University Bancorp 2Q2016 Net Income $991,934 $0.194 per Share


ANN ARBOR, MI--(Marketwired - September 06, 2016) - University Bancorp, Inc. (OTCQB: UNIB) announced that it had an unaudited net income attributable to University Bancorp, Inc. common stock shareholders in 2Q2016 of $991,934, $0.194 per share on average shares outstanding of 5,100,899 for the second quarter, versus an unaudited net income of $2,184,026, $0.427 per share on average shares outstanding of 5,118,302 for 2Q2015. For the second quarter of 2016 minority interest (loss) of ($26,848) was incurred.

Unaudited net income attributable to University Bancorp, Inc. common stock shareholders for the first half of 2016 was $767,037, $0.150 per share on average shares outstanding of 5,100,899 for the first half, versus an unaudited net income of $2,251,890, $0.445 per share on average shares outstanding of 5,059,846 for 1H2016.

Results in 1H2016 were restrained by a single large non-recurring, unusual expense only partially offset by an unusual gain, which had an overall negative cumulative impact of $(1,898,547), before tax:

Unusual expense:

1. With the fall in long term mortgage interest rates the valuation of mortgage servicing rights (MSRs) decreased $2,720,870;

Unusual gain:

2. The value of the hedged mortgage origination pipeline rose $822,323 as the amount of locked loans rose over the level at year-end;

Results in 1H2015 were impacted by several non-recurring, unusual gains net of unusual expenses, which had an overall positive cumulative impact of $355,045, before tax:

Unusual expenses:

1. Legal fees at UIF were $524,000 due to the now completed trial and follow-up motions related to litigation related to a competitor;

Unusual gains:

2. With the rise in long term mortgage interest rates the valuation of mortgage servicing rights (MSRs) increased $94,883;

3. The value of the hedged mortgage origination pipeline rose $552,439 as the amount of locked loans rose over the level at year-end;

4. Provision for loan losses fell by $132,584 due to a lower projection of loan losses from Invictus in the event of a CCAR Test style depression and improved asset quality;

5. A recovery of foreclosure expenses advanced in 2010 from FHLMC of $99,139.

For 1H2016, the Company had a return on equity attributable to common stock shareholders of 10.4% on initial equity of $14,049,724. Return on equity over the trailing twelve months was 11.9% on initial equity of $13,922,376.

Management currently projects budgeted annual net income in 2016 of at least $3,400,000 or $0.68 per share. This forecast takes our actual results for 1H2016, the actual and estimated results in the 3Q2016 plus our original budget for the final quarter of 2016, adjusted for all known major changes. The re-forecast assumes no change in mortgage interest rates from current levels, which would result in a mark to market gain on our mortgage servicing rights of at least $1,000,000 in September.

President Stephen Lange Ranzini noted, "The 1H2016 result for profitability was very good after taking into account the $2.72 million negative mark to market on our mortgage servicing rights. In addition, we had growth in purchase related mortgage originations during the quarter, with June setting a new monthly all-time record for closings and applications and we ended the quarter with an all-time record level of locked and hedged loans pending closing. Mortgage origination volumes have been ahead of the budget in 3Q2016. Much was accomplished during the first half: we paid our first cash dividend to our shareholders in the amount of $0.107 per share and during the second quarter we issued a $2.5 million permanent capital note at a rate of 5.75%. We were proud to be noted by American Banker newspaper as the top performing publicly traded bank in the entire United States in 2015, based on our return on average equity of 25.21%, following three years, 2012-2014, when we were ranked #2 nationally."

