MATRIX CAPITAL CORP /CO/, S-1/A, 1996-09-27

MATRIX CAPITAL CORP /CO/
S-1/A, 1996-09-27
MORTGAGE BANKERS & LOAN CORRESPONDENTS

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 27, 1996

REGISTRATION NO. 333-10223

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

AMENDMENT NO. 1
TO
FORM S-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

----------------
MATRIX CAPITAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

COLORADO 6162 84-1233716
(STATE OR OTHER JURISDICTION OF (PRIMARY INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)

1380 LAWRENCE STREET, SUITE 1410 GUY A. GIBSON
DENVER, COLORADO 80204 PRESIDENT
(303) 595-9898 MATRIX CAPITAL CORPORATION
(ADDRESS, INCLUDING ZIP CODE, AND 1380 LAWRENCE STREET, SUITE 1410
TELEPHONE NUMBER, INCLUDING AREA CODE, DENVER, COLORADO 80204
OF REGISTRANT'S PRINCIPAL EXECUTIVE (303) 595-9898
OFFICES AND PRINCIPAL PLACE OF (NAME, ADDRESS, INCLUDING ZIP CODE,
BUSINESS) AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
----------------
COPIES TO:
RONALD J. FRAPPIER, ESQ. GORDON M. BAVA, P.C.
JENKENS & GILCHRIST, A PROFESSIONAL MANATT, PHELPS & PHILLIPS, LLP
CORPORATION 11355 W. OLYMPIC BOULEVARD
1445 ROSS AVENUE, SUITE 3200 LOS ANGELES, CALIFORNIA 90064
DALLAS, TEXAS 75202

----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.

----------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
----------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE(3)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.0001 par
value................. 2,012,500 shares $11.00 $22,137,500 $7,635
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Includes 262,500 shares that may be purchased by the Underwriters to cover
over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(3) The registration fee is comprised of $6,544 previously paid by the
Registrant in connection with the initial filing of this Registration
Statement with respect to 1,725,000 shares with a proposed maximum
offering price of $11.00 and $1,091 paid in connection with the filing of
this amendment with respect to 287,500 shares also with a proposed maximum
offering price of $11.00.

----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+THIS PRELIMINARY PROSPECTUS AND THE INFORMATION CONTAINED HEREIN ARE SUBJECT +
+TO COMPLETION OR AMENDMENT. THESE SECURITIES MAY NOT BE SOLD, NOR MAY OFFERS +
+TO BUY BE ACCEPTED, PRIOR TO THE TIME THE PROSPECTUS IS DELIVERED IN FINAL +
+FORM. UNDER NO CIRCUMSTANCES SHALL THIS PRELIMINARY PROSPECTUS CONSTITUTE AN +
+OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY +
+SALE OF THESE SECURITIES, IN ANY JURISDICTION IN WHICH SUCH OFFER, +
+SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION +
+UNDER THE SECURITIES LAWS OF SUCH JURISDICTION. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

Subject to completion, dated September 30, 1996

Prospectus
dated , 1996

1,750,000 Shares

[LOGO]

Common Stock

All of the shares of common stock, par value $.0001 per share (the "Common
Stock"), of Matrix Capital Corporation, a Colorado corporation (the "Company"),
offered hereby are being issued and sold by the Company.

Prior to the offering, there has been no public market for the Common Stock. It
is currently estimated that the initial public offering price will be between
$9.00 and $11.00 per share. See "Underwriting" for a discussion of the factors
to be considered in determining the initial public offering price. The Common
Stock has been approved for quotation on the Nasdaq National Market under the
symbol "MTXC."

SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.

THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR OTHERWISE.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................................... $ $ $
- --------------------------------------------------------------------------------
Total (3)................................... $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities under the Securities Act of 1933, as amended (the "Securities
Act"). See "Underwriting."
(2) Before deducting expenses payable by the Company estimated to be $450,000.

(3) The Company has granted the Underwriters a 30-day option to purchase up to
an aggregate of 262,500 additional shares of Common Stock solely to cover
over-allotments, if any, at the Price to Public, less Underwriting
Discount. If the Underwriters exercise this option in full, the total Price
to Public, Underwriting Discount and Proceeds to Company will be $ , $
and $ , respectively. See "Underwriting."

The shares of Common Stock are offered by the several Underwriters subject to
prior sale when, as and if delivered to and accepted by the Underwriters and
subject to their right to reject orders in whole or in part. It is expected
that certificates representing such shares of Common Stock will be made
available for delivery at the offices of Piper Jaffray Inc. in Minneapolis,
Minnesota on or about , 1996.

Piper Jaffray inc.

Keefe, Bruyette & Woods, Inc.

Peacock, Hislop, Staley & Given, Inc.
<PAGE>

MATRIX CAPITAL CORPORATION COMBINES THE SPECIALIZED FINANCIAL
SERVICES EXPERTISE OF ITS OPERATING SUBSIDIARIES TO CREATE
REVENUE ENHANCING OPPORTUNITIES WITHIN THE MORTGAGE SERVICING,
MORTGAGE SERVICING BROKERAGE, MORTGAGE BANKING, BANKING AND REAL
ESTATE MANAGEMENT INDUSTRIES.

<TABLE>
<S> <C> <C>
[LOGO OF [LOGO OF
UNITED FINANCIAL] MATRIX FINANCIAL]

[LOGO OF MATRIX CAPITAL
CORPORATION]

[LOGO OF [LOGO OF
MATRIX BANK] USS]
</TABLE>

[LINES GO FROM MATRIX CAPITAL CORPORATION LOGO TO EACH LOGO OF THE
SUBSIDIARIES]

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

THE COMPANY INTENDS TO FURNISH ITS SHAREHOLDERS WITH ANNUAL REPORTS
CONTAINING AUDITED FINANCIAL STATEMENTS AND A REPORT THEREON BY INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS.

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

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET,
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED,
MAY BE DISCONTINUED AT ANY TIME.
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and Consolidated Financial
Statements and Notes thereto appearing elsewhere in this Prospectus. Unless
otherwise indicated, all information in this Prospectus (i) assumes no exercise
of the Underwriters' over-allotment option and (ii) reflects the 3.75-for-one
split of the Common Stock effected as a dividend that was declared and paid on
September 19, 1996. Unless the context requires otherwise, all references
herein to the "Company" refer to Matrix Capital Corporation ("Matrix Capital")
and its subsidiaries (the "Subsidiaries") and predecessors collectively.

THE COMPANY

OVERVIEW. Matrix Capital Corporation is a specialized financial services
company that, through its Subsidiaries, focuses on mortgage merchant banking by
purchasing and selling residential mortgage loans and residential mortgage
servicing rights; offering brokerage, consulting and analytical services to
other financial services companies and financial institutions; servicing
residential mortgage portfolios for investors; originating residential
mortgages; and providing real estate management and disposition services. The
Company believes that its structure of combining a mortgage banking firm, a
mortgage servicing brokerage and consulting firm, a federally chartered banking
institution and a real estate management and disposition firm is unique to the
financial services industry. This unique structure creates revenue enhancing
relationships among the Subsidiaries.

The Company is a broker of mortgage servicing rights serving a nationwide
client base and in 1995 brokered the sale of mortgage loan servicing portfolios
totaling $32.6 billion in outstanding principal balances. As a result of this
volume of brokerage activity, the Company has access to a wide array of
information relating to the mortgage banking industry, including emerging
market trends, prevailing market prices, pending regulatory changes and changes
in levels of supply and demand. Consequently, the Company is able to identify
certain types of mortgage servicing portfolios that are well suited to its
particular servicing platform and unique corporate structure. The Company, for
example, has focused its mortgage servicing acquisition strategy on seasoned
loans having lower principal and higher custodial escrow balances than newly
originated mortgage loans. Mortgage servicing rights on these types of loans
are generally not attractive to many market participants. However, the Company
believes that given the prevailing pricing for such mortgage servicing rights
and the Company's ability to hold the non-interest bearing custodial escrow
accounts at its federal bank subsidiary, it has been able to achieve attractive
returns on investment in such mortgage servicing rights.

Consolidated net income for the year ended December 31, 1995, and for the six
months ended June 30, 1996, was $3.6 million and $1.2 million, respectively,
resulting in an annualized return on average equity of 51.4% and 25.2%,
respectively. As of June 30, 1996, the Company had consolidated assets of
$204.2 million and shareholders' equity of $10.6 million.

HISTORY OF THE COMPANY. Although Matrix Capital was formed in 1993, the
history of the Company traces back to the formation of United Financial, Inc.
("United Financial") in 1989. United Financial was formed by two of the
Company's principal shareholders to broker mortgage loan servicing rights and
became an approved mortgage loan servicing broker for the Resolution Trust
Corporation (the "RTC"). In 1990, one of the founders of United Financial
divested himself of his interest in United Financial to form Matrix Financial
Services Corporation ("Matrix Financial"), which was established through the
acquisition of an existing mortgage banking company. Matrix Financial initially
focused on the acquisition of mortgage loan servicing portfolios from the RTC
and the Federal Deposit Insurance Corporation (the "FDIC") as part of their
disposition of insolvent thrifts and banks during the early 1990s. In June
1993, Matrix Capital was formed when the founding shareholders of United
Financial and Matrix Financial exchanged all of the outstanding capital stock
of those two entities for shares of Matrix Capital. The Company acquired Matrix
Capital Bank ("Matrix Bank"), a

3
<PAGE>

federal savings bank, in late 1993 in order to capture the benefit of the
custodial escrow account balances relating to the Company's mortgage servicing
portfolio and to engage in the purchase and sale of bulk residential mortgage
loan portfolios. In order to add a source of additional non-interest revenue,
the Company formed United Special Services, Inc. ("USS") in June 1995 to
provide real estate management and disposition services to the Company and
other mortgage companies and financial institutions.

THE SUBSIDIARIES. The Company's core business operations are conducted
through its four principal operating Subsidiaries:

United Financial. United Financial provides brokerage and consulting services
to financial institutions and financial services companies in the mortgage
banking industry. These services include the brokering and analysis of
residential mortgage loan servicing rights, corporate and mortgage loan
servicing portfolio valuations (which includes the complex valuation and
analysis required under the recently-adopted Statement of Financial Accounting
Standards No. 122, Accounting for Mortgage Servicing Rights ("FAS 122")), and,
to a lesser extent, consultation and brokerage services in connection with
mergers and acquisitions of mortgage banking entities. United Financial
provides brokerage services to several of the nation's largest financial
institutions, such as Banc One Mortgage Corporation, Chase Manhattan Mortgage
Corporation and Mellon Mortgage Corporation. During 1995 and the first six
months of 1996, United Financial brokered the sale of 103 and 48 mortgage loan
servicing portfolios totaling $32.6 billion and $12.6 billion in outstanding
mortgage loan principal balances, respectively.

Matrix Financial. Matrix Financial acquires residential mortgage loan
servicing rights on a nationwide basis through purchases in the secondary
market, services the loans underlying these rights and originates mortgage
loans through its wholesale loan origination network. As of June 30, 1996,
Matrix Financial serviced 26,391 borrower accounts representing $1.8 billion in
principal balances (including $439.5 million in subservicing for non-affiliates
of the Company), the majority of which were seasoned loans having lower
principal and higher custodial escrow balances than newly originated mortgage
loans. See "Business--Residential Loan Servicing Activities--Residential
Mortgage Loan Servicing." As a servicer of mortgage loans, Matrix Financial is
required to establish custodial escrow accounts for the deposit of borrowers'
payments, which may include principal, interest, taxes and insurance. These
payments are held at Matrix Bank. During the six months ended June 30, 1996,
the custodial escrow accounts at Matrix Bank averaged $27.6 million in the
aggregate. For the six months ended June 30, 1996, Matrix Financial originated
$373.0 million in wholesale mortgage loans through its regional production
offices located in Atlanta, Denver and Phoenix. The loans originated by Matrix
Financial on a wholesale basis are typically sold in the secondary market.

Matrix Bank. With branches in Las Cruces, New Mexico and Sun City, Arizona,
Matrix Bank serves its local communities by providing a broad range of personal
and business depository services, offering residential and consumer loans, and
providing, on a limited basis, commercial real estate loans. Matrix Bank also
holds the non-interest bearing custodial escrow deposits related to the
residential mortgage loan servicing portfolio serviced by Matrix Financial.
These custodial escrow deposits, as well as other traditional deposits, are
used to fund bulk purchases of mortgage loan portfolios throughout the United
States, a substantial portion of which are subserviced by Matrix Financial
following their purchase. Maintaining custodial escrow deposits at Matrix Bank
allows the Company to achieve returns historically greater than could have been
realized had the Company used the custodial escrow deposits as compensating
balances to reduce the effective borrowing cost on its warehouse credit
facilities. As of June 30, 1996, Matrix Bank was deemed to be "well-
capitalized" under applicable regulatory standards and had total assets of
$146.7 million, including loans aggregating $106.4 million. In May 1996, a
subsidiary of Matrix Bank, Sterling Finance Co., Inc. ("Sterling"), purchased
substantially all of the assets of a Denver-based originator and seller of sub-
prime automobile retail installment sales contracts as a means of diversifying
the Company's sources of revenue. Sterling sells substantially all of its
automobile retail installment sales contracts through conduits in the secondary
market within 30 to 60 days after their origination or purchase, thereby
minimizing credit risk to the Company. To date, the operations of Sterling have
not been material to those of the Company.

4
<PAGE>

United Special Services. USS provides real estate management and disposition
services to financial services companies and financial institutions. In
addition to the unaffiliated clients currently served by USS, Matrix Financial
uses USS exclusively in handling the disposition of its foreclosed real estate.
In addition, USS provides limited collateral valuation opinions to clients,
such as the Federal Home Loan Mortgage Corporation, that are interested in
assessing the value of the collateral underlying mortgage loans, as well as to
clients such as Matrix Bank and other third-party mortgage loan buyers
evaluating potential bulk purchases of mortgage loans.

BUSINESS STRATEGY. The Company's business strategy is to:

. cultivate the revenue-enhancing relationships among the Subsidiaries by
sharing knowledge, information and business opportunities;

. expand significantly the residential mortgage loan servicing portfolio of
the Company within identified niches, thereby increasing non-interest
income, improving operational efficiencies and increasing custodial
escrow deposits; and

. diversify its revenue sources through development of new business lines
and potential acquisitions of financial services businesses that
management believes are complementary to its existing business.

To accomplish this strategy, the Company has established an infrastructure,
including management information systems, capable of servicing significantly
more residential mortgage loans than it currently services, formed USS,
purchased the on-going business of an originator and seller of sub-prime
automobile retail installment sales contracts and implemented a new loan
program to complement Matrix Financial's existing wholesale loan origination
capabilities.

OTHER INFORMATION. The Company is a unitary thrift holding company that was
incorporated in Colorado in June 1993. Its principal executive offices are
located at 1380 Lawrence Street, Suite 1410, Denver, Colorado 80204, and its
telephone number is (303) 595-9898.

<TABLE>
<S> <C>
</TABLE>
THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company...... 1,750,000 shares (1)
Common Stock to be outstanding after the
offering................................ 5,638,939 shares (2)
Use of proceeds.......................... The Company intends to use the net
proceeds from the offering to reduce
the balances outstanding on certain
of the Company's revolving line of
credit facilities. See "Use of
Proceeds."
Nasdaq National Market symbol............ MTXC
</TABLE>
- --------
(1) The Company has committed to direct an aggregate of not more than 150,000
shares of Common Stock to be issued and sold in this offering to certain
directors and/or employees of the Company and to the holders of certain of
the Company's debt instruments. See "Description of Capital Stock--
Registration Rights; Rights of First Refusal."
(2) Excludes an aggregate of 525,000 shares of Common Stock reserved for
issuance under the Company's 1996 Amended and Restated Stock Option Plan
(the "1996 Stock Option Plan"), including 79,500 shares subject to
outstanding options at an exercise price of $5.13 per share at June 30,
1996, 125,000 shares of Common Stock reserved for issuance under the 1996
Employee Stock Purchase Plan (the "Purchase Plan") and shares of Common
Stock issuable to certain of the Underwriters upon exercise of warrants to
be issued upon consummation of the offering. See "Management--Stock Option
Plan," "--Employee Stock Purchase Plan" and "Description of Capital Stock--
Underwriters Warrants."

5
<PAGE>

SUMMARY CONSOLIDATED FINANCIAL AND OPERATING INFORMATION

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
AS OF AND FOR THE
AS OF AND FOR THE SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------- ----------------------
1993(1) 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Net interest income be-
fore provision for loan
losses................. $ 944 $ 3,989 $ 3,536 $ 1,662 $ 2,632
Provision for loan loss-
es..................... 15 216 401 85 152
---------- ---------- ---------- ---------- ----------
Net interest income af-
ter provision for loan
losses................. 929 3,773 3,135 1,577 2,480
Non-interest income:
Loan administration.... 6,427 6,926 7,749 3,508 4,632
Brokerage.............. 2,132 4,017 4,787 2,958 1,947
Gain on sale of loans.. 2,361 1,590 3,272 1,320 852
Gain on sale of mort-
gage servicing
rights................ 38 684 1,164 190 1,091
Loan origination(2).... 221 1,294 2,069 440 194
Other.................. 466 487 781 290 408
---------- ---------- ---------- ---------- ----------
Total non-interest in-
come.................. 11,645 14,998 19,822 8,706 9,124
Non-interest expenses... 10,464 14,279 17,136 7,759 9,525
---------- ---------- ---------- ---------- ----------
Income before income
taxes.................. 2,110 4,492 5,821 2,524 2,079
Income taxes(3)......... 404 1,846 2,260 970 840
---------- ---------- ---------- ---------- ----------
Net income.............. $ 1,706 $ 2,646 $ 3,561 $ 1,554 $ 1,239(4)
========== ========== ========== ========== ==========
Net income per common
and common equivalent
share(5)............... $ .71 $ .91 $ .40 $ .32
Pro forma net in-
come(6)................ $ 1,266
Pro forma net income per
common and common
equivalent share(6).... .35
Weighted average common
and common equivalent
shares outstanding..... 3,596,251 3,750,001 3,927,629 3,927,629 3,927,629
Cash dividends.......... $ 88 $ -- $ -- $ -- $ --
BALANCE SHEET DATA
Total assets............ $ 95,747 $ 112,051 $ 175,915 $ 145,445 $ 204,244
Total loans (excluding
allowance for loan
losses)................ 77,034 90,068 138,791 120,198 139,786
Allowance for loan loss-
es..................... 538 728 943 773 1,058
Nonperforming loans(7).. 853 3,314 5,538 5,459 4,092
Mortgage servicing
rights................. 1,818 6,183 13,817 10,586 10,587
Foreclosed real es-
tate(7)................ 726 543 835 534 1,093
Deposits................ 45,517 41,910 48,877 44,852 73,509
Custodial escrow bal-
ances.................. 31,794 24,687 27,011 35,275 26,689
FHLB borrowings......... -- 14,600 19,000 5,200 36,400
Borrowed money.......... 8,791 18,438 65,093 46,494 52,089
Total shareholders' eq-
uity................... 3,030 5,676 9,338 7,331 10,577
OPERATING RATIOS AND
OTHER SELECTED DATA
Return on average as-
sets(8)(9)............. 4.98% 2.69% 2.38% 2.46% 1.23%
Return on average equi-
ty(8)(9)............... 88.44 58.49 51.38 51.11 25.17
Average equity to aver-
age assets(8).......... 5.63 4.60 4.63 4.81 4.88
Net interest mar-
gin(8)(9)(10).......... 4.15 4.63 2.81 3.13 3.08
Operating efficiency ra-
tio(9)(11)............. 83.22 76.07 74.64 75.45 82.08
Total amount of loans
purchased.............. $ 32,231 $ 80,048 $ 91,774 $ 32,367 $ 65,262
Balance of owned servic-
ing portfolio (end of
period)................ 1,007,286 1,041,785 1,596,385 1,392,133 1,362,444
Wholesale loan origina-
tion volume............ 126,200 183,130 388,937 116,329 373,024
LOAN PERFORMANCE RATIOS
Nonperforming
loans/total loans(7)... 1.11% 3.68% 3.99% 4.54% 2.93%
Nonperforming
assets/total as-
sets(7)................ 1.65 3.44 3.62 4.12 2.54
Net loan charge
offs/average
loans(8)(9)............ 0.18 0.03 0.15 0.04 0.02
Allowance for loan
losses/total loans..... 0.70 0.81 0.68 0.64 0.76
Allowance for loan
losses/nonperforming
loans.................. 63.07 21.97 17.03 14.16 25.86
</TABLE>

6
<PAGE>

- --------
(1) The Company acquired all of the outstanding capital stock of Matrix Bank
on September 23, 1993. The operations of Matrix Bank have been included in
the consolidated operations of the Company from the date of acquisition.
(2) On January 1, 1995, the Company adopted FAS 122. Since FAS 122 prohibits
retroactive application, the historical accounting results for 1995 and
1996 are not directly comparable to the results for prior periods. For a
discussion of FAS 122, see "Regulation and Supervision--Miscellaneous--FAS
122."
(3) Prior to the formation of Matrix Capital in June 1993, Matrix Financial
and United Financial had elected for certain periods to be taxed under the
provisions of subchapter "s" of the Internal Revenue Code of 1986, as
amended (the "Code"), and accordingly did not pay income taxes on their
respective earnings; instead the shareholders of Matrix Financial and
United Financial were liable for such taxes. As a result, there is no
income tax provision for earnings during the periods in which subchapter
"s" treatment had been elected.
(4) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Comparison of Results of Operations for the Six
Months Ended June 30, 1996 and 1995--Loan Origination Income" for a
discussion of the impact on net income of a secondary marketing loss
incurred in March 1996.
(5) Net income per common and common equivalent share is based on the weighted
average number of common shares outstanding during each period and the
dilutive effect, if any, of stock options outstanding. There are no other
dilutive securities.
(6) Pro forma net income and pro forma net income per share are presented for
periods in which the Company was not a taxable entity as a result of its
subchapter "s" election. The pro forma net income assumes an effective tax
rate of 40%. Pro forma net income per share is computed by dividing pro
forma net income by the weighted average number of shares of Common Stock
and Common Stock equivalents outstanding during the year.
(7) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Asset and Liability Management--Nonperforming
Assets" for a discussion of the impact of certain bulk purchases of
mortgage loan portfolios on the level of nonperforming loans and
foreclosed real estate.
(8) Calculations are based on average daily balances where available and
monthly averages otherwise.
(9) Ratios for the six months ended June 30, 1995 and 1996 have been
calculated on an annualized basis.
(10) Net interest margin has been calculated by dividing net interest income
before loan loss provision by average interest-earning assets.
(11) The operating efficiency ratio has been calculated by dividing non-
interest expense by operating income (net interest income plus non-
interest income).

7
<PAGE>

RISK FACTORS

An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should carefully consider the following
risk factors, in addition to the other information contained in this
Prospectus, in evaluating an investment in the Common Stock offered hereby.

LIMITED OPERATING HISTORY

The Company was formed in 1993 to combine the operations of Matrix Financial
and United Financial, which were formed in 1990 and 1989, respectively. The
Company purchased Matrix Bank in 1993, formed USS as a start-up operation in
1995 and purchased the assets relating to Sterling's business operations in
1996. This series of combinations, purchases and formations has involved the
integration of the operations of companies that previously operated
independently or, in the case of USS, not at all. Consequently, the Company
has a limited operating history under its existing corporate structure upon
which prospective investors may base an evaluation of its performance. There
can be no assurance that the Company will not encounter significant
difficulties in integrating operations acquired or commenced in the future,
including the recently acquired sub-prime automobile loan origination
business. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business--Sub-Prime Automobile Lending."

POTENTIAL ADVERSE IMPACT OF FLUCTUATING INTEREST RATES

RESIDENTIAL MORTGAGE LOAN SERVICING RIGHTS. Owning residential mortgage loan
servicing rights carries interest rate risk because the total amount of
servicing fees earned, as well as the amortization of the investment in the
servicing rights, fluctuates based on loan prepayments (affecting the expected
average life of a portfolio of residential mortgage servicing rights). The
rate of prepayment of mortgage loans may be influenced by changing national
and regional economic trends, such as recessions or depressed real estate
markets, as well as the difference between interest rates on existing mortgage
loans relative to prevailing mortgage rates. During periods of declining
interest rates, many borrowers refinance their mortgage loans. Accordingly,
prepayments of mortgage loans increase and the loan administration fee income
related to the mortgage loan servicing rights corresponding to a mortgage loan
ceases as underlying loans are prepaid. Consequently, the market value of
portfolios of mortgage loan servicing rights tends to decrease during periods
of declining interest rates, since greater prepayments can be expected. The
income derived from and the market value of the Company's servicing portfolio,
therefore, may be adversely affected during periods of declining interest
rates. See "--Risks Associated with General Economic Conditions" and
"Business--Residential Mortgage Loan Origination--Loan Servicing."

ASSET AND LIABILITY MANAGEMENT. The Company's earnings depend in part upon
the level of its net interest income. Net interest income is the difference
between the interest income received from interest-earning assets and the
interest expense incurred in connection with interest-bearing liabilities.
Accordingly, the Company is vulnerable to an increase in interest rates to the
extent that its interest-earning assets, such as mortgage loans, have longer
effective maturities than, or do not adjust as quickly as, its interest-
bearing liabilities. In a rising interest rate environment, such as that
experienced in the early part of 1996, interest rates paid to depositors and
on borrowings of the Company may rise more quickly than rates earned on the
Company's loan portfolio. Under such circumstances, material and prolonged
increases in interest rates generally would materially and adversely affect
net interest income and the value of interest-earning assets, while material
and prolonged decreases in interest rates generally would have a favorable
effect on net interest income and the value of interest-earning assets.
Fluctuating interest rates also may affect the net interest income earned by
the Company resulting from the difference between the yield to the Company on
mortgage loans held prior to sale and the interest paid by the Company for
funds advanced under the Company's warehouse lines of credit to purchase such
mortgage loans. The process of balancing the maturities of the Company's
assets and liabilities necessarily involves estimates as to how changes in the
general level of interest rates will impact the yields earned on assets and
the rates paid on liabilities. These estimates may prove to be inaccurate. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

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PIPELINE LOANS. Secondary marketing losses on sales of originated mortgage
loans may result from changes in interest rates from the time the interest
rate on the customer's mortgage loan application is established to the time
the Company sells the loan. Such a change in interest rates could result in a
loss upon the sale of such loans. In order to hedge this risk and to minimize
the effect of interest rate changes on the sale of originated loans, the
Company commits to sell mortgage loans to investors for delivery at a future
time for a stated price. At any given time, the Company has committed to sell
substantially all of its mortgage loans that are closed and a percentage of
the mortgage loans that are not yet closed but for which the interest rate has
been established ("pipeline loans").

To manage the interest rate risk of the Company's pipeline loans, the
Company continuously projects the percentage of the pipeline loans it expects
to close and, on the basis of such projections, enters into forward
commitments to sell such loans. If an unanticipated change in interest rates
occurs, the actual percentage of mortgage loans that close may differ from the
projected percentage. The resulting mismatch of commitments to originate loans
and commitments to sell loans may have an adverse effect on the results of
operations of the Company. A sudden increase in interest rates can cause a
higher percentage of mortgage loans to close than projected. To the degree
this may not have been anticipated, the Company may not have made commitments
to sell these additional loans and consequently may incur significant losses
upon their sale, adversely affecting results of operations. On the other hand,
if a lower percentage of mortgage loans close than was projected, due to a
sudden decrease in interest rates or otherwise, the Company may have committed
to sell more loans than actually close and as a result may incur significant
losses in fulfilling these commitments, adversely affecting results of
operations. This risk is greatest during times of high interest rate
volatility. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Comparison of Results of Operations for the Six
Months Ended June 30, 1996 and 1995--Loan Origination" and "Business--
Residential Mortgage Loan Origination--Sale of Loan Originations."

In March 1996, a dramatic and sudden increase in interest rates, coupled
with a failure on the part of a former officer of Matrix Financial to adhere
to the hedging policies established by Matrix Financial's board of directors,
resulted in a $1.9 million secondary marketing loss. These established
policies set benchmarks for Matrix Financial's forward commitments to deliver
loans or mortgage backed securities which are to be maintained against the
pipeline of loan commitments made to borrowers. In addition, these policies
stipulate that all closed loans are to be fully hedged with forward
commitments. Neither policy was adhered to, which resulted in a $1.9 million
loss when interest rates increased dramatically in March 1996, thereby causing
the funded loans and pipeline commitments to decline in market value. Had
these policies been followed, the Company would still have recognized a loss,
albeit significantly smaller, since it is difficult for the Company to be
completely hedged when interest rates rapidly and significantly change. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Comparison of Results of Operations for the Six Months Ended June
30, 1996 and 1995--Loan Origination."

POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS

The Company's financial results are subject to significant quarterly
fluctuations as a result of, among other things, the variance in the number
and magnitude of purchases and sales of mortgage loans and/or mortgage
servicing rights consummated by the Company from time to time. In addition, a
portion of the Company's revenues are derived from brokerage fees, the timing
and receipt of which are unpredictable. Accordingly, the Company's results of
operations for any particular quarter are not necessarily indicative of the
results that may be achieved for any succeeding quarter or for the full fiscal
year. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

DIVERSIFICATION IN BUSINESS LINES; MANAGEMENT OF GROWTH

As part of the Company's business strategy, the Company has in the past
diversified, and may in the future diversify, its lines of business into areas
that are not now part of its core business. As a result, the Company must
manage the development of new business lines in which the Company has not
previously participated.

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Although the Company's strategy is to acquire on-going businesses and to
retain senior management of the entities that the Company acquires, each new
business line, including start-up operations like USS, requires the investment
of additional capital and the significant involvement of senior management of
the Company to acquire or develop a new line of business and integrate it with
the Company's operations. There can be no assurance that the Company will
successfully achieve these objectives.

In addition to entering into new lines of business, the Company's business
strategy also envisions the expansion of its existing lines of business,
particularly in the area of servicing of mortgage loans. The Company believes
that it currently has in place the infrastructure necessary to undertake this
expansion, including management information systems, senior management and
other personnel. However, there can be no assurance that any rapid expansion,
similar to that encountered by the Company over the past several years, would
not unduly burden the Company's infrastructure or that senior management of
the Company could successfully oversee such expansion. See "Business--
Residential Loan Servicing Activities--Residential Mortgage Loan Servicing."

RISKS ASSOCIATED WITH GENERAL ECONOMIC CONDITIONS

Residential mortgage loans comprised approximately 98.9% of the loans
serviced (including loans subserviced for non-affiliates) by the Company and
approximately 88.3% of the loans held by the Company at June 30, 1996. General
economic conditions, whether regional or industry-related or due to a
recession throughout the United States, affect consumers' decisions to buy or
sell residences as well as the number of residential mortgage loan
delinquencies and foreclosures, the value of collateral supporting loan
portfolios, administrative costs in evaluating and processing mortgage loan
applications and the costs and availability of funds that mortgage banking
companies rely upon in order to make or purchase loans. Changes in the level
of consumer confidence, real estate values, prevailing interest rates and
investment returns expected by the financial community could make mortgage
loans of the types purchased, serviced and sold by the Company less attractive
to borrowers or investors.

DEPENDENCE UPON MORTGAGE SERVICING RIGHTS

The Company has relied and expects to continue to rely on the purchase and
sale of mortgage servicing rights for a significant portion of its revenues.
There is no established exchange or trading market for mortgage servicing
rights and no assurance can be given that an active trading market will
develop in the future. The Company believes that it has been able to benefit
from opportunities resulting from inefficiencies in the existing market for
mortgage servicing rights; however, no assurance can be given that such
inefficiencies will continue in the future, and even if continued, that the
Company will be able to benefit from such inefficiencies to the extent it has
in the past, or that if an active trading market for mortgage servicing rights
develops in the future, the Company will be able to benefit from such
developments. See "Business--Residential Loan Servicing Activities--
Acquisition of Servicing Rights." The supply of and demand for mortgage
servicing rights are affected by a number of factors beyond the Company's
control, including, among others, interest rates, regional and national
economic conditions, other factors affecting the housing industry, regulations
affecting the financial services industry and accounting rules and
interpretations related to the accounting treatment of mortgage servicing
rights. Some or all of these factors may adversely affect the Company's
ability to originate, purchase and sell mortgage servicing rights profitably
in the future. See "Business--Residential Loan Servicing Activities."

CONCENTRATION OF LOANS AND SERVICING RIGHTS

The Company's portfolio of residential mortgage loans and mortgage servicing
rights are concentrated in certain geographic areas. Although the geographic
areas in which concentrations exist may vary from time to time, approximately
21.1%, 15.6% and 9.8% of the residential mortgage loans held by the Company at
June 30, 1996 were secured by residential properties located in California,
Texas and New Mexico, respectively. In addition, approximately 33.2%, 13.1%
and 8.8% of the aggregate outstanding principal balances of the mortgage

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<PAGE>

servicing rights owned by the Company at June 30, 1996 were secured by
residential properties located in California, New York and Arizona,
respectively. Consequently, the Company's results of operations and financial
condition are dependent upon general trends in the markets in which
concentrations exist and, more specifically, their respective residential real
estate markets. California in particular has experienced an economic slowdown
or recession over the last several years, which has been accompanied by a
sustained decline in the California real estate market. Such a decline may
adversely affect the values of properties securing the Company's loans, such
that the principal balances of such loans, together with any primary financing
on the mortgaged properties, may equal or exceed the value of the mortgaged
properties, making the Company's ability to recover losses in the event of a
borrower's default extremely unlikely. In addition, California historically
has been vulnerable to certain risks of natural disasters, such as earthquakes
and mudslides, which are not typically covered by standard hazard insurance
policies maintained by borrowers. Uninsured disasters may adversely impact
borrowers' ability to repay loans made by the Company and the value of
collateral underlying such loans, which could have a material adverse effect
on the Company's results of operations and financial condition. See "--Risks
Associated with General Economic Conditions."

DELINQUENCY, FORECLOSURE AND CREDIT RISKS

MORTGAGE LOAN PORTFOLIO. The Company's loan portfolios include loans that
were originated by numerous lenders throughout the United States under various
loan programs and underwriting standards. Many of the loan portfolios include
loans that have had payment delinquencies in the past or, to a lesser extent,
are delinquent at the time of the purchase. As a part of the Company's
business strategy, portfolios of mortgage loans with varying degrees of
current and past delinquencies are purchased at discounts. Although the
Company performs extensive due diligence procedures at the time loans are
purchased, the risk of continuing or recurrent delinquency remains. The
Company assumes substantially all risk of loss associated with its loan
portfolio in the case of foreclosure. This risk includes the cost of the
foreclosure, the loss of interest, and the potential loss of principal to the
extent that the value of the underlying collateral is not sufficient to cover
the Company's investment in the loan. See "Business--Purchase and Sale of Bulk
Loan Portfolios."

SERVICING PORTFOLIO. The Company also is affected by mortgage loan
delinquencies and defaults on mortgage loans that it services. Under many
types of mortgage servicing contracts, even when mortgage loan payments are
delinquent, the servicer must forward all or part of the scheduled payments to
the owner of the mortgage loan. Also, to protect their liens on mortgaged
properties, owners of mortgage loans usually require the servicer to advance
mortgage and hazard insurance and tax payments on schedule even though
sufficient escrow funds may not be available. Typically, the servicer will
ultimately be reimbursed by the mortgage loan owner or from foreclosure
proceeds for payments advanced that the servicer is unable to recover from the
borrower. However, in the interim, the servicer must absorb the cost of funds
advanced during the time such advance is outstanding. Further, the servicer
must bear the increased costs of attempting to collect on delinquent and
defaulted mortgage loans. Although these increased costs are somewhat reduced
through the receipt of late fees and the reimbursement of certain direct
expenses out of foreclosure proceeds, the Company believes that increased
delinquencies and defaults generally increase the costs of the servicing
function. In addition, the Company is required to forego servicing income from
the time a loan becomes delinquent to the time the mortgage loan is
foreclosed. See "Business--Residential Loan Servicing Activities--Residential
Mortgage Loan Servicing."

POSSIBLE INADEQUACY OF ALLOWANCE FOR LOAN LOSSES

The Company's allowance for loan losses is maintained at a level considered
adequate by management to absorb anticipated losses. The amount of future
losses is susceptible to changes in economic, operating and other conditions,
including changes in interest rates, that may be beyond the Company's control,
and such losses may exceed current estimates. Although management believes
that the Company's allowance for loan losses is adequate to absorb any losses
on existing loans that may become uncollectible, there can be no assurance
that the allowance will prove sufficient to cover actual loan losses on
existing loans in the future. See "Management's

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Discussion and Analysis of Financial Condition and Results of Operations--
Asset and Liability Management--Analysis of Allowance for Loan Losses."

LEGAL PROCEEDINGS

Matrix Financial is currently named as a defendant in two lawsuits. These
lawsuits, one of which has been filed in federal court and one of which has
been filed in state court, involve similar sets of underlying facts and
questions of law, and the plaintiffs in each of these suits seek class action
status. The plaintiffs, on behalf of a purported class, have claimed among
other things that Matrix Financial breached the plaintiffs' promissory notes
and mortgages by imposing certain charges at the time the class of plaintiffs
prepaid their notes. In addition to these two suits, in the ordinary course of
its business, the Company is subject to claims made against it by borrowers
and private investors arising from, among other things, losses that are
claimed to have been incurred as a result of alleged breaches of contract and
fiduciary obligations, misrepresentations, errors and omissions of employees,
officers and agents of the Company, incomplete documentation and failures by
the Company to comply with various laws and regulations applicable to its
business, including federal and state banking and consumer lending laws. There
can be no assurance that any liability with respect to these current legal
actions, or ones that might be instituted in the future, would not be material
to the Company's consolidated results of operations, financial condition or
cash flows. See "--Liabilities Under Representations and Warranties,"
"Business--Legal Proceedings" and "Regulation and Supervision."

LIABILITIES UNDER REPRESENTATIONS AND WARRANTIES

In the ordinary course of business, the Company makes representations and
warranties to the purchasers and insurers of mortgage loans and the purchasers
of mortgage servicing rights regarding compliance with laws, regulations and
program standards and as to the accuracy of certain information. Under certain
circumstances, the Company may become liable for damages or may be required to
repurchase a loan if there has been a breach of these representations or
warranties. The Company generally receives similar representations and
warranties from the originators and sellers from whom it purchases mortgage
loans and servicing rights. However, in the event of breaches of such
representations and warranties, the Company is subject to the risk that an
originator may not have the financial capacity to repurchase loans when called
upon to do so by the Company or otherwise respond to demands made by the
Company. During 1995 and the first six months of 1996, the Company recognized
losses of $205,000 and $40,000, respectively, on loan repurchases resulting
from a particular servicing portfolio purchased by the Company and the Company
has accrued a liability of $460,000 for additional losses as of June 30, 1996.
The Company believes that it has recourse against the seller of these mortgage
servicing rights, but does not expect to make any significant recovery due to
the current financial condition of the seller. The Company anticipates selling
this mortgage servicing portfolio and does not anticipate any future material
losses in connection with this portfolio or as a result of additional mortgage
loan repurchases due to breaches in representations and warranties; however,
there can be no assurance that the Company will not experience such losses.
See "Business--Residential Loan Servicing Activities--Servicing Sales."

IMPACT OF REGULATION

GENERAL. The operations of the Company are subject to extensive regulation
by federal and state governmental authorities and are subject to various laws
and regulations and judicial and administrative decisions that, among other
things, establish licensing requirements, regulate credit extension, establish
maximum interest rates and insurance coverages, require specific disclosures
to customers, prohibit discrimination in mortgage lending activities, govern
secured transactions, establish collection, repossession and claims handling
procedures and other trade practices and, in certain states, require payment
of interest on servicing-related custodial escrow deposits. In particular,
Matrix Bank is subject to extensive regulation, examination and supervision by
the Office of Thrift Supervision (the "OTS"), as its chartering agency, and
the FDIC, as insurer of deposits held at Matrix Bank. Matrix Bank is a member
of the Federal Home Loan Bank (the "FHLB") system and its deposits are insured
by the FDIC up to the applicable limits of the Savings Association Insurance
Fund (the "SAIF"). In addition, in certain instances the ability of Matrix
Financial and Matrix Bank to pay dividends to Matrix Capital

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<PAGE>

could be restricted due to regulatory requirements. There can be no assurance
that more restrictive laws, rules or regulations will not be adopted in the
future, or that existing or proposed laws will not be changed to the detriment
of the Company. Any change in such laws and regulations or the adoption of
more restrictive laws and regulations, whether by the OTS, the FDIC or the
Congress of the United States, could have a material adverse effect on the
Company and its financial condition or results of operations. See "Regulation
and Supervision."

PROPOSED LEGISLATION. The Congress of the United States has proposed that a
special assessment be collected from savings institutions whose deposits are
insured under the SAIF. If implemented, the Company would be subject to the
special assessment and the amount of the special assessment, as currently
proposed, would have a material adverse effect on the results of operations of
the Company during the quarter in which such special assessment is paid. The
Congress of the United States adopted a bill that did not become law, but
which would have required federal savings banks to convert to national banks.
In the event of such a conversion, subject to limited grandfathering, thrift
holding companies, such as Matrix Capital, would have become regulated by the
Board of Governors of the Federal Reserve System (the "Federal Reserve
Board"). The Federal Reserve Board requires bank holding companies to maintain
a leverage ratio of 5.0% with the aggregate amount of purchased mortgage
servicing rights not to exceed 50.0% of Tier I capital (the numerator of the
leverage ratio). Had Matrix Capital been subject to the Federal Reserve
Board's capital regulations as of June 30, 1996, its consolidated leverage
ratio would have been approximately 2.7% (assuming no other adjustments).
There is considerable uncertainty regarding whether such legislation will be
adopted. See "Regulation and Supervision."

FEDERAL PROGRAMS. The Company's ability to sell mortgage loans is largely
dependent upon the continuation of programs administered by the Federal
National Mortgage Association ("FNMA"), the Federal Home Loan Mortgage
Corporation ("FHLMC") and the Government National Mortgage Association
("GNMA"), which facilitate the sale of mortgage loans and the pooling of such
loans into mortgage-backed securities, as well as the Company's continued
eligibility to participate in such programs. The discontinuation of, or a
significant reduction in, the operation of such programs would have an adverse
effect on the Company's operations. The Company expects that it will continue
to remain eligible to participate in such programs, but any significant
impairment of such eligibility would adversely affect its operations because
seller/servicer status is vital to its servicing business. In addition, the
products offered under such programs may be changed from time to time. The
profitability of specific products may vary depending on a number of factors,
including the administrative costs to the Company of originating or acquiring
such products. See "Business--Residential Mortgage Loan Origination--Sale of
Loan Originations" and "Regulation and Supervision."

POTENTIAL LIMITATIONS ON AVAILABILITY OF FUNDING SOURCES

Funding for the Company's mortgage banking activities, including the
acquisition of mortgage servicing rights and the acquisition and origination
of mortgage loans, is provided primarily through lines of credit and
sale/repurchase facilities from various financial institutions and from FHLB
borrowings. The Company's business plan entails, and the profitable use of the
proceeds of the offering depends, in part, on the Company's ability to
maintain existing credit facilities and negotiate additional credit facilities
for the acquisition of mortgage servicing rights and other purposes. There can
be no assurance that existing credit facilities will be renewed, or if
renewed, that the terms will be favorable to the Company. Furthermore, there
can be no assurance that additional credit lines will be available, or if
available, that the terms will be favorable to the Company. Unavailability of
funding on terms favorable to the Company, or at all, would have an adverse
effect on the Company's business and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."

COMPETITION

The industries in which the Company competes are highly competitive. The
Company competes with other mortgage banking companies, servicing brokers,
commercial banks, savings associations, credit unions, other financial
institutions, and various other lenders. A number of these competitors have
substantially greater

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financial resources, greater operating efficiencies and longer operating
histories than the Company. Customers distinguish between product and service
providers in the industries in which the Company operates for various reasons,
including convenience in obtaining the product or service, overall customer
service, marketing and distribution channels and pricing (primarily in the
form of prevailing interest rates). Because of its emphasis on mortgage
banking activities, competition for the Company is affected particularly by
fluctuations in interest rates. During periods of rising rates, competitors of
the Company who have locked in lower borrowing costs may have a competitive
advantage. During periods of declining rates, competitors may solicit the
Company's customers to refinance their loans. During economic slowdowns or
recessions, credit-impaired borrowers may have new financial difficulties and
may be receptive to offers by the Company's competitors. See "Business--
Competition."

RELIANCE ON SYSTEMS AND CONTROLS

The Company depends heavily upon its systems and controls, many of which are
designed specifically for its business. These systems and controls support the
evaluation, acquisition, monitoring, collection and administration of the
Company's mortgage loan and servicing portfolios, as well as support the
consulting and brokerage functions performed by the Company and the
depository, general accounting and other management functions of the Company.
For example, in order to track information on its mortgage servicing
portfolio, the Company utilizes a data processing system provided by Alltel
Information Services Inc. ("Alltel"), formerly known as Computer Power
Incorporated or CPI. There can be no assurance that Alltel or the Company's
other providers can continue to provide the systems and controls on which the
Company relies or that the Company's systems and controls, including those
specially designed and built for the Company, are adequate or will continue to
be adequate to support the Company's growth. A failure of the automated
systems, including a failure of data integrity or accuracy, could have a
material adverse effect upon the Company's business and financial condition.

CONCENTRATION OF VOTING CONTROL IN MANAGEMENT

After completion of the offering, the Company's executive officers will
beneficially own an aggregate of approximately 68.1% of the outstanding Common
Stock (approximately 65.1% if the Underwriters' over-allotment option is
exercised in full). Therefore, the Company's management, acting together, will
be able to elect the entire Board of Directors of Matrix Capital and generally
will be able to approve or disapprove all matters submitted to shareholders
for a vote. See "Principal Shareholders" and "Description of Capital Stock."

DEPENDENCE ON KEY PERSONNEL

The Company is dependent upon the continued services of Guy A. Gibson,
Richard V. Schmitz, D. Mark Spencer and the Company's other executive
officers. While the Company believes that it could find replacements for its
executive officers, the loss of their services could have an adverse effect on
the Company's financial condition or results of operations. None of the
Company's executive officers named above have entered into employment
agreements with the Company, but each has a significant equity interest in the
Company. The Company does not maintain key-man life insurance on any of its
executive officers. See "Management--Employment Agreements" and "Principal
Shareholders."

BROAD MANAGEMENT DISCRETION IN USE OF PROCEEDS

Although the Company intends to use a majority of the net proceeds from this
offering to purchase mortgage servicing rights, all or any portion of the net
proceeds of this offering may be used for a strategic acquisition in the event
the Company is presented with such an opportunity. Management has not yet
identified particular portfolios of mortgage servicing rights for purchase or
particular acquisition targets; accordingly, management will retain broad
discretion in the use of proceeds. See "Use of Proceeds."

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ABSENCE OF PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE

Prior to the offering, there has been no public market for the Common Stock.
Consequently, the initial public offering price will be determined through
negotiations between the Company and the Underwriters. See "Underwriting" for
a discussion of factors that will be considered in establishing the initial
public offering price. There can be no assurance that an active trading market
will develop after the offering or, if developed, that such market will be
sustained. The market price for shares of Common Stock may be significantly
affected by such factors as quarter-to-quarter variations in the Company's
results of operations, which may be due to, among other things, the variance
in the number and magnitude of purchases and sales of mortgage loans and/or
servicing rights consummated by the Company from period to period, as well as
by news announcements or changes in general market or industry conditions.
There can be no assurance that shares of Common Stock purchased in the
offering may be later sold at or in excess of the price paid. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

SHARES ELIGIBLE FOR FUTURE SALE

The 1,750,000 shares of Common Stock sold in the offering will be freely
tradeable by persons other than "affiliates" of the Company, as that term is
defined in Rule 144 under the Securities Act, without restriction under the
Securities Act. In addition, 90 days after the date of this Prospectus,
approximately 3,750,001 shares of Common Stock will become eligible for sale
pursuant to the provisions of Rule 144 if the other restrictions enumerated in
that rule are met. And on January 1, 1997, approximately 138,938 shares of
Common Stock will become eligible for sale pursuant to the provisions of Rule
144. The holders of all of such 3,888,939 shares, however, have agreed with
the Underwriters not to offer such shares for sale for a period of 180 days
from the date of this Prospectus without the consent of Piper Jaffray Inc.
Sales of substantial numbers of such shares in the public market, or the
perception that such sales could occur, could adversely affect the market
price of the Common Stock. See "Shares Eligible for Future Sale" and
"Underwriting."

EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS

Certain provisions of the Company's Amended and Restated Articles of
Incorporation (the "Articles of Incorporation") and Bylaws, as amended (the
"Bylaws"), could delay or frustrate the removal of incumbent directors and
could make difficult a merger, tender offer or proxy contest involving the
Company, even if such events could be viewed as beneficial by the Company's
shareholders. For example, the Articles of Incorporation divide the members of
the Board of Directors into three different classes of directors who are
elected by holders of the Common Stock and who serve three-year staggered
terms, require advance notice of shareholder proposals and nominations of
directors and authorize the issuance of "blank check" preferred stock without
a shareholder vote. See "Description of Capital Stock--Certain Charter and
Bylaws Provisions."

DILUTION

Based upon an assumed initial public offering price of $10.00 per share,
purchasers of the Common Stock offered hereby will suffer an immediate and
substantial dilution in the pro forma net tangible book value per share of the
Common Stock from the initial public offering price in the amount of $5.32 per
share. See "Dilution."

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USE OF PROCEEDS

The net proceeds to the Company from the sale of the 1,750,000 shares of
Common Stock offered hereby are estimated to be $15,825,000 ($18,266,250 if
the Underwriters' over-allotment option is exercised in full), assuming an
initial public offering price of $10.00 per share, after deducting the
underwriting discount and estimated offering expenses.

The Company intends to use the net proceeds to reduce the balances
outstanding on certain of its revolving line of credit facilities with two
banks (the "Revolving Credit Facilities") (an aggregate of approximately $29.8
million is expected to be outstanding upon the consummation of the offering),
which amounts will then become available to the Company under the Revolving
Credit Facilities. Subject to certain collateral limitations, the Company
intends to use future borrowings under the Revolving Credit Facilities to
purchase portfolios of mortgage loan servicing rights as opportunities become
available; however, such use may change if the Company is presented with an
opportunity for a strategic acquisition in a complementary financial services-
related area or for the purchase of a financial institution or a branch by
Matrix Bank. The Company has had preliminary discussions for the purchase of a
certain financial services company, although the Company has no agreements or
understandings related to this or any other such acquisitions of financial
institutions, branches, deposits or other financial services-related
companies, and there can be no assurance that any acquisitions will occur.

The Revolving Credit Facilities are secured by mortgage loans, mortgage
servicing rights, eligible servicing advance receivables and eligible
delinquent mortgage loans held by the Company. The Revolving Credit Facilities
bear interest at rates ranging from 1.0% to 2.25% over the federal funds rate
(which was 5.25% at the date hereof) and mature in July 1997. Advances under
the Revolving Credit Facilities were incurred primarily during the last year
to originate residential mortgage loans on a wholesale basis, to fund
acquisitions of mortgage servicing rights and to fund servicing advances. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

DIVIDEND POLICY

Since its organization in June 1993, Matrix Capital has not paid any
dividends on its Common Stock, except for an aggregate of $88,000 in dividends
paid to the shareholders of the Company in 1993. The Company expects that it
will retain all available earnings generated by its operations for the
development and growth of its business and does not anticipate paying any cash
dividends in the foreseeable future. Any future determination as to dividend
policy will be made at the discretion of the Board of Directors of the Company
and will depend on a number of factors, including the future earnings, capital
requirements, financial condition and future prospects of the Company and such
other factors as the Board of Directors may deem relevant. Under the terms of
the Company's 13% Senior Subordinated Notes issued in August 1995 (the "13%
Senior Subordinated Notes"), the Company's ability to pay cash dividends to
its shareholders is limited. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources." In addition, the ability of Matrix Financial and Matrix Bank to
pay dividends to Matrix Capital may be restricted in certain instances,
including covenants under Matrix Financial's existing warehouse facilities.
See "Regulation and Supervision" and Note 7 to the Consolidated Financial
Statements included elsewhere herein.

16
<PAGE>

CAPITALIZATION

The following table sets forth as of June 30, 1996 (i) the capitalization of
the Company and (ii) the capitalization of the Company as adjusted to give
effect to the sale of the shares of Common Stock offered by the Company hereby
at an assumed initial public offering price of $10.00 per share and the
application of the estimated net proceeds to the Company therefrom as
described under "Use of Proceeds." This information is qualified in its
entirety by, and should be read in conjunction with, the Consolidated
Financial Statements of the Company and Notes thereto appearing elsewhere in
this Prospectus.

<TABLE>
<CAPTION>
JUNE 30, 1996
--------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
LIABILITIES
Deposits.................................................. $ 73,509 $ 73,509
Custodial escrow balances................................. 26,689 26,689
FHLB borrowings........................................... 36,400 36,400
Borrowed money (1)........................................ 52,089 36,264
-------- --------
Total................................................... 188,687 172,862
SHAREHOLDERS' EQUITY
Preferred Stock, $0.0001 par value; 5,000,000 shares
authorized; no shares outstanding; no shares outstanding
as adjusted.............................................. -- --
Common Stock, $0.0001 par value; 50,000,000 shares
authorized;
3,888,939 shares outstanding; 5,638,939 shares
outstanding as adjusted (2).............................. -- 1
Additional paid-in capital................................ 2,626 18,450
Retained earnings......................................... 7,951 7,951
-------- --------
Total shareholders' equity.............................. 10,577 26,402
-------- --------
Total capitalization.................................... $199,264 $199,264
======== ========
</TABLE>
- --------

(1) Includes indebtedness outstanding under the Revolving Credit Facilities,
an aggregate of $29.8 million of which is expected to be outstanding upon
the consummation of the offering.

(2) Excludes an aggregate of 525,000 shares of Common Stock reserved for
issuance under the 1996 Stock Option Plan, including 79,500 shares subject
to outstanding options at an exercise price of $5.13 per share at June 30,
1996, 125,000 shares of Common Stock reserved for issuance under the
Purchase Plan and shares of Common Stock issuable to certain of the
Underwriters upon exercise of warrants to be issued upon consummation of
the offering. See "Management--Stock Option Plan," "--Employee Stock
Purchase Plan" and "Description of Capital Stock--Underwriters Warrants."

17
<PAGE>

DILUTION

The net tangible book value of the Company as of June 30, 1996 was $10.6
million, or $2.72 per share of Common Stock. Net tangible book value per share
represents shareholders' equity, less intangible assets, if any, divided by
the number of shares of Common Stock outstanding. After giving effect to the
sale by the Company of the shares of Common Stock offered hereby at an assumed
initial public offering price of $10.00 per share and application of the
estimated net proceeds therefrom, the net tangible book value of the Company
as of June 30, 1996 would have been $26.4 million, or $4.68 per share. This
represents an immediate increase in net tangible book value of $1.96 per share
to existing investors and an immediate dilution of $5.32 per share to new
public investors purchasing Common Stock in the offering, as illustrated in
the following table:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................. $10.00
Net tangible book value per share as of June 30, 1996......... $2.72
Increase per share attributable to new public investors....... 1.96
-----
Net tangible book value per share after the offering............ 4.68
------
Dilution per share to new public investors...................... $ 5.32
======
</TABLE>

The following table sets forth, as of June 30, 1996, the difference between
existing shareholders and the new public investors with respect to the total
number of shares purchased from the Company, the total consideration paid and
the average price paid per share, assuming an initial public offering price of
$10.00 per share:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C>
Existing shareholders...... 3,888,939 69.0% $10,577,000 37.7% $ 2.72
New public investors....... 1,750,000 31.0 17,500,000 62.3 10.00
--------- ----- ----------- -----
Total.................... 5,638,939 100.0% $28,077,000 100.0%
========= ===== =========== =====
</TABLE>

The information and tables above exclude the effect of (i) 79,500 shares of
Common Stock subject to options outstanding at an exercise price of $5.13 per
share as of June 30, 1996, (ii) options to purchase up to an additional
445,500 shares of Common Stock available for issuance under the 1996 Stock
Option Plan, (iii) 125,000 shares of Common Stock available for issuance under
the Purchase Plan and (iv) shares issuable upon exercise of warrants to be
issued to certain of the Underwriters upon consummation of the offering. To
the extent that any of such stock options become exercisable and are
exercised, there will be further and corresponding dilution to new investors.
See "Management--Stock Option Plan," "Employee Stock Purchase Plan" and
"Description of Capital Stock--Underwriters Warrants."

