
                                                 months        months          months           Total
                                         ------------------------------------------------------------------
                                                                  (In thousands)
<C>                                      <C>             <C>             <C>              <C>

0.00-0.99%                               $        7,468  $               $                $
                                                                     -               -            7,468
1.00-1.99%                                       86,254          3,171               -           89,425
2.00-2.99%                                        6,925         10,372             596           17,893
3.00-3.99%                                        5,958          3,989           5,623           15,570
4.00-4.99%                                        9,257         39,940           9,553           58,750
5.00-5.99%                                        3,750          3,659           4,626           12,035
6.00-6.99%                                          616          9,031               -            9,647
7.00-7.99%                                          775              -               -              775
                                         ------------------------------------------------------------------
                                           $    121,003   $     70,162    $     20,398     $    211,563
                                         ==================================================================
</TABLE>

Approximately   $178,991,000   and   $141,278,000  of  fiduciary   assets  under
administration  by Sterling are included in NOW and money market  accounts as of
December  31,  2003  and  2002,  respectively.   Approximately  $85,338,000  and
$60,870,000 of MSCS customer assets under administration by MSCS are included in
NOW and money market  accounts as of December  31, 2003 and 2002,  respectively.
Included in certificate  accounts are  $104,608,000 and $327,335,000 of brokered
deposits as of December 31, 2003 and 2002, respectively.

                                      F-30
<PAGE>

                     Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


9.   Deposits (continued)

Interest expense on deposits is summarized as follows:
<TABLE>
<CAPTION>


                                                          Years Ended December 31,
                                                   2003              2002             2001
                                            ------------------------------------------------------
                                                               (In thousands)
<C>                                         <C>               <C>               <C>


Passbook accounts                           $             74  $            117  $            108
NOW accounts                                             327               570               929
Money market                                           3,602             3,684             4,291
Certificates of deposit                                9,335            17,125            29,544
                                            ------------------------------------------------------
Interest expense on deposits                $         13,338  $         21,496  $         34,872
                                            ======================================================

</TABLE>

The aggregate  amount of deposit  accounts with a balance  greater than $100,000
(excluding  brokered deposits) was approximately  $17,954,000 and $17,769,000 at
December 31, 2003 and 2002, respectively.

10.   Borrowed Money

Borrowed money is summarized as follows:
<TABLE>
<CAPTION>
                                                                                       December 31,
                                                                                   2003             2002
                                                                             ---------------------------------
                                                                                      (In thousands)
<C>                                                                          <C>               <C>

Borrowed Money
   Senior notes, interest at 11.50% payable semiannually, unsecured and
     maturing September 30, 2004                                             $     9,545       $    9,545
   $8,215,000 note payable to a third party financial institution due
     in quarterly  principal  installments  of $357,000 plus  interest,
     through December  31,  2004,  collateralized  by the common stock
     of Matrix  Bank; interest at LIBOR plus 2.65% (3.87% at December 31,
     2003)                                                                         6,073           7,501
   $12,000,000 revolving line of credit to a third party financial
     institution, through March 31, 2004, renewable annually,
     collateralized by the common  stock of Matrix  Bank;  interest at
     LIBOR plus 2.65%  (3.87% at December 31, 2003); $12,000,000
     available at December 31, 2003                                                    -               -
   Note payable with a bank, secured by real estate, interest only at
     7% at December 31, 2002, maturing September 30, 2004                          1,913           2,000
   School financing agreements, maturing September 2004 and September
     2005, collateralized by school financing; interest rates are
     variable based on the BMA mini-swap index.  Future financing
     commitment is at the discretion of the third-party lenders
                                                                                  30,439          32,328
   $50,000,000  at  December  31,  2002,  through  August 30,  2003,
   secured by mortgage loans held for sale, interest at LIBOR plus
   1.20% at December 31, 2002                                                          -          10,000
   Other financing agreements                                                          -              29
                                                                        ----------------------------------
Total                                                                   $         47,970 $        61,403
                                                                        ==================================

</TABLE>
                                      F-31
<PAGE>

                     Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)

10.   Borrowed Money (continued)

As of December 31, 2003, the maturities of borrowed money are as follows:

                                                                 (In thousands)

2004                                                            $     31,097
2005                                                                  16,873
                                                              ------------------
                                                                $     47,970
                                                              ==================

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,  Matrix  Bank to  maintain  "classified  assets" of less than 4% of
total assets from  January 1, 2003 to and  including  March 31, 2004,  and 3% of
total assets  thereafter,  Matrix Bank to earn not less than $7,500,000 over the
prior four quarters as of and for the end of each fiscal  quarter,  and maintain
the requirements necessary such that Matrix Bank will not be classified as other
than "well  capitalized,"  all as defined in the  regulations.  At December  31,
2003, the Company was in compliance with the covenants  described  above. We are
in the process of renewing the revolving line of credit,  and anticipate it will
be renewed  with  similar  terms and  conditions  as those  currently in effect.
However, there can be no assurances that the bank stock loan will be renewed.

School Financing Agreement

The Company had  approximately  $29,119,000 and $31,100,000 at December 31, 2003
and 2002, respectively, in tax-exempt financing it originated to charter schools
into two 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,  under the two grantor trusts,  are guaranteed by a letter
of  credit  issued  by  a  an  unaffiliated  financial  institutions.   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 an investment bank for one trust and
First  Matrix,  LLC (a wholly owned  subsidiary  of First Matrix) for the second
trust.  Generally,  the Trusts are  short-term in nature with an average life of
three years or less.

The "B" Certificates are owned in part by the Company. The interest rate paid on
the "A" Certificates is considered the Company's financing cost. The approximate
cost of the  financing  at  December  31,  2003 and 2002 was  1.54%  and  1.55%,
respectively.  The interest that the Company  receives  through its ownership of
the "B" Certificates is tax-exempt.

                                      F-32
<PAGE>
                     Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


10.   Borrowed Money (continued)

Although the investment bank and the unaffiliated  financial institutions act as
guarantors to the "A"  Certificates,  the Company  provides full recourse to the
letter of credit providers 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.

Through a Purchase  and Sale  Agreement,  the Company has sold school  financing
loans to a third party financial  institution.  The Company  provides  scheduled
interest and principal  plus full  recourse in the case of loss or default.  The
transaction was treated as a sale due to the transfer of control over the school
financing  loans.  No gain or loss was recorded at the time of sale. The balance
of the school financing loans sold with recourse was  approximately  $10,534,000
at December 31, 2003.

11. Junior Subordinated Debentures Owed to Unconsolidated  Subsidiary Trusts and
Corporation-Obligated  Mandatorily  Redeemable  Capital Securities of Subsidiary
Trusts Holding Solely Debentures of the Company

The Company has sponsored five trusts,  Matrix  Bancorp  Capital Trust I, Matrix
Bancorp  Capital Trust II, Matrix  Bancorp  Capital  Trust III,  Matrix  Bancorp
Capital Trust IV and Matrix Bancorp Capital Trust V, of which 100% of the common
equity is owned by the  Company.  The  trusts  were  formed  for the  purpose of
issuing  corporation-obligated  mandatorily  redeemable  capital securities (the
"capital  securities") to third-party  investors and investing the proceeds from
the  sale  of  such  capital  securities  solely  in  junior  subordinated  debt
securities of the Company (the "debentures").  The debentures held by each trust
are the sole  assets of that  trust.  Distributions  on the  capital  securities
issued by each trust are payable at either  quarterly or  semiannually at a rate
per annum equal to the interest rate being earned by the trust on the debentures
held by that trust. The capital securities are subject to mandatory  redemption,
in whole or in part, upon repayment of the  debentures.  The Company has entered
into agreements which, taken collectively,  fully and unconditionally  guarantee
the  capital  securities  subject  to the terms of each of the  guarantees.  The
debentures held by the trusts are redeemable as noted below.

