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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________
Commission file number: 0-21231
MATRIX BANCORP, INC.
(Exact name of registrant as specified in its charter)
Colorado 84-1233716
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1380 Lawrence Street, Suite 1300 Denver,
Colorado 80204
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 595-9898
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Number of shares of Common Stock ($.0001 par value) outstanding at the
close of business on July 26, 2002 was 6,454,244 shares.
TABLE OF CONTENTS
PART I - Financial Information
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets
June 30, 2002 (unaudited) and December 31, 2001...................................3
Condensed Consolidated Statements of Income
Quarters and six months ended June 30, 2002 and 2001 (unaudited)..................4
Condensed Consolidated Statements of Shareholders' Equity
Six months ended June 30, 2002 and 2001 (unaudited)...............................5
Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 2002 and 2001 (unaudited)...............................6
Notes to Unaudited Condensed Consolidated Financial Statements..........................7
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................................12
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk..............................23
PART II - Other Information
ITEM 1. Legal Proceedings.......................................................................24
ITEM 4. Submissions of Matters to a Vote of Security Holders....................................24
ITEM 6. Exhibits and Reports on Form 8-K........................................................24
SIGNATURES............................................................................................26
2
Part I - Financial Information
Item 1. Financial Statements
Matrix Bancorp, Inc.
Condensed Consolidated Balance Sheets
(Dollars in thousands)
June 30, December 31,
2002 2001
------------------ ------------------
(Unaudited)
Assets
Cash and cash equivalents........................................................ $ 56,758 $ 52,501
Interest-earning deposits and federal funds sold................................. 17,728 31,959
Securities available for sale.................................................... 14,574 6,963
Loans held for sale, net......................................................... 1,104,293 1,157,989
Loans held for investment, net................................................... 199,542 191,161
Mortgage servicing rights, net................................................... 79,950 78,712
Other receivables ............................................................... 62,864 71,239
Federal Home Loan Bank stock, at cost............................................ 31,251 18,181
Premises and equipment, net...................................................... 28,762 13,631
Other assets, net................................................................ 27,501 24,451
------------------ ------------------
Total assets..................................................................... $ 1,623,223 $ 1,646,787
================== ==================
Liabilities and shareholders' equity
Liabilities:
Deposits...................................................................... $ 789,342 $ 866,235
Custodial escrow balances..................................................... 117,563 129,665
Drafts payable................................................................ 24,636 28,875
Payable for purchase of mortgage servicing rights............................. 2,850 4,738
Federal Home Loan Bank borrowings............................................. 446,923 303,361
Borrowed money................................................................ 74,075 162,532
Guaranteed preferred beneficial interests..................................... 59,500 59,500
Other liabilities and deferred income taxes payable........................... 32,558 19,434
Income taxes payable.......................................................... 2,236 1,135
------------------ ------------------
Total liabilities................................................................ 1,549,683 1,575,475
------------------ ------------------
Commitments and contingencies
Shareholders' equity:
Preferred stock, par value $0.0001; authorized 5,000,000 shares; no shares
outstanding................................................................. - -
Common stock, par value $0.0001; authorized 50,000,000 shares; issued and
outstanding 6,454,244 and 6,518,604 shares at June 30, 2002 and December
31, 2001, respectively...................................................... 1 1
Additional paid in capital.................................................... 20,080 20,800
Retained earnings............................................................. 53,428 50,486
Accumulated other comprehensive income........................................ 31 25
------------------ ------------------
Total shareholders' equity....................................................... 73,540 71,312
------------------ ------------------
Total liabilities and shareholders' equity....................................... $ 1,623,223 $ 1,646,787
================== ==================
See accompanying notes.
3
Matrix Bancorp, Inc.
Condensed Consolidated Statements of Income
(Dollars in thousands, except share information)
(Unaudited)
Quarter Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
--------------- --------------- --------------- ---------------
Interest income
Loans and securities........................................ $ 22,403 $ 29,309 $ 44,974 $ 55,704
Interest-earning deposits................................... 316 517 559 1,263
--------------- --------------- --------------- ---------------
Total interest income....................................... 22,719 29,826 45,533 56,967
--------------- --------------- --------------- ---------------
Interest expense
Deposits.................................................... 5,397 9,764 11,894 18,255
Borrowed money and guaranteed preferred beneficial interests 5,043 8,929 9,737 18,916
--------------- --------------- --------------- ---------------
Total interest expense...................................... 10,440 18,693 21,631 37,171
--------------- --------------- --------------- ---------------
Net interest income before provision for loan and valuation 12,279 11,133 23,902 19,796
losses....................................................
Provision for loan and valuation losses..................... 642 526 1,700 1,503
--------------- --------------- --------------- ---------------
Net interest income after provision for loan and valuation
losses.................................................... 11,637 10,607 22,202 18,293
--------------- --------------- --------------- ---------------
Noninterest income
Loan administration......................................... 8,266 7,979 17,005 15,764
Brokerage................................................... 75 954 659 1,855
Trust services.............................................. 1,348 1,167 2,741 2,496
Real estate disposition services............................ 1,113 645 1,895 1,255
Gain on sale of loans and securities........................ 149 147 149 1,403
Gain on sale of mortgage servicing rights, net.............. 1,066 435 1,066 435
Loan origination............................................ 8,054 7,420 16,226 12,278
School services............................................. 1,379 1,400 2,820 2,488
Other....................................................... 2,047 1,804 4,362 2,554
--------------- --------------- --------------- ---------------
Total noninterest income.................................... 23,497 21,951 46,923 40,528
--------------- --------------- --------------- ---------------
Noninterest expense
Compensation and employee benefits.......................... 14,950 12,784 29,612 23,771
Amortization of mortgage servicing rights................... 5,162 6,167 11,035 9,588
Occupancy and equipment..................................... 1,830 1,634 3,519 3,183
Postage and communication................................... 1,148 1,067 2,287 1,982
Professional fees........................................... 597 837 1,309 1,387
Data processing............................................. 769 668 1,645 1,340
Other general and administrative............................ 9,726 6,849 15,668 11,563
--------------- --------------- --------------- ---------------
Total noninterest expense................................... 34,182 30,006 65,075 52,814
--------------- --------------- --------------- ---------------
Income before income taxes.................................. 952 2,552 4,050 6,007
Provision for income taxes.................................. 48 924 1,108 2,071
--------------- --------------- --------------- ---------------
Income before cumulative effect of a change in
accounting principle.................................... 904 1,628 2,942 3,936
Less cumulative effect of a change in accounting principle,
net of tax benefit of $190............................... - - - 360
--------------- --------------- --------------- ---------------
Net income.................................................. $ 904 $ 1,628 $ 2,942 $ 3,576
=============== =============== =============== ===============
Net income per share before accounting change............... $ 0.14 $ 0.25 $ 0.45 $ 0.60
Less cumulative effect of a change in accounting principle.. - - - 0.05
--------------- --------------- --------------- ---------------
Net income per share........................................ $ 0.14 $ 0.25 $ 0.45 $ 0.55
=============== =============== =============== ===============
Net income per share assuming dilution before accounting $ 0.14 $ 0.25 $ 0.45 $ 0.60
change
Less cumulative effect of a change in accounting principle.. - - - 0.05
--------------- --------------- --------------- ---------------
Net income per share assuming dilution...................... $ 0.14 $ 0.25 $ 0.45 $ 0.55
=============== =============== =============== ===============
Weighted average shares..................................... 6,453,560 6,480,728 6,470,237 6,506,625
=============== =============== =============== ===============
Weighted average shares assuming dilution................... 6,601,209 6,551,176 6,591,262 6,558,886
=============== =============== =============== ===============
See accompanying notes.
4
Matrix Bancorp, Inc.
Condensed Consolidated Statements of Shareholders' Equity
(Dollars in thousands)
(Unaudited)
Accumulated
Additional Other Total
Common Stock Paid In Treasury Retained Comprehensive Shareholders' Comprehensive
-------------------
Shares Amount Capital Shares Earnings Income Equity Income
--------- -------- ---------- --------- ---------- -------------- ------------ ---------------
Six Months Ended
June 30, 2002
- --------------------------
Balance at December 31,
2001.................... 6,518,604 $ 1 $ 20,800 $ - $ 50,486 $ 25 $ 71,312
Comprehensive income:
Net income............. - - - - 2,942 - 2,942 $ 2,942
Net unrealized holding
gains (1).............. - - - - - 6 6 6
-------------
Comprehensive income...... $ 2,948
=============
Issuance of stock related
to employee stock
purchase plan and
options................ 1,700 - 6 - - - 6
Shares repurchased........ (66,060) - - (726) - - (726)
Shares retired............ - - (726) 726 - - -
------------ ------ --------- -------- --------- ---------- -----------
Balance at June 30, 2002.. 6,454,244 $ 1 $ 20,080 $ - $ 53,428 $ 31 $ 73,540
============ ====== ========= ======== ========= ========== ===========
Six Months Ended
June 30, 2001
- --------------------------
Balance at December 31,
2000.................... 6,558,904 $ 1 $ 23,004 $ (1,775) $ 41,974 $ 819 $ 64,023
Comprehensive income:
Net income............. - - - - 3,576 - 3,576 $ 3,576
Unrealized losses on
securities, net of
reclassification
adjustment............. - - - - - (818) (818) (818)
------------
Comprehensive income...... $ 2,758
============
Issuance of stock related
to employee stock
purchase plan and
options................ 500 - 4 - - - 4
Shares repurchased........ (80,500) - - (685) - - (685)
------------ ------ --------- -------- --------- ---------- -----------
Balance at June 30, 2001.. 6,478,904 $ 1 $ 23,008 $ (2,460) $ 45,550 $ 1 $ 66,100
============ ====== ========= ======== ========= ========== ===========
(1) Disclosure of reclassification amount
Six Months Ended
June 30, 2002
- --------------------------------------
Unrealized holding
gain arising during
period............................ $ 6
Less:
reclassification
adjustment of gains
included in net income............ -
------------
Net unrealized gain
on securities..................... $ 6
============
See accompanying notes.
