ANN ARBOR, MI / ACCESSWIRE / May 14, 2024 / University Bancorp, Inc. (OTCQB:UNIB)("UNIB") announced that it had audited net income of $6,799,619 in 2023, of which $5,426,558 was attributable to UNIB common stockholders, $1.07 per share on average shares outstanding of 4,936,751 for the year, versus audited net income of $4,212,873 in 2022, of which $3,789,400 was attributable to UNIB common stockholders, $0.74 per share on average shares outstanding of 4,919,463 for 2022.
For 2023, UNIB had a return on equity attributable to common stock shareholders of 6.9% on initial equity attributable to common stock shareholders of $78,683,525. Return on equity attributable to common stockholders in 2022 was 4.9% on initial equity of $77,004,042. Shareholders' equity attributable to UNIB common stock shareholders at December 31, 2023 was $83,970,376 (excluding minority interest of $10,610,825), or $16.24 per share, based on common shares outstanding at December 31, 2023 of 5,169,518, up from $15.96 per share at the end of 2022. Pursuant to its terms, the $2.4 million of UNIB's outstanding 6% Series 5 Preferred Stock was converted into 240,000 shares of common stock in December 2023 at $10 per share.
Net income in both 2022 and 2023 were negatively impacted by low profitability industrywide in the residential mortgage origination business units of University Bank. The Mortgage Bankers Association reports that 64% of the industry in the U.S. lost money last year and 78% of the industry lost money last year if income from the ownership of Mortgage Servicing Rights is excluded.
Due to a shift in market opportunities, with the yields on mortgage loans rising sharply above the industry's cost of funds, the bank has retained more of its over a billion dollars of annual mortgage originations in recent years (the bank originated $1.2 billion of mortgage loans in 2023 and $1.5 billion in 2022), with portfolio loans held for investment at University Bank rising from $103.8 million at 12/31/2020 to $733.8 million at 12/31/2023. This has led to a rapid rise in the bank's net interest margin to almost $3 million per month from the previous level of about $1 million a month. In the short term, however, the bank did not earn upfront gains on sale from these $630 million in residential loans that went into portfolio and were not sold into the secondary market, and incurred all the expense of originating those mortgage loans, which was about $19.8 million, negatively impacting income (the industry average cost of originating a mortgage loan in 2023 according to the Mortgage Bankers Association was 3.66% of the loan balance, however our cost is a bit lower at 3.14%). The residential mortgages held in portfolio are with few exceptions adjustable-rate mortgages, either 1st Mortgage Home Equity Lines of Credit that adjust at a spread over an index every six months, or 7/6 adjustable-rate mortgages that have a fixed rate for 7 years and then adjust every six months. The latter have been match funded with institutional deposits that mature in 4-5 years, and which cannot be withdrawn prior to maturity.
President Stephen Lange Ranzini noted, "Considering the 30-year low in mortgage origination units, our 2023 results were outstanding. We have put into place several key projects that should result in higher earnings in 2024 and future years. University Bank is now licensed to originate mortgage loans in 48 states and the District of Columbia and by the end of June 2024 we will have all the complaint document sets built for our whole suite of mortgage origination products in every state nationwide.
In 2023 UNIB also opted to be designated as a Financial Holding Company, which gives us a greater range of investment and business development options. We used this authority in early 2023 to establish a Captive Insurance Company owned by UNIB, chartered in Washington DC, Crescent Assurance, PCC. This firm was profitable in its first year of operation. Our faith-based business, UIF, successfully launched a vehicle financing product, expanded its core products into additional states, and UIF also successfully introduced a term deposit and savings account product with these faith-based deposits held at University Bank. University Bank and UNIB have regulatory approval and are finalizing steps to launch additional products in mid-2024.
In addition to the shift discussed above to holding more residential loans in portfolio instead of selling them on the secondary market, results in 2023 were negatively impacted by two items, partially offset by an unusual positive factor which had a net overall negative impact of $2,923,058, before income taxes:
Unusual expenses: 1. Management booked a valuation decline in our Mortgage Servicing Rights of $1,694,134; 2. The UNIB securities portfolio incurred a loss of $1,685,228.
Unusual gains: 3. The value of the hedged mortgage origination pipeline rose $456,304 as the amount of locked loans at year-end 2023 rose over the level at year-end 2022.
Results in 2022 were also assisted by two unusual items, partially offset by two unusual negative factors, which had a net overall positive cumulative impact of $4,360,481, before income taxes:
Unusual expenses: 1. The value of the hedged mortgage origination pipeline fell $1,864,049 as the amount of locked loans at year-end 2023 declined over the level at year-end 2022. 2. The UNIB securities portfolio incurred a loss of $1,381,075.
