-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Qp/tVS6zpqUpA9AD2l9cgIVDGb837T3XlHuaqVUSujuOEZEtvD7ondFcvD9Hn32b 3o986gq9SFzxA6LkBSEj5g== 0000950152-97-002631.txt : 19970403 0000950152-97-002631.hdr.sgml : 19970403 ACCESSION NUMBER: 0000950152-97-002631 CONFORMED SUBMISSION TYPE: 10KSB/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970402 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAMCO FINANCIAL CORP CENTRAL INDEX KEY: 0000016614 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTIONS, NOT FEDERALLY CHARTERED [6036] IRS NUMBER: 510110823 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-25196 FILM NUMBER: 97573658 BUSINESS ADDRESS: STREET 1: 814 WHEELING AVENUE CITY: CAMBRIDGE STATE: OH ZIP: 43725 BUSINESS PHONE: 6144325641 10KSB/A 1 CAMCO FINANCIAL CORPORATION / 10KSB/A 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB/A1 [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________________ to _________________ Commission File Number: 0-25196 ------- CAMCO FINANCIAL CORPORATION - --------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 51-0110823 - ------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 814 Wheeling Avenue, Cambridge, Ohio 43725 - ---------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (614) 432-5641 Securities registered pursuant to Section 12(b) of the Act: None None - ------------------------------ ---------------------------------------- (Title of Each Class) (Name of exchange on which registered) Securities registered pursuant to Section 12(g) of the Act: Common Stock, $1 par value per share - -------------------------------------------------------------------------------- (Title of Class) Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 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 X No . ----- ----- Indicate by check mark if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained herein, and will not 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. [ ] The aggregate market value of the voting stock held by non-affiliates of the Registrant, computed by reference to the average of the bid and asked price of such stock as of March 14, 1997, was $47.5 million. (The exclusion from such amount of the market value of the shares owned by any person shall not be deemed an admission by the registrant that such person is an affiliate of the registrant.) The registrant's revenues for the fiscal year ended December 31, 1996, were $32,856,000. 3,053,977.9 shares of the Registrant's common stock were issued and outstanding on March 14, 1997. DOCUMENTS INCORPORATED BY REFERENCE: Part III of Form 10-KSB: Portions of the Proxy Statement for the 1997 Annual Meeting of Stockholders 2 ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors Camco Financial Corporation We have audited the accompanying consolidated statements of financial condition of Camco Financial Corporation and Subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the years ended December 31, 1996, 1995 and 1994. These consolidated financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. 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 Camco Financial Corporation and Subsidiaries as of December 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the years ended December 31, 1996, 1995 and 1994, in conformity with generally accepted accounting principles. As more fully explained in Note A-4, the Corporation changed its method of accounting for gains on sale of loans during the year ended December 31, 1995. Grant Thornton LLP Cincinnati, Ohio February 19, 1997 -37- 3 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION December 31, (In thousands, except share data)
ASSETS 1996 1995 ---- ---- Cash and due from banks $ 10,587 $ 11,325 Interest-bearing deposits in other financial institutions 7,278 2,122 --------- --------- Cash and cash equivalents 17,865 13,447 Certificates of deposit in other financial institutions 990 1,881 Investment securities available for sale - at market 5,174 3,131 Investment securities - at cost, approximate market value of $21,822 and $19,123 as of December 31, 1996 and 1995 21,844 19,283 Mortgage-backed securities available for sale - at market 742 985 Mortgage-backed securities - at cost, approximate market value of $10,735 and $5,045 as of December 31, 1996 and 1995 10,700 5,002 Loans held for sale - at lower of cost or market 931 1,518 Loans receivable - net 387,992 291,233 Office premises and equipment - net 6,811 4,153 Real estate acquired through foreclosure 53 28 Federal Home Loan Bank stock - at cost 3,942 2,832 Accrued interest receivable on loans 2,443 1,736 Accrued interest receivable on mortgage-backed securities 69 58 Accrued interest receivable on investment securities and interest-bearing deposits 499 335 Prepaid expenses and other assets 495 699 Cash surrender value of life insurance 4,880 - Goodwill and other intangible assets - net of accumulated amortization 3,701 - Prepaid federal income taxes 319 148 -------- -------- Total assets $469,450 $346,469 ======== ========
-38- 4
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995 ---- ---- Deposits $358,009 $286,574 Advances from the Federal Home Loan Bank 57,354 26,078 Advances by borrowers for taxes and insurance 2,864 2,964 Accounts payable and accrued liabilities 4,490 1,797 Dividends payable 368 207 Deferred federal income taxes 1,352 1,156 -------- -------- Total liabilities 424,437 318,776 Commitments - - Stockholders' equity Preferred stock - $1 par value; authorized 100,000 shares; no shares outstanding - - Common stock - $1 par value; authorized, 4,900,000 shares, issued 3,062,893 at December 31, 1996 and 1,971,482 shares at December 31, 1995 3,063 1,971 Additional paid-in capital 21,917 5,735 Retained earnings - substantially restricted 20,005 19,936 Unrealized gains on securities designated as available for sale, net of related tax effects 28 51 -------- -------- Total stockholders' equity 45,013 27,693 -------- -------- Total liabilities and stockholders' equity $469,450 $346,469 ======== ========
The accompanying notes are an integral part of these statements. -39- 5 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS For the year ended December 31, (In thousands, except share data)
1996 1995 1994 ---- ---- ---- Interest income Loans $26,621 $22,939 $16,622 Mortgage-backed securities 474 423 497 Investment securities 1,448 1,570 1,826 Interest-bearing deposits and other 717 508 814 --------- --------- --------- Total interest income 29,260 25,440 19,759 Interest expense Deposits 13,933 12,478 9,497 Borrowings 2,113 1,779 736 --------- --------- --------- Total interest expense 16,046 14,257 10,233 --------- --------- --------- Net interest income 13,214 11,183 9,526 Provision for losses on loans 111 143 97 --------- --------- --------- Net interest income after provision for losses on loans 13,103 11,040 9,429 Other income Late charges, rent and other 1,145 915 752 Loan servicing fees 749 796 769 Service charges and other fees on deposits 447 448 408 Gain on sale of loans 1,257 1,126 501 Gain (loss) on sale of real estate acquired through foreclosure (2) 8 148 --------- --------- --------- Total other income 3,596 3,293 2,578 --------- --------- --------- General, administrative and other expense Employee compensation and benefits 4,970 4,198 3,606 Occupancy and equipment 1,170 902 930 Federal deposit insurance premiums 2,369 625 574 Data processing 454 397 405 Advertising 388 406 409 State franchise taxes 399 322 291 Amortization of goodwill 38 - - Other operating 2,402 1,925 1,939 --------- --------- --------- Total general, administrative and other expense 12,190 8,775 8,154 --------- --------- --------- Earnings before federal income taxes 4,509 5,558 3,853 Federal income taxes Current 1,214 1,794 1,356 Deferred 282 116 (45) --------- --------- --------- Total federal income taxes 1,496 1,910 1,311 --------- --------- --------- NET EARNINGS $ 3,013 $ 3,648 $ 2,542 ========= ========= ========= EARNINGS PER SHARE $1.30 $1.76 $1.40 ===== ===== ===== Weighted average number of common shares outstanding 2,313,240 2,068,866 1,814,227 ========= ========= =========
The accompanying notes are an integral part of these statements. -40- 6 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY For the years ended December 31, 1996, 1995 and 1994 (In thousands, except share data)
UNREALIZED GAINS (LOSSES) ON SECURITIES ADDITIONAL DESIGNATED TOTAL COMMON STOCK PAID-IN AS AVAILABLE RETAINED STOCKHOLDERS' ($1 PAR VALUE) CAPITAL FOR SALE EARNINGS EQUITY -------------- ----------- ------------- -------- ------------- Balance at January 1, 1994 $1,565 $ 741 $- $17,520 $19,826 Stock options exercised 1 7 - - 8 Cash dividends declared - $.3168 per share - - - (578) (578) Stock dividend (5%) including cash in lieu of fractional shares 78 938 - (1,018) (2) Proceeds from offering of common stock 231 2,730 - - 2,961 Designation of securities as available for sale upon adoption of SFAS No. 115 - - 298 - 298 Net earnings - - - 2,542 2,542 Unrealized losses on securities designated as available for sale, net of related tax effects - - (314) - (314) ----- ----- --- ------- -------- Balance at December 31, 1994 1,875 4,416 (16) 18,466 24,741 Stock options exercised 2 8 - - 10 Cash dividends declared - $.3708 per share - - - (770) (770) Stock dividend (5%) including cash in lieu of fractional shares 94 1,311 - (1,408) (3) Net earnings - - - 3,648 3,648 Unrealized gains on securities designated as available for sale, net of related tax effects - - 67 - 67 ----- ----- ---- ------- --------- Balance at December 31, 1995 1,971 5,735 51 19,936 27,693 Stock options exercised 6 23 - - 29 Cash dividends declared - $.4488 per share - - - (1,165) (1,165) Stock dividend (5%) including cash in lieu of fractional shares 99 1,676 - (1,779) (4) Issuance of shares in connection with acquisition 987 14,483 - - 15,470 Net earnings - - - 3,013 3,013 Unrealized losses on securities designated as available for sale, net of related tax effects - - (23) - (23) ----- ------- ---- ------- --------- Balance at December 31, 1996 $3,063 $21,917 $ 28 $20,005 $45,013 ====== ======= ===== ======= =======
