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, 2001

                                       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.)

     1380 Lawrence Street, Suite 1400
             Denver, Colorado                                80204
 (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
                                (Title of class)

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

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

     As of March 4, 2002, 6,518,604 shares of common stock were outstanding. The
aggregate market value of common stock held by non-affiliates of the registrant,
based on the closing sales price of such stock on the NASDAQ  National Market on
March 4, 2002, was $30,870,893.  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 17, 2002 are  incorporated by reference
into Part III of this Form 10-K.


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                                                        TABLE OF CONTENTS                                              Page
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    <S>           <C>                                                                                                    <C>

                                                             PART I

    Item 1.       Business.....................................................................................           3
    Item 2.       Properties...................................................................................          24
    Item 3.       Legal Proceedings............................................................................          25
    Item 4.       Submission of Matters to a Vote of Security Holders..........................................          27

                                                             PART II

    Item 5.       Market for Registrant's Common Equity and Related Stockholder Matters........................          27
    Item 6.       Selected Financial Data......................................................................          28
    Item 7.       Management's Discussion and Analysis of Financial Condition and Results of Operations........          28
    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

                                    PART III

    Item 10.      Directors and Executive Officers of the Registrant...........................................          52
    Item 11.      Executive Compensation.......................................................................          52
    Item 12.      Security Ownership of Certain Beneficial Owners and Management...............................          52
    Item 13.      Certain Relationships and Related Transactions...............................................          52

                                                             PART IV

    Item 14.      Exhibits, Financial Statement Schedules and Reports on Form 8-K..............................          52

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<PAGE>


                                     PART I

Item 1.  Business

Matrix Bancorp, Inc.

     General.  Matrix Bancorp, Inc.  (occasionally referred to in this document,
on a consolidated  basis, as "us," "we," the "Company" or similar  terms),  is a
unitary  thrift  holding  company  that,  through our  subsidiaries,  focuses on
traditional banking,  mortgage banking,  trust and clearing activities,  lending
activities 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 and  residential
mortgage  servicing  rights;  offering  brokerage,   consulting  and  analytical
services to financial services companies and financial  institutions;  servicing
residential   mortgage   portfolios  for  investors;   originating   residential
mortgages;  and providing real estate management and disposition  services.  Our
trust and clearing  activities focus primarily on 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  financing  to charter  schools for the  purchase of school sites and
equipment.

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

The Subsidiaries

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

     Matrix  Capital  Bank.  With offices in New Mexico,  Arizona and  Colorado,
Matrix Bank serves its local  communities by providing a broad range of personal
and business  depository  services,  offering  residential  loans and  providing
consumer  and   commercial   real  estate  loans,   including   Small   Business
Administration loans. In 2001, Matrix Bank decided to relocate its domicile from
Las Cruces, New Mexico to Denver,  Colorado. The relocation is anticipated to be
complete in the second quarter of 2002.  Matrix Bank intends to offer all of its
existing banking services in the Denver market.

     Matrix Bank holds the noninterest-bearing custodial escrow deposits related
to the residential mortgage loan portfolio serviced by Matrix Financial Services
Corporation, the interest-bearing money market accounts administered by Sterling
Trust Company and the deposits  resulting from transactions in which Matrix Bank
acts as the clearing bank for clients of Matrix Settlement & Clearance Services,
L.L.C. These deposits, as well as other traditional deposits, are used primarily
to fund  our  mortgage  origination  activity,  as well  as  bulk  purchases  of
residential mortgage loan portfolios throughout the United States, a substantial
portion of which are  serviced  for Matrix  Bank by Matrix  Financial  following
their  purchase.  As of December 31, 2001,  Matrix Bank had total assets of $1.5
billion.

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

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

     As of December 31, 2001, Matrix Financial serviced 86,155 borrower accounts
representing  $5.7 billion in principal  balances,  excluding  $889.0 million in
subservicing for companies that are unaffiliated with us. Many of these accounts
were seasoned loans having lower principal and higher  custodial escrow balances
than newly  originated  mortgage loans. As a servicer of mortgage loans,  Matrix
Financial  generally is required to establish  custodial escrow accounts for the


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deposit of  borrowers'  payments.  These  custodial  accounts are  maintained at
Matrix Bank. At December 31, 2001, the custodial  escrow accounts related to our
servicing portfolio maintained at Matrix Bank were $129.7 million.

     During  2001,  Matrix  Financial  originated  $3.6  billion in  residential
mortgage  loans  primarily  through its regional  wholesale  production  offices
located in Atlanta, Chicago, Dallas, Denver, Houston, Phoenix, Sacramento, Santa
Ana and St.  Louis.  The  mortgage  loans  originated  by Matrix  Financial  are
typically sold in the secondary market.

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

     o    the brokering  and analysis of  residential  mortgage  loan  servicing
          rights and residential mortgage loans;
     o    corporate  and mortgage loan  servicing  portfolio  valuations,  which
          includes the  "mark-to-market"  valuation and analysis  required under
          Statements of Financial Accounting Standards No. 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 Capital Markets provides  brokerage services to the mortgage banking
entities of several of the nation's largest financial institutions. During 2001,
Matrix  Capital  Markets  brokered  the  sale  of  25  mortgage  loan  servicing
portfolios  totaling  $23.9  billion  in  outstanding  mortgage  loan  principal
balances.

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

     First Matrix Investment Services Corp. First Matrix,  which became a wholly
owned  subsidiary of Matrix Capital  Markets 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 service
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,  as well as providing  investment banking services focusing
on fixed income products.  The Fort Worth office focuses  primarily on long-term
investing and  retirement  planning for  individuals.  The Denver office assists
primarily  financial  institutions  in  managing  their  investment  portfolios.
Denver's  client base currently  consists of more than 500 banks  throughout the
United States. The Memphis office,  which focuses on the acquisition,  brokering
and sale of SBA loan pools, began its operations in the fourth quarter of 2001.

     Matrix  Asset  Management  Corporation.  Matrix Asset  Management  provides
nationwide  real  estate  management  and  disposition  services  on  foreclosed
properties owned by financial services companies and financial institutions.  In
addition  to  the  unaffiliated   clients   currently  served  by  Matrix  Asset
Management,  Matrix  Financial  utilizes  Matrix Asset  Management to handle the
disposition  of foreclosed  real estate for which it is responsible as servicer.
As of December  31,  2001,  Matrix  Asset  Management  had  approximately  1,100
foreclosed properties under its management.

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

      Sterling Trust Company. Sterling Trust,  headquartered in Waco, Texas, was
incorporated  in 1984 as a Texas  non-bank  trust  company  specializing  in the
administration  of  self-directed  individual  retirement  accounts,   qualified
business  retirement  plans and custodial  and directed  trust  accounts.  As of
December 31, 2001,  Sterling Trust administered  approximately  41,300 accounts,
with assets under  administration of over $6.0 billion. As of December 31, 2001,
approximately  $120.4  million  of the $6.0  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.  Charter schools are public schools that
are an alternative to traditional  public schools.  As of December 31, 2001, ABS

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provided its services to approximately 125 schools. The primary services offered
include fund accounting,  cash management,  budgeting,  governmental  reporting,
payroll and accounts payable.  ABS 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  programs.  Additionally,  ABS has a
financing  division,  which offers financing to charter schools for the purchase
of school sites and equipment.

     Matrix  Settlement  &  Clearance  Services,   L.L.C.  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.  For the year
ended December 31, 2001, Matrix Settlement & Clearance Services had $3.5 million
of revenues and a net loss of approximately $400,000. Effective January 2, 2002,
Matrix Settlement & Clearance Services' wholly owned subsidiary,  MSCS Financial
Services, LLC, began operations as a NASD registered broker-dealer.

     As of December 31,  2001,  Matrix  Settlement  & Clearance  Services had 56
clients under contract.  These clients administer  approximately $7.6 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, 2001,
Matrix Settlement & Clearance Services' clients had $54.3 million of deposits at
Matrix Bank.

Lending Activities

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

o          Matrix Capital  Markets,  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.

     Substantially  all of the  residential  mortgage  loans  that  Matrix  Bank
acquires  are  classified  as held  for  sale.  This  accounting  classification
requires  Matrix  Bank to carry  the  loans at the  lower of  aggregate  cost or
market.  The  purchased  loan  portfolios   typically  include  both  fixed  and
adjustable  rate  mortgage  loans.   Although  Matrix  Bank  reviews  many  loan
portfolios for prospective  acquisition,  it focuses on acquiring seasoned first
lien priority loans secured primarily by one-to-four  single-family  residential
properties with unpaid principal  balances of less than $500,000.  To the extent
that  adjustable  rate  loans  are  available,  Matrix  Bank  generally  targets
adjustable over fixed rate portfolios. Due to the accounting treatment required,
we believe that the focus on seasoned and adjustable  rate products is generally
expected  to reduce 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,  more  typically,  acquired  the  loan
portfolios in bulk purchases.  Matrix Bank considers  several factors prior to a
purchase.  Among other  factors,  Matrix Bank  considers the product  type,  the
current loan balance,  the current interest rate  environment,  the seasoning of
the mortgage loans,  payment  histories,  geographic  location of the underlying
collateral,  price, the current  liquidity of Matrix Bank and the product mix in
its existing mortgage loan portfolio.

     In some cases,  the mortgage loan  portfolios that Matrix Bank acquires are
purchased at yields that exceed  market.  Some of the loans in these  portfolios
are considered  performing  loans that have had payment  problems in the past or

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

     In the  past,  Matrix  Bank has  purchased  nonperforming  Federal  Housing
Administration and Veteran's  Administration loans from third party sellers. The
Department of Housing and Urban  Development  ("HUD")  generally  guarantees the
majority of principal and interest on these nonperforming loans. These loans are
at fixed  rates and have a  relatively  short  average  life since the loans are
typically  liquidated  through the foreclosure and subsequent claim process with
HUD. As of December 31, 2001, Matrix Bank owned $68.3 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 and higher capital ratios.

     During the year ended December 31, 2001, we made bulk purchases of mortgage
loans of approximately $105.9 million and made bulk sales of approximately $76.1
million for a net gain on sale of bulk mortgage loans of $960,000.

      Residential Mortgage Loan Origination.  We originate  residential mortgage
loans on a  wholesale  basis  through  Matrix  Financial  and on a retail  basis
through both Matrix  Financial and Matrix Bank.  Matrix  Financial  originated a
total of $3.6 billion in residential  mortgage loans for the year ended December
31, 2001.

     Wholesale Originations.  Matrix Financial's primary source of mortgage loan
originations is its wholesale division,  which originates mortgage loans through
approved independent mortgage loan brokers. These brokers qualify to participate
in Matrix Financial's program through a formal application process that includes
an analysis of the broker's  financial  condition and sample loan files, as well
as the broker's  reputation,  general lending  expertise and  references.  As of
December  31,  2001,   Matrix   Financial   had  approved   relationships   with
approximately  2,000 mortgage loan brokers.  From Matrix Financial's  offices in
Atlanta,  Chicago, Dallas, Denver, Houston, Phoenix,  Sacramento,  Santa Ana and
St.  Louis,  the sales staff  solicits  mortgage  loan  brokers  throughout  the
Southeastern,  Western, Midwestern and Rocky Mountain areas of the United States
for mortgage loans that meet Matrix Financial's criteria.

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

     To  supplement  our  product  offerings  made  through our  wholesale  loan
origination  network, we offer a program tailored to borrowers who are unable or
unwilling to obtain mortgage financing from conventional  mortgage sources.  The
borrowers   who  need  this  type  of  loan  product   often  have  impaired  or
unsubstantiated  credit histories and/or unverifiable income and require or seek

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a high  degree  of  personalized  service  and  swift  response  to  their  loan
applications.  As a result,  these borrowers generally are not adverse to paying
higher  interest  rates for this loan product  type, as compared to the interest
rates   charged  by   conventional   lending   sources.   We  have   established
classifications  with  respect to the credit  profiles of these  borrowers.  The
classifications  range from  Alternative A through D depending  upon a number of
factors,  including the borrower's credit history and employment status.  During
2001,  Matrix  Financial  originated  $135.8  million of Alternative A through D
credit  residential   mortgage  loans,  the  majority  of  which  were  sold  to
unaffiliated   third  party  investors  on  a  nonrecourse  basis.  All  current
originations of Alternative A through lesser quality credit loans are originated
under third party  investor  guidelines  and are generally  sold monthly in bulk
loan  portfolios.  This method of sale generally  provides  better  execution as
compared to selling individual loans.

     In 2000,  Matrix  Financial  acquired a servicing  portfolio and production
platform in Missouri.  The production platform specializes in the origination of
loans under a first-time home buyer program. Under this program, first-time home
buyers are able to obtain loans at rates that are generally  below  market.  The
funding for the loans is  available as a result of bond issues  through  various
state and local  governmental  units,  such as Missouri  Housing  Authority.  As
master servicer under the bond programs,  Matrix  Financial  purchases the loans
from the  originator,  principally  other  financial  institutions  or  mortgage
brokers.  Once acquired by Matrix  Financial,  the loans under the specific bond
programs are packaged and Government  National Mortgage  Association  securities
are  issued to the bond  trustees  under the  programs.  Our  contract  with the
Missouri Housing  Authority  expired without renewal relative to our capacity to
act as master  servicer for any bond series issued after August 1, 2001. We will
continue,  however, to service prior bond series until such a time as the series
is no longer outstanding under the indenture.

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

     Retail Originations.  Matrix Bank originates  residential loans on a retail
basis  through its  branches in Las  Cruces,  New Mexico and Sun City,  Arizona.
Matrix  Bank's  lending  office  in  Evergreen,  Colorado  primarily  originates
residential  construction  loans and commercial loans in the local market place.
We attempt to convert the construction loans funded through the Evergreen office
into  permanent  mortgage  loans.  The retail  loans  originated  by Matrix Bank
consist of a broad  range of  residential  loans,  at both fixed and  adjustable
rates,  consumer  loans and  commercial  real  estate  loans.  Once  Matrix Bank
completes its change of domicile,  we anticipate that the Evergreen  office will
consolidate  with the new office in Denver,  Colorado  with no  interruption  in
services.

     Matrix  Financial has also developed a retention center that focuses on the
solicitation  of  our  servicing   portfolio  and  third-party  owned  servicing
portfolios  for  refinancing  opportunities.  The  goal  is  to  identify  those
borrowers  which are likely to  refinance  and have them  refinance  with Matrix
Financial.  If the  refinanced  loan replaces a loan that  comprises part of our
servicing  portfolio,  we have effectively  preserved a portion of our servicing
portfolio and the periodic servicing fees resulting  therefrom,  as the borrower
would have been likely to refinance with an unaffiliated  lender if not with us,
which would result in a loss of the servicing income that results from servicing
the loan.

     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 wholesale or
retail  loan,  we  perform a verbal or written  verification  of  employment  as
required  by  investor  programs  and  utilize a  detailed  checklist  to ensure
accuracy of documentation. In addition, on a monthly basis, we select 10% of all
closed  loans for a detailed  audit  conducted  by our own  personnel or a third
party  service  provider.  The quality  control  process  entails  performing  a
complete  underwriting review and independent  re-verification of all employment
information,  tax  returns,  source of down  payment  funds,  bank  accounts and
credit.  Furthermore,  10% of the  audited  loans are chosen for an  independent
field review and standard factual credit report. All discovered  deficiencies in
these  audits are  reported to our senior  management  to  determine  trends and
additional  training needs. We then address and cure all resolvable  issues.  We
also  perform  a quality  control  audit on all early  payment  defaults,  first
payment defaults and 60-day delinquent loans, the findings of which are reported
to the appropriate investor and/or senior management.

     Sale of Originated Loans. We generally sell the residential  mortgage loans
that we originate.  Under ongoing programs  established with Fannie Mae, Freddie
Mac and Ginnie Mae, conforming  conventional and government loans may be sold on

                                       7
<PAGE>

a cash basis or pooled by us and exchanged for  securities  guaranteed by Fannie
Mae,  Freddie Mac or Ginnie Mae.  We then sell these  securities  to national or
regional  broker-dealers.  Mortgage  loans sold to Fannie  Mae,  Freddie  Mac or
Ginnie Mae are sold on a nonrecourse basis, except for standard  representations
and warranties,  so that  foreclosure  losses are generally borne by Fannie Mae,
Freddie Mac or Ginnie Mae and not by us.

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

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

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

     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 originated loans sold are
recorded in loan origination income.

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

     Commercial and Other  Lending.  We have sought to diversify and enhance the
yield of our loan portfolio by originating  commercial  and, 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  financing  to charter  schools for the  purchase of real estate and
equipment. Matrix Bank's loan production office in Evergreen, Colorado, a suburb
of Denver, principally originates single-family construction and commercial real
estate loans.  Matrix Bank's office in Las Cruces,  New Mexico also originates a
portion of these loans. ABS performs  underwriting and funding of financings for
charter schools.

     Matrix  Bank's  SBA  division,  located  in  Denver,  Colorado,  offers the
following loan products:  SBA 7a loans; first trust deed loans senior to SBA 504
debentures;  first  trust  deed  companion  loans  senior to SBA 7a  loans;  and
Business  and  Industry  Guaranteed  Loans  offered  through  the United  States
Department  of  Agriculture.  Matrix Bank has received  preferred  lender status
under the SBA program in the Colorado market area, and is anticipating expansion
of that designation in New Mexico,  Utah,  Oregon,  Idaho and Las Vegas,  Nevada
during  2002.   Preferred   lender   status   allows   Matrix  Bank  to  approve
SBA-guaranteed  loan  applications  without  prior review from the SBA,  thereby

                                       8
<PAGE>

accelerating  the  approval  process  for  small  business  loan   applications.
Preferred lenders also are granted unilateral  servicing powers over the term of
those loans. During 2001, Matrix Bank originated $26.1 million 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 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.

     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  financing  to charter  schools  located  primarily  in Arizona,
Colorado,  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 2001, we funded $27.1 million loans to charter  schools and, as
of December 31, 2001, we had a total of $59.5 million loans to charter  schools.
Charter school financing involves inherent risks such as:

     o    the loan-to-value ratio for real estate transactions can be as high as
          90% and for furniture,  fixtures and equipment and modular space it is
          100%;
     o    there are no personal guarantees; and
     o    cash flow to  service  the  financing  is  derived  from the  school's
          student count.  If the school's  student count  decreases,  or is less
          than projected, the school's ability to make scheduled payments on the
          financing may be impaired.

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

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, 2001, Matrix
Financial  serviced  approximately  $5.7  billion of mortgage  loans,  excluding
$889.0 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


                                       9
<PAGE>

default by the borrower,  Matrix Financial  receives no servicing fees until the
default  is  cured.   At  December   31,   2001,   Matrix   Financial's   annual
weighted-average servicing fee was 0.39%.

     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, 2001, on the basis of outstanding  principal balances,
less  than  1% of our  owned  mortgage  servicing  contracts  involved  recourse
servicing.  To the extent that  servicing  is done on a recourse  basis,  we are
exposed to credit  risk with  respect to the  underlying  loan in the event of a
repurchase.  Additionally,  many of our nonrecourse mortgage servicing contracts
owned require us to advance all or part of the  scheduled  payments to the owner
of the mortgage loan in the event of a default by the  borrower.  Many owners of
mortgage loans also require the servicer to advance  insurance  premiums and tax
payments on schedule even though  sufficient  escrow funds may not be available.
Therefore,  we must bear the funding costs associated with making such advances.
If the  delinquent  loan does not become  current,  these advances are typically
recovered at the time of the foreclosure sale.  Foreclosure expenses,  which may
include legal fees or property maintenance, are generally not fully reimbursable
by  Fannie  Mae,  Freddie  Mac or Ginnie  Mae,  for which  agencies  we  provide
significant amounts of mortgage loan servicing.  As of December 31, 2001, we had
advanced approximately $9.6 million in funds on behalf of third party investors.
A foreclosure  reserve is estimated and included in the  consolidated  financial
statements.  For the  Veteran's  Administration  loans sold and serviced for the
Ginnie Mae, which are sold on a nonrecourse basis, the Veteran's  Administration
loan  guarantees may not cover the entire  principal  balance and, in that case,
the  Company  is   responsible   for  the  losses  which  exceed  the  Veteran's
Administration's guarantee.

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

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

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

<TABLE>
<CAPTION>

                                                                                As of December 31,
                                                                 ---------------------------------------------------
                                                                     2001              2000              1999
                                                                 --------------    --------------   ----------------
                                                                                  (In thousands)
<S>                                                                <C>               <C>                 <C>

FHA insured/VA guaranteed residential........................      $ 2,187,686       $1,608,115          $  926,179
Conventional loans...........................................        3,272,109        3,764,586           4,891,809
Other loans..................................................          196,570          145,262              71,727
                                                                 --------------    ---------------  ---------------
     Total mortgage servicing portfolio......................      $ 5,656,365       $5,517,963          $5,889,715
                                                                 ===============   ==============    ===============

Fixed rate loans.............................................      $ 5,009,501       $4,346,813          $4,926,055
Adjustable rate loans........................................          646,864        1,171,150             963,660
                                                                 ---------------   --------------    ---------------
     Total mortgage servicing portfolio......................      $ 5,656,365       $5,517,963          $5,889,715
                                                                 ===============   ==============    ===============

</TABLE>

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


                                       10
<PAGE>

<TABLE>
<CAPTION>


                                                               As of December 31,
                   -------------------------------------------------------------------------------------------------------
                                  2001                              2000                               1999
                   -------------------------------------------------------------------------------------------------------

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

Loans delinquent
for:
   30-59 days.....   4,610         5.35%      3.35%     5,214         5.64%      3.16%     4,079      4.50%      2.74%
   60-89 days.....     932         1.08       0.79        992         1.07       0.73      1,120      1.24       0.63
   90 days and over    616         0.72       0.73        530         0.58       0.61      2,426      2.68       0.56
                   --------- ------------ ---------- ---------- ------------ ---------- --------- ------------ -----------
   Total
    delinquencies..  6,158         7.15%      4.87%     6,736         7.29%      4.50%     7,625      8.42%      3.93%
                   ========= ============ ========== ========== ============ ========== ========= ============ ===========
   Foreclosures....    757         0.88%  Not           1,027         1.11%      0.84%       905      1.00%      0.98%
                                          Available
                   ========= ============ ========== ========== ============ ========== ========= ============ ===========
----------
<FN>

(1)  Source:  Mortgage Bankers  Association,  "Delinquency Rates of 1- to 4-Unit
     Residential Mortgage Loans" (Seasonally Adjusted) (Data as of September 30,
     2001,  December 31, 2000 and December  31, 1999,  respectively.  Data as of
     September  30, 2001 used as December  31, 2001 not yet  available  and data
     regarding foreclosures was not available.)
</FN>
</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:

<TABLE>
<CAPTION>

                                                                As of December 31,
                    -----------------------------------------------------------------------------------------------------------
                                   2001                                 2000                               1999
                    ----------------------------------- -----------------------------------------------------------------------
                                           Percentage                          Percentage                          Percentage
                     Number    Aggregate  of Aggregate   Number    Aggregate  of Aggregate  Number    Aggregate   of Aggregate
                       of      Principal   Principal       of      Principal    Principal     of      Principal    Principal
       Rate           Loans    Balance      Balance       Loans    Balance       Balance     Loans     Balance      Balance
       ----          --------- ---------- ------------  ---------  ---------- ------------  --------  ----------- ------------
                                                               (Dollars in thousands)
<S>                    <C>     <C>            <C>          <C>     <C>             <C>        <C>      <C>           <C>

Less than 7.00%....    16,024  $1,443,862      25.53%       6,317  $  474,596       8.60 %     7,301   $  618,659     10.50 %
 7.00%--7.99%......    23,815   1,895,797      33.52       18,424   1,335,738      24.21      30,848    2,467,177     41.89
 8.00%--8.99%......    19,002   1,144,290      20.23       27,691   1,801,131      32.64      28,620    1,822,777     30.95
 9.00%--9.99%......    12,122     542,621       9.59       19,369   1,002,226      18.16      15,892      647,918     11.00
10.00% and over....    15,192     629,795      11.13       20,603     904,272      16.39       7,898      333,184      5.66
                    ---------- ---------- -----------   ---------- ---------- ------------  --------   ---------- ------------
  Total............    86,155  $5,656,365     100.00%      92,404  $5,517,963     100.00 %    90,559   $5,889,715    100.00 %
                    ========== ========== ===========   ========== ========== ============  ========   ========== ============

</TABLE>

     Loan   administration  fees  decrease  as  the  principal  balance  on  the
outstanding  loan  decreases and as the  remaining  time to maturity of the loan
shortens.  The  following  table sets forth  certain  information  regarding the
remaining  contractual  maturity  of  the  mortgage  loans  serviced  by  Matrix
Financial,  excluding loans  subserviced for others,  as of the dates shown. The
changes in the remaining  maturities as a percentage of unpaid principal between
2001,  2000 and 1999,  as reflected  below,  are the result of  acquisitions  of
mortgage servicing rights completed during 2001 and 2000.

                                       11
<PAGE>

<TABLE>
<CAPTION>

                                                                  As of December 31,
                  ------------------------------------------------------------------------------------------------------------------
                                   2001                                   2000                                   1999
                  ------------------------------------------------------------------------------------------------------------------
                                            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)
<S>             <C>      <C>     <C>         <C>       <C>     <C>       <C>        <C>       <C>       <C>      <C>        <C>

 1-5 years...   11,539   13.39%  $  169,794    3.00%   19,489   21.09%   $  321,196   5.82%   34,990     38.64%  $1,043,559  17.72%
 6-10 years...  14,711   17.08      442,458    7.82    15,891   17.20       411,152   7.45    10,364     11.44      577,077   9.80
11-15 years...  12,101   14.05      729,162   12.89    14,981   16.21       779,922  14.13     8,691      9.60      560,212   9.51
16-20 years...  18,013   20.91    1,428,794   25.26    27,779   30.06     2,505,728  45.41    18,624     20.57    1,766,824  30.00
21-25 years...   2,219    2.58      246,835    4.36     4,522    4.90       444,679   8.06     3,417      3.77      381,663   6.48
More than 25
years.........  27,572   32.00    2,639,322   46.66     9,742   10.54     1,055,286  19.13    14,473     15.98    1,560,380  26.49
               ------- --------- ---------- --------   ------- ---------- --------- --------- ------- ---------- ---------- --------
  Total.......  86,155  100.00%  $5,656,365  100.00%   92,404  100.00%   $5,517,963 100.00%   90,559    100.0 %  $5,889,715 100.00%
               ======= ========= ========== ========   ======= ========== ========= ========= ======= ========== =========  ========
</TABLE>

Our  servicing   activity  is   diversified   throughout   all  50  states  with
concentrations at December 31, 2001 in California,  Texas, Missouri, Arizona and
Florida of approximately 14.5%, 14.5%, 16.4%, 8.2% and 5.6%, respectively, based
on  aggregate  outstanding  unpaid  principal  balances  of the  mortgage  loans
serviced.

     Acquisition  of Servicing  Rights.  Our  strategy  with respect to mortgage
servicing focuses on acquiring servicing for which the underlying mortgage loans
tend to be more  seasoned and to have higher  interest  rates,  lower  principal
balances and higher  custodial  escrow balances than newly  originated  mortgage
loans. We believe this strategy allows us to reduce our prepayment  risk,  while
allowing us to capture  relatively high custodial escrow balances in relation to
the outstanding  principal balance.  During periods of declining interest rates,
prepayments of mortgage loans usually  increase as homeowners  seek to refinance
at lower interest  rates,  resulting in a decrease in the value of the servicing
portfolio.  Mortgage loans with higher  interest  rates and/or higher  principal
balances are more likely to result in prepayments  since the cost savings to the
borrower  from  refinancing  can be  significant.  During 2001,  interest  rates
continued to decrease throughout the year. While our prepayment rates increased,
despite  the  strategy  mentioned  above,  we  remained   opportunistic  in  our
acquisition philosophy.  Due to the interest rates prevalent during 2001 and the
lack of the discussed  servicing products  available,  we purchased only minimal
servicing during 2001. If higher balance, less-seasoned portfolios are available
at our desired internal rate of return,  we may, from time to time,  pursue such
acquisitions.
                                       13
<PAGE>

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

                              For the Year Ended December 31,
                    -----------------------------------------------------

                      2001(1)(4)         2000(2)(4)        1999(3)(4)
                    ----------------   ----------------  ----------------
Quarter ended:
   December 31....        24.67%             12.50%            13.63%
   September 30...        25.13              12.70             17.43
   June 30........        24.63              12.70             24.70
   March 31.......        17.13              10.50             26.47
                    ----------------   ----------------  ----------------
Annual average....        22.89%             12.10%            20.56%
                    ================   ================  ================
----------

(1)  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.
(2)  These prepayment rates exclude prepayment experience for mortgage servicing
     rights subserviced for us by others of $447 million, $0, $16 million and $0
     for the quarters  ended  December 31,  September  30, June 30 and March 31,
     2000, respectively.
(3)  These prepayment rates exclude prepayment experience for mortgage servicing
     rights  subserviced for us by others of $0, $576 million,  $1.0 billion and
     $238 million for the quarters ended December 31, September 30, June 30, and
     March 31, 1999, respectively.
(4)  These  prepayment  rates do not include  prepayments  that resulted from us
     targeting our own servicing portfolio for refinance opportunities.

     Historically,  we  acquired  substantially  all of our  mortgage  servicing
rights in the secondary market. The industry expertise of Matrix Capital Markets
and Matrix Financial allows us to capitalize upon  inefficiencies in this market
when  acquiring  mortgage  servicing  rights.   Prior  to  acquiring  mortgaging
servicing rights, we analyze a wide range of  characteristics  of each portfolio
considered for purchase. This analysis includes projecting revenues and expenses
and reviewing geographic distribution, interest rate distribution, loan-to-value
ratios,   outstanding   balances,   delinquency   history  and  other  pertinent
statistics.  Due diligence is performed  either by our employees or a designated
independent contractor on a representative sample of the mortgages involved. The
purchase  price is based on the present value of the expected  future cash flow,
calculated by using a discount  rate,  loan  prepayment,  default rate and other
assumptions  that we consider to be appropriate  to reflect the risk  associated
with the  investment.  In 2000,  we began to  retain 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.  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, 2001, in terms
of unpaid principal amount, approximately $1.4 billion of the mortgage servicing
rights in our portfolio were from loans originated and sold by Matrix Financial.

     Sales of Servicing  Rights.  We  periodically  sell our purchased  mortgage
servicing  portfolios  and  generally  sell a portion of the mortgage  servicing
rights on new loans that we originate,  as mentioned above. These sales generate
cash at the time of sale but reduce  future cash flow and  servicing fee income.
We sold  mortgage  servicing  rights  on  loans  that we  originated  having  an
aggregate  principal  amount of $1.7 billion  during the year ended December 31,
2001.  Periodically,  we may also sell purchased  mortgage  servicing  rights to
restructure our portfolio or generate  revenues.  Purchased  mortgage  servicing
rights were sold on loans having an aggregate principal amount of $126.8 million
during the year ended December 31, 2001 for net gains of approximately $200,000.