Unusual gains: 3. Management booked a valuation gain in our Mortgage Servicing Rights of $7,473,411, with the rise in long term interest rates; 4. The liability related to contingent consideration related to an employee lift out transaction in prior years was fully reserved, increasing income by $132,194.
During late 2022 and early 2023, UNIB issued $28 million of subordinated debt. The subordinated debt was issued to facilitate the change in strategy to expand University Bank's balance sheet with additional portfolio loans. The subordinated debt, which matures 1/31/2033, has interest for the first five years fixed at 8.25% and floats at a variable rate of 4.87% over SOFR for the second five years, however UNIB entered into an interest rate swap agreement which effectively fixes the interest rate for the second five years of the term at 8.08%.
At 12/31/2023 cash & equity investment securities at the Company, available to meet working capital needs and to support investment opportunities at University Bancorp were $20.3 million. The company also has a $10 million line of credit available with $1,000,000 currently drawn. This line of credit matures October 2025 with interest at Prime Rate, capped at 6.25%.
A portion of UNIB's working capital has been invested in a portfolio of publicly traded financial services related investments. Three of these investments are large and the remainder are relatively small. The three largest investments at 12/31/2023 were:
Currency Exchange International (Symbol CURN), a Canadian bank holding company that specializes in foreign exchange, of which we own 4.6% of the common stock;
VersaBank (Symbol VBNK), a single branch Canadian bank, of which we own 4.6% of the common stock;
A third large investment which had been down in value $1.3 million at year-end 2022 and $0.5 million at year-end 2023 was sold in May 2024 for a $190,000 profit versus our cost basis.
Due to a conservative credit culture, University Bank has had net recoveries on net loan charge-offs over the past 15 years. Over the past two economic cycles, the following loan provisions and charge-offs (in $'000s) were sustained by University Bank:
Year
Provision Expense
Net Charge-offs
2008
$
1.0
$
0.8
2009
1.5
1.3
2010
0.9
0.5
2011
0.3
0.7
2012
1.4
1.5
2013
0.1
0.3
2014
-0.3
0.0
2015
-0.3
-0.1
2016
0.0
-0.0
2017
153.0
170.0
2018
-226.0
-207.0
2019
285.0
34.0
2020
3,951.0
-16.0
2021
-344.0
-21.0
2022
130.0
-21.0
2023
961.0
28.8
Maximum Since Start of 2008 Financial Crisis
$
3,951.0
$
170.0
Cumulative Since Start of 2008 Financial Crisis
$
4,914.6
$
-27.2
University Bank has engaged an outside vendor to perform Stress Testing analysis and these tests assume a severely adverse (depressionary) national economic scenario worse than the most recent business depressions that we have experienced, in which we assume 10% unemployment, 12.5% drop in GNP, a 37.9% drop in residential real estate prices and a 40% drop in commercial real estate prices and that these prices never recover. Under this scenario we lose $16.1 million in total loan losses over the entire economic cycle, a fraction of our Tier 1 Capital, and under this scenario, with sharply falling interest rates, the bank is likely to see pre-tax earnings rise sharply. During the pandemic the bank was earning $1 million pre-tax per week due to high mortgage origination gain on sale margins and the record level of mortgage origination volumes. This credit risk is moderated by the existing allowance for loan losses of $4.4 million. Under this stressed depressionary economic scenario over the entire cycle the stress test projects that the bank's Tier 1 Capital will fall by $12.7 million, and the bank's Tier 1 Capital Ratio would drop to 8.86%. The stress test does not assume that the Company injects additional capital into University Bank from the Company's $20.3 million of cash and securities.
The Bank currently has $11.8 million of office building loans, of which $3.6 million are leased to third parties. Of these, $2.4 million are medical offices. Of the owner-occupied loans, there are $6.1 million for medical offices and $2.1 million for regular office buildings. All of the Bank's commercial real estate loans have guarantors capable of carrying the loan if the building in future periods suffers from negative cash flow.
At 12/31/2023, we had the following with respect to delinquent loans (including both delinquent portfolio loans and delinquent loans held for sale):
Delinquent 30 Days to 59 Days, $358,072 Delinquent 60 Days to 89 Days, $117,610 Delinquent Over 90 Days & on Non-Accrual, $960,197+
+In addition, we owned the MSRs on $3,861,742 in GNMA pool related residential mortgage loans that have reached 90 days delinquency status and are therefore included on our balance sheet per GAAP. These loans are guaranteed as to principal 100% by FHA.
