Matrix Bancorp (NASDAQ:MTXC)
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Matrix Bancorp, Inc., (NASDAQ: MTXC) (the "Company")
today reported a net loss of $(6.0) million for the quarter ended
December 31, 2005, or $(0.76) per basic share, as compared to net
income of $9.6 million, or $1.48 per basic share and $1.45 per diluted
share for the quarter ended December 31, 2004. Net income for the
quarter ended December 31, 2005 is reduced by the impact of three
significant infrequent or unusual charges, totaling approximately $8.5
million after-tax, or $1.07 per basic share. These charges are: (1)
approximately $5.0 million, or $0.63 per basic share, of after-tax
costs including severance and stock option buy-outs related to the
previously announced private offering which closed December 9, 2005,
and the issuer tender offer, which closed January 23, 2006; (2)
approximately $2.0 million, or $0.25 per basic share, after-tax cost
of the previously disclosed settlement of the Adderley litigation
matter; and (3) inclusion of approximately $1.5 million, or $0.19 per
basic share, after-tax charge to adjust our single-family loans held
for sale portfolio to the current market value. In contrast, net
income for the quarter ended December 31, 2004 included approximately
$8.0 million, or $1.20 per diluted share, in gains on the sale of
other assets, including the sale of Matrix Capital Bank's former
branch in Sun City, Arizona, and the sale of a joint venture interest.
Net income for the year ended December 31, 2005 totals $1.6
million, or $0.22 per basic and diluted share, as compared to $21.9
million, or $3.36 per basic share and $3.30 per diluted share for the
year ended December 31, 2004. Net income per share for the year ended
December 31, 2005 is reduced by the after-tax charges of approximately
$8.5 million incurred as a result of the above mentioned private
offering and tender offer, litigation settlement and adjustment
against the value of our single-family loans held for sale portfolio.
Net income for 2004 included the after-tax gains on the sale of other
assets totaling approximately $19.3 million, or $2.91 per diluted
share, including the sale of Matrix Capital Bank's branches in Sun
City, Arizona, and Las Cruces, New Mexico, gains on the sale of a
joint venture interest and gains on the sale of substantially all of
the assets of our real estate disposition services subsidiary. Results
for both 2005 and 2004 include other unusual or infrequently occurring
items, as described later in this release.
As previously announced, on December 9, 2005, the Company closed
its private placement of 5,120,000 shares of common stock, $0.0001 par
value, at $19.00 per share. The proceeds from the private offering,
net of costs directly charged to funds raised of approximately $10.0
million, were $87.0 million, and are reflected in additional paid in
capital at December 31, 2005. The Company used the net proceeds of the
private offering to conduct an issuer tender offer to purchase shares
of the Company's common stock, $0.0001 par value, at a price of $19.00
per share, which closed January 23, 2006. The total proceeds paid out
for the tender offer was $79.5 million, and will be charged against
the additional paid in capital in January 2006, thereby reducing our
capital by an equal amount. The total number of shares validly
tendered and accepted in the tender offer was 4,184,277. Following
completion of the tender offer, the Company has 7,556,573 common
shares outstanding. The purpose of the tender offer was to reduce the
Company's insider ownership and ultimately increase the market float
of our common stock. Net proceeds remaining from the funds of the
private offering less payment for the tender offer and related
expenses, of approximately $2.4 million will be used for working
capital purposes.
Concurrently with the closing of the private offering, the Company
appointed new members of executive management to execute the Company's
expanded business plan. The plan focuses on leveraging the existing
infrastructure of Matrix Capital Bank and other subsidiaries to fund
the expansion of the Company's community banking franchise in order to
serve the needs of small to medium sized businesses and individuals
across the Colorado Front Range.
The Company's assets totaled $2.08 billion on December 31, 2005,
as compared to $1.89 billion at December 31, 2004. The increase is
primarily due to acquisitions of mortgage-backed investment securities
at Matrix Capital Bank. Investment securities increased $220 million,
to $540 million at December 31, 2005, as compared to December 31,
2004. The acquisition of the investment securities was funded through
increases of approximately $110 million in FHLBank borrowings, and
proceeds from the private offering held awaiting the close of the
tender offer.
