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 JUNE 30, 1998
[ ] 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 Identification No.)
incorporation or organization)
63 West Main Street
Springfield, Ohio 45502
- -------------------------------------- --------
(Address of principal executive offices) (Zip Code)
(937) 324-5736
-------------------------
(Issuer's telephone number)
N/A
-----
(Former name, former address and former fiscal year, if
changed since last report)
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 X No
--- ---
As of August 7, 1998, 904,590 shares of common stock of the Registrant were
outstanding. There were no preferred shares outstanding.
<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
June 30, 1998, and December 31, 1997
Condensed consolidated statements of income and 4
comprehensive income -- Three and six months ended
June 30, 1998 and 1997
Condensed consolidated statements of cash flows -- 5
Six months ended June 30, 1998 and 1997
Notes to condensed consolidated financial 6
statements -- June 30, 1998, and December 31, 1997
Item 2. Management's Discussion and Analysis of Financial 12
Condition and Results of Operations
PART II OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
<PAGE>
<TABLE>
<CAPTION>
HOME CITY FINANCIAL CORPORATION
SPRINGFIELD, OHIO
CONSOLIDATED BALANCE SHEETS
=======================================================================================
(Dollars in thousands)
(Unaudited) (Unaudited)
At June 30, At December 31,
----------- ---------------
1998 1997
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 1,016 $ 827
Interest-bearing demand deposits in other banks 108 591
Federal funds sold 200 100
------- -------
Total cash and cash equivalents 1,324 1,518
Time deposits with original maturities of 90 days or more 23 23
Investment securities available-for-sale, at fair value 3,436 5,018
Mortgage-backed and related securities available-for-sale,
at fair value 616 700
Loans, net 70,420 62,535
Accrued interest receivable 407 409
Properties and equipment 496 493
Cash surrender value of life insurance 1,099 1,085
Other assets 221 73
------- -------
TOTAL ASSETS $78,042 $71,854
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits $57,346 $51,689
Advances from Federal Home Loan Bank 8,341 5,712
Other borrowings 1,100 0
Accrued interest payable 103 79
Advance payments by borrowers for taxes and insurance 26 71
Deferred income taxes 89 68
Other liabilities 210 231
------- -------
TOTAL LIABILITIES 67,215 57,850
------- -------
Shareholders' equity:
Preferred shares of no par value; 1,000,000 shares
authorized; no shares issued and outstanding 0 0
Common shares of no par value; 5,000,000 shares
authorized; 952,200 shares issued 0 0
Additional paid-in capital 6,016 9,150
Retained earnings, substantially restricted 6,326 6,037
Treasury stock, 47,610 common shares; at cost (711) (711)
Accumulated other comprehensive income 370 332
Common shares purchased by:
Employee Stock Ownership Plan (686) (686)
Recognition and Retention Plan (488) (118)
------- -------
TOTAL SHAREHOLDERS' EQUITY 10,827 14,004
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $78,042 $71,854
======= =======
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
HOME CITY FINANCIAL CORPORATION
SPRINGFIELD, OHIO
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
- ---------------------------------------------------------------------------------------------------------
(Dollars in thousands)
(Unaudited) (Unaudited)
3 Months Ended 6 Months Ended
June 30, June 30, June 30, June 30,
-------- -------- -------- --------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans $ 1,604 $ 1,264 $ 3,106 $ 2,467
Mortgage-backed securities 9 12 19 37
Investment securities 47 120 107 195
Federal funds sold 2 7 3 17
Time deposits 0 4 0 62
Interest-bearing demand deposits in other banks 7 8 14 25
------- ------- ------- -------
TOTAL INTEREST INCOME 1,669 1,415 3,249 2,803
------- ------- ------- -------
INTEREST EXPENSE:
Deposits 726 683 1,423 1,350
Advances from Federal Home Loan Bank and other borrowings 113 65 208 131
------- ------- ------- -------
TOTAL INTEREST EXPENSE 839 748 1,631 1,481
------- ------- ------- -------
NET INTEREST INCOME 830 667 1,618 1,322
Provision for loan losses 20 0 32 20
------- ------- ------- -------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 810 667 1,586 1,302
NON-INTEREST INCOME:
Service charges on deposits 3 2 6 4
Life insurance 13 15 26 30
Gain (loss) on sale of securities, net 1 0 1 (19)
Other income 2 2 4 7
------- ------- ------- -------
TOTAL NON-INTEREST INCOME 19 19 37 22
------- ------- ------- -------
NON-INTEREST EXPENSE:
Salaries and employee benefits 231 186 482 342
Supplies, telephone and postage 13 10 24 25
Occupancy and equipment 28 27 53 52
FDIC deposit insurance 9 9 17 17
Data processing 26 20 49 35
