UNIVERSITY BANCORP 2015 NET INCOME $3,139,217, $0.618 PER SHARE

For Immediate Release

Ann Arbor, Michigan, April 1, 2016, — University Bancorp, Inc. (OTCQB: UNIB) announced that it had audited net income attributable to University Bancorp, Inc. common stock shareholders in 2015 of $3,139,217, $0.618 per share on average shares outstanding of 5,080,372 for the year, versus audited net income of $755,181, $0.16 per share on average shares outstanding of 4,722,776 for 2014.  For 2015, additional income attributed to minority interest of $109,963 was earned and preferred stock dividends totaled $5,273.  For 2014, loss allocated to non-controlling interests was $129,261 and preferred stock dividends totaled $65,209.

Results in 2015 were restrained by several non-recurring, unusual expenses net of unusual gains, which had an overall negative cumulative impact of $1,523,017, before tax:

Unusual expenses:

  1. Legal fees at UIF were $524,000 due to the trial and follow-up motions in 1Q2015 related to the litigation related to a competitor, Guidance Residential. In addition, a reserve of $280,000 (on our balance sheet we carry a reserve for $130,000 as this amount is netted against a $150,000 receivable awarded by the court in 2014 for legal fees related to a successful motion for summary judgment on 21 counts of the original complaint) for future litigation expense including the cost of a possible appeal was established, for total legal expense in 2015 of $804,000.  Of note, the judge has still not entered the jury verdict 13 months after the end of the trial and we believe that there is a strong possibility that the jury verdict may not stand, which could be materially beneficial to UIF, if for example, a mistrial were declared or the jury verdict is set aside;
  2. Following shareholder approval at the December 2015 annual shareholder meeting, a one-time senior management performance award of $615,802 was paid in the fourth quarter, which together with related payroll taxes had a total cost of $624,731;
  3. With the fall in long term mortgage interest rates the valuation of mortgage servicing rights (MSRs) decreased $563,480;

Unusual gains:

  1. Provision for loan losses fell by $260,403 due to improved asset qualityand a lower projection of loan losses estimated by Invictus in the event of a CCAR Test style depression;
  2. A gain on the sale of foreclosed real estate of $100,155;
  3. A recovery from FHLMC of foreclosure expenses advanced in 2010 of $99,139.
  4. The value of the hedged mortgage origination pipeline rose $9,497 as the amount of locked loans rose over the level at year-end;

Results in 2014 were impacted by several non-recurring, unusual expenses net of unusual gains, which had an overall negative cumulative impact of $1,909,711, before tax:

Unusual losses:

  1. With the drop in long term mortgage interest rates the valuation of mortgage servicing rights (MSRs) dropped $643,943;
  2. Legal fees at UIF were $905,287 above budget due litigation related to a competitor, Guidance Residential, and a reserve of $848,000 was booked as of 12/31/2014 due to the jury ruling in early March 2015 following the trial;
  3. Legal fees at Midwest Loan Services (MLS) were $264,673 above budget due to the completed litigation regarding a credit reporting error involving a customer and Cal Coast Credit Union in California;
  4. Secondary market loan buybacks from Lehman Brothers, as well as FNMA and FHLMC’s one-time historical multi-year look-back, which is now finished, cost $159,682.

Unusual gains:

  1. The value of the hedged mortgage origination pipeline rose $416,070 as the amount of locked loans rose year over year;
  2. Provision for loan losses fell by $303,164 due to improved asset quality at the bank;
  3. Gains on sale of foreclosed real estate (ORE) were $172,052.

Net income for the three months ended December 31, 2015 was $183,704 or $0.036 on average shares outstanding of 5,100,899 for the period, versus net loss of ($70,947) in the final quarter of 2014 or ($0.015) on average shares outstanding of  4,751,260 for the period.  For the final quarter of 2015 minority interest of $43,675 was incurred versus minority interest of $139,646 and preferred stock dividends of $57,269 in the final quarter of 2014.  All preferred stock was fully retired in the first quarter of 2015.

For 2015, the Company had a return on equity attributable to common stock shareholders of 30.3% on initial equity of $10,356,429.  Return on equity in 2014 was 8.0% on initial equity of $9,492,494.

Results in 4Q2015 were restrained by the typical seasonal slowdown as well as several non-recurring, unusual expenses net of unusual gains, which had an overall negative cumulative impact of ($324,331), before tax:

Unusual expenses:

  1. Following shareholder approval at the December 2015 annual shareholder meeting, a one-time senior management performance award of $615,802 was paid in the fourth quarter, which together with related payroll taxes had a total cost of $624,731;
  2. The value of the hedged mortgage origination pipeline fell $154,129 as the amount of locked loans fell over the quarter due to a typical seasonal slowdown;
  3. Provision for loan losses rose by $70,149 as portfolio loan balances increased;

Unusual gains:

  1. With the rise in long term mortgage interest rates the valuation of mortgage servicing rights (MSRs) increased $424,523;
  2. A gain on the sale of foreclosed real estate of $100,155;

Results in 4Q2014 were restrained by several non-recurring, unusual expenses net of unusual gains, which had an overall negative cumulative impact of $1,752,171, before tax:

Unusual losses:

  1. With the drop in long term mortgage interest rates the valuation of mortgage servicing rights (MSRs) dropped $468,346;
  2. Legal fees at UIF were $376,361 above budget due to the Guidance Residential litigation and a reserve of $848,000 was booked as of 12/31/2014 due to the jury ruling in early March 2015 following the trial;
  3. Legal fees at MLS were $100,000 above budget due to the settlement related to the litigation regarding a credit reporting error involving a customer and Cal Coast Credit Union in California;

Unusual gains

  1. The reserve for secondary market loan buybacks was reduced by $40,536, as two loan buyback requests were withdrawn during the quarter after being successfully defended, partially offset by two buyback requests from Lehman Brothers.

