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 MARCH 31, 2000
[ ] 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 (Filer 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)
As of April 30, 2000, 816,500 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
March 31, 2000, and December 31, 1999
Condensed consolidated statements of income -- 4
Three months ended March 31, 2000 and 1999
Condensed consolidated statements of changes in 5
shareholders' equity -- Three months ended March 31, 2000
Condensed consolidated statements of cash flows -- 6
Three months ended March 31, 2000 and 1999
Notes to condensed consolidated financial 7
statements -- March 31, 2000, and December 31, 1999
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
PART II OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 3. Defaults upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
<PAGE>
HOME CITY FINANCIAL CORPORATION
SPRINGFIELD, OHIO
CONSOLIDATED BALANCE SHEETS
===============================================================================
<TABLE>
<CAPTION>
(Dollars in thousands)
(Unaudited)
At March 31, At December 31,
2000 1999
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents
Cash and due from banks $ 1,291 $ 3,201
Interest-bearing demand deposits in other banks 481 282
------- -------
Total cash and cash equivalents 1,772 3,483
Time deposits with original maturities of 90 days or more 24 24
Investment securities available-for-sale, at fair value 3,277 3,045
Mortgage-backed securities available-for-sale, at fair value 385 424
Loans, net 100,889 96,844
Stock in Federal Home Loan Bank 1,396 1,372
Accrued interest receivable 579 520
Properties and equipment 1,004 1,015
Cash surrender value of life insurance 1,207 1,181
Deferred income taxes 41 18
Other assets 114 63
-------- --------
TOTAL ASSETS $110,688 $107,989
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits $ 71,744 $ 69,671
Federal Home Loan Bank Advances 27,377 26,505
Accrued interest payable 186 177
Advance payments by borrowers for taxes and insurance 84 119
Other liabilities 289 301
--------- ---------
TOTAL LIABILITIES 99,680 96,773
Shareholders' equity
Preferred shares, no par value; 1,000,000 shares
authorized; none issued 0 0
Common shares, no par value; 5,000,000 shares
authorized; 952,200 shares issued 0 0
Additional paid-in capital 6,033 6,033
Retained earnings, substantially restricted 7,442 7,288
Treasury shares, at cost (1,862) (1,516)
Accumulated other comprehensive income 284 309
Common shares purchased by:
Employee Stock Ownership Plan (533) (533)
Recognition and Retention Plan (356) (365)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 11,008 11,216
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 110,688 $ 107,989
========= =========
_______________________
See accompanying notes.
</TABLE>
<PAGE>
HOME CITY FINANCIAL CORPORATION
SPRINGFIELD, OHIO
CONSOLIDATED STATEMENTS OF INCOME
==============================================================================
<TABLE>
<CAPTION>
(Dollars in thousands)
(Unaudited) (Unaudited)
3 Months Ended 3 Months Ended
March 31, March 31,
2000 1999
---- ----
<S> <C> <C>
INTEREST INCOME
Loans $ 2,165 $ 1,773
Mortgage-backed securities 6 8
Investment securities 73 45
---------- ----------
TOTAL INTEREST INCOME 2,244 1,826
INTEREST EXPENSE
Deposits 911 769
Borrowed funds 373 199
---------- ----------
TOTAL INTEREST EXPENSE 1,284 968
NET INTEREST INCOME 960 858
Provision for loan losses 15 17
---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 945 841
NONINTEREST INCOME
Service charges on deposits 3 3
Life insurance 31 13
Other income 13 5
---------- ----------
TOTAL NONINTEREST INCOME 47 21
---------- ----------
NONINTEREST EXPENSES
Salaries and employee benefits 338 286
Supplies, telephone and postage 23 18
Occupancy and equipment 49 43
FDIC deposit insurance 3 9
Data processing 40 36
Legal, accounting and examination 67 54
Franchise taxes 46 45
Other expenses 87 48
---------- ----------
TOTAL NONINTEREST EXPENSES 653 539
---------- ----------
NET INCOME BEFORE FEDERAL INCOME
TAX EXPENSE 339 323
Federal income tax expense 98 104
---------- ----------
NET INCOME $ 241 $ 219
========== ==========
Earnings per common share - basic $0.32 $0.28
Earnings per common share - diluted $0.29 $0.25
- ----------------------
See accompanying notes.
