SEC Company Response from HOME CITY FINANCIAL CORP (CIK 0001022103) — Aug 30, 2005
HOME CITY FINANCIAL CORP (CIK 0001022103)
Date: Aug. 30, 2005 · CIK: 0001022103 · Accession: 0000950152-05-007375
AI Filing Summary & Sentiment
File numbers found in text: 000-21809
Letter
Division of Corporation Finance United States Securities and Exchange Commission Home City Financial Corporation Registration Statement on Form 10-KSB Filed March 21, 2005 File No. 000-21809
Dear Mr. Walker:
I want to thank you and Margaret Fitzgerald of your office for hearing our position in the accounting treatment of the two issues of FNMA preferred stock held at December 31, 2004. The conference call at 10:00 a.m. on Thursday, July 28th, which also included our Assistant CFO, Donna Williams, and our audit partner from BKD, LLP, Craig Lynam, enabled us to share the key factors that our management considered in evaluating potential impairment. The foremost of these factors continues to be our intent and ability to hold these investments until more favorable market interest rate scenarios are attained. Upon graciously hearing our contentions you suggested that we provide additional, more specific, supporting documentation relating to our stance such as economic experts’ opinions regarding trends in rates, economic expectations, and also similar investments’ performance in comparable market conditions. In keeping with your admonition also that we do this as soon as possible, since we are approaching the second quarter Form 10-QSB filing deadline, I have gathered such data and present it as follows:
ECONOMIC AND INTEREST RATE FACTORS:
•
Our contention that the economy is improving is supported by the most recent (July 12) “U.S. Economic Forecasts: Bloomberg Monthly Survey (Table)” (Exhibit I) which shows the median of 65 economists’ forecasts of key U.S. economic indicators inclusive of GDP, consumer spending, unemployment rate, consumer prices YOY%, federal funds target and ten-year note.
•
I have also provided a detail table of the 65 economists’ forecasts for the U.S. overnight bank lending rate (Exhibit II) showing the names of the economists queried and inclusive, I believe, of the one you referred to in our phone discussion as well as several we follow, such as Brian Wesbury of Claymore Investments of Chicago.
•
I have included Wesbury’s most recent detailed economic and interest rate forecast table summarizing actual 2004: Q1 through 2005: Q1 and forecasting seven quarters beyond through 2006: Q4. (Exhibit III).
SIMILAR INVESTMENTS’ PERFORMANCE:
I have included several charts of similar financial investments’ historical performance as provided by Mark Evans, the Vining Sparks CFA, Senior Vice President whose letter regarding OTTI Treatment as it relates to floating rate agency preferred stocks was attached to our July 22nd reply to your July 5th Comment Letter. A significant additional factor noted in his e-mailed comments relative to these charts, included herein, (Exhibit IV) is that “the market has historically not priced in future resets on these preferred stocks until just a few months before the dividend reset dates”. Of course, the prevailing factor remains the trend in interest rates. Both of the FNMA issues we hold are tied to the 2-year Constant Maturity Treasury (CMT). I have charted the expected reset price based on the 2-year Treasury forecast in Exhibit III and show the results in Exhibit V indicating our projection of value at point of reset is $854,270 versus our cost of $910,180, almost 94% of cost. This represents a loss before taxes of only $55,910 versus $254,080 at December 31, 2004.
It is our contention that the forecasted improvement in the economy and interest rate scenarios and the recent historical performance of investments similar to ours supports management’s judgment and decision at December 31, 2004, regarding the accounting treatment of the two investments in question. While reviewing quarterly, we continue to believe that actual interest rate increases support our previous position and recovery of the unrealized loss will occur in the quarters in which they are due to reset ie: first quarter 2006 for the FNMA Series F issue and third quarter 2006 for the FNMA Series G issue.
We feel we have presented some additional compelling reasons supporting our position. We hope, upon your review of this data, that you concur with that position.
-2-
We acknowledge that:
•
we are responsible for the adequacy and accuracy of the disclosures in our filing to the SEC; and
•
we realize that any SEC staff comments or changes to disclosure that we may make in response to staff comments do not foreclose the SEC from taking any action with respect to the filing; and
•
we realize that we may not assert staff comments as a defense in any proceeding initiated by the SEC or any person under the federal securities laws of the United States.
