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U. S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-KSB
 (Mark One) þ
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended
December 31, 2004 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  Ohio
    
    34-1839475(State or other Jurisdiction
of incorporation or organization)
    
    (IRS Employer
Identification Number)2454 North Limestone Street
    
    45503(Address of principal executive offices)
    
    (zip code)
 Issuers telephone number (937) 390-0470 Securities registered under Section 12(b) of the Exchange Act:
not applicable 
 Securities registered under Section 12(g) of the Exchange Act Common Shares (No Par Value) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the
Exchange Act during the past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for the past 90 days.YES þ   NO o Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B
contained in this form, and no disclosure will be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB.
þ State issuers revenues for the most recent fiscal year. $9,011,000 State the aggregate market value of the voting and nonvoting common equity held by
non-affiliates computed by reference to the price at which the common equity was sold, or the
average bid and asked prices of such common equity as of a specified date within the past 60 days:
As of March 3, 2005, 835,690 common shares of the Registrant were outstanding.The aggregate
market value of the shares held by non-affiliates was $10,083,184 based upon the closing sale price
of $16.00 per share as quoted by The Nasdaq Stock Market. Documents Incorporated by Reference The following sections of the definitive Proxy Statement for the 2005 Annual Meeting of
Shareholders of Home City Financial Corporation are incorporated by reference into Part III of this
Form 10-KSB:  1.
    Election of Directors2.
    Compensation of Directors and Executive Officers3.
    Voting Securities and Ownership of Certain Beneficial Owners and Management4.
    Section 16(a) Beneficial Ownership Reporting Compliance  Transitional Small Business Disclosure Format YES o  NO þ    -1-




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TABLE OF CONTENTS  PART IITEM 1. Description of BusinessITEM 2. Description of PropertyITEM 3. Legal ProceedingsITEM 4. Submission of Matters to a Vote of Security HoldersPART IIITEM 5. Market for Common Equity, Related Shareholder Matters and Small Business Issuer Purchase of Equity SecuritiesITEM 6. Management's Discussion and Analysis or Plan of OperationReport of Independent Registered Public Accounting FirmHome City Financial Corporation  CONSOLIDATED BALANCE SHEETSHome City Financial Corporation  CONSOLIDATED STATEMENTS OF INCOMEHome City Financial Corporation  CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITYHome City Financial Corporation  CONSOLIDATED STATEMENTS OF CASH FLOWSHome City Financial Corporation  NOTES TO CONSOLIDATED FINANCIAL STATEMENTSITEM 8. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureITEM 8A. Controls and ProceduresITEM 8B. Other InformationPART IIIITEM 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act of the RegistrantITEM 10. Executive CompensationITEM 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersITEM 12. Certain Relationships and Related TransactionsITEM 13. ExhibitsITEM 14. Principal Accountant Fees and ServicesSIGNATURESINDEX TO EXHIBITSEX-21EX-23EX-31.1EX-31.2EX-32EX-99.2 
 PART I 
 ITEM 1. Description of Business General Home City Financial Corporation, a unitary savings and loan holding company incorporated in
1996 under the laws of the State of Ohio (HCFC), owns all of the issued and outstanding common
shares of Home City Federal Savings Bank of Springfield, a savings association chartered under the
laws of the United States (Home City). In December 1996, HCFC acquired all of the common shares
issued by Home City upon its conversion from a mutual savings association to a stock savings
association (the Conversion). Since its formation, HCFCs activities have been limited primarily
to holding the common shares of Home City. In December 2000, HCFC incorporated Home City Insurance
Agency, Inc. (HCIA), as a wholly-owned subsidiary, which acquired the business of a local
insurance agency. Most of the business of HCIA was sold effective December 2002, and HCIA was
dissolved in 2003. Home City is a savings association principally engaged in the business of making permanent
first and second mortgage loans secured by one- to four-family residential real estate and
nonresidential real estate located in Home Citys primary lending area and investing in U.S.
Government and federal agency obligations, interest-bearing deposits in other financial
institutions, mortgage-backed securities and municipal securities. Home City 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 origination of commercial loans constitutes
a growing portion of Home Citys lending activities. Funds for lending and investment activities
are obtained primarily from deposits, which are insured up to applicable limits by the Federal
Deposit Insurance Corporation (the FDIC), repayments of loans and mortgage-backed and related
securities, advances from the Federal Home Loan Bank (the FHLB) and other short-term borrowings.
Home City conducts business from its two offices located in Springfield, Ohio. Home Citys primary
lending area consists of Clark County, Ohio, and adjacent counties. As a savings and loan holding company, HCFC is subject to regulation, supervision and
examination by the Office of Thrift Supervision of the United States Department of the Treasury
(the OTS). As a savings association chartered under the laws of the United States, Home City is
subject to regulation, supervision and examination by the OTS and the FDIC. Home City is also a
member of the FHLB of Cincinnati. Market Area Home City conducts business from its two offices, located in Springfield, Ohio. Springfield
is located 25 miles east of Dayton, 40 miles west of Columbus and 80 miles north of Cincinnati.
Home Citys primary market area consists of Clark County, Ohio, and adjacent counties. Clark
County, Ohio, is characterized by slightly lower than average levels of income and housing values
and a higher unemployment level. Its strongest employment categories are wholesale/retail trade,
services and manufacturing, with smaller numbers of residents employed in the finance, insurance
and real estate industry categories. -2-




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Forward-Looking Statements When used in this Form 10-KSB, the words or phrases will likely result, are expected to,
will continue, is anticipated, estimated, projected, or similar expressions are intended to
identify forward-looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Such statements are subject to certain risks and uncertainties, including changes in economic
conditions in Home Citys market area, changes in policies by regulatory agencies, fluctuations in
interest rates, demand for loans in Home Citys market area and competition, that could cause
actual results to differ materially from historical earnings and those presently anticipated or
projected. Factors listed above could affect HCFCs financial performance and could cause HCFCs
actual results for future periods to differ materially from any statements expressed with respect
to future periods. See Exhibit 99.2 hereto Safe Harbor Under the Private Securities Litigation
Reform Act of 1995, which is incorporated herein by reference. In addition to the historical information contained herein, the following discussion contains
forward-looking statements that involve risks and uncertainties. Economic circumstances, the
operations of Home City, and HCFCs actual results could differ significantly from those discussed
in the forward-looking statements. Some of the factors that could cause or contribute to such
differences are discussed herein, but also include changes in the economy and changes in interest
rates in the nation and HCFCs primary market area. Without limiting the generality of the foregoing, some of the forward-looking statements
included herein are the statements under the following headings and regarding the following
matters:  1.
    Financial Condition. Managements statements regarding the amount and
adequacy of the allowance for loan losses at December 31, 2004.2.
    Comparison of Results of Operations for the Fiscal Years Ended December 31,
2004 and 2003  Provision for Loan Losses. Managements statements regarding the
adequacy of the allowance for loan losses at December 31, 2004.3.
    Liquidity and Capital Resources. Managements belief that liquidity and
capital reserves are sufficient to meet its outstanding short- and long-term needs. HCFC does not undertake, and specifically disclaims any obligation, to publicly revise any
forward-looking statements to reflect events or circumstances after the date of such statements or
to reflect the occurrence of anticipated or unanticipated events. Lending Activities General.Home Citys primary lending activity is the origination of conventional mortgage
loans and home equity loans secured by one- to four-family homes and nonresidential real estate
located in Home Citys primary lending area. Loans for the construction of one- to four-family
homes and mortgage loans on multifamily properties containing five units or more are also offered
by Home City. In addition to mortgage lending, Home City makes commercial loans secured by
assets of the borrower other than real estate and secured and unsecured consumer loans. Home City
also originates 1-4 family loans to be sold in the secondary market. Access to the secondary
market has allowed Home City to offer 30-year fixed rates at competitive pricing without taking the
interest rate risk. -3-




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Loan Portfolio Composition.The following table presents certain information with respect to
the composition of Home Citys loan portfolio at the dates indicated: At December 31,2004
    
    
    2003(Dollars in thousands)Percent of
    
    
    
    
    
    
    Percent ofAmount
    
    
    total loans
    
    
    Amount
    
    
    total loansResidential real estate loans:One- to four-family (first mortgage)
    
    $
    64,288
    
    
    
    49.14
    %
    
    $
    64,879
    
    
    
    50.88
    %Multifamily
    
    
    9,208
    
    
    
    7.04
    
    
    
    6,700
    
    
    
    5.25Home equity (second mortgage)
    
    
    3,906
    
    
    
    2.99
    
    
    
    3,494
    
    
    
    2.74Nonresidential real estate loans
    
    
    30,930
    
    
    
    23.64
    
    
    
    29,883
    
    
    
    23.44Land loans
    
    
    1,373
    
    
    
    1.05
    
    
    
    1,400
    
    
    
    1.10Construction loans
    
    
    3,350
    
    
    
    2.56
    
    
    
    4,577
    
    
    
    3.59Total real estate loans
    
    
    113,055
    
    
    
    86.42
    
    
    
    110,933
    
    
    
    87.00Commercial loans:Secured, other than by real estate
    
    
    12,434
    
    
    
    9.50
    
    
    
    11,357
    
    
    
    8.91Other, unsecured
    
    
    2,625
    
    
    
    2.01
    
    
    
    2,376
    
    
    
    1.86Total commercial loans
    
    
    15,059
    
    
    
    11.51
    
    
    
    13,733
    
    
    
    10.77Consumer loans:Loans on deposits
    
    
    75
    
    
    
    0.06
    
    
    
    63
    
    
    
    0.05Other consumer loans
    
    
    2,638
    
    
    
    2.01
    
    
    
    2,778
    
    
    
    2.18Total consumer loans
    
    
    2,713
    
    
    
    2.07
    
    
    
    2,841
    
    
    
    2.23Total loans
    
    
    130,827
    
    
    
    100.00
    %
    
    
    127,507
    
    
    
    100.00
    %Less:Allowance for loan losses
    
    
    (760
    )
    
    
    
    
    
    
    (995
    )Net loans
    
    $
    130,067
    
    
    
    
    
    
    $
    126,512
 Loan Maturity Schedule.The following table sets forth certain information as of
December 31, 2004, regarding the dollar amount of loans maturing in Home Citys portfolio based on
their contractual terms to maturity. Demand loans and loans having no stated schedule of
repayments and no stated maturity are reported as due in one year or less. Due during the
    
    
    Due 4-5
    
    
    Due 6-10
    
    
    Due 11-15
    
    
    Due more than 15year ending December 31,
    
    
    years after
    
    
    years after
    
    
    years after
    
    
    years after2005
    
    
    2006
    
    
    2007
    
    
    12/31/04
    
    
    12/31/04
    
    
    12/31/04
    
    
    12/31/04
    
    
    Total(Dollars in thousands)Mortgage loans:Residential
    
    $
    6,374
    
    
    $
    634
    
    
    $
    2,117
    
    
    $
    7,469
    
    
    $
    15,641
    
    
    $
    30,356
    
    
    $
    14,811
    
    
    $
    77,402Nonresidential
    
    
    3,140
    
    
    
    796
    
    
    
    4,022
    
    
    
    6,273
    
    
    
    7,954
    
    
    
    8,215
    
    
    
    5,253
    
    
    
    35,653Consumer loans
    
    
    386
    
    
    
    241
    
    
    
    266
    
    
    
    422
    
    
    
    1,123
    
    
    
    275
    
    
    
    0
    
    
    
    2,713Commercial loans
    
    
    7,353
    
    
    
    437
    
    
    
    2,982
    
    
    
    2,850
    
    
    
    1,108
    
    
    
    0
    
    
    
    329
    
    
    
    15,059Total loans
    
    $
    17,253
    
    
    $
    2,108
    
    
    $
    9,387
    
    
    $
    17,014
    
    
    $
    25,826
    
    
    $
    38,846
    
    
    $
    20,393
    
    
    $
    130,827
 -4-




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Of the loans due more than one year after December 31, 2004, loans with aggregate
balances of $83.7 million have fixed rates of interest, and loans with aggregate balances of
$29.9 million have adjustable interest rates. One- to Four-family Residential Real Estate Loans.The primary lending activity of Home City
has been the origination of permanent conventional loans secured by one- to four-family residences,
primarily single-family residences, located within Home Citys designated lending area. Home City
also originates loans for the construction of one- to four-family residences and home equity loans.
Each of such loans is secured by a mortgage on the underlying real estate and improvements
thereon, if any. OTS regulations limit the amount that Home City may lend in relationship to the appraised
value of the real estate and improvements at the time of loan origination. In accordance with such
regulations, Home City primarily makes fixed-rate first mortgage loans on single-family or duplex,
owner occupied residences up to 95% of the value of the real estate and improvements (the
Loan-to-Value Ratio or LTV). Home equity loans secured by first or second mortgages are
generally made with a maximum combined LTV for the first and second mortgage of 89%. Home City
makes adjustable-rate first mortgage loans for investment purposes on one- to four-family,
non-owner occupied residences primarily in amounts up to 75% LTV. Home City may require private
mortgage insurance (PMI) for the amount of loans in excess of 80% of the value of the real estate
securing such loans. Until 2003, fixed-rate residential real estate loans were offered by Home
City for terms of up to 15 years. With Home Citys access to the secondary market, fixed rate
loans are now available with terms of 20, 25 and 30 years, some of which are sold. Home City has been originating adjustable-rate mortgage loans (ARMs) for several years.
Home City offers 1/1 ARMs, 3/3 ARMs and 5/1 ARMs. Initially these ARMs are fixed for periods of 1
year, 3 years and 5 years and the index is the 1-year treasury, 3-year treasury and 1-year treasury
respectively. Rate adjustments are computed by adding a stated margin, typically 2.75%, to the
index. The maximum allowable adjustment at each adjustment date is 2% with a maximum adjustment of
6% over the term of the loan. The initial rate is dependent, in part, on how often the rate can be
adjusted. Home City also offers ARMs on one- to four-family properties with a margin of 3.0% over
the index and 2% and 6% maximum adjustments at each adjustment date and over the term of the loan.
Home City originates ARMs which have initial interest rates slightly lower than the sum of the
index plus the margin. Such loans are subject to increased risk of delinquency or default due to
increasing monthly payments as the interest rates on such loans increase to the fully-indexed
level, although such increase is generally lower than industry standards and is considered in Home
Citys underwriting of any such loans with a one- to three-year adjustment period. The aggregate amount of Home Citys one- to four-family residential real estate loans equaled
approximately $64.3 million at December 31, 2004, and represented 49.14% of loans at such date.
The largest individual loan balance on a one- to four-family loan at such date was $827,000. At
such date, loans secured by one- to four-family residential real estate with outstanding balances
of $195,000, or 0.30%, of Home Citys one- to four-family residential real estate loan balance,
were more than 90 days delinquent or nonaccruing. See Delinquent Loans, Non-performing Assets and
Classified Assets. Multifamily Residential Real Estate Loans. In addition to loans on one- to four-family
properties, Home City makes loans secured by multifamily properties containing over four units.
Such loans are made with adjustable interest rates, a maximum LTV of 75% and a maximum term of 20
years or with a fixed rate, a maximum LTV of 75% and a maximum term of up to seven years. Multifamily lending is generally considered to involve a higher degree of risk because the
loan amounts are larger and the borrower typically depends upon income generated by the project to
cover -5-




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operating expenses and debt service. The profitability of a project can be affected by
economic conditions, government policies and other factors beyond the control of the borrower.
Home City attempts to reduce the risk associated with multifamily lending by evaluating the
creditworthiness of the borrower and the projected income from the project and by obtaining
personal guarantees on loans made to corporations and partnerships. Home City currently requires
that borrowers agree to submit financial statements, rent rolls and tax returns annually to enable
Home City to monitor the loans. At December 31, 2004, loans secured by multifamily properties totaled approximately $9.2
million, or 7.04% of Home Citys total loan portfolio, all of which were secured by property
located within Home Citys primary market area. At such date, all such loans were performing in
accordance with their terms. See Delinquent Loans, Non-performing Assets and Classified Assets.
The largest loan secured by a multifamily property had a balance at December 31, 2004, of
approximately $1.6 million. Home Equity Loans.Home City offers home equity loans secured by first or second mortgages on
one- to four-family residential real estate located in Clark County, Ohio, and adjacent counties.
Such loans are made for various purposes, including home improvement, debt consolidation and
consumer purchases. The interest rates on loans secured by such mortgages are adjustable, generally
with a maximum combined LTV for the first and second mortgage of 89%. At December 31, 2004, home equity loans totaled approximately $3.9 million, or 2.99% of Home
Citys total loan portfolio. All of such loans were secured by property located within Home Citys
primary market area. At such date, no such loans were more than 90 days delinquent or nonaccruing.
See Delinquent Loans, Non-performing Assets and Classified Assets. The balance of the largest
single home equity loan was $195,000 at December 31, 2004. Nonresidential Real Estate Loans.Home City also makes loans secured by nonresidential real
estate consisting of retail stores, office buildings, warehouses and industrial buildings.
Nonresidential real estate loans generally are originated with terms of up to 20 years and a
maximum loan amount of $1.9 million. Such loans generally have a maximum LTV of 80%. These
loans are made with adjustable interest rates, with the interest rates based on prime or one-,
three- or five-year U.S. Treasury obligations. Nonresidential real estate lending is generally considered to involve a higher degree of risk
than residential lending due to the relatively larger loan amounts and the effects of general
economic conditions on the successful operation of income-producing properties. If the cash flow
on the property is reduced, for example, as leases are not obtained or renewed, the borrowers
ability to repay may be impaired. Home City has endeavored to reduce such risk by evaluating the
credit history and past performance of the borrower, the location of the real estate, the quality
of the management constructing and operating the property, the debt service ratio, the quality and
characteristics of the income stream generated by the property and appraisals supporting the
propertys valuation. Home City also requires personal guarantees on such loans. At December 31, 2004, Home City had a total of $30.9 million invested in nonresidential real
estate loans, all of which were secured by property located within Home Citys primary market area.
Such loans comprised approximately 23.64 % of Home Citys total loans at such date. At such date,
no such loans were more than 90 days delinquent or nonaccruing. See Delinquent Loans,
Non-performing Assets and Classified Assets. The balance of the largest nonresidential real
estate loan was $1.4 million. -6-




