U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO __________
Commission file number 0-21809
HOME CITY FINANCIAL CORPORATION
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
OHIO 34-1839475
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
63 West Main Street
Springfield, Ohio 45502
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(513) 324-5736
---------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes _____ No _X_*
As of December 20, 1996, 100 common shares, no par value, of the Registrant were
outstanding. There were no preferred shares outstanding.
* The Registrant's Registration Statement on Form S-1 was declared effective on
November 12, 1996. The Registrant has conducted no business except the offering
of its shares and preparation to acquire Home City Federal Savings Bank of
Springfield. The financial information contained in this Form 10-QSB is,
therefore, that of Home City Federal Savings Bank of Springfield.
<PAGE>
HOME CITY FINANCIAL CORPORATION
SPRINGFIELD, OHIO
FORM 10-QSB
INDEX
================================================================================
Page Number
PART I FINANCIAL INFORMATION
Item. 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets -- 3
September 30, 1996 and June 30, 1996
Condensed consolidated statements of income -- 4
Three months ended September 30, 1996 and 1995
Condensed consolidated statements of cash flows -- 5
Three months ended September 30, 1996 and 1995
Notes to condensed consolidated financial 6
statements -- September 30, 1996
Item 2. Management's Discussion and Analysis of Financial 7
Condition and Results of Operations
PART II OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
-2-
<PAGE>
<TABLE>
HOME CITY FEDERAL SAVINGS BANK OF SPRINGFIELD
CONSOLIDATED BALANCE SHEETS
September 30, June 30,
1996 1996
------------- --------
(In thousands)
<S> <C> <C>
Assets
Cash and cash equivalents
Cash and due from banks $ 1,193 $ 855
Interest-bearing time deposits 535 588
Federal funds sold 600 400
------- -------
Total cash and cash equivalents 2,328 1,843
Time deposits with original maturities of 90 days or more 361 1,061
Investment securities available for sale, at fair value 2,189 2,188
Mortgage-backed securities available for sale, at fair value 2,873 2,975
Loans receivable, net 47,762 45,225
Accrued interest receivable 281 273
Properties and equipment 489 488
Investments required by law - stock in Federal Home Loan Bank 401 394
Deferred federal income taxes -- --
Cash surrender value of life insurance policies 1,057 1,044
Other assets 234 237
------- -------
Total assets $57,975 $55,728
======= =======
Liabilities
Deposits
Demand deposits 592 302
NOW accounts 496 395
Savings deposits 9,097 9,561
Time deposits, $100,000 or over 6,027 7,216
Other time deposits 33,048 29,700
------- -------
Total deposits 49,260 47,174
Advances from Federal Home Loan Bank 2,673 2,903
Accrued interest payable 53 49
Advance payments by borrowers for taxes and insurance 45 20
Deferred income taxes 43 68
Other liabilities 483 116
------- -------
Total liabilities 52,557 50,330
------- -------
Members' equity
Retained earnings, substantially restricted 5,271 5,255
Unrealized gain (loss) on securities available for sale,
net of applicable deferred income taxes 163 127
------- -------
Total members' equity 5,418 5,398
------- -------
Total liabilities and members' equity $57,975 $55,728
======= =======
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
-3-
<PAGE>
HOME CITY FEDERAL SAVINGS BANK OF SPRINGFIELD
CONSOLIDATED STATEMENTS OF INCOME
3 Months Ended
September 30,
1996 1995
-------- --------
Interest income (In thousands)
Interest and fees on loans $ 1,103 $ 958
Interest on investment securities 40 38
Interest on mortgage-backed securities 49 55
Interest on deposits in banks and federal
funds sold 27 18
------- ------
Total interest income 1,219 1,069
------- ------
Interest expense
Interest on interest-bearing checking accounts 2 --
Interest on savings deposits 57 69
Interest on certificates of deposit 591 486
Interest on advances from Federal Home Loan Bank 41 45
------- ------
Total interest expense 691 600
------- ------
Net interest income 528 469
Provision for loan losses 1 --
------- ------
Net interest income after provision for
loan losses 527 469
Other income
Service charges on deposit accounts 1 1
Life insurance 15 --
Other income 1 --
------- ------
Total other income 17 1
------- ------
Other expense
Salaries and employee benefits 130 118
Supplies, telephone and postage 9 10
