Ann Arbor, Michigan, November 12, 2019, — University Bancorp, Inc. (OTCQB: UNIB) announced that it had an unaudited net income attributable to University Bancorp, Inc. common stock shareholders in 3Q2019 of $2,167,535, $0.42 per share on average shares outstanding of 5,204,899 for the second quarter. Net income for the quarter was on budget despite being adversely impacted by a decrease in the valuation of mortgage servicing rights (MSRs) due to declining interest rates and by start-up costs of our residential mortgage correspondent origination business unit Midwest Loan Solutions (AMS). For 3Q2018 unaudited net income was $1,170,465, $0.225 per share on average shares outstanding of 5,200,921. For the 12 months ended September 30, 2019, net income was $1,599,569, $0.31 per share on average shares outstanding of 5,203,401 for the period. For the third quarter of 2019 minority expense of $53,380 was incurred related to the minority investor which owns 20% of our UIF subsidiary.
Shareholders’ equity attributable to University Bancorp, Inc. common stock shareholders was $27,266,602 or $5.24 per common share, based on 5,204,899 common shares outstanding at September 30, 2019.
Revenue and net income for the third quarter of 2019 was favorably impacted by:
- Record high volumes of mortgage loan originations, applications, submissions and locked loans;
- Increased volumes from AMS following the recent re-launch of this division.
Future net income may be positively affected by a write-up on the value of MSRs that management anticipates as result of interest rate increases that have occurred in the fourth quarter of 2019.
Midwest Loan Services (Midwest) produced solid results and had pre-tax income in 3M2019 and 9M2019 of $1.76 million and $4.84 million, respectively, or a $7.04 million and $6.45 million annual run rate, respectively. For the first nine months of 2019, Midwest has grown its mortgage loans under subservicing contract by 11.8% from to 133,437 from 119,346 at year-end 2018, or an annualized rate of growth of 15.7%.
During the third quarter we made significant progress with several key initiatives that had a short term cost but which we believe will have a positive impact on future results:
- The new AMS client facing software went live at the end of May and the closings at AMS are rising rapidly and were $10.3 million in July, $26.6 million in August, $40.8 million in September and $46.2 million in October.
- UIF expanded the faith based declining balance mortgage product to seven additional top 10 states, and plans to complete the roll-out within six months.
- Substantial progress was made on several other new product and sales channel roll-outs.
President Stephen Lange Ranzini noted, “We continue to invest in building our business and we are beginning to benefit from our past investments. The launch of our warehouse lending business is scheduled for later this month, we are rolling-out other new mortgage products and have obtained a license to enter an additional key state.”
Results in 3Q2019 were positively affected by an unusual gain, which was more than offset by two unusual expenses, for an overall negative cumulative impact of $(857,329), before tax:
- The fair market value of the hedged mortgage origination pipeline (FMV) rose $583,334 as the amount of locked loans rose and the AMS division grew its pipeline;
- With the fall in long term mortgage interest rates during the quarter the valuation of our MSRs decreased $(808,618);
- Start-up expenses related to the American Mortgage Solutions division (AMS) were $(633,045). Of note, pre-tax losses in September were just $(67,691), as the volumes of the business were nearing the break-even point.
Results in 3Q2018 were positively affected by an unusual gain, which was more than offset by an unusual expense, for an overall negative cumulative impact of $(106,031), before tax:
- The value of the hedged mortgage origination pipeline fell $(286,615) as the amount of locked loans fell over the level held as of 6/30/2018;
- With the rise in long term mortgage interest rates the valuation of mortgage servicing rights (MSRs) increased $180,584;
Mortgage origination volumes rose 30.4% in the first nine months of 2019 (9M2019), with strong volumes at UIF (up 41.7% year over year (YOY)), AMS (up 271.9% YOY from a very low base), and University Lending Group (ULG) (up 8.2% YOY). Closings during a month exceeded $100 million for the first time in the history of the bank in May 2019 with $104.7 million (+22% YOY), followed by a new record in June of $120.6 million (+26% YOY), in July we had $120.1 million (+44% YOY), in August we closed $136.0 million (+62% YOY), in September we closed $141.9 million (+116% YOY) and in October we closed a new record of $143.6 million (+129% YOY).
