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United Community Financial Corp. Announces Fourth Quarter Results; Profitability Returns

Stocks in this article: UCFC

Total interest expense decreased $13.2 million for the twelve months ended December 31, 2012, as compared to the same period last year. The change was due primarily to reductions of $12.4 million in interest paid on deposits. The overall decrease in interest expense was attributable to the maturity of higher cost Step CDs and a shift in deposit balances from certificates of deposit to relatively less expensive non-time deposits. Between December 31, 2011, and December 31, 2012, the average outstanding balance of certificates of deposit declined by $222.1 million (of which $140.0 million were Step CDs), while non-time deposits increased by $47.6 million. Also contributing to the decrease in interest expense was a reduction of 94 basis points in the cost of certificates of deposit, as well as a decrease in the cost of non-time deposits of 14 basis points.

The primary cause of the decrease in interest expense on FHLB advances was a decrease in the average balance of those funds of $20.6 million, in addition to a rate decrease on those borrowings of 19 basis points in 2012 compared to 2011. These decreases were caused by the prepayment of $25.7 million of term advances in the second and third quarters of 2012 and the need to use fewer short-term overnight advances during the period.

Noninterest Income

Noninterest income increased in the fourth quarter of 2012 to $6.9 million, as compared to $3.8 million in the third quarter of 2012. The $3.1 million increase was driven by a recovery of $1.3 million on previously recorded valuation on mortgage servicing rights in December compared to an impairment charge of $672,000 recognized in September. Lower losses on the valuation and sales of REO were also recognized in the fourth quarter as compared to the previous quarter.

Noninterest income decreased slightly in 2012 to $22.7 million, as compared to $23.2 million in 2011. Accounting for the change was the sale of four retail branches in 2011, at which time, Home Savings recorded a $4.2 million gain in noninterest income. No branch sale transactions occurred in 2012. Home Savings also sold fewer securities in 2012, recognizing fewer gains on the sale of those securities as a result. Partially offsetting these declines were net recoveries of $1.1 million in adjustments to mortgage servicing rights during 2012, recorded in service fees and other charges. Furthermore, Home Savings recognized higher mortgage banking income in 2012 and incurred fewer losses on the valuation and disposition of real estate owned and other repossessed assets in 2012 as compared to 2011.

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