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 March 31, 2005
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________
Commission file number: 0-21231
MATRIX BANCORP, INC.
(Exact name of registrant as specified in its charter)
Colorado 84-1233716
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
700 17th Street, Suite 2100
Denver, Colorado 80202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 595-9898
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Number of shares of Common Stock ($0.0001 par value) outstanding at the
close of business on May 2, 2005 was 6,620,850 shares.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets
March 31, 2005 (unaudited) and December 31, 2004.................3
Consolidated Statements of Income
Three months ended March 31, 2005 and 2004 (unaudited)...........4
Consolidated Statements of Shareholders' Equity
Three months ended March 31, 2005 and 2004 (unaudited)...........5
Consolidated Statements of Cash Flows
Three months ended March 31, 2005 and 2004 (unaudited)...........6
Notes to Consolidated Financial Statements (unaudited).............8
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations...........................................17
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk........26
ITEM 4. Controls and Procedures...........................................26
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings.................................................26
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.......27
ITEM 6. Exhibits..........................................................27
SIGNATURES...................................................................28
2
Part I - Financial Information
Item 1. Financial Statements
Matrix Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands, except share information)
March 31, December 31,
2005 2004
------------------ ------------------
(Unaudited)
Assets
Cash and cash equivalents $ 38,299 $ 40,471
Interest-earning deposits and federal funds sold 2,355 2,398
Investment securities 322,138 316,367
Loans held for sale, net 938,980 989,822
Loans held for investment, net 405,983 379,717
Mortgage servicing rights, net 25,362 26,574
Other receivables 33,029 35,139
FHLBank stock, at cost 33,819 33,481
Premises and equipment, net 18,534 19,037
Bank owned life insurance 21,792 21,569
Other assets, net 20,953 21,330
Foreclosed real estate, net 3,999 2,955
------------------ ------------------
Total assets $ 1,865,243 $ 1,888,860
================== ==================
Liabilities and shareholders' equity
Liabilities:
Deposits $ 1,139,617 $ 1,119,159
Custodial escrow balances 40,436 51,598
FHLBank borrowings 479,096 506,118
Borrowed money 30,446 31,573
Junior subordinated debentures owed to unconsolidated
subsidiary trusts 61,835 61,835
Other liabilities 16,063 23,955
Income taxes payable and deferred income tax liability 3,153 2,307
------------------ ------------------
Total liabilities 1,770,646 1,796,545
------------------ ------------------
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;
outstanding 6,620,850 shares at March 31, 2005 and
December 31, 2004 1 1
Additional paid-in capital 21,432 21,432
Retained earnings 73,676 70,756
Accumulated other comprehensive (loss) income (512) 126
------------------ ------------------
Total shareholders' equity 94,597 92,315
------------------ ------------------
Total liabilities and shareholders' equity $ 1,865,243 $ 1,888,860
================== ==================
See accompanying notes.
3
Matrix Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income
(Dollars in thousands, except share information)
(Unaudited)
Quarter Ended March 31,
2005 2004
----------------- -----------------
Interest and dividend income:
Loans and securities $ 20,315 $ 17,597
Interest-earning deposits 351 229
----------------- -----------------
Total interest and dividend income 20,666 17,826
----------------- -----------------
Interest expense:
Deposits 3,268 2,660
Borrowed money and junior subordinated debentures 5,909 4,817
----------------- -----------------
Total interest expense 9,177 7,477
----------------- -----------------
Net interest income before provision for loan and valuation losses 11,489 10,349
Provision for loan and loan valuation losses 833 1,299
----------------- -----------------
Net interest income after provision for loan and valuation losses 10,656 9,050
----------------- -----------------
Noninterest income:
Loan administration 3,035 4,668
Brokerage 2,752 2,952
Trust services 2,515 1,951
Real estate disposition services 422 2,389
Gain on sale of loans and securities 746 2,114
School services 483 671
Other 1,273 2,665
----------------- -----------------
Total noninterest income 11,226 17,410
----------------- -----------------
Noninterest expense:
Compensation and employee benefits 6,876 8,960
Amortization of mortgage servicing rights 1,774 4,671
Occupancy and equipment 1,272 1,559
Postage and communication 408 587
Professional fees 726 737
Mortgage rights subservicing fees 825 -
Data processing 315 623
Subaccounting fees 2,652 1,851
(Recovery of) impairment on mortgage servicing rights (175) 1,156
Other general and administrative 2,991 4,991
----------------- -----------------
Total noninterest expense 17,664 25,135
----------------- -----------------
Income from continuing operations before income taxes 4,218 1,325
Income tax provision 1,298 160
----------------- -----------------
Income from continuing operations 2,920 1,165
----------------- -----------------
Discontinued operations:
Income from discontinued operations, net of income tax provision of $89 - 137
----------------- -----------------
Net income $ 2,920 $ 1,302
================= =================
Income from continuing operations per share - basic and assuming dilution $ 0.44 $ 0.18
----------------- -----------------
Income from discontinued operations per share - basic and assuming dilution $ - $ 0.02
----------------- -----------------
Net income per share - basic and assuming dilution $ 0.44 $ 0.20
================= =================
Weighted average shares - basic 6,620,850 6,518,981
================= =================
Weighted average shares - assuming dilution 6,697,884 6,582,303
================= =================
See accompanying notes.
4
Matrix Bancorp, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
(Dollars in thousands)
(Unaudited)
Common Stock Additional Other
------------------ paid in Retained comprehensive Comprehensive
Shares Amount capital earnings income (loss) Total income
-------------------------------------------------------------------------------------------
Quarter Ended
March 31, 2005
- ---------------------------
Balance at December 31, 2004 6,620,850 $ 1 $ 21,432 $ 70,756 $ 126 $ 92,315
Comprehensive income:
Net income 2,920 2,920 $ 2,920
Net unrealized holding
losses, net of income tax(1) (638) (638) (638)
--------------
Comprehensive income $ 2,282
--------------------------------------------------------------------------- ==============
Balance at March 31, 2005 6,620,850 $ 1 $ 21,432 $ 73,676 $ (512) $ 94,597
Quarter Ended
March 31, 2004
- ---------------------------
Balance at December 31, 2003 6,518,981 $ 1 $ 20,615 $ 48,859 $ 209 $ 69,684
Comprehensive income:
Net income 1,302 1,302 $ 1,302
Net unrealized holding
gains, net of income tax 283 283 283
--------------
Comprehensive income $ 1,585
--------------------------------------------------------------------------- ==============
Balance at March 31, 2004 6,518,981 $ 1 $ 20,615 $ 50,161 $ 492 $ 71,269
(1) Disclosure of reclassification amount
Quarter Ended March 31, 2005
- -----------------------------------------------------
Unrealized holding loss arising during period $ (638)
Less: reclassification adjustment of gains
included in net Income -
--------------
Net unrealized holding loss on securities $ (638)
==============
See accompanying notes.
