1
Form 10-Q
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 June 30, 1996
OR
[ ] 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 registrant as specified in its charter)
Delaware 38-2929531
(State of incorporation) (IRS Employer Identification Number)
209 East Portage Avenue,
Sault Ste. Marie, Michigan 49783
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (906) 635-9794
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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.
Yes X No
----------- ------------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, $0.010 par value Outstanding at August 9, 1996
1,250,843 shares
page 1 of 32 pages
Exhibit index on sequentially numbered page 31
2
FORM 10-Q 2
TABLE OF CONTENTS
PART I - Financial Information
Item 1. Financial Statements PAGE
Consolidated Balance Sheets 3
Consolidated Statements of Operations 5
Consolidated Statements of Cash Flows 7
Notes to the Consolidated Financial
Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Summary 9
Results of Operations 10
Liquidity and Capital Resources 22
PART II - Other Information
Item 1. Legal Proceedings 26
Item 4. Submission of Matters to a vote 26
of Security Holders
Item 5. Other Information
Parent Company Condensed
Financial Information 26
Item 6. Exhibits & Reports on Form 8-K 30
Signature 30
Exhibit Index 31
Item 1. Financial Data Schedule 32
Exhibit 3.1 Composite Certificate of Incorporation 33
as Amended
- -------------------------------------------------------------------
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, and reflect adjustments which
are solely of a normal, recurring nature. The results of operations in the
interim statements are not necessarily indicative of the results that may be
expected for the full year.
3
3
Part 1 - Financial Information
Item 1. - Financial Statements
UNIVERSITY BANCORP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1996 and December 31, 1995
(Unaudited)
June 30 December 31
1996 1995
ASSETS ----------- -----------
Cash and due from banks $ 1,623,540 $ 578,216
Federal funds sold 3,389,903 1,359,415
----------- -----------
Total cash and cash equivalents 5,013,443 1,937,631
Securities available for sale (note 2) 7,913,205 13,090,547
Loans held for sale 18,942,027 7,983,154
Loans, net 14,972,115 8,953,518
Premises and equipment 1,986,093 1,360,283
Purchased mortgage servicing rights 3,190,360 2,936,703
Investment in and Advances to
Michigan BIDCO 805,327 765,858
Other real estate owned 0 130,596
Other assets 1,674,186 1,116,238
----------- -----------
Total other assets 7,655,966 6,309,678
----------- -----------
TOTAL ASSETS $54,496,756 $38,274,528
=========== ===========
The accompanying notes are an integral part of the
consolidated financial statements.
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4
UNIVERSITY BANCORP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1996 and December 31, 1995
(Unaudited)
June 30 December 31
1996 1995
LIABILITIES AND STOCKHOLDERS EQUITY ----------- -----------
Deposits:
Demand - non interest bearing $ 2,613,018 $ 1,103,921
Demand - interest bearing 10,365,016 1,642,425
Savings 1,112,863 1,075,328
Time 24,526,818 16,923,492
----------- -----------
Total Deposits 38,617,715 20,745,166
FHLB advances 7,000,000 10,000,000
Mortgage escrow 1,548,301 1,055,337
Note payable 975,000 1,000,000
Deferred Noncompete income 119,578 137,080
Other Liabilities 1,827,884 484,912
----------- -----------
Total Liabilities 50,088,478 33,422,495
----------- -----------
Minority Interest 197,769 201,135
Stockholders' equity:
Preferred Stock, $0.001 par value;
Authorized - 500,000 shares;
issued 0 shares in both 1995 and 1994 - -
Common stock, $0.01 par value;
Authorized - 2,500,000 shares;
issued and outstanding
1,288,125 shares in 1996
and 1,276,125 shares in 1995 12,881 12,761
Treasury Stock - 37,282 shares in
1995 and 1996 (139,808) (139,808)
Additional Paid-in-Capital 2,866,286 2,799,656
Retained earnings 1,414,258 1,836,231
Net unrealized gain on securities
available for sale, net of tax
of $29,309 in 1996, and
$73,181 in 1995. 56,892 142,058
----------- -----------
Total Stockholders' equity 4,210,509 4,650,898
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $54,496,756 $38,274,528
=========== ===========
The accompanying notes are an integral part of the
consolidated financial statements.
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5
UNIVERSITY BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
For the Three Month For the Six Month
Periods Ended Periods Ended
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
-------- -------- -------- --------
Interest income:
Interest and fees on loans $ 797,007 $329,547 $1,200,978 $ 569,985
Interest on securities:
U.S. Treasury Securities 28,293 - 32,904 -
U.S. Government agencies 123,319 269,517 297,373 531,952
State and political subdivisions - 1,802 - 3,604
Other securities 21,108 5,977 34,457 7,897
Interest on bank deposits 11,625 11,096 24,690 20,083
Interest on federal funds 36,883 11,383 92,927 27,563
---------- -------- ---------- ----------
Total interest income 1,018,235 629,322 1,683,329 1,161,084
---------- -------- ---------- ----------
Interest expense:
Interest on deposits:
Demand deposits 112,055 32,721 157,258 73,335
Savings deposits 19,595 21,244 43,369 39,809
Time certificates of deposit 383,943 210,785 686,705 345,436
Bank borrowings 140,431 119,533 286,662 286,002
Repurchase agreements - 42,672 - 82,726
Interest expense on note payable 28,812 65,286 55,071 88,711
---------- -------- ---------- ----------
Total interest expense 684,836 492,241 1,229,065 916,019
---------- -------- ---------- ----------
Net interest income 333,399 137,081 454,264 245,065
Provision for loan losses 18,000 1,200 30,000 2,400
---------- -------- ---------- ----------
Net interest income after
provision for loan losses 315,399 135,881 424,264 242,665
---------- -------- ---------- ----------
Other income:
Net security gains 9,340 8,720 95,861 32,097
Decrease in market value
of Loans Held for Sale (75,697) - (165,388) -
Service charges and Fees 6,917 1,396 7,513 2,559
Foreign exchange income 12,364 20,012 30,852 32,443
Mortgage banking income 541,742 163,272 835,801 307,855
Profit from equity investment in
Michigan BIDCO 20,000 23,756 40,000 70,482
Other 60,342 10,465 104,109 21,014
---------- -------- ---------- ----------
Total other income 575,008 227,621 948,748 466,450
---------- -------- ---------- ----------
The accompanying notes are an integral part of the
consolidated financial statements.
