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, 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 (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)
As of August 2, 2000, 816,500 shares of common stock of the Registrant were
outstanding. There were no preferred shares outstanding.
<PAGE>
TABLE OF CONTENTS
=============================================================================
Page Number
PART I FINANCIAL INFORMATION
ITEM
1. Financial Statements (Unaudited)
Consolidated balance sheets -- 3
June 30, 2000, and December 31, 1999
Consolidated statements of income -- 4
Three and six months ended June 30, 2000 and 1999
Consolidated statements of changes in 5
shareholders' equity --Six months ended June 30,
2000
Consolidated statements of cash flows -- 6
Six months ended June 30, 2000 and 1999
Notes to consolidated financial 7
statements -- June 30, 2000, and December 31, 1999
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II OTHER INFORMATION
ITEM
1. Legal Proceedings 17
2. Changes in Securities and Use of Proceeds 17
3. Defaults upon Senior Securities 17
4. Submission of Matters to a Vote of Security Holders 17
5. Other Information 17
6. Exhibits and Reports on Form 8-K 17
Signatures 18
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HOME CITY FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
=============================================================================
<TABLE>
<CAPTION>
(Dollars in thousands)
(Unaudited)
At June 30, At December 31,
2000 1999
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents
Cash and due from banks $ 1,362 $ 3,201
Interest-bearing demand deposits in other banks 154 282
---------- ---------
Total cash and cash equivalents 1,516 3,483
Time deposits with original maturities of 90 days or more 24 24
Investment securities available-for-sale, at fair value 3,314 3,045
Mortgage-backed securities available-for-sale, at fair value 368 424
Loans, net 103,759 96,844
Stock in Federal Home Loan Bank 1,504 1,372
Accrued interest receivable 573 520
Properties and equipment 1,098 1,015
Cash surrender value of life insurance 1,214 1,181
Deferred income taxes 41 18
Other assets 236 63
--------- ---------
TOTAL ASSETS $ 113,647 $ 107,989
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits $ 72,295 $ 69,671
Federal Home Loan Bank Advances 29,569 26,505
Accrued interest payable 209 177
Advance payments by borrowers for taxes and insurance 40 119
Other liabilities 384 301
--------- ---------
TOTAL LIABILITIES 102,497 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 7,605 7,288
Treasury shares, at cost (1,862) (1,516)
Accumulated other comprehensive income 263 309
Common shares purchased by:
Employee Stock Ownership Plan (533) (533)
Recognition and Retention Plan (356) (365)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 11,150 11,216
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 113,647 $ 107,989
========= =========
</TABLE>
------------------------------
See accompanying notes.
HOME CITY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
==============================================================================
<TABLE>
<CAPTION>
(Dollars in thousands)
(Unaudited) (Unaudited)
3 Months Ended 6 Months Ended
June 30, June 30, June 30, June 30,
-------- -------- -------- --------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $ 2,260 $ 1,864 $ 4,425 $ 3,637
Mortgage-backed securities 6 8 12 16
Investment securities 74 48 147 93
------ ------ ------- -------
TOTAL INTEREST INCOME 2,340 1,920 4,584 3,746
INTEREST EXPENSE
Deposits 945 780 1,856 1,549
Borrowed funds 416 229 789 428
------ ------ ------- -------
TOTAL INTEREST EXPENSE 1,361 1,009 2,645 1,977
------ ------ ------- -------
NET INTEREST INCOME 979 911 1,939 1,769
Provision for loan losses 10 12 25 29
------ ------ ------- -------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 969 899 1,914 1,740
NONINTEREST INCOME
Service charges on deposits 5 4 8 7
Life insurance 20 24 51 37
Other income 14 10 27 15
------ ------ ------- -------
TOTAL NONINTEREST INCOME 39 38 86 59
------ ------ ------- -------
NONINTEREST EXPENSE
Salaries and employee benefits 321 283 659 569
Supplies, telephone and postage 31 22 54 40
Occupancy and equipment 46 46 95 89
FDIC deposit insurance 4 9 7 18
Data processing 39 30 79 66
Legal, accounting and examination 96 92 163 146
Franchise taxes 34 39 80 84
Other expenses 89 61 176 109
------ ------ ------- -------
TOTAL NONINTEREST EXPENSE 660 582 1,313 1,121
------ ------ ------- -------
NET INCOME BEFORE FEDERAL INCOME
TAX EXPENSE 348 355 687 678
Federal income tax expense 100 105 198 209
------ ------ ------ ------
NET INCOME $ 248 $ 250 $ 489 $ 469
====== ====== ====== ======
Earnings per common share - basic $ 0.33 $ 0.32 $ 0.65 $ 0.60
Earnings per common share - diluted $ 0.30 $ 0.28 $ 0.59 $ 0.53
</TABLE>
--------------------------------
See accompanying notes.