5
Matrix Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Quarter Ended March 31,
2005 2004
------------------------------------------
Operating activities
Income from continuing operations $ 2,920 $ 1,165
Adjustments to reconcile income from continuing operations to net
cash provided by (used in) operating activities:
Depreciation and amortization 790 864
Provision for loan and valuation losses 833 1,299
Amortization of mortgage servicing rights 1,774 4,671
(Recovery) impairment on mortgage servicing rights (175) 1,156
Gain on sale of loans and securities (746) (2,114)
Loss on sale of building and equipment 18 -
(Gain) loss on sale of foreclosed real estate (34) 211
Changes in assets and liabilities:
Proceeds from the sale of trading securities 187,028 -
Loans originated for sale, net of loans sold (7,729) (22,188)
Loans purchased for sale (261,731) (427,108)
Principal payments on, and proceeds from sale of loans held for sale 144,516 200,205
Originated mortgage servicing rights, net (213) (424)
Decrease in other receivables and other assets 2,218 8,487
Decrease in other liabilities, income taxes payable and deferred (7,046) (5,066)
income tax liability
------------------- ------------------
Net cash provided by (used in) operating activities from continuing
operations 62,423 (238,842)
Net cash provided by discontinued operations - 226
------------------- ------------------
Net cash provided by ( used in) operating activities $ 62,423 $ (238,616)
------------------ ------------------
Investing activities
Loans originated and purchased for investment (47,519) (46,472)
Principal repayments on loans held for investment 21,411 13,243
Purchase of available for sale securities (31,324) (63,970)
Proceeds from sale of available for sale securities - 321,851
Proceeds from maturity and prepayment of available for sale securities 7,527 6,975
Proceeds from the maturity and prepayment of held to maturity 3,895 -
securities
(Purchase) redemption of FHLBank stock, net (338) 774
Purchases of premises and equipment (259) (244)
Acquisition of mortgage servicing rights (174) (218)
Proceeds from sale of foreclosed real estate 996 670
------------------ ------------------
Net cash(used in) provided by investing activities (45,785) 232,609
------------------ ------------------
Financing activities
Net increase (decrease) in deposits 20,458 (25,369)
Net (decrease) increase in custodial escrow balances (11,162) 9,782
(Decrease) increase in revolving lines and FHLBank borrowings, net (28,149) 39,639
Payments of notes payable - (357)
Payment of financing arrangements - (404)
Proceeds from issuance of subordinated debt - 9,760
------------------ ------------------
Net cash(used in) provided by financing activities (18,853) 33,051
------------------ ------------------
(Decrease) increase in cash and cash equivalents (2,215) 27,044
Cash and cash equivalents at beginning of the period 42,869 34,510
------------------ ------------------
Cash and cash equivalents at end of the period $ 40,654 $ 61,554
================== ==================
Continued
6
Matrix Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows - continued
(Dollars in thousands)
(Unaudited)
Quarter Ended March 31,
2005 2004
------------------------------------------
Supplemental disclosure of non-cash activity
Loans transferred to foreclosed real estate and other assets $ 2,202 $ 1,046
================== ==================
Loans securitized and transferred to securities available for sale $ - $ 345,455
================== ==================
Loans securitized and transferred to trading securities $ 173,712 $ -
================== ==================
Supplemental disclosure of cash flow information
Cash paid for interest $ 9,300 $ 8,066
================== ==================
Cash paid for income taxes $ 122 $ 855
================== ==================
See accompanying notes.
7
Matrix Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2005
(Unaudited)
1. Basis of Presentation and Significant Accounting Policies
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, unless otherwise
disclosed in this Form 10-Q) necessary for a fair presentation have been
included. The results of operations for the quarter ended March 31, 2005 may not
be indicative of results for the full year. For discussion of our organization
and business, the accounting policies we follow and 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, 2004. This
quarterly report should be read in conjunction with that annual report.
The preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the amounts of
assets and liabilities at the date of the 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.
Stock-Based Compensation
At March 31, 2005, the Company has one stock-based employee compensation plan,
which is described more fully in Note 18 to the audited financial statements in
the Company's Form 10-K for the year ended December 31, 2004. We apply the
intrinsic value-based method of accounting prescribed by Accounting Principles
Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." Under
this method, compensation expense is recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price.
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation," ("SFAS 123") established accounting and disclosure
requirements using a fair value-based method of accounting for stock-based
employee compensation plan. As allowed by SFAS 123 and SFAS 148 "Accounting for
Stock-Based Compensation - Transition and Disclosure, an amendment of SFAS 123",
we have elected to continue to apply the intrinsic value-based method of
accounting described above, and have adopted the disclosure requirements of SFAS
123. Accordingly, we do not recognize compensation expense for our stock-based
plan, as we do not issue options at exercise prices below the market value at
the date of the grant. In December 2004, the Financial Accounting Standards
Board ("FASB") revised SFAS 123 with SFAS 123(R), "Share-Based Payment," ("SFAS
123(R)") which eliminates the intrinsic value-based method and requires all
entities to recognize compensation expense in an amount equal to the fair value
of share based payments granted to employees. The Securities and Exchange
Commission ("SEC") issued guidance in March 2005 which delays the implementation
of the provisions of SFAS 123(R) until the fiscal year beginning January 1,
2006. The Company currently expects to adopt SFAS 123(R) with the fiscal year
beginning January 1, 2006 under the modified prospective method. As a result,
the Company will have compensation expense for any awards granted after the date
of adoption, and will include compensation expense for the unvested portions of
previously granted awards that remain outstanding at the date of adoption.
Had compensation cost for our stock-based plan been determined consistent with
SFAS No. 123, our net income and income per share would have been changed to the
pro forma amounts indicated below:
8
Matrix Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
March 31, 2005
(Unaudited)
Quarter Ended March 31,
2005 2004
-----------------------------------------
(Dollars in thousands, except share data)
Net income:
Net income as reported $ 2,920 $ 1,302
Deduct: Total stock-based employee compensation determined under
fair value based method for awards, net of related tax effects (45) (69)
-----------------------------------------
Pro forma $ 2,875 $ 1,233
=========================================
Income per share:
Basic, as reported $ 0.44 $ 0.20
=========================================
Basic, pro forma $ 0.43 $ 0.19
=========================================
Diluted, as reported $ 0.44 $ 0.20
=========================================
Diluted, pro forma $ 0.43 $ 0.19
=========================================
Reclassifications
Certain reclassifications have been made to the condensed consolidated financial
statements and related notes of prior periods to conform to the current period
presentation.
2. Sale of Wholesale Production Platform
On September 2, 2003, the Company announced the final closing and substantial
completion of the sale by Matrix Financial Services Corporation ("Matrix
Financial") of substantially all of its assets associated with its wholesale
mortgage origination platform pursuant to the Purchase and Assumption Agreement
dated February 28, 2003, as amended ("Purchase Agreement"). Under the terms of
the Purchase Agreement, Matrix Financial continued to earn a production premium
through February 2004, generally 20 basis points times the original principal
balance of all loans originated through February 23, 2004. For the quarter ended
March 31, 2004, the production premium earned and reflected in income from
discontinued operations was $226,000, before tax. The accounting for the sale of
the production platform is more fully described in Note 6 to the audited
financial statements in the Company's Form 10-K for the year ended December 31,
2004.
3. Sale of Majority Interest in Matrix Asset Management Corporation
On September 10, 2004, the Company announced the sale by Matrix Asset Management
Corporation ("MAMC") of substantially all of its assets related to its real
estate management and disposition business. After the sale, we have retained a
25% interest in the new company created by the purchaser, Matrix Asset
Management, LLC, ("MAM, LLC"), as well as our remaining operations in MAMC,
renamed MTXC Realty Corp., of a real estate brokerage office operating
exclusively in the Denver metro area. The 25% ownership will be accounted for
using the equity method of accounting. Due to our 25% ownership, we will
continue to reflect the operations of MTXC Realty, including the future equity
earnings in MAM, LLC, as continuing operations. At March 31, 2005, the
investment in MAMC included in other assets in the condensed consolidated
balance sheet is $622,000. The sale of the majority interest in MAMC is more
fully described in Note 3 to the audited financial statements in the Company's
Form 10-K for the year ended December 31, 2004.
4. Sale of Interest in Matrix Settlement and Clearance Services, LLC
On November 30, 2004, the Company through certain of its subsidiaries, entered
into definitive agreements to sell the 45% membership interest in Matrix
Settlement and Clearance Services, LLC ("MSCS"), as well as all of the assets of
the trust operations of Matrix Capital Bank ("Matrix Bank"). In consideration of
the sale of the 45% membership interest in MSCS, the Company has received
approximately 5% of the outstanding common stock of the purchaser. This portion
of the transaction closed December 1, 2004. The 5% ownership interest retained
is accounted for using the cost basis of accounting. In consideration of the
9
Matrix Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
March 31, 2005
(Unaudited)
sale of the assets of the trust operations of Matrix Bank, the purchaser will
issue common stock of approximately 2% of its outstanding common stock.
Consummation of the sale of the assets of the trust operations of Matrix Bank
occurred April 30, 2005, for a gain on sale of approximately $300,000. The sale
of the interest in MSCS is more fully described in Note 4 to the audited
financial statements in the Company's Form 10-K for the year ended December 31,
2004.
5. Sale of Matrix Capital Bank Branches
On January 30, 2004, the Company, through its wholly owned subsidiary Matrix
Bank, entered into a definitive agreement to sell its two branches in Las
Cruces, New Mexico. The sale closed on May 1, 2004. The sale included deposits
of the Las Cruces branches that totaled approximately $78,500,000, and loans of
approximately $22,800,000, as well as the real estate and leases associated with
the Las Cruces branches.
On July 12, 2004, the Company, through its wholly owned subsidiary Matrix Bank,
entered into a definitive agreement to sell its branch in Sun City, Arizona. The
sale closed on November 1, 2004. The sale included deposits of the Sun City
branch that totaled approximately $104,000,000, a nominal amount of loans, as
well as the real estate and leases associated with the branch.
The sale of the branches is more fully described in Note 5 to the audited
financial statements in the Company's Form 10-K for the year ended December 31,
2004.