Financial Highlights
Net interest income before provision for loan and valuation losses
totaled $12.3 million for the quarter ended December 31, 2005, as
compared to $11.4 million for the quarter ended December 31, 2004. Net
interest income before provision for loan and valuation losses totaled
$46.7 million for the year ended December 31, 2005, as compared to
$42.6 million for the year ended December 31, 2004. The Company's net
interest margin decreased to 2.51% and 2.52% for the quarter and year
ended December 31, 2005, respectively, as compared to 2.66% and 2.68%
for the quarter and year ended December 31, 2004, respectively. The
change in the net interest margin can be attributed primarily to the
current interest rate environment, which has resulted in a much
flatter yield curve in 2005 than in 2004. In addition, we experienced
a lower balance of noninterest-bearing custodial balances as a result
of the overall decrease in our servicing portfolio, and a
significantly high level of prepayments on our single-family loan
portfolio contributed to the interest margin compression. The yield on
our average interest-earning assets increased to 5.02% and 4.85% for
the quarter and year ended December 31, 2005, respectively, as
compared to 4.70% and 4.68% for the quarter and year ended December
31, 2004, respectively. The average balance of our interest-earning
assets increased to $1.96 billion and $1.86 billion for the quarter
and year ended December 31, 2005, as compared to $1.72 billion and
$1.59 billion for the quarter and year ended December 31, 2004. The
effects of the increase in average rate earned on and balance of
interest-earning assets was offset by an increase in the rate on
interest-bearing liabilities to 2.82% and 2.60% for the quarter and
year ended December 31, 2005, respectively, as compared to 2.23% and
2.22% for the quarter and year ended December 31, 2004, respectively.
The average balance of interest-bearing liabilities also increased to
$1.75 billion and $1.67 billion for the quarter and year ended
December 31, 2005, respectively, as compared to $1.57 billion and
$1.43 billion for the quarter and year ended December 31, 2004.
The provision for loan and valuation losses was $430 thousand for
the quarter ended December 31, 2005 and $1.7 million for the year
ended December 31, 2005, as compared to $980 thousand for the quarter
ended December 31, 2004 and $3.3 million for the year ended December
31, 2004. The decrease in the provision was due primarily to lower
levels of required reserves at Matrix Capital Bank and Matrix
Financial as compared to 2004 as nonperforming assets continue to
decline, coupled with a higher percentage of the Company's assets
being invested in investment securities instead of loans.
Noninterest income was $8.3 million and $38.1 million for the
quarter and year ended December 31, 2005 as compared to $26.2 million
and $88.4 million for the quarter and year ended December 31, 2004.
Noninterest income for the quarter ended December 31, 2004 included
pre-tax gains of approximately $13.2 million on the sale of other
assets, including Matrix Capital Bank's former branch in Arizona and a
joint venture membership interest by the Company. Noninterest income
for the year ended December 31, 2004 included a total of pre-tax gains
of approximately $31.8 million for the fourth quarter 2004 sales noted
previously, plus gains on the sale of Matrix Capital Bank's former New
Mexico branches and the sale of primarily all of the assets of the
Company's real estate disposition services subsidiary, which occurred
in the second and third quarters of 2004. In 2005, noninterest income
decreased in loan administration, real estate disposition services and
other income due to the restructuring efforts and sales in 2004 which
reduced the amount of ongoing revenue generated by these activities.
Noninterest expense was $31.5 million and $84.0 million for the
quarter and year ended December 31, 2005, as compared to $23.1 million
and $95.7 million for the quarter and year ended December 31, 2004.