Occupancy and equipment 25 28
FDIC deposit insurance 287 23
Data processing 14 16
Legal, accounting and examination 23 30
Franchise tax 19 21
Other expense 50 49
------- ------
Total other expense 557 295
------- ------
Income (loss) before income taxes (13) 175
Federal income tax expense (3) 57
------- ------
Net income $ (10) $ 118
======= ======
_______________________________________________________________________
Per share data:
Net income per common share N/A N/A
======= ======
_______________________________________________________________________
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
HOME CITY FEDERAL SAVINGS BANK OF SPRINGFIELD
CONSOLIDATED STATEMENT OF CASH FLOWS
3 Months Ended
September 30,
---------------------
1996 1995
Cash Flows From Operating Activities: (In thousands)
<S> <C> <C>
Net income $ (10) $ 118
Adjustments to reconcile net income to net cash
provided by operating activities:
Premium amortization, net of discount accretion 9 6
Provision for loan losses 1 --
Depreciation 10 9
Deferred income taxes (48) 72
Life insurance income, net of expenses (13) --
Changes in operating assets and liabilities:
Increase in accrued income receivable (8) (46)
Increase (decrease) in other assets 3 (229)
Increase in accrued interest payable 4 151
Increase in other liabilities 367 27
------- -------
Net cash provided by operating activities 315 108
------- -------
Cash Flows From Investing Activities:
Net decrease in time deposits 700 --
Proceeds from maturities of held-to-maturity securities -- 500
Payments on available-for-sale mortgage-backed securities 145 128
Net change in loans (2,538) (2,212)
Purchases of premises and equipment (11) (1)
Purchase of Federal Home Loan Bank stock (7) (5)
Purchase of life insurance contracts -- (1,020)
------- -------
Net cash used in investing activities (1,711) (2,610)
------- -------
Cash Flows From Financing Activities:
Net increase in deposits 2,086 1,457
Proceeds from advances from Federal Home Loan Bank 325 900
Payments on advances from Federal Home Loan Bank (555) (554)
Net increase in advance payments by borrowers for tax and
insurance 25 14
------- -------
Net cash provided by financing activities 1,881 1,817
------- -------
Net increase (decrease) in cash and cash equivalents 485 (685)
Cash and cash equivalents at beginning of year 1,843 2,377
------- -------
Cash and cash equivalents at end of year $ 2,328 $ 1,692
======= =======
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
HOME CITY FEDERAL SAVINGS BANK OF SPRINGFIELD
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
On September 3, 1996, the Board of Directors of Home City Federal Savings
Bank of Springfield (the "Bank") adopted a Plan of Conversion pursuant to which
the Bank would convert from a mutual savings bank to a permanent capital stock
savings bank chartered under the laws of the United States (the "Conversion")
and become a wholly-owned subsidiary of Home City Financial Corporation
("HCFC"). Pursuant to the Plan of Conversion, HCFC will offer 952,200 common
shares (the "Shares") to certain depositors and borrowers of the Bank and to
members of the public. The costs of offering and issuing the Shares will be
deferred and deducted from the proceeds of the sale of the Shares. If the
Conversion is completed, all deferred costs will be charged to operations. The
consolidated financial statements contained herein are those of the Bank prior
to the completion of the Conversion.
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
("GAAP") for interim financial information and with the instructions to Form
10-QSB and Article 10 of Regulation S-X and Rule 310 of Regulation SB.
Accordingly, they do not include all information and footnotes required by GAAP
for complete financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included. Operating
results are not necessarily indicative of the results that may be expected for
the year ended June 30, 1997.
<PAGE>
HOME CITY FEDERAL SAVINGS BANK OF SPRINGFIELD
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
================================================================================
The following focuses on the consolidated financial condition of the Bank
at September 30, 1996, compared to June 30, 1996, and the results of operations
for the three-month period ended September 30, 1996, compared to the same period
in 1995. The purpose of this discussion is to provide a better understanding of
the consolidated financial statements and footnotes included in the Form 10-QSB.
