Form 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
(Mark One)
x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2007
OR
o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from _______________ to _______________
Commission File Number 0-16023
UNIVERSITY BANCORP, INC.
(Exact name of small business issuer as specified in its charter)
|
Delaware |
38-2929531 |
|
(State of incorporation) |
(IRS Employer Identification Number) |
|
2015 Washtenaw Avenue, Ann Arbor, Michigan |
48104 |
|
(Address of principal executive offices) |
(Zip Code) |
Issuer's telephone number, including area code: (734) 741-5858
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
|
X Yes |
___No |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
|
Yes |
_X_No |
State the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
|
Common Stock, $0.01 par value outstanding at May 15, 2007: 4,248,378 shares |
|
Transitional Small Business Disclosure Format (Check One) __Yes |
_X_No |
2
FORM 10-QSB
TABLE OF CONTENTS
PART I - Financial Information
Item 1. Consolidated Financial Statements |
PAGE |
Consolidated Balance Sheets |
3 |
Consolidated Statements of Operations |
5 |
Consolidated Statements of Comprehensive Income |
7 |
Consolidated Statements of Cash Flows |
8 |
Notes to Consolidated Financial Statements |
10 |
|
|
Item 2. Management’s Discussion and Analysis of |
|
Financial Condition and Results of Operations |
13 |
|
|
Summary |
13 |
Results of Operations |
14 |
Capital Resources |
18 |
Liquidity |
18 |
|
|
Item 3. Controls and Procedures |
19 |
|
|
PART II - Other Information |
|
Item 1. Legal Proceedings |
20 |
Item 2. Unregistered Sales of Equity |
|
Securities and Use of Proceeds |
20 |
Item 3. Defaults upon Senior Securities |
20 |
Item 4. Submission of matters to a Vote |
|
Of Security Holders |
20 |
Item 5. Other Information |
20 |
Item 6. Exhibits & Reports on Form 8-K |
20 |
|
|
Signatures |
22 |
Exhibits |
23 |
____________________________________________________________
The information furnished in these interim statements reflects all adjustments and accruals, which are in the opinion of management, necessary for a fair statement of the results for such periods. The results of operations in the interim statements are not necessarily indicative of the results that may be expected for the full year.
|
Part I. - Financial Information |
|
Item 1. - Consolidated Financial Statements |
UNIVERSITY BANCORP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 2007 and December 31, 2006
|
|
(Unaudited) |
|
|
|
|
|
March 31, |
|
December 31, |
|
ASSETS |
|
2007 |
|
2006 |
|
Cash and due from banks |
$ |
26,467,937 |
$ |
27,381,113 |
|
Investment securities available for sale, at |
|
645,659 |
|
672,588 |
|
Federal Home Loan Bank Stock |
|
714,600 |
|
714,600 |
|
Loans and financings held for sale, at the |
|
2,400,102 |
|
1,951,629 |
|
Loans and financings |
|
54,152,940 |
|
50,927,197 |
|
Allowance for loan losses |
|
(465,846) |
|
(465,992) |
|
Loans and financings, net |
|
53,687,094 |
|
50,461,205 |
|
|
|
|
|
|
|
Premises and equipment, net |
|
2,658,376 |
|
2,696,062 |
|
Mortgage servicing rights, at fair value |
|
1,549,270 |
|
- |
|
Mortgage servicing rights, net |
|
- |
|
1,516,100 |
|
Real estate owned, net |
|
215,550 |
|
289,212 |
|
Accounts receivable |
|
113,871 |
|
253,866 |
|
Accrued interest and profit receivable |
|
315,850 |
|
304,863 |
|
Prepaid expenses |
|
433,245 |
|
384,113 |
|
Goodwill |
|
103,914 |
|
103,914 |
|
Other assets |
|
357,110 |
|
542,476 |
|
TOTAL ASSETS |
$ |
89,662,578 |
$ |
87,271,741 |
|
UNIVERSITY BANCORP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (continued)
March 31, 2007 and December 31, 2006
|
|
(Unaudited) |
|
|
|
|
March 31, |
|
December 31, |
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
2007 |
|
2006 |
Liabilities: |
|
|
|
|
Deposits: |
|
|
|
|
Demand - non interest bearing |
$ |
6,803,780 |
$ |
5,086,312 |
Demand – interest bearing and profit sharing |
|
58,780,544 |
|
57,925,964 |
Savings |
|
288,559 |
|
268,585 |
Time |
|
14,878,491 |
|
15,601,321 |
Total Deposits |
|
80,751,374 |
|
78,882,182 |
Accounts payable |
|
223,867 |
|
59,384 |
Accrued interest and profit sharing payable |
|
91,385 |
|
73,532 |
Other liabilities |
|
478,910 |
|
368,837 |
Total Liabilities |
|
81,545,536 |
|
79,383,935 |
Minority Interest |
|
2,709,520 |
|
2,636,559 |
Stockholders’ equity: |
