Ann Arbor, Michigan, April 7, 2016, — University Bancorp, Inc. (OTCQB: UNIB) announced that it had audited net income attributable to University Bancorp, Inc. common stock shareholders in 2016 of $3,806,197, $0.75 per share on average shares outstanding of 5,100,899 for the year, versus audited net income of $3,139,217, $0.62 per share on average shares outstanding of 5,080,372 for 2015. For 2016, additional net income attributed to non-controlling interest was $202,294. For 2015, net income attributed to non-controlling interest was $109,963 and preferred stock dividends totaled $5,273. All preferred stock was fully retired in the first quarter of 2015.
For 2016, the Company had a return on equity attributable to common stock shareholders of 25.7% on initial equity of $14,821,418. Return on equity in 2015 was 30.3% on initial equity of $10,356,429.
We currently project budgeted annual net income in 2017 of at least $4,400,000 or $0.85 per share. This forecast includes our estimated results in the 1Q2017 plus our original budget for the final three quarters of 2017, adjusted for all known major changes. The forecast assumes no change in mortgage interest rates from current levels. In 1Q2017 we had origination levels that were 24% ahead of the prior year, and applications in March 2017 were the second highest month in the history of the bank, slightly under the record set in August 2016. As a result, we began the second quarter with a level of locked loans in process towards closing, larger than the level at March 31, 2016. The bank’s net income would benefit substantially from any future increases in the Fed Funds interest rate, since our mortgage subservicing business manages over $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, “2016 results for both net income and growth were excellent. Revenue in 2016 was 16.7% above the 2015 level and our five year annual average revenue growth rate was 23.1%. Our return on shareholders’ equity in 2016 was 25.7%, and our five year annual average return on shareholders’ equity was 23.7%, putting University Bancorp in an elite group of public companies with long term growth rates averaging over 20% and returns on equity averaging over 20%. We also paid our first cash dividend in 2016 in the amount of $0.107 per share.”
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 no loans delinquent over 30 days at 12/31/2016. The allowance for loan losses stands at $422,702 or 0.64% of the amount of portfolio loans, excluding loans held for sale. Substandard assets fell 48.2% during 4Q2016 to $493,499, 3.1% of Tier 1 Capital at 12/31/2016, including other real estate owned of $39,454. This property was sold for a gain in 1Q2017. The two substandard assets were residential loans that were well secured.
In 2016, our residential mortgage origination groups originated $834.6 million of mortgages sold to the secondary market for our own account, of which $548.0 million were originated by our retail origination group, University Lending Group, LLC (ULG), $235.4 million were originated by our UIF unit, and the remainder originated by our credit union and community bank origination group. In 2016, 83% of our retail originations and 70% of our UIF originations financed purchase transactions. Purchase transaction originations have risen consistently for the past several years as both ULG and UIF place trained lenders into additional markets nationwide. Mortgage purchase transaction originations during 2016 rose as follows:
Year over year mortgage purchase transaction origination increases:
ULG: 2016 vs. 2015: + 8.5% UIF: 2016 vs. 2015: +25.0%
ULG: 2015 vs. 2014: +15.4% UIF: 2015 vs. 2014: +25.1%
ULG: 2014 vs. 2013: +14.5% UIF: 2014 vs. 2013: +19.9%
ULG specializes in FHA and VA lending, deriving about 60% of its volume from these programs, and UIF specializes in faith-based lending.
Shareholders’ equity attributable to University Bancorp, Inc. common stock shareholders was $18,075,835 or $3.54 per share, based on shares outstanding at December 31, 2016 of 5,100,899, up from $2.91 per share at the end of 2015. 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 $17,506,097 or $3.43, up from $2.78 per share at 12/31/2015. Please note that we do not see this latter statistic as particularly useful or meaningful, as the value of Midwest Loan Services and Ann Arbor Insurance Centre are far above book value plus the related goodwill and intangibles.
Results in 2016 were restrained by several non-recurring, unusual expenses net of unusual gains, which had an overall negative cumulative impact of $579,715, before income taxes:
- With the sharp decline in long-term mortgage interest rates in the first half of 2016 only partially offset in the second half, the valuation of mortgage servicing rights (MSRs) decreased by $513,015;
- Litigation and appeal expense related to a competitor, Guidance Residential, of $405,524. University Bank won an initial ruling from the appeals court related to the scope of our appeal and all appeals were filed in the case. We have paid the full amount of the judgment and expensed all legal costs. If the judgment is reduced upon appeal, we would receive a recovery. Based on the appeal briefs filed, we believe that we have a meritorious appeal and look forward to the decision of the appeals court.
- Litigation expense related to a lawsuit that was favorably resolved in the first quarter of 2017 in the amount of $198,002.
