SecProbe.io

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(HOME CITY LETTERHEAD)

August 4, 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:

         Again I thank you and Margaret Fitzgerald for allowing us to share
additional factors supporting our position on the accounting matters relative to
our FNMA preferred stock in our conference call this morning. I indicated I
would provide support for the two additional requests you made regarding support
data for our December 31, 2004, position and a forecast as to when we expect the
value of these instruments to be equal or greater than our carrying value.

SUPPORT DATA FOR DECEMBER 31, 2004:

         I have attached chronologically the series of "Strategic Insight"
publications by Vining Sparks that we used in developing our position at
December 31, 2004. The February 11, 2004, publication, which was attached to my
first response to your July 5th Comment Letter, was our focal point. The
rationale segment of that publication starting on page 1 was the key basis for
our position. We felt, and still feel, that we have the intent and ability to
hold until favorable market conditions are attained. The last publication in the
series dated January 18, 2005, depicts the scenario in which others opted to
record impairment of some of these agency issues. The credit worthiness impact
was weighed by us and our auditors and the events at FNMA on September 22, 2004,
did have an effect on their credit ratings, but the FNMA common stock dropped
some 14% while the preferred stock issues were only impacted by a 0.25% - 3.00%
downward shift. Our particular liquidity position, which was another factor in
the decision, stood strongly at 18.79% at December 31, 2004, enforcing our
ability to hold these instruments. Historical evidence especially in 2000, again
bears evidence that impairment of these "bond-like" equity issues have shown
their recoverability. There are no prepayment

   HOME CITY FINANCIAL CORPORATION, 2454 N. LIMIESTONE STREET, P.O. BOX 1288,
           SPRINGFIELD, OHIO 45501, TEL 937-390-0470, FAX 937-390-0879

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issues nor dividend recall issues. All of these factors entered our management's
decision not to record impairment at December 31, 2004, and that position was
sustained upon review by our auditors, BKD, LLP, as stated directly to you in
our previous conference call.

RECOVERABILITY:

         If we were to extend the 2-year Treasury forecast by the average growth
rate of the 65 economists relative to the U.S. overnight bank lending rate, a
key rate benchmark, it would result in a rate growth of 8.72% per year which
when applied, year-over-year, to the projected 5.65% at year end 2006 results in
attainment of equal to or greater value than our carrying value by May 2009 for
the FNMA Series F issue and by March 2008 for the FNMA Series G issue. (See
calculations on attached Exhibits II and V.) Of course, rates may rise much
faster and in the duration the investments are paying a market rate dividend.
This is within the five years I mentioned in our first reply and the diminishing
impact on our unrealized loss will have favorable capital implications until
full recovery at point of sale.

         We acknowledge that:

         o        we are responsible for the adequacy and accuracy of the
                  disclosures in our filing to the SEC; and

         o        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

         o        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.

         Again we greatly appreciate your further consideration in this matter.

Sincerely,

/s/ CHARLES A. MIHAL

Charles A. Mihal
Secretary, Treasurer and CFO

                                      -2-

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[STRATEGIC INSIGHT LOGO]                                    [VINING SPARKS LOGO]
PRODUCTS AND STRATEGIES FOR THE FIXED-INCOME INVESTOR
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AGENCY PREFERRED STOCKS MAY BE SUBJECT TO           SI 03-25 o AUGUST 14, 2003
OTHER-THAN-TEMPORARY IMPAIRMENT

Other-than-temporary impairment is an accounting concept which will certainly
receive more attention in the coming year. The attention is likely to arise for
two distinctively different reasons.

First and foremost, FASB's Emerging Issues Task Force (EITF) has been working on
a project relative to guidance on the impairment concept. It seems likely that a
consensus will be reached in the next six to nine-months, providing some
additional guidance on the impairment of certain types of debt and equity
securities. Further discussion of the EITF's work is contained later in this
Strategic Insight.

Second, at least two institutions have been directed by their accountants to
record other-than-temporary impairment for certain floating rate agency
preferred stocks. Whether their decisions to impair will be the beginning of a
trend or just isolated exceptions remains to be seen. Both institutions were
audited by the same office of Deloitte & Touche.

Before summarizing the EITF's discussions related to possible future guidance,
it is worth reviewing current guidance and the cases where impairment has been
recognized.

CURRENT GUIDANCE ON OTHER-THAN-TEMPORARY IMPAIRMENT

The concept of other-than-temporary impairment (OTTI) is discussed in FAS 115.
In general, it has been applied to cases of significant credit deterioration.
Impairment applies to all debt and equity securities covered by FAS 115
regardless of whether they are classified as AFS or HTM.
Please note that the bold font was added for emphasis.

