Dear Shareholders
Please find enclosed the Annual Report and Proxy Statement as of December 31, 2012. The
Annual Meeting is scheduled for Wednesday, April 24, 2013. Whether or not you expect to attend
the Annual Meeting, we urge you to consider the accompanying Proxy Statement carefully and to
sign, date and promptly return the enclosed proxy so that your shares may be voted in accordance
with your wishes and the presence of a quorum may be assured at the annual meeting.
As Shareholders, I would ask that you focus your attention on the tables immediately following this
letter. These tables provide a ten-year history of selected financial data. Our net income continues
to improve when compared to the previous ten years as well as many of our financial ratios.
Shareholder equity has increased over the previous four years generating a book value per share of
$17.40 with a current market value per share of $11.06.
Asset quality continues to be a primary focus for Home City. During the year our provision for
loan losses was $550,000 with actual net charge offs of $53,000. Net charge offs to average loans
were just four tenths of one percent (.04%) which is substantially less when compared to prior
years. Non-performing loans (loans greater than 90 days delinquent) were $891,000, which is an
improvement over prior years. Other real estate owned and other repossessed assets were $460,000
and $339,000 respectively. Currently, all of these assets are under land contract or listed for sale.
Home City has been able to adhere very closely to our budget projections as presented to your
Board of Directors. As a result of our continued improvement, your Board of Directors increased
the regular quarterly dividend to $.07 per share and also approved a special dividend of $.04 per
share payable March 15, 2013 to shareholders of record March 8, 2013.
Thank you for your investment in Home City Financial Corporation.
Sincerely,
J. William Stapleton,
President & CEO
SELECTED CONSOLIDATED FINANCIAL INFORMATION AND OTHER DATA
The following tables set forth certain information concerning the consolidated financial condition, earnings and
other data regarding HCFC at the dates and for the periods indicated.
Selected financial data:
2012
2011
At December 31,
2009
2008
2007
2006
2010
2005
2004
2003
149,553
6,846
5,261
2,480
128,786
1,377
98,455
36,337
13,406
156,224
9,595
6,432
2,360
131,395
1,328
107,204
35,120
12,735
151,784
10,473
5,089
2,265
127,843
1,331
103,922
34,764
11,907
2005
2004
2003
(Dollars in thousands)
Assets
142,859 143,821 145,859 145,461 139,276 137,776
Cash and Cash equivalents (1)
4,290 5,664 23,328 16,647 3,256 9,647
Available-for-sale securities
6,024 10,243
133 1,163 7,755
866
Federal Home Loan Bank Stock
2,734 2,734 2,734 2,734 2,734 2,627
Loans, Gross
122,254 117,400 111,655 117,228 118,373 118,089
Allowance for Loan Loss
2,000 1,503 1,503 1,910 2,069 1,182
Deposits
109,382 113,198 107,644 99,700 96,296 93,689
Federal Home Loan Bank Advances 16,777 15,202 23,899 31,945 28,834 29,165
Shareholders’ equity
13,994 13,105 12,320 11,965 11,775 13,355
146,304
15,275
1,481
2,627
120,838
1,481
96,584
34,813
13,419
__________________________
(Footnotes on following page)
Summary of earnings and other data:
2012
2011
2010
At December 31,
2008
2007
2006
2009
(Dollars in thousands)
Total interest and dividend income
Total interest expense
Net interest income
Provision for loan losses
Net interest income after
Provision for loan losses
Noninterest income (loss)
Noninterest expense
Income (loss) before income tax
Provision (benefit) for income tax
6,722
1,677
5,045
550
6,781
2,129
4,652
725
7,110
3,106
4,004
545
7,746
3,665
4,081
1,000
8,423
4,895
3,528
1,330
8,932
5,062
3,870
200
9,193
4,769
4,424
118
9,111
4,407
4,704
705
8,772
4,370
4,402
200
9,171
4,654
4,517
500
4,495
408
3,368
1,535
518
1,017
3,927
720
3,380
1,267
406
861
3,459
536
3,261
734
183
551
3,081 2,198
793
(323)
3,395 4,337
479 (2,462)
65
(880)
414 (1,582)
3,670
413
3,330
753
215
538
4,306
104
3,573
837
242
595
3,999
635
3,416
1,218
381
837
4,202
239
3,452
989
307
682
4,017
254
3,358
913
264
649
1
Selected financial ratios:
Return on assets (2)
Return on equity (3)
Interest rate spread (4)
Net interest margin (5)
Noninterest expense to average
Assets (6)
Average equity to average assets
Equity to assets at year end
Non-performing loans to total
Loans
Non-performing assets to total
assets (7)
Allowance for loan losses to total
loans
Allowance for loan losses to nonperforming loans
Net charge-offs (recoveries) to
average loans
Dividend payout ratio (8)
At December 31,
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
0.72% 0.61% 0.38% 0.30% (1.12)% 0.39% 0.41% 0.55% 0.44% 0.43%
7.59
6.79
4.52
3.42 (12.12)
3.97
4.53
6.41
5.52
5.55
3.60
3.32
3.09
2.89
2.31
2.60
2.94
3.02
2.74
2.95
3.77
3.52
3.13
3.11
2.64
3.00
3.31
3.29
3.00
3.20
2.37
9.45
9.80
2.41
9.02
9.11
2.25
8.41
8.45
2.42
8.63
8.23
3.05
9.19
8.45
2.42
9.83
9.69
2.49
9.15
9.17
2.25
8.59
8.96
2.23
7.98
8.15
2.24
7.78
7.84
0.73
1.07
2.34
2.94
1.48
1.21
1.16
.68
.15
.43
1.18
1.35
2.28
2.76
1.68
1.14
1.02
.59
.28
.38
1.64
1.28
1.35
1.63
1.75
1.00
1.23
1.07
.58
.78
224.49
119.62
57.58
55.48
118.06
.04
19.05
.65
22.43
.83
34.78
.98
.38
46.15 (15.23)
83.89 107.16 158.46 389.74 183.24
.42
74.63
.01
61.11
.07
43.14
.34
51.16
(1) Includes cash and amounts due from depository institutions and interest-earning deposits in other financial
institutions.
(2) Net income (loss) divided by average total assets.
(3) Net income (loss) divided by average total equity.
(4) Average yield on interest-earning assets less average cost of interest-bearing liabilities.
(5) Net interest income as a percentage of average interest-earning assets.
(6) Noninterest expense divided by average total assets.
(7) Non-performing assets consist of nonaccruing loans, accruing loans 90 days or more past due and real
estate acquired (or deemed acquired) in foreclosure proceedings or in lieu thereof.
(8) Dividends declared per share divided by basic earnings (loss) per share.