Legal, accounting and examination 61 57 132 110
Franchise taxes 45 43 90 88
Other expenses 61 47 109 101
------- ------- ------- -------
TOTAL NON-INTEREST EXPENSE 474 399 956 770
NET INCOME BEFORE FEDERAL INCOME
TAX EXPENSE 355 287 667 554
Federal income tax expense 115 71 215 160
------- ------- ------- -------
NET INCOME 240 216 452 394
Other comprehensive income (5) 80 38 44
------- ------- ------- -------
TOTAL COMPREHENSIVE INCOME $ 235 $ 296 $ 490 $ 438
======= ======= ======= =======
Earnings per common share based on net income figures:
Basic earnings per common share $ 0.29 $ 0.25 $ 0.55 $ 0.45
Diluted earnings per common share $ 0.26 $ 0.23 $ 0.49 $ 0.42
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
HOME CITY FINANCIAL CORPORATION
SPRINGFIELD, OHIO
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================================
(Dollars in thousands)
(Unaudited) (Unaudited)
6 Months Ended 6 Months Ended
June 30, June 30,
-------- --------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 452 $ 394
Adjustments to reconcile net income to net cash
provided by operating activities:
Premium amortization, net of discount accretion 7 (13)
Provision for loan losses 32 20
Loss on sale of mortgage-backed securities 0 19
Depreciation 25 20
Deferred income taxes 29 (80)
Life insurance income, net of expenses (14) 0
Employee Stock Ownership Plan compensation expense 32 0
FHLB stock dividend (16) 0
Changes in operating assets and liabilities:
(Increase) decrease in accrued interest receivable 2 (94)
Increase in other assets (148) (56)
Increase (decrease) in accrued interest payable 24 (6)
Decrease in other liabilities (21) (121)
------- -------
Net cash provided by operating activities 404 83
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities (70) (6,983)
Proceeds from sales of available-for-sale securities 600 0
Proceeds from maturities of available-for-sale securities 1,134 1,136
Proceeds from sales of mortgage-backed securities,
available-for-sale 0 1,891
Principal collections on mortgage-backed securities,
available-for-sale 78 128
Net increase in loans (7,917) (5,497)
Purchases of properties and equipment (28) (23)
------- -------
Net cash used in investing activities (6,203) (9,348)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 5,657 666
Net increase (decrease) in short-term FHLB advances (1,500) 1,200
Proceeds from new long-term FHLB advances 4,375 0
Payments on long-term FHLB advances (246) (182)
Net increase (decrease) in advance payments by borrowers
for taxes and insurance (45) (48)
Purchase of common shares by RRP (370) 0
Purchase of FHLB stock (37) 0
Increase in other borrowings 1,100 0
Dividends paid (163) (152)
Special cash distribution (3,166) 0
------- -------
Net cash provided by financing activities 5,605 1,484
------- -------
Net increase (decrease) in cash and cash equivalents (194) (7,781)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 1,518 9,839
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD
$ 1,324 $ 2,058
======= =======
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
HOME CITY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998, and December 31, 1997
(Unaudited)
================================================================================
NOTE 1.BASIS OF PRESENTATION
In the opinion of Management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary for a fair presentation
of Home City Financial Corporation's ("Company" or "HCFC") financial condition
as of June 30, 1998, and December 31, 1997, and the results of operations for
the three and six months ended June 30, 1998 and 1997, and the cash flows for
the six months ended June 30, 1998 and 1997. Certain information and note
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted pursuant to
the rules and regulations of the Securities and Exchange Commission. It is
suggested that these consolidated financial statements be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-KSB. The results of operations for the six
months ended June 30, 1998, are not necessarily indicative of the results
which may be expected for the entire fiscal year.
NOTE 2.ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is summarized as follows:
(Dollars in thousands)
Six months ended Six months ended
June 30, December 31,
1998 1997
---- ----
Balance, beginning of period $452 $445
Provision for loan losses 32 23
Charge-offs (40) (16)
Recoveries 3 0
---- ----
Balance, end of period $447 $452
==== ====
NOTE 3.ADVANCES FROM FEDERAL HOME LOAN BANK
Borrowings at June 30, 1998, consisted of three short-term advances totaling
$ 2.5 million and ten long-term advances totaling $ 5.8 million from the Federal
Home Loan Bank of Cincinnati ("FHLB"). The advances are collateralized by all
shares of FHLB stock owned by the Home City Federal Savings Bank of
Springfield ("Bank") and by the Bank's qualified mortgage loan portfolio.