     We  anticipate  that we will  continue to sell a portion of our  originated
mortgage  servicing  rights on new  loans  that we  originate.  We also may sell
purchased  mortgage  servicing  rights.  We intend to base  decisions  regarding

                                       13
<PAGE>

future  mortgage  servicing  sales  upon  our  cash   requirements,   purchasing
opportunities,  capital  needs,  earnings  and the  market  price  for  mortgage
servicing rights. During a quarter in which we sell purchased mortgage servicing
rights, reported income will tend to be greater than if we had not made the sale
during  that  quarter.  Prices  obtained  for  mortgage  servicing  rights  vary
depending on servicing fee rates,  anticipated  prepayment  rates,  average loan
balances,   remaining  time  to  maturity,  servicing  costs,  custodial  escrow
balances,  delinquency and foreclosure experience and purchasers' required rates
of return.

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

     Hedging of Servicing Rights. Our investment in mortgage servicing rights is
exposed to  potential  impairment  in certain  interest  rate  environments.  As
previously discussed,  the prepayment of mortgage loans increases during periods
of declining  interest rates as homeowners seek to refinance their loan to lower
interest rates. If the level of prepayment on segments of our mortgage servicing
portfolio  reaches a level  higher than we projected  for an extended  period of
time, the associated basis in the mortgage servicing rights may be impaired.  To
mitigate this risk of impairment due to declining interest rates, we initiated a
hedging strategy during 1997 that used a program of exchange-traded  futures and
options.  Through  December 31, 2000,  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 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. As such, currently, we
are not hedging our servicing rights. See additional  information  regarding the
impact of SFAS 133 in Note 2 to the consolidated  financial  statements included
elsewhere  in this  document.  During  2001,  based on  valuation  models  which
incorporate,  among other things,  prepayment  speeds, we recorded an impairment
reserve on our mortgage servicing rights totaling approximately $200,000.

Brokerage, Consulting and Outsourcing Services

     Brokerage  Services.   Matrix  Capital  Markets,   formerly  called  United
Financial,  Inc.,  changed  its  name in  2001  to  better  identify  itself  as
affiliated with the Matrix family of companies.  Matrix Capital Markets operates
as one of the nation's leading full-service mortgage servicing and mortgage loan
brokers.  It  is  capable  of  analyzing,   packaging,   marketing  and  closing
transactions  involving  mortgage  servicing  and loan  portfolios  and selected
merger and  acquisition  transactions  for  mortgage  banking  entities.  Matrix
Capital  Markets  markets  its  services  to  all  types  and  sizes  of  market
participants, thereby developing diverse relationships.

     Mortgage  servicing rights are sold either on a bulk basis or a flow basis.
In a bulk  sale,  the  seller  identifies,  packages  and sells a  portfolio  of
mortgage  servicing rights to a buyer in a single  transaction.  In a flow sale,
the  seller  agrees  to sell to a  specified  buyer  from  time  to  time,  at a
predetermined price, the mortgage servicing rights originated by the seller that
meet certain criteria.  Matrix Capital Markets 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  Capital
Markets 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 Capital Market's
national market  presence.  These contacts also enable Matrix Capital Markets to
identify  prospective clients for our other subsidiaries and make referrals when
appropriate. See "--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.


                                       14
<PAGE>

      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 Capital Markets 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, 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. In the current market, we do not anticipate this trend to
reverse.

     In addition,  Matrix Capital Markets provides  brokerage services to buyers
and sellers of all types of loan products.  Matrix Capital Markets provides loan
brokerage  services  to  both  servicing  brokerage  clients  and  non-servicing
brokerage clients.  During 2001, Matrix Capital Markets continued to enhance its
ability  in the  areas  of  analyzing,  brokering  and  acquisition  of all loan
products.  This was accomplished by hiring additional professional personnel and
continued cross-training of existing staff.

     Consulting and Analytic Services.  Matrix Capital Markets 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.  Matrix  Capital  Markets has  enhanced  its existing
valuation  models and has created a software  program that can be  customized to
fit its  customers'  many  different  needs and unique  situations in performing
valuations  and  analyses.   In  addition,   Matrix  Capital   Markets  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 on a quarterly  basis,  active  management  of
servicing  assets  has  become a  critical  component  to  holders  of  mortgage
servicing rights.  Due to the risk of impairment of mortgage servicing rights as
a result of constantly  changing  interest  rates and  prepayment  speeds on the
underlying mortgage  portfolio,  risk management of mortgage servicing rights by
holders of mortgage servicing rights portfolios,  which typically takes the form
of  hedging   the   portfolio,   has  become  more   prevalent.   The  SFAS  140
"mark-to-market"  analyses done by Matrix  Capital  Markets help 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
Capital  Markets  provide us with a  competitive  advantage  in  attracting  and
retaining clients because we are able to offer financial  services companies and
financial institutions a more complete package of services than our competitors.
In addition,  Matrix Capital Markets is able to refer clients to Matrix Bank for
financing   opportunities  and  bulk  loan  acquisitions  and  to  Matrix  Asset
Management for real estate management and disposition  services.  The full range
of  services  offered  by Matrix  Capital  Markets  and its  affiliates  further
strengthens Matrix Capital Market'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 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
Capital Markets,  Matrix  Financial uses Matrix Asset Management  exclusively in
handling the  disposition of foreclosed real estate for which it is responsible.
Having  Matrix  Asset  Management,  rather than Matrix  Financial,  provide this
service  transforms  the  disposition  process into a revenue  generator for us,
since Matrix  Asset  Management  typically  collects a referral fee based on the
value of the foreclosed  real estate from the real estate broker involved in the
sale transaction.  Because Matrix Asset Management  typically collects a portion
of its fee from the real  estate  broker,  Matrix  Asset  Management  is able to
provide this disposition service on an outsourced basis at a reduced cost to the
mortgage loan servicer. Matrix Asset Management is able to pass a portion of the
cost of the  disposition  on to the real estate broker  because of the volume it
generates.

      In addition, Matrix Asset Management provides limited collateral valuation
opinions to clients who are  interested in assessing the value of the underlying
collateral on nonperforming mortgage loans, as well as to clients such as Matrix

                                       15
<PAGE>

Bank and other third party mortgage loan  originators  and buyers  interested in
evaluating potential bulk purchases of mortgage loans.

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

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

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

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

     ABS has begun to expand its  services to include more  operational  control
over  individual  charter  schools,  which  consists of active  oversight of the
day-to-day operations of the charter, including the selection of curriculum. The
expansion  of the  services  applies to both  independent  charter  schools  and
charter schools managed by ABS.

Self-Directed Trust, Custody and Clearing Activities

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

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

     At December 31, 2001,  Sterling  Trust had assets under  administration  of
over $6.0 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.  As of December 31, 2001,  Matrix  Settlement &
Clearance   Services  had  56  clients   under   contract   with  those  clients
administering  approximately  $7.6  billion in funds that would be eligible  for
inclusion in the  automated  clearing  environment  of the  National  Securities
Clearing Corporation.

     During  2001,  Matrix  Settlement  &  Clearance  Services  established  its
subsidiary, MSCS Financial Services, LLC, which began operations January 2, 2002
as a NASD registered broker-dealer.

                                       16
<PAGE>

     Through our wholly owned subsidiary, Matrix Advisory Services, LLC, we plan
to offer  an  Internet-based  private  wealth  management  service  through  the
utilization of proprietary  asset  allocation  models in 2002 as a complementary
business  to the  clearing  operation.  The  model  was  developed  and  will be
supported by a nationally  recognized  research and investment firm with whom we
have an exclusive  agreement.  This research and  investment  firm will, in most
cases,  act as the  investment  advisor to the client.  The  advantage  that our
service will offer is a turnkey  approach with the automation of the mutual fund
clearing.

Competition

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

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

     o    recruiting qualified and experienced sales people;
     o    developing innovative sales techniques;
     o    offering superior analytical services;
     o    providing  financing   opportunities  to  its  customers  through  its
          affiliation with Matrix Bank; and
     o    seeking to provide a higher  level of service than is furnished by its
          competitors.

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

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

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

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


                                       17
<PAGE>


Employees

     At December 31, 2001,  the Company had 960  employees.  We believe that our
relations  with  our  employees  are  good.  The  Company  is not  party  to any
collective bargaining agreement.

Regulation and Supervision

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

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

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

      As a unitary  savings and loan holding  company that has been in existence
previous 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 Office of Thrift Supervision grants an exception to this requirement.
In general,  qualified thrift  investments  include certain types of residential
mortgage loans and mortgage-backed  securities. 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.  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 register as a bank
holding company under the Bank Holding Company Act of 1956.

      The Change in Bank Control Act provides that no person, acting directly or
indirectly or thorough or in concert with one or more other persons, may acquire
control of a savings  association  unless the Office of Thrift  Supervision  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 Office of Thrift  Supervision.  Any company that  acquires  such
control  becomes a savings and loan  holding  company  subject to  registration,
examination  and  regulation  by the Office of Thrift  Supervision.  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,  or more  than 25% of any  class of stock of a  savings
association,  where certain enumerated "control factors" are also present in the
acquisition.  The Office of Thrift  Supervision  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.

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

                                       18
<PAGE>

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.

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

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

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

      Transactions with Affiliates.  Under current federal law, Sections 23A and
23B  of  the  Federal  Reserve  Act  govern   transactions   between  depository
institutions  and their  affiliates.  These  provisions  are made  applicable to
savings  associations,  such as Matrix Bank,  by the Home Owners' Loan Act. In a
holding  company  context,  in general,  the parent holding company of a savings
association  and any companies that are controlled by the parent holding company
are  affiliates  of the  savings  association.  However,  the  Office  of Thrift
Supervision 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

                                       19
<PAGE>

savings association or its subsidiaries may engage in certain  transactions with
its affiliates.  These transactions  include,  among other things, the making of
loans or other  extensions  of credit to an affiliate and the purchase of assets
from an affiliate. Generally, these transactions between the savings association
and any one  affiliate  cannot exceed 10% of the savings  association's  capital
stock and surplus,  and these transactions  between the savings  institution and
all of its  affiliates  cannot,  in the  aggregate,  exceed  20% of the  savings
institution's  capital stock and surplus.  Section 23A also establishes specific
collateral  requirements for loans or extensions of credit to an affiliate,  and
for  guarantees  or  acceptances  on  letters  of credit  issued on behalf of an
affiliate. Applicable regulations prohibit a savings association from lending to
any affiliate  engaged in activities not  permissible for a bank holding company
or  acquire  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 Office of Thrift
Supervision  also generally  prohibit a savings  association  from purchasing or
investing  in  securities  issued  by  an  affiliate.  Matrix  Bank  engages  in
transactions  with its  affiliates,  which  are  structured  with the  intent of
complying with these regulations.

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

      The Federal Deposit Insurance Corporation'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 Federal Deposit Insurance Corporation for
each semi-annual assessment period.

      The  Federal  Deposit  Insurance  Corporation  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 Federal Deposit Insurance
Corporation  must seek to restore the reserve ratio to that  designated  reserve
level,  or such higher  reserve  ratio as  established  by the  Federal  Deposit
Insurance Corporation. The Federal Deposit Insurance Corporation 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 Federal Deposit Insurance Corporation.

      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, 2002, the FICO
assessment for both Savings  Association  Insurance Fund and Bank Insurance Fund
insured  institutions  was  equal to 1.84% 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  Federal  Deposit  Insurance  Corporation
regulations governing brokered deposits, well capitalized associations,  such as
Matrix Bank, are not subject to brokered deposit  limitations,  while adequately
capitalized associations are subject to certain brokered deposit limitations and
undercapitalized  associations may not accept brokered deposits. At December 31,
2001, Matrix Bank had $303.0 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.

                                       20
<PAGE>

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

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

     o    "well  capitalized" if it has a total risk-based  capital ratio of 10%
          or  greater  and a  leverage  ratio of 5% or  greater;  o  "adequately
          capitalized"  if it has a  total  risk-based  capital  ratio  of 8% or
          greater,  a Tier I  risk-based  capital  ratio  of 4% or  greater  and
          generally a leverage ratio of 4% or greater;
     o    "undercapitalized"  if it has a total risk-based capital ratio of less
          than 8%,  a Tier I  risk-based  capital  ratio  of less  than  4%,  or
          generally a leverage ratio of less than 4%;
     o    "significantly  undercapitalized" if it has a total risk-based capital
          ratio of less than 6%, a Tier I risk-based  capital ratio of less than
          3%, or a leverage ratio of less than 3%; and
     o    "critically undercapitalized" if it has a ratio of tangible equity (as
          defined in the  regulations)  to total assets that is equal to or less
          than 2%.

      As of December 31, 2001, Matrix Bank was a "well capitalized" institution.

      "Undercapitalized"   institutions   must   adhere   to   growth,   capital
distribution  and  dividend and other  limitations  and are required to submit a
capital  restoration plan with the Office of Thrift  Supervision  within 45 days
after an  association  receives  notice of such  undercapitalization.  A savings
institution's  compliance  with its capital  restoration  plan is required to be
guaranteed by any company that controls the "undercapitalized" institution in an
amount equal to the lesser of 5% of total assets when deemed  "undercapitalized"
or the amount necessary to achieve the status of "adequately capitalized." If an
"undercapitalized" savings institution fails to submit an acceptable plan, it is
treated   as   if  it  is   "significantly   undercapitalized."   "Significantly
undercapitalized"  institutions  must  comply  with one or more of a  number  of
additional restrictions,  including an order by the Office of Thrift Supervision
to sell sufficient voting stock to become "adequately capitalized," requirements
to reduce total assets and cease receipt of deposits from correspondent banks or
dismiss  directors  or  officers,  and  restriction  on  interest  rates paid on
deposits,  compensation of executive  officers and capital  distributions to the
parent holding company. "Critically  undercapitalized"  institutions must comply
with  additional  sanctions,  including,  subject  to a  narrow  exception,  the
appointment of a receiver or  conservator  within 270 days after it obtains this
status.

     The following table indicates  Matrix Bank's  regulatory  capital ratios at
December 31, 2001:
<TABLE>
<CAPTION>
                                                                                                   As of
                                                                                             December 31, 2001
                                                                                     ----------------------------------
                                                                                         Core            Risk-Based
                                                                                        Capital           Capital
                                                                                     ---------------- -----------------
                                                                                          (Dollars in thousands)
    <S>                                                                              <C>              <C>


    Shareholder's equity/GAAP capital.............................................   $   103,360      $    103,360
    Disallowed assets.............................................................         3,386             3,386
    Unrealized gain on available for sale securities..............................           (25)              (25)
    Additional capital items:
         General valuation allowances.............................................            --             6,361
                                                                                     ---------------- -----------------
    Regulatory capital as reported to the Office of Thrift Supervision............        99,949           106,310
    Minimum capital requirement as reported to the Office of Thrift Supervision...        61,671            72,418
                                                                                     ---------------- -----------------
    Regulatory capital-excess.....................................................   $    38,278      $     33,892
                                                                                     ================ =================
    Capital ratios................................................................          6.48%            11.74%
    Well capitalized requirement..................................................          5.00%            10.00%
</TABLE>

      Federal Home Loan Bank System. Matrix Bank is a member of the Federal Home
Loan Bank system,  which  consists of 12 regional  Federal Home Loan Banks.  The
Federal Home Loan Bank provides a central credit  facility  primarily for member
associations  and  administers  the home  financing  credit  function of savings
associations.  The Federal Home Loan Bank  advances must be secured by specified
types of collateral and may only be obtained for the purpose of providing  funds
for residential housing finance. The Federal Home Loan Bank funds its operations
primarily from proceeds derived from the sale of consolidated obligations of the

                                       21
<PAGE>

Federal Home Loan Bank system. Matrix Bank, as a member of the Federal Home Loan
Bank  system,  must  acquire  and hold shares of capital  stock in its  regional
Federal Home Loan Bank in an amount equal to the greater of 1% of the  aggregate
principal  amount  of  its  unpaid   residential   mortgage  loans  and  similar
obligations  at the beginning of each year,  0.3% of total assets,  or 5% of its
advances  (borrowings)  from the  Federal  Home Loan  Bank.  Matrix  Bank was in
compliance  with this  requirement  with an investment in Federal Home Loan Bank
stock at December 31, 2001 of $18.2 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, 2001, 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," but
the Federal  Reserve Board  regulations  require  institutions  to exhaust other
reasonable  alternative  sources  of  funds,  including  Federal  Home Loan Bank
borrowings, before borrowing from the Federal Reserve Bank.

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

      Regulation of Sterling  Trust Company.  Sterling Trust provides  custodial
services and directed,  non-discretionary  trustee services.  Sterling Trust was
chartered under the laws of the State of Texas,  and as a Texas trust company is
subject to supervision,  regulation and  examination by the Texas  Department of
Banking. Under applicable law, a Texas trust company, such as Sterling Trust, is
subject to virtually  all  provisions  of the Texas  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 Federal  Deposit
Insurance Corporation.

      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 anticipates
that it will not pay cash dividends during 2002.

      Investments.  A Texas trust company is generally  obligated to maintain an
amount equal to 40% of its capital and surplus in  investments  that are readily
marketable  and that can be converted  into cash within four  business  days. So
long as it complies with those requirements,  a Texas trust company generally is
permitted to invest its corporate assets in any investment  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.

                                       22
<PAGE>

      Branching.  The  Texas  Banking  Act  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  Banking Act 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 Banking Act, 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 out of compliance with the $1 million capital  requirement at
December 31, 2001.  Subsequent to year-end,  the Company contributed $900,000 to
Sterling Trust to meet the minimum capital requirements.

      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, 2001, First Matrix was in compliance with these  requirements  with
net  capital of  $408,000,  which was  $395,000  in excess of its  required  net
capital of $13,000.

                                       23
<PAGE>

      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>

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

Denver, CO............         29,318     Leased through July 31, 2006              Matrix Bancorp, Matrix          $ 45,652
                                                                                    Capital Markets, Matrix
                                                                                    Asset Management, Matrix
                                                                                    Bank, First Matrix and
                                                                                    Matrix Settlement &
                                                                                    Clearance Services
Phoenix, AZ...........         62,771     Leased through February 28, 2007          Matrix Financial, Matrix        $ 61,463
                                                                                    Bank, ABS and Matrix
                                                                                    Bancorp
Memphis, TN...........          3,305     Leased month to month                     Matrix Bancorp                  $  5,508
Atlanta, GA...........          4,129     Leased through August 31, 2003            Matrix Financial                $  4,843
Chicago, IL...........          1,658     Leased through April 30, 2003             Matrix Financial                $  2,728
Clayton, MO...........          6,718     Leased through June 30, 2003              Matrix Financial                $ 14,275
Dallas, TX............          6,205     Leased through May 31, 2004               Matrix Financial                $  7,756
Denver, CO............          9,549     Leased through June 30, 2002(2)           Matrix Financial                $ 11,401
Houston, TX...........          4,011     Leased through October 31, 2003           Matrix Financial                $  5,682
Phoenix, AZ...........          4,040     Leased through June 14, 2002(2)           Matrix Financial                $  7,070
Sacramento, CA........          4,230     Leased through December 31, 2003          Matrix Financial                $  7,563
Santa Ana, CA.........          8,851     Leased through August 31, 2003            Matrix Financial                $ 13,277
Littleton, CO.........            300     Leased month to month                     Matrix Financial                $    800
Denver, CO............         23,615     Leased through December 21, 2013          Matrix Bank                     $ 43,294
Evergreen, CO.........          1,855     Leased through December 31, 2002          Matrix Bank                     $  4,085
Las Cruces, NM........          1,800     Owned                                     Matrix Bank                          N/A
Las Cruces, NM........         30,000(1)  Owned                                     Matrix Bank                          N/A
Sun City, AZ..........          3,000     Owned                                     Matrix Bank                          N/A
Westminster, CO.......            823     Leased through March 1, 2003              Matrix Bank                     $  1,419
Waco, TX..............         11,294     Leased through June 30, 2006              Sterling Trust                  $ 13,553
Waco, TX..............            928     Leased through June 30, 2002(2)           Sterling Trust                  $  1,021
Fort Worth, TX........          1,148     Leased through November 30, 2004          First Matrix                    $  1,579
Cottonwood, AZ........          2,400     Owned                                     ABS                                  N/A
Cottonwood, AZ........          1,000     Leased month to month                     ABS                             $    765
Tucson, AZ............          1,879     Leased through September 30, 2002(2)      ABS                             $  2,400
Snowflake, AZ.........          2,850     Leased month to month                     ABS                             $  2,760
Deerfield Beach, FL               500     Leased month to month                     ABS                             $    750
Peoria, AZ............         29,470     Owned                                     ABS                                  N/A
Phoenix, AZ...........         10,924     Owned                                     ABS                                  N/A
Phoenix, AZ...........          3,800     Owned                                     ABS                                  N/A
Phoenix, AZ...........         22,920     Owned                                     ABS                                  N/A
Phoenix, AZ...........     1.39 Acres     Owned                                     ABS                                  N/A
Maricopa County, AZ...   12.893 Acres     Owned                                     ABS                                  N/A
Flagstaff, AZ.........      1.1 Acres     Owned                                     ABS                                  N/A
Dallas, TX............         15,000     Owned                                     ABS                                  N/A
Dallas, TX............     11.8 Acres     Owned                                     ABS                                  N/A
Port Charlotte, FL....          8,576     Owned                                     ABS                                  N/A
----------
<FN>

(1)  Of this 30,000 square feet,  approximately  15,500 square feet serve as the
     headquarters for Matrix Bank.  Substantially  all of the remaining space is
     rented to unaffiliated third parties at market prices.  After the change of
     domicile is completed,  it is anticipated that approximately  10,100 square
     feet will be utilized by Matrix Bank.
(2)  Management  is  reviewing  options  concerning  renewal of the lease at its
     expiration.

</FN>
</TABLE>
                                       24
<PAGE>

Item 3.  Legal Proceedings

      General.  We are from time to time party to various litigation matters, in
most cases,  involving  ordinary and routine claims  incidental to our business.
With respect to all pending litigation matters, our ultimate legal and financial
responsibility,  if any,  cannot be  estimated  with  certainty.  Therefore,  no
accrual for loss has been made as of December  31,  2001.  However,  the outcome
with respect to one or more of these matters,  if adverse,  is reasonably likely
to have a material,  adverse  impact on the  consolidated  financial  condition,
results of operations or cash flows of the Company.

      Matrix Bancorp.  In early 1999,  Matrix Bancorp and Matrix Bank instituted
an  arbitration  action with the American  Arbitration  Association  in Phoenix,
Arizona against Fidelity National  Financial,  Inc. The arbitration action arose
out of an alleged breach by Fidelity of a Merger  Termination  Agreement entered
into between Matrix Bancorp and Fidelity in connection  with the  termination of
their proposed  merger.  The arbitration  panel has ruled that the entire Merger
Termination Agreement was unenforceable. Matrix Bancorp and Matrix Bank 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 and Matrix Bank contest that the
releases are valid and, in the  alternative,  have filed a counterclaim  against
Fidelity demanding  restitutional  damages for the value of the releases if they
are determined valid.

     Matrix Bancorp,  The Vintage Group, Inc., Vintage Delaware Holdings,  Inc.,
Matrix Bank, and Guy A. Gibson,  President and Chief Executive Officer of Matrix
Bancorp,  Richard V. Schmitz,  Chairman of the Board of Matrix  Bancorp,  and D.
Mark Spencer,  Vice Chairman of Matrix Bancorp, have been named defendants in an
action 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. See "--Sterling  Trust." The ultimate legal and financial
liability  of the  Company,  if any, in this  matter  cannot be  estimated  with
certainty at this time.

      Matrix Bank. A former  customer of Matrix Bank is a debtor in a Chapter 11
proceeding under the Bankruptcy Code styled In re Apponline.com, Inc. and Island
Mortgage  Network,  Inc.  pending in the United States  Bankruptcy Court for the
Eastern  District of New York. Prior to the bankruptcy  filing,  Matrix Bank had
provided the customer, Island Mortgage Network, Inc., with a purchase/repurchase
facility  under which  Matrix Bank  purchased  residential  mortgage  loans from
Island  Mortgage,  with  Island  Mortgage  having  the  right or  obligation  to
repurchase such mortgage loans within a specified period of time.  Several other
financial  institutions had provided Island Mortgage with warehouse financing or
additional  purchase/repurchase  facilities (the "Origination  Facilities").  At
this time,  it appears  that no other  financial  institution  that  provided an
Origination  Facility to Island Mortgage has a conflicting  interest with Matrix
Bank in respect of the loans purchased by Matrix Bank, which were  approximately
$12.4 million in original principal amount (the "Purchased Loans").

      Various third parties have 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 fully resolved one
claim and has reached  tentative  agreements to settle claims  asserted  against
five others upon terms satisfactory to Matrix Bank.

      Additionally,  certain parties in the chain of title to property  securing
approximately  $2.7 million of 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 tentative  agreement to settle
claims arising from thirteen of these Purchased Loans upon terms satisfactory to
Matrix Bank and is awaiting approval of the Bankruptcy Court.

      Matrix Bank  believes it has adequate  defenses and intends to  vigorously
defend the actions discussed in the previous two paragraphs.  The ultimate legal
and  financial  liability of the  Company,  if any, in these  matters  cannot be
estimated with certainty at this time.

                                       25
<PAGE>

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

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

      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.  Sterling Trust has filed an appeal of this judgment
and  believes  it has  meritorious  points of appeal.  It intends to  vigorously
prosecute  the appeal of this action.  The ultimate  resolution  of this appeal,
which is expected to occur in two to six months, could result in a loss of up to
$6.4 million plus  post-judgment  interest and additional  attorneys'  fees. The
ultimate  legal and  financial  liability,  if any, of Sterling  Trust cannot be
estimated with certainty at this time.

     Sterling  Trust 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.; Don Glazer,  et al. v.  Technical  Support
Servs., Inc., et al.; and Donald Maudlin, et al. v. World Vision  Entertainment,
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,  except  Maudlin,  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.  Sterling Trust believes it has meritorious  defenses and is defending the
matters vigorously.

      With respect to the Maudlin case, Sterling Trust filed a motion to dismiss
because it can find no evidence  that the named  plaintiff  in the case ever had
accounts with Sterling  Trust.  On December 7, 2001,  the Court stayed  Sterling
Trust's motion to dismiss and granted the named plaintiff thirty days to file an
amended petition adding a Sterling Trust  accountholder as a nominal  plaintiff.
The named plaintiff filed an amended petition within the 30-day period; however,
he did not add any additional plaintiffs. On February 5, 2002, the court granted
Sterling Trust's motion to dismiss the case.

      Sterling  Trust was named a defendant  in an action  filed in October 1999
styled John A. Redin,  et al. v. Sterling Trust Company,  et al. in the Superior
Court of the State of California  for the County of Los Angeles.  The plaintiffs
in this  action  sought to certify a class  action on behalf of all  persons and
entities  that  invested  in   promissory   notes  issued  by  Personal   Choice
Opportunities.  The plaintiffs alleged, among other things, that Sterling Trust,
as custodian of the plaintiffs'  self-directed IRAs, breached its fiduciary duty
and was  negligent.  In January 2002,  this matter was settled.  The  settlement
requires  no  payment  from  Sterling  other than the  $5,000  retention  amount
pursuant to the terms of the Company's  insurance  policy.  The remainder of the
settlement  consideration is to be paid the by Company's insurer. The settlement
is subject to, among other things,  approval of the  settlement by the Court and
negotiation and execution of appropriate releases between Sterling Trust and its
insurer. If these conditions are met, the case will be dismissed with prejudice.

      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 statements of

                                       26
<PAGE>

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  statements of
the Company.

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, 2001.



                                     PART II

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

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

                                                       Market Price
                                               -----------------------------
        Quarter Ended:                             High            Low
                                               ------------     ------------
             December 31, 2001.............    $    11.400      $   9.960
             September 30, 2001............         11.420          9.810
             June 30, 2001.................         11.750          8.600
             March 31, 2001 ...............          9.375          6.938

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

      On March 4, 2002,  the  closing  price of our common  stock was $10.80 per
share. Also, as of that date, the approximate number of holders of record of our
common  stock was 44. 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 million of our
common stock.  Under this program,  we had repurchased a total of 323,500 shares
through  December 31, 2001,  for a total purchase  price of  approximately  $2.5
million.  Subsequent to December 31, 2001,  the Company  repurchased  additional
shares and  reached  the $3 million  level.  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 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
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations--Liquidity  and  Capital  Resources"  and Note 9 to the  consolidated
financial  statements  included  elsewhere in this  document.  In addition,  the
ability of Sterling Trust and Matrix Bank to pay dividends to Matrix Bancorp may
be  restricted  due to certain  regulatory  requirements.  See  "Regulation  and
Supervision."

                                       27
<PAGE>

Item 6.  Selected Financial Data

            SELECTED CONSOLIDATED FINANCIAL AND OPERATING INFORMATION
                             OF MATRIX BANCORP, INC.