The fluctuation in our noninterest expense in 2005 is due to a
combination of the following. There was a substantial increase in
compensation and benefits due to the inclusion of $7.9 million of
costs associated with the private placement and tender offer
transaction, including costs for severances, options buy-outs and
other employee compensation related fees. Subaccounting fees at Matrix
Capital Bank were $4.0 million and $13.4 million for the quarter and
year ended December 31, 2005, respectively, representing a $1.7
million and $5.7 million quarterly and annual increase over comparable
2004 periods. The increase is due to increased levels of Matrix
Capital Bank's institutional deposits, upon which subaccounting
services are incurred. Mortgage rights subservicing fees at Matrix
Financial of $720 thousand and $3.1 million for the quarter and year
ended December 31, 2005, respectively, represent fees paid to an
independent third party sub-servicer for the mortgage servicing rights
portfolio, which increased in 2005 as compared to 2004 as the
servicing was transferred in late 2004. There was a slight offset to
this increase due to a decrease in data processing costs which were
not incurred subsequent to the transfer of the portfolio to the
subservicer. Other general and administrative expenses increase
includes $3.1 million litigation settlement of the Adderley matter
made in late December 2005, and $2.3 million charge to adjust the
value of our single-family loans held for sale portfolio to market
value due to interest rate fluctuations and trends impacting the
valuation in the fourth quarter of 2005. In 2004, other general and
administrative expenses included approximately $3.0 million of
litigation settlement payments, primarily at Matrix Capital Bank.
These expense increases were partially off-set by fluctuations in
the level of amortization and recoveries of impairments associated
with our mortgage servicing asset and other general and administrative
expenses. Amortization of mortgage servicing rights declined when
compared to the same prior year periods. For the quarter ended
December 31, 2005, the decline was approximately $1.7 million to $1.6
million, and for the year ended December 31, 2005, a decline of $8.3
million to $7.8 million. The decline in the amortization was due to an
overall decrease in the outstanding balance of our mortgage servicing
rights asset and despite annualized prepayment speeds that remained
high at 23.9% and 23.7% for the quarter and year ended December 31,
2005. We recognized a recovery of impairment on mortgage servicing
rights of $350 thousand and $1.2 million for the quarter and year
ended December 31, 2005, as compared to recoveries of $0 and $440
thousand for the quarter and year ended December 31, 2004. The level
of recovery is based on the valuation of the mortgage servicing
portfolio, and is impacted by changes in the interest rate
environment, among other things. The Company also experienced declines
in the level of foreclosure reserves, repurchase reserves and
write-offs of receivables at Matrix Financial included in other
general and administrative expenses of approximately $5.7 million, to
$2.4 million for the year ended December 31, 2005.
Income taxes reflect a benefit of $5.3 million and $2.4 million
for the quarter and year ended December 31, 2005, respectively. The
income tax benefit or provision, and effective tax rate is affected by
the level of tax-exempt income at ABS and Matrix Capital Bank in
proportion to the level of net income from continuing operations, as
well as utilization of tax credits generated by subsidiaries of Matrix
Capital Bank. The net tax-exempt income was approximately $630
thousand and $2.7 million for the quarter and year ended December 31,
2005, respectively. Tax credits utilized were approximately $430
thousand and $720 thousand for the quarter and year ended December 31,
2005, respectively.
Conference Call
The Company will host a conference call to discuss the results of
operations for the fourth quarter and fiscal year 2005 and other
topics that may be raised during the discussion on Tuesday, March 14,
2006 at 9:00 a.m. Mountain Time. To access the call, participants
should dial 800-218-9073 at least ten minutes prior to the start of
the call. International callers should dial 303-262-2130. To hear a
live web simulcast or to listen to the archived web cast following
completion of the call, please visit the Company's web site at
www.matrixbancorp.com, click on the investor relations tab, then
select conference calls, to access the link to the call. Refer to
conference identification number 32723.
Forward-Looking Statements
Certain statements contained in this earnings release 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 press release could differ materially from those
stated in such forward-looking statements. Among the factors that
could cause actual results to differ materially are: the timing of
regulatory approvals or consents for new branches or other
contemplated actions; the availability of suitable and desirable
locations for additional branches; the continuing strength of our
existing business, which may be affected by various factors, including
but not limited to interest rate fluctuations, level of delinquencies,
defaults and prepayments, general economic conditions, competition,
the delay in or failure to receive any required shareholder approvals
of the contemplated actions;and the risks and uncertainties discussed
elsewhere in the annual report and in the Company's current report on
Form 8-K, filed with the Securities and Exchange Commission on
November 7, 2005; and the uncertainties set forth from time to time in
the Company's periodic reports, filings and other public statements.
