MTXC Matrix Bancorp

Matrix Bancorp Announces Second Quarter Earnings DENVER, Aug. 2 /PRNewswire-FirstCall/ -- Matrix Bancorp, Inc. (NASDAQ:MTXC) (the "Company") today reported net income of $1.7 million for the quarter ended June 30, 2005, or $0.26 per basic and diluted share, as compared to $3.9 million, or $0.59 per basic and $0.58 per diluted share, for the quarter ended June 30, 2004. The net income for the quarter and six months ended June 30, 2004 included the $3.1 million after-tax gain on sale of two Matrix Capital Bank branches in New Mexico. Net income for the six months ended June 30, 2005 totals $4.6 million, or $0.70 per basic share and $0.69 per diluted share, as compared to $5.2 million, or $0.79 per basic and $0.78 per diluted share for the six months ended June 30, 2004. The Company's assets totaled $1.97 billion on June 30, 2005, as compared to $1.89 billion at December 31, 2004. The increase is due principally to acquisitions of whole loans and investment securities. Loans receivable increased $53.1 million, as compared to December 31, 2004, to $1.42 billion at June 30, 2005. The increase during the first half of 2005 is due to purchases of primarily residential loans exceeding repayments. Investment securities increased due to the exchanges with FNMA and FHLMC of whole loans for securities and purchases during the period exceeding repayments. Deposits, including custodial escrow balances, increased $60.5 million as compared to December 31, 2004, to $1.23 billion at June 30, 2005 due to the net effect of the attraction of new institutional deposit accounts offset by maturities of brokered deposits. D. Mark Spencer, President and Co-CEO, commented, "We were generally pleased with our results from operations in the second quarter and year to date. The core operations of the company contributed positively during the quarter and first half of 2005. The current flatter yield curve has resulted in the Company experiencing some margin compression. However, we intend to maintain our investment strategy of acquiring predominately adjustable rate loans and securities. While this strategy results in less current earnings than if we extended the average life of our portfolios, it has relatively modest interest rate risk and we believe it to be the best alternative for the long-term." Richard V. Schmitz, Chairman and Co-CEO, added, "As we announced on June 17, 2005, the Texas Supreme Court has remanded the Adderley lawsuit back to trial court which has favorable implications for our subsidiary, Sterling Trust Company. In addition, during the quarter ended June 30, 2005, we issued approximately $7.8 million of trust preferred debt and used the proceeds to redeem a portion of previously issued, higher cost trust preferred debt, which occurred on July 20, 2005. This will result in future interest savings." Financial Highlights Net interest income before provision for loan and valuation losses totaled $11.4 million for the quarter ended June 30, 2005 as compared to $10.3 million for the quarter ended June 30, 2004, and totaled $22.9 million for the six months ended June 30, 2005 as compared to $20.6 million for the six months ended June 30, 2004. The Company's average balance of interest-earning assets increased to $1.80 billion and $1.77 billion for the quarter and six months ended June 30, 2005, as compared to $1.47 billion and $1.50 billion for the quarter and six months ended June 30, 2004 which is attributable to acquisitions of whole loans and investment securities. Offsetting a portion of the increase in interest-earning assets was a decrease in our net interest margin to 2.53% and 2.59% for the quarter and six months ended June 30, 2005, respectively, as compared to 2.80% and 2.75% for the quarter and six months ended June 30, 2004. The decrease in the net interest margin is due to the current interest rate environment, which has resulted in a much flatter yield curve in 2005 than in 2004. In addition, a lower balance of noninterest- bearing custodial balances as a result of the overall decrease in our servicing portfolio and our focus on the acquisition of adjustable rate loans which tend to have lower beginning interest rates and incur a higher level of prepayments at the adjustment dates has also contributed to our margin compression. The yield on our interest-earning assets increased to 4.84% and 4.80% for the quarter and six months ended June 30, 2005, as compared to 4.77% and 4.70% for the quarter and six months ended June 30, 2004. The cost of our interest-bearing liabilities also increased to 2.62% and 2.52% for the quarter and six months ended June 30, 2005 as compared to 2.20% and 2.19% for the quarter and six months ended June 30, 2004. Both the increases were in response to the changes in the overall interest rate environment. The provision for loan and valuation losses was $350 thousand for the quarter ended June 30, 2005 and $1.2 million for the six months ended June 30, 2005, as compared to $440 thousand for the quarter ended June 30, 2004 