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, 1998
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 CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
Colorado 84-1233716
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1380 Lawrence Street, Suite 1410
Denver, Colorado 80204
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 595-9898
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No [ ]
Number of shares of Common Stock ($.0001 par value) outstanding at the
close of business on May 8, 1998 was 6,705,130 shares.
1
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TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets
March 31, 1998 (unaudited) and
December 31, 1997.................................................. 3
Condensed Consolidated Statements of Income
Three months ended March 31, 1998 and 1997 (unaudited)............. 4
Condensed Consolidated Statements of Changes in Shareholders' Equity
Three months ended March 31, 1998 and 1997 (unaudited)............. 5
Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 1998 and 1997 (unaudited)............. 6
Notes to Unaudited Condensed Consolidated Financial Statements....... 7
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................. 10
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings.................................................... 17
ITEM 2. Changes in Securities and Use of Proceeds............................ 17
ITEM 3. Defaults Upon Senior Securities...................................... 17
ITEM 4. Submissions of Matters to a Vote of Security Holders................. 17
ITEM 5. Other Information.................................................... 17
ITEM 6. Exhibits and Reports on Form 8-K..................................... 18
SIGNATURES................................................................... 19
2
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<TABLE>
<CAPTION>
Part I - Financial Information
Item 1. Financial Statements
Matrix Capital Corporation
Condensed Consolidated Balance Sheets
(Dollars in thousands)
March 31, December 31,
1998 1997
--------------- --------------
(unaudited)
<S> <C> <C>
Assets
Cash $ 10,552 $ 3,296
Interest-earning deposits 14,528 6,337
Loans held for sale, net 514,731 456,978
Loans held for investment, net 58,855 54,394
Mortgage servicing rights, net 48,845 36,440
Other receivables 23,433 22,695
Federal Home Loan Bank of Dallas stock 9,149 8,700
Premises and equipment, net 9,033 9,012
Other assets 9,391 8,893
--------------- -------------
Total assets $ 698,517 $ 606,745
=============== =============
Liabilities and shareholders' equity
Liabilities:
Deposits $ 316,303 $ 224,982
Custodial escrow balances 75,687 53,760
Drafts payable 11,063 7,506
Payable for purchase of mortgage servicing rights 14,374 8,660
Federal Home Loan Bank of Dallas borrowings 104,000 171,943
Borrowed money 125,607 89,909
Other liabilities 7,159 9,192
Income taxes payable 1,527 183
--------------- -------------
Total liabilities 655,720 566,135
Commitments and contingencies
Shareholders' equity:
Preferred stock, par value $.0001; authorized 5,000,000 shares; no shares
outstanding
Common stock, par value $.0001; authorized 50,000,000 shares; issued and
outstanding 6,704,080 and 6,703,880 at March 31, 1998 and December 31,
1997, respectively 1 1
Additional paid in capital 22,187 22,185
Retained earnings 20,609 18,424
--------------- -------------
Total shareholders' equity 42,797 40,610
--------------- -------------
Total liabilities and shareholders' equity $ 698,517 $ 606,745
=============== =============
See accompanying notes.
</TABLE>
3
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<TABLE>
<CAPTION>
Matrix Capital Corporation
Condensed Consolidated Statements of Income
(Dollars in thousands except per share information)
(unaudited)
Three Months Ended
March 31,
1998 1997
---------------- --------------
<S> <C> <C>
Interest income
Loans and mortgage-backed securities $ 11,301 $ 5,084
Interest-earning deposits 285 412
---------------- --------------
Total interest income 11,586 5,496
Interest expense
Interest on deposits 2,864 1,648
Interest on borrowings 4,289 1,498
---------------- --------------
Total interest expense 7,153 3,146
---------------- --------------
Net interest income before provision for loan
and valuation losses 4,433 2,350
Provision for loan and valuation losses 450 92
---------------- --------------
Net interest income 3,983 2,258
Noninterest income
Loan administration 3,743 3,982
Brokerage 1,672 1,137
Trust services 1,001 879
Gain on sale of loans 1,133 118
Gain on sale of mortgage servicing rights 837 1,411
Loan origination 1,411 641
Other 1,122 775
---------------- --------------
Total noninterest income 10,919 8,943
Noninterest expenses
Compensation and employee benefits 5,127 3,461
Amortization of mortgage servicing rights 1,594 1,527
Occupancy and equipment 666 501
Postage and communications 542 316
Professional fees 249 200
Data processing 346 152
Other general and administrative 2,854 2,169
---------------- --------------
Total noninterest expense 11,378 8,326
---------------- --------------
Income before income taxes 3,524 2,875
Provision for income taxes 1,339 1,121
---------------- --------------
Net income $ 2,185 $1,754
================ ==============
Net income per share $ .33 $ .26
================ ==============
Net income per share assuming dilution $ .32 $ .26
================ ==============
Weighted average shares 6,704,026 6,681,031
================ ==============
Weighted average shares assuming dilution 6,841,679 6,777,239
================ ==============
See accompanying notes.
</TABLE>
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<TABLE>
<CAPTION>
Matrix Capital Corporation
Condensed Consolidated Statements of Shareholders' Equity
(Dollars in thousands)
(unaudited)
Common Stock Additional
------------------------------- Paid In Retained
Shares Amount Capital Earnings Total
-------------- ------------- --------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Three months ended March 31, 1998
- ----------------------------------------
Balance at December 31, 1997 6,703,880 $ 1 $ 22,185 $ 18,424 $ 40,610
Exercise of stock options 200 2 2
Net income - - - 2,185 2,185
--------- ------------ ---------- ---------- ----------
Balance at March 31, 1998 6,704,080 $ 1 $ 22,187 $ 20,609 $ 42,797
========= ============ ========== ========== ==========
Three months ended March 31, 1997
- ----------------------------------------
Balance at December 31, 1996 6,681,031 $ 1 $ 21,983 $ 10,286 $ 32,270
Net income - - - 1,754 1,754
--------- ------------ ---------- ---------- ----------
Balance at March 31, 1997 6,681,031 $ 1 $ 21,983 $ 12,040 $ 34,024
========= ============ ========== ========== ==========
See accompanying notes.
</TABLE>
5
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<TABLE>
<CAPTION>
Matrix Capital Corporation
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
(unaudited)
Three Months Ended
March 31,
1998 1997
----------- ------------
<S> <C> <C>
Operating activities
Net income $ 2,185 $ 1,754
Adjustments to reconcile net income to net cash used by operating activities:
Depreciation and amortization 421 370
Provision for loan and valuation losses 450 92
Amortization of mortgage servicing rights 1,594 1,527
Gain on sale of loans (1,133) (118)
Gain on sale of mortgage servicing rights (837) (1,411)
Loss related to recourse sales
- 225
Loans originated for sale, net of loans sold (27,582) (10,790)
Loans purchased for sale (110,674) (106,330)
Proceeds from sale of loans purchased for sale 64,651 5,455
Originated mortgage servicing rights, net (651) (14)
Increase in other receivables and other assets (86) (6,689)
Increase (decrease) in other liabilities and income taxes payable (689) 2,762
--------- ---------
Net cash used by operating activities (72,351) (113,167)
Investing activities
Loans originated and purchased for investment (13,806) (4,365)
Principal repayments on loans 29,339 8,687
Purchase of Federal Home Loan Bank of Dallas stock (449) (41)
Purchases of premises and equipment (376) (200)
Acquisition of mortgage servicing rights (10,170) (24,865)
Proceeds from sale of mortgage servicing rights 2,256 1,750
--------- ---------
Net cash provided (used) by investing activities 6,794 (19,034)
Financing activities
Net increase in deposits 91,321 91,797
Net increase in custodial escrow balances 21,927 31,559
Decrease in revolving lines and repurchase agreements, net (44,587) (6,695)
Repayments of notes payable (11,436) (2,051)
Proceeds from notes payable 23,822 29,300
Repayment of financing arrangements (45) (38)
Proceeds from issuance of common stock related to employee
stock option plan 2 -
--------- ---------
Net cash provided by financing activities 81,004 143,872
--------- ---------
Increase in cash and cash equivalents 15,447 11,671
Cash and cash equivalents at beginning of period 9,633 12,609
--------- ---------
Cash and cash equivalents at end of period $ 25,080 $ 24,280
========= =========
Supplemental disclosure of noncash activity
Payable for purchase of mortgage servicing rights $ 14,374 $ 7,389
========= =========
Supplemental disclosure of cash flow information
Cash paid for interest expense $ 7,703 $ 2,979
========= =========
Cash paid for income taxes $ - $ 609
========= =========
See accompanying notes.