18
<PAGE>

SELECTED CONSOLIDATED FINANCIAL AND OPERATING INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

The balance sheet data as of December 31, 1994 and 1995 and the operating
data for the years ended December 31, 1993, 1994 and 1995 have been derived
from, and are qualified by reference to, the Consolidated Financial Statements
and Notes thereto, which have been audited by Ernst & Young LLP, independent
auditors, as indicated in their report included elsewhere herein. The balance
sheet data as of December 31, 1993 have been derived from audited consolidated
financial statements of the Company, which are not included in this
Prospectus. The balance sheet and operating data as of June 30, 1995 and 1996
and for the six-month periods then ended and as of December 31, 1991 and 1992
and for the years then ended, have been derived from unaudited consolidated
financial statements of the Company. The financial data as of December 31,
1991 and 1992 and for the years then ended reflects the combined operations of
United Financial and Matrix Financial. The unaudited consolidated financial
statements include all adjustments, consisting of normal recurring
adjustments, which the Company considers necessary for a fair presentation of
its financial position as of such dates and the results of operations and cash
flows for such periods. Operating results for the six months ended June 30,
1996 are not necessarily indicative of the results that may be expected for
the entire year ending December 31, 1996. The selected financial data should
be read in conjunction with the Consolidated Financial Statements and Notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
AS OF AND FOR THE
AS OF AND FOR THE SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------------------------------- ---------------------
1991 1992 1993(1) 1994 1995 1995 1996
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Net interest income
(loss) before provision
for loan losses........ $ (230) $ (554) $ 944 $ 3,989 $ 3,536 $ 1,662 $ 2,632
Provision for loan
losses................. -- -- 15 216 401 85 152
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income
(loss) after provision
for loan losses........ (230) (554) 929 3,773 3,135 1,577 2,480
Non-interest income:
Loan administration.... 1,787 6,025 6,427 6,926 7,749 3,508 4,632
Brokerage.............. 1,268 1,842 2,132 4,017 4,787 2,958 1,947
Gain on sale of loans.. 1,532 546 2,361 1,590 3,272 1,320 852
Gain on sale of
mortgage servicing
rights................ 41 348 38 684 1,164 190 1,091
Loan origination(2).... -- -- 221 1,294 2,069 440 194
Other.................. 44 186 466 487 781 290 408
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total non-interest
income................ 4,672 8,947 11,645 14,998 19,822 8,706 9,124
Non-interest expense.... 2,916 8,281 10,464 14,279 17,136 7,759 9,525
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income
taxes.................. 1,526 112 2,110 4,492 5,821 2,524 2,079
Income taxes(3)......... 460 -- 404 1,846 2,260 970 840
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income.............. $ 1,066 $ 112 $ 1,706 $ 2,646 $ 3,561 $ 1,554 $ 1,239(4)
========== ========== ========== ========== ========== ========== ==========
Net income per common
and common equivalent
share(5)............... $ .71 $ .91 $ .40 $ .32
Pro forma net
income(6).............. $ 916 $ 67 $ 1,266
Pro forma net income per
common and common
equivalent share(6).... .27 .02 .35
Weighted average common
and common equivalent
shares outstanding..... 3,442,501 3,442,501 3,596,251 3,750,001 3,927,629 3,927,629 3,927,629
Cash dividends.......... $ -- $ -- $ 88 $ -- $ -- $ -- $ --
BALANCE SHEET DATA
Total assets............ $ 9,176 $ 10,140 $ 95,747 $ 112,051 $ 175,915 $ 145,445 $ 204,244
Total loans (excluding
allowance for loan
losses)................ -- 497 77,034 90,068 138,791 120,198 139,786
Allowance for loan loss-
es..................... -- -- 538 728 943 773 1,058
Nonperforming loans(7).. -- -- 853 3,314 5,538 5,459 4,092
Mortgage servicing
rights................. 7,138 6,200 1,818 6,183 13,817 10,586 10,587
Foreclosed real es-
tate(7)................ 90 69 726 543 835 534 1,093
Deposits................ -- -- 45,517 41,910 48,877 44,852 73,509
Custodial escrow bal-
ances.................. -- -- 31,794 24,687 27,011 35,275 26,689
FHLB borrowings......... -- -- -- 14,600 19,000 5,200 36,400
Borrowed money.......... 4,859 5,347 8,791 18,438 65,093 46,494 52,089
Total shareholders' eq-
uity................... 1,424 1,369 3,030 5,676 9,338 7,331 10,577
</TABLE>

19
<PAGE>

<TABLE>
<CAPTION>
AS OF AND FOR THE
AS OF AND FOR THE SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------------- --------------------
1991 1992 1993(1) 1994 1995 1995 1996
------- ------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RATIOS AND
OTHER SELECTED DATA
Return on average as-
sets(8)(9)............. -- 1.13% 4.98% 2.69% 2.38% 2.46% 1.23%
Return on average equi-
ty(8)(9)............... -- 7.73 88.44 58.49 51.38 51.11 25.17
Average equity to aver-
age assets(8).......... -- 14.57 5.63 4.60 4.63 4.81 4.88
Net interest mar-
gin(8)(9)(10).......... -- -- 4.15 4.63 2.81 3.13 3.08
Operating efficiency ra-
tio(9)(11)............. 65.65% 98.67 83.22 76.07 74.64 75.45 82.08
Total amount of loans
purchased.............. $ -- $ -- $ 32,231 $ 80,048 $ 91,774 $ 32,367 $ 65,262
Balance of owned
servicing portfolio
(end of period)........ 863,931 855,506 1,007,286 1,041,785 1,596,385 1,392,133 1,362,444
Wholesale loan origina-
tion volume............ -- -- 126,200 183,130 388,937 116,329 373,024
LOAN PERFORMANCE RATIOS
Nonperforming
loans/total loans(7)... -- -- 1.11% 3.68% 3.99% 4.54% 2.93%
Nonperforming
assets/total as-
sets(7)................ -- -- 1.65 3.44 3.62 4.12 2.54
Net loan charge
offs/average
loans(8)(9)............ -- -- 0.18 0.03 0.15 0.04 0.02
Allowance for loan
losses/total loans..... -- -- 0.70 0.81 0.68 0.64 0.76
Allowance for loan
losses/nonperforming
loans.................. -- -- 63.07 21.97 17.03 14.16 25.86
</TABLE>
- --------
(1) The Company acquired all of the outstanding capital stock of Matrix Bank
on September 23, 1993. The operations of Matrix Bank have been included in
the consolidated operations of the Company from the date of acquisition.
(2) On January 1, 1995, the Company adopted FAS 122. Since FAS 122 prohibits
retroactive application, the historical accounting results for 1995 and
1996 are not directly comparable to the results for prior periods. For a
discussion of FAS 122, see "Regulation and Supervision--Miscellaneous--FAS
122."
(3) Prior to the formation of Matrix Capital in June 1993, Matrix Financial
and United Financial had elected for certain periods to be taxed under the
provisions of subchapter "s" of the Code and accordingly did not pay
income taxes on their respective earnings; instead the shareholders of
Matrix Financial and United Financial were liable for such taxes. As a
result, there is no income tax provision for earnings during the periods
in which subchapter "s" treatment had been elected.
(4) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Comparison of Results of Operations for the Six
Months Ended June 30, 1996 and 1995--Loan Origination Income" for a
discussion of the impact on net income of a secondary marketing loss
incurred in March 1996.
(5) Net income per common and common equivalent share is based on the weighted
average number of common shares outstanding during each period and the
dilutive effect, if any, of stock options outstanding. There are no other
dilutive securities.
(6) Pro forma net income and pro forma net income per share are presented for
periods in which the Company was not a taxable entity as a result of its
subchapter "s" election. The pro forma net income assumes an effective tax
rate of 40%. Pro forma net income per share is computed by dividing pro
forma net income by the weighted average number of shares of Common Stock
and Common Stock equivalents outstanding during the year.
(7) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Asset and Liability Management--Nonperforming
Assets" for a discussion of the impact of certain bulk purchases of
mortgage loan portfolios on the level of nonperforming loans and
foreclosed real estate.
(8) Calculations are based on average daily balances where available and
monthly averages otherwise.
(9) Ratios for the six months ended June 30, 1995 and 1996 have been
calculated on an annualized basis.
(10) Net interest margin has been calculated by dividing net interest income
before loan loss provision by average interest-earning assets.
(11) The operating efficiency ratio has been calculated by dividing non-
interest expense by operating income (net interest income plus non-
interest income).

20
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following management's discussion and analysis of the financial
condition and results of operations of the Company should be read in
conjunction with the preceding "Selected Consolidated Financial and Operating
Information." Additionally, the Company's Consolidated Financial Statements
and the Notes thereto, as well as other data included in this Prospectus,
should be read and analyzed in combination with the analysis below.

GENERAL

The Company's principal activities consist of the purchase and sale of
portfolios of mortgage loans and mortgage servicing rights, administration of
portfolios of mortgage loans, consulting and brokerage activities involving
mortgage loan servicing and deposit generation. These activities are conducted
through the Company's wholly owned subsidiaries, Matrix Financial, United
Financial and Matrix Bank. More recently, the Company commenced real estate
management and disposition services and the financing of sub-prime automobile
retail installment sales contracts through its wholly owned subsidiaries USS
and Sterling, respectively. While USS and Sterling have not generated material
amounts of revenue or expenses during their limited operating history,
management anticipates that they will make a larger contribution to the
Company's revenues and expenses in the future.

The principal components of the Company's revenues consist primarily of net
interest income recorded by Matrix Bank and Matrix Financial, loan
administration fees generated by Matrix Financial, brokerage fees realized by
United Financial and loan origination fees and gains on sales of mortgage
loans and mortgage servicing rights generated by Matrix Financial and Matrix
Bank. Consistent growth in each of these revenues categories, as well as in
net income, has been achieved over the three full years since the formation of
Matrix Capital. In particular, net interest income increased significantly in
1994 as compared to 1993 due to the inclusion of a full year of operations for
Matrix Bank in the Company's results of operations for 1994, as opposed to
only three months of operations for 1993. It is not anticipated that increases
of this magnitude in these revenue categories will be experienced in the
normal course of business over the foreseeable future. The Company's results
of operations are likely to be influenced by changes in interest rates and the
effect of these changes on the volume of loan originations, mortgage loan
prepayments and the value of mortgage servicing portfolios. See "Risk
Factors--Potential Adverse Impact of Fluctuating Interest Rates."

HISTORY

The Company was formed in June 1993 when the founding shareholders of two of
its Subsidiaries, Matrix Financial and United Financial, exchanged all of the
outstanding capital stock of those two entities for shares of the Company in a
series of transactions that were each accounted for as a pooling of interests.
As a result, the Company's financial results for 1993 reflect a full 12 months
of operations for Matrix Financial and United Financial. Prior to the
acquisition of Matrix Financial and United Financial by the Company in 1993,
Matrix Financial and United Financial were operated as independent subchapter
"s" corporations.

In September 1993, the Company acquired Matrix Bank, formerly named Dona Ana
Savings Bank, FSB and Dona Ana Savings and Loan Association, F.A. The
acquisition was accounted for using the purchase method of accounting and all
of the assets and liabilities were recorded at their estimated fair value as
of the date of acquisition. The Company's consolidated financial results for
1993, therefore, reflect only three months of operations for Matrix Bank.

In June 1995, the Company formed USS. The financial results for USS for the
six months ended June 30, 1996 and for the year ended 1995 reflect a start-up
operation with minimal revenue, as 1995 and the first quarter of 1996 were
utilized primarily to develop marketing material and establish investor
relationships.

In May 1996, the Company formed Sterling, which subsequently acquired for
$47,000 in cash substantially all of the assets of an originator of sub-prime
automobile retail installment sales contracts. As of June 30, 1996,

21
<PAGE>

the total assets of Sterling were $3.2 million. To date, the operations of
Sterling have not been material to those of the Company.

RELATIONSHIPS AMONG THE SUBSIDIARIES

Management believes that the synergies within the Company's corporate
structure, and the opportunities resulting from those synergies, make the
Company unique in the financial services industry. United Financial, which is
primarily a broker of mortgage servicing rights and a consultant to the
mortgage banking industry, provides significant benefits to the other
Subsidiaries. Through United Financial's daily contact with businesses in the
mortgage banking industry, Matrix Financial is able to gain insight into the
mortgage banking industry in which it competes. For example, although Matrix
Financial does not buy mortgage servicing rights brokered by United Financial
in competitive bid situations, United Financial provides market intelligence
to Matrix Financial as to the current market for the purchase and sale of
mortgage loan servicing rights in the secondary market, including the buyers
and sellers in the marketplace at any given time. United Financial also
provides Matrix Financial with mortgage loan servicing valuation capabilities,
puts Matrix Financial in direct contact with sellers of servicing portfolios
and apprises Matrix Financial of the emerging trends in the industry. All
mortgage loan servicing rights that are sold by the Company are brokered
through United Financial, which allows all brokerage fees paid by Matrix
Financial to be retained within the Company.

United Financial's affiliation with Matrix Bank provides both Matrix Bank
and United Financial with what management believes to be a competitive
advantage. United Financial provides Matrix Bank with market contacts for the
purchase of mortgage loan portfolios that it may not otherwise have
identified. The most significant advantage for both companies, however, is the
financing opportunities that United Financial is able to refer to Matrix Bank
directly from United Financial's clients. The opportunity for United Financial
to refer its clients to an affiliate for financing provides Matrix Bank with
an increased pipeline of lending opportunities and enables United Financial to
provide more comprehensive services than many of its competitors.

United Financial's affiliation with USS provides both companies with
significant benefits. Disposition of foreclosed real estate on an outsourced
basis through USS is another service that United Financial can provide its
clients. Management considers the referrals and contacts that United Financial
provides USS to be a marketing advantage, which has allowed USS to develop a
client base more quickly than it could have otherwise. In addition, Matrix
Financial outsources all of the disposition of foreclosed real estate that it
services to USS. This affiliation with USS allows Matrix Financial to reduce
its overhead and has turned the disposition function from a net cost to the
Company to a revenue producer.

Another strategic affiliation within the Company is the one that exists
between Matrix Financial and Matrix Bank. Prior to the acquisition of Matrix
Bank, the custodial escrow deposits related to Matrix Financial's mortgage
loan servicing portfolio were used as compensating balances with the Company's
warehouse lenders, which reduced the interest rate on the amounts outstanding
under the warehouse lines of credit to the extent of the compensating balances
or the Company's loan balances outstanding, whichever was less. The benefit of
the custodial escrow deposits, therefore, was limited to the amounts
outstanding under the warehouse lines and the reduction in interest negotiated
for the use of these compensating balances. Since its acquisition, Matrix Bank
has acted as the depository institution for all of Matrix Financial's
custodial escrow deposits. This relationship allows the Company to derive the
full benefit from these custodial escrow deposits. The deposits are invested
in interest-earning residential mortgage loans at returns greater than
historically had been realized by depositing these sums as compensating
balances with the Company's warehouse lenders. Prior to the acquisition of
Matrix Bank, Matrix Financial also purchased and sold bulk residential
mortgage loan packages, a function that is now handled primarily through
Matrix Bank. This activity as previously conducted by Matrix Financial was
limited due to the lack of availability and expensive cost of the short-term
financing needed to purchase and carry such portfolios. If financing was not
available, Matrix Financial attempted to arrange the simultaneous purchase and
sale of the same portfolio. Transactions executed in this manner prohibited
the Company from earning interest income during the period between the
purchase and corresponding sale and also resulted in an inefficient execution
on the purchase and sale. With Matrix Bank's funding capabilities, the Company
is able to react to

22
<PAGE>

mortgage loan purchase opportunities more quickly and, once the mortgage loan
portfolio has been purchased, the Company is able to hold the portfolio at
lower cost than would otherwise be possible.

In addition to servicing its own portfolio of mortgage servicing rights,
Matrix Financial performs the servicing function for all of Matrix Bank's
mortgage servicing portfolio. Because of the economics of scale achieved with
Matrix Financial's management information systems and its experience in the
servicing industry, management believes that these loans are serviced more
efficiently and at less cost than could normally be achieved by an institution
of Matrix Bank's size. Moreover, Matrix Financial's expertise in the servicing
arena facilitates the purchase by Matrix Bank of bulk loan portfolios
throughout the country.

Matrix Financial's servicing portfolio includes mortgage loans owned by more
than 200 private investors. Matrix Financial routinely contacts these
investors to determine their interest in selling their loan portfolios. In
those instances where a private investor expresses interest in selling a loan
portfolio, Matrix Financial is able to make a referral to Matrix Bank. In many
cases, this referral puts Matrix Bank in a position of purchasing loans
without having to participate in a competitive bid process. In addition, with
Matrix Financial acting as servicer for these loan portfolios, Matrix Bank is
able to perform due diligence on the portfolios more efficiently and at a
lower cost than transactions executed in the open market.

COMPARISON OF RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND
1995

NET INCOME; RETURN ON AVERAGE EQUITY. Net income decreased $315,000, or
20.3%, to $1.2 million for the six months ended June 30, 1996, as compared to
$1.6 million for the six months ended June 30, 1995. The decrease in net
income reflects a $1.9 million secondary marketing loss that occurred in March
1996. See "--Loan Origination." Return on average equity decreased to 25.2%
for the six months ended June 30, 1996, as compared to 51.1% for the six
months ended June 30, 1995. Return on average equity decreased due to the
decrease in net income and due to the Company's policy of retaining all of its
earnings, thereby increasing its equity base.

NET INTEREST INCOME. The Company's earnings depend in part upon the level of
its net interest income. Net interest income is the difference between
interest income, principally derived from the Company's loan portfolios, and
interest expense, principally derived from customer deposits and Company
borrowings. Changes in net interest income result primarily from changes in
volume and spread. Volume refers to the average dollar amount of interest-
earning assets and interest-bearing liabilities. Spread refers to the
difference between the average yield on interest-earning assets and the
average cost of interest-bearing liabilities. Net interest income before
provision for loan losses increased $970,000, or 58.4%, to $2.6 million for
the six months ended June 30, 1996, as compared to $1.7 million for the six
months ended June 30, 1995. The increase was attributable primarily to the
increase in the interest rate spread, which increased to 2.54% for the six
months ended June 30, 1996, as compared to 1.56% for the six months ended June
30, 1995. The increase in the interest rate spread was a result of an increase
in the yield on interest-earning assets to 9.40% for the six months ended June
30, 1996, as compared to 7.99% for the six months ended June 30, 1995. The
increase in the yield on interest-earning assets was primarily due to an
increase in short-term interest rates, which resulted in an increased yield on
the Company's adjustable rate loan portfolio. The effect of the increase in
the yield on interest-earning assets was partially offset by an increase in
the cost on interest-bearing liabilities to 6.86% for the six months ended
June 30, 1996, as compared to 6.43% for the six months ended June 30, 1995.
The increase in the cost of interest-bearing liabilities was due primarily to
an increase in the balance and cost of certificates of deposit at Matrix Bank
and the 13% Senior Subordinated Notes issued in the last quarter of 1995.

The increase in interest income attributable to the increase in interest
rate spread was partially offset by a change in volume of interest-earning
assets and interest-bearing liabilities. The average balance of interest-
bearing liabilities increased $76.9 million, or 95.8%, to $157.3 million for
the six months ended June 30, 1996, as compared to $80.4 million for the six
months ended June 30, 1995. The increase in the average balance of interest-
bearing liabilities was primarily attributable to the increase in FHLB
borrowings and borrowed money. The proceeds from the FHLB borrowings were used
to fund growth at Matrix Bank and the proceeds from

23
<PAGE>

borrowed money were used to fund an increase in wholesale originations. The
increase in the average balance of interest-bearing liabilities was partially
offset by an increase in the average balance of interest-earning assets of
$64.7 million, or 60.9%, to $170.9 million for the six months ended June 30,
1996, as compared to $106.2 million for the six months ended June 30, 1995.
The increase in the average balance of interest-earning assets was due to an
increase in the volume of wholesale loan originations and an increase in the
aggregate outstanding principal balances of loans held by Matrix Bank, which
was consistent with the Company's objective of growing the assets of Matrix
Bank. For a tabular presentation of the changes in net interest income due to
changes in volume of interest-earning assets and changes in interest rates,
see "--Analysis of Changes in Net Interest Income Due to Changes in Interest
Rates and Volumes."

PROVISION FOR LOAN LOSSES. The provision for loan losses is an amount
charged to expense to provide for estimated losses that may occur in the
future on existing loans. In order to determine the amount of the provision,
the Company conducts a monthly review of its loan portfolio and a quarterly
evaluation of the adequacy of its valuation reserves. This systematic
evaluation includes an allocation of the valuation reserve to each loan
category, based on pre-determined loss reserve factors. For example, a higher
loss reserve factor is applied against commercial real estate loans than
residential loans. Within each loan category, the loans are further stratified
by delinquency. Loss reserve factors are higher on delinquent loans than
performing loans. This evaluation also takes into consideration current
economic and market conditions, loan portfolio growth, monthly loan losses and
recoveries, changes in non-performing loans and the current loan collateral
values. The provision for loan losses increased $67,000, or 78.8%, to $152,000
for the six months ended June 30, 1996, as compared to $85,000 for the six
months ended June 30, 1995. This increase was primarily attributable to the
increase in the size of the Company's loan portfolio during the six months
ended June 30, 1996. For a discussion of the Company's allowance for loan
losses as it relates to nonperforming assets, see "--Asset and Liability
Management--Nonperforming Assets."

LOAN ADMINISTRATION. Loan administration fees represent service fees and
other income earned from servicing loans for various investors. Loan
administration fees include service fees that are based on a contractual
percentage of the outstanding principal balance on loans serviced plus late
fees and other ancillary charges. Income is recognized when the related
payments are received. Loan administration fees increased $1.1 million, or
32.0%, to $4.6 million for the six months ended June 30, 1996, as compared to
$3.5 million for the six months ended June 30, 1995. This increase resulted
primarily from the increase in the average outstanding principal balances
underlying the Company's mortgage servicing rights portfolio for the six
months ended June 30, 1996, as compared to the six months ended June 30, 1995.

BROKERAGE. Brokerage fees decreased $1.1 million, or 34.2%, to $1.9 million
for the six months ended June 30, 1996, as compared to $3.0 million for the
six months ended June 30, 1995. This decrease was attributable primarily to
the implementation by the mortgage banking industry of FAS 122, effective
January 1, 1996. For a discussion of FAS 122, see "Regulation and
Supervision--FAS 122." The volume of residential mortgage servicing portfolios
brokered, in terms of aggregate unpaid principal balances on the underlying
loans, decreased $5.9 billion, or 31.9%, to $12.6 billion for the six months
ended June 30, 1996, as compared to $18.5 billion for the six months ended
June 30, 1995. The decrease occurred in the first quarter of 1996, as mortgage
banking firms and financial institutions deferred servicing sales pending
their review of the impact of FAS 122 on their operations. Beginning with the
second quarter of 1996, the Company experienced increased volume of sales of
servicing and does not anticipate that FAS 122 will have a significant effect
on the Company's brokerage activities in the foreseeable future.

GAIN ON SALE OF LOANS AND MORTGAGE-BACKED SECURITIES. Gain on sale of
mortgage loans and mortgage-backed securities decreased by $468,000, or 35.5%,
to $852,000 for the six months ended June 30, 1996, as compared to $1.3
million for the six months ended June 30, 1995. The decrease of $468,000 was
primarily attributable to the mix and the amount of the loan portfolios that
the Company sold. Gain on sale of loans can fluctuate significantly from
quarter to quarter and from year to year based on a variety of factors, such
as the current interest rate environment, the supply of loan portfolios in the
market, the mix of loan portfolios available

24
<PAGE>

in the market, the type of loan portfolios the Company purchases and the
particular loan portfolios the Company elects to sell. The gains from loan
sales occur predominantly at Matrix Bank. The Company's strategy has been and
will continue to be to attempt to match its purchases and sales while managing
its desired growth. The strategy of matching the Company's purchases and sales
while growing the assets of Matrix Bank allows the Company to leverage the
bank's capital and increase net interest income. See "Business--Purchase and
Sale of Bulk Loan Portfolios."

GAIN ON SALE OF MORTGAGE SERVICING RIGHTS. Gain on sale of mortgage
servicing rights increased $901,000, or 474.2%, to $1.1 million for the six
months ended June 30, 1996, as compared to $190,000 for the six months ended
June 30, 1995. This increase resulted primarily from the sale of two
portfolios of servicing rights that occurred in June 1996. In terms of
aggregate outstanding principal balances of mortgage loans underlying such
servicing rights, the Company sold $390.5 million in purchased mortgage
servicing rights for the six months ended June 30, 1996 as compared to $15.6
million in mortgage servicing rights for the six months ended June 30, 1995.
The sales in June 1996 were undertaken primarily to generate cash flow and
revenue in order to partially offset the secondary marketing loss incurred in
March 1996. See "--Loan Origination."

LOAN ORIGINATION. Loan origination income includes all mortgage loan
origination fees, secondary marketing activity on new loan originations,
servicing released premiums on new originations sold, net of outside
origination costs. Loan origination income decreased $246,000, or 55.9%, to
$194,000 for the six months ended June 30, 1996, as compared to $440,000 for
the six months ended June 30, 1995.

The decrease in loan origination income of $246,000 for the six months ended
June 30, 1996, as compared to the six months ended June 30, 1995, was
attributable primarily to a $1.9 million secondary marketing loss that
occurred in March 1996, partially offset by an increase in other loan
origination income resulting from an increase in loan origination volume of
$256.7 million, or 220.7%, to $373.0 million for the six months ended June 30,
1996, as compared to $116.3 million for the six months ended June 30, 1995.
The secondary marketing loss was attributable to the failure of a former
officer of Matrix Financial to adhere to the hedging policies established by
Matrix Financial's board of directors. These policies establish benchmarks for
Matrix Financial's forward commitments to deliver loans or mortgage backed
securities which are to be maintained against the pipeline and funded loans.
In addition, these policies stipulate that all closed loans are to be fully
hedged with forward commitments. The Company's hedging policies were not
adhered to, resulting in certain of such closed loans not being adequately
hedged, which resulted in a $1.9 million loss when interest rates increased
dramatically in March 1996, thereby causing the funded loans and pipeline
commitments to decline in market value. Had these policies been followed, the
Company would still have recognized a loss, albeit significantly smaller,
since it is difficult for the Company to be completely hedged when interest
rates rapidly and significantly change. See "Risk Factors--Potential Adverse
Effect of Fluctuating Interest Rates--Pipeline Loans."

The Company has implemented several management and reporting changes to help
ensure that the hedging policies established by Matrix Financial's board of
directors are adhered to so as to mitigate secondary marketing losses in
volatile interest rate markets. The management and reporting changes were made
in two major areas. First, there was a reorganization of the reporting
structure for the production division related to the Company's secondary
marketing activities. A new Chief Lending Officer was hired to manage loan
production and the related operations for Matrix Financial, and a new
secondary marketing manager was hired to focus specifically on managing the
interest rate risk of this business line. Second, the Company developed and
implemented additional policies and procedures for production and secondary
marketing activities to decrease the interest rate risk exposure of the
Company.

The Company also divided the reporting hierarchy for the production and
secondary marketing responsibilities. The secondary marketing department has
been relocated from Atlanta to Phoenix and reports directly to the finance
division of Matrix Financial. This reduces the production pressures on
secondary marketing and allows the Company to focus specifically on interest
rate risk management. The reorganization and centralization of the secondary
marketing department has been supplemented by the development of more

25
<PAGE>

formalized pipeline, interest rate risk management, hedging policies and
procedures to further reduce secondary marketing risks. The secondary
marketing manager provides daily analysis of loan pipeline, hedge positions
and mark to market valuations to insure the Company's hedging policies are
being followed. This analysis is reviewed daily with the Chief Financial
Officer of Matrix Financial and a weekly summary is provided to the executive
officers of Matrix Capital. New procedures and policies regarding loan lock
policy, lock tracking and authorizations for lock extensions and pricing
exceptions have been implemented. With these changes, the Company believes it
has reduced the risk of significant secondary marketing losses such as the one
experienced in March 1996.

NON-INTEREST EXPENSE. Non-interest expense increased $1.8 million, or 22.8%,
to $9.5 million for the six months ended June 30, 1996, as compared to $7.8
million for the six months ended June 30, 1995. This increase was primarily
the result of the continued expansion and diversification of the Company's
operations. The following table details the major components of non-interest
expense for the periods indicated:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Compensation and employee benefits........................ $ 4,157 $ 5,071
Amortization of mortgage servicing rights................. 613 1,184
Occupancy and equipment................................... 657 738
Professional fees......................................... 232 176
Data processing........................................... 246 273
Other..................................................... 1,854 2,083
-------- --------
Total................................................... $ 7,759 $ 9,525
======== ========
</TABLE>

Compensation and employee benefits generally represent the largest component
of non-interest expense for the Company. Compensation and employee benefits
increased $914,000, or 22.0%, to $5.1 million for the six months ended June
30, 1996, as compared to $4.2 million for the six months ended June 30, 1995.
The increase of $914,000 was a result of the Company's development and
expansion of existing and new business lines, which resulted in a significant
expansion in the Company's employee base. In June 1995, the Company started
the operations of USS and expanded its employee base at Matrix Financial to
handle the increase in wholesale loan originations; in January 1996, the
Company opened a branch of Matrix Bank in Sun City, Arizona; and in May 1996,
the Company acquired the operations of Sterling. All of the above expansion
activities required additional personnel, which was the primary contributor to
the increase in compensation and employee benefits (as compared to increases
in salary and benefit levels). The Company had a total of 206 full time
equivalent employees at June 30, 1996, as compared to 156 full time equivalent
employees at June 30, 1995. In addition, much of the compensation incurred in
connection with the Company's wholesale lending operations is based on
commission. A portion of the increase in compensation and employee benefits
during the six months ended June 30, 1996, therefore, was attributable to the
increased volume of wholesale loan originations.

Amortization of mortgage servicing rights fluctuates based on the size of
the Company's mortgage servicing portfolio, the size of the Company's
investment and the prepayment rates experienced with respect to the underlying
mortgage loan portfolio from year to year. Amortization of mortgage servicing
rights increased $571,000, or 93.1%, to $1.2 million for the six months ended
June 30, 1996, as compared to $613,000 for the six months ended June 30, 1995.
This increase was due to an increase in the average balance of the outstanding
servicing portfolio and was partially offset by the lower prepayments
experienced for the six months ended June 30, 1996 as compared to the six
months ended June 30, 1995.

Occupancy and equipment expenses increased $81,000, or 12.3%, to $738,000
for the six months ended June 30, 1996, as compared to $657,000 for the six
months ended June 30, 1995. The increase was the result of the opening of a
bank branch in Sun City, Arizona in January 1996, and the lease of office
space for the operations of USS and Sterling.

26
<PAGE>

The remaining non-interest expense, which includes professional fees, data
processing costs and other expenses, such as telephone, postage, advertising
and insurance, increased $200,000, or 8.6%, to $2.5 million for the six months
ended June 30, 1996 as compared to $2.3 million for the six months ended June
30, 1995. The increase was the result of the development and expansion of both
existing and new business lines by the Company.

PROVISIONS FOR INCOME TAXES. Provisions for income taxes decreased $130,000,
or 13.4%, to $840,000 for the six months ended June 30, 1996, as compared to
$970,000 for the six months ended June 30, 1995. The decrease was due to the
decrease in pre-tax income. The two periods had effective tax rates of 40% and
39%, respectively.

COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995 AND
1994

NET INCOME; RETURN ON AVERAGE EQUITY. Net income increased $915,000, or
34.6%, to $3.6 million for the year ended December 31, 1995, as compared to
$2.6 million for the year ended December 31, 1994. Return on average equity
decreased to 51.4% for the year ended December 31, 1995 as compared to 58.5%
for the year ended December 31, 1994. The decrease in return on average equity
was primarily due to the Company's policy of retaining all of its earnings,
which increased its equity base.

NET INTEREST INCOME. Net interest income before provision for loan losses
decreased $453,000, or 11.4%, to $3.5 million for the year ended December 31,
1995, as compared to $4.0 million for the year ended December 31, 1994. The
decrease for the year ended December 31, 1995 was attributable primarily to
the increase in the Company's cost of interest-bearing liabilities, which
increased to 7.14% for the year ended December 31, 1995, as compared to 5.16%
for the year ended December 31, 1994. The increase in the cost of interest-
bearing liabilities was primarily related to borrowings used to fund the
increase in the mortgage loan originations. The Company's mortgage loan
originations are funded through borrowings based on short-term interest rates.
The interest rate spread between short-term interest rates and long-term
interest rates generally was lower during the year ended December 31, 1995, as
compared to the year ended December 31, 1994. The decrease occurred primarily
because the cost of interest-bearing liabilities increased more rapidly than
the yield on interest-earning assets. The effect of smaller spreads between
long-term interest rates and short-term interest rates means generally that
the Company earns less net interest income on its wholesale mortgage loan
originations which, in turn, reduces its net interest margin (net interest
income before provision for loan losses divided by average interest-earning
assets). The Company's net interest margin decreased to 2.81% for the year
ended December 31, 1995 as compared to 4.63% for the year ended December 31,
1994. The effect of the lower interest rate margin was partially offset by an
increase in the Company's average interest-earning assets. The Company's
average interest-earning assets increased $39.8 million, or 46.3%, to $125.9
million for the year ended December 31, 1995, as compared to $86.1 million for
the year ended December 31, 1994. This increase was attributable primarily to
the increase in the size of the Company's loan portfolio held for sale. For a
tabular presentation of the changes in net interest income due to changes in
volume of interest-earning assets and changes in interest rates, see "--
Analysis of Changes in Net Interest Income Due to Changes in Interest Rates
and Volumes."

PROVISION FOR LOAN LOSSES. The provision for loan losses increased $185,000,
or 85.6%, to $401,000 for the year ended December 31, 1995, as compared to
$216,000 for the year ended December 31, 1994. This increase was attributable
primarily to the corresponding increase in the size of the Company's loan
portfolio. For a discussion of the Company's allowance for loan losses as it
relates to nonperforming assets, see "--Asset and Liability Management--
Nonperforming Assets."

LOAN ADMINISTRATION. Loan administration fees increased $823,000, or 11.9%,
to $7.7 million for the year ended December 31, 1995, as compared to $6.9
million for the year ended December 31, 1994. This increase was attributable
primarily to the increase in the average outstanding principal balance
underlying the Company's mortgage servicing rights portfolio for the year
ended December 31, 1995, as compared to the year ended December 31, 1994.

27
<PAGE>

BROKERAGE. Brokerage fees increased $770,000, or 19.2%, to $4.8 million for
the year ended December 31, 1995, as compared to $4.0 million for the year
ended December 31, 1994. The increase was primarily attributable to an
increase in the volume of residential mortgage servicing portfolios brokered
by United Financial. The balance of residential mortgage servicing portfolios
brokered by United Financial, in terms of aggregate unpaid principal balances
on the underlying loans, increased $3.7 billion, or 12.8%, to $32.6 billion
for the year ended December 31, 1995, as compared to $28.9 billion for the
year ended December 31, 1994.

GAIN ON SALE OF LOANS AND MORTGAGE-BACKED SECURITIES. Gain on sale of
mortgage loans and mortgage-backed securities increased by $1.7 million, or
105.8%, to $3.3 million for the year ended December 31, 1995, as compared to
$1.6 million for the year ended December 31, 1994. The increase was
attributable primarily to the type of loan portfolios that the Company was
able to purchase during 1995. The Company's strategy has been and will
continue to be to match its purchases and sales while managing its desired
growth. Therefore, the increase of $1.7 million in gain on loan sales was
attributable to the Company's loan purchases, which affect the mix and, to a
limited extent, the amount of the loan portfolios that the Company sold.

GAIN ON SALE OF MORTGAGE SERVICING RIGHTS. Gain on sale of mortgage
servicing rights increased $480,000, or 70.2%, to $1.2 million for the year
ended December 31, 1995, as compared to $684,000 for the year ended December
31, 1994. This increase resulted primarily from one particular sale of
mortgage servicing rights with aggregate unpaid principal balances of $16.2
million, resulting in a gain of $1.0 million. The servicing portfolio sold
consisted of loans with non-standard payment accrual methodologies, including
the Rule of 78s and daily simple interest accruals, and were secured by second
liens. The sale allowed the Company to deploy the cash generated to purchase
new servicing portfolios considered by the Company to be more conforming in
nature and, thereby, enhance the efficiencies of the Company's servicing
operations.

LOAN ORIGINATION. Loan origination income increased $775,000, or 59.9%, to
$2.1 million for the year ended December 31, 1995, as compared to $1.3 million
for the year ended December 31, 1994. The increase of $775,000 was primarily
the result of the increase in new loan origination volume experienced by
Matrix Financial during 1995. The new loan origination volume increased $205.8
million, or 112.4%, to $388.9 million for the year ended December 31, 1995, as
compared to $183.1 million for the year ended December 31, 1994.

NON-INTEREST EXPENSE. Non-interest expense increased $2.8 million, or 20.0%,
to $17.1 million for the year ended December 31, 1995, as compared to $14.3
million for the year ended December 31, 1994. This increase was primarily a
result of the continued expansion and diversification of the Company's
operations during 1995. The following table details the major components of
non-interest expense for the periods indicated:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Compensation and employee benefits.......................... $ 7,719 $ 8,586
Amortization of mortgage servicing rights................... 1,185 1,817
Occupancy and equipment..................................... 1,067 1,124
Professional fees........................................... 485 660
Data processing............................................. 492 529
Other....................................................... 3,331 4,420
------- -------
Total..................................................... $14,279 $17,136
======= =======
</TABLE>

Compensation and employee benefits increased $867,000, or 11.2%, to $8.6
million for the year ended December 31, 1995, as compared to $7.7 million for
the year ended December 31, 1994. The majority of the increase was directly
related to the increase in the brokerage volume at United Financial and the
loan origination volume at Matrix Financial. The majority of employees engaged
in these activities are paid on a commission basis. The brokerage volume
increased $3.7 billion, or 12.8%, and the loan originations increased $205.8
million,

28
<PAGE>

or 112.4%, which resulted in an increase in compensation of approximately
$800,000. The remainder of the increase was the result of the Company's
development and expansion of both existing and new business lines during 1995,
which resulted in the expansion of the Company's employee base. The Company
had a total of 163 full time equivalent employees at December 31, 1995 as
compared to 153 full time equivalent at December 31, 1994.

Amortization of mortgage servicing rights increased $632,000, or 53.3%, to
$1.8 million for the year ended December 31, 1995, as compared to $1.2 million
for the year ended December 31, 1994. This increase was due to the growth in
the Company's average outstanding balance of servicing rights, but was
partially offset by the slower rate of prepayments experienced during the year
ended December 31, 1995, as compared to the year ended December 31, 1994.

The remaining non-interest expense, which includes occupancy and equipment
expenses, professional fees, data processing costs and other expenses, such as
telephone, postage, advertising and insurance, increased $1.3 million, or
25.3%, to $6.7 million for the year ended December 31, 1995 as compared to
$5.4 million for the year ended December 31, 1994. The increase was the result
of the development and expansion of both existing and new business lines.

PROVISIONS FOR INCOME TAXES. Provisions for income taxes increased $414,000,
or 22.4%, to $2.3 million for the year ended December 31, 1995, as compared to
$1.8 million for the year ended December 31, 1994. The increase was due to the
increase in pre-tax income. The two periods had comparable effective tax rates
of 39% and 41%, respectively.

COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1994 AND
1993

NET INCOME; RETURN ON AVERAGE EQUITY. Net income increased $940,000, or
55.1% to $2.6 million for the year ended December 31, 1994, as compared to
$1.7 million for the year ended December 31, 1993. Return on average equity
decreased to 58.5% for the year ended December 31, 1994, as compared to 88.4%
for the year ended December 31, 1993. Return on average equity decreased due
to the Company's policy of retaining all of its earnings, which increased its
equity base.

NET INTEREST INCOME. Net interest income before provision for loan losses
increased $3.1 million, or 322.6%, to $4.0 million for the year ended December
31, 1994, as compared to $944,000 for the year ended December 31, 1993. The
increase in the Company's net interest income was largely a result of the year
ended December 31, 1994, including a full 12 months of operating results for
Matrix Bank, as compared to the inclusion of only three months for the year
ended December 31, 1993. The Company's average interest-earning assets
increased $63.3 million, or 278.4%, to $86.1 million, as compared to $22.8
million for the year ended December 31, 1993. This increase was again
attributable primarily to the year ended December 31, 1994, including a full
12 months of operations for Matrix Bank. The Company's net interest margin
increased to 4.63% for the year ended December 31, 1994, as compared to 4.15%
for the year ended December 31, 1993. The increase resulted primarily from the
fact that the average balance of interest-earning assets increased greater
than the average balance of interest-bearing liabilities. The average balance
of interest-earning assets increased by $63.3 million, to $86.1 million for
the year ended December 31, 1994, from $22.8 million for the year ended
December 31, 1993, as compared to an increase in interest-bearing liabilities
of $35.7 million, to $58.6 million for the year ended December 31, 1994, as
compared to $22.9 million for the year ended December 31, 1993. The overall
increase in both the interest-earning assets and interest bearing liabilities
is the result of the year ended December 31, 1994 including a full 12 months
for Matrix Bank. The greater increase in the average balance of interest-
earning assets was a result of the effect of the noninterest bearing custodial
balances maintained at Matrix Bank. For a tabular presentation of the changes
in net interest income due to changes in volume of interest-earning assets and
changes in interest rates, see "--Analysis of Changes in Net Interest Income
Due to Changes in Interest Rates and Volumes."

PROVISION FOR LOAN LOSSES. The provision for loan losses increased $201,000
to $216,000 for the year ended December 31, 1994, as compared to $15,000 for
the year ended December 31, 1993. This increase was

29
<PAGE>

primarily attributable to the increase in the size of the Company's loan
portfolio for 1994, as compared to 1993. For a discussion of the Company's
allowance for loan losses as it relates to nonperforming assets, see "--Asset
and Liability Management--Nonperforming Assets."

LOAN ADMINISTRATION. Loan administration fees increased $499,000, or 7.8%,
to $6.9 million for the year ended December 31, 1994, as compared to $6.4
million for the year ended December 31, 1993. This increase was attributable
primarily to the increase in the average outstanding principal balances
underlying the Company's mortgage servicing rights portfolio for the year
ended December 31, 1994, as compared to the year ended December 31, 1993.

BROKERAGE. Brokerage fees increased $1.9 million, or 88.4%, to $4.0 million
for the year ended December 31, 1994, as compared to $2.1 million for the year
ended December 31, 1993. The increase was attributable primarily to an
increase in the volume of residential mortgage servicing portfolios brokered
by United Financial of $12.8 billion, or 79.5%, to $28.9 billion for the year
ended December 31, 1994, as compared to $16.1 billion for the year ended
December 31, 1993.

GAIN ON SALE OF LOANS. Gain on sale of mortgage loans decreased by $771,000,
or 32.7%, to $1.6 million for the year ended December 31, 1994, as compared to
$2.4 million for the year ended December 31, 1993. The decrease was
attributable primarily to the sale by the Company of fewer mortgage loans in
1994, as compared to 1993, consistent with the Company's objective of growing
the balance sheet of Matrix Bank through the acquisition of bulk loan
portfolios.

GAIN ON SALE OF MORTGAGE SERVICING RIGHTS. Gain on sale of mortgage
servicing rights increased $646,000 to $684,000 for the year ended December
31, 1994, as compared to $38,000 for the year ended December 31, 1993. This
increase resulted primarily from two sale transactions, aggregating $112.4
million in unpaid principal balances or underlying loans, consummated in the
year ended December 31, 1994, as compared to one insignificant transaction in
the year ended December 31, 1993.

LOAN ORIGINATION. Loan origination income increased $1.1 million, or 485.5%,
to $1.3 million for the year ended December 31, 1994, as compared to $221,000
for the year ended December 31, 1993. The increase of $1.1 million was
primarily attributable to the increase in new loan origination volume and
pricing. The new loan origination volume increased $56.9 million, or 45.1%, to
$183.1 million for the year ended December 31, 1994, as compared to $126.2 for
the year ended December 31, 1993, which included only six months of wholesale
loan originations because the Company commenced those operations in June 1993.

NON-INTEREST EXPENSE. Non-interest expense increased $3.8 million, or 36.5%,
to $14.3 million for the year ended December 31, 1994, as compared to $10.5
million for the year ended December 31, 1993. This increase was a result of
the expansion and diversification in the Company's operations and, more
specifically, the effect of the acquisition of Matrix Bank. The Company's
operations include a full 12 months of operating results for Matrix Bank for
the year ended December 31, 1994, as compared to only three months for the
year ended December 31, 1993. The following table details the major components
of non-interest expense for the periods indicated:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------
1993 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Compensation and employee benefits.......................... $ 4,605 $ 7,719
Amortization of mortgage servicing rights................... 2,363 1,185
Occupancy and equipment..................................... 585 1,067
Professional fees........................................... 297 485
Data processing............................................. 408 492
Other....................................................... 2,206 3,331
------- -------
Total..................................................... $10,464 $14,279
======= =======
</TABLE>

30
<PAGE>

Compensation and employee benefits increased $3.1 million, or 67.6%, to $7.7
million for the year ended December 31, 1994, as compared to $4.6 million for
the year ended December 31, 1993. The increase of $3.1 million was a result
the growth that the Company experienced, primarily as a result of the
acquisition of Matrix Bank. The Company had a total of 153 full time
equivalent employees at December 31, 1994, as compared to 117 full time
equivalent employees at December 31, 1993.

Amortization of mortgage servicing rights decreased $1.2 million, or 49.9%,
to $1.2 million for the year ended December 31, 1994, as compared to $2.4
million for the year ended December 31, 1993. This decrease was primarily due
to a significant decrease in the rate of prepayments and was partially offset
by marginal growth in the Company's outstanding balance of servicing rights.

Occupancy and equipment expenses increased $482,000, or 82.4%, to $1.1
million for the year ended December 31, 1994, as compared to $585,000 for the
year ended December 31, 1993. The increase was primarily the result of the
growth that the Company experienced, including the addition of the facilities
and equipment utilized by Matrix Bank.

The remaining non-interest expense which includes professional fees, data
processing costs and other expenses, such as telephone, postage, advertising
and insurance, increased $1.4 million, or 48.0%, to $4.3 million for the year
ended December 31, 1994, as compared to $2.9 million for the year ended
December 31, 1993. The increase was a result of the development and expansion
of both existing and new business lines and the acquisition of Matrix Bank in
September 1993.

PROVISIONS FOR INCOME TAXES. Provisions for income taxes increased $1.4
million, or 356.9%, to $1.8 million for the year ended December 31, 1994, as
compared to $404,000 for the year ended December 31, 1993. The increase was
due to the increase in pre-tax income for 1994, as well as the fact that
United Financial and Matrix Financial had elected for the first six months of
1993 to be treated as subchapter "s" corporations with the prior shareholders
being responsible for the related tax liability. As part of the formation of
Matrix Capital, these corporations were converted to "c" corporations and were
taxed accordingly for the second half of 1993. The transition of United
Financial and Matrix Financial from subchapter "s" to subchapter "c"
corporations in June 1993 resulted in the Company having an effective tax rate
of 19% in 1993 as compared to 41% in 1994.

AVERAGE BALANCE SHEET

The following table sets forth for the periods and as of the dates indicated
information regarding the Company's average balances of assets and liabilities
as well as the dollar amounts of interest income from interest-earning assets
and interest expense on interest-bearing liabilities and the resultant yields
or costs. Average interest rate information for the six months ended June 30,
1995 and 1996 has been annualized. Ratio, yield and rate information are based
on average daily balances where available; otherwise, average monthly balances
have been used. Nonaccrual loans are included in the calculation of average
balances for loans for the periods indicated.

31
<PAGE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------
1993 1994 1995
------------------------- ------------------------- --------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- ------- ------- -------- ------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning
assets:
Loans receivable,
net of
discounts........ $18,608 $1,647 8.85% $79,393 $6,681 8.42% $121,206 $10,412 8.59%
Mortgage-backed
securities....... -- -- -- -- -- -- -- -- --
Interest-earning
deposits......... 3,991 100 2.51 5,974 299 5.01 3,381 232 6.86
FHLB stock....... 151 4 2.65 716 35 4.89 1,321 86 6.51
------- ------ ----- ------- ------ ------ -------- ------- ------
Total interest-
earning assets.. 22,750 1,751 7.70 86,083 7,015 8.15 125,908 10,730 8.52
Non-interest
earning assets:
Cash............. 844 1,618 2,046
Allowance for
loan losses...... (168) (690) (836)
Premises and
equipment........ 1,211 3,639 4,909
Other assets..... 9,653 7,624 17,611
------- ------- --------
Total
noninterest
earning assets.. 11,540 12,191 23,730
------- ------- --------
Total assets.... $34,290 $98,274 $149,638
======= ======= ========
LIABILITIES AND
SHAREHOLDERS'
EQUITY
Interest-bearing
liabilities:
Passbook
accounts......... $ 908 17 1.87 $ 2,788 72 2.58 $ 2,394 85 3.55
Money market and
negotiable order
of withdrawal
("NOW") accounts.. 3,713 72 1.94 9,481 271 2.86 8,320 292 3.51
Certificates of
deposit.......... 10,888 304 2.79 29,273 1,138 3.89 33,332 1,807 5.42
FHLB borrowings.. 271 9 3.32 3,071 213 6.94 17,662 1,113 6.30
Borrowed money... 7,090 405 5.71 14,008 1,332 9.51 39,021 3,897 9.98
------- ------ ----- ------- ------ ------ -------- ------- ------
Total interest-
bearing
liabilities..... 22,870 807 3.53 58,621 3,026 5.16 100,729 7,194 7.14
------- ------ ----- ------- ------ ------ -------- ------- ------
Noninterest
bearing
liabilities:
Demand deposits
(including
custodial escrow
balances)........ 5,186 30,559 35,794
Other
liabilities...... 4,305 4,570 6,184
------- ------- --------
Total noninterest
bearing
liabilities...... 9,491 35,129 41,978
Shareholders'
equity........... 1,929 4,524 6,931
------- ------- --------
Total
liabilities and
shareholders'
equity.......... $34,290 $98,274 $149,638
======= ======= ========
Net interest
income before
provision for
loan losses...... $ 944 $3,989 $ 3,536
====== ====== =======
Interest rate
spread........... 4.17% 2.99% 1.38%
===== ====== ======
Net interest
margin........... 4.15% 4.63% 2.81%
===== ====== ======
Ratio of average
interest-earning
assets to average
interest-
bearing liabilities.. 99.48% 146.85% 125.00%
===== ====== ======

SIX MONTHS ENDED JUNE 30,
------------------------------------------------------
1995 1996
-------------------------- --------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- -------- ------- -------- -------- -------

<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning
assets:
Loans receivable,
net of
discounts........ $102,082 $4,092 8.02% $160,380 $7,713 9.62%
Mortgage-backed
securities....... -- -- -- 3,487 134 7.69
Interest-earning
deposits......... 2,986 115 7.70 4,612 112 4.86
FHLB stock....... 1,169 38 6.50 2,453 72 5.87
-------- ------ ------ -------- ------ ------
Total interest-
earning assets.. 106,237 4,245 7.99 170,932 8,031 9.40
Non-interest
earning assets:
Cash............. 2,025 2,346
Allowance for
loan losses...... (896) (978)
Premises and
equipment........ 4,670 6,277
Other assets..... 14,327 22,985
-------- --------
Total
noninterest
earning assets.. 20,126 30,630
-------- --------
Total assets.... $126,363 $201,562
======== ========
LIABILITIES AND
SHAREHOLDERS'
EQUITY
Interest-bearing
liabilities:
Passbook
accounts......... $ 2,496 46 3.69 $ 2,415 40 3.31
Money market and
negotiable order
of withdrawal
("NOW") accounts.. 7,928 128 3.23 11,929 233 3.91
Certificates of
deposit.......... 31,256 771 4.93 44,225 1,288 5.82
FHLB borrowings.. 15,458 494 6.39 34,416 976 5.67
Borrowed money... 23,221 1,144 9.85 64,359 2,862 8.89
-------- ------ ------ -------- ------ ------
Total interest-
bearing
liabilities..... 80,359 2,583 6.43 157,344 5,399 6.86
-------- ------ ------ -------- ------ ------
Noninterest
bearing
liabilities:
Demand deposits
(including
custodial escrow
balances)........ 33,779 28,518
Other
liabilities...... 6,144 5,856
-------- --------
Total noninterest
bearing
liabilities...... 39,923 34,374
Shareholders'
equity........... 6,081 9,844
-------- --------
Total
liabilities and
shareholders'
equity.......... $126,363 $201,562
======== ========
Net interest
income before
provision for
loan losses...... $1,662 $2,632
====== ======
Interest rate
spread........... 1.56% 2.54%
====== ======
Net interest
margin........... 3.13% 3.08%
====== ======
Ratio of average
interest-earning
assets to average
interest-
bearing liabilities.. 132.20% 108.64%
====== ======
</TABLE>
<PAGE>

ANALYSIS OF CHANGES IN NET INTEREST INCOME DUE TO CHANGES IN INTEREST RATES
AND VOLUMES

The following table presents the dollar amount of changes in interest income
and interest expense for major components of interest-earning assets and
interest-bearing liabilities. It distinguishes between the increase or
decrease related to changes in balances and changes in interest rates. For
each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume
(i.e., changes in volume multiplied by old rate) and (ii) changes in rate
(i.e., changes in rate multiplied by old volume). For purposes of this table,
changes attributable to both rate and volume, which cannot be segregated, have
been allocated proportionately to the change due to volume and the change due
to rate.

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 VS 1993 1995 VS 1994 1995 VS 1996
---------------------- --------------------- ----------------------
INCREASE (DECREASE) INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO CHANGE IN DUE TO CHANGE IN DUE TO CHANGE IN
---------------------- --------------------- ----------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL VOLUME RATE TOTAL
------ ------- ------ ------ ----- ------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net
of discounts.......... $5,380 $ (346) $5,034 $3,519 $ 212 $3,731 $2,337 $1,284 $3,621
Mortgage-backed securi-
ties.................. -- -- -- -- -- -- -- 134 134
Interest-earning depos-
its................... 50 149 199 (130) 63 (67) 63 (66) (3)
FHLB stock............. 15 16 31 30 21 51 42 (8) 34
------ ------- ------ ------ ----- ------ ------ ------ ------
Total interest-earning
assets................ 5,445 (181) 5,264 3,419 296 3,715 2,442 1,344 3,786
------ ------- ------ ------ ----- ------ ------ ------ ------
Interest-bearing liabil-
ities:
Passbook accounts...... 35 20 55 (10) 23 13 (1) (5) (6)
Money market and NOW
accounts.............. 112 87 199 (33) 54 21 65 40 105
Certificates of depos-
it.................... 513 321 834 158 512 670 320 197 517
FHLB advances.......... 93 111 204 1,012 (112) 900 606 (124) 482
Borrowed money......... 395 532 927 2,378 186 2,564 2,027 (309) 1,718
------ ------- ------ ------ ----- ------ ------ ------ ------
Total interest-bearing
liabilities........... 1,148 1,071 2,219 3,505 663 4,168 3,017 (201) 2,816
------ ------- ------ ------ ----- ------ ------ ------ ------
Change in net interest
income before provision
for loan losses........ $4,297 $(1,252) $3,045 $ (86) $(367) $ (453) $ (575) $1,545 $ 970
====== ======= ====== ====== ===== ====== ====== ====== ======
</TABLE>

ASSET AND LIABILITY MANAGEMENT

GENERAL. The Company's objective is to structure its operations to derive
the majority of its revenues and earnings from non-interest income. However, a
portion of the Company's revenues and net income are derived from net interest
income and, accordingly, the Company strives to manage its interest-earning
assets and interest-bearing liabilities to generate what management believes
to be an appropriate contribution from net interest income. Asset and
liability management seeks to control the variability of the Company's
performance due to changes in interest rates. The Company continually attempts
to achieve an appropriate relationship between rate sensitive assets and rate
sensitive liabilities. The Company has responded to interest rate volatility
by developing and implementing asset and liability management strategies
designed to increase its non-interest income and improve the match between
interest-earning assets and interest-bearing liabilities. These strategies
include:

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

. Increasing the non-interest bearing custodial escrow balances related to
the Company's mortgage servicing rights;

. Increasing focus on lines of business that are less interest rate
sensitive, such as brokerage activities and real estate disposition;

. Maintaining a wholesale loan origination operation. Wholesale
originations provide a form of hedge against the balance of mortgage loan
servicing rights. In a decreasing interest rate environment, the value

33
<PAGE>

of the servicing portfolio tends to decrease due to increased prepayments
of the underlying loans. During this same period, however, the volume of
loan originations generally increases;

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

. Increasing emphasis on the origination of consumer loan products, which
tend to have higher interest rates with shorter loan maturities than
residential mortgage loans; and

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

LENDING ACTIVITIES. A significant part of the Company's asset and liability
management is monitoring the composition of the Company's loan portfolio,
including the corresponding maturities. The table below sets forth the
composition of the Company's loan portfolio by loan type as of the dates
indicated. The amounts in the table below are shown net of discounts and other
deductions.

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------
1993 1994 1995
--------------- --------------- ----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Residential................ $65,858 86.10% $80,010 89.56% $127,924 92.80%
Multi-family and commercial
real estate............... 7,813 10.21 7,518 8.41 7,544 5.47
Construction............... 125 0.16 106 0.12 78 0.06
Consumer................... 3,238 4.23 2,434 2.72 3,245 2.35
------- ------ ------- ------ -------- ------
Total loans.............. 77,034 100.70 90,068 100.81 138,791 100.68
Less allowance for loan
losses.................... 538 0.70 728 0.81 943 0.68
------- ------ ------- ------ -------- ------
Loans receivable, net...... $76,496 100.00% $89,340 100.00% $137,848 100.00%
======= ====== ======= ====== ======== ======
</TABLE>

The following table presents the aggregate maturities of loans in each major
category of the Company's loan portfolio as of December 31, 1995. Loans held
for sale are classified as maturing within one year due to the Company's
expectation of selling the loans within one year. Actual maturities may differ
from the contractual maturities shown below as a result of renewals and
prepayments or the timing of loan sales.

