Matrix Bancorp Inc · 8-K · For 3/14/05

Filed On 3/14/05 5:06pm ET   ·   SEC File 0-21231   ·   Accession Number 899078-5-201

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 

Date of report (Date of earliest event reported)  March 14, 2005                
                                                 -----------------------------

MATRIX BANCORP, INC.
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(Exact Name of Registrant as Specified in Its Charter)

Colorado
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(State or Other Jurisdiction of Incorporation)

0-21231                                          84-1233716   
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  (Commission File Number)                   (IRS Employer Identification No.)

700 17th Street, Suite 2100                                               
Denver, Colorado                                         80202            
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(Address of Principal Executive Offices)                (Zip Code)          

(303) 595-9898
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(Registrant's Telephone Number, Including Area Code)

None. 
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 (Former Name or Former Address, if Changed Since Last Report)

     Check the  appropriate  box below if the Form 8-K  filing  is  intended  to
simultaneously  satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):                      

     |_|  Written  communications  pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)                                            

     |_|  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)                                             

     |_|  Pre-commencement  communications  pursuant to Rule 14d-2(b)  under the
Exchange Act (17 CFR 240.14d-2(b))                          

     |_|  Pre-commencement  communications  pursuant to Rule 13e-4(c)  under the
Exchange Act (17 CFR 240.13e-4(c))                          

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Item 8.01.    OTHER EVENTS AND REGULATION FD DISCLOSURE.                        

     Ownership of the Common Stock and other securities of Matrix Bancorp,  Inc.
(the "Company") involves certain risks.  Holders of the Company's securities and
prospective  investors should  carefully  consider the following risk factors in
evaluating an investment in the Company's securities.                           

Potential Adverse Impact of Fluctuating Interest Rates                          

     Residential  Mortgage Loan Servicing Rights.  Owning  residential  mortgage
loan  servicing  rights  carries  interest rate risk because the total amount of
servicing  fees earned,  as well as the  amortization  of the  investment in the
servicing rights,  fluctuates based on loan prepayments  (affecting the expected
average life of a portfolio of residential  mortgage servicing rights). The rate
of  prepayment  of mortgage  loans may be  influenced  by changing  national and
regional  economic trends,  such as recessions or depressed real estate markets,
as well as the  difference  between  interest  rates on existing  mortgage loans
relative to prevailing  mortgage  rates.  During  periods of declining  interest
rates, many borrowers refinance their mortgage loans.  Accordingly,  prepayments
of mortgage loans increase and the loan administration fee income related to the
mortgage  loan  servicing  rights  corresponding  to a mortgage  loan  ceases as
underlying  loans are prepaid.  Consequently,  the market value of portfolios of
mortgage loan  servicing  rights tends to decrease  during  periods of declining
interest rates,  since greater  prepayments can be expected.  The income derived
from and the market value of the Company's servicing portfolio,  therefore,  may
be adversely  affected during periods of declining  interest rates. See "--Risks
Associated with General Economic Conditions."                                   

     Asset and Liability Management.  The Company's earnings depend in part upon
the level of its net  interest  income.  Net interest  income is the  difference
between  the  interest  income  received  from  interest-earning  assets and the
interest  expense  incurred in  connection  with  interest-bearing  liabilities.
Accordingly,  the Company is vulnerable to an increase in interest  rates to the
extent that its  interest-earning  assets,  such as loans, have longer effective
maturities  than,  or  do  not  adjust  as  quickly  as,  its   interest-bearing
liabilities.  In a rising  interest  rate  environment,  interest  rates paid to
depositors  and on  borrowings  of the Company may rise more  quickly than rates
earned on the Company's loan portfolio.  Under such circumstances,  material and
prolonged  increases in interest rates generally would  materially and adversely
affect net  interest  income  and the value of  interest-earning  assets,  while
material  and  prolonged  decreases  in interest  rates  generally  would have a
favorable  effect  on net  interest  income  and the  value of  interest-earning
assets.  The process of balancing the  maturities  of the  Company's  assets and
liabilities  necessarily  involves  estimates  as to how  changes in the general
level of interest  rates will  impact the yields  earned on assets and the rates
paid on liabilities. These estimates may prove to be inaccurate.                