The Bank is not aware of any market or institutional trend, events or
uncertainties that will have or are reasonably likely to have a material effect
on liquidity, capital resources or operations except as discussed herein. Other
than as discussed herein, the Bank is not aware of any current recommendations
by regulatory authorities which would have such effect if implemented.
Financial Condition
Liquidity. Liquidity relates to the Bank's ability to meet cash demands of
its customers and their credit needs. Liquidity is provided by the Bank's
ability to readily convert assets to cash and readily marketable, short-term
assets such as federal funds sold and deposits in other banks.
Cash, amounts due from banks and federal funds sold totaled $2.33 million
at September 30, 1996. Time deposits (with original maturities of 90 days or
more), investments and mortgage-backed securities available for sale were $5.42
million at September 30, 1996, a decrease of $801,000 from June 30, 1996,
balances. Such decrease was attributable to maturity of such instruments and
time deposits and the shifting of such assets into loans receivable.
Liability liquidity relates to the Bank's ability to retain existing
deposits, obtain new deposits and borrow in the marketplace. Total deposits
increased $2.09 million for the three months ended September 30, 1996, compared
to June 30, 1996. The Bank has not experienced any significant loss of deposits
during the first three months of fiscal 1997. This is evidenced by the decrease
of $73,000 in demand deposit and negotiable order of withdrawal ("NOW") account
and savings account balances being offset by the increase of $2.16 million in
time account balances.
Access to funds from the Federal Home Loan Bank (the "FHLB") in the form of
short- and long-term advances is a supplemental source of cash to meet liquidity
needs.
Capital Resources. Members' equity totaled $5.42 million at September 30,
1996, compared to $5.40 million at June 30, 1996. This increase was primarily
due to a net unrealized gain on securities available-for-sale of $36,000. As of
September 30, 1996, the ratio of members' equity to assets was 9.53%, compared
to 9.69% at June 30, 1996.
Regulatory Capital Requirements. The Bank is required by applicable law and
regulation to meet certain minimum capital requirements. These requirements call
for tangible capital of 1.5% of adjusted total assets, core capital (which for
Home City is equal to tangible capital) of 3% of adjusted total assets, and
risk-based capital (which for Home City consists of core capital and general
valuation allowances) equal to 8% of risk-weighted assets. Assets and certain
off-balance-sheet items are weighted at percentage levels ranging from 0% to
100% depending on their relative risk.
<PAGE>
The following table summarizes the Bank's regulatory capital requirements
and actual capital at September 30, 1996.
<TABLE>
Excess of actual capital over
Actual Capital Current requirements current requirements Applicable
Amount Percent Amount Percent Amount Percent asset total
------ ------- ------ ------- ------ ------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Tangible
capital $5,201 8.94% $ 872 1.50% $4,329 7.44% $58,164
Core
capital 5,201 8.94 1,744 3.00 3,457 5.94 58,164
Risk-based
capital 5,565 17.36 2,564 8.00 3,001 9.36 32,052
</TABLE>
General. The Bank's consolidated total assets were $57.98 million at
September 30, 1996, reflecting an increase of $2.25 million, or 4.03%, over the
$47.17 million at June 30, 1996. This growth was primarily attributable to an
increase in loans outstanding, funded by a similar increase in time deposits
under $100,000.
Cash and Cash Equivalents, Time Deposits, Investment Securities,
Mortgage-Backed Securities and FHLB Stock. Cash and cash equivalents, time
deposits with original maturities of 90 days or more, investment securities,
mortgage-backed securities and Federal Home Loan Bank ("FHLB") stock increased
by $309,000 between June 30 and September 30, 1996. The primary changes were an
increase in cash and cash equivalents from $1.84 million at June 30, 1996, to
$2.33 million at September 30, 1996, and a decrease in time deposits with
original maturities of 90 days or more from $1.06 million at June 30, 1996, to
$361,000 at September 30, 1996.