</TABLE>
<PAGE>
HOME CITY FINANCIAL CORPORATION
SPRINGFIELD, OHIO
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
=============================================================================
<TABLE>
<CAPTION>
Accum-
ulated
Common Common Addi- other Common Common
shares shares tional compre- shares shares Compre-
Common Treasury purchased purchased paid-in Retained Treasury hensive purchased purchased hensive
shares shares by ESOP by RRP capital earnings shares income by ESOP by RRP income
----- ------- ------ ------ ------- -------- ------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1998 952,200 (92,810) (60,940) (19,041) $6,013 $6,658 $(1,304) $517 $(609) $(405)
Net income 976 $976
Other comprehensive income
Change in unrealized
gain (loss) on securities
available-for-sale, net of
deferred income
tax of $108 (208) (208)
----
Comprehensive income $768
====
Purchase of treasury shares (16,000) (212)
Purchase of common shares
by Recognition and
Retention Plan (2,500) (43)
Shares allocated under
Employee Stock
Ownership Plan 7,618 26 76
Shares earned under
Recognition and
Retention Plan 4,761 (6)
Dividends declared
($.405 per share) (346) 83
------- --------- -------- -------- ------ ------ -------- ---- ------ -----
Balance at
December 31, 1999 952,200 (108,810) (53,322) (16,780) $6,033 $7,288 $(1,516) $309 $(533) $(365)
Net income 241 $241
Other comprehensive income
Change in unrealized
gain (loss) on securities
available-for-sale, net of
deferred income
tax of $12 (25) (25)
----
Comprehensive income $216
====
Purchase of treasury shares (26,890) (346)
Shares earned under
Recognition and
Retention Plan 500 9
Dividends declared
($1.05 per share) (87)
------- --------- -------- -------- ------ ------ -------- ---- ------ ------
March 31, 2000 952,200 (135,700) (53,322) (16,280) $6,033 $7,442 $(1,862) $284 $(533) $(356)
======= ========= ======== ======== ====== ====== ======== ==== ====== ======
- ---------------------
See accompanying notes.
</TABLE>
<PAGE>
HOME CITY FINANCIAL CORPORATION
SPRINGFIELD, OHIO
CONSOLIDATED STATEMENTS OF CASH FLOWS
===============================================================================
<TABLE>
<CAPTION>
(Dollars in thousands)
(Unaudited)
3 Months Ended 3 Months Ended
March 31, March 31,
--------- ---------
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 241 $ 219
Adjustments to reconcile net income to net cash
provided by operating activities:
Premium amortization, net of discount accretion 7 1
Provision for loan losses 15 17
Depreciation 19 16
Deferred income taxes (15) 7
Life insurance income, net of expenses (26) (7)
Employee Stock Ownership Plan compensation expense 0 15
Recognition and Retention Plan compensation expense 22 18
FHLB stock dividends (24) (12)
Net change in:
Accrued interest receivable (59) (17)
Accrued interest payable 9 32
Other assets (51) (68)
Other liabilities (12) (95)
------ ------
Net cash provided by operating activities 126 126
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of securities available-for-sale (287) 0
Proceeds from maturities of securities available-for-sale 0 500
Collections on mortgage-backed securities available-for-sale 32 22
Net increase in loans (4,060) (4,060)
Purchases of properties and equipment (8) (16)
Purchase of FHLB stock 0 (175)
------ -------
Net cash used in investing activities (4,323) (3,729)
------ -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 2,073 1,586
Net increase (decrease) in short-term FHLB advances 800 (400)
Proceeds from new long-term FHLB advances 225 4,000
Payments on long-term FHLB advances (153) (150)
Net decrease in advance payments by borrowers
for taxes and insurance (35) (21)
Payments on notes payable 0 1,500)
Distribution of common shares by Recognition and Retention Plan 9 0
Purchase of common shares by Recognition and Retention Plan 0 (42)
Purchase of treasury shares (346) 0
Cash dividend paid (87) (86)
------ ------
Net cash provided by financing activities 2,486 3,387
Net decrease in cash and cash equivalents (1,711) (216)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,483 1,910
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,772 $1,694
====== ======
- -----------------------
See accompanying notes.