In the fourth  quarter of 2003, as a result of applying the provisions of FIN 46
and early  application  of revised  FIN 46,  governing  when an equity  interest
should  be  consolidated,  the  Company  was  required  to  deconsolidate  these
subsidiary   trusts   from   its   consolidated   financial   statements.    The
deconsolidation  of the net assets and results of  operations  of the trusts had
virtually  no impact  on the  Company's  consolidated  financial  statements  or
liquidity  position  because the Company  continues to be obligated to repay the
debentures held by the trusts and guarantees repayment of the capital securities
issued by the trusts.  The  consolidated  debt obligation  related to the trusts
increased  from  $64,500,000  to  $66,525,000  upon   deconsolidation  with  the
difference representing the Company's common ownership interests in the trusts.

Junior  Subordinated  Debentures Owed to  Unconsolidated  Subsidiary  Trusts and
Corporation-Obligated  Mandatorily  Redeemable  Capital Securities of Subsidiary
Trusts Holding Solely Debentures of the Company are summarized as follows:

                                      F-33
<PAGE>
                     Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)

11. Junior Subordinated Debentures Owed to Unconsolidated  Subsidiary Trusts and
Corporation-Obligated  Mandatorily  Redeemable  Capital Securities of Subsidiary
Trusts Holding Solely Debentures of the Company (continued)
<TABLE>
<CAPTION>

                                                                                       December 31,
                                                                                    2003             2002
                                                                           ----------------------------------
                                                                                      (In thousands)
<C>                                                                            <C>               <C>

Junior Subordinated Debentures Owed to Unconsolidated Subsidiary Trusts
Junior subordinated debentures owed to Matrix Bancorp Capital Trust I,
   10% junior subordinated debentures payable quarterly, unsecured and
   maturing September 30, 2029                                                 $  28,351         $
                                                                                                       -
Junior  subordinated  debentures owed to Matrix Bancorp Capital
   Trust II, 10.18% junior subordinated debentures payable semi-annually,
   unsecured and maturing June 8, 2031                                            12,400               -
Junior subordinated debentures owed to Matrix Bancorp Capital Trust
   III, 10.25% junior subordinated debentures payable semi-annually,
   unsecured and maturing July 25, 2031                                           15,464               -
Junior subordinated debentures owed to Matrix Bancorp Capital Trust IV,
   LIBOR plus 3.75% (4.97% at December 31, 2003) junior subordinated
   debentures payable semi-annually, unsecured and maturing December 8,                                -
   2031                                                                            5,155
Junior  subordinated  debentures  owed to Matrix Bancorp  Capital Trust V,
   LIBOR plus 3.625% (4.845% at December 31, 2003) junior subordinated
   debentures payable semi-annually, unsecured and maturing January 25,                                -
   2032                                                                            5,155
Capital  Securities of Matrix Bancorp  Capital Trust I, 10% junior
   subordinated debentures payable quarterly, unsecured and maturing
   September 30, 2029                                                                  -          27,500
Capital Securities of Matrix Bancorp Capital Trust II, 10.18% junior
   subordinated debentures payable semi-annually, unsecured and
   maturing June 8, 2031                                                               -          12,000
Capital Securities of Matrix Bancorp Capital Trust III, 10.25% junior
   subordinated debentures payable semi-annually, unsecured and
   maturing July 25, 2031                                                              -          15,000
Capital Securities of Matrix Bancorp Capital Trust IV, LIBOR plus 3.75%
   (5.140%  at  December  31,  2002)  junior  subordinated   debentures
   payable semi-annually, unsecured and maturing December 8, 2031
                                                                                       -           5,000
Capital  Securities of Matrix Bancorp Capital Trust V, LIBOR plus 3.625%
   (5.015% at December 31, 2002) junior subordinated  debentures payable
   semi-annually, unsecured and maturing January 25, 2032                              -           5,000
                                                                        ----------------------------------
Total                                                                          $  66,525         $64,500
                                                                        ==================================

</TABLE>
                                      F-34
<PAGE>
                     Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)

11. Junior Subordinated Debentures Owed to Unconsolidated  Subsidiary Trusts and
Corporation-Obligated  Mandatorily  Redeemable  Capital Securities of Subsidiary
Trusts Holding Solely Debentures of the Company (continued)

Following is a description of each of the trusts:

On July 30, 1999,  Matrix Bancorp Capital Trust I (Trust I), a Delaware business
trust formed by the Company,  completed the sale of $27,500,000 of 10% preferred
securities.  Trust I also issued  common  securities to the Company and used the
net proceeds from the offering to purchase  $28,351,000  in principal  amount of
10% junior  subordinated  debentures of the Company due September 30, 2029.  The
preferred securities accrue and pay distributions quarterly at an annual rate of
10% of the stated liquidation amount of $25 per preferred security.  The Company
has fully and unconditionally guaranteed all of the obligations of 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 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.  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.

On March 28,  2001,  Matrix  Bancorp  Capital  Trust II (Trust  II),  a Delaware
business  trust  formed by the Company,  completed  the sale of  $12,000,000  of
10.18%  preferred  securities.  Trust II also issued  common  securities  to the
Company and used the net proceeds from the offering to purchase  $12,400,000  in
principal  amount of 10.18%  junior  subordinated  debentures of the Company due
June  8,  2031.   The  preferred   securities   accrue  and  pay   distributions
semi-annually  at an annual rate of 10.18% of the stated  liquidation  amount of
$1,000  per  preferred  security.  The  Company  has fully  and  unconditionally
guaranteed all of the  obligations  of Trust II 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
Trust II. 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 June 8, 2011, at a redemption price
specified  in  the  indenture  plus  any  accrued  but  unpaid  interest  to the
redemption date.

On July 16,  2001,  Matrix  Bancorp  Capital  Trust III (Trust  III), a Delaware
business  trust  formed by the Company,  completed  the sale of  $15,000,000  of
10.25%  preferred  securities.  Trust III also issued  common  securities to the
Company and used the net proceeds from the offering to purchase  $15,464,000  in
principal  amount of 10.25%  junior  subordinated  debentures of the Company due
July  25,  2031.  The  preferred   securities   accrue  and  pay   distributions
semi-annually  at an annual rate of 10.25% of the stated  liquidation  amount of
$1,000  per  preferred  security.  The  Company  has fully  and  unconditionally
guaranteed all of the  obligations of Trust III 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
Trust III. 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 July 25,  2006,  at a  redemption
price  specified in the  indenture  plus any accrued but unpaid  interest to the
redemption date.

                                      F-35
<PAGE>
                     Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


11. Junior Subordinated Debentures Owed to Unconsolidated  Subsidiary Trusts and
Corporation-Obligated  Mandatorily  Redeemable  Capital Securities of Subsidiary
Trusts Holding Solely Debentures of the Company (continued)

On November 28, 2001,  Matrix  Bancorp  Capital  Trust IV (Trust IV), a Delaware
business  trust  formed by the  Company,  completed  the sale of  $5,000,000  of
floating rate of six-month LIBOR plus 3.75% preferred securities.  Trust IV also
issued  common  securities  to the  Company and used the net  proceeds  from the
offering  to  purchase  $5,155,000  in  principal  amount  of  floating  rate of
six-month  LIBOR plus 3.75% junior  subordinated  debentures  of the Company due
December  8,  2031.  The  preferred  securities  accrue  and  pay  distributions
semi-annually  at the  floating  rate as described  above  percent of the stated
liquidation amount of $1,000 per preferred  security.  The Company has fully and
unconditionally  guaranteed  all  of the  obligations  of  Trust  IV  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 Trust IV. 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
December 8, 2006,  at a redemption  price  specified in the  indenture  plus any
accrued but unpaid interest to the redemption date.

On July 25, 2002,  Matrix Bancorp Capital Trust V (Trust V), a Delaware business
trust formed by the Company,  completed  the sale of $5,000,000 of floating rate
of six-month LIBOR plus 3.625% preferred securities.  Trust V also issued common
securities  to the  Company  and used the net  proceeds  from  the  offering  to
purchase $5,155,000 in principal amount of floating rate of six-month LIBOR plus
3.625%  junior  subordinated  debentures  of the Company due July 25, 2032.  The
preferred securities accrue and pay distributions  semi-annually at the floating
rate as described above of the stated liquidation amount of $1,000 per preferred
security.  The  Company  has fully  and  unconditionally  guaranteed  all of the
obligations of Trust V 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 Trust V. 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 July 25, 2007, at a redemption  price  specified in the
indenture plus any accrued but unpaid interest to the redemption date.

