U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED SEPTEMBER 30, 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 November 3, 2000, 816,500 shares of common stock of the Registrant were
outstanding. There were no preferred shares outstanding.
<PAGE>
TABLE OF CONTENTS
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Page Number
PART I FINANCIAL INFORMATION
ITEM
1. Financial Statements (Unaudited)
Consolidated balance sheets -- 3
September 30, 2000, and December 31, 1999
Consolidated statements of income -- 4
Three and nine months ended September 30, 2000 and 1999
Consolidated statements of changes in 5
shareholders' equity -Nine months ended September 30, 2000
Consolidated statements of cash flows -- 6
Nine months ended September 30, 2000 and 1999
Notes to consolidated financial 7
statements -- September 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 16
2. Changes in Securities and Use of Proceeds 16
3. Defaults upon Senior Securities 16
4. Submission of Matters to a Vote of Security Holders 16
5. Other Information 16
6. Exhibits and Reports on Form 8-K 16
Signatures 17
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HOME CITY FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
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<TABLE>
<CAPTION>
(Dollars in thousands)
(Unaudited)
At September 30, At December 31,
---------------- ---------------
2000 1999
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents
Cash and due from banks $ 1,628 $ 3,201
Interest-bearing demand deposits in other banks 606 282
------- --------
Total cash and cash equivalents 2,234 3,483
Time deposits with original maturities of 90 days or more 24 24
Investment securities available-for-sale, at fair value 3,612 3,045
Mortgage-backed securities available-for-sale, at fair value 351 424
Loans, net 107,696 96,844
Stock in Federal Home Loan Bank 1,649 1,372
Accrued interest receivable 686 520
Properties and equipment 1,693 1,015
Cash surrender value of life insurance 1,222 1,181
Deferred income taxes 0 18
Other assets 217 63
-------- --------
TOTAL ASSETS $119,384 $107,989
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits $ 74,613 $ 69,671
Federal Home Loan Bank Advances 32,660 26,505
Accrued interest payable 223 177
Advance payments by borrowers for taxes and insurance 98 119
Deferred income taxes 17 0
Other liabilities 391 301
--------- --------
TOTAL LIABILITIES 108,002 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 7,724 7,288
Treasury shares, at cost (1,862) (1,516)
Accumulated other comprehensive income 376 309
Common shares purchased by:
Employee Stock Ownership Plan (533) (533)
Recognition and Retention Plan (356) (365)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 11,382 11,216
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $119,384 $107,989
======== ========
</TABLE>
----------------------
See accompanying notes.
<PAGE>
HOME CITY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
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<TABLE>
<CAPTION>
(Dollars in thousands)
(Unaudited) (Unaudited)
3 Months Ended 9 Months Ended
September 30, September 30, September 30, September 30,
------------- ------------- ------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $2,285 $1,932 $6,710 $5,569
Mortgage-backed securities 6 7 18 23
Investment securities 81 61 228 154
------ ------ ------ ------
TOTAL INTEREST INCOME 2,372 2,000 6,956 5,746
INTEREST EXPENSE
Deposits 1,013 815 2,869 2,364
Borrowed funds 482 266 1,271 694
------ ------ ------ ------
TOTAL INTEREST EXPENSE 1,495 1,081 4,140 3,058
------ ------ ------ ------
NET INTEREST INCOME 877 919 2,816 2,688
Provision for loan losses 15 5 40 34
------ ------ ------ ------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 862 914 2,776 2,654
NONINTEREST INCOME
Service charges on deposits 4 4 12 11
Life insurance 18 17 69 54
Net loss on sale of investments (2) 0 (2) 0
Other income 16 10 43 25
------ ------ ------ ------
TOTAL NONINTEREST INCOME 36 31 122 90
------ ------ ------ ------
NONINTEREST EXPENSE
Salaries and employee benefits 282 273 941 842
Supplies, telephone and postage 21 22 75 62
Occupancy and equipment 55 57 150 146
FDIC deposit insurance 4 9 11 27
Data processing 36 37 115 103
Legal, accounting and examination 96 74 259 220
Franchise taxes 29 40 109 124
Other expenses 91 64 267 173