We greatly appreciate your further consideration in this matter.
Sincerely,
/s/ Charles A. Mihal
Show Raw Text
CORRESP
1
filename1.htm
Home City Financial Corporation Correspondenc
August 3, 2005
Mr. Don Walker
Sr. Assistant Chief Accountant
Division of Corporation Finance
United States Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Re:
Home City Financial Corporation
Registration Statement on Form 10-KSB
Filed March 21, 2005
File No. 000-21809
Dear Mr. Walker:
I want to thank you and Margaret Fitzgerald of your office for hearing our position in the
accounting treatment of the two issues of FNMA preferred stock held at December 31, 2004. The
conference call at 10:00 a.m. on Thursday, July 28th, which also included our Assistant
CFO, Donna Williams, and our audit partner from BKD, LLP, Craig Lynam, enabled us to share the key
factors that our management considered in evaluating potential impairment. The foremost of these
factors continues to be our intent and ability to hold these investments until more favorable
market interest rate scenarios are attained. Upon graciously hearing our contentions you suggested
that we provide additional, more specific, supporting documentation relating to our stance such as
economic experts’ opinions regarding trends in rates, economic expectations, and also similar
investments’ performance in comparable market conditions. In keeping with your admonition also
that we do this as soon as possible, since we are approaching the second quarter Form 10-QSB filing
deadline, I have gathered such data and present it as follows:
ECONOMIC AND INTEREST RATE FACTORS:
•
Our contention that the economy is improving is supported by the most recent (July
12) “U.S. Economic Forecasts: Bloomberg Monthly Survey (Table)” (Exhibit I) which
shows the median of 65 economists’ forecasts of key U.S. economic indicators inclusive
of GDP, consumer spending, unemployment rate, consumer prices YOY%, federal funds
target and ten-year note.
•
I have also provided a detail table of the 65 economists’ forecasts for the U.S.
overnight bank lending rate (Exhibit II) showing the names of the economists queried
and inclusive, I believe, of the one you referred to in our phone discussion as well
as several we follow, such as Brian Wesbury of Claymore Investments of Chicago.
•
I have included Wesbury’s most recent detailed economic and interest rate forecast
table summarizing actual 2004: Q1 through 2005: Q1 and forecasting seven quarters
beyond through 2006: Q4. (Exhibit III).
SIMILAR INVESTMENTS’ PERFORMANCE:
I have included several charts of similar financial investments’ historical performance as
provided by Mark Evans, the Vining Sparks CFA, Senior Vice President whose letter regarding OTTI
Treatment as it relates to floating rate agency preferred stocks was attached to our July
22nd reply to your July 5th Comment Letter. A significant additional factor
noted in his e-mailed comments relative to these charts, included herein, (Exhibit IV) is that
“the market has historically not priced in future resets on these preferred stocks until just a few
months before the dividend reset dates”. Of course, the prevailing factor remains the trend in
interest rates. Both of the FNMA issues we hold are tied to the 2-year Constant Maturity Treasury
(CMT). I have charted the expected reset price based on the 2-year Treasury forecast in Exhibit
III and show the results in Exhibit V indicating our projection of value at point of reset is
$854,270 versus our cost of $910,180, almost 94% of cost. This represents a loss before taxes of
only $55,910 versus $254,080 at December 31, 2004.
It is our contention that the forecasted improvement in the economy and interest rate
scenarios and the recent historical performance of investments similar to ours
supports management’s judgment and decision at December 31, 2004, regarding the accounting
treatment of the two investments in question. While reviewing quarterly, we continue to believe
that actual interest rate increases support our previous position and recovery of the unrealized
loss will occur in the quarters in which they are due to reset ie: first quarter 2006 for the FNMA
Series F issue and third quarter 2006 for the FNMA Series G issue.
We feel we have presented some additional compelling reasons supporting our position. We
hope, upon your review of this data, that you concur with that position.
