Categories : Quarterly Report



Since late July, I have been looking for United Bank and Trust’s Q2 results.  The bank usually posts its results about 30 days after the close of the quarter.  In addition, you’ll remember that the bank must improve its capital ratio (by selling about $8M in stock), and the target date for that (July time frame as near as I can tell) has also passed.  Both with no comment until recently.

Recently, there have been three major announcements.

  1. On August 6, the bank made a filing with the SEC saying that it is going to ask shareholders to authorize an additional 20M shares to bring the total authorized share number to 30M (from 10M currently authorized).  The bank will hold a special shareholder meeting on Sept. 23 at 4:30 to discuss and obtain shareholder approval for this request.  Here is the SEC filing.
  2. Today, I found on that the bank filed paperwork that said it couldn’t make a timely filing of its Q2 results.  It mentioned that there was a debate between the bank and regulators about the amount of loan loss expense that it would take in Q2.  The bank hired an outside third party to consult regarding this dispute, and it would file its Q2 results no later than August 23.
  3. Today, in the incomplete 10Q filing I did find on, it mentioned that the newly passed banking legislation would likely impact the bank making it more costly to do business, but had not completely analyzed the legislation yet.

I haven’t had time to think about what these events might mean to the bank but I have a few comments (and feel free to comment yourself):

  • I had not expected the bank to ask for authorization to increase the number of shares to 30M.  I thought they could get the job done regarding increasing capitalization with the ~5M shares that were currently authorized but not issued.  That’s my mistake, sorry.  I suspect that after dealing with the investment bankers, the Bank’s management concluded that it needed the cushion of tripling the number of authorized shares.  I seem to remember that just a few years ago,  the bank had only 5 M authorized shares.
  • My guess is that whenever a company cannot file it’s SEC papers in a timely manner, it’s not a good thing.  Since the dispute involves both the FDIC and the Michigan OFIR, I suspect the loan loss issue impacts the amount of additional money the bank must obtain to improve its capitalization.  Since I’m not on the board, I don’t know this for a fact.

These things just introduce uncertainty, and when investors see uncertainty, they sell.  This is reflected in the recent $4.50 share price.

I think it’s safe to say that these events reflect a dire solvency situation at our bank.  Both these news nuggets reflect a bank that is using emergency measures to stave off a solvency crisis as its regulators are breathing down its neck.

If you read anything about the the bank wanting approval for the additional shares because it could use the money for a dividend, or it could use the money to make strategic acquisitions, don’t believe what you read.  I think I’ve made the case before (when the bank took the TARP money) that the reasons it gave publicly for taking the money then were misleading at best.  I think this is the same situation in that they just need additional money for proper capitalization, and may make misleading statements to manage investor sentiment. There’s nothing that a shareholder should get his hopes up about (at least in my opinion).

Having said all this, it’s certainly not easy being a manager or shareholder in the banking business these days.  You’d like to blame somebody, and there’s certainly enough blame to go around.  I just wish the bank had been more circumspect when it made those last few land development loans back a few years ago.  Those loans, that had to be written off, have cost the bank (and shareholders) tens of millions of dollars in loan losses.

I may have more to say later.  If you have anything to say, feel free to opine.

 Posted on : August 17, 2010
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