   FROM STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 115 - ACCOUNTING FOR
   CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES

   IMPAIRMENT OF SECURITIES

   16. FOR INDIVIDUAL SECURITIES CLASSIFIED AS EITHER AVAILABLE-FOR-SALE OR
   HELD-TO-MATURITY, AN ENTERPRISE SHALL DETERMINE WHETHER A DECLINE IN FAIR
   VALUE BELOW THE AMORTIZED COST BASIS IS OTHER THAN TEMPORARY. FOR EXAMPLE, IF
   IT IS PROBABLE THAT THE INVESTOR WILL BE UNABLE TO COLLECT ALL AMOUNTS DUE
   ACCORDING TO THE CONTRACTUAL TERMS OF A DEBT SECURITY NOT IMPAIRED AT
   ACQUISITION, AN OTHER-THAN-TEMPORARY IMPAIRMENT SHALL BE CONSIDERED TO HAVE
   OCCURRED. If the decline in fair value is judged to be other than temporary,
   the cost basis of the individual security shall be written down to fair value
   as a new cost basis and the amount of the write-down shall be included in
   earnings (that is, accounted for as a realized loss). The new cost basis
   shall not be changed for subsequent recoveries in fair value. Subsequent
   increases in the fair value of available-for-sale securities shall be
   included in the separate component of equity pursuant to paragraph 13;
   subsequent decreases in fair value, if not an other-than-temporary
   impairment, also shall be included in the separate component of equity.

   FROM A GUIDE TO IMPLEMENTATION OF STATEMENT 115 ON ACCOUNTING FOR CERTAIN
   INVESTMENTS IN DEBT AND EQUITY SECURITIES IMPAIRMENT OF SECURITIES -
   PARAGRAPH 16

   46. Q--Paragraph 16 provides an example of when a decline in the fair value
   of a debt security is other than temporary. What other factors indicate that
   impairment is other than temporary? How is an equity security evaluated for
   other-than-temporary impairment?

      A--Statement 115 does not specifically address these questions, but
   incorporates by reference two other sources of literature that should be
   considered in evaluating impairment: SEC Staff Accounting Bulletin No.59,
   Accounting for Noncurrent Marketable Equity Securities, and AICPA Auditing
   Interpretation, Evidential Matter for the Carrying Amount of Marketable
   Securities. 14 These documents have been reproduced in Appendix B. Although
   paragraph 16 of Statement 115 mentions a decline in a security's value due to
   a deterioration in the issuer's creditworthiness, RECOGNITION OF
   OTHER-THAN-TEMPORARY IMPAIRMENT ALSO MAY BE REQUIRED IF THE SECURITY WILL BE
   DISPOSED OF BEFORE IT MATURES OR THE INVESTMENT IS NOT REALIZABLE AND THE
   DECLINE IN A SECURITY'S VALUE IS DUE TO AN INCREASE IN MARKET INTEREST RATES
   or a change in foreign exchange rates since acquisition.

The Securities and Exchange Commission discusses OTTI in its Staff Accounting
Bulletin (SAB) 59 which was codified under SAB 103. Please note that the bold
sections are not part of the official guidance but are included to highlight
specific passages.

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         The foregoing statements are not guaranteed, but are based on
              information believed to be accurate and reliable. Any
             opinions expressed herein are subject to change without
                                     notice.
                                Member NASD/SIPC

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SI 03-25 o AUGUST 14, 2003                            [STRATEGIC INSIGHT LOGO]
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Following is an excerpt:

   OTHER THAN TEMPORARY IMPAIRMENT OF CERTAIN INVESTMENTS IN DEBT AND EQUITY
   SECURITIES

   Facts: Paragraph 16 of Statement 115 specifies that "[f]or individual
   securities classified as either available-for-sale or held-to-maturity, an
   enterprise shall determine whether a decline in fair value below the
   amortized cost basis is other than temporary. . . If the decline in fair
   value is judged to be other than temporary, the cost basis of the individual
   security shall be written down to fair value as a new cost basis and the
   amount of the write-down shall be included in earnings (that is, accounted
   for as a realized loss)." Statement 115 does not define the phrase "other
   than temporary." In applying this guidance to its own situation, Company A
   has interpreted "other than temporary" to mean permanent impairment.
   Therefore, because Company A's management has not been able to determine that
   its investment in Company B is permanently impaired, no realized loss has
   been recognized even though the market price of B's shares is currently less
   than one-third of A's average acquisition price.

   Question: Does the staff believe that the phrase "other than temporary"
   should be interpreted to mean "permanent"?