5
Matrix Bancorp, Inc.
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Six Months Ended
June 30,
2002 2001
------------- -------------
Operating activities
Net income.................................................................. $ 2,942 $ 3,576
Adjustments to reconcile net income to net provided by (cash used)
in operating activities:
Depreciation and amortization............................................ 1,665 1,526
Provision for loan and valuation losses.................................. 1,700 1,503
Amortization of mortgage servicing rights................................ 11,035 9,588
Gain on sale of loans and securities..................................... (149) (1,403)
Gain on sale of mortgage servicing rights................................ (1,066) (435)
Loans originated for sale, net of loans sold............................. 220,820 (383,906)
Loans purchased for sale................................................. (249,691) (36,660)
Proceeds from sale of loans purchased for sale........................... 35,843 68,657
(Increase) decrease in securities held for sale......................... (7,602) 63,331
Originated mortgage servicing rights, net................................ (23,485) (10,697)
(Increase) decrease in other receivables and other assets................ 12,015 (27,881)
Increase in other liabilities, deferred income taxes payable and income
taxes payable.......................................................... 14,222 463
------------- -------------
Net cash provided by (used in) operating activities......................... 18,249 (312,338)
Investing activities
Loans originated and purchased for investment............................... (72,389) (100,121)
Principal repayments on loans............................................... 104,941 216,803
Redemption (purchase) of Federal Home Loan Bank stock....................... (13,070) 6,480
Purchases of premises and equipment......................................... (16,668) (12,929)
Acquisition of mortgage servicing rights.................................... (1,888) (7,553)
Servicing hedging activity.................................................. 1,219 -
Proceeds from sale of mortgage servicing rights............................. 4,242 451
------------- -------------
Net cash provided by investing activities................................... 6,387 103,131
Financing activities
Net increase (decrease) in deposits......................................... (76,893) 246,106
Net increase (decrease) in custodial escrow balances........................ (12,102) 55,394
Increase (decrease) in revolving lines and repurchase agreements, net....... 55,493 (83,041)
Payment of notes payable.................................................... (357) (844)
Proceeds from notes payable................................................. - 1,786
Proceeds from issuance of guaranteed preferred beneficial interests......... - 11,592
Payment of financing arrangements........................................... (31) (42)
Treasury shares repurchased................................................. (726) (685)
Proceeds from issuance of common stock related to employee stock option
plan..................................................................... 6 4
------------- -------------
Net cash (used in) provided by financing activities......................... (34,610) 230,270
------------- -------------
(Decrease) increase in cash and cash equivalents............................ (9,974) 21,063
Cash and cash equivalents at beginning of period............................ 84,460 53,170
------------- -------------
Cash and cash equivalents at end of period.................................. $ 74,486 $ 74,233
============= =============
Supplemental disclosure of cash flow information
Cash paid for interest expense.............................................. $ 24,055 $ 33,748
============= =============
Cash (received) paid for income taxes....................................... $ (2,970) $ 4,030
============= =============
See accompanying notes.
6
Matrix Bancorp, Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 2002
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Matrix
Bancorp, Inc. (the "Company") have been prepared in accordance with accounting
principles generally accepted in the United States of America for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by accounting principles generally accepted in the United States
of America for complete financial statements. In the opinion of management, all
adjustments (consisting of only normal recurring accruals) necessary for a fair
presentation have been included. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 2001.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amounts of assets and liabilities at
the date of the condensed consolidated financial statements, and disclosures of
contingent assets and liabilities, and the reported amounts of income and
expenses during the reporting period and the accompanying notes. Actual results
could differ from these estimates.
2. New Accounting Standards
In June 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible
Assets, that superseded Accounting Principles Board (APB) Opinion No. 17. Under
SFAS 142, goodwill and intangible assets deemed to have indefinite lives are no
longer amortized, but are to be reviewed at least annually for impairment. SFAS
142 also changes the amortization methodology in intangible assets that are
deemed to have finite lives, and adds to required disclosures regarding goodwill
and intangible assets. SFAS 142 is effective for fiscal years beginning after
December 15, 2001. The adoption of SFAS 142 on January 1, 2002 did not have a
material impact on the consolidated financial statements, and is not anticipated
to have a material impact in the future. Amortization of goodwill previously
reported in net income is not material. Under guidance in SFAS 142, management
has performed an analysis concerning potential impairment on the goodwill and,
at this time, no impairment is determined necessary. The analysis will be
performed annually. The net carrying amount of goodwill at January 1, 2002 was
$1.0 million.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, that superseded SFAS No. 121 and APB Opinion No.
30. SFAS 144 provides guidance on differentiating between assets held and used,
held for sale, and held for disposal other than by sale, and the required
valuation of such assets. SFAS 144 is effective for fiscal years beginning after
December 15, 2001. The adoption of SFAS No. 144 on January 1, 2002 did not have
a material impact on the consolidated financial statements, and is not
anticipated to have a material impact in the future.
3. Net Income Per Share
The following table sets forth the computation of net income per share and net
income per share assuming dilution:
Quarter Ended June 30, Six Months Ended June 30,
2002 2001 2002 2001
------------- --------------- -------------- ---------------
(Dollars in thousands)
Numerator:
Net income............................ $ 904 $ 1,628 $ 2,942 $ 3,576
============= =============== ============== ===============
Denominator:
Weighted average shares outstanding... 6,453,560 6,480,728 6,470,237 6,506,625
Effect of dilutive securities:
Common stock options.............. 147,649 70,448 121,025 52,261
------------- --------------- -------------- ---------------
Potential dilutive common shares...... 147,649 70,448 121,025 52,261
------------- --------------- -------------- ---------------
Denominator for net income per
share assuming dilution............. 6,601,209 6,551,176 6,591,262 6,558,886
============= =============== ============== ===============
7
Matrix Bancorp, Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 2002
(Unaudited)
4. Mortgage Servicing Rights
The activity in the mortgage servicing rights is summarized as follows:
Six Months Year Ended
Ended June 30, December 31,
2002 2001
------------------ ------------------
(In thousands)
Balance at beginning of period, net................... $ 78,712 $ 71,529
Purchases............................................. - 530
Originated, net........................................ 23,485 30,129
Amortization........................................... (11,035) (21,862)
Sales.................................................. (9,993) (1,433)
Impairment............................................. (1,219) (181)
------------------ ------------------
Balance at end of period, net......................... $ 79,950 $ 78,712
================== ==================
Amortization of mortgage servicing rights for the quarters ended June 30, 2002
and 2001 were $5.2 million and $6.2 million, respectively. Mortgage servicing
rights are amortized in proportion to and over the period of estimated future
net servicing income, and the calculation is adjusted quarterly. Amortization of
mortgage servicing rights fluctuates based on the size of the mortgage servicing
portfolio and the prepayment rates experienced with respect to the underlying
mortgage loan portfolio, among other factors, which are affected by the current
interest rate environment. Based on the nature of the components of the
calculation, future levels of amortization are difficult to predict.
The Company's servicing portfolio (excluding subserviced loans) was comprised of
the following:
June 30, 2002 December 31, 2001
------------------------------- ----------------------------------
Principal Principal
Number Balance Number Balance
of Loans Outstanding of Loans Outstanding
------------ -------------- --------------- ---------------
(Dollars in thousands)
Freddie Mac................................. 10,619 $ 510,230 12,422 $ 613,527
Fannie Mae.................................. 29,763 1,914,758 31,069 1,885,197
Ginnie Mae.................................. 27,031 1,926,940 26,718 1,820,691
VA, FHA, conventional and other loans....... 12,599 981,208 15,946 1,336,950
------------ -------------- --------------- ---------------
80,012 $ 5,333,136 86,155 $ 5,656,365
============ ============== =============== ===============
The Company's custodial escrow balances shown in the accompanying condensed
consolidated balance sheets at June 30, 2002 and December 31, 2001 pertain to
escrowed payments of taxes and insurance and principal and interest on loans
serviced by the Company.
8
Matrix Bancorp, Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 2002
(Unaudited)
5. Deposits
Deposit account balances are summarized as follows:
June 30, 2002 December 31, 2001
--------------------------------------- ---------------------------------------
Weighted Weighted
Average Average
Amount Percent Rate Amount Percent Rate
---------- ----------- ----------- ---------- ----------- -----------
(Dollars in thousands)
Passbook accounts.......... $ 5,999 0.76 % 2.00 % $ 4,291 0.50 % 3.12 %
NOW accounts............... 88,390 11.20 0.53 107,183 12.37 0.94
Money market accounts...... 306,150 38.79 1.36 249,234 28.77 2.11
---------- ----------- ----------- ---------- ----------- -----------
400,539 50.74 1.12 360,708 41.64 1.74
Certificate accounts....... 388,803 49.26 4.05 505,527 58.36 5.98
---------- ----------- ----------- ---------- ----------- -----------
$ 789,342 100.00 % 2.71 % $ 866,235 100.00 % 4.36 %
========== =========== =========== ========== =========== ===========
At June 30, 2002 and December 31, 2001, brokered deposits accounted for
approximately $221.9 million and $361.2 million, respectively, of the total
certificate accounts shown above.
