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

                                   FORM 10-K
                            ------------------------

              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

                         COMMISSION FILE NUMBER 0-26019

                                 NEXTCARD, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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                          DELAWARE                                               68-0384-606
               (STATE OF INCORPORATION)                             (I.R.S. EMPLOYER IDENTIFICATION NO.)
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         595 MARKET STREET, SUITE 1800, SAN FRANCISCO, CALIFORNIA 94105
              (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

                                 (415) 836-9700
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

                         COMMON STOCK, $.001 PAR VALUE

        SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE

     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. [ ]

     As of February 28, 2001, there were 53,184,760 shares of the registrant's
common stock, par value $.001 per share, outstanding, of which 1,873,888 were
nonvoting. At that date, the aggregate market value of the registrant's common
stock held by non-affiliates was approximately $385,440,394, based upon the
closing price on The Nasdaq Stock Market on February 28, 2001.

                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the registrant's Proxy Statement for the 2001 Annual Meeting of
Shareholders are incorporated by reference into Part III of this Report.
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                               TABLE OF CONTENTS

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                                       PART I
Item 1.           Business....................................................  1
Item 2.           Properties..................................................  19
Item 3.           Legal Proceedings...........................................  19
Item 4.           Submission of Matters to a Vote of Security Holders.........  19

                                      PART II
Item 5.           Market for Registrant's Common Equity and Related             19
                  Stockholder Matters.........................................
Item 6.           Selected Consolidated Financial Data........................  20
Item 7.           Management's Discussion and Analysis of Financial Condition     21
                  and Results of Operations...................................
Item 7A.          Quantitative and Qualitative Disclosures about Market         32
                  Risk........................................................
Item 8.           Consolidated Financial Statements and Supplementary Data....  33
Item 9.           Changes in and Disagreements with Accountants on Accounting     59
                  and Financial Disclosure....................................

                                      PART III
Item 10.          Directors and Executive Officers of the Registrant..........  59
Item 11.          Executive Compensation......................................  59
Item 12.          Security Ownership of Certain Beneficial Owners and           59
                  Management..................................................
Item 13.          Certain Relationships and Related Transactions..............  59

                                      PART IV
Item 14.          Exhibits, Financial Statement Schedules and Reports on Form   60
                  8-K.........................................................
Signatures        ............................................................  61
Exhibit Index     ............................................................  62
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                            ------------------------

   NextCard is our registered trademark. This Annual Report on Form 10-K also
                    contains trademarks of other companies.
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                                     PART I

ITEM 1. BUSINESS

     This Annual Report on Form 10-K contains certain forward-looking statements
relating to possible future events or our future financial performance. In some
cases, you can identify forward-looking statements by terminology such as "may,"
"will," "should," "expect," "plan," "anticipate," "believe," "estimate,"
"predict," "potential" or "continue," the negative of such terms or other
comparable terminology. Actual events or results may differ materially. In
evaluating these statements, you should consider various factors, including the
risks outlined under "Factors Affecting Future Results." These factors may cause
our actual results to differ materially from any forward-looking statement.

     Although we believe that the expectations reflected in our forward-looking
statements are reasonable, we cannot guarantee our future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of any forward-looking
statements. We are under no duty to update any of the forward-looking statements
after the date of this Form 10-K to conform such statements to actual results or
to changes in our expectations.

OVERVIEW

     We were incorporated in the State of California in June 1996 under the name
Internet Access Financial Corporation and reincorporated in Delaware in May 1999
in connection with our initial public offering. We changed our name to NextCard,
Inc. in October 1998. Our only significant subsidiary at December 31, 2000 was
NextBank, National Association, an Arizona chartered bank, which, prior to our
purchase of all its outstanding common stock on September 16, 1999 from its
former parent, was called Textron National Bank. In connection with the purchase
of Textron National Bank, all of the issued and outstanding stock of NextCard
Funding Corp. ("NCFC"), our wholly owned subsidiary, was contributed to
NextBank. Accordingly, NCFC became a wholly owned subsidiary of NextBank.

PRODUCTS AND SERVICES

     We are an Internet-based provider of consumer credit. We offer an online
credit approval system for a Visa card and provide interactive, customized
offers for credit card applicants. We combine expertise in consumer credit, an
exclusive Internet focus and sophisticated direct marketing techniques with the
aim of attracting profitable customer segments on the Internet. Our product, the
NextCard Visa, is marketed to consumers through our website, www.nextcard.com.
We have entered into marketing agreements with leading websites on the Internet.
We also have marketing relationships with Internet-based affiliates, co-branded
partners and affinity groups. For example, in November 1999, we entered into a
five-year exclusive credit card marketing agreement with Amazon.com L.L.C.

     We continue to leverage our technology platform and marketing expertise
into new product areas. During the third quarter of 2000, we launched our
secured card product and the Instant Finance network. The secured card is a card
with a low line of credit that is guaranteed by a deposit account at NextBank,
and the NextCard Instant Finance Network is a technology enabled financing
platform for retail consumer purchases.

     We offer our credit card customers a unique combination of convenience,
customization, shopping enhancements and online customer service. The NextCard
Visa, which can be used for both online and offline purchases, offers the
following features:

Customized Application Process and Product Offerings

          - At our website, customers can apply easily and quickly for the
            NextCard Visa, receive credit approval within seconds, choose
            customized upgrades, automatically transfer balances from other
            credit cards and personalize their NextCard Visa. Qualifying
            customers can also receive an active account number at the time they
            complete the new account application process, allowing for instant
            purchasing. Through the application process, we gather information
            that we utilize to
<PAGE>   5

         refine our direct marketing efforts, thereby increasing the
         effectiveness of our future targeted marketing programs and lowering
         customer acquisition costs. The automated balance transfer feature
         enables us to quickly build our loan portfolio.

          - By acquiring demographic and credit data about an individual
            consumer, we can customize our product offerings for that consumer
            at the time of the initial offer. This helps us create and present
            offers that we believe are attractive to the customer.

          - Our My Visa PictureCard product enables cardholders to personalize
            the look of their NextCard Visa by sending us via the Internet their
            own picture or selecting from an online library of artwork. We
            believe that personalization increases customer loyalty and card
            usage.

Online Shopping Enhancements

          - Our Internet-based shopping services, our pledge of 100% protection
            against credit card fraud and our NextCard Rewards program may
            enhance our customers' tendency to purchase goods and services,
            especially over the Internet. Additionally, we offer the NextCard
            Concierge, electronic wallet software that fills in purchase forms
            on websites, remembers passwords, and offers price finding
            capabilities as well as product and merchant reviews. The NextCard
            Concierge provides a more streamlined online shopping experience. By
            providing these value-added services, we believe we have broadened
            our relationship with our customers and helped build our brand.

Online Customer Service

          - At our website, customers can access statements, check recent
            account activity, pay their NextCard bills using our ClickPay
            technology, download information to several different personal
            financial management software programs and communicate with us by
            e-mail. These customer support features are available 24 hours a
            day, seven days a week and assist us in building customer
            relationships and improving customer loyalty. Customers can also
            interact online, or "chat," with a customer service representative
            during business hours to ask questions about their NextCard
            accounts.

BUSINESS STRATEGY

     Our objective is to enhance our position as a leading Internet-based
provider of customized consumer credit products and services. The key elements
of our strategy are:

     Direct Marketing Strategy. We continuously enhance our data analysis
techniques to expand our expertise in Internet direct marketing in order to find
and attract our target customers. Our exclusive focus on the Internet consumer
allows us to apply the power of Internet direct marketing to a significant and
growing market. We plan to continue to develop and use our database and data
analysis capabilities as a competitive advantage to refine our marketing
programs, continue to lower customer acquisition costs and increase potential
customer profitability.

     Product Strategy. We continue to offer customized product choices to our
customers. The Internet allows us to review an applicant's credit and existing
credit card usage in real time. As a result, we can provide online offers that
are customized to meet the specific needs of particular applicants. For example,
our profile-based pricing capability allows us to use customer information to
offer specific interest rate and credit limit combinations. Such profile-based
pricing improves our ability to match our products to the credit risk/reward
profile of our applicants.

     Technology Strategy. We apply Internet technology innovations to provide
enhanced customer functionality more rapidly than our competitors. We believe
technological innovations will continue to transform the Internet and that we
must maintain technological superiority in the delivery of our products and
services. Therefore, we plan to lead in the application of new Internet
technologies to offer enhanced product and services and thereby differentiate
ourselves from our competitors.

                                        2
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     Branding Strategy. We leverage our leadership in Internet consumer
financial services to continue to build brand recognition. Branding on the
Internet is becoming an increasingly important differentiating factor for
consumers. We believe our exclusive focus on the Internet has enabled us to
begin to establish name recognition among online consumers of financial products
and services. We intend to continue to expand our marketing activities to
enhance our brand awareness. As competition increases for online financial
products and services, we believe our brand name will provide us with a
competitive advantage.

UNDERWRITING AND CREDIT MANAGEMENT

     We have developed a set of underwriting criteria based on risk models
utilizing industry data as well as our own internally developed decision rules
and analytic techniques. In addition, we consider the potential profitability of
a particular customer prior to making customized offers. Our underwriting, risk
management and pricing policies are designed to balance credit risk and
potential profitability by adjusting the interest rate, credit limit and
required minimum balance transfers offered to a particular customer.

     Our credit policies have been written, and are administered, by our credit
committee, comprised of members of our senior management. The credit committee
meets regularly to review actual credit performance as compared to plan
assumptions. The committee reviews proposed changes to credit policies and risk
management procedures with a focus on portfolio profitability.

     Our credit approval process is performed on a fully automated basis.
Although a NextCard Visa applicant receives a credit approval decision within
seconds of applying, during that interval we conduct an automated credit
analysis. We access up to three credit bureau reports on each applicant, and
capture the credit score developed by Fair, Isaac & Company, Inc., a nationally
recognized provider of credit bureau scoring information on each of the credit
reports. The credit score is commonly referred to as a FICO score. We also apply
internally developed credit and fraud scores to augment the FICO score. If the
applicant meets minimum FICO score criteria and our internally developed
criteria, the applicant is approved for a NextCard Visa. Certain customers may
require further authentication of information before being issued a NextCard
Visa. In instances where an applicant does not have a FICO score, we will
approve the applicant based on minimum scores from our internally developed
criteria. Further, to prevent customers from obtaining additional accounts and
thereby increasing our credit exposure to them, we automatically verify that the
applicant is not already a NextCard Visa holder and has not submitted a
duplicate application.

     On a periodic basis, we monitor the effectiveness of our credit algorithm
and credit review process and adjust our procedures as necessary. As we further
refine our credit algorithm and credit process, we may consider using additional
internally developed criteria or scoring algorithms, including a lower minimum
FICO score, to enhance or replace our existing credit approval. For example, in
December 2000 we introduced our second-generation customized Risk Score Card
technology. These models were built from several years worth of data on millions
of online applicants.

     Several objectives are considered in credit line management, including
increasing potential revenue per customer, reducing potential losses and
reducing contingent liabilities. Using credit bureau information, we review the
balances on other credit cards maintained by the applicant. The credit line made
available to the applicant is a function of the customer's risk profile, income
and balances maintained on other cards. Our decisions are based on the
probability of future credit loss projected based on the FICO score, application
of our own criteria and the applicant's income level. In addition, we
periodically monitor our customer accounts and in the future we may adjust
credit lines accordingly. Because we have an unseasoned credit card portfolio,
we may be unable to predict accurately the level of future credit losses.

                                        3
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OPERATIONS

     Our operations function is organized and designed to support rapid product
introduction and customer growth. We have operation facilities in Phoenix,
Arizona and San Ramon, California. The key functional components of our
operations function are as follows:

Account Origination Support

     We have developed an innovative application processing approach, leveraging
an automated credit decision process with a multi-step customer authentication
routine. The authentication and new account risk management process is a central
function for the operations group.

     Applicants that have been approved through our credit review process are
assigned a proprietary fraud score. This fraud score consists of a series of
internally developed algorithms using credit bureau information to determine the
probability that an application may involve fraud. Customers that pass the
proprietary algorithms receive an active account number and line of credit at
the conclusion of the online application process.

     Customers that do not pass this review process are processed through
several customer authentication tests. Each of these potential customers is
processed through a series of third party fraud databases. We also have
developed an internal database of fraud addresses. Based upon the presence of
certain indicators, the customer will either be approved for the card, declined
for the card, sent correspondence requesting additional information or routed to
an operations specialist who has been trained to look for occurrences of
Internet application fraud. After reviewing the account, either the information
will be validated by a third party or we will initiate telephone contact to
attempt to verify the identity of the applicant.

     At the conclusion of this authentication process, which typically takes two
to ten business days, the customer is sent their NextCard Visa.

Customer Service and Support

     Customer service and support functions are performed by our operations
staff, as well as through an arrangement with First Data Resources ("First
Data"), which provides essential fulfillment and customer service functions, and
host online customer service capabilities. We maintain internal customer service
coverage during the hours of 5:00 a.m. to 10:00 p.m., Pacific time, seven days
per week. After-hours support is provided through an arrangement with First
Data.

     Customers can access account information on our website or call a customer
service representative 24 hours a day, seven days a week. Customers may also
interact online with a customer service representative over the Internet in
order to ask questions, verify information or review the activity on their
NextCard Visa. We monitor customer communications to ensure the quality of our
customer service. In addition, we use call management software to monitor call
abandonment, call length and other call center productivity measurements.

Collections

     Collections activities are performed at both our San Ramon and Phoenix
operations facilities. Collection activity involves contacting the customer and
taking other appropriate actions to secure payment if no payment has been
received after the payment due date. Accounts are recorded as delinquent one day
after a monthly cycle in which no payment is received for an account that had a
balance in the prior billing cycle.

Processing

     First Data performs certain core processing services for us. These services
include authorizing customer transactions through the Visa system (including
monitoring for purchase-related fraud), performing billing and settlement
processes, generating and monitoring monthly billing statements, and embossing
and mailing credit card plastics and new account agreements.

                                        4
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TECHNOLOGY AND SECURITY

     Our business model is based on consumer access to the NextCard website both
to acquire new customers as well as to service existing relationships. As a
result, our development efforts are focused on creating and enhancing
specialized software that enhances our Internet-based customer functionality. In
addition, because we offer a financial product, we seek to offer high levels of
data security and integrity to build customer confidence.

     Our security infrastructure is designed to protect data from unauthorized
access, both physically and over the Internet. The major components of our
network are located in San Francisco, California, at our corporate headquarters;
San Ramon, California, and Phoenix, Arizona, in our operations centers; and
Santa Clara, California, in the Exodus Communications Data Center. Additionally,
we rely upon the security infrastructure of First Data and Response Data
Corporation. Each of these key business locations is connected through privately
leased data transmission lines. In all locations, access to the network servers
is tightly restricted. Internet security is addressed with leading technologies,
vendors and design approaches.

     Our most sensitive data and hardware reside at the Exodus Communications
Data Center located in Santa Clara, California. Exodus Communications provides
Internet co-location services for hundreds of Internet businesses in seven
locations nationwide. With redundant connections to the Internet, as well as
fault tolerant power and waterless fire suppression, Exodus Communications
provides us with the benefits of a high-end data center without the cost of
building and maintaining our own data center. Because of our special security
needs, our equipment is located in an Exodus Communications vault.

     Our customer service website was designed and developed in conjunction with
First Data. The site resides on a web server located in their main data center
in Omaha, Nebraska. Security for the system is provided through a multi-tiered
security design, which includes physical and logical components.

COMPETITION

     The market for consumer credit card products in the United States is highly
competitive. This competition primarily has been focused in the offline areas of
direct mail, telemarketing and traditional bricks-and-mortar branch banking. In
contrast, our strategy focuses on the Internet channel, a rapidly evolving and
intensely competitive arena. Our ability to compete effectively depends on many
factors, both within and beyond our control.

     We believe that the principal factors upon which we will compete for
customers include the pricing of our products and services, reliability and
customer support, the features of our products and services and brand
recognition. In turn, our ability to be an effective competitor against
established and new entrants into the industry depends on a number of factors,
including our ability to identify and retain attractive customers, the quality
of our credit decisions, the cost of acquiring customers, our ability to retain
technological expertise, the cost of funding our loan portfolio, our ability to
create strategic partnerships with third parties and our ability to control
fraud and delinquencies.

     We expect significant additional competition in the future as the Internet
channel grows and many financial institutions become increasingly aware of the
market opportunities available. Many of our current and potential competitors
have greater financial resources and greater name recognition than we have with
the public. We currently compete, or anticipate competing, for online consumers,
directly and indirectly, with the following categories of companies:

     Traditional Credit Card Companies. Established credit card companies such
as Bank One Corporation, Providian Financial Corp., Capital One Financial and
American Express Company, have historically generated accounts through direct
mail and telemarketing. Our products and services compete with the offline
offerings of these companies, as well as the online offerings that these
companies have begun to make available. In particular, certain of these
companies are entering into Internet related branding arrangements, as well as
marketing agreements, some of which may be exclusive, with Internet portals.

                                        5
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     Traditional Banks. Banks, such as Wells Fargo Bank & Co., Chase Manhattan
Bank, N.A., and CitiBank, N.A. have historically issued credit cards to
consumers through traditional channels and have begun to provide online credit
card services. As the Internet channel grows, we expect banks to offer more
credit card products and services over the Internet.

     Internet-Focused Entrants. We anticipate the addition of new forms of
financial institutions to compete in the online consumer financial services
industry. Several companies, such as E*Trade Group, Inc., Net.B@nk, Inc., and
Juniper Bank, are establishing themselves as Internet-based providers of
consumer financial products and services. We also anticipate that established
Internet participants will be attracted into the marketplace, through partnering
or co-branding arrangements with existing financial institutions. In addition,
alternative forms of payment are emerging online, such as debit cards and
micropayment offerings, which may affect the use of credit cards for online
purchases.

GOVERNMENT REGULATION

General

     NextBank is a limited purpose credit card bank chartered as a national
banking association. It is a member of the Federal Reserve System. Its deposits
are insured by the Bank Insurance Fund which is administered by the Federal
Deposit Insurance Corporation ("FDIC") and it is subject to comprehensive
regulation and periodic examination by the Office of the Comptroller of the
Currency ("OCC"), its primary regulator. It is also subject to regulation by the
Board of Governors of the Federal Reserve System ("Federal Reserve Board") and
the FDIC, as back-up regulators. NextBank is not a "bank" as defined under the
Bank Holding Company Act of 1956, as amended (the "BHCA") because it (i) engages
only in credit card operations, (ii) does not accept demand deposits or deposits
that the depositor may withdraw by check or similar means for payment to third
parties or others, (iii) does not accept any savings or time deposits of less
than $100,000, except for deposits pledged as collateral for extensions of
credit, (iv) maintains only one office that accepts deposits and (v) does not
engage in the business of making commercial loans. As a result, we are not a
bank holding company under the BHCA.

     If NextBank decided to expand its activities beyond those permissible for a
limited purpose national credit card bank, we would be required to file an
application with, and receive the prior approval of, the OCC to amend NextBank's
charter. Moreover, we would be required to file an application with, and receive
the prior approval of, the Federal Reserve Board to become a bank holding
company. If these applications were approved, NextBank could engage in the full
range of permissible banking activities and we would then become a bank holding
company under the BHCA, subject to the regulation (including minimum capital
requirements) of, and supervision by, the Federal Reserve Board. The activities
of bank holding companies are subject to statutory and regulatory limitations.
While we cannot predict, with certainty, the activities that we may in the
future engage in, we do not believe that bank holding company status would
impact materially our business, as currently conducted.

Dividends and Transfers of Funds

     There are various federal law limitations on the extent to which NextBank
can finance or otherwise supply funds to NextCard and its affiliates through
dividends, loans or otherwise. These limitations include: minimum regulatory
capital requirements (discussed below); restrictions concerning the payment of
dividends; and Sections 23A and 23B of the Federal Reserve Act governing
transactions between a bank and its affiliates.

     In general, Federal law prohibits a national bank, such as NextBank, from
making dividend distributions on common stock if the dividend would exceed
currently available undivided profits. In addition, NextBank must get OCC prior
approval for a dividend, if the total amount of all dividends (common and
preferred) would exceed current year retained net income to date combined with
retained net income from the prior two years. Also, NextBank may not make a
dividend if the distribution would cause the bank to be "undercapitalized" as
that term is defined in the OCC's capital adequacy regulations.

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     Section 23A of the Federal Reserve Act imposes various legal restrictions
on the extent to which NextCard may borrow or otherwise obtain credit from, or
engage in certain other transactions with, NextBank. In general, these
restrictions require that any such extensions of credit must be secured by
designated amounts of specified collateral and must be limited, as to any one of
NextCard or its non-bank subsidiaries, to 10% of NextBank's capital stock and
surplus, and as to us and all such non-bank subsidiaries in the aggregate, to
20% of NextBank's capital stock and surplus. Extensions of credit and other
transactions between NextBank and us must be on terms and under conditions,
including credit standards, that are substantially the same or at least as
favorable to NextBank as those prevailing at the time for comparable
transactions with non-affiliated companies.

Comptroller of the Currency

     Capital Requirements. NextBank is subject to risk-based capital guidelines
adopted by the OCC. Risk-based capital ratios are determined by allocating
assets and specified off-balance sheet commitments to several weighted
categories, with higher levels of capital being required for the categories
perceived as representing greater risk.

     Under current guidelines, institutions are required to maintain a minimum
total risk-based capital ratio (total Tier 1 and Tier 2 capital to risk-weighted
assets) of 8%, and a Tier 1 risk-based capital ratio (Tier 1 capital to
risk-weighted assets) of 4%. The OCC may, however, set higher capital
requirements when an institution's particular circumstances warrant. The OCC has
established guidelines prescribing a minimum "leverage ratio" (Tier 1 capital to
adjusted total assets as specified in the guidelines) of 3% for institutions
that meet certain criteria, including the requirement that they have the highest
regulatory rating, and a minimum of 4% for institutions that do not meet the
criteria. Institutions experiencing or anticipating significant growth are
expected to maintain capital ratios well above the minimum.

     In 2000, the federal banking regulators proposed for comment two regulatory
amendments that, if adopted as proposed, would establish new risk-based capital
requirements for recourse arrangements, direct credit substitutes, asset-backed
securities and residual interests retained by banks in securitization
transactions. If adopted as proposed, these amendments may increase the capital
requirement for credit enhancements provided by banks, and residual interests
retained by banks, in connection with the securitization of consumer loan
receivables while possibly reducing the capital requirement of senior securities
issued in such transactions. NextCard is unable at this time to assess the
impact these proposals would have on its business.

     Federal Deposit Insurance Corporation Improvement Act of 1991. The Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") expanded the
powers of federal bank regulatory authorities to take corrective action with
respect to banks that do not meet minimum capital requirements. For these
purposes, FDICIA established five capital tiers: well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized and critically
undercapitalized. Under regulations adopted by the OCC, an institution is
generally considered to be "well capitalized" if it has a total risk-based
capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 6% or
greater, and a leverage ratio of 5% or greater; "adequately capitalized" if it
has a total risk-based capital ratio of 8% or greater, a Tier 1 risk-based
capital ratio of 4% or greater and, generally, a leverage ratio of 4% or
greater; and "undercapitalized" if it does not meet any of the "adequately
capitalized" tests. An institution is deemed to be "significantly
undercapitalized" if it has a total risk-based capital ratio under 3% and
"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%.

     An "adequately capitalized" institution is permitted to accept brokered
deposits only if it receives a waiver from the FDIC and pays interest on
deposits at a rate that is not more than 75 basis points higher than the
prevailing rate in its market. Undercapitalized institutions cannot accept
brokered deposits, are subject to growth limitations and must submit a capital
restoration plan. "Significantly undercapitalized" institutions may be subject
to a number of additional requirements and restrictions. "Critically
undercapitalized" institutions are subject to appointment of a receiver or
conservator and, beginning 60 days after becoming "critically undercapitalized,"
may not make any payment of principal or interest on their subordinated debt
(subject to certain exceptions).

                                        7
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     As of December 31, 2000, NextBank was "well capitalized" in all regulatory
capital ratio categories, as set forth below.