6
<PAGE>
Scheduled maturities of advances from the FHLB were as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
At June 30, 1998 At December 31, 1997
----------------------------------- -----------------------------------
Range of Weighted- Range of Weighted-
interest average interest average
Amount rates interest rate Amount rates interest rate
------ ----- ------------- ------ ----- -------------
<S> <C> <C> <C> <C> <C> <C>
Due within
one year $2,500 5.27%-6.02% 5.42% $2,000 5.87% 5.87%
After one but
within five $2,812 5.43%-6.30% 5.55% $ 538 5.85%-6.30% 6.10%
years
After five years $3,029 3.30%-8.35% 6.47% $3,174 3.30%-8.35% 6.51%
</TABLE>
NOTE 4.REGULATORY CAPITAL
The following table illustrates the compliance by the Bank with currently
applicable regulatory capital requirements at June 30, 1998.
<TABLE>
<CAPTION>
(Dollars in thousands)
Categorized as "Well
Capitalized" Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
_______________ _________________ ____________________
Amount Ratio Amount Ratio Amount Ratio
______ _____ ______ _____ ______ _____
<S> <C> <C> <C> <C> <C> <C>
Total Risk-Based Capital $11,186 22.3% $ 4,013 8.0% $ 5,017 10.0%
(To Risk-Weighted Assets)
Tier I Capital 11,304 22.5% N/A N/A 3,010 6.0%
(To Risk-Weighted Assets)
Tier I Capital 11,304 14.5% 3,112 4.0% 3,890 5.0%
(To Total Assets)
Tangible Capital 11,304 14.5% 1,167 1.5% N/A N/A
(To Total Assets)
</TABLE>
NOTE 5.EARNINGS PER SHARE
Earnings per share ("EPS") is computed in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share," which
was adopted by HCFC as of December 31, 1997. Common stock equivalents include
shares held by the Company's Employee Stock Ownership Plan ("ESOP") that are
committed for release, shares awarded but not released under the Company's
Recognition and Retention Plan ("RRP"), and stock options granted under the
Stock Option Plan ("SOP"). Following is a reconciliation of the numerators
and denominators of the basic and diluted EPS calculations.
7
<PAGE>
<TABLE>
<CAPTION>
For the Quarter Ended June 30, 1998
___________________________________
Income SharesPer Share
(Numerator) (Denominator) Amount
___________ _____________ ______
<S> <C> <C> <C>
Basic EPS
Income available to
common shareholders $239,934 817,462 $0.29
=====
Effect of dilutive securities:
RRP shares 0 23,802
ESOP shares 0 68,558
Stock options 0 15,285
-------- -------
Diluted EPS
Income available to
common shareholders +
assumed conversions $239,934 925,107 $0.26
======== ======= =====
<CAPTION>
For the Quarter Ended June 30, 1997
---------------------------------------
Income SharesPer Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Basic EPS
Income available to
common shareholders $216,016 876,024 $0.25
=====
Effect of dilutive securities:
RRP shares 0 0
ESOP shares 0 76,176
Stock options 0 0
-------- -------
Diluted EPS
Income available to
common shareholders +
assumed conversions $216,016 952,200 $0.23
======== ======= =====
<CAPTION>
NOTE 6.COMPREHENSIVE INCOME
HCFC adopted SFAS No. 130, "Reporting Comprehensive Income", effective January
1, 1998, which establishes standards for reporting comprehensive income and
its components (revenues, expenses, gains and losses). Components of
comprehensive income are net income and all other non-owner changes in
equity. SFAS No. 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement
of financial position. Reclassification of financial statements for earlier
periods provided for comparative purposes is required.