</TABLE>
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Matrix Capital Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
Three Months Ended March 31, 1998 and 1997
(1) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Matrix
Capital Corporation (the "Company") have been prepared in accordance with
generally accepted accounting principles 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 footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of only normal
recurring accruals) necessary for a fair presentation have been included. For
further information, refer to the consolidated financial statements and
footnotes hereto included in the Company's annual report on Form 10-K for the
year ended December 31, 1997.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and the
accompanying notes. Actual results could differ from these estimates.
As of December 31, 1997, the Company adopted Statement of Financial Accounting
Standards No. 128, Earnings Per Share, and restated all prior period earnings
per share data, as required.
The Company also adopted Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income (Statement No. 130), as of January 1, 1998.
Statement No. 130 requires reclassification of financial statements for earlier
periods provided for comparative purposes. The Company's adoption of Statement
No. 130 has not resulted in any change in presentation, as there is no material
effect on the Company's consolidated financial statements as a result of the
adoption.
(2) Net Income Per Share
The following table sets forth the computation of net income per share and net
income per share assuming dilution:
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 1997
----------------- ------------------
(Dollars in thousands)
<S> <C> <C>
Numerator:
Net income available to common shareholders $ 2,185 $ 1,754
================= =================
Denominator:
Weighted average shares outstanding 6,704,026 6,681,031
Effect of dilutive securities:
Common stock options 118,034 85,733
Common stock warrants 19,619 10,475
----------------- -----------------
Dilutive potential common shares 137,653 96,208
----------------- -----------------
Denominator for net income per share assuming dilution 6,841,679 6,777,239
================= =================
</TABLE>
7
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(3) Mortgage Servicing Rights
The activity in the Mortgage Servicing Rights ("MSRs") is summarized as follows:
<TABLE>
<CAPTION>
Three Months
Ended Year Ended
March 31, December 31,
1998 1997
----------------- ---------------
(unaudited)
(Dollars in thousands)
<S> <C> <C>
Balance at beginning of period $ 36,440 $ 23,680
Purchases 15,884 37,151
Originated, net 651 818
Amortization (1,594) (6,521)
Sales (2,536) (18,688)
----------------- ---------------
Balance at end of period $ 48,845 $ 36,440
================= ===============
</TABLE>
Accumulated amortization of mortgage servicing rights aggregated approximately
$18.0 million and $17.2 million at March 31, 1998 and December 31, 1997,
respectively.
The Company's servicing portfolio (excluding subserviced loans) was comprised of
the following:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
-------------------------------- -----------------------------------
Number Principal Number Principal
Of Loans Balance of Loans Balance
Outstanding Outstanding
------------ -------------- -------------- ----------------
(unaudited)
(Dollars in thousands)
<S> <C> <C> <C> <C>
FHLMC 24,381 $ 1,515,485 13,134 $ 715,513
FNMA 22,577 1,570,356 18,000 1,168,199
GNMA 8,752 401,228 15,845 615,234
Other VA, FHA, and
conventional loans 14,490 838,490 14,538 849,116
------------ -------------- -------------- ----------------
70,200 $ 4,325,559 61,517 $ 3,348,062
============ ============== ============== ================
</TABLE>
The Company's custodial escrow balances shown in the accompanying condensed
consolidated balance sheets pertain to escrowed payments of taxes and insurance
and the float on principal and interest payments on loans serviced by the
Company, aggregating approximately $73.2 million and $49.7 million at March 31,
1998 and December 31, 1997, respectively. The Company also had custodial escrow
accounts on deposit for other mortgage companies aggregating approximately $2.5
million and $4.1 million at March 31, 1998 and December 31, 1997, respectively.
8
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(4) Deposits
Deposit account balances are summarized as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------------------------------ ------------------------------------
Weighted Weighted
Average Average
Amount Percent Rate Amount Percent Rate
-------------- -------- ---------- ------------ --------- ---------
(unaudited)
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Passbook accounts $ 2,688 0.85 % 3.85% $ 2,851 1.27% 3.95 %
NOW accounts 30,080 9.51 1.75 26,382 11.73 1.62
Money market accounts 104,251 32.96 2.85 99,899 44.40 2.96
-------------- -------- ---------- ------------ --------- ---------
137,019 43.32 2.67 129,132 57.40 2.70
Certificate accounts 179,284 56.68 5.68 95,850 42.60 5.94
-------------- -------- ---------- ------------ --------- ---------
Total deposits $ 316,303 100.00 % 4.24% $ 224,982 100.00% 4.09 %
============== ======== ========== ============ ========= =========
</TABLE>
At March 31, 1998 and December 31, 1997, brokered deposits accounted for
approximately $80.1 million and $0, respectively, of the total certificate
accounts shown above.
(5) Commitments and Contingencies
At March 31, 1998, the Company had $104.6 million in pipeline and funded loans
offset with mandatory forward commitments of $79.0 million and nonmandatory
forward commitments of $12.6 million.
As of March 31, 1998, the Company had identified and hedged approximately $300
million of its mortgage servicing portfolio using a program of exchange-traded
future and options. At March 31, 1998, the net realized deferred gains and the
unrealized deferred gain/loss of the open positions was approximately $257,000.
In June 1996, the Company purchased 154 acres of land for $1.3 million in cash
for the purpose of developing residential and multi-family lots in Ft. Lupton,
Colorado. As part of the acquisition, the Company entered into a Residential
Facilities Development Agreement (the "Development Agreement") with the City of
Ft. Lupton. The Development Agreement is a residential and planned unit
development agreement providing for the orderly planning, engineering and
development of a golf course and surrounding residential community. The City of
Ft. Lupton is responsible for the development of the golf course and the Company
is responsible for the development of the surrounding residential lots. The
Development Agreement sets forth a mandatory obligation on the part of the
Company to pay the City of Ft. Lupton pledged enhancement assessments of
$600,000. These pledged enhancement assessments require the Company to pay the
City a $2,000 fee each time the Company sells a developed residential lot. The
Company is obligated to pay a minimum of $60,000 in assessment fees per year
beginning in 1998 and continuing through 2007.
The Company also entered into a development management agreement with a local
developer to complete the development of the land. At March 31, 1998 and
December 31, 1997, the total basis of the land development is $3.2 million and
$2.8 million, respectively, and is classified in other assets in the
accompanying condensed consolidated balance sheets.
(6) Business Combinations
On March 25, 1998, the Company signed an agreement to merge the Company with a
newly-formed subsidiary of Fidelity National Financial, Inc. ("Fidelity"), which
is primarily a provider of title insurance and other title- related services. It
is intended that the merger be treated as a pooling of interests under generally
accepted accounting principles. The Company's shares will be converted into the
right to receive .80 shares of Fidelity common stock without interest, together
with cash in lieu of any fractional shares. The conversion to Fidelity shares is
based on an exchange ratio, which has been collared between $28.75 and $35.00
per Fidelity share. The merger is subject to both regulatory and shareholder
approvals.
