ANN ARBOR, MI University Bancorp, Inc. (OTCQB:UNIB) announced that it had an unaudited net income attributable to University Bancorp, Inc. common stock shareholders in 2Q2019 of $622,269, $0.12 per share on average shares outstanding of 5,202,899 for the second quarter. Net income for the quarter was adversely impacted by a decrease in the valuation of mortgage servicing rights (MSRs) due to declining interest rates and by the cost of starting our residential mortgage correspondent origination business unit (AMS). For 2Q2018 unaudited net income was $889,261, $0.17 per share on average shares outstanding of 5,200,899. For the 12 months ended June 30, 2019, net income was $602,499, $0.116 per share on average shares outstanding of 5,202,406 for the period. For the second quarter of 2019 minority expense of $9,643 was incurred related to the minority investor which owns 20% of our UIF subsidiary.
Shareholders’ equity attributable to University Bancorp, Inc. common stock shareholders was $25,315,086 or $4.87 per common share, based on 5,202,899 common shares outstanding at June 30, 2019.
Management believes that revenue and net income for the third and fourth quarters of 2019 will improve compared to the second quarter of 2019 and be favorably impacted by:
Future net income may be negatively affected by additional write-downs on the value of MSRs that management anticipates as result of interest rate declines in the third quarter of 2019.
President Stephen Lange Ranzini noted, “We continue to invest in building our business and these substantial investments and other unusual factors restrained our profitability in the second quarter. Based on current business activity, we anticipate improving profits for the rest of 2019, as we begin to benefit from our investments.”
During the second quarter we made significant progress with several key initiatives that had a short term cost but which we believe will have a positive impact on future results:
Results in 2Q2019 were positively affected by a seasonal factor and an unusual gain, which were more than offset by two unusual expenses, which had an overall negative cumulative impact of $(1,614,460), before tax:
Results in 2Q2018 were negatively affected by four large non-recurring expenses not offset by any unusual gains, which had an overall negative cumulative impact of $(933,085), before tax:
Mortgage origination volumes rose 8.5% in the first half of 2019 (1H2019), with strong volumes at UIF (up 32.7%) and AMS (up 104.4% from a very low base), where overall margins are lower, only partially offset by a 5.8% decline at ULG, which is more focused on FHA and VA lending, where margins are higher. A slowness in our mortgage business continued through the end of 1Q2019, April results were slightly ahead of April 2018, and our mortgage businesses accelerated in May and our mortgage closings then had three monthly records. Closings during a month exceeded $100 million for the first time ever in May with $104.7 million, followed by a new record in June of $120.6 million, in July we had $120.1 million and in August we closed $136.0 million.
In 1H2019, our residential mortgage origination groups originated $465.4 million of mortgages, of which $273.8 million were originated by our retail origination group, University Lending Group, LLC (ULG), $169.8 million were originated by our UIF unit, and $21.8 million by our wholesale correspondent origination group (AMS). Home purchase transactions originated during 1H2019 fell 9.1% at ULG and rose 34.0% at UIF over the 1H2018 level and 91.3% of our retail originations at ULG and 90.8% of our UIF originations in 1H2019 financed home purchase transactions.
For 1H2019, the Company had an annualized return on equity attributable to common stock shareholders of -0.5% on initial equity of $25,189,720. Return on equity over the trailing twelve months was 2.4% on initial equity of $24,889,216.
Total Assets as of 6/30/2019 were $325,631,000 versus $266,905,000 at 3/31/2019, $247,024,330 at 12/31/2018, $255,647,000 at 3/31/2018 and $245,885,002 at 12/31/2017.
The Tier 1 Leverage Capital Ratio fell to 8.39% on net average assets of $232.1 million, from 9.43% at 3/31/2019 on net average assets of $191.9 million, 9.41% at 12/31/2018 on net average assets of $199.8 million, 10.27% at 3/31/2018 on net average assets of $179.4 million and 10.60% at 12/31/2017 on net average assets of $190.0 million.
Basel 3 Common Equity Tier 1 Capital at 6/30/2019 was $18,292,000, at 3/31/2019 was $17,100,000, at 12/31/2018 was $17,789,000, at 3/31/2018 was $17,465,000, and at 12/31/2017 was $19,352,000. The FDIC recently finalized a revision to the Basel 3 Capital Rules that changes the capital charges for carrying MSRs and which allows the inclusion of some minority interest in Tier 1 Capital. When this rule becomes effective on 4/1/2020, the Bank’s Tier 1 Capital is projected to rise by $3 million.
Basel 3 Total Risk Weighted Assets at 6/30/2019 were $171,567,000, at 3/31/2019 were $128,001,000, at 12/31/2018 were $114,021,000, at 3/31/2018 were $139,284,000, and at 12/31/2017 were $159,683,000. With recent changes negotiated with loan correspondents, risk weighted assets will moderate by year-end despite the increased level of mortgage originations.
The Common Equity Tier 1 Risk Weighted Capital Ratio at 6/30/2019 was 10.66%, at 3/31/2019 was 13.36%, at 12/31/2018 was 15.60%, at 3/31/2018 was 12.54%, and at 12/31/2017 was 12.12%.
Cash & marketable securities at the Company, available to meet working capital needs and investment opportunities at University Bank were $5,802,922. The Company has no debt and a class of convertible preferred stock outstanding with a liquidation preference of $5,000,000.
Liquidity remains excellent. Midwest Loan Services controls an average balance of $322.2 million of mortgage escrow deposits under long term contracts, and we manage an average of over $150 million of deposits in an off-balance sheet sweep arrangement through a series of deposit accounts at the Federal Home Loan Bank of Indianapolis on which we earn interest just under the Fed Funds rate.
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. Including one residential foreclosed other real estate owned property carried at $70,586 at quarter-end, substandard assets rose during 2Q2019 to $1,074,189, 5.52% of Tier 1 Capital at 6/30/2019. The allowance for loan losses stands at $670,567 or 0.84% of the amount of portfolio loans, excluding the loans held for sale.
Treasury shares as of 6/30/2019 were zero.
Other key statistics as of 6/30/2019:
*Using Trailing 12 month 1H2019 sales which were $29,958,200, 1H2018 sales which were $28,845,521, 2018 sales which were $55,988,570 and 2013 sales which were $38,856,573.
#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 $7.80 per share.
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 $24,923,205 or $4.79 per share at 6/30/2019. Please note that we view the current market values of our insurance agency and Midwest Loan Services as substantially in excess of their carrying value including this goodwill. In June, management uploaded an updated version of its valuation model to the corporate investor relations web page, which investors may use to customize their own views of the values of the business units owned by the Company.
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 $24 billion in financial assets for over 136,000 customers, and our over 470 employees make 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:
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 growth in assets, pre-tax income and net income, budgeted income levels, the sustainability of past results, mortgage origination levels and margins, valuations, 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 and technological 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. We undertake no obligation to update any information or forward-looking statement.