     The  following   selected   consolidated   financial   data  and  operating
information  of Matrix  Bancorp,  Inc.  should be read in  conjunction  with the
consolidated financial statements and notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations," each of which is
included elsewhere in this document.
<TABLE>
<CAPTION>
                                                                                 As of and for the
                                                                              Year Ended December 31,
                                               ----------------------------------------------------------------------------------
                                                  2001            2000               1999             1998              1997
                                               ------------    -------------     -------------    --------------     ------------
                                                               (Dollars in thousands, except per share data)
<S>                                          <C>               <C>               <C>              <C>                <C>
Statement of Income Data
Net interest income before provision for
loan and valuation losses..................  $      40,510     $     29,785      $    29,463      $      24,190      $    13,888
Provision for loan and valuation losses....          2,980            4,235            3,180              4,607              874
                                               ------------    -------------     ------------     --------------     ------------
Net interest income after provision for
loan and valuation losses..................         37,530           25,550           26,283             19,583           13,014
                                               ------------    -------------     ------------     --------------     ------------
Noninterest income:
  Loan administration......................         30,113           23,850           23,686             17,411           16,007
  Brokerage................................          2,959            5,476            6,156              7,054            3,921
  Trust services...........................          4,036            4,923            4,840              4,169            3,561
  Real estate disposition services.........          2,572            3,677            3,659              2,036            1,121
  Gain on sale of loans, mortgage-backed
   and SBA securities......................          1,475              982            3,247              3,108            2,441
  Gain on sale of mortgage servicing rights            167            2,634              363                803            3,365
  Loan origination(8)......................         34,933            7,587            6,218              5,677            4,694
  School services..........................          5,427            4,240            2,813                 46                -
  Other....................................          9,474            5,423            9,378              6,441            2,919
                                               ------------    -------------     ------------     --------------     ------------
    Total noninterest income...............         91,156           58,792           60,360             46,745           38,029
Noninterest expense........................        115,899           77,841           69,586             52,939           37,746
                                               ------------    -------------     ------------     --------------     ------------
Income before income taxes(8)..............         12,787            6,501           17,057             13,389           13,297
Income taxes(8)............................          4,275            2,243            6,278              4,876            5,159
                                               ------------    --------------    ------------     --------------     ------------
Net income.................................  $       8,512     $      4,258      $    10,779      $       8,513      $     8,138
                                               ============    =============     ============     ==============     ============
Net income per share assuming dilution(1)..  $        1.30     $       0.63      $      1.58      $        1.24             1.20
Weighted average common shares assuming
dilution...................................      6,560,454        6,748,857        6,833,546          6,881,890        6,781,808

Balance Sheet Data
Total assets...............................  $   1,646,787     $  1,418,795      $ 1,283,746      $   1,012,155      $   606,581
Mortgage-backed and SBA securities.........          6,963           66,616               --                 --               --
Total loans, net...........................      1,349,150        1,116,021        1,103,515            848,448          511,372
Mortgage servicing rights, net.............         78,712           71,529           63,479             57,662           36,276
Deposits(2)................................        866,235          602,669          562,194            490,516          224,982
Custodial escrow balances..................        129,665           77,647           94,206             96,824           53,760
FHLB borrowings............................        303,361          519,433          405,000            168,000          171,943
Borrowed money.............................        222,032          124,503          142,101            178,789           89,909
Total shareholders' equity.................         71,312           64,023           60,497             49,354           40,610

Operating Ratios and Other Selected Data
Return on average assets(3)................           0.54 %           0.32 %           1.02  %            1.02 %           1.78%
Return on average equity(3)................          12.82             6.79            19.79              18.92            22.71
Average equity to average assets(3)........           4.18             4.75             5.16               5.41             7.86
Net interest margin(3)(4)..................           2.87             2.51             3.25               3.37             3.70
Operating efficiency ratio(5)..............          71.42            76.76            59.21              59.74            60.14
Total amount of loans purchased............  $     105,936     $    225,898      $   701,952      $     678,150      $   493,693
Balance of owned servicing portfolio (end
of period).................................      5,656,365        5,517,963        5,889,715          5,357,729        3,348,062
Trust assets under administration (end of
period)....................................      6,017,085        3,847,038        2,545,060          2,089,562        1,437,478
Wholesale loan origination volume..........      3,612,477          512,541          443,363            574,963          402,984

Ratios of Earnings to Fixed Charges(6)
Including interest on deposits.............          1.19x            1.09x            1.38x              1.36x            1.71x
Excluding interest on deposits.............          1.39x            1.15x            1.75x              1.64x            2.30x

Loan Performance Ratios and Data
Allowance for loan and valuation losses....  $       9,338     $      8,581      $     6,354      $       3,710      $     1,756
Nonperforming loans(7) ....................         37,251           28,516           25,641             13,209            4,990
Nonperforming loans/total loans(7) ........           2.74 %           2.54 %           2.31  %            1.55 %           0.97%
Nonperforming assets/total assets(7) ......           2.79             2.20             2.06               1.40             1.03

                                       28
<PAGE>

Net loan charge-offs/average loans(3) .....           0.17             0.18             0.06               0.38             0.04
Allowance for loan and valuation losses/
    total loans ...........................           0.69             0.72             0.57               0.44             0.34
Allowance for loan and valuation losses/
   nonperforming loans ....................          25.07            30.09            24.78              28.09            35.19

----------
<FN>
(1)  Net income per common  share  assuming  dilution  is based on the  weighted
     average  number of common  shares  outstanding  during  each period and the
     dilutive effect, if any, of stock options and warrants  outstanding.  There
     are no other dilutive securities.
(2)  Beginning in February 1998, Matrix Bank began accepting  brokered deposits.
     At December 31, 2001, 2000 and 1999, the total balance of brokered deposits
     was $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
     before  loan and  valuation  loss  provision  by  average  interest-earning
     assets.
(5)  The operating  efficiency ratio has been calculated by dividing noninterest
     expense,  excluding amortization of mortgage servicing rights, by operating
     income.  Operating  income is equal to net interest income before provision
     for loan and valuation losses plus noninterest income.
(6)  For  purposes  of  calculating  the  ratio of  earnings  to fixed  charges,
     earnings  consist of income  before taxes plus  interest and rent  expense.
     Fixed charges consist of interest and rent expense.
(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.
(8)  Amounts for the year ended  December  31, 2001 are shown net of  cumulative
     effect of a change in accounting principle.
</FN>
</TABLE>

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

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

General

     Matrix  Bancorp was formed in June 1993 when the founding  shareholders  of
Matrix Financial and United Financial,  now known as Matrix Capital Markets, 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 Capital Markets.

     The principal components of our revenues consist of:

     o    net interest income recorded by Matrix Bank,  Matrix Financial and ABS
          School Services;
     o    loan  origination  fees generated by Matrix Financial and, to a lesser
          extent, Matrix Bank;
     o    brokerage and  consulting  and  disposition  services fees realized by
          Matrix Capital Markets and Matrix Asset Management, respectively;
     o    gains  on  sales of  mortgage  loans  and  mortgage  servicing  rights
          generated by Matrix Bank and Matrix Financial;
     o    loan administration fees generated by Matrix Financial;
     o    trust service fees generated by Sterling Trust; and
     o    school service fees generated by ABS.

     Our results of operations  are  influenced by changes in interest rates and
the  effect  of these  changes  on our  interest  margins,  the  volume  of loan
originations,  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.

                                       29
<PAGE>

Comparison of Results of Operations for Fiscal Years 2001 and 2000

     Net Income;  Return on Average Equity. Net income increased $4.2 million to
$8.5  million for fiscal  year 2001 as compared to $4.3  million for fiscal year
2000.  On a per share basis,  net income was $1.30 per diluted  share for fiscal
year 2001 and $0.63 for fiscal year 2000.  Return on average equity increased to
12.8% for  fiscal  year 2001 as  compared  to 6.8% for  fiscal  year  2000.  The
increases in net income,  earnings  per share and return on average  equity were
caused  primarily by an increase in net interest income after provision for loan
and valuation  losses and large  increases in loan  origination  income and loan
administration  fees  generated  at Matrix  Financial,  offset by  increases  in
compensation  and employee benefit costs and increased  amortization  expense on
mortgage servicing rights.

     Net Interest  Income.  Net interest  income  before  provision for loan and
valuation  losses  increased $10.7 million to $40.5 million for fiscal year 2001
as compared  to $29.8  million for fiscal  year 2000.  Our net  interest  income
before  provision  for  loan  and  valuation  losses  increased  due to the $229
million,  or 19%,  increase in our  interest-earning  assets.  Additionally,  an
element of the increase was our net interest margin  increasing to 2.87% for the
year ended  December  31, 2001 as compared to 2.51% for the year ended  December
31, 2000. Although the yield on our  interest-earning  assets decreased to 7.46%
for the year ended  December 31, 2001 from 8.22% for the year ended December 31,
2000,  that  decrease  was  more  than  offset  by the  decrease  in our cost of
interest-bearing  liabilities which for the same periods decreased to 5.15% from
6.15%. Both the decrease in the yield on our interest-earning assets and cost of
interest-bearing liabilities is a direct result of the interest rate environment
prevalent  in 2001,  which saw  significant  interest  rate cuts by the  Federal
Reserve.  Also,  attributing  to the  increase  in the  margin  was the  overall
increase in average noninterest-bearing deposits to $205 million at December 31,
2001 as  compared to $141  million at December  31,  2000.  The  increase in the
noninterest-bearing  deposits  is due to a  combination  of an  increase  in our
custodial  deposits  and  deposits  generated  from  our  investment  in  Matrix
Settlement & Clearance  Services.  For a tabular  presentation of the changes in
net  interest  income due to changes  in volume of  interest-earning  assets and
changes in interest rates, see "--Analysis of Changes in Net Interest Income Due
to Changes in Interest Rates and Volumes."

     Provision  for  Loan  and  Valuation  Losses.  The  provision  for loan and
valuation losses decreased $1.2 million, or 30%, to $3.0 million for fiscal year
2001 as  compared  to $4.2  million  for fiscal  year 2000.  This  decrease  was
primarily attributable to year 2000 including a significant charge-off at ABS of
a loan to a school client which closed, as well as a high year 2000 provision at
ABS and Matrix Bank 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, as well as activity in Ginnie Mae servicing portfolios.
Loan administration fees increased $6.3 million to $30.1 million for fiscal year
2001 as compared to $23.8 million for fiscal year 2000. Loan administration fees
are affected by factors that include the size of our  residential  mortgage loan
servicing portfolio, the servicing spread, the timing of payment collections and
the amount of ancillary  fees received.  Our mortgage loan  servicing  portfolio
increased slightly to an average balance of $5.5 billion for fiscal year 2001 as
compared to an average  balance of $5.4  billion  for fiscal year 2000,  despite
significant  increases in prepayment  rates due to the  declining  interest rate
environment in the latter part of 2001. The increase in loan administration fees
was  primarily  driven by increased  revenue  generated  from the  purchasing of
delinquent  government  loans out of our Ginnie Mae servicing and the subsequent
sale of those loans. The revenue  generated from this activity was approximately
$1.8 million.  There were also increases in our ancillary fees. The remainder of
the increase is attributed to a slightly higher average  servicing balance and a
higher  balance of  government  servicing  which tends to have higher  servicing
fees.

     Brokerage fees.  Brokerage fees represent  income earned from brokerage and
consulting services performed pertaining to mortgage servicing rights. Brokerage
fees  continued  with 2000 trends and decreased  $2.5  million,  or 46%, to $3.0
million for fiscal  year 2001 as compared to $5.5  million for fiscal year 2000.
This  decrease  was the  result of a  decrease  in the  balance  of  residential
mortgage servicing portfolios brokered by Matrix Capital Markets, which in terms
of aggregate unpaid principal balances on the underlying loans,  decreased $12.5
billion,  or 34%,  to $23.9  billion  for fiscal  year 2001 as compared to $36.4
billion for fiscal year 2000. As previously discussed, the decrease noted is due
to the consolidation that has taken place in the mortgage banking industry.  The
overall  market,  including  the number of buyers  and  sellers  servicing,  has
decreased,  and as a result, we have experienced an overall decrease in both the
portfolios brokered and the corresponding  revenue. In any event, brokerage fees
vary from quarter to quarter as the timing of servicing  sales is dependent upon
the seller's need to recognize a sale or to receive cash flows.

                                       30
<PAGE>

     Trust  Services.  Trust service fees  decreased  $900,000,  or 18%, to $4.0
million for fiscal  year 2001 as compared to $4.9  million for fiscal year 2000.
The  decrease  in  revenue  is  despite  the  fact  that  trust  accounts  under
administration  at Sterling Trust  increased to 41,329  accounts at December 31,
2001 from 39,220 accounts at December 31, 2000 and total fiduciary  assets under
administration  increased to $6.0 billion at December 31, 2001 from $3.8 billion
at December  31, 2000.  The growth in accounts  and assets under  administration
occurred in third party administrator accounts,  which increased 147% in 2001 to
3,554 accounts,  which are generally  priced at lower fees based on the level of
administration  required and generate  revenues based on number of  transactions
within accounts versus level of assets.

     Real  Estate  Disposition   Services.   Real  estate  disposition  services
represents fees earned by Matrix Asset Management for real estate management and
disposition  services  provided on  foreclosed  properties  owned by third party
financial services companies and financial institutions. Real estate disposition
service income decreased $1.1 million, or 30%, between the fiscal years 2001 and
2000 to $2.6  million.  The  decrease  was due to the  decrease in the number of
properties  closed during the year,  which  decreased 23%, from 1,872 in 2000 to
1,444 in 2001.

     Gain on Sale of Loans,  Mortgage-Backed and SBA Securities. Gain on sale of
loans and  mortgage-backed  securities  increased  $500,000 to $1.5  million for
fiscal year 2001 as compared to $1.0 million for fiscal year 2000. Loan sales of
approximately  $76.1 million in 2001 were completed under standard  purchase and
sale  agreements,  with  standard  representations  and  warranties  and without
recourse.  Sales of mortgage-backed  securities were approximately $59.6 million
in 2001 and  pertained to loans that the Company had  purchased  and swapped for
securities. The gains from both types of these sales represent cash gains. 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 mortgage-backed  portfolios available in the market, the type of loan or
mortgage-backed  portfolios we purchase and the  particular  loan  portfolios we
elect to sell.

     Gain  on Sale  of  Mortgage  Servicing  Rights.  Gain  on sale of  mortgage
servicing  rights  decreased $2.5 million to  approximately  $200,000 for fiscal
year  2001 as  compared  to $2.7  million  for  fiscal  year  2000.  In terms of
aggregate  outstanding  principal  balances of mortgage  loans  underlying  such
mortgage  servicing rights, we sold $1.7 billion in purchased mortgage servicing
rights  during  fiscal year 2001 as compared to $1.1 billion  during fiscal year
2000.   Gains  from  the  sale  of  mortgage   servicing  rights  can  fluctuate
significantly  from  year to year  based on the  market  value of our  servicing
portfolio,  the  particular  servicing  portfolios  we  elect  to  sell  and the
availability  of similar  portfolios  in the market.  Due to our position in and
knowledge of the market, we expect to, at times,  pursue  opportunistic sales of
mortgage  servicing rights.  The 2000 year sale was undertaken to take advantage
of aggressive  pricing in the marketplace  while the market was not as favorable
of 2001 with the low interest rate environment prevalent throughout the year.

     Loan Origination.  Loan origination income includes all mortgage loan fees,
secondary  marketing  activity on new loan originations for both residential and
SBA loans,  and servicing  release  premiums on servicing  sold and  capitalized
servicing on new originations  sold, net of origination  costs. Loan origination
income  increased $27.4 million,  or 360%, to $34.9 million for fiscal year 2001
as compared to $7.5  million for fiscal  year 2000.  The  increase is  primarily
attributable to an increase in wholesale residential mortgage loan production at
Matrix  Financial by $3.1 billion,  or 602%, to $3.6 billion  during fiscal year
2001 as compared to $512.5  million  during  fiscal year 2000.  The increases in
volume were due to our 2000 initiatives to increase  origination platform and by
the declining interest rate environment of 2001.

     School Services.  School services income  represents fees earned by ABS for
outsourced business and consulting services provided to schools. School services
income  increased $1.2 million,  or 28%, to $5.4 million for fiscal year 2001 as
compared to $4.2 million for fiscal year 2000.  This  increase was primarily due
to an increase in new school customers during 2001.

     Other Income.  Other income increased $4.1 million, or 75%, to $9.5 million
for fiscal  year 2001 as compared  to $5.4  million  for fiscal  year 2000.  The
increase in other income was primarily due to $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.

     Noninterest  Expense.  Noninterest expense increased $38.1 million, or 49%,
to $115.9  million for fiscal year 2001 as compared to $77.8  million for fiscal
year 2000.  This  increase  was  primarily  due to  increased  compensation  and
benefits  expense,  increased  amortization  of  mortgage  servicing  rights and
increased  other  general and  administrative  expense,  offset by a decrease in
professional   fees.  The  following  table  details  the  major  components  of
noninterest expense for the periods indicated:

                                       31
<PAGE>
                                                         Year Ended
                                                         December 31,
                                                 -------------------------------
                                                     2001             2000
                                                 ---------------  --------------
                                                        (In thousands)
     Compensation and employee benefits.......... $  52,573         $ 34,245
     Amortization of mortgage servicing rights ..    21,862            9,851
     Occupancy and equipment.....................     6,525            4,785
     Postage and communication...................     4,063            2,812
     Professional fees...........................     2,883            4,687
     Data processing.............................     2,907            2,413
     Other general and administrative............    25,086           19,048
                                                 ---------------  --------------
          Total.................................. $ 115,899         $ 77,841
                                                 ===============  ==============

     Compensation  and employee  benefits  increased  $18.3 million,  or 54%, to
$52.6  million for fiscal year 2001 as compared to $34.2 million for fiscal year
2000.  This  increase was primarily  the result of increased  salary  expense at
Matrix  Financial,  and to a lesser  extent,  at ABS,  Matrix Bancorp and Matrix
Bank. Matrix  Financial's  salary expense increased related to its initiative to
develop its production  platform and $15.9 million of the total company increase
in compensation and employee benefits is attributable to Matrix Financial.  This
initiative  involved opening two new production  offices,  acquiring a servicing
and  production  platform and hiring  additional  administrative  and production
staff in late 2000  which  operated  all of 2001.  The  Company  had an  overall
increase of 225  employees,  or 31%, to 960  employees  at December  31, 2001 as
compared to 735 employees at December 31, 2000.

     Amortization of mortgage servicing rights increased $12.0 million, or 122%,
to $21.9  million for fiscal  year 2001 as  compared to $9.9  million for fiscal
year 2000.  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 lower
interest  rates  prevalent  in the market,  prepayment  speeds on our  servicing
portfolio  increased to an average of 22.9% during  fiscal year 2001 as compared
to 12.1% during fiscal year 2000.

     The  remainder  of  noninterest  expense,   which  includes  occupancy  and
equipment expense,  postage and communication  expense,  professional fees, data
processing  costs and other expenses,  increased $7.7 million,  or 23%, to $41.5
million for fiscal year 2001 as compared to $33.8  million for fiscal year 2000.
The $6.0  million  increase  in other  general  and  administrative  expense was
primarily  attributable to increases in foreclosure and REO expenses,  increases
in  travel  and  entertainment  costs,  and  in  other  miscellaneous   expenses
associated  with the  increased  number of  employees,  and increases in outside
services,  consulting and temporary  help, as well as a $984,000 charge recorded
related to the relocation of Matrix Bank's domicile  primarily for severence and
contract benefits to be paid to certain of Matrix Bank's employees.  For further
discussion  of  these  charges,  see  Note  2  to  the  consolidated   financial
statements.  This was offset by a $1.8  million  decrease in  professional  fees
related  mainly to high  amounts in 2000 for  litigation  at Sterling  Trust and
legal expenses  associated with the Harbor settlement which were not incurred in
2001.  For a discussion  of the Harbor  items,  see Note 19 to the  consolidated
financial statements.

     Provision for Income Taxes.  Our provision for income taxes  increased $2.1
million to $4.3  million for fiscal  year 2001 as  compared to $2.2  million for
fiscal year 2000.  The increase in pre-tax income was enhanced by a reduction in
our  effective tax rate to 33.4% for fiscal year 2001 from 34.5% for fiscal year
2000.  The decrease in the effective tax rate was the result of our  origination
of tax-exempt financing at ABS.

Comparison of Results of Operations for Fiscal Years 2000 and 1999

     Net Income;  Return on Average Equity. Net income decreased $6.5 million to
$4.3  million for fiscal year 2000 as compared to $10.8  million for fiscal year
1999. On a per share basis,  net income was $0.63 per share for fiscal year 2000
and $1.58 for fiscal year 1999.  Return on average equity  decreased to 6.8% for
fiscal year 2000 as compared to 19.8% for fiscal year 1999. The decreases in net
income, earnings per share and return on average equity were caused primarily by
the substantial increase in the cost of our interest-bearing liabilities,  which
resulted  from the  higher  interest  rate  environment  of fiscal  year 2000 as
compared to fiscal year 1999. Additionally,  we incurred losses related to loans
that we acquired under a previously existing  purchase/repurchase  facility,  as
well as related to the settlement of the Harbor Financial  Mortgage  Corporation
bankruptcy.  Our legal  expenses in fiscal year 2000 were  substantially  higher
than the prior fiscal year relating to litigation at Sterling  Trust and the two
losses mentioned above. See "Legal Proceedings."

     Net Interest  Income.  Net interest  income  before  provision for loan and
valuation  losses  increased  $322,000 to $29.8  million for fiscal year 2000 as
compared to $29.5 million for fiscal year 1999.  Our net interest  income before
provision for loan and valuation  losses increased only slightly in spite of the
$276.9 million, or 30.5%,  increase in our  interest-earning  assets. The reason

                                       32
<PAGE>

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

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

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

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

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

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

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

     Gain  on Sale  of  Mortgage  Servicing  Rights.  Gain  on sale of  mortgage
servicing  rights increased $2.3 million to $2.6 million for fiscal year 2000 as
compared to $363,000  for fiscal year 1999.  In terms of  aggregate  outstanding
principal  balances of mortgage loans underlying such mortgage servicing rights,
we sold $1.1 billion in purchased  mortgage  servicing rights during fiscal year
2000 as compared to $161.2 million during fiscal year 1999.  Gains from the sale
of mortgage servicing rights can fluctuate significantly from year to year based
on the  market  value  of our  servicing  portfolio,  the  particular  servicing

                                       33
<PAGE>

portfolios we elect to sell and the  availability  of similar  portfolios in the
market.  Due to our position in and  knowledge  of the market,  we expect to, at
times, pursue opportunistic sales of mortgage servicing rights. The current year
sale was undertaken to take advantage of aggressive pricing in the marketplace.

     Loan Origination. Loan origination income increased $1.4 million, or 22.0%,
to $7.6 million for fiscal year 2000 as compared to $6.2 million for fiscal year
1999.  Approximately $806,000 of this increase related to increased originations
ans sales by Matrix Bank's SBA loan department. The remainder of the increase is
attributable to an increase in wholesale residential mortgage loan production by
$69.1 million,  or 15.6%,  to $512.5 million during fiscal year 2000 as compared
to $443.4 million during fiscal year 1999.

     School Services.  School services income increased $1.4 million,  or 50.7%,
to $4.2 million for fiscal year 2000 as compared to $2.8 million for fiscal year
1999.  This  increase  was  primarily  due to an increase in the pricing for ABS
services,  the addition of new school  customers and our  acquisition  of ABS in
March 1999, which resulted in less than a full year of revenues being recognized
in 1999.

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

     o    a $1.9  million  decrease in  consulting  income  from United  Capital
          Markets because of its August sale and an overall slower year for that
          company; and
     o    a  decrease   in  Matrix   Bank's   income  from   certain   financing
          transactions, which decreased miscellaneous fee income by $1.7 million
          compared to the prior fiscal year.

     Noninterest Expense.  Noninterest expense increased $8.2 million, or 11.9%,
to $77.8  million for fiscal  year 2000 as compared to $69.6  million for fiscal
year 1999.  This  increase  was  primarily  due to  increased  compensation  and
benefits  expense,  increased  other  general  and  administrative  expense  and
increased  professional  fees.  These increases were offset by a decrease in the
amortization of mortgage servicing rights. The following table details the major
components of noninterest expense for the periods indicated:

                                                            Year Ended
                                                            December 31,
                                                     ---------------------------
                                                        2000           1999
                                                     ------------   ------------
                                                           (In thousands)
     Compensation and employee benefits.............  $   34,245    $     29,336
     Amortization of mortgage servicing rights .....       9,851          16,403
     Occupancy and equipment........................       4,785           3,727
     Postage and communication......................       2,812           2,688
     Professional fees..............................       4,687           2,385
     Data processing................................       2,413           1,688
     Other general and administrative...............      19,048          13,359
                                                     ------------   ------------
          Total.....................................  $   77,841     $   69,586
                                                     ============   ============

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

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

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

                                       34
<PAGE>
experienced  a $2.3 million  increase in  professional  fees  related  mainly to
litigation  at  Sterling  Trust and legal  expenses  associated  with the Harbor
settlement.

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

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,
                                           ------------------------------------------------------------------------------------
                                                      2001                         2000                         1999
                                           ---------------------------  ---------------------------  --------------------------

                                           Average            Average    Average           Average   Average            Average
                                           Balance   Interest  Rate     Balance   Interest  Rate      Balance  Interest  Rate
                                           --------- -------- --------  ------------------ --------  --------------------------
                                                                          (Dollars in thousands)
<S>                                      <C>        <C>        <C>      <C>         <C>     <C>      <C>         <C>        <C>
Assets
Interest-earning assets:
  Loans receivable, net ................ $1,338,613 $102,058     7.62%  $1,086,041 $90,591     8.34%   $877,117  $72,355    8.25%
  Mortgage-backed and SBA securities....     17,667    1,335     7.56       45,253   3,374     7.46          --       --      --
  Interest-earning deposits.............     33,746    1,008     2.99       28,831   1,508     5.23      16,326      629    3.85
  Federal Home Loan Bank stock..........     23,281      996     4.28       24,199   1,913     7.91      13,934      766    5.50
                                           --------- -------- --------  ----------- ------- --------  ---------- --------- -------
    Total interest-earning assets.......  1,413,307  105,397     7.46%   1,184,324  97,386     8.22%    907,377   73,750    8.13%

Noninterest-earning assets:
  Cash..................................     24,196                         16,305                       18,090
  Allowance for loan and valuation
    losses..............................     (9,038)                        (7,302)                      (4,392)
  Premises and equipment................     17,838                         10,318                       10,765
  Other assets..........................    142,914                        116,602                      122,705
                                           ---------                    ----------                   ----------
    Total noninterest-earning assets....    175,910                        135,923                      147,168
                                           ---------                    ----------                   ----------
    Total assets........................ $1,589,217                     $1,320,247                   $1,054,545
                                           =========                    ==========                   ==========

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
  Passbook accounts..................... $    3,467      108     3.12%  $    2,981     102     3.42% $    2,758       96    3.48 %
  Money market and NOW accounts.........    239,941    5,220     2.18      156,649   3,671     2.34     213,192    6,356    2.98
  Certificates of deposit...............    493,954   29,544     5.98      361,084  22,502     6.23     287,347   15,137    5.27
  Federal Home Loan Bank borrowings.....    347,807   16,071     4.62      430,331  27,242     6.33     175,619    9,184    5.23
  Borrowed money........................    176,980   13,944     7.88      147,377  14,084     9.56     159,272   13,514    8.48
                                           --------- -------- --------  ----------- ------- -------- ----------- ---------- -------
    Total interest-bearing liabilities..  1,262,149   64,887     5.14%   1,098,422  67,601     6.15%    838,188   44,287    5.28 %
                                           --------- -------- --------  ----------- ------- -------- ----------- ---------- -------

Noninterest-bearing liabilities:
  Demand deposits (including custodial
   escrow balances)....................     204,923                        140,615                      140,847
  Other liabilities.....................     55,764                         18,505                       21,054
                                           ---------                    ----------                   ----------
  Total noninterest-bearing liabilities.    260,687                        159,120                      161,901
  Shareholders' equity..................     66,381                         62,705                       54,456
                                           ---------                    ----------                   ----------
    Total liabilities and shareholders'
     equity............................  $1,589,217                    $ 1,320,247                   $1,054,545
                                           =========                    ==========                   ==========
Net interest income before provision
for loan and valuation losses...........          $   40,510                       $29,785                       $29,463
                                                    =========                      =========                    ==========
Interest rate spread....................                         2.32%                         2.07 %                       2.85 %
                                                               ========                     ========                        =======
Net interest margin.....................                         2.87%                         2.51 %                       3.25 %
                                                               ========                     ========                        =======
Ratio of average interest-earning
  assets to average interest-bearing %
  liabilities...........................                       111.98%                       107.82 %                     108.25 %
                                                               ========                     ========                        ========
</TABLE>
Analysis of Changes in Net Interest  Income Due to Changes in Interest Rates and
Volumes

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

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

                                       35
<PAGE>

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

                                          Year Ended December 31, 2001 vs. 2000   Year Ended December 31, 2000 vs. 1999
                                          Increase (Decrease) Due to Change in    Increase (Decrease) Due to Change in
                                         --------------------------------------------------------------------------------
                                          Volume          Rate          Total      Volume         Rate          Total
                                         ------------  ------------  ------------------------  ------------  ------------
                                                                         (In thousands)
<S>                                       <C>          <C>           <C>          <C>          <C>           <C>

Interest-earning assets:
  Loans receivable, net.................  $  19,781    $  (8,314)    $    11,467  $  17,438    $      798    $   18,236
  Mortgage-backed and SBA securities....     (2,085)          46          (2,039)     3,374            --         3,374
  Interest-earning deposits.............        225         (725)           (500)       599           280           879
  Federal Home Loan Bank stock..........        (70)        (847)           (917)       719           428         1,147
                                            ---------    ----------    -----------  ---------    ----------    ----------
    Total interest-earning assets.......     17,851       (9,840)          8,011     22,130         1,506        23,636
                                            ---------    ----------    -----------  ---------     ---------    ----------
Interest-bearing liabilities:
  Passbook accounts.....................         16          (10)              6          8            (2)            6
  Money market and NOW accounts.........      1,822         (273)          1,549     (1,886)         (799)       (2,685)
  Certificates of deposit...............      7,984         (942)          7,042      4,307         3,058         7,365
  Federal Home Loan Bank advances.......     (4,637)      (6,534)        (11,171)    15,770         2,288        18,058
  Borrowed money........................      2,563       (2,703)           (140)      (957)        1,527           570
                                            ---------    ----------    -----------  ---------    ----------    ----------
    Total interest-bearing liabilities..      7,748      (10,462)         (2,714)    17,242         6,072        23,314
                                            ---------    ----------    -----------  ---------    ----------    ----------
Change in net interest income before
provision for loan and valuation losses.  $  10,103    $    622      $    10,725  $   4,888    $   (4,566)   $      322
                                            =========    ==========    ===========  =========    ==========    ==========
</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    maintaining  a  wholesale  loan   origination   operation.   Wholesale
          originations  provide a form of hedge  against the balance of mortgage
          servicing rights. In a decreasing interest rate environment, the value
          of  the  servicing  portfolio  tends  to  decrease  due  to  increased
          prepayments of the  underlying  loans.  During this same  environment,
          however, the volume of loan originations generally increases;
     o    utilizing  mortgage servicing rights as a source of noninterest income
          and as a  countermeasure  against the decline in the value of mortgage
          loans during a rising interest rate environment. Increases in interest
          rates tend to increase the value of mortgage  servicing rights because
          of the resulting decrease in prepayment rates on the underlying loans;
     o    focusing on  noninterest-bearing  custodial escrow balances related to
          our mortgage servicing rights;
     o    increasing  focus on lines of  business  that are less  interest  rate
          sensitive,   such  as  brokerage   activities,   consulting  services,
          self-directed  trust  services,   clearing  operations,   real  estate
          disposition and school business services;
     o    originating and purchasing adjustable rate mortgages and selling newly
          originated fixed rate residential mortgages in the secondary market;
     o    increasing  emphasis on the origination of construction and commercial
          real estate  lending,  including SBA loans,  which tend to have higher
          interest rates with shorter loan maturities than residential  mortgage
          loans and generally are at adjustable rates;
     o    acquisition and sales of guaranteed  portions of SBA loans,  which are
          generally at adjustable rates;
     o    increasing  retail deposits,  which are less susceptible to changes in
          interest rates than other funding sources;
     o    pursuing  strategic  acquisitions or alliances that provide  fee-based
          income  or  generate  liabilities  that  are  less  expensive  or less
          interest rate sensitive than retail  deposits or borrowings from third
          party institutions to fund our investing activities;
     o    using Matrix Bank as the  settlement  bank for settlement and clearing
          services  offered by Sterling Trust and Matrix  Settlement & Clearance
          Services to generate low-cost deposits; and
     o    hedging  segments  of our  servicing  portfolio  and  selling  forward
          commitments on our loan pipeline.

