Business News

University Bancorp Reports 2007 Results


University Bancorp

2008-04-01 06:00:00

University Bancorp Reports 2007 Results

ANN ARBOR, MI–( EMWNews – April 1, 2008) – University Bancorp, Inc. (NASDAQ: UNIB)

reported audited net income of $645,000 versus a net loss of $402,000 in

2006. Basic and diluted earnings (loss) per share for 2007 and 2006 were

$0.14 and $(0.10), respectively. For the fourth quarter the unaudited net

loss in 2007 was $372,000 or ($0.09) per share versus net loss in 2006 of

$52,000 or $(0.01) per share.

Significant progress during the year was made with the following key


--  Common stockholders' return on equity rose to 13.2% for the year

--  Portfolio loans and financings increased by 15.4% to $58.75 million

--  Net interest & financing income increased by 24.3% to $3.43 million

--  Custodial escrow deposits increased by 29.51% to $34.6 million

--  Total loans subserviced increased by 7.5% to $4.3 billion

--  Mortgages subserviced increased by 4.5% to 33,937


Fourth quarter 2007 earnings were negatively impacted by $333,000 in

write-downs on mortgage servicing rights held by our Midwest Loan Services

subsidiary due to the sharp drop in long term interest rates during the

quarter. Also, Community Banking booked a $172,000 additional allowance

for loan losses during the quarter to bolster its reserves. 2007 results

were negatively impacted also by the loss of a key account at Midwest Loan

Services in April, which reduced our mortgages subserviced by over 7,000

loans. This was the first loss of a major customer since the year 2000 and

the first ever credit union customer relationship lost by Midwest.

2006 results were negatively impacted by one-time costs of $260,844 related

to the restructuring of an agreement of our Islamic subsidiary to reduce

future obligations under the original terms of that agreement.

At December 31, 2007, the Bank’s Tier 1 leverage capital ratio was 9.7%,

down from 10.2% at September 30, 2007 as the increased custodial escrow and

Islamic deposits expanded the bank’s balance sheet as planned.

President Stephen Lange Ranzini noted, “In the context of an ongoing

Michigan recession, a 13% return on equity for the year for our bank is a

very respectable result. Since we did not engage in any of the now

criticized practices that have caused other financial institutions large

financial losses and because we have been able to take advantage of recent

turmoil in the financial markets to increase our income by sharply

increasing the size of our AAA rated bond portfolio at excellent spreads,

we are anticipating a record year in 2008 unless the economy declines more

sharply than anticipated.”


                                    For the          For the

                                 Quarter Ended      Year Ended

                                  December 31,      December 31,

                                   (in 000s)         (in 000s)

                                 2007     2006      2007    2006

Net interest &

 financing income              $   857  $    842   $3,429  $2,759

Provision for loan &

 financing losses                  172        47      264     153

Securities gains                    11         -       89       -

Total other income               1,279     1,186    6,192   4,468

Total other expense              2,460     2,022    8,598   7,361

Minority interest in

 consolidated subsidiaries'

 earnings                          (27)       31      270     135

Income tax benefit                  86        20       66      20

Net income (loss)              $  (372) $    (52)  $  645  $ (402)

Basic earnings

 (loss) per common share       $ (0.09) $  (0.01)  $ 0.14  $(0.10)

Diluted earnings

 (loss) per common share       $ (0.09) $  (0.01)  $ 0.14  $(0.10)

Average shares outstanding

     Basic                       4,248     4,248    4,248   4,223

     Diluted                     4,248     4,248    4,285   4,223

Net interest & profit margin      4.62%     4.84%    4.75%   4.76%

Period-end:                       December 31,

                                 2007     2006

  Loans & financings including

   those held for sale        $ 60,063  $ 52,879

  Allowance for loan &

   financing losses                686       466

  Deposits                      78,657    78,882

  Assets                        88,238    87,272

  Equity                         5,984     5,251

  Book value per common share $   1.29  $   1.15

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,

2007 and 2006 (in thousands):

2007                         Three Months     Year

Community & Islamic Banking  $  (636)       $(1,650)

Midwest Loan Services            191          2,584

Corporate Office                 (33)           (87)

Eliminations                      22           (268)


Total                        $  (456)       $   579


2006                         Three Months     Year

Community & Islamic Banking  $  (301)       $  (951)

Midwest Loan Services            280          1,015

Corporate Office                 (18)          (351)

Eliminations                     (36)          (135)


Total                        $   (75)       $  (422)


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.

Subsequent Event. Taking advantage of the recent turmoil in the mortgage

bond market University Bank in the past two weeks has purchased a total of

$25.4 million in AAA rated U.S. Government Agency guaranteed bonds in the

form of 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 2.30% 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 $942,000 per year declining

over time as the securities prepay or an estimated $720,000 in additional

net income over the next 12 months. The bank’s balance sheet was expanded

by about 11% as a result of the transactions and the bank’s securities

portfolio now represents about 31% of its assets, which is more in line

with peer group levels. Management now projects 2008 net income to be in

the range of $2 million to $2.5 million, or $0.47 to $0.59 per share.

Investors’ attention is drawn to the cautionary remark in the final

paragraph of this press release.

Ann Arbor-based University Bancorp owns 100% of University Bank which

services a total of over $4.5 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 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 home mortgage alternative 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.

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.

Stephen Lange Ranzini
President and CEO
Phone: 734-741-5858, Ext. 226

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