UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the fiscal year ended
December 31, 2004
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 or other jurisdiction of (I.R.S. Employer incorporation)
Identification No.
959 Maiden Lane, Ann Arbor, Michigan 48105
------------------------------------ ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (734) 741-5858
--------------
Securities registered pursuant to section 12(b) of the Act: NONE Securities
registered pursuant to section 12(g) of the Act:
Common Stock, par value $.010 per share
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or other information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes ___ No _X___
The number of shares outstanding of the Registrant's Common Stock as of
March 7 2005: 4,143,878 shares. The aggregate market value of the voting stock
held by non-affiliates of the Registrant based on $1.46 per share, the closing
price for the Registrant's Common Stock on June 30, 2004, as reported by NASDAQ,
was approximately $1,681,311.
* For purposes of this calculation shares of the Registrant held by directors
and officers of the Registrant and by other affiliates have been excluded.
University Bancorp, Inc.
FORM 10-K/A
For the year ended December 31, 2004
EXPLANATORY NOTE
This Amendment on Form 10-K/A (this Amendment) amends the Annual Report on Form
10-K for the year ended December 31, 2004, as originally filed by University
Bancorp, Inc. on April 15, 2005 (the Original Filing), for the purpose of:
1. Clearly stating that the disclosure controls and procedures discussed in
Item 9A Controls and Procedures are effective;
2. Defining the disclosure controls and procedures as set forth by Rule
13a-15e;
3. Revising the other auditors reports to cover the three year period ended
December 31, 2004;
4. Revising the other auditors report to conform to the Public Company
Accounting Oversight Board standards; and
5. Removing the other auditor's report from the Exhibit section and
including the report under Item 8 of the Form 10-K, as required by SEC
Regulation S-X, Article 2.05.
In addition, in connection with the filing of this Amendment and pursuant to the
rules of the Securities and Exchange Commission, we are including with this
Amendment certain currently dated certifications. Additionally, the financial
statements, as originally filed, are included in this filing.
Except as described above, no other changes have been made to the Original
Filing. This Amendment continues to speak as of the date of the Original Filing,
and we have not updated the disclosures contained in this Amendment to reflect
any events that occurred at a date subsequent to the filing of the Original
Filing. The filing of this Form 10-K/A is not a representation that any
statements contained in items of the Original Filing other than that information
being amended are true or complete as of any date subsequent to the date of the
Original Filing. The filing of this Form 10-K/A shall not be deemed an admission
that the original filing or the amendments made thereto, when made, included any
untrue statement of a material fact or omitted to state a material fact
necessary to make a statement not misleading.
Item 8. - Financial Statements and Supplementary Data
UNIVERSITY BANCORP, INC.
--------------------
CONSOLIDATED FINANCIAL STATEMENTS
--------------------
DECEMBER 31, 2004, 2003 2002
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholder
University Bancorp, Inc.
We have audited the accompanying consolidated balance sheet of University
Bancorp, Inc. and subsidiaries as of December 31, 2004 and 2003, and the related
consolidated statements of operations, comprehensive income (loss),
stockholders' equity, and cash flows for each of the three years ended December
31, 2004. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the financial statements of
Midwest Loan Services, Inc., an eighty percent owned subsidiary, which
statements reflect total assets of 5.2 percent and 5.4 percent as of December
31, 2004 and 2003, respectively, and total revenues of 44.7 percent, 48.7
percent and 39.9 percent, respectively, for each of the three years ended
December 31, 2004. Those statements were audited by other auditors, whose report
thereon has been furnished to us, and our opinion, insofar as it relates to the
amounts included for Midwest Loan Services, Inc., is based solely on the report
of the other auditors.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform an audit of its internal
control over financial reporting. Our audits included procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of University Bancorp, Inc. and
subsidiaries as of December 31, 2004 and 2003, and the results of their
operations and their cash flows for the each of the three years ended December
31, 2004 in conformity with accounting principles generally accepted in the
United States of America.
/S/ GRANT THORNTON LLP
Southfield, Michigan
March 29, 2005
Richard C. Woodbury, P.C.
Certified Public Accountant
20017 E. Sharon Avenue
Houghton, MI 49931-1904
----------------------
Phone: (906) 482-1305
Fax: (906) 482-9555
Email: rwoodbury@charterinternet.com
Website: www.rcwpc.com
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Midwest Loan Services, Inc.
Houghton, MI 49931
We have audited the accompanying balance sheets of Midwest Loan
Services, Inc., as of December 31, 2004 and 2003, and the related
statements of income, retained earnings, and cash flows for the three
years in the period ended December 31, 2004. These financial statements
are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged
to perform an audit of its internal control over financial reporting.
Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the companies internal control over
financial reporting. Accordingly, we express no such opinion. An audit
also includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management
as well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Midwest
Loan Services Inc. as of December 31, 2004 and 2003, and the results of
its operations and its cash flows for each of the three years in the
period ended December 31, 2004, in conformity with U.S. generally
accepted accounting principles.
Richard C. Woodbury, CPA
February 25, 2005
UNIVERSITY BANCORP, INC.
Consolidated Balance Sheets
December 31, 2004 and 2003
December 31, December 31,
ASSETS 2004 2003
------------- -------------
Cash and due from banks $ 1,731,569 $ 2,171,189
Securities available for sale, at market 1,106,607 1,649,169
Federal Home Loan Bank Stock 921,700 881,100
Loans held for sale, at the lower of cost or market 846,400 206,008
Loans 42,999,800 34,928,586
Allowance for loan losses (353,124) (454,118)
-------------- -------------
Loans, net 42,646,676 34,474,468
Premises and equipment, net 946,704 829,807
Investment in Michigan BIDCO Inc. 0 629,258
Investment in Michigan Capital Fund LPI 0 256,244
Mortgage servicing rights, net 1,097,786 1,031,575
Real estate owned, net 534,043 429,500
Accounts receivable 30,949 122,067
Accrued interest receivable 148,344 129,808
Prepaid expenses 250,249 183,143
Goodwill 103,914 103,914
Other assets 420,757 451,290
------------- -------------
TOTAL ASSETS $ 50,785,698 $ 43,548,540
============ =============
-Continued-
UNIVERSITY BANCORP, INC.
Consolidated Balance Sheets (continued)
December 31, 2004 and 2003
December 31, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 2004 2003
------------- -------------
Liabilities:
Deposits:
Demand - non interest bearing $ 3,047,397 $ 3,146,688
Demand - interest bearing 28,600,355 25,827,337
Savings 499,865 377,545
Time 12,440,182 9,455,982
------------ -------------
Total Deposits 44,587,799 38,807,552
Short term borrowings 2,416,000 0
Long term borrowings 34,000 166,000
Accounts payable 115,230 289,150
Accrued interest payable 50,296 51,613
Other liabilities 140,629 354,273
------------ -------------
Total Liabilities 47,343,954 39,668,588
Minority Interest 440,118 445,324
Stockholders' equity:
Preferred stock, $0.001 par value;
$1,000 liquidation value;
Authorized - 500,000 shares; -
Common stock, $0.01 par value;
Authorized - 5,000,000 shares;
Issued - 4,240,641 shares in 2004 and
4,141,732 shares in 2003 42,406 41,417
Additional paid-in-capital 5,841,331 5,677,940
Accumulated deficit (2,490,224) (1,905,404)
Treasury stock - 115,184 shares in 2004
and 2003 (340,530) (340,530)
Accumulated other comprehensive loss,
unrealized losses on securities
available for sale, net (51,357) (38,795)
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Total Stockholders' Equity 3,001,626 3,434,628
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 50,785,698 $ 43,548,540
============== =============
The accompanying notes are an integral part of the consolidated financial
statements.
UNIVERSITY BANCORP, INC.
Consolidated Statements of Operations
For the Years Ended December 31, 2004, 2003 and 2002
2004 2003 2002
----------------- ---------------- -------------------
Interest income:
Interest and fees on loans $ 2,635,557 $ 2,554,510 $ 2,805,704
Interest on securities:
U.S. Government and agencies 48,064 81,269 270,127
Other securities 56,924 84,302 96,666
Other interest income 3,726 12,018 21,955
------------------ ---------------- ------------------
Total interest income 2,744,271 2,732,099 3,194,452
------------------ ---------------- ------------------
Interest expense:
Interest on deposits:
Demand deposits 428,611 400,994 330,178
Savings deposits 4,758 4,634 4,825
Time certificates of deposit 328,683 420,932 671,929
Short term borrowings 16,999 2,933 11,556
Long term borrowings 4,907 12,144 20,675
------------------ ---------------- ------------------
Total interest expense 783,958 841,637 1,039,163
------------------ ---------------- ------------------
Net interest income 1,960,313 1,890,462 2,155,289
(Credit) provision for loan losses (87,500) 189,400 100,000
------------------ ---------------- ------------------
Net interest income after
(credit) provision for loan
losses 2,047,813 1,701,062 2,055,289
------------------ ---------------- ------------------
Other income:
Loan servicing and subservicing
fees 1,409,283 1,128,293 713,427
Initial loan set-up and other fees 1,550,620 3,382,955 3,090,838
Gain on sale of mortgage loans 340,149 756,170 236,098
Insurance & investment fee income 219,631 168,577 113,870
Deposit service charges and fees 112,163 110,608 92,955
Net security (losses)gains (446) (54,011) 69,733
Gain on the sale and leaseback of
premises 184,873 217,053 -
Other 6,275 222,847 124,098
------------------ ---------------- ------------------
Total other income 3,822,548 5,932,492 4,441,019
------------------ ---------------- ------------------
-Continued-
UNIVERSITY BANCORP, INC.