9
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
The Company's principal activities focus on traditional banking, mortgage
banking and the administration of self- directed trust accounts. The Company's
traditional banking activities include originating and servicing residential,
commercial and consumer loans and providing a broad range of depository
services. The Company's mortgage banking activities consist primarily of
purchasing and selling residential mortgage loans and residential mortgage
servicing rights; offering brokerage, consulting and analytical services to
financial services companies and financial institutions; servicing residential
mortgage portfolios for investors; originating residential mortgages; and
providing real estate management and disposition services. The Company's trust
activities focus primarily on the administration of self-directed individual
retirement accounts, qualified retirement plans and custodial and directed trust
accounts. These activities are conducted through the Company's primary
subsidiaries, Matrix Capital Bank ("Matrix Bank"), Matrix Financial Services
Corporation ("Matrix Financial"), Sterling Trust Company ("Sterling Trust"),
United Financial, Inc. ("United Financial"), United Special Services, Inc.
("USS"), United Capital Markets, Inc. ("UCM") and First Matrix Investment
Services Corporation ("First Matrix").
The principal components of the Company's revenues consist primarily of net
interest income recorded by Matrix Bank and Matrix Financial, loan
administration fees generated by Matrix Financial, brokerage fees realized by
United Financial, loan origination fees and gains on sales of mortgage loans and
mortgage servicing rights generated by Matrix Bank and Matrix Financial and
trust service fees generated by Sterling Trust. While USS and UCM have not
generated significant revenues during their limited operating histories,
management anticipates that they will make a larger contribution to the
Company's revenues in the future. The Company's results of operations are
influenced by changes in interest rates and the effect of these changes on the
interest spreads of the Company, the volume of loan originations, mortgage loan
prepayments and the value of mortgage servicing portfolios.
Forward-Looking Information
Certain information contained in this quarterly report constitutes
"Forward-Looking Statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, which can be identified by the use of forward-looking terminology
such as "may", "will", "expect", "anticipate", "estimate", or "continue" or the
negative thereof or other variations thereon or comparable terminology. The
statements contained in the Company's current report on Form 8-K, filed with the
Securities and Exchange Commission on March 25, 1998, constitute cautionary
statements identifying important factors, including certain risk and
uncertainties, with respect to such forward-looking statements that could cause
actual results to differ materially from those reflected in such forward-looking
statements.
Results of Operations for the
Quarter Ended March 31, 1998 Compared to the Quarter Ended March 31, 1997
Net Income; Return on Average Equity. Net income increased $431,000, or 24.6%,
to $2.2 million, or $.32 per share for the quarter ended March 31, 1998 as
compared to $1.8 million, or $.26 per share, for the quarter ended March 31,
1997. Return on average equity for the two quarters was comparable with a return
of 21.2% for the quarter ended March 31, 1998 as compared to 21.1% for the
quarter ended March 31, 1997.
Net Interest Income. Net interest income before provision for loan and valuation
losses increased $2.0 million, or 88.6%, to $4.4 million for the quarter ended
March 31, 1998 as compared to $2.4 million for the quarter ended March 31, 1997.
Although the Company's net interest margin decreased to 3.14% for the quarter
ended March 31, 1998 as compared to 3.58% for the quarter ended March 31, 1997,
the interest rate spread increased to 2.71% for the quarter ended March 31, 1998
from 2.55% for the quarter ended March 31, 1997. The increases in net interest
income before provision for loan and valuation losses and interest rate spread
and the decrease in net interest margin for the quarter ended March 31, 1998
were attributable to the following: a 134.9% increase in the Company's average
loan balance to $539.4 million for the quarter ended March 31, 1998 from $229.7
million for the quarter ended March 31, 1997, and a decrease in the cost of
interest-bearing liabilities to 5.49% for the quarter ended March 31, 1998 as
compared to 5.83% for the quarter ended March 31, 1997. The above were offset by
a 141.5% increase in average interest-bearing liabilities to $521.2 million for
the quarter ended March 31, 1998 as compared to $215.8 million for the quarter
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ended March 31, 1997, and a decrease in the Company's yield on interest-earning
assets to 8.20% from 8.38% for the quarters ended March 31, 1998 and 1997,
respectively. The decrease in the Company's yield on interest-earning assets was
attributable to the lower yield earned on the loan portfolio which decreased to
8.38% as compared to 8.85% for the quarters ended March 31, 1998 and 1997,
respectively. The loan portfolio yield decrease is attributable to the overall
market decrease in interest rates and the acquisition of fewer discounted loans
by the Company. The transfer of low-cost fiduciary deposits to Matrix Bank
following the Company's acquisition of The Vintage Group, Inc. ("Vintage") was
primarily responsible for the decrease in the Company's cost of interest-bearing
liabilities. For a tabular presentation of the changes in net interest income
due to changes in the volume of interest-earning assets and changes in interest
rates, see "--Analysis of Changes in Net Interest Income Due to Changes in
Interest Rates and Volumes."
Provision for Loan and Valuation Losses. Provision for loan losses increased
$358,000 to $450,000 for the quarter ended March 31, 1998 as compared to $92,000
for the quarter ended March 31, 1997. This increase was primarily attributable
to the increase in the balance of loans receivable, which increased to $573.6
million at March 31, 1998 as compared to $320.2 million at March 31, 1997. 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 fees decreased $239,000, or 6.0%, to
$3.7 million for the quarter ended March 31, 1998 as compared to $4.0 million
for the quarter ended March 31, 1997. Loan administration fees are affected by
factors that include the size of the Company's residential mortgage loan
servicing portfolio, the servicing spread, the timing of payment collections and
the amount of ancillary fees received. This decrease was primarily attributable
to decreases in the average balance of the mortgage servicing portfolio, the
servicing spread and payment collections. The mortgage loan servicing portfolio
had an average balance of $3.2 billion for the quarter ended March 31, 1998 as
compared to $3.5 billion for the quarter ended March 31, 1997. However, the
mortgage loan servicing portfolio had an ending balance of $4.3 billion at March
31, 1998, which is an increase of $1.0 billion, or 29.2%, from $3.3 billion at
March 31, 1997. Approximately $1.3 billion of the total $4.3 billion portfolio
of mortgage servicing rights at March 31, 1998 was acquired at the end of the
first quarter; no income was recognized from this acquisition during the first
quarter. As such, loan administration income from the net increase will not be
fully realized until the second quarter of 1998.
Brokerage Fees. Brokerage fees increased $535,000, or 47.1%, to $1.7 million for
the quarter ended March 31, 1998 as compared to $1.1 million for the quarter
ended March 31, 1997. This increase is a direct result of market conditions,
which saw more purchases and sales of servicing portfolios. The balance of
residential mortgage servicing portfolios brokered by United Financial, in terms
of aggregate unpaid principal balances on the underlying loans, increased $6.6
billion, or 83.5%, to $14.5 billion for the quarter ended March 31, 1998 as
compared to $7.9 billion for the quarter ended March 31, 1997.
Trust Service Fees. Trust service fees increased $122,000, or 13.9%, to $1.0
million for the quarter ended March 31, 1998 as compared to $879,000 for the
quarter ended March 31, 1997. This increase is associated with the growth in the
number of trust accounts under administration at Sterling Trust, which increased
to 30,193 at March 31, 1998 from 26,943 at March 31, 1997 and the increase in
the total assets under administration which increased to over $1.5 billion at
March 31, 1998 from approximately $1.2 billion at March 31, 1997.
Gain on Sale of Loans. Gain on the sale of loans increased $1.0 million to $1.1
million for the quarter ended March 31, 1998 as compared to $118,000 for the
quarter ended March 31, 1997. Gain on the sale of loans can fluctuate
significantly from quarter to quarter and year to year based on a variety of
factors, such as the current interest rate environment, the supply of loan
portfolios in the market, the mix of loan portfolios available, the type of loan
portfolios the Company purchases and the particular loan portfolios the Company
elects to sell.