<TABLE>
<CAPTION>
                                                 TOTAL                TIER 1                 TIER 1
                                           RISK-BASED CAPITAL   RISK-BASED CAPITAL       LEVERAGE RATIO
                                           ------------------   ------------------   ----------------------
            DECEMBER 31, 2000               AMOUNT     RATIO     AMOUNT     RATIO        AMOUNT       RATIO
            -----------------              ---------   ------   ---------   ------   --------------   -----
<S>                                        <C>         <C>      <C>         <C>      <C>              <C>
Actual...................................  $187,012    15.73%   $168,948    14.21%      $168,948      21.07%
Minimum capital adequacy.................  $ 95,082     8.00%   $ 47,541     4.00%      $ 32,072       4.00%
Minimum well-capitalized.................  $118,853    10.00%   $ 71,312     6.00%      $ 40,091       5.00%
</TABLE>

     In addition to the above capital ratios, the Office of the Comptroller of
the Currency requires that for the first three years of operation, NextBank
maintains a ratio of shareholders' equity plus the allowance for loan losses to
total managed assets at no less than 6.5%. As of December 31, 2000, NextBank was
in compliance with this capital requirement. NextBank is limited in its ability
to declare dividends to us in accordance with the national bank dividend
provisions.

     FDICIA also required federal banking agencies to revise their risk-based
capital standards to adequately address concentration of credit risk, interest
rate risk and risk arising from non-traditional activities. The OCC has
identified these risks and an institution's ability to manage them as important
factors in assessing overall capital adequacy, but has not quantified them for
use in formula-based capital calculations. The OCC has further revised its
risk-based capital rules to address market risk. Financial institutions with 10%
of total assets in trading activity, or $1 billion in trading, are required to
use internal risk measurement models to calculate their capital exposure and to
hold capital in support of that exposure. NextBank's current activities do not
subject it to the requirement of establishing internal risk measure models.

     Deposit Insurance Assessments. Under the FDIC's risk-based insurance
assessment system, each insured institution is placed in one of nine risk
categories, based on its level of capital, supervisory evaluations, and other
relevant information. The assessment rate applicable to NextBank depends in part
on the risk assessment classification assigned to it by the OCC and in part on
the Bank Insurance Fund ("BIF") assessment schedule adopted by the FDIC.
BIF-insured institutions are currently assessed premiums at an annual rate
between 0% to 0.27% of eligible deposits. NextBank is currently assessed at the
0% rate. NextBank is also subject to assessment for payment of Financing
Corporation bonds ("FICO Bonds") issued in the 1980s as part of the resolution
of the problems of the savings and loan industry. The amount assessed on
individual institutions by the FICO Bonds will be in addition to the amount, if
any, paid for deposit insurance according to the FDIC's risk-related assessment
rate schedules. FICO Bond assessment rates may be adjusted quarterly to reflect
a change in assessment base for the BIF. As of January 1, 2001, the FICO Bond
rate on BIF-assessable deposits was one-fifth the rate on Savings Association
Insurance Fund ("SAIF")-assessable deposits.

Consumer Protection Laws; Exportation of Interest Charges.

     The relationship between an issuer of credit cards and its applicants and
customers is extensively regulated by federal and state consumer protection
laws, most particularly the Truth-in-Lending Act, the Equal Credit Opportunity
Act, the Fair Credit Reporting Act, the Telemarketing and Consumer Fraud and
Abuse Prevention Act, the Electronic Funds Transfer Act, and the Fair Debt
Collection Practices Act. These statutes, as well as their enabling regulations,
among other things, impose disclosure requirements when a consumer loan is
advertised, when an application is presented, when an application is processed,
when a billing statement is prepared and when a delinquent account is presented
for collection. In addition, various statutes limit the liability of a credit
card holder for unauthorized use, prohibit discriminatory practices when
extending credit, impose limits on the types and amounts of fees and charges
that may be imposed and restrict the use of consumer credit reports and other
account-related information.

     Additionally, the Gramm-Leach-Bliley Act of 1999 ("GLBA") privacy
provisions, and the implementing regulations of the OCC, require banks to
establish a privacy policy and to disclose the policy at the start of a customer
relationship and once a year thereafter. Additionally, banks must give a
customer the opportunity to block the sharing of the customer's nonpublic
personal information with unaffiliated third parties, except in

                                        8
<PAGE>   12

certain limited circumstances. Further, banks are barred from sharing credit
card numbers, account numbers or access numbers of customers with third-party
marketers. State laws that provide a greater degree of privacy protection are
not preempted by federal law. To the extent that the GLBA privacy requirements
impact our ability to market the products and services of third parties to our
customers, our revenue could be affected. We are, however, unable to predict at
this time the scope or extent of any such impact.

     Changes in any of these laws or regulations, or in their interpretation or
application, could harm our business. Various proposals which could affect our
business have been introduced in Congress and in the various state legislatures
in recent years, including, among others, proposals relating to imposing a
statutory cap on credit card interest rates, substantially revising the laws
governing consumer bankruptcy, limiting the use of social security numbers,
restricting telemarketing activities, expanding consumer protection laws and
other regulatory restructuring proposals. It is difficult to determine whether
any of these proposals will become law and, if so, what impact they will have on
us.

     The National Bank Act authorizes national banks, such as NextBank, to
charge customers interest at the rates allowed by the laws of the state in which
the bank is located, regardless of any inconsistent law of the state in which
the bank's customers are located. NextBank relies on this ability to "export"
rates to facilitate its nationwide credit card and consumer lending businesses.
In 1996, the United States Supreme Court held that late payment fees are
"interest" and therefore can be "exported" under the National Bank Act,
deferring to the OCC's interpretation that interest includes late payment fees,
insufficient funds fees, overlimit fees and certain other fees and charges
associated with credit card accounts.

Financial Holding Companies

     Under the authority of the GLBA, in 2000 certain bank holding companies
began exercising the option to be designated as "financial holding companies." A
financial holding company is a type of bank holding company that may engage in
any activity that is financial in nature or incidental thereto, as determined by
the Board of Governors of the Federal Reserve System in consultation with the
Treasury Department. A financial holding company also may engage in activities
that are complementary to financial activities and do not pose a substantial
risk to the safety or soundness of depository institutions or the financial
system generally, as determined by the permission of the Board of Governors of
the Federal Reserve System. Permissible activities for a financial holding
company include lending, insurance and securities underwriting and insurance
agency activities. The creation of the financial holding company designation by
GLBA may increase the ability of insurance companies and securities firms to
acquire, or otherwise affiliate with, commercial banks and likely will increase
the number of competitors in the banking industry and the level of competition
for banking products, including credit cards

     We do not anticipate that the financial holding company designation will
have a material effect on our business or practices. Of course, to the extent
that the ability of bank holding companies to become financial holding companies
promotes competition or consolidation among financial service providers active
in the provision of products and services by means of the Internet, we could
experience increased competition for customers, employees and funding.

Investment in NextCard and NextBank

     Certain direct or indirect acquisitions of our, or NextBank's, capital
stock may be subject to regulatory approval or notice under federal law.
Investors are responsible for insuring that they do not directly or indirectly
acquire shares of our capital stock or NextBank in excess of the amount that can
be acquired without regulatory approval.

Interstate Taxation

     Several states have passed legislation which attempts to tax the income
from interstate financial activities, including credit cards, derived from
accounts held by local state residents. We believe that this legislation will

                                        9
<PAGE>   13

not materially affect us. Our belief is based upon the following: current
interpretations of the enforceability of legislation; prior court decisions; and
the volume of business in states that have passed legislation.

INTELLECTUAL PROPERTY

     We rely primarily on a combination of copyrights, trademarks and trade
secrets, as well as certain restrictions on disclosure, to protect our
intellectual property. We have filed several patent applications that are now
pending in the United States to protect certain proprietary systems and
applications covering the method and apparatus for credit analysis, application
approval or rejection and the presentation of multiple credit card offers. We
have received a Notice of Allowance from the U.S. Patent & Trademark Office for
one of our patent applications. In addition, we have applied to register our
trade and service marks in the United States and our United States service mark
for "NextCard" has been issued. We cannot assure you that our patent
applications or other trade or service mark registrations will be approved or
that they will provide us with any competitive advantages. We also enter into
confidentiality agreements with our employees and consultants, and seek to
control access to and distribution of our other proprietary information.

     Despite these precautions, it may be possible for a third party to copy or
otherwise obtain and use certain intellectual property without authorization.
These precautions may not prevent misappropriation or infringement of our
intellectual property. In addition, we can not assure you that we will not
infringe upon the intellectual property rights of third parties. The costs of
defending our proprietary rights or claims that we infringe third-party
proprietary rights may be high.

EMPLOYEES

     As of December 31, 2000, we employed 820 employees on a full time
equivalents basis. None of our employees are represented by a collective
bargaining agreement. We consider our relations with our employees to be good,
and we will continue to strive to provide a positive work environment for our
employees.

EXECUTIVE OFFICERS OF THE REGISTRANT

<TABLE>
<CAPTION>
           NAME             AGE                         POSITION
           ----             ---                         --------
<S>                         <C>   <C>
Jeremy R. Lent............  40    Chairman of the Board and Chief Strategy Officer
John V. Hashman...........  41    Chief Executive Officer
Yinzi Cai.................  34    President and Chief Operating Officer
Robert Linderman..........  49    General Counsel and Secretary
Bruce Rigione.............  43    Chief Financial Officer
Steve Rubinow.............  48    Chief Technology Officer
</TABLE>

     Jeremy R. Lent co-founded NextCard with his wife, Molly Lent, in June 1996
and was Chairman of the Board, Chief Executive Officer and President from
inception through March 2000, when Mr. Hashman became President. In August 2000,
Mr. Hashman became Chief Executive Officer and Mr. Lent assumed the newly
created position of Chairman and Chief Strategy Officer. From May 1991 to
January 1995, Mr. Lent served as Chief Financial Officer of Providian Bancorp, a
direct marketing credit card issuer. From 1994 to January 1995, Mr. Lent also
served as a Senior Vice President of Providian. While at Providian, Mr. Lent was
responsible for the company's planning, treasury, securitization, corporate
development and accounting functions. Mr. Lent received a B.A. and an M.A. from
Cambridge University and an M.B.A. from the University of Chicago. In October
1999, Mr. Lent was awarded the Albert Einstein Technology Medal for innovation
in technology.

     John V. Hashman has served as our Chief Executive Officer and a Director of
the Company since August 2000, and from September 2000 through January 2001 also
held the title of President. From March 2000 through August 2000, Mr. Hashman
served as our President and Chief Financial Officer. From August 1997 through
March 2000, Mr. Hashman served as our Chief Financial Officer. Prior to joining
us, Mr. Hashman worked at Providian Financial, where he served as Vice
President, Direct Telemarketing from

                                        10
<PAGE>   14

June 1995 to September 1997, Vice President, Operations from November 1993 to
June 1995 and Treasurer from November 1989 to November 1993. Mr. Hashman holds a
B.S. from Southeast Missouri State University and an M.B.A. from the University
of San Francisco.

     Yinzi Cai has served as our President and Chief Operating Officer since
January 2001. From August 2000 through January 2001, Ms. Cai was the General
Manager - Credit Card Business. From February 1999 through August 2000, Ms. Cai
was our Senior Vice President, Decision Analytics. From July 1997 to January
1999, she served as our Vice President, Decision Analytics. From July 1994 to
June 1997, Ms. Cai was a Principal in the Finance Industry Group of American
Management Systems, focusing on risk management and direct marketing strategies
for financial institutions. Ms. Cai served as a Risk Manager for GE Capital from
June 1993 to June 1994. Ms. Cai holds a B.S. from Fudan University and a M.S.
from Case Western Reserve University.

     Robert Linderman has served as our General Counsel and Secretary since
October 1997. From January 1993 to January 1996, he served as Associate General
Counsel for San Francisco Federal Savings, and from February 1996 to July 1997,
he served as General Counsel for SIFE Trust Fund. Mr. Linderman received a B.A.
and a J.D. from Boston University.

     Bruce G. Rigione has served as our Chief Financial Officer since August
2000. From July 1999 through August 2000, Mr. Rigione was our Senior Vice
President, Business Development. Mr. Rigione has been a Director since March
1997. From January 1999 to August 1999, Mr. Rigione was a private consultant.
From April 1996 to December 1998, he was a Managing Director and Global Head of
Asset Securitization for HSBC Markets, the capital markets subsidiaries of
HongKong Shanghai Banking Corporation. From November 1987 to April 1996, Mr.
Rigione was a Managing Director and Head of Securitization for Chase Securities,
Inc., a subsidiary of Chase Manhattan Bank. Mr. Rigione holds a B.A. from
Fairfield University and an M.B.A. from Columbia University.

     Steven C. Rubinow has served as our Chief Information Officer since January
2000. Prior to joining us, Dr. Rubinow worked at Adknowledge, where he served as
Chief Information Officer from June 1998 to January 2000, and at Fidelity
Investments from September 1994 to June 1998, where he served as Vice-
President, Corporate MIS. Prior to that, he held senior management positions at
Budget Rent-a-Car and The Quaker Oats Company. Dr. Rubinow holds a B.S., M.S.,
M.B.A. and Ph.D. from the University of Illinois and a M.S. from DePaul
University.

FACTORS AFFECTING FUTURE RESULTS

     If any of the following occurs, our business, financial condition or
results of operations could be materially adversely affected.

RISKS RELATED TO OUR BUSINESS

Our Limited Operating History Makes Evaluation of Our Business and Prospects
Difficult

     We were formed in June 1996. We introduced the NextCard Visa in December
1997. We have only a limited operating history on which to base an evaluation of
our business and prospects. Our business and prospects must be considered in
light of the risks, uncertainties, expenses and difficulties frequently
encountered by companies in their early stages of development, particularly
companies in new and rapidly evolving markets such as the market for Internet
products and services.

We Have a History of Losses and We Anticipate Future Losses

     We incurred net losses of $81.9 million for the year ended December 31,
2000, $77.2 million for the year ended December 31, 1999, and $16.1 million for
the year ended December 31, 1998. As of December 31, 2000, we had an accumulated
deficit of $177.0 million. To date, we have not achieved profitability and we
expect to incur net losses for at least the next year. We intend to continue to
invest significantly in marketing, operations, technology and the development of
statistical analyses. As a result, we will need to generate significant revenue
to achieve profitability. We cannot be certain that we will be able either to
maintain our

                                        11
<PAGE>   15

recent revenue growth rates or to generate adequate revenue to achieve
profitability. If we do achieve profitability, we cannot be certain that we can
sustain or increase profitability on a quarterly or annual basis in the future.
See "Selected Consolidated Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

Our Limited Operating History Makes Our Financial Forecasting Difficult

     Due to our limited operating history, we cannot forecast operating expenses
accurately based on our historical results. Accordingly, we base our forecast of
operating expenses, in part, on future revenue projections. Most of these
expenses are fixed in the short term and we may not be able to quickly reduce
spending if we achieve lower than anticipated revenue. Our ability to accurately
forecast our revenue is limited. If our revenue does not meet our internally
developed projections, our net losses will be even greater than we anticipate
and our business, operating results and financial condition may be materially
and adversely affected.

Our Unseasoned Credit Card Portfolio Makes Our Prediction of Delinquency and
Loss Levels Difficult

     As of December 31, 2000, the majority of our credit card balances were
generated in the last twelve months. As a result, we cannot accurately predict
the levels of delinquencies and losses that can be expected from our portfolio
over time. As our portfolio becomes more seasoned, the level of losses may
increase. Any material increase in delinquencies or losses above our
expectations could materially and adversely impact our results of operations and
financial condition.

We May Be Unable To Retain Customers When We Increase Their Introductory Or
Fixed Interest Rates

     To attract new customers, we have offered and may continue to offer low
introductory interest rates that increase after expiration of the introductory
period. In addition, we offer fixed rate products that may increase if customers
fail to pay their credit card bills on a timely, consistent basis. Given our
limited operating history, we do not know what percentage of our customers will
continue to use their NextCard Visa after they are repriced. If fewer customers
than we expect continue to use their NextCard Visa after they are repriced, our
results of operations could be adversely affected. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business --
Underwriting and Credit Management."

We May Encounter Difficulties Due to Our Untested Customer Base

     We target our credit card products to Internet users. To date, lenders have
not solicited this market to the same extent as more traditional market
segments. As a result, there is less historical experience with respect to the
credit risk and performance of these consumers. We may not be able to
successfully target and evaluate the creditworthiness of these consumers.
Therefore, we may encounter difficulties managing the expected delinquencies and
losses and appropriately pricing our products. In addition, we may consider
using additional internally developed criteria to enhance or replace our
existing criteria. We have limited experience developing and implementing credit
criteria. As a result, as compared to issuers targeting traditional market
segments, we could experience any or all of the following:

     - a greater number of cardholder payment defaults or other unfavorable
       payment behavior;

     - an increase in fraud by our cardholders and third parties; and

     - changes in the traditional patterns of cardholder loyalty and usage.

     In addition, because we are targeting a new customer base, we have
comparatively little information about the potential size of our target market,
our customer usage patterns and other factors that could significantly affect
the demand for our products and services. Moreover, general economic factors,
such as the rate of inflation, unemployment levels and interest rates may affect
our target market customers more severely than other market segments, which
could increase our delinquencies and losses. See "Management Discussion and
Analysis -- Asset Quality."

                                        12
<PAGE>   16

Fluctuations In Our Quarterly Revenue And Operating Results May Affect The Price
Of Our Common Stock

     Quarterly fluctuations in our earnings could adversely affect the market
price of our common stock. Our revenue consists of the finance charges paid by
our customers based on their outstanding balances, the amounts received through
the Visa system based upon a percentage of our customers' purchases and the fees
paid by our customers. As a result, we depend substantially on the level of
customer balances, the level of interest rates on our credit card portfolios,
the timing of payments of our cardholders and the volume of NextCard Visa
purchases. Variations of these factors could affect our quarterly revenue. Any
shortfall in our revenue would have a direct impact on our operating results for
a particular quarter. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

     Our quarterly operating results may fluctuate significantly as a result of
a variety of factors, many of which are outside of our control. These factors
include:

     - the volume of credit card loans generated from our products and our
       ability to successfully manage our credit card loan portfolio;

     - the announcement or introduction of new websites, services and products
       by us or our competitors and the level of price competition for the
       products and services we offer;

     - our ability to securitize credit card loan receivables and the timing of
       such securitizations;

     - the amount and timing of our operating costs and capital expenditures
       relating to the expansion of our business, operations and infrastructure;

     - technical difficulties, system downtime, Internet service problems and
       our ability to expand and upgrade our computer systems to handle
       increased traffic;

     - the success of our brand building, advertising and marketing campaigns;
       and,

     - general economic conditions, including interest rate volatility, and
       economic conditions specific to the Internet, online commerce and the
       credit card industry.

We May Be Unable To Satisfactorily Fund Our Working Capital Requirements

     If our current funding becomes insufficient to support future operating
requirements, we will need to obtain additional funding either by increasing our
lines of credit or by raising additional debt or equity from the public or
private capital markets. Given the recent price volatility of our common stock,
there can be no assurance that such additional funding will be available on
terms attractive to us, or at all. Our failure to raise additional funding when
needed could have a material adverse effect on our business, results of
operations and financial condition. The stock market in general, and the Nasdaq
National Market and technology companies in particular, have experienced extreme
price volatility that has often been unrelated or disproportionate to the
operating performance of particular companies.

We May Be Unable To Satisfactorily Fund Our Loan Portfolio

     Our primary source of funding to date has been the securitization of our
credit card loan portfolio through commercial paper conduit facilities.
Securitization transactions involve the sale of beneficial interests in credit
card loan balances. Until now, we have completed securitization transactions on
terms that we believe are favorable. The availability of securitization funding,
however, depends on the difficulty and expense of the funding. Securitizations
can be affected by many factors, such as whether a third party will be willing
to provide credit enhancement and the rates at which cardholders have repaid
their balances in the past. In addition, legal, regulatory, accounting and tax
changes can make securitization funding more difficult, more expensive or
unavailable on any terms. Securitizations may not always offer us attractive
funding, and we may have to seek other more expensive funding sources in the
future. In general, the amount, type and cost of our financing affect our
financial results. Changes within our organization and changes in the activities
of parties with which we have agreements or understandings could all make the
financings available to us more difficult, more expensive or unavailable on any
terms.

                                        13
<PAGE>   17

     Through NextBank, we fund a portion of our loan portfolio through federally
insured "jumbo" (i.e. $100,000 or greater) certificate of deposit accounts. We
may not be able to attract or retain sufficient deposits at attractive interest
rates to fund our loan portfolio through NextBank. Moreover, if adequate capital
is not available, we also may be subject to an increased level of regulatory
supervision that could have an adverse effect on our operating results and
financial condition.

Our Customers May Become Dissatisfied By System Disruptions And Failures

     Our website has in the past experienced, and may in the future experience,
slower than normal response times or other problems, such as system
unavailability. Customers may become dissatisfied by any system failure that
interrupts or delays our ability to provide our services to them. Any
interruption or delay in our operations could materially and adversely affect
our business.

     If the number of users of our website increases substantially, we will need
to significantly expand and upgrade our technology, transaction processing
systems and network infrastructure. Our website must accommodate a high volume
of users and deliver frequently updated information. The number of visitors and
credit card applicants to our website has increased substantially since we
introduced the NextCard Visa, and we anticipate that this traffic will further
increase over time. However, it is difficult to predict the future traffic on
our website. Marketing efforts and other events could cause traffic to strain
our website's capacity. We do not know whether we will be able to accurately
project the rate or timing of any traffic increases, or expand and upgrade our
systems and infrastructure to accommodate these increases in a timely manner.

     Our systems and operations also are vulnerable to damage or interruption
from human error, natural disasters, power losses, telecommunication failures,
break-ins, sabotage, computer viruses, acts of vandalism and similar events. As
we currently do not have back-up systems for most aspects of our operations, a
failure of a single aspect of our system could cause interruptions or delays in
our entire operation. We do not carry sufficient business interruption insurance
to compensate for losses that could occur.

We Depend On A Limited Number Of Vendors For Essential Services

     We rely on a number of services furnished to us by either a single vendor
or a limited number of vendors. We also depend, directly and indirectly, on
other key third party vendors to provide essential services. In the event that
any of our agreements with any of these third parties is terminated, we may not
be able to find an alternative source of support on a timely or commercially
reasonable basis, if at all. Any interruption, deterioration or termination in
these third-party services could be disruptive to our business and harm our
results of operations and financial condition.

We May Be Adversely Affected If We Fail To Attract And Retain Key Personnel

     Our success depends largely on the skills, experience and performance of
certain key members of our management. If we lose one or more of these key
employees, our business, operating results and financial condition could be
materially adversely affected. Our success also depends on our continued ability
to attract, retain and motivate highly skilled employees. Competition for
employees both for Internet-based businesses and for financial services
businesses is intense, particularly for personnel with technical training and
experience. We may be unable to retain our key employees or to attract,
assimilate or retain other highly qualified employees in the future. We have
from time to time in the past experienced, and we expect to experience in the
future, difficulty in hiring and retaining highly skilled employees with
appropriate qualifications.

We May Be Unable To Effectively Manage The Rapid Growth In Our Operations

     Since the introduction of our NextCard Visa product in December 1997, we
have experienced rapid growth in our operations. From December 31, 1997 through
December 31, 2000, we grew from approximately 18 to 820 employees, and our loans
under management increased from $0 to $1.3 billion. We are planning for
continued rapid growth of our operations. This growth requires us to expand our
marketing, customer service and support, credit and technology organizations.
There can be no assurance that we will be able to attract and
                                        14
<PAGE>   18

retain sufficient numbers of personnel to satisfy our anticipated growth. In
particular, as we rely heavily on temporary personnel to satisfy our growing
personnel demands, we may be unable to continue to attract and retain a
sufficient number of temporary employees to support our future growth. Rapid
growth places a significant strain on our financial reporting, information and
management systems and resources. Our business, results of operations and
financial condition will be materially adversely affected if we are unable to
effectively manage our expanding operations. For example, if we are unable to
maintain and scale our financial reporting and information systems, we may not
have access to adequate, accurate and timely financial information.

