Ann Arbor, Michigan, May 21, 2020, — University Bancorp, Inc. (OTCQB: UNIB) announced that it had an unaudited net loss attributable to University Bancorp, Inc. common stock shareholders in 1Q2020 of $453,266, $0.09 per share on average shares outstanding of 5,204,899 for the first quarter, versus an unaudited net loss of $735,428, $0.14 per share on average shares outstanding of 5,202,899 for 1Q2019. For the 12 months ended March 31, 2020, net income was $3,598,986, $0.69 per share on average shares outstanding of 5,204,399 for the period. For the first three months of 2020 minority expense of $(173,713) was incurred.
Management currently projects record profits in the second quarter of 2020. This is based on:
- Record net income in the month of April 2020 in the amount of $3,211,494, after booking a provision to boost our Allowance for Loan Losses for general economic conditions and not tied to specific loans by the additional amount of $1,422,429, so that University Bank’s ALLL at April 30, 2020 was $2,743,652;
- Continued loan closings and loan applications at the April 2020 pace so far during the month of May 2020, and expectations of similar levels of closings in June 2020 based on the current pipeline of loan applications and loans being processed;
- Anticipated further provisions to boost our Allowance for Loan Losses for general economic conditions and not tied to specific loans in May and June to take the ALLL to 5% of portfolio loans. While our own loan portfolio is performing relatively well, our loan level stress test model indicates that an ALLL of $2,300,000 would be sufficient to cover all loans losses during the modeled business depression, a level $443,652 less than the current level, and we see no signs of declines in real estate prices, we remain concerned about the rapidly deteriorating economic conditions and believe additional provisioning is prudent.
Shareholders’ equity attributable to University Bancorp, Inc. common stock shareholders was $28,096,361 or $5.40 per share, based on shares outstanding at March 31, 2020 of 5,204,899. Shareholders’ equity attributable to University Bancorp, Inc. common stock shareholders at April 30, 2020 was $31,282,855 or $6.01 per share.
President Stephen Lange Ranzini noted, “The 1Q2020 result for profitability was excellent, when considering the fact that we absorbed $2,677,455 in unusual expenses during the quarter. Net income in the first quarter of each year is usually seasonally slow due to the lower pace of mortgage originations. Mortgage originations and mortgage gain on sale margins during the quarter only began to rise beginning in mid-February and have risen to record levels, as the industry is struggling with capacity constraints caused by the surge in applications caused by record low interest rates, and financial and operational dislocations caused by the global pandemic. The full impact on profitability of these increases was not seen till the month of April. Due to market conditions related
to mortgage pipeline hedging it appears that some of our mortgage origination income may have shifted from March to April. Our internal model indicates that at $225 million of mortgage originations and current margins, $4 million per month of pre-tax income is possible, before any provisioning for potential or actual loan losses.”
Results in 1Q2020 were assisted by a seasonal factor, which were more than offset by three unusual expenses, which had an overall negative cumulative impact of $2,677,455, before tax:
- The fair market value of the hedged mortgage origination pipeline (FMV) rose $2,731,507 as the amount of locked loans rose over the seasonally low level at year-end and the pipeline of locked loans rose significantly due to record low mortgage interest rates;
- With the fall in long term mortgage interest rates during the quarter the valuation of our MSRs decreased $4,007,633;
- Start-up expenses related to the American Mortgage Solutions division (AMS) were $1,080,329. As previously announced, a decision was made in early March 2020 to wind-down AMS’s wholesale mortgage loan origination business. This wind-down was successful and is now essentially complete and the AMS business was actually profitable in April 2020 during the wind-down process;
- The Allowance for Loan Losses for general economic conditions and not tied to specific loans was increased by $321,000.
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.
Mortgage origination volumes increased in 1Q2020, with closings of $403.9 million versus $158.7 million in 1Q2019, an increase of 154.6%. Each of our three mortgage origination subsidiaries had strong volumes:
ULG: $165.5 million, up 76.2%, and purchase loans were up 28.4%;
UIF: $119.9 million, up 102.7%, and purchase loans were up 42.9%;
AMS: $118.6 million, up 2,013.0%.
This increase in our mortgage business continued into April, with closings of $236.0 million, versus $81.5 million in April 2019. AMS closed $48.8 million in mortgage originations in April and ceased operations in early May, having successfully closed out its locked pipeline. Our overall mortgage origination businesses in May, still continued at the rapid April pace with stable margins on gain on sale, despite the phase-out of AMS, which enabled us to add capacity at both ULG and UIF. ULG and UIF have increased their volume of closings in May by an amount sufficient to offset the lost AMS volume.
For 1Q2020, the Company had an annualized return on equity attributable to common stock shareholders of -6.4% on initial common stockholders’ equity of $28,552,142. Return on equity over the trailing twelve months was 14.6% on initial equity of $24,692,718.