8
<PAGE>
HCFC has chosen to disclose comprehensive income. Components of comprehensive
income are displayed net of income taxes. The following table sets forth the
related tax effects allocated to each element of comprehensive income for the
three and six months ended June 30, 1998 and 1997:
</TABLE>
<TABLE>
<CAPTION>
(Dollars in thousands)
Three months ended June 30, 1998
-------------------------------------
Tax
Before-Tax (Expense) Net-of-Tax
Amount or Benefit Amount
------ ---------- ------
<S> <C> <C> <C>
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during period $ (2) $ (2) $ (4)
Less: reclassification adjustment
for (gains) losses realized in
net income (2) 1 (1)
------ ------ ------
Net unrealized gains (losses) (4) (1) (5)
------ ------ ------
Other comprehensive income $ (4) $ (1) $ (5)
====== ====== ======
<CAPTION>
(Dollars in thousands)
Three months ended June 30, 1997
-------------------------------------
Tax
Before-Tax (Expense) Net-of-Tax
Amount or Benefit Amount
------ ---------- ------
<S> <C> <C> <C>
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during period $ 118 $ (38) $ 80
Less: reclassification adjustment
for (gains) losses realized in
net income 0 0 0
------ ------ ------
Net unrealized gains (losses) 118 (38) 80
------ ------ ------
Other comprehensive income $ 118 $ (38) $ 80
====== ====== ======
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
(Dollars in thousands)
Six months ended June 30, 1998
----------------------------------------
Tax
Before-Tax (Expense) Net-of-Tax
Amount or Benefit Amount
------ ---------- ------
<S> <C> <C> <C>
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during period $ 63 $ (24) $ 39
Less: reclassification adjustment
for (gains) losses realized in
net income (2) 1 (1)
------ ------ ------
Net unrealized gains (losses) 61 (23) 38
------ ------ ------
Other comprehensive income $ 61 $ (23) $ 38
====== ====== ======
<CAPTION>
(Dollars in thousands)
Six months ended June 30, 1997
----------------------------------------
Tax
Before-Tax (Expense) Net-of-Tax
Amount or Benefit Amount
------ ---------- ------
<S> <C> <C> <C>
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during period $ 47 $ (16) $ 31
Less: reclassification adjustment
for (gains) losses realized in
net income 19 (6) 13
------ ------ ------
Net unrealized gains (losses) 66 (22) 44
------ ------ ------
Other comprehensive income $ 66 $ (22) $ 44
====== ====== ======
</TABLE>
The following table sets forth the components of accumulated other
comprehensive income for the three and six months ended June 30, 1998 and
1997:
<TABLE>
<CAPTION>
(Dollars in thousands)
Three months ended Six months ended
June 30, June 30,
-------- --------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Beginning balance $ 375 $ 180 $ 332 $ 216
Unrealized gains (losses) on securities, net (5) 80 38 44
------ ------ ------ ------
Ending balance $ 370 $ 260 $ 370 $ 260
====== ====== ====== ======
</TABLE>
10
<PAGE>
NOTE 7.RECLASSIFICATIONS
Certain amounts in the prior period's financial statements have been
reclassified to be consistent with the current period's presentation. The
reclassifications have no effect on net income.
11
<PAGE>
HOME CITY FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
================================================================================
Safe Harbor Clause
This report contains certain "forward-looking statements." The Company
desires to take advantage of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995 and is including this statement for
the express purpose of availing itself of the protection of such safe harbor
with respect to all such forward-looking statements. These forward-looking
statements, which are included in Management's Discussion and Analysis,
describe future plans or strategies and include the Company's expectations of
future financial results. The words "believe," "expect," "anticipate,"
"estimate," "project," and similar expressions identify forward-looking
statements. The Company's ability to predict results or the effect of future
plans or strategies is inherently uncertain. Factors which could affect
actual results include interest rate trends, the general economic climate in
the Company's market area and the country as a whole, loan delinquency rates,
and changes in federal and state regulations. These factors should be
considered in evaluating the forward-looking statements, and undue reliance
should not be placed on such statements.
General
In September 1996, the Board of Directors of Home City Federal Savings
Bank of Springfield ("Bank") adopted a Plan of Conversion ("Plan") whereby the
Bank would convert to the stock form of ownership, followed by the issuance of
all the Bank's outstanding stock to a newly formed holding company, Home City
Financial Corporation ("Company"). Pursuant to the Plan, the Company offered
common shares for sale to certain depositors of the Bank and members of the
community. The conversion was completed on December 30, 1996, and resulted in
the issuance of 952,200 common shares of the Company which, after
consideration of offering expenses totaling approximately $447,000 and
$762,000 in shares purchased by the ESOP ("Employee Stock Ownership Plan"),
resulted in net capital proceeds of $8.3 million. Condensed consolidated
financial statements of the Company are presented herein. Future references
are made either to the Company or the Bank as applicable.
The Company is a unitary savings and loan holding company whose
activities are primarily limited to holding the stock of the Bank. The Bank
conducts a general banking business in west central Ohio which consists of
attracting deposits from the general public and applying those funds to the
origination of loans for residential, consumer and non- residential purposes.