</TABLE>
<PAGE>
HOME CITY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000, AND DECEMBER 31, 1999
(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 position
as of March 31, 2000, and December 31, 1999, and the consolidated results of
operations and the cash flows for the three months ended March 31, 2000 and
1999. Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles ("GAAP") 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 three months ended March
31, 2000, 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)
Three
Months ended Year ended
March 31, December 31,
2000 1999
---- ----
Balance, beginning of period $ 491 $ 486
Provision for loan losses 15 34
Charge-offs 0 (31)
Recoveries 0 2
------ ------
Balance, end of period $ 506 $ 491
====== ======
NOTE 3. ADVANCES FROM FEDERAL HOME LOAN BANK
Borrowings at March 31, 2000, consisted of five short-term advances totaling
$1.8 million and twenty-one long-term advances totaling $25.6 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.
<PAGE>
Scheduled maturities of advances from the FHLB were as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
At March 31, 2000 At December 31, 1999
------------------------------------- ---------------------------------------------
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 $ 1,800 6.04% 6.04% $ 1,047 5.46% - 5.58% 5.57%
After one but
within five
years $ 2,417 5.85% - 8.35% 6.95% $ 3,985 4.64% - 8.35% 6.07%
After five
years $23,160 3.30% - 7.28% 5.64% $21,473 3.30% - 6.81% 5.61%
</TABLE>
NOTE 4. REGULATORY CAPITAL
The following table illustrates the compliance by the Bank with currently
applicable regulatory capital requirements at March 31, 2000.
<TABLE>
<CAPTION>
(Dollars in thousands)
To be
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
(To Risk-Weighted Assets) $11,148 13.5% $6,606 8.0% $8,257 10.0%
Tier I Capital
(To Risk-Weighted Assets) 10,601 12.8% N/A N/A 4,954 6.0%
Tier I Capital
(To Adjusted Total Assets) 10,601 9.6% 4,421 4.0%* 5,527 5.0%
Tangible Capital
(To Adjusted Total Assets) 10,601 9.6% 1,658 1.5% N/A N/A
</TABLE>
* Although the general required minimum is 4%, savings associations that
meet certain requirements may be permitted to maintain minimum tier I
capital to adjusted total assets of 3%.
<PAGE>
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 and not subject to a loan pledge agreement, 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.
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, 2000
Per
Income Shares Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Basic EPS
Income available to common shareholders $240,606 761,187 $0.32
Effective of dilutive securities
RRP shares 0 16,544
ESOP shares 0 53,322
Stock options 0 0*
-------- --------
Diluted EPS
Income available to common shareholders +
assumed conversions $240,606 831,053 $0.29
======== ======= =====
</TABLE>
* Because the exercise prices of the options exceed the fair market value
at March 31, 2000, the shares subject to options are not included in
calculating diluted earnings per share.
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, 1999
Per
Income Shares Share
(Numerator) (Denominator) Amount
--------- ----------- ------
<S> <C> <C> <C>
Basic EPS
Income available to common shareholders $219,344 778,465 $0.28
Effective of dilutive securities
RRP shares 0 19,985
ESOP shares 0 60,940
Stock options 0 24,164
-------- -------
Diluted EPS
Income available to common shareholders +
assumed conversions $219,344 883,554 $0.25
======== ======= =====
</TABLE>
<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. See Exhibit 99.2 attached hereto,
"Safe Harbor Under Private Securities Litigation Reform Act of 1995, which is
incorporated by reference.
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.
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
<PAGE>
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.
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.
Effect of Year 2000
Home City did not experience any problems as the year changed from 1999
to 2000. Management had placed significant emphasis on ensuring that its
operating systems were Year 2000 ("Y2K") compliant.
In mid-1997, the Board of Directors had appointed a Year 2000 Committee
to address the operating systems that were at risk and to develop an Action
Plan Year 2000. As operating risks were identified, Home City repaired,
replaced or upgraded the related equipment and systems. Home City was
primarily reliant on third-party vendors for its computer output and
processing, so considerable effort was placed on assessing their Y2K
readiness. A business resumption contingency plan was developed inclusive of
cash management aspects to minimize or avoid any possible customer
inconvenience.
