Several weeks ago, United Bank and Trust published its 2010 financial results. Though there were a few positives, overall, I'd say that the results were in line with last year. The bank lost $3.7M in 2010 compared to a loss of $8.8M in 2009, though adjusting for the almost $3.5M in goodwill writeoff in 2009, a more apples to apples comparison would be a 2009 loss of around $5.8M.
To get the quick picture of how the bank did during any particular year, I've learned you only need to look at two items: Core earnings and Loan loss expense. Let's look at each:
Core earnings seem to indicate that the day to day operations of the bank are OK. Again, Core earnings are the total of all (pretax) Income and expenses except for loan loss accruals. Core earnings in 2010 were almost $14.9M second only to 2007 when core earnings were $15.8M. And compared to 2009, core earnings showed an increase of over $3.5 compared to core earnings of $11.3M shown in 2009.
In simple terms, core operations (Interest income, interest expense, and non capital related income and expense) seems to be OK.
Loan Loss Expense:
This item has shown a disturbing trend since 2007, and the trend continued in 2010. In 2010, the bank took over $21.5M in loan loss expense. As mentioned in other posts, the bank takes these expenses when it believes that its customers will be unable to continue making the monthly payment. When this happens, the bank writes down the loan from its original value down to something much lower. The difference between the original loan amount (generally what the bank loaned to the borrower), and the low value (probably the value of some collateral for the loan) is taken as loan loss expense.
Since 2007, the bank has charged over $70.5 Million to loan loss expense. This has been the reason the bank took $20M in TARP money in 2009, and $17 M in new capital last year.
Basically, nothing changed last year, except that the bank was forced by regulators to generate additional capital, the $17M spoken to above. The result of the TARP money and the additional capital, is that effective control of the bank is no longer Tecumseh MI (or for purists, Ann Arbor MI), but is now located in Washington DC, Boston MA and New York, NY.
I suspect bank management would disagree about effective control, but let's get real: the Treasury controls $20M of the $92M capital. Though these shares are non voting, and bank management refers to this as "cheap money" (Please, I'm not stupid, all right? Don't make it seem like this is not a big deal. How'd we get to this point anyway?), Government involvement in this bank as a shareholder is bad.
Secondly, new common shareholders (representing about $12M in the new capital) in Boston and New York, are probably in touch with the bank every week getting an update. It wouldn't surprise me to see representatives of these shareholders move to the board of directors soon, in order to protect their interests.
I would think that the worst of the loan losses are over, though there still may be another double digit loan loss expense year that will wipe out any profit for the year. I say this because there really couldn't be too many more $5M to $8M loss years, because where else could they get more capital? They've gone to the well, if they can't turn it around now, some combination of the US Treasury, and the new investors will replace the current management with others who might be more capable.
So look for some sort of turn around in United Bank and Trust stock this year. We old shareholders have endured the worst of the bad times, now it's time for the new shareholders to pull us all to better times.
I will publish more analysis in the next few days so stay tuned. I'm trying to figure out how to upload my excel spreadsheet so others can reference it. If anyone knows, please drop me a note.
Also, since the annual meeting is Tuesday April 26, look for the bank to publish its 2011 Q1 results on Thursday or Friday. Finally, the bank wants us to approve a few shareholder proposals. I'll let everyone know my thoughts on those in a day or so.