Consolidated Statements of Operations (continued)
For the Years Ended December 31, 2004, 2003 and 2002
2004 2003 2002
------------------ ---------------- ------------------
Other expenses:
Salaries and benefits $ 2,866,849 $ 3,358,060 $ 2,929,540
Occupancy, net 415,156 422,767 349,186
Data processing and equipment 569,297 487,701 433,239
Legal and audit expense 217,414 202,865 173,139
Consulting fees 137,569 173,132 181,545
Mortgage banking expense 246,346 710,907 579,040
Servicing rights amortization 448,553 871,175 529,048
Advertising 145,592 142,996 92,944
Memberships and training 132,467 118,581 103,095
Travel and entertainment 103,875 121,631 91,330
Supplies and postage 207,141 244,615 199,338
Insurance 134,163 89,532 87,662
Other operating expenses 750,759 675,150 541,604
------------------ ---------------- ------------------
Total other expenses 6,375,181 7,619,112 6,290,710
------------------ ---------------- ------------------
(Loss)income before income taxes (504,820) 14,442 205,598
Income tax expense(benefit) 80,000 (80,000) 0
------------------------------------------------------
Net (loss)income $ (584,820) $ 94,442 $ 205,598
Basic and diluted (loss)income per common share $ (0.14) $ 0.02 $ 0.05
================== ================ ==================
Weighted average shares outstanding -Basic 4,085,244 3,940,433 3,859,433
Weighted average shares outstanding -Diluted 4,085,244 4,074,415 4,058,342
The accompanying notes are an integral part of the consolidated financial
statements.
UNIVERSITY BANCORP, INC.
Consolidated Statements of Comprehensive (Loss)Income
For the Years Ended December 31, 2004, 2003 and 2002
2004 2003 2002
-------------------- ------------------ ------------------
Net (loss) income $(584,820) $ 94,442 $205,598
Other comprehensive (loss)income:
Unrealized (losses) gains on
securities available for sale (13,008) (11,042) 155,081
Less: reclassification
adjustment for accumulated
(Losses) gains included in net
(Loss) income (446) (54,011) 69,733
-------------------- ------------------ ------------------
(12,562) 42,969 85,348
-------------------- ------------------ ------------------
Comprehensive (loss)income $(597,382) $137,411 $290,946
==================== ================== ==================
The accompanying notes are an integral part of the consolidated financial
statements.
UNIVERSITY BANCORP, INC.
Consolidated Statements of Stockholders'
Equity For the years ended December 31, 2004, 2003, and 2002
Common Stock $.01 Treasury Stock Accumulated
Par Value Additional Retained Other Total
Number of Par Paid In Number of Earnings Comprehensive Stockholders'
Shares Value Capital Shares Cost (Deficit) Loss Equity
---------------------------------------------------------------------------------------------
Balance January 1, 2002 3,867,732 $38,677 $5,411,018 (115,184) $(340,530) $(2,205,444) $(167,112) $2,736,609
Issuance of common stock at
weighted average price of
$1.00 per share, net of
expenses of $18,587 147,000 1,470 126,943 128,413
Decrease in unrealized loss on
securities available for
sale, net of tax 85,348 85,348
Net lncome 205,598 205,598
---------------------------------------------------------------------------------------------
December 31, 2002 4,014,732 40,147 5,537,961 (115,184) (340,530) (1,999,846) (81,764) 3,155,968
---------------------------------------------------------------------------------------------
Issuance of common stock at
weighted average price of
$1.11 per share, net of
expenses of $0.00 127,000 1,270 139,980 141,250
Decrease in unrealized loss on
securities available for
sale, net of tax 42,969 42,969
Net Income 94,442 94,442
---------------------------------------------------------------------------------------------
December 31, 2003 4,141,732 41,417 5,677,940 (115,184) (340,530) (1,905,404) (38,795) 3,434,629
---------------------------------------------------------------------------------------------
Issuance of common stock at
weighted average price of
$1.58 per share, net of
expenses of $0.00 103,909 989 163,391 164,380
Decrease in unrealized loss
on securities available for
sale, net of tax (12,562) (12,562)
Net Loss (584,820) (542,820)
---------------------------------------------------------------------------------------------
December 31, 2004 4,245,641 $42,406 $5,841,331 (115,184) $(340,530) $(2,490,224) $(51,357) $3,043,627
=============================================================================================
The accompanying notes are an integral part of the consolidated financial statement
UNIVERSITY BANCORP, INC.
Consolidated Statements of Cash
Flows For the years ended December 30, 2004, 2003 and 2002
2004 2003 2002
------------------ ------------------ -------------------
Cash flow provided by (used in) operating activities:
Net (loss)income $ (584,820) $ 94,442 $ 205,598
Adjustments to reconcile net (loss) income to net cash (used in)
provided by operating activities:
Depreciation 318,584 305,740 195,070
Amortization 704,797 971,175 629,048
Provision for loan loss (87,500) 189,400 100,000
Gain on sale of mortgages (340,149) (756,170) (236,098)
Gain on the sale and leaseback of premises (184,873) (217,053) -
Loss(gain) on other real estate owned 64,695 (134,668) -
Accretion on securities (11,562) (15,836) (259,463)
Deferred income tax expense (benefit) 80,000 (80,000)
Originations of mortgage loans (52,016,364) (129,039,261) (70,457,559)
Proceeds from mortgage loan sales 51,716,121 131,140,418 71,280,448
Net loss (gain) on sale of securities 446 54,011 (69,733)
Net change in:
Other assets (538,295) (1,025,362) (268,115)
Other liabilities (270,275) 265,470 (64,580)
------------------- ------------------ -------------------
Net cash (used in) provided by operating activities (1,149,195) 1,752,306 1,054,616
------------------- ------------------ -------------------
Cash flow provided by (used in) investing activities:
Purchase of investment securities (8,853) (98,533) (2,139,503)
Proceeds from sales of investment
securities 49,981 59,879 1,034,160
Proceeds from maturities/pay downs of
investment securities 529,247 1,497,117 651,486
Proceeds from sale of other real estate
owned 585,784 572,250
Loans granted, net of repayments (8,239,730) (1,880,053) 859,898
Proceeds from sale of premises 0 1,033,464
Premises and equipment expenditures (435,481) (231,056) (128,954)
------------------- ------------------ -------------------
Net cash (used in) provided by investing activities (7,519,052) 953,068 277,087
------------------- ------------------ -------------------
UNIVERSITY BANCORP, INC.
Consolidated Statements of Cash
Flows For the years ended December 30, 2004, 2003 and 2002
2004 2003 2002
------------------ ------------------ ---------------
Cash flow provided by (used in) financing activities:
Change in deposits 5,780,247 (3,112,904) 1,722,875
Change in short term borrowings 2,416,000 0 (91,566)
Principal payments on long term borrowings (132,000) (132,000) (1,359,506)
Issuance of common stock 164,380 141,250 128,413
------------------ ----------------- -----------------
Net cash provided by (used in) financing
activities 8,228,627 (3,103,654) 400,216
------------------ ----------------- -----------------
Net change in cash and cash
equivalents (439,620) (398,280) 1,731,919
Cash and cash equivalents:
Beginning of year 2,171,189 2,569,469 837,550
------------------ ----------------- -----------------
End of year $ 1,731,569 $ 2,171,189 $ 2,569,469
================== ================= =================
Supplemental disclosure of cash flow information:
Cash paid for interest $ 785,275 $ 887,092 $ 1,119,502
Supplemental disclosure of non-cash transactions:
Mortgage loans converted to other real estate owned $ 755,022 $ 0 $ $703,198
Michigan BIDCO Preferred stock exchanged for a 7.5%
promissory note $ 600,000 $ 0 $ 0
The accompanying notes are an integral part of the consolidated financial
statements.
1. Summary of significant accounting policies
Principles of Consolidation and Nature of Operations The consolidated
financial statements of University Bancorp, Inc. (the Company) include
the operations of its wholly-owned subsidiary, University Bank (the
Bank), the Bank's wholly-owned subsidiary, University Insurance &
Investment Services, Inc. (Agency) and an 80% owned subsidiary, Midwest
Loan Services, Inc. ("Midwest"). The accounts are maintained on an
accrual basis in accordance with generally accepted accounting
principles and predominant practices within the banking and mortgage
banking industries. All significant intercompany balances and
transactions have been eliminated in preparing the consolidated
financial statements.