6. 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
March 31,
2005 2004
-------------------------------------
(Dollars in thousands)
Numberator:
Income from continuing operations $ 2,920 $ 1,165
Income from discontinued operations - 137
-------------------------------------
Net income $ 2,920 $ 1,302
=====================================
Denominator:
Weighted average shares outstanding 6,620,850 6,518,981
Effect of dilutive securities:
Common stock options 77,034 63,322
-------------------------------------
Denominator for net income per share assuming dilution 6,697,884 6,582,303
=====================================
7. Investment Securities
Investment securities available for sale were as follows:
March 31, 2005 December 31, 2004
----------------------------------------------- -----------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Carrying Amortized Unrealized Unrealized Carrying
Cost Gains Losses Value Cost Gains Losses Value
----------- ----------- ------------ ---------- ----------- ------------ ----------- ----------
(Dollars in thousands)
Mortgage-backed
securities $ 142,098 $ 274 $ (1,047) $ 141,325 $ 117,316 $ 339 $ (145) $ 117,510
SBA securities 910 - (2) 908 930 - (3) 927
----------- ----------- ------------ ---------- ------------ ----------- ----------- ----------
Total $ 143,008 $ 274 $ (1,049) $ 142,233 $ 118,246 $ 339 $ (148) $ 118,437
=========== =========== ============ ========== ============ =========== =========== ==========
10
Matrix Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
March 31, 2005
(Unaudited)
Investment securities held to maturity were as follows:
March 31, 2005 December 31, 2004
----------------------------------------------- --------------------------------------------------
Amortized Amortized
Cost and Gross Gross Cost and Gross Gross
Carrying Unrealized Unrealized Estimated Carrying Unrealized Unrealized Estimated
Value Gains Losses Fair Value Value Gains Losses Fair Value
----------- ----------- ----------- ----------- ------------ ----------- ----------- -------------
(Dollars in thousands)
Mortgage-backed
securities $ 67,661 $ - $ (723) $ 66,938 $ 71,555 $ 34 $ (174) $ 71,415
----------- ----------- ----------- ----------- ------------ ----------- ----------- -------------
Total $ 67,661 $ - $ (723) $ 66,938 $ 71,555 $ 34 $ (174) $ 71,415
=========== =========== =========== =========== ============ =========== =========== =============
Trading securities were as follows:
March 31, 2005 December 31, 2004
---------------------------- ----------------------------
Estimated Fair Value Estimated Fair Value
and carrying value and carrying value
---------------------------- ----------------------------
(Dollars in thousands)
SBA securities $ 112,244 $ 126,375
---------------------------- ----------------------------
Total $ 112,244 $ 126,375
============================ ============================
Management evaluates securities for other-than-temporary impairment at least on
a quarterly basis, and more frequently when economic or market conditions
warrant such evaluation. Consideration is given to (1) the length of time and
the extent to which the fair value has been less than cost, (2) the financial
condition and near-term prospects of the issuer, and (3) the intent and ability
of the Company to retain its investment in the issuer for a period of time
sufficient to allow for any anticipated recovery in fair value. At March 31,
2005, the Company does not believe that any individual unrealized loss
represents other-than-temporary impairment. The unrealized losses are
attributable to changes in interest rates. The Company has both the intent and
ability to hold the securities with gross unrealized losses for a time necessary
to recover the amortized cost.
8. Loans Held for Sale and Investment
Loans Held for Investment
Loans held for investment consist of the following:
March 31, December 31,
2005 2004
-------------------------------------
(Dollars in thousands)
Residential loans $ 232,209 $ 227,609
Multi-family, commercial real estate, SBA commercial 145,681 134,782
Construction loans 35,206 24,753
Consumer loans and other 546 581
(Discounts) premium, net (955) (1,194)
Unearned fees (888) (840)
-------------------------------------
411,799 385,691
Less: Allowance for loan and valuation losses 5,816 5,974
-------------------------------------
Loans held for investment, net $ 405,983 $ 379,717
=====================================
11
Activity in the allowance for loan and valuation losses on loans held for
investment is summarized as follows:
Quarter Ended Year Ended
March 31, December 31,
2005 2004
-------------------------------------
(Dollars in thousands)
Balance at beginning of year $ 5,974 $ 4,986
Provision for loan and valuation losses 408 2,089
Charge-offs and transfers (579) (1,264)
Recoveries 13 163
-------------------------------------
Balance at end of year $ 5,816 $ 5,974
=====================================
Loans Held for Sale
Loans held for sale consist of the following:
March 31, December 31,
2005 2004
--------------------------------------
(Dollars in thousands)
Residential loans $ 776,734 $ 758,543
SBA guaranteed commercial loans, school financing and other 154,526 218,231
Purchase premiums, net 13,325 18,246
--------------------------------------
944,585 995,020
Less: Allowance for loan and valuation losses 5,605 5,198
--------------------------------------
Loans held for sale, net $ 938,980 $ 989,822
======================================
Activity in the allowance for loan and valuation losses on loans held for sale
is summarized as follows:
Quarter Ended Year Ended
March 31, December 31,
2005 2004
--------------------------------------
(Dollars in thousands)
Balance at beginning of year $ 5,198 $ 4,803
Provision for loan losses 425 1,180
Charge-offs and transfers (32) (785)
Recoveries 14 -
--------------------------------------
Balance at end of year $ 5,605 $ 5,198
======================================
12
Matrix Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
March 31, 2005
(Unaudited)
9. Mortgage Servicing Rights
The activity in the mortgage servicing rights is summarized as follows:
Quarter Ended Year Ended
March 31, December 31,
2005 2004
------------------ -----------------
(Dollars in thousands)
Mortgage servicing rights
Balance at beginning of period $ 29,980 $ 47,194
Purchases 174 871
Originations 213 615
Amortization (1,774) (16,100)
Application of valuation allowance to write down impaired MSRs - (2,600)
------------------ -----------------
Balance before valuation allowance at end of period 28,593 29,980
Valuation allowance for impairment of mortgage servicing rights
Balance at beginning of period (3,406) (6,450)
Additions - (1,656)
Application of valuation allowance to write down impaired MSRs - 2,600
Recovery 175 2,100
------------------ -----------------
Balance at end of period (3,231) (3,406)
Mortgage servicing rights, net $ 25,362 $ 26,574
================== =================
The Company's servicing portfolio (excluding subserviced loans), is comprised of
the following:
March 31, 2005 December 31, 2004
---------------------------------- --------------------------------
Principal Principal
Number Balance Number Balance
of Loans Outstanding of Loans Outstanding
-----------------------------------------------------------------------
(Dollars in thousands)
Freddie Mac 4,475 $ 182,593 4,783 $ 196,637
Fannie Mae 12,677 693,182 13,390 722,749
Ginnie Mae 10,323 617,381 11,098 675,067
VA, FHA, conventional and other loans 8,234 668,875 8,687 664,387
---------------- ---------------- --------------- --------------
35,709 $ 2,162,031 37,958 $ 2,258,840
================ ================ =============== ===============
The Company's custodial escrow balances shown in the accompanying condensed
consolidated balance sheets at March 31, 2005 and December 31, 2004 pertain to
payments held in escrow in respect of taxes and insurance and the float on
principal and interest payments on loans serviced and owned by the Company. The
custodial accounts are maintained at Matrix Bank in noninterest-bearing
accounts. The balance of custodial accounts fluctuates from month to month based
on the pass-through of the principal and interest payments to the ultimate
investors and the timing of taxes and insurance payments.
13
Matrix Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
March 31, 2005
(Unaudited)
10. Deposits
Deposit account balances are summarized as follows:
March 31, 2005 December 31, 2004
-------------------------------------------- -------------------------------------------
Weighted Weighted
Average Average
Amount Percent Rate Amount Percent Rate
----------------------------------------------------------------------------------------------
(Dollars in Thousands)
Passbook accounts $ 457 0.04 % 1.34 % $ 455 0.04 % 1.26 %
NOW accounts 207,380 18.20 0.14 189,671 16.95 0.11
Money market accounts 765,253 67.15 1.04 676,848 60.48 0.91
------------- ------------- ------------ ------------- ------------ ------------
973,090 85.39 0.82 866,974 77.47 0.71
Certificate accounts 166,527 14.61 2.93 252,185 22.53 2.48
------------- ------------- ------------ ------------- ------------ -----------
Deposits $ 1,139,617 100.00 % 1.18 % $ 1,119,159 100.00 % 1.09 %
============= ============= ============ ============= ============ ============
Approximately $253,823,000 and $236,007,000 of fiduciary assets under
administration by Sterling Trust are included in NOW and money market accounts
as of March 31, 2005 and December 31, 2004, respectively. Approximately
$116,423,000 and $118,129,000 of MSCS customer assets under administration are
included in NOW and money market accounts as of March 31, 2005 and December 31,
2004, respectively. Approximately $525,961,000 and $449,517,000 of deposits
represent funds from 5 significant institutional relationships maintained by
Matrix Bank as of March 31, 2005 and December 31, 2004, respectively. Included
in certificate accounts are $161,517,000 and $247,868,000 of brokered deposits
as of March 31, 2005 and December 31, 2004, respectively.