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MATRIX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share information)
December 31, December 31,
2005 2004
------------- ------------
ASSETS (Unaudited)
Cash and cash equivalents $ 15,877 $ 40,471
Interest-earning deposits and federal
funds sold 18,355 2,398
Investment securities 540,194 316,367
Loans held for sale, net 927,442 989,822
Loans held for investment, net 425,943 379,717
Mortgage servicing rights, net 20,708 26,574
Other receivables 29,139 35,139
FHLBank stock, at cost 34,002 33,481
Premises and equipment, net 17,154 19,037
Bank owned life insurance 22,454 21,569
Other assets, net 19,898 21,330
Income taxes receivable and deferred
tax asset 3,696 -
Foreclosed real estate, net 4,526 2,955
------------- --------------
Total assets $ 2,079,388 $ 1,888,860
============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits $ 1,124,044 $ 1,119,159
Custodial escrow balances 49,385 51,598
FHLBank borrowings 615,028 506,118
Borrowed money 29,581 31,573
Junior subordinated debentures owed to
unconsolidated subsidiary trusts 61,372 61,835
Other liabilities 19,250 23,955
Income taxes payable and deferred
income tax liability - 2,307
------------- --------------
Total liabilities 1,898,660 1,796,545
Shareholders' equity:
Common stock, $0.0001 par value,
authorized 50,000,000 shares,
issued and outstanding 11,740,850
shares at December 31, 2005 and
6,620,850 shares at December 31,
2004 1 1
Additional paid-in capital 108,395 21,432
Retained earnings 72,314 70,756
Accumulated other comprehensive income 18 126
------------- --------------
Total shareholders' equity 180,728 92,315
------------- --------------
Total liabilities and shareholders'
equity $ 2,079,388 $ 1,888,860
============= ==============
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MATRIX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share information)
Quarter Ended Year ended
December 31, December 31,
2005 2004 2005 2004
----------- ------ ----------- ------
(unaudited) (unaudited)
Interest and dividend
income:
Loans and securities $ 24,007 $ 19,842 $ 88,150 $ 73,363
Interest-earning
deposits 651 339 1,941 1,063
----------- -------- ----------- --------
Total interest and
dividend income 24,658 20,181 90,091 74,426
Interest expense:
Deposits 4,511 2,979 15,883 10,665
Borrowed money and
junior subordinated
debentures 7,805 5,796 27,485 21,134
----------- -------- ----------- --------
Total interest expense 12,316 8,775 43,368 31,799
Net interest income before
provision for loan and
valuation losses 12,342 11,406 46,723 42,627
Provision for loan and
valuation losses 430 981 1,665 3,269
----------- -------- ----------- --------
Net interest income after
provision for loan and
valuation losses 11,912 10,425 45,058 39,358
Noninterest income:
Loan administration 2,211 3,309 10,103 15,253
Brokerage 2,078 2,742 9,846 10,629
Trust services 1,475 2,088 7,217 7,853
Real estate disposition
services 218 335 1,391 7,786
Gain on sale of loans
and securities 375 2,234 2,017 6,618
Gain on sale of other
assets - 13,178 300 31,767
School Services 356 592 1,690 2,871
Other 1,575 1,724 5,518 5,650
----------- -------- ----------- --------
Total noninterest
income 8,288 26,202 38,082 88,427
Noninterest expense:
Compensation and
employee benefits 13,482 6,941 32,371 32,891
Amortization of mortgage
servicing rights 1,633 3,321 7,764 16,100
Occupancy and equipment 1,207 1,515 4,997 6,166
Postage and
communication 302 371 1,355 2,001
Professional fees 810 708 2,936 3,242
Mortgage servicing
rights subservicing
fees 722 300 3,073 300
Data processing 219 891 963 2,705
Subaccounting fees 3,987 2,259 13,447 7,738
Recovery of mortgage
servicing rights
impairment (350) - (1,180) (444)
Other general and
administrative 9,535 6,761 18,303 24,967
----------- -------- ----------- --------
Total noninterest
expense 31,547 23,067 84,029 95,666
(Loss) income from
continuing operations
before income taxes (11,347) 13,560 (889) 32,119
Income tax (benefit)