In 9M2019, our residential mortgage origination groups originated $863.5 million of mortgages, of which $473.3 million were originated by our retail origination group, ULG, $290.6 million were originated by our UIF unit, and $99.5 million by AMS. Home purchase transactions originated during 9M2019 fell 0.2% at ULG and rose 32.2% at UIF over the 9M2018 level and 88% of our retail originations at ULG and 85% of our UIF originations in 9M2019 financed home purchase transactions.
For 3M2019 and 9M2019, the Company had an annualized return on equity attributable to common stock shareholders of 34.2% and 8.2% on initial equity of $25,315,086 and $25,189,720, respectively. Return on equity over the trailing twelve months was 6.1% on initial equity of $26,072,743.
Total Assets as of 9/30/2019 were $383,187,000 versus $325,631,000 at
6/30/2019, $266,905,000 at 3/31/2019, $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 8.55% on net average assets of $269.8 million, from 8.39% at 6/30/2019 on net average assets of $232.1 million, 9.43% at 3/31/2019 on net average assets of $191.9 million, 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 9/30/2019 was $21,949,000, at 6/30/2019 was $18,292,000, 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 1/1/2020, the Bank’s Tier 1 Capital is projected to rise by over $3 million.
Basel 3 Total Risk Weighted Assets at 9/30/2019 were $201,602,000, at 6/30/2019 were $171,567,000, 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 Common Equity Tier 1 Risk Weighted Capital Ratio at 9/30/2019 was 10.89%, at 6/30/2019 was 10.66%, 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%.
Cash & marketable securities at the Company, available to meet working capital needs and investment opportunities at University Bank were $4,788,425. The Company has no debt and a class of convertible preferred stock outstanding with a liquidation preference of $5,000,000. During the third quarter of 2019, the Company invested $1 million into University Bank to increase its capital base in support of the ongoing growth.
Liquidity remains excellent. Midwest Loan Services controls an average balance of $337.4 million of mortgage escrow deposits under long term contracts, and we manage an average of over $110 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 $32,870 at quarter-end (which was sold after quarter-end), substandard assets rose 1.5% during 3Q2019 to $1,089,851, 4.72% of Tier 1 Capital at 9/30/2019. The allowance for loan losses stands at $629,331 or 0.75% of the amount of portfolio loans, excluding the loans held for sale.
Treasury shares as of 9/30/2019 were zero.
Other key statistics as of 9/30/2019:
- 5-year annual average revenue growth*, 10.3%
- 9M2019 vs. 9M2018 revenue growth*, 14.5%
- 5 Year Average ROE 20.3%
- LLR/NPAs>90 % 156.0%
- Debt to equity ratio, 0%
- Current Ratio,# 54.2x
- Efficiency Ratio, %+ 93.6%
- Total Assets, $383,187,000
- Loans Held for Sale, before Reserves, $160,667,201
- NPAs >90 days $370,491
- TTM ROA % 0.63%
- TCE/TA % 7.21%
- Total Capital Ratio % 11.40%
- NPAs/Assets % 0.28%
- Texas Ratio % 3.86%
- NIM % 5.02%
- NCOs/Loans % 0.048%
- Trailing 12 Months P-E Ratiox 26.0x
*Using 9/30/2019 Trailing 12 month sales which were $62,335,146, 9M2019 sales which were $50,140,579, 9M2018 sales which were $43,794,003, 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 $7.98 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 $26,892,507 or $5.17 per share at 9/30/2019. 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. In June, management uploaded an updated version of its valuation model to the corporate investor relations web page, which investors may use to customize their own views of the values of the business units owned by the Company.
Shareholders and investors are encouraged to refer to the financial information including the investor presentations, 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 $24 billion in financial assets for over 138,000 customers, and our over 473 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 and warehouse 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, valuations, 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. We undertake no obligation to update any information or forward-looking statement.