Ann Arbor, Michigan, June 17, 2019, — University Bancorp, Inc. (OTCQB: UNIB) announced that it had an unaudited net loss attributable to University Bancorp, Inc. common stock shareholders in 1Q2019 of $735,428, $0.14 per share on average shares outstanding of 5,202,899 for the first quarter, versus an unaudited net income of $625,427, $0.12 per share on average shares outstanding of 5,200,899 for 1Q2018. For the 12 months ended March 31, 2019, net income was $869,491, $0.17 per share on average shares outstanding of 5,201,906 for the period. For the first three months of 2019 minority expense of $90,256 was incurred.
Management currently projects budgeted annual net income in 2019 of $3,270,000 or $0.63 per share. This forecast takes our actual results for the first five months of 2019, plus our original budget for the final seven months of 2019, adjusted for major changes, including:
- an estimated $1 million write-down on MSRs in the June 2019 quarter, due to the sharp drop in long term mortgage interest rates;
- a negative impact on the FMV of the locked mortgage origination pipeline in May 2019 due to the sharp drop in mortgage interest rates;
- a 60-day delay in ramping up the re-launch of our residential mortgage correspondent origination business unit (AMS);
- the positive impact from the acquisition of $6.8 million portfolio of home equity loans subserviced by Midwest Loan Services, at an attractive valuation.
Shareholders’ equity attributable to University Bancorp, Inc. common stock shareholders was $24,692,718 or $4.75 per share, based on shares outstanding at March 31, 2019 of 5,202,899.
President Stephen Lange Ranzini noted, “The 1Q2019 result for profitability was disappointing. Net income in the first quarter of each year is usually seasonally slow due to the lower pace of mortgage originations. While we had strong profitability at our subservicing division, mortgage originations during the quarter declined and the margins and mix of our originations was less favorable than budgeted.
During the second quarter we made significant progress with several key initiatives that had a short term cost, and will impact future results:
- The new AMS software went live at the end of May and the pipeline of loans at AMS is rising rapidly. We currently have 10 mortgage origination firms that have been trained and can submit loans through the new software system. We plan to add 5 additional firms per week until our entire customer base is brought live.
- Midwest Loan Services signed contracts with several new customers and began to subservice home equity lines of credit for two firms. Based on contracts signed and in process of implementation, its budgeted goal of adding a net 18,000 loans to its subservicing portfolio in 2019 will be met, representing 15% annual growth
- We successfully integrated 52 employees from Huron Valley Financial (HVF), including 26 retail residential loan officers and 26 support staff. The now allied group of employees on a combined basis was Washtenaw County’s #1 locally based first mortgage loan originator in both 2018 and 2017.
- The reverse mortgage employees we hired from HVF have been successfully integrated, the technology required has been implemented and the first loans were originated on the new software system at the end of May. Year to date, the reverse mortgage team originated 50 loans, which makes it the #27 lender of reverse mortgages nationwide, with a 0.36% national market share.
- Substantial progress was made on several other new product roll-outs.
- We hired Palmer Heenan as our SVP Director of Capital Markets. Palmer was formerly EVP – Secondary Marketing Manager at Flagstar Bank, where he managed mortgage investor relationships, mortgage product development, pricing, risk analytics and loan trading.
- We hired Dawn Mansell as our Vice President, Post Closing and Quality Assurance Manager. Dawn was formerly SVP – Post Closing Operations for United Shore Financial Services, the nation’s largest wholesale mortgage lender, and before that held the same job at Flagstar Bank.
Results in 1Q2019 were assisted by a seasonal factor and an unusual gain, which were more than offset by three unusual expenses, which had an overall negative cumulative impact of $824,944, before tax:
- The fair market value of the hedged mortgage origination pipeline (FMV) rose $744,534 as the amount of locked loans rose over the seasonally low level at year-end;
- A portfolio of mortgage servicing rights (MSRs) was purchased from a subservicing customer that liquidated, at a discount of $450,000 from fair market value.
- With the fall in long term mortgage interest rates during the quarter the valuation of our MSRs decreased $945,000;
- Start-up expenses related to the American Mortgage Solutions division (AMS) were $884,478;
- All potential indemnification requests related to a portfolio of mortgage loans sold in the early 2000s was settled for a payment of $190,000.
Results in 1Q2018 were assisted by a seasonal factor and a rise in the value of our mortgage servicing rights, only partially offset by an unusual expense, which had an overall positive cumulative impact of $1,453,347, before tax:
- The fair market value of the hedged mortgage origination pipeline (FMV) rose $968,641 as the amount of locked loans rose over the level at year-end;
- With the rise in long term mortgage interest rates during the quarter the valuation of mortgage servicing rights (MSRs) increased $605,956;
- Implementation costs related to the adoption of a new mortgage loan origination system in the amount of $121,250 were charged against income;
Mortgage origination volumes declined in the first quarter, with strong volumes at UIF, where overall margins are lower, more than offset by a decline at ULG, which is more focused on FHA and VA lending, where margins are higher. This slowness in our mortgage business continued through the end of the quarter and April results were slightly ahead of April 2018. Our mortgage businesses in May accelerated and our mortgage closings hit an all-time monthly record of $104.7 million in May 2019, however the margins were lower than expected due to a continued unfavorable mix by product type. Closings in June are currently on track for an even better result with $79 million in mortgages already closed through June 14, and over $130 million in closings projected for the month.
