9
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 March 31, 2002
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)
959 Maiden Lane, Ann Arbor, Michigan 48105
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (734) 741-5858
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, $0.01 par value outstanding at April 30, 2002: 3,832,548 shares
page 1 of 22 pages
FORM 10-Q
TABLE OF CONTENTS
PART I - Financial Information
Item 1. Financial Statements PAGE
Consolidated Balance Sheets 3
Consolidated Statements of Operations 5
Consolidated Statement of Comprehensive Income (loss) 7
Consolidated Statements of Cash Flows 8
Notes to the Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Summary 11
Results of Operations 12
Capital Resources 17
Liquidity 18
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 19
PART II - Other Information
Item 1. Legal Proceedings 21
Item 5. Other Information:
Parent Company Financial Information 21
Item 6. Exhibits & Reports on Form 8-K 21
Signatures 22
------------------------------------------------------------
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.- Financial Statements
UNIVERSITY BANCORP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 2002 (Unaudited) and December 31, 2001
March 31, December 31,
ASSETS 2002 2001
--------------------- ---------------------
Cash and due from banks $ 1,327,751 $ 837,550
--------------------- ---------------------
Total cash and cash equivalents 1,327,751 837,550
Securities available for sale, at market 2,106,199 2,260,103
Federal Home Loan Bank Stock 848,400 848,400
Loans held for sale, at the lower of cost or market 948,515 2,137,786
Loans 35,404,254 35,026,024
Allowance for loan losses (599,793) (579,113)
--------------------- ---------------------
Loans, net 34,804,461 34,446,911
Premises and equipment, net 1,801,248 1,787,018
Investment in Michigan BIDCO Inc. 629,258 629,258
Investment in Michigan Capital Fund LPI 431,244 456,244
Mortgage servicing rights , net 724,187 606,537
Real estate owned, net 263,138 200,000
Accounts receivable 691,624 862,848
Accrued interest receivable 220,725 229,417
Prepaid expenses 187,858 191,700
Goodwill, net 63,914 63,914
Other assets 69,169 65,045
--------------------- ---------------------
TOTAL ASSETS $ 45,117,691 $ 45,622,731
===================== =====================
-Continued-
UNIVERSITY BANCORP, INC.
Consolidated Balance Sheets (continued)
March 31, 2002 (Unaudited) and December 31, 2001
March 31, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 2002 2001
--------------------- ---------------------
Liabilities:
Deposits:
Demand - non interest bearing $ 3,154,588 $ 2,390,750
Demand - interest bearing 15,755,714 13,701,011
Savings 390,284 340,341
Time 21,648,890 23,765,478
--------------------- ---------------------
Total Deposits 40,949,476 40,197,580
Short term borrowings - 91,566
Long term borrowings 624,506 1,657,506
Accounts payable 399,181 339,536
Accrued interest payable 125,375 177,407
Other liabilities 70,840 117,398
--------------------- ---------------------
Total Liabilities 42,169,378 42,580,993
Minority Interest 318,837 305,129
Stockholders' equity:
Common stock, $0.01 par value;
Authorized - 5,000,000 shares;
Issued - 3,947,732 shares in 2002 and
3,867,732 shares in 2001 39,477 38,677
Additional paid-in-capital 5,490,218 5,411,018
Accumulated deficit (2,227,408) (2,205,444)
Treasury stock - 115,184 shares in 2001 and 2000 (340,530) (340,530)
Accumulated other comprehensive loss,
unrealized losses on securities available for sale, net (332,281) (167,112)
Total Stockholders' Equity 2,629,476 2,736,609
--------------------- ---------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 45,117,691 $ 45,622,731
===================== =====================
The accompanying notes are an integral part of the consolidated financial
statements.