Capitalized  expenses associated with the offerings of approximately  $2,348,000
were  included in other assets at December 31, 2002.  These costs have also been
deconsolidated as of December 31, 2003.

12.   FHLBank Borrowings

In connection with Matrix Bank's change in domicile in 2002, Matrix Bank obtains
FHLBank  advances  from  FHLBank of Topeka,  which is the  FHLBank  that  serves
Denver,  Colorado,  and utilizes FHLBank of Topeka as its primary  correspondent
bank. This change was approved March 25, 2002.  Long-term  advances that existed
at March 25,  2002 with  FHLBank of Dallas  are still  outstanding  under  their
original terms.

                                      F-36
<PAGE>
                     Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)

12.   FHLBank Borrowings (continued)

The balances of FHLBank borrowings are as follows:

                                                  December 31,
                                             2003             2002
                                      ------------------------------------
                                                (In thousands)
FHLBank of Topeka borrowings             $    311,000      $     238,500
FHLBank of Dallas borrowings                  147,204            147,285
                                      ------------------------------------
                                         $    458,204      $     385,785
                                      ====================================

Advances of $266,000,000 at both December 31, 2003 and 2002, were borrowed under
Convertible  Advance and Short Option Advance (SOA) Agreements with the FHLBank.
These SOA  borrowings  have a term of up to ten years,  but are  callable by the
FHLBank  beginning after a six-month to five-year  lockout period,  depending on
the particular SOA borrowing.  After the expiration of the lockout  period,  the
SOA borrowings are callable at various  intervals.  If the FHLBank exercises its
call option on a SOA  borrowing,  the  FHLBank 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, 2003,  the interest rates on
the SOA  borrowings  ranged from 1.27% to 5.63%,  and their  possible call dates
varied from  January 2004 to November  2006.  Community  investment  advances of
$1,204,000  and  $1,285,000  at December 31, 2003 and 2002,  respectively,  were
borrowed  under a fixed term and rate. At December 31, 2003, the advances are at
a rate of 5.84% and mature  June 2014.  All  advances  are secured by first lien
mortgage loans of Matrix Bank and all of its FHLBank stock.

Matrix  Bank is on full  custody  status at FHLBank of  Dallas,  which  requires
Matrix Bank to place loan  collateral at the FHLBank of Dallas.  At December 31,
2003,  loans   collateralized  by  first  lien  mortgages  of  $251,107,000  and
securities  held for sale of  $36,295,000  were  pledged  for  FHLBank of Dallas
advances.  Matrix  Bank is on  blanket  collateral  status at FHLBank of Topeka,
which requires  Matrix Bank to identify,  yet maintain in its  possession,  loan
collateral   pledged  at  FHLBank  of  Topeka.   At  December  31,  2003,  loans
collateralized  by first lien mortgages of $483,000,000 and guaranteed SBA loans
of $159,834,000 were pledged for the FHLBank of Topeka advances.  As of December
31, 2003, Matrix Bank had available unused borrowings from the FHLBank of Topeka
for advances of approximately $208,000,000.

                                      F-37
<PAGE>

                     Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


13.   Income Taxes

The income tax (benefit) provision consists of the following:
<TABLE>
<CAPTION>

                                                          Years ended December 31,
                                                   2003              2002             2001
                                            ------------------------------------------------------
                                                                (In thousands)
<C>                                         <C>               <C>               <C>

Current:
   Federal                                  $         2,586   $            832  $        (7,713)
   State                                                366                 -               (15)

Deferred:
   Federal                                           (2,941)           (4,306)           11,162
   State                                               (437)             (843)              841
                                            ------------------------------------------------------
(Benefit) provision                         $           (426)  $       (4,317)  $         4,275
                                            ======================================================
</TABLE>

A reconciliation  of the (benefit)  provision for income taxes with the expected
income taxes based on the statutory federal income tax rate follows:
<TABLE>
<CAPTION>

                                                          Years ended December 31,
                                                   2003              2002             2001
                                            ------------------------------------------------------
                                                               (In thousands)
<C>                                            <C>              <C>             <C>


Expected income tax (benefit) provision        $        646     $      (2,811)  $         4,348
State income tax  (benefit)  provision,  net
   of federal benefit                                   100              (556)              545
Other                                                (1,172)             (950)             (618)
                                            ------------------------------------------------------
(Benefit) provision for income taxes        $           (426) $        (4,317)  $         4,275
                                            ======================================================
</TABLE>

The actual  tax  (benefit)  provision  differs  from the  expected  tax  expense
(computed by applying the applicable United States Federal corporate tax rate of
34% and the  composite  state tax  rates,  which  range from 4.5% to 8.0% to the
(loss)  income  before taxes for the years ended 2003,  2002 and 2001).  This is
principally due to state income tax expense and various income and expense items
which  are  not  deductible  for  tax  purposes,   including  certain  meal  and
entertainment deductions and nontaxable interest income.

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.

                                      F-38
<PAGE>
                     Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


13.   Income Taxes (continued)
<TABLE>
<CAPTION>

                                                                         December 31,
                                                                     2003             2002
                                                              ------------------------------------
                                                                        (In thousands)
<C>                                                             <C>             <C>

Deferred tax assets:
   Allowance for loan and valuation losses                      $      5,401    $
                                                                                          6,481
   Deferred fees                                                       1,367              1,270
   Delinquent interest                                                     -                552
   Net operating loss carry-forwards                                       -              1,082
   Other                                                                 201                393
                                                              ------------------------------------
Total deferred tax assets                                              6,969              9,778

Deferred tax liabilities:
   Mortgage servicing rights                                    $     (6,435)    $      (12,992)
   Gain on sale of building                                           (1,318)            (1,368)
   Other                                                              (1,775)            (1,355)
                                                              ------------------------------------
Total deferred tax liabilities                                        (9,528)           (15,715)
                                                              ------------------------------------
Net deferred tax liability                                      $     (2,559)   $        (5,937)
                                                              ====================================
</TABLE>

The net deferred  tax  liability  is recorded in the  accompanying  consolidated
balance sheets in income taxes payable and deferred  income tax  liability.  The
current and other income tax payable of $949,000 and $835,000 as of December 31,
2003 and 2002,  respectively,  is recorded in income taxes  payable and deferred
income tax liability.

There is no valuation allowance for gross deferred tax assets as of December 31,
2003 or 2002. In assessing the realizability of deferred tax assets,  management
considers  whether it is more  likely  than not that some  portion or all of the
deferred tax assets will not be realized.  The ultimate  realization of deferred
tax assets is dependent  upon the generation of future taxable income during the
periods in which  those  temporary  differences  become  deductible.  Management
considers the scheduled  reversal of deferred tax liabilities,  projected future
taxable income, and tax planning strategies in making this assessment.

Based upon the level of historical  taxable  income and  projections  for future
taxable  income over the periods that the  deferred  tax assets are  deductible,
management  believes it is more likely  than not the  Company  will  realize the
benefits of these deductible differences,  and does not believe that a valuation
allowance  is  necessary.  The  amount  of the  deferred  tax  asset  considered
realizable,  however,  could be reduced in the near term if  estimates of future
taxable income during the carry-forward period are reduced.

14.   Regulatory

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

                                      F-39
<PAGE>
                     Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


14.   Regulatory (continued)

Matrix Bank is 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  and the
Company'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  commitments 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.

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 in the regulations),  and of Tier I capital (as
defined in the  regulations)  to total  assets (as defined in the  regulations).
Management believes,  as of December 31, 2003 and 2002, that Matrix Bank met all
applicable capital adequacy requirements.