-2-
We acknowledge that:
•
we are responsible for the adequacy and accuracy of the disclosures in our filing
to the SEC; and
•
we realize that any SEC staff comments or changes to disclosure that we may make in
response to staff comments do not foreclose the SEC from taking any action with
respect to the filing; and
•
we realize that we may not assert staff comments as a defense in any proceeding
initiated by the SEC or any person under the federal securities laws of the United
States.
We greatly appreciate your further consideration in this matter.
Sincerely,
/s/ Charles A. Mihal
Charles A. Mihal
Secretary, Treasurer and CFO
-3-
EXHIBIT I
BN
U.S. Economic Forecasts: Bloomberg Monthly Survey (Table)
Jul 12 2005 0:00
By Alex Tanzi
July 12 (Bloomberg) — The following table shows the median of 65 economists’
forecasts for U.S. economic indicators as surveyed by Bloomberg from June 30-July 11. All figures
are expressed as of the end of the quarter except for GDP, which is at a quarterly annualized rate.
2Q
3Q
4Q
1Q
2Q
Avg.
2005
2005
2005
2006
2006
2005
Gros domestic product
3.3%
3.5%
3.4%
3.4%
3.4%
3.6%
Previous survey
3.3%
3.4%
3.3%
3.3%
3.3%
3.5%
Consumer spending
3.2%
3.2%
3.2%
3.2%
3.2%
3.6%
Previous survey
3.2%
3.1%
3.1%
3.0%
3.0%
3.5%
Unemployment rate
5.1%
5.1%
5.1%
5.0%
5.0%
5.1%
Previous survey
5.2%
5.1%
5.1%
5.1%
5.0%
5.2%
Consumer prices YOY%
3.0%
2.9%
2.7%
2.6%
2.4%
3.0%
Previous survey
2.9%
2.9%
2.8%
2.6%
2.5%
2.9%
3Q
4Q
1Q
2Q
3Q
4Q
2005
2005
2006
2006
2006
2006
Fed funds target
3.75%
4.00%
4.00%
4.00%
4.25%
4.25%
Previous survey
3.75%
3.75%
4.00%
4.00%
4.25%
n/a
Ten-year note
4.30%
4.50%
4.70%
4.75%
4.75%
4.90%
Previous survey
4.40%
4.60%
4.80%
4.90%
5.00%
n/a
—Editors: Miller, Barrett
Story illustration: To chart quarterly changes in the U.S. gross domestic product,
adjusted for inflation: {GDP CQOQ <Index> GP <GO>)
For more economic surveys: {OUTL <GO>)
For more information on economic releases: {ECO<GO>)
For more data on gross domestic product: (GDP <GO>)
For today’s business and financial stories: {TOP <GO>)
For stories about Federal Reserve actions: {FEDU<GO>)
For a slide show of graphs showing the performance of
To contact the reporter on this story:
Alex Tanzi in Washington (202) 624-1959 or atanzi@bloomberg.net
To contact the editor for this story:
Terry Barrett at (44) (20) 7673-2461 or tbarrettl@bloomberg.net
BLOOMBERG - Your definitive source
If you need help on the BLOOMBERG press the HELP key twice
Copyright (c) 2005, Bloomberg, L. P.
2 of 3
BN
U.S. Federal Funds Forecasts: BN Monthly Survey (Table)