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Federal regulations limit the amount of nonresidential mortgage loans that an association may
make to 400% of its total capital. At December 31, 2004, Home Citys nonresidential mortgage loans
totaled 253.44% of Home Citys total capital. Land Loans.Home City makes two varieties of land loans. First, loans are made for the
acquisition of land to be developed for construction. Such loans are usually made for relatively
short periods of time, generally not more than three years, with fixed interest rates. Second,
loans are also made to borrowers who purchase and hold land for various reasons, such as the future
construction of a residence. Such loans are generally originated with fixed interest rates and
terms of up to 15 years. Land loans are secured by the land being purchased with the loan proceeds
and have maximum LTVs of 65% to 80%. At December 31, 2004, land loans totaled approximately $1.4 million, or 1.05% of Home Citys
total loan portfolio. The largest land loan at December 31, 2004, had a balance of approximately
$273,000. All of such loans were secured by property located within Home Citys primary market
area, of which no loans were more than 90 days delinquent or nonaccruing. See Delinquent Loans,
Non-performing Assets and Classified Assets. Construction Loans. Home City makes loans for the construction of residential and
nonresidential real estate. Such loans are structured as permanent loans with fixed rates of
interest and for terms of up to 15 years or adjustable rates of interest and terms of up to 30
years. Most of the construction loans originated by Home City have been made to owner-occupants
for the construction of single-family homes by a general contractor. Construction loans generally involve greater underwriting and default risks than do loans
secured by mortgages on existing properties due to the concentration of principal in a limited
number of loans and borrowers and the effects of general economic conditions on real estate
developments, developers, managers and builders. In addition, such loans are more difficult to
evaluate and monitor. Loan funds are advanced upon the security of the project under construction,
which is more difficult to value before the completion of construction. Moreover, because of the
uncertainties inherent in estimating construction costs, it is relatively difficult to evaluate
accurately the LTV and the total loan funds required to complete a project. In the event a default
on a construction loan occurs and foreclosure follows, Home City must take control of the project
and attempt either to arrange for completion of construction or dispose of the unfinished project.
Additional risk exists with respect to loans made to developers who do not have a buyer for the
property, as the developer may lack funds to pay the loan if the property is not sold upon
completion. Home City attempts to reduce such risks on loans to developers by requiring personal
guarantees and reviewing current personal financial statements and tax returns and other projects
undertaken by the developers. At December 31, 2004, a total of $3.4 million, or approximately 2.56% of Home Citys total
loans, consisted of construction loans. All of Home Citys construction loans are secured by
property located within Home Citys primary market area, and the economy of such lending area has
been relatively stable. At December 31, 2004, all of such loans were performing in accordance with
their terms. Commercial Loans.Home City also originates loans for commercial purposes which are secured
by assets of the borrower other than real estate. Commercial loans totaling $12.4 million at December 31, 2004, were classified as those made to
small business borrowers. These loans were primarily secured by accounts receivable, inventory
and -7-




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equipment. These loans are made with terms of up to seven years, a maximum loan amount of
$1.9 million and a maximum LTV of 75%. These loans are made with adjustable interest rates, with
the interest rates based on prime or prime plus a specified percentage above prime. Unsecured loans are another segment of commercial lending and totaled $2.6 million at December
31, 2004. These loans consist of lines of credit and term loans. The lines of credit are
generally established for a one year period. Term loans are generally established up to an
amortization of ten years. Due to the inherent risk related to uninsured loans, more stringent
credit guidelines are required. Commercial lending entails significant risks. The loans are subject to greater risk of default
during periods of adverse economic conditions. Particularly with respect to loans secured by
equipment, inventory, accounts receivable and other non-real estate assets, the collateral may not
be sufficient to ensure full payment in the event of default. Home City tries to minimize such
risks through its prudent underwriting, which includes guidelines to determine the acceptability of
the collateral to be pledged. An evaluation is made of the real estate, if any, accounts
receivable, inventory and equipment securing the loan as to their value, marketability, strength of
brand names, stability of conditions and environmental impact in order to mitigate or minimize the
risk of loss. Loan advance amounts are established in accordance with the type of collateral asset.
Credit guidelines have been established relative to debt service coverage, leveraging, established
profitability, guarantor strength, liquidity and sales concentration. The guarantee of the
principals will generally be required on all loans made to closely held business entities and
affiliates. The credit information required includes fully completed financial statements, two
years federal income tax returns, a current credit report and, generally, a formal business plan.
Adequate insurance, appropriate regulatory disclosures and both a preliminary and final lawyers
title opinion or title insurance are required when real estate is involved. At December 31, 2004, Home City had total commercial loans in the amount of $15.1 million, or
approximately 11.51% of Home Citys total loans. At such date, no such loans were more than 90
days delinquent or nonaccruing. See Delinquent Loans, Non-performing Assets and Classified
Assets. The total indebtedness of the largest single borrower within the commercial portfolio was
$1.6 million at December 31, 2004. Consumer Loans.Home City makes various types of consumer loans, including unsecured loans
and loans secured by deposits. Such loans are made only at fixed rates of interest for terms of up
to 15 years. Home City has been attempting to increase its consumer loan portfolio as part of its
interest rate risk management efforts and because a higher rate of interest is received on consumer
loans, although during 2004 consumer loans decreased as a percent of Home Citys loan portfolio. Consumer loans may entail greater credit risk than do residential mortgage loans. The risk of
default on consumer loans increases during periods of recession, high unemployment and other
adverse economic conditions. Although Home City has not had significant delinquencies on consumer
loans, no assurance can be provided that delinquencies will not increase. At December 31, 2004, Home City had approximately $2.7 million, or 2.07% of its total loans,
invested in consumer loans. At such date, no such loans were more than 90 days delinquent or
nonaccruing. See Delinquent Loans, Non-performing Assets and Classified Assets. The balance of
the largest consumer loan was $86,000 at December 31, 2004. Loan Solicitation and Processing.Loan originations are developed from a number of sources,
including continuing business with depositors, borrowers and real estate developers, periodic
newspaper solicitations by Home Citys lending staff and walk-in customers. -8-




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Loan applications for permanent mortgage loans are taken by loan personnel. Home City obtains
a credit report, verification of employment and other documentation concerning the
credit-worthiness of the borrower. Home City generally limits the ratio of mortgage loan payments
to the borrowers income to 25% and the ratio of the borrowers total debt payments to income to
35-42%. An appraisal of the fair market value of the real estate on which Home City will be
granted a mortgage to secure the loan is prepared by an independent fee appraiser approved by the
Board of Directors. Unless Home City is aware of factors that may lead to an environmental concern, Home City
generally does not require any form of specific environmental study at the time a loan secured by
one- to four-family residential real estate is made. If, however, Home City is aware of any such
factor at the time of loan origination, Home City requires the completion and satisfactory review
of a Phase I Environmental Assessment before such loan is made. For loans secured by multifamily
and nonresidential real estate, a Phase I Environmental Assessment is generally completed and
satisfactorily reviewed before the loan is made. Upon the completion of the appraisal and the receipt of information on the borrower, the
application for a loan is submitted to various management officials for approval or rejection if
the loan amount does not exceed $500,000. If the loan amount exceeds $500,000, or if the
application does not conform in all respects with Home Citys underwriting guidelines, the
application is submitted to the Executive Loan Committee or the Board of Directors for review and
for final disposition. If a mortgage loan application is approved, an attorneys opinion of title
is obtained on the title to the real estate that will secure the mortgage loan. Borrowers are
required to carry satisfactory fire and casualty insurance and flood insurance, if applicable, and
to name Home City as an insured mortgagee. The procedure for approval of construction loans is the same as for permanent mortgage loans,
except that an appraiser evaluates the building plans, construction specifications and estimates of
construction costs. Home City also evaluates the feasibility of the proposed construction project
and the experience and record of the builder. Consumer loans are underwritten on the basis of the
borrowers credit history and an analysis of the borrowers income and expenses, ability to repay
the loan and the value of the collateral, if any. Commercial loans are underwritten on the basis
of the source of the cash flow required to service the debt and the value of the security for the
loan. Home Citys loans carry no prepayment penalties, but do provide the entire balance of the loan
is due upon sale of the property securing the loan. Home City generally enforces such due-on-sale
provisions. Loan Originations, Purchases and Sales.Home City originates a greater number of fixed-rate
loans than adjustable-rate loans. See DESCRIPTION OF BUSINESS  Loan Maturity Schedule. Home
City occasionally will participate in loans originated by other institutions. During 2004 and 2003
Home City did not participate in any loans originated by other institutions. Although Home City
generally does not sell loans, it sold a participation in two such loans in 2003 to remain within
the loans to one borrower limitation. -9-




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##### 



The following table presents Home Citys loan origination and participation activity for the
years indicated: December 31,2004
    
    
    2003(Dollars in thousands)Loans originated:One- to four-family residential real estate (1)
    
    $
    16,960
    
    
    $
    21,042Multifamily residential real estate
    
    
    1,076
    
    
    
    60Nonresidential real estate
    
    
    6,364
    
    
    
    7,814Commercial
    
    
    12,994
    
    
    
    7,812Consumer
    
    
    2,342
    
    
    
    2,461Total loans originated
    
    $
    39,736
    
    
    $
    39,189Loans purchased
    
    
    0
    
    
    
    0Reductions:Principal repayments
    
    
    (34,937
    )
    
    
    (40,126
    )Sales of loans
    
    
    (117
    )
    
    
    (167
    )Increase (decrease) in other items, net (2)
    
    
    (1,127
    )
    
    
    201Net increase (decrease)
    
    $
    3,555
    
    
    $
    (903
    )
   (1)
    
    Includes construction loans.(2)
    
    Consists of unearned and deferred fees, costs and the allowance for loan losses. OTS regulations generally limit the aggregate amount that a savings association may lend
to any one borrower to an amount equal to 15% of the associations total capital under the
regulatory capital requirements plus any additional loan reserve not included in total capital. A
savings association may lend to one borrower an additional amount not to exceed 10% of total
capital plus additional reserves if the additional amount is fully secured by certain forms of
readily marketable collateral. Real estate is not considered readily marketable collateral.
In addition, the regulations require that loans to certain related or affiliated borrowers be
aggregated for purposes of such limits. An exception to these limits permits loans to one borrower
of up to $500,000 for any purpose. Based on such limits, Home City was able to lend approximately $1.9 million to one borrower at
December 31, 2004. The largest amount Home City had outstanding to one borrower at December 31,
2004, was $1.6 million. Such loans were secured by commercial real estate properties. All of such
loans were current at December 31, 2004. The aggregate amount of commercial loans not primarily secured by real estate that Home City
may have outstanding may not exceed 20% of Home Citys total assets, and any amount in excess of
10% of total assets must be for small business loans. At December 31, 2004, Home City was in
compliance with those limitations. Delinquent Loans, Non-performing Assets and Classified Assets.When a borrower fails to make
a required payment on a loan, Home City attempts to cause the delinquency to be cured by contacting
the borrower. In most cases, delinquencies are cured promptly. -10-




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##### 



When a loan is fifteen days or more delinquent, the borrower is sent a delinquency notice.
When a loan is thirty days delinquent, Home City generally telephones the borrower. Depending upon
the circumstances, Home City may also inspect the property and inform the borrower of the
availability of credit counseling from Home City and counseling agencies. Before a loan becomes 90
days delinquent, Home City will make further contact with the borrower and, depending upon the
circumstances, may arrange appropriate alternative payment arrangements. After a loan becomes 90
days delinquent, Home City may refer the matter to an attorney for foreclosure. A decision as to
whether and when to initiate foreclosure proceedings is based on such factors as the amount of the
outstanding loan in relation to the original indebtedness, the extent of the delinquency and the
borrowers ability and willingness to cooperate in curing delinquencies. If a foreclosure occurs,
the real estate is sold at public sale and may be purchased by Home City. Real estate acquired, or deemed acquired, by Home City as a result of foreclosure proceedings
is classified as real estate owned (REO) until it is sold. When property is so acquired, or
deemed to have been acquired, it is initially recorded by Home City at the lower of cost or fair
value of the real estate, less estimated costs to sell. Any reduction in fair value is reflected
in a valuation allowance account established by a charge to income. Costs incurred to carry other
real estate are charged to expense. Home City places a loan on nonaccrual status when the principal and interest is delinquent 90
days or more and deducts from income the interest previously accrued. The following table reflects the amount of loans in a delinquent status as of the dates
indicated: December 31, 2004
    
    
    December 31, 2003Percent
    
    
    
    
    
    
    
    
    
    
    Percentof total
    
    
    
    
    
    
    
    
    
    
    of totalNumber
    
    
    Amount
    
    
    loans
    
    
    Number
    
    
    Amount
    
    
    loans(Dollars in thousands)Loans delinquent for (1):30-59 days
    
    
    16
    
    
    $
    724
    
    
    
    0.55
    %
    
    
    28
    
    
    $
    1,550
    
    
    
    1.22
    %60-89 days
    
    
    9
    
    
    
    720
    
    
    
    0.55
    
    
    
    3
    
    
    
    127
    
    
    
    0.1090 days and over
    
    
    4
    
    
    
    195
    
    
    
    0.15
    
    
    
    13
    
    
    
    543
    
    
    
    0.42Total delinquent loans
    
    
    29
    
    
    $
    1,639
    
    
    
    1.25
    %
    
    
    44
    
    
    $
    2,220
    
    
    
    1.74
    %
   (1)
    
    The number of days a loan is delinquent is measured from the day the payment was due under the
terms of the loan agreement. -11-




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##### 



The following table sets forth information with respect to the nonaccrual status of Home
Citys loans which are 90 days or more past due and other non-performing assets at the dates
indicated: December 31,2004
    
    
    2003
    
    
    2002(Dollars in thousands)Loans accounted for on a nonaccrual basis:Real estate:Residential
    
    $
    195
    
    
    $
    170
    
    
    $
    173Nonresidential
    
    
    0
    
    
    
    0
    
    
    
    0Commercial
    
    
    0
    
    
    
    27
    
    
    
    0Consumer
    
    
    0
    
    
    
    0
    
    
    
    0Subtotal non-accrual loans
    
    $
    195
    
    
    $
    197
    
    
    $
    173Loans 90 days or more past due and still accruing
    
    
    0
    
    
    
    346
    
    
    
    250Total non-performing loans
    
    $
    195
    
    
    $
    543
    
    
    $
    423Real estate owned
    
    
    250
    
    
    
    31
    
    
    
    145Total non-performing assets
    
    $
    445
    
    
    $
    574
    
    
    $
    568Total loan loss allowance
    
    $
    760
    
    
    $
    995
    
    
    $
    503Total non-performing assets as
a percentage of total assets
    
    
    0.28
    %
    
    
    0.38
    %
    
    
    0.38
    %Loan loss allowance as a percent
of non-performing loans
    
    
    389.74
    %
    
    
    183.24
    %
    
    
    118.91
    %
 During the fiscal year ended December 31, 2004, $ 10,000 in interest income was
recognized and an additional $6,000 would have been recorded as interest income on nonaccruing
loans had such loans been accruing pursuant to contractual terms. During such period, Home City
had no restructured loans within the meaning of SFAS No. 15. There are no loans which are not
currently classified as nonaccrual, more than 90 days past due or restructured but which may be so
classified in the near future because management has concerns as to the ability of the borrowers to
comply with repayment terms. For additional information, see Note 3 of the Notes to Financial
Statements. OTS regulations require that each thrift institution classify its own assets on a regular
basis. Problem assets are classified as substandard, doubtful, or loss. Substandard
assets have one or more defined weaknesses and are characterized by the distinct possibility that
the insured institution will sustain some loss if the deficiencies are not corrected. Doubtful
assets have the same weaknesses as Substandard assets, with the additional characteristics that
(i) the weaknesses make collection or liquidation in full on the basis of currently existing facts,
conditions and values questionable and (ii) there is a high possibility of loss. An asset
classified loss is considered uncollectible and of such little value that its continuance as an
asset of the institution is not warranted. The regulations also contain a special mention
category, consisting of assets which do not currently expose an institution to a sufficient degree
of risk to warrant classification but which possess credit deficiencies or potential weaknesses
deserving managements close attention. -12-




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##### 



Generally, Home City classifies as substandard all loans that are delinquent more than 90
days, unless management believes the delinquency status is short-term due to unusual circumstances.
Loans delinquent fewer than 90 days may also be classified if the loans have the characteristics
described above rendering classification appropriate. The aggregate amount of Home Citys classified assets at the dates indicated were as follows: December 31,2004
    
    
    2003
    
    
    2002(Dollars in thousands)Classified assets:Substandard
    
    $
    1,780
    
    
    $
    3,044
    
    
    $
    2,166Doubtful
    
    
    243
    
    
    
    216
    
    
    
    32Total classified assets
    
    $
    2,023
    
    
    $
    3,260
    
    
    $
    2,198
 Federal examiners are authorized to classify an associations assets. If an association
does not agree with an examiners classification of an asset, it may appeal this determination to
the Regional Director of the OTS. Home City had no disagreements with the examiners regarding the
classification of assets at the time of the last examination. OTS regulations require that Home City establish prudent general allowances for loan losses
for any assets classified as substandard or doubtful. If an asset, or portion thereof, is
classified as loss, Home City must either establish specific allowances for losses in the amount of
100% of the portion of the asset classified loss, or charge off such amount. Allowance for Loan Losses.Home City maintains an allowance for loan losses based upon a
number of relevant factors, including but not limited to, trends in the level of non-performing
assets and classified loans, current and anticipated economic conditions in the primary lending
area, past loss experience, possible losses arising from specific problem assets and changes in the
composition of the loan portfolio. The single largest component of Home Citys loan portfolio consists of one- to four-family
residential real estate loans. Substantially all of these loans are secured by residential real
estate and required down payments of 20% of the lower of the sales price or appraisal value of the
real estate. In addition, these loans are secured by property in Home Citys lending area of a
100-mile radius from Springfield, Ohio. Home Citys practice of making loans only in their market
area and requiring a 20% down payment have contributed to a low historical charge-off history. In addition to one- to four-family residential real estate loans, Home City makes additional
real estate loans, including home equity, multifamily residential real estate, nonresidential real
estate and construction loans. These loans are secured by property in Home Citys lending area and
also require the borrower to provide a down payment. Home City also makes commercial and consumer
loans. These types of loans are considered to involve a higher degree of risk than loans secured
by one- to four-family residential real estate. The allowance for loan losses is reviewed quarterly by the Board of Directors. The review
process includes a credit analysis of loans on the watch list, past due loans, new significant
borrowings and random samples of new loans made. The analysis of loans secured by multifamily and
nonresidential real estate and commercial loans includes a review of tax returns and financial
statements, and the review of all loans includes an estimation of the value of the collateral. The
amounts of provisions for loan losses for the periods shown in the table below were determined
based upon such loan review, past loss experience, anticipated growth and prevailing economic
conditions. While the Board of Directors -13-




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##### 



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. The following table sets forth an analysis of Home Citys allowance for loan losses for the
years indicated: (Dollars in thousands)2004
    
    
    2003Balance at beginning of year
    
    $
    995
    
    
    $
    503Charge-offs:Residential loans
    
    $
    (385
    )
    
    $
    (11
    )Consumer loans
    
    
    (56
    )
    
    
    (10
    )Commercial loans
    
    
    0
    
    
    
    (2
    )Subtotal charge-offs
    
    $
    (441
    )
    
    $
    (23
    )Recoveries
    
    
    6
    
    
    
    15Net charge-offs
    
    $
    (435
    )
    
    $
    (8
    )Provision for loan losses (charged to operations)
    
    
    200
    
    
    
    500Balance at end of year
    
    $
    760
    
    
    $
    995Ratio of net charge-offs to average net
loans outstanding during the year
    
    
    0.34
    %
    
    
    0.01
    %Ratio of allowance for loan losses to total loans
    
    
    0.58
    %
    
    
    0.78
    %
 The following table sets forth the allocation of Home Citys allowance for loan losses at
the dates indicated: December 31,(Dollars in thousands)2004
    
    
    2003Allowance for loan losses:Residential loans
    
    $
    301
    
    
    $
    467Consumer loans
    
    
    25
    
    
    