As of December 31, 2003, 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 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
                                                                                     Under Prompt Corrective
                                                                   For Capital          Action Provisions
                                             Actual             Adequacy Purposes
                                    --------------------------------------------------------------------------
                                       Amount      Ratio       Amount       Ratio       Amount      Ratio
                                    --------------------------------------------------------------------------
                                                             (Dollars in thousands)
<C>                                  <C>             <C>      <C>            <C>        <C>           <C>
As of  December 31, 2003
   Total Capital
     (to Risk Weighted Assets)       $ 108,689       12.1%    $ 72,104       8.0%       $ 90,129      10.0%
   Core Capital
     (to Adjusted Tangible Assets)     101,293        6.2       65,715       4.0          82,143       5.0
   Tier I Capital
     (to Risk Weighted Assets)         101,293       11.2          N/A        N/A         54,078       6.0

As of December 31, 2002
   Total Capital
     (to Risk Weighted Assets)       $ 100,367       11.5%    $ 70,179       8.0%       $ 87,724      10.0%
   Core Capital
     (to Adjusted Tangible Assets)       94,349       5.8       64,852       4.0          81,605       5.0
   Tier I Capital
     (to Risk Weighted Assets)           94,349      10.8          N/A        N/A         52,634       6.0

</TABLE>

                                      F-40
<PAGE>

                    Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


14.  Regulatory (continued)

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.

Matrix  Bank is required  to  maintain  vault cash or balances  with the Federal
Reserve  Bank  of  Kansas  City  in a  noninterest-earning  account  based  on a
percentage of deposit liabilities.  The required reserve balance was $35,301,000
and $6,989,000 at December 31, 2003 and 2002, respectively.

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  $2,492,000  at  December  31,  2003  and
$5,561,000 at December 31, 2002. At December 31, 2003 and 2002, Matrix Financial
was in compliance with these regulatory requirements.

First Matrix,  headquartered in Denver,  Colorado,  a wholly owned subsidiary of
Matrix Bancorp  Trading,  is a broker-dealer  registered with the Securities and
Exchange Commission (SEC) under rule  15c3-3(k)(2)(ii).  First Matrix is subject
to the SEC's Net  Capital  Rule that  requires  the  maintenance  of minimum net
capital and requires  that the ratio of aggregate  indebtedness  to net capital,
both as defined by the  regulations,  shall not exceed 15 to 1. At December  31,
2003,  First  Matrix  had a net  capital  deficiency  of  $(211,000),  which was
$281,000  under  its  required  net  capital  of  $69,000.  The  deficiency  was
calculated  after two technical  exceptions  noted in connection  with a routine
examination  of First  Matrix's  books and records by the NASD.  The  exceptions
related to cash on hand at an affiliate bank, and deductible limits on fiduciary
bond coverage. Upon receipt of the NASD's calculation of net capital deficiency,
cash was  transferred  from  First  Matrix's  account  at  Matrix  Bank to First
Matrix's clearing firm, which cured the capital deficiency.

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, 2003,
Sterling was in compliance with capital requirements under Texas law.

                                      F-41
<PAGE>
                    Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)



15.   Shareholders' Equity

Stock Option Plan

The Company has  elected to follow APB  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 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  950,000  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, 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. To date, all grant prices have equaled the market
price of the underlying  stock on the date of the grant.  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.   All  options   granted   to-date  have  been
non-qualified.

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.  To date, no
options have been granted to consultants.

Pro forma information regarding net (loss) income and (loss) income per share is
required by SFAS 148 and is included in Note 2. 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  2003,  2002  and  2001,
respectively:  risk-free interest rates of 4.2%, 4.5% and 5.0%; a dividend yield
of  zero  percent;  volatility  factors  of the  expected  market  price  of the
Company's common stock of 0.49, 0.52 and 0.57; and a  weighted-average  expected
life of the option of four years.

The  Black-Scholes  option valuation model for used 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

                                      F-42
<PAGE>
                    Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


15. Shareholders' Equity (continued)

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.

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

                                                         Years ended December 31,
                                        2003                     2002                      2001
                             ------------------------------------------------------------------------------
                                            Weighted                 Weighted                  Weighted
                                            Average                   Average                  Average
                                            Exercise                 Exercise                  Exercise
                               Options       Price       Options       Price      Options       Price
                             ------------------------------------------------------------------------------
<C>                              <C>      <C>             <C>       <C>            <C>       <C>

Outstanding, beginning of
   year                          678,125  $    10.11      611,825   $    9.99       496,700  $   10.54
Granted                           35,000        9.29       86,500       11.12       250,000       9.32
Exercised                         (9,000)       9.00       (1,700)       9.11       (16,250)      8.55
Forfeited                        (94,375)      10.07      (18,500)      10.44      (118,625)     11.09
                             -------------             -------------            -------------
Outstanding, end of year         609,750       10.10      678,125       10.11       611,825       9.99
                             =============             =============            =============


Exercisable end of year          436,900  $    10.24      397,655    $  10.31       306,683  $   10.34

Weighted average fair value
   of options granted during
   the year                   $   2.72                  $    6.20                $     5.79
                             =============             =============            =============
</TABLE>

Options  outstanding  at December 31, 2003,  have exercise  prices  ranging from
$5.13 to $26.50 per share as outlined in the following table:
<TABLE>
<CAPTION>

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

  $        5.13            79,500          $  5.13             1.00             79,500      $   5.13
    7.00 - 7.88             7,500             7.29             7.50              3,000          7.29
    8.00 - 8.69            88,750             8.55             6.77             49,950          8.52
    9.15 - 9.86           134,000             9.71             8.20             46,250          9.80
   10.00 - 10.37          155,000            10.34             5.03            120,600         10.18
   11.50 - 13.88           69,500            12.47             5.02             62,100         12.46
   14.25 - 17.25           73,500            15.13             3.51             73,500         15.13
           26.50            2,000            26.50             5.33              2,000         26.50
                  -----------------------------------------------------------------------------------------
                          609,750           $10.10             6.27            436,900        $10.31
                  =========================================================================================

</TABLE>

                                      F-43
<PAGE>
                    Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


15.   Shareholders' Equity (continued)

Employee Stock Purchase Plan

In 1996,  the board of  directors  and  shareholders  adopted an Employee  Stock
Purchase Plan  (Purchase  Plan) and  authorized,  as amended,  250,000 shares of
common stock (ESPP  Shares) for issuance  there under.  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% of the lower of the fair
market value per share of common stock on the  enrollment or the purchase  date.
As of December  31,  2003,  there were 59,866 ESPP Shares  available  for future
issuance.

16.   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, 2003 are approximately as follows:
                                                  (In thousands)

2004                                               $       1,158
2005                                                       1,065
2006                                                         942
2007                                                         363
2008                                                         185
Thereafter                                                   525
                                                  -------------------
                                                   $       4,238
                                                  ===================

Total  rent  expense  aggregated   approximately   $1,050,000,   $1,534,000  and
$1,674,000 for the years ended December 31, 2003,  2002 and 2001,  respectively,
and is recorded in occupancy and equipment expense.

The Company,  through  Matrix Tower  Holdings,  LLC, an operating  subsidiary of
Matrix Bank,  is a lessor of office  space under  various  operating  leases for
Matrix  Financial  Center.  Annual  amounts  expected for future  minimum rental
income as of December 31, 2003 are approximately:
                                                         (In thousands)

2004                                                       $     1,927
2005                                                             1,888
2006                                                             1,533
2007                                                             1,083
2008                                                               316
Thereafter                                                          20
                                                         -------------------
                                                         -------------------
                                                           $     6,767
                                                         ===================

                                      F-44
<PAGE>
                    Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)



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

Total  rental  income  for the years  ended  December  31,  2003,  2002 and 2001
aggregated approximately $2,050,000, $1,172,000 and $0, respectively.

Included in the expected future office rents are the following  amounts under an
operating lease with MSCS:  $129,000,  $135,000,  $136,000,  $113,000 and $0 for
2004, 2005, 2006, 2007 and 2008, respectively.

Off-Balance Sheet Risk and Concentration of Commitments

A summary of the contractual amount of significant commitments follows:

                                                         December 31,
                                                     2003             2002
                                              ----------------------------------
                                                        (In thousands)

Loans secured by mortgages                     $      50,155     $      31,154
Construction loans                                    12,833            10,991
Commercial lines of credit                             1,583             8,338
Commercial loans                                         747             4,858
Consumer loans                                           848               581

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
provide a 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.  Because 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.

                                      F-45
<PAGE>
                    Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


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

Matrix  Bancorp,  Inc. has  guaranteed,  with 50% recourse to the joint  venture
partner, the indebtedness of MSCS to a third party financial institution,  in an
amount of no greater than $6,000,000 at December 31, 2003.  There was no balance
outstanding at MSCS on such indebtedness at December 31, 2003.