6. Federal Home Loan Bank Stock and Borrowings
During the second quarter of 2001, the Company announced the relocation of the
domicile of its banking subsidiary, Matrix Capital Bank, from Las Cruces, New
Mexico to Denver, Colorado. The relocation was completed in the second quarter
of 2002. Matrix Bank is offering all of its existing banking services in the
Denver market.
In connection with the change of domicile, Matrix Bank now obtains Federal Home
Loan Bank (FHLB) advances from FHLB of Topeka, which is the FHLB that serves
Denver, Colorado. This change was approved March 25, 2002. Matrix Bank now
utilizes FHLB of Topeka as its primary correspondent bank. Long-term advances
that existed at March 25, 2002 with FHLB of Dallas are still outstanding under
their original terms.
The balances of FHLB stock are as follows:
June 30, December 31,
2002 2001
-------------------- --------------------
(In thousands)
FHLB of Dallas stock, at cost......................... $ 14,419 $ 18,181
FHLB of Topeka stock, at cost......................... 16,832 -
-------------------- --------------------
Total FHLB stock.................................... $ 31,251 $ 18,181
==================== ====================
The balances of FHLB borrowings are as follows:
June 30, December 31,
2002 2001
-------------------- --------------------
(In thousands)
FHLB of Dallas borrowings............................. $ 147,323 $ 303,361
FHLB of Topeka borrowings............................. 299,600 -
-------------------- --------------------
Total FHLB borrowings............................... $ 446,923 $ 303,361
==================== ====================
9
Matrix Bancorp, Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 2002
(Unaudited)
7. Guaranteed Preferred Beneficial Interests in Company's Junior Subordinated
Debentures
On July 30, 1999, Matrix Bancorp Capital Trust I, a Delaware business trust
formed by the Company, completed the sale of $27.5 million of 10% preferred
securities due September 30, 2029. The Company has the right to redeem the
securities, in whole or in part, on or after September 30, 2004, at a redemption
price specified in the indenture plus any accrued but unpaid interest to the
redemption date.
On March 28, 2001, Matrix Bancorp Capital Trust II, a Delaware business trust
created by the Company, completed the sale of $12.0 million of 10.18% preferred
securities due June 8, 2031. The Company has the right to redeem the preferred
securities on or after June 8, 2011, at a redemption price specified in the
indenture plus any accrued but unpaid interest to the redemption date.
On July 16, 2001, Matrix Bancorp Capital Trust III, a Delaware business trust
formed by the Company, completed the sale of $15.0 million of 10.25% preferred
securities due July 25, 2031. The Company has the right to redeem the
securities, in whole or in part, on or after July 25, 2006, at a redemption
price specified in the indenture plus any accrued but unpaid interest to the
redemption date.
On November 28, 2001, Matrix Bancorp Capital Trust IV, a Delaware business trust
formed by the Company, completed the sale of $5.0 million of floating rate
(six-month LIBOR plus 3.75%) preferred securities, due December 8, 2031. The
Company has the right to redeem the securities, in whole or in part, on or after
December 8, 2006, at a redemption price specified in the indenture plus any
accrued but unpaid interest to the redemption date.
8. Commitments and Contingencies
At June 30, 2002, the Company had $444.7 million in pipeline and funded loans
offset with mandatory forward commitments of $345.5 million and best effort
forward commitments of $99.3 million.
9. Relocation of Matrix Capital Bank's Domicile and Move of Office Space for
Matrix Bancorp and Certain Subsidiaries
During the second quarter of 2001, the Company announced a plan to relocate the
domicile of Matrix Bank to Denver, Colorado from Las Cruces, New Mexico. The
relocation was generally completed in May 2002 with the opening of Matrix Bank
operations in a high-rise building in downtown Denver which is owned by an
operating subsidiary of Matrix Bank. The building has been named Matrix
Financial Center. The purchase was completed in June 2002.
Associated with the purchase of Matrix Financial Center, Matrix Bancorp and
certain subsidiaries with various leased office space throughout the Denver
metropolitan area have or are planning to move their offices into Matrix
Financial Center. Associated with this move, approximately $700,000 pre-tax
charge has been recognized in other general and administrative expenses at June
30, 2002. The expenses consist of currently anticipated losses recognized as in
connection with amounts to be paid on the previous office space leases above
anticipated sub-lease payment amounts to be received. The move of subsidiary
offices to Matrix Financial Center is anticipated to be completed in the fourth
quarter of 2002.
10
Matrix Bancorp, Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 2002
(Unaudited)
10. Segment Information
Servicing
Traditional Mortgage Brokerage and School All Others
Banking Banking Consulting Services Total
------------- ------------ ---------------- ----------- ----------- ----------
(In thousands)
Quarter ended
June 30, 2002:
Revenues from external
customers:
Interest income......... $ 14,231 6,415 - $ 1,942 $ 131 $ 22,719
Noninterest income...... 1,069 17,167 1,088 1,821 2,352 23,497
Intersegment revenues....... 4,562 667 416 - 105 5,750
Segment profit (loss)....... 5,721 688 113 (4,273) 952
(1,297)
Quarter ended
June 30, 2001:
Revenues from external
customers:
Interest income......... $ 17,556 10,552 - $ 1,697 $ 21 $ 29,826
Noninterest income...... 1,725 13,651 1,230 1,534 3,811 21,951
Intersegment revenues....... 6,762 1,747 198 - 250 8,957
Segment profit (loss)....... 4,623 735 (87) (66) (2,653) 2,552
Six months ended
June 30, 2002:
Revenues from external
customers:
Interest income......... $ 27,189 14,626 - $ 3,492 $ 226 $ 45,533
Noninterest income...... 2,718 33,435 2,317 3,934 4,519 46,923
Intersegment revenues....... 9,630 1,383 416 - 1,445 12,874
Segment profit (loss)....... 11,590 2,313 263 (3,053) (7,063) 4,050
Six months ended
June 30, 2001:
Revenues from external
customers:
Interest income......... $ 38,213 15,416 - $ 3,243 $ 95 $ 56,967
Noninterest income...... 3,857 25,482 2,162 2,873 6,154 40,528
Intersegment revenues....... 11,466 3,361 331 - 955 16,113
Segment profit (loss)....... 10,743 1,885 (520) (398) (5,703) 6,007
Quarter Ended June 30, Six Months Ended June 30,
-------------------------------- --------------------------------
2002 2001 2002 2001
-------------- -------------- -------------- --------------
(In thousands)
Profit:
Total profit for reportable segments.............. $ 5,225 $ 5,205 $ 11,113 $ 11,710
Other loss........................................ (4,033) (2,681) (6,793) (5,714)
Adjustment of intersegment loss in consolidation.. (240) 28 (270) 11
-------------- -------------- -------------- --------------
Income before income taxes........................ $ 952 $ 2,552 $ 4,050 $ 6,007
============== ============== ============== ==============
11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
Matrix Bancorp, Inc. (occasionally referred to in this document, on a
consolidated basis, as "us," "we," the "Company" or similar terms) is a unitary
thrift holding company that, through our subsidiaries, focuses on traditional
banking, mortgage banking, trust and clearing activities, lending activities and
other fee-based services. Our traditional banking activities include originating
and servicing residential, commercial and consumer loans and providing a broad
range of depository services. Our mortgage banking activities consist of
purchasing and selling residential mortgage servicing rights; offering
brokerage, consulting and analytical services to financial services companies
and financial institutions; servicing residential mortgage portfolios for
investors; originating residential mortgages; and providing real estate
management and disposition services. Our trust and clearing activities focus
primarily on offering specialized custody and clearing services to banks, trust
companies, broker-dealers, third party administrators and investment
professionals, as well as the administration of self-directed individual
retirement accounts, qualified business retirement plans and custodial and
directed trust accounts. Our other fee-based services and lending activities
include providing outsourced business services, such as budgeting, governmental
reporting, accounts payable, payroll, facility and safety management and
comprehensive insurance programs to charter schools. We also offer financing to
charter schools for the purchase of school sites and equipment. Our primary
operating subsidiaries are: Matrix Capital Bank; Matrix Financial Services
Corporation; Matrix Capital Markets, Inc.; Matrix Asset Management Corporation;
ABS School Services, L.L.C.; Matrix Advisory Services, L.L.C.; Sterling Trust
Company; First Matrix Investment Services Corp.; plus an equity interest in
Matrix Settlement & Clearance Services, LLC. Associated with the purchase of
Matrix Financial Center, a subsidiary of Matrix Bank, Matrix Tower Holdings,
LLC, was formed during the quarter. The operations of Matrix Financial Center
will reside in Matrix Tower Holdings.
The principal components of our revenues consist of:
o net interest income recorded by Matrix Bank, Matrix Financial and ABS;
o loan origination fees generated by Matrix Financial, and to a lesser
extent, Matrix Bank;
o loan administration fees generated by Matrix Financial;
o brokerage and consulting and disposition services fees realized by Matrix
Capital Markets, First Matrix and Matrix Asset Management;
o trust service fees generated by Sterling Trust;
o gain on sales of mortgage loans and mortgage servicing rights generated by
Matrix Bank and Matrix Financial; and
o school service fees generated by ABS.