Home City had projected costs of $79,000 for Y2K preparedness. Some of
the major factors included were the use of external consultants, purchases of
hardware and software, the purchase, printing and delivery of customer
awareness materials and the borrowing and lost opportunity costs associated
with the build-up of a sufficient source of cash to meet customer needs.
Actual expenses amounted to approximately $83,000, the bulk of which was
reflected in the Consolidated Financial Statements for 1999.
Changes in Financial Condition
At March 31, 2000, the consolidated assets of the Company totaled $110.7
million, an increase of $2.7 million, or 2.50%, from $108.0 million at
December 31, 1999. The increase in total assets was primarily the result of a
$4.1 million increase in loans receivable funded primarily by a $872,000
increase in advances from the FHLB and a $2.1 million increase in deposits.
Net loans receivable increased by $4.1 million, or 4.18%, to $100.9
million at March 31, 2000, compared to $96.8 million at December 31, 1999.
The increase was primarily in the non-residential real estate and commercial
loan portfolio.
Investment securities increased $232,000, or 7.62%, from $3.0 million at
December 31, 1999, to $3.3 million at March 31, 2000. The increase was
primarily the result of purchases of United States Government agency
obligations to maintain liquidity goals subsequent to the Y2K transition.
During the three months ended March 31, 2000, $32,000 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 $2.1 million, or 2.98%, from $61.7 million
at December 31, 1999, to $71.7 million at March 31, 2000. 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.
<PAGE>
Advances from the FHLB increased $872,000, or 3.29%, from $26.5 million
at December 31, 1999, to $27.4 million at March 31, 2000. The funds obtained
were utilized to support the increased loan demand.
Total shareholders' equity remained relatively constant, decreasing
$208,000, or 1.85%, from December 31, 1999, to March 31, 2000. This decrease
was primarily the result of a $346,000 purchase of treasury shares, the
$87,000 cash dividend payment and the $25,000 unrealized losses on securities
available-for-sale, all of which were partially offset by the $241,000 of first
quarter 2000 earnings and the $9,000 RRP distribution.
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 and other local financial
institutions. 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 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 March 31, 2000, the Bank's regulatory
liquidity ratio was 6.39%. At such date, the Bank had commitments to
originate loans totaling $7.2 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 March 31, 2000.
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, except for associations that meet certain requirements,
to maintain core capital of at least 4% of the association's adjusted total
assets.
<PAGE>
OTS regulations require that savings associations maintain "risk-based
capital" in an amount not less than 8.0% 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 $506,000 at March 31, 2000.
At March 31, 2000, the Bank had committed to capital expenditures of $2.8
million for the construction of a new main office and operations center
scheduled for completion in mid 2001.
On February 28, 2000, the Board of Directors of the Company declared a
quarterly cash dividend in the amount of $0.105 per share to each shareholder
of record on March 9, 2000, paid on March 15, 2000.
Results of Operations
Comparison of Three Months Ended March 31, 2000 and 1999
General. Net income increased $22,000, or 10.05%, from $219,000 for the
three months ended March 31, 1999, to $241,000 for the three months ended
March 31, 2000. This increase was primarily attributed to an increase in net
interest income and partially offset by increases in noninterest expense.
Interest Income. The $19.8 million increase in average earning assets
contributed to an increase in interest income of $418,000, or 22.89%, for the
three months ended March 31, 2000, compared to the same period in 1999. The
increase was attributed to the $392,000 increase in loan income from the
increased loan receivable balances. Of the overall increase in interest
income, $427,000 is attributable to earning asset volume increases offset by a
decrease of $9,000 attributable to rate or yield.
Interest Expense. Interest expense on deposit liabilities increased
$142,000, or 18.47%, for the three months ended March 31, 2000, as compared to
the same period in 1999. Total average deposits increased by $8.4 million
comparing the quarters ended March 31, 2000 and 1999, and the average interest
rate paid on interest-bearing deposits increased by 20 basis points from 5.16%
for the three months ended March 31,1999, to 5.36% for the same period in
2000. The average balance of FHLB advances increased from $13.5 million for
the three-month period ended March 31,1999, to $26.4 million for the same
period in 2000, resulting in an increase in interest on FHLB
advances of $194,000 for the three months ended March 31, 2000, compared to
the same period in 1999. The payoff of notes payable partially offset by
$20,000 the increase in interest expense for the three months ended March 31,
2000. Of the overall increase in interest expense, $261,000 is attributable
to interest costing liability volume increases, and an increase of $55,000 is
attributable to rates paid.