    52Commercial loans
    
    
    434
    
    
    
    476760
    
    
    
    995Unallocated
    
    
    0
    
    
    
    0Total allowance for loan losses
    
    $
    760
    
    
    $
    995
 Mortgage-Backed Securities Home City maintains a portfolio of mortgage-backed securities in the form of Government
National Mortgage Association (GNMA), Federal Home Loan Mortgage Corporation
(FHLMC) and Federal National Mortgage Association (FNMA) participation certificates.
Mortgage-backed securities generally entitle Home City to receive a portion of the cash flows from
an identified pool of mortgages. GNMA, FHLMC and FNMA are government agencies. GNMA securities
are backed by Federal Housing Authority-insured and Veterans Administration-guaranteed loans. The
timely payment of principal and interest on GNMA, FHLMC and FNMA securities is guaranteed by the
respective agencies. -14-




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##### 



The following table sets forth the composition of Home Citys mortgage-backed securities at
the dates indicated: December 31, 2004
    
    
    December 31, 2003(Dollars in thousands)Amortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    value
    
    
    cost
    
    
    valueGNMA, FHLMC and FNMA certificates
    
    $
    1,705
    
    
    $
    1,705
    
    
    $
    3,034
    
    
    $
    3,035Total mortgage-backed securities
    
    $
    1,705
    
    
    $
    1,705
    
    
    $
    3,034
    
    
    $
    3,035
 The following table sets forth information regarding scheduled maturities, amortized
costs, market value and weighted-average yields of Home Citys mortgage-backed securities at
December 31, 2004. Expected maturities will differ from contractual maturities due to scheduled
repayments and because borrowers may have the right to call or prepay obligations with or without
prepayment penalties. The following table does not take into consideration the effects of
scheduled repayments or the effects of possible prepayments. At December 31, 2004After one to
    
    
    After five to
    
    
    
    
    
    
    
    
    
    
    Total mortgage-backedOne year or less
    
    
    five years
    
    
    ten years
    
    
    After ten years
    
    
    securities portfolioCarrying
    
    
    Average
    
    
    Carrying
    
    
    Average
    
    
    Carrying
    
    
    Average
    
    
    Carrying
    
    
    Average
    
    
    Carrying
    
    
    Market
    
    
    Averagevalue
    
    
    yield
    
    
    value
    
    
    yield
    
    
    value
    
    
    yield
    
    
    value
    
    
    yield
    
    
    value
    
    
    value
    
    
    yield(Dollars in thousands)GNMA,
FHLMC & FNMA
certificates
    
    $
    0
    
    
    
    0
    %
    
    $
    974
    
    
    
    2.01
    %
    
    $
    0
    
    
    
    0
    %
    
    $
    731
    
    
    
    2.43
    %
    
    $
    1,705
    
    
    $
    1,705
    
    
    
    2.19
    %Total
    
    $
    0
    
    
    
    0
    %
    
    $
    974
    
    
    
    2.01
    %
    
    $
    0
    
    
    
    0
    %
    
    $
    731
    
    
    
    2.43
    %
    
    $
    1,705
    
    
    $
    1,705
    
    
    
    2.19
    %
 For additional information, see Note 2 of the Notes to Consolidated Financial Statements. Investment Activities OTS regulations require that Home City maintain a minimum amount of liquid assets, which may
be invested in U.S. Treasury obligations, securities of various federal agencies, certificates of
deposit at insured banks, bankers acceptances and federal funds. Home City is also permitted to
make investments in certain commercial paper, corporate debt securities rated in one of the four
highest rating categories by one or more nationally recognized statistical rating organizations,
and mutual funds, as well as other investments permitted by federal regulations. See REGULATION
and MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. -15-




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##### 



The following table sets forth information concerning Home Citys investments at the dates
indicated: At December 31,
    
    
    At December 31,2004
    
    
    2003Carrying
    
    
    % of
    
    
    Market
    
    
    % of
    
    
    Carrying
    
    
    % of
    
    
    Market
    
    
    % ofvalue
    
    
    total
    
    
    value
    
    
    total
    
    
    value
    
    
    total
    
    
    value
    
    
    total(Dollars in thousands)Interest-bearing demand
deposits in other
financial institutions
    
    $
    6,529
    
    
    
    41.26
    %
    
    $
    6,529
    
    
    
    41.26
    %
    
    $
    1,876
    
    
    
    13.64
    %

    
    $
    1,876
    
    
    
    13.64
    %Federal funds sold
    
    
    2,207
    
    
    
    13.95
    
    
    
    2,207
    
    
    
    13.95
    
    
    
    7,562
    
    
    
    54.97
    
    
    
    7,562
    
    
    
    54.97Investment securities:U.S. Treasury and
government agencies
    
    
    3,595
    
    
    
    22.72
    
    
    
    3,595
    
    
    
    22.72
    
    
    
    211
    
    
    
    1.53
    
    
    
    211
    
    
    
    1.53Other asset-backed
securities
    
    
    476
    
    
    
    3.01
    
    
    
    476
    
    
    
    3.01
    
    
    
    682
    
    
    
    4.96
    
    
    
    682
    
    
    
    4.96Municipal securities (1)
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    404
    
    
    
    2.94
    
    
    
    404
    
    
    
    2.94Equity securities:FHLB stock
    
    
    2,360
    
    
    
    14.91
    
    
    
    2,360
    
    
    
    14.91
    
    
    
    2,265
    
    
    
    16.46
    
    
    
    2,265
    
    
    
    16.46FNMA preferred stock
    
    
    656
    
    
    
    4.15
    
    
    
    656
    
    
    
    4.15
    
    
    
    757
    
    
    
    5.50
    
    
    
    757
    
    
    
    5.50Total investments
    
    $
    15,823
    
    
    
    100.00
    %
    
    $
    15,823
    
    
    
    100.00
    %
    
    $
    13,757
    
    
    
    100.00
    %
    
    $
    13,757
    
    
    
    100.00
    %
   (1)
    
    Bonds issued mainly by local school districts and municipalities. The following tables set forth the contractual maturities, carrying values, market values
and average yields for Home Citys investment securities at December 31, 2004. At December 31, 2004One year or less
    
    
    After one to five years
    
    
    After five yearsCarrying
    
    
    Average
    
    
    Carrying
    
    
    Average
    
    
    Carrying
    
    
    Averagevalue
    
    
    yield
    
    
    value
    
    
    yield
    
    
    value
    
    
    yield(Dollars in thousands)Investment securities:U.S. Treasury and
government
agencies
    
    $
    3,349
    
    
    
    2.25
    %
    
    $
    246
    
    
    
    3.17
    %
    
    $
    0
    
    
    
    0Other asset-backed
securities
    
    
    0
    
    
    
    0
    
    
    
    297
    
    
    
    3.91
    %
    
    
    179
    
    
    
    1.86
    %Equity securities: (1)FNMA preferred stock
    
    
    656
    
    
    
    2.18
    %
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Total investments
    
    $
    4,005
    
    
    
    2.24
    %
    
    $
    543
    
    
    
    3.57
    %
    
    $
    179
    
    
    
    1.86
    %
   (1)
    
    By their nature, equity securities have no maturity date. -16-




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##### 



At December 31, 2004Average
    
    
    
    
    
    
    
    
    
    
    Weighted-life
    
    
    Carrying
    
    
    Market
    
    
    averagein years
    
    
    value
    
    
    value
    
    
    yield(Dollars in thousands)Investment securities:U.S. Treasury and government
agencies
    
    
    0.30
    
    
    $
    3,595
    
    
    $
    3,595
    
    
    
    2.31
    %Other asset-backed securities
    
    
    1.70
    
    
    
    476
    
    
    
    476
    
    
    
    3.14
    %Equity securities (1)
    
    
    
    
    
    
    656
    
    
    
    656
    
    
    
    2.18
    %Total
    
    
    
    
    
    $
    4,727
    
    
    $
    4,727
    
    
    
    2.38
    %
   (1)
    
    By their nature, equity securities have no maturity date. Deposits and Borrowings General.Deposits have traditionally been the primary source of Home Citys funds for use in
lending and other investment activities. In addition to deposits, Home City derives funds from
FHLB advances, interest payments and principal repayments on loans and mortgage-backed and related
securities, income on earning assets, service charges and gains on the sale of assets. See
MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. Loan payments are a relatively stable
source of funds, while deposit inflows and outflows fluctuate more in response to general interest
rates and money market conditions. Deposits.Deposits are attracted principally from within Home Citys primary market area
through the offering of a broad selection of deposit instruments, including NOW accounts, money
market accounts, statement savings accounts, passbook savings accounts and term certificate
accounts. Home City also offers individual retirement accounts (IRA), both in passbook and
certificate form. Interest rates paid, maturity terms, service fees and withdrawal penalties for
the various types of accounts are established periodically by the management of Home City based on
Home Citys liquidity requirements, growth goals and interest rates paid by competitors. At December 31, 2004, Home Citys certificates of deposit totaled $50.8 million, or 47.38% of
total deposits. Of such amount, approximately $21.3 million in certificates of deposit mature
within one year. Based on past experience and Home Citys prevailing pricing strategies,
management believes that a substantial percentage of such certificates will renew with Home City at
maturity. If there is a significant deviation from historical experience, Home City can utilize
borrowings from the FHLB and commercial banks as alternatives to this source of funds. -17-




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##### 



The following table sets forth the dollar amount of deposits in the various types of savings
programs offered by Home City at the dates indicated: At December 31,2004
    
    
    2003Percent
    
    
    
    
    
    
    Percentof total
    
    
    
    
    
    
    of totalAmount
    
    
    deposits
    
    
    Amount
    
    
    deposits(Dollars in thousands)Transaction accounts:Demand
    
    $
    5,235
    
    
    
    4.89
    %
    
    $
    5,352
    
    
    
    5.15
    %NOW accounts (1)
    
    
    4,344
    
    
    
    4.05
    
    
    
    3,955
    
    
    
    3.81Passbook/statement savings accounts (2)
    
    
    46,829
    
    
    
    43.68
    
    
    
    43,400
    
    
    
    41.76Total transaction accounts
    
    
    56,408
    
    
    
    52.62
    
    
    
    52,707
    
    
    
    50.72Certificates of deposit:1.01 - 2.00%
    
    
    4,592
    
    
    
    4.28
    
    
    
    7,897
    
    
    
    7.602.01 - 4.00%
    
    
    33,723
    
    
    
    31.46
    
    
    
    23,943
    
    
    
    23.044.01 - 6.00%
    
    
    12,214
    
    
    
    11.39
    
    
    
    17,015
    
    
    
    16.376.01 - 8.00%
    
    
    267
    
    
    
    0.25
    
    
    
    2,360
    
    
    
    2.27Total certificates of deposit
    
    
    50,796
    
    
    
    47.38
    
    
    
    51,215
    
    
    
    49.28Total deposits (3)
    
    $
    107,204
    
    
    
    100.00
    %
    
    $
    103,922
    
    
    
    100.00
    %
   (1)
    
    Home Citys weighted-average interest rate paid on NOW accounts fluctuates with the general
movement of interest rates. At December 31, 2004 and 2003, the weighted-average rates on NOW
accounts were 0.39% and 0.79%, respectively.(2)
    
    Home Citys weighted-average rate on passbook/statement savings accounts fluctuates with the
general movement of interest rates. The weighted-average interest rate on passbook/statement
savings accounts was 1.63% and 1.89% at December 31, 2004 and 2003, respectively.(3)
    
    Retirement accounts are included in the various certificates of deposit balances. Retirement
accounts totaled $8.2 million and $7.7 million as of December 31, 2004 and 2003, respectively. The following table shows rate and maturity information for Home Citys certificates of
deposit as of December 31, 2004: Amount DueOver
    
    
    OverUp to
    
    
    1 year to
    
    
    2 years to
    
    
    OverRate
    
    1 year
    
    
    2 years
    
    
    3 years
    
    
    3 years
    
    
    Total(Dollars in thousands)1.01 - 2.00%
    
    $
    3,964
    
    
    $
    628
    
    
    $
    0
    
    
    $
    0
    
    
    $
    4,5922.01 - 4.00%
    
    
    12,620
    
    
    
    13,898
    
    
    
    5,170
    
    
    
    2,035
    
    
    
    33,7234.01 - 6.00%
    
    
    4,524
    
    
    
    6,082
    
    
    
    1,504
    
    
    
    104
    
    
    
    12,2146.01 - 8.00%
    
    
    150
    
    
    
    117
    
    
    
    0
    
    
    
    0
    
    
    
    267Total certificates of deposit
    
    $
    21,258
    
    
    $
    20,725
    
    
    $
    6,674
    
    
    $
    2,139
    
    
    $
    50,796
 -18-




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##### 



The following table presents the amount of Home Citys certificates of deposit of
$100,000 or more by the time remaining until maturity as of December 31, 2004. Maturity
    
    Amount(Dollars in thousands)Three months or less
    
    $
    1,755Over 3 months to 6 months
    
    
    1,394Over 6 months to 12 months
    
    
    3,014Over 12 months
    
    
    9,085Total
    
    $
    15,248
 The following table sets forth Home Citys deposit account balance activity for the years
indicated: Year ended December 31,2004
    
    
    2003(Dollars in thousands)Beginning balance
    
    $
    103,922
    
    
    $
    99,119New deposits received less withdrawals
    
    
    1,215
    
    
    
    2,549Interest credited
    
    
    2,067
    
    
    
    2,254Ending balance
    
    $
    107,204
    
    
    $
    103,922Net increase
    
    $
    3,282
    
    
    $
    4,803Percentage increase
    
    
    3.16
    %
    
    
    4.85
    %
 Borrowings.The FHLB System functions as a central reserve bank providing credit for its
member institutions and certain other financial institutions. See REGULATION  Federal Home Loan
Banks. As a member in good standing of the FHLB of Cincinnati, Home City is authorized to apply
for advances from the FHLB of Cincinnati, provided certain standards of credit worthiness have been
met. Under current regulations, an association must meet certain qualifications to be eligible for
FHLB advances. The extent to which an association is eligible for such advances will depend on

whether it meets one of the Qualified Thrift Lender Tests (the QTL Tests). See REGULATION -
Qualified Thrift Lender Test. If an association meets one of the QTL Tests, it will be eligible
for 100% of the advances permitted. If an association does not meet one of the QTL Tests, it will
be eligible for such advances only to the extent it holds specified QTL Test assets. At December
31, 2004, Home City met at least one of the QTL Tests. -19-




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##### 



Home City obtained advances from the FHLB of Cincinnati, as set forth in the following table: Year ended December 31,2004
    
    
    2003(Dollars in thousands)Average balance outstanding
    
    $
    34,557
    
    
    $
    36,350Maximum amount outstanding at any month end
during the year
    
    $
    36,722
    
    
    $
    41,102Balance outstanding at end of year
    
    $
    35,120
    
    
    $
    34,764Weighted-average interest rate during the year
    
    
    5.60
    %
    
    
    5.49
    %Weighted-average interest rate at end of year
    
    
    5.57
    %
    
    
    5.61
    %
 Based upon Home Citys eligible mortgage collateral, total FHLB advances are limited to
approximately $47.2 million. Subsidiaries Home City owns all of the outstanding shares of Homciti Service Corp., an Ohio corporation
(Homciti). Homciti owns common stock in Intrieve, Incorporated (Intrieve), a data processing
company which services Home City. At December 31, 2004, the aggregate book value of the Intrieve
stock was approximately $15,000. Competition Home City competes for deposits with other savings associations, commercial banks and credit
unions and with the 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. Home City competes for loan originations primarily through
the interest rates and loan fees offered and through the efficiency and quality of services
provided. 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. Personnel As of December 31, 2004, Home City had thirty full-time employees and seven part-time
employees. Management believes that relations with its employees are good. HCFC offers health and
life insurance benefits to all eligible employees of Home City. None of the employees of Home
City is represented by a collective bargaining unit. -20-




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##### 



Regulation General. As a savings association organized under the laws of the United States, Home City is
subject to regulatory oversight by the OTS. The OTS is an office in the Department of the Treasury
and is responsible for the regulation and supervision of all savings associations the deposits of
which are insured by the FDIC in the SAIF and all federally-chartered institutions. The OTS issues
regulations governing the operation of savings associations, regularly examines such institutions
and imposes assessments on savings associations based on their asset size to cover the costs of
this supervision and examination. It also promulgates regulations that prescribe the permissible
investments and activities of federally-chartered savings associations, including the type of
lending that such associations may engage in and the investments in real estate, subsidiaries and
securities they may make. The OTS also may initiate enforcement actions against savings
associations and certain persons affiliated with them for violations of laws or regulations or for
engaging in unsafe or unsound practices. If the grounds provided by law exist, the OTS may appoint
a conservator or receiver for a savings association. Because Home Citys deposits are insured by the FDIC, Home City is also subject to examination
and regulation by the FDIC. Home City must file periodic reports with the OTS concerning its
activities and financial condition. Examinations are conducted periodically by the OTS to
determine whether Home City is in compliance with various regulatory requirements and is operating
in a safe and sound manner. Home City is a member of the FHLB of Cincinnati. HCFC is also subject to regulation, examination and oversight by the OTS as the holding
company of Home City and is required to submit periodic reports to the OTS. Regulatory Capital Requirements. Home City is required by OTS regulations to meet certain
minimum capital requirements. These requirements call for tangible capital of 1.5% of adjusted
total assets, core capital (which for Home City is equal to tangible capital) of 4% of adjusted
total assets, except for associations with the highest examination rating and acceptable levels of
risk, and risk-based capital (which for Home City consists of core capital and general valuation
allowances) equal to 8% of risk-weighted assets. Assets and certain off-balance-sheet items are
weighted at percentage levels ranging from 0% to 100% depending on their relative risk. For information concerning Home Citys capital, see MANAGEMENTS DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION  Liquidity and Capital Resources. The OTS has adopted regulations governing prompt corrective action to resolve the problems of
capital deficient and otherwise troubled savings associations. At each successively lower capital
category, an institution is subject to more restrictive and numerous mandatory or discretionary
regulatory actions or limits, and the OTS has less flexibility in determining how to resolve the
problems of the institution. In addition, the OTS can downgrade an associations designation
notwithstanding its capital level, based on less than satisfactory examination ratings in areas
other than capital or, after notice and an opportunity for hearing, if the institution is deemed to
be in an unsafe or unsound condition or to be engaging in an unsafe or unsound practice. Each
undercapitalized association must submit a capital restoration plan to the OTS within 45 days after
it becomes undercapitalized. Such institution will be subject to increased monitoring and asset
growth restrictions and will be required to obtain prior approval for acquisitions, branching and
engaging in new lines of business. A critically undercapitalized institution must be placed in
conservatorship or receivership within 90 days after reaching such capitalization level, except
under limited circumstances. Home Citys capital at December 31, 2004, met the standards for the
highest level, a well capitalized association. -21-




