Ann Arbor, Michigan, December 4, 2017, — University Bancorp, Inc. (OTCQB: UNIB) announced that it had an unaudited net income attributable to University Bancorp, Inc. common stock shareholders in 3Q2017 of $844,103; $0.162 per share on average shares outstanding of 5,200,899 for the third quarter, versus an unaudited net income of $1,500,414, $0.294 per share on average shares outstanding of 5,100,899 for 3Q2016. For the third quarter of 2017 minority interest income (loss) was ($28,292).
Unaudited net income attributable to University Bancorp, Inc. common stock shareholders for the first nine months of 2017 was $2,653,081, $0.512 per share on average shares outstanding of 5,182,658 for the first nine months, versus an unaudited net income of $2,267,451, $0.445 per share on average shares outstanding of 5,100,899 for 9M2016.
In the first nine months of 2017, net income of the Company was decreased by four large non-recurring, unusual expenses, only partially offset by a seasonal factor, which had an overall negative cumulative impact of $(1,255,487), before tax:
- With the decline in long term mortgage interest rates the valuation of mortgage servicing rights (MSRs) decreased by $834,241;
- A litigation was settled at an early stage for $75,000;
- 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.
- Implementation costs related to the adoption of a new mortgage loan origination system in the amount of $271,250 were charged against income.
- The value of the hedged mortgage origination pipeline rose $138,671 as the amount of locked loans rose over the level at year-end due to seasonal factors and record mortgage production levels.
In the first nine months of 2016, net income of the Company was decreased by two large non-recurring, unusual expenses, only partially offset by a seasonal factor, which had an overall negative cumulative impact of $(1,899,004), before tax:
- With the decline in long term mortgage interest rates the valuation of mortgage servicing rights (MSRs) decreased by $2,607,707;
- Litigation expense related to the Guidance lawsuit and appeal of $358,001. The bank recently won an initial ruling from the appeals court related to the scope of our appeal. We have paid the full amount of the judgment and all legal costs and if the judgment is reduced upon appeal, would receive a recovery. The appeal was heard in early October 2017, however no ruling has yet been issued by the appeals court.
- The value of the hedged mortgage origination pipeline rose $1,066,704 as the amount of locked loans rose over the level at year-end due to seasonal factors and record mortgage production levels.
For 9M2017, the Company had a return on equity attributable to common stock shareholders of 19.6% annualized on initial equity of $18,075,835. Return on equity over the trailing twelve months was 25.3% on initial equity of $16,555,242.
Management currently projects budgeted annual net income in 2017 of at least $3,220,000 or $0.62 per share. This forecast takes our actual results for 9M2017 and the actual and estimated results in the 4Q2017 based on our original budget, adjusted for all known major changes. The re-forecast assumes no change in mortgage interest rates from current levels.
President Stephen Lange Ranzini noted, “The 9M2017 result for profitability was very good, despite elevated expenses flowing from origination process improvement projects that are expected to complete early next year. One of our three mortgage origination divisions is already live this week with the new loan origination system. In addition to strong profitability at our subservicing division we had strong year over year growth in purchase related mortgage originations and we had 1-year annual revenue growth of 29.1%. Towards the end of the third quarter we saw some slowing of our mortgage origination business, which we continue to see in the fourth quarter of 2017.” Management and our staff are hard at work on implementing various business development initiatives which will expand our mortgage origination product suite including the re-launch of an expanded suite of products for our correspondent business and additional products for our retail channel, and add new insurance agency relationships allowing our insurance agency to expand its business. In addition, we are seriously exploring expanding our long standing strategic partnership with MasterCard by upgrading to become a Principal Member in support of a project that could have a materially positive impact on the bank if we decide to proceed with it. All of these projects if successful or moved forward we anticipate will increase earnings in 2018; conversely they have had some negative earnings impact in the second half of 2017 and that is taken into account in the revised earnings forecast.
Earlier this month a real estate subsidiary of the bank’s insurance agency completed the sale of a small building that will result in a $600,000 gain in the fourth quarter. We closed today on the purchase of a building two doors down the street which will be used to support the bank’s back office and insurance agency operations. The building, purchased for $2,370,000 or $99 per ft2, is a modern three story office building in Ann Arbor near the Ann Arbor freeway ring with 24,000 ft2 of office space.
Under the Basel 3 Capital Rules, the bank’s Tier 1 Capital was $17.9 million at 9/30/2017, and the Tier 1 Leverage Capital Ratio rose to 9.20% on net average assets of $194.7 million, from 9.17% at 6/30/2017 on net average assets of $185.1 million, 9.02% at 3/31/2017 on net average assets of $161.9 million, and was 8.64% at 12/31/2016 on net average assets of $183.3 million, 8.94% at 9/30/2016 on net average assets of $171.6 million, 8.75% at 3/31/2016 on net average assets of $141.2 million, and 8.93% at 12/31/2015 on net average assets of $135.4 million.
