For Immediate Release
Contact: Stephen Lange Ranzini, President and CEO
Phone: 734-741-5858, Ext. 9226
UNIVERSITY BANCORP 3Q2016 NET INCOME $1,500,414; $0.294 PER SHARE
Ann Arbor, Michigan, November 21, 2016, — University Bancorp, Inc. (OTCQB: UNIB) announced that it had an unaudited net income attributable to University Bancorp, Inc. common stock shareholders in 3Q2016 of $1,500,414, $0.294 per share on average shares outstanding of 5,100,899 for the third quarter, versus an unaudited net income of $703,623, $0.138 per share on average shares outstanding of 5,100,899 for 3Q2015. For the third quarter of 2016 minority interest income was $73,318.
Unaudited net income attributable to University Bancorp, Inc. common stock shareholders for the first nine months of 2016 was $2,267,451, $0.445 per share on average shares outstanding of 5,100,899 for the first nine months, versus an unaudited net income of $2,955,513, $0.580 per share on average shares outstanding of 5,093,015 for 9M2016.
In the first nine months of 2016, net income of the Company was decreased by two large non-recurring, unusual expenses, only partially offset by a seasonal factor, which had an overall negative cumulative impact of $(1,899,004), before tax:
- With the decline in long term mortgage interest rates the valuation of mortgage servicing rights (MSRs) decreased by $2,607,707;
- Litigation expense related to the Guidance lawsuit and appeal of $358,001. The bank recently won an initial ruling from the appeals court related to the scope of our appeal. We have paid the full amount of the judgment and all legal costs and if the judgment is reduced upon appeal, would receive a recovery.
- The value of the hedged mortgage origination pipeline rose $1,066,704 as the amount of locked loans rose over the level at year-end due to seasonal factors and record mortgage production levels.
In 9M2015 the net income of the Company was decreased by several non-recurring, unusual losses net of unusual gains, which had an overall negative cumulative impact of $(1,198,686), before tax:
- 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. In addition, a reserve of $280,000 for future litigation expense was established in 3Q2015, for total legal expense of $804,000;
- With the fall in long term mortgage interest rates the valuation of mortgage servicing rights (MSRs) decreased $988,003, including a drop of $1,082,886 in 3Q2015;
- The value of the hedged mortgage origination pipeline rose $163,626 as the amount of locked loans rose over the level at year-end, however this amount decreased by $388,813 in 3Q2015 with the usual seasonal moderation of origination volumes;
- Provision for loan losses fell by $330,552 due to improved asset quality and a lower projection of loan losses estimated by Invictus in the event of a CCAR Test style depression;
- A recovery of foreclosure expenses advanced in 2010 from FHLMC of $99,139.
For 9M2016, the Company had a return on equity attributable to common stock shareholders of 20.4% annualized on initial equity of $14,821,418. Return on equity over the trailing twelve months was 16.8% on initial equity of $14,567,688.
Management currently projects budgeted annual net income in 2016 of at least $3,630,000 or $0.71 per share. This forecast takes our actual results for 9M2016 and the actual and estimated results in the 4Q2016 based on our original budget, 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 gain on our mortgage servicing rights estimated to be at least $1,250,000 in December.
President Stephen Lange Ranzini noted, “The 9M2016 result for profitability was very good after taking into account the $2.6 million negative mark to market on our mortgage servicing rights. In addition, we had growth in purchase related mortgage originations during the quarter, setting the all-time record for closings of any quarter in the bank’s history, and the months of July, August and September were the 5th, 2nd and 4th highest closing months in the bank’s history, respectively. Mortgage origination volumes have been ahead of the budget in 4Q2016.”
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 rose to 8.94% at 9/30/2016 on net average assets of $171.6 million, from 8.54% at 6/30/2016 on net average assets of $162.5 million, 8.75% at 3/31/2016 on net average assets of $141.2 million, 8.93% at 12/31/2015 on net average assets of $135.4 million, 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. We are seeking regulatory approval to count the recently issued Permanent Capital Note in Tier 1 Capital. Due to recent recruitment success in hiring proven mortgage loan originators at ULG, we currently anticipate above budgeted mortgage origination levels in 4Q2016 and higher closings in 2017. Taking into account these actions, the Tier 1 Leverage Capital Ratio is projected to be 10.93% at 12/31/2016, if we achieve our 2016 re-forecasted budget projection. Basel 3 Common Equity Tier 1 Capital at 9/30/2016 was $13,859,000, at 6/30/2016 was $12,420,000, 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 9/30/2016 were $102,272,000, at 6/30/2016 were $97,416,000, 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 9/30/2016 was 13.55%, at 6/30/2016 was 12.75%, at 3/31/2016 was 13.22%, at 12/31/2015 was 14.15%, at 9/30/2015 was 14.73%, at6/30/2015 was 12.57%, and at 3/31/2015 was 10.83%.
Shareholders’ equity attributable to University Bancorp, Inc. common stock shareholders was $16,555,242 or $3.25 per share, based on shares outstanding at September 30, 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 $15,948,245 or $3.127 per share at 9/30/2016. (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 this number.) Treasury shares as of 9/30/2016 were zero.
Total Assets as of 9/30/2016 were $246,524,231 versus $216,976,000 at 6/30/2016, $194,934,000 at 3/31/2016, $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, our overall asset quality continues to remain at excellent levels and we are experiencing low loan delinquencies. We had only one foreclosed real estate ORE property at 9/30/2016: a residential home with a carrying value of $71,000, and three substandard loans totaling $881,094 well secured by real estate. The allowance for loan losses stands at $412,292 or 0.62% of the amount of portfolio loans, excluding the loans held for sale. Substandard assets fell 0.1% during 3Q2016 to $952,094, 7.87% of Tier 1 Capital at 9/30/2016.
In 9M2016, our residential mortgage origination groups originated $621.9 million of mortgages, of which $407.0 million were originated by our retail origination group, University Lending Group, LLC (ULG), $179.9 million were originated by our UIF unit, and the remainder originated by our credit union and community bank correspondent mortgage origination group. Purchase transactions originated during 9M2016 rose 8% at ULG and rose 16% at UIF over the 9M2015 level and 84% of our ULG originations and 70% of our UIF originations in 9M2016 financed home purchase transactions.
The bank’s liquidity remains excellent. We also manage an average of $120 million of deposits in an off-balance sheet sweep arrangement through a series of mortgage escrow deposit accounts at the Federal Home Loan Bank of Indianapolis (FHLBI), on which we earn interest at the Fed Funds rate.
Other key statistics as of 9/30/2016:
- 1-year annual revenue growth*, 6.3%
- 5 Year Average ROE 19.5%
- LLR/NPAs>90 % 579.3%
- Debt to equity ratio, 0%
- Current Ratio,# 0.82x
- Efficiency Ratio, %+ 90.6%
- Total Assets, $246,524,231
- Loans Held for Sale, before Reserves, $74,866,974
- NPAs >90 days $0
- TTM ROA % 1.61%
- TCE/TA % 6.64%
- Total Capital Ratio % 10.99%
- NPAs/Assets % 0.39%
- Texas Ratio % 5.67%
- NIM % 2.36%
- NCOs/Loans % -0.01%
- Trailing 12 Months P-E Ratiox 15.1x
*Using Trailing 12 month 1H2016 sales which were $46,411,600, 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)).
xBased on last sale of $7.25 per share and $0.481 per share of net income for the TTM.
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, as of 9/30/2016 held and managed a total of over $18.9 billion in financial assets for over 112,000 customers, and our 368 employees made 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.