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

                                       36
<PAGE>
<TABLE>
<CAPTION>


                                                                               As of December 31,
                        ------------------------------------------------------------------------------------------------------------
                                 2001                    2000                    1999                  1998                   1997
                        ---------------------  --------------------- --------- ---------  ---------- -----------  -------- ---------
                          Amount      Percent    Amount     Percent   Amount    Percent      Amount    Percent     Amount    Percent
                        ------------ --------  ----------  --------  --------- ---------  ---------- -----------  -------- ---------
                                                                                    (Dollars in thousands)
<S>                       <C>        <C>      <C>          <C>      <C>        <C>          <C>        <C>    <C>    <C>    <C>

Residential...........   $1,062,640   78.76%  $  903,955     81.00%    954,424      86.49%  $732,512    86.34%    $462,604    90.46%
Multi-family, commercial
 real estate and            193,520   14.34      123,491     11.07      78,046       7.07     52,689     6.21       29,492     5.77
 commercial.........
School financing......       61,969    4.59       51,909      4.65      31,748       2.88     24,429     2.88        2,708     0.53
Construction .........       35,023    2.60       36,768      3.29      36,056       3.26     27,648     3.26        7,591     1.48
Consumer..............        5,336    0.40        8,479      0.76       9,595       0.87     14,880     1.75       10,733     2.10
                        ------------ -------- -----------  -------- ---------- ---------  ---------- -----------  -------- ---------
    Total loans......    $1,358,488  100.69%   1,124,602    100.77   1,109,869  69,100.57    852,158   100.44      513,128   100.34
Less allowance for loan
  and valuation losses        9,338    0.69        8,581      0.77       6,354       0.57      3,710     0.44       1,756      0.34
                        ------------ -------- -----------  -------- ---------- ---------- ---------- -----------  -------- ---------
Loans receivable, net.    1,349,150  100.00   $1,116,021    100.00% $1,103,515     100.00%  $848,448   100.00%    $511,372   100.00%
                        ============ ======== ===========  ======== ========== ========== ========== ===========  ======== =========

</TABLE>

     The  following  table  presents the  aggregate  maturities of loans in each
major  category of our loan  portfolio as of December 31,  2001,  excluding  the
allowance for loan losses.  Loans held for sale are  classified as maturing over
five years.  Actual maturities may differ from the contractual  maturities shown
below as a result of renewals and prepayments or the timing of loan sales.
<TABLE>
<CAPTION>

                                                                               As of December 31, 2001
                                                                ------------------------------------------------------
                                                                 Less than      One to      Over Five
                                                                 One Year     Five Years       Years        Total
                                                                ------------- ------------  ------------ -------------
                                                                                   (In thousands)
      <S>                                                       <C>           <C>           <C>          <C>

      Residential.............................................. $   651,685   $  405,125    $    5,830   $ 1,062,640
      Multi-family, commercial real estate and commercial......      83,276       20,023        90,221       193,520
      School financing.........................................      10,622       51,347            --        61,969
      Construction.............................................      28,223        6,800            --        35,023
      Consumer.................................................       1,754        2,292         1,290         5,336
                                                                ------------- ------------  ------------ -------------
           Total loans ........................................ $   775,560   $  485,587    $   97,341   $ 1,358,488
                                                                ============= ============  ============ =============
</TABLE>

      Included  in the balance of  residential  loans are  approximately  $434.3
million of loans  originated  by Matrix  Financial  that are committed for sale.
Although the majority of the loans are fixed rate, we have very little  interest
risk associated with the loans because they are committed for sale.........

      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, 2001
                                                                -----------------------------------------------------
                                                                 Less than      One to      Over Five
                                                                 One Year     Five Years       Years       Total
                                                                ------------- ------------  ------------ ------------
                                                                                  (In thousands)
      <S>                                                       <C>           <C>              <C>       <C>

      Fixed ................................................... $   562,041   $  166,336       $   799   $  729,176
      Adjustable...............................................     144,849      289,817           709      435,375
                                                                ------------- ------------  ------------ ------------
           Total loans ........................................ $   706,890   $  456,153       $ 1,508   $1,164,551
                                                                ============= ============  ============ ============
</TABLE>

      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, 2001
                                                                -----------------------------------------------------
                                                                 Less than      One to      Over Five
                                                                 One Year     Five Years      Years        Total
                                                                ------------- ------------  ------------ ------------
                                                                                  (In thousands)
      <S>                                                       <C>           <C>              <C>         <C>

      Fixed ................................................... $    11,805   $    8,193       $19,660     $ 39,658
      Adjustable...............................................      56,864       21,241        76,174      154,279
                                                                ------------- ------------  ------------ ------------
           Total loans ........................................ $    68,669   $   29,434       $95,834     $193,937
                                                                ============= ============  ============ ============
</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

                                       37
<PAGE>

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,
                                                   -----------------------------------------------------------------------
                                                       2001           2000           1999           1998           1997
                                                   -----------    -----------    -----------    -----------    -----------
                                                                            (Dollars in thousands)
<S>                                                 <C>             <C>           <C>            <C>            <C>

Nonaccrual residential mortgage loans............   $  19,039       $ 22,592      $  20,185      $   8,208      $   4,796
Nonaccrual commercial loans and school
   financing ....................................      18,172          5,792          5,301          4,349             --
Nonaccrual consumer loans........................          40            132            155            652            194
                                                    -----------    -----------    -----------    -----------    -----------
     Total nonperforming loans...................      37,251         28,516         25,641         13,209          4,990
Foreclosed real estate...........................       8,355          2,646            800            916          1,242
                                                    -----------    -----------    -----------    -----------    -----------
     Total nonperforming assets..................   $  45,606      $  31,162      $  26,441      $  14,125          6,232
                                                    ===========    ===========    ===========    ===========    ===========
Total nonperforming loans
   to total loans................................        2.74  %        2.54%          2.31%          1.55%          0.97%
Total nonperforming assets to total assets.......        2.79  %        2.20%          2.06%          1.40%          1.03%
Ratio of allowance for loan and valuation losses
    to total nonperforming loans.................       25.07  %       30.09%         24.78%         28.09%         35.19%
Interest income on nonperforming loans not
    included in interest income..................   $   1,773      $   1,016      $     979      $     524      $      89

</TABLE>

     We accrue  for  interest  on  government-sponsored  loans  such as  Federal
Housing  Administration  insured and Veteran's  Administration  guaranteed loans
which are past due 90 or more days,  as the  majority  of the  interest on these
loans is insured by the  federal  government.  The  aggregate  unpaid  principal
balance  of  government-sponsored  accruing  loans that were past due 90 or more
days was $55.2  million,  $101.1  million and $147.9  million as of December 31,
2001, 2000 and 1999, respectively.

     Nonaccrual  residential  mortgage loans as a percentage of total loans were
1.4% at December 31, 2001, 2.1% at December 31, 2000, 1.8% at December 31, 1999,
1.0% at December 1998 and 0.9% at December 31, 1997. The nonaccrual  residential
mortgage  loans have  improved at December  31, 2001 as compared to December 30,
2000. The improvement is due to maturity and  improvement in certain  portfolios
acquired  in 2000 and 1999 on which the  recourse  option we had was  eliminated
with the  bankruptcy  of the  seller/servicer.  The  balance  of these  loans in
nonaccrual  at December 31, 2001 totals $4.9 million as compared to $6.8 million
at December 31, 2000.  Associated with these nonaccrual  loans, we have recorded
$1.8 million of discounts.

     The increase in nonaccrual commercial loans and school financing in 2001 is
primarily  attributable  to the  increased  volume  of our  SBA  originated  and
purchased  loans and the increased  amount of those loans in nonaccrual  status,
which at December 31, 2001 was $8.1 million. It should be noted,  however,  that
approximately  $5.7  million of the  interest  and  principal  of these loans is
guaranteed,  and as such,  our credit risk is minimized  despite the increase in
the balances. With regard to our school financing, a majority of our origination
of tax-exempt  financing for charter  schools is for the purchase of real estate
and equipment.  We have noted that many of our charter schools have  encountered
enrollment  and/or state funding delays with their  start-up,  which has delayed
their funding and caused the school's loans to us to become delinquent.  We have
historically,  however, been able to work with many of the schools on their cash
flow issues and eventually removed them from the delinquent lists.

      The prior delinquency and anticipated future  delinquencies are taken into
consideration in the pricing of the loans acquired.  We generally  purchase such
loans at discounts and, in limited  instances,  receive recourse from the seller
to further reduce our risk of loss associated with the loans' nonaccrual status.
At December 31, 2001,  $15.0 million,  or 40.3%,  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, 2001,
were $1.2  billion,  of which $4.7  million,  or 0.41%,  were  nonaccrual  loans
related to commercial loans and school financing held for sale.

      The  increase  in  foreclosed  real  estate in 2001 as compared to 2000 is
primarily  due  to  one   commercial   real  estate   property  in  Colorado  of
approximately  $3.9 million,  which was foreclosed  upon in December 2001.  This
property was sold in February 2002 at no principal loss to Matrix Bank.

     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.


                                       38
<PAGE>

<TABLE>
<CAPTION>

                                                                 As of and for the Year Ended December 31,
                                                 ---------------------------------------------------------------------------
                                                      2001             2000            1999           1998          1997
                                                   ------------      -----------    -----------    -----------    ----------
                                                                           (Dollars in thousands)
<S>                                                <C>               <C>            <C>             <C>            <C>

Balance at beginning of period.................    $    8,581        $   6,354      $   3,710       $  1,756       $ 1,039
Charge-offs:
     Real estate - mortgage (1)................           872              434             98          1,922            22
     Real estate - construction ...............            31              320             --             --            --
     Commercial loans and school financing ....           746              819             --             --            --
     Consumer..................................           659              476            509            789           166
                                                   ------------     ------------    -----------    -----------    ----------
          Total charge-offs....................         2,308            2,049            607          2,711           188
Recoveries:
     Real estate-mortgage......................             4                1              2              2            --
     Consumer..................................            81               40             69             56            31
                                                   ------------     ------------    -----------    -----------    ----------
          Total recoveries.....................            85               41             71             58            31
                                                   ------------     ------------    -----------    -----------    ----------
Net charge-offs................................         2,223            2,008            536          2,653           157
Provision for loan losses charged to operations         2,980            4,235          3,180          4,607           874
                                                   ------------     ------------    -----------    -----------    ----------
Balance at end of period.......................    $    9,338       $    8,581      $   6,354      $   3,710      $  1,756
                                                   ============     ============    ===========    ===========    ==========
Ratio of net charge-offs to average loans......          0.17%            0.18%          0.06%          0.38%         0.04%
                                                   ============     ============    ===========    ===========    ==========
Average loans outstanding during the period....    $1,338,613       $1,086,041      $ 877,117      $ 692,443      $355,848
                                                   ============     ============    ===========    ===========    ==========
----------
<FN>

(1)  A majority of the increase in real estate mortgage  charge-offs for 1998 as
     compared  to 1997 is due to the  loss  recognized  which  related  to loans
     acquired  under an  alleged  fraudulent  agreement.  No future  losses  are
     anticipated.
</FN>

</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    Federal    Housing
Administration/Veteran's  Administration  loans  guaranteed by the Department of
Housing and Urban Development,  to 8.00% for 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.

     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.

                                       39
<PAGE>

     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,
                         -----------------------------------------------------------------------------------------------------------
                                2001                   2000                 1999                  1998                  1997
                         --------------------  --------------------- ---------------------  --------------------- ------------------
                                  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)
<S>                      <C>      <C>          <C>        <C>        <C>         <C>        <C>         <C>        <C>       <C>

Residential..............$3,918    78.30%      $4,133      80.39%    $3,591       86.00%    $2,295       85.96%    $1,234     90.15%
Multi-family,
 commercial real          2,400    14.15        1,684      11.28        835        7.02        564        6.18         91      5.75
 estate and commercial ..
School financing......... 2,527     4.56        2,329       4.31      1,320        2.86        275        2.87         --      0.53
Construction.............   445     2.59          302       3.27        286        3.25        207        3.24         23      1.48
Consumer.................    48     0.40          133       0.75        322        0.87        369        1.75        408      2.09
                        --------- -----------  --------- ----------  --------- -----------  --------- ----------  ------- ----------
                         $9,338   100.00%      $8,581     100.00%    $6,354      100.00%    $3,710      100.00%    $1,756    100.00%
                        ========= ===========  ========= ==========  ========= ===========  ========= ==========  ======= ==========
</TABLE>

      The ratio of the allowance  for loan and  valuation  losses to total loans
was 0.69% at December  31. 2001;  0.77% at December 31, 2000;  0.57% at December
31,  1999;  0.44% at December 31,  1998;  and 0.34% at December  31,  1997.  The
allowance for loan and valuation  losses is reduced by loans charged off, net of
recoveries. The balance of the allowance for loan and valuation losses allocated
to  residential,   multi-family,  commercial  real  estate,  commercial,  school
financing  and  construction  loans has  increased  mainly due to the  increased
outstanding loan principal  balances in these loan categories.  In addition,  we
have increased our  origination of non 1-4 family loans,  which are perceived to
be higher risk and also are a contributor to the overall increase in the balance
of the allowance.  As of December 31, 2001, 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  earnings  and
ultimate success is partially  dependent upon our ability to manage our interest
rate risk. Interest rate risk can be defined as the exposure of our net interest
income to adverse  movements in interest rates.  Although we manage other risks,
such as credit, operational and liquidity risk in the normal course of business,
we  consider  interest  rate risk to be a  significant  market  risk which could
potentially  have the largest  material  effect on our  financial  condition and
results of operations. The majority of our market risk related to interest rates
exists within the operations of Matrix Bank. However,  Matrix Financial also has
interest rate risk related to its primary asset,  mortgage servicing rights, and
also related to its loan origination volumes, as well as the net interest income
earned on its  originated  loans  that are  funded  through  warehouse  lines of
credit.  With the  majority of Matrix  Financial's  operations  being  funded by
Matrix  Bank,  this is a smaller  risk to the Company as compared to when Matrix
Financial's   operations  were  funded   entirely  by   unaffiliated   financial
institutions. The susceptibility to movements in interest rates affects the cash
flows generated from the mortgage  servicing  rights which are recorded in other
income versus interest income. In a decreasing  interest rate  environment,  the
underlying  servicing  portfolio  tends to prepay  faster which  reduces  future
servicing income; while in an increasing interest rate environment,  prepayments
tend to decrease,  which  increases  expected  future  servicing  income.  As it
relates to Matrix Financial's  lending activities,  Matrix Financial  originates
residential mortgage loans, which are generally pre-sold.  However,  between the
time  that the loan is  originated  and sold to the  ultimate  investor,  Matrix
Financial  earns  interest  income.  The loans  are  funded  through  the use of
warehouse  credit  facilities or borrowings  from Matrix Bank, both of which are
generally priced based on short-term interest rates. Therefore, the net interest
income that is earned by Matrix  Financial is generally  dependent on the spread
between  long-term  mortgage rates and  short-term  interest  rates.  Aside from
Matrix  Financial's  investment  in servicing  rights,  the majority of the risk
associated with interest rate movements relates more to the overhead  associated
with our origination platform.  As discussed,  a significant portion of the loan
origination  is directly  related to the  interest  rate  environment.  Overhead
significantly increased in 2001 to support the higher levels of originations. As
a result,  when interest rates increase and  originations  decrease,  there is a
risk  that we will not be able to  manage  our  overhead  proportionally  to the
overall decrease in loan origination income.

                                       40
<PAGE>

      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.

      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 that assists us with our asset/liability management. We meet
with this  consulting  firm quarterly to review the results of our interest rate
risk  analysis  and to  discuss  strategies.  We are  also  researching  various
asset/liability  software  packages for possible  future  acquisition  by Matrix
Bank.  Part of the modeling which is done is to comply with the  requirements of
the Office of Thrift Supervision.

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

      In the  ordinary  course of  business,  we make  commitments  to originate
residential  mortgage  loans and hold  originated  loans  until  delivery  to an
investor.  Inherent  in this  business  are risks  associated  with  changes  in
interest  rates and the  resulting  change in the market  value of the  pipeline
loans.  We  mitigate  this risk  through  the use of  mandatory  and best effort
forward commitments to sell loans and mortgage-backed securities. As of December
31, 2001, we had $155.0 million and $492.6 million in pipeline and funded loans,
respectively,  offset with mandatory  forward  commitments of $434.3 million and
best effort  forward  commitments  of $96.2  million.  The market value of loans
committed  for  sale is  determined  based  on the  related  forward  loan  sale
commitments.  Effective  January 1, 2001, with the adoption of SFAS 133, we were
required to treat  substantially  all mortgage  loan  commitments  and loan sale
commitments  (both mandatory and best effort) as derivatives and record the fair
value of those  derivatives on the balance sheet and any  subsequent  changes in
the fair value of those derivatives through current earnings.  As the changes in
fair value of the loan  commitments and the loan sale  commitments are generally
expected to offset one another,  we do not anticipate any material impact to our
future earnings from pipeline loans as a result of the adoption of SFAS 133.

      Ownership of mortgage  servicing  rights exposes us to impairment of their
value in certain  interest rate  environments.  The incidence of prepayment of a
mortgage  loan  increases  during  periods of  declining  interest  rates as the
homeowner  seeks to refinance the loan to a lower interest rate. If the level of
prepayment  on segments of our  mortgage  servicing  portfolio  achieves a level
higher than we projected for an extended  period of time,  then an impairment in
the associated  basis in the mortgage  servicing  rights may occur.  To mitigate
this risk of impairment due to declining  interest rates, we hedged a segment of
our portfolio  beginning in September  1997. We had identified and hedged $353.2
million as of December  31, 2000 of our  mortgage  servicing  portfolio  using a
program of  exchange-traded  futures  and  options.  Due to FASB 133 and the low
interest rate environment, we elected to discontinue our hedging strategy in the
first  quarter of 2001.  The Company has no  immediate  plans to  reinstate  its
hedging strategy of using derivative  products.  We have,  however,  developed a
different strategy to address the risk as discussed below.

      With regards to our  interest-sensitive  liabilities  during 2001,  and in
order to take advantage of the historically low interest rates,  Matrix Bank has

                                       41
<PAGE>

entered into short  option  agreements  and other  longer term  advances (2 to 5
years)  totaling $120 million,  which have interest  rates ranging from 2.69% to
4.85%. It is anticipated  that our interest margin will benefit in the long term
from locking in these interest rates.

      The following tables represent,  in tabular form,  contractual balances of
our on balance sheet financial  instruments in dollars at the expected  maturity
dates, as well as the fair value of those on balance sheet financial instruments
for the  periods  ended  December  31,  2001 and  2000.  The  expected  maturity
categories take into consideration historical and anticipated prepayment speeds,
as well as actual  amortization of principal and do not take into  consideration
the  reinvestment of cash. Our assets and liabilities  that do not have a stated
maturity date, such as interest-earning  deposits,  Federal Home Loan Bank stock
and certain  other  deposits,  are  considered to be long term in nature and are
reported in the thereafter column. We are very active in the secondary market as
it  relates to the  purchase  and sale of  mortgage  loans.  We use a  five-year
maturity  assumption  for all of Matrix  Bank's  held for sale  loans and school
financing,  and we use a one-year  maturity  assumption  for Matrix  Financial's
originated  loans held for sale.  We also treat the  Federal  Home Loan Bank and
revolving  borrowings as long term in nature,  as the continued  availability of
these  amounts is  anticipated  indefinitely.  Third party  servicers  service a
portion  of our loan  portfolio;  as a  result,  a  portion  of the  information
presented is based on the best available information.

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

     Mortgage servicing rights are not included in the tabular presentation,  as
the investment  does not directly  affect interest  income.  As noted,  however,
earnings from mortgage  servicing rights directly  correlate with market risk as
it relates to interest  rate  fluctuations.  We attempt to mitigate a portion of
this  risk by the type of  mortgage  servicing  rights  we  acquire.  The  loans
underlying the servicing rights acquired tend to be more seasoned and have lower
principal balances.  Management  believes that the more seasoned,  lower balance
servicing  portfolios  carry less  prepayment  risk than less  seasoned,  higher
balance  mortgage  servicing,  because the cost savings of  refinancing  a lower
balance  loan tend to be less than for a higher  balance  loan with a comparable
interest rate. We also believe that if a loan has been  outstanding for a period
of time and has been through  several  declining  interest  rate cycles  without
refinancing,  the  risk  of  prepayment  in the  future  is  less  than a  newly
originated  loan.  In  addition,  in 2001 we began to  retain a  portion  of our
originated   servicing.   Based  on  the  interest  rate  environment  prevalent
throughout  2001,  the  Company  believes  that  retaining  servicing  that  was
generated in the lower  interest  rate  environment  will incur less  prepayment
risk. Although significantly higher in 1999 and 1998, the prepayment percentages
which we have  experienced  over the past  three  years  have  been  lower  than
experienced in the industry,  as a whole.  The  prepayment  speeds for the years
ended  December  31,  2001,  2000  and  1999  were  22.9%,   12.1%,  and  20.6%,
respectively. In the tables below, prepayment speeds of 19% and 12% for 2001 and
2000, respectively, were used for all loan types to project expected cash flows.
These assumptions are based on our historical  prepayment speeds, as well as our
knowledge and experience in the market.

      The Company's on balance sheet financial  instruments for the period ended
December 31, 2001:

                                       42
<PAGE>

<TABLE>
<CAPTION>

                                           Expected Maturity Date - Fiscal Year Ended December 31,
                                    ----------------------------------------------------------------------
                                                                                                 There-                   Fair
                                      2002        2003        2004        2005        2006       after       Total        Value
                                    ----------  ----------- ----------- ----------- ---------- ----------- ------------ ------------
                                                                        (Dollars in thousands)
<S>                                 <C>          <C>         <C>          <C>        <C>          <C>       <C>          <C>

Interest-earning assets:
   Available for sale:
      Fixed-rate mortgage-backed
       securities.................. $    584     $     --    $     --    $     --    $     --     $    --   $      584   $      584
          Average interest rate....     6.50  %        -- %        -- %        -- %        -- %        -- %       6.50 %
      Adjustable-rate mortgage-
        backed and SBA securities.. $  6,379     $     --    $     --    $     --    $     --     $    --   $    6,379   $    6,379
        Average interest rate......     6.95  %        -- %        -- %        -- %        -- %        -- %       6.95 %

   Held for sale (1)(2)(8):
      Fixed-rate residential loans. $542,650     $ 29,010    $ 29,010    $ 29,010    $ 29,011     $    --   $  658,691   $  661,697
          Average interest rate....     7.20  %      8.51 %      8.51 %      8.51 %      8.51 %        -- %       7.43 %
      Adjustable-rate residential
        loans...................... $101,771     $ 72,335    $ 72,335    $ 72,336    $ 72,365     $    --   $  391,142   $  391,504
          Average interest rate....     7.50  %      7.50 %      7.50 %      7.50 %      7.50 %        -- %       7.50 %
      Fixed-rate commercial and
        other loans................ $ 14,610     $ 51,071    $     --    $     --    $     --     $   795   $   66,476   $   66,478
          Average interest rate....     9.22  %     10.08 %        -- %        -- %        -- %      9.07 %      10.38 %
      Adjustable-rate commercial
        and other loans............ $ 40,787     $     10    $     45    $     41    $     92     $   705   $   41,680   $   41,702
          Average interest rate....     5.64  %      8.89 %      8.89 %      8.89 %      8.89 %      8.89 %       5.71 %

   Held for investment(2):
      Fixed-rate residential loans. $    856     $    686    $    550    $    440    $    353     $ 1,331   $    4,216   $    4,228
          Average interest rate(3).     8.20  %      8.20 %      8.20 %      8.20 %      8.20 %      8.20 %       8.20 %
      Adjustable-rate residential . $    466     $    371    $    296    $    234    $    186     $   653   $    2,206   $    2,211
          Average interest rate(3).     7.18  %      7.18 %      7.18 %      7.18 %      7.18 %      7.18 %       7.18 %
      Fixed-rate consumer loans.... $  1,869     $  1,403    $  1,038    $     --    $     --     $    --   $    4,310   $    4,325
          Average interest rate(3).    10.43  %     10.43 %     10.43 %        -- %        -- %        -- %      10.43 %
      Adjustable-rate consumer
        loans(4)................... $    261     $    201    $    153    $    115    $     87     $   109   $      926   $      928
          Average interest rate(3).     7.45  %      7.45 %      7.45 %      7.45 %      7.45 %      7.45 %       7.45 %
      Fixed-rate other loans(5).... $ 10,263     $  7,789    $  5,471    $  4,068    $  2,973     $    --   $   30,564   $   30,656
          Average interest rate(3).     8.92  %      8.92 %      8.92 %      8.92 %      8.92 %        -- %       8.92 %
      Adjustable-rate other
        loans(4)(5)................ $ 50,290     $ 37,878    $ 18,356    $ 13,984    $ 10,557     $17,874   $  148,939   $  149,313
          Average interest rate(3).     7.42  %      7.42 %      7.42 %      7.42 %      7.42 %      7.42 %       7.42 %

   Federal funds sold.............. $    400     $     --    $     --    $     --    $     --     $    --   $      400   $      400
          Average interest rate....     1.81  %        -- %        -- %        -- %        -- %        -- %       1.81 %
   Interest-earning deposits....... $     --     $     --    $     --    $     --    $     --     $31,559   $   31,559   $   31,559
          Average interest rate....       --  %        -- %        -- %        -- %        -- %      1.47 %       1.47 %
   Federal Home Loan Bank stock.... $     --     $     --    $     --    $     --    $     --     $18,181   $   18,181   $   18,181
          Average interest rate....       --  %        -- %        -- %        -- %        -- %      3.00 %       3.00 %

     Total interest-earning assets. $766,222     $200,754    $127,254    $120,228    $115,624     $71,207   $1,401,289   $1,410,145
                                     =========   ==========  ==========  ==========  =========  ==========  ===========  ===========

Interest-bearing liabilities:
   Passbook accounts............... $     --     $     --    $     --    $     --    $    --     $  4,291   $    4,291   $    4,291
          Average interest rate....       --  %        -- %        -- %        -- %       -- %       4.47 %       4.47 %
   NOW accounts(6)................. $     --     $     --    $     --    $     --    $    --     $ 40,046   $   40,046   $   40,046
          Average interest rate....       --  %        -- %        -- %        -- %       -- %       2.57 %       2.57 %
   Money market accounts........... $     --     $     --    $     --    $     --    $    --     $249,234   $  249,234   $  249,234
          Average interest rate....       --  %        -- %        -- %        -- %       -- %       2.11 %       2.11 %
   Certificates of deposit over     $ 16,674     $  2,545    $  1,960    $    711    $   520     $    --    $  22,410    $  22,797
$100,000...........................
          Average interest rate....     5.13  %      5.61 %      4.76 %      6.92 %     5.06 %        -- %       5.20 %
  Brokered certificates of deposit. $351,271     $     --    $     --    $ 10,000    $    --     $    --    $ 361,271    $ 362,079
     Average interest rate.........     4.13  %        -- %        -- %      4.85 %       -- %        -- %       4.15 %
   Other certificates of deposit... $ 82,281     $ 12,719    $ 11,788    $  8,230    $ 6,828     $    --    $ 121,846    $ 123,631
          Average interest rate....     5.32  %      5.10 %      4.80 %      6.66 %     5.18 %        -- %       5.33 %
   Federal Home Loan Bank
     borrowings(7)................. $     --     $     --    $     --    $     --    $    --     $303,361   $ 303,361    $ 309,931
          Average interest rate....       --  %        -- %        -- %        -- %       -- %       2.94 %      2.94 %
   Revolving borrowings............ $     --     $     --    $     --    $     --    $    --     $143,415   $ 143,415    $ 143,415
          Average interest rate....       --  %        -- %        -- %        -- %       -- %       3.68 %      3.68 %
   Term borrowings................. $  1,478     $  7,184    $ 10,455    $     --    $    --     $ 59,500   $  78,617       78,617
          Average interest rate....     8.00  %      8.23 %     11.50 %        -- %       -- %       9.76 %      9.82 %

     Total interest-bearing
      liabilities.................. $451,704     $ 22,448    $ 24,203    $ 18,941    $ 7,348     $799,847  $1,324,491   $1,334,041

                                     =========   ==========  ==========  ==========  =========  ==========  ===========  ===========

                                       43
<PAGE>

<FN>
----------
(1)  Loans held for sale are assumed to mature within one year.
(2)  Balances are stated net of discounts and other deductions.
(3)  For the  fixed-rate  loans  held for  investment,  we  computed  a weighted
     average  interest  rate  and a  weighted  average  maturity  for  the  loan
     portfolio and then applied a prepayment  assumption  of 19% in  determining
     the cash flows. The same approach was used for the  adjustable-rate  loans,
     which are generally fully indexed loans.
(4)  The  adjustable-rate  loans  generally are indexed to the 1-year  treasury.
     However, included in the balance are loans indexed to 11th district cost of
     funds, prime and 3-, 5- and 7-year treasury.
(5)  Other consists of multi-family,  commercial real estate,  commercial,  land
     and construction loans.
(6)  Excludes   noninterest-bearing   demand  deposits  of  approximately  $67.1
     million.
(7)  See "--Short-term  Borrowings" for additional discussion on the term of the
     Federal Home Loan Bank borrowings.
(8)  The  value of the  hedging  instruments  used with our loan  portfolio  are
     included in the balance of the loans for purposes of fair value disclosure.
     See discussion regarding FAS 133 for additional information.
</FN>
</TABLE>

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

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

Interest-earning assets:
   Available for sale:
      Fixed-rate mortgage-backed
       securities.................. $  4,540    $      --    $     --    $     --   $     --   $      --     $  4,450   $     4,540
          Average interest rate....     7.54  %        -- %        -- %        -- %       -- %        -- %       7.54 %
      Adjustable-rate mortgage-
       backed securities........... $ 62,076    $      --    $     --    $          $     --   $      --     $ 62,076   $    62,076
          Average interest rate....     8.31  %        -- %        -- %        -- %       -- %        -- %       8.31 %

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

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

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

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

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

     Total interest-bearing
       liabilities................. $311,743    $  68,077    $ 11,139    $ 21,496   $  8,941   $ 772,223   $1,193,619   $ 1,191,884
                                    =========   ==========  ==========  ==========  =========   =========  ===========   ===========
<FN>
----------
(1)  Loans held for sale are assumed to mature within one year.
(2)  Balances are stated net of discounts and other deductions.