The Bank also originates loans for the construction of residential real estate
and loans secured by multifamily real estate (over four units), commercial
loans and consumer loans. The Bank's profitability is significantly dependent
on net interest income which is the difference between interest income
generated from interest-earning assets (i.e., loans and investments) and the
interest expense paid on interest-bearing liabilities (i.e., customer deposits
and borrowed funds). Net interest income is affected by the relative amount
of interest-earning assets and interest-bearing liabilities and interest
received or paid on these balances. The level of interest rates paid or
received by the Bank can be significantly influenced by a number of
environmental factors, such as governmental monetary policy, that are outside
of management control.
Earnings per common share were computed by dividing net income by the
weighted-average number of shares outstanding for the three- and six-month
periods ended June 30, 1998. Unreleased ESOP shares are not considered to be
outstanding shares for the purpose of determining the weighted-average number
of shares used in the earnings per common share calculation.
The consolidated financial information presented herein has been prepared
in accordance with generally accepted accounting principles ("GAAP") and
general accounting practices within the financial services industry. In
preparing consolidated financial statements in accordance with GAAP,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and revenues
and expenses during the reporting period. Actual results could differ from
such estimates.
12
<PAGE>
The Bank is regulated by the Office of Thrift Supervision ("OTS") and its
deposits are insured up to applicable limits under the Savings Association
Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation ("FDIC").
The Bank is a member of the FHLB, conducting its business through its
office located in Springfield, Ohio. The primary market area of the Bank is
Clark County, Ohio, and contiguous counties.
Recently Issued Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 131 redefines how operating segments are determined
and requires disclosure of certain financial and descriptive information about
the Company's operating segments. This statement supercedes SFAS No. 14,
"Financial Reporting for Segments of Business Enterprises." The new standard
becomes effective for years beginning after December 15, 1997, and requires
that comparative information from earlier periods be restated to conform to
the requirements of this standard. The adoption of this statement is not
expected to be material to the Company.
Changes in Financial Condition
At June 30, 1998, the consolidated assets of the Company totaled $78.0
million, an increase of $6.1 million, or 8.61%, from $71.9 million at December
31, 1997. The increase in total assets was primarily the result of a $7.9
million increase in loans receivable funded primarily by a $5.7 million
increase in deposits.
Net loans receivable increased by $7.9 million, or 12.61%, to $70.4
million at June 30, 1998, compared to $62.5 million at December 31, 1997. The
increase was primarily in the non-residential real estate and commercial loan
portfolio.
Investment securities decreased $1.6 million, or 31.53%, from $5.0
million at December 31, 1997, to $3.4 million at June 30, 1998. The decrease
was primarily the result of scheduled maturities of short-term investments
being rolled into higher earning non-residential real estate and commercial
loan production.
During the six months ended June 30, 1998, $78,000 of principal payments
were received on mortgage- backed and related securities ("MBS"). No other
transactions, purchases or sales, occurred during the period.
Deposit liabilities increased $5.7 million, or 10.94%, from $51.7 million
at December 31, 1997, to $57.3 million at June 30, 1998. Management
attributes the increase to the maintenance of competitive rates in the Bank's
market area. Interest credited on accounts also contributed to the increase.
Advances from the FHLB increased $2.6 million, or 46.03%, from $5.7
million at December 31, 1997, to $8.3 million at June 30, 1998. The funds
obtained were utilized to support the increased loan demand.
Total shareholders' equity decreased $3.2 million, or 22.69%, from $14.0
million at December 31, 1997, to $10.8 million at June 30, 1998. This
decrease was primarily the result of a special cash distribution to shareholders
of $3.2 million, offset by $452,000 in earnings for the first six months of
fiscal and a $38,000 increase in the unrealized gains on securities available-
for-sale together with the $370,000 purchase of common shares by the RRP trust
and dividends paid of $163,000 during the six months ended June 30, 1998.
The Bank's liquidity, primarily represented by cash and cash equivalents,
is a result of its operating, investing and financing activities. Principal
sources of funds are deposits, loan and mortgage-backed securities repayments,
maturities of securities and other funds provided by operations. The Bank
also has the ability to borrow from the FHLB. While scheduled loan repayments
and maturing investments are relatively predictable, deposit flows and early
loan and mortgage-backed security prepayments are more influenced by interest
rates, general economic conditions and competition. The Bank maintains
investments in liquid assets based upon management's assessment of (i) the
need for funds, (ii) expected deposit flows, (iii) the yields available on
short-term liquid assets and (iv) the objectives of the asset/liability
management program. In the ordinary course of business, part of such liquid
13
<PAGE>
investments portfolio is composed of deposits at correspondent banks. Although
the amount on deposit at such banks often exceeds the $100,000 limit covered by
FDIC insurance, the Bank monitors the capital of such institutions to ensure
that such deposits do not expose the Bank to undue risk of loss.
