SOURCE: University Bancorp

August 15, 2008 09:05 ET

University Bancorp Reports 2Q2008 Results

ANN ARBOR, MI--(Marketwire - August 15, 2008) - University Bancorp, Inc. (NASDAQ: UNIB) reported unaudited net income available for common stockholders of $79,631 and $324,921 for the three and six months ended June 30, 2008 versus net income of $894,511 and $1,046,632 in the same periods of 2007. Basic and diluted earnings per share for the three and six months periods of 2008 were $0.02 and $0.08 and were $0.21 and $0.25, respectively in 2007, however the fully diluted earnings per share in the six months period in 2007 was $0.24.

Total assets rose 27.5% versus year-end 2007. Total deposits rose 31.1% versus year-end 2007. Mortgages subserviced rose 21.1% versus year-end 2007 to 41,118 and balances of over $5.25 billion.

Underlying profitability in the second quarter of 2008 was strong. Second quarter 2008 earnings were negatively impacted by start-up expenses related to our new wholesale FHA lending business, University Lending Group, of $379,000 during the quarter. In July 2008, ULG received its FHA eagle license and we expect that the business unit will be contributing substantial profit in the second half, more than offsetting the start-up expenses incurred to date during the remainder of 2008. We also booked a provision through the loan loss reserve of $217,000 for a commercial real estate loan that we foreclosed on in January 2008 and based on a new valuation, wrote down to current value. This was the only commercial construction loan in the bank and relates to a parcel of 41 acres of undeveloped land in Ann Arbor, now on the books for $418,994. The prior year earnings in the second quarter of 2007 were boosted by mortgage servicing termination fees net of related expenses of about $997,400.

President Stephen Lange Ranzini noted, "The fact that we could take unusual hits to earnings of almost $600,000 in the quarter and still make a respectable profit shows the strong underlying earnings of the bank. At the moment, we see few serious loan problems in our loan portfolio that would generate any loss and the Ann Arbor economy appears to have stabilized in the past few months."

At June 30, 2008, the Bank's Tier 1 leverage capital ratio was 8.3%, down from 9.2% at March 31, 2008 and 9.7% at December 31, 2007 as increased custodial escrow and Islamic deposits expanded the bank's balance sheet as planned. So far in 2008, the only commercial building and five of the six parcels of residential loans held as other real estate owned were sold including two for a total of $364,123 subsequent to quarter-end which were sold for a small gain. Overall, these sales of foreclosed real estate have been completed without a loss to the bank.

Taking advantage of the recent turmoil in the mortgage bond market University Bank in late March and early April purchased a total of $25.4 million in AAA rated U.S. Government Agency guaranteed bonds in the form of U.S. government agency issued collateralized mortgage obligations with an expected yield based on current consensus mortgage repayment rates of 6.02% and an average expected life of 0.92 years. The bonds were purchased with a mix of Fed Funds on hand and some borrowings from the Federal Home Loan Bank of Indianapolis at a blended cost of the funds of 2.05% and assuming no substantial changes in the interest rate curve and that mortgage prepayment speeds for the mortgage underlying the securities pay at current consensus, would generate additional annualized earnings at the rate of $1,005,000 per year declining over time as the securities prepay or an estimated $768,000 in additional net income over the next 12 months. The bank's average monthly balance sheet was expanded by about 11% as a result of the transactions and the bank's securities portfolio now represents about 25.5% of its assets, which is more in line with peer group levels.

During the second quarter, the bank's Islamic Banking unit saw greatly increased levels of residential financing applications and closings. May 2008 was the highest closing month ever, with $4.88 million in residential closings. In June 2008, over $11 million in residential applications were taken. The first commercial real estate financing was also closed during the quarter and additional closings are scheduled in the third quarter. Islamic deposits continued to see strong growth. Islamic residential documents are now finalized and as of early July 2008 applications through the website are available in the following 11 states: Michigan, Indiana, Ohio, Virginia, Maryland, New Jersey, New York, Texas, Illinois, Connecticut and California and we have staffed offices in Michigan, Virginia and New Jersey.