The accompanying notes are an integral part of these statements. -41- 7 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the year ended December 31, (In thousands)
1996 1995 1994 ---- ---- ---- Cash flows from operating activities: Net earnings for the year $ 3,013 $ 3,648 $ 2,542 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Amortization of goodwill 38 - - Amortization of premiums and discounts on investment and mortgage-backed securities - net 30 (13) 139 Depreciation and amortization 492 461 502 Amortization of purchase accounting adjustments (10) - - Provision for loan losses 111 143 97 Amortization of deferred loan origination fees (441) (310) (226) Loss (gain) on sale of real estate acquired through foreclosure 2 (8) (148) Federal Home Loan Bank stock dividends (225) (177) (109) Gain on sale of loans (391) (471) (501) Gain on sale of equipment - (5) - Loans originated for sale in the secondary market (61,100) (39,941) (35,015) Proceeds from sale of mortgage loans in the secondary market 62,078 39,362 41,777 Increase (decrease) in cash, net of acquisition of First Ashland Financial Corporation, due to changes in: Accrued interest receivable on loans (297) (418) (338) Accrued interest receivable on mortgage-backed securities 32 28 23 Accrued interest receivable on investments (95) 125 9 Prepaid expenses and other assets 255 (152) (142) Accrued interest and other liabilities 1,967 (411) 1,237 Federal income taxes Current (158) 294 (142) Deferred 282 116 (45) ------- ------- ------- Net cash provided by operating activities 5,583 2,271 9,660 ------- ------- ------- Cash flows provided by (used in) investing activities: Proceeds from maturities of investment securities 10,788 9,750 5,194 Proceeds from sale of investment securities 427 - - Purchase of investment securities designated as available for sale (33) - - Purchase of investment securities designated as held to maturity (9,996) (1,775) (6,473) Purchase of mortgage-backed securities - - (500) Principal repayments on mortgage-backed securities 1,244 1,061 2,807 Loans purchased - - (710) Loan disbursements (119,738) (97,464) (122,962) Principal repayments on loans 87,317 67,390 54,802 Purchase of office premises and equipment (1,023) (565) (535) Proceeds from sale of office premises and equipment - 37 - Proceeds from sale of real estate acquired through foreclosure 326 89 333 Proceeds from redemption of FHLB stock - - 67 Purchase of FHLB stock (200) (393) (551) Additions to real estate acquired through foreclosure (3) (70) (92) Net decrease in certificates of deposit in other financial institutions 891 5,546 8,309 Purchase of cash surrender value of life insurance (4,735) - - Net increase in cash surrender value of life insurance (145) - - Purchase of First Ashland Financial Corporation stock - net 2,633 - - ------- ------- ------ Net cash used in investing activities (32,247) (16,394) (60,311)
-42- 8 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) For the year ended December 31, (In thousands)
1996 1995 1994 ---- ---- ---- Cash flows provided by (used in) financing activities: Net increase in deposits 2,603 19,713 14,642 Proceeds from Federal Home Loan Bank advances and other borrowings 110,115 70,400 63,241 Repayment of Federal Home Loan Bank advances and other borrowings (80,326) (70,833) (38,230) Dividends paid on common stock (1,169) (773) (580) Proceeds from exercise of stock options 29 10 8 Proceeds from offering of common stock - - 2,961 Increase (decrease) in advances by borrowers for taxes and insurance (170) (226) 1,778 -------- ------- -------- Net cash provided by financing activities 31,082 18,291 43,820 -------- ------- ------- Increase (decrease) in cash and cash equivalents 4,418 4,168 (6,831) Cash and cash equivalents at beginning of year 13,447 9,279 16,110 -------- -------- ------- Cash and cash equivalents at end of year $ 17,865 $ 13,447 $ 9,279 ======== ======== ======== Supplemental disclosure of cash flow information: Cash paid during the year for: Interest on deposits and borrowings $ 15,735 $ 14,003 $ 10,143 -------- -------- ------- Income taxes $ 1,489 $ 1,684 $ 1,329 ======== ======== ======== Supplemental disclosure of noncash investing activities: Transfers of mortgage loans to real estate acquired through foreclosure $ 92 $ 70 $ 72 ======== ======== ======== Issuance of mortgage loans upon sale of real estate acquired through foreclosure $ 283 $ 42 $ 277 ======== ======== ======== Unrealized gains (losses) on securities designated as available for sale, net of related tax effects $ (23) $ 67 $ (16) ======== ======== ======== Recognition of gains on sale of loans in accordance with SFAS No. 122 $ 866 $ 655 $ - ======== ======== ======== Liabilities assumed and cash paid in acquisition of First Ashland Financial Corporation $ 84,467 $ - $ - Less: fair value of assets received 80,728 - - -------- ------- ------- Amount assigned to goodwill $ 3,739 $ - $ - ======== ======== =======
The accompanying notes are an integral part of these statements. -43- 9 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1996, 1995 and 1994 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The business activities of Camco Financial Corporation (the "Corporation") have been limited primarily to holding the common shares of its wholly-owned subsidiaries: Cambridge Savings Bank ("Cambridge"), Marietta Savings Bank ("Marietta"), First Federal Savings Bank of Washington Court House ("First Federal"), First Federal Bank for Savings ("Ashland") (collectively hereinafter the "Banks") and East Ohio Land Title Agency, Inc., and two second tier subsidiaries, Camco Mortgage Corporation and WestMar Mortgage Company. Accordingly, the Corporation's results of operations are economically dependent upon the results of the Banks' operations. The Banks conduct a general commercial banking business in eastern and central Ohio, northern West Virginia and northeastern Kentucky which consists of attracting deposits from the general public and applying those funds to the origination of loans for residential, consumer and nonresidential purposes. The Banks' profitability is significantly dependent on net interest income, which is the difference between interest income generated from interest-earning assets (i.e. loans and investments) and the interest expense paid on interest-bearing liabilities (i.e. customer deposits and borrowed funds). Net interest income is affected by the relative amount of interest-earning assets and interest-bearing liabilities and the interest received or paid on these balances. The level of interest rates paid or received by the Banks can be significantly influenced by a number of competitive factors, such as governmental monetary policy, that are outside of management's control. The consolidated financial information presented herein has been prepared in accordance with generally accepted accounting principles ("GAAP") and general accounting practices within the financial services industry. In preparing financial statements in accordance with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from such estimates. The following is a summary of the Corporation's significant accounting policies which, with the exception of the policy described in Note A-4, have been consistently applied in the preparation of the accompanying consolidated financial statements. 1. Principles of Consolidation The consolidated financial statements include the accounts of the Corporation and its wholly-owned and second tier subsidiaries. All significant intercompany balances and transactions have been eliminated. 2. Interest Rate Risk The earnings of the Banks are primarily dependent upon net interest income, which is determined by 1) the difference between yields earned on interest-earning assets and rates paid on interest-bearing liabilities (interest rate spread) and 2) the relative amounts of interest-earning assets and interest-bearing liabilities outstanding. The Corporation's interest rate spread is affected by regulatory, economic and competitive factors that influence interest rates, loan demand and deposit flows. The Corporation is vulnerable to an increase in interest -44- 10 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2. Interest Rate Risk (continued) rates to the extent that interest-bearing liabilities mature or reprice more rapidly than interest-earning assets. At December 31, 1996, 1995 and 1994, the Corporation had net interest-earning assets of $444.5 million, $328.0 million and $309.4 million with weighted average effective yields of 8.01%, 8.07% and 7.33% and net interest-bearing liabilities of approximately $415.4 million, $312.7 million and $293.4 million, with weighted average effective interest rates of 4.96%, 4.82% and 4.29%. To minimize the effect of adverse changes in interest rates on its results of operations, the Corporation has implemented an asset and liability management plan that emphasizes increasing the interest rate sensitivity and shortening the maturities of its interest-earning assets and extending the maturities of its interest-bearing liabilities. Although the Corporation has undertaken a variety of strategies to minimize its exposure to interest rate risk, its primary emphasis has been on the origination and purchase of adjustable rate loans. 