Gain on Sale of Mortgage Servicing Rights. Gain on the sale of mortgage
servicing rights decreased $574,000 to $837,000 for the quarter ended March 31,
1998 as compared to $1.4 million for the quarter ended March 31, 1997. In terms
of aggregate outstanding principal balances of mortgage loans underlying such
servicing rights, the Company sold $178.0 million in purchased mortgage
servicing rights for the quarter ended March 31, 1998 as compared to $509.8
million for the quarter ended March 31, 1997. Gains from the sale of mortgage
servicing rights can fluctuate significantly from quarter to quarter and from
year to year based on the market value of the Company's servicing portfolio, the
11
<PAGE>
particular servicing portfolios the Company elects to sell and the availability
of similar portfolios in the market. Due to the Company's position in and
knowledge of the market, the Company will at times sell servicing portfolios if
it is determined that the market value is greater than the economic value which
would be achieved from holding the servicing portfolio.
Loan Origination. Loan origination income increased $770,000, or 120.1%, to $1.4
million for the quarter ended March 31, 1998 as compared to $641,000 for the
quarter ended March 31, 1997. This increase was primarily attributable to the
increase in wholesale residential mortgage loan production by $55.8 million, or
58.4%, to $151.3 million for the quarter ended March 31, 1998 as compared to
$95.5 million for the quarter ended March 31, 1997. Loan origination income
includes all mortgage loan fees, secondary marketing activity on new loan
originations, and servicing release premiums on net originations sold, net of
origination costs.
Other Income. Other income increased $347,000, or 44.8%, to $1.1 million for the
quarter ended March 31, 1998 as compared to $775,000 for the quarter ended March
31, 1997. Other income mainly consists of fee income, including credit card fees
earned by Matrix Bank, consulting income earned by UCM, income earned by First
Matrix, and USS service fee income. The increase in other income resulted
primarily from increased activities at USS and UCM.
Noninterest Expense. Noninterest expense increased $3.1 million, or 36.7%, to
$11.4 million for the quarter ended March 31, 1998 as compared to $8.3 million
for the quarter ended March 31, 1997. This increase was due to expenses related
to the overall growth and expansion of the Company that occurred during the
second, third and fourth quarters of 1997 and the first quarter of 1998. This
growth and expansion included the opening of a new lending office of Matrix
Bank, the opening of a telemarketing call center for the origination of loans
for Matrix Financial and the opening of a new lending subsidiary of Matrix
Financial. The following table details the major components of noninterest
expense for the periods indicated:
<TABLE>
<CAPTION>
Quarter Ended
March 31,
-----------------------------
1998 1997
-------------- -------------
(In thousands)
<S> <C> <C>
Compensation and employee benefits ........................................... $ 5,127 $ 3,461
Amortization of mortgage servicing rights .................................... 1,594 1,527
Occupancy and equipment....................................................... 666 501
Postage and communication..................................................... 542 316
Professional fees............................................................. 249 200
Data processing............................................................... 346 152
Other......................................................................... 2,854 2,169
----------- -----------
Total..................................................................... $ 11,378 $ 8,326
=========== ===========
</TABLE>
Compensation and employee benefits increased $1.6 million, or 48.1%, to $5.1
million for the quarter ended March 31, 1998 as compared to $3.5 million for the
quarter ended March 31, 1997. This increase was the result of an increase in the
volume of loan originations and servicing brokerage, which results in increased
commissions, and the growth and expansion of the Company (as discussed above).
The Company had an increase of 106 employees, or 38.0%, to 385 full-time
employees at March 31, 1998 as compared to 279 full-time employees at March 31,
1997.
Amortization of mortgage servicing rights increased $67,000, or 4.4%, to $1.6
million for the quarter ended March 31, 1998 as compared to $1.5 million for the
quarter ended March 31, 1997. Amortization of mortgage servicing rights
fluctuates based on the size of the Company's mortgage servicing portfolio and
the prepayment rates experienced with respect to the underlying mortgage loan
portfolio. The Company's prepayment rates on its servicing portfolio averaged
16.3% for the quarter ended March 31, 1998 as compared to 9.0% for the quarter
ended March 31, 1997.
The remainder of noninterest expense, which includes occupancy and equipment
expenses, postage and communication expenses, professional fees, data processing
costs and other expenses, increased $1.4 million, or 39.6%, to $4.7 million for
the quarter ended March 31, 1998 as compared to $3.3 million for the quarter
ended March 31, 1997. The increase was primarily attributable to the growth and
expansion of the Company's business lines, especially with regard to Matrix
Bank, Vintage, Matrix Financial and USS.
12
<PAGE>
Provision for Income Taxes. The provision for income taxes increased by $218,000
to $1.3 million for the quarter ended March 31, 1998 as compared to $1.1 million
for the quarter ended March 31, 1997. The increase in pretax income was offset
by a reduction in the effective tax rate to 38.0% for the quarter ended March
31, 1998 as compared to 39.0% for the quarter ended March 31, 1997.
Average Balance Sheet
The following table sets forth for the periods and as of the dates indicated,
information regarding the Company's average balances of assets and liabilities,
as well as the dollar amounts of interest income from interest-earning assets
and interest expense on interest-bearing liabilities and the resultant yields
and costs. Average interest rate information for the quarters ended March 31,
1998 and 1997 have been annualized. Ratio, yield and rate information is based
on daily averages where available; otherwise, average monthly balances have been
used. Nonaccrual loans have been included in the calculation of average balances
for loans for the periods indicated.
<TABLE>
<CAPTION>
Quarter Ended
March 31,
----------------------------------------------------------------------------
1998 1997
---------------------------------- ------------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
---------- ---------- -------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans, net $ 539,449 $ 11,301 8.38 % $ 229,659 $ 5,084 8.85 %
Interest-earning deposits 16,400 150 3.66 29,781 371 4.98
FHLB stock 9,134 135 5.91 2,871 41 5.71
---------- ---------- -------- ----------- ---------- --------
Total interest-earning assets 564,983 11,586 8.20 262,311 5,496 8.38
Noninterest-earning assets:
Cash 7,384 12,230
Allowance for loan and valuation (1,845) (1,062)
losses
Premises and equipment 9,060 7,850
Other assets 68,843 56,882
---------- -----------
Total noninterest-earning assets 83,442 75,900
---------- -----------
Total assets $ 648,425 $ 338,211
========== ===========
LIABILITIES & SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Passbook accounts $ 2,881 $ 28 3.89 % $ 2,799 $ 28 4.00 %
Money market and NOW accounts 116,407 837 2.88 59,320 525 3.54
Certificates of deposit 140,824 1,999 5.68 74,301 1,095 5.89
FHLB borrowings 139,634 1,964 5.63 20,152 277 5.50
Borrowed money 121,456 2,325 7.66 59,233 1,221 8.25
---------- ---------- -------- ----------- ---------- --------
Total interest-bearing liabilities 521,202 7,153 5.49 215,805 3,146 5.83
---------- ---------- -------- ----------- ---------- --------
Noninterest-bearing liabilities:
Demand deposits (including
custodial escrow balances) 71,596 65,941
Other liabilities 14,431 23,134
---------- -----------
Total noninterest-bearing 86,027 89,075
liabilities
Shareholders' equity 41,196 33,331
---------- -----------
Total liabilities and shareholders' $ 648,425 $ 338,211
equity ========== ===========
Net interest income before provision
for loan and valuation losses $ 4,433 $ 2,350
========== ==========
Interest rate spread 2.71 % 2.55 %
======== ========
Net interest margin 3.14 % 3.58 %
======== ========
Ratio of average interest-earning assets to
average interest-bearing liabilities 108.40 % 121.55%
======= ========
</TABLE>
13
<PAGE>
Analysis of Changes in Net Interest Income Due to Changes in Interest Rates and
Volumes
The following table presents the dollar amount of changes in interest income and
interest expense for major components of interest-earning assets and
interest-bearing liabilities. It distinguishes between the increase or decrease
related to changes in balances and changes in interest rates. For each category
of interest-earning assets and interest-bearing liabilities, information is
provided on changes attributable to (i) changes in volume (i.e., changes in
volume multiplied by old rate) and (ii) changes in rate (i.e., changes in rate
multiplied by old volume). For purposes of this table, changes attributable to
both rate and volume, which cannot be segregated, have been allocated
proportionately to change due to volume and change due to rate.