UNIVERSITY BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the Three Month Periods Ended March 31, 2002 and 2001
(Unaudited)
2002 2001
---------------- -----------------
Interest income:
Interest and fees on loans $ 745,429 $ 837,188
Interest and dividends on securities:
U.S. Government agencies 11,312 87,395
Other securities 25,566 16,736
Interest on federal funds and other 5,239 2,479
---------------- -----------------
Total interest income 787,546 943,798
---------------- -----------------
Interest expense:
Interest on deposits:
Demand deposits 67,281 135,455
Savings deposits 1,089 1,912
Time deposits 207,760 361,623
Short term borrowings 1,041 37,638
Long term borrowings 5,868 16,183
---------------- -----------------
Total interest expense 283,039 552,811
---------------- -----------------
Net interest income 504,507 390,987
Provision for loan losses 22,500 22,500
---------------- -----------------
Net interest income after
provision for loan losses 482,007 368,487
---------------- -----------------
Other income:
Loan servicing and subservicing fees 258,742 580,038
Initial loan set-up and other fees 652,056 493,722
Gain on sale of mortgage loans 34,884 9,265
Insurance and investment fee income 29,263 23,390
Deposit service charges and fees 15,211 16,047
Other 41,487 14,554
---------------- -----------------
Total other income 1,031,643 1,137,016
---------------- -----------------
-Continued-
UNIVERSITY BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (continued)
For the Three Month Periods Ended March 31, 2002 and 2001
(Unaudited)
2002 2001
---------------- -----------------
Salaries and benefits $ 723,265 $ 824,211
Occupancy, net 90,325 104,412
Data processing and equipment 109,844 79,190
Legal and audit expense 37,417 43,258
Consultant fees 51,168 73,730
Mortgage banking expense 179,265 39,314
Servicing rights amortization 49,439 21,626
Goodwill amortization - 6,971
Advertising 17,161 19,403
Memberships and training 22,913 16,910
Travel and entertainment 17,202 20,905
Supplies and postage 48,849 100,979
Insurance 20,424 21,923
Other operating expenses 168,342 106,771
---------------- -----------------
Total other expenses 1,535,614 1,479,603
---------------- -----------------
Income (loss) from continuing operations
before income taxes (21,964) 25,900
---------------- -----------------
Income tax expense (benefit) 0 0
---------------- -----------------
Net income (loss) from continuing operations (21,964) 25,900
Net income (loss) $ (21,964) $ 25,900
================ =================
Preferred stock dividends 10,775
---------------- -----------------
Net income (loss) available to common shareholders $ (21,964) $ 15,125
================ =================
Basic and diluted income (loss)
per common share $ (0.01) $ 0.01
================ =================
Weighted average shares outstanding 3,810,326 2,027,801
================ =================
See accompanying notes to consolidated financial statements (unaudited).
UNIVERSITY BANCORP, INC.
Consolidated Statements of Comprehensive Income (Loss)
For the Three Month Periods Ended March 31, 2002 and 2001
(Unaudited)
2002 2001
--------------------------------
Net income (loss) ($21,964) $25,900
Other comprehensive income (loss):
Unrealized gains/(losses) on securities
available for sale (165,169) 3,411
Less: reclassification adjustment
for accumulated (losses)/gains
included in net income (loss) - -
--------------------------------
Other comprehensive income/(loss),
before tax effect (165,169) 3,411
Income tax expense (benefit) - -
Other comprehensive income (loss),
net of tax (165,169) 3,411
--------------------------------
Comprehensive loss ($187,133) $29,311
================================
See accompanying notes to consolidated financial statements (unaudited).