3. Investment Securities and Mortgage-Backed Securities The Corporation accounts for investment and mortgage-backed securities in accordance with Statement of Financial Accounting Standards ("SFAS") No. 115 "Accounting for Certain Investments in Debt and Equity Securities." SFAS No. 115 requires that investments be categorized as held-to-maturity, trading, or available for sale. Securities classified as held-to-maturity are carried at cost only if the Corporation has the positive intent and ability to hold these securities to maturity. Trading securities and securities available for sale are carried at fair value with resulting unrealized gains or losses recorded to operations or stockholders' equity, respectively. Investment and mortgage-backed securities are classified as held to maturity or available for sale upon acquisition. At December 31, 1996 and 1995, the Corporation's stockholders' equity reflected net unrealized gains on securities designated as available for sale of $28,000 and $51,000, respectively. Realized gains and losses on sales of securities are recognized using the specific identification method. 4. Loans Receivable Loans held in portfolio are stated at the principal amount outstanding, adjusted for unamortized yield adjustments, including deferred loan origination fees and costs and capitalized mortgage servicing rights, and the allowance for loan losses. The yield adjustments are amortized and accreted to operations using the interest method over the average life of the underlying loans. Interest is accrued as earned unless the collectibility of the loan is in doubt. Uncollectible interest on loans that are contractually past due is charged off, or an allowance is established based on management's periodic evaluation. The allowance is established by a charge to interest income equal to all interest previously accrued, and income is subsequently recognized only to the extent that cash payments are received until, in management's judgment, the borrower's ability to make periodic interest and principal payments has returned to normal, in which case the loan is returned to accrual status. -45- 11 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 4. Loans Receivable (continued) Loans held for sale are carried at the lower of acquisition cost (less principal payments received) or fair value (market value), calculated on an aggregate basis. At December 31, 1996 and 1995, such loans were carried at cost, which approximated fair value. In May 1995, the Financial Accounting Standards Board (the "FASB") issued SFAS No. 122 "Accounting for Mortgage Servicing Rights," which requires that the Corporation recognize as separate assets, rights to service mortgage loans for others, regardless of how those servicing rights are acquired. An institution that acquires mortgage servicing rights through either the purchase or origination of mortgage loans and sells those loans with servicing rights retained is required to allocate some of the cost of the loans to the mortgage servicing rights. SFAS No. 122 requires that securitization of mortgage loans be accounted for as sales of mortgage loans and acquisitions of mortgage-backed securities. Additionally, SFAS No. 122 requires that capitalized mortgage servicing rights and capitalized excess servicing receivables be assessed for impairment. Impairment is measured based on fair value. SFAS No. 122 was effective for years beginning after December 15, 1995, (January 1, 1996, as to the Corporation) to transactions in which an entity acquires mortgage servicing rights and to impairment evaluations of all capitalized mortgage servicing rights and capitalized excess servicing receivables whenever acquired. Retroactive application was prohibited, and earlier adoption was encouraged. Management elected early adoption of SFAS No. 122, which resulted in the recognition of $655,000 in pre-tax gains on sales of loans during the year ended December 31, 1995. During 1996, the Corporation recorded $866,000 in pre-tax gains on sales of loans pursuant to SFAS No. 122. The mortgage servicing rights recorded by the Banks', calculated in accordance with the provisions of SFAS No. 122, were segregated into pools for valuation purposes, using as pooling criteria the loan term and coupon rate. Once pooled, each grouping of loans was evaluated on a discounted earnings basis to determine the present value of future earnings that a purchaser could expect to realize from each portfolio. Earnings were projected from a variety of sources including loan servicing fees, interest earned on float, net interest earned on escrows, miscellaneous income, and costs to service the loans. The present value of future earnings is the "economic" value for the pool, i.e., the net realizable present value to an acquirer of the acquired servicing. The Corporation recorded amortization related to mortgage servicing rights totaling approximately $99,000 and $20,000 for the years ended December 31, 1996 and 1995. At December 31, 1996 and 1995, the fair value of the Corporation's mortgage servicing rights totaled approximately $1.4 million and $655,000, respectively. At December 31, 1996 and 1995, the Banks were servicing approximately $265.8 million and $242.9 million, respectively, of mortgage loans that have been sold to the Federal Home Loan Mortgage Corporation and other investors. -46- 12 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 5. Loan Origination and Commitment Fees The Corporation accounts for loan origination fees and costs in accordance with SFAS No. 91, "Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases". Pursuant to the provisions of SFAS No. 91, all loan origination fees received, net of certain direct origination costs, are deferred on a loan-by-loan basis and amortized to interest income using the interest method, giving effect to actual loan prepayments. Additionally, SFAS No. 91 generally limits the definition of loan origination costs to the direct costs attributable to originating a loan, i.e., principally actual personnel costs. Fees received for loan commitments are deferred and amortized over the life of the related loan using the interest method. 6. Allowance for Loan Losses It is the Corporation's policy to provide valuation allowances for estimated losses on loans based upon past loss experience, trends in the level of delinquent and specific problem loans, adverse situations that may affect the borrower's ability to repay, the estimated value of any underlying collateral and current and anticipated economic conditions in the primary market area. When the collection of a loan becomes doubtful, or otherwise troubled, the Corporation records a loan loss provision equal to the difference between the fair value of the property securing the loan and the loan's carrying value. Such provision is based on management's estimate of the fair value of the underlying collateral, taking into consideration the current and currently anticipated future operating or sales conditions. As a result, such estimates are particularly susceptible to changes that could result in a material adjustment to results of operations in the near term. Recovery of the carrying value of such loans is dependent to a great extent on economic, operating, and other conditions that may be beyond the Corporation's control. In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for Impairment of a Loan". SFAS No. 114, which was amended by SFAS No. 118 as to certain income recognition and financial statement disclosure provisions, requires that impaired loans be measured based upon the present value of expected future cash flows discounted at the loan's effective interest rate or, as an alternative, at the loans observable market price or fair value of the collateral. The Corporation adopted SFAS No. 114 effective January 1, 1995, as required, without material effect on consolidated financial condition or results of operations. Under SFAS No. 114, a loan is defined as impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. In applying the provisions of SFAS No. 114, the Corporation considers its investment in one-to-four family residential loans and consumer installment loans to be homogeneous and therefore excluded from separate identification for evaluation of impairment. With respect to the Corporation's investment in multi-family and nonresidential loans, and its evaluation of impairment thereof, such loans are collateral dependent and as a result are carried as a practical expedient at the lower of cost or fair value. -47- 13 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 6. Allowance for Loan Losses (continued) It is the Corporation's policy to charge off unsecured credits that are more than ninety days delinquent. Similarly, collateral dependent loans which are more than ninety days delinquent are considered to constitute more than a minimum delay in repayment and are evaluated for impairment under SFAS No. 114 at that time. At December 31, 1996 and 1995, the Corporation had no loans that would be defined as impaired under SFAS No. 114. 7. Real Estate Acquired Through Foreclosure Real estate acquired through foreclosure is carried at the lower of the loan's unpaid principal balance (cost) or fair value less estimated selling expenses at the date of acquisition. Real estate loss provisions are recorded if the properties' fair value subsequently declines below the amount determined at the recording date. In determining the lower of cost or fair value at acquisition, costs relating to development and improvement of property are capitalized. Costs relating to holding real estate acquired through foreclosure, net of rental income, are charged against earnings as incurred. 