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##### 



Limitations on Capital Distributions. The OTS imposes various restrictions or requirements
on the ability of associations to make capital distributions. Capital distributions, for purposes
of such regulation, include, without limitation, payments of cash dividends, repurchases and
certain other acquisitions by an association of its shares and payments to Shareholders of another
association in an acquisition of such other association. An application must be submitted and approval from the OTS must be obtained by a subsidiary of
a savings and loan holding company (i) if the proposed distribution would cause total distributions
for the calendar year to exceed net income for that year to date plus the savings associations
retained net income for the preceding two years, (ii) if the savings association will not be at
least adequately capitalized following the capital distribution, or (iii) if the proposed
distribution would violate a prohibition contained in any applicable statue, regulation or
agreement between the savings association and the OTS (or the FDIC), or a condition imposed on the
savings association has not received certain favorable examination ratings for the OTS. If a
savings association subsidiary of a holding company is not required to file an application, it must
file a notice with the OTS. Qualified Thrift Lender Tests. Savings associations must meet one of two tests in order to be
a qualified thrift lender (QTL). The first test requires a savings association to maintain a
specified level of investments in assets that are designated as qualifying thrift investments
(QTIs). Generally, QTIs are assets related to domestic residential real estate and manufactured
housing, although they also include credit card, student and small business loans and stock issued
by any FHLB, the FHLMC or the FNMA. Under the QTL Test, 65% of an institutions portfolio assets
(total assets less goodwill and other intangibles, property used to conduct business and 20% of
liquid assets) must consist of QTI on a monthly average basis in nine out of every 12 months. The
second test permits a savings association to qualify as a QTL by meeting the definition of
domestic building and loan association under the Internal Revenue Code of 1986, as amended (the
Code). In order for an institution to meet the definition of a domestic building and loan
association under the Code, at least 60% of its assets must consist of specified types of
property, including cash loans secured by residential real estate or deposits, educational loans
and certain governmental obligations. The OTS may grant exceptions to the QTL Tests under certain
circumstances. If a savings association fails to meet either one of the QTL Tests, the association
and its holding company become subject to certain operating and regulatory restrictions and the
savings association will not be eligible for new FHLB advances. At December 31, 2004, Home City
had QTIs equal to approximately 87.4% of its total portfolio assets. Transactions with Insiders and Affiliates. Loans to executive officers, directors and
principal shareholders and their related interests must conform to the lending limits on loans to
one borrower and the total of such loans cannot exceed an associations total regulatory capital
plus additional loan reserves (or 200% of such capital amount for qualifying institutions with less
than $100 million in deposits). Most loans to directors, executive officers and principal
shareholders must be approved in advance by a majority of the disinterested members of the board
of directors of the association with any interested director not participating. All loans to
directors, executive officers and principal shareholders must be made on terms substantially the
same as offered in comparable transactions to the general public or as offered to all employees in
a company-wide benefit program, and loans to executive officers are subject to additional
limitations. Home City was in compliance with such restrictions at December 31, 2004. Savings associations must also comply with Sections 23A and 23B of the Federal Reserve Act
(the FRA) pertaining to transactions with affiliates. An affiliate of a savings association is
any company or entity that controls, is controlled by or is under common control with the savings
association. HCFC is an affiliate of Home City. Generally, Sections 23A and 23B of the FRA limit
the extent to which the savings institution or its subsidiaries may engage in specified
transactions with affiliates and require that all such transactions be on terms substantially the
same, or at least as favorable to the -22-




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##### 



institution, as those provided in transactions with a non-affiliate. Home City was in
compliance with these requirements and restrictions at December 31, 2004. Holding Company Regulation. HCFC is a savings and loan holding company within the meaning of
the Home Owners Loan Act (the HOLA). As such, HCFC has registered with the OTS and is subject
to OTS regulations, examination, supervision and reporting requirements, in addition to the
reporting requirements of the Securities and Exchange Commission (the SEC). HCFC is a unitary savings and loan holding company, (i.e., it owns only one savings
association). There are generally no restrictions on the activities of a unitary savings and loan
holding company, and such companies are the only financial institution holding companies that may
engage in commercial, securities and insurance activities without limitation. The broad latitude to
engage in activities under current law can be restricted, however, if the OTS determines that there
is reasonable cause to believe that the continuation by a savings and loan holding company of an
activity constitutes a serious risk to the financial safety, soundness or stability of its
subsidiary savings association. Notwithstanding the foregoing rules as to permissible business
activities of a unitary savings and loan holding company, if the savings association subsidiary of
a holding company fails to meet one of the QTL Tests, then such unitary holding company would
become subject to the activities restrictions applicable to multiple holding companies. At
December 31, 2004, Home City met at least one of the QTL Tests. See Qualified Thrift Lender
Tests. Deposit Insurance. The FDIC is an independent federal agency that insures the deposits, up to
prescribed statutory limits, of federally insured banks and thrifts and safeguards the safety and
soundness of the bank and thrift industries. The FDIC administers two separate insurance funds,
the BIF for commercial banks and state savings banks and the SAIF for savings associations and
banks that have acquired deposits from savings associations. The FDIC is required to maintain
designated levels of reserves in each fund. Home City is a member of the SAIF and its deposit accounts are insured by the FDIC up to the
prescribed limits. The FDIC has examination authority over all insured depository institutions,
including Home City, and has authority to initiate enforcement actions against federally-insured
savings associations if the FDIC does not believe the OTS has taken appropriate action to safeguard
safety and soundness and the deposit insurance fund. The FDIC is authorized to establish separate annual assessment rates for deposit insurance for
members of the BIF and members of the SAIF. The FDIC may increase assessment rates for either fund
if necessary to restore the funds ratio of reserves to insured deposits to the target level within
a reasonable time and may decrease such rates if such target level has been met. Reserve Requirements. Federal Reserve Bank (FRB) regulations require savings associations
to maintain reserves against their transaction accounts (primarily NOW accounts) of 3% of deposits
in net transaction accounts for that portion of accounts up to $47.6 million (subject to an
exemption of up to $7.0 million), and to maintain reserves of 10% of deposits in net transaction
accounts against that portion of total transaction accounts in excess of $47.6 million. These
percentages are subject to adjustment by the FRB. At December 31, 2004, Home City was in
compliance with its reserve requirements. -23-




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##### 



Federal Home Loan Banks.The FHLBs, under the regulatory oversight of the Federal Housing
Financing Board, provide credit to their members in the form of advances. Home City is a member of
the FHLB of Cincinnati and must maintain an investment in the capital stock of the FHLB of
Cincinnati in an amount equal to the greater of 1.0% of the aggregate outstanding principal amount
of Home Citys residential mortgage loans, home purchase contracts and similar obligations at the
beginning of each year, or 5% of its advances from the FHLB. Home City is in compliance with this
requirement with an investment in FHLB of Cincinnati stock of $2,360,000 at December 31, 2004. FHLB advances to members such as Home City who meet one of the QTL Tests are generally limited
to the lower of (i) 50% of the members assets or (ii) 20 times the members investment in FHLB
stock. At December 31, 2004, Home Citys maximum limit on advances was approximately $47.2 million
and Home Citys advances totaled $35.1 million. The granting of advances is subject also to the
FHLBs collateral and credit underwriting guidelines. Upon the origination or renewal of a loan or advance, the FHLB of Cincinnati is required by
law to obtain and maintain a security interest in collateral in one or more of the following
categories: fully disbursed, whole first mortgage loans on improved residential property or
securities representing a whole interest in such loans; securities issued, insured or guaranteed by
the United States government or an agency thereof; deposits in any FHLB; or other real estate
related collateral (up to 30% of the member associations capital) acceptable to the applicable
FHLB, if such collateral has a readily ascertainable value and the FHLB can perfect its security
interest in the collateral. Each FHLB is required to establish standards of community investment or service that its
members must maintain for continued access to long-term advances from the FHLBs. The standards
take into account a members performance under the Community Reinvestment Act and its record of
lending to first-time home buyers. All long-term advances by each FHLB must be made only to
provide funds for residential housing finance. Taxation Federal Taxation. HCFC and each of its consolidated subsidiaries are subject to the federal
tax laws and regulations which apply to corporations generally. In addition to the regular income
tax, HCFC and its subsidiaries may be subject to alternative minimum tax. An alternative minimum
tax is imposed at a minimum tax rate of 20% on alternative minimum taxable income (which is the
sum of a corporations regular taxable income, with certain adjustments, and tax preference items),
less any available exemption. Such tax preference items include interest on certain tax-exempt
bonds issued after August 7, 1986. In addition, 75% of the amount by which a corporations
adjusted current earnings exceeds its alternative minimum taxable income
computed without regard to this preference item and prior to reduction by net operating losses, is
included in alternative minimum taxable income. Net operating losses can offset no more than 90% of
alternative minimum taxable income. The alternative minimum tax is imposed to the extent it
exceeds the corporations regular income tax. Payments of alternative minimum tax may be used as
credits against regular tax liabilities in future years. Certain thrift institutions such as Home City are allowed deductions for bad debts under
methods more favorable to those granted to other taxpayers. Qualified thrift institutions may
compute deductions for bad debts using either the specific charge-off method of Section 166 of the
Code or the experience method of Section 585 of the Code. Under the experience method, a thrift
institution was generally allowed a deduction for an addition to its bad debt reserve equal to the
greater of (i) an amount based on -24-




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##### 



its actual average experience for losses in the current and five preceding taxable years, or
(ii) an amount necessary to restore the reserve to its balance as of the close of the base year. Thrift institutions that are treated as small banks are allowed to utilize the experience
method applicable to such institutions, while thrift institutions that are treated as large banks
are required to use only the specific charge-off method. The balance of the pre-1988 reserves is subject to the provisions of Section 593(e) as
modified by the Small Business Jobs Protection Act, which require recapture in the case of certain
excessive distributions to shareholders. The pre-1988 reserves may not be utilized for payment of
cash dividends or other distributions to a shareholder (including distributions in dissolution or
liquidation) or for any other purpose (except to absorb bad debt losses). Distribution of a cash
dividend by a thrift institution to a shareholder is treated as made: first, out of the
institutions post-1951 accumulated earnings and profits; second, out of the pre-1988 reserves; and
third, out of such other accounts as may be proper. To the extent a distribution by Home City to
HCFC is deemed paid out of its pre-1988 reserves under these rules, the pre-1998 reserves would be
reduced and Home Citys gross income for tax purposes would be increased by the amount which, when
reduced by the income tax, if any, attributable to the inclusion of such amount in its gross
income, equals the amount deemed paid out of the pre-1988 reserves. As of December 31, 2004, Home
Citys pre-1988 reserves for tax purposes totaled approximately $1.1 million. No representation
can be made as to whether Home City will have current or accumulated earnings and profits in
subsequent years. The tax returns of HCFC and its consolidated subsidiaries have been audited or closed without
audit through fiscal year 2000. In the opinion of management, any examination of open returns
would not result in a deficiency that could have a material adverse effect on the consolidated
financial condition of HCFC. Ohio Taxation.HCFC is subject to the Ohio corporation franchise tax, which, as applied to
HCFC, is a tax measured on either net earnings or net worth. The rate of tax is the greater of (i)
5.1% on the first $50,000 of computed Ohio taxable income and 8.5% of computed taxable income in
excess of $50,000 or (ii) 0.04% times taxable net worth. A special litter tax is also applicable to
all corporations, including HCFC, subject to the Ohio corporation franchise tax other than
financial institutions. If the franchise tax is paid on the net income basis, the litter tax is
equal to 0.11% of the first $50,000 of computed Ohio taxable income and 0.22% of computed Ohio
taxable income in excess of $50,000. If the franchise tax is paid on the net worth basis, the
litter tax is equal to 0.014% times taxable net worth. HCFC may elect to be a qualifying holding company and as such be exempt
from the net worth tax. A corporation franchise tax based solely on net earnings would still
apply. To be exempt HCFC must satisfy all the requirements of the applicable statutes including
making adjustments that could affect the taxable net worth of HCFCs subsidiary, Home City. Home City is a financial institution for State of Ohio tax purposes. As such, it is subject
to the Ohio corporate franchise tax on financial institutions, imposed annually at a rate of
1.3% of Home Citys book net worth determined in accordance with GAAP, less statutory deductions.
As a financial institution Home City is not subject to any tax based upon net income or net
profits imposed by the State of Ohio. -25-




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##### 



Recently Issued Accounting Pronouncements The
Financial Accounting Standards Board recently issued Statement
No. 123 (R) Share-Based
Payment, which requires the compensation cost relating to share-based payment transactions be
recognized in financial statements. The Company expects to first apply the new statement during
its fiscal year ending December 31, 2005. The impact of applying the new statement has not been
determined. Impact of Inflation and Changing Prices The financial statements and related data presented herein have been prepared in accordance
with GAAP, which require the measurement of financial position and results of operations primarily
in terms of historical dollars without considering changes in the relative purchasing power of
money over time because of inflation. Virtually all assets and liabilities of HCFC are monetary in nature. As a result, interest
rates have a more significant impact on performance than the effects of general levels of
inflation. ITEM 2. Description of Property Home Citys main office is located at 2454 North Limestone Street, Springfield, Ohio 45503,
which property is owned by Home City. HCFC operates out of Home Citys main office. HCFC
reimburses Home City for the fair value of the space occupied. Home City also has a branch office
facility located at 63 West Main Street, Springfield, Ohio 45502, its former main office location. The following table sets forth certain information at December 31, 2004, regarding the
ownership by Home City of land, building and improvements, other than real estate acquired through
foreclosure or deed in lieu of foreclosure. Year
    
    
    Square
    
    
    NetLocation
    
    acquired
    
    
    footage
    
    
    book value (1)63 West Main Street, Springfield, Ohio 45502
    
    
    1975
    
    
    
    5,839
    
    
    $
    288,0002454 North Limestone Street, Springfield, Ohio 45503
    
    
    1999
    
    
    
    13,000
    
    
    $
    2,502,000
   (1)
    
    At December 31, 2004, Home Citys properties and equipment had a total net book value of
$3,602,000.(2)
    
    For additional information regarding Home Citys properties and equipment, see Notes 1 and 4
of Notes to Consolidated Financial Statements. ITEM 3. Legal Proceedings Neither Home City nor HCFC is presently involved in any legal proceedings of a material
nature. From time to time, Home City is party to legal proceedings incidental to its business to
enforce its security interest in collateral pledged to secure loans made by Home City. ITEM 4. Submission of Matters to a Vote of Security Holders Not applicable. -26-




---



##### 



PART II ITEM 5. Market for Common Equity, Related Shareholder Matters and Small Business Issuer
Purchase of Equity Securities There were 835,690 common shares of HCFC outstanding on December 31, 2004, held of record by
approximately 330 shareholders. Price information with respect to HCFCs common shares is quoted
on The Nasdaq SmallCap Market (Nasdaq) under the symbol  HCFC  . The high and
low trading prices for the common shares of HCFC, as quoted by Nasdaq, by quarter are shown below,
as well as the dividends declared. The price quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission. March 31, 2004
    
    
    June 30, 2004
    
    
    September 30, 2004
    
    
    December 31, 2004High
    
    $
    17.000
    
    
    $
    18.250
    
    
    $
    17.650
    
    
    $
    16.470Low
    
    $
    15.500
    
    
    $
    16.270
    
    
    $
    14.550
    
    
    $
    15.010Dividend
declared
    
    $
    0.110
    
    
    $
    0.110
    
    
    $
    0.110
    
    
    $
    0.110
 March 31, 2003
    
    
    June 30, 2003
    
    
    September 30, 2003
    
    
    December 31, 2003High
    
    $
    13.410
    
    
    $
    14.190
    
    
    $
    15.299
    
    
    $
    17.480Low
    
    $
    11.700
    
    
    $
    12.520
    
    
    $
    12.400
    
    
    $
    14.970Dividend
declared
    
    $
    0.110
    
    
    $
    0.110
    
    
    $
    0.110
    
    
    $
    0.110
 The income of HCFC consists of dividends that may periodically be declared and paid by
the Board of Directors of Home City on the common shares of Home City held by HCFC and earnings on
the net proceeds retained by HCFC from the sale of HCFCs common shares in connection with the
Conversion. In addition to certain federal income tax considerations, OTS regulations impose
limitations on the payment of dividends and other capital distributions by savings associations. Under OTS regulations applicable to converted savings associations, Home City is not permitted
to pay a cash dividend on its common shares if the regulatory capital of Home City would, as a
result of the payment of such dividend, be reduced below the amount required for the liquidation
account (which was established for the purpose of granting a limited priority claim on the assets
of Home City, in the event of a complete liquidation, to those members of Home City before the
Conversion who maintain a savings account at Home City after the Conversion) or applicable
regulatory capital requirements prescribed by the OTS. An application must be submitted and approval from the OTS must be obtained (1) if the proposed
distribution would cause total distributions for the calendar year to exceed net income for that
year to date plus the banks retained net income for the preceding two years; (2) if the bank will
not be at least adequately capitalized following the capital distribution; (3) if the proposed
distribution would violate a prohibition contained in any applicable statute, regulation or
agreement between the bank and the OTS (or the FDIC), or a condition imposed on the bank in an
OTS-approved application or notice; or (4) if the bank has not received certain favorable
examination ratings from the OTS. -27-




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##### 



ITEM 6. Managements Discussion and Analysis or Plan of Operation General Home City Federal Savings Bank of Springfield converted from a mutual federal savings
association to a stock federal savings association on December 30, 1996. In connection with the
Conversion, 952,200 common shares of Home City Financial Corporation were sold, generating net
proceeds of $8.3 million after Conversion expenses. Of this amount, $4.6 million was utilized to
purchase 100% of the common stock of Home City, and the balance was utilized to purchase
investments, loan funds to the Home City Financial Corporation Employee Stock Ownership Plan (the
ESOP) and for other purposes. The following discussion and analysis of the financial condition and results of operations of
HCFC and Home City should be read in conjunction with and with reference to the consolidated
financial statements, and the notes thereto, presented in the Annual Report. Forward-Looking Statements In addition to the historical information contained herein, the following discussion contains
forward-looking statements that involve risks and uncertainties. Economic circumstances, the
operations of Home City, and HCFCs actual results could differ significantly from those discussed

in the forward-looking statements. Some of the factors that could cause or contribute to such
differences are discussed herein, but also include changes in the economy and changes in interest
rates in the nation and HCFCs primary market area. Without limiting the generality of the foregoing, some of the forward-looking statements
included herein are the statements under the following headings and regarding the following
matters:  1.
    Financial Condition: Managements statements regarding the amount and adequacy
of the allowance for loan losses at December 31, 2004.2.
    Comparison of Results of Operations for the Fiscal Years Ended December 31,
2004 and 2003. Provision for Loan Losses: Managements statements regarding the
adequacy of the allowance for loan losses at December 31, 2004.3.
    Liquidity and Capital Resources: Managements belief that liquidity and
capital reserves are sufficient to meet its outstanding short- and long-term needs. Financial Condition HCFCs consolidated total assets amounted to $156.2 million at December 31, 2004, an increase
of $4.4 million, or 2.93%, over the $151.8 million in total assets at December 31, 2003. Such
increase in assets was funded primarily by the $3.3 million net increase in deposits which was
mainly used to support the $3.6 million net growth in the loan portfolio. Cash and cash equivalents and investment securities totaled $16.0 million at December 31,
2004, an increase of $465,000, or 2.99%, from December 31, 2003. During the year ended December
31, 2004, $8.0 million of investment securities matured. Those proceeds, together with $554,000
received from the -28-




