For Immediate Release
UNIVERSITY BANCORP 1Q2016 NET LOSS $224,897, $0.044 PER SHARE
Ann Arbor, Michigan, June 15, 2016 — University Bancorp, Inc. (OTCQB: UNIB) announced that it had an unaudited net loss attributable to University Bancorp, Inc. common stock shareholders in 1Q2016 of ($224,897), ($0.044) per share on average shares outstanding of 5,100,899 for the first quarter, versus an unaudited net income of $67,864, $0.014 per share on average shares outstanding of 5,001,389 for 1Q2015. Net income in the first quarter of 2016 is always a seasonally slow quarter for mortgage originations and we had originally budgeted net income for 1Q2016 of $162,000. For the first three months of 2016 minority interest (loss) of ($74,117) were incurred.
Results in 1Q2016 were restrained by a single large non-recurring, unusual expense only partially offset by an unusual gain, which had an overall negative cumulative impact of ($798,475), before tax:
- With the fall in long term mortgage interest rates the valuation of mortgage servicing rights (MSRs) decreased $1,581,059;
- The value of the hedged mortgage origination pipeline rose $782,584 as the amount of locked loans rose over the level at year-end;
Results in 1Q2015 were impacted by several non-recurring, unusual expenses net of unusual gains, which had an overall negative cumulative impact of $1,061,000, before tax:
- With the drop in long term mortgage interest rates the valuation of mortgage servicing rights (MSRs) dropped $1,181,000;
- Legal fees at UIF were $315,000 above budget due related to the now completed trial and follow-up motions related to the litigation related to a competitor, Guidance, as well as one-time outside legal compliance work for our retail mortgage origination operations to ensure our full compliance with new regulations;
- The value of the hedged mortgage origination pipeline rose $316,000 as the amount of locked loans rose over the quarter from the level at year-end;
- Provision for loan losses fell by $119,000 due to a lower projection of loan losses from Invictus in the event of a CCAR Test style depression.
For 1Q2016, the Company had a return on equity attributable to common stock shareholders of (-6.1%) on initial equity of $14,049,724. Return on equity over the trailing twelve months was 24.1% on initial equity of $11,791,308.
Management currently projects budgeted annual net income in 2016 of at least $3,200,000 or $0.63 per share. This forecast takes our actual results for 1Q2016, the estimated results in the 2Q2016 plus our original budget for the final two quarters of 2016, adjusted for all known major changes. The re-forecast assumes no change in mortgage interest rates from current levels, which would result in a mark to market charge on our mortgage servicing rights of at least $1,000,000 in June. In all periods in the past when our mortgage servicing rights drop in value, the increased originations income in the following six months more than offsets this write-down.
President Stephen Lange Ranzini noted, “The 1Q2016 result for profitability was very good after taking into account the $1.58 million negative mark to market on our mortgage servicing rights. In addition, we had growth in purchase related mortgage originations during the quarter and ended the quarter with record levels of locked and hedged loans pending closing. Mortgage origination volumes have been ahead of the budget in 2Q2016. Much was accomplished during the first quarter: we paid our first cash dividend to our shareholders in the amount of $0.107 per share and just after quarter-end we issued a $2.5 million capital note at a rate of 5.75%. During the quarter we were proud to be noted by American Banker newspaper as the top performing publicly traded bank in the entire United States in 2015, based on our return on average equity of 25.21%, following three years, 2012-2014, when we were ranked #2 nationally.”
With the implementation of the new Basel 3 Capital Rules and a rise in average assets due to increased mortgage originations, the Tier 1 Leverage Capital Ratio fell to 8.75% at 3/31/2016 on net average assets of $141.2 million, from 8.93% at 12/31/2015 on net average assets of $135.4 million, and was 10.34% at 9/30/2015 on net average assets of $132.7 million, 9.66% at 6/30/2015 on net average assets of $133.4 million, and 10.12% at 3/31/2015 on net average assets of $106.9 million, versus 12.77% at 12/31/2014 on average assets of $104.9 million using the old Basel 2 Capital Rules. Taking into account the additional capital raised in April 2016, the Tier 1 Leverage Capital Ratio is projected to be 15.90% at 12/31/2016, if we achieve our 2016 re-forecasted budget projection, which assumes that mortgage originations will revert to lower budgeted levels for the rest of the year end, we opt to sell MSRs and finish an internal reorganization that will allow us to sweep an additional material amount of Fed Funds off our balance sheet daily materially reducing our average daily assets, but does not reflect payment of additional dividends or stock buybacks during 2016, both of which are likely. Basel 3 Common Equity Tier 1 Capital at 3/31/2015 was $10,900,000, at 12/31/2015 was $10,584,000, at 9/30/2015 was $12,258,000, at 6/30/2015 was $11,413,000, and at 3/31/2015 was $9,412,000. Basel 3 Total Risk Weighted Assets at 3/31/2016 were $82,481,000, at 12/31/2015 were $74,775,000, at 9/30/2015 were $83,210,000, at 6/30/2015 were $90,790,000, and at 3/31/2015 were $86,927,000. The CET1 Risk Weighted Capital Ratio at 3/31/2016 was 13.22%, at 12/31/2015 was 14.15%, at 9/30/2015 was 14.73%, at 6/30/2015 was 12.57%, and at 3/31/2015 was 10.83%.