The Company is a bank holding company. University Bank, which is located
in Michigan, is a full service community bank, which offers all
customary banking services, including the acceptance of checking,
savings and time deposits. The Bank also makes commercial, real estate,
personal, home improvement, automotive and other installment, credit
card and consumer loans, and provides fee based services such as annuity
and mutual fund sales, stock brokerage and money management, life
insurance, property casualty insurance and foreign currency exchange.
The Bank's customer base is primarily located in the Ann Arbor, Michigan
area. The Bank established its main office in Ann Arbor in February
1996, by relocating from the eastern upper peninsula of Michigan.
University Bank's loan portfolio is concentrated in Ann Arbor and
Washtenaw County, Michigan. While the loan portfolio is diversified, the
customers' ability to honor their debts is partially dependent on the
local economy. The Ann Arbor area is primarily dependent on the
education, healthcare, services and manufacturing (automotive and other)
industries. Most real estate loans are secured by residential or
commercial real estate and business assets secure most business loans.
Generally, installment loans are secured by various items of personal
property.
The Agency is engaged in the sale of insurance products including life,
health, property and casualty, and investment products including
annuities, mutual funds, stock brokerage and money management. The
Agency is located in the Bank's Ann Arbor main office. The Agency also
has a limited partnership investment in low-income housing tax credits
through Michigan Capital Fund for Housing Limited Partnership I with
financing assistance from the General Partner, Michigan Capital Fund for
Housing.
Midwest is engaged in the business of servicing and subservicing
residential mortgage loans. Midwest began operations in 1992 and was
acquired by University Bank in December, 1995. Midwest is based in
Houghton, Michigan, and also originates mortgage loans for itself and
other financial institutions, including the Bank (See Note 3).
1. Summary of significant accounting policies (continued)
Use of Estimates in Preparing Financial Statements:
--------------------------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions based upon available information. These estimates and
assumptions affect the reported amounts and disclosures. Actual results
could differ from those estimates.
The significant estimates incorporated into these consolidated financial
statements which are more susceptible to change in the near term include
the value of mortgage servicing rights, the allowance for loan losses,
the identification and valuation of impaired loans, the valuation of
other real estate owned, the fair value of financial instruments, and
the valuation of deferred tax assets.
Cash flow reporting
For purposes of the Consolidated Statements of Cash Flows, cash and cash
equivalents is defined to include the cash on hand, non-interest bearing
deposits in other institutions, federal funds sold and other investments
with a maturity of three months or less when purchased. Net cash flows
are reported for customer loan and deposit transactions and interest
bearing deposits with other banks.
Securities
Securities are classified as available for sale when they might be sold
before maturity. Securities available for sale are carried at fair
value, with unrealized holding gains and losses reported in other
comprehensive income or loss. Realized gains are based on specific
identification of amortized cost. Securities are written down to fair
value when a decline in fair value is not temporary. Interest income
includes amortization of purchase premium or discount. Other securities
such as Federal Home Loan Bank stock are carried at cost.
Loans
Loans are reported at the principal balance outstanding, net of unearned
interest, deferred loan fees and costs, and an allowance for loan
losses. Interest income is reported on the interest method and includes
amortization of net deferred loan fees and costs over the loan term.
Interest income is not reported when full loan repayment is in doubt,
typically when payments are past due over 90 days. Payments received on
such loans are reported as principal reductions, unless all interest and
principal payments in arrears are paid in full.
1. Summary of significant accounting policies (continued)
Mortgage banking activities
Mortgage banking activities includes retail and servicing operations.
Mortgage loans held for sale are valued at the lower of cost or market as
determined by bid prices for loans in the secondary market. The loans are
sold without recourse, except in the event that documentation errors are
made during the origination process. Loan servicing and subservicing fees
are contractually based and are recognized monthly as earned over the
life of the loans.
Allowance for loan losses
The allowance for loan losses is a valuation allowance for probable
credit losses, increased by the provision for loan losses and recoveries
and decreased by charge-offs. Management estimates the balance required
based on past loan loss experience, known and inherent risks in the
portfolio, information about specific borrower situations and estimated
collateral values, economic conditions, and other factors. Allocations
of the allowance may be made for specific loans, but the entire
allowance is available for any loan that, in management's judgment,
should be charged-off.
Loan impairment is reported when full payment under the loan terms is
not expected. Impairment is evaluated in total for smaller-balance loans
of similar nature such as residential mortgage, consumer, and credit
card loans, and on an individual loan basis for other loans. If a loan
is impaired, a portion of the allowance is allocated so that the loan is
reported, net, at the present value of estimated future cash flows using
the loan's existing rate or at the fair value of collateral if repayment
is expected solely from the collateral. Loans are evaluated for
impairment when payments are delayed, typically 90 days or more, or when
it is probable that all principal and interest amounts will not be
collected according to the original terms of the loan.
Premises and equipment
Bank premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed primarily on the straight-line
method for bank premises and the accelerated method for equipment and
land improvements over their estimated useful lives. The Company uses
the following useful lives as of December 31, 2004:
Buildings and building improvements 39 years
Land and leasehold improvements 15 years
Furniture, fixtures, and equipment 3-7 years
Software 2-5 years
Other real estate owned
Real estate properties acquired in collection of a loan are recorded at
fair value upon foreclosure. Any reduction to fair value from the
carrying value of the related loan is accounted for as a loan loss.
1. Summary of significant accounting policies (continued)
After acquisition, a valuation allowance reduces the reported amount to
the lower of the initial amount or fair value less costs to sell.
Expenses, gains and losses on disposition, and changes in the valuation
allowance are reported in other expenses.
Servicing rights
Servicing rights represent both purchased rights and the allocated value
of servicing rights retained on loans originated and sold. Servicing
rights are expensed in proportion to, and over the period of, estimated
net servicing revenues. Impairment is evaluated based on the fair value
of the rights, using grouping of the underlying loans as to type, term
and interest rates. Any impairment of a grouping is reported as a
valuation allowance.
Income taxes
Income tax expense/benefit is the sum of the current year estimated tax
obligation or refund per the income tax return and the change in the
estimated future tax effects of temporary differences and
carry-forwards. Deferred tax assets or liabilities are computed by
applying enacted income tax rates to the expected reversals of temporary
differences between financial reporting and income tax reporting, and by
considering carry-forwards for operating losses and tax credits. A
valuation allowance adjusts deferred tax assets to the net amount that
is more likely than not to be realized.
Retirement plan
The Bank has a 401(K) Plan that allows an employee to contribute up to
15% of salary pre-tax, to the allowable limit prescribed by the Internal
Revenue Service. Management has discretion to make matching
contributions to the Plan. However, the Bank made no matching
contributions for the years ended December 31, 2004, 2003 and 2002.
Employees Stock Ownership Plan (ESOP)
The Company has a noncontributory ESOP covering all full-time employees
who have met certain service requirements. The employees' share in the
Company's contribution is based on their current compensation as a
percentage of the total employee compensation. As shares are contributed
to the plan they are allocated to employees and compensation expense is
recorded at the shares' fair value. The Company made no contribution in
2004, 2003 and 2002.
Stock options
At December 31, 2004, the Company has a stock-based employee compensation
plan, which is described more fully in Note 8. The Company accounts for
those plans under the recognition and measurement principles of APB
Opinion No. 25, Accounting for Stock Issued to Employees, and related
Interpretations. No stock-based employee compensation cost is reflected
in net income, as all options granted under those plans had an exercise
price greater than or equal to the market value of the underlying common
stock on the date of grant. The following table illustrates the effect on
net (loss) income and earnings per share if the company
1. Summary of significant accounting policies (continued)
had applied the fair value recognition provisions of FASB Statement No.
123, Accounting for Stock-Based Compensation, to stock-based employee
compensation.
Years Ended December 31,
2004 2003 2002
---- ---- ----
Net (loss) income, as reported $(584,820) $94,442 $205,578
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of tax 5,600 5,000 6,000
----------- ---------- ----------
Pro forma net (loss) income $(590,420) $89,442 $199,578
=========== ========== ==========
Basic and Diluted (Loss) earnings per share:
As reported $(0.14) $0.02 $0.05
Pro forma $(0.14) $0.02 $0.05
Dividend restriction
Banking regulations require the maintenance of certain capital levels and
may limit the amount of dividends that may be paid by the bank to the
holding company or by the holding company to shareholders. In addition,
the Bank cannot pay a dividend until it has net retained earnings or
unless it receives a waiver from the State of Michigan banking
regulators. The accumulated deficit of the Bank was $1,978,688 and
$1,483,994 at December 31, 2004 and 2003, respectively.