Loans Receivable. Net loans receivable equaled $47.76 million at September
30, 1996, compared to $45.23 million at June 30, 1996, a 5.6% increase,
attributable to the continued demand for mortgage loans coupled with the growth
of the consumer loan product line, which was introduced in January of 1996.
Management is continuing to emphasize single-family residential lending.
Deposits. Total deposits increased by $2.09 million, or 4.42%, during the
first three months of fiscal 1997. Time deposits increased by $2.16 million, or
5.84%, while demand and savings deposits decreased only $73,000, or 0.71%,
during the three months ended September 30, 1996.
Other liabilities increased by $367,000. Such increase was primarily
attributable to the accrual of $265,000 for the one-time assessment on deposits
insured by the Savings Association Insurance Fund ("SAIF") to be paid on
November 27, 1996. The one-time SAIF assessment was levied by the Federal
Deposit Insurance Corporation in order to bring the reserves of the SAIF to the
level required by law and to correct a significant disparity between the amount
of deposit insurance premiums paid by institutions with deposits insured by the
Bank Insurance Fund (the "BIF") and the amount paid in premiums for insurance
under the SAIF. The legislation providing for the special SAIF assessment also
provides that the cost of prior thrift failures will be shared by both the SAIF
and the BIF, which will increase BIF assessments and decrease SAIF assessments
in 1997. The recapitalization plan also provides for the merger of the SAIF and
the BIF effective January 1, 1999, assuming there are no savings associations
under federal law. Under separate proposed legislation, Congress is considering
the elimination of the federal thrift charter and the separate federal
regulation of thrifts. As a result, the Bank would have to convert to a
different financial institution charter and would be regulated under federal law
as a bank, including being subject to the more restrictive activity limitations
imposed on national banks. In addition, HCFC might become subject to more
restrictive holding company requirements. HCFC cannot predict the impact of the
conversion of the Bank to, or regulation of the Bank as, a bank until the
legislation requiring such change in enacted.
Advances from the FHLB decreased $230,000, or 7.9%, during the first
quarter of fiscal year 1997, due to repayment of short-term borrowings during
the quarter.
<PAGE>
Comparison of Results of Operations
General. The Bank recorded a consolidated net loss of $10,000 for the three
months ended September 30, 1996, compared to income of $125,000 for the same
period in 1995. Such loss resulted primarily from the accrual of a $265,000
expense due to the one-time SAIF assessment, which was recorded as of September
30, 1996. If not for such assessment, the Bank would have had approximately
$165,000 of net income for the three months ended September 30, 1996.
Net Interest Income. The Bank's net interest income for the three months
ended September 30, 1996, increased by $59,000, to $528,000, compared to the
same period in 1995. The net interest margin, which consists of net interest
income as a percentage of average interest-earning assets, decreased slightly,
from 3.63% for the three months ended September 30, 1995, to 3.53% for the same
period in 1996, primarily as a result of the growth in the higher-yielding
deposits of the Bank. During the same period, the net interest spread, which
reflects average yield on interest-earning assets less average costs of
interest-bearing liabilities, increased from 3.03% to 3.30%.
Provision for Loan Losses. The allowance for loan losses was established
and is maintained by periodic charges to the provision for loan loss, an
operating expense, in order to provide for the risk of loss inherent in the
Bank's loan portfolio. Loan losses and recoveries are charged or credited,
respectively, to the allowance for loan losses as they occur.
The allowance and provision for loan losses is determined by management
upon consideration of such factors as the size and character of the loan
portfolio, loan loss experience, problem loans and economic conditions in the
Bank's market area. Management attempts to minimize the risk associated with
each loan by evaluating each loan independently based upon criteria which
include, but are not limited to, (a) the purpose of the loan, (b) the credit
history of the borrower, (c) the borrower's financial standing and trends, (d)
the market value of the collateral involved, and (e) the down payment received.
