##### Table of Contents



U.S. SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-QSB
 (Mark One)
 þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY
PERIOD ENDED MARCH 31, 2006
 o
    
    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)2454 North Limestone StreetSpringfield, Ohio
    
    45503(Address of principal executive offices)
    
    (Zip Code)
 (937) 390-0470  (Issuers telephone number)
 N/A  (Former address last report)
 þ o
 o þ
   o þ




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##### 



HOME CITY FINANCIAL CORPORATION
 FORM 10-QSB
 INDEX
 Page NumberPART I FINANCIAL INFORMATIONITEM1. Financial StatementsCondensed
consolidated balance sheets 
March 31, 2006, and December 31, 2005
    
    
    3Condensed
consolidated statements of income 
Three months ended March 31, 2006 and 2005
    
    
    4Condensed consolidated statement of changes in
shareholders equity Three months ended March 31, 2006
    
    
    5Condensed
consolidated statements of cash flows 
Three months ended March 31, 2006 and 2005
    
    
    6Notes to condensed consolidated financial statements
    
    
    72. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    123. Controls and Procedures
    
    
    17PART II OTHER INFORMATIONITEM1. Legal Proceedings
    
    
    182. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    183. Defaults upon Senior Securities
    
    
    184. Submission of Matters to a Vote of Security Holders
    
    
    185. Other Information
    
    
    186. Exhibits and Reports on Form 8-K
    
    
    18Signatures
    
    
    19Certifications
    
    
    20-26EX-31.1EX-31.2EX-32EX-99.1
  2




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PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 HOME CITY FINANCIAL CORPORATION
 SPRINGFIELD, OHIO
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Dollars in thousands)(Unaudited)At March
    
    
    At December31,
    
    
    31,2006
    
    
    2005ASSETSCash and cash equivalentsCash and due from banks
    
    $
    2,769
    
    
    $
    2,397Interest-bearing demand deposits
    
    
    3,057
    
    
    
    4,006Federal funds sold
    
    
    1,425
    
    
    
    443Cash and cash equivalents
    
    
    7,251
    
    
    
    6,846Available-for-sale securities
    
    
    5,163
    
    
    
    5,261Loans, net of allowance for loan losses of $1,388
and $1,377
at March 31, 2006 and December 31, 2005
    
    
    128,103
    
    
    
    127,409Premises and equipment
    
    
    3,341
    
    
    
    3,398Federal Home Loan Bank stock
    
    
    2,515
    
    
    
    2,480Interest receivable
    
    
    586
    
    
    
    559Cash surrender value of life insurance
    
    
    3,224
    
    
    
    3,197Other
    
    
    394
    
    
    
    403TOTAL ASSETS
    
    $
    150,577
    
    
    $
    149,553LIABILITIES AND SHAREHOLDERS EQUITYLiabilitiesDepositsDemand
    
    $
    7,312
    
    
    $
    5,763Savings, NOW and money market
    
    
    30,313
    
    
    
    32,980Time
    
    
    61,847
    
    
    
    59,712Total Deposits
    
    
    99,472
    
    
    
    98,455Federal Home Loan Bank advances
    
    
    36,272
    
    
    
    36,337Interest payable and other liabilities
    
    
    1,235
    
    
    
    1,355TOTAL LIABILITIES
    
    
    136,979
    
    
    
    136,147Commitments and Contingent LiabilitiesShareholders equityPreferred shares, no par value: authorized
1,000,000 shares; none issued
    
    
    0
    
    
    
    0Common shares, no par value: authorized 5,000,000
shares;
shares issued - 981,913
    
    
    0
    
    
    
    0Additional paid-in capital
    
    
    6,338
    
    
    
    6,366Retained earnings
    
    
    9,442
    
    
    
    9,337Unearned Recognition and Retention Plan (RRP) shares
    
    
    0
    
    
    
    (41
    )Unearned Employee Stock Ownership Plan (ESOP) shares
    
    
    (83
    )
    
    
    (111
    )Accumulated other comprehensive loss
    
    
    (109
    )
    
    
    (155
    )Treasury shares, at cost; 146,223 shares
    
    
    (1,990
    )
    
    
    (1,990
    )TOTAL SHAREHOLDERS EQUITY
    
    
    13,598
    
    
    
    13,406TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY
    
    $
    150,577
    
    
    $
    149,553
  3




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HOME CITY FINANCIAL CORPORATION
SPRINGFIELD, OHIO
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 (Dollars in thousands)(Unaudited)
    