UNIVERSITY BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows For the three month
periods ended March 31, 2002 and 2001
2002 2001
------------------- -------------------
Cash flow from operating activities:
Net income (loss) $ (21,964) $ 25,900
Adjustments to reconcile net income (loss) to net cash from Operating Activities:
Depreciation 72,908 74,757
Amortization (92,650) 53,597
Provision for loan losses 22,500 22,500
Net loss/(gain) on mortgage loan sales (34,884) (9,265)
Net (accretion) on investment securities (11,312) (87,378)
Change in:
Investment in Michigan BIDCO, Inc. - 247,000
Minority interest 13,708 31,045
Mortgage servicing rights - (11,620)
Real estate owned (63,138) (58,742)
Accounts receivable 171,224 802,469
Accounts payable 59,645 (765,063)
Accrued interest receivable 8,692 (4,039)
Accrued interest payable (52,032) (143,631)
Other assets (282) (37,354)
Other liabilities (46,558) (143,261)
------------------- -------------------
Net cash used in operating activities 25,857 (3,085)
------------------- -------------------
Cash flow from investing activities:
Proceeds from maturities and paydowns of securites
available for sale 47 20
Loans granted, net of repayments 844,105 676,697
Premises and equipment expenditures (87,138) (290,265)
------------------- -------------------
Net cash provided by (used in) investing activities 757,014 386,452
------------------- -------------------
-Continued-
UNIVERSITY BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows For the three month
periods ended March 31, 2002 and 2001
2002 2001
------------------- -------------------
Cash flow used in financing activities:
Net increase (decrease) in deposits 751,896 4,219,110
Net increase (decrease) in short term borrowings (91,566) (4,093,954)
Principal payments on long term borrowings (1,033,000) (33,000)
Issuance of long term borrowings - 76,280
Issuance of preferred stock - 300,000
Issuance of common stock 80,000 -
-------------------
Net cash provided by financing activities (292,670) 468,436
------------------- -------------------
490,201 851,803
Net change in cash and cash equivalents Cash and cash equivalents:
Beginning of period 837,550 2,546,620
------------------- -------------------
End of period $ 1,327,751 $ 3,398,423
=================== ===================
Supplemental disclosure of cash flow information:
Cash paid for interest $ 604,843 $ 696,442
See accompanying notes to consolidated financial statements (unaudited).
UNIVERSITY BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(1) General
See Note 1 of the Financial Statements incorporated by reference in the
Company's 2001 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 2001 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.
Earnings per share are calculated based on the weighted average number of
common shares outstanding during each period as follows: 3,810,326 and 2,027,801
for the three months ended March 31, 2002 and 2001, respectively.
(2) Investment Securities
The Bank's available-for-sale securities portfolio at March 31, 2002 had a
net unrealized loss of approximately $333,000 as compared with a net unrealized
loss of approximately $167,000 at December 31, 2001.
Securities available for sale at March 31, 2002:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------------- ---------------- ---------------- ----------------
---------------- ---------------- ---------------- ----------------
U.S. agency mortgage-backed $ 1,953 $ 0 $ (272) $ 1,681
U.S. Treasury 485 0 (60) 425
---------------- ---------------- ---------------- ----------------
---------------- ---------------- ---------------- ----------------
Total $ 2,438 $ 0 $ (332) $ 2,106
================ ================ ================ ================
Securities available for sale at December 31, 2001
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------------- ---------------- ---------------- ----------------
---------------- ---------------- ---------------- ----------------
U.S. agency mortgage-backed $ 1,948 $ 0 $ (111) $ 1,837
U.S. Treasury 479 0 (56) 423
---------------- ---------------- ---------------- ----------------
---------------- ---------------- ---------------- ----------------
Total $ 2,427 $ 0 $ (167) $ 2,260
================ ================ ================ ================
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This report contains certain forward-looking statements which reflect the
Company's expectation or belief concerning future events that involve risks and
uncertainties. Among others, certain forward looking statements relate to the
continued growth of various aspects of the Company's community banking, merchant
banking, mortgage banking and investment activities, and the nature and adequacy
of allowances for loan losses. The Company can give no assurance that the
expectations reflected in forward-looking statements will prove correct. Various
factors could cause results to differ materially from the Company's
expectations. Among these factors are those referred to in the introduction to
the Company's Management Discussion and Analysis of Financial Condition and
Results of Operations which appear as Item 7 of the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 2001, which should be read in
conjunction with this Report.
The above cautionary statement is for the purpose of qualifying for the
"safe harbor" provisions of Section 21E of the Securities Exchange Act of 1934.