<PAGE>
HOME CITY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
============================================================================
<TABLE>
<CAPTION>
(Dollars in thousands)
Number of shares Amounts
---------------------------------------- ---------------------------------------------------------------
Accumu-
lated
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 $768
====
Purchase of treasury shares (16,000) (212)
Purchase of common shares
by Recognition and
Retention Plan (2,500) (43)
Shares allocated under
Employee Stock
Ownership Plan 7,618 26 76
Shares earned under
Recognition and
Retention Plan 4,761 (6) 83
Dividends declared
($.405 per share) (346)
------- -------- ------- ------- ------ ------- -------- --- ----- ------
December 31, 1999 952,200 (108,810) (53,322) (16,780) $6,033 $ 7,288 $(1,516) $309 $(533) $(365)
Net income 489 $489
Other comprehensive income
Change in unrealized
gain (loss) on securities
available-for-sale, net of
deferred income
tax of $23 (46) (46)
----
Comprehensive income $443
====
Purchase of treasury shares (26,890) (346)
Shares earned under
Recognition and
Retention Plan 500 9
Dividends declared
($.21 per share) (172)
------- -------- ------- ------- ------ ------- ------- ---- ----- ------
June 30, 2000 952,200 (135,700) (53,322) (16,280) $6,033 $ 7,605 $(1,862) $263 $(533) $ (356)
======= ========= ======== ======== ====== ======= ======= ==== ====== ======
</TABLE>
____________________________
See accompanying notes.
<PAGE>
HOME CITY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
==============================================================================
<TABLE>
<CAPTION>
(Dollars in thousands)
(Unaudited) (Unaudited)
6 Months Ended 6 Months Ended
June 30, June 30,
-------- --------
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 489 $ 469
Adjustments to reconcile net income to net cash
provided by operating activities:
Premium amortization, net of discount accretion 8 5
Provision for loan losses 25 29
Depreciation 38 32
Deferred income taxes (27) (45)
Life insurance income, net of expenses (33) (25)
Employee Stock Ownership Plan compensation expense 0 25
Recognition and Retention Plan compensation expense 44 40
FHLB stock dividends (50) (27)
Net change in:
Accrued interest receivable (53) (26)
Accrued interest payable 32 28
Other assets (173) (212)
Other liabilities 83 (41)
------- -------
Net cash provided by operating activities 383 252
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of securities available-for-sale (378) (741)
Proceeds from maturities of securities available-for-sale 20 770
Collections on mortgage-backed securities available-for-sale 51 63
Net increase in loans (6,940) (7,601)
Purchase of properties and equipment (121) (54)
Purchase of FHLB stock (82) (316)
-------- -------
Net cash used in investing activities (7,450) (7,879)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 2,624 3,427
Net increase (decrease) in short-term FHLB advances 1,100 (2,100)
Proceeds from new long-term FHLB advances 2,225 8,600
Payments on long-term FHLB advances (261) (301)
Net decrease in advance payments by borrowers
for taxes and insurance (79) (40)
Payments on notes payable 0 (1,800)
Distribution of common shares by Recognition and Retention Plan 9 0
Purchase of commmon shares by Recognition and Retention Plan 0 (42)
Purchase of treasury shares (346) 0
Cash dividends paid (172) (172)
------- --------
Net cash provided by financing activities 5,100 7,572
Net decrease in cash and cash equivalents (1,967) (55)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 3,483 1,910
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,516 $ 1,855
======= =======
Supplemental Disclosure of Cash Flow Information
Cash paid for interest on deposits and borrowed funds $ 2,613 $ 1,949
======= =======
Cash paid for income taxes $ 216 $ 284
======= ========
</TABLE>
-------------------------
See accompanying notes.