    
    (Unaudited)3 Months Ended
    
    
    3 Months EndedMarch 31,
    
    
    March 31,2006
    
    
    2005INTEREST INCOMELoans
    
    $
    2,183
    
    
    $
    2,132Securities
    
    
    18
    
    
    
    32Federal funds sold
    
    
    13
    
    
    
    6Dividends on Federal Home Loan Bank stock
    
    
    35
    
    
    
    26Deposits with financial institutions
    
    
    35
    
    
    
    31TOTAL INTEREST INCOME
    
    
    2,284
    
    
    
    2,227INTEREST EXPENSEDeposits
    
    
    660
    
    
    
    598Borrowings
    
    
    497
    
    
    
    471TOTAL INTEREST EXPENSE
    
    
    1,157
    
    
    
    1,069NET INTEREST INCOME
    
    
    1,127
    
    
    
    1,158Provision for loan losses
    
    
    38
    
    
    
    80NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES
    
    
    1,089
    
    
    
    1,078NONINTEREST INCOMEService charges on deposits
    
    
    10
    
    
    
    10Life insurance
    
    
    35
    
    
    
    35Other
    
    
    11
    
    
    
    (9
    )TOTAL NONINTEREST INCOME
    
    
    56
    
    
    
    36NONINTEREST EXPENSESalaries and employee benefits
    
    
    459
    
    
    
    427Net occupancy expense
    
    
    69
    
    
    
    66Equipment expense
    
    
    52
    
    
    
    54Data processing fees
    
    
    58
    
    
    
    70Professional fees
    
    
    85
    
    
    
    76Franchise taxes
    
    
    50
    
    
    
    41Other
    
    
    91
    
    
    
    95TOTAL NONINTEREST EXPENSE
    
    
    864
    
    
    
    829NET INCOME BEFORE FEDERAL INCOME
TAX EXPENSE
    
    
    281
    
    
    
    285Provision for income tax expense
    
    
    84
    
    
    
    92NET INCOME
    
    $
    197
    
    
    $
    193Earnings per common share  basic
    
    $
    0.24
    
    
    $
    0.24Earnings per common share  diluted
    
    $
    0.24
    
    
    $
    0.23Dividends declared per share
    
    $
    0.11
    
    
    $
    0.11
  4




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HOME
CITY FINANCIAL CORPORATION
SPRINGFIELD, OHIO
 
 CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
 (Dollars in thousands)
(Unaudited)
 AccumulatedAdditional
    
    
    
    
    
    
    
    
    
    
    Unearned
    
    
    OtherPaid-in
    
    
    Retained
    
    
    Unearned
    
    
    ESOP
    
    
    Comprehensive
    
    
    TreasuryShares
    
    
    Capital
    
    
    Earnings
    
    
    Compensation
    
    
    Shares
    
    
    Loss
    
    
    Shares
    
    
    TotalBalance, January 1, 2006
    
    
    981,913
    
    
    $
    6,366
    
    
    $
    9,337
    
    
    $
    (41
    )
    
    $
    (111
    )
    
    $
    (155
    )
    
    $
    (1,990
    )
    
    $
    13,406Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    197
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    197Change in
unrealized loss on
securities available
for sale, net of
reclassification
adjustment and tax
effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46
    
    
    
    
    
    
    
    46Total
comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    243Reclassification due
to adoption of SFAS
123(R)
    
    
    
    
    
    
    (41
    )
    
    
    
    
    
    
    41Amortization of
unearned compensation
expense
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10ESOP shares earned
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    28
    
    
    
    
    
    
    
    
    
    
    
    31Dividends on common
shares, $.11 per share
    
    
    
    
    
    
    
    
    
    
    (92
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (92
    )Balance, March 31, 2006
    
    
    981,913
    
    
    $
    6,338
    
    
    $
    9,442
    
    
    $
    0
    
    
    $
    (83
    )
    
    $
    (109
    )
    
    $
    (1,990
    )
    
    $
    13,598
  5




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HOME CITY FINANCIAL CORPORATION
SPRINGFIELD, OHIO
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Dollars in thousands)(Unaudited)
    
    
    (Unaudited)3 Months ended
    
    
    3 Months endedMarch 31,
    
    
    March 31,2006
    
    
    2005OPERATING ACTIVITIESNet income
    
    $
    197
    
    
    $
    193Items not requiring (providing) cash
Depreciation and amortization
    
    
    57
    
    
    