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##### 



sale of securities and ongoing repayments of loans and mortgage-backed securities, were used
to purchase $10.0 million of short-term investment securities. With interest rates starting to
emerge from historically low levels, HCFC continues to monitor the maturities of its investments so
as to minimize extension risk while still obtaining a reasonable return on its investments in the
short term. Net loans receivable totaled $130.1 million at December 31, 2004, an increase of $3.6 million,
or 2.81%, from the $126.5 million total at December 31, 2003. During the year ended December 31,
2004, loan originations amounted to $39.7 million, with one- to four-family mortgage loans
comprising $17.0 million and commercial lending comprising $13.0 million. Such originations were
partially offset by principal repayments of $34.9 million. Home Citys allowance for loan losses totaled $760,000 at December 31, 2004, which represented
0.58% of total loans and 389.74% of non-performing loans. At December 31, 2003, the allowance for
loan losses totaled $995,000, an amount which represented 0.78% of total loans and 183.24% of
non-performing loans. Even though the pace of economic recovery has been slower and unemployment
levels have been higher in our demographic area, our delinquency statistics have still improved.
Management has continued to emphasize the consideration of both local and national economic factors
in determining the adequacy of the allowance for loan losses. Non-performing loans were $195,000 and $543,000 at December 31, 2004 and 2003, respectively,
and represented 0.12% and 0.36% of total assets at such dates. All loans classified as
non-performing at December 31, 2004, were either under a workout plan or being refinanced
elsewhere, the underlying collateral was in the process of being sold, or foreclosure action was
being initiated. Although management believes that its allowance for loan losses at December 31,
2004, was adequate based upon the facts and circumstances available to it, there can be no
assurance that additions to such allowance will not be necessary in future periods. Such additions
could adversely affect HCFCs results of operations Deposits totaled $107.2 million at December 31, 2004, an increase of $3.3 million, or 3.16%,
from $103.9 million at December 31, 2003. While time deposits decreased by $400,000, other
deposits increased by $3.7 million, mostly resulting from continued customer acceptance of our
tiered Prime Statement Savings account. Home City closely monitors its certificate maturities and
the composition of its Prime Statement Savings deposits and offers competitive interest rates in
its deposit market. Advances from the FHLB increased from $34.8 million at December 31, 2003, to
$35.1 million at December 31, 2004, an increase of $356,000, or 1.02%. Shareholders equity totaled $12.7 million at December 31, 2004, an increase of $828,000, or
3.01%, from $11.9 million at December 31, 2003, primarily due to undistributed net earnings of
$319,000 and the net effect of stock options exercised of $358,000. Comparison of Results of Operations for the Fiscal Years Ended December 31, 2004 and 2003 General. Net income for the year ended December 31, 2004, was $682,000, an increase of
$33,000, or 5.08%, from the $649,000 in net income recorded in 2003. The increase in net income
resulted primarily from the $300,000 decrease in the provision for loan losses which was partially
offset by a $115,000 decrease in net interest income, a $94,000 increase in noninterest expense, a
$15,000 decrease in noninterest income and an increase of $43,000 in the provision for federal
income taxes. Net Interest Income.Net interest income totaled $4.4 million for the year ended December 31,
2004, a decrease of $115,000, or 2.55%, from the $4.5 million recorded in 2003. Interest income on
loans -29-




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##### 



decreased by $483,000, or 5.42%, during 2004 almost entirely due to a decrease in yield from
6.96% in 2003 to 6.59% in 2004 since the average balance of the loans outstanding remained
virtually unchanged. Interest income on investment securities increased by $34,000, or 0.70%, for
the year ended December 31, 2004, compared to fiscal 2003, as the average balance increased by
$514,000 year-to-year and the related yield increased by 30 basis points to 2.18% in 2004. The
average investment in federal funds sold during 2004 was $4.5 million, compared to an average
investment of $3.1 million in 2003, which yielded 1.05% in 2004, compared to 0.97% in 2003,
resulting in increased interest of $17,000. Interest expense on deposits decreased by $224,000, or 8.42%, during 2004, due primarily to a
decrease in the weighted-average rate from 2.81% in 2003 to 2.43% in 2004, being offset partially
by an increase in the average balance of deposits outstanding of $5.7 million, or 6.07%. Interest
expense on FHLB advances decreased by $60,000, or 3.01%, primarily due to a decrease of $1.8
million, or 4.93%, in the average balance of advances offset partially by an increase in the
weighted-average rate from 5.49% in 2003 to 5.60% in 2004. As a result of the foregoing changes in interest income and interest expense, the interest
rate spread decreased by 21 basis points, to 2.74% for 2004, as compared to 2.95% for 2003, while
the net interest margin decreased by 20 basis points to 3.00% for the year ended December 31, 2004,
from 3.20% for last year. Provision for Loan Losses.Home City maintains an allowance for loan losses in an amount
that, in managements judgment, is adequate to absorb reasonably foreseeable losses inherent in the
loan portfolio. The provision for loan losses is determined by management as the amount to be
added to the allowance for loan losses, after net charge-offs have been deducted, to bring the
allowance to a level that is considered adequate to absorb losses inherent in the loan portfolio in
accordance with generally accepted accounting principles (GAAP). The amount of the provision is
based on managements regular review of the loan portfolio and consideration of such factors as
historical loss experience, generally prevailing economic conditions, changes in the size and
composition of the loan portfolio and considerations relating to specific loans, including the
ability of the borrower to repay the loan and the estimated value of the underlying collateral.
Although management utilizes its best judgment and information available, the ultimate adequacy of
the allowance is dependent upon a variety of factors, including the performance of Home Citys loan
portfolio, the economy, changes in real estate values and interest rates and regulatory
requirements regarding asset classifications. As a result of its analysis, management concluded
that the allowance was adequate as of December 31, 2004. There can be no assurance that the
allowance will be adequate to cover future losses on non-performing assets. Home City had net charge-offs of $435,000 and $8,000 during the years ended December 31, 2004
and 2003, respectively. Home Citys charge-off history is a product of a variety of factors,
including Home Citys underwriting guidelines and the composition of its loan portfolio. Loans
secured by real estate made up 86.42% of Home Citys loan portfolio, and, of that, the portion of
loans secured by first mortgages on one- to four-family residential real estate was 49.14% of total
loans at December 31, 2004. Such loans typically present less risk to a lender than loans not
secured by real estate. Substantially all of Home Citys loans are secured by properties in its
primary market area. The provision for loan losses was $200,000 and $500,000 for the years ended December 31, 2004
and 2003, respectively. The ratio of non-performing loans to total assets decreased to 0.12% in
2004 from 0.36% in 2003. At December 31, 2004 and 2003, Home City had a ratio of allowance for
loan losses to total loans of 0.58% and 0.78%, respectively, and ratios of allowance for loan
losses to non-performing loans of 389.74% and 183.24%. Due to such ratios of non-performing loans
to total assets, historical charge-offs, delinquency history, and the increase in commercial
lending, the provisions of -30-




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##### 



$200,000 and $500,000 made in 2004 and 2003, respectively, were deemed appropriate by
management to absorb reasonably foreseeable loan losses. Noninterest Income.Noninterest income totaled $239,000 for the year ended December 31, 2004,
a decrease of $15,000, or 5.91%, from the $254,000 recorded in 2002. The decrease resulted
primarily from a decrease of $11,000 in net gains recognized on the sale of securities. Noninterest Expense. Noninterest expense increased by $94,000, or 2.80%, to a total of $3.5
million for the year ended December 31, 2004, as compared to 2003. Increases in components of
noninterest expense were led by an increase in salaries and employee benefits of $203,000, or
12.19%, mainly reflecting the cost of transitional personnel related decisions and increased
hospitalization expense. The main offset was a decreased in professional fees of $79,000, or
23.87%, primarily due to decreased legal and loan review fees. Federal Income Taxes.The provision for federal income taxes totaled $307,000 for the year
ended December 31, 2004, an increase of $43,000, or 16.29%, from the $264,000 provision recorded in
fiscal 2003. This increase was primarily the result of a greater percentage of taxable income in
2004, which resulted in an effective tax rate of 31.04% in 2004 versus 28.92% in 2003. Critical Accounting Policies.The accounting and reporting policies of Home City are in
accordance with accounting principles generally accepted in the United States and conform to
general practices within the banking industry. Home Citys significant accounting policies are
described in detail in the notes to Home Citys consolidated financial statements for the year
ended December 31, 2004. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and assumptions. The financial
position and results of operations can be affected by these estimates and assumptions and are
integral to the understanding of reported results. Critical accounting policies are those policies
that management believes are the most important to the portrayal of Home Citys financial condition
and results, and they require management to make estimates that are difficult, subjective, or
complex. The policy of management with respect to the amount of the allowance for loan losses is a
critical accounting policy for Home City. Management evaluates the adequacy of the allowance for
loan losses each quarter based on managements regular review of the loan portfolio and
consideration of such factors as historical loss experience, generally prevailing economic
conditions, changes in the size and composition of the loan portfolio and considerations relating
to specific loans, including the ability of the borrower to repay the loan and the estimated value
of the underlying collateral. Some types of loans are inherently more risky than others. The allowance for commercial
loans, nonresidential real estate loans and multifamily real estate loans, which generally carry
more risk than single-family residential real estate loans, is determined based upon the individual
credit relationships and national and local economic factors that could affect such borrowers, as
well as actual loss histories. The allowance recorded for homogeneous consumer loans is based on
an analysis of loan mix, risk characteristics of the portfolio, fraud loss and bankruptcy
experiences, and historical losses, adjusted for current trends, for each homogeneous category or
group of loans. The allowance for one- to four-family residential real estate is based upon an
analysis of national and local economic conditions and loss histories. The allowance for impaired
loans is based on the collateral for collateral-dependent loans or the discounted cash flows using
the loans effective interest rate. Although management utilizes its best judgment and information available, the ultimate
adequacy of the allowance is dependent upon a variety of factors. Undetected losses are probable
due to inherent delays in obtaining information regarding a borrowers financial condition or
changes in their unique -31-




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##### 



business conditions; the judgmental nature of individual loan evaluations, collateral
assessments and interpretations of economic trends; the volatility of economic or customer-specific
conditions affecting the identification and estimation of losses for larger non-homogeneous
credits; and the sensitivity of assumptions utilized to establish allowances for homogeneous groups
of loans. -32-




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##### 



Yields Earned and Rates Paid The following table presents certain information relating to HCFCs average balance sheet
information and reflects the average yield on interest-earning assets and the average cost of
customer deposits and FHLB advances for the periods indicated. Such yields and costs are derived
by dividing annual income or expense by the average monthly balance of interest-earning assets or
customer deposits and FHLB advances, respectively, for the years presented. Average balances are
derived from daily balances, which included nonaccruing loans in the loan portfolio, net of the
allowance for loan losses. Year ended December 31,2004
    
    
    2003Average
    
    
    Interest
    
    
    
    
    
    
    Average
    
    
    Interestoutstanding
    
    
    earned/
    
    
    Yield/
    
    
    outstanding
    
    
    earned/
    
    
    Yield/balance
    
    
    paid
    
    
    rate
    
    
    balance
    
    
    paid
    
    
    rate(Dollars in thousands)Interest-earning assets:Interest-earning demand deposits
    
    $
    3,845
    
    
    $
    26
    
    
    
    0.70
    %
    
    $
    150
    
    
    $
    1
    
    
    
    0.67
    %Federal funds sold
    
    
    4,495
    
    
    
    47
    
    
    
    1.05
    
    
    
    3,058
    
    
    
    30
    
    
    
    0.97Time deposits
    
    
    0
    
    
    
    0
    
    
    
    0.00
    
    
    
    12
    
    
    
    0
    
    
    
    1.27Investment securities (1)
    
    
    8,112
    
    
    
    178
    
    
    
    2.19
    
    
    
    7,598
    
    
    
    143
    
    
    
    1.88Federal Home Loan Bank Stock
    
    
    2,300
    
    
    
    95
    
    
    
    4.13
    
    
    
    2,210
    
    
    
    88
    
    
    
    4.00Loans receivable (2)
    
    
    127,826
    
    
    
    8,426
    
    
    
    6.59
    
    
    
    127,972
    
    
    
    8,909
    
    
    
    6.96Total interest-earning assets (3)
    
    
    146,578
    
    
    
    8,772
    
    
    
    5.98
    
    
    
    141,000
    
    
    
    9,171
    
    
    
    6.50Non-interest-earning assets:Other non-earning assets
    
    
    9,050
    
    
    
    
    
    
    
    
    
    
    
    9,943Less: Allow for loan losses
    
    
    (760
    )
    
    
    
    
    
    
    
    
    
    
    (714
    )Total assets
    
    $
    154,868
    
    
    
    
    
    
    
    
    
    
    $
    150,229Interest-bearing liabilities:NOW accounts
    
    $
    3,419
    
    
    $
    13
    
    
    
    0.39
    %
    
    $
    3,303
    
    
    $
    26
    
    
    
    0.79
    %Money market accounts
    
    
    644
    
    
    
    3
    
    
    
    0.41
    
    
    
    680
    
    
    
    8
    
    
    
    1.11Passbook accounts
    
    
    45,302
    
    
    
    740
    
    
    
    1.63
    
    
    
    39,150
    
    
    
    740
    
    
    
    1.89Certificates of deposit
    
    
    51,045
    
    
    
    1,679
    
    
    
    3.29
    
    
    
    51,531
    
    
    
    1,885
    
    
    
    3.66Total deposits
    
    
    100,410
    
    
    
    2,435
    
    
    
    2.43
    
    
    
    94,664
    
    
    
    2,659
    
    
    
    2.81FHLB advances
    
    
    34,557
    
    
    
    1,935
    
    
    
    5.60
    
    
    
    36,350
    
    
    
    1,995
    
    
    
    5.49Total interest-bearing liabilities
    
    
    134,967
    
    
    
    4,370
    
    
    
    3.24
    
    
    
    131,014
    
    
    
    4,654
    
    
    
    3.55Non-interest-bearing liabilities
    
    
    7,539
    
    
    
    
    
    
    
    
    
    
    
    7,522Total liabilities
    
    
    142,506
    
    
    
    
    
    
    
    
    
    
    
    138,536Total shareholders equity
    
    
    12,362
    
    
    
    
    
    
    
    
    
    
    
    11,693Total liabilities and shareholders equity
    
    $
    154,868
    
    
    
    
    
    
    
    
    
    
    $
    150,229Net interest income; net interest rate spread
    
    
    
    
    
    $
    4,402
    
    
    
    2.74
    %
    
    
    
    
    
    $
    4,517
    
    
    
    2.95
    %Net interest margin (net interest income as a
percent of average interest-earning assets)
    
    
    
    
    
    
    
    
    
    
    3.00
    %
    
    
    
    
    
    
    
    
    
    
    3.20
    %Average interest-earning assets to
interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    108.60
    %
    
    
    
    
    
    
    
    
    
    
    107.62
    %
   (1)
    
    Includes $10,000 and $21,000 of nontaxable municipal income recorded in 2004 and 2003,
respectively. The tax-equivalent yield on investments is 2.26% and 2.03 % for 2004 and 2003,
respectively.(2)
    
    Calculated net of deferred loan fees, loan discounts, loans in process and allowance for
loan losses.(3)
    
    Tax-equivalent yield on interest-earning assets is 5.99% and 6.51% for 2004 and 2003,
respectively. -33-




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##### 



The table below describes the extent to which changes in interest rates and changes in
volume of interest-earning assets and interest-bearing liabilities have affected HCFCs interest
income and expense during the periods indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to (i) changes in
volume (change in volume multiplied by prior year rate), (ii) changes in rate (change in rate
multiplied by prior year volume) and (iii) total changes in rate and volume. The combined effects
of changes in both volume and rate, which cannot be separately identified, have been allocated
proportionately to the change due to volume and the change due to rate: Year ended December 31,2004 vs. 2003
    
    
    2003 vs. 2002Increase
    
    
    Increase(decrease)
    
    
    (decrease)due to
    
    
    due toVolume
    
    
    Rate
    
    
    Total
    
    
    Volume
    
    
    Rate
    
    
    Total(Dollars in thousands)Interest income attributable to:Interest-earning demand deposits
    
    $
    24
    
    
    $
    1
    
    
    $
    25
    
    
    $
    (0
    )
    
    $
    (1
    )
    
    $
    (1
    )Federal funds sold
    
    
    14
    
    
    
    3
    
    
    
    17
    
    
    
    20
    
    
    
    (9
    )
    
    
    11Investment securities
    
    
    10
    
    
    
    25
    
    
    
    35
    
    
    
    (183
    )
    
    
    (219
    )
    
    
    (402
    )Federal Home Loan Bank stock
    
    
    4
    
    
    
    3
    
    
    
    7
    
    
    
    4
    
    
    
    (14
    )
    
    
    (10
    )Loans receivable
    
    
    (10
    )
    
    
    (473
    )
    
    
    (483
    )
    
    
    578
    
    
    
    (785
    )
    
    
    (207
    )Total interest income
    
    
    42
    
    
    
    (441
    )
    
    
    (399
    )
    
    
    419
    
    
    
    (1,028
    )
    
    
    (609
    )Interest expenses attributable to:NOW accounts
    
    
    1
    
    
    
    (14
    )
    
    
    (13
    )
    
    
    4
    
    
    
    (6
    )
    
    
    (2
    )Money market accounts
    
    
    0
    
    
    
    (5
    )
    
    
    (5
    )
    
    
    0
    
    
    
    (5
    )
    
    
    (5
    )Passbook savings accounts
    
    
    116
    
    
    
    (116
    )
    
    
    0
    
    
    
    357
    
    
    
    (126
    )
    
    
    231Certificates of deposit
    
    
    (18
    )
    
    
    (188
    )
    
    
    (206
    )
    
    
    (741
    )
    
    
    (785
    )
    
    
    (1,526
    )Federal Home Loan Bank advances
    
    
    (98
    )
    
    
    38
    
    
    
    (60
    )
    
    
    4
    
    
    
    (22
    )
    
    
    (18
    )Total interest expense
    
    
    1
    
    
    
    (285
    )
    
    
    (284
    )
    
    
    (376
    )
    
    
    (944
    )
    
    
    (1,320
    )Increase (decrease) in net interest income
    
    $
    41
    
    
    $
    (156
    )
    
    $
    (115
    )
    
    $
    795
    
    
    $
    (84
    )
    
    $
    711
 Asset and Liability Management Home City, like other financial institutions, is subject to interest rate risk to the extent
that its interest-earning assets reprice differently than its interest-bearing liabilities. As
part of its effort to monitor and manage interest rate risk, Home City uses the net portfolio value
(NPV) methodology adopted by the OTS as part of its capital regulations but the enforcement of
which has been waived by the OTS. Generally, NPV is the discounted present value of the difference between incoming cash flows
on interest-earning and other assets and outgoing cash flows on interest-bearing and other
liabilities. The application of the methodology attempts to quantify interest rate risk as the
change in the NPV that would result from a theoretical 200 basis point change in market interest
rates. Both a 200 basis point increase in market interest rates and a 200 basis point decrease in
market interest rates are considered. Presented below, as of December 31, 2004, is an analysis of Home Citys interest rate risk as
measured by changes in NPV for instantaneous and sustained parallel shifts of 100 basis points in
market interest rates. The table also contains the policy limits set by the Board of Directors of
Home City as the maximum changes in NPV that the Board of Directors deems advisable in the event of
various changes in interest rates. Such limits have been established with consideration of the
dollar impact of various rate changes and Home Citys strong capital position. -34-