2
.01
50.57
INDEPENDENT AUDITORS' REPORT
Board of Directors
Home City Financial Corporation
Springfield, Ohio
We have audited the accompanying consolidated financial statements of Home City Financial
Corporation, which comprise the consolidated balance sheets as of December 31, 2012 and 2011, and
the related consolidated statements of operations and comprehensive income, changes in shareholders’
equity, and cash flows for the years then ended, and the related notes to the financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with auditing standards generally accepted in the United States of America;
this includes the design, implementation, and maintenance of internal control relevant to the preparation
and fair presentation of consolidated financial statements that are free from material misstatement,
whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our
audits. We conducted our audits in accordance with auditing standards generally accepted in the United
States of America. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the consolidated financial statements. The procedures selected depend on auditors’ judgment, including
the assessment of the risks of material misstatement of the consolidated financial statements, whether
due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to
the entity’s preparation and fair presentation of the consolidated financial statements in order to design
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An
audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of
significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements.
We believe the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
One east fourth street, ste. 1200
cincinnati, oh 45202
www.cshco.com
p. 513.241.3111
f. 513.241.1212
cincinnati | columbus | miami valley | springfield | toledo
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of Home City Financial Corporation at December 31, 2012 and 2011, and
the results of its operations and its cash flows for the years then ended, in conformity with accounting
principles generally accepted in the United States of America.
Cincinnati, Ohio
March 14, 2013
4
Home City Financial Corporation - CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
December 31,
2012
2011
ASSETS
Cash and due from banks
Interest-bearing deposits in other institutions
Federal funds sold
Cash and cash equivalents
$ 712
3,578
4,290
$ 641
4,990
33
5,664
Available-for-sale securities
Loans, net of allowance for loan losses of $2,000 and $1,503 at
December 31, 2012 and 2011
Premises and equipment
Federal Home Loan Bank stock
Interest receivable
Cash surrender value of life insurance
Prepaid FDIC
Prepaid and deferred taxes
Other
6,024
10,243
120,254
2,611
2,734
454
4,373
200
1,065
854
115,897
2,666
2,734
474
4,231
305
869
738
$142,859
$143,821
$7,155
38,926
63,301
109,382
16,777
2,706
$9,560
35,059
68,579
113,198
15,202
2,316
$128,865
$130,716
5,924
9,951
5,878
9,127
109
(1,990)
90
(1,990)
13,994
13,105
$142,859
$143,821
TOTAL ASSETS
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits
Demand
Savings, NOW and money market
Time
Total deposits
Federal Home Loan Bank advances
Interest payable and other liabilities
TOTAL LIABILITIES
Commitments and Contingencies
Shareholders’ Equity
Preferred shares, no par value: authorized 1,000,000 shares; none issued
Common shares, no par value: authorized 5,000,000 shares; issued 950,659 and
outstanding 804,436 at December 31, 2012 and 2011
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Unrealized holding gains on securities available for sale
for sale, net of income taxes
Treasury shares, at cost: 146,223 shares
TOTAL SHAREHOLDERS’ EQUITY
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
________________________________________
See notes to consolidated financial statements.
5
Home City Financial Corporation - CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Dollars in thousands, except
per share amounts)
Years ended December 31,
2012
2011
INTEREST AND DIVIDEND INCOME
Loans
Securities
Federal funds sold
Dividends on Federal Home Loan Bank stock
Deposits with financial institutions
TOTAL INTEREST AND DIVIDEND INCOME
$ 6,459
134
1
121
7
6,722
$ 6,533
104
1
116
27
6,781
INTEREST EXPENSE
Deposits
Borrowings
TOTAL INTEREST EXPENSE
1,456
221
1,677
1,789
340
2,129
NET INTEREST INCOME
Provision for Loan Losses
5,045
550
4,652
725
4,495
3,927
67
188
0
68
85
408
93
191
95
211
130
720
1,876
257
123
286
221
165
113
56
271
3,368
1,780
245
183
254
238
146
135
135
264
3,380
1,535
518
$ 1,017
1,267
406
$ 861
19
$ 1,036
84
$ 945
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
NON INTEREST INCOME
Service charges on deposits
Life Insurance Earnings on bank owned life insurance
Gain on sale of investments
Gain on sale of Real Estate Owned
Other
TOTAL NON INTEREST INCOME
NON INTEREST EXPENSE
Salaries and employee benefits
Net occupancy expense
Equipment expense
Data processing fees
Professional fees
Franchise taxes
FDIC Insurance
Other real estate owned expenses
Other
TOTAL NON INTEREST EXPENSE
Income before income tax
Provision for income taxes
NET INCOME
Change in net unrealized gains on securities available
for sale, net of tax effect
COMPREHENSIVE INCOME
________________________________________
See notes to consolidated financial statements.
6
Home City Financial Corporation — CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Years ended December 31, 2011 and 2012
$ 5,845
$ 8,459
Net income
$
$ (1,990)
$ 12,320
861
84
Stock Option expense
84
30
Dividends on common stock,
$.24 per share
30
(193)
Amortization of unearned
compensation expense
(193)
3
950,659
$ 5,878
Net income
3
$ 9,127
$
90
$ (1,990)
1,017
19
Stock Option expense
19
44
Dividends on common stock,
$.24 per share
44
(193)
Amortization of unearned
compensation expense
(193)
2
950,659
________________________________________
See notes to consolidated financial statements.
$ 5,924
7
$ 13,105
1,017
Change in unrealized gain
on securities available on sale, net of
reclassification and tax effect
Balance, December 31, 2012
Total
861
Change in unrealized gain
on securities available for sale, net of
reclassification adjustment and tax effect
Balance, December 31, 2011
6
Treasury
Shares
Retained
Earnings
950,659
Accumulated
Other
Comprehensive
Income
Additional
Paid-in Capital
Balance, January 1, 2011
Common
Shares
(Dollars in thousands)
2
$ 9,951
$
109
$ (1,990)
$ 13,994
Home City Financial Corporation — CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Years ended December 31,
2012
2011
OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization
Amortization of premiums and discounts on securities
Provision for loan losses
Deferred income taxes (benefit)
Increase in cash surrender value of life insurance
Gain on sale of Real Estate Owned
Gain on sale of investments
Stock option expense
Recognition and Retention Plan compensation expense
Changes in:
Interest receivable
Other assets
Interest payable and other liabilities
Net cash provided by operating activities
$
1,017
$
861
102
52
550
(264)
(142)
(68)
0
44
2
168
15
725
(47)
(145)
(211)
(95)
30
3
20
115
303
1,731
(14)
517
175
1,982
INVESTING ACTIVITIES
Purchases of available-for-sale securities
Proceeds from sale of available-for-sale securities
Proceeds from maturities of available-for-sale securities
Net change in loans
Purchase of premises and equipment
Net cash (used in) investing activities
(1,061)
0
5,257
(4,907)
(47)
(758)
(12,128)
2,000
225
(6,470)
(82)
(16,455)
FINANCING ACTIVITIES
Net increase in demand deposits, money market.