Risk Management Activities for MSRs

Ownership  of MSRs  exposes  the Company to  impairment  of the value of MSRs 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 impairment in
the  associated  basis in the MSRs may  occur.  In 2001  through  mid-2002,  the
Company  implemented  a strategy to mitigate this risk of retaining a portion of
originated  servicing as management  believed that retaining  servicing that was
generated in the lower  interest  rate  environment  will incur less  prepayment
risk. During 2002,  interest rates continued to decrease,  which resulted in the
Company incurring a significant provision against the value of its investment in
mortgage servicing rights, as well as an increased level of repayment  activity.
Due to the interest rate environment and capital  constraints,  in late 2002 the
Company  began to sell the  majority  of its  newly  originated  servicing,  and
continued in that strategy  during 2003. The strategy is to reduce the Company's
overall investment in mortgage servicing rights.

In the fourth quarter 2002, the Company elected to reinstate its hedging program
to reduce the risk of loss in fair value of the mortgage servicing rights due to
declining  interest  rates.  The  decision  was  based on the  historically  low
interest rates, the continued  weakening economy,  the geopolitical  environment
and the impairment that the Company incurred to-date.  At December 31, 2003, the
Company  hedged  approximately  $530,000,000  notional  balance of its servicing
portfolio,  or 18.8%.  During 2003,  the Company  recorded  gains on sale of the
derivatives  of $708,000,  which is recorded in other income.  During the fourth
quarter 2002, the Company hedged approximately  $400,000,000 notional balance of
its servicing  portfolio,  or 7.5%. As of December 31, 2002, the Company removed
the hedge and recorded a gain on sale of the  derivatives of $800,000,  which is
recorded  in other  income.  The hedge was  reinstated  on January  2, 2003,  at
approximately  $600,000,000 notional balance.  Although the Company believes its
hedging program could qualify for hedge  accounting  under SFAS 133, the Company
did  not  attempt  to  qualify  for  hedge  accounting   treatment  due  to  the
requirements  in SFAS 133 that were necessary to do so. The decision to increase
or decrease hedging  coverage will be based on several factors,  including those
discussed above, as well as the composition of the current servicing portfolio.


                                      F-46
<PAGE>
                    Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


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

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. Because the outcome of most litigation matters is inherently uncertain,
the Company will  generally only accrue a loss for a pending  litigation  matter
if, for  example,  the  parties  to the  matter  have  entered  into  definitive
settlement  agreements  or a final  judgment  adverse  to the  Company  has been
entered. 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,  2003  unless  otherwise  noted,  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 position,  results of operations or
cash flows of the Company.

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 the Company
and Fidelity in connection  with the termination of their proposed  merger.  The
arbitration  panel has ruled that the entire  Merger  Termination  Agreement was
unenforceable.  The Company  and Matrix Bank filed an appeal of the  arbitration
panel's decision in federal district court in Phoenix,  Arizona,  which has been
denied. In October 2001,  Fidelity  initiated a second  arbitration to determine
the  validity  of a release  given in  connection  with the  Merger  Termination
Agreement.  Matrix  Bancorp  contested  that the releases were valid and, in the
alternative,  made  a  counterclaim  against  Fidelity  demanding  restitutional
damages  for the  value of the  releases  if they  were  determined  valid.  The
arbitration  panel has held the  releases  to be valid and  enforceable  and has
denied the  Company's  claim for  restitutional  damages.  Fidelity  has filed a
motion  requesting  that it be  awarded  its  attorney  fees,  and the panel has
awarded Fidelity  approximately  $500,000. The Company has appealed the decision
of the arbitration panel, and the ultimate legal and financial  liability of the
Company, if any, in this matter cannot be estimated with certainty at this time.

Sterling  Trust  Company has been named a defendant  in an action  filed in July
1999 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 a judgment was entered
against  Sterling  Trust  in  the  amount  of  approximately  $6,400,000,   plus
post-judgment  interest and  conditional  attorneys'  fees for the plaintiffs in
connection  with any appeals.  Sterling Trust appealed the judgment to the Court
of Appeals for the Second District of

                                      F-47
<PAGE>
                    Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)

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

Texas (Fort Worth). On July 31, 2003, the Court of Appeals affirmed and reversed
in part the jury's verdict.  The Court of Appeals  affirmed the jury's award for
actual damages of  approximately  $6,200,000  (plus  post-judgment  interest and
attorneys' fees currently  estimated to be approximately  $2,800,000) but denied
the punitive damage award of approximately $250,000. Sterling Trust continues to
believe that it has meritorious points of appeal to the decision. On October 31,
2003,  Sterling  Trust filed its Petition  for Review with the Supreme  Court of
Texas. On January 29, 2004, the Supreme Court of Texas notified the parties that
it was  requesting  full  briefing from the parties on the matter.  However,  an
appeal to the Supreme Court of Texas is  discretionary  in nature,  meaning that
the  Supreme  Court  of  Texas  does not  automatically  have to hear the  case.
Notwithstanding  the request by the Supreme  Court of Texas for full briefing on
the matter,  there can be no  assurances  that the  Supreme  Court of Texas will
agree to hear the  case or that,  if  heard,  Sterling  Trust's  appeal  will be
successful.  Because  management has determined  that the loss in this matter is
not  probable,  no  accrual  for  loss  has been  recorded  in  these  financial
statements.  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,  Sterling Trust 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  parties  have  agreed to abate this  action  pending the
outcome  of the appeal  mentioned  in the  previous  paragraph.  The  defendants
believe they have adequate defenses and intend to vigorously defend this action.
The ultimate  legal and financial  liability,  if any, of the Company  cannot be
estimated with certainty at this time.

Sterling Trust was named a defendant in several  putative class action  lawsuits
instituted  in  November  2000 by one  law  firm  in  Pennsylvania.  All of such
lawsuits  were  originally  filed in the United  States  District  Court for the
Western District of Pennsylvania.  On April 26, 2001, the District Court for the
Western  District of Pennsylvania  ordered that all of such cases be transferred
to the United States  District  Court for the Western  District of Texas so that
Sterling Trust could properly present its motion to compel arbitration. Sterling
Trust filed separate  motions to compel  arbitration  in these  actions,  all of
which were granted.  Each of the six plaintiffs timely filed arbitration demands
with the American Arbitration  Association.  The demands seek damages and allege
Sterling Trust  breached  fiduciary  duties and was negligent in  administrating
each claimant's self-directed individual retirement account holding a nine-month
promissory note. Each of these  arbitration  actions has been abated pending the
outcome of the matter  pending in the Superior  Court of the State of California
discussed in the following paragraph. Sterling Trust believes it has meritorious
defenses  and is  defending  the  matters  vigorously.  The  ultimate  legal and
financial  liability,  if any, of the Company cannot be estimated with certainty
at this time.


                                      F-48
<PAGE>
                    Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


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

Sterling Trust has been named a defendant in an action pending in Superior Court
of the State of California.  The complaint  seeks class action status,  requests
unspecified damages and alleges negligent misrepresentation, breach of fiduciary
duty and breach of written  contract  on the part of  Sterling  Trust.  Sterling
Trust  believes  it  has  meritorious  defenses  and  is  defending  the  matter
vigorously.  The ultimate legal and financial liability,  if any, of the Company
cannot be estimated with certainty at this time.

In addition to the other litigation matters described above,  Sterling Trust has
been the subject of  numerous  lawsuits  and  arbitration  proceedings  in which
customers  and, in some  cases,  persons who are not  customers  allege  various
theories of liability against the Company for losses suffered by these claimants
in  connection  with their failed  investments  in several  enterprises.  To the
extent that Sterling Trust has had any relationship  with any of such claimants,
it has been solely as custodian of such claimants self-directed IRAs pursuant to
contracts that specify the limited nature of Sterling  Trust's  obligations.  We
believe Sterling Trust has in each case acted in accordance with its obligations
under the contracts and/or as otherwise  imposed by law. We further believe that
the  ultimate  outcome  of each of  these  cases  will  not be  material  to the
consolidated financial position and results of operations of Company; but, there
can be no  assurances  that there  will not be an adverse  outcome in any one or
more of these cases or that any such  adverse  outcome  will not have a material
adverse effect on the consolidated  financial position and results of operations
of the Company.