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As illustrated in the table, Home Citys NPV is slightly more sensitive to declining rates
than rising rates. Differences in sensitivity occur principally because, as rates rise, borrowers
do not prepay fixed-rate loans as quickly as they do when interest rates are declining. As a
result, in a rising interest rate environment, the amount of interest Home City would receive on
its loans would increase relatively slowly as loans are slowly repaid and new loans at higher rates
are made. Moreover, the interest Home City would pay on its deposits would increase because Home
Citys deposits generally have shorter periods to repricing. Because Home City has not originated
loans in accordance with traditional secondary market guidelines, the sale of fixed-rate loans may
be difficult. In addition, increases in interest rates can also result in the flow of funds away
from savings institutions into direct investments or other investment vehicles, such as mutual
funds, which may pay higher rates of return than savings institutions. Assumptions used in
calculating the amounts in this table are OTS assumptions. At December 31, 2004Change in interest rate
    
    
    Board limit
    
    
    $ change
    
    
    % change(basis points)
    
    
    % change
    
    
    in NPV
    
    
    in NPV(Dollars in thousands)+300
    
    
    
    (55
    )%
    
    $
    1,046
    
    
    
    6
    %+200
    
    
    
    (35
    )
    
    
    1,322
    
    
    
    8+100
    
    
    
    (20
    )
    
    
    1,073
    
    
    
    60
    
    
    
    0
    
    
    
    0
    
    
    
    0-100
    
    
    
    (20
    )
    
    
    (1,273
    )
    
    
    (7
    )-200
    
    
    
    (35
    )
    
    
    
    (1)
    
    
    
    (1)-300
    
    
    
    (55
    )
    
    
    
    (1)
    
    
    
    (1)
   (1)
    
    As a result of the low interest rate environment at December 31, 2004, the OTS NPV
Model did not produce results for the minus 200 and 300 basis point scenario. The NPV table indicates that at each 100 basis point increment, the change in Home Citys
NPV that would have been caused by the respective interest rate shock was within the policy limits
set by the Board of Directors. The Board of Directors considers the results of each quarterly
analysis and factors the information into its decisions in adjusting the pricing of loans and
deposits in the future. As with any method of measuring interest rate risk, certain shortcomings are inherent in the
NPV approach. For example, although certain assets and liabilities may have similar maturities or
periods of repricing, they may react in different degrees to changes in market rates. Also, the
interest rates on certain types of assets and liabilities may fluctuate in advance of changes in
market rates, while interest rates on other types may lag behind changes in market rates. Further,
in the event of a change in interest rates, expected rates of prepayment on loans and
mortgage-backed securities and early withdrawal levels from certificates of deposit would likely
deviate significantly from those assumed in making the risk calculations. If interest rates continue to rise from the recent levels, Home Citys net interest income
will be slightly positively affected, although those same rising interest rates may negatively
affect Home Citys earnings due to diminished loan demand. In order to maintain Home Citys net
interest margin, management is continually developing and modifying their strategies to stimulate
the demand for quality loans and tailoring the types of loan products available that can be
adjusted to match the current market conditions. Additional alternative sources of funding are
being explored in anticipation of possible interest rate fluctuations. -35-




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##### 



Liquidity and Capital Resources Home Citys liquidity, primarily represented by cash and cash equivalents, is a result of its
operating, investing and financing activities. These activities are summarized below for the years
presented: Year ended December 31,2004
    
    
    2003(Dollars in thousands)Net income
    
    $
    682
    
    
    $
    649Adjustments to reconcile net income to net cash
from operating activities
    
    
    (9
    )
    
    
    1,222Net cash provided by operating activities
    
    
    673
    
    
    
    1,871Net cash provided by (used in) investing activities
    
    
    (5,209
    )
    
    
    1,399Net cash provided by financing activities
    
    
    3,658
    
    
    
    1,142Net change in cash and cash equivalents
    
    
    (878
    )
    
    
    4,412Cash and cash equivalents at beginning of year
    
    
    10,473
    
    
    
    6,061Cash and cash equivalents at end of year
    
    $
    9,595
    
    
    $
    10,473
 Home Citys principal sources of funds are deposits, loan and mortgage-backed securities
repayments, maturities of securities and other funds provided by operations. Home City also
borrows from the FHLB of Cincinnati. While scheduled loan repayments and maturing investments are
relatively predictable, deposit flows and early loan and mortgage-backed security
prepayments are more influenced by interest rates, general economic conditions and competition.
Home City 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 investment 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,
Home City monitors the capital of such institutions to ensure that such deposits do not expose Home
City to undue risk of loss. OTS regulations require Home City to maintain an average daily balance of liquid assets, which
may include, but are not limited to, investments in United States Treasury obligations, federal
agency obligations and other investments having maturities of five years or less, in an amount
sufficient to provide a source of relatively liquid funds upon which Home City may rely if
necessary to fund deposit withdrawals or other short-term funding needs. At December 31, 2004,
Home Citys regulatory liquidity ratio was 18.79% of its average daily balances of net withdrawable
deposit accounts and borrowings payable in one year or less. At such date, Home City had
commitments to originate loans totaling $2.2 million and no commitments to purchase or sell loans.
Home City 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. See Note 9 of the
Notes to Consolidated Financial Statements. Home City 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. Home City exceeded all of its
capital requirements at December 31, 2004 and 2003. 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. -36-




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##### 



Core capital is comprised of common Shareholders 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 to maintain core capital of at least 4% of the associations total
assets, except for those associations with the highest examination rating and acceptable levels of
risk, which may maintain a minimum of 3% core capital. OTS regulations require that savings associations maintain risk-based capital in an amount
not less than 8% 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 Home City includes a general loan loss
allowance of $760,000 at December 31, 2004. The following table summarizes Home Citys regulatory capital requirements and actual capital
(see Note 9 of the Notes to Consolidated Financial Statements for regulatory capital amounts) at
December 31, 2004: Excess of actualcapital over currentActual capital
    
    
    Current requirement
    
    
    requirement
    
    
    ApplicableAmount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    asset total(Dollars in thousands)Tangible capital
    
    $
    12,204
    
    
    
    7.8
    %
    
    $
    2,342
    
    
    
    1.5
    %
    
    $
    9,862
    
    
    
    6.3
    %
    
    $
    156,118Core capital
    
    
    12,204
    
    
    
    7.8
    
    
    
    6,245
    
    
    
    4.0
    
    
    
    5,959
    
    
    
    3.8
    
    
    
    156,118Risk-based capital
    
    
    12,964
    
    
    
    11.6
    
    
    
    8,981
    
    
    
    8.0
    
    
    
    3,983
    
    
    
    3.6
    
    
    
    112,262
 Impact of Inflation and Changing Prices The financial statements and related data presented herein have been prepared in accordance
with GAAP, which require the measurement of financial position and results of operations primarily
in terms of historical dollars without considering changes in the relative purchasing power of
money over time because of inflation. Virtually all assets and liabilities of HCFC are monetary in nature. As a result, interest
rates have a more significant impact on performance than the effects of general levels of
inflation. -37-




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##### 



(BKD LLP LOGO) 
 Report of Independent Registered Public Accounting Firm Board of Directors
Home City Financial Corporation
Springfield, Ohio We have audited the accompanying consolidated balance sheets of Home City Financial Corporation as
of December 31, 2004 an 2003, and the related consolidated statements of income, stockholders
equity, and cash flows for the years then ended. These financial statements are the responsibility
of the Companys management. Our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits in accordance with auditing standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion. In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Home City Financial Corporation as of December 31,
2004 and 2003, 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. /s/ BKD. LLP Cincinnati, Ohio
February 14, 2005 38




---



##### 



Home City Financial Corporation CONSOLIDATED BALANCE SHEETS 
 (Dollars in thousands)December 31,2004
    
    
    2003ASSETSCash and due from banks
    
    $
    859
    
    
    $
    1,035Interest-bearing demand deposits
    
    
    6,529
    
    
    
    1,876Federal funds sold
    
    
    2,207
    
    
    
    7,562Cash and cash equivalents
    
    
    9,595
    
    
    
    10,473Available-for-sale securities
    
    
    6,432
    
    
    
    5,089Loans, net of allowance for loan losses of $760 and $995 at
December 31, 2004 and 2003
    
    
    130,067
    
    
    
    126,512Premises and equipment
    
    
    3,602
    
    
    
    3,812Federal Home Loan Bank stock
    
    
    2,360
    
    
    
    2,265Interest receivable
    
    
    544
    
    
    
    578Cash surrender value of life insurance
    
    
    3,067
    
    
    
    2,952Other
    
    
    557
    
    
    
    103TOTAL ASSETS
    
    $
    156,224
    
    
    $
    151,784LIABILITIES AND SHAREHOLDERS EQUITYLiabilitiesDepositsDemand
    
    $
    5,235
    
    
    $
    5,352Savings, NOW and money market
    
    
    51,173
    
    
    
    47,355Time
    
    
    50,796
    
    
    
    51,215Total deposits
    
    
    107,204
    
    
    
    103,922Federal Home Loan Bank advances
    
    
    35,120
    
    
    
    34,764Interest payable and other liabilities
    
    
    1,165
    
    
    
    1,191TOTAL LIABILITIES
    
    
    143,489
    
    
    
    139,877Shareholders EquityPreferred shares, no par value: authorized 1,000,000
shares; none issuedCommon shares, no par value: authorized 5,000,000 shares;
issued - 981,913
and 962,200 sharesAdditional paid-in capital
    
    
    6,325
    
    
    
    6,130Retained earnings
    
    
    8,868
    
    
    
    8,549Unearned Recognition and Retention Plan (RRP) shares
    
    
    (69
    )
    
    
    (185
    )Unearned Employee Stock Ownership Plan (ESOP) shares
    
    
    (221
    )
    
    
    (229
    )Accumulated other comprehensive loss
    
    
    (178
    )
    
    
    (92
    )Treasury shares, at cost: 146,223 and 167,800 shares
    
    
    (1,990
    )
    
    
    (2,266
    )TOTAL SHAREHOLDERS EQUITY
    
    
    12,735
    
    
    
    11,907TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    156,224
    
    
    $
    151,784
   See notes to consolidated financial statements. 39




---



##### 



Home City Financial Corporation CONSOLIDATED STATEMENTS OF INCOME 
 (Dollars in thousands,except per shareamounts)December 31,2004
    
    
    2003INTEREST AND DIVIDEND INCOMELoans
    
    $
    8,426
    
    
    $
    8,909Securities
    
    
    178
    
    
    
    143Federal funds sold
    
    
    47
    
    
    
    30Dividends on Federal Home Loan Bank stock
    
    
    95
    
    
    
    88Deposits with financial institutions
    
    
    26
    
    
    
    1TOTAL INTEREST AND DIVIDEND INCOME
    
    
    8,772
    
    
    
    9,171INTEREST EXPENSEDeposits
    
    
    2,435
    
    
    
    2,659Borrowings
    
    
    1,935
    
    
    
    1,995TOTAL INTEREST EXPENSE
    
    
    4,370
    
    
    
    4,654NET INTEREST INCOME
    
    
    4,402
    
    
    
    4,517Provision for Loan Losses
    
    
    200
    
    
    
    500NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
    
    
    4,202
    
    
    
    4,017NONINTEREST INCOMEService charges on deposits
    
    
    39
    
    
    
    38Net realized gains on sales of available-for-sale securities
    
    
    6
    
    
    
    17Life insurance
    
    
    142
    
    
    
    137Other
    
    
    52
    
    
    
    62TOTAL NONINTEREST INCOME
    
    
    239
    
    
    
    254NONINTEREST EXPENSESalaries and employee benefits
    
    
    1,868
    
    
    
    1,665Net occupancy expense
    
    
    282
    
    
    
    337Equipment expense
    
    
    222
    
    
    
    215Data processing fees
    
    
    232
    
    
    
    245Professional fees
    
    
    252
    
    
    
    331Franchise taxes
    
    
    150
    
    
    
    146Other
    
    
    446
    
    
    
    419TOTAL NONINTEREST EXPENSE
    
    
    3,452
    
    
    
    3,358
 40




---



##### 



Home City Financial Corporation CONSOLIDATED STATEMENTS OF INCOME (continued) 
 (Dollars in thousands,except per shareamounts)December 31,2004
    
    
    2003Income before income tax
    
    $
    989
    
    
    $
    913Provision for income taxes
    
    
    307
    
    
    
    264NET INCOME
    
    $
    682
    
    
    $
    649EARNINGS PER SHAREBasic
    
    $
    0.86
    
    
    $
    0.87Diluted
    
    
    0.84
    
    
    
    0.85
   See notes to consolidated financial statements. 41




---



##### 



Home City Financial Corporation CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY 
 (Dollars in thousands)Accum-ulatedOtherCompre-Additional
    
    
    
    
    
    
    Unearned
    
    
    Unearned
    
    
    hensivePaid-in
    
    
    Retained
    
    
    Compen-
    
    
    ESOP
    
    
    Income
    
    
    TreasuryShares
    
    
    Capital
    
    
    Earnings
    
    
    sation
    
    
    Shares
    
    
    (Loss)
    
    
    Shares
    
    
    TotalBalance, January 1, 2003
    
    
    952,200
    
    
    $
    6,013
    
    
    $
    8,246
    
    
    $
    (111
    )
    
    $
    (305
    )
    
    $
    (18
    )
    
    $
    (2,266
    )
    
    $
    11,559Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    649
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    649Change in unrealized gain
(loss) on securities available
for sale, net of
reclassification
adjustment and tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (74
    )
    
    
    
    
    
    
    (74
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    575Stock options exercised
    
    
    10,000
    
    
    
    117
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    117Dividends on common shares,
$.44 per share
    
    
    
    
    
    
    
    
    
    
    (346
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (346
    )Purchase of new shares and
amortization of unearned
compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (74
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (74
    )ESOP shares earned
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    76
    
    
    
    
    
    
    
    
    
    
    
    76Balance, December 31, 2003
    
    
    962,200
    
    
    
    6,130
    
    
    
    8,549
    
    
    
    (185
    )
    
    
    (229
    )
    
    
    (92
    )
    
    
    (2,266
    )
    
    
    11,907Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    682
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    682Change in unrealized gain
(loss) on securities available
for sale, net of
reclassification
adjustment and tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (86
    )
    
    
    
    
    
    
    (86
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    596Purchase of treasury shares
(24,420)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (411
    )
    
    
    (411
    )Stock options exercisedFrom treasury (45,997)
    
    
    
    
    
    
    (149
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    687
    
    
    
    538New issue
    
    
    19,713
    
    
    
    231
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    231Dividends on common shares,
$.44 per share
    
    
    
    
    
    
    
    
    
    
    (363
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (363
    )Amortization of unearned
compensation expense
    
    
    
    
    
    
    (101
    )
    
    
    
    
    
    
    116
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15ESOP shares earned
    
    
    
    
    
    
    214
    
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    222Balance, December 31, 2004
    
    
    981,913
    
    
    $
    6,325
    
    
    $
    8,868
    
    
    $
    (69
    )
    
    $
    (221
    )
    
    $
    (178
    )
    
    $
    (1,990
    )
    
    $
    12,735
   See notes to consolidated financial statements. 42




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##### 



Home City Financial Corporation CONSOLIDATED STATEMENTS OF CASH FLOWS 
 (Dollars in thousands)Year ended December 31,2004
    
    
    2003OPERATING ACTIVITIESNet income
    
    $
    682
    
    
    $
    649Items not requiring (providing) cashDepreciation and amortization
    
    
    237
    
    
    
    231Provision for loan losses
    
    
    200
    
    
    
    500Amortization of premiums and discounts on securities
    
    
    4
    
    
    
    99Deferred income taxes
    
    
    95
    
    
    
    (141
    )Increase in cash surrender value of life insurance
    
    
    (115
    )
    
    
    (123
    )Employee Stock Ownership Plan compensation expense
    
    
    222
    
    
    
    76Recognition and Retention Plan compensation expense
    
    
    15
    
    
    
    (74
    )Net realized gains on available-for-sale securities
    
    
    (6
    )
    
    
    (17
    )FHLB stock dividends
    
    
    (95
    )
    
    
    (88
    )Changes inInterest receivable
    
    
    34
    
    
    
    22Other assets
    
    
    (549
    )
    
    
    228Interest payable and other liabilities
    
    
    (51
    )
    
    
    509Net cash provided by operating activities
    
    
    673
    
    
    
    1,871INVESTING ACTIVITIESNet change in interest-bearing deposits
    
    
    0
    
    
    
    24Purchases of available-for-sale securities
    
    
    (9,968
    )
    
    
    (3,152
    )Proceeds from maturities of available-for-sale securities
    
    
    7,986
    
    
    
    2,275Proceeds from the sales of available-for-sale securities
    
    
    555
    
    
    
    1,956Net change in loans
    
    
    (3,755
    )
    
    
    403Purchase of premises and equipment
    
    
    (27
    )
    
    
    (107
    )Net cash provided by (used in) investing activities
    
    
    (5,209
    )
    
    
    1,399FINANCING ACTIVITIESNet increase in demand deposits, money market,
NOW and savings accounts
    
    
    3,701
    
    
    
    17,613Net decrease in certificates of deposit
    
    
    (419
    )
    
    
    (12,810
    )Proceeds from Federal Home Loan Bank advances
    
    
    4,500
    
    
    
    9,750Repayment of Federal Home Loan Bank advances
    
    
    (4,144
    )
    
    
    (13,185
    )Proceeds from stock options exercised
    
    
    769
    
    
    
    117Dividends paid
    
    
    (363
    )
    
    
    (346
    )Purchase of treasury shares
    
    
    (411
    )
    
    
    0Net increase in advances from borrowers for taxes and insurance
    
    
    25
    
    
    
    3Net cash provided by financing activities
    
    
    3,658
    
    
    
    1,142Increase (Decrease) in Cash and Cash Equivalents
    
    
    (878
    )
    
    
    4,412Cash and Cash Equivalents, Beginning of Year
    
    
    10,473
    
    
    
    6,061Cash and Cash Equivalents, End of Year
    
    $
    9,595
    
    
    $
    10,473Supplemental Cash Flows InformationInterest paid
    
    $
    4,371
    
    
    $
    4,712Income taxes paid (net of refunds)
    
    
    441
    
    
    
    0
   See notes to consolidated financial statements. 43




---



##### 



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 competition from other financial institutions. 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.), holds stock of the
Banks data service provider in which it has a minority interest. 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 from
securities. 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. Loans Loans that management has the intent and ability to hold for the foreseeable future or until
maturity or 44




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##### 



Home City Financial Corporation NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
 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, unless the loan is
well-secured and in the process of collection. 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 collectibility 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 either the present value of expected future cash flows
discounted at the loans effective interest rate, the loans obtainable market price or the fair
value of the collateral if the loan is collateral dependent. 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. 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. 45