8. Office Premises and Equipment Depreciation of office premises and equipment is computed using the straight-line method over estimated useful lives of the assets, estimated to be ten to fifty years for buildings and improvements and three to twenty-five years for furniture, fixtures and equipment. 9. Goodwill and Other Intangible Assets Goodwill resulting from the acquisition of Ashland, net of amortization recorded in 1996, totaled approximately $3.7 million, and is being amortized over a twenty-five year period using the straight-line method. Management periodically evaluates the carrying value of these intangible assets in relation to the continuing earnings capacity of the acquired assets and assumed liabilities. In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121 provides guidance on when to recognize and how to measure impairment losses of long-lived assets and certain identifiable intangibles and how to value long-lived assets to be disposed of. The Corporation adopted SFAS No. 121 effective January 1, 1996, as required, without material effect on consolidated financial condition or results of operations. -48- 14 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 10. Federal Income Taxes The Corporation accounts for federal income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes." Pursuant to the provisions of SFAS No. 109, a deferred tax liability or deferred tax asset is computed by applying the current statutory tax rates to net taxable or deductible temporary differences between the tax basis of an asset or liability and its reported amount in the financial statements that will result in taxable or deductible amounts in future periods. Deferred tax assets are recorded only to the extent that the amount of net deductible temporary differences or carryforward attributes may be utilized against current period earnings, carried back against prior years' earnings, offset against taxable temporary differences reversing in future periods, or utilized to the extent of management's estimate of future taxable income. A valuation allowance is provided for deferred tax assets to the extent that the value of net deductible temporary differences and carryforward attributes exceeds management's estimates of taxes payable on future taxable income. Deferred tax liabilities are provided on the total amount of net temporary differences taxable in the future. The Corporation's principal temporary differences between pretax financial income and taxable income result primarily from the different methods of accounting for deferred loan origination fees, Federal Home Loan Bank stock dividends, the general loan loss allowance, percentage of earnings bad debt deductions and certain components of retirement expense. A temporary difference is also recognized for depreciation expense computed using accelerated methods for federal income tax purposes. 11. Earnings Per Share and Dividends Per Share Earnings per share is calculated based on the weighted average number of common and common equivalent shares (which includes those stock options that are dilutive) outstanding during the respective periods, adjusted to reflect a 5% stock dividend effected during the years ended December 31, 1996 and 1995. Dividends per share for the years ended December 31, 1996, 1995 and 1994, have also been adjusted to reflect the effect of such stock dividends. 12. Fair Value of Financial Instruments SFAS No. 107, "Disclosures about Fair Value of Financial Instruments", requires disclosure of fair value information about financial instruments, whether or not recognized in the consolidated statement of financial condition, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. SFAS No. 107 excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Corporation. -49- 15 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 12. Fair Value of Financial Instruments (continued) The following methods and assumptions were used by the Corporation in estimating its fair value disclosures for financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Cash and Cash Equivalents: The carrying amount reported in the consolidated statement of financial condition for cash and cash equivalents is deemed to approximate fair value. Certificates of Deposit in Other Financial Institutions: For certificates of deposit in other financial institutions, fair values are estimated using discounted cash flow analyses, using interest rates currently being offered for such deposits with similar remaining maturities. Investment Securities and Mortgage-backed Securities: Fair values for investment securities and mortgage-backed securities are based on quoted market prices and dealer quotes. Loans receivable: The loan portfolio has been segregated into categories with similar characteristics, such as one- to four-family residential real estate, multi-family residential real estate, installment and other. These loan categories were further delineated into fixed-rate and adjustable-rate loans. The fair values for the resultant loan categories were computed via discounted cash flow analysis, using current interest rates offered for loans with similar terms to borrowers of similar credit quality. Federal Home Loan Bank stock: The carrying amount presented in the consolidated statement of financial condition is deemed to approximate fair value. Accrued Interest Receivable and Accrued Interest Payable: The carrying amount as reported in the consolidated statement of financial condition is deemed a reasonable estimate of fair value. Cash Surrender Value of Life Insurance: The carrying amount as reported in the consolidated statement of financial condition is deemed to approximate fair value. Deposits: The fair values of deposits with no stated maturity, such as money market demand deposits, savings and NOW accounts, are deemed equal to the amount payable on demand as of December 31, 1996 and 1995. The fair value of fixed-rate certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities. -50- 16 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 12. Fair Value of Financial Instruments (continued) Advances from the Federal Home Loan Bank: The fair value of these advances is estimated using the rates currently offered for similar advances of similar remaining maturities or, when available, quoted market prices. Advances by Borrowers for Taxes and Insurance: The carrying amount of advances by borrowers for taxes and insurance is deemed to approximate fair value. Commitments to extend credit: For fixed-rate and adjustable-rate loan commitments, the fair value estimate considers the difference between current levels of interest rates and committed rates. At December 31, 1996 and 1995, the difference between the fair value and notional amount of loan commitments was not material. Based on the foregoing methods and assumptions, the carrying value and fair value of the Corporation's financial instruments are as follows:
DECEMBER 31, 1996 1995 CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE (In thousands) Financial assets Cash and cash equivalents $ 17,865 $ 17,865 $ 13,447 $ 13,447 Certificates of deposit in other financial institutions 990 990 1,881 1,881 Investment securities 27,018 26,996 22,414 22,254 Mortgage-backed securities 11,442 11,477 5,987 6,030 Loans receivable 388,923 292,751 291,671 Federal Home Loan Bank stock 3,942 3,942 2,832 2,832 Accrued interest receivable 3,011 3,011 2,129 2,129 Cash surrender value of life insurance 4,880 4,880 - - -------- -------- -------- -------- $458,071 $457,490 $341,441 $340,244 ======== ======== ======== ======== Financial liabilities Deposits $358,009 $361,821 $286,574 $290,243 Advances from the Federal Home Loan Bank 57,354 57,313 26,078 26,139 Advances by borrowers for taxes and insurance 2,864 2,864 2,964 2,964 -------- -------- -------- -------- $418,227 $421,998 $315,616 $319,346 ======== ======== ======== ========
13. Cash and Cash Equivalents Cash and cash equivalents consist of cash and due from banks and interest-bearing deposits in other financial institutions with original maturities of three months or less. -51- 17 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 14. Advertising Advertising costs are expensed when incurred. 15. Reclassifications Certain prior year amounts have been reclassified to conform to the 1996 consolidated financial statement presentation. NOTE B - INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES The amortized cost, gross unrealized gains, gross unrealized losses, and estimated fair values of investment securities at December 31, 1996 and 1995 are as follows:
1996 GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE (In thousands) HELD TO MATURITY: U.S. Government agency obligations $21,367 $ 42 $ (97) $21,312 Municipal bonds 477 33 - 510 ------- ---- ----- ------- Total investment securities held to maturity 21,844 75 (97) 21,822 AVAILABLE FOR SALE: U.S. Government agency obligations 3,523 23 (3) 3,543 Corporate equity securities 1,623 24 (16) 1,631 ------- ---- ----- ------- Total investments available for sale 5,146 47 (19) 5,174 ------- ---- ----- ------- Total investment securities $26,990 $122 $(116) $26,996 ======= ==== ===== =======