Our results of operations are influenced by changes in interest rates and the
effect of these changes on our interest margins, the volume of loan
originations, mortgage loan prepayments, and the value of mortgage servicing
portfolios. Our fee-based businesses are affected to a lesser extent by interest
rates and to a greater extent by competition and general market conditions.
Critical Accounting Policies
The Company and its subsidiaries have established various accounting policies
which govern the application of accounting principles generally accepted in the
United States of America in the preparation and presentation of the Company's
12
consolidated financial statements. The significant accounting policies of the
Company are described in note 2 of the consolidated financial statements on Form
10-K as of December 31, 2001. Certain accounting policies involve significant
judgments, assumptions and estimates by management that have a material impact
on the carrying value of certain assets and liabilities, which management
considers to be critical accounting policies. The judgments, assumptions and
estimates used by management are based on historical experience, knowledge of
the accounts and other factors, which are believed to be reasonable under the
circumstances. Because of the nature of the judgment and assumptions made by
management, actual results could differ from these judgments and estimates,
which could have a material impact on the carrying values of assets and
liabilities and the results of operations of the Company.
The Company believes the allowance for loan and valuation losses is a critical
accounting policy that requires significant judgments, assumptions and estimates
used in preparation of its consolidated financial statements. See discussion at
"--Asset and Liability Management, Analysis of Allowance for Loan and Valuation
Losses" in the Form 10-K for December 31, 2001 for a detailed description of the
Company's process and methodology related to the allowance for loan and
valuation losses.
The Company also considers the valuation of mortgage servicing rights to be a
critical accounting policy that requires judgments, assumptions and estimates
concerning impairment of their value in certain interest rate environments. See
discussion at "--Business, Mortgage Servicing Activities" in the Form 10-K for
December 31, 2001 for a detailed discussion of the nature of servicing rights,
and see note 2 of the consolidated financial statements on Form 10-K as of
December 31, 2001 for a detailed discussion concerning the valuation of mortgage
servicing rights.
The Company also considers the judgments and assumptions concerning litigation
as a critical accounting policy. The Company has been notified that we are a
defendant in a number of legal proceedings. Most of these cases involve ordinary
and routine claims incidental to our business. Based on management's analysis,
no accrual for loss has been made as of June 30, 2002 for any such cases. For a
full description of certain potentially significant proceedings, see the Legal
Proceedings section in the Form 10-K for December 31, 2001, and additional
discussion at Part II. Item I. "--Legal Proceedings" of this Form 10-Q. With
respect to all pending litigation matters, our ultimate legal responsibility, if
any, cannot be estimated with certainty. Based on the ultimate outcome of such
proceedings, it is possible that future results of operations for any particular
quarterly or annual period could be materially affected by changes in our
assumptions related to such proceedings.
Forward-Looking Information
Certain statements contained in this interim report that are not historical
facts, including, but not limited to, statements that can be identified by the
use of forward-looking terminology such as "may," "will," "expect,"
"anticipate," "predict," "believe," "plan," "estimate" or "continue" or the
negative thereof or other variations thereon or comparable terminology, are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, and involve a number of risks and uncertainties.
The actual results of the future events described in such forward-looking
statements in this interim report could differ materially from those stated in
such forward-looking statements. Among the factors that could cause actual
results to differ materially are: third party claims or actions in relation to
the ongoing or future bankruptcies of the Company's customers; interest rate
fluctuations; level of delinquencies; defaults and prepayments; general economic
conditions; competition; government regulation; possible future litigation; the
actions or inactions of third parties, including those that are parties to the
existing bankruptcies of the Company's customers or litigation related thereto;
unanticipated developments in connection with the bankruptcy actions or
litigation described above, including judicial variation from existing legal
precedent and the decision by one or more parties to appeal decisions rendered;
the risks and uncertainties discussed elsewhere in the Company's annual report
on Form 10-K, filed with the Securities and Exchange Commission on March 14,
2002; and in the Company's current report on Form 8-K, filed with the Securities
and Exchange Commission on March 14, 2001; and the uncertainties set forth from
time to time in the Company's periodic reports, filings and other public
statements.
13
Comparison of Results of Operations for the Quarters Ended June 30, 2002 and
2001
Net Income; Return on Average Equity. Net income, including charges for loss on
sublease of office space and impairment of mortgage servicing rights discussed
below, decreased $700,000 to $900,000, or $0.14 per diluted share, for the
quarter ended June 30, 2002 as compared to $1.6 million, or $0.25 per diluted
share, for the quarter ended June 30, 2001. Excluding special charges, net
income was a consistent $2.2 million for the quarters ended June 30, 2002 and
2001, and net income per share and return on average equity was $0.33 per
diluted share and 11.89%, respectively, for the quarter ended June 30, 2002 and
was $0.34 per diluted share and 13.7%, respectively, for the quarter ended June
30, 2001.
Special charges in 2002 consisted of $1.3 million after tax, or $0.19 per share,
for an impairment on mortgage servicing rights of approximately $840,000 after
tax, and approximately $420,000 after tax of current quarter charges related to
estimated losses on subleasing of office space previously occupied by various
subsidiaries and the holding company. The space was subleased to allow these
entities to move into Matrix Financial Center. Nonrecurring charges in 2001 of
$0.09 per share consisted of expenses related to the relocation of Matrix Bank's
domicile from Las Cruces, New Mexico to Denver, Colorado.
Net Interest Income. Net interest income before provision for loan and valuation
losses increased $1.2 million, or 10.3%, to $12.3 million for the quarter ended
June 30, 2002 as compared to $11.1 million for the quarter ended June 30, 2001.
Our net interest margin increased 78 basis points to 3.65% for the quarter ended
June 30, 2002 from 2.87% for the quarter ended June 30, 2001 and interest rate
spread increased to 3.31% for the quarter ended June 30, 2002 from 2.27% for the
quarter ended June 30, 2001. The increase in net interest income before
provision for loan and valuation losses was primarily due to a $66.2 million
increase in our average noninterest-bearing deposits between the two comparable
quarters, the effect of which exceeded the $206.4 million decrease in our total
interest-earning assets. The majority of the increase in noninterest-bearing
liabilities can be attributed to increases in escrow account balances. The 94
basis point decrease in the yield on our interest-earning assets was more than
offset by a 198 basis point decrease in the cost of our interest-bearing
liabilities. The decrease in yield was driven by a decrease in the yield earned
on our average loan portfolio to 6.89% for the quarter ended June 30, 2002 as
compared to 7.83% for the quarter ended June 30, 2001. The decrease in the cost
of interest-bearing liabilities was driven by decreases in interest rates, which
have significantly affected the rates paid by Matrix Bank for Federal Home Loan
Bank borrowings that decreased 210 basis points to 2.93% as compared to the
prior year. The interest rate on short-term borrowings fluctuates with the
federal funds rate which is at a 40-year low.
For a tabular presentation of the changes in net interest income due to changes
in the volume of interest-earning assets and interest-bearing liabilities, as
well as changes in interest rates, see "--Analysis of Changes in Net Interest
Income Due to Changes in Interest Rates and Volumes."
Provision for Loan and Valuation Losses. The provision for loan and valuation
losses increased $100,000 to $600,000 for the quarter ended June 30, 2002 as
compared to $500,000 for the quarter ended June 30, 2001. The increase in the
provision was mainly due to growth in the loan portfolio and specific loan
write-offs. For a discussion of the Company's allowance for loan losses as it
relates to nonperforming assets, see "--Asset Quality--Nonperforming Assets."
Loan Administration. Loan administration income represents service fees earned
from servicing loans for various investors, which are based on a contractual
percentage of the outstanding principal balance plus late fees, gains on sales
of repurchased FHA/VA loans, and other ancillary charges. Loan administration
fees increased $300,000, or 3.6%, to $8.3 million for the quarter ended June 30,
2002 as compared to $8.0 million for the quarter ended June 30, 2001. The
increase includes gains on sales of repurchased FHA/VA loans of $1.2 million for
each of the quarters ended June 30, 2002 and 2001. Gains on sale of repurchased
FHA/VA loans relate to delinquent loans which are purchased out of loan pools on
which the Company acts as servicer and then resells into the secondary market.
Loan service fees are also affected by factors that include the size of our
residential mortgage loan servicing portfolio, the servicing spread, the timing
of payment collections and the amount of ancillary fees received. Our mortgage
loan servicing portfolio had an average balance of $5.3 billion for the quarter
ended June 30, 2002 as compared to an average balance of $5.6 billion for the
quarter ended June 30, 2001. Actual service fee rate (including all ancillary
income) of 0.47% for the quarter ended June 30, 2002 remained consistent as
compared to 0.48% for the quarter ended June 30, 2001.
Loan Origination. Loan origination income includes all mortgage loans fees,
secondary marketing activity on new loan originations and servicing released
premiums on new originations sold, net of origination costs. Loan origination
14
income increased $600,000 to $8.0 million for the quarter ended June 30, 2002 as
compared to $7.4 million for the quarter ended June 30, 2001. The increase in
loan origination income resulted primarily from an increase in net income spread
to 65.5 basis points for the quarter ended June 30, 2002 as compared to 45.4
basis points for the quarter ended June 30, 2001. This increase was slightly
offset by a decrease in wholesale residential mortgage loan production to $786.7
million for the quarter ended June 30, 2002 as compared to $928.2 million for
the quarter ended June 30, 2001.