SUMMARY
Net income (loss) for 1Q2002 was ($21,964), versus $25,900 for the previous
year. Net interest income rose 28.9% in 2002, driving improved results at
Community Banking. Compared to the first quarter of 2001, profits at the Bank's
subsidiary, Midwest Loan Services, decreased 50% in the first quarter of 2002 to
$103,000 (although this was actually an improved sequential result from the
$37,000 loss Midwest recorded in 4Q2001). On a consolidated basis the University
Bank subsidiary posted a $3,000 profit in 1Q2002 (an improvement from University
Bank's loss of $136,000 in 4Q2001) versus a $75,000 profit in 1Q2001.
The following table summarizes the pre-tax income (loss) of each profit
center of the Company for the three months ended March 31, 2002 and 2001 (in
thousands):
2002 2001
Community Banking $ (101) $ (133)
Midwest Loan Services 103 204
Corporate Office (24) (45)
---------- ----------
Total $ (22) $ 26
========== ==========
RECENT EVENTS
In April 2002, we implemented further operational changes at Community
Banking that should result in combined further decrease in expense and
improvements of revenue of over $37,500 per quarter. Also, we are in the process
of moving approximately $10 million in escrows controlled by the Bank's Midwest
Loan Services subsidiary into the Community Bank, which should improve net
interest margin by over $20,500 per quarter. These changes alone could allow the
Company to make a profit in both 3Q2002 and 4Q2002.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income increased 29% to $504,507 for the three months ended
March 31, 2002 from $390,987 for the three months ended March 31, 2001. Net
interest income rose primarily because of a higher interest rate spread. The net
interest spread increased from 4.21% in the 2001 to 4.96% in 2002. Additionally,
the net interest income was positively impacted by an increase in average
assets. Average assets rose by $1,365,331, from $39,111,949 at March 31, 2001 to
$40,477,280 at March 31, 2002.
Interest income
Interest income decreased 16% to $787,546 in the quarter ended March 31,
2002 from $943,798 in the quarter ended March 31, 2001. The interest rate
environment was lower in the 2002 period as compared with the 2001 period. The
overall yield on Total Interest Bearing Assets was 7.89% in 2002 as compared to
9.79% in the same period in 2001. The average volume of interest earning assets
increased to $40,477,280 in the 2002 period from $39,111,949 in the 2001 period.
The increased volume of earning assets was attributable to an increase in
federal funds and bank deposits and investment securities, offset to a lesser
degree by a decline in loans.
Interest Expense
Interest expense decreased 48.8% to $283,039 in the three months ended
March 31, 2002 from $552,811 in the 2001 period. The decrease was due to rates
decreases for all deposit products. The increase in retail deposit costs was
partially offset by decreased long-term borrowings caused by the exclusion of
BIDCO's bonds in 2001. The cost of funds decreased to 2.94% in the 2002 period
from 5.57% in the 2001 period, as a result of the decrease in the short-term
interest rates.
MONTHLY AVERAGE BALANCE SHEET AND INTEREST MARGIN ANALYSIS
The following table summarizes 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 months ended March
31, 2002 and 2001.
