UBSH - Union First Market Bankshares Corp

[Ross812]

You all are going to have to forgive me on this one.  I don’t really know how to analyze a bank, but this has been on my watch list for quite a while.  I read the annual report about six months ago and couldn’t figure out how to value the company.  So why did I even look at this small regional bank? I noticed UBSH when Tom Gayner of Markel bought 13.5% of the company (3.3% of the MKL portfolio).  Steven A. Markel (Vice Chairman at MKL) sits on the board of directors at UBSH, and both companies are headquartered in Virginia. From the outside it looks like the folks at UBSH keep some good company, and the housing market in Virginia (northern Virginia around D.C. in particular) is not nearly as beat up as the rest of the country.  Scottrade shows a tangible book value of $13.21, the P/E is 14.3 and a 2.3% dividend.  Gayner bought a few shares as low as $11.79; with the current stock price at $11.90 this looks like an excellent opportunity to piggy back on Gayner’s trade with a lower cost average.  Gayner seems to buy great companies at a good price.  In this situation, it seems Markel may know this little bank very well and be willing to use a large bat to scoop up a nice portion of the company.  I know there are a few members who know much more about banks than I do and I would appreciate if someone with a little more knowledge could give this one a cursory look.  

[Junto]

I am probably one of the few on this board who spends his spare time digging through the financial services sector. Regional and community banks I find as interesting opportunities into a recovering economy.

This one will take some work. NIM is great at 4.56% and the stock is trading at a discount to Tangible Book Value of $11.84 which is also a big positive.

The primary challenge and first big red flag is the number of Construction and Development Loans on the books. Furthermore, I am finding minimal print dialogue regarding the strategy, plan, and collateral values of this very important segment. For instance, this is the worst segment of the lending market over the past 24 months; however, over the last three quarters this segment has grown with the bank.

From the September 10-K which is different from the call report figures attached:
"In addition, $514.8 million of the loan portfolio is concentrated in real estate construction loans, including raw land, land development, residential lots, speculative and presold residential construction and commercial construction loans (both owner-occupied and non-owner occupied). Of this amount, $215.3 million, or 41.8%, represents land and lot loans; $123.5 million, or 24%, represents land development loans; $86.7 million, or 16.8%, represents speculative and presold residential construction loans and $89.4 million, or 17.4%, is commercial construction. The Company’s real estate lending is conducted within its operating footprint in markets it understands and monitors."

It would not take much to wipe out $4 million+ in earnings with this portfolio. Enough to scare me away until the market recovers.