OTS regulations presently require the Bank to maintain an average daily
balance of liquid assets, which may include, but are not limited to,
investments in United States Treasury, federal agency obligations and other
investments having maturities of five years or less in an amount equal to 4%
of the sum of the Bank's average daily balance of net withdrawable deposit
accounts and borrowings payable in one year or less. The liquidity
requirement, which may be changed from time to time by the OTS to reflect
changing economic conditions, is intended to provide a source of relatively
liquid funds upon which the Bank may rely if necessary to fund deposit
withdrawals or other short-term funding needs. At June 30, 1998, the Bank's
regulatory liquidity ratio was 6.10%. At such date, the Bank had commitments
to originate loans totaling $1.5 million and no commitments to purchase or
sell loans. The Bank considers its liquidity and capital reserves sufficient
to meet its outstanding short- and long-term needs. Adjustments to liquidity
and capital reserves may be necessary, however, if loan demand increases more
than expected or if deposits decrease substantially.
The Bank is required by applicable law and regulation to meet certain
minimum capital standards. Such capital standards include a tangible capital
requirement, a core capital requirement or leverage ratio and a risk-based
capital requirement. See "Note 4 - Regulatory Capital." The Bank exceeded
all of its capital requirements at June 30, 1998.
Savings associations are required to maintain "tangible capital" of not
less than 1.5% of the association's adjusted total assets. Tangible capital
is defined in OTS regulations as core capital less intangible assets.
Core capital is comprised of common stockholders' equity (including
retained earnings), noncumulative preferred stock and related surplus, minority
interests in consolidated subsidiaries, certain nonwithdrawable accounts and
pledged deposits of mutual associations. OTS regulations require savings
associations to maintain Core capital of at least 3% of the association's total
assets.
OTS regulations require that savings associations maintain "risk-based
capital" in an amount not less than 8% of risk-weighted assets. Assets are
weighted at percentage levels ranging from 0% to 100% depending on their
relative risk. Risk-based capital is defined as Core capital plus certain
additional items of capital, which in the case of the Bank includes a general
loan loss allowance of $447,000 at June 30, 1998.
At June 30, 1998, the Bank had no material commitments for capital
expenditures.
On February 23, 1998, the Board of Directors of the Company declared a
quarterly cash dividend in the amount of $0.09 per share to each shareholder
of record on March 9, 1998, to be paid on March 16, 1998. On May 27, 1998,
the Board of Directors of the Company declared a quarterly cash dividend in
the amount of $0.09 per share to each shareholder of record on May 29, 1998,
to be paid on June 15, 1998.
On April 22, 1998, the Board of Directors of the Company declared a
special cash distribution in the amount of $3.50 per share to each shareholder
of record on May 29, 1998, to be paid on June 15, 1998. Management of HCFC
expects that at least part of the distribution will be a non-taxable return of
capital, although the exact amount of the distribution that could be
considered non-taxable cannot be confirmed until the Company's operating
results for the 1998 tax year have been determined.
Results of Operations
Comparison of Three Months Ended June 30, 1998 and 1997
General. Net income increased $24,000, or 11.11%, from $216,000 for the
three months ended June 30, 1997, to $240,000 for the three months ended June
30, 1998. This increase was primarily attributed to an increase in net
interest income and partially offset by increases in non-interest expense.
14
<PAGE>
Interest Income. The $7.5 million increase in average earning assets
contributed to an increase in interest income of $254,000, or 17.95%, for the
three months ended June 30, 1998 compared to 1997. The increase was
attributed to the additional loan income of $340,000 resulting from an
increase in loans receivable, which was partially offset by a decrease of
$86,000 in interest income on other earning assets. Of the overall increase
in interest income, $205,000 is attributable to earning asset volume increases
and $49,000 is attributable to rate increases.
Interest Expense. Interest expense on deposit liabilities increased
$43,000 for the three months ended June 30, 1998, as compared to the same
period in 1997. Although total average deposits increased by $4.6 million
comparing June 30, 1998 to 1997, the average interest paid on interest-bearing
deposits decreased by 14 basis points from 5.54% for the three months ended
June 30, 1997, to 5.40% for the same period ended June 30, 1998. The average
balance of FHLB advances increased from $4.1 million for the three-month
period ended June 30, 1997, to $7.5 million for the same period ended June 30,
1998, resulting in an increase in interest on FHLB advances of $48,000 for the
three months ended June 30, 1998, compared to the same period ended June 30,
1997.
