Ann Arbor, Michigan, September 6, 2018, — University Bancorp, Inc. (OTCQB: UNIB) announced that it had an unaudited net income attributable to University Bancorp, Inc. common stock shareholders in 2Q2018 of $889,261, $0.171 per share on average shares outstanding of 5,200,899 for the second quarter, versus unaudited net income of $908,956, $0.175 per share on average shares outstanding of 5,200,899 for 2Q2017.
For the six months ended June 30, 2018, net income was $1,514,508, $0.291 per share on average shares outstanding of 5,200,899 for the period versus $1,808,979, $0.35 per share for the six months ended June 30, 2017 on average shares outstanding of 5,173,538 for the period. For the first three and six months of 2018 minority interest of $146,977 and $153,594, respectively, was incurred.
For the 12 months ended June 30, 2018, net income was $4,829,887, $0.929 per share on average shares outstanding of 5,200,899 for the period.
Results in 2Q2018 were restrained by four large non-recurring, unusual expenses not offset by any unusual gains, which had an overall negative cumulative impact of $(933,085), before tax:
- The value of the hedged mortgage origination pipeline fell $(455,606) as the amount of locked loans fell over the level held as of 3/31/2018. This was partly due to a benefit of the new Encompass Loan Origination System we put into place during the first quarter, which has decreased the length of time from origination to closing of our mortgage loans being originated;
- Two Midwest Loan Services lawsuits were settled out of court for a total of $(260,000);
- Obtaining the final ruling on an appeal related to the Guidance Residential litigation resulted in total legal costs of $(143,000). This litigation is now ended and the time for any further appeals has lapsed;
- With the fall in long term mortgage interest rates the valuation of mortgage servicing rights (MSRs) decreased $(74,479);
Results in 2Q2017 were restrained by large non-recurring, unusual expenses only partially offset by a seasonal gain, which had an overall negative cumulative impact of $(362,374), before tax:
- With the fall in long term mortgage interest rates during the quarter the valuation of mortgage servicing rights (MSRs) decreased $(373,692);
- Our board awarded compensation in lieu of board fees in the form of five year stock options and a ten year annually vesting retention stock option to the CEO, a total expense of $(213,667) on the 170,000 shares, at a strike price of $7 per share.
- The value of the hedged mortgage origination pipeline rose $224,985 as the amount of locked loans rose over the level at year-end.
For 1H2018, the Company had an annualized return on equity attributable to common stock shareholders of 13.0% on initial equity of $24,000,008. Return on equity over the trailing twelve months was 23.7% on initial equity of $20,346,408. Net income and net income per share over the trailing twelve months was $4,829,887 and $0.93, respectively.
Management currently projects budgeted annual net income in 2018 of at least $3,790,209 or $0.73 per share. This forecast takes our actual results for 1H2018, plus our original budget for the final two quarters of 2018, adjusted for all known major changes. It also assumes that none of our current business development activities are successful within 2018, which may be too cautious a view.
President Stephen Lange Ranzini noted, “2018 pre-tax profit through the end of June was $957,000 below budgeted levels, with the shortfall being due to the margins of the mortgage origination business being under budget in line with overall industry conditions, only partially offset by higher origination volumes, about $403,000 in legal expense, related to the final disposition of three lawsuits and $896,000 in losses at American Mortgage Solutions (AMS) above the budgeted levels due to delays in the restart of its correspondent origination business. AMS now appears to be on track to have better results in future periods. The mortgage subservicing business is performing very well with record profits and it has a large pipeline of prospective new clients. Most importantly, the management team has 30 business development projects that it is pursuing, each of which can make a material positive impact on our profitability going forward. Our biggest challenge right now is handling the volume of excellent business opportunities, deciding the prioritization of our limited project management bandwidth, and expanding our project management capacity. For example:
- The pipeline of interested mortgage subservicing prospects for our Midwest Loan Services division is the largest it’s been in years. Also we are making changes to the software of our core subservicing system that will enable us to offer home equity line of credit subservicing starting no later than March 2019 and have identified three initial customers for that new line of business.
- The turmoil in the mortgage banking industry is providing us with excellent recruitment opportunities of seasoned loan originators who fit our model. Our ULG retail lending business is seeing success in recruitment, especially Loan Officers focused on high margin Renovation & Construction to Permanent Lending and high margin FHA/VA/USDA lending programs.
- Our faith based lending division is continuing to develop additional markets in states that it has recently expanded into and will be expanding its business further by year-end.
- AAIC is expanding into additional states with niche products.”