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6
UNIVERSITY BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Income (continued)
(Unaudited)
For the Three Month For the Six Month
Periods Ended Periods Ended
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
----------- ---------- ---------- ----------
Other expenses:
Salaries and wages $ 531,605 $ 100,582 $ 902,432 $ 179,714
Employee benefits 93,236 23,408 151,256 34,729
Occupancy, net 77,695 15,290 148,941 29,075
Taxes other than income 6,958 12,084 11,756 14,901
Data processing and equipment expense 94,392 21,411 167,126 45,111
Correspondent bank service charges 4,470 5,262 8,649 17,086
Advertising 43,207 3,069 69,259 6,194
Net expense of other real estate owned 602 4,302 1,016 7,517
FDIC insurance 500 17,550 1,000 35,700
Mortgage banking expense 75,853 21,034 102,193 36,859
Legal and audit expense 72,307 117,715 129,351 211,181
Other operating expenses 190,504 63,373 345,830 170,701
---------- ---------- ---------- ----------
Total other expenses 1,191,329 405,080 2,038,809 788,768
---------- ---------- ---------- ----------
Income (Loss) before income taxes (300,922) (41,578) (665,797) (79,653)
---------- ---------- ---------- ----------
Income taxes (benefit) (116,181) (24,493) (243,823) (49,455)
---------- ---------- ---------- ----------
Net Income (Loss) $ (184,741) $ (17,085) $ (421,974) $ (30,198)
========== ========== ========== ==========
Earnings(Loss) per common share (Note 1) ($0.148) ($0.014) ($0.338) ($0.025)
========== ========== ========== ==========
Weighted average shares outstanding (Note 1) 1,250,843 1,198,480 1,249,524 1,199,236
========== ========== ========== ==========
Dividends declared per share $ --- $ --- $ --- $ ---
========== ========== ========== ==========
The accompanying notes are an integral part of the
consolidated financial statements.
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7
UNIVERSITY BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
For the Six-Month
Periods Ended
June 30,
1996 1995
------------ -----------
Cash flow from operating activities:
Net income (loss) $ (421,974) $ (30,198)
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation and amortization 251,173 58,866
Provision for loan loss 30,000 2,400
Mortgage loans originated for sale (127,676,772) (25,268,110)
Proceeds from sale of loans 108,051,816 22,159,337
Net loss/(gain) on loan sales (345,150) (21,923)
Net amortization/accretion on securities (25,241) (9,012)
Gain on sale of available for
sale securities (95,861) (32,097)
Loss/(Gain) on sale of trading account
securities 62,336 5,290
Proceeds from sales of trading account
securities 8,948,897 4,026,566
Change in:
Investment in Northern Michigan BIDCO (39,469) (70,482)
Purchased mortgage servicing rights (386,251) (408,390)
Other real estate 130,596 (95,536)
Increase in other assets (514,849) (353,141)
Increase/(Decrease) in other liabilities 1,322,104 (1,117,616)
------------ -----------
Net cash from (used in)
operating activities (10,708,645) (1,154,046)
------------ -----------
Cash flow from investing activities:
Purchase of available for sale
securities (9,079,973) (5,738,158)
Proceeds from sales of available for
sale securities 8,627,779 5,759,971
Loans granted net of repayments (6,048,597) (3,131,287)
Premises and equipment expenditures (744,389) (619,663)
Principal paydowns on available for
sale securities 5,622,375 943,987
------------ -----------
Net cash from (used in)
investing activities (1,622,805) (2,785,150)
------------ -----------
Cash flow from financing activities:
Net increase in deposits 17,872,548 3,988,118
Other Bank Borrowings (3,000,000) 760,331
Net increase in mortgage escrow accounts 492,964 162,621
Amount due to Broker - (1,215,919)
Principal payment on notes payable (25,000) -
Issuance of common stock 66,750 -
Purchase of treasury stock (19,927)
------------ -----------
Net cash from
financing activities 15,407,262 3,675,224
------------ -----------
Net change in cash and
cash equivalents 3,075,812 (263,972)
Cash and cash equivalents:
Beginning of period 1,937,631 1,514,679
End of period $ 5,013,443 $ 1,250,707
============ ===========
Supplemental disclosure of cash flow
information:
Cash paid for interest expense $ 1,166,519 $ 930,119
Cash paid for income taxes - 881,719
The accompanying notes are an integral part of the financial statements.
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8
UNIVERSITY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(1) General
NAME CHANGE. In June 1996, the Company changed its name from Newberry
Bancorp, Inc. to University Bancorp, Inc.
See note 1 of Notes to Financial Statements incorporated by reference
in the Company's 1995 Annual Report on Form 10-K for a summary of the Company's
significant accounting policies.
The unaudited 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. Such financial statements generally
conform to the presentation reflected in the Company's 1995 Annual Report on
Form 10-K, and reflect adjustments which are solely of a normal, recurring
nature. The current interim periods reported herein are included in the fiscal
year subject to independent audit at the end of the year.
Earnings per share are calculated based on the weighted average number
of common shares outstanding during each period as follows: 1,250,843 and
1,198,480 for the three months ended June 30, 1996 and 1995, respectively, and
1,249,524 and 1,199,236 for the six months ended June 30, 1996 and 1995,
respectively. Stock options are considered not dilutive and therefore, not
included in earnings per share calculations.
(2) Available-for-sale Securities
The Bank's available-for-sale securities portfolio at June 30, 1996 had
a net unrealized gain of approximately $86,000 as compared with a net
unrealized gain of approximately $129,000 at March 31, 1996 and $215,000 at
December 31, 1995, a decrease of $43,000 and $129,000, respectively, mainly due
to sales of securities at a profit during the periods. The securities were
sold to provide funds for increased loan demand.
Available-for-sale securities
June 30, 1996
--------------------------------------------------------------------------
Gross Estimated
Amortized Unrealized Fair
(in thousands) Cost Gains Losses Value
- -------------------------------------------------------------------------------------------------
U.S. agency mortgage-backed 6,685 33 (131) 6,587
Other mortgage-backed - - - -
U.S. agency equity 1,032 151 - 1,183
Other equity 110 33 - 143
- -------------------------------------------------------------------------------------------------
Total investment securities
available for sale $7,827 $217 $(131) $7,913
====== ==== ===== ======
9
Available-for-sale securities (continued) 9
March 31, 1996
------------------------------------------------------------------
Gross Estimated
Amortized Unrealized Fair
(in thousands) Cost Gains Losses Value
- ------------------------------------------------------------------------------------------
U.S. agency mortgage-backed 11,325 45 (104) 11,266
Other mortgage-backed 181 - 181
U.S. agency equity 842 114 - 956
Other equity 160 74 - 234
- ------------------------------------------------------------------------------------------
Total investment securities
available for sale $12,508 $233 $(104) $12,637
======= ==== ===== =======
December 31, 1995
---------------------------------------------------------------
Gross
Amortized Unrealized Fair
(in thousands) Cost Gains Losses Value
- ---------------------------------------------------------------------------------------
U.S. agency mortgage-backed $10,243 $163 $(63) $10,343
Other mortgage-backed 1,680 29 - 1,709
U.S. agency equity 842 13 - 855
Other equity 111 73 - 184
- ---------------------------------------------------------------------------------------
Total securities
available for sale $12,876 $278 $(63) $13,091
======= ==== ==== =======
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
SUMMARY
The following table summarizes the pre-tax income (loss) of each profit
center of the Company for the six months ended June 30, 1996 and 1995:
SIX MONTHS ENDED JUNE 30, 1996 PRE-TAX INCOME (LOSS) SUMMARY
Banking & Mortgage Banking $(693,387)
Midwest Loan Services (656)
Varsity Funding 34,230
Varsity Mortgage 26,184
Equity in earnings of Michigan BIDCO 40,000
Corporate Office (72,168)
---------
Total $(665,797)
SIX MONTHS ENDED JUNE 30, 1995 PRE-TAX INCOME (LOSS) SUMMARY
Banking & Mortgage Banking (95,857)
Equity in earnings of
Northern Michigan BIDCO 70,482
Corporate Office (54,278)
---------
Total $ (79,653)
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10
For the three months ended June 30, 1996, a net loss of $184,741 was
realized versus a net loss of $17,085 in the same period in 1995. Net interest
income increased to $333,399 in the 1996 period from $137,081 in the 1995
period, and other income was $575,008 in the 1996 period versus $227,621 in the
1995 period. The increase in net loss was primarily the result of the increase
in operating expenses in the quarter. Other operating expense increased to
$1,191,329 in the 1996 period from $405,080 in the 1995 period.