Provision for Loan Losses. The provision for loan losses was $20,000 and
there were net charge-offs of $28,000 during the three months ended June 30,
1998, compared to no provision and no charge offs or recoveries during the
three months ended June 30, 1997. The provision was increased based upon the
results of the ongoing loan reviews and composition of the loan portfolio,
primarily loans secured by one- to four-family residential properties, which
are considered to have less risk.
Non-Interest Income. Non-interest income remained constant at $19,000
for the three months ended June 30, 1998 and 1997.
Non-Interest Expense. Non-interest expense increased $75,000, or 18.80%,
to $474,000 for the three months ended June 30, 1998, from $399,000 in the
comparable period in 1997. Of this increase, $45,000 was attributable to an
increase in compensation and benefit expense in 1998, reflecting the addition
of staff related to the non-residential real estate and commercial lending
function and an increase in compensation expense for the RRP and the ESOP due
to increases in the average stock price. The annualized ratio of non-interest
expense to average total assets was 2.48% and 2.31% for the three months ended
June 30, 1998 and 1997, respectively.
Income Taxes. The provision for income taxes increased $44,000 for the
three months ended June 30, 1998, compared with the prior year, primarily as a
result of higher income for the quarter.
Comparison of Six Months Ended June 30, 1998 and 1997
General. Net income increased $58,000, or 14.72%, from $394,000 for the
six months ended June 30, 1997, to $452,000 for the six months ended June 30,
1998. This increase was primarily attributed to an increase in net interest
income and non-interest income partially offset by increases in non-interest
expense.
Interest Income. The $6.8 million increase in average earning assets
contributed to an increase in interest income of $446,000, or 15.91%, for the
six months ended June 30, 1998 compared to 1997. The increase was attributed
to the additional loan income of $639,000 resulting from an increase in loans
receivable which was offset by a decrease of $193,000 in interest income on
other earning assets. Of the overall increase in interest income, $287,000 is
attributable to earning asset volume increases and $159,000 is attributable to
rate increases.
Interest Expense. Interest expense on deposit liabilities increased
$73,000 for the six months ended June 30, 1998, as compared to the same period
in 1997. Although total average deposits increased by $4.1 million comparing
June 30, 1998 to 1997, the average interest paid on interest-bearing deposits
decreased by 16 basis points from 5.53% for the six months ended June 30,
1997, to 5.37% for the same period ended June 30, 1998. The average balance
of FHLB advances increased from $4.1 million for the six-month period ended
June 30, 1997, to $6.9 million for the same period ended June 30, 1998,
resulting in an increase in interest on FHLB advances of $77,000 for the six
months ended June 30, 1998, compared to the same period ended June 30, 1997.
Provision for Loan Losses. The provision for loan losses was $32,000 and
there were net charge-offs of $37,000 during the six months ended June 30,
1998, compared to a $20,000 provision and recoveries of $48,000 during the
15
<PAGE>
six months ended June 30, 1997. The provision was increased based upon the
results of the ongoing loan reviews and composition of the loan portfolio,
primarily loans secured by one- to four-family residential properties, which
are considered to have less risk.
Non-Interest Income. Non-interest income increased $15,000, or 68.18%,
to $37,000 for the six months ended June 30, 1998. The increase was primarily
attributable to a $19,000 loss recognized on the sale of mortgage-backed
securities realized in the six months ended June 30, 1997.
Non-Interest Expense. Non-interest expense increased $186,000, or
24.16%, to $956,000 for the six months ended June 30, 1998, from $770,000 in
the comparable period in 1997. Of this increase, $140,000 was attributable to
an increase in compensation and benefit expense in 1998, reflecting the
addition of staff related to the non-residential real estate and commercial
lending function and an increase in compensation expense for the RRP and the
ESOP due to increases in the average stock price. Legal, accounting and
examination expenses increased from $110,000 for the six months ended June 30,
1997, to $132,000 for the same six months ended June 30, 1998. The annualized
ratio of non-interest expense to average total assets was 2.48% and 2.24% for
the six months ended June 30, 1998 and 1997, respectively.
Income Taxes. The provision for income taxes increased $55,000 for the
six months ended June 30, 1998, compared with the prior year, primarily as a
result of higher income for the six month period.