and $1.7 million for the six months ended June 30, 2004. During the quarter ended June 30, 2005, we sold $6.7 million of underperforming loans at Matrix Financial, of which $4.6 million were classified as loans held for investment. The transfer of the loans from the held to investment portfolio to the held for sale portfolio resulted in a charge off of approximately $510 thousand. Noninterest income was $8.6 million and $19.8 million for the quarter and six months ended June 30, 2005 as compared to $18.5 million and $35.9 million for the quarter and six months ended June 30, 2004. Noninterest income for the quarter and six months ended June 30, 2004 includes a $5.1 million gain on the sale of the Las Cruces branches by Matrix Bank. The other decreases in noninterest income for both the quarter and six months ended June 30, 2005 is due to a combination of decreases in real estate disposition services which in 2004 included 100% of the operations of Matrix Asset Management which we sold in the third quarter of 2004, decreases in loan administration income due to decreases in the size of our mortgage servicing portfolio, decreases in trust services income due to the sale of the trust operations of Matrix Bank in April of 2005, offset by recognition of a $300 thousand gain on the sale, and decreases in gains on sales of loans and securities which is dependent on market conditions and the timing of sales in the marketplace, primarily on loans purchased and resold from our servicing portfolio and SBA loan portfolio. Finally, included as a negative charge in other income is approximately $340 thousand representing deferred issuance fees charged off in connection with our call of approximately $8.1 million of trust preferred debt. Noninterest expense was $17.4 million and $35.1 million for the quarter and six months ended June 30, 2005, as compared to $22.5 million and $47.6 million for the quarter and six months ended June 30, 2004. The decreases were a result of: (1) a lower level of amortization of mortgage servicing rights for both the quarter and six month period due to an overall decrease in the outstanding balance of our mortgage servicing rights asset as compared to prior year quarters and increases in mortgage interest rates as compared to the prior year period; (2) the amount of compensation and employee benefits decreased as a result of the reduced number of employees due to the 2004 sales of the Matrix Bank branches and Matrix Asset Management, and the reduction of staff at Matrix Financial associated with the 2004 transfer of servicing of the mortgage servicing asset to a third-party subservicer; and (3) decreases in other general and administrative expenses which in 2005 included amounts recorded for repurchase reserves and write-offs of receivables at Matrix Financial related to loans originated prior to the sale of the origination platform in 2003 that are not present at the same levels in 2005, in addition to expense reductions due to the sales in 2004 noted above. These decreases were offset by an increase in the impairment on mortgage servicing rights charge for the quarter ended June 30, 2005 of $230 thousand, which also created a net charge of $55 thousand for the six months ended June 30, 2005, where in the quarter and six months ended June 30, 2004, we recognized a recovery of the impairment on mortgage servicing rights of $2.1 million and $940 thousand, respectively. The impairment charge is based on the fair value of the mortgage servicing asset, which is affected by the level of prepayments and changes in the interest rate environment. Forward-Looking Statements Certain statements contained in this press 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," "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: 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 annual report 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. MATRIX BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share information) June 30, December 31, 2005 2004 (Unaudited) ASSETS Cash and cash equivalents $28,980 $40,471 Interest-earning deposits and federal funds sold 9,724 2,398 Investment securities 354,176 316,367 Loans held for sale, net 1,036,244 989,822 Loans held for investment, net 386,375 379,717 Mortgage servicing rights, net 22,908 26,574 Other receivables 39,325 35,139 FHLBank stock, at cost 33,204 33,481 Premises and equipment, net 17,986 19,037 Bank owned life insurance 22,012 21,569 Other assets, net 19,985 21,330 Foreclosed real estate, net 4,059 2,955 Total assets $1,974,978 $1,888,860 LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: $1,190,50 1,119,15 Deposits 40,7367 51,5989 Custodial escrow balances FHLBank borrowings 529,074 506,118 Borrowed money 28,618 31,573 Junior subordinated debentures owed to unconsolidated subsidiary trusts 69,567 61,835 Other liabilities 17,299 23,955 Income taxes payable and deferred income tax liability 1,985 2,307 Total liabilities 1,877,786 1,796,545 Shareholders' equity: Common stock, $0.0001 par value 1 1 