<TABLE>
<CAPTION>
Quarter Ended
March 31,
1998 vs 1997
---------------------------------------------
Increase (Decrease)
Due to Change in
---------------------------------------------
Volume Rate Total
------------ ------------- --------------
(Dollars in thousands)
<S> <C> <C> <C>
Interest-earning assets:
Loans, net $ 6,490 $ (273) $ 6,217
Interest-earning deposits (122) (99) (221)
FHLB stock 93 1 94
------------ ------------- --------------
Total interest-earning assets 6,461 (371) 6,090
Interest-bearing liabilities:
Passbook accounts 1 (1) -
Money market and NOW accounts 410 (98) 312
Certificates of deposit 944 (40) 904
FHLB borrowings 1,681 6 1,687
Borrowed money 1,191 (87) 1,104
------------ ------------- --------------
Total interest-bearing liabilities 4,227 (220) 4,007
------------ ------------- --------------
Change in net interest income before provision for loan and $ 2,234 $ (151) $ 2,083
valuation losses ============ ============= ==============
</TABLE>
Asset Quality
Nonperforming Assets
The following table sets forth information as to the Company's nonperforming
assets ("NPAs"). NPAs consist primarily of nonaccrual loans and foreclosed real
estate. Loans are placed on nonaccrual when full payment of principal or
interest is in doubt or when they are past due 90 days as to either principal or
interest. Foreclosed real estate arises primarily through foreclosure on
mortgage loans owned.
<TABLE>
<CAPTION>
March 31, December 31, December 31,
1998 1997 1996
--------------- ----------------- ----------------
(Dollars in thousands)
<S> <C> <C> <C>
Nonaccrual mortgage loans $ 6,248 $ 4,796 $ 3,031
Nonaccrual consumer loans 244 194 872
--------------- ----------------- ----------------
Total nonperforming loans 6,492 4,990 3,903
Foreclosed real estate 1,095 1,242 788
Repossessed automobiles - - 506
--------------- ----------------- ----------------
Total nonperforming assets $ 7,587 $ 6,232 $ 5,197
=============== ================= ================
Total nonperforming loans to total loans 1.13% 0.97% 1.83%
Total nonperforming assets to total assets 1.09% 1.03% 1.89%
Ratio of allowance for loan and valuation
losses to total nonperforming loans 31.12% 35.19% 26.62%
</TABLE>
14
<PAGE>
As of March 31, 1998, the Company had no non-government accruing loans that were
contractually past due 90 days or more. Beginning in 1996, the Company began to
accrue for government-sponsored loans such as FHA insured and VA guaranteed
loans which are past due 90 or more days, as the interest on these loans is
insured by the federal government. At March 31, 1998, $6.1 million, or 93.4%, of
the nonaccrual loans were loans that were residential loans purchased in bulk
loan portfolios and remain classified as "held for sale". Total loans held for
sale at March 31, 1998 were $514.7 million, of which $6.1 million or 1.2% were
nonaccrual loans. Against the loans held for sale, the Company has $1.7 million
of purchase discounts plus an additional $48.1 million of loans which have some
form of recourse to the seller.
The decreases in nonaccrual consumer loans and repossessed automobiles in 1997
is the result of the Company's sale and/or disposal of all of the sub-prime
autos and auto loans that the Company repurchased pursuant to limited
representations and warranties included in sale agreements. The Company does not
anticipate that it will originate any additional sub-prime automobile contracts
in the future.
The percentage of the allowance for loan losses to nonaccrual loans varies
widely due to the nature of the Company's portfolio of mortgage loans, which are
collateralized primarily by residential real estate. The Company analyzes the
collateral for each nonperforming mortgage loan to determine potential loss
exposure. In conjunction with other factors, this loss exposure contributes to
the overall assessment of the adequacy of the allowance for loan losses. See
"--Results of Operations for the Quarter Ended March 31, 1998 Compared to the
Quarter Ended March 31, 1997."
Liquidity and Capital Resources
Liquidity represents the ability of the Company to generate funds to support
asset growth, satisfy disbursement needs, maintain reserve requirements and
otherwise operate on an ongoing basis.
The trend of net cash used by the Company's operating activities experienced
over the reported periods results primarily from the growth that Matrix Bank has
experienced in its residential loan purchasing activity. The Company anticipates
the trend of a net use of cash from operations to continue for the foreseeable
future. This anticipation results from the expected growth at Matrix Bank, which
management believes will consist primarily of increased activity in the
purchasing of loan portfolios. The Company anticipates such growth will be
funded through retail deposits, custodial escrow deposits, trust deposits
brokered deposits and FHLB borrowings.
Matrix Bank's primary source of funds for use in lending, purchasing bulk loan
portfolios, investing and other general purposes are retail deposits, trust
deposits, custodial escrow balances, brokered deposits, FHLB borrowings, sales
of loan portfolios and proceeds from principal and interest payments on loans.
Contractual loan payments and deposit inflows and outflows are a generally
predictable source of funds, while loan prepayments and loan sales are
significantly influenced by general market interest rates and economic
conditions. Borrowings on a short-term basis are used as a cash management
vehicle to compensate for seasonal or other reductions in normal sources of
funds. Matrix Bank utilizes advances from the FHLB as its primary source for
borrowings. At March 31, 1998, Matrix Bank had overnight borrowings from the
FHLB of $104.0 million. The trust deposits generated from the trust
administration services fluctuate based on the trust assets under administration
and to a lesser extent the general economic conditions. The custodial escrow
balances held by Matrix Bank fluctuate based upon the mix and size of the
related servicing rights portfolios and the timing of payments for taxes and
insurance.
Matrix Bank's leverage capital ratio at March 31, 1998 was 5.6%. This exceeded
the leverage capital requirement of 4.0% of adjusted assets by $8.7 million.
Matrix Bank's risk-based capital ratio was 10.9% at March 31, 1998. Matrix Bank
currently exceeds the risk-based capital requirement of 8.0% of risk weighted
assets by $8.6 million.
The Company's principal source of funding for its servicing acquisition
activities consists of line of credit facilities provided to Matrix Financial by
unaffiliated financial institutions. In prior years, Matrix Financial relied on
various sources for funding its servicing acquisition activities, including
servicing acquisition lines, the sale of mortgage servicing rights that were
accounted for as financings and capital contributions from the Company. As of
March 31, 1998, Matrix Financial's servicing acquisition facilities aggregated
$30.0 million, of which $5.2 million was available to be utilized after
deducting drawn amounts. Final payments for servicing acquired during the first
quarter will be made during the second quarter. As such, the Company will
utilize the remainder of the current line of credit facilities. It is
anticipated that the Company will increase the line of credit facilities for
servicing acquisition activities as needed.
15
<PAGE>
The Company's principal source of funding for its loan origination business
consists of warehouse lines of credit and sale/repurchase facilities provided to
Matrix Financial by financial institutions and brokerage firms. As of March 31,
1998, Matrix Financial's warehouse lines of credit aggregated $90.0 million, of
which $24.7 million was available to be utilized.
The Company's principal source of funding for the working capital needs of
Matrix Financial consists of working capital facilities provided to Matrix
Financial by unaffiliated financial institutions. As of March 31, 1998, Matrix
Financial's working capital facilities aggregated $10.0 million, of which $7.7
was available.