16
<PAGE>
HOME CITY FINANCIAL CORPORATION
PART II - OTHER INFORMATION
================================================================================
ITEM 1 - LEGAL PROCEEDINGS
None
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
Not Applicable
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5 - OTHER INFORMATION
The Securities and Exchange Commission has recently amended
Rule 14a-4 to provide that with respect to a shareholder
proposal to be presented at an annual shareholders' meeting
other than pursuant to Rule 14a-8 (i.e., which is not to be
included in the registrant's proxy statement), the registrant's
management may exercise discretionary voting authority under
proxies solicited by it for the meeting, without mention of
the proposal in the proxy materials,if it receives notice of
the proposed non-Rule 14a-8 shareholder action less than 45 days
prior to the calendar date its proxy materials were mailed for
the prior year's annual meeting.
As this new provision applies to the Company, in the event
notice of a non-Rule 14a-8 shareholder proposal to be presented
at the Company's 1999 Annual Meeting of Shareholders is received
by the Company after February 7, 1999, the Company will be
permitted to exercise discretionary voting authority under
proxies solicited by it with respect to the 1999 Annual Meeting.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibit 27: Financial Data Schedule, June 30, 1998
b. Report on Form 8-K was filed during the quarter ended
June 30, 1998.
17
<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: /s/ August 13, 1998 /s/ Douglas L. Ulery
___________________ -------------------------------
Douglas L. Ulery
President
Date: /s/ August 13, 1998 /s/ Charles A. Mihal
------------------- -------------------------------
Charles A. Mihal
Treasurer and Chief Financial Officer
18
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
The schedule contains summary financial information extracted from the
Consolidated Balance Sheets as of June 30,1998 and December 31,1997, and the
related Consolidated Statements of Income and Comprehensive Income for the three
and six months ended June 30,1998 and 1997, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0001022103
<NAME> HOME CITY FINANCIAL CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 1,016
<INT-BEARING-DEPOSITS> 108
<FED-FUNDS-SOLD> 200
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,052
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 70,867
<ALLOWANCE> 447
<TOTAL-ASSETS> 78,042
<DEPOSITS> 57,346
<SHORT-TERM> 3,600
<LIABILITIES-OTHER> 428
<LONG-TERM> 5,841
0
0
<COMMON> 0
<OTHER-SE> 10,827
<TOTAL-LIABILITIES-AND-EQUITY> 78,042
<INTEREST-LOAN> 1,604
<INTEREST-INVEST> 63
<INTEREST-OTHER> 2
<INTEREST-TOTAL> 1,669
<INTEREST-DEPOSIT> 726
<INTEREST-EXPENSE> 839
<INTEREST-INCOME-NET> 830
<LOAN-LOSSES> 20
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 474
<INCOME-PRETAX> 355
<INCOME-PRE-EXTRAORDINARY> 240
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 240
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.26
<YIELD-ACTUAL> 4.47
<LOANS-NON> 382
<LOANS-PAST> 61
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 443
<ALLOWANCE-OPEN> 455
<CHARGE-OFFS> 28
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 447
<ALLOWANCE-DOMESTIC> 447
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 125
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
The schedule contains summary financial information extracted from the
Consolidated Balance Sheets as of June 30,1997 and 1996, and related
Consolidated Income Statements for the twelve months ended June 30,1997 and
1996, and the periods ended June 30,1997 and 1996, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<RESTATED>
<CIK> 0001022103
<NAME> HOME CITY FINANCIAL CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 461
<INT-BEARING-DEPOSITS> 1,758
<FED-FUNDS-SOLD> 200
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 9,364
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 56,480
<ALLOWANCE> 445
<TOTAL-ASSETS> 69,964
<DEPOSITS> 50,225
<SHORT-TERM> 1,200
<LIABILITIES-OTHER> 352
<LONG-TERM> 3,908
0
0
<COMMON> 0
<OTHER-SE> 14,279
<TOTAL-LIABILITIES-AND-EQUITY> 69,964
<INTEREST-LOAN> 4,734
<INTEREST-INVEST> 393
<INTEREST-OTHER> 184
<INTEREST-TOTAL> 5,311
<INTEREST-DEPOSIT> 2,686
<INTEREST-EXPENSE> 2,918
<INTEREST-INCOME-NET> 2,393
<LOAN-LOSSES> 57
<SECURITIES-GAINS> (19)
<EXPENSE-OTHER> 1,608
<INCOME-PRETAX> 789
<INCOME-PRE-EXTRAORDINARY> 577
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 577
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.23
<YIELD-ACTUAL> 3.89
<LOANS-NON> 416
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 438
<ALLOWANCE-OPEN> 362
<CHARGE-OFFS> 22
<RECOVERIES> 48
<ALLOWANCE-CLOSE> 445
<ALLOWANCE-DOMESTIC> 445
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 296
</TABLE>