Potential Fluctuations in Quarterly Results                                     

     The  Company's  financial  results  are  subject to  significant  quarterly
fluctuations as a result of, among other things,  the variance in the number and

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magnitude of purchases and sales of loans and/or servicing rights consummated by
the Company from time to time. In addition,  a portion of the Company's revenues
are  derived  from  brokerage   fees,  the  timing  and  receipt  of  which  are
unpredictable.   Accordingly,  the  Company's  results  of  operations  for  any
particular  quarter are not  necessarily  indicative  of the results that may be
achieved for any succeeding quarter or for the full fiscal year.                

Risks Associated with General Economic Conditions                               

     General economic conditions, whether regional or industry-related or due to
a recession throughout the United States,  affect consumers' decisions to buy or
sell residences as well as the number of residential mortgage loan delinquencies
and   foreclosures,   the  value  of  collateral   supporting  loan  portfolios,
administrative  costs in evaluating and  processing  loan  applications  and the
costs and  availability  of funds that  companies  rely upon in order to make or
purchase loans. Changes in the level of consumer confidence, real estate values,
prevailing  interest  rates and  investment  returns  expected by the  financial
community could make loans of the types originated, purchased, serviced and sold
by the Company less attractive to borrowers or investors.                       

Concentration of Loans and Servicing Rights                                     

     The Company's  portfolio of loans and servicing  rights are concentrated in
certain  geographic  areas. The geographic areas in which  concentrations  exist
varies from time to time. Consequently,  the Company's results of operations and
financial  condition are dependent  upon general  trends in the markets in which
concentrations  exist and,  more  specifically,  their  respective  residential,
multi-family  and  commercial  real estate  markets.  An  economic  decline in a
particular  geographic  area may  adversely  affect the ability of  borrowers to
repay the loans or the values of  properties or other assets that may secure the
Company's loans. In addition,  certain geographic areas,  including  California,
may be more  vulnerable to risks of natural  disasters,  such as earthquakes and
mudslides, which are not typically covered by standard hazard insurance policies
maintained by borrowers.  Uninsured  disasters may adversely  impact  borrowers'
ability  to  repay  loans  made by the  Company  and  the  value  of  collateral
underlying  such  loans,  which  could  have a  material  adverse  effect on the
Company's results of operations and financial condition.                        

Delinquency, Foreclosure and Credit Risks                                       

     Loan  Portfolio.  The Company's  loan  portfolio  includes  loans that were
originated by numerous  lenders  throughout the United States under various loan
programs and underwriting standards. The loan portfolio includes loans that have
had payment  delinquencies in the past or, to a lesser extent, are delinquent at
the  time  of the  purchase.  As a  part  of the  Company's  business  strategy,
portfolios  of  mortgage  loans  with  varying   degrees  of  current  and  past
delinquencies  are  purchased at  discounts.  Although the Company  performs due
diligence at the time loans are  purchased,  the risk of continuing or recurrent
delinquency  remains.  The  Company  assumes  substantially  all  risk  of  loss
associated  with  its  loan  portfolio  in the case of  foreclosure.  This  risk
includes the cost of the  foreclosure,  the loss of interest,  and the potential

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loss of principal to the extent that the value of the  underlying  collateral is
not sufficient to cover the Company's investment in the loan.                   

     Servicing Portfolio. The Company also is affected by loan delinquencies and
defaults on loans that it  services.  Under many types of  servicing  contracts,
even when loan payments are delinquent, the servicer must forward all or part of
the scheduled payments to the owner of the loan. Also, to protect their liens on
mortgaged  properties,  owners of mortgage loans usually require the servicer to
advance  mortgage and hazard  insurance and tax payments on schedule even though
sufficient  escrow funds may not be  available.  Typically,  the  servicer  will
ultimately be reimbursed by the mortgage loan owner or from foreclosure proceeds
for payments  advanced that the servicer is unable to recover from the borrower.
However,  in the interim,  the servicer  must absorb the cost of funds  advanced
during the time such advance is outstanding. Further, the servicer must bear the
increased  costs of attempting to collect on delinquent  and defaulted  mortgage
loans.  Although these increased costs are somewhat  reduced through the receipt
of late fees and the reimbursement of certain direct expenses out of foreclosure
proceeds,  the  Company  believes  that  increased  delinquencies  and  defaults
generally increase the costs of the servicing function. In addition, the Company
is required to forego servicing  income from the time a loan becomes  delinquent
to the time the mortgage loan is foreclosed.                                    