We May Be Unable To Successfully Develop NextCard As A Brand

     The dynamics of a brand name have traditionally worked differently in the
credit card market than in many other industries. In the credit card market,
consumers have responded more to brand names, such as Visa or MasterCard, than
to the identity of the issuer. The Internet may change underlying market
dynamics for brand recognition as compared to the offline market. Accordingly,
we are aggressively implementing our marketing plan to establish brand
recognition with Internet users to persuade customers to switch to our products
and services, particularly because we compete, or expect to compete, with larger
financial institutions that have well-established brand names. We cannot assure
you that we will successfully develop our brand name. If the brand name of
online credit card issuers becomes important, and if other credit card issuers
begin to compete with us for online brand name recognition, our business,
results of operations and financial condition could be materially and adversely
affected.

RISKS RELATED TO OUR INDUSTRY

Our Performance Will Depend On The Growth Of The Internet And Internet Commerce

     Our future success depends heavily on the overall continued growth and
acceptance of the Internet, including its use in electronic commerce. If
Internet usage or electronic commerce does not continue to grow or grows more
slowly than expected, our business, operating results and financial condition
will be adversely affected. Consumers and businesses may reject the Internet as
a viable medium for a number of reasons. These include potentially inadequate
network infrastructure, slow development of enabling technologies and
insufficient commercial support. The Internet infrastructure may not be able to
support the demands placed on it by increased Internet usage and bandwidth
requirements. In addition, delays in the development or adoption of new
standards and procedures required to handle increased levels of Internet
activity, or increased government regulation, could cause the Internet to lose
its viability as a commercial medium. Even if the required infrastructure,
standards, procedures or related products, services and facilities are
developed, we may incur substantial expenses adapting our solutions to changing
or emerging technologies.

Our Performance Will Depend On The Continued Growth Of The Financial Services
Market

     Our business would be adversely affected if the growth in Internet
financial products and services does not continue or is slower than expected.
Although we believe the Internet has the potential to transform the delivery of
consumer financial products, consumers' acceptance of recently introduced
financial products and services is at an early stage and is subject to a high
level of uncertainty. Although our long-term vision is to define and enable the
Internet consumers' transaction experience, presently we offer only a single
product, the NextCard credit card. As the online financial services industry
matures, government-imposed regulations could become so stringent that we may be
economically precluded from offering online financial products and services.

Intense And Increasing Competition In Financial Services Could Harm Our Business

     The financial services market is rapidly evolving and intensely
competitive. The Gramm-Leach-Bliley Act of 1999, which permits the affiliation
of commercial banks, insurance companies and securities firms, may increase the
level of competition in the financial services market, including the credit card
business. We operate in this competitive environment with a number of other
companies, many of whom have significantly longer operating histories, greater
name recognition, larger customer bases and significantly greater financial,

                                        15
<PAGE>   19

technical and marketing resources than we do. Some of our competitors may be
able to obtain funding at a more favorable rate than we can obtain. In addition,
our business model anticipates that we will derive a large majority of our
revenue from the interest charged on credit card balances contained in the
portfolio of loans we hold. Increased competition could require us to reduce the
interest rates we charge on our customers' balances. This could have a material
adverse effect on our business, results of operations and financial condition.

     Other credit card issuers and traditional commercial banks are increasingly
competing in the online credit card market. Existing Internet providers and new
Internet entrants may launch new websites using commercially available software.
In addition, companies that provide alternate online payment methods, such as
debit card and micropayment offerings, may compete for our business. While the
credit card market traditionally has been very fragmented, the Internet could
change traditional market dynamics and enable new competitors to rapidly acquire
significant market share.

     Our competitors may respond more quickly than we can to new or emerging
technologies and changes in customer requirements. They may be able to:

     - devote greater resources than we can to the development, promotion and
       sale of their products and services;

     - replicate our products and services;

     - engage in more extensive research and development;

     - undertake farther-reaching marketing campaigns;

     - adopt more aggressive pricing policies;

     - make more attractive offers to existing and potential employees and
       strategic partners;

     - more quickly develop new products and services or enhance existing
       products and services;

     - bundle consumer products and services in a manner that we cannot provide;
       and

     - establish cooperative relationships among themselves or with third
       parties, including large Internet participants, to increase the ability
       of their products and services to address the needs of our prospective
       customers.

     We cannot assure you that we will be able to compete successfully or that
competitive pressures will not materially and adversely affect our business,
results of operations or financial condition.

Our Operating Results Are Subject To Interest Rate Fluctuations

     The majority of our revenue is generated by the interest rates we charge on
outstanding balances in the form of finance charges, which are generally based
on prevailing interest rates. Accordingly, fluctuations in interest rates will
affect our revenue. At the same time, a significant portion of our outstanding
balances are at fixed rates and do not fluctuate with interest rate movements.
Our borrowing costs may also fluctuate based on general interest rate
fluctuations. A rise in our borrowing costs may not be met by a corresponding
increase in revenue generated by finance charges. Likewise, a decrease in
revenue generated by finance charges may not be met by a corresponding decrease
in borrowing costs. Thus, either a rise or a fall in the prevailing interest
rates could materially and adversely affect our results of operations and
financial condition. We may have to manage our interest rate risk through
interest rate hedging techniques. However, we currently do not use significant
hedging techniques, and they may not be successful in reducing or eliminating
our interest rate risk in the future.

We May Be Unable To Introduce New Services, Features And Functions

     The Internet and related financial institutions marketplaces are
characterized by rapidly changing technologies, evolving industry standards,
frequent new product and service introductions and changing customer demands.
Our future success will depend on our ability to adapt to rapidly changing
technologies and
                                        16
<PAGE>   20

to enhance existing products and services, as well as to develop and introduce a
variety of new products and services to address our customers' changing demands.
We may experience difficulties that delay or prevent the successful design,
development, introduction or marketing of our products and services. In
addition, material delays in introducing new products and services and
enhancements may cause customers to forego purchases of our products and
services and purchase instead those of our competitors.

We May Be Unable to Undertake Additional Activities Due to Governmental
Regulations

     NextBank is a limited purpose national credit card bank. If NextBank
decided to expand its activities beyond those permissible for a limited purpose
national credit card bank, we would be required to file an application with, and
receive the prior approval of, the OCC to amend NextBank's charter. Moreover, we
would be required to file an application with, and receive the prior approval
of, the Federal Reserve Board to become a bank holding company. If we did not
receive the necessary approval from the OCC and the Federal Reserve Board, we
would be unable to expand our activities beyond those permitted for a limited
purpose national credit card bank.

Security Breaches Could Damage Our Reputation And Business

     The secure transmission of confidential information over the Internet is
essential to maintain consumer and supplier confidence in our products and
services. Advances in computer capabilities, new discoveries or other
developments could result in a compromise or breach of the technology used by us
to protect customer transaction data.

     A party that is able to circumvent our security systems could steal
proprietary information or cause interruptions in our operations. Security
breaches could damage our reputation and expose us to a risk of loss or
litigation. Our insurance policies carry low coverage limits, which may not be
adequate to reimburse us for losses caused by security breaches. We cannot
guarantee that our security measures will prevent security breaches.

     Consumers generally are concerned with security and privacy on the Internet
and any publicized security problems could inhibit the growth of the Internet as
a means of conducting commercial transactions. Our ability to provide financial
services over the Internet would be severely impeded if consumers become
unwilling to transmit confidential information online. As a result, our
operations and financial condition would be materially and adversely affected.

We May Face Increased Governmental Regulation And Legal Uncertainties

     To date, communications and commerce on the Internet have not been highly
regulated. However, Congress has held hearings on whether to regulate providers
of services and transactions in the electronic commerce market. It is possible
that Congress or individual states could further enact laws regulating Internet
banking that address issues such as user privacy, pricing and the
characteristics and quality of products and services. For example, the
Gramm-Leach-Bliley Act of 1999 established new privacy requirements applicable
to all financial institutions. Any restrictions on the collection and use of
such consumer information over the Internet could adversely affect our direct
marketing efforts. In addition, several telecommunications companies have
petitioned the Federal Communications Commission to regulate Internet service
providers in a manner similar to long distance telephone carriers and to impose
access fees on these companies. This could increase the cost of transmitting
data over the Internet. Moreover, it may take years to determine the extent to
which existing laws relating to issues such as property ownership, libel and
personal privacy are applicable to the Internet. Any new laws or regulations
relating to the Internet could adversely affect our business.

     Our business is subject to extensive federal and state regulation,
including regulation under consumer protection laws. NextBank, our wholly owned
subsidiaries, is a limited purpose national credit card bank, and is subject to
regulation under federal banking laws and certain laws of California and other
states, as well as regulatory supervision by the Office of the Comptroller of
the Currency (OCC) and the FDIC. As an affiliate of NextBank, we are also
subject to oversight by the OCC and the FDIC. Existing and future legislation
and

                                        17
<PAGE>   21

regulatory supervision could have a material adverse effect on our business,
including our credit and authentication policies, pricing and products. See
"Business -- Government Regulation."

     NextBank is subject to minimum capital, funding and leverage requirements
prescribed by federal statute and the OCC regulations and orders. If NextBank
fails to meet these regulatory capital requirements, NextBank will be subject to
additional restrictions that could have a material adverse effect on our ability
to conduct normal operations and possibly result in the seizure of NextBank by
government regulators under certain circumstances. Our ability to maintain or
increase NextBank's capital levels in the future will be subject to, among other
things, general economic conditions, our ability to raise new capital and our
ability and willingness to make additional capital contributions to NextBank or
a related institution.

We May Face Difficulties Protecting And Enforcing Our Intellectual Property
Rights

     Our success and ability to compete are substantially dependent on our
proprietary technology and trademarks, which we attempt to protect through a
combination of patent, copyright, trade secret and trademark laws as well as
confidentiality procedures and contractual provisions. However, any steps we
take to protect our intellectual property may be inadequate, time consuming and
expensive. Furthermore, despite our efforts, we may be unable to prevent third
parties from infringing upon or misappropriating our intellectual property. Any
such infringement or misappropriation could have a material adverse effect on
our business, results of operations and financial condition. In addition, we may
infringe upon the intellectual property rights of third parties, including third
party rights in patents that have not yet been issued. Any such infringement, or
alleged infringement, could have a material adverse effect on our business,
results of operations and financial condition.

     We have filed three patent applications and have applied to register
several of our trademarks, both in the United States and abroad. We cannot
assure you that our patent applications or trademark registrations will be
approved. Moreover, even if approved, they may not provide us with any
competitive advantages or may be challenged by third parties. Legal standards
relating to the validity, enforceability and scope of intellectual property
rights in Internet-related industries are uncertain and still evolving, and the
future viability or value of any of our intellectual property rights is
uncertain. Any litigation surrounding such rights could force us to divert
important financial and other resources away from our business operations.

     We collect and utilize data derived from applications on the NextCard
website and through transactions made using our products. Although we believe
that we have the right to use such data and compile such data in our database,
we cannot assure you that any intellectual property protection will be available
for such information subject to any limitations related to privacy such as those
contained in the Gramm-Leach-Bliley Act. In addition, third parties may claim
rights to such information.

     We have licensed, and may license in the future, elements of our
trademarks, trade dress and similar proprietary rights to third parties. While
we attempt to ensure that the quality of our brand is maintained by such
business partners, such partners may take actions that could materially and
adversely affect the value of our proprietary rights or our reputation. This
could, in turn, have a material adverse effect on our business, results of
operations and financial condition.

We may not be able to acquire or maintain appropriate domain names

     We hold rights to various Web domain names including "nextcard.com".
Governmental agencies typically regulate domain names. These regulations are
subject to change. We may not be able to acquire or maintain appropriate domain
names in all countries in which we plan to do business. Furthermore, regulations
governing domain names may not protect our trademarks and similar proprietary
rights. We may be unable to prevent third parties from acquiring domain names
that are similar to, infringe upon or diminish the value of our trademarks and
other proprietary rights.

                                        18
<PAGE>   22

ITEM 2. PROPERTIES

     We have a five-year lease on our principal executive offices of
approximately 14,000 square feet in San Francisco, California. That lease
expires in 2003. In June 1999, we amended the five-year lease agreement to
provide for an additional 28,000 square feet located within the same building as
our current corporate headquarters in San Francisco. On March 7, 2000, we
entered into a six-year lease for approximately 100,000 square feet of office
space in Phoenix, Arizona in which we house our call center. We may renew this
lease at our option for two additional three-year periods. In addition, we
sublease approximately 17,500 square feet of office space in San Ramon,
California, where most of our operations and customer service activities are
located. That lease expires in June 2001. We have secured 40,000 square fee of
space in Livermore, California, now under construction. We expect to occupy that
space by May 2001. The entire San Ramon office will move to Livermore. Our
current facilities will not be sufficient to meet our anticipated growth. We are
currently conducting a site search for additional space. There can be no
assurance we will be able to secure such additional space.

ITEM 3. LEGAL PROCEEDINGS

     From time to time we may be involved in litigation concerning claims
arising in the ordinary course of our business. We are not presently a party to
any legal proceedings that, individually or in the aggregate would, if decided
adversely, have a material adverse impact on our business, properties or
financial condition.

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

     No matters were submitted to a vote of our shareholders during the fourth
quarter of 2000.

                                    PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

     The information required by Item 201 of Regulation S-K is set forth in the
"Summary Consolidated Quarterly Financial Information and Common Stock Price
Ranges Data" on pages 58-59.

     We have never declared or paid any cash dividends on our capital stock and
do not anticipate paying any cash dividends on our capital stock in the
foreseeable future. In addition, our credit facilities contain certain
restrictions on our ability to pay dividends.

                                        19
<PAGE>   23

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

     The selected consolidated financial data presented below for the years
ended December 31, 2000, 1999 and 1998 are derived from our consolidated
financial statements, which have been audited by Ernst & Young LLP, independent
auditors, and are included elsewhere in this Annual Report on Form 10-K. The
data set forth is qualified in its entirety by, and should be read in
conjunction with, "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and notes
thereto included elsewhere in this Annual Report on Form 10-K.

<TABLE>
<CAPTION>
                                                                  YEARS ENDED DECEMBER 31,
                                                            -------------------------------------
                                                               2000          1999         1998
                                                            -----------    ---------    ---------
                                                            (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                         <C>            <C>          <C>
STATEMENT OF OPERATIONS DATA:
Interest income...........................................  $   81,378     $ 22,054     $    502
Interest expense..........................................      37,156       10,902           62
                                                            ----------     --------     --------
  Net interest income.....................................      44,222       11,152          440
Provision for loan losses.................................      57,141       12,072           --
Non-interest income.......................................      77,312        4,506          697
Non-interest expense......................................     146,249       80,781       17,201
                                                            ----------     --------     --------
  Net loss................................................  $  (81,856)    $(77,195)    $(16,064)
                                                            ==========     ========     ========
Basic and diluted loss per common share...................  $    (1.56)    $  (2.54)    $  (5.07)
                                                            ==========     ========     ========
BALANCE SHEET DATA:
Credit Card loans receivable..............................  $  528,110     $416,315           --
Allowance for credit losses...............................  $   25,136     $ 11,500           --
Total assets..............................................  $  848,587     $662,310     $ 45,542
Deposits..................................................  $  380,248     $  3,800           --
Borrowings................................................  $  218,851     $357,359     $    504
Equity....................................................  $  200,890     $278,635     $ 39,937
OTHER DATA:
Total revenue.............................................  $  158,690     $ 26,560     $  1,199
Loans receivable -- managed...............................  $1,312,318     $416,315     $ 66,042
Total number of customer accounts -- managed..............         708          220           40
Net interest margin.......................................        6.04%        4.25%          --
Net charge-offs -- managed basis..........................  $   22,407     $  3,085     $    115
Net charge-off rate -- managed basis......................        2.62%        1.61%        0.58%
Delinquency rate (31+ days) -- managed basis..............        3.92%        1.48%        0.71%
Allowance as a percent of on balance sheet loans..........        4.76%        2.77%          --
Equity to earning assets..................................       27.95%       44.37%          --
Common Shares outstanding.................................      53,014       51,022           --
Employees.................................................         820          287          105
</TABLE>

                                        20
<PAGE>   24

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

     The following discussion should be read in conjunction with the
Consolidated Financial Statements and the notes thereto which appear elsewhere
herein. The following discussion contains forward-looking statements that
reflect our plans, estimates and beliefs. Our actual results could differ
materially from those projected in the forward-looking statements. Factors that
could cause or contribute to differences include, but are not limited to, those
discussed below and elsewhere in this annual report on Form 10-K, particularly
in "Factors Affecting Future Results."

OVERVIEW

     We are a leading Internet-based provider of consumer credit. We were the
first company to offer an online approval system for a Visa card and to provide
interactive, customized offers to credit card applicants.

     We combine expertise in consumer credit, an exclusive Internet focus and
sophisticated direct marketing techniques with the aim of attracting profitable
customer segments on the Internet. Our product, the NextCard Visa, which we call
the First True Internet Visa, is marketed to consumers through our website,
www.nextcard.com. We have entered into marketing agreements with leading
websites on the Internet. We also have marketing relationships with
Internet-based affiliates, co-branded partners and affinity groups. We were
incorporated on June 5, 1996. The NextCard Visa was first offered to the public
on December 23, 1997. In September 1999, we acquired Textron National Bank at
which time Textron converted into a national bank limited to credit card
operations, changed its name to "NextBank, N.A." and became a member of the Visa
system.

     Our profitability is affected by the net interest income and non-interest
income earned on earning assets, consumer usage patterns, credit quality, the
level of marketing expense and operating efficiency. Our revenues consist
primarily of interest income on credit card loans and cash and investments, and
non-interest income consisting of servicing income on securitized loans, fees
(such as annual membership, cash advance, interchange, overlimit, past-due and
other fee income, collectively "fees") and gains on the securitizations of
loans. Our primary expenses are the costs of funding assets, credit losses,
operating expenses (including salaries and associated benefits) and marketing
expenses.

     Our operating costs have increased significantly since our inception. This
reflects the costs associated with our formation, as well as increased efforts
to promote the NextCard brand, build market awareness, attract new customers,
recruit personnel, build operating infrastructure and develop our credit card
application system and customer servicing infrastructure.

     We have grown rapidly since launching our product in December 1997. As of
December 31, 1997, we had 18 employees and, as of December 31, 2000, we had 820
employees. From December 31, 1997 through December 31, 2000, we significantly
increased the new loans generated through our website as well as the total loans
under our management. These increases were primarily due to our application
process that allows customers to automatically transfer balances from their
other credit cards to their new NextCard Visa. From December 31, 1997 to
December 31, 2000, our managed credit card loans receivables outstanding grew
from $0 to $1.3 billion. As of December 31, 2000, we had approximately 708,000
open credit card accounts.

     Since our inception, we have incurred significant net losses. As of
December 31, 2000, we had an accumulated deficit of $177.0 million. The net
losses and accumulated deficit resulted from the significant infrastructure,
marketing, technology and other costs incurred in the development of our
NextCard Visa product. We expect to incur net losses for at least the next year.
The rate and amount at which such losses will be incurred may increase
significantly from current levels. These expected costs are related to
advertising, marketing and other promotional activities; expansion of our direct
marketing, database and testing capabilities; expansion of our product
offerings; and strategic relationship development.

                                        21
<PAGE>   25

RESULTS OF OPERATIONS

Earnings Summary

     The following discussion provides a summary of our 2000 results compared to
1999 results and our 1999 results compared to 1998 results. Each component of
these results is discussed in further detail in subsequent sections of this
analysis.

Year ended December 31, 2000, Compared to Year Ended December 31, 1999

     Net loss of $ 81.9 million, or $1.56 per share, for the year ended December
31, 2000, compares to net loss of $77.2 million, or $2.54 per shares, in 1999.
Net interest income increased $33.1 million or 297% as average interest earning
assets increased 179% and the net interest margin increased from 4.25% to 6.04%.
The provision for loan losses increased $45.1 million, or 373%, as the average
reported credit card loans increased 221% and the net charge-off rate increased
to 2.55% in 2000 from 1.43% in 1999. Non-interest income, which includes
securitization income, increased to $77.3 million in 2000, from $4.5 million in
1999 primarily due to the increase in average managed balances of 346% and the
completion of approximately $784.2 million of credit card loan securitization
transactions in 2000. Increases in marketing expenses of $6.8 million, or 27%,
and salaries and benefit expense of $32.9 million, or 151%, reflects the
increase in marketing investment and the cost of operations to manage the growth
in our customers, products and portfolio. Average managed credit card loans for
the year ended December 31, 2000 grew to $856.0 million from $191.9 million for
the year ended December 31, 1999, and total customer accounts more than tripled
for the same period, from 220,000 to 708,000, as a result of the continued
success of our marketing and account management strategies and the increased
acceptance of credit card transactions over the internet.

Year Ended December 31, 1999, Compared to Year Ended December 31, 1998

     Net loss for the year ended December 31, 1999 was $77.2 million, 380%
greater than the $16.1 million net loss for the year ended December 31, 1998 and
diluted net loss per common share for the years ended December 31, 1999 and 1998
was $2.54 and $5.07, respectively. This increase in net loss is the result of an
increase in interest expense, the provision for loan losses and non-interest
expenses. These increases were partially offset by increases in net interest
income and non-interest income. These increases are largely attributable to the
growth in average managed loans to $191.9 million for 1999 from $19.9 million in
1998.

Securitization and Financial Statement Impact

     We securitize all eligible credit card receivables through the NextCard
Master Credit Card Note Trust (the "Master Trust"). These credit card
receivables are transferred to the Master Trust, which, in turn, issues notes
representing undivided ownership interests in the assets of the Master Trust to
third party commercial paper conduits and capital market investors. At December
31, 2000, the Master Trust had $1.1 billion of principal balances outstanding.
To date, the Master Trust has issued five series of investor notes, three of
which qualified for sales treatment under Statement of Financial Accounting
Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" ("Statement No. 125").2000. As a result,
$784.2 million of qualifying receivables related to these series' transfers were
treated as sales in 2000.

     When securitizations qualify for off-balance sheet sales treatment, we
retain certain undivided ownership interests, interest-only strips and servicing
rights. Although we continue to service the underlying credit card accounts and
maintains the customer relationships, these securitized receivables are not
reflected in the consolidated balance sheet. The subordinated retained ownership
interests are included in "Due from Securitizations" in the consolidated balance
sheets which also includes amounts deposited in accounts held by the trust for
the benefit of the trust's security holders', servicing fee receivables, and
interest-only strip receivables.

                                        22
<PAGE>   26

     Investors in our securitization transactions have no recourse against us
for our customers' failure to pay their credit card loans; however, certain of
our retained interests are subordinated to the investors' interests until the
investors have been fully paid.

     Under Statement No. 125, gains are recognized at the time of each sale and
are recorded in "Securitization and Servicing Income". These gains, which
generally represent interest-only strip receivables, are based on the estimated
fair value of the retained interests which are based on the estimated present
value of the cash flows we expect to receive over the estimated life of the
receivables. These expected cash flows are dependent upon a number of estimates
including expected finance charges and late fees, servicing fees, costs of funds
paid to investors, payment rates, and credit losses.

     We service the accounts underlying the securitized receivables and earn a
monthly fee. The finance charges and fees generated by the securitized
receivables in excess of the interest paid to investors, related credit losses,
servicing fees, and other transaction expenses are referred to as "excess
servicing income." Revenue resulting from excess servicing income is recognized
each month first as a reduction of the interest-only strip receivable and then,
to the extent the amount received exceeds the related component of the interest
only strip receivable (which is recorded at present value), as securitization
income.

     The securitization income recorded by us and the measurement of our
retained interests are dependent upon management's estimates of future cash
flows. The cash flows are discounted based on the timing of when we expect to
receive the cash flows. The discount rates are based on management's estimates
of returns that would be required by investors in an investment with similar
terms and credit quality. Finance charges and fees received on the credit card
receivables are estimated based on the stated annual percentage rates in the
credit card agreements. Estimated default and payment rates are based on
historical results, adjusted for expected changes based on our credit risk
models.

     Subsequent to each sale, our retained interests are carried at estimated
fair market value with changes in fair value reported as non-interest income.
Since quoted market prices are generally not available, we estimate fair value
based on the estimated present value of future cash flows using management's
best estimates of key assumptions. Changes in any of these assumptions could
impact the fair value estimates and the realization of future cash flows.

     We allocate resources on a managed basis and financial information provided
to management reflects our results on a managed basis. Therefore, an adjustment
is required to reconcile the managed financial information to the financial
information reported in our consolidated financial statements. This adjustment
reclassifies securitization and servicing income into interest income,
interchange, other fees, interest paid to investors, credit losses, and other
trust expenses. The managed results also include the impact of sales treatment
accorded to certain securitization transactions.