    57Provision for loan losses
    
    
    38
    
    
    
    80Amortization of premiums and discounts on securities
    
    
    5
    
    
    
    10Deferred income taxes
    
    
    107
    
    
    
    (95
    )Increase in cash surrender value of life insurance
    
    
    (27
    )
    
    
    (27
    )Employees Stock Ownership Plan compensation expense
    
    
    31
    
    
    
    36Share based award compensation expense
    
    
    10
    
    
    
    9FHLB stock dividends
    
    
    (35
    )
    
    
    (26
    )Proceeds from sale of loans held for sale
    
    
    251
    
    
    
    0Originations of loans held for sale
    
    
    (245
    )
    
    
    0Gain on sale of loans
    
    
    (6
    )
    
    
    0Changes inInterest receivable
    
    
    (27
    )
    
    
    (20
    )Other assets
    
    
    (98
    )
    
    
    251Interest payable and other liabilities
    
    
    (40
    )
    
    
    111Net cash provided by operating activities
    
    
    218
    
    
    
    579INVESTING ACTIVITIESPurchase of available-for-sale securities
    
    
    (2,998
    )
    
    
    (5,994
    )Proceeds from payments and maturities of securities available-for-sale
    
    
    3,137
    
    
    
    2,441Net change in loans
    
    
    (732
    )
    
    
    (1,153
    )Net cash used in investing activities
    
    
    (593
    )
    
    
    ( 4,706
    )FINANCING ACTIVITIESNet decrease in demand deposits, money market, NOW and savings accounts
    
    
    (1,118
    )
    
    
    (3,342
    )Net increase in certificates of deposit
    
    
    2,135
    
    
    
    2,222Repayment of Federal Home Loan Bank advances
    
    
    (2,865
    )
    
    
    (1,184
    )Proceeds from Federal Home Loan Bank advances
    
    
    2,800
    
    
    
    0Dividends paid
    
    
    (92
    )
    
    
    (92
    )Net increase in advances from borrowers for taxes and insurance
    
    
    (80
    )
    
    
    (209
    )Net cash provided (used) in financing activities
    
    
    780
    
    
    
    (2,605
    )INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    405
    
    
    
    (6,732
    )CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    6,846
    
    
    
    9,595CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    7,251
    
    
    $
    2,863
  6




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HOME CITY FINANCIAL CORPORATION
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 MARCH 31, 2006 AND DECEMBER 31, 2005
 (Unaudited)
 NOTE 1. BASIS OF PRESENTATION
  NOTE 2. ALLOWANCE FOR LOAN LOSSES
  (Dollars in thousands)Three
    
    
    ThreeMonths
    
    
    MonthsEnded
    
    
    EndedMarch 31,
    
    
    March 31,2006
    
    
    2005Balance, beginning of period
    
    $
    1,377
    
    
    $
    760Provision for loan losses
    
    
    38
    
    
    
    80Charge-offs
    
    
    (29
    )
    
    
    (0
    )Recoveries
    
    
    2
    
    
    
    4Balance, end of period
    
    $
    1,388
    
    
    $
    844
 NOTE 3. ADVANCES FROM FEDERAL HOME LOAN BANK
  7




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(Dollars in thousands)At March 31, 2006
    
    At December 31, 2005Range of
    
    Weighted-
    
    
    
    
    
    Range of
    
    Weighted-interest
    
    average
    
    
    
    
    
    interest
    
    averageAmount
    
    rates
    
    interest rate
    
    Amount
    
    rates
    
    interest rateDue within
one year
    
    $
    3,892
    
    
    
    3.30% - 7.28
    %
    
    
    5.72
    %
    
    $
    3,723
    
    
    
    3.30%-6.81
    %
    
    
    5.23
    %After one but
within five
years
    
    $
    28,256
    
    
    
    3.05%-6.84
    %
    
    
    5.66
    %
    
    $
    21,614
    
    
    
    3.05%-7.28
    %
    
    
    5.84
    %After five
years
    
    $
    4,124
    
    
    
    3.30%-4.94
    %
    
    
    4.79
    %
    
    $
    11,000
    
    
    