Brokerage Fees. Brokerage fees represent income earned from brokerage and
consulting services performed pertaining to mortgage servicing rights. Brokerage
fees decreased $900,000, or 92.1%, to $100,000 for the quarter ended June 30,
2002 as compared to $1.0 million for the quarter ended June 30, 2001. Brokerage
fees vary from quarter to quarter as the timing of servicing sales is dependent
upon, among other things, prevailing market conditions, and a seller's need to
recognize a sale or to receive cash flows. Due to turbulent market conditions,
combined with the loss of personnel, fees during the quarter ended June 30, 2002
were low. Based on the current market condition, the Company has increased its
focus on the brokerage of whole loans. We continue to be committed to the
servicing market through our analytical strengths and sales force. When the
market conditions improve, the Company anticipates the revenues to improve.
Trust Services. Trust service fees increased between the comparable quarters
with a $100,000, or 15.5% increase for the current quarter to $1.3 million as
compared to $1.2 million for the same quarter of the prior year. Trust accounts
under administration at Sterling Trust increased to 43,204 at June 30, 2002 from
40,321 at June 30, 2001 and total assets under administration increased to over
$6.4 billion at June 30, 2002 from approximately $5.7 billion at June 30, 2001.
Most of the growth in accounts and assets under administration occurred in third
party administrator accounts which are generally priced at lower fees based on
the level of administration required.
Real Estate Disposition Services. Real estate disposition services represents
fees earned by Matrix Asset Management for real estate management and
disposition services provided on foreclosed properties owned by third party
financial services companies and financial institutions. Real estate disposition
services income increased $500,000, or 72.6%, to $1.1 million for the quarter
ended June 30, 2002 as compared to $600,000 for the quarter ended June 30, 2001.
The increase is due to an increase in the number of properties closed during the
quarter ended June 30, 2002, which was 568, an increase of 53.9% when compared
to the quarter ended June 30, 2001. Additionally, the increase is due to new
clients obtained as a result of expanded marketing efforts in the last half of
2001. Properties under management were 1,865 at June 30, 2002, compared to 1,022
at June 30, 2001.
Gain on Sale of Loans and Securities. Gain on sale of loans and securities was
consistent quarter to quarter at $150,000. Gain on sale of loans can fluctuate
significantly from quarter to quarter and year to year based on a variety of
factors, such as the current interest rate environment, the supply and mix of
loan portfolios available in the market, the type of loan portfolios we purchase
and the particular loan portfolios we elect to sell.
Gain on Sale of Mortgage Servicing Rights. Gain on sale of mortgage servicing
rights was $1.1 million for the quarter ended June 30, 2002 as compared to
$400,000 for the quarter ended June 30, 2001. The sale was completed to both
decrease our level of investment in mortgage servicing rights, as well as to
recognize profit. Gains from the sale of mortgage servicing rights can fluctuate
significantly from quarter to quarter and year-to-year based on the market value
of our servicing portfolio, the particular servicing portfolios we elect to sell
and the availability of similar portfolios in the market. Due to our position in
and knowledge of the market, we expect to at times pursue opportunistic sales of
mortgage servicing rights.
School Services. School services income represents fees earned by ABS for
outsourced business and consulting services provided primarily to charter
schools. School services income remained consistent at $1.4 million for the
quarter ended June 30, 2002 and 2001. As of June 30, 2002, ABS provided core
business services to 106 schools.
Other Income. Other income increased $200,000, or 13.5%, to $2.0 million for the
quarter ended June 30, 2002 as compared to $1.8 million for the quarter ended
June 30, 2001. The increase in other income was primarily due to increases in
retail and fixed income brokerage fees and Small Business Administration trading
fees at First Matrix of $500,000, as compared to the quarter ended June 30,
2001, related to activity generated by the Company's focus on the acquisition,
pooling and selling of Small Business Administration loans and securities. The
increase was offset slightly by decreases in escrow and other fees earned at
Matrix Financial.
15
Noninterest Expense. Noninterest expense increased $4.2 million, or 13.9%, to
$34.2 million for the quarter ended June 30, 2002 as compared to $30.0 million
for the quarter ended June 30, 2001. This increase was predominantly due to
inclusion of a $700,000 loss on sublease and $1.4 million impairment charge
which were special charges recorded during the quarter ended June 30, 2002.
Other increases were in compensation and employee benefits expense, offset by
lower levels of amortization of mortgage servicing rights. The following table
details the major components of noninterest expense for the periods indicated:
Quarter Ended
June 30,
------------------------------
2002 2001
--------------- --------------
(In thousands)
Compensation and employee benefits........................................$ 14,950 $ 12,784
Amortization of mortgage servicing 5,162 6,167
rights..................................
Occupancy and equipment.................................................... 1,830 1,634
Postage and communication.................................................. 1,148 1,067
Professional fees.......................................................... 597 837
Data processing............................................................ 769 668
Other general and administrative........................................... 9,726 6,849
------------ ------------
Total.................................................................$ 34,182 $ 30,006
============ ============
Compensation and employee benefits expense increased $2.2 million, or 16.9%, to
$15.0 million for the quarter ended June 30, 2002 as compared to $12.8 million
for the quarter ended June 30, 2001. This increase was primarily the result of
growth and expansion at Matrix Financial, First Matrix and increases in school
services personnel at ABS. The change at ABS also includes payment of modest
severances primarily expensed in the quarter ended June 30, 2002 related to
changes made in upper management positions to better guide ABS in its growth
initiatives. Overall, the Company experienced an increase of 75 employees for a
total of 945 employees at June 30, 2002 as compared to 870 employees at June 30,
2001.
Amortization of mortgage servicing rights decreased $1.0 million, or 16.3%, to
$5.2 million for the quarter ended June 30, 2002 as compared to $6.2 million for
the quarter ended June 30, 2001. Amortization of mortgage servicing rights
fluctuates based on the size of our mortgage servicing portfolio and the
prepayment rates experienced with respect to the underlying mortgage loan
portfolio. In response to the stabilization of the low interest rates prevalent
in the market during the quarter, prepayment speeds on our servicing portfolio
decreased to an average of 17.1% for the quarter ended June 30, 2002 as compared
to 24.6% for the quarter ended June 30, 2001.
The remainder of noninterest expense, which includes occupancy and equipment
expense, postage and communication expense, professional fees, data processing
costs and other general and administrative expenses, excluding the special
charges discussed above, were basically at levels consistent with the 2001
comparable quarter levels, with the exception of other general and
administrative expenses. Other general and administrative expenses, if the 2002
special items are excluded, and the approximate $1.0 million nonrecurring charge
recorded in the quarter ended June 30, 2001 is added back, increased
approximately $1.8 million. This increase is primarily attributable to expenses
for temporary staffing and consulting services, as well as marketing expenses at
ABS incurred in connection with the growth initiatives and an effort to engage
additional schools for ABS.
Provision for Income Taxes. Our provision for income taxes decreased by $900,000
to $50,000 for the quarter ended June 30, 2002 as compared to $900,000 for the
quarter ended June 30, 2001. Our effective tax rate was 5.0% for the quarter
ended June 30, 2002 as compared to 36.2% for the quarter ended June 30, 2001.
The effective tax rates are affected by the level of tax-exempt loans at ABS in
proportion to the level of net income.
Comparison of Results of Operations for the Six Months Ended June 30, 2002 and
2001
Net Income; Return on Average Equity. Net income decreased $700,000, or 17.7%,
to $2.9 million, or $0.45 per diluted share, for the six months ended June 30,
2002 as compared to $3.6 million, or $0.55 per diluted share, for the six months
ended June 30, 2001. Returns on average equity were 8.1% and 11.1% for the six
16
months ended June 30, 2002 and 2001, respectively. The results for both periods
include the charges identified in "--Comparison of Results of Operations for the
Quarters Ended June 30, 2002 and 2001--Net Income; Return on Average Equity."
Net Interest Income. Net interest income before provision for loan and valuation
losses increased $4.1 million, or 20.7%, to $23.9 million for the six months
ended June 30, 2002 as compared to $19.8 million for the six months ended June
30, 2001. Our net interest margin increased to 3.56% for the six months ended
June 30, 2002 as compared to 2.72% for the six months ended June 30, 2001.
Additionally, our interest rate spread increased to 3.18% for the six months
ended June 30, 2002 from 2.20% for the six months ended June 30, 2001. The
increases in net interest income before provision for loan and valuation losses,
net interest margin and interest rate spread for the six months ended June 30,
2002 were attributable to the following: a 4.8% increase in our average
noninterest-bearing liabilities which includes custodial balances, combined with
a drop in the cost of our interest-bearing liabilities to 3.60% for the six
months ended June 30, 2002 from 5.63% for the six months ended June 30, 2001, or
203 basis points. The above items were offset by a decrease in the yield on our
interest-earning assets to 6.78% for the six months ended June 30, 2002 from
7.83% for the six months ended June 30, 2001 and a 4.0% increase in our average
noninterest-earning assets. For additional discussion concerning increases in
our average interest-earning assets and decreases in our cost of
interest-bearing liabilities, see "--Comparison of Results of Operations for the
Quarters Ended June 30, 2002 and 2001--Net Interest Income."