In the ordinary course of business, the Company makes commitments to originate
residential mortgage loans and holds originated loans until delivery to an
investor. Inherent in this business are risks associated with changes in
interest rates and the resulting change in the market value of the pipeline
loans. The Company mitigates this risk through the use of mandatory and
nonmandatory forward commitments to sell loans. As of March 31, 1998, the
Company had $104.6 million in pipeline and funded loans offset with mandatory
forward commitments of $79.0 million and nonmandatory forward commitments of
$12.6 million. The inherent value of the forward commitments is considered in
the determination of the lower of cost or market for such loans.
16
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings
United Financial is a defendant is a lawsuit styled Douglas County Bank & Trust
Co. v. United Financial, Inc. that was commenced on or about May 23, 1997 in the
United States District Court for the District of Nebraska. In the action, the
plaintiff-buyer alleges that United Financial, as broker for the seller, made
false representations regarding the GNMA certification of certain mortgage
pools, the servicing rights of which were offered for sale in a written
offering. The plaintiff further alleges that it relied on United Financial's
representations in purchasing the servicing rights from the seller. The
plaintiff seeks recovery of: (a) the deposit paid to the seller in connection
with the purchase thereof in the amount of $147,000; (b) $1.4 million that the
plaintiff claims it paid to GNMA to settle a dispute regarding the certification
of the mortgage pools; and (c) approximately $1.4 million in lost profits. The
Company believes it has defenses to this lawsuit; however, no assurances can be
given that an adverse judgment will not be rendered or that such a judgment
would not have a material adverse effect on the Company's consolidated financial
condition, results of operations or cash flows.
Matrix Financial has been named defendant in an action styled Leslie M. Ronzitti
v. Matrix Financial Services Corp and Wendover Funding. Plaintiff commenced this
action on or about August 8, 1997. The plaintiff alleges that Matrix Financial,
as subservicer for Matrix Bank, breached the terms of the underlying note and
deed of trust with plaintiff and otherwise committed negligence, fraud and
violations of RESPA in connection with their servicing of plaintiff's mortgage
loan. Matrix Bank purchased this mortgage loan and the servicing rights from a
third-party in December 1996. Plaintiff claims $126,000 in actual damages and
$2,000,000 in punitive damages, in addition to interest, attorneys' fees, and
other costs and expenses. The Company believes that it has defenses to this
lawsuit; however, no assurances can be given that an adverse judgment will not
be rendered or that such a judgment would not have a material adverse effect on
the Company's consolidated financial condition, results of operations or cash
flows.
The Company is involved from time to time in routine litigation incidental to
its business. However, other than described above, the Company believes that it
is not a party to any material pending litigation that, if decided adversely to
the Company, would have a material adverse effect on the Company's consolidated
financial condition, results of operations or cash flows.
Item 2. Changes in Securities and Use of Proceeds
During the quarter ended March 31, 1998, the Company issued the following
unregistered equity securities in reliance on the exemption from registration
set forth in Section 4(2) of the Securities Act of 1933, as amended. On January
2, 1998, the Company granted options to various employees of the Company, which
are exercisable for a total of 35,000 shares of Common Stock pursuant to the
Company's 1996 Amended and Restated Stock Option Plan. All such options are
exercisable at $15.25 per share, which was the fair market value of the Common
Stock on the date of grant of such options.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
17
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
Exhibits
* 10.1 Second Amendment to Credit Agreement, dated as of September
23, 1997, between Matrix Capital Corporation, as borrower, and
Bank One, Texas, N.A., as agent, and certain lenders, as lenders
* 10.2 Third Amendment to Credit Agreement, dated as of March 12,
1998, between Matrix Capital Corporation, as borrower, and Bank
One, Texas, N.A., as agent, and certain lenders, as lenders
* 27 Financial Data Schedule
Reports on Form 8-K
See Form 8-K filed by the Company, dated March 25, 1998, reporting various
information under Item 5 thereof.
- ----------------------
* Filed herewith.
18
<PAGE>
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 CAPITAL CORPORATION
Dated: May 12, 1998 /s/ Guy A. Gibson
--------------------------------- ------------------------------
Guy A. Gibson
President and
Chief Executive Officer
(Principal Executive Officer)
Dated: May 12, 1998 /s/ David W. Kloos
--------------------------------- -------------------------------
David W. Kloos
Senior Vice President and
Chief Financial Officer
(Principal Accounting and
Financial Officer)
19
EXHIBIT 10.1
SECOND AMENDMENT TO CREDIT AGREEMENT
------------------------------------
THIS DOCUMENT is entered into as of September 23, 1997, between MATRIX
CAPITAL CORPORATION, a Colorado corporation ("Borrower"), the Determining
Lenders described below, and BANK ONE, TEXAS, N.A., as Agent for Lenders.
Borrower, Lenders, and Agent are party to the Credit Agreement (as it may
have been renewed, extended, and amended through the date of this document, the
"Credit Agreement") dated as of March 12, 1997, providing for a $2,000,000 Term
Loan and a Revolving Facility of up to $6,000,000. Borrower, Determining
Lenders, and Agent have agreed, upon the following terms and conditions, to
amend the Credit Agreement as described in Paragraph 2 below. Accordingly, for
adequate and sufficient consideration, Borrower, Determining Lenders, and Agent
agree as follows:
1. TERMS AND REFERENCES. Unless otherwise stated in this document (A) terms
defined in the Credit Agreement have the same meanings when used in this
document and (B) references to "Sections," "Schedules," and "Exhibits" are to
the Credit Agreement's sections, schedules, and exhibits.
2. AMENDMENT. Section 8.1 is amended to add a new clause (f) at the end of it as
follows:
(f) Senior Notes. Up to $20,000,000 principal amount of Debt with
respect to the senior debt offering consisting of the "Notes" as
described in the Form S-1 filed by Borrower on September 4, 1997, with
the Securities and Exchange Commission, which "Notes" are so described
as unsecured general obligations of Borrower with pari passu right of
payment with all current and future unsecured Debt of Borrower.
3. CONDITIONS PRECEDENT. Notwithstanding any contrary provision, the foregoing
paragraphs in this document are not effective unless and until (A) the
representations and warranties in this document are true and correct, and (B)
Agent receives counterparts of this document executed by Agent, Required
Lenders, Borrower, and each other Company named on the signature pages of this
document.
4. RATIFICATIONS. To induce Agent and Lenders to enter into this document,
Borrower (A) ratifies and confirms all provisions of the Loan Documents as
amended by this document, (B) ratifies and confirms that all guaranties,
assurances, and Liens granted, conveyed, or assigned to Agent and Lenders under
the Loan Documents (as they may have been renewed, extended, and amended) are
not released, reduced, or otherwise adversely affected by this document and
continue to guarantee, assure, and secure full payment and performance of the
present and future Obligation, and (C) agrees to perform those acts and duly
authorize, execute, acknowledge, deliver, file, and record those additional
documents, and certificates as Agent or any Lender may request in order to
create, perfect, preserve, and protect those guaranties, assurances, and Liens.
5. REPRESENTATIONS. To induce Agent and Lenders to enter into this document,
Borrower represents and warrants to Agent and Lenders that as of the date of
this document (A) each Company has all requisite authority and power to execute,
deliver, perform its obligations under this document, which execution, delivery,
and performance have been duly authorized by all necessary corporate action,
require no action by or filing with any Tribunal, do not violate corporate
charter or bylaws or (except where not a Material-Adverse Event) violate any Law
applicable to it or any material agreement to which it or its assets are bound,
Second Amendment
----------------
1
<PAGE>
(B) upon execution and delivery by all parties to it, this document will
constitute each Company's legal and binding obligation, enforceable against it
in accordance with this document's terms except as that enforceability may be
limited by Debtor Laws and general principles of equity, (C) all other
representations and warranties in the Loan Documents are true and correct in all
material respects except to the extent that (1) any of them speak to a different
specific date or (2) the facts on which any of them were based have been changed
by transactions contemplated or permitted by the Credit Agreement, and (D) no
Material-Adverse Event, Default or Potential Default exists.
