Ann Arbor, Michigan, July 30, 2021, — University Bancorp, Inc. (OTCQB: UNIB) announced that it had audited net income of $28,002,817 in 2020, of which $27,702,817 was attributable to University Bancorp, Inc. common stockholders, $5.39 per share on average shares outstanding of 5,141,148 for the year, versus audited net income of $3,616,824 in 2019, of which $3,316,824 was attributable to University Bancorp, Inc. common stockholders, $0.64 per share on average shares outstanding of 5,203,967 for 2019.
For 2020, University Bancorp, Inc. (the Company) had a return on equity attributable to common stock shareholders of 97.0% on initial equity attributable to common stock shareholders of $28,552,142. Return on equity attributable to common stock in 2019 was 13.2% on initial equity of $25,189,720. Shareholders’ equity attributable to University Bancorp, Inc. common stock shareholders at December 31, 2020 was $51,594,523 (excluding minority interest of $6,092,879 and excluding $5,000,000 of equity attributable to the 6% Series 5 Preferred Stock, which is convertible at $10 per share), or $10.83 per share, based on common shares outstanding at December 31, 2020 of 4,765,518, up from $5.49 per share at the end of 2019.
President Stephen Lange Ranzini noted, “For the 16 years from 2004 to 2020 University Bank’s annual revenue grew an average of 20.9%, and its return on equity has averaged 20.0%. American Banker newspaper noted recently that University Bank was the most profitable publicly traded bank in the United States, based on our 65.4% return on average equity in 2020.”
At Midwest Loan Services, the increase in internal originations and organic growth of our sub-servicing clients led the number of mortgages serviced to grow 23.2% during 2020. Excluding the benefit from its $548.8 million of non-interest-bearing escrow deposits, Midwest Loan Services contributed $6.3 million in pre-tax income in 2020.
Results in 2020 were restrained by several notable items, which had a net overall negative impact of $5,445,421, before income taxes:
- With the sharp drop in long-term mortgage interest rates during 2020, the valuation of mortgage servicing rights (MSRs) decreased $4,846,966;
- The Allowance for Loan Losses was boosted by $3,590,210 in light of the sharp economic contraction caused by the pandemic;
- Pre-tax losses in the amount of $1,507,885 were incurred in 1Q2020 at Midwest Loan Solutions, our wholesale lending subsidiary, as discussed below.
- An earn-out contingency related to the March 2019 Huron Valley Financial acquisition was booked in the amount of $681,742, as an earn-out in 2020 was triggered under the agreement, since the mortgage volumes and margins produced by the employees exceeded the minimum requirement. Roughly half of this provision related to future years, in which an earn-out was deemed more likely than not;
- The value of the hedged mortgage origination pipeline rose $5,181,382 as the amount of locked loans at year-end 2020 rose over the level at year-end 2019.
Results in 2019 were restrained by several notable items, which had a net overall negative cumulative impact of $1,140,127, before income taxes:
- With the sharp drop in long-term mortgage interest rates during 2019, the valuation of MSRs decreased $2,683,602;
- All potential indemnification requests related to a portfolio of mortgage loans sold in the early 2000s was settled for a payment of $190,000;
- The value of the hedged mortgage origination pipeline rose $1,263,475 as the amount of locked loans at year-end 2019 rose over the level at year-end 2018;
- A portfolio of mortgage servicing rights (MSRs) was purchased from a subservicing customer that liquidated, at a discount of approximately $470,000 from fair market value.
Results in 2019 were also negatively impacted by pre-tax losses in the amount of $4,413,792, at Midwest Loan Solutions.
Results in 2020 were positively impacted by an increase in margins on mortgage originations sold to the secondary market, which was caused by the pandemic and the Federal Reserve’s reaction to it. The following graph is the best index that we are aware of for the overall industry-wide margins on standard FNMA and FHLMC loans sold in the secondary market.
Margins began to rise in mid-February 2020 and rose to record levels, as the industry struggled 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. Margins have since moderated to lower but still elevated levels.