NOW and savings accounts
Net (decrease) in certificates of deposit
Proceeds from Federal Home Loan Bank advances
Repayment of Federal Home Loan Bank advances
Dividends paid
Net increase in advances from borrowers for taxes and insurance
Net cash (used in) financing activities
1,462
(5,278)
7,000
(5,425)
(193)
87
(2,347)
8,975
(3,421)
10,000
(18,697)
(193)
145
(3,191)
(Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents, Beginning of Year
(1,374)
5,664
(17,664)
23,328
Cash and Cash Equivalents, End of Year
Supplemental Cash Flows Information
Interest paid
Income taxes paid
________________________________________
See notes to consolidated financial statements.
8
$
4,290
$
5,664
$
$
527
724
$
$
698
448
Home City Financial Corporation – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Home City Financial Corporation (“Company”) is a thrift holding company whose principal activity is the
ownership and management of its wholly-owned subsidiary, Home City Federal Savings Bank of Springfield
(“Bank”). The Bank is primarily engaged in providing a full range of banking and financial services to individual
and corporate customers in Clark County, Ohio. The Bank is subject to the regulation of certain federal and
state agencies and undergoes periodic examinations by those regulatory authorities. The Bank’s wholly owned
subsidiary, Homciti Service Corporation (“Service Corp.”), remains dormant as of December 31, 2012.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, the Bank and the Service Corp. All
significant intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. Actual results could differ from
those estimates.
Material estimates that are particularly susceptible to significant change relate to the determination of the
allowance for loan losses. In connection with the determination of the allowance for loan losses, management
obtains independent appraisals for significant properties.
Cash Equivalents
The Company considers all liquid investments with original maturities of three months or less to be cash
equivalents.
Securities
All securities are classified as available for sale. Available-for-sale securities, which include any security for
which the Company has no immediate plan to sell but which may be sold in the future, are carried at fair value.
Unrealized gains and losses are recorded, net of related income tax effects, in other comprehensive income.
Amortization of premiums and accretion of discounts are recorded as interest income using methods approximating
the interest method over the period to maturity. Realized gains and losses are recorded as net security gains
(losses). Gains and losses on sales of securities are determined on the specific-identification method.
The Company evaluates its securities portfolio for impairment throughout the year. An impairment is recorded
against individual equity securities if their cost significantly exceeds their fair value for a substantial amount
of time. An impairment is also recorded for investments in debt securities, unless the decrease in fair value is
attributed to interest rates and management has the intent and ability to retain the investment in the issuer for a
period of time sufficient to allow for any anticipated recovery in market value.
Loans
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoffs are
reported at their outstanding principal balances adjusted for any charge-offs, the allowance for loan losses, any
deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans. Interest
income is reported on the interest method and includes amortization of net deferred loan fees and costs over the
loan term. Generally, loans are placed on non-accrual status at ninety days past due and interest is considered a
loss.
9
Home City Financial Corporation – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Allowance for Loan Losses
The allowance for loan losses is established as losses are estimated to have occurred through a provision for
loan losses charged to income. Loan losses are charged against the allowance when management believes the
uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.
The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s
periodic review of the collectability of the loans in light of historical experience, the nature and volume of
the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any
underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires
estimates that are susceptible to significant revision as more information becomes available.
A loan is considered impaired when, based on current information and events, it is probable that the Bank will
be unable to collect the scheduled payments of principal or interest when due according to the contractual terms
of the loan agreement. Factors considered by management in determining impairment include payment status,
collateral value and the probability of collecting scheduled principal and interest payments when due. Loans
that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.
Management determines the significance of payment delays and payment shortfalls on a case-by-case basis,
taking into consideration all of the circumstances surrounding the loan and the borrower, including the length
of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in
relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and
construction loans by the present value of expected future cash flows discounted at the loan’s effective interest
rate.
Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the
Bank does not separately identify individual consumer and residential loans for impairment measurements unless
the loans are classified substandard or doubtful.
Premises and Equipment
Depreciable assets are stated at cost less accumulated depreciation. Depreciation is charged to expense using the
straight-line method over the estimated useful lives of the assets.
Federal Home Loan Bank Stock
Federal Home Loan Bank stock is a required investment for institutions that are members of the Federal Home
Loan Bank system. The required investment in the common stock is based on a predetermined formula.
Foreclosed Assets Held for Sale
Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value
at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically
performed by management and the assets are carried at the lower of carrying amount or fair value less cost to
sell. Revenue and expenses from operations and changes in the valuation allowance are included in net income
or expense from foreclosed assets.
Treasury Shares
Treasury shares are stated at cost. Cost is determined by the first-in, first-out method.
Income Taxes
Deferred tax assets and liabilities are recognized for the tax effects of differences between the financial statement
and tax bases of assets and liabilities. A valuation allowance is established to reduce deferred tax assets if it is
more likely than not that a deferred tax asset will not be realized. The Company files a consolidated income tax
return with its subsidiary Home City Federal Savings Bank.
10
Home City Financial Corporation – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Uncertain Tax Positions
The Company follows the provisions of Accounting for Uncertainty in Income Taxes. Those provisions clarify
the accounting and recognition for income tax positions taken or expected to be taken in the Company’s
income tax returns. The Company’s income tax filings are subject to audit by various taxing authorities. The
Company’s open audit periods are 2009–2011. The Company’s policy with regard to interest and penalty is to
recognize interest through interest expense and penalties through other expense. In evaluating the Company’s
tax provisions and accruals, future taxable income, and the reversal of temporary differences, interpretations
and tax planning strategies are considered. The Company believes their estimates are appropriate based on
current facts and circumstances.
Earnings Per Share
Earnings per share have been computed based upon the weighted-average common shares outstanding during
each year. Unearned ESOP shares and RRP shares, which have not vested, have been excluded from the
computation of average shares outstanding.
Stock Options
The Company uses the modified prospective method for the accounting of stock options and other equity
awards. The Company has used the Black-Scholes option-pricing model for all grant date estimations of
fair value as the Company believes its stock options have characteristics for which the Black-Scholes model
provides an acceptable measure of fair value.
Subsequent Events
The Company evaluates events and transactions occurring subsequent to the date of the consolidated financial
statements for matters requiring recognition or disclosure in the consolidated financial statements. The
accompanying consolidated financial statements consider events through March 14, 2013 the date on which
the consolidated financial statements were available to be issued.