    3.30%-5.33
    %
    
    
    5.02
    %
 NOTE 4. CHANGE IN ACCOUNTING PRINCIPLE
   Accounting for Stock Issued to Employees, Accounting for Stock-Based Compensation
 8




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(Dollars in thousands exceptper share amounts)Three Months EndedMarch 31, 2005Net income, as reported
    
    $
    193Less: Total stock-based employee compensation cost
determined under the fair value based method, net of
income taxes
    
    
    (2
    )Pro forma net income
    
    $
    191Earnings per share:Basic  as reported
    
    $
    0.24Basic  pro forma
    
    $
    0.23Diluted  as reported
    
    $
    0.23Diluted  pro forma
    
    $
    0.23
 NOTE 5. REGULATORY CAPITAL
  (Dollars in thousands)To beCategorized as WellCapitalized UnderFor Capital
    
    Prompt CorrectiveActual
    
    Adequacy Purposes
    
    Action ProvisionsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioTotal Risk-Based Capital(To Risk-Weighted Assets)
    
    $
    14,626
    
    
    
    13.2
    %
    
    $
    8,899
    
    
    
    8.0
    %
    
    $
    11,123
    
    
    
    10.0
    %Tier I Capital(To Risk-Weighted Assets)
    
    $
    13,254
    
    
    
    11.9
    %
    
    
    N/A
    
    
    
    N/A
    
    
    $
    6,674
    
    
    
    6.0
    %Tier I Capital(To Total Assets)
    
    $
    13,254
    
    
    
    8.8
    %
    
    $
    6,030
    
    
    
    4.0
    %*
    
    $
    7,538
    
    
    
    5.0
    %Tangible Capital(To Total Assets)
    
    $
    13,254
    
    
    
    8.8
    %
    
    $
    2,261
    
    
    
    1.5
    %
    
    
    N/A
    
    
    
    N/A
 
 *
    
    Although the general required minimum is 4%, savings associations that meet certain requirements
may be permitted to maintain minimum tier I capital to adjusted total assets of 3%. 9




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NOTE 6. EARNINGS PER SHARE
  For the Three Months EndedMarch 31, 2006Weighted-average
    
    PerIncome
    
    Shares
    
    Share(Numerator)
    
    (Denominator)
    
    AmountBasic EPSIncome available to common shareholders
    
    $
    196,923
    
    
    
    825,134
    
    
    $
    0.24Effective of dilutive securitiesStock options
    
    
    0
    
    
    
    9,667Diluted EPSIncome available to common shareholders +
assumed conversions
    
    $
    196,923
    
    
    
    834,801
    
    
    $
    0.24
 For the Three Months EndedMarch 31, 2005Weighted-average
    
    PerIncome
    
    Shares
    
    Share(Numerator)
    
    (Denominator)
    
    AmountBasic EPSIncome available to common shareholders
    
    $
    192,776
    
    
    
    815,535
    
    
    $
    0.24Effective of dilutive securitiesStock options
    
    
    0
    
    
    
    9,938Diluted EPSIncome available to common shareholders +
assumed conversions
    
    $
    192,776
    
    
    
    825,473
    
    
    $
    0.23
 10




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NOTE 7: REGULATORY MATTERS
  NOTE 8: GOING PRIVATE TRANSACTION
    11




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ITEM 2.
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 Safe Harbor Clause
  General
   12




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Critical Accounting Policies
     13




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Changes in Financial Condition
          14




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Results of Operations
 Comparison of Three Months Ended March 31, 2006 and 2005
 General.
 Interest Income.
 Interest Expense. ,
 Provision for Loan Losses.
 Noninterest Income.
 15




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Noninterest Expense.
 Income Taxes.
 16




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ITEM 3.
 Controls and Procedures
  17




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1.
    
    Exhibit 31.1:
    
    Rule 13a-14(a)/15d-14(a) Certification.2.
    
    Exhibit 31.2:
    
    Rule 13a-14(a)/15d-14(a) Certification.3.
    
    Exhibit 32:
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.4.
    
    Exhibit 99.1:
    
    Safe Harbor Under the Private Securities Litigation Reform
Act of 1995.
 18




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SIGNATURES
  HOME CITY FINANCIAL CORPORATIONDate: May 11, 2006
    /s/J. William StapletonJ. William StapletonPresident, Chief Executive Officer and
Chief Operating OfficerDate:  May 11, 2006
    /s/Charles A. MihalCharles A. MihalSecretary, Treasurer and Chief Financial Officer 19