                                       44
<PAGE>

(3)  For the  fixed-rate  loans  held for  investment,  we  computed  a weighted
     average  interest  rate  and a  weighted  average  maturity  for  the  loan
     portfolio and then applied a prepayment  assumption  of 12% in  determining
     the cash flows. The same approach was used for the  adjustable-rate  loans,
     which are generally fully indexed loans.
(4)  The  adjustable-rate  loans  generally are indexed to the 1-year  treasury.
     However, included in the balance are loans indexed to 11th district cost of
     funds, prime and 3-, 5- and 7-year treasury.
(5)  Other consists of multi-family,  commercial real estate,  commercial,  land
     and construction loans.
(6)  Excludes   noninterest-bearing   demand  deposits  of  approximately  $53.0
     million.
(7)  See "--Short-term  Borrowings" for additional discussion on the term of the
     Federal Home Loan Bank borrowings.
(8)  Other  consists  of  multi-family,   commercial  real  estate,   commercial
     (including SBA), land and construction loans.
(9)  Excludes   noninterest-bearing   demand  deposits  of  approximately  $21.2
     million.
(10) See "--Short-term  Borrowings" for additional discussion on the term of the
     Federal Home Loan Bank borrowings.
</FN>
</TABLE>

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

     The  following  table  sets forth a summary  of our  short-term  borrowings
during 2001, 2000 and 1999 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)
<S>                                               <C>             <C>             <C>                 <C>             <C>

At or for the year ended December 31, 2001:
      Federal Home Loan Bank borrowings(2).....   $   303,361     $  347,807      $  478,921           4.62%           2.94%
      Revolving lines of credit................        95,450         58,097          95,450           4.51            3.56
      School financing.........................        44,965         46,160          60,100           6.02            3.86
At or for the year ended December 31, 2000:
      Federal Home Loan Bank borrowings(3).....       519,433        430,331         526,450           6.33            6.29
      Revolving lines of credit................        21,956         40,701          52,750           8.23            7.63
      Repurchase agreements....................           385          3,240           6,906          10.70            8.75
      School financing.........................        44,308         30,262          44,308           8.18            8.56
At or for the year ended December 31, 1999:
      Federal Home Loan Bank borrowings(4).....       405,000        175,619         417,606           5.23            5.64
      Revolving lines of credit................        28,205         49,762          73,878           6.38            6.71
      Repurchase agreements....................         3,156          7,157          12,467          10.11            8.67
      School financing.........................        22,819         21,853          25,379           7.56            7.77
----------
<FN>

(1)  Calculations  are  based on daily  averages  where  available  and  monthly
     averages otherwise.
(2)   A total of  $136.0  million  of the  Federal  Home  Loan  Bank  borrowings
      outstanding  at December 31, 2001 were borrowed under short option advance
      agreements  with the Federal  Home Loan Bank.  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  20,  2002 to
      November  13,  2006.  Additionally,  $1.4 million of the Federal Home Loan
      Bank  borrowings  outstanding  at December  31,  2001 are  fixed-term/rate
      advances,  which were  borrowed  from the Federal Home Loan Bank to offset
      specific loans  originated by Matrix Bank.  The principal  amount of these
      fixed-term/rate advances adjust monthly based on an amortization schedule.
      The interest  rate on the  fixed-term/rate  advances was 5.84%,  and their
      maturity date is June 2, 2014.
(3)   A total  of  $26.0  million  of the  Federal  Home  Loan  Bank  borrowings
      outstanding  at  December  31,  2000 were  borrowed  under a short  option
      advance  agreement  with the Federal  Home Loan Bank.  These short  option
      advance  borrowings  have a term of ten  years,  but are  callable  by the
      Federal Home Loan Bank  beginning  after a six-month  or one-year  lockout
      period depending on the particular short option advance  borrowing.  After
      the expiration of the lock-out period, the short option advance borrowings
      are  callable at three  month  intervals.  If the  Federal  Home Loan Bank
      exercises its call option on a short option advance borrowing, the Federal
      Home Loan Bank is required to offer replacement  funding to us at a market
      rate of  interest  for the  remaining  term of the  short  option  advance
      borrowing.  The  interest  rates on the short  option  advance  borrowings
      ranged from 5.40% to 5.63% at December  31, 2000 and their  possible  call
      dates varied from February 20, 2001 to March 26, 2001.  Under the terms of
      the short  option  advance  agreement,  we are not  permitted to prepay or
      otherwise  retire a callable short option advance  borrowing  prior to the
      final maturity date.  Additionally,  $1.4 million of the Federal Home Loan
      Bank  borrowings  outstanding  at December  31,  2000 are  fixed-term/rate
      advances,  which were  borrowed  from the Federal Home Loan Bank to offset
      specific loans  originated by Matrix Bank.  The principal  amount of these
      fixed-term/rate advances adjust monthly based on an amortization schedule.
      The principal  amount of these  fixed-term/rate  advances  adjust  monthly
      based   on  an   amortization   schedule.   The   interest   rate  on  the
      fixed-term/rate  advances  was 5.84% and  their  maturity  date is June 2,
      2014.  Matrix  Bank  also  had  short-term,   fixed-term/rate   borrowings
      outstanding  at December 31, 2000 from the Federal  Home Loan Bank.  These

                                       45
<PAGE>

      short-term,   fixed-term/rate  borrowings  totaled  $150.0  million,  with
      interest rates ranging from 6.00% to 6.23% and maturity dates ranging from
      March 27, 2001 through June 26, 2001.
(4)   A total of  $100.0  million  of the  Federal  Home  Loan  Bank  borrowings
      outstanding  at  December  31,  1999 were  borrowed  under a short  option
      advance  agreement  with the Federal Home Loan Bank. The interest rates on
      the short option advance borrowings ranged from 4.90% to 5.63% at December
      31, 1999 and their  possible  call dates  varied from  January 14, 2000 to
      December  26,  2000.  Additionally,  $1.5 million of the Federal Home Loan
      Bank  borrowings  outstanding  at December  31,  1999 are  fixed-term/rate
      advances,  which were  borrowed  from the Federal Home Loan Bank to offset
      specific loans  originated by Matrix Bank.  The principal  amount of these
      fixed-term/rate advances adjust monthly based on an amortization schedule.
      The interest  rate on the  fixed-term/rate  advances was 5.84%,  and their
      maturity date is June 2, 2014.

</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 preferred  securities  through Matrix Bancorp  Capital
          Trust I in 1999, Matrix Bancorp Capital Trust II, III and IV in 2001;
     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, 2001,  Matrix Bancorp had $81.5 million in  indebtedness
outstanding.   The  borrowed  funds  have  been  used  historically  as  capital
injections to Matrix Bank, Matrix Financial, Matrix Capital Markets and ABS.

     On December 27, 2000, Matrix Bancorp amended its bank stock loan agreement.
The amended bank stock loan agreement has two  components,  a $10.0 million term
loan and a revolving line of credit of $10.0  million.  As of December 31, 2001,
the balance of the term loan was $8.6  million and the balance of the  revolving
line of credit was $3.0  million.  The amended bank stock loan  requires  Matrix
Bancorp to maintain total shareholders'  equity of $60.0 million. We exceed this
requirement  by 19%.  The term loan has a  three-year  term with a  maturity  of
December 27, 2003. The revolving line of credit is annually renewed. At December
31, 2001,  the revolving  line of credit was renewed for three  months.  At this
time, management is confident that an additional renewal will be done.

     On July 30,  1999,  Matrix  Bancorp  Capital  Trust I (Trust I), a Delaware
business trust formed by Matrix Bancorp,  completed the sale of $27.5 million of
10%  preferred  securities.  Trust I also  issued  common  securities  to Matrix
Bancorp and used the net proceeds from the offering to purchase $28.6 million in
principal  amount of 10% junior  subordinated  debentures of Matrix  Bancorp due
September 30, 2029.  The junior  subordinated  debentures are the sole assets of
Trust I and are eliminated,  along with the related income statement effects, in
the consolidated financial statements.

     The  preferred  securities  accrue and pay  distributions  quarterly  at an
annual  rate  of 10% of the  stated  liquidation  amount  of $25  per  preferred
security. We have fully and unconditionally guaranteed all of the obligations of
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.  We have the right to redeem the junior subordinated  debentures,  in
whole or in part on or after September 30, 2004, at a redemption price specified
in the indenture plus any accrued but unpaid  interest to the  redemption  date.
See Note 9 to the consolidated  financial  statements included elsewhere in this
document.  Under the indenture,  we are prohibited from paying  dividends on our
common  stock if the  scheduled  payments  on our  junior  debentures  and trust
preferred securities have not been made.

     On March 28, 2001,  Matrix Bancorp  Capital Trust II (Trust II), a Delaware
business  trust formed by the Company,  completed  the sale of $12.0  million of
10.18%  preferred  securities.  Trust II also issued  common  securities  to the
Company and used the net process from the offering to purchase  $12.4 million in
principal  amount of 10.18%  junior  subordinated  debentures of the Company due
June 8, 2031. The junior subordinated debentures are the sole assets of Trust II
and are  eliminated,  along with the related income  statement  effects,  in the
consolidated financial statements.

     The  preferred  securities  accrue and pay  distributions  quarterly  at an
annual rate of 10.18% of the stated  liquidation  amount of $1,000 per preferred

                                       46
<PAGE>

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
indentures.  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 $15.0  million of
10.25%  preferred  securities.  Trust III also issued  common  securities to the
Company and used the net process from the offering to purchase  $15.5 million in
principal  amount of 10.25%  junior  subordinated  debentures of the Company due
July 25, 2031. The junior  subordinated  debentures are the sole assets of Trust
III and are eliminated,  along with the related income statement effects, in the
consolidated financial statements.

     The  preferred  securities  accrue and pay  distributions  quarterly  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
indentures.  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.

     On  November  28,  2001,  Matrix  Bancorp  Capital  Trust IV (Trust  IV), a
Delaware  business  trust  formed  by the  Company,  completed  the sale of $5.0
million of floating  rate of the  six-month  LIBOR plus 3.75% (6.007% for period
ended  December  31, 2001)  preferred  securities.  Trust IV also issued  common
securities to the Company and used the net process from the offering to purchase
$5.2 million in principal  amount of floating rate of the  six-month  LIBOR plus
3.75% junior  subordinated  debentures of the Company due December 8, 2031.  The
junior  subordinated  debentures  are  the  sole  assets  of  Trust  IV and  are
eliminated, along with the related income statement effects, in the consolidated
financial statements.

     The  preferred  securities  accrue  and pay  distributions  quarterly  at a
floating  annual 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 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 IV.

     The preferred  securities are  mandatorily  redeemable upon the maturity of
the junior subordinated debentures or upon earlier redemption as provided in the
indentures.  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.

     Capitalized  expenses associated with all of the trust preferred securities
offerings of approximately $2.3 million are included in other assets at December
31, 2001 and are being amortized on a  straight-line  basis over the life of the
junior subordinated debentures.

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

     o    maintain  consolidated  tangible  equity  capital of not less than $35
          million; and
     o    meet the  requirements  necessary  such that  Matrix  Bank will not be
          classified as other than "well  capitalized"  as defined by applicable
          regulatory guidelines.

Additionally,  the 11.5% senior notes contain other covenants  regarding certain
restricted payments, incurrence of indebtedness and issuance of preferred stock,
liens, merger, consolidation or sale of assets and transactions with affiliates.
As of December 31, 2001,  due to  repurchases  made by the Company of the senior
notes, there remained $10.5 million of the debt issue outstanding.

                                       47
<PAGE>

     Matrix  Bancorp has  guaranteed,  with 50%  recourse  to our joint  venture
partner,  the  indebtedness  of Matrix  Settlement & Clearance  Services to U.S.
Bank,  N.A.,  in an amount of no greater  than $3 million.  There was no balance
outstanding at Matrix  Settlement & Clearance  Services on such  indebtedness at
December 31, 2001.

     The trend of net cash used by our operating activities experienced over the
reported  periods  results  primarily  from the  growth at Matrix  Bank and more
recently the growth at Matrix  Financial and ABS. We  anticipate  the trend of a
net use of cash from operations to continue for the foreseeable future. However,
due to liquidity and capital availability,  we do not anticipate growth to be as
significant as in prior periods.

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

     o    retail deposits;
     o    trust deposits;
     o    custodial escrow balances;
     o    brokered deposits;
     o    Federal Home Loan Bank borrowings;
     o    sales of loan portfolios; and
     o    proceeds from principal and interest payments on loans.

Contractual  loan payments and net deposit  inflows are a generally  predictable
source  of funds,  while  loan  prepayments  and loan  sales  are  significantly
influenced by general market interest rates and economic conditions.  Borrowings
on a short-term  basis are used as a cash  management  vehicle to compensate for
seasonal or other  reductions in normal  sources of funds.  Matrix Bank utilizes
advances from the Federal Home Loan Bank as its primary  source for  borrowings.
At December 31, 2001,  Matrix Bank had  overnight and term  borrowings  from the
Federal Home Loan Bank of $303.4 million.  The availability of Federal Home Loan
Bank  borrowings is based on the level of  collateral  pledged.  Generally,  the
availability  will be limited to the lesser of 90% of the 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  occur.  For a  tabular  presentation  of the our  short-term
borrowings, see "Asset and Liability Management--Short-term Borrowings."

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

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

                                                              Year Ended December 31,
                             -------------------------------------------------------------------------------------------
                                         2001                           2000                           1999
                             -----------------------------  -----------------------------  -----------------------------
                                              Weighted                       Weighted                       Weighted
                                Average        Average         Average        Average         Average        Average
                                Balance         Rate           Balance         Rate           Balance         Rate
                             -------------- --------------  -------------- --------------  -------------- --------------
                                                              (Dollars in thousands)
<S>                           <C>                 <C>        <C>                <C>        <C>                 <C>

Passbook accounts...........  $     3,467         3.12 %     $     2,981        3.42  %    $      2,758        3.48  %
NOW accounts................       98,872         0.94            64,523        0.96             24,038        2.50
Money market accounts.......      203,757         2.11           130,592        2.34            189,154        3.04
Time deposits
  (except brokered).........      181,535         5.60           177,399        6.10            131,054        5.45
Brokered deposits...........      312,419         6.20           183,685        6.36            156,293        5.11
                                ----------- ------------       ----------- -----------       ------------ -----------
     Total deposits.........  $   800,050         4.36 %     $   559,180        4.70  %    $    503,297        4.29  %
                                ----------- ------------       ----------- -----------       ------------ -----------
</TABLE>

                                       48
<PAGE>

     The following table sets forth the amount of Matrix Bank's  certificates of
deposit that are greater than $100,000 by time  remaining  until  maturity as of
December 31, 2001:

                                                       As of December 31, 2001
                                              ----------------------------------
                                                                Weighted Average
                                                 Amount            Rate Paid
                                              --------------  ------------------
                                                  (Dollars in thousands)
     Three months or less...............      $      4,419              5.74 %
     Over three months through six months..          4,556              5.11
     Over six months through twelve months.          7,699              4.78
     Over twelve months....................          5,736              5.43
                                              --------------  ----------------
          Total............................   $     22,410              5.21 %
                                              ==============  ================

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

     Prior to  Matrix  Financial  becoming  a  subsidiary  of Matrix  Bank,  our
principal source of funding for our servicing acquisition activities and working
capital needs of Matrix  Financial  consisted of a line of credit facility and a
working  capital  facility  provided  to  Matrix  Financial  by an  unaffiliated
financial  institution.  As noted  earlier,  effective  August 1,  2000,  Matrix
Financial  became a wholly owned  subsidiary of Matrix Bank. The contribution of
Matrix  Financial  increased  the  capital of Matrix Bank by  approximately  $25
million.  In addition,  effective August 1, 2000,  through financing provided by
Matrix Bank,  Matrix  Financial paid off its line of credit for the financing on
its  servicing  acquisitions  and in 2000 paid off  approximately  $4 million of
higher costing borrowings under its purchase/repurchase  facilities and paid off
its working capital facility.

     Matrix  Financial's  principal  source of funding for its loan  origination
business  consists of a warehouse line of credit provided to Matrix Financial by
Matrix Bank, and a warehouse line of credit  provided to Matrix  Financial by an
unaffiliated financial institution.  As of November 20, 2001, Matrix Financial's
warehouse  line  of  credit  facility  provided  by  an  unaffiliated  financial
institution was amended.  It aggregates  $120.0 million,  of which $24.5 million
was  available to be utilized as of December 31, 2001.  It is  anticipated  that
effective  March 31, 2002,  the warehouse line will be reduced to $80.0 million.
At December 31, 2001, $95.5 million was outstanding  under the warehouse line at
a weighted average  interest rate of 3.05%.  Borrowings under the warehouse line
of credit are secured by all of the mortgage  loans funded with  warehouse  loan
proceeds and bear interest at the LIBOR rate plus a negotiated margin.

     ABS School  Services'  principal source of funding for its loan origination
business consists of its internal  capital,  a loan sale facility provided by an
unaffiliated  financial institution and a partnership trust with an unaffiliated
financial  institution.  As of December 31, 2001,  $22.8 million was outstanding
under the loan sale  facility  at a  weighted  average  interest  rate of 4.92%.
Borrowings  under  the loan  sale  facility  are  secured  by all of the  school
financing  sold and rates paid range from prime to 8% on the  underlying  loans.
Amounts  available under the loan sale facility and the partnership trust are at
the lender's sole discretion.  The loans financed through the loan sale facility
are sold to an  unaffiliated  financial  institution  under an  agreement  which
allows us to  repurchase  the loans at our sole option.  The loan sale  facility
also provides a full  guarantee of principal and interest in the case of default
or loss.  We are in the process of attempting  to arrange  additional  financing
vehicles to assist in the financing of  originations  of further  charter school
loans.

     The Company has placed tax-exempt financing of approximately $22 million at
December 31, 2001 it originated to charter  schools into several grantor trusts.
The trusts then issued Class "A" Certificates and Class "B"  Certificates,  with
the Class "A"  Certificates  being sold to various third party investors under a
private placement at a price of par.

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

                                       49
<PAGE>

     The "B"  Certificates  are owned in part by the  Company and in part by the
investment  bank.  The interest  rate paid on the "A"  Certificates  and the "B"
Certificates owned by the investment bank is considered the Company's  financing
cost.  The  approximate  cost of the financing at December 31, 2001 and 2000 was
2.75% and 7.23%,  respectively.  The interest that the Company  receives through
its part ownership of the "B" Certificates is tax-exempt.

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

     Matrix Bank and Sterling  Trust are  restricted in certain  instances  from
paying dividends to Matrix Bancorp due to certain regulatory  requirements.  See
"Regulation  and  Supervision."  Matrix  Financial  is  prohibited  from  paying
dividends to Matrix Bank under its credit agreement dated September 29, 2000. At
December 31, 2001, we were in compliance with all debt covenants.

     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.  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.  We have not made an accrual for any losses
in the financial  statements  as of December 31, 2001 related to these  matters.
One item of particular note, as discussed in the section noted above and in Note
14 of  our  consolidated  financial  statements,  as of  December  31,  2001,  a
subsidiary of the Company has been named a defendant in an action that was tried
in Tarrant County, Texas District Court in the spring of 2000. The jury returned
a verdict  adverse to the Company  with respect to 2 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. The Company has filed an
appeal of this  judgment  and believes it has  meritorious  points of appeal and
intends  to  vigorously  prosecute  the  appeal  of this  action.  The  ultimate
resolution  of this matter  could  result in a loss of up to $6.4  million  plus
post-judgment  interest and additional  attorneys'  fees. The ultimate legal and
financial liability,  if any, of the Company cannot be estimated with certainty.
To the extent  additional  information  arises or our strategies  change,  it is
possible that our liability in any of these matters may change.

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.   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  discussion at "--Asset and Liability  Management,  Analysis of
Allowance  for Loan and  Valuation  Losses"  for a detailed  description  of the
Company's  process  and  methodology  related  to the  allowance  for  loan  and
valuation losses.

                                       50
<PAGE>

     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
"--Business,  Mortgage  Servicing  Activities" for a detailed  discussion of the
nature of the servicing  rights,  and see Note 2 of the  consolidated  financial
statements  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. Most of these cases involve
ordinary and routine claims  incidental to our business.  Based on  management's
analysis, no accrual for loss has been made as of December 31, 2001 for any such
cases. See a full description of such proceedings at "--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.

Recent Accounting Pronouncements

     Effective  January 1, 2001,  the Company  adopted SFAS 133,  Accounting for
Derivative  Instruments and Hedging Activities,  as amended,  which requires all
derivative  instruments to be carried at fair value on the balance sheet. At the
time of adoption,  the Company  designated anew certain  derivative  instruments
used for risk  management  into hedging  relationships  in  accordance  with the
requirements of the new standard.

     Derivative  instruments  used to hedge  changes in the fair value of assets
and  liabilities  due to changes in interest rates were designated in fair value
hedge  relationships.  As a result of  adopting  the new  standard,  the Company
recorded  transition  amounts associated with establishing the fair value of the
derivatives  and hedged items on the  consolidated  balance sheet. At January 1,
2001, a pre-tax transition loss of $550,000, or $360,000 after tax, was recorded
as a cumulative effect of a change in accounting principle.

     In  September  2000,  the FASB issued  Statement  No. 140,  Accounting  for
Transfers and Servicing of Financial Assets and  Extinguishments of Liabilities,
that  replaces,  in its  entirety,  SFAS 125. SFAS 140 revises the standards for
accounting  for  securitizations  and other  transfers of  financial  assets and
collateral and requires certain disclosures. SFAS 140 is effective for transfers
occurring  after  March  31,  2001  and  the  expanded  disclosure  requirements
regarding  securitizations  and  collateral are effective for fiscal years ended
after  December 15, 2000. The adoption of SFAS 140 did not have an impact on our
consolidated financial statements.

     In June 2001,  the FASB issued  Statement No. 141,  Business  Combinations,
that  supersedes  APB  Opinion  No.  16 and  FASB  Statement  No.  38.  SFAS 141
eliminates   the   pooling-of-interests   method  of  accounting   for  business
combinations  except for certain  qualifying  combinations  that were  initiated
prior to July 1, 2001, and requires that  intangible  assets  associated  with a
business  combination  be  recorded  apart from  goodwill  if they meet  certain
criteria.  SFAS 141 also significantly  increases the disclosures required about
business  combinations.  SFAS 141 is  effective  for all  business  combinations
completed  after June 30, 2001.  The adoption of SFAS 141 did not have an impact
on our consolidated financial statements.

      In June 2001,  the FASB  issued  Statement  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 on intangible assets that are deemed to have finite lives.  Finally,
SFAS 142 adds to required disclosures  regarding goodwill and intangible assets.
SFAS 142 is effective for fiscal years  beginning  after  December 15, 2001. The
adoption  of SFAS 142 at January  1, 2002 did not have a material  impact on our
consolidated financial statements. Our goodwill balance at December 31, 2001 was
$1 million, and amortization expense was less than $100,000 per year.

     In August  2001,  the FASB issued  Statement  No. 144,  Accounting  for the
Impairment or Disposal of Long-Lived Assets,  that supersedes FASB Statement No.
121 and APB  Opinion  No. 30.  SFAS 144  provides  guidance  on  differentiating
between assets held and used, held for sale, and held for disposal other than by
sale, and the required valuation of such assets based on the criteria.  SFAS 144
is effective for fiscal years beginning after December 15, 2001. The adoption of
SFAS  No.  144 at  January  1,  2002  did  not  have a  material  impact  on our
consolidated financial statements.

                                       51
<PAGE>


Forward Looking Statements

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

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

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

Item 8.  Financial Statements and Supplementary Data

      See Index to Financial Statements on page F-1.

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


      On  April  3,  2001,  our  Audit  Committee  recommended  to our  Board of
Directors  that we not  renew  our  engagement  with  Ernst  & Young  LLP as our
independent  auditors  and to appoint KPMG LLP to be our  principal  independent
auditors and to audit our consolidated  financial statements for the fiscal year
ending December 31, 2001. Our Board of Directors  accepted the recommendation of
the Audit  Committee  on April 3,  2001.  The Audit  Committee  and the Board of
Directors based their decisions on competitive  bids submitted by the two firms.
The dismissal of Ernst & Young and the  appointment  of KPMG both were effective
as of April 16, 2001.

      Ernst & Young's  reports  on our  consolidated  financial  statements  for
fiscal years of 1999 and 2000 did not contain an adverse  opinion or  disclaimer
of opinion, nor were the reports qualified or modified as to uncertainty,  audit
scope  or  accounting  principles.  During  fiscal  years  1999 and 2000 and the
subsequent  interim period,  there were no disagreements  between us and Ernst &
Young on any matter of accounting  principle or practices,  financial  statement
disclosure,  or auditing  scope or  procedure,  which would have caused  Ernst &
Young  to  make a  reference  to the  subject  matter  of the  disagreements  in
connection with their reports.  Ernst & Young further has not performed any work
on any subsequent period to December 31, 2000.

      We did not  consult  with KPMG with  regard to any matter  concerning  the
application  of  accounting  principles  to any  specific  transactions,  either
completed or proposed,  or the type of audit opinion that might be rendered with
respect to our financial statements prior to engaging the firm.


                                    PART III

Items 10 through 13.

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


                                       52
<PAGE>


                                     PART IV

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

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

               See Index to Financial Statements on page F-1.

          (b)  Reports on Form 8-K

          None.

          (c)  Exhibits

          See Exhibit Index, beginning on page II-1.

          (d)  Financial Statement Schedules

               None.

<PAGE>


                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the  undersigned,  thereunto  duly  authorized  on the 13th day of
March, 2002.

                                          Matrix Bancorp, Inc.


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

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

<TABLE>
<CAPTION>

Signatures                                  Title                                       Date
<S>                                         <C>                                         <C>


/s/ Guy A. Gibson                           President, Chief Executive                  March 13, 2002
------------------------------------
Guy A. Gibson                               Officer and a Director
                                            (Principal Executive Officer)

/s/ Richard V. Schmitz                      Chairman of the Board                       March 13, 2002
------------------------------------
Richard V. Schmitz


/s/ D. Mark Spencer                         Vice Chairman and Director                  March 13, 2002
------------------------------------
D. Mark Spencer


/s/ David W. Kloos                          Senior Vice President, Chief                March 13, 2002
------------------------------------        Financial Officer and a Director
David W. Kloos                              (Principal Accounting and
                                            Financial Officer)

/s/ David A. Frank                          Director                                    March 13, 2002
------------------------------------
David A. Frank


/s/ Robert T. Slezak                        Director                                    March 13, 2002
------------------------------------
Robert T. Slezak


/s/ Lester Ravitz                           Director                                    March 13, 2002
------------------------------------
Lester Ravitz

</TABLE>


<PAGE>
<TABLE>
<CAPTION>

                                INDEX TO EXHIBITS
<S>        <C>             <C>

3.1        ///             Amended and Restated Articles of Incorporation of the Registrant (3.1)
3.2        +               Bylaws, as amended, of the Registrant (3.2)
4.1        ++              Indenture by and among the Registrant and First Trust National Association, as trustee, relating
                                 to 11.50% Senior Notes due 2004 (4.1)
4.2        *               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
4.3        +               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       ^^o             Matrix Bancorp, Inc. Executive Deferred Compensation Plan (4.1)
4.16       ^^              Trust Agreement, dated December 7, 2000 between Matrix Bancorp, Inc. and Matrix Bancorp, Inc., as
                                 Trustee (4.2)
4.17       ^^^             Amended and Restated Trust Agreement, dated May 11, 2001, between Matrix Bancorp, Inc. and Matrix
                                 Bancorp, Inc., as Trustee (14.2)
4.18       ****            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)
4.19       ****            Amended and Restated Declaration of Trust of Matrix Bancorp Capital Trust II, dated as of March
                                 28, 2001 (10.6)
4.20       ****            Common Securities Guarantee Agreement of the Registrant, dated as of March 28, 2001 (10.7)
4.21       ****            Capital Securities Agreement of the Registrant, dated as of March 28, 2001 (10.8)
4.22       *****           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)
4.23       *****           Amended and Restated Declaration of Trust of Matrix Bancorp Capital Trust III, dated as of July
                                 16, 2001 (10.4)
4.24       *****           Common Securities Subscription Agreement of the Registrant, dated as of July 16, 2001 (10.5)
4.25       *****           Capital Securities Agreement of the Registrant, dated as of June 28, 2001 (10.6)
4.26       *               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
4.27       *               Amended and Restated Declaration of Trust of Matrix Bancorp Capital Trust IV, dated as of
                                 November 28, 2001
4.28       *               Guarantee Agreement of the Registrant, dated as of November 28, 2001
4.29       *****o          Amended and Restated Executive Deferred Compensation Plan of Registrant (4.1)
10.1       *               Lease dated as of December 21, 2001 by and between Matrix Bancorp, Inc. and WXI/SEV Realty, LLC
10.2       +               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)
10.3       +               Development Management Agreement, dated as of June 28, 1996, by and among Fort Lupton, L.L.C. and
                                 Matrix Funding Corp. (10.31)



<PAGE>

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
10.12      ***             Guaranty, dated as of September 29, 2000, from the Registrant to U.S. Bank National Association,
                                 as agent (10.3)
10.13      / o             Employment Agreement, dated as of February 4, 1997, by and between The Vintage Group, Inc. and
                                 Paul Skretny (10.38)
10.14      +o              Amendment of Employment Agreement (dated as of February 4, 1997) dated as of February 4, 2000, by
                                 and between The Vintage Group, Inc. and Paul E. Skretny (10.32)
10.15      *o              Amendment of Employment Agreement (dated as of February 4, 1997) dated as of February 4, 2002, by
                                 and between The Vintage Group, Inc. and Paul E. Skretny
10.16      ////            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)
10.17      ****            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)
10.18      *****           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)
10.19      *               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
10.20      +++             Agreement and Plan of Merger, dated as of March 25, 1998, among Fidelity National Financial,
                                 Inc., MCC Merger, Inc. and Matrix Capital Corporation (99.2)
10.21      ++              Merger Termination Agreement between Matrix Capital Corporation, Fidelity National Financial,
                                 Inc., and MCC Merger Sub, Inc., dated August 28, 1998 (10.1)
10.22      **              Executive Employment Agreement, dated as of April 20, 2000, by and between United Financial, Inc.
                                 and Carl G. de Rozario (10.6)
10.23      ////            Lease dated as of September 1, 1999, by and between Matrix Financial Services Corporation and
                                 Suncor Development Company (10.22)
10.24      ////            Lease with a reference date of 1999, by and between the Registrant and the Regents of the
                                 University of Colorado (10.23)
10.25      ////            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)
10.26      ////            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)
10.27      ////o           Matrix Bancorp, Inc. Executive Incentive Plan (10.27)



<PAGE>

10.28      *               Promissory Note, dated as of January 31, 2002, from D. Mark Spencer, as maker, to the Registrant,
                                 as payee
10.29      *o              Matrix Bancorp, Inc. (f/k/a Matrix Capital Corporation) 401(k) Profit Sharing Plan
10.30      *o              Amendment No. 1, effective as of January 1, 1994, to the Registrant's 401(k) Profit Sharing Plan
10.31      *o              Amendment No. 2, effective as of May 20, 1996, to the Registrant's 401(k) Profit Sharing Plan
10.32      *o              Amendment No. 3, effective as of July 20, 1998, to the Registrant's 401(k) Profit Sharing Plan
10.33      *o              Amendment No. 4, effective as of December 30, 2001, to the Registrant's 401(k) Profit Sharing Plan
12         *               Statement Re: Computations of Ratios
21         *               Subsidiaries of the Registrant
23         *               Consent of KPMG LLP
----------
<FN>

*   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  report  on Form  8-K,  filed by the  Registrant  with the
    Commission on April 8, 1998.