6. EXPENSES. Borrower shall pay all costs, fees, and expenses paid or incurred
by Agent incident to this document, including, without limitation, the
reasonable fees and expenses of Agent's counsel in connection with the
negotiation, preparation, delivery, and execution of this document and any
related documents.
7. MISCELLANEOUS. All references in the Loan Documents to the "Credit Agreement"
refer to the Credit Agreement as amended by this document. This document is a
"Loan Document" referred to in the Credit Agreement; therefore, the provisions
relating to Loan Documents in Sections 1 and 12 are incorporated in this
document by reference. Except as specifically amended and modified in this
document, the Credit Agreement is unchanged and continues in full force and
effect. This document may be executed in any number of counterparts with the
same effect as if all signatories had signed the same document. All counterparts
must be construed together to constitute one and the same instrument. This
document binds and inures to each of the undersigned and their respective
successors and permitted assigns, subject to Section 12.12. THIS DOCUMENT ANAD
THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES IN
RESPECT OF THE MATTERS COVERED BY THE LOAN DOCUMENTS AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BY THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Remainder of page intentionally blank.
Signature pages follow.
Second Amendment
----------------
2
<PAGE>
EXECUTED as of the date first stated above.
MATRIX CAPITAL CORPORATION, as BANK ONE, TEXAS, N.A., as Agent and a
Borrower Lender
By /s/ Guy A. Gibson By /s/ Mark L. Freeman
--------------------------------- --------------------------------
Guy A. Gibson, Chief Executive Mark L. Freeman, Vice President
Officer and President
COLORADO NATIONAL BANK,
as a Lender
By /s/ Andrea C. Koeneke
-------------------------
Andrea C. Koeneke
Vice President
Second Amendment
----------------
Page 1 of 2 Signature Pages
<PAGE>
CONSENT AND AGREEMENT
---------------------
To induce Agent and Lenders to enter into this document, the undersigned
jointly and severally (a) consent and agree to this document's execution and
delivery, (b) ratify and confirm that all guaranties, assurances, Liens, and
subordinations granted, conveyed, or assigned to Agent or any Lender under the
Loan Documents (as they may have been renewed, extended, and amended) are not
released, diminished, impaired, reduced, or otherwise adversely affected by this
document and continue to guarantee, assure, secure, and subordinate other debt
to the full payment and performance of all present and future Obligation, (c)
agree to perform those acts and duly authorize, execute, acknowledge, deliver,
file, and record those additional guaranties, assignments, security agreements,
deeds of trust, mortgages, and other agreements, documents, instruments, and
certificates as Agent or any Lender may reasonably deem necessary or appropriate
in order to create, perfect, preserve, and protect those guaranties, assurances,
Liens, and subordinations, (d) represent and warrant to Agent and Lenders that
(i) the value of the consideration received and to be received by the
undersigned in respect of those guaranties, assurances, Liens, and
subordinations are reasonably worth at least as much as the related liability
and obligation, (ii) that liability and obligation may reasonably be expected to
directly or indirectly benefit the undersigned, and (iii) each undersigned is --
and after giving effect to those guaranties, assurances, Liens, subordinations,
and the Loan Documents, in light of all existing facts and circumstances
(including, without limitation, collateral for and other obligors in respect of
the Obligation and various components of it and various rights of subrogation
and contribution), each undersigned will be -- Solvent, and (e) waive notice of
acceptance of this consent and agreement, which consent and agreement binds the
undersigned and their successors and permitted assigns and inures to Agent and
Lenders and their respective successors and permitted assigns.
MATRIX FINANCIAL SERVICES UNITED CAPITAL MARKETS, INC.
CORPORATION
MATRIX FUNDING CORPORATION
By /s/ Guy A. Gibson By /s/ Austin Tilghman
----------------------------- --------------------------------
Guy A. Gibson, Chief Executive Officer Austin Tilghman, President
and President of each above Company
UNITED FINANCIAL, INC. UNITED SPECIAL SERVICES, INC.
By /s/ Thomas P. Cronin By /s/ Linda Preston
----------------------------- --------------------------------
Thomas P. Cronin, Chief Executive Linda Preston, President
Officer
VINTAGE DELAWARE HOLDINGS, INC. FIRST MATRIX INVESTMENT SERVICES
CORP.
THE VINTAGE GROUP, INC.
By /s/ David W. Kloos By /s/ Paul E. Skretny
----------------------------- ---------------------------------
David W. Kloos, Chairman Paul E. Skretny, Chairman of the
Board and Chief Executive
Officer of each above Company
Second Amendment
----------------
Page 2 of 2 Signature Pages
EXHIBIT 10.2
THIRD AMENDMENT TO CREDIT AGREEMENT
-----------------------------------
(and Temporary Waiver)
THIS DOCUMENT is entered into as of March 12, 1998, between MATRIX CAPITAL
CORPORATION, a Colorado corporation ("Borrower"), the Lenders described below,
and BANK ONE, TEXAS, N.A., as Agent for Lenders.
Borrower, Lenders, and Agent are party to the Credit Agreement (as renewed,
extended, and amended, the "Credit Agreement") dated as of March 12, 1997,
providing for a $2,000,000 Term Loan and a Revolving Facility of up to
$6,000,000. Borrower, Lenders, and Agent have agreed, upon the following terms
and conditions, to amend and to temporarily waive certain provisions of the
Credit Agreement as described in Paragraphs 2 and 3 below.
1. TERMS AND REFERENCES. Unless otherwise stated in this document (A) terms
defined in the Credit Agreement have the same meanings when used in this
document and (B) references to "Sections," "Schedules," and "Exhibits" are to
the Credit Agreement's sections, schedules, and exhibits.
2. AMENDMENT. Subject to Paragraph 4 below but otherwise effective as of the
date of this document, the Credit Agreement is amended as follows:
(A) Stated-Termination Date. The definition of Stated-Termination Date in
Section 1.1 is entirely amended as follows:
"Stated-Termination Date" means the earlier of either (a) May 12,
1998, or (b) 30 days after the date on which at least 90% of the total
Commitments for the Revolving Facility has been funded under Section 2.2.
(B) Debt. A new Section 8.1(g) is added at the end of the existing Section
8.1:
(g) Warehousing. Debt incurred by Equi-Mor Holdings, Inc. to
Investment Services, Inc., for which Borrower has no direct or contingent
liability.
(C) Distributions. Section 8.4 is entirely amended as follows:
8.4 Distributions. Borrower may not pay or declare any Distribution
during any fiscal year except (a) dividends payable solely in the form of
capital stock, and (b) cash distributions to Borrower's shareholders (i) in
an amount not to exceed the sum of (A) 50% of Borrower's Net Income, minus
(B) non-cash income, and (ii) if a Default or Potential Default exists or
would be created by the Distribution.
3. TEMPORARY WAIVER. Subject to Paragraph 4 below but otherwise effective as of
the date of this document, the Lenders temporarily waive any Potential Default
or Default that may exist or arise solely as a result of the following:
Third Amendment
---------------
1
<PAGE>
(A) Guaranty. The failure of Borrower to comply with the provisions of
Section 4.1 in respect of Matrix Advisory Services, Inc., and Equi-Mor Holdings,
Inc.
(B) Cash Dividends/Expenses and CMLTD. The failure of Borrower to comply
with the provisions of Section 9.1 for the four-fiscal-quarter periods ending
December 31, 1997, and March 31, 1998.
Neither Agent nor any Lender makes any commitment to extend the time period for
any waiver. Except as expressly stated, this paragraph is not a waiver of
existing or future Potential Defaults or Defaults or a waiver of Agent's or any
Lender's rights to insist upon compliance by all other relevant parties with
each Loan Document.