Provision for Loan Losses. The provision for loan losses was $15,000 and
there were no net charge-offs during the three months ended March 31, 2000,
compared to a $17,000 provision and net charge-offs of $10,163 during the
three months ended March 31, 1999. The provision was decreased based upon the
results of the ongoing loan reviews and composition of the loan portfolio.
Noninterest Income. Noninterest income increased by $26,000 for the
three months ended March 31, 2000, compared to the same period in 1999. The
increase was related mainly to the increased cash surrender value of life
insurance policies.
Noninterest Expense. Noninterest expense increased $114,000, or 21.15%,
to $653,000 for the three months ended March 31, 2000, from $539,000 in the
comparable period in 1999. Of this increase, $52,000 was attributable to an
increase in compensation and benefit expense in 2000, reflecting the addition
<PAGE>
of staff related to preparation for the growth of the Bank. The annualized
ratio of noninterest expense to average total assets was 2.39% and 2.47% for
the three months ended March 31, 2000 and 1999, respectively.
Income Taxes. The provision for income taxes decreased $6,000 for the
three months ended March 31, 2000, compared with the prior year, primarily as
a result of the composition of the taxable and non-taxable income for the
quarter.
<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
On April 26, 2000, the Corporation held its Annual Meeting of
Shareholders.
Each of the five directors nominated were elected to terms expiring
in 2000 by the following votes:
John D. Conroy For: 649,606 Withheld: 21,472
------- ------
P. Clark Engelmeier For: 650,106 Withheld: 20,972
------- ------
James Foreman For: 647,141 Withheld: 23,937
------- ------
Terry A. Hoppes For: 650,106 Withheld: 20,972
------- ------
Douglas L. Ulery For: 650,106 Withheld: 20,972
------- ------
One other matter was submitted to the shareholders, for which the
following votes were cast:
Ratification of the selection of Robb, Dixon, Francis, Davis, Oneson &
Company as the auditors of Home City Financial Corporation for the
current year:
For: 670,428 Against: 0 Abstain: 650 Broker-Non-votes: 0
------- -- --- --
ITEM 5 - OTHER INFORMATION
Not Applicable
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibit 27: Financial Data Schedule, March 31, 2000.
b. No report on Form 8-K was filed during the quarter ended March 31,
2000.
c. Exhibit 99; Safe Harbor Under the Private Litigation
----------------------------------------
Reform Act of 1995.
-------------------
<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: May 12, 2000 /s/Douglas L. Ulery
------------- --------------------------------
Douglas L. Ulery
President
Date: May 12, 2000 /s/ Charles A. Mihal
------------- --------------------------------
Charles A. Mihal
Treasurer and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
The schedule contains summary financial information extracted from the
Consolidated Balance Sheets as of March 31, 2000, and December 31, 1999, and the
related Consolidated Statements of Income for the three months ended March 31,
2000 and 1999, 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-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 1,291
<INT-BEARING-DEPOSITS> 505
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,058
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 101,395
<ALLOWANCE> 506
<TOTAL-ASSETS> 110,688
<DEPOSITS> 71,744
<SHORT-TERM> 1,800
<LIABILITIES-OTHER> 559
<LONG-TERM> 25,577
0
0
<COMMON> 0
<OTHER-SE> 11,008
<TOTAL-LIABILITIES-AND-EQUITY> 110,688
<INTEREST-LOAN> 2,165
<INTEREST-INVEST> 79
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 2,244
<INTEREST-DEPOSIT> 911
<INTEREST-EXPENSE> 1,284
<INTEREST-INCOME-NET> 960
<LOAN-LOSSES> 15
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 653
<INCOME-PRETAX> 339
<INCOME-PRE-EXTRAORDINARY> 241
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 241
<EPS-BASIC> 0.32
<EPS-DILUTED> 0.29
<YIELD-ACTUAL> 3.68
<LOANS-NON> 0
<LOANS-PAST> 307
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 83
<ALLOWANCE-OPEN> 491
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 506
<ALLOWANCE-DOMESTIC> 506
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 64
</TABLE>
EXHIBIT 99
Safe Harbor Under the Private Securities Litigation Reform Act of 1995
The Private Securities Litigation Reform Act of 1995 (the "Act") provides
a "safe harbor" for forward-looking statements to encourage companies to
provide prospective information about their companies, so long as those
statements are identified as forward-looking and are accompanied by meaningful
cautionary statements identifying important factors that could cause actual
results to differ materially from those discussed in the statement. Home City
Financial Corporation ("HCFC") desires to take advantage of the "safe harbor"
provisions of the Act. Certain information, particularly information
regarding future economic performance and finances and plans and objectives of
management, contained or incorporated by reference in HCFC's Quarterly Report
on Form 10-QSB for the three-months ended March 31, 2000, is forward-looking.