(Loss) earnings per share
Basic earnings per share are computed by dividing net (loss) income
available to common shareholders by the weighted average common shares
outstanding. Diluted earnings per share reflect the potential dilution
that would occur if dilutive securities were exercised or converted into
common stock. The following table presents a reconciliation of the
weighted average common shares outstanding for the earnings per share
calculation for the years ended December 31:
2004 2003 2002
----- ----- -----
Weighted average shares outstanding 4,085,244 3,940,433 3,859,433
Net dilutive effect of stock options - 133,982 198,909
----------------------------------
Diluted average shares outstanding 4,085,244 4,074,415 4,058,342
=================================
For December 31, 2004, the Company incurred a net loss. Accordingly,
anti-dilutive impact of the effect of stock options is not shown.
1. Summary of significant accounting policies (continued)
Comprehensive (Loss) Income
Comprehensive (loss) income includes both the net loss and the change in
unrealized gains and losses on securities available for sale.
Segment Reporting
The Company's segments are determined by the products and services
offered, primarily distinguished between banking and mortgage banking
operations. Loans, investments, and deposits provide the revenues in the
banking operation, and servicing fees, underwriting fees and loan sales
provide the revenues in mortgage banking. All operations are domestic.
Reclassification
Certain items in the 2003 and 2002 consolidated financial statements and
notes have been reclassified to conform to the 2004 presentation.
2. Michigan BIDCO, Inc.
BIDCO was incorporated for the purpose of providing financing to small
businesses located in Michigan for the purpose of creating business and
industrial development in the State of Michigan. BIDCO is licensed under
the Michigan BIDCO Act, and is regulated by the Michigan Office of
Financial and Insurance Services, Bank and Trust Division. The President
of the Company serves as Chairman and President of BIDCO.
At December 31, 2003 University Bancorp owned 6.10% of the BIDCO and the
Bank held a $600,000, 7.5% note collateralized by all assets of the
company. The note was paid off in December 2004. Additionally, the shares
of the BIDCO were sold. At December 31, 2004, the company no longer had a
financial interest in the BIDCO
3. Secondary Market Operations
Midwest provides servicing and subservicing of real estate mortgage
loans for University Bank and several other financial institutions. The
unpaid principal balance of these loans was approximately $2.31 billion,
$1.94 billion and $1.06 billion as of December 31, 2004, 2003 and 2002
respectively. Custodial escrow balances maintained in connection with
these respective loans was $30.2 million, $26.8 million, and $23.4
million, at December 31, 2003, 2002 and 2001 respectively. Most of these
funds are off balance sheet and maintained at various financial
institutions. The following summarizes the operations of Midwest for the
years ended December 31:
3. Secondary Market Operations (continued)
2004 2003 2002
--------------------- -------------------- ---------------------
Loan servicing and subservicing fees $1,127,416 $1,128,293 $713,427
Loan set-up and other fees 1,550,620 2,865,708 2,677,966
Interest income 35,533 42,940 45,922
Gain on sale of loans 340,149 756,170 236,098
--------------------- -------------------- ---------------------
Total income 3,053,717 4,793,111 3,673,413
Salaries and benefits 1,518,595 1,646,483 1,348,884
Amortization of servicing rights 448,553 865,977 522,081
Interest expense 11,320 3,798 2,520
Other operating expenses 1,104,106 1,851,073 1,365,091
--------------------- -------------------- ---------------------
Total expenses 3,080,308 4,367,331 3,238,576
--------------------- -------------------- ---------------------
(Loss)income of Midwest $ (26,591) $ 425,780 $ 434,837
===================== ==================== =====================
University Bank and Midwest sell conforming residential mortgage loans
to the secondary market. These loans are owned by other institutions and
are not included in the Company's consolidated balance sheets. Such
mortgage loans have been sold predominately without recourse or with
limited recourse. The unpaid principal balance of these loans was $120.6
million, $112.3 million and $87.0 million at December 31, 2004, 2003 and
2002 respectively.
The following summarizes the activity pertaining to mortgage servicing
rights, along with the aggregate activity in related valuation
allowances. Table A is calculated net of the valuation allowance
described in Table B.
Table A 2004 2003 2002
------------------- ------------------- -------------------
Mortgage servicing rights:
Balance, January 1 $1,031,575 $1,014,939 $ 606,537
Additions - originated 514,764 887,811 937,450
Amortization expense (380,553) (472,175) (480,048)
------------------- ------------------- -------------------
Adjustment for asset impairment change (68,000) (399,000) (49,000)
------------------- ------------------- -------------------
Balance, December 31 $1,097,786 $1,031,575 $1,014,939
=================== =================== ===================
Table B
Valuation allowances:
Balance, January 1 $ 448,000 $ 49,000 $ 0
Additions 68,000 399,000 49,000
------------------- ------------------- -------------------
Balance, December 31 $ 516,000 $ 448,000 $ 49,000
=================== =================== ===================
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 pay downs received and expected prepayments
of the mortgage loans. The servicing rights are recorded at the lower of
cost or market.
4. Securities available for sale (continued)
The following is a summary of the amortized cost, gross unrealized gains,
gross unrealized losses and fair value of securities available for sale
at December 31, 2004, 2003 and 2002:
December 31, 2004
Amortized Unrealized Fair
Cost Gains Losses Value
U.S. agency mortgage-backed
securities $1,157,964 $ - $(51,356) $1,106,607
========= ======== ========= =========
December 31, 2003
Amortized Unrealized Fair
Cost Gains Losses Value
U.S. agency mortgage-backed
Secuities $1,675,648 $ - $(38,795) $1,636,853
Stocks 12,316 - - 12,316
--------- -------- ------- ---------
$1,687,964 $ - $(38,795) $1,649,169
========== ======== ========= =========
December 31, 2002
Amortized Unrealized Fair
Cost Gains Losses Value
U.S. agency mortgage-backed
Securities $3,184,835 $ - $(81,997) $3,102,838
========== ======= ========= =========
At December 31, 2004 and 2003, the fair value of securities pledged to
secure certain borrowings were $1,106,607 and $1,649,169, respectively.
Unrealized losses at December 31, 2004 and 2003 have existed for longer
than twelve months. This decline is considered temporary as the values
of the mortgage-backed securities fluctuate based on changes in current
interest rates and prepayment assumptions related to the underlying
mortgages. Furthermore, the Company expects to hold these securities
sufficiently long enough to recover these unrealized losses.
Sales of available for sale securities: 2004 2003 2002
---- ---- ----
Proceeds $49,981 $59,879 $1,034,160
Realized gains 3,605 - 69,733
Realized losses 4,051 54,011 -
The scheduled maturity date of the securities available for sale at
December 31, 2004 is:
Amortized Fair
Cost Value
2005-2008 $ 0 $ 0
2009-2013 0 0
After 2013 1,157,964 1,106,607
---------- ----------
$1,157,964 $1,106,607
========== ==========
5. Loans
Major classifications of loans are as follows as of December 31:
2004 2003 2002
---- ---- ----
Commercial $ 15,079,343 $ 15,943,127 $ 16,550,325
Real estate - mortgage 24,657,078 15,687,265 11,633,060
Real estate -construction 1,238,530 1,270,789 2,113,747
Installment 1,820,515 1,905,793 2,799,490
Credit cards 204,334 121,612 95,412
------------- ------------- -------------
Gross Loans 42,999,800 34,928,586 33,192,034
Allowance for loan losses (353,124) (454,118) (408,219)
------------- ------------- -------------
Net Loans $ 42,646,676 $ 34,474,468 $ 32,783,815
============= ============= =============
Changes in the allowance for loan losses were as follows:
2004 2003 2002
---- ---- ----
Balance, beginning of year $ 454,118 $ 408,219 $ 579,113
Provision charged to operations (87,500) 189,400 100,000
Recoveries 55,512 97,008 16,570
Charge-offs (69,006) (240,509) (287,464)
--------- --------- ---------
Balance, end of year $ 353,124 $ 454,118 $ 408,219
========= ========= =========
At December 31, 2004, there are loans totaling $371,109 that were past
due over 90 days but still accruing interest. These loans were brought
current shortly after December 31, 2004. There are no past due loans
over 90 days and still accruing interest at December 31, 2003 and 2002.