|
|
|
|
Preferred stock, $0.001 par value; $1,000 liquidation value; |
|
|
|
|
Authorized - 500,000 shares; Issued – 37,672 shares in 2007 and 2006 |
|
38 |
|
38 |
Common stock, $0.01 par value; |
|
|
|
|
Authorized - 5,000,000 shares; |
|
|
|
|
Issued - 4,363,562 shares in 2007 and 2006 |
|
43,635 |
|
43,635 |
Additional paid-in-capital |
|
6,488,960 |
|
6,488,960 |
Additional paid-in-capital - stock options |
|
37,973 |
|
36,478 |
Treasury stock - 115,184 shares in 2007 |
|
|
|
|
and 2006 |
|
(340,530) |
|
(340,530) |
Accumulated deficit |
|
(797,917) |
|
(950,038) |
Accumulated other comprehensive loss, |
|
|
|
|
unrealized losses on securities available for sale, net |
|
(24,637) |
|
(27,296) |
Total Stockholders’ Equity |
|
5,407,522 |
|
5,251,247 |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
$ |
89,662,578 |
$ |
87,271,741 |
|
|
|
UNIVERSITY BANCORP, INC. AND SUBSIDIARIES | ||||||||
|
Consolidated Statements of Operations | ||||||||
|
For the Three Month Periods Ended March 31, 2007 and 2006 | ||||||||
|
(Unaudited) | ||||||||
|
|
|
|
| |||||
|
|
2007 |
|
2006 |
|
| |||
Interest and financing income: |
|
|
|
|
|
| |||
Interest and fees on loans and financing income |
$ |
1,065,773 |
$ |
850,385 |
|
| |||
Interest on investment securities: |
|
|
|
|
|
| |||
U.S. Government agencies |
|
11,360 |
|
2,990 |
|
| |||
Other securities |
|
9,008 |
|
9,900 |
|
| |||
Interest on federal funds and other |
|
172,757 |
|
50,037 |
|
| |||
Total interest and financing income |
|
1,258,898 |
|
913,312 |
|
| |||
Interest and profit sharing expense: |
|
|
|
|
|
| |||
Interest and profit sharing on deposits: |
|
|
|
|
|
| |||
Demand deposits |
|
205,932 |
|
105,840 |
|
| |||
Savings deposits |
|
718 |
|
1,010 |
|
| |||
Time certificates of deposit |
|
178,355 |
|
168,039 |
|
| |||
Short-term borrowings |
|
- |
|
302 |
|
| |||
Total interest and profit sharing expense |
|
385,005 |
|
275,191 |
|
| |||
Net interest and financing income |
|
873,893 |
|
638,121 |
|
| |||
Provision for loan losses |
|
22,263 |
|
20,000 |
|
| |||
Net interest and financing income after provision for loan losses |
|
851,630 |
|
618,121 |
|
| |||
Other income: |
|
|
|
|
|
| |||
Loan servicing and sub-servicing Fees |
|
667,171 |
|
529,428 |
|
| |||
Initial loan set-up and other fees |
|
455,800 |
|
309,600 |
|
| |||
Net gain on sale of mortgage loans |
|
26,298 |
|
39,321 |
|
| |||
Insurance and investment fee income |
|
42,857 |
|
51,684 |
|
| |||
Deposit service charges and fees |
|
73,103 |
|
23,241 |
|
| |||
Other |
|
32,021 |
|
97,451 |
|
| |||
Total other income |
|
1,297,250 |
|
1,050,725 |
|
| |||
-Continued-
UNIVERSITY BANCORP, INC. AND SUBSIDIARIES |
Consolidated Statements of Operations (continued) |
For the Three Month Periods Ended March 31, 2007 and 2006 |
(Unaudited) |
|
|
|
|
| ||||||
|
|
2007 |
|
2006 |
| |||||
Other expenses: |
|
|
|
|
| |||||
Salaries and benefits |
$ |
970,205 |
$ |
825,405 |
| |||||
Occupancy, net |
|
141,188 |
|
131,915 |
| |||||
Data processing and equipment expense |
|
147,667 |
|
151,601 |
| |||||
Legal and audit |
|
123,513 |
|
49,689 |
| |||||
Consulting fees |
|
26,932 |
|
54,433 |
| |||||
Mortgage banking |
|
76,784 |
|
61,648 |
| |||||
Change in fair value of mortgage servicing rights |
|
34,775 |
|
- |
| |||||
Servicing rights amortization |
|
- |
|
1,313 |
| |||||
Advertising |
|
31,574 |
|
46,771 |
| |||||
Memberships and training |
|
29,094 |
|
24,457 |
| |||||
Travel and entertainment |
|
29,235 |
|
46,034 |
| |||||
Supplies and postage |
|
79,801 |
|
67,992 |
| |||||
Insurance |
|
47,921 |
|
39,811 |
| |||||
Other operating expenses |
|
176,749 |
|
126,260 |
| |||||
Total other expenses |
|
1,915,438 |
|
1,627,329 |
| |||||
Income before income taxes and minority interest |
|
233,442 |
|
41,517 |
| |||||
Income tax expense |
|
- |
|
- |
| |||||
Income before minority interest |
|
233,442 |
|
41,517 |
| |||||
Minority interest in consolidated subsidiaries’ earnings |
|
72,961 |
|
26,830 |
| |||||
Net income |
$ |
160,481 |
$ |
14,687 |
| |||||
Basic earnings per common share |
$ |
0.04 |
$ |
0.00 |
| |||||
Diluted earnings per common share |
$ |
0.04 |
$ |
0.00 |
| |||||
Weighted average shares outstanding – Basic |
|
4,248,378 |
|
4,147,878 |
| |||||
Weighted average shares outstanding – Diluted |
|
4,286,629 |
|
4,191,878 |
| |||||
See notes to consolidated financial statements.