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1995
---------------------------------------
LESS THAN ONE TO OVER FIVE
ONE YEAR FIVE YEARS YEARS TOTAL
--------- ---------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Residential........................... $119,158 $1,591 $ 7,175 $127,924
Multi-family and commercial real
estate............................... 173 855 6,516 7,544
Construction.......................... 78 -- -- 78
Consumer.............................. 353 1,449 1,443 3,245
-------- ------ ------- --------
Total loans......................... $119,762 $3,895 $15,134 $138,791
======== ====== ======= ========
</TABLE>

34
<PAGE>

NONPERFORMING ASSETS. As part of asset and liability management, the Company
monitors nonperforming assets ("NPAs") on a monthly basis. NPAs consist
primarily of nonaccrual loans and foreclosed real estate. Loans are placed on
nonaccrual when full payment of principal or interest is in doubt, or when
they are past due 90 days as to either principal or interest. Foreclosed real
estate arises primarily through foreclosure on mortgage loans owned. The
following table sets forth the Company's NPAs as of the dates indicated:

<TABLE>
<CAPTION>
AS OF
-----------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30,
1993 1994 1995 1996
------------ ------------ ------------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Nonaccrual mortgage loans..... $ 657 $3,275 $5,523 $3,958
Nonaccrual consumer loans..... 196 39 15 134
------ ------ ------ ------
Total nonperforming loans... 853 3,314 5,538 4,092
Foreclosed real estate........ 726 543 835 1,093
------ ------ ------ ------
Total nonperforming assets.. $1,579 $3,857 $6,373 $5,185
====== ====== ====== ======
Total nonperforming assets to
total assets................. 1.65% 3.44% 3.62% 2.54%
Total nonperforming loans to
total loans.................. 1.11% 3.68% 3.99% 2.93%
Ratio of allowance for loan
losses to total non-
performing loans............. 63.07% 21.97% 17.03% 25.86%
Interest income on non-
performing loans not included
in interest income........... $ 23 $ 140 $ 156 $ 39
</TABLE>

As of June 30, 1996, the Company had no accruing loans that were
contractually past due 90 days or more. The increase in nonaccrual loans
during 1994 and 1995 was primarily attributable to purchases by Matrix Bank of
bulk residential loan portfolios in those years. As part of its business
strategy, Matrix Bank purchases at a discount loans that have had
delinquencies in the past. Due to the past delinquency problems, there is
often an increase in delinquencies after the loans are purchased as a result
of the servicing being transferred to the Company. The Company's experience
has been that it generally takes 90 to 120 days after the servicing transfer
to see an improvement in the delinquency statistics. See "Business--Purchase
and Sale of Bulk Loan Portfolios."

The prior delinquency and anticipated future delinquencies are taken into
consideration in the pricing of the loans acquired. The Company generally
purchases such loans at significant discounts and, in some instances, receives
recourse or credit enhancement from the seller to further reduce the Company's
risk of loss associated with the loans' nonaccrual status. See "Business--
Purchase and Sale of Bulk Loan Portfolios." At June 30, 1996, $3.7 million, or
90.60%, of the nonaccrual loans were loans that were purchased in bulk loan
portfolios and remain classified as "held for sale." Total loans held for sale
at June 30, 1996, were $118.9 million, of which $3.7 million or 3.1% were
nonaccrual loans. However, against the $118.9 million of total loans held for
sale, the Company has $5.4 million of purchase discounts plus an additional
$1.8 of credit enhancements related to specific segments of the loan
portfolio.

The percentage of the allowance for loan losses to nonaccrual loans varies
widely due to the nature of the Company's portfolio of mortgage loans, which
are collateralized primarily by residential real estate. The Company analyzes
the collateral for each nonperforming mortgage loan to determine potential
loss exposure. In conjunction with other factors, this loss exposure
contributes to the overall assessment of the adequacy of the allowance for
loan losses. See "--Comparison of Results of Operations for the Six Months
Ended June 30, 1996 and 1995."

35
<PAGE>

ANALYSIS OF ALLOWANCE FOR LOAN LOSSES. The following table sets forth
information regarding changes in the Company's allowance for loan losses for
the periods indicated:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1993 1994 1995
------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of period..................... $ -- $ 538 $ 728
Charge-offs:
Real estate-mortgage............................. 33 26 198
Real estate-construction......................... -- -- 35
Consumer......................................... -- -- 7
------- ------- --------
Total charge-offs.............................. 33 26 240
Recoveries:
Real estate-mortgage............................. -- -- 5
Consumer......................................... -- -- 49
------- ------- --------
Total recoveries............................... -- -- 54
------- ------- --------
Net charge-offs.................................... 33 26 186
Provision for loan losses charged to operations.... 15 216 401
Allowance for loan losses established in connection
with the acquisition of Matrix Bank............... 556 -- --
------- ------- --------
Balance at end of period........................... $ 538 $ 728 $ 943
======= ======= ========
Ratio of net charge-offs to average loans.......... .18% .03% .15%
======= ======= ========
Average loans outstanding during the period........ $18,608 $79,393 $121,206
======= ======= ========
</TABLE>

The allowance for loan losses is increased by the provision for loan losses
(which is charged to operations) for particular loans where management
considers ultimate collection to be questionable. The allowance for loan
losses is calculated, in part, based on historical loss experience. In
addition, management takes into consideration other factors such as certain
qualitative evaluations of individual classified assets, trends in the
portfolio, geographic and portfolio concentrations, new products or markets,
evaluations of the changes in the historical loss experience component, and
projections of this component into the current and future periods based on
current knowledge and conditions. Due to the nature of the Company's loan
portfolio, substantially all of the allowance for loan losses relates to
residential loans. The ratio of the allowance for loan losses to total loans
was .70%, .81%, .68% and .76% at December 31, 1993, 1994 and 1995 and at June
30, 1996, respectively. The allowance for loan losses is reduced by loans
charged off, net of recoveries.

RISK SENSITIVE ASSETS AND LIABILITIES. A traditional indicator of interest
rate risk is gap analysis. Gap analysis focuses on the difference (or gap)
between available repricing opportunities for assets and liabilities within
defined time periods. If the dollar amount of interest rate sensitive assets
is closely matched with the dollar amount of interest rate sensitive
liabilities in a given period, then the changes in interest income and
interest expense over this time frame should also be closely matched.

36
<PAGE>

The following table sets forth the estimated maturity or repricing, and the
resulting interest rate gap, of the Company's interest-earning assets and
interest-bearing liabilities as of December 31, 1995. The amounts in the table
are derived from internal data of the Company and could be significantly
affected by external factors such as changes in prepayment assumptions, early
withdrawals of deposits and competition. Loans held for sale are classified as
maturing within one year due to the Company's expectation of selling its loans
held for sale within one year.

<TABLE>
<CAPTION>
ESTIMATED MATURITY OR REPRICING
---------------------------------------------------------------
THREE MONTHS TO
LESS THAN THREE LESS THAN ONE TO FIVE OVER
MONTHS ONE YEAR YEARS FIVE YEARS TOTAL
--------------- --------------- ----------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Fixed-rate loans....... $ 599 $ 57,120 $ 2,514 $ 4,689 $64,922
Adjustable-rate loans.. 7,548 66,057 264 -- 73,869
Interest-earning
deposits.............. 5,586 -- -- -- 5,586
FHLB stock............. 1,954 -- -- -- 1,954
-------- -------- -------- ------- -------
Total interest-earning
assets............... 15,687 123,177 2,778 4,689 146,331
Interest-bearing
liabilities:
Passbook, NOW and money
market accounts....... 12,357 -- -- -- 12,357
Certificates of deposit
over $100,000......... 516 843 527 -- 1,886
Other certificates of
deposit............... 6,337 16,672 11,625 -- 34,634
FHLB borrowings........ 19,000 -- -- -- 19,000
Short term borrowings.. 47,416 188 -- -- 47,604
Other borrowings....... 358 2,167 11,636 3,328 17,489
-------- -------- -------- ------- -------
Total interest-bearing
liabilities.......... 85,984 19,870 23,788 3,328 132,970
-------- -------- -------- ------- -------
Interest rate gap....... $(70,297) $103,307 $(21,010) $ 1,361 $13,361
======== ======== ======== ======= =======
Cumulative interest rate
gap.................... $(70,297) $ 33,010 $ 12,000 $13,361
Gap/assets ratio........ (48.04)% 70.60% (14.36)% .93%
Cumulative gap/assets
ratio.................. (48.04)% 22.56% 8.20% 9.13%
</TABLE>

Gap analysis attempts to capture interest rate risk, which is attributable
to the mismatching of interest rate sensitive assets and liabilities. The
actual impact of interest rate movements on the Company's net interest income
may differ from that implied by any gap measurement, depending on the
direction and magnitude of the interest rate movements, the repricing
characteristics of various on and off-balance sheet instruments, as well as
competitive pressures. These factors are not fully reflected in the foregoing
gap analysis and, as a result, the gap report may not provide a complete
assessment of the Company's interest rate risk.

The generally positive cumulative gap value means that over the periods
indicated the assets of the Company will reprice slightly faster than the
Company's liabilities. This means generally that, in a rising interest rate
environment, net interest income can be expected to increase and that, in a
declining interest rate environment, net interest income can be expected to
decrease.

SHORT-TERM BORROWINGS. A primary function of asset and liability management
is to assure adequate liquidity. In addition to cash and cash equivalents, the
Company relies heavily on short-term borrowing capabilities for liquidity and
as funding vehicle. The primary sources for short-term borrowing are the FHLB
for Matrix Bank and unaffiliated financial institutions for Matrix Financial.
See "--Liquidity and Capital Resources."

37
<PAGE>

The following table sets forth a summary of the short-term borrowings of the
Company during 1993, 1994 and 1995 and as of the end of each such period:

<TABLE>
<CAPTION>
AMOUNT AVERAGE MAXIMUM WEIGHTED WEIGHTED
OUTSTANDING AMOUNT OUTSTANDING AVERAGE INTEREST AVERAGE INTEREST
AT OUTSTANDING AT ANY RATE DURING RATE AT
YEAR END DURING THE YEAR(1) MONTH END THE YEAR YEAR END
----------- ------------------ ----------- ---------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
At or for the year ended
December 31, 1993:
FHLB borrowings....... $ -- $ 271 $ -- 3.32% 3.43%
Revolving lines of
credit............... 122 249 300 8.84 7.00
Repurchase agree-
ments................ 6,488 2,341 9,367 8.03 5.83
At or for the year ended
December 31, 1994:
FHLB borrowings....... 14,600 3,071 15,000 6.94 6.50
Revolving lines of
credit............... 9,890 4,917 11,042 9.29 9.21
Repurchase agree-
ments................ 2,529 4,320 6,157 8.03 7.18
At or for the year ended
December 31, 1995:
FHLB borrowings....... 19,000 17,662 33,000 6.30 6.30
Revolving lines of
credit............... 46,833 22,842 46,833 7.57 7.30
Repurchase agree-
ments................ 570 4,559 14,129 8.97 8.70
</TABLE>
- --------
(1) Calculations are based on daily averages where available and monthly
averages otherwise.

PIPELINE MANAGEMENT. In the ordinary course of business, the Company makes
commitments to originate residential mortgage loans and holds originated loans
until delivery to an investor. Inherent in this business are risks associated
with changes in interest rates and the resulting change in the market value of
the pipeline loans. The Company mitigates this risk through the use of
mandatory and nonmandatory forward commitments to sell loans. As of December
31, 1995, the Company had $93.1 million in pipeline and funded loans offset
with mandatory forward commitments of $64.7 million and nonmandatory forward
commitments of $15.3 million. As of June 30, 1996, the Company had $95.4
million in pipeline and funded loans offset with mandatory forward commitments
of $69.7 million and nonmandatory forward commitments of $20.0 million. The
inherent value of the forward commitments is considered in the determination
of the lower of cost or market for such loans.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity is the ability of the Company to generate funds to support asset
growth, satisfy disbursement needs, maintain reserve requirements and
otherwise operate on an ongoing basis. To date, the Company's principal source
of funding for its investing activities has been secured senior debt provided
by unaffiliated financial institutions and the issuance of the 13% Senior
Subordinated Notes in August 1995. As of June 30, 1996, Matrix Capital had
$6.7 million in indebtedness outstanding. The borrowed funds have been used
historically as capital injections to Matrix Bank and Matrix Financial, as
well as to acquire the office building in Phoenix where Matrix Financial
maintains its headquarters. See "Business--Properties."

The trend experienced over the reported periods of cash used by the
Company's operating activities results primarily from the growth that Matrix
Financial has experienced in its origination activities and the growth that
Matrix Bank has experienced in its whole loan purchasing activity. The growth
in the loan originations experienced by the Company has been due to a
conscious effort to increase loan originations and, to a lesser extent, market
conditions. The Company does not anticipate significant increases in loan
origination activities other than increases directly related to market
conditions. Nevertheless, the Company anticipates the trend of a net use of
cash from operations to continue for the foreseeable future. This anticipation
results from the expected growth at Matrix Bank, which management believes
will consist primarily of increased activity in the purchasing of loan
portfolios. The Company anticipates such growth will be funded through retail
deposits, custodial escrow deposits and FHLB borrowings.

38
<PAGE>

The Company's principal source of funding for its servicing acquisition
activities consist of line of credit facilities provided to Matrix Financial
by unaffiliated financial institutions. In prior years, including the year
ended December 31, 1995, Matrix Financial's principal source of funding for
servicing acquisition activities consisted of servicing acquisition lines, the
sale of mortgage servicing rights that were accounted for as financings and
capital contributions from the Company. As of June 30, 1996, Matrix
Financial's servicing acquisition facilities aggregated $11.0 million, of
which $327,000 was available to be utilized after deducting drawn amounts.
Borrowings under the servicing acquisition lines of credit are secured by
mortgage servicing rights owned by Matrix Financial, bear interest at the
federal funds rate plus a negotiated margin and are due at the earlier of the
maturity of the mortgage servicing rights or amortized over five to six years
from the date of borrowing. At June 30, 1996, $10.7 million was outstanding
under the servicing acquisition line and the interest rate on funds
outstanding under this facility at June 1996 was 8.8%.

The Company's principal source of funding for its loan origination business
consists of warehouse lines of credit and sale/repurchase facilities provided
to Matrix Financial by financial institutions and brokerage firms. As of June
30, 1996, Matrix Financial's warehouse lines of credit aggregated $70.0
million, of which $38.6 million was available to be utilized. Borrowings under
the warehouse lines of credit are secured by all of the mortgage loans funded
with warehouse loan proceeds and bear interest at the federal funds rate plus
a negotiated margin. At June 30, 1996, $30.5 million was outstanding under the
warehouse lines of credit at a weighted average interest rate of 6.6%. As of
June 30, 1996, Matrix Financial's sale/repurchase facilities aggregated $20.0
million, of which $19.4 million was available. Borrowings under the
sale/repurchase facilities are secured by all of the mortgage loans funded
with sale/repurchase facility proceeds and bear interest at either the prime
rate or the LIBOR rate plus a negotiated margin (depending on the facility).
At June 30, 1996, $610,000 was outstanding under the sale/repurchase
facilities and the average rate on funds outstanding under these facilities
for the month of June 1996 was 8.6%.

The Company's principal source of funding for the working capital needs of
Matrix Financial consists of working capital facilities provided to Matrix
Financial by unaffiliated financial institutions. As of June 30, 1996, Matrix
Financial's working capital facilities aggregated $2.5 million, of which $1.6
million was available. The amount of credit available for working capital
borrowings is a sublimit of the warehouse lines of credit, and therefore, any
amounts borrowed are netted against the amount of credit available from the
warehouse lines of credit. Borrowings under the working capital facilities are
secured by mortgage servicing rights, eligible servicing advance receivables
and eligible delinquent mortgage loans and bear interest at the federal funds
rate plus a negotiated margin. At June 30, 1996, $869,000 was outstanding
under the working capital facilities and the average interest rate on funds
outstanding under these facilities for the month of June 1996 was 7.9%.

On July 10, 1996, the Company renewed the Revolving Credit Facilities for
warehouse lending, servicing acquisitions and working capital. With this
renewal, the aggregate amount of warehouse lines of credit facilities totaled
$50.0 million, the aggregate amount of the servicing acquisition facility
totaled $13.5 million, and the aggregate amount of the working capital
facility totaled $2.5 million. The reduction in the aggregate amount of
warehouse lines of credit facilities from $70.0 million to $50.0 million was
initiated by the Company to reflect the recent reduction in the Company's
level of loan origination activity. The new credit facility agreements require
Matrix Financial to maintain (i) total shareholder's equity of at least $3.0
million plus 50% of capital contributed after January 1, 1996, (ii) adjusted
tangible net worth, as defined, of at least $9.0 million through January 31,
1997 and $10.0 million on January 31, 1997 and thereafter, (iii) a servicing
portfolio of at least $1.25 billion and (iv) a ratio of principal debt of
receivables borrowings and term line borrowings of no more than the lesser of
70% of the appraised value of the mortgage servicing portfolio or 1.25% of the
unpaid principal balance of the mortgage servicing portfolio.

In August 1995, the Company issued $2.9 million in aggregate principal
amount of 13% Senior Subordinated Notes. Interest on the 13% Senior
Subordinated Notes is payable semi-annually on January 15 and July 15, and the
13% Senior Subordinated Notes mature on July 15, 2002, with earlier mandatory
redemptions of $727,500, or 25% of the 13% Senior Subordinated Notes,
scheduled on July 15, 1999, 2000 and 2001,

39
<PAGE>

respectively. The Company is restricted from paying cash dividends under the
13% Senior Subordinated Notes. However, the Company may pay cash dividends in
an amount equal to 50% of the consolidated net income of the Company as long
as there has been no default under the terms of the 13% Senior Subordinated
Notes and as long as the dividend does not exceed 10% of the consolidated net
worth of the Company. The Company may redeem the 13% Senior Subordinated
Notes, in whole or in part, at any time on or after July 15, 1998 at a
redemption price equal to (i) 102% of par through July 14, 1999 and,
thereafter, at par, plus (ii) all accrued but unpaid interest. In addition,
the holders of the outstanding 13% Senior Subordinated Notes have certain
registration rights and rights of first refusal with respect to this offering.
See "Description of Capital Stock--Registration Rights; Rights of First
Refusal."

Matrix Bank's primary source of funds for use in lending, purchasing bulk
loan portfolios, investing and other general purposes are retail deposits,
custodial escrow balances, FHLB borrowings, sales of loan portfolios and
proceeds from principal and interest payments on loans. Contractual loan
payments and deposit inflows and outflows are a generally predictable source
of funds, while loan prepayments and loan sales are significantly influenced
by general market interest rates and economic conditions. Borrowings on a
short-term basis are used as a cash management vehicle to compensate for
seasonal or other reductions in normal sources of funds. Matrix Bank utilizes
advances from the FHLB as its primary source for borrowings. At June 30, 1996,
Matrix Bank had overnight borrowings from the FHLB of $36.4 million. The
custodial escrow balances held by Matrix Bank fluctuate based upon the mix and
size of the related servicing rights portfolios. For a tabular presentation of
the Company's short-term borrowings, see "--Asset and Liability Management--
Short-term Borrowings."

Matrix Bank offers a variety of deposit accounts having a range of interest
rates and terms. Matrix Bank's deposits principally consist of demand deposits
and certificates of deposit. The flow of deposits is influenced significantly
by general economic conditions, changes in prevailing interest rates and
competition. Matrix Bank's retail deposits are obtained primarily from areas
in which it is located and, therefore, its retail deposits are concentrated
primarily in Las Cruces and Sun City. Matrix Bank relies principally on
customer service, marketing programs and its relationships with customers to
attract and retain these deposits. Matrix Bank currently does not solicit or
accept brokered deposits. In pricing deposit rates, management considers
profitability, the matching of term lengths with assets, the attractiveness to
customers and rates offered by competitors. Matrix Bank intends to continue
its efforts to attract deposits as a primary source of funds to support its
lending and investing activities.

In January 1996, Matrix Bank opened a retail branch in Sun City, Arizona.
The Company has been successful in attracting deposits at the Sun City
location and this success has been the primary reason for the increased
deposit growth that the Company has experienced for the six months ended June
30, 1996. The following table sets forth the average balances for each major
category of Matrix Bank's deposit accounts and the weighted average interest
rates paid for interest-bearing deposits for the periods indicated:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------- SIX MONTHS ENDED
1993 1994 1995 JUNE 30, 1996
---------------- ---------------- ---------------- ----------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE BALANCE RATE
------- -------- ------- -------- ------- -------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Passbook accounts....... $ 908 1.87% $ 2,788 2.58% $ 2,394 3.55% $ 2,415 3.31%
NOW accounts............ 675 1.48 2,131 1.69 2,460 2.11 2,777 2.20
Money market accounts... 3,038 2.04 7,350 3.20 5,860 4.10 9,152 4.41
Time deposits........... 10,888 2.79 29,273 3.89 33,332 5.42 44,225 5.82
------- ---- ------- ---- ------- ---- ------- ----
Total deposits........ $15,509 2.53% $41,542 3.57% $44,046 4.96% $58,569 5.33%
======= ==== ======= ==== ======= ==== ======= ====

</TABLE>

40
<PAGE>

The following table sets forth the amount of Matrix Bank's certificates of
deposit that are greater than $100,000 by time remaining until maturity as of
June 30, 1996:

<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
-----------------------
WEIGHTED AVERAGE
AMOUNT RATE PAID
------ ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Three months or less................................. $ 948 5.59%
Over three months through six months................. 335 4.86
Over six months through twelve months................ 1,917 5.95
Over twelve months................................... 545 6.34
------ ----
Total.............................................. $3,745 5.82%
====== ====
</TABLE>

The Company actively monitors Matrix Bank's compliance with regulatory
capital requirements. Historically Matrix Bank has increased it core capital
through the retention of a portion of its earnings. Matrix Bank's future
growth is expected to be achieved through deposit growth and borrowings from
the FHLB which is anticipated to require additional capital. The capital
requirements related to the anticipated growth are in part expected to be
fulfilled through use of the proceeds from the sale of Common Stock in this
offering. See "Regulation and Supervision--Matrix Bank's Capital Ratios."

Matrix Bank and Matrix Financial may, at times, be restricted from paying
dividends to Matrix Capital. See "Regulation and Supervision."

In June 1996, the Company purchased 154 acres of land for $1.3 million in
cash for the purpose of developing 750 residential and multi-family lots in
Ft. Lupton, Colorado. The purchase was completed with operating funds of the
Company and a loan from a third-party financial institution. As part of the
acquisition, the Company entered into a Residential Facilities Development
Agreement (the "Development Agreement") with the City of Ft. Lupton. The
Development Agreement is a residential and planned unit development agreement
providing for the orderly planning, engineering and development of a golf
course and surrounding residential community. The City of Ft. Lupton is
responsible for the development of the golf course and the Company is
responsible for the development of the surrounding residential lots.

The Development Agreement sets forth a mandatory obligation on the part of
the Company to pay the City of Ft. Lupton pledged enhancement assessments of
$600,000. These pledged enhancement assessments require the Company to pay the
city a $2,000 fee each time the Company sells a developed residential lot. The
Company is obligated to pay a minimum of $60,000 in assessment fees per year
beginning in the year 1998 through the year 2007. The Company also entered
into a development management agreement with a local developer to complete the
development of the land. The terms of the agreement specify that the Company
is to earn a preferred rate of return on its investment and, once the initial
amount of its investment has been returned, the remaining profits are split
equally. The development management agreement obligates the Company to provide
up to an additional $500,000 of funds for development. The Company has no
other financial obligations to the developer beyond the $500,000.

It is anticipated that the Company will obtain a loan from an unaffiliated
financial institution for a portion of the future development costs. The
Company expects development to begin during the third quarter of 1996.

INFLATION AND CHANGING PRICES

The Consolidated Financial Statements and related data presented herein have
been prepared in accordance with generally accepted accounting principles,
which require the measurement of financial position and operating results in
terms of historical dollars without considering changes in the relative
purchasing power of money over time due to inflation. Unlike most industrial
companies, substantially all of the assets and liabilities of the Company are
monetary in nature. As a result, interest rates have a more significant impact
on the Company's

41
<PAGE>

performance than the effects of general levels of inflation. Interest rates do
not necessarily move in the same direction or in the same magnitude as prices
of goods and services. The Company discloses the estimated fair market value
of its financial instruments in accordance with Statement of Financial
Accounting Standards No. 107. See Note 14 to the Consolidated Financial
Statements included elsewhere herein.

RECENT ACCOUNTING PRONOUNCEMENTS

In March 1995, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets to be Disposed of. This statement, effective
for fiscal years beginning after December 15, 1995, requires a company to
assess impairment of "assets held or used" and "assets to be disposed of."
Whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable, the related undiscounted cash flows are
compared to the asset's book value. If the sum of the undiscounted cash flows
is less than the book value, a loss is recorded based upon the excess of the
book value over the fair value of the asset. Assets to be disposed of are
recorded at fair value less cost to sell and are not depreciated while held.
The adoption of this pronouncement in 1996 did not have a material effect on
the Company's consolidated financial statements.

In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, Stock-Based Compensation ("FAS 123"), which encourages the use of the
fair value method of accounting for all employee stock options. The fair value
method includes measuring the value of the stock option at grant date and
amortizing this value over the service period of the award. The "intrinsic
value method" as prescribed by Accounting Principles Bulletin ("APB") No. 25,
"Accounting for Stock issued to Employees" will also be allowed. This method
requires that compensation cost be measured as the excess of the quoted market
price of the stock, at the grant date or other measurement date, over the
amount an employee must pay to acquire the stock. FAS 123 is effective for
fiscal years beginning after December 15, 1995. The Company intends to apply
the recognition and measurement provisions of APB No. 25 to all employee stock
options and similar equity instruments awarded after December 31, 1995.

In June 1996, the FASB issued Statement of Financial Accounting Standards
No. 125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities ("FAS 125"). This statement provides accounting
and reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities and is effective for the above that occur after
December 31, 1996. Transactions covered by FAS 125 include securitizations,
sales of partial interests in financial assets, repurchase agreements,
securities lending, pledges of collateral, loan syndications and
participations, sales of receivables with recourse, servicing of mortgages and
other loans, and in-substance defeasances. The statement uses a "financial
components" approach that focuses on control to determine the proper
accounting for financial asset transfers. Under that approach, after financial
assets are transferred, an entity would recognize on the balance sheet all
assets it controls and liabilities it has incurred. It would remove from the
balance sheet those assets it no longer controls and liabilities it has
satisfied. If the entity has surrendered control over the transferred assets,
the transaction would be considered a sale. Control is considered surrendered
only if the assets are isolated from the transferor; the transferee has the
right to pledge or exchange the assets or is a qualifying special-purpose
entity; and the transferor does not maintain effective control over the assets
through an agreement to repurchase or redeem them. If those conditions do not
exist, the transfer would be accounted for as a secured borrowing. The Company
has not yet determined the impact of FAS 125 on its consolidated financial
statements.

42
<PAGE>

BUSINESS

GENERAL

Matrix Capital Corporation is a specialized financial services company that,
through its Subsidiaries, focuses on mortgage merchant banking by purchasing
and selling residential mortgage loans and residential mortgage servicing
rights; offering brokerage, consulting and analytical services to other
financial services companies and financial institutions; servicing residential
mortgage portfolios for investors; originating residential mortgages; and
providing real estate management and disposition services. The Company
believes that its structure of combining a mortgage banking firm, a mortgage
servicing brokerage and consulting firm, a federally chartered banking
institution and a real estate management and disposition firm is unique to the
financial services industry. This unique structure creates revenue enhancing
relationships among the Subsidiaries.

INDUSTRY OVERVIEW

According to Inside Mortgage Finance magazine, the total outstanding
principal amount of one-to-four family residential mortgage loans being
serviced in the United States as of March 31, 1996 was approximately $3.7
trillion, up from approximately $980 billion as of March 31, 1981, resulting
in a compound annual growth rate of approximately 9.2% over the last 15 years.
Mortgage loan servicing as of March 31, 1996 can be broken down into the
following types: GNMA, 12.9%; FHLMC, 15.2%; FNMA, 20.4%; private mortgage-
backed securities, 5.4%; and non-securitized loans, 46.2%.

The United States Department of Housing and Urban Development ("HUD")
reports that approximately $635.8 billion in aggregate principal amount of
one-to-four family residential mortgage loans was originated in the United
States in 1995. Of this amount 56.4% was originated by mortgage companies such
as Matrix Financial, 23.8% was originated by commercial banks, 18.7% was
originated by savings institutions such as Matrix Bank, 0.8% was originated by
state and federal government agencies and 0.1% was originated by insurance
companies. Less than $380 billion in aggregate principal amount of 1995
residential mortgage originations in the United States was originated by the
100 largest mortgage originators in that year. Industry analysts estimate that
nationwide residential mortgage loan production will be between $700 and $750
billion in 1996.

BUSINESS STRATEGY

The Company's primary business strategy is to expand its core businesses,
while at the same time further capitalize on the revenue-enhancing
relationships created by the Company's unique corporate structure. The Company
also remains opportunistic and, accordingly, may in the future diversify its
business into areas where the Company perceives there to be opportunities
complementary in nature to the Company's existing businesses. To implement its
business strategy, the Company will focus on the following areas:

. SHARE KNOWLEDGE, INFORMATION AND BUSINESS OPPORTUNITIES AMONG THE
SUBSIDIARIES. The Company's corporate structure facilitates the sharing
of knowledge, information and business opportunities among the
Subsidiaries, which management believes gives the Company a competitive
advantage. The Company continually evaluates ways to better utilize
existing relationships developed by the Subsidiaries with their clients
and information and knowledge possessed by the Subsidiaries for the
potential benefit of the other Subsidiaries of the Company. For example,
the Company is currently investigating the possibility of using the
existing customer relationships from Matrix Financial's mortgage loan
servicing activities to market Matrix Bank's banking services, such as
credit card services, consumer loans and equity lines of credit. In
addition, the Company has begun, on a limited basis, to market warehouse
and sale/repurchase credit facilities to the smaller mortgage banking
companies who are clients of United Financial and who, due primarily to
their size, otherwise would not be able to obtain such facilities from
the larger financial institutions who traditionally provide such
facilities. For a discussion of various synergies among the Subsidiaries,
see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Relationships Among the Subsidiaries."

43
<PAGE>

. EXPAND THE COMPANY'S RESIDENTIAL MORTGAGE LOAN SERVICING PORTFOLIO. The
Company has devoted significant time and resources over the past several
years to building an infrastructure capable of efficiently servicing
substantially more residential mortgage loans than it does at present.
Given the existing base of servicing employees at Matrix Financial and
the size of the servicing platform in which the servicing operation is
maintained, the Company believes that it now has the capacity to more
than double the number of residential mortgage loans that it services.
Growth in the size of the servicing portfolio would likely reduce the
average cost of servicing a loan and allow the Company to grow Matrix
Bank since the non-interest bearing custodial escrow accounts held at
Matrix Bank would increase in proportion to the size of the Company's
residential mortgage loan servicing portfolio.

. DIVERSIFY REVENUE SOURCES THROUGH EXPANSION INTO COMPLEMENTARY BUSINESS
AREAS. The Company continually evaluates the development of new business
lines and potential acquisitions of financial services businesses that
management believes are complementary to the Company's existing
businesses. Such new business lines would allow the Company to leverage
its management expertise, customer relationships, existing capital and
corporate structure. As examples of this strategy, the Company formed USS
in June 1995, acquired the ongoing business of a Denver-based originator
of sub-prime automobile retail installment sales contracts in May 1996
and formed the B/C Lending Division of Matrix Financial in June 1996.

BROKERAGE AND CONSULTING SERVICES

GENERAL. United Financial provides brokerage, consulting and analytical
services to institutions in the mortgage banking industry, primarily relating
to the sale and management of servicing assets, corporate and servicing
portfolio valuation (including FAS 122 analysis and valuation) and, to a
lesser extent, mergers and acquisitions of mortgage banking entities. During
1995 and the first six months of 1996, United Financial brokered the sale of
103 and 48 mortgage loan servicing portfolios totaling $32.6 billion and $12.6
billion in outstanding mortgage loan principal balances, respectively.

BROKERAGE SERVICES. United Financial operates as a national, full-service
mortgage servicing broker. It is capable of analyzing, packaging, marketing
and closing servicing portfolio and selected corporate merger and acquisition
transactions. United Financial markets its services to all types and sizes of
market participants, thereby developing diverse relationships. United
Financial has provided brokerage services to each of the following clients
during the last 12 months:

Banc One Mortgage Corporation Knutson Mortgage
Chase Manhattan Mortgage Corporation LaSalle-Talman Home Mortgage
Comerica Mortgage Corporation Mellon Mortgage Corporation
Firstar Bank Principal Residential Mortgage, Inc.
The Huntington Mortgage Company Resource Bancshares Mortgage Group

The Company believes that the client relationships developed by United
Financial through its national network of contacts with commercial banks,
mortgage companies, savings associations and other institutional investors
represent a significant competitive advantage and form the basis for United
Financial's national market presence. These contacts also enable United
Financial to identify prospective clients for other Subsidiaries and make
referrals where appropriate.

The secondary market for purchasing and selling mortgage servicing rights
has become increasingly more active since its inception during the early
1980s. While servicing rights are the primary asset of most mortgage
companies, other institutions such as commercial banks and savings
associations also build portfolios of mortgage servicing rights, which can
serve as significant sources of non-interest income. Most institutions that
own mortgage servicing rights have found that careful management of these
assets is necessary due to their susceptibility to interest rate cycles,
changing prepayment patterns of mortgage loans and fluctuating earnings rates
achieved on custodial escrow balances. With the implementation of FAS 122,
which requires companies to

44
<PAGE>

capitalize originated mortgage servicing rights, management of mortgage
servicing assets has become even more critical. These managerial efforts,
combined with interest rate sensitivity of the assets and the growth
strategies of market participants, create constantly changing supply and
demand and, therefore, price levels in the secondary market for mortgage
servicing rights.

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

CONSULTING AND ANALYTIC SERVICES. The analytics group of United Financial
has developed expertise in helping companies implement and, on an ongoing
basis, track their FAS 122 valuations and analyses. Expansion into the FAS 122
valuations arena represented a logical progression for United Financial. In
connection with the consulting services performed by United Financial on pools
of mortgage servicing rights held for sale by United Financial's customers,
United Financial performed many of the same types of analyses required by FAS
122. Therefore, United Financial was able to enhance its existing valuation
models and create a software program that could be customized to fit its
customers' many different needs and unique situations in performing FAS 122
analyses. In addition, United Financial has the infrastructure and management
information system capabilities necessary to undertake the complex analyses
required by FAS 122. Many of the companies affected by the implementation of
FAS 122 have determined to outsource this function to a third party rather
than dedicate the resources necessary to develop systems for and perform their
own FAS 122 valuations. Management believes that providing these consulting
and analytic services enhances the Company's ability to attract and retain
client relationships. For a discussion of FAS 122 see "Regulation and
Supervision--Miscellaneous--FAS 122."

RESIDENTIAL LOAN SERVICING ACTIVITIES

RESIDENTIAL MORTGAGE LOAN SERVICING. Matrix Financial and Matrix Bank each
has its own mortgage servicing portfolio, but the Company conducts its
servicing activities exclusively through Matrix Financial. Matrix Bank's
mortgage servicing rights are subserviced under a contract with Matrix
Financial. At June 30, 1996, Matrix Financial serviced approximately $1.8
billion of mortgage loans, including $162.8 million for Matrix Bank and $439.5
million subserviced for non-affiliates of the Company. The balance of mortgage
servicing subserviced for non-affiliates at June 30, 1996 of $439.5 million is
significantly higher than is typical for the Company as a result of the sale
of mortgage servicing of $390.5 million, but for which physical transfer to
the purchaser is expected to occur in August and November 1996.

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

As compensation for its mortgage servicing activities, the Company receives
servicing fees usually ranging from 0.25% to 0.75% per annum of the loan
balances serviced, plus any late charges collected from delinquent borrowers
and other fees incidental to the services provided. At June 30, 1996, the
Company's weighted average servicing fee was 0.44%. In the event of a default
by the borrower, the Company receives no servicing fees until the default is
cured.

45
<PAGE>

Servicing is provided on mortgage loans on a recourse or nonrecourse basis.
The Company's policy is to accept only a limited number of servicing assets on
a recourse basis. As of December 31, 1995 and June 30, 1996, on the basis of
outstanding principal balances only 0.7% and 1.0%, respectively, of the
mortgage servicing contracts owned by the Company involved recourse servicing.
To the extent that servicing is done on a recourse basis, the Company is
exposed to credit risk with respect to the underlying loan in the event of a
repurchase. Additionally, many of the nonrecourse mortgage servicing contracts
owned by the Company require the Company to advance all or part of the
scheduled payments to the owner of the mortgage loan in the event of a default
by the borrower. Many owners of mortgage loans also require the servicer to
advance insurance premiums and tax payments on schedule even though sufficient
escrow funds may not be available. The Company, therefore, must bear the
funding costs associated with making such advances. If the delinquent loan
does not become current, these advances are typically recovered at the time of
the foreclosure sale. Foreclosure expenses are generally not fully
reimbursable by FNMA, FHLMC or GNMA, for whom the Company provides significant
amounts of mortgage loan servicing.

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

In order to track information on its servicing portfolio, the Company
utilizes a data processing system provided by Alltel, one of the largest
mortgage banking service bureaus in the United States. Management believes
that this system gives the Company sufficient capacity to support anticipated
expansion of its residential mortgage loan servicing portfolio.

The following table sets forth certain information regarding the composition
of the Company's mortgage servicing portfolio (excluding loans subserviced for
others) as of the dates indicated:

<TABLE>
<CAPTION>
AS OF
-------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30,
1993 1994 1995 1996
------------ ------------ ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
FHA--insured/VA guaranteed
residential................ $ 299,354 $ 28,630 $ 37,135 $ 34,353
Conventional loans.......... 669,739 980,003 1,544,808 1,312,452
Other loans................. 38,193 33,152 14,442 15,639
---------- ---------- ---------- ----------
Total mortgage servicing
portfolio................ $1,007,286 $1,041,785 $1,596,385 $1,362,444
========== ========== ========== ==========
Fixed rate loans............ $ 747,985 $ 669,933 $1,073,803 $ 882,704
Adjustable rate loans....... 259,301 371,852 522,582 479,740
---------- ---------- ---------- ----------
Total mortgage servicing
portfolio................ $1,007,286 $1,041,785 $1,596,385 $1,362,444
========== ========== ========== ==========
</TABLE>

46
<PAGE>

The following table shows the delinquency statistics for the mortgage loans
serviced by the Company (excluding loans subserviced for others) compared with
national average delinquency rates as of the dates presented:

<TABLE>
<CAPTION>
AS OF
--------------------------------------------------------------
DECEMBER 31, 1993 DECEMBER 31, 1994
------------------------------ ------------------------------
NATIONAL NATIONAL
COMPANY AVERAGE(1) COMPANY AVERAGE(2)
------------------- ---------- ------------------- ----------
NUMBER PERCENTAGE PERCENTAGE NUMBER PERCENTAGE PERCENTAGE
OF OF SERVICING OF OF OF SERVICING OF
LOANS PORTFOLIO(3) LOANS LOANS PORTFOLIO(3) LOANS
------ ------------ ---------- ------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Loans delinquent
for:
30-59 days...... 1,205 4.28% 2.72% 648 3.28% 2.76%
60-89 days...... 225 0.80 0.62 223 1.13 0.66
90 days and
over............ 126 0.45 0.75 287 1.46 0.73
----- ---- ---- ----- ---- ----
Total
delinquencies... 1,556 5.53% 4.09% 1,158 5.87% 4.15%
===== ==== ==== ===== ==== ====
Foreclosures.... 75 0.27% 0.31% 236 1.20% 0.32%
</TABLE>
<TABLE>
<CAPTION>
AS OF
------------------------------------------------------------
DECEMBER 31, 1995 JUNE 30, 1996
------------------------------ -----------------------------
NATIONAL NATIONAL
COMPANY AVERAGE(2) COMPANY AVERAGE(2)
------------------- ---------- ------------------- ---------
NUMBER PERCENTAGE PERCENTAGE NUMBER PERCENTAGE PERCENTAGE
OF OF SERVICING OF OF OF SERVICING OF
LOANS PORTFOLIO(3) LOANS LOANS PORTFOLIO(3) LOANS
------ ------------ ---------- ------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Loans delinquent
for:
30-59 days...... 843 3.37% 3.07% 633 3.05% 3.05%
60-89 days...... 195 0.78 0.70 165 0.79 0.67
90 days and
over............ 166 0.67 0.71 133 0.64 0.63
----- ---- ---- --- ---- ----
Total
delinquencies... 1,204 4.82% 4.48% 931 4.48% 4.35%
===== ==== ==== === ==== ====
Foreclosures.... 277 1.11% 0.33% 256 1.23% 0.34%
</TABLE>
- ----

(1) Source: Mortgage Bankers Association, "Delinquency Rates of 1- to 4-Unit
Residential Mortgage Loans" (Seasonally Adjusted) (June 10, 1994 report).

(2) Source: Mortgage Bankers Association, "Delinquency Rates of 1- to 4-Unit
Residential Mortgage Loans" (Seasonally Adjusted) (September 5, 1996
report).

(3) Delinquencies and foreclosures generally exceed the national average due
to high rates of delinquencies and foreclosures on certain bulk loan and
bulk servicing portfolios acquired by the Company at a discount.

47
<PAGE>

During periods of declining interest rates, prepayments of mortgage loans
increase as homeowners seek to refinance at lower interest rates, resulting in
a decrease in the value of the servicing portfolio. Mortgage loans with higher
interest rates are more likely to result in prepayments. The following table
sets forth certain information regarding the number and aggregate principal
balance of the mortgage loans serviced by the Company, including both fixed
and adjustable rate loans (excluding loans subserviced for others), at various
mortgage interest rates:

<TABLE>
<CAPTION>
AS OF
--------------------------------------------------------------------------------------------
DECEMBER 31, 1993 DECEMBER 31, 1994 DECEMBER 31, 1995
------------------------------ ------------------------------ ------------------------------
PERCENTAGE PERCENTAGE PERCENTAGE
NUMBER AGGREGATE OF AGGREGATE NUMBER AGGREGATE OF AGGREGATE NUMBER AGGREGATE OF AGGREGATE
OF PRINCIPAL PRINCIPAL OF PRINCIPAL PRINCIPAL OF PRINCIPAL PRINCIPAL
RATE LOANS BALANCE BALANCE LOANS BALANCE BALANCE LOANS BALANCE BALANCE
---- ------ ---------- ------------ ------ ---------- ------------ ------ ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Less than
7.00%........... 2,972 $ 220,384 21.88% 2,113 $ 162,274 15.58% 2,781 $ 218,914 13.71%
7.00%-- 7.99%... 3,117 123,460 12.26 3,798 204,024 19.58 7,386 576,255 36.10
8.00%-- 8.99%... 5,874 168,935 16.77 4,894 261,630 25.11 7,160 442,634 27.73
9.00%-- 9.99%... 9,171 237,767 23.60 4,314 200,025 19.20 4,460 191,549 12.00
10.00%--10.99%... 2,424 121,595 12.07 2,179 142,504 13.68 2,005 125,544 7.86
11.00%--11.99%... 1,794 62,539 6.21 756 33,772 3.24 519 24,220 1.52
12.00% and over.. 2,783 72,606 7.21 1,667 37,556 3.61 647 17,269 1.08
------ ---------- ------ ------ ---------- ------ ------ ---------- ------
Total........... 28,135 $1,007,286 100.00% 19,721 $1,041,785 100.00% 24,958 $1,596,385 100.00%
====== ========== ====== ====== ========== ====== ====== ========== ======

<CAPTION>
AS OF
-------------------------------
JUNE 30, 1996
------------------------------
PERCENTAGE
NUMBER AGGREGATE OF AGGREGATE
OF PRINCIPAL PRINCIPAL
RATE LOANS BALANCE BALANCE
---- ------ ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Less than
7.00%........... 1,219 $ 93,545 6.87%
7.00%-- 7.99%... 6,654 539,302 39.58
8.00%-- 8.99%... 6,215 410,163 30.10
9.00%-- 9.99%... 3,809 165,629 12.16
10.00%--10.99%... 1,807 114,033 8.37
11.00%--11.99%... 472 22,170 1.63
12.00% and over.. 601 17,602 1.29
------ ---------- ------
Total........... 20,777 $1,362,444 100.00%
====== ========== ======
</TABLE>

48
<PAGE>

Loan administration fees decrease as the principal balance on the
outstanding loan decreases and as the remaining time to maturity of the loan
shortens. The following table sets forth certain information regarding the
remaining maturity of the mortgage loans serviced by the Company (excluding
loans subserviced for others) as of the dates shown:

<TABLE>
<CAPTION>
AS OF
-------------------------------------------------------------------------------
DECEMBER 31, 1993 DECEMBER 31, 1994
--------------------------------------- ---------------------------------------
PERCENTAGE PERCENTAGE
NUMBER PERCENTAGE UNPAID UNPAID NUMBER PERCENTAGE UNPAID UNPAID
OF OF NUMBER PRINCIPAL PRINCIPAL OF OF NUMBER PRINCIPAL PRINCIPAL
MATURITY LOANS OF LOANS AMOUNT AMOUNT LOANS OF LOANS AMOUNT AMOUNT
-------- ------ ---------- ---------- ---------- ------ ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1-- 5 years.... 1,545 5.49% $ 32,459 3.22% 2,116 10.73% $ 43,818 4.21%
6--10 years.... 4,899 17.41 101,537 10.08 5,538 28.08 125,648 12.06
11--15 years.... 9,840 34.97 241,546 23.98 4,131 20.95 155,598 14.94
16--20 years.... 6,483 23.04 187,445 18.61 1,529 7.75 92,028 8.83
21--25 years.... 4,101 14.58 304,811 30.26 3,989 20.23 322,703 30.98
More than 25
years........... 1,267 4.51 139,488 13.85 2,418 12.26 301,990 28.98
------ ------ ---------- ------ ------ ------ ---------- ------
Total........... 28,135 100.00% $1,007,286 100.00% 19,721 100.00% $1,041,785 100.00%
====== ====== ========== ====== ====== ====== ========== ======

<CAPTION>
AS OF
--------------------------------------------------------------------------------
DECEMBER 31, 1995 JUNE 30, 1996
--------------------------------------- ---------------------------------------
PERCENTAGE PERCENTAGE
NUMBER PERCENTAGE UNPAID UNPAID NUMBER PERCENTAGE UNPAID UNPAID
OF OF NUMBER PRINCIPAL PRINCIPAL OF OF NUMBER PRINCIPAL PRINCIPAL
MATURITY LOANS OF LOANS AMOUNT AMOUNT LOANS OF LOANS AMOUNT AMOUNT
-------- ------ ---------- ---------- ---------- ------ ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1-- 5 years.... 3,077 12.33% $ 60,496 3.79% 2,187 10.53% $ 37,778 2.77%
6--10 years.... 4,898 19.62 118,928 7.45 4,197 20.20 93,477 6.86
11--15 years.... 5,263 21.09 302,332 18.94 3,770 18.14 205,690 15.10
16--20 years.... 2,608 10.45 168,166 10.53 2,209 10.63 142,408 10.45
21--25 years.... 4,880 19.55 472,613 29.61 4,729 22.76 443,544 32.56
More than 25
years........... 4,232 16.96 473,850 29.68 3,685 17.74 439,547 32.26
------ ------ ---------- ------ ------ ------ ---------- ------
Total........... 24,958 100.00% $1,596,385 100.00% 20,777 100.00% $1,362,444 100.00%
====== ====== ========== ====== ====== ====== ========== ======
</TABLE>
49
<PAGE>

The following table sets forth the geographic distribution of the mortgage
loans (including delinquencies) serviced by the Company (excluding loans
subserviced for others) by state:

<TABLE>
<CAPTION>
AS OF
---------------------------------------------------------------------------------
DECEMBER 31, 1993 DECEMBER 31, 1994
---------------------------------------- ----------------------------------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
OF OF OF OF
NUMBER AGGREGATE AGGREGATE TOTAL NUMBER AGGREGATE AGGREGATE TOTAL
OF PRINCIPAL PRINCIPAL DELINQS. OF PRINCIPAL PRINCIPAL DELINQS.
STATE LOANS BALANCE BALANCE BY STATE(1) LOANS BALANCE BALANCE BY STATE(1)
----- ------ ---------- ---------- ----------- ------ ---------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CA(2)........... 2,194 $ 184,691 18.34% 7.07% 2,822 $ 343,135 32.94% 29.24%
NY.............. 1,177 44,455 4.41 4.83 943 36,831 3.54 7.49
AZ.............. 5,613 212,007 21.05 8.97 4,132 145,980 14.01 7.49
MD.............. -- -- -- -- 1,828 104,384 10.02 4.80
TX.............. 1,539 31,648 3.14 5.52 945 25,721 2.47 6.64
MA.............. -- -- -- -- 353 21,625 2.08 3.53
Other(3)........ 17,612 534,485 53.06 73.61 8,698 364,109 34.94 40.81
------ ---------- ------ ------ ------ ---------- ------ ------
Total........... 28,135 $1,007,286 100.00% 100.00% 19,721 $1,041,785 100.00% 100.00%
====== ========== ====== ====== ====== ========== ====== ======

<CAPTION>
AS OF
----------------------------------------------------------------------------------
DECEMBER 31, 1995 JUNE 30, 1996
---------------------------------------- ----------------------------------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
OF OF OF OF
NUMBER AGGREGATE AGGREGATE TOTAL NUMBER AGGREGATE AGGREGATE TOTAL
OF PRINCIPAL PRINCIPAL DELINQS. OF PRINCIPAL PRINCIPAL DELINQS.
STATE LOANS BALANCE BALANCE BY STATE(1) LOANS BALANCE BALANCE BY STATE(1)
----- ------ ---------- ---------- ----------- ------ ---------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CA(2)........... 4,948 $ 533,590 33.42% 39.04% 4,351 $ 452,151 33.19% 32.87%
NY.............. 532 32,620 2.04 3.49 1,571 178,263 13.08 8.49
AZ.............. 3,787 139,038 8.71 7.89 3,498 120,181 8.82 8.70
MD.............. 1,628 93,495 5.86 4.65 1,466 82,978 6.09 4.51
TX.............. 4,291 265,242 16.62 7.31 1,578 80,895 5.94 6.87
MA.............. 890 83,593 5.24 2.82 829 77,031 5.65 3.87
Other(3)........ 8,882 448,807 28.11 34.80 7,484 370,945 27.23 34.69
------ ---------- ------ ------ ------ ---------- ------ ------
Total........... 24,958 $1,596,385 100.00% 100.00% 20,777 $1,362,444 100.00% 100.00%
====== ========== ====== ====== ====== ========== ====== ======

</TABLE>
- ----
(1) In terms of number of loans outstanding.
(2) The concentration in California does not reflect a business strategy of
the Company but rather the pursuit of specific opportunities.
(3) No other state accounted for greater than 5.0%, based on aggregate
principal balances, of the Company's mortgage loan servicing portfolio as
of June 30, 1996.

50
<PAGE>

ACQUISITION OF SERVICING RIGHTS. The Company acquires substantially all of
its mortgage servicing rights in the secondary market. The secondary market
for purchasing and selling mortgage servicing rights is inefficient in several
respects, which include lack of a centralized exchange for conducting trading,
lack of definitive market prices, and lack of conformity in modeling
assumptions. The industry expertise of United Financial's and Matrix
Financial's employees provides the Company with the opportunity to capitalize
upon these inefficiencies when acquiring mortgage servicing rights. Prior to
completing any such acquisition, the Company analyzes a wide range of
characteristics with respect to each portfolio considered for purchase. This
analysis includes projecting revenues and expenses and reviewing geographic
distribution, interest rate distribution, loan-to-value ratios, outstanding
balances, delinquency history and other pertinent statistics. Due diligence is
performed either by Matrix Financial's employees or a designated independent
contractor on a representative sample of the mortgages involved. The purchase
price is based on the present value of the expected future cash flow,
calculated by using a discount rate and loan prepayment assumptions that
management considers to be appropriate to reflect the risk associated with the
investment.

SERVICING SALES. Generally, the Company holds to maturity its purchased
mortgage servicing portfolios; however, it sells substantially all of its
originated mortgage loan servicing rights. Such sales increase revenue, as
reflected in loan origination income, and generate cash at the time of sale,
but reduce future servicing fee income. Originated mortgage servicing rights
were sold on a bulk and flow basis on loans having an aggregate principal
amount of $89.0 million and $208.3 million during the year ended December 31,
1995 and the six months ended June 30, 1996, respectively. Periodically, the
Company may also sell purchased mortgage servicing rights to restructure its
portfolio or generate revenues. Purchased mortgage servicing rights were sold
on loans having an aggregate principal amount of $31.8 million and $390.5
million during the year ended December 31, 1995 and the six months ended June
30, 1996, for net gains of $1.2 million and $1.1 million, respectively.

The Company anticipates that it will continue to adhere to its policy of
selling substantially all of its originated mortgage servicing rights and the
Company also may sell, on occasion, purchased mortgage servicing rights.
Management intends to base decisions regarding future mortgage servicing sales
upon the Company's cash requirements, capital needs, earnings and the market
price for mortgage servicing rights. During the quarter in which a sale
occurs, reported income will tend to be greater than had no such sales
occurred during that quarter. Prices obtained for mortgage servicing rights
vary depending on servicing fee rates, anticipated prepayment rates, average
loan balances, remaining time to maturity, servicing costs, custodial escrow
balances, delinquency and foreclosure experience and purchasers' required
rates of return.

In the ordinary course of selling mortgage servicing rights, the Company, in
accordance with industry standards, makes certain representations and
warranties to purchasers of mortgage servicing rights. If a loan defaults when
there has been a breach of representations or warranties and the Company has
no third-party recourse, the Company may become liable for the unpaid
principal and interest on defaulted loans. In such a case, the Company may be
required to repurchase the mortgage loan and bear any subsequent loss on the
loan. In connection with any purchases by the Company of mortgage servicing
rights, the Company also is exposed to liability to the extent that an
originator or seller of the servicing rights is unable to honor its
representations and warranties. During 1995 and the first six months of 1996,
the Company recognized losses of $205,000 and $40,000, respectively, on loan
repurchases resulting from a particular servicing portfolio purchased by the
Company, and the Company has accrued a liability of $460,000 for additional
losses as of June 30, 1996. The Company believes that it has recourse against
the seller of this portfolio, but does not expect to realize any significant
recovery due to the current financial condition of the seller. The Company
anticipates selling this mortgage servicing portfolio and does not anticipate
any additional losses with respect to this or any other servicing portfolio
due to breaches of representations and warranties; however, there can be no
assurance that the Company will not experience such losses.

PURCHASE AND SALE OF BULK LOAN PORTFOLIOS

LOAN PURCHASES. In addition to its traditional mortgage loan origination and
servicing-related activities, the Company makes bulk purchases of mortgage
loans through Matrix Bank. The Company believes that its

51
<PAGE>

structure provides advantages over its competitors in the purchase of bulk
mortgage loan packages. United Financial, through its networking within the
mortgage banking industry, is able to refer to Matrix Bank mortgage banking
companies that are interested in selling mortgage loan portfolios. The direct
contacts reduce the number of portfolios that must be purchased through
competitive bid situations, thereby reducing the cost associated with bulk
mortgage loan portfolios.

Because the Company services mortgage loans for more than 200 private
investors, including banks, savings associations and insurance companies, it
is presented with opportunities to purchase the underlying mortgages. In many
cases, the mortgage loans increase in value solely due to the increased
liquidity provided by uniting ownership of the mortgage servicing rights with
the underlying mortgage loans. As servicer, Matrix Financial possesses
information about the quality and performance history related to each of these
loans, and, in many cases, the Company acts as custodian for the legal and
credit documents on the underlying loans. With such information available, the
Company is in a position to negotiate advantageous pricing on loans, which
provides the Company an opportunity to resell the mortgage loans at a higher
price (an "arbitrage" opportunity). Controlling ownership of the mortgage
servicing and the underlying mortgage loan provides the Company maximum
arbitrage opportunity in a sale. During the year ended December 31, 1995 and
the six months ended June 30, 1996, the Company made bulk purchases of
approximately $91.8 million and $65.3 million in mortgage loans, respectively.

TYPES OF LOANS PURCHASED. The Company reviews many loan portfolios for
prospective acquisition. The Company's primary focus is on acquiring seasoned
first lien priority loans secured primarily by one-to-four single family
residential properties valued at less than $250,000. The loans generally have
a minimum of three years of seasoning. The purchased loan portfolios typically
include both fixed and adjustable rate mortgage loans. Mortgage loan
portfolios are purchased from various sellers who, in some cases, have
originated the loans; but in most cases such sellers have acquired the loan
portfolios in bulk purchases.

There are several factors that the Company considers prior to the purchase.
These factors include the product type, the current loan balance, the current
interest rate environment, the seasoning of the mortgage loans, payment
histories, geographic location of the underlying collateral, price, the
current liquidity of the Company and the product mix in its existing mortgage
loan portfolio.

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

DUE DILIGENCE. The Company performs comprehensive due diligence on each
mortgage loan portfolio that the Company desires to purchase on a bulk basis.
These procedures consist of analyzing a representative sample of the mortgage
loans in the portfolio and are typically performed by Company employees, but
occasionally are outsourced to third party contractors. The underwriter takes
into account many factors in analyzing the sample of mortgage loans in the
subject portfolio, including the general economic conditions in the geographic
area or areas in which the underlying residential properties are situated, the
loan-to-value ratios on the underlying loans, the payment histories of the
borrowers and other pertinent statistics. In addition, the underwriter
attempts to verify that each of the sample loans conforms to the standards for
loan documentation set by FNMA and FHLMC and, in cases where a significant
portion of the sample loans contain documentation that does not conform to
these standards, the Company assesses the additional risk involved in
purchasing such loans. Once the underwriting and due diligence process is
complete, the Company categorizes each loan pool into one of four

52
<PAGE>

categories, which helps the Company determine whether the mortgage loan
portfolio meets the Company's investment criteria and, if it does, the range
of pricing that the Company feels is appropriate for the portfolio of mortgage
loans in question.