Non-accrual loans at December 31 are summarized as follows:
2004 2003 2002
---- ---- ----
Non accrual loans:
Real estate - mortgage and construction loans $ 591,791 $ 907,599 $ 102,713
Installment loans 16,739 5,128 67,546
Commercial loans (non real estate) 39,490 204,400 509,301
--------- ----------- ---------
$ 648,020 $ 1,117,127 $ 679,560
========= =========== =========
Information regarding impaired loans for the years ended December 31, is
as follows:
Impaired loans: 2004 2003 2002
-------------- ---- ---- ----
Loans with no allowance allocated $ 83,319 $ 0 $ 0
Loans with allowance allocated $ 564,701 $ 1,117,127 $ 679,560
Amount of allowance for loan losses allocated $ 83,548 $ 291,754 $ 177,069
Impaired loans:
Average balance during the year $ 719,667 $ 946,261 $ 531,823
Interest Income recognized thereon $ 0 $ 6,248 $ 8,412
Cash-basis interest income recognized $ 0 $ 6,248 $ 8,412
6. Premises and equipment
Classifications at December 31 are summarized as follows:
2004 2003 2002
---- ---- ----
Land $ 32,811 $ 32,811 $ 132,931
Buildings and improvements 234,984 234,984 1,157,624
Furniture, fixtures,equipment and
software 2,756,982 2,327,279 2,108,391
------------ ------------ -----------
3,024,777 2,595,074 3,398,946
Less: accumulated depreciation (2,078,073) (1,765,267) (1,678,044)
------------ ------------ ------------
Net premises and equipment $ 946,704 $ 829,807 $ 1,720,902
============ ============ ============
In June 2003, the Bank sold its main office and sole branch
location to Lowertown Development, LLC ("Lowertown") for $1,173,833, and
a gain of $342,851. As part of this transaction, the Bank received an
option to purchase 10,000 square feet of office space in a new facility
to be constructed by Lowertown which was valued at $200,000.
Simultaneously, the Bank entered into a 24 month lease agreement with
Lowertown to leaseback the building sold. The lease included 5 six-month
options to extend the lease until the earlier of the completion of the
new building or December 2007. Lowertown is developing the neighboring
area with a major office, retail and apartment development. Under the
terms of the agreement, the Bank has an option to purchase 10,000 square
feet of office space in this new development for fair market value up to
a maximum of $2,000,000. It is currently anticipated that the new
facility will be occupied in February 2007. Both the gain on the sale of
the building and the purchase option are being amortized into income over
the life of the expected lease term. Lowertown is obligated to pay the
Bank $200,000 if the office space is not completed prior to the end of
the extended lease period in December 2007.
Depreciation expense amounted to $318,584, $305,741 and $290,516 for the
years ended December 31, 2004, 2003 and 2002, respectively.
The Bank began leasing its Maiden Lane building in June 2003. The rent
for 2004 totaled $106,740. The Bank leases an ATM drive-thru location in
Ann Arbor for $28,656 per year and one off-site ATM location for $9,000
per year. Midwest leases its office space for approximately $50,424 per
year in Houghton, Michigan. Total rental expense for all operating
leases was $192,663, $144,778 and $55,861 in 2004, 2003 and 2002.
7. Time deposits
Time deposit liabilities issued in denominations of $100,000 or more
were $1,854,614 and $2,632,451 at December 31, 2004 and 2003
respectively.
At December 31, 2004, stated maturities of time deposits were:
2005 $8,199,043
2006 3,068,588
2007 521,596
2008 95,870
2009 113,744
Thereafter 441,341
-------------
$12,440,182
=============
7. Time deposits (continued)
The Bank had issued through brokers $3,651,000 and $1,101,000 of time
deposits as of December 31, 2004 and 2003, respectively. These time
deposits have maturities ranging from one to five months and are
included in the table above. These deposits are issued in denominations
of less than $100,000.
The Bank had deposits of $1,400,430 and $1,550,233 from directors,
officers and their affiliates as of December 31, 2004 and 2003,
respectively.
8. Stock options
In 1995, the Company adopted a stock option and stock award plan (the
1995 Stock Plan), which provides for the grant of incentive stock
options, as defined in Section 422(b) of the Internal Revenue Code of
1986, as amended, as well as the grant of non-qualified stock options
and other stock awards. The plan provides for the grant to officers,
directors and key employees of the Company, and independent contractors
providing services to the Company, of options to purchase and other
awards of common stock. The exercise price of options granted under the
plan shall be determined by the Board of Directors, or a compensation
committee thereof. Options shall expire on the date specified by the
Board of Directors or such committee, but not more than 10 years from
the date of grant (or five years from the date of grant for incentive
stock options if the grantee owned 10% of the Company's voting stock at
the date of grant). Unless amended, the 1995 Stock Plan will terminate
on November 15, 2005. The following table summarizes the activity
relating to options to purchase the Company's common stock:
Number of Weighted Average
Options Exercise price
Outstanding at December 31, 2001 251,909 $1.60
Forfeited - 2002 (47,000) 1.61
Granted - 2002 ($0.08 Fair Value) 75,000 1.00
----------
Outstanding at December 31, 2002 279,909 1.44
Granted - 2003 ($0.10 Fair Value) 54,000 1.85
Exercised - 2003 (36,000) 1.33
Forfeited - 2003 (26,500) 1.26
----------
Outstanding at December 31, 2003 271,409 1.60
----------
Granted - 2004 ($0.46 Fair Value) 64,500 2.29
Exercised - 2004 (103,909) 1.65
Forfeited - 2004 (36,000) 2.00
----------
Outstanding at December 31, 2004 196,000 1.69
===========
At December 31, 2004:
Number of options immediately exercisable 117,200
Weighted average exercise price of immediately
exercisable options $1.39
Range of exercise price of options outstanding $1.00 - $2.47
Weighted-average remaining life of options outstanding 4.62 years
8. Stock options (continued)
The following summarizes assumptions used to value stock options.
2004 2003 2002
---- ---- ----
Risk-free interest rate 4.50% 4.00% 4.13%
Expected option life 5.0 years 5.0 years 5.0 years
Expected stock price
Volatility 23.4% 22.5% 21.2%
Expected dividends $0 $0 $0
9. Employee stock ownership plan (ESOP)
The employees' allocation of ESOP assets is based on their current
compensation, after 1 year of service and upon reaching the age of 21.
The annual contribution to the ESOP is at the discretion of the Board of
Directors. Assets of the plan are comprised entirely of 77,018 shares of
the Company's stock at December 31, 2004 and 2003, all of which were
fully allocated at December 31, 2004. Upon retirement from the plan,
participants can receive distributions of their allocated shares of the
Company's stock. The assets of the ESOP are held in trust and were
valued at approximately $139,000, and $199,000 at December 31, 2004 and
2003, respectively.
10. Minority Interest
The Bank owns an 80% interest in the common stock of Midwest, with the
remaining 20% owned by the President of Midwest. At December 31, 2004
and 2003, total common stockholders' equity of Midwest was $2,200,229
and $2,226,820 resulting in a $440,118 and $445,324 minority interest
reflected on the Company's consolidated balance sheet, respectively. The
results of Midwest's operations for 2004, 2003 and 2002 are included in
the Company's consolidated statement of operations.
11. Commitments and contingencies
The Bank is party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to buy, sell
and fund loans, letters of credit and unused lines of credit. The Bank's
exposure to credit loss in the event of non-performance is equal to or
less than the contractual amount of these instruments. The Bank follows
the same credit policy to make such commitments as that followed by
loans recorded in the consolidated financial statements. The following
is a summary of commitments as of December 31:
2004 2003 2002
---- ---- ----
Unused lines of credit $ 4,907,000 $ 3,762,000 $2,094,000
Commitments to fund loans 3,366,000 2,562,000 3,748,000
Foreign exchange futures 75,000
----------- ----------- ----------
Total $ 8,273,000 $ 6,399,000 $5,842,000
=========== =========== ==========
12. Related party transactions
The Company's President also serves as President and Chairman of
Michigan BIDCO. As such, the President is actively involved in the
BIDCO's operations, including investment activity and estimation of the
fair value of its equity investments. In December, 2004, the BIDCO paid
in full its $600,000 note to the Bank. Additionally, the Bancorp sold
its 6.10% in the BIDCO. At December 31, 2004, neither the Bank nor the
Bancorp had a financial interest in or with BIDCO.
The Bank had loans outstanding of $44,232 and $280,690 to related
officers and directors at December 31, 2004 and 2003, respectively.
During 2004, two loans totaling $620,000 were originated. There were no
related party loans that were originated during 2003 that were
outstanding at year end. During 2003, a construction line of credit
issued in 2002 was terminated. Available lines of credit to related
parties at the December 31, 2004 and 2003, totaled $118,768 and $156,373
respectively. Related party loans were made in the normal course of
business and were performing pursuant to terms at December 31, 2004.
13. Income taxes
At December 31, 2004 income tax expense of $80,000 was recorded due to
uncertainties as to the future benefits of the net operating losses.
At December 31, 2003, the Company recorded an $80,000 tax benefit as a
deferred tax asset which represented a portion of the existing net
operating loss carry-forward that was expected to be utilized to offset
future taxable income.
The net deferred tax asset at December 31, 2004 and 2003 is comprised of
the following:
2004 2003
Allowance for loan losses $ 123,732 $ 276,579
Net operating loss carry-forward 707,369 487,663
Tax credit carry-forward 1,111,810 989,123
Deferred gain on sale leaseback 71,715 85,568
Donation carry-forward 9,058 46,819
Other 138,189 57,708
------------- ------------
Deferred tax assets 2,161,873 1,943,460
------------- ------------
Servicing rights (373,247) (339,009)
Depreciation (32,839) (32,661)
------------- ------------
Deferred tax liabilities (406,086) (371,670)
------------- ------------
Net deferred tax asset 1,755,787 1,571,790
Valuation allowance for
deferred tax assets (1,755,787) (1,491,790)
------------- ------------
Net deferred tax asset $ 0 $ 80,000
============= ============
The Company has net operating loss carry-forwards of approximately
$2,080,000 which expire beginning in 2012 and general business credit
carry-forwards of approximately $1,112,000 which expire beginning in
2011. Financial statement tax expense amounts differ from the amounts
computed by applying the statutory federal tax rate of 34% to pretax
income because of operating losses and valuation allowances recorded to
reduce deferred tax assets as noted above.