   Interpretive Response: No. The staff believes that the FASB consciously chose
   the phrase "other than temporary" because it did not intend that the test be
   "permanent impairment," as has been used elsewhere in accounting practice.

   The value of investments in marketable securities classified as either
   available-for-sale or held-to-maturity may decline for various reasons. The
   market price may be affected by general market conditions which reflect
   prospects for the economy as a whole or by specific information pertaining to
   an industry or an individual company. Such declines require further
   investigation by management. Acting upon the premise that a write-down may be
   required, management should consider all available evidence to evaluate the
   realizable value of its investment.

   THERE ARE NUMEROUS FACTORS TO BE CONSIDERED IN SUCH AN EVALUATION AND THEIR
   RELATIVE SIGNIFICANCE WILL VARY FROM CASE TO CASE. THE STAFF BELIEVES THAT
   THE FOLLOWING ARE ONLY A FEW EXAMPLES OF THE FACTORS WHICH, INDIVIDUALLY OR
   IN COMBINATION, INDICATE THAT A DECLINE IS OTHER THAN TEMPORARY AND THAT A
   WRITE-DOWN OF THE CARRYING VALUE IS REQUIRED:

   A.THE LENGTH OF THE TIME AND THE EXTENT TO WHICH THE MARKET VALUE HAS BEEN
   LESS THAN COST;

   B.THE FINANCIAL CONDITION AND NEAR-TERM PROSPECTS OF THE ISSUER, INCLUDING
   ANY SPECIFIC EVENTS WHICH MAY INFLUENCE THE OPERATIONS OF THE ISSUER SUCH AS
   CHANGES IN TECHNOLOGY THAT MAY IMPAIR THE EARNINGS POTENTIAL OF THE
   INVESTMENT OR THE DISCONTINUANCE OF A SEGMENT OF THE BUSINESS THAT MAY AFFECT
   THE FUTURE EARNINGS POTENTIAL; OR

   C.THE INTENT AND ABILITY OF THE HOLDER TO RETAIN ITS INVESTMENT IN THE ISSUER
   FOR A PERIOD OF TIME SUFFICIENT TO ALLOW FOR ANY ANTICIPATED RECOVERY IN
   MARKET VALUE.

   UNLESS EVIDENCE EXISTS TO SUPPORT A REALIZABLE VALUE EQUAL TO OR GREATER THAN
   THE CARRYING VALUE OF THE INVESTMENT, A WRITE-DOWN TO FAIR VALUE ACCOUNTED
   FOR AS A REALIZED LOSS SHOULD BE RECORDED. In accordance with the guidance of
   paragraph 16 of Statement 115, such loss should be recognized in the
   determination of net income of the period in which it occurs and the written
   down value of the investment in the company becomes the new cost basis of the
   investment.

Historically, impairment of debt securities has not been triggered by interest
rate movements. For example, in 2000 when interest rates peaked, most investment
portfolios were at significant aggregate losses and very few individual
securities has gains. Nevertheless, impairment was not recognized by
institutions as a result of the rise in interest rates. There were, however, a
few cases of impairment of corporate debt securities which were suffering from
credit issues and trading at distressed levels. Highlighting the issues present
at the time, we published a December 2000 Strategic Insight entitled "Downgrades
May Trigger Special Accounting and Regulatory Classifications". That research
report is included at the end of this report.

There are, however, other types of securities whose changes in values can be
correlated to interest rates but which may not, according to some accountants,
benefit from the change-in-interest-rates exemption applied to debt securities.

IMPACT OF OTTI

When OTTI is recorded on a security, the write-down is taken through income,
thereby producing a presumably significant and presumably one-time charge. If
the security which is impaired was classified as AFS, since the mark-to-market
of the security is an offset to GAAP capital, that capital is unaffected by the
impairment.

Since the AFS adjustment for debt securities does not impact regulatory capital
calculations for financial institutions, the realized loss from impairing a debt
security would have a regulatory capital impact. The AFS adjustment for equity
securities, on the other hand, does impact regulatory capital. As a result,
recording OTTI for an equity security would not impact GAAP or regulatory
capital, only income.

RECENT EVENTS

Over the past six months, we have become aware of two institutions which have
recorded OTTI for floating rate agency preferred stocks. The stocks have seen
their values fall as interest rates have fallen. In fact, it can be well
documented that the decline in value of the securities is primarily, if not
exclusively, a result of the decline in interest rates since their issue.

While it is worth noting that both institutions were audited by the same office
of Deloitte& Touche, it is possible that other offices and other accounting
firms may come to the same conclusion. Alternatively, it is also possible that,
in time, these will

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