11. FHLBank Stock and Borrowings
Matrix Bank obtains FHLBank advances from FHLBank of Topeka, which is the
FHLBank that serves Denver, Colorado, and utilizes FHLBank of Topeka as its
primary correspondent bank. Long-term advances with FHLBank of Dallas that
existed at March 25, 2002, when Matrix Bank changed its domicile to Denver,
Colorado, are still outstanding under their original terms.
The balances of FHLBank stock are as follows:
March 31, 2005 December 31, 2004
--------------------------------------------------------
(Dollars in thousands)
FHLBank of Topeka stock, at cost $ 27,090 $ 26,800
FHLBank of Dallas stock, at cost 6,729 6,681
--------------------------- ------------------------
FHLBank stock $ 33,819 $ 33,481
=========================== ========================
The balances of FHLB borrowings are as follows:
March 31, 2005 December 31, 2004
--------------------------------------------------------
(Dollars in thousands)
FHLBank of Topeka borrowings $ 342,000 $ 359,000
FHLBank of Dallas borrowings 137,096 147,118
--------------------------- ------------------------
FHLBank borrowings $ 479,096 $ 506,118
=========================== ========================
Available unused borrowings from FHLBank of Topeka totaled $321,007,000 at March
31, 2005.
12. Junior Subordinated Debentures Owed to Unconsolidated Subsidiary Trusts
The Company has sponsored six trusts, Matrix Bancorp Capital Trust I, Matrix
Bancorp Capital Trust II, Matrix Bancorp Capital Trust III, Matrix Bancorp
14
Matrix Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
March 31, 2005
(Unaudited)
Capital Trust IV, Matrix Bancorp Capital Trust V, and Matrix Bancorp Capital
Trust VI of which 100% of the common equity is owned by the Company. The trusts
were formed for the purpose of issuing corporation-obligated mandatorily
redeemable capital securities (the "capital securities") to third-party
investors and investing the proceeds from the sale of such capital securities
solely in junior subordinated debt securities of the Company (the "debentures").
The debentures held by each trust are the sole assets of that trust.
Distributions on the capital securities issued by each trust are payable at
either quarterly or semiannually at a rate per annum equal to the interest rate
being earned by the trust on the debentures held by that trust. The capital
securities are subject to mandatory redemption, in whole or in part, upon
repayment of the debentures. The Company has entered into agreements which,
taken collectively, fully and unconditionally guarantee the capital securities
subject to the terms of each of the guarantees. The debentures held by the
trusts are redeemable as noted below.
Junior Subordinated Debentures Owed to Unconsolidated Subsidiary Trusts are
summarized as follows:
March 31, December 31,
------------------------------------
2005 2004
------------------------------------
(Dollars in thousands)
Junior Subordinated Debentures Owed to Unconsolidated Subsidiary Trusts
Junior subordinated debentures owed to Matrix Bancorp Capital Trust I, 10%
junior subordinated debentures payable quarterly, unsecured and maturing
September 30, 2029 $ 13,351 $ 13,351
Junior subordinated debentures owed to Matrix Bancorp Capital Trust II, 10.18%
junior subordinated debentures payable semi-annually, unsecured and maturing
June 8, 2031 12,400 12,400
Junior subordinated debentures owed to Matrix Bancorp Capital Trust III, 10.25%
junior subordinated debentures payable semi-annually, unsecured and maturing
July 25, 2031 15,464 15,464
Junior subordinated debentures owed to Matrix Bancorp Capital Trust IV,
six-month LIBOR plus 3.75% (6.525% at December 31, 2004) junior subordinated
debentures payable semi-annually, unsecured and maturing December 8, 2031 5,155 5,155
Junior subordinated debentures owed to Matrix Bancorp Capital Trust V, six-month
LIBOR plus 3.625% (6.400% at December 31, 2004) junior subordinated
debentures payable semi-annually, unsecured and maturing
January 25, 2032 5,155 5,155
Junior subordinated debentures owed to Matrix Bancorp Capital Trust VI,
interest fixed at 6.425% through October 2009, then three-month LIBOR plus
3.625%, junior subordinated debentures payable semi-annually, unsecured and
maturing October 18, 2034 10,310 10,310
------------------------------------
Total $ 61,835 $ 61,835
====================================
The junior subordinated debentures owed to unconsolidated subsidiary trusts are
more fully described in Note 14 to the audited financial statements in the
Company's Form 10-K for the year ended December 31, 2004.
13. Segment Information
The Company has four reportable segments under SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information": a traditional banking
subsidiary, a mortgage banking subsidiary, two brokerage and consulting
subsidiaries and a school services subsidiary. The remaining subsidiaries are
included in the "all other" category and consist primarily of the Company's
trust operations, real estate disposition services and the Parent company
operations. The Company's segments are more fully described in Note 24 to the
audited financial statements in the Company's Form 10-K for the year ended
December 31, 2004.
15
Matrix Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
March 31, 2005
(Unaudited)
Servicing
Brokerage
Traditional Mortgage and School All
Banking Banking Consulting Services Others Total
--------------------------------------------------------------------------------------
(Dollars in thousands)
Quarter ended March 31, 2005:
Revenues from external customers:
Interest income $ 19,248 $ 417 $ 15 $ 755 $ 231 $ 20,666
Noninterest income 2,203 3,323 2,391 483 2,826 11,226
Intersegment revenues 483 283 811 - 503 2,080
Segment income (loss) from
continuing operations before
income taxes 6,686 (511) 666 86 (2,709) 4,218
Quarter ended March 31, 2004:
Revenues from external customers:
Interest income $ 15,587 $ 1,150 $ 42 $ 1,044 $ 3 $ 17,826
Noninterest income 1,538 7,596 2,843 668 4,765 17,410
Intersegment revenues 852 270 378 3 546 2,049
Segment income (loss) from
continuing operations before
income taxes 5,430 (2,408) 574 63 (2,334) 1,325
14. Contingencies - Legal
The Company and its subsidiaries are from time to time party to various
litigation matters, in most cases involving ordinary and routine claims
incidental to our business. The Company accrues liabilities when it is probable
that the future costs will be incurred and such costs can be reasonably
estimated. Such accruals are based upon developments to date, the Company's
estimates of the outcome of these matters and its experience in contesting,
litigating and settling other matters. Because the outcome of most litigation
matters is inherently uncertain, the Company will generally only accrue a loss
for a pending litigation matter if, for example, the parties to the matter have
entered into definitive settlement agreements or a final judgment adverse to the
Company has been entered. Based on evaluation of the Company's litigation
matters and discussions with internal and external legal counsel, management
believes than an adverse outcome on one or more of the matters noted, against
which no accrual for loss has been made at March 31, 2005 unless otherwise
noted, is reasonably possible but not probable, and that the outcome with
respect to one or more of these matters, if adverse, is reasonably likely to
have a material adverse impact on the consolidated financial position, results
of operations or cash flows of the Company.
The legal contingencies of the Company are more fully described in Note 19 to
the audited financial statements in the Company's Form 10-K for the year ended
December 31, 2004. During the quarter ended March 31, 2005, there were no
material changes to the information previously reported.
16
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, trust activities, lending activities, mortgage banking and other
fee-based services. Our traditional banking activities include originating and
servicing commercial, multi-family, construction and Small Business
Administration ("SBA") loans, purchasing and servicing residential and SBA
loans, and providing a broad range of depository services. Our trust activities
focus primarily on the administration of self-directed individual retirement
accounts, qualified business retirement plans and custodial and directed trust
accounts. Our mortgage banking activities consist of purchasing and selling
residential mortgage loans; offering brokerage, consulting and analytical
services to financial services companies and financial institutions, and
servicing residential mortgage portfolios for investors through a subservicing
arrangement. Our other fee-based services and lending activities include
providing real estate brokerage services, primarily on foreclosed residential
real estate on behalf of unaffiliated financial institutions, and providing
outsourced business services to charter schools. We also offer a limited amount
of 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 Bancorp Trading, Inc.; MTXC Realty Corp. (formerly
known and Matrix Asset Management Corporation); ABS School Services, L.L.C,
operating as The GEO Group; Sterling Trust Company; and First Matrix Investment
Services Corp.
