SOURCE: University Bancorp

May 24, 2005 13:30 ET

University Bancorp Reports $163,865 1Q2005 Net Income

ANN ARBOR, MI -- (MARKET WIRE) -- May 24, 2005 -- University Bancorp, Inc. (NASDAQ: UNIB) reported unaudited net income of $163,865 for the first quarter of 2005, versus a net loss of $(184,528) for the same period in 2004. Basic and diluted (loss) earnings per share for the 2005 and 2004 periods were $0.04 and $(0.05), respectively.

Community Banking broke even during the current year's first quarter as opposed to a loss of $53,000 in the prior year. The reduced loss is attributed to management's actions to reduce operating expenses, improve the net interest margin and improve asset quality. Net interest income rose 29.8% in 2005 to $581,877 from $448,424 in 2004. Net interest margin rose to 5.01% in 2005 from 4.57% in 2004. Total non-performing assets dropped 54.1% to $713,449 in 2005 from $1,553,172 in 2004. Included in non-performing assets, other real estate owned dropped from $534,043 at December 31, 2004 to $435,512, however, of this amount all but approximately $23,500 of the remaining balances are under contract for sale with closings anticipated in the next 30 days for amounts that would result in gains of approximately $50,000.

Midwest Loan Services, reported net income of $150,000 in the first quarter of 2005 as opposed to a net loss of $115,000 in the same period in 2004. Midwest has increased servicing and origination income. Midwest's portfolio of mortgage subservicing grew 7.9% in the first quarter of 2005 to 19,670 loans from 18,233, and is now 20.7% higher than at the end of the first quarter of 2004. Mortgage rates as of March 31, 2005 were higher than at December 31, 2004. As a result, the value of the mortgage servicing rights portfolio held by Midwest increased to a point where previous charges for impairment were reduced by approximately $90,000. In the first quarter of 2004, management recorded an impairment in the mortgage servicing rights of $(156,000) due to a drop in mortgage rates during the quarter ended March 31, 2004.

The three month results are not necessarily indicative of future results. University Bank net income in 2005 is likely to include a projected gain of $750,000 anticipated from the relocation of its headquarters building this summer.

At March 31, 2005, the Bank was "adequately capitalized" according to the FDIC's classification with a Tier 1 leverage capital ratio of 6.50%. At April 30, 2005, the ratio was 7.01% and the Bank was then "well capitalized."

Subsequent to March 31, 2005, we received subscriptions for over $270,000 of 9%, seven year pay-in-kind preferred stock. Two hundred thousand dollars of the amount raised was invested into University Bank to raise its capital levels to support its ongoing growth. During the first quarter of 2005, we made the final $34,000 payment on our $1 million holding company loan which was then paid in full, and from the preferred stock offering and a small private placement of common stock we retained sufficient working capital at the Company to fund its expenses for the next twelve months without the need for any dividends from University Bank.

                                                For the
                                             Quarter Ended
                                               March 31,
                                               (in 000s)
                                            2005      2004

   Net interest income                  $    582   $    448
   Provision for loan losses                  15         22
   Total securities gains                      -         (1)
   Total other income                      1,023        964
   Total other expense                     1,426      1,574
   Income tax (benefit)                        -          -
   Net income (loss)                    $    164   $   (185)
   Basic and diluted income
    (loss) per common share             $   0.04   $  (0.05)
   Average shares outstanding              4,178      4,058
   Net interest margin                      5.01%      4.57%

   Period-end:                                 March 31,      December 31,
                                           2005       2004       2004
     Loans & Loans Held for Sale        $ 44,879   $ 36,575   $ 43,846
     Allowance for loan losses               350        522        353
     Deposits                             48,310     37,600     44,588
     Assets                               52,540     44,019     50,786
     Equity                                3,207      3,397      3,002
     Book value per share               $   0.77   $   0.84   $   0.73

      The following table summarizes the pre-tax (loss)/income of each
profit center of the Company for the Three months ended March 31, 2005 and
2004 Income (Loss) Summary

                                            2005       2004
   Community Banking                    $      -   $    (53)
   Midwest Loan Services                     150       (115)
   Corporate Office                           14        (17)
                                        --------   --------
   Total                                $    164   $   (185)
                                        ========   ========
Ann Arbor based University Bancorp owns 100% of University Bank which manages a total of $2.5 billion in assets. University Bank is an FDIC-insured, locally owned and managed Community Bank primarily serving the cities of Ann Arbor and Ypsilanti of Washtenaw County. The Community Banking operation focuses on local businesses, minorities and the non-profit communities. University Bank is the only financial institution headquartered in Washtenaw County to be rated "Outstanding" by the FDIC for Community Service and Community Reinvestment. Other Community Banking specialties include highly competitive deposit products for business owners, residential mortgages, commercial real estate lending and insurance, investments and money management through its wholly owned subsidiary University Insurance & Investments, Inc. In addition to its Community Banking operations, University Bancorp specializes in mortgage subservicing and mortgage origination primarily serving over 160 credit unions (representing 1.75% of all credit unions nationwide) through the Bank's Houghton-based 80%-owned subsidiary, Midwest Loan Services.

Any prediction of the future is inherently not assured. Investors should read the risk factors listed on pages 21 and 22 in the Company's report on Form 10K for the year ended December 31, 2004 and any prediction in this release is intended to be covered by the Safe Harbor provisions of Section 21E of the Securities Exchange Act of 1934.

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