Quarterly reviews of the loan portfolio are conducted to identify problem loans
and to determine appropriate courses of action on a loan-by-loan basis. While
management believes that it uses the best information available to determine the
allowance for loan losses, unforeseen market conditions could result in material
adjustments, and net earnings could be significantly adversely affected, if
circumstances differ substantially from the assumptions used in making the final
determination. Loans not secured by one- to four-family residential real estate
are generally considered to involve greater risk of loss than loans secured by
one- to four-family residential real estate due, in part, to the effects of
general economic conditions. The repayment of multifamily residential and
nonresidential real estate loans generally depends upon the cash flow from the
operation of the property, which may be negatively affected by national and
local economic conditions that cause leases not to be renewed or that negatively
affect the operations of a commercial borrower. Construction loans may also be
negatively affected by such economic conditions, particularly loans made to
developers who do not have a buyer for a property before the loan is made. The
risk of default on consumer loans increases during periods of recession, high
unemployment and other adverse economic conditions. When consumers have trouble
paying their bills, they are more likely to pay mortgage loans than consumer
loans, and the collateral securing such loans, if any, may decrease in value
more rapidly than the outstanding balance of the loan. In August 1996, Congress
passed legislation repealing the reserve method of accounting used by many
thrifts to calculate their bad debt reserve for federal income tax purposes and
requiring any bad debt reserves taken after 1987, using the percentage of
taxable income method, be included in future taxable income of the association
over a six-year period, although a two-year delay is permitted for institutions
meeting a residential mortgage loan origination test. At September 30, 1996,
First Federal has approximately $1.1 million in bad debt reserves subject to
recapture for federal income tax purposes. The deferred tax liability related to
the recapture was established in prior years, so the Bank's net income will not
be negatively affected by this legislation.
During the three months ended September 30, 1996, provisions for loan
losses were made totaling $800, representing provisions of $400 each in the
months of August and September, 1996. Management determined that such provisions
were appropriate in light of the steady growth in Home City's loan portfolio and
the recent addition of consumer installment loan products, which present greater
risk to lenders than mortgage loans.
Noninterest Income and Expense. Noninterest income was $17,000 for the
three months ended September 30, 1996, compared to $1,000 for the same period in
1995. The increase was a result of an increase in the cash surrender value of
life insurance policies the Bank holds on four directors. Noninterest expense
increased by $262,000 for the three months ended September 30, 1996, compared to
the same period in 1995. The increase was attributable to the provision for the
special SAIF assessment.
<PAGE>
HOME CITY FEDERAL SAVINGS BANK OF SPRINGFIELD
PART II
ITEM 1 - LEGAL PROCEEDINGS
None
ITEM 2 - CHANGES IN SECURITIES
Not Applicable
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
None
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1933,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HOME CITY FINANCIAL CORPORATION
Date December 26, 1996 Douglas L. Ulery
____________________________________
Douglas L. Ulery
President
Date December 26, 1996 Gary E. Brown
____________________________________
Gary E. Brown
Treasurer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AS OF JUNE 30 AND SEPTEMBER 30, 1996, AND THE
RELATED CONSOLIDATED INCOME STATEMENTS FOR THE THREE MONTHS ENDED SEPTEMBER 30,
1996 and 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 1,193
<INT-BEARING-DEPOSITS> 895
<FED-FUNDS-SOLD> 600
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,029
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 48,126
<ALLOWANCE> 364
<TOTAL-ASSETS> 57,975
<DEPOSITS> 49,260
<SHORT-TERM> 218
<LIABILITIES-OTHER> 624
<LONG-TERM> 2,455
0
0
<COMMON> 0
<OTHER-SE> 5,418
<TOTAL-LIABILITIES-AND-EQUITY> 57,975
<INTEREST-LOAN> 1,103
<INTEREST-INVEST> 89
<INTEREST-OTHER> 27
<INTEREST-TOTAL> 1,219
<INTEREST-DEPOSIT> 650
<INTEREST-EXPENSE> 41
<INTEREST-INCOME-NET> 528
<LOAN-LOSSES> 1
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 557
<INCOME-PRETAX> (13)
<INCOME-PRE-EXTRAORDINARY> (3)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 3.53
<LOANS-NON> 250
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 520
<ALLOWANCE-OPEN> 362
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 363
<ALLOWANCE-DOMESTIC> 363
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 261
</TABLE>