LOAN SALES. Substantially all of the mortgage loans in the Company's loan
portfolio are classified as held for sale. The Company continually monitors
the secondary market for purchases and sales of mortgage loan portfolios and
typically undertakes a sale of a particular loan portfolio held by the Company
in an attempt to "match" an anticipated bulk purchase of a particular mortgage
loan portfolio or to generate current period earnings and cash flow. To the
extent that the Company is unsuccessful in matching its purchases and sales of
mortgage loans, the Company may have excess capital at Matrix Bank, resulting
in less than optimum leverage and capital ratios. During the year ended
December 31, 1995 and the six months ended June 30, 1996, the Company made
bulk sales of approximately $70.2 million and $44.2 million in loans, for
gains on sale of bulk mortgage loans of $3.3 million and $852,000,
respectively.

RESIDENTIAL MORTGAGE LOAN ORIGINATION

WHOLESALE ORIGINATIONS. The Company originates residential mortgage loans
primarily on a wholesale basis through Matrix Financial. For the year ended
December 31, 1995 and for the six months ended June 30, 1996, Matrix Financial
originated a total of $388.9 million and $373.0 million in wholesale
residential mortgage loans, respectively.

Matrix Financial's source of mortgage loan originations is its wholesale
division, which originates mortgage loans through approved independent
mortgage loan brokers that qualify to participate in Matrix Financial's
program through a formal application process that includes an analysis of the
broker's financial condition and sample loan files, as well as the broker's
reputation, general lending expertise and references. As of June 30, 1996,
Matrix Financial had approved relationships with approximately 500 mortgage
loan brokers. From Matrix Financial's offices in Atlanta, Denver and Phoenix,
the sales staff solicit mortgage loan brokers throughout the Southeastern
states, the Southwestern states and the Mountain states for loan packages that
meet Matrix Financial's criteria. Mortgage loans submitted by brokers are
funded after being underwritten by Matrix Financial.

Mortgage loan brokers act as intermediaries between borrowers and Matrix
Financial in arranging mortgage loans. Matrix Financial, as an approved FNMA,
FHLMC and GNMA seller/servicer, provides such brokers access to the secondary
market for the sale of mortgage loans that they otherwise cannot access
because they do not meet the applicable seller/servicer net worth
requirements. Matrix Financial attracts and maintains relationships with
mortgage loan brokers by offering a variety of services and products.

By concentrating on wholesale mortgage banking services through independent
mortgage loan brokers, Matrix Financial is able to originate mortgage loans in
a cost-effective manner. Historically, retail mortgage loan origination has
involved higher fixed overhead costs such as offices, furniture, computer
equipment and telephones, as well as additional personnel costs such as sales
representatives and loan processors. By limiting the number of offices and
personnel needed to generate business, Matrix Financial has transferred the
overhead burden of mortgage origination to the independent mortgage loan
brokers that originate the loans. As a result, Matrix Financial can match its
origination costs more directly to loan origination volume so that a
substantial portion of its costs are variable rather than fixed.

In June 1996, the Company implemented a program to supplement its product
offerings made through its wholesale loan origination networks by adding
products tailored to borrowers who are unable or unwilling to obtain mortgage
financing from conventional mortgage sources. The borrowers who need this type
of loan product often have impaired or unsubstantiated credit histories and/or
unverifiable income and require or seek a high degree of personalized services
and swift response to their loan applications. As a result, these borrowers
generally are not averse to paying higher interest rates that the Company will
charge for this loan product type as compared to the interest rates charged by
conventional lending sources. The Company has established

53
<PAGE>

classifications with respect to the credit profiles of these borrowers. The
classifications range from A-minus through D depending upon a number of
factors, including the borrower's credit history and employment status. This
new lending program will be managed as a separate division of Matrix
Financial, known as the B/C Lending Division. Matrix Financial has entered
into a strategic alliance with a marketing group to enroll new independent
mortgage loan brokers to deliver borrower applications to the B/C Lending
Division. In addition, the marketing group will work with Matrix Financial's
existing wholesale network operations in Atlanta, Denver and Phoenix to
solicit loan applications for the B/C Lending Division from its existing base
of independent mortgage loan brokers. To date, the operations of the B/C
Lending Division have not been material to those of the Company.

RETAIL ORIGINATIONS. On a limited basis, and primarily in order to serve the
communities in which it operates, Matrix Bank originates mortgage loans on a
retail basis through its branches in Las Cruces, New Mexico and Sun City,
Arizona. The retail loans originated by Matrix Bank consist of a broad range
of residential (both at fixed and at adjustable rates) and consumer loan
products and, on a more limited basis, commercial real estate loans.

QUALITY CONTROL. The Company has a loan quality control process designed to
ensure sound lending practices and compliance with FNMA, FHLMC and applicable
private investor guidelines. Prior to funding any wholesale or retail loan,
the Company performs a pre-funding quality control audit, which consists of
the verification of a borrower's credit and employment, utilizing a detailed
checklist. Subsequent to funding, the Company on a monthly basis selects 10%
of all closed loans for a detailed audit conducted by its own personnel or a
third-party service provider. The quality control process entails performing a
complete underwriting review, and independent reverification of all employment
information, tax returns, source of down payment funds, bank accounts and
credit. Furthermore, 10% of the audited loans are chosen for an independent
field review and standard factual credit report. All discovered deficiencies
in these audits are reported to senior management of the Company to determine
trends and additional training needs. All resolvable issues are addressed and
cured by the Company. Any loans that fail to meet applicable investment
criteria of an investor are reported to such investor, which could result in a
requirement by the investor for the Company to repurchase the loan. The
Company also performs a quality control audit on all early payment defaults,
first payment defaults and 60-day delinquent loans, with the findings reported
to the appropriate investor and/or senior management.

SALE OF LOAN ORIGINATIONS. The Company generally sells the loans that it
originates. In the future, however, Matrix Bank may elect to hold for
investment certain mortgage loans that it has originated. Under ongoing
programs established with FNMA and FHLMC, conforming conventional loans may be
sold on a cash basis or pooled by the Company and exchanged for securities
guaranteed by FNMA or FHLMC. These securities are then sold by Matrix
Financial and Matrix Bank to national or regional broker/dealers. Mortgage
loans sold to FNMA or FHLMC are sold on a nonrecourse basis so that
foreclosure losses are generally borne by FNMA or FHLMC and not by the
Company.

The Company also sells nonconforming mortgage loans on a nonrecourse basis
to other secondary market investors. These loans are typically first lien
mortgage loans that do not meet all of the agencies' underwriting guidelines,
and are originated instead for other institutional investors with which the
Company previously negotiated purchase commitments, and for which the Company
occasionally pays a fee. This practice would also apply to the sale of
residential mortgage loans originated through the Company's B/C Lending
Division.

The Company sells mortgage loans on a servicing-retained or servicing-
released basis. Certain purchasers of mortgage loans require that the loan be
sold to them servicing released. In all other cases the decision is left to
the Company. Generally, the Company sells conforming loans on a servicing-
retained basis and nonconforming loans on a servicing-released basis. See "--
Residential Loan Servicing Activities--Loan Servicing."

In connection with the Company's mortgage loan originations and sales, the
Company makes customary representations and warranties, similar in nature and
scope to those provided in connection with sales of mortgage servicing rights,
that to date have not resulted in any significant repurchases of loans by the
Company or any pending or threatened claims by the purchasers against the
Company.

54
<PAGE>

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

In order to hedge against the interest rate risk resulting from these timing
differences, the Company historically has committed to sell all closed
mortgage loans held for sale and a portion of its pipeline loans. On a daily
basis, the Company adjusts its net commitment position by either entering into
new commitments to sell or by buying back commitments to sell depending upon
its projection of the portion of the pipeline loans that it expects to close.
These projections are based on numerous factors, including changes in interest
rates and general economic trends. The accuracy of the underlying assumptions
bears directly upon the effectiveness of the Company's use of forward
commitments and subsequent profitability. At December 31, 1995, the Company
had approximately $93.1 million in pipeline and funded loans offset with
mandatory forward commitments of approximately $64.7 million and non-mandatory
forward commitments of approximately $15.3 million. At June 30, 1996, the
Company had approximately $95.4 million in pipeline and funded loans offset
with mandatory forward commitments of approximately $69.7 million and non-
mandatory forward commitments of approximately $20.0 million. The inherent
value of the forward commitments is considered in the determination of the
lower of cost or market in valuing the Company's pipeline and funded loans at
any given time. See "Risk Factors--Potential Adverse Impact of Fluctuating
Interest Rates--Pipeline Loans" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Comparison of Results of
Operations for the Six Months Ended June 30, 1996 and 1995--Loan Origination."

REAL ESTATE MANAGEMENT AND DISPOSITION SERVICES

USS, which began operations in June 1995, provides real estate management
and disposition services to customers across the United States. In addition to
the unaffiliated clients currently served by USS, Matrix Financial uses USS
exclusively in handling the disposition of its foreclosed real estate. Having
USS provide this service as opposed to Matrix Financial transforms the
disposition process into a revenue generator for the Company, since USS
typically collects a fee of 1% of the value of the foreclosed real estate from
the real estate broker involved in the sale transaction. USS is able to
provide this disposition service on an outsourced basis and at no additional
cost to the mortgage loan servicer, since USS collects its fee from the real
estate broker. USS is able to pass the cost of the disposition on to the real
estate broker because of the volume it generates. In addition, USS provides
limited collateral valuation opinions to clients such as FHLMC who are
interested in assessing the value of the underlying collateral on non-
performing mortgage loans, as well as to clients such as Matrix Bank and other
third-party mortgage loan originators and buyers interested in evaluating
potential bulk purchase of mortgage loans. To date, the operations of USS have
not been material to those of the Company.

SAVINGS BANK ACTIVITIES

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

SUB-PRIME AUTOMOBILE LOANS

Sterling originates and sells sub-prime automobile retail installment sales
contracts on new and used automobiles. "Sub-prime" lending involves making
loans to borrowers with limited access to traditional sources

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of consumer credit. Sterling currently has relationships with more than 500
automobile dealerships located throughout the United States. Sterling
maintains a central processing center in Denver, which is responsible for
reviewing and approving credit applications submitted by dealers and other
originators directly via on-line connection with Sterling. Loans made by
Sterling average approximately $9,500 each, carry an interest rate generally
of between 18% and 26%, and are serviced by an unaffiliated third-party
servicer, who charges a fixed fee per month for servicing. Sterling sells
substantially all of its retail automobile installment sales contracts through
conduits in the secondary market within 30 to 60 days after their origination
or purchase. Because Sterling generally requires the first monthly installment
payment to be paid by the borrower at the closing of the loan, the credit risk
incurred by Sterling in connection with the origination, purchase and sale of
these loans is substantially reduced. To date, the operations of Sterling have
not been material to the business of the Company.

COMPETITION

The industries in which the Company competes are highly competitive. The
Company competes with other mortgage banking companies, servicing brokers,
commercial banks, savings associations, credit unions, other financial
institution and various other lenders. A number of these competitors have
substantially greater financial resources, greater operating efficiencies and
longer operating histories than the Company.

Competition in originating mortgage loans arises mainly from other mortgage
companies, savings associations and commercial banks. The distinction among
market participants is based primarily on price and, to a lesser extent, the
quality of customer service and name recognition. Aggressive pricing policies
of the Company's competitors, especially during a declining period of mortgage
loan originations, could in the future result in a decrease in the Company's
mortgage loan origination volume and/or a decrease in the profitability of the
Company's loan originations, thereby reducing the Company's revenues and net
income. Many of the nation's largest mortgage companies, savings associations
and commercial banks have a significant number of branch offices in areas in
which the Company operates. The Company competes for loans by offering
competitive interest rates and product types, and by seeking to provide a
higher level of personal service to mortgage brokers and borrowers than is
furnished by competitors. However, the Company does not have a significant
market share of the lending markets in which it conducts operations.

Management believes that Matrix Bank's most direct competition for deposits
comes from local financial institutions. The distinction among market
participants is based primarily on price and, to a lesser extent, the quality
of customer service and name recognition. Matrix Bank's cost of funds
fluctuates with general market interest rates. During certain interest rate
environments, additional significant competition for deposits may be expected
from corporate and governmental debt securities as well as money market mutual
funds. Matrix Bank competes for deposits by emphasizing quality of service,
extensive product lines and competitive pricing.

Competition in brokerage and consulting arises mainly from other mortgage
banking consulting firms and national and regional investment banking and
accounting firms. Management believes that the distinction among market
participants is based primarily on customer service. United Financial competes
for its brokerage and consulting activities by recruiting qualified and
experienced sales people, by developing innovative sales techniques, by
providing financing opportunities to its customers through its affiliation
with Matrix Bank and by seeking to provide a higher level of service than is
furnished by its competitors.

The Company competes for the acquisition of mortgage loan servicing rights
and bulk loan portfolios mainly with mortgage companies, savings associations,
commercial banks and other institutional investors. The Company believes that
it has competed successfully for the acquisition of mortgage loan servicing
rights and bulk loan portfolios by relying on the advantages provided by its
unique corporate structure and the secondary marketing expertise of the
employees in each Subsidiary.

The sub-prime consumer automobile finance market is highly fragmented.
Although the Company does not believe that it currently competes with
commercial banks, savings associations, credit unions and captive automobile
finance companies in the origination and resale of sub-prime automobile loans,
it does face

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competition from a number of companies providing, or capable of providing,
financing programs to individual purchasers that cannot qualify for
traditional financing. The Company also competes with numerous relatively
small, regional consumer finance companies. Many of these competitors or
potential competitors have pre-existing relationships with established dealer
networks. To the extent that any of such lenders significantly expand their
activities in the Company's market, the Company could be materially adversely
affected. The Company believes that it competes primarily on the basis of the
price paid for the loans and service to its participating dealers.

EMPLOYEES

At June 30, 1996, the Company had 206 employees. Management believes that
its relations with its employees are good. Neither Matrix Capital nor any of
the Subsidiaries is a party to any collective bargaining agreement.

PROPERTIES

The executive and administrative offices of Matrix Capital, United Financial
and USS are located at 1380 Lawrence Street, Suite 1410, Denver, Colorado
80204. The lease on these premises extends through January 1999 and the
current annual rent is approximately $110,000. The Company also owns a
building in Phoenix, which houses the bulk of Matrix Financial's operations.
This building was purchased by the Company in 1994 and is subject to third
party mortgage indebtedness. See Note 4 to the Consolidated Financial
Statements included elsewhere herein. The Company utilizes approximately
18,000 of the 30,000 square feet in this building, with the balance being
leased to an affiliated company at current market rates. See "Certain
Relationships and Related Transactions." The Company also leases two smaller
office facilities in Atlanta and Denver where Matrix Financial conducts its
wholesale loan origination activities. Sterling's operations are conducted in
an approximately 3,200 square foot leased facility in Denver.

Matrix Bank owns an approximately 30,000 square foot building in Las Cruces,
New Mexico. Of this 30,000 square feet, approximately 9,200 square feet serve
as the headquarters for Matrix Bank, with substantially all of the remaining
footage being rented to third-party tenants at market rates. Matrix Bank also
owns an approximately 3,000 square foot building in Sun City, Arizona, which
serves as Matrix Bank's branch there.

The Company believes that all of its present facilities are adequate for its
current needs and that additional space is available for future expansion upon
acceptable terms.

LEGAL PROCEEDINGS

Matrix Financial is a defendant in two lawsuits, Limper v. Matrix Financial
Services Corporation (Court of Common Pleas, Ottawa County, Ohio, January 29,
1996), and Mogavero v. Matrix Financial Services Corporation (United States
District Court for the District of Massachusetts, June 17, 1996), which
purport to cover a nationwide class of plaintiffs and involve similar facts
and legal claims. The plaintiffs have requested class action status for each
of these lawsuits. In both cases, the plaintiffs allege that Matrix Financial
breached the terms of plaintiffs' promissory notes and mortgages by imposing
certain fax and payoff statement fees at the time the plaintiffs prepaid their
loans. The plaintiffs claim that such fees constitute prepayment charges in
violation of the terms of the notes and demand restitution and attorneys'
fees. In addition, the plaintiffs in Mogavero seek treble damages for Matrix
Financial's alleged violation of 18 U.S.C. (S)1964.

Matrix Financial has filed an answer in Limper denying the plaintiffs'
claims but no answer has yet been filed in Mogavero. Matrix Financial believes
it has defenses to these lawsuits; however, no assurance can be given that an
adverse judgment will not be rendered or that such a judgment would not have a
material adverse effect on the Company's consolidated financial condition,
results of operations or cash flows. A joint settlement proposal has been
tendered by plaintiffs' counsel, whereby Matrix Financial would pay a
settlement payment of

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not more than $640,000, including attorneys' fees of the plaintiffs, payments
to the plaintiff class members and all administrative costs associated with
the settlement. Assuming the settlement occurs, and depending on the response
rate from the plaintiff class members, the ultimate total of payments made by
Matrix Financial could be significantly smaller. The terms of the settlement,
however, are being negotiated, and there can be no assurance that either
action will be settled on terms acceptable to the Company, or at all. If the
settlement negotiations proceed, the Company anticipates that it will
establish a reserve in the third quarter of 1996 to account for this
contingency.

The Company is involved from time to time in routine litigation incidental
to its business. However, other than described above, the Company believes
that it is not a party to any material pending litigation that, if decided
adversely to the Company, would have a significant adverse effect on the
Company's consolidated financial condition, results of operations or cash
flows.

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REGULATION AND SUPERVISION

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

MATRIX CAPITAL

Matrix Capital is a unitary thrift holding company within the meaning of the
Home Owners' Loan Act of 1933, as amended ("HOLA"). As such, Matrix Capital
has registered with the OTS and is subject to OTS regulation, examination,
supervision and reporting requirements. In addition, the OTS has enforcement
authority over Matrix Capital and its non-savings institution subsidiaries.
Among other things, this authority permits the OTS to restrict or prohibit
activities that are determined to be a serious risk to Matrix Bank. In
addition, Matrix Bank must notify the OTS at least 30 days before making any
distribution to Matrix Capital.

The HOLA prohibits a thrift holding company, directly or indirectly through
one or more subsidiaries, from (i) acquiring another savings institution or
holding company thereof, without prior written approval of the OTS, (ii)
acquiring or retaining, with certain exceptions, more than five percent of a
nonsubsidiary savings institution, a nonsubsidiary holding company, or a
nonsubsidiary company engaged in activities other than those permitted by the
HOLA, or (iii) acquiring or retaining control of a savings institution that is
not federally insured. In evaluating applications by holding companies to
acquire savings institutions, the OTS must consider the financial and
managerial resources and future prospects of the company and institution
involved, the effect of the acquisition on the risk to the insurance funds,
the convenience and needs of the community and competitive factors.

As a unitary thrift holding company, Matrix Capital generally is not
restricted under existing laws as to the types of business activities in which
it may engage, provided that Matrix Bank continues to be a "qualified thrift
lender" under HOLA ("QTL"). See "--Federal Savings Bank Operations--QTL Test"
for a discussion of the QTL requirements. Upon any nonsupervisory acquisition
by Matrix Capital of another savings association or savings bank that meets
the QTL test and is deemed to be a savings institution by OTS, Matrix Capital
would become a multiple thrift holding company (if the acquired institution is
held as a separate subsidiary) and would be subject to extensive limitations
on the types of business activities in which it could engage. HOLA limits the
activities of a multiple thrift holding company and its uninsured institution
subsidiaries primarily to activities permissible for bank holding companies
under Section 4(c)(8) of the Bank Holding Company Act of 1956, as amended (the
"BHC Act"), subject to the prior approval of the OTS, and activities
authorized by OTS regulation.

Legislation has been proposed that would impose limits on the nonbanking
activities of companies that acquire savings associations. It is anticipated
that Matrix Capital's holding company status would be "grandfathered" under
such legislation, but there can be no assurance that Matrix Capital would be
so excepted from such limits. Furthermore, any available grandfathering might
not continue to be available to Matrix Capital as a result of a possible
merger of the federal regulatory agencies. Several proposals have been
introduced in Congress over a number of years with increasing frequency and
interest in such a merger. If the OTS and Office of the Comptroller of the
Currency were merged, as one proposal would require, the federal thrift
charter would actually be eliminated. If adopted, such a proposal would
require that Matrix Bank become a national bank and would subject it to
regulation as such. One effect of such a requirement would be that Matrix
Capital could not engage in activities not permitted for national banks. In
addition, the ability to branch interstate would become subject to the
restrictions of the Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 ("Riegle Act"). Accordingly, any out-of-state branches of Matrix
Bank in existence upon the effectiveness of such a proposal that are not
permissible under the Riegle Act and, if not grandfathered, could be required
to be divested. There are also some benefits to such a charter conversion. For
example, Matrix Bank would not, under regulations currently applicable to
national banks, be subject to the QTL test described below.

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Federal law generally provides that no company may acquire control of a
federally-insured savings institution without obtaining the approval of the
OTS. Such acquisitions of control may be disapproved if it is determined,
among other things, that the acquisition would substantially lessen
competition or the financial and managerial resources and further prospects of
the acquiror and savings institution involved or that the acquisition would be
detrimental to the institution or present enhanced insurance risk to the SAIF
or BIF.

MORTGAGE BANKING OPERATIONS

The rules and regulations applicable to the Company's mortgage banking
operations establish underwriting guidelines that, among other things, include
anti-discrimination provisions, require provisions for inspections,
appraisals, and credit reports on prospective borrowers and fix maximum loan
amounts. Moreover, lenders, such as the Company, are required annually to
submit to the HUD, FNMA and FHLMC audited financial statements, and each
regulatory entity maintains its own financial guidelines for determining net
worth and eligibility requirements. The Company's affairs are also subject to
examination by HUD, FNMA and FHLMC at any time to assure compliance with the
applicable regulations, policies and procedures. Mortgage loan origination
activities are subject to, among others, the Equal Credit Opportunity Act,
Federal Truth-in-Lending Act and the Real Estate Settlement Procedures Act of
1974, as amended, and the regulations promulgated thereunder that prohibit
discrimination and require the disclosure of certain basic information to
mortgagors concerning credit terms and settlement costs.

Additionally, there are various state and local laws and regulations
affecting the Company's operations. The Company is licensed in those states in
which it does business requiring such a license where the failure to be
licensed would have a material adverse effect on the Company, its business or
assets. Conventional mortgage operations also may be subject to state usury
statutes.

FEDERAL SAVINGS BANK OPERATIONS

BUSINESS ACTIVITIES. The activities of savings associations are governed by
HOLA and, in certain respects, the Federal Deposit Insurance Act of 1933, as
amended ("FDI Act"). The HOLA and the FDI Act were amended by the Financial
Institutions Reform, Recovery and Enforcement Act of 1989, as amended
("FIRREA") and the Federal Deposit Insurance Corporation Act of 1991
("FDICIA"). FIRREA was enacted to resolve issues relating to problem
institutions, including thrifts, establish a new thrift insurance fund,
reorganize the regulatory structure applicable to savings associations and
impose bank-like standards on savings associations. FDICIA, among other
things, requires that federal banking regulators intervene promptly when a
depository institution experiences financial difficulties, mandates the
establishment of a risk-based deposit insurance assessment system and requires
imposition of numerous additional safety and soundness operational standards
and restrictions. Both FIRREA and FDICIA contain provisions affecting numerous
aspects of the operations and regulations of federally-insured savings
associations and empower the OTS and the FDIC, among other agencies, to
promulgate regulations implementing their provisions.

Provisions of the federal banking statutes, as amended by FIRREA and FDICIA,
among other provisions, (i) restrict the use of brokered deposits by troubled
savings associations that are not well capitalized, (ii) prohibit the
acquisition of any corporate debt security that is not rated in one of the
four highest rating categories, (iii) subject to OTS waiver, restrict the
aggregate amount of loans secured by non-residential real estate property to
400% of Tier I capital, (iv) permit savings and loan holding companies to
acquire up to 5% of the voting shares of non-subsidiary savings associations
or savings and loan holding companies without prior approval, (v) permit bank
holding companies to acquire healthy savings associations, (vi) require the
federal banking agencies to establish by regulation standards for extensions
of credit secured by real estate, and (vii) restrict transactions between a
savings association and its affiliates.

LOANS TO ONE BORROWER. Under the HOLA, savings associations are generally
subject to the national bank limits on loans to one borrower. Generally, a
savings institution may not make a loan or extend credit to a single or
related group of borrowers in excess of 15% of the institution's unimpaired
capital and surplus. An additional

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amount may be lent, equal to 10% of unimpaired capital and surplus, if such
loan is fully secured by readily marketable collateral, which is defined to
include certain securities and bullion, but generally does not include real
estate.

QTL TEST. The HOLA requires savings associations to meet a QTL test. Under
the QTL test, as modified by FDICIA, a savings association is required to
maintain at least 65% of its "portfolio assets" (total assets less (i)
specified liquid assets up to 20% of total assets, (ii) intangibles, including
goodwill and (iii) the value of property used to conduct business) in certain
"qualified thrift investments" (primarily residential mortgages and related
investments, including certain mortgage-backed and related securities) on a
monthly basis in nine out of every 12 months.

A savings association that fails the QTL test for four or more months out of
the prior 12-month period must either convert to a bank charter or operate
under certain restrictions. If the savings association does not convert to a
bank charter, generally it will be prohibited from: (i) making any new
investment or engaging in any new activity not permissible for a national
bank; (ii) paying dividends not permissible under national bank statutes and
regulations; (iii) obtaining any new advances from any FHLB; and (iv)
establishing any new branch office in a location not permissible for a
national bank with its head office located in the association's home state.
Any bank chartered as a result of failure of the QTL test must pay exit and
entrance fees as a consequence of leaving the SAIF and entering the BIF as
further described below. In addition, beginning three years after the
association fails the QTL test, the association will be prohibited from
engaging in any activity or retaining any investment not permissible for a
national bank and will have to repay any outstanding advances from FHLB as
promptly as possible consistent with safety and soundness. One year from the
date the association fails the QTL test, any holding company that controls the
association must register as and be deemed to be a bank holding company,
subject to the restrictions and limitations of the BHC Act, and to the
regulations of the Board of Governors of the Federal Reserve System. As of
June 30, 1996, Matrix Bank maintained approximately 93% of its portfolio
assets in qualified thrift investments and, therefore, met the QTL test.
Consequently, Matrix Capital is able to retain its savings and loan holding
company status.

LIMITATION ON CAPITAL DISTRIBUTIONS. OTS regulations impose limitations upon
all capital distributions by savings associations, such as cash dividends,
payments to repurchase or otherwise acquire its shares, payments to
shareholders of another institution in a cash-out merger and other
distributions charged against capital. The rule establishes three tiers of
associations, which are based primarily on an institution's capital level. An
institution that has capital which is equal to or exceeds all fully phased-in
capital requirements before and after a proposed capital distribution ("Tier 1
Institution") and has not been advised by the OTS that it is in need of more
than normal supervision, could, after prior notice but without the approval of
the OTS, make capital distributions during a calendar year equal to the
greater of: (i) 100% of its net income to date during the calendar year plus
the amount that would reduce by one-half its "surplus capital ratio" (the
excess capital over its fully phased-in capital requirements) at the beginning
of the calendar year or (ii) 75% of its net income for the previous four
quarters. Any additional capital distributions would require prior regulatory
approval. If Matrix Bank's capital falls below its fully-phased-in requirement
or the OTS notifies it that it is in need of more than normal supervision,
Matrix Bank's ability to make capital distributions could be restricted. In
addition, the OTS could prohibit a proposed capital distribution by any
institution, which would otherwise be permitted by the regulation, if the OTS
determines that such distribution would constitute an unsafe or unsound
practice. At June 30, 1996, Matrix Bank was a Tier 1 Institution.

LIQUIDITY. Matrix Bank must maintain an average daily balance of liquid
assets and short-term liquid assets equal to a monthly average of not less
than specified percentages of its net withdrawable deposit accounts plus
short-term borrowings. This liquidity requirement may be changed from time to
time by the OTS. Monetary penalties may be imposed for failure to meet these
liquidity requirements. Since its acquisition by Matrix Capital, Matrix Bank
has never failed to meet its liquidity requirements.

ASSESSMENTS. Savings associations must pay assessments to the OTS to fund
the operations of the OTS. The general assessment, currently assessed on a
semi-annual basis, is computed upon the savings institution's

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total assets, including consolidated subsidiaries, as reported in the
association's latest quarterly thrift financial report. The assessments paid
by Matrix Bank for the years ended December 31, 1994 and 1995 and for the six
months ended June 30, 1996 totaled $176,000, $155,000 and $86,000,
respectively.

BRANCHING. In April 1992, the OTS amended its rule on branching by federally
chartered savings associations to permit nationwide branching to the extent
allowed by federal statute. This permits federal savings associations with
interstate networks to diversify their loan portfolios and lines of business.
The OTS authority preempts any state law purporting to regulate branching by
federal savings associations.

COMMUNITY REINVESTMENT. Under the Community Reinvestment Act ("CRA"), as
implemented by OTS regulations, a savings institution has a continuing and
affirmative obligation consistent with its safe and sound operation to help
meet the credit needs of its entire community, including low and moderate
income neighborhoods. The CRA does not establish specific lending requirements
or programs for financial associations nor does it limit an institution's
discretion to develop the types of products and services that it believes are
best suited to its particular community. The CRA requires the OTS, in
connection with its examination of a savings institution, to assess the
institution's record of meeting the credit needs of its community and to take
such record into account in evaluating certain applications by such
institution. The CRA also requires all associations to publicly disclose their
CRA rating. Matrix Bank received a CRA rating of "satisfactory" in its most
recent examination.

INSURANCE OF ACCOUNTS AND REGULATION BY THE FDIC. Matrix Bank is a member of
the SAIF, which is administered by the FDIC. Savings deposits are insured up
to $100,000 per insured member (as defined by law and regulation) by the FDIC.
Such insurance is backed by the full faith and credit of the United States. As
insurer, the FDIC imposes deposit insurance assessments and is authorized to
conduct examinations of and to require reporting by the FDIC-insured
institutions. It also may prohibit any FDIC-insured institution from engaging
in any activity the FDIC determines by regulation or order to pose a serious
risk to the FDIC. The FDIC also may initiate enforcement actions against
savings associations and may terminate the deposit insurance if it determines
that the institution has engaged or is engaging in unsafe or unsound
practices, or is in an unsafe or unsound condition.

FDICIA required the FDIC to implement a risk-based deposit insurance
assessment system. Pursuant to this requirement, the FDIC has adopted a risk-
based assessment system under which all SAIF insured depository associations
are placed into one of nine categories and assessed insurance assessments
based upon their level of capital and supervisory evaluation. Under this
system, associations classified as well capitalized and considered healthy pay
the lowest assessment while associations that are less than adequately
capitalized and considered of substantial supervisory concern pay the highest
assessment. In addition, under FDICIA, the FDIC may impose special assessments
on SAIF members to repay amounts borrowed from the United States Treasury or
for any other reason deemed necessary by the FDIC. The annual assessment of
SAIF members for deposit insurance ranges from 0.23% to 0.31% of domestic
deposits. The FDIC may increase assessment rates, on a semiannual basis, if it
determines that the reserve ratio of the SAIF will be less than the designated
reserve ratio of 1.25% of SAIF insured deposits. In setting these increased
assessments, the FDIC must seek to restore the reserve ratio to that
designated reserve level, or such higher reserve ratio as established by the
FDIC. Matrix Bank's current assessment is 0.23% of deposits, which is the
lowest rate.

By contrast, financial institutions that are members of the Bank Insurance
Fund ("BIF"), which has higher reserves, experience lower deposit insurance
assessments. The disparity in deposit insurance assessments between SAIF and
BIF members is exacerbated by the statutory requirement that both the SAIF and
the BIF funds be recapitalized to a 1.25% reserved deposits ratio and that a
portion of most thrift's deposit insurance assessments be used to service
bonds issued by the Financial Corporation ("FICO"). BIF reached the required
reserve ratio in 1995, but the SAIF will probably not reach such level for
several years. SAIF's ability to attain the required reserve ratio has been
hampered by a shrinking deposit base for SAIF assessments and the required use
of SAIF premiums to make interest payments on bonds issued by FICO in order to
finance the resolution of thrift failures in the 1980s. While the effect of
the disparity between BIF and SAIF assessments on SAIF insured

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associations cannot be determined at this time, if SAIF insurance assessments
are not reduced and BIF insurance assessments remain at their current low
levels over the long term, SAIF members could be placed at a material
disadvantage to BIF members with respect to pricing of deposits and lower
operating costs. In addition, a significant increase in SAIF insurance
assessments would likely have an adverse effect on the operating expenses and
results of operation of Matrix Bank.

A number of legislative proposals are being considered by the Congress of
the United States to recapitalize the SAIF in an effort to resolve the
disparity between BIF-insured institutions and SAIF-insured institutions. One
proposal provides for a one-time assessment of .85% to .90% to be imposed upon
all SAIF deposits as of March 31, 1995, a three-year .05% differential between
BIF and SAIF assessments and, thereafter, for BIF deposit premiums to be used
to pay the FICO bond interest on a pro rata basis with SAIF deposit premiums.
If this proposal were enacted, the impact of such legislation on Matrix Bank
would be significant. Such impact would worsen to the extent that the
designated date of the special assessment calculation were later than
March 31, 1995, due to continuing increases in Matrix Bank's deposits. Based
on the Company's SAIF deposits as of March 31, 1995, the cost of such a
special assessment, if enacted, would be between approximately $628,000 and
$665,000. There is no assurance that this proposal or any other proposal will
be implemented or that SAIF-insured institutions such as Matrix Bank will not
experience a competitive disadvantage in deposit insurance premiums.

The financing corporations created by FIRREA and the Competitive Equality
Banking Act of 1987 are also empowered to assess premiums on savings
associations to help fund the liquidation or sale of troubled associations.
Such premiums cannot, however, exceed the amount of SAIF assessments and are
paid in lieu thereof.

BROKERED DEPOSITS. Under the FDIC regulations governing brokered deposits,
well-capitalized associations are not subject to brokered deposit limitations,
while adequately capitalized associations are subject to certain brokered
deposit limitations and undercapitalized associations may not accept brokered
deposits. Matrix Bank is considered to be a well-capitalized association, but
does not currently accept, and in the foreseeable future does not expect to
accept, brokered deposits. See "--Capital Requirements."

FINANCIAL MANAGEMENT REQUIREMENTS. FDICIA also imposes new financial
reporting requirements on all depository associations with assets of more than
$500 million, their management and their independent auditors, and establishes
rules for the composition, duties and authority of such associations' audit
committees and boards of directors.

TRANSACTIONS WITH RELATED PARTIES. Matrix Bank's authority to engage in
transactions with related parties or affiliates or to make loans to certain
insiders is limited by the Federal Reserve Act of 1913, as amended. In
addition, savings associations may not lend to any affiliate that is engaged
in activities that are not permissible for bank holding companies under the
BHC Act. Further, no savings institution may purchase the securities of any
affiliate other than a subsidiary.

ENFORCEMENT. Under the FDI Act, the OTS has primary enforcement
responsibility over savings associations such as Matrix Bank and has the
authority to bring enforcement action against all "institution-related
parties," including shareholders, attorneys, appraisers and accountants who
knowingly or recklessly participate in wrongful action which caused or is
likely to cause more than a minimal financial loss to, or a significant
adverse effect on an insured depository institution. Civil penalties cover a
wide range of violations and actions and range up to $25,000 per day unless a
finding of reckless disregard is made, in which case penalties may be as high
as $1 million per day. Criminal penalties for most financial institution
crimes include fines of up to $1 million and imprisonment for up to 30 years.
In addition, regulators have substantial discretion to impose enforcement
action on an institution that fails to comply with its regulatory
requirements, particularly with respect to the capital requirements. Possible
enforcement action ranges from the imposition of a capital plan and capital
directive to receivership, conservatorship or the termination of deposit
insurance. Under the FDI Act, the FDIC has the authority to recommend to the
Director of the OTS that enforcement action be taken with

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respect to a particular savings institution. If action is not taken by the
Director, the FDIC has authority to take such action under certain
circumstances. Matrix Bank is not presently subject to any of the foregoing
enforcement actions.

STANDARDS FOR SAFETY AND SOUNDNESS. FDICIA requires each federal banking
agency to prescribe for all insured depository institutions and, to some
extent, their holding companies standards relating to internal controls,
information systems and audit systems, loan documentation, credit
underwriting, interest rate risk exposure, asset growth, and compensation,
fees and benefits and such other operational and managerial standards as the
agency deems appropriate. In addition, the federal banking regulatory agencies
are required to prescribe by regulation: (i) maximum classified assets to
capital ratios; (ii) minimum earnings sufficient to absorb losses without
impairing capital; (iii) to the extent feasible, a minimum ratio of market
value to book value for publicly traded shares of depository institutions or
the depository institution holding companies; (iv) standards for extensions of
credit secured by real estate or made for the purpose of financing the
construction of improvements on real estate; and (v) such other standards
relating to asset quality, earnings and valuation as the agency deems
appropriate. Finally, each federal banking agency is required to prescribe
standards for employment contracts and other compensation arrangements of
executive officers, employees, directors and principal shareholders of insured
depository associations that would prohibit compensation, benefits and
arrangements that are excessive or that could lead to a material financial
loss for the institution. If an insured depository institution or its holding
company fails to meet any of the standards described above, it must submit to
the appropriate federal banking agency a plan specifying the steps that will
be taken to cure the deficiency. If an institution fails to submit an
acceptable plan or fails to implement the plan, the appropriate federal
banking agency will require the institution or holding company to correct the
deficiency and, until corrected, may impose restrictions on the institution or
the holding company, including any of the restrictions applicable under the
prompt corrective action provisions of FDICIA. See "--Prompt Corrective
Action."

CAPITAL REQUIREMENTS. FDICIA added a provision establishing "capital
categories" in order to facilitate prompt corrective action by the federal
banking regulators. The purpose of this amendment is to impose more scrutiny
and restrictions on institutions, and to prohibit savings institutions from
making capital distributions or paying certain management fees if to do so
would leave the institution undercapitalized. FDICIA established five capital
categories for this purpose:

. An institution will be deemed to be well-capitalized if it (i) has a
total risk-based capital ratio of 10% or more, (ii) has a Tier 1 risk-
based capital ratio of 6% or more, and (iii) has a leverage ratio of 5%
or more.

. An institution will be deemed to be adequately capitalized if it (i) has
a total risk-based capital ratio of at least 8%, (ii) has a Tier 1 risk-
based capital ratio of at least 4%, and (iii) subject to certain
exceptions, has a leverage ratio of at least 4%.

. An institution will be deemed to be undercapitalized if it (i) has a
total risk-based capital ratio of less than 8%, (ii) has a Tier 1 risk-
based capital ratio that is less than 4%, or (iii) subject to certain
exceptions, has a leverage ratio of less than 4%.

. An institution will be deemed to be significantly undercapitalized if it
(i) has a total risk-based capital ratio of less than 6%, (ii) has a Tier
1 risk-based capital ratio of less than 3%, or (iii) has a leverage ratio
of less than 3%.

. An institution will be deemed to be critically undercapitalized if it has
a ratio of tangible equity to total assets of less than 2%.

The Congress of the United States adopted a bill that did not become law,
but which would require federal savings banks to convert to national banks. In
the event of such a conversion, subject to limited grandfathering, thrift
holding companies, such as Matrix Capital, would become regulated by the
Federal Reserve Board. The Federal Reserve Board requires bank holding
companies to maintain a leverage ratio of 5.0% with the aggregate amount of
purchased mortgage servicing rights not to exceed 50.0% of Tier I capital (the
numerator of the leverage ratio). Had Matrix Capital been subject to the
Federal Reserve Board's capital regulations, its

64
<PAGE>

consolidated leverage ratio would have been approximately 2.7% at June 30,
1996 (assuming no other adjustments). There is considerable uncertainty
regarding whether such legislation will be adopted.

PROMPT CORRECTIVE ACTION. FDICIA establishes a system of prompt corrective
action to resolve the problem of undercapitalized associations. Under that
system, the banking regulators must take certain supervisory actions against
undercapitalized associations, the severity of which depends upon the
institution's level of capitalization. Generally, subject to a narrow
exception, FDICIA requires the appropriate federal banking regulator to
appoint a receiver or conservator for an institution that is critically
undercapitalized. FDICIA authorizes the banking regulators to specify the
ratio of tangible capital to assets at which an institution becomes critically
undercapitalized and requires that ratio to be no less than 2% of assets.

A thrift institution may be reclassified to an even lower category than is
indicated by its current capital position if the OTS determines the
institution to be otherwise in an unsafe or unsound condition or to be engaged
in an unsafe or unsound practice. This could include a failure by the
institution to correct deficiencies following receipt of a less-than-
satisfactory rating on its most recent examination report. Among other things,
undercapitalized institutions are subject to growth limitations and are
required to submit capital restoration plans. If an institution fails to
submit an acceptable plan or fails in any material respect to implement an
approved plan, it is treated as significantly undercapitalized.

The OTS has adopted a rule that modifies the minimum core capital
requirement for some thrift institutions. The general minimum requirement of
Tier 1 capital at least equal to 3% of adjusted total assets is applicable
only to those institutions that receive a composite rating of one (the highest
rating) under the "MACRO" rating system for thrift institutions, and those
which are, in general, considered strong organizations having well-diversified
risks (including no undue interest rate risk exposure, excellent control
systems, good earnings, high asset quality and liquidity and well managed on-
and off-balance sheet assets). All other thrift institutions must maintain
core capital of 3% plus an additional 100 to 200 basis points as established
by the OTS on a case-by-case basis.

MATRIX BANK'S CAPITAL RATIOS. The following table indicates Matrix Bank's
regulatory capital ratios at December 31,1995 and June 30, 1996:

<TABLE>
<CAPTION>
AS OF
---------------------------------------
DECEMBER 31, 1995 JUNE 30, 1996
------------------- -------------------
CORE RISK-BASED CORE RISK-BASED
CAPITAL CAPITAL CAPITAL CAPITAL
------- ---------- ------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Shareholder's equity/GAAP capital..... $7,338 $7,338 $8,170 $8,170
Additional capital items:
Minority interest in subsidiary..... 202 202 -- --
General valuation allowances........ -- 781 -- 1,011
------ ------ ------ ------
Regulatory capital as reported to the
OTS.................................. 7,540 8,321 8,170 9,181
Minimum capital requirement as
reported to the OTS.................. 3,162 4,997 4,504 7,277
------ ------ ------ ------
Regulatory capital--excess............ $4,378 $3,324 $3,666 $1,904
====== ====== ====== ======
Capital ratios........................ 7.16% 13.32% 5.44% 10.09%
Well-capitalized requirement.......... 5.00% 10.00% 5.00% 10.00%
</TABLE>

FEDERAL HOME LOAN BANK SYSTEM. Matrix Bank is a member of the FHLB system,
which consists of 12 regional FHLBs. The FHLB provides a central credit
facility primarily for member associations and administers the home financing
credit function of savings associations. FHLB advances must be secured by
specified types of collateral and may only be obtained for the purpose of
providing funds for residential housing finance. The FHLB funds its operations
primarily from proceeds derived from the sale of consolidated obligations of
the FHLB system. Matrix Bank, as a member of the FHLB system, must acquire and
hold shares of capital stock in

65
<PAGE>

FHLB in an amount at least equal to 1% of the aggregate principal amount of
its unpaid residential mortgage loans and similar obligations at the beginning
of each year, or 1/20 of its advances (borrowings) from the FHLB, whichever is
greater. Matrix Bank was in compliance with this requirement with an
investment in FHLB stock at June 30, 1996 of $2.7 million.

The FHLBs must provide funds to service the FICO bonds and contribute funds
for affordable housing programs. These requirements have affected adversely
the level of FHLB dividends paid and could continue to do so. Such
requirements could also result in the FHLBs' imposing a higher rate of
interest on advances to their members and could have an adverse effect on the
value of FHLB stock in the future, with a corresponding reduction in Matrix
Bank's capital. For the years ended December 31, 1994 and 1995, and for the
six months ended June 30, 1996, dividends from the FHLB to Matrix Bank
amounted to $35,000, $86,000 and $72,000, respectively. If dividends were
reduced, Matrix Bank's income would likely also be reduced.

FEDERAL RESERVE SYSTEM. The Federal Reserve Board regulations require
savings associations to maintain non-interest earning reserves against their
transaction accounts (primarily regular checking and NOW accounts). Matrix
Bank is in compliance with these regulations. The balances maintained to meet
the reserve requirements imposed by the Federal Reserve Board may be used to
satisfy liquidity requirements imposed by the OTS. Because required reserves
must be maintained in the form of vault cash, a non-interest-bearing account
at a Federal Reserve Bank or a pass-through account as defined by the Federal
Reserve Board, the effect of this reserve requirement is to reduce Matrix
Bank's interest-earning assets. FHLB System members are also authorized to
borrow from the Federal Reserve "discount window," but Federal Reserve Board
regulations require associations to exhaust all FHLB sources before borrowing
from a Federal Reserve Bank.

MISCELLANEOUS

REGULATION OF SUB-PRIME AUTOMOBILE LENDING. The Company's sub-prime
automobile lending activities are subject to various federal and state laws
and regulations. Consumer lending laws generally require licensing of the
lender and purchasers of loans and adequate disclosure of loan terms and
impose limitations on the terms of consumer loans and on collection policies
and creditor remedies. Federal consumer credit statutes primarily require
disclosures of credit terms in consumer finance transactions. In general, the
Company's sub-prime automobile lending activities are conducted under licenses
issued by individual states and are also subject to the provisions of the
federal Consumer Credit Protection Act and its related regulations. Sterling
maintains an internal compliance staff to stay informed of changes in
applicable law.

Due to the consumer-oriented nature of the industry in which Sterling
operates and uncertainties with respect to the application of various laws and
regulations in certain circumstances, industry participants are named from
time to time as defendants in litigation involving alleged violations of
federal and state consumer lending or other similar laws and regulations. A
significant judgment against Sterling in connection with any litigation could
have a material adverse affect on the Company's financial condition and
results of operations. In addition, if it were determined that a material
number of loans purchased by Sterling involved violations of applicable
lending laws by the automobile dealers, the Company's financial condition and
results of operations could be materially adversely affected.

FAS 122. In May 1995, the Financial Accounting Standards Board issued FAS
122, which amended Statement of Financial Accounting Standards No. 65,
Accounting for Certain Mortgage Banking Activities ("FAS 65"). FAS 122
requires the recognition of originated mortgage servicing rights, as well as
purchased mortgage servicing rights, as assets by allocating total costs
incurred between the loan and the servicing rights based on their relative
fair values. Under FAS 65, the cost of originated mortgage servicing rights
was not recognized as an asset and was charged to earnings when the related
loan was sold. With respect to acquisition of mortgage servicing rights
through either the purchase or origination of mortgage loans, FAS 122 has a
different cost allocation methodology than SFAS No. 65. In contrast to a cost
allocation based on estimated fair market value as set forth in FAS 122, the
prior requirement was to allocate the costs incurred in excess of the market
value of the loans without the servicing rights to purchased mortgage
servicing rights. If it is not

66
<PAGE>

practicable to estimate fair values of the mortgage servicing rights and the
mortgage loans (without the mortgage servicing rights), the entire cost of
purchasing or originating the loans should be allocated to the mortgage loans
and no cost should be allocated to the mortgage servicing rights. FAS 122 also
requires that all capitalized mortgage servicing rights be evaluated for
impairment based on the excess of the carrying amount of the mortgage
servicing rights over their value and it requires a holder of mortgage
servicing rights to stratify its mortgage servicing rights that are
capitalized after the adoption of FAS 122 based on one or more of the
predominant risk characteristics of the underlying loans. Impairment will be
recognized through a valuation allowance for each impaired stratum.

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<PAGE>

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information regarding the current
directors and executive officers of the Company.

<TABLE>
<CAPTION>
NAME AGE PRINCIPAL POSITIONS DIRECTOR'S TERM EXPIRES
---- --- ------------------- -----------------------
<S> <C> <C> <C>
Guy A. Gibson........... 32 Matrix Capital: President, Chief 1998
Executive Officer and Director
Matrix Financial: Chairman of the
Board and President
Richard V. Schmitz...... 33 Matrix Capital: Chairman of the Board 1999
United Financial: Chairman of the
Board and Chief Executive Officer
D. Mark Spencer......... 36 Matrix Capital: Vice Chairman of the 1999
Board
Matrix Bank: Chairman of the Board
Thomas M. Piercy........ 32 Matrix Capital: Director 1997
United Financial: President
David W. Kloos.......... 34 Matrix Capital: Senior Vice President, 1998
Chief Financial Officer and Director
Matrix Bank: Executive Vice President
and Chief Financial Officer
Gary Lenzo.............. 46 Matrix Bank: President and Chief --
Executive Officer
Thomas J. Osselaer...... 38 Matrix Financial: Executive Vice --
President, Chief Operating Officer
and Chief Financial Officer
James G. Panero......... 33 Matrix Capital: Senior Vice President, --
Secretary and General Counsel
Stephen Skiba........... 41 Matrix Capital: Director 1997
David A. Frank.......... 49 Matrix Capital: Director 1998
Peter G. Weinstock...... 35 Matrix Capital: Advisory Director --
</TABLE>

GUY A. GIBSON has served as the Chief Executive Officer and a director of
Matrix Capital since its formation in June 1993. Mr. Gibson has served as
Chairman of the Board of Matrix Financial since August 1990 and as its
President since August 1994. Mr. Gibson was one of the original founders of
Matrix Financial and acted as its Chief Executive Officer during 1990. Prior
to his tenure with the Company, Mr. Gibson held the position of Account
Executive with the investment banking firms of Paine Webber from 1987 to 1989
and Lincoln Financial Group, a Denver-based servicing brokerage firm, from
1989 to 1990.

RICHARD V. SCHMITZ has served as a director of Matrix Capital since its
formation in June 1993 and was elected Chairman of the Board of Matrix Capital
in February 1996. Mr. Schmitz was one of the original founders of United
Financial and has held the position of Chief Executive Officer of United
Financial since 1990.

D. MARK SPENCER served as Chairman of the Board of Matrix Capital from June
1993 until February 1996. Mr. Spencer has served as an executive officer of
the Company since June 1993. Mr. Spencer has served as Chairman of the Board
of Matrix Bank since October 1993, and has served as director of Matrix
Financial since August 1990. From 1985 through July 1990, Mr. Spencer served
as Vice President of Secondary Marketing for Austin Federal Savings and Loan,
an Austin, Texas savings and loan association.

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<PAGE>

THOMAS M. PIERCY served as Senior Vice President of United Financial from
October 1990 to June 1996, when he was elected President of United Financial.
Mr. Piercy has served as a director of Matrix Capital since June 1993. From
1986 to 1990, Mr. Piercy served as Managing Director of Lincoln Financial
Group.

DAVID W. KLOOS has served as a Vice President and Chief Financial Officer of
Matrix Capital since June 1993, and he has served as a director of Matrix
Capital also since June 1993. Mr. Kloos was appointed as Senior Vice President
of Matrix Capital in September 1996. Mr. Kloos has served as Executive Vice
President and Chief Financial Officer of Matrix Bank since October 1993. From
1989 through 1993, Mr. Kloos served as Senior Vice President and Chief
Financial Officer of Argo Federal Savings Bank, a Summit, Illinois federal
savings bank. From 1985 to 1989 Mr. Kloos, a certified public accountant, was
employed by the Chicago office of KPMG Peat Marwick LLP.

GARY LENZO has served as President and Chief Executive Officer and Director
of Matrix Bank since October 1993. From 1987 to 1992, Mr. Lenzo served as Vice
President of Austin Savings Association and Great Western Savings Bank, both
Austin, Texas based savings associations. From 1984 to 1986, Mr. Lenzo served
as Vice President of Unifirst American Mortgage Corporation, an Austin, Texas
mortgage company.

THOMAS J. OSSELAER has served as Executive Vice President and Chief
Financial Officer of Matrix Financial since July 1993, Chief Operating Officer
since August 1994, and was Vice President from March 1992 to July 1993. From
January 1990 to February 1992, Mr. Osselaer served as Treasurer and Finance
Division Manager for the receivership of MeraBank Federal Savings Bank, an RTC
controlled savings bank in Phoenix, Arizona. From 1985 to 1990, Mr. Osselaer
served as Vice President, Assistant Treasurer and Investment Manager for
MeraBank Federal Savings Bank.

JAMES G. PANERO has served as Senior Vice President, General Counsel and
Secretary of Matrix Capital since January 1996. From 1994 to 1995, Mr. Panero
served as Senior Counsel of Chemical Residential Mortgage Corporation of
Edison, New Jersey, the mortgage banking subsidiary of Chemical Bank. From
1992 to 1994, Mr. Panero served as Associate Counsel of Margaretten and Co.,
Inc., a publicly traded national mortgage banking company in Edison, New
Jersey, which was acquired by Chemical Bank in 1994. From 1988 to 1992, Mr.
Panero served as an associate with the law firm of Gurfein & Graubard in New
York City where he specialized in commercial and real estate litigation.

STEPHEN SKIBA, a director of Matrix Capital since March 1996, is Senior Vice
President and Senior Analyst, focusing on banks and thrifts, for the Chicago
Corporation, an investment banking firm in Chicago, Illinois. From November
1990 to June 1996, Mr. Skiba was Senior Vice President, Chief Financial
Officer and Treasurer of N.S. Bancorp, Inc. in Chicago, Illinois. Prior to
joining N.S. Bancorp, Inc., Mr. Skiba was an audit partner with the Chicago
office of KPMG Peat Marwick LLP, primarily responsible for financial
institutions and real estate audit engagements.

DAVID A. FRANK was elected director of Matrix Capital in September 1996. Mr.
Frank is President, Chief Executive Officer and founder of America's Mortgage
Source, a mortgage company based in Marlton, New Jersey that is primarily
involved in the origination of residential mortgage loans and which was formed
in 1995. From 1994 to 1995, Mr. Frank served as President and Chief Executive
Officer of Chemical Residential Mortgage Corporation in Edison, New Jersey,
and as a director of Chemical Bank, N.A. Chemical Residential Mortgage
Corporation is the primary mortgage banking operation of Chemical Banking
Corporation. Prior to joining Chemical Residential Mortgage Corporation, Mr.
Frank served from 1989 to 1994 as President and Chief Operating Officer of
Margaretten Financial Corporation, a publicly traded national mortgage banking
company based in Perth Amboy, New Jersey. From 1977 to 1989, Mr. Frank held
various positions with Primerica Corporation/American Can Company (now known
as Travelers, Inc.), where he was primarily involved in mergers, acquisitions,
capital market activities and in restructuring a manufacturing-based concern
into a diversified financial services company.

PETER G. WEINSTOCK has served as an advisory director to Matrix Capital
since September 1996. In his capacity as advisory director, Mr. Weinstock is
invited to attend meetings of the Board of Directors and to participate in its
discussions. However, Mr. Weinstock is not entitled to vote in matters
submitted for approval

69
<PAGE>

and is not involved in the administration or management of the Company. Mr.
Weinstock is a member of the law firm of Jenkens & Gilchrist, a Professional
Corporation, where he has been employed for more than five years. Jenkens &
Gilchrist, a Professional Corporation, serves as outside general counsel to
the Company.

The Board of Directors of Matrix Capital is currently comprised of seven
directors. The Board of Directors is divided into three classes. Directors for
each class are elected at the annual meeting held in the year in which the
term for such class expires and serve thereafter for three years or until
their successors are elected and qualified. All advisory directors serve at
the pleasure of the Board of Directors. Subject to any applicable employment
agreement provisions, all officers are appointed by, and serve at the
discretion of, the Board of Directors of Matrix Capital or the Subsidiary or
Subsidiaries of their employ, as the case may be. There are no family
relationships between any directors or officers of Matrix Capital and/or any
of its Subsidiaries.

COMMITTEES OF THE BOARD OF DIRECTORS

The Board of Directors currently has two standing committees: the
Compensation Committee and the Audit Committee. The Compensation Committee and
the Audit Committee are each comprised of Mr. Skiba and Mr. Frank. The
Compensation Committee is responsible for recommending to the Board of
Directors the Company's executive compensation policies for senior officers
and administering the 1996 Stock Option Plan and the Purchase Plan. See "--
Stock Option Plan" and "--Employee Stock Purchase Plan." The Audit Committee
is responsible for recommending independent auditors, reviewing the audit
plan, the adequacy of internal controls, the audit report and management
letter, and performing such other duties as the Board of Directors may from
time to time prescribe.

EMPLOYMENT AGREEMENTS

In January 1996, the Company entered into a five-year employment agreement
with Mr. Kloos. Under the terms of such agreement, Mr. Kloos is paid an annual
salary as agreed to by Mr. Kloos and Matrix Capital and, in addition, he is to
receive five annual installment payments of $25,000 each, with the first such
installment being payable on or before December 31, 1996. This employment
agreement is terminable without advance notice by the Company for good cause,
which is generally defined to include a breach by Mr. Kloos of the employment
agreement, a breach by Mr. Kloos of his fiduciary duties owed to the Company,
and fraud, embezzlement or theft from the Company by Mr. Kloos. In addition,
the employment agreement terminates upon the death or disability of Mr. Kloos
and Mr. Kloos may resign upon 30 days' notice to the Company.