With the implementation of the new Basel 3 Capital Rules and a rise in average assets due to increased mortgage originations, the Tier 1 Leverage Capital Ratio fell to 8.54% at 6/30/2016 on net average assets of $162.5 million, from 8.75% at 3/31/2016 on net average assets of $141.2 million, 8.93% at 12/31/2015 on net average assets of $135.4 million, 10.34% at 9/30/2015 on net average assets of $132.7 million, 9.66% at 6/30/2015 on net average assets of $133.4 million, and 10.12% at 3/31/2015 on net average assets of $106.9 million, versus 12.77% at 12/31/2014 on average assets of $104.9 million using the old Basel 2 Capital Rules. We are seeking regulatory approval to count the recently issued Permanent Capital Note in Tier 1 Capital and are pursuing a sale of Mortgage Servicing Rights in the current quarter. Due to recent recruitment success in hiring proven mortgage loan originators at ULG, we currently anticipate above budgeted mortgage origination levels in 4Q2016 and higher closings in 2017. Taking into account these actions, the Tier 1 Leverage Capital Ratio is projected to be 11.10% at 12/31/2016, if we achieve our 2016 re-forecasted budget projection, but does not reflect payment of additional dividends or stock buybacks during 2016, both of which are possible. Basel 3 Common Equity Tier 1 Capital at 6/30/2016 was $12,420,000, at 3/31/2015 was $10,900,000, at 12/31/2015 was $10,584,000, at 9/30/2015 was $12,258,000, at 6/30/2015 was $11,413,000, and at 3/31/2015 was $9,412,000. Basel 3 Total Risk Weighted Assets at 6/30/2016 were $97,416,000, at 3/31/2016 were $82,481,000, at 12/31/2015 were $74,775,000, at 9/30/2015 were $83,210,000, at 6/30/2015 were $90,790,000, and at 3/31/2015 were $86,927,000. The CET1 Risk Weighted Capital Ratio at 6/30/2016 was 12.75%, at 3/31/2016 was 13.22%, at 12/31/2015 was 14.15%, at 9/30/2015 was 14.73%, at 6/30/2015 was 12.57%, and at 3/31/2015 was 10.83%.

Shareholders' equity attributable to University Bancorp, Inc. common stock shareholders was $15,053,221 or $2.951 per share, based on shares outstanding at June 30, 2016 of 5,100,899, after payment of the $0.107 per share dividend in 1Q2016.

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 $14,446,224 or $2.832 per share at 6/30/2016. (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 6/30/2016 were zero.

Total Assets as of 6/30/2016 were $216,976,000 versus $194,934,000 at 3/31/2016, $182,458,912 at 12/31/2015, $159,769,000 as of 9/30/2015, $166,589,000 as of 6/30/2015, $132,715,000 as of 3/31/2015 and $120,976,779 as of 12/31/2014.

Michigan and the Ann Arbor MSA continue to increase employment and as a result, our overall asset quality continues to remain at excellent levels and we are experiencing low loan delinquencies. We had only one foreclosed real estate ORE property at 6/30/2016: a residential home with a carrying value of $71,000, and three substandard loans totaling $882,053 well secured by real estate. The allowance for loan losses stands at $412,387 or 0.68% of the amount of portfolio loans, excluding the loans held for sale. Due to the addition of one well secured substandard loan, substandard assets rose 25.6% during 2Q2016 to $953,053, 7.88% of Tier 1 Capital at 6/30/2016.

In 1H2016, our residential mortgage origination groups originated $373.5 million of mortgages, of which $216.8 million were originated by our retail origination group, University Lending Group, LLC (ULG), $103.0 million were originated by our UIF unit, and the remainder originated by our credit union and community bank correspondent mortgage origination group. Purchase transactions originated during 1H2016 rose 12% at ULG and 13% at UIF over the 1H2015 level and 86% of our ULG and 75% of our UIF originations in 1H2016 financed home purchase transactions.

Liquidity remains excellent. We manage an average of $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), which are available to us to meet any withdrawals in just a few minutes, and on which we earn interest at Fed Funds rate.

Other key statistics as of 6/30/2016:

  • 5-year annual average revenue growth*, 21.7%
  • 1-year annual revenue growth*, 1.6%
  • 5 Year Average ROE 16.1%
  • LLR/NPAs>90 % 580.8%
  • Debt to equity ratio, 0%
  • Current Ratio,# 1.53x
  • Efficiency Ratio, %+ 86.3%
  • Total Assets, $216,976,000
  • Loans Held for Sale, before Reserves, $74,866,974

*Using Trailing 12 month 1H2016 sales which were $44,331,849, 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)).

  • NPAs >90 days $0
  • TTM ROA % 1.22%
  • TCE/TA % 6.79%
  • Total Capital Ratio % 10.56%
  • NPAs/Assets % 0.44%
  • Texas Ratio % 6.30%
  • NIM % 3.07%
  • NCOs/Loans % -0.008%
  • Trailing 12 Months P-E Ratiox 21.0

xBased on last sale of $6.80 per share and $0.324 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, holds and manages a total of over $18 billion in financial assets for over 110,000 customers, and our 374 employees make us the 9th 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 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 Farmington Hills, MI;
  • Community Banking, based in Ann Arbor, MI, which provides traditional community banking services in the Ann Arbor area;
  • 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.

Contact Information:

Contact:
Stephen Lange Ranzini
President and CEO
Phone: 734-741-5858, Ext. 9226