Another Michigan bank is warning about credit trouble prompted by the state's flagging economy.
United Bancorp Inc. in Tecumseh said it intends to add $5.1 million to its fourth-quarter provision for loan losses because of deteriorating credit quality.
After taxes, the provision would reduce earnings by $3.4 million, or 67 cents a share, United said in an 8K filing on Wednesday with the Securities and Exchange Commission.
The provision could wipe out its fourth-quarter profit. The $788 million-asset United earned $2.3 million in the third quarter, when it set aside $617,500 for loan losses.
However, the company said it would remain well capitalized after taking the charge, as would its United Bank and Trust and United Bank and Trust-Washtenaw.
The filing said a review of the company's entire commercial loan portfolio last month found $25 million of impaired loans. It attributed the credit trouble to "the negative impact of the continued deterioration in the southeast Michigan real estate markets and the economy in general."
Loans in its residential land development and construction portfolios are secured by unimproved and improved land, residential lots, single-family homes, and condominium units, United said, but lots are being sold at a slower rate and at reduced prices.
With declining home sales squeezing the income of residential developers, contractors, and other real estate-dependent borrowers, several have exhausted their payment sources in recent months, United said.
The charge includes an estimate of legal fees and other related expenses the company expects to incur.
But its amount could change, depending on actual loan losses and expenses, United said.
After the announcement, the company's thinly traded stock was unchanged at $18 a share through midday Thursday. It had hit a 52-week low of $17 on Dec. 31.
