The deteriorating quality of its loans - particularly related to the home building industry - contributed to a $762,000 second quarter operating loss for United Bancorp, the parent company of United Bank and Trust.

However, according to filings released today, results for the first half of the year showed steeper losses of $5.46 million.

Both the second quarter and first-half results were down from 2008, when the company saw profits of $1.7 million and $3.58 million, respectively.

The company's provision for loan losses, which is money set aside to make up for loans that are anticipated to become uncollectible, rose in the second quarter to $5.4 million compared to $1.65 million a year ago.

In the first two quarters combined, the provision increased more than five-fold, from $2.3 million in 2008 to $12.3 million this year.

An analysis of the company's loan portfolio in its quarterly filing with the Securities and Exchange Commission said that management expects further deterioration in loan quality.

"Ongoing stresses within the economy and their resulting impact on borrowers has resulted in further additions to the company's provision for loan losses," the filing said. "The increases over 2008 levels reflect declines in borrowers' ability to repay loans, in large part due to pressures on cashflows and from declining collateral values."

CEO and President Robert Chapman said most of the loans experiencing difficulties were to home builders who have empty lots remaining in their developments.

The values of those lots has been falling locally and throughout the state, he said.

"That's what most of the Michigan banks are dealing with," he said.

On the positive side, Chapman noted that both interest and non-interest income - which including mortgages - hit record levels in the second quarter.

"We have strong core earnings. That really helps," he said.

He also said in a recent interview that community banks are faring better than major lenders and Wall Street.

Before taxes and provisions for loan losses, the company earned $3.9 million in the second quarter, up from $3.1 million in the first quarter.

Dan Meisler writes for Ann Arbor Business Review.