11
Home City Financial Corporation – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2: SECURITIES
The amortized cost and approximate fair values of securities are as follows:
(Dollars in thousands)
Gross
Gross
Amortized Unrealized Unrealized Approximate
Gains
Losses
Cost
Fair Value
Available-for-Sale Securities
December 31, 2012
Mortgage-backed securities:
GNMA
FNMA
$
2,487
834
3,330
2,520
9
$
58
17
75
46
44
$
0
0
0
0
0
$
2,545
860
3.405
2,566
53
$
5,859
$
165
$
0
$
6,024
$
2,038
1,033
3,071
7,027
9
$
46
0
46
63
27
$
0
0
0
0
0
$
2,084
1,033
3,117
7,090
36
$ 10,107
$
136
$
0
$ 10,243
U.S. Government agency securities
Equity securities
Total
December 31, 2011
Mortgage-backed securities:
GNMA
FNMA
U.S. Government agency securities
Equity securities
Total
The carrying value of securities pledged to the Federal Reserve Bank of Cleveland for potential future borrowings was
$704,030 at December 31, 2012 and at December 31, 2011, the value was $924,223.
The amortized cost and estimated fair value of available-for-sale debt securities at December 31, 2012, by contractual
maturity, are as follows (dollars in thousands):
Amounts maturing in:
Due in one year or less
Due after one year through five years
Due from five to ten years
Mortgage-backed securities
Fair
Value
Amortized
Cost
$
$
0
2,520
0
2,520
3,330
5,850
$
$
0
2,566
0
2,566
3,405
5,971
Expected maturities of mortgage-backed securities will differ from contractual maturities because borrowers may
generally prepay obligations without prepayment penalties.
Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be
reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified.
12
Home City Financial Corporation – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES
Categories of loans at December 31, include:
(Dollars in thousands)
2012
2011
Mortgage real estate and land
Commercial
Consumer
Total loans
Less
Deferred loan fees
Undisbursed portion of loans
Allowance for loan losses
Net Loans
$ 115,464
8,184
1,205
124,853
$ 110,204
6,853
1,089
118,146
(272)
(2,327)
(2,000)
(232)
(514)
(1,503)
$ 120,254
$ 115,897
Changes in the allowance for loan losses are as follows for the years ended December 31:
(Dollars in thousands)
Commercial
Consumer
Mortgage
Total
2012
Allowance for credit losses:
Beginning Balance
Charge-Offs
Recoveries
Provision
Ending Balance
$
685
0
19
550
1,254
$
66
2
3
0
67
Ending allowance balance
individually evaluated
for impairment
$
83
$
Loan balances
$
489
Ending allowance balance
collectively evaluated
for impairment
$
Loan balances
Total loans
$
$
$
752
94
21
0
679
$
1,503
96
43
550
2,000
-
$
41
$
124
$
38
$
1,813
$
2,340
1,171
$
67
$
638
$
1,876
$
7,695
$
1,167
$ 113,651
$ 122,513
$
8,184
$
1,205
$ 115,464
$ 124,853
13
$
$
Home City Financial Corporation – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Commercial
Consumer
Mortgage
Total
2011
Allowance for credit losses:
Beginning Balance
Charge-Offs
Recoveries
Provision
Ending Balance
$
728
424
37
344
685
$
174
0
8
(116)
66
Ending allowance balance
individually evaluated
for impairment
$
89
$
Loan balances
$
437
Ending allowance balance
collectively evaluated
for impairment
$
Loan balances
Total loans
$
$
$
$
601
366
20
497
752
$
$
1,503
790
65
725
1,503
-
$
20
$
109
$
9
$
1,269
$
1,715
596
$
66
$
732
$
1,394
$
6,416
$
1,080
$ 108,935
$ 116,431
$
6,853
$
1,089
$ 110,204
$ 118,146
The following tables summarize impaired loans as of December 31:
2012
With no related allowance recorded:
Commercial
Consumer
Mortgage
Recorded
Loan
$
With an allowance recorded:
Commercial
Consumer
Mortgage
Total:
Commercial
Consumer
Mortgage
$
0
38
1,228
1,266
Unpaid
Principal
Balance
$
0
38
1,228
1,266
Related
Allowance
Average
Recorded
Loan
Interest
Income
Recognized
$
$
$
----------0-
337
12
1,111
1,460
1
3
78
82
489
---585
1,074
489
---585
1,074
41
---83
124
325
---428
753
18
1
19
38
489
38
1,813
2,340
489
38
1,813
2,340
41
---83
124
662
12
539
2,213
19
4
97
120
$
14
$
$
$
Home City Financial Corporation – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unpaid
Principal
Balance
Recorded
Loan
2011
With no related allowance recorded:
Commercial
Consumer
Mortgage
$
With an allowance recorded:
Commercial
Consumer
Mortgage
Total:
Commercial
Consumer
Mortgage
$
339
2
995
1,336
$
339
2
995
1,336
Related
Allowance
Average
Recorded
Loan
Interest
Income
Recognized
$
$
$
----------0-
298
3
1,878
2,179
4
---48
52
97
---282
379
97
---282
379
89
---20
109
459
---378
837
15
1
158
174
436
2
1,277
436
2
1,277
89
---20
757
3
2,256
19
1
206
1,715
$
1,715
$
109
$
3,016
$
226
There are no significant commitments outstanding to lend additional funds to clients whose loans were classified as
impaired at December 31, 2012.
The Bank assigns credit risk grades to evaluated loans using grading standards described in the Bank’s Classification
of Assets Policy and Procedures. Loans rated as “pass” include the Bank’s risk grades of “excellent,” “good” and
“satisfactory,” which have at least two years of satisfactory repayment, or no other signs of a weakening credit situation.
“Watch” loans are considered satisfactory but have increased credit risk due to financial uncertainty and are given proper
additional management attention. “Special mention” loans are considered fundamentally sound, but show potential credit
risk and unsatisfactory characteristics, including inability to obtain financial statements, adverse economic conditions,
and/or borrower’s ability to pay is getting worse. A loan classified as “substandard” is protected inadequately by the
current net worth and paying capacity of the borrower or by the collateral pledged, if any. A loan classified as “doubtful”
has all the weaknesses inherent in a substandard loan with the characteristic that the weaknesses make collection or
liquidation in full questionable. A loan classified as a “loss” is considered uncollectible, but could have some recovery
value. The Bank’s Asset Classification Committee assigns the credit risk grades to loans and reports to the board on a
monthly basis in the “asset classification” report.