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

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

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

////Incorporated by reference from the exhibit number shown in parenthesis  from
    the  Registrant's  annual  report on Form  10-K for the  fiscal  year  ended
    December 31, 2000, filed by the Registrant with the Commission.

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

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

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

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

****Incorporated by reference from the exhibit number shown in parenthesis  from
    the  Registrant's  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.


<PAGE>

^   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. 333-51516),  filed
    by the Registrant with the Commission on December 8, 2000.

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

o Management contract or compensatory plan or arrangement.



</FN>
</TABLE>


                          INDEX TO FINANCIAL STATEMENTS



Consolidated Financial Statements of Matrix Bancorp, Inc. and Subsidiaries


Independent Auditors' Report, December 31, 2001.............................F-1

Report of Independent Auditors, December 31, 2000 and 1999..................F-2

Consolidated Balance Sheets--December 31, 2001 and 2000.....................F-3

Consolidated Statements of Income--for the years ended
December 31, 2001, 2000 and 1999............................................F-4

Consolidated Statements of Shareholders' Equity and Comprehensive Income--
for the years ended December 31, 2001, 2000 and 1999........................F-6

Consolidated Statements of Cash Flows--for the years ended
December 31, 2001, 2000 and 1999............................................F-7

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





<PAGE>

                          Independent Auditors' Report


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

We have audited the accompanying  consolidated  balance sheet of Matrix Bancorp,
Inc. and  subsidiaries  as of December 31,  2001,  and the related  consolidated
statements of income,  shareholders'  equity and comprehensive  income, and cash
flows for the year then ended. 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 audit.

We conducted our audit 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  audit  provides  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, 2001, and the results of their  operations
and their  cash  flows for the year then  ended 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  derivative  instruments  and  hedging
activities.


                                                /s/ KPMG LLP

                                                KPMG LLP

Denver, Colorado
February 7, 2002

                                        F-1
<PAGE>


                         REPORT OF INDEPENDENT AUDITORS


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

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

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

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


                                            /s/ Ernst & Young LLP

                                            Ernst & Young LLP

Phoenix, Arizona
February 23, 2001


                                       F-2
<PAGE>


                              Matrix Bancorp, Inc.

                           Consolidated Balance Sheets

                             (Dollars in thousands)
<TABLE>
<CAPTION>

                                                                                   December 31
                                                                             2001              2000
                                                                       ------------------------------------
<S>                                                                     <C>               <C>

Assets
Cash and cash equivalents                                               $        52,501   $       17,539
Interest-earning deposits and federal funds sold                                 31,959           35,631
Securities available for sale                                                     6,963           66,616
Loans held for sale, net                                                      1,157,989          942,496
Loans held for investment, net                                                  191,161          173,525
Mortgage servicing rights, net                                                   78,712           71,529
Other receivables                                                                71,239           58,262
Federal Home Loan Bank of Dallas stock, at cost                                  18,181           27,814
Premises and equipment, net                                                      13,631           13,189
Other assets, net                                                                24,451           12,194
                                                                       ------------------------------------
Total assets                                                            $     1,646,787   $    1,418,795
                                                                       ====================================

Liabilities and shareholders' equity
Liabilities:
   Deposits                                                             $       866,235   $      602,669
   Custodial escrow balances                                                    129,665           77,647
   Draft Payable                                                                 28,875              656
   Payable for purchase of mortgage servicing rights                              4,738           12,666
   Federal Home Loan Bank of Dallas borrowings                                  303,361          519,433
   Borrowed money                                                               162,532           97,003
   Guaranteed preferred beneficial interests                                     59,500           27,500
   Other liabilities                                                              8,348           13,848
   Income taxes payable                                                          12,221            3,350
                                                                       ------------------------------------
Total liabilities                                                             1,575,475        1,354,772
                                                                       ------------------------------------

Commitments and contingencies (Note 14)

Shareholders' equity:
   Preferred stock, par value $.0001; authorized
     5,000,000 shares; no shares outstanding                                          -                -
   Common stock, par value $.0001; authorized 50,000,000 shares;
     issued and outstanding 6,518,604 shares at
     December 31, 2001 and issued 6,795,904 shares
     and outstanding 6,558,904 shares at December 31,2000                             1                1
   Additional paid-in capital                                                    20,800           23,004
   Treasury shares at cost, 237,000 shares at December 31, 2000                       -           (1,775)
   Retained earnings                                                             50,486           41,974
   Accumulated other comprehensive income                                            25              819
                                                                       ------------------------------------
Total shareholders' equity                                                       71,312           64,023
                                                                       ------------------------------------
Total liabilities and shareholders' equity                                $ 1,646,787     $    1,418,795
                                                                       ====================================

</TABLE>

See accompanying notes to consolidated financial statements.

                                       F-3
<PAGE>


                              Matrix Bancorp, Inc.

                        Consolidated Statements of Income

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

                                                                    Year Ended December 31
                                                            2001             2000              1999
                                                     ------------------------------------------------------
<S>                                                  <C>                 <C>              <C>

Interest income:
   Loans, mortgage-backed and SBA securities         $        103,393    $       93,965   $       72,355
   Interest-earning deposits                                    2,004             3,421            1,395
                                                     ------------------------------------------------------
Total interest income                                         105,397            97,386           73,750

Interest expense:
   Savings and time deposits                                   29,652            22,603           15,233
   Demand and money market deposits                             5,220             3,672            6,356
   Federal Home Loan Bank of Dallas borrowings
                                                               16,071            27,242            9,184
   Borrowed money                                              13,944            14,084           13,514
                                                     ------------------------------------------------------
Total interest expense                                         64,887            67,601           44,287
                                                     ------------------------------------------------------
Net interest income before provision for loan and
   valuation losses                                            40,510            29,785           29,463
Provision for loan and valuation losses                         2,980             4,235            3,180
                                                     ------------------------------------------------------
Net interest income after provision for loan and
   valuation losses                                            37,530            25,550           26,283

Noninterest income:
   Loan administration                                         30,113            23,850           23,686
   Brokerage                                                    2,959             5,476            6,156
   Trust services                                               4,036             4,923            4,840
   Real estate disposition services                             2,572             3,677            3,659
   Gain on sale of loans, mortgage-backed and SBA
     securities                                                 1,475               982            3,247
   Gain on sale of mortgage servicing rights, net                 167             2,634              363
   Loan origination                                            35,483             7,587            6,218
   School services                                              5,427             4,240            2,813
   Other                                                        9,474             5,423            9,378
                                                     ------------------------------------------------------
Total noninterest income                                       91,706            58,792           60,360

Noninterest expense:
   Compensation and employee benefits                          52,573            34,245           29,336
   Amortization of mortgage servicing rights                   21,862             9,851           16,403
   Occupancy and equipment                                      6,525             4,785            3,727
   Postage and communication                                    4,063             2,812            2,688
   Professional fees                                            2,883             4,687            2,385
   Data processing                                              2,907             2,413            1,688
   Other general and administrative                            25,086            19,048           13,359
                                                     ------------------------------------------------------
Total noninterest expense                                     115,899            77,841           69,586
                                                     ------------------------------------------------------
Income before income taxes                                     13,337             6,501           17,057
Provision for income taxes                                      4,465             2,243            6,278
                                                     ------------------------------------------------------


                                       F-4
<PAGE>


                              Matrix Bancorp, Inc.

                  Consolidated Statements of Income (continued)

                 (Dollars in thousands except share information)


                                                                    Year Ended December 31
                                                            2001             2000              1999
                                                     ------------------------------------------------------
Income before cumulative effect of a change in
   accounting principle                                 8,872             4,258             10,779

Less cumulative effect of a change in accounting
   principle, net of tax benefit of $190,000              360                 -                  -
                                                     ======================================================
Net income                                           $  8,512          $  4,258           $ 10,779
                                                     ======================================================

Net income per common share before accounting
 change                                              $    1.36         $   0.63           $   1.60
Less cumulative effect of a change in accounting
   principle                                              0.05                -                  -
                                                     ------------------------------------------------------
Net income per common share                          $    1.31         $   0.63           $   1.60
                                                     ======================================================
Net income per common share assuming dilution before
   accounting change                                      1.35             0.63               1.58
Less cumulative effect of a change in accounting
   principle                                              0.05                -                  -
                                                     ------------------------------------------------------
Net income per common share - assuming dilution
                                                     $    1.30         $   0.63           $   1.58
                                                     ======================================================
Weighted average common shares                       6,495,583        6,713,251          6,728,211
                                                     ======================================================
Weighted average common shares - assuming
 dilution                                            6,560,454       6,748,857          6,833,546
                                                     ======================================================

</TABLE>

See accompanying notes to consolidated financial statements.

                                       F-5
<PAGE>

<TABLE>
<CAPTION>

                                                                Matrix Bancorp, Inc.

                               Consolidated Statements of Shareholders' Equity and Comprehensive Income

                                                               (Dollars in thousands)

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

Balance at December 31, 1998          6,723,911   $      1    $  22,416        -      $ 26,937          -     $ 49,354

   Issuance of stock related to
     employee stock purchase
     plan and options                    35,330          -          364        -             -          -          364
                                                                                                                       -------------

   Net income                                 -          -            -        -        10,779          -       10,779  $  10,779
                                    -----------------------------------------------------------------------------------=============

Balance at December 31, 1999          6,759,241          1       22,780        -        37,716          -       60,497
                                    -----------------------------------------------------------------------------------

   Shares repurchased                  (237,000)         -            -   (1,775)            -          -       (1,775)
   Issuance of stock related to
     employee stock purchase
     plan and options                    36,663          -          224        -             -          -          224
   Comprehensive income:
      Net income                              -          -            -        -         4,258          -        4,258      4,258
      Net unrealized holding gains            -          -            -        -                       819         819        819
                                                                                                                       -------------

   Comprehensive income                                                                                                $    5,077
                                    -----------------------------------------------------------------------------------=============
Balance at December 31, 2000          6,558,904          1       23,004   (1,775)       41,974         819      64,023
                                    ------------------------------------------------------------------------------------------------

   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(1)        -            -           -        -                      (794)       (794)      (794)
                                                                                                                       -------------

   Comprehensive income                                                                                                $    7,718
                                     ----------------------------------------------------------------------------------=============
Balance at December 31, 2001          6,518,604     $    1     $ 20,800        -    $   50,486      $   25    $ 71,312
                                     ===============================================================================================

(1) Disclosure of reclassification amount
    Unrealized holding loss arising during year ended December 31, 2001                                                $      (4)
    Less: reclassification adjustment of gains included in net income                                                        (790)
                                                                                                                       -------------
   Net unrealized holding losses                                                                                       $    (794)
                                                                                                                       =============
</TABLE>

See accompanying notes to consolidated financial statements.

                                       F-6
<PAGE>

                              Matrix Bancorp, Inc.

                      Consolidated Statements of Cash Flows

                             (Dollars in thousands)

<TABLE>
<CAPTION>

                                                                       Year Ended December 31
                                                                2001            2000            1999
                                                          -------------------------------------------------
<S>                                                        <C>              <C>             <C>

Operating activities
Net income                                                 $       8,512    $      4,258    $     10,779
Adjustments to reconcile net income to net cash used in
   operating activities:
     Depreciation and amortization                                 3,116           2,583           4,424
     Provision for loan and valuation losses                       2,980           4,235           3,180
     Amortization of mortgage servicing rights                    21,862           9,851          16,403
     Impairment of mortgage servicing rights                         181               -               -
     Unrealized gain on securities                                     -             819               -
     Deferred income taxes                                        12,003            (518)           (391)
     Gain on sale of loans, mortgage-backed and SBA
       securities                                                 (1,475)           (982)         (3,247)
     Gain on sale of mortgage servicing rights                      (167)         (2,634)           (363)
     Gain on sale of building and equipment                       (3,425)         (1,159)              -
     Loans originated for sale, net of loans sold               (364,857)       (125,944)         69,722
     Loans purchased for sale                                   (105,936)       (225,898)       (701,952)
     Proceeds from sale of loans purchased for sale               76,074         108,466         192,722
     Proceeds from sale of securities                             59,586               -               -
     Originated mortgage servicing rights, net                   (30,266)            (16)         (1,514)
     (Increase) decrease in other receivables and other
       assets                                                    (22,513)          6,777          (6,796)
     (Decrease) increase in other liabilities and income
       taxes payable                                              (8,483)         (3,682)          2,369
                                                          -------------------------------------------------
Net cash used in operating activities                           (352,808)       (216,480)       (414,664)

Investing activities
Loans originated and purchased for investment                   (159,619)       (202,300)       (118,327)
Principal repayments on loans                                    345,031         353,713         303,026
Redemption (purchase) of Federal Home Loan Bank of Dallas
   stock                                                           9,633          (5,400)         (6,771)
Purchases of premises and equipment                              (14,415)         (7,089)         (2,615)
Hedging of servicing portfolio, net                                    -              95          (3,257)
Acquisition of mortgage servicing rights                          (8,321)        (22,380)        (28,694)
Proceeds from the sale of building and equipment                  14,601           3,664               -
Proceeds from sale of mortgage servicing rights                    1,600           3,537           2,827
                                                          -------------------------------------------------
Net cash provided by investing activities                        188,510         123,840         146,189


</TABLE>
                                       F-7
<PAGE>
<TABLE>
<CAPTION>

                                                 Matrix Bancorp, Inc.

                                  Consolidated Statements of Cash Flows (continued)

                                              (Dollars in thousands)



                                                                       Year Ended December 31
                                                                2001            2000            1999
                                                          -------------------------------------------------
<S>                                                         <C>             <C>             <C>

Financing activities
Net increase in deposits                                    $    263,566    $     40,475    $     71,678
Net increase (decrease) in custodial escrow balances              52,018         (16,559)         (2,618)
(Decrease) increase in revolving lines and repurchase
   agreements, net                                              (138,946)        125,743         174,334
Payments of notes payable                                        (13,298)        (31,169)        (31,890)
Proceeds from notes payable                                        1,786           2,325          33,395
Payment of financing arrangements                                    (86)            (63)           (117)
Payment of subordinated debt                                           -               -          (2,910)
Proceeds from junior subordinated debentures                      30,977               -          26,063
Treasury shares repurchased                                         (746)         (1,775)              -
Proceeds from issuance of common stock related to
   employee stock purchase plan and options                          317             224             364
                                                          -------------------------------------------------
Net cash provided by financing activities                        195,588         119,201         268,299
                                                          -------------------------------------------------
Increase (decrease) in cash and cash equivalents                  31,290          26,561            (176)
Cash and cash equivalents at beginning of the year                53,170          26,609          26,785
                                                          -------------------------------------------------
Cash and cash equivalents at end of the year                $     84,460    $     53,170    $     26,609
                                                          =================================================

Supplemental disclosure of cash flow information
Cash paid for interest expense                              $     62,520    $     68,298    $     41,139
                                                          =================================================
Cash paid for income taxes                                  $      4,557    $      1,592    $      5,248
                                                          =================================================

</TABLE>

See accompanying notes to consolidated financial statements.

                                       F-8
<PAGE>


                              Matrix Bancorp, Inc.

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

Matrix  Bank, a federally  chartered  savings and loan  association,  serves its
local communities of Las Cruces, New Mexico, and Phoenix,  Arizona, by providing
personal  and  business  depository  services,  offering  residential  loans and
providing, on a limited basis, commercial real estate and consumer loans. During
2001,  Matrix Bank  announced the  relocation of its domicile from Las Cruces to
Denver,  Colorado.  The  relocation  will be completed in the second  quarter of
2002.  Matrix Bank intends to offer all of its existing  banking services in the
Denver market.

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 loan  servicing  rights.  Matrix
Financial  originates  residential  loans  primarily  through its wholesale loan
origination offices in Atlanta, Dallas, Denver, Chicago, Houston, Phoenix, Santa
Ana and St. Louis.  Servicing  mortgage loans involves the contractual  right to
receive a fee for processing and administering mortgage loan payments.

Matrix Capital  Markets,  formerly  known as United  Financial,  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  services  companies and financial
institutions.

ABS provides  outsourced  business  services and financing  primarily to charter
schools.

Sterling  is a nonbank  trust  company  specializing  in the  administration  of
self-directed  individual  retirement  accounts,  qualified business  retirement
plans and personal custodial

                                       F-9
<PAGE>


                              Matrix Bancorp, Inc.

             Notes to Consolidated Financial Statements (continued)


accounts, as well as corporate escrow and paying agent services.

First Matrix is registered with the National  Association of Securities  Dealers
as a fully disclosed  broker-dealer.  First Matrix relocated its headquarters to
Denver,  Colorado from Fort Worth, Texas in June of 2001, and has branch offices
in Fort  Worth,  Texas and  Memphis,  Tennessee,  which was opened in late 2001.
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.

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

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

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

The  preparation of 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.

Derivative Instruments and Hedging Activities

In June 1998 the Financial Accounting Standards Board (FASB) issued Statement of
Financial  Accounting  Standards  (SFAS) No.  133,  "Accounting  for  Derivative
Instruments and Certain Hedging  Activities." In June 2000, the FASB issued SFAS
138,  "Accounting  for  Certain  Derivative   Instruments  and  Certain  Hedging
Activity,  an  Amendment  of SFAS 133." SFAS 133 and SFAS 138  require  that all
derivative instruments be recorded on the balance sheet at their respective fair
values. SFAS 133 and SFAS

                                      F-10
<PAGE>

                              Matrix Bancorp, Inc.

             Notes to Consolidated Financial Statements (continued)


138 are effective for all fiscal  quarters of all fiscal years  beginning  after
June 30, 2000; the Company adopted SFAS 133 and SFAS 138 on January 1, 2001. The
adoption  of SFAS 133  resulted in a pre-tax  transition  loss of  $550,000,  or
$360,000  after tax which was  recorded  as a  cumulative  effect of a change in
accounting  principle for the year ended December 31, 2001.  Gains and losses on
derivatives that were previously  deferred as adjustments to the carrying amount
of hedged items were not adjusted. Due to the nature of the asset hedged and the
derivative relationship, the transition loss recorded effective January 1, 2001,
reversed and was recorded as loan  origination  income  during the quarter ended
March 31, 2001.

All  derivatives are recognized on the balance sheet at their fair value. On the
date the  derivative  contract  is entered  into,  the  Company  designates  the
derivative as a hedge of the fair value of a recognized asset or liability or of
an  unrecognized  firm  commitment  ("fair value"  hedge.) The Company  formally
documents all  relationships  between  hedging  instruments and hedged items, as
well as its risk-management objective and strategy for undertaking various hedge
transactions.  This process includes linking all derivatives that are designated
as fair-value  hedges to specific  assets and  liabilities  on the  consolidated
balance sheet or to specific firm  commitments or forecasted  transactions.  The
Company also formally assesses,  both at the hedge's inception and on an ongoing
basis,  whether the derivatives that are used in hedging transactions are highly
effective in offsetting changes in fair values of hedged items.

Changes in the fair value of a derivative  that is highly  effective and that is
designated and qualifies as a fair-value  hedge,  along with the loss or gain on
the hedged asset or liability or unrecognized firm commitment of the hedged item
that is attributable to the hedged risk are recorded in earnings. Changes in the
fair value of  derivative  trading  instruments  are reported in  current-period
earnings.

The Company  discontinues  hedge accounting  prospectively when it is determined
that the  derivative is no longer  effective in  offsetting  changes in the fair
value of the hedged item,  the  derivative  expires or is sold,  terminated,  or
exercised, the derivative is dedesignated as a hedging instrument, because it is
unlikely that a forecasted  transaction  will occur, a hedged firm commitment no
longer meets the definition of a firm commitment,  or management determines that
designation of the derivative as a hedging instrument is no longer appropriate.

When  hedge  accounting  is  discontinued  because  it is  determined  that  the
derivative no longer  qualifies as an effective  fair-value  hedge,  the Company
continues to carry the derivative on the consolidated  balance sheet at its fair
value,  and no longer  adjusts the hedged asset or liability for changes in fair
value. The adjustment of the carrying amount of the hedged asset or liability is

                                      F-11
<PAGE>

                              Matrix Bancorp, Inc.

             Notes to Consolidated Financial Statements (continued)


accounted for in the same manner as other  components of the carrying  amount of
that asset or  liability.  When hedge  accounting  is  discontinued  because the
hedged item no longer meets the  definition  of a firm  commitment,  the Company
continues to carry the derivative on the consolidated  balance sheet at its fair
value,  removes any asset or liability that was recorded pursuant to recognition
of the firm  commitment from the  consolidated  balance sheet and recognizes any
gain or loss in earnings.  In all other  situations in which hedge accounting is
discontinued, the Company continues to carry the derivative at its fair value on
the balance sheet, and recognizes any changes in its fair value in earnings.

For the year ended December 31, 2000, prior to the adoption of SFAS No, 133, the
Company  used  a  program  of  exchange-traded  futures  and  options  to  hedge
approximately  6.4% of its  mortgage  servicing  portfolio.  Prior to January 1,
2001,  unrealized gains and losses on derivatives used for hedging purposes were
generally not required to be recorded in the consolidated  financial statements.
Realized  gains and losses on futures or  options  contracts  either  settled or
terminated were recorded as a adjustment to the mortgage  servicing rights being
hedged and amortized into the income statement over either the remaining life of
the derivative instrument or the expected life of the mortgage servicing assets.

Due to the cost of the requirements that must be met to achieve hedge accounting
under SFAS No. 133 for mortgage servicing rights, the Company did not attempt to
qualify for hedge  accounting  and  effective  March 31, 2001 the Company  sold,
repurchased  or allowed to mature all  derivative  instruments  recorded  on the
books associated with mortgage servicing.

SFAS No.  133  requires  the  Company to record  its best  effort and  mandatory
commitments  associated  with its mortgage  loan  origination  activities on the
consolidated  balance  sheet.  In order to hedge against the changes in the fair
value of  mortgage  loans the  Company  enters  into best  effort and  mandatory
commitments to deliver  mortgage loans,  which locks the price at which the loan
will be sold into the secondary  market.  These  derivatives are recorded on the
consolidated balance sheet and qualify for hedge accounting,  as the commitments
are highly effective in offsetting changes in fair values of the hedged items.

Securities Available for Sale

Securities  available  for  sale  include  mortgage-backed  securities  and  SBA
securities.  Securities  available for sale are carried at estimated fair values
with  the  net  unrealized  gains  or  losses  reported  in  accumulated   other
comprehensive income, which is included as a separate component in shareholders'
equity. The Company records its securities

                                      F-12
<PAGE>

                              Matrix Bancorp, Inc.

             Notes to Consolidated Financial Statements (continued)


portfolio  at estimated  fair value at the end of each  quarter  based on public
market quotes. At disposition, the realized gain or loss is included in earnings
on a specific identification basis.

Loans Held for Sale

Loans  originated or purchased with the intent for sale in the secondary  market
are carried at the lower of aggregate  cost,  net of discounts or premiums and a
valuation allowance, or estimated 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 income. Discounts or premiums on loans held for sale are
not accreted or amortized into income on the interest method; however, discounts
and  premiums  related to payments of loan  principal  are  recorded in interest
income.  The loans are primarily secured by one-to-four  family residential real
estate located throughout the United States.

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 in excess of the amount originally  provided are
accrued as a liability at the time such additional  losses are  determined,  and
recorded as part of noninterest expense.

Loans Held for Investment

Loans held for investment are stated at unpaid principal balances, less unearned
discounts and premiums,  deferred loan fees,  loans in process and allowance for
loan losses. The loans are residential mortgage loans, commercial and SBA loans,
and school financing loans, and are primarily secured by real estate.

Allowance for Loan Losses

The allowance for loan losses is calculated,  in part,  based on historical loss
experience. In addition,  management takes into consideration other factors such
as any  qualitative  evaluations  of individual  classified  assets,  geographic
portfolio concentrations, new products or markets, evaluations of the changes in
the historical loss experience component, and projections of this component into
the current and future periods based on current  knowledge and  conditions.  The
loss factors are applied to the outstanding  principal balance of loans in their

                                      F-13
<PAGE>

                              Matrix Bancorp, Inc.

             Notes to Consolidated Financial Statements (continued)


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,  management  establishes  a portion of the
allowance  for loan  losses,  which is  attributable  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 general economic conditions, recognition of specific regional geographic
concerns,  loan type and trends in  portfolio  growth.  Loan  losses are charged
against the allowance when the  probability of collection is considered  remote.
In the opinion of  management,  the allowance 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. 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 and school
financing   classified  as  nonperforming  loans.   Impairment   allowances  are
considered by the Company in determining  the overall  adequacy of the allowance
for loan losses.

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. 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
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.

                                      F-14
<PAGE>

                              Matrix Bancorp, Inc.

             Notes to Consolidated Financial Statements (continued)


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,  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 151 PSA
(Public  Securities  Association  prepayment  speed  measurement)  to  835  PSA;
discount  rates  ranging from 9.00 percent to 21.50  percent;  and default rates
ranging from 0 percent to 100 percent. The Company records a valuation allowance
where the  estimated  fair  value is below  the  carrying  amount of  individual
stratifications,  even though the overall fair value of the servicing assets may
exceed  amortized  cost.  As of December  31,  2001,  a valuation  allowance  of
$181,000  was  required,   and  the  fair  value  of  the  aggregate   MSRs  was
approximately  $81,900,000.  As of December 31, 2000, no valuation allowance was
required,  and the estimated fair value of the aggregate MSRs was  approximately
$75,185,000.

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

Premises and Equipment

Premises  and  equipment  are  carried  at cost less  accumulated  depreciation.
Depreciation is computed using the straight-line method over the estimated lives
of the  assets,  which  range from  three to seven  years for  software,  office
furniture and equipment and 30 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. The net carrying value of foreclosed  real estate,  which is classified in
other  assets,  was  $8,355,000  and  $2,646,000  at December 31, 2001 and 2000,
respectively.

                                      F-15
<PAGE>

                              Matrix Bancorp, Inc.

             Notes to Consolidated Financial Statements (continued)


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,  as well as gains from  activity in our
Ginnie Mae portfolios. Loan administration income includes service fees that are
based on a contractual percentage of the outstanding principal balance plus late
fees and other ancillary charges.  Service fees on loans that are not delinquent
or are delinquent by no more than 60 days are recognized when earned.  All other
income is recognized when the related payments are received.

Brokerage Income

Brokerage  income  represents  fees earned  related to servicing  brokerage  and
consulting services. Brokerage income is recognized when 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.  Real estate  disposition  services
income is recognized when services are performed.

                                      F-16
<PAGE>

Loan Origination Income

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

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

School Services Income

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

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.

Net Income Per Common Share

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



Restructuring Charges

During the second quarter of 2001, the Company  announced a plan to relocate the
domicile  of Matrix  Bank to  Denver,  Colorado  from Las  Cruces,  New  Mexico.
Associated with this  relocation,  the Company accrued expenses of approximately
$984,000  primarily for severance and contract benefits to be paid to certain of
Matrix Bank's employees,  mainly consisting of back office, accounting and human

                                      F-17
<PAGE>

resources personnel. The expense was charged to other general and administrative
expense on the consolidated  income statement.  The total number of employees to
be involuntarily terminated was 21. Additionally, the accrued liability includes
the payout of the  contract the Company had with Matrix  Bank's prior  president
and chief executive officer. As of December 31, 2001,  approximately $639,000 of
the liability remains.

Also associated with the planned  relocation of Matrix Bank's  domicile,  Matrix
Bank acquired a building in Denver,  Colorado for approximately $11.5 million in
June 2001. Subsequent to the acquisition, Matrix Bank was notified of the intent
of the City and County of Denver to condemn the building in connection  with its
planned  expansion  of the  Denver  Convention  Center.  In  October  2001,  the
condemnation  proceedings  were held.  The City and County of Denver was granted
possession of the building in consideration of a payment totaling  approximately
$14.9  million.  The sale  resulted in a $3.4  million  pre-tax  gain on sale of
assets  recorded  in the  consolidated  financial  statements.  Matrix  Bank has
identified  an  alternative  location and is proceeding  with  relocation of the
domicile and expects such  relocation  to be completed in the second  quarter of
2002.

Investment in Joint Venture

The Company has a 45 percent-owned  investment in Matrix  Settlement & Clearance
Services,  LLC  (MSCS)  which is  accounted  for using the equity  method.  This
investment was classified in other assets,  and had a carrying value of $589,000
and $653,000 as of December 31, 2001 and 2000, respectively. For the years ended
December  31,  2001 and  2000,  the  Company  recorded  losses of  $175,000  and
$478,000, respectively, in other income related to MSCS operations.

As of  December  31,  2001 and  2000,  respectively,  MSCS had  total  assets of
$1,626,000 and $1,175,000,  total liabilities of $499,000 and $68,000 and equity
of $1,127,000  and  $1,107,000.  For the years ended December 31, 2001 and 2000,
respectively,  MSCS had revenues of $3,517,000  and  $1,470,000  and pre-tax net
loss of $177,000 and $955,000.



Impact of Recently Issued Accounting Standards.

In June 2001,  the FASB  issued  SFAS No.  142,  Goodwill  and Other  Intangible
Assets, that supersedes  Accounting Principles Board (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

                                      F-18
<PAGE>

lives.  Finally,  SFAS 142 adds to required  disclosures  regarding goodwill and
intangible  assets.  SFAS 142 is  effective  for fiscal  years  beginning  after
December  15,  2001.  The  adoption  of SFAS 142  January 1, 2002 did not have a
material impact on the consolidated  financial statements.  The goodwill balance
at December 31, 2001 was approximately $1 million,  and the amortization expense
has been less than $100,000 per year.

In August 2001,  the FASB issued SFAS No. 144,  Accounting for the Impairment or
Disposal of Long-Lived Assets,  that superseded SFAS No. 121 and APB Opinion No.
30. SFAS 144 provides guidance on differentiating  between assets held and used,
held for  sale,  and held for  disposal  other  than by sale,  and the  required
valuation of such assets. SFAS 144 is effective for fiscal years beginning after
December 15,  2001.  The adoption of SFAS No. 144 January 1, 2002 did not have a
material impact on the consolidated financial statements.

Reclassifications

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








                                      F-19
<PAGE>

                              Matrix Bancorp, Inc.