Possible Inadequacy of Allowance for Loan Losses                                

     The Company's allowance for loan losses is maintained at a level considered
adequate by management to absorb anticipated losses. The amount of future losses
is susceptible to changes in economic, operating and other conditions, including
changes in interest rates,  that may be beyond the Company's  control,  and such
losses may exceed  current  estimates.  Although  management  believes  that the
Company's allowance for loan losses is adequate to absorb any losses on existing
loans  that  may  become  uncollectible,  there  can be no  assurance  that  the
allowance will prove sufficient to cover actual loan losses on existing loans in
the future.                                                                     

     In  addition,  various  regulatory  agencies,  as an  integral  part of the
examination  process,  periodically  review the Company's loan portfolio.  These
agencies may require the Company to add to the  allowance  for loan losses based
on their judgments and  interpretations of information  available to them at the
time of their  examinations.  If these agencies  require the Company to increase
its  allowance for loan losses,  its earnings will be adversely  affected in the
period in which such increase occurs.                                           

Legal Proceedings                                                               

     In the ordinary  course of its  business,  the Company is subject to claims
made against it by borrowers and private  investors  arising  from,  among other
things,  losses  that are  claimed to have been  incurred as a result of alleged
breaches of contract and fiduciary obligations,  misrepresentations,  errors and
omissions  of  employees,   officers  and  agents  of  the  Company,  incomplete
documentation  and  failures  by the  Company to comply  with  various  laws and
regulations applicable to its business,  including federal and state banking and
consumer lending laws. There can be no assurance that any liability with respect
to current legal actions, or ones that might be instituted in the future,  would

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not be material to the Company's  consolidated results of operations,  financial
condition or cash flows.                                                        

Liabilities Under Representations and Warranties                                

     In the ordinary course of business,  the Company makes  representations and
warranties to the  purchasers  and insurers of mortgage loans and the purchasers
of mortgage  servicing  rights regarding  compliance with laws,  regulations and
program standards,  and as to the accuracy of certain  information.  To a lesser
extent, the Company contractually  provides recourse relating to the performance
of the loans that it sells. Under certain circumstances,  the Company may become
liable for damages or may be required to  repurchase  a loan if there has been a
breach of these  representations  or warranties  or in a case where  contractual
recourse is permitted.  The Company generally  receives similar  representations
and warranties from the originators and sellers from whom it purchases  mortgage
loans  and  servicing  rights.  However,  in  the  event  of  breaches  of  such
representations  and  warranties,  the  Company  is  subject to the risk that an
originator may not have the financial  capacity to repurchase  loans when called
upon  to do so by the  Company  or  otherwise  respond  to  demands  made by the
Company.                                                                        

Regulatory Supervision                                                          

     The  operations  of the  Company  are subject to  extensive  regulation  by
federal and state  governmental  authorities and are subject to various laws and
regulations and judicial and administrative  decisions that, among other things,
establish licensing requirements,  regulate credit extension,  establish maximum
interest  rates  and  insurance  coverages,   require  specific  disclosures  to
customers,  prohibit  discrimination  in  mortgage  lending  activities,  govern
secured  transactions,  establish  collection,  repossession and claims handling
procedures and other trade practices and, in certain states,  require payment of
interest on servicing-related  custodial escrow deposits. In particular,  Matrix
Bank is subject to extensive  regulation,  examination  and  supervision  by the
Office of Thrift  Supervision  (the "OTS"),  as its chartering  agency,  and the
Federal Deposit Insurance  Corporation (the "FDIC"), as insurer of deposits held
at  Matrix  Bank.  Matrix  Bank is a member of the  Federal  Home Loan Bank (the
"FHLB")  system and its  deposits  are insured by the FDIC up to the  applicable
limits of the Savings Association  Insurance Fund (the "SAIF"). In addition,  in
certain  instances  the  ability  of Matrix  Financial  and  Matrix  Bank to pay
dividends to Matrix Bancorp could be restricted due to regulatory  requirements.
Sterling  Trust  Company is  regulated by the Texas  Department  of Banking as a
Texas chartered trust company.  There can be no assurance that more  restrictive
laws, rules or regulations  will not be adopted in the future,  or that existing
or proposed laws will not be changed to the detriment of the Company. Any change
in such  laws and  regulations  or the  adoption  of more  restrictive  laws and
regulations, whether by the OTS, the FDIC, the Congress or otherwise, could have
a material adverse effect on the Company and its financial  condition or results
of operations.                                                                  