Management currently projects budgeted annual net income in 2016 of at least $4,000,000 or $0.79 per share.  This forecast takes our estimated results in the 1Q2016 plus our original budget for the final three quarters of 2016, adjusted for all known major changes.  The re-forecast assumes no change in mortgage interest rates from current levels.  The bank’s budget assumes that mortgage originations will decline 15% at ULG and 7.8% at UIF over the balance of the year from 2015 levels.  However, in March we had origination levels that were 20.7% ahead of the prior year, and applications in March were the second highest in the history of the bank, just 0.2% under the record set in May 2013.  As a result, we began the second quarter with a level of locked loans in process towards closing that is at the highest level in the history of the bank even though we have not hit the seasonal peak of activity, which is typically April through July.  The bank’s net income would benefit substantially from any future increases in the Fed Funds interest rate, since our mortgage subservicing business manages approximately $100 million of off-balance sheet escrow deposit accounts from which we earn all interest income and which are invested in overnight interest earning deposits at the Federal Home Loan Bank of Indianapolis.  In addition, the bank’s most recent Asset Liability Management Report indicates that our bank’s own consolidated assets and liabilities are positioned so that we would benefit from increases in short-term interest rates.

President Stephen Lange Ranzini noted, “2015 results for both net income and growth were excellent.  Revenue in 2015 was 19.25% above the prior year level and our five year annual average revenue growth rate was 22.7%.  Following a great year, we paid our first cash dividend in early 2016 in the amount of $0.107 per share.”

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 8.93% 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, and is projected to be 14.50% 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 dividends or stock buybacks during 2016, both of which are likely.  Basel 3 Common Equity Tier 1 Capital 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 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 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 $14,821,418 or $2.91 per share, based on shares outstanding at December 31, 2015 of 5,100,899.  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 $14,180,538 or $2.78 per share at 12/31/2015.  (Please note that we do not see this latter statistic as particularly useful or meaningful but we are asked for it.)  Treasury shares as of 12/31/2015 were zero.

Total Assets as of 12/31/2015 were $182,458,912 versus $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 12/31/2015: a well secured residential real estate loan delinquent over 90 days with a total carrying value of $302,271, which has since been brought current but is still rated substandard.  The allowance for loan losses stands at $404,677 or 0.72% of the amount of portfolio loans, excluding the loans held for sale.  Substandard assets fell 30.2% during 4Q2015 to $760,061, 6.29% of Tier 1 Capital at 12/31/2015, including other real estate owned of $301,840.

In 2015, our residential mortgage origination groups originated $669.5 million of mortgages sold to the secondary market for our own account, of which $459.9 million were originated by our retail origination group, University Lending Group, LLC (ULG), $192.7 million were originated by our UIF unit, and the remainder originated by our credit union origination group.  In addition we underwrote and closed $45.3 million in mortgages for the account of correspondents for a total of $714.8 million in mortgages originated for our own and others’ accounts in 2015.  Purchase transactions originated during 2015 rose 15% at ULG and 25% at UIF over the 2014 level and 87% of our retail originations and 72% of our UIF originations in 2015 financed purchase transactions.

The ULG operation was assisted in 2015 by enhancements to the FHA loan program that made it more competitive nationwide and caused it to gain market share.  ULG specializes in FHA and VA lending and derives about 60% of its volume from these programs.  The UIF operation continues to increase its volume as it expands its business and places trained lenders nationwide into additional markets.

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 12/31/2015:

  • 5-year annual average revenue growth*,                      22.7%
  • 1-year annual revenue growth*,                                       19.3%
  • 5 Year Average ROE                                                              15.1%
  • LLR/NPAs>90 %                                                                  67.0%
  • Debt to equity ratio,                                                                    0%
  • Current Ratio,#                                                                          2.4x
  • Efficiency Ratio, %+                                                             73.9%
  • Total Assets,                                                             $182,458,912
  • Loans Held for Sale, before Reserves,             $42,883,660
  • NPAs >90 days                                                                $302,271
  • TTM ROA %                                                                            2.47%
  • TCE/TA %                                                                               7.78%
  • Total Capital Ratio %                                                         12.52%
  • NPAs/Assets %                                                                      0.42%
  • Texas Ratio %                                                                         5.21%
  • NIM %                                                                                       3.76%
  • NCOs/Loans %                                                                  -0.096%
  • Trailing 12 Months P-E Ratiox                                           11.1x

 

*Using Trailing 2015 sales which were $43,644,425, 2014 sales which were $36,598,052 and 2010 sales which were $20,437,724.

#Parent company only current assets divided by 12 month projected cash expenses.

+Calculated as: (non-interest expense/(net interest income + non-interest income))

xBased on last sale of $6.85 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 $18.4 billion in financial assets for over 115,000 customers, and our 335 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 growth in assets, pre-tax income and net income, 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 and technological 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. 

 

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