For a tabular presentation of the changes in net interest income due to changes
in volume of interest-earning assets and changes in interest rates, see
"--Analysis of Changes in Net Interest Income Due to Changes in Interest Rates
and Volumes."
Provision for Loan and Valuation Losses. Provision for loan and valuation losses
increased $200,000 to $1.7 million for the six months ended June 30, 2002 as
compared to $1.5 million for the six months ended June 30, 2001. This increase
was primarily attributable to additional loan loss provision recorded at ABS.
Loan Administration. Loan administration fees increased $1.2 million, or 7.9%,
to $17.0 million for the six months ended June 30, 2002 as compared to $15.8
million for the six months ended June 30, 2001. Included in loan administration
income was approximately $3.0 million for the six months ended June 30, 2002 and
$1.2 million for the six months ended June 30, 2001 of gain from the purchase
and subsequent resale of FHA and VA loans from our mortgage servicing rights
portfolio. Loan administration fees are also affected by factors that include
the size of our residential mortgage loan servicing portfolio, the servicing
spread, the timing of payment collections and the amount of ancillary fees
received. Our mortgage servicing portfolio increased slightly to an average
balance of $5.9 billion for the six months ended June 30, 2002 as compared to an
average balance of $5.6 billion for the six months ended June 30, 2001. The
actual service fee rate (including all ancillary income) remained basically
consistent at 0.48% for the six months ended June 30, 2002 as compared to 0.50%
for the six months ended June 30, 2001. The current year actual service fee rate
excludes the gain mentioned above, and prior year excludes a $360,000 transition
adjustment recorded by the Company as a cumulative effect of a change in
accounting principle and $275,000 of subservicing income from a portfolio sold
in 2000 that was not transferred until 2001.
Loan Origination. Loan origination income increased $3.9 million to $16.2
million for the six months ended June 30, 2002 as compared to $12.3 million for
the six months ended June 30, 2001. The increase resulted as a combination of
effects from an increase in wholesale production to $1.7 billion for the six
months ended June 30, 2002 as compared to $1.6 billion for the six months ended
June 30, 2001, and an increase in the net income spread to 59.7 basis points
year-to-date 2002 versus 50.4 basis points year-to-date 2001.
Brokerage Fees. Brokerage fees decreased $1.2 million, or 64.5%, to $700,000 for
the six months ended June 30, 2002 as compared to $1.9 million for the six
months ended June 30, 2001. Brokerage fees vary from quarter to quarter and year
to year, as the timing of servicing sales is dependent upon, among other things,
prevailing market conditions and a seller's need to recognize a sale or to
receive cash flows. Please see additional discussion under "--Comparison of
Results of Operations for the Quarters Ended June 30, 2002 and 2001--Brokerage
Fees."
Trust Services. Trust service fees were basically consistent between the two
comparable six-month periods with a $250,000 increase for the six months ended
June 30, 2002 to $2.7 million.
Real Estate Disposition Services. Real estate disposition services income
increased $600,000, or 51.0%, to $1.9 million for the six months ended June 30,
2002 as compared to $1.3 million for the six months ended June 30, 2001. Please
17
see additional discussion under "--Comparison of Results of Operations for the
Quarters Ended June 30, 2002 and 2001--Real Estate Disposition Services."
Gain on Sale of Loans and Securities. Gain on sale of loans and securities
decreased $1.3 million to $100,000 for the six months ended June 30, 2002 as
compared to $1.4 million for the six months ended June 30, 2001. Gain on the
sale of loans and securities 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 and mix of loan portfolios available in
the market, the type of loan portfolios we purchase and the particular loan
portfolios we elect to sell.
Gain on Sale of Mortgage Servicing Rights. Gain on sale of mortgage servicing
rights increased $700,000, or 145.1%, to $1.1 million for the six months ended
June 30, 2002 as compared to $400,000 for the six months ended June 30, 2001.
Gains from the sale of mortgage servicing rights can fluctuate significantly
from quarter to quarter and year-to-year based on the market value of our
servicing portfolio, the particular servicing portfolios we elect to sell and
the availability of similar portfolios in the market. Due to our position in and
knowledge of the market, we expect to at times pursue opportunistic sales of
mortgage servicing rights. The current year sale was undertaken to both decrease
our level of investment in mortgage servicing rights, as well as to recognize
profit.
School Services. School services income increased $300,000, or 13.3%, to $2.8
million for the six months ended June 30, 2002 as compared to $2.5 million for
the six months ended June 30, 2001.
Other Income. Other income increased $1.8 million, or 70.8%, to $4.4 million for
the six months ended June 30, 2002 as compared to $2.6 million for the six
months ended June 30, 2001. The increase in other income for the six-month
period ended June 30, 2002 was primarily driven by increases in retail and fixed
income brokerage fees and Small Business Administration trading fees at First
Matrix. Please see additional discussion regarding Small Business Administration
activity under "--Comparison of Results of Operations for the Quarters Ended
June 30, 2002 and 2001--Other Income."
Noninterest Expense. Noninterest expense increased $12.3 million, or 23.2%, to
$65.1 million for the six months ended June 30, 2002 as compared to $52.8
million for the six months ended June 30, 2001. This increase, excluding the
previously mentioned special charges that were recorded during the quarters
ended June 30, 2002 and 2001, was predominantly due to increases in compensation
and employee benefits expense, amortization of mortgage servicing rights and
other general and administrative expense. The following table details the major
components of noninterest expense for the periods indicated:
Six Months Ended
June 30,
------------------------------
2002 2001
--------------- --------------
(In thousands)
Compensation and employee benefits........................................$ 29,612 $ 23,771
Amortization of mortgage servicing 11,035 9,588
rights..................................
Occupancy and equipment.................................................... 3,519 3,183
Postage and communication.................................................. 2,287 1,982
Professional fees.......................................................... 1,309 1,387
Data processing............................................................ 1,645 1,340
Other general and administrative........................................... 15,668 11,563
------------ ------------
Total.................................................................$ 65,075 $ 52,814
============ ============
Compensation and employee benefits increased $5.8 million, or 24.6%, to $ 29.6
million for the six months ended June 30, 2002 as compared to $23.8 million for
the six months ended June 30, 2001. Additional personnel hired at Matrix
Financial, First Matrix and ABS to handle increased volumes, as well as upper
management severances at ABS as discussed above, were the primary causes of the
increase. The remainder was the result of growth at several of the Company's
other subsidiaries, including First Matrix.
Amortization of mortgage servicing rights increased $1.4 million, or 15.1%, to
$11.0 million for the six months ended June 30, 2002 as compared to $9.6 million
for the six months ended June 30, 2001. Amortization of mortgage servicing
rights fluctuates based on the size of our mortgage servicing portfolio and the
18
prepayment rates experienced with respect to the underlying mortgage loan
portfolio. The increase is due to the increase in the average balance of our
mortgage servicing rights to $84.1 million at June 30, 2002 as compared to $71.9
million at June 30, 2001. Prepayment speeds on our servicing portfolio have
slightly decreased to an average of 20.3% for the six months ended June 30, 2002
as compared to 20.9% for the six months ended June 30, 2001.
The remainder of noninterest expense, which includes occupancy and equipment
expense, postage and communication expense, professional fees, data processing
costs and other general and administrative expenses, and excludes special
charges, increased $3.0 million, or 28.3%, to $13.6 million for the six months
ended June 30, 2002 as compared to $10.6 million for the six months ended June
30, 2001. The increase is primarily related to the increased volumes at ABS and
Matrix Financial and various expenses related to the relocation of Matrix Bank's
domicile.
Provision for Income Taxes. The provision for income taxes decreased by $1.0
million to $1.1 million for the six months ended June 30, 2002 as compared to
$2.1 million for the six months ended June 30, 2001. Our effective tax rate was
27.4% for the six months ended June 30, 2002 as compared to 34.5% for the six
months ended June 30, 2001. The effective tax rates are affected by the level of
tax-exempt loans at ABS in proportion to the level of net income.
Average Balance Sheet
The following table sets forth for the periods and as of the dates indicated,
information regarding our average balances of assets and liabilities, as well as
the dollar amounts of interest income from interest-earning assets and interest
expense on interest-bearing liabilities and the resultant yields or costs.
Average interest rate information for the quarters and six months ended June 30,
2002 and 2001 have been annualized. Ratio, yield and rate information is based
on average daily balances where available; otherwise, average monthly balances
have been used. Nonaccrual loans are included in the calculation of average
balances for loans for the periods indicated.