UNIVERSITY BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
For the Three Month Periods Ended March 31, 2007 and 2006
(Unaudited)
|
|
2007 |
|
2006 |
|
Net income |
$ |
160,481 |
$ |
14,687 |
|
Other comprehensive income (loss): |
|
|
|
|
|
Net unrealized gain (loss) on securities available for sale – net of deferred taxes of $0 and $0, respectively |
|
2,659 |
|
(477) |
|
Comprehensive income |
$ |
163,140 |
$ |
14,210 |
|
|
|
|
|
|
|
See notes to consolidated financial statements.
UNIVERSITY BANCORP, INC. AND SUBSIDIARIES | ||||
Consolidated Statements of Cash Flows | ||||
For the Three Month Periods Ended March 31, 2007 and 2006 | ||||
(Unaudited) | ||||
|
|
2007 |
|
2006 |
Operating activities: |
|
|
|
|
Net income |
$ |
160,481 |
$ |
14,687 |
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
Depreciation |
|
96,946 |
|
102,685 |
Change in fair value of mortgage servicing rights |
|
34,775 |
|
- |
Amortization |
|
- |
|
1,313 |
Provision for loan losses |
|
22,263 |
|
20,000 |
Net gain on sale of mortgages |
|
(26,298) |
|
(39,321) |
Net amortization (accretion) on investment securities |
|
(5,311) |
|
1,221 |
Net gain on the sale of other real estate owned |
|
(4,581) |
|
- |
Originations of mortgage loans |
|
(17,894,055) |
|
(8,233,323) |
Proceeds from mortgage loan sales |
|
17,471,880 |
|
8,800,169 |
Stock awards |
|
1,495 |
|
- |
Net change in: |
|
|
|
|
Other assets |
|
197,297 |
|
1,631,394 |
Other liabilities |
|
365,370 |
|
235,547 |
Net cash provided by operating activities |
|
420,262 |
|
2,534,372 |
Investing activities: |
|
|
|
|
Proceeds from maturities of investment securities |
|
34,899 |
|
54,082 |
Proceeds from sale of other real estate owned |
|
78,243 |
|
- |
Loans granted, net of repayments |
|
(3,248,152) |
|
(1,890,735) |
Premises and equipment expenditures |
|
(59,260) |
|
(132,092) |
Net cash used in investing activities |
|
(3,194,270) |
|
(1,968,745) |
|
|
|
|
|
-Continued- |
|
|
|
|
|
|
|
|
|
UNIVERSITY BANCORP, INC. AND SUBSIDIARIES | ||||
Consolidated Statements of Cash Flows (continued) | ||||
For the Three Month Periods Ended March 31, 2007 and 2006 | ||||
(Unaudited) | ||||
|
|
2007 |
|
2006 |
Financing activities: |
|
|
|
|
Net change in deposits |
$ |
1,869,192 |
$ |
(1,398,268) |
Dividends on preferred stock |
|
(8,360) |
|
(6,481) |
Issuance of preferred stock |
|
- |
|
12,387 |
Net cash provided by (used in) financing activities |
|
1,860,832 |
|
(1,392,362) |
Net change in cash and cash equivalents |
|
(913,176) |
|
(826,735) |
Cash and cash equivalents: |
|
|
|
|
Beginning of period |
|
27,381,113 |
|
7,746,666 |
End of period |
$ |
26,467,937 |
$ |
6,919,931 |
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
Cash paid for interest |
$ |
333,257 |
$ |
324,864 |
Cash paid for federal income taxes |
$ |
- |
$ |
- |
Supplemental disclosure of non-cash transactions: |
|
|
|
|
Decrease (increase) in unrealized loss on securities available for sale, net of deferred taxes of $0 and $0, respectively. |
$ |
2,659 |
$ |
(477) |
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
UNIVERSITY BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) General
See Note 1 of the consolidated financial statements incorporated by reference in the Company's 2006 Annual Report on Form 10-K for a summary of the Company's significant accounting policies.
The unaudited consolidated financial statements included herein were prepared from the books of the Company in accordance with generally accepted accounting principles and reflect all adjustments which are, in the opinion of management, necessary to provide a fair statement of the results of operations and financial position for the interim periods. All adjustments made were of a normal recurring nature. Such financial statements generally conform to the presentation reflected in the Company's 2006 Annual Report on Form 10-K. The current interim periods reported herein are included in the fiscal year subject to independent audit at the end of the year.