             Notes to Consolidated Financial Statements (continued)


3. Net Income Per Common Share

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

                                                           Year Ended December 31
                                                   2001              2000             1999
                                            ------------------------------------------------------
                                                            (Dollars in thousands)
<S>                                         <C>                 <C>               <C>

Numerator:
   Net income available to common
     shareholders                           $          8,512    $        4,258    $       10,779
                                            ======================================================

Denominator:
   Weighted average shares outstanding             6,495,583         6,713,251         6,728,211
Effect of dilutive securities:
   Common stock options                               64,871            35,606            95,899
   Common stock warrants                                   -                 -             9,436
                                            ------------------------------------------------------
Dilutive potential common shares                      64,871            35,606           105,335
                                            ------------------------------------------------------
Denominator for net income per share,
   assuming dilution                               6,560,454         6,748,857         6,833,546
                                            ======================================================

</TABLE>

4. Securities Available for Sale

Securities available for sale were as follows:
<TABLE>
<CAPTION>


                                         December 31, 2001                     December 31, 2000
                               ----------------------------------------------------------------------------
                                              Gross                                  Gross
                                Amortized   Unrealized   Estimated     Amortized   Unrealized  Estimated
                                   Cost       Gains      Fair Value      Cost        Gains     Fair Value
                               ----------------------------------------------------------------------------
                                                          (In thousands)

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

Mortgage-backed securities       $ 1,961       $  38        $ 1,999    $ 65,375    $  1,241      $66,616
SBA securities                     4,964           -          4,964           -           -            -
                               ----------------------------------------------------------------------------
Total                            $ 6,925       $  38        $ 6,963    $ 65,375     $ 1,241      $66,616
                               ============================================================================

</TABLE>

The Company  expects to receive  payments on  securities  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 were approximately  $1,198,000, $0 and $0 in 2001,
2000 and 1999, respectively.

                                      F-20
<PAGE>

                              Matrix Bancorp, Inc.

             Notes to Consolidated Financial Statements (continued)


5. Loans Held for Sale and Investment

Loans Held for Investment

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

                                                                          December 31
                                                                     2001             2000
                                                              ------------------------------------
                                                                        (In thousands)

<S>                                                             <C>               <C>

Residential loans                                               $        6,833    $        8,382
Multi-family, commercial real estate, SBA guaranteed and
   commercial                                                          147,038           123,118
Construction loans                                                      42,865            50,131
Consumer loans and other                                                 5,431             8,438
                                                              ------------------------------------
                                                                       202,167           190,069
Less:
   Loans in process                                                      7,355            13,146
   Purchase discounts, net                                                 361               569
   Unearned fees                                                           514               722
   Allowance for loan losses                                             2,776             2,107
                                                              ------------------------------------
                                                                        11,006            16,544
                                                              ------------------------------------
Loans held for investment, net                                  $      191,161    $      173,525
                                                              ====================================
</TABLE>

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


                                                           Year Ended December 31
                                                   2001              2000             1999
                                            ------------------------------------------------------
                                                                (In thousands)
<S>                                          <C>                <C>               <C>


Balance at beginning of year                 $         2,107    $        1,433    $        1,136
Provision for loan losses                                935             1,508               735
Charge-offs                                             (347)             (874)             (509)
Recoveries                                                81                40                71
                                            ------------------------------------------------------
Balance at end of year                       $         2,776    $        2,107    $        1,433
                                            ======================================================
</TABLE>

Nonaccrual   loans  in  the  loans  held  for   investment   portfolio   totaled
approximately $13,760,000 and $3,087,000, or 7.2 percent and 1.8 percent, of the
total  loans  held for  investment  portfolio  at  December  31,  2001 and 2000,
respectively.

                                      F-21
<PAGE>

                              Matrix Bancorp, Inc.

             Notes to Consolidated Financial Statements (continued)


Loans Held for Sale

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

                                                                          December 31
                                                                     2001             2000
                                                              ------------------------------------
                                                                        (In thousands)
<S>                                                            <C>                <C>


Residential loans                                              $     1,051,006    $      893,034
Commercial loans, school financing and other                           107,482            54,540
                                                              ------------------------------------
                                                                     1,158,488           947,574
Less:
   Purchase premiums, net                                               (6,063)           (1,396)
   Valuation allowance                                                   6,562             6,474
                                                              ------------------------------------
                                                                           499             5,078
                                                              ------------------------------------
Loans held for sale, net                                        $    1,157,989    $      942,496
                                                              ====================================
</TABLE>

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

                                                           Year Ended December 31
                                                   2001              2000             1999
                                            ------------------------------------------------------
                                                                (In thousands)
<S>                                          <C>                <C>               <C>


Balance at beginning of year                 $         6,474    $        4,921    $        2,574
Provision for loan losses                              2,045             2,727             2,445
Charge-offs                                           (1,961)           (1,175)              (98)
Recoveries                                                 4                 1                 -
                                            ------------------------------------------------------
Balance at end of year                       $         6,562    $        6,474    $        4,921
                                            ======================================================
</TABLE>

Nonaccrual  loans related to the commercial  loans and school financing held for
sale portfolio  aggregated  approximately  $4,743,000 and $2,469,000 at December
31, 2001 and 2000, respectively.

Interest  income  that  would  have  been  recorded  for  nonaccrual  loans  was
approximately  $1,374,000,  $1,016,000  and  $979,000  during  the  years  ended
December 31, 2001, 2000 and 1999, respectively.

The Company continues to accrue interest on  government-sponsored  loans such as
Federal Housing Administration (FHA) insured and Department of Veterans' Affairs
(VA) guaranteed loans which are past due 90 or more days, as the majority of the
interest on these loans is insured or guaranteed by the federal government.  The

                                      F-22
<PAGE>

                              Matrix Bancorp, Inc.

             Notes to Consolidated Financial Statements (continued)


aggregate unpaid principal balance of  government-sponsored  accruing loans that
were past due 90 or more days was  $55,200,000  and  $101,104,000 as of December
31, 2001 and 2000, respectively.

6. Premises and Equipment

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

                                                                          December 31
                                                                     2001             2000
                                                              ------------------------------------
                                                                        (In thousands)
<S>                                                           <C>                 <C>

Land                                                          $            830    $          830
Buildings                                                                6,324             6,314
Leasehold improvements                                                   1,667             1,590
Office furniture and equipment                                          15,162            12,216
                                                              ------------------------------------
                                                                        23,983            20,950
Less: accumulated depreciation and amortization                         10,352             7,761
                                                              ------------------------------------
Premises and equipment, net                                   $        13,631     $       13,189
                                                              ====================================
</TABLE>

Included in occupancy and equipment  expense is  depreciation  and  amortization
expense of premises and equipment of  approximately  $2,797,000,  $2,212,000 and
$2,126,000 for the years ended December 31, 2001, 2000 and 1999, respectively.

7. Mortgage Servicing Rights

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

                                                           Year Ended December 31
                                                   2001              2000             1999
                                            ------------------------------------------------------
                                                               (In thousands)
<S>                                         <C>                 <C>               <C>

Balance at beginning of year                $        71,529     $       63,479    $       57,662
Valuation allowance                                                         -                -
                                                       (181)
Purchases                                                530            31,883            19,754
Originated, net of MSRs sold                          30,129                16             1,514
Hedging (gain) loss                                        -               (95)            3,257
Amortization                                         (21,862)           (9,851)          (16,403)
Sales                                                 (1,433)          (13,903)           (2,305)
                                            ------------------------------------------------------
Balance at end of year                      $        78,712     $       71,529    $       63,479
                                            ======================================================
</TABLE>

The  Company's  servicing  activity  is  diversified  throughout  50 states with
concentrations at December 31, 2001, in California,  Texas, Missouri and Arizona
of  approximately  14.5  percent,  14.5  percent,  16.4 percent and 8.3 percent,
respectively,  based on aggregate  outstanding  unpaid principal balances of the
mortgage  loans  serviced.  As of December 31, 2001,  2000 and 1999, the Company
subserviced loans for others of approximately  $889,000,000,  $1,163,811,000 and
$205,929,000, respectively.

                                      F-23
<PAGE>

                              Matrix Bancorp, Inc.

             Notes to Consolidated Financial Statements (continued)


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

                                                             December 31
                                                 2001                          2000
                                    --------------------------------------------------------------
                                                     Principal                      Principal
                                       Number         Balance         Number         Balance
                                      of Loans      Outstanding      of Loans      Outstanding
                                    --------------------------------------------------------------
                                                      (Dollars in thousands)
<S>                                      <C>      <C>                  <C>        <C>

Freddie Mac                              12,422   $       613,527      16,476     $      836,054
Fannie Mae                               31,069         1,885,197      34,706          1,887,925
Ginnie Mae                               26,718         1,820,691      20,930          1,106,939
VA, FHA, conventional and other
   loans                                 15,946         1,336,950      20,292          1,687,045
                                    --------------------------------------------------------------
                                         86,155   $    5,656,365       92,404     $    5,517,963
                                    ==============================================================
</TABLE>

The Company's  custodial escrow balances shown in the accompanying  consolidated
balance sheets at December 31, 2001 and 2000, 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  of   approximately
$129,665,000  and  $77,647,000,   respectively.   The  custodial   accounts  are
maintained at Matrix Bank in  noninterest-bearing  accounts.  The balance of the
custodial  accounts  fluctuates from month to month based on the pass-through of
the principal and interest payments to the ultimate  investors and the timing of
taxes and insurance payments.

8. Deposits

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

                                                            December 31
                                             2001                                  2000
                             ----------------------------------------------------------------------------
                                                        Weighted                              Weighted
                                                        Average                               Average
                                Amount      Percent      Rate         Amount      Percent      Rate
                             ----------------------------------------------------------------------------
                                                         (Dollars in thousands)
<S>                           <C>            <C>           <C>      <C>            <C>           <C>

Passbook accounts             $     4,291      0.50%       3.12%    $    3,010       0.50%       3.42%
NOW accounts                      107,183     12.37        0.94         85,986      14.27        0.96
Money market accounts             249,234     28.77        2.11        122,992      20.41        2.34
                             ----------------------------------------------------------------------------
                                  360,708     41.64        1.74        211,988      35.18        1.91
Certificate accounts              505,527     58.36        5.98        390,681      64.82        6.23
                             ----------------------------------------------------------------------------
Deposits                      $  866,235     100.00%       4.36%    $  602,669     100.00%       4.70%
                             ============================================================================
</TABLE>
                                      F-24
<PAGE>

                              Matrix Bancorp, Inc.

             Notes to Consolidated Financial Statements (continued)

Included in NOW accounts are noninterest-bearing DDA accounts of $67,137,000 and
$52,986,000  for the years  ended  December  31,  2001 and  2000,  respectively.

Contractual maturities of certificate accounts as of December 31, 2001:
<TABLE>
<CAPTION>

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

2.00-2.99%                                $       90,036        $      38          $    -      $   90,074
3.00-3.99%                                       127,430            2,930               4         130,364
4.00-4.99%                                        53,014           23,084           3,233          79,331
5.00-5.99%                                        70,425            8,138           3,690          82,253
6.00-6.99%                                       105,451           12,989             421         118,861
7.00-7.99%                                         3,871              773               -           4,644
                                         ------------------------------------------------------------------
                                          $      450,227        $  47,952          $7,348      $  505,527
                                         ==================================================================

</TABLE>

Approximately   $120,428,000   and   $131,443,000  of  fiduciary   assets  under
administration  by Sterling are included in NOW and money market  accounts as of
December 31, 2001 and 2000,  respectively.  Included in certificate accounts are
$361,271,000 and  $203,600,000 of brokered  deposits as of December 31, 2001 and
2000, respectively.

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

                                                           Year Ended December 31
                                                   2001              2000             1999
                                            ------------------------------------------------------
                                                               (In thousands)
<S>                                         <C>                 <C>               <C>

Passbook accounts                           $         108       $          102    $           96
NOW accounts                                          929                  619               600
Money market                                        4,291                3,053             5,756
Certificates of deposit                            29,544               22,501            15,137
                                            ------------------------------------------------------
Interest expense on deposits                $      34,872       $       26,275    $       21,589
                                            ======================================================
</TABLE>

The aggregate  amount of deposit  accounts with a balance  greater than $100,000
(excluding  brokered deposits) was approximately  $22,410,000 and $18,815,000 at
December 31, 2001 and 2000, respectively.

                                      F-25
<PAGE>

                              Matrix Bancorp, Inc.

             Notes to Consolidated Financial Statements (continued)


9. Borrowed Money and Guaranteed Preferred Beneficial Interests

Borrowed money and guaranteed  preferred  beneficial interests are summarized as
follows:
<TABLE>
<CAPTION>

                                                                          December 31
                                                                     2001             2000
                                                              ------------------------------------
                                                                        (In thousands)
<S>                                                                <C>              <C>

Borrowed Money
   $120,000,000  revolving  warehouse  loan  agreement,
     through March 31, 2002, renewable  annually, secured
     by mortgage loans held for sale,  interest at LIBOR
     plus 1.20  percent at  December  31,  2001 and plus
     1.07  percent at December 31, 2000 (3.05 percent at
     December 31, 2001); $24,550,000 available at
     December 31, 2001                                             $   95,450       $  21,595
   Senior notes, interest at 11.50 percent payable
     semiannually, unsecured and maturing September 30, 2004           10,455          20,000
   $10,000,000 note payable to a third party financial
     institution due in quarterly principal installments
     of $357,000 plus interest, through December 31, 2003,
     collateralized by the common stock of Matrix Bank;
     interest at LIBOR plus 2.65 percent (4.52 percent at
     December 31, 2001)                                                 8,572           8,214
   $10,000,000 revolving line of credit to a third party
     financial institution, through March 31, 2002, renewable
     annually, collateralized by the common stock of Matrix
     Bank;  interest at LIBOR plus 2.65 percent (4.52 percent
     at December 31, 2001);  $7,000,000  available at
     December 31, 2001                                                  3,000               -
   Financing agreement with a bank, secured by real estate,
     interest at prime plus 1 percent                                       -           2,325
   School financing repurchase agreements with a third-party
     bank to sell school financing originated by the Company
     under various agreements Interest rates are variable from
     prime to 8.00 percent.  Total commitment is at the
     discretion of the third-party bank.                               22,807          17,094
   School financing agreement, renewable annually,
     collateralized by school financing; interest rates are            22,157          27,599
     variable.  Future commitment is at the discretion of the
     third-party lender.
   Other financing agreements                                              91             176
                                                              ------------------------------------
Total borrowed money                                               $  162,532       $  97,003
                                                              ====================================
Guaranteed Preferred Beneficial Interests
Matrix Bancorp Capital Trust I, 10% junior subordinated
   debentures  payable quarterly, unsecured and maturing
   September 30, 2029                                              $   27,500       $  27,500
Matrix Bancorp Capital Trust II, 10.18% junior
   subordinated  debentures payable quarterly, unsecured
   and maturing June 8, 2031                                           12,000               -
Matrix Bancorp Capital Trust III, 10.25% junior subordinated
   debentures payable quarterly, unsecured and maturing
   July 25, 2031                                                       15,000               -
Matrix Bancorp Capital Trust IV, LIBOR plus 3.75% (6.007%
   rate at December 31, 2001) junior subordinated debentures
   payable quarterly, unsecured and maturing
   December 8, 2031                                                     5,000               -
                                                              ------------------------------------
Total Guaranteed Preferred Beneficial Interests                    $   59,500       $  27,500
                                                              ====================================
</TABLE>

                                      F-26
<PAGE>

                              Matrix Bancorp, Inc.

             Notes to Consolidated Financial Statements (continued)


As of  December  31,  2001,  the  maturities  of borrowed  money and  guaranteed
preferred beneficial interest are as follows:

                                                           (In thousands)

2002                                                       $    144,933
2003                                                              7,144
2004                                                             10,455
Thereafter                                                       59,500
                                                         ------------------
                                                           $    222,032
                                                         ==================

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

The credit  facility  agreement for the  $120,000,000  warehouse  loan agreement
requires  Matrix  Financial  to  maintain,  among other  things,  net worth,  as
defined, of at least $30,000,000, a leverage ratio of no more than 14 to 1 and a
minimum cash flow coverage ratio for four  consecutive  quarters of no less than
1.3 to 1.0.

At December 31, 2001, the Company and its  subsidiaries  were in compliance with
these covenants.

The Company  anticipates that the various borrowed money agreements which are up
for a renewal in 2002 will be renewed with similar terms and conditions as those
currently in effect.

                                      F-27
<PAGE>

                              Matrix Bancorp, Inc.

             Notes to Consolidated Financial Statements (continued)


School Financing Agreement

The Company placed approximately $22,200,000 and $27,600,000 at December 31,2001
and 2000, respectively, in tax-exempt financing it originated to charter schools
into  several  grantor  trusts  (Trusts).  The  Trusts  then  issued  Class  "A"
Certificates and Class "B" Certificates,  with the Class "A" Certificates  being
sold to various third party  investors  under a private  placement at a price of
par.

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

The "B" Certificates are owned in part by the Company. The interest rate paid on
the "A" Certificates is considered the Company's financing cost. The approximate
cost of the  financing  at  December  31,  2001 and 2000 was  2.75%  and  7.23%,
respectively.  The interest that the Company  receives  through its ownership of
the "B" Certificates is tax-exempt.

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

The Company also has in place an agreement to sell and service school  financing
loans to a third-party  financial  institution.  The loan agreement provides the
Company  with the  option  to  repurchase  some or all of the  loans at its sole
discretion  at a price of par.  In  addition,  the  Company  provides  scheduled
interest and full recourse,  in the case of loss, to the  third-party  financial
institution.  Due to the  nature of the  recourse  and the  ability  to call the
loans, the Company accounts for the transaction as a secured financing.

Guaranteed  Preferred  Beneficial  Interests  in Company's  Junior  Subordinated
Debentures

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 percent
preferred  securities.  Trust I also issued common securities to the Company and
used the net  proceeds  from the offering to purchase  $28,600,000  in principal
amount of 10 percent junior subordinated debentures of the Company due September
30, 2029. The junior subordinated  debentures are the sole assets of Trust I and
are  eliminated,  along  with  the  related  income  statement  effects,  in the
consolidated financial statements.

                                      F-28
<PAGE>

                              Matrix Bancorp, Inc.

             Notes to Consolidated Financial Statements (continued)


The preferred  securities  accrue and pay  distributions  quarterly at an annual
rate of 10  percent  of the  stated  liquidation  amount  of $25  per  preferred
security.  The  Company  has fully  and  unconditionally  guaranteed  all of the
obligations of 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
percent  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 percent junior subordinated  debentures of the Company
due June 8, 2031.  The junior  subordinated  debentures  are the sole  assets of
Trust II and are eliminated, along with the related income statement effects, in
the consolidated financial statements.

The preferred  securities  accrue and pay  distributions  quarterly at an annual
rate of 10.18 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 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.

                                      F-29
<PAGE>

                              Matrix Bancorp, Inc.

             Notes to Consolidated Financial Statements (continued)


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
percent  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 percent junior subordinated  debentures of the Company
due July 25, 2031.  The junior  subordinated  debentures  are the sole assets of
Trust III and are eliminated,  along with the related income statement  effects,
in the consolidated financial statements.

The preferred  securities  accrue and pay  distributions  quarterly at an annual
rate of 10.25 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 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.

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% percent 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 percent junior subordinated  debentures of the Company due
December  8, 2031.  The junior  subordinated  debentures  are the sole assets of
Trust IV and are eliminated, along with the related income statement effects, in
the consolidated financial statements.

The preferred securities accrue and pay distributions  quarterly 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.

Capitalized  expenses  associated  with all of the  offerings  of  approximately
$2,328,000  and $1,370,000 are included in other assets at December 31, 2001 and
2000,  respectively,  and are being amortized on a straight-line  basis over the
life of the junior subordinated debentures.

                                      F-30
<PAGE>

                              Matrix Bancorp, Inc.

             Notes to Consolidated Financial Statements (continued)


10. Federal Home Loan Bank of Dallas Borrowings

Federal Home Loan Bank of Dallas (FHLB) borrowings  aggregated  $303,361,000 and
$519,433,000  at  December  31,  2001  and  2000,   respectively.   Advances  of
$136,000,000 and $26,000,000 at December 31, 2001 and 2000,  respectively,  were
borrowed under Short Option Advance (SOA)  Agreements  with the FHLB.  These SOA
borrowings  have a term of ten years,  but are  callable  by the FHLB  beginning
after a one 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 FHLB  exercises its call option on a SOA
borrowing, the FHLB is required to offer replacement funding to the Company at a
market  rate  of  interest  for  the  remaining   term  of  the  SOA  borrowing.
Additionally, under the terms of the SOA Agreement, the Company is not permitted
to  prepay or  otherwise  retire a  callable  SOA  borrowing  prior to the final
maturity  date. At December 31, 2001,  the interest  rates on the SOA borrowings
ranged from 2.69  percent to 5.63 percent and their  possible  call dates varied
from  February  20, 2002 to  November  13,  2006.  Advances  of  $1,361,000  and
$151,433,000 at December 31, 2001 and 2000, respectively,  were borrowed under a
fixed term and rate.  At December 31,  2001,  the advances are at a rate of 5.84
percent and mature June 2, 2014.  Advances of $166,000,000  and  $342,000,000 at
December 31, 2001 and 2000,  respectively,  were borrowed on a short-term basis.
At December 31, 2001,  the advances  were at an average rate of 1.97% and mature
January 2, 2002 through  January 7, 2002. All advances are secured by first lien
mortgage loans of Matrix Bank and all of its FHLB stock.

Matrix Bank is on full custody status,  which requires Matrix Bank to place loan
collateral  at  the  FHLB.  At  December  31,  2001,  loans  held  for  sale  of
$339,274,000  and securities  held for sale of $4,448,000  were pledged for FHLB
advances.  As of December 31, 2001,  Matrix Bank had available unused borrowings
from the FHLB for advances of approximately $40,362,000.

11. Income Taxes

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

                                                           Year ended December 31
                                                   2001              2000             1999
                                            ------------------------------------------------------
                                                                 (In thousands)
<S>                                         <C>                 <C>               <C>

Current:
   Federal                                  $     (7,713)       $        2,350    $        5,340
   State                                             (15)                  411             1,329
Deferred:
   Federal                                        11,162                  (451)             (341)
   State                                             841                   (67)              (50)
                                            ------------------------------------------------------
                                            $      4,275        $        2,243    $        6,278
                                            ======================================================

</TABLE>
                                      F-31
<PAGE>

                              Matrix Bancorp, Inc.

             Notes to Consolidated Financial Statements (continued)


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

                                                           Year ended December 31
                                                   2001              2000             1999
                                            ------------------------------------------------------
                                                                (In thousands)
<S>                                         <C>                 <C>               <C>

Expected income tax provision               $       4,470       $   2,210         $   5,799
Effect of federal tax brackets                          -               -                52
State income taxes                                    545             343               827
Other                                                (740)           (310)             (400)
                                            ------------------------------------------------------
Provision for income taxes                  $       4,275       $   2,243         $   6,278
                                            ======================================================

</TABLE>

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.
<TABLE>
<CAPTION>

                                                                          December 31
                                                                     2001             2000
                                                              ------------------------------------
                                                                        (In thousands)
<S>                                                           <C>                 <C>

Deferred tax assets:
   Allowance for loan and valuation losses                    $          6,614    $        5,400
   Discounts and premiums                                                   71                71
   Deferred fees                                                         1,352             1,141
   Delinquent interest                                                     552               413
   Net operating loss carry-forwards                                     1,574                 -
   Other                                                                    24               197
                                                              ------------------------------------
Total deferred tax assets                                               10,187             7,222

Deferred tax liabilities:
   Loss on sale of loans                                        $      (14,711)  $        (2,773)
   Amortization of mortgage servicing rights                            (4,351)           (3,178)
   Gain on sale of building                                             (1,377)                -
   Depreciation                                                           (834)             (354)
                                                              ------------------------------------
Total deferred tax liabilities                                         (21,273)           (6,305)
                                                              ------------------------------------
Net deferred tax (liability) asset                              $      (11,086)   $          917
                                                              ====================================
</TABLE>

The net deferred  tax  liability  is recorded on the  accompanying  consolidated
balance  sheet in income taxes  payable.  The current  income tax  receivable of
$7,445,000 as of December 31, 2001 is recorded in other receivables.

                                      F-32
<PAGE>

                              Matrix Bancorp, Inc.

             Notes to Consolidated Financial Statements (continued)


There is no recorded valuation  allowance for deferred tax assets as of December
31,  2001 or 2000.  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.

The net operating loss  carry-forward of $2,658,000 at December 31, 2001 expires
in 2021.

12. Regulatory

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

Matrix  Bank  is  also  subject  to  various  regulatory  capital   requirements
administered  by the OTS.  Failure  to meet  minimum  capital  requirements  can
initiate certain mandatory,  and possibly  additional  discretionary  actions by
regulators  that, if undertaken,  could have a direct  material effect on Matrix
Bank's  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),  and of Tier I capital (as defined) to total
assets (as defined). Management believes, as of December 31, 2001 and 2000, that
Matrix Bank met all applicable capital adequacy requirements.

                                      F-33
<PAGE>

                              Matrix Bancorp, Inc.

             Notes to Consolidated Financial Statements (continued)


As of December 31, 2001, 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
                                                                 For Capital       Under Prompt Corrective
                                          Actual              Adequacy Purposes       Action Provisions
                                 ---------------------------------------------------------------------------
                                    Amount       Ratio       Amount       Ratio       Amount      Ratio
                                 ---------------------------------------------------------------------------
                                                             (Dollars in thousands)
<S>                               <C>              <C>      <C>            <C>       <C>            <C>

As of December 31, 2001
   Total Capital
     (to Risk Weighted Assets)    $   106,310      11.7%    $  72,418      8.0%      $   90,522     10.0%
   Core Capital
     (to Adjusted Tangible Assets)    99,949        6.5        61,671      4.0           77,089      5.0
   Tier Capital
     (to Risk Weighted Assets)        99,949       11.0           N/A                    54,313      6.0
As of December 31, 2000
   Total Capital
     (to Risk Weighted Assets)     $ 100,091       12.2%    $  65,387      8.0%      $   81,734     10.0%
   Core Capital
     (to Adjusted Tangible Assets)    94,289        7.0        53,694      4.0           67,117      5.0
   Tier Capital
     (to Risk Weighted Assets)        94,289       11.5           N/A                    49,041      6.0

</TABLE>

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 Dallas in a noninterest-earning account based on a percentage of
deposit liabilities.  Such balances averaged $11,420,000 and $13,168,000 in 2001
and 2000, 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  $4,020,000  at  December  31,  2001  and
$4,566,000 at December 31, 2000. At December 31, 2001 and 2000, Matrix Financial
was in compliance with these regulatory requirements.


First Matrix,  headquartered in Denver,  Colorado,  a wholly owned subsidiary of
Matrix Capital  Markets,  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 which  requires  the  maintenance  of minimum net

                                      F-34
<PAGE>

                              Matrix Bancorp, Inc.

             Notes to Consolidated Financial Statements (continued)



capital and requires  that the ratio of aggregate  indebtedness  to net capital,
both as defined,  shall not exceed 15 to 1. At December 31,  2001,  First Matrix
had net capital of $408,000  which was  $395,000 in excess of its  required  net
capital of $13,000. First Matrix's net capital ratio was 0.46 to 1.

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, 2001,
Sterling  was out of  compliance  with  capital  requirements  under  Texas law.
Subsequent  to year end,  the Company  contributed  $900,000 to Sterling to meet
minimum capital requirements.

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

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

                                      F-35
<PAGE>

                              Matrix Bancorp, Inc.

             Notes to Consolidated Financial Statements (continued)



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
nonqualified.

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 income and earnings per share is required by
Statement No. 123, Accounting for Stock-Based Compensation,  which also requires
that the  information  be  determined  as if the Company had  accounted  for its
employee stock options granted  subsequent to December 31, 1994,  under the fair
value method of that  Statement.  The fair value for these options was estimated
at the  date of  grant  using a  Black-Scholes  option  pricing  model  with the
following  weighted-average  assumptions for 2001, 2000 and 1999,  respectively:
risk-free interest rates of 5.0 percent, 5.1 percent and 5.4 percent; a dividend
yield of zero percent;  volatility  factors of the expected  market price of the
Company's common stock of 0.57, 0.63 and 0.56; and a  weighted-average  expected
life of the option of four years.

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

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

                                      F-36
<PAGE>

                              Matrix Bancorp, Inc.

             Notes to Consolidated Financial Statements (continued)

<TABLE>
<CAPTION>


                                                                    Year ended December 31
                                                            2001             2000              1999
                                                     ------------------------------------------------------
                                                            (Dollars in thousands except share data)
<S>                                                    <C>               <C>              <C>

Pro forma net income                                   $        8,205    $        3,980   $       10,462
Pro forma earnings per share:
   Basic                                                         1.26              0.59             1.55
   Diluted                                                       1.25              0.59             1.53
</TABLE>

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

                                                         Year ended December 31
                                        2001                     2000                      1999
                             ------------------------------------------------------------------------------
                                            Weighted                 Weighted                  Weighted
                                            Average                   Average                  Average
                                            Exercise                 Exercise                  Exercise
                               Options       Price       Options       Price      Options       Price
                             ------------------------------------------------------------------------------
<S>                            <C>         <C>           <C>         <C>          <C>         <C>

Outstanding, beginning of
   year                          496,700   $    10.54      431,600   $    11.07     387,700   $     10.90
Granted                          250,000         9.32       95,000         7.65      55,500         12.34
Exercised                        (16,250)        8.55         (500)       10.00      (6,100)        12.36
Forfeited                       (118,625)       11.09      (29,400)       10.77      (5,500)        12.32
                             -------------             -------------            -------------
Outstanding, end of year         611,825         9.99      496,700        10.54     431,600         11.07
                             =============             =============            =============

Exercisable end of year          306,683        10.34      286,500        10.34     226,150          9.70

Weighted average fair value
   of options granted during
   the year                    $    5.79                 $    4.86                $    7.68
                             =============             =============            =============
</TABLE>

                                      F-37
<PAGE>

                              Matrix Bancorp, Inc.