Additional paid-in capital 21,432 21,432 Retained earnings 75,386 70,756 Accumulated other comprehensive income 373 126 Total shareholders' equity 97,192 92,315 Total liabilities and shareholders' equity $1,974,978 $1,888,860 MATRIX BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except share information) (Unaudited) Quarter Ended Six Months Ended June 30, June 30, 2005 2004 2005 2004 Interest and dividend income: Loans and securities $21,391 $17,260 $41,706 $34,856 Interest-earning deposits 405 233 756 462 Total interest and dividend income 21,796 17,493 42,462 35,318 Interest expense: Deposits 3,940 2,345 7,208 5,005 Borrowed money and junior subordinated debentures 6,488 4,863 12,397 9,679 Total interest expense 10,428 7,208 19,605 14,684 Net interest income before provision for loan 11,368 10,285 22,857 20,634 and loan valuation losses Provision for loan and loan valuation losses 352 445 1,185 1,744 Net interest income after provision for loan and loan valuation losses 11,016 9,840 21,672 18,890 Noninterest income: Loan administration 2,499 3,727 5,534 8,395 Brokerage 1,558 2,507 4,310 5,459 Trust services 1,785 1,887 4,300 3,839 Real estate disposition services 423 3,078 844 5,466 Gain on sale of loans and securities 537 873 1,283 2,987 Gain on sale of assets 302 5,088 302 5,088 School services 370 799 853 1,470 Other 1,127 523 2,401 3,188 Total noninterest income 8,601 18,482 19,827 35,892 Noninterest expense: Compensation and employee benefits 5,860 8,786 12,735 17,746 Amortization of mortgage servicing rights 2,352 4,493 4,126 9,164 Occupancy and equipment 1,286 1,562 2,558 3,122 Postage and communication 338 532 746 1,118 Professional fees 598 906 1,326 1,643 Mortgage servicing rights subservicing fees 771 -- 1,596 -- Data processing 221 636 535 1,259 Subaccounting fees 3,199 1,696 5,851 3,546 Impairment on (recovery of) impairment on mortgage servicing rights 230 (2,100) 55 (944) Other general and administrative 2,559 5,961 5,550 10,953 Total noninterest expense 17,414 22,472 35,078 47,607 Income from continuing operations before income taxes 2,203 5,850 6,421 7,175 Income tax provision 493 1,988 1,791 2,147 Income from continuing operations 1,710 3,862 4,630 5,028 Discontinued operations: Income from discontinued operations, net of income tax -- -- -- 137 Net income $1,710 $3,862 $4,630 $5,165 Income from continuing operations per share - basic $0.26 $0.59 $0.70 $0.77 Income from continuing operations per share - assuming dilution 0.26 0.58 0.69 0.76 Income from discontinued operations per share - basic and assuming dilution -- -- -- 0.02 Net income per share - basic 0.26 0.59 0.70 0.79 Net income per share - assuming dilution 0.26 0.58 0.69 0.78 MATRIX BANCORP, INC. AND SUBSIDIARIES OPERATING RATIOS AND OTHER SELECTED DATA (Dollars in thousands, except share information) (Unaudited) Quarter Ended Six Months Ended June 30, June 30, 2005 2004 2005 2004 (Unaudited) Weighted average shares - basic 6,620,850 6,519,522 6,620,850 6,519,251 Weighted average shares - assuming dilution 6,698,498 6,633,954 6,698,199 6,607,047 Number of shares outstanding at end of period 6,620,850 6,520,181 6,620,850 6,520,181 Average Balances Loans receivable $1,431,234 $1,295,617 $1,406,391 $1,332,299 Interest-earning assets 1,800,176 1,466,743 1,768,095 1,501,331 Total assets 1,952,914 1,682,441 1,926,155 1,720,184 Interest-bearing deposits 955,802 743,629 920,696 770,712 FHLBank and other borrowings 545,609 568,736 543,618 570,409 Interest-bearing liabilities 1,592,103 1,312,365 1,556,335 1,341,121 Shareholders' equity 95,638 72,931 94,501 71,511 Operating Ratios & Other Selected Data (1) Return on average equity 7.15% 21.18% 9.80% 14.06% Net interest margin (2) 2.53% 2.80% 2.59% 2.75% Net interest margin - Matrix Capital Bank (2) 2.76% 3.04% 2.85% 3.04% Operating efficiency ratios (3) 74.28% 69.80% 72.39% 69.68% Balance of servicing portfolio $2,305,054 $2,590,813 $2,305,054 $2,590,813 Average prepayment rate on owned servicing 24.10% 32.40% 21.97% 29.90% Book value per share (end of period) $14.68 $11.38 $14.68 $11.38 Loan Performance Ratios (1) Annualized net charge offs/average loans (4) 0.23% 0.14% 0.20% 0.16% Allowance for loan and loan valuation losses/total loans 0.76% 0.81% 0.76% 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 loan valuation loss provision by average interest earning assets. (3) The operating efficiency ratios has been calculated by dividing noninterest expense, excluding amortization of mortgage servicing rights, by operating income. Operating income is equal to net interest income before provision for loan and loan valuation losses plus noninterest income. (4) The quarter and year to date 2005 ratios include $510 thousand of charge-offs related to the transfer of $4.6 million of loans from held for investment to held for sale. DATASOURCE: Matrix Bancorp, Inc. CONTACT: David W. Kloos, Chief Financial Officer of Matrix Bancorp, Inc., +1-303-595-9898 Web site: http://www.matrixbancorp.com/

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