The Company has also entered into an employment agreement with Mr. Lenzo.
Under the terms of such agreement, Mr. Lenzo is employed as the President and
Chief Executive Officer of Matrix Bank until January 1, 1999 at a base salary
of $100,000 per annum. In addition, Mr. Lenzo is eligible to participate in an
equitable manner in all discretionary bonuses authorized to be paid the
employees of Matrix Bank. The Company may, without notice, terminate this
employment agreement for just cause (which is generally defined to include
personal dishonesty, incompetence, willful misconduct or a breach of fiduciary
duty) and, in such case, the Company shall be obligated to pay Mr. Lenzo his
compensation accrued through the date of such termination. The Company may
also, upon 60-days' notice to Mr. Lenzo, terminate Mr. Lenzo's employment
agreement for any reason other than just cause and, in such a case, the
Company will be obligated to pay Mr. Lenzo his compensation through January 1,
1999. In addition, the Regional Director of the OTS may terminate Mr. Lenzo's
employment agreement in certain instances, including if the FDIC enters into
an agreement to provide assistance to Matrix Bank under its authority granted
by the FDI Act or if the Regional Director determines that Matrix Bank is in
an unsafe or unsound position. Mr. Lenzo is entitled to certain change in
control payments if, after a change in control of Matrix Bank or Matrix
Capital, Mr. Lenzo's employment is terminated prior to January 1, 1999. The
amount of such change in control payments, if required to be paid, would
generally be the balance of Mr. Lenzo's salary through January 1, 1999 plus an
additional amount that is equal to the amount of Mr. Lenzo's annual
compensation paid to Mr. Lenzo by Matrix Bank for the year prior to his
termination. The payments to Mr. Lenzo upon a change in control, however, may
not exceed 2.99 times Mr. Lenzo's "base amount" (as defined in Section
280G(b)(3) of the Code) without adverse tax consequences. These benefits are
estimated to have a value of $299,000 as of June 30, 1996.

70
<PAGE>

COMPENSATION OF DIRECTORS

The Company pays each nonemployee director of Matrix Capital a $3,750
quarterly retainer and a fee of $1,000 ($250 if such director's attendance is
via teleconference) for each meeting of the Board of Directors of Matrix
Capital that he attends. The Company also reimburses each director for
ordinary and necessary travel expenses related to such director's attendance
at Board of Directors and committee meetings. Nonemployee directors are also
eligible for stock option grants under the 1996 Stock Option Plan. See "--
Stock Option Plan."

Each advisory director of the Company is paid a $2,500 quarterly retainer
and a fee of $1,000 ($250 if such advisory director's attendance is via
teleconference) for each meeting of the Board of Directors of Matrix Capital
that he attends. The Company also reimburses each advisory director for
ordinary and necessary travel expenses related to such advisory director's
attendance at Board of Directors meetings. Advisory directors are also
eligible for stock option grants under the 1996 Stock Option Plan. See "--
Stock Option Plan."

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<PAGE>

EXECUTIVE COMPENSATION

The Summary Compensation Table below provides certain summary information
concerning compensation paid or accrued during 1995 by the Company to or on
behalf of the Chief Executive Officer and the four other highest paid
executive officers of the Company whose salary and bonus for 1995 was in
excess of $100,000:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL
COMPENSATION (1)(2)
-------------------- ALL OTHER
NAME AND PRINCIPAL POSITIONS YEAR SALARY BONUS COMPENSATION
---------------------------- ---- ------ --------- ------------
<S> <C> <C> <C> <C>
Guy A. Gibson
President, Chief Executive
Officer and Director of Matrix
Capital; President and Chairman
of the Board of Matrix
Financial....................... 1995 $ 250,000 $ 46,552 $ 8,300(3)(4)
Richard V. Schmitz
Chairman of the Board of Matrix
Capital; Chief Executive Officer
of United Financial............. 1995 250,000 100,000 8,300(3)(4)
D. Mark Spencer
Vice Chairman of the Board of
Matrix Capital.................. 1995 250,000 -- 8,300(3)(4)
Thomas M. Piercy
Director of Matrix Capital;
President of United Financial... 1995 271,372 -- 2,300(4)
David W. Kloos
Senior Vice President, Chief
Financial Officer and Director
of Matrix Capital; Executive
Vice President and Chief
Financial Officer of Matrix
Bank............................ 1995 100,000 20,000 109,300(3)(4)(5)
</TABLE>
- --------

(1) Annual compensation does not include the cost to the Company of benefits
certain executive officers receive in addition to salary and cash bonuses.
The aggregate amounts of such personal benefits, however, did not exceed
the lesser of either $50,000 or 10% of the total annual compensation of
such executive officer. Amounts listed in the salary column for each
executive officer include approximately $9,500 that such executive officer
contributed during 1995 to his account under the Company's 401(k) savings
plan.
(2) No options were granted during 1995 to any of the executive officers named
herein. See "--Stock Option Plan" for options granted during 1995 to
executive officers other than those named herein and for options granted
during 1996 to each of the executive officers of the Company.
(3) Of this amount, $6,000 represents directors fees paid by Matrix Bank for
such person's service on that entity's board of directors.
(4) Of this amount, $2,300 represents the Company's contribution to such
person's account maintained under the 401(k) savings plan. See "--401(k)
Savings Plan."
(5) Of this amount, $101,000 represents the estimated value of a stock bonus
of 138,438 shares awarded to Mr. Kloos on January 1, 1995 for services
rendered.

STOCK OPTION PLAN

In January 1995, the Board of Directors and shareholders adopted the
Company's 1995 Stock Option Plan, which was amended and restated as the 1996
Stock Option Plan by the Board of Directors and shareholders in September
1996. The purpose of the 1996 Stock Option Plan is to advance the interests of
the Company by providing additional incentives to attract and retain qualified
and competent employees and consultants of the Company and directors of the
Company and its subsidiaries, upon whose efforts and judgment the success of
the Company is largely dependent. As of the date hereof, substantially all of
the Company's full-time employees and all of the Company's directors and
advisory directors are eligible for grants of stock options ("Plan Options")
under the terms of the 1996 Stock Option Plan. Options to purchase an
aggregate of 79,500 shares of

72
<PAGE>

Common Stock were granted to Mr. Osselaer on January 1, 1995 at an exercise
price of $5.13 per share. The aggregate value of Mr. Osselaer's options at
September 30, 1996 is $386,927 assuming a fair market value of the Common
Stock of $10.00 per share. As of the date hereof, no other Plan Options have
been granted under the 1996 Stock Option Plan. However, the Company
anticipates that the Compensation Committee will grant options to purchase
5,000 shares of Common Stock to each of Mr. Skiba and Mr. Frank as nonemployee
directors of the Company and options to purchase 5,000 shares of Common Stock
to Mr. Weinstock as advisory director. It is expected that fifty percent of
these options will be immediately exercisable upon consummation of this
offering, with the remaining 50% becoming exercisable in October 1997. The
exercise price per share for Mr. Skiba's, Mr. Frank's and Mr. Weinstock's
options is anticipated to be the Price to Public set forth on the cover page
of this Prospectus. The Company also anticipates that the Compensation
Committee will grant, in connection with the consummation of this offering,
options exercisable for approximately 130,000 shares of Common Stock,
including 35,000 shares to Mr. Kloos, 10,000 shares to Mr. Panero and 30,000
shares to Mr. Lenzo. The Company anticipates that the options granted to
Messrs. Kloos, Panero and Lenzo will become exercisable ratably over five
years after their date of grant and will be exercisable at the Price to Public
set forth on the cover page of this Prospectus.

The 1996 Stock Option Plan authorizes the granting of incentive stock
options ("Incentive Options") and nonqualified stock options ("Nonqualified
Options") to purchase Common Stock to eligible persons. A total of 525,000
shares of Common Stock are authorized for sale upon exercise of Plan Options
granted under the 1996 Stock Option Plan. As of the date hereof, options to
purchase an aggregate of 79,500 shares have been granted. The 1996 Stock
Option Plan is currently administered by the Compensation Committee. The
Compensation Committee consists of at least two members of the Board of
Directors, each of whom is an "outside director" within the meaning of the
Code and a "nonemployee director" within the meaning of Rule 16b-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
The 1996 Stock Option Plan provides for adjustments to the number of shares
and to the exercise price of outstanding options in the event of a declaration
of a stock dividend or any recapitalization resulting in a stock split-up,
combination or exchange of shares of Common Stock.

No Incentive Option may be granted with an exercise price per share less
than the fair market value of the Common Stock at the date of grant. The
Nonqualified Options may be granted with any exercise price determined by the
administrator of the 1996 Stock Option Plan. The exercise price of an Employee
Option may be paid in cash, by certified or cashier's check, by money order,
by personal check or by delivery of already owned shares of Common Stock
having a fair market value equal to the exercise price, or by delivery of a
combination of cash and already owned shares of Common Stock. However, if the
optionee acquired the stock to be surrendered directly or indirectly from the
Company, he must have owned the stock to be surrendered for at least six
months prior to tendering such stock for the exercise of a Plan Option.

An eligible employee may receive more than one Incentive Option, but the
maximum aggregate fair market value of the Common Stock (determined when the
Incentive Option is granted) with respect to which Incentive Options are first
exercisable by such employee in any calendar year cannot exceed $100,000. In
addition, no Incentive Option may be granted to an employee owning directly or
indirectly stock possessing more than 10% of the total combined voting power
of all classes of stock of the Company, unless the exercise price is set at
not less than 110% of the fair market value of the shares subject to such
Incentive Option on the date of grant and such Incentive Option expires not
later than five years from the date of grant. Awards of Nonqualified Options
are not subject to these special limitations.

No Incentive Option granted under the 1996 Stock Option Plan is assignable
or transferable, otherwise than by will or by laws of descent and
distribution. During the lifetime of an optionee, his Incentive Option is
exercisable only by him or his guardian or legal representative. Nonqualified
Options may be transferrable if provided for in the option agreement governing
the Nonqualified Option. The expiration date of a Plan Option is determined by
the administrator at the time of the grant, but in no event may a Plan Option
be exercisable after the expiration of 10 years from the date of grant of the
Plan Option.

The administrator of the 1996 Stock Option Plan may limit an optionee's
right to exercise all or any portion of a Plan Option until one or more dates
subsequent to the date of grant. The administrator also has the right,

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<PAGE>

exercisable in its sole discretion, to accelerate the date on which all or any
portion of a Plan Option may be exercised. The 1996 Stock Option Plan also
provides that 30 days prior to certain major corporate events such as, among
other things, certain changes in control, mergers or sales of substantially
all of the assets of the Company (a "Major Corporate Event"), each Plan Option
shall immediately become exercisable in full. In anticipation of a Major
Corporate Event, however, the administrator may, after notice to the optionee,
cancel the optionee's Employee Options on the consummation of the Major
Corporate Event. The optionee, in any event, will have the opportunity to
exercise his Plan Options in full prior to such Major Corporate Event.

If terminated for cause, all rights of an optionee under the 1996 Stock
Option Plan cease and the Plan Options granted to such optionee become null
and void for all purposes. The 1996 Stock Option Plan further provides that in
most instances a Plan Option must be exercised by the optionee within 30 days
after the termination of the consulting contract between such consultant and
the Company or termination of optionee's employment with the Company, as the
case may be (for any reason other than termination of cause, mental or
physical disability or death), if and to the extent such Plan Option was
exercisable on the date of such termination. If the optionee is not otherwise
employed by, or a consultant to, the Company, his Plan Option must be
exercised within 30 days of the date he ceases to be a director of the Company
or a subsidiary of the Company. Generally, if an optionee's employment or
consulting contract is terminated due to mental or physical disability, the
optionee will have the right to exercise the Plan Option (to the extent
otherwise exercisable on the date of termination) for a period of one year
from the date on which the optionee suffers the mental or physical disability.
If an optionee dies while actively employed by, or providing consulting
services under a consulting contract to, the company, the Plan Option may be
exercised (to the extent otherwise exercisable on the date of death) within
one year of the date of the optionee's death by the optionee's legal
representative or legatee.

The Company anticipates registering the shares issuable pursuant to the
exercise of Plan Options with the Commission in 1996.

Under current tax laws, the grant of a Plan Option will not be a taxable
event to the recipient optionee and the Company will not be entitled to a
deduction with respect to such grant. Upon the exercise of a Nonqualified
Option, an optionee will recognize ordinary income at the time of exercise
equal to the excess of the then fair market value of the shares of Common
Stock received over the exercise price. The taxable income recognized upon
exercise of a Nonqualified Option will be treated as compensation income
subject to withholding and the Company will be entitled to deduct as a
compensation expense an amount equal to the ordinary income an optionee
recognizes with respect to such exercise. When Common Stock received upon the
exercise of a Nonqualified Option subsequently is sold or exchanged in a
taxable transaction, the holder thereof generally will recognize capital gain
(or loss) equal to the difference between the total amount realized and the
fair market value of the Common Stock on the date of exercise; the character
of such gain or loss as long-term or short-term capital gain or loss will
depend upon the holding period of the shares following exercise.

The exercise of an Incentive Option will not be taxable to the optionee, and
the Company will not be entitled to any deduction with respect to such
exercise. However, to qualify for this favorable tax treatment of incentive
stock options under the Code, the optionee may not dispose of the shares of
Common Stock acquired upon the exercise of an Incentive Option until after the
later of two years following the date of grant or one year following the date
of exercise. The surrender of shares of Common Stock acquired upon the
exercise of an Incentive Option in payment of the exercise price of a Plan
Option within the required holding period for incentive stock options under
the Code will be a disqualifying disposition of the surrendered shares. Upon
any subsequent taxable disposition of shares of Common Stock received upon
exercise of a qualifying Incentive Option, the optionee generally will
recognize long-term or short-term capital gain (or loss) equal to the
difference between the total amount realized and the exercise price of the
Plan Option.

If a Plan Option that was intended to be an incentive stock option under the
Code does not qualify for favorable incentive stock option treatment under the
Code due to the failure to satisfy the holding period requirements, the
optionee may recognize ordinary income in the year of the disqualifying
disposition. Provided the amount realized in the disqualifying disposition
exceeds the exercise price, the ordinary income an optionee

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<PAGE>

shall recognize in the year of a disqualifying disposition shall be the lower
of (i) the excess of the amount realized over the exercise price or (ii)
excess of the fair market value of the Common Stock at the time of the
exercise over the exercise price. In addition, the optionee shall recognize
capital gain on the disqualifying disposition in the amount, if any, by which
the amount realized in the disqualifying disposition exceeds the fair market
value of the Common Stock at the time of the exercise. Such capital gain shall
be taxable as long-term or short-term capital gain, depending on the
optionee's holding period for such shares.

Notwithstanding the favorable tax treatment of Incentive Options for regular
tax purposes, as described above, for alternative minimum tax purposes, an
Incentive Option is generally treated in the same manner as a Nonqualified
Option. Accordingly, an optionee must generally include in alternative minimum
taxable income for the year in which an Incentive Option is exercised the
excess of the fair market value on the date of exercise of the shares of
Common Stock received over the exercise price. If, however, an optionee
disposes of shares of Common Stock acquired upon the exercise of an Incentive
Option in the same calendar year as the exercise, only an amount equal to the
optionee's ordinary income for regular tax purposes with respect to such
disqualifying disposition will be recognized for the optionee's calculation of
alternative minimum taxable income in such calendar year.

EMPLOYEE STOCK PURCHASE PLAN

In September 1996, the Board of Directors adopted the Matrix Capital
Corporation Employee Stock Purchase Plan (the "Purchase Plan") and reserved
shares of Common Stock for issuance thereunder. The shareholders of the
Company approved the Purchase Plan in September 1996. The purpose of the
Purchase Plan is to provide eligible employees of the Company and its
designated subsidiaries with an opportunity to purchase Common Stock ("ESPP
Shares") from the Company through payroll deductions. The Purchase Plan will
become effective upon consummation of the offering. The Purchase Plan is a
non-compensatory plan.

Offerings under the Purchase Plan generally have a duration ("Offering
Period") of 12 months and commence on January 1 of each year, but the Initial
Offering Period under the Purchase Plan will commence on the day of the
offering. On the first business day of an Offering Period (the "Enrollment
Date"), each eligible employee who chooses to participate ("Participant") is
granted the right to purchase ("Purchase Right") on the last business day of
such Offering Period ("Purchase Date") a number of whole ESPP Shares
determined by dividing the Participant's total annual payroll deductions
accumulated during such Offering Period by the Purchase Price described below.
However, the number of ESPP Shares subject to each Participant's Purchase
Right during such Offering Period shall in no event exceed the lesser of (i)
the maximum number of ESPP Shares which could be purchased with such
Participant's total payroll deductions for the Offering Period at a Purchase
Price equal to 85% of the fair market value of the ESPP Shares on the
Enrollment Date, (ii) the number of ESPP Shares determined by dividing $25,000
by the fair market value of the ESPP Shares on the Enrollment Date or (iii)
the maximum number of ESPP Shares that would cause the total owned by the
Participant to exceed the 5% ownership limits described below. Unless the
Participant's participation is discontinued, his or her Purchase Right will be
exercised automatically on the Purchase Date (i.e., the last business day of
the Offering Period) at the Purchase Price.

The total number of shares of Common Stock issuable under the Purchase Plan
is 125,000. No less than 15 days prior to each Offering Period, the
administrator of the Purchase Plan will determine the total number of ESPP
Shares that will be made available for purchase during such Offering Period
and will notify the eligible employees. With respect to ESPP Shares that are
made available for an Offering Period, but which are not purchased during such
Offering Period, the administrator may again make them available for purchase
with respect to any subsequent Offering period. In the event that on the
Purchase Date of reference the aggregate amount of payroll deductions during
the corresponding Offering Period exceed the aggregate Purchase Price of all
ESPP Shares available for purchase during such Offering Period, each Purchase
Right of a participant shall be reduced to that percentage of available ESPP
Shares as the accumulated payroll deduction in his or her account is of the
aggregate accumulated payroll deduction in the accounts of all Participants.

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<PAGE>

Any employee who is customarily employed for at least 20 hours per week and
more than five months per calendar year by the Company or its designated
subsidiaries, who is employed on the first day of the month preceding the
Enrollment Date of reference, and who continues to be employed on the
Enrollment Date, is eligible to participate in offerings under the Purchase
Plan during the Offering Period, which includes such Enrollment Date.
Employees become Participants by delivering to the Company an agreement
authorizing payroll deductions at any time during the 45 days immediately
preceding the Enrollment Date of reference. No employee is permitted to
purchase ESPP Shares under the Purchase Plan if such employee owns 5% or more
of the total combined voting power or value of all classes of shares of stock
of the Company, including as owned by such employee all ESPP Shares subject to
his Purchase Right, as adjusted, shares subject to any other options, or
shares whose ownership is attributable to the employee by reason of ownership
by certain members of his or her family. In addition, no Participant is
entitled to purchase during the Offering Period of reference more than the
maximum number of ESPP Shares subject to such Participant's Purchase Right
during such Offering Period.

The price at which ESPP Shares are sold under the Purchase Plan ("Purchase
Price") is 85% of the lower of the fair market value per Share of Common Stock
on the Enrollment Date (i.e., first business day of the Offering period) or
the Purchase Date (i.e., the last business day of the Offering Period). The
Purchase Price of the ESPP Shares is accumulated by payroll deductions made
during the Offering Period. The total payroll deductions of a Participant for
an Offering Period may not be greater than the lesser of $12,500, or 25% of
the Participant's annualized "considered pay" as determined at the beginning
of the Offering Period, nor may such payroll deductions be less than an
aggregate of $500. A Participant's "considered pay" is the administrator's
reasonable estimate of such Participant's basic rate of pay (i.e., exclusive
of bonuses and other special payments) during the Offering Period.

All payroll deductions of a Participant are credited to his or her account
under the Purchase Plan and are deposited with the general funds of the
Company. Such funds may be used for any corporate purpose. No charges for
administrative or other costs may be made by the Company against the accounts
of Participants. The Purchase Plan is administered by the Compensation
Committee of the Board of Directors.

A Participant may terminate his or her right to purchase ESPP Shares with
respect to a particular Offering Period by notifying the administrator at any
time prior to the last 15 days of the Offering period that the Participant is
withdrawing all, but not less than all, of the accumulated payroll deductions
credited to such Participant's account. The withdrawal of accumulated payroll
deductions automatically terminates the Participant's Purchase Right with
respect to that Offering Period. As soon as practicable after notice of such
withdrawal, the payroll deductions credited to a Participant's account will be
returned to the Participant without interest. A Participant's withdrawal with
respect to an Offering Period does not have any effect upon such Participant's
eligibility to participate in subsequent Offering Periods. Termination of a
Participant's employment for any reason, including retirement or death,
immediately terminates his or her participation in the Offering Period during
which such termination of employment occurs. In such event, the payroll
deductions credited to the Participant's account will be returned to the
Participant as soon as practicable, or in the case of death, to the person or
persons entitled thereto, in either case without interest.

In the event of changes in the Common Stock of the Company, however, due to
stock dividends or other changes in capitalization, or in the event of any
merger, sale or any other reorganization, appropriate adjustments will be made
by the Company to the ESPP Shares subject to purchase, to the price per share
and, where necessary, to the conditions relating to the exercise of the
Purchase Right, so that, to the extent reasonably possible, such events do not
adversely affect the rights of Participants. If, however, there is a proposed
dissolution or liquidation of the Company, the Offering Period during which
such event occurs will be deemed terminated upon the occurrence of such event.

The Purchase Plan will terminate automatically on December 31, 2005, and
prior to that date the Board of Directors of the Company generally may at any
time amend or terminate the Purchase Plan. The Company anticipates registering
the shares issuable under the Purchase Plan with the Commission in 1996.

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<PAGE>

401(K) SAVINGS PLAN

In February 1994, the Company established the Company's 401(k) savings plan,
which is intended to comply with Sections 401(a) and 401(k) of the Internal
Revenue Code of 1986, as amended, and the applicable provisions of the
Employee Retirement Income Security Act of 1974, as amended. Amounts
contributed to the plan are held under a trust intended to be exempt from
income tax pursuant to Section 501(a) of the Internal Revenue Code. All full
time employees of the Company that have completed at least six months of
service are eligible to participate in the plan. Participating employees will
be entitled to make pre-tax contributions to their accounts in amounts equal
to not less than 1% and not more than 15% of their compensation each year,
subject to certain maximum annual limits imposed by law (approximately $9,500
in 1996). The Company matches employee contributions in the amount of 25% of
their contributions. The Company also has the right to make certain additional
matching contributions. Matching contributions made by the Company vest in
participating employees over a five-year period after the date of
contribution. Distributions generally are payable in a lump-sum after
retirement or death and, in certain circumstances, upon termination of
employment with the Company for other reasons.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During 1995, the Company had no compensation committee or other committee of
the Board of Directors performing similar functions. Decisions concerning
executive compensation for 1995 were made by the Board of Directors of Matrix
Capital, including Messrs. Gibson, Schmitz, Spencer, Piercy and Kloos, all of
whom were and continue to be executive officers of the Company and
participated in deliberations of the Board of Directors regarding executive
officer compensation. The Board of Directors of the Company has established a
Compensation Committee to handle compensation issues for executive officers of
the Company in the future. See "--Committees of the Board of Directors."

None of the executive officers of the Company currently serves on the
compensation committee of another entity or any other committee of the board
of directors of another entity performing similar functions.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In October 1995, the Company loaned Matrix Diversified, Inc.
("Diversified"), a company in which Messrs. Gibson, Schmitz, Piercy, Spencer,
Kloos and Osselaer, each of whom is an executive officer of the Company, and
Mr. Robert Fowles, an officer of United Financial, own all of the outstanding
capital stock, $750,000 in order to enable Diversified to purchase the assets
of an unaffiliated business. Such loan accrues interest at 13% per annum and
is secured by a secondary lien on the assets of Diversified. Principal and
interest on this loan is due and payable in one lump sum on October 1, 2000.
In addition, the Company leases approximately 7,400 square feet in its Phoenix
office building to a subsidiary of Diversified at a base rental of
approximately $8,500 per month. The lease expires in September 1997, but the
Company anticipates that it will be renewed for successive one-year terms.

On December 31, 1995, the Company renewed a loan originally made to Mr.
Spencer, Vice Chairman of the Board and a shareholder of the Company, in
December 1994 in the amount of approximately $80,000. The loan to Mr. Spencer
accrues interest at the prime rate, is unsecured, and the entire principal and
all accrued interest is due and payable in one lump sum on December 31, 1996.
The Company has the option of extending the maturity of such loan to Mr.
Spencer in annual increments, but does not presently anticipate doing so.

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<PAGE>

PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of the date hereof of: (i) each person known
by the Company to own beneficially five percent or more of the outstanding
Common Stock immediately prior to the offering; (ii) each of the Company's
directors and advisory directors; (iii) each of the executive officers named in
the Summary Compensation Table; and (iv) all directors, advisory directors and
executive officers of the Company as a group.

<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING SHARES
NUMBER OF SHARES --------------------------------
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) PRIOR TO OFFERING AFTER OFFERING
- ------------------------ --------------------- ----------------- --------------
<S> <C> <C> <C>
Guy A. Gibson........... 1,280,858(2) 32.9% 22.7%
Richard V. Schmitz...... 1,280,858(3) 32.9 22.7
D. Mark Spencer......... 878,910(2)(3) 22.6 15.9
Thomas M. Piercy........ 234,375 6.0 4.2
David W. Kloos.......... 138,938 3.6 2.5
Stephen Skiba........... -- -- --
David A. Frank.......... -- -- --
Peter G. Weinstock...... -- -- --
All directors, advisory
directors and executive
officers as a group (11
persons)............... 3,893,439(4) 98.1 68.1
</TABLE>
- --------

(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission (the "Commission") and generally
includes voting or investment power with respect to securities. Except as
indicated in the footnotes to this table and subject to applicable
community property laws, the persons named in the table have sole voting
and investment power with respect to all shares of Common Stock
beneficially owned.
(2) On June 24, 1993, Mr. Gibson granted Mr. Spencer an option to purchase
133,983 of Mr. Gibson's shares of Common Stock at any time on or prior to
June 23, 1998, at an exercise price of $2.41 per share. The amount shown
in this table as beneficially owned by Mr. Spencer does not reflect these
133,983 shares of Common Stock.
(3) On June 24, 1993, Mr. Schmitz granted Mr. Spencer an option to purchase
133,983 of Mr. Schmitz's shares of Common Stock, at any time on or prior
to June 23, 1998, at an exercise price of $2.41 per share. The amount
shown in this table as beneficially owned by Mr. Spencer does not reflect
these 133,983 shares.

(4) Includes an aggregate of 79,500 shares issuable upon exercise of options
that are currently exercisable.

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<PAGE>

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 5,000,000 shares of
preferred stock, par value $.0001 per share ("Preferred Stock"), and
50,000,000 shares of Common Stock, par value $0.0001 per share.

COMMON STOCK

As of June 30, 1996, there were 3,888,939 shares of Common Stock outstanding
which were held of record by six shareholders. Holders of Common Stock are
entitled to receive dividends when, as and if declared by the Board of
Directors from funds legally available therefor. See "Dividend Policy." Each
share of Common Stock entitles the holder thereof to one vote. Cumulative
voting for the election of directors is not permitted, which means that the
holders of the majority of shares voting for the election of directors can
elect all members of the Board of Directors. Except as otherwise required by
law, a majority vote is sufficient for any act of the shareholders. The
holders of Common Stock are entitled to receive the Company's assets remaining
after payment of liabilities proportionate to their pro rata ownership of the
outstanding shares of Common Stock. All shares of Common Stock now outstanding
are, and the shares of Common Stock to be outstanding upon the completion of
the offering will be, fully paid and non-assessable.

PREFERRED STOCK

The Board of Directors is authorized, without further action of the
shareholders of the Company, to issue from time to time shares of Preferred
Stock in one or more series and with such relative rights, powers,
preferences, limitations as the Board of Directors may determine at the time
of issuance. Such shares may be convertible into Common Stock and may be
superior to the Common Stock in the payment of dividends, liquidation, voting
and other rights, preferences and privileges. The issuance of shares of
Preferred Stock could adversely affect the holders of Common Stock. By way of
example, the issuance of Preferred Stock could be used in certain
circumstances to render more difficult or discourage a merger, tender offer,
proxy contest or removal of incumbent management. Preferred Stock may be
issued with voting and conversion rights that could adversely affect the
voting power and other rights of the holders of Common Stock. Upon completion
of the offering, the Company will not have any shares of Preferred Stock
outstanding, and currently, the Company has no intention to issue shares of
Preferred Stock after the offering.

UNDERWRITERS WARRANTS

The Company has agreed, upon the closing of the offering, to issue Piper
Jaffray Inc. and Keefe, Bruyette & Woods, Inc. warrants (the "Underwriters
Warrants") exercisable for a number of shares of Common Stock equal to (i) if
the Registration Statement to which this Prospectus is a part is declared
effective by the Commission on or prior to November 1, 1996, 5.0% of the
Common Stock sold in the offering, and (ii) if the Registration Statement to
which this Prospectus is a part is declared effective by the Commission after
November 1, 1996, but on or before January 31, 1997, 2.5% of the Common Stock
sold in the offering. If the Registration Statement of which this Prospectus
forms a part is not declared effective on or before January 31, 1997, the
Company will not be required to issue any Underwriters Warrants. If such
Underwriters Warrants are issued, they will be exercisable from time to time
during the four years after the one year anniversary of their date of grant.
The exercise price for the shares of Common Stock underlying such warrants
will be 120% of the initial public offering price set forth on the cover page
of this Prospectus. The shares of Common Stock underlying such warrants are
entitled to certain demand and incidental registration rights.

CERTAIN REGISTRATION RIGHTS; RIGHTS OF FIRST REFUSAL

If the Underwriters Warrants are issued, the Company will also grant Piper
Jaffray Inc. and Keefe, Bruyette & Woods, Inc. a right to demand that one
registration statement on Form S-3 relating to the shares of Common Stock
underlying the Underwriters Warrants be filed by the Company and declared
effective by the Commission and the right generally to "piggy-back" on any two
registrations of Common Stock filed by the Company after

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<PAGE>

this offering. These registration rights will expire once the shares of Common
Stock underlying the Underwriters Warrants become eligible for resale under
Rule 144 of the Securities Act.

The Company is also obligated to register under the Securities Act the
approximately $2.9 million in aggregate principal amount outstanding of its
13% Senior Subordinated Notes on or before February 1, 1997. If such
registration is not effected on or prior to February 1, 1997, the interest
rate on such 13% Senior Subordinated Notes automatically increases to 14%. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

The Company has granted the holders of its 13% Senior Subordinated Notes a
right of first refusal to purchase from the shares to be issued and sold in
this offering that number of shares of Common Stock equal in amount to
$727,500 divided by the Price to Public as set forth on the cover page of this
Prospectus. In that regard, the Company has committed to direct the necessary
shares of Common Stock to be issued and sold in the offering to the holders of
the 13% Senior Subordinated Notes who exercise their respective rights of
first refusal in accordance with the instruments governing such rights.

CERTAIN CHARTER AND BYLAWS PROVISIONS

Certain provisions in the Articles of Incorporation and the Bylaws could
have the effect of delaying, deferring or preventing changes in control of the
Company. Among other things, the Articles of Incorporation divide the members
of the Board of Directors into three different classes of directors who are
elected by holders of the Common Stock and who serve three-year staggered
terms, require advance notice of shareholder proposals and nominations of
directors and authorize the issuance of "blank check" preferred stock. The
first class of directors, which currently includes Messrs. Skiba and Piercy,
will be up for election at the 1997 annual meeting of shareholders; the second
class of directors, which currently includes Messrs. Gibson, Frank and Kloos,
will be up for election at the 1998 annual meeting of shareholders; and the
third class of directors, which currently includes Messrs. Schmitz and Spencer
will be up for election at the 1999 annual meeting of shareholders. See "Risk
Factors--Effect of Certain Charter and Bylaw Provisions" and "--Preferred
Stock."

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is American Securities
Transfer & Trust, Inc.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the offering, the Company will have outstanding 5,638,939
shares of Common Stock (5,901,439 shares of Common Stock if the Underwriters'
over-allotment option is exercised in full). The 1,750,000 shares of Common
Stock to be sold in the offering, and any of the 262,500 shares that may be
sold upon exercise of the Underwriters' over-allotment option, will be freely
tradable by persons other than "affiliates" of the Company, as that term is
defined in Rule 144 under the Securities Act, without restriction or
registration under the Securities Act. The remaining 3,888,939 shares (such
shares being referred to herein as the "Restricted Shares") will be held by
the Company's current shareholders. The Restricted Shares may not be sold
unless they are registered under the Securities Act or sold pursuant to an
applicable exemption from registration, including an exemption pursuant to
Rule 144 under the Securities Act.

As currently in effect, Rule 144 generally permits the public sale in
ordinary trading transactions of "restricted securities" and of securities
owned by "affiliates" beginning 90 days after the date of this Prospectus if
the other restrictions enumerated in Rule 144 are met. Restricted securities
are securities acquired directly or indirectly from an issuer or an affiliate
of the issuer in an action not involving a public offering. In general, under
Rule 144, if a period of at least two years has elapsed since the later of the
date the restricted securities were acquired from the Company or an affiliate,
as applicable, then the holder of such restricted securities (including an
affiliate) is entitled, subject to certain conditions, to sell within any
three-month period a number of shares

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<PAGE>

which does not exceed the greater of: (i) 1% of the Company's then outstanding
shares of Common Stock; or (ii) the share's average weekly trading volume
during the four calendar weeks preceding such sale. Sales under Rule 144 are
also subject to certain manner-of-sale provisions and requirements as to
notice and the availability of current public information about the Company.
Affiliates may sell shares not constituting restricted securities in
accordance with the foregoing limitations and requirements but without regard
to the two-year period. However, a person who is not and has not been an
affiliate of the Company at any time during the 90 days preceding the sale of
the shares, and who has beneficially owned restricted securities for at least
three years, is entitled to sell such shares under Rule 144 with regard to the
volume limitations, manner-of-sale provisions and notice and public
information requirements of Rule 144. A total of approximately 3,750,001 of
the Restricted Shares will become eligible for sale pursuant to Rule 144
beginning on the 90th day following the date of this Prospectus. In addition,
a total of approximately 138,938 of the Restricted Shares will become eligible
for sale pursuant to Rule 144 beginning on January 1, 1997. Notwithstanding,
the holders of all of such shares have agreed during the 180-day period
immediately following the date of this Prospectus not to sell or otherwise
dispose of any securities of the Company without the consent of Piper Jaffray
Inc., subject to specified exceptions.

The Company has reserved 525,000 shares of its Common Stock for issuance
under the 1996 Stock Option Plan and 125,000 for issuance under the Purchase
Plan. All of the shares of Common Stock issued as a result of any grants under
the foregoing plans will also be restricted securities unless the Company
files a registration statement under the Securities Act relating to the
issuance of the shares. The Company currently intends to register the shares
of Common Stock reserved under such employee benefit plans. Subject to
compliance with Rule 144 by affiliates of the Company, any shares issued upon
exercise of options granted under such employee benefit plans will become
freely tradable at the effective date of the registration statement for the
shares reserved under such plans.

Prior to the offering, there has been no public market for the Common Stock,
and no prediction can be made as to the effect, if any, that sales of shares
or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of substantial amounts of
Common Stock in the public market could adversely affect prevailing market
prices.

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UNDERWRITING

The Company has entered into a Purchase Agreement (the "Purchase Agreement")
with the underwriters listed in the table below (the "Underwriters"), for whom
Piper Jaffray Inc, Keefe, Bruyette & Woods, Inc. and Peacock, Hislop, Staley &
Given, Inc. are acting as representatives (the "Representatives"). Subject to
the terms and conditions of the Purchase Agreement, the Company has agreed to
sell to the Underwriters, and each of the Underwriters has severally agreed to
purchase, the number of shares of Common Stock set forth opposite each
Underwriters' name in the table below:

<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
Piper Jaffray Inc. .........................................
Keefe, Bruyette & Woods, Inc. ..............................
Peacock, Hislop, Staley & Given, Inc. ......................
---------
Total..................................................... 1,750,000
=========
</TABLE>

Subject to the terms and conditions of the Purchase Agreement, the
Underwriters have agreed to purchase all of the Common Stock being sold to the
public pursuant to the Purchase Agreement, if any is purchased (excluding
shares covered by the over-allotment option granted therein). In the event of
a default by any Underwriter, the Purchase Agreement provides that, in certain
circumstances, purchase commitments of the nondefaulting Underwriters may be
increased or decreased or the Purchase Agreement may be terminated.

The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock directly to the public at the public
offering price set forth on the cover page of this Prospectus and to certain
dealers at such price less a concession of not more than $ per share.
Additionally, the Underwriters may allow, and such dealers may reallow, a
concession of not in excess of $ per share to certain other dealers. After
the offering, the initial public offering price and other selling terms may be
changed by the Underwriters.

The Company has granted to the Underwriters an option, exercisable by the
Representatives within 30 days after the date of the Purchase Agreement, to
purchase up to 262,500 shares of Common Stock at the same price per share to
be paid by the Underwriters for the other shares offered hereby. If the
Underwriters purchase any of such additional shares pursuant to this option,
each Underwriter will be committed to purchase such additional shares in
approximately the same proportion as set forth in the table above. The
Underwriters may exercise such option only for the purpose of covering over-
allotments, if any, made in connection with the distribution of the Common
Stock offered hereby.

The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the
right to reject an order for the purchase of shares in whole or in part.

The Representatives have advised the Company that the Underwriters will not
confirm sales of shares of Common Stock to accounts over which they exercise
discretionary authority.

82
<PAGE>

The Company and its executive officers and directors have agreed that,
without the prior written consent of Piper Jaffray Inc., they will not sell or
otherwise dispose of any shares of Common Stock for a period of 180 days after
the date of this Prospectus, other than as gifts to family members and
transfers to wholly owned affiliates, except that (i) the Company may issue
shares upon the exercise of options granted or which may be granted under the
1996 Stock Option Plan and the Purchase Plan, and (ii) Messrs. Gibson and
Schmitz may transfer shares to Mr. Spencer upon exercise of his option on a
portion of the shares beneficially owned by them. See "Principal
Shareholders."

In connection with the offering, the Company has agreed to issue the
Underwriters Warrants. See "Description of Capital Stock--Underwriters
Warrants."

Prior to the offering there has been no public market for the Common Stock.
The initial public offering price set forth on the cover page of this
Prospectus will be determined by negotiations between the Company and the
Representatives. Among the factors considered in determining the initial
public offering price were prevailing market and economic conditions,
estimates of the business potential and prospects of the Company, the present
state of the Company's business operations, an assessment of the Company's
management and the consideration of the above factors in relation to the
market valuation of companies in related businesses. See "Risk Factors--
Absence of Pubic Markets and Possible Volatility of Stock Price."

The Company has agreed to indemnify the Underwriters and their controlling
persons against certain liabilities, including liabilities under the
Securities Act, or to contribute to payment the Underwriters may be required
to make in respect thereof. The Company has been advised that, in the view of
the Commission, indemnification of the Underwriters and their controlling
persons under the Securities Act is against public policy and, therefore, is
unenforceable.

LEGAL MATTERS

The validity of the Common Stock to be offered hereby will be passed upon
for the Company by Jenkens & Gilchrist, a Professional Corporation, Dallas,
Texas. Mr. Weinstock, an advisory director of the Company, is a member of
Jenkens & Gilchrist, a Professional Corporation. Certain legal matters in
connection with the offering will be passed upon for the Underwriters by
Manatt, Phelps & Phillips, LLP, Los Angeles, California.

EXPERTS

The consolidated financial statements of the Company at December 31, 1994
and 1995 and for each of the three years in the period ended December 31,
1995, appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.

The consolidated statement of operations of Matrix Bank for the year ended
December 31, 1992, included in this Prospectus and elsewhere in the
Registration Statement, has been audited by Kriegel & Co., independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
is included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.

83
<PAGE>

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act, of which this Prospectus is a part, with respect
to the Common Stock offered hereby. This Prospectus omits certain information
contained in the Registration Statement, and reference is made to the
Registration Statement for further information with respect to the Company and
the Common Stock offered hereby. Statements contained herein concerning the
provisions of documents are necessarily summaries of such documents and when
any such document is an exhibit to the Registration Statement, each such
statement is qualified in its entirety by reference to the copy of such
document filed with the Commission. Copies of the Registration Statement,
including the exhibits and schedules thereto, may be acquired upon payment of
the prescribed fees or examined without charge at the public reference
facilities of the Commission at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at the regional offices of the Securities and Exchange
Commission at 7 World Trade Center, New York, New York 10048, and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material
can also be obtained by mail at prescribed rates from the Public Reference
Section of the Securities and Exchange Commission at its principal office at
450 Fifth Street, N.W., Washington, D.C. 20549. The Commission maintains a web
site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants that file
electronically with the Commission.

84
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Consolidated Financial Statements of Matrix Capital Corporation
Report of Independent Auditors.......................................... F-2
Consolidated Balance Sheets--December 31, 1994 and 1995, and June 30,
1996 (unaudited)....................................................... F-3
Consolidated Statements of Income--for the years ended December 31,
1993, 1994 and 1995, and for the six months ended June 30, 1995 and
1996 (unaudited)....................................................... F-4
Consolidated Statements of Shareholders' Equity--for the years ended
December 31, 1993, 1994 and 1995, and for the six months ended June 30,
1996 (unaudited)....................................................... F-5
Consolidated Statements of Cash Flows--for the years ended December 31,
1993, 1994 and 1995, and for the six months ended June 30, 1995 and
1996 (unaudited)....................................................... F-6
Notes to Consolidated Financial Statements--December 31, 1995 and June
30, 1996 (unaudited)................................................... F-7
Consolidated Statement of Operations of Matrix Capital Bank (formerly
known as Dona Ana Savings and Loan Association, F.A.)
Report of Independent Auditors.......................................... F-31
Consolidated Statement of Operations--for the year ended December 31,
1992................................................................... F-32
Notes to Consolidated Statement of Operations--December 31, 1992........ F-33
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT AUDITORS

Board of Directors
Matrix Capital Corporation

We have audited the accompanying consolidated balance sheets of Matrix
Capital Corporation (Company) as of December 31, 1994 and 1995, and the
related consolidated statements of income, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of the Company at December 31, 1994 and 1995, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1995 in conformity with generally accepted accounting
principles.

As discussed in Note 2 to the consolidated financial statements, in 1995 the
Company changed its method of accounting for mortgage servicing rights as a
result of adopting Statement of Financial Accounting Standards No. 122,
Accounting for Mortgage Servicing Rights.

/s/ ERNST & YOUNG LLP

Phoenix, Arizona

March 1, 1996, except for Note 17,
as to which the date is September 19, 1996
F-2
<PAGE>

MATRIX CAPITAL CORPORATION

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31
----------------- JUNE 30
1994 1995 1996
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash............................................ $ 2,076 $ 1,381 $ 2,522
Interest earning deposits....................... 2,626 5,586 5,915
Loans held for sale, net of discount of $2,404
in 1994, $5,816 in 1995 and $5,379 in 1996..... 69,110 118,989 118,931
Loans held for investment, net.................. 20,230 18,859 19,797
Mortgage servicing rights, net.................. 6,183 13,817 10,587
Due from broker................................. -- -- 21,153
Other receivables............................... 3,696 5,609 12,043
Federal Home Loan Bank of Dallas stock.......... 1,140 1,954 2,657
Premises and equipment, net..................... 4,458 5,904 6,454
Deferred income tax benefit..................... 212 -- 195
Other assets.................................... 2,320 3,816 3,990
-------- -------- --------
Total assets.................................... $112,051 $175,915 $204,244
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits...................................... $ 41,910 $ 48,877 $ 73,509
Custodial escrow balances..................... 24,687 27,011 26,689
Payable for purchase of mortgage servicing
rights....................................... 1,763 1,312 297
Federal Home Loan Bank of Dallas borrowings... 14,600 19,000 36,400
Borrowed money................................ 18,438 65,093 52,089
Other liabilities............................. 4,692 4,409 3,425
Income taxes payable.......................... 285 875 1,258
-------- -------- --------
Total liabilities........................... 106,375 166,577 193,667
Commitments and contingencies
Shareholders' equity:
Preferred stock, par value $.0001; authorized
5,000,000 shares; no shares outstanding
Common stock, par value $.0001; authorized
50,000,000 shares; issued and outstanding
3,750,001, 3,888,939 and 3,888,939 shares at
December 31, 1994 and 1995 and
June 30, 1996, respectively.................. -- -- --
Additional paid in capital.................... 2,525 2,626 2,626
Retained earnings............................. 3,151 6,712 7,951
-------- -------- --------
Total shareholders' equity.................. 5,676 9,338 10,577
-------- -------- --------
Total liabilities and shareholders' equity.. $112,051 $175,915 $204,244
======== ======== ========
</TABLE>

See accompanying notes.

F-3
<PAGE>

MATRIX CAPITAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS EXCEPT PER SHARE INFORMATION)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30
----------------------------- -------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans and mortgage backed
securities................. $ 1,647 $ 6,681 $ 10,412 $ 4,092 $ 7,847
Interest earning deposits... 104 334 318 153 184
--------- --------- --------- --------- ---------
Total interest income....... 1,751 7,015 10,730 4,245 8,031
INTEREST EXPENSE
Savings and time deposits... 321 1,210 1,892 817 1,328
Demand and money market
deposits................... 72 271 292 128 233
FHLB borrowings............. 9 213 1,113 494 976
Borrowed money.............. 405 1,332 3,897 1,144 2,862
--------- --------- --------- --------- ---------
Total interest expense...... 807 3,026 7,194 2,583 5,399
--------- --------- --------- --------- ---------
Net interest income before
provision for loan losses.. 944 3,989 3,536 1,662 2,632
Provision for loan losses... 15 216 401 85 152
--------- --------- --------- --------- ---------
Net interest income......... 929 3,773 3,135 1,577 2,480
NONINTEREST INCOME
Loan administration......... 6,427 6,926 7,749 3,508 4,632
Brokerage................... 2,132 4,017 4,787 2,958 1,947
Gain on sale of loans and
mortgage backed
securities................. 2,361 1,590 3,272 1,320 852
Gain on sale of mortgage
servicing rights........... 38 684 1,164 190 1,091
Loan origination............ 221 1,294 2,069 440 194
Other....................... 466 487 781 290 408
--------- --------- --------- --------- ---------
Total noninterest income.... 11,645 14,998 19,822 8,706 9,124
NONINTEREST EXPENSES
Compensation and employee
benefits................... 4,605 7,719 8,586 4,157 5,071
Amortization of mortgage
servicing rights........... 2,363 1,185 1,817 613 1,184
Occupancy and equipment..... 585 1,067 1,124 657 738
Professional fees........... 297 485 660 232 176
Data processing............. 408 492 529 246 273
Other general and
administrative............. 2,206 3,331 4,420 1,854 2,083
--------- --------- --------- --------- ---------
Total noninterest expense... 10,464 14,279 17,136 7,759 9,525
--------- --------- --------- --------- ---------
Income before income taxes.. 2,110 4,492 5,821 2,524 2,079
Provision for income taxes.. 404 1,846 2,260 970 840
--------- --------- --------- --------- ---------
Net income.................. $ 1,706 $ 2,646 $ 3,561 $ 1,554 $ 1,239
========= ========= ========= ========= =========
Net income per common and
common equivalent share.... $ .71 $ .91 $ .40 $ .32
========= ========= ========= =========
Weighted average common and
common equivalent shares... 3,596,251 3,750,001 3,927,629 3,927,629 3,927,629
========= ========= ========= ========= =========
PRO FORMA (UNAUDITED)
Historical income before
income taxes............... $ 2,110
Pro forma income tax
provision.................. 844
---------
Pro forma net income........ $ 1,266
=========
Pro forma net income per
common and common
equivalent share........... $ .35
=========
</TABLE>

See accompanying notes.

F-4
<PAGE>

MATRIX CAPITAL CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------- PAID IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- ------ ---------- -------- -------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1993....... -- $ -- $ -- $ -- $ --
Pooling of interests with Matrix
Financial Services Corporation
and United Financial, Inc....... 3,442,501 -- 558 811 1,369
Issuance of stock for services... 307,500 -- 43 -- 43
Cash dividends ($.02 per share).. -- -- -- (88) (88)
Net income....................... -- -- -- 1,706 1,706
Reclassification of retained
earnings at date of termination
of Subchapter S election........ -- -- 1,924 (1,924) --
--------- ----- ------ ------ -------
Balance at December 31, 1993..... 3,750,001 -- 2,525 505 3,030
Net income....................... -- -- -- 2,646 2,646
--------- ----- ------ ------ -------
Balance at December 31, 1994..... 3,750,001 -- 2,525 3,151 5,676
Issuance of stock for services... 138,938 -- 101 -- 101
Net income....................... -- -- -- 3,561 3,561
--------- ----- ------ ------ -------
Balance at December 31, 1995..... 3,888,939 -- 2,626 6,712 9,338
Net income (unaudited)........... -- -- -- 1,239 1,239
--------- ----- ------ ------ -------
Balance at June 30, 1996
(unaudited)..................... 3,888,939 $ -- $2,626 $7,951 $10,577
========= ===== ====== ====== =======
</TABLE>

See accompanying notes.

F-5
<PAGE>

MATRIX CAPITAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30
---------------------------- ------------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income................... $ 1,706 $ 2,646 $ 3,561 $ 1,554 $ 1,239
Adjustments to reconcile net
income to net cash used by
operating activities:
Depreciation and
amortization............... 184 414 743 206 294
Provision for loan losses... 15 216 401 85 152
Amortization of mortgage
servicing rights........... 2,363 1,185 1,817 613 1,184
Noncash compensation
expense.................... 43 -- 101 101 --
Accretion of premium on
deposits................... (28) (68) (28) (23) (7)
Deferred income taxes....... (400) 286 212 (91) (195)
Gain on sale of loans and
mortgage backed
securities................. (2,361) (1,590) (3,272) (1,320) (852)
Gain on sale of mortgage
servicing rights........... (38) (684) (1,164) (190) (1,091)
Loans originated for sale,
net of loans sold.......... (4,206) (4,681) (38,591) (25,813) 11,732
Loans purchased for sale.... (32,231) (80,048) (91,774) (32,367) (65,262)
Proceeds from sale of loans
purchased for sale......... 23,456 62,727 70,159 26,032 44,169
Originated mortgage
servicing rights........... -- -- (885) (138) (462)
Increase in due from
broker..................... -- -- -- -- (21,153)
Decrease (increase) in other
receivables and other
assets..................... (304) (2,116) (3,685) 985 (5,316)
Increase (decrease) in other
liabilities and income
taxes payable.............. 1,275 684 307 (1,521) (601)
-------- -------- -------- -------- --------
Net cash used by operating
activities.................. (10,526) (21,029) (62,098) (31,887) (36,169)
INVESTING ACTIVITIES
Loans originated and
purchased for portfolio..... (20,659) (423) (2,919) (1,031) (2,608)
Principal repayments on
loans....................... 1,378 10,962 17,517 4,329 11,789
Purchase of Federal Home Loan
Bank of Dallas stock........ (202) (536) (814) (3) (703)
Purchases of premises and
equipment................... (235) (1,804) (1,910) (509) (844)
Purchase of land under
development................. -- -- -- -- (1,292)
Acquisition of mortgage
servicing rights............ 625 (3,920) (9,654) (3,812) (2,487)
Proceeds from sale of
mortgage servicing rights... 1,503 677 1,769 198 5,071
Increase in cash from
purchase of Matrix Bank, net
of $2,343 paid.............. 6,361 -- -- -- --
-------- -------- -------- -------- --------
Net cash provided (used) by
investing activities........ (11,229) 4,956 3,989 (828) 8,926
FINANCING ACTIVITIES
Net increase (decrease) in
deposits.................... (3,949) (3,539) 6,995 2,965 24,639
Net increase (decrease) in
custodial escrow balances... 31,221 (7,107) 2,324 10,588 (322)
Increase in revolving lines
and repurchase agreements,
net......................... -- 20,409 39,384 14,851 1,991
Repayments of notes payable.. (1,705) (605) (3,865) (364) (927)
Proceeds from notes payable.. 8,360 2,893 12,933 4,337 3,494
Proceeds from senior
subordinated notes.......... -- -- 2,910 -- --
Repayment of financing
arrangements................ (2,671) (639) (307) (168) (162)
Dividends paid on common
stock....................... (88) -- -- -- --
Repayment of note payable to
officer..................... (175) -- -- -- --
-------- -------- -------- -------- --------
Net cash provided by
financing activities........ 30,993 11,412 60,374 32,209 28,713
-------- -------- -------- -------- --------
Increase (decrease) in cash
and cash equivalents........ 9,238 (4,661) 2,265 (506) 1,470
Cash and cash equivalents at
beginning of period......... 125 9,363 4,702 4,702 6,967
-------- -------- -------- -------- --------
Cash and cash equivalents at
end of period............... $ 9,363 $ 4,702 $ 6,967 $ 4,196 $ 8,437
======== ======== ======== ======== ========
SUPPLEMENTAL DISCLOSURE OF
NONCASH ACTIVITY
Payable for purchase of
mortgage servicing rights... $ 133 $ 1,763 $ 1,312 $ 2,836 $ 297
======== ======== ======== ======== ========
Transfer of mortgage
servicing rights holdback
against mortgage servicing
rights balance.............. $ 1,526 $ -- $ -- $ -- $ --
======== ======== ======== ======== ========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash paid for interest
expense..................... $ 802 $ 2,949 $ 6,489 $ 2,463 $ 5,392
======== ======== ======== ======== ========
Cash paid for income taxes... $ 323 $ 1,702 $ 1,530 $ 726 $ 656
======== ======== ======== ======== ========
</TABLE>

See accompanying notes.

F-6
<PAGE>

MATRIX CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1995 AND JUNE 30, 1996
(THE INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDEDJUNE 30, 1995
AND 1996 IS UNAUDITED)

1. ORGANIZATION

On June 30, 1993, the Company was formed and exchanged 1,000,000 shares of
its common stock for 100 percent of the common stock of United Financial, Inc.
(United Financial), Matrix Financial Services Corporation (Matrix Financial)
and another company with minimal assets or operations. The merger was
accounted for as a pooling of interests and, accordingly, the 1993
consolidated financial statements were restated to include the accounts and
operations of the companies prior to the merger.

On September 23, 1993 the Company acquired Dona Ana Savings Bank, FSB
(changed its name to Matrix Capital Bank, FSB, herein referred to as Matrix
Bank), a federally chartered savings and loan association (see Note 15). Upon
the acquisition of Matrix Bank, the Company became a unitary savings and loan
holding company which, through its subsidiaries, is engaged in a single
industry segment, the financial services industries.

The Company's mortgage banking business is conducted through Matrix
Financial, and was established with the primary objective of acquiring,
originating and servicing residential mortgage loan servicing rights.
Servicing mortgage loans involves the contractual right to receive a fee for
processing and administering mortgage loan payments. The Company acquires
servicing rights in the secondary market as well as through Matrix Financial's
wholesale loan origination offices in the Atlanta, Denver, and Phoenix
metropolitan areas, and through Matrix Bank with offices in Las Cruces, New
Mexico and Sun City, Arizona.

Matrix Bank serves its local community by providing a full range of personal
and business depository services, offering residential and consumer loans, and
providing, on a limited basis, commercial real estate loans. Matrix Bank's
participation in the mortgage banking business includes the purchase of bulk
residential loan portfolios, with the intent of reselling the loans, and
extends to acquisitions of servicing portfolios, which are in turn subserviced
by Matrix Financial.

In May 1996, Matrix Bank formed an operating subsidiary, Sterling Finance
Co., Inc. (Sterling), which acquired substantially all the assets of an
originator and seller of subprime automobile retail installment sales
contracts for approximately $47,000 in cash. The assets acquired (fixed assets
and prepaid expenses) were purchased at their estimated fair value and no
goodwill was recorded. The operations for the sub-prime originator for the six
months ended June 30, 1996 were immaterial to the Company's consolidated
financial statements.

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

United Special Services, Inc. (USS), a wholly owned subsidiary of the
Company formed in June 1995, provides real estate management and disposition
services to financial services companies and financial institutions, including
Matrix Financial and Matrix Bank.

2. SIGNIFICANT ACCOUNTING POLICIES

The accounting and reporting policies of the Company and its subsidiaries
conform to generally accepted accounting principles and with the general
practices within the financial services industry.

F-7
<PAGE>

MATRIX CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

2. ACCOUNTING POLICIES--(CONTINUED)

The following is a description of the more significant policies which the
Company follows in preparing and presenting its consolidated financial
statements.

Basis of Presentation

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

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

Loans Held for Sale

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

Gains and losses on loan sales are recognized at the time of sale. Gains and
losses are calculated based upon the total consideration received, after
provisions to cover estimated future servicing costs.

Loans Held for Investment

Loans held for investment are stated at unpaid principal balances (since it
is the Company's intention to hold the loans until maturity), less unearned
discounts and premiums, deferred loan fees, loans in process, and allowance
for loan losses. Premiums, discounts and net origination fees on loans are
amortized to interest income over the contractual life of the related loans
using the interest method.

Allowance for Loan Losses

In January 1995, the Company adopted Statement of Financial Accounting
Standards Statement No. 114, Accounting by Creditors for Impairment of a Loan,
amended in October 1994 by Statement No. 118, Accounting by Creditors for
Impairment of a Loan--Income Recognition and Disclosures, hereinafter
collectively referred to as Statement No. 114. Under Statement No. 114, a loan
is considered impaired when, based on current information and events, it is
probable that a creditor will be unable to collect all amounts due according
to the contractual terms of the loan. Statement No. 114 applies to all loans
except large groups of smaller-balance homogeneous loans, which are
collectively evaluated, loans measured at fair value or at the lower of cost
or fair value, leases and debt securities. The statement does not address the
overall adequacy of the allowance for loan losses.

Potential impaired loans of the Company, as defined by Statement No. 114,
include only commercial, real estate construction and commercial real estate
mortgage loans classified as nonperforming loans. Impairment allowances are
considered by the Company in determining the overall adequacy of the allowance
for loan losses. The adoption of Statement No. 114 resulted in no material
change in the allowance for loan losses. When a loan is identified as
"impaired," accrual of interest ceases. The Company had no impaired loans, as
defined by Statement No. 114, as of or for the year ended December 31, 1995.