Basic earnings per share represents income available to common stockholders divided by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the Corporation relate solely to outstanding stock options, and are determined using the treasury stock method. Earnings per common share have been computed based on the following:
|
|
|
|
|
For the Three Month | ||||
|
|
|
|
|
Period Ended March 31, | ||||
|
|
|
|
2007 |
2006 | ||||
Net Income |
|
|
$160,481 |
$14,687 | |||||
Less: preferred dividends |
8,360 |
6,481 | |||||||
Net income available to common shareholders |
$152,121 |
$ 8,206 | |||||||
|
|
|
|
|
| ||||
Average number of common shares outstanding |
4,248,378 |
4,147,878 | |||||||
Net dilutive effect of options |
|
38,251 |
44,000 | ||||||
Dilutive average shares outstanding |
4,286,629 |
4,191,878 | |||||||
|
|
|
|
|
| ||||
(2) Investment Securities
The Bank's available-for-sale securities portfolio at March 31, 2007 had a net unrealized loss of approximately $24,637 as compared to a net unrealized loss of approximately $27,296 at December 31, 2006.
Securities available for sale at March 31, 2007 consist of the following:
|
Amortized |
Unrealized |
Fair |
|
Cost |
Gains |
Losses |
Value |
U.S. agency mortgage-backed
|
securities |
$670,296 $ |
- |
$(24,637) $645,659 |
Securities available for sale at December 31, 2006 consist of the following:
|
Amortized |
Unrealized |
Fair |
|
Cost |
Gains |
Losses |
Value |
|
U.S. agency mortgage-backed |
|
securities |
$699,884 $ |
- |
$(27,296) |
$672,588 |
(3) Income Taxes
Income tax expense was $0 for the three months ended March 31, 2007 and 2006, resulting in an effective tax rate of 0% for both periods. Financial statement tax expense amounts differ from the amounts computed by applying the statutory federal tax rate of 34% to pretax income because of operating losses, tax credits, book-tax differences and valuation allowances recorded. At March 31, 2007 and December 31, 2006, the Company had a $140,000 deferred tax asset. This asset represents a loss carry forward that is expected to be realized.
(4) Segment Reporting
The following table summarizes the pre-tax net income (loss) of each profit center of the Company for the three months ended March 31, 2007 and 2006 (in thousands):
|
|
2007 |
|
2006 |
|
|
|
|
|
Community and Islamic Banking |
$ |
(19) |
$ |
(36) |
Midwest Loan Services |
|
194 |
|
65 |
Corporate Office |
|
(15) |
|
(14) |
Total |
$ |
160 |
$ |
15 |
(5) Recent Pronouncements
In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 enhances existing guidance for measuring assets and liabilities using fair value. Prior to the issuance of SFAS 157, guidance for applying fair value was incorporated in several accounting pronouncements. SFAS 157 provides a single definition of fair value, together with a framework for measuring it, and requires additional disclosure about the use of fair value to measure assets and liabilities. SFAS 157 also emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and sets out a fair value hierarchy with the highest priority being quoted prices in active markets. Under SFAS 157, fair value measurements are disclosed by level within that hierarchy. While SFAS 157 does not add any new fair value measurements, it does change current practice. Changes to practice include: (1) a requirement for an entity to include its own credit standing in the measurement of its liabilities; (2) a modification of the transaction price presumption; (3) a prohibition on the use of block discounts when valuing large blocks of securities for broker-dealers and investment companies; and (4) a requirement to adjust the value of restricted stock for the effect of the restriction even if the restriction lapses within one year. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal
years. The Company has not determined the impact of adopting SFAS 157 on its financial statements.
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities,” (“SFAS 159”). This statement permits entities to choose to measure many financial instruments and certain other items at fair value. An entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. This statement is effective as of the beginning of an entity's first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of SFAS No. 157. The Company is continuing to evaluate the impact of this statement.
(6) Adoption of Statement of Financial Accounting Standards No. 156, “Accounting for Servicing of Financial Assets,” (“SFAS 156”)
In March 2006, the FASB issued SFAS 156, which amends Statement of Financial Accounting Standards No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities,” (“SFAS 140”). SFAS 156 changes SFAS 140 by requiring that mortgage servicing rights be initially recognized at their fair value and by providing the option to either: (1) carry mortgage servicing rights at fair value with changes in fair value recognized in earnings; or (2) continue recognizing periodic amortization expense and assess the mortgage servicing rights for impairment as originally required by SFAS 140. This option may be applied by class of servicing assets or liabilities.
SFAS 156 is effective for all separately recognized servicing assets and liabilities acquired or issued after the beginning of an entity’s fiscal year that begins after September 15, 2006, with early adoption permitted. The Company has chosen to adopt SFAS 156 effective January 1, 2007. The Company has identified mortgage servicing rights relating to mortgage loans as a class of servicing rights and has elected to apply fair value accounting to these assets. SFAS 156 requires that, at adoption, any adjustment necessary to record mortgage servicing rights at fair value be recognized in beginning stockholders’ equity. Due to the fact that the fair market value of mortgage servicing rights was less than the carrying value at December 31, 2006, there was no adoption adjustment required by the Company as of January 1, 2007, as noted below:
Balance at December 31, 2006, |
|
Lower of Cost or Market |
$1,516,100 |
Remeasurement to fair market value upon |
|
adoption of SFAS 156 |
- |
Balance at January 1, 2007, Fair Value |
1,516,100 |
Additions – Originated Servicing Rights |
67,945 |
Change in Fair Value |
(34,775) |
Balance at March 31, 2007, Fair Value |
$1,549,270 |
(7) Subsequent Event
On May 1, 2007, the Company sold 8,000 shares of preferred stock for $80,000.