1995 GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE (In thousands) HELD TO MATURITY: U.S. Government agency obligations $19,147 $17 $(184) $18,980 Municipal bonds 136 7 - 143 ------- --- ----- ------- Total investment securities held to maturity 19,283 24 (184) 19,123 AVAILABLE FOR SALE: U.S. Government agency obligations 2,999 46 - 3,045 Corporate equity securities 82 4 - 86 ------- --- ----- ------- Total investments available for sale 3,081 50 - 3,131 ------- --- ----- ------- Total investment securities $22,364 $74 $(184) $22,254 ======= === ===== =======
-52- 18 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE B - INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES (continued) The amortized cost, gross unrealized gains, gross unrealized losses, and estimated fair values of mortgage-backed securities at December 31, 1996 and 1995, are as follows:
1996 GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE (In thousands) HELD TO MATURITY: FNMA $ 4,352 $ 19 $ (48) $ 4,323 FHLMC 2,906 69 (18) 2,957 CMOs 3,142 49 (30) 3,161 GNMA 195 15 - 210 Other 105 - (21) 84 ------- -- ----- ------- Total mortgage-backed securities held to maturity 10,700 152 (117) 10,735 AVAILABLE FOR SALE: FHLMC 733 9 - 742 ------- ---- ----- ------- Total mortgage-backed securities $11,433 $161 $(117) $11,477 ======= ==== ===== =======
1995 GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE (In thousands) HELD TO MATURITY: FNMA $3,218 $33 $ (3) $3,248 FHLMC 1,784 21 (8) 1,797 ----- --- ----- ----- Total mortgage-backed securities held to maturity 5,002 54 (11) 5,045 AVAILABLE FOR SALE: FHLMC 968 17 - 985 ------ --- ----- ------ Total mortgage-backed securities $5,970 $71 $ (11) $6,030 ====== === ===== ======
-53- 19 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE B - INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES (continued) The amortized cost and estimated fair value of investment and mortgage-backed securities at December 31, 1996 and 1995 (including securities designated as available for sale) by contractual term to maturity are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
1996 1995 ESTIMATED ESTIMATED AMORTIZED FAIR AMORTIZED FAIR COST VALUE COST VALUE (In thousands) Due in one year or less $ 4,606 $ 4,586 $ 6,019 $ 6,030 Due after one year through five years 20,095 20,097 15,217 15,084 Due after five years through ten years 487 487 1,046 1,054 Due after ten years through fifteen years 179 195 - - ------- ------- ------- ------ Total investment securities 25,367 25,365 22,282 22,168 Corporate equity securities 1,623 1,631 82 86 Mortgage-backed securities - not due at a single maturity date 11,433 11,477 5,970 6,030 ------- ------- ------- ------- Total $38,423 $38,473 $28,334 $28,284 ======= ======= ======= =======
During 1996, the Corporation sold investment securities designated as available for sale with a carrying value of $427,000 at no gain or loss. There were no sales of investment securities or mortgage-backed securities during the years ended December 31, 1995 and 1994. -54- 20 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE C - LOANS RECEIVABLE Loans receivable at December 31 consist of the following:
1996 1995 (In thousands) Conventional real estate loans: Existing residential properties $339,970 $243,767 Nonresidential real estate 12,529 11,486 Construction 19,960 19,944 Developed building lots 1,406 965 Education loans 2,037 2,728 Consumer and other loans 22,244 22,589 -------- -------- Total 398,146 301,479 Less: Undisbursed portion of loans in process 8,867 8,717 Unamortized yield adjustments 40 497 Allowance for loan losses 1,247 1,032 -------- -------- Total loans receivable - net $387,992 $291,233 ======== ========
As depicted above, the Corporation's lending efforts have historically focused on loans secured by existing residential properties, which comprise approximately $340.0 million, or 88%, of the total loan portfolio at December 31, 1996 and approximately $243.8 million, or 84%, of the total loan portfolio at December 31, 1995. Generally, such loans have been underwritten on the basis of no more than an 80% loan-to-value ratio, which has historically provided the Corporation with adequate collateral coverage in the event of default. Nevertheless, the Corporation, as with any lending institution, is subject to the risk that residential real estate values could deteriorate in its primary lending areas of central and eastern Ohio, northern West Virginia, and northeastern Kentucky, thereby impairing collateral values. However, management is of the belief that residential real estate values in the Corporation's primary lending areas are presently stable. The Banks, in the ordinary course of business, have granted loans to certain of their directors, executive officers, and their associates. Such loans are made on the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons and do not involve more than normal risk of collectibility. The aggregate dollar amount of these loans (excluding loans to any such individual which in the aggregate did not exceed $60,000) was less than 5% of stockholders' equity at December 31, 1996 and 1995. -55- 21 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE D - ALLOWANCE FOR LOAN LOSSES Activity in the allowance for loan losses is summarized as follows for the years ended December 31:
1996 1995 1994 (In thousands) Balance at beginning of year $1,032 $ 943 $1,028 Provision for losses 111 143 97 Allowance resulting from acquisition 109 - - Charge-offs, net of immaterial recoveries (5) (54) (182) ------ ------ ------ Balance at end of year $1,247 $1,032 $ 943 ====== ====== ======
Nonaccrual and nonperforming loans totaled approximately $2.4 million, $1.1 million and $1.3 million at December 31, 1996, 1995 and 1994, respectively. Interest income that would have been recognized had such nonaccrual loans performed pursuant to contractual terms totaled approximately $90,000, $24,000 and $57,000 for the years ended December 31, 1996, 1995 and 1994, respectively. NOTE E - OFFICE PREMISES AND EQUIPMENT Office premises and equipment at December 31 is summarized as follows:
1996 1995 (In thousands) Land $1,308 $ 919 Buildings and improvements 5,783 4,095 Furniture, fixtures and equipment 3,728 2,662 ------ ----- 10,819 7,676 Less accumulated depreciation and amortization (4,008) (3,523) ------ ------ $6,811 $4,153 ====== ======
-56- 22 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE F - DEPOSITS Deposit balances by type and weighted-average interest rate at December 31, 1996 and 1995, are summarized as follows:
1996 1995 AMOUNT RATE AMOUNT RATE (In thousands) NOW accounts $ 47,078 1.93% $ 44,591 2.30% Money market demand accounts 17,186 3.64 15,047 3.29 Passbook and statement savings accounts 58,610 3.01 50,498 3.01 -------- ---- -------- ---- Total withdrawable accounts 122,874 2.68 110,136 2.76 Money market certificates: Seven days to one year 46,143 5.59 19,332 4.73 One to two years 66,674 5.77 54,336 5.99 Two to eight years 82,747 6.31 70,198 6.13 Negotiated rate certificates 21,786 5.69 21,446 5.63 Individual retirement accounts 17,785 5.90 11,126 6.23 -------- ---- -------- ---- Total certificate accounts 235,135 5.93 176,438 5.88 -------- ---- -------- ---- Total deposits $358,009 4.81% $286,574 4.68% ======== ==== ======== ====
At December 31, 1996 and 1995, the Corporation had certificates of deposit accounts with balances in excess of $100,000 totaling $37.9 million and $44.7 million, respectively. Interest expense on deposits is summarized as follows for the years ended December 31:
1996 1995 1994 (In thousands) Certificate of deposit accounts $10,974 $ 9,592 $6,173 NOW accounts and money market demand accounts 1,498 1,450 1,447 Passbook and statement savings accounts 1,461 1,436 1,877 ------- ------- ----- $13,933 $12,478 $9,497 ======= ======= ======
The contractual maturities of outstanding certificates of deposit are summarized as follows at December 31:
1996 1995 YEAR ENDING DECEMBER 31: (In thousands) 1996 $ - $105,593 1997 145,780 48,826 1998 53,565 14,479 1999 23,290 3,713 2000 6,183 3,827 After 2000 6,317 - -------- -------- Total certificate of deposit accounts $235,135 $176,438 ======== ========
-57- 23 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE F - DEPOSITS (continued) At December 31, 1996 and 1995, public savings deposits were collateralized by investment securities and interest-bearing deposits in other banks totaling $22.2 million and $20.0 million, respectively. NOTE G - ADVANCES FROM FEDERAL HOME LOAN BANK Advances from the Federal Home Loan Bank, collateralized at December 31, 1996 and 1995, by pledges of certain residential mortgage loans totaling $86.0 million and $39.1 million, respectively, as well as the Federal Home Loan Bank stock of the respective Bank subsidiaries, are summarized as follows:
MATURING FISCAL INTEREST RATE YEAR ENDING IN 1996 1995 (In thousands) 5.80% - 7.45% 1996 $ - $15,500 5.36% - 7.75% 1997 34,500 8,000 4.95% - 5.90% 1998 11,750 2,000 6.10% - 6.25% 1999 4,462 - 5.38%2000 750 - 4.25% - 6.71% Thereafter 5,892 578 ------- ------- $57,354 $26,078 ======= ======= Weighted average rate 5.87% 6.31% ==== ====
NOTE H - FEDERAL INCOME TAXES A reconciliation of the effective tax rate for the years ended December 31, 1996, 1995 and 1994, respectively, and the federal statutory rate in each of these years of 34%, computed by applying the statutory federal corporate tax rate to income before taxes, are summarized as follows at December 31:
1996 1995 1994 (In thousands) Expected federal tax at statutory rate $1,533 $1,890 $1,310 Other (37) 20 1 ------ ------ ------- Tax provision per consolidated financial statements $1,496 $1,910 $1,311 ====== ====== ======
-58- 24 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE H - FEDERAL INCOME TAXES (continued) The components of the Corporation's net deferred tax liability as of December 31, 1996 and 1995, are summarized as follows:
1996 1995 TEMPORARY TAX TEMPORARY TAX DIFFERENCE AT 34% DIFFERENCE AT 34% Deferred tax liabilities: Deferred loan origination fees $ (57) $ (19) $ (639) $ (217) FHLB stock dividends (1,528) (520) (952) (324) Percentage of earnings bad debt deduction (1,732) (589) (1,750) (595) Retirement expense (49) (17) (156) (53) Mortgage servicing rights (1,419) (482) (655) (223) Other liabilities (602) (205) (285) (97) ------- ------ ------ ------- Total deferred tax liabilities (5,387) (1,832) (4,437) (1,509) Deferred tax assets: General loan loss allowance 1,105 376 949 323 Other assets 306 104 88 30 ------- ------- ------- ------- Total deferred tax assets 1,411 480 1,037 353 ------- ------- ------- ------- Net deferred tax liability $(3,900) $(1,352) $(3,400) $(1,156) ======= ======= ======= =======
The Banks were allowed a special bad debt deduction generally limited to 8% of otherwise taxable income, subject to certain limitations based on aggregate loans and savings account balances at the end of the year. If the amounts that qualify as deductions for federal income taxes are later used for purposes other than for bad debt losses, including distributions in liquidations, such distributions will be subject to federal income taxes at the then current corporate income tax rate. The percentage of earnings bad debt deduction had accumulated to approximately $7.6 million as of December 31, 1996. The amount of the unrecognized deferred tax liability relating to the cumulative bad debt deduction was approximately $2.0 million at December 31, 1996. See Note P for additional information regarding future percentage of earnings bad debt deductions. NOTE I - COMMITMENTS The Banks are parties to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of their customers including commitments to extend credit. Such commitments involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount recognized in the consolidated statement of financial condition. The contract or notional amounts of the commitments reflect the extent of the Banks' involvement in such financial instruments. -59- 25 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE I - COMMITMENTS (continued) The Banks' exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual notional amount of those instruments. The Banks use the same credit policies in making commitments and conditional obligations as those utilized for on-balance-sheet instruments. At December 31, 1996 and 1995, the Banks had outstanding commitments to originate or purchase fixed rate loans of approximately $1.4 million and $2.7 million, respectively, and adjustable rate loans of approximately $4.4 million and $4.0 million, respectively. Additionally, the Banks had unused lines of credit under home equity loans of $7.5 million at December 31, 1996. Management believes that all loan commitments are able to be funded through cash flow from operations and existing excess liquidity. Fees received in connection with these commitments have not been recognized in earnings. 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 many of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Banks evaluate each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if it is deemed necessary by the Bank upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral on loans may vary but the preponderance of loans granted generally include a mortgage interest in real estate as security. NOTE J - REGULATORY CAPITAL REQUIREMENTS Cambridge and Marietta are subject to the regulatory capital requirements of the Federal Deposit Insurance Corporation (the "FDIC"). First Federal Savings Bank and First Federal Bank for Savings are subject to minimum regulatory capital standards promulgated by the Office of Thrift Supervision (the "OTS"). 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 each of the Banks' financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Banks must meet specific capital guidelines that involve quantitative measures of the Banks' assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Banks' capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. During the calendar year, each of the Banks were notified from their respective regulators that the Banks were categorized as "well-capitalized" under the regulatory framework for prompt corrective action. To be categorized as "well-capitalized" the Banks' must maintain minimum capital ratios as set forth in the following tables. -60- 26 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE J - REGULATORY CAPITAL REQUIREMENTS (continued) The Federal Deposit Insurance Corporation (FDIC) has adopted risk-based capital ratio guidelines to which Cambridge and Marietta are subject. The guidelines establish a systematic analytical framework that makes regulatory capital requirements more sensitive to differences in risk profiles among banking organizations. Risk-based capital ratios are determined by allocating assets and specified off-balance sheet commitments to four risk-weighting categories, with higher levels of capital being required for the categories perceived as representing greater risk. These guidelines divide the capital into two tiers. The first tier ("Tier 1") includes common equity, certain non-cumulative perpetual preferred stock (excluding auction rate issues) and minority interests in equity accounts of consolidated subsidiaries, less goodwill and certain other intangible assets (except mortgage servicing rights and purchased credit card relationships, subject to certain limitations). Supplementary ("Tier II") capital includes, among other items, cumulative perpetual and long-term limited-life preferred stock, mandatory convertible securities, certain hybrid capital instruments, term subordinated debt and the allowance for loan losses, subject to certain limitations, less required deductions. Savings banks are required to maintain a total risk-based capital ratio of 8%, of which 4% must be Tier 1 capital. The FDIC may, however, set higher capital requirements when particular circumstances warrant. Savings banks experiencing or anticipating significant growth are expected to maintain capital ratios, including tangible capital positions, well above the minimum levels. In addition, the FDIC established guidelines prescribing a minimum Tier 1 leverage ratio (Tier 1 capital to adjusted total assets as specified in the guidelines). These guidelines provide for a minimum Tier 1 leverage ratio of 3% for savings banks that meet certain specified criteria, including that they have the highest regulatory rating and are not experiencing or anticipating significant growth. All other savings banks are required to maintain a Tier 1 leverage ratio of 3% plus an additional cushion of at least 100 to 200 basis points. As of December 31, 1996, management believes that Cambridge and Marietta meet all capital adequacy requirements to which the Banks are subject.
CAMBRIDGE AS OF DECEMBER 31, 1996 TO BE "WELL- CAPITALIZED' UNDER FOR CAPITAL PROMPT CORRECTIVE ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS ------------------ ------------------- ------------------- AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO (In thousands) Total capital (to risk-weighted assets) $13,176 13.4% =>$7,840 =>8.0% =>$9,800 =>10.0% Tier I Capital (to risk-weighted assets) $12,786 13.0% =>$3,920 =>4.0% =>$5,880 => 6.0% Tier I Leverage $12,786 7.2% =>$7,087 =>4.0% =>$8,859 => 5.0%
-61- 27 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE J - REGULATORY CAPITAL REQUIREMENTS (continued)
MARIETTA AS OF DECEMBER 31, 1996 TO BE "WELL- CAPITALIZED" UNDER FOR CAPITAL PROMPT CORRECTIVE ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS --------------- ----------------- ------------------ AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO (In thousands) Total capital (to risk-weighted assets) $8,726 12.3% =>$5,654 =>8.0% =>$7,067 =>10.0% Tier I Capital (to risk-weighed assets) $8,354 11.8% =>$2,827 =>4.0% =>$4,240 => 6.0% Tier I Leverage $8,354 7.3% =>$4,547 =>4.0% =>$5,684 => 5.0%
The minimum capital standards of the OTS generally require the maintenance of regulatory capital sufficient to meet each of three tests, hereinafter described as the tangible capital requirement, the core capital requirement and the risk-based capital requirement. The tangible capital requirement provides for minimum tangible capital (defined as stockholders' equity less all intangible assets) equal to 1.5% of adjusted total assets. The core capital requirement provides for minimum core capital (tangible capital plus certain forms of supervisory goodwill and other qualifying intangible assets) equal to 3.0% of adjusted total assets. An OTS proposal, if adopted in present form, would increase the core capital requirement to a range of 4.0% - 5.0% of adjusted total assets for substantially all savings associations. Management anticipates no material change to the Banks' excess regulatory capital position as a result of this proposed change in the regulatory capital requirement. The risk-based capital requirement currently provides for the maintenance of core capital plus general loss allowances equal to 8.0% of risk-weighted assets. In computing risk-weighted assets, the Banks' multiply the value of each asset on their respective statement of financial condition by a defined risk-weighting factor, e.g., one- to four-family residential loans carry a risk-weighted factor of 50%. As of December 31, 1996, management believes that First Federal and Ashland meet all capital adequacy requirements to which the Banks are subject.