<PAGE>
HOME CITY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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 June 30, 2000, and December 31, 1999, and the
consolidated results of operations for the three and six months ended June 30,
2000 and 1999 and the cash flows for the six months ended June 30, 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 and six months ended June
30, 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:
Six
Months
Ended Year Ended
June 30, December 31,
-------- ------------
2000 1999
---- ----
Balance, beginning of period $491 $486
Provision for loan losses 25 34
Charge-offs (28) (31)
Recoveries 0 2
---- ----
Balance, end of period $488 $491
==== ====
NOTE 3. ADVANCES FROM FEDERAL HOME LOAN BANK
Borrowings at June 30, 2000, consisted of four short-term advances totaling
$2.1 million and twenty-two long-term advances totaling $27.5 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 June 30, 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 $2,100 6.70% 6.70% $1,047 5.46% - 5.58% 5.57%
After one but
within five years $3,848 4.64% - 8.35% 6.17% $3,985 4.64% - 8.35% 6.07%
After five
years $23,621 3.30% - 7.28% 6.18% $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 June 30, 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) $ 11,146 13.2% $ 6,769 8.0% $ 8,461 10.0%
Tier I Capital
(To Risk-Weighted Assets) $ 10,637 12.6% N/A N/A $5,076 6.0%
Tier I Capital
(To Total Assets) $ 10,637 9.4% $ 4,538 4.0%* $5,673 5.0%
Tangible Capital
(To Total Assets) $ 10,637 9.4% $ 1,702 1.5% N/A N/A
* 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%.
</TABLE>
<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, 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
--------------------------
June 30, 2000
-------------
Weighted
Average Per
Income Shares Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Basic EPS
Income available to common shareholders $248,077 746,898 $0.33
Effect of dilutive securities
RRP shares 0 16,280
ESOP shares 0 53,322
Stock options * 0 0
-------- -------
Diluted EPS
Income available to common shareholders +
assumed conversions $248,077 816,500 $0.30
======== ======= =====
</TABLE>
* Because the exercise prices of the options exceed the fair market
value at June 30, 2000, the shares subject to options are not included
in calculating diluted earnings per share.
<TABLE>
<CAPTION>
For the Three Months Ended
--------------------------
June 30, 1999
-------------
Weighted
Average Per
Income Shares Share
(Numerator) (Denominator) Amount
-------- ----------- ------
<S> <C> <C> <C>
Basic EPS $249,524 776,909 $0.32
Income available to common shareholders
Effect of dilutive securities
RRP shares 0 21,541
ESOP shares 0 60,940
Stock options 0 24,164
-------- -------
Diluted EPS
Income available to common shareholders + $249,524 883,554 $0.28
assumed conversions ======== ======= =====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
For the Six Months Ended
------------------------
June 30, 2000
-------------
Weighted
Average Per
Income Shares Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Income available to common shareholders $488,683 754,042 $0.65
Effect of dilutive securities
RRP shares 0 16,412
ESOP shares 0 53,322
Stock options * 0 0
-------- -------
Diluted EPS
Income available to common shareholders +
assumed conversions $488,683 823,776 $0.59
======== ======= =====
* Because the exercise prices of the options exceed the fair market
value at June 30, 2000, the shares subject to options are not
included in calculating diluted earnings per share.
</TABLE>
<TABLE>
For the Six Months Ended
------------------------
June 30, 1999
-------------
Weighted
Average Per
Income Shares Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Basic EPS
Income available to common shareholders $468,869 777,687 $0.60
Effect of dilutive securities
RRP shares 0 20,763
ESOP shares 0 60,940
Stock options 0 24,164
------- -------
Diluted EPS
Income available to common shareholders +
assumed conversions $468,869 883,554 $0.53
======== ======= =====
</TABLE>
<PAGE>
ITEM 2. - 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 attached hereto,
"Safe Harbor Under the 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. 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, 2000 and 1999. ESOP shares subject to a loan pledge
agreement 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.
<PAGE>
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.
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 June 30, 2000, the consolidated assets of the Company totaled $113.6
million, an increase of $2.9 million, or 2.67%, and $5.7 million, or 5.24%,
from $110.7 million and $108.0 at March 31, 2000, and December 31, 1999,
respectively. The increase in total assets was primarily the result of a
$6.9 million increase in loans receivable funded primarily by a $3.1 million
increase in advances from the FHLB and a $2.6 million increase in deposits.