A former  customer of the Company is a debtor in a Chapter 11  proceeding  under
the  Bankruptcy  Code  pending in the  United  States  Bankruptcy  Court for the
Eastern  District of New York. 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  customers,  with the
customer having the right or obligation to repurchase such mortgage loans within
a specified period of time. The Company purchased  approximately  $12,400,000 in
original  principal  amount (the Purchased  Loans) at the time of the Chapter 11
filing.  The  principals  of the customer  were indicted for fraud in connection
with financial  improprieties  committed.  Various third parties have instituted
lawsuits,  adversary  proceedings  or competing  bankruptcy  claims  against the
Company  claiming  an  equitable  interest  in  approximately  eighteen  of  the
Purchased Loans (approximately  $2,100,000 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
the customer had either provided company checks with  insufficient  funds or had
inappropriately  placed a stop payment on the checks.  To date,  the Company has
reached  settlements or prevailed on the merits in connection  with all of these
loans, with the exception of third parties claiming ownership of, or an interest
in seven loans having an original  principal balance of approximately  $830,000.
The Company  intends to continue to vigorously  defend the claims of these third
parties with respect to the

                                      F-49
<PAGE>
                    Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


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

remaining seven loans in this category to which there continues to be a dispute.
The ultimate legal and financial liability of the Company, if any, in any of the
matters  involving  these seven loans cannot be estimated with certainty at this
time.

Additionally,  certain  parties  in the  chain  of title  to  property  securing
approximately  $2,700,000 of loans  (approximately 20 loans),  including sellers
and prior lien holders, are seeking to void or rescind their transactions on the
theory  that  they  never  received  consideration.   The  Company  has  reached
settlements  with  respect to all of these  loans,  with the  exception of third
parties claiming ownership of, or an interest in seven of these properties.  The
Company  intends to  continue  to  vigorously  defend the claims of these  third
parties with respect to the remaining seven loans in this category. The ultimate
legal and  financial  liability  of the  Company,  if any, in any of the matters
involving these seven loans cannot be estimated with certainty at this time.

In connection  with the review of the  relationship  between the Company and the
debtor, the trustee for the debtor claimed an interest in each of the loans that
had been purchased by the Company from the debtor. The trustee's claims included
theories  that,  with respect to certain other loans,  the Company was a secured
creditor (as opposed to a  purchaser),  and with respect to certain other loans,
that the  Company  was and  unsecured  creditor  (as  opposed  to a  purchaser).
Accordingly,  the trustee concluded,  depending on which of the above theories a
particular  loan fit into,  that the trustee was either  entitled to a surcharge
with respect to the loans or that the estate in fact continued to own the loans.
During  2003,  the Company and the trustee  reached an agreement to settle these
claims, and this matter has now been closed.

The trustee has also initiated an adversarial action against the Company seeking
to recover as an avoidable preference  approximately  $6,100,000 payments by the
debtor to the Company  during the 90 days  proceeding  the filing of bankruptcy.
The Company  believes that it will  successfully  demonstrate  to the Bankruptcy
Court that the amount  claimed  was  purchase  money  belonging  to the  Company
returned  by the  debtor  for loans  that did not close and were not sold to the
Company. 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 any of these matters cannot be estimated with certainty at this time.

Additionally,   the  Company  has  initiated  an  adversary  claim  against  the
depository bank for the customer  discussed above. The Company believes that the
depository  bank bears  liability  for any loss  sustained  by the  Company as a
result of the fraud perpetrated by the customer.  The Company also believes that
any loss it may  sustain  as a result  of its  dealings  with the  customer  are
insured.  The Company cannot  accurately assess at this time whether and to what
extent it will receive compensation from any source for any loss it may incur as
a result of its relationship with the customer.


                                      F-50
<PAGE>
                    Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


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

Related Party Transactions

In June of 2002,  the Company  accepted the  resignation of Guy A. Gibson as the
President  and Chief  Executive  Officer  of the  Company.  Mr.  Gibson is still
serving  on the Board of  Directors  of the  Company  and is  providing  ongoing
consulting  services to the Company.  Under the terms of a Consulting  Agreement
entered into with Mr. Gibson,  the Company paid Mr. Gibson  $500,000 in 2003 for
his consulting  services.  The expense is recorded in compensation  and employee
benefits expense in the consolidated statements of operations.

17.   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 pre-tax
contributions  to the  Plan  up to 25% of  such  participant's  earnings  with a
maximum of $12,000 in 2003. The Company makes a matching  contribution of 50% of
the first 6% of the  participant's  compensation  deferred of the  participant's
total  contribution.  Matching  contributions made by the Company vest over five
years. The Company  contributed  approximately  $643,000,  $716,000 and $298,000
during the years ended December 31, 2003, 2002 and 2001, respectively, which and
was recorded in compensation  and employee  benefits expense in the consolidated
statements of operations.

18.   Fair Value of Financial Instruments

The carrying  amounts and estimated fair value of financial  instruments  are as
follows:
<TABLE>
<CAPTION>

                                                               December 31,
                                                       2003                      2002
                                            ------------------------------------------------------
                                                           Estimated                  Estimated
                                              Carrying       Fair        Carrying       Fair
                                               Amount        Value        Amount        Value
                                            ------------------------------------------------------
                                                               (In thousands)
<C>                                           <C>          <C>        <C>             <C>

Financial assets:
   Cash and cash equivalents                  $   34,510   $   34,510 $     62,412    $   62,412
   Investment securities - available for
     sale                                        112,402      112,402       29,073        29,073
   Investment securities - held to maturity
                                                  40,106       40,172            -             -
   Loans held for sale, net                      999,454    1,003,092    1,107,919     1,112,841
   Loans held for investment, net                344,802      341,937      285,891       290,084
   FHLBank stock                                  30,682       30,682       30,379        30,379

</TABLE>

                                      F-51

<PAGE>

                    Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


18.   Fair Value of Financial Instruments (continued)
<TABLE>
<CAPTION>

                                                                December 31,
                                                       2003                      2002
                                            ------------------------------------------------------
                                                           Estimated                  Estimated
                                              Carrying       Fair        Carrying       Fair
                                               Amount        Value        Amount        Value
                                            ------------------------------------------------------
                                                               (In thousands)
<C>                                           <C>          <C>          <C>            <C>
Financial liabilities:
   Deposits                                   $  974,059   $  977,280   $  933,957     $ 936,809
   Custodial escrow balances                      85,466       85,466      151,790       151,790
   Payable for purchase of MSRs                      201          201          782           782
   FHLBank borrowings                            458,204      469,415      385,785       400,418
   Borrowed money and junior subordinated
     debentures                                  114,495      115,018      125,903       126,849
</TABLE>

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  consolidated  balance sheets for cash and
cash equivalents,  securities,  FHLBank stock,  payable for purchase of MSRs and
certain  components of borrowed money approximate those assets' and liabilities'
fair values based on the nature of the asset or liability.

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 value of derivative financial instruments used to hedge the
loan portfolio is included in the carrying amount and fair value of the loans.

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

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, 2003 and 2002,  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).

                                      F-52
<PAGE>
                    Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)



19.   Parent Company Condensed Financial Information

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

                                                                         December 31,
                                                                     2003             2002
                                                              ------------------------------------
                                                                        (In thousands)
<C>                                                           <C>                 <C>

Condensed Balance Sheets
Assets:
   Cash                                                       $        3,192      $        854
   Loans receivable                                                        -             2,430
   Other receivables                                                       -               491
   Premises and equipment, net                                           696               915
   Other assets                                                        5,311             3,046
   Investment in and advances to subsidiaries                        157,146           157,480
                                                              ------------------------------------
Total assets                                                    $    166,345      $    165,216
                                                              ====================================

Liabilities and shareholders' equity:
   Borrowed  money and junior  subordinated  debentures
     owed to  unconsolidated subsidiary trusts and
     corporation-obligated  mandatorily redeemable
     capital securities of subsidiary trusts holding
     solely debentures of the Company (a)                       $     82,143      $     86,046
   Other liabilities                                                  14,518            12,234
                                                              ------------------------------------
Total liabilities                                                     96,661            98,280
Shareholders' equity:
   Common stock                                                            1                 1
   Treasury shares                                                         -                 -
   Additional paid-in capital                                         20,615            20,375
   Retained earnings                                                  48,859            46,534
   Accumulated other comprehensive income                                209                26
                                                              ------------------------------------
Total shareholders' equity                                            69,684            66,936
                                                              ------------------------------------
Total liabilities and shareholders' equity                      $    166,345      $    165,216
                                                              ====================================
<FN>
(a)      The  Parent's  debt is set  forth in a table  following  the  condensed
         statements  of cash  flows.  The Parent also  guarantees  a portion the
         financing  related  to  charter  schools.  See  Note 10 and Note 11 for
         additional information regarding the debt.