- The value of the hedged mortgage origination pipeline rose $536,826 as the amount of locked loans rose over the level at the prior year-end due to record increased mortgage production levels.
Results in 2015 were restrained by several non-recurring, unusual expenses net of unusual gains, which had an overall negative cumulative impact of $1,524,525, before income taxes:
- Legal fees at UIF were $524,000 due to the trial and follow-up motions in 1Q2015 related to the litigation related to Guidance Residential. In addition, a reserve of $280,000 for future litigation expense including the cost of a possible appeal was established, for total legal expense in 2015 of $804,000.
- 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;
- With the fall in long-term mortgage interest rates, the valuation of mortgage servicing rights (MSRs) decreased $563,480;
- 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;
- A gain on the sale of foreclosed real estate of $100,155;
- A recovery from FHLMC of foreclosure expenses advanced in 2010 of $99,139.
- The value of the hedged mortgage origination pipeline rose $7,989 as the amount of locked loans rose over the level at year-end;
Net income for the three months ended December 31, 2016 was $1,538,746 or $0.302 on average shares outstanding of 5,100,899 for the period, versus was $183,704 or $0.036 on average shares outstanding of 5,100,899 for the same 2015 period. During the final quarter of 2016 net income attributed to non-controlling interest was $229,941 versus $43,675 in the final quarter of 2015.
Results in 4Q2016 were boosted by a rise in valuation of our mortgage servicing rights portfolio, which was only partially offset by the typical seasonal mortgage origination slowdown as well as several non-recurring, unusual expenses, which had an overall positive cumulative impact of $1,319,289, before income taxes:
- With the rise in long term mortgage interest rates, the valuation of mortgage servicing rights (MSRs) increased $2,094,692;
- The value of the hedged mortgage origination pipeline fell $529,878 as the amount of locked loans fell over the quarter due to a typical seasonal slowdown;
- Litigation expense related to the Guidance appeal was $47,523;
- Litigation expense in 4Q2016 related to a lawsuit favorably resolved in 1Q2017 was $198,002.
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 income taxes:
- 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 was a total cost of $624,731;
- 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;
- Provision for loan losses rose by $70,149 as portfolio loan balances increased;
- With the rise in long-term mortgage interest rates, the valuation of mortgage servicing rights (MSRs) increased $424,523;
- A gain on the sale of foreclosed real estate of $100,155;
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 8.64% at 12/31/2016 on net average assets of $183.3 million from 8.94% at 9/30/2016 on net average assets of $171.6 million, 8.93% at 12/31/2015 on net average assets of $135.4 million, versus 12.77% at 12/31/2014 on average assets of $104.9 million using the old Basel 2 Capital Rules. Basel 3 ratios were not calculated as of 12/31/2014 as the rules became effective for U.S. banks with the 3/31/2015 Call Report.
Basel 3 Common Equity Tier 1 Capital at 12/31/2016 was $14,215,000, at 9/30/2016 was $13,859,000, at 12/31/2015 was $10,584,000, and at 3/31/2015 was $9,412,000.
Basel 3 Total Risk Weighted Assets at 12/31/2016 were $96,908,000, at 9/30/2016 were $102,272,000, at 12/31/2015 were $74,775,000, and at 3/31/2015 were $86,927,000.
The CET1 Risk Weighted Capital Ratio at 12/31/2016 was 14.67%, at 9/30/2016 was 13.55%, at 12/31/2015 was 14.15%, and at 3/31/2015 was 10.83%.
Treasury shares as of 12/31/2016 were zero.
Total Assets as of 12/31/2016 were $190,940,176 versus $246,524,231 at 9/30/2016, $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.
Other key statistics as of 12/31/2016:
- 5-year annual average revenue growth*, 23. 1%
- 1-year annual revenue growth*, 16.7%
- 5 Year Average ROE 23.7%
- LLR/NPAs>90 % 1,071.4%
- Debt to equity ratio, 0%
- Current Ratio,# 2.6x
- Efficiency Ratio, %+ 87.9%
- Total Assets, $190,940,176
- Loans Held for Sale, before Reserves, $56,496,574
- NPAs >90 days $0
- TTM ROA % 2.19%
- TCE/TA % 9.40%
- Total Capital Ratio % 11.27%
- NPAs/Assets % 0.26%
- Texas Ratio % 2.69%
- NIM % 3.20%
- NCOs/Loans % -0.017%
- Trailing 12 Months P-E Ratiox 8.6x
*Using 2016, 2015, 2014, 2013, 2012 and 2011 sales which were $50,948,149, $43,644,425, $36,598,052, $38,856,573, $39,991,125 and $21,280,296, respectively.
#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 $6.40 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: 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 $19.9 billion in financial assets for over 115,000 customers, and our 375 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 Southfield, 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.