In 1Q2019, our residential mortgage origination groups originated $158.7 million of mortgages, of which $93.9 million were originated by our retail origination group, University Lending Group, LLC (ULG), $59.1 million were originated by our UIF unit, and the remainder originated by our wholesale correspondent origination group (AMS). Home purchase transactions originated during 1Q2019 fell 18.5% at ULG and rose 17.7% at UIF over the 1Q2018 level and 92.5% of our retail originations at ULG and 88.9% of our UIF originations in 1Q2019 financed home purchase transactions.
For 1Q2019, the Company had an annualized return on equity attributable to common stock shareholders of -3.1% on initial equity of $25,189,720. Return on equity over the trailing twelve months was 3.6% on initial equity of $24,000,008.
Total Assets as of 3/31/2019 were $266,905,000 versus $247,024,330 at 12/31/2018, $255,647,000 at 3/31/2018 and $245,885,002 at 12/31/2017.
The Tier 1 Leverage Capital Ratio rose to 9.43% on net average assets of $199.8 million, from 9.41% at 12/31/2018 on net average assets of $199.8 million, 10.27% at 3/31/2018 on net average assets of $179.4 million and 10.60% at 12/31/2017 on net average assets of $190.0 million.
Basel 3 Common Equity Tier 1 Capital at 3/31/2019 was $17,100,000, at 12/31/2018 was $17,789,000, at 3/31/2018 was $17,465,000, and at 12/31/2017 was $19,352,000. The FDIC recently finalized a revision to the Basel 3 Capital Rules that changes the capital charges for carrying MSRs and which allows the inclusion of some minority interest in Tier 1 Capital. When this rule becomes effective on 4/1/2020, the Bank’s Tier 1 Capital is projected to rise by $3.5 million.
Basel 3 Total Risk Weighted Assets at 3/31/2019 were $128,001,000, at 12/31/2018 were $114,021,000, at 3/31/2018 were $139,284,000, and at 12/31/2017 were $159,683,000.
The CET1 Risk Weighted Capital Ratio at 3/31/2019 was 13.36%, at 12/31/2018 was 15.60%, at 3/31/2018 was 12.54%, and at 12/31/2017 was 12.12%.
Liquidity remains excellent. The bank is positioned to benefit from rising short term interest rates. We manage an average of over $130 million of deposits in an off-balance sheet sweep arrangement through a series of deposit accounts at the Federal Home Loan Bank of Indianapolis on which we earn interest just under the Fed Funds rate.
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 be excellent. Including one residential foreclosed other real estate owned property carried at $70,586 at quarter-end, substandard assets rose during 1Q2019 to $733,462, 4.05% of Tier 1 Capital at 3/31/2019. The allowance for loan losses stands at $584,857 or 0.82% of the amount of portfolio loans, excluding the loans held for sale.
Cash & marketable securities at the Company, available to meet working capital needs and investment opportunities at University Bank were $5,832,676. The Company has no debt and a class of convertible preferred stock outstanding with a liquidation preference of $5,000,000.
Treasury shares as of 3/31/2019 were zero.
Other key statistics as of 3/31/2019:
- 5-year annual average revenue growth*, 8.7%
- 1Q2018 vs. 1Q2017 revenue growth*, -1.4%
- 5 Year Average ROE 19.7%
- LLR/NPAs>90 % 117.9%
- Debt to equity ratio, 0%
- Current Ratio,# 65.9x
- Efficiency Ratio, %+ 106.0%
- Total Assets, $266,095,000
- Loans Held for Sale, before Reserves, $48,543,529
- NPAs >90 days $425,644
- TTM ROA % 0.37%
- TCE/TA % 10.01%
- Total Capital Ratio % 11.61%
- NPAs/Assets % 0.27%
- Texas Ratio % 2.69%
- NIM % 4.00%
- NCOs/Loans % -0.009%
- Trailing 12 Months P-E Ratiox 50.7x
*Using Trailing 12 month 1Q2019 sales which were $13,080,816, 1Q2018 sales which were $13,260,969, 2018 sales which were $55,988,570 and 2013 sales which were $38,856,573.
#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 $8.48 per share.
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 $24,283,050 or $4.67 per share at 3/31/2019. Please note that we view the current market values of our insurance agency and Midwest Loan Services as substantially in excess of their carrying value including this goodwill.
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 $22 billion in financial assets for over 129,000 customers, and our over 450 employees make us the 5th 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 the 15th oldest bank headquartered in Michigan. We are 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;
- Midwest Loan Solutions, a residential mortgage correspondent lender based in Southfield, MI;
- 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, mortgage origination levels and margins, 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.