Shareholders’ equity attributable to University Bancorp, Inc. common stock shareholders was $14,049,724 or $2.75 per share, based on shares outstanding at March 31, 2016 of 5,100,899, after payment of the $0.107 per share dividend in 1Q2016.
Excluding goodwill & other intangibles related to the acquisition of Midwest Loan Services and Ann Arbor Insurance Center, net tangible shareholders’ equity attributable to University Bancorp, Inc. common stock shareholders was $13,426,630 or $2.63 per share at 3/31/2016. (Please note that we do not see this latter statistic as particularly useful or meaningful because the value of the insurance agency and Midwest Loan Services substantially exceed their carrying value including this goodwill, but we are asked for it.) Treasury shares as of 3/31/2016 were zero.
Total Assets as of 3/31/2016 were $194,934,000 versus $182,458,912 at 12/31/2015, $159,769,000 as of 9/30/2015, $166,589,000 as of 6/30/2015, $132,715,000 as of 3/31/2015 and $120,976,779 as of 12/31/2014.
Michigan and the Ann Arbor MSA continue to increase employment and as a result, the performance of our portfolio loans and our overall asset quality continues to improve and we are experiencing low loan delinquencies. We had only one loan delinquent over 30 days at 3/31/2016: a well secured residential real estate loan delinquent 59 days with a total carrying value of $58,952, which has since been brought current. The allowance for loan losses stands at $404,048 or 0.70% of the amount of portfolio loans, excluding the loans held for sale. Substandard assets fell 0.2% during 1Q2016 to $758,813, 6.28% of Tier 1 Capital at 3/31/2016, including other real estate owned of $301,840. Subsequent to quarter-end, one of the three parcels of other real estate was sold for $209,600, an amount approximating the carrying value.
In 1Q2016, our residential mortgage origination groups originated $136.3 million of mortgages, of which $93.4 million were originated by our retail origination group, University Lending Group, LLC (ULG), $36.1 million were originated by our UIF unit, and the remainder originated by our credit union origination group. Purchase transactions originated during 1Q2016 rose 5% at ULG and 1% at UIF over the 1Q2015 level and 82% of our retail originations and 67% of our UIF originations in 1Q2016 financed purchase transactions.
Liquidity remains excellent. We manage an average of $100 million of deposits in an off-balance sheet sweep arrangement through a series of deposit accounts at the Federal Home Loan Bank of Indianapolis (FHLBI), which are available to us to meet any withdrawals in just a few minutes, and on which we earn interest at Fed Funds rate.
Other key statistics as of 3/31/2016:
- 5-year annual average revenue growth*, 21.0%
- 1-year annual revenue growth*, -0.1%
- 5 Year Average ROE 14.8%
- LLR/NPAs>90 % 133.9%
- Debt to equity ratio, 0%
- Current Ratio,# 1.9x
- Efficiency Ratio, %+ 78.2%
- Total Assets, $194,934,000
- Loans Held for Sale, before Reserves, $53,150,705
*Using Trailing 12 month 1Q2016 sales which were $43,599,698, 2015 sales which were $43,644,425 and 2011 sales which were $21,280,296.
#Parent company only current assets divided by 12 month projected cash expenses.
+Calculated as: (non-interest expense/(net interest income + non-interest income))
- NPAs >90 days $0
- TTM ROA % 2.10%
- TCE/TA % 7.04%
- Total Capital Ratio % 12.11%
- NPAs/Assets % 0.39%
- Texas Ratio % 5.37%
- NIM % 3.14%
- NCOs/Loans % -0.001%
- Trailing 12 Months P-E Ratiox 13.5x
xBased on last sale of $7.50 per share.
Shareholders and investors are encouraged to refer to the financial information including the audited financial statements, strategic plan and prior press releases, available on our investor relations web page at: http://www.university-bank.com/bancorp/.
Ann Arbor-based University Bancorp owns 100% of University Bank which, together with its Michigan-based subsidiaries, holds and manages a total of over $18.5 billion in financial assets for over 115,000 customers, and our 347 employees make us the 9th largest bank based in Michigan. University Bank is an FDIC-insured, locally owned and managed community bank, and meets the financial needs of its community through its creative and innovative services. Founded in 1890, University Bank® is proud to have been selected as the “Community Bankers of the Year” by American Banker magazine and as the recipient of the American Bankers Association’s Community Bank Award. University Bank is a Member FDIC. The members of University Bank’s corporate family, ranked by their size of revenues are:
- University Lending Group, a retail residential mortgage originator based in Clinton Township, MI;
- Midwest Loan Services, a residential mortgage subservicer based in Houghton, MI;
- UIF, a faith-based banking firm based in Farmington Hills, MI;
- Community Banking, based in Ann Arbor, MI, which provides traditional community banking services in the Ann Arbor area;
- Ann Arbor Insurance Centre, an independent insurance agency based in Ann Arbor.
CAUTIONARY STATEMENT: This press release contains certain forward-looking statements that involve risks and uncertainties. Forward-looking statements include, but are not limited to, statements concerning future changes in assets, pre-tax income, net income and budgeted income levels, the sustainability of past results, and other expectations and/or goals. Such statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those expressed or implied by such forward-looking statements, including, but not limited to, economic, competitive, governmental, technological and legal factors affecting our operations, markets, products, services, interest rates and fees for services. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release.