Total Assets as of 3/31/2020 were $390,463,093 versus 12/31/2019 at $361,956,924, $383,187,000 at 9/30/2019, $325,631,000 at 6/30/2019, $266,905,000 at 3/31/2019 and $247,024,330 at 12/31/2018.
The Tier 1 Leverage Capital Ratio as of 3/31/2020 rose to 10.59% on net average assets of $283.8 million, from 8.15% at 12/31/2019 on net average assets of $299.1 million, from 8.55% at 9/30/2019 on net average assets of $269.8 million, 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 and 9.41% at 12/31/2018 on net average assets of $199.8 million.
Basel 3 Common Equity Tier 1 Capital at 3/31/2020 was $27,308,000, at 12/31/2019 was $23,179,000, at 9/30/2019 was $21,949,000, at 6/30/2019 was $18,292,000, at 3/31/2019 was $17,100,000, and at 12/31/2018 was $17,789,000.
Effective with the 3/31/2020 FDIC Call Report, University Bank is no longer required to calculate its Basel 3 Total Risk Weighted Assets or the Common Equity Tier 1 Risk Weighted Capital Ratio because of its adoption of the new Community Bank Leverage Ratio.
Liquidity remains excellent. The bank is positioned to benefit from rising short term interest rates. We manage an average of over $100 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 Metropolitan Statistical Area saw modest growth in employment in 2019, and the population of Washtenaw County, at about 368,000 residents, actually lost nearly 1,900, its first decline since 2008. Since the onset of the pandemic, based on the unemployment claims filed and the size of the workforce per the U.S Department of Labor, we currently estimate that Michigan’s unemployment rate is now 31.4% and the national unemployment rate is now 25.9%. Despite this, the performance of our portfolio loans and our overall asset quality continues to perform well, and we are experiencing low loan delinquencies. We had no foreclosed other real estate owned property at quarter-end, and substandard assets fell 17.2% during 1Q2020 to $1,383,698, 4.61% of Tier 1 Capital at 3/31/2020. The allowance for loan losses stood at $1,113,256 or 1.18% of the amount of portfolio loans, excluding the loans held for sale.
At 3/31/2020, we had the following with respect to delinquent loans (including both delinquent portfolio loans and delinquent loans held for sale):
Delinquent 30 Days, $1,868,382
Delinquent 31 Days to 89 Days, $11,893
Delinquent Over 90 Days & on Non-Accrual, $538,188+
+ In addition, we had $1,988,626 in GNMA pool related residential mortgage loans that have reached 90 days delinquency status.
As of May 19, 2020, delinquencies were generally stable and we had the following loans on pandemic related forbearance or loan where the borrower participated in the SBA’s PPP loan program:
Business Manager Line of Credit Loans $58,381
Community Banking Commercial Real Estate Loans $6,496,812
Community Banking Commercial Loans $144,679
Community Banking Home Equity Loans $156,159
Community Banking SBA Loans Unguaranteed Portion $455,573
Community Banking Residential 1st Mortgage Loans $1,018,463
Faith Based Commercial Real Estate Financings $11,194,164
Faith Based Residential 1st Lien Real Estate Financings $1,073,248
Cash & marketable securities at the Company, available to meet working capital needs and investment opportunities at University Bank were $3,978,694. The Company has no debt and one class of preferred stock outstanding convertible at $10 per share with a liquidation preference of $5,000,000.
Treasury shares as of 3/31/2020 were zero.
Other key statistics as of 3/31/2020:
- 5-year annual average revenue growth*, 20.4%
- 1Q2020 vs. 1Q2019 revenue growth*, 36.8%
- 5 Year Average ROE 16.4%
- LLR/NPAs>90 % 206.9%
- Debt to equity ratio, 0%
- Current Ratio,# 45.0x
- Efficiency Ratio, %+ 101.0%
- Total Assets, $390,463,000
- Loans Held for Sale, before Reserves, $185,239,322
- NPAs >90 days $538,188
- TTM ROA % 1.32%
- TCE/TA % 7.48%
- Total Capital Ratio % 10.84%
- NPAs/Assets % 0.35%
- Texas Ratio % 4.56%
- NIM % 4.74%
- NCOs/Loans % -0.041%
- Trailing 12 Months P-E Ratiox 9.8x
*Using Trailing 12 month 1Q2020 sales which were $17,889,978, 1Q2019 sales which were $13,080,816, 2019 sales which were $69,112,502, 2018 sales which were $55,988,570 and 2014 sales which were $36,598,052.
#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 $6.75 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 $27,058,960 or $5.20 per share at 3/31/2020. 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 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 143,000 customers, and our over 477 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