Jul 12 2005 7:28
CSM Worldwide
A. Kahn
3.50%
3.50%
4.25%
4.50%
4.50%
4.50%
Desjardins Group
G. Soucy
3.50%
3.50%
3.50%
3.50%
3.75%
4.25%
Deutsche Bank
Hooper/Lavorgna
3.75%
4.00%
4.25%
4.50%
4.75%
5.00%
Econ. Consulting
K. Kobe
3.75%
4.00%
4.00%
4.00%
4.00%
4.00%
Economy.com
M. Zandi
3.75%
4.00%
4.50%
4.50%
4.75%
5.00%
Essen Hyp
D. Chlench
3.75%
4.25%
4.50%
4.75%
5.00%
5.00%
Fannie Mae
Berson/Velz
3.50%
3.75%
4.00%
4.25%
4.25%
4.25%
First Albany
H. Johnson Jr.
3.75%
4.00%
4.25%
4.25%
4.25%
4.25%
Genetski Financial
R. Genetski
3.50%
4.00%
4.00%
4.00%
4.00%
4.00%
Georgia State
R. Dhawan
3.50%
4.00%
4.00%
4.25%
4.25%
4.25%
Global Insight
N. Gault
3.75%
4.00%
4.00%
4.00%
4.00%
4.00%
Goldman Sachs
E. McKelvey
3.75%
4.00%
4.25%
4.50%
4.50%
4.50%
High Frequency
I. Shepherdson
3.75%
4.25%
4.50%
n/a
n/a
n/a
ING Barings
J. Knightley
3.75%
4.00%
4.25%
4.25%
4.25%
4.25%
IXIS
M. Ripert
3.75%
4.00%
4.25%
4.25%
n/a
n/a
John Dunham Assoc.
J. Dunham
3.75%
4.00%
4.25%
4.50%
4.50%
4.50%
Time period
3Q
4Q
1Q
2Q
3Q
4Q
2005
2005
2006
2006
2006
2006
J.P. Morgan
B. Baldino
3.75%
4.25%
4.50%
4.50%
4.50%
4.50%
Landesbank
R. Umlauf
3.75%
4.00%
4.25%
4.25%
n/a
n/a
Laurentian Bank
C. Leitao
3.75%
4.00%
4.00%
4.00%
4.00%
n/a
Lehman
J. Abate
3.75%
4.00%
4.00%
4.00%
4.00%
4.00%
MFR
J. Shapiro
3.75%
4.00%
4.00%
4.00%
4.00%
4.00%
Mizuho Sec.
G. Haberbush
3.75%
4.00%
4.00%
4.00%
n/a
n/a
Morgan Keegan
D. Ratajczak
3.75%
4.00%
4.25%
4.25%
4.25%
4.25%
Morgan Stanley
R. Berner
3.75%
4.00%
4.25%
4.50%
4.50%
4.50%
Mortgage Bankers
D. Duncan
3.50%
3.75%
4.00%
4.25%
n/a
n/a
NAHB
D. Seiders
3.75%
4.00%
4.25%
4.25%
4.25%
4.25%
NAR
Lereah/Yun
3.50%
3.75%
4.00%
4.00%
4.00%
4.00%
Naroff Economics
J. Naroff
3.50%
4.00%
4.25%
4.50%
4.75%
4.75%
PNC
S. Hoffman
3.50%
3.75%
4.00%
4.25%
4.25%
4.00%
Rasbank SPA
M. Radaelli
3.75%
4.00%
4.00%
4.00%
4.00%
4.00%
RBS Greenwich Cap.
S. Stanley
3.75%
4.25%
4.75%
5.00%
5.25%
5.50%
SIOR
J. Smith
3.50%
3.50%
3.50%
3.50%
3.50%
3.50%
Societe Generale
S. Gallagher
3.25%
3.25%
3.25%
3.25%
3.25%
3.25%
Time period
3Q
4Q
lQ
2Q
3Q
4Q
2005
2005
2006
2006
2006
2006
SwissRe
K. Karl
n/a
4.00%
4.25%
4.50%
4.50%
4.50%
Sumitomo
E. Ying
3.75%
3.75%
3.75%
3.75%
3.50%
3.25%
TD Securities
Gomez/Levesque
3.50%
3.75%
4.00%
4.00%
3.75%
3.50%
UBS Warburg
J. O’Sullivan
3.75%
4.00%
4.00%
4.00%
4.00%
4.00%
ULPIA
L. Noto
3.50%
3.75%
4.25%
4.50%
4.50%
4.50%
US Trust
R. McGee
3.75%
4.00%
4.00%
4.00%
4.00%
3.50%
Bloomberg - Your definitive source
If you need help on the BLOOMBERG press the HELP key twice
Copyright (c) 2005, Bloomberg, L. P.
3 of 3
BN
U.S. Federal Funds Forecasts: BN Monthly Survey (Table)
Jul 12 2005 7:28
U. of Maryland
P. Morici
3.75%
4.00%
4.00%
4.00%
4.00%
4.00%
U. of Texas El Paso
T. Fullerton
3.50%
3.75%
4.00%
4.00%
4.00%
4.00%
Wachovia
J. Silvia
3.50%
3.75%
3.75%
4.00%
4.25%
4.50%
West Pac
J. Shugg
3.50%
4.00%
4.00%
4.50%
4.50%
4.50%
Wells Capital Mnge.