The Bank’s Tier 1 Capital is projected to be $22 million and the Tier 1 Leverage Capital Ratio 11.89% at 12/31/2017, if we achieve our 2017 re-forecasted budget projection, which assumes that mortgage originations will continue at budgeted levels for the rest of the year and a pending regulatory change is adopted on schedule. This change to the original Basel 3 Capital Rules, when adopted, will add back $3.5 million of Tier 1 Capital previously written off under the original Based 3 Capital Rules, or a 19.5% increase in the Bank’s Tier 1 Capital as of 9/30/2017, a materially positive development. The regulators have signaled their intent to adopt the rule as of 12/31/2017.
Basel 3 Common Equity Tier 1 Capital at 9/30/2017 was $17,146,000, at 6/30/2017 was $16,161,000, at 3/31/2017 was $13,865,000, at 12/31/2016 was $14,215,000, at 9/30/2016 was $13,859,000, at 3/31/2016 was $10,900,000, and at 12/31/2015 was $10,584,000.
Basel 3 Total Risk Weighted Assets at 9/30/2017 were $153,846,000, at 6/30/2017 were $132,889,000, at 3/31/2017 were $92,168,000, at 12/31/2016 were $96,908,000, at 9/30/2016 were $102,272,000, 3/31/2016 were $82,481,000 and at 12/31/2015 were $74,775,000.
The CET1 Risk Weighted Capital Ratio at 9/30/2017 was 11.14%, at 6/30/2017 was 12.16%, at 3/31/2017 was 15.04%, at 12/31/2016 was 14.67%, at 9/30/2016 was 13.55%, at 3/31/2016 was 13.22%, at and 12/31/2015 was 14.15%.
Shareholders’ equity attributable to University Bancorp, Inc. common stock shareholders was $21,188,576 or $4.07 per share, based on shares outstanding at September 30, 2017 of 5,200,899.
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 $20,672,195 or $3.975 per share at 9/30/2017. Please note that we do not see this latter statistic as particularly useful or 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 this number. Treasury shares as of 9/30/2017 were zero.
Total Assets as of 9/30/2017 were $263,830,000 versus $269,775,000 at 6/30/2017, $235,232,000 at 3/31/2017, $190,940,176 at 12/31/2016, $246,524,231 at 9/30/2016, $216,976,000 at 6/30/2016, $194,934,000 at 3/31/2016 and $182,458,912 at 12/31/2015.
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. We had one loan delinquent over 30 days at 9/30/2017, a commercial real estate loan carried at $166,000. The allowance for loan losses stands at $415,895 or 0.67% of the amount of portfolio loans, excluding the loans held for sale. Substandard assets fell 47.3% during 3Q2017 to $315,142, 1.99% of Tier 1 Capital at 9/30/2017. The only parcel of foreclosed other real estate owned by the Bank, a single family home, was sold during the quarter at an amount exceeding the carrying value.
In 9M2017, our residential mortgage origination groups originated $635.3 million of mortgages, of which $418.3 million were originated by our retail origination group, University Lending Group, LLC (ULG), $179.4 million were originated by our UIF unit, and the remainder originated by our credit union and community bank correspondent origination group. Home purchase transactions originated during 9M2017 rose 11.9% at ULG and 23.9% at UIF over the 9M2016 level and 91% of our retail originations at ULG and 87% of our UIF originations in 9M2017 financed purchase transactions.
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 (FHLBI) on which we earn interest at the Fed Funds rate minus 15 basis points.
Other key statistics as of 9/30/2017:
- 5-year annual average revenue growth*, 33.0%
- 1-year annual revenue growth*, 29.1%
- 5 Year Average ROE 18.8%
- LLR/NPAs>90 % 250.5%
- Debt to equity ratio, 0%
- Current Ratio,# 4.52x
- Efficiency Ratio, %+ 90.7%
- Total Assets, $263,830,000
- Loans Held for Sale, before Reserves, $68,625,020
- NPAs >90 days $166,000
- TTM ROA % 1.89%
- TCE/TA % 7.87%
- Total Capital Ratio % 12.10%
- NPAs/Assets % 0.12%
- Texas Ratio % 1.49%
- NIM % 2.56%
- NCOs/Loans % 0.25%
- Trailing 12 Months P-E Ratiox 9.0x
*Using Trailing 12 month 9M2016 sales which were $56,342,150, 2015 sales which were $43,644,425 and 2011 sales which were $21,280,296.
#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 $7.272 per share and $0.812 per share of net income for the TTM.
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, as of 9/30/2017 held and managed a total of over $20.2 billion in financial assets for over 120,000 customers, and our 395 employees made 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;
- 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 changes in assets, pre-tax income, net income and budgeted income levels, the sustainability of past results, 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, technological and legal 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.