United Bancorp Inc. of Tecumseh, Mich., warned Wednesday that it would 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.
The provision could wipe out its fourth-quarter profits. The $788 million-asset United earned $2.3 million in the third quarter, when it set aside $617,500 for its loan-loss provision.
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.
In an 8-K filing Wednesday with the Securities and Exchange Commission, United Bancorp said a review of its 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 lot sales are taking place 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 within recent months, United said.
The charge includes an estimate of legal fees and other related expenses the company expects to incur.
But the charge could change, depending on the actual loan losses and expenses, United said.