The Company evaluates its mortgage loans collectively due to their
homogeneous nature. The allowance for loan losses is calculated, in part,
based on historical loss experience. In addition, management takes into

F-8
<PAGE>

MATRIX CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

2. ACCOUNTING POLICIES--(CONTINUED)

consideration other factors such as certain qualitative evaluations of
individual classified assets, trends in the portfolio, geographic and
portfolio concentrations, new products or markets, evaluations of the changes
in the historical loss experience component, and projections of this component
into the current and future periods based on current knowledge and conditions.
Due to the nature of the Company's loan portfolio, substantially all of the
allowance for loan losses relates to residential loans. Loan losses are
charged against the allowance when the probability of collection is considered
remote. In the opinion of management, the allowance, when taken as a whole, is
adequate to absorb reasonably foreseeable losses in the current loan
portfolio.

Loans are placed on nonaccrual status when full payment of principal or
interest is in doubt, or when they are past due ninety days as to either
principal or interest. Interest payments received on nonaccrual loans are
recorded as interest income unless there is doubt as to the collectibility of
the recorded investment. In those cases, cash received is recorded as a
reduction in principal.

Premises and Equipment

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

Mortgage Servicing Rights (MSR)

On January 1, 1995, the Company adopted Statement No. 122, Accounting for
Mortgage Servicing Rights. Since Statement No. 122 prohibits retroactive
application, the historical accounting results for 1993 and 1994 have not been
restated, and accordingly, the accounting results for 1995 are not directly
comparable to the results for prior periods.

With the adoption of this statement, the Company recognizes originated
mortgage servicing rights (OMSRs) as an asset separate from the underlying
originated mortgage loan by allocating the total cost of originating a
mortgage loan between the loan and the servicing right based on their
respective fair values. Mortgage servicing rights are carried at the lower of
cost (allocated cost for OMSRs), less accumulated amortization, or fair value.
Mortgage servicing rights are amortized in proportion to and over the period
of the estimated future servicing income.

The fair value of mortgage servicing rights is determined based on the
discounted future servicing income stratified based on one or more predominant
risk characteristics of the underlying loans. The Company stratifies its
mortgage servicing rights by product type and investor to reflect the
predominant risk characteristics. To determine the fair value of mortgage
servicing rights, the Company uses a valuation model that calculates the
present value of future cash flows to determine the fair value of the mortgage
servicing rights. In using this valuation method, the Company incorporates
assumptions that market participants would use in estimating future net
servicing income which includes estimates of the cost of servicing per loan,
the discount rate, float value, an inflation rate, ancillary income per loan,
prepayment speeds and default rates. As of December 31, 1995, no valuation
allowance was required and the fair value of the aggregate mortgage servicing
rights was approximately $20,500,000.

Gain on Sale of Servicing Rights

The Company complies with EITF Issue No. 95-5, Determination of What
Constitutes a Sale of Mortgage Loan Servicing Rights, such that the gain on
sale of servicing rights is recognized when substantially all the risks

F-9
<PAGE>

MATRIX CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

2. ACCOUNTING POLICIES--(CONTINUED)

and rewards inherent in owning the mortgage servicing rights have been
transferred to the buyer, and any protection provisions retained by the
Company are minor and can be reasonably estimated.

Loan Administration Income

Loan administration income represents service fees and other income earned
from servicing loans for various investors. Loan administration income
includes service fees that are based on a contractual percentage of the
outstanding principal balance plus late fees and other ancillary charges.
Income is recognized when the related payments are received.

Brokerage Income

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

Loan Origination Income

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

Stock Based Compensation

The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. The Company accounts for stock option grants in accordance with APB
Opinion No. 25 and, accordingly, recognizes no compensation expense for the
stock option grants.

In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 123, Accounting for Stock-
Based Compensation, which provides an alternative to APB Opinion No. 25,
Accounting for Stock Issued to Employees, in accounting for stock-based
compensation issued to employees. Statement No. 123 allows for a fair value
based method of accounting for employee stock options and similar equity
instruments awarded after December 31, 1995. The Company intends to apply the
recognition and measurement provisions of APB Opinion No. 25 to all employee
stock options and similar equity instruments awarded after December 31, 1995.

Foreclosed Real Estate

Real estate acquired through foreclosure, deed in lieu of foreclosure or in
judgment is carried at the lower of fair value, minus estimated costs to sell,
or the related loan balance at the date of foreclosure. Valuations are
periodically performed by management and an allowance for loss is established
by a charge to operations if the carrying value of a property exceeds its fair
value, minus estimated costs to sell. The net carrying value of foreclosed
real estate was $543,000, $835,000 and $1,093,000 at December 31, 1994 and
1995 and June 30, 1996, respectively.

Income Taxes

Prior to the merger, Matrix Financial and United Financial were taxed under
the provisions of subchapter "S" of the Internal Revenue Code. Under these
provisions, these companies did not pay federal corporate income taxes on
their income. Instead, the shareholders were liable for individual federal
income taxes on the respective company's taxable income.

On June 30, 1993, Matrix Financial and United Financial terminated their
subchapter "S" elections as a result of becoming subsidiaries of the Company.
Deferred income taxes were established at that time for temporary differences
between the financial reporting basis and the tax basis of assets and
liabilities.

F-10
<PAGE>

MATRIX CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

2. ACCOUNTING POLICIES--(CONTINUED)

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

The Company follows Statement No. 109, Accounting for Income Taxes, which
uses the liability method in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences
between financial reporting and tax basis of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.

Fair Value of Financial Instruments

In 1995, the Company adopted Statement No. 107, Disclosures about Fair Value
of Financial Instruments, which requires disclosure of fair value information
about financial instruments, whether or not recognized in the balance sheet,
where it is practicable to estimate their value. In cases where quoted market
prices are not available, fair values are based on estimates using present
value or other valuation techniques. Those techniques are significantly
affected by the assumptions used, including the discount rate and estimates of
future cash flows. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases, could
not be realized in immediate settlement of the instruments. Statement No. 107
excludes certain financial instruments and all nonfinancial instruments from
its disclosure requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company. For additional
information refer to Note 14--Financial Instruments.

Cash and Cash Equivalents

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

Net Income and Pro Forma Net Income Per Share

Net income per common and common equivalent share is computed based on the
weighted average number of common shares outstanding during each period and
the dilutive effect, if any, of stock options outstanding.

Pro forma net income per common and common equivalent share (unaudited) is
presented for 1993 since the Company's predecessors were not taxable entities
as a result of their subchapter "S" elections and is computed by applying a
pro forma tax provision of 40 percent to income before income taxes and using
the weighted average number of shares of common stock and common stock
equivalents outstanding during the year.

Interim Financial Statements

The accompanying consolidated balance sheet at June 30, 1996 and the
consolidated statements of income, shareholders' equity and cash flows for the
six month periods ended June 30, 1995 and 1996 are unaudited and have been
prepared on the same basis as the audited consolidated financial statements
included herein. In the opinion of management, such unaudited consolidated
financial statements include all adjustments (all of which are of a normal
recurring nature) necessary to present fairly the consolidated financial
position and the results of operations for the periods presented. The results
of operations for such interim periods are not necessarily indicative of
results for the full year.

Impact of Recently Issued Accounting Standards

In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets to be Disposed Of. This statement, effective
for fiscal years beginning after December 15, 1995, requires a company to
assess impairment of "assets held or used" and "assets to be disposed of."
Whenever events or

F-11
<PAGE>

MATRIX CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

2. ACCOUNTING POLICIES--(CONTINUED)

changes in circumstances indicate that the carrying amount of an asset may not
be recoverable, the related undiscounted cash flows are compared to the
asset's book value. If the sum of the undiscounted cash flows is less than the
book value, a loss is recorded based upon the excess of the book value over
the fair value of the asset. Assets to be disposed of are recorded at fair
value less cost to sell and are not depreciated while held. The adoption of
this pronouncement by the Company in 1996 did not have a material effect on
the Company's consolidated financial statements.

In June 1996, the FASB issued Statement No. 125, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities. This
statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities and is
effective for periods beginning after December 31, 1996. Transactions covered
by Statement No. 125 include securitizations, sales of partial interests in
financial assets, repurchase agreements, securities lending, pledges of
collateral, loan syndications and participations, sales of receivables with
recourse, servicing of mortgages and other loans, and in-substance
defeasances. The statement uses a "financial components" approach that focuses
on control to determine the proper accounting for financial asset transfers.
Under that approach, after financial assets are transferred, an entity would
recognize on the balance sheet all assets it controls and liabilities it has
incurred. It would remove from the balance sheet those assets it no longer
controls and liabilities it has satisfied.

If the entity has surrendered control over the transferred assets, the
transaction would be considered a sale. Control is considered surrendered only
if the assets are isolated from the transferor; the transferee has the right
to pledge or exchange the assets or is a qualifying special-purpose entity;
and the transferor does not maintain effective control over the assets through
an agreement to repurchase or redeem them. If those conditions do not exist,
the transfer would be accounted for as a secured borrowing.

The Company has not yet determined the impact of Statement No. 125 on its
consolidated financial statements.

3. LOANS RECEIVABLE

Loans held for investment consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31
--------------- JUNE 30
1994 1995 1996
------- ------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Residential loans.............................. $11,105 $ 9,349 $ 8,630
Multi-family and commercial real estate........ 7,518 7,544 7,758
Construction loans............................. 397 577 1,569
Consumer loans and other....................... 2,623 3,381 3,878
------- ------- -------
21,643 20,851 21,835
Less:
Loans in process............................. 291 499 480
Purchase discounts, net...................... 205 414 376
Unearned discounts on consumer loans......... 40 14 16
Allowance for loan losses.................... 728 943 1,058
Specific valuation allowance on purchased
loans....................................... 149 122 108
------- ------- -------
1,413 1,992 2,038
------- ------- -------
$20,230 $18,859 $19,797
======= ======= =======
</TABLE>

F-12
<PAGE>

MATRIX CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

3. LOANS RECEIVABLE--(CONTINUED)

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

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 JUNE 30
-------------------------- ------------
1993 1994 1995 1995 1996
------- ------- -------- ---- ------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period... $ -- $ 538 $ 728 $728 $ 943
Allowance for loan losses
established in connection with
the acquisition of Matrix Bank.. 556 -- -- -- --
Provision for loan losses........ 15 216 401 85 152
Charge-offs...................... (33) (26) (240) (40) (37)
Recoveries....................... -- -- 54 -- --
------- ------- -------- ---- ------
Balance at end of period......... $ 538 $ 728 $ 943 $773 $1,058
======= ======= ======== ==== ======
</TABLE>

Loans are placed on nonaccrual when full payment of principal or interest is
in doubt, or when they are past due ninety days as to either principal or
interest.

Nonaccrual loans in the loans held for investment portfolio totaled
approximately $326,000, $440,000 and $384,000 or 1.5 percent, 2.1 percent and
1.8 percent of the total loans held for investment portfolio at December 31,
1994 and 1995 and June 30, 1996, respectively.

Nonaccrual loans related to the loans held for sale portfolio aggregated
approximately $2,988,000, $5,098,000 and $3,708,000 at December 31, 1994 and
1995 and June 30, 1996, respectively. Approximately $1,500,000, $1,123,000 and
$834,000 at December 31, 1994 and 1995 and June 30, 1996, respectively, of the
nonaccrual loans relate to a 90 percent senior participation interest acquired
by the Company in a $22,000,000 passthrough certificate, with an outstanding
balance of $5,591,000 at June 30, 1996, secured by single family residential
real estate mortgages which are classified as loans held for sale. Losses
incurred related to loans underlying the passthrough certificate are first
charged to the subordinate participation interest, which was approximately
$1.8 million at June 30, 1996.

Interest income that would have been recorded for such nonaccrual loans was
approximately $23,000, $140,000, and $156,000, during the years ended December
31, 1993, 1994, and 1995, respectively, and $84,000 and $39,000 during the six
months ended June 30, 1995 and 1996, respectively.

For the six months ended June 30, 1996, the Company recognized a gross gain
on the sale of mortgage backed securities of approximately $171,000 and the
taxes related to this sale were approximately $68,000.

F-13
<PAGE>

MATRIX CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

4. PREMISES AND EQUIPMENT

Premises and equipment consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31
------------- JUNE 30
1994 1995 1996
------ ------ -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Land.............................................. $ 417 $ 532 $ 694
Buildings......................................... 3,068 3,761 4,021
Leasehold improvements............................ 118 127 144
Office furniture and equipment.................... 1,407 1,721 2,111
Other equipment................................... 186 960 975
------ ------ ------
5,196 7,101 7,945
Less: accumulated depreciation and amortization... 738 1,197 1,491
------ ------ ------
$4,458 $5,904 $6,454
====== ====== ======
</TABLE>

Included in occupancy and equipment expense is depreciation and amortization
expense of premises and equipment of approximately $184,000, $414,000, and
$467,000, for the years ended December 31, 1993, 1994 and 1995, respectively,
and $197,000 and $294,000 during the six months ended June 30, 1995 and 1996,
respectively.

5. MORTGAGE SERVICING RIGHTS

The activity in the MSRs is summarized as follows:

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31 ENDED
------------------------ JUNE 30
1993 1994 1995 1996
------- ------ ------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at beginning of period........ $ 6,200 $1,818 $ 6,183 $13,817
Purchases............................. 409 5,550 9,203 1,472
Acquisition of GNMA VA Vendee MSRs.... (902) -- -- --
Originated............................ -- -- 885 462
Amortization.......................... (2,363) (1,185) (1,817) (1,184)
Reclass of retainage against MSRs..... (1,526) -- -- --
Sales................................. -- -- (637) (3,980)
------- ------ ------- -------
Balance at end of period.............. $ 1,818 $6,183 $13,817 $10,587
======= ====== ======= =======
</TABLE>

The reclass of retainage against MSRs represents an adjustment to the
acquisition basis of MSRs resulting from the final settlement of the related
purchase price and retainage payable of MSRs purchased in prior years.

Accumulated amortization of mortgage servicing rights aggregated
approximately $7,773,000, $9,495,000 and $10,397,000 at December 31, 1994 and
1995 and June 30, 1996, respectively.

The Company's servicing activity is diversified throughout 48 states with
concentrations at June 30, 1996 in California, New York and Arizona of
approximately 33.2 percent, 13.1 percent and 8.8 percent, respectively, based
on aggregate outstanding principal balances of the mortgage loans serviced. As
of December 31, 1994 and 1995 and June 30, 1996, the Company subserviced loans
for others of approximately $89,000,000, $85,000,000

F-14
<PAGE>

MATRIX CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

5. MORTGAGE SERVICING RIGHTS--(CONTINUED)

and $439,525,000, respectively. The increase in the June 30, 1996 subserviced
loans is due to two sales of Company owned MSRs which occurred during the
second quarter of 1996 and the subservicing will terminate in August and
November 1996.

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

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1994 1995 JUNE 30, 1996
-------------------- -------------------- --------------------
PRINCIPAL PRINCIPAL PRINCIPAL
NUMBER BALANCE NUMBER BALANCE NUMBER BALANCE
OF LOANS OUTSTANDING OF LOANS OUTSTANDING OF LOANS OUTSTANDING
-------- ----------- -------- ----------- -------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
FHLMC................... 6,043 $ 318,457 9,453 $ 671,966 8,178 $ 551,363
FNMA.................... 3,497 178,915 7,820 483,947 4,964 352,665
GNMA.................... 264 12,869 271 12,883 254 11,740
Other VA, FHA, and
conventional loans..... 9,917 531,544 7,414 427,589 7,381 446,676
------ ---------- ------ ---------- ------ ----------
19,721 $1,041,785 24,958 $1,596,385 20,777 $1,362,444
====== ========== ====== ========== ====== ==========
</TABLE>

The Company's custodial escrow balances shown in the accompanying
consolidated balance sheets pertain to escrowed payments of taxes and
insurance and the float on principal and interest payments on loans serviced
on behalf of others and owned by the Company, aggregating approximately
$17,564,000, $26,769,000, and $26,688,000 at December 31, 1994 and 1995, and
June 30, 1996, respectively. The Company also has custodial accounts on
deposit from other mortgage companies aggregating approximately $7,123,000,
$242,000 and $1,000 at December 31, 1994 and 1995, and June 30, 1996,
respectively. The custodial accounts are maintained at Matrix Bank in
noninterest bearing accounts. The balance of the custodial accounts fluctuate
from month to month based on the pass-through of the principal and interest
payments to the ultimate investors and the timing of the taxes and insurance
payments.

The mortgage servicing portfolio includes recourse servicing equal to
approximately 0.7 and 1.0 percent of the total owned at December 31, 1995 and
June 30, 1996, respectively. A reserve for losses is recorded, as appropriate,
for loans serviced for others, in which the investor has recourse to the
Company, which had a balance of approximately $52,000, $49,000 and $19,000 at
December 31, 1994 and 1995 and June 30, 1996, respectively. Additionally, in
certain circumstances the Company is required to make advances for escrow and
foreclosure costs for loans which it services. The Company experienced losses
for unrecoverable advances of approximately $69,000, $34,000 and $144,000 for
the years ended December 31, 1993, 1994 and 1995, respectively, and $5,000 and
$8,000 for the six months ended June 30, 1995 and 1996, respectively.

F-15
<PAGE>

MATRIX CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

6. DEPOSITS

Deposit account balances are summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------
1994 1995 JUNE 30, 1996
------------------------- ------------------------- -------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
AMOUNT PERCENT RATE AMOUNT PERCENT RATE AMOUNT PERCENT RATE
------- ------- -------- ------- ------- -------- ------- ------- --------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Passbook accounts....... $ 2,621 6.26% 2.65% $ 2,358 4.82% 3.40% $ 2,272 3.09% 3.31%
NOW accounts............ 3,744 8.94 2.00 3,832 7.84 1.49 4,032 5.49 2.20
Money market accounts... 5,755 13.74 2.70 6,167 12.62 4.38 8,331 11.33 4.41
------- ------ ---- ------- ------ ---- ------- ------ ----
12,120 28.94 2.46 12,357 25.28 3.18 14,635 19.91 3.63
Certificate accounts.... 29,755 71.06 4.71 36,513 74.72 5.97 58,874 80.09 5.82
------- ------ ---- ------- ------ ---- ------- ------ ----
41,875 100.00% 48,870 100.00% 73,509 100.00%
====== ====== ======
Purchase premium........ 35 7 --
------- ------- -------
$41,910 $48,877 $73,509
======= ======= =======
Weighted-average
interest rate.......... 4.04% 5.23% 5.33%
==== ==== ====
</TABLE>

Contractual maturities of certificate accounts as of December 31, 1995:

<TABLE>
<CAPTION>
UNDER 12 12 TO 36 36 TO 60
MONTHS MONTHS MONTHS
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
3.00-3.99%........................................ $ 345 $ -- $ --
4.00-4.99%........................................ 1,664 181 --
5.00-5.99%........................................ 13,450 907 27
6.00-6.99%........................................ 8,852 7,163 928
7.00-7.99%........................................ 35 2,479 427
8.00-10.50%....................................... 15 37 3
------- ------- ------
$24,361 $10,767 $1,385
======= ======= ======
</TABLE>

Interest expense on deposits is summarized as follows:

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31 ENDED JUNE 30
------------------ -------------
1993 1994 1995 1995 1996
---- ------ ------ -------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Passbook accounts.......................... $ 17 $ 72 $ 85 $ 46 $ 40
NOW accounts............................... 10 76 52 24 31
Money market............................... 62 195 240 104 202
Certificates of deposit.................... 304 1,138 1,807 771 1,288
---- ------ ------ ----- -------
$393 $1,481 $2,184 $ 945 $ 1,561
==== ====== ====== ===== =======
</TABLE>

The aggregate amount of deposit accounts with a balance greater than $100,000
was approximately $2,112,000, $2,066,000 and $3,745,000 at December 31, 1994
and 1995, and June 30, 1996 respectively.

F-16
<PAGE>

MATRIX CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

7. BORROWED MONEY

Borrowed money is summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31
------------- JUNE 30
1994 1995 1996
------ ------ -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Term Notes Payable
Note payable to a third-party financial institution
due in annual principal installments of $286,101,
plus interest, through 2003, collateralized by the
common stock of Matrix Bank; interest at prime plus
1.0 percent........................................ $2,575 $2,289 $2,289
Notes payable to a third-party financial institution
due in 28 consecutive quarterly installments,
secured by MSRs; interest ranging from prime plus
2.0 percent to fixed at 10 percent................. 740 631 576
Note payable to a bank, secured by a deed of trust
on real estate, unpaid principal balance plus
interest due June 1998; interest at prime plus
1.0 percent........................................ -- 921 962
$11,000,000 servicing acquisition loan agreement
with a bank, secured by MSRs, due at the earlier of
the maturity of the MSRs or amortized over five to
six years from the date of the borrowing through
October 2001; interest at federal funds rate plus
3.6 percent (8.8 percent at June 30, 1996);
$327,000 available at June 30, 1996................ -- 8,709 10,673
Senior subordinated notes, interest at 13 percent
payable semiannually, unsecured and maturing July
2002, with mandatory redemptions of $727,500 on
each of July 15, 1999, 2000 and 2001............... -- 2,910 2,910
Note payable to a third-party financial institution
due in monthly installments through 2000, secured
by equipment; interest at the one year treasury
rate plus 2.4 percent.............................. 164 786 759
Note payable to a bank secured by a deed of trust on
real estate, unpaid principal balance due July 21,
1998; interest at prime plus 1.0 percent........... -- -- 845
Other, interest at prime plus 2.0 percent........... 990 201 --
------ ------ ------
4,469 16,447 19,014
Revolving Lines
$70,000,000 revolving warehouse loan agreement (with
a $2,500,000 working capital sublimit) with banks,
secured by mortgage loans held for sale, mortgage
servicing rights, eligible servicing advance
receivables and eligible delinquent mortgage
receivables; interest at federal funds rate plus
1.1 to 2.6 percent (6.6 and 7.9 percent average
rate at June 30, 1996 for the warehouse loan and
working capital loan, respectively); matures in
July 1997; $38,616,000 available overall and
$1,631,000 available under the working capital
sublimit at June 30, 1996.......................... 46,833 31,384
$27,500,000 revolving warehouse lines of credit with
various banks. These lines were terminated
effective July 1995................................ 9,890 -- --
------ ------ ------
9,890 46,833 31,384
</TABLE>

F-17
<PAGE>

MATRIX CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

7. BORROWED MONEY--(CONTINUED)

<TABLE>
<CAPTION>
DECEMBER 31
--------------- JUNE 30
1994 1995 1996
------- ------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Other
Agreements with a bank and an investment bank to
sell mortgage loans originated by the Company
under agreements to repurchase. The agreement can
be terminated upon 90 days written notice by
either party; interest at the higher of the prime
rate or note rate on the loans (average rate of
8.6 percent at June 30, 1996). Total commitment
amount of these agreements is $20,000,000, with
$19,390,000 available at June 30, 1996............ $ 2,403 $ 570 $ 610
MSR financing (see below).......................... 1,550 1,243 1,081
Other.............................................. 126 -- --
------- ------- -------
4,079 1,813 1,691
------- ------- -------
$18,438 $65,093 $52,089
======= ======= =======
</TABLE>

On July 10, 1996, Matrix Financial renewed its credit facilities for its
$70,000,000 revolving warehouse loan agreement and $11,000,000 servicing
acquisition loan agreement. With this renewal, the aggregate amount of the
revolving warehouse loan was reduced to $50,000,000, with a $2,500,000 working
capital sublimit, and the aggregate amount of the servicing acquisition loan
was increased to $13,500,000. The reduction in the revolving warehouse loan
commitment was initiated by Matrix Financial to reflect the recent reduction
in the level of loan origination activity. The new credit facility agreements
require Matrix Financial to maintain (i) total stockholder's equity of at
least $3,000,000 plus 50% of capital contributed after January 1, 1996, (ii)
adjusted tangible net worth, as defined, of at least $9,000,000 through
January 31, 1997 and $10,000,000 on January 31, 1997 and thereafter, (iii) a
servicing portfolio of at least $1,250,000,000 and (iv) a ratio of principal
debt of receivables borrowings and term line borrowings of no more than the
lesser of 70% of the appraised value of the mortgage servicing portfolio or
1.25% of the unpaid principal balance of the servicing portfolio.

The terms of the senior subordinated notes limit cash dividends to an amount
equal to 50 percent of consolidated net income as long as the dividend does
not exceed 10 percent of consolidated shareholders' equity. The Company may
redeem the senior subordinated notes, in whole or in part, at any time after
July 15, 1998 at a redemption price of 102 percent of par through July 14,
1999 and, thereafter, at par, plus accrued and unpaid interest.

The Company is obligated to register under the Securities Act of 1933 the
senior subordinated notes on or before February 1, 1997. If such registration
statement is not effected by February 1, 1997, the interest rate increases to
14 percent. The Company has granted the holders of the senior subordinated
notes a right of first refusal to purchase from the shares to be issued and
sold in the planned public offering that number of shares of common stock
equal in amount to $727,500 divided by the price to the public.

F-18
<PAGE>

MATRIX CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

7. BORROWED MONEY--(CONTINUED)

As of December 31, 1995 the maturities of term notes payable during the next
five years and thereafter are as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1996.......................................................... $ 2,105
1997.......................................................... 2,280
1998.......................................................... 3,078
1999.......................................................... 2,977
2000.......................................................... 2,777
Thereafter.................................................... 3,230
-------
$16,447
=======
</TABLE>

The Company must comply with certain financial and other covenants related
to the foregoing debt agreements including the maintenance of specific ratios,
net worth and other amounts as defined in the credit agreements. At December
31, 1995, the Company was in compliance with these covenants.

MSR Financing

In 1992 and 1994 the Company entered into two unrelated transactions with
portions of its owned servicing portfolio which were accounted for as
financings due to various terms of the agreements regarding continuing
involvement. Amounts due to the other parties under the financings had
balances of approximately $1,550,000, $1,243,000 and $1,081,000 at December
31, 1994 and 1995, and June 30, 1996, respectively. The MSRs pledged as
collateral for the loans relate to mortgage loans with unpaid principal
balances of approximately $150,000,000, $125,000,000 and $116,000,000 at
December 31, 1994 and 1995 and June 30, 1996, respectively. In both financing
arrangements, the Company retains a portion of the servicing income associated
with the pledged or related MSRs, with the balance of the servicing income
paid to the other parties as a reduction of the debt and interest. The
implicit interest rate of the financings varies depending on the servicing
income derived from the MSRs.

A portion of the payment made under these arrangements is recorded as
interest expense on the level yield method. The amounts due the other parties
are payable solely from the servicing income derived from the MSRs, and there
is no implicit or explicit guarantee as to repayment. The total amounts paid
to the other parties aggregated approximately $875,000, $717,000 and $620,000
during the years ended December 31, 1993, 1994 and 1995, respectively, and
$326,000 and $265,000 during the six months ended June 30, 1995 and 1996,
respectively.

8. FEDERAL HOME LOAN BANK OF DALLAS BORROWINGS

Federal Home Loan Bank of Dallas borrowings aggregated $14,600,000,
$19,000,000 and $36,400,000 at December 31, 1994 and 1995 and June 30, 1996,
respectively. The advances bear interest at rates which adjust daily and are
based on the mortgage repo rate. All advances are secured by first mortgage
loans of Matrix Bank and all Federal Home Loan Bank of Dallas stock.

Matrix Bank has a commitment from the Federal Home Loan Bank of Dallas for
advances of approximately $49,000,000 at December 31, 1995. Matrix Bank
adopted a collateral pledge agreement whereby it has agreed to keep on hand,
at all times, first mortgages free of all other pledges, liens, and
encumbrances with unpaid principal balances aggregating no less than 170
percent of the outstanding secured advances from the Federal Home Loan Bank of
Dallas. All stock in the Federal Home Loan Bank of Dallas is pledged as
additional collateral for these advances.

F-19
<PAGE>

MATRIX CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

9. INCOME TAXES

The income tax provision consists of the following:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------
1993 1994 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current
Federal............................................ $ 703 $ 1,350 $ 1,630
State.............................................. 101 210 418
Deferred
Federal............................................ (346) 236 169
State.............................................. (54) 50 43
------ ------- -------
$ 404 $ 1,846 $ 2,260
====== ======= =======
</TABLE>

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

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------
1993 1994 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Expected income tax provision..................... $ 717 $ 1,530 $ 1,979
State income taxes................................ 105 270 293
Other............................................. 6 46 (12)
Establishment of deferred tax assets at June 30,
1993............................................. (5) -- --
Subchapter S income taxed to shareholders......... (419) -- --
------ ------- -------
$ 404 $ 1,846 $ 2,260
====== ======= =======
</TABLE>

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

<TABLE>
<CAPTION>
DECEMBER 31
----------------
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Allowance for losses..................................... $ 348 $ 190
Discounts and premiums................................... 65 177
Amortization of servicing rights......................... -- 160
Gain on sale of loans.................................... 22 --
Other.................................................... 71 51
------- -------
Total deferred tax assets.............................. 506 578
Deferred tax liabilities:
Gain on sale of loans.................................... -- (275)
Depreciation............................................. (203) (241)
Other.................................................... (91) (62)
------- -------
Total deferred tax liabilities......................... (294) (578)
------- -------
Net deferred tax asset..................................... $ 212 $ --
======= =======
</TABLE>

F-20
<PAGE>

MATRIX CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

10. REGULATORY

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

Matrix Bank is also regulated by the OTS and is required to maintain minimum
levels of regulatory net worth. At December 31, 1995 and June 30, 1996, Matrix
Bank must maintain a core capital to assets ratio of 3.0 percent and a risk-
based capital ratio of 8.0 percent of risk-based assets. At December 31, 1995,
Matrix Bank's regulatory net worth as reported to the OTS was $7,540,000 and
$8,321,000 for each respective regulatory net worth requirement, which
exceeded such minimum requirement by $4,378,000 and $3,324,000, respectively.
At June 30, 1996, Matrix Bank's regulatory net worth as reported to the OTS
was $8,170,000 and $9,181,000 for each respective regulatory net worth
requirement, which exceeded such minimum requirements by $3,666,000 and
$1,904,000, respectively.

The OTS imposes limitations upon all capital distributions by savings
institutions, including cash dividends. An institution that is in excess of
capital requirements before and after a proposed capital distribution (Tier 1
Association) and has not been advised by the OTS that it is in need of more
than normal supervision, could, after prior notice but without the approval of
the OTS, make capital distributions during a calendar year up to the higher of
(i) 100 percent of its net income to date during the calendar year plus the
amount that would reduce by one-half its "surplus capital ratio" (the excess
capital over its capital requirements) at the beginning of calendar year, or
(ii) 75 percent of its net income over the most recent four quarter period.
Any additional capital distributions would require prior regulatory approval.
As of June 30, 1996, Matrix Bank was a Tier 1 Association.

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

Deposits of Matrix Bank are insured by the Savings Association Insurance
Fund (SAIF). The U.S. Congress is currently considering a one-time special
assessment to recapitalize SAIF. It cannot be determined at this time whether
the U.S. Congress will enact such legislation or the amount of such
assessment. This assessment, if any, will be recorded upon enactment of the
legislation.

Matrix Financial is subject to examination by various regulatory agencies
involved in the mortgage banking industry. Each regulatory agency requires the
maintenance of a certain amount of net worth, the most restrictive of which
required $1,224,000 at December 31, 1995 and $1,310,000 at June 30, 1996.

11. SHAREHOLDERS' EQUITY

Common Stock

The authorized common stock of the Company consists of 50,000,000 shares
with a par value of $.0001 per share. There were 3,888,939 shares of common
stock outstanding at December 31, 1995 and June 30, 1996. Holders of common
stock are entitled to receive dividends when, and if, declared by the board of
directors. Each share of common stock entitles the holders thereof to one
vote, and cumulative voting is not permitted.

Preferred Stock

The authorized preferred stock of the Company consists of 5,000,000 shares
with a par value of $.0001 per share. The board of directors is authorized,
without further action of the shareholders of the Company, to issue from time
to time shares of preferred stock in one or more series and with such relative
rights, powers, preferences, and limitations as the board of directors may
determine at the time of issuance. Such shares may be convertible into common
stock and may be superior to the common stock in the payment of dividends,
liquidation, voting and other rights, preferences and privileges.

F-21
<PAGE>

MATRIX CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

11. SHAREHOLDERS' EQUITY--(CONTINUED)

Stock Option Plan

In 1995, the Company adopted a stock option plan (Plan), which provides for
options on up to 375,000 shares of the Company's common stock. These options
are available for grant under the Plan to the officers, directors and
employees of the Company or any of its affiliates. The Plan is administered by
a committee which is presently the board of directors of the Company. The
committee has the authority to determine the recipients of grants, the number
of shares subject to the grant, and the exercise price of each share subject
to the grant. The term of the options shall be ten years.

During 1995, the Company granted options to purchase 79,500 shares of common
stock at an exercise price of $5.13, which are exercisable upon vesting, which
is fifty percent at the date of grant and the balance in 1996.

At December 31, 1995, there were 295,500 shares reserved for future grants
under the Plan. For the six months ended June 30, 1996 there were no
additional grants under the Plan.

Restricted Net Assets

As a result of the regulatory requirements and debt covenants, substantially
all of the net assets of the Company are restricted at December 31, 1995 and
June 30, 1996.

12. COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS

Leases

The Company leases office space and certain equipment under noncancelable
operating leases. Annual amounts due under the office and equipment leases as
of December 31, 1995 are approximately as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1996.......................................................... $ 579
1997.......................................................... 266
1998.......................................................... 145
1999.......................................................... 13
2000.......................................................... --
------
$1,003
======
</TABLE>

Total rent expense aggregated approximately $383,000, $481,000, and
$437,000, for the years ended December 31, 1993, 1994 and 1995, respectively,
and $225,000 and $107,000 for the six months ended June 30, 1995 and 1996,
respectively.

Loan Commitments and Hedging

In the ordinary course of business, the Company makes commitments to
originate residential mortgage loans (Pipeline) and holds originated loans
until delivery to an investor. Inherent in this business is a risk associated
with changes in interest rates and the resulting change in the market value of
the Pipeline and funded loans. The Company mitigates this risk through the use
of mandatory and nonmandatory forward commitments to sell loans. At December
31, 1995, the Company had $93,133,000 in Pipeline and funded loans offset with
mandatory forward commitments of $64,743,000 and nonmandatory forward
commitments of $15,267,000. At June 30, 1996, the Company had $95,404,000 in
Pipeline and funded loans offset with mandatory forward commitments of
$69,652,000 and nonmandatory forward commitments of $19,987,000. The inherent
value of the forward commitments is considered in the determination of the
lower of cost or market for the Pipeline and funded loans. The Company does
not hold any other derivatives at December 31, 1995 or June 30, 1996.

F-22
<PAGE>

MATRIX CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

12. COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS--(CONTINUED)

Land Development Commitment

In June 1996, the Company purchased 154 acres of land for $1.3 million in
cash for the purpose of developing residential and multi-family lots in Ft.
Lupton, Colorado. As part of the acquisition, the Company entered into a
Residential Facilities Development Agreement (Development Agreement) with the
City of Ft. Lupton. The Development Agreement is a residential and planned
unit development agreement providing for the orderly planning, engineering and
development of a golf course and surrounding residential community. The City
of Ft. Lupton is responsible for the development of the golf course and the
Company is responsible for the development of the surrounding residential
lots.

The Company also entered into a development management agreement with a
local developer to complete the development of the land. The terms of the
agreement specify that the Company is to earn a preferred rate of return on
its investment and, once the initial amount of its investment has been
returned, the remaining profits are split equally. The development management
agreement obligates the Company to provide up to an additional $500,000 of
funds for development. The Company has no other financial obligations to the
developer beyond the $500,000.

Contingencies

Matrix Bank has received demands from an investor for repurchase of loans
related to a servicing portfolio purchased by Matrix Bank from an unrelated
third-party mortgage banker (Seller). The repurchase demand is pursuant to a
claim of breach of covenants and warranties by the Seller related to
documentation deficiencies in connection with the origination and sale of the
loans. In January 1996, Matrix Bank commenced suit against the Seller to
recover, among other things, the purchase price paid for certain residential
mortgage loans. In connection with the lawsuit and the servicing portfolio at
issue, Matrix Bank has full representations and warranties from the Seller.
Since the representations and warranties have not been honored by the Seller,
Matrix Bank had included a cause of action in the lawsuit seeking to compel
the Seller to repurchase the portfolio. Matrix Bank had an accrued liability
of approximately $500,000 at December 31, 1995 and $460,000 at June 30, 1996
for the potential loss exposure related to the pending repurchase requests
which, in the opinion of management, is adequate for estimated future losses.

Matrix Financial is a defendant in two lawsuits filed in 1996 that seek
class action status, which allege that Matrix Financial breached the terms of
plaintiffs' promissory notes and mortgages by imposing certain charges at the
time the plaintiffs prepaid their mortgage loans. The plaintiffs seek
restitution for such charges and attorney fees, and one lawsuit seeks treble
damages. In September 1996, settlement proposals were tendered by the
plaintiffs' counsel in both cases, whereby Matrix Financial would pay a
settlement payment of not more than $640,000, including attorneys' fees of the
plaintiffs, payments to the plaintiff class members and all administrative
costs associated with the settlement. The terms of the settlement, however,
are being negotiated, and there can be no assurance that either action will be
settled on terms acceptable to the Company, or at all. If the negotiations
result in a settlement, the Company anticipates that it will establish a
reserve in the third quarter of 1996. If a settlement is not reached,
management believes that the Company has defenses to these lawsuits; however,
no assurance can be given that an adverse judgement will not be rendered or
that a judgement, if rendered against the Company, would not have a material
adverse affect on the Company's consolidated financial condition, results of
operations or cash flows.

F-23
<PAGE>

MATRIX CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

12. COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS--(CONTINUED)

The Company and its subsidiaries are parties to various other litigation
matters, in most cases involving ordinary and routine claims incidental to the
business of the Company. The ultimate legal and financial liability of the
Company, if any, with respect to such other pending litigation cannot be
estimated with certainty, but the Company believes, based on its examination
of such matters, that such ultimate liability will not have a material adverse
effect on the consolidated financial position, results of operations or cash
flows of the Company.

Related Party Transactions

The Company has a note receivable from an affiliate of $750,000 at December
31, 1995 and June 30, 1996, which bears interest at 13 percent and is due
October 1, 2000. The note is secured by a secondary lien on the assets of the
affiliate. The Company leases office space to the affiliate for approximately
$8,500 per month. The lease expires in October 1996, but the Company
anticipates that it will be renewed for successive one-year terms.

At December 31, 1995 and June 30, 1996, the Company had an unsecured loan
receivable from a shareholder of approximately $80,000, which bears interest
at the prime rate and is due December 31, 1996.

13. DEFINED CONTRIBUTION PLAN

The Company has a 401(k) defined contribution plan (Plan) covering all
employees who have elected to participate in the Plan. Each participant may
make pretax contributions to the Plan up to 15 percent of such participant's
earnings with a maximum of $9,240 in 1995. The Company makes a matching
contribution of 25 percent of the participant's total contribution. Matching
contributions made by the Company vest in participating employees over a five-
year period after the date of the contribution. The cost of the plan
approximated $-0-, $46,000 and $61,000 during the years ended December 31,
1993, 1994 and 1995, respectively, and $28,000 and $41,000 for the six months
ended June 30, 1995 and 1996, respectively.

14. FINANCIAL INSTRUMENTS

Off-Balance Sheet Risk and Concentration of Commitments

The Company is a party to financial instruments with off-balance sheet risk
in the normal course of its business. These instruments are commitments to
originate or purchase first mortgage loans and forward loan sale commitments
(see Note 12) and involve credit and interest rate risk in excess of the
amount recognized in the consolidated balance sheet.

Commitments to originate or purchase mortgage loans amounted to
approximately $45,425,000 at December 31, 1995. Additionally, the Company has
a $400,000 commitment to lend funds on a secured basis. The Company plans to
fund the commitments in its normal commitment period. The Company evaluates
each customer's creditworthiness on a case-by-case basis.

The Company's credit risks are comprised of the outstanding loans held for
sale and loans held for investment as shown in the consolidated balance
sheets, and loans sold with recourse aggregating approximately $473,000 and
$354,000 at December 31, 1994 and 1995, respectively. The loans are located in
the state of New Mexico and throughout the United States and are
collateralized primarily by a first mortgage on the property.

F-24
<PAGE>

MATRIX CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

14. FINANCIAL INSTRUMENTS--(CONTINUED)

Fair Value of Financial Instruments

The carrying amounts and estimated fair value of financial instruments at
December 31, 1995 are as follows:

<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Financial assets:
Cash.................................................... $ 1,381 $ 1,381
Interest earnings deposits.............................. 5,586 5,586
Loans held for sale, net................................ 118,989 122,537
Loans held for investment, net.......................... 18,859 19,113
Federal Home Loan Bank of Dallas stock.................. 1,954 1,954
Financial liabilities:
Deposits................................................ 48,877 49,283
Custodial escrow balances............................... 27,011 27,011
Payable for purchase of MSRs............................ 1,312 1,312
Federal Home Loan Bank of Dallas borrowings............. 19,000 19,000
Borrowed money.......................................... 65,093 65,093
</TABLE>

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

The carrying amounts reported in the balance sheet for cash, interest
earnings deposits, Federal Home Loan Bank of Dallas stock, payable for
purchase of MSRs, Federal Home Loan Bank of Dallas borrowings, and borrowed
money approximate those assets' and liabilities' fair values.

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

The fair value disclosed for demand deposits (e.g., interest and noninterest
checking, savings, and money market accounts) are, by definition, equal to the
amount payable on demand at the reporting date (i.e., their carrying amounts).
Fair values for fixed-rate certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered on certificates to a schedule of aggregated expected periodic
maturities on time deposits. The component commonly referred to as deposit
base intangible, was not estimated at December 31, 1995 and is not considered
in the fair value amount. The fair value disclosed for custodial escrow
balances liabilities (noninterest checking) is, by definition, equal to the
amount payable on demand at the reporting date (i.e., their carrying amounts).

F-25
<PAGE>

MATRIX CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

15. ACQUISITION OF MATRIX BANK

The Company acquired all of the outstanding stock of Matrix Bank in
September 1993, for an aggregate purchase price of approximately $2,343,000.
The acquisition was accounted for as a purchase and, accordingly, the acquired
tangible and identifiable intangible assets and liabilities were recorded at
their estimated fair values at the date of acquisition. The operations of
Matrix Bank have been included in the consolidated operations of the Company
from the date of acquisition.

The following table sets forth the allocation of the purchase price to the
assets acquired and liabilities assumed:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Cash and cash equivalents............................. $ 8,704
Loans held for sale, net.............................. 29,544
Loans held for investment, net........................ 11,985
Investment in real estate............................. 2,486
Other assets.......................................... 1,836
Deposits.............................................. 49,495
Borrowed money........................................ 1,648
Other liabilities..................................... 1,069

The following table sets forth the unaudited pro forma results of operations
for 1993 as if the acquisition occurred at the beginning of 1993:

<CAPTION>
(IN THOUSANDS, EXCEPT
PER SHARE INFORMATION)
<S> <C>
Total interest income................................. $ 4,617
Net interest income................................... 2,123
Net income............................................ 1,673
Pro forma earnings per share.......................... 0.36
</TABLE>

F-26
<PAGE>

MATRIX CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

16. PARENT COMPANY CONDENSED FINANCIAL INFORMATION

Condensed financial information of Matrix Capital Corporation (Parent
Company) is as follows:

<TABLE>
<CAPTION>
DECEMBER 31
--------------- JUNE 30
1994 1995 1996
------- ------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
CONDENSED BALANCE SHEETS
Assets:
Cash...................... $ 180 $ 11 $ 654
Other receivables......... -- 804 829
Premises and equipment,
net...................... 1,154 1,371 1,408
Other assets.............. 303 515 466
Investment in and advances
to subsidiaries.......... 8,924 13,853 14,514
------- ------- -------
Total assets............ $10,561 $16,554 $17,871
======= ======= =======
Liabilities and
Shareholders' equity:
Borrowed money(a)......... $ 4,052 $ 6,751 $ 6,738
Other liabilities......... 833 465 556
------- ------- -------
Total liabilities....... 4,885 7,216 7,294
Shareholders' equity:
Common stock.............. -- -- --
Additional paid in
capital.................. 2,525 2,626 2,626
Retained earnings......... 3,151 6,712 7,951
------- ------- -------
Total shareholders'
equity................. 5,676 9,338 10,577
------- ------- -------
Total liabilities and
shareholders' equity... $10,561 $16,554 $17,871
======= ======= =======
</TABLE>
- --------
(a) The Parent's borrowed money consists of a note payable to a third-party
financial institution secured by common stock of Matrix Bank, note payable
to a bank secured by a deed of trust on real estate, senior subordinated
notes and a note payable to a third-party financial institution secured by
MSRs. The Parent also guarantees the revolving warehouse lines of credit.
See Note 7 for additional information regarding the borrowed money.

As of December 31, 1995, the maturities of the Parent's borrowed money
during the next five years and thereafter are as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1996.......................................................... $ 438
1997.......................................................... 438
1998.......................................................... 1,232
1999.......................................................... 1,124
2000.......................................................... 1,123
Thereafter.................................................... 2,396
------
$6,751
======
</TABLE>

F-27
<PAGE>

MATRIX CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

16. PARENT COMPANY CONDENSED FINANCIAL INFORMATION--(CONTINUED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30,
------------------------- ------------------
1993 1994 1995 1995 1996
------- ------- ------- -------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONDENSED STATEMENTS OF
INCOME
Income:
Interest income on loans.. $ -- $ -- $ 44 $ -- $ 94
Other..................... 121 472 374 -- (52)
------- ------- ------- -------- --------
Total income............ 121 472 418 -- 42
Expenses:
Interest on borrowed
money.................... 26 170 592 199 411
Compensation and employee
benefits................. 61 767 1,042 521 539
Occupancy and equipment... -- 18 92 28 125
Professional fees......... 51 82 112 33 46
Other general and
administrative........... 19 81 704 155 47
------- ------- ------- -------- --------
Total expenses.......... 157 1,118 2,542 936 1,168
------- ------- ------- -------- --------
Loss before income taxes and
equity in income of
subsidiaries............... (36) (646) (2,124) (936) (1,126)
Income taxes(b)............. -- -- -- -- --
------- ------- ------- -------- --------
Loss before equity in income
of subsidiaries............ (36) (646) (2,124) (936) (1,126)
Equity in income of
subsidiaries............... 1,742 3,292 5,685 2,490 2,365
------- ------- ------- -------- --------
Net income.................. $ 1,706 $ 2,646 $ 3,561 $ 1,554 $ 1,239
======= ======= ======= ======== ========
</TABLE>
- --------
(b) The Parent's tax sharing agreement with its subsidiaries provides that the
subsidiaries will pay the Parent an amount equal to its individual current
income tax provision calculated on the basis of the subsidiary filing a
separate return. In the event a subsidiary incurs a net operating loss in
future periods, the subsidiary will be paid an amount equal to the current
income tax refund the subsidiary would be due as a result of carryback of
such loss, calculated on the basis of the subsidiary filing a separate
return. Accordingly, the parent's condensed statements of income do not
include any income tax benefit for the current losses.

F-28
<PAGE>

MATRIX CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

16. PARENT COMPANY CONDENSED FINANCIAL INFORMATION--(CONTINUED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30,
------------------------- ------------------
1993 1994 1995 1995 1996
------- ------- ------- -------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONDENSED STATEMENTS OF CASH
FLOWS
Operating activities:
Net income................. $ 1,706 $ 2,646 $ 3,561 $ 1,554 $ 1,239
Adjustments to reconcile
net income to net cash
provided (used) by
operating activities:
Equity in income of
subsidiaries............. (1,742) (3,292) (5,685) (2,490) (2,365)
Dividend from
subsidiaries............. 1,304 1,368 2,207 1,200 1,216
Depreciation and
amortization............. -- 5 34 4 23
Increase (decrease) in
other liabilities........ 423 410 (368) (432) 91
(Increase) decrease in
other receivables and
other assets............. (102) (202) (1,016) (93) 25
Noncash compensation
expense.................. 43 -- 101 101 --
------- ------- ------- -------- --------
Net cash provided (used)
by operating activities.... 1,632 935 (1,166) (156) 229
Investing activities:
Purchases of premises and
equipment................. -- (1,159) (251) (8) (60)
Investment in and advances
to subsidiaries........... (3,288) (1,904) (1,451) 47 488
------- ------- ------- -------- --------
Net cash provided (used) by
investing activities....... (3,288) (3,063) (1,702) 39 428
Financing activities:
Repayments of notes
payable................... -- (185) (1,133) (60) (14)
Proceeds from notes
payable................... 1,750 2,487 922 -- --
Proceeds from senior
subordinated notes........ -- -- 2,910 -- --
Dividends paid on common
stock..................... (88) -- -- -- --
------- ------- ------- -------- --------
Net cash provided (used) by
financing activities....... 1,662 2,302 2,699 (60) (14)
------- ------- ------- -------- --------
Increase (decrease) in cash
and cash equivalents....... 6 174 (169) (177) 643
Cash and cash equivalents at
beginning of period........ -- 6 180 180 11
------- ------- ------- -------- --------
Cash and cash equivalents at
end of period.............. $ 6 $ 180 $ 11 $ 3 $ 654
======= ======= ======= ======== ========
</TABLE>

F-29
<PAGE>

MATRIX CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

17. SUBSEQUENT EVENTS

Stock Split

On September 19, 1996, the Company's board of directors increased the
authorized number of shares of common stock, declared a 3.75-for-one stock
split of the common stock effected as a dividend that was declared and paid on
September 19, 1996, and made conforming adjustments on the terms of all
outstanding common stock equivalents. All shares and per share information in
the accompanying consolidated financial statements has been retroactively
adjusted to reflect these actions.

Stock Option Plan

In September 1996, the board of directors and shareholders adopted the 1996
Stock Option Plan, which amended and restated the Company's stock option plan
adopted in 1995. Substantially all of the Company's full-time employees and
directors are eligible for grants of stock options under the terms of the 1996
Stock Option Plan.

The 1996 Stock Option Plan authorizes the granting of incentive stock
options ("Incentive Options") and nonqualified stock options ("Nonqualified
Options") to purchase common stock to eligible persons. A total of 525,000
shares of common stock are authorized for sale upon exercise of options
granted under the 1996 Stock Option Plan. The 1996 Stock Option Plan is
currently administered by the compensation committee (administrator) of the
board of directors. The 1996 Stock Option Plan provides for adjustments to the
number of shares and to the exercise price of outstanding options in the event
of a declaration of stock dividend or any recapitalization resulting in a
stock split-up, combination or exchange of shares of common stock.

No Incentive Option may be granted with an exercise price per share less
than the fair market value of the common stock at the date of grant. The
Nonqualified Options may be granted with any exercise price determined by the
administrator of the 1996 Stock Option Plan. The expiration date of an option
is determined by the administrator at the time of the grant, but in no event
may an option be exercisable after the expiration of 10 years from the date of
grant of the option.

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

Employee Stock Purchase Plan

In September 1996, the board of directors and shareholders adopted the
Matrix Capital Corporation Employee Stock Purchase Plan ("Purchase Plan") and
reserved 125,000 shares of common stock ("ESPP Shares") for issuance
thereunder. The Purchase Plan will become effective upon consummation of the
proposed public offering. The price at which ESPP Shares are sold under the
Purchase Plan is 85 percent of the lower of the fair market value per share of
common stock on the enrollment or the purchase date.

F-30
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors
Dona Ana Savings and Loan Association, F.A.
Las Cruces, New Mexico

We have audited the accompanying consolidated statement of operations of
Dona Ana Savings and Loan Association, F.A. (the "Association") for the year
ended December 31, 1992. This statement of operations is the responsibility of
the Association's management. Our responsibility is to express an opinion on
this statement of operations based on our audit.

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

As discussed in Note 9 to the financial statement, there is a significant
risk that the December 31, 1992 Thrift Financial Report submitted to the
Office of Thrift Supervision has been misstated. Accordingly, there is
uncertainty as to whether, or not, the Association met the capital
requirements imposed by FIRREA at December 31, 1992.

In our opinion, the consolidated statement of operations referred to above
presents fairly, in all material respects, the results of operations of Dona
Ana Savings and Loan Association, F.A. for the year ended December 31, 1992,
in conformity with generally accepted accounting principles.

/s/ KRIEGEL & CO., LTD.

Las Cruces, New Mexico
March 18, 1993

F-31
<PAGE>

DONA ANA SAVINGS AND LOAN ASSOCIATION, F.A.

CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1992

<TABLE>
<S> <C>
INTEREST INCOME
First mortgage loans............................................... $ 3,979,078
Other loans........................................................ 746,402
Investments........................................................ 275,993
-----------
Total investment income.......................................... 5,001,473
-----------
COST OF MONEY
Interest on NOW accounts........................................... 383,170
Interest on savings deposits....................................... 94,434
Interest on time deposits.......................................... 2,384,134
Interest on borrowings............................................. 1,875
-----------
Total cost of money.............................................. 2,863,613
-----------
Net interest income.............................................. 2,137,860
Provision for losses............................................... (161,287)
Net interest income after provision for loan losses.............. 1,976,573
NON-INTEREST INCOME AND (EXPENSE)
Other income, net.................................................. 230,200
Loan fees and service charges...................................... 121,846
Plaza operating revenues........................................... 160,240
Plaza operating expenses........................................... (358,350)
-----------
Total other income (expense)..................................... 153,936
-----------
GENERAL AND ADMINISTRATIVE EXPENSES
Compensation and benefits.......................................... 665,137
Occupancy and equipment............................................ 424,557
FDIC insurance premium............................................. 131,159
Other.............................................................. 202,974
-----------
Total general and administrative expenses........................ 1,423,827
-----------
Net income before minority interest and income taxes............. 706,682
Minority interest in net loss of subsidiary........................ 20,418
-----------
Net income before income taxes................................... 727,100
PROVISION FOR INCOME TAXES
Current............................................................ 250,140
Deferred........................................................... --
-----------
NET INCOME......................................................... $ 476,960
===========
EARNINGS PER SHARE OF COMMON STOCK................................. $ 10.60
===========
</TABLE>

The Notes to Consolidated Financial Statement are an integral part of this
statement.

F-32
<PAGE>

DONA ANA SAVINGS AND LOAN ASSOCIATION, F.A.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1992

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principals of Consolidation

The accompanying consolidated financial statement include the accounts of
Dona Ana Savings and Loan Association, F.A. (the "Association"), its wholly
owned subsidiaries; DASALCO Corporation ("DASALCO"), and Dona Ana Savings
Office Plaza, Ltd., a partnership effectively controlled by the Association.
All significant intercompany balances and transactions between the Association
and its subsidiaries have been eliminated.

Investment Securities

Investment securities are carried at cost, adjusted for amortization of
premium and discounts that are recognized in interest income using the
interest method over the period to maturity.

Gains and losses on the sale of investment securities are determined using
the specific identification method.

Loans Receivable

Discounts on first mortgage loans are amortized to income using the interest
method over the remaining period to contractual maturity, adjusted for
anticipated prepayments. Discounts on consumer loans are recognized over the
lives of the loans using methods that approximate the interest method.

The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). Management's periodic evaluation
of the adequacy of the allowance is based on the Association's past loan loss
experience, known and inherent risks in the portfolio, adverse situations that
may affect the borrower's ability to repay, the estimated value of any
underlying collateral, and current economic conditions.

Uncollectible interest on loans that are contractually past due is charged
off, or an allowance is established based on management's periodic evaluation.
The allowance is established by a charge to interest income equal to all
interest previously accrued, and income is subsequently recognized only to the
extent that cash payments are received until, in management's judgment, the
borrower's ability to make periodic interest and principal payments is back to
normal, in which case the loan is returned to accrual status.

Loan-Origination Fees, Commitment Fees, and Related Costs

Loan fees received are accounted for in accordance with FASB Statement No.
91, Accounting for Nonrefundable Fees and Costs Associated with Originating or
Acquiring Loans and Initial Direct Costs of Leases. Loan fees and certain
direct loan origination costs are deferred, and the net fee or cost is
recognized as an adjustment to interest income using the interest method over
the contractual life of the loans, on a loan-by-loan basis. Commitment fees
and costs relating to commitments, the likelihood of exercise of which is
remote, are recognized over the commitment period on a straight-line basis. If
the commitment is subsequently exercised during the commitment period, the
remaining unamortized commitment fee at the time of exercise is recognized
over the life of the loan as an adjustment of yield.

Real Estate Held for Investment and Foreclosed Real Estate

Real Estate properties acquired through, or in lieu of, loan foreclosure are
initially recorded at the lower of the cost basis established at the time of
foreclosure (defined as the lower of the fair value of the property or the
recorded investment in the loan at the date of foreclosure) or current fair
value, less selling costs. Real estate properties held for investment are
carried at the lower of cost, including cost of improvements and amenities

F-33
<PAGE>

DONA ANA SAVINGS AND LOAN ASSOCIATION, F.A.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

incurred subsequent to acquisition, or net realizable value. Costs relating to
development and improvement of property are capitalized, whereas costs
relating to the holding of property are expensed. The portion of interest
costs relating to the development of real estate is capitalized.

Valuations are periodically performed by management, and an allowance for
losses is established by a charge to operations if the carrying value of a
property exceeds its estimated net realizable value.

Premises and Equipment

Buildings, furniture, fixtures, and equipment are depreciated using the
straight-line method over the estimated useful lives of the assets. The useful
lives of depreciable assets are summarized as follows:

<TABLE>
<S> <C>
Buildings and improvements....................................... 10-40 years
Furniture and equipment.......................................... 3-10 years
</TABLE>

Income Taxes

The Company files consolidated income tax returns with its subsidiary,
DASALCO. Income tax expense (benefit) is allocated to each entity based on its
respective share of taxable income (loss).

Deferred income taxes are reported for timing differences between items of
income or expense reported in the financial statement and those reported for
income tax purposes. The differences relate principally to depreciation of
office buildings and equipment and provision for loan losses.