G. Schlossberg
3.75%
4.00%
4.00%
4.00%
3.75%
3.50%
Wells Fargo Eco.
S. Anderson
3.75%
4.00%
4.00%
n/a
n/a
n/a
—Editors: Miller, Barrett
Story illustration: To chart the federal funds rate target:
(FDTR <Index> GP M <GO>); To chart the discount rate:
(DISC <Index> GP)
To view Fed fund futures (FFA <Cmdty> CT <GO>)
For more economic surveys: (OUTL <GO>)
For more information on economic releases: (ECO <GO>)
For more information on the FOMC: (FOMM <GO>)
For today’s business and financial stories: (TOP <GO>)
For stories about Federal Reserve actions: (FEDU <GO>)
To contact the reporter on this story:
Alex Tanzi in Washington (202) 624-1959 or atanzi@bloomberg.net
To contact the editor for this story:
Terry Barrett at (44) (20) 7673-2461 or tbarrett1@bloomberg.net
[TAGINFO]
NI ECO
NI BON
NI CEN
NI GBN
NI US
NI FED
NI GOV
NI USECO
NI ECOSURV
NI SURVFEDFD
NI MMK
NI RP
NI RVU
NI TABLE
Index news:
FDTR <Index>
#<610816.7367<8>#
-0- Jul/12/2005 11:28 GMT
Bloomberg - Your definitive source
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Copyright (c) 2005, Bloomberg, L. P.
EXHIBIT III
Actual
Forecasts (In Bold)
Economy
2004:Q1
2004:Q2
2004:Q3
2004:Q4
2005:Q1
2005:Q2
2005:Q3
2005:Q4
2006:Q1
2006:Q2
2006:Q3
2006:Q4
Nominal GDP
11472.6
11657.5
11814.9
11994.8
12191.7
12419.9
12652.4
12874.2
13106.1
13348.3
13595.0
13839.8
% change*
7.4
6.6
5.5
6.2
6.7
7.7
7.7
7.2
7.4
7.6
7.6
7.4
Real GDP(1)
10697.5
10784.7
10891.0
10994.3
11088.8
11195.4
11311.1
11428.1
11537.9
11648.8
11755.1
11856.6
% change*
4.5
3.3
4.0
3.8
3.5
3.9
4.2
4.2
3.9
3.9
3.7
3.5
Implicit Price Deflator
107.3
108.2
108.6
109.2
110.0
111.0
112.0
112.8
113.8
114.8
115.9
117.1
% change*
2.8
3.2
1.4
2.3
3.2
3.8
3.5
3.0
3.5
3.7
3.9
3.9
Real Pers. Cons.
Exp (1)
7543.0
7572.4
7667.8
7747.0
7816.5
7889.7
7963.6
8034.4
8101.8
8167.8
8230.4
8291.4
% change*
4.1
1.6
5.1
4.2
3.6
3.8
3.8
3.6
3.4
3.3
3.1
3.0
Nonresidential Fixed Inv.(1)
1173.0
1207.9
1245.3
1288.3
1299.5
1324.7
1353.6
1381.5
1408.3
1435.7
1461.9
1486.8
% change*
4.2
12.4
13.0
14.5
3.5
8.0
9.0
8.5
8.0
8.0
7.5
7.0
Consumer Price Index
186.6
188.6
189.4
191.0
192.2
194.3
196.0
197.4
199.2
201.0
203.0
205.0
% change*
3.9
4.4
1.6
3.6
2.4
4.5
3.5
3.0
3.6
3.8
4.0
4.0
“Core” CPI
195.0
196.2
197.1
198.2
199.5
200.6
202.1
203.7
205.5
207.5
209.5
211.6
% change*
1.9
2.5
1.7
2.3
2.6
2.3
2.9
3.3
3.6
3.8
4.0
4.0
Industrial Production
113.9
115.1
115.9
117.1
118.2
119.2
120.8
122.3
123.9
125.4
127.0
128.5
% change*
5.4