For the six months ended June 30, 1996, a net loss of $421,974 was
realized versus a net loss of $30,198 in the same period in 1995. Net interest
income increased to $454,264 in the 1996 period from $245,065 in the 1995
period, and other income was $948,748 in the 1996 period versus $466,450 in the
1995 period. The increase in net loss was primarily the result of the increase
in operating expenses in the quarter. Other operating expense increased to
$2,038,809 in the 1996 period from $788,768 in the 1995 period.
Other operating expenses increased in both the three and six months
periods as a result of the start-up of the Ann Arbor main office, the start-up
of the Varsity Mortgage operation during the quarter, and the increased level of
expenses over the prior year related to these operations and to the acquisition
of Midwest Loan Services and the start-up of Varsity Funding. Income from the
equity in earnings of Michigan BIDCO decreased mainly as a result of a one-time
expense associated with the contributions paid by the BIDCO to Northern Michigan
Foundation to provide for initial capitalization.
The loss of the Company for the six months ended June 30, 1995 was
principally a result of a lack of profitability from the Company's banking
operations following the sale in December 1994 of the bulk of the Bank's retail
deposits and loans, which was only partially offset by the equity in the
earnings of Michigan BIDCO and income from the mortgage banking operation.
Net income (loss) per share in the three months ended June 30, 1996 was
($0.148), and in the three months ended June 30, 1995 was ($0.014) per share.
Net income (loss) per share in the six months ended June 30, 1996 was ($0.338),
and in the six months ended June 30, 1995 was ($0.025) per share. During the
six months ended June 30, 1996 there was a decrease of $85,166 in the FASB 115
value of the securities available-for-sale, versus the six months ended June 30,
1995 when there was an improvement of $579,304 in the FASB 115 value of the
securities available-for-sale.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income increased to $333,399 for the three months ended
June 30, 1996 from $137,081 for the three months ended June 30, 1995. Net
interest income rose from the year ago period because of an increase in the
average balance of loans and a decrease in the percentage cost of interest
bearing liabilities. In addition, the
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yield on interest earning assets increased to 8.21% in the 1996 period from
7.58% in the 1995 period. The cost of interest bearing liabilities decreased
to 5.91% in the 1996 period from 6.57% in the 1995 period, causing net interest
income as a percentage of total earning assets to increase to 2.69% from 1.65%.
For the six month period ended June 30, 1996, net interest income
increased to $454,264 from $245,065 in the 1995 period. The yield on interest
earning assets increased to 7.82% in the 1996 period from 7.35% in the 1995
period. The cost of interest bearing liabilities decreased to 6.00% in the 1996
period from 6.53% in 1995 period, resulting in an increase in net interest
income as a percent of total average earning assets to 2.11% from 1.55%.
Interest income
Interest income increased to $1,018,235 in the quarter ended June 30,
1996 from $629,322 in the quarter ended June 30, 1995. The average volume of
interest earning assets increased to $49,602,663 in the 1996 period from
$33,215,997 in the 1995 period, an increase of 49.3%. The increased volume of
earning assets was due to a 160.5% increase in loans. Interest income increased
as a result of an increase in earning assets. The overall yield on earning
assets increased from 7.58% to 8.21%, despite a drop in the yield on loans from
9.78% to 9.08%, as more earning assets were invested in loans, and lower
yielding investment securities were sold to fund loan growth.
Interest income increased in the six months ended June 30, 1996 to
$1,683,329 from $1,161,084 in the six months ended June 30, 1995. The average
volume of interest earning assets increased to $43,040,892 in the 1996 period
from $31,607,792 in the 1995 period, an increase of 36.2%. The increase in
interest income was primarily attributable to the increase in the volume of
earning assets. The overall yield on earning assets increased to 7.82% from
7.35%, despite a drop in the yield on loans from 10.10% to 9.01%, as more
earning assets were invested in loans, and lower yielding investment securities
were sold to fund loan growth. The increases in loans are the result of the
new activity generated from the Bank's Ann Arbor office and the activity
generated by Varsity Funding and Varsity Mortgage.
The average volume of investments in the three months ended June 30,
1996 decreased 26.6% over the same period in 1995, as the Bank's short term
investments were drawn down. In the six month period, the average volume of
investments decreased 19.4% over the same period in 1995, as the Bank sold
investment securities to fund loan growth.
The yield increased from 6.07% in the three month period ended June 30,
1995 to 6.10% in the 1996 period. The increase in yields was in line with the
general increase in interest rates between 1995 and 1996, partially offset by an
increase in lower yielding fed funds for liquidity management purposes. In the
six month periods, the yield increased from 5.82% in the 1995 period to 5.89% in
the 1996 period. The increase in yields was the result of the same factors as
in the three month period. The overall yield on the investments was restrained
by the increased amount of fed funds the Bank has operated
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with during 1996, as a result of the increased loan origination activity
associated with the Bank's Ann Arbor office, Varsity Funding and Varsity
Mortgage.
Interest Expense
Interest expense increased to $684,836 in the three months ended June
30, 1996 from $492,241 in the 1995 period. The increase was due to an increase
in interest bearing liabilities as a result of the growth of the Bank's Ann
Arbor operation, only partially offset by a decrease in rates paid on deposits
and borrowings. The cost of funds decreased to 5.91% in the 1996 period from
6.57% in the 1995 period. The average volume of interest bearing liabilities
increased 54.7% in the 1996 period versus the 1995 period.
In the six month periods ending June 30, 1996 and 1995, interest expense
increased to $1,229,065 in 1996 from $916,019 in the 1995 period. The increase
was due to the same factors as in the three months periods discussed above. The
cost of funds decreased to 6.00% in the 1996 period from 6.53% in the 1995
period. The average volume of interest bearing liabilities increased 46.1% in
the 1996 period versus the 1995 period. The increase in deposits is a result of
the increased deposit activity associated with the Bank's Ann Arbor office. As
of August 6, 1996 (the six month anniversary date of the opening of the Ann
Arbor office), a total of just over $12,000,000 in new deposits had been
generated in the Ann Arbor office.
MONTHLY AVERAGE BALANCE SHEET AND
INTEREST MARGIN ANALYSIS
The following tables summarize monthly average balances, revenues from
earning assets, expenses of interest bearing liabilities, their associated yield
or cost and the net return on earning assets for the three and six months ended
June 30, 1996 and 1995.