------ ------ ------ ------
TOTAL NONINTEREST EXPENSE 614 576 1,927 1,697
------ ------ ------ ------
NET INCOME BEFORE FEDERAL INCOME
TAX EXPENSE 284 369 971 1,047
Federal income tax expense 79 110 277 319
------ ------ ------ ------
NET INCOME $ 205 $ 259 $ 694 $ 728
====== ====== ====== ======
Earnings per common share - basic $0.27 $0.33 $0.92 $0.93
Earnings per common share - diluted $0.25 $0.30 $0.84 $0.83
</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 694 $694
Other comprehensive income
Change in unrealized
gain (loss) on securities
available-for-sale, net of
deferred income
tax of $35 67 67
----
Comprehensive income $761
====
Purchase of treasury shares (26,890) (346)
Shares earned under
Recognition and
Retention Plan 500 9
Dividends declared
($. 315 per share) (258)
------- -------- ------- ------- ------- ------- -------- ---- ------- -------
September 30, 2000 952,200 (135,700) (53,322) (16,280) $ 6,033 $ 7,724 $ (1,862) $376 $ (533) $ (356)
======= ========= ======== ======== ======= ======= ========= ==== ======= =======
</TABLE>
<PAGE>
HOME CITY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Dollars in thousands)
(Unaudited) (Unaudited)
9 Months Ended 9 Months Ended
September 30, September 30,
------------- -------------
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $694 $728
Adjustments to reconcile net income to net cash
provided by operating activities:
Premium amortization, net of discount accretion 12 9
Provision for loan losses 40 34
Loss on sale of securities 2 0
Depreciation 57 50
Deferred income taxes 28 (54)
Life insurance income, net of expenses (41) (38)
Employee Stock Ownership Plan compensation expense 96 23
Recognition and Retention Plan compensation expense 66 52
FHLB stock dividends (79) (45)
Proceeds from sales of loans 317 0
Net change in:
Accrued interest receivable (166) (99)
Accrued interest payable 46 38
Other assets (154) (185)
Other liabilities 90 12
------ ----
Net cash provided by operating activities 1,008 525
------ ----
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of securities available-for-sale (893) (1,486)
Proceeds from sales of securities available-for-sale 398 236
Proceeds from maturities of securities available-for-sale 20 1,270
Collections on mortgage-backed securities available-for-sale 67 85
Net increase in loans (11,397) (13,023)
Purchases of properties and equipment (735) (482)
Purchase of FHLB stock (198) (448)
------- -------
Net cash used in investing activities (12,738) (13,848)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 4,942 5,939
Net increase in short-term FHLB advances 4,300 1,800
Proceeds from new long-term FHLB advances 2,225 8,600
Payments on long-term FHLB advances (370) (452)
Net decrease in advance payments by borrowers for
taxes and insurance (21) (3)
Proceeds from notes payable 50 0
Payments on notes payable (50) (1,800)
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 dividends paid (258) (258)
------- ------
Net cash provided by financing activities 10,481 13,784
Net increase (decrease) in cash and cash equivalents (1,249) 461
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,483 1,910
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $2,234 $2,371
====== ======
Supplemental Disclosure of Cash Flow Information
Cash paid for interest on deposits and borrowed funds $4,094 $3,020
====== ======
Cash paid for income taxes $ 249 $ 398
====== ======
</TABLE>
-----------------------
See accompanying notes.
<PAGE>
HOME CITY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 September 30, 2000, and December 31, 1999, and the consolidated results
of operations for the three and nine months ended September 30, 2000 and 1999
and the cash flows for the nine months ended September 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 nine months ended
September 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:
Nine
Months Ended Year Ended
September 30, December 31,
2000 1999
---- ----
Balance, beginning of period $491 $486
Provision for loan losses 40 34
Charge-offs (57) (31)
Recoveries 0 2
---- ----
Balance, end of period $474 $491
==== ====
NOTE 3. ADVANCES FROM FEDERAL HOME LOAN BANK
Borrowings at September 30, 2000, consisted of eleven short-term advances
totaling $5.3 million and twenty-two long-term advances totaling $27.4 million
<PAGE>
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.