<TABLE>
<CAPTION>
                                                                          YEAR ENDED
                                                                      DECEMBER 31, 2000
                                                            --------------------------------------
                                                              TOTAL      SECURITIZATION    TOTAL
                                                             MANAGED      ADJUSTMENTS      OWNED
                                                            ----------   --------------   --------
                                                                        (IN THOUSANDS)
<S>                                                         <C>          <C>              <C>
Interest income...........................................  $  123,770      $(42,392)     $ 81,378
Interest expense..........................................      60,078       (22,922)       37,156
                                                            ----------      --------      --------
Net interest income.......................................      63,692       (19,470)       44,222
Provision for loan losses.................................      65,683        (8,542)       57,141
                                                            ----------      --------      --------
Net interest income after provision for loan losses.......      (1,991)      (10,928)      (12,919)
Non-interest income.......................................      68,817         8,495        77,312
Non-interest expense......................................     148,682        (2,433)      146,249
                                                            ----------      --------      --------
Net loss..................................................  $  (81,856)     $     --      $(81,856)
                                                            ==========      ========      ========
Ending loans outstanding..................................  $1,312,318      $784,208      $528,110
                                                            ==========      ========      ========
</TABLE>

                                        23
<PAGE>   27

Managed Loan Portfolio

     Until January 12, 1999, Heritage Bank of Commerce ("Heritage") funded all
of the credit card accounts and loans originated on NextCard's website pursuant
to the Consumer Credit Card Program Agreement with Heritage. Under that
agreement, NextCard charged Heritage for origination and servicing of the
accounts and shared 50% of the resulting net profits or losses. Prior to January
12, 1999, we did not own any portion of our managed loan portfolio and therefore
no loans were reported on our balance sheet prior to that date.

     In January 1999, we terminated the Consumer Credit Card Program Agreement
and entered into an Account Origination Agreement with Heritage. We then began
purchasing credit card receivables using secured lending facilities extended to
our subsidiary, NextCard Funding Corp. Pursuant to the terms of our Account
Origination Agreement with Heritage, Heritage continued to fund newly originated
credit card receivables, which were then purchased on a daily basis by NextCard
Funding Corp. using borrowings from its secured lending facilities. The
purchased receivables were pledged as collateral for the secured lending
facilities. Heritage's obligation to establish new credit card accounts
terminated in October 1999.

     On July 15, 1999, we exercised our option to purchase (through NextCard
Funding Corp.) all remaining credit card receivables from Heritage. The acquired
credit card portfolio had $21.3 million in outstanding loan balances. We
financed the acquisition with a combination of proceeds from one of our secured
borrowing facilities and operating cash. Prior to this purchase, since Heritage
had funded and owned a portion of the managed loan portfolio, that portion of
the loan portfolio was not an asset of ours and, therefore, was not shown on our
consolidated balance sheet.

     On September 16, 1999, in connection with our acquisition of NextBank, N.A.
(discussed below), we contributed all of the issued and outstanding capital
stock of NextCard Funding Corp. to NextBank. As of that date, NextCard Funding
Corp. became a wholly owned subsidiary of NextBank, which is our wholly owned
subsidiary.

     The following table summarizes our managed loan portfolio for 2000, 1999
and 1998.

<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                             ---------------------------------
                                                                2000         1999       1998
                                                             ----------    --------    -------
                                                                      (IN THOUSANDS)
<S>                                                          <C>           <C>         <C>
YEAR END BALANCES
Credit card loans:
  On-balance sheet.........................................  $  528,110    $416,315    $    --
  Securitized..............................................     784,208          --         --
  Heritage owned...........................................          --          --     66,042
                                                             ----------    --------    -------
          Total managed loan portfolio.....................  $1,312,318    $416,315    $66,042
                                                             ==========    ========    =======
AVERAGE BALANCES
Credit card loans:
  On-balance sheet.........................................  $  553,951    $172,372    $    --
  Securitized..............................................     302,052          --         --
  Heritage owned...........................................          --      19,480     19,882
                                                             ----------    --------    -------
          Total managed loan portfolio.....................  $  856,003    $191,852    $19,882
                                                             ==========    ========    =======
</TABLE>

Risk Adjusted Revenue and Margin

     Our products are designed with the objective of maximizing revenue for the
level of risk undertaken. Management believes that comparable measures for
external analysis are the risk adjusted revenue and risk adjusted margin of the
managed portfolio. Risk adjusted revenue is defined as credit card loan
receivables interest, fee and interchange income less interest expense and net
charge-offs. Risk adjusted margin measures risk adjusted revenue as a percentage
of average managed credit card loan receivables. It considers not only the loan
yield and net interest margin, but also the fee income associated with these
products. By deducting

                                        24
<PAGE>   28

net charge-offs, consideration is given to the risk inherent in these differing
products. We market our card products to specifically targeted consumer
populations. The terms of each card product are actively managed in an effort to
maximize return at the consumer level, reflecting the risk and expected
performance of the account. For example, card product terms typically include
the ability to reprice individual accounts upwards or downwards based on the
consumer's performance. In addition, since our inception, we have aggressively
marketed low non-introductory rate cards to consumers with the best established
credit profiles to take advantage of the favorable risk characteristics of this
consumer type. Industry competitors have continuously solicited our customers
with similar interest rate strategies. Management believes the competition has
put, and will continue to put, additional pressure on our pricing strategies.

     The following table provides operating data for our managed credit card
loan portfolio (in thousands).

<TABLE>
<CAPTION>
                                                               YEAR ENDED
                                                              DECEMBER 31,
                                                                  2000
                                                              ------------
<S>                                                           <C>
MANAGED STATEMENT OF OPERATIONS:
Credit card loan receivable interest income.................    $110,942
Credit card fee income......................................      43,269
Interest expense............................................     (60,078)
Net charge-offs.............................................     (22,407)
                                                                --------
  Risk adjusted revenue.....................................    $ 71,726
                                                                ========
RATIOS:(1)
Credit card loan yield......................................       12.96%
Credit card fee income......................................        5.06%
Interest expense............................................       (7.02)%
Net charge-offs.............................................       (2.62)%
                                                                --------
  Risk adjusted margin......................................        8.38%
                                                                ========
</TABLE>

---------------
(1) As a percentage of average managed credit card loans

Net Interest Income

     Net interest income consists of interest earned on our credit card loan
portfolio, cash on deposit, and cash equivalents less interest expense on
borrowings to fund these interest earning assets.

     Reported net interest income for the year ended December 31, 2000, was
$44.2 million, compared to $11.2 million for the year ended December 31, 1999.
The increase was primarily due to a $381.6 million increase in on-balance sheet
average loans and $87.9 million increase in average cash and investments, over
the comparable period in 1999. The annualized net interest margin on average
earning assets for the year ended December 31, 2000 was 6.04% compared with
4.25% for the year ended December 31, 1999. The net interest margin in 2000 was
favorably impacted by our ability to refine our pricing for appropriate customer
segments using our Profile Based Pricing technology, the repricings of our
credit card loan portfolio due to the expiration of introductory rate periods,
and a lower cost of funds compared to 1999. The net interest margin was
negatively impacted by loan fee amortization expense related to warrants we paid
to a finance company in 1999 in connection with a financing transaction. This
loan fee is being amortized over a three-year period. The net interest spread
for the year ended December 31, 2000 was 4.29% compared with 1.44% for the year
ended December 31, 1999. The net interest spread is the annualized yield on
average interest-earning assets minus the annualized funding rate on average
interest-bearing liabilities. The net interest spread is expected to continue to
improve as the yield on our loan portfolio increases; however, there can be no
assurances that such spread will improve. Managed net interest income for the
year ended December 31, 2000 was $63.7 million, or 6.00%, and managed net
interest spread was 4.43% in 2000.

     Interest income increased by $21.6 million, from $502,000 in 1998 to $22.1
million in 1999. The increase was primarily due to a $172.4 million increase in
on balance sheet average credit card loan receivables and a

                                        25
<PAGE>   29

$78.2 million increase in average cash and cash equivalents over 1998. Interest
expense increased by $10.8 million, from $62,000 for 1998 to $10.9 million in
1999. The increase is primarily due to a $155.3 million increase in average
borrowings over 1998.

     The following table provides an analysis of interest income and expense,
net interest spread, net interest margin and average balance sheet data for the
years ended December 31, 2000 and 1999. Information for 1998 is not presented
since it would not be meaningful as we did not carry any loans on our
consolidated balance sheet until 1999.

STATEMENTS OF AVERAGE BALANCES, INCOME AND EXPENSES, YIELDS AND RATES

<TABLE>
<CAPTION>
                                               YEAR ENDED DECEMBER 31, 2000     YEAR ENDED DECEMBER 31, 1999
                                              ------------------------------    ----------------------------
                                               AVERAGE     INCOME/    YIELD/    AVERAGE    INCOME/    YIELD/
                                               BALANCE     EXPENSE     RATE     BALANCE    EXPENSE     RATE
                                              ----------   --------   ------    --------   --------   ------
                                                                      (IN THOUSANDS)
<S>                                           <C>          <C>        <C>       <C>        <C>        <C>
OWNED BASIS:
ASSETS:
Interest-Earning assets Credit card loans...  $  553,951   $ 68,878   12.43%    $172,372   $ 17,863   10.36%
  Interest-earning cash.....................     177,668     12,500    7.04%      89,746      4,191    4.67%
                                              ----------   --------             --------   --------
         Total interest-earning assets......     731,619     81,378   11.12%     262,118     22,054    8.41%
Allowance for loan losses...................     (17,782)                         (3,750)
Other assets................................     100,857                          17,549
                                              ----------                        --------
         Total assets.......................  $  814,694                        $275,917
                                              ==========                        ========
LIABILITIES AND EQUITY
Interest-bearing liabilities Borrowings.....  $  352,840     23,749    6.73%     155,508     10,900    7.01%
  Deposits..................................     190,905     13,407    7.02%         795          2    0.25%
                                              ----------   --------             --------   --------
         Total interest-bearing
           liabilities......................     543,745     37,156    6.83%     156,303     10,902    6.97%
Other liabilities...........................      31,256                          12,346
                                              ----------                        --------
         Total liabilities..................     575,001                         168,649
Equity......................................     239,693                         107,268
                                              ----------                        --------
         Total liabilities and equity.......  $  814,694                        $275,917
                                              ==========                        ========
NET INTEREST SPREAD.........................                           4.29%                           1.44%
                                                                      =====                           =====
Interest income to average interest-earning
  assets....................................                          11.12%                           8.41%
Interest expense to average interest-earning
  assets....................................                           5.08%                           4.16%
                                                                      -----                           -----
NET INTEREST MARGIN.........................                 44,222    6.04%                 11,152    4.25%
                                                                      =====                           =====
MANAGED BASIS:
Credit card loans...........................  $  856,003   $110,942   12.96%          --         --      --
         Total interest-earning assets......   1,060,733    123,770   11.67%          --         --      --
         Total interest-bearing
           liabilities......................     829,937     60,078    7.24%          --         --      --
Net interest margin.........................          --     63,692    6.00%          --         --      --
Net interest rate spread....................          --         --    4.43%          --         --      --
</TABLE>

Interest Variance Analysis

     Net interest income is affected by changes in the average interest rate
earned on earning assets and the average interest rate paid on interest-bearing
liabilities. In addition, net interest income is affected by changes in the
volume of earning assets and interest-bearing liabilities. The following table
sets forth the dollar amount

                                        26
<PAGE>   30

of the increases (decreases) in interest income and interest expense resulting
from changes in the volume of earning assets and interest-bearing liabilities
and from changes in yields and rates.

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31, 2000 VS 1999
                                                              ------------------------------------
                                                                              CHANGE DUE TO (1)
                                                                           -----------------------
                                                              INCREASE      VOLUME     YIELD/RATE
                                                              ---------    --------    -----------
                                                                         (IN THOUSANDS)
<S>                                                           <C>          <C>         <C>
Interest Income Credit card loans...........................   $51,015     $46,791       $4,224
  Interest-earning cash.....................................     8,309       5,477        2,832
                                                               -------     -------       ------
          Total interest income.............................    59,324      52,268        7,056
                                                               -------     -------       ------
Interest-Expense:
  Borrowings................................................    12,849      13,264       $ (415)
  Deposits..................................................    13,405      12,049        1,356
                                                               -------     -------       ------
          Total interest expense............................    26,254      25,313          941
                                                               -------     -------       ------
Net interest income.........................................   $33,070     $26,955       $6,115
                                                               =======     =======       ======
</TABLE>

---------------
(1) The changes in interest due to both volume and rates have been allocated in
    proportion to the relationship of the absolute dollar amounts of the change
    in each. The changes in income and expense are calculated independently for
    each line in the table.

Non-Interest Income

     Interchange and other credit card fees consist of income from the Visa
system for purchases made with the NextCard Visa and fees paid by our
cardholders, such as late fees, over-limit fees and program fees. Such reported
non-interest income for the year ended December 31, 2000, was $29.7 million
compared with $4.2 million for the year ended December 31, 1999. The significant
increase in credit card fee income in 2000 was attributable to the increase in
the credit card loan portfolio, an increase in card holder purchase volume, the
introduction of fee-based products and the new domicile of NextBank's charter.
In 2000, we began marketing fee-based products, beginning with Credit Guard, our
credit protection product. In addition to Credit Guard, the fee revenue also
increased from locating NextBank's charter to Arizona. In the second quarter of
2000, we moved the NextBank charter and brought the credit card fees we charge
our customers more in line with the rest of the industry. Interchange and other
credit card fees may be expected to continue to increase in the future as the
credit card portfolio grows.

     As discussed more fully above in "Securitization and Financial Statement
Impact," interchange and other credit card fees associated with loans which have
been sold are no longer reported as "Interchange and credit card fees" but
instead are now reported as part of "Securitization Income." In addition,
interest income generated by these securitized loans in excess of the interest
paid to investors, related credit losses, servicing fees, and other transaction
expenses are also reported as part of "Securitization Income". Securitization
income in 2000 totaled $47.6 million and includes a gain on sale for $25.5
million from securitization activities during the year ended December 31, 2000
related to the sale of $784.2 million of credit card loans receivables.

     Non-interest income increased by $3.8 million, from $697,000 for 1998 to
$4.5 million in 1999. This increase relates to approximately $2.6 million of
interchange fees and $1.4 million of other credit card fees we recognized in
1999 related to our on balance sheet portfolio. As previously discussed, prior
to 1999, all credit card loan receivables generated under the NextCard Visa were
outstanding only on Heritage's balance sheet; accordingly, we did not recognize
any interchange or other credit card fee income. Non-interest income of $697,000
in 1998 consisted only of origination and servicing fees and our share of
profits derived from our agreement with Heritage. Such income in 1999 decreased
to $340,000.

     On July 15, 1999, we exercised our option to purchase all remaining credit
card receivables from Heritage; as a result, servicing and profit-and-loss
sharing income, consisting of amounts arising under the Consumer Credit Card
Program Agreement with Heritage Bank decreased by $322,000, from $662,000 for
the year ended December 31, 1998 to $340,000 for the year ended December 31,
1999.
                                        27
<PAGE>   31

Non-Interest Expenses

     Non-interest expenses consist primarily of salaries and employee benefits,
occupancy and equipment, professional fees, marketing, and credit card
activation and servicing costs. Credit card activation costs include printing,
postage, loan processing and credit bureau costs paid to third parties in
connection with account origination. We also incur advertising costs to promote
the NextCard Visa on the Internet. Some of these Internet advertising costs are
paid only if a customer is approved for a NextCard Visa. In accordance with
generally accepted accounting principals, we capitalized only the direct loan
origination costs associated with successful account acquisition effort.
Capitalized loan origination costs are amortized over one year as an adjustment
to credit card loan interest income.

     Total non-interest expenses for the years ended December 31, 2000, 1999 and
1998 were $146.2 million, $80.8 million, and $17.2 million, respectively. These
increases were primarily due to higher employee compensation, credit card
activation and servicing costs and marketing expenses. Employee compensation
increased due to staffing needs to support the increase in credit card accounts
and other functions, including employees recently hired in our new Phoenix,
Arizona call center. The number of employees at December 31, 2000, 1999 and 1998
was 820, 287 and 105, respectively. In addition, the amortization of deferred
stock compensation, which represents the difference between the exercise price
of certain stock option grants and the deemed fair value of our common stock at
the time of the grants, for the years ended December 31, 2000, 1999 and 1998,
was $5.0 million, $10.0 million and $1.8 million, respectively. At December 31,
2000, $2.0 million of deferred stock compensation was unamortized. This
amortization expense will continue to decrease over time. The increase in credit
card activation and servicing costs was largely due to an increase in the number
of credit card accounts, transaction volumes and loan balances.

     The increase in other expenses is primarily due to increased fraud losses
on credit card loan receivables, which is expected with the increase in the
credit card loan portfolio; the write-down of one of our equity investments to
fair value; and general growth in the business and the building of an
infrastructure to support this growth.

ASSET QUALITY

     Our delinquency and net loan charge-off rates reflect, among other factors,
the credit risk of loans, the average age of our credit card account portfolio,
the success of our collection and recovery efforts and general economic
conditions. Additionally, the credit risk of the loans is affected by the
underwriting criteria we utilize to approve customers. Also, the average age of
our credit card portfolio affects the level and stability of delinquency and
loss rates of the portfolio. We continue to focus our resources on refining our
credit underwriting standards for new accounts, as well as on collections and
post charge-off recovery efforts, to minimize net losses. At December 31, 2000,
the majority of our loan portfolio was less than twelve months old. Accordingly,
we believe that our loan portfolio will experience increasing or fluctuating
levels of delinquency and loan losses as the average age of our accounts and
balances increases.

     For the year ended December 31, 2000, our managed net charge-off ratio was
2.62% compared to 1.61% for the year ended December 31, 1999. We believe, based
on our statistical models and other credit analyses, that this rate may continue
to fluctuate but will generally rise over the next year as our portfolio ages
and becomes more seasoned.

     Our primary strategy for managing loan losses is the development and
refinement of underwriting criteria and credit scoring algorithms to assess the
creditworthiness of new customers and provide conservative customer credit line
assignments. Under these strategies, interest rates and credit line assignments
are established for each credit card account based on its perceived risk
profile. Individual accounts and their related credit lines are also continually
managed using various marketing, credit and other management processes in order
to continue to maximize the profitability of accounts. In addition, we monitor
credit lines closely; and our collections department, as well as the use of
outside parties, pursue collections from delinquent customers.

                                        28
<PAGE>   32

Delinquencies

     A credit card account is contractually delinquent if the minimum payment is
not received by the specified date on the cardholder's statement. It is our
policy to continue to accrue interest and fee income on all credit card
accounts, except in limited circumstances, until the account and all related
loans, interest and other fees are charged-off. Credit card loans are generally
charged off when the loan becomes contractually past due for 180 days, with the
exception of bankrupt accounts, which are charged off no later than 60 days
after formal notification of bankruptcy. Total 31+ day delinquencies on managed
loans increased to 3.92% as of December 31 2000 from 1.48% as of December 31,
1999. This increase reflects the continued seasoning of our loan portfolio. The
following table presents the delinquency trends of our credit card loan
portfolio on a managed portfolio basis in 2000, 1999 and 1998.

<TABLE>
<CAPTION>
                                                            DECEMBER 31, 2000        DECEMBER 31, 1999      DECEMBER 31, 1998
                                                         -----------------------   ---------------------   --------------------
                                                           LOANS      % OF TOTAL    LOANS     % OF TOTAL    LOANS    % OF TOTAL
                                                         ----------   ----------   --------   ----------   -------   ----------
                                                                                      (IN THOUSANDS)
<S>                                                      <C>          <C>          <C>        <C>          <C>       <C>
Managed loan portfolio.................................  $1,312,318    100.00%     $416,315    100.00%     $66,042    100.00%
Loans delinquent:
  31 -- 60 days........................................      18,858      1.44%        2,620      0.63%         256      0.39%
  61 -- 90 days........................................      13,401      1.02%        1,692      0.41%         131      0.20%
  91 or more...........................................      19,148      1.46%        1,844      0.44%          80      0.12%
                                                         ----------     ------     --------     ------     -------     ------
        Total..........................................  $   51,407      3.92%     $  6,156      1.48%     $   467      0.71%
                                                         ==========     ======     ========     ======     =======     ======
</TABLE>

Net charge-offs

     Net charge-offs include the principal amount of losses from cardholders
unwilling or unable to pay their loan balances, as well as bankrupt and deceased
cardholders, less current period recoveries. Net charge-offs exclude finance
charges and fees, which are charged against the related income at the time of
charge-off. Losses from new account fraud and fraudulent cardholder activity are
included in non-interest expense.

     The following table presents our net charge-offs for the periods indicated
as reported in the consolidated financial statements and on a managed portfolio
basis.

<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                              -------------------------------
                                                                2000        1999       1998
                                                              --------    --------    -------
                                                                      (IN THOUSANDS)
<S>                                                           <C>         <C>         <C>
ON-BALANCE SHEET:
  Average loans outstanding.................................  $553,951    $172,372    $    --
  Net charge-offs...........................................    14,152       2,472         --
  Net charge-offs as a percentage of average loans
     outstanding............................................     2.55%       1.43%         --
MANAGED:
  Average loans outstanding.................................  $856,003    $191,852    $19,882
  Net charge-offs...........................................    22,407       3,085        115
  Net charge-offs as a percentage of average loans
     outstanding............................................     2.62%       1.61%      0.58%
</TABLE>

     As our credit card loan portfolio continues to grow and season, we expect
that net loan losses will increase, delinquency levels may fluctuate and
increase and the ratio of the allowance for loan losses to on-balance sheet
credit card loans outstanding will increase. We will continue to monitor
delinquency amounts and actual loan losses, and will adjust our allowance for
loan losses accordingly.

Provision and Allowance for Loan Losses

     The allowance for loan losses is maintained for on-balance sheet loans.
Provisions for loan losses are made in amounts necessary to maintain the
allowance at a level estimated to be sufficient to absorb probable losses
inherent in the existing on-balance sheet loan portfolio. For loans maintained
on Heritage's balance sheet until July 1999, anticipated losses and related
reserves were reflected in the calculations of the servicing and profit-and-loss
sharing income from Heritage.

                                        29
<PAGE>   33

     The provision for loan losses for on-balance sheet loans for the years
ended December 31, 2000 and 1999, totaled $57.1 million and $12.1 million,
respectively. We anticipate that the provision for loan losses will increase as
the credit card loan portfolio continues to increase and season. The following
table presents the changes in our allowance for loan losses for 2000 and 1999
(in thousands):

<TABLE>
<CAPTION>
                                                    YEARS ENDED DECEMBER 31,
                                                    ------------------------
                                                       2000          1999
                                                    ----------    ----------
<S>                                                 <C>           <C>
Balance at beginning of year......................  $  11,500     $      --
Provision for loan losses.........................     57,141        12,072
Allowance acquired................................         --         1,900
Allowance related to loans securitized/sold.......    (29,353)           --
Charge-offs.......................................    (14,712)       (2,518)
Recoveries........................................        560            46
                                                    ---------     ---------
Balance at end of year............................  $  25,136     $  11,500
                                                    =========     =========
Ending allowance as a percentage of loans.........       4.76%         2.77%
                                                    =========     =========
</TABLE>

     We believe the allowance for loan losses is adequate to cover probable
losses in the loan portfolio using the best available information to us at
year-end. However, there can be no assurances as to the future credit losses
that may be incurred in connection with our loan portfolio, nor can there be any
assurances that the allowance for loan losses that has been established will be
sufficient to absorb such expected loan losses. We continually monitor the
allowance for loan losses and make additional provisions to the allowance as
additional information become available.

Provision for Income Taxes

     We have had a net loss for each period since inception. As of December 31,
2000, we had approximately $140.0 million and $80.0 million of net operating
loss carryforwards for federal and state income tax purposes, respectively. The
federal net operating loss carryforwards will start expiring in 2012 and the
state net operating loss carryforwards will start expiring in 2004. Because of
uncertainty regarding realizability, we have provided a full valuation allowance
on our deferred tax assets consisting primarily of net operating loss
carryforwards. See Note 15 of notes to the Consolidated Financial Statements.

