Ann Arbor, Michigan, March 11, 2020, — University Bancorp, Inc. (OTCQB: UNIB) today is providing an update on:
- the increase in its mortgage origination business at University Bank and its subsidiaries;
- its readiness in the event that its employees are required by the global coronavirus (COVID-19) pandemic to work from home; and
- the scope of credit losses anticipated in the event of a severe recession;
in light of the major financial market turbulence that has occurred, so that all investors and potential investors in our common stock possess the same information.
Mortgage industry originations have soared, and University Bank is fully participating in that trend. A total of $1.803 billion in mortgage applications were taken by our mortgage operations in 2019. Mortgage origination closings in 2019 were $1.245 billion. Applications taken in February increased significantly to a new record level of $270 million due in part to the sharp drop in mortgage rates during the month. The prior monthly record for mortgage applications was $216 million in August 2019. Volumes in March have increased; for the first 11 days of the month through noon EST today, we’ve taken over $193 million in mortgage applications, a monthly pace of $570 million, despite raising our margins on gain on sale in line with industry trends to slow the pace of applications down.
Scott Happ, CEO of Optimal Blue, which provides real-time mortgage pricing and rate lock hedging data to a significant portion of the mortgage industry sent out an email this morning as follows: “With our systems being on the front-end of a large percentage of this market activity, we have a unique perspective on where we are and what is yet to come. We do have an early indication as to the magnitude of the volume tsunami with which this industry is faced. Since March 1st, we have processed over $73 billion in rate locks, far outstripping previous records. Based on this pace of activity and our overall market share, our preliminary calculations show that the market’s run rate is in excess of $5 trillion of annual originations.”
According to Bloomberg, industry-wide mortgage origination gain on sale margins have risen sharply up 80 b.p. as of the close of business yesterday from levels prevailing in mid-February:
University Bank President, Stephen Ranzini, noted, “While our previous record monthly mortgage closings was $142.6 million in October 2020, the management team believes that our current capacity is to originate $260 million of mortgages per month. We are taking further steps to slow down the pace of incoming refinancing business so that we can provide quality customer service to our core home purchase transaction business.”
The management team has also prepared an updated emergency readiness and business continuity plan that would enable nearly all of its employees to work from home in the event that our operations in Michigan become subject to mandatory or discretionary quarantines due to the coronavirus (COVID-19), with the exception of our employees in Houghton, for whom we are still preparing an updated plan, expected to be completed within the next few days, that fully addresses this need.
Because we’ve made substantial past investments in virtual desktop technology and robust remote security and multi-factor authentication technology, we are comfortable with allowing our staff to work from home in the event of an emergency, even for an extended period of time. The board of directors is being asked later today to authorize a $150,000 capital expenditure for additional computers and monitors to ensure that the following employees can work from home with little to no loss in productivity:
- 100% of all staff currently working in our mortgage Loan Production Offices nationwide;
- 100% of all staff currently house in our Southfield, Michigan mortgage back office fulfillment center, with the exception that we will continue to need one employee on site daily to handle receipt and scanning of loan packages sent via overnight mail.
- 100% of all bank operations support staff at the Carpenter Road Office in Ann Arbor, Michigan.
- 100% of Community Banking staff at the headquarters in Ann Arbor not engaged in branch processes. We are encouraging our bank deposit customers to set up access to mobile check deposit and mobile banking applications which have been available to them for some time now, as we cannot guarantee that we will be able to keep our branch location open in the event of a mandatory or discretionary quarantine, and our back office support staff will be able to perform their daily duties from home in the event of an emergency.
In the event that a nationwide economic recession ensues, based on the results of the most recent capital stress test, which is performed by an outside vendor, Invictus, using the same assumptions as in the severe downturn case of the Federal Reserve’s CCARS stress test, we currently believe that we will sustain modest credit losses. In this depressionary scenario we assume 10% unemployment, a 50% drop in the stock market, 8% drop in GNP, a 35% drop in residential real estate prices and a 38% drop in commercial real estate prices and that these prices never recover. Under this scenario we lose just $2.1 million in total loan losses, a fraction of our budgeted annual pre-tax income, and perhaps just a month or two of pre-tax earnings if the current mortgage origination gain on sale margins and the record level of mortgage origination volumes persist for any length of time. The board of directors approved budget for 2020, which took into account the lower margins on mortgage loan gain on sale and lower mortgage origination volume projections then in place in December 2019, assumes that University Bancorp, Inc. will have net income of $7.74 million in 2020, or $1.49 per share. Shareholders and investors are encouraged to refer to the financial information including the investor presentations, audited financial statements, strategic plan and prior press releases, available on our investor relations web page at: 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 $25 billion in financial assets for over 141,000 customers, and our over 462 employees make us the 5th largest bank based in Michigan. University Bank is an FDIC-insured, locally owned and managed community bank, and meets the financial needs of its community through its creative and innovative services. Founded in 1890, University Bank® is the 15th oldest bank headquartered in Michigan. We are proud to have been selected as the “Community Bankers of the Year” by American Banker magazine and as the recipient of the American Bankers Association’s Community Bank Award. University Bank is a Member FDIC. The members of University Bank’s corporate family, ranked by their size of revenues are:
- 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 Southfield, MI;
- Community Banking, based in Ann Arbor, MI, which provides traditional community banking services in the Ann Arbor area;
- Midwest Loan Solutions, a residential mortgage correspondent and warehouse lender based in Southfield, MI;
- 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, mortgage origination levels and margins, valuations, and other expectations and/or goals. Such statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those expressed or implied by such forward-looking statements, including, but not limited to, economic, competitive, governmental and technological factors affecting our operations, markets, products, services, interest rates and fees for services. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. We undertake no obligation to update any information or forward-looking statement.
Contact: Stephen Lange Ranzini, President and CEO
Phone: 734-741-5858, Ext. 9226
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