Shareholders’ equity attributable to University Bancorp, Inc. common stock shareholders was 24,889,216 or $4.79 per share, based on shares outstanding at June 30, 2018 of 5,200,899.
In 1H2018, our residential mortgage origination groups originated $429.1 million of mortgages, versus $413.0 million in 1H2017, of which $290.5 million were originated by our retail origination group, University Lending Group, LLC (ULG), versus $269.5 million in 1H2017, $128.0 million were originated by our UIF unit, versus $115.0 million in 1H2017 and the remainder originated by our credit union and community bank correspondent origination group. Home purchase transactions originated during 1H2018 rose 11.8% at ULG and 21.1% at UIF over the 1H2017 level and 95% of our retail originations at ULG and 90% of our UIF originations in 1H2018 financed home purchase transactions.
Total Assets as of 6/30/2018 were $294,888,000, versus $255,647,000 at 3/31/2018, $226,823,000 at 12/31/2017, $263,830,000 at 9/30/2017, $269,775,000 at 6/30/2017, $235,232,000 at 3/31/2017, and $190,940,176 at 12/31/2016.
The Tier 1 Leverage Capital Ratio as of 6/30/2018 fell to 8.92% on net average assets of $208.1 million from 10.27% at 3/31/2018 on net average assets of $179.4 million, as the increase in mortgage production and temporary factors since resolved increased the size of the balance sheet. It was 10.60% at 12/31/2017 on net average assets of $190.0 million and 8.64% at 12/31/2016 on net average assets of $183.3 million. Basel 3 Common Equity Tier 1 Capital at 6/30/2018 was $17,537,000, at 3/31/2018 was $17,465,000, at 12/31/2017 was $19,352,000, and at 12/31/2016 was $14,215,000.
Basel 3 Total Risk Weighted Assets at 6/30/2018 were $144,618,000, at 3/31/2018 were $139,284,000, at 12/31/2017 were $159,683,000 and at 12/31/2016 were $96,908,000. Risk Weighted Assets will decline materially over the balance of 2018 due to improved contractual terms on the sale of our mortgage loans to secondary market investors.
The CET1 Risk Weighted Capital Ratio at 6/30/2018 was 12.13%, at 3/31/2018 was 12.54%, at 12/31/2017 was 12.12%, and at 12/31/2016 was 14.67%.
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. Issues flowing from the collapse of a homebuilder building two homes for our borrowers with a total loan balance of $825,833 that were delinquent at quarter-end were resolved and should be completed and the loans sold prior to year-end. Meanwhile however the loans are on non-accrual until the construction process ends. The bank had no foreclosed other real estate owned at quarter end. Due to the resolution of a third severely delinquent loan during the quarter, substandard assets fell during 2Q2018 to $972,205, 5.28% of Tier 1 Capital at 6/30/2018 (there is a fourth residential loan in the amount of $146,372 that is well secured but was 60 days delinquent at quarter-end). The allowance for loan losses stands at $389,729 or 0.70% of the amount of portfolio loans, excluding the loans held for sale.
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.
Other key statistics as of 6/30/2018:
- 10-year annual average revenue growth*, 29.9%
- 1-year annual revenue growth*, 5.4%
- 5 Year Average ROE 22.3%
- LLR/NPAs>90 % 56.9%
- Debt to equity ratio, 0%
- Current Ratio,# 50.7x
- Efficiency Ratio, %+ 92.3%
- Total Assets, $294,888,000
- Loans Held for Sale, before Reserves, $95,577,397
- NPAs >90 days $685,218
- TTM ROA % 2.33%
- TCE/TA % 7.83%
- Total Capital Ratio % 12.59%
- NPAs/Assets % 0.33%
- Texas Ratio % 4.14%
- NIM % 3.85%
- NCOs/Loans % -0.35%
- Trailing 12 Months P-E Ratiox 12.9x
*Using Trailing 12 month 1H2018 revenues which were $53,685,416, 2016 revenues which were $50,948,149 and 2008 revenues which were $13,449,856.
#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 the last sale of $11.99 per share.
Excluding goodwill & other intangibles (all 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 $24,432,121 or $4.70 per share at 6/30/2018. Please note that we do not see this latter statistic as particularly meaningful because the value of the insurance agency and Midwest Loan Services substantially exceed their carrying value including this goodwill, but we are asked for it.
Treasury shares as of 6/30/2018 were zero.
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 $21.2 billion in financial assets for over 125,000 customers, and our 391 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, also doing business as American Mortgage Solutions;
- 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.