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##### 



Home City Financial Corporation NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
 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. Stock Options Stock options are granted for a fixed number of shares to employees with an exercise price
equal to the fair value of the shares at the date of grant. The Bank accounts for and will continue
to account for stock option grants in accordance with APB Opinion No. 25, Accounting for Stock
Issued to Employees, and, accordingly, recognizes no compensation expense for the stock option
grants. (Dollars in thousands)Year ended December 31,2004
    
    
    2003Net income, as reported
    
    $
    682
    
    
    $
    649Less: Total stock-based employee compensation cost
determined
under the fair value based method, net of income taxes
    
    
    9
    
    
    
    6Pro forma net income
    
    $
    673
    
    
    $
    643Earnings per share:Basic  as reported
    
    $
    0.86
    
    
    $
    0.87Basic  pro forma
    
    $
    0.85
    
    
    $
    0.86Diluted  as reported
    
    $
    0.84
    
    
    $
    0.85Diluted  pro forma
    
    $
    0.83
    
    
    $
    0.84
 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 consolidated income tax returns with its subsidiaries. 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. 46




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##### 



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
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    ApproximateCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueAvailable-for-Sale SecuritiesDecember 31, 2004U.S. Treasury and government
agencies
    
    $
    3,604

    
    
    $
    0
    
    
    $
    (9
    )
    
    $
    3,595Mortgage-backed securities
    
    
    1,705
    
    
    
    11
    
    
    
    (11
    )
    
    
    1,705Other asset-backed securities
    
    
    483
    
    
    
    1
    
    
    
    (8
    )
    
    
    476Equity securities
    
    
    909
    
    
    
    0
    
    
    
    (253
    )
    
    
    656Total
    
    $
    6,701
    
    
    $
    12
    
    
    $
    (281
    )
    
    $
    6,432December 31, 2003U.S. government agencies
    
    $
    210
    
    
    $
    1
    
    
    $
    0
    
    
    $
    211Mortgage-backed securities
    
    
    3,034
    
    
    
    15
    
    
    
    (14
    )
    
    
    3,035Other asset-backed securities
    
    
    687
    
    
    
    0
    
    
    
    (5
    )
    
    
    682State and political subdivisions
    
    
    388
    
    
    
    16
    
    
    
    0
    
    
    
    404Equity securities
    
    
    909
    
    
    
    0
    
    
    
    (152
    )
    
    
    757Total
    
    $
    5,228
    
    
    $
    32
    
    
    $
    (171
    )
    
    $
    5,089
 The amortized cost and fair value of securities available for sale at December 31, 2004, by
contractual maturity, are shown below. Expected maturities will differ from contractual maturities
because issuers may have the right to call or prepay obligations with or without call or prepayment
penalties. (Dollars in thousands)Amortized
    
    
    FairCost
    
    
    ValueWithin one year
    
    $
    3,354
    
    
    $
    3,349One to five years
    
    
    250
    
    
    
    2463,604
    
    
    
    3,595Mortgage-backed securities
    
    
    1,705
    
    
    
    1,705Other asset-backed securities
    
    
    483
    
    
    
    476Equity securities
    
    
    909
    
    
    
    656Totals
    
    $
    6,701
    
    
    $
    6,432
 The carrying value of securities pledged as collateral, to secure public deposits and for other
purposes, was $0 at December 31, 2004, and $375,000 at December 31, 2003. Gross gains of $6,000 and $17,000 and gross losses of $0 and $0 resulting from sales of
available-for-sale securities were realized for 2004 and 2003, respectively. The tax expense for
net gains on security transactions for 2004 and 2003 was $2,000 and $6,000, respectively. Certain investments in debt and equity securities are reported in the financial statements at an
amount less than their historical cost. Total fair value of these investments at December 31, 2004,
was $5,703,000, which is approx- 47




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##### 



Home City Financial Corporation NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
 approximately 89% of the Companys available-for-sale investment portfolio. These declines
primarily resulted from recent increases in market interest rates. Equity securities consist of two issues of Fannie Mae preferred stock. Managements conclusion that
the declines in fair value for these securities is based on its evaluation of Fannie Mae stock
performance in historic interest rate environments and projections. Management believes that
mortgage-backed and other asset-backed security declines in fair value are temporary based on
available evidence of recent changes in market interest rates. Management has both the intent and
ability to hold these investments until more favorable market interest rate scenarios are attained. 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. The following table shows our investments gross unrealized losses and fair value, aggregated by
investment category and length of time that individual securities have been in a continuous
unrealized loss position: (Dollars in thousands)Less than 12 Months
    
    
    12 Months or Longer
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedFair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesAvailable-for-Sale Securities:December 31, 2004:U.S. Treasury and
government agencies
    
    $
    3,595
    
    
    $
    9
    
    
    $
    0
    
    
    $
    0
    
    
    $
    3,595
    
    
    $
    9Mortgaged-backed
securities
    
    
    333
    
    
    
    3
    
    
    
    823
    
    
    
    8
    
    
    
    1,156
    
    
    
    11Other asset-backed
securities
    
    
    0
    
    
    
    0
    
    
    
    296
    
    
    
    8
    
    
    
    296
    
    
    
    8Equity securities
    
    
    0
    
    
    
    0
    
    
    
    656
    
    
    
    253
    
    
    
    656
    
    
    
    253Total
    
    $
    3,928
    
    
    $
    12
    
    
    $
    1,775
    
    
    $
    269
    
    
    $
    5,703
    
    
    $
    281December 31, 2003:U.S. government
agencies
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0Mortgaged-backed
securities
    
    
    1,446
    
    
    
    12
    
    
    
    77
    
    
    
    2
    
    
    
    1,523
    
    
    
    14Other asset-backed
securities
    
    
    682
    
    
    
    5
    
    
    
    0
    
    
    
    0
    
    
    
    682
    
    
    
    5Equity securities
    
    
    0
    
    
    
    0
    
    
    
    758
    
    
    
    152
    
    
    
    758
    
    
    
    152Total
    
    $
    2,128
    
    
    $
    17
    
    
    $
    835
    
    
    $
    154
    
    
    $
    2,963
    
    
    $
    171
 NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES Categories of loans at December 31, include: (Dollars in thousands)2004
    
    
    2003Residential real estateOne- to four-family residential
    
    $
    64,663
    
    
    $
    65,269Multi-family residential
    
    
    9,208
    
    
    
    6,700Construction
    
    
    4,678
    
    
    
    5,681Nonresidential real estate
    
    
    32,303
    
    
    
    31,510Commercial
    
    
    15,059
    
    
    
    13,733Consumer and other
    
    
    6,619
    
    
    
    6,338Total loans
    
    
    132,530
    
    
    
    129,231
 48




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##### 



Home City Financial
Corporation NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
 (Dollars in thousands)2004
    
    
    2003LessDeferred loan fees
    
    
    (375
    )
    
    
    (393
    )Undisbursed portion of
loans
    
    
    (1,328
    )
    
    
    (1,331
    )Allowance for loan losses

    
    
    (760
    )
    
    
    (995
    )Net loans
    
    $
    130,067
    
    
    $
    126,512
 Activity in the allowance for loan losses was as follows: (Dollars in thousands)2004
    
    
    2003Balance, beginning of year
    
    $
    995
    
    
    $
    503Provision charged to expense
    
    
    200
    
    
    
    500Losses charged off, net of
recoveries of $6,000 for
2004, and $15,000 for 2003
    
    
    (435
    )
    
    
    ( 8
    )Balance, end of year
    
    $
    760
    
    
    $
    995
 Impaired loans totaled $3,707,000 and $1,267,000 at December 31, 2004 and 2003. An allowance for
loan losses of $67,000 and $167,000 relates to impaired loans of $1,290,000 and $589,000 at
December 31, 2004 and 2003. At December 31, 2004 and 2003, impaired loans of $2,417,000 and
$678,000 had no related allowance for loan losses. Interest of $239,000 and $87,000 was recognized on average impaired loans of $3,105,000 and
$1,276,000 for 2004 and 2003. Interest of $236,000 and $85,000 was recognized on impaired loans on
a cash basis during 2004 and 2003. At December 31, 2004 and 2003, accruing loans delinquent 90 days or more totaled $0 and $346,000,
respectively. Non-accruing loans at December 31, 2004 and 2003 were $195,000 and $197,000,
respectively. NOTE 4: PREMISES AND EQUIPMENT Major classifications of premises and equipment, stated at cost, are as follows: (Dollars in thousands)2004
    
    
    2003Land
    
    $
    806
    
    
    $
    806Buildings and improvements
    
    
    2,489
    
    
    
    2,489Equipment
    
    
    1,639
    
    
    
    1,6294,934
    
    
    
    4,924Less accumulated depreciation
    
    
    (1,332
    )
    
    
    (1,112
    )Net premises and equipment
    
    $
    3,602
    
    
    $
    3,812
 49




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##### 



Home City Financial Corporation NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
 NOTE 5: INTEREST-BEARING DEPOSITS Interest-bearing time deposits in denominations of $100,000 or more were $15,248,000 on
December 31, 2004, and $12,806,000 on December 31, 2003. At December 31, 2004, the scheduled maturities of time deposits are as follows: (Dollars in thousands)2005
    
    $
    21,2582006
    
    
    20,7252007
    
    
    6,6742008
    
    
    1,6962009
    
    
    443Total
    
    $
    50,796
 NOTE 6: FEDERAL HOME LOAN BANK ADVANCES Aggregate annual maturities of FHLB advances at December 31, 2004, are: (Dollars in thousands)2005
    
    $
    1,2492006
    
    
    1,0302007
    
    
    1,8852008
    
    
    2,2242009
    
    
    9,560Thereafter
    
    
    19,152Total
    
    $
    35,120
 The Federal Home Loan Bank advances are secured by mortgage loans totaling $50,956,000 at December
31, 2004. Advances, at interest rates from 2.38 percent to 8.35 percent are subject to restrictions
or penalties in the event of prepayment. The Bank has unused letters of credit with the Federal Home Loan Bank aggregating $2,525,000
expiring at various dates from March 8, 2005, through December 20, 2005. 50




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##### 



Home City Financial Corporation NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
 NOTE 7: INCOME TAXES The provision for income taxes includes these components (Dollars in thousands)2004
    
    
    2003Taxes currently payable
    
    $
    212
    
    
    $
    405Deferred income taxes (credit)
    
    
    95
    
    
    
    (141
    )Income tax expense
    
    $
    307
    
    
    $
    264
 A reconciliation of income tax expense from continuing operations at the statutory rate to the
Companys actual income tax expense from continuing operations is shown below: (Dollars in thousands)2004
    
    
    2003Computed at the statutory rate (34%)
    
    $
    336
    
    
    $
    310Increase (decrease) resulting from:Tax exempt interest
    
    
    (3
    )
    
    
    (6
    )Cash surrender value of life
insurance
    
    
    (39
    )
    
    
    (42
    )Nondeductible expenses
    
    
    4
    
    
    
    3Other
    
    
    9
    
    
    
    (1
    )Actual tax expense
    
    $
    307
    
    
    $
    264
 The tax effects of temporary differences related to deferred taxes shown on the balance sheets
were: (Dollars in thousands)2004
    
    
    2003Deferred tax assetsAllowance for loan losses
    
    $
    258
    
    
    $
    338Employee benefits
    
    
    185
    
    
    
    140Nonaccrual loan interest
    
    
    0
    
    
    
    1Other
    
    
    29
    
    
    
    41Unrealized losses on
available-for-sale securities
    
    
    92
    
    
    
    48564
    
    
    
    568Deferred tax liabilitiesDepreciation
    
    
    (104
    )
    
    
    (87
    )Federal Home Loan Bank stock dividend
    
    
    (271
    )
    
    
    (238
    )Deferred loan fees
    
    
    (50
    )
    
    
    (53
    )(425
    )
    
    
    (378
    )Net deferred tax asset
    
    $
    139
    
    
    $
    190
 Retained earnings at December 31, 2004 and 2003, include approximately $1,084,000, for which no
deferred federal income tax liability has been recognized. These amounts represent 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 carryback 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 liabilities on the preceding amounts that would have been
recorded if they were expected to reverse into taxable income in the foreseeable future were
approximately $368,000 at December 31, 2004 and 2003. 51




---



##### 



Home City Financial Corporation NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
 NOTE 8: OTHER COMPREHENSIVE INCOME (LOSS) Other comprehensive income (loss) components and related taxes were as follows: (Dollars in thousands)2004
    
    
    2003Unrealized gains (losses) on securities
available for sale
    
    $
    (125
    )
    
    $
    (95
    )Reclassification for realized amount
included in income
    
    
    6
    
    
    
    17Other comprehensive loss, before tax effect
    
    
    (131
    )
    
    
    (112
    )Tax benefit
    
    
    45
    
    
    
    38Other comprehensive loss
    
    $
    (86
    )
    
    $
    (74
    )
 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, 2004 and 2003, that the Bank meets all capital adequacy requirements to which it is
subject. As of December 31, 2004, the most recent notification from Office of Thrift Supervision 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. 52




---



##### 



Home City Financial Corporation NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
 The Banks actual capital amounts and ratios are also presented in the table. (Dollars in thousands)To Be Well CapitalizedFor Capital
    
    
    Under Prompt CorrectiveActual
    
    
    Adequacy Purposes
    
    
    Action ProvisionsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioAs of December 31, 2004Total risk-based capital
(to risk-weighted assets)
    
    $
    12,964
    
    
    
    11.6
    %
    
    $
    8,981
    
    
    
    8.0
    %
    
    $
    11,226
    
    
    
    10.0
    %Tier I capital
(to risk-weighted assets)
    
    
    12,204
    
    
    
    10.9
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    6,736
    
    
    
    6.0Tier I capital
(to adjusted total assets)
    
    
    12,204
    
    
    
    7.8
    
    
    
    6,245
    
    
    
    4.0
    
    
    
    7,806
    
    
    
    5.0Tangible capital
(to adjusted tangible
assets)
    
    
    12,204
    
    
    
    7.8
    
    
    
    2,342
    
    
    
    1.5
    
    
    
    N/A
    
    
    
    N/AAs of December 31, 2003Total risk-based capital
(to risk-weighted assets)
    
    $
    12,644
    
    
    
    12.0
    %
    
    $
    8,414
    
    
    
    8.0
    %
    
    $
    10,518
    
    
    
    10.0
    %Tier I capital
(to risk-weighted assets)
    
    
    11,649
    
    
    
    11.1
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    6,311
    
    
    
    6.0Tier I capital
(to adjusted total assets)
    
    
    11,649
    
    
    
    7.7
    
    
    
    6,077
    
    
    
    4.0
    
    
    
    7,596
    
    
    
    5.0Tangible capital
(to adjusted tangible
assets)
    
    
    11,649
    
    
    
    7.7
    
    
    
    2,279
    
    
    
    1.5
    
    
    
    N/A
    
    
    
    N/A
 The Bank is subject to certain restrictions on the amount of dividends that it may declare without
prior regulatory approval. At December 31, 2004, approximately $1,209,000 of retained earnings was
available for dividend declaration without prior regulatory approval. 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 collectibility or present other
unfavorable features. 53




---



##### 



Home City Financial Corporation NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
 The aggregate amount of loans, as defined, to such related parties were as follows: (Dollars in thousands)Balances, January 1, 2004
    
    $
    1,774New loans, including renewals
    
    
    2,240Payments, etc., including renewals
    
    
    (794
    )Balances, December 31, 2004
    
    $
    3,220
 Deposits from related parties held by the Bank at December 31, 2004 and 2003, totaled $407,000 and
$875,000, respectively. 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 2004 and 2003 were $41,000 and $32,000, respectively. As part of the conversion in 1996, the Company established an ESOP covering substantially all
employees of the Company and Bank. The ESOP acquired shares of the Company common stock at $10 per
share in the conversion with funds provided by a loan from the Company. Accordingly, the common
stock acquired by the ESOP was shown as a reduction of shareholders equity. Shares are released to
participants proportionately as the loan is repaid. Dividends on allocated shares are recorded as
dividends and charged to retained earnings. Dividends on unallocated shares are used to repay the
loan and are treated as compensation expense. 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 expense for the years ended December 31, 2004 and 2003, was $175,000 and $76,000. 2004
    
    
    2003Allocated shares
    
    
    61,363
    
    
    
    51,914Shares released for allocation
    
    
    9,449
    
    
    
    9,449Unearned shares
    
    
    17,061
    
    
    
    26,510Total ESOP shares
    
    
    87,873
    
    
    
    87,873Fair value of unearned shares at December
31
    
    $
    263,000
    
    
    $
    457,000
 The Company also has a Recognition and Retention Plan (RRP) which provides for the award and
issuance of up to 38,088 shares of the Companys stock to members of the Board of Directors and
management. At December 31, 2004, 37,706 shares had been awarded of which 2,414 had
been forfeited. Common stock awarded under the RRP vests ratably over a five-year period,
commencing with the date of the award. Expense recognized under the RRP plan totaled approximately
$26,000 and $20,000 for 2004 and 2003, respectively. NOTE 12: STOCK OPTION PLAN The Company has a fixed option plan under which the Company may grant options that vest over
five years to selected employees for up to 131,422 shares of common stock. The exercise price of
each option is intended to equal the fair value of the Companys stock on the date of grant. An
options maximum term is ten years. 54




---



##### 



Home City Financial Corporation NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
 At December 31, 2004, the weighted average remaining contractual life of all options was 6.5 years.
A summary of the status of the plan at December 31, 2004 and 2003, and changes during the years
then ended is presented below: At December 31, 2004
    
    
    At December 31, 2003Weighted-
    
    
    
    
    
    
    Weighted-Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    PriceOutstanding, beginning of year
    
    
    120,506
    
    
    $
    12.22
    
    
    
    95,935
    
    
    $
    11.70Granted
    
    
    0
    
    
    
    0
    
    
    
    34,571
    
    
    
    13.51Exercised
    
    
    (65,710
    )
    
    
    11.70
    
    
    
    (10,000
    )
    
    
    11.70Forfeited
    
    
    (1,000
    )
    
    
    17.03
    
    
    
    0
    
    
    
    0Expired
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Outstanding, end of year
    
    
    53,796
    
    
    
    12.76
    
    
    
    120,506
    
    
    
    12.22Options exercisable, end of
year
    
    
    26,939
    
    
    
    12.12
    
    
    
    85,935
    
    
    
    11.70
 There were no additional options granted during the year 2004. The following table summarizes information about stock options under the plan outstanding at
December 31, 2004: Options Outstanding
    
    Options ExercisableWeighted-
    
    Weighted-
    
    
    
    
    
    Weighted-Range of
    
    Number
    
    Average Remaining
    
    Average
    
    Number
    
    AverageExercise Prices
    
    Outstanding
    
    Contractual Life
    
    Exercise Price
    
    Exercisable
    
    Exercise Price$11.70 to $13.175
    
    
    51,796
    
    
    6.38 years
    
    $
    12.60
    
    
    
    26,539
    
    
    $
    12.05$17.03
    
    
    2,000
    
    
    8.97 years
    
    $
    17.03
    
    
    