(8) Reclassifications
Certain items in the prior period consolidated financial statements have been reclassified to conform to the March 31, 2007 presentation.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
This report includes "forward-looking statements" as that term is used in the securities laws. All statements regarding our expected financial position, business and strategies are forward-looking statements. In addition, the words "anticipates," "believes," "estimates," "seeks," "expects," "plans," "intends," and similar expressions, as they relate to us or our management, are intended to identify forward-looking statements. The presentation and discussion of the provision and allowance for loan losses and statements concerning future profitability or future growth or increases, are examples of inherently forward looking statements in that they involve judgments and statements of belief as to the outcome of future events. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on our operations and our future prospects include, but are not limited to, changes in: interest rates, general economic conditions, legislative/regulatory changes, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in our market area and accounting principles, policies and guidelines. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Further information concerning us and our business, including additional factors that could materially affect our financial results, is included in our other filings with the Securities and Exchange Commission.
SUMMARY
Net income for the Company for the three month period ended March 31, 2007 was $160,481 as compared to $14,687 for the same period last year. Community Banking reported a net loss of $19,000 during the current year’s first quarter, a slight improvement over a net loss of $36,000 for the same period in 2006. The Bank’s subsidiary, Midwest Loan Services Inc., reported net income of $194,000 for the first quarter of 2007 as compared to net income of $65,000 for the same period in 2006. Income at Midwest was positively impacted in 2007 by an increase in the number of loans serviced.
The following table summarizes the pre-tax net income (loss) of each profit center of the Company for the three months ended March 31, 2007 and 2006 (in thousands):
|
|
2007 |
2006 |
|
|
|
|
Community and Islamic Banking |
|
$ (19) |
$ (36) |
Midwest Loan Services |
|
194 |
65 |
Corporate Office |
|
(15) |
(14) |
Total |
|
$ 160 |
$ 15 |
RESULTS OF OPERATIONS
Net Interest and Financing Income
Net interest and financing income increased 36.9% to $873,893 for the three months ended March 31, 2007 from $638,121 for the three months ended March 31, 2006. Net interest and financing income rose primarily because of an increase in earning assets. The net spread increased to 4.95% in 2007 from 4.79% in 2006.
Interest and profit income
Interest and financing income increased 37.8% to $1,258,898 for the quarter ended March 31, 2007 from $913,312 for the quarter ended March 31, 2006. An increase in the average balance of earning assets of $17,570,443 was a major factor in the increase in interest income. The average volume of interest and profit earning assets increased to $71,616,794 in the 2007 period from $54,046,351 in the 2006 period. The overall yield on total interest and profit bearing assets increased to 7.13% for the first quarter of 2007 as compared to 6.85% for the same period in 2006. The increase occurred due to an increase in the prime rate throughout the period after March 31, 2006.
Interest and Profit Sharing Expense
Interest and profit sharing expense increased 39.9% to $385,005 for the three months ended March 31, 2007 from $275,191 for the same period in 2006. An increase in the average balance of interest bearing and profit sharing liabilities of $16,619,693 was a major factor in the increase in interest expense. The average volume of interest bearing and profit sharing liabilities increased to $64,896,212 in the 2007 period from $48,276,519 in the 2006 period. The cost of funds decreased to 2.41% for the first quarter of 2007 as compared to 2.31% for the same period in 2006.
MONTHLY AVERAGE BALANCE SHEET AND INTEREST MARGIN ANALYSIS
The following table summarizes monthly average balances, interest and finance revenues from earning assets, expenses of interest bearing and profit sharing liabilities, their associated yield or cost and the net return on earning assets for the three months ended March 31, 2007 and 2006:
|
Three Months Ended |
|
Three Months Ended | ||||||
|
March 31, 2007 |
|
March 31, 2006 | ||||||
|
Average |
Interest |
Average |
|
Average |
Interest |
Average | ||
|
Balance |
Inc / Exp |
Yield (1) |
|
Balance |
Inc / Exp |
Yield (1) | ||
Interest and Profit Earning Assets: |
|
|
|
|
|
|
| ||
Commercial Loans |
$22,048,009 |
$498,963 |
9.18% |
|
$17,045,046 |
$372,994 |
8.87% | ||
Real Estate Loans (1) |
31,814,627 |
519,551 |
6.62% |
|