provision (5,340) 3,941 (2,447) 10,359
----------- -------- ----------- --------
(Loss) income from
continuing operations (6,007) 9,619 1,558 21,760
Discontinued operations:
Income from discontinued
operations, net of income
tax provision of $0, $0,
$0 and $89, respectively - - - 137
----------- -------- ----------- --------
Net (loss) income $ (6,007)$ 9,619 $ 1,558 $ 21,897
=========== ======== =========== ========
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MATRIX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share information)
Quarter Ended Year ended
December 31, December 31,
2005 2004 2005 2004
----------- ----------- ----------- ------
(unaudited) (unaudited) (unaudited)
(Loss) income from
continuing operations
per share - basic $ (0.76) $ 1.48 $ 0.22 $ 3.34
----------- ----------- ----------- --------
(Loss) income from
continuing operations
per share - assuming
dilution $ (0.76) $ 1.45 $ 0.22 $ 3.28
----------- ----------- ----------- --------
Income from
discontinued
operations per
share - basic $ - $ - $ - $ 0.02
----------- ----------- ----------- --------
Income from
discontinued
operations per
share - assuming
dilution $ - $ - $ - $ 0.02
----------- ----------- ----------- --------
Net (loss) income per
share - basic $ (0.76) $ 1.48 $ 0.22 $ 3.36
=========== =========== =========== ========
Net (loss) income per
share - assuming
dilution $ (0.76) $ 1.45 $ 0.22 $ 3.30
=========== =========== =========== ========
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MATRIX BANCORP, INC. AND SUBSIDIARIES
OPERATING RATIOS AND OTHER SELECTED DATA
(Dollars in thousands, except share information)
Quarter Ended Year ended
December 31, December 31,
2005 2004 2005 2004
------ ------ ------ ------
(Unaudited)
Weighted average shares
- basic (4) 7,900,850 6,523,474 6,943,480 6,520,239
-----------------------
Weighted average
shares - assuming
dilution (4) 8,019,941 6,653,303 7,036,128 6,630,006
-----------------------
Number of shares
outstanding at end of
period (4) 11,740,850 6,620,850 11,740,850 6,620,850
-----------------------
Average Balances
-----------------------
Loans receivable $ 1,384,733 $1,443,948 $ 1,411,974 $1,373,246
Interest-earning
assets 1,963,491 1,717,064 1,857,731 1,590,431
Total assets 2,083,915 1,895,106 2,001,155 1,779,320
Interest-bearing
deposits 1,044,796 905,765 1,001,471 810,946
FHLBank and other
borrowings 704,130 665,070 667,037 618,645
Interest-bearing
liabilities 1,748,926 1,570,835 1,668,508 1,429,591
Shareholders' equity 113,741 86,903 100,154 76,491
Operating Ratios &
Other Selected
Data (1)
-----------------------
Return on average
equity (21.13)% 44.28 % 1.56 % 28.45 %
Net interest
margin (2) 2.51 % 2.66 % 2.52 % 2.68 %
Net interest margin -
Matrix Capital Bank 2.61 % 2.96 % 2.67 % 2.98 %
Balance of servicing
portfolio $ 1,717,997 $2,258,840 $ 1,717,997 $2,258,840
Average prepayment
rate on owned
servicing portfolio 23.9 % 23.6 % 23.7 % 27.5 %
Book value per share
(end of period) (3) $ 15.39 $ 13.94 $ 15.39 $ 13.94
Loan Performance
Ratios (1)
-----------------------
Net charge
offs/average loans 0.37 % 0.21 % 0.20 % 0.14 %
Allowance for loan
and valuation
losses/total loans 0.73 % 0.81 % 0.73 % 0.81 %
(1) Calculations are based on average daily balances where available
and monthly averages otherwise, as applicable.
(2) Net interest margin has been calculated by dividing net interest
income before loan and valuation loss provision by average
interest-earning assets.
(3) Pro forma book value per share at December 31, 2005 assuming the
tender offer which closed January 23, 2006 had been completed was
$13.40 per share.
(4) Share information reflects the issuance of 5,120,000 shares of
common stock on December 9, 2005, as previously disclosed, through
a private placement offering. The company completed their tender
offer on January 23, 2006 for 4,184,277 shares. After the
completion of the tender offer, there were 7,556,573 shares
outstanding.
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