Risks Associated with Financing Charter Schools                                 

     The Company  offers  financing  to charter  schools in several  states.  In
addition to the risks associated with commercial  lending  generally,  which are

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discussed  elsewhere  in these  "Risk  Factors",  financing  of charter  schools
carries some additional,  unique, risks. Charter schools are typically organized
under charters granted by sponsoring  governmental  entities.  The parameters of
individual  charters are  generally  dictated by the state law  authorizing  the
organization of charter schools,  as well as the sponsoring  governmental entity
of the  particular  charter  school.  The law under which each charter school is
organized  provides  that the  charter of a  particular  school will be reviewed
periodically,  sometimes  annually and  sometimes on a less frequent  basis.  In
addition,  at the expiration of a charter,  the sponsoring  governmental  entity
generally  has sole  discretion  over whether to renew a school's  charter.  The
Company  runs the risk  that the  charter  of a  school  or  schools  that it is
financing will not be renewed or will be revoked. If such an occurrence happens,
the principal source of re-payment on the Company's  financing of such school or
schools  will  effectively  disappear.  In such an event,  it is likely that the
Company would realize a significant  loss with respect to such  financing of the
school in question because it would  effectively have no recourse to the charter
school or,  since the  sponsoring  governmental  entity  does not  guarantee  or
otherwise become liable for the obligations of a charter school,  the sponsoring
governmental entity.                                                            

     Appropriations for charter schools are generally made based upon the number
of students  enrolled in a particular  charter school. In the event a particular
charter  school is unable  to  attract  and keep  enrolled  a minimum  number of
students,  such  school  would  not be  appropriated  enough  money  to meet its
obligations,  including its obligations  under the lease financing  arrangements
with the Company.                                                               

     The  Company is also  subject to the risk that the states in which  charter
schools  are  authorized  to  operate  will  determine  to repeal  or  otherwise
significantly  alter  the laws  under  which  charter  schools  operate.  If the
authorizing  laws were  repealed in states  where the  Company  has  outstanding
financing,  the result  would be much the same as if the charter of a particular
school  were not  renewed or were  revoked;  however,  the impact on the Company
would  tend to be much more  significant  because  the repeal  would  affect all
schools  financed  by the  Company in that  state as  opposed to one  particular
school in the case of non-renewal  or revocation of a charter.  If the laws were
significantly  changed  or  altered  in a  particular  state,  the impact on the
Company would depend on the nature of the change.                               

Competition                                                                     

     The industries in which the Company  competes are highly  competitive.  The
Company  competes with other  mortgage  banking  companies,  servicing  brokers,
commercial  banks,   savings   associations,   credit  unions,  other  financial
institutions,  trust  companies,  broker/dealers  and various other  lenders.  A
number of these  competitors have  substantially  greater  financial  resources,
greater operating  efficiencies and longer operating histories than the Company.
Customers distinguish between product and service providers in the industries in
which the  Company  operates  for  various  reasons,  including  convenience  in
obtaining  the product or  service,  overall  customer  service,  marketing  and
distribution channels and pricing for the various products and services.        

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Reliance on Systems and Controls                                                

     The Company  depends  heavily upon its systems and controls,  many of which
are designed  specifically for its business.  These systems and controls support
the evaluation,  acquisition,  monitoring,  collection and administration of the
Company's loan and servicing  portfolios,  as well as support the consulting and
brokerage  functions  performed  by the  Company  and  the  depository,  general
accounting  and other  management  functions  of the  Company.  A failure of the
automated systems, including a failure of data integrity or accuracy, could have
a material adverse effect on the Company's business and financial condition.    

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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 hereunto duly authorized.                                           

                                Matrix Bancorp, Inc.
                        (Registrant)

DATE: March 14, 2005                          /s/David W. Kloos                 
--------------                          David W. Kloos              
                                    Vice President and Chief
                             Financial Officer

Dates Referenced Herein   and   Documents Incorporated By Reference

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