</FN>
</TABLE>
                                      F-53
<PAGE>
                    Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


19.   Parent Company Condensed Financial Information (continued)
<TABLE>
<CAPTION>

                                                                  Years ended December 31,
                                                            2003             2002            2001
                                                     ----------------------------------------------------
                                                                       (In thousands)
       <C>                                             <C>              <C>              <C>

       Condensed Statements of Operations
       Income:
          Interest income on inter-company
            advances                                   $         52     $      1,232     $     2,395
          Other                                                  46               57           1,230
                                                     ----------------------------------------------------
       Total income                                              98            1,289           3,625

       Expenses:
          Compensation and employee benefits                  4,468            4,584           3,529
          Occupancy and equipment                               745              817             748
          Interest on borrowed money                          7,628            7,766           8,511
          Professional fees                                     947              299             437
          Other general and administrative                      731              943           2,553
                                                     ----------------------------------------------------
       Total expenses                                        14,519           14,409          15,778
                                                     ----------------------------------------------------


       Loss before income taxes and equity income of
          subsidiaries                                      (14,421)         (13,120)        (12,153)
       Income taxes (b)                                           -                -               -
                                                     ----------------------------------------------------
       Loss before equity income of subsidiaries            (14,421)         (13,120)        (12,153)
       Equity income of subsidiaries                         16,746            9,168          20,665
                                                     ----------------------------------------------------
       Net income (loss)                             $         2,325    $     (3,952)  $       8,512
                                                     ====================================================
<FN>

(b)      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 (benefit)  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 carry-back of such loss,  calculated on the basis of
         the  subsidiary  filing a separate  return.  Accordingly,  the Parent's
         condensed  statements  of  operations  do not  include  any  income tax
         benefit for the current losses.
</FN>
</TABLE>

                                      F-54
<PAGE>
                    Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


19.   Parent Company Condensed Financial Information (continued)
<TABLE>
<CAPTION>


                                                            Years ended December 31,
                                                     2003             2002              2001
                                              ------------------------------------------------------
                                                                 (In thousands)
<C>                                             <C>               <C>              <C>
Condensed Statements of Cash Flows
   Operating activities:
   Net income (loss)                            $       2,325     $      (3,952)   $       8,512
   Adjustments to reconcile net income (loss)
     to net cash (used) provided by operating
     activities:
       Equity income of subsidiaries                  (16,746)           (9,168)         (20,665)
       Dividends from subsidiaries                      6,593             8,485           11,996
       Depreciation and amortization                      566               757              703
       Unrealized gain (loss) on securities
         available for sale                               183                 1             (794)
       Loss on sublease                                     -               700                -
       Increase (decrease) in other
         liabilities                                    2,284             4,647             (888)
       Decrease (increase) in other
         receivables and other assets                   2,527               534           (3,133)
                                              ------------------------------------------------------
Net cash (used in) provided by operating
   activities                                          (2,268)            2,004           (4,269)


Investing activities:
   Purchases of premises and equipment                   (193)             (274)            (606)
   Investment in and advances to subsidiaries
                                                        5,987            (5,042)         (19,331)
                                              ------------------------------------------------------
Net cash provided by (used in) investing
   activities                                           5,794            (5,316)         (19,937)


Financing activities:
   Repayments of notes payable and revolving
     line of credit                                   (11,778)          (34,877)         (49,437)
   Proceeds from notes payable and revolving
     line of credit                                    10,350            34,396           43,250
   Shares repurchased                                       -              (726)            (746)
   Proceeds from capital securities of
     subsidiary trusts                                      -             4,917           30,977
   Proceeds from issuance of common stock
                                                          240               301              317
                                              ------------------------------------------------------
Net cash (used in) provided by financing
  activities                                           (1,188)            4,011           24,361
                                              ------------------------------------------------------
Increase in cash                                        2,338               699              155
Cash at beginning of year                                 854               155                -
                                              ------------------------------------------------------
Cash at end of year                           $         3,192   $           854  $           155
                                              ======================================================

</TABLE>

                                      F-55
<PAGE>
                    Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


19.   Parent Company Condensed Financial Information (continued)

Parent Company Debt is set forth below:
<TABLE>
<CAPTION>

                                                                           December
                                                                     2003             2002
                                                              ------------------------------------
                                                                        (In thousands)
<C>                                                           <C>               <C>

Senior notes                                                  $         9,545   $         9,545
Bank stock loan                                                         6,073             7,501
                                                              ------------------------------------
Total term notes                                                       15,618            17,046
Bank stock revolving line of credit                                         -                 -
Junior subordinated debentures owed to unconsolidated
   subsidiary trusts                                                   66,445                 -
Capital securities of subsidiary trusts                                     -            64,500
Other                                                                       -             4,500
                                                              ------------------------------------
Total debt                                                     $       82,063    $       86,046
                                                              ====================================
<CAPTION>

As of December 31, 2003, the maturities of debt are as follows:
                                                                           (In thousands)
<C>                                                                      <C>

2004                                                                     $         15,618
Thereafter                                                                         66,445
                                                                         ----------------------
                                                                         $         82,063
                                                                         ======================
<CAPTION>

20.   Selected Quarterly Financial Data (Unaudited)

                                                                         2003
                                           -----------------------------------------------------------------
                                                Fourth          Third           Second          First
                                               Quarter         Quarter         Quarter         Quarter
                                           -----------------------------------------------------------------
                                                           (In thousands except share data)
      <C>                                    <C>           <C>              <C>             <C>

      Operations:
      Net interest income before provision
         for loan and valuation losses       $     9,966   $      10,295    $      10,710   $     10,737
      Provision for loan and valuation
         losses                                      990           1,114              842            695
      Noninterest income                          15,675          14,782           21,047         17,825
      Noninterest expense                         24,185          23,932           34,101         28,750
                                           -----------------------------------------------------------------
      Income (loss) from continuing
         operations before income taxes              466              31           (3,186)          (883)
      Income tax benefit                            (185)           (289)          (1,558)          (543)
      Income (loss) from continuing
         operations                                  651             320           (1,628)          (340)

      Discontinued operations:
      Income (loss) from discontinued
         operations, net of income taxes             373          (2,360)           3,057          2,252
                                           -----------------------------------------------------------------
      Net income (loss)                       $    1,024    $     (2,040)   $       1,429    $     1,912
                                           =================================================================

</TABLE>

                                      F-56
<PAGE>
                    Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


20.   Selected Quarterly Financial Data (Unaudited) (continued)
<TABLE>
<CAPTION>


                                                                         2003
                                           -----------------------------------------------------------------
                                                Fourth          Third           Second          First
                                               Quarter         Quarter         Quarter         Quarter
                                           -----------------------------------------------------------------
                                                           (In thousands except share data)
      <C>                                  <C>             <C>             <C>             <C>

      Net income (loss) per share data
                                           -----------------------------------------------------------------
      Basic                                $         0.16  $        (0.31) $       0.22    $        0.30
                                           =================================================================
      Diluted                              $         0.16  $        (0.31) $       0.22    $        0.29
                                           =================================================================

      Balance Sheet:
      Total assets                         $   1,723,924   $   1,601,340   $    1,744,670  $   1,697,475
      Total loans, net                         1,344,256       1,282,838        1,384,642      1,376,386
      Shareholders' equity                        69,684          68,299           70,324         68,856