Three Months Ended Three Months Ended
------------------------------------------- ---------------------------------------
March 31, 2002 March 31, 2001
------------------------------------------- ---------------------------------------
Average Interest Average Average Interest Average
Balance Inc(Exp) Yield (1) Balance Inc(Exp) Yield (1)
Interest Earning Assets:
Commercial Loans $ 17,642,067 $ 373,587 8.59% $ 15,170,445 $ 376,881 10.08%
Real Estate Loans 14,198,972 286,962 8.20% 15,430,983 330,415 8.68%
Installment/Consumer Loans 3,661,557 84,880 9.40% 5,444,555 129,892 9.68%
Total Loans 35,502,596 745,429 8.52% 36,045,983 837,188 9.42%
Investment Securities 3,701,285 36,878 4.04% 2,895,839 104,131 14.58%
Federal Funds & Bank Deposits 1,273,399 5,239 1.67% 170,127 2,479 5.91%
Total Interest Bearing Assets 40,477,280 787,546 7.89% 39,111,949 943,798 9.79%
Interest Bearing Liabilities:
Demand Deposits 3,816,237 11,364 1.21% 3,173,177 22,179 2.83%
Savings Deposits 376,318 1,089 1.17% 386,583 1,912 2.01%
Time Deposits 23,070,304 207,760 3.65% 23,344,093 361,623 6.28%
Money Market Accts 10,847,090 55,917 2.09% 9,974,156 113,276 4.61%
Short-term Borrowings 334,722 1,041 1.26% 2,519,508 37,638 6.06%
Long-term Borrowings 662,786 5,868 3.59% 835,963 16,183 7.85%
Total Interest Bearing Liabilities 39,107,457 283,039 2.94% 40,233,480 552,811 5.57%
Net Earning Assets, net interest
income, and interest rate spread $1,369,823 504,507 4.96% $(1,121,531) 390,987 4.21%
Net Interest Margin 5.05% 4.05%
(1) Yield is annualized.
Allowance for Loan Losses
The provision to the allowance for loan losses was $22,500 for the quarters
ended March 31, 2002 and 2001. The Bank went from net recoveries of $4,742 for
the quarter ended March 31, 2001 to net charge-offs of $1,820 for the quarter
ended March 31, 2002. Illustrated below is the activity within the allowance for
the quarter ended March 31 2002 and 2001, respectively.
2002 2001
Balance, January 1 $ 579,113 $ 562,997
Provision for loan losses 22,500 22,500
Loan charge-offs (4,168) (3,465)
Recoveries 2,348 8,207
--------- --------
Balance, March 31 $ 599,793 $ 590,239
========= ========
At March 31, 2002 At December 31, 2001
Total loans (1) $35,404,254 $35,026,024
Reserve for loan losses $599,793 $579,113
Reserve/Loans % (1) 1.69% 1.65%
The Bank's overall loan portfolio is geographically concentrated in Ann
Arbor, Michigan and the future performance of these loans is dependent upon the
performance of relatively limited geographical areas.
The following schedule summarizes the Company's nonperforming assets:
At March 31, 2002 At December 31, 2001
Past due 90 days and over and still accruing (1):
Real estate $ - $ 276,654
Installment 27,142 24,194
Commercial 306,550 194,404
--------- ---------
Subtotal 333,692 495,252
Nonaccrual loans (1):
Real estate 491,157 770,024
Installment - -
Commercial - -
--------- ---------
Subtotal 497,157 770,024
Other real estate owned 263,138 200,000
---------- ---------
Total nonperforming assets $1,093,987 $1,465,276
========== ==========
At March 31, 2002 At December 31, 2001
Ratio of nonperforming assets to total
loans (1) 3.09% 4.18%
======= ========
Ratio of loans past due over 90 days and
nonaccrual loans to loan loss reserve 139% 218%
======= ========
(1) Excludes loans held for sale which are valued at fair market value.
Other real estate owned at March 31, 2002 and December 31, 2001 includes a
commercial development site in Sault Ste. Marie, Michigan. The property is being
carried at a value of $200,000. The Bank has a sales contract with a commercial
developer who is planning a major development on the site. The transaction is
scheduled to close in the third quarter of 2002. There is no assurance that a
sale of the property will be consummated. The sales price is $300,015, net of
all expenses.
Economic conditions in the Bank's primary market area in Ann Arbor were
stable but soft during the period ended March 31, 2002. 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 decreased 9% to $1,031,643 for the three months
ended March 31, 2002 from $1,137,016 for the three months ended March 31, 2001.
The decrease was primarily due to lower fees earned from servicing and
subservicing loans. This category declined by $321,296. This decrease in fees is
attributed principally to the loss of one large account that did not use Midwest
for loan servicing in 2002. The decline in servicing income was offset partially
by an increase in initial loan set-up and other fees. This category increased by
$158,334 due mainly to an increase in mortgage origination income derived from
mortgage refinancing.