The allowance for loan losses stood at $4,429,843 or 0.60% of the amount of portfolio loans, excluding loans held for sale. Substandard assets including loans held for sale rose by $699,000 during 2023 to $3,716,000, and declining to 4.2% of Tier 1 Capital at 12/31/2023 versus 4.3% of Tier 1 Capital at 12/31/2022. There was $593,478 other real estate owned at year-end, consisting of two residential properties in the process of being sold.
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 $83,165,634 or $16.09 at 12/31/2023, up from $75,415,715 or $15.30 at 12/31/2022. Please note that we do not see this statistic as particularly useful or meaningful, as our assessment of the value of Midwest Loan Services and Ann Arbor Insurance Centre is far above book value plus the related goodwill and intangibles.
Unaudited net income was $1,644,673 for the three months ended December 31, 2020 or $0.33 per share on average shares outstanding of 4,935,518 for the period, versus unaudited net income of $955,817 or $0.19 on average shares outstanding of 4,929,518 for the same 2022 period.
Total Assets at 12/31/2023 were $931,631,250 versus $865,578,686 at 9/30/2023, $833,497,000 at 6/30/2023, $776,141,240 at 3/31/2023, $794,235,413 at 12/31/2022, $665,502,653 at 9/30/2022, $555,384,087 at 6/30/2022, $478,421,302 at 3/31/2022 and $500,383,698 at 12/31/2021.
The Tier 1 Leverage Capital Ratio at 12/31/2023 was 10.05% on net average assets of $882.5 million, from 10.07% at 9/30/2023 on net average assets of $869.0 million, 10.27% at 6/30/2023 on net average assets of $833.5 million, 10.31% at 3/31/2023 on net average assets of $760.0 million, 10.30% at 12/31/2022 on net average assets of $686.5 million, 10.37% at 9/30/2022 on net average assets of $606.2 million, 11.06% at 6/30/2022 on net average assets of $457.5 million, 12.30% at 3/31/2022 on net average assets of $432.4 million, and 10.30% at 12/31/2021 on net average assets of $522.7 million.
Common Equity Tier 1 Capital at 12/31/2023 was $88,736,000, at 9/30/2023 was $87,540,000, at 6/30/2023 was $85,576,000, at 3/31/2023 was $78,339,000, at 12/31/2022 was $70,672,000, at 9/30/2022 was $62,896,000, at 6/30/2022 was $50,592,000, at 3/31/2022 was $53,186,000, and at 12/31/2021 was $53,824,000.
Other key statistics as of 12/31/2023:
· 10-year annual average revenue growth*,
17.2%
· 5-year annual average revenue growth*,
17.7%
· 2023 vs. 2022 revenue growth*,
12.2%
· TTM Revenue
$105,568,196
· 10 Year Average ROE
26.7%
· 5 Year Average ROE
21.0%
· LLR/NPAs>90 %
200.7%
· Debt to equity ratio, UNIB only
33.8%
· Current Ratio,#
230.0
· Efficiency Ratio, %+
85.7%
· Total Assets
$931,631,250
· Loans Held for Sale, at fair value,
$63,883,059
· NPAs >90 days
$1,553,645
· TTM ROA %
0.65%
· TCE/TA %
8.90%
· Total Capital Ratio %
11.78%
· NPAs/Assets %
0.17%
· Texas Ratio %
5.06%
· NIM %
4.78%
· NCOs/Loans %
0.00%
· Trailing 12 Months P-E Ratio x
11.8
*Using 2023, 2022, 2021, 2020, 2019, 2018 and 2013 revenue which were $105,568,196, $94,077,751, $133,175,856, $136.991,511, $69,112,502, $55,988,570 and $38,856,573, respectively. #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 $13.02 per share.
Shareholders and investors are encouraged to refer to the financial information including the investor presentations, 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 Crescent Assurance, PCC, a captive insurance company licensed in Washington DC, and 100% of University Bank. University Bank together with its Michigan-based subsidiaries, holds and manages a total of over $36 billion in financial assets for over 175,000 customers, and our 478 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:
UIF, a faith-based banking firm based in Southfield, MI;
University Lending Group, a retail residential mortgage originator based in Clinton Township, MI;
Midwest Loan Services, a residential mortgage subservicer based in Houghton, 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.
Reverse Mortgage Lending, a reverse residential mortgage lender based in Southfield, MI; and
Mortgage Warehouse Lending, a mortgage warehouse lender based in Southfield, MI.
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.
Contact: Stephen Lange Ranzini, President and CEO Phone: 734-741-5858, Ext. 9226 Email: ranzini@university-bank.com