Funding, Liquidity and Capital Resources

     We finance the growth of our credit card portfolio though third-party
commercial paper conduit facilities, term asset securitizations, subsidiary bank
deposits, bank loans, and equity issuances.

     Until January 12, 1999, Heritage funded all of the credit card accounts and
loans originated through NextCard's website. Beginning in January 1999, we began
purchasing such credit card receivables from Heritage. Until May 21, 1999, we
utilized a $100.0 million secured borrowing facility extended to our financing
subsidiary, NextCard Funding Corporation, by Credit Suisse First Boston ("Credit
Suisse") to fund the majority of those receivables. On May 21, 1999, we obtained
a $300.0 million (subsequently increased to $450.0 million in 2000) commercial
paper conduit facility through Barclays Bank PLC ("Barclays") and began
utilizing this facility to purchase credit card receivables. Borrowings under
this facility are secured by the purchased receivables. We also used a portion
of the Barclays facility to pay off the $87.8 million balance then outstanding
under the Credit Suisse facility.

     In addition to the Barclay's facility, we have three other third-party
commercial paper conduits provided by ING Barings (U.S.) Capital Markets LLC for
$150.0 million, First Union Securities, Inc. for $220.0 million and Chase
Securities, Inc. for $150.0 million. We have the ability to fund new receivables
during the revolving periods of these conduit arrangements. After the revolving
period, we will use principal collections generated by its receivables to pay
the principal amount outstanding under these conduits. The revolving period ends
in June 2001 for the Barclay's facility, January 2002 for the ING Baring's
facility, February 2003 for the First Union facility and August 2001 for the
Chase Securities facility. The occurrence of certain events

                                        30
<PAGE>   34

may cause the securitization transactions to amortize earlier than scheduled,
which would accelerate the need for funding. As of December 31, 1999, $300.0
million and $46.0 million was outstanding under the Barclay's and First Union
facilities, respectively. In 2000, these facilities qualified for off-balance
sheet sales treatment; as a result, borrowings under these facilities are no
longer considered our obligation. As of December 31, 2000, 60% of our total
managed loans were securitized through off-balance sheet securitizations.

     In December 2000, we completed our first private placement term
securitization transaction in the amount of $500.0 million. We retained $17.5
million of notes, which are subordinated to the $482.5 million of notes sold to
institutional investors from all major global markets. In March 2001, we sold
the $17.5 million of retained notes, at face value, in a second private
placement transaction with other institutional investors. The banking
regulators' risk-based capital regulations require an institution securitizing
loans to hold certain levels of capital against the subordinated pieces retained
by the institution. As a result of the above-described $17.5 million sales,
NextBank will be required to hold less capital against these sold loans than
would otherwise be required and allows NextBank the increased ability to grow
without the need for additional capital. In addition, these transactions are
evidence of our success in diversifying our funding sources to include fixed
income securities along with conduit relationships and bank deposits.

     The weighted average rate paid on borrowed funds through these conduit
facilities was 6.73% and 7.01% for the years ended December 31, 2000 and 1999,
respectively, and was based on the rate at which the conduit provider issues
commercial paper. Interest is payable monthly. We did not enter into any conduit
facilities during 1998.

     We are in discussions with financial institutions related to establishing
additional borrowing facilities to fund the origination of credit card loan
receivables. Such new or increased facilities would increase our capacity to
originate credit card loan receivables. We cannot be sure that any new or
expanded facility will be established. If we establish and draw upon such a
facility which does not qualify for sales treatment, our aggregate borrowings
will increase.

     In September 1999, NextBank began accepting time deposits with terms
ranging from three months to two years. These time certificates of deposit are
in amounts of $100,000 or more and totaled $380.2 million as of December 31,
2000. Of these deposits, $350.2 million mature in 2001 and the remaining
deposits mature in 2002.

     We expect that our existing capital resources will adequately satisfy our
working capital requirements for the next 12 months, except for the funding of
our loan portfolio. Future working capital requirements, however, depend on many
factors, including our ability to execute on our business plan. If our current
funding becomes insufficient to support future operating requirements, we will
need to obtain additional funding either by increasing our lines of credit or by
raising additional deposits, debt or equity from the public or private capital
markets. Such funding alternatives if available at all, may be on terms that are
not favorable to us. Failure by us to raise additional capital or additional
funding when needed could have a material adverse effect on our business,
results of operations and financial condition.

     Our ability to grow our business is limited by the amount of credit we can
extend to our customers and potential customers. Although our credit facilities
are sufficient to fund our current loan portfolio, they are not sufficient to
cover our anticipated loan portfolio over the next 12 months. Therefore, any
loss of funding under our credit facilities or failure to increase or extend the
terms of our credit facilities or obtain alternative financing on commercially
reasonable terms would have a material adverse effect on our results of
operations and financial condition.

RECENT ACCOUNTING PRONOUNCEMENTS

     See Notes to the Consolidated financial statements included elsewhere in
this Annual Report on Form 10-K.

                                        31
<PAGE>   35

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Market risk is the risk of loss from adverse changes in market prices and
rates. Our principal market risk is changes in interest rates. This affects us
directly in our lending and borrowing activities, as well as indirectly as
interest rates may impact card usage and the payment performance of our
cardholders.

     The majority of our revenue is generated by the interest rates we charge on
outstanding loan receivable balances in the form of finance charges. Our
receivables generally yield either a variable interest rate indexed to the prime
rate, or a fixed interest rate, set independently of market interest rates.
Accordingly, fluctuations in interest rates will affect our revenue. At the same
time, our borrowing costs under our commercial paper conduit facilities and term
securitization transactions are generally indexed to variable commercial paper
rates or the London Interbank Offered Rate ("LIBOR"), and may also fluctuate
based on general interest rate fluctuations. A rise in our borrowing costs may
not be met by a corresponding increase in revenues generated by finance charges.
Likewise, a decrease in revenues generated by finance charges may not be met by
a corresponding decrease in borrowing costs. Thus, either a rise or a fall in
the prevailing interest rates could materially and adversely affect our results
of operations and financial condition.

     To manage our direct risk to market interest rates, management actively
monitors the interest rates and the interest sensitive components of our balance
sheet to minimize the impact changes in interest rates have on the fair value of
assets, liabilities, net income and cash flow. Management seeks to minimize the
impact of changes in interest rates on us primarily by matching assets and
liability repricings and secondarily by entering into interest rate caps. For
instance, a significant portion of our outstanding loan receivable balances
yield a variable annual percentage rate indexed to the prime rate. These loans
provide a natural hedge against our variable rate conduit facilities.

     Our fixed interest rate loan receivables have no stated maturity or
repricing period. However, we generally have the right to increase rates when
the customer fails to comply with the terms of the account agreement. In
addition, we may reprice our credit card receivables upon providing the required
prior notice to the customer, which is generally no more than 30 days.

     The approach we use to quantify interest rate risk is a sensitivity
analysis, which we believe best reflects the risk inherent in our business. This
approach calculates the impact on net income from an instantaneous and sustained
change in interest rates by 200 basis points. Assuming no counteractive measures
by management, a 200 basis point increase in interest rates affecting our
floating rate financial instruments, including both debt obligations and loans,
will result in an increase in net income of approximately $500,000 relative to a
base case over the next 12 months; while a decrease of 200 basis points will
result in a reduction in net income of approximately $500,000. Our use of this
methodology to quantify the market risk of financial instruments should not be
construed as an endorsement of its accuracy or the accuracy of the related
assumptions. In addition, this methodology does not take into account the
indirect impact interest rates may have on the payment performance of our
cardholders. The quantitative information about market risk is necessarily
limited because it does not take into account operating transactions or other
costs associated with managing immediate changes in interest rates.

                                        32
<PAGE>   36

ITEM 8. CONSOLIDATE FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                        NEXTCARD, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                              DECEMBER 31,   DECEMBER 31,
                                                                  2000           1999
                                                              ------------   ------------
                                                                    (IN THOUSANDS)
<S>                                                           <C>            <C>
ASSETS
Cash and cash equivalents...................................    $151,850       $189,178
Cash and cash equivalents, restricted.......................      38,876         31,811
Credit card loans receivable................................     528,110        416,315
Allowance for loan losses...................................     (25,136)       (11,500)
                                                                --------       --------
  Net loans.................................................     502,974        404,815
Interest receivable.........................................       7,546          2,160
Equipment and leasehold improvements, net...................      19,414          8,385
Due from securitizations....................................      75,857             --
Prepaid and other assets....................................      52,070         25,961
                                                                --------       --------
          Total assets......................................    $848,587       $662,310
                                                                ========       ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
  Deposits..................................................     380,248          3,800
  Accounts payable..........................................      10,558          7,962
  Accrued expenses and other liabilities....................      38,040         14,554
  Other borrowings..........................................       4,117         11,359
  Secured borrowings........................................     214,734        346,000
                                                                --------       --------
          Total liabilities.................................     647,697        383,675
                                                                --------       --------
Shareholders' equity:
  Common stock, par value $.001 per share (authorized:
     87,433 shares; issued and outstanding: December 31,
     2000 -- 53,373 shares; December 31, 1999 -- 51,022
     shares)................................................          53             51
  Additional paid-in capital................................     382,573        385,732
  Deferred stock compensation...............................      (2,006)       (12,003)
  Accumulated deficit.......................................    (177,001)       (95,145)
  Treasury stock, at cost (December 31, 2000 -- 359
     shares)................................................      (2,729)            --
                                                                --------       --------
          Total shareholders' equity........................     200,890        278,635
                                                                --------       --------
          Total liabilities and shareholders' equity........    $848,587       $662,310
                                                                ========       ========
</TABLE>

                See notes to consolidated financial statements.
                                        33
<PAGE>   37

                        NEXTCARD, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                     YEARS ENDED DECEMBER 31,
                                                              ---------------------------------------
                                                                 2000          1999          1998
                                                              -----------   -----------   -----------
                                                               (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                           <C>           <C>           <C>
Interest income:
  Credit card loans.........................................   $ 68,878      $ 17,863      $     --
  Cash and investments......................................     12,500         4,191           502
                                                               --------      --------      --------
          Total interest income.............................     81,378        22,054           502
                                                               --------      --------      --------
Interest expense:
  Borrowings................................................     23,749        10,900            62
  Deposits..................................................     13,407             2            --
                                                               --------      --------      --------
          Total interest expense............................     37,156        10,902            62
                                                               --------      --------      --------
Net interest income.........................................     44,222        11,152           440
Provision for loan losses...................................     57,141        12,072            --
                                                               --------      --------      --------
  Net interest (loss) income after provision for loan
     losses.................................................    (12,919)         (920)          440
                                                               --------      --------      --------
Non-interest income:
  Interchange fee...........................................      9,312         2,630            --
  Credit card fees and other................................     20,366         1,536            35
  Securitization income.....................................     47,634            --            --
  Servicing and profit and loss sharing.....................         --           340           662
                                                               --------      --------      --------
          Total non-interest income.........................     77,312         4,506           697
                                                               --------      --------      --------
Non-interest expenses:
  Salaries and employee benefits............................     54,794        21,854         6,730
  Marketing, advertising and branding.......................     31,424        24,649         4,324
  Credit card activation and servicing costs................     19,680        11,438         2,328
  Occupancy and equipment...................................     10,841         4,232           958
  Professional fees.........................................      4,282         1,923           520
  Amortization of deferred stock compensation...............      4,971        10,028         1,800
  Amortization of loan structuring fee......................      2,677         3,706            --
  Other.....................................................     17,580         2,951           541
                                                               --------      --------      --------
          Total non-interest expenses.......................    146,249        80,781        17,201
                                                               --------      --------      --------
Net loss....................................................   $(81,856)     $(77,195)     $(16,064)
                                                               ========      ========      ========
Basic and diluted net loss per common share.................   $  (1.56)     $  (2.54)     $  (5.07)
                                                               ========      ========      ========
Weighted average common shares used in net loss per common
  share calculation.........................................     52,570        30,399         3,166
                                                               ========      ========      ========
</TABLE>

                See notes to consolidated financial statements.
                                        34
<PAGE>   38

                        NEXTCARD, INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                       CONVERTIBLE
                                        PREFERRED
                                     STOCK SERIES A-D     COMMON STOCK                    DEFERRED
                                     ----------------   ----------------   ADDITIONAL      STOCK       ACCUMULATED
                                     SHARES    AMOUNT   SHARES    AMOUNT    PAID-IN     COMPENSATION     DEFICIT
                                     -------   ------   -------   ------   ----------   ------------   -----------
                                                                    (IN THOUSANDS)
<S>                                  <C>       <C>      <C>       <C>      <C>          <C>            <C>
Balances at December 31, 1997......    9,110    $  9      4,895    $ 5      $  4,659            --      $  (1,886)
Issuance of convertible preferred
  stock Series C...................    9,133       9         --     --        11,662            --             --
Issuance of convertible preferred
  stock Series D...................   14,404      15         --     --        38,351            --             --
Issuance of common stock upon
  exercise of stock options........       --      --         37     --             2            --             --
Issuance of preferred stock
  warrants.........................       --      --         --     --         1,375            --             --
Return of convertible preferred
  stock Series A in settlement of
  notes receivable.................      (21)     --         --     --            --            --             --
Deferred stock compensation........       --      --         --     --         7,800        (7,800)            --
Amortization for deferred stock
  compensation.....................       --      --         --     --            --         1,800             --
Net loss...........................       --      --         --     --            --            --        (16,064)
                                     -------    ----    -------    ---      --------      --------      ---------
Balances at December 31, 1998......   32,626      33      4,932      5        63,849        (6,000)       (17,950)
Issuance of common stock upon
  exercise of stock options and
  warrants.........................       --      --      2,064      2           678            --             --
Issuance of common stock from IPO,
  net of expenses..................       --      --      6,900      7       126,969            --             --
Issuance of common stock from
  secondary offering, net of
  expenses.........................       --      --      4,500      4       153,001            --             --
Issuance of stock warrants.........       --      --         --     --        25,191            --             --
Conversion of preferred stock to
  common stock.....................  (32,626)    (33)    32,626     33            --            --             --
Deferred stock compensation........       --      --         --     --        16,031       (16,031)            --
Amortization for deferred stock
  compensation.....................       --      --         --     --            --        10,028             --
Settlement of note receivable......       --      --         --     --            13            --             --
Net loss...........................       --      --         --     --            --            --        (77,195)
                                     -------    ----    -------    ---      --------      --------      ---------
Balances at December 31, 1999......       --      --     51,022     51       385,732       (12,003)       (95,145)
Issuance of common stock upon
  exercise of stock options and
  warrants.........................       --      --      2,351      2         1,854            --             --
Deferred stock compensation........       --      --         --     --        (5,026)        5,026             --
Amortization for deferred stock
  compensation.....................       --      --         --     --            --         4,971             --
Settlement of note receivable......       --      --         --     --            13            --             --
Purchase of common shares for
  treasury.........................       --      --         --     --            --            --             --
Net loss...........................       --      --         --     --            --            --        (81,856)
                                     -------    ----    -------    ---      --------      --------      ---------
Balances at December 31, 2000......       --    $ --     53,373    $53      $382,573      $ (2,006)     $(177,001)
                                     =======    ====    =======    ===      ========      ========      =========

<CAPTION>

                                                    TOTAL
                                     TREASURY   SHAREHOLDERS'
                                      STOCK        EQUITY
                                     --------   -------------
                                          (IN THOUSANDS)
<S>                                  <C>        <C>
Balances at December 31, 1997......       --    $       2,787
Issuance of convertible preferred
  stock Series C...................       --           11,671
Issuance of convertible preferred
  stock Series D...................       --           38,366
Issuance of common stock upon
  exercise of stock options........       --                2
Issuance of preferred stock
  warrants.........................       --            1,375
Return of convertible preferred
  stock Series A in settlement of
  notes receivable.................       --               --
Deferred stock compensation........       --               --
Amortization for deferred stock
  compensation.....................       --            1,800
Net loss...........................       --          (16,064)
                                     -------    -------------
Balances at December 31, 1998......       --           39,937
Issuance of common stock upon
  exercise of stock options and
  warrants.........................       --              680
Issuance of common stock from IPO,
  net of expenses..................       --          126,976
Issuance of common stock from
  secondary offering, net of
  expenses.........................       --          153,005
Issuance of stock warrants.........       --           25,191
Conversion of preferred stock to
  common stock.....................       --               --
Deferred stock compensation........       --               --
Amortization for deferred stock
  compensation.....................       --           10,028
Settlement of note receivable......       --               13
Net loss...........................       --          (77,195)
                                     -------    -------------
Balances at December 31, 1999......       --          278,635
Issuance of common stock upon
  exercise of stock options and
  warrants.........................       --            1,856
Deferred stock compensation........       --               --
Amortization for deferred stock
  compensation.....................       --            4,971
Settlement of note receivable......       --               13
Purchase of common shares for
  treasury.........................   (2,729)          (2,729)
Net loss...........................       --          (81,856)
                                     -------    -------------
Balances at December 31, 2000......  $(2,729)   $     200,890
                                     =======    =============
</TABLE>

                See notes to consolidated financial statements.

                                        35
<PAGE>   39

                        NEXTCARD, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                              ------------------------------
                                                                2000       1999       1998
                                                              --------   --------   --------
                                                                      (IN THOUSANDS)
<S>                                                           <C>        <C>        <C>
OPERATING ACTIVITIES:
Net loss....................................................  $(81,856)  $(77,195)  $(16,064)
Adjustments to net loss to arrive at cash used in operating
  activities:
  Provision for loan losses.................................    57,141     12,072         --
  Deprecation and amortization..............................    10,826      5,497        252
  Amortization of deferred stock compensation...............     4,971     10,028      1,800
  Securitization gains......................................   (25,548)        --         --
  Change in operating assets and liabilities:
    Increase in restricted cash and cash equivalents........    (7,065)   (31,811)        --
    Increase in accounts payable............................     2,596      4,596      3,231
    Increase in accrued expenses and other liabilities......    20,793     12,836        969
    Increase in prepaid and other assets....................   (31,589)   (18,396)    (1,377)
                                                              --------   --------   --------
Net cash used in operating activities.......................   (49,731)   (82,373)   (11,189)
                                                              --------   --------   --------
INVESTING ACTIVITIES:
Net loan originations.......................................  (915,913)  (397,363)        --
Proceeds from loan securitizations..........................   784,208         --         --
Increase in amounts due from securitization.................   (79,661)
Loan portfolio acquisition..................................        --    (22,240)        --
Acquisition of Textron National Bank, net of cash
  acquired..................................................        --     (4,459)        --
Purchase of equipment and leasehold improvements............   (16,080)    (7,809)    (2,060)
                                                              --------   --------   --------
Net cash used in investing activities.......................  (227,446)  (431,871)    (2,060)
                                                              --------   --------   --------
FINANCING ACTIVITIES:
Net change in deposits......................................   376,448      3,259         --
Net change in secured borrowings............................  (131,266)   346,000         --
Proceeds from other borrowings..............................        --     11,689        545
Payments made on other borrowings...........................    (7,242)      (834)       (41)
Proceeds from issuance of convertible preferred stock.......        --         --     50,037
Proceeds from issuance of common stock......................     1,896    280,661          2
Proceeds from settlement of notes receivable................        13         13         --
Proceeds from sale of common stock warrants.................        --     22,500         --
                                                              --------   --------   --------
Net cash provided by financing activities...................   239,849    663,288     50,543
                                                              --------   --------   --------
Net (decrease) increase in cash and cash equivalents........   (37,328)   149,044     37,294
Cash and cash equivalents at the beginning of the year......   189,178     40,134      2,840
                                                              --------   --------   --------
Cash and cash equivalents at the end of the year............  $151,850   $189,178   $ 40,134
                                                              ========   ========   ========
SUPPLEMENTAL DISCLOSURES:
  Cash paid during the period for interest..................  $ 39,203   $  9,314   $     23
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING
  ACTIVITIES:
  Unearned stock based compensation.........................  $ (5,026)  $ 16,031   $  7,800
  Purchase of treasury stock for note payable...............  $  2,729   $     --   $     --
  Issuance of preferred stock warrants for loan
    structuring/origination fee.............................  $     --   $  2,691   $  1,375
  Return of convertible preferred stock Series A............  $     --   $     --   $     (9)
  Issuance of convertible preferred stock Series C..........  $     --   $     --   $ 11,671
</TABLE>

                See notes to consolidated financial statements.
                                        36
<PAGE>   40

                        NEXTCARD, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND BUSINESS

     NextCard, Inc. ("NextCard"), was incorporated in the State of California on
June 5, 1996 and reincorporated in Delaware in May 1999 in connection with its
initial public offering ("IPO") (See Note 2), for the purpose of offering
Internet-based consumer financial services. On December 23, 1997, NextCard began
accepting applications for the NEXTCARD(R) VISA(R), which through September 30,
1999 was issued solely through a strategic alliance with Heritage Bank of
Commerce ("Heritage Bank" or "Heritage"), a San Jose, California based
depository institution. During that period, NextCard originated credit card
relationships and serviced the related credit card accounts on behalf of
Heritage pursuant to a profit and loss sharing agreement.

     On September 16, 1999, NextCard acquired all of the outstanding common
stock of Textron National Bank ("TNB"), a wholly owned subsidiary of Textron
Corporation, for $5.0 million over its net book value. TNB had not actively
engaged in the banking business for several years, and on the acquisition date
held $2.6 million of cash and cash equivalents and a single deposit liability of
approximately $540,000. Immediately prior to the closing of the acquisition, TNB
converted into a national bank limited to credit card operations and changed its
name to "NextBank, National Association" ("NextBank"). On September 16, 1999, in
connection with the acquisition and formation of NextBank, all of the issued and
outstanding capital stock of NextCard Funding Corp. ("NCFC") was contributed to
NextBank. Accordingly, NCFC became a wholly owned subsidiary of NextBank, which,
in turn, is a wholly owned subsidiary of NextCard. The acquisition was accounted
for using the purchase method.

     Subsequent to the purchase of NextBank, NextCard began originating accounts
on its own behalf. NextCard markets its credit card products solely through the
Internet and provides online approval and customized customer product pricing.
Other key product features include a customer service interface, which enables
the customer to review statements online, review recent account activity online,
and download data into different formats.

2. SIGNIFICANT ACCOUNTING POLICIES

INITIAL PUBLIC OFFERING

     On May 19, 1999, NextCard completed its IPO in which it sold 6.9 million
shares of its common stock at a price of $20.00 per share, raising $138.0
million in gross proceeds. Net offering proceeds to NextCard, net of
approximately $9.7 million in aggregate underwriters' discounts and commissions
and $1.3 million in related costs, were approximately $127.0 million.

FOLLOW-ON OFFERING

     On December 14, 1999, NextCard completed a follow-on offering in which it
sold 4.5 million shares of its common stock (an additional 3.8 million shares
were sold by selling shareholders) at a price of $35.94 per share raising $161.7
million in gross proceeds. Net offering proceeds to NextCard, net of $8.1
million in aggregate underwriters' discounts and commissions and $0.6 million in
related costs, were approximately $153.0 million.

CONSOLIDATION AND BASIS OF PRESENTATION

     The consolidated financial statements include NextCard and its wholly owned
subsidiaries, NextBank and NextCard Limited, a company incorporated in England
and Wales. To date, the activities of NextCard Limited have been immaterial. All
significant intercompany transactions and balances have been eliminated.

                                        37
<PAGE>   41
                        NEXTCARD, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Certain reclassifications have been made to prior years financial statements to
conform to the current year presentation.

CASH AND CASH EQUIVALENTS AND CONCENTRATION OF CREDIT RISK

     Cash and cash equivalents are stated at cost, which approximates fair
value. NextCard includes in cash equivalents all highly liquid investments that
mature within three months after their purchase date. Cash equivalents consist
primarily of high-grade commercial paper and money market funds. Restricted cash
and cash equivalents relates to NextCard's requirements under its credit
facilities and secured borrowings.

     Financial instruments that potentially subject NextCard to concentrations
of credit risk consist primarily of cash and cash equivalents at financial
institutions. NextCard places its cash and cash equivalents with major financial
institutions and such deposits exceed the Federal Deposit Insurance Corporation
(FDIC) limit of $100,000 per account.

CREDIT CARD LOANS

     Credit card loans are carried at cost. Deferred loan origination costs are
included in the loan balance. Loans held for sale are loans specifically
identified to be sold to independent third parties, generally within six months,
and are carried at the lower of cost or fair value. Unrealized losses from loans
held for sale and realized gains or losses resulting from loan sales are
included in non-interest income.