The principal components of our revenues consist of:
o net interest income recorded by Matrix Bank, Matrix Financial and ABS;
o brokerage and consulting fees generated by Matrix Bancorp Trading and First
Matrix;
o gains on sales of mortgage loans generated by Matrix Bank and Matrix
Financial;
o gain on sales of multi-family and SBA loans and pools at Matrix Bank;
o loan administration fees generated by Matrix Financial;
o trust service fees generated by Sterling Trust and Matrix Bank;
o service fees generated by MTXC Realty and our equity earnings under the
equity method of accounting of our minority interest in Matrix Asset
Management, LLC; 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, mortgage loan prepayments and
the value of mortgage servicing portfolios. Our fee-based businesses are
affected to a lesser extent by interest rates and more by competition and
general market conditions.
Sale of Majority Interest in Matrix Asset Management Corporation
On September 10, 2004, the Company entered into a Contribution and Sale
Agreement to sell substantially all of the assets and operations of its real
estate disposition and management services business line. After the sale, we
retained a 25% interest in the new company, as well as our remaining operations
in Matrix Asset Management Corporation, now known as MTXC Realty Corp. See
complete discussion of the sale and impact on continuing operations in "Item 1.
17
Business - Sale of Majority Interest in Matrix Asset Management Corporation,"
and Note 3 of the consolidated financial statements contained in the Company's
Form 10-K for the year ended December 31, 2004. The 25% ownership interest
retained is accounted for using the equity method of accounting, and the equity
earnings reflected in other income for the quarter ended March 31, 2005 are $110
thousand.
Sale of Interest in Matrix Settlement and Clearance Services, LLC
On November 30, 2004, the Company and certain of its subsidiaries entered into
definitive agreements to sell our 45% membership interest in Matrix Settlement
and Clearance Services, LLC, as well as substantially all of the assets of the
trust operations of Matrix Bank. In consideration for the sale of our 45%
membership interest, the Company has received approximately 5% of the
outstanding common stock of the new company. This portion of the transaction
closed December 1, 2004. The 5% ownership interest retained is accounted for
using the cost basis of accounting. See complete discussion of the sale and
impact on continuing operations in "Item 1. Business - Sale of Interest in
Matrix Settlement and Clearance Services, LLC," and Note 4 of the consolidated
financial statements contained in the Company's Form 10-K for the year ended
December 31, 2004.
In consideration of the sale of the assets of the trust operations of Matrix
Bank, the new company will issue common stock of approximately 2% of their
outstanding common stock. Consummation of the sale of the assets of the trust
operations of Matrix Bank closed April 30, 2005, for a gain on sale of
approximately $300 thousand.
Sale of Matrix Capital Bank Branches
The Company, through its wholly owned subsidiary Matrix Bank, closed the sale of
its two branches in Las Cruces, New Mexico on May 1, 2004. The sale included
deposits of the Las Cruces branches that totaled approximately $78.5 million,
and loans of approximately $22.8 million, as well as the real estate, equipment
and leases associated with the Las Cruces branches.
The Company through its wholly owned subsidiary Matrix Bank, closed the sale of
its branch in Sun City, Arizona on November 1, 2004. The sale included deposits
of the Sun City branch that totaled approximately $104.0 million, a nominal
amount of loans, as well as the real estate, equipment and leases associated
with the branch.
See complete discussion of the sale and impact on continuing operations in "Item
1. Business - Sale of Matrix Capital Bank Branches," and Note 5 of the
consolidated financial statements contained in the Company's Form 10-K for the
year ended December 31, 2004.
Discontinued Operations - Sale of Wholesale Production Platform
On September 2, 2003, we announced the final closing and substantial completion
of the sale by Matrix Financial of substantially all of its assets associated
with its wholesale mortgage origination platform. See complete discussion of the
sale and impact on continuing and discontinued operations in "Item 1. Business -
Discontinued Operations" and Note 6 of the consolidated financial statements
contained in the Company's Form 10-K for the year ended December 31, 2004. The
operations of the production platform, included in income from discontinued
operations, net of tax effect totaled approximately $140 thousand for the
quarter ended March 31, 2004. There is no income from discontinued operations
for the quarter ended March 31, 2005.
Critical Accounting Policies
The Company and its subsidiaries have established various accounting policies
which govern the application of accounting principles generally accepted in the
United States of America in the preparation and presentation of the Company's
consolidated financial statements. The significant accounting policies of the
Company are described in "Item 7. Critical Accounting Policies" and Note 2 of
the consolidated financial statements contained in the Company's Form 10-K for
the year ended December 31, 2004, and along with the disclosures presented in
other financial statement notes, provide information on how significant assets
and liabilities are valued in the financial statements and how those values are
determined. Certain accounting policies involve significant judgments,
assumptions and estimates by management that have a material impact on the
carrying value of certain assets and liabilities, which management considers to
be critical accounting policies. The judgments, assumptions and estimates used
by management 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.
18
The Company views the determination of the allowance for loan and valuation
losses as a critical accounting policy that requires significant judgments,
assumptions and estimates used in the preparation of its consolidated financial
statements. See discussion as noted above and at "Asset and Liability
Management, Analysis of Allowance for Loan and Valuation Losses" in the
Company's Form 10-K for the year ended December 31, 2004 for a detailed
description of the Company's process and methodology related to the allowance
for loan and valuation losses.
The Company considers the valuation of mortgage servicing rights and loans held
for sale to be a critical accounting policy that requires judgments, assumptions
and estimates used in the preparation of its consolidated financial statements.
See discussion at "Item 1. Business - Mortgage Servicing Activities" and "Item
7. - Asset and Liability Management" in the Company's Form 10-K for the year
ended December 31, 2004, and see discussion as noted above and in Note 2 of the
consolidated financial statements contained in the Company's Form 10-K for the
year ended December 31, 2004 for a detail concerning the valuation of mortgage
servicing rights and the lower of cost or market valuation of loans held for
sale.
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. For a full description of such
proceedings, see "Item 3. Legal Proceedings" in the Company's Form 10-K for the
year ended December 31, 2004. 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 Statements
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
ongoing or future litigation or bankruptcy matters; interest rate fluctuations;
level of delinquencies; defaults and prepayments; general economic conditions;
competition; government regulation; unanticipated developments in connection
with the bankruptcy actions or litigation mentioned 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 Form 10-K for the year ended December 31, 2004 and in the
Company's current report on Form 8-K, filed with the Securities and Exchange
Commission on March 14, 2005; and the uncertainties set forth from time to time
in the Company's periodic reports, filings and other public statements.
Comparison of Results of Operations for the Quarters Ended March 31, 2005 and
2004
Income from Continuing Operations. For the quarter ended March 31, 2005, we
reported income from continuing operations of $2.9 million, or $0.44 per diluted
share, as compared to $1.2 million, or $0.18 per diluted share, for the quarter
ended March 31, 2004. Our income for the quarter ended March 31, 2005 is
primarily due to positive performance in our traditional banking and other core
operations.
19
Net Interest Income. Net interest income before provision for loan and valuation
losses increased $1.2 million, or 11.0%, to $11.5 million for the quarter ended
March 31, 2005 as compared to $10.3 million for the quarter ended March 31,
2004. Our net interest margin, however, decreased 5 basis points to 2.65% for
the quarter ended March 31, 2005 from 2.70% for the quarter ended March 31,
2004. The increase in net interest income before provision for loan valuation
losses was attributable to an overall increase in the Company's average balance
of interest-earning assets to $1.74 billion for the quarter ended March 31, 2005
as compared to $1.54 billion for the quarter ended March 31, 2004, and an
increase in the yield on those interest-earning assets of 12 basis points to
4.76% for the quarter ended March 31, 2005 as compared to 4.64% for the quarter
ended March 31, 2004. The effect of the increase in the net interest-earning
assets was offset by an increase in our average interest-bearing liabilities to
$1.52 billion for the quarter ended March 31, 2005 as compared to $1.36 billion
at March 31, 2004, and on which we had a 21 basis point increase in the cost of
our interest-bearing liabilities to 2.41% for the quarter ended March 31, 2005
as compared to 2.20% for the quarter ended March 31, 2004. The greater increase
in our cost of interest-bearing liabilities than the yield on interest-earning
assets caused our interest rate spread to decrease to 2.35% for the quarter
ended March 31, 2005 from 2.44% for the quarter ended March 31, 2004. The
increases in the yields were in response to the increase in the overall interest
rate environment. The compression of our interest rate margin is due primarily
to our focus on the acquisition of adjustable rate loans which tend to have
lower initial interest rates, but are a strategically positive match from an
interest rate risk perspective to our liability base. See further discussion at
"Analysis of Changes in Net Interest Income Due to Changes in Interest Rates and
Volumes."