19
Quarter Ended June 30,
-------------------------------------------------------------------------
2002 2001
---------------------------------- ---------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
----------- ---------- -------- ---------- ---------- -------
(Dollars in thousands)
Assets
Interest-earning assets:
Loans, net.................. $1,292,804 $ 22,255 6.89 % $ 1,496,029 $ 29,281 7.83 %
Securities.................. 9,951 148 5.94 1,632 28 6.86
Interest-earning deposits... 16,626 70 1.68 30,025 253 3.37
Federal Home Loan Bank stock 26,132 246 3.77 24,181 264 4.37
------------ ---------- -------- ---------- ---------- -------
Total interest-earning
assets.................. 1,345,513 22,719 6.75 1,551,867 29,826 7.69
Noninterest-earning assets:
Cash........................ 45,122 24,500
Allowance for loan and
valuation losses.......... (9,420) (8,995)
Premises and equipment...... 19,505 15,812
Other assets................ 175,163 130,802
------------ ----------
Total noninterest-earning
assets.................. 230,370 162,119
------------ ----------
Total assets.............. $1,575,883 $ 1,713,986
============ ==========
Liabilities & Shareholders'
Equity Interest-bearing
liabilities:
Passbook accounts........... 5,731 29 2.02 $ 3,259 28 3.44
Money market and NOW accounts 293,658 1,119 1.52 241,283 1,416 2.35
Certificates of deposit..... 439,466 4,249 3.87 545,398 8,320 6.10
Federal Home Loan Bank
borrowings................ 335,623 2,457 2.93 360,168 4,529 5.03
Borrowed money and
guaranteed preferred
beneficial interests....... 138,255 2,586 7.48 229,486 4,400 7.67
------------ ---------- -------- ---------- ---------- -------
Total interest-bearing
liabilities.............. 1,212,763 10,440 3.44 1,379,594 18,693 5.42
------------ ---------- -------- ---------- ---------- -------
Noninterest-bearing
liabilities:
Demand deposits (including
custodial escrow
balances)................. 252,737 210,974
Other liabilities........... 37,037 58,316
------------ ----------
Total noninterest-bearing
liabilities............... 289,774 269,290
Shareholders' equity.......... 73,346 65,102
------------ ----------
Total liabilities and
shareholders' equity.......... $ 1,575,883 $ 1,713,986
============ ==========
Net interest income before
provision for loan and
valuation losses............. $ 12,279 $ 11,133
============ ==========
Interest rate spread.........................................3.31 % 2.27 %
======== =======
Net interest margin..........................................3.65 % 2.87 %
======== =======
Ratio of average interest-earning assets
to average interest-bearing liabilities...................110.95 % 112.49 %
======== =======
Six Months Ended June 30,
-------------------------------------------------------------------------
2002 2001
---------------------------------- ---------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
----------- ---------- -------- ----------- ---------- -------
(Dollars in thousands)
Interest-earning assets:
Loans, net.................. $ 1,291,380 $ 44,698 6.92 % 1,365,355 $ 54,489 7.98 %
Securities.................. 9,995 277 5.54 31,227 1,215 7.78
Interest-earning deposits... 18,445 169 1.83 31,653 614 3.88
Federal Home Loan Bank stock 22,500 390 3.47 25,990 649 4.99
------------ ---------- -------- ---------- ---------- -------
Total interest-earning
assets.................. 1,342,320 45,534 6.78 1,454,225 56,967 7.83
Noninterest-earning assets:
Cash........................ 38,559 21,552
Allowance for loan and
valuation losses.......... (9,437) (8,771)
Premises and equipment...... 16,604 14,574
Other assets................ 176,434 137,197
------------ ----------
Total noninterest-earning
assets.................. 222,160 164,552
------------ ----------
Total assets.............. $ 1,564,480 $ 1,618,777
============ ==========
Liabilities & Shareholders'
Equity Interest-bearing
liabilities:
Passbook accounts........... $ 5,506 55 2.00 $ 3,128 53 3.39
Money market and NOW accounts 276,681 2,204 1.59 209,029 2,494 2.39
Certificates of deposit..... 475,550 9,635 4.05 502,129 15,708 6.26
Federal Home Loan Bank
borrowings................ 295,758 4,430 3.00 411,230 11,203 5.45
Borrowed money and
guaranteed preferred
beneficial interests....... 147,411 5,308 7.20 193,983 7,713 7.95
------------ ---------- -------- ---------- ---------- -------
Total interest-bearing
liabilities.............. 1,200,906 21,632 3.60 1,319,499 37,171 5.63
------------ ---------- -------- ---------- ---------- -------
Noninterest-bearing
liabilities:
Demand deposits (including
custodial escrow
balances)................. 252,025 185,828
Other liabilities........... 39,045 48,794
------------ ----------
Total noninterest-bearing
liabilities............... 291,070 234,622
Shareholders' equity.......... 72,504 64,656
------------ ----------
Total liabilities and
shareholders' equity.......... $1,564,480 $ 1,618,777
============ ==========
Net interest income before
provision for loan and
valuation losses............. $ 23,902 $ 19,796
============ ==========
Interest rate spread.........................................3.18 % 2.20 %
======== =======
Net interest margin..........................................3.56 % 2.72 %
======== =======
Ratio of average interest-earning assets
to average interest-bearing liabilities...................111.78 % 110.21 %
======== =======
20
Analysis of Changes in Net Interest Income Due to Changes in Interest Rates and
Volumes
The following table presents the dollar amount of changes in interest income and
interest expense for major components of interest-earning assets and
interest-bearing liabilities. It distinguishes between the increase or decrease
related to changes in balances and changes in interest rates. For each category
of interest-earning assets and interest-bearing liabilities, information is
provided on changes attributable to:
o changes in volume, in other words, changes in volume multiplied by prior
period rate; and
o changes in rate, in other words, changes in rate multiplied by prior period
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.
Quarter Ended Six Months Ended
June 30, June 30,
2002 vs. 2001 2002 vs. 2001
------------------------------------------ -------------------------------------------
Increase (Decrease) Due to Change in
----------------------------------------------------------------------------------------
Volume Rate Total Volume Rate Total
------------ ------------ ------------ ------------ ------------ -------------
(In thousands)
Interest-earning assets:
Loans, net....................... $ (3,731) $ (3,295) $ (7,026) $ (2,834) $ (6,957) $ (9,791)
Securities....................... 124 (4) 120 (659) (279) (938)
Interest-earning deposits........ (86) (97) (183) (196) (249) (445)
FHLB stock....................... 20 (38) (18) (80) (179) (259)
------------ ------------ ------------ ------------ ------------ -------------
Total interest-earning assets. (3,673) (3,434) (7,107) (3,769) (7,664) (11,433)
Interest-bearing liabilities:
Passbook accounts................ 16 (15) 1 30 (28) 2
Money market and NOW accounts.... 267 (564) (297) 677 (967) (290)
Certificates of deposit.......... (1,412) (2,659) (4,071) (792) (5,281) (6,073)
FHLB borrowings.................. (291) (291) (2,072) (2,605) (4,168) (6,773)
------------ ------------ ------------ ------------ ------------ -------------
Borrowed money and guaranteed
preferred beneficial interests .. (1,708) (1,708) (1,814) (1,725) (680) (2,405)
------------ ------------ ------------ ------------ ------------ -------------
Total interest-bearing
liabilities................. (3,128) (5,125) (8,253) (4,415) (11,124) (15,539)
------------ ------------ ------------ ------------ ------------ -------------
Change in net interest income
before provision
for loan and valuation losses.... $ (545) $ 1,691 $ 1,146 $ 646 $ 3,460 $ 4,106
============ ============ ============ ============ ============ =============
Asset Quality
Nonperforming Assets
As part of asset and liability management, we monitor nonperforming assets on a
monthly basis. Nonperforming assets consist primarily of nonaccrual loans and
foreclosed real estate. Loans are placed on nonaccrual when full payment of
principal or interest is in doubt or when they are past due 90 days as to either
principal or interest. Foreclosed real estate arises primarily through
foreclosure on mortgage loans owned.
21
June 30, December 31, June 30,
2002 2001 2001
------------- --------------- ----------------
(Dollars in thousands)
Nonaccrual residential mortgage loans................ $ 14,513 $ 19,039 $ 21,113
Nonaccrual commercial real estate, commercial loans
and school financing.............................. 19,136 18,172 13,094
Nonaccrual consumer loans............................ 19 40 147
------------- --------------- ----------------
Total nonperforming loans......................... 33,668 37,251 34,354
Foreclosed real estate............................... 4,641 8,355 3,343
------------- --------------- ----------------
Total nonperforming assets........................ $ 38,309 $ 45,606 $ 37,697
============= =============== ================
Total nonperforming loans to total loans............. 2.58 % 2.74 % 2.46 %
============= =============== ================
Total nonperforming assets to total assets........... 2.36 % 2.79 % 2.24 %
============= =============== ================
Ratio of allowance for loan and valuation losses to
total nonperforming loans......................... 28.20 % 25.07 % 26.61 %
============= =============== ================
We accrue interest on government-sponsored loans such as Federal Housing
Administration insured and Veteran's Administration guaranteed loans which are
past due 90 or more days, as the interest on these loans is generally insured by
the federal government. The aggregate unpaid principal balance of
government-sponsored accruing loans that were past due 90 or more days was $49.3
million, $55.2 million and $82.3 million at June 30, 2002, December 31, 2001 and
June 30, 2001, respectively. Nonaccrual mortgage loans as a percentage of total
loans were 1.1% at June 30, 2002, 1.4% at December 31, 2001 and 1.2% at June 30,
2001.
The nonaccrual residential mortgage loans have improved at June 30, 2002 as
compared to June 30, 2001. The improvement is due to maturity and improvement in
certain portfolios acquired in 2000 and 1999 on which the recourse option we had
was eliminated with the bankruptcy of the seller/servicer. The balance of these
loans in nonaccrual at June 30, 2002 totals $3.0 million as compared to $5.8
million at June 30, 2001. Associated with these nonaccrual loans, we have
recorded $1.5 million of discounts at June 30, 2002.