14. Short Term Borrowings
The Bank had a line of credit available from the Federal Home Loan Bank
(the FHLB) in the amount of $4.0 million and $3.0 million at December
31, 2004 and 2003, respectively. At December 31, 2004, borrowings were
secured by the pledge of specific mortgage loans held for investment
with unpaid principal balances of $5.4 million and available-for-sale
securities with a balance of $1.1 million.
The Bank had a line of credit available from the Federal Reserve Bank of
Chicago (the FRB) in the amount of $5.7 million. There were no amounts
outstanding on this line from the FRB at December 31, 2004 and 2003.
Borrowings are secured by the pledge of specific commercial loans held
for investment with unpaid principal balances of $7.8 million. The
following information provides a summary of short-term borrowings for
the years indicated:
2004 2003
---- ----
Amount outstanding at the end of
the year and interest rate $2,416,000 1.65% $ 0
Maximum amount of borrowing outstanding
at any month end during the year $2,601,000 $991,000
Average amount outstanding during the
year and weighted average rate $972,076 1.75% $227,063 1.29%
15. Long Term Borrowings
The Company had a note payable to North Country Bank & Trust (NCB&T)
secured by the stock of the Bank with a balance of $34,000 and $166,000
at December 31, 2004 and 2003, respectively. The note has a maturity
date of February 15, 2005. Interest is payable quarterly at the prime
rate of NCB&T plus 1.00 percent.
Dividends by the Bank to the holding company in excess of the prior
year's annual net income are not permitted without prior permission from
NCB&T under the terms of the Company's credit facility.
16. Regulatory matters
University Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly
additional discretionary, actions by regulators that, if undertaken,
could have a direct material effect on the Company's financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's
assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by regulators
about components, risk weightings, and other factors.
The Bank is also subject to prompt corrective action capital requirement
regulations set forth by the FDIC. The FDIC requires the Bank to maintain
a minimum of total capital and Tier 1 capital (as defined) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to
16. Regulatory matters (continued)
average total assets (as defined). As of December 31, 2004, the Bank did
not meet all capital adequacy requirements to which it is subject as the
Bank presently has a written understanding with its regulators that the
Bank will maintain the ratio of Tier 1 Capital to average assets at 7% or
more. Management has submitted a plan of corrective action to the FDIC.
This plan includes the possible issuance of preferred stock.
As of December 31, 2004, the most recent guidelines from the FDIC
categorized the Bank as "adequately capitalized" under the regulatory
framework for prompt corrective action. At December 31, 2003 the Bank was
classified as "well capitalized." To be categorized as "well
capitalized," or "adequately capitalized" the Bank must maintain minimum
total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set
forth in the table.
To Be Adequately To Be Well
Capitalized Capitalized
Under Prompt Under Prompt
Corrective Action Corrective Action
Provisions Provisions
Amount Ratio Amount Ratio Amount Ratio
As of December 31, 2004:
Total capital (to risk
weighted assets) $3,515,000 9.5 % $2,965,000 8.0 % $3,706,000 10.0 %
Tier I capital (to risk
weighted assets) 3,158,000 8.5 % 1,482,000 4.0 % 2,224,000 6.0 %
Tier I capital (to
average assets) 3,158,000 6.5 % 1,959,000 4.0 % 2,449,000 5.0 %
As of December 31, 2003:
Total capital (to risk
weighted assets) $4,129,000 12.3 % $2,689,000 8.0 % $3,362,000 10.0 %
Tier I capital (to risk
weighted assets) 3,708,000 11.0 % 1,345,000 4.0 % 2,017,000 6.0 %
Tier I capital (to
average assets) 3,708,000 8.6 % 1,728,000 4.0 % 2,160,000 5.0 %
17. Management's Plan Regarding Continuing Operations At December 31, 2004,
University Bancorp had an accumulated deficit of $2,490,224 and
recurring losses from operations for 3 of the past 5 years. University
Bancorp's operations are intended to continue in the future. Management
has reviewed operating results, prepared projections of possible future
results, performed other analyses of its operations to reduce operating
costs and entered new product lines of business.
17. Management's Plan Regarding Continuing Operations (continued)
Management of the Company has implemented a plan to improve core
earnings by adding low-cost deposits, adjusting fees, growing the loan
portfolio of the Bank, reducing loan delinquencies, liquidating other
real estate owned, improving the synergy between its subsidiary
operations, and eliminating inefficient or redundant costs at the Bank
level. Both the Bank and Midwest are projected to have net income in
2005, however, the Company's continued operation is dependent upon its
ability to maintain profitable operations and retain adequate capital
levels.
18. Fair Value of Financial Instruments
The following methods and assumptions were used to estimate fair values
for financial instruments. The carrying amount is considered to estimate
fair value for cash and short-term instruments, demand deposits,
short-term borrowings, accrued interest, and variable rate loans or
deposits that reprice frequently and fully. Securities fair values are
based on quoted market prices or, if no quotes are available, on the
rate and term of the security and on information about the issuer. For
fixed rate loans or deposits and for variable rate loan or deposits with
infrequent repricing or repricing limits, the fair value is estimated by
the discounted cash flow analysis using current market rates for the
estimated life and credit risk. Fair values for impaired loans are
estimated using discounted cash flow analyses of underlying collateral
values, where applicable. Fair value of loans held for sale is based on
market estimates. Fair value of mortgage servicing rights is estimated
using discounted cash flows based on current market interest rates net
of estimated costs of servicing loans. Fair value of mortgage
subservicing rights is based on a multiple of servicing contract
revenue. The fair value of debt is based on currently available rates
for similar financing. The fair value of off-balance sheet items is
based on the fees or cost that would normally be charged to enter into
or terminate such agreements. Fair value of unrecognized financial
instruments includes commitments to extend credit and the fair value of
letters of credit is considered immaterial.
18. Fair Value of Financial Instruments (continued)
The carrying amounts and fair values of the Company's financial
instruments were as follows:
December 31, 2004
Carrying Fair
Financial Assets Amount Value
---------------- ------ -----
Cash and short term investments $ 1,732,000 $ 1,732,000
Securities available for sale 1,106,000 1,106,000
Federal Home Loan Bank stock 922,000 922,000
Loans held for sale 846,000 846,000
Loans, net 42,647,000 43,436,000
Mortgage servicing rights 1,097,000 1,097,000
Accrued interest receivable 148,000 148,000
Financial Liabilities
Deposits 44,588,000 44,640,000
Short term borrowings 2,416,000 2,416,000
Long term borrowings 34,000 34,000
Accrued interest payable 50,000 50,000
December 31, 2003
Carrying Fair
Financial Assets Amount Value
---------------- ------ -----
Cash and short term investments $ 2,171,000 $ 2,171,000
Securities available for sale 1,649,000 1,649,000
Federal Home Loan Bank stock 881,100 881,100
Loans held for sale 206,000 206,000
Loans, net 34,474,000 35,630,000
Mortgage servicing rights 1,032,000 1,032,000
Accrued interest receivable 130,000 130,000
Financial Liabilities
Deposits 38,808,000 39,048,000
Long term borrowings 166,000 166,000
Accrued interest payable 52,000 52,000
19. Segment Reporting
The Company's operations include two primary segments: retail banking
and mortgage banking. Through its banking subsidiary's branch in Ann
Arbor, the Company provides traditional community banking services such
as accepting deposits, making loans, and providing cash management
services to individuals and local businesses. Mortgage banking
activities includes servicing of residential mortgage loans for others
(See Note 2).
19. Segment Reporting (continued)
The Company's two reportable segments are strategic business units that
are separately managed as they offer different products and services and
have different marketing strategies. In addition, the mortgage banking
segment services a different customer base from that of the retail
banking segment.
The segment financial information provided below has been derived from
the internal profitability reporting system used by management to
monitor and manage the financial performance of the Company. The
accounting policies of the three segments are the same as those
described in the summary of significant accounting policies. The Company
evaluates segment performance based on profit or loss before income
taxes, not including nonrecurring gains and losses. Certain indirect
expenses have been allocated based on actual volume measurements and
other criteria, as appropriate. The Company accounts for transactions
between segments at current market prices. Segment profit is measured
before allocation of corporate overhead and income tax expense.