The following table summarizes the credit risk profile by internally assigned grade of loans as of December 31:
2012
Grade
Pass
Watch
Special Mention
Substandard
Totals
2011
Grade
Pass
Watch
Special Mention
Substandard
Totals
Commercial
$
$
5,762
2,081
0
341
8,184
Commercial
$
$
4,423
1,170
824
436
6,853
15
Consumer
Residential
Total
$
$ 97,851
15,093
559
1,961
$ 115,464
$ 104,669
17,285
559
2,340
$ 124,853
Consumer
Residential
Total
$
$ 93,260
13,352
2,315
1,277
$ 110,204
$ 98,665
14,627
3,139
1,715
$ 118,146
$
$
1,056
111
---38
1,205
982
105
---2
1,089
Home City Financial Corporation – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Troubled Debt Restructuring (as of December 31, 2012 and December 31, 2011)
$ 119
0
787
$ 119
0
787
1
0
4
0
0
0
0
0
0
0
0
0
0
0
0
906
5
$ 1,151
$ 1,151
6
Total
$
906
$
$
1
0
0
0
0
$
339
0
0
0
0
1
$
339
Recorded
Investment
Number of
Contracts
Commercial & Comm. Farm
Commercial Real Estate – Rehab/Resell
Commercial Real Estate- Rehab/Investment
HELOC & Real Estate Mortgages
Consumer
Number of
Contracts
Troubled Debt Restructurings that
Subsequently Defaulted
Total
$
339
0
812
2011
Recorded
Investment
2012
339
0
812
Post-Modification
Outstanding
Recorded
Investment
Number of
Contracts
2
0
4
Pre-Modification
Outstanding
Recorded
Investment
Post-Modification
Outstanding
Recorded
Investment
Commercial & Comm. Farm
Commercial Real Estate – Rehab/Resell
Commercial Real Estate- Rehab/
Investment
HELOC & Real Estate Mortgages
Consumer
Pre-Modification
Outstanding
Recorded
Investment
Troubled Debt Restructurings
2011
Number of
Contracts
2012
0
0
0
0
0
0
0
0
0
0
Non-performing assets are as follows as of December 31:
(Dollars in thousands)
2012
Non-accrual Loans
Accruing loans 90 days or more past due
Other real estate owned
Other repossessed assets
Total nonaccrual assets
RATIOS
Nonaccrual assets to total assets
Ratio of loan loss allowance to nonaccrual
$
$
891
0
460
339
1,690
1.18%
224.5%
2011
$
$
1,257
0
680
0
1,937
1.35%
119.6%
At December 31, 2012 and 2011, the Bank had $460,000 and $679,734 of Real Estate Owned respectively, and $339,445
and $0 of other repossessed assets, respectively.
16
Home City Financial Corporation – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes loans by delinquency and nonaccrual status as of December 31:
(Dollars in thousands)
2012
Commercial Loans
30-89 days
90 days or more
Nonaccrual
Total
Mortgage Loans
30-89 days
90 days or more
Nonaccrual
Total
Consumer Loans
30-89 days
90 days or more
Nonaccrual
Total
Totals
30-89 days
90 days or more
Nonaccrual
Total
$
$
$
$
$
$
$
$
2011
384
---13
397
$
3,312
---878
4,190
$
33
------33
$
3,729
---891
4,620
$
$
$
$
$
(As a % of Ending
Loan Balances)
2012
2011
315
---339
654
.31%
---.01
.32%
.27%
---.29
.56%
2,842
---915
3,757
2.65%
----.70
3.35%
2.40%
----.78
3.18%
3
---2
5
.03%
------.03%
----%
----------
3,160
---1,257
4,416
2.98%
---.72
3.70%
2.67%
---1.07
3.74%
There were no loans over 90 days past due that were still accruing at December 31, 2012 and 2011.
17
Home City Financial Corporation – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4: PREMISES AND EQUIPMENT
Major classifications of premises and equipment, stated at cost, are as follows as of December 31:
(Dollars in thousands)
2012
2011
Land
$
806
$
806
Buildings and improvements
2,782
2,769
Equipment
1,497
1,460
5,085
5,035
Less Accumulated depreciation
(2,474)
(2,369)
$
Net premises and equipment
2,611
$
2,666
NOTE 5: INTEREST-BEARING DEPOSITS
Interest-bearing time deposits in denominations of $100,000 or more were $30,815,000 on December 31, 2012, and
$32,934,000 on December 31, 2011.
At December 31, 2012, the scheduled maturities of time deposits are as follows:
(Dollars in thousands)
2013
$ 28,703
2014
13,694
2015
8,682
2016
7,044
2017
5,178
Total
$
18
63,301
Home City Financial Corporation – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6: FEDERAL HOME LOAN BANK ADVANCES
Aggregate annual maturities of FHLB advances at December 31, 2012, are:
(Dollars in thousands)
$
5,215
4,072
2,999
4,491
2013
2014
2015
2016 and after
Total
$
16,777
The Federal Home Loan Bank advances are secured by mortgage loans totaling $72,862,000 at December 31, 2012.
Advances, at interest rates from 0.70% to 2.64%, are subject to restrictions or penalties in the event of prepayment.
The Bank has authorized letters of credit with the Federal Home Loan Bank aggregating $2,425,000 expiring at various
dates. At December 31, 2012, the Bank had unused letters of credit with the Federal Home Loan Bank of $7,575,000.
These letters of credit are pledged as collateral for deposits in excess of federally-insured limits. At December 31, 2011,
the Bank had authorized and unused letters of credit with the FHLB aggregating $4,175,000 and $5,825,000, respectively.
19
Home City Financial Corporation – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7: INCOME TAXES
The provision for income taxes includes these components
(Dollars in thousands)
2012
Taxes currently payable
Deferred income tax expense (benefit)
Income tax expense
2011
$
782
(264)
$
453
(47)
$
518
$
406
A reconciliation of income tax expense at the statutory rate to the Company’s actual income tax expense is shown below:
(Dollars in thousands)
2012
Computed at the statutory rate (34%)
Increase (decrease) resulting from:
Cash surrender value of life insurance
Nondeductible expenses
Other
Actual tax expense
$
2011
522
$
(64)
36
24
$
518
431
(65)
27
13
$
406
The tax effects of temporary differences related to deferred taxes shown on the balance sheets were:
(Dollars in thousands)
2012
Deferred tax assets
Allowance for loan losses
Employee benefits
Nonaccrual loan interest
REO Expense
Other
Security basis difference
$
Deferred tax liabilities
Depreciation
Federal Home Loan Bank stock dividend
Deferred loan fees
Prepaid Expenses
Unrealized gain on available-for-sale securities
Net deferred tax asset
$
680
577
23
12
31
306
1,629
(27)
(398)
(77)
(17)
(56)
(575)
1,054
2011
$
$
511
510
15
37
0
306
1,379
(25)
(398)
(90)
(20)
(46)
(579)
800
Retained earnings at December 31, 2012 and 2011, include approximately $1,084,000, for which no deferred federal
income tax liability has been recognized. This amount represents an allocation of income to bad debt deductions for tax
purposes only. Reduction of amounts so allocated for purposes other than tax bad debt losses or adjustments arising from
carry back of net operating losses would create income for tax purposes only, which would be subject to the then-current
corporate income tax rate. The deferred income tax liability on the preceding amount that would have been recorded if it
was expected to reverse into taxable income in the foreseeable future was approximately $368,000 at December 31, 2012
and 2011.