The increase in nonaccrual commercial loans and school financing in the quarter
ended June 30, 2002 compared to the quarter ended June 30, 2001 is attributable
to the overall increase in commercial lending at Matrix Capital Bank. This is
apparent in the increase in our SBA originated and purchased loans and the
increased amount of those loans in nonaccrual status, which at June 30, 2002 was
$9.0 million, as compared to $8.1 million at December 31, 2001. It should be
noted, however, that approximately $5.9 million of the principal of these SBA
loans is guaranteed, and as such, our credit risk is reduced despite the
increase in the balances. Increases in other types of commercial loans at Matrix
Capital Bank are predominately secured by real estate. Also included are school
financing delinquencies, which at June 30, 2002 was $4.4 million as compared to
$4.7 million at December 31, 2001. The majority of the delinquent school
financing loans are secured by real estate.
The percentage of the allowance for loan losses to nonaccrual loans varies due
to the nature of our portfolio of loans. We analyze the collateral for each
nonperforming loan to determine potential loss exposure. In conjunction with
other factors, this loss exposure contributes to the overall assessment of the
adequacy of the allowance for loan and valuation losses. See "--Comparison of
Results of Operations for the Quarters Ended June 30, 2002 and 2001."
Liquidity and Capital Resources
Liquidity is our ability to generate funds to support asset growth, satisfy
disbursement needs, maintain reserve requirements and otherwise operate on an
ongoing basis.
The trend of nominal net cash provided by our operating activities for the six
months ended June 30, 2002 is anticipated to continue to be the trend for the
remainder of the year. We do not anticipate significant organizational growth,
and do not anticipate significant fluctuations in our operating activities.
The Company has a bank stock loan agreement, which consists of two components, a
term loan and a revolving line of credit. As of June 30, 2002, the balance of
the term loan was $8.2 million and the balance of the revolving line of credit
was $5.6 million.
Matrix Bank's future growth is expected to be achieved through retail deposit
growth, brokered deposits, borrowings from the Federal Home Loan Bank, custodial
deposits from affiliates and deposits directed to Matrix Bank by third party
institutions. Contractual loan payments and net deposit inflows are a generally
predictable source of funds, while loan prepayments and loan sales are
significantly influenced by general market interest rates and economic
conditions. Borrowings on a short-term basis are used as a cash management
22
vehicle to compensate for seasonal or other reductions in normal sources of
funds. Matrix Bank utilizes advances from the Federal Home Loan Bank as its
primary source for borrowings. At June 30, 2002, Matrix Bank had short-term
borrowings of $289.6 million and term borrowings of $157.3 million from the
Federal Home Loan Bank of Topeka and Dallas. Matrix Bank also utilizes brokered
deposits as a source of liquidity. The balance of brokered deposits at June 30,
2002 was $221.9 million. The custodial escrow balances held by Matrix Bank
fluctuate based upon the mix and size of the related mortgage servicing
portfolios and the timing of payments for taxes and insurance, as well as the
level of prepayments which occur.
Matrix Bank, a well capitalized institution, had a leverage capital ratio of
6.73% at June 30, 2002. This exceeded the well capitalized leverage capital
requirement of 5.0% of adjusted assets by $26.4 million. Matrix Bank's
risk-based capital ratio was 12.53% at June 30, 2002, which currently exceeds
the well capitalized risk-based capital requirement of 10.0% of risk-weighted
assets by $22.0 million.
Matrix Financial's principal source of funding for its loan origination business
consists of a warehouse line of credit provided to Matrix Financial by Matrix
Bank, as well as a warehouse line of credit provided to Matrix Financial by an
unaffiliated financial institution. As of June 30, 2002, Matrix Financial had a
$80.0 million warehouse line of credit facility provided by an unaffiliated
financial institution, as amended effective April 1, 2002. As of June 30, 2002,
$75.0 million was available to be utilized. Matrix Capital Markets' future
growth will be supported by a $40.0 million warehouse line of credit provided to
Matrix Capital Markets, guaranteed by Matrix Bancorp, by an unaffiliated
financial institution, effective March 29, 2002. As of June 30, 2002, Matrix
Capital Markets had $40.0 million available to be utilized.
Our principal source of funding for school financing are internal capital, sales
of loans to a third party institution and a partnership trust with an
unaffiliated financial institution. Amounts available to be sold and amounts to
be financed are at the purchaser's and lender's sole discretion. We are pursuing
additional third party financing and sales options for ABS.
In the ordinary course of business, we make commitments to originate residential
mortgage loans and hold originated loans until delivery to an investor. Inherent
in this business are risks associated with changes in interest rates and the
resulting change in the market value of the loans being held for delivery. We
mitigate this risk through the use of mandatory and best effort forward
commitments to sell loans. As of June 30, 2002, we had $444.7 million in
pipeline and funded loans offset with mandatory forward commitments of $345.5
million and best effort forward commitments of $99.3 million.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
During the quarter ended June 30, 2002 and the six-month period ended June 30,
2002, there were no material changes to the quantitative and qualitative
disclosures about market risk presented in the Annual Report on Form 10-K for
the year ended December 31, 2001. See Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Asset and Liability
Management--Risk Sensitive Assets and Liabilities" and Item 1. "Business
Mortgage Servicing Activities --Hedging of Servicing Rights" in the Form 10-K
for December 31, 2001 for a detailed discussion.
23
Part II - Other Information
Item 1. Legal Proceedings
Sterling Trust Company ("Sterling Trust") was named a defendant in an action
filed in October 1999 styled John A. Redin, et al. v. Sterling Trust Company, et
al. in the Superior Court of the State of California for the County of Los
Angeles. The plaintiffs in this action sought to certify a class action on
behalf of all persons and entities that invested in promissory notes issued by
Personal Choice Opportunities. The plaintiffs alleged, among other things, that
Sterling Trust, as custodian of the plaintiffs' self-directed IRAs, breached its
fiduciary duty and was negligent. In January 2002, this matter was settled. The
settlement, which was approved by the Court in July 2002, requires no payment
from Sterling other than the $5,000 retention amount pursuant to the terms of
the Company's insurance policy. The remainder of the settlement consideration is
to be paid the by Company's insurer. The settlement will become final if no
appeals from the Court approval of the settlement are filed prior to the
established deadline for appeal (which Sterling Trust estimates to be
approximately 60 to 90 days from the date of Court approval). If any appeal to
approval by the Court of the settlement is filed, the settlement will become
final only if and when any such appeals are resolved in favor of approval of the
settlement. There can be no assurances that appeals of Court approval of the
settlement will not be filed or, if they are filed, that they will not be
successful in reversing the approval of the Court.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders was held on May 17, 2002. At the
meeting, the shareholders voted to re-elect two directors of the Company,
Richard V. Schmitz and D. Mark Spencer, to hold office until the Annual Meeting
to be held in 2005, or until each person's successor is duly elected and
qualified ("Proposal 1"). The other directors whose terms continue after the
Annual Meeting are Guy A. Gibson, David W. Kloos, David A. Frank, Lester Ravitz
and Robert T. Slezak.
In addition, the shareholders were asked to consider and act upon a proposal to
ratify the appointment of KPMG LLP as independent auditors for the Company for
the 2002 fiscal year ("Proposal 2"). No other matters were voted on at the
Annual Meeting. A total of 4,771,848 shares were represented at the meeting, in
person or by proxy.
The number of shares that were voted for and that were withheld from, each of
the director nominees in Proposal 1 was as follows:
Director Nominee For Withheld
- ---------------- --- --------
Richard V. Schmitz 4,702,257 69,591
D. Mark Spencer 4,702,257 69,591
In Proposal 2, KPMG LLP was ratified as the independent auditors for the Company
for fiscal year 2002, with 4,756,347 shares voting for, 13,001 shares voting
against and 2,500 shares abstaining.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
*10.1 Warehousing Credit and Security Agreement, dated as of March 29, 2002,
by and between Matrix Capital Markets, Inc., as borrower, and
Residential Funding Corporation, as agent.
*10.2 First Amendment to Warehousing Credit and Security Agreement, dated as
of May 24, 2002, by and between Matrix Capital Markets, Inc., as
borrower, and Residential Funding Corporation, as agent.
b) Reports on Form 8-K
- - The Company filed a Form 8-K with the Securities and Exchange Commission on
June 6, 2002 (Item 5), which contained a press release announcing the
resignation of Guy A. Gibson as President and Chief Executive Officer of
the Company and Mr. Gibson's Consulting Agreement.
- ----------------------
* Filed herewith.
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MATRIX BANCORP, INC.
Dated: July 30, 2002 /s/ D. Mark Spencer
--------------------- ---------------------------------------
D. Mark Spencer
President and Co-Chief Executive
Officer
(Principal Executive Officer)
Dated: July 30, 2002 /s/ David W. Kloos
--------------------- ---------------------------------------
David W. Kloos
Senior Vice President and
Chief Financial Officer
(Principal Accounting and
Financial Officer)
25
INDEX TO EXHIBITS
Exhibit
Number Description
- ------ -----------
*10.1 Warehousing Credit and Security Agreement, dated as of March 29, 2002,
by and between Matrix Capital Markets, Inc., as borrower, and
Residential Funding Corporation, as agent.
*10.2 First Amendment to Warehousing Credit and Security Agreement, dated as
of May 24, 2002, by and between Matrix Capital Markets, Inc., as
borrower, and Residential Funding Corporation, as agent.
- -----------------------
*Filed herewith.