Information about reportable segments for the year ended December 31,
2004 follows:
Retail Mortgage
Banking Banking Totals
Interest income $2,708,738 $ 35,533 $2,744,271
Gain on the sale of mortgage
loans 0 340,149 340,149
Other non-interest income 804,363 2,678,036 3,482,399
Interest expense 772,031 11,927 783,958
Provision for loan losses (87,500) 0 (87,500)
Salaries and benefits 1,348,254 1,518,595 2,866,849
Occupancy 284,147 131,009 415,156
Other operating expense 1,660,699 1,432,476 3,093,175
(Loss) income before tax
expense (464,531) (40,289) (504,820)
Income tax (benefit) expense 93,698 (13,698) 80,000
Segment (loss) profit (558,229) (26,591) (584,820)
Segment assets 48,545,358 2,240,340 50,785,698
Capital expenditures 252,530 182,951 435,481
Depreciation 150,776 167,808 318,584
Amortization 258,510 446,287 704,797
19. Segment Reporting (continued)
Information about reportable segments for the year ended December 31,
2003 follows:
Retail Mortgage
Banking Banking Totals
Interest income $2,689,157 $42,942 $2,732,099
Gain on the sale of mortgage
loans 0 756,170 756,170
Other non-interest income 1,182,413 3,993,999 5,176,322
Interest expense 836,734 4,903 841,637
Provision for loan losses 189,400 0 189,400
Salaries and benefits 1,711,577 1,646,483 3,358,060
Occupancy 245,931 176,836 422,767
Other operating expense 1,524,729 2,313,466 3,838,285
(Loss) income before tax
expense (636,801) 651,423 14,442
Income tax (benefit) expense (305,643) 225,643 (80,000)
Segment (loss) profit (331,158) 425,780 94,442
Segment assets 40,667,106 2,356,200 43,023,306
Capital expenditures 108,309 122,747 231,056
Depreciation 153,744 151,996 305,740
Amortization 105,198 865,977 971,175
Information about reportable segments for the year ended December 31,
2002 follows:
Retail Mortgage
Banking Banking Totals
Interest income $3,148,530 $45,922 $3,194,452
Gain on the sale of mortgage
loans 0 236,098 236,098
Other non-interest income 813,528 3,391,393 4,204,921
Interest expense 1,036,643 2,520 1,039,163
Provision for loan losses 110,000 (11,000) 100,000
Salaries and benefits 1,580,656 1,348,884 2,929,540
Occupancy 185,859 163,327 349,186
Other operating expense 1,246,494 1,755,051 3,001,545
(Loss) income before tax
expense (229,239) 434,837 205,598
Income tax (benefit) expense (153,665) 153,665 0
Segment (loss) profit (75,574) 281,172 205,598
Segment assets 44,078,661 2,170,652 46,249,313
Capital expenditures 22,255 106,699 128,954
Depreciation 75,831 119,239 195,070
Amortization 106,967 $522,081 629,048
20. Quarterly Financial Data -Unaudited
The following tables represent summarized data for each of the quarters
in 2004 and 2003 (in thousands, except loss per share data).
2004
------------------------------------------------------------------
Quarter Quarter Quarter Quarter
Ended Ended Ended Ended
March 31 June 30 September 30 December 31
Interest income $635 $643 $720 $746
Interest expense 187 184 198 215
-----------------------------------------------------------------
Net interest income 448 459 522 531
Provision for losses 23 23 (28) (106)
-----------------------------------------------------------------
Net interest income after
Provision for losses 425 436 550 637
Loan set-up and other fees 383 508 311 370
Loan servicing and subservicing fees 334 348 357 349
Gain on sale of loans 89 69 65 117
Other non-interest income 158 147 120 99
Non-interest expense 1,574 1,594 1,539 1,669
------------------------------------------------------------------
Income tax expense - - 80 -
------------------------------------------------------------------
Net (loss) available to common shareholders ($185) ($86) ($216) ($97)
==================================================================
Basic and diluted loss per share ($0.05) ($0.02) ($0.05) ($0.02)
===================================================================
Weighted average shares outstanding 4,058,108 4,090,548 4,090,548 4,101,011
===================================================================
20. Quarterly Financial Data -Unaudited (continued)
2003
-----------------------------------------------------------------
Quarter Quarter Quarter Quarter
Ended Ended Ended Ended
March 31 June 30 September 30 December 31
-----------------------------------------------------------------
Interest income $ 695 $ 681 $ 671 $ 685
Interest expense 227 218 195 202
-----------------------------------------------------------------
Net interest income 468 463 476 483
Provision (credit)for losses 106 39 22 22
-----------------------------------------------------------------
Net interest income after
Provision for losses 362 424 454 461
Loan set-up and other fees 822 1,068 965 528
Loan servicing and subservicing fees 201 232 280 415
Gain on sale of loans 184 305 180 87
Other non-interest income 115 90 277 183
Non-interest expense 1,611 2,105 2,124 1,779
-----------------------------------------------------------------
Income before tax benefit 73 14 32 (105)
-----------------------------------------------------------------
Income tax benefit - - (80) -
-----------------------------------------------------------------
Net earnings(loss) available to common $ 73 $ 14 $ 112 $ (105)
shareholders
==================================================================
Basic and diluted earnings (loss) per share $ 0.02 $ 0.00 $0.03 $(0.03)
===================================================================
Weighted average shares outstanding 3,899,548 3,899,548 3,951,944 4,009,309
===================================================================
21. Parent Company Only Condensed Financial Information
Condensed Balance Sheet
December 31, December 31,
2004 2003
--------------------- -----------------
ASSETS
Cash and cash equivalents $ 5,626 $ 669
Securities available for sale - 12,316
Investment in University Bank 3,050,721 3,557,977
Investment in Michigan BIDCO - 29,258
Other assets 3,137 3,768
----------- -----------
Total Assets $ 3,059,484 $ 3,603,988
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $ 34,000 $ 166,000
Accounts payable 23,601 2,000
Accrued interest payable 257 1,361
----------- -----------
Total Liabilities 57,858 169,361
Stockholders' Equity 3,001,626 3,434,627
----------- -----------
Total Liabilities and
Stockholders' Equity $ 3,059,484 $3,603,988
=========== ===========
21. Parent Company Only Condensed Financial Information (continued)
Condensed Statements of Income
2004 2003 2002
----------- --------- --------
INCOME:
Interest and dividends on
investments $ 266 $ 339 $ 328
Net security losses (446) (26,574) -
----------- --------- -------
Total (loss)income (180) (26,235) 328
EXPENSES:
Interest 4,907 12,144 20,675
Public listing 45,696 43,088 38,202
Professional fees 36,976 24,000 33,513
Other miscellaneous 2,726 5,250 3,014
---------- -------- -------
Total Expense 90,305 84,482 95,404
Loss before federal income taxes
and equity in undistributed
net loss of subsidiaries (90,125) (110,717) (95,076)
Federal income taxes - - -
---------- -------- -------
Loss before equity in undistributed
net loss of subsidiaries (90,125) (110,717) (95,076)
Equity in undistributed net
(loss)income of subsidiaries (494,695) 205,159 300,674
---------- -------- --------
Net(loss)income $(584,820) $ 94,442 $205,598
========== ======== ========
21. Parent Company Only Condensed Financial
Information (continued) Condensed Statements of
Cash Flows
For Year Ended
2004 2003 2002
---------- ------------ ----------
Cash flow provided by (used in) investing activities:
Net Income (Loss) $ (584,820) $ 94,442 $ 205,598
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Amortization of goodwill - - -
Loss on sale of investments 446 27,783 -
Decrease (increase) in receivable from affiliate - - 286,196
Decrease (increase) in other assets 631 (407) (256)
Decrease (increase) in other liabilities 20,498 (97,414) (71,050)
Decrease (increase) investment in subsidiaries 494,695 (205,159) (300,673)
Decrease in investment in Michigan BIDCO - - -
---------- ------------ ----------
Net cash (used in) provided by operating activities (68,551) (180,755) 119,815
---------- ------------ ----------
Cash flow from investing activities:
Purchase of available for sale securities (8,853) (98,563)
Proceeds from sale of available for sale securities 49,981 58,464 -
---------- ------------ ----------
Net cash provided by (used in) investing activities 41,128 (40,099)
---------- ------------ ----------
Cash flow from financing activities:
Principal payment on notes payable (132,000) (132,000) (132,000)
Issuance of common stock 164,380 141,250 128,413
---------- ------------ ----------
Net cash provided by (used in) financing activities 32,380 9,250 (3,587)
---------- ------------ ----------
Net change in cash and cash equivalents 4,957 (211,604) 116,228
Cash and cash equivalents:
Beginning of year 669 212,273 96,045
---------- ------------ ----------
End of year $ 5,626 $ 669 $ 212,273
========== ============ ==========
Supplemental disclosure of cash flow information: Cash paid during the
year for:
Interest $ 6,011 $ 12,755 60,686
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures.
None
ITEM 9A. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures.
