ANN ARBOR, MI--(Marketwired - Nov 24, 2014) - University Bancorp, Inc. (
- Cash of $521,389.89;
- 309,361 newly issued shares of University Bancorp common stock valued at $6.95 per share, or $2,150,061.40, approximately 6.11% of the pro forma issued and outstanding shares of University Bancorp's common stock; and
- Additional potential interest earn-out from interest on our zero interest rate cost mortgage subservicing escrow deposits of $430,012.28, as discussed below.
Currently University Bancorp owns 100% of University Bank which owns 80% of Midwest Loan Services, a residential mortgage subservicing firm based in Houghton, Michigan which manages over 100,000 residential loans totaling over $15.8 billion for over 360 financial institutions nationwide. The American Bankers Association, through its Corporation for American Banking subsidiary, recently exclusively endorsed Midwest Loan Services to provide an array of residential mortgage subservicing services to member banks and their borrowers nationwide. Midwest is known for friendly, responsive service and industry-leading technology that help lenders retain customers, reduce costs and ensure regulatory and operational compliance. The ABA's exclusive endorsement was based on both Midwest's superior technical solution and its superior customer service. Midwest's customers have 14x fewer complaints than the industry average for the nine months ended September 30, 2014 according to the Consumer Financial Protection Bureau consumer complaint database, despite the fact that 58% of all the complaints in the CFPB database relate to residential mortgage servicing. Since 2001 Midwest has grown its mortgages subserviced at 26% per annum compounded.
We are acquiring the shares from Ed Burger, former Founder and CEO of Midwest, who recently retired. Midwest's President & CEO is currently Peter T. Sorce, a credit union and banking industry veteran with 23 years of experience in the mortgage servicing industry. Since Mr. Burger owns 20% of Midwest, this places a value on Midwest of $15.5 million versus Midwest's shareholders equity as of 9/30/2014 of $10.75 million. Our legal counsel is unaware of any regulatory requirement to seek approval of the transaction since it would result in a 100% owned subsidiary of the Bank, however we are in the process of confirming with our regulators that no approval is required, and if we receive that confirmation we intend to immediately close the acquisition. If the transaction had closed 9/30/2014, we currently estimate that the book value per share of common stock of University Bancorp would have increased from $2.174 to $2.466 per share, or an increase of $0.292 per share.
President Stephen Lange Ranzini noted, "The book value of Mr. Burger's shares in Midwest Loan Services as of 9/30/2014 was $2,150,061.40; therefore, the bank would pay a premium of approximately $950,000 for his shares, which is reasonable considering the long history of profitability and growth of the firm and that it controls about $190 million in zero interest escrow deposits. Midwest and the zero interest rate cost mortgage subservicing escrow deposits that it controls are a cornerstone of the Bank's profitability and owning 100% of the firm greatly enhances the value of the Bank and its earnings as interest rates begin to normalize from record low levels."
With respect to the $430,012.28 interest earn-out, we will pay to Mr. Burger in cash following each month-end period, 20% of the amount of the average monthly balance of Midwest escrow deposits held at University Bank and the Federal Home Loan Bank of Indianapolis, or any other depository where University Bank actually receives the benefit of interest earned on these escrow deposits, times the Fed Funds interest rate minus 0.5% with a floor of 0%, until the cumulative sum of $430,012.28 is paid. If interest rates never rise, no amounts will be owed. For example, if the Fed Funds rate is 1.0% and the sum of the average monthly balance of Midwest escrow deposits held at University Bank and the Federal Home Loan Bank of Indianapolis continues to be $190,000,000, then the monthly payment would be $15,833.33 (20% x $190,000,000 x (1%-0.5%)/12) until the cumulative sum of $430,012.28 is paid. If interest rates rise, University Bank will continue to benefit from 80% of the increase until the contract is fulfilled and then 100% after. The Federal Reserve Bank currently projects that the normalized Fed Funds Rate is currently 3.75%.
Because there is an insufficient number of authorized and unissued shares of common stock to complete the deal, the board of directors has authorized and has the authority to create a new series of convertible stock that would be issued to Mr. Burger, and plans to call a special shareholder meeting to increase the authorized number of shares of common stock so that these convertible preferred shares can then be converted into common stock. We hope to both close the transaction and call the shareholder meeting prior to year-end.
Shareholders and investors are encouraged to refer to the financial information including the audited financial statements, Company strategic plan and prior press releases, available on our investor relations web page at: http://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 $16 billion in loans and assets and our 336 employees make us the 9th largest bank based in Michigan. 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 and an Equal Housing Lender. The operating subsidiaries of University Bank which are members of our corporate family, ranked by their size of revenues are:
- University Lending Group, a retail residential mortgage originator based in Clinton Township, Michigan;
- Midwest Loan Services, a residential mortgage subservicer based in Houghton, MI;
- University Islamic Financial, an Islamic banking firm based in Farmington Hills, MI;
- Community Banking, based in Ann Arbor, which provides traditional community banking services in the Ann Arbor, Michigan 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 business development, pre-tax income and net income, budgeted income and capital 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.