At March 31, 2002, the Bank and Midwest owned the rights to service
mortgages for Freddie Mac, Fannie Mae and other institutions, most of which was
owned by Midwest, an 80% owned subsidiary of the Bank. The value of mortgages
serviced for these institutions was approximately $70 million. The carrying
value of these servicing rights was $724,187 at March 31, 2002. Based on recent
comparable sales and indications of market value from industry brokers,
management believes that the current market value of the mortgage servicing
rights portfolio approximates cost. 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 amortization of these rights is
based upon the level of principal paydowns received and expected prepayments of
the mortgage loans.
Non-Interest Expense
Non-interest expense increased 4% to $1,535,614 in the three months ended
March 31, 2002 from $1,479,603 for the three months ended March 31, 2001. The
increase was the result of increased expenses at Midwest Loan Services due to
the growth of the mortgage origination department, which more than offset
decreased expenses at the Community Bank and decreased expenses in Midwest Loan
Services subservicing operation.
Non-interest operating expense for only the parent company decreased to
$18,830 for the quarter ending March 31, 2002 from $28,774 for the same period
in 2001. The decrease was primarily due to lower amortization expense and lower
legal, audit and consulting costs associated with maintaining the public
listing.
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, 2002, the Bank was
considered "well-capitalized".
Items Not Allocation By Risk
(in 000) Subject To Weight Category
Total Risk Weighting 0% 20% 50% 100%
Total Bank assets $45,087 (797) 890 3,810 12,871 28,313
---------------------------------------------
Risk Weighted Assets
35,511 - 762 6,436 28,313
=============================================
Less: Excess allowance for loan losses 156
----------
Total risk-weighted assets $35,355
==========
Average total Bank assets for
leverage capital purposes $44,987
Tier 1 Capital Balance
Total Bank equity capital $2,761
Less: Net unrealized losses on available for sale securities (333)
Plus: Qualifying minority interest in consolidated subsidiaries 319
Less: Disallowed goodwill and servicing assets 136
---------
Total Tier 1 Capital 3,277
Tier 2 Capital
Allowance for loans & lease losses (net of excess
above 1.25% of loans) 444
---------
Total Tier 2 Capital 444
---------
Total Tier 1 & Tier 2 Capital $3,721
Capital Ratios
Tier 1/Total Assets 7.28%
Tier 1 /Total Risk-Weighted Assets 9.27%
Tier 1 & 2/Total Risk-Weighted Assets 10.52%
Liquidity
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, 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, 2002, the Bank had cash and cash equivalents of $1,327,751. The Bank
has a line of credit for $5.0 million from the Federal Home Loan Bank of
Indianapolis secured by investment securities and residential mortgage loans and
a line of credit for $4.0 million from the Federal Reserve Bank of Chicago
secured by commercial loans. In order to bolster liquidity from time to time,
the Bank also sells brokered time deposits. At March 31, 2002, the Bank had
$10.3 million of these deposits outstanding.
Bancorp Liquidity. In an effort to maintain the Bank's Tier 1 capital to
assets ratio above 7% and to increase capital through retained earnings,
management does not expect that the Bank will pay dividends to the Company
during 2002 or 2003.
At March 31, 2002, $397,000 was payable to another financial institution as
compared to $529,000 at March 31, 2001. Long-term borrowings at March 31, 2002
and 2001 also includes $227,506 of a note payable to another financial
institution with respect to a low-income housing partnership investment by
University Insurance and Investment Services.
Long-term borrowings at March 31, 2001 also included $76,280 of equity
conversion notes of the Company that are redeemable by the Company only in the
context of an offering of additional shares of common stock. These equity
conversion notes were converted into equity in connection with the Company's
rights offering of common stock in late 2001.