-----------------------------------------------------
Disclosure controls are procedures that are designed with an
objective of ensuring that information required to be disclosed
in our company's periodic reports filed with the Securities and
Exchange Commission, such as this report on Form 10-K, is
recorded, processed, summarized, and reported within the time
periods specified by the Securities and Exchange Commission.
Disclosure controls also are designed with an objective of
ensuring that such information is accumulated and communicated to
our company's management, including our chief executive officer
and chief financial officer, in order to allow timely
consideration regarding required disclosures
As of the end of the period covered by this report, an evaluation
was carried out under the supervision and with the participation
of the Company's management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures
(as defined in Rules 13a-14(c) under the Securities Exchange Act
of 1934). Based upon that evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that, including
consideration of the matters identified below, the operation of
these disclosure controls and procedures were effective. During
the course of the audit of our financial statements for the year
ended December 31, 2004, our independent registered public
accounting firm, Grant Thornton LLP, indicated that the following
material deficiencies, in the aggregate, constitute a material
weakness in our internal controls pursuant to standards
established by the Public Company Accounting Oversight Board:
(1) The Company lacks sufficiently formalized accounting
policies and procedures, including written procedures
for the preparation of the Quarterly Report on Form
10-Q in accordance with applicable SEC guidelines.
(2) The Company's manual procedures for performing
consolidations increase the possibility that errors
could occur and our dual controls may not be
sufficient to guarantee avoidance of all errors in
consolidation.
(3) The Company may have insufficient staff in the
accounting and financial reporting departments to
meet the needs of Sarbanes-Oxley Section 404
standards by June 2006
(4) The Company replaced its core banking software
application during the summer of 2004. The core
banking system is now out-sourced to a service bureau
whereas previously the bank maintained the core
banking system in house. During the transition and
for a period afterwards it was necessary to give
certain members of senior management additional
access rights for training and the transition
requirements in the new system. In March 2005, access
rights for the banking software were revised and
access rights were reassigned to levels appropriate
for a routine operating environment. The controls in
the new core banking application in place today are
significantly better than the overall control levels
in the system that was replaced.
Management has begun implementing plans to address each of
items 1-3, further improving on the systems and procedures
already in place. Management believes that its plans with
respect to each of these items will be completed and
implemented in the second quarter of 2005.
With respect to policies and procedures for the Quarterly
Report on Form 10-Q, management notes that it uses a checklist
prepared by the American Institute of Certified Public
Accountants to assist in the preparation of SEC reports and
that it maintains a reference library of SEC and accounting
handbooks. Management is implementing plans to further
formalize its procedures and
expects to complete and implement this in the second quarter
of 2005.
Management believes that the Company's general ledger and core
processing systems for each entity in the consolidation are
effective and are consistent with systems used by others in
our industry. We have evaluated our procedures and made
changes to increase the automation and dual controls for
preparing consolidated results.
Management believes that the current staff in the accounting
and financial reporting is sufficient and properly trained to
implement appropriate internal controls and to generate
accurate financial statements. We continue to provide training
and to document our systems and procedures to make sure that
the Company is able to comply with the internal control report
requirements by the applicable deadline.
(b) Changes in Internal Controls. Except as described above, there
were no significant changes in the Company's internal controls
over financial reporting during the fourth quarter of the
fiscal year ended December 31, 2004, that have materially
affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting
Index of Exhibits
Sequentially
Exhibit Number and Description Numbered Page
(3) Certificate of Incorporation and By-laws:
3.1 Composite Certificate of Incorporation of the Company, as amended
(incorporated by reference to Exhibit 3.1 to the June 30, 1996 10-Q").
3.1.1 Certificate of Amendment, dated June 10, 1998, of the Company's
Certificate of Incorporation (incorporated by reference to Exhibit
3.1.1 to the June 30, 1998 10-Q").
3.2 Composite By-laws of the Company (incorporated by reference to Exhibit
3.2 to the 1989 10-K).
(10) Material Contracts.
10.1 Loan Agreement and Promissory Note dated December 31, 1997 issued to
North Country Bank & Trust (incorporated by reference to Exhibit 10.1
to the 1997 10-K"))
10.2 University Bancorp, Inc. Employee Stock Ownership Plan (the "ESOP"), as
amended November 27, 1990 (incorporated by reference to Exhibit 10.2 to
the 1990 10-K).
10.2.1 Amendment to the ESOP, effective as of December 31, 1991 (incorporated
by reference to Exhibit 10.2.A to the 1991 10-K).
10.3 University Bank 401(k) Profit Sharing Plan, adopted August 1, 1996,
effective as of January 1, 1996 (incorporated by reference to Exhibit
10.3 to the 1996 10-K).
10.4 1995 Stock Plan of the Company (incorporated by reference to Exhibit A
to the definitive Proxy Statement of the Company for the 1996 Annual
Meeting of Stockholders (the "1996 Proxy).
10.4.1 Form of Stock Option Agreement related to the 1995 Stock Plan
(incorporated by reference to Exhibit 10.7.1 to the 1995 10-K).
10.5 Letter, dated December 1, 1989, from Federal Reserve Bank of
Minneapolis (incorporated by reference to Exhibit 10.9 to the 1989
10-K).
10.6 Federal Income Tax Allocation Agreement Between
Newberry State Bank and Newberry Holding Inc. dated
March 21, 1992 (incorporated by reference to Exhibit 10.11 to the 1991
10-K).
10.6.1 Federal Income Tax Allocation Agreement Between
Newberry Holding Inc. and University Bancorp, Inc.
dated May 21, 1991 (incorporated by reference to
Exhibit 10.11.1 to the 1991 10-K).
21 Subsidiaries of Registrant. 79
23.1 Consent of Grant Thornton, LLP, Independent Registered Public Accounting
Firm 81
23.2 Consent of Richard C. Woodbury, P.C., Independent
Registered Public Accounting Firm 82
31.3 Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 83
31.4 Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 84
32.2 Certificate of the Chief Executive Officer and of University
Bancorp, Inc. pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 85
32.2 Certificate of the Chief Financial Officer of University
Bancorp, Inc. pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 86
<
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have issued our report dated March 29, 2005 accompanying the consolidated
financial statements incorporated by reference in the annual report of
University Bancorp, Inc. on Form 10-K for the year ended December 31, 2004. We
hereby consent to the incorporation by reference of said report in the
Registration Statement of University Bancorp, Inc. on Form S-8 (File No. 333-
109930 ) effective October 23, 2003.
/S/ GRANT THORNTON LLP
Southfield, Michigan
April 13, 2005
EXHIBIT 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUTING FIRM
We have issued our report dated February 25, 2005 accompanying the consolidated
financial statements incorporated by reference in the annual report of
University Bancorp, Inc. on Form 10-K for the year ended December 31, 2004. We
hereby consent to the incorporation by reference of said report in the
Registration Statement of University Bancorp, Inc. on form S-8 (File No.
333-10993) effective October 23, 2003.
/S/ Richard C. Woodbury, P.C., CPA
Houghton, Michigan
April 13, 2005
Exhibit 31.1
FORM 10-K 302 CERTIFICATION
I
I, Stephen Ranzini certify that:
1) I have reviewed this annual report on Form 10-K of University
Bancorp, Inc.;
2) Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
annual report;
3) Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods presented in this annual report;
4) The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
c) disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of the annual report) that
has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a. all significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report
financial information; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting. s; and
Date: October 13, 2005 /s/Stephen Lange Ranzini
------------------- ----------------------------------
Stephen Lange Ranzini
President and Chief Executive Officer
Exhibit 31.2
FORM 10-K 302 CERTIFICATION
I, Nicholas K. Fortson certify that:
1) I have reviewed this annual report on Form 10-K of University
Bancorp, Inc.;
2) Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
annual report;
3) Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods presented in this annual report;
4) The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) for the registrant and have:
d) designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this annual report is being
prepared;
e) evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
f) disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of the annual report) that
has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
6. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a. all significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report
financial information; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting. s; and
Date: October 13, 2005 /s/Nicholas K. Fortson
------------------- ----------------------
Nicholas K. Fortson
Chief Financial Officer
Exhibit 32.1
CERTIFICATION PURSUANT
TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual report of University Bancorp, Inc. (the
"Registrant") on Form 10-K for the period ended December 31, 2004 as filed with
the Securities and Exchange Commission , hereof (the "Report"), the undersigned
officer certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Registrant.
University Bancorp, Inc
Date: October 13, 2005 By: /s/ Stephen Lange Ranzini
------------------ --------------------------
Stephen Lange Ranzini
President and Chief Executive Officer
Exhibit 32.2
CERTIFICATION PURSUANT
TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual report of University Bancorp, Inc. (the
"Registrant") on Form 10-K for the period ended December 31, 2004 as filed with
the Securities and Exchange Commission , hereof (the"Report"), the undersigned
officer certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934, and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Registrant.
University Bancorp, Inc
Date: October 13, 2005 By: /s/ Nicholas K. Fortson
------------------ -----------------------
Nicholas K. Fortson
Chief Financial Officer