Provision for Loan and Valuation Losses. The provision for loan and valuation
losses decreased $470 thousand to $830 thousand for the quarter ended March 31,
2005 as compared to $1.3 million for the quarter ended March 31, 2004. The
decrease in the provision was mainly due to the quarter ended March 31, 2004
including additional loan reserves at Matrix Bank and Matrix Financial that are
not present in the quarter ended March 31, 2005 as nonperforming assets are
declining at both subsidiaries. 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 and other
ancillary charges. Loan administration fees decreased $1.7 million, or 35.0%, to
$3.0 million for the quarter ended March 31, 2005 as compared to $4.7 million
for the quarter ended March 31, 2004. Loan service fees are affected by factors
that include the size of our residential mortgage loan servicing portfolio, the
servicing spread, the timing of payment collections and the amount of ancillary
fees received. Our mortgage loan servicing portfolio decreased to an average
balance of $2.21 billion for the quarter ended March 31, 2005 as compared to an
average balance of $3.06 billion for the quarter ended March 31, 2004. The
decrease was also due to a decrease in the average service fee rate (including
all ancillary income) to 0.52% for the first quarter of 2005 as compared to
0.58% for the first quarter of 2004. The Company anticipates loan administration
fees to continue to decrease as its servicing portfolio decreases through normal
prepayments. Effective December 1, 2004, the servicing functions of Matrix
Financial were transferred and are performed by a third-party subservicer which
allows us to control our overall cost structure but is not expected to impact
loan administration fees.
Brokerage Fees. Brokerage fees represent income earned from brokerage and
consulting services performed pertaining to mortgage loans and mortgage
servicing rights and SBA trading fees. Brokerage fees decreased by $200
thousand, or 6.8%, to $2.7 million for the quarter ended March 31, 2005 as
compared to $2.9 million for the quarter ended March 31, 2004. The decrease was
primarily the result of lower activity at First Matrix in the acquisition,
pooling and selling of SBA loans and securities due to market conditions.
Trust Services. Trust service fees increased $560 thousand, or 28.9%, to $2.5
million for the quarter ended March 31, 2005 as compared to $1.9 million for the
quarter ended March 31, 2004. Trust accounts under administration at Sterling
Trust and Matrix Bank increased to 62,282 at March 31, 2005 from 52,470 at March
31, 2004 and total assets under administration increased to over $18.3 billion
at March 31, 2005 from $14.1 billion at March 31, 2004. Most of the growth is
driven by business referred to Matrix Bank's trust department by Matrix
Settlement & Clearance Services, LLC. As noted in Item 2. "Sale of Interest in
Matrix Settlement and Clearance Services, LLC" above, the assets and operations
of the trust department at Matrix Bank were sold, effective April 30, 2005, to
the purchaser of our interest in Matrix Settlement and Clearance Services, LLC.
As a result, we anticipate our future trust services revenues will decrease.
Real Estate Disposition Services. Real estate disposition services for the
quarter ended March 31, 2005 total $420 thousand, and represent fees earned by
MTXC Realty Corp. for real estate brokerage services provided on foreclosed
properties owned by third party financial services companies and financial
20
institutions in the Denver metro area. Real estate disposition services income
for the quarter ended March 31, 2004 of $2.4 million represented fees earned by
Matrix Asset Management Corporation for real estate management and disposition
services provided to third party financial services companies. As discussed in
Item 2, "Sale of Majority Interest in Matrix Asset Management Corporation"
above, the decrease in revenue of $2.0 million, or 82.3% represents the impact
of the sale of our majority interest in Matrix Asset Management Corporation. As
noted, the sale is expected to cause real estate disposition services revenues
to continue to decrease in 2005 when compared to 2004 levels.
Gain on Sale of Loans and Securities. Gain on sale of loans and securities
decreased $1.4 million to $750 thousand for the quarter ended March 31, 2005 as
compared to $2.1 million for the quarter ended March 31, 2004. Gains on sale of
loans and securities include gains on the sale of repurchased FHA and VA loans
which represent delinquent loans purchased out of loan pools on which Matrix
Financial acts as servicer, and then re-sells into the secondary market, gains
on the sale of originated SBA and multi-family loans primarily from the
portfolio at Matrix Bank. Gains on sale of loans and securities can fluctuate
significantly from quarter to quarter based on a variety of factors, such as the
current interest rate environment, the supply and mix of loan or securities
portfolios available in the market, and as market conditions dictate, the
particular loan portfolios we elect to sell.
School Services. School services income represents fees earned by ABS, operating
as The GEO Group, for outsourced business and consulting services provided
primarily to charter schools. School services income decreased approximately
$190 thousand, or 28.0%, to $480 thousand for the quarter ended March 31, 2005
as compared to $670 thousand for the quarter ended March 31, 2004. The decrease
is due to a lesser number of clients served.
Other Income. Other income, which includes equity in earnings of unconsolidated
subsidiaries, income earned on bank owned life insurance, rental income,
mortgage servicing net hedging gains and losses and other miscellaneous items,
decreased $1.4 million, or 52.2%, to $1.3 million for the quarter ended March
31, 2005 as compared to $2.7 million for the quarter ended March 31, 2004. The
decrease is primarily due to decreased income generated due to the sale of our
equity investment in Matrix Settlement and Clearance Services discussed above
which was approximately $380 thousand in the first quarter of 2004, offset by
equity income generated by our 25% investment in the new company formed from the
sale of our majority interest in Matrix Asset Management Corporation discussed
above, which generated $110 thousand of revenue for the first quarter of 2005.
Other fluctuations for the quarter ended March 31, 2005 included decreased
hedging gains and other miscellaneous income at Matrix Financial due to the
removal of our hedge on mortgage servicing rights asset in 2004, which were
approximately $1.3 million in the first quarter of 2004. Remaining fluctuations
are based on the nature of the accounts reflected in other income driven
primarily by market conditions.
Noninterest Expense. Noninterest expense decreased $7.4 million, or 29.7%, to
$17.7 million for the quarter ended March 31, 2005 as compared to $25.1 million
for the quarter ended March 31, 2004. This decrease was predominantly due to
decreases in the level of amortization of mortgage servicing rights asset and a
recovery of the previously recorded impairment charge on our mortgage servicing
asset, as well as reductions in compensation and benefits costs and other
general and administrative expenses due to the restructuring the Company
implemented in 2004.
The following table details the major components of noninterest expense for the
periods indicated:
Quarter Ended
March 31,
------------------------------------------------------
2005 2004
------------------------------------------------------
(Dollars in thousands)
Compensation and employee benefits $ 6,876 $ 8,960
Amortization of mortgage servicing rights 1,774 4,671
Occupancy and equipment 1,272 1,559
Postage and communication 408 587
Professional fees 726 737
Mortgage rights subservicing fees 825 -
Data processing 315 623
Subaccounting fees 2,652 1,851
(Recovery of) impairment on mortgage servicing rights, net (175) 1,156
Other general and administrative 2,991 4,991
-------------------------- --------------------------
Total $ 17,664 $ 25,135
========================== ==========================
21
Compensation and employee benefits expense decreased $2.1 million, or 23.3%, to
$6.9 million for the quarter ended March 31, 2005 as compared to $9.0 million
for the quarter ended March 31, 2004. This decrease was primarily due to a
decrease in the overall number of employees by 220 employees to 314 employees at
March 31, 2005 as compared to 534 employees at March 31, 2004. The decrease was
principally due to employees who worked for Matrix Financial Services whose
positions were eliminated with the transfer of servicing to a third party
subservicer, and former employees of Matrix Asset Management Corporation who
moved to the new company formed from the sale of our majority interest in Matrix
Asset Management Corporation as discussed above.