29,289,570 |
448,101 |
6.20% | ||
Installment Loans |
2,004,138 |
47,259 |
9.56% |
|
1,340,153 |
29,290 |
8.86% | ||
Total Loans |
55,866,774 |
1,065,773 |
7.74% |
` |
47,674,769 |
850,385 |
7.23% | ||
Investment Securities |
1,378,860 |
20,368 |
5.99% |
|
1,757,302 |
12,890 |
2.97% | ||
Federal Funds & Bank Deposits |
14,371,160 |
172,757 |
4.88% |
|
4,614,280 |
50,037 |
4.40% | ||
Total Interest and Profit Earning Assets |
71,616,794 |
1,258,898 |
7.13% |
|
54,046,351 |
913,312 |
6.85% | ||
|
|
|
|
|
|
|
| ||
Interest Bearing and Profit Sharing Liabilities: |
|
|
|
|
|
|
| ||
Deposit Accounts: |
|
|
|
|
|
|
| ||
Demand |
29,587,794 |
49,024 |
0.67% |
|
14,417,090 |
8,392 |
0.24% | ||
Savings |
295,853 |
718 |
0.98% |
|
411,501 |
1,010 |
1.00% | ||
Time |
14,723,292 |
178,355 |
4.91% |
|
16,932,770 |
168,039 |
4.02% | ||
Money Market Accts |
20,289,273 |
156,908 |
3.14% |
|
16,483,435 |
97,448 |
2.40% | ||
Short-term Borrowings |
- |
- |
0.00% |
|
31,723 |
302 |
3.86% | ||
Long-term Borrowings |
- |
- |
0.00% |
|
- |
- |
0.00% | ||
Total Interest Bearing and Profit Sharing Liabilities |
64,896,212 |
385,005 |
2.41% |
|
48,276,519 |
275,191 |
2.31% | ||
|
|
|
|
|
|
|
| ||
Net Earning Assets, Net Interest and Financing Income, and Net Spread |
$6,720,582 |
$873,893 |
4.72% |
|
$5,769,832 |
$638,121 |
4.54% | ||
|
|
|
|
|
|
|
| ||
Net Interest and Financing Margin |
|
|
4.95% |
|
|
|
4.79% | ||
(1) Yield is annualized. |
|
|
|
|
|
|
| ||
Allowance for Loan Losses
The allowance for loan losses is determined based on management estimates of the amount required for losses inherent in the portfolio. These estimates are based on past loan loss experience, known and inherent risks in the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off. The provision to the allowance for loan losses was $22,263 for the three month period ended March 31, 2007 and $20,000 for the same period in 2006. Net charge-offs totaled $22,409 for the three month period ended March 31, 2007 as compared to net recoveries of $2,974 for the same period in 2006. Illustrated below is the activity within the allowance for the three month period ended March 31, 2007 and 2006, respectively.
|
2007 |
2006 |
Balance, January 1 |
$ 465,992 |
$ 349,416 |
Provision for loan losses |
22,263 |
20,000 |
Loan charge-offs |
(22,866) |
(1,334) |
Recoveries |
457 |
4,308 |
Balance, March 31 |
$ 465,846 |
$ 372,390 |
|
At March 31, 2007 |
At December 31, 2006 |
Total loans & financings(1) |
$54,152,940 |
$ 50,927,197 |
Reserve for loan losses |
$ 465,846 |
$ 465,992 |
Reserve/Loans % (1) |
0.86% |
0.92% |
|
|
|
The Bank’s approximately $16 million of Islamic financings on its books at March 31, 2007 are covered by an agreement with the Bank’s Islamic depositors who have profit-sharing on the Bank’s portfolio of Islamic financings. The formula for the payout of this profit-sharing essentially means that in any given month, if there is a loss on an Islamic financing on the Bank’s books, that the total amount of monthly profit-sharing that would otherwise be paid to the depositors would be available to offset these monthly losses. However, there is no assurance that if significant losses were repeatedly incurred and the profit-sharing pay-out on Islamic Deposits remained at zero for one or more months, that the Islamic deposits would not be withdrawn.
The following schedule summarizes the Company's non-performing assets:
|
At March 31, 2007 |
At December 31, 2006 |
Past due 90 days and over and still accruing (1): |
$ - |
$ - |
Nonaccrual loans (1): |
|
|
Real estate – mortgage and construction loans |
1,096,598 |
59,605 |
Installment |
- |
- |
Commercial |
- |
- |
Subtotal |
1,096,598 |
59,605 |
|
|
|
Other real estate owned |
215,550 |
289,212 |
|
|
|
Total nonperforming assets |
$ 1,312,148 |
$ 348,817 |
|
At March 31, 2007 |
At December 31, 2006 |
Ratio of non-performing loans to total loans (1) |
2.03% |
0.12% |
Ratio of loans past due over 90 days and non-accrual loans to loan loss reserve |
235% |
13% |
(1) Excludes loans held for sale which are valued at the lower of cost or fair market value.
At March 31, 2007 there were three loans on non-accrual. One loan, totaling $859,214 is a land development loan and has an impairment reserve of $223,230 allocated at March 31, 2007 and December 31, 2006. Although this loan was reserved for at December 31, 2006, it was not in non-accrual status until March 31, 2007. The other two loans, totaling $237,384, are residential real estate loans and have an impairment reserve of $9,922 at March 31, 2007 and December 31, 2006.
The Bank's overall loan portfolio is geographically concentrated in Ann Arbor and the future performance of these loans is dependent upon the performance of relatively limited geographical areas. As a result of the weak Michigan economy and recent negative developments in the Ann Arbor area economy, the Bank’s future loss ratios may exceed historical loss ratios.