Net loans receivable increased by $2.8 million during the three months
ended June 30, 2000, in addition to the $4.1 million increase during the
first three months of 2000. The total increase in loans outstanding since
December 31, 1999, was $6.9 million, or 7.14%. The increase was primarily in
the non-residential real estate and commercial loan portfolio.
Investment securities increased $269,000, or 8.83%, from $3.0 million at
December 31, 1999, to $3.3 million at June 30, 2000. The increase was
primarily the result of the net increase in the Bank's municipal bond holdings.
During the six months ended June 30, 2000, $51,000 of principal payments
were received on mortgage- backed and related securities. No other
transactions, purchases or sales, occurred during the period.
<PAGE>
Deposit liabilities increased $2.6 million, or 3.77%, from $69.7 million
at December 31, 1999, to $72.3 million at June 30, 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.
Advances from the FHLB increased $3.1 million, or 11.56%, from $26.5
million at December 31, 1999, to $29.6 million at June 30, 2000. The funds
obtained were utilized to support the increased loan demand.
Total shareholders' equity remained relatively constant, decreasing
$66,000, or 0.59%, from December 31, 1999, to June 30, 2000. This decrease
was primarily the result of a $346,000 purchase of treasury shares, the
$172,000 cash dividend payments and the $46,000 unrealized losses on
securities available-for-sale, all of which were partially offset by the
$489,000 of first half 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 June 30, 2000, the Bank's
regulatory liquidity ratio was 7.23%. At such date, the Bank had commitments
to originate loans totaling $8.6 million, no commitments to purchase or sell
loans and a commitment of $2.8 million for the construction of a new main
office. 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, 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
<PAGE>
savings associations, except for associations that meet certain requirements,
to maintain core capital of at least 4% of the association's adjusted total
assets.
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 $488,000 at June 30, 2000.
At June 30, 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. On May 22, 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 June 5, 2000,
paid on June 15, 2000.
Results of Operations
Comparison of Three Months Ended June 30, 2000 and 1999
General. Net income decreased $2,000, or 0.80%, from $250,000 for the
three months ended June 30, 1999, to $248,000 for the three months ended June
30, 2000. This decrease was primarily attributed to $78,000 more noninterest
expense which was partially offset by an increase of $68,000 in noninterest
income, and decreases in the provisions for federal income tax expense and
possible loan losses.
Interest Income. The $19.6 million increase in average earning assets
contributed to an increase in interest income of $420,000, or 21.88%, for the
three months ended June 30, 2000 compared to 1999. The increase was
attributed mainly to the additional loan income of $396,000 resulting from an
increase in loans receivable. Of the overall increase in interest income,
$432,000 is attributable to earning asset volume increases offset by a
decrease of $12,000 attributable to rate or yield.
Interest Expense. Interest expense on deposit liabilities increased
$165,000, or 21.15%, for the three months ended June 30, 2000, as compared to
the same period in 1999. The total average deposits increased by $8.8 million
comparing the quarter ended June 30, 2000 to 1999, and the average interest
rate paid on interest-bearing deposits increased by 30 basis points from
5.15% for the three months ended June 30, 1999, to 5.45% for the same period
ended June 30, 2000. The average balance of FHLB advances increased from
$17.2 million for the three-month period ended June 30, 1999, to $28.2
million for the same period ended June 30, 2000, resulting in an increase
in interest on FHLB advances of $187,000 for the three months ended June 30,
2000, compared to the same period ended June 30, 1999. Of the overall
increase in interest expense, $264,000 is attributable to interest costing
liability volume increases and $88,000 is attributable to increases in rates
paid.
Provision for Loan Losses. The provision for loan losses was $10,000 and
there were net charge-offs of $28,000 during the three months ended June 30,
2000, compared to a $12,000 provision and charge-offs of $14,000 during the
three months ended June 30, 1999. The provision was decreased based upon the
results of the ongoing loan reviews and composition of the loan portfolio.
<PAGE>
Noninterest Income. Noninterest income increased by $1,000 for the three
months ended June 30, 2000, compared to the same period in 1999. The
increase was related to an increase of $5,000 in miscellaneous fees and
charges offset by a decrease of $4,000 in income from life insurance
contracts.
