Ann Arbor, Michigan, April 6, 2016 — University Bank, a subsidiary of University Bancorp, Inc. (OTCQB: UNIB), announced that it has issued to a private investor group a $2.5 million Tier 1 Participatory Note Certificate. The Note Certificate is perpetual and has no maturity date. The additional capital increases University Bank’s regulatory capital by approximately 18.5% to support recent and future growth.
The Note Certificate qualifies as Additional Tier 1 (“AT1”) Capital under the capital adequacy standards of its primary federal banking regulator, the Federal Deposit Insurance Corporation, known as the Basel 3 capital rules. The $2.5 million investment will be classified as equity on the balance sheet of University Bank under GAAP.
The value of the Note Certificate’s return will be tied to a designated portfolio of financial assets, portfolio loans, held by a subsidiary of University Bank (the “Participation Assets”). University Bank will, on a quarterly basis, calculate the change in the value of the Participation Assets (including subtractions for loan losses on these portfolio loans), and distribute a portion thereof (less certain taxes and costs) to the Subscriber (that portion, the “Participant Profit”). If the Participant Profit for a particular period is in excess of an annual return of 5.75% (the “Expected Rate”), University Bank will hold the excess in a reserve account (the “Reserve Account”). As such, the Participant Profit is effectively capped at the Expected Rate. If the Participant Profit in a particular period is below the Expected Rate, University Bank may draw on the Reserve Account to cover the difference. Under current economic conditions, the profit sharing rate paid on the Note Certificate should be approximately 5.00% per annum based on the current returns from the bank subsidiary’s portfolio loans.
If University Bank’s net income and retained earnings are insufficient to pay the Participant Profit and payments due under instruments that rank pari passu with the Note Certificate, University Bank is undercapitalized, or certain other events occur (each, a “Non-Payment Event”), or if University Bank elects not to pay the Participant Profit at its discretion (a “Non-Payment Election”), University Bank will not be required to pay the Participant Profit to the Subscriber. Failure to pay such Participant Profit will not constitute an Event of Default under the Participation Agreement. In the event of a Non-Payment Event or a Non-Payment Election, University Bank may not pay dividends on or purchase or redeem any securities that rank junior to the Note Certificate until University Bank makes another payment of Participant Profit.
President Stephen Lange Ranzini noted, “The terms of the perpetual Tier 1 Participatory Note Certificate are very attractive for University Bank and its shareholders and the instrument acts more like equity with a dividend that varies and is limited to a maximum of 5.75% return, and will be treated as equity under GAAP. Payments on the Participatory Note are profit based and limited in circumstances that there is no or insufficient profit over time either on the Participation Assets or at University Bank.”
University Bank at its option may terminate the Note Certificate by exercising a right to conduct a final constructive liquidation of the Note Certificate (a “Final Liquidation”). University Bank may only conduct a Final Liquidation (1) if certain adverse tax events occur, (2) if the Note Certificate stops being eligible as AT1 capital, or (3) beginning five years after issuance of the Note Certificate. A Final Liquidation may only be commenced if certain regulatory criteria are satisfied.
In University Bank’s capital base, the Note Certificate ranks senior only to University Bank’s common stock and similar instruments, and will rank pari passu with other AT1 instruments. The Note Certificate is not secured and it will be subordinated to all other liabilities, including depositors and general and subordinated creditors.
The primary legal adviser on the transaction for University Bank was the Linklaters LLP law firm.
Shareholders and investors are encouraged to refer to the financial information including the audited financial statements, strategic plan and prior press releases, available on our investor relations web page at: www.university-bank.com/bancorp/.
Ann Arbor-based University Bancorp owns 100% of University Bank which, together with its Michigan-based subsidiaries, holds and manages a total of over $18.4 billion in financial assets for over 115,000 customers, and our 335 employees make us the 9th largest bank based in Michigan. University Bank is an FDIC-insured, locally owned and managed community bank, and meets the financial needs of its community through its creative and innovative services. Founded in 1890, University Bank® is proud to have been selected as the “Community Bankers of the Year” by American Banker magazine and as the recipient of the American Bankers Association’s Community Bank Award. University Bank is a Member FDIC. The members of University Bank’s corporate family, ranked by their size of revenues are:
- University Lending Group, a retail residential mortgage originator based in Clinton Township, MI;
- Midwest Loan Services, a residential mortgage subservicer based in Houghton, MI;
- UIF, a faith-based banking firm based in Farmington Hills, MI;
- Community Banking, based in Ann Arbor, MI, which provides traditional community banking services in the Ann Arbor area;
- Ann Arbor Insurance Centre, an independent insurance agency based in Ann Arbor.
CAUTIONARY STATEMENT: This press release contains certain forward-looking statements that involve risks and uncertainties. Forward-looking statements include, but are not limited to, statements concerning future growth in assets, pre-tax income and net income, budgeted income levels, the sustainability of past results, and other expectations and/or goals. Such statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those expressed or implied by such forward-looking statements, including, but not limited to, economic, competitive, governmental and technological factors affecting our operations, markets, products, services, interest rates and fees for services. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release.
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