Management believes that the current allowance for loan losses is adequate to absorb losses inherent in the loan portfolio, although the ultimate adequacy of the allowance is dependent upon future economic factors beyond the Company's control. A downturn in the general nationwide economy will tend to aggravate, for example, the problems of local loan customers currently facing some difficulties, and could decrease residential home prices. A general nationwide business expansion could conversely tend to diminish the severity of any such difficulties.
Non-Interest Income
Total non-interest income increased 23.5% to $1,297,250 for the three months ended March 31, 2007 from $1,050,725 for the three months ended March 31, 2006. The increase was primarily due to higher mortgage servicing and origination activity.
At March 31, 2007, Midwest was subservicing 36,012 mortgages, an increase of 10.9% from 32,461 mortgages subserviced at December 31, 2006.
Non-Interest Expense
Non-interest expense increased 17.7% to $1,915,438 for the three months ended March 31, 2007 from $1,627,329 for the three months ended March 31, 2006 as salaries and other operating expenses increased due to increased on the volume of loan servicing and origination.
At March 31, 2007, University Bank (“the Bank”) and Midwest Loan Services (“Midwest”) owned the rights to service mortgages for Fannie Mae, Freddie Mac and other institutions, most of which were owned by Midwest, an 80% owned subsidiary of the Bank. The balance of mortgages serviced for these institutions was approximately $155 million at March 31, 2007. The fair value of these servicing rights was $1,549,270 at March 31, 2007. Market interest rate conditions can quickly affect the value of mortgage servicing rights in a positive or negative fashion, as long-term
interest rates rise and fall. The servicing rights are recorded at fair value at March 31, 2007 and at the lower of cost or market at March 31, 2006. In 2007, the Company adopted the fair value measurement method of accounting for mortgage servicing rights according to SFAS 156. Under this method, changes in fair value are reported in earnings at each reporting date.
Following is an analysis of the change the Company’s mortgage servicing rights for the periods ended March 31, 2007 and 2006.
|
2007 |
2006 |
Balance, January 1 |
$ 1,516,100 |
$ 1,471,808 |
Additions – originated |
67,945 |
89,316 |
Amortization expense |
- |
(49,313) |
Adjustment for asset impairment change |
- |
48,000 |
Change in fair value |
(34,775) |
- |
Balance, March 31 |
$ 1,549,270 |
$ 1,559,811 |
Capital Resources
The table below sets forth the Bank's risk based assets, capital ratios and risk-based capital ratios of the Bank. At March 31, 2007 and December 31, 2006, the Bank was considered "well-capitalized" and exceeded the regulatory guidelines.
|
Actual |
To be Adequately Capitalized Under Promt Corrective Action Provisions |
To Be Well
| |||
|
Amount |
Ratio |
Amount |
Ratio |
Amount |
Ratio |
As of March 31, 2007: |
|
|
|
|
|
|
Total capital (to risk weighted assets) |
8,419,000 |
16.5% |
$4,074,000 |
8.0 % |
$5,092,000 |
10.0 % |
Tier I capital (to risk weighted assets) |
7,953,000 |
15.6% |
2,037,000 |
4.0 % |
3,055,000 |
6.0 % |
Tier I capital (to average assets) |
7,953,000 |
9.1% |
3,508,000 |
4.0 % |
4,385,000 |
5.0 % |
As of December 31, 2006: |
|
|
|
|
|
|
Total capital (to risk weighted assets) |
$8,142,000 |
16.7% |
$3,911,000 |
8.0 % |
$4,889,000 |
10.0 % |
Tier I capital (to risk weighted assets) |
7,676,000 |
15.7% |
1,955,000 |
4.0 % |
2,933,000 |
6.0 % |
Tier I capital (to average assets) |
7,676,000 |
9.8% |
3,122,000 |
4.0 % |
3,903,000 |
5.0 % |
Liquidity
Bank Liquidity. The Bank's primary sources of liquidity are customer deposits, scheduled payments and prepayments of loan principal, cash flow from operations,
maturities of various investments, borrowings from correspondent lenders secured by securities, residential mortgage loans and/or commercial loans. In addition, the Bank invests in overnight federal funds. At March 31, 2007, the Bank had cash and cash equivalents of $26,467,937. The Bank’s lines of credit include the following:
|
• |
$3.2 million from the Federal Home Loan Bank of Indianapolis secured by investment securities and residential mortgage loans, and |
|
• |
$4.9 million from the Federal Reserve Bank of Chicago secured by commercial loans. |
At March 31, 2007, the Bank had $0 outstanding on the Federal Home Loan Bank and Federal Reserve Bank lines of credit. In order to bolster liquidity from time to time, the Bank also sells brokered time deposits. There were no brokered deposits outstanding at March 31, 2007.