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13
Six Months Ended June 30,
--------------------------------------------------------------
1996 1995
------------------------------- ------------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
ASSETS
Interest Earning Assets:
Short Term Investments:
Interest Bearing Deposits $ 1,046,828 $ 24,690 4.72% $ 693,359 $ 20,083 5.79%
Federal Funds Sold 3,608,546 92,927 5.15% 896,200 27,563 6.15%
Investment Securities:
Non-taxable (1) - - - 100,839 3,604 7.15%
Taxable 11,728,818 364,734 6.22% 18,626,958 539,849 5.80%
----------- ---------- ---- ----------- ---------- ----
Total Investment Securities 16,384,192 482,351 5.89% 20,317,356 591,099 5.82%
----------- ---------- ---- ----------- ---------- ----
Loans:
Commercial 4,660,916 231,487 9.93% 1,870,537 116,382 12.44%
Real Estate Mortgage 19,964,438 870,711 8.72% 7,750,876 365,211 9.42%
Installment/Consumer 2,031,346 98,780 9.73% 1,669,023 88,392 10.59%
----------- ---------- ---- ----------- ---------- ----
Total Loans 26,656,700 1,200,978 9.01% 11,290,436 569,985 10.10%
----------- ---------- ---- ----------- ---------- ----
Total Interest Bearing Assets 43,040,892 1,683,329 7.82% 31,607,792 1,161,084 7.35%
----------- ---------- ---- ----------- ---------- ----
Less allowance for possible
loan losses & deferred fees (336,876) (350,885)
----------- -----------
42,704,016 31,256,907
Mortgage servicing rights 3,003,773 1,867,138
Non earning assets 677,853 1,864,046
----------- -----------
Total Assets $46,385,642 $34,988,091
=========== ===========
LIABILITIES
Interest Bearing Liabilities:
Deposit Accounts:
Now/S-Now $ 372,007 $ 9,359 5.03% $ 67,057 $ 829 2.47%
Savings 55,207 685 2.48% 93,214 1,180 2.53%
Canadian Dollar Savings 1,540,036 42,684 5.54% 1,148,590 38,629 6.73%
Time 22,586,228 686,705 6.08% 10,722,125 345,436 6.44%
Borrowed Funds 9,817,680 297,402 6.06% 12,344,270 412,342 6.68%
Money Market Accounts 5,612,685 147,899 5.27% 2,675,602 72,506 5.42%
Holding Company Debt 985,000 44,331 9.00% 1,000,000 45,097 9.02%
----------- ---------- ---- ----------- ---------- ----
Total interest bearing
liabilities $40,968,843 1,229,065 6.00% $28,050,858 916,019 6.53%
----------- ---------- ---- ----------- ---------- ----
Net interest income $ 454,264 $ 245,065
=========== ==========
Weighted average rate spread 1.82% 0.82%
==== ====
Net yield on average earning
assets 2.11% 1.55%
(1) Actual yields; not adjusted for tax-equivalent yields
(2) For purposes of computing average yields on the loan portfolio as
presented in the above analysis, loans on non-accrual status are included
in the average loan balances.
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14
Three Months Ended June 30,
--------------------------------------------------------------------
1996 1995
--------------------------------- ---------------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
ASSETS
Interest Earning Assets:
Short Term Investments:
Interest Bearing Deposits $ 1,052,677 $ 11,625 4.42% $ 755,077 $ 11,096 5.88%
Federal Funds Sold 2,872,448 36,883 5.14% 757,117 11,383 6.01%
Investment Securities:
Non-taxable (1) - - - 100,634 1,802 7.16%
Taxable 10,574,961 172,720 6.53% 18,129,524 275,494 6.08%
----------- ---------- ---- ----------- -------- ----
Total Investment Securities 14,500,086 221,228 6.10% 19,742,352 299,775 6.07%
----------- ---------- ---- ----------- -------- ----
Loans:
Commercial 5,918,915 146,837 9.92% 2,072,864 60,371 11.65%
Real Estate Mortgage 26,968,583 583,503 8.65% 9,617,410 229,246 9.53%
Installment/Consumer 2,215,079 66,667 12.04% 1,783,371 39,930 8.96%
----------- ---------- ---- ----------- -------- ----
Total Loans 35,102,577 797,007 9.08% 13,473,645 329,547 9.78%
----------- ---------- ---- ----------- -------- ----
Total Interest Bearing Assets 49,602,663 1,018,235 8.21% 33,215,997 629,322 7.58%
----------- ---------- ---- ----------- -------- ----
Less allowance for possible
loan losses & deferred fees (331,575) (347,402)
----------- -----------
49,271,088 32,868,595
Mortgage servicing rights 3,078,194 1,979,890
Non earning assets 584,359 1,572,766
----------- -----------
Total Assets $52,933,641 $36,421,251
=========== ===========
LIABILITIES
Interest Bearing Liabilities:
Deposit Accounts:
Now/S-Now $ 422,033 $ 5,320 5.04%$ 48,972 $ 350 2.86%
Savings 81,225 502 2.47% 86,155 569 2.64%
Canadian Dollar Savings 1,490,797 19,093 5.12% 1,230,570 20,675 6.72%
Time 25,539,678 383,943 6.01% 13,114,522 210,785 6.43%
Borrowed Funds 9,635,360 147,062 6.11% 12,221,994 205,819 6.74%
Money Market Accounts 8,221,038 106,735 5.19% 2,276,676 32,371 5.69%
Holding Company Debt 986,000 22,181 9.00% 1,000,000 21,672 8.67%
----------- ---------- ---- ----------- -------- ----
Total interest bearing
liabilities $46,376,131 684,836 5.91% $29,978,889 492,241 6.57%
----------- ---------- ---- ----------- -------- ----
Net interest income $ 333,399 $137,081
========== ========
Weighted average rate spread 2.30% 1.01%
==== ====
Net yield on average earning
assets 2.69% 1.65%
(1) Actual yields; not adjusted for tax-equivalent yields
(2) For purposes of computing average yields on the loan portfolio as
presented in the above analysis, loans on non-accrual status are included
in the average loan balances.
15
15
Provision for Loan Losses
With the opening of the Bank's new Ann Arbor operation, management increased
the monthly loan loss provision to a rate of $6,000 in February 1996 from $400
in the prior-year period. The increase was the result of management's desire
to build reserves, as new loans are originated in Ann Arbor. The actual loan
losses were $33,662 and $1,200 in the three and six month periods ended June
30, 1996 versus $35,834 and $42,872 in the three and six month periods ended
June 30, 1995.
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
--------------------------------------
Provision for loan losses $18,000 $ 1,200 $ 30,000 $ 2,400
Loan charge-offs 33,662 16,247 35,834 42,872
Reclassification - - - (19,736)
Recoveries 1,016 10,512 4,200 10,898
------- ------- ------- -------
Net increase (decrease)
in provision $(14,646) $(4,535) $( 1,634) $(49,310)
At At At
June 30, March 31, December 31,
1996 1996 1995
-----------------------------------------
Total loans (1) $15,287,666 $10,712,927 $9,270,703
Reserve for loan losses 315,551 330,197 317,185
Reserve/Loans, % (1) 2.06% 3.08% 3.42%
(1) Excludes loans held for sale.
In addition to the general loan loss reserve, the Company had a
Michigan Strategic Fund loan loss reserve balance of $5,853, $5,306 and $5,212
available at June 30, 1996, March 31, 1996 and December 31, 1995, respectively,
to offset loan losses on a group of commercial loans amounting with an original
balance of approximately $564,000 at June 30, 1996, March 31, 1996 and December
31, 1995. The Michigan Strategic Fund (the "MSF") is a State of Michigan
sponsored program. Under the terms of the program, the Bank can assign, at the
Bank's sole discretion, business loans to be covered by MSF guarantees. The
funds which are paid to the Bank by the MSF are held at the Bank in a
segregated account to offset such loan losses. If there are no losses and the
loans are all liquidated, the MSF would retain ownership of the funds in the
segregated account.