20
Home City Financial Corporation – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8: OTHER COMPREHENSIVE INCOME
Other comprehensive income components and related taxes were as follows:
(Dollars in thousands)
2012
Change in unrealized gains on securities available for sale
Reclassification for realized gain included in gain
Other comprehensive income before tax effect
Tax effect
Other comprehensive income
$
$
29
0
29
(10)
19
2011
$
$
222
(95)
127
(43)
84
NOTE 9: REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure
to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions
by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum
amounts and ratios (set forth in the table below). Management believes, as of December 31, 2012 and 2011, that the
Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 2012, the most recent notification from Office of Comptroller of the Currency categorized the Bank
as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized,
the Bank must maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the table.
There are no conditions or events since that notification that management believes have changed the Bank’s category.
The Bank’s actual capital amounts and ratios are also presented in the table.
(Dollars in thousands)
For Capital
Adequacy Purposes
Actual
To Be Well Capitalized
Under Prompt
Corrective Action
Provisions
As of December 31, 2012
Amount
Total risk-based capital
(to risk-weighted assets)
$14,878
15.7%
$7,592
8.0%
$9,490
10.0%
Tier I capital
(to risk-weighted assets)
13,662
14.4%
3,796
4.0%
5,694
6.0%
Tier I capital
(to adjusted total assets)
13,662
9.6%
5,706
4.0%
7,133
5.0%
Tangible capital
(to adjusted tangible assets)
13,662
9.6%
2,140
1.5%
N/A
N/A
Ratio
21
Amount
Ratio
Amount
Ratio
Home City Financial Corporation – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2011
Total risk-based capital
(to risk-weighted assets)
$13,834
14.8%
$7,499
8.0%
$9,373
10.0%
Tier I capital
(to risk-weighted assets)
12,837
13.7%
3,748
4.0%
5,624
6.0%
Tier I capital
(to adjusted total assets)
12,837
8.9%
5,746
4.0%
7,183
5.0%
Tangible capital
(to adjusted tangible assets)
12,837
8.9%
2,155
1.5%
N/A
N/A
NOTE 10: RELATED PARTY TRANSACTIONS
The Bank has entered into transactions with certain directors, executive officers, significant shareholders and their
affiliates or associates (related parties). In management’s opinion, such loans and other extensions of credit and deposits
were made in the ordinary course of business and were made on substantially the same terms (including interest rates
and collateral) as those prevailing at the time for comparable transactions with other persons. Further, in management’s
opinion, these loans did not involve more than normal risk of collectability or present other unfavorable features.
The aggregate amount of loans, as defined, to such related parties was as follows:
Balances, January 1, 2012
New loans, including renewals
Payments, etc., including renewals
Balances, December 31, 2012
(Dollars in thousands)
$
1,411
18
(1,035)
$
394
Deposits from related parties held by the Bank at December 31, 2012 and 2011, totaled $2,064,000 and $2,881,000
respectively.
22
Home City Financial Corporation – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11: EMPLOYEE BENEFITS
The Company has a retirement savings 401(k) plan covering substantially all employees. Employees may contribute up
to 15% of their compensation with the Company matching 75% of the employee’s contribution on the first 6% of the
employee’s compensation. Employer contributions charged to expense for 2012 and 2011were $47,000 and $45,000,
respectively.
The Company established an ESOP covering substantially all employees of the Company and Bank. Compensation
expense is recorded equal to the fair market value of the stock when contributions, which are determined annually by
the Board of Directors of the Company and Bank, are made to the ESOP. ESOP compensation contributions expense
was $30,000 and $40,000 for the years ended December 31, 2012 and 2011.
Allocated shares
Shares purchased
Withdrawals
Transfers
Total ESOP shares
Fair value of unearned shares at December 31
$
2012
59,308
500
0
0
2011
55,682
6,917
(3,291)
0
59,808
59,308
0
$
0
For companies not listed on NASDAQ, government regulations require an employer with an ESOP to provide a put
option to the plan’s participants of their investments in the company’s stock at the fair value price. This regulation was
enacted to provide a ready market for the participant when otherwise a market may not readily exist. At December 31,
2012, the ESOP held 59,808 shares of the Company’s stock with a total estimated value of approximately $610,041.
23
Home City Financial Corporation – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12: SHARE-BASED AWARD PLANS
On December 31, 2012, the Company has two share-based compensation plan(s), RRP and Stock Option, which are
described below. The compensation cost that has been charged against income for those plans was $47,000 and $34,000
for 2012 and 2011, respectively. The total income tax benefit recognized in the income statement for share-based
compensation arrangements was $16,000 and $12,000 for 2012 and 2011, respectively.
The Company’s Stock Option Plan, (the SOP) which was shareholder approved, currently has 45,571 shares outstanding
and exercisable. The Company also has a Recognition and Retention Plan (the RRP) which currently has no nonvested
shares outstanding. The Company believes that such awards better align the interests of its employees with those of its
shareholders. Option awards are generally granted with an exercise price equal to the market price of the Company’s
stock at the date of grant; those options awards generally vest based on five years of continuous service and have ten
year contractual terms. Share awards generally vest over five years. Certain option and share awards provide for
accelerated vesting if there is a change in control (as defined in the Plan).
The fair value of each option award is estimated on the date of grant using a closed form option valuation model that uses
the assumptions noted in the following table. Expected volatility is based on historical volatility of the Company’s stock
and other factors. The Company uses historical data to estimate option exercise and employee termination within the
valuation model; separate groups of employees that have similar historical exercise behavior are considered separately
for valuation purposes. The expected term of options granted is derived from the output of the option valuation model
and represents the period of time that options granted are expected to be outstanding; the range given below results from
certain groups of employees exhibiting different behavior. The risk-free rate for periods within the contractual life of
the option is based on the U.S. Treasury yield curve in effect at the time of grant. There were 60,000 grants awarded in
2011 and 0 grants awarded in 2012.