In 2020, our residential mortgage origination groups originated $2.35 billion of mortgages, mostly sold to the secondary market for our own account, of which $1.26 billion were originated by our retail origination group, University Lending Group (ULG), $938 million were originated by our UIF unit, and the remainder originated by our wholesale origination group. In 2020, 60% of our ULG originations and 47% of our UIF originations financed purchase transactions, and purchase transaction originations increased by 38.8% and 32.4%, respectively. Purchase transaction originations have risen consistently for the past seven years as both ULG and UIF place trained lenders into additional markets nationwide. ULG specializes in FHA, VA, USDA, HELOC, renovation and construction to permanent lending, deriving about 67% of its volume
Annual Growth in Purchase Transactions
Year ULG UIF
2014 8.5% 25.0%
2015 15.4% 25.1%
2016 14.5% 19.9%
2017 9.6% 27.0%
2018 4.1% 16.5%
2019 5.0% 36.5%
2020 38.8% 32.4%
from these higher margin programs. UIF specializes in faith-based lending. This higher volume in 2020 was locked at higher margins and there was a shift from a mix of retail and wholesale to only retail, which carries higher margins.
In early March 2020, because we were unable to slow down the incoming level of mortgage applications from our retail lending channels, we announced that we would exit the wholesale mortgage origination business via our subsidiary Midwest Loan Solutions (MLS) in order to devote increased resources to our retail channels. We 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 discontinued accepting new loan registrations from the wholesale channel in mid-March 2020 and the wholesale back office team transitioned to supporting our retail originations. As the wholesale business unit was in start-up mode during 2019 and 2018, we lost $4,413,792 and $3,531,073, respectively pre-tax in this line of business, as well as $1,507,885 in the first half of 2020 as the business unit was wound down.
We achieved these record volumes in 2020 despite the rise of the coronavirus pandemic, which prompted us to quickly move 90% of our employees to a work from home assignment between the first and third week of March 2020. The employees who still work daily onsite in our facilities perform tasks that are generally ones that we cannot 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 member gets sick, the team 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 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, however our IT Team came up with some creative solutions and the total cost ended up at just over $100,000. We received a copy of a letter issued to all banks by the U.S. Treasury and another from our primary state regulator, the Michigan Department of Insurance and Financial Services, 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. This includes lending and lending support personnel such as mortgage loan officers, title companies and appraisers, however it does not include real estate agents.
As a result of the pandemic, Michigan and the Ann Arbor Metropolitan Statistical Area saw a sharp drop in employment in 2020. Despite this, the performance of our portfolio loans and our overall asset quality continues to perform well, and we are experiencing low loan delinquencies. University Bank continues to use an outside vendor to perform stress testing analysis and these tests assume a severely adverse
(depressionary) national economic scenario worse than the last depression we experienced, in which we assume 10% unemployment, a 50% drop in the stock market,8% drop in GNP, a 35% drop in residential real estate prices and a 38% drop in commercial real estate prices, and that these prices never recover. Under this scenario we lose just $2.1 million in total loan losses over the entire economic cycle, a fraction of our budgeted annual pre-tax income, and perhaps under a month of pre-tax earnings if the current mortgage origination gain on sale margins and the record level of mortgage origination volumes persist for any length of time. This credit risk is moderated by the existing allowance for loan losses of $4.0 million.
At 12/31/2020, we had the following with respect to delinquent loans (including both delinquent portfolio loans and delinquent loans held for sale):
Delinquent 30 Days to 59 Days, $1,331,000
Delinquent 60 Days to 89 Days, $ 320,000
Delinquent Over 90 Days & on Non-Accrual, $0+
+In addition, we owned the MSRs on $15,533,613 in GNMA pool related residential mortgage loans that have reached 90 days delinquency status and are therefore included on our balance sheet per GAAP. These loans are guaranteed as to principal 100% by FHA.
The allowance for loan losses stood at $3,980,918 or 3.52% of the amount of portfolio loans, excluding loans held for sale. Substandard assets including loans held for sale fell 62.6% during 2020 to $625,525, 1.2% of Tier 1 Capital at 12/31/2020. There was no other real estate owned at year-end.