Scheduled maturities of advances from the FHLB were as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
At September 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 $5,300 6.69% 6.69% $1,047 5.46% - 5.58% 5.57%
After one but
within five years $3,779 4.64%-8.35% 6.14% $3,985 4.64% - 8.35% 6.07%
After five years $23,581 3.30%-7.28% 6.17% $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 September 30, 2000.
<TABLE>
<CAPTION>
(Dollars in thousands)
To be
Categorized as "Well
Required 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) $11,422 13.1% $6,969 8.0% $8,711 10.0%
Tier I Capital
(To Risk-Weighted Assets) $10,671 12.3% N/A N/A $5,227 6.0%
Tier I Capital
(To Total Assets) $10,671 9.0% $4,769 4.0%* $5,961 5.0%
Tangible Capital
(To Total Assets) $10,671 9.0% $1,788 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, 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
--------------------------
September 30, 2000
------------------
Weighted-
average Per
Income Shares Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Basic EPS
Income available to common shareholders $205,259 746,898 $0.27
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 $205,259 816,500 $0.25
======== ======= =====
* Because the exercise prices of the options exceed the fair market value
at September 30, 2000, the shares subject to options are not included
in calculating diluted earnings per share.
</TABLE>
<TABLE>
<CAPTION>
For the Three Months Ended
--------------------------
September 30, 1999
-------------------
Weighted-
average Per
Income Shares Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Basic EPS $258,713 776,909 $0.33
Income available to common shareholders
Effect of dilutive securities
RRP shares 0 21,541
ESOP shares 0 60,940
Stock options 0 14,695
------- ------- -----
Diluted EPS
Income available to common shareholders +
assumed conversions $258,713 874,085 $0.30
======== ======= =====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
For the Nine Months Ended
-------------------------
September 30, 2000
------------------
Weighted-
average Per
Income Shares Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Basic EPS
Income available to common shareholders $693,942 751,661 $0.92
Effect of dilutive securities
RRP shares 0 16,367
ESOP shares 0 53,322
Stock options * 0 0
------- -------
Diluted EPS
Income available to common shareholders +
assumed conversions $693,942 821,350 $0.84
======== ======= =====
*Because the exercise prices of the options exceed the fair market value
at September 30, 2000,the shares subject to options are not included in
calculating diluted earnings per share.
</TABLE>
<TABLE>
<CAPTION>
For the Nine Months Ended
-------------------------
September 30, 1999
------------------
Weighted-
average Per
Income Shares Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Basic EPS
Income available to common shareholders $727,582 777,427 $0.93
Effect of dilutive securities
RRP shares 0 21,022
ESOP shares 0 60,940
Stock options 0 21,007
------- -------
Diluted EPS
Income available to common shareholders +
assumed conversions $727,582 880,396 $0.83
======== ======= =====
</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
Home City Financial Corporation ("Company") is a unitary savings and loan
holding company whose activities are primarily limited to holding the stock of
Home City Federal Savings Bank of Springfield ("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 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.
In August 2000 the Company formed a subsidiary, Home City Insurance
Agency, Inc. ("Home City Agency"), for the purpose of acquiring the business of
Rice Insurance Agency, Inc. (the "Rice Agency"), pursuant to an agreement
between the Company and the Rice Agency. The Home City Agency will offer auto,
home, farm, commercial, life, health and hospitalization insurance. The
acquisition is expected to close during the fourth quarter of 2000.
Earnings per common share were computed by dividing net income by the
weighted-average number of shares outstanding for the three- and nine-month
periods ended September 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.
<PAGE>
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.
P. Clark Engelmeier, the Chairman of the Board of the Company and the
Bank, died on October 24, 2000, after a short illness. Mr. Engelmeier served
the Bank and its customers for 23 years, and he will be greatly missed. The
directors of the Company and the Bank plan to appoint someone to fill the
resulting vacancies on the Board of Directors of the two companies, although
no individual has yet been identified.
Changes in Financial Condition
At September 30, 2000, the consolidated assets of the Company totaled
$119.4 million, an increase of $5.8 million, or 5.05%, and $11.4 million, or
10.55%, from $113.6 million and $108.0 at June 30, 2000, and December 31,
1999, respectively. The increase in total assets was primarily the result of
a $10.8 million increase in loans receivable funded primarily by a $6.2
million increase in advances from the FHLB and a $4.9 million increase in
deposits.