Amortization of mortgage servicing rights decreased $2.9 million, or 62.0%, to
$1.8 million for the quarter ended March 31, 2005 as compared to $4.7 million
for the quarter ended March 31, 2004. 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. The cause of the decrease was a combination of a decrease in the
average balance in our mortgage servicing rights portfolio to $2.2 billion at
March 31, 2005 as compared to $3.1 billion at March 31, 2004, and in response to
the increasing interest rate environment, prepayment speeds on our servicing
portfolio decreased to an average of 19.8% for the quarter ended March 31, 2005
as compared to 28.2% for the quarter ended March 31, 2004.
Impairment on mortgage servicing rights reflects a recovery of the impairment
for the quarter ended March 31, 2005 of $175 thousand as compared to an
impairment charge of $1.2 million for the quarter ended March 31, 2004. The
Company is required to record its investment in mortgage servicing rights at the
lower of cost or fair value. The fair value of mortgage servicing rights is
determined based on the discounted future servicing income stratified based on
one or more predominant risk characteristics of the underlying loans. The
Company stratifies its mortgage servicing rights by product type and investor,
among other things, to reflect the predominant risks. To determine the fair
value of its investment, the Company uses a valuation model that calculates the
present value of future cash flows. Due to changes in the interest rate
environment, among other factors, a recovery of the impairment was recorded
during the quarter ended March 31, 2005. It is not possible to estimate if
future impairments or recoveries of those impairments will occur, and further
changes in market interest rates, or increases in anticipated future prepayment
speeds, may cause additional impairment charges in future periods.
The remainder of noninterest expense, which includes occupancy and equipment
expense, postage and communication expense, professional fees, mortgage rights
subservicing fees, data processing costs, subaccounting fees and other general
and administrative expenses, decreased approximately $1.2 million, or 11.2%, to
$9.2 million for the quarter ended March 31, 2005 as compared to $10.4 million
for the quarter ended March 31, 2004. The decrease was primarily due to
decreases in other general and administrative expenses as a result of the impact
of the restructuring undergone by the Company in 2004, including the sales of
subsidiaries and Matrix Bank branches noted above, and due to the first quarter
of 2004 including certain charges in other general and administrative expenses
due to market conditions that are not present in 2005. These decreases were
partially offset by increases in subaccounting fees at Matrix Bank due to
increases in the levels of institutional deposits held on which subaccounting
services are incurred and in the level of fees, which generally move with
balances and changes in the targeted Fed Funds rate.
Income Taxes. Provision for income taxes is $1.3 million for the quarter ended
March 31, 2005 as compared to $160 thousand for the quarter ended March 31,
2004. Our effective tax rate is 30.8% for the quarter ended March 31, 2005. The
effective tax rates are affected by the level of tax-exempt income at ABS and
Matrix Bank in proportion to the level of net income from continuing operations,
as well as utilization of tax credits generated by a subsidiary of Matrix Bank.
The net tax exempt income was approximately $730 thousand and $1.0 million for
the quarters ended March 31, 2005 and 2004, respectively.
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 ended March 31, 2005 and 2004
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.
22
Quarter Ended March 31,
2005 2004
--------------------------------- ---------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
----------- ---------- ---------- ---------- --------- ----------
(Dollars in thousands)
Assets
Interest-earning assets:
Loans receivable $ 1,381,270 $ 16,319 4.73 % $ 1,368,959 $ 16,059 4.69 %
Securities 317,362 3,996 5.04 134,805 1,538 4.56
Interest-earning deposits 3,539 14 1.58 2,316 3 0.52
FHLBank stock 33,485 337 4.03 29,817 226 3.03
------------ ---------- ---------- ------------ --------- -----------
Total interest-earning assets 1,735,656 20,666 4.76 % 1,535,897 17,826 4.64 %
Noninterest-earning assets:
Cash 51,091 55,855
Allowance for loan and valuation
losses (11,190) (9,923)
Premises and equipment 18,873 24,818
Other assets 104,667 132,795
------------ ------------
Total noninterest-earning assets 163,441 203,545
------------ ------------
Total assets $ 1,899,097 $ 1,739,442
============ ============
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Passbook accounts $ 450 2 1.33 % $ 5,930 19 1.28 %
Money market and NOW accounts 697,884 1,893 1.09 584,794 1,092 0.75
Certificates of deposit 187,170 1,373 2.93 201,968 1,549 3.07
FHLBank borrowings 541,604 4,142 3.06 452,037 2,562 2.27
Borrowed money and junior
subordinated debentures 93,061 1,767 7.60 114,813 2,255 7.86
------------ ---------- ---------- ------------ --------- ----------
Total interest-bearing liabilities 1,520,169 9,177 2.41 % 1,359,542 7,477 2.20 %
Noninterest-bearing liabilities:
Demand deposits (including custodial
escrow balances) 272,422 286,950
Other liabilities 13,141 22,859
------------ ------------
Total noninterest-bearing
liabilities 285,563 309,809
Shareholders' equity 93,365 70,091
------------ ------------
Total liabilities and shareholders'
equity $ 1,899,097 $ 1,739,442
============ ============
Net interest income before provision
for loan and valuation losses $ 11,489 $ 10,349
========== =========
Interest rate spread 2.35 % 2.44 %
========== ===========
Net interest margin 2.65 % 2.70 %
========== ===========
Ratio of average interest-earning
assets to average interest-bearing
liabilities 114.18 % 112.97 %
========== ===========
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.
23
Quarter Ended March 31,
2005 vs. 2004
---------------------------------------------
Increase (Decrease) Due to Change in
---------------------------------------------
Volume Rate Total
------------- ------------- ---------------
(In thousands)
Interest-earning assets:
Loans receivable, net $ 137 $ 123 $ 260
Securities 2,282 176 2,458
Interest-earning deposits 3 8 11
FHLBank stock 30 81 111
------------- ------------- ---------------
Total interest-earning assets 2,452 388 2,840
Interest-bearing liabilities:
Passbook accounts (19) 1 (18)
Money market and NOW accounts 237 565 802
Certificates of deposit (109) (67) (176)
FHLBank borrowings 572 1,008 1,580
Borrowed money (416) (72) (488)
------------- ------------- ---------------
Total interest-bearing liabilities 265 1,435 1,700
------------- ------------- ---------------
Change in net interest income before provision for
loan and valuation losses $ 2,187 $ (1,047) $ 1,140
============= ============= ===============
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 generally 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.
March 31, December 31, March 31,
2005 2004 2004
---------------------------------------------------------------------
(Dollars in thousands)
Nonaccrual residential mortgage loans $ 13,133 $ 12,157 $ 17,293
Nonaccrual commercial real estate, commercial
loans and school financing 15,925 19,148 22,892
Nonaccrual consumer loans 77 40 -
---------------- ---------------- -----------------
Total nonperforming loans 29,135 31,345 40,185
Foreclosed real estate 3,999 2,955 8,372
---------------- ---------------- -----------------
Total nonperforming assets $ 33,134 $ 34,300 $ 48,557
================ ================ =================
Total nonperforming loans to total loans 2.15 % 2.27 % 3.12 %
Total nonperforming assets to total assets 1.78 % 1.82 % 2.77 %
Ratio of allowance for loan and valuation
losses to total nonperforming loans 39.20 % 35.64 % 26.10 %
We accrue for interest on government sponsored loans such as FHA insured and VA
guaranteed loans that are past due 90 or more days, as generally the majority of
the interest on these loans is insured by the federal government. The aggregate
unpaid principal balance of government sponsored accruing loans that were past
due 90 or more days was $13.8 million, $18.1 million and $17.9 million at March
31, 2005, December 31, 2004 and March 31, 2004, respectively.
Nonaccrual residential mortgage loans as a percentage of total loans were 1.0%
at March 31, 2005, 0.9% at December 31, 2004, and 1.3% at March 31, 2004. The
nonaccrual residential mortgage loans increased approximately $1.0 million as
compared to December 31, 2004. This increase is borrower specific and does not
appear to be due to any specific market conditions that affect the remainder of
the portfolio.
24
The nonaccrual commercial loans and school financing at March 31, 2005 decreased
as compared to December 31, 2004. Nonaccrual school financing and commercial
loans are discussed further below.
With regard to our school financing, a majority of our origination of tax-exempt
financing for charter schools is for the purchase of real estate and equipment.
The balance of these loans in nonaccrual status decreased to $4.1 million at
March 31, 2005 as compared to $5.6 million at December 31, 2004. Based on
current information, we believe that reserves are sufficient for any potential
losses. The decrease was due to the repayment of one previously held nonaccrual
loan during the first quarter of 2005. See further discussion of the nonaccrual
school financing loans in "Item 7. - Asset and Liability
Management-Nonperforming Assets" in the Company's Form 10-K for the year ended
December 31, 2004.