The following table summarizes the pre-tax net income (loss) of each profit center of the Company for the three and six months ended June 30, 2008 (in thousands):

                                                Three-Months   Six-Months
   Community and Islamic Banking                $       (213) $       (524)
   Midwest Loan Services                                 497         1,080
   University Lending Group                             (379)         (379)
   Corporate Office                                      (14)          (29)
   Eliminations                                          176           156
                                                ------------  ------------
   Total                                        $         67  $        304
                                                ============  ============

The following table summarizes the pre-tax income (loss) of each profit center of the Company for the three and six-months ended June 30, 2007 (in thousands):

                                                Three-Months   Six-Months
   Community and Islamic Banking                $       (485) $       (781)
   Midwest Loan Services                               1,635         2,179
   University Lending Group                                -             -
   Corporate Office                                      (22)          (37)
   Eliminations                                         (203)         (276)
                                                ------------  ------------
   Total                                        $        925  $      1,085
                                                ============  ============

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; 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, Community & Islamic Banking and University Lending Group.

(Unaudited) financial results for the Quarter Ended June 30 (in 000s)
                                    Three months ended   Six months ended
                                    ------------------  ------------------
                                      2008        2007      2008      2007
                                    ------------------  ------------------
Net interest & financing income     $ 1,084      $ 814  $  1,955   $ 1,688
Provision for loan &
 financing losses                       305         54       289        76
Change in fair value of
 trading securities                     (53)         -       (43)        -
Total other income                    1,900      2,431     3,300     3,693
Total other expense                   2,736      2,064     4,776     3,944
Minority interest in
 consolidated subsidiaries’
 earnings (loss)                       (176)       202      (156)      276
Income tax benefit (expense)             25        (20)       45       (20)
Net income                          $    91      $ 905  $    348   $ 1,065
Preferred stock dividends                11         10        23        18
Net income available for
 common stockholders                $    80      $ 895  $    325   $ 1,047
Basic earnings per common share     $  0.02      $0.21  $   0.08   $  0.25
Diluted earnings per common share   $  0.02      $0.21  $   0.08   $  0.24
Average shares outstanding
  Basic                               4,255      4,248     4,252     4,248
  Diluted                             4,289      4,287     4,288     4,287
Net interest & profit margin           4.67%      4.61%     4.47%     4.79%

                       Period End:                   June 30,  December 31,
                                           2008          2007          2007
Loans & financings including those
 held for sale                     $     60,727  $     57,468  $     60,063
Allowance for loan & financing
 losses                                     321           520           686
Deposits                                103,077        77,156        78,657
Assets                                  112,541        86,841        88,238
Equity                                    6,045         6,395         5,984
Book value per common share        $       1.30  $       1.39  $       1.29

Ann Arbor-based University Bancorp owns 100% of University Bank which, together with its subsidiaries, holds and manages a total of $5.4 billion in loans and assets. 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 through its creative and innovative services to meet the financial needs of its community. 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 offers residential and commercial real estate financing, the only FDIC-insured Islamic deposits (offered through University Bank) and Islamic equity mutual funds (offered through University Insurance & Investments). University Bank also specializes in mortgage subservicing and mortgage origination primarily serving over 250 credit unions (representing 2.6% of all credit unions in the U.S.) through its Houghton-based 80%-owned subsidiary, Midwest Loan Services, Inc. University Insurance & Investment Services is a 100%-owned subsidiary that provides a full range of insurance services as an independent agent for 49 insurance companies and investment brokerage account services. University Lending Group is a Farmington Hills-based 50.01%-owned subsidiary that originates HUD's FHA and VA and other mortgage loans on a wholesale and retail basis.

Any prediction of the future is inherently not assured. Investors should read the risk factors listed on pages 23 through 24 in the Company's report on Form 10K for the year ended December 31, 2007 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