University Bancorp Signs Agreement to Acquire Final 20% of
Midwest Loan Services for $3.1 Million
University Bancorp, Inc. (OTCQB: UNIB) announced that it executed an
option agreement that gives it the right to acquire the final 20% of
Midwest Loan Services Inc. that it does not own for total
consideration of $3,101,463.57. The consideration to be paid at
closing will be:
— 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(R) 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.