             Notes to Consolidated Financial Statements (continued)



Options  outstanding  at December 31, 2001,  have exercise  prices  ranging from
$5.13 to $26.50 per share as outlined in the following table:
<TABLE>
<CAPTION>



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

  $       5.13              79,500    $        5.13          3.00                79,500          $      5.13
          7.00 - 7.88        7,500             7.29          9.50                    --                   --
          8.00 - 8.69      127,375             8.54          8.70                17,213                 8.32
          9.15 - 9.86      140,000             9.67          9.69                    --                   --
         10.00 - 10.37     107,900            10.03          5.33               100,400                10.02
         11.50 - 13.88      64,800            12.40          6.51                41,020                12.46
         14.25 - 17.25      81,750            15.13          5.58                65,550                15.12
         26.50               3,000            26.50          6.33                 3,000                26.50
                  ----------------------------------------------------------------------------------------------
                           611,825    $       10.54          6.68               306,683          $     10.34
                  ==============================================================================================
</TABLE>

Employee Stock Purchase Plan

In September 1996, the board of directors and  shareholders  adopted an Employee
Stock  Purchase Plan  (Purchase  Plan) and  authorized  125,000 shares of common
stock (ESPP Shares) for issuance thereunder.  The Purchase Plan became effective
upon consummation of the initial public offering. The price at which ESPP Shares
are sold under the  Purchase  Plan is 85 percent of the lower of the fair market
value per share of common stock on the  enrollment or the purchase  date. In May
2000, the authorized  number of shares available for issuance under the Purchase
Plan was  increased  to 250,000  shares.  As of December  31,  2001,  there were
115,602 ESPP Shares available for future issuance.

14. Commitments, Contingencies and Related Party Transactions

Leases

The Company  leases  office  space and  certain  equipment  under  noncancelable
operating leases. Annual amounts due under the office and equipment leases as of
December 31, 2001, are approximately as follows:

                                                    (In thousands)

2002                                           $          2,548
2003                                                      2,555
2004                                                      2,173
2005                                                      2,134
2006                                                      1,784
Thereafter                                                3,700
                                               ------------------
                                               $         14,894
                                               ==================

                                      F-38
<PAGE>

                              Matrix Bancorp, Inc.

             Notes to Consolidated Financial Statements (continued)


Total  rent  expense  aggregated   approximately   $3,011,000,   $2,319,000  and
$1,327,000 for the years ended December 31, 2001,  2000 and 1999,  respectively,
and is recorded in occupancy and equipment expense.

Off-Balance Sheet Risk

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 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.

As of December 31, 2001 and 2000, the Company had commercial credit  off-balance
sheet instruments of $40,501,000 and $27,905,000, respectively.

Matrix  Bancorp,  Inc. has  guaranteed,  with 50% recourse to the joint  venture
partner,  the  indebtedness of Matrix  Settlement and Clearance  Services to U.S
Bank,  N.A.,  in an amount of no greater than  $3,000,000.  There was no balance
outstanding at Matrix Settlement and Clearance  Services on such indebtedness at
December 31, 2001.

Mortgage Banking Risk Management Activities

In the ordinary course of business,  the Company makes  commitments to originate
residential  mortgage loans (pipeline) and holds originated loans until delivery
to an investor.  Inherent in this business is a risk  associated with changes in
interest rates and the resulting  change in the market value of the pipeline and
funded loans.  The Company  mitigates this risk through the use of mandatory and
best effort forward commitments to sell loans or mortgage-backed securities.

                                      F-39
<PAGE>

                              Matrix Bancorp, Inc.

             Notes to Consolidated Financial Statements (continued)


The Company uses derivative instruments primarily to protect against the risk of
changes in the price or interest rate  movements on the value of certain  assets
and liabilities. Derivative instruments represent contracts between parties that
usually  require no initial net  investment  and result on one party  delivering
cash or another type of asset to the other party based on a notional  amount and
underlying as specified in the contract. A notional amount represents the number
of units of a specific item, such as currency units. An underlying  represents a
variable, such as an interest rate, security price or price index. The amount of
cash or other asset delivered from one party to the other is determined based on
the  interaction  of the notional  amount of the contract  with the  underlying.
Derivatives are also implicit in certain contracts and commitments.

The Company's  primary use of derivative  instruments is in connection  with its
mortgage loan origination activities.  Management uses derivative instruments to
protect  against  the risk of changes in fair value  caused by changes in market
interest rates of originated  mortgage loans and a portion of the mortgage loans
that are not yet closed but for which the  interest  rate has been  established.
These  instruments  primarily  include  best effort  commitments  and  mandatory
commitments.  The nature and volume of the derivative instruments used to manage
the risk of change in fair value of mortgage  loan  originations  depends on the
level of mortgage  loans and  commitments  to  originate  mortgage  loans on the
consolidated balance sheet.

As discussed in Note 2, on January 1, 2001, the Company  adopted SFAS 133, which
requires all  derivative  instruments to be carried at fair value on the balance
sheet.  Prior to 2001,  unrealized  gains  and  losses on  derivatives  used for
hedging  purposes  were  generally  not required to be reported in the financial
statements.  In order to reduce the earnings  volatility  that would result from
having to recognize in earnings the fair value of certain derivative instruments
used to hedge risks  associated  with financial  instruments not carried at fair
value, SFAS 133 provides special hedge accounting  provisions.  These provisions
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.  The  Company
usually designates derivative instruments used to manage interest rate risk into
SFAS 133 hedge  relationships  with the  specific  assets or  liabilities  being
hedged.

As with any financial  instrument,  derivative  instruments have inherent risks.
Market  risk is the  adverse  effect a change in interest  rates,  currency,  or
implied  volatility  has on the value of a  financial  instrument.  The  Company
manages market risk associated with derivative  instruments by establishing  and
monitoring limits as to the amount of mortgage  origination  commitment coverage
obtained.

                                      F-40
<PAGE>

                              Matrix Bancorp, Inc.

             Notes to Consolidated Financial Statements (continued)


Credit risk is the risk that a  counterparty  to a derivative  contract  with an
unrealized gain fails to perform according to the terms of the agreement. Credit
risk is managed by monitoring the size and maturity  structure of the derivative
portfolio and applying  uniform credit  standards  maintained for all activities
with credit risk.

During 2001, the Company used best effort and mandatory commitments to hedge the
change in fair value of mortgage  loans and  commitments  to originate  mortgage
loans.  At December 31, 2001,  the Company had  $155,023,000  of  commitments to
originate mortgage loans and $492,613,000 of funded loans, respectively,  hedged
with  mandatory  forward  commitments  of  $434,336,000  and best effort forward
commitments of $96,162,000.  These commitments mature within 90 days of December
31, 2001. At December 31, 2000, the Company had $109,490,000 and $132,000,000 in
commitments to originate mortgage loans and funded loans,  respectively,  offset
with  mandatory  forward  commitments  of  $70,730,000  and best effort  forward
commitments of $121,950,000.  The fair value of the derivatives of $2,460,000 is
recorded  in other  assets  and is offset by a decline  in the fair value of the
mortgage  loans of  $2,435,000;  the  difference  representing  the  ineffective
portion  of the  hedge of  $25,000,  which  was  recorded  as a  charge  to loan
origination income in 2001.

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 an impairment
in the associated basis in the MSRs may occur. In 2001, the Company  implemented
a strategy to mitigate this risk of retaining a portion of originated  servicing
as management  believes that retaining servicing that was generated in the lower
interest rate  environment  will incur less  prepayment  risk.  This strategy is
combined with the continued strategy of attempting to acquire mortgage servicing
rights on loans which tend to be more seasoned, lower balance loans.

At December 31, 2000, the Company used a program of exchange-traded  futures and
options to hedge approximately 6.4% of its mortgage servicing portfolio.  Due to
the cost of the requirements  that must be met to achieve hedge accounting under
SFAS 133 for  mortgage  servicing  rights the Company did not attempt to qualify
for hedge accounting and effective March 31, 2001 the Company sold,  repurchased
or allowed to mature all derivative instruments recorded on the books associated
with mortgage servicing.

                                      F-41
<PAGE>

                              Matrix Bancorp, Inc.

             Notes to Consolidated Financial Statements (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. 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, 2001, is  reasonably  possible but not
probable,  and that the outcome with respect to one or more of these matters, if
adverse,  is  reasonably  likely  to  have  a  material  adverse  impact  on the
consolidated  financial  condition,  results of  operations or cash flows of the
Company.

In early 1999,  Matrix Bancorp and Matrix Bank instituted an arbitration  action
with the American Arbitration  Association in Phoenix,  Arizona against Fidelity
National  Financial,  Inc. The arbitration action arose out of an alleged breach
by  Fidelity of a Merger  Termination  Agreement  entered  into  between  Matrix
Bancorp and  Fidelity  in  connection  with the  termination  of their  proposed
merger.  The  arbitration  panel has ruled  that the entire  Merger  Termination
Agreement was  unenforceable.  Matrix Bancorp and Matrix Bank 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 and Matrix Bank contest that the releases
are valid and, in the  alternative,  have filed a counterclaim  against Fidelity
demanding  restitutional  damages  for the  value  of the  releases  if they are
determined valid .

Sterling Trust has been named a defendant in an action that was tried in Tarrant
County, Texas, district court in the spring of 2000. The jury returned a verdict
adverse to Sterling  Trust with  respect to two of twelve  theories of liability
posed by the plaintiffs,  and the court has signed a judgment for certain of the
plaintiffs in the amount of approximately  $6,400,000.  Sterling Trust has filed
an appeal of this judgment and believes it has meritorious  points of appeal. It
intends  to  vigorously  prosecute  the  appeal  of this  action.  The  ultimate
resolution of this appeal, which is expected to occur in mid-2002,  could result
in a  loss  of up to  $6,400,000  plus  post-judgment  interest  and  additional
attorneys'  fees.  The ultimate  legal and financial  liability,  if any, of the
Company cannot be estimated with certainty at this time.

Related to the matter  described in the previous  paragraph,  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

                                      F-42
<PAGE>

                              Matrix Bancorp, Inc.

             Notes to Consolidated Financial Statements (continued)



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  of the  Company,  if any, in this
matter cannot be estimated with certainty at this time.

Sterling  Trust was named a defendant in an action in the Superior  Court of the
State of California for the County of Los Angeles. The plaintiffs in this action
sought to certify a class  action on behalf of all  persons  and  entities  that
invested in  promissory  notes  issued by  Personal  Choice  Opportunities.  The
plaintiffs alleged, among other things, that Sterling Trust, as custodian of the
plaintiffs'  self-directed  IRAs, breached its fiduciary duty and was negligent.
In January 2002,  this matter was settled.  The  settlement  requires no payment
from Sterling other than the $5,000  retention  amount  pursuant to the terms of
the Company's insurance policy. The remainder of the settlement consideration is
to be paid the by Company's  insurer.  The settlement is subject to, among other
things, approval of the settlement by the Court and negotiation and execution of
appropriate releases between Sterling Trust and its insurer. If these conditions
are met, the case will be dismissed with prejudice.

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,  except as
discussed  below,  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   administering   each   claimant's
self-directed  individual  retirement accounting holding a nine-month promissory
note.  Sterling Trust believes it has meritorious  defenses and is defending the
matters vigorously.

With respect to one of these  actions,  Sterling Trust filed a motion to dismiss
because it can find no evidence  that the named  plaintiff  in the case ever had
accounts with Sterling  Trust.  On December 7, 2001,  the Court stayed  Sterling
Trust's motion to dismiss and granted the named plaintiff thirty days to file an
amended petition adding a Sterling Trust  accountholder as a nominal  plaintiff.
The named plaintiff filed an amended petition within the 30-day period,

                                      F-43
<PAGE>

                              Matrix Bancorp, Inc.

             Notes to Consolidated Financial Statements (continued)



however,  he did not add any  additional  plaintiffs.  On February 5, 2002,  the
court granted Sterling Trust's motion to dismiss the case.

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  Sterling  Trust 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 claimant's self-directed IRAs
pursuant  to  contracts  that  specify the  limited  nature of Sterling  Trust's
obligations.  The  Company  believes  Sterling  Trust has in each case  acted in
accordance with its obligations  under the contracts and/or as otherwise imposed
by law. The Company further  believes that the ultimate outcome of each of these
cases will not be  material  to the  consolidated  financial  statements  of the
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  statements of
the Company.

A former  customer of the Company is a debtor in a Chapter 11  proceeding  under
the Bankruptcy  Code. Prior to the bankruptcy  filing,  the Company had provided
the  customer  with a  purchase/repurchase  facility  under  which  the  Company
purchased residential mortgage loans from the customer, with the customer having
the right or  obligation to  repurchase  such mortgage  loans within a specified
period of time.  Several other financial  institutions had provided the customer
with  warehouse  financing or  additional  purchase/repurchase  facilities  (the
Origination  Facilities).  At this  time,  it  appears  that no other  financial
institution  that  provided  an  Origination  Facility  to  the  customer  has a
conflicting  interest with the Company in respect of the loans  purchased by the
Company, which were approximately  $12,400,000 in original principal amount (the
Purchased Loans).

Various  third  parties  have  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 fully resolved one
claim and has reached  tentative  agreements to settle claims  asserted  against
five others upon terms satisfactory to Matrix Bank.

                                      F-44
<PAGE>

                              Matrix Bancorp, Inc.

             Notes to Consolidated Financial Statements (continued)


Additionally,  certain  parties  in the  chain  of title  to  property  securing
approximately  $2.7 million of 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 tentative  agreement to settle
claims arising from thirteen of these Purchased Loans upon terms satisfactory to
Matrix Bank and is awaiting approval of the Bankruptcy Court.

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

Related Party Transactions

At December  31,  2001,  the Company had an unsecured  loan  receivable  from an
executive officer of $80,000,  which bears interest at prime and is renewable at
the Company's option.

From time to time,  Matrix  Financial has  originated  mortgage loans to various
employees,  including  executive  officers of the Company.  These mortgage loans
generally are sold to third party investors on a servicing released basis within
30 to 60 days after  closing,  and are made in the ordinary  course of business,
are  made  on  substantially  the  same  terms,  including  interest  rates  and
collateral,  as those  prevailing at the time for comparable  transactions  with
other persons, and do not involve more than the normal risk of collectibility or
present  other  unfavorable  features.  At December  31,  2001,  the Company had
approximately  $874,000 of closed mortgage loans, and approximately  $830,000 of
commitments for mortgage loans to related parties.

                                      F-45
<PAGE>

                              Matrix Bancorp, Inc.

             Notes to Consolidated Financial Statements (continued)



15. Defined Contribution Plan

The Company has a 401(k) defined contribution plan (Plan) covering all employees
who have elected to participate in the Plan.  Each  participant  may make pretax
contributions to the Plan up to 15 percent of such participant's earnings with a
maximum of $10,500 in 2001.  The  Company  makes a matching  contribution  of 25
percent of the participant's total contribution.  Matching contributions made by
the Company  vest over six years.  The cost of the plan  approximated  $324,000,
$261,000 and $211,000  during the years ended December 31, 2001,  2000 and 1999,
respectively,  and was recorded in compensation and employee benefits expense in
the consolidated statements of income.

16. Fair Value of Financial Instruments

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

                                                                 December 31
                                                       2001                      2000
                                            ------------------------------------------------------
                                                           Estimated                  Estimated
                                              Carrying       Fair        Carrying       Fair
                                               Amount        Value        Amount        Value
                                            ------------------------------------------------------
                                                               (In thousands)
<S>                                           <C>          <C>          <C>           <C>
Financial assets:
   Cash and cash equivalents                  $   84,460   $   84,460   $   53,170    $   53,170
   Mortgage-backed and SBA securities              6,963        6,963       66,616        66,616
   Loans held for sale, net                    1,157,989    1,161,381      942,496       948,069
   Loans held for investment, net                191,161      191,661      173,525       174,581
   FHLB stock                                     18,181       18,181       27,814        27,814
Financial liabilities:
   Deposits                                      866,235      869,215      602,669       604,423
   Custodial escrow balances                     129,665      129,665       77,647        77,647
   Payable for purchase of MSRs                    4,738        4,738       12,666        12,666
   FHLB borrowings                               303,361      309,931      519,433       521,194
   Borrowed money and guaranteed preferred
     beneficial interests                        222,032      222,032      124,503       119,253

</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 sheet for cash and
cash equivalents,  mortgage-backed and SBA securities,  FHLB stock,  payable for
purchase of MSRs and certain  components  of borrowed  money  approximate  those
assets' and liabilities' fair values.

                                      F-46
<PAGE>

                              Matrix Bancorp, Inc.

             Notes to Consolidated Financial Statements (continued)


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

The fair value  disclosed for demand  deposits  (e.g.,  interest and noninterest
checking,  savings and money market  accounts) are, by definition,  equal to the
amount payable on demand at the reporting date (i.e.,  their carrying  amounts).
Fair  values for  fixed-rate  certificates  of  deposit  are  estimated  using a
discounted  cash flow  calculation  that applies  interest rates currently being
offered on certificates to a schedule of aggregated expected periodic maturities
on time deposits. The component commonly referred to as deposit base intangible,
was not  estimated at December 31, 2001 and 2000,  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).

17. Parent Company Condensed Financial Information

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

                                                                          December 31
                                                                     2001             2000
                                                              ------------------------------------
                                                                        (In thousands)
<S>                                                             <C>                 <C>

Condensed Balance Sheets
Assets:
   Cash                                                         $          155      $          -
   Loans receivable                                                      3,500                 -
   Other receivables                                                         9               279
   Premises and equipment, net                                           1,139               989
   Other assets                                                          3,168             2,489
   Investment in and advances to subsidiaries                          151,755           123,755
                                                              ------------------------------------
Total assets                                                    $     159,726       $    127,512
                                                              ====================================

Liabilities and shareholders' equity:
   Borrowed money and guaranteed preferred beneficial
     interests (a)                                             $       81,527       $     55,714
   Other liabilities                                                    6,887              7,775
                                                              ------------------------------------
Total liabilities                                                      88,414             63,489
Shareholders' equity:
   Common stock                                                             1                  1
   Treasury shares                                                          -             (1,775)
   Additional paid-in capital                                          20,800             23,004
   Retained earnings                                                   50,511             42,793
                                                              ------------------------------------
Total shareholders' equity                                             71,312             64,023
                                                              ------------------------------------
Total liabilities and shareholders' equity                     $      159,726       $    127,512
                                                              ====================================

</TABLE>
                                      F-47
<PAGE>

                              Matrix Bancorp, Inc.

             Notes to Consolidated Financial Statements (continued)



(a)      The  Parent's  debt is set  forth in a table  following  the  condensed
         statements  of cash flows.  The Parent also  guarantees  the  revolving
         warehouse loan agreement and the financing  related to charter schools.
         See Note 9 for additional information regarding the debt.
<TABLE>
<CAPTION>

                                                           Year ended December 31
                                                   2001              2000             1999
                                            ------------------------------------------------------
                                                               (In thousands)
<S>                                             <C>                  <C>              <C>


Condensed Statements of Income
Income:
   Interest income on intercompany advances     $      2,395         $   2,202        $    1,257
   Other                                               1,230             1,362               616
                                            ------------------------------------------------------
Total income                                           3,625             3,564             1,873

Expenses:
   Compensation and employee benefits                  3,529             3,686             2,628
   Occupancy and equipment                               748               674               718
   Interest on borrowed money                          8,511             6,923             5,521
   Professional fees                                     437               510               400
   Other general and administrative                    2,553             2,209             1,948
                                            ------------------------------------------------------
Total expenses                                        15,778            14,002            11,215
                                            ------------------------------------------------------

Loss before income taxes and equity income
   of subsidiaries                                   (12,153)          (10,438)           (9,342)
Income taxes (b)                                           -                 -                 -
                                            ------------------------------------------------------
Loss before equity income of subsidiaries            (12,153)          (10,438)           (9,342)
Equity income of subsidiaries                         20,665            14,696            20,121
                                            ------------------------------------------------------
Net income                                   $         8,512    $        4,258    $       10,779
                                            ======================================================
</TABLE>
                                      F-49
<PAGE>

                              Matrix Bancorp, Inc.

             Notes to Consolidated Financial Statements (continued)


(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  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 income do not
     include any income tax benefit for the current losses.
<TABLE>
<CAPTION>

                                                             Year ended December 31
                                                     2001             2000              1999
                                              ------------------------------------------------------
                                                                 (In thousands)
<S>                                             <C>               <C>              <C>

Condensed Statements of Cash Flows
   Operating activities:
   Net income                                   $        8,512    $        4,258   $       10,779
   Adjustments to reconcile net income
    to net cash provided (used) by operating
     activities:
       Equity income of subsidiaries                   (20,665)          (14,696)         (20,121)
       Dividend from subsidiaries                       11,996             6,509           11,468
       Depreciation and amortization                       703               621              763
       Unrealized gain (loss) on securities
         available for sale                               (794)              819                -
       Gain on sale of building                              -              (823)               -
       Increase     (decrease)     in    other            (888)            3,800            2,556
         liabilities
       Decrease (increase) in other
         receivables and other assets                   (3,133)            1,459           (1,754)
                                              ------------------------------------------------------
Net cash (used) provided by operating
   activities                                           (4,269)            1,947            3,691

Investing activities:
   Purchases of premises and equipment                    (606)             (457)            (221)
   Proceeds from sale of building                            -             2,191                -
   Investment in and advances to subsidiaries          (19,331)            1,722          (19,846)
                                              ------------------------------------------------------
Net cash (used) provided by investing
   activities                                          (19,937)            3,456          (20,067)

Financing activities:
   Repayments of notes payable and revolving
     line of credit                                    (49,437)          (39,554)         (30,007)
   Proceeds from notes payable and revolving
     line of credit                                     43,250            35,700           19,800
   Shares repurchased                                     (746)           (1,775)               -
   Proceeds from junior subordinated                                           -           26,063
     debentures                                         30,977
   Proceeds from issuance of common stock                  317               224              364
                                              ------------------------------------------------------
Net cash provided (used) by financing
   activities                                           24,361            (5,405)          16,220
                                              ------------------------------------------------------
Increase (decrease) in cash                                155                (2)            (156)
Cash at beginning of year                                    -                 2              158
                                              ------------------------------------------------------
Cash at end of year                             $          155    $            -   $            2
                                              ======================================================
</TABLE>

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

                                                                           December
                                                                     2001             2000
                                                              ------------------------------------
                                                                        (In thousands)
<S>                                                            <C>                <C>

Senior notes                                                   $        10,455    $       20,000
Bank stock loan                                                          8,572             8,214
                                                              ------------------------------------
Total term notes                                                        19,027            28,214
Bank stock revolving line of credit                                      3,000                 -
Guaranteed preferred beneficial interests                               59,500            27,500
                                                              ------------------------------------
Total debt                                                     $       81,527     $       55,714
                                                              ====================================
</TABLE>


                                      F-50
<PAGE>


                              Matrix Bancorp, Inc.

             Notes to Consolidated Financial Statements (continued)


As of December 31, 2001, the maturities of term notes payable are as follows:

                                                         (In thousands)

2002                                                      $    4,428
2003                                                           7,144
2004                                                          10,455
Thereafter                                                    59,500
                                                       ------------------
                                                          $   81,527
                                                       ==================


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

                                                                2001
                                    ----------------------------------------------------------------
                                        Fourth          Third           Second          First
                                        Quarter        Quarter         Quarter         Quarter
                                    ----------------------------------------------------------------
                                                  (In thousands except share data)
<S>                                   <C>               <C>             <C>             <C>

Operations
Net interest income before
   provision for loan and valuation
   losses                             $      11,378     $    9,335      $   11,133      $    8,664
Provision for loan and valuation
   losses                                       829            648             526             977
Noninterest income                           28,678         22,500          21,951          18,577
Noninterest expense                          32,669         30,415          30,006          22,809
                                    ----------------------------------------------------------------
Income before income taxes                    6,558            772           2,552           3,455
Provision for income taxes                    2,250            144             924           1,147
Less cumulative effect of a change
   in accounting principle, net of
   tax benefit                                  -               -               -             360
                                    ----------------------------------------------------------------
Net income                            $       4,308     $      628      $    1,628      $   1,948
                                    ================================================================

Net Income per Share Data
Basic before accounting change        $        0.66     $     0.10      $     0.25      $    0.35
Cumulative effect of a change in
   accounting principle                         -               -               -            0.05
                                    ----------------------------------------------------------------
Basic                                 $        0.66     $     0.10      $     0.25      $    0.30
                                    ================================================================
Diluted before accounting change               0.66           0.10            0.25           0.34
Cumulative effect of a change in
   accounting principle                         -               -               -            0.05
                                    ----------------------------------------------------------------
Diluted                               $        0.66     $     0.10      $     0.25      $    0.29
                                    ================================================================
</TABLE>


                                      F-51
<PAGE>




                              Matrix Bancorp, Inc.

             Notes to Consolidated Financial Statements (continued)
<TABLE>
<CAPTION>


                                                                2001
                                    ----------------------------------------------------------------
                                        Fourth          Third           Second          First
                                        Quarter        Quarter         Quarter         Quarter
                                    ----------------------------------------------------------------
                                                  (In thousands except share data)
<S>                                 <C>               <C>             <C>             <C>

Balance Sheet
Total assets                        $     1,637,000   $  1,530,000    $  1,685,000    $  1,692,000
Total loans, net                          1,349,000      1,256,000       1,387,000       1,455,000
Shareholders' equity                         71,000         67,000          66,000          65,000




                                                                 2000
                                    ----------------------------------------------------------------
                                        Fourth          Third           Second          First
                                        Quarter        Quarter         Quarter         Quarter
                                    ----------------------------------------------------------------
                                    ----------------------------------------------------------------
                        (In thousands except share data)
Operations
Net interest income after provision
   for loan and valuation losses      $       7,084  $       6,191   $       6,242   $       6,033
Noninterest income                           14,971         15,340          14,705          13,440
Noninterest expense                          20,234         19,849          20,462          16,960
                                    ----------------------------------------------------------------
Income before income taxes                    1,821          1,682             485           2,513
Income taxes                                    513            615             151             964
                                    ----------------------------------------------------------------
Net income                            $       1,308  $       1,067   $         334   $       1,549
                                    ================================================================

Net Income per Share Data
Basic                                 $        0.20  $        0.16   $        0.05   $        0.23
                                    ================================================================
Diluted                               $        0.20  $        0.16   $        0.05   $        0.23
                                    ================================================================

Balance Sheet
Total assets                          $   1,419,000  $   1,368,000   $   1,294,000   $   1,303,000
Total loans, net                          1,116,000      1,086,000       1,074,000       1,088,000
Shareholders' equity                         64,000         64,000          63,000          62,000

</TABLE>

19. Transactions with Harbor Financial Mortgage Corporation

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

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

                                      F-52
<PAGE>

                              Matrix Bancorp, Inc.

             Notes to Consolidated Financial Statements (continued)


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

The most  significant  assets which remain from the Harbor  transactions are the
nonperforming  FHA/VA loans with a balance of  $45,062,000 at December 31, 2001.
Because the  principal  and  interest is largely  insured or  guaranteed  by the
federal  government at a stated debenture rate, the Company  continues to accrue
interest on the loans. However, both the interest and advances made on the loans
are subject to certain  curtailments.  The  interest  and  advances are analyzed
quarterly by the Company for collectibility.

20. Transactions with Island Mortgage Network

In 2000 and 1999, the Company provided Island Mortgage Network  (Island),  a New
York mortgage banking entity,  with a  purchase/repurchase  facility under which
the Company purchased residential mortgage loans from Island, with Island having
the right or  obligation to  repurchase  such mortgage  loans within a specified
period of time. In June 2000,  Island  breached  terms of its agreement with the
Company  and,  in July 2000,  Island  filed for  bankruptcy.  At the time of the
bankruptcy,  the  Company  had  approximately  $12,400,000  of loans that it had
acquired from Island. At December 31, 2001, relating to $2,100,000 of the loans,
there  have been  lawsuits  initiated  by third  parties  alleging  a  competing
interest in the loans.  With respect to an additional  $2,700,000 of loans,  the
Company  believes  that the loans  were  never  closed  with good  funds.  As of
December  31,  2001,  the  Company  had  $10,100,000  of loans  and  receivables
originated  by Island.  The Company has an  allowance  for loan losses for these
loans of  approximately  $2,900,000  and  $2,600,000 as of December 31, 2001 and
2000, respectively.

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

                                      F-53
<PAGE>

                              Matrix Bancorp, Inc.

             Notes to Consolidated Financial Statements (continued)


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


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

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

2001
Revenues from external
   customers:
     Interest income        $   67,752    $   30,602       $    -   $    6,854    $      189   $  105,397
     Noninterest income          9,651        62,177        4,126        7,252         8,500       91,706

Intersegment revenues           20,821         6,260          411            -         3,345       30,837

Interest expense                51,008        23,548           85        4,931       (14,685)      64,887

Depreciation/amortization          489        22,832          115          360         1,115       24,911

Segment income (loss)
   before income taxes          21,529         7,803       (1,293)      (1,177)      (13,525)      13,337

Segment assets (a)           1,420,812       669,165        5,659       78,027        47,255    2,220,918
2000
Revenues from external
   customers:
     Interest income        $   86,535    $    5,973   $        -   $    4,691    $      187   $   97,386
     Noninterest income          9,144        27,430        6,871        4,240        11,107       58,792

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

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

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

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

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

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

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

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

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

Segment assets (a)           1,138,650        93,252        1,803       37,640        29,446    1,300,791

</TABLE>

                                      F-54
<PAGE>

                              Matrix Bancorp, Inc.

             Notes to Consolidated Financial Statements (continued)


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

                                                            2001             2000              1999
                                                     ------------------------------------------------------
                                                                        (In thousands)
<S>                                                    <C>               <C>              <C>

Revenues for year ended December 31:
Interest income for reportable segments                $      105,208    $       97,199   $       73,739
Noninterest income for reportable segments                     83,206            47,685           51,157
Intersegment revenues for reportable segments                  27,492             9,586            3,575
Other revenues                                                 12,034            13,527           12,397
Elimination of intersegment revenues                          (30,837)          (11,819)          (6,758)
                                                     ------------------------------------------------------
Total consolidated revenues                            $      197,103    $      156,178   $      134,110
                                                     ======================================================

Income for year ended December 31:
Total profit for reportable segments                   $       26,862    $       16,791   $       26,494
Other loss                                                    (13,858)          (10,803)          (9,152)
Elimination of intersegment profit (loss)                         333               513             (285)
                                                     ------------------------------------------------------
Income before income taxes                             $       13,337    $        6,501   $       17,057
                                                     ======================================================

Assets as of December 31:
Total assets for reportable segments                   $    2,173,663    $    1,611,246   $    1,271,345
Other assets                                                   47,255            30,740           29,446
Elimination of intersegment receivables                      (563,277)         (215,998)         (16,689)
Other intersegment eliminations                               (10,854)           (7,193)            (356)
                                                     ------------------------------------------------------
Total consolidated assets                              $    1,646,787    $    1,418,795   $    1,283,746
                                                     ======================================================

Other significant items for the year
ended December 31:
Depreciation/amortization expense:
   Segment totals                                      $       23,796    $       11,340   $       17,588
   Intersegment adjustments                                     1,115             1,094              942
                                                     ------------------------------------------------------
Consolidated totals                                    $       24,911    $       12,434   $       18,530
                                                     ======================================================

Interest expense:
   Segment totals                                      $       79,572    $       60,694   $       39,971
   Intersegment adjustments                                   (14,685)            6,907            4,316
                                                     ------------------------------------------------------
Consolidated totals                                    $       64,887    $       67,601   $       44,287
                                                     ======================================================

</TABLE>

                                      F-55