    400
    
    
    $
    17.03
 55




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##### 



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, 2004Income
    
    
    Weighted-Average Shares
    
    
    Per Share AmountBasic earnings per shareIncome from continuing operations
available to common shareholders
    
    $
    682
    
    
    
    793,233
    
    
    $
    0.86Effect of dilutive securitiesStock options and awards
    
    
    0
    
    
    
    15,453Diluted earnings per shareIncome from continuing operations
available to common shareholders and
assumed conversions
    
    $
    682
    
    
    
    808,686
    
    
    $
    0.84
 Stock Awards and options to purchase 4,400 shares of common stock between the price of $17.03 and
$17.25 per share were outstanding at December 31, 2004, but were not included in the computation of
diluted EPS because the options exercise price was greater than the average market price of the
common shares. Year Ended December 31, 2003Income
    
    
    Weighted-Average Shares
    
    
    Per Share AmountBasic earnings per shareIncome from continuing operations
available to common shareholders
    
    $
    649
    
    
    
    750,362
    
    
    $
    0.87Effect of dilutive securitiesStock options and awards
    
    
    0
    
    
    
    16,495Diluted earnings per shareIncome from continuing operations
available to common shareholders
and assumed conversions
    
    $
    649
    
    
    
    766,857
    
    
    $
    0.85
 Stock Awards and options to purchase 7,500 shares of common stock between the prices of $17.03 and
$17.25 per share were outstanding at December 31, 2003, but were not included in the computation of
diluted EPS because the options exercise price was greater than the average market price of the
common shares. 56




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##### 



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)At December 31, 2004
    
    
    At December 31, 2003Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    ValueFinancial assetsCash and cash equivalents
    
    $
    9,595
    
    
    $
    9,595
    
    
    $
    10,473
    
    
    $
    10,473Available-for-sale securities
    
    
    6,432
    
    
    
    6,432
    
    
    
    5,089
    
    
    
    5,089Loans, net
    
    
    130,067
    
    
    
    134,468
    
    
    
    126,512
    
    
    
    134,747Federal Home Loan Bank stock
    
    
    2,360
    
    
    
    2,360
    
    
    
    2,265
    
    
    
    2,265Cash surrender value of life
insurance
    
    
    3,067
    
    
    
    3,067
    
    
    
    2,952
    
    
    
    2,952Interest receivable
    
    
    544
    
    
    
    544
    
    
    
    578
    
    
    
    578Financial liabilitiesDeposits
    
    
    107,204
    
    
    
    107,438
    
    
    
    103,922
    
    
    
    105,422Federal Home Loan Bank advances
    
    
    35,120
    
    
    
    37,688
    
    
    
    34,764
    
    
    
    37,022Interest payable
    
    
    178
    
    
    
    178
    
    
    
    183
    
    
    
    183
 For purposes of the above disclosures of estimated fair value, the following assumptions were used
as of December 57




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##### 



Home City Financial Corporation NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
 For purposes of the above disclosures of estimated fair value, the following assumptions were used
as of December 31, 2004 and 2003. The estimated fair value for cash and cash equivalents,
interest-bearing deposits, FHLB stock, cash surrender value of life insurance, 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, 2004 and 2003,
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, 2004 and 2003, applied for 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
credit-worthiness 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. 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. At December 31, 2004 and 2003, the Bank had outstanding commitments to originate loans aggregating
approximately $2,238,000 and $1,469,000, respectively. The commitments extended
over varying periods of time with the majority being disbursed within a one-year period. Loan
commitments at fixed rates of interest amounted to $1,023,000 and $755,000 at December 31, 2004 and
2003, respectively, with the remainder at floating market rates. 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. The Bank had total outstanding letters of credit amounting to $187,000 and $86,000 at December 31,
2004 and 2003, respectively, with a term of seven months. 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. At December 31, 2004, the Bank had granted unused lines of credit to borrowers aggregating
approximately $4,454,000 and $4,034,000 for commercial lines and open-end consumers lines,
respectively. At December 31, 2003, the Bank had granted unused lines of credit to borrowers
aggregating approximately $4,931,000 and $3,252,000 for commercial lines and open-end consumers
lines, respectively. 58




---



##### 



Home City Financial Corporation NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
 At December 31, 2004, approximately $2,579,000 and $1,460,000 were on deposit at Great Lakes
Bankers Bank and Fifth Third Bank, respectively. At December 31, 2003, approximately $7,852,000 and
$793,000 were on deposit at Great Lakes Bankers Bank and Fifth Third Bank, respectively. NOTE 16: FUTURE CHANGE IN ACCOUNTING PRINCIPLE The Financial Accounting Standards Board recently issued Statement No. 123® Share-Based
Payment, which requires the compensation cost relating to share-based payment transactions be
recognized in financial statements. The Company expects to first apply the new statement during its
fiscal year ending December 31, 2005. The impact of applying the new statement has not been
determined. NOTE 17: CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY ) Presented below is condensed financial information as to financial position, results of
operations and cash flows of the Company: Condensed Balance Sheets (Dollars in thousands)2004
    
    
    2003AssetsCash
    
    $
    260
    
    
    $
    259Investment in common stock of
subsidiary Bank
    
    
    12,232
    
    
    
    11,539Advances to subsidiaries
    
    
    140
    
    
    
    1Other assets
    
    
    103
    
    
    
    108Total assets
    
    $
    12,735
    
    
    $
    11,907Shareholders Equity
    
    $
    12,735
    
    
    $
    11,907
 59




---



##### 



Home City Financial Corporation NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
 Condensed Statements of Income (Dollars in thousands)2004
    
    
    2003IncomeDividends from subsidiary Bank
    
    $
    0
    
    
    $
    220Interest income
    
    
    22
    
    
    
    29Total income
    
    
    22
    
    
    
    249ExpensesOther expenses
    
    
    85
    
    
    
    116Income (Loss) Before Income Tax and Equity in
Undistributed Income of Subsidiaries
    
    
    (63
    )
    
    
    133Income Tax Benefit
    
    
    (22
    )
    
    
    (29
    )Income (Loss) Before Equity in
Undistributed Income of Subsidiaries
    
    
    (41
    )
    
    
    162Equity in Undistributed Income of Subsidiaries
    
    
    723
    
    
    
    487Net Income
    
    $
    682
    
    
    $
    649
 Condensed Statements of Cash Flows (Dollars in thousands)2004
    
    
    2003Operating ActivitiesNet income
    
    $
    682
    
    
    $
    649Items not requiring (providing) cash
    
    
    (537
    )
    
    
    (485
    )Net cash provided by operating activities
    
    
    145
    
    
    
    164Investing Activitiesadvances to subsidiaries
    
    
    (139
    )
    
    
    108Financing ActivitiesCash dividends paid
    
    
    (363
    )
    
    
    (346
    )Purchase of treasury shares
    
    
    (411
    )
    
    
    0Proceeds from stock options exercised
    
    
    769
    
    
    
    117Net cash used in financing activities
    
    
    (5
    )
    
    
    (229
    )Net Change in Cash and Cash Equivalents
    
    
    1
    
    
    
    43Cash and Cash Equivalents at Beginning of Year
    
    
    259
    
    
    
    216Cash and Cash Equivalents at End of Year
    
    $
    260
    
    
    $
    259
 60




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##### 



Home City Financial Corporation NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
 NOTE 18: QUARTERLY FINANCIAL DATA (UNAUDITED) The following tables summarize selected quarterly results of operations for 2004 and 2003. (Dollars in thousands, except per share data)December 31, 2004
    
    March
    
    
    June
    
    
    September
    
    
    DecemberInterest and dividend
income
    
    $
    2,190
    
    
    $
    2,159
    
    
    $
    2,179
    
    
    $
    2,244Interest expense
    
    
    1,094
    
    
    
    1,084
    
    
    
    1,090
    
    
    
    1,102Net interest income
    
    
    1,096
    
    
    
    1,075
    
    
    
    1,089
    
    
    
    1,142Provision for loan losses
    
    
    50
    
    
    
    50
    
    
    
    42
    
    
    
    58Noninterest income
    
    
    52
    
    
    
    49
    
    
    
    57
    
    
    
    81Noninterest expense
    
    
    867
    
    
    
    818
    
    
    
    881
    
    
    
    886Income tax expense
    
    
    63
    
    
    
    75
    
    
    
    72
    
    
    
    97Net income
    
    
    168
    
    
    
    181
    
    
    
    151
    
    
    
    182Earnings per shareBasic
    
    
    0.21
    
    
    
    0.23
    
    
    
    0.19
    
    
    
    0.23Diluted
    
    
    0.21
    
    
    
    0.22
    
    
    
    0.19
    
    
    
    0.22Dividends per share
    
    
    0.11
    
    
    
    0.11
    
    
    
    0.11
    
    
    
    0.11
 December 31, 2003
    
    March
    
    
    June
    
    
    September
    
    
    DecemberInterest and dividend
income
    
    $
    2,349
    
    
    $
    2,302
    
    
    $
    2,301
    
    
    $
    2,219Interest expense
    
    
    1,249
    
    
    
    1,156
    
    
    
    1,133
    
    
    
    1,116Net interest income
    
    
    1,100
    
    
    
    1,146
    
    
    
    1,168
    
    
    
    1,103Provision for loan losses
    
    
    90
    
    
    
    110
    
    
    
    200
    
    
    
    100Noninterest income
    
    
    89
    
    
    
    67
    
    
    
    46
    
    
    
    52Noninterest expense
    
    
    842
    
    
    
    867
    
    
    
    798
    
    
    
    851Income tax expense
    
    
    90
    
    
    
    55
    
    
    
    66
    
    
    
    53Net income
    
    
    167
    
    
    
    181
    
    
    
    150
    
    
    
    151Earnings per shareBasic
    
    
    0.22
    
    
    
    0.24
    
    
    
    0.20
    
    
    
    0.20Diluted
    
    
    0.22
    
    
    
    0.24
    
    
    
    0.20
    
    
    
    0.19Dividends per share
    
    
    0.11
    
    
    
    0.11
    
    
    
    0.11
    
    
    
    0.11
 61




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##### 



ITEM 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. ITEM 8A. Controls and Procedures The Chief Executive Officer and the Chief Financial Officer have reviewed, as of December 31,
2004, the effectiveness of HCFCs disclosure controls and procedures that ensure that information
relating to the Company required to be disclosed by the Company in the reports that it files or
submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized
and reported in a timely and proper manner. Based upon this review, the Company believes that its
disclosure controls and procedures were effective. There were no significant changes in HCFCs
internal controls over financial reporting that occurred during HCFCs fourth fiscal quarter that
has materially affected, or is reasonably likely to materially affect, HCFCs internal control over
financial reporting. ITEM 8B. Other Information Not applicable. 62




---



##### 



PART III ITEM 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16
(a) of the Exchange Act of the Registrant The information set forth under the caption ELECTION OF DIRECTORS and SECTION 16 (a) -
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE of the Definitive Proxy Statement of the Corporation
dated March 26, 2004, filed with the United States Securities and Exchange Commission (the Proxy
Statement) is incorporated by reference herein. HCFC has adopted a Code of Ethics that applies to all directors, executive officers and
employees of HCFC and its subsidiaries. The Code of Ethics has been posted to HCFCs website at
www.homecityfederal.com. Any amendment to or waiver of the Code of Ethics will be posted on such
website. The Board of Directors expects all directors to make every effort to attend meetings of the
shareholders of HCFC. All written communications addressed to an individual director at the
address of HCFC or one of the offices of a subsidiary of HCFC will be forwarded directly to the
director. All written communications addressed to the Board of Directors at the address of HCFC or
one of the offices of a subsidiary of HCFC will be presented to the full Board of Directors at a
meeting of the Board of Directors. The Board of Directors of HCFC has determined that none of its directors is an audit
committee financial expert as defined in 17 C.F.R. Section 228.401(e). The SECs definition of
audit committee financial expert in that rule is limited to people who have obtained their
financial expertise through certain specified experiences, primarily through the preparation or
audit of public company financial statements. HCFCs Audit Committee members have been chosen by
the HCFC Board of Directors based upon a belief that they have the necessary financial knowledge to
fulfill the duties of the Audit Committee, and one of such Audit Committee members qualifies as
financially sophisticated under the rules of The Nasdaq Stock Market. The Board of Directors of
HCFC does not believe it is in the best interests of HCFC to recruit another director merely to
have a director who meets the SECs definition of audit committee financial expert. ITEM 10. Executive Compensation The information set forth under the caption COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
of the Definitive Proxy Statement is incorporated by reference herein. ITEM 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters The information set forth under the caption VOTING SECURITIES AND OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT of the Definitive Proxy Statement is incorporated by reference
herein. 63




---



##### 



Equity Compensation Plan Information Number of securitiesremaining available forNumber of securities to be
    
    
    Weighted-average exercise
    
    
    future issuance underissued upon exercise of
    
    
    price of outstanding
    
    
    equity compensation plansoutstanding options,
    
    
    options, warrants and
    
    
    (excluding securitieswarrants and rights
    
    
    rights
    
    
    reflected in column (a))Plan category
    
    
    (a)
    
    
    (b)
    
    
    (c)Equity compensation
plans approved by
security holders
    
    
    
    53,796

    
    
    
    $
    12.76
    
    
    
    
    4,712
    (1)Equity compensation
plans not approved
by security holders
    
    
    
    -0-
    
    
    
    
    -0-
    
    
    
    
    -0-Total
    
    
    
    53,796
    
    
    
    $
    12.76
    
    
    
    
    4,712
    (1)
   (1)
    
    Of the 4,712 shares, 1,916 remain available for awards of options and 2,796 remain
available for awards under the Home City Financial Corporation Recognition and Retention Plan,
which may purchase the shares on the open market rather than from unissued shares of
HCFC. ITEM 12. Certain Relationships and Related Transactions The information set forth under the caption COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
- Certain Transactions with Home City of the Definitive Proxy Statement is incorporated by
reference herein. ITEM 13. Exhibits Exhibits3.1
    
    Articles of Incorporation (Incorporated by reference)3.2
    
    Code of Regulations (Incorporated by reference)10.1
    
    Employment Agreement with Mr. Stapleton (Incorporated by reference)10.2
    
    Home City Financial Corporation 1997 Stock Option and
Incentive Plan (Incorporated by reference)10.3
    
    Home City Financial Corporation Recognition and Retention Plan
and Trust Agreement (Incorporated by reference)10.4
    
    Deferred Compensation Plan (Incorporated by reference)21
    
    Subsidiaries23
    
    Consent of Auditor31.1
    
    Rule 13a-14(a)/15d-14(a) Certification: CEO31.2
    
    Rule 13a-14(a)/15d-14(a) Certification: CFO32
    
    Section 1350 Certification99.1
    
    Proxy Statement (Incorporated by reference)99.2
    
    Safe Harbor Under the Private Securities Litigation Reform Act of 1995
 64




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##### 



ITEM 14. Principal Accountant Fees and Services The following table presents fees paid by the Company to BKD for the audit of the Companys
annual financial statements for the years ended December 31, 2004 and December 31, 2003, and fees
billed for other services rendered by BKD during those periods. Year ended
    
    
    Year endedType of fees
    
    
    December 31, 2004
    
    
    December 31, 2003Audit fees (1)
    
    
    $
    60,725
    
    
    
    $
    60,600Audit related fees (2)
    
    
    
    3,675
    
    
    
    
    5,785Tax fees (3)
    
    
    
    7,100
    
    
    
    
    6,595All other fees (4)
    
    
    
    -0-
    
    
    
    
    6,805
   (1)
    
    Consists of fees for professional services for the audit of HCFCs annual financial
statements and review of financial statements included in HCFCs Forms 10-QSB, and services
that are normally provided in connection with statutory or regulatory filings or engagements.(2)
    
    Consists of fees for consultation concerning financial accounting and reporting standards
related to the performance of the audit or review of HCFCs financial statements and ACH
audit.(3)
    
    Consists of fees for professional services with respect to tax compliance and tax planning.(4)
    
    Consists of fees for organizational assessment. The Audit Committee of HCFC pre-approves all services provided to HCFC by its auditors, and
all services provided to HCFC described in this Item 14 were so pre-approved. 65




---



##### 



SIGNATURES In accordance with Section 13 or 15 (d) of the Exchange Act, the registrant caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized. HOME CITY FINANCIAL CORPORATION/s/ J. William StapletonJ. William StapletonPresident, Chief Executive Officer and
Chief Operating Officer
 In accordance with the Exchange Act, this report has been signed below by the following
persons on behalf of the registrant and in the capacities on the dates indicated. /s/ Glenn W. Collier
    
    
    
    /s/ John D. ConroyGlenn W. Collier
    
    
    
    John D. ConroyDirector
    
    
    
    Chairman of the BoardMarch 21, 2005
    
    
    
    March 21, 2005Date
    
    
    
    Date/s/ James M. Foreman
    
    
    
    /s/ Terry A. HoppesJames M. Foreman
    
    
    
    Terry A. HoppesDirector
    
    
    
    DirectorMarch 21, 2005
    
    
    
    March 21, 2005Date
    
    
    
    Date/s/ J. William Stapleton
    
    
    
    /s/ Charles A. MihalJ. William Stapleton
    
    
    
    Charles A. MihalDirectorPresident, Chief Executive Officer
and Chief Operating Officer
    
    
    
    Secretary, Treasurer and Chief Financial Officer (and principal accounting officer)March 21, 2005
    
    
    
    March 21, 2005Date
    
    
    
    Date
 66




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##### 



INDEX TO EXHIBITS EXHIBITNUMBER
    
    DESCRIPTION3.1
    
    Articles of Incorporation
    
    Incorporated by reference to the
Registrants Quarterly Report on Form
10-QSB for the Quarter ended March
31, 1997 (the March 24, 1997,
10-QSB), Exhibit 3(I).3.2
    
    Code of Regulations of
Home City Financial
Corporation
    
    Incorporated by reference to the
definitive proxy statement of the
registrant filed on March 24, 2003,
Exhibit A10.1
    
    Employment Agreement with
Mr. Stapleton
    
    Incorporated by reference to the
December 31, 2003, 10-KSB, Exhibit
10.210.2
    
    Home City Financial
Corporation 1997 Stock
Option and Incentive Plan
    
    Incorporated by reference to the
Registrants 1997 Definitive Proxy
Statement dated September 19, 1997,
Exhibit A10.3
    
    Home City Financial
Corporation Recognition
and Retention Plan and
Trust Agreement
    
    Incorporated by reference to the
Registrants 1997 Definitive Proxy
Statement dated September 19, 1997,
Exhibit B10.4
    
    Deferred Compensation Plan
    
    Incorporated by reference to the
December 31, 2003, 10-KSB, Exhibit
10.521
    
    Subsidiaries23
    
    Consent of Auditor31.1
    
    Rule 13a-14(a)/15d-14(a)
Certification: CEO31.2
    
    Rule 13a-14(a)/15d-14(a)
Certification: CFO32
    
    Section 1350 Certification91.1
    
    Proxy Statement
    
    Incorporated by reference to the
definitive Proxy Statement of the
Registrant for the 2005 Annual
Meeting of Shareholders of Home City
Financial Corporation, filed with
the Securities and Exchange Commission.99.2
    
    Safe Harbor Under the
Private Securities
Litigation Reform Act of
1995
 67