Ann Arbor, Michigan, March 23, 2020, — University Bancorp, Inc. (OTCQB: UNIB) today is providing an update on:
- Earnings, capital, loan delinquencies and mortgage operations at University Bank and its subsidiaries;
- Readiness in the event that its employees are required by the global coronavirus (COVID-19) pandemic to work from home;
in light of the major financial market turbulence that has occurred, so that all investors and potential investors in our common stock possess the same information.
As of last Thursday, University Bank had in hand all the computing devices required for all our staff to work offsite, other than a skeleton staff in some locations, to perform necessary tasks that cannot be safely or practically done remotely. We have on order and are expecting within a few business days five small printers to better support the productivity of five mortgage support staff working from home, and a handful of printers and scanners for our seven person insurance agency staff and then we will have all the equipment in our possession that is required for the staff to work remotely indefinitely while remaining productive.
Last Friday, we had the following with respect to our employees:
|Employees working from home:||317||65%|
|Employees working in office:||173||35%|
Within a few business days, as our IT team completes its work of setting up the computing devices with the required software and security, we will only have a handful of staff working onsite, with the bulk of those being a group of 30 employees at our Midwest Loan Services division, 9 at the headquarters/deposit branch location, 6 in our mortgage back office location and a small number in our Ann Arbor Carpenter Road back office who are members of our accounting team. These employees perform tasks that are generally ones that we don’t have a way to take offsite, don’t have a way to take offsite while retaining good productivity, or don’t have a way to take offsite with a residual risk level that we are comfortable with. Generally the people working onsite are part of an A Team / B Team structure, so that if an A Team gets sick, they can be sent home, the office deep cleaned and the B Team called in to work onsite, while keeping daily activity up and running. The board of directors has approved a one-time total capital expenditure of $400,000 to pay for the additional computers, monitors, printers and scanners that we purchased to enable our employees to work from home. We have received a copy of a letter issued to all banks by the U.S. Treasury which indicates that all banks are considered critical infrastructure and that bank employees should continue to work regardless of any mandatory quarantine orders that effect the general population.
University Bank had unaudited net income of $97,093 in January 2020, $401,272 ahead of the originally budgeted amount. Unaudited net income at University Bank in February 2020 was $476,093, $288,011 ahead of the originally budgeted amount despite a $1,000,000 charge against February 2020 pre-tax earnings related to a preliminary accrual of a write-down on the Mortgage Servicing Rights portfolio, which is marked-to-market at each quarter end. Year-to-date through the end of February, net income at University Bank was $573,186 in 2020 versus a loss of ($8,844) in 2019. The board of directors approved budget for 2020, which took into account the lower margins on mortgage loan gain on sale and lower mortgage origination volume projections then in place in December 2019, assumes that University Bancorp, Inc. will have net income of $7.74 million in 2020, or $1.49 per share.
As of the close of business Friday, March 20, 2020, University Bank and its subsidiaries had received total mortgage applications during March of over $261 million, a substantial increase over the level in February, during which we received over $274 million for the entire month. Total submissions to underwriting as of the close of business Friday, March 20, 2020 for the month of March were over $224 million, and our underwriting department has been able to maintain 48 to 72 hour turn times for underwriting decisions and underwriting condition waivers. Our goal is to keep underwriting turn times at 48 hours or less, and the pace of mortgage applications has been too fast, despite our efforts to slow this down to a rate in line with management’s estimate of our monthly ability to process, underwrite and close mortgage loans, which is $260 million per month. The locked pipeline of mortgage loans at the close of business March 20, 2020 was $286.3 million, versus $234.6 million at the end of February 2020, despite the decline in locked loans related to the wholesale origination unit (discussed below).
Because we’ve been unable to slow down the incoming level of mortgage applications from our retail lending channels, we announced that we will exit the wholesale mortgage origination business via our subsidiary Midwest Loan Solutions (MLS) in order to devote increased resources to our retail channels. We have made the tough decision to shift our back office mortgage origination capacity to fully serve our higher margin retail customers and to discontinue serving our wholesale mortgage origination customers after a transition period. We have discontinued accepting new loan registrations from the wholesale channel and all wholesale loans in our pipeline will have until May 15, 2020 to fund. There will be no wholesale mortgage loans funded after May 15, 2020 as the team will be fully transitioned to supporting our retail originations by then. As the wholesale business unit was in start-up mode during 2019, we lost $3,716,092 pre-tax (unaudited) in this line of business, as well as $335,184 in January 2020 and $285,437 in February 2020, both on an unaudited basis. We will see some cost savings in future periods as we gave severance to the sales team and some members of the leadership and middle management team of the former wholesale unit, and going forward, we will shift this portion of our back office processing, underwriting, funding and closing capacity to mortgage originations with much higher levels of gain on sale.
This extraordinary refinancing boom will end at some point and over the next few months we’ll be building a refinancing recapture unit in support of the bank’s Midwest Loan Services division. Midwest subservices over $25 billion of mortgage loans for over 380 financial institutions, and we’ve been told by major institutional investors who buy mortgage servicing rights, that if we had an in-house refinancing recapture unit, they would bring us substantial new business and growth. Even in times when rates are high, there is a constant level of refinancing activity including cash out refinancing, so we believe that our expanded retail business that includes this new refinancing recapture unit has a long term and exciting future.
University Bank ended February 2020 with $382.2 million in assets (average monthly assets were $273.5 million), total shareholders’ equity of $30,113,370, minority interest of $3,408,843, Tier 1 Capital of $29.3 million, a Tier 1 Leverage Capital Ratio of 10.72% and a Tier 1 Risk-Based Capital Ratio of 14.51%.
As of March 19, 2020, University Bank had no foreclosed real estate and zero consumer or commercial loans delinquent over 15 days, and four of these loans were delinquent under 15 days. Excluding one residential mortgage loan that paid off in March 2020, at February 29, 2020, University Bank had $888,121 in residential mortgage loans delinquent over 30 days, including $432,580 placed on non-accrual during the process of foreclosure.
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 $25 billion in financial assets for over 141,000 customers, and our over 490 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 reverse residential mortgage lender 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.
Contact: Stephen Lange Ranzini, President and CEO
Phone: 734-741-5858, Ext. 9226