Net loans receivable increased by $3.9 million during the three months
ended September 30, 2000, in addition to the $7.0 mease in loans outstanding
since December 31, 1999, was $10.9 million, or 11.21%. The increase was
primarily in the non-residential real estate and commercial loan portfolio.
Investment securities increased $567,000, or 18.62%, from $3.0 million at
December 31, 1999, to $3.6 million at September 30, 2000. The increase was
primarily the result of the net increase in the Bank's municipal bond
holdings.
During the nine months ended September 30, 2000, $67,000 of principal
payments were received on mortgage-backed and related securities. No other
transactions, purchases or sales, occurred during the period.
Deposit liabilities increased $4.9 million, or 7.09%, from $69.7 million
at December 31, 1999, to $74.6 million at September 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 $6.2 million, or 23.22%, from $26.5
million at December 31, 1999, to $32.7 million at September 30, 2000. The
funds obtained were utilized to support the increased loan demand.
Total shareholders' equity remained relatively constant, increasing
$166,000, or 1.48%, from December 31, 1999, to September 30, 2000. This
increase was primarily the result of the $694,000 of the first three quarters
2000 earnings, the $67,000 unrealized gains on securities available-for-sale
and the $9,000 RRP distribution, all of which were partially offset by the
$346,000 repurchase of the Company's shares and the $258,000 of cash dividend
payments.
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
<PAGE>
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 September 30, 2000, the
Bank's regulatory liquidity ratio was 7.52%. At such date, the Bank had
commitments to originate loans totaling $10.1 million, no commitments to
purchase or sell loans and a remaining commitment of $2.0 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 September 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
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 $474,000 at September 30, 2000.
At September 30, 2000, the Bank had remaining capital expenditure commitments
of $2.0 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. On August 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 September 7, 2000, paid on September 15, 2000.
<PAGE>
Results of Operations
Comparison of Three Months Ended September 30, 2000 and 1999
General. Net income decreased $54,000, or 20.85%, from $259,000 for the
three months ended September 30, 1999, to $205,000 for the three months ended
September 30, 2000. This decrease was primarily attributed to a $42,000
decrease in net interest income, a $38,000 increase in noninterest
expense and a $10,000 increase in the provision for loan losses, which were
partially offset by an increase of $5,000 in noninterest income and a $31,000
decrease in the provision for federal income tax expense.
Interest Income. The $19.4 million increase in average earning assets
contributed to an increase in interest income of $372,000, or 18.60%, for the
three months ended September 30, 2000, compared to the same period in 1999.
The increase was attributed mainly to the additional loan income of $407,000
resulting from an increase in loans receivable. Of the overall increase in
interest income, $418,000 is attributable to earning asset volume increases
partially offset by a decrease of $46,000 attributable to a decrease in rate
or yield.
Interest Expense. Interest expense on deposit liabilities increased
$198,000, or 24.29%, for the three months ended September 30, 2000, as compared
to the same period in 1999. The total average deposits increased by $8.2
million comparing the quarter ended September 30, 2000, to the same quarter in
1999, and the average interest rate paid on interest-bearing deposits
increased by 51 basis points from 5.22% for the three months ended September
30, 1999, to 5.73% for the same period ended September 30, 2000. The average
balance of FHLB advances increased from $19.4 million for the three-month
period ended September 30, 1999, to $30.7 million for the same period ended
September 30, 2000, resulting in an increase in interest on FHLB advances of
$216,000 for the three months ended September 30, 2000, compared to the same
period ended September 30, 1999. Of the overall increase in interest expense,
$267,000 is attributable to interest costing liability volume increases and
$147,000 is attributable to increases in rates paid.
Provision for Loan Losses. The provision for loan losses was $15,000 and
there were net charge-offs of $29,000 during the three months ended September
30, 2000, compared to a $5,000 provision and charge-offs of $6,000 during the
three months ended September 30, 1999. The provision was increased based upon
the results of the ongoing loan reviews and composition of the loan portfolio.
Noninterest Income. Noninterest income increased by $5,000 for the three
months ended September 30, 2000, compared to the same period in 1999. The
increase was related to an increase of $6,000 in miscellaneous fees and
charges and an increase of $1,000 in income from life insurance contracts
offset by a net loss of $2,000 on sale of investments.