Regulatory authorities require stock savings and loan associations to
appropriate a portion of earnings to general reserves and to retain the
reserves as a protection for depositors. Provisions of the United States
Internal Revenue Code permit a savings and loan association to deduct an
annual addition to a reserve for bad debts in determining taxable income,
subject to certain limitations. This annual addition permitted by the Code
generally differs significantly from bad debt experience upon which
determination of pretax accounting income is based. Thus taxable income and
pretax accounting income of the Association will differ.

If certain conditions are met, savings and loan associations, in determining
taxable income, are allowed special bad debt deductions based on specific
experience formulas or on a percentage (8%) of taxable income before such
deductions. If the amounts that qualify as deductions for Federal income tax
purposes are later used for purposes other than bad debt losses including
distributions in liquidation, they will be subject to Federal income tax at
the then current rate.

Classification of Leases and Revenue Recognition

DASALCO's leases are classified as direct financing leases where there are
bargain purchase options, the collectability of the payments required from the
lessees are reasonably predictable, and no important uncertainties exist for
unreimbursable costs yet to be incurred by the lessor under the lease. The
lease terms range from one to five years.

The difference between the total amount to be received from the lease and
the cost of the property (including initial direct costs) is recorded as
unearned interest income which is amortized to income over the lease term
using the rate of interest implicit in the lease as the discount rate.

F-34
<PAGE>

DONA ANA SAVINGS AND LOAN ASSOCIATION, F.A.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

Additionally, the unguaranteed residual values and investment tax credit are
recorded as unearned income and are amortized using the same method as for
unearned interest income.

For income tax purposes the leases are treated as operating leases whereby
the equipment leased is depreciated and the lease payments are treated as
rental income. The difference between the tax method and the financial
reporting method of accounting results in deferred taxes. DASALCO Corporation
filed a consolidated return with its parent corporation, Dona Ana Savings and
Loan Association, F.A. for the year ended 1992.

The Association is the general partner and a limited partner in Dona Ana
Savings Office Plaza Limited Partnership (the "Partnership"). The partnership
was formed for the purpose of constructing and leasing office space to the
Association and third parties. The Association owns 58.03 percent interest as
general partner and 19.13 percent as a limited partner at December 31, 1992.

Rental income is recognized by the Partnership as it is earned using the
accrual basis of accounting. Expenses are recognized when the liability is
actually incurred. Rental expense paid by the Association for office space, to
the Partnership, was $168,275 during 1992. These intercompany transactions
have been eliminated upon consolidation.

Earnings Per Share

Earnings per share have been computed on the basis of the weighted average
number of shares of common stock outstanding. The weighted average number of
shares outstanding was 45,000, in 1992.

NOTE 2. REAL ESTATE HELD FOR INVESTMENT

Depreciation expense on rental buildings was $9,166 for 1992.

NOTE 3. PREMISES AND EQUIPMENT

Depreciation expense on premises and equipment for 1992 was $120,072.

NOTE 4. INVESTMENT IN K-SCALE

K-Scale was organized on March 11, 1988. The Organization's investment in K-
Scale is recorded on the equity basis. DASALCO owns a 10% interest in K-Scale
voting stock. Additionally, DASALCO holds a note receivable from K-Scale in
the amount of $208,000 at December 31, 1992. Further, the Organization has
representation on the K-Scale Board of Directors. Consequently, DASALCO has
the ability to exercise significant influence over operating and financial
policies of K-Scale.

Condensed financial information, as of December 31, 1992, is summarized as
follows:

<TABLE>
<CAPTION>
EQUITY
COMMON IN INCOME
STOCK- (LOSSES) FOR INVESTMENT
K-SCALES' K-SCALES' HOLDERS YEAR ENDED IN K-SCALE
ASSETS LIABILITIES EQUITY 12/31 12/31
---------- ----------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
1992............. $1,244,427 $ 230,793 $ 1,013,634 $ 22,059 $ 101,363
========== ========= =========== ======== =========
</TABLE>

F-35
<PAGE>

DONA ANA SAVINGS AND LOAN ASSOCIATION, F.A.

NOTES TO CONSOLIDATED FINANCIAL STATEMENT--(CONTINUED)

NOTE 5. DEPOSITS

Interest expense on deposits for the year ended December 31, 1992 is
summarized as follows:

<TABLE>
<S> <C>
Passbook Savings................................................ $ 94,434
NOW Accounts.................................................... 383,171
IRA Accounts.................................................... 178,914
Certificates of Deposit......................................... 1,427,521
Jumbo Certificates of Deposit................................... 788,956
-----------
2,872,996
Less penalties on early withdrawal.............................. (11,258)
-----------
$ 2,861,738
===========
</TABLE>

NOTE 6. BORROWED FUNDS

Pursuant to collateral agreements with the Federal Home Loan Bank (FHLB)
advances are secured by all stock in the FHLB and qualifying first mortgage
loans.

Interest expense on advances from the FHLB for the year ended December 31,
1992 is $ 1,875.

NOTE 7. INCOME TAXES

The Association and its wholly owned subsidiary file consolidated Federal
income tax returns on a calendar-year basis. If certain conditions are met in
determining taxable income, the Association is allowed a special bad-debt
deduction based on a percentage of taxable income (presently 8 percent) or on
specified experience formulas. The Association used the percentage-of-taxable-
income method in 1992.

The current and deferred components of income tax expense are summarized as
follows at December 31, 1992.

<TABLE>
<S> <C>
Current
Federal............................................................ $ 221,081
State.............................................................. 29,059
Deferred........................................................... --
---------
$ 250,140
=========
</TABLE>

Total income tax expense differed from the amounts computed by applying the
marginal United States Federal corporate income tax rate of 34% in 1992 to
income before income taxes as a result of the following:

<TABLE>
<S> <C>
Expected income tax expense at Federal tax rate................... $ 247,214
FHLB dividends.................................................... (8,364)
K-Scale net income................................................ (7,500)
State taxes....................................................... (9,880)
Other............................................................. (389)
---------
Total Federal income tax expense................................ $ 221,081
=========
</TABLE>

F-36
<PAGE>

DONA ANA SAVINGS AND LOAN ASSOCIATION, F.A.

NOTES TO CONSOLIDATED FINANCIAL STATEMENT--(CONTINUED)

NOTE 7. INCOME TAXES--(CONTINUED)

For the year ended December 31, 1992 deferred tax expense (benefit) results
from timing differences in recognition of income and expense for tax and
financial reporting purposes. The sources and tax effects of these timing
differences are as follows:

<TABLE>
<S> <C>
Provisions for loan losses........................................ $(28,315)
Depreciation...................................................... 14,144
DASALCO--Capital vs. operating leases............................. (1,482)
Other............................................................. 16,210
</TABLE>

The current and deferred components of income tax expense are allocated as
follows:

<TABLE>
<CAPTION>
ASSOCIATION DASALCO CONSOLIDATED
----------- ------- ------------
<S> <C> <C> <C>
Current expense............................. $240,940 $9,200 $250,140
Deferred expense............................ -- -- --
-------- ------ --------
Provision................................... $240,940 $9,200 $250,140
======== ====== ========
</TABLE>

The Financial Accounting Standards Board (FASB) issued Statement No. 109
Accounting for Income Taxes issued in February 1992. Statement 109 supersedes
FASB Statement No. 96, Accounting for Income Taxes, issued in December 1987.
These statements change the method of computing deferred income taxes from a
deferred income to a liability approach. The Association has elected to defer
the implementation of Statement 109, which must be adopted no later than 1993.
The effect of the change on the Association's financial position and the
results of operations cannot presently be determined.

NOTE 8. FINANCIAL INSTITUTIONS REFORM, RECOVERY, AND ENFORCEMENT ACT (FIRREA)
OF 1989

FIRREA was signed into law on August 9, 1989; regulations for savings
institutions' minimum--capital requirements went into effect on December 7,
1989. In addition to the capital requirements, FIRREA includes provisions for
changes in the Federal regulatory structure for institutions, including a new
deposit insurance system, increased deposit insurance premiums, and restricted
investment activities with respect to non-investment-grade corporate debt and
certain other investments. FIRREA also increases the required ratio of
housing-related assets needed to qualify as a savings institution.

Certain features of the new capital regulations and their administration
have not been made final. However, the regulations require institutions to
have minimum regulatory tangible capital equal to 1.5 percent of total assets,
4 to 5 percent leverage capital ratio, and, for December 31, 1992, a 8.0
percent risk-based capital ratio. The ability to include qualifying
supervisory goodwill for purposes of the leverage-capital-ratio requirement
will be phased out by January 1, 1995. Additionally, the risk-based capital-
ratio requirement has been increased to 7.20 percent on December 31, 1990, and
to 8.0 percent on December 31, 1992.

The Institution, at December 31, 1992, meets the regulatory-tangible-
capital, the core-capital requirements, and the risk-based capital requirement
of 8.00 percent of total risk-adjusted assets, as defined by FIRREA. At
December 31, 1992, the institution's unaudited regulatory tangible capital was
$2,807,000, or 4.64 percent of total assets; core capital was $2,807,000, or
4.64 percent of total assets; and risk-based capital was $3,080,000, or 8.81
percent of total risk-adjusted assets, as defined by FIRREA.

F-37
<PAGE>

DONA ANA SAVINGS AND LOAN ASSOCIATION, F.A.

NOTES TO CONSOLIDATED FINANCIAL STATEMENT--(CONTINUED)

NOTE 8. FINANCIAL INSTITUTIONS REFORM, RECOVERY, AND ENFORCEMENT ACT (FIRREA)
OF 1989--(CONTINUED)

The following is a reconciliation of GAAP capital to regulatory capital at
December 31, 1992:

<TABLE>
<CAPTION>
UNAUDITED--REGULATORY
-------------------------
(000'S)
GAAP TANGIBLE CORE TOTAL
CAPITAL CAPITAL CAPITAL CAPITAL
------- -------- ------- -------
<S> <C> <C> <C> <C>
GAAP capital, before adjustments........... $2,625
AUDIT ADJUSTMENTS:
Income tax expense......................... (21)
Other...................................... 22
------
GAAP capital, as adjusted.................. $2,626 $2,626 $2,626 $2,626
======
Nonallowable equity investments............ (61) (61) (61)
Minority interest in consolidated subsidi-
ary....................................... 242 242 242
ADDITIONAL CAPITAL ITEMS:
General valuation allowance--limited....... -- -- 441
Nonincludable assets....................... -- -- (168)
------ ------ ------
Regulatory capital--computed............... 2,807 2,807 3,080
Minimum capital--requirement............... 908 1,816 2,796
------ ------ ------
Regulatory capital--excess................. $2,807 $2,807 $3,080
====== ====== ======
</TABLE>

NOTE 9. UNCERTAINTIES

The Association has been unable to provide detailed trial balances which
support certain key figures on the December 31, 1992 quarterly Thrift
Financial Report (TFR), which has been submitted to the Office of Thrift
Supervision. At the date of this report, there is substantial uncertainty that
the TFR is correctly stated. Further, it is not determinable what action the
regulatory oversight agencies might take against the Association for such
reporting deficiencies. Finally, it is uncertain as to whether or not the
Association will meet its risk based capital requirement at December 31, 1992
if the fourth quarter TFR is restated.

NOTE 10. RELATED PARTY TRANSACTIONS

Sunbelt (predecessor of DASALCO and Amigo) and George Bowles invested in an
organization, Rand of Phoenix, now bankrupt under Chapter 11. Out of Rand of
Phoenix, DASALCO (Sunbelt) and George Bowles took assets to operate as K-
Scale. A priority dispute with the two investors went to trial March 20, 1989.
An agreed settlement was entered into and the trial was discontinued.

In an agreement dated March 31, 1989 between K-Scale as buyer and Bowles
Trust and DASALCO Corporation as sellers, Bowles and DASALCO agreed to trade
to K-Scale and K-Scale agreed to trade from Bowles and DASALCO certain assets
for a gross purchase valuation of $800,000 to be paid within five years. Mahon
(K-Scale manager and shareholder) has agreed to secure the obligation of K-
Scale by pledging 600,000 shares of K-Scale stock to a voting trust to be
voted by Bowles and DASALCO until payment has been made in full. In November
of 1991, K-Scale paid off the portion of the receivable due to Bowles. DASALCO
agreed to accept a promissory note, secured by the pledged stock and UCC-1
forms on all of the assets of K-Scale, as payment in full for their portion of
the receivable. At this time, the voting trust was dissolved.

The note balance is $208,000, as of December 31, 1992 with an interest rate
of prime plus 2% and required principal payments of at least $50,000 plus
interest annually. The note will mature in 1999.

F-38
<PAGE>

DONA ANA SAVINGS AND LOAN ASSOCIATION, F.A.

NOTES TO CONSOLIDATED FINANCIAL STATEMENT--(CONTINUED)

NOTE 10. RELATED PARTY TRANSACTIONS--(CONTINUED)

Mortgage loans outstanding at December 31, 1992 to officers of the
Association were approximately $200,600.

Other loans outstanding to family members of the Chairman of the Board of
the Association were approximately $1,066,400 at December 31, 1992.

The Association leases its office facilities from Dona Ana Savings Office
Plaza, Ltd. (the "Plaza"), a limited partnership, which is substantially
controlled by the Association (see Note 1, Principals of Consolidation). The
operating lease agreement calls for monthly payments of approximately $14,000.
Annual rental expense paid by the Association to the Plaza was $168,275 for
1992.

Additionally, the Plaza pays land rent, management fees, and accounting fees
to the Association, summarized for 1992 as follows:

<TABLE>
<S> <C>
Land rent........................................................... $ 24,000
Management fees..................................................... 13,500
Accounting fees..................................................... 1,200
</TABLE>

At December 31, 1992, the Plaza owed the Association $13,215 for expenses
incurred by the Association on behalf of the Plaza.

All inter-company transactions have been properly eliminated at December 31,
1992.

NOTE 11. EVENT SUBSEQUENT TO THE DATE OF THE INDEPENDENT AUDITORS' REPORT
(UNAUDITED)

Matrix Capital Corporation acquired Dona Ana Savings and Loan Association on
September 23, 1993. There was no action taken by the Office of Thrift
Supervision related to the uncertainty disclosed in Note 9 that affected the
acquisition of Dona Ana Savings and Loan Association. As part of the
acquisition, Matrix Capital Corporation injected sufficient capital for Dona
Ana Savings and Loan Association to meet all of its capital requirements.

F-39
<PAGE>

No dealer, salesperson or any other person has been authorized to give any in-
formation or to make any representation not made by this Prospectus and, if
given or made, such information or representation must not be relied upon as
having been authorized by the Company or the Underwriters. This Prospectus
does not constitute an offer to sell or a solicitation of an offer to buy any
of the securities offered hereby by anyone in any jurisdiction where such an
offer or solicitation is not authorized, or in which the person making such
offer of solicitation is not qualified to make such offer or solicitation.
Neither the delivery of this Prospectus nor any sale made hereunder shall, un-
der any circumstances, create an implication that there has been no change in
the affairs of the Company or that information contained herein is correct as
of any time subsequent to the date of this Prospectus.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 8
Use of Proceeds.......................................................... 16
Dividend Policy.......................................................... 16
Capitalization........................................................... 17
Dilution................................................................. 18
Selected Consolidated Financial and Operating Information................ 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 21
Business................................................................. 43
Regulation and Supervision............................................... 59
Management............................................................... 68
Certain Relationships and Related Transactions........................... 77
Principal Shareholders................................................... 78
Description of Capital Stock............................................. 79
Shares Eligible for Future Sale.......................................... 80
Underwriting............................................................. 82
Legal Matters............................................................ 83
Experts.................................................................. 83
Additional Information................................................... 84
Index to Financial Statements............................................ F-1
</TABLE>

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

Until , 1996 (25 days after the date of this Prospectus), all dealers ef-
fecting transactions in the securities offered hereby, whether or not partici-
pating in this distribution, may be required to deliver a Prospectus. This is
in addition to the obligations of dealers to deliver a Prospectus when acting
as Underwriters and with respect to their unsold allotments or subscriptions.

1,750,000 Shares

[LOGO OF MATRIX CAPITAL CORPORATION APPEARS HERE]

Common Stock

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

PROSPECTUS

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

Piper Jaffray inc.

Keefe, Bruyette &
Woods, Inc.

Peacock, Hislop, Staley &
Given, Inc.

<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the estimated expenses and costs (other than
underwriting discounts and commissions) expected to be incurred in connection
with the issuance and distribution of the securities registered hereby:

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............... $ 7,635
NASD filing fee................................................... 2,398
Nasdaq National Market listing fee................................ 30,972
Printing and engraving costs...................................... 125,000*
Legal fees and expenses........................................... 125,000*
Accounting fees and expenses...................................... 50,000*
Blue Sky fees and expenses........................................ 15,000*
Registrar and Transfer Agent's fees............................... 5,000*
Miscellaneous..................................................... 88,995*
--------
Total........................................................... $450,000*
========
</TABLE>
- --------
* Estimated

The Company will pay all of such expenses to be incurred in connection with
the issuance and distribution of the securities registered hereby.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS; LIMITATION OF LIABILITY
FOR MONETARY DAMAGES

(a) The Articles of Incorporation of the Registrant, together with its
Bylaws, provide that the Registrant shall indemnify officers and directors,
and may indemnify its other employees and agents, to the fullest extent
permitted by law. The laws of the State of Colorado permit, and in some cases
require, corporations to indemnify officers, directors, agents and employees
who are or have been a party to or are threatened to be made a party to
litigation against judgments, fines, settlements and reasonable expenses under
certain circumstances.

(b) The Registrant has also adopted provisions in its Articles of
Incorporation that limit the liability of its directors to the fullest extent
permitted by the laws of the State of Colorado. Under the Registrant's
Articles of Incorporation, and as permitted by the laws of the State of
Colorado, a director is not liable to the Registrant or its shareholders for
damages for breach of fiduciary duty. Such limitation of liability does not
affect liability for (i) breach of the director's duty of loyalty, (ii) acts
or omissions not in good faith or which involve intention misconduct or a
knowing violation of the law, (iii) any transaction from which the director
directly or indirectly derived an improper personal benefit, or (iv) the
payment of any unlawful distribution.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

The following sets forth information as of July 15, 1996 regarding all sales
of unregistered securities of the Registrant during the past three years. In
connection with each of these transactions, the shares were sold to a limited
number of persons, such persons were provided access to all relevant
information regarding the Registrant and/or represented to the Registrant that
they were "sophisticated" investors, and such persons represented to the
Registrant that the shares were purchased for investment purposes only and not
with a view toward distribution. Each such issuance was made in reliance on
Section 4(2) of the Securities Act of 1933, as amended.

On January 1, 1995, David W. Kloos was issued an aggregate of 138,938 shares
of Common Stock by the Company in consideration of past services rendered.

II-1
<PAGE>

On January 1, 1995, Thomas J. Osselaer was granted options by the Company to
purchase an aggregate of 79,500 shares of Common Stock at an exercise price of
$5.13 per share.

On August 1, 1995, the Registrant issued an aggregate of $2,910,000 in
principal amount of its 13% Senior Subordinated Notes to approximately 35
individuals, trusts, corporations and other business entities. Such notes were
issued for cash at face value.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits

<TABLE>
<C> <S>
1++ Form of Underwriting Agreement
3.1* Form of Amended and Restated Articles of Incorporation of the
Registrant
3.2* Form of Bylaws, as amended, of the Registrant
4.1* Specimen certificate for Common Stock of the Registrant
4.2* Form of Amended and Restated 1996 Stock Option Plan
4.3* Form of Employee Stock Purchase Plan
4.4++ Form of Common Stock Purchase Warrant by and between the Registrant and
Piper Jaffray Inc.
4.5++ Form of Common Stock Purchase Warrant by and between the Registrant and
Keefe, Bruyette & Woods, Inc.
5++ Opinion of Jenkens & Gilchrist, a Professional Corporation, with
respect to the legality of the securities being registered
10.1+ Note and Agency Agreement, dated as of August 1, 1995, by and between
the Registrant and PHS Mortgage, Inc., as agent
10.2+ First Amendment to Note and Agency Agreement, dated as of August 2,
1995, by and between the Registrant and PHS Mortgage, Inc., as agent
10.3+ Form of 13% Senior Subordinated Note
10.4+ Executive Employment Agreement, dated as of January 1, 1996, by and
between the Registrant and David Kloos
10.5+ Employment Agreement, dated as of January 1, 1995, between Matrix
Capital Bank and Gary Lenzo and as amended January 1, 1996
10.6+ Loan Agreement, dated as of October 2, 1995, by and between Matrix
Diversified, Inc. and the Registrant
10.7+ Revolving Subordinated Loan Agreement, dated as of January 2, 1996, by
and between Matrix Financial Services Corporation and the Registrant
10.8+ Multiple Advance Term Loan Agreement, dated as of June 27, 1994, by and
between Matrix Capital Corporation and CorTrust Bank
10.9+ Multiple Advance Fixed Rate Term Loan Promissory Note, dated as of June
30, 1994, from Matrix Capital Corporation, as maker, to CorTrust Bank,
as payee
10.10+ Multiple Advance Variable Rate Term Loan Promissory Note, dated as of
October 19, 1994, from Matrix Capital Corporation, as maker, to
CorTrust Bank, as payee
10.11+ Mortgage Loan Purchase and Servicing Agreement, dated as of August 1,
1993, by and between Argo Federal Savings Bank, FSB, and Matrix
Financial Services Corporation
10.12+ Loan Agreement, dated as of July 12, 1995, by and between Matrix
Financial Services Corporation, Bank One, Texas, N.A., as agent, and
certain lenders, as lenders
</TABLE>

II-2
<PAGE>

<TABLE>
<C> <S>
10.13+ First Amendment to Loan Agreement, dated as of August 30, 1995, by and
between Matrix Financial Services Corporation, Bank One, Texas, N.A.,
as agent, and certain lenders, as lenders
10.14+ Second Amendment to Loan Agreement, dated as of January 2, 1996, by and
between Matrix Financial Services Corporation, Bank One, Texas, N.A.,
as agent, and certain lenders, as lenders
10.15+ Third Amendment to Loan Agreement, dated as of March 13, 1996, by and
between Matrix Financial Services Corporation, Bank One, Texas, N.A.,
as agent, and certain lenders, as lenders
10.16+ Fourth Amendment to Loan Agreement, dated as of July 10, 1996, by and
between Matrix Financial Services corporation, Bank One, Texas, N.A.,
as agent, and certain lenders, as lenders
10.17+ Warehouse Note, dated as of July 10, 1996, from Matrix Financial
Services Corporation, as maker, to Bank One, Texas, N.A., as payee
10.18+ Warehouse Note, dated as of July 10, 1996, from Matrix Financial
Services Corporation, as maker, to Coastal Banc SSB, as payee
10.19+ Swing Note, dated as of July 10, 1996, from Matrix Financial Services
Corporation, as maker, to Bank One, Texas, N.A., as payee
10.20+ Receivables Note, dated as of July 10, 1996, from Matrix Financial
Services Corporation, as maker, to Coastal Banc SSB, as payee
10.21+ Participations Note, dated as of July 10, 1996, from Matrix Financial
Services Corporation, as maker, to Bank One, Texas, N.A., as payee
10.22+ Term-Line Note, dated as of July 10, 1996, from Matrix Financial
Services Corporation, as maker, to Bank One, Texas, N.A., as payee
10.23+ Term-Line Note, dated as of July 10, 1996, from Matrix Financial
Services Corporation, as maker, to Coastal Bank SSB, as payee
10.24+ Receivable Notes, dated as of July 10, 1996, from Matrix Financial
Services Corporation, as maker, to Bank One, Texas, N.A., as payee
10.25+ Participations Note, dated as of July 10, 1996, from Matrix Financial
Services Corporation, as Maker, to Coastal Bank SSB, as payee
10.26+ Guaranty, dated as of July 12, 1995, from the Registrant to Bank One,
Texas, N.A.
10.27+ Mortgage Loan Repurchase Agreement, dated as of March 30, 1995, by and
between PaineWebber Real Estate Securities, Inc. and Matrix Financial
Services Corporation
10.28+ Loan Servicing Rights Purchase and Sale Agreement, dated as of February
28, 1994, by and between Matrix Financial Services Corporation and
CorTrust Bank F.S.B.
10.29+ Multiple Advance Fixed Rate Term Loan Promissory Note, dated as of
October 19, 1994, from Matrix Capital Corporation, as maker, to
CorTrust, as payee
10.30+ Assignment and Assumption Agreement, dated as of June 28, 1996, by and
among Mariano C. DeCola, William M. Howdon, R. James Nicholson and
Matrix Funding Corp.
10.31+ Development Management Agreement, dated as of June 28, 1996, by and
among Matrix Funding Corp. and Nicholson Enterprises, Inc.
10.32+ Assignment and Assumption of PUD Agreement, dated as of June 28, 1996,
by and among Fort Lupton, L.L.C. and Matrix Funding Corp.
10.33+ Lease, dated as of October 1, 1995, by and between the Registrant and
Matrix Financial Services Corporation
10.34+ Lease, dated as of October 1, 1995, by and between the Registrant and
Creative Networks, LLC
10.35+ Promissory Note, dated as of December 31, 1995, from D. Mark Spencer,
as maker, to the Registrant, as payee
</TABLE>

II-3
<PAGE>

<TABLE>
<C> <S>
10.36+ Fort Lupton Golf Course Residential and Planned Unit Development
Agreement, dated as of November 28, 1995
10.37+ Loan Agreement, dated as of December 10, 1994, by and between the
Registrant and Bankers' Bank of the West
10.38+ Continuing Guaranty of D. Mark Spencer, dated as of December 10, 1994
10.39+ Continuing Guaranty of Richard V. Schmitz, dated as of December 10,
1994
10.40+ Continuing Guaranty of Guy A. Gibson, dated as of December 10, 1994
10.41+ Loan Agreement, dated as of June 21, 1996, by and between Matrix
Funding Corporation and The First Security Bank
10.42+ Loan Agreement, dated as of June 29, 1995, by and between the
Registrant and Bank One, Arizona, N.A.
10.43+ Promissory Note, dated as of June 29, 1995, from the Registrant to Bank
One, Arizona, N.A.
10.44+ Deed of Trust, Assignment of Rents, Security Agreement and Fixture
Filing, dated as of June 29, 1995, from the Registrant to Arizona
Trust Deed Corporation, as trustee
10.45+ Loan Agreement, dated as of July 10, 1992, by and between American
Strategic Income Portfolio Inc. and Matrix Financial Services
Corporation
10.46+ Promissory Note, dated as of July 10, 1992, by Matrix Financial
Services Corporation, as maker, to American Strategic Income
Portfolio, Inc., as payee
11+ Statement regarding computation of per share earnings
21+ Subsidiaries of the Registrant
23.1* Consent of Ernst & Young LLP
23.2* Consent of Kriegel & Co., Ltd.
23.3++ Consent of Jenkens & Gilchrist, a Professional Corporation (included in
Exhibit 5)
24+ Power of Attorney
27+ Financial Data Schedule
</TABLE>

(b) Financial Statement Schedules

Not applicable.
- --------

* Filed herewith.

+ Previously filed.

++ To be filed by amendment.

ITEM 17. UNDERTAKINGS

(a) The undersigned Registrant hereby undertakes to provide to the
Underwriter at the closing specified in the Underwriting Agreement
certificates in such denominations and registered in such names as required by
the Underwriter to permit prompt delivery to each purchaser.

(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than payment by the Registrant
of expenses incurred or paid by a director, officer, or controlling person of
the Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being

II-4
<PAGE>

registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.

(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-5
<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF DENVER, STATE OF COLORADO, ON THE 26TH DAY OF SEPTEMBER, 1996.

Matrix Capital Corporation

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

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON
THE DATES INDICATED.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Guy A. Gibson President, Chief September 26, 1996
- ------------------------------------- Executive Officer,
Guy A. Gibson and Director
(Principal
Executive Officer)

* Chairman of the September 26, 1996
- ------------------------------------- Board
Richard V. Schmitz

*
- ------------------------------------- Vice Chairman of the September 26, 1996
D. Mark Spencer Board

* Senior Vice September 26, 1996
- ------------------------------------- President, Chief
David W. Kloos Financial Officer,
and Director
(Principal
Financial and
Accounting Officer)

* Director September 26, 1996
- -------------------------------------
Thomas M. Piercy
</TABLE>

II-6
<PAGE>

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Director September 26, 1996
*
- -------------------------------------
Stephen Skiba

/s/ David A. Frank
- ------------------------------------- Director September 26, 1996
David A. Frank

- --------

*By: /s/ Guy A. Gibson
- -------------------------------------
Guy A. Gibson, Attorney-in-Fact

</TABLE>

II-7

<PAGE>

Exhibit 3.1

SECRETARY OF STATE FOR OFFICE USE ONLY
CORPORATION SECTION

PLEASE INCLUDE A TYPED
SELF-ADDRESSED ENVELOPE

MUST BE TYPED
FILING FEE: $60.00
MUST SUBMIT TWO COPIES
-------------------

RESTATED ARTICLES OF
INCORPORATION WITH AMENDMENTS

Pursuant to the provisions of the Colorado Business Corporation Act, the
undersigned corporation adopts the following amended and restated Articles of
Incorporation. These articles correctly set forth the provisions of the
Articles of Incorporation, as amended, and supersede the original Articles of
Incorporation and all amendments thereto.

FIRST: The name of the corporation is Matrix Capital Corporation
--------------------------

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

SECOND: The following amended and restated Articles of Incorporation were
adopted in the manner marked with an "X" below:

- -------- The amended and restated Articles of Incorporation were adopted by
the board of directors where no shares have been issued, or no
shareholder action required.

X The amended and restated Articles of Incorporation were adopted by
- -------- a vote of the shareholders. The number of shares voted for the
amended and restated Articles of Incorporation was sufficient for
approval.

- -------- The amended and restated Articles of Incorporation were adopted by
the incorporators where no shares have been issued or directors
elected, or no shareholder action required.

THIRD: The name of the corporation as amended is Not applicable --
------------------------
name did not change
------------------------------------------------------------------

ATTACH A COPY OF YOUR AMENDED AND RESTATED ARTICLES OF
INCORPORATION

MATRIX CAPITAL CORPORATION
-------------------------------------

Signature
----------------------------

Title
--------------------------------

REVISED 7/95
<PAGE>

AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
MATRIX CAPITAL CORPORATION

Pursuant to the Colorado Business Corporation Act, the undersigned
corporation adopts the following Amended and Restated Articles of Incorporation:

FIRST: The name of the corporation is Matrix Capital Corporation (the
"Corporation").

SECOND: The Corporation is organized for any legal and lawful purpose
pursuant to the Colorado Business Corporation Act (the "CBCA").

THIRD: The aggregate number of shares which the Corporation shall have
the authority to issue is 50,000,000 shares of common stock, par value $.0001
per share, and 5,000,000 shares of preferred stock, par value $.0001 per share.
The Board of Directors is authorized by resolution to divide said preferred
stock into series, to fix the number of shares of any series of preferred stock
and to determine or alter the rights, preferences, privileges, and restrictions
granted to or imposed upon any wholly unissued series of preferred stock and,
within the limits and restrictions stated in any resolution or resolutions of
the Board of Directors originally fixing the number of shares constituting a
series of preferred stock, to decrease the authorized number of shares within
such series (but not below the number of shares in any such series then
outstanding).

FOURTH: No shareholder shall have the right to cumulate his or her votes
in an election of directors or for any other matter(s) to be voted upon by the
shareholders of the Corporation.

FIFTH: No shareholder shall have a preemptive right to acquire any
shares or securities of any kind, whether now or hereafter authorized, which may
at any time be issued, sold or offered for sale by the Corporation.

SIXTH: The address of the registered office of the Corporation is 1600
Broadway, Denver, Colorado 80202; and the name of its registered agent at such
address is THE CORPORATION COMPANY.

SEVENTH: The address of the initial principal place of business of the
Corporation is 1380 Lawrence Street, Suite 1410, Denver, Colorado 80204.

EIGHTH: The number of directors constituting the initial board of
directors of the Corporation at the time of its incorporation was four (4) and
the name and address of the persons who, after incorporation, served as
directors until the first annual meeting of shareholders were:

<PAGE>

D. Mark Spencer
1380 Lawrence Street, Suite 1410
Denver, Colorado 80204

Thomas M. Piercy
1380 Lawrence Street, Suite 1410
Denver, Colorado 80204

Richard V. Schmitz
1380 Lawrence Street, Suite 1410
Denver, Colorado 80204

Guy A. Gibson
1380 Lawrence Street, Suite 1410
Denver, Colorado 80204

The number of persons to serve on the Board of Directors shall be hereafter
fixed by the Bylaws of the Corporation.

The Board of Directors, other than those who may be elected by the holders
of any class or series of stock having preference over the Common Stock as to
dividends or upon liquidation, shall be divided, with respect to the time during
which they shall hold office, into three classes as nearly equal in number as
possible, with the initial term of office of the Class I directors expiring at
the annual meeting of shareholders to be held in 1997, of the Class II directors
expiring at the next succeeding annual meeting of shareholders, and of the Class
III directors expiring at the second succeeding annual meeting, with all such
directors to hold office until their successors are elected and qualified. Any
increase or decrease in the number of directors shall be apportioned by the
Board of Directors so that all classes of directors shall be as nearly equal in
number as possible. At each annual meeting of shareholders, directors chosen to
succeed those whose terms then expire shall be elected to hold office for a term
expiring at the annual meeting of shareholders held in the third year following
the year of their election and until their successors are duly elected and
qualified.

NINTH: The name and address of the incorporator is:

Norman C. Storey
40 North Central, Suite 2700
Phoenix, Arizona 85004

TENTH: The officers, directors and employees of the Corporation shall be
indemnified to the maximum extent permitted by Article 109 of the CBCA, as the
same may be amended from time to time. Any repeal or modification of this
Article Tenth by the shareholders of the Corporation shall be prospective only,
and shall not adversely affect any indemnification obligation of the Corporation
existing at the time of such repeal or modification.
<PAGE>

ELEVENTH: Nominations for the election of directors may be made by the
Board of Directors or a committee appointed by the Board of Directors or by any
shareholder entitled to vote in the election of directors generally. However, a
shareholder entitled to vote in the election of directors generally may nominate
one or more persons for election as directors at a meeting only if written
notice of such shareholder's intent to make such nomination or nominations has
been delivered to or mailed and received by the Secretary of the Corporation at
the principal executive offices of the Corporation not later than (A) with
respect to an election to be held at an annual meeting of shareholders, ninety
(90) days prior to the date one year after the immediately preceding annual
meeting of shareholders, and (B) with respect to an election to he held at a
special meeting of shareholders, the close of business on the tenth (10th) day
following the date on which notice of such meeting is first given to
shareholders. Each such notice shall set forth: (i) the name and address of the
shareholder who intends to make the nomination and of the person or persons to
be nominated; (ii) a representation that the shareholder is a holder of record
of stock of the Corporation entitled to vote at such meeting and intends to
appear in person or by proxy at the meeting to nominate the person or persons
specified in the notice; (iii) a description of all arrangements or
understandings between the shareholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the shareholder; (iv) such other information
regarding each nominee proposed by such shareholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission, had the nominee been nominated, or intended
to be nominated, by the Board of Directors; and (v) the consent of each nominee
to serve as a director of the Corporation if so elected. The presiding officer
at the meeting may refuse to acknowledge the nomination of any person not made
in compliance with the foregoing procedure.

TWELFTH: At an annual meeting of the shareholders, only such business shall
be conducted as shall have been brought before the meeting (A) by or at the
direction of the Board of Directors or (B) by any shareholder of the Corporation
who complies with the notice procedures set forth in this Article Twelfth. For
business to be properly brought before an annual meeting by a shareholder, the
shareholder must have given timely notice thereof in writing to the Secretary of
the Corporation. To be timely, a shareholder's notice must be delivered to or
mailed and received at the principal executive offices of the Corporation, not
less than twenty (20) days nor more than fifty (50) days prior to the meeting;
provided, however, that in the event that less than thirty (30) days' notice or
prior public disclosure of the date of the meeting is given or made to the
shareholders, notice by the shareholder to be timely must be received not later
than the close of business on the tenth (10th) day following the day on which
such notice of the date of the annual meeting was mailed or such public
disclosure was made. A shareholder's notice to the Secretary shall set forth as
to each matter the shareholder proposes to bring before the annual meeting the
following information: (i) a brief description of the business proposed to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting; (ii) the name and address, as they appear on the
Corporation's books, of the shareholder proposing such business; (iii) the
number of shares of the Corporation which are beneficially owned by the
shareholder; and (iv) any material interest of the shareholder in such business.
The presiding officer at an annual meeting shall, if he determines the facts so
warrant, determine and declare to the meeting that the business was not properly
brought before the meeting and in accordance with
<PAGE>

the provisions of this Article Twelfth. Upon such determination and
declaration, the business not properly brought before the meeting shall not be
transacted. Notwithstanding the foregoing provisions of this Article Twelfth, a
shareholder seeking to have a proposal included in the Corporation's proxy
statement shall comply with the requirements of Regulation 14A under the
Securities Exchange Act of 1934, as amended.

THIRTEENTH: No director of the Corporation shall be personally liable to
the Corporation or any of its shareholders for damages for breach of fiduciary
duty as a director involving any act or omission of any of such director except,
that the foregoing provision shall not eliminate the liability of a director to
the Corporation or to its shareholders for monetary damages for any breach of
the director's duty of loyalty to the Corporation or to its shareholders, acts
or omissions not in good faith or which invoke intentional misconduct or a
knowing violation of law, acts specified in Section 7-108-403 of the CBCA, or
any transaction from which the director directly or indirectly derived an
improper personal benefit.

Neither the amendment nor repeal of this Article Thirteenth, nor the adoption of
any provision of the Articles of Incorporation inconsistent with this Article
Thirteenth shall eliminate or reduce the effect of this Article Thirteenth with
respect to any matter occurring, or any cause of action, suit or claim that, but
for this Article Thirteenth would accrue or arise, prior to such amendment,
repeal or adoption of any inconsistent provision.

FOURTEENTH: A vote of the majority of shares entitled to be cast with
respect to the following matters shall be required before the matter shall have
been approved by the shareholders of the Corporation.

(i) amendment of the Corporation's Articles of Incorporation, as
contemplated in Section 7-110-103 of the CBCA;

(ii) approval of a plan of merger or share exchange, as contemplated
in Section 7-111-103 of the CBCA;

(iii) approval of the sale, lease, exchange, or other disposition, of
all, or substantially all, of the Corporation's property, with or without good
will, otherwise than in the usual and regular course of business of the
Corporation, as contemplated in Section 7-112-102(I) of the CBCA;

(iv) approval of a proposal to dissolve the Corporation, as
contemplated in Section 7-114-102 of the CBCA; and

(v) approval of a proposal to revoke the dissolution of the
Corporation, as contemplated in Section 7-114-104 of the CBCA;

<PAGE>

IN WITNESS WHEREOF, the undersigned has duly executed these Amended and
Restated Articles of Incorporation as of the ______ day of _____________, 1996.

MATRIX CAPITAL CORPORATION

By:
-----------------------------
Guy A. Gibson, President

<PAGE>

Exhibit 3.2

BYLAWS

MATRIX CAPITAL CORPORATION

ARTICLE I
---------

OFFICES AND CORPORATE SEAL
--------------------------

1. Principal Office. The Corporation shall maintain a principal office in
the City of Denver, County of Denver, Colorado.

2. Other Offices. The Corporation may also maintain offices at such other
place or places, either within or without the State of Colorado, as may be
designated from time to time by the Board of Directors, and the business of the
Corporation may be transacted at such other offices with the same effect as that
conducted at the principal office.

3. Corporate Seal. A corporate seal shall not be requisite to the
validity of any instrument executed by or on behalf of the Corporation, but
nevertheless if in any instance a corporate seal be used the same shall be a
circle having on the circumference thereof the name of the Corporation, and in
the center thereof "Corporate Seal Colorado" and the year of incorporation.

ARTICLE II
----------

SHAREHOLDERS
------------

1. Shareholders' Meetings. All meetings of the Shareholders shall be held
at such place as may be fixed from time to time by the Board of Directors, or in
the absence of direction by the Board of Directors, by the Chairman, President
or Secretary of the Corporation, either within or without the State of Colorado,
as shall be stated in the notice of the meeting or in a duly executed waiver of
notice thereof.

2. Annual Meetings. Annual meetings of the Shareholders shall be held on
the second Thursday in March, if not a legal holiday, and if a legal holiday,
then on the next secular day following, or at such other date and time as shall
be designated from time to time by the Board of Directors and stated in the
notice of the meeting. At each annual meeting, the Shareholders shall elect a
Board of Directors and transact such other business as may properly be brought
before the meeting.

<PAGE>

3. Special Meetings. Special meetings of the Shareholders, for any
purpose or purposes, unless otherwise proscribed by statute or by the Articles
of Incorporation, may be called by the President and shall be called by the
Chairman, President or Secretary at the request in writing of a majority of the
Board of Directors or at the request in writing of Shareholders owning a
majority in amount of the entire capital stock of the Corporation then issued,
outstanding and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting.

4. Notice of Meetings. Written notice stating the place, date and hour of
the meeting, and in the case of a special meeting, the purpose or purposes for
which the special meeting is being called, shall be given to each Shareholder of
record entitled to vote at such meeting not less than ten (10) days nor more
than fifty (50) days before each date of the meeting. Business transacted at any
special meeting of Shareholders shall be limited to the purposes stated in the
notice. The Shareholders entitled to vote at the meeting shall be determined as
of four (4) o'clock in the afternoon on the day before the notice of the meeting
is sent.

5. List of Shareholders. The officer who has charge of the stock ledger
of the Corporation shall prepare and make, at least ten (10) days before every
meeting of Shareholders, a complete list of the Shareholders entitled to vote at
the meeting, arranged in alphabetical order and showing the address and the
number of shares registered in the name of each Shareholder. Such list shall be
open to the examination of any Shareholder, for any purpose germane to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any Shareholder present.

6. Quorum and Adjournment. The holders of a majority of the shares
issued, outstanding and entitled to vote at the meeting, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
Shareholders for the transaction of business except as otherwise provided by
statute or by the Articles of Incorporation. If, however, such quorum shall not
be present or represented at any meeting of the Shareholders, the Shareholders
entitled to vote at the meeting, present in person or represented by proxy,
shall have power to adjourn the meeting to another time or place, without notice
other than announcement at the meeting at which adjournment is taken, until a
quorum shall be present or represented. At such adjourned meeting at which a
quorum shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally notified. If the
adjournment is for more than thirty (30) days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each Shareholder of record entitled to vote at the
meeting.

7. Majority Required. When a quorum is present at any meeting, the vote
of the holders of a majority of the voting power present, whether in person or
represented by proxy,

<PAGE>

shall decide any question brought before such meeting, unless the question is
one upon which, by express provision of the Colorado statutes or of the Articles
of Incorporation, a different vote is required, in which case such express
provision shall govern and control the decision of such question.

8. Voting. At every meeting of the Shareholders, each Shareholder shall
be entitled to one vote in person or by proxy for each share of the capital
stock having voting power held by such Shareholder, but no proxy shall be voted
or acted upon after eleven (11) months from its date, unless the proxy provides
for a longer period.

9. Action Without Meeting. Any action required or permitted to be taken
at any meeting of Shareholders may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, is signed by the holders of all of the outstanding shares entitled to
vote with respect to the subject matter of the action.

10. Conference by Telephone Meetings. Shareholders may participate in a
meeting of the Shareholders by telephone conference or similar means of
communication in which all persons participating in the meeting can hear each
other. Participation in a meeting pursuant to this Section shall constitute
presence in person at such meeting.

11. Waiver of Notice. Attendance of a Shareholder at a meeting shall
constitute waiver of notice of such meeting, except when such attendance at the
meeting is for the express purpose of objecting to the transaction of any
business because the meeting is not lawfully called or convened. Any Shareholder
may waive notice of any meeting of Shareholders by executing a written waiver of
notice either before or after the time of the meeting.

ARTICLE III
-----------

DIRECTORS
---------

1. Number. The number of Directors which shall constitute the whole Board
of Directors (sometimes referred to as the "Board") shall be not fewer than
three (3) nor more than seven (7), the exact number to be fixed from time to
time by resolutions of the Board of Directors. The Directors shall be elected at
the Annual Meeting of the Shareholders, except as provided in Section 2 of this
Article, and each Director elected shall hold office until his or her successor
is elected and qualified. Directors need not be Shareholders.

2. Vacancies. Vacancies and newly created directorships resulting from
any increase in the authorized number of Directors may be filled by the
affirmative vote of a majority of the remaining Directors then in office, though
such majority must at least equal the number of Directors required to constitute
a quorum, or by a sole remaining Director, and the Directors so chosen shall
hold office until the next annual election and until their successors are duly
elected

<PAGE>

and qualified, unless sooner displaced. If there are no Directors in office,
then an election of Directors may be held in the manner provided by statute.

3. Powers. The business and affairs of the Corporation shall be managed
by its Board of Directors, which may exercise all such powers of the Corporation
and do all such lawful acts as are not by the Colorado statutes, the Articles of
Incorporation, or these Bylaws directed or required to be exercised or done by
the Shareholders.

4. Place of Meetings. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Colorado, or in any manner, including but not limited to a conference telephone
call as the President or Chairman of the Board may select.

5. Annual Meetings. The first meeting of each newly elected Board of
Directors shall be held immediately following the Annual Meeting of Shareholders
and in the same place as the Annual Meeting of Shareholders, and no notice to
the newly elected Directors of such meeting shall be necessary in order to
legally hold the meeting, providing a quorum shall be present. In the event such
meeting is not held, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
Board of Directors, or as shall be specified in a written waiver by all of the
Directors.

6. Regular Meeting. Regular meetings of the Board of Directors may be
held without notice at such time and at such place as shall from time to time be
determined by the Board.

7. Special Meetings. Special meetings of the Board of Directors may be
called by the Chairman, President or the Secretary or any member of the Board to
each Director, either personally, by telegram, facsimile transmission, by
telephone, or by mail at least twenty-four (24) hours (in the case of notice in
person, by telegram, facsimile transmission, or by telephone) or forty-eight
(48) hours (in case of notice by mail) before the time at which the meeting is
to be held.

8. Quorum. A majority of the membership of the Board of Directors shall
constitute a quorum and the concurrence of a majority of those present shall be
sufficient to conduct the business of the Board, except as may be otherwise
specifically provided by statute or by the Articles of Incorporation. If a
quorum shall not be present at any meeting of the Board of Directors, the
Directors then present may adjourn the meeting to another time or place, without
notice other than announcement at the meeting, until a quorum shall be present.

9. Action Without Meeting. Unless otherwise restricted by the Articles of
Incorporation or these Bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members

<PAGE>

of the Board or committee, as the case may be, consent thereto in writing, and
the writing or writings are filed with the minutes of the proceedings of the
Board or committee.

10. Conference by Telephone Meetings. Directors may participate in a
meeting of the Board of Directors or of a committee of the Board, by telephone
conference or similar means of communication in which all persons participating
in the meeting can hear each other. Participation in a meeting pursuant to this
Section shall constitute presence in person at such meeting.

11. Executive Committee. There may at the discretion of the Board of
Directors be an Executive Committee consisting of three (3) members of the Board
of Directors who shall be elected by a majority of the whole Board at any
meeting of the Board of Directors. Members of the Executive Committee shall
serve at the pleasure of the Board of Directors and each member of the Executive
Committee may be removed with or without cause at any time by resolution adopted
by a majority of the whole Board. In the event any vacancy occurs in the
Executive Committee, the vacancy shall be filled by the Board of Directors. The
Executive Committee shall have and may exercise the powers of the Board of
Directors in the management of the business and affairs of the Corporation, but
shall not possess any authority of the Board of Directors prohibited by Colorado
law. The Executive Committee shall report on actions taken by it at the next
succeeding meeting of the Board of Directors.

12. Compensation. The Directors may be paid their expenses, if any, of
attendance at each meeting of the Board of Directors and may be paid a fixed sum
for attendance at each meeting of the Board of Directors or a stated salary as
Director. No such payment shall preclude any Director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings. The amount or rate of such compensation of members of the
Board of Directors or of committees shall be established by the Board of
Directors and shall be set forth in the minutes of the Board.

13. Waiver of Notice. Attendance of a Director at a meeting shall
constitute waiver of notice of such meeting, except when the person attends the
meeting for the express purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened. Any Director may waive
notice of any annual, regular or special meeting of Directors by executing a
written waiver of notice either before or after the time of the meeting.

ARTICLE IV
----------

OFFICERS
--------

1. Designation of Titles. The officers of the Corporation shall be chosen
by the Board of Directors and there shall be a President, a Vice President, a
Secretary and a Treasurer. The
<PAGE>

Board of Directors may also choose a Chairman of the Board, additional Vice
Presidents, and one or more Assistant Secretaries and Assistant Treasurers. Any
number of offices, except the offices of President and Secretary, may be held by
the same person, unless the Articles of Incorporation or these Bylaws otherwise
provide.

2. Appointment of Officers. The Board of Directors at its first meeting
after each Annual Meeting of Shareholders shall choose a President, one or more
Vice Presidents, a Secretary and a Treasurer, and may choose a Chairman of the
Board, each of whom shall serve at the pleasure of the Board of Directors. The
Board of Directors at any time may appoint such other officers and agents as it
shall deem necessary to hold offices at the pleasure of the Board of Directors
and to exercise such powers and perform such duties as shall be determined from
time to time by the Board.

3. Salaries. The salaries of the officers shall be fixed from time to time
by the Board of Directors, and no officer shall be prevented from receiving such
salary by reason of the fact that he is also a Director of the Corporation.

4. Vacancies. A vacancy in any office because of death, resignation,
removal, disqualification or otherwise may be filled by the Board of Directors
at any time.

5. Chairman of the Board. The Chairman of the Board, if one shall have been
appointed and be serving, shall preside at all meetings of the Board of
Directors and all meetings of Shareholders, and shall perform such other duties
as from time to time may be assigned to him or her by the Board of Directors.

6. President. If a Chairman of the Board shall not have been appointed or,
having been appointed, shall not be serving or be absent, the President shall
preside at all meetings of the Board of Directors or of Shareholders. He or she
shall sign, unless he or she designates in writing someone to sign on his or her
behalf, all deeds and conveyances, all contracts and agreements, and all other
instruments requiring execution on behalf of the Corporation, and shall act as
operating and directing head of the Corporation, subject to policies established
by the Board of Directors.

7. Vice Presidents. There shall be as many Vice Presidents as shall be
determined by the Board of Directors from time to time, and they shall perform
such duties as from time to time may be assigned to them. Any one of the Vice
Presidents, as authorized by the Board, shall have all the powers and perform
all the duties of the President in case of the temporary absence of the
President or in the case of his or her temporary inability to act. In case of
the permanent absence or inability of the President to act, the office shall be
declared vacant by the Board of Directors and a successor chosen by the Board.
<PAGE>

8. Secretary. The Secretary shall see that the minutes of all meetings of
Shareholders, of the Board of Directors and of any standing committees are kept.
He or she shall be the custodian of the corporate seal and shall affix it to all
proper instruments when deemed advisable by him or her. He or she shall give or
cause to be given required notices of all meetings of the Shareholders and of
the Board of Directors. He or she shall have charge of all the books and records
of the Corporation except the books of account, and in general shall perform all
the duties incident to the office of the Secretary of a Corporation and such
other duties as may be assigned to him or her.

9. Treasurer. The Treasurer shall have general custody of all the funds and
securities of the Corporation except such as may be required by law to be
deposited with any state official. He or she shall see to the deposit of the
funds of the Corporation in such bank or banks as the Board of Directors may
designate. Regular books of account shall be kept under his or her direction and
supervision, and he or she shall render financial statements to the President,
Directors and Shareholders at proper times. The Treasurer shall have charge of
the preparation and filing of such reports, financial statements and returns as
may be required by law. He or she shall give to the Corporation such fidelity
bond as may be required by law, and the premium therefor shall be paid by the
Corporation as an operating expense.

10. Assistant Secretaries. There may be such number of Assistant
Secretaries as from time to time the Board of Directors may fix, and such
persons shall perform such functions as from time to time may be assigned to
them. No Assistant Secretary shall have power or authority to collect, account
for or pay any tax imposed by any federal, state or city government.

11. Assistant Treasurers. There may be such number of Assistant Treasurers
as from time to time the Board of Directors may fix, and such persons shall
perform such functions as from time to time may be assigned to them. No
Assistant Treasurer shall have the power or authority to collect, account for or
pay any tax imposed by any federal, state or city government.

ARTICLE V
---------

CAPITAL STOCK
-------------

1. Share Certificates. The share certificates shall be in a form approved
by the Board of Directors. Each certificate shall be signed by the Chairman, or
the President or the Vice President and the Secretary or an Assistant Secretary.

2. Registered Shareholders. All certificates of stock shall be
consecutively numbered and the numbers, the names of the owners, the number of
shares and the date of issue shall be entered on the books of the Corporation.
The Corporation shall be entitled to treat the holder of record of shares as the
holder-in-fact, and, except as otherwise provided by the laws of Colorado, shall
not be bound to recognize any equitable or other claim to or interest in the
shares.
<PAGE>

3. Restrictions on Stock Transfer. No sale, pledge or other transfer for
consideration of shares of stock of this Corporation shall be valid or effective
until the Shareholder, his or her personal representative or heir gives notice
to the Secretary of this Corporation of the proposed transfer and a brief
description thereof, and either (1) counsel for the Corporation, upon reviewing
the proposed transfer, renders an opinion that the proposed transfer may be
effected without registration under the Securities Act of 1933 or any similar
federal statute and under the securities law of any state in which the whole or
any part of such transfer takes place; or (2) if, in the opinion of counsel, for
the Corporation, such registration is necessary, then until such registration is
in effect.

Notice as used herein shall be sufficient if in writing and if sent by
registered mail.

4. Transfer of Shares. Shares of the Corporation shall only be transferred
on its books upon the surrender to the Corporation of the share certificates
duly endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer. The surrendered certificates shall be canceled, new
certificates issued to the person entitled to them and the transaction recorded
on the books of the Corporation.

5. Lost Certificates. The Board of Directors may direct a new certificate
to be issued in place of a certificate alleged to have been destroyed or lost if
the owner makes an affidavit that it is destroyed or lost. The Board in its
discretion may, as a condition precedent to issuing the new certificates,
require the owner to give the Corporation a bond as indemnity against any claim
that may be made against the Corporation on the certificate allegedly destroyed
or lost.

6. Dividends. The Board of Directors may from time to time declare
dividends upon the capital stock of the Corporation in the manner and upon the
terms and conditions provided by Colorado law and in its Articles of
Incorporation.

ARTICLE VI
----------

INDEMNIFICATION
---------------

1. Indemnification. The Corporation shall provide indemnification to its
directors, officers and others eligible therefor to the maximum extent
permissible under Colorado law.

2. Savings Clause. The indemnification and other benefits provided by or
granted pursuant to this Article, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and inure to the benefit of the heirs, executors and
administrators of the person.

3. Scope of Article.
<PAGE>

a. Each person who shall act as an authorized representative of the
Corporation shall be deemed to be doing so in reliance upon such rights of
indemnification as are provided in this Article.

b. The indemnification provided by this Article or otherwise provided
by law shall not be deemed exclusive of any other rights to which those
benefited may be entitled under any agreement, vote of Shareholders or
disinterested Directors, statute or otherwise, both as to action in an official
capacity and as to action in another capacity while holding such office or
position.

ARTICLE VII
-----------

REPEAL, ALTERATION OR AMENDMENT
-------------------------------

These Bylaws may be repealed, altered, or amended, or substitute Bylaws may
be adopted at any time, either (i) by an affirmative vote of the Shareholders
entitled to cast at least a majority of the votes which all Shareholders are
entitled to cast thereon at a duly organized annual or special meeting of
Shareholders, or (ii) with respect to those matters which are not by statute
reserved exclusively to the Shareholders, by an affirmative vote of a majority
of the Board of Directors of the Corporation at any annual, regular or special
meeting of Directors.

ARTICLE VIII
------------

EMERGENCY BYLAWS
----------------

1. When Effective. The Emergency Bylaws provided in this Article VIII shall
be operative during any emergency in the conduct of the business of the
Corporation resulting from an attack on the United States or any nuclear or
atomic disaster, notwithstanding any different provisions in the preceding
Articles of the Bylaws or in the Articles of Incorporation of the corporation or
in the Colorado Business Corporation Act. To the extent not inconsistent with
the provisions of this Article, the Bylaws provided in the preceding Articles
shall remain in effect during such emergency and, upon its termination, the
Emergency Bylaws shall cease to be operative.

2. Permissible Actions. During any such emergency:

a. A meeting of the Board of Directors may be called by any officer or
director of the Corporation. Notice of the time and place of the meeting shall
be given by the person calling the meeting to such of the Directors as it may be
feasible to reach by any available means of communications. Such notice shall be
given at such time in advance of the meeting as circumstances permit in the
judgment of the person calling the meeting.
<PAGE>

b. At any such meeting of the Board of Directors, a quorum shall
consist of at least two Directors.

c. The Board of Directors, either before or during any such emergency,
may provide, and from time to time modify, lines of succession in the event that
during such an emergency any or all officers or agents of the Corporation shall
for any reason be rendered incapable of discharging their duties.

d. The Board of Directors, either before or during any such emergency,
may, effective in the emergency, change the head office or designate several
alternative head offices or regional offices, or authorize the officers to do
so.

No officer, Director or employee acting in accordance with these Emergency
Bylaws shall be liable except for willful misconduct.