4. CONDITIONS PRECEDENT. Notwithstanding any contrary provision, the foregoing
paragraphs in this document are not effective unless and until (A) the
representations and warranties in this document are true and correct, (B) Agent
receives counterparts of this document executed by Agent, Lenders, Borrower, and
each other Company named on the signature pages of this document, and (C) Agent
receives evidence satisfactory to it and its special counsel that all stock
certificates evidencing all of the issued and outstanding shares of the capital
stock of Matrix Bank have been delivered to Agent.
5. RATIFICATIONS. To induce Agent and Lenders to enter into this document,
Borrower (A) ratifies and confirms all provisions of the Loan Documents as
amended by this document, (B) ratifies and confirms that all guaranties,
assurances, and Liens granted, conveyed, or assigned to Agent and Lenders under
the Loan Documents (as they may have been renewed, extended, and amended) are
not released, reduced, or otherwise adversely affected by this document and
continue to guarantee, assure, and secure full payment and performance of the
present and future Obligation, and (C) agrees to perform those acts and duly
authorize, execute, acknowledge, deliver, file, and record those additional
documents, and certificates as Agent or any Lender may request in order to
create, perfect, preserve, and protect those guaranties, assurances, and Liens.
6. REPRESENTATIONS. To induce Agent and Lenders to enter into this document,
Borrower represents and warrants to Agent and Lenders that as of the date of
this document (A) each Company has all requisite authority and power to execute,
deliver, perform its obligations under this document, which execution, delivery,
and performance have been duly authorized by all necessary corporate action,
require no action by or filing with any Tribunal, do not violate corporate
charter or bylaws or (except where not a Material-Adverse Event) violate any Law
applicable to it or any material agreement to which it or its assets are bound,
(B) upon execution and delivery by all parties to it, this document will
constitute each Company's legal and binding obligation, enforceable against it
in accordance with this document's terms except as that enforceability may be
limited by Debtor Laws and general principles of equity, (C) all other
representations and warranties in the Loan Documents are true and correct in all
material respects except to the extent that (1) any of them speak to a different
specific date or (2) the facts on which any of them were based have been changed
by transactions contemplated or permitted by the Credit Agreement, and (D) no
Material- Adverse Event, Default or Potential Default exists.
7. EXPENSES. Borrower shall pay all costs, fees, and expenses paid or incurred
by Agent incident to this document, including, without limitation, the
reasonable fees and expenses of Agent's counsel in connection with the
negotiation, preparation, delivery, and execution of this document and any
related documents.
Third Amendment
---------------
2
<PAGE>
8. MISCELLANEOUS. All references in the Loan Documents to the "Credit Agreement"
refer to the Credit Agreement as amended by this document. This document is a
"Loan Document" referred to in the Credit Agreement; therefore, the provisions
relating to Loan Documents in Sections 1 and 12 are incorporated in this
document by reference. Except as specifically amended and modified in this
document, the Credit Agreement is unchanged and continues in full force and
effect. This document may be executed in any number of counterparts with the
same effect as if all signatories had signed the same document. All counterparts
must be construed together to constitute one and the same instrument. This
document binds and inures to each of the undersigned and their respective
successors and permitted assigns, subject to Section 12.12. THIS DOCUMENT AND
THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES IN
RESPECT OF THE MATTERS COVERED BY THE LOAN DOCUMENTS AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BY THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Remainder of page intentionally blank.
Signature page follows.
Third Amendment
---------------
3
<PAGE>
EXECUTED as of the date first stated above.
MATRIX CAPITAL CORPORATION, as BANK ONE, TEXAS, N.A., as Agent and
Borrower a Lender
By /s/ David W. Kloos By /s/ Mark L. Freeman
-------------------------------- ------------------------------
David W. Kloos, Chief Financial Mark L. Freeman, Vice
Officer President
COLORADO NATIONAL BANK
as a Lender
By /s/ Andrea C. Koeneke
---------------------
Andrea C. Koeneke
Vice President
Third Amendment
1 of 2 Signature Pages to
Third Amendment to Credit Agreement
<PAGE>
CONSENT AND AGREEMENT
---------------------
To induce Agent and Lenders to enter into this document, the undersigned
jointly and severally (a) consent and agree to this document's execution and
delivery, (b) ratify and confirm that all guaranties, assurances, Liens, and
subordinations granted, conveyed, or assigned to Agent or any Lender under the
Loan Documents (as they may have been renewed, extended, and amended) are not
released, diminished, impaired, reduced, or otherwise adversely affected by this
document and continue to guarantee, assure, secure, and subordinate other debt
to the full payment and performance of all present and future Obligation, (c)
agree to perform those acts and duly authorize, execute, acknowledge, deliver,
file, and record those additional guaranties, assignments, security agreements,
deeds of trust, mortgages, and other agreements, documents, instruments, and
certificates as Agent or any Lender may reasonably deem necessary or appropriate
in order to create, perfect, preserve, and protect those guaranties, assurances,
Liens, and subordinations, (d) represent and warrant to Agent and Lenders that
(i) the value of the consideration received and to be received by the
undersigned in respect of those guaranties, assurances, Liens, and
subordinations are reasonably worth at least as much as the related liability
and obligation, (ii) that liability and obligation may reasonably be expected to
directly or indirectly benefit the undersigned, and (iii) each undersigned is --
and after giving effect to those guaranties, assurances, Liens, subordinations,
and the Loan Documents, in light of all existing facts and circumstances
(including, without limitation, collateral for and other obligors in respect of
the Obligation and various components of it and various rights of subrogation
and contribution), each undersigned will be -- Solvent, and (e) waive notice of
acceptance of this consent and agreement, which consent and agreement binds the
undersigned and their successors and permitted assigns and inures to Agent and
Lenders and their respective successors and permitted assigns.
MATRIX FINANCIAL SERVICES UNITED CAPITAL MARKETS, INC.
CORPORATION
MATRIX FUNDING CORPORATION
By /s/ Thomoas J. Osselaer By /s/ Austin Tilghman
----------------------------- --------------------------------
Thomas J. Osselaer, Chief Executive Austin Tilghman, President
Officer and President of each above
Company
UNITED FINANCIAL, INC. UNITED SPECIAL SERVICES, INC.
By /s/ Thomas P. Cronin By /s/ Linda Preston
----------------------------- --------------------------------
Thomas P. Cronin, Chief Executive Linda Preston, President
Officer
VINTAGE DELAWARE HOLDINGS, INC. FIRST MATRIX INVESTMENT SERVICES
CORP.
THE VINTAGE GROUP, INC.
By /s/ David W. Kloos By /s/ Paul E. Skretny
----------------------------- ---------------------------------
David W. Kloos, Chairman Paul E. Skretny, Chairman of the
Board and Chief Executive
Officer of each above Company
Third Amendment
2 of 2 Signature Pages to
Third Amendment to Credit Agreement
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
Matrix Capital Corporation Article 9
</LEGEND>
<CIK> 0000944725
<NAME> Matrix Capital Corporation
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
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<LOANS> 575,607,619
<ALLOWANCE> 2,021,931
<TOTAL-ASSETS> 698,517,061
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0
0
<COMMON> 671
<OTHER-SE> 42,796,524
<TOTAL-LIABILITIES-AND-EQUITY> 698,517,061
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<INTEREST-TOTAL> 11,585,774
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<INTEREST-INCOME-NET> 4,432,790
<LOAN-LOSSES> 450,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 11,377,724
<INCOME-PRETAX> 3,523,955
<INCOME-PRE-EXTRAORDINARY> 2,184,904
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,184,904
<EPS-PRIMARY> .33
<EPS-DILUTED> .32
<YIELD-ACTUAL> 3.14
<LOANS-NON> 6,491,774
<LOANS-PAST> 0
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