     Nextcard defers direct credit card origination cost associated with
successful credit card solicitations that it incurs in transactions with
independent third parties, and certain other costs that it incurs in connection
with loan underwriting and the preparation and processing of loan documents.
NextCard defers these credit card origination costs and amortizes these costs,
as a reduction to interest income, on a straight-line basis over 12 months. Net
deferred costs were $8.1 million and $748,000 at December 31, 2000 and 1999,
respectively. Marketing and adverting costs not considered direct origination
costs are expenses as incurred.

     Interest income on credit card loans is recognized based on the principal
amount of the loans outstanding in accordance with the terms of the applicable
account agreement until the outstanding balance is paid or charged off. When an
account is charged-off, the accrued interest portion of the charged-off balance
is deducted from current period interest income. Subsequent collections on
charged off balances are recognized first as principal recoveries and then as
interest income.

     Credit card and interchange fee income includes late and over-limit
charges, cash advance fees, bonus reward fees, processing fees, interchange
activity and other miscellaneous fees. Credit card and interchange fee income is
recognized in the month realized.

     In February 1999, the FFIEC published a revised policy statement on the
classification of consumer loans. The revised policy established uniform
guidelines for the charge-off of loans to delinquent, bankrupt and deceased
borrowers, for charge-off of fraudulent accounts and for re-aging, extending,
deferring or rewriting delinquent accounts. This statement was required to be
adopted no later than December 31, 2000. In September 2000, to conform to this
new FFIEC policy, NextCard changed its charge-off policy for bankruptcy and
fraudulent account charge-offs. Specifically, an account in bankruptcy is now
charged off within 60 days of receipt of notification of filing from the
bankruptcy court rather than 30 days, which was NextCard's policy prior to
September 2000. Fraudulent loans are now charged off to non-interest expense
within 90 days of discovery, rather than 120 days, which was NextCard's policy
prior to September 2000.

SECURITIZATIONS

     Under Statement of Financial Accounting Standards ("SFAS") No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. gains are recognized at the time of each sale
                                        38
<PAGE>   42
                        NEXTCARD, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

and are recorded in "Securitization Income" in the accompanying financial
statements. These gains, which generally represent interest-only strip
receivables, are based on the estimated fair value of the retained interests
which are based on the estimated present value of the cash flows NextCard
expects to receive over the estimated outstanding life of the receivables. These
expected cash flows are dependent upon a number of estimates including expected
finance charges and late fees, servicing fees, costs of funds paid to investors,
payment rates, and credit losses. Securitization transaction costs are typically
deferred and amortized over the life of the deal as a reduction of non-interest
income.

     The securitization income recorded by NextCard and the measurement of
NextCard's retained interests are dependent upon management's estimates of
future cash flows. The cash flows are discounted based on the timing of when
NextCard expects to receive the cash flows. The discount rates are based on
management's estimates of returns that would be required by investors in an
investment with similar terms and credit quality. Finance charges and fees
received on the credit card receivables are estimated based on the stated annual
percentage rates in the credit card agreements. Estimated default and payment
rates are based on historical results, adjusted for expected changes based on
NextCard's credit risk models.

     Subsequent to each sale, NextCard's retained interests are carried at
estimated fair market value with changes in fair value reported as a component
of non-interest income. Since quoted market prices are generally not available,
NextCard estimates fair value based on the estimated present value of future
cash flows using management's best estimates of key assumptions. Changes in any
of these assumptions could impact the fair value estimates and the realization
of future cash flow.

ALLOWANCE FOR LOAN LOSSES

     Provisions for loan losses are made in amounts necessary to maintain the
allowance for loan losses at a level considered by management to be sufficient
to absorb probable net credit losses inherent in the existing loan portfolio. In
evaluating the adequacy of the allowance for loan losses, management considers
several factors including: historical charge-off and recovery activity by age
(vintage) of each loan portfolio (noting any particular trends over recent
periods); recent delinquency and collection trends by vintage; current economic
conditions and the impact such conditions might have on borrowers' ability to
repay; the risk characteristics of the portfolios; and other factors.

EQUIPMENT AND LEASEHOLD IMPROVEMENTS

     Equipment and leasehold improvements are carried at cost, less accumulated
depreciation and amortization computed on a straight-line basis over the
estimated useful lives of the respective assets or lease term. Depreciation is
computed using a three-year life for computer equipment and a five-year life for
furniture and office equipment.

INTANGIBLE ASSETS

     Intangible assets, including the value of acquired customer relationships
and goodwill, are amortized over the periods benefited which range from 3 to 15
years.

PROVISION FOR INCOME TAXES

     The liability method of accounting is used for income taxes. Under the
liability method, deferred tax assets and liabilities are recognized for the
expected future tax consequences of existing differences between financial
reporting and tax reporting basis of assets and liabilities, as well as for
operating losses and tax credit carryforwards, using enacted tax laws and rates.
Deferred tax expense represents the net change in the deferred tax asset or
liability balance during the year. This amount, together with income taxes
currently payable or refundable for the current year, represents the total
income tax expense for the year.
                                        39
<PAGE>   43
                        NEXTCARD, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SERVICING AND PROFIT AND LOSS SHARING REVENUE RECOGNITION

     Through January 12, 1999, NextCard generated servicing and profit and loss
sharing non-interest income pursuant to the Consumer Credit Card Program
Agreement between NextCard and Heritage. Under this agreement, NextCard charged
Heritage for certain credit card origination and servicing costs associated with
credit card accounts originated and shared equally with Heritage in the profit
and loss sharing income (as defined in the agreement) generated from these
credit card accounts. The servicing and profit or loss sharing income was
recognized when realized based on the terms of the agreement.

COMPREHENSIVE INCOME

     Nextcard has no material components of other comprehensive income and,
accordingly, the comprehensive income is the same for all periods presented.

SEGMENT INFORMATION

     SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information" ("SFAS 131"), which is effective for financial statements for
periods beginning after December 15, 1997,requires that public business
enterprises report financial and other descriptive information about reportable
operating segments in annual financial statements and interim reporting to
shareholders. NextCard has determined that, through December 31, 2000, it has
only one operating and reportable segment, origination and servicing of
Internet-based credit card relationships for United States cardholders, which is
further described in Note 1.

USE OF ESTIMATES IN THE PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS

     The preparation of NextCard's consolidated financial statements in
accordance with generally accepted accounting principles requires management to
make estimates and assumptions that affect amounts reported in the consolidated
financial statements and the accompanying notes. Actual results could differ
from those estimates.

STOCK-BASED COMPENSATION

     Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), encourages but does not require
companies to record compensation cost for stock-based employee compensation
plans at fair value. NextCard has chosen to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations ("APB Opinion No. 25") in accounting for its stock
options plans.

NET LOSS PER COMMON SHARE

     Basic net loss per common share and diluted net loss per common share are
presented in conformity with Statement of Financial Accounting Standards No.
128, "Earnings Per Share" ("SFAS 128"), for all periods presented. In accordance
with SFAS 128, basic and diluted net loss per common share has been computed
using the weighted-average number of shares of common stock outstanding during
the period, less shares subject to repurchase.

                                        40
<PAGE>   44
                        NEXTCARD, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     The following table presents the calculation of basic and diluted net loss
per common share (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                              ------------------------------
                                                                2000       1999       1998
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
Net loss....................................................  $(81,856)  $(77,195)  $(16,064)
                                                              ========   ========   ========
Basic and diluted:
  Weighted average shares of common stock outstanding.......    52,635     31,192      4,907
  Less: Weighted average shares subject to repurchase.......       (65)      (793)    (1,741)
                                                              --------   --------   --------
  Weighted average shares used in computing basic and
     diluted net loss per common shares.....................    52,570     30,399      3,166
                                                              ========   ========   ========
Basic and diluted net loss per common share.................  $  (1.56)  $  (2.54)  $  (5.07)
                                                              ========   ========   ========
</TABLE>

     NextCard has excluded all convertible preferred stock, warrants for common
stock, warrants for convertible preferred stock, outstanding stock options and
shares subject to repurchase from the calculation of diluted loss per common
share because their inclusion would be antidilutive (i.e., reduce the net loss
per common share) for all periods presented. The total number of shares excluded
from the calculations of diluted net loss per common share are 18,372,578,
14,078,628, and 42,130,854 for the years ended December 31, 2000, 1999 and 1998,
respectively. Such securities, had they been dilutive, would have been included
in the computations of diluted net loss per common share using the treasury
stock method.

RECENT ACCOUNTING PRONOUNCEMENTS

     Effective January 1, 2001, Nextcard will adopt Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities," as amended by SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133," and SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities -- an amendment of FASB Statement No.
133." SFAS No. 133, as amended, establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging instruments. The statement requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If the derivative is a hedge, depending on the nature of the hedge, changes in
fair value of the derivative will either be offset against the change in fair
value of the hedged assets, liabilities, or firm commitments though earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. Nextcard believes that the adoption of SFAS
No. 133, as amended, will not have a material impact on its consolidated
financial statements.

     In September 2000, the Financial Accounting Standards Board issued SFAS No.
140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities - a replacement of SFAS No. 125'("SFAS No. 140").
SFAS No. 140, which replaces SFAS No. 125, revises the standards for accounting
for securitizations and other transfers of financial assets and requires certain
disclosures. SFAS No. 140 is effective for all transfers and servicing of
financial assets and extinguishments of liabilities occurring after March 31,
2001. The SFAS No. 140 disclosure requirements are required for financials
statements for fiscal years ending after December 15, 2000. NextCard intends to
adopt SFAS No. 140 on the required effective dates. Implementation of SFAS No.
140 is not expected to have a material impact on NextCard's consolidated
financial statements.

                                        41
<PAGE>   45
                        NEXTCARD, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. SIGNIFICANT CONCENTRATION OF CREDIT RISK

     NextCard is active in originating consumer loans in the United States.
NextCard reviews each potential customer's application and evaluates the
applicant's financial history and ability and willingness to repay. Loans are
made on an unsecured basis. The geographic distribution of NextCard's managed
loan portfolio, which approximates the on-balance sheet reported credit card
loan's geographic distribution, was as follows (in thousands):

<TABLE>
<CAPTION>
                                                   YEARS ENDED DECEMBER 31,
                                       -------------------------------------------------
                                                2000                      1999
                                       -----------------------   -----------------------
                                         LOANS      PERCENTAGE     LOANS      PERCENTAGE
          GEOGRAPHIC REGION            RECEIVABLE    OF TOTAL    RECEIVABLE    OF TOTAL
          -----------------            ----------   ----------   ----------   ----------
<S>                                    <C>          <C>          <C>          <C>
West.................................  $ 356,348        27%       $117,951        28%
Midwest..............................    287,348        22%         83,489        20%
South................................    336,707        26%        102,058        25%
Northeast............................    331,915        25%        112,817        27%
                                       ----------      ---        --------       ---
          Total......................  $1,312,318      100%       $416,315       100%
                                       ==========      ===        ========       ===
</TABLE>

     NextCard owned no loans in 1998; therefore this geographic information is
not presented for 1998.

4. ALLOWANCE FOR LOAN LOSSES

     The following table presents the activity in NextCard's allowance for loan
losses for the years ended December 31, 2000 and 1999. (in thousands):

<TABLE>
<CAPTION>
                                                      2000         1999
                                                     -------      -------
                                                     YEARS ENDED DECEMBER
                                                                      31,
                                                     --------------------
<S>                                                  <C>          <C>
Balance at beginning of year.....................    $11,500      $    --
Provision for loan losses........................     57,141       12,072
Allowance acquired...............................         --        1,900
Allowance related to loans securitized/sold......    (29,353)          --
Charge-offs......................................    (14,712)      (2,518)
Recoveries.......................................        560           46
                                                     -------      -------
Balance at end of year...........................    $25,136      $11,500
                                                     =======      =======
</TABLE>

     On July 15, 1999, NextCard exercised its option to purchase (through NCFC)
all remaining credit card receivables from Heritage. The acquired credit card
portfolio had $21.3 million in outstanding balances. NextCard recorded an
allowance for loan losses of $1.9 million for the Heritage portfolio upon
purchase to reflect the expected loan losses of the acquired portfolio.

                                        42
<PAGE>   46
                        NEXTCARD, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. EQUIPMENT AND LEASEHOLD IMPROVEMENTS

     The following is a summary of equipment and leasehold improvements (in
thousands):

<TABLE>
<CAPTION>
                                                            DECEMBER 31,
                                                        ---------------------
                                                            2000        1999
                                                        ------------   ------
<S>                                                     <C>            <C>
Computer equipment....................................    $17,712      $6,855
Furniture and office equipment........................      6,083       1,955
Leasehold improvements................................      2,467       1,372
                                                          -------      ------
                                                           26,262      10,182
Less: Accumulated depreciation and amortization.......      6,848       1,797
                                                          -------      ------
                                                          $19,414      $8,385
                                                          =======      ======
</TABLE>

6. DEPOSITS

     In September 1999, NextBank began accepting time deposits with terms
ranging from three months to two years. These time certificates of deposit are
in amounts of $100,000 or more and totaled $380.2 million as of December 31,
2000.

     At December 31, 2000, the above deposits mature as follows (in thousands):

<TABLE>
<CAPTION>
                          MATURITY                             AMOUNT
                          --------                            --------
<S>                                                           <C>
2001........................................................  $350,159
2002........................................................    30,089
                                                              --------
                                                              $380,248
                                                              ========
</TABLE>

7. BORROWINGS

     During 1998, NextCard entered into a $1,250,000 equipment loan and security
agreement with a finance company. Borrowings under the loan agreement bear
interest at 7.55% per year and are secured by related equipment purchases. As of
December 31, 2000 and 1999, the loan had an outstanding balance of $671,000 and
$962,000, respectively.

     In addition, during 1998 NextCard entered into a $1.0 million lease/loan
financing arrangement with a financing company. The lease/loan financing
arrangement is secured by a pledge of all equipment leased under the arrangement
and bears interest at 7.5% per year. As of December 31, 2000 and 1999, the
lease/loan had an outstanding balance of $591,000 and $828,000, respectively

     In February and May 1999, NextCard entered into two separate $5.0 million
lines of credit with a finance company. Borrowings under the lines of credit
accrue interest at 12.25% per year, are repayable in monthly installments and
final payment was due in May 2000 for one line and April 2002 for the other
line. These lines are secured by subordinated security interests in all tangible
and intangible assets. These lines of credit had an aggregate outstanding
balance of $2,855,000 and $9,569,000 at December 31, 2000 and 1999,
respectively.

     At December 31, 2000, the above borrowings mature as follows (in
thousands):

<TABLE>
<S>                                                           <C>
2001........................................................  $2,695
2002........................................................   1,422
                                                              ------
                                                              $4,117
                                                              ======
</TABLE>

                                        43
<PAGE>   47
                        NEXTCARD, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. ASSETS SECURITIZATION

     NextCard securitizes all eligible credit card receivables through the
NextCard Master Credit Card Note Trust (the "Master Trust"). These credit card
receivables are transferred to the Master Trust, which, in turn, issues notes
representing undivided ownership interests in the assets of the Master Trust to
third party commercial paper conduits and capital market investors. At December
31, 2000, the Master Trust had $1.1 billion of principal balances outstanding.
To date, the Master Trust has issued five series of investor notes, three of
which qualified for sales treatment under SFAS No. 125, in 2000. As a result,
$784.2 million of qualifying receivables related to these series' transfers were
treated as sales in 2000 and resulted in securitization gains of $25.5 million.

     In all those securitizations, NextCard retained servicing responsibilities
and subordinated interests. NextCard receives annual servicing fees
approximating, 2 percent of the outstanding balance and rights to future,
monthly cash flows arising after the investors in the securitization trust have
received the return for which they contracted.

     When securitizations qualify for off-balance sheet sales treatment NextCard
retains certain undivided ownership interests, interest-only strips and
servicing rights. Although NextCard continues to service the underlying credit
card accounts and maintains the customer relationships, these securitized
receivables are not reflected in the consolidated balance sheet. The
subordinated retained ownership interests are included in "Due from
Securitizations" in the consolidated balance sheet which also includes amounts
deposited in accounts held by the trust for the benefit of the trust's security
holders' ("spread accounts"), servicing fee receivables, and interest-only strip
receivables. At December 31, 2000, subordinated retained interests, spread
account and interest-only strip receivable balances were $17.5 million, $37.9
million, and $10.5 million, respectively.

     Investors in NextCard's securitization transactions have no recourse
against the Company for any customers' failure to pay their credit card loans;
however, certain of NextCard's retained interests are subordinated to the
investors' interests until the investors have been fully paid.

     Key economic assumptions used in measuring the fair value of retained
interests at the date of securitization resulting from securitizations completed
during the year ended December 31, 2000 (weighted based on principal amounts
securitized) were as follows:

<TABLE>
<S>                                             <C>
Weighted-average life (in years)..............  0.58
Expected credit and fraud losses..............  7.25%
Residual cash flows discounted at.............  10.00%
Interest rate on adjusted loans and bonds.....  Short-term benchmark rates
                                                (commercial paper or
                                                LIBOR) plus a spread
                                                ranging from 0.20%
                                                to 1.65%
</TABLE>

     At December 31, 2000, key economic assumptions and the sensitivity of the
current fair value of residual cash flows related to interest-only strip
receivables to immediate 10 percent and 20 percent adverse changes in those
assumptions are as follows (in thousands):

<TABLE>
<CAPTION>
                                                       WEIGHED      EXPECTED ANNUAL      RESIDUAL
                                                     AVERAGE LIFE   CREDIT AND FRAUD      ANNUAL
                                                      (IN YEARS)         LOSSES        DISCOUNT RATE
                                                     ------------   ----------------   -------------
<S>                                                  <C>            <C>                <C>
Current Assumptions................................      0.58              7.25%             10%
Impact on fair value...............................        --                --              --
  10% adverse change...............................     $ (50)          $(1,189)             --
  20% adverse change...............................      (735)           (2,987)             --
</TABLE>

                                        44
<PAGE>   48
                        NEXTCARD, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     These sensitivities are hypothetical and should be used with caution. As
the figures indicate, changes in fair value based on a 10 percent variation in
assumptions generally cannot be extrapolated because the relationship of the
change in assumption to the change in fair value may not be linear. Also, in
this table, the effect of a variation in a particular assumption on the fair
value of these retained interest is calculated without changing any other
assumption; in reality, changes in one factor may result in changes in another
(for example, increases in market interest rates may result in lower prepayments
and increased credit losses), which might magnify or counteract the
sensitivities.

     The actual and projected credit and fraud losses for the year ended
December 31, 2000 is 7.25%. The amount shown here is a weighted average for all
securitizations during the period. The table below summarizes the cash flows
received from (paid to) securitization trusts during the year ended December 31,
2000 (in thousands):

<TABLE>
<S>                                                           <C>
Proceeds from new securitizations...........................  $1,035,475
Collections used by the trust to purchase new balances in
  revolving credit card securitizations.....................     393,065
Servicing fees received.....................................       5,132
Cash flows received on interest-only strip receivables......      28,037
Cash flows received upon release from reserve accounts......      28,354
</TABLE>

     At December 31, 2000, NextCard's managed credit card loan portfolio of
$1,312.3 million was comprised of $528.1 million in reported credit card loans
and $784.2 million in off-balance sheet credit card loans. At December 31, 2000,
NextCard's 31-plus days credit card loan delinquencies on a reported and managed
basis were $30.0 million, or 5.46%, and $51.4 million, or 3.92%, respectively.
NextCard's net charge-offs for the year ended December 31, 2000, on a reported
and managed basis were $14.2 million, or 2.55% of average reported credit card
loans, and $22.4 million, or 2.62%, of average managed loans, respectively.

9. CREDIT FACILITIES AND SECURED BORROWINGS

     Until January 12, 1999, Heritage funded all of the credit card accounts and
loans originated through NextCard's website. Beginning in January 1999, NextCard
began purchasing such credit card receivables from Heritage. Until May 21, 1999,
NextCard utilized a $100.0 million secured borrowing facility extended to NCFC
by Credit Suisse First Boston ("Credit Suisse") to fund the majority of those
receivables. On May 21, 1999, NextCard obtained a $300.0 million commercial
paper conduit facility through Barclays Bank PLC ("Barclays") and began
utilizing this facility to purchase credit card receivables. Borrowings under
this facility are secured by the purchased receivables. NextCard also used a
portion of the Barclays facility to pay off the $87.8 million balance then
outstanding under the Credit Suisse facility. As of December 31, 1999, $300.0
million was outstanding under this facility.

     In connection with the $100.0 million secured borrowing facility with
Credit Suisse described above, NextCard paid the bank a fee for services
rendered in connection with structuring the revolving credit facility of
$2,100,000 consisting of $725,000 in cash and warrants to purchase 562,500
shares of preferred stock. The warrants' estimated fair market value was
$1,375,000. These warrants, which were outstanding at December 31, 1999, are
immediately exercisable at a price of $0.22 per warrant. This loan structuring
fee was capitalized and was being amortized on a straight-line basis over the
term of the revolving credit facility. Upon the termination of this facility in
May 1999, the then unamortized amount was expensed.

     As of December 31, 2000, NextCard has available four third-party commercial
paper conduits provided by Barclays Bank PLC for $450.0 million, ING Barings
(U.S.) Capital Markets LLC for $150.0 million, First Union Securities, Inc. for
$220.0 million and Chase Securities, Inc. for $150.0 million. NextCard has the
ability to fund new receivables during the revolving periods of these conduit
arrangements. After the revolving period, NextCard will use principal
collections generated by its receivables to pay the principal amount
                                        45
<PAGE>   49
                        NEXTCARD, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

outstanding under these conduits. The revolving period ends in June 2001 for the
Barclay's facility, January 2002 for the ING Baring's facility, February 2003
for the First Union facility and August 2001 for the Chase Securities facility.
As of December 31, 1999, $300.0 million and $46.0 million was outstanding under
the Barclay's facility and the First Union facility. The occurrence of certain
events may cause the securitization transactions to amortize earlier than
scheduled. In 2000, these facilities qualified for off-balance sheet sales
treatment; as a result, borrowings under these facilities are no longer
considered an obligation of NextCard.

     The weighted average rate paid on borrowed funds through these conduit
facilities was 6.73% and 7.01% for the years ended December 31, 2000 and 1999
and was based on the rate at which the conduit provider issues commercial paper.
Interest is payable monthly. NextCard did not enter into any conduit facilities
during 1998.

10. COMMITMENTS AND CONTINGENCIES

Credit

     As of December 31, 2000, NextCard had outstanding credit lines of
approximately $4.3 billion committed to its customers. Of the total commitment,
approximately $2.9 billion was unused. While this amount represented the total
available lines of credit to customers, NextCard has not experienced, and does
not anticipate, that all of its customers will exercise their entire available
line at any given point in time. NextCard generally has the right to increase,
reduce, cancel, alter or amend the terms of these available lines of credit at
any time.

Rental Commitments

     NextCard leases its office space under separate lease agreements and has
operating leases for office equipment. The minimum aggregate, non-cancelable
payments, by year, under lease obligations with initial or remaining terms of
one year or more, some of which contain renewal options based on the then
current fair market values, consist of the following at December 31, 2000 (in
thousands):

<TABLE>
<S>                                                           <C>
2001........................................................  $ 4,548
2002........................................................    4,996
2003........................................................    5,130
2004........................................................    4,876
Thereafter..................................................    6,530
                                                              -------
                                                              $26,080
                                                              =======
</TABLE>

     In connection with certain office lease agreements and other third party
agreements, NextCard has executed a total $4.6 million of irrevocable standby
letter of credits in favor of each landlord or third parties each of which
expires in 2001, but is required to be renewed annually thereafter. These letter
of credits can be drawn on by the beneficiaries under certain circumstances if
NextCard defaults on the lease or third party agreements. NextCard has pledged
$5.9 million of cash and cash equivalents to the issuing bank as collateral for
these letter of credits. Rent expense for the years ended December 31, 2000,
1999 and 1998 was $2,884,000, $1,461,000, and $347,000, respectively.