FIRST FEDERAL AS OF DECEMBER 31, 1996 TO BE "WELL- CAPITALIZED" UNDER FOR CAPITAL PROMPT CORRECTIVE ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS ---------------- ----------------- ------------------ AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO (In thousands) Tangible capital $6,232 7.2% =>$1,300 =>1.5% =>$4,334 => 5.0% Core Capital $6,232 7.2% =>$2,601 =>3.0% =>$5,201 => 6.0% Risk-based capital $6,482 13.7% =>$3,788 =>8.0% =>$4,735 =>10.0%
-62- 28 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE J - REGULATORY CAPITAL REQUIREMENTS (continued)
ASHLAND AS OF DECEMBER 31, 1996 TO BE "WELL- CAPITALIZED" UNDER FOR CAPITAL PROMPT CORRECTIVE ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS --------------- ----------------- ------------------ AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO (In thousands) Tangible capital $12,709 14.7% =>$1,299 =>1.5% =>$4,330 => 5.0% Core Capital $12,709 14.7% =>$2,598 =>3.0% =>$5,196 => 6.0% Risk-based capital $12,802 27.8% =>$3,680 =>8.0% =>$4,601 =>10.0%
The Corporation's management believes that, under the current regulatory capital regulations, the Banks will continue to meet their minimum capital requirements in the foreseeable future. However, events beyond the control of the Corporation, such as increased interest rates or a downturn in the economy in the subsidiaries' market areas, could adversely affect future earnings and, consequently, the ability to meet future minimum regulatory capital requirements. Regulations of the Office of Thrift Supervision (OTS) impose limitations on the payment of dividends and other capital distributions by savings associations. Under such regulations, a savings association that, immediately prior to, and on a pro forma basis after giving effect to, a proposed capital distribution, has total capital (as defined by OTS regulation) that is equal to or greater than the amount of its fully phased-in capital requirement is generally permitted without OTS approval (but subsequent to 30 days prior notice to the OTS of the planned dividend) to make capital distributions during a calendar year in the amount of (i) up to 100% of its net earnings to date during the year plus an amount equal to one-half of the amount by which its total capital to assets ratio exceeded its fully phased-in capital to assets ratio at the beginning of the year (ii) or 75% of its net income for the most recent four quarters. Pursuant to such OTS dividend regulations, the Banks had the ability to pay dividends of approximately $7.3 million to Camco Financial Corporation at December 31, 1996. NOTE K - BENEFIT PLANS The Corporation has a non-contributory insured defined benefit pension plan (the Plan) covering all eligible employees. The Plan's benefit formula is the projected unit credit formula which encompasses future salary levels and participants' years of service. -63- 29 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE K - BENEFIT PLANS (continued) Net pension costs includes the following components for the years ended December 31:
1996 1995 1994 (In thousands) Service cost - benefits earned during year $232 $185 $180 Interest cost on projected benefit obligation 180 158 155 Gain on plan assets (69) (139) (53) Net amortization, deferral and other (40) 65 27 ---- ---- ---- Net pension cost $303 $269 $309 ==== ==== ====
The following table sets forth the Plan's funded status and amounts recognized in the consolidated statement of financial condition at December 31:
1996 1995 (In thousands) Actuarial present value of benefit obligation: Vested benefit obligation $1,605 $1,819 ====== ====== Accumulated benefit obligation $1,605 $1,955 ====== ====== Plan assets at fair value $2,279 $1,918 Actuarial present value of projected benefit obligation for services rendered to date 1,605 3,033 ------ ------ Plan assets greater (less) than projected benefit obligation 674 (1,115) Unrecognized net gain 580 1,168 Unrecognized transition liability, net of amortization 2 2 Other 1 116 ------ ------ Prepaid pension cost (included in prepaid expenses and other assets) $ 97 $ 171 ====== ======
Assumptions for the plan valuations include:
YEAR ENDED DECEMBER 31, 1996 1995 1994 Weighted average discount rate 7.71% 6.00% 6.50% Annual rate of increase in compensation levels N/A 4.50% 4.50% Expected long-term rate of return on assets 8.00% 8.00% 7.00%
The Corporation is in the process of terminating the Plan. It is anticipated that appropriate regulatory approval of the Plan termination will be received in the first quarter of calendar 1997. Coincident with the termination of the pension plan, the Corporation undertook a retirement plan in 1996 which provides retirement benefits to certain key officers. The Corporation's obligations under the plan have been provided for via the purchase of single premium key man life insurance of which the Corporation is the beneficiary. The Corporation recorded expense related to the plan totaling approximately $37,000 during the year ended December 31, 1996. The Corporation also has a 401(k) Salary Savings Plan covering substantially all employees. Total expense under this plan was $93,000, $62,000 and $63,000 for the years ended December 31, 1996, 1995 and 1994, respectively. -64- 30 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE L - STOCK OPTION PLANS Stockholders of the Corporation have approved three stock option plans. Under the 1972 Plan, 161,416 common shares were reserved for issuance to officers, directors, and key employees of the Corporation and its subsidiaries. The 1982 Plan reserved 73,539 common shares for issuance to employees of the Corporation and its subsidiaries. Under the 1995 Plan, 97,650 shares were reserved for issuance. As of December 31, 1996, options to purchase 73,500 shares were awarded to officers, directors, and key employees at $16.15 per share, the common stock's adjusted fair value on the grant date, and were subject to exercise at the discretion of the grantees through 2005. At December 31, 1996, no options under the 1995 Plan have been exercised. The foregoing number of shares under option have been adjusted to reflect the 5% stock dividends effected during the years ended December 31, 1996, 1995 and 1994, and the stock split effected in the form of a 100% stock dividend in 1993. At December 31, 1996, all of the stock options under the 1972 and 1982 Plans had been granted and were subject to exercise at the discretion of the grantees through 2002. The following summarizes stock option transactions for the 1972 and 1982 Plans:
1972 PLAN OPTION NUMBER PRICE OF SHARES PER SHARE TOTAL Outstanding at January 1, 1994 2,668 $ 1.58-$5.72 $12,629 Effect of 5% stock dividend in 1994 133 - - ------ ------------- ------- Outstanding at December 31, 1994 2,801 $1.50-$5.44 12,629 Exercised (1,382) $3.55 (avg.) (4,911) Effect of 5% stock dividend in 1995 71 - - ------ ------------ ------- Outstanding at December 31, 1995 1,490 $5.18 7,718 Exercised (1,490) 5.18 (7,718) ----- ----- ------- Outstanding at December 31, 1996 - $ - $ - ====== ===== =======
-65- 31 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE L - STOCK OPTION PLANS (continued)
1982 PLAN OPTION NUMBER PRICE OF SHARES PER SHARE TOTAL Outstanding at January 1, 1994 6,206 $5.72 $35,445 Exercised (1,361) $5.44 (7,685) Effect of 5% stock dividend in 1994 259 - - ------ ------ ------ Outstanding at December 31, 1994 5,104 $5.44 27,760 Exercised (1,058) $5.44 (5,755) Effect of 5% stock dividend in 1995 202 - - ------ ------ ------ Outstanding at December 31, 1995 4,248 $5.18 $22,005 Exercised (4,081) $5.18 (21,140) Effect of 5% stock dividend in 1996 4 - - ------ ---- ------ Outstanding at December 31, 1996 171 $4.93 $ 843 ====== ===== =======
Additionally, in connection with the acquisition of First Ashland Financial Corporation, the stock options of First Ashland were converted into 160,772 options of Camco Financial Corporation stock at an exercise price of $12.24 per share which expire on October 25, 2005. As of December 31, 1996, none of these options had been exercised. On January 1, 1996, the Corporation adopted SFAS No. 123, "Accounting for Stock-Based Compensation," which contains a fair value-based method for valuing stock-based compensation that entities may use, which measures compensation cost at the grant date based on the fair value of the award. Compensation is then recognized over the service period, which is usually the vesting period. Alternatively, SFAS No. 123 permits entities to continue to account for employee stock options and similar equity instruments under Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." Entities that continue to account for stock options using APB Opinion No. 25 are required to make pro forma disclosures of net earnings and earnings per share, as if the fair value-based method of accounting defined in SFAS No. 123 had been applied. Such disclosures are not required for the Corporation since no stock options were granted in 1996. The Corporation's employee stock option plans are accounted for under APB Opinion No. 25. -66- 32 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE M - CAMCO FINANCIAL CORPORATION CONDENSED FINANCIAL INFORMATION The following condensed financial statements summarize the financial position of Camco Financial Corporation as of December 31, 1996 and 1995 and the results of its operations and its cash flows for each of the years ended December 31, 1996, 1995 and 1994: CAMCO FINANCIAL CORPORATION STATEMENTS OF FINANCIAL CONDITION December 31, (In thousands)