<CAPTION>

                                                                         2002
                                           -----------------------------------------------------------------
                                                Fourth          Third           Second          First
                                               Quarter         Quarter         Quarter         Quarter
                                           -----------------------------------------------------------------
                                                           (In thousands except share data)
      <C>                                  <C>             <C>             <C>             <C>

      Operations:
      Net interest income before provision
         for loan and valuation losses     $      11,472   $      11,337   $       11,028  $       8,873
      Provision for loan and valuation
         losses                                      357             895              532          1,037
      Noninterest income                          14,530          16,034           15,859         15,511
      Noninterest expense                         32,167          37,342           26,312         23,027
                                           -----------------------------------------------------------------
      (Loss) income from continuing
         operations before income taxes           (6,522)        (10,866)              43            320
      Income tax benefit                          (2,741)         (4,675)            (309)           (31)
      Income (loss) from continuing
         operations                               (3,781)         (6,191)             352            351

      Discontinued operations:
      Income from discontinued operations,
         net of income taxes                       2,088             990              552          1,687
                                           -----------------------------------------------------------------
      Net (loss) income                    $       (1,693) $      (5,201)   $         904  $       2,038
                                           =================================================================

      Net (loss) income per share data
                                           -----------------------------------------------------------------
      Basic                                $       (0.26)  $      (0.81)   $         0.14  $
                                                                                                    0.31
                                           =================================================================
      Diluted                              $       (0.26)  $      (0.81)   $         0.14  $        0.31
                                           =================================================================

      Balance Sheet:
      Total assets                         $   1,701,405   $   1,778,046   $    1,623,223  $   1,570,227
      Total loans, net                         1,393,810       1,449,773        1,303,835      1,210,458
      Shareholders' equity                        66,936          68,337           73,540         72,625

</TABLE>


21.   Segments of the Company and Related Information

The Company has four reportable segments under SFAS No. 131,  "Disclosures About
Segments  of an  Enterprise  and Related  Information":  a  traditional  banking
subsidiary, a mortgage banking

                                      F-57
<PAGE>
                    Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)

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

subsidiary,  two brokerage and  consulting  subsidiaries  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.  The mortgage  banking  subsidiary owns residential MSRs and services the
mortgage loans underlying those MSRs, and has some minimal mortgage  origination
activity. The brokerage subsidiaries offer brokerage and consulting services for
residential MSRs and brokerage  services for whole loan  activities,  retail and
fixed  income  activities,  and SBA loans and  securities.  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
primarily of the Company's trust operations,  real estate  disposition  services
and the Parent company operations.

The Company  evaluates  performance  and allocates  resources based on operating
profit or loss before income taxes.  Accordingly,  the information  presented in
this table is from continuing  operations,  which excludes the financial results
of the  wholesale  production  platform  for  all of the  years  presented.  The
platform was sold in 2003 as discussed in Note 3. 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).

For the years ended December 31:
<TABLE>
<CAPTION>

                                                        Servicing
                            Traditional   Mortgage    Brokerage and     School
                              Banking     Banking      Consulting      Services    All Others      Total
                           ----------------------------------------------------------------------------------
                                                              (In thousands)
<C>                        <C>          <C>           <C>            <C>         <C>           <C>

2003
Revenues from external
   customers:
     Interest income       $    62,286  $     5,132   $         285  $    5,607  $         397 $    73,707
     Noninterest income          8,345       32,538          10,707       2,240         15,499      69,329

Intersegment revenues            3,059        3,236           2,028          11          1,814      10,148

Interest expense                22,773        3,082              47           5          6,092      31,999

Depreciation/amortization          702       32,758             123         778          1,622      35,983

Segment income (loss) from
   continuing operations
   before income taxes
                                23,355      (12,608)          4,028      (4,616)       (13,731)     (3,572)

Segment assets (a)           1,647,833      114,743           9,244      62,768        182,925   2,017,573

</TABLE>

                                      F-58
<PAGE>
                    Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


21. Segments of the Company and Related Information (continued)
<TABLE>
<CAPTION>

                                                        Servicing
                            Traditional   Mortgage    Brokerage and     School
                              Banking     Banking      Consulting      Services    All Others      Total
                           ----------------------------------------------------------------------------------
                                                                      (In thousands)
<C>                        <C>          <C>           <C>            <C>         <C>             <C>

2002
Revenues from external
   customers:
     Interest income       $    71,320  $     5,220   $         123  $    6,823  $          501  $  83,988
     Noninterest income          4,677       31,499           9,273       6,445          10,040     61,934

Intersegment revenues            3,019        3,694           1,192          11          2,260      10,176

Interest expense                31,037        3,019             154       2,771          4,297      41,278

Depreciation/amortization          602       25,433             109       1,405          1,383      28,932

Segment income (loss) from
   continuing operations
   before income taxes
                                20,081      (19,377)          2,311      (6,736)       (13,304)    (17,025)

Segment assets (a)           1,556,268      527,328           7,209      70,237         50,842   2,211,884

2001
Revenues from external
   customers:
     Interest income       $    87,188  $       839 $            14  $    6,854   $        175  $   95,070
     Noninterest income          9,652       30,889           3,658       7,252          6,936      58,387

Intersegment revenues            1,385        4,418           2,345           -          3,346      11,494

Interest expense                51,008        4,113              85       4,931          4,750      64,887

Depreciation/amortization          489       23,013             124         360            992      24,978

Segment income (loss) from
   continuing operations
   before income taxes
                                21,529       (5,529)         (1,406)     (1,177)       (13,412)          5

Segment assets (a)           1,410,072      669,317           6,506      78,131         57,367   2,221,393

<FN>
(a) See reconciliation to total consolidated assets in the following table.
</FN>

<CAPTION>

                                                            2003             2002              2001
                                                     -------------------------------------------------------
                                                                         (In thousands)
<C>                                                  <C>               <C>               <C>

Revenues for year ended December 31:
Interest income for reportable segments              $         73,310  $         83,486  $        94,895
Noninterest income for reportable segments                    53,830            51,894            51,451
Intersegment revenues for reportable segments                  8,334             7,916             8,148
Other revenues                                                17,710            12,802            10,457
Elimination of intersegment revenues                         (10,148)          (10,176)          (11,494)
                                                     -------------------------------------------------------
Total consolidated revenues                          $       143,036   $       145,922   $        153,457
                                                     =======================================================

</TABLE>

                                      F-59
<PAGE>
                    Matrix Bancorp, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


21. Segments of the Company and Related Information (continued)
<TABLE>
<CAPTION>

                                                            2003             2002              2001
                                                     -------------------------------------------------------
                                                                         (In thousands)
<C>                                                  <C>               <C>                <C>

(Loss) income for year ended December 31:
Total profit for reportable segments                 $         10,159  $        (3,721)   $       13,417
Other loss                                                   (13,117)          (12,664)          (13,339)
Elimination of intersegment profit (loss)                       (614)             (640)              (73)
                                                     -------------------------------------------------------
(Loss) income before income taxes                    $         (3,572) $        (17,025)  $            5
                                                     =======================================================

Assets as of December 31:
Total assets for reportable segments                  $    1,834,588    $    2,161,042    $    2,164,026
Other assets                                                 182,925            50,842            57,367
Elimination of intersegment receivables                     (282,574)         (497,514)         (563,304)
Other intersegment eliminations                              (11,015)          (12,965)          (11,149)
                                                     -------------------------------------------------------
Total consolidated assets                             $    1,723,924    $    1,701,405    $    1,646,940
                                                     =======================================================


Other Significant Items for the year ended December 31:
Depreciation/amortization expense:
   Segment totals                                     $         34,361  $        27,549   $       23,986
   Intersegment adjustments                                      1,622            1,383              992
                                                     -------------------------------------------------------
Consolidated totals                                   $         35,983  $        28,932   $       24,978
                                                     =======================================================

Interest expense:
   Segment totals                                    $         25,907  $        36,981  $         60,137
   Intersegment adjustments                                     6,092            4,297             4,750
                                                     -------------------------------------------------------
Consolidated totals                                  $         31,999  $        41,278  $         64,887
                                                     =======================================================


</TABLE>










                                      F-60