These Emergency Bylaws shall be subject to repeal or change by further
action of the Board of Directors or by action of the Shareholders, but no such
repeal or change shall modify the provisions of the next preceding paragraph
with regard to action taken prior to the time of such repeal or change. Any
amendment of these Emergency Bylaws may make any further or different
circumstances of the emergency.
<PAGE>

AMENDMENTS TO THE BYLAWS OF
MATRIX CAPITAL CORPORATION

The following amendments to the Bylaws were adopted on September 19, 1996
at a special meeting of the Board of Directors:

1. The last sentence of Article II, Section 2 of the Bylaws is hereby
amended to read in its entirety as follows:

At each annual meeting, the Shareholders shall elect Directors and
transact such other business as may be properly brought before the meeting.

2. Article III, Section 1 of the Bylaws is hereby amended to read in its
entirety as follows:

1. Number; General. The number of Directors which shall constitute the
whole Board of Directors (sometimes referred to as the "Board") shall be as
fixed from time to time by resolution of the Board. The Board of Directors,
other than those Directors who may be elected by the holders of any class
or series of stock having preference over the Common Stock as to dividends
or upon liquidation, shall be divided, with respect to the time during
which they shall hold office, into three classes as nearly equal in number
as possible, with the initial term of office of the Class I Directors
expiring at the annual meeting of Shareholders held in 1997, of the Class
II Directors expiring at the succeeding annual meeting of Shareholders, and
of the Class III Directors expiring at the second succeeding annual meeting
of Shareholders, with all such Directors to hold office until their
successors are elected and qualified. Any increase or decrease in the
number of Directors shall be apportioned by the Board of Directors so that
all classes of Directors shall be as nearly equal in number as possible. At
each annual meeting of Shareholders, Directors chosen to succeed those
whose terms then expire shall be elected to hold office for a term expiring
at the annual meeting of Shareholders held in the third year following the
year of their election and until their successors are duly elected and
qualified. At each annual meeting of Shareholders, Directors shall be
elected to succeed those Directors whose terms then expire. No decrease in
the number of Directors constituting the Board shall shorten the term of
any incumbent Director.

3. Article III, Section 2 of the Bylaws is hereby amended to read in its
entirety as follows:

2. Vacancies. Vacancies, including vacancies resulting from any
increase in the number of Directors, may be filled by the Shareholders or
by the
<PAGE>

Board or, if the Directors remaining in office constitute fewer than a
quorum of the Board, the remaining Directors may fill the vacancy by
affirmative vote of a majority of all the Directors remaining in office,
and the Directors so chosen shall hold office until the next Shareholders'
meeting held for the election of directors of the class to which he shall
have been appointed (which, in the case of a vacancy resulting due to an
increase in the size of the Board, shall be determined by resolution of the
Board) and until his successor is elected and qualified. If there are no
Directors in office, then an election of Directors may be held in the
manner provided by statute.

4. Article V, Section 3 of the Bylaws is hereby deleted from the Bylaws in
its entirety and, in the form of Bylaws, the space for Article V, Section 3
shall be reserved in blank for future use.

5. There is hereby added to the Bylaws a new Article III, Section 14, which
shall read in its entirety as follows:

14. Advisory Directors. (a) The Board of Directors may from time to
time designate one or more persons as Advisory Directors of the
corporation. Advisory Directors shall serve for terms ending at the time of
the Annual Meeting of the Board of Directors following the Annual Meeting
of Shareholders each year; provided, however, any or all of the Advisory
Directors may be removed at any time, with or without cause, by the Board
of Directors.

(b) Advisory Directors shall receive notice of and be entitled to
attend meetings of the Board of Directors or committees to which they are
assigned and shall be entitled to participate in discussions at such
meetings, but shall not vote. The Board of Directors or committees shall
have the authority to excuse Advisory Directors from all or portions of any
meeting.

(c) Advisory Directors shall not be entitled to vote and shall not
have the powers or responsibilities of a Director of the corporation.

6. Article IV, Section 1 of the Bylaws is hereby amended to read in its
entirety as follows:

1. Designation of Titles. The officers of the Corporation shall be
chosen by the Board of Directors and there shall be a President, at least
one Vice President (who may be designated as Executive Vice President,
Senior Vice President or other appropriate title), a Secretary and a
Treasurer. The Board of Directors may also choose a Chairman of the Board,
a Vice Chairman of the Board, additional Vice Presidents (including
Executive Vice Presidents, Senior Vice Presidents and other appropriately
named Vice Presidents), one or more
<PAGE>

Assistant Secretaries, one or more Assistant Treasurers, and such other
officers, with such titles, powers and duties, as are permitted by Section
2 below. Any number of offices, except the offices of President and
Secretary, may be held by the same person, unless the Articles of
Incorporation or these Bylaws otherwise provide.

<PAGE>

Exhibit 4.1
CERTIFICATE OF STOCK

NUMBER [LOGO] SHARES

CUSIP 576819 10 6
SEE REVERSE
FOR CERTAIN DEFINITIONS

INCORPORATED UNDER THE LAWS OF THE STATE OF COLORADO
COMMON STOCK - $.0001 PAR VALUE

THIS CERTIFIES THAT

Is The Owner of

FULLY PAID AND NON-ASSESSABLE SHARES OF $.0001 PAR VALUE COMMON STOCK OF

MATRIX CAPITAL CORPORATION

transferable only on the books of the Company in person or by duly authorized
attorney under surrender of this Certificate properly endorsed. This Certificate
is not valid unless countersigned by the Transfer Agent and Registrar.

IN WITNESS WHEREOF, the said Company has caused this Certificate to be
executed by the facsimile signatures of its duly authorized officers and to be
sealed with the facsimile seal of the Company.

Dated:

/s/ [SEAL] /s/
Secretary President

MATRIX CAPITAL CORPORATION
<PAGE>

The corporation will furnish without charge to each shareholder who so
requests a full statement of the designations, preferences, limitations and
relative rights of each class of stock or series thereof of the corporation and
the variations in the relative rights and preferences between the shares of any
series of preferred stock, so far as the same have been fixed and determined,
and the authority of the board of directors to fix and determine the relative
rights and preferences of any series of preferred stock. Such requests may be
made to the corporation or the transfer agent.

The following abbreviations when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

TEN COM - as tenants in common UNIF GIFT MIN ACT- Custodian
TEN ENT - as tenants by the entireties --- ---
JT TEN - as joint tenants with right of (Cust) (Minor)
survivorship and not as tenants under Uniform Gifts to Minors
in common Act
----------------------
(State)
Additional abbreviations may also be used though not in the above list.

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

For Value Received, hereby sell, assign and transfer unto
-------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE

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

- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)

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

- ----------------------------------------------------------------------------
Shares
- ---------------------------------------------------------------------
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
attorney-in-fact
- --------------------------------------------------------------
to transfer the said stock on the books of the within-named Corporation, with
full power of substitution in the premises.

Dated
---------------------
<PAGE>

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

-----------------------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE FACE
OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER.

Signature(s) Guaranteed:

- --------------------------------
The signature(s) should be guaranteed by an eligible guarantor institution
(Banks, Stockbrokers, Savings and Loan Associations and Credit Unions with
membership in an approved signature guarantee Medallion Program), pursuant to
S.E.C. Rule 17Ad-15.

<PAGE>

EXHIBIT 4.2

1996 AMENDED AND RESTATED EMPLOYEE STOCK OPTION PLAN
FOR
MATRIX CAPITAL CORPORATION

SECTION 1. PURPOSE. This 1996 Amended and Restated Employee Stock Option
Plan of Matrix Capital Corporation amends and restates the Matrix Capital
Corporation Stock Option Plan, dated January 1, 1995, and is intended as an
additional incentive to attract and retain qualified and competent employees,
consultants, advisors and directors for the Company and its Subsidiaries, upon
whose efforts and judgment the success of the Company is largely dependent,
through the encouragement of stock ownership in the Company by such persons.

SECTION 2. DEFINITIONS. As used herein, the following terms shall have the
meaning indicated:

(a) "ACT" shall mean the Securities Exchange Act of 1934, as amended.

(b) "BOARD" shall mean the Board of Directors of the Company.

(c) "BUSINESS DAY" shall mean (i) if the Shares trade on a national
exchange, any day that the national exchange on which the Shares trade is
open or (ii) if the Shares do not trade on a national exchange, any day
that commercial banks in the City of New York are open.

(d) "COMMISSION" shall mean the Securities and Exchange Commission.

(e) "COMMITTEE" shall mean the Compensation Committee of the Board or
other committee, if any, appointed by the Board pursuant to Section 14
hereof.

(f) "COMMON STOCK" shall mean the Company's common stock, par value
$.0001 per share.

(g) "COMPANY" shall mean Matrix Capital Corporation.

(h) "DATE OF GRANT" shall mean the date on which an Option is granted
to an Eligible Person pursuant to Section 4 hereof.

(i) "DIRECTOR" shall mean a member of the Board or an advisory
director of the Board.

(j) "ELIGIBLE PERSON(S)" shall mean those persons who are (i) under
written contract (a "Consulting Contract") with the Company or a Subsidiary
to provide consulting or advisory services to the Company or a Subsidiary
(a "Consultant"), (ii) Employees or (iii) members of the Board of
Directors, including advisory directors, of the Company or any Subsidiary.
<PAGE>

(k) "EMPLOYEE(S)" shall mean those persons who are employees of the Company
or who are employees of any Subsidiary.

(l) "FAIR MARKET VALUE" of a share on a particular date shall be the
closing price of the Common Stock, which shall be (i) if the Common Stock is
listed or admitted for trading on any United States national securities exchange
(which for purposes hereof shall include the NASDAQ National Market System), the
last reported sale price of Common Stock on such exchange as reported in any
newspaper of general circulation, (ii) if the Common Stock is quoted on NASDAQ
(other than on the National Market System) or any similar system of automated
dissemination of quotations of securities prices in common use, the mean between
the closing high bid and low asked quotations for such day of the Common Stock
on such system or (iii) if neither clause (i) nor (ii) is applicable, a value
determined by any fair and reasonable means prescribed by the Board.

(m) "INCENTIVE STOCK OPTION" shall mean an option that is an incentive
stock option as defined in Section 422 of the Internal Revenue Code.

(n) "INTERNAL REVENUE CODE" or "CODE" shall mean the Internal Revenue Code
of 1986, as it now exists or may be amended from time to time.

(o) "NONQUALIFIED STOCK OPTION" shall mean a stock option that is not an
incentive stock option as defined in Section 422 of the Internal Revenue Code.

(p) "OPTION" (when capitalized) shall mean any option granted under this
Plan.

(q) "OPTIONEE" shall mean a person to whom an Option is granted under this
Plan or any successor to the rights of such person.

(r) "OUTSIDE DIRECTOR" shall mean a Director who qualifies as an "outside
director" under the regulations promulgated under Section 162(m) of the Internal
Revenue Code and as a "non-employee director" under Rule 16b-3 promulgated under
the Securities Exchange Act of 1934, effective August 15, 1996.

(s) "PLAN" shall mean this 1996 Amended and Restated Employee Stock Option
Plan for Matrix Capital Corporation.

(t) "SHARE(S)" shall mean a share or shares of the Common Stock.

(u) "SUBSIDIARY" shall mean any corporation (other than the Company) in any
unbroken chain of corporations beginning with the Company if, at the time of the
granting of the Option, each of the corporations other than the last corporation
in the unbroken chain owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.

2
<PAGE>

SECTION 3. SHARES AND OPTIONS.

(a) The Company may grant to Eligible Persons from time to time Options to
purchase an aggregate of up to 525,000 Shares from Shares held in the Company's
treasury or from authorized and unissued Shares. If any Option granted under the
Plan shall terminate, expire, or be canceled or surrendered as to any Shares,
new Options may thereafter be granted covering such Shares. An Option granted
hereunder shall be either an Incentive Stock Option or a Nonqualified Stock
Option as determined by the Committee at the Date of Grant of such Option and
shall clearly state whether it is an Incentive Stock Option or a Nonqualified
Stock Option. Incentive Stock Options may only be granted to persons who are
Employees.

(b) The aggregate Fair Market Value (determined at the Date of Grant of the
Option) of the Shares with respect to which any Incentive Stock Option is
exercisable for the first time by an Optionee during any calendar year under the
Plan and all such plans of the Company and any parent and subsidiary of the
Company (as defined in Section 425 of the Code) shall not exceed $100,000.

(c) Notwithstanding any provision herein to the contrary, the maximum
number of Shares which may be subject to an Option granted to any Eligible
Person shall be 100,000 less the number of Shares subject to any other Option
granted to such Eligible Person during the 365 days preceding the Date of Grant
of such Option.

SECTION 4. CONDITIONS FOR GRANT OF OPTIONS.

(a) Each Option shall be evidenced by an option agreement that may contain
any term deemed necessary or desirable by the Committee, provided such terms are
not inconsistent with this Plan or any applicable law. Optionees shall be those
persons selected by the Committee from Eligible Persons. Any person who files
with the Committee, in a form satisfactory to the Committee, a written waiver of
eligibility to receive any Option under this Plan shall not be eligible to
receive any Option under this Plan for the duration of such waiver.

(b) In granting Options, the Committee shall take into consideration the
contribution the person has made or may make to the success of the Company or
its Subsidiaries and such other factors as the Board shall determine. The
Committee shall also have the authority to consult with and receive
recommendations from officers and other personnel of the Company and its
Subsidiaries with regard to these matters. The Committee may from time to time
in granting Options under the Plan prescribe such other terms and conditions
concerning such Options as it deems appropriate, including, without limitation,
relating an Option to achievement of specific goals established by the Committee
or the continued employment of the Optionee for a specified period of time,
provided that such terms and conditions are not more favorable to an Optionee
than those expressly permitted herein.

(c) The Committee in its sole discretion shall determine in each case
whether periods of military or government service shall constitute a
continuation of employment for the purposes of this Plan or any Option.

3
<PAGE>

(d) The Committee in its sole discretion may delegate to the Chief
Executive Officer of the Company any or all of its powers under this Plan with
regard to the granting and administration of Options to Eligible Persons not
subject to reporting under Section 16 of the Exchange Act.

SECTION 5. EXERCISE PRICE. The exercise price per Share of any Option shall
be any price determined by the Committee; provided, however, that the exercise
price for any Incentive Stock Option shall not be less than one hundred percent
(100%) of the Fair Market Value on the Date of Grant.

SECTION 6. EXERCISE OF OPTIONS. An Option shall be deemed exercised when
(i) the Company has received written notice of such exercise in accordance with
the terms of the Option, (ii) full payment of the aggregate exercise price of
the Shares as to which the Option is exercised has been made, and (iii)
arrangements that are satisfactory to the Committee in its sole discretion have
been made for the Optionee's payment to the Company of the amount, if any, that
the Committee determines to be necessary for the Company or a Subsidiary to
withhold in accordance with applicable federal or state income tax withholding
requirements. Unless further limited by the Committee in any Option, the
exercise price of any Shares purchased shall be paid solely in cash, by
certified or cashier's check, by money order, by personal check or with Shares
(but with Shares only if permitted by an Option agreement or otherwise permitted
by the Committee in its sole discretion at the time of exercise) or by a
combination of the above. If the exercise price is paid in whole or in part with
Shares, the value of the Shares surrendered shall be their Fair Market Value on
the date received by the Company.

SECTION 7. EXERCISABILITY OF OPTIONS.

(a) Any Option shall become exercisable in such amounts and at such
intervals as the Committee shall provide in any Option, except as otherwise
provided in this Section 7; provided in each case that the Option has not
expired on the date of exercise.

(b) The expiration date of an Option shall be determined by the Committee
at the Date of Grant, but in no event shall an Option be exercisable after the
expiration of ten (10) years from the Date of Grant.

(d) On the date thirty (30) days prior to any occurrence described in
Section (7)(d)(i), (ii) or (iii), but only where such anticipated occurrence
actually takes place, notwithstanding the exercise schedule in an Option, each
Option shall immediately become exercisable in full where there (i) is any
transaction (which shall include a series of transactions occurring within 60
days or occurring pursuant to a plan) that has the result that shareholders of
the Company immediately before such transaction cease to own at least 51% of (x)
the voting stock of the Company or (y) of any entity that results from the
participation of the Company in a reorganization, consolidation, merger,
liquidation or any other form of corporate transaction; (ii) is a merger,
consolidation, reorganization, liquidation or dissolution in which the Company
does not survive; (iii) is a sale, lease, exchange or other disposition of all
or substantially all of the property and assets of the Company.

4
<PAGE>

(e) Notwithstanding any provisions hereof to the contrary, if any Option is
accelerated under Section 7(c) or (d), the portion of such Option that may be
exercised to acquire Shares that the Optionee would not be entitled to acquire
but for such acceleration (the "Acceleration Shares"), is limited to that number
of Acceleration Shares that can be acquired without causing the Optionee to have
an "excess parachute payment" as determined under Section 280G of the Code,
determined by taking into account all of the Optionee's "parachute payments"
determined under Section 280G of the Code. If as a result of this Section 7(e),
the Optionee may not acquire all of the Acceleration Shares, then the
Acceleration Shares that the Optionee may acquire shall be the last shares that
the Optionee would have been entitled to acquire had the Option not been
accelerated.

SECTION 8. TERMINATION OF OPTION PERIOD.

(a) Unless otherwise provided in any Option, the unexercised portion of an
Option shall automatically and without notice terminate and become null and void
at the time of the earliest to occur of the following:

(i) except as provided in Section 8(a)(iii), (iv) or (v), thirty (30)
days after the date that Optionee ceases to be employed by the Company or a
Subsidiary or ceases to be a Consultant to the Company or a Subsidiary, as
the case may be, regardless of the reason therefor other than as a result
of such termination by reason of (x) death, (y) mental or physical
disability of Optionee as determined by a medical doctor satisfactory to
the Committee or (z) termination of Optionee's employment or Consulting
Contract, as the case may be, with the Company or a Subsidiary for cause;

(ii) except as provided in Section 8(a)(iii), one (1) year after the
date on which the Optionee suffers a mental or physical disability as
determined by a medical doctor satisfactory to the Committee;

(iii) either (y) one (1) year after the date that the Optioness ceases
to be a Consultant to or ceases to be employed by, as the case may be, the
Company or a Subsidiary, by reason of death of the Optionee, or (z) six (6)
months after the date on which the Optionee shall die, if the Optionee's
death shall occur during the thirty-day period described in Section 8(a)(i)
or the one-year period described in Section 8(a)(ii);

(iv) the date that Optionee ceases to be a Consultant to or ceases to
be employed by, as the case may be, the Company or a Subsidiary as a result
of a termination for cause;

(v) with respect to an Option held by a person who is a member of the
Board of Directors of the Company or a Subsidiary but who is not also an
Employee or Consultant (regardless of whether or not such person was an
Employee or Consultant at the time of grant), thirty (30) days after the
date that Optionee ceases to be a member of such Board of Directors; and

(vi) the tenth (10th) anniversary of the Date of Grant of the Option.

5
<PAGE>

(b) The Committee in its sole discretion may, by giving written notice (a
"Cancellation Notice") cancel, effective upon the date of the consummation of
any of the transactions described in Section 7(d), all or any portion of such
Option that remains unexercised on such date. Such Cancellation Notice shall be
given a reasonable period of time (but not less than 15 days) prior to the
proposed date of such cancellation, and may be given either before or after
shareholder approval of such transaction.

Section 9. Adjustment of Shares.

(a) If at any time while the Plan is in effect or unexercised Options are
outstanding, there shall be any increase or decrease in the number of issued and
outstanding Shares through the declaration of a stock dividend or through any
recapitalization resulting in a stock split-up, combination or exchange of
Shares, then and in such event:

(i) appropriate adjustment shall be made in the maximum number of
Shares then subject to being optioned under the Plan, so that the same
proportion of the Company's issued and outstanding Shares shall continue to
be subject to being so optioned; and

(ii) appropriate adjustment shall be made in the number of Shares and
the exercise price per Share thereof then subject to outstanding Options,
so that the same proportion of the Company's issued and outstanding Shares
shall remain subject to purchase at the same aggregate exercise price.

(b) The Committee may change the terms of Options outstanding under this
Plan, with respect to the exercise price or the number of Shares subject to the
Options, or both, when, in the Committee's sole discretion, such adjustments
become appropriate by reason of any corporate transaction.

(c) Except as otherwise expressly provided herein, the issuance by the
Company of shares of its capital stock of any class, or securities convertible
into shares of capital stock of any class, either in connection with direct sale
or upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such shares
or other securities, shall not affect, and no adjustment by reason thereof shall
be made with respect to the number of Shares reserved for issuance under the
Plan or the number of or exercise price of Shares then subject to outstanding
Options granted under the Plan.

(d) Without limiting the generality of the foregoing, the existence of
outstanding Options granted under the Plan shall not affect in any manner the
right or power of the Company to make, authorize or consummate (i) any or all
adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business; (ii) any merger or consolidation of
the Company; (iii) any issue by the Company of debt securities, or preferred or
preference stock that would rank above the Shares subject to outstanding
Options; (iv) the dissolution or liquidation of the Company; (v) any sale,
transfer or assignment of all or any part of the assets or business of the
Company; or (vi) any other corporate act or proceeding, whether of a similar
character or otherwise.

6
<PAGE>

Section 10. Transferability of Options. Each Incentive Stock Option
shall provide that such Incentive Stock Option shall not be transferrable by the
Optionee otherwise than by will or the laws of descent and distribution and that
so long as an Optionee lives, only such Optionee or his guardian or legal
representative shall have the right to exercise such Incentive Stock Option. The
Committee, in its sole discretion, may provide in the agreement governing any
Nonqualified Stock Option that such Nonqualified Stock Option shall be
transferable and, if so, the extent to which such Nonqualified Stock Option is
transferable.

Section 11. Issuance of Shares. No person shall be, or have any of the
rights or privileges of, a shareholder of the Company with respect to any of the
Shares subject to an Option unless and until certificates representing such
Shares shall have been issued and delivered to such person. As a condition of
any transfer of the certificate for Shares, the Committee may obtain such
agreements or undertakings, if any, as it may deem necessary or advisable to
assure compliance with any provision of the Plan, the agreement evidencing the
Option or any law or regulation including, but not limited to, the following:

(i) A representation, warranty or agreement by the Optionee to the
Company at the time any Option is exercised that he or she is acquiring the
Shares to be issued to him or her for investment and not with a view to, or
for sale in connection with, the distribution of any such Shares; and

(ii) A representation, warranty or agreement to be bound by any
legends that are, in the opinion of the Committee, necessary or appropriate
to comply with the provisions of any securities laws deemed by the Board to
be applicable to the issuance of the Shares and are endorsed upon the Share
certificates.

Section 12. Options for 10% Shareholder. Notwithstanding any other
provisions of the Plan to the contrary, an Incentive Stock Option shall not be
granted to any person owning directly (or indirectly through attribution under
Section 425(d) of the Code) at the Date of Grant, stock possessing more than 10%
of the total combined voting power of all classes of stock of the Company (or of
its parent or subsidiary [as defined in Section 425 of the Internal Revenue
Code] at the Date of Grant) unless the exercise price of such Incentive Stock
Option is at least 110% of the Fair Market Value of the Shares subject to such
Incentive Stock Option on the Date of Grant, and the period during which the
Incentive Stock Option may be exercised does not exceed five (5) years from the
Date of Grant.

Section 13. Nonqualified Stock Options. Nonqualified Stock Options may be
granted hereunder and shall be subject to all terms and provisions hereof except
that each such Nonqualified Stock Option (i) must be clearly designated as a
Nonqualified Stock Option; (ii) may be granted for Shares in excess of the
limits contained in Section 3(b) of this Plan; and (iii) shall not be subject to
Section 12 of this Plan. If both Incentive Stock Options and Nonqualified Stock
Options are granted to an Optionee, the right to exercise, to the full extent
thereof, Options of either type shall not be contingent in whole or in part upon
the exercise of, or failure to exercise, Options of the other type.

7
<PAGE>

Section 14. Administration of the Plan.

(a) The Plan shall be administered by the Compensation Committee of the
Board or other committee thereof as appointed by the Board (the "Committee"),
consisting of not less than two (2) members, each of whom is an Outside
Director.

(b) The Committee, from time to time, may adopt rules and regulations for
carrying out the purposes of the Plan. The determinations and the interpretation
and construction of any provision of the Plan by the Committee shall be final
and conclusive.

(c) Subject to the express provisions of this Plan, the Committee shall
have the authority, in its sole and absolute discretion (i) to adopt, amend, and
rescind administrative and interpretive rules and regulations relating to this
Plan or any Option; (ii) to construe the terms of this Plan or any Option; (iii)
as provided in Section 9(a), upon certain events to make appropriate adjustments
to the exercise price and number of Shares subject to this Plan and Option; and
(iv) to make all other determinations and perform all other acts necessary or
advisable for administering this Plan, including the delegation of such
ministerial acts and responsibilities as the Committee deems appropriate. The
Committee may correct any defect or supply any omission or reconcile any
inconsistency in this Plan or any Option in the manner and to the extent it
shall deem expedient to carry it into effect, and it shall be the sole and final
judge of such expediency. The Committee shall have full discretion to make all
determinations on the matters referred to in this Section 14(d), and such
determinations shall be final, binding and conclusive.

Section 15. Government Regulations. This Plan, Options and the
obligations of the Company to sell and deliver Shares under any Options, shall
be subject to all applicable laws, rules and regulations, and to such approvals
by any governmental agencies or national securities exchanges as may be
required.

Section 16. Miscellaneous.

(a) The proceeds received by the Company from the sale of Shares pursuant
to an Option shall be used for general corporate purposes.

(b) The grant of an Option shall be in addition to any other compensation
paid to the Optionee or other stock option plans of the Company or other
benefits with respect to the Optionee's position with or relationship to the
Company or its Subsidiaries. The grant of an Option shall not confer upon the
Optionee the right to continue as an Employee or Consultant, or interfere in any
way with the rights of the Company to terminate his status as an Employee or
Consultant.

(c) Neither the members of the Board nor any member of the Committee shall
be liable for any act, omission, or determination taken or made in good faith
with respect to this Plan or any Option, and members of the Board and the
Committee shall, in addition to all other rights of indemnification and
reimbursement, be entitled to indemnification and reimbursement by the Company
in respect of any claim, loss, damage, liability or expense (including
attorneys' fees, the costs of settling any suit, provided such settlement is
approved by independent legal counsel selected by the Company, and amounts paid
in satisfaction of a judgment, except a judgment based on a finding of

8
<PAGE>

bad faith) arising from such claim, loss, damage, liability or expense to the
full extent permitted by law and under any directors' and officers' liability or
similar insurance coverage that may from time to time be in effect.

(d) Any issuance or transfer of Shares to an Optionee, or to his legal
representative, heir, legatee, distributee, or assign in accordance with the
provisions of this Plan or the applicable Option, shall, to the extent thereof,
be in full satisfaction of all claims of such persons under the Plan. The
Committee may require any Optionee, legal representative, heir, legatee or
distributee as a condition precedent to such payment or issuance or transfer of
Shares, to execute a release and receipt for such payment or issuance or
transfer of Shares in such form as it shall determine.

(e) Neither the Committee nor the Company guarantees Shares from loss or
depreciation.

(f) All expenses incident to the administration, termination, or
protection of this Plan or any Option, including, but not limited to, legal and
accounting fees, shall be paid by the Company; provided, however, the Company
may recover any and all damages, fees, expenses and costs arising out of any
actions taken by the Company to enforce its rights under this Plan or any
Option.

(g) Records of the Company shall be conclusive for all purposes under this
Plan or any Option, unless determined by the Committee or the Board to be
incorrect.

(h) The Company shall, upon request or as may be specifically required
under this Plan or any Option, furnish or cause to be furnished all of the
information or documentation that is necessary or required by the Committee to
perform its duties and functions under this Plan or any Option.

(i) The Company assumes no liability to any Optionee or his legal
representatives, heirs, legatees or distributees for any act of, or failure to
act on the part of, the Company, the Committee or the Board.

(j) Any action required of the Company or the Committee relating to this
Plan or any Option shall be by resolution of the Committee or by a person
authorized to act by resolution of the Committee.

(k) If any provision of this Plan or any Option is held to be illegal or
invalid for any reason, the illegality or invalidity shall not affect the
remaining provisions of this Plan or any Option, but such provision shall be
fully severable, and the Plan or Option, as applicable, shall be construed and
enforced as if the illegal or invalid provision had never been included in the
Plan or Option, as applicable.

(l) Whenever any notice is required or permitted under this Plan, such
notice must be in writing and personally delivered or sent by mail or delivery
by a nationally recognized courier service. Any notice required or permitted to
be delivered under an Option shall be deemed to be delivered on the date on
which it is personally delivered, or, if mailed, whether actually received or
not, on the third Business Day after it is deposited in the United States mail,
certified or registered, postage prepaid, addressed to the person who is to
receive it at the address that such person has previously

9
<PAGE>

specified by written notice delivered in accordance with this Section 16(l) or,
if by courier, seventy-two (72) hours after it is sent, addressed as described
in this Section 16(l). The Company or the Optionee may change, at any time and
from time to time, by written notice to the other, the address that it or he had
previously specified for receiving notices. Until changed in accordance with
this Plan, the Company and the Optionee shall specify as its and his address for
receiving notices the address set forth in the Option pertaining to the Shares
to which such notice relates.

(m) Any person entitled to notice under this Plan may waive such notice.

(n) The titles and headings of Sections are included for convenience of
reference only and are not to be considered in construction of this Plan's
provisions.

(o) All questions arising with respect to the provisions of this Plan
shall be determined by application of the laws of the State of Colorado except
to the extent Colorado law is preempted by federal law. The obligation of the
Company to sell and deliver Shares under this Plan is subject to applicable laws
and to the approval of any governmental authority required in connection with
the authorization, issuance, sale, or delivery of such Shares.

(p) Words used in the masculine shall apply to the feminine where
applicable, and wherever the context of this Plan dictates, the plural shall be
read as the singular and the singular as the plural.

Section 17. Amendment and Discontinuation of the Plan. The Board may from
time to time amend, suspend or terminate the Plan or any Option; provided,
however, that no such amendment may alter any provision of the Plan or any
Option without compliance with any applicable shareholder approval requirements
promulgated under the Internal Revenue Code, if applicable, or by any stock
exchange or market on which the Common Stock of the Company is listed for
trading; and provided, further, that, except to the extent provided in Section
8, no amendment or suspension of the Plan or any Option issued hereunder shall,
except as specifically permitted in any Option, substantially impair any Option
previously granted to any Optionee without the consent of such Optionee.

10
<PAGE>

Section 18. Effective Date and Termination Date. The Plan is effective on
the date set forth below on which the Board and the stockholders of the Company
adopted this Plan, and shall terminate on the tenth anniversary of such
effective date.

ADOPTED BY THE BOARD AND STOCKHOLDERS: , 1996
----------

Executed at the direction of the Board to evidence that this is the Plan
adopted by the Board and the stockholders on , 1996.
------------

MATRIX CAPITAL CORPORATION

By:
-----------------------------------
Name:
----------------------------------
Title:
---------------------------------

<PAGE>

EXHIBIT 4.3

1996 EMPLOYEE STOCK PURCHASE PLAN
FOR
MATRIX CAPITAL CORPORATION

SECTION 1. PURPOSE. This 1996 Employee Stock Purchase Plan of Matrix
Capital Corporation is intended to provide employees of the Company and its
Designated Subsidiaries with an opportunity to purchase Stock of the Company
through accumulated payroll deductions under an "Employee Stock Purchase Plan"
as defined in Section 423 of the Code, and all provisions hereof will be
construed in accordance with those objectives.

SECTION 2. DEFINITIONS. As used herein, the following terms shall have the
meaning indicated:

(a) "ACCOUNT" shall mean the account established for each Participant
to record the amounts withheld from his Compensation during the Offering Period
of reference.

(b) "ADMINISTRATOR" shall mean the Board or a designated committee of
the Board.

(d) "CODE" shall mean the Internal Revenue Code of 1986, as amended.

(e) "COMPANY" shall mean Matrix Capital Corporation.

(f) "COMPENSATION" shall mean the actual cash remuneration (exclusive
of bonuses) paid to a Participant by the Employer in consideration of services
rendered.

(g) "CONSIDERED COMPENSATION" shall be determined with respect to each
Offering Period, and shall mean a reasonable estimate (as determined by the
Administrator in its sole discretion, but treating Participants similarly
situated in a reasonably similar manner) of the Participant's basic Compensation
during the Offering Period (i.e. without taking into account bonuses, overtime
pay, noncash benefits or other special payments, all as reasonably determined by
the Administrator).

(h) "DESIGNATED SUBSIDIARIES" shall mean the Subsidiaries that have
been designated by the Board from time to time in its sole discretion as
eligible to adopt, and which have in fact adopted, this Plan for the benefit of
their Employees.

(i) "DIRECTED WITHHOLDING" shall mean the amount that an Eligible
Employee directs his or her Employer to withhold from such Eligible Employee's
Compensation on each Payroll Date during the Offering Period of reference;
provided, however, that the aggregate amount of Directed Withholding for the
Offering Period of reference (i) may not exceed the lesser of (x) twenty-five
percent (25%) of such Participant's Considered Compensation for such Offering
Period, and (y)
<PAGE>

Twelve Thousand Five Hundred Dollars ($12,500), and (ii) may not be less than
Five Hundred Dollars ($500).

(j) "DIRECTION TO WITHHOLD" shall mean the written notice to the
Administrator, in the form of Exhibit A attached hereto, which directs the
Employer to commence to deduct the Directed Withholding from a Participant's
Compensation on each Payroll Date during the Offering Period of reference.

(k) "ELECTION TO RESCIND" shall mean the written notice to the
Administrator, in the form of Exhibit B attached, which directs a Participant's
Employer to discontinue deductions of Directed Withholding, and to refund the
entire amount credited to such Participant's Account.

(l) "ELIGIBLE EMPLOYEE" shall mean each Employee (i) who is employed as an
Employee on the first day of the month preceding the Enrollment Date of
reference, (ii) who continues to be employed as an Employee on such Enrollment
Date, and (iii) who, on such Enrollment Date does not own Stock (within the
meaning of Section 423(b)(3) of the Code) possessing five percent (5%) or more
of the total combined voting power or value of all classes of stock of the
Company or of any Subsidiary and, without limiting the generality of the
foregoing, in computing the amount of such Stock owned by an Employee, there
shall be included the amount of Stock owned directly, the Stock subject to a
Purchase Right, the Stock which with respect to which the Employee has an option
to acquire, and the Stock owned by any other person whose stock is attributed to
such Employee pursuant to Section 425(d) of the Code.

(m) "EMPLOYEE" shall mean any person, including an officer and director who
is also an Employee, who is customarily employed for at least twenty (20) hours
per week and for more than five (5) months in the calendar year by the Employer.

(n) "EMPLOYER" shall mean, collectively, the Company and each Designated
Subsidiary.

(o) "ENROLLMENT DATE" shall mean the first business day of each Offering
Period.

(p) "FAIR MARKET VALUE" of a Share on the Enrollment Date or on the
Purchase Date shall be the closing price of Stock on such date, which shall be
(i) if the Stock is listed or admitted for trading on any United States national
securities exchange (which for purposes hereof shall include the NASDAQ National
Market System), the last reported sale price of Stock on such exchange as
reported in any newspaper of general circulation, (ii) if the Stock is quoted on
NASDAQ (other than on the NASDAQ National Market System) or any similar system
of automated dissemination of quotations of securities prices in common use, the
mean between the closing high bid and low asked quotations for such day of the
Stock on such system or (iii) if neither clause (i) nor (ii) is applicable, a
value determined by any fair and reasonable means prescribed by the Board.

(q) "OFFERING PERIOD" shall mean the period beginning on the day immedi-
ately preceding the trade date of the shares to be issued and sold by the
Company in connection with its initial public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the "IPO"),
and ending on the following December 31st, and each calender year thereafter.

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<PAGE>

(r) "PARTICIPANT" shall mean each Eligible Employee who is having an amount
withheld from his Compensation under Section 4 at the time of reference.

(s) "PAYROLL DATE" shall mean each date on which a Participant is paid his
Considered Compensation.

(t) "PLAN" shall mean this Matrix Capital Corporation Employee Stock
Purchase Plan.

(u) "PURCHASE DATE" shall mean the last business day of each Offering
Period.

(v) "PURCHASE PRICE" shall mean the lesser of (i) 85% of the Fair Market
Value of the Shares on the Enrollment Date occurring during the Offering Period
of reference, or (ii) 85% of the Fair Market Value of the Shares on the Purchase
Date occurring during such Offering Period, but never less than the par value of
a Share.

(w) "PURCHASE RIGHT" shall mean the Participant's right to acquire the
number of Shares that may be purchased in accordance with Section 3(b) as
limited by Sections 3(c) and 8.

(x) "SHARES" shall mean the shares of Stock reserved for issuance under
this Plan.

(y) "STOCK" shall mean the common stock, $0.0001 par value per share, of
the Company.

(z) "SUBSIDIARY" shall mean any corporation (other than the Company) in any
unbroken chain of corporations beginning with the Company if, at the time of
reference, each of the corporations other than the last corporation in the
unbroken chain owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in such chain.

SECTION 3. SHARES SUBJECT TO PURCHASE.

(a) Subject to adjustments provided in Section 15 hereof, a total of
125,000 Shares shall be subject to the Plan. The Shares subject to the Plan
shall consist of unissued Shares or previously issued Shares reacquired and held
by the Company, or any Subsidiary, and such number of Shares shall be and hereby
is reserved for sale for such purpose. Any of such Shares that may remain
unsold at the termination of the Plan shall cease to be reserved for the purpose
of the Plan, but until termination of the Plan the Company shall at all times
reserve a sufficient number of Shares to meet the requirements of the Plan.
Should any Shares subject to Purchase Rights on the Enrollment Date of an
Offering Period fail to be purchased on the Purchase Date for such Offering
Period, such Shares may again be made available for purchase with respect to a
subsequent Offering Period.

(b) Not less than 15 days prior to each Offering Period, the Administrator
shall determine the maximum number of Shares (if any) that will be available for
purchase for such Offering Period. Each Participant will have a Purchase Right
to purchase the number of full Shares equal to

-3-
<PAGE>

the quotient of (i) the amount in the Participant's Account on the Purchase
Date, and (ii) the Purchase Price of the Shares for the Offering Period, all
subject to the maximum amounts, and the adjustments, if any, in Section 8.

(c) In the event that as of the Enrollment Date of reference the quotient
of (i) the aggregate Directed Withholdings of all Participants for the Offering
Period, divided by (ii) the Purchase Price of a Share on such Enrollment Date
exceeds the number of Shares designated by the Board in the first sentence of
Section 3(b) by a percentage (not less than 50%) specified by the Board at the
time it determines the number of Shares under Section 3(b) above (and in the
absence of a specification by the Board, the percentage shall be deemed to be
50%), the Administrator will take reasonable steps to reduce, as nearly as
reasonably possible, each Participant's Directed Withholding to an amount equal
to the product of (x) his Directed Withholding, and (y) a fraction, the
numerator of which is the product of the percentage specified by the
Administrator in (ii) multiplied by the number of Shares designated by the
Administrator in the first sentence of Section 3(b), and the denominator of
which is the quotient of (i) and (ii) above.

SECTION 4. PARTICIPATION AND DEDUCTION OF DIRECTED WITHHOLDING.

(a) During the 45 days ending on the Enrollment Date for the Offering
Period of reference, each Eligible Employee may become a Participant for such
Offering Period by filing with the Administrator a written Direction to Withhold
setting forth the amount of such Eligible Employee's Directed Withholding.
Notwithstanding the foregoing, in the case of the initial Offering Period
hereunder, the Board, in its sole discretion, may extend the period during which
a Direction to Withhold may be filed for any period, not to exceed 60 days after
the Enrollment Date for such initial Offering Period, it selects and
communicates to the Eligible Employees.

(b) All amounts deducted from a Participant's Compensation under this Plan
shall be credited to such Participant's Account, but shall remain the
unencumbered assets of the Employer.

SECTION 5. RECISION, OR TERMINATION OF EMPLOYMENT.

(a) A Participant may not increase or decrease the amount of his Directed
Withholding during an Offering Period; except, however, (i) a Participant may
rescind his Direction to Withhold in its entirety at any time prior to the
Purchase Date for the Offering Period of reference by filing a written Election
to Rescind with the Administrator prior to December 16 of the Offering Period of
reference, (ii) a Participant will be deemed to have rescinded his Direction to
Withhold in its entirety in the event that his Compensation payable on any
Payroll Date is insufficient to fund the Directed Withholding for such Payroll
Date and such Participant fails to furnish the Administrator with personal funds
in an amount sufficient to complete the Directed Withholding for such Payroll
Date on or before the next Payroll Date, and (iii) a Participant will be deemed
to have rescinded his Direction to Withhold in its entirety in the event of his
termination of employment by an Employer prior to the Purchase Date for the
Offering Period of reference.

(b) If an event described in either Section 5(a)(i), (ii) or (iii) occurs
with respect to a Participant before the Purchase Date of reference, the entire
amount credited to such Participant's

-4-
<PAGE>

Account automatically will be paid to such Participant in a lump sum, in cash,
as soon as reasonably possible following such occurrence.

(c) The occurrence of an event described in Section 5(a)(i), (ii) or (iii)
with respect to a Participant during an Offering Period shall not limit such
Participant's right to file a Direction to Withhold with respect to any later
Offering Period provided that at such time Participant is an Eligible Employee.

SECTION 6. EXERCISE OF PURCHASE RIGHT. The Participant's Purchase Right
will be exercised automatically on each Purchase Date by debiting his Account
with the Purchase Price of the Shares subject to his Purchase Right, and
refunding (in a lump sum, in cash) the amount, if any, credited to his Account
that exceeds such Purchase Price.

SECTION 7. DELIVERY. As promptly as practicable after each Purchase Date,
the Administrator shall arrange the delivery to each Participant of a
certificate representing the Shares purchased on such Purchase Date.

SECTION 8. MAXIMUM SHARES, AND REDUCTION IN SHARES, SUBJECT TO PURCHASE
RIGHTS.

(a) Notwithstanding any provision hereof to the contrary, the maximum
number of Shares subject to each Participant's Purchase Right at any time during
the Offering Period shall be that number of Shares equal to the lesser of (i)
that number of Shares that has an aggregate Fair Market Value on the Enrollment
Date equal to $25,000, and (ii) that number of Shares that may be purchased with
the lesser of the maximum Directed Withholding amounts described in (x) and (y)
of Section 2(i) at the Purchase Price set forth in Section 2(v)(i), and (iii)
the maximum number of Shares (if any) that will not cause the Participant to
exceed the 5% ownership limitation of Section 2(l).

(b) If, on a Purchase Date, the maximum number of Shares available for
purchase as determined under Section 3(b) is less than the number of Shares
subject to all then existing Purchase Rights (as limited by Section 8(a), if
applicable), the Administrator will reduce the number of Shares subject to each
Participant's Purchase Right to an amount equal to the product of (i) the
maximum Shares available for purchase as determined under Section 3(b), and (ii)
a fraction, the numerator of which is the amount in such Participant's Account
(after such reductions, if any, required by the proviso of Section 2(i)), and
the denominator of which is the amount in the Accounts of all Participants
(after such reductions, if any, required by the proviso of Section 2(i)).

SECTION 9. VOTING AND REGISTRATION.

(a) A Participant will have no interest or voting right in or other
privileges relating to Shares subject to a Purchase Right until delivery of the
certificate representing such Shares.

(b) Shares to be delivered to a Participant will be registered in the name
of the Participant.

SECTION 10. ADMINISTRATION. The Plan shall be administered by the
Administrator, which will be the Board or a committee appointed by the Board.
If a committee of the Board is appointed

-5-
<PAGE>

by the Board to act as Administrator, such committee shall have all of the
powers of the Board with respect to the Plan except for those powers set forth
in Section 16 hereof. The administration, interpretation or application of the
Plan by the Administrator shall be final, conclusive and binding upon all
Participants. Until the Board is advised by legal counsel that such limitation
is no longer required, Eligible Employees with respect to the Offering Period of
reference may not actively serve as a member of the Administrator with respect
to the Offering Period of reference or the succeeding Offering Period.

SECTION 11. DESIGNATION OF BENEFICIARY.

(a) A Participant may file a written designation of a beneficiary who is to
receive any cash as a result of the Participant's death prior to a Purchase
Date, or to receive any Shares (and excess cash, if any) in the event of
Participant's death subsequent to a Purchase Date but before delivery of the
Shares (and excess cash, if any).

(b) Such designation of beneficiary may be changed by the Participant at
any time by written notice. In the event of the death of a Participant without
a designated surviving beneficiary, the Administrator shall deliver such cash
and/or Shares to the spouse of the Participant or, if there is no surviving
spouse, then to the executor or administrator of the estate of the Participant.

SECTION 12. TRANSFERABILITY. Neither payroll deductions credited to
Participant's Account, nor any rights with regard to the making or recision of a
Directed Withholding, nor the right to receive Shares (and excess cash, if any)
may be assigned, transferred, pledged or otherwise disposed of in any way (other
than as provided in Section 11) by the Participant. Any such attempt at
assignment, transfer, pledge or other disposition shall be without effect.

SECTION 13. USE OF FUNDS. All payroll deductions received or held by the
Employer under the Plan may be used by the Employer for any corporate purpose,
and the Employer shall not be obligated to segregate such payroll deductions.

SECTION 14. REPORTS AND WITHHOLDING.

(a) Statements will be given to all Participants within a reasonable time
following a Purchase Date, which statements will set forth the amounts of
payroll deductions, the per Share Purchase Price, the number of Shares purchased
(and an explanation of any reduction in the Shares subject to the Purchase
Right), and the remaining cash balance, if any.

(b) Each person who acquires Shares hereunder shall agree as a condition
of such acquisition that he shall notify his Employer in the event he disposes
of the Shares before the second anniversary of the Enrollment Date on which he
acquired the Purchase Right with respect to such Shares, and in the event of
such disposition while an employee of the Employer, and upon the exercise of the
Purchase Right, the Employer may withhold from such Participant's current
Compensation such amount as it reasonably determines to be necessary to satisfy
the Company's obligation to withhold for federal and state taxes with respect to
such events.

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<PAGE>

SECTION 15. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.

(a) If a stock dividend, stock split, spinoff, recapitalization, merger,
consolidation, exchange of shares or the like, occurs during an Offering Period,
as a result of which shares of any class shall be issued in respect of the
Shares subject to purchase with respect to such Offering Period, or such Shares
shall be changed into a different number of the same or another class or
classes, the number of Shares to which each Purchase Right shall be applicable
and the calculation of the Fair Market Value as of the Enrollment Date for such
Shares shall be appropriately adjusted by the Company in a manner that in its
sole discretion will keep this Plan qualified under Section 423 of the Code.

(b) In the event of the proposed dissolution or liquidation of the Company,
the Offering Period will close, and the Purchase Date will occur, 15 days
immediately prior to the consummation of such proposed action, all Participants
will be notified in advance of such revised Purchase Date, and each Participant
will be entitled to complete all or any portion of the funding of such
Participant's Directed Withholding with personal funds. In the event of a
proposed sale of all or substantially all of the assets of the Company, or the
merger of the Company with or into another corporation, either (i) the event
will be deemed to constitute the dissolution or liquidation of the Company and
Participants shall have the rights set forth in the first sentence hereof, or
(ii) this Plan, and each Purchase Right shall be assumed or an equivalent plan
and right shall be substituted by such successor corporation or a parent or
subsidiary of such successor corporation.

SECTION 16. AMENDMENT OR TERMINATION. The Board may at any time and for any
reason terminate or amend the Plan, provided, however, that the Plan may not be
amended without compliance with any applicable shareholder approval requirements
promulgated under the Internal Revenue Code, if applicable, or by any stock
exchange or market on which the Common Stock is listed for trading, all as
reasonably determined by the Administrator. Except as specifically provided in
the Plan, no such termination or amendment can reduce such rights as a
Participant would have if the effective date of the termination or amendment
were deemed to be a liquidation or dissolution of the Company, with the
resulting rights, duties and obligations set forth in Section 15(b).

SECTION 17. NOTICES. All notices or other communications shall be deemed
to have been duly given (i) if by a Participant to the Administrator, when
received in the required form at the corporate home office of the Company,
addressed to "Administrator, Employee Stock Purchase Plan," and (ii) if by the
Administrator to the Participant, when mailed to the last known address of
Participant shown on the Employer's records.

SECTION 18. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be
issued unless such issuance and delivery shall comply with all applicable
provisions of law, domestic or foreign, and the requirements of any stock
exchange upon which the Shares may then be listed, including, in each case the
rules and regulations promulgated thereunder, and shall be further subject to
the approval of counsel for the Company with respect to such compliance, which
may include a representation and warrants from the Participant that the Shares
are being purchased only for investment and without any present intention to
sell or distribute such Shares.

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<PAGE>

SECTION 19. TERM OF PLAN. The Plan shall become effective on the date of
the IPO and shall terminate on the last day of the year in which occurs the 9th
anniversary of the date of the IPO.

SECTION 20. MISCELLANEOUS.

(a) EXECUTION OF RECEIPTS AND RELEASES. Any payment or any issuance
or transfer of Shares to any person shall be in full satisfaction of all claims
hereunder against the Plan, and the Administrator may require such person, as a
condition precedent to receiving delivery of Shares, to execute a receipt and
release therefor in such form as it shall determine.

(b) PAYMENT OF EXPENSES. All expenses incident to the administration,
termination, or protection of the Plan, including, but not limited to, legal and
accounting fees, shall be paid by the Company.

(d) INTERPRETATIONS AND ADJUSTMENTS. To the extent permitted by law,
an interpretation of the Plan and a decision on any matter within the Board's or
Administrator's discretion made in good faith is binding on all persons. A
misstatement or other mistake of fact shall be corrected when it becomes known
and the person responsible shall make such adjustment on account thereof as he
considers equitable and practicable.

(e) NO RIGHTS IMPLIED. Nothing contained in this Plan or any
modification or amendment to the Plan or in the creation of any Account, or the
execution of any subscription agreement, or the issuance of any Shares under the
Plan, shall give any Employee any right to continue employment or any legal or
equitable right against the Company or any officer, director, or Employee of the
Company, except as expressly provided by the Plan.

(f) INFORMATION. The Company shall, upon request or as may be
specifically required hereunder, furnish or cause to be furnished, all of the
information or documentation which is necessary or required by the Board and/or
Administrator to perform its duties and functions under the Plan. The Company's
records as to the current information the Company furnishes to the Board and/or
Administrator shall be conclusive as to all persons.

(g) SEVERABILITY. In the event any provision of the Plan shall be
held to be illegal or invalid for any reason, the illegality or invalidity shall
not affect the remaining provisions of the Plan, but shall be fully severable
and the Plan shall be construed and enforced as if the illegal or invalid
provision had never been included herein.

(h) HEADINGS; GENDER. The titles and headings are included for
convenience of reference only and are not to be considered in construction of
the provisions hereof. Words used in the masculine shall apply to the feminine
where applicable, and whenever the context of the Plan dictates, the plural
shall be read as the singular and the singular as the plural.

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<PAGE>

(i) NO LIABILITY FOR GOOD FAITH DETERMINATIONS; ACTIONS. Neither the
members of the Board nor the Administrator (nor their respective delegatees)
shall be liable for any act, omission, or determination taken or made in good
faith with respect to the Plan or any right to purchase Shares granted under it,
and members of the Board and the Administrator (and their delegatees) shall be
entitled to indemnification and reimbursement by the Company in respect of any
claim, loss, damage, liability or expense (including attorneys' fees, the costs
of settling any suit, provided such settlement is approved by independent legal
counsel selected by the Company, and amounts paid in satisfaction of a judgment,
except a judgment based on a finding of bad faith) arising therefrom to the full
extent permitted by law and under any directors' and officers' liability or
similar insurance coverage that may from time to time be in effect. The Company
assumes no liability to any Participant or his legal representatives, heirs,
legatees or distributees for any act of, or failure to act on the part of, the
Company, the Board or the Administrator.

(j) GOVERNING LAW. All questions arising with respect to the
provisions of this Plan shall be determined by application of the laws of the
State of Colorado except to the extent Colorado law is preempted by federal law.

IN WITNESS WHEREOF, the undersigned has executed this Plan as of this _____
day of ______________, 1996 to fully evidence the Company's adoption thereof, to
be effective as provided in Section 19 hereof.

MATRIX CAPITAL CORPORATION

By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------

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<PAGE>

EXHIBIT A
---------

EMPLOYEE STOCK PURCHASE PLAN
FOR
MATRIX CAPITAL CORPORATION

DIRECTION TO WITHHOLD

1. I, the undersigned, hereby elect to participate in the Employee Stock
Purchase Plan for Matrix Capital Corporation (the "Plan") for the
"Offering Period" beginning on the next Enrollment Date and ending on
the following December 31, and subscribe to purchase Shares of the
Stock in accordance with this Direction to Withhold and the Plan.

2. I hereby authorize payroll deductions on each of my Payroll Dates
during the Offering Period in the amount set forth below [YOU MUST
FILL IN ALL OF BLANKS [1], [2] AND [3]]:

[1] $________________ on each of the [2] ____________ Payroll
Dates during the Offering Period, for a total of [3] $___________
{Multiply [1] and [2]}

NOTE: the amount in [3] above cannot be less than $500, nor more
than 25% of the basic compensation you are scheduled to earn
during the Offering Period, not to exceed $21,250. Determine your
basic compensation based on your current hourly pay rate, or
salary.

3. I direct the Administrator to use the amount in my Account on the
Purchase Date to purchase the maximum number of Shares that are
available to me under the terms of the Plan.

4. I understand and agree that my right to participate in the Plan is
governed by the Plan and the rules of the Administrator developed
under the Plan, and that, among other things, I understand and agree:

. That I may not change the amount of my withholding during the
Offering Period.

. That the amount of my withholding will be reduced by the
Administrator if it exceeds 25% of my Considered Compensation,
and that in any case it may not exceed $21,250.

. That the amount of my withholding may be reduced by the
Administrator if it appears unlikely that I will need all of the
withholding I have elected in order to purchase the number of
Shares that will be available to me on the Purchase Date, and may
also be reduced for other reasons relating to the continued
qualification of the Plan.

<PAGE>

. That I may completely discontinue withholding, and receive a
refund of all amounts previously withheld from my pay by filing
an Election To Rescind with the Administrator before December
16th. .

. That I automatically will be withdrawn from the Plan, and all
amounts previously withheld from my pay refunded to me, if my pay
on any Payroll Date is insufficient to satisfy my Directed
Withholding and I fail pay the amount of the insufficiency to the
Administrator on or before my next Payroll Date.

. That I will automatically be withdrawn from the Plan, and all
amounts previously withheld from my pay refunded to me, if I
terminate my employment with the Company before the end of the
year.

. That if I have not discontinued withholding before December 16th
of the Offering Period, the amounts withheld during Offering
Period automatically will be used to purchase the maximum number
of Shares available to me under the terms of the Plan.

5. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Plan is in all respects
subject to the terms of the Plan.

6. I hereby agree to be bound by the terms of the Plan. The effectiveness
of this Direction to Withhold is dependent upon my continued
eligibility to participate in the Plan.

7. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all refunds of my withholding (or Shares
if I die after the last business day in September) due me under the
Plan, in equal amounts if more than one person is named:

BENEFICIARY(IES) NAME(s): (Please print)
-------------------------------------

- ------------------------------------ -------------------------------------
Relationship(s) Telephone Number(s)

Name and Address of Participant [Print]: Signature:

- ---------------------------- --------------------------------------------
Date:
- ---------------------------- --------------------------

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

<PAGE>

Acknowledgment

The undersigned, acting for the Administrator of the Plan, acknowledges
receipt of the above Direction To Withhold prior to the Enrollment Date of the
Offering Period of reference.

DATE RECEIVED:
-----------------

ADMINISTRATOR

------------------------------
<PAGE>

EXHIBIT B
---------

EMPLOYEE STOCK PURCHASE PLAN
FOR
MATRIX CAPITAL CORPORATION

ELECTION TO RESCIND

1. I, the undersigned, hereby elect to rescind my prior Direction to
Withhold and thereby to terminate my participation in the Employee
Stock Purchase Plan (the "Plan") for Matrix Capital Corporation for
the current "Offering Period."

2. I direct the Company to pay me, as promptly as possible, the payroll
deductions credited to my account during the current Offering Period.

3. I understand and agree that my termination of participation is
irrevocable, and that under no circumstances will I be entitled to
purchase any portion of the Shares available under the Plan for
purchase during the current Offering Period, although I continue to be
eligible to file a new Direction to Withhold with respect to any
future Offering Period(s) for which I otherwise qualify.

Name and Address of Participant (Print): Signature:

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

- ----------------------------
Date:
- ---------------------------- ------------

Acknowledgment

The undersigned, acting for the Administrator of the Plan, acknowledges
receipt of the above Election To Rescind prior to December 16 of the current
Offering Period.

DATE RECEIVED:
-----------------
ADMINISTRATOR

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

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated March 1, 1996, except for Note 17 to the
consolidated financial statements, as to which the date is September 19, 1996,
with respect to the consolidated financial statements of Matrix Capital
Corporation as of December 31, 1994 and 1995 and for each of the three years
in the period ended December 31, 1995, in the Registration Statement (Form S-1
No. 333-10223) and related Prospectus of Matrix Capital Corporation for the
registration of 2,012,500 shares of its common stock.

/s/ Ernst & Young LLP

Phoenix, Arizona

September 26, 1996

<PAGE>

EXHIBIT 23.2

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 18, 1993, with respect to the consolidated
statement of operations of Dona Ana Savings and Loan Association, F.A. included
in the Registration Statement and related Prospectus of Matrix Capital
Corporation for the registration of 2,012,500 shares of its common stock.

Kriegel & Co., Ltd.
Las Cruces, New Mexico

September 25, 1996