1996 1995 ASSETS Cash in subsidiary Banks $ 373 $ 685 Interest-bearing deposits in other financial institutions 1,230 - Investment securities available for sale 97 86 Investment in Bank subsidiaries utilizing the equity method 43,959 27,079 Investment in title agency subsidiary 339 232 Cash surrender value of life insurance 631 - Prepaid expenses and other assets 6 46 Prepaid federal income taxes 76 - ------- ------- Total assets $46,711 $28,128 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable and other accrued liabilities $ 1,319 $ 110 Dividends payable 368 207 Accrued federal income taxes - 118 Deferred federal income taxes 11 - ------- ------- Total liabilities 1,698 435 Stockholders' equity Common stock 3,063 1,971 Additional paid-in capital 21,917 5,735 Retained earnings - substantially restricted 20,005 19,936 Unrealized gains on securities designated as available for sale, net of related tax effects 28 51 ------- ------- Total stockholders' equity 45,013 27,693 ------- ------- Total liabilities and stockholders' equity $46,711 $28,128 ======= =======
-67- 33 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE M - CAMCO FINANCIAL CORPORATION CONDENSED FINANCIAL INFORMATION (continued) CAMCO FINANCIAL CORPORATION STATEMENTS OF EARNINGS Year ended December 31, (In thousands)
1996 1995 1994 Income: Dividends from Bank subsidiaries $2,264 $1,123 $ 870 Interest and other income 60 140 203 Equity in undistributed net earnings of the Bank subsidiaries 1,140 2,781 1,845 Equity in undistributed net earnings of title agency subsidiary 107 72 8 ------ ------ ------ Total income 3,571 4,116 2,926 General, administrative and other expense 912 607 496 ------ ------ ------ Earnings before federal income tax credits 2,659 3,511 2,430 Federal income tax credits (354) (137) (112) ------ ------ ------ Net earnings $3,013 $3,648 $2,542 ====== ====== ======
-68- 34 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE M - CAMCO FINANCIAL CORPORATION CONDENSED FINANCIAL INFORMATION (continued) CAMCO FINANCIAL CORPORATION STATEMENTS OF CASH FLOWS Year ended December 31, (In thousands)
1996 1995 1994 Cash flows provided by (used in) operating activities: Net earnings for the year $3,013 $3,648 $2,542 Adjustments to reconcile net earnings to net cash flows from operating activities: Undistributed net earnings of the Bank subsidiaries (1,140) (2,781) (1,845) Undistributed net earnings of title agency subsidiary (107) (72) (8) Decrease (increase) in other assets 40 (61) (16) Increase (decrease) in accounts payable and other liabilities 1,370 (88) (72) Increase (decrease) in current federal income taxes (194) (136) 35 Other - net (273) - - ------ ------ ------ Net cash provided by operating activities 2,709 510 636 Cash flows used in investing activities: Issuance of note receivable to Bank subsidiary - - (3,000) Repayment of note receivable from Bank subsidiary - 3,000 - Contribution of capital to Bank subsidiaries - (2,500) - Purchase of investment securities (20) (29) - Purchase of cash surrender value of life insurance (614) - - Net increase in cash surrender value of life insurance (17) - - Increase in interest-bearing deposits in other financial institutions (1,230) - - ------ ------ ------ Net cash provided by (used in) investing activities (1,881) 471 (3,000) Cash flows provided by (used in) financing activities: Proceeds from other borrowing 5,465 - - Repayment of other borrowing (5,465) - - Common stock options exercised 29 10 8 Dividends paid (1,169) (773) (580) Proceeds from offering of common stock - - 2,961 ------ ------ ------ Net cash provided by (used in) financing activities (1,140) (763) 2,389 ------ ------ ------ Net increase (decrease) in cash and cash equivalents (312) 218 25 Cash and cash equivalents at beginning of year 685 467 442 ------ ------ ------ Cash and cash equivalents at end of year $ 373 $ 685 $ 467 ====== ====== ======
-69- 35 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE M - CAMCO FINANCIAL CORPORATION CONDENSED FINANCIAL INFORMATION (continued) During 1994, the Corporation undertook an offering of common stock which was completed on December 28, 1994. The Corporation issued 231,000 shares of common stock in the offering at $14.50 per share. After giving effect to offering expenses of $379,000, the Corporation recognized a $3.0 million increase in stockholders' equity. NOTE N - SEGMENT INFORMATION The following table sets forth the Corporation's revenues, income before income taxes, and assets for each of its business segments for the years ended December 31, 1996, 1995 and 1994. For purposes of the table, "revenue" represents the sum of total interest income and total other income:
YEAR ENDED DECEMBER 31, 1996 1995 1994 (In thousands) Revenue: Banking $ 31,035 $ 26,827 $ 20,429 Mortgage banking 2,976 2,808 2,703 -------- -------- -------- Total business segments 34,011 29,635 23,132 Intersegment eliminations (1,155) (902) (795) -------- -------- -------- Total $ 32,856 $ 28,733 $ 22,337 ======== ======== ======== Earnings before income taxes: Banking $ 3,314 $ 4,092 $ 2,934 Mortgage banking 1,369 1,698 1,099 -------- -------- ------- Total business segments 4,683 5,790 4,033 Intersegment eliminations (174) (232) (180) -------- -------- -------- Total $ 4,509 $ 5,558 $ 3,853 ======== ======== ======== Assets-year-end: Banking $467,478 $344,177 $323,355 Mortgage banking 2,655 3,096 1,817 -------- -------- -------- Total business segments 470,133 347,273 325,172 Intersegment eliminations (683) (804) (545) -------- -------- -------- Total $469,450 $346,469 $324,627 ======== ======== ========
-70- 36 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE O - BUSINESS COMBINATION On October 4, 1996, the Corporation acquired First Ashland Financial Corporation utilizing the purchase method of accounting. First Ashland was dissolved upon consummation, with First Ashland's banking subsidiary, First Federal Bank for Savings, continuing operations as a wholly owned subsidiary of the Corporation. The results of First Federal Bank for Savings' operations subsequent to October 4, 1996 are included in the consolidated financial statements. Camco paid $13.2 million in cash and issued 987,247 of its common shares in connection with the acquisition, with the $3.7 million excess of the fair value of liabilities assumed over assets received, assigned to goodwill. Presented below are pro-forma condensed consolidated statements of earnings and earnings per share which have been prepared as if the acquisition had been consummated as of the beginning of each of the years ended December 31, 1996 and 1995.
1996 1995 (In thousands, except share data) (Unaudited) Total interest income $33,956 $31,442 Total interest expense 18,504 17,675 ------- ------- Net interest income 15,452 13,767 Provision for losses on loans 161 141 Other income 3,749 3,375 General, administrative and other expense 14,435 10,777 ------- ------- Earnings before income taxes 4,605 6,224 Federal income taxes 1,617 2,167 ------- ------- Net earnings $ 2,988 $ 4,057 ======= ======= Earnings per share $.96 $1.28 ==== =====
NOTE P - LEGISLATIVE DEVELOPMENTS The deposit accounts of the Banks and of other savings associations are insured by the FDIC through the Savings Association Insurance Fund ("SAIF"). The reserves of the SAIF were below the level required by law, because a significant portion of the assessments paid into the fund were used to pay the cost of prior thrift failures. The deposit accounts of commercial banks are insured by the FDIC through the Bank Insurance Fund ("BIF"), except to the extent such banks have acquired SAIF deposits. The reserves of the BIF met the level required by law in May 1995. As a result of the respective reserve levels of the funds, deposit insurance assessments paid by healthy savings associations exceeded those paid by healthy commercial banks by approximately $.19 per $100 in deposits in 1995. In 1996, no BIF assessments were required for healthy commercial banks except for a $2,000 minimum fee. -71- 37 CAMCO FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996, 1995 and 1994 NOTE P - LEGISLATIVE DEVELOPMENTS (continued) Legislation was enacted to recapitalize the SAIF that provided for a special assessment totaling $.657 per $100 of SAIF deposits held at March 31, 1995, in order to increase SAIF reserves to the level required by law. The Banks held $277.3 million in deposits at March 31, 1995, resulting in an assessment of approximately $1.8 million, or $1.2 million after tax, which was charged to operations in 1996. A component of the recapitalization plan provides for the merger of the SAIF and BIF on January 1, 1999. However, the SAIF recapitalization legislation currently provides for an elimination of the thrift charter or of the separate federal regulation of thrifts prior to the merger of the deposit insurance funds. As a result, First Federal and Ashland would be regulated as banks under federal laws which would subject it to the more restrictive activity limits imposed on national banks. Under separate legislation related to the recapitalization plan, the Banks are required to recapture as taxable income approximately $1.7 million of their bad debt reserve, which represents the post-1987 additions to the reserve, and will be unable to utilize the percentage of earnings method to compute the reserve in the future. The Banks have provided deferred taxes for this amount and will be permitted to amortize the recapture of the bad debt reserve in taxable income over six years. -72- 38 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Amendment No. 1 to this report to be signed on its behalf by the undersigned, thereunto duly authorized. Camco Financial Corporation By /s/ Anthony J. Popp ---------------------------- Anthony J. Popp, Principal Financial Officer, Senior Vice President and Director Date: April 2, 1997 -75- 39 INDEX TO EXHIBITS
ITEM DESCRIPTION Exhibit 23(i) Consent of Grant Thornton LLP regarding Camco's Consolidated Financial Statements and Form S-8
-76- EX-23.I 2 EXHIBIT 23(I) 1 ACCOUNTANTS' CONSENT We have issued our report dated February 19, 1997, accompanying the consolidated financial statements of Camco Financial Corporation which are incorporated within the Amendment No. 1 to the Annual Report on Form 10-KSB for the year ended December 31, 1996. We hereby consent to the incorporation by reference of said report in Camco's Form S-8 (33-88072). Grant Thornton LLP Cincinnati, Ohio April 2, 1997 -----END PRIVACY-ENHANCED MESSAGE-----