Noninterest Expense. Noninterest expense increased $38,000, or 6.60%, to
$614,000 for the three months ended September 30, 2000, from $576,000 in the
comparable period in 1999. Of this increase, $9,000 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, and $22,000 resulted from increased legal and consulting
fees relative to the acquisition of the business of the Rice Insurance
Agency. The annualized ratio of noninterest expense to average total assets
was 2.11% and 2.42% for the three months ended September 30, 2000 and 1999,
respectively.
Income Taxes. The provision for income taxes decreased $31,000 for the
three months ended September 30, 2000, compared with the prior year, primarily
reflecting the decrease in taxable income for the quarter.
<PAGE>
Comparison of Nine Months Ended September 30, 2000 and 1999
General. Net income decreased $34,000, or 4.67%, from $728,000 for the
nine months ended September 30, 1999, to $694,000 for the nine months ended
September 30, 2000. This decrease was primarily attributed to an increase of
$230,000 in noninterest expense and an increase of $6,000 in the provision for
possible loan losses, partially offset by an increase of $128,000 in net
interest income, an increase of $32,000 in noninterest income and a decrease
of $42,000 in the provision for federal income tax expense.
Interest Income. The $19.6 million increase in average earning assets
contributed to an increase in interest income of $1.2 million, or 21.06%, for
the nine months ended September 30, 2000, compared to 1999. The increase was
almost entirely attributed to the additional loan income of $1.3 million
resulting from the increase in loans receivable. Of the overall increase in
interest income, $1.3 million is attributable to earning asset volume
increases offset by a decrease of $74,000 attributable to a decrease in rate
or yield.
Interest Expense. Interest expense on deposit liabilities increased
$505,000, or 21.36%, for the nine months ended September 30, 2000, as compared
to the same period in 1999. Total average interest-bearing deposits increased
by $8.5 million comparing the nine months ended September 30, 2000, to the
same period in 1999, and the average interest rate paid on interest-bearing
deposits increased by 34 basis points from 5.18% for the nine-month period
ended September 30, 1999, to 5.52% for the same period ended September 30,
2000. The average balance of FHLB advances increased from $17.1 million for
the nine-month period ended September 30, 1999, to $28.4 million for the same
period ended September 30, 2000, resulting in an increase in interest on FHLB
advances of $577,000 for the nine-month period ended September 30, 2000,
compared to the same period ended September 30, 1999. Of the overall increase
in interest expense, $801,000 is attributable to interest costing liability
volume increases and $281,000 is attributable to increases in rates paid.
Provision for Loan Losses. The provision for loan losses was $40,000 and
there were net charge-offs of $57,000 during the nine months ended September
30, 2000, compared to a $34,000 provision and net charge-offs of $29,000
during the nine months ended September 30, 1999. The provision was increased
based upon the results of the ongoing loan reviews and the composition of the
loan portfolio.
Noninterest Income. Noninterest income increased by $32,000 for the nine
months ended September 30, 2000, compared to the same period in 1999. The
increase was related to an increase of $15,000 in income from life insurance
contracts and an increase of $19,000 in miscellaneous fees and charges
partially offset by a $2,000 loss on sale of investments.
Noninterest Expense. Noninterest expense increased $230,000, or 13.55%,
to $1.9 million for the nine months ended September 30, 2000, from $1.7
million in the comparable period in 1999. Of this increase, $99,000 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 2.30% and 2.45% for the nine months ended September 30, 2000
and 1999, respectively.
Income Taxes. The provision for income taxes decreased $42,000 for the
nine months ended September 30, 2000, compared with the prior year, primarily
reflecting the decrease in taxable income for the nine-month period.
<PAGE>
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, September 30, 2000.
b. No report on Form 8-K was filed during the quarter ended
September 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
November 10, 2000 /s/ Douglas L. Ulery
----------------- --------------------------------
Date: Douglas L. Ulery
President
November 10, 2000 /s/ Charles A. Mihal
----------------- ----------------------------------
Date: Charles A. Mihal
Treasurer and Chief Financial Officer
<PAGE>
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 and nine months ended September 30, 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
<PAGE>
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.