16
16
The following schedule summarizes the Company's nonperforming loans for
the periods indicated:
At At At
June 30, March 31, December 31,
1996 1996 1995
-----------------------------------------
Past due 90 days and over
and still accruing:
Real estate 32,530 19,585 52,401
Installment 9,654 22,705 34,400
Commercial 71,537 - 9,557
------- ------- -------
Subtotal 113,721 42,290 96,358
Nonaccrual loans:
Real estate 87,740 85,666 85,666
Installment - 1,518 -
Commercial 130,878 267,614 326,312
------- ------- -------
Subtotal 218,618 354,798 411,978
Other real estate owned - 130,596 130,596
------- ------- -------
Total 332,339 527,684 638,932
As % of loans (1) 2.17% 4.93% 6.89%
Ratio of reserve for loan
losses to all loans
90 days and over 94.9% 83.2% 62.4%
(1) Excluding loans held for sale.
During the June 1996 quarter the Bank sold its last two parcels of other
real estate owned for an amount slightly in excess of their net book value of
$130,596.
Economic conditions in the Bank's primary market area in Ann Arbor were
strong in the period. The Sault Ste. Marie area appears not to be growing.
The Newberry area appears to be rapidly growing because of the establishment of
a major prison complex in the town by the State Department of Corrections. The
improvement in economic conditions in the Newberry area are the major reason
why total non-performing assets have decreased 48.0%, from $527,684 at December
31, 1995 to $332,339 at June 30, 1996. The sale of the bulk of the Bank's loan
portfolio in December 1994 leaves the Bank with a larger than average loan loss
reserve and a larger than average ratio of underperforming loans. The bulk of
the Bank's non-performing loans enumerated above relate to borrowers in the
Newberry area, with the remainder in the Sault Ste. Marie area.
Management believes that the current reserve level and the ongoing loan
loss reserve for loan losses is adequate to absorb future losses inherent in
the loan portfolio, although the ultimate adequacy of the reserve is dependent
upon future economic factors beyond the Company's
17
17
control. A downturn in the general nationwide economy will tend to aggravate,
for example, the problems of local loan customers currently facing
difficulties. A general nationwide business expansion could conversely tend to
diminish the severity of any such difficulties.
Non-Interest Income
Total non-interest income increased to $575,008 for the three months ended
June 30, 1996 from $227,621 for the three months ended June 30, 1995. The
increase was principally a result of a $378,470 increase in the Bank's mortgage
banking income, which was partially offset by a decrease in the market value of
loans held for sale.
Total non-interest income increased to $948,748 for the six months ended
June 30, 1996 from $466,450 for the six months ended June 30, 1995. The
increase was principally a result of a $527,946 increase in the Bank's mortgage
banking income, which was partially offset by a decrease in the market value of
loans held for sale, and a decrease in the Company's profit from the equity
investment in Michigan BIDCO.
Securities. During the six months ended June 30, 1996, securities
totalling $8,627,779 were sold from the Bank's available-for-sale securities
portfolio with a gross realized gain of $95,861 and no losses. During the
period, the Bank sold the bulk of its fixed rate mortgage-backed securities and
a portion of its agency backed CMOs indexed monthly to one year CMT. During
the first and second quarters of 1996, the yield on the Bank's taxable
investment securities was 5.53% and 6.53%, respectively, versus the cost of
borrowed funds of 6.01% and 6.11% and CDs of 6.17 and 6.01%, respectively. As
the rates on the Bank's adjustable rate mortgage-backed securities continue to
adjust upward, there is expected to be a larger positive spread between the
cost of funds and the securities portfolio yield.
Foreign Exchange. Foreign exchange revenues decreased from $20,012 for
the three months ended June 30, 1996 to $12,364 in the 1995 period, as a result
of lower customer activity at the Bank. For the six months ended June 30, 1996
and 1995, foreign exchange revenues decreased from $32,443 to $30,852.
Mortgage Banking. Mortgage banking income increased from $163,272 in the
three months ended June 30, 1995 to $541,742 in the three months ended June 30,
1996. Sharply increased loan purchase and origination volumes during the 1996
period were only partially offset by a decrease in return from the Bank's
investment in FHLMC single family mortgage loans serviced for others, as a
result of amortization of servicing right assets due to mortgage payoffs.
There was also a lower of cost or market adjustment of $75,697 charged against
income in the 1996 period to mark the mortgages held for sale to the lower of
cost or market. No lower of cost or market adjustment was required in the 1995
period.
The result for the 1996 period was also dissimilar from the 1995 period in
that it also included revenue from Midwest Loan Services,
18
18
Varsity Funding and Varsity Mortgage. Varsity Mortgage began operations in
March 1996, and posted its first profitable month in June 1996. On a combined
basis, Varsity Funding and Varsity Mortgage had pre-tax profit of approximately
$75,000 in the month of June 1996, $17,000 in the month of May 1996 and $19,000
in the month of April 1996. As of June 30, 1996 Varsity Funding and Varsity
Mortgage had earned enough profit to recoup the start-up losses of late 1995
and the first quarter of 1996. In future quarters, as a result of a profit
sharing agreement, the Bank would be entitled to share in the next $1,300,000
of pre-tax profit on a 50/50 basis with the managers and employees of these
subsidiaries.
At June 30, 1996, the Bank and its subsidiaries owned the right to
service $288,346,000 of FHLMC mortgages for others, of which $204,655,000 was
owned by the Bank and $83,691,000 was owned by Midwest Loan Services. The
following table summarizes the portfolio by type and mortgage note rate:
($ in 000s) FIXED RATE - BY MATURITY
----------------------------------------
MORTGAGE RATE (%) ARMs UNDER 10 10-25 OVER 25
9.00 and up 916 468 368 5,220
8.50 - 8.99 6,465 858 1,088 22,279
8.00 - 8.49 7,760 1,188 2,646 40,014
7.50 - 7.99 1,728 4,919 6,865 78,175
7.00 - 7.49 239 4,935 22,976 36,895
6.50 - 6.99 96 5,379 16,802 10,968
6.00 - 6.49 387 1,341 2,760 1,659
under 6.00 1,962 623 62 305
------ ------ ------ -------
19,553 19,711 53,568 195,515
Current market
interest rates 5.75 7.50% 7.63% 8.13%
Average annual
servicing fee 0.39% 0.26% 0.28% 0.26%
Lower interest rates in late 1995 were responsible for a surge in
refinancing. If interest rates were to drop back down to those levels,
refinancings and payoffs would likely increase over recent experience since a
significant portion of the fixed rate mortgages being serviced carry interest
rates within 1.0% of the current market rate. Based on recent comparable sales
and indications of market value from industry brokers, management believes that
the current market value of the Bank's portfolio of mortgage servicing rights
exceeds cost by approximately $344,000 to $236,000. 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. If
interest rates were to decline to levels briefly seen during the Summer of
1993, the portfolio would experience significant refinancings and payoffs,
which would hurt income.