With regard to the nonaccrual commercial loans, the balance of these loans in
nonaccrual status decreased to $11.9 million at March 31, 2005 as compared to
$13.6 million at December 31, 2004. Based on current information, we believe
that there are sufficient reserves for any potential loss. The decrease is due
to repayments, reinstatements and foreclosures primarily in the SBA portfolio
during the first quarter 2005. See further discussion of the nonaccrual
commercial loans in "Item 7. - Asset and Liability Management-Nonperforming
Assets" in the Company's Form 10-K for the year ended December 31, 2004.
The percentage of the allowance for loan losses to nonaccrual loans varies due
to the nature of our portfolio of loans. We analyze the allowance for loan
losses related to the nonaccrual loans by loan type, historical loss experience
and loans measured for impairment. 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 March 31, 2005 and 2004."
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 Company is reliant on dividend and tax payments from its subsidiaries in
order to fund operations, meet debt and tax obligations and grow new or
developing lines of business. A long-term inability of a subsidiary to make
dividend payments could significantly impact the Company's liquidity.
Historically, the majority of the dividend payments have been made by Matrix
Bank. The current dividend policy approved by Matrix Bank is 75% of the
consolidated cumulative earnings of Matrix Bank. Absent these dividend payments,
the Company may utilize the line of credit on its bank stock loan, as needed, to
meet its own and the other subsidiaries financial obligations. As of March 31,
2005, the entire amount of the line of credit of $12,000,000 is available. The
line of credit was renewed effective March 31, 2005, which extended the maturity
to March 31, 2006. Additionally, under a strategy implemented in 2003,
liquidation of certain loans receivable at ABS are anticipated to generate cash
to be distributed to the Company, consistent with the Company's experience in
2004. In the third and fourth quarter of 2004, due to the sale of our majority
interest in Matrix Asset Management Corporation and our interest in Matrix
Settlement and Clearance Services, as discussed above, dividends of the sales
proceeds were paid by these subsidiaries to the Company. This level of dividends
for these specific subsidiaries is not anticipated to be repeated in 2005.
Matrix Bank's liquidity needs are expected to be met primarily through
borrowings from the FHLBank, as well as institutional deposits and custodial
escrow deposits held at Matrix Bank. 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. At March 31, 2005, Matrix Bank had overnight and term
borrowings of $479.1 million from the FHLBank of Topeka and Dallas. Matrix Bank
also utilizes brokered deposits as a source of liquidity. The balance of
brokered deposits at March 31, 2005 was $161.5 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
6.64% at March 31, 2005. This exceeds the well capitalized leverage capital
requirement of 5.0% of adjusted assets by $29.5 million. Matrix Bank's
risk-based capital ratio was 13.22% at March 31, 2005, which exceeds the well
capitalized risk-based capital requirement of 10.0% of risk-weighted assets by
$31.0 million.
25
ABS' principal source of funding for school financings are internal capital,
sales of loans to third party institutions and partnership trusts with
unaffiliated financial institutions. Amounts available to be sold and amounts to
be financed are at the purchaser's and lender's sole discretion. The facility
currently outstanding has a balance of approximately $14.2 million and matures
in September 2005. We are in the process of renewing the facility, but there can
be no assurances that the facility will be renewed. We continue to pursue
additional third party financing and sales options for ABS. We do not anticipate
significantly increasing our current loan portfolio.
Under a purchase and sale agreement, ABS has sold school financings to an
unaffiliated financial institution, with full recourse to ABS. ABS services the
school financings on a scheduled/scheduled remittance and in the case of a loss
or default, upon the liquidation of the underlying collateral, ABS is required
to reimburse the unaffiliated financial institution for any shortfall. Due to
the control the unaffiliated financial institution has over the school
financing, the transaction was accounted for as a sale. The recourse provisions
were considered by us at the time of the sale. No gain or loss was booked at the
sale date as the loans were sold at their carrying value. The total balance of
the school financings sold with recourse is $7.1 million at March 31, 2005.
Contractual Obligations, Commitments, Contingent Liabilities and Off-Balance
Sheet Arrangements
During the quarter ended March 31, 2005, there were no material changes outside
of the normal course of business to the quantitative and qualitative disclosures
about contractual obligations, commitments, contingent liabilities and
off-balance sheet arrangements previously reported in the Annual Report
contained in the Company's Form 10-K for the year ended December 31, 2004. See
Item 7. "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Contractual Obligations, Commitments, Contingent Liabilities and
Off-Balance Sheet Arrangements" in the Company's Form 10-K for the year ended
December 31, 2004 for a detailed discussion.
See Notes 10 and 11to the Condensed Consolidated Financial Statements herein for
detail on the balances of deposit liabilities and FHLBank borrowings as of March
31, 2005.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
During the quarter ended March 31, 2005, there were no material changes to the
quantitative and qualitative disclosures about market risk previously reported
in the Annual Report contained in the Company's Form 10-K for the year ended
December 31, 2004. 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 Company's Form 10-K for the
year ended December 31, 2004 for a detailed discussion.
Item 4. Controls and Procedures
Management of the Company is responsible for establishing and maintaining
effective disclosure controls and procedures, as defined under Rules 13a-15(e)
and 15d-15(b) of the Securities Exchange Act of 1934. As of March 31, 2005, an
evaluation was performed under the supervision and with the participation of the
Company's management, including the Co-Chief Executive Officers and Chief
Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based on that evaluation, the
Company's management concluded that the Company's disclosure controls and
procedures as of March 31, 2005 were effective in ensuring that information
required to be disclosed in this Quarterly Report on Form 10-Q was recorded,
processed, summarized, and reported within the time period required by the SEC's
rules and forms. There have been no significant changes in the Company's
internal controls over financial reporting that occurred during the quarter
ended March 31, 2005 that have materially affected, or are reasonably likely to
materially affect, the Company's internal controls over financial reporting.
26
Part II - Other Information
Item 1. Legal Proceedings
During the quarter ended March 31, 2005, there were no material changes to the
information previously reported in the Company' Annual Report on Form 10-K for
the year ended December 31, 2004. See Item 3. "Legal Proceedings" in the
Company's Form 10-K for the year ended December 31, 2004 for a detailed
discussion.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the quarter ended March 31, 2005, there were no changes to the
information previously reported in the Annual Report contained in the Company's
Form 10-K for the year ended December 31, 2004. See Item 5. "Market for
Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities" in the Company's Form 10-K for the year ended December 31,
2004 for a detailed discussion.
Item 6. Exhibits
(a) Exhibits
*10.1 Seventh Amendment to Credit Agreement, dated as of March 31,
2005, by and between Matrix Bancorp, Inc., as borrower, and
U.S. Bank National Association, as agent, and certain
lenders, as lenders.
*31.1 Certification by D. Mark Spencer pursuant to Rule 13a-14(a)
or Rule 15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
*31.2 Certification by Richard V. Schmitz pursuant to Rule
13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
*31.3 Certification by David W. Kloos pursuant to Rule 13a-14(a)
or Rule 15d-14(a), as adoped pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
*32.1 Certification by D. Mark Spencer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
*32.2 Certification by Richard V. Schmitz pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
*32.3 Certification by David W. Kloos pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
- ----------------------
* Filed herewith.
27
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: May 5, 2005 /s/ D. Mark Spencer
----------- ----------------------------------------
D. Mark Spencer
President and
Co-Chief Executive Officer
(Principal Executive Officer)
Dated: May 5, 2005 /s/ Richard V. Schmitz
----------- ----------------------------------------
Richard V. Schmitz
Co-Chief Executive Officer
Dated: May 5, 2005 /s/ David W. Kloos
----------- ----------------------------------------
David W. Kloos
Senior Vice President and
Chief Financial Officer
(Principal Accounting and
Financial Officer)
28
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- ---------------------------------------------------------------------
*10.1 Seventh Amendment to Credit Agreement, dated as of March 31, 2005, by
and between Matrix Bancorp, Inc., as borrower, and U.S. Bank National
Associaiton, as agent, and certain lenders, as lenders.
*31.1 Certification by D. Mark Spencer pursuant to Rule 13a-14(a) or Rule
15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
*31.2 Certification by Richard V. Schmitz pursuant to Rule 13a-14(a) or Rule
15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
*31.3 Certification by David W. Kloos pursuant to Rule 13a-14(a) or Rule
15d-14(a), as adoped pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
*32.1 Certification by D. Mark Spencer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*32.2 Certification by Richard V. Schmitz pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
*32.3 Certification by David W. Kloos pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
* Filed herewith.