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 $50,602,575 or $10.62 at 12/31/2020, up from $28,195,832 or $5.42 at 12/31/2019. Please note that we do not see this latter statistic as particularly useful or meaningful, as our assessment of the value of Midwest Loan Services and Ann Arbor Insurance Centre is far above book value plus the related goodwill and intangibles.
Net income was $7,963,197 for the three months ended December 31, 2020 or $1.60 on average shares outstanding of 4,987,195 for the period, versus net income of $1,262,448 or $0.24 on average shares outstanding of 5,204,899 for the same 2019 period.
Results in 4Q2020 were restrained by the typical seasonal mortgage origination slowdown as well as several notable items, which had an overall negative impact of $1,247,184, before income taxes.
- With the drop in long-term mortgage interest rates, the valuation of MSRs decreased by $819,301;
- An earn-out contingency related to the Huron Valley Financial acquisition was booked in the amount of $681,742, as discussed above;
- With the improved economic conditions, the allowance for loan losses was reduced by $250,047;
- The value of the hedged mortgage origination pipeline rose $3,812.
Results in 4Q2019 were restrained by the typical seasonal mortgage origination slowdown as well as several notable items, which had an overall negative impact of $594,511, before income taxes:
- The value of the hedged mortgage origination pipeline fell $894,529 as the amount of locked loans fell over the quarter due to the usual seasonal slowdown;
- With the rise in long-term mortgage interest rates, the valuation of MSRs increased by $300,018.
Results in 4Q2019 were negatively impacted by pre-tax losses in the amount of $937,215 at Midwest Loan Solutions, our wholesale lending subsidiary, as described above.
Total Assets at 12/31/2020 were $557,676,836 versus $612,755,757 at 9/30/2020, $538,958,851 at 6/30/2020, $390,463,093 at 3/31/2020, $361,956,924 at 12/31/2019, $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 at 12/31/2020 rose to 11.27% on net average assets of $464.1 million, from 11.17% at 9/30/2020 on net average assets of $424.5 million, 10.44% at 6/30/2020 on net average assets of $387.3 million, 10.59% at 3/31/2020 on net average assets of $283.8 million, 8.15% at 12/31/2019 on net average assets of $299.1 million, 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 12/31/2020 was $47,759,000, at 9/30/2020 was $43,108,000, at 6/30/2020 was $36,756,000, 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.
Cash & equity investment securities at the Company, available to meet working capital needs and investment opportunities at University Bank were $7,925,226. At 12/31/2020 the Company had no debt and one class of preferred stock outstanding convertible at $10 per share with a liquidation preference of $5,000,000.
Other key statistics as of 12/31/2020:
- 10-year annual average growth*, 57.0%
- 5-year annual average revenue growth*, 42.8%
- 1-year annual revenue growth*, 98.2%
- 5 Year Average ROE 34.8%
- LLR/NPAs>90 % 497.0%
- Debt to equity ratio, 0%
- Current Ratio,# 89.6x
- Efficiency Ratio, %+ 68.9%
- Loans Held for Sale, $187,181,609
- NPAs >90 days $804,762
- TTM ROA % 7.26%
- TCE/TA % 8.90%
- Total Capital Ratio % 12.00%
- NPAs/Assets % 0.11%
- Texas Ratio % 1.17%
- NIM % 3.36%
- NCOs/Loans % -0.016%
- Trailing 12 Months P-E Ratiox 2.8x
*Using 2020, 2019, 2018, 2017, 2016, 2015 and 2010 revenue which were $136,991,511, $69,112,502, $55,988,570, $54,493,179, $50,948,149, $43,644,425 and $20,437,724, 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 $15.41 per share.
Treasury shares as of 12/31/2020 were 441,381. During 2020, the Company paid a total of $3,994,498, or $9.05 per share to acquire 441,381 shares of the Company’s common stock, or 8.5% of the outstanding shares of common stock at 12/31/2019.
The audited financial statements are available on the Company website at: www.university-bank.com/bancorp-financial-statements/.
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: 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 $36 billion in financial assets for over 191,000 customers, and our over 560 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