19
19
Mortgage Payoffs
First Quarter 1994 $5,347,079
Second Quarter 1994 3,358,617
Third Quarter 1994 1,539,680
Fourth Quarter 1994 1,544,922
First Quarter 1995 765,480
Second Quarter 1995 1,239,571
Third Quarter 1995 1,919,412
Fourth Quarter 1995 3,675,824
First Quarter 1996 6,303,052
Second Quarter 1996 4,453,312
The above figures reflect those of the Bank only and not the payoffs associated
with Midwest Loan Services' servicing rights portfolio, since the Bank acquired
80% of Midwest on December 1, 1995.
At June 30, 1996, the Bank had outstanding purchase commitments to buy
single family FHLMC qualifying mortgage loans of $4,245,000 and outstanding
forward commitments to deliver FHLMC mortgage-backed securities of $15,600,000,
substantially all of which commitments were for delivery within three months or
less, and financial futures used for hedging available-for-sale mortgage loans
of $2,400,000. The following tables summarize mortgage banking activity for
the three and six months periods ending June 30, 1996 and 1995:
(amounts in $000s) Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
----------------- -----------------
Net servicing originated 15,552 4,920 16,336 4,367
Bulk servicing purchased - - - 29,996
------ ------ ------ ------
Net increase in servicing 15,552 4,920 16,336 34,363
====== ====== ====== ======
(amounts in $000s) June 30, March 31, December 31,
1996 1996 1995
--------------------------------------
Total servicing (1) 204,655 189,103 188,319
Book value of servicing 2,198 2,056 2,035
Estimated market value
of servicing:
Management estimate (2) 2,434 2,294 2,208
Discounted cash flow (3) 2,542 2,361 2,318
Estimated excess of market
over book value (4) 344-236 305-238 283-173
(1) Excludes servicing related to FHLMC and FNMA qualified loans held for
delivery, and excludes servicing held by Midwest Loan Services
(2) Assumes a price based upon market transactions at June 30, 1996 of (the
notes to the table are continued on the following page)
20
20
5.6x (5.6 times the servicing fee) for 30-year servicing, 4.6x for 15-year
servicing, 3.0x for Balloon servicing and 2.9x for ARM servicing. Assumes
a price at March 31, 1996 of 5.0x for 30-year servicing, 4.0x for 15-year
servicing, 2.5x for Balloon servicing and 2.1x for ARM servicing, and at
December 31, 1995 of 4.7x for 30-year servicing, 4.0x for 15-year
servicing, 2.4x for Balloon servicing and 2.3x for ARM servicing. Excess
servicing and servicing related to California properties are each
discounted from these amounts at a multiple of one times the servicing
fee.
(3) Uses net present value analysis of future cash flows, discounted back at
13.14% (the original rate used to price the bulk portfolio purchased in
1993).
(4) Range based upon the two methods used in (2) and (3), above.
During 1994 and early 1995, market transactions for servicing rights
showed a trend to increased prices. Prices decreased throughout the remainder
of 1995 to a low late in the year, and rose somewhat in the first half of 1996.
Recent origination activity has increased and management anticipates
that its monthly mortgage origination activity will increase in the third
quarter of 1996 from the levels of the second quarter.
Michigan BIDCO. Michigan BIDCO (the "BIDCO") invests in businesses in
Michigan with the objective of fostering job growth and economic development.
As of June 30, 1996, the BIDCO had made fifteen such investments, amounting to
a total of $9,845,600 at original cost (before repayments or participations
sold). At June 30, 1996, the BIDCO had total assets of $6,385,687. For the
three and six months ended June 30, 1996 and 1995, the Bank's 44.1% equity
share in the earnings of the BIDCO's reported net income was $20,000 and
$23,756, and $40,000 and $70,482, respectively. Income for 1995 and the 1996
first quarter was negatively impacted by an unusual expense associated with the
start-up of the BIDCO's affiliate, Northern Michigan Foundation (see below).
The Bank owns 280 shares of common stock in the BIDCO, currently
representing a 44.1% equity interest. The Company's consolidated fully diluted
ownership in the BIDCO is 15.6%, after considering the impact of convertible
bonds.
Michigan BIDCO makes its investments in the form of loans or direct
equity investments, or a combination thereof. The BIDCO's limit on its
investment in one borrower is currently $500,000, and the BIDCO arranges
participations for investments in excess of this amount. The Bank is
restricted from investing or lending to a business that the BIDCO finances.
The BIDCO typically receives warrants or participation rights in the companies
in which it invests. To date, investments (at original investment cost) have
been made in the following types of businesses:
21
21
Michigan BIDCO, investments:
---------------------------
Total Equity
Industry Investment Participation?
#1 ABC-TV affiliate $ 300,000 yes
#2 Adult foster care 40,000 no
#3 Cable TV 545,000 yes
#4 Children's clothing manufacturer 200,000 yes
#5 Environmental engineering 100,000 repurchased
#6 Limited service hotels 738,600 yes
#7 Metal manufacturing 80,000 no
#8 Paper converting 2,662,000 yes
#9 Plastic injection molding 2,000,000 repurchased
#10 Railcar parts manufacturing 125,000 yes
#11 Railroad boxcar leasing 1,300,000 no
#12 Recycled paper pulp mill 780,000 yes
#13 Residential mortgage servicing 450,000 repurchased
#14 Tissue paper mill 500,000 yes
#15 Injection molding equipment 25,000 no
---------
Total $9,845,600
==========
The loans associated with investments #1, 2, 4, 9, and 13 have been
repaid in full. Loan participations have been sold in loans associated with
investments #6, 8, 11, and 12. At June 30, 1996, the BIDCO had one outstanding
conditional commitment to lend an additional $375,000 to investee #15, which
loan would carry equity participation rights. Subsequent to quarter-end, the
BIDCO lent $300,000 to investee #1 for additional equity to facilitate an
expansion of its market to cover the western U.P. of Michigan.
Northern Michigan Foundation. In December 1995, the BIDCO donated
$225,000 to provide the initial capitalization for Northern Michigan Foundation
(the "Foundation"), and in early 1996, donated an additional $75,000 to the
Foundation. These donations negatively impacted the BIDCO's and the Company's
earnings in the 1996 first quarter. The BIDCO anticipates that on an ongoing
basis a portion of its overhead will be borne by the Foundation. The BIDCO and
the Foundation share administrative staffs and offices, with the Foundation
reimbursing the BIDCO for these services. As a result of its capitalization by
the BIDCO, the Foundation was able to borrow a total of $2,000,000 from the
U.S. Rural Economic Community Development Service Agency ("U.S. RECDS") at 1%
interest with a 30 year term. As of June 30, 1996, the Foundation had lent
$200,000 of its available funds to two borrowers.
Non-Interest Expense
Non-interest expense increased to $1,191,329 in the three months ended
June 30, 1996 from $405,080 for the three months ended June 30, 1995. The
increase was primarily the result of the start-up of the Ann Arbor main office,
the start-up of the Varsity Mortgage operation in
22
22
March 1996, and the increased level of expenses over the prior year related to
these locations and Midwest Loan Services (which was acquired in December 1995)
and Varsity Funding (which commenced operations in October 1995).
Non-interest expense increased to $2,038,809 in the six months ended June
30, 1996 from $788,768 for the six months ended June 30, 1995. The increase
was a result of the same factors as in the three months periods. Operations at
the Bank in Ann Arbor reflect a full quarter of personnel and other expenses in
the first quarter of 1996, although the revenue from the new main office did
not begin to increase until after the new office opened in early February 1996.