                                        46
<PAGE>   50
                        NEXTCARD, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PROCESSING AGREEMENT

     In December 1997, NextCard signed a five-year agreement with a third party
for processing of credit card receivables with a renewal option. NextCard's
minimum payments under this agreement, by year and in the aggregate, are as
follows at December 31, 2000 (in thousands):

<TABLE>
<S>                                                           <C>
2001........................................................   2,500
2002........................................................   3,750
                                                              ------
                                                              $6,250
                                                              ======
</TABLE>

     Under the terms of the processing agreement, NextCard also received, in
January 1998, a $500,000 signing bonus from its third party processor which is
being recognized as a reduction of servicing expense on a pro-rata basis over
the five-year term of the contract. The unamortized portion of this bonus is
included in accrued expenses and other liabilities in the consolidated balance
sheets.

CO-BRANDING AGREEMENT

     On November 8, 1999, NextCard signed a five-year marketing agreement with
Amazon.com, LLC ("Amazon") under which NextCard and Amazon have agreed to
deliver co-branded credit card accounts originated on a customized website.
NextCard will pay to Amazon an origination fee for each co-branded credit card
account, and will pay certain additional compensation including per account
renewal fees on each account's anniversary date. Minimum account payments of
$85.0 million (subject to performance requirements) will be made by NextCard to
Amazon over the term of the agreement. In addition, based on the number of
credit card accounts originated, NextCard could pay up to an additional $17.5
million. Separately, NextCard received $22.5 million in cash from Amazon in
exchange for a warrant to acquire up to 4.4 million common shares of NextCard.
This warrant has an exercise price per share of $39.20, is fully vested and
expires on November 8, 2002.

11. CAPITAL REQUIREMENTS

     NextBank is subject to capital adequacy guidelines adopted by the Office of
the Comptroller ("OCC"). Failure to meet these minimum capital requirements can
result in certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on
NextCard's financial statements. The capital adequacy guidelines and the
regulatory framework for prompt corrective action require NextBank to maintain
specific capital levels based upon quantitative measures of its assets,
liabilities and off-balance sheet items as calculated under regulatory
accounting practices. The capital amounts and classification are also subject to
qualitative judgements by the regulators about components, risk weighting, and
other factors. Core capital (Tier 1) consists principally of shareholders'
equity less goodwill. Total risk-based capital (Tier 1 + Tier 2) includes a
portion of the allowance for loan losses. Based on these classifications, the
capital adequacy regulations establish three capital ratios that are used to
measure whether a financial institution is "well capitalized." As of December
31, 2000 and 1999, NextBank was "well capitalized" in all regulatory capital
ratio categories, as set forth below (in thousands):

<TABLE>
<CAPTION>
                                       TOTAL                TIER 1                 TIER 1
       DECEMBER 31, 2000         RISK-BASED CAPITAL   RISK-BASED CAPITAL       LEVERAGE RATIO
-------------------------------  ------------------   ------------------   ----------------------
                                  AMOUNT     RATIO     AMOUNT     RATIO        AMOUNT       RATIO
                                 ---------   ------   ---------   ------   --------------   -----
<S>                              <C>         <C>      <C>         <C>      <C>              <C>
Actual.........................  $187,012    15.73%   $168,948    14.21%      $168,948      21.07%
Minimum capital adequacy.......  $ 95,082     8.00%   $ 47,541     4.00%      $ 32,072       4.00%
Minimum well-capitalized.......  $118,853    10.00%   $ 71,312     6.00%      $ 40,091       5.00%
</TABLE>

                                        47
<PAGE>   51
                        NEXTCARD, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>
                                       TOTAL                TIER 1                 TIER 1
       DECEMBER 31, 1999         RISK-BASED CAPITAL   RISK-BASED CAPITAL       LEVERAGE RATIO
-------------------------------  ------------------   ------------------   ----------------------
                                  AMOUNT     RATIO     AMOUNT     RATIO        AMOUNT       RATIO
                                 ---------   ------   ---------   ------   --------------   -----
<S>                              <C>         <C>      <C>         <C>      <C>              <C>
Actual.........................  $ 62,081    13.53%   $ 56,275    12.27%      $ 56,275      14.93%
Minimum capital adequacy.......  $ 36,706     8.00%   $ 18,353     4.00%      $ 15,077       4.00%
Minimum well-capitalized.......  $ 45,882    10.00%   $ 27,529     6.00%      $ 18,846       5.00%
</TABLE>

     We believe that NextBank met all capital adequacy requirements to which it
is subject as of December 31, 2000 and 1999. No conditions or events since
December 31, 2000 have occurred that management believes would change these
categorizations. In addition to the above capital ratios, the OCC has required
that for the first three years of operation, NextBank maintain a ratio of
shareholders' equity plus the allowance for loan losses to total managed assets
at no less than 6.5%. As of December 31, 2000 and 1999, NextBank was in
compliance with this capital requirement. NextBank is limited in its ability to
declare dividends to NextCard in accordance with the national bank dividend
provisions.

12. SHAREHOLDERS' EQUITY

     NextCard has two classes of authorized stock: common stock and preferred
stock. Each share of outstanding convertible preferred stock automatically
converted into a share of common stock immediately upon the consummation of the
IPO. A total of 32,625,734 of new common shares were issued upon conversion of
the preferred stock.

     Under the amended and restated certificate of incorporation adopted as of
May 13, 1999, 12,567,285 shares of convertible preferred stock are authorized
for issuance in one or more series. Also, 77,432,715 shares of voting common
stock are authorized and 10,000,000 shares of non-voting common stock are
authorized.

COMMON STOCK

     On July 15, 1996, the then Chairman, Chief Executive Officer and President
of NextCard purchased 4,500,000 shares of newly issued common stock for
aggregate consideration of $5,000, 75% of which were issued subject to
NextCard's right, but not its obligation, to repurchase at the original issue
price. NextCard's repurchase rights lapsed semi-annually over a four-year
period. On April 2, 1997, the Chairman and Chief Executive Officer returned
450,000 of such shares to NextCard without consideration. Accordingly, as of
December 31, 1999 and 1998, there were 393,750 and 1,237,500, shares subject to
repurchase, respectively. On January 15, 2000, NextCard's right to repurchase
these shares expired.

     On September 18, 1996, NextCard sold 2,272,500 shares of common stock to
three of its employees (two of who have since left NextCard's employment) for
aggregate consideration of $10,100. Those shares of common stock were subject to
NextCard's right to repurchase at the original issuance price. NextCard's
repurchase rights to ten percent of the stock lapsed at the date of sale and the
repurchase rights to the remaining shares lapsed semi-annually over a four year
period subject to continued employment by NextCard. During 1997, one of the
employees returned 180,000 of such shares to NextCard without consideration, and
NextCard exercised its right to repurchase 1,247,625 shares from employees who
left NextCard. As of December 31, 1999 and 1998, 106,317 and 212,625 shares
remained subject to repurchase, respectively. On September 18, 2000, NextCard's
right to repurchase these shares expired.

     On December 13, 2000, NextCard repurchased 358,924 of common shares from
certain officers of the company. The repurchase totaled $2.7 million and was
based on the 15-day average of NextCard's closing stock price prior to the
repurchase. The seller's received the purchase price in both cash and a note.
The notes payable bear interest at 7.00% and are repayable no later than
December 13, 2005, provided that if NextCard achieves certain performance
metrics, the payment provisions will be accelerated.

                                        48
<PAGE>   52
                        NEXTCARD, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     Common stock was reserved for issuances as follows (in thousands):

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                              ---------------
                                                               2000     1999
                                                              ------   ------
<S>                                                           <C>      <C>
Exercise of outstanding stock options.......................  13,804    8,181
Shares of common stock available for grant under the 1997
  Stock Plan................................................     765    4,816
Exercise of outstanding warrants............................   4,569    5,398
1999 Employee Stock Purchase Plan...........................      21       83
                                                              ------   ------
                                                              19,159   18,478
                                                              ======   ======
</TABLE>

13. STOCK OPTION PLAN AND WARRANTS

Stock Option Plan

     Under the 1997 Stock Plan, NextCard offers options to purchase shares of
its common stock to employees, including officers and directors of, and
consultants to, NextCard who are not also employees of NextCard. At December 31,
2000, 1999 and 1998 NextCard had reserved 17,675,000, 14,625,000 and 9,000,000
shares of common stock for issuance under the plan. The plan is administered by
the Board of Directors. The plan authorizes the Board of Directors to award a
number of forms of stock-based compensation to eligible participants, including
incentive and nonqualified stock options which generally vest over a four year
period. Restricted stock purchase rights may also be granted under the plan.

     The following summarizes stock option activity and related information
during the years ended December 31, 2000, 1999 and 1998 (in thousands, except
per share amounts):

<TABLE>
<CAPTION>
                                                                       WEIGHTED AVERAGE
                                             SHARES   EXERCISE PRICE    EXERCISE PRICE
                                             ------   --------------   ----------------
<S>                                          <C>      <C>              <C>
Outstanding at December 31, 1997...........   2,030   $0.04 - $ 0.06        $ 0.05
  Granted..................................   5,419   $0.06 - $ 0.56        $ 0.16
  Exercised................................     (37)  $0.04 - $ 0.06        $ 0.05
  Forfeited................................    (435)  $0.06 - $ 0.33        $ 0.09
                                             ------   --------------        ------
Outstanding at December 31, 1998...........   6,977   $0.04 - $ 0.56        $ 0.13
  Granted..................................   4,185   $1.67 - $29.38        $14.61
  Exercised................................  (1,591)  $0.04 - $ 1.67        $ 0.08
  Forfeited................................  (1,390)  $0.06 - $29.38        $ 5.39
                                             ------   --------------        ------
Outstanding at December 31, 1999...........   8,181   $0.04 - $29.38        $ 6.66
  Granted..................................   8,975   $5.25 - $36.88        $12.54
  Exercised................................  (1,478)  $0.04 - $ 6.67        $ 0.80
  Forfeited................................  (1,874)  $0.06 - $36.88        $13.65
                                             ------   --------------        ------
Outstanding at December 31, 2000...........  13,804   $0.04 - $36.88        $10.76
                                             ======   ==============        ======
Options exercisable at December 31, 2000...   2,196   $0.04 - $35.44        $ 6.86
                                             ======   ==============        ======
Options exercisable at December 31, 1999...   1,323   $0.04 - $ 1.67        $ 0.18
                                             ======   ==============        ======
Options exercisable at December 31, 1998...     802   $0.04 - $ 0.13        $ 0.05
                                             ======   ==============        ======
</TABLE>

                                        49
<PAGE>   53
                        NEXTCARD, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     Exercise prices for stock options outstanding as of December 31, 2000, and
the weighted average remaining contractual life are as follows (in thousands,
except per share data):

<TABLE>
<CAPTION>
                                                             WEIGHTED AVERAGE
               EXERCISE PRICES                   OPTIONS        REMAINING       WEIGHTED AVERAGE     NUMBER      WEIGHTED AVERAGE
                  PER SHARE                    OUTSTANDING   CONTRACTUAL LIFE    EXERCISE PRICE    EXERCISABLE    EXERCISE PRICE
---------------------------------------------  -----------   ----------------   ----------------   -----------   ----------------
<S>                                            <C>           <C>                <C>                <C>           <C>
$ 0.04 - $ 1.67                                   3,005         7.5 years            $ 0.20           1,356           $ 0.18
$ 5.25 - $ 9.97                                   5,923         9.4 years            $ 8.34             319           $ 6.67
$10.00 - $19.69                                   2,598         9.3 years            $14.59              37           $15.00
$21.75 - $29.94                                   1,866         8.9 years            $25.19             480           $25.00
$30.13 - $36.88                                     412         9.1 years            $32.83               4           $33.76
                                                 ------                              ------           -----           ------
                                                 13,804                              $10.76           2,196           $ 6.86
                                                 ======                              ======           =====           ======
</TABLE>

     The weighted average fair value of options granted in 2000, 1999 and 1998
was $6.22, $6.48 and $3.87, respectively.

     As discussed in Note 2, NextCard has elected to follow APB Opinion No. 25
and related interpretations in accounting for its employee and director
stock-based awards because, as discussed below, the alternative fair value
accounting provided for under SFAS 123 requires use of option valuation models
that were not developed for use in valuing employee stock-based awards. Under
APB Opinion No. 25, NextCard does not recognize compensation expense with
respect to such awards if the exercise price equals or exceeds the fair value of
the underlying security on the date of grant and other terms are fixed.

     The fair value of these awards for the purpose of the alternative fair
value disclosures required by SFAS 123 was estimated as of the date of grant
using option pricing models. These models were developed for use in estimating
the fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected life of the options. Because
NextCard's stock-based awards 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 stock-based awards. For purposes of NextCard's pro forma
disclosures, the fair value of options granted for the years ended December 31,
2000 and 1999, respectively, were determined using the Black-Scholes
option-pricing model. The following weighted-average assumptions were used:
dividend yield of zero; expected volatility of 50% and 39%; risk-free interest
rate of 5.0% and 6.3%; and expected life of five years. The fair value of
options granted for the year ended December 31, 1998 was determined using the
minimum value method. The following weighted-average assumptions were used:
dividend yield of zero; risk-free interest rate of approximately 5%; and
expected life of five years.

     For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the option's vesting period. NextCard's pro
forma information follows (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                                 YEARS ENDED
                                                                 DECEMBER 31,
                                                        2000         1999         1998
                                                      --------   ------------   --------
<S>                                                   <C>        <C>            <C>
Net Loss:
  As reported.......................................  $(81,856)    $(77,195)    $(16,064)
  Pro Forma.........................................  $(94,227)    $(79,047)    $(16,533)
Basic and diluted net loss per common share:
  As reported.......................................  $  (1.56)    $  (2.54)    $  (5.07)
  Pro Forma.........................................  $  (1.79)    $  (2.60)    $  (5.22)
</TABLE>

                                        50
<PAGE>   54
                        NEXTCARD, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DEFERRED STOCK COMPENSATION

     In connection with certain stock option grants to employees during the year
ended December 31, 2000, 1999 and 1998, NextCard recorded deferred stock
compensation of $2.0, $16.0 million and $7.8 million representing the difference
between the exercise price of the options and the deemed fair value of
NextCard's common stock on the date such stock options were granted. During the
year ended December 31, 2000, certain employee terminations resulted in
approximately $7.0 million of this recorded deferred stock compensation to be
reversed. Deferred stock compensation is included as a reduction of
shareholders' equity and is being amortized by charges to operations on a graded
vesting method over the corresponding vesting period of each respective option,
generally four years. In the years ended December 31, 2000, 1999 and 1998,
NextCard recorded amortization of deferred stock compensation expense of $5.0
million, $10.0 million and $1.8 million, respectively. At December 31, 2000,
$2.0 million of deferred stock compensation remained unamortized.

WARRANTS

     NextCard had outstanding the following warrants to purchase its securities
(in thousands, except per share data):

<TABLE>
<CAPTION>
                                                                    DECEMBER 31, 2000               DECEMBER 31, 1999
                                                              -----------------------------   -----------------------------
                                                               NUMBER OF                       NUMBER OF
                                                               WARRANTS     EXERCISE PRICE     WARRANTS     EXERCISE PRICE
                   DESCRIPTION OF SERIES                      OUTSTANDING      PER SHARE      OUTSTANDING      PER SHARE
                   ---------------------                      -----------   ---------------   -----------   ---------------
<S>                                                           <C>           <C>               <C>           <C>
Common Stock................................................     4,569      $0.44 -- $39.20      5,398      $0.22 -- $39.20
</TABLE>

     At December 31, 2000 and 1999, all of these warrants were exercisable.
Expenses related to the deemed fair value of these warrants for services
rendered by third parties were not material. In 1998, NextCard paid a loan
structuring fee of $2,100,000, consisting of $725,000 in cash and 562,500
warrants with a deemed fair value of $1,375,000. During 1999, NextCard paid loan
structuring fees to a finance company of $2,741,000, consisting of $50,000 in
cash and 305,360 warrants with a deemed fair value of $2,691,000. As described
further in Note 9, NextCard issued warrants to acquire 4.4 million common shares
of NextCard to Amazon.

STOCK PURCHASE PLAN

     NextCard's 1999 Employee Stock Purchase Plan is available for eligible
employees. A maximum of 100,000 shares of common stock are permitted to be
issued under the stock purchase plan. Under the stock purchase plan, shares of
NextCard's common stock may be purchased at the end of each offering period at
85% of the lower of the fair market value on the first and last day of the
offering period. Eligible employees may designate a portion of their
compensation, not to exceed 10% of their gross compensation during an offering
period, to purchase shares under this plan. The offering periods begin every six
months, on each January 1 and July 1, and have a duration of six months, except
that the first offering period began on May 16, 1999.

14. DEFINED CONTRIBUTION 401(K) PLAN

     In October 1999, NextCard adopted a defined contribution plan that is
intended to qualify under section 401(k) of the Internal Revenue Code. The
401(k) plan provides retirement benefits for eligible employees. The 401(k) plan
stipulates that eligible employees may elect to contribute to it upon date of
hire. As of December 31, 2000, NextCard did not match employee contributions.

                                        51
<PAGE>   55
                        NEXTCARD, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

15. INCOME TAXES

     Due to operating losses and the inability to recognize the benefits, there
is no tax provision for the years ended December 31, 2000, 1999 and 1998.

     The following is a summary of deferred tax assets and liabilities (in
thousands):

<TABLE>
<CAPTION>
                                                         DECEMBER 31,
                                                     --------------------
                                                       2000        1999
                                                     --------    --------
<S>                                                  <C>         <C>
Deferred tax assets:
  Net operating loss carryforwards.................  $ 53,306    $ 27,639
  Allowance for loan losses........................    21,642       3,951
  Equipment and leaseholds.........................       813         305
  Other............................................     2,370         901
                                                     --------    --------
          Total deferred tax assets................    78,131      32,796
Valuation allowance................................   (63,474)    (32,796)
                                                     --------    --------
Deferred tax assets, net of valuation allowance....    14,657          --
                                                     --------    --------
Deferred tax liabilities:
  Deferred fee revenue.............................     4,143          --
  Gain on securitization...........................    10,514          --
                                                     --------    --------
          Total deferred tax liabilities...........    14,657          --
                                                     --------    --------
                                                     $     --    $     --
                                                     ========    ========
</TABLE>

     At December 31, 2000, NextCard had federal and state net operating loss
carryforwards (NOLs) of approximately $140.0 million and $80.0 million,
respectively, available to offset future taxable income. The NOLs begin expiring
in 2012 for federal purposes and 2004 for state purposes.

     The difference between the income tax benefit at the federal statutory rate
and NextCard's effective tax rate is due primary to recognition of a full
valuation allowance to offset the deferred tax assets. Realization of NOLs is
dependent on future taxable earnings, if any, the timing and the amount of which
are uncertain. Accordingly, a valuation allowance in an amount equal to the
deferred tax assets net of deferred tax liabilities as of December 31, 2000 and
1999 has been established to reflect these uncertainties. The change in the
valuation allowance was a net increase of $30,678,000, $25,953,000 and
$5,998,000 for the years ended December 31, 2000, 1999 and 1998, respectively.

     Utilization of tax carryforwards may be subject to a substantial annual
limitation due to ownership change limitations provided by the Internal Revenue
Code of 1986 and similar state provisions. The annual limitation could result in
expiration of NOLs before full utilization.

16. INTEREST RATE RISK MANAGEMENT INSTRUMENTS

     NextCard has entered into interest rate cap agreements, the effect of which
is to establish maximum interest rates on a portion of its managed funding
sources. To the extent NextCard has funded fixed rate receivables with variable
rate deposits or debt, the interest caps are designed to protect net interest
margin. To the extent NextCard has securitized fixed rate receivables using
variable rate instruments, the interest rate caps are designed to protect loan
servicing income. As of December 31, 2000, NextCard had $750.0 million notional
amount of interest rate caps outstanding which mature in years ranging from 2001
through 2002.

                                        52
<PAGE>   56
                        NEXTCARD, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

17. FAIR VALUE OF FINANCIAL INSTRUMENTS

     NextCard has estimated the fair value of its financial instruments in
accordance with SFAS No. 107, "Disclosures About Fair Value of Financial
Instruments." Financial instruments include both assets and liabilities, whether
or not recognized in the consolidated balance sheets, for which it is
practicable to estimate fair value. Additionally, certain intangible assets
recorded on the consolidated balance sheets, such as purchased credit card
relationships, and other intangible assets not recorded on the balance sheets
(such as the value of the credit card relationships for originated loans) are
not considered financial instruments and, accordingly, are not valued for
purposes of this disclosure. NextCard believes that there is value associated
with these assets based on current market conditions, including the purchase and
sale of such assets.

     Quoted market prices generally are not available for all of NextCard's
financial instruments. Accordingly, in cases where quoted market prices are not
available, fair values were estimated using present value and other valuation
techniques that are significantly affected by the assumptions used, including
the discount rate and estimated future cash flows. Such assumptions are based on
historical experience and assessments regarding the collectibility of assets and
related interest, and estimates of product lives and repricing characteristics
used in NextCard's asset/liability management process. These assumptions involve
uncertainties and matters of judgment and, therefore, cannot be determined with
precision. Thus, changes in these assumptions could significantly affect the
fair value estimates.

     All of NextCard's financial instruments approximated fair value as of
December 31, 2000. A description of the methods and assumptions used to estimate
the fair value of each class of NextCard's financial instruments is as follows:

CASH AND CASH EQUIVALENTS

     The carrying amounts approximate fair value due to the short-term nature of
these instruments.

LOANS RECEIVABLE

     The carrying value of NextCard's loan portfolio approximates its fair
value. The loan portfolio includes variable-rate loans, with interest rates that
approximates current market rates, and fixed-rate loans, which can be repriced
frequently at market rates.

     The valuations of loans do not include the value that relates to estimated
cash flows from new loans generated from existing customers over the remaining
life of the loan receivables or the fair value of established customer
relationships. Accordingly, the fair values of loan portfolio does not represent
the underlying value of NextCard's accounts.

DUE FROM SECURITIZATIONS

     The fair value of balances included in due from securitzations is
determined by discounting the future cash flows from the securitizations using
rates currently available to Nextcard from instruments with similar terms and
remaining maturities. Such amounts equals the carrying value.

DEPOSITS

     The carrying value for fixed rate certificates of deposit approximated the
fair value due to the short-term nature of these deposits (i.e. the majority
mature within one year). The fair value is estimated using a discounted cash
flow calculation that applies interest rates at an assumed marginal market
funding rate.

                                        53
<PAGE>   57
                        NEXTCARD, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SECURED BORROWINGS

     The fair value of secured borrowings approximates the carrying value of
these instruments based upon their short-term nature.

OTHER BORROWINGS

     The fair value of NextCard's long-term borrowings is estimated using a
discounted cash flow model and approximates the carrying value due to the
short-term nature of these balances. The discount rates used were based on
yield-curves appropriate for the remaining maturities of the instruments.