A summary of option activity under the SOP as of December 31, 2012, and changes during the year then ended, is
presented below:
WeightedAverage
WeightedRemaining
Average
Contractual
Exercise
Term
Price
Shares
Outstanding, beginning of year
Granted
Exercised
Forfeited
Expired
93,571
0
0
0
0
$
10.29
0
0
0
0
6.31 years
Outstanding, end of year
Options exercisable, end of year
93,571
45,571
$
$
10.29
12.13
5.30 years
2.39 years
A summary of the status of the Company’s nonvested shares in the RRP as of December 31, 2012, and changes during
the year then ended, is presented below:
Weighted-Average
Grant-Date
Fair Value Per Share
Shares
Nonvested, beginning of year
Granted
Vested
Forfeited
Nonvested, end of year
260
0
260
0
$
11.25
0
11.25
0
0
$
11.25
As of December 31, 2012, there was $0 of total unrecognized compensation cost related to nonvested share-based
compensation arrangements granted under the plans. The total fair value of shares vested during the years ended
December 31, 2012 and 2011, was $3,000 and $4,000, respectively.
24
Home City Financial Corporation – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13: EARNINGS PER SHARE
Earnings per share (EPS) were computed as follows:
(Dollars in thousands, except per share data)
Year Ended December 31, 2012
Weighted-Average
Per Share
Income
Shares
Amount
Basic earnings per share
Income from continuing operations
available to common shareholders
Effect of dilutive securities
Stock options and awards
Diluted loss per share
Income from continuing operations
available to common shareholders and
assumed conversions
$
$
1,017
804,179
0
0
1,017
804,179
$
1.26
$
1.26
(Dollars in thousands, except per share data)
Year Ended December 31, 2011
Weighted-Average
Per Share
Income
Shares
Amount
Basic earnings per share
Income from continuing operations
available to common shareholders
Effect of dilutive securities
Stock options and awards
Diluted loss per share
Income from continuing operations
available to common shareholders and
assumed conversions
$
$
861
803,921
0
1,139
861
805,060
$
1.07
$
1.07
There were 1,139 options to purchase shares of common stock outstanding at December 31, 2011 that were included in
the computation of diluted EPS because the options’ exercise prices were greater than the average market price of the
common shares, including the unamortized expense of the options.
25
Home City Financial Corporation – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents estimated fair values of the Company’s financial instruments. The fair values of certain
of these instruments were calculated by discounting expected cash flows, which involves significant judgments by
management and uncertainties. Fair value is the estimated amount at which financial assets or liabilities could be
exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Because no
market exists for certain of these financial instruments and because management does not intend to sell these financial
instruments, the Company does not know whether the fair values shown below represent values at which the respective
financial instruments could be sold individually or in the aggregate.
(Dollars in thousands)
December 31, 2012
December 31, 2011
Carrying
Fair
Carrying
Fair
Amount
Value
Amount
Value
Financial assets
Cash and cash equivalents
Available-for-sale securities
Loans, net
FHLB stock
Interest receivable
Financial liabilities
Deposits
FHLB advances
Interest payable
Unrecognized financial instruments:
Commitments to extend credit
$
4,290
6,024
120,254
2,734
454
$
4,290
6,024
122,308
2,734
454
$
5,664
10,243
115,897
2,734
474
$
5,664
10,243
118,796
2,734
474
109,382
16,777
25
101,944
16,647
25
113,198
15,202
11
102,746
15,228
11
15,238
15,238
9,224
9,224
For purposes of the above disclosures of estimated fair value, the following assumptions were used as of December 31,
2012 and 2011. The estimated fair value for cash and cash equivalents, interest-bearing deposits, FHLB stock, accrued
interest receivable, demand deposits, savings accounts, NOW accounts, certain money market deposits, and interest
payable is considered to approximate cost. The estimated fair value for securities is based on quoted market values for
the individual securities or for equivalent securities. The estimated fair value for loans receivable, including loans held
for sale, net, is based on estimates of the rate the Bank would charge for similar loans at December 31, 2012 and 2011,
applied for the time period until the loans are assumed to reprice or be paid. The estimated fair value for fixed-maturity
time deposits as well as borrowings is based on estimates of the rate the Bank would pay on such liabilities at December
31, 2012 and 2011, applied or the time period until maturity. The fair value of commitments is estimated using the fees
currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the
present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference
between current levels of interest rates and the committed rates. The fair value of letters of credit and lines of credit
is based on fees currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the
obligations with the counterparties at the reporting date.
26
Home City Financial Corporation – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15: COMMITMENTS AND CREDIT RISK
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed expiration dates or other termination clauses and
may require payment of a fee. Since a portion of the commitments may expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. Each customer’s credit-worthiness is
evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management’s
credit evaluation of the counterparty. Collateral held varies, but may include accounts receivable, inventory, property,
plant and equipment, commercial real estate and residential real estate.
Letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a
third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including
commercial paper, bond financing and similar transactions. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loans to customers.
Lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in the
contract. Lines of credit generally have fixed expiration dates. Since a portion of the line may expire without being drawn
upon, the total unused lines do not necessarily represent future cash requirements. Each customer’s creditworthiness is
evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management’s
credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property,
plant and equipment, commercial real estate and residential real estate. Management uses the same credit policies in
granting lines of credit as it does for on-balance-sheet instruments.
2012
Loan commitments and unused lines of credit
Commercial letters of credit
Total
$ 14,638,000
2011
$
8,724,000
600,000
500,000
$ 15,238,000
$ 9,224,000
At December 31, 2012, the Bank’s total commitment to extend credit was approximately $15,238,000. The amount of
fixed rate commitments was approximately $11,161,508 at December 31, 2012. The fixed rate loan commitments at
December 31, 2012, have interest rates ranging from 3.25% to 6.50%.
At December 31, 2012 and 2011, the Bank had $965,000 and $0 commitments to sell loans, which it had not yet funded.
From time to time certain due from bank accounts are in excess of federally insured limits.
27
Home City Financial Corporation – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16: DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. A three-level hierarchy exists for fair value measurements based
upon the inputs to the valuation of an asset or liability:
Level 1
Quoted prices in active markets for identical assets or liabilities.
Level 2
Observable inputs other than Level 1 prices, such as quoted prices for similar assets
or liabilities; quoted prices in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data for substantially the
full term of the assets or liabilities.
Level 3
Unobservable inputs that are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities.
Fair value methods and assumptions are set forth below for each type of financial instrument.