Non-interest operating expense for only the parent company increased from
$29,596 for the three month 1995 period to $37,268 for the 1996 period. Legal
and audit expenses and other miscellaneous expenses were higher. Non-interest
operating expense for only the parent company increased from $40,363 for the
six month 1995 period to $70,462 for the 1996 period. Legal and audit expenses
and other miscellaneous expenses were higher.
Liquidity and Capital Resources
Parent Company Liquidity:
At year-end 1995, University Bancorp, Inc. held cash and marketable
equity securities of $400,870. This decreased by $224,953 to $175,917 at June
30, 1996. The decrease in cash and marketable equity securities was due to
operating expenses and payments of principal and interest on the Company's
loan. During the six months ended June 30, 1996 no dividends were paid from
the Bank. Management anticipates that only modest dividends will be paid from
the Bank until the Bank's Ann Arbor operation grows large enough to achieve
profitability. Dividends from the Company's bank subsidiary together with
earnings from the cash and marketable equity securities held by the parent
company are the principal sources of income used to fund the parent company's
indebtedness owing to First Northern Bank & Trust ("FNB&T"), which amounted to
$975,000 and $1,000,000 at June 30, 1996 and at December 31, 1995,
respectively. The note matures November 1, 1996, but its is expected to be
available for renewal for an additional one year subject to the Company's
compliance with the loan terms. Management believes that the cash and
securities on hand together with available unrestricted retained earnings that
University Bank is able to pay the Company in the form of dividends, with
permission of the Company's secured debt lender, is currently sufficient to
cover any required principal reductions during 1996 on the holding company's
loan.
Capital Resources:
The following table sets forth the Bank's risk based assets, and the
capital ratios and risk based capital ratios of the Bank and Company.
23
23
UNIVERSITY BANK
Risk Adjusted Assets & Risk Adjusted Capital Ratio at June 30, 1996
($ in 000's)
Risk Adj.
Value Risk Asset
Asset (000's) Weight Value
- ------------------------------------------------ --------- --------- ---------
Cash and Fed Funds 3,548 0% 0
Reserve for Loan Losses (316) 0% 0
U.S. Gov't Agency Securities 747 0% 0
U.S. Treasury Securities 0 0% 0
U.S. Gov't Agency Mortgage-backed Securities 5,730 20% 1,146
U.S. Gov't Equity Securities 1,183 20% 237
U.S. Gov't Guaranteed Loans 216 20% 43
Balances at Domestic and Canadian Banks 1,450 20% 290
Other Mortgage-backed Securities 110 50% 55
1-4 Family Mortgage Loans 25,445 50% 12,723
All Other Loans 8,568 100% 8,568
All Other Securities 23 100% 23
Real Estate Owned 0 100% 0
Premises & Equipment 1,986 100% 1,986
Mortgage Servicing Rights 3,190 100% 3,190
Other Assets 2,128 100% 2,128
- ------------------------------------------------ ------
TOTAL ASSETS 54,008
======
Off Balance Sheet Items:
Letters of Credit and Committments 2,763 100.00% 2,763
Foreign Exchange Contracts 1,300 0.50%(1) 7
Interest Rate Contracts 1,200 0.00%(1) 15
FHLMC Loan Purchase Committments 4,245 50.00% 2,123
MBS FHLMC Forward Sell Committments 15,600 0.00%(1) 67
Agency Guaranteed Commercial Loans Sold 203 20.00% 41
------ ----- ------
TOTAL RISK-ADJUSTED ASSETS 35,403
======
CAPITAL RESOURCES
Shareholders Equity, GAAP 4,674 4,674
Unrealized (Gain) on AFS Securities - -
Minority interest in consolidated subsidiary 198 198
Mortgage Servicing Rights Limitation (912) (912)
----- -----
Total Equity (Tier 1) 3,960 3,960
Qualifying Loan Loss Reserve (Tier 2) 316 316
----- -----
Regulatory Capital (Tier 1 & Tier 2) 4,276 4,276
===== =====
Primary and Total Capital Ratio (Leverage) 7.92%
=====
Risk-adjusted Capital Ratio (Tier 1) 11.19% 11.19%
===== =====
Risk-adjusted Capital Ratio (Tier 1 & Tier 2) 12.08% 12.08%
===== =====
University Bancorp Consolidated
Total Capital Ratio (Leverage Ratio) 7.73%
=====
(1) Plus market value, or replacement cost valuation, as required.
24
24
University Bank Liquidity:
The Bank's primary sources of liquidity are customer deposits,
scheduled amortization and prepayments of loan principal, cash flow from
operations, maturities of various investments, the sale of loans held for sale,
reverse repo credit lines and borrowings from the Federal Home Loan Bank
secured by securities and residential mortgage loans, and overnight fed funds
credit lines from correspondent banks. In addition, the Bank invests in
overnight Federal Funds. At June 30, 1996, the bank had cash and due from
banks and fed funds on hand of $5,013,443. At June 30, 1996 the Bank had
available a $10,000,000 line of credit secured by mortgage loans for sale to
the secondary market. In order to bolster liquidity, the Bank has also sold
brokered CDs from time to time.
Impact of Inflation
The primary impact of inflation on the Company's operations is
reflected in increased operating costs. Since the assets and liabilities of
the Company are primarily monetary in nature, changes in interest rates have a
more significant impact on the Company's performance than the general effects
of inflation. However, to the extent that inflation affects interest rates, it
also affects the net income of the Company.
Rising long term and short term interest rates tend to increase the
value of the Bank's investment in mortgage servicing rights and improve the
Bank's current return on such rights by lowering required amortization rates on
the rights. However, rising interest rates tends to decrease new mortgage
origination activity, negatively impacting current income from mortgage banking
operations. The table on page 25 details the Bank's asset/liability
sensitivity as of June 30, 1996.