In some cases, information regarding certain important factors that could
cause actual results of operations or outcomes of other events to differ
materially from any such forward-looking statement appear together with such
statement. In addition, forward-looking statements are subject to other risks
and uncertainties affecting the financial institutions industry, including,
but not limited to, the following:
Interest Rate Risk
HCFC's operating results are dependent to a significant degree on its net
interest income, which is the difference between interest income from loans,
investments and other interest-earning assets and interest expense on
deposits, borrowings and other interest-bearing liabilities. The interest
income and interest expense of HCFC change as the interest rates on
interest-earning assets and interest-bearing liabilities change. Interest
rates may change because of general economic conditions, the policies of
various regulatory authorities and other factors beyond HCFC's control. In a
rising interest rate environment, loans tend to prepay slowly and new loans at
higher rates increase slowly, while interest paid on deposits increases
rapidly because the terms to maturity of deposits tend to be shorter than the
terms to maturity or prepayment of loans. Such differences in the adjustment
of interest rates on assets and liabilities may negatively affect HCFC's
income.
Possible Inadequacy of the Allowance for Loan Losses
HCFC maintains an allowance for loan losses based upon a number of
relevant factors, including, but not limited to, trends in the level of
nonperforming assets and classified loans, current and anticipated economic
conditions in the primary lending area, past loss experience, possible losses
arising from specific problem loans and changes in the composition of the loan
portfolio. While the Board of Directors of HCFC 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. 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. In
addition, the collateral securing such loans, if any, may decrease in value
more rapidly than the outstanding balance of the loan.
Competition
Home City Federal Savings Bank of Springfield ("Home City") competes for
deposits with other savings associations, commercial banks and credit unions
and issuers of commercial paper and other securities, such as shares in money
market mutual funds. The primary factors in competing for deposits are
interest rates and convenience of office location. In making loans, Home City
competes with other savings associations, commercial banks, consumer finance
companies, credit unions, leasing companies, mortgage companies and other
lenders. Competition is affected by, among other things, the general
availability of lendable funds, general and local economic conditions, current
interest rate levels and other factors which are not readily predictable. The
size of financial institutions competing with Home City is likely to increase
as a result of changes in statutes and regulations eliminating various
restrictions on interstate and inter-industry branching and acquisitions.
Such increased competition may have an adverse effect upon Home City.
Legislation and Regulation that may Adversely Affect HCFC's Earnings
Home City is subject to extensive regulation by the Office of Thrift
Supervision (the "OTS") and the Federal Deposit Insurance Corporation (the
"FDIC") and is periodically examined by such regulatory agencies to test
compliance with various regulatory requirements. As a savings and loan
holding company, HCFC is also subject to regulation and examination by the
OTS. Such supervision and regulation of HCFC and Home City are intended
primarily for the protection of depositors and not for the maximization of
shareholder value and may affect the ability of the company to engage in
various business activities. The assessments, filing fees and other costs
associated with reports, examinations and other regulatory matters are
significant and may have an adverse effect on HCFC's net earnings.
The FDIC is authorized to establish separate annual assessment rates for
deposit insurance of members of the Bank Insurance fund (the "BIF") and the
Savings Association Insurance Fund (the "SAIF"). The FDIC has established a
risk-based assessment system for both SAIF and BIF members. Under such
system, assessments may vary depending on the risk the institution poses to
its deposit insurance fund. Such risk level is determined by reference to the
institution's capital level and the FDIC's level of supervisory concern about
the institution.