Noninterest Expense. Noninterest expense increased $78,000, or 13.40%, to
$660,000 for the three months ended June 30, 2000, from $582,000 in the
comparable period in 1999. Of this increase, $38,000 was attributable to an
increase in compensation and benefit expense in 2000, reflecting the expense
associated with additional staffing related to preparations for the new main
office operations. The annualized ratio of noninterest expense to average
total assets was 2.35% and 2.55% for the three months ended June 30, 2000 and
1999, respectively.
Income Taxes. The provision for income taxes decreased $5,000 for the
three months ended June 30, 2000, compared with the prior year, primarily
as a result of composition of the taxable and non-taxable income for the
quarter.
Comparison of Six Months Ended June 30, 2000 and 1999
General. Net income increased $20,000, or 4.26%, from $469,000 for the
six months ended June 30, 1999, to $489,000 for the six months ended June 30,
2000. This increase was primarily attributed to an increase of $170,000 in
net interest income, an increase of $27,000 in noninterest income and
decreases in the provisions for federal income tax expense and possible loan
losses, partially offset by an increase of $192,000 in noninterest expense.
Interest Income. The $19.7 million increase in average earning assets
contributed to an increase in interest income of $838,000, or 22.37%, for the
six months ended June 30, 2000, compared to 1999. The increase was
attributed to the additional loan income of $788,000 resulting from an
increase in loans receivable, and an increase of $50,000 in interest income on
other earning assets. Of the overall increase in interest income, $866,000
is attributable to earning asset volume increases offset by a decrease of
$28,000 attributable to rate or yield.
Interest Expense. Interest expense on deposit liabilities increased
$307,000, or 19.82%, for the six months ended June 30, 2000, as compared to
the same period in 1999. Although total average interest-bearing deposits
increased by $8.6 million comparing the six months ended June 30, 2000 to
1999, the average interest rate paid on interest-bearing deposits increased
by 25 basis points from 5.16% for the six-month period ended June 30, 1999, to
5.41% for the same period ended June 30, 2000. The average balance of FHLB
advances increased from $15.9 million for the six-month period ended June 30,
1999, to $27.3 million for the same period ended June 30, 2000, resulting in
an increase in interest on FHLB advances of $361,000 for the six-month period
ended June 30, 2000, compared to the same period ended June 30, 1999. Of the
overall increase in interest expense, $526,000 is attributable to interest
costing liability volume increases and $142,000 is attributable to increases
in rates paid.
Provision for Loan Losses. The provision for loan losses was $25,000 and
there were net charge-offs of $28,000 during the six months ended June 30,
2000, compared to a $29,000 provision and net charge-offs of $23,000 during
the six months ended June 30, 1999. The provision was decreased based upon
the results of the ongoing loan reviews and composition of the loan portfolio.
<PAGE>
Noninterest Income. Noninterest income increased by $27,000 for the six
months ended June 30, 2000, compared to the same period in 1999. The
increase was related to an increase of $14,000 in income from life insurance
contracts and an increase of $13,000 in miscellaneous fees and charges.
Noninterest Expense. Noninterest expense increased $192,000, or 17.13%,
to $1.3 million for the six months ended June 30, 2000, from $1.1 million in
the comparable period in 1999. Of this increase, $90,000 was attributable to
an increase in compensation and benefit expense in 2000, reflecting additional
staffing related to preparations for the new main office operations. The
annualized ratio of noninterest expense to average total assets was 2.37% and
2.51% for the six months ended June 30, 2000 and 1999, respectively.
Income Taxes. The provision for income taxes decreased $11,000 for the six
months ended June 30, 2000, compared with the prior year, primarily as a
result of composition of the taxable and non-taxable income for the six month
period.
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PART II - OTHER INFORMATION
=============================================================================
ITEM
1 - LEGAL PROCEEDINGS
None
2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
Not Applicable
3 - DEFAULTS UPON SENIOR SECURITIES
Not Applicable
4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
5 - OTHER INFORMATION
Not Applicable
6 - EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibit 27: Financial Data Schedule, June 30, 2000.
b. No report on Form 8-K was filed during the quarter ended
June 30, 2000.
c. Exhibit 99: Safe Harbor Under the Private Securities
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
August 9, 2000 /s/ Douglas L. Ulery
------------------------ --------------------------------
Date: Douglas L. Ulery
President
August 9, 2000 /s/ Charles A. Mihal
------------------------ --------------------------------
Date: Charles A. Mihal
Treasurer and
Chief Financial Officer