25
25
UNIVERSITY BANK
Asset/Liability Position Analysis 6-30-96
($ in 000'S)
Maturing or Repricing in
3 Mos 91 Days to 1 - 5 Over 5 ALL
ASSETS or Less 1 Year Years Years OTHERS TOTAL
------- ----- ----- ----- ------ -----
FEDERAL FUNDS 3,390 3,390
LOANS (1) 559 3,430 2,237 3,352 9,577
CANADIAN INVESTMENTS 10 10
SECURITIES 4,888 1,802 15 2 1,635 8,342
LOANS HELD FOR SALE 18,942 18,942
MATURED LOANS 822 822
VARIABLE RATE LOANS 4,023 4,023
OTHER ASSETS 6,653 6,653
CASH & DUE FROM BANKS 1,643 1,643
OVERDRAFTS 10 10
NON-ACCRUAL LOANS 542 542
VALUATION ADJUSTMENT 54 54
------ ----- ----- ----- ------ ------
TOTAL ASSETS 32,644 5,232 2,251 3,354 10,527 54,008
LIABILITIES
LARGE C.D.'S 940 1,132 502 2,574
REGULAR C.D.'S 3,671 17,127 1,156 21,953
MMDA 9,851 9,851
NOW 565 565
DEMAND 4,166 4,166
SAVINGS 128 128
CANADIAN SAVINGS 985 985
OTHER LIABILITIES 3,341 4,500 1,272 9,113
EQUITY 4,674 4,674
------ ----- ----- ----- ------ ------
TOTAL LIABILITIES 19,480 22,759 1,657 - 10,112 54,008
GAP 13,164 (17,527) 594 3,354 415 -
CUMULATIVE
GAP 13,164 (4,363) (3,769) (415)
GAP
PERCENTAGE 24.37% -8.08% -6.98% -0.77%
NOTES:
(1) Net of bad debt reserve
26
26
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 4. Submission of Matters to a Vote of Security Holders
The annual meeting of stockholders of the Company was held on June 3,
1996. At the meeting, the following persons were re-elected as the directors
of the Company with the following number of votes "for" or "withheld" with
respect to the election of such persons, there having been no abstentions or
broker non-votes reflected in the votes tabulated:
Nominee Elected Votes For Votes Withheld
- --------------- --------- --------------
Keith F. Brenner 1,052,165 25,000
Robert Goldthorpe 1,076,915 250
Mark C. Ouimet 1,077,165 -
Joseph Lange Ranzini 1,076,965 200
Joseph Louis Ranzini 1,052,165 25,000
Mildred Lange Ranzini 1,076,965 200
Paul Lange Ranzini 1,076,965 200
Stephen Lange Ranzini 1,052,165 25,000
Michael Talley 1,077,165 -
At the annual meeting the shareholders also approved an amendment to
the by-laws of the Company to change its name to University Bancorp, Inc. and
approved the adoption of the 1995 Incentive Stock Option Plan. As above, the
votes were tabulated:
Issue Votes For Votes Withheld
- ----- --------- --------------
Name Change 1,077,415 800
1995 ISO Plan 977,986 26,400
Item 5. Other information
Parent Company Financial Information
Certain condensed financial information with respect to
University Bancorp, Inc. follows:
27
27
UNIVERSITY BANCORP, INC. (The Parent)
Condensed Balance Sheet (Unaudited)
June 30, December 31,
1996 1995
ASSETS ---------- ----------
Cash and due from banks $ 55,477 $ 239,868
---------- ----------
Investment in subsidiary 4,673,952 5,023,367
---------- ----------
Due from ESOP 1,000 1,000
Securities available for sale (Note 2) 120,440 161,002
Investment in Northern Michigan BIDCO 202,540 202,780
Federal income tax receivable 146,372 58,030
Furniture, fixtures & equipment 242 1,743
Deferred taxes 8,537 8,537
Prepaid expenses and other assets 90,297 8,865
---------- ----------
Total other assets 569,428 441,957
TOTAL ASSETS 5,298,857 5,705,192
========== ==========
June 30, December 31,
1996 1995
LIABILITIES AND SHAREHOLDERS' EQUITY ------ ------
Note payable 975,000 1,000,000
Accrued interest payable 16,097 24,479
Accounts payable 16,909 29,815
Due to subsidiary 80,342 -
--------- ---------
Total Liabilities 1,088,348 1,054,294
Stockholders' equity:
Capital stock and paid in capital 2,739,359 2,672,609
Retained earnings 1,414,258 1,836,231
Net unrealized gain (loss) on
available-for-sale securities 56,892 142,058
--------- ---------
Total Stockholders' equity 4,210,509 4,650,898
--------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $5,298,857 $5,705,192
========== ==========
28
28
UNIVERSITY BANCORP, INC. (The Parent)
Condensed Statement of Operations For the Three-Month For the Six-Month
(Unaudited) Periods Ended Periods Ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
Net income (loss) from bank subsidiary $(169,045) $ 3,560 $(357,806) $ 5,480
Gain (loss) on sale of investment 28,318 6,665 28,318 5,625
Interest income 5,282 - 9,682 15,330
Other income 2,153 1,465 4,625 10,372
--------- --------- --------- --------
Total income (133,292) 11,690 (315,181) 36,807
--------- --------- --------- --------
Interest expense 22,181 21,672 44,331 45,097
Legal and Audit Expense 19,563 15,247 38,768 18,755
Public listing expense 1,390 1,000 2,390 2,000
Other expenses 16,315 13,349 29,304 19,608
--------- --------- --------- --------
Total expenses 59,449 51,268 114,793 85,460
--------- --------- --------- --------
Income (loss) before income taxes (192,741) (39,578) (429,974) (48,653)
--------- --------- --------- --------
Income taxes (benefit) (8,000) (22,493) (8,000) (18,455)
--------- --------- --------- --------
Net income (loss) (184,741) (17,085) (421,974) (30,198)
========= ========= ========= ========
Net income (loss) per common share ($0.148) ($0.014) ($0.338) ($0.025)
========= ========= ========= ========
Dividends declared per share $ --- $ --- $ --- $ ---
========= ========= ========= ========
29
UNIVERSITY BANCORP, INC. (The Parent) 29
Condensed Statement of Cash Flows
(Unaudited)
For the Six Month
Periods Ended
June 30,
1996 1995
Reconciliation of net income (loss)
to net cash used in
operating activities:
Net income (loss) $(421,974) $ (30,198)
Depreciation 1,500 1,500
Amortization of Premium on Securities (240) -
Proceeds from sales of trading securities - 74,367
Purchases of trading securities - (366,284)
Loss (gain) on sale of investments (28,318) (15,330)
Decrease (increase) in receivable
from affiliate - 973,211
Decrease (increase) in Other Assets (144,531) (161,906)
Increase (decrease) in interest payable (8,382) (78,798)
Increase (decrease) in Other Liabilities 67,436 (715,727)
Subsidiary net loss(income) 357,806 (5,625)
--------- ---------
Net cash provided by (used in)
operating activities (176,703) (324,790)
--------- ---------
Cash flow from investing activities:
Subsidiary dividends received - 300,000
Contributions of capital to subsidiary - -
Purchase of available for sale securities (49,438) -
Proceeds from sale of available for sale securities - -
Advances to Michigan BIDCO - -
Capital expenditures - -
--------- ---------
Net cash provided by (used in)
investing activities: (49,438) 300,000
--------- ---------
Cash flow from financing activities:
Proceeds from bank financing
Principal payment on notes payable (25,000) -
Proceeds from sale of common stock 66,750 -
Purchase of treasury stock - (19,927)
--------- ---------
Net cash provided by (used in)
financing activities: 41,750 (19,927)
--------- ---------
Net changes in cash and cash equivalents (184,391) (44,717)
Cash:
Beginning of year 239,868 54,151
--------- ---------
End of period $ 55,477 $ 9,434
========= =========
Supplemental disclosure of cash flow information:
Cash paid (received) during the year for:
Interest $ 38,717 $ 113,543
Income tax $ - $ (22,281)
30
30
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
3.1 Composite Certificate of Incorporation, as amended of the
Company.
10.7 1995 Stock Plan of the Company, as amended (incorporated by
reference to Exhibit A to definitive Proxy Statement of the
Company for the 1996 Annual Meeting of Stockholders).
27. Financial Data Schedule.
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the quarter for which
this report is filed.
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: August 14, 1996 /s/ Thomas J. Vandermus
-----------------------------------
Thomas J. Vandermus
Chief Financial Officer
(On behalf of the registrant
and as
Principal Financial Officer)
31
31
Exhibit Index
------------- Sequentially
Numbered
Page
------------
3.1 Composite Certificate of Incorporation
27 Financial Data Schedule