The Company also has authorized 500,000 shares of preferred stock with a
liquidation value of $1,000 per share. 725 shares, or $725,000 was issued in
November 2000 to help boost capital levels, and another 300 shares, or $300,000
was issued in March 2001 and the proceeds contributed to University Bank. These
shares were 6% cumulative, non-voting, and convertible into common stock of the
Company. These shares were redeemed with proceeds from the stock rights
offering.
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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
All financial institutions are significantly affected by fluctuations in
interest rates commonly referred to as "interest rate risk." The principal
exposure of a financial institution's earnings to interest rate risk is the
difference in time between interest rate adjustments or maturities on
interest-earning assets compared to the time between interest rate adjustments
or maturities on interest-bearing liabilities. Such difference is commonly
referred to as a financial institution's "gap position." In periods when
interest rates are increasing, a negative gap position will result in generally
lower earnings as long-term assets are repricing upward slower than short-term
liabilities. However during a declining rate environment, the opposite effect on
earnings is true, with earnings rising due to long-term assets repricing
downward slower than short-term liabilities.
Rising long term and short term interest rates tend to increase the value
of Midwest Loan Services' investment in mortgage servicing rights and improve
Midwest Loan Services' current return on such rights by lowering required
amortization rates on the rights. Rising interest rates tends to decrease new
mortgage origination activity, negatively impacting current income from the
retail mortgage banking operations of the Bank and Midwest Loan Services. Rising
interest rates also slow Midwest Loan Services' rate of growth, but increases
the duration of its existing subservicing contracts.
The Bank performs a static gap analysis which has limited value as a
simulation because of competitive and other influences that are beyond the
control of the Bank. The table on the following page details the Bank's interest
sensitivity gap between interest-earning assets and interest-bearing liabilities
at March 31, 2002. The table is based upon various assumptions of management
which may not necessarily reflect future experience. As a result, certain assets
and liabilities indicated in the table as maturing or re-pricing within a stated
period may, in fact, mature or re-price in other periods or at different
volumes. The one-year static gap position at March 31, 2002 was estimated to be
($15,562,000) or -34.49%.
Asset/Liability Position Analysis as of March 31, 2002
(Dollar amounts in thousand's)
Maturing or Repricing in
UNIVERSITY BANK
3 Months 91 Days to 1 - 3 3 - 5 Over 5 All
ASSETS or Less 1 Year Years Years Years Others Total
Cash and Due from Banks 365 - - - - 963 1,328
Securities - - - - 2,955 - 2,955
Loans - Net 7,832 5,062 6,308 12,219 4,441 (600) 35,262
Non-Accrual Loans - - - - - 491 491
Other Assets - 629 - - - 4,453 5,082
------------------------------------------------------------------------------------------------
TOTAL ASSETS 8,197 5,691 6,308 12,219 7.396 5,307 45,118
------------------------------------------------------------------------------------------------
LIABILITIES
Demand deposits - - - - - 3,155 3,155
NOW accounts - - 4,039 - - - 4,039
Savings accounts - - 390 - - - 390
Money Market accounts 5,858 5,859 - - - - 11,717
CD's under $100,000 8,513 5,515 2,308 355 272 - 16,963
CD's over $100,000 1,061 2,284 1,225 - 116 - 4,686
Other Borrowings 33 327 266 - - - 626
Other Liabilities - - - - - 913 913
Equity - - - - - 2,629 2,629
------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 15,465 13,985 8,228 355 388 6,697 45,118
------------------------------------------------------------------------------------------------
GAP (7,268) (8,294) (1,920) 11,864 7,008 (1,390) -
================================================================================================
CUMULATIVE
(7,268) (5,618)
GAP (15,562) (17,482) 1,390 -
====================================================================================
GAP
PERCENTAGE -16.11% -34.49% -38.75% -12.45% 3.08% 0.00%
====================================================================================
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 5. Other information
Parent Company Financial Information
Certain financial information with respect to University Bancorp, Inc.
is presented on pages 21, 22, and 23.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
None.
(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: May 13, 2002 /s/ Stephen Lange Ranzini
Stephen Lange Ranzini
President