                                        54
<PAGE>   58
                        NEXTCARD, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

18. NEXTCARD, INC. (PARENT COMPANY ONLY) CONDENSED FINANCIAL INFORMATION

                                 BALANCE SHEET

<TABLE>
<CAPTION>
                                                              DECEMBER 31,   DECEMBER 31,
                                                                  2000           1999
                                                              ------------   ------------
                                                                    (IN THOUSANDS)
<S>                                                           <C>            <C>
ASSETS:
  Cash and cash equivalents.................................    $ 53,969       $222,983
  Investment in subsidiaries................................     177,547         61,192
  Equipment and leasehold improvements, net.................      11,681          7,040
  Credit card loans receivable..............................      18,691             --
     Less allowance for loan losses.........................      (1,624)            --
                                                                --------       --------
  Net loans.................................................      17,067             --
  Prepaid and other assets..................................       7,026         18,426
                                                                --------       --------
          Total assets......................................    $267,290       $309,641
                                                                ========       ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
  Accounts payable..........................................    $  9,788       $  7,962
  Accrued expenses and other liabilities....................      23,620         11,685
  Other borrowings..........................................       4,117         11,359
                                                                --------       --------
          Total liabilities.................................      37,525         31,006
Shareholders' equity........................................     229,765        278,635
                                                                --------       --------
          Total liabilities and shareholders' equity........    $267,290       $309,641
                                                                ========       ========
</TABLE>

                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                              ------------------------------
                                                                2000       1999       1998
                                                              --------   --------   --------
                                                                      (IN THOUSANDS)
<S>                                                           <C>        <C>        <C>
Revenues:
  Interest income...........................................  $  3,331   $  3,564   $    502
  Other income..............................................     1,094        527        697
                                                              --------   --------   --------
          Total revenues....................................     4,425      4,091      1,199
                                                              --------   --------   --------
Expenses:
  Interest expense..........................................     1,841      1,641         62
  Salaries and employee benefits............................    51,699     21,814      6,730
  Marketing, advertising, and branding......................    31,401     24,649      4,324
  Credit card activation and servicing costs................    19,374     11,438      2,328
  General and administration and other......................    28,484      8,322      2,019
  Amortization of deferred compensation.....................     4,972     10,028      1,800
  Less fees received from subsidiaries......................   (87,196)   (15,563)        --
                                                              --------   --------   --------
          Total expenses....................................    50,575     62,329     17,263
                                                              --------   --------   --------
Income before income taxes and equity in net loss of
  subsidiaries..............................................   (46,150)   (58,238)   (16,064)
Equity in net loss of subsidiaries..........................    (6,832)   (18,957)        --
                                                              --------   --------   --------
     Net Loss...............................................  $(52,982)  $(77,195)  $(16,064)
                                                              ========   ========   ========
</TABLE>

                                        55
<PAGE>   59
                        NEXTCARD, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                              ------------------------------
                                                                2000       1999       1998
                                                              --------   --------   --------
                                                                      (IN THOUSANDS)
<S>                                                           <C>        <C>        <C>
OPERATING ACTIVITIES:
Net loss....................................................  $(52,982)  $(77,195)  $(16,064)
Adjustments to net loss to arrive at cash used in operating
  activities:
  Equity in net loss of subsidiaries........................     6,832     18,958         --
  Deprecation and amortization..............................     4,302      1,941        252
  Amortization of deferred acquisition cost.................     5,747         --         --
  Amortization of deferred compensation expense.............     4,972     10,028      1,800
  Change in operating assets and liabilities:
     Increase in accounts payable...........................     1,825      4,596      3,231
     Increase in accrued expenses and other liabilities.....     9,330      9,967        969
     Increase in prepaid and other assets...................     9,606    (15,241)       723
                                                              --------   --------   --------
Net cash used in operating activities.......................   (10,368)   (46,946)    (9,089)
                                                              --------   --------   --------
INVESTING ACTIVITIES:
Purchase of equipment and leasehold improvements............    (8,008)    (7,684)    (2,060)
Purchase of loans from subsidiary...........................    (9,693)        --         --
Net loans originations......................................   (12,371)        --         --
Capital contribution to subsidiaries........................  (123,226)   (76,550)    (2,100)
                                                              --------   --------   --------
Net cash used in investing activities.......................  (153,298)   (84,234)    (4,160)
                                                              --------   --------   --------
FINANCING ACTIVITIES:
Proceeds from other borrowings..............................        --     11,689        545
Payments made on other borrowings...........................    (7,242)      (834)       (41)
Proceeds from issuance of preferred stock...................        --         --     50,037
Proceeds from issuance of common stock......................     1,894    280,661          2
Proceeds from settlement of notes receivable................        --         13         --
Proceeds from sale of warrants..............................        --     22,500         --
                                                              --------   --------   --------
Net cash provided by financing activities...................    (5,348)   314,029     50,543
                                                              --------   --------   --------
Net increase in cash and cash equivalents...................  (169,014)   182,849     37,294
Cash and cash equivalents at the beginning of year..........   222,983     40,134      2,840
                                                              --------   --------   --------
Cash and cash equivalents at the end of year................  $ 53,969   $222,983   $ 40,134
                                                              ========   ========   ========
</TABLE>

---------------
(1) At December 31, 2000, NextCard had recognized $28,874,000 as income related
    to certain fees charged to its subsidiary, NextBank, which remained deferred
    and unamortized on NextBank's balance sheet. Therefore, consolidated net
    loss of $81,856,000 differed from the Parent Only net loss by these deferred
    fees, which are eliminated in consolidation.

                                        56
<PAGE>   60
                        NEXTCARD, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

     The Board of Directors and Shareholders
     NextCard, Inc. and subsidiaries

     We have audited the accompanying consolidated balance sheets of NextCard,
Inc. and subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of operations, changes in shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 2000. These
financial statements are the responsibility of NextCard, Inc.'s management. Our
responsibility is to express an opinion on these 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 audits 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of NextCard, Inc.
and subsidiaries at December 31, 2000 and 1999, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2000 in conformity with accounting principles generally
accepted in the United States.

                                          /s/ ERNST & YOUNG LLP

                                          San Francisco, California
                                          January 23, 2001

                                        57
<PAGE>   61
                        NEXTCARD, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                           QUARTERLY DATA (UNAUDITED)

            SUMMARY OF CONSOLIDATED QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
                                 MARCH 31,   JUNE 30,   SEPTEMBER 30,   DECEMBER 31,
                                   1999        1999         1999            1999
                                 ---------   --------   -------------   ------------
                                      (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                              <C>         <C>        <C>             <C>
CONSOLIDATED STATEMENTS OF
  OPERATIONS:
Interest income................  $    660    $  3,031     $  6,886        $ 11,477
Interest expense...............       647       1,866        3,249           5,142
                                 --------    --------     --------        --------
Net interest income............        13       1,165        3,637           6,335
Provision for loan losses......       995       1,047        3,185           6,845
Non-interest income............       343         613        1,133           2,417
Non-interest expenses..........    10,343      19,421       24,357          26,660
                                 --------    --------     --------        --------
Net loss.......................  $(10,982)   $(18,690)    $(22,772)       $(24,753)
                                 ========    ========     ========        ========
Basic and diluted loss per
  share........................  $  (2.84)   $  (0.74)    $  (0.50)       $  (0.53)
Proforma basic and diluted loss
  per share(1).................  $  (0.30)   $  (0.45)    $  (0.50)       $  (0.53)
SUPPLEMENTAL OPERATING DATA
        Total credit card loan
          receivables
          outstanding..........  $ 96,293    $163,446     $268,014        $416,315
        Total number of open
          credit card accounts
          at period end........        66          85          134             220
        Total revenue: interest
          income and
          non-interest
          income...............  $  1,003    $  3,644     $  8,019          13,894
Net Interest Margin............     0.08%        2.50%        4.49%           5.50%

<CAPTION>
                                 MARCH 31,   JUNE 30,   SEPTEMBER 30,   DECEMBER 31,
                                   2000        2000         2000            2000
                                 ---------   --------   -------------   ------------
                                      (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                              <C>         <C>        <C>             <C>
CONSOLIDATED STATEMENTS OF
  OPERATIONS:
Interest income................  $ 15,810    $ 17,194    $   24,529      $   23,846
Interest expense...............     6,645       7,473        11,934          11,105
                                 --------    --------    ----------      ----------
Net interest income............     9,165       9,721        12,595          12,741
Provision for loan losses......     8,600       9,563        16,134          22,843
Non-interest income............    12,849       8,351        23,760          32,351
Non-interest expenses..........    31,111      32,972        40,479          41,687
                                 --------    --------    ----------      ----------
Net loss.......................  $(17,697)   $(24,463)   $  (20,258)     $  (19,438)
                                 ========    ========    ==========      ==========
Basic and diluted loss per
  share........................  $  (0.34)   $  (0.46)   $    (0.38)     $    (0.37)
Proforma basic and diluted loss
  per share(1).................  $  (0.34)   $  (0.46)   $    (0.38)     $    (0.37)
SUPPLEMENTAL OPERATING DATA
        Total credit card loan
          receivables
          outstanding..........  $638,781    $829,678    $1,093,437      $1,312,318
        Total number of open
          credit card accounts
          at period end........       337         443           577             708
        Total revenue: interest
          income and
          non-interest
          income...............  $ 28,659    $ 25,545    $   48,289          56,197
Net Interest Margin............      5.67%       6.29%         6.09%           6.46%
</TABLE>

---------------
(1) Pro forma basic and diluted net loss per common share has been computed as
    described in Note 2 to the Consolidated Financial Statements and also gives
    effect, under Securities and Exchange Commission guidance, to the conversion
    of the convertible preferred stock (using the if-converted method) from the
    original date of issuance.

                                        58
<PAGE>   62
                        NEXTCARD, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                           COMMON STOCK PRICE RANGES

     Since our initial public offering on May 14, 1999, our common stock has
been traded on the NASDAQ National Market under the symbol "NXCD." At March 15,
2001, we had approximately 296 shareholders of record.

     The following table sets forth, for the periods indicated, the high and low
sales prices for our common stock as reported by the NASDAQ National Market:

<TABLE>
<CAPTION>
                                                               HIGH     LOW
                                                              ------   ------
<S>                                                           <C>      <C>
1999
------------------------------------------------------------
Second Quarter (from May 14)................................  $50.00   $22.00
Third Quarter...............................................  $41.50   $19.13
Fourth Quarter..............................................  $53.12   $22.81
2000
------------------------------------------------------------
First Quarter...............................................  $36.88   $14.88
Second Quarter..............................................  $16.94   $ 7.50
Third Quarter...............................................  $11.13   $ 5.25
Fourth Quarter..............................................  $12.38   $ 4.56
</TABLE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

     None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information required by this item with respect to directors is set
forth in the Company's proxy statement for the annual meeting of shareholders to
be held on June 6, 2001 which will be filed within 120 days after December 31,
2000 (the "Proxy Statement") and is incorporated herein by reference. The
information required by this item with respect to executive officers is,
pursuant to instruction 3 of Item 401(b) of regulation S-K, set forth in Part I
of this Annual Report on Form 10-K under "Executive Officers of the Registrant."
The information required by this item with respect to reports required to be
filed under Section 16(a) of the Securities Exchange Act of 1934 is set forth
under "Section 16(a) Beneficial Ownership reporting Compliance" in the Proxy
Statement and is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

     The information required by this item is set forth under "Compensation
Tables and Compensation Matters" in the Proxy Statement and is incorporated
herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by this item is set forth under "Company Stock
Owned by Officers and Directors" and "Persons Owning More Than Five Percent of
Company Common Stock" in the Proxy Statement and is incorporated herein by
reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this item is set forth under "Certain
Relationships and Related Transactions" in the Proxy Statement and is
incorporated herein by reference.

     With the exception of the information incorporated by reference in Items
10 -- 13 above, the Proxy Statement is not to be deemed filed as part of this
Annual Report on Form 10-K.

                                        59
<PAGE>   63
                        NEXTCARD, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

     (a) The following documents are made part of this report:

     1. FINANCIAL STATEMENT SCHEDULES

          All schedules to the consolidated financial statements normally
     required by form 10-K are omitted since they are either not applicable or
     the required information is shown in the financial statements or the notes
     thereto.

     (b) REPORTS ON FORM 8-K:

     None filed.

     (c) EXHIBITS: See Exhibit Index on page 62 of this Report.

                                        60
<PAGE>   64

                                   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 30th day of
March, 2001.

                                          NEXTCARD, INC.
                                          (Registrant)

                                          By:      /s/ JOHN V. HASHMAN
                                            ------------------------------------
                                                      John V. Hashman
                                                  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 NextCard,
Inc., the Registrant, and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
                      SIGNATURE                                       TITLE                       DATE
                      ---------                                       -----                       ----
<S>                                                    <C>                                   <C>

                 /s/ JEREMY R. LENT                           Chairman of the Board,         March 30, 2001
-----------------------------------------------------         Chief Strategy Officer
                   Jeremy R. Lent

                 /s/ JOHN V. HASHMAN                         Chief Executive Officer         March 30, 2001
-----------------------------------------------------     (Principal Executive Officer)
                   John V. Hashman

                /s/ BRUCE G. RIGIONE                    Chief Executive Officer, Director    March 30, 2001
-----------------------------------------------------        (Principal Financial and
                  Bruce G. Rigione                              Accounting Officer

                   /s/ JEFF BRODY                                    Director                March 30, 2001
-----------------------------------------------------
                     Jeff Brody

                  /s/ JACK ANTONINI                                  Director                March 30, 2001
-----------------------------------------------------
                    Jack Antonini

               /s/ DANIEL R. EITINGTON                               Director                March 30, 2001
-----------------------------------------------------
                 Daniel R. Eitington

                /s/ SAFI U. QURESHEY                                 Director                March 30, 2001
-----------------------------------------------------
                  Safi U. Qureshey
</TABLE>

                                        61
<PAGE>   65

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                       DESCRIPTION OF EXHIBIT
-------                      ----------------------
<C>       <S>
  3.1     Amended and Restated Certificate of Incorporation
          (incorporated by reference to Exhibit 3.1 to the Company's
          Registration Statement on Form S-1 (No. 333-74755)).
  3.2     Amended and Restated Bylaws (incorporated by reference to
          Exhibit 3.2 to the Company's Registration Statement on Form
          S-1 (No. 333-74755)).
  4.1     Form of Stock Certificate (incorporated by reference to
          Exhibit 4.1 to the Company's Registration Statement on Form
          S-1 (No. 333-74755)).
 10.1     Form of Indemnification Agreement between NextCard and each
          of its officers and directors (incorporated by reference to
          Exhibit 10.1 to the Company's Registration Statement on Form
          S-1 (No. 333-74755)).
 10.2     *Amended and Restated Stock Restriction Agreement dated
          March 1999 between NextCard and Jeremy Lent (incorporated by
          reference to Exhibit 10.2 to the Company's Registration
          Statement on Form S-1 (No. 333-74755)).
 10.3     *Stock Purchase and Restriction Agreement dated September
          18, 1996 between NextCard and Timothy Coltrell (incorporated
          by reference to Exhibit 10.3 to the Company's Registration
          Statement on Form S-1 (No. 333-74755)).
 10.4     Form of Subscription Agreement for Series A Preferred Stock
          (incorporated by reference to Exhibit 10.4 to the Company's
          Registration Statement on Form S-1 (No. 333-74755)).
 10.5     Series B Preferred Stock Purchase Agreement dated August 15,
          1997 among NextCard and certain investors (incorporated by
          reference to Exhibit 10.5 to the Company's Registration
          Statement on Form S-1 (No. 333-74755)).
 10.6     Office Lease dated September 24, 1997 between NextCard and
          Market & Second, Inc., as amended (See 10.36) (incorporated
          by reference to Exhibit 10.6 to the Company's Registration
          Statement on Form S-1 (No. 333-74755)).
 10.7     *1997 Stock Plan and form of Option Agreement under 1997
          Stock Plan (incorporated by reference to Exhibit 10.7 to the
          Company's Registration Statement on Form S-1 (No.
          333-74755)).
 10.8+    Consumer Credit Card Program Agreement dated November 25,
          1997 between NextCard and Heritage Bank of Commerce
          (incorporated by reference to Exhibit 10.8 to the Company's
          Registration Statement on Form S-1 (No. 333-74755)).
 10.9     Remittance Processing Services Agreement dated December 1,
          1997 between Heritage Bank of Commerce and National
          Processing Company (incorporated by reference to Exhibit
          10.9 to the Company's Registration Statement on Form S-1
          (No. 333-74755)).
 10.10    Professional Services Agreement dated October 14, 1998
          between Heritage Bank of Commerce and Response Data
          Corporation (incorporated by reference to Exhibit 10.10 to
          the Company's Registration Statement on Form S-1 (No.
          333-74755)).
 10.11    Service Agreement dated December 22, 1997 between NextCard
          and First Data Resources Inc. (incorporated by reference to
          Exhibit 10.11 to the Company's Registration Statement on
          Form S-1 (No. 333-74755)).
 10.12    Master Services Agreement dated December 23, 1997 between
          NextCard and Exodus Communications, Inc. (incorporated by
          reference to Exhibit 10.12 to the Company's Registration
          Statement on Form S-1 (No. 333-74755)).
 10.13    License Agreement dated May 1, 1998 between NextCard and
          Binary Compass Enterprises, Inc. (incorporated by reference
          to Exhibit 10.13 to the Company's Registration Statement on
          Form S-1 (No. 333-74755)).
 10.14    Series C Preferred Stock Purchase Agreement dated May 13,
          1998 among NextCard and certain investors (incorporated by
          reference to Exhibit 10.14 to the Company's Registration
          Statement on Form S-1 (No. 333-74755)).
 10.15    Sublease dated May 15, 1998 between NextCard and KAO
          Infosystems Company (incorporated by reference to Exhibit
          10.15 to the Company's Registration Statement on Form S-1
          (No. 333-74755)).
 10.16    Master Lease Agreement dated May 22, 1998 between NextCard
          and Comdisco, Inc. (incorporated by reference to Exhibit
          10.16 to the Company's Registration Statement on Form S-1
          (No. 333-74755)).
 10.17    Loan and Security Agreement dated June 17, 1998 by and
          between NextCard and Lighthouse Capital Partners II, L.P.
          (incorporated by reference to Exhibit 10.17 to the Company's
          Registration Statement on Form S-1 (No. 333-74755)).
 10.18    Cardholder Rewards Program Agreement dated June 22, 1998
          between NextCard and Intellipost Corporation (subsequently
          renamed MyPoints.com) (incorporated by reference to Exhibit
          10.18 to the Company's Registration Statement on Form S-1
          (No. 333-74755)).
</TABLE>

                                        62
<PAGE>   66

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                       DESCRIPTION OF EXHIBIT
-------                      ----------------------
<C>       <S>
 10.19    Form of Bottom Dollar Network Membership Agreement
          (incorporated by reference to Exhibit 10.19 to the Company's
          Registration Statement on Form S-1 (No. 333-74755)).
 10.20    Series D Preferred Stock Purchase Agreement dated November
          5, 1998 among NextCard and certain investors (incorporated
          by reference to Exhibit 10.20 to the Company's Registration
          Statement on Form S-1 (No. 333-74755)).
 10.21+   Loan Agreement dated December 29, 1998 among NextCard
          Funding Corp. and Credit Suisse First Boston (incorporated
          by reference to Exhibit 10.21 to the Company's Registration
          Statement on Form S-1 (No. 333-74755)).
 10.22+   Account Origination Agreement dated December 29, 1998 by and
          between NextCard and Heritage Bank of Commerce (incorporated
          by reference to Exhibit 10.22 to the Company's Registration
          Statement on Form S-1 (No. 333-74755)).
 10.23    *Employment Agreement dated as of January 1, 1999 between
          NextCard and Jeremy R. Lent (incorporated by reference to
          Exhibit 10.23 to the Company's Registration Statement on
          Form S-1 (No. 333-74755)).
 10.24    Subordinated Loan and Security Agreement dated February 9,
          1999 between NextCard and Comdisco, Inc. (incorporated by
          reference to Exhibit 10.24 to the Company's Registration
          Statement on Form S-1 (No. 333-74755)).
 10.25    *Consulting Agreement dated as of January 20, 1999 between
          NextCard and Bruce Rigione (incorporated by reference to
          Exhibit 10.25 to the Company's Registration Statement on
          Form S-1 (No. 333-74755)).
 10.26    Amendment Number One to Subordinated Loan and Security
          Agreement dated as of February 9, 1999 between NextCard,
          Inc., as Borrower, and Comdisco, Inc., as Lender
          (incorporated by reference to Exhibit 10.26 to the Company's
          Registration Statement on Form S-1 (No. 333-74755)).
 10.27    *Employee Stock Purchase Plan (incorporated by reference to
          Exhibit 10.27 to the Company's Registration Statement on
          Form S-1 (No. 333-74755)).
 10.28+   Amended and Restated Pooling and Servicing Agreement, dated
          as May 21, 1999, among NextCard Funding Corp, as Transferor,
          NextCard, Inc., as Servicer, and The Bank of New York, as
          Trustee (incorporated by reference to Exhibit 10.1 to the
          Company's Quarterly Report on Form 10Q for the period ended
          June 30, 1999).
 10.29+   Series 1999-1 Supplement, dated as of May 21, 1999, to the
          Amended and Restated Pooling and Servicing Agreement, among
          NextCard Funding Corp, as Transferor, NextCard, Inc., as
          Servicer, and The Bank of New York, as Trustee (incorporated
          by reference to Exhibit 10.2 to the Company's Quarterly
          Report on Form 10Q for the period ended June 30, 1999).
 10.30+   Series 1999-2 Supplement, dated as of May 21, 1999, to the
          Amended and Restated Pooling and Servicing Agreement, among
          NextCard Funding Corp, as Transferor, NextCard, Inc., as
          Servicer, and The Bank of New York, as Trustee (incorporated
          by reference to Exhibit 10.3 to the Company's Quarterly
          Report on Form 10Q for the period ended June 30, 1999).
 10.31+   Amended and Restated Account Origination Agreement dated May
          21, 1999, among NextCard, NextCard Funding Corp. and
          Heritage Bank of Commerce (incorporated by reference to
          Exhibit 10.4 to the Company's Quarterly Report on Form 10Q
          for the period ended June 30, 1999).
 10.32+   Amendment No. 1, dated July 15, 1999, to Amended and
          Restated Account Origination Agreement, among NextCard,
          NextCard Funding Corp. and Heritage Bank of Commerce
          (incorporated by reference to Exhibit 10.5 to the Company's
          Quarterly Report on Form 10Q for the period ended June 30,
          1999).
 10.33+   Certificate Purchase Agreement, dated May 21, 1999, among
          NextCard Funding Corp., as Transferor, NextCard, Inc. as
          Servicer, Sheffield Receivables Corporation, as Purchaser,
          and Barclays Bank PLC, as Agent (incorporated by reference
          to Exhibit 10.6 to the Company's Quarterly Report on Form
          10Q for the period ended June 30, 1999).
 10.34+   Certificate Purchase Agreement, dated June 16, 1999, among
          NextCard Funding Corp., as Transferor, NextCard, Inc. as
          Servicer, Holland Limited Securitization, Inc., as
          Purchaser, and ING Baring (U.S.) Capital Markets LLC, as
          Agent (incorporated by reference to Exhibit 10.7 to the
          Company's Quarterly Report on Form 10Q for the period ended
          June 30, 1999).
 10.35+   Co-Branded Bankcard Agreement dated as of November 8, 1999
          between NextCard, Inc. and Amazon.com LLC (incorporated by
          reference to Exhibit 10.34 to the Company's Registration
          Statement on Form S-1 (No. 333-91333)).
 10.36    Amendment, dated June 30, 1999, to Office Lease between
          NextCard and Market & Second, Inc. (incorporated by
          reference to Exhibit 10.35 to the Company's Registration
          Statement on Form S-1 (No. 333-91333)).
 10.37+   Amended and Restated Pooling and Servicing Agreement, dated
          May 21, 1999, to the NextCard Master Trust I Series 1999-3,
          between NextBank, N.A., as Transferor and Servicer and the
          Bank of New York, as Trustee on behalf of the series 1999-3
          Certificateholders (incorporated by reference to Exhibit
          10.36 to the Company's Registration Statement on Form S-1
          (No. 333-91333)).
</TABLE>

                                        63
<PAGE>   67

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                       DESCRIPTION OF EXHIBIT
-------                      ----------------------
<C>       <S>
 10.38+   Certificate Purchase Agreement, dated November 10, 1999,
          among NextBank, N.A., as the Transferor and the Servicer,
          Variable Funding Capital Corporation, as the Purchaser, and
          First Union Securities, Inc., as the Administrative Agent
          (incorporated by reference to Exhibit 10.37 to the Company's
          Registration Statement on Form S-1 (No. 333-91333)).
 10.39+   Office Lease dated March 7, 2000 between NextCard and
          Carlyle Airport Technology Trust Agent (incorporated by
          reference to Exhibit 10.39 to the Company's Annual Report on
          Form 10K for the year ended December 31, 1999).
 10.40    Office Lease dated August 7, 2000 between NextCard, Inc. and
          Independence Campus I, LLC
 10.41    Termination Agreement, dated September 1, 2000, between
          NextCard and Daniel Springer.
 10.42    Amendment dated July 2000 to the Employment Agreement dated
          January 1, 1999 between NextCard and Jeremy. R. Lent
          (incorporated by reference to Exhibit 10.1 to the Company's
          Quarterly Report on Form 10Q for the period ended September
          30, 2000).
 10.43    Form of Stock Repurchase Agreement.
 21.1     Subsidiaries.
 23.2     Consent of Ernst and Young LLP, Independent Auditors.
</TABLE>

---------------
+ Portions redacted pursuant to a request for confidential treatment filed with
  the Securities and Exchange Commission.

* Compensatory plans or arrangements.

                                        64