Bancorp Liquidity. At March 31, 2007, Bancorp had $1,684 in cash and investments on hand to meet its working capital needs. In an effort to increase the Bank's Tier 1 capital to assets ratio through retained earnings, management does not expect that the Bank will pay dividends to the Company during the balance of 2007. Management expects Bancorp’s working capital to be increased as a result of the issuance of additional shares of preferred stock. Subsequent to March 31, 2007, on May 1, 2007, the Company sold 8,000 shares of preferred sock for $80,000.
|
ITEM 3. |
CONTROLS AND PROCEDURES |
|
(a) |
Evaluation of Disclosure Controls and Procedures. |
Disclosure controls are procedures that are designed with an objective of ensuring that information required to be disclosed in our company’s periodic reports filed with the Securities and Exchange Commission, such as this report on Form 10-QSB, is recorded, processed, summarized, and reported within the time periods specified by the Securities and Exchange Commission. Disclosure controls also are designed with an objective of ensuring that such information is accumulated and communicated to our company’s management, including our chief executive officer and chief financial officer, in order to allow timely consideration regarding required disclosures
As of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of the Company's management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-14(c) under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the operation of these disclosure controls and procedures were effective.
(b) |
Changes in Internal Controls. |
Except for the hiring of additional staff members with experience in financial reporting, there were no significant changes in the Company's internal controls over financial reporting during the first quarter of the fiscal year ended March 31, 2007, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. Management intends that the new staff members
will assist in eliminating the control deficiencies noted at December 31, 2006. During the fourth quarter of 2006, the Company recorded material post closing audit adjustments to the consolidated financial statements. In addition, the Company did not timely file certain SEC reports, including the Form 10-KSB for the year ended December 31, 2006 and Form 10-QSB for the quarter ended March 31, 2007 with the Securities Exchange Commission (SEC) within the required due dates. Form 10-KSB for 2006 was also subsequently amended on Form 10-KSB/A due to errors in the original filing. The above items, under Section 404 of the Sarbanes Oxley Act of 2002, constitute significant deficiencies and material weaknesses in internal controls over financial reporting. The Company seeks to implement a short and long-term correction of these internal control deficiencies and believes it can make progress toward correction of these matters.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings to which the Company or any of its subsidiaries is party or to which any of their properties are subject.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
|
None |
Item 3. Defaults upon Senior Securities
|
None |
Item 4. Submission of Matters to a Vote of Security Holders
|
None |
Item 5. Other information
|
None |
Item 6. Exhibits and Reports on Form 8-K.
|
(a) |
Exhibits. |
|
31.1 |
Certificate of the President and Chief Executive Officer of University Bancorp, Inc. pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
31.2 |
Certificate of the Chief Financial Officer of University Bancorp, Inc. pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
32.1 |
Certificate of the Chief Executive Officer of University Bancorp, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
32.2 |
Certificate of the Chief Financial Officer of University Bancorp, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
UNIVERSITY BANCORP, INC. |
|
Date: |
May 17, 2007 |
/s/ Stephen Lange Ranzini |
|
Stephen Lange Ranzini |
|
President and Chief Executive Officer |
|
/s/ Nicholas K. Fortson |
|
Nicholas K. Fortson |
|
Chief Financial Officer |
EXHIBIT INDEX
|
Exhibit |
Description |
31.1 |
Certificate of the President and Chief Executive Officer of University Bancorp, Inc. pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2 |
Certificate of the Chief Financial Officer of University Bancorp, Inc. pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1 |
Certificate of the President and Chief Executive Officer of University Bancorp, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
32.2 |
Certificate of the Chief Financial Officer of University Bancorp, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
Exhibit 31.1
10-QSB 302 CERTIFICATION
I, Stephen Lange Ranzini, certify that:
1) |
I have reviewed this quarterly report on Form 10-QSB of University Bancorp, Inc.; |
2) |
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; |
3) |
Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; |
4) |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
|
a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
|
b) |
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report; |
|
c) |
disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and; |
5) |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): |
|
a) |
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
|
Date: May 17, 2007 |
/s/Stephen Lange Ranzini |
|
Stephen Lange Ranzini |
President and Chief Executive Officer
Exhibit 31.2
10-QSB 302 CERTIFICATION
I, Nicholas K. Fortson, certify that:
1) |
I have reviewed this quarterly report on Form 10-QSB of University Bancorp, Inc.; |
2) |
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; |
3) |
Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; |
4) |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
|
a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
|
b) |
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report; |
|
c) |
disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and; |
5) |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): |
|
a) |
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 17, 2007 |
/s/ Nicholas Fortson |
|
Nicholas E. Fortson |
|
Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT
TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Stephen Lange Ranzini, the President and Chief Executive Officer of University Bancorp, Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of University Bancorp, Inc. on Form 10-QSB for the quarter ended March 31, 2007 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such report on Form 10-QSB fairly presents in all material respects the financial condition and results of operations of University Bancorp, Inc.
|
UNIVERSITY BANCORP, INC. |
|
Date: |
May 17, 2007 |
/s/ Stephen Lange Ranzini |
|
Stephen Lange Ranzini |
President and Chief Executive Officer
Exhibit 32.2
CERTIFICATION PURSUANT
TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Nicholas K. Fortson, the Chief Financial Officer of University Bancorp, Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of University Bancorp, Inc. on Form 10-QSB for the quarter ended March 31, 2007 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such report on Form 10-QSB fairly presents in all material respects the financial condition and results of operations of University Bancorp, Inc.
|
UNIVERSITY BANCORP, INC. |
|
Date: |
May 17, 2007 |
/s/ Nicholas K. Fortson |
|
Nicholas K. Fortson |
|
Chief Financial Officer |