-- Total assets increased by 35.2% to $87.27 million
-- Total loans subserviced increased by 25% to $4 billion
-- Mortgages subserviced increased by 24.2% to 32,461
-- Custodial escrow deposits increased by 82.3% to $25.77 million
-- Total deposits increased by 40.8% to $78.88 million
-- Portfolio loans and financings increased by 11.4% to $50.46 million
-- Net interest & financing income increased by 19.0% to $2.76 million
-- Nonperforming assets decreased by 44.3% to $348,817
Unfortunately, despite the progress on many metrics, the increase in
custodial escrow deposits did not occur until mid-December 2006 versus
management's originally budgeted planned date of March 31, 2006 and as a
result, the net income fell short of the budgeted amount, as each $1
million increase in custodial escrow deposits increases net income by
$45,000 per year. All of the custodial escrow deposits controlled by our
subsidiary, Midwest Loan Services, have been on deposit at University Bank
since mid-December 2006. In the first period of 2007, those custodial
escrow deposits have continued to increase and recently peaked at over $42
million, and as a result management projects substantially improved net
income results in 2007, with current estimates at or above the originally
budgeted net income of at least $1 million comprised of operating profit of
$770,000 and tax benefit of $260,000. Additional strong special fee income
from Midwest Loan Services of $1,000,000 is likely in the second quarter of
2007 and an investment banking fee of $1,000,000 is also possible sometime
during 2007. Lastly, it is likely during 2007 if and when these operating
results are achieved that management will reverse all or part of the tax
valuation allowance of $1,158,618 against our net deferred tax assets.
Investors' attention is drawn to the cautionary remark in the final
paragraph of this press release.
2006 results were also negatively impacted by the cost to restructure an
agreement with a consulting firm that has assisted us in the creation of
our Islamic Banking operations and products. In April 2006, the Company
agreed to modify the original agreement, under which University Islamic
Financial was to pay a share of revenue earned from all future mortgage
alternative products sold in the secondary market. University Islamic
Financial agreed to pay this company $100,000 in cash and the Company paid
100,500 shares of our common stock and stock options totaling 48,563 with a
strike price starting at $2.50 and increasing to $3.50 through June 30,
2015, to eliminate this provision in the agreement, as well as to acquire
the firm providing trustee services for some of the Islamic financings. By
modifying the agreement, the Company will materially reduce future expenses
related to the agreement. The total cost however reduced our net income by
a total of $260,844 in 2006 and $100,000 in 2005.
At December 31, 2006, the Bank's Tier 1 leverage capital ratio was 9.8%,
down from 12.2% at September 30, 2006 as the increased custodial escrow
deposits expanded the bank's balance sheet as planned.
(Unaudited)
For the For the
Quarter Ended Year Ended
December 31, December 31,
(in 000s) (in 000s)
2006 2005 2006 2005
Net interest & financing income $ 842 $ 612 $ 2,759 $ 2,320
Provision for loan & financing
losses 47 - 153 17
Total other income 1,186 2,793 4,468 5,891
Total other expense 2,053 1,627 7,496 6,305
Income tax (20) (100) (20) (100)
Net income (loss) $ (52) $ 1,878 $ (402) $ 1,989
Basic earnings
(loss) per common share $ (0.01) $ 0.46 $ (0.10) $ 0.48
Diluted earnings
(loss) per common share $ (0.01) $ 0.46 $ (0.10) $ 0.48
Average shares outstanding
Basic 4,248 4,144 4,223 4,147
Diluted 4,248 4,182 4,223 4,184
Net interest & profit margin 4.29% 4.47% 4.76% 4.89%
Period-end: December 31,
2006 2005
Loans & financings
including those held for sale $52,879 $47,099
Allowance for loan &
financing losses 466 349
Deposits 78,882 56,021
Assets 87,272 64,540
Equity 5,251 5,301
Book value per share $ 1.20 $ 1.24
The following table summarizes the pre-tax net income (loss) of each profit
center of the Company for the three and twelve months ended December 31,
2006 and 2005 (in thousands):
2006 Three Months Year
Community & Islamic Banking $ (690) $ (953)
Midwest Loan Services 777 1,016
Corporate Office and Eliminations (159) (485)
------- -------
Total $ (72) $ (422)
======= =======
2005 Three Months Year
Community & Islamic Banking $ 1,576 $ 1,361
Midwest Loan Services 206 646
Corporate Office and Eliminations (4) (118)
------- -------
Total $ 1,778 $ 1,889
======= =======
Note that the allocation of costs between Midwest Loan Services and
Community & Islamic Banking for the interest on custodial deposits of
Midwest Loan Services held on deposit at Community Banking skews the profit
of the individual units as Midwest earns interest on the escrow deposits
which is eliminated in consolidation, as the expense is an inter-company
expense among our two subsidiaries. Most of the eliminations are at the
University Bank level among University Bank, Midwest Loan Services and
Community & Islamic Banking.
Ann Arbor-based University Bancorp owns 100% of University Bank which
services a total of over $4.10 billion in loans. University Bank is an
FDIC-insured, locally owned and managed community bank, and is the only
financial institution headquartered in Washtenaw County rated "Outstanding"
by the FDIC for Community Service and Community Reinvestment. University
Bank focuses on local businesses, minorities and the non-profit communities
primarily serving the cities of Ann Arbor and Ypsilanti of Washtenaw
County. Other University Bank 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.
University Bank also engages in Islamic Banking through 80%-owned
University Islamic Financial Corporation, the first and only Islamic
Banking subsidiary of a bank in the U.S. University Islamic Financial
Corporation offers mortgage alternative financing, the only FDIC-insured
Islamic deposits (offered through University Bank) and Islamic equity
mutual funds (offered through University Insurance & Investments, Inc.).
University Bank also specializes in mortgage subservicing and mortgage
origination primarily serving over 270 credit unions (representing 2.8% of
all credit unions nationwide) through its 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 through 22 in the Company's report
on Form 10K for the year ended December 31, 2006 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.
Contact Information: Contact: Stephen Lange Ranzini President and CEO Phone: 734-741-5858, Ext. 226 Email: Email Contact