Securities available for sale: Fair values on available for sale securities were based upon a market approach. Securities
which are fixed income instruments that are not quoted on an exchange, but are traded in active markets, are valued
using prices obtained from our custodian, which used third party data service providers and determined to be level 2
inputs. Available for sale securities include primarily U.S. agency securities, municipal bonds and mortgage-backed
agency securities.
at December 31, 2012
Quoted prices
in active markets
for identical
Significant other
assets
observable inputs
December 31, 2012
(Level 1)
(Level 2)
Significant other
unobservable
inputs
(Level 3)
Securities available for sale:
U.S. Government agency securities
$ 3,405
$ 3,405
Mortgage-backed securities
$ 2,566
$ 2,566
Equity securities
$
53
$
53
at December 31, 2011
Quoted prices
in active markets
for identical
Significant other
assets
observable inputs
December 31, 2011
(Level 1)
(Level 2)
Securities available for sale:
U.S. Government agency securities
$ 7,090
$ 7,090
Mortgage-backed securities
$ 3,117
$ 3,117
Equity securities
$
36
$
28
36
Significant other
unobservable
inputs
(Level 3)
Home City Financial Corporation – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company is predominately an asset-based lender with real estate serving as collateral on a substantial majority
of loans. Loans which are deemed to be impaired are primarily valued on a nonrecurring basis at the fair values of
the underlying real estate collateral. Such fair values are obtained using independent appraisals, which the Company
considers to be Level 2 inputs. The aggregate carrying amount of impaired loans at December 31, 2012 and 2011 was
approximately $2.3 million and $1.7 million, respectively.
The Corporation has real estate and other repossessed assets acquired through foreclosure totaling $460,000 and
$339,000, respectively, at December 31, 2012. Real estate and other assets acquired through foreclosure are carried at
the lower of the cost or fair value less estimated selling expenses at the date of acquisition. Fair values are obtained using
independent appraisals, based on comparable sales which the Corporation considers to be Level 2 inputs. The aggregate
amount of assets acquired through foreclosure that is carried at fair value was $799,000 at December 31, 2012. The
aggregate amount of assets acquired through foreclosure that is carried at fair value was $680,000 at December 31, 2011.
29
Home City Financial Corporation – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17: QUARTERLY FINANCIAL DATA (UNAUDITED)
The following tables summarize selected quarterly results of operations for 2011 and 2010.
(Dollars in thousands, except per share data)
2012
Interest and dividend income
Interest expense
Net interest income
Provision for loan losses
Noninterest income
Noninterest expense
Income tax expense
$
March
1,706
449
1,257
120
90
859
120
$
June
1,674
435
1,239
150
77
795
119
September
$
1,676
409
1,267
120
136
849
139
December
$
1,666
384
1,282
160
105
865
140
Net income
248
252
295
222
Earnings per share
Basic
Diluted
Dividends per share
.31
.31
.06
.31
.31
.06
.37
.37
.06
.27
.27
.06
June
1,685
551
1,134
145
119
866
78
September
$
1,710
496
1,214
185
181
824
133
December
$
1,684
466
1,218
270
290
839
118
2011
Interest and dividend income
Interest expense
Net interest income
Provision for loan losses
Noninterest income
Noninterest expense
Income tax expense
$
March
1,702
616
1,086
125
130
851
77
$
Net income
163
164
253
281
Earnings per share
Basic
Diluted
Dividends per share
.20
.20
.06
.20
.20
.06
.31
.31
.06
.36
.36
.06
30
CORPORATE INFORMATION
COMMON SHARES
There were 805,004 common shares of HCFC
outstanding on March 14, 2013, held of record by
approximately 106 registered shareholders. Since
December 30, 1996, HCFC’s common shares had
traded on the NASDAQ Capital Market under the
symbol “HCFC”. Beginning December 4, 2006,
following approval of the Stock Splits, HCFC’s
common shares have traded on the Over the Counter
Bulletin Board (OTCBB) Market under the symbol
“HCFL”. The following represents high and low
trading prices and dividends declared during each
respective quarter during 2011 and 2010. The trading
prices reflect inter-dealer prices, without retail markup, mark-down or commission.
Dividends
2012
High
Low
declared
DIRECTORS OF HCFC AND HOME CITY
Glenn W. Collier, Partner with the law firm of Martin,
Browne, Hull & Harper, Springfield, Ohio
John D. Conroy, Owner and President of Conroy Funeral
Home, Inc., Springfield, Ohio
James M. Foreman, Chief Executive Officer of
Foreman-Blair Pontiac, Buick, GMC, Cadillac,
Springfield, Ohio
J. William Stapleton, President, and CEO of Home City
Financial Corporation and Home City Federal
Savings Bank of Springfield
EXECUTIVE OFFICERS OF HCFC
John D. Conroy - Chairman of the Board
J. William Stapleton - President, and CEO
Don E. Lynam - Executive Vice President
Donna M. Williams - Executive Vice President and CFO
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
EXECUTIVE OFFICERS OF HOME CITY
John D. Conroy - Chairman of the Board
J. William Stapleton - President, and CEO
Don E. Lynam - Executive Vice President
Donna M. Williams - Executive Vice President and CFO
$ 9.25
$ 9.50
$ 9.96
$ 10.34
2011
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
INDEPENDENT ACCOUNTING FIRM
Clark, Schaefer, Hackett & Co.
One East Fourth Street, Suite 1200
$
$
$
$
High
$
$
$
$
9.00
9.00
9.00
9.50
8.25
8.75
9.15
9.96
Low
$
$
$
$
$
$
$
$
.06
.06
.06
.06
Dividends
declared
8.00
8.53
8.50
7.99
$
$
$
$
.06
.06
.06
.06
The payment of dividends by HCFC to its shareholders
may depend in part on the dividends paid by Home City to
HCFC. Home City’s ability to pay dividends is governed
by OCC regulations, which require Home City to obtain
approval of the OCC under certain circumstances. Home
City currently is required to obtain OCC approval for all
dividends to HCFC.
Cincinnati, Ohio 45202
SPECIAL COUNSEL
Vorys, Sater, Seymour and Pease LLP
Suite 2000, Atrium Two
221 East Fourth Street
P.O. Box 0236
Cincinnati, Ohio 45201-0236
INVESTOR INFORMATION
Investors, analysts and others seeking financial
information may contact:
GENERAL COUNSEL
Gorman, Veskauf. Henson & Wineberg
PNC Bldg.
4 West Main Street, Suite 723
Springfield, Ohio 45502
J. William Stapleton, President, and CEO
Donna M. Williams, Executive Vice President and CFO
Home City Financial Corporation
2454 North Limestone Street
Springfield, Ohio 45503
(937) 390-0470
TRANSFER AGENT
Communication regarding change of address, transfer of
shares, lost certificates and dividends should be sent to:
Illinois Stock Transfer Company
4335 Carlton Avenue
Wheaton, Illinois 60187
(312) 427-2953
31